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Development Finance Agreement - Harken Energy Corp., EnCap Energy Capital Fund III LP, EnCap Energy Capital Fund III-B LP, BOCP Energy Partners LP and Energy Capital Investment Company PLC

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                          DEVELOPMENT FINANCE AGREEMENT

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

                            Harken Energy Corporation

                                       and

          EnCap Energy Capital Fund III, L.P., EnCap Energy Capital
                              Fund III-B, L.P.,
                           BOCP Energy Partners, L.P.
                                       and
                      Energy Capital Investment Company PLC

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

                                October 17, 1997


<PAGE>   2
                                TABLE OF CONTENTS



                                                                                  Page

ARTICLE I  Definitions and References...............................................1
         Section 1.1.      Defined Terms............................................1
         Section 1.2.      References and Titles....................................6

ARTICLE II  Advancement of Capital..................................................7
         Section 2.1.      Advances.................................................7
         Section 2.2.      Use of Proceeds..........................................7

ARTICLE III  Net Profits Interest...................................................8
         Section 3.1.      Net Profits Interest.....................................8
         Section 3.2.      Establishment............................................8
         Section 3.3.      Credits..................................................8
         Section 3.4.      Debits..................................................10
         Section 3.5.      Additional Account Matters..............................12
         Section 3.6.      Accounting..............................................13
         Section 3.7.      Payments................................................13
         Section 3.8.      Overpayments and Underpayments..........................14
         Section 3.9.      Prudent Operator Standard...............................14
         Section 3.10.     Sales of Subject Hydrocarbons...........................15
         Section 3.11.     Insurance...............................................15
         Section 3.12.     Contracts with Affiliates...............................15
         Section 3.13.     Government Regulation...................................15
         Section 3.14.     Abandonments............................................16
         Section 3.15.     Pooling and Unitization.................................16
         Section 3.16.     Non-consent Operations..................................16
         Section 3.17.     No Personal Liability; Indemnification..................17
         Section 3.18.     Access to Books and Records.............................17

ARTICLE IV  Investors Exchange.....................................................18
         Section 4.1.      Exercise of Investors' Option...........................18
         Section 4.2.      Number of Common Shares.................................19
         Section 4.3.      Issuance of Common Shares...............................19
         Section 4.4.      Reduction of Designated Percentage......................19
         Section 4.5.      Owner's Cash Option.....................................20

ARTICLE V  Owner Exchange..........................................................20
         Section 5.1.      Exercise of Owner's Option..............................20
         Section 5.2.      Number of Common Shares.................................20
         Section 5.3.      Amount of Cash..........................................21
         Section 5.4.      Issuance of Common Shares...............................21



                                       -i-

<PAGE>   3


         Section 5.5.      Elimination of Designated Percentage....................21

ARTICLE VI  Issuance of Additional Common Shares...................................22
         Section 6.1.      Issuance of Additional Shares...........................22
         Section 6.2.      Certain Definitions.....................................22

ARTICLE VII  Owner Representations, Warranties and Covenants.......................24
         Section 7.1.      Organization and Corporate Authority....................24
         Section 7.2.      Qualification to do Business............................24
         Section 7.3.      Charter, Bylaws, Etc....................................24
         Section 7.4.      Capitalization..........................................25
         Section 7.5.      Finders' Fees...........................................25
         Section 7.6.      Authority of Owner......................................25
         Section 7.7.      Non-Contravention.......................................25
         Section 7.8.      Governmental Consents...................................26
         Section 7.9.      Reports and Financial Statements of Owner...............26
         Section 7.10.     Disclosure..............................................26
         Section 7.11.     Owner's Common Shares...................................27
         Section 7.12.     Association Contracts...................................27
         Section 7.13.     Ownership of Harken Colombia............................27
         Section 7.14.     Certain Tax Matters.....................................28
         Section 7.15.     Absence of Bankruptcy Proceedings.......................28
         Section 7.16.     Offering................................................28
         Section 7.17.     No Defaults.............................................28
         Section 7.18.     Litigation..............................................28
         Section 7.19.     Compliance with Laws....................................29
         Section 7.20.     Compliance with Environmental Laws......................29
         Section 7.21.     Harken Colombia Organization and Corporate Authority....29
         Section 7.22.     Harken Colombia Qualification to do Business............29
         Section 7.23.     Harken Colombia Charter and Bylaws......................30
         Section 7.24.     Harken Colombia Non-Contravention.......................30
         Section 7.25.     Harken Colombia Governmental Consents...................30
         Section 7.26.     Harken Colombia Disclosure..............................30
         Section 7.27.     Continuing Representations and Warranties...............30

ARTICLE VIII  Investors Representations, Warranties and Covenants..................31
         Section 8.1.      Organization and Partnership or Corporate Authority.....31
         Section 8.2.      Finders' Fees...........................................31
         Section 8.3.      Authority of Investor...................................31
         Section 8.4.      Non-Contravention.......................................32
         Section 8.5.      Governmental Consents...................................32
         Section 8.6.      Investment Intent.......................................32
         Section 8.7.      Disclosure of Information...............................32
         Section 8.8.      Accredited Investor and Experience......................33



                                      -ii-

<PAGE>   4


         Section 8.9.      Restricted Securities...................................33
         Section 8.10.     Legend..................................................33
         Section 8.11.     Continuing Representations and Warranties...............33

ARTICLE IX  Miscellaneous..........................................................34
         Section 9.1.      Assignment by Harken Colombia...........................34
         Section 9.2.      Assignment by Investors.................................34
         Section 9.3.      Commitment Fees.........................................34
         Section 9.4.      Adjustments for Consolidation, Merger, Sale of Assets,
                           Reorganization, etc.....................................35
         Section 9.5.      Indemnification.........................................35
         Section 9.6.      Public Announcements....................................36
         Section 9.7.      Brokers.................................................36
         Section 9.8.      Notices.................................................36
         Section 9.9.      Waivers and Amendments..................................37
         Section 9.10.     Governing Law...........................................37
         Section 9.11.     Binding Effect; No Assignment; No Third Party Benefit...37
         Section 9.12.     Entire Agreement........................................38
         Section 9.13.     Severability............................................38
         Section 9.14.     United States Dollars...................................38
         Section 9.15.     Survival of Representations and Warranties..............38
         Section 9.16.     Rights as Stockholder...................................38
         Section 9.17.     Counterparts............................................38
         Section 9.18.     Arbitration.............................................38
         Section 9.19.     Consent to Jurisdiction.................................39
         Section 9.20.     Guaranty of Owner.......................................39
         Section 9.21.     Further Assurances......................................39
         Section 9.22.     No Partnership..........................................40
         Section 9.23.     Expenses................................................40



                                      -iii-

<PAGE>   5
                          DEVELOPMENT FINANCE AGREEMENT


         THIS DEVELOPMENT FINANCE AGREEMENT (this "Agreement") is made as of the
17th day of October, 1997, by and among HARKEN ENERGY CORPORATION, a Delaware
corporation (herein called "Owner"), and ENCAP ENERGY CAPITAL FUND III, L.P., a
Texas limited partnership, ENCAP ENERGY CAPITAL FUND III-B, L.P., a Texas
limited partnership, BOCP ENERGY PARTNERS, L.P., a Texas limited partnership,
and ENERGY CAPITAL INVESTMENT COMPANY PLC, an English investment company (herein
collectively called "Investors"). In consideration of the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:


                                    ARTICLE I

                           Definitions and References

          Section 1.1.  Defined Terms.  As used in this Agreement, each of the
following  terms has the meaning given it in this Section 1.1 or in the sections
or subsections referred to below:

         "Account" shall have the meaning assigned to it in Section 3.2.

         "Advances" shall have the meaning assigned to it in Section 2.1.

         "Affiliate" shall mean any person directly or indirectly controlling,
controlled by or under common control with Owner and/or Harken Colombia, with
the concept of control in such context meaning the possession of the power to
direct or cause the direction of the management and policies of another, through
the ownership of voting securities, by contract or otherwise, it being
understood and agreed for the purposes of this Agreement that Owner and Harken
Colombia are Affiliates of one another.

         "Agreed Rate" shall mean a rate per annum which is equal to the lesser
of (a) a rate which is two percent (2%) above the prime rate of interest of
Wells Fargo and Company, as announced or published by such bank from time to
time or a similar rate of interest if a prime rate is not announced or published
by such bank (adjusted from time to time to reflect any changes in such rate
determined hereunder), or (b) the maximum rate from time to time permitted by
applicable law.

         "Association Contract" shall mean (a) with respect to the Bocachico
Prospect, the Bocachico Association Contract, and (b) with respect to the
Cambulos A Prospect and the Cambulos B Prospect, the Cambulos Association
Contract.

         "Bocachico Association Contract" shall mean that certain Bocachico
Association Contract executed January 6, 1994, between Ecopetrol and Harken
Colombia, together with the operating



<PAGE>   6
agreement attached thereto and all modifications, amendments and/or supplements
heretofore or hereafter made with respect to such Association Contract or
operating agreement.

         "Bocachico Prospect" shall mean the Initial Bocachico Prospect Area;
provided, however, that, upon establishment of a Commercial Field, as described
below, resulting from a productive Initial Well drilled on the Bocachico
Prospect under the terms of this Agreement, the term "Bocachico Prospect" shall
mean and include, effective as of the Effective Date on a retroactive basis,
that portion of the lands covered by the Bocachico Association Contract which
are included within the Commercial Field surrounding the Initial Bocachico Well
or any other wells drilled by Owner or its Affiliates to explore for or develop
hydrocarbons that are part of a common source of supply.

         "Business Day" shall mean any day other than a Saturday, a Sunday or a
day in which banks in the State of Texas are closed.

         "Cambulos A Prospect" shall mean the Initial Cambulos A Prospect Area;
provided, however, that, upon establishment of a Commercial Field, as described
below, resulting from a productive Initial Well drilled on the Cambulos A
Prospect under the terms of this Agreement, the term "Cambulos A Prospect" shall
mean and include, effective as of the Effective Date on a retroactive basis,
that portion of the lands covered by the Cambulos Association Contract which are
included within the Commercial Field surrounding the Initial Cambulos A Well or
any other wells drilled by Owner or its Affiliates to explore for or develop
hydrocarbons that are part of a common source of supply.

         "Cambulos Association Contract" shall mean that certain Cambulos
Association Contract effective November 17, 1995, between Ecopetrol and Harken
Colombia, together with the operating agreement attached thereto and all
modifications, amendments and/or supplements heretofore or hereafter made with
respect to such Association Contract or operating agreement.

         "Cambulos B Prospect" shall mean the Initial Cambulos B Prospect Area;
provided, however, that, upon establishment of a Commercial Field, as described
below, resulting from a productive Initial Well drilled on the Cambulos B
Prospect under the terms of this Agreement, the term "Cambulos B Prospect" shall
mean and include, effective as of the Effective Date on a retroactive basis,
that portion of the lands covered by the Cambulos Association Contract which are
included within the Commercial Field surrounding the Initial Cambulos B Well or
any other wells drilled by Owner or its Affiliates to explore for or develop
hydrocarbons that are part of a common source of supply.

         "Commercial Field" shall mean a commercial field designated or accepted
by Ecopetrol, or, in the absence of such a designation or acceptance by
Ecopetrol, by Harken Colombia or its Affiliates, pursuant to an Association
Contract. A Commercial Field shall be deemed established for purposes of this
Agreement upon such designation or acceptance.


                                       -2-

<PAGE>   7
         "Commitment" shall have the meaning assigned to it in Section 2.1.

         "Common Shares" shall mean shares of the Common Stock, par value $.01
per share, of Owner, or shares of any class or classes of capital stock of Owner
resulting from any reclassification or reclassifications thereof.

         For purposes of this Agreement, the "Current Market Price" of the
Common Shares on any date shall be deemed to be the average of the daily closing
prices for the Common Shares for the 10 Trading Days immediately preceding the
day in question. The closing price for each such Trading Day shall be the
closing sales price on the principal national stock exchange or stock market on
which the Common Shares are then listed, or, if not reported for such exchange
or market, on the composite tape, or, in case no such sale takes place on such
Trading Day, the average of the reported closing bid and asked quotations on
such exchange or market, or, if the Common Shares are not listed on any national
stock exchange or stock market, or no such quotations are available, the average
of the high bid and low asked quotations in the over-the-counter market as
reported by the National Association of Securities Dealers' Automated Quotations
System or a similar organization. Such closing prices shall be appropriately
adjusted to take into account any stock split, reverse stock split or stock
dividend with respect to the Common Shares that occurs within such 10-Trading
Day period.

         "Designated Percentage" shall mean the percentage set forth opposite
each Investor's name on Annex I hereto, subject to reduction upon Exchange(s) as
provided for in Sections 4.4 and 5.5.

         "Ecopetrol" shall mean Empresa Colombiana de Petroleos, an industrial
and commercial company owned by the Republic of Colombia.

         "Effective Date" shall mean the date of this Agreement.

         "Environmental Laws" shall have the meaning assigned to it in Section
7.20.

         "Exchange" shall mean the exchange of all or part of the Net Profits
Interest for (a) Common Shares or cash pursuant to Investors' Option as provided
for in Article IV or (b) Common Shares or cash pursuant to Owner's Option as
provided for in Article V.

         "Exchange Date" shall have the respective meanings assigned to it in
Sections 4.1 and 5.1.

         "Exchange Period" shall mean the period from and including the first
anniversary of the Effective Date to and including the third anniversary of the
Effective Date.

