KCS ENERGY INC, 8-K, 1995-12-22

KCS ENERGY INC
8-K, 1995-12-22
PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS)

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant To Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) December 7, 1995

KCS Energy, Inc.
Exact name of registrant as specified in its charter

Delaware 1-11698 22-2889587
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)

379 Thornall Street, Edison, New Jersey 08837
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(Address of principal executive offices) (Zip Code)

(908) 632-1770
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Registrant's telephone number, including area code

NOT APPLICABLE
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(Former name or former address, if changed since last report.)

<PAGE> 2
Item 2. Acquisition or Disposition of Assets.

On December 7, 1995, KCS Energy, Inc. (the "Company") closed the
acquisition of various oil and gas interests in the northern and southern
Niagaran Reef trend in Michigan from Hawkins Oil of Michigan, Inc. ("Hawkins")
and its predecessor, Savoy Oil & Gas, Inc. ("Savoy"), for an aggregate purchase
price of approximately $31 million, including (i) a volumetric production
payment ("VPP") covering certain reserves, (ii) escalating working interests in
related properties, (iii) participation rights in an exploration program,
described below, (collectively, the "Michigan Acquisition") and (iv) the right
to receive overriding royalty interests in properties to be developed in the
future.

The VPP provides for the delivery through January 31, 2006 to the
Company of approximately 13.7 Bcf of natural gas and 1.1 MMbbls of oil from
reserves produced principally from 89 wells operated by Hawkins, all of which
were acquired by Hawkins as a result of a merger with Savoy. The operator will
bear all development and lease operating expenses attributable to these
reserves. The Company will bear a proportionate share of applicable severance
taxes on its produced volumes. Hawkins has the right through August 31, 1998
to repurchase from the Company up to one-third of the then-outstanding VPP at a
pre-determined schedule of purchase prices that provide the Company with an
agreed-upon rate of return.

The separately acquired working interests cover 30 wells on related
properties located in the Niagaran Reef trend and add approximately 3.1 Bcf of
natural gas and 219 Mbbls of oil to the Company's proved reserves. The Company
is entitled to a 10% working interest in these wells until the first payout
date (estimated to occur in April 1996), 15% until the second payout date
(estimated to occur in the first quarter of 1997) and 30% thereafter.

A separate agreement provides for the Company's right to participate in a
three-year exploration program with Hawkins and former principals of Savoy.
The majority of the prospects in this program are anticipated to be generated
pursuant to a farmout agreement which covers approximately 150,000 gross
(56,250 net) acres in the Niagaran Reef trend, and also includes rights to use
approximately 17,000 miles of proprietary seismic data in the area. The Company
has the right to participate in individual drilling prospects on an equal basis
with Hawkins and has agreed, under certain conditions, to fund both its and
Hawkins' participation costs including well development and engineering costs,
and to recover, as an annual priority payment out of net production proceeds,
133% of the total costs annually advanced by the Company.

The Company has also entered into an agreement whereby it is entitled to
receive assignments of overriding royalty interests in certain properties to be
developed by Hawkins pursuant to the exploration agreement. The interests to
be assigned to the Company will be determined based upon lease burdens and the
participating interests of other parties.

The Michigan Acquisition was financed through the Company's currently
existing senior secured volumetric production payment credit facility with
Comerica Bank-Texas and Den norske Bank and a note recently sold to Nomura
Holding America, Inc.

<PAGE> 3
There are no material relationships between Hawkins and Savoy on the one
hand, and the Company or any of its affiliates, directors or officers, or any
associate of any such director or officer on the other.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

(b) Pro forma financial information

It is impractical to file pro forma financial information at this time. The
Company will file such pro forma financial information as soon as practicable.
It is expected that such information will be filed by amendment to this Form 8-K
on or before February 15, 1996.

2.1 Purchase and Sale Agreement dated as of November 30, 1995 between the
Company and Hawkins Oil of Michigan, Inc. (formerly Savoy Oil & Gas, Inc.)
2.2 Conveyance of Production Payment dated as of November 30, 1995
2.3 Production and Delivery Agreement dated as of November 30, 1995
2.4 Option Agreement dated as of November 30, 1995
2.5 Drilling Participation Agreement dated December 7, 1995
2.6 Assignment and Bill of Sale (Working Interests)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

KCS Energy, Inc.

Dated: December 22, 1995 By: /s/ HENRY A. JURAND
__________________________
Henry A. Jurand, Secretary
<PAGE> 4
INDEX TO EXHIBITS

<PAGE> 1
EXHIBIT 2.1

PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

HAWKINS OIL OF MICHIGAN, INC.

AS "SELLER"

AND

KCS ENERGY MARKETING, INC.

AS "BUYER"

AS OF NOVEMBER 30, 1995
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE II. TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.01 Purchase and Sale of Production Payment . . . . . . . . . . . . . . 8

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . 9

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . 13

ARTICLE V. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . 14
5.01 General Conditions to Obligations of Seller . . . . . . . . . . . . 14
5.02 General Conditions to Obligations of Buyer . . . . . . . . . . . . . 15

ARTICLE VI. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.01 The Closing in General . . . . . . . . . . . . . . . . . . . . . . . 17
6.02 Deliveries at the Closing . . . . . . . . . . . . . . . . . . . . . 17
6.03 Recordings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.04 Failure to Close . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.05 Payment of the Purchase Price . . . . . . . . . . . . . . . . . . . 18

ARTICLE VII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.01 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.02 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.03 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.05 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.07 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.08 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 21
7.09 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . 21
7.10 Entire Agreement; Amendments; Waivers . . . . . . . . . . . . . . . 21
7.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>

i
<PAGE> 3

LIST OF SCHEDULES AND EXHIBITS

SCHEDULE 1 LIST OF DEVELOPMENT ACTIVITIES

SCHEDULE 2 LIST OF CLAIMS, LAWSUITS AND PROCEEDINGS

SCHEDULE 3 LIST OF EXISTING OIL AND GAS SALES AGREEMENTS

EXHIBIT A SUBJECT INTERESTS AND PERMITTED ENCUMBRANCES

EXHIBIT B FORM OF CONVEYANCE OF PRODUCTION PAYMENT

EXHIBIT C FORM OF PRODUCTION AND DELIVERY AGREEMENT

EXHIBIT D LIST OF MATERIAL PROPERTIES

EXHIBIT E FORM OF SELLER'S COUNSEL'S OPINION

EXHIBIT F FORM OF NATURAL GAS PURCHASE AGREEMENT

ii
<PAGE> 4

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (as amended, modified, supplemented
or restated from time to time in accordance with applicable provisions hereof,
this "Agreement") is made and entered into as of the 30th day of November,
1995, by and between HAWKINS OIL OF MICHIGAN, INC., a Delaware corporation
("Seller"), and KCS ENERGY MARKETING, INC., a New Jersey corporation ("Buyer").

W I T N E S S E T H:

WHEREAS, Seller is the owner of undivided interests in the oil and gas
properties located in the State of Michigan and described in Exhibit A attached
hereto (as defined and more particularly described in this Agreement, the
"Subject Interests"); and

WHEREAS, Seller desires to sell and Buyer desires to purchase, subject
to the terms and conditions set forth herein, certain production payment
interests in the Subject Interests;

NOW, THEREFORE, in consideration of the mutual benefits and
obligations of the parties contained herein, Buyer and Seller agree as follows:

ARTICLE I.
DEFINITIONS

1.01 Certain Definitions. As used herein, each of the following
terms shall have the meaning set forth below for such term, except as otherwise
expressly provided in this Agreement:

"Affiliate" means any entity which either directly or
indirectly controls or manages, is controlled or managed by or is
under common control or management with the relevant party. For
purposes hereof, "control" means the possession, directly or
indirectly, of the right or power to direct the policies of another
through contract, stock ownership, voting rights or otherwise.

"Casualty Defect" means, with respect to all or any material
portion of the Subject Properties, any destruction by fire, blowout,
leak, explosion or other casualty (above or below ground) or any
taking, or pending or threatened taking, in condemnation or under the
right of eminent domain, of any portion of a Subject Property.

"Central Time" means either Central Standard Time or Central
Daylight Savings Time, whichever is in effect in Houston, Texas, on
the day in question.

"Claims" shall have the meaning given such term in Section
7.06.
<PAGE> 5

"Closing" means the consummation of the purchase and sale
transaction contemplated hereby, as provided in Article VI.

"Closing Date" means the Effective Date of the Merger, as that
term is defined in the Merger Agreement.

"Closing Documents" means this Agreement, the Conveyance, the
Production Agreement, the Gas Purchase Contract and any other document
or instrument executed or delivered by or on behalf of Seller at or in
connection with the Closing, as provided in Article VI.

"Confidentiality Agreements" means, collectively, the
Confidentiality Agreement by and between Seller and Buyer, dated April
25, 1995 and each additional or supplemental confidentiality agreement
by and between Seller and Buyer relating to the Subject Properties.

"Contracts" means all contracts for the sale, purchase,
exchange and processing of Hydrocarbons attributable to the Subject
Interests, transportation agreements, farm-in and farm-out agreements,
joint operating agreements, equipment leases, and all other contracts
or agreements, other than the Leases, relating to the acquisition,
exploration, development, production operations, or maintenance of the
Wells or the Leases, including the Other Agreements listed in Exhibit
A.

"Conveyance" means the Conveyance of Production Payment to be
executed by Seller and Buyer in the form attached hereto as Exhibit B,
and covering the Subject Interests, as such conveyance may be amended,
modified, supplemented or restated from time to time.

"Development Activities" means the activities listed on
Schedule 1 attached hereto as to one or more of the Subject Properties
and shall include the drilling, completion and equipping of Wells and
the construction and installation of Facilities.

"Encumbrances" means pledges, liens, mortgages, security
interests, contract obligations, options, claims and encumbrances.

"Facilities" means oil, gas and water pipelines and gathering
systems and water disposal systems, compressors, wellhead equipment
and facilities, central production facilities, saltwater disposal
wells and facilities, together with all equipment, material, supplies,
buildings, structures, improvements and fixtures used in connection
with the exploration, development, production, operation or
maintenance of the Wells or the Leases, together with all
rights-of-way, easements, surface leases, deeds and grants
appertaining thereto.

2
<PAGE> 6

"Gas" means natural gas and all other gaseous hydrocarbons,
including casinghead gas and hydrocarbon liquids or products recovered
as a result of gas processing operations.

"Gas Purchase Contract" means the Natural Gas Purchase
Agreement to be entered into between Seller and Buyer in the form of
Exhibit F attached hereto, covering certain quantities of natural gas
(other than quantities attributable to the Production Payment Gas)
which are produced from the Subject Interests, as the same may be
amended, modified, supplemented or restated from time to time.

"Good and Defensible Title" means, for each Lease, Well or
Unit, as the case may be, such record title (any element of a Net
Revenue Interest which is attributable to a non-consent or sole risk
election shall be deemed to be record title) that (i) entitles Seller
to receive throughout the life of such Lease, Well or Unit, a Net
Revenue Interest in, to and from Hydrocarbons attributable to such
Lease, Well or Unit, as the case may be, not less than the Net Revenue
Interest specified for such Lease, Well or Unit on Exhibit A attached
hereto, (ii) obligates Seller to pay and bear throughout the life of
such Lease, Well or Unit a share of the costs and risks of exploring,
drilling, developing, operating and abandoning that Lease, Well or
Unit, as the case may be, not greater than the Working Interest
specified for such Lease, Well or Unit on Exhibit A attached hereto
(prior to giving effect to rights of non-consent hereafter exercised),
and (iii) is free and clear of all Encumbrances except Permitted
Encumbrances.

"Governmental Authority" means all applicable federal, state,
local and municipal agencies, boards, tribunals, ministries and
departments.

"Hydrocarbons" means Oil and Gas.

"Indemnified Parties" shall have the meaning given such term
in Section 7.06.

"Independent Engineer" means Netherland, Sewell & Associates.

"Lands" means the lands covered by a Lease, lands included in
a Unit and lands within an area covered by an unitization,
communitization or pooling agreement or order.

"Lease" means an oil, gas and/or mineral lease described or
identified with particularity in Exhibit A attached hereto as to all
Lands and depths described in such lease (or the applicable part or
portion thereof if specifically limited in depth and/or areal extent
in Exhibit A), together with any renewal or extension of such lease
(as to all or any part or portion thereof), and any replacement lease
taken upon or in anticipation of expiration or termination of such
lease (if executed and delivered during the term of or within one year
after expiration of the predecessor lease) as to all lands and depths
described in the predecessor lease (unless the predecessor lease is
specifically limited in depth or areal extent in Exhibit A, in which
event only such portion of such lease shall

3
<PAGE> 7

be considered a renewal or extension or a replacement lease and
subject to the terms of this Agreement), and all renewals and
extensions of such replacement leases.

"Legal Requirement" means any requirement imposed pursuant to
any statute, rule, regulation, order, permit or license of any
applicable governmental authority or by an applicable court order.

"Material Adverse Effect" means any event (individually or in
the aggregate), which has or would have an adverse effect on the
business, properties, results of operations or financial condition of
Seller, that (after taking into consideration insurance recoveries in
respect thereof) is material to Seller.

"Material Properties" means the Subject Interests listed by
Well name in Exhibit D attached hereto.

"Merger" means consummation of the merger transaction
described in Section 2.1 of the Merger Agreement.

"Merger Agreement" means Agreement and Plan of Merger dated as
of November 30, 1995, by and between Savoy Oil & Gas, Inc., Savoy
Exploration, Inc., Thomas C. Pangborn, William T. Sperry, Hawkins Oil
& Gas, Inc., and Hawkins Transition Co.

"Net Revenue Interest" means the interest (expressed as a
percentage) of Seller in and to all Hydrocarbons produced from or
allocated or attributable to a Lease, Well or Unit, as the case may
be, and of the proceeds of such production, after giving effect to and
deducting all applicable Production Burdens (other than the Production
Payment) and after giving effect to all Permitted Encumbrances.

"Oil" means crude oil, condensate, and other liquid
hydrocarbons recovered at or near the wellhead, including liquid
hydrocarbons recovered by use of conventional separators, but
excluding hydrocarbons recovered in connection with gas processing
operations.

"Other Agreements" means Seller's interests in the agreements
and instruments (including easements and permits) listed in Exhibit A
attached hereto to the extent they relate to the operation of the
Subject Interests or the production of Hydrocarbons therefrom.

"Permitted Encumbrances" means and includes the following:

(a) Those instruments and matters set forth on
Exhibit A attached hereto, according to the
definition of "Permitted Encumbrances"
appearing on page 1 of Exhibit A;

4
<PAGE> 8

(b) Production Burdens which do not reduce
Seller's Net Revenue Interest in a Lease,
Well or Unit below the Net Revenue Interest
set forth on Exhibit A for such Lease, Well
or Unit;

(c) Encumbrances under contracts and pooling and
unitization orders of a scope and nature
customary in the oil and gas industry,
insofar as they do not cause Seller's Net
Revenue Interest in a Lease, Well or Unit to
be less than the Net Revenue Interest set
forth on Exhibit A and will not cause Seller
to bear more than the share of the costs and
risks of exploring, drilling, developing,
operating and abandoning such Leases, Wells
or Units equal to Working Interest set forth
on Exhibit A (prior to giving effect to
rights of non-consent hereafter exercised);

(d) Liens for taxes or assessments or
governmental charges not yet delinquent and
taxes, assessments and charges that are being
contested in good faith;

(e) Materialman's, mechanic's, repairman's,
employee's, contractor's, operator's and
other similar liens or charges arising in the
ordinary course of business securing amounts
not yet due and payable or which are being
contested in good faith;

(f) Easements, rights-of-way, servitudes,
permits, surface leases and other rights in
respect of surface or seafloor operations
incidental to the ownership of the Subject
Leases;

(g) All rights of consent required by any
Governmental Authority (if any) in connection
with the change of ownership or control of an
interest in any federal, state or other Lease
if the same are customarily obtained after
such change of ownership or control by timely
filings or other actions; and

(h) All other liens, charges, encumbrances,
contracts, agreements, instruments,
obligations, defects and irregularities
affecting the Leases, Wells or Units which
taken individually or together: (i) do not
interfere materially with the operation,
value or use of any of the Leases, Wells or
Units; (ii) do not prevent Seller from
receiving the proceeds of production from any
of the Leases, Wells or Units or Buyer from
receiving Production Payment Hydrocarbons, or
the proceeds thereof; (iii) do not reduce the
Seller's Net Revenue Interest in a Lease,
Well or Unit below the Net Revenue Interest
set forth in Exhibit A for such Lease, Well
or Unit (prior to giving effect to rights of
non-consent hereafter exercised), or (iv) do
not cause Seller to bear more than that share

5
<PAGE> 9

of the costs and risks of exploring,
developing, operating and abandoning such
Lease, Well or Unit equal to the Working
Interest set forth on Exhibit A (prior to
giving effect to rights of non-consent
exercised); provided that liens securing
indebtedness for borrowed money shall not be
considered as coming within the scope of this
clause (h).

"Person" means any individual, natural person, corporation,
limited liability company, joint venture, partnership, limited
partnership, trust, estate, business trust, association, governmental
entity or other entity.

"Personal Property and Equipment" means equipment, pipe and
other personal property, fixtures and improvements situated upon the
Land pertaining to a Lease, Well or Unit or used or held in use in
connection with the exploration, development or operation of a Lease,
Well or Unit or the production, treatment, storage, compression, sale,
marketing or transportation of the Hydrocarbons therefrom.

"Production Agreement" means the Production and Delivery
Agreement to be entered into by and between Buyer and Seller in the
form of Exhibit C attached hereto, as the same may be amended,
modified, supplemented or restated from time to time.

"Production Burdens" means all royalty interests, overriding
royalty interests, production payments, net profits interests or other
similar non-operating interests that constitute a burden on and are
measured by or are payable out of, the production of Hydrocarbons or
the proceeds realized from the sale or other disposition of
Hydrocarbons, other than Taxes, Severance Taxes and assessments of
Governmental Authorities.

"Production Payment" shall have the meaning given such term in
Section 1.01 of the Conveyance.

"Production Payment Hydrocarbons" means the Hydrocarbons which
are attributable to the Production Payment.

"Purchase Price" shall have the meaning given such term in
Section 2.01.

"Reserve Report" means the reserve report and evaluation
covering the Subject Interests dated as of August 1, 1995, prepared by
the Independent Engineer, and including the supplemental report and
evaluation dated as of October 1, 1995.

"Subject Interests" means the respective undivided interests
of Seller set forth in Exhibit A in and to the Leases, Units or Wells
described on Exhibit A and the interests of Seller arising therefrom
in all Hydrocarbons produced from or allocated or attributable to such
interests and in all Lands now or hereafter pooled, communitized or
unitized therewith, all as the same shall be enlarged by the discharge
of any burdens or by the

6
<PAGE> 10

removal of any charges or encumbrances to which any of the same may be
subject as of the date hereof or decreased as a result of any burden,
charge or encumbrance set forth in Exhibit A as to any Lease or
Leases, Well or Wells, or Unit or Units, and any and all renewals and
extensions of any of the same.

"Subject Lands" means with respect to each Well, Unit or
Lease, as the case may be, the Lands and depths described in Exhibit A
(where no depth limit is specified, the Subject Lands shall include
all depths).

"Subject Properties" or "Subject Property" means, collectively
or singularly, all of Seller's rights, titles and interests in and to
(i) the Subject Interests, (ii) the Lands, (iii) the Personal Property
and Equipment, (iv) the Contracts, (v) the Facilities and (vi) the
Well Data.

"Title Defect" means any Encumbrance (or any claim of an
Encumbrance) other than a Permitted Encumbrance which would cause
title to any Lease, Land, Well or Unit included in the Material
Properties not to be Good and Defensible Title.

"Unit" means with respect to each Well, the Drilling Unit
specified in Exhibit A, whether such Drilling Unit consists of (a) the
drilling or spacing unit for such Well as approved by the Michigan
Department of Natural Resources or (b) a pooled unit or unitized tract
existing pursuant to a pooling declaration or agreement, a unitization
agreement or order, or any other written instrument.

"Well" means a well described by name in Exhibit A, a well now
located on the Subject Lands (whether or not described in Exhibit A)
or hereafter drilled on the Subject Lands, and any other wells now or
hereafter located on lands or leases pooled, unitized or communitized
with the Subject Interests for the purpose of producing Hydrocarbons.

"Well Data" means information pertaining to the reserves or
deposits of Hydrocarbons attributable to the Subject Properties,
including production records, engineering data, consultants' studies
or reports regarding any of the foregoing, insurance policies and
bonds, all original books, records, files, documents (including
accounts payable and receivable, accounting records, Leases, deeds,
and Contracts) that pertain to the Subject Properties but excluding
all geological or seismic data; all title information (including but
not limited to title opinions, abstracts, evidence that rentals,
royalties and other payments due under the Leases and Contracts have
been paid, evidence that Taxes have been paid, maps and surveys, lease
records and data sheets), computer sensible

7
<PAGE> 11

copies of all computer records pertaining to the Subject Interests but
excluding all geological or seismic data; and all written plans for
exploration and development, applications, inspection reports,
environmental impact statements, assessments and studies, permits,
licenses, orders, consents, notices, correspondence and other
statements and instruments pertaining to environmental matters and
requirements with respect to the Subject Interests that have been
filed with or supplied to or by any Governmental Authority.

"Working Interest" means the interest (expressed as a
percentage) of Seller in any Lease, Well or Unit before giving effect
to any applicable Production Burdens and the percentage of all costs
and expenses associated with the exploration, drilling, development,
operation, maintenance and abandonment of such Lease, Well or Unit
required to be borne by Seller (prior to giving effect to rights of
non-consent hereafter exercised).

1.02 Interpretation. In this Agreement, unless the context
indicates or provides otherwise, (a) the singular includes the plural and the
plural the singular; (b) words importing any gender include the other gender;
(c) references to statutes, sections or regulations are to be construed as
including all statutory or regulatory provisions consolidating, amending,
replacing, succeeding or supplementing the statute, section or regulation
referred to; (d) references to "writing" include printing, typing, lithography,
facsimile reproduction and other means of reproducing words in a tangible
visible form; (e) the words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation" or "but not limited to"
or words of similar import; (f) references to articles, sections (or
subdivisions of sections), exhibits, annexes or schedules are to those of this
Agreement; (g) references to agreements and other contractual instruments shall
be deemed to include all exhibits and appendices attached thereto and all
subsequent amendments and other modifications to such instruments, but only to
the extent such amendments and other modifications are not prohibited by the
terms of this Agreement; and (h) references to Persons include their respective
successors and permitted assigns.

