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0001015402-99-000281.txt : 19990329

0001015402-99-000281.hdr.sgml : 19990329

ACCESSION NUMBER:

0001015402-99-000281

CONFORMED SUBMISSION TYPE:

10KSB

PUBLIC DOCUMENT COUNT:

36

CONFORMED PERIOD OF REPORT:

19981231

FILED AS OF DATE:

19990326

FILER:

COMPANY DATA:

COMPANY CONFORMED NAME:

CENTRAL INDEX KEY:

STANDARD INDUSTRIAL CLASSIFICATION:



ABACAN RESOURCE CORP

0001001084

CRUDE PETROLEUM & NATURAL GAS



[1311]

IRS NUMBER:

FISCAL YEAR END:



000000000

1231



FILING VALUES:

FORM TYPE:

SEC ACT:

SEC FILE NUMBER:

FILM NUMBER:



000-26796

99574453



BUSINESS ADDRESS:

STREET 1:

STREET 2:

CITY:

STATE:

BUSINESS PHONE:



407 2ND STREET S W

SUITE 1600

CALGARY ALBERTA CANA

A0

2817210552



MAIL ADDRESS:

STREET 1:

STREET 2:

CITY:

STATE:





10KSB

1





10KSB



407 2ND STREET S W

SUITE 1600

CALGARY ALBERTA CANA

A0



================================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

---------------------FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

COMMISSION FILE NUMBER 33-99978

ABACAN RESOURCE CORPORATION

(Name of Small Business Issuer as Specified in its Charter)

ALBERTA, CANADA

(State or other Jurisdiction

of Incorporation or Organization)

SUITE 699, 3050 POST

(Address of Principal

(713) 479-9770

(Issuer's Telephone



(I.R.S. Employer

Identification Number)



OAK BLVD, HOUSTON,

Executive Offices)



Number,



Including



Area



TEXAS



77056

(Zip Code)



Code)



Securities registered under Section 12 (b) of the Exchange Act: None

Securities registered under Section 12 (g) of the Exchange Act: Common Stock,

without par

value

(Title of Class)

Check whether the Issuer (1) has filed all reports required to be filed by

Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such

shorter period that the Issuer was required to file such reports) and (2) has

been subject to such filing

requirements for the past 90 days.

Yes

X

No

Check if there is no disclosure of delinquent filers in response to Item

405 of Regulation S-B contained in this form, and no disclosure will be

contained, to the best of the Issuer's knowledge, in definitive proxy or

information statements incorporated by reference in Part III of this Form 10-KSB

or any amendment to this Form 10-KSB.

[X]

The Issuer's

$14,258,000.



revenues



for



the fiscal year ended December 31, 1998, were



The aggregate market value of the voting and non-voting common stock held

by non-affiliates of the Issuer, computed by reference to the closing sale price

of such common stock on the Nasdaq National Market as of February 1, 1999 was

$25,024,339.

The

December



Issuer had 114,370,836 common shares of common stock outstanding as of

31, 1998.









================================================================================

1998 ANNUAL REPORT (SEC FORM 10-KSB)

INDEX

Securities and Exchange Commission

Item Number and Description













PART I

Item 1



Business



1



Item 2

Item 3

Item 4



Properties

Legal Proceedings

Submission of Matters to a Vote of Security Holders



8

22

23



PART II

Item 5



Market for the Company's Common Stock and Related

Stockholder Matters

Management's Discussion and Analysis or Plan of Operation

Consolidated Financial Statements and Unaudited

Supplemental Information

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure



Item 6

Item 7

Item 8



23

25

41

72



PART III

Item 9



Item 12



Directors, Executive Officers, Promoters and Control

Persons of the Issuer; Compliance With

Section 16(a) of the Exchange Act

Executive Compensation

Security Ownership of Certain Beneficial Owners and

Management

Certain Relationships and Related Transactions



PART IV



AND SIGNATURES AND EXHIBIT INDEX



Item 13



Exhibits and Reports on Form 8-KSB

Signatures

Exhibit Index



Item 10

Item 11



72

73

73

74



75

76

77







PART I

ITEM



1.



CORPORATE



BUSINESS

STRUCTURE



Abacan Resource Corporation ("Abacan") is a limited company subsisting

under the Business Corporations Act (Alberta) that was created on February 10,

1995 following an amalgamation of five junior Canadian oil and gas companies

each of which, prior to the amalgamation, held certain rights to receive

production revenues and certain obligations to pay capital and operating costs

(collectively referred to as "Participating Interests") in the same oil and gas

concession properties located in the Federal Republic of Nigeria ("Nigeria").

Abacan currently has 14 wholly owned subsidiaries. These subsidiaries either

hold or, prior to the recent and ongoing restructuring of its affairs, held

certain rights to receive petroleum production revenues and certain obligations

to pay for exploration, development and operating costs (hereafter collectively

referred to as "Participating Interests") in Nigeria and the neighboring

Republic of Benin ("Benin"). See "Properties".

At the end of the most recently completed fiscal year, neither Abacan nor

any of its subsidiaries (collectively referred to hereafter as the "Company")

were subject to any bankruptcy or similar proceedings. However, the Company

does have outstanding debt obligations to secured and unsecured creditors and

may be in default of certain security agreements. In 1998, the Company

initiated a restructuring of its oil and gas operations and financial affairs

through: (1) the disposition of a number of its oil and gas properties and

related production facilities; (2) the reduction of operating, general and

administrative expenses; and (3) the reduction of a portion of the Company's

secured and unsecured debt. This restructuring is ongoing and in the future may

include the sale, farmout or other disposition of some or all of its oil and gas

properties. The Company currently has a significant working capital deficiency,

no appreciable revenues or cash flow and limited cash reserves. Therefore, the



Company believes that it must successfully attract new equity, debt, joint

venture partners, buyers, merger partners or a combination thereof in order to

remain viable and continue operations. See "History and Development of the

Business - Restructuring of Operations and Financial Affairs", "Management's

Discussion and Analysis of Financial Condition and Results of Operations - Risks

and Uncertainties - Liquidity" and "- Risks and Uncertainties - Financing

Risks".

HISTORY



AND



DEVELOPMENT



OF



THE



BUSINESS



General

- ------The Company's current business relates primarily to the exploration of oil

and gas properties located in West Africa. To date, the Company's operations

have included the acquisition of Participating Interests in concession blocks

located in both Nigeria and Benin and the exploration, development and

production of oil and condensate from concession blocks located in Nigeria. In

the case of Nigeria, the Participating Interests of the Company relate to oil

prospecting licences ("OPL") and oil mining leases ("OML") granted to several

different Nigerian companies with whom the Company has a number of separate

joint venture agreements. In Benin, the Participating Interests of the Company

are held pursuant to production sharing contracts ("PSC") granted by the Benin

Government.

-1

Prior to a reorganization of its oil and gas operations in June 1998, the

Company's operations were focused in two distinct geological regions - the Niger

Delta, Nigeria's prolific oil producing region located in south-central Nigeria,

and the Benin Basin, a largely unexplored area located in the coastal waters of

western Nigeria and Benin. Recently, the Company has focused its efforts on its

large Benin Basin holdings where negotiations are currently underway for the

establishment in Benin of a natural gas powered electrical generation plant that

is expected to utilize the natural gas resources identified in the Company's

Benin Basin concessions. The Company is also actively marketing the farm-out,

sale or other disposition of its properties to industry partners which is

expected will provide the financial resources necessary to explore and develop

the Company's prospects in the region. The Company has not undertaken research

and development activities during the past two fiscal years.

Acquisition, Exploration and Development of West African Oil and Gas Properties

- -------------------------------------------------------------------------------In December 1992, the Company acquired a Participating Interest in an

on-shore concession block located in Benin from Wade Cherwayko, a former

director and executive officer of the Company who, until that time had been

involved in his personal capacity in identifying opportunities to acquire

unallocated oil and gas concession properties in West Africa. Prior to

acquiring this Participating Interest, the Company had been involved in oil and

gas exploration activities in western Canada and the western United States but

had not earned any ownership interests in respect thereof. Following the

purchase of the Participating Interest in Benin from Mr. Cherwayko for common

stock, the Company initiated a program of additional acquisition and exploration

of petroleum properties in Nigeria and other countries in West Africa.

In June 1993, the Company acquired Participating Interests in Benin Basin

Concession Block OML 113 (formerly OPL 309) from Yinka Folawiyo Petroleum

Company Limited ("YFP") and Concession Block OPL 302 from another Nigerian

company. YFP is a company that is substantially owned by the father of Mr.

Tunde Folawiyo, a director of the Company. In August 1993, the Company acquired

a Participating Interest in offshore Concession Block OML 112 (formerly OPL

469). The Company then undertook an aggressive campaign to expand its

concession acreage in West Africa through the addition of Participating

Interests in Niger Delta Concession Blocks OPL 237 (located adjacent to OML 112)



and OPL 233, Benin Basin Concession Block OPL 310 in Nigeria and Benin Basin

Block 4 and Block 1 in Benin. See "- The Petroleum Industry in Nigeria and

Benin", AProperties" and "Certain Relationships and Related Transactions".

In February 1995, in order to consolidate its Participating Interests in

Concession Blocks OML 112, OML 113 and OPL 302, the Company amalgamated with

four other Canadian junior oil and gas companies, each of which at the time of

the amalgamation held Participating Interests in Blocks OML 112, OML 113 and OPL

302. The amalgamation resulted in the acquisition of the Participating

Interests of the amalgamating junior oil and gas companies by the Company.

Throughout 1994 and 1995, the Company conducted 2-D and 3-D seismic

programs on Blocks OML 112 and OPL 237 and a 2-D seismic program on Blocks OML

113 and OPL 310. The Company's first off-shore exploration well was

successfully drilled on the Ima Field on Block OML 112 in September 1994.

Between September 1994 and January 1997, the Company successfully drilled six

additional wells on the Ima Field and completed the construction and

installation of a mobile off-shore production facility capable of producing up

to 50,000 barrels of oil and condensate per day. Commercial production of crude

oil and condensate commenced from the Ima Field in January 1997. Production

levels from the Ima Field peaked at approximately 27,500 gross (13,400 net)

barrels of oil and condensate per day from six producing wells. In June 1996,

the Company signed a Crude Oil Sale Agreement pursuant to which a large

international crude oil marketing company agreed to market and sell the crude

production from the Ima Field. A total of 6.1 million gross (2.9 million net)

barrels of crude oil were produced and sold during the fiscal period ended

December 31, 1997. In fiscal 1998 prior to the disposition of the Company's

interest in June 1998, a total of 2.64 million gross (1.45 million net) barrels

of crude oil were produced and sold from the Ima Field.

-2

The Company drilled its first well in the Benin Basin on on-shore Block OPL

302 in December 1993. The well was not successful and the Company's

Participating Interest in the concession was allowed to expire in 1997. Between

November 1996 and March 1997, the Company successfully drilled two off-shore

wells on the Aje Field on Benin Basin Concession Block OML 113. The wells

tested maximum flow rates of 8,800 and 5,500 barrels of oil per day respectively

along with significant volumes of natural gas. Both wells have been shut-in

following testing pending the financing and construction of a suitable off-shore

production facility. See "Properties - Benin Basin - Drilling, Development and

Future Work Commitments".

Restructuring of Operations and Financial Affairs

- -----------------------------------------------------In June 1997 production rates from the Ima Field began to decline. It was

subsequently determined that the decline in production was attributable to

compartmentalization of the main producing zones and the absence of a strong

water drive for the Ima Field. In February 1998, Abacan appointed a new

President and Chief Executive Officer. A comprehensive reservoir analysis of

the Ima Field completed in the spring of 1998 suggested that the Ima Field was

no longer economically producible. The Company immediately initiated a

restructuring strategy in respect of its oil and gas operations and financial

affairs which both management and the Board of Directors considered essential to

maintain the financial viability of the Company. The Company's restructuring

strategy, which is ongoing, was comprised of a series of steps which included:

(1) the disposition of the Company's Participating Interests in the Ima Field;

(2) the sale or disposition of the Company's mobile offshore production unit

("MOPU") which was then being utilized on the Ima Field; (3) the reduction and

extension of the repayment terms of the Company's secured debt; (4) the

settlement of claims of trade and other unsecured creditors; (5) the reduction

of general and administrative expenses; and (6) the maximization of exploitation

opportunities with joint venture partners for the exploration and development of

the Company's large acreage position in the Benin Basin.



On June 30, 1998, the Company concluded the first two phases of its overall

restructuring strategy. Under the terms of a settlement agreement (the "Amni

Settlement Agreement") reached with its Nigerian partner, Amni International

Petroleum Development Company Limited ("Amni"), the Company relinquished all

rights and Participating Interests to the "shallow" zones of the Ima Field. At

the time of disposition, the "shallow" zones comprised all of the Company's

proved developed reserves in the Niger Delta and all of its petroleum

production. In exchange, Amni agreed: (1) to assume all outstanding unsecured

financial claims against the Company (including trade claims) related to the

development of the Ima Field; (2) to assume responsibility for ongoing and

future lease obligations with existing service providers to the Ima Field; (3)

to release the Company from certain financial obligations due or accruing under

the terms of the joint venture agreements between the Company and Amni valued at

approximately $20 million; and (4) to release the Company from any claims Amni

had to the MOPU. The Company retained a 10% Participating Interest in the "Deep

Ima Prospect" which is located below the producing shallow zones of the Ima

Field and which prospect was previously identified in 1997 by one of the

Company's exploration wells.

-3

Concurrent with concluding the terms of the Amni Settlement Agreement, the

Company conveyed its interest in the MOPU to a major international service

company in exchange for the extinguishment of approximately $18.8 million of

debt, representing all of the debt due from the Company to the international

service company. In connection with this settlement, the Company also

restructured an existing secured loan (the "Secured Loan"). The Secured Loan had

been previously advanced to the Company in August 1997 with the proceeds

therefrom being utilized to repay project financing used for the construction of

the MOPU and a portion of the exploration and development costs associated with

the Ima Field. The restructuring of the Secured Loan by the lender (the

"Secured Lender") enabled the Company to defer quarterly interest payments until

December 31, 1998 and to extend the maturity of approximately $20.1 million of

the loan until June 30, 1999, with the remainder of $10.6 million due on

December 31, 1999. The terms of its agreement with the major international

service company, provided that if a future sale price of the MOPU is above a

pre-determined threshold, a portion of the proceeds of sale will be applied to

reduce the Company's obligations under its existing Secured Loan.

Subsequent to December 31, 1998, the Company received confirmation from the

Secured Lender that the interest payment due December 31, 1998 had been

capitalized and that the first payment was amended to March 31, 1999. The

Secured Lender has since advised the Company that notwithstanding its written

extension, payment of the first interest instalment was due on December 31,

1998. The Company has not yet made this interest payment and is currently

negotiating with its Secured Lender regarding further relief from this and other

near-term cash interest payments. There is no assurance that such negotiations

will be successful. See "Management's Discussion and Analysis of Financial

Condition and Results of Operations - Risks and Uncertainties - Financing

Risks".

In July 1997, the Company increased its participating position in Benin

Block 4 and Block 1 to a 100% Participating Interest. This acquisition was

followed in June 1998 with the execution of a Letter of Intent with a major

international natural gas and electrical power generating company and the

Government of Benin for the development, construction, financing and operation

of a natural gas powered electrical generation power plant to be located in

Cotonou, Benin. Negotiations are ongoing to finalize the details of a power

plant that is expected to provide electrical energy to Benin and the

neighbouring countries of Togo and Ghana. Natural gas feedstock is expected to

be supplied from the Company's Benin Block 1 in Benin and the Aje Field in

Nigerian Block OML 113. The Company has drilled and tested significant gas

resources on the Aje Field that are awaiting development of a suitable market

before being classified as proved reserves. The Company believes that it will



require an industry partner to fund the costs of developing a natural gas market

and to fund the costs of developing the natural gas resources contained in the

Aje Field. See "Management's Discussion and Analysis of Financial Condition and

Results of Operations - Risks and Uncertainties - Liquidity".

THE



PETROLEUM



INDUSTRY



IN



NIGERIA



AND



BENIN



All of the Company's oil and gas properties are located in Nigeria and

Benin, both of which are developing third world nations that have experienced

periods of civil unrest and political and economic instability. The regulation

of the petroleum industry has been and is expected to continue to be affected by

economic and political events that occur in each country. Such events are

beyond the control of the Company and may adversely affect the future operations

of the Company.

Nigeria

- ------Overview

Oil has been produced in Nigeria by multinational companies since 1958 with

only limited interruptions despite periods of civil and political unrest. The

oil industry constitutes the most important segment of the Nigerian economy and

accounts for approximately 90% of the country's total exports and approximately

75% of total government revenue.

-4

The Company currently operates in Nigeria in conjunction with a number of

Nigerian companies (the "Nigerian Partners") under a program (the "Indigenous

Program") introduced in 1990 by the Nigerian Ministry of Petroleum Resources

(the "MPR") in an effort to increase production and domestic participation in

the country's oil industry. The Indigenous Program provides qualified,

privately owned Nigerian companies with both preferential treatment in the

allocation of available petroleum concession blocks and favourable economic

terms for the development of such blocks. Participating Nigerian companies are

permitted to establish revenue and cost sharing arrangements with foreign

companies that provide the technical expertise, operational support and

financial resources required for the exploration and development of the

concession blocks. In the case of the Company, such arrangements have been

established by way of joint venture agreements between the Company and its

various Nigerian Partners. As part of the Indigenous Program, the Nigerian

government receives a combination of production royalties and taxes and is not

required to fund any exploration or development costs. The Nigerian National

Petroleum Company is not involved in concession blocks awarded under the

Indigenous Program. See "Management's Discussion and Analysis of Financial

Condition and Results of Operations - Risks and Uncertainties - Nigerian

Regulation - Dependence Upon the Indigenous Program".

Regulation

All phases of oil exploration, development and production are regulated by

the Nigerian government either directly, through the MPR or through the Nigerian

Department of Petroleum Resources ("DPR") pursuant to the Petroleum Decree,

1969, under periodic policy statements issued by the Nigerian government and

through administrative practices of the DPR. Areas of government regulation

include restrictions on petroleum production, price controls, export controls,

taxes and royalties, expropriation of property, environmental protection and rig

safety. In addition, all petroleum drilling and production in Nigeria must be

approved in advance by the Nigerian government through the MPR or the DPR. In

the case of the Company, any future operations to be conducted on its Nigerian

concessions, including the establishment of a production facility on Block OML

113 and the export of natural gas to Benin will require MPR or DPR approval.

See "Management's Discussion and Analysis of Financial Condition and Results of

Operations - Risks and Uncertainties - Nigerian Regulation".



Under current Nigerian legislation, a petroleum concession is required for

a party to conduct petroleum exploration and development. Concessions may be

obtained directly from the MPR or from an existing concession owner, provided

that prior MPR approval to an assignment is obtained. Petroleum concessions

granted by the MPR consist of either an oil exploration license, an oil

prospecting licence ("OPL") or an oil mining lease ("OML"). Concession Blocks

are typically designated on the basis of whether they are subject to an OPL or

OML. An OPL gives the holder the exclusive right to conduct both seismic and

exploratory drilling operations within a concession block and the right to carry

away and dispose of petroleum produced during the term of the OPL. An OML is

issuable to the holder of an OPL following testing or production of a minimum of

10,000 barrels per day and the fulfilment of a number of other conditions and

requirements established by the MPR and DPR.

An OML provides the holder with an exclusive right to conduct exploration

and development drilling operations and to export petroleum produced on the

concession block for a term of up to 20 years. An OML may be renewed upon

application to the MPR. The Petroleum Decree, 1969 contains provisions that

require the holder of an OML to relinquish 50% of the geographic area

encompassed by the OML after 10 years upon the request of the MPR. The acreage

to be relinquished is identified by the holder of the OML and not the MPR. The

Nigerian government may also elect, during the currency of an OML or OPL to

directly participate in the concession, which could result in a reduction of the

Participating Interest of the Company. The Petroleum Decree, 1969 does not

specify the maximum level of government participation. See " Management's

Discussion and Analysis of Financial Condition and Results of Operations - Risks

and Uncertainties - Nigerian Regulation - Government Right of Participation".

-5

The Company's current Participating Interests in Nigeria exist pursuant to

the terms of joint venture agreements between the Company and its Nigerian

Partners. In the case of Concession Block OML 113, an OML was issued to YFP for

this block on July 3, 1998. The OPL for Concession Block OPL 310 has expired,

however, at the request of the Company's Nigerian Partner, the DPR confirmed in

February 1997 that the OPL was in good standing. Nothing has been received by

the Company or to the Company's knowledge, by its Nigerian Partner that would

indicate that either the MPR or DPR consider OPL 310 not to be valid or in good

standing at the current time. See "Properties - Benin Basin" and "Management's

Discussion and Analysis of Financial Condition and Results of Operations - Risks

and Uncertainties - Nigerian Regulation - Assignment of Interests Under Joint

Venture Agreements" and "Risks and Uncertainties - Nigerian Title Issues".

Revenues generated from petroleum operations are subject to a number of

tax/royalty regimes. Under the Indigenous Program, the fiscal regime consists

of a production royalty and an adjusted profits tax. The payment of the royalty

to the Nigerian Government is dependant upon the levels of petroleum production

and is determined on the basis of the chargeable value of the crude oil produced

less an allowance for oil used in the extraction process. Royalty rates vary

depending upon whether the concession is on-shore or off-shore and, in the case

of off-shore concession, the average water depth of the concession. A royalty

of 20% is applicable to on-shore concessions reducing to no royalty for

concessions situated in over 1000 metres of water. The royalty applicable to

the Company's Nigerian concessions OML 113 and OPL 310 have not yet been

formalized but are expected to be not greater than 15%.

In addition to the royalty, producers are subject to a tax on adjusted

petroleum profits. Adjusted petroleum profits consist generally of revenues

from petroleum sales less operational expenses and certain capital costs

(including drilling costs). The Petroleum Profits Tax Act, 1969, prescribes a

petroleum profits tax rate of 85%. The Company understands that a reduced

petroleum profits tax rate may be applicable to concession blocks awarded under

the Indigenous Program. Any changes to the current royalty regime or the

Petroleum Profits Tax Act, 1969 or their applicability to the Indigenous Program



will affect the Company. See "Management's Discussion and Analysis of Financial

Condition and Results of Operations - Risks and Uncertainties - Nigerian

Regulation - Uncertainty Regarding Tax and Royalty Arrangements".

Benin

- ----The Benin petroleum industry is less developed than the Nigerian petroleum

industry. Petroleum exploration started in Benin in 1964 and has been focused

primarily in the off-shore area of the Benin Basin. The country's first major

discovery occurred in 1982 with the discovery of the Seme Field located

off-shore near the Nigerian border. There has been a number of significant

off-shore discoveries made recently on the Nigerian side of the Benin Basin

(including the Company's discovery on OML 113) which has heightened interest in

Benin's petroleum sector in recent years.

Regulation

Responsibility for the regulation and control of the petroleum industry in

Benin rests with the national government pursuant to the Petroleum Code of the

Republic of Benin and the administrative decrees and ordinances established

thereunder (collectively, the "Benin Petroleum Code"). Regulation of

exploration, exploitation, title, transportation, marketing and taxation of

petroleum rests with the Ministry of Energy, Mines and Hydraulics (the "Benin

Oil Ministry"). All drilling and production and other petroleum operations in

Benin require prior approval of the Benin Oil Ministry. Consequently, any

future operations to be conducted on its Benin concessions, including the

drilling of exploration wells on Block 1 and Block 4, will require the prior

approval of the Benin Oil Ministry.

-6

The Company's current Participating Interests in Benin exist pursuant to

separate Production Sharing Contracts for Block 1 and Block 4 between the

Company and the Government of Benin. Each of the PSC's establish a minimum work

commitment that must be met by the Company. In the case of Block 1, the minimum

work commitment includes the drilling of one well and the completion of a

seismic program by the end of February 1999. The requisite work commitments for

Block 1 were not satisfied by the February 1999 deadline. The Company is

currently negotiating an extension with the Benin Oil Ministry and risks the

loss of its Participating Interest in Block 1 should an extension not be

secured. In the case of Block 4, the minimum work commitment includes and the

completion of a seismic program which has been satisfied, and the drilling of

one exploratory well by the end of February 2002. The Company believes that it

will require an industry partner to fund the requisite minimum work commitments

associated with Blocks 1 and 4. See "Management's Discussion and Analysis of

Financial Condition and Results of Operations - Risks and Uncertainties Liquidity" and A - Risks and Uncertainties - Benin Title Issues".

COMPETITIVE



AND



INDUSTRY



CONDITIONS



The oil and gas industry is intensely competitive and the Company will

continue to compete with a substantial number of other companies, many of whom

have greater technical, financial and other resources. Many such companies not

only explore for and produce crude oil and natural gas, but also carry on

refining operations and market oil, natural gas and other products on a

worldwide basis.

The Company does not currently own production facilities or refining

operations and will rely upon other parties to produce, market and refine any

future petroleum production. Due to the changes in the affairs of the Company

arising out of its recent restructuring, the Company will have to secure

adequate sources of funding to retain the services of such parties. In the case

of the Benin Basin Concessions, there is currently no market for the Company's

natural gas resources. Subject to completion, the establishment of a natural



gas electrical generation project currently being negotiated is expected to

create a market. The electrical generation project has not yet been formally

approved, financed or constructed. There is no assurance that the project will

be approved, or if approved, that it will be successfully completed. If

completed, the project will rely upon an electrical distribution network that is

owned by the governments of Benin, Togo and Ghana as well as other third

parties. If a sustainable market for the Company's natural gas is created, the

Company will have to finance and construct or rely on other parties to finance

and construct a suitable production facility and natural gas pipeline to the

natural gas electrical generation project. There are currently other sources of

electricity which may affect the amounts that can be generated and sold which in

turn will affect demand for the Company's natural gas resources. See

"Management's Discussion and Analysis of Financial Condition and Results of

Operations - Risks and Uncertainties - Benin Regulation".

ENVIRONMENTAL



PROTECTION



The Company's operations are and will continue to be affected in varying

degrees by legislation intended to ensure the protection of the environment.

Much of Nigeria's and Benin's environmental legislation is administered by the

DPR and the Benin Oil Ministry, respectively. These government departments may

require environmental impact assessments prior to granting approval for certain

larger scale or environmentally sensitive activities or may impose restrictions

or prohibitions on releases or emissions of various substances generated by the

Company's oil and gas operations or any future electrical generation project.

Compliance with such legislation or administrative requirements may require

significant expenditures and the breach of such requirements may result in the

imposition of material fines and penalties. Guidelines and regulations continue

to be developed and implemented by the DPR, Benin Oil Ministry and other

government ministries in areas of waste management, contaminated sites,

environmental impact assessments and habitat protection.

-7

The Company believes that its Nigerian and Benin operations have at all

times complied in all material respects with applicable Nigerian and Benin

legislation and administrative requirements relating to safety and environmental

protection. The costs of such compliance has been included as either capital

expenditures or operating costs. The Company intends to continue conducting its

operations in both Nigeria and Benin in a manner that complies with

environmental standards imposed by the DPR and the Benin Oil Ministry and all

applicable legislation.

EMPLOYEES

At December 31, 1998, the Company had 7 employees and consultants in

Houston, 3 consultants in Calgary and 22 employees and consultants in London,

Benin and Nigeria. None of the Company's employees or consultants are party to

a collective bargaining agreement.

ITEM



2.



PROPERTIES



OVERVIEW

Between 1993 and 1997, the Company acquired Participating Interests in

eight oil and gas concession blocks in the Benin Basin and Niger Delta. In the

case of its Nigerian concession blocks, the Participating Interests of the

Company are held pursuant to joint venture agreements with the Company's

indigenous Nigerian Partners who in turn have been issued oil prospecting

licences or oil mining leases from the MPR. In the case of its two concession

blocks located in Benin, the Participating Interests of the Company are held

pursuant to two separate production sharing contracts directly between the

Company and the national Government of Benin. Participating Interests in two of

the Company's Nigerian concession blocks have been subsequently surrendered or

released by the Company. Consequently, at the end of the most recently



completed financial year, the Company held Participating Interests in six

concession blocks, two of which were located in the Niger Delta and four of

which were located in the Benin Basin. See "Niger Delta - Cost Obligations and

Revenue Interests" and "Benin Basin - Cost Obligations and Revenue Interests".

NIGER



DELTA



Recent



Events



Prior to June 1998, all of the Company's proven reserves and all of its

production came from the Ima Field located in Niger Delta Concession Blocks OML

112 and OPL 237. In June 1998, following an assessment that the shallow

producing zones of the Ima Field were no longer economic, the Company began to

restructure its oil and gas operations and in so doing, relinquished

substantially all of its Participating Interest in Nigerian Blocks OML 112 and

OPL 237. The only interest retained in the blocks by the Company is a 10%

Participating Interest in the Deep Ima Prospect located beneath the existing

producing zones of the Ima Field. There are no reserves allocated to the Deep

Ima Prospect. In January 1998, the Company cancelled its joint venture

agreement in respect of Concession Block OPL 233.

As a consequence of this ongoing restructuring, at the end of the most

recently completed financial year, the Company has no Participating Interests or

production from the Niger Delta with the exception of a 10% working interest in

the Deep Ima Prospect. PERSONS READING THIS DOCUMENT SHOULD NOTE THAT THE

PARTICIPATING INTERESTS ATTRIBUTABLE TO THE COMPANY IN THE NIGER DELTA AND

DISCUSSED IN THIS SECTION WERE DISPOSED OF AND THAT WITH THE EXCEPTION OF THE

INTEREST HELD IN THE DEEP IMA PROSPECT, ARE NO LONGER HELD BY THE COMPANY. See

"Business - History and Development of the Business - Restructuring of

Operations and Financial Affairs".

-8

Location

Prior to the disposition of its Participating Interests on June 30, 1998,

the Company held Participating Interests in adjoining Niger Delta Concession

Blocks OML 112 and OPL 237. Concession Blocks OML 112 and OPL 237 are located

approximately six miles off the coast of south-central Nigeria, cover an area of

approximately 150,000 acres, and are in the vicinity of a number of Nigeria's

largest oil producing fields, including Mobil's Oso and Kpono Fields; Shell's

Bonny, Opobo and Kalaekule Fields; and Elf Aquitaine's Ameram Field.

Prior to the cancellation of its joint venture agreement in early January

1998, the Company also held a Participating Interest in Niger Delta Concession

Block OPL 233. Concession Block OPL 233 covers an area of approximately 30,000

acres and is located along the Nigerian coastline 100 miles northwest of

Concession Blocks OML 112 and OPL 237 in the vicinity of Texaco's producing

Middleton, North Apoi and Pennington Fields.

Participating



Interests



An oil prospecting licence for Concession Block OPL 237 was granted by the

MPR to Amni in December 1994. An OML for Concession Block OML 112 (formerly

Concession Block OPL 469) was issued to Amni in February 1998 following a prior

grant of an OPL for the concession block in August 1993. The Company acquired

its Participating Interests in Concession Blocks OML 112 and OPL 237 pursuant to

joint venture agreements signed with Amni in August 1993 and December 1994

respectively. On June 30, 1998, the existing joint venture agreements for

Blocks OML 112 and OPL 237 were terminated with the consent of Amni and replaced

by a new joint venture agreement (the "June 1998 JVA") which granted a 10%

Participating Interest to the Company restricted to the Deep Ima Prospect.

An OPL for

Products Company



Concession Block OPL 233 was granted by the MPR to Petroleum

Limited ("PPCL") in August 1993. The Company acquired a



Participating Interest in Concession Block OPL 233 through a joint venture

agreement with PPCL signed in November 1996. The joint venture agreement was

terminated by mutual consent of the Company and PPCL in January 1998 with no

work having been performed by the Company on the block.

Drilling,



Development



and



Production



Prior to the disposition of its Participating Interests in the Niger Delta,

the Company had drilled 10 exploratory and development wells in the region. The

following table provides a summary of the wells drilled and completed by the

Company in the Niger Delta:

-9





TOTAL VERTICAL DEPTH

CONCESSION BLOCK WELL NAME DATE COMPLETED

(FEET)

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







OML 112

NGO #3

September 1994

11,400

OML 112

NGO #4

November 1994

11,400

OML 112

NGO #5

March 1995

11,450

OPL 237

Ima #1

May 1995

11,600

OPL 237

Ima #2

November 1995

11,400

OPL 237

Ima #6

June 1997

12,350

OPL 237

Ima #7

August 1997

10,735

OML 112

Ima #8

October 1997

11,380

OML 112

Ima #9

February 1998

12,940

OPL 237

Ima #10

April 1998

10,765

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


The Company commenced commercial production of oil and condensate from the

Ima Field in January 1997. During the most recently completed fiscal year, a

total of approximately 2.64 million gross (1.45 million net) barrels were

produced from the Ima Field prior to the disposition of the Company's

Participating Interest in June 1998. Production levels from the Ima Field for

1998 prior to the disposition averaged approximately 14,600 gross (8,050 net)

barrels of oil per day.

The following table sets forth the average sales price (including

transfers) and the average production cost per barrel of oil produced since the

commencement of production in January 1997 to the disposition of the Company's

Participating Interest in the Ima Field on June 30, 1998.





Year Ended

----------------------------------------December 31, 1997

December 31, 1998(1)

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



$

17.56 $

12.22

$

13.61 $

14.94





Average Sales Price per Barrel

Average Production Cost per Barrel



- ---------------------------------(1)

Reflects production to June





30,



1998



Oil and condensate produced from the Ima Field was lifted and sold pursuant

to a Crude Oil Sale Agreement signed in August 1996 (amended July 1997) between

the Company, Amni and a large international crude oil marketing company. The

sale price under the Crude Oil Sale Agreement was linked to world markets prices

for crude oil and was payable in U.S. dollars outside of Nigeria through a bank



in Europe. As part

terminated effective

Cost



Obligations



and



of the restructuring, the Crude Oil Sale Agreement was

June 30, 1998. See "- Marketing and Sale of Petroleum".

Revenue



Interests



The Company's Participating Interests in Concession Blocks OML 112 and OPL

237, (both before and after the disposition of its Participating Interest in the

shallow zones of the Ima Field) are held by subsidiaries and consist of an

obligation to pay for exploration and development costs ("Cost Obligation") and

an entitlement to receive revenues from the sale of production ("Revenue

Interest"). Prior to the signing of the June 1998 JVA with Amni, the Cost

Obligation and Revenue Interest of the Company varied depending upon whether

Payout has been reached on the applicable concession block. The June 1998 JVA

establishes the same Cost Obligation and Revenue Interest both before and after

Payout.

-10

A summary of the Company's Cost Obligation and Revenue Interest in its

Niger Delta concessions both before and after the disposition of its

Participating Interests in June 1998 is outlined in the tables below. In all

cases, the Revenue Interest is after giving effect to gross overriding royalties

(or their equivalent) payable to third parties. Royalties are payable on Blocks

OML 112 and OPL 237 to a company controlled by Wade Cherwayko, a former senior

executive officer and director of the Company. A royalty is also payable on all

of the Niger Delta concessions to YFP, a company substantially controlled by the

father of Tunde Folawiyo, a current director of the Company. See "Certain

Relationships and Related Transactions".

Prior



to



June



30,



1998







BEFORE PAYOUT

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



AFTER PAYOUT

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



-----------CONCESSION

COUNTRY REVENUE INTEREST

COST OBLIGATION

REVENUE INTEREST

COST

OBLIGATION

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











Block OML 112

Nigeria

49.7%(2)

100.0%

25.3%(2)

40.0%

Block OPL 237

Nigeria

48.7%(2)

100.0%

24.8%(2)

40.0%

Block OPL 233(1) Nigeria

48.5%(3)

100.0%

24.1%(3)

40.0%



Subsequent



to



June



30,



1998







BEFORE PAYOUT

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



AFTER PAYOUT

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



-----------CONCESSION

COUNTRY REVENUE INTEREST

COST OBLIGATION

REVENUE INTEREST

COST

OBLIGATION

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











Block OML 112(4) Nigeria

10.0%(5)

10.0%

10.0%(5)

10.0%

Block OPL 237(4) Nigeria

10.0%(5)

10.0%

10.0%(5)

10.0%





- ---------------------------------(1)

Reflects Cost Obligation and Revenue Interest to January 30, 1998 at which

time the Joint

Venture Agreement between the Company and PPCL was terminated by mutual consent.

No work was

performed or expenditures incurred by the Company on Concession Block OPL

233.

(2)

Revenue Interest gives effect to (i) the interest of the Company's Nigerian

Partner, (ii)

combined government royalties and taxes of 30% both before and after Payout and (iii)

a number of

gross overriding royalties that vary from concession to concession and range between

approximately

6.4% and 5.3% before Payout and 3.2% and 2.6% after Payout. A portion of the

total gross

overriding royalties are held by a company controlled by Wade Cherwayko, a former

senior executive

officer and director of the Company and by YFP, a company substantially controlled by

the father of

Tunde Folawiyo, a director of the Company. Tunde Folawiyo is also an executive

officer of YFP.

(3)

The Revenue Interest shown gives effect to the Company's proportionate

share of (i)

combined government royalties and taxes of 30% both before and after payout and (ii)

a number of

gross overriding royalties equal to approximately 6.5% before Payout and 3.9%

after Payout. A

portion of the total gross overriding royalties is payable to YFP.

(4)

The joint venture agreements governing the Company's participation in its

Niger Delta

concessions reserve to the Nigerian government the right to acquire a Participating

Interest in

each of the respective concession blocks. If the Nigerian government elects to

participate, the

Company's after-Payout Revenue Interest could be reduced to approximately 8.0% after

accounting for

the interests of others. In such an event, there would be a corresponding

reduction in the

Company's after-Payout Cost Obligation. See "Management's Discussion and Analysis

of Financial

Condition and Results of Operations - Risks and Uncertainties - Nigerian Regulation

- Government

Right of Participation".

(5)

Excludes applicable gross overriding royalties or their equivalent

payable to others

(including YFP and a company controlled by Wade Cherwayko). The level of the

royalties is

currently under review by the Company as a result of the signing of the June 1998

JVA and the

Company anticipates re-negotiating the levels of royalties held by royaltyholders prior to

commencing any further operations on the Deep Ima Prospect.



BENIN



BASIN



Location

The Benin Basin is a large geological region located along the western

coastal region of Nigeria and much of offshore Benin. In Nigeria, the Company's

Benin Basin concessions consist of adjoining offshore Concession Blocks OML 113

and OPL 310. In Benin, the Company's Benin Basin concessions consist of

offshore Concession Block 1 and Block 4, located adjacent to Nigerian Concession

Block OML 113. Concession Block 1 encompasses the area around and below the



producing zones of the Seme Field. Concession Block 4, located further offshore

than Concession Block 1 spans from the Nigerian border on the east to the Togo

border on the west.

-11

Participating



Interests



In Nigeria, an OML for Concession Block OML 113 (formerly OPL 309) was

issued to YFP in July 1998 following the prior grant of an OPL for the

concession block in June 1991. YFP is a company that is substantially

controlled by the father of Tunde Folawiyo, a director of the Company. Tunde

Folawiyo is also an executive officer of YFP. An OPL for Concession Block OPL

310 was granted to Optimum Petroleum Development Limited ("Optimum") by the MPR

in February 1992. The Company acquired its Participating Interest in Concession

Block OML 113 in June 1993 pursuant to a joint venture agreement with YFP and in

Concession Block OPL 310 in December 1996 pursuant to a joint venture agreement

with Optimum. The OPL for Block OPL 310 expired in February 1997 however, at

the request of Optimum, the DPR confirmed in February 1997 (subsequent to the

expiry date) that the OPL continued to be in good standing notwithstanding the

expiry of its formal term. Nothing has been received by the Company or, to the

knowledge of the Company, by Optimum subsequent to February 1997 that would

indicate that the MPR or DPR consider OPL 310 not to be valid or in good

standing at the current time. To maintain its Participating Interest in

Concession Block OPL 310, the Company is required to satisfy certain future work

commitments. See "Management's Discussion and Analysis of Financial Condition

and Results of Operations - Risks and Uncertainties - Nigerian Title Issues Expiration or Cancellation of Nigerian Oil Prospecting Licences".

In Benin, the Company and Addax Petroleum Benin Limited ("Addax Benin")

executed a Production Sharing Contract in respect of Benin Block 1 (the "Block 1

PSC") and Benin Block 4 (the "Block 4 PSC") in February 1997. On September 30,

1997, the Company acquired all of Addax Benin's Participating Interest in the

Block 1 PSC and Block 4 PSC. To maintain its Participating Interest in Block 1

and Block 4, the Company is required to satisfy certain future work commitments.

See "Management's Discussion and Analysis of Financial Condition and Results of

Operations - Risks and Uncertainties - Benin Title Issues".

The Company has paid total acquisition fees of approximately $9.125 million

for its Participating Interests in the Benin Basin concessions. With the

conversion of OPL 309 into OML 113 in July 1998, an additional $5.0 million in

acquisition fees is payable to YFP out of a portion of the Company's share of

future production revenues. YFP is a company that is substantially controlled

by the father of Tunde Folawiyo, a director of the Company. Tunde Folawiyo is

also an executive officer of YFP. On Concession Block OPL 310, $1.0 million is

payable to Optimum within nine months following testing of the first exploration

well and $2.0 million following commencement of production.

Drilling,

on



Development



and



Future



Work



Commitments



The following table provides a summary of the wells drilled by the Company

its Benin Basin concessions since 1996:







CONCESSION

TOTAL VERTICAL DEPTH

BLOCK

WELL NAME DATE COMPLETED

(FEET)

FLOW RATE (BOPD)(1)

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









OML 113

AJE #1

November 1996

7,605

5,500

OML 113

AJE #2

March 1997

11,551

8,800



- ---------------------------------(1)

Flow rate results are from testing only and are not necessarily

indicative of flow rates that may be realized during production. Results shown



include oil and condensate but not natural gas. Testing and compilation of the

test results from the Company's wells was conducted by Schlumberger.



-12

The Company has fulfilled its minimum work obligations in respect of

Concession Block OML 113. However, significant additional expenditures will

have to be incurred by the Company under the terms of its joint venture

agreement with YFP in order to produce the petroleum resources identified in OML

113. Most notably, the Company will have to establish or secure a market for

the natural gas identified in the Aje Field of Block OML 113, secure a suitable

floating off-shore production facility and finance, construct or lease a

pipeline to an on-shore market. There is no assurance that the Company will,

by itself or with others, be able to establish a suitable market for the

petroleum resources contained in the Aje Field of Block OML 113 or that it will

be able to secure a production facility or construct a pipeline necessary to

produce such resources. See " - Cost Obligations and Revenue Interests" and

"Management's Discussion and Analysis of Financial Condition and Results of

Operations - Risks and Uncertainties - Liquidity".

On Concession Block OPL 310, the Company is required to complete a minimum

work program consisting of three wells and a seismic program. The obligation of

the Company to initiate expenditures towards the minimum work program commences

after receipt of applicable government approval for the joint venture agreement

between the Company and Optimum. The OPL for Concession Block OPL 310 has

expired and Optimum has not yet secured an extension or replacement OPL or the

requisite government approval for the joint venture agreement. Optimum has

advised the Company that it wishes the Company to proceed with fulfilling its

minimum work commitment in advance of receipt of requisite government approvals.

In Benin, the work commitments of the Company are set out in the Block 1

PSC and Block 4 PSC. In the case of Block 1, the Company is required to drill

one well and complete a seismic program by the end of February 1999. The

requisite work commitment for Block 1was not satisfied by this deadline. The

Company is currently negotiating an extension with the Benin Ministry and risks

the loss of its Participating Interest in Block 1 if an extension is not

secured. In the case of Block 4, the Company is required to drill one well and

complete a seismic program by February 2002. The Company has satisfied the

seismic commitment but not the drilling commitment. See "Management's

Discussion and Analysis of Financial Condition and Results of Operations - Risks

and Uncertainties - Benin Title Issues" and "- Risks and Uncertainties Liquidity".

In June 1998, the Company entered into a Letter of Intent with a subsidiary

of a major international natural gas producing and electrical power generating

company and the Government of Benin for the development, financing, construction

and operation of an electrical generation power plant to be located in Cotonou,

Benin. Under the terms of the Letter of Intent, natural gas feedstock for the

project is expected to be supplied from the Company's Aje Field natural gas

resources identified on Nigerian Block OML 113 and from Block 1 in Benin.

Negotiations are continuing towards the signing of a definitive Power Purchase

Agreement. See "Management's Discussion and Analysis of Financial Condition and

Results of Operations - Risks and Uncertainties - Benin Regulation".

Cost



Obligations



and



Revenue



Interests



The Company's Participating Interests in the Benin Basin, consisting of a

Cost Obligation and Revenue Interest, are held by the Company pursuant to joint

venture agreements with its Nigerian Partners in Nigeria and pursuant to the

Block 1 PSC and Block 4 PSC in Benin. The Cost Obligation and Revenue Interest

of the Company vary based upon whether Payout has been reached on the applicable

concession block.

-13-





The joint venture agreements with the Nigerian Partners generally provide

that, as part of its Cost Obligation, the Company must fund all exploration and

development costs before Payout and 40% of all such costs after Payout.

Provided there is production from a concession block, the Company is entitled to

55% of revenues before Payout and 28% after Payout (before accounting for gross

overriding royalties or their equivalent payable to others). The balance of

revenues before Payout is payable as to 30% to the Nigerian government for taxes

and royalties and as to 15% to the Nigerian Partner. There is a pro-rata

adjustment mechanism in place should applicable government royalties and taxes

be less than 30% of total revenues. The Company's Nigerian Partner on Block OML

113 is YFP, a Company substantially controlled by the father of Tunde Folawiyo,

a director of the Company.

In Benin, the PSC's with the Government of Benin require the Company to

fund 100% of all exploration and development costs of a prescribed minimum work

program. Petroleum costs (to a prescribed maximum) are recoverable out of

future production sale proceeds after payment of a 12.5% crude oil production

royalty to the Benin Government. Remaining crude is subject to a sliding scale

allocation between the Company and the Benin Government based upon daily

production. The Company is also subject to a tax on corporate profits and to an

export revenue tax.

its



A summary of the Company's Revenue Interest and Cost Obligation in each of

Benin Basin concessions is set forth below.







BEFORE PAYOUT

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



AFTER PAYOUT

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



-----------CONCESSION

COUNTRY REVENUE INTEREST

COST OBLIGATION

REVENUE INTEREST

COST

OBLIGATION

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











Block OML 113(1) Nigeria

52.5%(2)

100.0%

26.7%

40.0%

Block OPL 310(1) Nigeria

48.5%

100.0%

24.7%

40.0%

Block 1/Seme

Benin

69.0%(3)(5)

100.0%(3)(5)

50.0%(5)

100.0%(3)(5)

Block 4

Benin

75.0%(4)(5)

100.0%(4)(5)

50.0%(4)(5)

100.0%(4)(5)



- ---------------------------------(1)

The agreements governing the Company's participation in Blocks OML 113 and OPL

310 reserve

to the Nigerian government the right to acquire a Participating Interest in each of

the respective

concession blocks. If the Nigerian government elects to participate, the Company's

after-Payout

Revenue Interest could be reduced to 20.0% after accounting for the interests of

others. In such

an event, there would be a corresponding reduction in the Company's after-Payout Cost

Obligation.

See "Management's Discussion and Analysis of Financial Condition and Results of

Operations Management's Discussion and Analysis of Financial Condition and Results of Operations

- Risks and

Uncertainties - Government Right of Participation."

(2)

The Revenue Interest set forth above gives effect to (i) the interest held by

the Company's

Nigerian Partner, (ii) government royalties and taxes both before and after Payout



and (iii) a

number of gross overriding royalties that vary from concession to concession and range

from 6.4% to

2.5% before Payout and 3.2% to 1.3% after Payout. Certain of these gross overriding

royalties are

held by a company wholly owned by Wade Cherwayko, a former executive officer and

director of the

Company.

(3)

Under the terms of the Block 1 PSC, the Company is responsible for

payment of all

exploration and development costs of a prescribed minimum work program. Petroleum

costs incurred

by the Company are recoverable out of future proceeds of production after payment of a

12.5% crude

oil production royalty. In any particular year, cost recovery is limited to 69% of

total crude oil

sale proceeds. The balance of crude oil sale proceeds ("Profit Oil") is allocated

between the

Company and the Government of Benin based upon total daily production in

accordance with the

following progressive scale:

AVERAGE DAILY

- -----------------PRODUCTION (BOPD)

GOVERNMENT SHARE

COMPANY SHARE

- ------------------ ----------------- -------------0 to 5,000

50%

50%

5,001 to 10,000

55%

45%

10,001 to 20,000

60%

40%

20,001 to 50,000

65%

35%

50,000 to 100,000

70%

30%

Over 100,000

75%

25%

(4)

Under the terms of the Block 4 PSC, the Company is responsible for

payment of all exploration and development costs of a prescribed minimum work

program.

Petroleum costs incurred by the Company are recoverable out of future

proceeds of production after payment of a 12.5% crude oil production royalty.

In any particular year, cost recovery is limited to 75% of total crude oil sale

proceeds. The balance of crude oil sale proceeds ("Profit Oil") is allocated

between the Company and the Government of Benin based upon total daily

production in accordance with the following progressive scale:

-14

Oil

AVERAGE DAILY

- ----------------PRODUCTION (BOPD) GOVERNMENT SHARE

COMPANY SHARE

- ----------------- ----------------- -------------0 to 100,000

50%

50%

over 100,000

55%

45%

Condensate

AVERAGE DAILY

- ----------------PRODUCTION (BOPD) GOVERNMENT SHARE

COMPANY SHARE

- ----------------- ----------------- -------------0 to 100,000

45%

55%

over 100,000

50%

50%

(5)

the



The Company may also be subject to a 55% tax on profits received from

sale of petroleum (after full cost recovery including capital and operating



costs). An export revenue tax of 3.12% of the FOB value of the petroleum sold

is also applicable to petroleum exported to a location outside of Benin.



RESERVES

Niger Delta

- -----------The following table sets forth certain summary information at December 31,

1997 contained in the Reserve Report prepared by Gilbert Laustsen dated April

13, 1998 of the gross and the Company's net oil and condensate reserves and the

Present Value of such reserves on a constant price and cost basis after

adjustment for applicable Nigerian taxes and royalties, as understood by the

Company and gross overriding royalties or their equivalent and interests held by

the Company's Nigerian Partners. ALL OF THE RESERVES REFERENCED IN THE RESERVE

REPORT WERE DISPOSED OF BY THE COMPANY ON JUNE 30, 1998 AS PART OF THE ONGOING

REORGANIZATION OF ITS OIL AND GAS OPERATIONS.

All of the Company's reserves reflected in the Reserve Report relate to the

Ima Field located on Concession Blocks OML 112 and OPL 237. The Reserve Report

also identified natural gas reserves, however, such reserves have not been

assigned economic value as no market currently exists. No Reserve Report has

been filed by the Company with any U.S. or Canadian Federal regulatory agency

since the beginning of the last fiscal year.

The Reserve Report revises previous reserve reports prepared by Gilbert

Laustsen dated August 1, 1995, November 15, 1995, September 1, 1996 and May 13,

1997. The forecasts shown in the Reserve Report reflect updated production

facility capital, lease and operating expenditures, change in the constant price

per barrel of oil and the commencement of production on the Ima Field. The

reserve information, including Present Value, have been prepared in accordance

with SEC Present Value Criteria which differs in some respects from the

requirements of Canadian National Policy No. 2-B. The Present Values set forth

in the Reserve Report do not necessarily reflect the fair market value of the

reserves evaluated. THE INFORMATION RESPECTING THE COMPANY'S RESERVES ARE

PRESENTED TO COMPLY WITH APPLICABLE SECURITIES REGULATIONS. THE COMPANY NO

LONGER HOLDS ANY INTEREST IN THE RESERVES SHOWN.

-15

BASED ON CONSTANT PRICE AND COST ASSUMPTIONS(1)





AT DECEMBER 31, 1997

---------------------------------------------------------------TOTAL PROVED

PROVED



PROVED NON-



TOTAL



50% OF



AND 50%

PRODUCING



PRODUCING



RESERVES



RESERVES



---------



PROVED



PROBABLE



PROBABLE OF

RESERVES



RESERVES(2)



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



---------



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



---



















RESERVES

----------

Oil and Condensate

Gross Reserves(3)(MMB)

28.6

-----------



3.8



18.3



22.1



6.5



----------



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



---------



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



---



Company's Net Reserves (4)(5)

20.5



2.8



13



15.8



4.7



----------



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



---------



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



---



----------Present Value of Company's Net

Reserves (in $millions) (1)(6)

Undiscounted

$

11.7 $

65.6 $

77.1 $

41.9 $

119.0

Discounted at 10%

11.4

53.1

64.5

30.7

95.2

Discounted at 15%

11.2

48.4

59.6

26.5

86.1

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

- ------------------------------(1)

Utilizing SEC Present Value criteria based on a constant price of $16.20 per

barrel (being

the price in effect on December 31, 1997). The SEC Present Value differs from the

Present Value

utilized under Canadian National Policy 2-B in that the SEC Present Value is based

upon a price

per barrel on the date the SEC Present Value is calculated. The Canadian Present

Value is based

upon an estimated average price per barrel of oil for the year following the date

the Canadian

Present Value is calculated.

(2)

A risk factor of 50% has been applied to Probable Reserves and to the

future estimated

cash flow from Probable Reserves to account for the geological and engineering risk

associated

with these reserves.

(3)

Gross Reserves reflects total cumulative reserves held by all

participants.

(4)

Net Reserves reflects reserves attributable to the Company after

adjustment of the

Company's understanding of applicable Nigerian taxes and royalties, and gross

overriding

royalties or their equivalent and interests held by the Company's Nigerian

Partners.

(5)

The total proved production forecast reflected in the Reserve Report is

developed based on

the following assumptions:

- Based on the inclusion of two wells forecast to be placed on production in

April 1998 and

January 1999, respectively.

- Gas injection is increased to a minimum of 40 MMCFD into the Upper

C-1 Zone.

- With pressure maintenance, production from three existing wells is stabilized at

6,200 bopd

until the end of 1999 and then forecast to decline to depletion of the

assigned reserves.

- Pressure maintenance is implemented in the Lower C-1 Zone by January 1,

1999 with gas

injection at 65 million cubic feet per day or water injection at 50,000 barrels of

water per day.

- With pressure maintenance, production from three existing wells is forecast to be

stabilized

at 6,500 bopd until mid-year 2000 and then decline thereafter to depletion of

the assigned

reserves.

The total proved plus probable production forecast includes the following

additional

assumptions:



- Two wells are forecast to be placed on production in the first half of 1999 with

production

at a rate of 2,500 bopd per well.

- The flat life production period of the Upper C1 zone is extended by

one year.

- Place the D zone on production from one additional well.

(6)

The economic parameters used to determine the present value are as

follows:

- Constant crude oil price of $16.20/barrel

- Operating cost of $32.3 million per year

- Overhead cost of $7.2 million per year

- Government tax/royalty of 18.5%

- Indigenous company royalty/carried interest of 10.0%

- Drilling cost of $7.3 million per well



Benin Basin

- ------------16

Between November 1996 and March 1997, the Company drilled and completed two

off-shore wells on the Aje Field of Nigerian Block OML 113. The wells tested

maximum flow rates of 5,500 and 8,800 barrels of oil per day, respectively, with

associated natural gas. Subsequent analysis of log results and seismic data

indicate that, in addition to oil, significant natural gas resources are located

in the Aje Field. Although identified by exploration drilling, no reserves or

Present Value has been assigned to the Aje Field on the basis that no market

currently exists for the Aje Field's natural gas resources. The Company is

currently negotiating with a major international natural gas producing and

electrical power generating company and the Government of Benin for the

development, financing and construction of a natural gas powered electrical

generation power plant which is anticipated will provide electrical energy to

Benin and the neighboring countries of Togo and Ghana. Natural gas feedstock is

expected to be supplied from the natural gas resources identified in the Aje

Field and from Benin Block 1. The completion of a power plant is expected to

establish a market for the Company's natural gas resources. See "Management's

Discussion and Analysis of Financial Condition and Results of Operations - Risks

and Uncertainties - Liquidity" and "Risks and Uncertainties - Benin Regulation".

RESERVE



RECONCILIATION



The following table contains a reconciliation of Proved Reserves on a

constant price basis from December 31, 1996 to June 30, 1998 when all of the

Company's Proved Reserves were disposed of.









PROVED RESERVES AT DECEMBER 31, 1996(4)



PROVED RESERVES (MMBBLS)(1)(5)

---------------------------------GROSS RESERVES(2) NET RESERVES(3)

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



47.7

23.5

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



Add:

Discoveries, additions, extensions

Purchases and Sales

Economic/Technical Revisions



(19.5)



(4.3)



(6.1)

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



(3.4)

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



Subtract:

Production



PROVED RESERVES AT DECEMBER 31, 1997



22.1



15.8



-



-



Add:

Discoveries, additions, extensions

Purchases

Economic/Technical Revisions

Subtract:

Production and Sales

PROVED RESERVES AT DECEMBER 31, 1998(5)



22.1

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



15.8

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



=================



===============





- ------------------------------(1)

Proved Reserves are those reserves estimated as recoverable under current

technology and existing economic conditions, from that portion of the reservoir which

can be reasonably evaluated as economically productive on the basis of analysis of

drilling, geological, geophysical and engineering data, including reserves to be

obtained by enhanced recovery processes demonstrated to be economic and technically

successful in the subject reservoir. Includes oil and condensate.

(2)

Gross Reserves reflect total cumulative reserves held by all participants.

(3)

Net Reserves reflect reserves attributable to the Company after adjustment of

the Company's understanding of applicable Nigerian taxes and royalties, gross

overriding royalties or their equivalent and interests held by the Company's Nigerian

Partner.

(4)

Based on a May 13, 1997 reserve report prepared by Gilbert Laustsen.

(5)

All of the Proved Reserves of the Company are situated in the Niger Delta.

These reserves were disposed of in June 1998. See "Business - History and Development

of the Business - Restructuring of Operation and Financial Affairs".



CAPITAL



EXPENDITURES



The following table is a summary of the capital expenditures made by the

Company on acquisition, exploration, drilling and production activities on its

oil and gas properties for the fiscal periods indicated. In all cases, the

total capital expenditures on the Company's oil and gas properties includes a

provision for decline in property values. For the twelve months ended December

31, 1997, a total of $110.9 million was spent on the Company's oil and gas

properties compared to capital expenditures of $15.2 million for the twelve

months ended December 31, 1998.

-17





TWELVE MONTHS ENDED

-------------------------------DEC. 31

DEC. 31

DEC. 31

TOTAL TO

1996



1997



1998



DEC. 31



1998(1)

-------



---------



----------



---------



-------



















($000)

NIGER DELTA CONCESSIONS

Land and Data Acquisitions

10,211

Exploration, Drilling and Seismic

132,068

Production Facilities



$



-



$



1,200



-



11,128



61,497



13,222



93,670



2,862



-



102,177

Administration and Capitalized Interest

9,461

Acquisition of Royalty Interest

13,536

Acquisition by Plan of Arrangement

28,038

Depreciation, Depletion and Amortization

(32,452)

Provision for Decline in Property Values

(206,019)

Disposition of Niger Delta Concessions(2)

(57,020)



1,896



-



-



-



13,536



-



-



-



-



-



(28,159)



-



(206,019)



---------



-



(4,244)

(57,020)



----------



---------



(155,083)



(48,042)



----------



---------



-------



-------TOTAL NIGER DELTA



106,694



---------



-------



-------BENIN BASIN CONCESSIONS

Land and Data Acquisitions

9,125

Exploration, Drilling and Seismic

78,469

Administration and Capitalized Interest

2,782

Acquisition of Royalty Interest

6,036

Provision for Decline in Property Values

(3,981)



600



1,525



2,000



52,136



24,311



-



687



-



2



-



6,036



-



-



(3,981)



-



---------



----------



---------



-------



-------TOTAL BENIN BASIN

92,431



53,423



27,891



2,002



---------



----------



---------



$160,117



$(127,192)



$(46,040)



-------



-------TOTAL BENIN BASIN/NIGER DELTA

92,431



========= ========== =========

===============



- ------------------------------(1)

The total includes all expenditures since the Company initiated oil and gas

operations

in Nigeria and Benin.

(2)

See "Business - History and Development of the Business - Restructuring of

Operations

and Financial Affairs".



OIL



AND



GAS



DRILLING



ACTIVITIES



All of the Company's drilling activities have been in Nigeria. No wells

have been drilled to date by the Company in the Republic of Benin. The table

that follows sets out the gross and net number of productive and dry wells

drilled and completed in the periods indicated.

-18







FOR THE 12



FOR THE 12



FOR THE 12



MONTHS ENDED



MONTHS ENDED



DEC. 31, 1996(1)



DEC. 31, 1997(1)



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



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



MONTHS

ENDED



CUMULATIVE TO

1998(1)

--



DEC. 31,



DEC. 31, 1998

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



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



GROSS

NET

GROSS

NET

GROSS

NET

GROSS

NET

LOCATION OF WELLS

WELLS(2) WELLS(3) WELLS(2) WELLS(3) WELLS(2)

WELLS(3) WELLS(2) WELLS(3)

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

















NIGER DELTA CONCESSIONS:

Productive Oil and

Condensate

1.0

10.0

4.78

Dry and Abandoned

--



--------



--------



-



3.0



1.4



2.0



-



-



-



-



-



--------



--------



--------



--------



--------



-



-



3.0



1.4



2.0



--------



--------



--------



--------



--------



1.0



0.5



1.0



0.5



-



-



-



-



-



-



--------



--------



--------



--------



--------



1.0



0.5



1.0



0.5



-



--------



--------



--------



--------



--------



1.0



0.5



4.0



1.9



2.0



------



--------



Total Drilled Wells

1.0

10.0

4.78

--



-



------



--------



BENIN BASIN CONCESSIONS:

Productive Oil and Condensate

-



2.0



1.0



Dry and Abandoned

1.0

0.51

--



--------



Total Drilled Wells

3.0

1.51

--



--------



------



--------



------



--------



TOTAL DRILLED WELLS

1.0

13.0

6.29



======== ======== ======== ======== ========

======== ======== ========



- ----------------------------(1)

"Reflect wells completed in the periods indicated.

(2)

Gross Wells" are the total number of wells in which the Company has a

Participating Interest.

(3)

"Net Wells" are the aggregate of the percentage of Revenue Interest of the

Company in each of the

Gross Wells. In all cases, the Revenue Interest shown is before payout. The Revenue

Interest of the Company

declines after payout. See "-The Niger Delta - Cost Obligations and Revenue

Interests" and "- Benin Basin -



Cost Obligations



AREA



and



Revenue



Interests".



HOLDINGS



As at December 31, 1998, following the disposition of its Participating

Interest in the shallow zones of Ima Field, the Company's crude oil, natural gas

and natural gas liquids holdings consisted of approximately 148,000 gross acres

and 14,800 net acres in the Niger Delta and approximately 3.5 million gross

acres and 2.1 million net acres in the Benin Basin. Pursuant to the disposition

of its Participating Interest in the Niger Delta in June 1998, the Company no

longer holds proved or unproved acreage in the Niger Delta. Rather, the

Company's net acreage position is restricted to 10% Participating Interest in

the Deep Ima Prospect in respect of which there is currently no proved or

probable reserves.

-19





The following

1998.



table



summarized the Company's land holdings as of December 31,



CONCESSION

ACQUIRED

PARTNER PROVED ACREAGE(1)(2)

UNPROVED

ACREAGE(1)(3)

- ------------------------ ---------- ------- -------------------- ----------------------GROSS

NET

GROSS

NET

ACRES(4)

ACRES(5)

ACRES(4)

ACRES(5)

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













NIGER DELTA

Block OML 112 (6)

13,410(7)

Block OPL 237 (6)

1,433(7)



Aug. 1993



Amni



-



-



134,100



Dec. 1994



Amni



-



-



14,335



----------



-------



--------



----------



----------



-



-



148,435



--------



----------



----------



------



-----Total Niger Delta

14,843

----------



-------



June 1993



YFP



-



-



410,000



Dec. 1996



Optimum



-



-



490,000



Sept. 1997



-



-



-



720,000



Sept. 1997



-



-



-



1,900,000



----------



-------



--------



----------



----------



-



-



3,520,000



--------



----------



----------



------



-----BENIN BASIN

Block OML 113

215,250

Block OPL 310

237,650

Block 1

434,700(8)

Block 4

1,246,800(8)

-----Total Benin Basin

2,134,400

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



-------



------



------



TOTAL AREA HOLDINGS

2,149,243



-



-



3,668,435



========== ======= ======== ========== ==========

============



- -----------------------(1)

As at December 31, 1998

(2)

"Proved Acreage" means the acreage to which the Company has assigned

Proved

Reserves at December 31, 1998.

(3)

"Unproved acreage" refers to the acreage to which the Company has

assigned no

Proved Reserves.

(4)

"Gross Acres" means all acreage in which the Company has a Participating

Interest.

(5)

"Net Acres" means Gross Acres after deducting interests of all other

participants.

In each case, the Net Acres is shown before Payout. The Net Acres position will

decline

after Payout is achieved. See "- Niger Delta - Cost Obligations and Revenue Interests"

and

"- Benin Basin - Cost Obligations and Revenue Interests".

(6)

The Company released its Participating Interest in the shallow zones of the

Ima

Field located on this concession block in June 1998. Acreage references are

restricted to

the Deep Ima Prospect only.

(7)

Reflects interest in the Deep Ima Prospect only.

(8)

Net Acres calculated based upon Cost Oil Recovery attributable to the Company

after

giving effect to a 12.5% crude oil production tax payable on gross production. Does

not

account for an additional sliding scale royalty that becomes payable by the Company to

the

Benin government based upon average daily production rate.



OPERATIONS



AND



PRESENT



ACTIVITIES



Historically, operations in Nigeria have been conducted jointly by the

Company, as technical partner and the applicable Nigerian Partner, as named

operator. In the Niger Delta, the Company is no longer the technical partner on

blocks OML 112 or OPL 237. In the Benin Basin, the Company continues to be the

technical partner for Concession Block OML 113 and OPL 310. The Company is also

the operator of Block 1 and Block 4 in Benin. The Company is currently

evaluating the sale/farmout of part or all of its Participating Interests in

these concessions. The role of the Company as operator is dependant upon the

outcome of future farm-out arrangements.

Due to the restructuring of its affairs in June 1998, the Company is not

currently conducting drilling activities nor does it currently own production or

refining facilities. The ability of the Company to drill or participate in

future wells or to secure or construct a suitable production or refining

facility to produce any discoveries is dependant upon the Company securing

sufficient financial resources or a suitable industry partner. There is no

assurance that the Company will be able to attract new equity, debt, joint

venture partners, buyers, merger partners or a combination thereof in order to

remain viable and continue operations. See "Management's Discussion and

Analysis of Financial Condition and Results of Operations - Risks and

Uncertainties - Liquidity".

-20

PRODUCTION



FACILITY



Components

- ---------On June 30, 1998, the Company conveyed its entire interest in the MOPU

situated on the Ima Field to a major international service company in exchange

for the extinguishment of approximately $18.8 million of debt, representing all

of the debt due from the Company to the international service company.

Consequently, the MOPU ceased to be a material asset of the Company at its most

recently completed year end. See "Business - History and Development of the

Business - Restructuring of Operations and Financial Affairs"

Financing

- --------In order to fund a portion of the capital and installation costs for the

MOPU and the drilling of certain wells on the Ima Field, the Company and Amni

entered into a $30.0 million credit facility (the "European Bank Facility") with

two European banks in August 1996. In July 1997, the Company received a Secured

Loan of $35.0 million under a crude oil pre-payment agreement, the proceeds of

which were used to fully repay the European Bank Facility and for exploration

and development costs on the IMA Field. On June 30, 1998, the Secured Loan was

restructured as part of the Company's overall financial restructuring. The

restructuring of the Secured Loan by the Secured Lender enabled the Company to

defer quarterly interest payments until December 31, 1998 and to extend the

maturity of approximately $20.1 million of the loan until June 30, 1999, with

the remainder of $10.6 million due on December 31, 1999. The terms of its

agreement with the major international service company, provided that if a

future sale price of the MOPU is above a pre-determined threshold, a portion of

the proceeds of sale will be applied to reduce the Company's obligations under

its existing Secured Loan.

Subsequent to December 31, 1998, the Company received confirmation from the

Secured Lender that the interest payment due December 31, 1998 had been

capitalized and that the first payment was amended to March 31, 1999. The

Secured Lender has since advised the Company that, notwithstanding its written

extension, payment of the first interest instalment was due on December 31,

1998. The Company has not yet made this interest payment and is currently

negotiating with its Secured Lender regarding further relief from this and other

near-term cash interest payments. There is no assurance that such negotiations

will be successful. See "Management's Discussion and Analysis of Financial

Condition and Results of Operations - Risks and Uncertainties - Financing

Risks".

The Company has granted security to the Secured Lender in respect of its

repayment obligations under the Secured Loan. Included as security to the

Secured Lender are (1) a pledge of all of the common shares of those

subsidiaries that hold Participating Interests in the Company's Niger Delta and

Benin Basin Concessions; (2) a series of debentures granting a security interest

against the Company's Participating Interest in its Niger Delta and Benin Basin

Concessions; and (3) a guarantee of Abacan for all outstanding amounts under the

Secured Loan. See "Management's Discussion and Analysis of Financial Condition

and Results of Operations - Risks and Uncertainties - Financing Risks".

MARKETING



AND



SALE



OF



PETROLEUM



Prior to the relinquishment of its Participating Interest in the Ima Field,

the Company sold its crude oil production to a major international oil marketing

company pursuant to the terms of a Crude Oil Sale Agreement dated August 29,

1996. The Crude Oil Sale Agreement was terminated in June 1998 concurrent with

the restructuring of the Company's oil and gas operations and financial affairs.

Consequently, the Company has no existing crude oil delivery commitments.

-21

INSURANCE,



OPERATING



HAZARDS



AND



UNINSURED



RISKS



Prior to the restructuring of its oil and gas operations and as protection

against operating hazards, the Company maintained insurance coverage against

some, but not all, potential losses. Following the disposition of its

Participating Interest in the Ima Field the Company cancelled all policies of

insurance that related to its involvement as an operator and producer of oil and

condensate. The Company anticipates that it will obtain future insurance

coverage, as is prudent for the Company, based upon the nature and extent of the

exploration and development activities being conducted by the Company. Losses

could, however, occur for uninsurable or uninsured risks or in amounts in excess

of any existing or future insurance coverage. The occurrence of an event that

is not fully covered by insurance or that is uninsured could have a material and

adverse impact on the Company's financial condition and results of operations.

See "Management's Discussion and Analysis of Financial Condition and Results of

Operations - Risks and Uncertainties - Oil and Gas Exploration, Development and

Production".

ITEM



3.



LEGAL



PROCEEDINGS



As at December 31, 1998, the Company is not involved in any lawsuits where

the claim for damages for any such lawsuit exceeds 10% of the value of the

Company's current assets except as indicated below:

1.



Weatherford Enterra U.S. L.P. v. Abacan Resource Corporation et. al.

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



Action commenced by Weathorford Enterra U.S. L.P. (the "Plaintiff") in 1998 in

the 61st Judicial District Court, Harris County, Texas against Abacan and four

of its affiliates alleging breach of contract and unjust enrichment. Amni

International Development Company Limited ("amni") and a subsidiary of Abacan

were parties to a Joint Venture Agreement relating to oil exploration and

development of Nigerian Concession Blocks OPL 237 and OML 112 (the "Joint

Venture"). The Plaintiff's claims arose out of transactions with respect to the

Joint Venture. The Plaintiff seeks an unspecified amount of actual damages, plus

interest, costs and legal fees. Abacan has denied the Plaintiff's claim. Abacan

is also indemnified by Amni for any of the Plaintiff's claims. Amni and the

Plaintiff have signed a settlement agreement however, the Company is not aware

if the settlement terms have been performed by Amni. On January 19, 1999, the

Plaintiff filed a non-suit of the case, without prejudice.

2.



Global Marine International Services Corporation v. Abacan Technical

------------------------------------------------------------------------Services Ltd.

- -------------Action commenced by Global Marine International Services Corporation (the

"Plaintiff") in the 125th Judicial District Court, Harris County, Texas against

Abacan Technical Services Ltd. ("Abacan Technical"), a subsidiary of the Company

on March 25, 1998 alleging breach of contract arising out of the provision of

services to Abacan Technical. The Plaintiff seeks damages of $1,963,148.80 plus

interest, costs and legal fees. Abacan Technical has denied the Plaintiff's

claims.

Abacan Technical has filed an interlocutory appeal of the trial court's order

denying its special appearance, which disputes that Texas has jurisdiction of

the Plaintiff's claims. That appeal is pending. In late December 1998, the trial

court granted the Plaintiff's Motion for Partial Summary Judgement for the full

amount of its claim, excluding legal fees, plus interest. However, the order is

subject to appeal. Pending the appeal, the Plaintiff is precluded from

finalizing proceedings in the trial court or undertaking any collection efforts.

The date of the hearing of the appeal or its disposition is uncertain at this

time.

-22



3.



SBM Offshore Contractors v. Amni International Petroleum Development

------------------------------------------------------------------------Company Limited, Liberty Technical Services Ltd. and Abacan Resources (Nigeria)

- -------------------------------------------------------------------------------Ltd.

- ---SBM Offshore Contractors (the "Plaintiff") has commenced action against Amni,

Liberty Technical Services Ltd. ("Liberty") and Abacan Resources (Nigeria) Ltd.

("Abacan Nigeria") in a suit filed in the United Kingdom. Liberty and Abacan

Nigeria are subsidiaries of Abacan. The Plaintiff claims the that the Defendants

owe it approximately $1.8 million for alleged past due invoices. The defendants

have denied the claims. Amni has indemnified the Company for any of the

Plaintiff's claims. Amni has received authorization to conduct the action on

behalf of all of the defendants.

ITEM



4.



SUBMISSION



OF



MATTERS



TO



A



VOTE



OF



SECURITY



HOLDERS



The Company had no matters requiring a vote of security holders during the

fourth quarter of fiscal 1998.

PART II

ITEM

MARKET



5.



MARKET FOR

STOCKHOLDER



THE COMPANY'S

MATTERS



COMMON



STOCK



AND



RELATED



INFORMATION



The Common Shares of Abacan Resource Corporation commenced trading on The

Toronto Stock Exchange (the "TSE") on June 14, 1995 under the trading symbol

"ABC", and on the Nasdaq National Market ("NASDAQ") on December 4, 1995 under

the trading symbol ABACF. The following table sets forth the high and low

closing sale prices of Abacan's Common Shares as reported by the TSE (in

Canadian dollars) and by NASDAQ (in U.S. dollars) for the periods indicated.









1997

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

1998

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

1999

January

February

March 1-20





NASDAQ

-----------------------(US $)

High

Low

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





TSE

-------------(Canadian $)

High

Low

------ -----





$ 11.7500

9.0000

4.0000

3.5156



7.8125

1.8125

2.4375

1.5625



$15.65

12.45

5.50

4.85



$10.75

2.50

3.35

1.38



2.6250

1.6250

0.9375

0.5625



1.4062

0.3438

0.2188

0.1562



3.64

2.25

1.38

0.88



1.75

0.52

0.34

0.27



0.4375

0.2812

0.2500



0.2188

0.1562

0.1562



0.67

0.40

0.38



0.36

0.23

0.25



$



-23

The Company has received notice from The Nasdaq Stock Market Inc.

("Nasdaq") that its common shares are not in compliance with the $1.00 minimum



bid price requirement for ongoing listing on the Nasdaq National Market System.

In order to endeavor to achieve compliance, the Company's shareholders will be

asked to consider and approve at a Shareholders Meeting scheduled for March 29,

1999, a resolution authorizing the directors, in their discretion, to give

effect to a reverse stock split of the Company's common stock. In the event the

Company's common stock does not satisfy the $1.00 minimum bid price requirement

(which is the only requirement it does not currently comply with) by April 7,

1999, the Company's common shares will be de-listed from Nasdaq's National

Market System. The Company must also meet all other Nasdaq requirements on an

on-going basis. The Company's common shares are not currently eligible for

listing on the Nasdaq Smallcap Market.

There is no assurance that shareholders' approval will be obtained for a

reverse-stock split or if obtained, that the directors will proceed with a

reverse stock split. There is no assurance that if a reverse stock split is

completed that the minimum bid price will rise above or be sustained above the

$1.00 minimum bid requirement or that the Company's common stock will not be

delisted for some other reason. A delisting of the Company's common stock from

the Nasdaq National Market System will be materially adverse to the liquidity of

the Company's common stock.

The Company has received notification from The Toronto Stock Exchange that

it does not currently meet the TSE's requirements for a reverse stock split.

Consequently, if the Company elects to proceed with the reverse stock split

without meeting the applicable TSE requirements, its common shares will be

delisted from the TSE immediately prior to the completion of the reverse stock

split. A delisting of the Company's common shares from the TSE may be materially

adverse to the liquidity of the Company's shareholders, particularly

shareholders who reside in Canada. If the Company's common shares are delisted

from the TSE, Canadian residents would have to trade their shares on the Nasdaq

National Market System (provided the Company meets all Nasdaq continued listing

requirements referenced above). Quotations on the Nasdaq National Market System

are in U.S. dollars. Consequently all purchases and sales of the Company's

common shares would be in U.S. rather than Canadian currency. See "Management's

Discussion and Analysis of Financial Condition and Results of Operations - Risks

and Uncertainties - Stock Market Maintenance Requirements".

HOLDERS

the



As of December

Abacan's Common



31, 1998, there were approximately 1997 record holders of

Stock.