         "Foreign Investor" shall mean Energy Capital Investment Company PLC, an
English investment company, and its successors and permitted assigns.



                                       -3-

<PAGE>   8
         "Governmental Authority" shall mean (a) the United States of America
or any state within the United States of America, (b) Colombia or any political
subdivision of Colombia, (c) any court or any governmental department,
commission, board, bureau, agency or other instrumentality of the United States
of America or of any state within the United States of America, (d) any court or
any governmental department, commission, board, bureau, agency or other
instrumentality of Colombia or of any political subdivision of Colombia, and (e)
in the case of the representations, warranties and covenants of the Foreign
Investor, the jurisdiction of organization of the Foreign Investor or any
political subdivision of such jurisdiction or any court or any governmental
department, commission, board, bureau, agency or other instrumentality of such
jurisdiction or political subdivision thereof.

         "Gross Proceeds" shall have the meaning assigned to it in Section 3.3.

         "Harken Colombia" shall mean Harken de Colombia, Ltd., a Cayman Islands
corporation and wholly owned subsidiary of Owner, and/or, when appropriate, its
branch established in Santa Fe de Bogota, D.C., Colombia, and its successors and
permitted assigns.

         "Initial Bocachico Prospect Area" shall have the meaning assigned to it
in Section 2.2.

         "Initial Bocachico Well" shall mean the first well drilled by Owner or
its Affiliates on the Bocachico Prospect.

         "Initial Cambulos A Prospect Area" shall have the meaning assigned to
it in Section 2.2.

         "Initial Cambulos A Well" shall mean the first well drilled by Owner or
its Affiliates on the Cambulos A Prospect.

         "Initial Cambulos B Prospect Area" shall have the meaning assigned to
it in Section 2.2.

         "Initial Cambulos B Well" shall mean the first well drilled by Owner or
its Affiliates on the Cambulos B Prospect.

         "Initial Wells" shall mean the Initial Bocachico Well, the Initial
Cambulos A Well and the Initial Cambulos B Well.

         "Investors" shall mean EnCap Energy Capital Fund III, L.P., a Texas
limited partnership, EnCap Energy Capital Fund III-B, L.P., a Texas limited
partnership, BOCP Energy Partners, L.P., a Texas limited partnership, and Energy
Capital Investment Company PLC, an English investment company, and their
respective successors and permitted assigns.

         "Investors' Option" shall have the meaning assigned to it in Article
IV.



                                       -4-
<PAGE>   9

         "Law" shall mean any applicable statute, law, ordinance, regulation,
rule, ruling, order, restriction, requirement, writ, injunction, decree or other
official act of or by any Governmental Authority.

         "Non-Affiliate" shall mean, with respect to Owner and Harken Colombia,
any person who is not an Affiliate of Owner or Harken Colombia.

         "Net Profits Interest" shall have the meaning assigned to it in
Section 3.1.

         "Owner" shall mean Harken Energy Corporation, a Delaware corporation,
and its successors and permitted assigns.

         "Owner's Option" shall have the meaning assigned to it in Article V.

         "Owner's SEC Filings" shall have the meaning assigned to it in
Section 7.9.

         A "person" shall mean an individual, an estate, a corporation, a
partnership, a joint venture, a limited liability company, an association, a
joint stock company, a government or any department or agency of a government, a
trust and/or any other entity.

         "Pollutants" shall have the meaning assigned to it in Section 7.20.

         "Processing" shall mean the manufacture, fractionation, refining or
other treating or transportation of Subject Hydrocarbons prior to their sale or
disposition, and "Processed" shall have the meaning correlative to the
foregoing.

         "Production Sales Contracts" shall mean all contracts, agreements and
arrangements for the sale or disposition of Subject Hydrocarbons that may be
produced from or attributable to Subject Interests, whether presently existing
or hereafter created.

         The Bocachico Prospect, the Cambulos A Prospect and the Cambulos B
Prospect are herein collectively called the "Prospects" and sometimes
individually called a "Prospect".

         "Registration Rights Agreement" shall mean the Registration Rights
Agreement dated the Effective Date between Owner and Investors, entered into in
connection with this Agreement.

         "Releases" shall have the meaning assigned to it in Section 7.20.

         "SEC" shall mean the Securities and Exchange Commission.

         "Securities Act" shall mean the Securities Act of 1933, as amended.


                                      -5-

<PAGE>   10
         "Subject Hydrocarbons" shall mean (except to the extent otherwise
expressly provided in this Agreement), with respect to each Prospect, all oil,
gas and other minerals in and under and that may be produced, from and after the
Effective Date, from the lands and depths covered by and/or included in the
Subject Interests relating to such Prospect. There shall not be included in the
Subject Hydrocarbons any oil, gas or other minerals (a) attributable to
royalties or other similar obligations deducted or paid in kind to or for the
benefit of third parties pursuant to the related Association Contract or
pursuant to any applicable Law, (b) deducted, paid in kind or otherwise taken
out of Harken Colombia's share of such oil, gas or other minerals and delivered
to another person as reimbursement to such person for oil, gas or other
minerals of such other person (i) which were previously taken by Harken
Colombia relating to the Prospect and (ii) the Gross Proceeds of which were
credited to the related Account or otherwise accrued to the benefit of
Investors in accordance with the provisions of Section 3.3, or (c) any
hydrocarbons attributable to the interest of Ecopetrol as provided for under
the terms of the Association Contract.

         "Subject Interests" shall mean (a) with respect to the Bocachico
Prospect, the interest of Harken Colombia and its successors and assigns in the
Bocachico Association Contract to the extent such interest covers and is
attributable to the Bocachico Prospect, (b) with respect to the Cambulos A
Prospect, the interest of Harken Colombia and its successors and assigns in the
Cambulos Association Contract to the extent such interest covers and is
attributable to the Cambulos A Prospect, and (c) with respect to the Cambulos B
Prospect, the interest of Harken Colombia and its successors and assigns in the
Cambulos Association Contract to the extent such interest covers and is
attributable to the Cambulos B Prospect. As provided in an Association Contract,
the areal extent of the related Prospect under the Association Contract may be
reduced and/or the percentage interest of Harken Colombia and its successors and
assigns in the oil, gas and mineral production thereunder may be reduced, and in
each such case the "Subject Interests" relating to such Prospect shall be
reduced to the same extent as the areal extent of such Prospect under the
Association Contract and/or the interest of Harken Colombia and its successors
and assigns thereunder is so reduced. No reduction shall occur, however, in the
Subject Interests as a result of any sale, exchange, transfer or other
disposition of all or any portion of the Subject Interests or the related
Association Contract by Harken Colombia, and in such event all credits and
debits to the Prospect's Account under Article III shall be made as if no such
sale, exchange, transfer or other disposition had occurred and Harken Colombia
was still the owner of all of the Association Contract and the Subject
Interests.

         "Trading Day" shall mean any day on which the principal securities
exchange or quotation system on which the Common Shares are then listed is open
for trading on a regular basis.

         "Unexchanged Advances" shall mean, with respect to an Investor, the
amount of the Advance made by such Investor hereunder that has not been the
subject of an Exchange.

         Section 1.2. References and Titles. All references in this Agreement to
articles, sections, subsections and other


                                      -6-
<PAGE>   11
subdivisions refer to the articles, sections, subsections and other subdivisions
of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any subdivisions are for convenience only and do not constitute any
part of such subdivisions and shall be disregarded in construing the language
contained in such subdivisions. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited. The phrases "this Section" and "this subsection" and similar phrases
refer only to the sections or subsections hereof in which such phrases occur.
Pronouns in masculine, feminine and neuter genders shall be construed to include
any other gender, and words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires.


                                   ARTICLE II

                             Advancement of Capital

         Section 2.1. Advances. Each Investor unconditionally and irrevocably
agrees and commits (herein collectively called the "Commitment") to advance to
Owner, on the Business Day next following the Effective Date, the amount set
forth opposite such Investor's name on Annex I hereto (herein collectively
called the "Advances"). Each such Advance shall be made to Owner by wire
transfer of the full amount of such Advance in immediately available funds to a
bank account designated by Owner. The Commitment is not in the nature of a loan
to any party or a direct ownership interest in Harken Colombia, an Association
Contract or any Subject Interests. Instead, the Commitment and all Advances
thereof shall constitute consideration for the right to receive payments
measured by the Accounts provided for in Article III, the right to exchange or
have exchanged the Net Profits Interest for Common Shares or cash pursuant to
Articles IV and V and the other rights and benefits provided by this Agreement.

         Section 2.2. Use of Proceeds. Owner shall use all funds from Advances
to finance (a) geological, geophysical and engineering operations and studies of
each Prospect, (b) the drilling, completing and equipping or abandonment of one
well and related facilities on each Prospect and (c) other related exploitation
of the Prospects, in each case solely in respect of the Subject Interests. Prior
to drilling any wells pursuant to this Agreement, Owner shall fix and determine,
and promptly after such determination shall advise Investors in writing of, (a)
the initial areal extent of the lands covered by the Bocachico Prospect, which
lands shall be located within the boundaries of the lands covered by the
Bocachico Association Contract (the "Initial Bocachico Prospect Area"), (b) the
initial areal extent of the lands covered by the Cambulos A Prospect, which
lands shall be located within the boundaries of the lands covered by the
Cambulos Association Contract (the "Initial Cambulos A Prospect Area"), and (c)
the initial areal extent of the lands covered by the Cambulos B Prospect, which
lands shall be located within the boundaries of the lands covered by the
Cambulos Association Contract (the "Initial Cambulos B Prospect Area");
provided, however, that the Cambulos A Prospect and the Cambulos B Prospect
shall be

                                       -7-
<PAGE>   12
separate exploratory prospects and shall not overlap. The initial Prospects
shall be as set forth on the plats attached hereto as Exhibit 2.2--Bocachico
Prospect, Exhibit 2.2-- Cambulos A Prospect and Exhibit 2.2--Cambulos B
Prospect, respectively; provided, however, Owner has the absolute right to
substitute for any of these initial Prospects an alternate prospect at any time
prior to spudding the Initial Well on a Prospect by giving Investors notice of
such change and of such alternate Prospect. Unless changed by Owner as provided
above, the initial Prospects set forth on Exhibits 2.2--Bocachico Prospect,
2.2--Cambulos A Prospect and 2.2--Cambulos B Prospect shall comply with the
requirements of the second sentence above. Owner hereby represents, warrants and
covenants to Investors that Owner will drill one well on each Prospect within
three years of the Effective Date. Each Initial Well shall be drilled on a
turnkey basis. Prior to drilling any Initial Well, Owner shall deliver to
Investors for their information a copy of Owner's internal authority for
expenditure (a.f.e.) for such Initial Well. Owner shall give prompt written
notice to Investors of the commencement of drilling and the completing and
equipping or abandonment, as the case may be, of each Initial Well. Owner shall
also furnish to Investors such other public information regarding each Initial
Well and the progress of drilling thereof as Investors may from time to time
reasonably request in accordance with the notice provisions of Section 9.8.


                                   ARTICLE III

                              Net Profits Interest

         Section 3.1. Net Profits Interest. In consideration for the payment by
Investors to Owner of the Advances, Investors shall have the rights provided for
in this Article III and elsewhere in this Agreement with respect to the
Accounts, including without limitation the rights to receive payments from Owner
measured by each Account pursuant to Section 3.7 (all of such rights are herein
collectively called the "Net Profits Interest"). The Net Profits Interest is
intended to provide to Investors substantially the same economic benefit as if
each Investor was the owner of a direct net profits interest in each Association
Contract to the extent it relates to the Designated Percentage of the related
Subject Interests and on the terms otherwise provided for herein; provided,
however, that no rights or interest of any nature whatsoever in an Association
Contract, any Subject Interests or Harken Colombia are intended to be, or are
hereby, assigned or conveyed to Investors, it being understood and agreed that
the Net Profits Interest is solely a contractual obligation of Owner as
expressed in this Agreement.

         Section 3.2. Establishment. Owner shall establish and maintain a
separate bookkeeping account for each Prospect (herein called an "Account") in
accordance with sound, accurate and comprehensive accounting practices and
consistent with the various provisions of this Agreement and at all times shall
keep true and correct books and records with respect thereto.

