AGREEMENT

This agreement is entered into effective as of March 5, 200l by Discovery Operating, Inc. ("Discovery"), a Texas Corporation, whose address is 800 N. Marienfeld, Suite 100, Midland, Texas 79701, Don L. Sparks, W. Jeffrey Sparks, Kevin D. Sparks, C. Todd Sparks ("Sparks'"), whose address is the same as Discovery's, and Ivanhoe Energy (USA) Inc. ("Ivanhoe") a Nevada Corporation whose address is 1200 Discovery Drive, Suite 301, Bakersfield, California 93309.

WHEREAS, Discovery has leases covering approximately 1,680 acres in Midland and Upton County, Texas, said leases, and the property covered thereby being described in Exhibit "A" attached hereto; and

WHEREAS, Discovery has committed to assign to third parties 50% of its interest in said leases; and

WHEREAS, Discovery, Sparks' and Ivanhoe desire to enter into agreements covering the remaining 50% of 100% interest ("the 50% interest") in said leases; and

WHEREAS, Discovery, Sparks' and Ivanhoe have entered into this Agreement ("Agreement") and a Joint Operating Agreement ("JOA") to govern their relationship concerning the remaining 50% interest in said leases; and

WHEREAS, it is the intent of Discovery, Sparks' and Ivanhoe to have all third parties execute the JOA and become governed by its terms and provisions.

WITNESSETH

1. The JOA is attached as Exhibit "B" to this Agreement. This Agreement and the JOA shall be construed together as one instrument insofar as they affect the 50% interest.

2. Among other things, the JOA shall control the drilling obligations of the parties hereto and the penalties for failure to drill. As to the division of ownership of those interests fully earned under the JOA in the 50% interest by the parties hereto, this Agreement shall control. It is agreed that Discovery and/or Sparks' shall be entitled to earn 10% and that Ivanhoe shall be entitled to earn 40% (a total of 50%) ownership of, in and to the interests covered by the leases. Upon payout, as that term is defined below, the ownership interests of the parties to this Agreement shall automatically convert to 18% in favor of Discovery and/or Sparks' and 32% in favor of Ivanhoe. The parties shall bear all costs and receive all revenues in the percentages as stated herein. All assignments to the parties to this Agreement shall be subject to this Agreement and shall reflect the ownership percentages before and after payout.

3. Payout.

(a) a New Wells Drilled by All Parties. Payout shall be calculated by comparing the costs and revenues on the first eight wells drilled in which both parties hereto have consented to and funded the costs pursuant to this Agreement and JOA. Payout shall be deemed to have occurred when the producing wells within the first such eight well package have generated revenue sufficient to cover the prorated leasehold cost, if any, direct drilling and completion costs, lease operating expenses, severance taxes, ad valorem taxes, sales taxes, royalty and overriding royalty payments attributable to the said eight wells. Any other taxes such as income taxes or franchise taxes shall not be considered in calculating payout.

Payout for each successive package of eight wells drilled shall be calculated in the same manner. In the event that this Agreement terminates prior to the completion of any eight well package, or drilling of any package ceases for one year, payout will be calculated upon those wells actually drilled within the incomplete package.

(b) Re-Working Operations By All Parties. The cost of re-working, re-drilling, plugging-back, deepening and similar operations on a previously drilled well shall be added to the costs of the package of wells to which the well belongs for purposes of calculating payout.

(c) New Well Drilled By Less Than All Parties. In the event a party elects not to participate in the drilling of a new well, the JOA shall control the ownership of that well, and this Agreement shall not apply to that well.

(d) Re-Working Operations By Less Than All Parties. In the event that any party to this Agreement elects not to consent to any proposed re-working, re-drilling, plugging-back, deepening or similar operation on a well within a package which has not reached payout, the costs of such operation and the production from such well thereafter shall not be considered in calculating payout of the package of wells to which the well belongs, but shall be subject to the non-consent penalties provided by the JOA. After the JOA penalties have been satisfied, the net revenues thereafter from the well, if any, shall be added to the net revenues generated by the last package of wells drilled on any lands of attached Exhibit "A" for the purpose of calculating payout on said package of wells. Upon payout of said package the ownership% of the parties hereto shall be governed by the provisions of Paragraph 2 of this Agreement.

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