DIVIDENDS

Abacan has not previously paid any cash dividends on its Common Stock and

does not anticipate or contemplate paying dividends on the Common Stock in the

foreseeable future. It is the present intention of management to utilize all

available funds for the development of the Company's business. In addition, the

Company may not pay any dividends on common equity unless and until all dividend

rights on outstanding preferred stock, if any, have been satisfied. The only

other restrictions that limit the ability to pay dividends on common equity or

that are likely to do so in the future, are those restrictions imposed by law or

by certain credit agreements.

-24

SALE OF



NON-REGISTERED



SECURITIES



In connection with the restructuring of the Company's Secured Loan in June

1998, the Company agreed to issue options to acquire 600,000 common shares to

the Secured Lender. The exercise price of the options is Cdn $0.91 per common

share expiring June 30, 2000. The common shares issuable upon exercise of the

options were exempt from registration requirements of the Securities Act of

1933.



ITEM



6.



MANAGEMENT'S DISCUSSION

RESULTS OF OPERATIONS



AND



ANALYSIS



OF FINANCIAL CONDITION AND



The following discussion should be read in conjunction with the information

contained in the Company's audited consolidated financial statements, including

related notes, for the years ended December 31, 1997 and 1998 and its other

public filings. References herein to the Company include Abacan Resource

Corporation and its subsidiaries.

OVERVIEW



OF



1998



The Company underwent several changes during 1998 including discontinuing

its uneconomic oil and gas operations, significantly reducing its liabilities

and ongoing obligations, streamlining its administrative overhead expenses and

focusing efforts to optimize the potential value of its Benin Basin oil and gas

concessions.

SALE



OF



IMA



FIELD



A comprehensive reservoir analysis of the Ima Field completed in the spring

of 1998 suggested that the Ima Field was no longer economically producible. On

June 30, 1998, the Company reached a settlement agreement with its Nigerian

partner, Amni International Petroleum Development Company Limited ("Amni"),

regarding the Company's interests in Nigerian Concession OML 112 (formerly OPL

469), OPL 237 and the mobile offshore production unit ("MOPU") used to produce

the Ima Field. Under the agreement, the Company relinquished all rights and

interests in Concession Blocks OML 112 and OPL 237, including its interest in

the "shallow" zones of the Ima Field. The Company retained an interest in a

deep hydrocarbon prospect (the "Deep Ima Prospect") located beneath the Ima

Field. As consideration for the cancellation of the Company's rights on these

blocks, Amni assumed all of the Company's Ima Field related claims and

liabilities valued at approximately $47 million, extinguished approximately $20

million of claims it had against the Company and released any claims it had to

the Ima Field MOPU. The shallow zones encompassed all of the Company's proved

developed reserves and production.

SALE



OF



THE



MOBILE



OFFSHORE



PRODUCTION



UNIT



Concurrent with its agreement with Amni, the Company exchanged its interest

in the topside equipment on the MOPU which was being used to produce the Ima

Field, to a major international service company in return for the extinguishment

of all of the major service company's debt valued at approximately $18.8

million. Subject to a sale or disposition price of the MOPU being above a

pre-determined threshold, a portion of the proceeds of sale will be applied to

reduce the Company's obligations under its existing senior secured loan.

-25

RESTRUCTURING



OF



SECURED



LOAN



Concurrent with the above transactions, the Company also restructured its

existing senior secured loan (the "Secured Loan"). In June 1998, at the time of

the restructuring, the Company owed its senior secured lender (the "Secured

Lender") approximately $30.7 million under the secured loan agreement. The

restructuring enabled the Company to defer quarterly interest payments until

December 31, 1998 and extend the maturity of approximately $20.1 million of the

loan until June 30, 1999, with the remainder of $10.6 million due December 31,

1999. Subsequent to December 31, 1998, the Company received written

confirmation from its Secured Lender that the first quarterly interest payment

due December 31, 1998 had been capitalized and that interest payments would

commence on March 31, 1999. The Secured Lender has since advised that

notwithstanding its written extension, the first interest instalment continued

to be due on December 31,1998. The Company has not yet made this interest

payment and is currently negotiating with its Secured Lender regarding further

relief from this payment and from other near-term cash interest payments. There



is no assurance that such negotiations will be successful and that the Company

will be able to successfully defer its principal and interest payment

obligations until a future date. Failure of the Company to pay the principal

and interest amounts to its Secured Lender when due constitutes an event of

default which could result in a loss of part or all of the Company's assets and

render it insolvent.

NEW



INITIATIVES



Since the sale of the Ima Field, the Company has turned its attention

towards its significant Benin Basin acreage. The Company is focusing on two

initiatives: (1) the Benin Power Project, which is expected to be supplied fuel

from the Company's Block OML 113 and Benin Block 1 gas reserves; and (2) the

exploration of its sizeable Benin Basin Concessions (Block OML 113 and Block OPL

310 in Nigeria and Block 4, offshore Benin).

Benin Power Project

- --------------------On May 27, 1998, the Company entered into a Letter of Intent ("LOI") with a

subsidiary of a major international natural gas and electrical power generating

company and the Government of Benin for the development of an electrical power

plant to be located in Cotonou, Benin. Under the terms of the LOI, the required

natural gas feedstock for the project is expected to come from the Company's Aje

Field natural gas resources identified on Nigerian Block OML 113 and from Block

1 in Benin. Negotiations are continuing towards the signing of a definitive

Power Purchase Agreement.

Exploration of Additional Benin Basin Acreage

- -------------------------------------------------The Company continues to hold a significant position in the Benin Basin.

However, it does not currently have the financial resources necessary to explore

and develop its prospects and therefore will be reliant on third-party funding

sources to provide the necessary capital to do so. The Company continues to

explore various options with respect to securing a partner. Types of

relationships that are currently being contemplated are joint venture

transactions, farm-outs, sales of interests or a merger. The Company is

actively marketing the farm-out, sale or other disposition of its concessions to

industry participants.

LIQUIDITY,



OPERATING



AND



CAPITAL



REQUIREMENTS



AND



FUNDING



ALTERNATIVES



-26

The Company has a serious liquidity problem that casts doubt upon the

ability of the Company to continue operations in the foreseeable future. As of

December 31, 1998, the Company had cash on hand of approximately $3.3 million,

current debt of approximately $30.7 million, accounts payable of approximately

$9.7 million and royalties payable of approximately $5.4 million. The decrease

in the Company's long term debt and working capital deficiency from December 31,

1997 to December 31, 1998 is due principally to the Ima Field restructuring

described above. As a consequence of the sale of its producing properties in

June 1998, the Company does not currently have revenues or cash flow. The

Company does not anticipate generating revenues or cash flow until the

completion of the Benin Basin electrical generation project or the sale or

farm-out of part or all of its existing properties. The Company has limited

cash reserves and, despite a significant reduction in operational costs, is

continuing to incur general, administrative and other related expenses. Based

upon current expenditure levels, the cash reserves of the Company will not be

sufficient to sustain the operations of the Company at current levels. That

being the case, the Company's ability to continue as a going concern is

dependent on the following:

1.



The



development



of



the natural gas resources in Benin Basin Concession



Blocks OML 113 and OPL 310 including the development of a commercial market for

the natural gas produced in this area;

2.

Obtaining financing in the form of equity, debt or a combination thereof

in order to continue the development of the natural gas resources in the above

referenced concession blocks;

3.

of



the



4.

cash

time



Negotiating a joint venture for the continued exploration and development

West African acreage position;



Continuing to finance general and administrative expenses from existing

or financing in the form of equity, debt or combination thereof until such

as the above negotiations and financing are complete;



5.

Negotiations with certain suppliers

forbearance of the Company's secured and



to settle current liabilities and

unsecured creditors;



The Company has received an indication from a major shareholder that,

subject to the fulfillment of certain conditions, additional funding may be

available to the Company. However, there is no assurance any such funding,

joint venture transactions or asset sales will be available to the Company.

SENIOR



SECURED



LOAN



A Secured Loan was initially advanced to the Company in August 1997

pursuant to a Crude Oil Prepayment Agreement between the Company and a major

international oil marketing company. The proceeds of the Secured Loan were used

at that time to repay outstanding project financing incurred by the Company in

constructing the MOPU located on the Ima Field and for Ima Field exploration and

development costs. The $30.7 million Secured Loan was restructured on June 30,

1998. As restructured, repayment of $20.1 million was deferred until June 30,

1999 with the balance of $10.6 million due on December 31, 1999. Interest

payments were to commence quarterly on December 31, 1998. Subsequent to

December 31, 1998, the Company received written confirmation from the Secured

Lender that the first quarterly interest payment due December 31, 1998 had been

capitalized and that interest payments would commence on March 31, 1999. The

Secured Lender has since advised that notwithstanding its written extension, the

first interest instalment continued to be due on December 31,1998. The Company

has not yet made this interest payment and is currently negotiating with the

Secured Lender regarding relief from this payment and from other near-term cash

interest payments.

-27

ACCOUNTS



PAYABLE



As at December 31, 1998, the Company had approximately $9.7 million in

unsecured trade debt primarily related to its Aje Field exploration activities.

Two creditors hold approximately $8.0 million of this debt, with the remainder

held by numerous other entities. The Company continues to work to reach

settlement arrangements with its creditors. In addition to the trade creditors,

the Company continues to have a contingent liability with respect to the debts

assumed by Amni under the Ima Field restructuring. In consideration of the sale

of the Ima Field, Amni agreed to assume all of the Company's trade payables

specifically related to the development of the field and has indemnified the

Company in respect of such obligations. The Company understands that Amni has

settled a majority of the claims of the large creditors. However, there can be

no assurance that the remaining creditors will not seek redress from the Company

should Amni be unable to pay or otherwise settle their claims. Until the Benin

Basin initiatives begin to generate cash flow to the Company, the Company

anticipates it will not be in a position to settle any remaining creditor's

claims.

ROYALTIES



PAYABLE



As at December 31, 1998, royalties payable included an amount of $1.0

million owed to Abacan International Resource Management Inc. ("Airmi"), $1.4

million to Yinka Folawiyo Petroleum Company Limited ("YFP") and $2.9 million to

several other unrelated companies. All of the royalties relate to the Ima

Field. AIRMI is a company wholly owned by Wade G. Cherwayko, a former senior

executive officer and director of the Company. YFP is substantially controlled

by the father of Mr. Tunde Folawiyo, a director of the Company. Mr. Folawiyo is

also an executive officer of YFP. Until such time as the Company generates cash

flow, it will be unable to make cash settlements of its outstanding royalty

obligations.

FUTURE



WORK



COMMITMENTS



The Company has fulfilled its minimum work obligations in respect of

Nigerian Block OML 113. However, significant additional expenditures will have

to be incurred in order to produce the resources contained in the Aje Field and

elsewhere in OML 113 and to establish a market for such resources. Most

notably, the Company will have to secure a suitable offshore production facility

as well as construct a pipeline to an electrical generation project to be

located on-shore Benin. An electrical generation project, which is not yet

constructed, will have to be completed and tied into the West African

electricity grid in order for there to be a market for the Company's natural gas

resources. The Company believes that it will require an industry partner to

fund the commercial development of its resources. The Company has a commitment

to YFP to pay $5 million to be paid out of net cash flow out of future

production of Block OML 113.

Under the terms of its Block OPL 310 joint venture agreement with its

Nigerian partner, Optimum Petroleum Development Company ("Optimum"), the Company

is obligated to complete a minimum work program consisting of three wells and a

seismic program. The obligation of the Company to initiate expenditures towards

the minimum work program commences after receipt of applicable government

approval for the joint venture agreement between the Company and Optimum. The

oil prospecting licence for OPL 310 expired in February 1997, however, the

Nigerian Department of Petroleum Resources confirmed shortly after the expiry of

the OPL to Optimum that the OPL remains in good standing. Subsequently, nothing

has been received by the Company, or to the Company's knowledge, by Optimum,

that would indicate that the Nigerian authorities do not consider OPL 310 to be

valid and in good standing.

-28

Optimum has not yet secured an extension or renewal of the OPL or the

requisite joint venture agreement approval from the Nigerian Ministry of

Petroleum Resources. Despite this, Optimum has advised the Company that it

wishes the Company to proceed on the minimum work program in advance of the

required extension or renewal and receipt of requisite government approval to

the joint venture agreement.

In the Republic of Benin, the work commitments of the Company are set out

in separate Production Sharing Contracts for Block 1 and Block 4. In the case

of Block 1, the minimum work requirements include the drilling of one well and

the completion of a seismic program by the end of February 1999. The requisite

work commitment was not satisfied by this deadline. The Company is currently

negotiating an extension with the Benin Ministry and risks the loss of its

interest in Block 1 should an extension not be secured. In the case of Block 4,

the minimum work requirements include the drilling of one well and completion of

a seismic program by February 2002. The Company believes that it will require

an industry partner to fund the requisite work commitments of Block 4 and Block

1.

CAPITALIZED



COSTS



OF



PETROLEUM



AND



NATURAL



GAS



PROPERTIES



AND



EQUIPMENT



Through to December 31, 1998 the Company had expended a total of

approximately $392 million on the acquisition, exploration and development of



its concession blocks, including approximately $296 million in the Niger Delta

and $96 million in the Benin Basin. This compares to the total expenditures of

$376 million as at December 31, 1997. The capital spending in 1998 totaling

approximately $15 million included the acquisition of additional concession

interests in the Benin Basin at a cost of $2.0 million and the drilling, testing

and placing on production of the Ima #9 and Ima #10 wells at a cost of

approximately $13 million.

In 1997, the Company recorded a provision for the decline in value of the

Niger Delta properties of approximately $206 million. With the 1998 sale of

Blocks OML 112 and OPL 237, the Company disposed of its remaining interest in

the Niger Delta properties and equipment, including the hydrocarbon reserves and

related production equipment. This disposition resulted in a reduction of the

petroleum and natural gas property costs by approximately $57 million.

OIL



AND



GAS



RESERVES



With the sale of its interest in OPL 237 and OML 112, the Company sold all

of its proved producing and developed hydrocarbon reserves. The Company

conducted a 2-D seismic program on Nigerian Blocks OML 113 and OPL 310 in 1994

and 1996. Following the evaluation or the data from this program, the Company

drilled two wells on Block OML 113 that tested cumulative flow rates of 5,500

and 8,800 barrels per day of oil and condensate, with associated natural gas.

Based on the results of the Company's first two wells, the Company believes

that, in addition to oil and condensate, the Benin Basin has significant natural

gas. Based on these results, the Company also believes there is sufficient

natural gas resources in the Aje Field to supply the electrical generation power

project in Benin.

RESULTS



OF



OPERATIONS



The Company discontinued its hydrocarbon production operations due to the

sale of the Ima Field in June 1998. The tables below illustrate the significant

components of its 1997 and 1998 production operations up until the point of

sale.

-29

Production and Sales

- ---------------------The Company recognized petroleum revenues for its oil and condensate at the

time of production at the then prevailing market rate for the Company's oil and

condensate. The Company produced oil and condensate and stored its production

in a floating storage tanker ("FSO") until sufficient quantities were

inventoried for transfer to a crude tanker. Any difference between the value of

crude oil and condensate recorded at production and the amount actually realized

from the sale was recorded by the Company as income in the period of

realization.

The following table sets forth the average daily gross and net production

levels (in barrels) for the periods indicated.









January

February

March

April



Gross

Production

---------------1997

1998

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



10, 141 18, 207

12, 842 15, 358

16,880 14, 262

23, 995 14, 799



Net

Production(1)

---------------1997

1998

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



5, 578 10, 014

7, 068

8, 447

9, 284

7, 844

13, 197

8, 139



May

21, 483 13, 202

June

18, 447 11, 963

July

12, 668 N/A

August

18, 896 N/A

September 20, 079 N/A

October

16, 782 N/A

November

20, 664 N/A

December

9, 376 N/A



- ---------------(1) Net figures reflect the





11,

10,

6,

10,

11,

9,

11,

5,



816

146

967

393

043

230

365

157



7, 261

6, 580

N/A

N/A

N/A

N/A

N/A

N/A



Company's pre-payout participation before royalties



The following table sets forth information pertaining to the quarterly

production and liftings on a gross and net basis as well as quarterly revenue

and operating cost information for the Company prior to the sale of the Ima

Field on June 30, 1998.









Gross Production (bbls)

Net Production (bbls)



Three Months

Ended

March 31

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

1,436,583

790,121



Three Months

Ended

June 30

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

686,461

377,554



1,528,753

840,814



592,561

325,909



Gross Sales (bbls)

Net Sales (bbls)

Average Price

Net Revenue

Operating Costs





$

$

$



12.75

9,986

8,041



$

$

$



13.57

4,272

9,390



-30

Operating Costs

- ---------------The majority of the Company's operating costs relates to the operation of

the MOPU and FSO located on the Ima Field. Such costs were fixed on a per diem

basis. Following the sale of the Ima Field, the Company ceased to incur

operating costs.

General and Administrative Expenses

- -------------------------------------General and Administrative expenses for the year ending December 31, 1998

were approximately $4.6 million versus approximately $3.9 million for the year

ending December 31, 1997. Since the sale of the Ima Field in June 1998, the

Company has made significant strides towards reducing its overhead expenses.

The Company has closed or is in the process of closing three offices, has

reduced staff levels and has out-sourced several of its administrative

functions. Offsetting these changes, however, has been a significant amount of

additional legal and accounting expenses incurred related to the sale of the Ima

Field and the Company's ongoing restructuring process. Critical to continued

existence of the Company is the continued reduction and re-alignment of general

and administrative expenses to better reflect the Company's current situation

and future prospects. The Company currently has no revenue or cash flow and

limited cash reserves. Accordingly, the Company will require additional

financing in the near term in order to sustain its current level of operations.

Interest



and



Other



Financial



Expense



- ---------------------------------------For the year ending December 31, 1998, the Company incurred approximately

$3.0 million in interest and other financial expenses versus $4.3 million in

1997. These charges are primarily related to the Secured Lender both prior to

and following its restructuring. The December 31, 1998 quarterly interest

payment was not made. Subsequent to December 31, 1998, the Company received

written confirmation from the Secured Lender that the first quarterly interest

payment had been capitalized and that interest payments would commence on March

31, 1999. The Secured Lender has since advised that notwithstanding its written

extension, the first interest instalment continued to be due on December 31,

1998. The Company has not yet made this interest payment and is currently

negotiating with the Secured Lender regarding relief from this payment and from

other near-term cash interest payments.

Depletion, Depreciation and Amortization

- ------------------------------------------For the year ended December 31, 1998, the Company incurred approximately

$4.2 million in depletion, depreciation and amortization versus approximately

$28.2 million in 1997. The decline in 1998 expense is primarily attributed to

the 1997 write down in costs associated with the Ima Field and its sale in June

1998.

1997 Provision for Decline in Value of Petroleum Properties in the Niger Delta

- -------------------------------------------------------------------------------As a result of the application of the ceiling test and other considerations

related to the Company's intention to sell its production assets, the Company

recorded a provision for decline in the value of its Niger Delta petroleum

properties in 1997 of approximately $206 million. Application of this

write-down resulted in a remaining Niger Delta petroleum cost balance of

approximately $47 million at December 31, 1997.

-31

1998 Gain on Sale of Assets

- -------------------------------At the time of the sale of the Ima Field and the related production

facility transaction with a major international service company, the Niger Delta

petroleum properties remaining cost balance was approximately $57 million. As a

result of the above transactions, approximately $86 million in debt and other

liabilities were either extinguished or assumed by other entities. This

resulted in the Company realizing a book gain on the sale of assets of

approximately $29 million. Though these transactions resulted in a significant

book gain for the Company, no cash was received by the Company as a result of

any of the transactions.

OUTLOOK

The continuing corporate financial restructure is a critical priority and

the Company is exploring opportunities to raise additional capital, reduce the

level of total liabilities and reduce overhead costs. In addition, the Company

is exploring various options that allow for external funding for further

development of its remaining Benin Basin concession blocks, including a

farm-out, sale of interests or merger. Should the Company be unable to raise

additional capital, either directly or through a combination of a sale or

farm-out of assets, or a business combination, it will be required to cease

operations.

YEAR



2000



ISSUE



The Year 2000 problem arises with the change in century and the potential

inability of information systems to correctly "rollover" dates to the new



century. To save on computer storage space, many systems were programmed with a

two-digit century (ie. December 31, 1999 would appear as 12/31/99) assuming that

all years would be part of the 20th century. On January 1, 2000, systems with

this programming will default to 01/01/1900 instead of 01/01/2000, and

calculations using or reporting the date will not be correct and errors will

arise. To prevent this from occurring, information systems need to be updated

to ensure they recognize the Year 2000.

The Company began its Year 2000 strategy by compiling a list of all

computerized equipment and making a determination of how, if at all, the

software will be affected by the Year 2000 problem. All of the Company's

hardware and software were recently acquired and are Year 2000 compliant. All

of the data related to the Company's royalty fees, consulting fees, and other

payment obligations related to its properties are stored on its computer

systems. The Company has and will continue to back up all of its financial and

business records, property data and engineering data to ensure that no loss of

information will occur in the event that its systems are affected by Year 2000

problems.

The Company also requested all of its principal consultants, engineers,

advisors and joint venture partners to conduct similar reviews of their

computerized equipment, software and operating systems to determine the risk, if

any, that the Year 2000 problem poses to the Company. The Company has no

knowledge of any material risks that will result from the Year 2000 problem and

does not believe its business will be impacted as a result of Year 2000 problems

related to such third parties.

The Company does not anticipate it will commence drilling or other

exploration activities that will be affected by the Year 2000 problem. The

Company intends to engage only established contractors, consultants, engineers

and advisors for work related to its properties and intends to source its

exploration and development equipment and information systems from established

vendors who have designed Year 2000 compliant systems. The Company also intends

to locate alternative sources for exploration and development equipment and

information systems in the event it primary suppliers cannot meet the

requirements of the Company in a timely manner.

-32

In the event the Year 2000 problem affects the exploration and development

equipment and operating systems of the Company's third party consultants,

engineers, advisors and joint venture partners, the cost of exploration and

development of the Company's properties may increase and the Company's business

and results of operations may be adversely affected. There can be no assurance

that the Year 2000 problem will not cause delay in the exploration and

development of the Company's properties or that the Company will be able to

resolve a Year 2000 problem on acceptable terms. Any delay in exploration and

development of the Company's properties will have a material adverse effect on

the Company's business and results of operations.

The Company intends to monitor the Year 2000 problem as it relates to the

oil and gas industry and the Company's properties and to implement contingency

plans as required. Management does not anticipate incurring significant costs

in this regard.

SUBSEQUENT



EVENTS



Announcement of Listing Status

- --------------------------------On January 26, 1999, Abacan announced that it had been advised by NASDAQ

that the trading prices for Abacan's Common Stock was below the $1.00 per share

minimum established by the NASDAQ National Market for continued listing on that

market. Subject to a further extension, unless the minimum trading price is met



(during a ten day period) beginning March 22, 1999, Abacan's Common Stock will

be delisted from the NASDAQ National Market. Abacan expects to meet this

requirement by implementing a reverse stock split that will be submitted to its

shareholders at Abacan's Annual Meeting of Shareholders. Any reverse stock

split will also be subject to approval of the Toronto Stock Exchange. Abacan

has been advised that it does not meet the applicable requirements for stock

consolidation approval by The Toronto Stock Exchange. If the requirements are

not met and Abacan proceeds with the reverse stock split, its shares will be

delisted from The Toronto Stock Exchange.

Insurance claim on Ima #9 / Major Creditor Settlements

- -------------------------------------------------------------During February 1999, settlement agreements were reached with a majority of

the large creditor claims assumed by Amni in the Ima Field restructuring. The

proceeds used to settle these claims were derived by a lump sum cash payment

Amni and the Company negotiated with respect to the Ima #9 well underground

blowout claim.

RISKS



AND



UNCERTAINTIES



Liquidity

- --------The Company has a serious liquidity problem that casts doubt upon the

ability of the Company to continue operations in the foreseeable future. As of

December 31, 1998, the Company had cash on hand of approximately $3.3 million,

current debt of approximately $30.7 million, accounts payable of approximately

$9.7 million and royalties payable of approximately $5.4 million. The decrease

in the Company's long term debt and working capital deficiency from December 31,

1997 to December 31, 1998 is due principally to the Ima Field restructuring

described above.

-33

As a consequence of the disposition of its Participating Interest in Blocks

OML 112 and OPL 237 in June 1998, the Company does not currently have any

revenues or cash flow. The Company does not anticipate generating revenues or

cash flow until the completion of the Benin Basin electrical generation project

or the sale or farm-out of part or all of its existing properties. The Company

has limited cash reserves and, despite a significant reduction in operational

costs, is continuing to incur general, administrative and other related

expenses. The Company's ability to continue as a going concern is dependent on

the following:

1.

The development of the natural gas resources in Benin Basin Concession

Blocks OML 113 and OPL 310 including the development of a commercial market for

the natural gas produced in this area;

2.

Obtaining financing in the form of equity, debt or a combination thereof

in order to continue the development of the natural gas resources in the above

referenced concession blocks;

3.

of

4.

cash

time



the



Negotiating a joint venture for the continued exploration and development

West African acreage position;



Continuing to finance general and administrative expenses from existing

or financing in the form of equity, debt or combination thereof until such

as the above negotiations and financing are complete;



5.

Negotiations with certain suppliers

forbearance of the Company's secured and

of



to settle current liabilities and

unsecured creditors;



There is no assurance that the Company will be able to achieve part of all

the elements required to continue operations prior to fully exhausting its



current cash reserves. Should the Company not be able to secure new sources of

funding in the very near term, it will be required to wind up its affairs and

cease operations.

The Company will not be able to meet its payment obligations under the

Secured Loan or the contractual commitments on its existing properties without

additional capital. There is no assurance that additional capital will be

available or, if it is available, that the Company would not have to sell all or

substantially all of its properties or assets to access such capital. Should

the Company be unable to access additional capital through capital markets or

otherwise, or should the Company be unable to further restructure its existing

secured loan and extend the time pursuant to which it must commence operations

in its existing properties, the Company may lose all of its Participating

Interests in some or all of its remaining properties which would be materially

adverse to the financial condition of the Company.

Stock Market Maintenance Requirements

- ---------------------------------------The Company has received notice from The Nasdaq Stock Market Inc.

("Nasdaq") that its common shares are not in compliance with the $1.00 minimum

bid price requirement for ongoing listing on the Nasdaq National Market System.

In order to endeavor to achieve compliance, the Company's shareholders will be

asked to consider and approve at a Shareholders Meeting scheduled for March 29,

1999, a resolution authorizing the directors, in their discretion, to give

effect to a reverse stock split of the Company's common stock. In the event the

Company's common stock does not satisfy the $1.00 minimum bid price requirement

(which is the only requirement it does not currently comply with) by April 7,

1999, the Company's common shares will be de-listed from Nasdaq's National

Market System. The Company must also meet all other Nasdaq requirements on an

on-going basis. The Company's common shares are not currently eligible for

listing on the Nasdaq Smallcap Market.

-34

There is no assurance that shareholders' approval will be obtained for a

reverse-stock split or if obtained, that the directors will proceed with a

reverse stock split. There is no assurance that if a reverse stock split is

completed that the minimum bid price will rise above or be sustained above the

$1.00 minimum bid requirement or that the Company's common stock will not be

delisted for some other reason. A delisting of the Company's common stock from

the Nasdaq National Market System will be materially adverse to the liquidity of

the Company's common stock.

The Company has received notification from The Toronto Stock Exchange that

it does not currently meet the TSE's requirements for a reverse stock split.

Consequently, if the Company elects to proceed with the reverse stock split

without meeting the applicable TSE requirements, its common shares will be

delisted from the TSE immediately prior to the completion of the reverse stock

split. A delisting of the Company's common shares from the TSE may be materially

adverse to the liquidity of the Company's shareholders, particularly

shareholders who reside in Canada. If the Company's common shares are delisted

from the TSE, Canadian residents would have to trade their shares on the Nasdaq

National Market System (provided the Company meets all Nasdaq continued listing

requirements referenced above). Quotations on the Nasdaq National Market System

are in U.S. dollars. Consequently all purchases and sales of the Company's

common shares would be in U.S. rather than Canadian currency.

If the Company proceeds with the reverse stock split and thereafter fails

to meet Nasdaq's continued listing requirements, it risks the loss of listing

status on both of its current stock markets.

International Operations

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



All of the Company's operations are currently being conducted in Nigeria

and Benin. International operations are subject to political, economic and

other uncertainties, including, among others, risk of war, revolution, border

disputes, expropriation, renegotiation or modification of existing contracts,

import, export and transportation regulations and tariffs, taxation policies,

including royalty and tax increases and retroactive tax claims, exchange

controls, limits on allowable levels of production, currency fluctuations,

labour disputes and other uncertainties arising out of foreign government

sovereignty over the Company's international operations. Certain regions of

Africa have a history of political and economic instability. Such instability

could result in new governments or the adoption of new policies that might

assume a substantially more hostile attitude toward foreign investment. In an

extreme case, such a change could result in voiding pre-existing contracts and

concession agreements and/or expropriation of foreign-owed assets without

compensation. The Company's international operations may also be adversely

affected by laws and policies of the United States and Canada affecting foreign

trade, taxation and investment. Furthermore, in the event of a dispute arising

from international operations, the Company may be subject to the exclusive

jurisdiction of foreign courts or may not be successful in subjecting foreign

persons to the jurisdiction of courts in Canada.

Nigeria is a developing third world national that has experienced periods

of civil unrest and political and economic instability. In June 1998, the

country experienced a significant political change with the death of Col. Sani

Abacha and the appointment of Col. Abdulsalem Abubakar as President of Nigeria.

Under Col. Abubakar, political and social change has been initiated. These

changes included the release of a number of prominent political prisoners and

the holding of democratic elections in early March 1999. As a result of the

elections, Olusegan Obasanjo was elected to become the new President of the

country. Mr. Obasajo's government is scheduled to assume power on May 29, 1999.

-35

Despite these recent events, Nigeria's membership in the British

Commonwealth of Nations remains suspended. Pending the appointment of the new

government, the imposition of trade sanctions continues to be under

consideration by a number of western countries including Canada, the United

States and the United Kingdom. The implementation of trade sanctions may be

dependent, in large part, on the outcome of future democratic elections and the

appointment of a democratically elected government. If trade sanctions are

imposed, and if they significantly reduce the amount of oil purchased from

Nigeria or impede the ability of producers in Nigeria to market their production

or receive market prices for such production, such sanctions could adversely

affect Nigeria's oil producers and the country's overall economy. There can be

no assurance that actions taken by the international community, future political

unrest or actions by companies doing business in Nigeria will not have a

materially adverse effect on Nigeria and in turn, on the Company's financial

condition or future results of operations. The Company has no ability to

control the factors that may lead to such events.

Benin is a developing third world nation that has experienced periods of

civil unrest and political and economic instability. Future civil unrest or

political and economic instability is beyond the control of the Company and may

adversely affect any future operations of the Company in the country. The

ability of the company to successfully operate in Benin will, in large part, be

dependent upon its maintaining good relations with the Benin government and the

Benin Oil Ministry. See "- Benin Regulation".

Nigerian Regulation

- -------------------All phases of oil exploration, development and production in Nigeria are

regulated to varying degrees by the Nigerian government, either directly or

through the MPR and the DPR, under the provisions of the Petroleum Decree, 1969

and under various policy statements issued by the Nigerian government and



administrative practices followed by the DPR. Such government regulation

includes matters relating to restrictions on production, price controls, export

controls, income taxes, expropriation of property, environmental protection and

rig safety. All drilling and production programs and operations undertaken or

to be undertaken by the Company (including petroleum export permits) must be

approved by the Nigerian government through the MPR or the DPR. If the Company

is unable to obtain the requisite approvals from the DPR or the MPR for its

ongoing operations, such operations could be suspended or delayed until such

approvals are granted. In addition, the Company must, either directly, or

through its Nigerian Partners, maintain satisfactory working relationships with

the Nigerian government, the MPR and the DPR. Any suspension or delay in the

Company's operations or failure to maintain satisfactory working relationships

could materially and adversely affect the financial condition or results of

operations of the Company.

Dependence



Upon



the



Indigenous



Program



All of the Company's Participating Interests in Nigeria have been acquired

under the Indigenous Program. The Indigenous Program is not formally written

into the Petroleum Decree, 1969, or any other law of Nigeria but exists solely

pursuant to an oral policy statement (the "1990 Policy") issued by the Nigerian

Government in 1990. Should the Company's or its Nigerian Partners'

interpretation of the 1990 Policy prove incorrect, or should the Nigerian

Government change this policy, the Company and its Nigerian Partners'

Participating Interests, business and future results of operations in Nigeria

could be materially and adversely affected.

The Company relies on its Nigerian Partners for compliance with all

requirements of Nigerian law, the 1990 Policy and all dealings with the Nigerian

Government. If either the relationship between the Company and its Nigerian

Partners or that between the Company's Nigerian Partners and the Nigerian

Government deteriorates for any reason or if the Company's Nigerian Partners

cannot meet their obligations to the Company or the Nigerian Government for

financial or other reasons, the Company's financial condition and results of

operations may be adversely affected. Additionally, the Company does not

control its Nigerian Partners and may be adversely affected by the detrimental

activities of any of its Nigerian Partners or the principals thereof.

-36

Uncertainty



Regarding



Nigerian



Tax



and



Royalty



Arrangements



The Company has negotiated tax/royalty arrangements with its Nigerian

Partners on each of the Niger Delta concessions and the Benin Basin concessions

in Nigeria. These tax/royalty arrangements, included in the joint venture

agreements between the Company and its Nigerian Partners, provide for a combined

tax/royalty payment to the Nigerian Government equal to a maximum of 30% of the

gross production revenues, both before and after Payout. Notwithstanding the

tax/royalty arrangements contained in the joint venture agreements, the Company

has subsequently learned and currently believes that the tax/royalty regime

applicable to blocks awarded under the Indigenous Program are the same as

applicable to the tax/royalty regime applicable generally to petroleum

production in Nigeria. To date, the Company has paid royalties of 18.5% of

production from its Ima Field to the Nigerian government in accordance with the

existing royalty regime. The Company has not generated taxable profits and

consequently, no petroleum profits taxes have been or are expected to be paid to

the Nigerian Government. Should the Nigerian Government audit the operations

conducted on the Ima Field and disagree with the level of royalties or taxes

paid by the Company, the Company may become liable for additional payments to

the Nigerian Government.

There is no assurance that the Nigerian Government will not alter or amend

the existing royalty structure or definition of taxable profits. Any future

amendments of changes in the interpretation of the current fiscal regime that

imposes and increased royalty or tax rate upon the Company will be materially



adverse to

operations.

Assignment



the

of



Company's

Interests



business,

Under



financial position and future results of



Joint



Venture



Agreements



The 1990 Policy prohibits the assignment of an interest in a concession

block without MPR approval and also prohibits the assignment to the Company of

an interest in a concession that is greater than 40% of the Nigerian Partner's

interest. The Company's Participating Interests in Nigerian concession blocks

OML 112 and OPL 237 were, prior to the reorganization of its oil and gas

operations, governed by the terms of joint venture agreements that had been

approved by the MPR. As a consequence of the reorganization, a new joint

venture agreement reflecting a reduced Participating Interest restricted to the

Deep Ima Prospect was executed between the Company and Amni. MPR approval of

the new joint venture agreement and the revised Participating Interest of the

Company has not yet been obtained. Although the Company has no reason to

believe that the applicable MPR approval will not be received in the normal

course, there is no assurance the MPR will grant the requisite approvals.

Failure to obtain MPR approval to the new joint venture agreement could bring

into question the level of the Participating Interest of the Company, if any, in

the Deep Ima Prospect, which in turn could have a materially adverse affect on

the future results of operations of the Company.

The joint venture agreements between the Company and YFP in respect of

Block OML 113 and Optimum in respect of OPL 310, allocate to the Company an

approximate 55% beneficial interest in gross revenues prior to Payout and an

approximate 28% beneficial interest in gross revenues after Payout (before gross

overriding royalties or their equivalent payable by the Company to others). YFP

is a company substantially controlled by the father of Tunde Folawiyo, a

director of the Company. Tunde Folawiyo is also an executive officer of YFP.

The allocation to the Company of 55% of revenues before Payout could be an

assignment that exceeds the maximum allocation of revenues permitted under the

1990 Policy, notwithstanding that the MPR has approved the allocation. As a

result, the Company could have its entitlement to production revenues reduced or

its interests in the concessions blocks terminated, either of which would have a

materially adverse affect on the financial condition and future results of

operations of the Company.

-37

Governmental



Right



of



Participation



Under the Petroleum Decree, 1969, the Nigerian Government is entitled, at

any time, to take a Participating Interest in any concession block in Nigeria.

Neither the Petroleum Decree, 1969 nor any subsequent correspondence between the

MPR and any of the Company's Nigerian Partners addresses either the payment to

the Company or its Nigerian Partner of a proportionate share of future costs or

the reimbursement of past costs by the Nigerian Government. If the Nigerian

Government exercises its right to participate in any of the Company's existing

concession blocks, the Revenue Interest of the Company would be reduced and the

financial position and results of operations of the Company could be materially

affected. Under the terms of its joint venture agreements for the Benin Basin

concessions, should the Nigerian government choose to participate, the Company

does not believe its Revenue Interest would be reduced to less than a 20%

post-Payout Revenue Interest, after deducting existing gross overriding and

other royalty interests. While the Company is not aware of any efforts on the

part of the Nigerian Government to participate directly in any concession blocks

awarded under the Indigenous Program, the government has, in all cases, reserved

the right to do so.

Nigerian Title Issues

- ----------------------Expiration



or



Cancellation



of



Nigerian



Oil



Prospecting



Licenses



The Company's primary Nigerian assets are its Participating Interests in

oil and gas concession blocks OML 113 and OPL 310. The Participating Interest

of the Company is held pursuant to Joint Venture Agreements in place for the

applicable concession blocks. Such Agreements operate for the life of the OPL

and any resulting OML. In the case of Block OML 113, the Company believes that

the economic life of any reserves contained in such blocks will expire before

the expiration of the 20 year term of the OML. In the event that the productive

life of reserves exceeds the current term of the OML, a successful renewal

application will have to be made to the MPR by YFP, failing which ownership of

the block reverts to the Nigerian government. The Joint Venture Agreements

between the Company and its Nigerian Partners impose certain obligations upon

the Company, failing which the Company could forfeit its interest as prescribed

by the Joint Venture Agreement. Failure of the Company to meet such obligations

(which includes an obligation that the Company at all times be and remains

solvent) could allow the Nigerian Partner to terminate the applicable Joint

Venture Agreement and extinguish the Participating Interest of the Company in

the affected concession block. In view of the Company's current financial

circumstances, there is no assurance that one or more of its Nigerian Partners

will not endeavour to terminate its Joint Venture Agreement with the Company.

The formal five year term of the OPL 310 expired in February 1997. In

February 1997, subsequently to the expiry date, the Company's Nigerian Partner

received written confirmation from the MPR that OPL 310 was in good standing.

The Petroleum Decree, 1969 does not contemplate or authorize the term of an OPL

(inclusive of extensions) extending beyond five years. The Company believes

that the written confirmation issued on behalf of the MPR confirming OPL 310 to

be in good standing reflects an administrative practice that supersedes the

provisions of the Petroleum Decree, 1969 respecting the term of the OPL. Should

the Company's interpretation of the DPR written confirmation be incorrect, or

should neither the DPR nor the MPR have the jurisdiction to implement an

administrative practice inconsistent with the terms of the Petroleum Decree,

1969, or should the DPR or MPR change their position respecting the standing of

Block OPL 310, the Company and its Nigerian Partner may be prohibited from

continuing and pursuing future operations on Concession Block OPL 310. The

Company also could lose its entire investment and Participating Interest in

Concession Block OPL 310 without compensation.

-38

Benin Regulation

- ----------------Responsibility for the regulation and control of the petroleum industry in

Benin rests with the national government of Benin pursuant to the Benin

Petroleum Code. Specific regulation of petroleum exploration, exploitation

title, transportation, marketing and production taxation rests with the Benin

Oil Ministry. The regulation of general business operations, income taxes and

import/export licences and levies rests with a number of other ministries within

the national government of Benin. All drilling, production and other petroleum

operations in Benin require the prior approval of the Benin Oil Ministry. The

import and export of natural gas and electricity and the construction of an

electrical generation power plant will also require the prior approval of the

Benin Oil Ministry and a number of other ministries within the Benin Government.

In order to produce and/or import natural gas, construct an electrical

generation power plant and generate, transmit, sell and export electrical power,

the Company and any future partners will require the prior approval of a number

of Government Ministries and government and privately owned companies. The

Company and its partners will also require the approval of other foreign

governments, ministries and departments if it exports power generated from the

electrical generation power plant outside of Benin. There is no assurance that

the Company or its partners will be able to obtain all of the consents, permits

or authorizations necessary to import natural gas from the Aje Field or produce

natural gas from Block 1, construct an electrical generation power plant or

produce, transmit, sell or export electrical energy. Failure of the Company to



obtain all necessary approvals or permits will materially and adversely affect

its financial condition and future results of operations. See " - Liquidity".

Benin Title Issues

- -------------------The Company's current Participating Interests in Benin exist pursuant to

two separate production sharing contracts between subsidiaries of the Company

and the Nigerian Government. The PSC's set out certain obligations that must be

fulfilled by the Company. Failure to fulfill the requisite obligations

constitutes an event of default and subject the affected PSC to cancellation by

the government without compensation.

Included as part of the Company's obligations are certain minimum work

commitments. In the case of Block 1, the Company is required to drill one well

and complete a seismic program by the end of February 1999. The requisite work

commitment for Block 1was not satisfied by the February 1999 deadline. The

Company is currently negotiating an extension with the Benin Oil Ministry.

There is no assurance that the Company will secure an extension that is

satisfactory to it, or at all. If the Company fails to secure an extension, it

could lose its entire Participating Interest in Block 1 without compensation.

In the case of Block 4, the Company is required to drill one well and complete a

seismic program by February 2002. The Company has completed the seismic program

requirement. The Company currently does not and, without securing a financial

partner or other form of financing, will not have the financial resources to

drill the requisite well on Block 4 by February 2002. Failure to comply with

the minimum work requirements could result in the cancellation or termination of

the Company's Participating Interest in Block 4. The loss of its Participating

Interest in Benin Blocks 1 and 4 would have a material and adverse affect on the

Company.

Labour Relations and Interruptions

- ------------------------------------Nigerian and Benin laws require that foreign companies involved in the

petroleum industry hire and train indigenous personnel in petroleum operations.

Nigerian oil workers are organized into a number of labour unions. In the fall

of 1994, these labour unions called a general strike to protest against a number

of the political changes that had occurred within Nigeria. This general strike

ultimately affected the Company's oil and gas operations by delaying its

drilling program. There is no assurance that there will not be strikes in the

future in countries where the Company operates. Any future labour interruptions

could adversely affect the Company's ongoing operations and its ability to

explore for, produce, market and sell its oil and condensate reserves.

Oil and Gas Exploration, Development and Production

- --------------------------------------------------------Oil and gas exploration involves a high degree of risk and there is no

assurance that expenditures made on future exploration by the Company on its

properties will result in new discoveries of oil, condensate or natural gas that

are commercially or economically producible. It is difficult to project the

costs of implementing an exploratory drilling program due to the inherent

uncertainties of drilling in unknown formations, the costs associated with

encountering various drilling conditions such as overpressured zones and tools

lost in the hole, and changes in drilling plans and locations as a result of

prior exploratory wells or additional seismic data and interpretations thereof.

Production and development of offshore oil, condensate and natural gas

properties also involve an increased degree of risk relative to on-shore or

close-to-shore production and development primarily due to greater technical

obstacles.

-39

The



Company's



operations



are



subject



to



the



risks



of



exploration,



development and operation of oil, condensate and natural gas properties and the

drilling of wells thereon, including encountering unexpected formations or

pressures, premature declines of reservoirs, blow-outs, craterings, sour gas

releases, fires and spills. Losses resulting from the occurrence of any of

these risks could have a materially adverse affect on the Company. The Company

may become subject to liability for pollution, blow-outs or other hazards. The

payment of such liabilities would reduce the funds available to the Company or

could result in the total loss of the Company's Participating Interests.

Depletion of Reserves; Necessity of Successful Exploration and Development

- -------------------------------------------------------------------------------Producing oil and natural gas reservoirs generally are characterized by

declining production rates that vary depending upon reservoir characteristics

and other factors. The Company's future oil and natural gas reserves and

production, and, therefore, cash flow and income, are highly dependent upon the

Company's success in economically finding additional reserves that are

economically recoverable. There can be no assurance that the Company will be

able to find, finance, develop or acquire additional reserves.

Uncertainty of Reserve Estimates

- ----------------------------------There are numerous uncertainties inherent in estimating quantities of

reserves and the present value of net cash flows attributable to such reserves.

Such estimates represent subjective judgments based on available data and the

quality of such data. Different reserve engineers may make different estimates

of reserve quantities and the present value of net cash flows attributable to

the production of such quantities. Substantial revisions to the reserve

quantities and present value estimates may be necessary due to numerous factors,

including the results of drilling, testing and production and changes in the

assumptions regarding decline and production rates, taxes, royalties, prices and

costs made after the date of a reserve estimate. The reserve estimates included

and incorporated by reference in this document could be materially different

from the quantities and values ultimately realized.

Prices, Markets and Marketing of Crude Oil and Condensate

- ----------------------------------------------------------------Oil, condensate and natural gas are commodities whose prices are determined

based on world demand, supply and other factors, all of which are beyond the

control of the Company. World prices for oil and condensate have fluctuated

widely in recent years and, most recently have been characterized by a

significant decline in value. Future price fluctuations in world oil prices

will have a significant impact upon the economics of the Company's undeveloped

properties and the projected revenue of the Company.

Financing Risks

- ---------------On June 30, 1998, the Company restructured its financial affairs including

its Secured Loan. The Company has granted security to the Secured Lender in

respect of its repayment obligations under the Secured Loan. The Secured Loan

includes a number of events of default. In the event of the Company's default

under the terms of the Secured Loan, the Secured Lender may call upon the

Company to immediately pay the outstanding principal or interest due thereunder,

or take title to, sell or otherwise dispose of the common shares of

substantially all of the Company's subsidiaries. Should the Secured Lender

become entitled to realize upon their security, the Company may lose part or all

of its Participating Interest in part of all of its oil and gas properties. The

Company may currently be in default of one or more terms of the Secured Loan.

ITEM



7.



CONSOLIDATED



SUPPLEMENTARY



DATA



FINANCIAL



STATEMENTS



AND



UNAUDITED



U.S.



GAAP



RECONCILIATION



The Company's Audited Consolidated Financial Statements for the fiscal year

ended December 31, 1998 (the "1998 Financial Statements") have been prepared in

accordance with generally accepted accounting principles in Canada. These

principles differ in some respects to generally accepted accounting principles

in the United States. The Company's 1998 Financial Statements include "Comments

by Auditors for U.S. Readers on Canada - U.S. Reporting Difference" as a

supplement to the Auditors' Report. In addition, a detailed discussion entitled

"Differences in Generally Accepted Accounting Principles Between Canada and the

United States" is included as Note 12 of the 1998 Financial Statements. See

"Consolidated Financial Statements and Unaudited Supplementary Data".

-40

AUDITORS' REPORT

To the Shareholders of

ABACAN RESOURCE CORPORATION:

We have audited the consolidated balance sheets of ABACAN RESOURCE CORPORATION

as at December 31, 1998 and 1997 and the consolidated statements of operations

and deficit and changes in cash flow for the years then ended. These financial

statements are the responsibility of the Company's management. Our

responsibility is to express an opinion on these consolidated financial

statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted

in Canada. Those standards require that we plan and perform an audit to obtain

reasonable assurance whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all

material respects, the financial position of the Company as at December 31, 1998

and 1997, the results of operations and changes in its financial position for

the years then ended in accordance with accounting principles generally accepted

in Canada.



Calgary,

February



Alberta

17, 1999



/s/ Deloitte & Touche LLP

Chartered Accountants



Note: See separate Comments

Reporting Difference



by



Auditors



for



U.S.



Readers



on Canada-U.S.



COMMENTS BY AUDITORS FOR U.S. READERS

ON CANADA-U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of

an explanatory paragraph (following the opinion paragraph) when the financial

statements are affected by conditions and events that cast substantial doubt on

the Company's ability to continue as a going concern, such as those described in

Note 1 to the consolidated financial statements. Our report to the

shareholders, dated February 17, 1999 is expressed in accordance with Canadian

reporting standards which do not permit a reference to such events and

conditions in the auditors' report when these are adequately disclosed in the

financial statements.



Calgary,



Alberta



/s/



Deloitte



&



Touche LLP



February



17,



1999



Chartered



Accountants



-41





ABACAN RESOURCE CORPORATION

CONSOLIDATED BALANCE SHEETS

AS AT DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)



--

--ASSETS

CURRENT

Cash

1,813

Accounts Receivable

15,267

Inventory

627



1998

----------



1997

-------





----------





-------



$



$



3,305

31

-



----------



-------



--3,336

17,707

Petroleum and natural gas properties

(utilizing the full cost method of accounting) (Notes 1 and 3)

138,471

Deposits and other

3,204



92,431

42

----------



-------



$



$



--95,809



159,382

==========

==========

LIABILITIES

CURRENT

Accounts payable

64,047

Current portion of capital lease obligations (Note 5)

1,353

Royalties payable (Note 3)

3,537

Due to joint venture partner

14,658

Current portion of long term debt (Note 4)

15,121



$



9,663

5,373

30,702



-----------45,738

98,716

Long term debt (Note 4)

19,879

Capital lease obligations (Note 5)

5,213



$



-



-------



----------



-------



--45,738

123,808

----------



-------



--Contingency (Notes 1 and 10) and Commitments (Note 8)

SHAREHOLDERS' EQUITY

Share Capital (Note 6)

274,750

Deficit

(239,176)



276,750

(226,679)

----------



-------



--50,071

35,574

----------



-------



$



$



--95,809



159,382

==========

==========



Approved by

/s/ Timothy

/s/



James



the Board:

Stephens

Harvie



Director



-



Tim



Director



-



James



Stephens

Harvie



-42





ABACAN RESOURCE CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

1998

1997

---

REVENUE

Petroleum revenue (net of foreign taxes)

59,702

Royalties

(6,704)

Interest and other

528



----------



------











$



14,258



$



(1,994)

181

----------



------



---12,445

53,526

------------EXPENSES

Operating

46,276

General and administrative



17,431

4,623



------



3,934

Interest and other financial expense

4,333

Depletion, depreciation and amortization

28,159

Provision for decline in value of petroleum properties (Note 3)

210,000



3,022

4,244

----------



------



---29,320

292,702

----------



------



---LOSS BEFORE GAIN ON SALE OF ASSETS

(239,176)



(16,875)



GAIN ON SALE OF ASSETS (NOTE 1)

-



29,372

==========



==========

NET EARNINGS (LOSS) FOR THE YEAR (NOTE 7)

(239,176)



12,497



DEFICIT, BEGINNING OF YEAR

-



(239,176)

----------



------



---DEFICIT, END OF YEAR

$(239,176)



$(226,679)

==========



==========

BASIC EARNINGS (LOSS) PER SHARE

(2.13)



$



0.11



$



FULLY DILUTED EARNINGS (LOSS) PER SHARE

(2.13)





$



0.11



$



-43





ABACAN RESOURCE CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)







1998

--------



1997

---------



$ 12,497



$(239,176)



(29,372)

4,244

---------



210,000

28,159

----------



CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES

Net earnings (loss) for the year

Items not affecting cash:

Gain on sale of assets (Note 1)

Provision for decline in value of petroleum properties

Depletion, depreciation and amortization



Changes in non-cash working capital items



FINANCING ACTIVITIES

Issue of share capital

Exercise of options

Acquisition of petroleum and natural

gas properties

Acquisition of royalty interest

Long term debt

Bank debt

Capital lease obligations



INVESTING ACTIVITIES

Expenditures on petroleum and natural

gas properties

Disposition of assets (Note 1)

Changes in non-cash working

capital items

Other



(12,631)

22,123

--------9,492

---------



-



(1,017)

6,432

---------5,415

----------



1,624



2,000

(4,298)

(6,566)

--------(8,864)

---------



19,572

35,000

(20,100)

(35,342)

---------754

----------



(15,224)

86,392



(110,967)

-



(73,466)

3,162

--------864

---------



43,770

(1,204)

---------(68,401)

----------



INCREASE (DECREASE) IN CASH



1,492



(62,232)



CASH, BEGINNING OF YEAR



1,813



64,045



CASH, END OF YEAR



$ 3,305

=========



$

1,813

==========





-44

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

1.



BASIS



OF



PRESENTATION



Continuation



of



business



The consolidated financial statements have been presented using accounting

principles applicable to a going concern, which assumes that the Company will

continue operations in the foreseeable future and be able to realize assets and

satisfy liabilities in the normal course of business. The Company has a

liquidity problem which casts doubt upon the validity of this assumption.

The Company has incurred a net loss from operations of $16,875,000 for the year.

The cash flows from operations for the year amounted to a net outflow of cash of

$12,631,000. At December 31, 1998, the Company has a deficit of $226,679,000

and a net working capital deficiency of $42,402,000. Accounts payable and

royalties payable are past due in terms of normal payment terms and the long

term debt described in Note 4 is repayable as to $20,100,000 on June 30, 1999

and the remainder of $10,602,000 on December 31, 1999. As a result of the

disposition of the Company's interests as disclosed below, the Company no longer

has any revenue generating properties but is still incurring general and

administrative costs.



In addition, on June 30, 1998, the Company's wholly-owned subsidiary Liberty

Technical Services Ltd. ("Liberty") reached a settlement agreement with its

Nigerian partner, Amni International Petroleum Development Company Limited

("Amni"), regarding the Ima Field and Liberty's interest in Nigerian Concession

OML 112 (formerly OPL 469) and OPL 237. Under the agreement, Liberty

relinquished all rights and interests in the "shallow" zones of the Ima Field in

exchange for Amni (1) assuming all outstanding Ima Field related financial

claims (including trade creditor claims); (2) assuming responsibility for

ongoing and future lease obligations in respect of the Ima Field; and (3)

releasing Liberty from certain outstanding financial obligations under the terms

of joint venture agreements between Liberty and Amni. Although the Company

expects Amni will settle all the liabilities it has assumed, if Amni is unable

to settle all liabilities the Company may be held liable to settle the remaining

liabilities. Concurrent with its agreement with Amni, Liberty and Amni

exchanged their interest in the topside equipment of the mobile offshore

production unit with a major international service company in return for the

extinguishment of all outstanding debt due to that company. As a result, the

Company has severed its operational responsibilities and associated overhead

related to the Ima Field and removed $86,392,000 of liabilities from its balance

sheet.

The



details



of



the



assets



and



facilities



Petroleum and

Assumption of



natural gas properties

liabilities and obligations



Gain



of



on



sale



assets



disposed



of



are



as



follows:



$



57,020,000

(86,392,000)

==================

$

(29,372,000)

==================



-45

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

1.



BASIS



OF



PRESENTATION



-



CONTINUED



The Company's ability to continue as a going concern is dependent upon the

following factors which outline management's plan:

i)

the development of the natural gas reserves in the Benin Basin

Concessions OML113 (formerly OPL 309) and OPL 310 including the development of a

market for the produced natural gas in this area;

ii)

obtaining financing in the form of equity, debt or a combination thereof

in order to continue the development of the natural gas reserves in the above

mentioned Concessions.

iii)

negotiating a joint venture for the continued exploration and development

of the West African acreage position;

iv)

cash

time



continuing to finance general and administrative expenses from existing

or financing in the form of equity, debt or combination thereof until such

as the above negotiations and financing are complete.



v)

negotiations with certain

forbearance of the creditors;



suppliers



to settle current liabilities and



If the going concern assumption were not appropriate for these financial

statements, then adjustments would be necessary in the carrying value of assets

and liabilities, the reported net earnings (loss) and the balance sheet

classifications used.

Reporting



currency



The principal costs incurred in conducting the business operations of the

Company are almost exclusively transacted in U.S. dollars and revenues were

generated in that currency, therefore the Company has adopted U.S. dollars as

its reporting currency for financial presentation. All dollar amounts set forth

in these financial statements, including the notes thereto, are expressed in

U.S. dollars, except where indicated otherwise.

2.



SIGNIFICANT

Generally



ACCOUNTING



accepted



POLICIES



accounting



standards



These financial statements have been prepared in accordance with accounting

principles generally accepted in Canada which differ from accounting principles

generally accepted in the United States as described in Note 12.

-46

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

2.



SIGNIFICANT



ACCOUNTING



POLICIES



-



CONTINUED



Consolidation

These financial statements include the accounts of Abacan Resource Corporation,

a Canadian corporation incorporated in the Province of Alberta and its wholly

owned subsidiaries, ("the Company").

Revenue

ready



recognition



Revenue from crude

for shipment.

Petroleum



and



oil



natural



is

gas



recognized once it is produced and processed

properties



The Company follows the full cost method of accounting for petroleum and natural

gas properties whereby all costs of exploring for and developing petroleum and

natural gas reserves are capitalized on a country by country basis. Capitalized

costs included land acquisition costs, geological and geophysical costs, costs

of drilling wells, production equipment, related overhead costs, and capitalized

interest. As commercial production commenced in Nigeria effective January 1,

1997, the Company recorded depletion from that date and to the date of

disposition on June 30, 1998 on capitalized costs, excluding undeveloped

projects, using the unit of production method based upon estimated proved net

reserves as determined by the Company and reviewed yearly by independent

consulting engineers, converted to a common unit of measure using relative

energy content. The remaining full cost pool in Benin is not subject to

depletion until such time as its projects are developed and commercial

production has commenced.

The Company periodically performs an impairment test relative to the capitalized

cost of undeveloped properties. A ceiling test was employed at least annually

to ensure costs of developed properties accumulated by the Company do not exceed

estimated future cash flows from proven reserves and the cost of undeveloped

properties. For the purposes of this test, future cash flows are determined

using year-end prices and costs, including deductions for applicable overhead,

financing and income tax expenses.

All the Company's petroleum and natural gas exploration, development and

production activities are conducted jointly with others. These consolidated

financial statements reflect only the Company's proportionate interest in such

activities.

-47-





ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

2.



SIGNIFICANT

Foreign



ACCOUNTING



POLICIES



-



CONTINUED



Exchange



Foreign currency transactions and balances of the Company and its integrated

foreign subsidiaries are translated using the temporal method. Under this

method, monetary assets and liabilities are translated at year end rates, and

non-monetary assets and liabilities at rates prevailing at the transaction

dates. Expenses are translated at the average exchange rate for the month.

Foreign exchange gains or losses on long term monetary assets and liabilities

are deferred and amortized over the remaining term.

Estimates

The preparation of financial statements in conformity with generally accepted

accounting principles requires management to make estimates and assumptions that

affect the reported amounts of assets and liabilities at the date of the

financial statements and the reported amounts of revenues and expenses during

the reporting period. Actual results may differ from those estimates and

assumptions.

Earnings



per



share



The basic earnings per share has been calculated using the weighted average

number of shares outstanding during the year. Fully diluted earnings per share

are calculated taking into account all dilutive options.

3.



PETROLEUM



AND



NATURAL



GAS



PROPERTIES



As at January 1, 1998, the Company had working interests in seven concession

blocks in West Africa in two geologically distinct areas; the Niger Delta in

South Eastern Nigeria and the Benin Basin along the Nigeria/Republic of Benin

border. Five concessions are located in Nigeria and two are located in the

Republic of Benin.

In January 1998, the Company cancelled its joint venture agreement in respect of

the Nigerian Concession Block OPL 233, and consequently holds no interest in

this property.

As disclosed in Note 1, the Company has relinquished all its rights and

interests in the "shallow" zones of the Ima Field and its interests in the

Nigerian Concession OML 112 (formerly OPL 469) and OPL 237.

-48

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

3.



PETROLEUM



AND



NATURAL



GAS



PROPERTIES



-



CONTINUED



Costs accumulated to date for acquisitions, seismic, exploration and development

and production equipment net of depletion and provision for decline in value are

as follows:





1998

(000's)



1997

(000's)





Producing

Niger Delta

Concessions Blocks OML 112 (formerly OPL 469)

/OPL 237

Concession Block OPL 233

Less accumulated depletion

Less provision for decline in value



Non-producing

Benin Basin

Concession Block OPL 302

Less provision for decline in value

Concession Block OML 113 (formerly OPL 309)

Concession Block OPL 310

Benin Republic Blocks I & IV



-------



---------



$



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



$ 281,513

135

(28,022)

(206,019)

---------47,607

----------



81,285

6,024

5,010

--------



3,981

(3,981)

82,152

3,973

4,304

----------



92,319

Corporate assets



90,429



112

--------



435

----------



92,431

--------



90,864

----------



$ 92,431

========



$ 138,471

==========





As a result of the application of the ceiling test and other considerations

related to the Company's intention to sell its production assets, the Company

recorded a provision for decline in value of petroleum properties in 1997 of

$210,000,000.

Working



Interest



-



Nigerian



Concessions



While the "shallow" Ima Field encompassed all of the Company's production and

revenue streams, the Company retained a 10% working interest in the Ima "deep"

prospect which is currently undrilled. The Company continues to hold a working

interest in Nigerian Block OML 113 (formerly OPL 309) and OPL 310.

-49

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

3.

The



PETROLEUM

working



AND



interests



NATURAL



GAS



PROPERTIES



CONTINUED



of the Company in these two concessions are as follows:











Block OML 113



-



Before Payout

--------------Revenue

Cost

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



52.5%

100%



After Payout

--------------Revenue

Cost

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



26.7%

40%



Block OPL 310





48.5%



100%



24.7%



40%



The Company's Nigerian partner in Block OML 113 is Yinka Folawiyo Petroleum

Company ("YFP"), which is owned by the father of one of the directors of the

Company. That director is also an executive officer and director of YFP. YFP

is entitled to 15% of all revenues before payout and 28% after payout. YFP is

not responsible for any capital or operating costs until payout, at which time

it becomes responsible for 60% of the capital and operating costs. As a result

of the conversion of Concession Block OPL 309 to Concession Block OML113, the

Company has a commitment to YFP in the amount of $5,000,000, to be paid out of

net cash flow from the future production of Concession Block OML 113. All work

commitments under the original license with the Government of Nigeria related to

this Concession have been completed.

The Oil Prospecting License ("OPL") for Block 310 expired in February 1997,

however, the Nigerian Department of Petroleum Resources confirmed shortly

following the expiry of the OPL to the Company's Nigerian partner, Optimum

Petroleum Company Limited ("Optimum") that the OPL remained in good standing.

Subsequently, nothing has been received by the Company, or to the knowledge of

the Company, by Optimum that would indicate that the Nigerian authorities do not

consider OPL 310 to be valid and in good standing. The Company has an

obligation to pay $1,000,000 to Optimum within nine months of the testing of its

first exploration well and an additional $2,000,000 following commencement of

production. In addition, the Company is required under the OPL to drill three

wells and complete a seismic program on the Block. These minimum work

commitments do not become effective until the OPL is confirmed by the Nigerian

authorities. Despite this, Optimum has advised the Company that it wishes the

Company to proceed on the minimum work program in advance of the required

extension or renewal and receipt of requisite government approval to the joint

venture agreement.

Prior to June 30, 1998 the Company's economic participation in concession blocks

in Nigeria was calculated on a before and after payout basis and on a concession

by concession basis. Though royalties applicable to the Company's working

interest varied from concession to concession, general economic terms were as

follows:

-50

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

3.



PETROLEUM



AND



NATURAL



GAS



PROPERTIES



-



CONTINUED











Participation before

Royalties

Royalties

Net Concession

Participation





Before Payout

-----------------------Operating

Revenue

Cost

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



55%



100%



6.5% - 2.5%

48.5 - 52.5%



After Payout

-----------------------Operating

Revenue

Cost

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



28%



40%



3.3 - 1.6%

100%



24.7 - 26.4%



40%



Abacan International Resources Management Inc. ("AIRMI"), a company wholly owned

by a former president and director of the Company, holds royalty interest in



three of the Company's Nigerian concessions with rates ranging from 1.65% to

0.85% before payout and 0.82% to 0.42% after payout. The Company's interest in

the concessions exists through joint venture agreements between the Company's

subsidiaries and its Nigerian partner corporations.

At December 31, 1998, royalties payable included an amount of $1,059,000 (1997 $794,000) owed to AIRMI and $1,427,000 (1997 - $921,000) to YFP. The remaining

balance of royalties payable of $2,887,000 (1997 - $1,822,000) is due the

Company's other Nigerian partner corporations. All of the royalty payable

amounts are currently due and beyond normal repayment terms.

Working



Interests



-



Benin



Republic



Concessions



In July 1997, the Company increased its position in Benin Republic Blocks 1 and

4 to a 100% Participating Interest. Under separate production sharing contracts

with the Government of Benin, the Company is required to fund 100% of all

exploration and development costs of a prescribed minimum work program and is

entitled to receive approximately 69% of revenue from Block 1/Seme and 75% of

revenue from Block 4, subject to a sliding scale royalty that becomes applicable

after a prescribed level of cost recovery is achieved by the Company.

As part of the prescribed work program, the Company is required to drill one

well in Block 1/ Seme by February 1999 and one well in Block 4 by February 2002.

In addition, the Company is required to complete a seismic program on Block 4 by

February 2002. As the Company has not commenced the Block 1/Seme well, it will

at the end of February 1999 not be in compliance with the minimum work program.

As a result, under the production sharing contract, the Company's Participation

interest in-Block 1 would be subject to cancellation at that date. The Company

is in the process of negotiating an extension of this requirement.

-51

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

4.



LONG



TERM



DEBT



During 1997, the Company entered into a Crude Oil Prepayment Agreement in the

amount of $35,000,000 to be repaid out of a portion of the proceeds of future

crude oil deliveries from the Company's share of crude oil produced from the Ima

Field commencing in February, 1998. The original agreement specified that the

minimum amount by which the prepayment was to be repaid from the monthly

delivery payment of the marketer is $2,916,667 plus accrued interest at the

London Inter-Bank offered rate ("LIBOR") plus 2.5% during a six month grace

period, changing to LIBOR plus 0.5% beginning with the first principal

repayment. A portion of the proceeds from this loan was used to repay the

Company's bank indebtedness that existed at that time.

On June 30, 1998, concurrent with the settlement agreement disclosed in Note 1,

the prepayment sums of approximately $30,702,000 then outstanding under the

Crude Oil Prepayment Agreement were converted into a credit facility. Under the

terms of the facility, interest is payable on the outstanding principal balance

of the facility at a maximum rate equal to Libor plus 4% per annum. As

restructured, repayment of $20,100,000 was deferred until June 30, 1999 with the

balance of $10,602,000 due on December 31, 1999. Interest payments were to

commence quarterly on December 31, 1998. Subsequent to December 31, 1998, the

Company received written confirmation that the first quarterly interest payment

due December 31, 1998 had been capitalized and that interest payments would

commence on March 31, 1999. The Company has since been advised that

notwithstanding its written extension, the first interest instalment continued

to be due on December 31, 1998. The Company has not yet made this interest

payment and is currently negotiating regarding relief from this payment and from

other near-term cash interest payments.



The Company has granted security in respect of its repayment obligations under

the facility. Included as security are (1) a pledge of all of the common shares

of those subsidiaries that hold Participating Interests in the Company's Niger

Delta and Benin Basin Concessions; (2) a series of debentures granting a

security interest against the Company's Participating Interest in its Niger

Delta and Benin Basin Concessions; and (3) a guarantee of the Company for all

outstanding amounts under the Loan.

-52

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

5.



LEASE



OBLIGATIONS



The Company had entered into various leases relating to the production facility.

Leases are classified as capital or operating leases. Leases which transfer

substantially all of the benefits and risks incident to ownership of property

were accounted for as capital leases. All other leases were accounted for as

operating leases. As part of the restructuring and disposition of assets on

June 30, 1998 all lease obligations related to the production facility were

assumed by Amni.

The Company has entered into a lease for the office premises in Houston. The

lease has 18 months remaining. The minimum lease payments under the terms of

this lease are $41,200 per year.

6.



SHARE



CAPITAL



a)



Common Shares

Authorized

Unlimited number of

Issued

Common shares



common



shares and preferred shares issuable in series







Number of

$

Shares

(000's)

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





Balance, December 31, 1996

109,413,504 $ 253,554

- ---------------------------------------------- ----------- --------Issued on exercise of options

Issued on exercise of share

purchase warrants

Issued on acquisition of royalty interest

Balance, December 31, 1997

Issued on acquisition of petroleum and natural

gas properties

Balance, December 31, 1998



862,500



1,624



358,152

2,247,680

-----------



19,572

---------



112,881,836



274,750



1,489,000

-----------



2,000

---------



114,370,836

===========



$ 276,750

=========





-53

ABACAN RESOURCE CORPORATION



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

6.



SHARE

b)



CAPITAL

Stock



-



CONTINUED



Options



At December 31, 1998 the Company has options outstanding to acquire 12,356,200

common shares by officers, directors, consultants and employees of the Company.

These options may be exercised at prices ranging from CDN $0.28 to CDN $12.15

per common share and expire at various times to October 23, 2003.

c)



Warrants



Outstanding



On June 30, 1998, in connection with the restructuring of its loan, the Company

agreed to issue 600,000 options at a price of CDN$0.91 per share expiring June

30, 2000. At December 31, 1998, all of the options were outstanding.

On November 6, 1996 the Company completed a public issue of 12,500,000 common

shares at a price of $7.50 per common share. On November 19, 1996 an additional

1,875,000 common shares were issued in conjunction with the underwriters over

allotment option. The Company received net proceeds of $100,987,000. In

connection with this offering, the placement agent was granted warrants to

purchase 100,000 common shares of the Company. The warrants, which can be

exercised after one year from the issue date, have a term of five years and are

exercisable at a price of $7.50 per share. At December 31, 1998, all of these

warrants remain unexercised.

On April 19, 1996, there were warrants granted to purchase 500,000 Common Shares

of the Company for advisory services to an investment banker. These warrants

have a term of five years and are exercisable at a price of $3.40 per share. At

December 31, 1998, all of these warrants remain unexercised.

d)



Acquisition



of



Royalty



Interests



In February 1997, the Company acquired a portion of the gross overriding

royalties on Niger Delta Concession Block OML 112/OPL 237 from YFP by issuing

643,840 Common Shares valued at $6,036,000. The Company also acquired a portion

of the gross overriding royalties on Benin Basin Concession Block OML 113 from

YFP by issuing 643,840 Common Shares of the Company valued at $6,036,000.

On April 1, 1997, the Company acquired a further portion of the gross overriding

royalties on Concession Block OML 112/OPL 237 from YFP on Concession Block OML

113 by issuing 960,000 Common Shares valued at $7,500,000.

-54

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

6.



SHARE

e)



CAPITAL

Acquisition



-



CONTINUED

of



Participating



Interest



In April 1998, the Company issued 1,489,000 shares of its common stock to

Optimum in consideration for financial obligations of $2,000,000 owing to

Optimum to secure the Company's interest in Concession Block OPL 310. Optimum

is the indigenous Nigerian company which owns the rights to Concession Block OPL

310 and is partner to the Company in Concession Block OPL 310, as discussed in

Note 3.

7.

Due



INCOME

to



the



TAXES

nature of the Company's structure and operations, the Company will



not have a tax liability resulting from the current gain on the sale of assets

,and accordingly has not recorded a tax provision. At December 31, 1998, the

Company had approximately CDN $26,854,000 of non-capital losses available to be

applied against taxable income of the future years on the portion of its

operations which are subject to Canadian income taxes. These losses expire

between 1999 and 2004. The Company also had available for deduction, at rates

allowed under the Income Tax Act, CDN $17,012,000 of oil and gas expenditures.

The potential future benefit of these losses and deductions have not been

reflected in the consolidated financial statements.

8.



COMMITMENTS



The Company entered into an agreement for the sale of the Company's and its

Nigerian partner's entitlement to crude oil and condensate produced from the Ima

Field located in Concession Block OML 112 for a period of one year from the date

of the first lifting which occurred on February 21, 1997. The price payable for

each barrel of crude oil and condensate was based upon a range of quoted prices

for Bonny Quesbo crude oil less a new crude oil discount. This discount was

calculated based upon the volume of cargo lifted at each lifting.

At July 29, 1997, the Company entered into a second agreement for the sale of

the Company's entitlement to crude oil and condensate produced from the Ima

Field. The duration of this second agreement was to be one year commencing on

February 22, 1998.

-55

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

8.



COMMITMENTS



-



CONTINUED



Upon relinquishment by the Company of its participating interest in the Ima

Field at June 30, 1998, the above mentioned agreements were terminated, and the

loan was restructured as disclosed in Note 4.

The Company has further commitments with respect to its participating interests

in the Concessions, as disclosed in Note 3.

9.



FINANCIAL



INSTRUMENTS



The carrying value of the financial instruments of the Company approximates

their estimated fair value.

10.



CONTINGENCIES



While the Company is defending various lawsuits, there are two lawsuits in which

the claims are significant, which relate to liabilities assumed by Amni.

Although Amni has agreed to assume liability for any claims against the Company

in respect of oil and gas operations on the Ima Field, the Company will continue

to be liable to trade and other creditors until settlement arrangements can be

established. The total amounts claimed in the two lawsuits (exclusive of costs

and interest) is approximately $3,700,000. The management of the Company has

determined that the Company does not have any material exposure in any of the

lawsuits.

11.



UNCERTAINTY



DUE



TO



THE



YEAR



2000



ISSUE



The Year 2000 Issue arises because many computerized systems use two digits

rather than four to identify a year. Date-sensitive systems may recognize the

year 2000 as 1900 or some other date, resulting in errors when information using

year 2000 dates is processed. In addition, similar problems may arise in some

systems which use certain dates in 1999 to represent something other than a

date. The effects of the Year 2000 Issue may be experienced before, on, or after



January 1, 2000, and, if not addressed, the impact on operations and financial

reporting may range from minor errors to significant systems failure which could

affect the Company's ability to conduct normal business operations. It is not

possible to be certain that all aspects of the Year 2000 Issue affecting the

Company, including those related to the efforts of customers, suppliers, or

other third parties, will be fully resolved.

-56

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

12.



DIFFERENCES

CANADA AND



IN GENERALLY ACCEPTED

THE UNITED STATES



ACCOUNTING



PRINCIPLES



BETWEEN



The consolidated financial statements have been prepared in accordance with

generally accepted accounting principles (GAAP) in Canada. The primary

difference between Canadian and US GAAP affecting the Company's financial

statements are as discussed below:

Deferral



of



General



and



Administrative



Costs



Under Canadian GAAP, general and administrative costs, net of interest and other

revenue prior to the period in which commercial production commenced are

deferred and added to the carrying value of petroleum and natural gas

properties. Under US GAAP, deferral costs of this type would be treated as

expenses in the year incurred.

The effect of this difference is to create a statement of loss and deficit which

would include such revenues and expenses and to reduce the amounts included in

petroleum and natural gas properties as follows:







Net income (loss) as reported

Net oil production revenue

Interest revenue

General and administrative expense

Adjustment to provision for decline in value

of petroleum properties (US GAAP)

Adjustment to gain on sale of assets

Net earnings (loss)

Deficit, beginning of period

Deficit, end of period as adjusted

to US GAAP

Petroleum and natural gas properties

as reported

Increase (decrease)

As adjusted to US GAAP





1998

---------



1997

---------



1996

--------



$



$(239,176)

-



$



(715)

---------11,782



3,000

---------(236,176)



--------(253)



(238,461)

----------



(2,285)

----------



(2,032)

---------



$(226,679)

----------



$(238,461)

----------



$ (2,285)

---------



$



92,431

----------



$ 138,471

715

----------



$265,551

(2,285)

---------



$ 92,431

==========



$ 139,186

==========



$263,266

=========



12,497

-



1,300

1,050

(2,603)



-57

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

12.



DIFFERENCES

CANADA AND

Earnings



per



IN GENERALLY ACCEPTED ACCOUNTING

THE UNITED STATES - CONTINUED



PRINCIPLES



BETWEEN



share



The methodology for computing fully diluted earnings per share is not consistent

between the two countries. For Canadian purposes, the proceeds from dilutive

securities are used to reduce debt in the calculation. US GAAP, Statements of

Financial Accounting Standards ("SFAS") No. 128 requires the proceeds from

dilutive securities be used to repurchase common shares.

Statement



of



Changes



in



Cash



Flow



Under Canadian GAAP, certain financing and investing activities such as

acquiring petroleum and natural gas properties in exchange for share capital are

treated as a cash inflow followed by a cash outflow. As a result, these types

of transactions are included in the consolidated statements of cash flows.

Under US GAAP, non-cash transactions of a financing or investing nature are not

included in consolidated statements of cash flows. These types of transactions

are disclosed as supplementary disclosure to the consolidated statements of cash

flows. Accordingly for US GAAP purposes, financing and investing activities in

the statement of change in cash flow would be lower by $2,000,000, in 1998,

$19,572,000 in 1997 and $600,000 in 1996 as the Company had issued common

shares in exchange for petroleum and natural gas properties or royalty

interests.

For US GAAP purposes, the disposition of assets as outlined in Note 1 would not

be shown on the consolidated statements of cash flow as the Company did not

receive any cash as part of the transaction. Accordingly, cash flows from

financing activities are lower and investing activities will be higher by

$6,094,000.