ARTICLE II.
TRANSACTIONS

2.01 Purchase and Sale of Production Payment. Subject to and in
accordance with the terms and conditions of this Agreement and the other
Closing Documents to be executed by Seller on or about November 30, 1995,
Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from
Seller, the Production Payment for a purchase price of Twenty-Eight Million
Nine Hundred Eighty Thousand U.S. Dollars (U.S. $28,980,000) and the parties
agree to execute and deliver such Closing Documents. The Purchase Price shall
be paid and delivered by Buyer to Seller as provided in Section 6.05. Seller
shall use $1,260,000 of the Purchase Price to pay Seller's costs of performing
certain of the Development Activities, in accordance with the terms of the
Production Agreement and Section 6.05 of this Agreement.

8
<PAGE> 12

ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER

To induce Buyer to enter into this Agreement and to pay the Purchase
Price, Seller hereby represents and warrants to Buyer that:

(a) To the knowledge of Seller, the factual data,
information, exhibits, memoranda and reports furnished by Seller to
Buyer in connection with the negotiation of the Production Payment
Documents (taken as a whole, and taking into account all corrections
and supplements to such information heretofore delivered) do not
contain any untrue statement of material fact or omit to state a
material fact known to Seller when made and which is necessary in
order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. There is no
fact known to Seller that has not been disclosed to Buyer which could
materially and adversely affect the value of the Production Payment
(other than commodity prices). (In accepting these representations
and warranties Buyer acknowledges that Seller has not warranted or
made any representation that any reserve or production estimates
relating to the Subject Interests revealed to or obtained by Buyer
will ultimately prove to have been accurate.)

(b) Seller has Good and Defensible Title to the Working
Interests and the Net Revenue Interests attributable to the Material
Properties listed on Exhibit D, and more particularly described in
Exhibit A, and in and to the corresponding Leases, Lands, Wells or
Units described therein, free and clear of all Encumbrances except for
the Permitted Encumbrances. With respect to the Subject Interests
which are not attributable to the Material Properties (the
"Non-Material Properties"), Seller has Good and Defensible Title to
the Working Interests and the Net Revenue Interests to such Subject
Interests, and in and to the corresponding Leases described on Exhibit
A and in the corresponding Units set forth on Exhibit A, but subject
to the Permitted Encumbrances applicable thereto; provided, however,
Seller shall not be deemed to have breached any representation with
respect to the Non-Material Properties unless the aggregate amount in
controversy with respect to all Non-Material Properties exceeds
$450,000.00. Except as set forth in this Agreement, Seller makes no
other representation or warranty, express or implied, with respect to
the Net Revenue Interests or Working Interests constituting the
Subject Interests.

(c) All Taxes imposed or assessed with respect to or
measured by or charged against or attributable to the Subject
Interests and the Subject Properties have been paid prior to
delinquency, except (i) those which are being contested in good faith
by proceedings being pursued diligently by Seller or (ii) those unpaid
Taxes attributable to Subject Interests other than the Material
Properties, to the extent the aggregate unpaid amount is less than
$10,000.00.

(d) Except as may be set forth in Schedule 2, there are
no suits or proceedings pending or, to the knowledge of Seller,
probable of assertion against Seller or the Subject

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<PAGE> 13

Interests, or the ownership or operation thereof, before any court, or
by or before any Governmental Authority, that if decided adversely to
the interest of Seller would have a material and adverse effect on the
value of the Production Payment, the ability of Seller to convey the
Production Payment pursuant to the Production Payment Documents or the
ability of Seller to perform its obligations under the Production
Payment Documents.

(e) The Leases are in full force and effect, and Seller
has complied with the terms of all governmental orders or directives
either naming Seller or directly applicable to the Subject Interests
where such noncompliance could materially and adversely affect the
ownership or operation of any of the Material Properties.

(f) All rents and royalties with respect to the Leases
have been paid in a timely manner, and all material liabilities or
obligations of any kind or nature under or incurred with respect to
the Leases have been paid or performed in accordance with the terms of
the Leases and Seller's customary practices, except such which are
being contested in good faith by proceedings being pursued diligently
by Seller or such as could not materially and adversely affect the
ownership or operation of any of the Material Properties; Seller has
not received any notice of default or claimed default with respect to
the Subject Interests or any Lease attributable to the Material
Properties or any part thereof; and all facilities and equipment
necessary for the operation of the Wells attributable to the Material
Properties are in good repair and working condition subject to
ordinary maintenance and repair requirements and to Seller's knowledge
have been designed, installed and maintained in accordance with good
industry standards and all applicable Legal Requirements.

(g) Except for those set forth in Schedule 3 (true copies
of all of which have been furnished to Buyer) and the Gas Purchase
Contract, neither the Subject Interests nor the Hydrocarbons
attributable thereto are subject, committed or dedicated to any
contract, agreement or arrangement regarding the sale, transportation
or processing (or otherwise, related to marketing such Hydrocarbons)
which (i) is not terminable upon 90 days or less notice without
penalty, (ii) would bind Buyer as owner of the Production Payment
Hydrocarbons or (iii) would otherwise restrict the rights of Buyer
under the Conveyance to take possession of and market the Production
Payment Hydrocarbons.

(h) Except as set forth under a Permitted Encumbrance
listed in Exhibit A and except for any easements, surface easements or
rights-of-way listed in Exhibit A, no Material Property is subject to
a preferential purchase right to purchase or subject to a requirement
that a consent to assignment be obtained from a third party which
would be triggered by the conveyance of the Production Payment.

(i) Except for those set forth in Schedule 3 (true copies
of all of which have been furnished to Buyer), Seller is not a party
to or bound by, and neither the Subject Interests nor the Hydrocarbons
attributable thereto are encumbered or affected by, any gas balancing,
deferred production, gas banking or similar agreement or arrangement;

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<PAGE> 14

and except as shown on Schedule 3, Seller is not in an
"under-produced," "over-produced," or similar status under any such
agreement or arrangement.

(j) Except for those set forth in Schedule 3 (true copies
of all of which have been furnished to Buyer), neither the Subject
Interests nor the Hydrocarbons attributable thereto are subject to any
contract, agreement or arrangement (including advance payment
agreements, prepayments, take-or-pay makeup obligations or otherwise)
whereby the owner of such Hydrocarbons or any part thereof is not
entitled to convey such Hydrocarbons or to market such Hydrocarbons
and to obtain the full contract or market price or value of the same.

(k) The Subject Interests (to the extent the same could
materially and adversely affect the ownership or operation of the
Subject Interests after the date hereof) have been operated in
accordance with, and are currently in compliance with, all rules and
regulations of all Governmental Authorities having jurisdiction
relating to the ownership and operation of the Subject Interests,
including the production of Hydrocarbons attributable thereto, and to
the best of Seller's knowledge, no action, claim or proceeding is now
pending or probable of assertion that would cause the Subject
Interests hereafter to be subject to reduced allowances or other
penalties on account of overproduction or otherwise.

(l) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
is duly qualified as a foreign corporation and is in good standing
under the laws of the State of Michigan, and has all requisite
corporate power and authority to own, lease, operate and transfer its
properties located in the State of Michigan (including the Subject
Interests) and to carry on its business as now being conducted; and
Seller has all requisite corporate power and authority (i) to execute
and deliver the Conveyance and to convey to Buyer the Production
Payment, as the same may hereafter be supplemented, and all of the
rights and privileges appurtenant thereto and (ii) to execute and
deliver this Agreement and the other Closing Documents and to perform
all of its obligations under the same.

(m) The execution, delivery and performance by Seller of
the Closing Documents to which Seller is a party and the consummation
of the transactions contemplated herein and therein have been duly
authorized by all necessary corporate action and do not and will not
(i) violate any material provision of any law, rule, regulation,
order, writ, judgment, decree, determination or award presently in
effect having applicability to Seller or of the Certificate of
Incorporation or By-laws of Seller, or (ii) result in a breach of, or
constitute a default under, any material contract, indenture,
instrument, or agreement to which Seller is a party or by which it or
its property may be presently bound or affected (including the Leases
comprising the Material Properties, the Permitted Encumbrances
attributable thereto, and the contracts listed on Schedule 3 attached
to this Agreement), or result in or require the creation or imposition
of any Encumbrance under any such contract, indenture, instrument, or
agreement. Seller has obtained, and shall continue to obtain, all
consents, authorizations

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<PAGE> 15

and waivers necessary under any such contract, indenture, instrument
or agreement or under any such material provision of law, rule
regulation, order, writ, judgment, decree, determination or award in
order to permit the valid execution, delivery and performance by
Seller of the Closing Documents.

(n) The Closing Documents have been duly executed and
delivered by Seller (to the extent it is a party thereto) and
constitute the legal, valid and binding acts and obligations of
Seller, enforceable against Seller in accordance with their respective
terms except as such enforcement may be limited by bankruptcy,
fraudulent transfer, insolvency, moratorium and other similar laws
applicable to creditors' rights generally or by general principles of
equity. No bankruptcy or insolvency proceeding is presently pending
(or, to Seller's knowledge, threatened) by or against Seller under any
applicable bankruptcy, insolvency or other similar law of any
jurisdiction.

(o) All advance notifications to other Persons, if any,
of the transactions contemplated herein and in the other Closing
Documents necessary to permit the valid conveyance to Buyer of the
Production Payment and the execution and delivery of this Agreement
and the other Closing Documents have been timely and properly given.

(p) Except as disclosed in that certain letter dated as
of November 30, 1995, from the Seller to the Buyer, no authorization,
consent, approval, license, or exemption of, or any filing or
registration with, any court or Governmental Authority is necessary to
the valid execution and delivery by Seller of, or the performance by
Seller of its obligations under, this Agreement or the other Closing
Documents, that has not been obtained or performed or the period for
objection thereto expired, other than routine filings of the
Conveyance and any supplements thereto with filing officers in
relevant counties in the State of Michigan.

(q) Since August 1, 1995, no fire, explosion, accident,
earthquake, act of public enemy, or other casualty (regardless of
whether covered by insurance) materially and adversely affecting any
portion of the Material Properties or the operation thereof, or
materially and adversely affecting the ability of Seller to perform
its obligations under this Agreement or the other Closing Documents,
has occurred. For purposes of this subsection, an adverse effect of
$250,000 or more shall be deemed a material adverse effect.

(r) Seller has furnished or made available to Buyer true
copies of all of the agreements and other instruments described in
Exhibit A as Permitted Encumbrances which relate to or affect the
Material Properties and which are in effect as of the Closing
contemplated in Article VI.

(s) The principal office where Seller keeps its records
relating to the Subject Interests is located at the following address:
400 South Boston, Suite 800, Tulsa, Oklahoma 74103.

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<PAGE> 16

(t) Seller has obtained or will timely obtain all
permits, licenses, bonds and other authorizations under federal, state
and local laws which are necessary to own, operate and develop the
Subject Interests and which are required with respect to pollution or
protection of the environment relating to the Subject Interests,
including laws relating to actual or threatened emissions, discharges
or releases of pollutants, raw materials, products, contaminants or
hazardous or toxic materials or wastes into ambient air, surface
water, groundwater or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of pollutants, contaminants or hazardous or toxic
materials or wastes, the failure to obtain which would materially and
adversely affect the value, use or operation of any of the Subject
Interests; and to the best of Seller's knowledge and belief, Seller is
in compliance in all material respects with all terms and conditions
of such laws, permits, licenses and authorizations, and also is in
compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligation, schedules and timetables contained in such laws or
contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved
thereunder relating to the Subject Interests, the failure to comply
with which would materially and adversely affect the value, use or
operation of the Subject Interests; and Seller has not (and to
Seller's knowledge and belief, no other Person acting as operator has)
received notice of a violation of or investigation relating to any
federal, state or local laws with respect to pollution or protection
of the environment relating to the Subject Interests.

(u) Seller is not a "transmitting utility" as defined in
MCLA 440.9105(1)(o).

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER

To induce Seller to enter into this Agreement and to convey the
Production Payment, Buyer represents and warrants to Seller that:

(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New
Jersey and is duly qualified as a foreign corporation and is in good
standing under the laws of the States of Texas and Michigan. Buyer
has all requisite corporate power and authority to execute and deliver
this Agreement and the other Closing Documents and to perform its
obligations under the same. The execution, delivery and performance
by Buyer of this Agreement and the other Closing Documents and the
consummation of transactions contemplated herein and therein have been
duly authorized by all necessary corporate action and do not and will
not violate any material provision of any law, rule, regulation,
order, writ, judgment, decree, determination or award presently in
effect having applicability to Buyer or Buyer's certificate of
incorporation, bylaws, or other governing documents, result in a
breach of, or constitute a default under, any material contract,
indenture, instrument or agreement to which Buyer is a party or by
which it or any of its material properties may be presently bound or
affected, or result in or require the creation or imposition of any

13
<PAGE> 17

Encumbrance upon or of any of the material properties of Buyer under
any such contract, indenture, instrument or agreement; and Buyer has
obtained, and shall continue to obtain, all consents, authorizations
and waivers necessary under any such contract, indenture, instrument
or agreement or under any such material provision or law, rule,
regulation, order, writ, judgment, decree, determination or award in
order to permit the valid execution, delivery, and performance by
Buyer of the Closing Documents.

(b) The Closing Documents have been duly executed and
delivered by Buyer (to the extent it is a party thereto) and
constitute the legal, valid and binding acts and obligations of Buyer,
enforceable against Buyer in accordance with their respective terms
except as such enforcement may be limited by bankruptcy, fraudulent
transfer, insolvency, moratorium and other similar laws applicable to
creditors' rights generally or by general principles of equity. No
bankruptcy or insolvency proceeding is presently pending (or, to
Buyer's knowledge, threatened) by or against Buyer under any
applicable bankruptcy, insolvency or other similar law of any
jurisdiction.

(c) Buyer has funds available, either in its possession
or under fully enforceable commitments from other Persons, to enable
it to deliver to Seller the Purchase Price, and will maintain such
availability of funds until the earlier of delivery of the Purchase
Price or termination of this Agreement. Buyer's payment of the
Purchase Price will be made pursuant to all requisite power and
authority, including any authority required from the Persons providing
funds for such purpose to Buyer.

ARTICLE V.
CONDITIONS TO CLOSING

5.01 General Conditions to Obligations of Seller. The obligation
of Seller to proceed with the Closing is subject to the satisfaction, on or
prior to the Closing Date, of all of the following conditions, any one or more
of which may be waived in whole or in part in writing by Seller:

(a) The Merger shall be effective in the State of
Michigan and the Secretary of State of the State of Delaware shall
have acknowledged the effectiveness of the Merger.

(b) Buyer shall have performed all covenants and
agreements required to be performed by it hereunder at or prior to the
Closing, and each of the representations and warranties contained in
Article IV hereof shall be true and correct on and as of such Closing
Date in all material respects, except such as are made as of another
date, which, nonetheless shall remain true and correct as of the date
made.

(c) Seller shall have received a certificate, dated the
Closing Date, of an executive officer of Buyer certifying as to the
matters specified in clause (b) of this Section 5.01.

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<PAGE> 18

(d) The consummation of the Closing shall not be
prohibited by any order or decree of any federal or state court or
agency having competent jurisdiction, and no suit, action or other
proceeding shall be pending in which there is sought any remedy to
restrain, enjoin or otherwise prevent the consummation of this
Agreement or the transactions contemplated in connection herewith.

(e) Seller shall have received from the corporate
secretary of Buyer certified copies of resolutions of the directors of
Buyer authorizing the transactions contemplated hereby and Buyer's
execution of the Closing Documents to be executed by the officer or
representative signing on its behalf.

(f) Seller shall have received certificates dated as of a
date no earlier than thirty (30) days prior to the Closing Date from
the applicable public officials of the State of New Jersey showing
that Buyer is a corporation duly organized, validly existing and in
good standing in such state and from the applicable public officials
of the State of Michigan showing that Buyer is duly qualified and in
good standing as a foreign corporation in such state.

5.02 General Conditions to Obligations of Buyer. The obligation of
Buyer to proceed with the Closing is subject to the satisfaction, on or prior
to the Closing Date, of all of the following conditions precedent, any one or
more of which may be waived in whole or part in writing by Buyer:

(a) The Merger shall be effective in the State of
Delaware and the Secretary of State of the State of Delaware shall
have acknowledged the effectiveness of the Merger.

(b) Seller shall have performed all covenants and
agreements required to be performed by it hereunder at or prior to the
Closing, and each of the representations and warranties contained in
Article III hereof shall be true and correct on and as of such Closing
Date in all material respects, except such as are made as of another
date, which, nonetheless shall remain true and correct as of the date
made.

(c) Buyer shall have received (i) a certificate, dated
the Closing Date, of an executive officer of Seller certifying as to
the matters specified in clauses (a) and (b) of this Section 5.02 and
(ii) a certificate, dated the Closing Date, of an executive officer of
Seller certifying as to the form of Exhibit A.

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<PAGE> 19

(e) Buyer shall have received (i) supplemental opinions
of special title counsel to Seller, acceptable in form and substance
to Buyer, covering Seller's title to the Subject Interests listed in
Attachment D to letter dated November 30, 1995 from the law firm of
Loomis, Ewert, Parsley, Davis & Gotting, and (ii) an opinion, dated as
of the Closing Date, of Rosenstein, Fist & Ringold, counsel to Seller,
in substantially the form of Exhibit E, all of such opinions expressly
permitting Buyer and Buyer's Affiliates and lenders, if any, to rely
thereon.

(f) Buyer shall be reasonably satisfied with Seller's
title to the Material Properties and with any review of the Material
Properties undertaken by Buyer prior to the Closing.

(g) There shall not exist or have occurred any Casualty
Defects that, in the aggregate, materially and adversely affect the
value of the Subject Interests or the Production Payment or the use,
possession or operation by Seller of the Subject Interests or any
material part thereof.

(h) Buyer shall have received from the corporate
secretary of Seller certified copies of resolutions of the directors
of Seller authorizing the transactions contemplated hereby and the
execution of the Closing Documents by the officers or representatives
signing on behalf of Seller.

(i) Buyer shall have received certificates (1) with
respect to Savoy Oil & Gas, Inc. ("Savoy"), dated no earlier than
thirty (30) days prior to the Closing Date and (2) with respect to
Seller, dated within ten (10) days following the Closing Date, from
the applicable public officials of the State of Delaware showing that
Savoy and Seller, respectively, are corporations duly organized,
validly existing and in good standing in such state and from the
applicable public officials of the State of Michigan showing that
Savoy and Seller, respectively, are duly qualified and in good
standing as a foreign corporation in such state.

(j) Since August 1, 1995 there shall not have occurred
any material and adverse change in the business or financial condition
of the Seller or the Subject Interests, other than as the result of
drilling operations conducted subsequent to such date.

(k) Buyer shall have received and approved the plans of
development for each of the Subject Interests described on Schedule 1
attached hereto, showing the estimated date of commencement of
operations.

(l) Buyer and Seller shall have executed and delivered
the Production Agreement and the Gas Purchase Contract, and all
necessary consents under existing operating agreements or
authorizations from co-owners in the Subject Interests, if any, with
respect to the transactions contemplated herein, shall have been
obtained.

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<PAGE> 20

ARTICLE VI.
CLOSING

6.01 The Closing in General. The consummation of the purchase and
sale transaction relating to the Production Payment (referred to herein as the
"Closing) shall occur at a location to be mutually agreed upon, on November 30,
1995, or such later date upon which the conditions set forth in Sections 5.01
and 5.02 shall have been satisfied. At the Closing, each of Buyer and Seller
shall execute, acknowledge and deliver the instruments described in Section
6.02 which are to be executed, acknowledged or delivered by it and shall take
all additional steps necessary to consummate such Closing and to effectuate the
conveyance of the Production Payment to Buyer.

6.02 Deliveries at the Closing. The following shall occur on the
Closing Date:

(a) Buyer and Seller shall execute and deliver the
following:

(i) Counterparts of the Conveyance;

(ii) Counterparts of the Production Agreement;

(iii) Mortgages, financing statements and other
security instruments, all in form and
substance reasonably satisfactory to Buyer,
as may be reasonably necessary or appropriate
to create and perfect, upon completion of
necessary filings of counterparts thereof,
the liens and security interests contemplated
to be granted to Buyer pursuant to the
Production Agreement; and

(iv) Counterparts of the Gas Purchase Contract.

(b) Buyer and Seller shall execute and deliver each of
the certificates and other Closing Documents which are required to
satisfy the Conditions to the Closing set forth in Article V.

(d) The parties shall take such other actions and make
such other deliveries of documents as are necessary or appropriate to
effectuate the conveyance to Buyer of the Production Payment and to
satisfy the Conditions to the Closing.

The Closing shall be deemed to have occurred upon delivery to Seller (or its
designee) of the Purchase Price less the Deferred Amount or any Agreed
Adjustment, as provided in Section 6.05 below.

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<PAGE> 21

6.03 Recordings. Immediately following the Closing, Buyer shall
cause counterparts of the Conveyance, the Mortgages, financing statements and
other instruments (including amendments to the foregoing) actually delivered at
the Closing to be filed for record in the appropriate public records of the
counties and in such other locations or offices as deemed necessary or
appropriate by Buyer. Seller and Buyer shall share equally the costs of
recording and shall be equally responsible for the payment or reimbursement of
all documentary, filing and recording fees required in connection with the
filing and recording of the Closing Documents.

6.04 Failure to Close. If all of the conditions precedent to the
Closing contemplated by Article V have not been satisfied or waived on or
before the third business day following the Closing Date (or such later date as
hereafter may be mutually agreed upon by the parties in writing), this
Agreement shall automatically terminate as of the end of such third following
day, and no party hereto shall have any further obligation or liability to the
other party pursuant to this Agreement, except as provided in Section 7.03 and
except that nothing herein shall relieve any party from liability for actions
taken by it prior to such termination date or for its willful failure to
satisfy any conditions to the Closing.

6.05 Payment of the Purchase Price. At the Closing, the sum of
$630,000.00 out of the Purchase Price (the "Deferred Amount") shall be held by
Buyer in trust for the benefit of Seller in one or more of Buyer's parent's
corporate accounts. All funds so held in trust by Buyer shall accrue, for the
account of Seller, interest at an annual rate equal to five percent (5%).
Disbursements of the Deferred Amount shall be requested by Seller pursuant to
written requests which (a) specify the amount of the requested disbursement,
(b) include copies of approved work orders, authorities for expenditures,
completion reports, or other requests for payment by contractors performing or
to perform work relating to a Development Activity, and (c) include a
certification by an executive officer of Seller that the requested disbursement
has or will be utilized to satisfy Grantor's share of the costs of such
Development Activity. Requests shall be addressed to Buyer. Buyer shall
review, promptly and in good faith, each such request for disbursement
presented to it within 72 hours of receipt, and if complete, shall approve the
request. Upon Buyer's request, Seller shall provide written confirmation of
the application of the disbursements actually made and the payment of invoices
of applicable contractors. In the event there remains at June 30, 1996 any
undisbursed portion of the Deferred Amount or earned interest thereon, Buyer
shall disburse the entire remaining balance of the account to Seller for the
purpose of completing the Development Activities to be performed by Seller in
calendar year 1996. In addition to the foregoing, to the extent that Seller
holds at the Closing Date any proceeds attributable to the Production Payment
Hydrocarbons and Seller and Buyer have reached agreement as to amounts of
proceeds (whether estimated or final) owed to Buyer (such amount, the "Agreed
Adjustment"), then the amount of the Purchase Price to be delivered at the
Closing by Buyer shall be reduced by the Adjustment Amount.