         Section 3.3. Credits. Except as otherwise provided herein, with respect
to each sale or other disposition of Subject Hydrocarbons attributable to a
Prospect, the Account for such


                                      -8-
<PAGE>   13
Prospect shall be credited with the gross proceeds from the sale of such Subject
Hydrocarbons. The amount of gross proceeds (herein called "Gross Proceeds") to
be credited to an Account with respect to any sale or disposition of Subject
Hydrocarbons shall be subject to the following:

                    (a) Gross Proceeds shall include all consideration received,
         directly or indirectly, by Harken Colombia or any Affiliate for sales
         or other dispositions of (i) Subject Hydrocarbons, or (ii) if any
         Subject Hydrocarbons are Processed by or for the benefit of Harken
         Colombia or any Affiliate before sale or disposition, the products of
         such Subject Hydrocarbons after such Processing;

                    (b) If any proceeds are withheld from Harken Colombia or an
         Affiliate by a Non-Affiliate for any reason (other than at the request
         of Harken Colombia or any Affiliate or due to Harken Colombia's or an
         Affiliate's negligence or willful misconduct), such proceeds shall not
         be considered to be Gross Proceeds until such proceeds are actually
         received by Harken Colombia or an Affiliate; provided, however, that
         Gross Proceeds shall include any interest, penalty or other amount that
         is derived from the sale of Subject Hydrocarbons or the proceeds
         thereof when and if received;

                    (c) Gross Proceeds shall not include any amounts for Subject
         Hydrocarbons unavoidably lost in production or used by Harken Colombia
         or any Affiliate in conformity with good oil field practices for
         drilling and production operations (including without limitation gas
         injection, fuel, secondary or tertiary recovery, pressure maintenance,
         repressuring or recycling, Processing and transportation) conducted
         solely for the purpose of producing Subject Hydrocarbons from the
         related Subject Interests, but only so long as such Subject
         Hydrocarbons are so used;

                    (d) In the event Subject Hydrocarbons are used by Harken
         Colombia or any Affiliate outside of the related Subject Interests and
         for purposes not primarily associated with, or primarily for the
         benefit of, the related Subject Interests or the production, Processing
         or marketing of Subject Hydrocarbons, Gross Proceeds shall include the
         then current market value at the wellhead of such Subject Hydrocarbons;

                    (e) Gross Proceeds shall include all proceeds (or, if the
         consideration received is other than cash, the then current market
         value of such non-cash consideration) attributable to Subject Interests
         which are received by Harken Colombia or any Affiliate from the sale,
         after the Effective Date, of any materials, supplies, equipment and
         other personal property or fixtures, or any part thereof or interest
         therein, located on or used in connection with the Subject Interests or
         any Subject Hydrocarbons;

                    (f) Gross Proceeds shall include all proceeds attributable
         to Subject Interests of all insurance received by Harken Colombia or
         any Affiliate the cost of which is charged to the Account, directly or
         indirectly;



                                      -9-
<PAGE>   14
                    (g) Gross Proceeds shall include all proceeds attributable
         to Subject Interests of all judgments and claims received by Harken
         Colombia or any Affiliate for any loss or damage which occurs after the
         Effective Date with respect to Harken Colombia's or any Affiliate's
         interest in the Subject Interests, any materials, supplies, equipment
         or other personal property or fixtures located on or used in connection
         with any of the Subject Interests, or any Subject Hydrocarbons;

                    (h) Gross Proceeds shall include all payments, including
         advance payments, under take-or-pay and similar provisions of
         Production Sales Contracts;

                    (i) Gross Proceeds shall include any amounts received by
         Harken Colombia or any Affiliate from production of Subject
         Hydrocarbons at levels greater than Harken Colombia's interest in the
         Subject Interests and shall include any payments received by Harken
         Colombia from joint interest owners as settlement for production of
         Subject Hydrocarbons at levels less than Harken Colombia's interest in
         the Subject Interests or any Subject Hydrocarbons; and

                    (j) Gross Proceeds shall include all other monies and things
         of value which are received by Harken Colombia or any Affiliate by
         virtue of the ownership after the Effective Date of the Subject
         Interests and/or any materials, supplies, equipment and other personal
         property and fixtures located on or used in connection with the Subject
         Interests or any Subject Hydrocarbons the cost of which was charged
         against the Account;

provided that this Section 3.3 shall not operate to provide any credits on
account of (i) any amounts paid by third parties (including Ecopetrol) to Harken
Colombia as operator under the applicable Association Contract or operating
agreement now or hereafter in force covering any of the Subject Interests to
reimburse or compensate Harken Colombia as operator for costs incurred or
services performed for the account or benefit of such third parties, (ii) any
amounts received by Harken Colombia upon any sale or other disposition in
accordance with Section 9.1 of any portion of the applicable Association
Contract or Subject Interests, or (iii) any amounts received by Harken Colombia
as reimbursement by Ecopetrol of Direct Exploration Costs provided for under the
applicable Association Contract.

         Section 3.4.  Debits.  Except as otherwise provided herein, each
Account shall be debited with the following:

                    (a) All direct costs (and those indirect costs expressly
         permitted in subsection (x) below) which are attributable solely to the
         related Subject Interests (i.e., the Subject Interests relating to the
         Prospect for which the Account was established) after the Effective
         Date for exploring, developing, operating, producing, reworking,
         maintaining and restoring the related Subject Interests, including
         without limitation any direct costs (and those indirect costs expressly
         permitted in subsection (x) below) after the Effective Date



                                     -10-
<PAGE>   15
         for (i) geological and geophysical operations and studies (and related
         computer processing and modeling) with respect to the related Subject
         Interests and drilling, completing, testing, equipping, plugging back,
         reworking, recompleting and plugging and abandoning any wells on the
         related Subject Interests, (ii) constructing, maintaining and operating
         any gathering facilities, tanks and other production, delivery and
         transportation facilities on or for use in connection with the related
         Subject Interests, (iii) Processing any Subject Hydrocarbons
         attributable to the Prospect for which the Account was established and
         acquiring, constructing, operating and maintaining any facility, plant,
         equipment or pipeline for Processing any such Subject Hydrocarbons,
         (iv) secondary recovery, pressure maintenance, repressuring, recycling
         and other operations conducted for the purpose of enhancing production
         of such Subject Hydrocarbons, (v) wages, salaries, fringe benefits and
         expenses of officers, employees and contract personnel, consultants and
         professionals necessary or appropriate for operating, producing and
         maintaining the related Subject Interests, (vi) local offices, camps,
         warehouses, housing and other facilities paid for by Harken Colombia,
         relocation of employees and their families, travel, telephone, training
         of Colombian personnel, rental and use or damage to the real and
         personal property of others, community relations, protection, peaceful
         operations and similar matters, and otherwise doing business in
         Colombia, (vii) insurance, (viii) payments made in cash as compensation
         for or in settlement of any Subject Hydrocarbons taken by Harken
         Colombia at levels greater than Harken Colombia's interest in the
         related Subject Interests, (ix) royalties required to be paid pursuant
         to the applicable Association Contract or any applicable Law and other
         charges and payments required under the applicable Association Contract
         and (x) general, administrative and overhead expenses incurred by
         Harken Colombia which are necessary or appropriate to support the
         activities described in this subsection and fairly allocated to the
         related Subject Interests; provided, however, that the debits made to
         the Account pursuant to this subsection with respect to any Subject
         Interest shall be made in accordance with customary industry practices
         and applicable accounting standards;

                    (b) All Colombian taxes and similar charges incurred by
         Harken Colombia with respect to the ownership of the related Subject
         Interests for periods after the Effective Date, including without
         limitation (i) Colombian income, transfer, franchise, occupation, sales
         and use, value-added and like taxes based on or relating to the related
         Subject Interests, the sale or production of the Subject Hydrocarbons
         attributable to the Prospect for which the Account was established, or
         the proceeds, value or income therefrom, (ii) Colombian production,
         severance, excise and other taxes assessed against, and/or measured by,
         the production of (or the proceeds or value of production of) such
         Subject Hydrocarbons, and (iii) Colombian ad valorem and other taxes
         assessed against or attributable to the related Subject Interests or
         any Processing or other equipment or property located on or related to
         the related Subject Interests; provided, however, that if any such
         taxes relate to the related Subject Interests and to other property
         owned by Harken Colombia or to such Subject Hydrocarbons and to other
         production of Harken


                                     -11-
<PAGE>   16
         Colombia, such taxes shall be allocated to the related Subject
         Interests or such Subject Hydrocarbons and debited hereunder on a
         proportionate or other equitable basis in accordance with applicable
         accounting, tax and industry standards;

                    (c) Amounts attributable to currency conversions, exchange
         control obligations and similar costs and losses with respect to
         currencies used to pay expenses charged to the Account, currencies
         credited to the Account or currencies paid by Harken Colombia to Owner
         for the purpose (directly, indirectly or accrued) of making payments to
         Investors pursuant to Section 3.7 (excluding in each case any costs for
         currency hedges, swaps and similar instruments); and any such amounts
         shall be calculated or determined in a manner consistent with the
         treatment of such amounts on the books of Owner for financial reporting
         to governmental entities;

                    (d) All interest payments on any indebtedness of Harken
         Colombia or any Affiliate incurred after the Effective Date for the
         benefit of the Subject Interests (provided, that if any such
         indebtedness shall be incurred for the benefit of other properties
         owned by Harken Columbia besides the Subject Interests, then an
         allocation of such interest shall be made to the Subject Interests
         based upon the portion of the Indebtedness that was utilized for the
         benefit of the Subject Interests); and

                    (e) Except as otherwise provided elsewhere in this
         Agreement, all other reasonable, direct expenditures attributable to
         the related Subject Interests paid or incurred by Harken Colombia after
         the Effective Date with respect to the related Subject Interests;

provided that this Section 3.4 shall not operate to permit any debits (i) by
duplication or on account of any amount which has also been used to reduce the
amount of the Subject Hydrocarbons, Gross Proceeds and/or payments to Investors
pursuant to Section 3.7 or has otherwise not been included therein (including,
by way of example and without limitation, royalties, production, severance,
excise and other taxes and any other amounts deducted, withheld or paid by any
other person), (ii) on account of any expenses and any penalties, interest or
other similar charges which result from the failure of Harken Colombia to
properly discharge all costs and expenses (including taxes) of developing,
operating and maintaining the related Subject Interests and (iii) excluded
pursuant to Section 3.5.

         Section 3.5.        Additional Account Matters.

         (a) Notwithstanding the provisions of Section 3.4 (or any other
provision of this Agreement) which may appear to the contrary, with respect to
the Accounts taken as a whole:

                    (i) costs and expenses equaling the aggregate amount of the
         Advances paid to Owner which would otherwise be charged or debited to
         the Accounts under Section 3.4 shall not be charged or debited to the
         Accounts and shall be borne solely by Owner and


                                      -12-
<PAGE>   17
         Harken Colombia (i.e., the first $25,000,000 of costs and expenses
         that would otherwise be charged or debited to the Accounts under
         Section 3.4 shall not be so charged or debited and shall be borne
         solely by Owner and Harken Colombia); and

                    (ii) in no event shall any costs and expenses of drilling
         and completing the Initial Wells, constructing and completing
         associated facilities and hooking the Initial Wells up to a pipeline or
         pipelines, so as to make the Initial Wells capable of production, in
         excess of an aggregate of $25,000,000 be charged or debited to the
         Accounts, it being agreed and understood by Owner that any such costs
         and expenses in excess of an aggregate of $25,000,000 shall be borne
         solely by Owner and Harken Colombia.

         (b) Upon the reconfiguration of the areal extent of a Prospect to
correspond to a Commercial Field established under the related Association
Contract, as provided in the respective definitions of the Prospects in Section
1.1, the net profits realized from the related Subject Interests shall be
recomputed, retroactive to the Effective Date, to take into account and fully
reflect the reconfiguration of the Prospect as if such Prospect had always
included the Commercial Field, and an appropriate accounting and payment shall
be made to Investors with respect to the recomputed net profits in the
Prospect's Account.

         Section 3.6. Accounting. All debits to an Account which are
attributable to costs and expenses paid by Harken Colombia during a calendar
quarter up to and including the last day of such calendar quarter shall be
debited against the Account as of the last day of such calendar quarter;
provided that any such debits which do not (and will not) result from payments
to third parties or to Harken Colombia shall be debited against the Account as
of the last day of the calendar quarter in which they arise. After such debits
have been so made for a given calendar quarter, all credits to the Account which
are actually received by Harken Colombia during a calendar quarter up to and
including the last day of such calendar quarter shall be credited to the Account
as of the last day of such calendar quarter; provided that any such credits
which do not (and will not) result from credits given by or payments from third
parties shall be credited to the Account as of the last day of the calendar
quarter in which they arise. For each Account, the total net profits realized
from the Subject Interests relating to the Account (or the total net losses, as
the case may be) shall be determined after the applications and calculations
provided for above have been made by Owner. Subject to the provisions of Section
3.7, Investors shall participate in the Designated Percentage of the net profits
derived from the Subject Interests relating to the Account, as provided in this
Agreement, only after and while all debits properly debited against the Account
shall have been offset by credits to the Account and a credit balance shall
exist in the Account.

         Section 3.7. Payments. On or before 60 days after the end of each
calendar quarter, Owner shall furnish to Investors detailed statement(s)
covering each Account clearly reflecting the condition of each Account as of the
close of business on the last day of such calendar quarter, and clearly
reflecting those items which gave rise to debits and credits to each Account
during such



                                      -13-
<PAGE>   18
quarter and clearly reflecting the quantities of Subject Hydrocarbons produced
from the Subject Interests relating to such Account during the quarter covered
by such statement. Any deficit reflected by any such statement shall be carried
forward for the next and succeeding months until such deficit has been wiped out
and liquidated. In case a net profit is reflected by any such statement, payment
to Investors in U.S. dollars of the Designated Percentage of the amount of such
net profit shall be enclosed with the statement rendered to Investors (or, if
requested at any time by an Investor, paid by bank wire transfer to such bank
and account designated in writing by such Investor); provided, however, that (a)
Owner may elect to cause Harken Colombia (instead of Owner) to make any payment
required under this Section to Investors in U.S. dollars, (b) any payment to
Investors under this Section shall be reduced by any costs or losses from
currency conversions, compliance with exchange control obligations, withholding
obligations and remittance and other taxes which are properly chargeable to the
Account pursuant to Section 3.4(b) or (c) and (i) are incurred by Harken
Colombia in connection with such payment to Investors or any payment of an
amount equivalent to such payment by Harken Colombia to Owner (provided that
this clause (a) (i) shall not operate to permit any double charge to the Account
with respect to such costs or losses) or (ii) in the event such payment is made
by Owner from its U.S. funds without any equivalent payment by Harken Colombia
to Owner, would have been so incurred at such time if Harken Colombia had paid
to Owner an amount equivalent to such payment, and (c) Owner may retain up to
one-third of Investors' share of any such net profit in the event and to the
extent that the debits that Owner reasonably projects will be charged to the
Account during the next three months will exceed the credits that Owner
reasonably projects will be made to the Account during such three-month period
and apply such retained amount to the payment of Investors' share of such
debits. Any such retained amount that is subsequently determined to be
unnecessary for the payment of Investors' share of such debits shall be paid
promptly to Investors. In the event any amount is deducted from any payment
pursuant to subsection (a), (b) or (c) above, such amount shall not thereafter
be charged to the Account to the extent it would cause any direct or indirect
double charge to the Account or the Investors for such amount.