In addition, for US GAAP purposes, changes in working capital are by definition

an operating activity. For Canadian GAAP purposes, change in working capital

that relate to investing activities such as purchases of equipment are treated

as an investing activity. Accordingly, the net cash from operations in the US

GAAP consolidated statements of cash flows would increase in 1998 by $9,994,000

(1997 - $43,770,000 and 1996 - $12,057,000) from the net cash from operations in

the Canadian GAAP consolidated statements of cash flows. Investing activities

are reduced by the identical amount in each year.

Foreign



currency



translation



Under Canadian GAAP, non-monetary assets and liabilities denominated in foreign

currencies are translated at exchange rates prevailing at the transaction dates.

Under US GAAP, those assets and liabilities would be translated at year-end

rates. As the majority of the assets and liabilities are denominated and

reported in US dollars, this difference would not have material effect on either

the financial position of the results of operations on the Company.

-58

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31

12.



DIFFERENCES

CANADA AND



IN GENERALLY ACCEPTED ACCOUNTING

THE UNITED STATES - CONTINUED



PRINCIPLES



BETWEEN



Deferred



income



taxes



Under Canadian GAAP, the Company would record a deferred tax asset related to a

tax loss carry forward only if the Company was virtually certain of realizing

the benefit associated with the tax loss carry forward. Under US GAAP, SFAS No.

109 requires that the Company record all deferred income tax assets and make an

estimate of the likely recoverability of the asset by recording a provision.

The provision would reduce the recorded deferred tax asset to the amount

expected to be recovered. The Company is of the opinion that the benefits

related to the tax loss carry forwards will not be realized for the foreseeable

future. Accordingly, the provision that the Company would record under US GAAP

would reduce the recorded deferred tax asset to a nil balance. As no benefit

has been realized for Canadian GAAP, there is no difference in the financial

position or the results of operations of the Company.

Comprehensive



income



SFAS No. 130 "Reporting Comprehensive Income" became effective as of the first

quarter of 1998. The statement requires companies to report and display

comprehensive income and its components. Comprehensive income includes all

changes in equity during a period except those resulting from investments by

shareholders or distributions to shareholders. For the Company, comprehensive

income is the same as net income reported in the consolidated statements of

operations and deficit, since there are no other items of comprehensive income

for the years presented.

Recently



issued



Accounting



Standards



SFAS 131, "Disclosures About Segments of an Enterprise and Related Information,"

is effective for the year ended December 31, 1998. This statement establishes

standards for defining and reporting business segments. As the financial

statements disclose the operations of the Company in the various countries, no

additional disclosure is needed.

SFAS 132, "Employer's Disclosures about Pensions and Other Post-retirement

Benefits," revises existing rules for disclosure of pensions and other

post-retirement benefit plans. As the Company does not have any pensions or

other post-retirement benefit plans, no additional disclosure is needed.

SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," is

effective for fiscal years beginning after June 15, 1999. This standard

requires that all derivatives be recognized as either assets or liabilities in

the balance sheet at their fair market values and that accounting for the

changes in their fair values is dependent upon the intended use of the

derivative and its resulting designation. The new standard will supersede or

amend existing standards which deal with hedge accounting and derivatives. The

Company has not yet determined the effect of adopting this standard will have on

its financial statements.

-59

The consolidated statements of operations and accumulated deficit and statements

of cash flows prepared using US GAAP are presented as supplemental information:





ABACAN RESOURCE CORPORATION

CONSOLIDATED STATEMENTS OF LOSS AND ACCUMULATED DEFICIT

(PREPARED USING U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES)

YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars - Note 1)

1998



1997



1996

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



-----------



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



Revenue

Petroleum revenue (net of royalties and foreign taxes)

52,998

$

1,300

Interest and other

528

1,050





$





12,264

181



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



$



-----------



-----------12,445



53,526



2,350

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



--



Expenses

Operating

46,276

General and administrative

3,934

2,603

Interest and other financial expense

4,333

Depletion, depreciation and amortization

28,159

Provision for decline in value of petroleum properties

207,000

-



17,431

4,623

3,022

4,244

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



--



-----------



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



-----------



-----------29,320



289,702



2,603

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



--



Net loss before gain on sale of assets

(236,176)

(253)



(16,875)



Gain on sale of assets

-



28,657

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



--



-----------



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



Net earnings (loss)

(236,176)

(253)



11,782



Deficit, beginning of period

(2,285)

(2,032)

--



-----------



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



(238,461)

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



-----------



$



$



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



Deficit, end of period

(238,461) $

(2,285)



(226,679)



=============

=============



============



Basic earnings (loss) per Common share

(2.11) $

0.00



$



0.10



$



=============

=============



============



Fully diluted earnings (loss) per common share

(2.11) $

0.00



$



0.10



=============

=============



============



Weighted average number of shares outstanding



113,942,486



$



112,029,272



92,899,595



=============





============



=============



-60





ABACAN RESOURCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(PREPARED USING U.S. GENERALLY ACCEPTED ACCOUNTING

PRINCIPLES)

YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars - Note 1)

1998



1997



1996

--



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







NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES

OPERATING

Net earnings (loss)

11,782

$(236,176) $

(253)

Items not affecting cash:

Gain on sale of assets

(28,657)

Provision for decline in value of petroleum properties

207,000

Depletion, depreciation and amortization

4,244

28,159

Changes in non-cash working capital items

32,117

50,202

12,057



$



-------19,486



---------49,185



---------11,804

--



-------



----------



----------



FINANCING

Issue of share capital

Common shares and warrants

104,449

Exercise of options

1,624

5,237

Long term debt

(4,298)

35,000

Bank debt

(20,100)

20,100

Capital lease obligations

(472)

(35,342)

41,909

Issue of convertible debentures

7,806

--------



----------



(4,770)



(18,818)



-------



----------



---------179,501

-----------



INVESTING

Expenditures on petroleum properties and equipment

(13,224)

(91,395)

(159,263)

Maturity settlement of short term investments

15,000

(15,000)

Other

(1,204)

(1,750)

--------



----------



(13,224)



----------



(77,599)



(176,013)

--



-------



----------



----------



NET CASH INFLOW (OUTFLOW)

1,492

(47,232)

15,292

CASH AND SHORT-TERM INVESTMENTS,

BEGINNING OF YEAR

1,813

49,045

33,753

--------



----------



----------



CASH AND SHORT-TERM INVESTMENTS,

END OF YEAR

3,305

$

1,813

$ 49,045

=========



==========



$



==========



Supplemental Non-Cash

Acquisition of petroleum and natural gas properties for common shares

$

2,000



$



19,572



$



600

--



-------



----------



----------



Supplemental Disclosure of Cash Flow

Interest paid

2663

$

2,833

$

895



$

--



------- ---------- ---------Operating lease payments

11,242

$ 23,940

$

-



$

--



------- ---------- ---------Conversion of convertible debentures

including accrued interest

$

$ 13,056



$

--



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




----------61-





ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

- -



SUPPLEMENTAL



Following



INFORMATION



is a summary of stock option activity during the years ended December



31,



1998,



1997



and



1996



(weighted



average



prices



are



in



$CDN):







-----1998-----



-----1997-----



-----1996----Weighted



Weighted



Average



Average



Weighted

Average

Number

Number



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





Outstanding at the beginning of the year

3.52



4,485,000



$



Number



Price



-----------



-----------



---------



-----------



--------



















10,461,750



$



4.72



6,768,000



5,710,250



0.93



4,946,250



(3,815,800)



9.81



(390,000)



-



-



(862,500)



-



-



6.55

5.00

2.26

-----------



---------



-----------



--------



12,356,200



$



10,461,750



$



===========



=========



---------



3.52



=========



=========



===========



Options exercisable

at the end of the year

4.39

4,407,000

$



9,764,117



===========

outstanding



$



3.63



===========



2.25



5,033,750



2.22

===========



Options



-



-



Outstanding at the

end of the year

4.72

6,768,000

$



=========





$



2.70



Granted

6.16

5,498,300

Terminated

5.12

(50,000)

Exercised

2.58 (3,165,300)

Expired

-



Price



Price



=========



===========



=========

as



of



December



31,



1998:











Exercise price of:

$0.28 - $1.00

$1.01 - $6.00

$6.01 - $12.15





Options

Outstanding

----------

4,710,000

7,293,900

352,500



Weighted

Average

Price

--------

$

$

$



0.44

3.65

12.15



Weighted

Average

Remaining

Life (yrs)

---------



Exercisable

Options

----------



4.62

2.97

3.09



4,710,000

4,877,867

176,250



-62

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Weighted

Average

Price

--------

$

$

$



0.44

3.65

12.15



$



FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

13.



SUPPLEMENTAL



INFORMATION



-



CONTINUED



In 1996, the United States Financial Accounting Standards Board issued Statement

of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based

Compensation." With regard to its stock option plan, the Company applies ABB

Opinion No. 25 as allowed under SFAS 123 in accounting for this plan and

accordingly no compensation cost has been recognized. Had compensation expense

been determined based on the fair value at the grant dates for the stock option

grants consistent with the method of SFAS No. 123, the Company's net income and

net income per common share should have been reduced to the pro forma amount

indicated below:





1998

1996



Net Income (Loss)

As Reported

(253)

Pro forma

(14,437)

Net Income (Loss) Per Share

As Reported

Basic

Fully Diluted

Pro forma

Basic

(0.16)

Fully Diluted

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







1997









11,782



(236,176)



8,510



(253,047)



0.10



(2.11)



0.10



0.07

0.07

-------



-



(2.26)

----------



--



Stock options issued during period (thousands)

5,710

4,946

5,498

Weighted average exercise price

$ 0.93 $

6.18

$

6.55

Average per option compensation value of options granted (a)

0.85

4.77

3.52

Compensation cost (thousands $U.S.)

$ 3,272 $ 16,871

$

14,184

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

(a) Calculated in accordance with the Black-Scholes option pricing model,

using the

following assumptions: expected volatility computed using, as of the date of

grant, the

prior year monthly average of the Common Shares as listed on the TSE, which ranged

from

53.5% to 148%; expected dividend yield - 0%; expected option term - 5 years; and

risk-free

rate of return as of the date of grant which ranged from 5.4% to 7.4%, based on the

yield of

five-year Canadian treasury securities.





-63

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

13.



SUPPLEMENTAL

Capitalized



INFORMATION



costs



-



CONTINUED



(unaudited)



The following tables summarize the costs incurred in oil and natural gas

property acquisition, exploration and development activities. Property

acquisition costs are those costs incurred to purchase, lease, or otherwise

acquire property. Exploration costs include costs of identifying areas that may

warrant examination and in examining specific areas that are considered to have

prospects containing oil and natural gas reserves, including costs of drilling

exploratory wells, geological and geophysical costs and carrying costs on

undeveloped properties. Development costs are incurred to obtain access to

proved reserves, including the cost of drilling development wells, and to

provide facilities for extracting, treating, gathering and storing the oil and

natural gas.

The Company has

costs pertaining



capitalized property acquisition, exploration and development

to its oil and gas producing operations as follows:







1998







Property

Proved

Unproved



1997



$



92,431

-------







1996





$ 279,859

94,535

----------



$203,013

60,253

--------



92,431

Accumulated depreciation,

depletion and amortization

Capitalized Costs



374,394



263,266



-------



(235,208)

----------



--------



$92,431

=======



$ 139,186

==========



263,266

========





-64

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

13.



SUPPLEMENTAL



INFORMATION



Costs incurred for

calendar year basis



-



property







Total

(000's)



CONTINUED

acquisition and exploration activities on a











1998

Property Acquisition

Proved

Unproved

Exploration and Development



$



2,000

13,224

--------$ 15,224

---------



1997

Property Acquisition

Proved

Unproved

Exploration and Development



$



20,772

1,525

88,670

--------$ 110,967

---------



1996

Property Acquisition

Proved

Unproved

Exploration and Development



$



600

159,249

--------159,849

---------





Depletion

The



Expenses



Company



has



(unaudited)

recorded



depletion



1998

$ 2.92

=======



on



1997

$

8.33

========



a



per



barrel



basis



as



follows:



1996

$

=======



-65

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

14.



SUPPLEMENTAL



RESERVE



INFORMATION



(UNAUDITED)



Net proved oil and natural gas reserve estimates were prepared by Gilbert

Lausten Jung Associates Ltd., independent petroleum engineers located in

Calgary, Alberta. Oil and natural gas prices in effect as of the reserve report

date were used without escalation. Operating costs and future development costs

were based on current costs with no escalation.

There are numerous uncertainties inherent in estimating quantities of proved

reserves and in projecting future rates of production and the timing of

development expenditures. The following reserve data represents estimates only

and should not be construed as being exact. Moreover, the present values should

not be construed as the market value of the Company's oil and natural gas

reserves or the costs that would be incurred to obtain equivalent reserves.







Estimated quantities of proved reserves

(mmbbls)



Year ended

December 31,

1998

-----------



Year ended

December 31,

1997

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



Year ended

December 31,

1996

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



Balance, beginning of year

Reserve additions

Economic revisions

Production and sale



15.8

15.8

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



23.5

(4.3)

(3.4)

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



21.8

1.8

(0.1)

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



Balance, end of year



============



15.8

=============



23.5

=============









Standardized

gas reserve



measure of discounted future cash flows relating to proved oil and

quantities



In calculating the standardized measure of discounted future net cash flows,

prices and costs in effect at year end were assumed to be constant, were applied

to proved reserves and provision was made for estimated future development

expenditures that will be required to produce the Company's reserves. Royalty

deductions were based on laws, regulations and contracts existing at the end of

the fiscal year. The discounted future net cash flows were derived by applying

a 10% discount factor, as required by SFAS No. 69, to the future net cash flows.

Management believes that this information does not reflect the current economic

value of the oil and gas properties or the present value of estimated future

cash flows since no economic value is attributed to potential reserves, the use

of a 10% discount rate is arbitrary and prices change constantly from year end

levels.

-66

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

14.



SUPPLEMENTAL



RESERVE



INFORMATION



(UNAUDITED)



-



CONTINUED









December 31, 1998

Future cash inflows

Future capital lease payments

Future gross overriding royalties

Future production and development costs



(000's)



$



--------



10% annual discount for estimated timing of cash flows



--------



Standardized measure of future net cash flows



$

========



Changes in standardized measure



December 31, 1997

Purchases of reserves in place

Sales of reserves in place

Net changes in prices and costs



$



64.5

(64.5)

--------



December 31, 1998



$

========



December 31, 1997

Future cash inflows

Future capital lease payments

Future gross overriding royalties

Future production and development costs



$ 357.8

6.6

(35.8)

(251.5)

-------77.1



10% annual discount for estimated timing of cash flows



(12.6)

--------



Standardized measure of future net cash flows



$ 64.5

========



Changes in standardized measure

December 31, 1996

Purchases of reserves in place

Production

Net changes in prices and costs



$ 268.2

(203.6)

(.01)

--------



December 31, 1997



$ 64.5

========





-67

ABACAN RESOURCE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31

(Thousands of U.S. Dollars)

(Note 1)

14.



SUPPLEMENTAL



RESERVE



INFORMATION



(UNAUDITED)



-



CONTINUED









December 31, 1996

Future cash inflows

Future capital lease payments

Future gross overriding royalties

Future production and development costs



(000's)

-------

$ 537.4

38.1

(55.8)

(217.4)

-------302.3



10% annual discount for estimated timing of cash flows



(34.1)

--------



Standardized measure of future net cash flows



$ 268.2



========

Changes in standard measure

December 31, 1995

Purchases of reserves in place

Sales of reserves in place

Net changes in prices and costs



$ 152.0

116.2

--------



December 31, 1996



$ 268.2

========





U.S.



GAAP



RECONCILIATION



The Company's Audited Consolidated Financial Statements for the fiscal year

ended December 31, 1998 (the "1998 Financial Statements") have been prepared in

accordance with generally accepted accounting principles in Canada. These

principles differ in some respects to generally accepted accounting principles

in the United States. The Company's 1998 Financial Statements include "Comments

by Auditors for U.S. Readers on Canada - U.S. Reporting Difference" as a

supplement to the Auditors' Report. In addition, a detailed discussion entitled

"Differences in Generally Accepted Accounting Principles Between Canada and the

United States" is included as Note 12 of the 1998 Financial Statements. See

"Consolidated Financial Statements and Unaudited Supplementary Data".

-68

ABACAN RESOURCE CORPORATION

INDEPENDENT AUDITOR'S CONSENT



We consent to the inclusion of our report dated February 17, 1999 (which express

an unqualified opinion and for U.S. Readers had a Canada-U.S. reporting

difference which would require the addition of an explanatory paragraph

(following the opinion paragraph) relating to the Company's ability to continue

as a going concern), with respect to the consolidated financial statements of

Abacan Resource Corporation appearing in the Annual Report on Form 10-KSB of

Abacan Resource Corporation for the year ended December 31, 1998.



Deloitte



&



Touche



LLP



/s/ Deloitte & Touche

Chartered Accountants

Calgary, Alberta

March



26,



LLP



1999

-69-







-70



-71



ITEM



8.



CHANGES IN AND DISAGREEMENTS

FINANCIAL DISCLOSURE



WITH ACCOUNTANTS ON ACCOUNTING AND



There are not and have not been any disagreements between the Company and

its accountants on any matter of accounting principles or practices or financial

statement disclosure.

PART III

ITEM



9.



DIRECTORS



DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE

ISSUER; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

AND



EXECUTIVE



OFFICERS



The following is a list of the names of the Company's current directors and

executive officers, their jurisdiction of residence and their principal

occupation for the past five years. Each of the named directors has agreed to

stand for re-election at the upcoming Annual and Special Meeting of Shareholders

scheduled for March 29, 1999 in Houston, Texas.





NAME

AGE

POSITION

PRINCIPAL

OCCUPATION WITHIN LAST FIVE YEARS

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





Timothy T. Stephens

46 Chairman, President, CEO President, Chief Executive

Officer and Director since February 1998 and

Houston, Texas

and Director

Chairman since February 1999;

prior thereto, between March 1995 and

May 1997, the President and a

Director of Seven Seas Petroleums Inc.

(TSE and NASDAQ); prior

thereto, between July 1991 and March 1995,

a Vice President of Enron

Capital and Trade Resources Inc.

James S. Harvie (1)

49 Director

Chief Operating Officer between June 1997

Calgary, Alberta

thereto, between June 1994 and August 1996,



Director since June 1997 and

and February 1999; prior

the Executive Vice President



of Midland Walwyn Capital Inc.; prior

thereto, President of Deacon

Barclay's Canada; former Governor of The

Toronto Stock Exchange.

T. B. ("Tunde") Folawiyo

39 Director

Executive Director of Yinka Folawiyo

Lagos, Nigeria

Nigerian oil company) and Executive



Director since December 1993.

Petroleum Co. Ltd. (a private

Director of Yinka Folawiyo



Group of Companies (an international business

conglomerate).

James A. Kishpaugh (1)

58 Director

1999. Chairman and CEO of Merlon Petroleum

Houston, Texas

since 1997. Chairman and CEO of Texas



Director since February 8,

Company, a private company,

International Company (NYSE)



and Phoenix Resources Company

(NASDAQ) from 1978 to 1990.

Kenneth C. Rutherford (1)



45



Director



Director since February 8,



1999. Vice President and CFO of Scorpion

Calgary, Alberta

1998 to present; President of Captiva



Energy Corporation (TSE) from

Resource Corporation, a



private oil and gas financial, investment and

administrative services

company, from 1993 to present; Vice President

Finance and CFO of Arakis

Energy Corporation (NASDAQ) from

December 1996 to September

1997 and a Director of Arakis from

July 1997 to October 1998.



_________

(1)

Indicates





member



of



the



Company's



Audit



Committee.



During the fiscal year ended December 31, 1998, the Corporation paid no

cash compensation (including salaries, director's fees, commissions, bonuses

paid for services rendered, bonuses paid for services rendered in a previous

year, and any compensation other than bonuses earned by the directors for

services rendered) to the directors for services rendered as such. Compensation

has been paid by the Corporation to certain directors or companies owned or

controlled by directors where such directors have provided ongoing professional

consulting or employment services to the Corporation or its subsidiaries.

Executive officers of the Corporation who also act as directors of the

Corporation, do not receive any additional compensation for services rendered in

their capacity as directors, other than as paid by the Corporation to such

executive officers in their capacity as executive officers.

-72

During the fiscal year ended December 31, 1998, a total of 4,999,500 stock

options were granted to the directors of the Corporation (including directors

who were executive officers).

SIGNIFICANT



EMPLOYEES



The following persons, who are not directors or executive officers of the

Company, are expected to make a significant contribution to the ongoing business

affairs of the Company.





NAME

AGE

POSITION

PRINCIPAL OCCUPATION WITHIN LAST FIVE

YEARS

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





Wade G. Cherwayko

35 Consultant Consultant to the Company since February 1998;

President and Chief

Lagos, Nigeria

Executive Officer of the Corporation between May

1993 and February

1998; Director between November 1992 and February

1999; prior thereto,

an independent international petroleum consultant.



FAMILY



RELATIONSHIPS



There are no family

executive officers.

INVOLVEMENT



IN



CERTAIN



relationships



LEGAL



PROCEEDINGS



among



the



Company's



directors



or



None of the Company's directors or executive officers have been involved

during the past five years in any legal proceedings material to an evaluation of

such persons ability or integrity.

COMPLIANCE



WITH



SECTION



16(A)



OF



THE



EXCHANGE



ACT



Section 16(a) of the Securities Exchange Act of 1934 requires the Company's

officers and directors, and persons who own more than 10 percent of the

Company's common stock to file reports of ownership and changes in ownership

with the Securities and Exchange Commission ("SEC"). Officers, directors, and

greater than 10 percent shareholders are required by SEC regulations to furnish

the Company with copies of all Section 16(a) forms they file. Management

believes all such individuals were in compliance with Section 16(a) as of the

effective date hereof.

ITEM



10.



EXECUTIVE



COMPENSATION



Information in respect of this item appears on Pages 6 - 14 of the

Company's Definitive Proxy Statement filed March 5, 1999 under the heading

"Compensation of Directors and Executive Officers" and is incorporated herein by

reference.

ITEM



11.



SECURITY



OWNERSHIP



OF



CERTAIN



BENEFICIAL OWNERS AND MANAGEMENT



Information in respect of this item appears on Pages 2 - 5 of the Company's

Definitive Proxy Statement filed March 5, 1999 under the heading "Voting Shares

and Principal Holders Thereof" and is incorporated herein by reference.

-73

ITEM 12.



CERTAIN



RELATIONSHIPS



AND



RELATED



TRANSACTIONS



There are no material interests, direct or indirect, of directors, senior

officers, or any shareholder who beneficially owns, directly or indirectly, more

than 5% of the outstanding Common Shares or any known associate or affiliates of

such persons, in any transaction within the last two fiscal years or in any

proposed transaction which has materially affected or would materially affect

the Company other than as disclosed below:

TRANSACTIONS

(1)

On April 5, 1995, Liberty Technical Services Ltd. ("Liberty") (a

subsidiary of the Company) granted Yinka Folawiyo Petroleum Company Limited

("YFP") a 2.40879% before Payout (1.26% after Payout) royalty interest in

respect of all petroleum substances produced from Concession Block OPL 237 in

consideration of YFP's assistance in enabling the Company to acquire a

Participating Interest in the concession. On March 31, 1997, YFP sold 0.9554%

before Payout and 0.4863% after Payout of its royalty interest to Liberty in

consideration of the payment of $3,767,495 from Liberty to YFP. The

consideration for the purchased royalty interest was based upon the discounted

future value of the royalty interest based upon the proved reserves on

Concession Block OPL 237 at the time of purchase. The purchase price was

determined based upon the purchase price paid by the Company for a royalty

interest acquired by it from an unrelated third party. Payment was satisfied

through the issuance of 482,239 common shares of Abacan at a price of $7.8125

per common share. YFP is a company that is substantially controlled by the

father of Mr. Tunde Folawiyo, a director of the Company. Tunde Folawiyo is a

director and senior officer of YFP.

(2)

On February 23, 1994, Liberty granted YFP a 2.45775% before Payout

(1.2611% after Payout) royalty interest in respect of all petroleum substances

produced from Concession Block OML 112 (formerly OPL 469) in consideration of

YFP's assistance in enabling the Company to acquire a Participating Interest in

the concession. On March 31, 1997, YFP sold 0.86125% before Payout and 0.43841%

after Payout of its royalty interest to Liberty in consideration of the payment



of $3,732,505 from Liberty to YFP. The consideration for the purchased royalty

interest was based upon the discounted future value of the royalty interest

based upon the proved reserves on Concession Block OPL 469 at the time of

purchase. The purchase price was determined based upon the purchase price paid

by the Company for a royalty interest acquired by it from an unrelated third

party. Payment was satisfied through the issuance of 477,761 common shares of

Abacan at a price of $7.8125 per common share.

(3)

On March 8, 1992, the Company and YFP signed a Joint Venture Agreement

for the exploration of Nigerian Concession Block OPL 309. Under the terms of

the Joint Venture Agreement, the Company was responsible, inter alia, to pay YFP

a conversion fee of $5.0 million upon the conversion of the OPL into an OML. On

July 3, 1998, OPL 309 was converted into OML 113. Consequently, a payment of

$5.0 million is due from the Company to YFP. Payment of this amount will come

from a portion of the Company's net cash flow from future production on OML 113.

MATERIAL



INTERESTS



1.

Pursuant to a Royalty Agreement between Liberty and Abacan International

Resource Management Inc. ("AIRMI") dated December 2, 1994, AIRMI holds a 1.501%

Pre-Payout (0.764% After Payout) royalty interest in respect of all petroleum

substances produced from Concession Block OPL 237. AIRMI is a company wholly

owned by Wade G. Cherwayko, a former President, CEO and director of Abacan.

-74

2.

Pursuant to a Royalty Agreement between Liberty and AIRMI dated August

19, 1993, AIRMI holds a 0.825% before Payout (0.42% after Payout) royalty

interest in respect of all petroleum substances produced from Concession Block

OML 112.

3.

Pursuant to a Royalty Agreement between Liberty and AIRMI dated March 8,

1992, AIRMI holds a 1.65% before Payout (0.84% after Payout) royalty interest in

respect of all petroleum substances produced from Concession Block OML 113.

4.

Pursuant to a Participation/Royalty Agreement between Liberty and YFP

dated April 5, 1995 (amended pursuant to a Sale Agreement dated March 31, 1997),

YFP holds a 1.61146% before Payout (0.82037% after Payout) royalty interest in

respect of all petroleum substances produced from Concession Block OML 112.

5.

Pursuant to a Participation/Royalty Agreement between Liberty and YFP

dated February 23, 1994 (amended pursuant to a Sale Agreement dated March 31,

1997), YFP holds a 1.59650% before Payout (0.81269% after Payout) royalty

interest in respect of all petroleum substances produced from Concession Block

OML 112.

6.

YFP is the indigenous Nigerian concession owner of Concession Block OML

113. Under the terms of the Joint Venture Agreement between the Company and YFP

dated March 8, 1992, the Company is responsible for paying 100% of all capital

and operating costs before to Payout reducing to 40% of all such costs after

Payout. After accounting for royalties and taxes, the Company is entitled to

52.525% of all revenues earned before Payout and 26.74% of all revenues after

Payout. YFP is not responsible for any costs before Payout but is entitled to

15.0% of all revenues before Payout. After Payout, YFP is responsible for 60% of

all capital and operating costs and is entitled 28.0% of all revenues. In

addition to the foregoing, the Company is responsible for a payment of $5.0

million to YFP as a result of the conversion of the oil prospecting licence to

an oil mining lease in respect of Block OML 113. Payments are to be paid out of

a portion of the Company's net cash flow from future production of Block OML

113.

ITEM

(3)



13.



EXHIBITS



Exhibits:



See



AND



REPORTS



the



Exhibits



ON



FORM



Index



8-KSB

on



Page



77.



(4)

last



Reports on Form

quarter of fiscal



8-KSB: No reports on Form 8-KSB were filed during the

1998.

-75-





SIGNATURES

Pursuant to the requirements of Section 13 or Section 15(d) of the

Securities Exchange Act of 1934, the Registrant has duly caused this report to

be signed on its behalf by the undersigned, thereunto duly

authorized, on March 1, 1999.

ABACAN RESOURCE

(Registrant)



CORPORATION



By: /s/ Timothy T. Stephens

______________________________

Timothy T. Stephens

Chairman of the Board , President and

Chief Executive Officer

(Principal Executive

Officer)

By: /s/ James S. Harvie

______________________________

James S. Harvie

Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this

report has been signed below by the following persons in the capacities and on

the dates indicated:





Signature





Title





Date





/s/ Timothy T. Stephens

Timothy T. Stephens



Chairman of the Board, President,

Chief Executive Officer and Director



March 1, 1999



/s/ James S. Harvie

James S. Harvie



Director



March 1, 1999



/s/ James Kishpaugh

James Kishpaugh



Director



March 1, 1999



/s/ Ken Rutherford

Ken Rutherford



Director



March 1, 1999



/s/ Tunde Folawiyo

Tunde Folawiyo





Director



March 1, 1999



-76





ABACAN RESOURCE CORPORATION

EXHIBITS INDEX

Exhibit

Number

- -------



Description

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



------







3.1



Certificate of Amendment and Articles of Amalgamation dated February 10, 1995



3.2



Articles of Amendment dated June 20, 1997



3.3



By-Laws dated January 20, 1995



4.1



Description of Common Stock



10.1



Termination, Settlement and Release Agreement dated June 30, 1998 between Amni

and Liberty, and first supplement agreement



10.2



Termination, Settlement and Release Supplemental Agreement dated June 30, 1998

between Amni and Liberty



10.3

Joint Venture Agreement dated June 30, 1998 in respect of the Deep Ima

Prospect

between Amni and Liberty

10.4

Joint Operating Agreement dated June 30, 1998 in respect of the Deep Ima

Prospect

between Amni and Liberty

10.5



Debenture dated June 30, 1998 in respect of the Deep Ima Prospect between Amni

and Liberty



10.6



Consent Agreement dated June 30, 1998 between Amni and Liberty



10.7



Termination Agreement dated June 30, 1998 in respect of the MOPU between

Abacan Technical Services Ltd. ("Abacan Technical"), Liberty, Amni,

Schlumberger and Sedco



10.8



Facility Agreement dated June 30, 1998 between Abacan Resource

Corporation ("Abacan"), Dahomey Resource Corporation ("Dahomey"), Liberty and



CSFB

10.9



Security Trust Deed dated June 30, 1998 between Abacan, Dahomey, Liberty,

Abacan Resources (Benin) Limited ("Abacan Benin"), West African Resource

Corporation, Agbara Resources Limited, Abacan Power (Benin) Limited, AbacanAddax Benin Consortium S.A., Abacan Resources (Nigeria) Ltd., Angus

International Resources Ltd., Profile International Ltd. and CSFB



10.10



Royalty Agreement dated March 8, 1992 in respect of Nigerian Concession Block

OML 113 (formerly OPL 309) between Liberty and Abacan

International Resource Management Inc. ("Airmi")



10.11



Royalty/Revenue Interest Sale Agreement dated March 31, 1997 in respect

of Nigerian Block OML 112 (formerly OPL 469) between Liberty and Yinka

Folawiyo Petroleum Company Limited ("YFP")

-77-





10.12



Royalty Agreement dated August 19, 1993 in respect of Nigerian Concession

Block OML 112 (formerly OPL 469) between Liberty and Airmi



10.13



Royalty/Revenue Interest Sale Agreement dated March 31, 1997 in respect

of Nigerian Block OPL 237 between Liberty and YFP



10.14



Royalty Agreement dated December 2, 1994 in respect of Nigerian

Concession Block OPL 237 between Liberty and Airmi



10.15



Joint Operating Agreement dated March 8, 1992 in respect of Nigerian

Concession Block OML 113 between Liberty and YFP



10.16



Joint Operating Agreement dated March 8, 1992 in respect of Nigerian

Concession Block OML 113 between Liberty and YFP



10.17



Project Management Agreement dated March 8, 1992 in respect of

Nigerian Concession Block OML 113 between Liberty, YFP and Airmi



10.18



Technical Assistance Agreement dated March 8, 1992 in respect of

Nigerian Concession Block OML 113 between Liberty and YFP



10.19



Joint Venture Agreement dated November 27, 1996 in respect of

Nigerian Concession Block OPL 310 between Liberty and Optimum Petroleum

Development Limited ("Optimum")



10.20



Technical Assistance Agreement dated November 27, 1996 in respect of

Nigerian Concession Block OPL 310 between Liberty and Optimum



10.21



[intentionally left blank]



10.22

Oil Exploration and Exploitation Contract - Offshore Block No. 4 dated

February

1, 1997 between Addax Petroleum Benin Limited ("Addax"), Abacan Resources

(Benin) Limited and the Government of the Republic of Benin (English language

translation of French language original).

10.23



Oil Exploration and Exploitation Contract - Offshore No. 1 and Seme Bloc dated

February 1, 1997 between Addax Petroleum Benin Limited ("Addax"), Abacan

Resources (Benin) Limited and the Government of the Republic of Benin (English

language translation of French language original).



10.24



Purchase and Sale Agreement dated July 31, 1997 in respect of Benin Block 4

and Block 1 between Addax and Abacan Benin



10.25



Conveyance Agreement dated July 31, 1997 in respect of Benin Block 4 and

Block 1 between Addax and Abacan Benin

-78-





10.26



Consulting Services Agreement dated July 18, 1996 between Texada Holdings

Ltd. and Liberty



10.27



Employment Services Agreement dated February 10, 1998 between

Timothy Stephens and Abacan



10.28



Stock Option Plan dated June 20, 1997 and standard form of Stock

Option Agreement



11.1



Statement re: Computation of Per Share Earnings



21.1



Subsidiaries



27.1

Summary Financial Information



-79







EX-3.1

2





EXHIBIT



3.1

CORPORATE ACCESS NUMBER

20641637



BUSINESS CORPORATIONS ACT



CERTIFICATE

OF

AMALGAMATION



ABACAN RESOURCE CORPORATION

IS THE RESULT OF AN AMALGAMATION

ON FEBRUARY 10, 1995



MUNICIPAL



FILED



AFFAIRS



SEAL



/S/

--------------------------REGISTRAR OF CORPORATIONS



GOVERNMENT



OF



ALBERTA





ARTICLES



BUSINESS CORPORATIONS

(SECTION 179)

ALBERTA

CONSUMER

1.



AND



NAME



CORPORATE

OF



ABACAN



AFFAIRS



AMALGAMATED

RESOURCE



ARTICLES



OF



ACT



OF



AMALGAMATION

PAGE 1



FORM



9



AMALGAMATION



CORPORATION:



CORPORATION



- -------------------------------------------------------------------------------2.



CORPORATE



ACCESS



NO.:



20641637

- -------------------------------------------------------------------------------3.



THE CLASSES AND ANY

AUTHORIZED TO ISSUE:



MAXIMUM



NUMBER OF SHARES THAT THE CORPORATION IS



THE ATTACHED SCHEDULE 1 IS INCORPORATED INTO AND FORMS PART OF THIS FORM.

- -------------------------------------------------------------------------------4.



RESTRICTIONS



IF



ANY



ON



SHARE



TRANSFERS:



NONE

- -------------------------------------------------------------------------------5.



NUMBER

MINIMUM



(OR



MINIMUM



AND



1,



MAXIMUM



15



MAXIMUM



NUMBER)



OF



DIRECTORS:



- -------------------------------------------------------------------------------6.



RESTRICTIONS



IF



ANY



ON



BUSINESS



THE



CORPORATION



MAY



CARRY



ON:



NONE

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

ARTICLES

7.



OTHER



PROVISIONS,



IF



OF



AMALGAMATION

PAGE 2



ANY:



THE BOARD OF DIRECTORS OF THE CORPORATION MAY, BETWEEN ANNUAL MEETINGS APPOINT

ONE OR MORE ADDITIONAL DIRECTORS OF THE CORPORATION TO SERVE UNTIL THE NEXT

ANNUAL MEETING, BUT THE NUMBER OF ADDITIONAL DIRECTORS SHALL NOT AT ANY TIME

EXCEED ONE-THIRD (1/3) OF THE NUMBER OF DIRECTORS WHO HELD OFFICE AT THE

EXPIRATION OF THE LAST ANNUAL MEETING OF THE CORPORATION.

- -------------------------------------------------------------------------------8.



NAME



OF



ABACAN

CANADIAN

CANSTAR

CANADIAN

PROFILE



AMALGAMATING

RESOURCE

ANGUS

VENTURES



CORPORATE



CORPORATION

RESOURCES



ACCESS



NO.:



20482411



LTD.



20389539



CORP.



INDUSTRIAL

CAPITAL



CORPORATIONS:



20359023



MINERALS



CORP.



CORP.



20638943

20368302



- -------------------------------------------------------------------------------9.



DATE



FEBRUARY



10,



SIGNATURE



1995



/s/



Wade



TITLE



Cherwayko



Director



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



FOR



DEPARTMENTAL



USE



ONLY



FILED





ARTICLES



OF



AMALGAMATION

PAGE 3



SCHEDULE "1"

-----------The



shares



(a)



an unlimited number of common shares without nominal or par value with the

following rights, privileges, restrictions and conditions:

(i)



which



the



Corporation



is



authorized



to



issue



are:



to vote at meetings of shareholders, except meetings at which only

holders of a specified class of shares are entitled to vote;



(ii) subject to the rights, privileges,

restrictions and conditions

attaching to any other class of shares of the Corporation, to share

equally in the remaining property of the Corporation upon liquidation,

dissolution or winding-up of the Corporation; and

(iii)subject to the rights of the preferred shares, the common shares shall

be entitled to receive dividends if, as and when declared by the

directors of the Corporation; and

(b)



an unlimited number of preferred shares without nominal

("Preferred

Shares") which, as a class, have attached

following:

(i)



or par value

thereto the



the Preferred Shares may from time to time be issued in one or more

series and, subject to the following provisions, to the sending of

articles of amendment in prescribed form and the issuance of a

certificate of amendment in respect thereof, the directors may fix

from time to time before such issue the number of shares which is to

comprise each series and the designation,

rights,

privileges,

restrictions and conditions attaching to each series of preferred

shares including, without limiting the generality of the foregoing,

the rate or amount of dividends or the method of calculating

dividends, the dates of payment thereof, the redemption, purchase

and/or conversion prices and terms and conditions of redemption,

purchase and/or conversion, and any sinking fund or other provisions;





ARTICLES



OF



AMALGAMATION

PAGE 4



(ii) the Preferred Shares of each series shall, with respect to the payment

of dividends and the distribution of assets or return of capital in

the event of

liquidation,

dissolution

or

winding-up of the

Corporation, whether voluntary or involuntary, or any other return of

capital or distribution of the assets of the Corporation among its

shareholders for the purpose of winding up its affairs, rank on a

parity with the preferred shares of every other series and be entitled

to preference over the common shares and over any other shares of the

Corporation ranking junior to the preferred shares. The Preferred



Shares of any series may also be given such other preferences, not

inconsistent with these articles, over the common shares and any other

shares of the Corporation ranking junior to such preferred shares as

may be fixed in accordance with clause (b) (i);

(iii)if any cumulative dividends or amounts payable on the return of

capital in respect of a series of Preferred Shares are not paid in

full, all series of Preferred Shares shall participate rateably in

respect of accumulated dividends and return of capital; and

(iv) unless the directors otherwise determine in the articles of amendment

designating a series, the holder of each share of a series of

Preferred Shares shall not, except as otherwise specifically provided

in the Business Corporations Act (Alberta), be entitled to receive

--------------------------notice of or vote at any meeting of shareholders.









EX-3.2

3



EXHIBIT



3.2

CORPORATE ACCESS NUMBER: 206416372



ALBERTA

BUSINESS CORPORATIONS ACT

CERTIFICATE

OF

AMENDMENT

ABACAN RESOURCE CORPORATION

AMENDED ITS ARTICLES ON 1998/05/27



REGISTRAR OF

Seal

CORPORATIONS



BUSINESS CORPORATIONS ACT FORM 4

(SECTION 27 OR 171)



ALBERTA

CONSUMER AND CORPORATE AFFAIRS ARTICLES OF AMENDMENT

- -------------------------------------------------------------------------------1.NAME OF CORPORATION:



2.CORPORATE ACCESS NUMBER:



ABACAN RESOURCE CORPORATION206416372

- -------------------------------------------------------------------------------3.Pursuant to subsection 167(1)(m) of the Business Corporations Act (Alberta),

the other rules or provisions of the Articles of Incorporation be amended by the

addition of the following paragraph:

In compliance with section 126(4) of the Business Corporations Act (Alberta),

meetings of shareholders of the Corporation shall be held at the place within

Alberta that the directors determine, or in Dallas, Texas; Houston, Texas; New

York, New York; Las Angeles, California; Phoenix, Arizona; New Orleans,

Louisiana or Toronto, Ontario.



- -------------------------------------------------------------------------------4.DATE



SIGNATURE



TITLE



June 20, 1997



_______________________



Assistant Secretary



- -------------------------------------------------------------------------------FOR DEPARTMENTAL USE ONLY FILED









EX-3.3

4



EXHIBIT



3.3



BY-LAW NUMBER 1



A BY-LAW RELATING GENERALLY

TO THE TRANSACTION OF THE

BUSINESS AND AFFAIRS OF

ABACAN RESOURCE CORPORATION





CONTENTS

SECTION 1.

DEFINITIONS AND INTERPRETATION

(1)

(2)

(3)

(4)



Definitions. . . .

Interpretation . .

Headings . . . . .

By-laws Subject to



. .

. .

. .

the



. . .

. . .

. . .

ABCA.



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1

2

2

2



Execution of Documents . . . . . . . . . .

Cheques, Drafts and Notes. . . . . . . . .

Corporate Seal . . . . . . . . . . . . . .

Banking Arrangements . . . . . . . . . . .

Voting Rights in Other Bodies Corporate. .

Withholding Information from Shareholders.

Divisions. . . . . . . . . . . . . . . . .



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3

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3



Borrowing Power. . . . . . . . . . . . . . . .



4



SECTION 2.

BUSINESS OF THE CORPORATION

(1)

(2)

(3)

(4)

(5)

(6)

(7)



SECTION 3.

BORROWING

(1)



SECTION 4.

DIRECTORS

(1)

(2)

(3)

(4)

(5)



(6)

(7)

(8)

(9)

(10)

(11)

(12)



Management of Business

Qualification. . . . .

Number of Directors. .

Increase Number. . . .

Decrease Number. . . .



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Election and Term. . . . . . . . . .

Removal of Directors . . . . . . . .

Ceasing to Hold Office . . . . . . .

Filling Vacancies. . . . . . . . . .

Delegation to a Managing Director or

Remuneration and Expenses. . . . . .

Annual Financial Statements. . . . .



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Committee

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5

5

5

6

6

6

7



SECTION 5.

MEETINGS OF DIRECTORS

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)



Calling Meetings . . . . . . .

Notice . . . . . . . . . . . .

Notice of Adjourned Meeting. .

Meetings Without Notice. . . .

Waiver of Notice . . . . . . .

Quorum . . . . . . . . . . . .

Regular Meetings . . . . . . .

Chairperson of Meetings. . . .

Decision on Questions. . . . .

Meeting by Telephone . . . . .

Resolution in Lieu of Meeting.



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9

9

10

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10

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11

11



Disclosure of Interest . . . . . . . . . . . .

Approval and Voting. . . . . . . . . . . . . .

Effect of Conflict of Interest . . . . . . . .



11

11

12



SECTION 6.

OFFICERS AND APPOINTEES OF THE BOARD

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)



Appointment of Officers.

Term of Office . . . . .

Duties of Officers . . .

Remuneration . . . . . .

Chairperson of the Board

Managing Director. . . .

President. . . . . . . .

Vice-President . . . . .

Secretary. . . . . . . .

Treasurer. . . . . . . .

Agents and Attorneys . .



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SECTION 7.

CONFLICT OF INTEREST

(1)

(2)

(3)



SECTION 8.

LIABILITY AND INDEMNIFICATION

(1)

(2)

(3)



Limitation of Liability. . . . . . . . . . . .

Indemnity. . . . . . . . . . . . . . . . . . .

Insurance. . . . . . . . . . . . . . . . . . .



12

12

13



SECTION 9.

SECURITIES

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)



Shares . . . . . . . . . . . . . . . . . . . .

Options and Other Rights to Acquire Securities

Commissions. . . . . . . . . . . . . . . . . .

Securities Register. . . . . . . . . . . . . .

Transfer Agents and Registrars . . . . . . . .

Dealings with Registered Holders . . . . . . .

Transfers of Securities. . . . . . . . . . . .

Registration of Transfers. . . . . . . . . . .

Lien . . . . . . . . . . . . . . . . . . . . .

Security Certificates. . . . . . . . . . . . .

Entitlement to a Security Certificate. . . . .

Securities Held Jointly. . . . . . . . . . . .



13

13

13

14

14

14

14

14

15

15

15

15





(13)

(14)



Replacement of Security Certificates . . . . .

Fractional Shares. . . . . . . . . . . . . . .



15

16



SECTION 10.



MEETINGS OF SHAREHOLDERS

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)



Annual Meeting of Shareholders . .

Special Meetings of Shareholders .

Special Business . . . . . . . . .

Place and Time of Meetings . . . .

Notice of Meetings . . . . . . . .

Notice of Adjourned Meetings . . .

Waiver of Notice . . . . . . . . .

Shareholder List . . . . . . . . .

Persons Entitled to Vote . . . . .

Chairperson of Meetings. . . . . .

Scrutineer . . . . . . . . . . . .

Procedure at Meetings. . . . . . .

Persons Entitled to be Present . .

Quorum . . . . . . . . . . . . . .

Loss of Quorum . . . . . . . . . .

Proxy Holders and Representatives.

Time for Deposit of Proxies. . . .

Revocation of Proxies. . . . . . .

Joint Shareholders . . . . . . . .

Decision on Questions. . . . . . .

Voting by Show of Hands. . . . . .

Voting by Ballot . . . . . . . . .

Number of Votes. . . . . . . . . .

Meeting by Telephone . . . . . . .

Resolution in Lieu of Meeting. . .



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16

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SECTION 11.

NOTICES

(1)

(2)

(3)

(4)

(5)

(6)



Method of Notice . . . . . .

Notice to Joint Shareholders

Notice to Successors . . . .

Non-Receipt of Notices . . .

Failure to Give Notice . . .

Execution of Notices . . . .



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SECTION 1.

DEFINITIONS AND INTERPRETATION

(1)

In



DEFINITIONS

the



By-laws,



unless



the



context



otherwise



requires:



(a)



"ABCA" means the Alberta Business Corporations Act, as amended;



(b)



"appoint" includes elect and vice versa;



(c)



"Articles" includes the original or restated articles of incorporation,

articles of amendment, articles of amalgamation, articles of continuance,

articles of

reorganization,

articles of

arrangement,

articles of

dissolution and articles of revival of the Corporation, and any amendment

to any of them;



(d)



"Board" means the board of directors of the Corporation;



(e)



"By-laws" means this by-law and all other by-laws of the

time to time in force;



(f)



"Corporation" means Abacan Resource Corporation;



(g)



"Director" means an individual who is elected or appointed as a director of

the Corporation;



Corporation



from



(h)



"Director, ABCA" means the Director appointed under the ABCA;



(i)



"Indemnified Party" has the meaning

that section;



(j)



"Officer" means an officer of the Corporation appointed by the Board;



(k)



"Record Date" means, for the purpose of determining

to receive notice of a meeting of Shareholders:



set out in section 8 for



purposes of



Shareholders



entitled



i)



the date fixed in advance by the Board for that determination which

precedes the date on which the meeting is to be held by not more than

50 days and not less than 21 days,



ii)



if no date is fixed by the Board, at the close of business

immediately preceding the day on which the notice is given, or



on day



iii) if no notice is given, the day on which the meeting is held;

(l)



"Recorded Address" means:

i)



in the case of a Shareholder, the Shareholder's latest address as

shown in the Corporation's records or those of its transfer agent,



ii)



in the case of joint Shareholders, the latest address as shown in the

Corporation's records or those of its transfer agent in respect of

those joint holders, or the first address appearing if there is more

than one address,



iii) in the case of a Director, the Director's latest address as shown in

the Corporation's records or in the last notice of directors filed

with the Director, ABCA, and

1



iv)



in the case of an Officer or auditor of the Corporation, that person's

latest address as shown in the Corporation's records;



(m)



"Regulations" means the Regulations, as amended, in force from time to time

under the ABCA; and



(n)



"Shareholder" means a shareholder of the Corporation.



(2)



INTERPRETATION



In the

permit:



By-laws,



except



if



defined



in



this section or the context does not



(a)



words and expressions defined or used in the ABCA have the meaning or use

given to them in the ABCA;



(b)



words importing the singular include the plural and vice versa;



(c)



words importing gender include masculine, feminine and neuter genders; and



(d)



words importing persons include bodies corporate.



(3)



HEADINGS



The headings used in the By-laws are inserted for convenience of reference only.

The headings are not to be considered or taken into account in construing the

terms of the By-laws nor are they to be deemed in any way to clarify, modify or

explain the effect of any term of the By-laws.



(4)



BY-LAWS



SUBJECT



TO



THE



ABCA



The By-laws are subject to the ABCA and the Regulations, to any unanimous

shareholder agreement and to the Articles, in that order.

SECTION 2.

BUSINESS OF THE CORPORATION

(1)



EXECUTION



OF



DOCUMENTS



Documents may be executed on behalf of the Corporation in the manner and by the

persons the Board may designate by resolution.

(2)



CHEQUES,



DRAFTS



AND



NOTES



Cheques, drafts or orders for the payment of money, notes, acceptances and bills

of exchange must be signed in the manner and by the persons the Board may

designate by resolution.

(3)



CORPORATE



SEAL



2



The Board may, by resolution, adopt a corporate seal containing the name of the

Corporation as the corporate seal. A document issued by or executed on behalf

of the Corporation is not invalid only because the corporate seal is not affixed

to that document. A document requiring authentication by the Corporation does

not need to be under seal.

(4)



BANKING



ARRANGEMENTS



The Board may open any bank accounts the Corporation may require at a financial

institution designated by resolution of the Board. The Board may adopt,

authorize, execute or deposit any document furnished or required by the

financial institution and may do any other thing as may be necessarily

incidental to the banking and financial arrangements of the Corporation.

(5)



VOTING



RIGHTS



IN



OTHER



BODIES



CORPORATE



The persons designated by the Board to execute documents on behalf of the

Corporation may execute and deliver instruments of proxy and arrange for the

issue of voting certificates or other evidence of the right to exercise voting

rights attached to any securities held by the Corporation in another body

corporate. The instruments, certificates or other evidence shall be in favour

of the person that is designated by the persons executing the instruments of

proxy or arranging for the issue of voting certificates or other evidence of the

right to exercise voting rights. In addition, the Board may direct the manner

in which and the person by whom any particular voting right or class of voting

rights may be exercised.

(6)



WITHHOLDING



INFORMATION



FROM



SHAREHOLDERS



No Shareholder is entitled to obtain any information respecting any detail or

conduct of the Corporation's business which, in the opinion of the Board, would

not be in the best interests of the Shareholders or the Corporation to

communicate to the public.

The Board may determine whether and under what conditions the accounts, records

and documents of the Corporation are open to inspection by the Shareholders. No

Shareholder has a right to inspect any account, record or document of the

Corporation except as conferred by the ABCA or authorized by resolution of the

Board or by resolution passed at a meeting of Shareholders.

(7)



DIVISIONS



The Board may cause any part of the business and operations of the Corporation

to be segregated or consolidated into one or more divisions upon the basis the

Board considers appropriate. Any division may be designated by the name the

Board determines and may transact business under that name. The name of the

Corporation must be set out in legible characters in all contracts, invoices,

negotiable instruments and orders for goods or services issued or made by or on

behalf of any division of the Corporation.

SECTION 3.

BORROWING

(1)



BORROWING



POWER



Without limiting the borrowing power of the Corporation provided by the ABCA,

the Board may, without authorization of the Shareholders,

3



(a) borrow money on the credit of the Corporation;

(b)



issue, reissue, sell or pledge debt obligations of the Corporation;



(c)



subject to section 44 of the ABCA, give a guarantee on behalf of the

Corporation to secure performance of an obligation of any person; and



(d)



mortgage, hypothecate, pledge or otherwise create a security interest in

all or any property of the Corporation, owned or subsequently acquired, to

secure any obligation of the Corporation.



The Directors may, by resolution, delegate to a Director, a committee of

Directors or an Officer all or any of the powers conferred on them by this

section.

SECTION 4.

DIRECTORS

(1)



MANAGEMENT



OF



BUSINESS



The Board shall manage the business

Director must comply with the ABCA,

By-laws.

(2)

A



and affairs of the Corporation. Every

the Regulations, the Articles and the



QUALIFICATION

person



is



disqualified



for



election



as



a



Director



if



that



person:



(a)



is less than 18 years of age;



(b)



is of unsound mind and has been found so by a court in Canada or elsewhere;



(c)



is not an individual; or



(d)



has the status of bankrupt.



A

(3)



Director



is



not



NUMBER



required

OF



to



hold



shares



issued



by



the



Corporation.



DIRECTORS



The Board is to consist of that number of Directors permitted by the Articles.

In the event the Articles permit a minimum and maximum number of Directors, the

Board is to consist of the number of Directors the Shareholders determine by

ordinary resolution. The number of Directors at any one time may not be less

than the minimum or more than the maximum number permitted by the Articles.

(4)



INCREASE



NUMBER



4



The Shareholders may amend the Articles to increase the number, or the minimum

or maximum number, of Directors. Upon the adoption of an amendment increasing

the number or minimum number of Directors, the Shareholders may, at the meeting

at which they adopt the amendment, elect the additional number of Directors

authorized by the amendment. Upon the issue of a certificate of amendment, the

Articles are deemed to be amended as of the date the Shareholders adopted the

amendment.

(5)



DECREASE



NUMBER



The Shareholders may amend the Articles to decrease the number, or the minimum

or maximum number, of Directors. No decrease shortens the term of an incumbent

Director.

(6)



ELECTION



AND



TERM



Each Director named in the notice of directors filed at the time of

incorporation holds office from the issue of the certificate of incorporation

until the first meeting of Shareholders. The Shareholders are to elect

Directors by ordinary resolution at the first meeting of Shareholders and at

each succeeding annual meeting at which an election of Directors is required.

The elected Directors are to hold office for a term expiring not later than the

close of the third annual meeting of Shareholders following the election.

A

Director not elected for an expressly stated term ceases to hold office at the

close of the first annual meeting of Shareholders following the Director's

election. If Directors are not elected at a meeting of Shareholders, the

incumbent Directors continue in office until their respective successors are

elected.

(7)



REMOVAL



OF



DIRECTORS



The Shareholders may by ordinary resolution passed at a special meeting of

Shareholders remove a Director from office. Any vacancy created by the removal

of a Director may be filled at the meeting at which the Director was removed,

failing which the vacancy may be filled by a quorum of Directors.

(8)

A



CEASING

Director



ceases



TO

to



HOLD

hold



OFFICE

office



(a)



the Director dies or resigns;



(b)



the Director is removed

Director; or



(c)



the Director ceases to be

subsection (2).



when:



from office by the

qualified



for



Shareholders

election



who elected the



as a Director



under



A Director's resignation is effective at the time a written resignation is sent

to the Corporation, or at the time specified in the resignation, whichever is

later.

(9)



FILLING



VACANCIES



A quorum of Directors may fill a vacancy in the Board, except a vacancy

resulting from an increase in the number or minimum number of Directors or from

a failure to elect the number or minimum number of Directors required by the

Articles. If there is not a quorum of Directors, or if there has been a failure

to elect the number or minimum number of Directors required by the Articles, the

Directors then in office must immediately call a special meeting of Shareholders

to fill the vacancy. If the Directors fail to call a meeting, or if there are

no Directors then in office, the meeting may be called by any Shareholder.



5



(10)



DELEGATION



TO



A



MANAGING



DIRECTOR



OR



COMMITTEE



The Directors may appoint from their number a Managing Director or a committee

of Directors. A majority of the members of a committee of Directors must be

resident Canadians. A Managing Director must be a resident Canadian. The

Directors may delegate to a Managing Director or a committee of Directors any of

the powers of the Directors. However, no Managing Director and no committee of

Directors has authority to:

(a)



submit to the Shareholders any question or matter requiring the approval of

the Shareholders;



(b)



fill a vacancy among the Directors or in the office of auditor;



(c)



issue securities,

Directors;



(d)



declare dividends;



(e)



purchase, redeem or otherwise acquire shares issued by the Corporation;



(f)



pay a commission in connection with the sale of shares of the Corporation;



(g)



approve a management proxy circular;



(h)



approve a take-over bid circular or directors' circular;



(i)



approve any financial statements; or



(j)



adopt, amend or repeal By-laws.



(11)



except in the manner and on the terms authorized by the



REMUNERATION



AND



EXPENSES



The Directors are entitled to receive remuneration for their services in the

amount the Board determines. Subject to the Board's approval, the Directors are

also entitled to be reimbursed for travelling and other expenses incurred by

them in attending meetings of the Board or any committee of Directors or in the

performance of their duties as Directors.

Nothing contained in the By-laws precludes a Director from serving the

Corporation in another capacity and receiving remuneration for acting in that

other capacity.

(12)



ANNUAL



FINANCIAL



STATEMENTS



The Board must place before the Shareholders at every annual meeting of

Shareholders financial statements which have been approved by the Board as

evidenced by the signature of one or more of the Directors, the report of the

auditor and any further information respecting the financial position of the

Corporation and the results of its operations that is required by the ABCA, the

Regulations, the Articles, the By-laws or any unanimous shareholder agreement.

6



SECTION 5.

MEETINGS OF DIRECTORS

(1)



CALLING



MEETINGS



The Chairperson of the Board, the Managing Director or any Director may call a

meeting of Directors. A meeting of Directors or of a committee of Directors may

be held within or outside of Canada at the time and place indicated in the



notice



referred



(2)



to



in



subsection



(2).



NOTICE



Notice of the time and place of a meeting of Directors or any committee of

Directors must be given to each Director or each Director who is a member of a

committee not less than 48 hours before the time fixed for that meeting. Notice

must be given in the manner prescribed in section 11. A notice of a meeting of

Directors need not specify the purpose of the business to be transacted at the

meeting except when the business to be transacted deals with a proposal to:

(a)



submit to the Shareholders any question or matter requiring the approval of

the Shareholders;



(b)



fill a vacancy among the Directors or in the office of auditor;



(c)



issue securities;



(d)



declare dividends;



(e)



purchase, redeem or otherwise acquire shares issued by the Corporation;



(f)



pay a commission in connection with the sale of shares of the Corporation;



(g)



approve a management proxy circular;



(h)



approve a take-over bid circular or directors' circular;



(i)



approve any financial statements; or



(j)



adopt, amend or repeal By-laws.



(3)



NOTICE



OF



ADJOURNED



MEETING



Notice of an adjourned meeting of Directors is not required if a quorum is

present at the original meeting and if the time and place of the adjourned

meeting is announced at the original meeting. If a meeting is adjourned because

a quorum is not present, notice of the time and place of the adjourned meeting

must be given as for the original meeting. The adjourned meeting may proceed

with the business to have been transacted at the original meeting, even though a

quorum is not present at the adjourned meeting.

(4)



MEETINGS



No notice

given:



WITHOUT



NOTICE



of a meeting of Directors or of a committee of Directors needs to be



(a)



to a newly elected Board following

meeting of Shareholders; or



(b)



for a meeting of Directors

vacancy in the Board,



if



a



quorum



is



at which a



its election at an annual or special

Director



is



appointed



to fill a



present.

7





(5)



WAIVER



OF



NOTICE



A Director may waive, in any manner, notice of a meeting of Directors or of a

committee of Directors. Attendance of a Director at a meeting of Directors or

of a committee of Directors is a waiver of notice of the meeting, except when

the Director attends the meeting for the express purpose of objecting to the

transaction of any business on the grounds that the meeting is not lawfully

called.



(6)



QUORUM



The Directors may fix the quorum for meetings of Directors or of a committee of

Directors, but unless so fixed, a majority of the Directors or of a committee of

Directors constitutes a quorum. No business may be transacted unless a majority

of the Directors present are resident Canadians.

(7)



REGULAR



MEETINGS



The Board may by resolution establish one or more days in a month for regular

meetings of the Board at a time and place to be named in the resolution. No

notice is required for a regular meeting.

(8)



CHAIRPERSON



OF



MEETINGS



The chairperson of any meeting of Directors is the first mentioned of the

following Officers (if appointed) who is a Director and is present at the

meeting: Chairperson of the Board, Managing Director, or President. If none of

the foregoing Officers are present, the Directors present may choose one of

their number to be chairperson of the meeting.

(9)



DECISION



ON



QUESTIONS



Every resolution submitted to a meeting of Directors or of a committee of

Directors must be decided by a majority of votes cast at the meeting. In the

case of an equality of votes, the chairperson does not have a casting vote.

(10)



MEETING



BY



TELEPHONE



If all the Directors consent, a Director may participate in a meeting of

Directors or of a committee of Directors by means of telephone or other

communication facilities that permit all persons participating in the meeting to

hear each other. A Director participating in a meeting by means of telephone or

other communication facilities is deemed to be present at the meeting.

(11)



RESOLUTION



IN



LIEU



OF



MEETING



A resolution in writing signed by all the Directors entitled to vote on that

resolution at a meeting of Directors or committee of Directors is as valid as if

it had been passed at a meeting of Directors or committee of Directors. A

resolution in writing takes effect on the date it is expressed to be effective.

A resolution in writing may be signed in one or more counterparts, all of which

together constitute the same resolution. A counterpart signed by a Director and

transmitted by facsimile or other device capable of transmitting a printed

message is as valid as an originally signed counterpart.

8



SECTION 6.

OFFICERS AND APPOINTEES OF THE BOARD

(1)



APPOINTMENT



OF



OFFICERS



The Directors may designate the offices of the Corporation, appoint as officers

persons of full capacity, specify their duties and delegate to them powers to

manage the business and affairs of the Corporation, except those powers referred

to in section 4 which may not be delegated to a Managing Director or to a

committee of Directors. Unless required by the By-laws, an Officer does not

have to be a Director. The same individual may hold two or more offices of the

Corporation.

(2)



TERM



OF



OFFICE



An Officer holds office from the date of the Officer's appointment until a

successor is appointed or until the Officer's resignation or removal. An

officer may resign by giving written notice to the Board. All Officers are

subject to removal by the Board, with or without cause.

(3)



DUTIES



OF



OFFICERS



An Officer has all the powers and authority and must perform all the duties

usually incident to, or specified in the By-laws or by the Board for, the office

held.

(4)



REMUNERATION



The Officers are

amount the Board

(5)



entitled to

determines.



CHAIRPERSON



OF



THE



receive remuneration for their services in the

BOARD



If appointed and present at the meeting, the Chairperson of the Board presides

at all meetings of Directors, committees of Directors and, in the absence of the

President, at all meetings of Shareholders. The Chairperson of the Board must

be a Director.

(6)



MANAGING



DIRECTOR



If appointed, the Managing Director is responsible for the general supervision

of the affairs of the Corporation. During the absence or disability of the

Chairperson of the Board, or if no Chairperson of the Board has been appointed,

the Managing Director exercises the functions of that office. Subject to

section 4, the Board may delegate to the Managing Director any of the powers of

the Board.

(7)



PRESIDENT



If appointed, the President is the chief executive officer of the Corporation

responsible for the management of the business and affairs of the Corporation.

During the absence or disability of the Managing Director, or if no Managing

Director has been appointed, the President also exercises the functions of that

office. The President may not preside as chairperson at any meeting of the

Directors or of any committee of Directors unless the President is a Director.

(8)



VICE-PRESIDENT



During the absence or disability of the President, or if no President has been

appointed, the Vice-President or if there is more than one, the Vice-President

designated by the Board, exercises the functions of the office of the President.

9



(9)



SECRETARY



If appointed, the Secretary must call meetings of the Directors or of a

committee of Directors at the request of a Director. The Secretary must attend

all meetings of Directors, of committees of Directors and of Shareholders and

prepare and maintain a record of the minutes of the proceedings. The Secretary

is the custodian of the corporate seal, the minute book and all records,

documents and instruments belonging to the Corporation.

(10)



TREASURER



If appointed, the Treasurer is responsible for the preparation and maintenance

of proper accounting records, the deposit of money, the safe-keeping of

securities and the disbursement of funds of the Corporation. The Treasurer must

render to the Board an account of all financial transactions of the Corporation

upon request.



(11)



AGENTS



AND



ATTORNEYS



The Board has the power to appoint agents or attorneys for the Corporation in or

outside of Canada with any power the Board considers advisable.

SECTION 7.

CONFLICT OF INTEREST

(1)

A



DISCLOSURE

Director



or



OF



Officer



INTEREST



who:



(a)



is a party to a material

Corporation; or



contract or proposed



material



contract with the



(b)



is a director or an officer of or has a material interest in any person who

is a party to a material contract or proposed material contract with the

Corporation,



must disclose in writing to the Corporation or request to have entered in the

minutes of meetings of the Directors the nature and extent of the Director's or

Officer's interest.

(2)



APPROVAL



AND



VOTING



A Director or Officer must disclose in writing to the Corporation, or request to

have entered in the minutes of meetings of Directors, the nature and extent of

the Director's or Officer's interest in a material contract or proposed material

contract if the contract is one that in the ordinary course of the Corporation's

business would not require approval by the Board or the Shareholders. The

disclosure must be made immediately after the Director or Officer becomes aware

of the contract or proposed contract. A Director who is required to disclose an

interest in a material contract or proposed material contract may not vote on

any resolution to approve the contract unless the contract is:

(a)



an arrangement by way of security for money lent

undertaken by the Director for the benefit of the

affiliate;



to or obligations

Corporation or an



(b)



a contract relating primarily to the Director's remuneration as a Director

or Officer, employee or agent of the Corporation or as a director, officer,

employee or agent of an affiliate;



10



(c) a contract for indemnity or insurance under the ABCA; or

(d)

(3)



a contract with an affiliate.

EFFECT



OF



CONFLICT



OF



INTEREST



If a material contract is made between the Corporation and a Director or

Officer, or between the Corporation and another person of which a Director or

Officer is a director or officer or in which the Director or Officer has a

material interest, the contract is neither void nor voidable by reason only of

that relationship, or by reason only that a Director with an interest in the

contract is present at or is counted to determine the presence of a quorum at a

meeting of Directors or committee of Directors that authorized the contract, if

the Director or Officer disclosed the Director's or Officer's interest in the

contract in the manner prescribed by the ABCA and the contract was approved by

the Board or the Shareholders and was reasonable and fair to the Corporation at

the time it was approved.

SECTION 8.



LIABILITY AND INDEMNIFICATION

(1)



LIMITATION



OF



LIABILITY



Every Director and Officer in exercising the powers and discharging the duties

of office must act honestly and in good faith with a view to the best interests

of the Corporation and must exercise the care, diligence and skill that a

reasonably prudent person would exercise in comparable circumstances. No

Director or Officer is liable for:

(a)



the acts, omissions or defaults

employee of the Corporation;



of any other



Director or Officer or an



(b)



any loss, damage or expense incurred by the Corporation through the

insufficiency or deficiency of title to any property acquired for or on

behalf of the Corporation;



(c)



the insufficiency or deficiency of any security in or upon which any of the

money of the Corporation is invested;



(d)



any loss or damage arising from the bankruptcy, insolvency or tortious or

criminal acts of any person with whom any of the Corporation's money is, or

securities or other property are, deposited;



(e)



any loss occasioned by any error of judgment or oversight; or



(f)



any other loss, damage or misfortune which occurs in the execution of the

duties of office or in relation to it,



unless occasioned by the wilful neglect or default of that Director or Officer.

Nothing in this By-law relieves any Director or Officer of any liability imposed

by the ABCA or otherwise by law.

(2)



INDEMNITY



The Corporation shall indemnify a Director or Officer, a former Director or

Officer and a person who acts or acted at the Corporation's request as a

director or officer of a body corporate of which the Corporation is or was a

shareholder or creditor (the "Indemnified Parties") and the heirs and legal

representatives of each of them, against all costs, charges and expenses, which

includes, without limiting the generality of the foregoing, the fees, charges

and disbursements of legal counsel on an

11



as-between-a-solicitor-and-the-solicitor's-own-client basis and an amount paid

to settle an action or satisfy a judgment, reasonably incurred by an Indemnified

Party, or the heirs or legal representatives of an Indemnified Party, or both,

in respect of any action or proceeding to which any of them is made a party by

reason of an Indemnified Party being or having been a Director or Officer or a

director or officer of that body corporate, if:

(a)



the Indemnified Party acted honestly and in good faith with a view to the

best interests of the Corporation; and



(b)



in the case of a criminal or administrative action or proceeding that is

enforced by a monetary penalty, the Indemnified Party had reasonable

grounds for believing that the Indemnified Party's conduct was lawful.



The Corporation shall indemnify an Indemnified Party and the heirs and legal

representatives of an Indemnified Party in any other circumstances that the ABCA

permits or requires. Nothing in this By-law limits the right of a person

entitled to indemnity to claim indemnity apart from the provisions of this

By-law.



(3)



INSURANCE



The Corporation may purchase and maintain insurance for the benefit of a person

referred to in subsection (2) against the liabilities and in the amounts the

ABCA permits and the Board approves.

SECTION 9.

SECURITIES

(1)



SHARES



Shares of the Corporation may be issued at the times, to the persons and for the

consideration the Board determines. No share may be issued until the

consideration for the share is fully paid in money or in property or past

services that are not less in value than the fair equivalent of the money that

the Corporation would have received if the share had been issued for money.

(2)



OPTIONS



AND



OTHER



RIGHTS



TO



ACQUIRE



SECURITIES



The Corporation may issue certificates, warrants or other evidences of

conversion privileges, options or rights to acquire securities of the

Corporation. The conditions attached to the conversion privileges, options and

rights must be set out in the certificates, warrants or other evidences or in

certificates evidencing the securities to which the conversion privileges,

options or rights are attached.

(3)



COMMISSIONS



The Board may authorize the Corporation to pay a reasonable commission to any

person in consideration of that person purchasing or agreeing to purchase shares

of the Corporation from the Corporation or from any other person, or procuring

or agreeing to procure purchasers for shares of the Corporation.

12



(4)



SECURITIES



REGISTER



The Corporation shall maintain a securities register in which it records the

securities issued by it in registered form, showing with respect to each class

or series of securities:

(a)



the names, alphabetically arranged and the latest

person who is or has been a security holder;



(b)



the number of securities held by each security holder; and



(c)



the date and particulars of the issue and transfer of each security.



(5)



TRANSFER



AGENTS



AND



known



address of each



REGISTRARS



The Corporation may appoint an agent to maintain a central securities register

and branch securities registers.

An agent may be designated as a transfer

agent or a branch transfer agent, and a registrar, according to the agent's

function. An agent's appointment may be terminated at any time. The Board may

provide for the registration or transfer of securities by a transfer agent,

branch transfer agent or registrar.

(6)



DEALINGS



WITH



REGISTERED



HOLDERS



The Corporation may treat the registered owner of a security as the person

exclusively entitled to vote, to receive notices, to receive any interest,

dividend or other payments in respect of the security, and otherwise to exercise

all the rights and powers of an owner of the security.

(7)



TRANSFERS



OF



SECURITIES



Securities of the Corporation may be transferred in the form of a transfer

endorsement on the security certificates issued in respect of the securities of

the Corporation, or in any form of transfer endorsement which may be approved by

resolution of the Board.

(8)



REGISTRATION



OF



TRANSFERS



If a security in registered form is presented for transfer, the Corporation must

register the transfer if:

(a)



the security is endorsed by the person specified by the security or by

special endorsement to be entitled to the security or by the person's

successor, fiduciary, survivor, attorney or authorized agent, as the case

may be;



(b)



reasonable

effective;



(c)



the Corporation has no duty

discharged its duty to do so;



(d)



any applicable

with;



(e)



the transfer is rightful or is to a bona fide purchaser; and



(f)



the fee prescribed by the Board for a

respect of a transfer has been paid.



assurance



is



given



that



to



the



inquire



law relating to the



endorsement

into



is



adverse



genuine



claims,



and



or has



collection of taxes has been complied



security



certificate



issued in



13



(9)



LIEN



If the Articles provide that the Corporation has a lien on a share registered in

the name of a Shareholder or the Shareholder's legal representative for a debt

of the Shareholder to the Corporation, and the Shareholder is indebted to the

Corporation, the Corporation may refuse to register any transfer of the holder's

shares pending enforcement of the lien.

(10)



SECURITY



CERTIFICATES



Security certificates and acknowledgements of a security holder's right to

obtain a security certificate must be in a form the Board approves by

resolution. A security certificate must be signed by at least one Director or

Officer. Unless the Board otherwise determines, security certificates

representing securities in respect of which a transfer agent or registrar has

been appointed are not valid unless countersigned by or on behalf of the

transfer agent or registrar. Any signature may be printed or otherwise

mechanically reproduced on a security certificate. If a security certificate

contains a printed or mechanically reproduced signature of a person, the

Corporation may issue the security certificate, notwithstanding that the person

has ceased to be a Director or Officer, and the security certificate is as valid

as if the person were a Director or Officer at the date of issue.

(11)



ENTITLEMENT



TO



A



SECURITY



CERTIFICATE



A security holder is entitled at the holder's option to a security certificate

or to a non-transferable written acknowledgement of the holder's right to obtain

a security certificate from the Corporation in respect of the securities of the

Corporation held by that holder.

(12)

The



SECURITIES

Corporation



HELD



JOINTLY



is not required to issue more than one security certificate in



respect of securities held jointly by several persons. Delivery of a

certificate to one of the joint holders is sufficient delivery to all of them.

Any one of the joint holders may give effectual receipts for the certificate

issued in respect of the securities or for any dividend, bonus, return of

capital or other money payable or warrant issuable in respect of the security.

(13)



REPLACEMENT



OF



SECURITY



CERTIFICATES



The Board or an Officer or agent designated by the Board may in its or the

Officer's or agent's discretion direct the issue of a new security certificate

in place of a certificate that has been lost, destroyed or wrongfully taken. A

new security certificate may be issued only on payment of a reasonable fee and

on any terms as to indemnity, reimbursement of expenses and evidence of loss of

title as the Board may prescribe.

(14)



FRACTIONAL



SHARES



The Corporation may issue a certificate for a fractional share or may issue in

its place scrip certificates in bearer form that entitle the holder to receive a

certificate for a full share by exchanging scrip certificates aggregating a full

share. The Directors may attach conditions to any scrip certificates issued by

the Corporation, including conditions that:

(a)



the scrip certificates become void if they are not exchanged for a share

certificate representing a full share before a specified date; and



14



(b) any shares for which those scrip certificates are exchangeable may,

notwithstanding any pre-emptive right, be issued by the Corporation to any

person and the proceeds of those shares distributed rateably to the holders

of the scrip certificates.

SECTION 10.

MEETINGS OF SHAREHOLDERS

(1)



ANNUAL



MEETING



OF



SHAREHOLDERS



The Board must call an annual meeting of Shareholders to be held not later than

18 months after the Corporation comes into existence and subsequently, not later

than 15 months after holding the last preceding annual meeting. An annual

meeting is to be held for the purposes of considering the financial statements

and auditor's report, electing Directors, appointing an auditor and transacting

any other business that may properly be brought before the meeting.

(2)

The

(3)



SPECIAL

Board



may



at



SPECIAL



MEETINGS

any



time



OF



SHAREHOLDERS



call



a



special



meeting



of



Shareholders.



BUSINESS



All business transacted at a special meeting of Shareholders and all business

transacted at an annual meeting of Shareholders, except consideration of the

financial statements and auditor's report, election of Directors and

reappointment of the incumbent auditor, is deemed to be special business.

(4)



PLACE



AND



TIME



OF



MEETINGS



Meetings of shareholders may be held at such place in Alberta, Dallas, Texas;

Houston, Texas; New York, New York;, Los Angeles, California, Phoenix, Arizona,

New Orleans, Louisiana or Toronto, Ontario as the Board shall determine, at such

time and date as the Board shall determine.

(5)



NOTICE



OF



MEETINGS



Notice of the time and place of a meeting of Shareholders must be sent not less

than 21 days and not more than 50 days before the meeting to:

(a)



each Shareholder entitled to vote at the meeting;



(b)



each Director; and



(c)



the auditor of the Corporation.



15



Notice of a meeting of Shareholders called for the purpose of transacting any

business other than consideration of the financial statements and auditor's

report, election of Directors and reappointment of the incumbent auditor must

state the nature of the business to be transacted in sufficient detail to permit

a Shareholder to form a reasoned judgment on that business and must state the

text of any special resolution to be submitted to the meeting.

(6)



NOTICE



OF



ADJOURNED



MEETINGS



With the consent of the Shareholders present at a meeting of Shareholders, the

chairperson may adjourn that meeting to another fixed time and place. If a

meeting of Shareholders is adjourned for less than 30 days, it is not necessary

to give notice of the adjourned meeting, other than by verbal announcement at

the time of the adjournment. If a meeting of Shareholders is adjourned by one

or more adjournments for an aggregate of 30 days or more, notice of the

adjourned meeting must be given as for the original meeting. The adjourned

meeting may proceed with the business to have been transacted at the original

meeting, even though a quorum is not present at the adjourned meeting.

(7)



WAIVER



OF



NOTICE



A Shareholder and any other person entitled to attend a meeting of Shareholders

may waive in any manner notice of a meeting of Shareholders. Attendance of a

Shareholder or other person at a meeting of Shareholders is a waiver of notice

of the meeting, except when the Shareholder or other person attends the meeting

for the express purpose of objecting to the transaction of any business on the

grounds that the meeting is not lawfully called.