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<PAGE> 22

ARTICLE VII.
MISCELLANEOUS

7.01 Announcements. Each party covenants and agrees with the other
that, subject to applicable law, each party shall promptly advise and consult
with the other and obtain the other's written consent before issuing any press
release with respect to this Agreement or the transactions described herein.

7.02 Further Assurances. Seller and Buyer agree to take all such
further action and to execute, acknowledge and deliver all such further
documents that are necessary or useful to effectuate the conveyance, amendment
or restatement of the Production Payment and to carry out the purposes of this
Agreement or any of the Closing Documents.

7.03 Survival. The representations, warranties, covenants,
agreements and indemnities in this Agreement and in the other Closing Documents
and the provisions of the Confidentiality Agreement shall survive the relevant
Closing and the consummation of the transactions described herein and therein.
Furthermore, the provisions of Section 7.06 and the provisions of the
Confidentiality Agreement and Section 7.11 shall survive termination of this
Agreement upon a failure to close, as contemplated in Section 6.04.

7.04 Expenses. Except as otherwise provided in this Agreement or
in the other Closing Documents, each party hereto shall bear and be responsible
for all fees, costs and expenses (including, without limitation, legal,
accounting and engineering expenses) incurred by such party with respect to the
negotiation, documentation and consummation of the transactions described
herein; provided, however, Buyer and Seller shall share equally in the expenses
associated with the preparation of the title opinions referenced in Section
5.02(e)(i) by (i) the Loomis, Ewert, Parsley, Davis & Gotting law firm and (ii)
Meridian Abstracting Company. Seller shall indemnify and hold harmless Buyer
from and against any and all liabilities for any brokers' or finders' fees
arising with respect to brokers or finders retained or engaged by Seller in
respect of the transactions described herein (including but not limited to The
Windrock Group), and Buyer shall indemnify and hold harmless Seller from and
against any and all liability for any brokers' or finders' fees arising with
respect to brokers or finders retained or engaged by Buyer respect of the
transactions described herein.

7.05 Notices. All notices, requests, demands, instructions and
other communications required or permitted to be given hereunder shall be in
writing and shall be delivered personally, mailed by certified mail, postage
prepaid and return receipt requested or sent by telecopier, as follows:

If to Seller, addressed to:

Hawkins Oil of Michigan, Inc.
400 South Boston, Suite 800
Tulsa, Oklahoma 74103
Attention: C.E. "Butch" Smith
Phone: 918-585-3121

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<PAGE> 23

Fax: 918-592-0486

If to Buyer, addressed to:

KCS Energy Marketing, Inc.
5555 San Felipe, Suite 1200
Houston, Texas 77056
Attention: Harry Lee Stout, President
Phone: 713-877-8006
Fax: 713-877-1394

or to such other place within the United States of America as either party may
designate in writing. All notices given by personal delivery or by mail shall
be effective on the date of actual receipt at the appropriate address. Notice
given by telecopier shall be effective upon actual receipt if received during
the recipient's normal business hours or if received after the recipient's
normal business hours, at the beginning of the next business day after receipt.

7.06 Indemnification.

(a) Seller shall fully defend, protect, indemnify and
hold harmless Buyer and Buyer's successors, assigns and Affiliates
("Indemnified Parties") from and against any and all losses which may
be suffered by Indemnified Parties and from and against any and all
claims, demands, suits and causes of action (collectively "Claims") of
every kind and character (together with reasonable attorneys' fees and
costs of defense) which may be asserted by any Person (including
Seller, Seller' officers and Affiliates of Seller), to the extent
relating to, arising out of, or in any way incidental to the breach of
any warranty or representation contained in Article III of this
Agreement, regardless of whether Buyer may have known of such breach
or of the condition giving rise to such breach, but excluding breaches
or conditions arising as a result of the gross negligence, willful
misconduct, bad faith, or violation of law by Buyer or its Indemnified
Parties. Without limiting the foregoing, if the Conveyance is
rejected as an unexpired lease or executory contract pursuant to any
of the provisions of Section 365 of the United States Bankruptcy Code,
the damages recoverable as a result of such rejection shall equal the
value (as of the date of rejection) of the future Hydrocarbon delivery
obligations remaining under the Conveyance at the time of the
rejection, determined in a commercially reasonably manner. Seller
acknowledges that the mortgage lien and security interest contemplated
in the Production Agreement secure, among other things, any amount
owed pursuant to this Section 7.06.

(b) In the event any Claim is asserted against any
Indemnified Party by a third party, the Indemnified Party shall with
reasonable promptness notify the Seller of such Claim. Pursuant to
its defense obligation provided in the first sentence of Section
7.06(a), Seller shall employ counsel reasonably satisfactory to Buyer
and shall take such other steps as are reasonably necessary or
appropriate to defend the Indemnified Parties against such Claim.

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<PAGE> 24

7.07 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF TEXAS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. INSOFAR AS THIS AGREEMENT RELATES TO THE
CONVEYANCE OR THE CREATION, PERFECTION OR FORECLOSURE OF ENCUMBRANCES AND THE
ENFORCEMENT OF RIGHTS AND REMEDIES AGAINST THE SUBJECT PROPERTIES, IT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF MICHIGAN.

7.08 Successors and Assigns. This Agreement shall be binding upon
and, subject to the following restriction, shall inure to the benefit of the
parties hereto and their respective permitted successors and assigns. Nothing
contained herein shall in any way limit or restrict the right of Buyer, or
Buyer's successors and assigns, to transfer, assign or pledge their respective
rights or obligations hereunder in whole or in part. Notwithstanding the
foregoing, Seller shall not transfer, assign or pledge its rights or
obligations hereunder without the prior written consent of Buyer, such consent
shall not be unreasonably withheld.

7.09 Schedules and Exhibits. The Schedules and Exhibits attached
hereto and referred to herein constitute a part of this Agreement.

7.10 Entire Agreement; Amendments; Waivers. This Agreement, the
Closing Documents and the Confidentiality Agreement constitute the entire
agreement between the parties hereto with respect to the transactions described
herein, superseding all prior negotiations, discussions, agreements and
understandings, whether oral or written, relating to such subject matter,
including, without limitation, those certain letters of intent dated June 30
and November 1, 1995, respectively, by and between Buyer and Seller, which
letters of intent are hereby terminated. This Agreement may not be amended and
no rights hereunder may be waived except by a written document signed by the
party to be charged with such amendment or waiver. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided. Each party
acknowledges that it has read and understands the terms of this Agreement and
the Closing Documents and has had the opportunity to consult with legal, tax
and accounting counsel and advisers of its choice concerning the meaning and
effect thereof. Neither party has relied upon the other party or its counsel
or advisers with respect to the meaning or effect of any such agreement or
instrument.

7.11 Confidentiality. Buyer agrees at all times to abide by the
provisions of the Confidentiality Agreements. In addition, except to the
extent required to do so by applicable laws or the requirements of any stock
exchange, Seller agrees to hold confidential this Agreement and the
transactions covered hereby. Specifically, except as may be required in
connection with any permitted transfer by Seller of its rights hereunder,
Seller agrees not to furnish this Agreement or any of the other Closing
Documents (other than instruments recorded in public records) to any Person
other than (a) Seller's counsel, officers, employees, agents, lenders,
shareholders and other representatives with a need to know such information or
(b) a

21
<PAGE> 25

party authorized pursuant to any Confidentiality Agreement, without Buyer's
prior written consent.

7.12 Headings. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not
limit or otherwise affect any of the terms or provisions of this Agreement.

7.13 Counterparts. This Agreement may be executed by Buyer and
Seller in any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument.

EXECUTED on the date first set forth above.

SELLER:

HAWKINS OIL OF MICHIGAN, INC.

By:
---------------------------------
C.E. "Butch" Smith, President

BUYER:

KCS ENERGY MARKETING, INC.

By:
---------------------------------
Harry Lee Stout, President

<PAGE> 1

EXHIBIT 2.2

CONVEYANCE OF
PRODUCTION PAYMENT

This Conveyance of Production Payment is from HAWKINS OIL OF MICHIGAN,
INC. (formerly known as SAVOY OIL & GAS, INC.), a Delaware corporation, whose
address is 400 South Boston, Suite 800, Tulsa, Oklahoma 74103 ("Grantor"), to
KCS ENERGY MARKETING, INC., a New Jersey corporation, whose address is 5555 San
Felipe, Suite 1200, Houston, Texas 77056 ("Grantee").

WHEREAS, Grantor is the owner of the undivided interests in and to the
oil and gas leases described in Exhibit A hereto (such interests, as defined
and more particularly described below and in Exhibit A attached hereto,
collectively called the "Subject Interests" herein), and has agreed to sell and
convey to Grantee as a production payment the limited term overriding royalty
interest in such Subject Interests described below; and

WHEREAS, capitalized terms used herein shall have the meanings given
to them in Article II hereof, unless such terms are otherwise defined herein;

NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS:

ARTICLE I.

CONVEYANCE

Section 1.01 CONVEYANCE OF INTEREST. For and in consideration of Ten
Dollars ($10.00) cash and other good and valuable consideration to Grantor in
hand paid by Grantee, the receipt and sufficiency of which are hereby
acknowledged, Grantor hereby GRANTS, BARGAINS, SELLS, CONVEYS, ASSIGNS, SETS
OVER and DELIVERS unto Grantee, as a production payment (the "Production
Payment"), a limited term overriding royalty interest in each of the Subject
Interests and in and to the Hydrocarbons in and under and that may be produced
and saved from the Subject Interests equal to the respective Production Payment
Interest applicable to each Subject Interest (after deduction of Grantor's pro
rata part of Lease Use Hydrocarbons and Non-Consent Hydrocarbons attributable
to each such Subject Interest), but not to exceed during any Month the Subject
Quantity of the first Hydrocarbons produced and saved from all of the Subject
Interests during such Month, together with all and singular the rights and
appurtenances thereto in anywise belonging.

TO HAVE AND TO HOLD the Production Payment unto Grantee, its successor
and assigns forever, subject to the following terms, provisions and conditions.

Section 1.02 NON-OPERATING, NON-EXPENSE-BEARING INTEREST. Except as
set forth in Section 1.07 below, the Production Payment conveyed hereby is a
non-operating, non-expense-bearing limited term overriding royalty interest in
and to the Subject Interests (being a real property interest), free of all
cost, risk and expense of production, operations, storage,
<PAGE> 2

gathering, handling, processing, treating, transporting and delivery prior to
delivery to Grantee or Grantee's credit at the relevant Delivery Point. Except
as set forth in Section 1.07 below, in no event shall Grantee ever be liable or
responsible in any way for payment of any costs, expenses or liabilities
attributable to the Subject Interests (or any part thereof) or incurred in
connection with the production, saving or delivery of Production Payment
Hydrocarbons prior to delivery to Grantee or Grantee's credit at the relevant
Delivery Point. This Conveyance is an absolute conveyance of a real property
interest.

Section 1.03 TERMINATION. The Production Payment shall remain in
full force and effect until the Termination Time. At the Termination Time, all
rights, titles and interests herein conveyed shall automatically terminate and
vest in Grantor, and within 30 days after request by Grantor, Grantee shall
execute and deliver such instrument or instruments as may be necessary to
evidence the termination of the Production Payment. In the event any individual
Subject Interest (or portion thereof, as applicable) should terminate before
the Termination Time and not be extended, renewed or replaced, the Production
Payment no longer shall apply to that particular Subject Interest (or such
portion thereof, as applicable), but the Production Payment shall remain in
full force and effect and undiminished as to all remaining Subject Interests
(and the remaining portion of such Subject Interest, as applicable), and
neither the Subject Quantity nor the Adjustment Quantity shall ever be reduced
or diminished solely by reason of the termination of an individual Lease (or
the termination of a Lease as to such portion thereof, as applicable).

Section 1.04 DELIVERY TO GRANTEE. The Production Payment
Hydrocarbons shall be delivered to Grantee, or to the credit of Grantee, free
of cost (other than as provided in Section 1.07 below) into the facilities of
(a) with respect to Production Payment Gas, the First Transporter at the
relevant Delivery Point and (b) with respect to Production Payment Oil, the
purchaser of Oil at the relevant Delivery Point. As between Grantor and
Grantee, Grantor shall be in exclusive control and possession of the Production
Payment Hydrocarbons deliverable hereunder and responsible for any loss, damage
or injury caused thereby until the same shall have been delivered to Grantee,
or to the credit of Grantee, at the relevant Delivery Point, after which
delivery Grantee shall be deemed to be in exclusive control and possession
thereof and responsible for any loss, injury or damage caused thereby. To the
extent it has the right to do so, Grantor hereby grants to Grantee, easements
and rights-of-way over and across the Leases and lands pooled, communitized
and/or unitized therewith, together with rights of ingress and egress to go on
or about such lands for purposes of receiving, accepting and taking Production
Payment Hydrocarbons at the relevant Delivery Point and, to the extent
necessary, for the construction, maintenance, operation, repair, and removal of
pipelines, metering stations, and any and all other facilities and
appurtenances necessary or useful related to the receipt, transportation,
measurement, treatment, and marketing of the Production Payment Hydrocarbons.

2
<PAGE> 3

Section 1.05 CERTAIN LIMITATIONS. The Production Payment and the
recovery of the Production Payment Hydrocarbons shall be subject to the
following:

(a) Grantee shall look solely to the Production Payment
Hydrocarbons for satisfaction and discharge of the Production
Payment, and Grantor shall not be personally liable for the
payment and discharge thereof. However, the foregoing
sentence shall not relieve Grantor of any obligations under
this Conveyance, the Production Agreement or the Purchase
Agreement or any obligation to respond in damages for any
breach of this Conveyance, the Production Agreement or the
Purchase Agreement.

(b) There shall not be included in the Production Payment
Hydrocarbons any Lease Use Hydrocarbons or Non-Consent
Hydrocarbons.

(c) Each Month prior to and including the Termination Time, the
Production Payment shall apply to each of the Subject
Interests, and the Production Payment Hydrocarbons delivered
to Grantee or to Grantee's credit as provided in Section 1.04
of this Conveyance shall be credited and applied as follows:
first, to the delivery of the Scheduled Amount for such Month,
then to the delivery of the Adjustment Quantity, if any, for
such Month, and then to the delivery of the Accelerated
Quantity, if any, for such Month. With respect to the
Scheduled Amount in effect during a Month, such delivery
shall, as nearly as reasonably possible, be made from a
proportionate share of all Oil and Gas produced from or
attributable to each of the Subject Interests and, to the
extent available, in kind from Oil and Gas in the respective
quantities described in Schedule 1. With respect to the
Adjustment Quantity in effect for a Month, such delivery
shall, as nearly as reasonably possible, be made first from
the production of Gas and then from the production of Oil from
or attributable to each of the Subject Interests.

(d) The occurrence of an event of Force Majeure shall not suspend
or affect the calculation of the Adjustment Quantity hereunder.

Section 1.06 MEASUREMENT. Measurement of the volume of Production
Payment Hydrocarbons delivered hereunder shall be made at each Delivery Point
and any loss of Hydrocarbons prior to such Delivery Points shall be borne
solely by Grantor. Measurement of Gas (expressed in Mcf) shall be as
determined under applicable transportation or purchase agreements with the
First Transporter at such Delivery Point. Measurement of Oil (expressed in
Barrels) shall be determined in accordance with generally accepted industry
practices in effect at the time and place of delivery using the latest American
Society for Testing Materials (ASTM) or American Petroleum Institute (API) test
methods. The volume of Oil shall be corrected to a temperature of 60 degrees
Fahrenheit in accordance with the latest ASTM test methods and the latest
edition of API volume correction tables, and full deductions shall be made for
all basic sediment, water and other impurities.

3
<PAGE> 4

Section 1.07 ROYALTIES; TAXES. The Production Payment shall be free
of (and without deduction therefrom of) any and all Production Burdens and
shall bear no part of same; the Subject Interests shall be burdened with, and
Grantor shall timely pay, all such Production Burdens, and Grantor shall
defend, indemnify and hold Grantee harmless from and against any loss or claim
with respect to any such Production Burdens or any claim by the owners or
holders of such interests. The Production Payment and the Production Payment
Hydrocarbons actually produced and delivered to or for the account of Grantee
shall be subject to and bear a proportionate share of the Severance Taxes
imposed upon such delivered Hydrocarbons only and Grantee shall be responsible
for and pay (or cause the payment of) such Severance Taxes in accordance with
applicable law. Except with respect to such share of Severance Taxes, Grantor
shall bear and pay all Taxes (as such term is defined herein) levied upon or
imposed with respect to the Subject Interests (including the Production Payment
and the Production Payment Hydrocarbons), the Production Payment Hydrocarbons
being free of Taxes and delivered without deduction of any kind for Taxes.

Section 1.08 MORTGAGE, ASSIGNMENT OR POOLING BY GRANTOR. Prior to
the Termination Time, (i) Grantor shall not mortgage, pledge or hypothecate the
Subject Interests or any part thereof or create or allow there to remain any
lien or security interest on or against any Hydrocarbons produced therefrom,
other than the Permitted Encumbrances, and (ii) Grantor shall not assign, sell,
convey, pledge or otherwise transfer the Subject Interests or any part hereof
unless Grantee expressly consents thereto in writing, the transferee expressly
agrees to assume and perform all of Grantor's obligations under this
Conveyance, and such sale transfer or assignment is made and accepted expressly
subject and subordinate to this Conveyance. Any purported mortgage, pledge,
hypothecation, lien, security interest, assignment, sale, conveyance or other
transfer in contravention of the foregoing terms shall be null and void. Prior
to the Termination Time, Grantor shall not pool, communitize or unitize the
Production Payment or the Subject Interests with other leasehold interests
without obtaining in advance the express written consent of Grantee.

Section 1.09 TITLE. Grantor warrants and represents that the Leases
are valid and subsisting oil and gas leases covering Drilling Units identified
in Exhibit A; Grantor's ownership of the Material Properties entitles Grantor
to a Net Revenue Interest not less than the respective net revenue interests
identified on Exhibit A, and obligates Grantor to pay a share of all costs of
operating and developing the Leases not greater than the respective operating
rights or Working Interests identified on Exhibit A. With respect to the
Material Properties, Grantor hereby binds Grantor and Grantor's successors and
assigns, to warrant and forever defend all and singular title to the Production
Payment and the Production Payment Hydrocarbons, subject only to the Permitted
Encumbrances, unto Grantee, its successors and assigns, against every person
whomsoever lawfully claiming or to claim the same or any part thereof. With
respect to the Subject Interests other than the Material Properties, Grantor
hereby binds Grantor and Grantor's successors and assigns, to warrant and
forever defend all and singular title to the Production Payment and the
Production Payment Hydrocarbons, subject only to the Permitted Encumbrances,
unto Grantee, its successors and assigns, against every person whomsoever
lawfully claiming or to claim the same or any part thereof, by through or under
Grantor, but not

4
<PAGE> 5

otherwise. There is also hereby conveyed to Grantee, by way of substitution
and subrogation, all rights of warranty and contractual representations or
covenants of any kind or nature held by Grantor against any of Grantor's
respective predecessors in title.

Section 1.10 ADJUSTMENT OF THE STATED TIME. In the event any
Accelerated Quantity is delivered to Grantee or Grantee's credit at the
Delivery Points during a Month, then the Stated Time shall be subject to
adjustment as provided herein. As soon as possible following the close of each
Month, Grantee shall determine whether any Accelerated Quantity was actually
delivered to Grantee or Grantee's credit at the Delivery Points and if so,
shall compute the product of the Accelerated Quantity times the Acceleration
Factor. The Stated Time shall be adjusted to an earlier date by the number of
whole days equivalent to the period necessary to produce a quantity of
Hydrocarbons equal to the product described in the foregoing sentence if
produced at daily rates equivalent to the monthly Scheduled Amount of
Production Payment Oil and Gas set forth in Schedule 1, respectively, beginning
at the previously-effective Stated Time. For purposes of determining the Mcf
Equivalent of Production Payment Oil to be delivered at the then-effective
Stated Time, the Index Price and the Average Oil Price for the Month in which
the Accelerated Quantity was delivered shall be utilized. Grantee shall
compute the adjusted Stated Time and provide Grantor with a copy of such
calculations. Upon determination of each adjusted Stated Time, the Scheduled
Amount of Production Payment Hydrocarbons relating to each Month following the
Month in which the then-effective Stated Time occurs shall be deemed to be zero
(0) Mcf Equivalent and the Scheduled Amount relating to the Month in which the
adjusted Stated Time occurs shall be proportionately reduced based upon the
ratio by which the number of days in such Month prior to and including the
Stated Time bears to the number of days in such Month.

ARTICLE II.

DEFINITIONS

As used herein and in the exhibits hereto, the following terms shall
have the respective meanings ascribed to them below:

"Accelerated Quantity" means (a) for each Month which is not a Special
Delivery Month, zero (0) Mcf, and (b) for each Special Delivery Month, the
quantity of Hydrocarbons (expressed in Mcf) equal to eighty percent (80%) of
the difference, if any, by which (i) the difference between Grantor's NRI Share
for the Month in question less the Exploration Quantities, if any, delivered
during such Month, exceeds (ii) one hundred twenty-five percent (125%) of the
sum of (x) the Scheduled Amount of Production Payment Gas for such Month, plus
(y) Production Payment Gas actually received by Grantee during such Month which
represents the delivery of any portion of the Scheduled Amount which was
originally scheduled as Production Payment Oil for such Month, plus (z)
Production Payment Gas actually received by Grantee during such Month which
represents the delivery of any portion of the Adjustment Quantity for such
Month; provided, however, the Accelerated Quantity shall never be less than
zero (0) Mcf.

5
<PAGE> 6

"Acceleration Factor" means for any Month the result of raising 1.0125
to the nth power, where "n" is equal to the number of whole Months separating
the first day of the Month in question and the then-effective Stated Time.

"Adjustment Amount" means, as of the commencement of any Month
commencing after September, 1995, the Adjustment Amount as of the commencement
of the immediately preceding Month adjusted as follows:

(a) increased by the Production Payment Deficiency for
the immediately preceding Month,

(b) decreased by the Production Payment Credit for the
immediately preceding Month,

(c) increased by an amount equal to accrued interest at the
applicable Floating Rate for the number of days in such immediately
preceding Month on the Adjustment Amount as of the commencement of the
immediately preceding Month (except any such amount outstanding as a
result of clause (d) immediately below), and

(d) increased by an amount equal to the amount of any
Taxes (other than Severance Taxes payable by Grantee pursuant to
Section 1.07 of this Conveyance) imposed or assessed upon the
Production Payment or Production Payment Hydrocarbons which are not
timely paid by Grantor and which are imposed upon or borne by Grantee,
plus an amount equal to interest at the applicable Floating Rate for
the number of days in the immediately preceding Month on the amount
outstanding under this clause (d) as of the commencement of the
immediately preceding Month.