         Section 3.8. Overpayments and Underpayments. If at any time Owner
inadvertently pays Investors more or less than the amount then due with respect
to an Account, the amount or amounts otherwise payable with respect to such
Account for any subsequent period or periods shall be reduced or increased by
such overpayment or underpayment, plus an amount equal to interest (computed at
the Agreed Rate) on the unrecovered balance of such overpayment or underpayment
during the period of such overpayment or underpayment; provided, however, that
if the amount of any such overpayment or underpayment exceeds $5,000, the party
owing such amount shall promptly pay such amount (together with the interest on
such amount as calculated above) to the other party.

         Section 3.9. Prudent Operator Standard. Harken Colombia (subject to the
terms and provisions of the applicable Association Contract and any applicable
operating agreements) shall have exclusive charge, management and control of all
operations to be conducted on the Subject


                                      -14-
<PAGE>   19
Interests and may take any and all actions which a reasonably prudent operator
would deem necessary or advisable in the management, operation and control
thereof. Harken Colombia shall operate and maintain the Subject Interests as
would a prudent operator under similar circumstances in accordance with good oil
field practices. Harken Colombia shall promptly (and, unless the same are being
contested in good faith and by appropriate proceedings, before the same are
delinquent) pay or cause to be paid all costs and expenses (including without
limitation all taxes and all costs, expenses and liabilities for labor,
materials and equipment incurred in connection with the Subject Interests and
all obligations to the holders of interests affecting the Subject Interests)
incurred from and after the Effective Date in developing, operating and
maintaining the Subject Interests. As to those of the Subject Interests, if any,
as to which Harken Colombia hereafter may not be the operator, Harken Colombia
shall take all such action and exercise all such rights and remedies as are
reasonably available to Harken Colombia to cause the operator to so maintain and
operate such Subject Interests (provided that Harken Colombia shall never be
obligated to pay any costs or expenses attributable to any interest other than
the Subject Interests and all royalties related thereto).

         Section 3.10. Sales of Subject Hydrocarbons. Harken Colombia shall
market or cause to be marketed, subject to the terms of the applicable
Association Contract, the Subject Hydrocarbons in accordance with reasonable and
prudent business judgment and sound oil field practices and on such terms and
conditions as Harken Colombia shall determine to be in the best interests of
Investors; provided, however, that all such sales of Subject Hydrocarbons (a)
shall be upon terms and conditions which are the best terms and conditions
available as determined in good faith by Harken Colombia taking into account all
relevant circumstances, including without limitation, price, quality of
production, access to markets or lack thereof, minimum purchase guarantees,
identity of purchaser and length of commitment, and (b) shall be made to Non-
Affiliates of Owner or Harken Colombia, except that sales of Subject
Hydrocarbons may be made to an Affiliate of Owner or Harken Colombia that is
owned in part by a Governmental Authority and that owns or operates a pipeline
or other Processing facility if the price paid by such Affiliate is no less
favorable to Harken Colombia than the prices then being paid by a Non-Affiliate
for oil, gas and/or minerals which are of comparable type and quality and in the
same or similar locations.

         Section 3.11. Insurance. Harken Colombia shall obtain or cause to be
obtained (and maintain or cause to be maintained during the economic life of the
Subject Interests) insurance coverage relating to the ownership, operation and
maintenance of the Subject Interests, the cost of which shall be charged against
the related Account, in such amounts, with provisions for such deductible
amounts and for such purposes as Harken Colombia shall determine to be
appropriate (and, because of cost, availability and other factors, Harken
Colombia may determine not to acquire any such insurance).

         Section 3.12. Contracts with Affiliates. Harken Colombia and/or its
Affiliates may perform services and furnish supplies and equipment with respect
to the Subject Interests, provided that the amount of compensation, price or
rental that can be charged to the related


                                      -15-
<PAGE>   20
Account therefor must be no less favorable to the Account than would be the
compensation, price or rental payable to Non-Affiliates in the area engaged in
the business of rendering comparable services or selling or leasing comparable
equipment and supplies which could reasonably be made available to the Subject
Interests.

         Section 3.13. Government Regulation. All obligations of Owner and
Harken Colombia under this Article III shall be subject to and limited by (a)
all applicable Laws and (b) the applicable Association Contract as it may be
modified, amended and/or supplemented from time to time; provided, that Owner
and Harken Colombia shall act in good faith with respect to the interests of
Investors and in accordance with the best interests of Investors under this
Agreement as reasonably determined by Owner and Harken Colombia. Where the price
at which Subject Hydrocarbons are sold is limited by applicable Laws, the price
so permitted to be paid for Subject Hydrocarbons shall be controlling if lower
than prices established in Production Sales Contracts or required hereunder.

         Section 3.14. Abandonments. After the Effective Date, Harken Colombia
shall have the right without the consent of Investors to release, surrender
and/or abandon its interest in the Subject Interests and/or any Association
Contract, or any part thereof, or interest therein, in order to comply with the
relinquishment provisions of the applicable Association Contract, even though
the effect of such release, surrender or abandonment may be to affect adversely
the Net Profits Interest. In the event of any relinquishment of acreage under an
Association Contract, Harken Colombia shall have the exclusive authority to
determine the acreage to be relinquished, which may be acreage within the
Subject Interests or acreage outside the Subject Interests or both; provided,
that, in taking any of the actions described in this Section 3.14, Harken
Colombia shall act in good faith with respect to the interests of Investors and
in accordance with the best interests of Investors under this Agreement as
reasonably determined by Harken Colombia.

         Section 3.15. Pooling and Unitization. Without the prior written
consent of Investors, Harken Colombia shall have the right and power to unitize,
pool or combine the lands covered by the Subject Interests, or any portion or
portions thereof, as to oil, gas and/or other minerals, with any other land or
contract or contracts so as to create one or more unitized areas (or, with
respect to unitized or pooled areas theretofore created, to dissolve the same or
to amend and/or reconfigure the same to include additional acreage or substances
or to exclude acreage or substances). If any of the Subject Interests are pooled
or unitized in any manner, the Net Profits Interest insofar as it affects such
Subject Interests shall be considered to be pooled and unitized, and in any such
event the Net Profits Interest shall apply to (and the term "Subject
Hydrocarbons" shall include) the production which accrues to such Subject
Interests under and by virtue of such pooling and unitization arrangements and
the applicable Account shall be computed giving consideration to such production
and costs, expenses, charges and credits attributable to such Subject Interests.


                                      -16-
<PAGE>   21
         Section 3.16.  Non-consent Operations.

                    (a) If Harken Colombia elects to be a non-participating
         party (whether pursuant to an Association Contract or operating
         agreement or other agreement or requirement) with respect to any
         drilling, deepening, plugging back, reworking, sidetracking or
         completion (or other) operation on any Subject Interest or elects to be
         an abandoning party with respect to a well located on any Subject
         Interest, the consequence of which election is that Harken Colombia's
         interest in such Subject Interest or part thereof is temporarily (i.e.,
         during a recoupment period) or permanently forfeited to the parties
         participating in such operations, or electing not to abandon such well,
         then the costs and proceeds attributable to such forfeited interest
         shall not, for the period of such forfeiture (which may be a continuous
         and permanent period), be debited or credited to the applicable Account
         and such forfeited interest shall not, for the period of such
         forfeiture, be subject to the Net Profits Interest.

                    (b) If Harken Colombia elects to be a participating party to
         such a drilling, deepening, plugging back, reworking, sidetracking or
         completing (or other) operation, or elects to be a non-abandoning party
         with respect to such a well, and any other party or parties have
         elected not to participate in such operation (or have elected to
         abandon such well) with the result that (pursuant to an Association
         Contract or operating agreement or other agreement or requirement)
         Harken Colombia becomes entitled to receive, either temporarily (i.e.,
         through a period of recoupment) or permanently, interests belonging to
         such other party or parties, the costs and proceeds attributable to
         such non-participating parties' interests to which Harken Colombia
         becomes so entitled shall not be debited and credited to the applicable
         Account and instead shall be for the account of Harken Colombia.

         Section 3.17. No Personal Liability; Indemnification. Notwithstanding
anything to the contrary contained in this Agreement, Investors shall never
personally be responsible for payment of any part of the costs, expenses or
liabilities incurred in connection with the exploring, developing, operating,
owning and/or maintaining of the Subject Interests or an Association Contract
(including without limitation, any costs, expenses or liabilities related to
damage to or remediation of the environment, including any of the same arising
out of ownership of an interest in property), and Owner agrees to indemnify and
hold Investors harmless from and against all such costs, expenses and
liabilities (with such indemnity to also cover all costs and expenses of
Investors, including reasonable legal fees and expenses, which are incurred
incident to the matters indemnified against); provided, however, all such costs,
expenses and liabilities shall, to the extent the same relate to periods after
the Effective Date, nevertheless be charged against the applicable Account if
such costs, expenses and liabilities are expressly permitted elsewhere in this
Agreement to be charged to such Account. THE FOREGOING INDEMNIFICATIONS


                                      -17-
<PAGE>   22
SHALL EXTEND TO INVESTORS AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS,
ALL THEIR RESPECTIVE AFFILIATES AND ALL THEIR RESPECTIVE OFFICERS, DIRECTORS,
AGENTS, ATTORNEYS, REPRESENTATIVES AND EMPLOYEES. THE FOREGOING INDEMNITIES
SHALL APPLY WHETHER OR NOT ARISING OUT OF THE SOLE, JOINT OR CONCURRENT
NEGLIGENCE, FAULT OR STRICT LIABILITY OF INVESTORS OR ANY OTHER PERSON OR ENTITY
INDEMNIFIED HEREUNDER AND SHALL APPLY, WITHOUT LIMITATION, TO ANY LIABILITY
IMPOSED UPON ANY PERSON INDEMNIFIED HEREUNDER AS A RESULT OF ANY STATUTE, RULE,
REGULATION, THEORY OF STRICT LIABILITY OR OTHERWISE. THE PROVISIONS OF THIS
SECTION 3.17 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.

         Section 3.18. Access to Books and Records. In addition to any reports
and information specifically required by the terms of this Agreement, Owner
agrees to furnish to Investors full information pertaining to the Prospects (or
potential Prospects) or the ownership, operation and maintenance of the Subject
Interests, at all reasonable times, and in such form, as Investors may
reasonably request. Owner and Harken Colombia will permit representatives
designated by Investors, including independent accountants, agents, attorneys,
and other persons, to inspect Owner's and Harken Colombia's respective books and
records pertaining to the Subject Interests and each Account (and to make copies
and photocopies from such records and to write down and record such information
as such representatives may request), and each of Owner and Harken Colombia
shall permit Investors and their designated representatives reasonably to
investigate and verify the accuracy of information furnished by it to Investors
hereunder or in connection herewith and to discuss all such matters with their
officers, employees and representatives. If for any reason Harken Colombia is
unable to provide to Investors the information, access to information and
inspection rights referred to in the immediately preceding sentences of this
Section 3.18, Owner shall cause such information, access to information and
inspection rights to be provided to Investors. During the period commencing on
the Effective Date and ending on the date of expiration of the Exchange Period,
Owner shall deliver to Investors copies of all definitive public reports, proxy
statements or other public statements filed by Owner with the SEC pursuant to
the Securities Exchange Act of 1934, as amended, in each case promptly after
such reports and statements are so filed; provided, however, that in no event
shall Owner be required under this Section 3.18 to deliver any such documents to
Investors after an Exchange involving the exchange of 100% of the then
Unexchanged Advances of all Investors.


                                   ARTICLE IV

                               Investors Exchange

         Owner hereby grants to Investors the option (herein called the
"Investors' Option") to exchange all or part of Investors' interest in the Net
Profits Interest (based on Investors' Unexchanged Advances) for Common Shares on
the following terms and conditions (herein called "Exchange"):

         Section 4.1. Exercise of Investors' Option. The Investors' Option can
only be exercised by the delivery to Owner within the Exchange Period of a
written notice from Investors stating that Investors thereby elect to exercise
the Investors' Option and specifying the amount of



                                      -18-
<PAGE>   23
Unexchanged Advances that each Investor desires to exchange for Common Shares.
The total Unexchanged Advances to be exchanged in any such Exchange shall be
allocated among Investors in the proportion that the respective Advance
Commitments set forth opposite their names on Annex I hereto bear to
$25,000,000. Investors may exercise the Investors' Option at any time and from
time to time during the Exchange Period, provided, however, that each exercise
by Investors of the Investors' Option must be for the exchange of either (a) at
least $10,000,000 of Unexchanged Advances in the aggregate for all Investors or
(b) 100% of the then remaining Unexchanged Advances of all Investors. Each such
exercise shall be irrevocable. Upon termination of the Exchange Period, the
Investors' Option shall terminate and Investors shall have no further right or
option to exchange Investors' interest in the Net Profits Interest for Common
Shares pursuant to the Investors' Option. For purposes of this Article IV, the
term "Exchange Date" shall mean, with respect to any Exchange pursuant to this
Article IV, the date of delivery to Owner of Investors' notice of such Exchange
pursuant to this Section 4.1.

