SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C.  20549


Form 8-K
Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934



Date of Report (date of earliest event reported):  August 13, 2001



Mallon Resources Corporation
(exact name of registrant as specified in its charter)


     Colorado                      0-17267              84-1095959
(State or other                 (Commission          (I.R.S. Employer
jurisdiction                     File Number)         Identification No.)
of incorporation)



999 18th Street, Suite 1700, Denver, Colorado           80202
(address of principal executive offices)              (zip code)



Registrant's telephone number, including area code:  (303) 293-2333



not applicable
(former name or former address, if changed since last report)
<PAGE>


Item 5.  Other Events

Mallon Resources Corporation (the "Company") issued the following press
release, dated August 13, 2001, the text of which follows:

    Denver, Colorado -- Mallon Resources Corporation (Nasdaq:  "MLRC") today
announced that it has executed a Purchase and Sale Agreement with Magnum
Hunter Resources, Inc. (AMEX: MHR), for the sale of its Delaware Basin oil and
gas reserves and related assets located in Eddy and Lee Counties of Southeast
New Mexico.  The sale includes Mallon's interest in 23 fields consisting of
141 producing wells and 13,742 net mineral acres.  The total purchase price is
approximately $32.2 million.

    Mallon Resources Corporation is a Denver-based oil and gas exploration and
production company operating primarily in the San Juan and Delaware Basins of
New Mexico. Mallon's Common Stock is quoted on Nasdaq under the symbol "MLRC."

Item 7.  Financial Statements and Exhibits

Exhibit 10.23:  Purchase and Sale Agreement for Delaware Basin Properties


                         PURCHASE AND SALE AGREEMENT


                                   dated


                              August 7, 2001


                                  between


                        MALLON RESOURCES CORPORATION

                                     as

                                   Seller

                                    and

                        MAGNUM HUNTER PRODUCTION, INC.

                                  as Buyer
<PAGE>



TABLE OF CONTENTS
1. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Reserved Assets. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . .3
2. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Adjustments to Purchase Price. . . . . . . . . . . . . . . . . . 3
3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . .5
3.1 Representations and Warranties of Seller. . . . . . . . . . . . .5
3.2 Representations and Warranties of Buyer. . . . . . . . . . . . . 7
4. COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . .8
4.1 Covenants and Agreements of Seller. . . . . . . . . . . . . . . .8
4.2 Covenants and Agreements of Buyer. . . . . . . . . . . . . . . . 9
5. TITLE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 Defensible Title. . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Title Defect Adjustments. . . . . . . . . . . . . . . . . . . . 11
5.3 Preferential Rights and Consents. . . . . . . . . . . . . . . . 12
5.4 Casualty Loss. . . . . . . . . . . . . . . . . . . . . . . . . .12
6. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . .12
6.1 Adverse Environmental Conditions. . . . . . . . . . . . . . . . 13
6.2 Environmental Defect Adjustments. . . . . . . . . . . . . . . . 13
6.3 Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . .13
7. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . .14
7.1 Seller's Conditions. . . . . . . . . . . . . . . . . . . . . . .14
7.2 Buyer's Conditions. . . . . . . . . . . . . . . . . . . . . . . 14
  7.3 Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . 14
8. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
8.1 Date of Closing. . . . . . . . . . . . . . . . . . . . . . . . .15
8.2 Place of Closing. . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Closing Obligations. . . . . . . . . . . . . . . . . . . . . . .15
9. OBLIGATIONS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . .15
9.1 Post-Closing Adjustment Procedure. . . . . . . . . . . . . . . .16
9.2 Files and Records. . . . . . . . . . . . . . . . . . . . . . . .16
  9.3 Additional Covenants of Buyer and Seller . . . . . . . . . . . .16
9.4 Assumption of Obligations. . . . . . . . . . . . . . . . . . . .17
9.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .19
10. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . .20
10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 Liabilities Upon Termination or Breach. . . . . . . . . . . . .20
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.1 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . .21
11.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
11.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.4 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . .22
11.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . .22
11.6 Announcements. . . . . . . . . . . . . . . . . . . . . . . . . 22
11.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 22
  11.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
11.9 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . .24
11.10 Parties in Interest. . . . . . . . . . . . . . . . . . . . . .24
11.11 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . .
Error! Bookmark not defined.
11.12 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . .25
    11.13 Further Assurances . . . . . . . . . . . . . . . . . . . . .26

SCHEDULES AND EXHIBITS

Schedule 1.2(a)     The Wells, Working and Net Revenue Interests and Allocated
                       Values
Schedule 1.2(b)     The Leasehold Estates and Fee Lands
Schedule 1.2(c)     The Equipment
Schedule 2.2(a)(iv) Gas Imbalances
Schedule 3.1(f)     Sales Contracts
Schedule 3.1(g)     Actions and Proceedings
Schedule 3.1(i)     Preferential Rights

Exhibit A           Form of Assignment
Exhibit B           [Reserved]
Exhibit C           Dispute Resolution



                        PURCHASE AND SALE AGREEMENT



    This Purchase and Sale Agreement (the "Agreement"), dated August 7,
2001, is between MALLON RESOURCES CORPORATION, a Colorado corporation, with
offices at 999 18th Street, Suite 1700, Denver, Colorado ("Mallon" or
"Seller") and Magnum Hunter Production, Inc, a Texas corporation with offices
at 600 East Las Colinas Blvd, Suite 1100, Irving, Texas, and or its assignee
(collectively "Buyer").