(8)



SHAREHOLDER



LIST



The Corporation must prepare a list of Shareholders entitled to receive notice

of a meeting of Shareholders, arranged in alphabetical order and showing the

number of shares held by each Shareholder,

(a)



if a Record Date is fixed, not later than 10 days after that date; or



(b)



if no Record Date is fixed,



A



i)



at the close of business on the day

which the notice is given, or



ii)



if no notice is given, on the day on which the meeting is held.



Shareholder



may



examine



the



list



of



immediately



preceding the day on



Shareholders:



(c)



during usual business hours at the registered office of the Corporation or

at the place where its central securities register is maintained; and



(d)



at the meeting of Shareholders for which the list was prepared.



(9)

A



PERSONS

person



named



ENTITLED



TO



VOTE



in a list of Shareholders is entitled to vote the shares shown



opposite the person's name at the meeting to which the list relates, except to

the extent that:

16



(a) i) if a Record Date is fixed, the person transfers

person's shares after the Record Date, or

ii)



(b)



if no Record Date is fixed, the person transfers ownership of any of

the person's shares after the date on which the list of Shareholders

is prepared; and



the transferee of those shares

i)



produces properly endorsed share certificates, or



ii)



otherwise establishes ownership of the shares,



and demands, not

name be included

in



ownership of any of the



which



(10)



case



later than 10 days before the meeting, that the transferee's

in the list before the meeting,



the



transferee



CHAIRPERSON



OF



is



entitled



to



vote



the



shares.



MEETINGS



The chairperson of any meeting of Shareholders is the first mentioned of the

following Officers (if appointed) who is present at the meeting: President,

Chairperson of the Board or Managing Director. If none of the foregoing

Officers are present, the Shareholders present and entitled to vote at the

meeting may choose a chairperson from among those individuals present.

(11)



SCRUTINEER



If desired, one or more scrutineers, who need not be Shareholders, may be

appointed by resolution or by the chairperson of the meeting with the consent of

the meeting.

(12)



PROCEDURE



AT



MEETINGS



The chairperson of any meeting of Shareholders shall conduct the proceedings at

the meeting in all respects. The chairperson's decision on any matter or thing

relating to procedure, including, without limiting the generality of the

foregoing, any question regarding the validity of any instrument of proxy or

other evidence of authority to vote, is conclusive and binding upon the

Shareholders.

(13)



PERSONS

persons



ENTITLED



entitled



to



TO

be



BE



PRESENT



The



only



present



at a meeting of Shareholders are:



(a)



the Shareholders entitled to vote at the meeting;



(b)



the Directors;



17



(c) the auditor of the Corporation; and

(d)



any others who, although not entitled to vote, are entitled or required

under any provision of the ABCA, any unanimous shareholder agreement, the

Articles or the By-laws to be present at the meeting.



Any

the



other person may be admitted only on the invitation of the chairperson of

meeting or with the consent of the meeting.



(14)



QUORUM



A quorum of Shareholders is present at a meeting of Shareholders if at least two

individuals are present, each of whom is entitled to vote at the meeting, and

who hold or represent by proxy in the aggregate not less than 5% of the total

number of shares entitled to be voted at the meeting. If any share entitled to

be voted at a meeting of Shareholders is held by two or more persons jointly,

the persons or those of them who attend the meeting of Shareholders constitute

only one Shareholder for the purpose of determining whether a quorum of

Shareholders is present.

(15)



LOSS



OF



QUORUM



If a quorum is present at the opening of a meeting of Shareholders, the

Shareholders present or represented by proxy may proceed with the business of

the meeting, even if a quorum is not present throughout the meeting. If a

quorum is not present at the opening of a meeting of Shareholders, the

Shareholders present or represented by proxy may adjourn the meeting to a fixed

time and place but may not transact any other business.

(16)



PROXY



HOLDERS



AND



REPRESENTATIVES



A Shareholder entitled to vote at a meeting of Shareholders may by means of a

proxy appoint a proxy holder and one or more alternate proxy holders, who are

not required to be Shareholders, to attend and act at the meeting in the manner

and to the extent authorized by the proxy and with the authority conferred by

the proxy. A proxy must be executed by the Shareholder or by the Shareholder's

attorney authorized in writing and be in the form prescribed by the Regulations.

A proxy is valid only at the meeting in respect of which it is given or any

adjournment of that meeting.

A Shareholder that is a body corporate or association may, by resolution of its

directors or governing body, authorize an individual to represent it at a

meeting of Shareholders. That individual's authority may be established by

depositing with the Corporation prior to the commencement of the meeting a

certified copy of the resolution passed by the Shareholder's directors or

governing body or other evidence of the individual's authority to vote. A

resolution or other evidence of authority to vote is valid only at the meeting

in respect of which it is given or any adjournment of that meeting.

(17)



TIME



FOR



DEPOSIT



OF



PROXIES



The Board may specify in a notice calling a meeting of Shareholders a time not

exceeding 48 hours, excluding Saturdays and holidays, preceding the meeting or

an adjournment of the meeting before which proxies to be used at the meeting

must be deposited with the Corporation or its agent.

If no time for the

deposit of proxies has been specified in a notice calling a meeting of

Shareholders, a proxy to be used at the meeting must be deposited with the

Secretary of the Corporation or the chairperson of the meeting prior to the

commencement of the meeting.

18



(18)

A

(a)



REVOCATION



Shareholder



may



OF



revoke



PROXIES

a



proxy:



by depositing an instrument in writing executed by the

the Shareholder's attorney authorized in writing:



Shareholder



or by



i)



at the registered office of the Corporation at any time up to and

including the last business day preceding the day of the meeting, or

an adjournment of that meeting, at which the proxy is to be used, or



ii)



with the



chairperson



of the



meeting on the day of the meeting or an



adjournment of the meeting; or

(b)



in any other manner permitted by law.



(19)

If two

meeting

two or

as one

(20)



JOINT



SHAREHOLDERS



or more persons hold shares jointly, one of those holders present at a

of Shareholders may, in the absence of the others, vote the shares. If

more of those persons are present in person or by proxy, they must vote

on the shares jointly held by them.

DECISION



ON



QUESTIONS



At every meeting of Shareholders all questions proposed for the consideration of

Shareholders must be decided by the majority of votes, unless otherwise required

by the ABCA or the Articles. In the case of an equality of votes, the

chairperson of the meeting does not, either on a show of hands or verbal poll or

on a ballot, have a casting vote in addition to the vote or votes to which the

chairperson may be entitled as a Shareholder or proxy holder.

(21)



VOTING



BY



SHOW



OF



HANDS



Subject to subsection (22), voting at a meeting of Shareholders must be by a

show of hands of those present in person or represented by proxy or by a verbal

poll of those present by telephone or other communication facilities. When a

vote by show of hands has been taken upon a question, a declaration by the

chairperson of the meeting that the vote has been carried, carried by a

particular majority or not carried, an entry to that effect in the minutes of

the meeting is conclusive evidence of the fact without proof of the number of

votes recorded in favour of or against any resolution or other proceeding in

respect of the question.

(22)



VOTING



BY



BALLOT



If a ballot is required by the chairperson of the meeting or is demanded by a

Shareholder or proxy holder entitled to vote at the meeting, either before or

after any vote by show of hands or verbal poll, voting must be by ballot. A

demand for a ballot may be withdrawn at any time before the ballot is taken. If

a ballot is taken on a question, a prior vote on that question by show of hands

or verbal poll has no effect.

(23)



NUMBER



OF



VOTES



At every meeting a Shareholder present in person or represented by proxy or

present by telephone or other communication facilities and entitled to vote has

one vote for each share held.

19



(24)



MEETING



BY



TELEPHONE



Any person described in subsection (13) may participate in a meeting of

Shareholders by means of telephone or other communication facilities that permit

all persons participating in the meeting to hear each other. A Shareholder

participating in a meeting by means of telephone or other communication

facilities is deemed to be present at the meeting.

(25)



RESOLUTION



IN



LIEU



OF



MEETING



A resolution in writing signed by all the Shareholders entitled to vote on that

resolution at a meeting of Shareholders is as valid as if it had been passed at

a meeting of Shareholders. A resolution in writing takes effect on the date it

is expressed to be effective.

A



resolution in writing may be signed in one or more counterparts, all of which



together constitute the same resolution. A counterpart signed by a Shareholder

and transmitted by facsimile or other device capable of transmitting a printed

message is as valid as an originally signed counterpart.

SECTION 11.

NOTICES

(1)



METHOD



OF



NOTICE



A notice or document required to be sent to a Shareholder, Director, Officer or

auditor of the Corporation may be given by personal delivery, prepaid

transmitted or recorded communication or prepaid mail addressed to the recipient

at the recipient's Recorded Address. A notice or document sent by personal

delivery is deemed to be given when it is actually delivered. A notice or

document sent by means of prepaid transmitted or recorded communication is

deemed to be given when dispatched or delivered to the appropriate communication

company or agency or its representative for dispatch. A notice or document sent

by mail is deemed to be given when deposited at a post office or in a public

letter box.

(2)



NOTICE



TO



JOINT



SHAREHOLDERS



If two or more persons are registered as joint holders of any share, a notice or

document may be sent or delivered to all of them, but notice given to any one

joint Shareholder is sufficient notice to the others.

(3)



NOTICE



TO



SUCCESSORS



Every person who, by operation of law, transfer, death of a Shareholder or any

other means becomes entitled to any share, is bound by every notice in respect

of the share which is sent or delivered to the Shareholder prior to the person's

name and address being entered in the Corporation's securities register and

prior to the person furnishing proof of authority or evidence of entitlement as

prescribed by the ABCA. This subsection applies whether the notice was given

before or after the event which resulted in the person becoming entitled to the

share.

(4)



NON-RECEIPT



OF



NOTICES



20



If a notice or document is sent to a Shareholder, Director,

of the Corporation in accordance with subsection (1) and the

is returned on three consecutive occasions, the Corporation

give any further notice or documents to the person until that

Corporation in writing of the person's new address.

(5)



FAILURE



TO



GIVE



Officer or auditor

notice or document

is not required to

person informs the



NOTICE



The accidental failure to give a notice to a Shareholder, Director, Officer or

auditor of the Corporation, the non-receipt of a notice by the intended

recipient or any error in a notice not affecting its substance does not

invalidate any action taken at the meeting to which the notice relates.

(6)



EXECUTION



OF



NOTICES



Unless otherwise provided, the signature of any person designated by resolution

of the Board to sign a notice or document on behalf of the Corporation may be

written, stamped, typewritten or printed.

MADE by the Directors as

Director effective January 20,



evidenced

1995.



by



the signature of the following



/s/



Wade Cherwayko

--------------WADE G. CHERWAYKO



CONFIRMED by the Shareholders as evidenced by

following Shareholder effective January 20, 1995.

/s/



the



signature



of the



Wade Cherwayko

--------------WADE G. CHERWAYKO

21











EX-4.1

5



EXHIBIT 4.1

DESCRIPTION



OF



COMMON



STOCK



Abacan is authorized to issue an unlimited number of shares of common

stock, without par value (the "Common Stock"). Holders of Common Stock are

entitled to one vote per share on all matters submitted to a vote of

stockholders. They are entitled to receive dividends when and as declared by

the board of directors out of legally available funds and to share ratably in

the assets of Abacan legally available for distribution upon liquidation,

dissolution or winding up.

Holders of Common Stock do not have subscription, redemption or conversion

rights, nor do they have any preemptive rights. Holders of Common Stock do not

have cumulative voting rights. All stockholder action is taken by vote of a

majority of voting shares of the capital stock of Abacan present at a meeting of

stockholders at which a quorum existing of a majority of the issued and

outstanding shares of the voting capital stock is present in person or by proxy.

Directors are elected by a plurality vote.

For certain fundamental changes, the corporate legislation under which

Abacan was formed may require each class of outstanding stock to vote

separately.







EX-10.1

6



EXHIBIT



10.1

TERMINATION, SETTLEMENT

----------------------AND RELEASE AGREEMENT

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



Between

(1)



Amni International Petroleum Development Company Limited ("Amni")



(2)



Liberty Technical Services Limited ("Liberty")



Dated:



30



June



1998



Whereas



NOW

1.

The



(A)



Amni and Liberty are parties to the Joint Venture and Joint

Agreements relating to the Licences/Leases.



(B)



Various disputes having arisen between the parties, the parties have

now agreed to settle their disputes and to terminate their existing

arrangements and replace them with a new arrangement as set out

herein.



THEREFORE



it



is



agreed



as



Operating



follows:



Definitions

----------following



terms



shall



have



the



meanings respectively ascribed thereto:



DEEP ZONE

All geological formations within and around the IMA Field

that are north (upthrown) and south (downthrown) of the geological fault

dividing the IMA Field, all depths below the geological formation within the

IMA Field known as the sand, as currently shown on the maps and schematic

cross-section materials covering the IMA Field annexed hereto as Schedule B1 or

a depth of 12,150 feet (true vertical depth), whichever is the lesser depth,

lying within the geographical co-ordinates along the northern boundary of OML

112 and OPL 237, to the southern boundary of OML 112, to the western



boundary of OML 112 and to the eastern boundary of 550,000m E, annexed hereto as

Schedule B2.

EFFECTIVE



DATE



the



30th



day



of



June



1998



JOINT OPERATIONS

all operations relating to the IMA Field under

Licences/Leases other than operations commenced after the Effective Date that

relate to the Deep Zone

JOINT DEVELOPMENT

AGREEMENTS



the



agreements



listed



in



Schedule



A



hereto



IMA FIELD

The oil producing reservoir known as the IMA Field lying

within the Licences/Leases as shown on the plan attached as Schedule B@ hereto.

LICENCES/LEASES

Nigeria Oil Prospecting License 237, dated October 13, 1994

and Nigeria Oil Prospecting License 469, dated August 24, 1993, subsequently

converted to Oil Mining License 112 on February 12, 1998

2.



Termination of Joint Development Agreements

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



With effect from the Effective Date the Joint Venture and Joint Operating

Agreements are agreed by the parties to have ceased to be of any force or effect

and all rights, obligations and liabilities arising thereunder or in connection

therewith (whether in respect of the period prior to the Effective Date or



thereafter)

3.



are



deemed



to



be



canceled.



Assignment of Interests

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



Subject



to



any



necessary



government



consents



-2

(a)



4.



Liberty in consideration of the obligations undertaken by Amni

hereunder, hereby surrenders and assigns to Amni all of its right,

title and interest in the Licences/Leases and all associated equipment

located on the IMA Field and materials including 3D seismic data and

other geological and/or geophysical information acquired by or on

behalf of the joint ventures established pursuant to the Joint Venture

and Joint Operating Agreements with effect from the Effective Date

with the exception of (i) Liberty's interest in the Langley, (ii)

Liberty's existing rights to production from the IMA Field (or the

proceeds thereof) produced on or prior to the May 18, 1998 and (iii)

Liberty's rights in the insurance proceeds relating to the blowout of

the IMA 9 well, which proceeds shall be used to partially reimberse

the cost of the first well to be drilled in the Deep Zone, all as is

provided for in the Joint Operating Agreement attached as an Exhibit

to the Joint Venture Agreement and attached hereto as Schedule C.

Liberty shall procure that all data and information relating to Joint

Operations shall be released to Amni within 60 days of the date

hereof.



(b)



Amni hereby grants a 10% working interest in the Deep Zone to Liberty

(or its nominee) on the terms set out in the Joint Venture Agreement

attached hereto as Schedule C, which Joint Venture Agreement has been

executed on even date herewith.



(c)



With respect to the Joint Venture Agreement attached hereto and

documents executed in connection therewith (collectively, the "Deep

Zone Documents"), Amni and Liberty shall use their best efforts to

obtain the necessary governmental approvals required to consummate the

transaction provided therein as promptly as possible. If by December

1, 1998 the necessary government approvals have not been obtained,

then Amni and Abacan shall enter into such other

contractual

agreements as are necessary to provide Liberty (or its nominee) with

all of the rights and benefits provided for in the Deep Zone

Documents.



Waiver of Claims

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



Amni hereby waives all existing claims against and debts from Liberty, Abacan

Resource Corporation ("ARC") and all of its related subsidiaries, including, but

not limited to, Abacan Technical Services Ltd. (collectively, "Abacan") arising

under the terms of the Joint Venture and Joint Operating Agreements or in

respect of or in connection with Joint Operations. Liberty hereby waives (and

will procure that all of its affiliates also waive all existing claims) all

existing claims against Amni in respect of or in connection with the Joint

Operation and the Joint Venture and Joint Operating Agreements.

-3

5.

Governing Law

-------------(a)



This Agreement shall be governed by, construed,

applied in accordance with the laws of England.



intrepreted



and



(b)



Any dispute arising out of and relating to this Agreement and which

the Parties have not settled by themselves, shall finally be decided,

to the exclusion of the courts, by arbitration in accordance with the

arbitration rules of the International Chamber of Commerce. Three

arbitrators shall be appointed, each party appointing one arbitrator,

and the two arbitrators thus appointed

choosing the presiding

arbitrator. In reaching a decision, the arbitrators shall act (ex

aequo et bono] and shall be guided by the terms of this Agreement and

international practice in similar agreements.



IN WITNESS whereof the Parties have caused this Agreement to be executed on the

date above written.



/s/ Tunde Afolabi

- ------------------for and on behalf of

AMNI INTERNATIONAL PETROLEUM

DEVELOPMENT COMPANY LIMITED



/s/ Tunde Folawiyo

- -------------------for and on behalf of

LIBERTY TECHNICAL SERVICES



LIMITED

-4-





SCHEDULE A



1.



Joint Venture Agreement for OPL 237 dated 2/12/94 as restated as at 15

September 1995 and the following related agreements of the same date

Joint Operating Agreement

Management Committee By-Laws

Technical Assistance Agreement



2.



Joint Venture Agreement for OPL 469 dated 19 August and restated as at 15

September 1995 and the following related agreements of the same date

Joint Operating Agreement

Management Committee By-Laws

Technical Assistance Agreement



3.



All other agreements entered into by and between Amni or its affiliates and

Abacan with respect to the foregoing agreements or relating to the

ownership and operation of the Joint Operations.

-5-





SCHEDULE B

THE IMA FIELD

------------Please



see Schedule AD@ of the Joint Venture Agreement filed as Exhibit 10.3 to



the



Form



10-KSB



dated



effective



March



1,



1999.



-6

SCHEDULE C

DRAFT JOINT VENTURE AGREEMENT

----------------------------The finalized Joint Venture Agreement has been filed as Exhibit 10.3 to the Form

10-KSB dated effective March 1, 1999.

-7

SUPPLEMENTAL AGREEMENT TO TSRA DATED JUNE 30, 1998



Date:

- ----



June



30,



1998



We refer to the TSRA being signed today between us. Notwithstanding the terms

of such Agreement, the parties hereby agree that the issue of termination of the

JVA/JOA remains outstanding.

Accordingly, the parties hereby undertake to negotiate a termination clause in

good faith as soon as reasonably practicable hereafter (and in any event not

later than seven days from the date hereof) along the following principles:

1.



Termination will be permissible if either party fails to pay any sums due,

whether as a result of default, insolvency, liquidation or receivership.



2.



The default may be remedied

someone on his behalf.



3.



If it is not remedied within such

terminate the JVA/JOA forthwith.



4.



Upon any such termination the terminating party will be compensated for the

value of its interest in the project net of the cost of curing the default.



within a 60-90 day period by the

period,



the



defaulter or



non-defaulting



party may



Agreed:/s/ Tunde Folawiyo

Agreed:/s/ Tunde Afolabi

-------------------------------------Liberty Technical Services Ltd.

Amni International Petroleum

Development Company Limited

-8







EX-10.2

7



EXHIBIT



10.2



TERMINATION. SETTLEMENT

----------------------AND RELEASE SUPPLEMENTAL AGREEMENT

---------------------------------Between

(1)



Amni International Petroleum Development Company Limited ("Amni")



(2)



Liberty Technical Services Limited ("Liberty")



Dated:



June



1998



Whereas

This



NOW

1.



Supplemental



Agreement



is



supplemental



to:



(A)



a Termination, Settlement and Release Agreement relating to the

Licences/Leases ("TSRA") whereby (inter alia) Liberty's existing

interest is exchanged for a ten per cent. (10%) Working Interest in

the Deep Zone



(B)



As part of such arrangement the parties have also respectively

to various other terms and conditions as set out herein.



THEREFORE



it



is



agreed



as



agreed



follows:



Definitions

----------(a)



All terms defined in the TSRA shall have the same meaning

in this Supplemental Agreement;



(b)



The following term shall have the meaning ascribed thereto:



Langley



where used



the Mobile Offshore Production Unit all as more fully described

in the Assignment and Bill of Sale attached hereto as Schedule B



2.

Amni and Liberty shall provide Total International Limited ("Total") with

irrevocable written instructions related to the disbursement of revenues

attributable to the lift to be completed by Total on or about June 22nd, 1998

which shall include an instruction to pay Liberty $750,000 in the form of

Schedule D in respect of all amounts owing to Liberty in respect of general and

administrative costs and operating costs.

3.

Contemporaneously with this Agreement and in consideration of Sedco Forex

("Sedco") and Schlumberger Overseas S.A. ("Schlumberger") forgiving all of the

Liberty/Amni indebtedness to Sedco and Schlumberger pursuant to the Agreement in

the form attached as Schedule A, Liberty shall enter into an Assignment and Bill

of Sale with regard to the Langley in favour of Sedco in the form attached as

Schedule B whereby all of the respective rights title and interest of Liberty to

the Langley are transferred to Sedco. In contemplation of the foregoing

assignment. Amni hereby waives for the benefit of Liberty any rights claims or

interests it may have in respect of the Langley.



4.

Existing Creditors ---------------------Amni hereby agrees to indemnify, and hold harmless Liberty, (which for the

purpose of this clause shall include all of its past and present administrators,

affiliates, agents, assignees, attorneys of record, directors, employees,

officers, partners, predecessors, receivers, shareholders, subsidiaries,

successors and trustees ("Indemnified Parties")) from and against any and all



liabilities, including without limitation attorneys' fees, damages, fines, out

of pocket costs, penalties, and related costs of experts ("Indemnified

Liabilities") arising from, based on, related to or associated with the Joint

Development and Joint Operating Agreements or Joint Operations listed in

Schedule C attached hereto (the "Joint Development Claims"). Further, Amni

hereby assumes the payment of the Joint Development Claims but not further or

otherwise. As soon as reasonably possible Amni shall offer to all holders of

Joint Development Claims a mechanism whereby a proportion of revenues arising

from WA Field, including if necessary, a portion of the revenues attributable to

Amni's interest in the Deep Zone are made available so that all current Joint

Development Claims are promptly met when due and accrued Joint Development

Claims are paid over an agreed pen' od. In return Amni shall require each Joint

Operations Claim holder accepting any payment from Amni to waive all claims

against Liberty. No payments of any kind shall be made by Amni to the holder of

any Joint Development Claims unless such holder first releases Liberty in

writing from any liability with respect to the Joint Development Claims. In the

event any claim or threatened claim is made by any such creditor against

Liberty, Amni shall be promptly notified of such claim or threatened claim and

shall be given full control over the conduct of any proceedings in relation

thereto provided Amni (i) assumes in writing full responsibility for all claims

raised in such proceedings and (ii) properly defends such proceedings. Amni

shall keep Abacan apprised of the status of all such proceedings. Neither

Liberty, Amni nor any of their affiliates shall make any admissions in respect

of any such proceedings that could have an adverse effect on the other party

without the consent of such party. Liberty shall cooperate fully with Amni (at

Amni's request and cost) in any such proceedings and shall procure that its

affiliates also cooperate (on the same basis).

5.



Pool Account

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



Notwithstanding anything in the TSRA to the contrary, Liberty reserves all of

its rights in the Royalties and Tax pool account ("Pool Account"). At such time

as the actual Excess Profit Tax is determined with respect to the 1998 Joint

Operations, Amni shall pay to Liberty its share of any amount 'in the Pool

Account on the Effective Date that is in excess of the actual amounts due and

owing to the Nigerian Government with respect to the Excess Profit Tax for the

period up to and including the Effective Date.

6.



Governing, Law

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



(a)

This Agreement shall be governed

accordance with the laws of England.



by,



construed



and interpreted in



(b)

Any dispute arising out of and relating to this Agreement and which the

Parties have not settled by themselves, shall finally be decided, to the

exclusion of the courts, by arbitration in accordance with the arbitration rules

of the International Chamber of Commerce. Three arbitrators shall be appointed,

each party appointing one arbitrator, and the two arbitrators thus appointed

choosing the presiding arbitrator. In reaching a decision, the arbitrators shall

act (ex aequo et bono) and shall be guided by the terms of this Agreement and

international practice in similar agreements.



7.

Notices

------All notices, requests, demands, or other communications hereunder shall be

delivered by hand or sent by mail as appropriate or by facsimile, telex or

telegram to the Parties at the address provided below:

Owner/Operator:



Amni International Petroleum Development

Plot 1377B Tiamiyu

Savage Street

Victoria Island, P.O. Box 54452

Falomo, Ikoyi

Fax: 011 234 262 1526

Attn:

Tunde J Afolabi

Managing Director



Company



Limited



Liberty:

ABACAN RESOURCE CORPORATION

Suite 140

14811 St Mary's Lane

Houston, Texas 77079

USA

Fax: (281) 721 0560

Attn: Timothy Stephens

With



a



copy



to:



Liberty Technical Services

38 Warehouse Road

Apapa, Lagos, Nigeria

Attn: Wade Cherwayko



Ltd



IN WITNESS whereof the Parties have caused this Agreement to be executed on the

date above written



/s/ Tunde Afolabi

- ------------------for and on behalf

AMNI INTERNATIONAL PETROLEUM

DEVELOPMENT COMPANY LIMITED



Tunde Folawiyo

- --------------for and on behalf of

LIBERTY TECHNICAL SERVICES



LIMITED





SCHEDULE A

Agreement for Transfer of the Langley

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

SCHEDULE B

Assignment and Bill of Sale

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

SCHEDULE C



Joint Development Claims

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



NAIRA

$US



PAYABLES

PAYABLES



GRAND

US



($U.S.)

($U.S.)



TOTAL



DOLLAR



PAYABLE



Pay



]



[

]

--------------------------[



]



(U.S.)



LISTING



Company Name



Acct.



[



Concessions

----------IMA FIELD

$



Total

----------------=================



In addition to the claims set on the preceding pages, Amni will also assume

responsibility for the following lawsuit and future lawsuits relating to the

claims referenced on this Schedule C. Notwithstanding anything in the Agreement

to the contrary, such assumption shall not be subject to any dollar limitations

set forth in the Agreement or this Schedule C.

1.



Cause No. 98-24830; Weatherford Enterra U.S., Limited Partnership v. Abacan

Resource Corporation, Abacan Services (USA) Corporation, Abacan Technical

Services, Ltd., Abacan Resources (Nigeria), Ltd. and Liberty Technical

Services, Ltd. filed on May 27, 1998 in the 61st Judicial District Court of

Harris County, Texas ("Weatherford Lawsuit").



In addition, Amni has and hereby assumes any liabilities due and owing to the

creditors described on the preceding pages that arises after May 18, 1998.

Notwithstanding anything in the Agreement to the contrary, such assumption shall

not be subject to any dollar limitations set forth in the Agreement or this

Schedule C.









EX-10.3

8



EXHIBIT



10.3

JOINT VENTURE AGREEMENT

BETWEEN



AMNI INTERNATIONAL

PETROLEUM DEVELOPMENT COMPANY LIMITED

AND

LIBERTY TECHNICAL SERVICES LTD. ,



REGARDING THE DEEP

ZONES OF THE IMA FIELD



JUNE 30, 1998



THIS JOINT

between:



VENTURE



AGREEMENT



is



made



effective



as of June 30, 1998 by and



AMNI INTERNATIONAL PETROLEUM DEVELOPMENT

COMPANY LIMITED, of Plot 1377 B Tiamiyu Savage Street,

Victoria Island, P.O. Box 54452, Faloma Ikoyi, Lagos, Nigeria,

(hereinafter referred to as the AOwner/Operator@)

and

LIBERTY TECHNICAL SERVICES LTD. ,,

Folawiyo Plaza, 38 Warehouse Road,

referred to as "Liberty")



of 7th Floor,

Lagos, Nigeria,



(hereinafter



WHEREAS:

(a)



The Owner/Operator and Liberty elected to establish a joint venture for the

exploration and development of Concession Block 469 pursuant to the terms

of the Joint Venture Agreement (Restated) dated August 19, 1993 and

Restated at September 15, 1995.



(b)



The Owner/Operator and Liberty elected to establish a joint venture for the

exploration and development of Concession Block 237 pursuant to the terms

of the Joint Venture Agreement (Restated) dated December 2, 1994 and

Restated at September 15, 1995.



(c)



Owner/Operator and Liberty have elected to terminate the Joint Venture

Agreements referenced in the preceding paragraphs and now desire to

establish a joint venture for the exploration and development of the Deep

Zones of the IMA Field, subject to and in accordance with the terms hereof.



NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter

set forth, the Parties hereby agree as follows:

ARTICLE I - DEFINITIONS AND INTERPRETATION

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



1.1

In this

following words

opposite them:



Agreement, the recitals and schedules attached hereto, the

and expressions shall have the meanings respectively set



"ACCOUNTING PROCEDURE" means the accounting procedure attached to and forming

part of the Joint Operating Agreement.



"AFFILIATE" means a company, partnership or other legal entity which controls,

or is controlled by, or which is controlled by an entity which controls a Party,

and for the purpose hereof, "control" means the ownership directly or indirectly

of more than fifty (50%) percent of the shares or voting rights or privileges in

a company, partnership or legal entity.

"AGREEMENT" "hereof", "herein", "hereto" and similar expressions means this

Joint Venture Agreement together with the schedules attached hereto and any

amendment or amendments made between the Parties in writing from time to time.

"COMMERCIAL QUANTITIES" means Petroleum in such commercial quantities which, in

the opinion of the Parties and to the satisfaction of the Minister, are

sufficient to entitle the Parties to commence production.

"CONCESSION BLOCK 237" means the surface area delineated in OPL 237 details of

which are more particularly described in the survey plan annexed to OPL 237, as

such area may vary from time to time during the term of OPL 237 and any

extensions thereto or any oil mining leases arising therefrom.

"DEEP ZONES" means all geological formations within and around the IMA Field

that are north (upthrown) and south (downthrown) of the geological fault

dividing the IMA field, all depths below the geological producing reservoir

within the IMA Field, known as the AF@ sand, as currently shown on the maps and

schematic cross-section materials covering the IMA Field, which are attached as

Schedule AD@ to the Joint Venture Agreement between Amni International Petroleum

Company Limited and Liberty Technical Services Ltd, of even date herewith, lying

within the geographical co-ordinates along the northern boundary of OML 112 and

OPL 237, to the southern boundary of OML 112, to the western boundary of OML 112

and to the eastern boundary of 550,000 meters East, as reflected on the maps of

the IMA Field attached to the Joint Venture Agreement.

"EFFECTIVE



DATE"



means



the



30th



day



of



June,



1998.



"GOVERNMENT" means the federal government of the federal republic of Nigeria as

represented by the Ministry of Petroleum Resources.

"IMA FIELD" means the area reflected on Schedule D, which area is contained

within Concession Block 469 as delineated in Nigeria Oil Prospecting License

469, dated August 24, 1993, subsequently converted to Oil Mining License 112 on

February 18, 1998 and Concession Block 237

"JOINT OPERATING AGREEMENT" OR "JOA" means the joint operating agreement that

governs Joint Operations on the Deep Zones of the IMA Field, and which JOA is

annexed hereto as Schedule "C".



"JOINT OPERATIONS" means the entire process of acquiring, exploring for,

developing, exploiting, producing and selling Petroleum from the Deep Zones of

the IMA Field for the joint account of the Parties hereto.

"LIBERTY"

"MINISTER"



means



means



"MINISTRY" means

federal republic



the



Liberty

Minister



Technical

of



the



Services



Ltd.



Ministry.



the Ministry of Petroleum Resources of the government of the

of Nigeria.



"OIL MINING LEASE 112" or "OML 112" means the oil mining lease that was issued

by the Ministry to the holder of OPL 469 on February 18, 1998 and includes (a)

all rights, title and interest granted thereunder, including any extension,

renewal or amendment thereof made in writing, and (b) all schedules and plans

attached thereto or referred to therein pursuant to which the Owner/Operator has

acquired an interest in all Petroleum found and produced within the geographic

area defined and described therein including the right to prospect for, take and

remove and sell any petroleum.

"OIL PROSPECTING LICENCE NO. 237" or "OPL 237" means Oil Prospecting Licence No.

237 issued by the Minister to the Owner/Operator on December 22, 1994, and

includes (a) all rights, title and interest granted thereunder, including any

extension, renewal or amendment thereof made in writing, and (b) all schedules

and plans attached thereto or referred to therein pursuant to which the

Owner/Operator has acquired an interest in all Petroleum found and produced

within the geographic area defined and described therein including the right to

prospect for, take and remove and sell any petroleum.

"OWNER/OPERATOR" means Amni International Petroleum Development Company Limited

of Lagos, Nigeria.

"PARTICIPATING INTEREST" means the undivided interest of each Party, expressed

as a percentage, in the rights, benefits and obligations established by this

Agreement, as set forth and described in Article VI.

"PARTIES"

"PARTY"

assigns



means



collectively



the



Owner/Operator



and



Liberty.



means any one party to this Agreement and any permitted successors or

in accordance with the provisions of this Agreement.



"PETROLEUM" means all mineral oil (or any related hydrocarbons), natural gas as

it exists in its natural strata (including condensate, sulphur and any and all

other liquid and gaseous hydrocarbons) and does not include coal or bituminous

states or other stratified deposits from which oil can be extracted by

destructive distillation.



"PETROLEUM COSTS" means those reasonable costs, claims and expenses incurred by

the Operator of the JOA, from time to time on or after the Effective Date, both

within and outside of Nigeria, directly related to exploration, development and

production of Petroleum from the Deep Zones of the IMA Field that have been

properly incurred pursuant to the terms of the JOA.

"PRODUCTION



DATE"



means



the



date



that



continuous



Production



commences.



"TAX OIL" means thirty percent (30%) of the total production of Petroleum from

the Deep Zones of the IMA Field which shall be held pursuant to an arrangement

acceptable to the parties hereto pursuant to which the Government will be paid

all royalties, petroleum profits taxes and other taxes and governmental levies

due and owing with respect to Joint Operations.

1.2



Appended



Schedule

Schedule

Schedule

Schedule

Schedule



"A"

"B"

"C"

"D"

"E"



All schedules

Agreement.

1.3

with



hereto



referred



are



the



following



schedules:



OML 112 and related correspondence from the Ministry

OPL 237 and related correspondence from the Ministry

Joint Operating Agreement

Map of IMA Field

Scheduled Litigation

to



above



are incorporated into and form part of this



Wherever any provision of any schedule to this Agreement conflicts

any provision in the body of this Agreement, the provisions of the body of



this Agreement shall prevail. Reference herein to a schedule shall mean a

reference to a schedule to this Agreement. References in any schedule to the

Joint Venture Agreement shall mean a reference to this Agreement.

1.4



Time



shall



be



of



the



essence



hereof.



1.5

The division of this Agreement into headings, sections,

subsections, clauses, subclauses, and paragraphs and the provision of headings

herein is for the convenience of reference only and shall not affect the

interpretation of this Agreement.

1.6

include

1.7

lawful



the



In this Agreement, where the context requires, the singular shall

plural and the plural shall include the singular.



money



All references to currency, unless otherwise specified, are to

of the United States of America.





ARTICLE II - SCOPE

-----------------2.1

The Parties hereby undertake and agree subject to the conditions

hereof, to associate and participate together in a joint venture to explore for,

develop, exploit, produce and sell Petroleum from the Deep Zones of the IMA

Field and to conduct Joint Operations thereon. The joint venture shall

establish and maintain facilities for the conduct of the Joint Operations.

ARTICLE III - CONTINUED OPERATIONS

---------------------------------3.1

The Owner/Operator shall continuously maintain OPL 237 and OML

112 in good standing throughout the term of this Agreement (and shall provide

confirmation respecting same to Liberty upon written request) in order to secure

the respective Participating Interests in Petroleum produced from the IMA Field

ARTICLE IV - JOINT OPERATIONS

----------------------------4.1

Field



shall



The

be



conduct of all Joint Operations on the Deep Zones of the IMA

in accordance with the terms of the Joint Operating Agreement.

ARTICLE V - UNDIVIDED INTEREST

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



5.1

At such time as the Oil Mining Lease relating to OPL 237 is issued

by the Government, Owner/Operator shall convey to Liberty a 10% undivided

interest in the Oil Mining Lease, but only with respect to the Deep Zones.

ARTICLE VI - PARTICIPATING INTEREST OF PETROLEUM COSTS

-----------------------------------------------------6.1

carried



out



All

in



Petroleum Costs

respect of the



Owner/Operator

Liberty



incurred in respect of Joint Operations

IMA Field, shall be allocated as follows:

90%

10%



6.2

All equipment, material or property of whatsoever nature related

to the conducting of Joint Operations within the Deep Zones of the IMA Field

(other than equipment or property that is leased from third parties or supplied

by only one party, both in accordance with the terms of the JOA) and any other

assets acquired by the Parties pursuant to the terms of this Agreement from time

to time shall be owned by the Parties in accordance with their respective

Participating Interest.



6.3

in ARTICLE



The

6.1



allocation of Petroleum Costs between the Parties as set forth

herein constitutes that Party's Participating Interest.





6.4

Each of the Parties hereby covenants to contribute and/or pay the

Petroleum Costs in the amount equal to its Participating Interest, from time to

time, and to bear all Petroleum Costs paid or incurred pursuant to this

Agreement on behalf of such Party or Parties in portions equal to their

Participating Interest, all as shall be more fully provided in the Joint

Operating Agreement.

6.5

Any net tax credits, royalty credits or reduction in Tax Oil

generated by or resulting from or arising in connection with the Joint

Operations carried out within the Deep Zones of the IMA Field shall be shared

and allocated based on each Party=s Participating Interest.

ARTICLE VII - PARTICIPATING INTEREST OF PRODUCTION

-------------------------------------------------7.1

The Owner/Operator hereby acknowledges and confirms that Liberty

is entitled to its Participating Interest of Petroleum produced from the Deep

Zones of the IMA Field as set forth in Paragraph 7.2 below.

7.2

All benefits, revenues and receipts of whatsoever nature as same

relate to the sale of Petroleum produced from the Deep Zones of the IMA Field

shall be allocated as follows:

The

As

be



Tax



Oil



shall



be



reserved



for



ultimate



payment



to



the



to the remainder: Owner/Operator shall be entitled to 90% and

entitled to 10%.



Government

Liberty shall



7.3

In the event the Government elects to exercise its right to

participate in the development of the Deep Zones of the IMA Field, the

Participating Interest of the Parties will be amended accordingly, on a pro rata

basis, based upon the level of Government participation.

ARTICLE VIII - ASSIGNMENT

------------------------8.1

This Agreement and all the provisions hereof shall be binding

upon and enure to the benefit of the Parties hereto and their respective

successors and assigns but neither this Agreement not any of the rights,

interest or obligations hereunder or under OML 112, OPL 237 or in respect of the

IMA Field shall be assigned or pledged by any Party without the prior written

consent of the other Party, which consent shall not be unreasonably withheld,

and the Government, if necessary, but may be assigned to Affiliates without such

consent subject to the provisions of this Agreement. Further, Owner/Operator

hereby consents to a pledge by Liberty to of its interests in this Joint Venture

and in the Deep Zones of the IMA Field to financial institutions now or

hereafter providing credit to Liberty.



8.2

The Parties acknowledge that the termination of the Joint

Ventures as referenced in Paragraph (c) of the recitals is subject to

Governmental approval. The Parties agree to obtain such approvals as promptly

as possible. Further, the Parties acknowledge that the interests herein

conveyed to Liberty with respect to its 10% undivided interest in the Deep Zone

is subject to obtaining all necessary governmental approvals required to

consummate the transactions provided for herein. The Parties agree to obtain



such approvals as promptly as possible. If by December 1, 1998 the necessary

government approvals have not been obtained, then the Parties shall enter into

such amendments to this Agreement and such other contractual agreements as are

necessary to provide Liberty (or its nominee) with all of the rights and

benefits that were to be provided to Liberty pursuant to this Agreement and the

Agreements executed in connection herewith.

ARTICLE IX

JOINT OPERATING AGREEMENT

------------------------9.1

The Parties hereto agree that the Joint Operations within the Deep

Zones of the IMA Field shall be conducted in accordance with the provisions of

the Joint Operating Agreement.

9.2

The Owner/Operator is hereby designated as Operator for the

conduct of all Joint Operations carried out within, upon or under the IMA Field.

9.3

The Parties hereby adopt, approve and agree to abide and be bound

by the terms of the Joint Operating Agreement in the form attached hereto as

Schedule "C."

9.4

All Joint Operations upon the Deep Zones of the IMA Field shall be

carried out in accordance with the provisions of the Joint Operating Agreement

and Accounting Procedure.

ARTICLE X - DISPUTE RESOLUTION

-----------------------------10.1

applied



in



This Agreement shall be governed by, construed, interpreted and

accordance with the laws of England.



10.2

Any dispute arising out of and relating to this Agreement and which

the Parties have not settled by themselves, shall finally be decided, to the

exclusion of the courts, by arbitration in accordance with the arbitration rules

of the International Chamber of Commerce. Three arbitrators shall be appointed,

each party appointing one arbitrator, and the two arbitrators thus appointed

choosing the presiding arbitrator. In reaching a decision, the arbitrators

shall be guided by the terms of this Agreement and international practice in

similar agreements.



ARTICLE XI - TERM

----------------11.1

This Agreement shall remain in full force and effect and shall

continue to be binding upon the Parties hereto until terminated by the unanimous

written consent of the Parties.

ARTICLE XII - FINANCIAL YEAR

---------------------------12.1

or such



The financial year end of the joint venture shall be December 31

other date as agreed in writing by the Parties hereto.



12.2

The financial books and records of the joint venture shall be

kept in accordance with generally accepted accounting principles and procedures.

12.3

Subject to the terms of the Joint Operating Agreement, an annual

audit of the joint venture's balance sheet, profit and loss statement and other

related financial records shall be made by a recognized public accounting or



chartered accounting firm, which is mutually agreeable to the Parties hereto.

The Parties shall be entitled to have members of its internal audit staff

inspect the records and books of the joint venture at any time and at its own

expense. In addition, either Party may, at its sole expense, engage an

independent public accounting or chartered accounting firm to audit the

financial records of the joint venture from time to time.

ARTICLE XIII - CONFIDENTIALITY

-----------------------------13.1

The Parties covenant and agree that they are entering into a

joint venture relationship and, subject to Article 13.3, owe each other the

highest level of fiduciary responsibility and, except as permitted in Article

13.2, will not while Parties to this Agreement or for a period of five year

following the expiry of this Agreement, disclose to any other person, firm,

corporation or entity, any proprietary or confidential information obtained in

the course hereof, or as a result of the Joint Operations contemplated in this

Agreement. Any information not generally available to the public shall be

construed as proprietary or confidential for the purposes of this Agreement

including, without limitation, information relating to Joint Operations, seismic

and other data, drilling techniques and results, technology, suppliers of

equipment, and names of customers, information relating to sales, markets,

target markets, strategies, advertisements, business procedures and all

financial information.

13.2

The obligation of the Parties as set forth in Article 13.1

hereof to maintain confidentiality shall not apply to such knowledge,

information, material or business data obtained pursuant to this Agreement or

relating to any material to the joint venture which:



(a)



was demonstratably

Agreement;



known to a Party prior to December 2, 1994 of this



(b)



is available to the public in the form of written

by a third party;



publication



issued



(c)



shall have become available to the Parties in good faith from a third

party who has a bona fide right to disclose same;



(d)



is required to be disclosed to any federal, provincial, state or local

government or governmental branch, board, agency or instrumental

mentality in order to comply with applicable laws, or is required to

be disclosed to regulatory authorities including stock exchanges

having jurisdiction in respect of securities of either parties;



(e)



is required to be disclosed by a Party pursuant to public disclosure

requirements imposed under applicable securities legislation;



(f)



is required or desired to be disclosed to a Party's financial

advisors, banks, contractors or potential investors in the project.



13.3

Each Party shall have the right to independently engage in and

receive full benefits from other business activities, whether or not

competitively with the joint venture hereby created, without consulting the

other Party, and no Party shall have any obligation to the other Party with

respect to any opportunity to acquire any assets at any time outside the terms

of the joint venture hereby constituted.

ARTICLE XIV - COVENANTS

----------------------14.1



The



Owner/Operator



covenants



with



Liberty



as



follows:



(a)



the Owner/Operator is a company duly incorporated, validly existing

and in good standing under the laws of the Federal Republic of Nigeria

and that it has all necessary corporate powers to enter into this

Agreement and to carry on business herein contemplated;



(b)



the Owner/Operator is the lawful licensee of OPL 237 and lawful lessee

of OML 112 and the geographic area contained therein, and the

Owner/Operator has not transferred, conveyed, sold or in any way

encumbered its interest as licensee of OPL 237 or OML 112;



(c)



the form of oil mining lease called Oil Mining Lease No. 112 (which is

attached hereto as Schedule "A") is, to the best of the knowledge and

belief of the

Owner/Operator,

the present and subsisting oil

prospecting licence for the geographic area contained therein, and OML

112 is in good standing as to the Government and all other regulatory

agencies and authorities;;





(d)



the form of oil prospecting licences called Oil Prospecting Licence

No. 237 (which is attached hereto as Schedule "B") is, to the best of

the knowledge and belief of the Owner/Operator, the present and

subsisting oil prospecting licence for the geographic area contained

in Concession Block 237, and OPL 237 is in good standing as to the

Government and all other regulatory agencies and authorities



(e)



During the term of this Agreement Owner/Operator shall ensure that all

requirements imposed by the Government and necessary to maintain OML

112, OPL 237 and, if issued, the Oil Mining Lease are timely

satisfied. Any costs incurred by the Owner/Operator in satisfying such

operations as they relate to the Deep Zone shall comprise part of the

Petroleum Costs



(f)



the Owner/Operator shall assist in the promotion and successful

conduct of the joint venture including obtaining and providing Liberty

with (1) all necessary Government and other approvals required to

perform the Joint Operations, and (2) if requested by Liberty, any

material correspondence or other documentation hereafter filed or

prepared for filing with the Government by the Owner/Operator that

relates to the IMA Field;



(g)



The Owner/Operator shall provide or shall procure all necessary

technical and operational support for the conduct of the Joint

Operations as required from time to time pursuant to the terms of this

Agreement and the Joint Operating Agreement and shall conduct its

activities in accordance with good oil field practices; and



(h)



The Owner/Operator shall refrain from entering into any amendments to

or modifications of the documents establishing OML 112 or OPL 237

without the consent of Liberty,

which

consent

shall not be

unreasonably withheld.



14.2



Liberty



covenants



as



follows:



(a)



Liberty is a corporation duly incorporated, validly existing and in

good standing under the laws of the Bahamas and has all necessary

corporate powers to enter into this Agreement and to conduct and to

carry on business as herein contemplated;



(b)



Except for the pledge of its interest in the Deep Zone to the

Owner/Operator and to Total International Limited and Credit Suisse

First Boston, Liberty has not transferred, conveyed, sold or in any

way encumbered its interest in the Deep Zone; and





(c)



(d)



Liberty shall assist in the promotion and successful conduct of the

joint venture including obtaining and providing the Owner/Operator

with if requested by the Owner/Operator, any material correspondence

or other documentation hereafter filed or prepared for filing with the

Government by Liberty that relates to the IMA Field; and

Except as set on Schedule E attached hereto, there are no pending

litigation, bankruptcy, insolvency, or similar proceedings that will

affect Liberty=s ability to perform its obligations hereunder.



ARTICLE XV -DEFAULT

------------------15.1

If any Party ("Defaulting Party") fails to comply with the terms

of this Agreement, the other Party hereto ("Non-Defaulting Party") shall have

the right to serve on the Defaulting Party a formal notice (a "Default Notice"),

which notice shall specify in reasonable detail the events causing such default.

If such default continues for more than thirty (30) days after the date of

notification, then until such time as the Defaulting Party has remedied its

default in full, the Defaulting Party=s rights and remedies under this Agreement

shall be suspended.

15.2

The remedies provided in Article 15.1 shall be without prejudice

to any other rights available to the Non-Defaulting Party whether at common law,

pursuant to statute or otherwise.

ARTICLE XVI - MISCELLANEOUS

--------------------------16.1

executed



by



This Agreement

the Parties.



may



be



amended



only



by



a written



instrument



16.2

written,



This Agreement supersedes any and all other agreements, oral or

among the Parties in respect of the subject matter contained herein.



16.3

Each of the Parties shall execute and deliver such other

certificates, agreements and other documents and take such other actions as may

reasonably be required by the other Party in order to consummate or implement

the transactions contemplated by this Agreement.

16.4

The liability and obligation of the Parties hereto shall be

several and not joint or collective and each Party shall be responsible only for

its obligations as herein set forth. It is expressly declared that it is not

the purpose of this Agreement to create any partnership or syndicate and neither

this Agreement nor the operations hereunder shall be construed or considered as

creating any partnership or syndicate.

16.5

All notices, requests, demands, or other communications hereunder

shall be delivered by hand or sent by mail as appropriate or by facsimile, telex

or telegram to the Parties at the address provided below:



Owner/Operator:

Amni International Petroleum Development

Company Limited

Plot 1377B Tiamiyu

Savage Street

Victoria Island. P.O. Box 54452



Falomo, Ikoyi

Fax: 011 234 262 1526

Attn: Tunde J. Afolabi

Managing Director

Liberty:

Liberty Technical Services Ltd.

Suite 140

14811 St. Mary=s Lane

Houston, Texas 77079

U.S.A.

Fax: (281) 721 0560

Attn: Timothy Stephens

With a copy to:

Liberty Technical Services Ltd.

38 Warehouse Road

Apapa, Lagos, Nigeria

Fax: 011 234 1545 0301

Attn: Wade Cherwayko

Any Party may from time to time change its address for service hereunder

upon written notice to the other Party. Any notice may be served by

personal delivery or by mailing the same by registered post, in a properly

addressed envelope addressed to the Party to whom such notice is to be

given at its address for service hereunder and shall be deemed to be

received forty-eight (48) hours after the delivery thereof. Any notice may

be served by prepaid telegram, telex or telecopy addressed to the Party to

whom such notice is to be given and any such notice so served shall be

deemed to be given and received by the addressee eighteen (18) hours after

the time of delivery.

16.6

This Agreement may be executed in one or more counterparts and

evidence by facsimile copy thereof and all such counterparts or facsimile copies

together shall constitute one and the same agreement.



IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by

their duly authorized officers and representatives as of the day and year first

written above.

AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED

Per: /s/ Tunde Afolabi

------------------Title: Managing Director

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



LIBERTY TECHNICAL

SERVICES LTD.

Per: /s/ Wade Cherwayko

------------------Title:





THIS IS SCHEDULE "A" TO THE JOINT VENTURE AGREEMENT MADE EFFECTIVE AS OF JUNE

30, 1998 BY AND BETWEEN AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED

AND LIBERTY TECHNICAL SERVICES LTD.

OIL MINING LEASE 112





THIS IS SCHEDULE "B" TO THE JOINT VENTURE AGREEMENT MADE EFFECTIVE AS OF JUNE

30, 1998 BY AND BETWEEN AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED

AND LIBERTY TECHNICAL SERVICES LTD.

OIL PROSPECTING LICENCE NO. 237





THIS IS SCHEDULE "C" TO THE JOINT VENTURE AGREEMENT MADE EFFECTIVE AS OF JUNE

30, 1998 BY AND BETWEEN AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED

AND LIBERTY TECHNICAL SERVICES LTD.

OPERATING AGREEMENT AND ACCOUNTING PROCEDURE



Means the operating

Parties with respect to



agreement executed on even date herewith between the

the Deep Zones of the IMA Field.





THIS IS SCHEDULE "D" TO THE JOINT VENTURE AGREEMENT MADE EFFECTIVE AS OF JUNE

30, 1998 BY AND BETWEEN AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED

AND LIBERTY TECHNICAL SERVICES LTD.



MAP OF THE IMA FIELD



[MAP OF THE IMA FIELD]



IMA FIELD, OML 112 (FORMERLY OPL 469) ) AND OPL 237

- ------------------------------------------------------------DEEP



ZONES:



All geological formations within and around the Ima Field that are north

(upthrown) and south (downthrown) of the geological fault dividing the Ima

Field, all depths below the geological producing reservoir within the Ima Field,

known as the * F + sand, as currently shown on the maps and schematic

cross-section materials covering the Ima Field annexed hereto as Schedule A, or



a depth of 12,150 feet (true vertical depth), whichever is the lesser depth,

lying within the geological co-ordinates along the northern boundary of OML 112

and OPL 237, to the south boundary of OML 112, to the western boundary of OML

112 and to the eastern boundary of 550,000m E, as annexed hereto as Schedule B.



THIS IS SCHEDULE "E" TO THE JOINT VENTURE AGREEMENT MADE EFFECTIVE AS OF JUNE

30, 1998 BY AND BETWEEN AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED

AND LIBERTY TECHNICAL SERVICES LTD.



SCHEDULE OF PENDING LITIGATION

1.



Cause No. 98-24830; Weatherford Enterra U.S., Limited Partnership v. Abacan

Resource Corporation, Abacan Services (USA) Corporation, Abacan Technical

Services, Ltd., Abacan Resources (Nigeria), Ltd. and Liberty Technical

Services, Ltd. filed on May 27, 1998 in the 61st Judicial District Court of

Harris County, Texas (AWeatherford Lawsuit@).



2.



Cause No. 98-20214; Global Marine International Services Corporation v.

Abacan Technical Services Limited filed on April 28, 1998 in the 125th

Judicial District Court of Harris County, Texas











EX-10.4

9



EXHIBIT



10.4



JOINT OPERATING AGREEMENT

BETWEEN

AMNI INTERNATIONAL PETROLEUM DEVELOPMENT

COMPANY LIMITED



AND



LIBERTY TECHNICAL SERVICES LTD.



REGARDING THE DEEP

ZONES OF THE IMA FIELD









TABLE OF CONTENTS

ARTICLES

PAGE

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



ARTICLE I - DEFINITIONS

1

1.1 Definitions

1

1.2 Schedules

9

1.3 Interpretation

9

ARTICLE II - DURATION

10

2.1 Effective Date and Term

10

2.2 Continuing Obligation

10

ARTICLE III - SCOPE AND UNDERSTANDING

10

3.1 Scope

10

3.2 Understanding

11

ARTICLE IV - PARTICIPATING INTEREST

11

4.1 Participating Interest

11

4.2 Ownership, Obligations and Liabilities Governed by Joint Venture Agreement

11

ARTICLE V - THE OPERATOR

11

5.1 Designation of the Operator

11

5.2 Resignation or Removal of the Operator

11

5.3 Removal of the Operator

12

5.4 Appointment of Successor

12

5.5 Commingling of Funds

13

ARTICLE VI - AUTHORITY AND DUTIES OF THE OPERATOR

13

6.1 Rights

13

6.2 Responsibility

14

6.3 Liens and Encumbrances

15

6.4 Employees and Contractors



15

6.5

16

6.6

16

6.7

16

6.8

17

6.9

17

6.10

18



Representation of The Parties

Records

Reports

Consultation and Information

Joint Account Expenditures and Actions

Disposal and Abandonment



ARTICLE VII - RIGHTS OF THE PARTIES

20

7.1 Reservation of Rights

20

7.2 Inspection Rights

20

7.3 Access Rights

20

ARTICLE VIII - THE OPERATING COMMITTEE

21

8.1 Establishment and Powers

21

8.2 Representation

21

8.3 Chairman

22

8.4 Meetings

22

8.5 Minutes

22

8.6 Action Without a Meeting

23

8.7 Sub-Committees

23

8.8 Voting Procedure

23

8.9 Concession Provisions

24

8.10 Notification to the Committee

24

8.11 Costs

24

ARTICLE IX - PROJECT MANAGER

25

9.1

25

ARTICLE X - FUNDING OF THE JOINT OPERATIONS

25

10.1 Cash Call

25

10.2 Payments for Joint Operations Expenditures

26

10.3 Failure of a Party to Pay a Cash Call

26

ARTICLE XI - INSURANCE AND LITIGATION

27

11.2 Joint Account Insurance



27

11.3

29

11.4

29

11.5

31



Indemnity

Litigation

IMA #11 Insurance Proceeds



ARTICLE XII - EXPLORATION WORK PROGRAMME AND BUDGET

31

12.1 Annual Work Programme and Budget

31

12.2 Authorization for Expenditure

32

12.3 Amendment

32

ARTICLE XIII - APPRAISAL WORK PROGRAMME AND BUDGET

33

13.1 Joint Work Programme and Budget

33

13.2 Authorization for Expenditure

33

13.3 Review and Amendment

34

ARTICLE XIV - DEVELOPMENT WORK PROGRAMME AND BUDGET

34

14.1 Joint Work Programme and Budget

34

14.2 Authorization for Expenditure

35

14.3 Review and Amendment

36

ARTICLE XV - PRODUCTION WORK PROGRAMME AND BUDGET

37

15.1 Annual Work Programme and Budget

37

15.2 Authorization for Expenditure

37

15.3 Amendment

38

ARTICLE XVI - SOLE RISK OPERATIONS

38

16.1 Definitions

38

16.2 Sole Risk Operations

39

16.3 Conditions for Sole Risk Operations

40

16.4 Sole Risk Notice

40

16.5 Sole Risk Operation as Joint Operation

41

16.6 Sole Risk Operation

41

16.7 Operator of Sole Risk Operation

41

16.8 Commencement of Sole Risk Operation

41

16.9 Information Concerning Sole Risk Operation

42

16.10 Election to Participate in Further work



42

16.11

42

16.12

42

16.13

42



Use of Joint Property and Personnel of the Operator for Sole Risk Operation

Indemnification of the Non-Consenting Party

Title to The Sole Risk Operation, Production and Facilities



ARTICLE XVII - ACCOUNTING PROCEDURE

43

17.1

43

ARTICLE XVIII - DEFAULT

43

18.1 Failure to Pay

43

18.2 Remedy of Default

44

18.3 Continuation of Default

44

18.4

45

18.5

45

18.6 Other Remedies

45

ARTICLE XIX - DISPOSITION OF PRODUCTION

45

19.1 Right and Obligation to Take in Kind

45

19.2 Offtake Agreement for Crude Oil

46

19.3 Separate Agreement for Natural Gas

47

ARTICLE XX - CONFIDENTIALITY

47

20.1 Confidentiality Data and Information

47

20.2 Trading Rights

48

ARTICLE XXI - PUBLIC ANNOUNCEMENTS

49

21.1

49

21.2

49

21.3

49

ARTICLE XXII - OUTGOINGS AND GRANTS

49

22.1 Outgoings

49

22.2 Grants

50

ARTICLE XXIII - COVENANT, UNDERTAKING, RELATIONSHIP AND TAX

50

23.1 Covenant and Undertaking

50

23.2 Relationship



50

23.3

51



Tax



ARTICLE XXIV - ASSIGNMENT AND ENCUMBRANCES

51

24.1 Restriction

51

ARTICLE XXV - WITHDRAWAL

51

25.1 Restriction

51

25.2 Withdrawal

51

25.3 Conditions

52

ARTICLE XXVI - FORCE MAJEURE

53

26.1

53

26.2

54

ARTICLE XXVII - NOTICES

54

27.1

54

ARTICLE XXVIII - DISPUTE RESOLUTIONS PROVISIONS

54

28.1

54

28.2

54





JOINT OPERATING AGREEMENT

------------------------THIS



JOINT



OPERATING



AGREEMENT is made effective the 30th



day of June, 1998.



BETWEEN:

AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED,

Tiamiyu Savage Street, Victoria Island, P.O. Box 54452,

Lagos, Nigeria (hereinafter referred to as "AMNI."



of Plot 1377B

Falomo Ikoyi,



and

LIBERTY TECHNICAL SERVICES LTD., of 7th Floor, Folawiyo Plaza, 38 Warehouse

Road, Apapa, Lagos, Nigeria (hereinafter referred to as "Liberty")

WHEREAS

1.



Pursuant to the Joint Venture Agreement dated as of even date herewith (as

modified from time to time, a AJoint Venture Agreement@) AMNI and Liberty

entered into a joint venture for the exploration and development of the

Deep Zones associated with the IMA Field;



2.



AMNI and Liberty each hold certain working and revenue interest in the Deep



Zones pursuant to the provisions contained in the Joint Venture Agreement;

3.



The Joint Venture Agreement contemplates the execution of an agreement

providing for the joint exploration, development and production operation

of the Deep Zones as well as the management of the Deep Zones by the

Operator, all in accordance with the terms, provisions and conditions

hereinafter set forth;



NOW THEREFORE, in consideration of the promises and covenants hereinafter set

forth, the Parties hereby agree as follows:

ARTICLE I - DEFINITIONS

----------------------1.1



DEFINITIONS

Capitalized terms used herein but not defined

meanings specified by the Joint Venture Agreement.



1.1.1



herein



shall



have the



"ABANDONMENT AGREEMENT" means the proper plugging and abandoning

of a well in compliance with the Regulations and the restoration of

the well site to the satisfaction of any governmental body having

jurisdiction with respect thereto and to the reasonable satisfaction

of the owner and occupier of the surface.





1.1.2



"ACCOUNTING

hereto.



PROCEDURE"



means the



procedure



set out in Schedule "A"



1.1.3



"ACT"means the Petroleum Act of 1969 (Nigeria) and its subsidiary

legislation, all amendments thereto and all Regulations, policies and

statements passed in relation thereto.



1.1.4



"AFFILIATE" OR "AFFILIATED COMPANY" means a company, partnership or

other legal entity which controls, or is controlled by, an entity

which controls a Party, and for the purposes hereof, "control" means

the ownership directly or indirectly of more than fifty (50%) percent

of the shares or voting rights or privileges in a company, partnership

or legal entity.



1.1.5



"AGREEMENT" OR "JOINT OPERATING

AGREEMENT," "HEREOF," "HEREIN,"

"HERETO" and similar expressions means this Joint Operating Agreement,

together with schedules

attached

hereto and any amendment or

amendments made between the Parties in writing from time to time.



1.1.6



"AGREED INTEREST RATE" means interest compounded on a monthly basis,

at the rate per annum equal to the one (1) month term LIBOR rate for

U.S. Dollar deposits, as published by The Wall Street Journal or, if

not published, then by the Financial Times of London plus two percent

(2%) application on the first Business Day prior to the due date of

payment and thereafter on the first Business Day of each succeeding

one (1) month term. If the aforesaid rate is contrary to any

applicable usury law, the rate of interest to be charged shall be the

maximum rate permitted by such applicable law.



1.1.7



"AMNI" means Amni International Petroleum Development Company Limited.



1.1.8



"APPRAISAL WELL" means any well whose purpose at the time of

commencement of drilling such well is the determination of the extent

or the volume of Petroleum

reserves contained in an existing

Discovery.



1.1.9



"ASSETS" means the fixed and moveable assets of the Joint Operations

including without limitation any OPL or OML establishing the Deep



Zones of the IMA Field, exploration,

development,

production,

transportation, storage, delivery and export facilities and associated

assets including but not limited to offices, housing and welfare

facilities.

1.1.10



"AUTHORITY FOR EXPENDITURE" OR "AFE" means a written statement of an

operation proposed to be conducted pursuant to this Agreement, which

statement shall include:





(a)



the type, purpose and location of such operation, in sufficient

detail to enable a Party to understand the nature, scope and

sequence of such operation, the proposed time frame over which

such operation will be conducted and, if such operation is the

drilling or deepening of a well, the projected total depth

thereof, the proposed surface coordinates of the well and, if

they will differ materially from the surface coordinates of the

well, the proposed bottomhole coordinates therefor; and



(b)



the proposing Party's estimate of the anticipated costs of such

operation, which estimate shall be in sufficient detail to enable

a Party to identify, in summary form, the anticipated costs of

the various identifiable segments of such operation, including,

if applicable, those costs which relate to drilling, completing

and equipping a well.



1.1.11



"AVAILABLE PRODUCTION" means the quantity of Petroleum which can be

efficiently and economically produced and saved from the producing

wells subject to any production allowable within limitations imposed

by the Ministry or other technical

limitations resulting from

operations.



1.1.12



"BARREL" means a quantity consisting of forty-two (42) United States

gallons, corrected to a temperature of sixty (60) degrees Fahrenheit

under one (1) atmosphere of pressure.



1.1.13



"BUSINESS DAY" means a day on which the banks in London,

Zurich, Switzerland are customarily open for business.



1.1.14



"CALENDAR QUARTER" means a period of three (3) consecutive months

commencing on January 1 and ending the following March 31, a period of

three (3) months commencing on April 1 and ending on the following

June 30, a period of three (3) months commencing on July 1 and ending

on the following September 30 or a period of three (3) months

commencing on October 1 and ending on the following December 31

according to the Gregorian Calendar.



1.1.15



"CALENDAR YEAR" means a period of twelve (12) months commencing on

January 1 and ending on the following December 31 according to the

Gregorian Calendar.



1.1.16



"CASH CALL" means the amount in Dollars (or such other currency as the

Operating Committee shall reasonably designate) which the Operating

Committee requires a Cash Call Party to pay into the Joint Account

during a Cash Call Month to meet such Party's Participating Interest

of Petroleum Costs required to be paid during the Cash Call Month,

after adjusting for balances or deficits in such bank account or the

Operator's accounting records (as the case may be) as well as any

credit receipts anticipated during such month, all in accordance with

Article VIII of this Agreement.



1.1.17



"CASH CALL MONTH" means the calendar month in which specific costs and

expenditures are to be incurred for the Joint Account.







England and



1.1.18



"CASH CALL PARTY" means a party that has an obligation, be it direct

or indirect, to pay for costs associated with the exploration,

development and production of Petroleum from the Deep Zones of the IMA

Field.



1.1.19



"CASH PREMIUM" means the payment made pursuant to Article XVI by a

Non-Consenting Party to reinstate its right to participate in a Sole

Risk Operation.



1.1.20



"COMMERCIAL PRODUCTION QUOTA" means the quantity of Petroleum fixed or

established by the National Petroleum Investments Management Services

("NAPIMS") (or any other regulatory agency from time to time on behalf

of the Ministry as the permissible quantity that may be produced from

the Deep Zones of the IMA Field (or a portion hereof), on a crude

stream basis for a particular month or Calendar Quarter.



1.1.21



"COMPLETION" means an operation intended to complete a well through

the Christmas tree as a producer of Petroleum in one or more Zones

including, but not limited to, the setting of production casing,

perforating, stimulating the well and production Testing conducted in

such operation. "COMPLETE" and other derivatives shall be construed

accordingly.



1.1.22



"CONCESSION" means a certain geographic area described and governed by

an OPL or OML and allocated to an owner for the purpose of exploration

and exploitation.



1.1.23



"CONCESSION BLOCK 237" means the surface area delineated in OPL 237

details of which are more particularly described in the survey plan

annexed to OPL 237, as such area may vary from time to time during the

term of OPL 237 and any extensions thereto, or Oil Mining Lease

arising therefrom.



1.1.24



"CRUDE OIL" means the liquid petroleum which has been treated but not

refined and includes condensates but excludes water and sediments.



1.1.25



"DATA"



1.1.26



"DAY(S)" means

provided.



1.1.27



"DEFAULTING



1.1.28



"DEEPENING" means an operation whereby a well is drilled to an

objective zone below the deepest zone in which the well was previously

drilled, or below the deepest zone proposed in the associated AFE,

whichever is the deeper. Deepen and other derivatives shall be

construed accordingly.





1.1.29



has



the



meaning

a



PARTY"



set



calendar



out

day



in



Article



20.2.1



unless otherwise specifically



shall have the meaning ascribed in Article XVIII.



ADEEP ZONES@ means all geological formations within and around the IMA

Field that are north (upthrown) and south (downthrown) of the

geological fault dividing the IMA field, all depths below the

geological producing reservoir within the IMA Field, known as the AF@

sand, as currently shown on the maps and schematic cross-section

materials covering the IMA Field, which are attached as Schedule AD@

to the Joint Venture Agreement between Amni International Petroleum

Company Limited and Liberty Technical Services Ltd, of even date

herewith or a depth of 12,150 feet (true vertical depth), whichever is

the lesser depth, lying within the geographical co-ordinates along the

northern boundary of OML 112 and OPL 237, to the southern boundary of

OML 112, to the western boundary of OML 112 and to the eastern

boundary of 550,000 meters East, as reflected on the maps of the IMA

Field attached to the Joint Venture Agreement.



1.1.30



"DEVELOPMENT PLAN" means a plan for the development of Petroleum from

an Exploitation Area covering all or a portion of the Deep Zones of

the IMA Field.



1.1.31



"DEVELOPMENT WELL" means any well drilled

Petroleum pursuant to a Development Plan.



1.1.32



"DISCOVERY" means the discovery of an accumulation of Petroleum whose

existence until that moment was unknown.



1.1.33



"DOLLARS" OR "US$" means dollars of the United States of America.



1.1.34



"EFFECTIVE DATE" means the date this

stated in Article II.



1.1.35



"ENTITLEMENT" means a quantity of Petroleum of which a Party has

right and obligation to take delivery pursuant to the terms of

Joint Venture Agreement or, if applicable, an offtake agreement,

shall be derived from the Party's Participating Interest in

Petroleum produced after adjustment for overlifts and underlifts.



1.1.36



"EXPLOITATION AREA" means that part of the Deep Zones of the IMA Field

which is delineated in a Development Plan approved as a Joint

Operation or as Sole Risk Operation.



1.1.37



"EXPLOITATION PERIOD" means any and all periods of exploitation during

which the production and removal of Petroleum from the Deep Zones of

the IMA Field is permitted under OML 112 or Concession Block 237.



1.1.38



"EXPLORATION WELL" means any well drilled during the course

exploration work other than an Appraisal Well or Development Well.



1.1.39



"G & G DATA" means any geological, geophysical and geochemical

and other information that is not obtained through a wellbore.



1.1.40



"GOVERNMENT" means the Federal government of Nigeria as represented by

the Ministry of Petroleum Resources.





1.1.41



for the



Agreement



production



of



comes into effect as

the

the

and

the



of

data



AIMA FIELD@ means the area reflected on Schedule D, which area is

contained within Concession Block 469 as delineated in Nigeria Oil

Prospecting License 469, dated August 24, 1993, subsequently converted

to Oil Mining License 112 on February 18, 1998 and, if applicable,

Concession Block 237



1.1.42



"JOINT ACCOUNT" means those accounts maintained by the Operator and

the Liberty in accordance with the provisions of the Joint Venture

Agreement and this Agreement and of the Accounting Procedure for Joint

Operations.



1.1.43



"JOINT OPERATIONS" means those operations and activities carried out

by the Operator pursuant to this Agreement, the costs of which are

chargeable to all Parties.



1.1.44



"JOINT PROPERTY" means, at any point in time, all wells, facilities,

equipment, materials, information, funds and the property held for the

Joint Account and that has been acquired and/or will be paid for by

the Parties based on their Participating Interests.



1.1.45



"JOINT

VENTURE

AGREEMENT"

has the

introduction on the first page hereof.



1.1.46



"LIBERTY"



1.1.47



"MINISTRY"



means

means



Liberty

the



Technical

Ministry



of



meaning



Services



specified



in



the



Resources



of



the



Ltd.



Petroleum



Government.

1.1.48



"NON-CONSENTING PARTY" means a Party who elects not to participate in

a Sole Risk Operation.



1.1.49



"NON-OPERATOR"

the Operator.



1.1.50



"OIL MINING LEASE" or "OML" means a lease called an oil mining lease

issued by the Ministry following the fulfilment of the minimum work

obligations or the discovery of Commercial Quantities of Petroleum.



1.1.51



"OIL MINING LEASE 112" or "OML 112" means the oil mining lease that

was issued by the Ministry to the holder of OPL 469 on February 18,

1998 and includes (a) all rights,

title and interest granted

thereunder, including any extension, renewal or amendment thereof made

in writing, and (b) all schedules and plans attached thereto or

referred to therein pursuant to which the Amni has acquired an

interest in all Petroleum found and produced within the geographic

area defined and described therein including the right to prospect

for, take and remove and sell any petroleum.





1.1.52



means the Party or Parties to the Agreement other than



"OIL PROSPECTING LICENSE" OR "OPL" means a license called an oil

prospecting license issued by the Ministry and which grants to the

holder exclusive rights to explore and prospect for Petroleum within

the area of the license.



1.1.53



"OIL PROSPECTING LICENSE NO. 237" OR "OPL 237" means Oil Prospecting

License No. 237 issued by the Minister of Petroleum Resource of the

Government to the Owner on December 22, 1994, and includes: (a) all

rights, title and interest granted thereunder including any extension,

renewal or amendment thereof made in writing and (b) all schedules and

plans attached thereto or referred to therein pursuant to which the

Owner has acquired an interest in all Petroleum found and produced

within Concession Block 237, including the right to prospect for, take

and remove and sell any Petroleum.



1.1.54



"OPERATOR" means a Party to this

accordance with this Agreement.



1.1.55



"OPERATING COMMITTEE"

with Article VIII.



I.1.56



"OWNER"



1.1.57



"PARTICIPATING INTEREST" means the Participating

Parties as defined in the Joint Venture Agreement.



1.1.58



"PARTIES" means collectively AMNI and Liberty and any respective

successor-in-title or assigns in accordance with the provisions of

this Agreement.



1.1.59



"PARTY" means AMNI or Liberty and any respective successors-in-title

or assigns in accordance with the provisions of this Agreement.



1.1.60



"PETROLEUM" means all mineral oil (or any related hydrocarbons)

natural gas, as it exists in its natural state in strata (including

condensate,

sulphur and any and all other liquid and gaseous

hydrocarbons) and does not include coal or bituminous states or other

stratified deposits from which oil can be extracted by destructive

distillation.



1.1.61



"PETROLEUM COSTS" means those reasonable costs, claims and expenses

incurred by the Operator, from time to time on or after the Effective



means



Agreement



means the committee



designated



as such in



constituted in accordance



AMNI.

Interests



of the



Date, both within and outside of Nigeria, directly related to

exploration, development and production of Petroleum from the Deep

Zones of the IMA Field that have been properly incurred pursuant to

the terms of this Joint Operating Agreement.

1.1.62





1.1.63



"PETROLEUM OPERATIONS" means the entire process of exploring, drilling

and producing the Petroleum contained in the Deep Zones of the IMA

Field in accordance with the Regulations and the laws of the Federal

Republic of Nigeria.

"PLUGGING BACK" means a single operation whereby a deeper Zone is

abandoned in order to attempt a Completion in a shallower Zone. "PLUG

BACK" and other derivatives shall be construed accordingly.



1.1.64



"RECOMPLETION" means an operation whereby a Completion in one

Zone is abandoned in order to attempt a Completion in a different Zone

within the existing wellbore. "RECOMPLETE" and other derivatives shall

be construed accordingly.



1.1.65



"REGULATIONS"

means all rules,

orders,

policy statements and

regulations affecting Oil Prospecting Licenses and Oil Mining Leases

in effect from time to time and made by the Government in respect of

concession blocks and operations conducted thereon.



1.1.66



"REWORKING" means an operation conducted in the wellbore of a well

after Completion to secure, restore, or improve production in a Zone

which is currently open to production in the wellbore. Such operations

include but are not limited to well stimulation operations, but

exclude any routine repair or

maintenance

work, or drilling,

Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of

a well. "REWORK" and other derivatives shall be construed accordingly.



1.1.67



"SENIOR SUPERVISORY PERSONNEL" means any supervisory employee of the

Operator who functions as the Operator=s designated manager or

supervisor who is responsible for, or in charge of onsite drilling,

construction or production and related operations or any other field

operation.



1.1.68



"SIDETRACKING" means the directional control and intentional deviation

of a well from vertical so as to change the bottom hole location

unless done to straighten the hole or to drill around junk in the hole

or to overcome other mechanical difficulties. "SIDETRACK" and other

derivatives shall be construed accordingly.



1.1.69



"SOLE RISK OPERATOR" means a Party who agrees to participate in and

pay its share of the cost of a Sole Risk Operation.



1.1.70



"SOLE RISK OPERATION" means those operations and activities carried

out by the Sole Risk Operator, pursuant to this Agreement, the costs

of which are chargeable to the account of less than all the Parties.



1.1.71



"SOLE RISK EXPLORATORY

Risk Operation.



1.1.72



"TAX OIL" means thirty percent (30%) of the total production of

Petroleum from the Deep Zones of the IMA Field which shall be held

pursuant to an arrangement acceptable to the parties hereto pursuant

to which the Government will be paid all royalties, petroleum profits

taxes and other taxes and governmental levies due and owing with

respect to Joint Operations





1.1.73



WELL" means a well drilled pursuant to a Sole



"TESTING" means an operation intended to evaluate the capacity of a

Zone to produce Petroleum. "TEST" and other derivatives shall be



construed accordingly.

1.1.74



"WORK

PROGRAMME AND BUDGET" means a work programme for Joint

Operations and budget thereof as described and approved in accordance

with Articles 12, 13, 14 and 15.



1.1.75



"ZONE" means a stratum of earth containing or thought to contain a

common accumulation of Petroleum separately producible from any other

common accumulation of Petroleum.



1.2



SCHEDULES



1.2.1



The following

Agreement:

(a)

(b)

(c)

(d)

(e)



1.3

1.3.1



Schedules are attached hereto and



incorporated in this



Schedule "A" which is the Uniform Accounting Procedure

Schedule "B" which is the Uniform Project Implementation

Procedure;

Schedule "C" which is the Uniform Nomination Scheduling

and Lifting Procedure;

Schedule "D" which is a map showing the location of the IMA

Field; and

Schedule "E" which is a copy of the AFE that has been

submitted to the insurance carriers regarding the drilling

of IMA #11.