         Section 4.2. Number of Common Shares. The aggregate number of Common
Shares to be issued to each Investor upon an Exchange pursuant to this Article
IV shall be determined pursuant to the following formula:

         CS = AV / CMP

where, for purposes of this Article IV:

         "CS"       shall mean the aggregate number of Common Shares to be
                    issued to such Investor upon such Exchange.

         "AV"       shall mean the remainder of (a) the Unexchanged Advances
                    that such  Investor  desires to exchange  for Common  Shares
                    pursuant to such Exchange, as specified in Investors' notice
                    of such  Exchange  pursuant  to Section  4.1,  minus (b) the
                    aggregate  amount of the payments  received by such Investor
                    through the Exchange  Date pursuant to Section 3.7 that have
                    not been the  subject of a deduction  under this  formula in
                    connection  with a  previous  Exchange  made  by  Investors,
                    together  with an amount  equal to interest on the  positive
                    balance  of such  remainder  as it exists  from time to time
                    during  the  period  commencing  on the  Business  Day  next
                    following the Effective Date and ending on and including the
                    Exchange  Date at the  rate of  fifteen  percent  (15%)  per
                    annum,  compounded monthly on the first day of each calendar
                    month.

         "CMP"      shall mean the Current Market Price per share of the Common
                    Shares as of the Exchange Date.

The number of Common Shares determined pursuant to such formula shall be rounded
up or down to the next whole number, and no fractional Common Shares shall be
issued.


                                      -19-
<PAGE>   24
         Section 4.3. Issuance of Common Shares. The closing and consummation of
any Exchange pursuant to this Article IV shall occur not later than three
Business Days following the Exchange Date of such Exchange. At such closing,
Owner shall issue and deliver to Investors the number of Common Shares required
for such Exchange pursuant to Section 4.2.

         Section 4.4. Reduction of Designated Percentage. Provided closing of
such Exchange has occurred pursuant to Section 4.3, as of the Exchange Date of
each Exchange pursuant to this Article IV, the Designated Percentage then in
effect of each Investor shall be reduced by subtracting therefrom the product of
(a) such Designated Percentage and (b) the quotient obtained by dividing (i) the
Unexchanged Advances of such Investor that are the subject of such Exchange
(i.e., the total amount of Unexchanged Advances specified for exchange by such
Investor in Investors' notice of such Exchange pursuant to Section 4.1) by (ii)
the total Advance Commitment set forth opposite such Investor's name on Annex I
hereto. All payments with respect to periods from and after the Exchange Date of
such Exchange made by Harken Colombia to such Investor pursuant to Section 3.7
shall be made based on the Designated Percentage of such Investor as reduced for
such Exchange in accordance with this Section, subject to further reduction of
such percentage as provided in this Agreement; provided, however, that, if the
Designated Percentage of such Investor has been reduced to zero as a result of
such Exchange, such Investor's interest in the Net Profits Interest shall
terminate effective as of the Exchange Date of such Exchange and no payments
shall thereafter be made to such Investor with respect to the Net Profits
Interest pursuant to Section 3.7 or otherwise other than payments with respect
to periods prior to such Exchange Date.

         Section 4.5. Owner's Cash Option. Notwithstanding anything to the
contrary contained in this Article IV, Owner shall have the option to pay cash
to Investors upon any Exchange pursuant to this Article IV in lieu of issuing
Common Shares. If, in connection with such an Exchange, Owner determines to pay
cash in lieu of issuing Common Shares, it must pay cash to all Investors. The
aggregate amount of cash to be paid to each Investor upon such Exchange shall be
equal to such Investor's AV for such Exchange. Such payment shall be made to
Investors at the closing of such Exchange by wire transfer in immediately
available funds to a bank account or accounts designated by Investors.


                                    ARTICLE V

                                 Owner Exchange

         Investors hereby grant to Owner the option (herein called the "Owner's
Option") to exchange, on a one-time basis, all (or all of the remaining amount)
of Investors' interest in the Net Profits Interest (based on the then remaining
Unexchanged Advances of Investors) for Common Shares or cash on the following
terms and conditions (herein also called "Exchange"):


                                      -20-
<PAGE>   25
         Section 5.1. Exercise of Owner's Option. The Owner's Option can only be
exercised by the delivery within the Exchange Period to Investors of a written
notice from Owner stating that Owner thereby elects to exercise the Owner's
Option and specifying whether such Exchange will be made for Common Shares or
cash. Any such exercise shall be irrevocable. Owner may make an Exchange
pursuant to this Article V solely for Common Shares or solely for cash but not
for a combination of Common Shares and cash (i.e., all Investors shall receive
in such Exchange the same type of consideration). Upon termination of the
Exchange Period, the Owner's Option shall terminate and Owner shall have no
further right or option to exchange Investors' interest in the Net Profits
Interest for Common Shares or cash pursuant to the Owner's Option. For purposes
of this Article V, the term "Exchange Date" shall mean, with respect to any
Exchange pursuant to this Article V, the date of delivery to Investors of
Owner's notice of such Exchange pursuant to this Section 5.1.

         Section 5.2. Number of Common Shares. The aggregate number of Common
Shares to be issued to each Investor upon an Exchange pursuant to this Article V
(if such Exchange involves the delivery to Investors of Common Shares) shall be
determined pursuant to the following formula:

         CS = AV / CMP

where, for purposes of this Article V:

         "CS"       shall mean the aggregate number of Common Shares to be
                    issued to such Investor upon such Exchange.

         "AV"       shall mean the remainder of (a) the Unexchanged Advances
                    that such Investor is  exchanging  pursuant to such Exchange
                    minus (b) the aggregate  amount of the payments  received by
                    such Investor  through the Exchange Date pursuant to Section
                    3.7 that have not been the subject of a deduction  under the
                    formula  set  forth  in  Section  4.2 in  connection  with a
                    previous  Exchange  pursuant to Article IV, together with an
                    amount  equal to  interest on the  positive  balance of such
                    remainder  as it exists  from time to time during the period
                    commencing on the Business Day next  following the Effective
                    Date and ending on and  including  the Exchange  Date at the
                    rate of  twenty-five  percent  (25%) per  annum,  compounded
                    monthly on the first day of each calendar month.

         "CMP"      shall mean the Current Market Price per share of the Common
                    Shares as of the Exchange Date.

The number of Common Shares determined pursuant to such formula shall be rounded
up or down to the next whole number, and no fractional Common Shares shall be
issued.



                                      -21-
<PAGE>   26
         Section 5.3. Amount of Cash. The aggregate amount of cash to be paid to
each Investor upon an Exchange pursuant to this Article V (if such Exchange
involves the payment to Investors of cash) shall be equal to such Investor's AV
for such Exchange.

         Section 5.4. Issuance of Common Shares and Payment of Cash. The closing
and consummation of any Exchange pursuant to this Article V shall occur not
later than three Business Days following the Exchange Date of such Exchange. At
such closing, Owner shall issue and deliver to Investors the number of Common
Shares or pay or cause to be paid to Investors the amount of cash required for
such Exchange pursuant to Section 5.2 or 5.3. Such cash payment shall be made by
wire transfer in immediately available funds to a bank account or accounts
designated by Investors.

         Section 5.5. Elimination of Designated Percentage. Provided closing of
such Exchange has occurred pursuant to Section 5.4, as of the Exchange Date of
an Exchange pursuant to this Article V, the Designated Percentage then in effect
of Investors shall be reduced to zero, and the interest of Investors in the Net
Profits Interest shall terminate and no payments shall thereafter be made to
Investors with respect to the Net Profits Interest pursuant to Section 3.7 or
otherwise other than payments with respect to periods prior to such Exchange
Date.

                                   ARTICLE VI

                      Issuance of Additional Common Shares

     As additional consideration for the Commitment, Owner hereby agrees to
issue additional Common Shares to Investors on the following terms and
conditions:

         Section 6.1.   Issuance of Additional Shares.

         (a) Provided an Exchange for Common Shares has occurred pursuant to
this Agreement, if, as of the Deficiency Determination Date, the Realized
Proceeds with respect to an Investor's Exchange Shares are less than the
Invested Amount with respect to such Exchange Shares, then, within five Business
Days after the Deficiency Determination Date, Owner shall issue and deliver to
such Investor additional Common Shares in an amount equal to A divided by B,
where "A" is equal to the Deficiency Amount with respect to such Exchange
Shares, and where "B" is equal to the Current Market Price per share of the
Common Shares as of the Deficiency Determination Date. The number of additional
Common Shares determined pursuant to such formula shall be rounded up or down to
the next whole number, and no fractional Common Shares shall be issued.

         (b) Notwithstanding the foregoing, provided Owner complies with all its
obligations under the Registration Rights Agreement, an Investor shall not be
entitled to receive any


                                      -22-
<PAGE>   27
additional Common Shares pursuant to Section 6.1(a) unless each Exchange Share
issued to such Investor is sold by such Investor prior to the end of the Selling
Period applicable to such Exchange Share. Each Investor shall use its reasonable
best efforts to sell its Exchange Shares in an orderly manner designed not to
materially disrupt the public market for the Common Shares; provided, however,
that public sales by Investors, on a combined basis, of up to an aggregate of
100,000 Exchange Shares per Trading Day shall not be subject to such manner of
sale restriction.

         (c) If the combined public sales by Investors of Exchange Shares in any
one Trading Day exceeds an aggregate of 100,000 shares, then (i) the Realized
Proceeds with respect to the Exchange Shares sold on such Trading Day in excess
of 100,000 shares which are sold by an Investor at a price per share (prior to
any commissions, fees or costs) less than the Current Market Price at which such
Exchange Shares were issued to such Investor and (ii) that portion of such
Investor's Invested Amount that is attributable to such Exchange Shares, shall
not be taken into account in determining the number of additional Common Shares
issuable to such Investor pursuant to Section 6.1(a).

         Section 6.2.   Certain Definitions.  As used in this Article VI:

         (a) "Deficiency Amount" shall mean, with respect to an Investor's
Exchange Shares, A minus B, where "A" is equal to the Invested Amount with
respect to such Exchange Shares, and where "B" is equal to the Realized Proceeds
with respect to such Exchange Shares.

         (b) "Deficiency Determination Date" shall mean the later of (i) the
Business Day next following the expiration of the Selling Period applicable to
the Common Shares issued pursuant to the last Exchange involving the issuance of
Common Shares under this Agreement and (ii) the Business Day next following the
expiration of the Exchange Period; provided, however, that (iii) upon an
Exchange pursuant to Article IV or V resulting in the exchange for Common Shares
of 100% of the then Unexchanged Advances of all Investors, the Deficiency
Determination Date shall mean the Business Day next following the expiration of
the Selling Period applicable to the Common Shares issued pursuant to such
Exchange and (iv) upon an Exchange pursuant to Article IV or V resulting in the
exchange for cash of 100% of the then Unexchanged Advances of all Investors, the
Deficiency Determination Date shall mean the later of (A) the Business Day
specified in clause (i) of this definition and (B) the Business Day next
following the closing of the Exchange for cash that is the subject of this
clause (iv). Notwithstanding the foregoing, if the Selling Period applicable to
Common Shares issued pursuant to any Exchange (a "Prior Exchange") that occurred
prior to an Exchange referred to in clause (i) or (iii) of the immediately
preceding sentence (the "Final Exchange") extends beyond the Selling Period
applicable to the Common Shares issued pursuant to the Final Exchange, then the
Selling Period referred to in clause (i) and (iii) of the immediately preceding
sentence shall mean the latest Selling Period applicable to Common Shares issued
pursuant to a Prior Exchange.


                                      -23-
<PAGE>   28
         (c) "Exchange Shares" shall mean all Common Shares issued to an
Investor as a result of Exchanges pursuant to this Agreement.

         (d) "Invested Amount" shall mean, with respect to an Investor's
Exchange Shares, the aggregate amount of such Investor's AV (as defined in
Articles IV and V) for all Exchanges pursuant to which such Exchange Shares were
issued; provided, however, that if Owner, in accordance with Section 3(b) of the
Registration Rights Agreement, postpones the filing of a Securities Act
registration statement with respect to the Exchange Shares issued to an Investor
pursuant to an Exchange, then, for purposes of determining such Investor's
Invested Amount, such Investor's AV for such Exchange shall be calculated so
that the amount of interest included in the calculation of such AV is determined
for the period ending on and including the date of filing of such Securities Act
registration statement.

         (e) "Realized Proceeds" shall mean, with respect to an Investor's
Exchange Shares, the aggregate gross proceeds actually received by such Investor
(prior to any commissions, fees or costs) from the sale or sales of such
Exchange Shares.