For the purposes of calculating the amount of any increase pursuant to clauses
(c) or (d), amounts credited pursuant to clause (b) shall be credited first to
offset amounts which have accrued pursuant to clause (d), then to amounts which
have accrued pursuant to clause (c), and then to other amounts included in the
Adjustment Amount. The Adjustment Amount as of September 1, 1995 is zero (0).

"Adjustment Quantity" means for each Month the quantity (expressed in
Mcf Equivalent) of Hydrocarbons determined by dividing the Adjustment Amount as
of the commencement of such Month (if greater than zero) by the Index Price for
such Month.

"Average Oil Price" means for any Month the weighted average sales
price (expressed in dollars per Barrel) actually received by Grantee (or if
Grantor has marketed the Production Payment Oil, the weighted average sales
price actually received by Grantor) for sales of all Production Payment Oil
delivered at the relevant Delivery Points during such Month, or in the event no
Production Payment Oil was so delivered, the weighted average sales price for
the most recent Month in which Production Payment Oil was delivered.

6
<PAGE> 7

"Barrel" means 42 United States standard gallons of 231 cubic inches
per gallon at 60 degrees Fahrenheit.

"Eastern Time" means Eastern Standard Time or Eastern Daylight Savings
Time, whichever is in effect in Traverse City, Michigan, on the day in
question.

"Exploration Quantities" means for any Month the quantities of
Production Payment Gas delivered during such Month, if any, that are
attributable to Grantor's after-payout interests in properties or Wells which
(a) are drilled and completed pursuant to that certain Drilling Participation
Agreement dated as of November 30, 1995, by and between Grantor and KCS
Michigan Resources, Inc., and (b) are dedicated to this Conveyance by Grantor
on or after January 1, 1996, in accordance with Section 2.6 of such Drilling
Participation Agreement.

"Conveyance" means this Conveyance of Production Payment, as the same
may be amended, supplemented, restated or otherwise modified from time to time.

"Delivery Point" for each Subject Interest described in Exhibit A
means with respect to Gas, the point at which Gas produced from a Well that is
subject to the Processing Agreement first enters the natural gas gathering
system owned or operated by SWEPI and for Gas produced from a Well not subject
to the Processing Agreement, the point at which such Gas first enters a natural
gas transmission or gathering pipeline system owned and operated by a natural
gas purchaser or transporter other than the Grantor or the operator of the
Well, and with respect to Oil, the point or points in or near the field where
oil produced from a Well in such field is customarily delivered to the
purchasers thereof.

"First Transporter" means the owner or operator (as the case may be)
of the natural gas transportation pipeline or gathering system at or downstream
of the Delivery Point.

"Floating Rate" for any month means the "prime rate" published by The
Wall Street Journal on the first business day of such Month, plus one and
one-half percent (1 1/2%) per annum, calculated on the basis of a 365 or 366
day year, as the case may be, but not to exceed the maximum non-usurious rate
permitted by applicable law.

"Force Majeure" means acts of God, strikes, lockouts, or other
industrial disturbances, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, washouts, arrests and restraints and prohibitions of
government, either federal or state, inability to obtain necessary materials,
supplies (other than Hydrocarbons), or permits due to existing or future rules,
orders, or laws of governmental authorities (both federal and state), civil
disturbances, explosions, sabotage, breakage or accident to machinery or lines
of pipe, freezing of lines of pipe, interruption or curtailment of firm or
interruptible transportation services provided by third party transporters, and
any other causes whether of the kind herein enumerated or otherwise, which are
not anticipated at the time of execution hereof, which are not within the
control of the party claiming suspension and which by the exercise of due
diligence such party could not have prevented or is unable to overcome. By way
of illustration, the term "Force Majeure" shall not

7
<PAGE> 8

include shutdowns or interruptions due to routine maintenance, repairs, or
workovers; restrictions caused by gas balancing agreements or arrangements; or
depletion of reserves.

"Gas" means natural gas and other gaseous hydrocarbons, including
casinghead gas and hydrocarbon liquids or products recovered as a result of gas
processing operations.

"Governmental Authority" means all applicable federal, state, local
and municipal agencies, boards, tribunals, ministries and departments.

"Grantor's NRI Share" means for any Month the quantity of Gas
(expressed in Mcf) which is attributable to Grantor's Net Revenue Interests in
the Subject Interests and which are produced and saved during such Month (after
deduction of Grantor's pro rata portion of Lease Use Hydrocarbons and
Non-Consent Hydrocarbons attributable to the Subject Interest which are Gas).

"Hydrocarbons" means Oil and Gas.

"Index Price" means for any Month, the average weighted net proceeds
per Mcf (expressed in dollars per Mcf) actually received by Grantee for sales
of all Production Payment Gas delivered at the relevant Delivery Points during
such Month, or in the event no Production Payment Gas was so delivered, the net
proceeds per Mcf for the most recent Month in Production Payment Gas was
delivered.

"Lands" means the lands covered by a Lease, lands included in a Unit
and lands within an area covered by an unitization, communitization or pooling
agreement or order.

"Lease" means an oil, gas and/or mineral lease described or identified
with particularity in Exhibit A attached hereto as to all Lands and depths
described in such lease (or the applicable part or portion thereof if
specifically limited in depth and/or areal extent in Exhibit A), together with
any renewal or extension of such lease (as to all or any part or portion
thereof), and any replacement lease taken upon or in anticipation of expiration
or termination of such lease (if executed and delivered during the term of or
within one year after expiration of the predecessor lease) as to all lands and
depths described in the predecessor lease (unless the predecessor lease is
specifically limited in depth or areal extent in Exhibit A, in which event only
such portion of such lease shall be considered a renewal or extension or a
replacement lease and subject to the terms of this Conveyance), and all
renewals and extensions of such replacement leases.

"Lease Use Hydrocarbons" means any Hydrocarbons which are unavoidably
lost in the production thereof or used by Grantor (or the operator of any of
the Leases or any Unit into which any of the Leases or any portion thereof is
pooled or unitized for drilling and production) in operations conducted
prudently and in good faith for the purpose of producing Hydrocarbons from the
Lease or from such Unit, but only for so long as and to the extent such
Hydrocarbons are so used.

8
<PAGE> 9

"Material Properties" means the Subject Interests listed by Well name
in Exhibit B attached hereto.

"Mcf" means one thousand cubic feet of Gas, measured at the pressure
base and temperature base of the First Transporter and adjusted as necessary to
conform with the Gas measurement requirements of Michigan law.

"Mcf Equivalent" means with respect to Production Payment Gas, the
quantity of such Gas measured as provided herein and expressed in Mcf, and with
respect to Production Payment Oil, means the equivalent number of Mcf
determined multiplying the quantity of such Oil (expressed in Barrels) by a
ratio, the numerator of which is the Average Oil Price for the Month in
question, and the denominator of which is the Index Price for such Month.

"Month" means the period of time beginning at 7:00 a.m. Eastern Time
on the first day of a calendar month and ending at 6:59 a.m. on the first day
of the immediately following calendar month.

"Net Revenue Interest" means the interest (expressed as a percentage)
of Grantor in and to all Hydrocarbons produced from or allocated or
attributable to a Lease, Well or Unit, as the case may be, and of the proceeds
of such production, after giving effect to and deducting all applicable
Production Burdens (other than the Production Payment) and giving effect to all
Permitted Encumbrances.

"Non-Consent Hydrocarbons" means those Hydrocarbons produced from a
Well during the applicable period of recoupment or reimbursement pursuant to a
Non-Consent Provision covering that well, which Hydrocarbons have been
relinquished to the consenting party or participating party under the terms of
such Non-Consent Provision as the result of the election by Grantor not to
participate in the particular operation, provided that any such election by
Grantor has been made in good faith.

"Non-Consent Provision" means (i) a contractual provision contained in
an applicable operating agreement, unit agreement, contract for development or
other similar instrument which is a Permitted Encumbrance, which provision
covers so-called non-consent operations or sole benefit operations and provides
for relinquishment of production by non-consenting or non-participating parties
during a period of recoupment or reimbursement of costs and expenses of the
consenting or participating parties and (ii) provisions contained in Drilling
Participation Agreement dated as of November 30, 1995, by and between Grantor
and KCS Michigan Resources, Inc. which govern Grantor's rights to participate
in drilling operations identified therein.

"Oil" means crude oil, condensate and other liquid hydrocarbons
recovered at or near the wellhead, including liquid hydrocarbons recovered by
use of conventional separators, but excluding hydrocarbons recovered in
connection with the gas processing operations.

9
<PAGE> 10

"Permitted Encumbrances" means and includes the following:

(a) Those instruments and matters set forth on Exhibit A
attached hereto, according to the definition of
"Permitted Encumbrances" appearing on page 1 of such
Exhibit A;

(b) Production Burdens which do not reduce Grantor's Net
Revenue Interest in a Lease, Well or Unit below the
Net Revenue Interest set forth on Exhibit A for such
Lease, Well or Unit;

(c) Encumbrances under contracts and pooling and
unitization orders of a scope and nature customary in
the oil and gas industry, insofar as they do not
cause Grantor's Net Revenue Interest in a Lease, Well
or Unit to be less than the Net Revenue Interest set
forth on Exhibit A and will not cause Grantor to bear
more than the share of the costs and risks of
exploring, drilling, developing, operating and
abandoning such Leases, Wells or Units equal to
Grantor's Working Interest set forth on Exhibit A
(prior to giving effect to rights of non-consent
hereafter exercised);

(d) Liens for taxes or assessments or governmental
charges not yet delinquent and taxes, assessments and
charges that are being contested in good faith;

(e) Materialman's, mechanic's, repairman's, employee's,
contractor's, operator's and other similar liens or
charges arising in the ordinary course of business
securing amounts not yet due and payable or which are
being contested in good faith;

(f) Easements, rights-of-way, servitudes, permits,
surface leases and other rights in respect of surface
or seafloor operations incidental to the ownership of
the Leases;

(g) All rights of consent required by any Governmental
Authority (if any) in connection with the change of
ownership or control of an interest in any federal,
state or other Lease if the same are customarily
obtained after such change of ownership or control by
timely filings or other actions; and

10
<PAGE> 11

do not reduce the Grantor's Net Revenue Interest in a
Lease, Well or Unit below the Net Revenue Interest
set forth in Exhibit A for such Lease, Well or Unit
(prior to giving effect to rights of non-consent
hereafter exercised) or (iv) do not cause Grantor to
bear more than that share of the costs and risks of
exploring, developing, operating and abandoning such
Lease, Well or Unit equal to the Working Interest set
forth on Exhibit A (prior to giving effect to rights
of non-consent hereafter exercised); provided that
liens securing indebtedness for borrowed money shall
not be considered as coming within the scope of this
clause.

"Processing Agreement" means that certain Gas Gathering and Processing
Agreement dated January 1, 1991, by and between SWEPI and Savoy Oil & Gas,
Inc., as the same may be amended or supplemented from time to time.

"Production Agreement" means the Production and Delivery Agreement
executed on the date of execution of this Conveyance, by and between Grantor
and Grantee, as the same may be amended, supplemented, restated or otherwise
modified from time to time.

"Production Burdens" means all royalty interests, overriding royalty
interests, production payments, net profits interests or other similar
non-operating interests that constitute a burden on and are measured by or are
payable out of, the production of Hydrocarbons or the proceeds realized from
the sale or other disposition of Hydrocarbons other than Taxes and assessments
of Governmental Authorities.

"Production Payment" shall have the meaning given such term in Section
1.01 hereof.

"Production Payment Credit" means, for each Month, an amount equal to
the product obtained by multiplying (a) the amount, if any, by which the
quantity (expressed in Mcf Equivalent) of Production Payment Hydrocarbons
actually received by Grantee during such Month (exclusive of any portion of the
Accelerated Quantity for such Month) exceeds the Scheduled Amount for such
Month, times (b) the Index Price for such Month.

"Production Payment Deficiency" means, for each Month, an amount equal
to the product obtained by multiplying (a) the amount, if any, by which the
quantity (expressed in Mcf Equivalent) of Production Payment Hydrocarbons
actually received by Grantee during such Month is less than the Scheduled
Amount for such Month, times (b) the Index Price for such Month.

"Production Payment Gas" means the portion of the Production Payment
Hydrocarbons which is Gas.

"Production Payment Hydrocarbons" means the Hydrocarbons conveyed to
Grantee pursuant to Section 1.01 hereof.

11
<PAGE> 12

"Production Payment Interest" means, with respect to each Subject
Interest, ninety-five percent (95%) of the Net Revenue Interest specified in
Exhibit A as to such Subject Interest.

"Production Payment Oil" means the portion of the Production Payment
Hydrocarbons which is Oil.

"Purchase Agreement" means the Purchase and Sale Agreement dated as of
November 30, 1995, by and between Grantor and Grantee, as the same may be
amended, supplemented, restated or otherwise modified from time to time.

"Scheduled Amount" means with respect to the Subject Interests during
each Month, the sum of (a) the quantities of Production Payment Gas plus (b)
the quantities of Production Payment Oil, which are scheduled to be received by
Grantee during such Month as set forth in Schedule 1.

"Severance Taxes" means the severance taxes on Oil and Gas arising
pursuant to M.C.L. Section 205.301 et seq., as currently in effect and without
regard to amendments, if any, to such statute enacted or occurring after the
date of execution of this Conveyance which have the effect of either increasing
the rate or amount of such tax or increasing the burden of such tax by altering
the manner by which such tax is calculated or determined.

"Special Delivery Month" means any Month after September 1995 in which
Grantor's NRI Share for such Month exceeds the Threshold Quantity for such
Month.

"Stated Time" means 7:00 a.m. on February 1, 2006; provided, however,
the Stated Time is subject to adjustment in accordance with the provisions of
Section 1.10 of this Conveyance.

"Subject Interests" or "Subject Interest" means the respective
undivided interests of Grantor set forth in Exhibit A in and to the Leases,
Units and Wells described in Exhibit A and the interests of Grantor arising
therefrom in all Hydrocarbons produced from or allocated or attributable to
such interests and in all Lands now or hereafter pooled, communitized or
unitized therewith, all as the same shall be enlarged by the discharge of any
burdens or by the removal of any charges or encumbrances to which any of the
same may be subject as of the date hereof or decreased as a result of any
burden, charge or encumbrance set forth in Exhibit A as to such Leases, Wells
or Units, and any and all renewals and extensions of any of the same.

"Subject Lands" shall mean the Lands and depths described in Exhibit A
(where no depth limit is specified, the Subject Lands shall include all
depths).

"Subject Quantity" means for a Month the quantity of Hydrocarbons
equal to the sum of (a) the Scheduled Amount of Production Payment Hydrocarbons
for such Month, plus (b) the Adjustment Quantity for such Month, plus (c) the
Accelerated Quantity for such Month.

12
<PAGE> 13

"SWEPI" means Shell Western E&P, Inc., its successors and assigns.

"Taxes" means all ad valorem, property, occupation, gathering,
pipeline, windfall profit, severance, gross production, excise, energy and
other taxes, governmental charges and assessments levied or imposed on any of
the Subject Interests, the Production Payment or the Production Payment
Hydrocarbons prior to delivery at the relevant Delivery Point, other than (a)
federal income taxes, state income taxes, franchise taxes levied against
Grantee and any other taxes levied against the overall net income or gross
receipts of Grantee and (b) Severance Taxes levied or imposed on and
attributable solely to the Production Payment Hydrocarbons actually delivered
to or for the account of Grantee at each Delivery Point.

"Termination Time" means the later of (a) the Stated Time or (b) 7:00
a.m. Eastern Time on the day following the date when the Adjustment Quantity
outstanding as of the Stated Time has been reduced to zero (0) Mcf.

"Threshold Quantity" means for a Month the quantity of Gas equal to
the product of (a) the Scheduled Amount of Production Payment Gas corresponding
to such Month specified in Schedule 1 of this Conveyance, times (b) one hundred
thirty percent (130%).

"Unit" means with respect to each Well, the Drilling Unit specified in
Exhibit A, whether such Drilling Unit consists of (a) the drilling or spacing
unit for such Well as approved by the Michigan Department of Natural Resources
or (b) a pooled unit or unitized tract existing pursuant to a pooling
declaration or agreement, a unitization agreement or order, or any other
written instrument binding upon Grantor.

"Well" means a well now located on the Subject Lands or hereafter
drilled on the Subject Lands, and any other wells now or hereafter located on
lands or leases pooled, unitized or communitized with the Subject Interests for
the production of Hydrocarbons.

"Working Interest" means the interest (expressed as a percentage) of
Grantor in any Lease, Well or Unit before giving effect to any applicable
Production Burdens and the percentage of all costs and expenses associated with
the exploration, drilling, development, operation, maintenance and abandonment
of such Lease, Well or Unit required to be borne by Grantor (prior to giving
effect to rights of non-consent hereafter exercised) pursuant to all servitudes
and permits appertaining or relating thereto.

ARTICLE III.

MISCELLANEOUS

Section 3.01 PROTECTION TO PURCHASERS. No pipeline company or other
person purchasing, taking or processing Production Payment Hydrocarbons shall
be required to take

13
<PAGE> 14

notice of, or to keep informed concerning, termination of the Production
Payment, until actual receipt of written notice from Grantee advising such
company or person of such termination.

Section 3.02 GOVERNING LAW. THIS CONVEYANCE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MICHIGAN, EXCEPT TO
THE EXTENT THE LAWS OF ANY OTHER STATE ARE MANDATORILY APPLICABLE.

Section 3.03 SUCCESSORS AND ASSIGNS. The provisions and conditions
contained in this Conveyance shall run with the land and the respective
interests of Grantor and Grantee and (subject to the restrictions in Section
1.08) shall be binding upon and inure to the benefit of Grantor and Grantee and
their respective successors and assigns. All references herein to either
Grantor or Grantee shall include their respective successors and assigns.

Section 3.04 COUNTERPART EXECUTION; RECORDATION. This Conveyance is
executed in multiple originals all of which shall constitute one and the same
Conveyance; provided, however, in order to facilitate recording of this
Conveyance in the public records of each of the jurisdictions in which the
Leases are located, the pages of Exhibit A attached to a counterpart recorded
in a single jurisdiction may contain only those pages (or portions thereof)
which apply to Wells, Leases or properties located in such jurisdiction.

Section 3.05 PERPETUITIES. It is not the intent of Grantor or
Grantee that any provision herein violate any applicable law regarding the rule
against perpetuities, the suspension of the absolute power of alienation, or
other rules regarding the vesting or duration of estates, and this Conveyance
shall be construed as not violating such rule to the extent the same can be so
construed consistent with the intent of the parties. In the event however that
any provision hereof is determined to violate such rule, then such provision
shall nevertheless be effective for the maximum period (but not longer than the
maximum period) permitted by such rule that will result in no violation. To
the extent the maximum period is permitted to be determined by reference to
"lives in being," Grantor and Grantee agree that "lives in being" shall refer
to the lifetime of the last to die of the living lineal descendants of the late
Joseph P. Kennedy (father of John F. Kennedy, the late President of the United
States of America).

Section 3.06 CERTAIN REFERENCES. Certain agreements, contracts and
other documents are listed in Exhibit A and included in the definition of
Permitted Encumbrances. References herein or in Exhibit A to Permitted
Encumbrances are made solely for the purpose of protecting Grantor on Grantor's
warranties and representations as to the Subject Interests, and without regard
to whether or not any Permitted Encumbrance is valid, subsisting, legal or
enforceable or affects the Production Payment; and such references are not
intended to constitute and shall not constitute any sort of recognition or
acknowledgment by any party as to the validity, legality or enforceability of
the same or of any term, provision or condition thereof or the applicability
thereof to the Production Payment, and shall not revive or ratify the same or
create any rights in any third person. No provision in this Conveyance shall
be construed as an agreement or expression of intent by Grantee to acquire the
Production Payment subject to any unrecorded

14
<PAGE> 15

Permitted Encumbrance; provided, however, no breach of any warranty of title
hereunder shall arise as the result of any claim made pursuant to any
unrecorded Permitted Encumbrance.

Section 3.07 PARTIAL INVALIDITY. Except as otherwise expressly
stated herein, in the event any provision contained in this Conveyance shall
for any reason be held invalid, illegal or unenforceable by a court or
regulatory agency of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any of the remaining provisions of this
Conveyance, which shall remain in full force and effect.

EXECUTED in multiple originals as of the 30th day of November, 1995,
but effective for all purposes as of September 1, 1995.

GRANTOR:

WITNESSES: HAWKINS OIL OF MICHIGAN, INC.

- ----------------------------------
Name: By:
----------------------------- ----------------------------------
C.E. "Butch" Smith, President

- ----------------------------------
Name:
-----------------------------

GRANTEE:

KCS ENERGY MARKETING, INC.

- ----------------------------------
Name: By:
----------------------------- ----------------------------------
Harry Lee Stout, President

- ----------------------------------
Name:
-----------------------------

15
<PAGE> 16

STATE OF TEXAS Section

COUNTY OF HARRIS Section

This instrument was acknowledged before me on the _____ day of
December, 1995, by C.E. "Butch" Smith, President of HAWKINS OIL OF MICHIGAN,
INC., a Delaware corporation, on behalf of said corporation.

(stamp)
--------------------------------------------
Notary Public in and for the State of Texas

STATE OF TEXAS Section

COUNTY OF HARRIS Section

This instrument was acknowledged before me on the _____ day of
December, 1995, by Harry Lee Stout, the President of KCS ENERGY MARKETING,
INC., a New Jersey corporation, on behalf of said corporation.

(stamp)
--------------------------------------------
Notary Public in and for the State of Texas

<PAGE> 1
EXHIBIT 2.3

PRODUCTION AND DELIVERY AGREEMENT

between

HAWKINS OIL OF MICHIGAN, INC.

"Grantor"

and

KCS ENERGY MARKETING, INC.