INTERPRETATION

Save to the extent that the context or the express

Agreement otherwise requires:

the singular



provisions of this



(a)



Words importing

versa;



shall include the plural and vice



(b)



Headings are for convenience of reference

affect the construction of this Agreement;



(c)



All references to articles and schedules shall be construed as

references to articles of and schedules to this Agreement.



(d)



All references to documents or other instruments include all

amendments and replacements thereof and supplements thereto;



(e)



All

references to

successors-in-title,

representatives;



(f)



All references to any statute or statutory provision shall

include references to any statute or statutory provisions which

amends, extends, consolidates or replaces the same for which has

been amended, extended, consolidated or replaced by the same and

shall include any orders, Regulations, instrument or other

subordinate legislation made under the relevant statue.



only and shall not



persons or

corporations

transferees,

assigns



include

and



their

legal







ARTICLE II - DURATION

--------------------2.1



EFFECTIVE



DATE



AND



TERM



This Agreement shall be deemed to have commenced on the Effective Date

of the Joint Venture Agreement and shall, subject to Article XXV,

continue for so long as the Joint Venture Agreement remains in force

or, otherwise until all materials, equipment and personal property

used in connection with the Joint Operations have been removed and



disposed of, and final settlement has been made among the Parties in

accordance with their respective rights and obligations hereunder.

For the avoidance of doubt, portions of this Agreement as described in

(a), (b), and (c) below shall remain in effect until:



2.2



(a)



all wells have been properly abandoned in accordance with Article

6.10;



(b)



all obligations, claims, arbitrations

settled or otherwise disposed of; and



(c)



the time relating to the protection of confidential information

and proprietary technology has expired in accordance with Article

XX.



CONTINUING



and lawsuits



have been



OBLIGATION



The provisions of this Agreement which for any reason require action

or forbearance after the expiration of the term of this Agreement or

the termination of this Agreement for whatever cause either generally

or in respect of the party by virtue of that Party withdrawing from

this Agreement or selling, transferring or assigning the whole of its

Participating Interest shall remain operative and in full force and

effect regardless of the expiry or termination of this Agreement.

ARTICLE III - SCOPE AND UNDERSTANDING

------------------------------------3.1



SCOPE



3.1.1



The scope of this Agreement shall extend to the exploration for and

the production and marketing of Petroleum in respect of the Deep Zones

of the IMA Field.





3.1.2



3.2



Notwithstanding the foregoing, this Agreement shall not extend to any

joint financing arrangements or any joint marketing or joint sales of

Petroleum.

UNDERSTANDING

This Agreement and the Joint Venture Agreement represent the entire

understanding of the Parties in relation to the Deep Zones of the IMA

Field.

ARTICLE IV - PARTICIPATING INTEREST

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



4.1



PARTICIPATING



INTEREST



The Participating Interests of the Parties in the Production

Petroleum Costs are as set forth in the Joint Venture Agreement.

4.2



OWNERSHIP, OBLIGATIONS

AGREEMENT



AND



LIABILITIES



GOVERNED



BY



JOINT



and



VENTURE



(a)



Unless otherwise provided in this Agreement, all the rights and

interests in and under the Joint Venture Agreement, all Joint

Property and any Petroleum produced from the Deep Zones of the

IMA Field shall be owned by the Parties in accordance with the

provisions of the Joint Venture Agreement.



(b)



Unless otherwise provided in this Agreement, the obligations of

the Parties under the Joint Venture Agreement and all liabilities



and expenses incurred in accordance with the terms of this

Agreement by the Operator in connection with Joint Operations

shall be charged to the Joint Account and all credits to the

Joint Account

shall be shared by the Parties,

as among

themselves, in accordance with their respective Participating

Interests.

(c)



Unless otherwise provided in this Agreement, all liabilities and

costs incurred by any Party in accordance with the terms of this

Agreement in connection with Joint Operations shall be borne by

the Parties in accordance with the provisions of the Joint

Venture Agreement.

ARTICLE V - THE OPERATOR

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



5.1



DESIGNATION



OF



THE



OPERATOR



AMNI is hereby designated as the Operator, and agrees to act in

accordance with the terms and conditions of the Joint Venture

Agreement, all applicable Regulations and this Agreement, which terms

and conditions shall also apply to any successor Operator.

5.2



RESIGNATION



OR



REMOVAL



OF



THE



OPERATOR





Subject to Article 5.3, the Operator may resign as Operator at any

time by so notifying the other Parties at least one hundred twenty

(120) Days prior to the effective date of such resignation.

5.3



REMOVAL

(a)



OF



THE



OPERATOR



Subject to Article 5.3, the Operator shall be

receipt of notice from any Non-Operator if:

(i)



removed



an order is made by a court or an effective resolution is

passed for the dissolution, liquidation, winding up, or

reorganization of the Operator;



(ii) the Operator

dissolves,

corporate existence;



liquidates



or



terminates



(iii)the Operator becomes insolvent,

bankrupt

assignment for the benefit of creditors;

(iv) a receiver is appointed

Operator's assets;

(v)



upon



for a



substantial



or



makes



part



its

an



of the



the Operator commits a substantial breach of a material

provision of this Agreement and fails to cure the breach

within thirty (30) Days after notice of the breach; or



(vi) the Operator or has its rights suspended pursuant to Section

15.1 of the Joint Venture Agreement.

(b)



5.4



If the Operator together with any Affiliate of the Operator

ceases to be a holder of a Participating Interest, then the

Operator shall be required to promptly notify the other Parties.

The Operating Committee shall then vote within fourteen (14) Days

of such notification on whether or not a successor Operator

should be named pursuant to Article 5.4.



APPOINTMENT



OF



SUCCESSOR



When a change of Operator occurs pursuant to Article 5.2 or Article



5.3:

(a)



The Operating Committee shall meet as soon as possible to appoint

a successor Operator pursuant to the voting procedure of Article

VIII. However, no Party may be appointed successor Operator

against its will.



(b)



If an Operator is removed, neither the Operator nor any Affiliate

of the Operator shall have the right to vote for itself on the

appointment of a successor Operator, nor be considered as a

candidate for the successor Operator.



(c)



A resigning or removed Operator shall be compensated out of the

Joint Account for its reasonable expenses directly related to its

resignation or removal.



(d)



The Operating Committee shall arrange for the taking of an

independent inventory of all Joint Property and Petroleum, and an

audit of the books and records of the removed Operator. Such

inventory and audit shall be completed, if possible, no later

than the effective

date of the change of Operator.

The

liabilities and expenses of such inventory and audit shall be

charged to the Joint Account.



(e)



The resignation or removal of the Operator and its replacement by

the successor Operator shall not become effective prior to

receipt of any necessary governmental approvals.



(f)



Upon the effective date of the resignation or removal, the

successor Operator shall succeed to all duties, rights and

authority prescribed for the Operator. The former Operator shall

transfer to the successor Operator custody of all Joint Property,

books of account, records and other documents maintained by the

Operator pertaining to the Deep Zones and to Joint Operations.

Upon delivery of the above-described property and data, the

former Operator shall be released and discharged from all

obligations and liabilities as Operator accruing after such date.







5.5



COMMINGLING



OF



FUNDS



The Operator may not commingle

receives from or for the Joint

Agreement and this Agreement.



with its own funds the monies which it

Account pursuant to the Joint Venture



ARTICLE VI - AUTHORITY AND DUTIES OF THE OPERATOR

------------------------------------------------6.1



RIGHTS



6.1.1



Subject to the terms and conditions of the Joint Venture Agreement and

this Agreement, the Operator shall have all of the rights, functions

and duties of the Operator under the Joint Venture Agreement and shall

have exclusive charge of and shall conduct all the Joint Operations

under the overall supervision of the Operating Committee. The Operator

may employ technical advisors, independent contractors and/or agents

in such Joint Operations.



6.1.2



The Operator shall remain responsible for all Joint Operations as the

Operator as and to the extent provided under this Agreement, whether

conducted by itself, its technical advisers, its Affiliates, its

agents or its contractors.





6.1.3



Notwithstanding



anything in this



Agreement to the contrary,



(a) the



bottom hole location for the first well to be drilled under this

Agreement shall be determined by the Operator after consultation with

and consideration of the views of Liberty and (b) all wells drilled

under this Agreement shall be drilled pursuant to "turnkey" drilling

contracts upon such terms and with such contractors as are reasonably

acceptable to the Parties hereto.

6.2



RESPONSIBILITY



6.2.1



Subject to the overall supervision of the Operating Committee, the

responsibilities of the Operator shall include but not be limited to:

(a)



the preparation of Work Programme and Budget and AFE's pursuant

to the provisions of this Agreement,



(b)



the implementation of such Work Programme and Budget as shall

together with relevant AFE's have been approved by the Operating

Committee;



(c)



the provision to each of the Parties of reports, data and

information concerning the Joint Operations pursuant to the

provisions of this Agreement;



(d)



the planning

material;



(e)



the direction and control of statistical and accounting services;

and



(f)



the provision of all technical and advisory services required for

the efficient performance of the Joint Operations.



for and



obtaining



of all



requisite



services and



6.2.2



The Operator shall conduct the Joint Operations in a proper and

workmanlike

manner in

accordance

with methods and

practices

customarily used in good and prudent oil and gas fields practice and

with that degree of diligence and prudence reasonably and ordinarily

exercised by experienced operators engaged in a similar activity under

similar circumstances and conditions. The Operator shall further do or

cause to be done with due diligence, all such acts and things within

its control as may be necessary to keep and maintain the Deep Zones of

the IMA Field in force and effect and shall conduct the Joint

Operations in compliance with the requirements of the Act, any OPL or

OML controlling as to the Deep Zones of the IMA Field and any other

applicable laws and Regulations and in accordance with approved Work

Programme and Budget.



6.2.3



The Operator shall only be liable for any loss or damage which results

from:

(a)



its failure to obtain or maintain any insurance which it is

required to obtain and maintain under Article 11.2, unless the

Operator has used all reasonable endeavours to obtain or maintain

any such insurance but has been unable to do so and has promptly

so notified the parties participating or proposing to participate

therein; or



(b)



its willful misconduct;





provided that in neither case shall the Operator be liable for

any consequential loss, including but not limited to inability to

produce Petroleum, production or loss of profits. For the

avoidance of doubt, the Operator shall not be liable for any loss

or damage resulting from the negligence of the Operator, its

servants, agents, contractors or employees. Nothing in this



Article shall, however, be deemed to release the Party designated

as Operator from any costs, expense or liability attributable to

its Participating Interest share of Joint Operations.

6.3



LIENS



AND



ENCUMBRANCES



The Operator shall, insofar as it may be within its control, keep all

Joint Property, the Deep Zones of the IMA Field and any OPL or OML

controlling as to the Deep Zones of the IMA Field free from all liens,

charges and encumbrances arising out of the Joint Operations.

6.4



EMPLOYEES



AND



CONTRACTORS



6.4.1



Subject to the provisions of the Joint Venture Agreement and this

Agreement, the Operator shall determine (based on the approved Work

Programme and Budget) the number of employees, the selection of such

employees, the hours of work and remuneration and such employees shall

be the employees of the Operator and not of the Parties. The Operator

shall employ only such employees, agents and contractors as are

reasonably necessary to conduct the Joint Operations.



6.4.2



In the case of any proposed contract for the Joint Operations where

the cost thereof will or is likely to exceed two hundred and fifty

thousand dollars ($250,000) or such lesser amounts as shall from time

to time be determined by the Operating Committee having regard (inter

alia) to the nature of the Joint Operations, the Operator shall,

unless

otherwise

agreed by the

Operating

Committee

in the

circumstances referred to in Article 6.9.2:

(a)



obtain competitive sealed bid tenders and consult fully with the

Operating Committee over the preparation of a list of the persons

to be invited to tender (including any sub-contractors or

suppliers) and the preparation of the tender documents, such

consultation to take place on a timely enough basis to allow the

members of the Operating Committee to make recommendations;



(b)



after the expiration of the period allowed for tender, and the

bids have been opened, report details of all bids received and

any rebids, amendments to bids and subsequent negotiations to the

Operating Committee and make a recommendation to them;



(c)



obtain the approval of the Operating Committee to the material

terms of the recommended bid prior to entering into any contract

in respect thereof;



(d)



use all reasonable endeavours to ensure that any such contract

can be freely assigned to any of the Non-Operators in the event

of the resignation or removal of the Operator under Article 5.2

and include provisions whereby (a) only the Operator shall incur

any liability to the contractor or supplier under the contract

and (b) the Operator shall be entitled to enforce the contract on

behalf of all the Parties and to recover on behalf of all the

Parties any loss or damage caused by them by breach of such

contract by the

contractor

or supplier

subject to such

limitations and exceptions as may be provided in the contract;



(e)



promptly notify the Operating Committee of each such contract and

of any subsequent revisions thereto and furnish copies of all

such contracts and revisions to the Operating Committee.







6.5



REPRESENTATION



OF



THE



PARTIES



Subject to the provisions of the Joint Venture Agreement, the Operator

shall represent the Parties in all matters or dealings with the



Ministry, any other governmental authorities or third parties insofar

as the same relate to the Joint Operations, provided that there is

reserved to each Party the unfettered right to deal with the Ministry

or any other governmental authorities or third parties in respect of

matters relating solely to its own Participating Interest. The

Operator shall in any event give prior notice to the Parties of any

representations which it proposes to make as Operator to the Ministry,

any other governmental authority or third party, which may reasonably

be expected to have a material effect upon the interests of the

Parties, and shall also give notice to the Parties of the results of

any such representation. Non-Operators shall have the right to attend

or be represented at such meetings, and the Operator shall, as early

as practicable, before such meeting, notify the other Parties, of such

meeting. Any Non-Operator proposing to meet with the Ministry or other

governmental authorities shall, as early as practicable, before such

meeting, notify the other Parties and, so far as it may be within such

Party's power, arrange for the other Parties to attend or be

represented at such meeting.

6.6



RECORDS

The Operator shall prepare and maintain proper books, records and

inventories of the Joint Operations which shall be kept in compliance

with the Accounting Procedure and with due regard to the requirements

of the Act, the Joint Venture Agreement and any OPL or OML controlling

as to the Deep Zones of the IMA Field.



6.7



REPORTS

The



Operator



shall:



(a)



promptly provide each Party with daily drilling reports (by

telex) and monthly production reports of Joint Operations and

such other reports as the Operating Committee shall decide and,

at the sole cost of the Party requesting same, such additional

reports as such Party shall reasonably request; and



(b)



promptly make all reports concerning the Joint Operations to the

appropriate governmental authorities as required under the Act

and the Governmental documents governing the Deep Zones of the

IMA Field after review by the Parties concurrently therewith,

furnish copies of all such reports to all the Parties together,

when furnishing to the Parties a copy of the quarterly report to

the Government with a brief commentary on exploration activity.







6.8



CONSULTATION



AND



INFORMATION



6.8.1



The Operator shall freely consult with the Parties and keep them

informed in a timely manner of matters

concerning

the Joint

Operations. In particular the Operator shall ensure that the Parties

are advised of circumstances which, in the reasonable opinion of the

Operator, may warrant the taking out of insurance either for the Joint

Account or by the Parties individually.



6.8.2



Without

shall:



prejudice to the



generality of Article



6.8.1,



the Operator



(a)



inform each Party of all logging, coring, testing and other

material Joint

Operations with such advance notice as is

practicable in the circumstances, so that each Party may, subject

to Article 7.3 have one or more representatives present on

location during the conduct of Joint Operations; and



(b)



provide each Party with copies of all well logs and core analyses



and such engineering, geological, geophysical, technical and

other material data and information relating to the Joint

Operations. Further, Operator shall provide a Party with such

additional data and information as such Party shall reasonably

request, at the sole cost of the Party requesting such data and

information.

6.9



JOINT



6.9.1



The Operator is authorized to make such expenditures, incur such

commitments for expenditures and take such actions as are required to

properly maintain and operate the Joint Operations and Joint Property

and as shall have been authorized by the Operating Committee in

accordance with Articles XII, XIII, XIV and XV (but subject to Article

6.4.2) or as are authorized under Article 6.9.2.





6.9.2



ACCOUNT



EXPENDITURES



AND



ACTIONS



The Operator is authorized to make any

expenditure

or incur

commitments for expenditures or take any actions it deems necessary in

case of an emergency for the safeguarding of lives or property or the

prevention of mitigation of pollution. The Operator shall promptly

notify the Operating Committee of any such circumstances and the

amount of expenditures and commitments for expenditures so made and

incurred and actions so taken.



6.9.3



If necessary to carry out an approved Work Programme and Budget, the

Operator is authorized to make expenditures on a line item of an

approved Work Programme and Budget item in excess of the Work

Programme and Budget approved therefore up to but no exceeding ten

percent (10%) of the value stated in the Work Programme and Budget for

such item provided

however that no cumulative

total of such

expenditures shall exceed five percent (5%) of the total annual Work

Programme and Budget. Such excess expenditure shall be reported

promptly to the Operating Committee by the Operator.



6.9.4



The Operator is authorized to make expenditures for Joint Operations

in the Deep Zone of the IMA Field during any year not included in an

approved Work Programme and Budget or not provided for in an approved

Work Programme and Budget, limited, however, to a total, not exceeding

$100,000 provided that (a) such expenditures shall not be for purposes

theretofore

rejected by the Operating

Committee and (b) such

expenditures shall be reasonably necessary for the maintenance of the

Deep Zones of the IMA Field or any Joint Property, and provided

further that the said expenditures will be reported promptly to the

Operating Committee and thereafter the amount for which no prior

Operating Committee authorization is required shall be increased back

to the said maximum of $100,000.



6.10



DISPOSAL



6.10.1



If the Operator shall consider that any item of Joint Property is no

longer needed or suitable for the Joint Operations the Operator shall,

subject to the provisions of the Accounting Procedure, dispose of the

same. The Operator shall notify the Operating Committee of such

disposal as soon as practicable thereafter.



6.10.2



If the Parties shall decide to abandon the Joint Operations or any

part thereof, the Operator shall recover and endeavor to dispose of as

much of the Joint Property as can economically and reasonably be

recovered or as may be required to be recovered under the Act, any OPL

or OML controlling as to the Deep Zones of the IMA Field or any other

applicable law, and the net costs or net proceeds therefrom shall be

charged or credited to the Joint Account for eventual allocation in

proportion to the Participating Interests of the Parties.



AND



ABANDONMENT





6.10.3



Without prejudice to Article 6.10.2, following any proposal made to

the Operating Committee for the Operator to prepare a development Work

Programme and Budget for a particular Discovery, the Parties shall,

before submission to the Ministry of a programme in good faith

negotiate, agree and execute an Abandonment Agreement relating to the

abandonment (which expression shall include demolition and removal

together with any necessary site reinstatement) of any offshore

installation

and pipelines used in connection

with the Joint

Operations. The terms of the Abandonment Agreement shall be prepared

in all respects with due regard to and in accordance with the

requirements of the Act and shall provide inter alia for:

(a)



an equitable sharing between the Parties of their liability to

meet the costs of and other obligations

relating to the

abandonment of such offshore installations and pipelines;



(b)



the

preparation

and periodic review by the Operator for

submission to the Parties of estimates of the likely costs to the

Parties of such abandonment and of the amount and value of the

net recoverable reserves of the field in question, provided that

any Party shall have the right reasonably to require the

preparation of further reports and studies in relation thereto;



(c)



the obligation of each party, when the estimated value of the net

recoverable reserves of the field in question equals one hundred

thirty-five percent (135%) of the said estimated abandonment

costs, to provide to the other Parties adequate security for its

liability to meet such abandonment costs;



(d)



the determination and periodic review by the Parties (other than

the Party proposing the creation, or maintenance, amendment for

replacement of existing, security for its said liability to meet

such abandonment costs) of the adequacy of such proposal, such

determination to be made by the Operating Committee;



(e)



without prejudice to the provisions of paragraphs (c) and (d)

above, the security to be provided by each Party may include but

shall not be limited to: (1) an irrevocable guarantee from such

Party's parent company; (2) an irrevocable guarantee or letter of

credit from a bank or other financial institution having a credit

rating satisfactory to the other Party acting reasonably; (3)

security in favor of the Parties over assets of such party or a

third party; or (4) the establishment of a trust fund to receive

proceeds from such Party's entitlement to production from the IMA

Field;



(f)



in the event of the failure of any Party to satisfy the relevant

proportion of the other Parties as to the adequacy of the

security which it proposes pursuant to paragraph (d) above, such

Party shall be obliged to pay proceeds from such Party's

entitlement to production from the IMA Field to the Operator or

an independent third party as trustee for the Parties, which

proceeds shall be deposited and retained in an interest-bearing

account; property in the payment into such account shall pass to

the trustee at the time of their payment into the account;

failure to make such payments shall constitute a default for the

purposes of Article 17; upon the liability of the Parties to meet

their respective abandonment obligations failing to be discharged

such proceeds shall be applied in the discharge of the said

respective liability of the Party obliged to make such payments

and any balance shall be returned to such Party;







(g)



any Party intending to assign the whole or any part of its

interest in the Deep Zones in the IMA Field and in and under this

Agreement shall require the assignee of the interest to be

assigned and novated into the Abandonment Agreement and assumes

any liability thereunder corresponding to the said interest to be

assigned to it, and no person shall acquire such interest until

such obligation on the part of such Party has been discharged.

ARTICLE VII - RIGHTS OF THE PARTIES

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



7.1



RESERVATION



OF



RIGHTS



Unless otherwise provided in this Agreement or the Joint Venture

Agreement, each Party reserves all its rights under the Deep Zones of

the IMA Field.

7.2



INSPECTION



RIGHTS



Each Party shall have the right to inspect, at all reasonable times

during usual business hours, all books, records and inventories of any

kind or nature maintained by or on behalf of the Operator and relating

to the Joint Operations

other than those books,

records and

inventories maintained by the Operator as the owner of a Participating

Interest, provided that such Party gives the Operator not less than

fourteen (14) Days' prior notice of the date upon which it desires to

make such inspection and identifies the person or persons to conduct

such inspection.

7.3



ACCESS



RIGHTS



Each Party shall have the right, at all reasonable times and at its

sole risk and expense, of access to the areas contained within the IMA

Field and/or the Joint Operations, provided such Party gives the

Operator reasonable notice of the date such access is required and

identifies the representative or representatives to whom such access

is to be granted. If any party wishes access to be given to more than

one representative at a time the Operator shall not be required to

grant such for the additional representatives if, and to the extent

that, the granting of such access will interfere with the conduct of

Joint Operations.

ARTICLE VIII - THE OPERATING COMMITTEE

-------------------------------------8.1



ESTABLISHMENT



AND



POWERS





To provide for the overall supervision and direction of the Joint

Operations, there is hereby established an Operating Committee which

shall exercise overall

supervision and control of all matters

pertaining to the Joint Operations. Without limiting the generality of

the foregoing, but subject as otherwise provided in the Joint Venture

Agreement and elsewhere in this Agreement, the powers and duties of

the Operating Committee shall include:

(a)



the consideration and determination of all matters relating to

general policies, procedures and methods of operation hereunder;



(b)



the approval of any public announcement or statement

this Agreement or the Joint Operations;



(c)



the consideration,



regarding



revision and approval or disapproval,



of all



proposed Work Programme and Budget and AFE's, all of which are to

be prepared in accordance with the provisions of this Agreement;



8.2



(d)



the determination of the timing and location of all wells drilled

under the Joint Operations and any change in the use or status of

a well;



(e)



the determination of whether the Operator will represent the

parties regarding any matters or dealings with the Ministry, any

other governmental authorities or third parties insofar as the

same relate to the Joint Operations, provided that there is

reserved to each Party the unfettered right to deal with the

Ministry, any other governmental authorities or any third party

in respect of matters relating solely to its own Participating

Interest;



(f)



the consideration and, if so required, the determination of any

other matter relating to the Joint Operations which may be

referred to it by the Parties or any of them (other than any

proposal to amend this

Agreement)

or which is otherwise

designated under the Joint Venture Agreement and this Agreement

for reference to it; and



(g)



authorize and supervise Joint Operations that are necessary or

desirable to fulfill the Joint Venture Agreement and properly

explore and exploit the Deep Zones of the IMA Field in accordance

with this Agreement and in the manner appropriate in the

circumstances.



REPRESENTATION

The Operating Committee shall consist of seven members

the Parties from time to time on the following terms.

AMNI

Liberty



6

1



appointed by



representatives

representative





Each Party shall as soon as possible

give notice in writing to the other

name and address of its initial

Operating Committee. Any Party may

giving not less than seven (7) Days'

the other Party.

8.3



after the date of this Agreement,

Parties and the Operator of the

representatives to serve on the

change its representatives by

written notice of such changes to



CHAIRMAN

One of the representatives of the Party which is the Operator shall be

the Chairman of the Operating Committee.



8.4



MEETINGS



8.4.1



The Operating Committee shall hold meetings every sixty (60) Days (or

at such other regular intervals as shall be agreed by the Operating

Committee) in Lagos, Nigeria, or at such other place as shall be

agreed by the Operating Committee. The Operator shall call such

meetings and shall give at least twenty-one (21) Business Days' notice

of the time and date of each meeting, together with an agenda and all

available data and information

relating to the matters to be

considered at that meeting. By notice to the other Parties, any Party

can advise of additional matters which such Party desires to be

considered at the meeting, and provided such notice is given at least

seven (7) Business Days before the date of the meeting, those matters

will be considered.



8.4.2



The Operating Committee shall hold a special meeting upon the request

of any of the Parties. Such request shall be made by notice to all the

other Parties and state the matters to be considered at that meeting.

Upon receiving such request the Operator shall without delay call a

special meeting for a date not less than seven (7) nor more than ten

(10) Business Days after receipt of the request.



8.4.3



For any meeting of the Operating Committee, the period of notice

stipulated above may be waived with the consent of all the Parties.



8.4.4



Any Party not represented at a meeting may vote on any matter on the

agenda for such meeting by either:



8.5



(a)



appointing a proxy in writing; or



(b)



giving notice of such vote to the Operator prior

submission of such matter for vote at such meeting.



to



the



MINUTES





The Chairman of the Operating Committee shall appoint a secretary for

the Operating Committee who will record resolutions and the result of

voting thereon as directed by the meeting or any Party and who will

prepare the minutes and provide each party with a copy thereof not

more than fifteen (15) Business Days after the end of the meeting.

Each Party shall notify all the other Parties of its approval or

disapproval of the minutes within ten (10) Business Days of receipt

thereof. A Party who fails to do so will be deemed to have approved

the minutes. Any minute approved as aforesaid shall be prima facie

evidence of the decisions taken by the Operating Committee in the

meeting to which such minutes relate. The disapproval of any minute as

aforesaid shall not affect the validity of any decision duly taken by

the Operating Committee in the meeting to which such minute relates.

8.6



ACTION



WITHOUT



A



MEETING



8.6.1



The Parties may vote on and determine by notice to the Operator any

proposal which is submitted to them by the Operator by notice and

which they could validly determine at a meeting of the Operating

Committee if duly held for that purpose. Each Party shall cast its

vote within ten (10) Business Days after the proposal is received by

it except that where the Parties are required to vote on and determine

any proposal relating to the deepening, plugging back, testing,

suspension, or abandonment of a well on which drilling equipment is

then located or any other situation where the matter presented for

consideration by its nature requires determination in less than ten

(10) Business Days and such fact and lesser period are so stated in

the notice submitting the proposal, the Parties shall cast their votes

within such lesser period which shall not be less than forty-eight

(48) hours after receipt of the proposal. Failure by a Party to cast

its vote within the relevant period shall be regarded as a vote by

that Party against the proposal.



8.6.2



The Operator shall give prompt notice of the result of any such voting

to the Parties and any decision so taken shall be binding on the

Parties notwithstanding that any Party shall have requested a special

meeting to discuss any such proposal under Article 8.4.2.



8.7



SUB-COMMITTEES

The Operating Committee may establish such advisory sub-committees

it considers desirable from time to time. Liberty shall be entitled

have a representation on any such sub-committee. Each sub-committee

established shall be given written terms of reference and shall



as

to

so

be



subject to such procedures as the Operating Committee shall determine.

The meetings of sub-committees will as far as possible be arranged so

that the minutes of such meetings can be presented to the Parties in

sufficient time for consideration before the next following regular

meeting of the Operating Committee.

8.8

8.8.1



8.8.2



VOTING

Each



PROCEDURE



member



of the Operating Committee shall be entitled to one vote.



Save as otherwise provided in this Agreement including, without

limitation, Article 8.8.4, all decisions of the Operating Committee

shall be taken by majority vote.



8.8.3



Save as otherwise provided in this Agreement, all the Parties shall be

bound by each decision of the Operating Committee duly made in

accordance with the provisions of this Agreement.



8.8.4



Notwithstanding anything herein to the contrary, decisions of the

Operating Committee relating to the following matters shall require

the affirmative vote of all members of the Operating Committee:



8.9



(a)



any modification of or amendment to this Agreement, the Joint

Venture Agreement or the OPL and OML applicable to the Deep Zones

of the IMA Field;



(b)



the selection of a new Operator; or



(c)



any modification of or amendment to any approved Work Programme,

Budget or AFE, if as a result of such modification or amendment

the cost of the Work Programme, Budget or AFE would be altered by

more than 30%.



CONCESSION



8.9.1



PROVISIONS



Working



Obligations



In respect of the working obligations, the Operating Committee

shall, unless and to the extent that relief from such obligations

is sought and obtained from the Ministry, determine the location

and the time at which such obligations are to be discharged.

8.10



NOTIFICATION



8.10.1



TO



THE



COMMITTEE



Information

Notwithstanding anything herein to the contrary, with respect to

any requirement herein that the Operator consult with or inform

the Operating Committee, the Operator shall take all necessary

measures to ensure that all members of the Operating Committee

timely receive adequate notification of such matters and such

reasonable supporting information as any such member may request.



8.11

8.11.1



COSTS

Payment



of



Costs





Each Party shall be solely responsible for the costs incurred by

such Party=s representatives with respect to serving on the

Operating Committee including, without limitation, all expenses

related to attending meetings of the Operating Committee.



ARTICLE IX - PROJECT MANAGER

---------------------------9.1



Pursuant to the terms of this Agreement and Article 6.1.1., the

Operator may appoint a project manager to assist the Operator in the

discharge of its technical and operational functions under this

Agreement.

ARTICLE X - FUNDING OF THE JOINT OPERATIONS

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



10.1



CASH



CALL



Subject to the Joint Venture Agreement, each Party shall pay its

Participating Interest of Petroleum Costs incurred for the Joint

Account and such payment shall be made in accordance with the

following procedure:

10.1.1



10.1.2





10.1.3



10.1.4



The Operator shall, not later than thirty (30) Business Days prior to

the first day of the Cash Call Month, submit to each Party:

(a)



an itemized estimate of such cost and expenditures (hereinafter

the "Estimated Expenditures"), as well as an itemized return of

the actual expenditures for the month (hereinafter the "Actual

Expenditure Month") which is two months preceding the Cash Call

Month (the total expenditure in any Actual Expenditure Month is

hereinafter referred to as the "Actual Expenditure" for such

month);



(b)



an itemization of the cash available or cash deficit in the Joint

Account as the case may be as of such date as well as any credit

expected to be received in the Cash Call Month; and



(c)



such Party's Cash Call for that month which shall be its

Participating Interest share of Estimated Expenditures adjusted

by the case or deficits and credits in (b) above.



Subject to Article 10.1.3, each party shall pay its respective Cash

Call into the Joint Account not later than the due date, which is the

first day of the Cash Call Month. Liberty shall have the right to

request reasonable documentation from Amni evidencing Amni=s deposit

of its portion of the Cash Call in to the Joint Account. Liberty=s

obligation to make payments as provided herein shall be suspended

until such time as Amni provides such reasonable documentation.

The Parties may dispute a Cash Call on the basis that Operator's

estimated expenditure for the Cash Call Month exceeds what costs and

expenditure should reasonably be incurred for the Joint Account for

that month based on the approved Work Programme and Budget. In the

event that the Parties so dispute any portion of a Cash Call, the

Parties shall give to the Operator a notice in writing specifying the

amount in dispute and the reason therefore not later than eight (8)

Days from the date of receipt of such Cash Call. The Parties may not,

however, dispute any portion of a Cash Call required for the

protection of life and property or for the prevention of pollution

pursuant to sub-Article 6.9.2.

The undisputed portion of the Cash Call shall be paid by the Parties

into the Joint Account not later than the due date and the Parties

shall use their best endeavours to resolve the matter on the disputed

portion promptly. Upon settlement, the disputed portion or amount

agreed, as the case may be, shall be paid by the Parties into the

Joint Account not later than ten (10) days from the date of resolution



of the dispute. If the dispute is not settled by the date Parties

receive the Operator's itemized return of actual expenditures for the

Cash Call Month with respect to which the dispute arose, as included

with the submittal referred to in Article 10.1.1(a), provided such

actual expenditures are in accordance with approved Work Programme and

Budget under this Agreement, or are expenses incurred pursuant to

Article 6.9.2, the Parties shall pay the Joint Account, by the due

date of the next Cash Call, or shall receive a credit against the

amount of such Cash Call, as the case may be, the difference between:

(1)



the undisputed portion of the Cash Call with respect to which the

dispute arose and which has already been paid by Parties, and



(2)



the actual expenditure for such Cash Call Month.



10.1.5



Unless otherwise agreed, each Party shall pay its Cash Call entirely

in the currency of the Cash Call.



10.2



PAYMENTS



FOR



JOINT



OPERATIONS



EXPENDITURES



Except as may otherwise be agreed by the Parties, all payments for

Joint Operations expenditures shall be made solely from the Joint

Accounts.

10.3



FAILURE



OF



A



PARTY



TO



PAY



A



CASH



CALL



If a Party fails to meet its Cash Call by the due date specified in

Article 10.1.2 such Party shall become the Defaulting Party and

Article XVIII of this Agreement shall apply.

ARTICLE XI - INSURANCE AND LITIGATION

------------------------------------11.1



INTENTIONALLY





11.2



JOINT



ACCOUNT



DELETED

INSURANCE



The Operator shall at all times while Joint Operations are conducted,

subject to Operating

Committee=s approval on policy terms and

conditions, obtain and maintain for itself and Non-Operator and pay

for, and charge to the Joint Account all insurance in the types and

amounts required by the Joint Venture Agreement and applicable laws,

rules and Regulations in respect of the Joint Property and Joint

Operations, including but not limited to the following:

(a)



employer's liability insurance covering each employee engaged in

the Joint Operations when such employee is not covered by

workmen's compensation;



(b)



comprehensive general third party liability and property damage

insurance covering Joint Operations endorsed to include offshore

operations, seepage and pollution to a limit of not less than US

$15,000,000 or its equivalent in local currency;



(c)



motor vehicle liabilities insurance;



(d)



aviation liability to a limit of not less than US $15,000,000 or

its equivalent in local currency;



(e)



charterer's legal liability insurance to provide coverage arising

out of the use of any chartered barges or vessels;



(f)



marine insurance; and



(g)



any insurance required by any

Operator

in

furtherance

of

contractor's all risk insurance.



contract entered into by the

Joint

Operations

including



11.2.1



The Operator shall obtain and maintain such other insurance at

competitive rates, as may be determined by the Operating Committee.



11.2.2



The insurance carried by the Operator pursuant to Article 11.2 hereof

shall name the

Non-Operator

as

additional

or coinsured and

underwriters shall waive all rights of subrogation in favour of the

Non-Operator and its employees.



11.2.3



In the event that the Operator fails to take out and maintain any of

the insurance policies provided for in Article 11.2, being an

insurance which the Operator is obliged to take out, the Operator

shall be solely responsible for any loss, claims, demands or damages

arising therefrom, except where the Operator has used all reasonable

endeavours to obtain or maintain such insurance but has been unable to

do so and has promptly notified the Non-Operator.





11.2.4



The Operator shall use its best efforts to require all contractors and

subcontractors, if any, to maintain insurance of such types and in

such amounts required by any applicable laws, rules and Regulations or

any decision of the Operating Committee while performing work in

respect to Joint Operations, provided that such insurance policies

shall include waivers of all rights or recourse, by subrogation or

otherwise, against the Parties and their respective Affiliates,

directors, servants, agents and employees. The Operator shall use its

best efforts to require all such contractors to name the Parties as

additional insureds on the contractor's insurance policies.



11.2.5



Where applicable, the Operator shall use reasonable efforts to ensure

that marine drilling rigs and work boats used in Joint Operations are

insured by the owners of such vessels on a full form (hull, tackle and

machinery) or on an all risks form, that adequate protection and

indemnity, collision and tower's liability insurance is maintained by

such owners and that such insurance policies include waivers of all

rights, by subrogation or otherwise, against the Parties and their

respective Affiliates, directors, servants, agents and employees.



11.2.6



The Operator shall in respect of all insurance to be obtained pursuant

to this Article 11.2 from the Effective Date and thereafter before the

end of each year:

(a)



upon notice

approval of

terms and

deductibles



to the Operating Committee, discuss and obtain the

the Operating Committee on premium rates and policy

conditions

including but without

limitation to

and insured value.



(b)



promptly notify the Operating Committee of any loss.



(c)



duly file all claims and take all necessary and proper steps to

collect any proceeds and credit them to the Joint Account.



Notwithstanding anything contained in this Article 11.2.6 herein,

Non-Operators may appoint an insurance broker or brokers to look after

their insured interests hereunder.

11.2.7



The Operator shall, not later than thirty (30) Days from the date of

the issuance of an Insurance Policy or renewal of same pursuant to

this Agreement, furnish Non-Operator with true copies of the Policies

or renewal endorsements with respect to the insurance required under

Article 11.2 hereof.



11.2.8



All policies and certificates of insurance obtained and maintained in

accordance with Articles 11.1 and 11.2 shall state:

(a)



the types and amounts of insurance carried;



(b)



the insurance company or companies underwriting the coverage;



(c)



the effective and expiration dates of all policies;



(d)



that each Party shall be given not less than thirty (30) Days'

advance written notice of any material changes or cancellation of

any policy;



(e)



that a written waiver of subrogation endorsement in favour of the

Party not carrying the insurance has been attached to all

policies of insurance required under Article 11.1 hereof; and



(f)



the territorial limits of all policies.







11.2.9



Liability of Operator under Article 11.2.3 for failure to take out the

insurance required by Article 11.2, except where so agreed to by

Non-Operator in writing, shall not be diminished by the provision of

the information required under Article 11.2.8.



11.2.10



The limits of insurance coverage set forth in Article 11.1 or 11.2 are

meant to be minimum amounts only. Insurance Policies pursuant to this

Article XI shall be obtained and maintained, or extended as the case

may be, by the relevant Party to such further limits as the Operating

Committee shall determine and advised to the Parties, based on the

scope and risk of planned operations.



11.3



INDEMNITY



11.3.1



Except as otherwise provided in this Article XI and in Article 6.2.3,

any loss or damage suffered by the Parties or either of them from

third party claims arising out of the Operator's conduct of the Joint

Operations shall be for the Joint Account. Any loss, damage or costs

suffered by the Operator from claims arising out of the Operator's

conduct of the Joint Operations and any recovery from insurance

provided under Article 11.2 shall be for the Joint Account.



11.3.2



If any Party fails to take out and maintain any insurance policy which

such Party is obliged to take out under Article 11.1, such Party shall

hold harmless and indemnify the other Party from and against all

claims, actions causes of actions, loss and damage suffered by each

other Party arising out of, or in connection with, such failure.



11.4



LITIGATION



11.4.1



The



Operator



(a)



any incidents, accidents or circumstances causing damage to Joint

Property, the cost of which may exceed $250,000 or such lesser

amounts as shall from time to time be determined by the Operating

Committee; and



(b)



any claim, litigation, lien, demand or judgment relating to the

Joint Operations where the total amount in dispute and/or the

total amount of damages together with any costs are estimated to

exceed $100,000, or such lesser amount as shall from time to time

be determined by the Operating Committee.



shall



promptly



notify



the



Parties



of:







The Operator shall have the authority to commence, prosecute, defend,

pursue or settle any claim, litigation, lien, demand or judgment

relating to the Joint Operations (other than between the Parties) both

on behalf of itself and, if appropriate, the other Parties provided

that:

(i)



in the case of any litigation (irrespective of the estimated

amount of damages and costs) to be pursued, prosecuted or

defended otherwise than in any court in Nigeria, the

Operator shall have no such authority without the prior

approval of all the Parties except such authority as may be

necessary:

(1)



to prevent judgment being given against any Party while

full authority of the Parties is being sought; or



(2)



solely to enable the Operator to contest the exercise

by the relevant court of jurisdiction in the matter,

provided that the Operator first obtain legal advice in

the relevant jurisdiction from an appropriate reputable

legal practitioner that the contest itself would not

constitute

submission

by the

Operator

to such

jurisdiction; and



(ii) where the total amount in dispute and/or the total amount of

damages together with any costs are estimated to exceed

$100,000 or such lesser amount as shall from time to time be

determined by the Operating Committee, the Operator shall

have no authority (subject to subparagraph (i) above)

without the prior approval of the Operating Committee.

11.4.2



Any Non-Operator shall promptly notify the other Parties of any claim,

litigation, lien, demand or judgment brought by it or against it

relating to, or which may affect the Joint Operations. If such claim,

litigation, lien, demand or judgment would give rise to any claim for

indemnity under Article 23.2.2, the Operator shall have the authority

to take over the conduct of such claim, litigation, lien, demand or

judgment and Article 11.4.1 shall apply thereto.



11.4.3



Notwithstanding Articles 11.4.1 and 11.4.2, each party shall have the

right to participate in any prosecution, defense or settlement

conducted in accordance with Articles 11.4.1 and 11.4.2 at its sole

cost and expense provided that such participation shall not prejudice

the conduct thereof by the Operator or the interests of the Joint

Operations.





11.4.4



11.5



For the avoidance of doubt it is hereby declared that the conduct of

any litigation involving a Sole Risk Project will be in the hands of

the Participating Party or Parties and at the sole cost and expense of

such Participating Party.

IMA



#11



INSURANCE



PROCEEDS



Attached as Schedule E is the AFE that has been submitted by Abacan to

the insurance carriers with respect the insurance claim resulting from

the blow-out of the IMA #9 well. The Parties agree that all insurance

payments received by Abacan with respect to the re-drill of the IMA

#11 well (the AInsurance Proceeds@) shall be Joint Property with each

Party being deemed to have contributed to the Joint Account its

Participating Interest. Amni acknowledges that Liberty shall conduct

all negotiations with the insurance companies liable for payment with

respect to the IMA #9 well blow-out. Liberty shall attempt to cause

the insurance carriers to fund Insurance Proceeds in such a way that

the contractors drilling the IMA #11 well receive payment directly



from the insurance carriers. Amni agrees to use reasonable efforts to

co-ordinate its operations to facilitate Liberty=s efforts to cause

such direct payment. To the extent Liberty is unable to cause the

insurance carriers to pay the contractors directly, then each Party

shall be responsible for its Participating Interest of Petroleum Costs

of the costs of drilling the IMA #11 well and as and when Insurance

Proceeds are received, each Party shall receive its Participating

Interest of Petroleum Costs of such Insurance Proceeds.

ARTICLE XII - EXPLORATION WORK PROGRAMME AND BUDGET

--------------------------------------------------12.1



ANNUAL



WORK



PROGRAMME



AND



BUDGET



The Operator shall, within sixty (60) Days after the execution of this

Agreement and thereafter on an annual basis not later than September

1st in each Calendar Year submit to the Parties a proposed exploration

Work Programme and Budget for the next Calendar Year (the September 1,

1998 delivery shall also include the Work Programme and Budget for the

remainder of the 1998 Calendar Year), showing:





12.1.2



(a)



Joint Operations to be performed in the Deep Zones of the IMA

Field and other work to be undertaken;



(b)



the information required under the Account Procedure; and



(c)



such other information as the Operating

required the Operator to provide.



Committee



shall have



The proposed exploration Work Programme and Budget shall be subject to

consideration, revision and approval by the Operating Committee and

the Parties. The Operating Committee shall consider such exploration

Work Programme and Budget and make such revisions thereto as shall be

agreed as soon as practicable but in any event not later than November

30. Not later than December 31, the Operating Committee shall approve

an exploration Work Programme and Budget and such approval shall,

subject to Articles 12.2 and 12.3 authorize and oblige the Operator to

proceed with it.



12.2



AUTHORIZATION



FOR



EXPENDITURE



12.2.1



Such as provided in Articles 6.9.2, 6.9.3 and 6.9.4, the Operator

shall,

before

entering into any

commitment or incurring any

expenditure under an approved exploration Work Programme and Budget,

submit to each Non-Operator an AFE. An AFE shall be prepared in

accordance with Section 3 of the Uniform Project Implementation

Procedure. Subject to the approval of the AFE hereunder, the Operator

shall be authorized and obliged, subject to Article 12.3, to proceed

with such commitment or expenditure. An AFE shall be approved by

affirmative decision of a majority of the Operating Committee or by

signature of the Parties having an aggregate Participating Interest

sufficient for an affirmative decision of the Operating Committee.



12.2.2



In the event that the Operating Committee gives its approval to any

exploration

Work Programme and Budget or any AFE executed in

connection therewith, Liberty may, by notice to AMNI given not more

than thirty (30) Days following the date of Liberty's receipt of

notice of such approval, elect not to proceed with such Work Programme

and Budget or AFE as applicable, and the operations and work covered

by such Work Programme and Budget or AFE shall be conducted as Sole

Risk Operations in accordance with Article XVI with AMNI being the

Sole Risk Party.



12.3



AMENDMENT

At any time either Party may, by notice to the Operating Committee,

propose that an approved exploration Work Programme and Budget and/or

an approved AFE be amended. The Operating Committee shall consider

such proposal and, if the Operating Committee so requires, the

Operator shall prepare and submit to the Parties a revised exploration

Work Programme and Budget incorporating any such amendment and showing

the matter listed in Article 12.1.1 and the information required under

Section 3 of the Uniform Project Implementation Procedure. To the

extent that an amendment is approved by the Operating Committee, the

approved exploration Work Programme and Budget and/or AFE shall be

amended accordingly provided always that any such amendment shall not

invalidate any authorized commitment or expenditure made by the

Operator prior thereto, provided that any revised Work Programme and

Budget or AFE shall be subject to Liberty's rights under Article

12.2.2.





ARTICLE XIII - APPRAISAL WORK PROGRAMME AND BUDGET

-------------------------------------------------13.1



JOINT



WORK



13.1.1



In the event of a Discovery, the Operator shall, if the Operating

Committee so decides and as soon as Practicable after such decision,

submit to each Non-Operator a proposed appraisal Work Programme and

Budget for such Discovery showing:



(a)



the



wells to be drilled and other projects and work to be undertaken;



(b)



the



information



(c)



details

and



(d)



such other information as the Operating Committee shall have required

the Operator to provide.



13.1.2



The proposed appraisal Work Programme and Budget shall be subject to

consideration, revision and approval by the Operating Committee. The

Operating Committee shall as soon as practicable consider such

appraisal Work Programme and Budget and make such revisions thereto as

shall be agreed. If the Operating Committee approves an appraisal Work

Programme and Budget, such approval shall be subject to Articles 13.2

and 13.3, authorize and oblige the Operator to proceed with it.



13.2



AUTHORIZATION



13.2.1



Save as provided in Articles 6.9.2, 6.9.3 and 6.9.4, the Operator

shall,

before

entering into any

commitment or incurring any

expenditure under an approved appraisal Work Programme and Budget,

submit to the Operating Committee an AFE therefor. An AFE shall be

prepared in accordance

with Section 3 of the Uniform Project

Implementation Procedure.

Subject to the approval of such AFE

hereunder, the Operator shall be authorized and obliged, subject to

Article 13.3, to proceed with such commitment or expenditure. An AFE

shall be approved by affirmative decision of the Operating Committee.



13.2.2



In the event that the Operating Committee gives its approval to any

appraisal Work Programme and Budget or any AFE executed in connection

therewith, Liberty may, by notice to AMNI given not more than twenty

(20) Days following the date of Liberty's receipt of notice of such

approval or of such AFE, elect not to proceed with such Work Programme

and Budget or AFE as applicable, and the operations and work covered



of



PROGRAMME



the



FOR



AND



required



BUDGET



under



the



Accounting



Procedure;



number of employees and contract personnel required;



EXPENDITURE



by such Work Programme and Budget or AFE shall be conducted as Sole

Risk Operations in accordance with Article XVI with AMNI being the

Sole Risk Party.



13.3



REVIEW



AND



AMENDMENT



13.3.1



The Operator shall, as and when required by the Operating Committee,

review the approved appraisal Work Programme and Budget and submit to

the Parties a report thereon.



13.3.2



At any time either party may, by notice to the other Party propose

that an approved appraisal Work Programme and Budget and/or an

approved AFE be amended. The Operating Committee shall consider such

proposal and, if the Operating Committee so requires, the Operator

shall prepare and submit to the Parties a revised appraisal Work

Programme and Budget incorporating any such amendment and showing the

matter listed in Article 13.1.1 and the information required under

Section 3 of the Uniform Project Implementation Procedure. To the

extent that any such amendment or revised appraisal Work Programme and

Budget is approved by the Operating Committee, the approved appraisal

Work Programme and Budget and/or AFE shall be amended accordingly,

provided always that any such amendment shall not invalidate any

authorized commitment or expenditure made by the Operator prior

thereto, and further provided that any revised Work Programme and

Budget or AFE shall be subject to Liberty's rights under Article

13.2.2.

ARTICLE XIV - DEVELOPMENT WORK PROGRAMME AND BUDGET

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



14.1



JOINT



14.1.1



The Operator shall, if the Operating Committee so decides and as soon

as practicable after such decision, submit to the Non-Operators a

proposed development Work Programme and Budget for a Discovery

showing:



(a)



the



projects



(b)



the



information



(c)



the

the



manner in which the development is to be managed with details of

number of employees and contract personnel required;



(d)



the estimate

annual rates



(e)



such other information as the Operating Committee shall have required

the Operator to provide.





14.1.2



WORK



PROGRAMME



and



of

of



AND



other

required



BUDGET



work

under



to



be

the



undertaken;

Accounting



Procedure;



the date of commencement of production and of the

production; and



The proposed development Work Programme and Budget shall be subject to

consideration, revision and approval by the Operating Committee. The

Operating Committee shall meet to consider such development Work

Programme and Budget as soon as practicable and to make such revisions

thereto as shall be agreed. Unless the Operating Committee otherwise

agrees to an earlier date, the Operating Committee shall approve or

reject the development Work Programme and Budget within thirty (30)

Days of its submission by the Operator to the Parties provided that,

within the said period of thirty (30) Days any Party wishing to carry

out further work or studies in connection with the development of the

Discovery may, by notice to the other Party specifying the further

work or studies, require that the said period be extended up to a

maximum total period of:



(a)



in the case of the carrying out of further appraisal drilling of the

Discovery, ninety (90) Days; and



(b)



in



all



other



cases,



sixty



(60)



Days;



and in such event the said period shall be so extended. A Party proposing to

carry out further appraisal drilling of the Discovery shall, in its said notice

to the other Party, inform them of its intention and:

(i)



the Operator shall carry out such drilling at the risk, cost and

expense of such Party and the provisions of Article XVI (other than

the first sentence of Article 16.3) shall apply as if such Party were

a Sole Risk Party and such drilling were Sole Risk Operation under

that Article;



(ii)



such Party shall not be entitled to any reimbursement from the other

Party of the costs and expenses thereof, unless as a result of such

drilling all the Parties decide not to proceed with the development of

the Discovery in which event the other Party shall pay to such Party

within twenty-eight (28) Days of the decision not to proceed with the

development an amount equal to the lesser of the amount it would have

contributed to the Joint Account had such additional drilling or work

been carried out as part of the Joint Operations or its share of the

additional costs incurred; such amount shall be paid in Dollars or

other approved currencies as approved by the Parties applicable to the

costs and expenses; and



(iii)



all data and information obtained from such additional drilling and

work shall promptly be made available to, and be owned jointly by, all

the Parties.



14.2



AUTHORIZATION





14.2.1



FOR



EXPENDITURE



Save as provided in Articles 6.9.2, 6.9.3 and 6.9.4, the Operator

shall,

before

entering into any

commitment or incurring any

expenditure with respect to the preparation of a development Work

Programme and Budget or under an approved development Work Programme

and Budget, submit to the Operating Committee an AFE therefor. An AFE

shall be prepared in accordance with Section 3 of the Uniform Project

Implementation Procedure.

Subject to the approval of such AFE

hereunder, the Operator shall be authorized and obliged, subject to

Article 14.3, to proceed with such commitment or expenditure provided

always that an AFE within an approved development Work Programme and

Budget shall be deemed to have been approved by the Operating

Committee unless, within fourteen (14) Days (or such longer period as

shall have been agreed by the Parties) of its submission to the

Parties, any Party gives notice to the Operator that they require such

AFE to be formally approved by the Operating Committee.



14.2.2



In the event that the Operating Committee gives its approval to any

development

Work Programme and Budget or any AFE executed in

connection therewith, Liberty may, by notice to AMNI given not more

than thirty (30) Days following the date of Liberty's receipt of

notice of such approval of such Work Programme, Budget or AFE, elect

not to proceed with such Work Programme, Budget or AFE as applicable,

and the operations and work covered by such Work Programme, Budget or

AFE shall be conducted as Sole Risk Operations in accordance with

Article XVI with AMNI being the Sole Risk Party.



14.3



REVIEW



14.3.1



The Operator shall, in each Year, review the approved development Work

Programme and Budget and submit to the Operating Committee not later



AND



AMENDMENT



than September 1st a report thereon together with an update of such

development Work Programme and Budget dealing separately with the next

Year and the remaining phase of the approved development Work

Programme and Budget and showing the matters listed in Article 14.1.1

and the information required under Section 3 of the Uniform Project

Implementation Procedure.

14.3.2



At any time either Party may, by notice to the other Party propose

that an approved development Work Programme and Budget and/or an

approved AFE be amended. The Operating Committee shall consider such

proposal and, if the Operating Committee agrees to such an amendment,

the Operator shall prepare and submit to the Operating Committee a

revised development Work Programme and Budget incorporating any such

amendment and showing the matters listed in Article 14.1.1 and the

information under Section 3 of the Uniform Project Implementation

Procedure.

To the extent that any such

amendment or revised

development Work Programme and Budget is approved by the Operating

Committee, the approved development Work Programme and Budget and/or

AFE shall, subject to obtaining any necessary consent or approval of

the Ministry, be deemed amended accordingly provided always that any

such amendment shall not invalidate any authorized commitment or

expenditure made by the Operator prior thereto, and further provided

that any revised Work Programme and Budget or AFE shall be subject to

Liberty's rights under Article 14.2.2.

ARTICLE XV - PRODUCTION WORK PROGRAMME AND BUDGET

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





15.1

15.1.1



15.1.2



ANNUAL



PROGRAMME



AND



BUDGET



The Operator shall not later than September 1st in the year prior to

the commencement of production and each subsequent Year, submit to the

Operating Committee a proposed production Work Programme and Budget

for the Year showing:

(a)



the projects and other work to be undertaken;



(b)



the information required under the Accounting Procedure:



(c)



an estimate of the date of commencement of production (if

approximate) and of the total production by Quarters and the

maximum daily rate to be achieved in each Quarter;



(d)



details of the

required; and



(e)



such other information as the Operating

required the Operator to provide.



number



of



employees



and



contract

Committee



personnel

shall have



The proposed production Work Programme and Budget shall be subject to

consideration, revision and approval by the Operating Committee. The

Operating Committee shall consider such production Work Programme and

Budget and make such revisions thereto as shall be agreed as soon as

practicable but in any event not later than October 1st. Not later

than December 31st the Operating Committee shall approve a production

Work Programme and Budget and such approval shall subject to Articles

15.2 and 15.3 authorize and oblige the Operator to proceed with it.



15.2 AUTHORIZATION

15.2.1



WORK



FOR



EXPENDITURE



Save as provided in Articles 6.9.2, 6.9.3 and 6.9.4, the Operator

shall,

before

entering into any

commitment or incurring any

expenditure under an approved Work Programme and Budget, submit to the

Operating Committee an AFE therefor. An AFE shall be prepared in



accordance with Section 3 of the Uniform Project Implementation

Procedure. Subject to the approval of the AFE hereunder, the Operator

shall be authorized and obliged, subject to Article 15.3, to proceed

with such commitment or expenditure. An AFE may be approved by

affirmative decision of the Operating Committee or by signature by

Parties having an aggregate Participating Interest sufficient for an

affirmative decision of the Operating Committee.



15.2.2



In the event that the Operating Committee gives its approval to any

production Work Programme and Budget or any AFE executed in connection

therewith, Liberty may, by notice to AMNI given not more than thirty

(30) Days following the date of Liberty's receipt of notice of such

approval or of such AFE, elect not to proceed with such Work Programme

and Budget or AFE as applicable, and the operations and work covered

by such Work Programme and Budget or AFE shall be conducted as Sole

Risk Operations in accordance with Article XVI with AMNI being the

Sole Risk Party.



15.3 AMENDMENT

At any time either Party may, by notice to the Operating Committee, propose

that an approved production Work Programme and Budget and/or an approved

AFE be amended. To the extent that an amendment is approved by the

Operating Committee, the approved production Work Programme and Budget

and/or AFE shall be deemed amended accordingly provided always that any

such amendment

shall not

invalidate any authorized

commitment or

expenditure made by the Operator prior thereto, and further provided that

any revised Work Programme and Budget or AFE shall be subject to Liberty's

rights under Article 15.2.2.

ARTICLE XVI - SOLE RISK OPERATIONS

---------------------------------16.1 DEFINITIONS

For



the



purpose



of



this



Article



XVI:



16.1.1



"Common Costs" means overhead expenses in respect of operating and

maintenance charges and depreciation on common user assets which are

shared by Sole Risk Operations and Joint Operations.



16.1.2



"Exploratory



Well"



means:



(a)



a well drilled in the Deep Zones of the IMA Field in an area

lying outside the interpreted closure of any structural or

stratigraphic trap on which closure a well has been drilled which

is capable of producing Petroleum, or



(b)



a well in the Deep Zones of the IMA Field in any area lying

inside the interpreted closure of any structural or stratigraphic

trap, to the extent to which it is deepened or plugged back to a

stratigraphic

level

different from that to which it had

previously been drilled and found capable of producing Petroleum;

or



(c)



any well that has been agreed by the Parties to be an Exploratory

Well.



16.1.3



"Non-Proposing Party/ies" means the Parties not giving

intention to conduct a Sole Risk Operation.



16.1.4



"Non-Sole Risk Party/ies"

Sole Risk Operation.



means the parties not



notice of an



participating



in a





16.1.5



"Production Facilities" means drilling and/or production, platforms

and/or petroleum storage and transportation facilities required to

produce and deliver any Petroleum that may be discovered from an

Exploratory Well within the Deep Zones of the IMA Field.



16.1.6



"Proposing Party/ies" means the Parties giving notice of its intention

to conduct a Sole Risk Operation as hereinafter defined.



16.1.7



"Sole Risk Exploratory Well" means an Exploratory

Sole Risk Party/ies pursuant to this Article XVI.



16.1.8



"Sole Risk Notice" means a notice given pursuant to Article 16.4 of a

Party's intention to conduct a Sole risk Operation.



16.1.9



"Sole Risk Operation" means an operation conducted for only one of the

Parties in accordance with the provisions of this Article XVI.



16.1.10



"Sole Risk Party/ies" means the Party/ies who undertakes to conduct a

Sole Risk Operation pursuant to this Article XVI.



16.2 SOLE



RISK



Well drilled by a



OPERATIONS



Subject to Article 16.3, Sole Risk Operations shall only include and be

undertaken in respect of any one or more of the following activities:

(a)



the deepening, side tracking or plugging back of an Exploratory Well;



(b)



the drilling

programmes;



(c)



the drilling of appraisal and development wells and the installation

of Production Facilities to develop a discovery made by a Sole Risk

Exploratory Well, provided the purchase of such Facilities is not

otherwise to increase or accelerate production of Petroleum from

geological structures in the Deep Zones of the IMA Field other than

the geological structure on which such Sole Risk Exploratory Well was

Drilled;



(d)



any other activity or project

as a Sole Risk Operation; and



(e)



any operation governed by a Work Programme and Budget or an AFE made

pursuant to Articles XII, XIII, XIV or XV for which Liberty has

elected not to participate in pursuant to the terms of such Articles.



16.3 CONDITIONS



(a)



(b)



FOR



of an



SOLE



Exploratory



RISK



Well



including



testing and coring



agreed by the Parties to be undertaken



OPERATIONS



No Sole Risk Operation may be conducted if it would adversely affect

Joint Operations or conflict with all or any part of any current Work

Programme and Budget.

No Sole Risk Operation shall be undertaken until:

(i)



The operations comprising the Sole Risk Operation shall first

have been proposed in writing to the Operating Committee in

complete form. The appropriate proposal to be in complete form

shall specify as Joint Operations such as location of proposed

well, scope of geological and geophysical programmes, proposed

depth, itemized estimate of the costs thereof, economic analysis,

expected

date of

commencement

and the expected date of

completion.



(ii) The Operating



Committee



shall have



disapproved or be deemed to



have disapproved the proposal,

set forth in Article VIII.

(c)



16.4 SOLE



in accordance with the procedures



A Sole Risk Operation for the deepening or sidetracking of an

Exploratory Well in course of drilling may be proposed only if such

well has not encountered a Discovery and the Parties have decided to

abandon the well following their receipt of all drilling and Test

results.

RISK



NOTICE



Within 6 months after the Operating Committee disagrees with a proposal for

Joint Operations or, in the case of Article 16.3 (c) within forty-eight

(48) hours after notice from the Operator recommending abandonment of an

Exploratory Well, any Party may give to the other Party a Sole Risk Notice,

in writing. The Non-Proposing Party shall have ninety (90) Days, after the

receipt of the sole Risk Notice, within which to notify the Party giving

the Sole Risk Notice, whether or not to participate in the costs of such

Sole Risk Operation ("Participation Notice"); provided, however, that in

the case of a Sole Risk activity pursuant to Article 16.3(c) the period in

which to give Participation Notice shall be forty-eight (48) hours.

16.5 SOLE



RISK



OPERATION



AS



JOINT



OPERATION



If the Non-Proposing Party elects to participate in the proposal which is

the subject of a Sole Risk Notice within the applicable period specified in

Article 16.4, such Sole Risk Operation shall be carried out by the Operator

as Joint Operation and the current Work Programme and Budget shall be

deemed to be amended accordingly.

16.6 SOLE



RISK



OPERATION





In the event the Non-Proposing Party does not elect, within the applicable

period specified in Article 16.4 to participate in a proposed Sole Risk

Operation, the Proposing Party shall be entitled to carry out the Sole Risk

Operation at its Sole Risk, cost and expenditure. Costs and expenses of the

Sole Risk Operation incurred by the Sole Risk Party shall be computed in

accordance with the Accounting Procedure.

16.7 OPERATOR



OF



SOLE



RISK



OPERATION



Notwithstanding that the Operator may not be the Sole Risk Party, the Sole

Risk Operation shall, subject to Article 16.7.3 and Article 16.8, be

carried out promptly and diligently by the Sole Risk Operator for the sole

account and benefit of the Sole Risk Party.

16.7.1



Any Sole Risk Operation shall be carried out at the sole risk, cost

and expense of, and under the overall supervision and control, of the

Sole Risk Party but otherwise pursuant to this Agreement.



16.7.2



The Sole Risk Operator shall keep and maintain separate books, records

and accounts (including bank accounts) with respect to the Sole Risk

Operations,

including Sole Risk share of all Common Costs in

connection therewith,

which shall be subject to the right of

examination and audit by the Sole Risk Party and Non-Consenting Party.



16.7.3



The Sole Risk Party shall be obligated to advance the estimated

expenditure for the Sole Risk Operation to the Operator within fifteen

(15) Days after receipt of the Operator's request therefor. The

Operator shall not use, or be required to use, Joint Account funds or

its own funds for the purpose of paying the costs and expenses of the

Sole Risk Operation.



16.8 COMMENCEMENT



OF



SOLE



RISK



OPERATION



It is hereby understood and agreed that the Sole Risk Party shall do all

things necessary to enable the Operator on its behalf to commence the Sole

Risk Operation within ninety (90) Days after expiration of the period

specified in Article 16.4 for giving a Participation Notice in the case of

a Sole Risk Operation under Articles 16.2(a), (b), (c) or (e); or within

one hundred eighty (180) Days after expiration of the period specified in

Article 16.4 for giving a Participation Notice in case of projects under

Article 16.2(d); or within 48 hours after expiry of the period specified in

Article 16.4 for giving a Participation Notice in case of projects under

Article 16.3(c). If the Sole Risk Operation specified in the Sole Risk

Notice is not commenced within the period specified in this Article 16.8

for reasons attributable to the Proposing Party, then the right of the

Proposing Party to carry out the Sole Risk Operation shall lapse.

16.9 INFORMATION



CONCERNING



SOLE



RISK



OPERATION



The Operator shall, in relation to the Sole Risk Operation, furnish to the

Parties all information and data which the Operator is obligated to give

the Non-Operators under the terms of this Agreement.



16.10 ELECTION



TO



PARTICIPATE



IN



FURTHER



WORK



A Non-Consenting Party may at any time, elect to participate in a Sole Risk

Operation by paying to the other

Party,

an amount equal to its

Participating Interest of Petroleum Costs share of the cumulative cost and

expenditure of the Sole Risk Operation, incurred as of the date of such

election plus 250% thereof ("Re-entry Penalty"). The whole or any part of

the Re-entry Penalty shall be paid in cash in the currency in which the

Sole Risk costs have been incurred or in kind or both as may be mutually

agreed by the Parties. Following an election and payment as aforesaid, such

operations shall be carried out as Joint Operations.

16.11



USE OF JOINT

OPERATION



PROPERTY



AND PERSONNEL



OF



THE



OPERATOR FOR SOLE RISK



A Sole Risk Party shall be entitled to use Joint Property and personnel of

the Operator for the Sole Risk Operation upon terms and conditions agreed

by the Parties, provided however that it is understood that, at all times,

the Joint Operations shall take precedence over the Sole Risk Operation in

such use of Joint Property and personnel.

16.12 INDEMNIFICATION



OF



THE



NON-CONSENTING



PARTY



The Sole Risk Party shall indemnify and hold harmless the Non-Consenting

Party from all suits, claims, liens, liabilities, damages, costs, losses

and expenses whatsoever directly or indirectly caused to third parties or

incurred by the Non-Consenting Party as a result of anything done or

omitted to be done in the course of carrying out the Sole Risk Operation.

16.13 TITLE



TO



THE



SOLE



RISK



OPERATION,



PRODUCTION



AND



FACILITIES



16.13.1



Subject to Article 16.10, all property acquired through a Sole Risk

Operation, including data and information, shall be wholly owned by

the Sole Risk Party.



16.13.2



In case of a Sole Risk Operation under Article 16.2(d) the relevant

facilities as well as any Petroleum produced therefrom shall be owned

by the Sole Risk Party until such time as the Non-Consenting Party has

elected to participate in further work under the Sole Risk Operation

pursuant to Article 16.10.



16.13.3



Notwithstanding the election of a Non-Consenting Party to participate

in a Sole Risk Operation involving production of Petroleum discovered



as the result of a Sole Risk Exploratory Well, and the payment by the

Non-Consenting Party of the amount of money referred to in Article

16.10, the Non-Consenting Party shall not be entitled to receive any

payment in kind of cash or credit for any Petroleum which was produced

as a result of a discovery from such Exploratory Well prior to the

date of such election and payment. Upon such election and payment

however

the

Non-Consenting

Party

shall be

entitled to its

Participating Interest of Petroleum produced as a result of a

discovery from such Exploratory Well following such election and

payment.



ARTICLE XVII - ACCOUNTING PROCEDURE

----------------------------------17.1



The Accounting Procedure is hereby made part of this Agreement. In the

event of any conflict between any provision in the main body of this

Agreement and any provision in the Accounting Procedure, the provision

in the main body shall prevail.

ARTICLE XVIII - DEFAULT

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



18.1



FAILURE



TO



PAY



If any Party ("Defaulting Party") fails to pay in full its share of

any Cash Call or Advance by the due date as provided in Article X or

elsewhere in this Agreement (including all schedules thereto) (such

date being hereinafter the "Default Date"):

(i)



the Operator shall notify by telex all the Parties

default as soon as practicable after the occurrence

default;



of such

of such



(ii) after the occurrence of such failure to pay, the Operator shall

serve on the Defaulting Party a formal notice (a "Default

Notice") declaring that the Defaulting Party is in default from

and including the Default Date;

(iii)each Non-Defaulting Party shall contribute,

as hereinafter

provided, a share of the amount of default in the proportion that

its

Participating

Interest

bears

to the

total of the

Participating

Interests of the Non-Defaulting Parties, and

pending receipt of such additional contributions the Operator

shall make arrangements to meet any commitments falling due by

borrowing the necessary finance from outside sources or by making

the necessary finance available itself and all costs of any such

finance shall be charged to the Non-Defaulting Parties; finance

made available to the Operator shall bear interest calculated on

a day to day basis at the Agreed Interest Rate;

(iv) within five (5) Working Days following the date of notification

by the Operator under Article 18.1(i), the Operator shall notify

all the Parties of the liability of each of the Non-Defaulting

parties to contribute to the amount in default and shall make a

further Cash Call accordingly to take effect on the expiry of the

six (6) Business Days specified in Article 18.1(v);

(v)



if such default continues for than six (6) Working Days after the

date of notification by the Operator under Article 18.1(i) each

of the Non-Defaulting Parties shall on the Business Day next

following such sixth Business Day pay the amount notified under

Article 18.1(iv), and thereafter shall continue to pay, in

addition to its share of subsequent Advances, the proportion

specified in Article

18.1(iii) of that part of all such



subsequent Advances attributable to the Defaulting Party until

such time as the Defaulting Party has remedied its default in

full, and failure by a Party to make such payment on behalf of a

Defaulting Party shall likewise and with the same results render

that Party in default; and



(vi) no Party shall be entitled at any time to call into question any

aspect of the Default Notice or its service on the Defaulting

Party other than on the grounds (a) that the Defaulting Party had

not failed to pay in full its share of any Cash Call or Advance

by the due date as aforesaid, (b) that any such failure was not

continuing at the date of service of the Default Notice (whether

in respect of the whole or any part of the amount which the

Defaulting Party failed to pay as aforesaid), (c) that the

Default Notice was not served on the Defaulting Party.

18.2



REMEDY



OF



DEFAULT



The Defaulting Party shall have the right to remedy the default at any

time by payment in full to the Operator or, if the Non-Defaulting

Party has paid any

amounts

under

Article

18.1(v),

to the

Non-Defaulting Party, in proportion to the amounts so paid by the

Non-Defaulting Party of all amounts which the Defaulting Party has

failed to pay (including the amount of Cash Calls and Advances

attributable to the Defaulting Party which the Non-Defaulting Party

has become liable to pay in terms of Article 18.1(v) together with

interest thereon calculated on a day to day basis at the Agreed

Interest Rate, from and including the due date for payment of such

amounts until but not including the actual date of payment.

18.3



CONTINUATION



OF



DEFAULT



18.3.1



If a Party defaults after the

commencement of commercial

production and has not remedied the default by the sixth Business

Day after Notice thereof from the Operator, the Defaulting Party

shall not be entitled to its Participating Interest of Production

which shall vest in and be the property of the Non-Defaulting

Parties in the proportions which their respective Percentage

Interests of Petroleum Costs bear to the total of the same, and

Operator shall be authorized to sell such Petroleum, at the best

price obtainable under the circumstances and, after deducting all

reasonable costs, charges and expenses incurred by Operator in

connection with such sale, pay the proceeds proportionately to

the Non-Defaulting Parties which proceeds shall be credited

against all monies advanced pursuant to Article 18.1 together

with interest accrued thereon. Any surplus remaining shall be

paid to the Defaulting Party, and any deficiency shall remain a

debt due from the Defaulting Party to the Non-Defaulting Parties.



18.3.2



During the continuation of any default the Defaulting Party shall

not be entitled to be represented at meetings of the Operating

Committee or any sub-committee thereof nor to vote thereat (so

that the voting interest of each Non-Defaulting Party shall be in

the proportion which its Participating Interest bears to the

total of the Participating Interest of all the Non-Defaulting

Parties) and shall have no further access to any data and

information relating to the Joint Operations. The Defaulting

Party shall be bound by decisions of the Operating Committee made

during the continuation of default.





18.4



In the case of any Sole Risk Project pursuant

provision of this clause 18 shall apply mutatis

Risk Parties.



to clause 16, the

mutandis to the Sole



18.5



From the Default Date the Defaulting Party shall have no further

rights with respect to the Deep Zone of the IMA Field or this

Agreement except as provided for in this clause 18.



18.6



OTHER



REMEDIES



All remedies provided hereunder shall be without prejudice to any

other rights available to the Non-Defaulting Parties whether at common

law, pursuant to statute or otherwise.

ARTICLE XIX - DISPOSITION OF PRODUCTION

--------------------------------------19.1



RIGHT



AND



OBLIGATION



TO



TAKE



IN



KIND



Except with respect to Tax Oil or as otherwise provided in this

Article, each Party shall have the right and obligation to own, take

in kind and separately dispose of its Participating Interest of

Production from any Exploitation Area in such quantities and in

accordance with such procedures as may be set forth in the offtake

agreement referred to in Article 19.2 or in the special arrangements

for natural gas referred to in Article 19.3. If Government is party to

the offtake agreement, then the Parties shall endeavour to obtain its

agreement to the principles set forth in this Article.

19.2



OFFTAKE



AGREEMENT



FOR



CRUDE



OIL



If Crude Oil is to be produced from an Exploitation Area, the Parties

shall in good faith, and not less than three (3) months prior to first

delivery of Crude Oil, negotiate and conclude the terms of an

agreement to cover, the offtake of Crude Oil produced under the Joint

Venture Agreement, which agreement shall also provide for the sale of

the Tax Oil by the Operator. The Government may, if necessary and

practicable, also be party to the offtake agreement. This offtake

agreement shall to the extent possible be consistent with the Joint

Venture Agreement, and make provision for:

(a)



The delivery

point, at which title and risk of loss of

Participating Interest of Production of Crude Oil shall pass to

the Parties (or as the Parties may otherwise agree);



(b)



The Operator's

regular periodic advice to the Parties of

estimates of totalavailable production for succeeding periods,

Participating Interest of Production and grades of Crude Oil, for

as far ahead as is necessary for the Operator and the Parties to

plan offtake arrangements. Such advice shall also cover for each

grade of Crude Oil total available production and deliveries for

the preceding period, inventory and overlifts and underlifts;



(c)



Nomination by the Parties to the Operator of acceptance of their

Participating

Interest of

Production

of total

available

production for the succeeding period. Such nominations shall in

any one period be for each Party's entire Participating Interest

of Production arising during that period subject to operational

tolerances and agreed minimum economic cargo sizes or as the

parties may otherwise agree;



(d)



Elimination of overlifts and underlifts;



(e)



If offshore loading or a shore terminal for vessel loading is

involved, risks regarding acceptability of tankers, demurrage and

(if applicable) availability of berths;









19.3



(f)



Distribution to the Parties of Entitlements to ensure, to the

extent Parties take delivery of their Entitlements in proportion

to the accrual of such Entitlements, that each Party shall

receive currently Entitlements of grades, gravities and qualities

of Petroleum similar to Petroleum received by each other Party.



(g)



To the extent that distribution of Entitlements on such basis is

impracticable due to availability of facilities and minimum cargo

sizes, a method of making periodic adjustments; and



(h)



The option and the right of the other Parties to sell an

Entitlement which a Party fails to nominate for acceptance

pursuant to (c) above or of which a Party fails to take delivery,

in accordance with applicable agreed procedures, provided that

such failure either constitutes a breach of the Operator's or

Parties' obligations under the terms of the Contract, or is

likely to result in the curtailment or shut-in of production.

Such sales shall be made only to the limited extent necessary to

avoid disruption in Joint Operations. The Operator shall give all

Parties as much notice as is practicable of such situation and

that a sale option has arisen. Any sale shall be of the

unnominated or undelivered Entitlement as the case may be and for

reasonable periods of time as are consistent with the minimum

needs of the industry and in no event to exceed twelve (12)

months. The right of sale shall be revocable at will subject to

any prior contractual commitments. Sales to non-affiliated third

parties shall be for the realized price f.o.b. the delivery

point. Sales to any of the Parties or their Affiliates shall be

at current market value f.o.b. the delivery point. The Party

arranging the sale shall pay to the Party whose Entitlement is

involved the above price after deduction of all costs, including

storage costs, incurred in respect of such sale and a marketing

fee of an agreed percentage of the applicable price less

deductions, reflecting actual costs of disposal at immediate

notice.

Current

market value shall be the value of the

Entitlement in international markets (unless the Entitlement was

required to be delivered into the Government's domestic market,

in which case it shall be the value therein between a willing

buyer and seller and shall be agreed between the two Parties

concerned, or failing agreement, determined by an expert to be

appointed in accordance with procedures set forth in the offtake

agreement.



SEPARATE



AGREEMENT



FOR



NATURAL



GAS



The Parties recognize that if natural gas is discovered it may be

necessary for the Parties to enter into special arrangements for the

disposal of the natural gas, which are consistent with the Development

Plan and subject to the terms of the Joint Venture Agreement.