         (f) "Selling Period" shall mean, with respect to the Common Shares
issued to Investors pursuant to an Exchange, the period of 120 Trading Days
following the date the Securities Act registration statement covering such
Common Shares filed by Owner pursuant to the Registration Rights Agreement first
became effective; provided, however, that if the quotient obtained by dividing
(x) the total number of Common Shares issued pursuant to such Exchange by (y)
120, is greater than 100,000, then such 120-Trading Day period shall be extended
to equal the number of Trading Days (rounded up to the next whole number)
determined by dividing (x) the total number of Common Shares issued pursuant to
such Exchange by (y) 100,000; and provided, further, that the Selling Period
shall be subject to further extension as provided in Section 5 of the
Registration Rights Agreement. If the Selling Period applicable to Common Shares
issued pursuant to an Exchange (a "Later Exchange") overlaps with the Selling
Period applicable to Common Shares issued pursuant to a prior Exchange (a "Prior
Exchange"), the calculation called for by the first proviso contained in the
immediately preceding sentence with respect to the Common Shares issued pursuant
to the Later Exchange shall be made by taking into account under each clause (x)
of such proviso, in addition to the Common Shares issued pursuant to the Later
Exchange, the number of Common Shares issued pursuant to the Prior Exchange that
remain unsold by Investors at the commencement of the Selling Period applicable
to the Common Shares issued pursuant to the Later Exchange. Notwithstanding the
foregoing, in no event shall the Selling Period applicable to the Common Shares
issued to Investors pursuant to an Exchange extend beyond the closing date of
the sale of the last of such Common Shares to be sold by Investors. Investors
shall notify Owner when such last sale occurs.


                                      -24-
<PAGE>   29
                                   ARTICLE VII

                 Owner Representations, Warranties and Covenants

         Owner hereby represents and warrants to and covenants with Investors as
follows:

         Section 7.1. Organization and Corporate Authority. Owner is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with corporate power and
authority to carry on its business as now conducted and to own, lease and
operate all properties and assets now owned, leased or operated by it.

         Section 7.2. Qualification to do Business. Owner is duly qualified to
do business as a foreign corporation and in good standing in each jurisdiction
in which its ownership of property or the conduct of its business requires such
qualification, except jurisdictions in which the failure so to qualify would not
have a material adverse effect on Owner's business, properties, financial
condition or results of operations.

         Section 7.3. Charter, Bylaws, Etc.. Owner has caused to be delivered to
Investors true, correct and complete copies of the charter and bylaws of Owner
as now in effect and the minutes of all meetings of Owner's Board of Directors
(and all consents in lieu of such meetings) at which action was taken concerning
the execution and delivery of this Agreement and the Registration Rights
Agreement.

         Section 7.4. Capitalization. The authorized capital stock of Owner
consists of 125,000,000 Common Shares, of which 117,725,284 are issued and
outstanding, and 10,000,000 shares of preferred stock, par value $1.00 per
share, none of which is outstanding. Owner has 22,822,236 Common Shares reserved
for issuance upon exercise of stock options, warrants and other rights to
acquire Common Shares and holds zero Common Shares as treasury shares. All of
the outstanding shares of capital stock of Owner are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof.

         Section 7.5. Finders' Fees. No broker or finder has acted on behalf of
Owner or Harken Colombia in connection with this Agreement or the transactions
contemplated herein.

         Section 7.6. Authority of Owner. Owner has the corporate power to enter
into, and be bound by the terms and conditions of, this Agreement and the
Registration Rights Agreement and to carry out its obligations hereunder and
thereunder, and the execution and delivery by Owner of this Agreement and the
Registration Rights Agreement and the performance by Owner of its obligations
hereunder and thereunder have been duly authorized by all necessary corporate
action of Owner. This Agreement has been duly executed and delivered by Owner
and constitutes, and each other agreement or document executed or to be executed
by Owner in


                                      -25-
<PAGE>   30
connection with the transactions contemplated hereby has been, or when executed,
will be, duly executed and delivered by Owner and constitutes, or when executed
and delivered will constitute, a valid and legally binding obligation of Owner
enforceable against Owner in accordance with their respective terms, except to
the extent enforcement may be limited (a) by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws from time to time in effect which
affect creditors' rights generally, (b) by legal and equitable limitations on
the availability of equitable remedies, including without limitation specific
performance against Owner under or by virtue of this Agreement and (c) by public
policy considerations with respect to the rights of indemnification under the
Registration Rights Agreement. Section 7.7. Non-Contravention. The execution,
delivery and performance of this Agreement and the Registration Rights Agreement
by Owner, and the issuance of Common Shares by Owner in accordance with this
Agreement, will not (a) conflict with or result in a violation of any provision
of Owner's charter or bylaws, (b) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default under, or give rise (with or without the giving of
notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, agreement or other instrument or obligation to which Owner is
a party or by which Owner or any of its properties or assets may be bound, which
conflict, violation, default, termination, cancellation or acceleration could
reasonably have a material adverse effect on Owner's business, properties,
financial condition or results of operations, (c) result in the creation or
imposition of any lien or incumbrance upon the properties or assets of Owner, or
(d) result in a violation by Owner of any Law or any judgment, order, decree,
rule or regulation of any Governmental Authority to which Owner is subject;
provided, however, that no such representations or warranties are made by Owner
with respect to compliance with any foreign securities laws or with respect to
any Association Contract (it being understood that representations and
warranties with respect to the Association Contracts are being made by Owner
under Section 7.12).

         Section 7.8. Governmental Consents. Except for (a) those that have been
duly obtained, (b) routine filings and orders that may be required under
Regulation D promulgated under the Securities Act or under any applicable state
securities or Blue Sky laws in connection with the future issuance of Common
Shares pursuant to Articles IV, V and VI, and the approval by the American Stock
Exchange of the listing of such Common Shares on such exchange (which Owner will
obtain prior to the issuance of such shares), and (c) those required under the
Securities Act and any applicable state securities or Blue Sky laws in
connection with the performance by Owner of its obligations under the
Registration Rights Agreement, no consent, order, approval or authorization of,
or declaration, filing, or registration with, any Governmental Authority is
required to be obtained or made by Owner in connection with the execution,
delivery or performance by Owner of this Agreement or the Registration Rights
Agreement; provided, however, that no such representations or warranties are
made by Owner with respect to compliance with any foreign securities laws.


                                      -26-
<PAGE>   31
         Section 7.9. Reports and Financial Statements of Owner. Owner has
heretofore delivered to Investors true and complete copies of all definitive
Form 10-K annual reports, Form 10-Q quarterly reports and proxy statements filed
by Owner with the SEC from and after January 1, 1996 (herein collectively called
"Owner's SEC Filings"). As of their respective dates, Owner's SEC Filings did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Owner
does not have any debts, liabilities, or obligations, whether accrued,
contingent, unasserted or otherwise, and whether due or to become due, which are
not reflected in the financial statements contained in Owner's SEC Filings and
would be required to be so reflected under generally accepted accounting
principles, except those incurred in the ordinary course of business since the
date of the most recent audited financial statements contained in Owner's SEC
Filings. Since such date and except as otherwise disclosed in Owner's SEC
Filings, Owner has conducted its business in the ordinary course consistent with
past practice and there has not been any material adverse change in the
business, properties, financial condition or results of operations of Owner or
in its relationship with lenders, suppliers, customers, employees or others,
whether such changes have occurred in the ordinary course of business or
otherwise.

         Section 7.10. Disclosure. All written information provided by Owner and
its officers, directors, agents, representatives and employees to Investors in
connection with this Agreement which is not part of Owner's SEC Filings has been
prepared in good faith by Owner and does not contain any untrue statement of a
material fact or, considered in its entirety along with Owner's SEC Filings,
omit to state therein a material fact (other than those facts generally
recognized to be industry risks normally associated with the oil and gas
business) necessary to make the statements made therein not misleading. Owner
does not know of any facts (other than those facts generally recognized to be
industry risks normally associated with the oil and gas business) related to its
business, properties, financial condition or results of operations or the
potential Prospects which have not been disclosed orally or in writing to
Investors and which presently or will materially and adversely affect such
business, properties, financial condition, results of operations or potential
Prospects or the ability of Owner to perform its obligations under this
Agreement or the Registration Rights Agreement.

         Section 7.11. Owner's Common Shares. The Common Shares issuable to
Investors pursuant to this Agreement have been, or when issued hereunder, will
have been, duly authorized for issuance pursuant hereto and, when issued and
delivered by Owner pursuant hereto, will be validly issued, fully paid and
non-assessable and will be free and clear of any claim, lien, pledge, option,
charge, security interest or encumbrance of any nature whatsoever created by
Owner. The issuance of Common Shares under this Agreement is not subject to any
preemptive rights. Owner shall, prior to the issuance of Common Shares pursuant
to this Agreement, cause such Common Shares to be listed on each securities
exchange or quotation system on which outstanding Common Shares are then listed.


                                      -27-
<PAGE>   32
         Section 7.12. Association Contracts. English translations of the main
body of, and the operating agreement attached as an exhibit to, each Association
Contract in force as of the date hereof have been furnished by Owner to
Investors. Each of such translations is a fair and reasonable translation of the
original document constituting part of the Association Contract. Any and all
amendments to an Association Contract in force as of the date hereof of which
English translations were not furnished by Owner to Investors do not contain any
provisions that could adversely affect the rights and interests of Investors
under this Agreement. Each Association Contract is in full force and effect as
of the date hereof. Harken Colombia is in compliance in all material respects
with its obligations under or relating to each Association Contract in force as
of the date hereof, and, to the best knowledge of Owner and Harken Colombia
after due inquiry, no other party to an Association Contract is presently in
default thereunder. The execution, delivery and performance of this Agreement by
Owner, and the performance of this Agreement by Harken Colombia, will not breach
or result in a violation of any provision of an Association Contract in force as
of the date hereof. Exhibit A-1 hereto contains an accurate description of the
areal extent of the lands covered by the Bocachico Association Contract (which
lands are designated as the Bocachico Block on such Exhibit A-1) as of the date
hereof. Exhibit A-2 hereto contains an accurate description of the areal extent
of the lands covered by the Cambulos Association Contract (which lands are
designated as the Cambulos Block on such Exhibit A-2) as of the date hereof.
Owner agrees to furnish to Investors written English translations of any and all
amendments made to any Association Contract or related operating agreement after
the Effective Date as promptly as practicable after each such amendment is made.

         Section 7.13. Ownership of Harken Colombia. All of the issued and
outstanding shares of capital stock of Harken Colombia have been duly and
validly issued, are fully paid and nonassessable and are owned by Owner, free
and clear of all liens, encumbrances, equities or claims. No options, warrants
or other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in Harken Colombia are outstanding.

         Section 7.14. Certain Tax Matters. All amounts payable under this
Agreement shall be free of Colombian taxes, and Owner shall hold Investors
harmless from, and indemnify Investors on an after tax basis against, any and
all Colombian taxes arising due to the transactions contemplated hereby, other
than any Colombian taxes that would not have been incurred but for activities of
Investors in Colombia unrelated to the transactions contemplated hereby, it
being further understood and agreed, however, that it shall be permissible for
taxes incurred by Harken Colombia in connection with its operations to be taken
into account for purposes of calculation of the Net Profits Interest as provided
in this Agreement.

         Section 7.15. Absence of Bankruptcy Proceedings. There are no
bankruptcy, reorganization or arrangement proceedings pending against, being
contemplated by or, to the knowledge of Owner, threatened against Owner or
Harken Colombia.


                                      -28-
<PAGE>   33
         Section 7.16. Offering. Subject to the accuracy of Investors'
representations in Sections 8.6 and 8.8, the offer, sale, and issuance of the
Common Shares as contemplated by this Agreement are and will be exempt from the
registration requirements of the Securities Act and the securities laws of any
state having jurisdiction with respect to the transactions contemplated by this
Agreement, and neither Owner nor anyone acting on its behalf has taken or will
take any action that would cause the loss of such exemption.

         Section 7.17. No Defaults. Neither Owner nor Harken Colombia is (a) in
violation of any provision of its charter or bylaws, (b) in breach, violation or
default, in any material respect, of or under any material contract, lease,
commitment or instrument to which it is a party or by which it is bound or to
which any of its properties or assets are subject, and no event has occurred
which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute such a breach, violation or
default or (c) in material violation of any Law.

         Section 7.18. Litigation. There is no action, suit, proceeding or
investigation pending or, to the knowledge of Owner, threatened against or
affecting Owner or Harken Colombia or any properties or rights of any of them by
or before any Governmental Authority that (a) relates to or challenges the
legality of this Agreement, the Registration Rights Agreement or any Association
Contract, (b) would reasonably be expected to have a material adverse effect
upon the business, properties, financial condition or results of operations of
Owner or Harken Colombia (except as disclosed in Owner's SEC Filings) or (c)
would reasonably be expected to impair the ability of Owner or Harken Colombia
to perform fully on a timely basis any obligations that it has, or any actions
specified to be taken by it, under this Agreement, the Registration Rights
Agreement or any Association Contract.

         Section 7.19. Compliance with Laws. Owner and Harken Colombia are in
compliance in all material respects with all Laws in all jurisdictions in which
Owner or Harken Colombia is presently doing business and where the failure to
effect such compliance would reasonably be expected to have a material adverse
effect upon the business, properties, financial condition or results of
operations of Owner or Harken Colombia.