"Grantee"

Dated as of

November 30, 1995
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Taking In Kind: Marketing. . . . . . . . . . . . . . . . . . . . . . . . . . 2

3. Gathering and Transportation . . . . . . . . . . . . . . . . . . . . . . . . 3

4. Rates of Production; Balancing . . . . . . . . . . . . . . . . . . . . . . . 3

5. Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

6. Quality Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

7. Pressure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

8. Operation of Subject Interests . . . . . . . . . . . . . . . . . . . . . . . 5

9. Development Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

10. Insurance: Damage or Loss . . . . . . . . . . . . . . . . . . . . . . . . . 7

11. Abandonment of Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

12. Drilling of Replacement Wells . . . . . . . . . . . . . . . . . . . . . . . 9

13. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

14. Access to Subject Interests . . . . . . . . . . . . . . . . . . . . . . . . 12

15. Remedies of Grantee: Mortgage and Security Interest . . . . . . . . . . . . 12

16. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

18. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

19. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

20. Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>

i
<PAGE> 3

<TABLE>
<S> <C> <C>
21. Cost of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

22. Entire Agreement: Amendments: Waiver . . . . . . . . . . . . . . . . . . . . 16

23. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

24. Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

25. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

26. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>

EXHIBITS:

Exhibit A -- Subject Interests and Permitted Encumbrances

SCHEDULES:

Schedule 1 -- Development Activities

Schedule 2 -- Insurance Requirements

ii
<PAGE> 4

PRODUCTION AND DELIVERY AGREEMENT

This Production and Delivery Agreement (as the same may be amended,
modified, supplemented or restated from time to time, this "Agreement") is made
and entered into as of the 30th day of November, 1995 by and between HAWKINS
OIL OF MICHIGAN, INC., a Delaware corporation ("Grantor"), and KCS ENERGY
MARKETING, INC., a New Jersey corporation ("Grantee").

WHEREAS, pursuant to the Purchase and Sale Agreement dated as of
November 30, 1995, by and between Grantor and Grantee (as the same may be
amended, modified, supplemented or restated from time to time, the "Purchase
Agreement"), and by Conveyance of Production Payment of even date herewith,
from Grantor to Grantee (as the same may be amended, modified, supplemented or
restated from time to time, the "Conveyance"), Grantee has purchased and
acquired from Grantor and Grantor has sold and conveyed to Grantee, a
Production Payment in the Subject Interests which are described in Exhibit A to
the Conveyance.

NOW, THEREFORE, as a material inducement to cause Grantee to purchase
the Production Payment and in consideration of the mutual benefits and
obligations of the parties hereunder, Grantee and Grantor have agreed, and
hereby agree, as follows:

1. Definitions. (a) As used herein, each of the following terms
shall have the meaning set forth below for such term, except as otherwise
expressly provided in this Agreement:

"Affiliate" means any entity which either directly or
indirectly controls or manages, is controlled or managed by or is under common
control or management with the relevant party. For purposes hereof, "control"
means the possession, directly or indirectly, of the right or power to direct
the policies of another through contract, stock ownership, voting rights or
otherwise.

"Development Activities" means those activities listed on
Schedule 1 attached hereto as to one or more of the Subject Interests and shall
include the drilling, completion and equipping of Wells and the construction
and installation of Facilities.

"Gas Purchase Contract" means the Gas Purchase Agreement to be
executed by and between Grantor and Grantee pursuant to the Purchase Agreement,
as the same may be amended, modified, supplemented or restated from time to
time.

"Obligations" means all outstanding obligations of Grantor
under this Agreement and under the Purchase Agreement.

(b) Each capitalized term defined in the Purchase
Agreement and used in this Agreement without definition shall have the meaning
assigned to such term in the Purchase Agreement, unless expressly provided to
the contrary in this Agreement.
<PAGE> 5

2. Taking In Kind: Marketing.

(a) The Production Payment Hydrocarbons shall be
delivered (subject to the last sentence of Section 1.07 of the Conveyance) to
Grantee in kind or to the credit of Grantee, free of cost, into the facilities
of (a) with respect to Production Payment Gas, the First Transporter at the
relevant Delivery Point and (b) with respect to Production Payment Oil, the
purchaser of such Oil at the relevant Delivery Point, or at such other location
at or near the wellhead that is acceptable to and approved by Grantee.

(b) Grantor agrees that during the term of the Production
Payment, it shall deliver Production Payment Hydrocarbons to Grantee in
accordance with the terms and provisions of the Conveyance and shall not enter
into any new Gas sales contract or amend or renegotiate any existing Gas sales
contract in a manner which is inconsistent with the gas delivery obligations
set forth in the Gas Purchase Contract, unless previously agreed to by Grantee
following Grantor's requests made from time to time. Except for those
agreements listed as Permitted Encumbrances, each Oil sales agreement executed
by Grantor shall be made expressly subject to Grantee's rights pursuant to the
Conveyance to take in kind its share of Oil actually produced.

(c) With respect to Production Payment Gas which is on
the date of execution of the Conveyance dedicated and subject to the terms and
provisions of an existing Gas sales agreement listed as Permitted Encumbrances,
Grantor and Grantee shall jointly advise the purchasers of such Gas of the
existence of the Conveyance and Grantee's interests in the Production Payment
Gas and shall instruct the purchaser to honor and abide by payment instructions
which may be issued by Grantee from time to time. To the extent permitted by
the terms of each existing Gas sales agreement and insofar as the Production
Payment Gas is affected thereby, Grantor shall assign to Grantee a proportional
interest in each such sales agreement or contract, with full rights to give
notices as a party seller therein, including, but not limited to, rights to
receive, issue, approve or reject gas pricing elections or notices provided for
in each such agreement. Grantee shall enforce the terms and provisions of each
such existing Gas sales agreement in good faith and as would a prudent
operator, for the mutual benefit of Grantor and Grantee.

(d) All Production Payment Oil marketed by Grantor on
behalf of Grantee, if any, shall be sold pursuant to arm's length contracts
with parties not affiliated with Grantor, and shall contain terms negotiated by
Grantor as a prudent operator. Any such sale of Production Payment Oil from
the Subject Interests by Grantor shall always be subject to the right of
Grantee, upon notice to Grantor, to take in kind and separately dispose of all
or any portion of Production Payment Oil which is deliverable to Grantee
pursuant to the Conveyance and shall not in any event exceed six (6) months.

(e) All proceeds received by Grantor from the sale of
Production Payment Hydrocarbons sold on behalf of Grantee pursuant to Gas or
Oil sales agreements executed or administered by Grantor shall be held in trust
by Grantor for Grantee; provided, however,

2
<PAGE> 6

Grantor shall pay such proceeds to Grantee immediately upon Grantee's request,
in the manner and to the account(s) or financial institution(s) designated by
Grantee from time to time. Grantor will diligently enforce the terms of all
sale agreements under which Production Payment Hydrocarbons are sold on behalf
of Grantee, including, without limitation, full and prompt payment of all
amounts due from such sales. In the event of any late payment by any
purchaser, Grantor shall remit to Grantee any interest or penalties collected
by Grantor with respect to the sale of Production Payment Hydrocarbons.
Grantee shall have the right at any time Grantee considers necessary or
advisable to direct the purchasers of any Production Payment Hydrocarbons to
pay the proceeds thereof directly to Grantee by delivering to such purchasers a
letter in lieu of transfer order. In the event Grantee requests direct
payment, Grantor will cooperate in instructing the purchaser(s) to pay such
proceeds directly to Grantee and shall execute such additional instruments as
may be necessary or appropriate to allow such payment. In the event any
Production Payment Hydrocarbons are sold by Grantor, on behalf of Grantee,
under the terms of any agreement between Grantor and Grantee or any of its
Affiliates, Grantee shall at all times be entitled to retain the proceeds of
such sale or to receive direct payment from its Affiliate.

3. Gathering and Transportation. Grantor, at its sole cost and
expense, shall gather or cause to be gathered all Production Payment
Hydrocarbons at the wellheads where produced and transport the same to the
Delivery Points, without any charge or deduction to Grantee for costs, if any,
attributable to preparing and delivering same to the Delivery Points. As
between Grantor and Grantee, Grantor shall be in exclusive control and
possession of the Production Payment Hydrocarbons gathered at the wellheads and
responsible for any loss, damage or injury caused thereby until the same shall
have been delivered to Grantee, or to Grantee's credit, at the Delivery Points.

4. Rates of Production; Balancing.

(a) Grantor shall prudently operate and produce the
Leases and the Wells in accordance with good engineering practices and in
accordance with orders or field rules (if any) established by governmental
authorities having or asserting jurisdiction, and subject to the following
additional requirements: (i) the amount of Hydrocarbons produced from any Well
shall not exceed in any Month the lesser of (x) the amount that the Well is
capable of producing at its maximum efficient rate of flow or (y) the allowable
rate of flow under applicable orders, rules, regulations or laws, if any; and
(ii) the amount of Hydrocarbons produced from the Wells shall be sufficient to
prevent a net migration of Hydrocarbons from the reservoirs underlying the
Subject Interests to other lands or leases not subject to this Agreement or the
Conveyance.

(b) Subject to the provisions of Section 4(a) above,
Grantor shall use its best efforts to cause the Leases to produce each Month a
sufficient quantity of Hydrocarbons to allow Grantee to recover the Scheduled
Amount of Production Payment Hydrocarbons for each Month during the term of the
Conveyance.

3
<PAGE> 7

(c) During the term of the Conveyance, Grantor shall take
all appropriate and necessary steps to nominate and deliver at the wellhead of
each Well Grantor's proportionate share of Gas and Oil producible from such
Well and use its reasonable efforts to keep Grantor's deliveries of Gas from
each Lease and Well substantially in balance (plus or minus ten percent (10%)
of Grantor's gross entitlement) during each calendar quarter, in accordance
with applicable operating and gas balancing agreements. In the event one or
more co-owners in the Wells fails to nominate or market its proportionate share
of Gas from any Well, Grantor agrees that, to the extent it has the legal right
and ability to do so, it shall reduce (or cause to be reduced) the total flow
of Gas from such Well, to the extent consistent with prudent operations
(without regard to the Production Payment), such that Grantor's resulting net
share or entitlement of Gas does not exceed, on a volumetric basis, Grantor's
share of production had all owners in such well nominated or marketed their
respective entitlements.

(d) Grantor recognizes that quantities of Gas delivered
by Grantor in excess of those required to satisfy the Production Payment and
not currently subject to a Gas sales agreement listed as a Permitted
Encumbrance shall be delivered by Grantor to Grantee in accordance with the
terms of the Gas Purchase Contract.

5. Scheduling.

(a) Not less than 5 days prior to the first day of each
Month, Grantor will notify Grantee of the daily quantities of (i) Gas which
Grantor expects to be produced from each Well during such Month and (ii) the
quantity of Production Payment Gas which Grantor expects to be available for
delivery in kind to Grantee at the Delivery Points during such Month. Grantor
will use its reasonable efforts to cause Gas to be delivered at uniform daily
rates through each Month at the relevant Delivery Points. Production Payment
Gas shall be the first Gas produced and saved each day attributable to the
Subject Interests, as provided in the Conveyance.

(b) In the event any charges, penalties, costs or
expenses are incurred or payable to any transporting pipeline, or any other
party, as a result of Grantor's failure to notify Grantee of any increase or
decrease in daily quantities of Gas to be delivered at the Delivery Points,
then as between the parties hereto, Grantor shall be liable for and shall hold
Grantee harmless from and against such charges, penalties, costs or expenses.
In the event any charges, penalties, costs or expenses are incurred or payable
to any transporting pipeline, or any other party, as a result of Grantee's
failure to notify Grantor of any increase or decrease in daily quantities to be
received at any Delivery Points, then as between the parties hereto, Grantee
shall be liable for and shall hold Grantor harmless from and against such
charges, penalties, costs, or expenses. Each party shall promptly notify the
other of any notice received from any transporting pipeline, or other party,
that indicates an imbalance in deliveries exists or is occurring that may give
rise to any such charges, penalties, costs or expenses.

6. Quality Requirements. All Production Payment Hydrocarbons
delivered to Grantee, or to Grantee's credit, shall satisfy the quality
requirements and specifications as set

4
<PAGE> 8

forth in the First Transporter's transportation agreements and/or published
tariffs filed with either the FERC or applicable state agency for acceptance
and transportation of Gas at the relevant Delivery Point or as set forth in the
first purchaser's agreements for acceptance and purchase of Oil, as the same
may be modified from time to time, all without penalty or deduction for
nonconformity. All costs and expenses of treating, dehydrating, or compressing
Production Payment Hydrocarbons to satisfy the foregoing quality requirements
shall be borne and paid by Grantor.

7. Pressure. Grantor shall deliver, or cause to be delivered,
the Production Payment Gas at a pressure sufficient to deliver the same into
the First Transporter's pipeline at each Delivery Point against the operating
pressure of such First Transporter's pipeline in existence from time to time.
Grantee shall inform Grantor, as often as may be necessary, of the required
pressure of Gas delivered to Grantee or to Grantee's credit.

8. Operation of Subject Interests. At all times from the date
hereof until the termination of the Production Payment, and whether or not
Grantor is the operator of the Subject Interests, Grantor, at Grantor's cost
and expense, shall use its best efforts consistent with a prudent operator
standard to:

(i) cause the Subject Interests to be maintained
in full force and effect, and to be
developed, protected against drainage by
offset operations, and continuously operated
for the production of Hydrocarbons in a good
and workmanlike manner as would a prudent
operator (and without regard to the burden of
the Production Payment), all in accordance
with generally accepted industry practices,
applicable operating agreements, and all
applicable federal, state and local laws,
rules and regulations, and shall otherwise
comply with all applicable laws, rules and
regulations; provided, however, Grantor shall
have no obligation to maintain (or cause to
be maintained) any Subject Interest when a
prudent operator under the same or similar
circumstances would not do so, and in such
situation, Grantor may release the relevant
Lease or allow the same to lapse or terminate
in accordance with Section 11 of this
Agreement;

(ii) pay, or use all reasonable efforts to cause
to be paid, no later than 90 days after such
become due and payable, all rentals,
royalties and Production Burdens payable in
respect of the Subject Interests or the
production therefrom, and all costs, expenses
and liabilities incurred in or arising from
the operation or development of the Subject
Interests, or the producing, treating,
gathering, storing, marketing or transporting
of Hydrocarbons therefrom prior to delivery
to Grantee, or the credit of Grantee, at the
relevant Delivery Point;

5
<PAGE> 9

(iii) cause (for non-operated properties, use all
reasonable efforts to cause) all wells,
machinery, equipment and facilities of any
kind now or hereafter located on the Subject
Interests, and necessary or useful in the
operation thereof for the production of
Hydrocarbons therefrom, to be provided and to
be kept in good and effective operating
condition as would a prudent operator (and
without regard to the burden of the
Production Payment), and promptly make all
useful or necessary repairs, renewals,
replacements, additions and improvements
thereof or thereto;

(iv) give or cause to be given to Grantee written
notice of every adverse claim or demand made
by any person affecting the Subject Interests
which is known to Grantor, the Hydrocarbons
produced therefrom, the Production Payment
and/or the Production Payment Hydrocarbons in
any manner whatsoever, and of any suit or
other legal proceeding instituted with
respect thereto, and at Grantor's expense
cause all necessary and proper steps to be
taken with reasonable diligence to protect
and defend the Subject Interests, the
Hydrocarbons produced therefrom, the
Production Payment and/or the Production
Payment Hydrocarbons against any such adverse
claim or demand, including (but not limited
to) the employment of counsel for the
prosecution or defense of litigation and the
contest, release or discharge of such adverse
claim or demand;

(v) cause the Subject Interests to be kept free
and clear of liens, charges and Encumbrances
of every character, other than the Permitted
Encumbrances;

(vi) subject to Section 1.07 of the Conveyance,
pay all Taxes when due and before they become
delinquent, and reimburse Grantee for any
Taxes paid by Grantee as a result of the
Production Payment or the Production Payment
Hydrocarbons or the production of same;

(vii) pay, in accordance with Grantor's customary
practices and before failure to pay would
give rise to any lien against any of the
Subject Interests, all operating expenses and
all billings under applicable joint operating
agreements (except to the extent contested in
good faith);

(viii) not resign as Operator of any of the Subject
Interests operated by Grantor (including
Subject Interests which Grantor becomes the
operator after the effective date of this
Agreement) until and unless such resignation
and the successor operator has been approved
in writing by Grantee;

6
<PAGE> 10

(ix) maintain or cause to be maintained sufficient
measurement, storage and receiving facilities
necessary to receive, control, gather and
deliver to the Delivery Points the production
of Oil and Gas from the Leases;

(x) except for ordinary wellbore maintenance
activities and other development activities
described in Schedule 1 to this Agreement,
not conduct any work or operations in the
wellbore of a Well, which work or operation
is related to any horizon, zone, formation or
interval not included in the Subject
Interests, without Grantor's prior written
consent;

(xi) consistent with a prudent operator standard,
use its reasonable efforts to achieve as soon
as possible, and thereafter use its
reasonable efforts to maintain, production of
Hydrocarbons from the Subject Interests at
rates not less than those projected in the
Reserve Report; and

(xii) consistent with a prudent operator standard,
and with applicable law, use its reasonable
efforts to produce and deliver to Grantee
each Month the Scheduled Amounts of the
Production Payment Hydrocarbons.

9. Development Activities.

Grantor agrees to perform timely or cause to be performed
timely each of the Development Activities, including, without limitation, the
drilling, completion and equipping of Gas and Oil wells located on the Leases;
the construction and installation of production, measurement, treating and
compression equipment or facilities; the construction, installation and
connection of pipelines; and any other type of activity which is necessary for
the prudent operation of the Leases and the Wells. Each activity and operation
shall be conducted by Grantor as a prudent operator, in accordance with the
terms and provisions of applicable operating agreements, unit agreements,
contracts for development or other similar agreements. Grantor (in its capacity
as Operator) shall use such efforts as would a prudent operator to cause all
non-operators, to the extent they are legally or contractually obligated to do
so, to bear and pay timely their respective undivided shares of all joint
expenses relating to the Development Activities.

10. Insurance: Damage or Loss.

(a) Grantor shall maintain or cause to be maintained, at
its sole cost and expense and with financially sound and reputable insurers
reasonably satisfactory to Grantee, insurance covering the Leases and all
pipelines, wells, and facilities located thereon and in which Grantor owns an
interest against such liabilities, casualties, risks and contingencies, and in
such

7
<PAGE> 11

types as is customary in the case of independent oil companies engaged in the
development and operation of similar properties located in the State of
Michigan, including, without limitation, insurance of the types and coverages
described in Schedule 1 hereto and with limits of coverage no less than those
set out in Schedule 1. Such insurance shall name Grantee as an additional
insured as Grantee's interests appear. Grantor shall furnish certificates of
such insurance to Grantee and shall obtain endorsements to such policies
providing that the relevant insurer will notify Grantee not less than thirty
(30) days prior to the expiration or termination of any such policy of
insurance.

(b) In the event of any damage to or loss of any
pipeline, well, equipment or facility on or benefitting the Leases and in which
Grantor owns an interest, Grantor (at no cost to Grantee) shall promptly
redrill, rebuild, reconstruct, repair, restore or replace such damaged or lost
property, unless to do so would not be economically feasible (without regard to
the burden of the Production Payment, but taking into account insurance
proceeds and recoveries).

11. Abandonment of Wells.

(a) Until the termination of the Production Payment,
Grantor shall not, without first obtaining the written consent of Grantee,
abandon any Well or surrender, abandon or release any Lease or Subject Interest
or any part thereof; provided, however, that, without the consent of Grantee:

(i) If and when, in Grantor's reasonable judgment
exercised in good faith and as would a
prudent operator not burdened by the
Production Payment, any Well becomes no
longer capable of producing Hydrocarbons in
paying quantities (without regard to the
burden of the Production Payment) and it
would not be economically feasible (without
regard to the burden of the Production
Payment) to restore the productivity of such
Well by reworking, reconditioning, deepening,
plugging back, or otherwise, Grantor shall
have the right to abandon such Well.

(ii) Grantor shall have the right to surrender and
release any Subject Interest or part thereof
when, in the reasonable judgment of Grantor
exercised in good faith and as would a
prudent operator not burdened by the
Production Payment, there is no Well located
thereon which is capable of producing
Hydrocarbons in paying quantities and the
drilling of an additional well thereon would
not, in Grantor's reasonable opinion, be
economically feasible (without regard to the
burden of the Production Payment).

(iii) Grantor shall have the right to plug any Well
if required by applicable law, rule or
regulation or the terms of any Lease.

8
<PAGE> 12

(b) For all purposes of this Agreement, (i) a Well shall
be deemed to be capable of producing Hydrocarbons "in paying quantities" unless
and until there arises a condition which Grantor reasonably concludes to be
permanent, such that the aggregate value of the Hydrocarbons which are being
produced or which Grantor reasonably concludes will be produced from such Well,
net of Production Burdens and Taxes but without regard to the burden of the
Production Payment, no longer exceeds or will not exceed the costs and expenses
directly related to the operation and maintenance of such Well (excluding
unreasonable general office and management overhead and similar charges), and
(ii) the restoration of the productivity of a Well or the drilling of a Well
shall be deemed to be "economically feasible" whenever (x) the aggregate
discounted present value of the Hydrocarbons which it reasonably appears will
be produced from such Well, net of Production Burdens and Taxes but without
regard to the burden of the Production Payment, will exceed the costs and
expenses directly related to such restoration or drilling and the operation and
maintenance of such Well (excluding unreasonable general office and management
overhead and similar charges) and (y) a reasonably prudent operator would
undertake the restoration or drilling activity in question.

12. Drilling of Replacement Wells. Grantor covenants and agrees
that, in the event that any Well shall for any reason (other than depletion of
the reserves otherwise recoverable from such Well) be no longer capable of
producing Hydrocarbons in paying quantities, Grantor shall promptly drill an
Oil or Gas well to replace such Well, unless in Grantor's reasonable judgment,
exercised in good faith and as would a prudent operator not burdened by the
Production Payment, the drilling of such replacement well would not be
economically feasible or unless in Grantee's reasonable judgment the Scheduled
Amount of the Production Payment Hydrocarbons, plus additional quantities
necessary to cover all reasonable costs of production, can be delivered in
accordance with the Conveyance without drilling such replacement well. Grantee
shall confirm in writing any decision made pursuant to this section.

13. Information. (a) At all times from the date hereof until the
termination of the Production Payment, Grantor, at its own expense, shall
furnish to Grantee the following reports and information at the times indicated
below, except to the extent precluded from doing so by the provisions of any of
the Permitted Encumbrances.

(i) Quarterly within 60 days after the end of
each fiscal quarter of Grantor and annually within 120 days after the end of
each fiscal year of Grantor, Grantor shall furnish Grantor's financial
statements as of the end of and for such period, including a balance sheet and
statements of income, stockholder's equity and cash flow, prepared in
accordance with generally accepted accounting principles and, with respect to
the annual financial statements, accompanied by a report of the Grantor's
independent certified public accountants stating that their examination was
made in accordance with generally accepted auditing standards and that in their
opinion such financial statements fairly present Grantor's financial condition,
results of operations and changes in financial position in accordance with
generally accepted accounting principles consistently applied.