ARTICLE XX - CONFIDENTIALITY

---------------------------20.1



CONFIDENTIALITY



DATA



AND



INFORMATION



All data and information (the "Data") acquired or obtained by any

Party in respect of the Joint Operations and under or pursuant to this

agreement shall be considered

confidential

and shall be kept

confidential and not be disclosed during the term of this Agreement

and for a period of five (5) years thereafter and shall not be

divulged in any way to any third party without the prior written

approval of all the Parties, provided that:

(a)



any Party may,



without such approval,



disclose the whole or any



part of the Data in good faith:

(i)



to any Affiliate of such Party upon obtaining an undertaking

of confidentiality (in similar terms to this Article 20.1)

from such Affiliate;



(ii) to any bona fide prospective assignee of such part upon

obtaining an undertaking of confidentiality (in similar

terms to this Article 20.1) from such assignee and subject

to such Party having given not less than two (2) Business

Days' notice to the other Parties specifying the extent to

which that Party intends to disclose the Data to the

prospective assignee and the name of such prospective

assignee;

(iii)to any outside professional consultants engaged by or on

behalf of such Party and acting in that capacity, upon

obtaining an undertaking of confidentiality (in similar

terms to this Article 20.1) from such consultants, provided

that such Party shall promptly inform the other Parties of

the name of such consultants and the data disclosed to them;

(iv) to any bank or financial institution from whom such Party is

seeking or obtaining an undertaking of confidentially (in

similar term to this Article 20.1) from such bank or

institution;

(v)



to the extent required by the Act, the OPL and OML governing

the Deep Zones of the IMA Field, any other applicable law or

the Regulations of the Ministry;



(vi) to the extent that the same has become generally available

to the public other than as a result of any breach by such

Party of its obligations hereunder;



(vii)pursuant

to an

jurisdiction; or



(b)



order



of



any



court



of



competent



(viii) any government, stock exchange or securities

having jurisdiction over such Party.



commission



the Operator may disclose the Data to such persons as may be

necessary in connection with the conduct of the Joint Operations

upon obtaining an undertaking of confidentiality (in similar

terms to this Article 20.1) from such persons provided that the

Operator shall promptly inform the other Parties of the names of

such persons and of the Data disclosed to them.



In the event of any Party ceasing to hold a Participating Interest,

such Party shall nevertheless remain bound by this Article 20.1.

20.2



TRADING



RIGHTS



20.2.1



The Operator may, with the prior approval of the Operating Committee

and on such terms and conditions as it shall approve, exchange any

Data for other similar data and information and the Operator shall

promptly provide all the Parties as shall request the same with

conformed copies of the agreement relating to such exchange and all

such other data and information provided that, notwithstanding the

foregoing provisions of this Article XX, if any Party is also the

owner or part owner of such other data and information it shall not be

entitled to prevent an exchange which has been approved by all the

other Parties.



20.2.2



A Party having acquired any data and information by the conduct of a

Sole Risk Project undertaken under Article XVI shall have the right to

take such data and information as its exclusive property without

seeking the prior approval of the Non-Consenting Parties, save that if

the Non-Consenting Party in accordance with Article 14.4 such data and

information shall thereafter become Joint Property and be subject to

the restrictions imposed by Article 20.1.

ARTICLE XXI - PUBLIC ANNOUNCEMENTS

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



21.1





21.2



21.3



Subject to Articles 20.1, 21.2 and 21.3, the Operator shall be

responsible for the preparation and release of all announcements and

statements regarding this Agreement or the Joint Operations provided

always that no such public announcement or statement shall be issued

or made unless prior thereto all the Parties have been furnished with

a copy thereof and the approval of the Operation Committee has been

obtained.

Except as provided in Article 21.3, if any Party shall itself wish to

issue or make any public announcement or statement regarding this

Agreement or the Joint Operations it shall not do so unless prior

thereto it furnished all the Parties with a copy of such announcement

or statement obtains the approval of the Operating Committee provided

that, notwithstanding any failure to obtain such approval, no Party or

Affiliate of such Party shall be prohibited from issuing or making any

such public announcement or statement if it is necessary to do so in

order to comply with any applicable law or the regulations of a

recognized stock exchange.

The Sole Risk Party carrying out a Sole Risk Project (or the operating

if acting as operator for the Sole Risk Operation on behalf of the

Sole Risk Party) shall be responsible for the preparation and release

of all public announcements and statement to the Sole Risk Operation.

The unanimous approval of the Sole Risk Parties (if more than one)

shall be obtained to the terms of any such announcement or statement

before it is released. If, prior to the release of such announcement

or statement, the Non-Consenting Parties shall have discharged in full

their liabilities to the Sole Risk Party in accordance with Article

14.4, the provisions of Article 21.1 will apply.

ARTICLE XXII - OUTGOINGS AND GRANTS

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



22.1



OUTGOINGS

The Parties shall be liable for payments in accordance with their

Participating Interest. The Operator shall pay all such sums for the

Joint Account excepting royalties, petroleum profit taxes and other

taxes and governmental levies. If the Ministry shall require a Party

to deliver Petroleum in place of royalty, the Operator shall, with the

prior consent of each of the Parties, make arrangements with the

Ministry of such delivery.



22.2



GRANTS

Grants received by any of the Parties from any governmental agency or

body in Nigeria or internationally in respect of their respective

expenditures made pursuant to this Agreement will be retained by the

Party receiving the same. The Operator shall supply to any Party

applying for a grant, at the sole cost of the Party requiring the

same, all requisite data and information which such Party may

reasonably require for the purpose.



ARTICLE XXIII - COVENANT, UNDERTAKING, RELATIONSHIP AND TAX

----------------------------------------------------------23.1



COVENANT



AND



UNDERTAKING



Subject to the overriding responsibility of the Operator under Article

6.2.2, each Party hereby covenants and undertakes with the other Party

that it will comply with all the

applicable

provisions

and

requirements of the Act and the OPL and OML establishing the Deep

Zones of the IMA Field and will do all such acts and things within its

control as may be necessary to keep and maintain any OPL and OML

establishing the Deep Zones of the IMA Field in force and effect.

23.2



RELATIONSHIP





23.2.1



The rights, duties, obligations and liability of the Parties

hereunder shall be several and not joint or collective. Each

Party shall be responsible only for its individual obligations

hereunder. It is expressly agreed that it is not the purpose or

intention of this Agreement to create, nor shall the same be

construed as creating,

any mining partnership,

commercial

partnership or other partnership, joint venture, association or

trust, or as authorizing any Party to act as an agent, servant or

employee for any other Party for any purpose whatsoever except as

explicitly set forth in the Joint Venture Agreement and this

Agreement.



23.2.2



Subject to Article 6.2.3 each Party agrees to indemnify each

other's Party, to the extent of its Participating Interest share

for any claim by or liability to (including any cost and expenses

necessarily incurred in respect of such claim or liability) any

person not being a Party hereto, arising from or in connection

with the Joint Operations including, without prejudice to the

generality of the foregoing, any claim or liability based on the

tort of negligence.



23.2.3



The Operator hereby covenants and undertakes that it will perform

such acts, execute such documents, and do all other things as may

be necessary to enable it to perform each and every agreement,

covenant, undertaking, obligation and liability made, undertaken

or assumed under this Agreement and further will not perform (or

omit to perform) any act the performance (or the omission of the

performance) of which would, if the Owner were a Party, render

the Owner in breach of any such agreement covenant, undertaking,

obligation or liability.



23.3



TAX

The Operator shall be responsible for reporting and discharging all

taxes relating to the ownership and operation of the properties

subject to this Agreement and shall satisfy such obligations out of

the Tax Oil.

ARTICLE XXIV - ASSIGNMENT AND ENCUMBRANCES

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



24.1



RESTRICTION

This Agreement and all the provisions hereof shall be binding upon and

enure to the benefit of the Parties hereto and their respective

successors and assigns but neither this Agreement not any of the

rights, interest or obligations hereunder or under OML 112, OPL 237 or

in respect of the IMA Field shall be assigned or pledged by any Party

without the prior written consent of the other Party, which consent



shall not be unreasonably withheld, and the Government, if necessary,

but may be assigned to Affiliates without such consent subject to the

provisions of this Agreement. Further, AMNI hereby consents to a

pledge by Liberty to of its interests in this Joint Operating

Agreement, the Joint Venture and in the Deep Zones of the IMA Field to

financial institutions now or hereafter providing credit to Liberty.



The Parties acknowledge that the interests conveyed to Liberty with

respect to its 10% undivided interest in the Deep Zones is subject to

obtaining all necessary governmental approvals required to consummate

the transactions provided for herein. The Parties agree to obtain such

approvals as promptly as possible. If by December 1, 1998 the

necessary government approvals have not been obtained, then the

Parties shall enter into such amendments to this Agreement and the

Joint Venture Agreement and such other contractual agreements as are

necessary to provide Liberty (or its nominee) with all of the rights

and benefits that were to be provided to Liberty pursuant to this

Agreement and the Agreements executed in connection herewith.

ARTICLE XXV - WITHDRAWAL

-----------------------25.1



RESTRICTION

No Party may withdraw from this Agreement unless it also withdraws

from the Joint Venture Agreement, and in such case in accordance with

the following provisions of this Article.



25.2



WITHDRAWAL

Subject to the provisions of this Article, any Party may withdraw from

this Agreement and the Joint Venture Agreement by giving notice to all

other Parties stating that it wishes to withdraw from the Joint

Venture Agreement and this Agreement and specifying a proposed

effective date of withdrawal which shall be at least sixty (60) Days,

but not more than one hundred eighty (180) Days after the date of such

notice. Such notice shall be unconditional and irrevocable when given.

Within twenty (20) Business Days of receipt of such notice, any of the

other Parties may similarly give notice that it wishes to withdraw

from the Joint Venture Agreement and this Agreement. If all the other

parties give such notice no assignment shall take place, the Parties

shall be deemed to have decided to abandon the Joint Operations and

the Joint Venture Agreement shall be determined on the earliest

possible date. If less than all the other Parties give such notice,

the withdrawing

Parties shall withdraw from the Joint Venture

Agreement and this Agreement and the non-withdrawing parties shall

take the place of the withdrawing parties in accordance with Article

25.3 without compensation whatsoever.



25.3



CONDITIONS

With



respect



to



Article



25.2:



(a)



a withdrawing Party shall assign all of its said interest to the

non-withdrawing Parties and such interest shall (unless otherwise

agreed by such non-withdrawing parties) be allocated to them in

the proportions in which their respective Participating Interest

prior to the effective date of withdrawal (as hereinafter

defined) bear to the total of the same;



(b)



a withdrawing Party shall promptly join in such actions as may be

necessary or desirable to obtain any necessary or desirable to

obtain consent or approval of the Ministry in connection with,







and shall execute and deliver all documents necessary to effect

any such assignment and a withdrawal shall not be effective and

binding upon the Parties until the date upon which the same shall

have been done (the "effective date of withdrawal");

(c)



a withdrawing Party shall promptly join in all actions required

by the other Parties for the maintenance of the Deep Zone of the

IMA Field provided that its participation in such actions shall

not cause it to incur after the date on which notice of

withdrawal shall have been given any financial obligations except

as provided in this Article XXV;



(d)



a withdrawing Party shall pay all fines and penalties which may

be prescribed by the Ministry and all costs and expenses incurred

by the other Parties in connection with such withdrawal;



(e)



a withdrawing Party shall not be allowed to withdraw from the

Joint Venture Agreement and this Agreement if its said interest

is subject to any liens, charges or encumbrances other than rent

and royalty payable under the OML and OPL governing the Deep

Zones of the IMA Field, unless the other Parties are willing to

accept the assignment subject to such additional liens, charges

and encumbrances;



(f)



unless the Party or Parties acquiring its said interest agree to

accept the withdrawing Party's liabilities and obligations, a

withdrawing Party shall remain liable and obligated for its

Participating Interest share of all expenditure accruing to the

Joint Account under any Work Programme and Budget approved by the

Operating Committee and authorized by AFE prior to the date on

which notice of withdrawal is given even if the operations

concerned are to be implemented thereafter provided always that

this sub-paragraph (f) shall not render a withdrawing Party

liable for any amounts which such Party would not have been

obliged to pay had it not withdrawn; and



(g)



a withdrawing Party shall remain liable and obligated for its

Participating Interest share of all net costs and obligations

that in any way relate to the abandonment of Joint Operations or

a Sole Risk Project in which such withdrawing Party participated

if abandonment occurs within five (5) years after the effective

date of withdrawal

and, prior to such

withdrawal,

such

withdrawing Party shall provide the other Parties with such

security therefor as is acceptable to all such other Parties.



(h)



If such withdrawing Party has, at the effective date of the

withdrawal, already provided security for abandonment costs

pursuant to an Abandonment Agreement entered into pursuant to

Article 6.10.3 the adequacy of such security (both in terms of

the proposed withdrawal in question and otherwise) shall be

reviewed by the non-withdrawing Parties. Without prejudice to the

right of the majority in

Participating

Interests of the

non-withdrawing Parties to require the withdrawing Party to

provide additional or substitute security for its said share, if

the said majority of the non-withdrawing Parties determines that

the security in question should not be released, the withdrawing

Party shall not be entitled to any such release and the security

in question (together with such additional security as the

majority in Participating

Interests of the non-withdrawing

Parties shall have required the withdrawing Party to provide)

shall be held as security for such withdrawing Party's said share

until its liability

under this Article

25.3(h) has been

discharged.







ARTICLE XXVI - FORCE MAJEURE

---------------------------26.1 The obligations, so far as and to the extent that the obligations are

affected, of each of the Parties hereunder, other than the obligations to

make payments of money or furnish security, shall be suspended during the

period and to the extent that such Party is rendered unable, wholly or in

part, from carrying out its obligations under this Agreement by 'Force

Majeure' (as hereinafter defined). In such event, such Party shall give

notice of suspension as soon as reasonably possible to the other Parties

stating the date and extent of such suspension and the cause thereof. Any

of the Parties whose obligations have been suspended as aforesaid shall use

all reasonable endeavours to remedy such cause and shall resume the

performance of such obligations as soon as reasonably possible after the

removal of the cause and shall so notify all the other Parties.

26.2 For the purposes of this Agreement, "Force Majeure" shall mean any event

beyond the reasonable control of a Party and which by the exercise of

reasonable efforts, the Party is not able to prevent, and includes, but is

not limited to, such events as governmental restrictions,

strikes,

lockouts, shortages of labor or material, acts of God, insurrection, riots,

wars, fire, storms, hurricanes, floods and the like.

ARTICLE XXVII - NOTICES

----------------------27.1 Except as otherwise specifically provided, all notices authorized or

required between the Parties by any of the provisions of this Agreement

shall be delivered pursuant to Article 15.5 of the Joint Venture Agreement.

ARTICLE XXVIII - DISPUTE RESOLUTIONS PROVISIONS

----------------------------------------------28.1 This Agreement shall be governed by, construed,

accordance with the laws of England.



interpreted and applied in



28.2 Any dispute arising out of and relating to this Agreement and which the

Parties have not settled by themselves, shall finally be decided, to the

exclusion of the courts, by arbitration in accordance with the arbitration

rules of the International Chamber of Commerce. Three arbitrators shall be

appointed, each party appointing one arbitrator, and the two arbitrators

thus appointed choosing the presiding arbitrator. In reaching a decision,

the arbitrators shall be guided by the terms of this Agreement and

international practice in similar agreements.



IN WITNESS WHEREOF the Parties have caused this Agreement to be executed by

their duly authorized officers and representatives as of the day and year first

above written.

SIGNED, SEALED AND

for and on behalf



DELIVERED

of



SIGNED, SEALED AND

for and on behalf



AMNI INTERNATIONAL PETROLEUM

DEVELOPMENT COMPANY LIMITED



LIBERTY

LTD.



By:



By:



/s/ Tunde J. Afolabi

----------------------Name:

TUNDE J. AFOLABI

Designation: Managing Director

Chief Executive Officer





/s/



TECHNICAL



DELIVERED

of

SERVICES



Wade G. Cherwayko

-----------------------Name:

Wade G. Cherwayko

-----------------------Designation: President

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



SCHEDULE "A"

-----------ACCOUNTING PROCEDURE

-------------------This Schedule "A" is attached to and forms part of the Joint Operating Agreement

made between AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED AND

LIBERTY TECHNICAL SERVICES LTD. the 30th day of June, 1998, (the "Agreement").

I



DEFINITIONS AND PURPOSE

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



1.1



Words and phrases defined in Article 1 of the Agreement,

shall have the meaning assigned to them therein.



1.2



The purpose of this Accounting Procedure is to establish equitable methods

and rules for determining and reporting changes and credits applicable to

Joint Operations under this Agreement, to the end that the Operator shall,

subject to the provisions of this Agreement, neither gain nor lose by

reason of the fact that it acts as the Operator.



II



CHARGEABLE COSTS AND EXPENDITURES

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



when used herein,



The Operator shall charge the Joint Account for all reasonable costs and

expenses made in connection with the conduct of Joint Operations (the

Operator shall not charge the Joint Account, and the Parties shall not be

liable, for any unreasonable costs and expenses). Such costs shall include,

but not be limited to:

2.1



CONCESSION PAYMENTS

-------------------All direct costs necessary to acquire and to maintain rights to the Deep

Zones of the IMA Field or to acquire and to maintain such permits as are

required for the Joint Operations.



2.2



LABOUR AND RELATED COSTS

--------------------------Salaries and wages, including bonuses of employees of the Operator who are

directly engaged in the conduct of Joint Operations, whether temporarily or

permanently assigned, irrespective of the location of such employees. The

costs of salaries and wages referred to herein shall include, without

limitation, the costs of employee benefits, customary allowances and

personal expenses incurred under the Operator's allowances and personal

expenses incurred under the Operators' practice and policy, and amount

imposed by applicable Governmental authorities, which are applicable to

such employees. These costs and expenses shall include:

2.2.1



Cost of established plans for employee group life insurance,

hospitalization, pension, retirement, savings and other benefits

plan;



2.2.2



Cost of holidays, vacations, sickness





2.2.3



and



disability



benefits;



Cost of living, housing, and other customary allowances;



2.2.4



Reasonable personal expenses which are

Operator's standard personnel policies;



reimbursable



2.2.5



Obligations imposed by Government authorities;



under the



2.3



2.2.6



Cost of transportation of employees, other than as provided in

paragraph 2.3 below, as required in the conduct of Joint

Operations.



2.2.7



Charges in respect of employees temporarily engaged in Joint

Operations calculated to reflect the actual costs thereto during

the period or period of such engagement.



EMPLOYEE RELOCATION AND RELATED COSTS

----------------------------------------For the purposes of this paragraph 2.3, the following

following respective meanings, namely:



words shall have the



"Relocation Costs" means, with respect to employees of the Operator

----------------relocation costs, Transportation Costs and transfer expenses, in conformity

with the Operator's

established and Customary practices,

including

transportation of such employees'

families and their personnel and

household effects.

"Transportation Costs" for the above purpose shall include the cost of

--------------------freight and passenger service, meals, hotels, and other expenditures

related to the transfer.

2.3.1 Relocation Costs, Transportation Costs and transfer expenses, within

Nigeria, for personnel engaged in Joint Operations.

2.3.2 Relocation Costs and Transportation

employees, including:



Costs with respect to expatriate



(a)



Relocation Costs and Transportation Costs for the

employees

and their

families

transferring

to

Operations;



(b)



Relocation Costs and other related expenses incurred in the final

repatriation or transfer of the Operator's expatriate employees

and families in the case of such employees' retirement or

separation from the company, or

in the case of such

Office.



employees'



Operator's

the Joint



relation to the Operator's



Head





PROVIDED HOWEVER, that:

(a)



Relocation Costs incurred in moving an expatriate employee and

his family beyond his point of origin, established at the time of

his transfer to Nigeria, will not be charged to the Joint

Account; and



(b)



no charge shall be made to the Joint Account with respect to

expenses incurred in the final repatriation or transfer of the

Operators' expatriate employees and families to other areas

outside of the Contract Area.



2.3.3 Relocation Costs and Transportation

Costs with respect to

Nigeria employees on training assignments outside the Contract

Area.

2.3.4 Charges in respect of employees temporarily engaged in Joint

Operations shall be calculated to reflect the actual costs

thereto during the period or periods of such engagement.



2.4



SERVICES PROVIDED BY THIRD PARTIES/MARKET ORIENTATED AFFILIATES

--------------------------------------------------------------------The cost of professional, technical, consultation, utilities and other

services procured from third party sources pursuant to any contract or

other arrangement between such third parties and the Operator for the

purposes of the Joint Operations.



2.5



SERVICES PROVIDED BY THE OPERATOR'S AFFILIATES, NON-OPERATOR OR

---------------------------------------------------------------------NON-OPERATORS AFFILIATES

------------------------The cost of professional, administrative, scientific and technical services

provided or performed by the Non-Operator, or by any Affiliate of the

Operator or Non-Operator for the direct benefit of Joint Operations,

including, but not limited to, services provided by the Producing,

Exploration, Legal, Financial, Purchasing, Insurance, Accounting, and

Computer Services Departments of Non-Operator or such Affiliates.

2.5.1



Costs and charges hereinabove referred to shall include, without

limitation, the costs and charges for specific projects or

studies carried out for the Joint Account by Non-Operators or

Non-Operators' Affiliates.



2.5.2



Charges for providing the above services shall reflect the actual

cost only of providing such services and shall not include any

element of profit.



2.5.3



The charge out rate shall

incidental to the employment

aforesaid services.





2.5.4



2.6



include all costs and expenses

of the personnel utilized for the



The charges for services rendered for purchasing and/or for

coordinating forwarding and expediting shall be chargeable to the

extent that the same have not been fully reimbursed under

provisions of Article 3.1.3 hereof.



DAMAGE AND LOSS TO JOINT PROPERTY

-------------------------------------Subject to the provisions of paragraph 2.6.2 hereunder, all costs or

expenses incurred for the repair or replacement of Joint Property resulting

from damages or losses by fire, flood, storm, theft, accident or any other

cause shall be for the Joint Account.



2.7



2.6.1



The Operator shall furnish the Non-Operators with written notice

of any occurrence of damage or loss incurred which is estimated

to exceed $50,000.00 as soon as practicable after the occurrence

of the event giving rise to the said damage or loss.



2.6.2



Where the loss or damage, referred to in this paragraph 2.6 is

insured against pursuant to this Agreement, any recoveries or

deductibles under the relevant insurance policies shall be for

the Joint Account.

Recoveries or deductibles

relating to

insurance obtained by an individual Party shall be for the sole

account of that Party.



LEGAL EXPENSES

--------------All costs or expenses of handling, investigating,

settling litigation or claims arising our of



asserting defending and

or relating to Joint



Operations or necessary to protect or recover the Assets, including, but

not limited to legal fees, court costs, arbitration costs, cost of

investigation or procuring evidence and amounts paid in settlement or

satisfaction of any such litigation, arbitration or claims in accordance

with the provisions of this Agreement.

2.8



DUTIES AND TAXES

-----------------All duties and taxes, fees and government

nature except as excluded by this Agreement.



2.9



assessment



of every kind and



COSTS OF OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES IN NIGERIA

-----------------------------------------------------------------------Net costs of establishing, maintaining, and operating offices, camps,

warehouses, housing and other facilities serving the Joint Operations. If

such facilities serve other operations in addition to the Joint Operations,

the net cost thereof shall be allocated to the properties and facilities

served on such equitable basis as may be approved by the Operating

Committee pursuant to Article 2.12 of this Agreement.





2.10 OPERATOR'S PARENT COMPANY HEAD OFFICE OVERHEAD

--------------------------------------------------The charge for the Operator's parent company overhead

"Head Office Overhead Charge").

2.10.1



(hereinafter



called



The Head Office Overhead Charge shall cover

professional,

administrative and technical services which include, but are not

limited

to,

production,

exploration,

treasury,

payroll,

communications, personnel, executive administrative management,

central engineering and process engineering services provided by

the Operator's

parent company Head Office or any of its

Affiliates to the extent not chargeable under paragraph 2.5 of

this Schedule "A."



2.10.2



In respect to the Operator's Head Office Overhead Charge, the

Operator shall charge monthly to the Joint Operations an amount

based on one-twelfth (2) of the estimated annual Head Office

Overhead Charge. Adjustments of the Head Office Overhead Charge,

based on actual expenditures, will be made at the end of each

calendar year.



2.10.3



For the purpose of calculating the Head Office Overhead Charges

pursuant to paragraph 2.10.2 hereof,

costs,

charges, and

expenditures relating to royalties, Concession rentals, taxes,

fees and charges paid to any government or taxing authority,

shall be excluded.



2.11 COSTS OF MATERIAL

------------------The costs of materials purchased or furnished by the Operator for use in

Joint Operations as provided under Section 3 of this accounting procedure.

2.12 COST OF THE OPERATOR'S EQUIPMENT AND FACILITIES

----------------------------------------------------The costs of equipment and Facilities owned and furnished by the Operator

or any of its Affiliates shall be charged to the Joint Account at rates

commensurate with the cost of ownership and operation.

2.12.1



The rates



charged



pursuant



to this



paragraph



2.12



shall not



exceed those currently

prevailing for the supply of like

equipment and facilities on comparable terms in the area where

the Joint Operations are being conducted.

2.12.2



The equipment and facilities referred to herein shall exclude

major investment items such as, but not limited, to, drilling

rigs, producing platforms, oil treating facilities, oil and gas

loading and transportation systems, and terminal facilities and

other major facilities, charges for which shall be subject to a

separate agreement.





2.13 OTHER EXPENDITURES AND COSTS

------------------------------Any other expenditures and costs, not covered or dealt within the foregoing

provisions of this Section 2, which are incurred by the Operator in

accordance with the provisions of this Agreement.

III



MATERIALS ADMINISTRATION

------------------------Costs, expenses, credits and other charges in respect of materials and

supplies, equipment, machines, tools and any other goods of a similar

nature acquired, used, consumed or disposed for the purposes of, or in the

course of the conduct of, the Joint Operations shall be for the Joint

Account as set forth in this Section 3.



3.1



MATERIALS ACQUISITION

---------------------Materials purchased by the Operator shall be at Net Cost. "Net Cost" shall

include, but shall not be limited to, the invoice price less trade and cash

discounts actually received, purchase and procurement fees, freight and

forwarding charges, between point of supply and point of shipment, freight

to port of destination, insurance, customs duties, consular fees, excise

and other applicable taxes, other times chargeable against imported

materials and, where applicable, handling and transportation expenses from

point of importation to warehouse or operating site.

3.1.1



Except as otherwise provided in paragraph 3.1.4 and 3.1.5 below,

materials for use in the Joint Operations shall be purchased by

the Operator in arm's length transactions in the open market.



3.1.2



The Operator shall be under no obligation to purchase new, used

or surplus materials from the Non-Operators unless such materials

are of the specification required and have a competitive price.



3.1.3



Where an Affiliate of the Operator has arranged for the purchase,

coordinated the forwarding and expediting effort, a fee equal to

four percent (4%) of the FOB value of the materials will be added

to the cost of the materials purchased.



3.1.4



Whenever any material is not readily obtained at published or

listed prices because of national emergencies, strikes or other

usual causes over which the Operator has no control, the Operator

may charge Joint Account for the required material at the actual

cost incurred by the Operator in providing such material, and in

moving it to the Contract Area.



3.1.5



The Operator may purchase or otherwise acquire materials from an

affiliate on the same terms as set forth in this paragraph 3.1.





3.2 MATERIALS



DISPOSAL



------------------The operator shall have the right to dispose

provided in Article 2.10 of this Agreement.



of



surplus



materials



as



3.2.1



Disposals of surplus material requiring Operating Committee

approval under Article 2.10 of this Agreement shall be effected

in accordance with a disposal and tendering procedure established

for such disposals by the Operator.



3.2.2



Any disposal and tendering procedure established by the Operator

for the purposes of subparagraph 3.2.1 shall:

(i)



provide for disposal in arms length transactions in the open

market; and



(ii) include, for the Parties, a preferential right to purchase

same at a competitive price.

3.2.3

3.3



Proceeds from each sale or other disposal of material

shall be credited to the Joint Account.



hereunder



INVENTORIES

----------At reasonable intervals, inventories shall be taken by the Operator of all

Joint Property. The Operator shall give thirty (30) days written notice of

its intent to take inventory to permit the Non-Operators to be represented

at the taking of such inventory. Failure on the Non-Operators to be

represented after due notice shall bind the Non-Operators to accept the

inventory taken by the Operator as correct.

3.3.1



Reconciliation of the physical inventory with the account of the

Joint Operations shall be made by the Operator and a list of

overages and

shortages

with

relevant

explanation

where

appropriate

shall be furnished to the

Non-Operators,

if

requested. Appropriate inventory and accounting adjustments shall

thereupon be made to the accounts of the Joint Operations.



3.3.2



Wherever there is a sale or change of interest in the Joint

Property, a special inventory of such Joint Property may be

carried out by the Operator, provided the purchaser of such

interest agrees to bear all of the expenses thereof. In such

cases, both the seller and the purchaser shall be entitled to be

represented at such inventory and shall be bound by inventory

whether or not such representation is provided.





SCHEDULE "B"

-----------UNIFORM PROJECT IMPLEMENTATION PROCEDURE

---------------------------------------This Schedule "B" is attached to and forms part of the Joint Operating Agreement

made between AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED AND

LIBERTY TECHNICAL SERVICES LTD. the 30th day of June, 1998 ("the Agreement").

I



DEFINITIONS

----------Words and phrases defined in Article 1 of the Agreement,

shall have the same meanings assigned to them therein.



II



APPLICATION



when used herein,



----------II.1 This Schedule sets out the procedure for initiating projects, tendering for

and implementing contracts and procuring materials and equipment for the

Joint Operations subject to sections 2.2 and 2.4 of this Schedule "B."

II.2 The procedure shall be applicable to all contracts and purchase orders

whose values exceed the respective limits set forth in Article 4.4 of this

Agreement and which, pursuant thereto, require the prior concurrence of the

Operating Committee.

III



PROCEDURE FOR INITIATING PROJECTS

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



3.1



The Operator realizing the need for a project or contract to which this

procedure applies pursuant to section 2 hereinabove, shall introduce it as

part of the proposed work programmes and budget to be developed and

submitted by the Operator,

under this Agreement, to the Operating

Committee.



3.1.1 The Operator shall provide adequate information with

project including, without limitation, the following:

(i)



respect



to the



A clear definition of the necessity and objective of the project;



(ii) Scope of the project; and

(iii) Cost Estimate thereof.



3.1.2



The Chairman of the Operating Committee shall forward or transmit the

project proposal along with all related documentation prepared and

provided by the Operator pursuant to Subsection 3.1.1 hereof to the

Sub-Committee established pursuant to Article 8.7 of the Agreement.

The Sub-Committee shall consider the proposal at its next meeting and,

if acceptable, shall recommend it to the Operating Committee for

approval.



3.1.3



The Operating Committee may, prior to confirming its approval, make

recommendations to the Operator regarding the selection, scope and

timing of the project. Such recommendations shall constitute an

instruction to the Operator who shall, where applicable, modify its

previous submittal as may be required by the said instruction of the

Operating Committee.



3.1.4



The project as approved pursuant to sub-sections 3.1.2 and 3.1.3 shall

form part of the Work Programme and Budget of the Joint Operations.

Such approval shall also constitute authorizations by the Operating

Committee to the Operator to initiate contacts and purchases relevant

to the project proposal.



3.1.5



Projects design and supervision/management shall first be drawn from

available Operator's in-house expertise or that of the Operator's

Affiliated Companies as approved by the Operating Committee under

approved budget.



3.1.6



After



approval



of



the



project/budget,

the



Operating



the



Operator



Committee



with



shall:



(a)



promptly provide

approved AFE's;



copies of all



(b)



prepare a detailed project implementation schedule including,

without

limitation,

detailed

engineering

design,

material/equipment

procurement,

inspection,

transportation,

fabrication/construction,

installation,

testing

and



commissioning; and

(c)



shall present same to the Operating Committee including,

limitation, the following:

(i)



without



project definition;



(ii) project specification;

(iii)flow diagrams;

(iv) projects schedule;

(v)



major equipment specifications; and



(vi) cost estimate of the project.



(d)

IV

4.1



prepare an activity

Committee.



status



report as directed by the



Operating



CONTRACT TENDER PROCEDURE

--------------------------The following tender procedure shall apply to work not directly undertaken

by the Operator itself or by the Operator's Parent Company which have a

cost of $50,000 or less.

4.1.1



The Operator shall maintain a list of approved companies for the

purposes of contracts for the Joint Operations, (the "Approved

Contractors' List"). The Non-Operators shall have the right to

propose companies to be included in the list. Operator shall be

responsible for prequalifying any Contractor to be included in

the Approved Contractors' List.



4.1.2



Contractors included in the Approved Contractors' List shall be

both local and/or overseas companies or entities. They shall also

be registered with the Department of Petroleum Resources of the

Ministry of Petroleum Resources.



4.1.3



When a contract is to be bid, the Operator shall present a list

of proposed bidders to the Operating Committee for concurrence

not less that fifteen (15) working days before issuance of

invitations to bid to prospective contractors. Non-Operators may

propose additional names to be included in the list of proposed

bidders

or the

deletion

of any one

thereof.

Contract

specifications shall be in English and a recognized format used

in the international petroleum industry.



4.1.4



If the Operating Committee has not responded within fifteen (15)

working days following the presentation of the list of proposed

bidders as aforesaid, the Operator's list shall be deemed to have

been approved.



4.2



The Operator shall establish a Bid Committee who shall be responsible for

prequalifying

bidders,

sending out bid invitations,

receiving and

evaluating bids and determining successful bidders to whom contracts shall

be awarded.



4.3



Analyses and recommendations of bids received and opened by the Bid

Committee shall be sent by Operator to the Operating Committee for

concurrence before a contract is executed with the selected contractor. The

Operating Committee shall respond within fifteen (15) working days.

Approval shall be deemed to have been given if the Operating Committee has

not responded within said period.



4.4



Prospective vendors/Contractors for work estimated in excess of $250,000.00

shall submit the commercial summary of their Bids to the Operator not

earlier than 15 minutes before the closure of Bid as specified in the

letter of invitation to Bid, if requested by the Operator.





4.5 In all cases in which an entity affiliated or otherwise related to Operator

is invited to bid, the Operator shall make full disclosure to the Operating

Committee of its relationship, if any, with the company or companies.

4.6



The foregoing procedures may be waived in emergency cases. In such cases

the Operator may negotiate directly with contractors. In respect of work

requiring specialized skill, upon the approval of Liberty, the Operator may

negotiate directly with the Contractors and promptly inform the Operating

Committee of the outcome of such negotiation.



V



GENERAL CONDITIONS OF CONTRACTS

---------------------------------Except as otherwise approved by the Parties,

guidelines and conditions of contract shall apply.



5.1



5.2



the



following



general



PAYMENT OF TERMS

-----------------5.1.1



A minimum of 10% of contract price shall be held as a retention

payment until after the end of a guarantee period agreed with the

contractor which shall vary between six months and twelve months,

depending on the project, with the exception of drilling and

seismic data acquisition, well surveys and other such services. A

contractor may be given the option to provide other guarantee

equivalent to the 10% retention such as Letter of credit or

Performance Bond.



5.1.2



Provision shall be made for appropriate withholding tax as may be

applicable.



LANGUAGE OF CONTRACT

---------------------The language of the contract shall be English.



5.3



LAWS, REGULATIONS, AND PERMITS

--------------------------------5.3.1



The governing law of all agreements shall be the laws of England.



5.3.2



The Regulations shall apply to contractors performing in Nigeria

and, as far as practicable, they shall use indigenous human and

material resources.



5.3.3



All contracts shall include a provision whereby the Contractor

shall hold the Operator harmless and indemnify the Operator from

and against all liabilities, losses, damages and claims resulting

from claims and suits by third parties.





5.4 TERMINATION

----------Each contract shall also provide for early termination upon notice and the

Operator shall use all reasonable endeavours to obtain a termination

provision with minimal penalty.



5.5



LOCATION SUBSIDIARY

-------------------Contracts shall provide, in the case of a foreign contractor, that the

local part of the work, where practicable,

shall be performed by

contractors' local subsidiary.



6



MATERIALS & EQUIPMENT PROCUREMENT PROCEDURE

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



6.1



The Operator may, through own in-house or Parent Company procure

and equipment subject to conditions set forth hereinbelow.



6.2



The provisions of this

contracts/projects.



6.3



In ordering the equipment/materials, the Operator shall obtain from

vendors/manufacturers such rebates/discounts and such warranties/guarantees

that such vendors/manufacturers normally offer, and all rebates, discounts,

guarantees and all other grants and responsibilities shall be for the

benefit of the Joint Operations.



6.4



The Operator shall:



6.5



Section 6 shall not apply to lump sum or



materials

turnkey



6.4.1



by means of established policies and procedures ensure that its

procurement efforts provide the best total value, with proper

consideration of quality, service, price, delivery and operating

costs to the benefit of the Joint Operations;



6.4.2



maintain appropriate records, which shall be kept up to date,

clearly documenting procurement activities;



6.4.3



provide a quarterly listing of excess materials in its stock list

to the Operating Committee; and



6.4.4



check the listings from other operators pursuant to subsection

6.4.2 above, prior to initiating any foreign purchase order.



The Operator shall initiate and maintain policies and practices which

create a competitive environment/climate amongst local and/or overseas

suppliers. Competitive quotation processes shall be employed for all local

procurements

where the estimated

value exceeds the

equivalent of

$150,000.00.





6.5.1



6.5.2



Fabrication, whenever practicable shall be done locally provided

standards are not jeopardized. To this effective, the Joint

Operations recognize and shall accommodate local offers at a

reasonable premium.

Subject to Article 4.1.1, the Operator shall give preference to

Nigerian Indigenous Companies in the award of sub-contracts

provided the companies possess the requisite skill for the

execution of such contracts.

Contracts within the agreed financial limit of the Operator shall

be awarded to only competent Nigerian indigenous contractors.

Where there are no Nigerian Indigenous contractors possessing the

required skill/capability for the execution of such contracts,

the Operator shall notify the Operating Committee accordingly.



6.6



Analyses and recommendations of competitive quotations received pursuant to

section 6.5 shall be presented to the Operating Committee for approval

before a purchase order is issued to the selected vendor/manufacturer.



6.6.1



Approval shall be deemed to have been given if a response has not

been received within fifteen (15) working days of receiving the

analyses and recommendation presented pursuant to above section

6.6.



VII



PROJECT MONITORING

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



7.1



The Operator

Committee.

7.1.1



shall



furnish



monthly,



a project



report to the



Operating



For major contracts exceeding $1,000,000.00, or equivalent, the

Operator shall, in addition, furnish to Operating Committee a

detailed quarterly report which shall include:

(i)



Approved budget total for each project;



(ii) Expenditure on each project;

(iii) Variances and explanation;

(iv) Number and value of construction change orders;

(v)



Bar chart of schedule showing work in

already

completed

and schedule of

significant events; and



progress and work

mile-stones,

and



(vi) Summary of progress during the reporting period, summary of

existing problems, if any, and proposed remedial action; and

anticipated problems; and percentage of completion.



7.1.2



7.1.3



In case of an increase in excess of 10% on the project, the

Operator shall promptly notify and obtain the consent of the

Operating Committee.

Not later that three (3) months following the physical completion

of any major projects over $1,000,000.00, or equivalent, the

Operator shall prepare and deliver to the Operating Committee a

project completion report which shall include the following:

(a)



Cost performance of the project in accordance with the work

breakdown at the commencement of the project;



(b)



Significant variations in any item or subitems; and



(c)



Summary of problems and unexpected events encountered during

the project.





SCHEDULE "C"

-----------UNIFORM NOMINATION, SHIP SCHEDULING AND LIFTING PROCEDURE

--------------------------------------------------------[The terms of this Schedule shall be negotiated by the Parties promptly after

the discover of a Commercial Quantities of Petroleum, with all Parties

negotiating in good faith]



SCHEDULE "D"

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



MAP OF THE IMA FIELD

-------------------[MAP OF THE IMA FIELD]



IMA FIELD, OML 112 (FORMERLY OPL 469) ) AND OPL 237

- ------------------------------------------------------------DEEP



ZONES:



All geological formations within and around the Ima Field that are north

(upthrown) and south (downthrown) of the geological fault dividing the Ima

Field, all depths below the geological producing reservoir within the Ima Field,

known as the * F + sand, as currently shown on the maps and schematic

cross-section materials covering the Ima Field annexed hereto as Schedule A, or

a depth of 12,150 feet (true vertical depth), whichever is the lesser depth,

lying within the geological co-ordinates along the northern boundary of OML 112

and OPL 237, to the south boundary of OML 112, to the western boundary of OML

112 and to the eastern boundary of 550,000m E, as annexed hereto as Schedule B.



SCHEDULE "E"

-----------AFE FOR IMA # 11

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







EX-10.5

10



Exhibit



10.5

DEBENTURE

Dated as of June 30,1998

BETWEEN

LIBERTY TECHNICAL SERVICES LTD.

as the Chargor

AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED

as the Beneficiary





THIS DEBENTURE

LIBERTY

Bahamas



is



dated



as



of



TECHNICAL SERVICES LTD.,

"LIBERTY@, also referred



June



30,



1998



and



is



made



BETWEEN:



a company existing under the laws of the

to as the "CHARGOR@); and



AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LIMITED, a company existing

under the laws of Nigeria ("AMNI", also referred to as the "BENEFICIARY").

PREAMBLE



WHEREAS Liberty has entered into a Sale/Purchase Agreement and related

Prepayment Agreement, with Total International Limited ("TOTAL") both dated July

29, 1997 (the "LIBERTY OIL CONTRACT" and the "PREPAYMENT AGREEMENT"

respectively), and

WHEREAS pursuant to the Prepayment Agreement, Total made a Prepayment (as

defined in the Prepayment Agreement) to Liberty in the amount of US.$35,000,000

(the APREPAYMENT@) of which approximately US[$2,916,666.67] has been reimbursed

to Total to date; and

WHEREAS Liberty requested Total to a limited extension of the period for

the reimbursement of the Prepayment (as defined in the Prepayment Agreement) as

described in Clause A of the amendment ("AMENDMENT NO. 1") of the Prepayment

Agreement dated 6 April 1998; and

WHEREAS it was a condition of Total entering into Amendment No 1 that the

Chargor enter into a Debenture dated 6th April 1998 for the purpose of securing

the payment and performance of the Liberty's Secured Liabilities as defined in

such Debenture;

WHEREAS Amni is the holder of OML No. 112 issued by the Federal Government

of Nigeria in respect of Concession Block 469 and an OPL also issued by the

Federal Government of Nigeria in respect of Concession Block 237, and Amni and

Liberty are Joint Venturers in the development and operation of the part of the

Concessions in Nigeria by virtue of which Liberty is the beneficial owner of 10%

interest in the Deep Zone in OML No 112 (as such term is hereinafter defined);

WHEREAS Liberty and Amni have pursuant to a Memorandum of Agreement of even

date herewith agreed (inter alia) that Amni will accept joint responsibility for

$5,000,000 of the debt currently owed by Liberty to Total under the Prepayment

Agreement as amended and that Liberty would grant Amni a charge over certain

assets owned by Liberty, currently charged to Total.

WHEREAS the respective rights of Total and

Intercreditor Agreement of even date herewith



Amni



are



set



out in an



WHEREAS it is intended by the parties to this Debenture that this document

shall take effect as a deed notwithstanding the fact that a party may only

execute this document under hand.

IT



IS



AGREED



as



follows:





1

INTERPRETATION

1.1



DEFINITIONS

In



this



Debenture:



"AFFILIATES" means Abacan Resource Corporation, Dahomey Resource Corporation,

West African Resource Corporation, Abacan Resources (Benin) Limited, Abacan

Resources (Delta) Limited, Abacan Technical Services Ltd., Abacan Services (UK)

Limited, Abacan Services (USA) Limited, Abacan Resources (Nigeria) Ltd., Agbara

Resources Limited, Angus International Resources Ltd., Profile International

Ltd. and includes all other legal entities controlled directly or indirectly by

any of such companies.

"ASSUMPTION OF DEBT" means the acceptance by Amni of joint responsibility with

Liberty for up to $5,000,000 of the Secured Liabilities, which obligations may

be reduced to $2,500,000 of the Secured Liabilities if the first well drilled

fails to discover Economic Production [WHERE AECONOMIC PRODUCTION@ MEANS THAT

SUCH WELL IS CAPABLE OF PRODUCING CONTINUOUSLY AN AMOUNT OF PRODUCTION AT A

MINIMUM LEVEL WHICH WOULD ENTITLE LIBERTY TO RECEIVE AN ENTITLEMENT TO OIL



HAVING



AN



ANNUAL



"ENFORCEMENT

(Appointment



VALUE



OF



OFFICER" means

of Enforcement



NOT



---]



the person

Officer).



defined



as



such



in



Clause



7.1



"EVENT OF DEFAULT" means Beneficiary has made a required payment with respect to

its obligations as to the Assumption of Debt and Chargor has failed to reimburse

Beneficiary for the amount of such payment within thirty (30) days after the

date the payment is made. For the purposes of this definition, Chargor shall be

deemed to have timely reimbursed Beneficiary if Beneficiary makes the payments

to Secured Lenders by using proceeds attributable to Chargor's interest in the

Security Assets.

"FINANCE DOCUMENTS" means that certain Credit Facility Agreement by and among

Chargor and certain of its Affiliates, as Borrowers and Guarantors, and Total

and Credit Suisse First Boston ('CSFB") (Total and CSFB are collectively

referred to here as the "Secured Lenders).

"PROJECT" means the development and operation of the Deep Zone capable of

producing continuously an amount of production at a minimum level that would

entitle Liberty to receive an entitlement to oil having an annual value of not

less than U.S. $5,000,000 (at then current oil prices) as determined by a

reputable firm of independent petroleum engineers.

"REALISATIONS ACCOUNT" means each amount maintained from time to time by the

Chargor for the purposes of Clause 6.2 (Contingencies) at such bank as the

Beneficiary may from time to time approve.

"SECURED LIABILITIES" means the Chargor's liability to the Beneficiary hereunder

in respect of the Assumption of Debt.

"SECURITY ASSETS" means all assets, rights and property of the Chargor the

subject of any security created by or pursuant to this Debenture and described

in the Schedule,



"SECURITY PERIOD" means the period beginning on the date of this Debenture and

ending on the date on which (a) all the Secured Liabilities have been

unconditionally and irrevocably -paid and discharged in full and no further

Secured Liabilities can arise under or in respect of the Finance Documents; or

(b) the Beneficiary's obligation as to the Assumption of Debt is unconditionally

and irrevocably released and discharged.

"TSRA" means the Termination Settlement

parties of even date herewith

1.2



2

2.1



and



Release



Agreement between the



CONSTRUCTION

(a)



Capitalised terms defined in the TSRA and the Finance Documents have,

unless expressly defined in this Debenture, the same meaning in this

Debenture.



(b)



If the Beneficiary (based upon appropriate legal advice in relevant

jurisdictions) considers that any amount paid by the Chargor to the

Beneficiary is capable of being avoided or otherwise set aside on the

liquidation or administration of the Chargor or otherwise, then that

amount shall not be considered to have been irrevocably paid for the

purposes of this Debenture until such time as the period during which

such payment may be set aside has expired.



COVENANT

COVENANT



TO



PAY



In consideration of the Assumption of Debt the Chargor covenants with

Beneficiary that the Chargor will reimburse Beneficiary for payments made to

Secured Lenders with respect to the Assumption of Debt, which reimbursement

take the form of proceeds out of Chargor=s interest in n production from

Security Assets.

3



FIXED



3.1



AND



CREATION



FLOATING

OF



the

the

may

the



CHARGES



FIXED



CHARGES



As security for the Assumption of Debt the Chargor charges in favor of the

Beneficiary by way of a fixed charge all of their present and future right,

title and interest in and to the assets and interests described in the Schedule.

4



CONTINUING



4.1



SECURITY,



CONTINUING



ETC



SECURITY



The security constituted by this Debenture shall be continuing and until the

Assumption of Debt: is terminated or discharged will extend to the ultimate

balance of all sums payable by the Chargor under the Finance Documents,

regardless of any intermediate payment or discharge in whole or in part.



4.2



BREAKING



OF



ACCOUNTS



If for any reason the security constituted by this Debenture ceases to be a

continuing security, the Beneficiary may open a new account with or continue any

existing account with the Chargor and the liability of the Chargor in respect of

the Secured Liabilities and the Assumption of Debt at the date of such cessation

shall remain regardless of any payments in or out of any such account.

4.3



5



REINSTATEMENT

(a)



Where any discharge (whether in respect of the obligations of the

Chargor or any other person or any security for those obligations or

otherwise) is made in whole or in part, or any arrangement is made on

the faith of any payment, security or other disposition, which is

avoided or must be restored on insolvency, liquidation or otherwise

without limitation, the liability of the Chargor under this Debenture

shall continue as if such discharge or arrangement had not occurred.



(b)



The Beneficiary may concede or compromise any claim that any payment,

security or other disposition is liable to avoidance or restoration.



WHEN



SECURITY



BECOMES



ENFORCEABLE



The security constituted by this Debenture shall only become immediately

enforceable upon the occurrence of an Event of Default and the power of sale and

other powers conferred by the Conveyancing and Law of Property Act 1881 of

Nigeria as varied or amended by this Debenture shall be immediately exerciseable

upon and at any time after the occurrence of any Event of Default provide the

same is continuing. After the security by this Debenture has become enforceable,

the Beneficiary may in its absolute discretion enforce all or any part of the

security in any manner it sees fit

6

6.1



ENFORCEMENT



OF



SECURITY



GENERAL



For the purposes of all powers implied by statute the Secured Liabilities shall

be deemed to have become due and payable on the date of this Debenture and

Section 20 of the Conveyancing and Law of Property Act 1881 of Nigeria

(restricting the power of sale) and Section 17 of the same Act (restricting the



right



of



6.2



consolidation)



shall



not



apply



to



this



security.



CONTINGENCIES

(a)





(b)



If the Beneficiary enforces the security constituted by this Debenture

(whether by the appointment of an Enforcement Officer Or otherwise) at

a time when no amounts are due under the Finance Documents (but at a

time when amounts may become so due), the Beneficiary (or the

Enforcement Officer) may pay the proceeds of any recoveries effected

by it into any Realisations Accounts as it considers appropriate.



The Beneficiary (or the Enforcement Officer) may (subject to the

payment of any claims having priority to this security) withdraw

amounts standing to the credit of the Realisations Accounts to:

(i)



meet all costs, charges and expenses incurred and payments made

by the Beneficiary (or such Enforcement Officer) in the course of

such enforcement;



(ii) pay remuneration to the Enforcement

becomes due and payable; and



Officer



(iii)meet amounts due and payable under the Finance

when they become due and payable,



as and



when



it



Documents as and



in each case, together with interest thereon (before as well as after

judgment and payable on demand) at the Default Rate from the date they

become due and payable until the date they are unconditionally and

irrevocably paid and discharged in full.

(c)



7



ENFORCEMENT



7.1



OFFICER



APPOINTMENT



OF



ENFORCEMENT



OFFICER



(a)



At any time after the security constituted by this Debenture becomes

enforceable or (if the Chargor so requests the Beneficiary in writing)

at any time, the Beneficiary may without further notice, appoint,

under seal or in writing under its hand, any one or more qualified

persons to be a receiver or receiver and manager (each an AENFORCEMENT

OFFICER@) of all or any part of the Security Assets in like manner in

every respect as if the Beneficiary had become entitled to exercise

all of the rights,

powers and

discretions

conferred by the

Conveyancing and Law of Property Act 1881 of Nigeria.



(b)



In paragraph (a) above "qualified person" means a person who, under

the Companies and Allied Matters Decree 1990 of Nigeria, is qualified

to act as a receiver/manager of the property of any company with

respect to which he is appointed.



7.2

The



The Chargor will not be entitled to withdraw all or any moneys

(including interest) standing to the credit of any Realisations

Accounts until the expiry of the Security Period.



REMOVAL

Beneficiary



may



by



writing



under



its



hand:



(a)



remove any Enforcement Officer appointed by it; and



(b)



may, whenever it deems it expedient, appoint a new Enforcement Officer

in the place of any Enforcement Officer whose appointment may for any

reason have terminated.





7.3



REMUNERATION



The Beneficiary may fix the remuneration of any Enforcement Officer appointed by

it provided that such remuneration shall be reasonable having regard to the

circumstances.

7.4



RELATIONSHIP



WITH



BENEFICIARY



To the fullest extent permitted by law, any fight, power or discretion conferred

by this Debenture (either expressly or impliedly) upon an Enforcement Officer

may be exercised by the Beneficiary in relation to any Security Assets without

first appointing an Enforcement Officer or notwithstanding the appointment of an

Enforcement Officer.

8



POWERS



8.1



OF



ENFORCEMENT



OFFICER



GENERAL

(a)



Each Enforcement Officer has, and is entitled to exercise, all of the

rights, powers and discretions set out below in this Clause 8 in

addition to those conferred by the Conveyancing and Law of Property

Act 1881 of Nigeria on any receiver appointed thereunder and those

conferred by the Companies and Allied Matters Decree 1990 of Nigeria

on an administrative receiver appointed thereunder.



(b)



If there is more than one Enforcement Officer holding office at the

same time, each

Enforcement

Officer may (unless the document

appointing him states otherwise) exercise all of the powers conferred

on an Enforcement Officer under this Debenture individually and to the

exclusion of any other Enforcement Officer.



8.2



POSSESSION



An Enforcement Officer may take immediate possession at get in and collect any

Security Assets.

8.3



SALE



OF



ASSETS



An Enforcement Officer may sell, exchange, convert into money and realise

Security Assets by public auction or private contract and generally in

manner and on any terms which he reasonably thinks proper. The consideration

any such transaction may consist of cash or other valuable consideration and

such consideration may be payable on such terms as he thinks fit.

8.4



any

any

for

any



COMPROMISE



An Enforcement Officer may settle, adjust, refer to arbitration, compromise and

arrange any claims and disputes with or by any person who is or claims to be a

creditor of the Chargor or relating in anyway to any Security Assets.



8.5



LEGAL



ACTIONS



An Enforcement Officer may bring, prosecute, enforce, defend and abandon all

actions, suits and proceedings in relation to any Security Assets which may seem

to him to be expedient.

8.6



RECEIPTS



An Enforcement Officer may give valid receipts for all moneys and execute all

assurances and things which may be proper or desirable for realising any

Security Assets.



8.7



SUBSIDIARIES



An Enforcement Officer may form a subsidiary company of the Chargor and transfer

to that subsidiary any Security Assets.

8.8

An



OTHER



POWERS



Enforcement



Officer



may:



(a)



do all other acts and things which he may reasonably consider

desirable or necessary for realising any Security Assets or incidental

or conducive to any of the rights, powers or discretions conferred on

an Enforcement Officer under or by virtue of this Debenture; and



(b)



exercise in relation to any

Security

Assets all the powers,

authorities and things which he would be capable of exercising if he

were the absolute beneficial owner with full title guarantee of the

same, and may use the names of the Chargor for any of the above

purposes.



9



APPLICATION



All moneys

enforcement



OF



PROCEEDS



received by the Beneficiary and the Enforcement Officer pursuant to

of this security shall be applied:



FIRST

in satisfaction of or provision for all costs, charges and

expenses incurred and payments made by the Beneficiary or an Enforcement Officer

in the enforcement of the security and of all remuneration due to the

Beneficiary or an Enforcement Officer;

SECOND

in or towards payment of all other fees and interest due to Total by

Amni as a result of the Assumption of Debt

.

THIRD

in or towards payment of all other amounts due to the Beneficiary

under this Debenture.

FOURTH

10



in

NO





(a)



payment



LIABILITY



to

AS



the



Chargor.



MORTGAGEE



IN



POSSESSION



ETC.



The Beneficiary shall riot, nor shall any Enforcement

Officer

appointed as aforesaid by reason of it or the Enforcement Officer

entering into possession of the Security Assets, or any part of them,

be liable to account as mortgagee in possession or be liable for any

loss on realisation or for any default or omission for which a

mortgagee in possession might be liable.



(b)



Every Enforcement Officer shall be deemed to be the agent of the

Chargor for all purposes and shall as agent for all purposes be deemed

to be in the same position as an Enforcement Officer duly appointed by

a mortgagee under the Conveyancing and Law of Property Act 1881

Nigeria. The Chargor alone shall be responsible for its contracts,

engagements, acts, omissions, defaults and losses and for liabilities

incurred by it and the Beneficiary shall not incur any liability

(either to the Chargor or to any other person) by reason of the

Beneficiary's making his appointment as an Enforcement Officer.



(c)



Every such Enforcement Officer and the Beneficiary shall be entitled

to all the rights, powers, privileges and immunities conferred on

mortgagees and Enforcement Officers by the Conveyancing and Law of

Property Act 1981 of Nigeria when such Enforcement Officers have been

duly appointed under that Act but so that Section 20 of that Act shall

not apply.



(d)



11



The Beneficiary. and the Enforcement Officer shall be entitled to

exercise its powers under this Assignment in such a manner and at such

times as the Beneficiary and the Enforcement Officer in its absolute

discretion may determine and the Beneficiary and the Enforcement

Officer shall not in any circumstances be answerable for any loss

occasioned by the same or resulting from postponement thereof (unless

caused by its negligence or willful default).



PROTECTION



OF



THIRD



PARTIES



No purchases, mortgagee or other person or company dealing with the Beneficiary

or an Enforcement Officer or its or his agents shall be concerned to enquire

whether the Secured Liabilities have become payable or whether any power which

the Beneficiary or Enforcement Officer is purporting to exercise has become

exerciseable or whether any money remains due under the Finance Documents or to

see to the application of any money paid to the Beneficiary or to any

Enforcement Officer.

12

12.1



EXPENSES

UNDERTAKING



TO



PAY





Upon the occurrence and during the continuation of an Event of Default all

costs, charges and expenses properly incurred and all payments made by the

Beneficiary, any Enforcement Officer or other person appointed under this

Debenture in the lawful exercise of the powers conferred by this Debenture

whether or not occasioned by any act, neglect or default of the Chargor shall

carry interest (before as well as after judgment) at the Default Rate from the

date of it being incurred or becoming payable until the date it is

unconditionally and irrevocably paid and discharged in full. The amount of all

such costs, charges, expenses and payments and all interest thereon and all

remuneration payable under this Debenture shall be payable by the Chargor on

demand. All such costs, charges, expenses and payments shall be paid and charged

as between the Beneficiary and the Chargor on the basis of a fall indemnity and

not on the basis of party and party or any other kind of taxation.

12.2



INDEMNITY



The Beneficiary and every Enforcement Officer, attorney, manager or other person

appointed by the Beneficiary under this Debenture shall, be entitled to be

indemnified out of the Security Assets in respect of all. liabilities and

expenses properly incurred by them in the execution or attempted execution of

any of the powers, authorities or discretions vested in them by this Debenture

and against all actions, proceedings, costs, claims and demands in respect of

any matter or thing properly done or omitted in any way relating to the Security

Assets and the Beneficiary and any Enforcement Officer may retain and pay all

sums in respect of the same out of any moneys received under the powers

conferred by this Debenture.

13



DELEGATION



BY



BENEFICIARY



The Beneficiary and any Enforcement Officer may at any time and from time to

time delegate by power of attorney or in any other manner to any person or

persons all or any of the powers, authorities and discretions which are for the

time being exercisable by the Beneficiary or an Enforcement Officer (as

appropriate) under this Debenture in relation to the Security Assets or any part

of them. Any such delegation may be made upon such terms (including power to

sub-delegate) and subject to such regulations as the Beneficiary or the

Enforcement Officer (as appropriate) may think fit Neither the Beneficiary nor

any Enforcement Officer shall be in any way liable or responsible to the Chargor

for any loss or damage arising from any act, default, omission or misconduct on

the part of any such delegate or sub-delegate.



14



ASSURANCES



The Chargor shall

Beneficiary or an



15



at its own expense take whatever reasonable action the

Enforcement Officer may require for:



(a)



perfecting or protecting the security

Debenture over any Security Assets; or



(b)



facilitating the realisation of any Security Assets or the exercise of

any right, power, authority or discretion vested in the Beneficiary or

any Enforcement Officer of the Security Assets or any of its or their

delegates or sub-delegates.



REDEMPTION



OF



PRIOR



intended to be created by this



MORTGAGES



The Beneficiary may, at any time after the security constituted by this

Debenture has become enforceable, redeem any prior Security Interest other than

the pledge made to the Secured Lenders against the Security Assets or procure

the transfer of any such Security Interest to itself and may settle and pass the

accounts of the prior mortgagee, chargee or encumbrancer. Any accounts so

settled and passed shall be conclusive and binding on the Chargor, All.

principal moneys, interest, costs, charges and expenses of and incidental to any

redemption and transfer shall be paid by the Chargor to the Beneficiary on

demand.



16

POWER

16.1



OF



ATTORNEY



APPOINTMENT



The Chargor, by way of security, irrevocably appoints the Beneficiary and every

Enforcement Officer of the Security Assets appointed by the Debenture and. their

delegates and sub-delegates to be its attorney and take any action which the

Chargor is obliged to take under this Debenture (including, without limitation,

to make any demand upon or to give any notice or receipt to any person owing

moneys to the Chargor and to execute and deliver any charges, legal mortgages,

assignments or other security and any transfers of securities) and generally in

their name and on their behalf to exercise all or any of the rights, powers,

authorities and discretions conferred by or pursuant to this Debenture or by

statute on the Beneficiary or any Enforcement Officer, delegate or sub-delegate

and(without prejudice to the generality of the foregoing) to seal and deliver

and otherwise perfect any deed, assurance, agreement, instrument or act which it

or he may reasonably deem proper in or for the purpose of exercising any of the

powers, authorities and discretions. Such powers shall only be exercisable in

the circumstances contemplated by Clause 6.

16.2



RATIFICATION



The Chargor hereby ratifies and confirms and agrees to ratify and confirm

whatever any attorney as is mentioned in Clause 16.1 (Appointment) does or

purports to do in the exercise or purported exercise of all or any of the

powers, authorities and discretions referred to in this Clause 16.

17



NEW



ACCOUNTS



If the Beneficiary receives or is deemed to be affected by notice whether actual

or constructive of any subsequent charge or other interest affecting any part of

the Security Assets and/or the proceeds of sale any Security Assets, other than

the pledge made to the Secured Lenders the Beneficiary may open a new account or

accounts with the Chargor. If the Beneficiary does not open a new account it

shall nevertheless be treated as if it had done so at the time when it received

or was deemed to have received notice. As from that time all payments made to

the Beneficiary shall be credited or be treated as having been credited to the

new account and shall not operate to reduce the amount for which this Debenture



is



security.



18



STAMP



DUTIES



The Chargor shall. pay and, forthwith on demand, indemnify the Beneficiary

against any liability it incurs in respect of any stamp, registration and

similar tax which is or becomes payable in connection with the entry into,

performance or enforcement of this Debenture.

19



WAIVERS,

(a)



REMEDIES



CUMULATIVE



The rights of the Beneficiary under this Debenture:

(i)



may be exercised as often as necessary;



(ii) are cumulative and not exclusive of its rights under general law;

and



(iii) may be waived only in writing and specifically.

Delay



in exercising or non-exercise of any right is not a waiver of that right.

(b)



20



The Beneficiary may waive any breach by the Chargor of any of the

Chargor's obligations under this Debenture if so instructed by the

Beneficiary.



MISCELLANEOUS



20.1



SEVERABILITY



If a provision of this Debenture is or becomes illegal or unenforceable in any

jurisdiction, that shall not affect:

(a)



the validity or enforceability

provision of this Debenture; or



(b)



the validity or enforce ability in other

other provision of this Debenture.



20.2



in that



jurisdiction



of any other



jurisdictions of that or any



COUNTERPARTS



This Debenture may be executed in any number of counterparts and this will have

the same effect as if the signatures on. the counterparts were on a single copy

of this Debenture.

20.3



NOTICES



Any notice or other communication given or made under this Agreement shall be in

writing and may be delivered personally or sent by telex or facsimile

transmission or by recorded delivery letter addressed as follows:

(a)



If



to



the



Chargor,



to:



LIBERTY TECHNICAL SERVICES

Suite 140

14811 St. Mary's Lane

Houston, Texas 77079

USA

Attn.



Tim



LIMITED



Stephens



LIBERTY TECHNICAL SERVICES

39 Warehouse Road, Apapa,

Lagos, Nigeria



LIMITED





Attention: Wade G. Cherwayko

Telex No. 2915 Abacan Ny

Facsimile transmission No:

(b)



If



to



the



Beneficiary,



234



1



5454



03



01



to:



AMNI INTERNATIONAL PETROLEUM DEVELOPMENT COMPANY LTD.

Savage Street

Victoria Island, P.O. Box 54452

Falomo, Ikoyi

Fax: 011 234 262 1526

Attn: Tunde J. Afolabi

Managing Director

or to such other

relevant addressee

Any



such



notice

(i)



address or telex

may hereafter by

shall



be



deemed



to



PLOT



1377b



Tiamiyu



or facsimile transmission number as the

notice hereunder substitute.

have



been duly served, given or made:



in the case of delivery, when left at the relevant address; or



(ii) in the case of telex, when the sender receives the answer-back of

the addressee at the end to the telex message, or

(iii)in the case of a facsimile transmission, on

addressee of the complete text in legible form.

21



COVENANT



TO



receipt



by the



RELEASE



The Beneficiary shall, at the request and cost of the Chargor, take any action

necessary (including re-assigning to the Chargor) to release or reassign the

Security Assets from the security constituted by this Debenture upon the expiry

of the Security Period.

22

This

law.



GOVERNING



LAW



Debenture



shall



23



JURISDICTION



23.1



SUBMISSION



be governed by and construed in accordance with Nigerian



For the benefit of each party to this Debenture, each party to this Debenture

agrees that the courts of Nigeria have non-exclusive jurisdiction to settle any

disputes in connection with this Debenture and accordingly submit to the

jurisdiction of the Nigerian courts.



23.2

SERVICE



OF



PROCESS



Without prejudice to any other mode of service, service of process relating to

any proceedings in connection with this Debenture shall be made upon the Chargor

at the address set forth in Article 20.3 hereof.

23.3

The



FORUM



CONVENIENCE



AND



ENFORCEMENT



ABROAD



Chargor:

(a)



waives objection to the Nigerian courts on grounds of inconvenient

forum or otherwise as regards proceedings in connection with this



Debenture; and

(b)



23.4



agrees that a judgment or order of a Nigerian court in connection with

this Debenture is conclusive and binding on it and may be enforced

against them in the courts of any jurisdiction.



NON-EXCLUSIVITY



Nothing in this Clause 23 (Jurisdiction) limits the right of the Beneficiary to

bring proceedings against the Chargor in connection with this Debenture in any

other court of competent jurisdiction or concurrently in more than one

jurisdiction.



SCHEDULE

ASSETS AND INTERESTS



THE DEEP ZONE OF NIGERIA

MINING LEASE OML 112



IN WITNESS whereof this Debenture has been duly executed as a deed on the date

stated at the beginning of this deed.

SIGNED



and



SEALED



for and an behalf of

LIBERTY TECHNICAL SERVICES

By:



[Seal]

LIMITED



/s/ Wade Cherwayko

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



Name:



Wade Cherwako

-------------------Title:

Director

SIGNED and SEALED

for and on behalf



of



AMNI INTERNATIONAL PETROLEUM

DEVELOPMENT COMPANY LIMITED

By:

-------------------Name:

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



[Seal]



Title:



Vice



President











EX-10.6

11





EXHIBIT



10.6

CONSENT AGREEMENT

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



On even date herewith Amni International Petroleum Development Company Limited

(AAmni@) and Liberty Technical Services Ltd. (ALiberty@) have entered into a

Joint Venture Agreement regarding the Deep Zones of the IMA Field. All

capitalised terms used but not defined herein shall have the meanings ascribed

to such terms in the Joint Venture Agreement (AJoint Venture Agreement@).

Liberty has requested the consent of Amni to a pledge by Liberty of its interest

in the Joint Venture Agreement, the Joint Operating Agreement and the other

agreements executed in connection therewith (collectively, the AJoint Venture

Interests@) to Credit Suisse First Boston. The pledge shall be accomplished

pursuant to the form of the Debenture attached hereto. Such pledge is being

made in accordance with the terms of a Credit Facility Agreement being executed

on even date herewith by Liberty, Abacan Resource Corporation, and certain other

subsidiaries of Abacan Resource Corporation, as borrowers and guarantors, and

Credit Suisse First Boston.

Amni hereby consents to the granting of a pledge on the Joint Venture Interests

pursuant to the terms of the Debenture.

Liberty



Technical



By:



/s/ Tunde Folawiyo

-------------------Tunde Folawiyo

--------------Secretary

---------



Name:

Title:



Amni



International



By:

Name:

Title:



Services



Ltd.



Petroleum



Development







Limited



/s/ Tunde Afolabi

------------------Tunde J. Afolabi

-----------------Managing Director/CEO

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



[The Debenture referenced herein

10-KSB dated effective March 1,





Company



has been filed as Exhibit 10.5 to the Form

1999.]







EX-10.7

12



EXHIBIT



10.7



DATED 30th June 1998



(1) ABACAN TECHNICAL SERVICES LIMITED

(2) LIBERTY TECHNICAL SERVICES LIMITED

(3) AMNI INTERNATIONAL PETROLEUM

DEVELOPMENT COMPANY LIMITED

(4) SEDCO FOREX INTERNATIONAL, INC.

(5) SCHLUMBERGER OVERSEAS S.A.



AGREEMENT

FOR THE ACQUISITION OF CERTAIN INTERESTS IN PROCESS

AND OTHER EQUIPMENT, FIXTURES AND FITTINGS ATTACHED TO, OR

CONNECTED WITH, A MOBILE OFFSHORE PRODUCTION UNIT ("THE LANGLEY")



Gouldens

22 Tudor Street

London EC4Y OJJ

Tel: 0171 583 7777

Facsimile: 0171 583 3051



CONTENTS

CLAUSES



Page No.



1.



Interpretation:



-1-



2.



Transfer:



-2-



3.



Debts:



-2-



4.



Completion:



-3-



5.



Warranties:



-4-



6.



Taxation etc:



-5-



7.



General:



-5-



8.



Waiver of Claims



-6-



9.



Jurisdiction:



-6-



SCHEDULE 1EQUIPMENT



-7-



SCHEDULE 2BILL OF SALE



-8-



SCHEDULE 3PERMITTED SECURITY INTERESTS



-9-



SCHEDULE 4NOTICE



WBS(8)

THIS



-10-



738914

AGREEMENT



is



made



this



30th



day



of



June



1998



BETWEEN:

(1)



ABACAN TECHNICAL SERVICES LIMITED, a company incorporated under the laws of

the Bahamas ("Abacan");



(2)



LIBERTY TECHNICAL SERVICES LIMITED,

of the Bahamas ("Liberty");



(3)



AMNI INTERNATIONAL

PETROLEUM DEVELOPMENT COMPANY

incorporated under the laws of Nigeria ("Amni");



(4)



SEDCO FOREX INTERNATIONAL,

Panama ("Sedco"); and



(5)



SCHLUMBERGER OVERSEAS S.A., a company incorporated under the laws of Panama

("Schlumberger").



a company



incorporated under the laws

LIMITED,



a



company



INC., a company incorporated under the laws of



WHEREAS:

1.



Pursuant to an Integrated Services Contract dated 20 October 1995 Sedco and

Schlumberger have provided to Liberty and Amni the use of a Mobile Offshore

Production Unit ("the Langley") and of certain process and other equipment

attached or fixed thereto, and provide certain continuing services in

connection therewith.



2.



The parties have agreed that any interests of Liberty and Amni in the

foregoing equipment shall be transferred to Sedco on the following terms

and conditions.



NOW



IT



1.



Interpretation:



IS



HEREBY



AGREED



as



follows:



In this Agreement, unless the context otherwise

expressions have the following meanings:

"Completion"



requires,



the following



has the meaning given by Clause 4;

-1-





"Equipment"



means all

fittings

(without

turbines)



process equipment and any other equipment, fixtures and

attached to, or connected with, the MOPU, including

limitation) the power plant (comprising three gas

and that equipment specified in Schedule 1 hereto;



"ISA"



means the Integrated Services Contract dated 20 October 1995

between Liberty, Amni, Sedco and Schlumberger (as amended by a

Deed of Amendment of even date herewith);



"MOPU"



means the Mobile Offshore Production Unit (the ALangley");



"Schlumberger

Group"



means Schlumberger and any holding company of Schlumberger and

any subsidiary of Schlumberger or of any such holding company

(and in this Agreement "subsidiary" and "holding company" shall

have the meanings given them by the Companies Act 1985);



"US$"

means

2.



the



currency



of



the



United



States



of



America.



Transfer:



2.1

Liberty and Amni hereby confirm that Amni has waived in favour of

Liberty all right, title and interest that it may have in the Equipment as part

of a settlement between the parties, which settlement is evidenced in a separate

agreement of even date herewith.

2.2

Liberty agrees to transfer to Sedco, and Abacan agrees to procure the

transfer to Sedco of, any right, title and interest that Liberty may have in the

Equipment free from all liens, charges and encumbrances at and with effect from

(other than the Permitted Lien as hereinafter defined).

2.3

For the avoidance of doubt, it is hereby confirmed and acknowledged by

Liberty that full payment for the process equipment referred to in Clause 7.2.1

of the ISA has not been received by Sedco and Schlumberger; and that accordingly

the Bill of Sale referred to in such Clause has not been delivered to Liberty

and that, notwithstanding any payments that may have been made to Sedco and

Schlumberger, title and ownership of such equipment has not been transferred to

it.

2.4

The parties agree that the right, title and

pursuant to this Clause 2 shall be valued at US$ [

3.



interest transferred

].



Debts:



3.1

In consideration

Schlumberger agree that



for

the



the transfer referred to in Clause 2, Sedco and

debts comprising:

-2-





(a)



the sum of US$[

] owed to them by Abacan as at 18

June 1998 in respect of the Trident 8 Drilling Contract dated 1

November 1996 between Sedco and Abacan (as amended);



(b)



the sum of US$[

at 18 June 1998 under the ISA;



]



owed to them by Liberty and Amni as



(c)



the sum of US$ [

] owed to them under Clause 14.1.3.2(d)

of the ISA in respect of the termination of the ISA;



(d)



subject to and without

prejudice

to Clause 3.2, the sum of

approximately

US$[

]

owed to them under Clause

14.1.3.2 (b) of the ISA in respect of the demobilisation expenses; and



(e)



any other amounts owed to members of the Schlumberger Group as at 26

June 1998 by Abacan, Liberty and Amni or any of their subsidiaries or

holding companies,



shall be extinguished and cease to be payable.



3.2

Amni acknowledges and agrees that, following the termination of the ISA,

and notwithstanding Clause 8 hereof, Amni shall be liable to pay, and shall pay,

demobilisation expenses to Sedco and Schlumberger (including under Clause

14.1.3.2) up to a maximum amount of US$750,000, provided that Amni shall not be

required to make such payment if the MOPU and the Equipment shall have been

chartered under contract to a third party on terms that such charter contract

commences immediately upon the termination of the ISA (or at the latest within

15 days of the date of such termination).

4.



Completion:



4.1

The transfer contemplated by this Agreement shall be completed

immediately upon execution of this Agreement (time being of the essence). At

such completion ("Completion") Liberty and Amni will deliver to Sedco:

(a)



a Bill of Sale in the form set out in Schedule 2 executed by Liberty;



(b)



a Deed of Amendment amending the terms of the ISA in the form agreed

between the parties executed by Liberty and Amni;



(c)



a notice in the form set out in Schedule 4 executed by Amni; and



(d)



confirmation that they have made payment to Sedco by wire transfer of

the sum of US$252,600 in respect of the period from 19 June 1998 to 30

June 1998 (both days inclusive) for services rendered pursuant to ISA.

-3-





5.

Warranties:

5.1



Liberty, Abacan and Amni represent and warrant to Sedco and Schlumberger as

follows:

(a)



Liberty, Abacan and Amni have the requisite

enter into and perform this Agreement.



(b)



This Agreement constitutes and any other documents which are to be

delivered at Completion will, when executed, constitute binding

obligations of such of Liberty, Abacan and Amni as are parties to them

in accordance with their respective terms.



(c)



The execution and delivery of this Agreement, and the performance by

Liberty, Abacan and Amni of their obligations under it, will not:

(i)



result in a breach of any provision

constitution of Liberty, Abacan or Amni;



power and



of



the



authority to



documents



of



(ii) result in a breach of, or constitute a default under, any

instrument to which Liberty, Abacan and Amni are parties or by

which they are bound; or

(iii)result in a breach of any order, judgment or decree of any court

or governmental agency to which Liberty, Abacan or Amni are

parties or by which they are bound.

(d)



All consents and agreement of third parties which are required for the

transfer contemplated by this Agreement have been obtained in writing.



(e)



Other than the Permitted Lien (as hereinafter defined), no third party

(other than Sedco or Schlumberger) has any right, title or interest in

or to the Equipment.



(f)



Neither Liberty, Abacan, nor Amni has any right, title or interest in

or to the MOPU nor, to the best of their knowledge and belief, does



any third party other than the Permitted Lien.

(g)



Other than the Permitted Lien or as set out in Schedule 3 hereto, no

option, right to acquire, mortgage, charge, pledge, lien (other than a

lien arising by operation of law in the ordinary course of trading) or

other form of security or encumbrance or equity on, over or affecting

the whole or any part of the Equipment is outstanding and there is no

agreement or commitment to give or create any and no claim has been

made by any person to be entitled to any.