         Section 7.20. Compliance with Environmental Laws. The business and
properties of Owner and Harken Colombia have been operated in compliance with
all applicable Laws relating to pollution or protection of the environment,
including, without limitation, any Law relating to emissions, discharges,
releases or threatened releases ("Releases") of chemicals, pollutants,
contaminants, wastes, petroleum or petroleum products, toxic substances or
hazardous substances ("Pollutants") (collectively, "Environmental Laws"), for
which noncompliance would have a material adverse effect upon the business,
properties, financial condition or result of operations of Owner or Harken
Colombia. Except as disclosed in Owner's SEC Filings, neither Owner nor Harken
Colombia has received any written communication, whether from a Governmental


                                      -29-
<PAGE>   34
Authority, citizens' group, landowner, employee or otherwise, nor, to the
knowledge of Owner, has Owner or Harken Colombia received any oral communication
from a Governmental Authority, alleging that (a) Owner or Harken Colombia is not
in compliance with any Environmental Law applicable to it and its business and
properties or (b) any employee or third party has suffered bodily injury or
property damage as a result of one or more Releases of Pollutants arising out of
or resulting from the operations of Owner, Harken Colombia or prior owners and
operators of their business or properties, which allegation, if true, would have
a material adverse effect upon the business, properties, financial condition or
result of operations of Owner or Harken Colombia. Except as disclosed in Owner's
SEC Filings, neither Owner nor Harken Colombia has any material obligation to
remediate, repair or replace any property, whether real or personal, owned by
Owner, Harken Colombia or any third party, as a result of one or more Releases
of Pollutants arising out of or resulting from the operations of Owner, Harken
Colombia or prior owners and operators of their business or properties.

         Section 7.21. Harken Colombia Organization and Corporate Authority.
Harken Colombia is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with corporate
power and authority to carry on its business as now conducted and to own, lease
and operate all properties and assets now owned, leased or operated by it.

         Section 7.22. Harken Colombia Qualification to do Business. Harken
Colombia is duly qualified to do business as a foreign corporation and in good
standing in each jurisdiction in which its ownership of property or the conduct
of its business requires such qualification, except jurisdictions in which the
failure so to qualify would not have a material adverse effect on Harken
Colombia's business, properties, financial condition or results of operations.

         Section 7.23. Harken Colombia Charter and Bylaws. Owner has caused to
be delivered to Investors true, correct and complete copies of the charter and
bylaws of Harken Colombia as now in effect.

         Section 7.24. Harken Colombia Non-Contravention. The performance of
this Agreement by Owner, or the performance by Harken Colombia of the actions to
be taken by it under this Agreement, will not (a) conflict with or result in a
violation of any provision of Harken Colombia's charter or bylaws, (b) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, agreement or other instrument or
obligation to which Harken Colombia is a party or by which Harken Colombia or
any of its properties or assets may be bound, which conflict, violation,
default, termination, cancellation or acceleration could reasonably have a
material adverse effect on Harken Colombia's business, properties, financial
condition or results of operations, (c) result in the creation or imposition of
any lien or incumbrance upon the properties or assets of Harken Colombia, or (d)
result in a violation by Harken Colombia of any Law or any judgment, order,
decree, rule or regulation of any Governmental Authority to which Harken
Colombia is subject;


                                      -30-
<PAGE>   35
provided, however, that no such representations or warranties are made by Owner
with respect to compliance with any foreign securities laws or with respect to
any Association Contract (it being understood that representations and
warranties with respect to the Association Contracts are being made by Owner
under Section 7.12).

         Section 7.25. Harken Colombia Governmental Consents. Except for those
that have been duly obtained, no consent, order, approval or authorization of,
or declaration, filing, or registration with, any Governmental Authority is
required to be obtained or made by Harken Colombia in connection with the
performance by Owner of this Agreement or the performance by Harken Columbia of
the actions to be taken by it under this Agreement; provided, however, that no
such representations or warranties are made by Owner with respect to compliance
with any foreign securities laws.

         Section 7.26. Harken Colombia Disclosure. Owner, either directly or
indirectly through its subsidiary, Harken Colombia, does not know of any facts
(other than those facts generally recognized to be industry risks normally
associated with the oil and gas business) related to the potential Prospects or
the Subject Interests which have not been disclosed orally or in writing to
Investors and which presently or will materially and adversely affect a
potential Prospect, any Subject Interests or the ability of Harken Colombia to
perform this Agreement.

         Section 7.27. Continuing Representations and Warranties. The
representations, warranties and covenants of Owner made in Sections 7.1, 7.2,
7.5, 7.6, 7.7, 7.10, 7.11, 7.12, 7.13, 7.16, 7.21, 7.22, 7.24, 7.26 and this
Section 7.27 shall remain true and accurate after the Effective Date and until
the termination of the Exchange Period or any later closing and consummation of
any transaction pursuant to Article IV, V or VI, and the representations,
warranties and covenants of Owner made in Section 7.14 shall remain true and
accurate without limitation of time, and Owner shall not take any action nor
permit any action to be taken which would cause any of such representations,
warranties and covenants to become untrue, inaccurate or breached. Owner
acknowledges and agrees that Investors may rely on this Section in connection
with any exercise of Investors' Option or Owner's Option and agrees to take all
action in connection therewith required to cause Investors' representations and
warranties contained in Section 8.7 to be true and correct at the time of any
such exercise.


                                      -31-
<PAGE>   36
                                  ARTICLE VIII

               Investors Representations, Warranties and Covenants

         Each Investor hereby severally represents and warrants to and covenants
with Owner as follows:

         Section 8.1. Organization and Partnership or Corporate Authority. In
the case of Investors other than the Foreign Investor, such Investor is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Texas, with partnership power and authority to carry on
its business as now conducted and to own, lease and operate all properties and
assets now owned, leased or operated by it. In the case of the Foreign Investor,
the Foreign Investor is an English investment company duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, with investment company power and authority to carry on its
business as now conducted and to own, lease and operate all properties and
assets now owned, leased or operated by it.

         Section 8.2. Finders' Fees. No broker or finder has acted on behalf of
Investor in connection with this Agreement or the transactions contemplated
herein.

         Section 8.3. Authority of Investor. Investor has the partnership (or,
in the case of the Foreign Investor, investment company) power to enter into,
and be bound by the terms and conditions of, this Agreement and the Registration
Rights Agreement and to carry out its obligations hereunder and thereunder, and
the execution and delivery by Investor of this Agreement and the Registration
Rights Agreement and the performance by Investor of its obligations hereunder
and thereunder have been duly authorized by all necessary partnership (or, in
the case of the Foreign Investor, investment company) action of Investor. This
Agreement has been duly executed and delivered by Investor and constitutes, and
each other agreement or document executed or to be executed by Investor in
connection with the transactions contemplated hereby has been, or when executed,
will be, duly executed and delivered by Investor and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Investor enforceable against Investor in accordance with their respective
terms, except to the extent enforcement may be limited (a) by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws from time to
time in effect which affect creditors' rights generally, (b) by legal and
equitable limitations on the availability of equitable remedies, including
without limitations specific performance against Investor under or by virtue of
this Agreement and (c) by public policy considerations with respect to the
rights of indemnification under the Registration Rights Agreement.

         Section 8.4. Non-Contravention. The execution, delivery and performance
of this Agreement and the Registration Rights Agreement by Investor will not (a)
conflict with or result in a violation of any provision of Investor's limited
partnership agreement (or, in the case of the


                                      -32-

<PAGE>   37
Foreign Investor, investment company organizational documents), (b) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, agreement or other instrument or
obligation to which Investor is a party or by which it or any of its properties
or assets may be bound, which conflict, violation, default, termination,
cancellation, or acceleration would have a material adverse effect on the
ability of Investor to perform its obligations hereunder, (c) result in the
creation or imposition of any lien or incumbrance upon the properties or assets
of Investor, which lien or incumbrance would have a material adverse effect on
the ability of Investor to perform its obligations hereunder, or (d) result in a
violation by Investor of any Law or any judgment, order, decree, rule or
regulation of any Governmental Authority to which Investor is subject; provided,
however, that no such representations or warranties are made by Investor with
respect to compliance with any foreign securities laws.

         Section 8.5. Governmental Consents. Except for those that have been
duly obtained, no consent, order, approval or authorization of, or declaration,
filing, or registration with, any Governmental Authority is required to be
obtained or made by Investor in connection with the execution, delivery or
performance by Investor of this Agreement; provided, however, that no such
representations or warranties are made by Investor with respect to compliance
with any foreign securities laws.

         Section 8.6. Investment Intent. Upon issuance pursuant to this
Agreement, Investor will acquire the Common Shares for its own account for
investment and not with a view to, or for sale or other disposition in
connection with, any distribution of all or any part of the Common Shares,
except (a) in an offering covered by a registration statement filed with the SEC
under the Securities Act covering the Common Shares or (b) pursuant to an
applicable exemption under the Securities Act.

         Section 8.7. Disclosure of Information. Investor represents that it has
had an opportunity to ask questions of and receive answers from Owner regarding
Owner and Harken Colombia, their respective businesses, properties, financial
conditions, operations and plans of business, the Common Shares, and the Subject
Interests and all matters relating thereto.

         Section 8.8. Accredited Investor and Experience. Investor acknowledges
that it is an Accredited Investor within the meaning of Regulation D under the
Securities Act, can bear the economic risk of the investment in the Net Profits
Interest and any investment in Common Shares and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment in the Net Profits Interest and any
investment in Common Shares. Investor represents that it has not been organized
for the purpose of acquiring the Net Profits Interest or any Common Shares.


                                      -33-
<PAGE>   38
         Section 8.9. Restricted Securities. Investor understands that any
Common Shares that are issued pursuant to this Agreement will not have been
registered pursuant to the Securities Act, any other federal securities law, any
applicable foreign securities law or any applicable state securities or Blue Sky
law, that such shares will be characterized as "restricted securities" under the
United States securities laws and that under such laws and applicable
regulations such shares cannot be sold or otherwise disposed of without
registration under the Securities Act or an exemption therefrom.

         Section 8.10. Legend. Investor understands and agrees that the
certificates representing any Common Shares issued pursuant to this Agreement
shall each conspicuously set forth on the face or back thereof a legend in
substantially the following form:

                 "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
                 BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
                 AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
                 UNLESS SUCH SHARES ARE FIRST REGISTERED UNDER SUCH
                 ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
                 AVAILABLE."

         Section 8.11. Continuing Representations and Warranties. Except for a
change of law over which Investor has no control (and Investor shall immediately
notify Owner when Investor learns of such occurrence), the representations,
warranties and covenants of Investor made in Sections 8.3, 8.6, 8.7, 8.8, 8.9
and 8.10 shall remain true and accurate after the Effective Date and until
termination of the Exchange Period or any later closing and consummation of any
Exchange made pursuant to Article IV or V (provided, with respect to those in
Section 8.7, Owner meets its obligations under Section 7.27), and Investor shall
not take any action nor permit any action to be taken which would cause any of
such representations, warranties and covenants to become untrue, inaccurate or
breached. Investor acknowledges and agrees that Owner may rely on this Section
in connection with any issuance of Common Shares pursuant to this Agreement.


                                   ARTICLE IX

                                  Miscellaneous

     Section 9.1. Assignment by Harken Colombia. Harken Colombia may at any time
assign, sell, transfer, convey, mortgage or pledge all or any portion of any
Association Contract or the Subject Interests; provided, that Owner shall remain
fully liable to perform all of their respective duties and obligations
hereunder, including, without limitation, the obligations of Owner to provide
access to information relating to the Subject Interests as set forth in Section
3.18 and to issue Common Shares or pay cash to Investors pursuant to an Exchange
or pursuant to Article VI.


                                      -34-
<PAGE>   39
         Section 9.2. Assignment by Investors. Notwithstanding any other
provision of this Agreement, each Investor shall have the right, without the
prior consent of Owner, to assign or otherwise transfer all or any part of its
rights and obligations hereunder to an affiliate of such Investor for so long as
such assignee shall remain an affiliate of such Investor and provided that such
Investor shall remain personally obligated for its duties and obligations
hereunder. For the purposes of this Section 9.2, the term "affiliate of such
Investor" shall mean any person directly or indirectly controlling, controlled
by or under common control with such Investor, with the concept of control in
such context meaning the possession of the power to direct or cause the
direction of the management and policies of another, through the ownership of
voting securities, by contract or otherwise. Any assignees pursuant to a
permitted assignment under this Section 9.2 must execute a written
acknowledgment, in form and substance satisfactory to Owner, that such assignees
have become parties to this Agreement as if they had been original signatory
parties hereto and that they agree to be bound by all the terms and provisions
hereof. Except as expressly provided above in this Section 9.2, Investors shall
not assign, sell, transfer, convey, mortgage or pledge all or any part of the
Net Profits Interest or create a security interest therein without the prior
written consent of Owner.

         Section 9.3. Commitment Fees. Concurrently (except as provided in
clause (b)) with the payment by Investors to Owner of the Advances pursuant to
Section 2.1, and as additional compensation for the Commitment, Owner shall (a)
pay to EnCap Investments L.C. a cash fee of $500,000 by wire transfer of
immediately available funds and (b) issue and deliver to Investors, immediately
upon receipt of listing approval by the American Stock Exchange, an aggregate of
150,000 Common Shares, as follows: 65,293 Common Shares to EnCap Energy Capital
Fund III, L.P.; 46,616 Common Shares to EnCap Energy Capital Fund III-B, L.P.;
15,591 Common Shares to BOCP Energy Partners, L.P.; and 22,500 Common Shares to
Energy Capital Investment Company PLC. It is expressly acknowledged by the
parties hereto that the representations, warranties and covenants made in
Articles VII and VIII with respect to the Common Shares issued pursuant to this
Agreement, including without limitation the representations and warranties made
in Sections 8.9 and 8.10, apply to the Common Shares issued pursuant to this
Section 9.3.