9
<PAGE> 13

(ii) Annually on or before September 1st of each
year (commencing with September 1, 1996), Grantor shall furnish an engineering
report satisfactory to Grantee prepared as of August 1 of such year by the
Independent Engineer, incorporating all current information and data available
to Grantor pertinent to the estimation of oil and gas reserves attributable to
the Subject Interests and setting forth the following:

(A) an estimation of the oil and gas
reserves, classified by appropriate
categories, as of such date
attributable to the Subject
Interests,

(B) a projection of the rate of
production of, and net income from,
such reserves,

(D) a calculation of the present worth
of such net income discounted at a
rate or rates designated from time
to time by Grantee, and

(E) a schedule or complete description
of all assumptions, estimates and
projections made or used in the
preparation of such report,
including, without limitation,
estimated future product prices,
capital expenditures, operating
expenses and Taxes.

Each such report shall be prepared in accordance with customary and generally
accepted standards and practices for petroleum engineers, shall be based on
such assumptions as to costs, product prices and similar factors as Grantee
shall designate from time to time. Grantee shall be furnished a copy of any
other reserve report prepared for Grantor by any independent petroleum
engineering firm covering any of the Subject Interests.

(iii) Upon request of Grantee (but not more often
than quarterly), Grantor shall furnish reports concerning the status of
operations affecting each of the Leases and the Wells and the production of
Hydrocarbons, any new drilling or development activity, any proposed method of
secondary recovery by repressuring or otherwise, or any other planned or
proposed action with respect to the Material Properties, the decision as to
which may increase or reduce the quantity of Hydrocarbons ultimately
recoverable from the Material Properties, or the rate of production therefrom,
or which may shorten or prolong the period of time required for recovery of the
Production Payment.

(iv) Monthly, Grantor shall furnish a report
showing the gross production of Hydrocarbons from each Well or Lease, the gross
production of Hydrocarbons attributable to the Subject Interests (including any
Lease Use Hydrocarbons and Non-Consent

10
<PAGE> 14

Hydrocarbons), the quantity of Hydrocarbons sold for Grantor's account or taken
in kind by Grantor, the quantity of Production Payment Hydrocarbons (if any)
sold for Grantee's account, the quantity of Production Payment Hydrocarbons
delivered in kind to Grantee, the Taxes paid by Grantor on production from the
Subject Interests (including the Production Payment), the current status of any
Gas imbalances, if any, affecting the Material Properties, the cumulative
amount of Production Payment Hydrocarbons delivered to Grantee to date, the
number of Wells operated, Wells drilled and Wells abandoned, and the lease
operating expenses (which may be for the month prior to the month for which
production of Hydrocarbons is being indicated in such report).

(v) Upon request, Grantor shall furnish Grantee
copies of plats or maps showing property lines and Well locations, Well logs,
core analysis data, flow and pressure tests, natural gas analyses and casing
programs and other similar information related to the Leases, the Subject
Interests, the Wells and the production therefrom.

(vi) Quarterly, a certificate executed by an
officer of Grantor certifying that to the best of his knowledge after
reasonable investigation Grantor is in compliance in all material respects with
the terms of the Conveyance and this Agreement, or if not, specifying in
reasonable detail any exceptions thereto.

(vii) Upon request, Grantor shall furnish such
other information as Grantee may reasonably request.

(b) Grantee shall have the right, at its sole expense, to
audit the books and records of Grantor from time to time with respect to the
Subject Interests, including, without limitation, all information with respect
to quantities of Hydrocarbons produced from the Leases, the calculation of
Lease Use Hydrocarbons and Non-Consent Hydrocarbons, and the payment by Grantor
of all costs and expenses incurred in connection with the Subject Interests.
Such audits shall be conducted by Grantee so as to result in a minimum
disruption in the ongoing business and affairs of Grantor and shall be
conducted during normal business hours at Grantor's offices or at the offices
where Grantor maintains the records relating to the items set forth above.
This audit right shall be a free and unrestricted right, subject to the
limitations above set forth, and shall survive the termination of the
Production Payment, except that no audit shall cover a period beginning more
than two years prior to the date of the commencement of the audit. If, as a
result of any such audit, it is determined that any amount is due Grantee as a
result of the failure of Grantor to deliver properly all Production Payment
Hydrocarbons, or the proceeds thereof, to Grantee in accordance with the terms
of the Conveyance and this Agreement, Grantor shall deliver to Grantee the
proceeds attributable to the Production Payment Hydrocarbons not delivered or
which Grantor failed to remit, plus interest at the Floating Rate from the date
that such proceeds should have been paid in accordance with the terms of the
Conveyance and this Agreement to the date of payment.

(c) All information provided to Grantee by Grantor
pursuant to this Section 13 and falling within the scope of the Confidentiality
Agreements referred to in the Purchase

11
<PAGE> 15

Agreement shall be maintained as confidential and used by Grantee only in
accordance with the provisions of such Confidentiality Agreements.

14. Access to Subject Interests. Grantor shall permit the duly
authorized representatives of Grantee, at any reasonable time, but at Grantee's
risk and expense, to make such inspection of the Subject Interests and the
Assets used in the operation thereof as such representatives shall deem proper.

15. Remedies of Grantee: Mortgage and Security Interest. At any
time and from time to time until the termination of the Production Payment, if
Grantor shall fail to perform or observe any of the covenants or agreements
provided herein or in the Conveyance to be performed or observed by Grantor,
Grantee, in addition to Grantee's right to recover damages and all other
remedies available to Grantee at law or in equity, may, if such failure shall
continue unremedied after 45 days after written notice thereof is delivered to
Grantor:

(i) perform or cause to be performed on behalf of
and at the expense of Grantor, any obligation
which has not been performed or observed by
Grantor, in which event Grantee may advance
funds and incur and pay bills for expenses
for such purpose and shall be reimbursed out
of the proceeds attributable to Grantor's
interest in the Subject Interests, together
with interest on the unpaid amounts thereof
at the Floating Rate, from the date of such
advance or payment by Grantee until the date
reimbursed by Grantor;

(ii) upon written notice to Grantor and only as to
a default in performance of obligations of
Grantor other than those existing under
Section 13 succeed to and exercise any and
all rights of the Grantor as the owner of the
Subject Interests, and use in connection
therewith all property of Grantor as may be
useful or appropriate for the production,
treating, storing or transportation of
Hydrocarbons prior to delivery to the
Delivery Points, and all other properties and
rights of a similar character then held by
Grantor and situated upon or useful or held
for future use in connection with the
exploration, development or operation of the
Subject Interests for the production,
treating, storing, or transportation of
Hydrocarbons prior to delivery to the
Delivery Points and Grantee, and shall have
the right, on behalf and for the account of
Grantor, to sell and utilize all of the
Hydrocarbons attributable to Grantor's
interest in the Subject Interests and to
apply the proceeds thereof to the costs and
expenses of the operation and development of
the Subject Interests and to reimburse
Grantee for any amounts so expended by
Grantee, and Grantor shall reimburse Grantee
upon demand for all amounts so expended by
Grantee, to the extent such amounts are not
paid out

12
<PAGE> 16

of Grantor's interest in the proceeds of such
Hydrocarbons, together with interest on such
amounts at the Floating Rate from the date
expended to the date repaid;

(iii) pay any of the costs, expenses, Taxes (which
Taxes are not being contested in good faith
by Grantor) or other amounts which Grantor
has agreed to pay under the Conveyance which
have become delinquent, and to be reimbursed
out of the proceeds of the Hydrocarbons
attributable to the Grantor's interest in the
Subject Interests, together with interest on
the unliquidated amounts thereof at the
Floating Rate from the date of such payment
by Grantee to the date repaid; and/or

(iv) apply to a court of equity for the specific
performance or observance of any such
covenant or condition and in aid of the
execution of any power herein granted and for
the appointment of a receiver of the Subject
Interests and the Hydrocarbons produced
therefrom.

Grantee's exercise of the remedies provided in subclauses (i) through
(iii) above shall be made in accordance with any and all obligations, duties or
responsibilities of Grantor under any agreement then in effect and covering or
affecting the Subject Interests, including, without limitation, the obligations
and duties of Grantor under any of the Leases. Grantee shall promptly advise
Grantor in writing of any actions it may take according to this Section 15.

In order to secure payment of all amounts advanced or paid by Grantee
under this Section 15 and to secure performance by Grantor of all of the
Obligations, Grantor has, contemporaneously with execution of this Agreement,
granted to Grantee a lien and security interest in and to all of Grantor's
interests in the Subject Interests and all of Grantor's interests in equipment,
fixtures, inventory, goods, accounts, contract rights and general intangibles,
whether presently existing or to arise in the future, now owned or hereafter
acquired, insofar as the same (i) are located on the Leases, (ii) are used in
connection with, or related to the ownership or operation of, the Leases or
Subject Interests, or (iii) arise out of the sale or other conveyance of oil,
gas or other minerals produced and saved from the Leases and attributable to
the Subject Interests, together with any and all products and proceeds of any
of the foregoing. In such regard, Grantee shall be entitled to exercise all of
the rights and remedies of a mortgagee and secured party under applicable laws
in the event of any default by Grantor in the performance or payment (as
applicable) of the Obligations; provided, however, that, prior to the exercise
of its rights to foreclose or other remedies under this Section 15, Grantee
shall, if it has not previously provided any notice to Grantor under this
Section 15 relating to such default, give Grantor notice of any such default
that states in reasonable detail the circumstances which constitute such
default and a period of 45 days (or such longer period, if any, as may be
required by law) after the giving of such notice to cure such default.

13
<PAGE> 17

Following any default by Grantor in the performance or payment of the
Obligations and the passage of 45 days of the giving by Grantee to Grantor of
notice of such default without same, having been cured by Grantor, any
purchaser of Hydrocarbons from or attributable to the Subject Interests is
authorized and directed to make payment to Grantee out of the Hydrocarbons
attributable to Grantor's interest in the Subject Interests for any amount
which Grantee shall certify to such purchaser that it has paid and which
Grantor is obligated to pay hereunder. Any insurer is authorized and directed
to make payment to Grantee of proceeds of insurance described in Section 10(a)
for any amount which Grantee shall certify to such insurer that it has expended
in redrilling, rebuilding, reconstructing, repairing, restoring or replacing
damaged or lost property which Grantor has failed or refused to do promptly
pursuant to Section 10(b). Grantor hereby designates Grantee as its agent and
attorney in fact to execute any instruments which may be necessary or
appropriate, including, without limitation, designations of operator, to enable
Grantee to exercise its rights under this Section 15. This designation and
appointment shall be irrevocable as long as the Production Payment remains in
effect.

16. Force Majeure. In the event of either party being rendered
unable, wholly or in part, by Force Majeure to carry out its obligations under
this Agreement other than to make payments due hereunder, it is agreed that on
such party's giving notice and full particulars of such Force Majeure in
writing or by telecopy to the other party as soon possible after the occurrence
of the cause relied on, then the obligations of the party giving such notice,
so far as they are affected by such Force Majeure, shall be suspended during
the continuance of any inability so caused but for no longer period, and such
cause shall as far as possible be remedied with all reasonable dispatch.

17. Notices. All notices, requests, demands, instructions and
other communications required or permitted to be given hereunder shall be in
writing and shall be delivered personally, mailed by certified mail, postage
prepaid and return receipt requested or sent by telecopier, as follows:

If to Grantor, addressed to:

HAWKINS OIL OF MICHIGAN, INC.
400 South Boston, Suite 800
Tulsa, Oklahoma 74103
Attention: C.E. "Butch" Smith, President
Telecopy: 918-592-0486

14
<PAGE> 18

If to Grantee, addressed to:

KCS ENERGY MARKETING, INC.
5555 San Felipe, Suite 1200
Houston, Texas 77056
Attention: Mr. Harry Lee Stout, President
Telecopy: (713) 877-1394

or to such other place within the United States of America as either party may
designate as to itself by written notice to the other. All notices given by
personal delivery or mail shall be effective on the date of actual receipt at
the appropriate address. Notice give by telecopier shall be effective upon
actual receipt if received during recipient's normal business hours or at the
beginning of the next business day after receipt if received after the
recipient's normal business hours.

18. Indemnity. It is understood and agreed that, except as set
forth in Section 1.07 of the Conveyance, under neither this Agreement nor the
Conveyance does Grantee assume or shall Grantee ever be liable or responsible
in any way for the payment of any costs, expenses or liabilities incurred in
connection with developing, exploring, drilling, equipping, testing, operating,
producing, maintaining or abandoning the Subject Interests or any Well or
facility thereon or storing, handling, treating or transporting to the relevant
Delivery Point production therefrom. Grantor shall fully defend, protect,
indemnify and hold Grantee, its officers, employees, representatives and agents
harmless from and against any and all claims, demands, suits and causes of
action of every kind and character, including reasonable attorneys' fees and
costs of defense, which may be made or asserted by any third party or
governmental agency or entity, or by Grantor, Grantor's employees, agents,
contractors and subcontractors and their employees, agents, on account of
personal injury, death or property damage (including, without limitation,
claims for pollution and environmental damage), any civil or criminal fines or
penalties and any causes of action alleging statutory liability, relating to,
arising out of, or in any way incidental to the Subject Interests, the Wells
and facilities thereon or used in connection therewith and in which Grantor
owns an interest, the operation thereof and the production therefrom. This
indemnity shall apply, without limitation, to any liability imposed upon any
party indemnified hereunder as a result of any statute, rule, regulation or
theory of strict liability, but excluding the gross negligence, bad faith,
willful misconduct and violations of law by Grantee.

19. Successors and Assigns. All the covenants and agreements of
Grantor and Grantee herein contained shall be deemed to be covenants running
with the land and shall be binding upon the successors and assigns of Grantor's
interest in the Subject Interests and Grantee's interest in the Production
Payment and shall inure to the benefit of Grantor, Grantee, and their
respective successors and permitted assigns. The foregoing notwithstanding,
nothing herein is intended to modify or shall have the effect of modifying the
restrictions set forth in the Conveyance regarding mortgage, assignment,
transfer or pooling of Grantor's interest in the Subject Interests; and the
preceding sentence shall not be deemed to permit any assignment or

15
<PAGE> 19

other transfer of the interest of Grantor in any of the Subject Interests that
is not specifically permitted by the provisions of the Conveyance. Nothing
contained in this instrument or in the Conveyance shall in any way limit or
restrict the right of Grantee, or Grantee's successors and assigns, to sell,
convey, assign or mortgage the Production Payment in whole or in part. If
Grantee, or Grantee's successors and assigns, at any time shall execute a
mortgage, pledge or deed of trust covering all or any part of the Production
Payment as security for any obligation, the mortgagee, the pledgee or the
trustee therein named or the holder of the obligation secured thereby shall be
entitled, to the extent such mortgage, pledge or deed of trust so provides and
upon the occurrence or existence of the event or condition therein stated, if
so conditioned, to exercise all of the rights, remedies, powers and privileges
herein conferred upon Grantee, and to give or withhold all consents herein
required or permitted to be obtained from Grantee.

20. Damages. It is recognized that Grantee will look solely to
the Production Payment Hydrocarbons for satisfaction and discharge of the
Production Payment, and that Grantor is not personally liable for the payment
and discharge thereof. However, the foregoing provision shall not relieve
Grantor of any of its separate obligations under this Agreement, the Gas
Purchase Contract, or the Purchase Agreement, nor any obligation to respond in
damages for any breach of any of the provisions of such agreements.

21. Cost of Litigation. In the event of a breach of this
Agreement, or if a dispute arising hereunder is not resolved by mutual
agreement, and either party should sue the other party to enforce its rights
hereunder or for breach hereof, the party prevailing in such litigation shall
be entitled to recover its costs and reasonable attorneys' fees in addition to
any other remedy or recovery to which it may be entitled.

22. Entire Agreement: Amendments: Waiver. This Agreement
constitutes the entire agreement between the parties hereto concerning the
matters addressed herein. This Agreement may not be amended, and no rights
hereunder may be waived, except by a written document signed by the duly
authorized representatives of the parties. No waiver of any of the provisions
of this Agreement shall be deemed to be or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.

23. Headings. The headings of the sections of this Agreement are
for guidance and convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.

24. Counterpart Execution. This Agreement may be executed by
Grantor and Grantee in any number of counterparts, each of which shall be
deemed an original instrument, but all of which shall constitute but one and
the same Agreement.

25. Partial Invalidity. Except as otherwise expressly stated
herein, in the event any provision contained in this Agreement shall for any
reason be held invalid, illegal or unenforceable by a court or regulatory
agency of competent jurisdiction by reason of a statutory

16
<PAGE> 20

change or enactment, such invalidity, illegality or unenforceability shall not
affect the remaining provisions of this Agreement.

26. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, EXCEPT TO THE
EXTENT THE LAWS OF ANY OTHER STATE ARE MANDATORILY APPLICABLE.

EXECUTED in multiple originals as of the date first above written.

HAWKINS OIL OF MICHIGAN, INC.

By:
--------------------------------
C.E. "Butch" Smith, President

KCS ENERGY MARKETING, INC.

By:
--------------------------------
Harry Lee Stout, President

<PAGE> 1
EXHIBIT 2.4

OPTION AGREEMENT

This Option Agreement (this "Agreement") is made and entered into as
of the 30th day of November, 1995, by and between KCS Energy Marketing, Inc., a
New Jersey corporation ("KCS"), and Hawkins Oil of Michigan, Inc., a Delaware
corporation ("HOMI");

WHEREAS, KCS and HOMI are parties to a Purchase and Sale Agreement
dated as of November 30, 1995 (the "Purchase Agreement"), which concerns HOMI's
sale and KCS' purchase of a Production Payment out of certain oil and gas
interests owned by HOMI in the state of Michigan, such Production Payment being
evidenced by the Conveyance of Production Payment attached to the Purchase
Agreement as Exhibit B (the "Conveyance"); and

WHEREAS, HOMI desires to acquire the right and option to purchase an
undivided percentage interest in and to the outstanding amount of the
Production Payment, in accordance with the terms and conditions set forth in
this Agreement;

NOW, THEREFORE, for a sufficient consideration received by each, KCS
and HOMI hereby agree as follows:

1. For the purposes of this Agreement, the following terms shall have the
meanings set forth below:

"Adjustment Payment" means a sum of money equal to the "Adjustment
Amount" (as such term is defined and calculated in the Conveyance)
outstanding on the Purchase Date.

"Payment Interest" means the undivided percentage interest in and to
the outstanding amount of the Production Payment to be acquired by
HOMI as of the Purchase Date, determined in accordance with the table
attached hereto as Exhibit A; provided, however, the table attached
hereto as Exhibit A shall be subject to revision as provided in
paragraph 4 of this Agreement.

"Positions" means gas and oil financial positions and contracts
(including, but not limited to, NYMEX options, hedges, swaps and
similar economic arrangements).

"Purchase Date" means the date of the closing of the purchase and sale
transaction contemplated by this Agreement.

"Purchase Price" means the sum of money HOMI commits to deliver at the
closing for the purchase of the Payment Interest.

"Transaction Costs" means the out-of-pocket costs incurred or to be
incurred by KCS in liquidating or otherwise satisfying a proportionate
share of KCS' then-existing Positions corresponding to the quantity of
Production Payment Hydrocarbons affected by the proposed conveyance of
the Payment Interest to HOMI, and all fees or penalties incurred by
KCS under gas or oil marketing or transportation agreements as a
result of KCS'
<PAGE> 2

inability to take delivery of the entire quantities of oil and gas
attributable to the Payment Interest.

2. Subject to the further terms and provisions of this Agreement, KCS
grants to HOMI the right and option to purchase in a single
transaction an undivided percentage interest in and to the Conveyance
and the Production Payment as the same shall exist on the Purchase
Date; provided, however, HOMI's right to purchase the Payment Interest
shall be subject to and conditioned upon (a) to the extent HOMI and
KCS have not otherwise reached agreement concerning HOMI's assumption
of a proportionate share of KCS' Positions as of the Purchase Date,
HOMI's prior payment in full of the Transaction Costs, if any, and (b)
to the extent the Adjustment Amount as of the Purchase Date is not
equal to zero dollars ($0.00), HOMI's prior payment in full of the
Adjustment Payment. HOMI may exercise its option by giving a written
notice addressed to KCS which specifies (a) a Purchase Price resulting
in a Payment Interest not to exceed a 33 1/3% undivided interest of
the entire then-existing Production Payment, and (b) a Purchase Date
occurring on the first day of a month during the period from September
1, 1996 until August 31, 1998 only, which is not less than forty-five
(45) and not more than seventy (70) days from the date of HOMI's
notice. HOMI's option shall automatically terminate and be of no
further force or effect in the event HOMI fails to timely provide a
conforming written notice of exercise within the time limitations
described in this paragraph. Purchase and sale of the Payment
Interest shall be accomplished in accordance with the terms and
conditions set forth in paragraphs 3 and 4 below.

3. Upon the giving of HOMI's notice, each party shall take such steps as
are necessary to consummate the purchase and sale of the Payment
Interest. Upon KCS' receipt of HOMI's notice, KCS shall promptly
estimate the amount of the Transaction Costs, if any, and provide
documentation of such costs to HOMI. In addition, KCS shall provide
HOMI with a written estimate of the Adjustment Payment that KCS
reasonably believes will be due and payable on the Purchase Date. On
or before the fifteenth (15th) day prior to the Purchase Date, KCS
shall complete its recalculation of entries shown on Exhibit A (in
accordance with paragraph 4 below), confirm the Purchase Interest to
be acquired by HOMI and prepare and circulate to HOMI a form of
partial assignment of the Payment Interest HOMI has elected to
purchase and acquire from KCS, such form of assignment to contain a
special warranty of title by KCS (its successors and assigns) only,
without any other representations or warranties whatsoever by KCS
(except as to authority, due execution and delivery). On the Purchase
Date and at the offices of KCS, HOMI shall deliver to KCS (a) the
estimated amount of the Transaction Costs, the estimated amount of the
Adjustment Payment and the Purchase Price and (b) KCS shall execute
and deliver the aforesaid partial assignment in favor of HOMI. Within
thirty (30) days of the Purchase Date, HOMI and KCS shall determine
the final amounts of the Transaction Costs and the Adjustment Payment
and enter into an accounting for the differences, if any, between the
estimated and final amounts.

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<PAGE> 3

4. In the event HOMI is required to pay the Adjustment Payment in
connection with the purchase of the Payment Interest, such payment
shall be deemed to satisfy the Adjustment Amount existing pursuant to
the Conveyance and KCS shall revise its records accordingly.
Additionally, in the event there are delivered under the Conveyance
prior to the Purchase Date any Accelerated Quantities, the table of
Purchase Prices attached hereto as Exhibit A shall be revised and
recalculated by KCS solely to account for the delivery of the
Accelerated Quantities and the resulting adjustment of the Stated
Time; provided, however, recalculation of the entries shown on such
Exhibit A shall be accomplished in a manner consistent with KCS'
original calculation of Exhibit A. Should the value of the Positions
be positive, HOMI shall receive its proportionate share of such
benefit on the Purchase Date.