(h)



Neither Liberty nor Amni has agreed to acquire any asset comprised in

the Equipment on terms that the property is not passed until full

payment is made.

-4-





(i)



Following the transfer of the Equipment at Completion, Liberty and

Amni will have no further right, title or interest in or to the

Equipment.



For the purposes of this Clause 5.1, "Permitted Lien" means any charge or

security interest in favour of Credit Suisse First Boston or Total International

Limited.

5.2



Liberty, Abacan and Amni accept that Sedco and Schlumberger are entering

into this Agreement in reliance upon each of the warranties set out above.



6.



Taxation etc:



6.1



Sedco shall be responsible for any VAT or customs duties arising from the

transfer of the Equipment hereunder.



7.



General:



7.1



Liberty, Abacan and Amni shall from time to time and at all times after

Completion execute all such deeds and documents and do all such things as

Sedco or

Schlumberger

may

reasonably

require for perfecting the

transactions intended to be effected under or pursuant to this Agreement

and for vesting in Sedco the full title and benefit of the Equipment.

Without limiting the foregoing, Liberty and Amni agree to execute all such

documents and do all such things as may be necessary to vest in Sedco the

benefit of manufacturer's and supplier's warranties in respect of the

Equipment of which they may have the benefit.



7.2



Liberty and Amni

undertake to preserve and transfer to Sedco all

documentation relating to government duties, taxation and customs levies

that may be relevant to or relate to the Equipment.



7.3



This Agreement constitutes the entire agreement between the parties

relating to the sale and purchase of the Equipment and no party has relied

on any representation made by any other party or any other person except as

expressly set out herein.



7.4



The parties agree that the contents of this Agreement, and all details of

the transactions contemplated in it, shall be kept strictly confidential

and shall not be disclosed to any other person.



7.5



This Agreement may be executed in

be effective until each party has

counterpart shall constitute an

counterparts shall constitute one



7.6



The obligations of Liberty,

several and not joint.



any number of counterparts, but shall not

executed at least one counterpart. Each

original of this Agreement, but all the

and the same instrument.



Abacan and Amni under



this



Agreement



are



8.



Waiver of Claims



-5

8.1 Schlumberger and Sedco hereby waive and release (on behalf of themselves

and the Schlumberger Group) all claims against and indebtedness due from

Liberty, Abacan, Abacan Resource Corporation and all of its subsidiaries

and affiliates arising under the terms of the ISA or in respect of or in

connection with operations related thereto. Schlumberger and Sedco hereby

waive and release all claims against and indebtedness due from Amni arising

under the terms of the ISA arising on or before 30 June 1998, or in respect

of or in connection with operations related thereto and arising on or

before 30 June 1998. Schlumberger and Sedco accept that Amni, Liberty and

Abacan are entering into this Agreement in reliance upon the foregoing

waiver.

9.



Jurisdiction:



9.1



This Agreement shall be governed by and construed in accordance with

English law. All disputes or claims arising in connection with this

Agreement

shall be settled under the Rules of Arbitration of the

International Chamber of Commerce by three arbitrators appointed in

accordance with such rules.



AS WITNESS the hands of the duly authorized representatives of the parties the

day and year first above written.

-6

SCHEDULE 1

EQUIPMENT



See



attached



document

-7-





SCHEDULE 2

BILL OF SALE



Know



all



men



by



these



presents,



that:



LIBERTY TECHNICAL SERVICES LIMITED, a company incorporated under the laws of the

Bahamas (hereinafter called the ASeller"), does hereby bargain and sell all its

right, title and interest in all process equipment and other equipment, fixtures

and fittings attached to, or connected with, the Mobile Offshore Production Unit

(the ALangley"), including, without limitation, the power plant (comprising

three gas turbines) and that equipment specified in Schedule 1 hereto

(hereinafter called the AEquipment") unto:

SEDCO FOREX INTERNATIONAL, INC., a company incorporated

laws of Panama, its successors and assigns ("Sedco")

for



a



consideration



valued



at



under



the



US$8,000,000.



FURTHER, that the Seller hereby warrants that no third party (other than Sedco

or Schlumberger Overseas S.A.) has any right, title or interest in or to the

Equipment and that title to the Equipment is free and clear of all liens,

charges, claims, mortgages or encumbrances (and there is no agreement or

commitment to give any).



NO

BY



WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE IS GIVEN

THE SELLER.



In testimony whereof, the Seller has executed this Bill

authorized representative this 30th day of June 1998.

LIBERTY



TECHNICAL



SERVICES



of



Sale by its



LIMITED



- ------------------------------------Signature

Name:

Title:

-8

SCHEDULE 3

PERMITTED SECURITY INTERESTS



None



-9

SCHEDULE 4

NOTICE



Amni International Petroleum Development Company Limited hereby gives six (6)

months' notice to Sedco Forex International, Inc. ("Sedco") and Schlumberger

Overseas S.A. ("Schlumberger") that the Integrated Services Contract dated 20

October 1995 (as amended by a Deed of Amendment dated 30 June 1998) ("ISA")

shall be terminated on 30 December 1998 pursuant to Article 14.1.1 thereof In

connection therewith, it acknowledges that such termination is for reasons other

than the material breach or default of Sedco or Schlumberger.



Authorized signatory for and

behalf of Amni International

Development Company Limited



on

Petroleum

30 June



1998



-10

SIGNED



by



T.B.



Folawiyo



for and on behalf of ABACAN

TECHNICAL SERVICES LIMITED

in the presence of:

J. Harvie

SIGNED



by



T.B.



Folawiyo



)

)

)

)

)

)

)

)

)

)



/s/



T.B.



Folawiyo



for and on behalf of LIBERTY

TECHNICAL SERVICES

LIMITED in the presence of:

J. Harvie



)

)

)

)



/s/



T.B.



SIGNED



)

)

)

)

)

)

)

)



/s/



Tunde



FOREX



)

)

)

)

)

)

)



/s/



Didier



SCHLUMBERGER



)

)

)

)

)

)

)



/s/



Michael



by



for and on behalf of AMNI

INTERNATIONAL PETROLEUM

DEVELOPMENT COMPANY

LIMITED in the presence of:

Musa Bello Mustapha

SIGNED



by



Didier



for and on behalf

INTERNATIONAL, INC.

presence of:

name unrecognizable

SIGNED



by



Michael



Fontaine

of

in



SEDCO

the



McGuiny



for and on behalf of

OVERSEAS S.A. in the

presence of:

name unrecognizable



Folawiyo



-11







EX-10.8

13





EXHIBIT



10.08



ABACAN RESOURCE CORPORATION

and

DAHOMEY RESOURCE CORPORATION

and

LIBERTY TECHNICAL SERVICES LIMITED

(as the Borrowers)

THE GUARANTORS herein referred to



Afolabi



Fontaine



McGuiny



CREDIT SUISSE FIRST BOSTON

(as Agent)

CREDIT SUISSE FIRST BOSTON

(as Security Trustee)

and

THE LENDERS herein referred to

$30,702,500

CREDIT FACILITY AGREEMENT



FACILITY AGREEMENT (the "AGREEMENT") made on 2 July 1998

BETWEEN

ABACAN RESOURCE CORPORATION, an Alberta, Canada corporation, whose registered

office is at Suite 1600, 407 Second Street S.W., Calgary, Alberta, Canada

(sometimes referred to individually herein as "ARC") and DAHOMEY RESOURCE

CORPORATION, a Bahamas limited company, whose registered office is at Chambers,

Suite 304, Beaumont House, Bay Street, P.O. Box CB 11986, Nassau, The Bahamas

(sometimes referred to individually herein as "DAHOMEY"), and LIBERTY TECHNICAL

SERVICES LIMITED, a Bahamas limited company, whose registered office is at

Chambers, Suite 304, Beaumont House, Bay Street, P.O. Box CB 11986, Nassau, The

Bahamas (sometimes referred to individually herein as "LIBERTY") (in their

capacities as borrowers and guarantors together the BORROWERS and each a

BORROWER);

EACH OF THE COMPANIES LISTED IN SCHEDULE 6 HERETO, (together the ORIGINAL

GUARANTORS and each an ORIGINAL GUARANTOR),

CREDIT



SUISSE



FIRST



BOSTON



(as



AGENT);



CREDIT



SUISSE



FIRST



BOSTON



(as



SECURITY



THE

IT



LENDERS

IS



listed



on



the



execution



TRUSTEE);



pages



of



this



Agreement.



AGREED

------



DEFINITIONS



AND



INTERPRETATION



1.1

DEFINITIONS:

requires:



In



this



Agreement,



except



where



the context otherwise



ADVANCE means the principal amount of the Dollar amount made available to

the Borrowers hereunder by way of loan or (as the context requires) the

principal amount thereof for the time being outstanding;

ADDITIONAL GUARANTOR means any Subsidiary which shall accede to this

Agreement pursuant to clause 12.2(j), in each case, so long as it remains an

Additional Guarantor;

AGENT'S SPOT RATE OF EXCHANGE means the spot rate of exchange of the Agent

for the purchase with one currency of any other relevant currency in the London

foreign exchange market at or about 10.00 a.m. (London time) on the day in

question for delivery two Business Days later, the Agent's certificate as to

such rate being conclusive in the absence of manifest error;



- 1

AMNI GUARANTEE means the agreement executed or to be executed in favour of

the Security Trustee and issued by Amni International Petroleum Development

Company Limited pursuant to clause 4.1(i);

APPLICABLE LAWS means, in relation to any member of the Consolidated Group, all

and any laws, statutes, regulations and judgments relating to its business as in

force from time to time;

AVAILABILITY PERIOD means the period

Agreement and ending seven (7) days

BORROWER

together



means each of

the BORROWERS;



ARC,



commencing on the Closing Date of this

thereafter;



Dahomey and Liberty and as the context requires



BORROWERS' AGENT means ARC or any other person for the time being nominated as

such by the then current Borrowers' Agent and agreed by the Agent (such

agreement not to be unreasonably withheld or delayed);

BUSINESS DAY means a day on which banks are open in New York, London, and Z rich

for the transaction of business of the nature required by this Agreement and in

relation to a day on which a payment is to be made, in the place of the

principal domestic market of the currency of such payment;

CLOSING DATE means the date that the Agent has given to the Lenders and the

Borrowers' Agent the notice referred to in clause 4.2;

COMMITMENT means, in relation to a Lender, the aggregate principal amount set

opposite its name in Schedule 1 or as applicable, the amount set out in a

Transfer Certificate for a Lender duly completed and accepted for transfer

pursuant to the terms of this Agreement, in any case to the extent not

transferred, canceled or reduced in accordance with the provisions hereof;

CONSOLIDATED

Guarantors;



GROUP



means



at



any



particular



date



the



Borrowers



and



the



DEBENTURES mean the agreements executed or to be executed by each of the

Obligors pursuant to clause 4.1(f) and 12.2(k) in favour of the Security

Trustee creating a first ranking Security Interest over the assets and

undertakings required to be covered by the Security Trustee in accordance with

the terms hereof;

DOLLARS



AND



$



means



the



lawful



currency



of



the United States of America;



DRAWING DATE means a Business Day upon which the Advance is to be made as set

forth in the Drawing Notice relating thereto or is made on or before July 2,

1998;

DRAWING NOTICE means a notice of drawing substantially in the form set out in

Schedule 2 duly completed and signed by the Borrowers and the Borrowers' Agent;

- 2

ENVIRONMENT

(i)



means:



any land including, without limitation, surface land and sub-surface

strata, sea bed or river bed under any water (as defined in paragraph

(ii) below) and any natural or man-made structures;



(ii) water including, without limitation, coastal and inland waters,

surface waters, ground waters and water in drains and sewers; and



(iii)air including, without limitation, air within buildings and other

natural or man-made structures above or below ground;

ENVIRONMENTAL CLAIM means any claim from any third party, governmental authority

or agency or any regulatory body, notice of violation, prosecution, demand,

action, abatement or other order, relating to Environmental Matters and any

notification or order requiring compliance with the terms of any Environmental

Licence or Environmental Law;

ENVIRONMENTAL LAW includes, in relation to any member of the Consolidated Group,

all or any laws, statutes, regulations, treaties, and judgments of any

governmental authority or agency or any regulatory body in any jurisdiction in

which that member of the Consolidated Group is formed or carries on business

relating to Environmental Matters applicable to it and/or any other activities

from time to time carried on by it and/or the occupation or use of any property

owned, leased or occupied by it as in force from time to time;

ENVIRONMENTAL LICENCE means, in relation to any member of the Consolidated

Group, any permit, licence, authorisation, consent or other approval required at

any time by any Environmental Law for the business from time to time carried on

by it as in force from time to time;

ENVIRONMENTAL MATTERS means (i) any release or threatened release, generation,

deposit, disposal, keeping, treatment, transportation, transmission, handling or

manufacture of any waste or any Substance; (ii) nuisance, noise, defective

premises, health and safety at work or elsewhere; and (iii) the pollution,

conservation or protection of the Environment or of man or of any living

organisms supported by the Environment;

EVENT OF DEFAULT means any of the events mentioned in clause 13.1 upon the

expiration of any applicable cure or grace period set forth therein;

FACILITY means the advance facility the terms and conditions of which are set

out in this Agreement;

FACILITY



MARGIN



means



4.0



percent



per



annum.



- 3

FACILITY OFFICE means, in relation to any Lender, the office listed in Schedule

1, or such replacement office as any Lender nominates in accordance with the

terms of this Agreement;

FINAL MATURITY DATE in respect of the Total Outstandings in the amount of

$20,702,500 plus all capitalised interest hereunder means the date falling 364

calendar days after the date of this Agreement (unless extended as set forth in

this definition) or if such day is not a Business Day the immediately preceding

Business Day. At any time after the date falling ten months after this Agreement

the Borrowers' Agent, by giving the Agent not less than thirty Business Days nor

more than 60 days notice thereof, may request the Lenders to extend the Final

Maturity Date by 180 days or less (the FIRST EXTENSION DATE) commencing on the

date of such request to the Agent. If the Final Maturity Date is so extended,

the Borrowers' Agent may request further extensions of the Final Maturity Date

of up to 180 days each by giving notice to the Agent thereof not less than

thirty Business Days nor more than 60 days following the expiration of each

three-month interval following the First Extension Date and during the

then-current Availability Period. No extension of the Final Maturity Date shall

be binding unless and until notified in writing to the Borrowers' Agent by the

Agent, and shall not be binding on any Lender unless accepted by such Lender, in

its sole discretion, by written notice thereof to the Agent. The Obligors

acknowledge that any extension of the Final Maturity Date may be conditioned

upon the acceptance by the Obligors of certain financial covenants then required

by the Lenders;



FINAL MATURITY DATE in respect of the Total Outstandings in excess of the amount

of $20,702,500 plus all capitalised interest hereunder means the date falling

544 days after the Closing Date or such earlier date as may be agreed between

the Agent and the Borrowers' Agent;

FINANCING DOCUMENTS means this Agreement, the Share Pledges, the Security Trust

Deed, the Guarantor Accession Deeds, the Debentures, the Amni Guarantee, the

Warrant and any other agreement or document executed pursuant to this Agreement

which is expressed therein to be a Financing Document;

GUARANTOR means each of the Borrowers, any of the Original Guarantors and any

Additional Guarantor as shall accede to this Agreement pursuant to clause

12.2(j) in each case, so long as they remain Guarantors and as the context

requires, together the Guarantors;

GUARANTOR ACCESSION DEED means in respect of an Additional Guarantor a deed

substantially in the form set out in Schedule 5 with such amendments as the

Agent may approve or reasonably require duly executed on behalf of the proposed

Additional Guarantor, the Borrowers' Agent and the Agent;

INTELLECTUAL PROPERTY means all letters patent, trade marks, service marks,

designs, utility models, copyrights, design rights, applications for

registration of any of the foregoing and rights to apply for them in any part of

the world, moral rights, inventions, confidential information, know-how and

rights of like nature arising or subsisting anywhere in the world in relation to

any of the foregoing, whether registered or unregistered and the benefit of all

licences and other rights to use any of the same now or hereafter owned by or

otherwise belonging to any Obligor;

- 4

INTEREST ADJUSTMENT means the amount of interest plus Facility Margin equal to

the difference between the interest and Margin calculated in accordance with

clause 6.2 (a) and (b) less the interest and Facility Margin which would have

been payable hereunder if the Total Outstandings hereunder were $20,702,500.

INTEREST

Period;



PAYMENT



DATE



means,



for



any



Advance,



the last day of an Interest



INTEREST PERIOD means, for any Advance, the period determined in accordance with

clause 6.1;

JOINT VENTURE DOCUMENTS means the Joint Venture Agreement dated November 27,

1996 between Optimum Petroleum Development Limited and Agbara Resources Limited

(Nigerian Oil Prospecting License 310); the Purchase and Sale Agreement between

Addax Petroleum Benin Limited and Abacan Resources (Benin) Ltd. dated July 21,

1997; Contrat pour l'Exploration et l'Exploitation P troli res, Bloc Offshore

Profond No. 4 dated February 1, 1997 between Addax Petroleum Benin, Abacan

Resource Limited (Benin), and the Government of Benin; Contrat pour

l'Exploration et l'Exploitation P troli res, Bloc Offshore No. 1 et SEME dated

February 2, 1997 between Addax Petroleum Benin, Abacan Resource Limited (Benin),

and the Government of Benin; and Joint Venture Agreement dated March 8, 1998

(Nigerian Oil Prospecting License (OPL) 309) between Liberty Technical Services

Limited and Yinka Folawiyo Petroleum Company Limited; and the Joint Venture

Agreement dated June 30, 1998 between Liberty Technical Services Limited and

Amni International Petroleum Development Company Limited, in each case as

amended, modified, extended or renewed;

LENDERS means those of the banks listed in Schedule 1 and their respective

successors and any permitted transferees or assigns which are for the time being

participating in the Facility;

LICENCES means, in relation to any member of the Consolidated Group, any public

law permits for the carrying out of its business together with any other public

law or administrative law consents, concessions, licences or public law permits

required for the carrying out of any such business (including planning consents



and



licences);



MAJORITY LENDERS means Lenders whose Outstandings then aggregate more than 66.66

per cent. of the Total Outstandings;

MATERIAL ADVERSE EFFECT has the meaning asc

ribed thereto in clause 11.1 (c);

MATERIAL ENVIRONMENT CLAIM means any Environmental Claim which would, if

adversely decided, entitle any person to shut down or suspend all or any

material part of the business of any member of the Consolidated Group, or result

in any cost, claim, liability, expense or damages in excess of $1,000,000 to be

suffered or incurred by any member of the Consolidated Group or otherwise have a

Material Adverse Effect upon the business, properties, results of operations or

financial condition of any member of the Consolidated Group;

- 5

MOPU AGREEMENT means the agreement executed or to be executed pursuant to Clause

4.1(i) between Sedco Forex, Inc. and the Security Trustee in respect of the

Mobile Offshore Production Unit referred to therein in substantially the form of

Schedule 7;

OBLIGOR means the Borrowers and the Guarantors or as the context requires any of

them;

OIL AND

produced



GAS means any and all liquid and gaseous hydrocarbons and each of them

and to be produced from the Oil Properties;



OIL AND GAS DEVELOPMENT AGREEMENT means any agreement (other than a Joint

Venture Document) now or hereafter entered into between any of the Borrowers or

Guarantors or any Subsidiary of any of them pursuant to the terms of which such

person directly or indirectly participates with any other person in any capital

investment or joint ownership or profit sharing arrangement in respect of any

Oil or Gas Property or any related pipeline or other transport facility or

equipment, power generating plant, Oil and Gas Sale agreement, or power sale

agreement and such agreement may reasonably be expected to have a material

benefit for or impose any material obligation upon such Borrower or Guarantor or

Subsidiary;

OIL AND GAS PARTNER means each party (other than an Obligor) which is a party to

any Joint Venture Agreement or Oil and Gas Development Agreement;

OIL AND GAS PROPERTIES means each of the concessions, operating licenses, oil

mining leases and other interests referred to in any of the Joint Venture

Documents or Oil and Gas Development Agreements and any other concession,

operating license, oil mining license, or similar agreement or interest in which

any Obligor or Subsidiary of any Obligor has direct or indirect interest or

participation and which interest could reasonably be expected to have a material

benefit to such Person;

OUTSTANDINGS means, in relation to a Lender, its aggregate participation in the

Advance then outstanding;

PERMISSIONS means, in relation to any member of the Consolidated Group, any

consents, concessions, contractual licences or permits required for the carrying

out of any of its business;

PERMITTED PURPOSE means any purpose for which the proceeds of the Advance may be

used in accordance with and subject to the terms of this Agreement;

PERMITTED

(a)



SECURITY



INTEREST



means:



a lien or right of set-off arising in the normal course of trading or by

operation of law securing obligations not more than thirty days overdue and



liens for taxes not yet due and payable;

(b)



any conditional sale or title retention arising under or pursuant to any

contract for the purchase or leasing of goods in the normal course of

trading;



- 6

(c) the Security Interests existing as at the date of this Agreement details of

which have been disclosed in writing to the Agent;

(d)



Security Interests incurred or deposits made in the ordinary course of

trading to secure the performance of tenders, statutory obligations, bids,

leases,

government

contracts,

performance

bonds, fee and expense

arrangements with trustees and fiscal agents and other similar obligations

(exclusive of obligations incurred in connection with Borrowings);



(e)



any Security Interest created or permitted to subsist with the prior

written consent of the Majority

Lenders,

such consent not to be

unreasonably withheld in circumstances where in the opinion of the Majority

Lenders the interests of the Lenders are reasonably protected after taking

into account the reasonable requirements of the Obligors to develop their

assets,;



(f)



any Security Interest over any asset acquired by any member of the

Consolidated Group, if such acquisition is not prohibited pursuant to the

terms hereof, as security for any Borrowings which are incurred solely to

finance all or part of the acquisition cost of that asset;



(g)



any Security Interest securing Borrowings incurred to refinance other

Borrowings permitted to be secured pursuant to any of the paragraphs (a) to

(f) above provided that the replacement Security Interest does not cover

any assets other than the original assets subject to the original Security

Interest and that the aggregate principal amount secured thereby is not

increased;



(h)



any Security Interest created after the date hereof (other than Security

Interests permitted under paragraphs (a) to (g) above) and securing

indebtedness in aggregate for the Consolidated Group not exceeding $250,000

(or its equivalent at the Agent's Spot Rate of Exchange); and



(i)



any Security Interest now or hereafter created in favour of the Security

Trustee under or subject to the Security Trust Deed;



(j)



any Security Interest granted for the benefit of Amni International

Petroleum Development Company Limited in the interest acquired pursuant to

a Joint Venture Agreement with Liberty dated June 30, 1998 with the written

consent of the Agent securing the reimbursement obligations of Liberty to

Amni International Petroleum Development Company Limited in respect of

amount paid by Amni International Petroleum Development Company Limited to

the Security Trustee under the Amni Guarantee;



(k)



any Security Interest in respect of taxes payable by any Obligor in respect

of its interest in OPL 237 and OML 112 (other than in respect of the Deep

Rights as defined in the Joint Venture Agreement referred to in paragraph

(j) above); and



- 7

(l) any Security Interest in favour of the Security

Financing Document.



Trustee created under any



POTENTIAL EVENT OF DEFAULT means any event which with the giving of notice,

lapse of time or making of any determination specified in clause 13.1 may

constitute (after the expiration of any applicable grace or cure period set



forth



therein)



an



Event



of



Default;



REFERENCE BANKS means, subject to clause 6.6, the principal London office of

each of The Chase Manhattan Bank, ABN Amro Bank N.V., and Credit Suisse First

Boston, and any replacement Lender nominated under that clause;

SECURITY INTEREST means any mortgage, charge, pledge, lien, right of set-off,

assignment by way of security, retention of title or any security interest

whatsoever or any other agreement or arrangement having the effect of conferring

security, howsoever created or arising;

SECURITY TRUST DEED means the security trust deed dated of even date herewith

between the Borrowers, the Guarantors, Credit Suisse First Boston as Agent,

Credit Suisse First Boston as Security Trustee and others as the same may be

amended from time to time;

SHARE PLEDGES means the pledges executed or to be executed by the Borrowers and

Guarantors pursuant to clause 4.1(f) in favour of the Security Trustee creating

a first ranking Security Interest over the common stock of each of the Borrowers

(other than ARC) and each Guarantor;

SUBSTANCE means (i) any radioactive emissions, (ii) electricity and any

electrical or electromagnetic emissions and (iii) any substance whatsoever,

(including but not limited to any "hazardous substances" under the Comprehensive

Environmental Response, Compensation and Liability Act of 1990 of the United

States of America, sections 964 - 965 and whether in solid or liquid form or in

the form of a gas or vapour, and whether alone or in combination with any other

substance) which is generally considered or known to be harmful to man or any

other living organism supported by the Environment or damaging to the

Environment or public health or welfare;

TAX means any present or future tax, impost, duty, levy or charge of a similar

nature payable to or imposed by any supra-national, governmental, federal,

state, provincial, local governmental or municipal taxing authority, body or

official (together with any related penalties, fines, surcharges and interest);

TIL



means



Total



International



Limited,



a



Bermuda



limited



company;



TOTAL COMMITMENTS means at any time the aggregate amount of all the Commitments

in respect of all the Lenders;

TOTAL OUTSTANDINGS means at any time the aggregate amount of all Outstandings in

respect of all the Lenders;

- 8

TRANSFER

pursuant



CERTIFICATE means

to clause 19.1;



a



TRANSFEREE has the meaning

WARRANT means an agreement

entered into in accordance

1.2

FINANCIAL DEFINITIONS:

otherwise requires:



certificate in the form of Schedule 4 delivered

ascribed thereto in clause 19.1; and

in the form of Schedule 8 entered into or to be

with clause 4.1(l).

In



this



Agreement



except



where



the context



ACCOUNTS means the Reference Accounts and any other audited or unaudited

accounts of the Borrowers whether or not consolidated, delivered or required to

be delivered by the Borrowers to the Agent in accordance with this Agreement;

but so that if the Reference Accounts and other Accounts prepared in respect of

the same period are in conflict in any way, the Reference Accounts shall

prevail;

ACCOUNTING PRINCIPLES means the accounting principles, standards, conventions

and practices complying with generally accepted accounting principles in the



United States of America which are generally adopted and practised by companies

in the United States of America or otherwise with the prior written consent of

the Agent;

BORROWINGS



means



and



includes



as



at



any



date:



(a)



all moneys borrowed (with or without security) or raised by way of debt

finance by the Borrowers or any other member of the Consolidated Group;



(b)



receivables sold, assigned or discounted (save to the extent that the same

are sold, assigned or discounted without recourse);



(c)



the acquisition cost

time of acquisition

advance or deferred

finance or financing



(d)



any obligation under any lease which is required to be

Accounting Principles;



(e)



the net exposure

on termination

any derivative

financial effect



(f)



the principal amount raised by the Borrowers or any other member of the

Consolidated Group by acceptances (not being acceptances in relation to the

purchase of goods or services in the ordinary course of trading which have

been outstanding for 180 days or less) or under any acceptance credit

opened on its behalf by a bank or accepting house;



of any asset to the extent payable before or after the

and possession by the party liable therefor where the

payment is arranged primarily as a method of raising

the acquisition of that asset;

capitalised



under



(meaning the amount payable by the party liable thereunder

or closing out determined on a marked to market basis) of

transactions entered into which have the commercial or

of any Borrowing set out within this definition;



- 9

(g) the principal amount (including any fixed or minimum premium payable on

final redemption or repayment) of any notes, bonds, debentures, loan stock

or other

securities of the Borrowers or any other member of the

Consolidated Group; and

(h)



any guarantee, indemnity or similar assurance against the Borrowings of any

person;



but



excluding:



(i)



any Borrowings by the Borrowers or any other member of the Consolidated

Group which would otherwise be taken into account and are intended to be

applied in the repayment of the whole or part of any other moneys taken

into account as Borrowings pending such application provided that they are

so applied within three months of their being so borrowed; or



(k)



amounts which would otherwise be taken into account which are for the time

being owing by any member of the Consolidated Group to any other member of

the Consolidated Group;



and



so



(l)



no amount shall

calculation; and



(m)



when the aggregate amount of Borrowings required to be taken into account

for the purpose of this paragraph on any particular day is being

ascertained, any such Borrowings denominated or repayable in a currency

other than dollars shall be converted for the purpose of calculating the

dollar equivalent at the Agent's Spot Rate of Exchange on that day for the

purchase of that currency with dollars;



that:

be



taken



into



account



more



than



once



in the



same



CURRENT ASSETS means, as at the date on which it falls to be determined, the

aggregate consolidated amount of all assets of the Consolidated Group realisable

in the ordinary course of business within 12 months of such date as shown in the

Accounts for the Calculation Period during which such date falls and determined

in accordance with the Accounting Principles (for the avoidance of doubt, all

intercompany receivables having been eliminated in determining the consolidated

amount of all such assets);

CURRENT LIABILITIES means, as at the date on which it falls to be determined,

the aggregate consolidated amount of all liabilities of the Consolidated Group

payable within 12 months of such date as shown in the Accounts for the

Calculation Period during which such date falls and determined in accordance

with the Accounting Principles;

- 10

INTEREST CHARGES means the aggregate interest paid or payable by the

Consolidated Group (including guarantee commission and any other commitment,

arrangement and similar fee in respect thereof, amounts in the nature of

interest, discount charges, the interest element of rental under finance leases)

on Borrowings less interest received during the relevant period (excluding in

either case amounts paid or received intra Consolidated Group) and determined in

accordance with the Accounting Principles;

OIL AND GAS DEVELOPMENT EXPENSES means the aggregate of all expenses (including

capital expenditures) incurred in respect of any Joint Venture Document, Oil and

Gas Development Agreement or Oil and Gas Property (without duplication) as

stated in the Accounts for the relevant period and determined in accordance with

the Accounting Principles; and

REFERENCE ACCOUNTS means, at any time, the audited combined consolidated profit

and loss account and balance sheet of the Consolidated Group most recently

delivered by the Borrowers to the Agent in accordance with clause 12.1 (b).

1.3

CONSTRUCTION: Except where the context otherwise requires, any reference

in this Agreement to:

the AGENT,

transferees



and

and



the SECURITY

assigns;



TRUSTEE



include



its



successors and permitted



an AGREEMENT also includes a concession, contract, deed, franchise, licence,

treaty or undertaking (in each case, whether oral or written);

the ASSETS of any person shall be construed as a reference to the whole or any

part of its business, undertaking, property, assets and revenues (including any

right to receive revenues);

CONTROL means the ability, directly or indirectly, to appoint and/or remove all

or the majority of the board of directors or management committee of the person

or otherwise to direct its affairs in any material respect;

DERIVATIVE TRANSACTION includes any rate swap transaction, basis swap, forward

rate transaction, commodity swap, commodity option, equity linked swap, equity

or equity index option, bond option, interest rate option, foreign exchange

transaction, cap transaction, floor transaction, collar transaction, currency

swap transaction, currency option, spot or spot deferred oil or gas transaction,

forward oil or gas transaction, oil or gas option, oil or gas lease, loan or

consignment, EFP (exchange for physical), oil or gas swap, oil or gas forward

rate transaction or any other similar transaction (including any option with

respect to any of these transactions) or any combination of any of the foregoing

transactions;

a FINANCING DOCUMENT

supplements thereto;



or other agreement includes any amendments, novations or



a GUARANTEE also includes any other obligation (whatever called) of any person

to pay, purchase, provide funds (whether by way of the advance of money, the



purchase of or subscription for shares or other securities, the purchase of

assets or services, or otherwise) for the payment of, indemnify against the

consequences of default in the payment of, or otherwise be responsible for, any

indebtedness of any other person;

- 11

INDEBTEDNESS means any obligation (whether present or future, actual or

- -contingent, secured or unsecured, as principal or surety or otherwise) for the

payment or repayment of money;

a LAW includes common or customary law and any constitution, decree, judgment,

legislation, order, ordinance, regulation, statute, treaty or other legislative

measure in any jurisdiction or any present or future directive, regulation,

request or requirement (in each case, whether or not having the force of law

but, if not having the force of law, the compliance with which is in accordance

with the general practice of persons to whom the directive, regulation, request

or requirement is addressed);

a PERSON includes any corporation, association, partnership or other entity and

includes its successors and permitted transferees and assigns;

a provision of law is a reference to that provision as amended or re-enacted;

SUBSIDIARY in relation to any person means (i) any corporate entity of which

more than 50 per cent of the issued share capital or voting rights in relation

thereto is -owned directly or indirectly by such person and/or one or more

subsidiaries of such person or (ii) any corporate entity which is controlled by

such person;

references to a TIME OF DAY are to London time; headings and the table of

contents are for ease of reference only.

AMOUNT



AND



PURPOSE



2.1

AMOUNT: In accordance with the provisions of this Agreement, the Lenders

shall make an Advance to the Borrowers. The maximum aggregate principal amount

of the Facility is $30,702,500 (thirty million seven hundred two thousand five

hundred dollars).

2.2

PURPOSE: The Facility shall be used only for the purpose of refinancing

certain obligations of the Borrowers to Total pursuant to the Prepayment

Agreement between Liberty and TIL dated July 29, 1997, as amended April 6, 1998,

and to secure the release of the guarantees made by ARC and Dahomey to TIL dated

July 20, 1997 in respect of the obligations of Liberty under the aforesaid

Prepayment Agreement.

SYNDICATE



AND



BORROWERS



3.1

PARTICIPATION: Subject to the provisions of this Agreement, each of the

Lenders shall participate in the Advance under the Facility in the proportion

which its Commitment bears to the Total Commitments up to an aggregate principal

amount not exceeding its Commitment.

3.2 OBLIGATIONS

(a)



SEVERAL:



In



participating



in



the



Facility:



the rights and obligations of each of the Lenders under the Financing

Documents are several. Failure of a Lender to perform its obligations under

the Financing Documents shall neither:

- 12 -





(i)



result in the Agent, the Security Trustee or any Lender incurring any

liability whatsoever; nor



(ii) relieve the Agent, the Security Trustee, any Obligor or any Lender

from their respective obligations under the Financing Documents; and

(b)



3.3

joint



the aggregate of the amounts due to each Lender under the Financing

Documents at any time is a separate and independent debt and subject to

clause 13.2 each Lender shall have the right to protect and enforce its

rights under the Financing Documents and it shall not be necessary (except

as otherwise provided in the Financing Documents) for any other Lender or

the Agent to be joined as an additional party in any proceedings to this

end.

LIABILITY OF

and several.



BORROWERS: The obligations of each Borrower hereunder are



3.4

BORROWERS' AGENT: Each Obligor irrevocably authorises and instructs the

Borrowers' Agent to give and receive as agent on its behalf all notices and take

such other action (including, without limitation, the giving of consents, the

signing of certificates or the acceptance of any proposal) as may be necessary

or desirable under or in connection with the Financing Documents and confirms

that it will be bound by any action taken by the Borrowers' Agent under or in

connection with the Financing Documents.

3.5

Actions of

Obligors hereunder



Borrowers' Agent: The respective liabilities of each of the

shall not be in any way affected by:



(a)



any irregularity in any act done by or any failure to act by the Borrowers'

Agent;



(b)



the Borrowers' Agent acting in any respect outside any authority

upon it by any Obligor; and



(c)



the failure by or inability of the Borrowers' Agent to inform any Obligor

of receipt by it of any notification hereunder. CONDITIONS PRECEDENT



conferred



4.1

CONDITIONS TO THE FACILITY: The Facility shall become available on the

date upon which the Agent has notified the Borrowers' Agent that it received the

following documents dated not more than two days before the Drawing Date or such

earlier date as the Agent may in its discretion accept and in each case in form

and content satisfactory to the Agent:

(a)



a certificate signed by 2 directors of each of the Borrowers substantially

in the form set out in Part I of Schedule 3 and the documents therein

referred to;



(b)



a certificate in respect of each of the Original Guarantors signed by 2

directors of each of the Original Guarantors substantially in the form set

out in Part II of Schedule 3 and the documents therein referred to;



- 13

(c) opinions of the Obligors' independent legal counsel in each jurisdiction in

which an Obligor is incorporated opining as to the due execution of each of

the Financing Documents;

(d)



a letter from Ogilvie and Company describing and listing each of the Oil

and Gas Development Agreements and each of the Oil and Gas Properties of

which such firm has any knowledge or information in form and substance

satisfactory to the Agent;



(e)



a certified copy of the Joint Venture Documents and Oil and Gas Development

Agreements now in effect (including without limitation any agreements

referred to in the letter described in paragraph (d) above), and in each

case any agreements ancillary thereto in each case duly executed by all the

parties thereto, and up to date copies as at the date not more than 10 days

before the Drawing Date together with all consents, resolutions, documents



and other matters necessary for the effectiveness of the same and

appropriate

evidence that each has become wholly unconditional and

effective and none of the conditions precedent thereto has been waived

without the consent of the Lenders;

(f)



an executed copy of each of the Share Pledges, together with the share

certificates representing 100 per cent of the common stock of each of

Liberty, Dahomey and each Guarantor in the name of the respective Guarantor

or Borrower which is the pledgor under the respective Share Pledge and any

other documents required to be delivered pursuant thereto;



(g)



an executed copy of two Debentures issued by West African Resource

Corporation (each in respect of Concession 309), an executed copy of a

Debenture issued by Agbara Resources Limited in respect of Concession 310),

and an executed copy of a Debenture issued by Liberty in respect of OPL 237

and OML 112 (Deep Rights) in form and content satisfactory to the Agent;



(h)



an executed copy of the Security Trust Deed;



(i)



an executed copy of the MOPU Agreement and the Amni Guarantee;



(j)



an executed copy of a Certificate issued by Yinka Folawiyo

Company Limited in form and content satisfactory to the Agent;



(k)



an executed copy of a Certificate

of Part III of Schedule 3; and



(l)



an executed copy of the Warrant.



Petroleum



signed by each ARC Director in the form



4.2

NOTICE: The Agent shall promptly notify each of the Lenders and the

Borrowers' Agent after it has received all documents and confirmations required

pursuant to clause 4.1.

- 14

4.3

CONDITIONS TO THE ADVANCE: The Advance is subject to the further

conditions precedent that both on the date of the Drawing Notice and on the

Drawing Date no Event of Default or Potential Event of Default has occurred or

would occur as a result of making the Advance.

DRAWDOWN



OF



THE



ADVANCE



5.1

DRAWDOWN: Subject to the provisions of this Agreement,

Agent may on Business Days during the Availability Period draw

delivering to the Agent no later than 10.00 am (London time) a

Drawing Notice in the form set out in Schedule 2, specifying in

proposed Advance:



the Borrowers'

the Advance by

duly completed

respect of the



(a)



the proposed Drawing Date, which shall be a Business Day;



(b)



the amount of the Advance, which shall not exceed $30,702,500; and



(c)



the Interest Period which shall be for successive periods of three months

provided that the final Interest Period shall coincide with the Final

Maturity Date.



5.2

IRREVOCABILITY: A Drawing Notice shall be irrevocable and, subject to

the provisions of this Agreement, the Borrower named therein shall draw the

Advance on the Drawing Date specified in the Drawing Notice.

5.3

NOTICE TO LENDERS: Subject to clause 4.3, when the Agent actually

receives a Drawing Notice pursuant to clause 5.1, it shall notify each of the

Lenders of the amount of the proposed Advance and the proposed Drawing Date and

each Lender shall, subject to the provisions of this Agreement, make available

to the Agent on the Drawing Date its participation in that Advance.



INTEREST

6.1

DURATION OF PERIODS: The

duration of Interest Periods:



following



provisions



shall



apply



to the



(a)



the Interest Period for each Advance shall commence on the date of that

Advance and end on the date determined in accordance with and subject to

clause 5.1(c); and



(b)



an Interest Period which would otherwise end on a day which is not a

Business Day shall end on the next succeeding Business Day unless the

result of such extension would be that such Interest Period would end on a

day in the next following calendar month, in which event such Interest

Period shall end on the last preceding Business Day.



6.2

Period

Of

(a)



RATE:

shall



The rate of interest payable on an Advance for each Interest

be the rate per annum determined by the Agent to be the aggregate



the applicable Facility Margin; and

- 15 -





(b) (i)



the rate which appears on the display designated as the British

Bankers Association's Interest Settlement Rate as quoted on page 3750

of the Dow Jones/Telerate Monitor for dollars (or such other page or

service as may replace page 3750 on such system for the purpose of

displaying London Inter-bank offered rates for dollars of leading

banks, from time to time) as at 11.00 a.m. (London time) on the second

Business Day before the commencement of that Interest Period; or



(ii) if no such display rate is then available for dollars, the arithmetic

mean (rounded to four decimal places with the mid-point rounded up) of

the rates notified to the Agent at its request by each of the

Reference Banks as the rate at which deposits in dollars are offered

for the same period as that Interest Period by that Reference Lender

to leading banks in the London Inter-bank market at or about 11.00

a.m. (London time) on the second Business Day before the commencement

of that Interest Period; less

(c)



the Interest Adjustment.



6.3

PAYMENT: Interest under this Agreement shall accrue from the date the

Advance is made and shall be calculated on the basis of actual days elapsed (not

counting within an Interest Period the last day of that Interest Period) and a

year of 360 days and shall be paid on the Advance by the Borrower to the Agent

for the account of the Lenders in arrears on each Interest Payment Date in

dollars.

6.4

AGENT'S CERTIFICATE: The Agent shall notify the Borrowers' Agent and

each of the Lenders of the rate of interest as soon as it is determined under

this Agreement. The certificate of the Agent as to a rate of interest shall, in

the absence of manifest error, be conclusive.

6.5

FAILURE OF REFERENCE BANK: If any Reference Bank for any reason fails to

notify to the Agent the rate referred to in clause 6.2(b)(ii), subject to clause

10.3(d), the rate of interest shall be determined on the basis of the rates

notified to the Agent by the remaining Reference Lenders.

6.6

NEW REFERENCE BANK: If any Reference Bank ceases to provide rates at

which deposits in dollars are offered to leading banks in the London interbank

market:

(a)



it shall cease to be a Reference Bank; and



(b)



the Agent shall, with the approval (which shall not be unreasonably

withheld or delayed) of the Borrowers' Agent, nominate as soon as

reasonably practicable another Bank to be a Reference Bank in place of such

Reference Bank. REPAYMENT



7.1

REPAYMENT OF ADVANCES: The Borrowers shall on the Final Maturity Date

repay the Advance to the Agent for the account of the Lenders in accordance with

clause 9.1.

- 16

7.2



NETTING



OFF:



If



on



the



Drawing



Date:



(a)



a Lender is required to participate in an Advance; and



(b)



a payment is due to that Lender pursuant to this clause 7, then the Agent

shall (without prejudice to the Borrowers' obligation to make the payment

in question pursuant to this clause 7 prior to any application pursuant to

this clause and without prejudice to the Borrowers' remaining obligation in

relation to such payment after any such application) apply any amount

payable by such Lender to that Borrower on the Drawing Date in or towards

satisfaction of the amount payable by that Borrower to such Lender on such

Drawing Date pursuant to this clause 7.



7.3

Fees: In order to induce the Lenders to make the Advance hereunder the

Borrowers will pay to the Agent for the account of the Lenders a Facility Fee in

the amount of $500,000 on June 29, 1999 or such earlier date upon which the

Total Outstandings are repaid in full.

PREPAYMENT

8.1

PREPAYMENT: The Borrowers' Agent may at any time and from time to time,

serve a notice of prepayment through the Agent in respect of all or any portion

of the Advance provided that the minimum principal amount of the Advance prepaid

shall be $1,000,000 and the principal amount of any prepayment shall be in an

integral multiple of $500,000. On the date falling 5 Business Days after the

date of service of the notice, the Borrowers shall prepay the principal amount

designated in such notice. On prepaying the Advance under this clause, the

Borrowers shall pay to the Agent for the account of the Lenders accrued interest

together with all other amounts due to the Lenders in respect of such Advance

(including, without limitation, any sum payable under the indemnity contained in

clause 14.1 (a)).

PAYMENTS

9.1

MECHANICS:

payments:



The



following



provisions



shall



apply



to



the



making of



(a)



all payments by an Obligor or a Lender under this Agreement shall be made

to the Agent to its account at such office or Lender as it may notify in

writing to the Borrowers' Agent or the Lenders;



(b)



payments under this Agreement to the Agent shall be made in dollars for

value on or before 10.00 a.m. (London time) on the due date;



(c)



each payment received by the Agent under this Agreement for another person

shall, subject to paragraph (d) below, be made available by the Agent to

that person by payment (on the date and in the currency and funds of

receipt) to that person's account with such office or Lender in the

principal center of the country of the relevant currency as it may notify

to the Agent for this purpose by no less than 5 Business Days' prior

notice; and



- 17

(d) the Agent is not obliged to make payment under paragraph (c) above until it



has actually received the corresponding sum. If the Agent makes available

to a person any amount which has not been made unconditionally available to

the Agent and that amount is not actually and unconditionally made

available, the person concerned shall forthwith on notice from the Agent

repay that amount to the Agent together with interest on the amount until

its repayment at a rate determined by the Agent to reflect its cost of

funds.

9.2

NO SET-OFF OR COUNTERCLAIM: All payments made by an Obligor under this

Agreement shall be made without set-off or counterclaim.

9.3

WITHHOLDINGS: All payments by an Obligor under this Agreement, whether

in respect of principal, interest, fees or any other item, shall be made in full

without any deduction or withholding in respect of Tax or otherwise (other than

a Tax imposed on the overall net income of a Lender's Facility Office by the

jurisdiction in which such Lender is incorporated or in which the Facility

Office is located (an EXCLUDED TAX)) unless the deduction or withholding is

required by law, in which event the Obligor shall:

(a)

amount



ensure that the deduction

legally required;



or withholding does not exceed the minimum



(b)

forthwith pay to the Agent for the account of each Lender such

additional amount so that the net amount received by that Lender will equal the

full amount which would have been received by it had no such deduction or

withholding in respect of Tax (other than an Excluded Tax) been made;

(c)

pay to the relevant taxation or other authorities within the period for

payment permitted by applicable law the full amount of the deduction or

withholding (including, but without prejudice to the generality of the

foregoing, the full amount of any deduction or withholding from any additional

amount paid pursuant to this sub-clause); and

(d)

period



furnish to the Agent

for payment permitted



on

by



behalf of the Lender concerned, within the

the relevant law, either:



(i)

an official receipt of the relevant taxation or other authorities

involved in respect of all amounts so deducted or withheld; or

(ii)

if such receipts are not issued by the taxation or other authorities

concerned on payment to them of amounts so deducted or withheld, a certificate

of deduction or equivalent evidence of the relevant deduction or withholding.

- 18

If any deduction or withholding in respect of Tax or otherwise is required to be

made by the Agent in respect of any payment under this Agreement, the Obligor

concerned shall take the action referred to in paragraph (b), the certificate of

the Agent as to the amount required to be paid being conclusive, and the Agent

shall take the action referred to in paragraphs (a) and (c) and itself furnish

the documents referred to in paragraph (d).

9.4

TAX FORMS: Each Lender agrees, with respect to each Borrower and in

respect of its Facility Office for lending to such Borrower, in order to assist

such Borrower to secure the benefit of any available exemption for (or reduced

rate in respect of) any deduction or withholding for or on account of Taxes, it

shall, if requested in writing to do so by the Borrowers' Agent through the

Agent, as soon as practicable after receipt of such request, from time to time,

furnish such Borrower (at the expense of such Borrower) through the Borrowers'

Agent or the appropriate governmental or other authority, duly completed copies

of such certificates and documents as are necessary for such purpose.

9.5

amount

refund



TAX CREDITS: If and to the extent that any Obligor pays any additional

under clause 9.3(b) and any Lender receives and retains the benefit of a

of Tax or credit against Tax on its overall net income which is



identified by the Lender in its sole opinion as attributable to the tax that was

withheld or deducted (a TAX CREDIT), then that Lender shall reimburse to the

Obligor such amount as it shall determine in its absolute discretion so as to

leave that Lender, after that reimbursement, in no better or worse position than

it would have been in if payment of the relevant additional amount had not been

required. Each Lender shall have absolute discretion as to whether to claim any

Tax Credit and, if it does so claim, the extent, order and manner in which it

does so and in which reliefs and credits are to be regarded as used for these

purposes. No Lender shall be obliged to disclose any information regarding its

tax affairs or computations to any Obligor and its certificate as to the amount

to be reimbursed shall, in the absence of manifest error, be conclusive and

shall not be questioned by the Obligor.

9.6

DATE: If any payment would otherwise be due on a day which is not a

Business Day, it shall be due on the next succeeding Business Day unless the

result of such an extension would be that such payment would be due on a day in

the following calendar month, in which event such payment shall be due on the

last preceding Business Day.

9.7

with

(a)



DEFAULT INTEREST:

this Agreement:



If



a Borrower fails to pay any amount in accordance



the Borrower shall pay interest on that amount from the time of default up

to the time of actual payment (as well after as before judgment) at the

rate per annum which is the sum of

(i)



the Facility Margin plus two per cent; and



(ii) the rate (as determined by the Agent) for a deposit in dollars of an

amount comparable to the defaulted amount, offered to the Agent in the

London Inter-bank market, for such period as the Agent may from time

to time select, at or about 10.00 a.m. (London time) on the Business

Day succeeding that on which the Agent becomes aware of the default

for value two Business Days later;

- 19

(b) if an amount unpaid in accordance with this Agreement is of principal due

on a day during, but not the last day of, an Interest Period relating

thereto, the period selected by the Agent under clause 9.7(a) shall equal

the unexpired portion of the Interest Period and there shall be substituted

for the rate specified in clause 9.7(a) the rate of one per cent. above the

rate calculated in accordance with clause 6.2 and applicable to the unpaid

amount immediately before it fell due;

(c)



interest under this clause shall accrue daily on the basis of a year of 360

days from and including the first day to the last day of each period for

which a rate of interest is determined under this clause and shall be due

and payable by the Borrower at the end of each such period. So long as the

default continues, the rate referred to in clause 9.7(a) shall be

calculated on a similar basis at the end of each period selected by the

Agent and notified to the Lenders and interest payable under this

sub-clause which is unpaid at the end of each such period shall thereafter

itself bear interest at the rates provided in this sub-clause.



9.8

JUDGMENT CURRENCY: If, under any applicable law, whether as a result of

a judgment against an Obligor or the liquidation of an Obligor or for any other

reason, any payment under or in connection with this Agreement is made or is

recovered in a currency (the other currency) other than that in which it is

required to be paid hereunder (the original currency), then, to the extent that

the payment to any Lender (when converted at the rate of exchange on the date of

payment or, in the case of a liquidation, the latest date for the determination

of liabilities permitted by the applicable law) falls short of the amount unpaid

under this Agreement, the Obligor shall as a separate and independent

obligation, fully indemnify that Lender against the amount of the shortfall; and



for the purposes of this sub-clause rate of exchange means the rate at which the

Lender concerned is able on the relevant date to purchase the original currency

in London with the other currency.

9.9

CERTIFICATES: Any determination or notification by the Agent or any

Lender concerning any rate or amount under this Agreement shall, in the absence

of manifest error, be conclusive evidence as to that matter.

CHANGES IN CIRCUMSTANCES

10.1

ILLEGALITY: Where the introduction, imposition or variation of any law

or any change in the interpretation or application of any law makes it unlawful

or impractical without breaching such law for any Lender to allow all or part of

its participation in this Facility to remain outstanding or to fund all or part

of its participation in an Advance or to carry out all or any of its other

obligations under this Agreement or to charge or receive interest at the rate

applicable under this Agreement, upon that Lender notifying the Agent:

(a)



the Agent shall notify the Borrowers' Agent and that Lender's Commitment

shall forthwith be reduced to the extent necessary to cure such illegality;



- 20

(b) the Borrower shall, within 5 Business Days of being so notified (and only

to the extent necessary to cure such illegality), prepay to the Agent for

the account of that Lender that Lender's participation in the Advance and

any accrued interest thereon in accordance with the provisions of clause

8.1.

10.2

INCREASED COSTS: Where any Lender determines that the introduction or

variation of any law or any change in the interpretation or application of any

law or compliance with any request (whether or not having the force of law) from

any central bank or other fiscal, monetary or other authority or agency would

increase the cost, whether by loss of reliefs or other benefits that would

otherwise have been available or otherwise, to that Lender (or the holding

company of that Lender) of making or maintaining or funding that Lender's

Commitment or reduce the amount of any sum received or receivable by that Lender

in respect of its Commitment or oblige it (or its holding company) to make any

payment or suffer any cost or loss of relief or other benefits (except in

respect of tax on overall net income) or forego any interest or other return on,

or calculated by reference to, the amount of any sum received or receivable by

that Lender from an Obligor under this Agreement or reduce the effective return

to it (or its holding company) under this Agreement or on its (or its holding

company's) overall capital as a result of its entry into and/or compliance with

this Agreement, then:

(a)



that Lender shall notify the Borrowers' Agent through the Agent of such

event promptly upon its becoming aware of such event; and



(b)



such Obligor shall on demand pay, against evidence of the amount claimed,

to the Agent for the account of that Lender or its holding company such

amounts as that Lender from time to time and at any time notifies the Agent

to be necessary to compensate it, or its holding company, for such

increased cost, reduction, payment or foregone interest or return.



10.3



MARKET



DISRUPTION:



If,



in



relation



to



any



Advance:



(a)



the Agent (after consultation with the Reference Banks) determines that, by

reason of circumstances affecting the London Inter-bank market generally,

reasonable and adequate means do not or will not exist for ascertaining

under clause 6.2 a rate of interest applicable to an Advance; or



(b)



the Agent is notified by the Majority Lenders that deposits in dollars are

not in the ordinary course of business available in the London Inter-bank

market for a period equal to the forthcoming Interest Period in amounts

sufficient to fund their participations in an Advance; or



(c)



the Agent is notified by Lenders which are banks (the AFFECTED LENDERS)

whose Commitments aggregate more than 30 per cent. of the Total Commitments

that the arithmetic mean of the offered quotations or rates referred to in

clause 6.2(b) does not represent their effective cost of funding their

participations in such Advances during the forthcoming Interest Period; or



(d)



only one Reference Lender notifies a rate to the Agent in accordance with

clause 6.2(b)(ii), the Agent shall forthwith notify the Borrowers' Agent

and each Lender, and:

- 21 -





(e) no further

exist;



Advances



shall be made while such



circumstances



continue



to



(f)



unless within thirty days of the giving of the notice, the Borrowers' Agent

and the Agent (in consultation with the Lenders or, in the case of (c), the

Affected Lenders) arrive, by negotiation in good faith, at an alternative

basis acceptable to the Borrowers' Agent and the Lenders for continuing the

Facility or the participations of the Affected Lenders (and any alternative

basis agreed in writing shall be retroactive to and effective from the

commencement of the relevant Interest Period) the Commitments of the

Lenders or, in the case of (c), the Affected Lenders, shall be canceled and

the Borrowers shall prepay to the Agent for the account of the Lenders the

Total Outstandings or, in the case of (c), the participations of the

Affected Lenders, within 10 Business Days after the end of the 30 day

period with accrued interest payable to each Lender or Affected Lender, as

applicable, at a rate equal to the Facility Margin plus the aggregate of

the amounts certified by such Lender, and notified through the Agent to the

Borrowers' Agent, as being the cost to that Lender of continuing to fund

its Outstandings during the two periods referred to in this paragraph; and



(g)



while any agreed alternative basis is in force, the Agent in consultation

with the Lenders or, in the case of (c), the Affected Lenders, shall

periodically (but at least monthly) determine whether circumstances are

such that the basis is no longer necessary; and if the Agent so determines,

it shall forthwith notify the Borrowers' Agent and each Lender and that

basis shall cease to be effective on a date specified by the Agent after

consultation with the Lenders.



10.4



TAX:



If



and



to



the



extent



either:



(a)



an amount deducted or withheld from any payment, or an additional amount

payable for the account of any Lender by reason of a deduction or

withholding, pursuant to clause 9.3; or



(b)



an amount in respect of increased costs payable pursuant to clause 10.2, is

brought into account by a Lender as a receipt for the purposes of taxation

and proves inadequate, by reason of the absence of a credit, deduction or

other relief which is (in any case) immediately and effectively received,

fully and immediately to indemnify the relevant Lender on an after-tax

basis against the cost, payment, deduction or withholding in question; then

in either case the Obligor will on demand pay such further sum to the Agent

for the account of the Lender as is necessary to remedy the inadequacy.



- 22

10.5

MITIGATION: If a Lender becomes aware of circumstances that will or are

likely to lead to that Lender serving a notice under clause 10.1 or additional

amounts becoming payable under clause 10.2 or clause 9.3, that Lender shall

promptly notify the Agent accordingly, whereupon the Agent shall notify the

Borrowers' Agent and such Lender shall, without prejudice to the obligations of

any of the Borrowers, take such steps as are reasonably open to it to mitigate

the effects of those circumstances (including, without limitation, the transfer



of its rights and obligations hereunder to another Facility Office or to any

other bank or financial institution willing to assume its participation in the

Facility). Nothing in this clause imposes a legal obligation on any Lender to

take any steps that might be prejudicial to it or which might conflict with its

general banking policies.

10.6

CERTIFICATES AND INFORMATION: The certificate of the Agent or the

relevant Lender as to the amount that is payable under clause 10.2, 10.3 or 10.4

shall, in the absence of manifest error, be conclusive and nothing in this

clause 10 shall oblige any Lender to disclose any information regarding its

affairs or business to any Obligor.

REPRESENTATIONS



AND



WARRANTIES



11.1

ON SIGNING: Each Obligor acknowledges that each of the Lenders, the

Agent and the Security Trustee has entered into the Financing Documents, and

that the Security Trustee has consented to be Security Trustee in relation

thereto in each case in full reliance on representations by each Obligor in the

following terms, and each Obligor now represents and warrants to each of them in

respect of itself (and each of the Borrowers warrants and represents in relation

to the Consolidated Group in clauses 11.1 (g), (h), (i), (j) and (k)) that:

(a)



Status: it is duly incorporated with limited liability, validly existing

and in good standing, under the laws of its place of incorporation (except

where failure to be so qualified would not reasonably be expected to have a

Material Adverse Effect) and is duly qualified and authorised to do

business and is in good standing in each other jurisdiction in which the

conduct of its business requires it to be so qualified or authorised

(except where failure to be so qualified would not reasonably be expected

to have a Material Adverse Effect);



(b)



POWERS AND AUTHORISATIONS: the documents which contain or establish its

constitution include provisions which give power, and all necessary

corporate authority has been obtained and action taken, for it to own its

assets, carry on its business and operations as they are now being

conducted, to sign and deliver, and perform the transactions contemplated

in, the Financing Documents to which it is a party and the Financing

Documents to which it is a party constitute valid and binding obligations

on it enforceable in accordance with their terms;



(c)



NON-VIOLATION: neither the signing and delivery of the Financing Documents

to which it is a party nor the performance of any of the transactions

contemplated in any of them does or will contravene or constitute a default

under, or cause to be exceeded, any limitation on it or the powers of its

directors imposed by or contained in:

(i)



any law, rule, regulation, writ, order, determination

which it or any of its assets is bound or affected;



or award by



(ii) any document which contains or establishes its constitution; or

(iii)any agreement to which it or any of its subsidiaries is a party or by

which any of its or their assets is bound,

- 23

which default could be reasonably expected to have a material adverse effect on

the business, properties, results of operations or financial condition of the

Consolidated Group (a MATERIAL ADVERSE EFFECT);

(d)



Consents: no authorisation,

approval,

consent, licence,

exemption,

registration, recording, filing or notarisation and no payment of any duty,

charge or tax and no other action whatsoever is necessary or desirable to

ensure the validity,

legality,

enforceability

or priority of the

liabilities and obligations of it or the rights of the Lenders, the Agent



or the Security Trustee (or any of them) under the Financing Documents

except such authorizations, etc. as have been obtained or will be obtained

within 30 days following the Drawing Date;

(e)



NO DEFAULT: no event has occurred which constitutes, or which with the

giving of notice and/or the lapse of time and/or a relevant determination

would constitute, a contravention of, or default under, any Joint Venture

Document or Oil and Gas Development Agreement or any other agreement or

instrument by which it or any of its assets is bound or affected, being a

contravention or default which could reasonably be expected to have a

Material Adverse Effect or materially and adversely affect its ability to

observe or perform its obligations under the Financing Documents to which

it is a party except as disclosed in a certificate executed in accordance

with Clause 4.1(a) or (b);



(f)



LITIGATION: no litigation, arbitration or administrative proceeding or

claim which by itself or together with any other such proceedings or claims

could reasonably be expected to have a Material Adverse Effect or

materially and adversely affect its ability to observe or perform its

obligations under the Financing Documents to which it is a party, is

presently in progress or pending or, to the knowledge of any Obligor,

threatened against it or any of its assets except as disclosed in a

certificate executed in accordance with Clause 4.1(a) or (b);



(g)



Tax: no member of the Consolidated Group is in default in the payment of

any taxes which could reasonably be expected to have a Material Adverse

Effect, and no material claim is being asserted with respect to taxes which

is not disclosed in the most recent Accounts except as disclosed in a

certificate executed in accordance with Clause 4.1(a) or (b);



(h)



ACCOUNTS:

(i)



the statement of the Consolidated Group as at December 31, 1997

prepared by

Deloitte & Touche has been

prepared on a basis

consistently applied in accordance with the Accounting Principles and

gives a true and fair view of the Consolidated Group for that year and

the state of the affairs of the Consolidated Group at that date, and

in particular

accurately

disclose or reserve against all the

liabilities (actual or contingent) of the Consolidated Group as a

whole that are required to be disclosed or reserved against in

accordance with the Accounting Principles; and



- 24

(ii) the most recent financial statements of the Consolidated Group

delivered to the Agent pursuant to clause 12.1(b) below have been

prepared on a basis consistently applied in accordance with the

Accounting Principles and give a true and fair view of the results of

its operations for that year and the state of its affairs at that date

and in particular accurately disclose or reserve against all the

liabilities (actual or contingent) that are required to be disclosed

or reserved against in accordance with the Accounting Principles;

(i)



ENVIRONMENT:

(i)



so far as any officer or director is aware, it has at all times

complied with all Environmental Laws and Environmental Licences in all

material respects and obtained and maintained in full force and effect

in all material respects all Environment Licences and there are no

facts or circumstances entitling any such Environmental Licences to be

revoked, suspended, amended, varied, withdrawn or not renewed; and



(ii) so far as any officer or director is aware, no Material Environmental

Claim is pending or has been made or threatened against any member of



the Consolidated Group, save to the extent that the same is a

notification or order requiring compliance with the terms of any

Environmental Licence or Environmental Law which is in the process of

being complied with in the time specified therein for compliance;

(j)



MATERIAL ADVERSE CHANGE: there has been no material adverse change in the

consolidated financial condition of the Consolidated Group since the date

referred to in paragraph (h)(i);



(k)



NO SECURITY: none of the assets of any member of the Consolidated Group is

affected by any Security Interest, and no member of the Consolidated Group

is a party to, nor is it or any of its assets bound by, any order,

agreement or instrument under which any member of the Consolidated Group

is, or in certain events may be, required to create, assume or permit to

arise any Security Interest, other than any Permitted Security Interest;



(l)



CERTIFICATES: the information provided in the Certificates executed in

accordance with clause 4.1, when prepared and as of the date of this

Agreement:

(i)



is true and accurate in all material respects and is not misleading in

any material respect; and



(ii) does not omit to state any fact necessary to make such information not

misleading in any material respect;

(m)



INFORMATION: the information furnished from time to time by the Borrowers

in connection with the Facility is true and accurate in all material

respects and is not misleading in any material respect when so furnished;

- 25 -





(n)



SUBSIDIARY GUARANTORS: the Subsidiaries of each Obligor which the Agent has

requested to the Borrowers' Agent accede to this Agreement have acceded to

this Agreement as Additional Guarantors or are the Original Guarantors; and

each Subsidiary of each Obligor has been notified to the Agent within not

more than ten days following the date upon which such Person has become a

Subsidiary of any Obligor.



11.2

AFTER SIGNING: Each Obligor shall be deemed to represent and warrant

to each of the Lenders, the Agent and the Security Trustee on each day that the

Advance or any portion thereof is outstanding, with reference to the facts and

circumstances then subsisting, that each of the representations and warranties

made by it contained in clause 11.1 (other than paragraph (h)(i) and (j)) and

each certificate issued pursuant to clause 12.1(b)(iv) remains true, accurate

and correct.

UNDERTAKINGS

12.1

ACCOUNTS AND INFORMATION: Each Borrower undertakes with each of the

Lenders, the Agent and the Security Trustee that, from the date of this

Agreement until all its liabilities under the Financing Documents have been

discharged:

(a)



PREPARATION OF ACCOUNTS: it will prepare the financial statements referred

to in paragraph (b) on a basis consistently applied in accordance with the

Accounting Principles and those financial statements shall give a true and

fair view of the results of the Consolidated Group for the period in

question and the state of the affairs of the Consolidated Group as at the

date to which the financial statements are made up and shall accurately

disclose or reserve against all the liabilities (actual or contingent) of

the Consolidated Group required to be disclosed or reserved against in

accordance with the Accounting Principles;



(b)



INFORMATION: it will deliver to the Agent in sufficient numbers for each of

the Lenders:

(i)



as soon as they become available (and in any event within 105 days of

31 December in each year) copies of the audited combined consolidated

and consolidating financial statements for the twelve-month period

then ended of the Consolidated Group which shall be shown in dollars,

contain an income statement, a balance sheet and a cash flow statement

and be audited and certified by a firm of independent accountants of

recognised international standing;



(ii) as soon as they become available (and in any event within 60 days of

the end of each of its financial quarters) copies of the unaudited

consolidated and consolidating financial statements for that financial

quarter of the Consolidated Group each of which shall contain an

income statement and a balance sheet;

- 26

(iii)promptly, all notices or other documents despatched by each Borrower

to its shareholders or Oil and Gas Partners (or in either case, any

class thereof) and, in the case of ARC, to the Toronto Stock Exchange

(including, without limitation, the Borrowers' annual budget and

business plan for each calendar year) or its creditors generally;

(iv) within 10 days following the close of each calendar month, an Officers

Certificate signed by two Directors of ARC in the form of Part III of

Schedule 3 describing any changes in the information set forth in the

Certificate given since the delivery of the previous certificate; and

(v)



promptly, such additional financial or other information as the Agent

may from time to time reasonably request.



12.2

GENERAL UNDERTAKINGS: Each Obligor undertakes with each of the Lenders,

the Agent and the Security Trustee that, from the date of this Agreement until

all its liabilities under the Financing Documents have been discharged:

(a)



CONSENTS: it will obtain and promptly renew from time to time, and will

promptly deliver to the Agent certified copies of, any authorisation,

approval, consent, licence, exemption, registration, recording, filing or

notarisation as may be necessary or desirable to ensure the validity,

enforceability or priority of the liabilities and obligations of it or the

rights of the Lenders, the Agent and the Security Agent (or any of them)

under the Financing Documents to which it is a party and it shall comply

with the terms of the same;



(b)



DEFAULT: if it becomes aware of the occurrence of an Event of Default or

Potential Event of Default it will forthwith notify the Agent and provide

the Agent with full details of any steps which it is taking, or is

considering taking, in order to remedy or mitigate the effect of the Event

of Default or Potential Event of Default or otherwise in connection with

it;



(c)



LITIGATION: promptly, and in any event within 10 days, after becoming aware

of the same inform the Agent of any

litigation,

arbitration

or

administrative proceeding or claim of the kind described in clause 11.1

(f);



(d)



INSURANCE: it will:

(i)



procure that it takes out and maintains insurance cover over its

assets and undertaking with reputable underwriters or insurance

companies (including, without limitation,

reinsurance companies)

reasonably acceptable to the Agent, of a type and in an amount which

is consistent with good business practice in the precious metal



industry;

(ii) punctually pay all premiums and other sums payable

taken out pursuant to this clause 12.2(d);



under each policy



- 27

(iii)upon receipt of a written request from the Agent to such effect,

deliver to the Agent such information as to the policies of insurance

taken out pursuant to this clause 12.2(d) (or as to any matter which

may be relevant to such insurances) as the Agent may reasonably

request and upon renewal of any such policy, produce to the Agent, on

or before its expiry date, evidence of such renewal;

(iv) promptly upon becoming aware of the same notify the Agent of any

insurance claim where the amount of such claim exceeds $5,000,000 (or

its equivalent, on the date on which the claim is made, in the

currency in which such claim is made) or such other amount as may,

from time to time, be specified by the Agent;

(v)



procure that no material reductions in limits or coverage (including

those resulting from extensions) or material increases in deductibles,

exclusions or exceptions shall be made to any insurance effected

pursuant to this clause 12.2(d) without the prior consent of the

Agent;



(vi) not, at any time, do (or omit to do), anything whereby any of the

insurances taken out under this clause 12.2(d) may be rendered void,

voidable, unenforceable, suspended or impaired in whole or in part or

which may otherwise render any sum paid out under any such policy

repayable in whole or in part;

(vii)promptly upon becoming aware thereof, inform the Agent of any

substantial change in the insurances on and in relation to its

business and assets;

(e)



PARI PASSU RANKING: its unsecured obligations under this Agreement do and

will rank at least pari passu with all its other present and future

unsecured obligations other than obligations in respect of national,

provincial and local taxes and employees' remuneration and taxes and for

certain other statutory exceptions;



(f)



ENVIRONMENT: it will:

(i)



comply in all material respects with the terms and conditions of all

laws, regulations, agreements, licences and concessions including,

without limitation, all Environmental Laws and all Environmental

Licences, all Applicable Laws and all Licences and Permissions;



(ii) save as disclosed in writing to the Agent on or prior to the date

hereof, ensure that no Substance is at or brought on to any property

owned, leased or occupied by any member of the Consolidated Group

which may give rise to a Material Environmental Claim and shall take

or procure the taking of all necessary action to deal with, remedy or

remove from such property or prevent the incursion of (as the case may

be) the Substance in order to prevent such Environmental Claim (or in

order to comply with any notification or order requiring compliance

with the terms of any Environmental Licence or Environmental Law

within the time specified therein for such compliance) and in a manner

that complies in all material respects with all requirements of

Environmental Law;

- 28

(g) RECORDS ETC: at any reasonable



time and from time to time upon



reasonable



notice,

it will permit the Agent or any Lender or any agent or

representative thereof to examine and make copies of and abstracts from the

records and books of account of, and visit the properties of it to discuss

its affairs, finances and accounts with any of their respective officers

and directors and its independent accountants, at the expense of the Agent

or Lender, unless a Potential Event of Default or Event of Default shall

have occurred and be continuing in which case at the expense of the

Borrowers;

(h)



INTELLECTUAL PROPERTY: preserve and maintain in all material respects the

substance and the validity of the Intellectual

Property and where

appropriate,

use its best endeavours to protect and safeguard the

Intellectual Property which is material from and against theft, loss,

destruction, unauthorised access, copying or use by third parties; and



(i)



TAX RETURNS: except with respect to tax matters relating to the alleged

failure of Liberty Technical Services Limited and Abacan Technical Services

Inc to make past payments to the Nigerian government in connection with the

operation of OPL 237 and OML 112, ensure all necessary tax returns and

filings are delivered by or on behalf of each member of the Consolidated

Group in accordance with applicable laws and regulations and promptly

provide to the Agent a complete and correct copy of each such tax return;



(j)



ADDITIONAL GUARANTORS: promptly (and in all cases within 30 days) following

the close of each calendar month it will procure that each Subsidiary

(other than an Original Guarantor and any Subsidiary that has previously

issued a Guarantor Accession Deed) not earlier notified to the Agent. At

the request of the Agent the Borrowers will cause any Subsidiary of any

Obligor to execute a Guarantor Accession Deed in the form of Schedule 5

duly completed and signed by the Borrowers' Agent and such Subsidiary, and

deliver to the Agent (x) a certificate signed by 2 directors of such

Subsidiary substantially in the form set out in Schedule 3 and the

documents referred to therein; and (y) an opinion of an independent firm of

lawyers acceptable to the Agent;



(k)



FUTURE DEBENTURES: promptly (and in all cases within 30 days) following the

written request of the Agent to the Borrowers' Agent, any Obligor as to

which the Agent has made such request shall enter into a Debenture in form

and content and covering any property or interests requested as may be

requested by the Agent (provided that the reasonable value of the property

covered by such Debenture is $500,000 or more), and provided further that

all necessary authorisations, approvals or consents are or can reasonably

be obtained.



12.3

NEGATIVE UNDERTAKINGS: Each Obligor undertakes with each of the

Lenders, the Agent and the Security Trustee that, from the date of this

Agreement until all its liabilities under the Financing Documents have been

discharged:

(a)



SECURITY: it will not and will procure that no Subsidiary will:

- 29 -





(i)



create or permit to subsist any Security Interest on the whole or any

part of its present or future property, assets or revenues;



(ii) sell or otherwise dispose of any of its assets on terms whereby such

property or asset is or may be leased to or re-acquired or acquired by

it (except to the extent that the proceeds of such sale or disposition

are applied to the repayment of loans made to it);

(iii)sell or otherwise dispose of any of its receivables on recourse terms

except for the discounting of bills or notes in the ordinary course of

business; except for Permitted Security Interests;



(b)



DISPOSALS: without the prior written consent of the Agent, such consent not

to be unreasonably withheld in circumstances where in the opinion of the

Majority Lenders the interests of the Lenders are reasonably protected

after taking into account the reasonable requirements of the Obligors to

develop their assets, it will not, and will procure that no Subsidiary

will, either in a single transaction or in a series of transactions whether

related or not and whether voluntarily or involuntarily, sell, transfer,

lease or otherwise dispose of all or any material part of their property or

assets except that, without limitation, the following disposals shall not

be taken into account:

(i)



disposals made with the prior consent of the Majority Lenders;



(ii) disposals (other than any disposal in respect of an Oil and Gas

Property, any interest under a Joint Venture Document or any Interest

under an Oil and Gas Development Agreement) (including repayment of

loans) made in the ordinary course of business of the disposing

entity;

(iii)disposals of property or assets (other than any disposal in respect

of an Oil and Gas Property, any interest under a Joint Venture

Document or any Interest under an Oil and Gas Development Agreement)

in exchange for other property or assets comparable as to type and

value;

(iv) any other disposal (other than any disposal in respect of an Oil and

Gas Property, any interest under a Joint Venture Document or any

Interest under an Oil and Gas Development Agreement) made for market

value in money or money's worth on an arm's length basis in any

financial year which, when aggregated with disposals made in that

financial year, does not exceed $1,000,000;

(c)



Accounting Reference Date: it will not, without the prior consent of the

Agent, change the date of its financial year end or that of any member of

its Group from 31 December;



- 30

(d) DIVIDENDS: it will not declare, make or pay any dividend or other

distribution to its shareholders or vote or consent to do any of the

foregoing with respect to its Oil and Gas Partners (except as otherwise

expressly

required in the Joint Venture Documents or Oil and Gas

Development Agreements).

(e)



PROCEEDS OF ADVANCES: it will not, and will procure that no Subsidiary

will, use the proceeds of any Advance other than as permitted under clause

2.2.



(f)



SHARE SALES: without the prior written consent of the Agent, such consent

not to be unreasonably withheld in circumstances where in the opinion of

the Majority Lenders the interests of the Lenders are reasonably protected

after taking into account the reasonable requirements of the Obligors to

develop their assets, it will not, and will procure that no Subsidiary

will, dispose of all or any part of the share capital, partnership capital

or capital stock of any other Obligor;



(g)



Derivatives: it will not, and will procure that no member of the Group

will, enter into any derivative transaction which is not entered into in

the ordinary course of business and for the purposes of hedging future

exposure to fluctuations in values of assets or liabilities in relation to

which the net exposure thereunder could reasonably be expected to be

greater than $2,000,000 or otherwise to have a major impact on the business

of such person; and



(h)



RING-FENCING OF OBLIGORS:



it will not, and will procure that no Subsidiary



will:

(i)



make any loan or lease to or

investment in any member of the

Obligor;



grant any credit to or make any

Consolidated Group which is not an



(ii) sell, transfer, lease or otherwise dispose of all or any part of its

property or assets for less than market value to any member of the

Consolidated Group which is not an Obligor;

(iii)purchase, acquire or otherwise receive a transfer or lease in any

property or assets of any member of the Consolidated Group which is

not an Obligor for more than market value;

(iv) issue any guarantee in respect of indebtedness

Consolidated Group which is not an Obligor; or

(v)



of any member of the



deal or contract with, or provide to or receive services from, any

member of the Consolidated Group which is not an Obligor except on

arm's length terms and for full consideration.



12.4

ACCOUNTING PRINCIPLES: except as otherwise expressly provided in this

Agreement, all accounting terms used herein shall be interpreted, and all

matters required to be delivered to the Agent hereunder shall be prepared, in

accordance with the Accounting Principles used in the preparation of the audited

financial statements as at December 31, 1997 referred to under clause 12.1(b)(i)

hereof.