         Section 9.4. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case Owner after the Effective Date (a) shall
consolidate with or merge into any other person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other person to consolidate with or merge into Owner and Owner shall be the
continuing or surviving person but, in connection with such consolidation or
merger, the Common Shares shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property, or (c) shall
transfer all or substantially all of its properties or assets to any other
person, or (d) shall effect a capital reorganization or reclassification of the
Common Shares (other than a subdivision or combination of the outstanding Common
Shares into a greater or lesser number of Common Shares), then, and in the case
of each such transaction, proper provision shall be made so that, upon the basis
and the terms and in the manner provided in this Agreement, Investors upon an
Exchange for Common Shares at any time after the


                                      -35-
<PAGE>   40
consummation of such transaction, shall be entitled to receive, in lieu of the
Common Shares issuable upon such Exchange prior to such consummation, the amount
of securities, cash or other property to which Investors would actually have
been entitled as a stockholder upon such consummation if such Exchange had
occurred immediately prior thereto; provided, however, that if the transaction
described in clauses (a) through (d) hereof provides an election to receive
cash, securities or property, Investors shall, within 10 Business Days following
written request from Owner, notify Owner of the election Investors would have
made had they been stockholders of Owner, which notice shall govern the
consideration to be received upon Exchange, and if no such notice is received
within such 10 Business Days, Owner in its discretion may determine the
consideration to which Investors are entitled as if Investors had made any of
such elections. The provisions of this Section 9.4 shall apply mutatis mutandis
to the issuance of Common Shares pursuant to Article VI.

         Section 9.5.        Indemnification.

                    (a) Owner agrees to indemnify and hold harmless, on an after
         tax basis, Investors and their directors, officers, employees, agents,
         partners, shareholders and affiliates from and against any and all
         claims, damages, losses, liabilities, penalties and expenses (including
         without limitation reasonable fees and disbursements of counsel) that
         may be incurred by or asserted against any such person, in each case
         arising out of or in connection with or by reason of any breach of any
         representation, warranty, covenant or agreement of Owner contained in
         this Agreement or any failure of Harken Colombia to take any actions
         specified to be taken by it under, or to otherwise act in accordance
         with the provisions of, this Agreement. The obligations of Owner under
         this Section 9.5(a) shall survive the termination of this Agreement.

                    (b) Each Investor severally agrees to indemnify and hold
         harmless Owner and Harken Colombia and their respective directors,
         officers, employees, agents, partners, shareholders and Affiliates from
         and against any and all claims, damages, losses, liabilities, penalties
         and expenses (including without limitation reasonable fees and
         disbursements of counsel) that may be incurred by or asserted against
         any such person, in each case arising out of or in connection with or
         by reason of any breach of any representation, warranty, covenant or
         agreement of such Investor contained in this Agreement. The obligations
         of Investors under this Section 9.5(b) shall survive the termination of
         this Agreement.

         Section 9.6. Public Announcements. Except as set forth in the following
sentence, the parties to this Agreement agree that prior to making any public
announcement or statement with respect to the transactions contemplated by this
Agreement, the party desiring to make such public announcement or statement
shall consult with the other parties and exercise reasonable efforts to (a)
agree upon the text of a joint public announcement or statement to be made by
all the parties or (b) obtain approval of the other parties to the text of a
public announcement or statement to be


                                      -36-
<PAGE>   41
made solely by Owner or Investors, as the case may be. Nothing contained in this
Section shall be construed to require any party to obtain approval of the other
parties to disclose information with respect to any disclosure (a) required by
applicable Law or by any applicable rules, regulations or orders of any
Governmental Authority having jurisdiction or (b) necessary to comply with
disclosure requirements of any applicable stock exchange.

         Section 9.7. Brokers. Without limiting the parties' respective
representations in Sections 7.5 and 8.2, each party agrees to indemnify and hold
the others harmless from and against any claim for a brokerage or finder's fee
or commission in connection with this Agreement or the transactions contemplated
by this Agreement to the extent such claim arises from or is attributable to the
actions of such indemnifying party.

         Section 9.8. Notices. All notices, requests, demands, consents and
other communications required or permitted to be given or made hereunder shall
be in writing and shall be deemed to have been duly given or made if delivered
personally, or sent by a nationally recognized overnight delivery service or by
telecopy or similar facsimile transmission, or mailed by prepaid registered or
certified mail, return receipt requested, to the other parties at the respective
address set forth below (or to such other address as a party shall designate for
itself by written notice given or made in accordance herewith):

         (a)        if to Owner, at:

                        Harken Energy Corporation
                        MacArthur Center II
                        5605 N. MacArthur Blvd., Suite 400
                        Irving, Texas 75038
                        Telephone: (972)753-6900
                        Telecopy: (972) 753-6963
                        Attention:  Mr. Bruce N. Huff, Senior Vice President and
                                    Mr. Larry E. Cummings, Vice President and
                                            General Counsel



                                      -37-

<PAGE>   42

         (b)        if to Investors, at:

                        c/o EnCap Investments L.C.
                        1100 Louisiana Street
                        Suite 3150
                        Houston, Texas 77002
                        Telecopy: (713) 659-6130
                        Attention: Gary R. Petersen, Managing Director

                    with a copy to:

                        Michael K. Pierce
                        Thompson & Knight, P.C.
                        1700 Texas Commerce Tower
                        600 Travis
                        Houston, Texas 77002
                        Telecopy: (713) 217-2828

         Any such notice, request, demand, consent or other communication shall
be deemed delivered and given or made on the third Business Day after the date
of mailing, if mailed by registered or certified mail, or on the first Business
Day after the date of transmittal, if sent by overnight delivery service or by
telecopy or similar facsimile transmission (provided such telecopy or
transmission is followed promptly by the mailing of the original of such
notice), or on the date of delivery, if delivered personally.

         Section 9.9. Waivers and Amendments. This Agreement may be amended or
supplemented only by a written instrument signed by the parties hereto. The
terms of this Agreement may be waived only by a written instrument signed by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any such right, power or privilege, or
any single or partial exercise of any such right, power or privilege, preclude
any further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity.

         Section 9.10. Governing Law.  This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas,
without regard to the principles of conflicts of laws.

         Section 9.11. Binding Effect; No Assignment; No Third Party Benefit.
This Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. Unless otherwise expressly
provided herein, no rights or obligations under this


                                     -38-
<PAGE>   43
Agreement are assignable. Except as expressly provided in Sections 3.17, 9.3 and
9.5, nothing in this Agreement, whether expressed or implied, is intended to
confer any rights or remedies under or by reason of this Agreement on any person
other than the parties to this Agreement and their respective successors and
permitted assigns.

         Section 9.12. Entire Agreement. This Agreement and the Registration
Rights Agreement constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof, and supersede all previous
oral and written and all contemporaneous oral negotiations, commitments,
writings and understandings.

         Section 9.13. Severability. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is determined to be
invalid, illegal, or unenforceable for any reason whatsoever, such invalidity,
illegality, or unenforceability shall not affect the validity, legality and
enforceability of the remainder of this Agreement.

         Section 9.14. United States Dollars.  All references in this Agreement
to dollar amounts are to United States dollars.

         Section 9.15. Survival of Representations and Warranties.  The
representations and warranties of the parties made herein shall survive the
execution and delivery of this Agreement.

         Section 9.16. Rights as Stockholder. No adjustment shall be made for
dividends on any Common Shares issued upon an Exchange. An Investor shall have
none of the rights of a stockholder of Owner until Common Shares are actually
issued to it.

         Section 9.17. Counterparts. This Agreement may be executed in one or
more counterparts (and separately by each party hereto), each of which shall be
an original and all of which shall constitute but one and the same document.

         Section 9.18. Arbitration. Owner and Investors agree to submit to final
and binding arbitration any and all disputes, claims, and/or disagreements
concerning the interpretation or application of this Agreement or the
Registration Rights Agreement. Any dispute, claim, and/or disagreement subject
to arbitration pursuant to the terms of this Section shall be resolved by
arbitration in Dallas, Texas by three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or any
successor organization (the "Association") then in effect. Within 10 days of the
initiation of an arbitration hereunder, Owner will designate one arbitrator and
Investors will designate one arbitrator, in accordance with the Association's
rules. The appointed arbitrators will appoint a neutral arbitrator in the manner
prescribed in the Association's rules. Owner and Investors agree that the
decision of the three arbitrators selected hereunder will be final and binding
on all parties. A judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction, or application may be made to such
court for judicial acceptance of the award and an order of enforcement, as the
case may be.



                                      -39-

<PAGE>   44
         Section 9.19. Consent to Jurisdiction. Subject to the provisions of
Section 9.18, Owner and Investors agree that, in addition to any other courts
that may have jurisdiction under applicable laws, any action or proceeding to
enforce or arising out of this Agreement or the Registration Rights Agreement
may be commenced in the Court of the State of Texas for Dallas County, or in the
United States District Court for the Northern District of Texas, and Owner and
Investors consent and submit in advance to such jurisdiction and agree that
venue will be proper in such courts on any such matter. Owner and Investors each
hereby waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and shall confer personal jurisdiction if served by registered or
certified mail to it. The choice of forum set forth in this Section shall not be
deemed to preclude the enforcement of any judgment obtained in such forum, or
the taking of any action under this Agreement or the Registration Rights
Agreement to enforce the same, in any appropriate jurisdiction.

         Section 9.20. Guaranty of Owner. Owner agrees to cause Harken Colombia
to take the actions specified to be taken by Harken Colombia under, and to cause
Harken Colombia to otherwise act in accordance with the provisions of, this
Agreement. Furthermore, Owner hereby irrevocably, absolutely and unconditionally
guarantees, as principal and not as surety (this being a guarantee of payment
and not of collection), to and for the benefit of Investors, prompt and complete
payment and performance by Harken Colombia of any and all obligations of or
actions specified to be taken by Harken Colombia under or arising out of or in
connection with this Agreement, including any liabilities arising from a failure
by Harken Colombia to take any actions specified to be taken by it under this
Agreement (the "Obligations"), and agrees to pay any and all expenses (including
reasonable counsel fees and expenses) which may be paid or incurred by Investors
in collecting any or all of the Obligations and/or enforcing their rights under
this Agreement. The obligations of Owner hereunder shall not be (i) subject to
any reduction, limitation, impairment or termination for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not
be subject to any set-off, counterclaim or recoupment whatsoever, or (ii)
conditioned or contingent upon the pursuit by Investors or any other person at
any time of any right or remedy against Harken Colombia or any other person
which may become liable in respect of all or any part of the Obligations or
against any collateral or security or guarantee therefor or right of set-off
with respect thereto. Owner shall not exercise any rights it may acquire by way
of subrogation under this Section, whether acquired by any payment made
hereunder, by any set-off or application of funds of Owner by Investors or
otherwise, until (i) the payment in full of the Obligations and (ii) the payment
of all other expenses to be paid by Owner pursuant hereto.

         Section 9.21. Further Assurances. At any closing of any Exchange
pursuant to Article IV or V, Investors shall execute and deliver to Owner such
acknowledgments of receipt of the Common Shares or cash delivered to Investors
at such closing as may be reasonably requested by Owner to carry out the intent
and purposes of this Agreement.



                                      -40-
<PAGE>   45
         Section 9.22. No Partnership. The parties hereto do not intend by
entering into this Agreement to form a partnership, joint venture or similar
arrangement for tax purposes or otherwise and shall not take any action
inconsistent with the foregoing statement of intent.

         Section 9.23. Expenses. All out-of-pocket fees and expenses (including
legal fees and expenses) incurred by Investors in connection with the
negotiation, preparation and execution of this Agreement and the Registration
Rights Agreement shall be paid or reimbursed to Investors by Owner promptly upon
the submission to Owner of reasonably itemized statements therefor; provided,
however, that Owner shall not be required to pay (whether directly or by
reimbursement) pursuant to this Section 9.23 more than $10,000 in the aggregate.


                                      -41-

<PAGE>   46
         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by the respective officers hereunto duly authorized as of the date
first above written.


                                HARKEN ENERGY CORPORATION

                                By:      /s/ Larry E. Cummings
                                         ------------------------------
                                         Name: Larry E. Cummings
                                         Title: Vice President and Secretary


                                ENCAP ENERGY CAPITAL FUND III, L.P.

                                By:      EnCap Investments L.C., General Partner

                                By:      /s/ Gary R. Petersen
                                         ------------------------------
                                         Name: Gary R. Petersen
                                         Title: Managing Director


                                ENCAP ENERGY CAPITAL FUND III-B, L.P.

                                By:      EnCap Investments L.C., General Partner

                                By:      /s/ Gary R. Petersen
                                         ------------------------------
                                         Name: Gary R. Petersen
                                         Title: Managing Director


                                BOCP ENERGY PARTNERS, L.P.

                                By:      EnCap Investments L.C., Manager

                                By:      /s/ Gary R. Petersen
                                         ------------------------------
                                         Name: Gary R. Petersen
                                         Title: Managing Director

                                ENERGY CAPITAL INVESTMENT COMPANY
                                    PLC

                                By:      /s/ Gary R. Petersen
                                         ------------------------------
                                         Name: Gary R. Petersen
                                         Title: Director


                                      -42-

<PAGE>   47
                                    ANNEX I



                                                             Designated                    Advance
Investor                                                     Percentage                  Commitment
--------                                                     ----------                  ----------
                                                                                    
EnCap Energy Capital Fund III, L.P..................                0.7500%        $    3,750,000.00
EnCap Energy Capital Fund III-B, L.P................                2.1765%        $   10,882,225.00
BOCP Energy Partners, L.P...........................                1.5538%        $    7,769,275.00
Energy Capital Investment Company PLC...............                0.5197%        $    2,598,500.00
                                                         -----------------          ----------------
         Totals.....................................                5.0000%        $   25,000,000.00
                                                         =================         =================