5. Following the Purchase Date and subject to HOMI's further assignment
or transfer of the Payment Interest, if any, KCS shall reasonably
consider the preparation and execution of such other instruments or
agreements as are deemed necessary or useful by KCS during the
remaining term of the Conveyance, including, but not limited to,
instruments restating or amending the Conveyance; provided, however,
KCS shall not under any circumstances be obligated or compelled to
enter into any agreement or arrangement which KCS in its sole
discretion deems unadvisable under the circumstances.

6. Any notice required or permitted under this Agreement shall be in
writing; shall be sent to the recipient's address as set forth below;
shall reference this Agreement; and shall be deemed given (a) when
delivered personally, (b) when sent by confirmed telex or facsimile,
(c) three days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after
deposit with a commercial overnight carrier, with verification of
receipt:

HOMI: Hawkins Oil of Michigan, Inc.
400 South Boston, Suite 800
Tulsa, Oklahoma 74103
Fax: (918) 592-0486
Attn: C.E. ("Butch") Smith

KCS: KCS Energy Marketing, Inc.
5555 San Felipe, Suite 1200
Houston, Texas 77056
Fax: (713) 877-1394
Attn: Harry Lee Stout, President

Either party may change its address for the purpose of receiving
notices hereunder by giving notice of such change of address to the
other parties hereto in the manner provided above in this paragraph.

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<PAGE> 4

7. This Agreement constitutes a contract entered into under, and shall be
governed by and construed and enforced in accordance with, the laws of
the State of Texas, without giving effect to principles of such laws
as to conflicts of law.

8. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided,
however, HOMI shall not transfer or assign its rights hereunder to a
non-affiliate without the prior written consent of KCS, such consent
not to be unreasonably withheld.

9. Subject to the provisions of the preceding paragraph of this
Agreement, nothing in this Agreement is intended to confer any rights
or remedies under or by reason of this Agreement on any person or
entity other than the parties hereto.

10. This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject hereof and supersedes and cancels
all prior oral and written communications, understandings and
agreements between the parties hereto concerning the subject hereof.
No modification or amendment of this Agreement shall be of any force
or effect unless in writing and signed by an authorized representative
of each party hereto.

11. Time is of the essence for this Agreement and the performance of all
of the terms, provisions, covenants and conditions hereof.

EXECUTED as of the date first written above.

KCS ENERGY MARKETING, INC.

By:
--------------------------------
Harry Lee Stout, President

HAWKINS OIL OF MICHIGAN, INC.

By:
--------------------------------
C.E. Smith, President

<PAGE> 1
EXHIBIT 2.5

DRILLING PARTICIPATION AGREEMENT

This Drilling Participation Agreement (the "Agreement") is made and
entered into as of December 7, 1995, by and between HAWKINS OIL OF MICHIGAN,
INC., (formerly, Savoy Oil & Gas, Inc.), a Delaware corporation ("HOMI"), and
KCS MICHIGAN RESOURCES, INC., a Delaware corporation ("KCS").

R E C I T A L S:

A. Pursuant to that certain Agreement and Plan of Merger (the
"Agreement of Merger") dated as of November 30, 1995, by, between and among
Savoy Oil & Gas, Inc. ("Savoy"), Savoy Exploration, Inc. ("SEXI"), Thomas C.
Pangborn and William T. Sperry (the "Principal Shareholders"), Hawkins Oil &
Gas, Inc. ("Parent") and Hawkins Transition Co., a wholly-owned subsidiary of
Parent ("Transition"), (i) Transition was merged into and with Savoy, (ii)
Savoy became a wholly-owned subsidiary of Parent, and (iii) the corporate name
of Savoy was changed to Hawkins Oil of Michigan, Inc.

B. As provided by the Agreement of Merger, Savoy and SEXI made
and entered into a certain Drilling and Participation Agreement (the "Drilling
Agreement"), dated as of December ___, 1995, pursuant to which HOMI has the
right to participate with SEXI in the drilling, completion, operation and
production of Wells within Niagaran Reef Prospects proposed by SEXI in the
Contract Area. A true, correct and complete copy of the Drilling Agreement is
attached hereto as Exhibit "A", and the terms, provisions and conditions set
forth in the Drilling Agreement are incorporated in this Agreement by
reference, and made a part hereof. Unless otherwise expressly defined herein,
all capitalized terms used in this Agreement shall have the meaning given to
them in the Drilling Agreement.

C. KCS desires that it be given the right to participate with
HOMI in the drilling, completion, operation and production of Wells proposed by
SEXI under the Drilling Agreement. This Agreement has been made and entered
into by the parties for the above purposes.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, HOMI and KCS hereby agree as
follows:

ARTICLE 1
DEFINITIONS

As used in this Agreement, the following terms shall have the
following meanings unless the context otherwise requires:

1.1 Contract Year means the period beginning on the date hereof
and ending December 31, 1995, the calendar year 1996, and each calendar year
thereafter during the term of this Agreement.
<PAGE> 2

1.2 HOMI Interest means all Leases now owned, hereafter acquired
or which may be earned by HOMI under the Drilling Agreement to the extent
included within the Drilling and Spacing Unit for a Test Well proposed by SEXI
under the Drilling Agreement, or within the Prospect within which such Test
Well is to be drilled.

1.3 HOMI Participation Costs means that portion of the total
Participation Costs for a Test Well payable by HOMI hereunder, with respect to
each Test Well in which HOMI shall have elected to participate under the
Drilling Agreement.

1.4 KCS Participation Costs means that portion of the total
Participation Costs for a Test Well payable by KCS hereunder, with respect to
each Test Well in which KCS shall have elected to participate under this
Agreement.

1.5 Operating Costs means all costs incurred, paid or payable with
respect to the operation of a Well attributable to the Working Interest
therein, pursuant to the applicable Joint Operating Agreement therefore. With
respect to Test Wells drilled hereunder, Operating Costs shall be in addition
to, and shall not be included in the Participation Costs for such Test Well.

1.6 Participation Costs means all costs payable by HOMI under
subsections (a), (b), (c), (d), (e) and (f) to Section 2.5 to the Drilling
Agreement, for each Test Well and the Prospect in which the same is to be
drilled, with respect to which HOMI and/or KCS shall have elected to
participate under the Drilling Agreement. Accordingly, with respect to each
such Test Well and Prospect, the Participation Costs shall include the total
amount of all New Lease Acquisition Costs, Well Costs, Development Fee and
Engineering Fee payable unto SEXI pursuant to the Drilling Agreement. It is
the intent of the foregoing that Participation Costs shall include all
out-of-pocket costs and expenses attributable to the HOMI Unit Percentage (as
defined in the Drilling Agreement) with respect to a Test Well drilled under
the Drilling Agreement in which HOMI and/or KCS shall have elected to
participate, through completion of the Test Well as a dry hole or as a well
capable of producing Hydrocarbons in paying quantities.

1.7 Party means KCS or HOMI.

1.8 Required Operation means any operation for the drilling,
deepening, side-tracking, testing or completing a Well which is required to be
performed in order to earn a Swepi Interest or an interest in a Lease under a
Farmout and which, if not performed, will result in such Swepi Interest or
interest under a Farmout not being earned. If for the interest to be earned, a
Well is to be drilled to test a certain objective, then the testing of such
objective and each operation prior to such testing are Required Operations, but
a completion attempt is not a Required Operation. If for the interest to be
earned a Well must be completed as a producing Well, then not only is each
operation required to be undertaken prior to such completion a Required
Operation, but the completion attempt itself is a Required Operation.

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<PAGE> 3

1.9 Required Operation Interest means that interest in a Lease
which may be earned by conducting a Required Operation and which would not be
earned if the Required Operation were not conducted. The Parties understand
that the Swepi Exploration Agreement requires the completion of a Well
producing oil and gas in paying quantities in order to earn a portion of the
Swepi Interest, and thus such interests which may be earned are Required
Operation Interests.

ARTICLE 2
PROSPECTS

2.1 Participation in Test Wells; Proposals. During the term of
and in strict accordance with Article 2 to the Drilling Agreement, HOMI has the
right to participate in the drilling, testing, completion and operations of
each Test Well proposed to be drilled by SEXI within the Contract Area and to
participate in all production therefrom, and in the Leases within the Drilling
and Spacing Unit for the Test Well, as well as in the subsequent development,
if any, of the Prospect in which the Test Well is located. If SEXI desires to
drill (or to participate with Swepi or any other party who shall propose to
drill) such a Test Well, SEXI is required to submit a Proposal therefore (a
"SEXI Proposal") to HOMI, meeting the requirements of Section 2.1 to the
Drilling Agreement.

During the term of this Agreement, KCS shall have the right, in
accordance with the provisions contained in Article 2 to this Agreement, to
participate with HOMI (and SEXI) in the drilling, testing, completion and
operations of each Test Well with respect to which HOMI shall have received a
SEXI Proposal, including the right to participate in all production from such
Test Well, the Leases within the Drilling and Spacing Unit for such Test Well,
and in the subsequent development, if any, of the Prospect in which such Test
Well is located.

Immediately following its receipt of same, HOMI shall deliver to KCS a
complete copy of each SEXI Proposal, together with such other information
regarding the Prospect and the Test Well as may then be in the possession of
HOMI, or to which HOMI may reasonably have access. Each SEXI Proposal and any
additional information regarding the Prospect and the Test Well which HOMI
shall deliver to KCS as above provided is referred to herein as a "HOMI
Proposal". At the request of KCS, HOMI shall furnish KCS such other or
additional information regarding the Prospect and the Test Well which KCS may
reasonably request, including without limitation, such other information which
HOMI may obtain from SEXI pursuant to the Drilling Agreement. Similarly, at
the request of HOMI, KCS shall furnish HOMI any information or data in the
possession of KCS, or to which KCS may reasonably have access, regarding the
Test Well and the Prospect in which the same is to be located.

Each HOMI Proposal shall also contain the following:

a. The date within which HOMI is required to deliver its
Participation Election to SEXI, with reference to the SEXI Proposal,
in accordance with Section 2.2 or Section 2.10(d) to the Drilling
Agreement (the "HOMI Election Date");

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<PAGE> 4

b. An indication, on the part of HOMI, based solely upon
its initial review of the SEXI Proposal, whether it shall elect to
participate in the Test Well, which indication of intent shall not be
binding upon HOMI under the Drilling Agreement, this Agreement or
otherwise; and

c. The election of HOMI to require KCS to assume, bear
and pay the HOMI Participation Costs for such Test Well, if HOMI shall
elect to participate therein, as more particularly provided by Section
2.6 below.

2.2 Election to Participate. The right of KCS to participate
under Section 2.1 shall be subject to the condition that it shall have
delivered to HOMI and to SEXI prior to the HOMI Election Date, its written
election to participate (a "Participation Election"). The failure or refusal
by KCS to deliver its Participation Election (whether by inaction or otherwise)
on or prior to the HOMI Election Date shall conclusively be deemed to
constitute its election not to participate in the Test Well or the Prospect
within which the same is to be located.

Each Participation Election delivered by KCS hereunder shall provide
that KCS has elected to participate in the Test Well as the assignee of HOMI
and, if HOMI shall elect to participate in such Test Well, it shall notify SEXI
at the time it delivers its Participation Election, that it has assigned and
transferred fifty percent (50%) of all its rights, interests, benefits and
obligations with respect to such Test Well, pursuant to the Drilling Agreement,
unto KCS. If HOMI shall elect not to participate in a Test Well pursuant to
the Drilling Agreement, but KCS shall have elected to participate therein under
this Section 2.2, HOMI shall be deemed to have assigned, transferred and
conveyed unto KCS all of its rights, interests, benefits and obligations in and
with respect to such Test Well, pursuant to the Drilling Agreement, unto KCS,
and in such event, HOMI shall not assume, bear or pay any Participation Costs
for such Test Well, nor shall it have any rights or interests in the HOMI
Interest in such Test Well, the Leases within the Drilling and Spacing Unit or
Prospect in which the Test Well is located, or in and to production from or
attributable to the HOMI Interest in the Test Well.

If both KCS and HOMI shall timely elect to participate in a Test Well
pursuant to the Drilling Agreement and this Agreement, then unless HOMI shall
elect to the contrary in writing prior to the Commencement of such Test Well,
HOMI shall be deemed to have elected to cause KCS to assume, bear and pay the
HOMI Participation Costs for such Test Well as more particularly provided in
Section 2.6 below.

The making of a Participation Election by either Party with respect to
any Test Well, shall not be deemed to constitute its election to participate
(or its "consent" under any applicable Joint Operating Agreement) with respect
to any Subsequent Wells in said Prospect, or its election to participate in or
consent to the attempted completion of the Test Well, whether as a dry hole or
as a Well capable of producing Hydrocarbons in paying quantities. All such
elections to participate and consents with respect to the completion of the
Test Well and the participation in any Subsequent Wells within the Prospect, or
other development or operations thereof, shall be made and shall be subject

4
<PAGE> 5

to the terms, provisions and conditions contained in the Joint Operating
Agreement for the Prospect, as provided in Section 2.4 below.

2.3 Interest Earned; Assignment. If both HOMI and KCS elect to
participate in the drilling of a Test Well in the manner and within the time
set forth in Section 2.2 above and if the Test Well (or a replacement Well in
the event the initial Well is lost) is drilled to its objective and if KCS is
not delinquent in the payment of the KCS Participation Costs due under Section
2.5, then HOMI shall assign (or shall use its best efforts to cause SEXI to
directly assign unto KCS) an undivided fifty percent (50%) of the HOMI Interest
in the Prospect earned by HOMI under the Drilling Agreement by the drilling of
the Test Well, it being the intent hereof that immediately after the making of
such assignment, and as a result thereof, HOMI and KCS shall each have fifty
percent (50%) of the combined Working Interest and fifty percent (50%) of the
combined Net Revenue Interest which HOMI shall have the right to earn or
receive under the Drilling Agreement immediately prior to the making of such
assignment; provided, if either Party shall elect not to participate in a
completion attempt on a Test Well to which the other Party has consented or
affirmatively elected, and such completion is a Required Operation, the right
to and/or ownership of any Required Operation Interest earned by the completion
operation shall be owned by and belong solely to the Party who shall have so
consented or affirmatively elected. Assignments to KCS shall be made free of
Subsequently Created Burdens made, granted or suffered by HOMI, but without
warranty of title, express or implied, except for a special warranty by HOMI
against the claims of any persons claiming by, through or under HOMI or its
Affiliates, but not otherwise. Said assignments shall be made promptly after
the conditions specified in the first sentence hereof have been satisfied, and
to the extent it shall have the right to do so, HOMI shall cause such
assignments to be made directly to KCS by SEXI pursuant to the Drilling
Agreement. In the event, however, HOMI has not earned or received an
assignment of the Leases constituting any HOMI Interest in the Prospect,
including any interest to be earned by Farmout, HOMI shall assign and transfer
to KCS the interest to which KCS is entitled in said interest earned promptly
after HOMI receives its assignment of interest. Prior to the time HOMI makes
an assignment to KCS, HOMI shall hold the HOMI Interest and any other interests
in Leases, to the extent (but only to the extent) of KCS's expectant interest
therein, in trust, for the benefit of KCS.

2.4 Joint Operating Agreement. If KCS shall elect to participate
in the drilling of a Test Well under this Agreement, then:

a. If Swepi is entitled to participate in such Test Well
under the Swepi Exploration Agreement and Swepi has elected to so
participate, KCS shall join with HOMI (if it has elected to
participate in such Test Well) and SEXI in the execution of a Joint
Operating Agreement for such Test Well as required by, and in the form
provided in, the Swepi Exploration Agreement; or

b. If the Prospect is one to which the Swepi Exploration
Agreement applies and Swepi elects not to participate in the Test
Well, or if the Prospect is one to which the Swepi Exploration
Agreement does not apply, KCS, HOMI (if it has elected to participate
in such Test Well) and SEXI shall execute a Joint

5
<PAGE> 6

Operating Agreement with respect to the Test Well and the Prospect, in
the form attached as Exhibit "2.4" to the Drilling Agreement.

The Test Well shall be the "Initial Well" required pursuant to Article VI.A. of
each such Joint Operating Agreement.

2.5 Cost of Participation. If both KCS and HOMI shall elect to
participate in a Test Well in accordance with Section 2.2 above, KCS shall bear
and pay fifty percent (50%) of all Participation Costs payable by HOMI under
and as provided by the Drilling Agreement with respect to such Test Well and
the Prospect in which the same is to be drilled. As used herein, the term
"HOMI Participation Costs" shall mean that portion (50%) of Participation Costs
payable by HOMI with respect to each Test Well in which it has elected to
participate under the Drilling Agreement, and the term "KCS Participation
Costs" shall mean that portion (50%) of Participation Costs payable by KCS
hereunder with respect to each Test Well in which KCS shall have elected to
participate under this Agreement, and the sum of the HOMI Participation Costs
and the KCS Participation Costs shall equal the total Participation Costs
payable to SEXI with respect to each Test Well drilled under the Drilling
Agreement. KCS shall pay the KCS Participation Costs directly to SEXI, or by
way of reimbursement to HOMI, at the time, and in the manner set forth in
Section 2.5 to the Drilling Agreement.

Notwithstanding the foregoing, the parties acknowledge that the
Engineering Fees payable to SEXI as Participation Costs under Sections 2.5(c)
and 2.5(d) to the Drilling Agreement are payable only if HOMI (and/or KCS with
respect to its interest in a Test Well) has consented to or otherwise elected
to participate in the attempted completion of a Test Well as a Well capable of
producing Hydrocarbons in paying quantities, and that payment thereof shall not
be due unless or until the Test Well shall have been completed as a Well
capable of producing Hydrocarbons in commercial quantities as evidenced by the
first sale of production from the Test Well. If either HOMI or KCS does not
consent to or otherwise elect to participate in the attempted completion of a
Test Well (in which both HOMI and KCS have elected to participate) as a Well
capable of producing Hydrocarbons in commercial quantities, the Party who shall
have consented to or otherwise elected to participate in such attempted
completion, shall bear and pay all said Engineering Fees attributable to the
HOMI Interest, and to the extent such completion is a Required Operation, the
right to and/or ownership of any Required Operation Interests earned by the
completion operation shall be owned and belong solely to the Party who shall
have participated in the completion operation, as more particularly provided by
Section 2.3 above.

Subject to Section 2.6 below, each Party shall pay its pro rata share
of all Operating Costs and other costs and expenses incurred in the equipping,
operating, plugging, abandonment and further development of each Test Well in
which it has elected to participate, and its pro rata share of all costs and
expenses incurred in connection with the drilling of Subsequent Wells in the
Prospect, in accordance with and pursuant to the Joint Operating Agreement for
such Test Well under Section 2.4 above.

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<PAGE> 7

2.6 HOMI Carried Interest. Subject to the conditions that (a) KCS
shall have elected to participate in a Test Well pursuant to Section 2.2 above,
and (b) HOMI shall have elected to cause KCS to assume, bear and pay the HOMI
Participation Costs for such Test Well, then in such event, KCS shall assume,
bear and timely pay 100% of the KCS Participation Costs and 99% (and HOMI shall
bear and pay 1%) of the HOMI Participation Costs in such Test Well. and KCS
shall thereby earn and be entitled to an assignment of 99.5% (and HOMI shall
thereby earn and be entitled to an assignment of .05%) of the HOMI Interest in
such Test Well, in the Leases within the Drilling and Spacing Unit in which the
Test Well is located, and in and to all production from or attributable to the
HOMI Interest in the well bore of such Test Well, until Payout (as defined
herein), at which time HOMI shall be entitled to receive an assignment of an
undivided 49.5% of the HOMI Interest, it being the intent of the foregoing that
from and after Payout, the HOMI Interest in each such Test Well shall be owned
in equal shares by HOMI and KCS, subject only to the provisions contained in
the last paragraph to this Section 2.6.

If KCS shall not elect to participate in a Test Well pursuant to
Section 2.2 above, HOMI may nevertheless elect to participate in such Test Well
pursuant to the Drilling Agreement. In such event, KCS shall not assume, bear
or pay any Participation Costs for such Test Well, or obtain any rights or
interests in the HOMI Interest in such Test Well, the Leases within the
Drilling and Spacing Unit or Prospect in which the Test Well is located, or in
and to production from or attributable to the HOMI Interest in the Test Well.

The interest in each such Test Well to be assigned to and owned by
HOMI as of Payout, is referred to herein as a "HOMI Carried Interest".
"Payout" shall mean, with respect to each Contract Year, that point in time
when KCS shall have received Net Production Proceeds attributable to the HOMI
Carried Interest in all Test Wells actually spudded or Commenced during such
Contract Year equal to 133% of the aggregate HOMI Participation Costs paid by
KCS for or with respect to such Test Wells in which HOMI has a HOMI Carried
Interest. It is the intent of the foregoing that, when KCS shall have received
Net Production Proceeds attributable to the HOMI Carried Interest in all Test
Wells spudded or Commenced during a Contract Year, equal to the aggregate
amount of HOMI Participation Costs paid or funded by KCS with respect to all
such Test Wells, HOMI shall be entitled to receive an assignment from KCS of
the respective HOMI Carried Interest in each such Test Well, and (subject to
the last paragraph to this Section 2.6) HOMI shall thereafter be entitled to
receive all production from or attributable to such HOMI Carried Interest, and
shall thereafter bear and pay its pro rata share of all Operating Costs with
respect to such Test Wells. For the above purposes, HOMI Participation Costs
shall include all Participation Costs attributable to the HOMI Carried Interest
in each Test Well spudded or Commenced during a Contract Year, notwithstanding
the fact that such HOMI Participation Costs are paid or payable by KCS during
subsequent Contract Years or thereafter. Accordingly, Payout shall be
determined and calculated on a Contract Year basis, and in no event shall the
Net Production Proceeds from or attributable to the HOMI Carried Interest for
any Test Well spudded or Commenced during a particular Contract Year, be
applied to or used to calculate

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<PAGE> 8

Payout with reference to any Test Wells spudded or Commenced during any other
Contract Year.

As used herein, "Net Production Proceeds" means the actual amount of
revenues derived from the sale of Hydrocarbons produced from or attributable to
the HOMI Carried Interest in a Test Well, net of and after payment or deduction
of actual Operating Costs and gross production taxes paid or attributable to
such HOMI Carried Interest, but without deduction or charge for income taxes,
or depletion, depreciation or other non-cash deductions.

Each assignment of Leases or interests in Leases unto KCS, with
respect to any Test Well to which this Section 2.6 shall apply, shall include
therein a reservation unto HOMI of the HOMI Carried Interest in such Leases or
other interests. To the extent any such assignment unto KCS shall not contain
a reservation so providing, KCS and HOMI shall make, execute and deliver an
instrument in writing to evidence the existence of the HOMI Carried Interest,
which shall be filed of record at the expense of HOMI.