- 31

12.5

JOINT VENTURE DOCUMENTS AND OIL AND GAS DEVELOPMENT AGREEMENTS: Each of

the Borrowers agrees that it shall:

(a)



observe and perform all the obligations on its part contained in and

assumed by it under the Joint Venture Documents and Oil and Gas Development

Agreements;



(b)



to the extent that, in the opinion of the Agent, it is commercially

reasonable to do so, take all reasonable steps to enforce the performance

by the Oil and Gas Partners of each of their respective obligations under

the Joint Venture Documents and Oil and Gas Development Agreements and

diligently pursue any remedies available to it in respect of any breach of

any of the Joint Venture Documents or Oil and Gas Development Agreements or

in respect of any claim arising thereunder or in relation thereto;



(c)



to the extent that, in the opinion of the Agent, it is commercially

reasonable to do or not to do so, not give, withhold or grant any consent,

waiver, release, notice, approval or discharge to any Oil and Gas Partner

in respect of its rights or obligations under the Joint Venture Documents

which or Oil and Gas Development Agreements;



(d)



forthwith upon becoming aware of the same notify the Agent of any breach by

it or any other party to the Joint Venture Documents or Oil and Gas

Development Agreements of any provision thereof or any dispute relating

thereto;



(e)



not sell, transfer, sign or otherwise dispose of or create any Security

Interest over its rights, title or interest in the Joint Venture Documents

or Oil and Gas Development Agreements or Oil and Gas Properties; and



(f)



not cause, suffer or permit any

Venture Document.



amendment



or



modification



in any Joint



12.6

CERTAIN AGREEMENTS WITH THIRD PARTIES: Each of the Obligors agrees that

it will not and will not permit any Subsidiary to enter into or commit to enter



into any agreement with any third party in respect of the sale of any Oil and

Gas or Oil and Gas Property or enter into any Oil and Gas Development Agreement

or any interest therein or enter into or commit to enter into any Oil and Gas

Development Agreement without the prior written consent of the Agent (such

consent not to be withheld in circumstances where in the opinion of the Majority

Lenders the interests of the Lenders are reasonably protected after taking into

account the reasonable requirements of the Borrowers to develop the Oil and Gas

Properties).

DEFAULT

13.1

EVENTS: If any of the events set out below occurs, the Agent, the

Security Trustee and the Lenders may take any action as is provided for in any

of the Financing Documents:

(a)



NON-PAYMENT: any Obligor fails to pay any amount due under any

Document on the due date or on demand, if so payable;



Financing



- 32

(b) Breach of principal obligations: any Obligor fails to observe or perform

any of its obligations under clauses 12.1 (a), 12.2 (b), (c), (e), (j),

12.3, 12.4, 12.5 or 12.6 of this Agreement;

(c)



BREACH OF OTHER OBLIGATIONS: any Obligor fails to observe or perform any of

its obligations under the Financing Documents (other than those referred to

in clauses 13.1 (a) or (b) above) and, if the same is capable of remedy

within 20 days, the same is not remedied within 20 days after the relevant

failure in observation or performance;



(d)



MISREPRESENTATION: any material representation, warranty or statement which

is made (or deemed or acknowledged to have been made) by any Obligor in the

Financing Documents or which is contained in any certificate, written

statement, legal opinion or written notice provided under or in connection

with the Financing Documents proves to be incorrect;



(e)



Invalidity: any provision of any of the Financing Documents is or becomes,

for any reason, invalid or unenforceable;



(f)



CESSATION OF BUSINESS: any member of the Consolidated Group changes or

threatens to change the nature or scope of its business, suspends or

threatens to suspend a substantial part of the present business operations

which it now conducts directly or indirectly, or any governmental authority

expropriates or threatens to expropriate all or part of its assets or any

Joint Venture Partner cancels or gives written or constructive notice of

intention to cancel and Joint Venture Document or any Joint Venture

Document expires and the result of any of the foregoing is, in the

determination of the Majority Lenders, materially and adversely to affect

the financial condition of either of the Groups, or any Obligor's ability

to observe or perform its obligations under any Financing Document to which

it is a party;



(g)



CROSS-DEFAULT: default shall be made with respect to any agreement or other

evidence of indebtedness or liability for borrowed money, or a guarantee

for any of the foregoing, in excess of $1,000,000 (or its equivalent in any

other currency) (other than hereunder) of any member of the Consolidated

Group if the effect of such default is to accelerate the maturity of such

indebtedness or liability or to require the prepayment thereof or to permit

the holder or holders thereof (or a trustee on behalf of the holder or

holders thereof) to cause such indebtedness to become due prior to the

stated maturity thereof, or any such indebtedness or liability shall become

due and shall not be paid prior to the expiration of any period of grace,

provided, that the aforesaid -------- provisions shall not apply to any

indebtedness outstanding on the date of this Agreement which is referred to

in any certificate delivered hereunder and is identified as being in



default;

- 33

(h) APPOINTMENT OF RECEIVER, LEGAL PROCESS: an encumbrancer takes possession

of, or a trustee or administrative or other receiver or similar officer is

appointed in respect of, all or any part of the business or assets of any

member of the Consolidated Group, or distress, judgment, judgment, lien,

execution, writ, warrant of attachment or other legal process is levied or

enforced upon or sued out against any such assets and is not discharged

within seven days of being levied, enforced or sued out, or any Security

Interest which may for the time being affect any of its assets becomes

enforceable;

(i)



INSOLVENCY: any member of the Consolidated Group is unable to pay its debts

or becomes unable to pay its debts as they fall due or suspends or

threatens to suspend making payments (whether of principal or interest)

with respect to all or any class of its debts;



(j)



COMPOSITION: any member of the Consolidated Group convenes a meeting of its

creditors or proposes or makes any arrangement or composition with, or any

assignment for the benefit of, its creditors;



(k)



ADMINISTRATION, WINDING UP: a petition is presented or a meeting is

convened for the purpose of considering a resolution or other steps are

taken for making an administration order against or for the winding up of

any member of the Consolidated Group or an administration order or a

winding up order is made against any member of the Consolidated Group

(other than for the purposes of and followed by a reconstruction previously

approved in writing by the Majority Lenders, unless during or following

such reconstruction any member of the Consolidated Group becomes or is

declared to be insolvent);



(l)



ANALOGOUS PROCEEDINGS: anything analogous to any of the events specified in

paragraphs (f), (g), (h), (i), (j) or (k) occurs under the laws of any

applicable jurisdiction;



(m)



MATERIAL ADVERSE CHANGE: any event or series of events whether related or

not occurs which would be likely materially and adversely to affect the

financial condition of either of the Consolidated Group or the ability of

any Obligor to perform its obligations under any of the Financing

Documents;



(n)



CHANGE OF CONTROL OR OWNERSHIP: without the prior written consent of the

Agent, such consent not to be unreasonably withheld in circumstances where

in the opinion of the Majority Lenders the interests of the Lenders are

reasonably protected after taking into account the reasonable requirements

of the Obligors to develop their assets, any person whether alone or

together with other persons acting in association with it, acquires control

of any of the Obligors and/or there is a change in ownership of the share

capital of the Obligors;



- 34

(o) JOINT VENTURE DOCUMENTS OR GAS DEVELOPMENT AGREEMENTS: without the prior

written consent of the Agent, such consent not to be unreasonably withheld

in circumstances where in the opinion of the Majority Lenders the interests

of the Lenders are reasonably protected after taking into account the

reasonable requirements of the Obligors to develop their assets, any

amendment, modification or variation is made to any of the Joint Venture

Documents or material Oil and Gas Development Agreement (such materiality

to be determined by the Agent), any party thereto is in default under or

commits a breach of any of the Joint Venture Documents or material Oil and

Gas Development Agreement (such materiality to be determined by the Agent),

or any of the Joint Venture Documents is terminated or expires, and any



such event could in the opinion of the Majority

expected to have a Material Adverse Effect;

(p)



Lenders



reasonably



be



ENVIRONMENTAL MATTERS: any Environmental Claim in which there is a

reasonable likelihood of any adverse decision is brought against any member

of the Consolidated Group which, if adversely decided, would be likely to

entitle any person to shut down or suspend all or any material part of the

business of any member of the Consolidated Group, or result in any cost,

claim, liability, expense or damages in excess of $5,000,000 to be suffered

or incurred by any member of the Consolidated Group or otherwise have a

Material Adverse Effect upon the business properties, results of operations

or financial condition of any member of the Consolidated Group.



13.2

ACTION ON EVENT OF DEFAULT: In the case of any of the events described

in clause 13.1 shall have occurred and be continuing then, at once or at any

time thereafter (so long as any such event shall be continuing), the Agent may,

and upon the request of the Majority Lenders shall, by notice to the Borrowers'

Agent:

(a)



cancel the Total Commitments; and/or



(b)



declare all or part of the Total Outstandings to be immediately due and

payable whereupon they shall become so due and payable together with

accrued interest thereon and any other amounts then payable under this

Agreement, such payment to be effected on a date to be notified by the

Agent to the Borrowers' Agent; and/or



(c)



demand immediate

applies; and/or



(d)



place all or part of the Advance on demand, whereupon it shall immediately

become repayable on demand and at any time thereafter:

(i)



repayment



of any amounts to which



make any further amendment to the repayment

such Advance; and/or



paragraph



obligations



(b) above



relating to



(ii) demand repayment of all or part of the Advance placed on demand

together with accrued interest and any other amounts then payable

under this Agreement.

13.3

of an



NOTICE: If the Agent is notified under this Agreement of the occurrence

Event of Default it shall inform each of the Lenders.



- 35

13.4

SECURITY: The Borrowers hereby irrevocably agree with the Agent, the

Security Trustee and the Lenders that upon any enforcement of the rights

conferred upon the Security Trustee pursuant to the Share Pledges, the

Debentures, and any other Security Interest created in favour of the Security

Trustee, the liabilities satisfied as a result of such enforcement shall be

limited to the net amount distributed to the Lenders pursuant to clause 7.1

(Distribution) of the Security Trust Deed. The Borrowers further agree that as

security for the payment of the Borrowers' obligation to pay interest hereunder

the Borrowers will instruct TIL to pay to the Security Agent the amount of

$500,000 payable by TIL to the Borrowers under the Sale/Purchase Agreement dated

July 29, 1997 between Liberty and TIL for deposit by the Security Trustee in an

interest bearing deposit account for application to interest payments payable by

the Borrowers hereunder as and when due or, upon the occurrence of an Event of

Default, as otherwise provided in clause 7.1 of the Security Trust Deed.

INDEMNITIES

14.

the



Each Obligor shall

Security Trustee from



fully indemnify each of the Lenders, the Agent and

and against any expense, loss, damage or liability



(including without limitation "response costs" and "natural resource damages"

with respect to any Environmental Claims) which any of them may incur as a

consequence of the occurrence of

(a)



GENERAL INDEMNITY: any Event of Default, or any failure to draw down in

accordance with a Drawing Notice (other than as a result of any failure by

such indemnified party) or of any prepayment under this Agreement or

otherwise in connection with this Agreement. Without prejudice to its

generality, the foregoing indemnity shall extend to any interest, fees or

other sums whatsoever paid or payable on account of any funds borrowed in

order to carry any unpaid amount and to any loss (including loss of

profit), premium, penalty or expense which may be incurred in liquidating

or employing deposits from third parties acquired to make, maintain or fund

the Total Outstandings (or any part of them) or any other amount due or to

become due under this Agreement; and



(b)



ENVIRONMENTAL INDEMNITY: any of the following:

(i)



the breach of any representation or warranty of the Obligors made or

repeated in accordance with the terms of this Agreement -regarding

Substances or applicable Environmental Laws,



(ii) the failure of any Obligor to perform any obligation herein required

to be performed regarding Substances or applicable Environmental Laws,

(iii)any

and



applicable



Environmental



Law in effect



during the term hereof,



(iv) any act, omission, event or circumstance existing or occurring

(including without limitation the presence on or in any property or

release from any property or the generation on any property of any

Substance disposed of or otherwise released), resulting from or in

connection with the ownership, construction, occupancy, operation,

manufacture, sale, storage, distribution, use and/or maintenance of

its property regardless of whether the act, omission, event or

circumstance constituted a violation of any applicable Environmental

Law at the time of its existence or occurrence.

- 36

GUARANTEE

15.1

GUARANTEE: Each Guarantor as principal debtor and not merely as surety

unconditionally and irrevocably and jointly and severally guarantees to the

Agent, the Security Trustee and each of the Lenders payment by the Borrowers and

the Borrowers' Agent (in that capacity) of the Guaranteed Amounts in accordance

with the Financing Documents and unconditionally and irrevocably undertakes to

the Agent, the Security Trustee and each of the Lenders that if and each time

any Borrower does not make payment of any of the Guaranteed Amounts in

accordance with the Financing Documents, the Guarantors shall pay the amounts

not so paid upon first written demand by the Agent.

In this clause GUARANTEED AMOUNTS means any and all amounts whatsoever- which

the Financing Documents provide are to be paid by the Borrowers and the

Borrowers' Agent to the Lenders, the Agent and the Security Trustee (or any of

them) and references to the Guaranteed Amounts include references to any part of

them.

15.2

INDEMNITY: As a separate, additional, continuing and primary

obligation, each Guarantor unconditionally and irrevocably and jointly and

severally undertakes with the Agent, the Security Trustee and the Lenders (and

each of them) that, should the Guaranteed Amounts not be recoverable from the

Guarantor under clause 15.1 for any reason whatsoever (including, but without

prejudice to the generality of the foregoing, by reason of any other provision



of the Financing Documents being or becoming void, unenforceable or otherwise

invalid under any applicable law) then, notwithstanding that it may have been

known to the Agent, the Security Trustee or any of the Lenders, the Guarantor

shall upon first written demand by the Agent under clause 15.1, make payment of

the Guaranteed Amounts by way of a full indemnity in such manner as is provided

for in the Financing Documents and shall indemnify the Agent, the Security

Trustee and the Lenders (and each of them) against all losses, claims, costs,

charges and expenses to which they may be subject or which they may incur under

or in connection with the Financing Documents.

15.3

CONTINUING GUARANTEE: The above guarantees shall be continuing and

shall extend to the ultimate balance of the Guaranteed Amounts, regardless of

any intermediate payment or discharge in whole or in part. If any of the above

guarantees ceases to continue in force, the Agent, the Security Trustee and each

Lender may open a new account with or continue any existing account with the

Borrowers and the liability of the relevant Guarantor in respect of the

Guaranteed Amounts at the date of the cessation shall remain regardless of any

payments in or out of any such account.

15.4

DISCHARGE AND RELEASE: None of the Guarantors may terminate its

guarantee by notice to the Agent, the Security Trustee or any Lender or

otherwise. Subject to clause 15.5, and provided the Guaranteed Amounts have

been paid in full and the agreement has been canceled, terminated or expired and

the Lenders have no further Commitment hereunder, the Agent shall on behalf of

itself, the Security Trustee and the Lenders discharge or release the Guarantors

by written instrument signed by the Agent.

- 37

15.5

CLAWBACK: Any discharge or release referred to in clause 15.4, and any

composition or arrangement which any of the Guarantors may effect with the

Agent, the Security Trustee and any of the Lenders, shall be deemed to be made

subject to the condition that it will be void, if any payment or security which

the Agent, the Security Trustee and the Lenders (or any of them) may previously

have received or may thereafter receive from any person in respect of the

Guaranteed Amounts, is set aside, refunded or reduced, in whole or in part under

any applicable law or proves to have been for any reason invalid. If such

condition is satisfied, the Agent shall be entitled to recover from the

Guarantor on demand the value of such payment as if such discharge, release,

compromise or arrangement had not occurred.

15.6

WAIVER OF DEFENCES: The liabilities and obligations of each of the

Guarantors under this Agreement shall remain in force notwithstanding any act,

omission, neglect, event or matter whatsoever, except the proper and valid

payment of all the Guaranteed Amounts and without prejudice to its generality,

the foregoing shall apply in relation to anything which would have discharged

the Guarantors (wholly or in part) or which would have afforded the Guarantors

any legal or equitable defence, and in relation to any winding up,

reconstruction, reorganisation or dissolution of, or any change in constitution

or corporate identity or loss of corporate or partnership (as the case may be)

identity by, any of the Obligors, any partner of an Obligor, or any other person

and any incapacity or lack of corporate power or authority of any person.

Without prejudice to the generality of the foregoing none of the liabilities or

obligations of the Guarantors under this Agreement shall be impaired by the

Agent, the Security Trustee or the Lenders (or any of them):

(a)



agreeing with any Obligor any variation or departure (however substantial)

of or from any Financing Document and any such variation or departure

shall, whatever its nature, be binding upon each Guarantor in all

circumstances, notwithstanding that it may increase or otherwise affect the

liability of the Guarantors provided that if any variation which would

increase the liability of any Guarantor is made, without such Guarantor's

prior written consent the amount of such Guarantor's liability under this

clause shall be limited to the amount for which it would have been liable

had such variation not been made;



(b)



releasing or granting any time or any indulgence whatsoever to any Obligor

and, in particular, waiving any of the pre-conditions for the Advance under

this Agreement or any contravention by any Obligor of any of the Financing

Documents or entering into any transaction or arrangements whatsoever with

or in relation to any Obligor and/or any third party;



(c)



taking, accepting, varying, dealing with, enforcing, abstaining from

enforcing, surrendering or releasing any security for the Guaranteed

Amounts in such manner as it or they think fit; or



(d)



claiming, proving for, accepting or transferring any payment in respect of

the Guaranteed Amounts in any composition by, or winding up of, any Obligor

and/or any third party or abstaining from so claiming, proving, accepting

or transferring.



- 38

15.7

DEMANDS: Demands under this clause may be made from time to time, and

the liabilities and obligations of the Guarantors under this Agreement may be

enforced, irrespective of whether any demands, steps or proceedings are being or

have been made or taken against any of the Obligors and/or any third party

and/or any other Guarantor and each Guarantor waives diligence, presentment,

protest, demand for repayment and notice of default to or upon any Obligor.

15.8

SUSPENSE ACCOUNT: Until all amounts which may be or become payable by

the Borrowers hereunder or in connection herewith have been irrevocably paid and

discharged in full, the Agent, the Security Trustee and each Lender may:

(a)



refrain from applying or enforcing any other security, moneys or rights

held or received by the Agent, the Security Trustee or such Lender in

respect of such amounts or apply and enforce the same in such manner and

order as the Agent, the Security Trustee or such Lender sees fit (whether

against such amounts or otherwise) and none of the Guarantors shall be

entitled to the benefit of the same; and



(b)



hold in suspense account (subject to the accrual of interest thereon at

market rates for the account of the relevant Guarantor(s)) any moneys

received from any Guarantor or on account of that Guarantor's liability

hereunder.



15.9

SUBORDINATION:

Agreement:



So



long



as any Guarantor has any liability under this



(a)



the Guarantors shall not take or accept any Security Interest from any

other Obligor or, in relation to the Guaranteed Amounts, from any third

party, without first obtaining the Agent's written consent;



(b)



after the occurrence of an Event of Default, no Guarantor shall, without

first obtaining the Agent's written consent, seek to recover, whether

directly or by set-off, lien, counterclaim or otherwise, nor accept any

moneys or other property, nor exercise any rights, in respect of any sum

which may be or become due to the Guarantor on any account by any Borrower

or, in relation to the Guaranteed Amounts, from any third party, nor claim,

prove for or accept any payment in any composition by, or any winding up

of, any Borrower or, in relation to the Guaranteed Amounts, any third

party;



(c)



if, notwithstanding the foregoing, any Guarantor holds or receives any such

security, moneys or property, it shall forthwith pay or transfer the same

to the Agent. THE AGENT

- 39 -





16.1



APPOINTMENT



AS



AGENT



AND



ACKNOWLEDGEMENT:



Each



Lender irrevocably



authorises the Agent, to take such action on its behalf and to exercise and

carry out such powers, discretions, authorities and duties as are specifically

delegated to it by the Financing Documents and such powers as the Agent

reasonably considers are incidental thereto. The Agent shall have only those

powers, discretions, authorities and duties which are expressly specified in the

Financing Documents. From time to time, the Agent shall give such directions,

instructions or notices to the Security Trustee as directed by the Majority

Lenders. The Agent shall promptly notify the Security Trustee of any notice sent

to the Borrowers pursuant to clause 13.2.

16.2

RELATIONSHIP: In connection with its powers, discretions, authorities

and duties under the Financing Documents, the Agent:

(a)



shall act solely as the agent of each of the Lenders, and shall not assume,

and shall not be deemed to have assumed, any obligations to, or fiduciary

relationship with, the Lenders other than those for which specific

provision is made by the Financing Documents or any obligations to, or

fiduciary relationship with, any of the Obligors;



(b)



shall not be liable for any failure of any of the parties to this Agreement

duly and punctually to observe and perform any of its obligations under the

Financing Documents;



(c)



shall not be liable for any action taken or omitted

connection with the Financing Documents in good faith;



(d)



may act under the Financing Documents through its personnel and agents.

16.3 MAJORITY BANK DIRECTIONS: In the exercise of any power or discretion

given to the Agent under the Financing Documents and as to any matter not

expressly provided for in the Financing Documents or where a decision of

the Majority Lenders is provided for, the Agent shall act or refrain from

acting and shall give instructions to the Security Trustee in accordance

with the instructions of the Majority Lenders. In the absence of any such

instructions, the Agent may act or refrain from acting as it shall see fit.

Any such instructions of the Majority Lenders or any such decision of the

Agent shall be binding on all the Lenders and the Agent shall not be liable

to the Obligors, the Lenders or any of them for the consequences of any

such instructions or decision.



16.4

Lender



by it under or in



CREDIT APPROVAL: In favour of the Agent and the Security Trustee, each

acknowledges in connection with the Financing Documents:



(a)



that it has made such enquiries on its own behalf and taken such care as

would have been the case had its participation in the Facility been made

directly by that Lender to the Borrowers without the intervention of the

Agent or the Security Trustee and that it has not relied, and does not

rely, upon any information or advice provided, or any appraisal of, or

investigation into the financial condition, credit worthiness, affairs,

status or nature of the Consolidated Group effected by the Agent or the

Security Trustee in such capacity;



(b)



that, subject to clause 16.8, none of the Agent or the Security Trustee was

or will be obliged either before or at any time after the signing of this

Agreement to provide that Lender with any information or advice or to make

any such investigation or appraisal.

- 40 -





16.5

DOCUMENTATION: None

their respective directors,

(a)



of the Agent nor the Security Trustee nor any of

officers, employees or agents shall be liable:



for the execution, validity, enforceability or effectiveness of any of the

Financing Documents or any document delivered pursuant thereto or connected

therewith; or



(b)



16.6



for any statements, representations or warranties made or referred to in

any of the Financing Documents or any information given in connection with

any of the Financing Documents.

RELIANCE:



None



of the Agent nor the Security Trustee shall be liable:



(a)



for the consequences of relying on any communication or document believed

by it to be genuine and correct and to have been communicated or signed by

the person by whom it purports to be communicated or signed;



(b)



for the consequences of relying on any statement made by any director,

officer or employee of any person on any matter which may reasonably be

assumed to be within his knowledge or within his power to verify; or



(c)



for the consequences of relying on the advice of any professional

selected by it in connection with the Financing Documents.



16.7



DEFAULT:



The



Agent



shall



not



be



obliged



to



advisers



take:



(a)



any steps to ascertain whether any Event of Default or Potential Event of

Default has occurred and until the Agent has received express notice to the

contrary from the Borrowers' Agent or a Lender, it shall be entitled to

assume that no such event has occurred; or



(b)



any proceedings against the Obligors for the recovery of any sum due under

any of the Financing Documents or otherwise in connection therewith unless

it has been fully indemnified to its satisfaction by each of the Lenders in

the proportion which its Outstandings bear to the Total Outstandings (or,

if no Outstandings, its Commitment bears to the Total Commitments). The

Agent may not bring any action or proceedings in any court in the name of

any Lender without the prior written consent of such Lender (but for the

avoidance of doubt without prejudice to the ability of any other Lender or

the Security Trustee (or the Agent on behalf of any of the same) to bring

such action or proceeding).



16.8

(a)



INFORMATION:



The



Agent



shall:



send a copy of all notices served by the Borrowers' Agent under this

Agreement and of all other documents delivered to it under the Financing

Documents to each of the Lenders affected by such notice or document;



- 41

(b) not be obliged to transmit to the Lenders any information in any way

relating to any of the parties to the Financing Documents which the Agent

may have acquired otherwise than in its capacity as agent for the Lenders

in connection with this Agreement.

16.9



COMPLIANCE:



(a)



Each of the Agent and the Security Trustee may refrain from doing anything

which might, in its opinion, constitute a breach of any law or regulation

or be otherwise actionable at the suit of any person, and may do anything

which, in its opinion, is necessary or desirable to comply with any law or

regulation of any jurisdiction; and



(b)



without limiting paragraph (a) above, none of the Agent nor the Security

Trustee need disclose any information relating to any of the Obligors or

any of its related entities if the disclosure might, in its opinion,

constitute

a

breach

of any law or

regulation

or any duty of

confidentiality.



16.10

RESIGNATION: The Agent may at any time tender its resignation without

assigning any reason therefor and without being responsible for any costs

occasioned by such resignation. In that event, the Majority Lenders shall,



subject to the prior written consent of the Borrowers' Agent (such consent not

to be unreasonably withheld or delayed), appoint a Lender or any bank or

financial institution to act as Agent in its stead or, if no such person is so

appointed within 30 days of the Agent tendering its resignation, the Agent may,

in consultation with the Borrowers' Agent, appoint a Lender or any reputable

bank or financial institution so to act. Such resignation shall take effect

simultaneously with (and cannot take effect before) the appointment of the

successor Agent and thereupon:

(a)



the retiring Agent shall be discharged

the Finance Documents; and



from any further



obligation



under



(b)



the successor Agent and each of the other parties to this Agreement shall

have the same rights and obligations amongst themselves as they would have

had if the successor had been a party to this Agreement as agent for the

Lenders.



16.11

AGENCY DIVISION: In acting as Agent for the Lenders, the agency

division of the Agent shall be treated as a separate entity from any other of

its divisions or departments, and, notwithstanding the foregoing provisions of

this clause 16, in the event that the Agent should act for any of the Obligors

or any of their Subsidiaries in any capacity in relation to any other matter,

any information given by any such Obligor or Subsidiary to the Agent in such

other capacity may be treated as confidential by the Agent.

- 42

16.12

INDEMNITY: Each of Lenders shall fully indemnify the Agent and the

Security Trustee rateably in the proportion which its Outstandings bears to the

Total Outstandings (or if no Outstandings, its Commitment bears to the Total

Commitments), from and against any claims, proceedings, expenses, losses,

damages and liabilities of every description (except in respect of any agency

fee due to the Agent) which may be incurred by the Agent or the Security Trustee

in such capacity in good faith and which in any way relate to or arise out of

the Financing Documents or any related documents or any action taken or omitted

by the Agent or the Security Trustee in enforcing or preserving, or in

attempting to enforce or preserve, any of the rights of the Lenders under the

Financing Documents or any related documents.

16.13

AMENDMENTS: The Agent may (except where any other authority is

required for the same by the express provisions of the Financing Documents)

grant waivers or consents or vary the terms of this Agreement if authorised by

the Majority Lenders. Any such waiver, consent or variation so authorised and

effected by the Agent shall be binding on all the Lenders and the Agent shall be

under no liability whatsoever in respect of any such waiver, consent or

variation. This clause 16.13 shall not authorise, except with the prior consent

of all the Lenders:

(a)



any change in the rate at which interest or any fees are payable under this

Agreement;



(b)



any extension of the date for, or alteration in the amount or currency of,

any payment of principal, interest, fee, commission or any other amount

payable under the Financing Documents;



(c)



any increase in any Lender's Commitment;



(d)



any extension of the Availability Period; or



(e)



any variation of

(i)



the definition of Majority Lenders;



(ii) clause 4.3;



(iii) clause 10.2;

(iv) clause 18.2; or

(v)



this



clause



16.13;



or



any release of all or any part of the shares pledged to the Security

Trustee pursuant to the Share Pledges or the assets covered by the

Debentures. EXPENSES

17.1

EXPENSES: The Borrowers' Agent shall on demand from time to time pay,

in each case on the basis of a full indemnity to the Agent (for the account of

the Arrangers or the Agent):

- 43

(a) all costs and expenses (including legal and out-of-pocket expenses)

reasonably incurred in connection with the negotiation, preparation or

completion of the Financing Documents and any related documents; and

(b)



at such daily and/or hourly rates as the Agent shall from time to time

reasonably

determine,

all costs and expenses

(including,

without

limitation, telephone, fax, copying, travel, legal and personnel costs) in

connection with the Agent taking such action as it may deem appropriate, in

complying with any instructions from the Majority Lenders or any request by

the Borrowers' Agent in connection with:

(i)



the granting or proposed granting of any waiver or consent

of the Financing Documents;



(ii) any amendment

Documents;



or



proposed,



amendment



to



any



of



the



under any

Financing



(iii)any breach by any Obligor of any of its obligations under any of the

Financing Documents or any investigation as to whether any such breach

may have occurred;

(iv) the occurrence

Default;

(v)



of any



Potential



Event



of



Default



or an Event of



the review,

preservation

and/or

enforcement or the attempted

presentation or enforcement of any of the rights of the Agent, the.

Arrangers and the Lenders under the Financing Documents or any related

documents; and



(vi) the transfer

person.



or



possible



transfer



of the role of Agent to another



17.2

STAMP DUTY: The Obligors shall pay any stamp, documentary and other

similar duties and taxes to which this Agreement or any other Financing

Documents may be subject or give rise and shall fully indemnify the Agent, the

Security Trustee and each of the Lenders from and against any losses or

liabilities which any of them may incur as a result of any delay or omission by

the Obligors to pay any such duties or taxes.

17.3

VALUE ADDED TAX: The amounts stated in this Agreement to be payable by

the Obligors are exclusive of value added tax (VAT) and accordingly:

(a)



the Obligors shall pay on demand any VAT properly chargeable in respect of

supplies to the Obligors as contemplated by this Agreement (including any

VAT chargeable by the Agent and the Security Trustee in respect of its

supplies to the Obligors under this Agreement); and

- 44 -







(b)



in the case of goods or services supplied to or other costs, fees and

expenses incurred by the Agent, the Security Trustee or the Lenders in

connection with this Agreement and which are to be met by the Obligor or in

respect of which the Obligors are to indemnify the Lenders, the Security

Trustee or the Agent, the Obligors (for the avoidance of doubt) shall pay

to the Agent (for itself or the Lender or Lenders in question) or the

Security Trustee by way of additional remuneration such amount as shall

represent any associated VAT (whether charged by the supplier or suffered

by reason of the reverse charge provisions contained in Section 7 of the

Value Added Tax Act 1983 or analogous provisions under the laws of any

applicable jurisdiction).



SET-OFF



AND



PRO



RATA



SHARING



18.1

SET-OFF: Following an Event of Default, any Lender may without notice

to the Borrowers' Agent combine, consolidate or merge all or any of an Obligor's

accounts with, and liabilities to, that Lender and may set-off or transfer any

sum standing to the credit of any such accounts in or towards satisfaction of

any of the Obligor's liabilities to that Lender under the Financing Documents,

and may do so notwithstanding that the balances on such accounts and the

liabilities may not be expressed in the same currency and each Lender is hereby

authorised to effect any necessary conversions at the Bank's own rate of

exchange then prevailing.

18.2

PRO RATA SHARING: If a Lender receives or recovers any amount (other

than from the Agent) in respect of sums due from an Obligor under the Financing

Documents (whether by set-off or otherwise) it shall promptly notify the Agent

of such amount and the manner of its receipt or recovery and the following shall

apply:

(a)



the Agent shall,

as soon as

practicable,

having

regard to the

circumstances, consult with the Lenders to establish the aggregate amount

of sums received or recovered by the Lenders and what payments are

necessary amongst the Lenders for such aggregate amount to be divided

amongst the Lenders in proportion to their Outstandings or if there are no

Outstandings at such time, in proportion to their Commitments;



(b)



the Lenders shall promptly make such payments to each other, through the

Agent, as the Agent shall direct to effect the proportionate division

referred to in paragraph (a);



(c)



if a Lender makes a payment or payments pursuant to paragraph (b), any

payment previously received by that Lender shall, subject to paragraph (d),

be deemed to have been made by the Obligor, as the case may be, on the

understanding that it was received by that Lender as agent for the Lenders

and that the payments described in paragraph (b) would be made and the

liabilities of the Obligor to each of the Lenders shall accordingly be

determined on the basis that such payment or payments pursuant to paragraph

(b) would be made;



(d)



if a Lender makes a payment or payments pursuant to paragraph (b),

paragraph (c) shall not apply if, as a result, the indebtedness of the

Obligor to the Lender has been extinguished, discharged or satisfied by the

amount received or recovered (for example because of set-off). In this

event, for the purpose only of determining the liabilities of the Obligor

to the Lenders (other than the Lender making the said payment or payments)

and the liabilities of the Lenders to each other, the said payment or

payments by the Lender shall be deemed to have been made on behalf of the

Obligor in respect of its obligations under the Financing Documents and to

the extent the Facility is thereby discharged the Obligor, shall fully

indemnify the Lender for such payment or payments;

- 45 -





(e) any moneys



payable by the Obligor under



paragraph (d) by way of indemnity



shall be payable from the date the Lender makes the payment or payments

under paragraph (b), shall carry interest from such date and for such

purpose and all other purposes of this Agreement, be treated in the same

way as other amounts payable under this Agreement as though such moneys

were payable in respect of the Outstandings of the Lender which has the

benefit of the indemnity contained in paragraph (d) (whether or not the

indebtedness attributable to such participation has been extinguished,

discharged or satisfied in whole or in part); and

(f)



the parties shall make such payments and take such steps as may be just and

equitable to re-adjust the position of the parties if a Lender, having

followed the procedures required above, is required to return any sum

originally received or recovered by it in respect of sums due from an

Obligor (together with any interest accrued thereon).



ASSIGNMENTS



AND



TRANSFERS



19.1

TRANSFERS: Any Lender (the TRANSFEROR) may at any time transfer to any

other person (the TRANSFEREE) the whole or any part of its rights and/or

obligations hereunder by the delivery to the Agent of a certificate

substantially in the form of Schedule 4 (a TRANSFER CERTIFICATE), with the

approval of the Borrowers' Agent (such approval not to be unreasonably withheld

or delayed). A Lender which is proposing to transfer the whole or any part of

its rights and/or obligations hereunder shall give notice thereof to the Agent

which shall give notice thereof to the Borrowers' Agent in accordance with

clause 20.7. The Borrowers' Agent shall indicate as soon as possible whether it

approves (such approval not to be unreasonably withheld or delayed) of such

Transferee. If the Borrowers' Agent does not respond to such a notice within

twenty days then approval shall be deemed to be given and the Transferor shall

be entitled to deliver a Transfer Certificate to the Agent. Each Transfer

Certificate delivered to the Agent shall only be valid if it is in writing

signed by each of the Transferor and the Transferee and is contained in one

document or two counterparts. Each party to this Agreement (other than the

Transferor and the Transferee) irrevocably authorises the Agent to execute any

duly completed Transfer Certificate on its behalf. Any Transferee which is not a

party hereto shall further accede to the Security Trust Deed by delivery of a

supplemental trust deed in accordance with clause 2.2 of the Security Trust

Deed.

19.2

TRANSFER CERTIFICATES: Following receipt by the Agent of a Transfer

Certificate from each of a Transferor and a Transferee and with effect from the

date of the Transfer Certificate or any later date specified in the Transfer

Certificate:

(a)



the Transferor shall cease to be entitled to the rights and shall be

released from the obligations hereunder which are specified in the Transfer

Certificate; and



(b)



the Transferee shall become a party hereto as a Lender entitled to rights

and liable to observe obligations which differ from those referred to in

(a) only insofar as the Transferee is entitled thereto and liable in

respect thereof in place of the Transferor.



- 46

19.3

TRANSFEREES: Each Transferee shall, by its execution of a Transfer

Certificate, accept that none of the Agent or the Lenders is in any way

responsible for:

(a)



the accuracy and/or completeness

Transferee in connection herewith;



of



any



information



supplied



to the



(b)



the financial condition, creditworthiness, condition, affairs, status and

nature of any of the Obligors or the observance by any of the Obligors of

any of its obligations under this Agreement or any document relating



hereto; or

(c)



the legality, validity, effectiveness, adequacy or enforceability of this

Agreement or any document relating hereto and, save as otherwise expressly

provided herein, none of such parties shall, or shall be deemed to be, the

agent or trustee of such Transferee in connection herewith.



19.4

NO OBLIGATION:

Document to:



The



Transferor



shall not be obliged by any Financing



(a)



accept a re-transfer from the Transferee of any of the

obligations assigned or novated under this clause 19; or



rights



and/or



(b)



indemnify the Transferee for any losses arising by reason of any Obligor's

failure to perform its obligations under the Financing Documents or

otherwise.



19.5

DISCLOSURE OF INFORMATION: Each of the Agent, the Security Trustee and

each Lender agree to keep information obtained by it pursuant to the Financing

Documents confidential and agrees that it will only use such information in

connection with the transactions contemplated by the Financing Documents and not

to disclose any of such information other than (i) to its affiliates and

advisers, officers, employees, representatives and agents of itself and its

affiliates who are or are expected to be involved in the evaluation of such

information in connection with the transactions contemplated by the Financing

Documents or who otherwise have any need to know all or any part of such

information and who are advised of the confidential nature of such information,

(ii) to the extent such information presently is or hereafter becomes available

to it on a non-confidential basis from a source other than any Obligor or is or

comes into the public domain, (iii) to the extent used by it in preparation for

or in the conduct of any proceeding relating to the Financing Documents or the

transactions contemplated hereby and thereby, (iv) to the extent disclosure is

required by law, regulation or judicial order or requested or required by

regulators, examiners or auditors, (v) to any person providing credit to it or

to any rating agency in connection with the evaluation of its credit-worthiness

and who are advised of the confidential nature of, and agree to keep

confidential such information, or (vi) to transferees or sub-participants or

potential transferees or sub-participants who agree to be bound by the

provisions of this clause 19.5.

- 47

19.6

OBLIGORS: To the extent required by applicable law, the Obligors hereby

acknowledge and approve the terms of this clause 19 and any transfer effected

pursuant to this clause 19 and hereby beforehand give their permission or

co-operation to such transfer. To the extent that applicable law requires that

any Obligor be notified of a transfer effected pursuant to this clause 19, it is

hereby agreed that the relevant Transfer Certificate shall be sufficient for the

purposes of giving such notification and each Obligor hereby irrevocably

authorises and instructs the Agent to receive as agent on its behalf such

notification for such purpose but not otherwise.

19.7

FACILITY OFFICE: Any Lender may make its participation in any Advance

available from, and may receive the benefit of any payment due to it under this

Agreement at any of its Facility Offices. A Lender shall give the Agent prior

written notice of any change in any of its Facility Offices for the purposes of

this Agreement.

FURTHER



PROVISIONS



20.1

EVIDENCE

Agreement:

(a)



OF



INDEBTEDNESS:



In



any



proceedings



relating



to



a statement as to any amount due to the Lenders under this Agreement

is certified as being correct by an officer of the Agent; and



this

which



(b)



a statement as to any amount due to a Lender under this Agreement which is

certified as being correct by an officer of the Lender; shall, unless

otherwise provided in this Agreement, be prima facie evidence that such

amount is in fact due and payable.



20.2

APPLICATION OF MONEYS: If any sum paid or recovered in respect of the

liabilities of a Borrower under this Agreement is less than the amount then due,

the Agent may apply that sum to principal, interest, fees or any other amount

due under this Agreement in such proportions and order and generally in such

manner as the Agent shall determine.

20.3

RIGHTS CUMULATIVE, WAIVERS: The respective rights of the Agent and the

Lenders under this Agreement are cumulative, may be exercised as often as they

consider appropriate and are in addition to their respective rights under the

applicable law. The respective rights of the Agent, the Security Trustee and

the Lenders in relation to the Facility (whether arising under this Agreement or

under the applicable law) shall not be capable of being waived or varied

otherwise than by an express waiver or variation in writing; and in particular

any failure to exercise or any delay in exercising any of such rights shall not

operate as a waiver or variation of that or any other such right; any defective

or partial exercise of any of such rights shall not preclude any other or

further exercise of that or any other such right; and no act or course of

conduct or negotiation on their part or on their behalf shall in any way

preclude them from exercising any such right or constitute a suspension or any

variation of any such right.

20.4

ENGLISH LANGUAGE: All notices or communications under or in connection

with this Agreement shall be in the English language or, if in any other

language, accompanied by a translation into English. In the event of any

conflict between the English text and the text in any other language, the

English text shall prevail.

- 48

20.5

INVALIDITY OF ANY PROVISION: If any of the provisions of this Agreement

becomes invalid, illegal or unenforceable in any respect under any law, the

validity, legality and enforceability of the remaining provisions shall not in

any way be affected or impaired.

20.6

SEVERABILITY: Any provision of this Agreement which is prohibited or

unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective

to the extent of such prohibition or unenforceability without invalidating the

remaining provisions hereof, and any such prohibition or unenforceability in any

jurisdiction shall not invalidate or render unenforceable such provision in any

other jurisdiction. To the extent permitted by applicable law, each Obligor

hereby waives any provision of law which renders any provision of this Agreement

prohibited or unenforceable in any respect.

20.7

NOTICES: Any notice or communication under or in connection with this

Agreement shall be in writing and shall be delivered personally, or by post,

telex or fax to the addresses given in this Agreement or at such other address

as the recipient may have notified to the other parties in writing or in the

case only of communications by the Agent to Lenders, may be by SWIFT. Proof of

posting or despatch of any notice or communication to or by the Borrowers' Agent

shall be deemed to be proof of receipt:

(a)



in the case of a letter, on the third Business Day after posting;



(b)



in the case of a telex, and provided that the correct answer-back has been

received, immediately on actual receipt, or, if the time of such receipt is

not during normal working hours, then on the next working day in the place

of receipt;



(c)



in the case of a fax, when received, or, if the time of such receipt is not



during normal working

receipt; or

(d)



hours,



then on the next working day in the place of



in the case of transmission by SWIFT, when an acknowledgement of receipt by

SWIFT is received.



20.8

CHOICE OF LAW: This Agreement is governed by, and shall be construed in

accordance with, the laws of England.

20.9

Trustee

(a)



SUBMISSION TO JURISDICTION: For the benefit of the Agent, the Security

and each of the Lenders:



all the parties agree that the courts of England are, subject to paragraphs

(b) and (c) below, to have exclusive jurisdiction to settle any disputes

which may arise in connection with the legal relationships established by

this Agreement (including, without limitation, claims for set-off or

counterclaim) or otherwise arising in connection with this Agreement;



- 49

(b) the agreement contained in paragraph (a) above is included for the benefit

of the Agent, the Security Trustee and each of the Lenders. Accordingly,

notwithstanding the exclusive agreement in (a) above, the Agent, the

Security Trustee and each of the Lenders shall retain the right to bring

proceedings in any other court which has jurisdiction by virtue of the

Convention on Jurisdiction and the Enforcement of Judgments signed on 27

September 1968 (as from time to time amended and extended) or by virtue of

the Convention on Jurisdiction and the Enforcement of Judgments signed on

16 September 1988 (or from time to time amended and extended);

(c)



the Agent, the Security Trustee and each of the Lenders may in its absolute

discretion take proceedings in the courts of any other country which may

have jurisdiction, to whose jurisdiction each of the Obligors irrevocably

submits;



(d)



each Obligor irrevocably waives any objections on the ground of venue or

forum non conveniens or any similar grounds; and



(e)



each Obligor irrevocably consents to service of process by mail or in any

other manner permitted by the relevant law.



20.10

TRIAL BY JURY: Each of the Obligors, the Agent, the Security Trustee

and the Lenders hereby irrevocably waives all right to trial by jury in any

action, proceeding or counterclaim (whether based on contract, tort or

otherwise) arising out of or relating to any of the Financing Documents, the

Advance, or the actions of the Agent, the Security Trustee or any Lender in the

negotiation, administration, performance or enforcement thereof.

20.11

AGENT FOR SERVICE OF PROCESS: Each of the Obligors shall at all times

maintain an agent for service of process and any other documents in proceedings

in England or any other proceedings in connection with this Agreement. Such

agent shall be Law Debenture Corporate Services Limited, the address of which on

the date hereof is Princes House, 95 Gresham Street, London EC2V 7LY, England

and any writ, judgment or other notice of legal process shall be sufficiently

served on the Obligors if delivered to such agent at its address for the time

being. The Obligors undertake not to revoke the authority of the above agent

and if, for any reason, the Agent requests any of the Obligors to do so such

Obligor shall promptly appoint another such agent with an address in England and

advise the Agent thereof. If following such a request such Obligor fails to

appoint another agent, the Agent shall be entitled to appoint one on behalf of

the Obligors.

20.12

COUNTERPARTS: This Agreement may be executed in any number of

counterparts and by the different parties hereto on separate counterparts, each

of which when so executed and delivered shall be an original but all the



counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date

first above written.

- 50

SCHEDULE 1

LENDER



COMMITMENT



CREDIT



SUISSE



FIRST



BOSTON



Credit Suisse First

Bleicherweg 10

P.O. Box 900

CH-8070 Z rich

Switzerland



Boston



Address for

Attention:

Telephone:

Fax:



Notices:



US$



30,702,500



As Above

Mr. Thomas Patrick

41 1 333 7618

41 1 333 7620

- 51 -





SCHEDULE 2

FORM OF DRAWING NOTICE

Date: *____ 19*__

Dear



Sirs,



Facility



Agreement



dated



July



2,



1998



1. We refer to clause 5 of the Facility Agreement. Terms defined in the Facility

Agreement have the same meanings in this Drawing Notice.

2.



We wish to borrow the Advances with the following specifications:



(a)



Borrowers: Abacan Resource Corporation, Dahomey Resource Corporation and

Liberty Technical Services Limited, jointly and severally;



(b)



Drawing Date: July 2, 1998-



(c)



Amount: $30,702,484



(d)



Interest Period: successive interest periods of three-months



(e)



Payment Instructions: Pay to the account designated by Total International

Limited against written confirmation that such payment is received in

satisfaction of all amounts outstanding under the Prepayment Agreement and

Guarantees referred to in Clause 2.2 of the Facility Agreement.



3.



We confirm that the matters represented and warranted by each Obligor set

out in clause 11.2 of the Facility Agreement are true and accurate on the

date of this Drawing Notice as if made with reference to the facts and

circumstances now prevailing and that no Event of Default or Potential

Event of Default has occurred and is continuing or would result from the

Advance. Yours faithfully,



ABACAN



RESOURCE



CORPORATION



- 52



For and on behalf of

Abacan Resource Corporation,

as Borrower's Agent



[Seal]



By: ____________________

Director



By: ____________________

Director



For and on behalf of

Abacan Resource Corporation,

as Borrower



[Seal]



By: ____________________

Director



By: ____________________

Director



- 53

For and on behalf of

Dahomey Resource Corporation,

as Borrower



By:



____________________

Director



By:



____________________

Director



For and on behalf of

Liberty Technical Services

as Borrower



By:



____________________

Director



[Seal]



Limited,



[Seal]



By:



____________________

Director

- 54 -





SCHEDULE 3

PART I

FORM OF CERTIFICATE OF BORROWER

[Letterhead of Borrower]

To:



Credit



Suisse



First



Boston



as



Agent



We [*name] and [*name], both Directors of [*name of Borrower] of [*address] (the

Company)

HEREBY



CERTIFY



that:



(a)



attached hereto marked "A", are true and correct copies of all documents

which contain or establish or relate to the constitution of the [Company];



(b)



attached hereto marked "B", is a true and correct copy of resolutions duly

passed at a meeting of the shareholders of the Company duly convened and

held on July ___, 1998 authorising the Company to:

(i)



borrow at any time up to $30,702,500

pursuant to the Facility Agreement;



at a variable



rate of interest



(ii) guarantee the performance by all other Obligors of their

obligations under the Financing Documents;



respective



(iii) sign, deliver and perform the Facility Agreement;

(c)



attached hereto marked "C", is a true and correct copy of resolutions duly

passed at a meeting of the Board of Directors of the Company duly convened

and held on July ___, 1998 approving the Facility Agreement and authorising

its signature, delivery and performance and such resolutions have not been

amended, modified or revoked and are in, full force and effect;



(d)



attached hereto marked "D", is a true and correct copy of the acceptance by

the agents in England of their appointment as agent of the Company for the

purpose of accepting service of process.



Does



not



apply



to



Abacan



Resource



Corporation



- 55

The following signatures are the true signatures of the persons who have been

authorised to sign the Facility Agreement and to give notices and

communications, including notices of drawing, under or in connection with the

Facility Agreement.

Name

*

*

*

Signed:



Position

*

*

*



Signature



Director

Date:



Director



*________



19*_____



1, [*name], the Secretary of [*name of Borrower] (the Company) hereby certify

that [*names of two Directors] giving above certificate] are duly appointed

Directors of the Company and that the signature of each of them above is his

signature.

Signed:

Secretary

Date:



*______



19*_____

- 56 -





PART II

FORM OF CERTIFICATE OF GUARANTOR

To:



Credit



We [*name] and

(the COMPANY)

HEREBY



CERTIFY



Suisse



[Letterhead of Guarantor]

First Boston



[*name],



both Directors of [*name of Guarantor] of [*address]



that:



(a)



attached hereto marked "A", are true and correct copies of all documents

which contain or establish or relate to the constitution of the Company;



(b)



attached hereto marked "B", is a true and correct copy of resolutions duly

passed at a meeting of the shareholders of the Company duly convened and

held on July ___, 1998 authorising the Company to:

(i)



guarantee the performance by all other obligors of their

obligations under the Financing Documents; and



respective



(ii) sign, deliver and perform the Facility Agreement; and

(c)



attached hereto marked "C", is a true and correct copy of resolutions duly

passed at a meeting of the Board of Directors of the Company duly convened

and held on July ___, 1998 approving the Facility Agreement and authorising

its signature, delivery and performance and such resolutions have not been

amended, modified or revoked and are in full force and effect;



(d)



attached hereto marked "D", are true and correct copies of the acceptance

by the agent in England of their appointments as agent of the Company for

the purpose of accepting service of process.



The following

authorised to

communications



signatures are the true signatures of the persons who have been

sign the Facility Agreement and to give any notices and

under or in connection with the Facility Agreement.

- 57 -





Name

*

*

*

Signed:

Director



Position

*

*

*

Director



Signature



Date:



*______



_____



19*__



1, [*name], the Secretary of [*name of Borrower] (the Company) hereby certify

that [*names of two Directors giving above certificate] are duly appointed

Directors of the Company and that the signature of each of them above is his

signature.

Signed:

Secretary

Date:



*_____



_____



19*-__

- 58 -





PART III

CERTIFICATE OF ARC DIRECTORS

To:

dated



Credit Suisse First Boston, as Agent under the Credit Facility Agreement

________, 1998.



Date:

The undersigned directors hereby certify as follows according to our best

knowledge, information and belief (having made due enquiry) that as of the date

of this certificate.

1.

All Subsidiaries of any Obligor (as such terms are defined in the Credit

Facility Agreement) are Guarantors under the Credit Facility Agreement (except

such Subsidiaries as have been notified to the Agent in writing and as to which

the Agent has not requested that they accede to the Credit Facility Agreement as

Guarantors).

2.

No Obligor is a party to any Oil and Gas Agreement except the agreements

listed on the schedule attached hereto.

3.

The attached schedule includes a complete and correct list of all Current

Liabilities and Current Assets of each Obligor.

4.

No Obligor has any legal or beneficial interest in any Oil and Gas

Property other than the properties described in the Joint Venture Documents and

the Oil and Gas Properties described in the attached Schedule.

5.

No Obligor has filed or has had filed against it any petition under any

bankruptcy or other proceeding under any analogous law.

6.

No Obligor is a party to any legal action or litigation other than the

matters described on the attached schedule, and no judgement or attachment has

been made or granted against any Obligor or its assets except as shown on the

attached schedule.

7.

Except as described in the attached schedule no Obligor has received any

notice of default and is not in default under any Joint Venture Document or Oil

and Gas Agreement.

8.

No

(as such

Permitted



Obligor has granted or has committed to grant any Security Interest

term is defined in the Credit Facility Agreement) other than a

Security Interest.



_____________________



_____________________

- 59 -





SCHEDULE 4

FORM OF TRANSFER CERTIFICATE

To:



Credit



Suisse



First



Boston

TRANSFER CERTIFICATE



relating to a Credit Facility Agreement (the FACILITY AGREEMENT) dated ______

1998 and made between the Borrowers and Guarantors named therein, Credit Suisse

First Boston as Agent, Credit Suisse First Boston as Security Trustee, and

certain Lenders named therein. Terms defined in the Facility Agreement have the

same meanings herein.

1.



[Transferor]



(the



LENDER):



(a)



confirms that to the extent that details appear in the Schedule hereto

against, as the case may be, the heading LENDER'S COMMITMENT and/or

LENDER'S PARTICIPATION, such details accurately summarise, as the case may

be, its participation in the Facility (as defined in the Facility

Agreement); and



(b)



requests [Transferee Lender] (the TRANSFEREE) to accept and procure the

transfer to the Transferee of the portion specified in the Schedule of, as

the case may be, its participation in the Facility by counter-signing and

delivering this Transfer Certificate to the Agent at its address for the

service of notices specified in the Facility Agreement.



2.

The Transferee hereby requests the Agent to accept this Transfer

Certificate as being delivered to the Agent pursuant to and for the purposes of

clause 19 of the Facility Agreement so as to take effect in accordance with the

terms thereof on [date of transfer].

3.

The Transferee confirms that it has received a copy of the Facility

Agreement together with such other documents and information as it has required

in connection with this transaction and that it has not relied and will not

hereafter rely on the Lender to check or enquire on its behalf into the

execution, validity, enforceability, effectiveness, adequacy, accuracy or

completeness of any such documents or information and further agrees that it has

not relied and will not rely on the Lender to assess or keep under review on its

behalf the financial condition, creditworthiness, condition, affairs, status or

nature of any of the Obligors or of any other party to any of the Financing

Documents.

4.

The Transferee hereby undertakes with the Lender and each of the other

parties to the Facility Agreement that it will perform in accordance with their

terms all those obligations which by the terms of the Facility Agreement will be

assumed by it after delivery of this Transfer Certificate to the Agent and

satisfaction of the conditions (if any) subject to which this Transfer

Certificate is expressed to take effect.

- 60

5.

The Lender makes no representation or warranty and assumes no

responsibility with respect to the legality, validity, effectiveness, adequacy

or enforceability of the Facility Agreement or any document relating thereto and

assumes no responsibility for the financial condition of any of the Obligors or

any other party to the Financing Documents or for the performance and observance

by any of the Obligors or any other such party of any of its obligations under

the Financing Documents or any document relating thereto and any and all such

conditions and warranties, whether express or implied by law or otherwise, are

hereby excluded.

6.



This



Transfer



Certificate and the rights and obligations of the parties



hereunder



shall



be



governed



by and construed in accordance with English law.

THE SCHEDULE



LENDER'S COMMITMENT

*______ ______ _______

LENDER'S PARTICIPATION

*_____ ______ _______

AMOUNT

*_____ _____ ________

TERM

*____ _____ ________

PORTION TRANSFERRED

*______ _____ ______

*Transferor



[*Transferee]

Address: *

Telex: *

Fax: *

Signed



Signed

Credit Suisse

as Agent:

Signed .

Dated *______



First



Boston,



___19*___

- 61 -





SCHEDULE 5

FORM OF GUARANTOR ACCESSION DEED

To:



Credit



From:



Suisse



[*Proposed



First



Boston,



additional



as



Agent



Guarantor].



Date: *____ _____ 19*___

1.

We refer to an agreement (the Facility Agreement) dated ______ 1998 and

made between the Borrowers and Guarantors named therein, Credit Suisse First

Boston as Agent, Credit Suisse First Boston as Security Trustee and the Lenders

as referred to therein. Terms defined in the Facility Agreement shall bear the

same meanings herein.

2.

We [name of the company] of [Registered Office] (Registered no. *____

____) agree to become a Guarantor under the Facility Agreement and to be bound

by the terms of the Facility Agreement as Guarantor.

3.

*

4.



Our address for

______ ________

This



Deed



is



notices is:

_________



governed



EXECUTED as a DEED by

[PROPOSED GUARANTOR]

[acting by two directors/a

and the secretary]



by



English



law.

)

)

)

)



director



Director

Director/Secretary

SIGNED by

for and on behalf of

in the presence of:



[Borrowers'



Agent]



)

)

)



- 62

SCHEDULE 6

THE ORIGINAL GUARANTORS

ABACAN



WEST



RESOURCES



AFRICA



RESOURCE



AGBARA



RESOURCES



ABACAN



POWER



ABACAN-ADDAX

ANGUS

PROFILE



(BENIN)



LIMITED,



whose



registered



office



is



at:



CORPORATION,



whose



registered



office



is



at:



LIMITED,



(BENIN)

BENIN



whose



LIMITED,



registered

whose



office



registered



is



at:



office



is



at:



CONSORTIUM



S.A.,



whose



registered



office



is



at:



RESOURCES



LTD.,



whose



registered



office



is



at:



INTERNATIONAL

INTERNATIONAL



LTD.,



whose



registered



office



is



at:



- 63

SCHEDULE 7

[FORM OF MOPU AGREEMENT]

[Intentionally excluded as Mopu Agreement is not an Agreement

to which the Company is a party]

- 64

SCHEDULE 8

The purpose of this document is to set forth the terms and conditions of the

transaction entered into between

CREDIT SUISSE FIRST BOSTON, ZURICH ("Party A")

And

ABACAN RESOURCES CORP, TORONTO ("Party B")

(collectively, the "Parties")

on



the



Trade



Date



specified



below



(the



"Transaction").



The definitions and provisions contained in the 1991 ISDA Definitions (the "1991

Definitions") and the 1996 ISDA Equity Derivatives Definitions (the "1996

Definitions") both as published by the International Swap and Derivatives

Association, Inc. are incorporated by reference into this Confirmation. In the

event of any inconsistency between the Definitions and this Confirmation, this

Confirmation will govern.

The Parties hereby agree to enter into the Transaction as a condition precedent

to the on-going restructuring of an existing loan facility between CSFB Zurich

and a subsidiary of Party B.



1.

The terms of the

relates are as follows:

GENERAL

Trade



particular



Transaction



to



which this Confirmation



TERMS:

Date:



26



July



Option



Style:



European



Option



Type:



Call



1998



Seller:



Party



B



Buyer:



Party



A



Shares:



ABACAN RESOURCE CORP REGISTERED

ISIN CODE: CA 002 919 108 1

SECURITY NO: 346 665



SHARES



- 65

Number



of



Option



Entitlement:



1



Strike



Price:



CAD



Options:



500,000

Share



per



Option



0.91



Premium:



ZERO



Seller Business Day:



Any day on which commercial banks are open for

Business (including dealings in foreign exchange

and foreign currency deposits) in Toronto.



Currency Business Day:



Any day on which commercial banks are open for

Business (including dealings in foreign exchange

and foreign currency deposits) in the principal

financial centre for the relevant currency.



Exchange:



Toronto Stock Exchange, or any successor to such

exchange or quotation system. If the exchange

ceases to list or otherwise to include the

Shares the parties will negotiate in good faith

to agree on another exchange or quotation

system.



Clearance System:



Cedel, or any successor to or transferee of such

Clearance System. If the Clearance System ceases

to clear the Shares, the parties will negotiate

in good faith to agree on another manner of

delivery.



PROCEDURE



FOR



EXERCISE:



Expiration



Time:



Close of business

Expiration Date



Expiration



Date:



26 July 2000 or, if that date is not an Exchange

Business Day, the first following day that is an

Exchange Business Day.



Automatic



Exercise:



Seller's Contact Details

for Purpose of Giving Notice:



Applicable

Mr.



on



the



Exchange



on



the



Telephone Number:

Fax Number:

- 66

VALUATION:

Valuation



Time:



At



the



Close



of



trading



on



the



Exchange



Valuation Dates:



The last 15 Exchange Business Days before and

including the Expiration Date



Averaging Dates:



Each Valuation Date



Averaging Market Disruption:



Modified Postponement



SETTLEMENT

Cash



TERMS:



Settlement:



Relevant



Applicable



Price:



Bid / Offer / Mid-Market / Last traded

share as quoted by the Exchange



Cash Settlement Payment Date:



price per



Two / Three Currency Business Days after the last

Valuation Date



ADJUSTMENTS:

Method



of



Adjustment:



EXTRAORDINARY



Calculation



Agent



Adjustment



EVENTS:



Consequences of Merger Events:

a.

b.

c.



Share-for-Share:

Share-for-Other:

Share-for-Combined:



Alternative Obligation

Cancellation and Payment

Cancellation and Payment



NATIONALIZATION OR INSOLVENCY: Cancellation



and



Payment



- 67

3.

Calculation



4.



Account



5.



Governing



Agent:



Details:



Law:



Party A whose determinations and calculations

will be binding and conclusive in the absence of

manifest error. The Calculation Agent will have

no responsibility for good faith errors or

omissions in making any determination as provided

herein.

CREDIT SUISSE FIRST BOSTON, TORONTO in favour of

CREDIT SUISSE FIRST BOSTON, ZURICH, a/c

T1000000.01.CAD.

English



Law



Please confirm that the foregoing correctly sets forth the terms of our

agreement by executing the copy of this Confirmation enclosed for that purpose

and returning it to us marked for the attention of:

CREDIT SUISSE FIRST BOSTON

Attn. Mr. Walter Bachmann /

P.O. Box 900

8070 Zurich

Switzerland



FMLS



32



In the case of any queries

- - regarding the transaction, please contact Mr Thomas Patrick phone: 01- 333 76

18,

- - regarding settlement, please contact Mr Heiko Zimmermann phone: 01 - 333 64 95

or

- - regarding documentation, please contact Mr Walter Bachmann phone: 01 - 333 87

77.



It has been

co-operation.



CREDIT



SUISSE



a



pleasure



FIRST



being



of



service



to you and we thank you for your



BOSTON



NAME

Title



THOMAS

Title



PATRICK



- 68

Confirmed

For



and



ABACAN



as

on



of



the



behalf



RESOURCES



date



first



above



written:



of



CORP,



TORONTO



YYYYYYYYY

- 69

SIGNING SCHEDULE

BORROWERS:

ABACAN RESOURCE CORPORATION,

as a Deed

By:

[J. Harvie



]



Signature:



/s/ James Harvie

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



By



]



Signature:



/s/Wade Cherwayko

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



[W.G.Cherwayko



DAHOMEY RESOURCE

As a Deed



CORPORATION



By:



[W.G.



Cherwayko



]



Signature:



/s/ Wade Cherwayko

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



By:



[T.B.



Folawayo



]



Signature:



/s/ Tunde Folawiyo

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



]



Signature:



/s/ Wade Cherwayko

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



]



Signature:



/s/ Tunde Folawiyo

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



LIBERTY TECHNICAL SERVICES

As a Deed

By:

[W.G. Cherwayko

By:



[T.B.



LIMITED



Folawayo



- 70

ORIGINAL



GUARANTORS:



ABACAN



RESOURCES



By:



[W.G.



Cherwayko



]



Signature:



/s/ Wade Cherwayko

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



By:



[T.B.



Folawayo



]



Signature:



/s/ Tunde Folawiyo

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



AFRICAN



RESOURCE



WEST



(BENIN)



LIMITED



CORPORATION



By:



[W.G.



Cherwayko



]



Signature:



/s/ Wade Cherwayko

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



By:



[T.B.



Folawayo



]



Signature:



/s/ Tunde Folawiyo

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



AGBARA



RESOURCES



By:



[W.G.



Cherwayko



]



Signature:



/s/ Wade Cherwayko

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



By:



[T.B.



Folawayo



]



Signature:



/s/ Tunde Folawiyo

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



ABACAN



POWER



(BENIN)



By:



[W.G.



Cherwayko



]



Signature:



/s/ Wade Cherwayko

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



By:



[T.B.



Folawayo



]



Signature:



/s/ Tunde Folawiyo

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



LIMITED



LIMITED



- 71

ABACAN-ADDAX



BENIN



CONSORTIUM



S.A.



By:



[W.G.



Cherwayko



]



Signature:



/s/ Wade Cherwayko

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



By:



[T.B.



Folawayo



]



Signature:



/s/ Tunde Folawiyo

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



Signature:



/s/ Wade Cherwayko

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



ANGUS

By:



INTERNATIONAL

[W.G.



RESOURCES



Cherwayko



LTD.

]



By:



[T.B.



PROFILE



Folawayo



INTERNATIONAL



]



Signature:



/s/ Tunde Folawiyo

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



LTD.



By:



[W.G.



Cherwayko



]



Signature:



/s/ Wade Cherwayko

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



By:



[T.B.



Folawayo



]



Signature:



/s/ Tunde Folawiyo

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



]



Signature:



/s/ Tom Patrick

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



]



Signature:



/s/ Alex Gantner

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



]



Signature:



/s/ Tom Patrick

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



]



Signature:/s/ Alex Gantner

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



- 72

LENDERS:

CREDIT SUISSE

As Lender

By:



[T.



By:



[Alex



AGENT



AND



FIRST



BOSTON



Patrick

Gantner



SECURITY



CREDIT SUISSE

As Agent and

By:



[Tom



By:



[Alex



TRUSTEE:



FIRST BOSTON,

Security Trustee

Patrick

Gantner



- 72







EX-10.9

14



EXHIBIT



10.9



ABACAN RESOURCE CORPORATION and DAHOMEY RESOURCE CORPORATION and

LIBERTY

TECHNICAL SERVICES LTD. and ABACAN RESOURCES (BENIN) LIMITED and WEST AFRICAN

RESOURCE CORPORATION and AGBARA RESOURCES LIMITED and ABACAN POWER (BENIN)

LIMITED and ABACAN-ADDAX BENIN CONSORTIUM S.A. and ABACAN RESOURCES (NIGERIA)

LTD. and ANGUS INTERNATIONAL RESOURCES LTD. and PROFILE INTERNATIONAL LTD.

And

CREDIT SUISSE FIRST BOSTON

(as Agent)

CREDIT SUISSE FIRST BOSTON

(as Security Trustee)

and



THE LENDERS herein referred to

SECURITY TRUST DEED

Dated July 2, 1998



SECURITY



TRUST



DEED



(the



AAGREEMENT@)



made



on



July



2,



1998



BETWEEN

ABACAN RESOURCE CORPORATION, an Alberta, Canada corporation, whose registered

office is at Suite 1600, 407 Second Street S.W., Calgary, Alberta, Canada

(sometimes referred to individually herein as AARC@); DAHOMEY RESOURCE

CORPORATION, a Bahamas limited company, whose registered office is at Chambers,

Suite 304, Beaumont House, Bay Street, P.O. Box CB-11986, Nassau, The Bahamas

(sometimes referred to individually herein as ADAHOMEY@); LIBERTY TECHNICAL

SERVICES LTD., a Bahamas limited company, whose registered office is at 38

Warehouse Road, Apapa, Lagos, Nigeria (sometimes referred to individually herein

as ALiberty@); ABACAN RESOURCES (BENIN) LIMITED, whose registered office is at

Chambers, Suite 304, Beaumont House, Bay Street, P.O. Box CB 11986, Nassau,

N.P., The Bahamas; WEST AFRICAN RESOURCE CORPORATION, a Bahamas limited company,

whose registered office is at Chambers, Suite 304, Beaumont House, Bay Street,

P.O. Box CB 11986, Nassau, N.P., The Bahamas; AGBARA RESOURCES LIMITED, a

Bahamas limited company, whose registered office is at Chambers, Suite 304,

Beaumont House, Bay Street, P.O. Box CB 11986, Nassau, N.P., The Bahamas; ABACAN

POWER (BENIN) LIMITED, a Bahamas limited company, whose registered office is at

Chambers, Suite 304, Beaumont House, Bay Street, P.O. Box CB 11986, Nassau,

N.P., The Bahamas; ABACAN-ADDAX BENIN CONSORTIUM S.A., a Benin limited company,

whose registered office is at Villas de la Francophonie, Fadoul 1 08 B.P. 0428,

Cotonou, Benin; ABACAN RESOURCES (NIGERIA) LTD., a Nigerian limited company,

whose registered office is at 38 Warehouse Road, Apapa, Lagos, Nigeria; ANGUS

INTERNATIONAL RESOURCES LTD., a Bahamas limited company, whose registered office

is at Chambers, Suite 304, Beaumont House, Bay Street, P.O. Box CB-11986,

Nassau, The Bahamas; and PROFILE INTERNATIONAL LTD., a Bahamas limited company,

whose registered office is at Chambers, Suite 304, Beaumont House, Bay Street,

P.O. Box CB-11986, Nassau, The Bahamas.

(individually and collectively, the AOBLIGORS@);

CREDIT



SUISSE



FIRST



BOSTON



(as



AGENT);



CREDIT



SUISSE



FIRST



BOSTON



(as



SECURITY



THE



LENDERS



listed



on



the



execution



TRUSTEE);



pages



of



this



Deed.



WHEREAS:

(A)

The Lenders have agreed to make available to the ARC, Liberty and

Dahomey as Borrowers the Facility (each as defined in the Facility Agreement)

upon the terms and conditions of the Facility Agreement (as defined below).

(B)

The Security Trustee has agreed to act as Security Trustee of this Deed

and to hold the benefit of the Security Documents (as defined below) and the

security thereby created on trust for the Beneficiaries (as defined below).

-2

(C)

Pursuant to the provisions of the Facility Agreement, as a condition

precedent to the Facility becoming available, the Obligors are required to

execute the Security Documents (as defined below) in favour of the Security

Trustee to be held by it on trust for the Beneficiaries (as defined below) in

accordance with the terms and conditions of this Deed.



NOW



IT



IS



HEREBY



AGREED



as



follows:-



INTERPRETATION

1.1

DEFINITIONS: In this Deed (including the recitals) words and expressions

defined in the Facility Agreement shall bear the same respective meanings when

used herein, unless otherwise defined herein or the context otherwise requires.

The following words and expressions have, except where the context otherwise

requires, the meanings respectively shown opposite them:

BENEFICIARIES means the Agent, the Security Trustee and the Lenders;

THIS DEED means this deed as amended or modified from time to time, including

any other deed or instrument expressed to be supplemental hereto;

ENFORCEMENT NOTICE means a notice from the Agent to the Security Trustee stating

that the Agent has issued a notice to the Borrowers' Agent pursuant to clause

13.2 of the Facility Agreement;

FACILITY AGREEMENT means the $30,702,500 Credit Facility Agreement dated of even

date herewith between Abacan Resource Corporation, Liberty Technical Services

Limited and Dahomey Resource Corporation as the Borrowers, the Guarantors

therein referred to, Credit Suisse First Boston as Agent and as Security Trustee

and the Lenders therein referred to as the same may be amended from time to

time;

PROCEEDS means all moneys and other property held or received by the Security

Trustee or any Receiver under any of the Security Documents and the proceeds of

realisation of the Secured Property;

RECEIVER means any person or persons appointed (and any additional person or

persons appointed or substituted) as receiver, administrative receiver, receiver

and manager, manager or similar insolvency officer appointed by the Security

Trustee pursuant to any of the Security Documents;

SECURED AMOUNTS means all moneys and liabilities (including without limitation

amounts payable under this Deed) whatsoever which may be due, owing or payable

by the Obligors to the Beneficiaries in any currency, as principal or as surety,

individually or jointly, on any account whatsoever pursuant to the Financing

Documents or as a consequence of any breach, non-performance, disclaimer or

repudiation by the Obligors of any of their obligations under the Financing

Documents and "Secured Amounts" shall have a like meaning with respect to a

particular Security Document or Beneficiary;

SECURITY DOCUMENTS means this Deed, the Debentures, the Share Pledges, the MOPU

Agreement, the Amni Guarantee, and any other mortgages, charges, assignments or

other security interests from time to time granted by the Obligors to the

Security Trustee pursuant to the Financing Documents.

-3

SECURED

1.2



PROPERTY



means



the



property



described



in



clause



2.1;



CONSTRUCTION: In this Deed, except where the context otherwise requires:



(a)



Headings and the table of contents are for ease of reference only;



(b)



references to clauses, sub-clauses, paragraphs or the Schedule are, unless

otherwise specified, to be construed as references to clauses, sub-clauses

and paragraphs of and the Schedule to this Deed;



(c)



a provision

re-enacted;



(d)



references to documents include any deed (including this Deed), negotiable

instrument,

certificate, notice or other document of any kind and



of law



is a



reference



to



that



provision



as



amended



or



references to any document (or a provision thereof) shall be construed as a

reference to that document or provision as from time to time amended,

supplemented, varied or replaced (in whole or in part);

(e)



references to any party hereto or any person include references

successor or assignee of such party or other person; and



to any



(f)



unless the context otherwise requires, words denoting the singular number

shall include the plural and vice versa. DECLARATION OF TRUST; GENERAL



2.1

TRUST: The Security Trustee shall stand possessed of and shall hold all

the covenants, undertakings, charges, assignments and other security interests

made, given or to be made or given under or pursuant to any of the Security

Documents, upon trust for the Beneficiaries rateably in proportion to their

respective Secured Amounts.

2.2

ADDITIONAL BENEFICIARIES: Upon the delivery to the Security Trustee by

the Agent of a supplemental deed substantially in the form of Schedule 1

executed by an Obligor and by any person intended to become a beneficiary

hereunder, such person shall thereafter be entitled to the benefit of and

subject to the provisions of this Deed as a Beneficiary. Each Obligor party

hereto agrees that it will promptly execute such a Deed upon request by the

Agent.

2.3

AGENT: Notwithstanding anything to the contrary in the Facility

Agreement, the Security Trustee shall be entitled to assume that the interests

of each Bank are represented by the Agent. The Security Trustee shall not be

obliged or required to act in accordance with the directions of any of the

Lenders given otherwise than through the Agent.

2.4

SECURITY TRUSTEE'S NOTIFICATION: The Security Trustee shall promptly

advise the Agent of any breach of the provisions of this Deed which comes to the

notice of the Security Trustee.

-4

2.5

JURISDICTION: It is hereby declared and agreed that, in relation to any

jurisdiction the courts of which would not recognise or give effect to the trust

expressed to be created by this Deed, the relationship of the Beneficiaries to

the Security Trustee shall be construed as one of principal and agent but, to

the extent permissible under the laws of such jurisdiction, all the other

provisions of this Deed shall have full force and effect between the parties

hereto.

2.6



EFFECTIVE



COVENANTS



BY



THE



DATE:



This



Deed



shall



take



effect



on



the



date hereof.



OBLIGORS



3.1

COVENANTS: Each Obligor hereby covenant with the Security Trustee that,

so long as any of the Secured Amounts remains outstanding, it will:

(a)



at all times give to the Security Trustee such information as the Security

Trustee may reasonably require for the purpose of the discharge of the

trusts, powers, rights, duties, authorities and discretions vested in it

hereunder or by operation of law; and



(b)



execute and do all such assurances, acts, deeds and things as the Security

Trustee may reasonably require for protecting or perfecting the security

over the Secured Property and the exercise of all powers, authorities and

discretions vested in the Security Trustee or in any receiver of the

Secured

Property and shall in

particular

execute all

transfers,

conveyances, assignments, assurances and registrations of the Secured

Property, whether to the Security Trustee or its nominees or purchasers or

subpurchasers, and give all notices, orders and discretions which the



Security Trustee may reasonably require as necessary or expedient.

SECURED

4.1



PROPERTY



AND



POWERS



OF



ENFORCEMENT



SECURITY:



(a)



The security created by the Security Documents shall be held by the

Security Trustee as a continuing security for the payment in full of the

Secured Amounts notwithstanding any settlement of account or any other act,

event or matter whatsoever;



(b)



The security created by the Security Documents shall not be satisfied by

any intermediate payment or satisfaction of any amount hereby or thereby

secured and the security so created shall be in addition to and shall not

be prejudiced by any other security or guarantee now or hereafter held by

the Security Trustee or any other person for all or any part of the Secured

Amounts hereby and thereby secured or the liability of any person for the

whole or any part of the Secured Amounts;



(c)



Every power and remedy given to the Security Trustee herein shall be in

addition to and not a limitation of any other power or remedy vested in the

Security Trustee under any of the Security Documents, or by statute, rule

or law or otherwise and all such powers may be exercised from time to time

and as often as the Security Trustee deems expedient.



-5

(d) Neither Section 93 nor Section 103 of the Law of Property

apply to any assignment created hereunder.



Act 1925 shall



4.2

ENFORCEMENT: Upon receipt by the Security Trustee of an Enforcement

Notice from the Agent, the security constituted by the Security Documents shall

become immediately enforceable. Upon the security constituted by the Security

Documents becoming enforceable, the Security Trustee shall, subject to it being

indemnified to its satisfaction, be bound without further notice to any party to

this Deed to enforce the same and shall incur no responsibility to any such

party for so doing.

SUSPENSE



ACCOUNT,



INVESTMENT



AND



ACCUMULATIONS



5.1

SUSPENSE ACCOUNT: Pending appropriation and distribution under clause 7,

the Security Trustee may place any sum received, recovered or held by it

representing or constituting Proceeds at any time after the security constituted

by the Security Documents becomes enforceable in a suspense account which it may

maintain for as long as it thinks fit until the Secured Amounts have been

discharged in full.

5.2

INVESTMENT OF PROCEEDS: The Security Trustee may invest in the name or

under the control of the Security Trustee an amount equal to the balance from

time to time standing to the credit of any suspense account in any of the

investments for the time being authorised by English law for the investment by

Security Trustees of trust moneys or in any other investments (whether similar

to the aforesaid or not) which may be selected by the Security Trustee as if the

Security Trustee were an absolute beneficial owner or by placing the same on

deposit in the name or under the control of the Security Trustee and in such

currency as the Security Trustee may think fit The Security Trustee may at any

time vary or transfer any of such investments for or into any other such

investments or convert any other moneys so deposited into any other currency and

shall not be responsible for any loss occasioned thereby (whether by

depreciation in value, fluctuation in exchange rates or otherwise) unless such

loss is occasioned by the wilful misconduct or fraud of the Security Trustee.

The Security Trustee shall not be under any obligation to diversify any

investment or investments made by it pursuant to this sub-clause.



5.3

ACCUMULATIONS: The resulting income arising on any investme