Notwithstanding the foregoing or anything contained herein to the
contrary, HOMI covenants and agrees that as of the time of each Payout, all
HOMI Carried Interests to which Payout has then occurred shall become subject
to, and shall be dedicated as a "Subject Interest" as defined in that certain
Conveyance of Production Payment of even date herewith, executed by HOMI, as
"Grantor", in favor of KCS, as "Grantee" (as amended from time to time, the
"Conveyance"). Immediately upon each such Payout, HOMI commits to execute and
deliver forms of recordable instruments prepared by KCS and approved by HOMI
which are sufficient in form and substance to amend the Conveyance (including,
but not limited to, Exhibit "A" thereto), to include the HOMI Carried Interests
within the definition of the "Subject Interests" subject to the Conveyance.
HOMI covenants and agrees that prior to the date of each Payout, it shall not
sell, transfer or assign to any party, or otherwise pledge or encumber in any
manner, the HOMI Carried Interests or HOMI's entitlement to receive an
assignment of such interests pursuant to this Agreement.

2.7 Election Not to Participate. Subject to the condition that
KCS has been provided all information necessary to make a Participation
Election on a timely basis, pursuant to Section 2.1 above, if KCS elects not to
participate, or fails to make a timely election to participate in a Test Well,
then KCS shall have no right, title or interest in or to the Prospect for such
Test Well, the HOMI Interest in such Prospect, the Test Well or any Subsequent
Well that may thereafter be drilled in such Prospect or any production related
to the foregoing, or any rights provided under Section 2.6 above, and KCS shall
have no obligation to pay any Participation Costs with respect to same.

2.8 Subsequent Operations. The right of either Party to complete,
to elect to complete or not to complete, a Test Well and to propose the
drilling of, to participate in, and to elect not to participate in a Subsequent
Well on a Prospect in which a Party owns an interest shall be governed by the
Joint Operating Agreement applicable under Section 2.4 above for the drilling
of the Test Well, including the non-consent penalty provisions of such
Agreement; provided that in the event of the failure of any Party to
participate

8
<PAGE> 9

in any Required Operation, then the applicable penalty to the Non-Participating
Party shall be that such Party shall have no right, title or interest
whatsoever in the related Required Operating Interests and such Required
Operation Interests shall be owned solely by the Participating Party in such
Operation.

2.9 Operator. SEXI shall be the operator of each Test Well
drilled on a Niagaran Reef Prospect under this Agreement, to completion of the
Test Well as a dry hole (i.e., plugging, abandonment and restoration) or as a
Well capable of producing Hydrocarbons in paying quantities, provided however,
HOMI shall be designated as the co-operator with SEXI on each Drilling
Application and Permit filed with the Michigan Department of Natural Resources
for a Test Well in which HOMI has elected to participate. Immediately
following completion of any Test Well on a Niagaran Reef Prospect, as a Well
capable of producing Hydrocarbons in paying quantities, HOMI shall, immediately
following such completion, provided that it shall have consented to and
participated in the completion attempt, be and become the operator of the Test
Well and the Prospect in which the same is located (and the operator of each
Subsequent Well drilled within the Prospect). If such Test Well shall be
completed as a Well capable of producing Hydrocarbons in paying quantities, but
HOMI shall have not consented to or otherwise elected not to participate in the
completion of such Test Well, SEXI shall continue to be the operator of such
Test Well and any Subsequent Wells in the Prospect for such Test Well until
such time (if ever) as HOMI shall become the owner of a Working Interest in
such Test Well by virtue of the recoupment of any non-consent penalties. For
the above purposes, KCS shall make, execute and deliver all instruments which
may be reasonably necessary or appropriate to designate HOMI as the operator of
each such Test Well and any Subsequent Wells in the Prospect within which the
Test Well is located.

ARTICLE 3
MARKETING PRODUCTION

3.1 Right to Take-in-Kind. Subject to the respective rights and
obligations of the Parties under other agreements heretofore or hereafter
entered into between them, each of KCS and HOMI shall have the right to
take-in-kind and separately dispose of their respective shares of Hydrocarbons
produced from the Contract Area as provided under the terms of applicable Joint
Operating Agreements. Nevertheless, each party shall have the rights provided
in this Article 3 with respect to the marketing of all Hydrocarbons produced by
such party from fields lying within the Contract Area in which both KCS and
HOMI have an interest (any such field, herein a "Common Field"), which rights
shall remain in effect during the term of this Agreement and after the
termination of this Agreement, shall remain in effect as to each Common Field,
on a field by field basis, for the remaining life thereof.

3.2 Access to Marketing Arrangements. Each Party shall have the
right, but not the obligation, to have its production from a Common Field
marketed on the same terms and conditions on which the other Party markets its
production from such Field.

9
<PAGE> 10

a. If either Party (the "Contracting Party") intends to
enter into a contract for the marketing of any of its production from
a Common Field under arrangements having a duration of 90 days or
longer, the Contracting Party shall immediately notify the other Party
(the "Other Party") of such arrangement and all the material terms of
sale, including the type of production to which such contract applies
and the price to be received and deductions applicable thereto. The
Other Party shall have ten days following receipt of such notice to
elect to have its production of the type to which such contract
applies marketed on the same terms and conditions, and any failure of
the Other Party to respond in writing within said ten day period shall
be deemed an election not to so market. If the Other Party elects to
have its production of the type to which such contract applies
marketed on such terms and conditions, it will join in a ratification
of the applicable marketing contract and shall be bound thereby for
the term thereof; provided, neither Party shall make any amendments to
said contract which shall in any manner affect the rights of the other
thereunder and if said contract affords termination rights to the
seller, said rights may be exercised by a Party only with respect to
its production from the Common Field.

b. In the event either Party markets any production from
a Common Field, under marketing arrangements not covered by paragraph
(a) above, such Party shall periodically notify the Other Party upon
its request of the terms and conditions upon which such Party is
marketing its production from such Common Field, and such Party shall
have the right to require the Contracting Party to market its
production of the type to which this paragraph (b) applies on
identical terms and conditions, by giving at least three days written
notice, to be effective on the first day of the month next ensuing.
Any election by a Party to have the Contracting Party market its
production of any type to which this paragraph (b) applies shall
continue until terminated by the electing Party upon five days written
notice to be effective on the first day of the month next ensuing.
Such termination shall be without prejudice to each Party's right to
again and from time to time exercise such marketing right.

ARTICLE 4
RIGHT OF ACQUISITION - CONTRACT AREA

4.1 Acquisitions. If during the term of this Agreement, either
Party (the "Buying Party") shall acquire any Well, Lease or other interest
within the Contract Area, the other Party shall have the first and prior right
to acquire up to 50% of the interest acquired by the Buying Party for a
corresponding percentage of the Buying Party's actual cost thereof, which right
shall be exercised within 20 days after notification of the acquisition of the
interest by the Buying Party (and the failure to respond within said time shall
be deemed an election not to so acquire). Each such notice shall be in
writing, shall describe the interest acquired, state the actual cost thereof
and shall include copies of all available title information pertaining to the
acquired interest. Such election shall be deemed an irrevocable obligation by
such electing Party to pay its share of the actual cost thereof within 30 days
after invoice from the Buying Party. This Section 4.1 shall apply

10
<PAGE> 11

to producing and non-producing Leases, Wells, reserves, royalty or mineral
interests and overriding royalty interests, including without limitation, all
Leases, Wells and other interests acquired by HOMI from SEXI, pursuant to
Article 5 to the Drilling Agreement.

4.2 Farmouts. If either Party (a "Farmin Party") acquires a
Farmout with respect to any lands included within the Contract Area, the other
Party shall have the right to acquire its proportionate interest in said
Farmout, to join in the performance of the terms thereof, and to earn its
proportionate 50% share of the interest in the Leases to be acquired thereby if
the other Party elects to do so within 15 days after receipt of notice that the
Farmin Party has taken such a Farmout (and failure to respond within said time
shall be deemed an election not to so acquire). If either Party shall acquire
a Farmout covered by this Section 4.2, it shall promptly notify the other Party
of such acquisition, which notice shall be accompanied by copies of the
relevant agreement, an AFE for the estimated actual cost of performing the
operations necessary for the Farmin Party to earn its interest under the
Farmout and all available title information pertaining to the Leases to be
earned under such Farmout. If the notified Party elects to acquire its
proportionate interest in a Farmout under this Section 4.2, such election shall
be deemed to be its unconditional and irrecoverable obligation, agreement and
assumption to perform its proportionate 50% share of all of the obligations of
the Farmin Party under said Farmout (but only to the extent the Farmin Party is
obligated).

ARTICLE 5
TERM

This Agreement shall commence on the date hereof and shall continue
for a period ending December 31, 2000, provided however, (a) either Party may
terminate this Agreement effective as of the end of the Contract Year ending
December 31, 1998, by giving written notice to the other Party at any time
within the 30 day period immediately prior to the end of said Contract Year,
and (b) similarly, either Party may terminate this Agreement effective as of
the end of the Contract Year ending December 31, 1999, by giving written notice
to the other Party at any time within the 30 day period immediately prior to
the end of said Contract Year. The termination of this Agreement shall not
affect the rights of either Party with respect to Prospects proposed and
elections made by the Parties with respect to those Prospects prior to
termination. The termination of this Agreement shall not affect the
obligations of the Parties to execute any Joint Operating Agreement required
during the term hereof to be executed or any right of the Parties under such
Operating Agreements or under existing Operating Agreements.

ARTICLE 6
RELATIONSHIP OF THE PARTIES

6.1 No Partnership, Etc. It is the intent of the Parties to
establish a contractual relationship pursuant to this Agreement. It is not the
intent or purpose of the Parties to create, and nothing shall be construed to
create, any partnership or association or the relationship of agency or
employer and employee or any fiduciary relationship, and

11
<PAGE> 12

neither this Agreement, nor any of the operations hereunder, shall be construed
as creating any such relationship. The Parties expressly agree that no Party
shall have the authority to obligate the other Party to any third person or to
cause the other Party to be responsible for the obligations of any other Party
and each Party shall be responsible only for its several obligations arising
hereunder and liable only for its allocated share of costs and expenses
incurred hereunder.

6.2 Taxation. Each Party hereby elects to be excluded from the
application of all of the provisions of Subchapter K, Chapter 1, Subtitle A of
the Internal Revenue Code of 1986, as amended, as permitted and authorized by
Section 761 of such Code and the Regulations promulgated thereunder. Each
Party agrees to execute and furnish such other evidence as may be necessary to
evidence this election. No Party shall give any notices or take any action
inconsistent with the election made hereby. In making the foregoing election,
each Party states that the income derived by each Party from the activities
hereunder can be adequately determined without the computation of partnership
taxable income.

ARTICLE 7
MISCELLANEOUS

7.1 Entire Agreement. When executed, this Agreement and the
documents attached hereto as Schedules shall constitute the entire Agreement
among the Parties with respect to the subject matter covered hereby and shall
supersede and replace any and all other writings, understandings or memoranda
entered into or discussed prior to the execution hereof.

7.2 Partial Invalidity. If any part or portion of this Agreement
is held to be invalid, such invalidity of any such part or portion shall not
affect any remaining part or portion hereof.

7.3 Further Assurances. Each Party agrees from time to time to
execute and deliver or cause to be executed and delivered, such additional
instruments and documents and take such additional action as may be reasonably
required in order to fully perform and carry out the terms and provisions of
this Agreement.

7.4 Notices. Any notice and other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to be
given when delivered personally or upon receipt after being sent by facsimile
transmission (or at 8:30 a.m. on the next business day if sent after 5:00
p.m.), or on the next business day after being sent by nationally recognized
overnight delivery service or on the third day after being sent by registered
or certified mail (return receipt requested) postage prepaid to the parties to
this Agreement at the following addresses or such other addresses for a Party
as shall be specified by like notice:

If to HOMI:
Hawkins Oil of Michigan, Inc.
400 South Boston, Suite 800

12
<PAGE> 13

Tulsa, Oklahoma 74103
Attention: C.E. "Butch" Smith
(918) 585-3121
(918) 592-0486 - FAX

If to KCS:
KCS Michigan Resources, Inc.
Suite 1200, 5555 San Felipe
Houston, Texas 77056
Attn: John Nikonchik
(713) 877-8006
(713) 877-1394 - FAX

7.5 Covenants and Binding Effect. The covenants, terms and
provisions herein shall be deemed to covenants running with the lands and
Leases which are subject to this Agreement.

7.6 Amendments. This Agreement may be amended, modified, changed,
altered or supplemented only by written instrument duly executed by KCS and
HOMI.

7.7 Assignments. Neither KCS or HOMI may assign any of its rights
or obligations under this Agreement. The right of a Party to assign an
interest in Leases which it owns or with respect to which such Party has earned
the right to an assignment is not restricted; provided no assignment of all or
part of a Party's interests in Leases or rights to acquire interests in Leases
within a Prospect proposed for drilling under this Agreement shall be binding
upon the other Party prior to the time the Test Well has been completed and the
assigning Party has paid all costs and expenses which, under this Agreement or
the applicable Joint Operating Agreement, it is obligated to pay, and until
such time the other Party shall be required to deal only with the Party
purporting to make said assignment. In no event shall any assignment, even if
permitted by the foregoing (i) be effective prior to written notice thereof to
the other Party, or (ii) have the effect of relieving the assignor of any of
its obligations under this Agreement in the event the assignee fails to perform
or of relieving the assignor of any its obligations for Participation Costs
with respect to Wells in progress or proposed at the time of such assignment.

If any party shall make an assignment otherwise permitted by this
Agreement but which would have the effect of dividing the interest to which any
Party is entitled hereunder in any Well or Lease among three or more persons,
the other Party hereto, upon notice to the assigning Party, may require that
the assigning party and its assignees designate one of their number as an agent
with whom the other Party hereto shall be entitled to deal exclusively, to the
end that no Party shall ever be required to deal with more than two persons
with respect to the interest of the other Party to this Agreement.

7.8 Captions. The captions provided in this Agreement are for
convenience only and are not intended to provide a construction with respect to
any matter hereunder.

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<PAGE> 14

7.9 Governing Law. This Agreement and all documents executed
pursuant hereto and the legal relations between the parties with respect to
this Agreement shall be governed and construed in accordance with the laws of
the State of Michigan without regard to the application of conflicts of law
rules.

7.10 Conflicts. In the event of an inconsistent or conflict
between this Agreement and any Joint Operating Agreement or other document
entered into pursuant to the terms hereof, the terms of this Agreement shall
control.

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.

HAWKINS OIL OF MICHIGAN, INC.

By:
-------------------------------------
C. E. (Butch) Smith, President

"HOG"

KCS MICHIGAN RESOURCES, INC.

By:
-------------------------------------
(Title)
------------------------------

"KCS"

<PAGE> 1

EXHIBIT 2.6

ASSIGNMENT AND BILL OF SALE

In consideration of the sum of $10.00 and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, SAVOY
OIL & GAS, INC., a Delaware corporation, of 603 Bay Street, Traverse City,
Michigan 49684, ("Assignor"), conveys, assigns and warrants to KCS MICHIGAN
RESOURCES, INC., a Delaware corporation, of 379 Thornall Street, Edison, New
Jersey 08837 ("Assignee"), the interests in real and personal property
described below (collectively the "Subject Interests"):

Undivided interests equal to the Specified Percentage in effect from
time to time in and to each of the following types and categories of properties
and interests:

1. All of Assignor's rights, titles and interests in and to the
oil and gas leases (including overriding royalties and other
interests derived therefrom) described in Exhibit "A" attached
hereto (collectively, the "Leases"), to the extent the same
are included within the Drilling Unit(s) described therein
which are applicable to such Leases, subject to the depth and
other limitations, if any, set forth in such Exhibit "A"; and

2. All of Assignor's rights, titles and interests in and to the
wells described in Exhibit "A" (collectively, the "Wells"),
and all well equipment, production equipment, flowlines and
other personal property or fixtures associated with such Wells
which are used or obtained in connection with the production,
treatment or delivery of oil or gas from such Wells, including
equipment, if any, held in storage; and

3. All of Assignor's rights, titles and interest in and to all
permits, pooling declarations, operating agreements, gas
purchase contracts, right-of-way agreements and other
agreements and contracts to the extent that the same apply to
the Leases, Wells and interests above assigned, including but
not limited to the Other Agreements described in Exhibit "A".

Page One of Five
<PAGE> 2

For the purposes of this Assignment, the following terms shall have
the meaning set forth below:

"Current Interest" shall mean, with respect to each of the Wells
identified in Exhibit "A" and the lands described in the Drilling Unit
attributable thereto, the applicable Working Interest and Net Revenue Interest
set forth in Exhibit "A".

"Final Interest" shall mean, with respect to each of the Wells
identified in Exhibit "A" and the lands described in the Drilling Unit
attributable thereto, the applicable Working Interest and Net Revenue Interest
set forth in Exhibit "A".

"Increased Interest" shall mean, with respect to each of the Wells
identified in Exhibit "A" and the lands described in the Drilling Unit
attributable thereto, the applicable Working Interest and Net Revenue Interest
set forth in Exhibit "A".

"Initial Interest" shall mean, with respect to each of the Wells
identified in Exhibit "A" and the lands described in the Drilling Unit
attributable thereto, the applicable Working Interest and Net Revenue Interest
set forth in Exhibit "A".

"Net Revenue Interest" shall mean with respect to each Lease, Well and
Drilling Unit the ownership interest (expressed as a percentage) in and to all
oil, gas and other hydrocarbons produced from or allocated or attributable to
such Lease, Well or drilling Unit, as the case may be, and of the proceeds of
such production, after giving effect to and deducting all applicable production
burdens.

"Payout One" shall mean 7:00 a.m. on the day immediately following the
time when the difference between (a) the sum of proceeds of production on and
after October 1, 1995, attributable to the Net Revenue Interests in all of the
Subject Properties hereby assigned to Assignee, less Assignor's share of
production, severance and similar taxes attributable to the Subject Properties,
less (b) the sum of the costs attributable to the operation and development of
the Subject Interests (including, but not limited to, costs of drilling or
recompleting wells located on lands covered by the Leases) on and after October
1, 1995, equals $75,000.

"Payout Two" shall mean 7:00 a.m. on the day immediately following the
time when the difference between (a) the sum of proceeds of production on and
after October 1, 1995, attributable to the Net Revenue Interests in all of the
Subject Properties hereby assigned to Assignee, less Assignor's share of
production, severance and similar taxes attributable to the Subject Properties,
less (b) the sum of the costs attributable to the operation and development of
the Subject Interests (including, but not limited to, costs of drilling or
recompleting wells located on lands covered by the Leases) on and after October
1, 1995, equals $550,000.

Page Two of Five
<PAGE> 3

"Specified Percentage" shall mean:

a. During the period of time from the Effective Date until Payout
One, an undivided ten percent (10%);

b. During the period of time from Payout One until Payout Two, an
undivided fifteen percent (15%); and

c. For all periods of time on and after Payout Two, an undivided
thirty percent (30%).

"Working Interest" shall mean with respect to each Lease, Well and
Drilling Unit the ownership interest (expressed as a percentage) of each such
Lease, Well and Drilling Unit before giving effect to any applicable production
burdens and the percentage of all costs and expenses associated with the
exploration, drilling, development, operation, maintenance and abandonment of
such Lease, Well or Drilling Unit required to be borne by the holder of such
interest (prior to giving effect to rights of non-consent hereafter exercised
by others).

Assignor expressly represents and covenants to Assignee as follows:

1. That to the best of Assignor's knowledge, information and
belief, as of October 1, 1995 and as of the time of execution
of this Assignment, Assignor is the owner of the Current
Interests specified in Exhibit "A" for each of the properties
described therein, free and clear of all liens, charges and
encumbrances except the Permitted Encumbrances set forth in
Exhibit "A".

2. That to the best of Assignor's knowledge, information and
belief, (a) during the period of time from the Effective Date
until Payout One, this Assignment conveys to Assignee the
Initial Interests, (b) during the period of time from Payout
One until Payout Two, this Assignment conveys to Assignee the
Interim Interests and (c) for all periods of time on and after
Payout Two, this Assignment assigns to Assignee the Final
Interests.

Page Three of Five
<PAGE> 4

3. That there is neither pending, nor to the best of Assignor's
knowledge, threatened, any claim, proceeding, action or
litigation affecting the Subject Properties, including, but
not limited to, any condemnation or eminent domain proceeding,
or adverse claims as to leasehold title, royalty payment or
allocation, or environmental matters.

4. That Assignor is a corporation duly incorporated and in good
standing under the laws of the State of Delaware, and is
authorized to do business in the State of Michigan, and that
this Assignment has been duly authorized by all necessary
corporate action, has received all necessary approvals, has
been executed by a duly authorized officer of the Assignor,
and is a valid and binding obligation of Assignor, enforceable
in accordance with its terms.

5. That the Subject Interests are free and clear of all liens,
encumbrances, claims, judgments, former grants, charges,
estates, titles and interests of any persons claiming by,
through or under Assignor, but not otherwise, and further
expressly excepting and subject to the Permitted Encumbrances
set forth on Exhibit "A".

All taxes, including, but not limited to excise taxes, state severance
taxes, ad valorem taxes, and any other local, state, and/or federal taxes or
assessments attributable to the Subject Interests or any part thereof prior to
the Effective Date, shall remain Assignor's responsibility; and all deductions,
credits and refunds pertaining to the aforementioned taxes, attributable to the
Subject Interests or any part thereof prior to the Effective Time (no matter
when received), shall belong to Assignor. All such taxes attributable to the
Subject Interests or any part thereof at and after the Effective Date shall be
Assignee's responsibility, and Assignee shall reimburse Assignor for any such
taxes previously paid by Assignor; and all deductions, credits, and refunds
pertaining thereto at and after the Effective Date (no matter when received)
shall belong to Assignee.

Page Four of Five
<PAGE> 5

This Assignment is made with rights of substitution and subrogation of
Assignee in and to all covenants and warranties by others heretofore given or
made with respect to any of the properties or interests hereby conveyed.

Upon the occurrence of Payout Two, Assignor and Assignee shall file a
notice such event in the public records.

This Assignment is subject to the approval of the State of Michigan as
to those Leases, if any, requiring such approval for assignment.

Executed this ____ day of December, 1995, but effective for all
purposes as of 7:00 a.m. on October 1, 1995 (the "Effective Date").

ASSIGNOR:

WITNESSES: SAVOY OIL & GAS, INC.

By:
- --------------------- -----------------------
Name: William T. Sperry
---------------------
Its: President
- --------------------- ---------------------

ACKNOWLEDGMENT

STATE OF )
--------------------)ss
COUNTY OF )
-------------------
Acknowledged before me this ______ day of December, 1995 by William T.
Sperry, President of Savoy Oil & Gas, Inc., a Delaware corporation, on behalf
of the corporation.

My Commission Expires:
----------------------------
- ------------------------------ Notary Public in and for
County
--------------------
State of
-------------------

Prepared by: Savoy Oil & Gas, Inc., 603 Bay St., Traverse City,
Michigan 49684

Page Five of Five