    In consideration of the mutual promises contained herein, the
benefits to be derived by each Party hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer and Seller agree as follows:

1.  PURCHASE AND SALE

1.1 Purchase and Sale.  Seller agrees to sell and convey and Buyer agrees to
purchase and pay for the Assets (as defined in Section 1.2), subject to the
terms and conditions of this Agreement.

1.2 Assets.  Subject to the reservations set forth in Section 1.3, all of
Seller's, right, title and interest in and to the following shall herein be
called the "Assets":

(a)	The oil and gas wells described in Schedule 1.2(a) hereto and any
other wellbores, plugged or unplugged, shut in, or permanently or
temporarily abandoned that are located on the Leases (the "Wells");

(b)	The leasehold estates created by the oil and gas leases described
in Schedule 1.2(b) INSOFAR AND ONLY INSOFAR as the leases cover the
lands described in Schedule 1.2(b) (the "Leases") together with all
overriding royalty interests, production payments and other payments out
of or measured by the value of oil and gas production from or
attributable to the Leases;

(c)	All of the personal property, fixtures and improvements
appurtenant to the Wells, or the Leases or used or obtained in
connection with the operation of the Wells, or the Leases or with the
production, treatment, sale or disposal of hydrocarbons or water
produced therefrom or attributable thereto, including without
limitation, salt water disposal wells, pipelines, gathering systems and
compression facilities appurtenant to or located upon the Leases (the
"Equipment ");

(d)	The fee mineral interests described in Schedule 1.2(b) INSOFAR AND
ONLY INSOFAR as the fee mineral interests cover the lands described in
Schedule 1.2(b) (the "Fee Lands");

(e)	To the extent transferable, all agreements, product purchase and
sale contracts, surface leases, gas gathering contracts, salt water
disposal leases and wells, processing agreements, compression
agreements, equipment leases, permits, gathering lines, rights-of-way,
easements, licenses, farmouts and farmins, options, orders, pooling,
spacing or consolidation agreements and operating agreements and all
other agreements relating to the Wells, Leases, Hydrocarbons and
Equipment (the "Contracts") including all right, title and interest of
Seller in and to any pools or units which include any part of any Lease
and any production from any such pool or unit, whether such unit or
pooled production comes from wells located on or off a lease;

(f) 	All oil, gas and other hydrocarbons produced from or attributable
to the Leases after the Effective Time ("Hydrocarbons");

(g) To the extent transferable at no cost or liability to Seller, all
seismic licenses, permits and other rights to geological and/or
geophysical data and information directly relating to the Assets, but
not otherwise (the "Seismic Rights");

(h)	The originals (or copies, if the records also relate to Retained
Assets, as defined in Section 1.3 below) of all of Seller's records and
files which relate to any of the Assets, including but not limited to
the following: (i) lease, division order, contract, and land files and
title opinions; (ii) to the extent transferable at no cost to Seller,
geological, seismic and/or geophysical and engineering maps, data and
records; (iii) operations, production, environmental and engineering
records; (iv) facility and well records; (v) accounting, gas and/or oil
imbalance files, well payout files, lease operating statements and
files; and (vi) any other files in the possession of Seller relating to
the Assets and the operation thereof (collectively, the "Records"), save
and except for (A) records that Seller is prohibited from disclosing
under confidentiality agreements with third parties or, (B) except with
respect title opinions, records that are subject to the attorney-client
privilege; and (C) except where prohibited by law or contract, in which
case, copies will be provided;

(i)	All the property, rights, privileges, benefits and appurtenances
in any way belonging to, incidental to, or appertaining to the property,
interests and rights described in Sections 1.2(a) through 1.2(f),
including the Wells, the Leases, the Equipment, the Fee Lands, the
Contracts, the Hydrocarbons, the Seismic Rights, and the Records.
1.3  Reserved Assets.  Seller shall reserve and except from the sale and
conveyance of the Assets in favor of itself, its successors and assigns, the
following (collectively, the "Reserved Assets"):

(a)	All accounts receivable attributable to the Assets that are, in
accordance with generally accepted accounting principles, attributable
to the period prior to the Effective Time;

(b)	All claims and rights relating to overpayments or refunds of
costs, taxes and expenses attributable to periods prior to the Effective
Time, including, without limitation, the right to initiate, prosecute or
participate, at Seller's sole cost and expense, in all audits, audit
claims and tax claims or proceedings relating to or including periods
prior to the Effective Time, regardless of when commenced, arising out
of or under applicable law, operating or product sale agreements or
otherwise, and to recover all costs and expenses claimed or shown by
such audits or proceedings as owing to the owner of the Assets for
periods prior to the Effective Time; and

(c)	All oil, gas and other hydrocarbons and if applicable, other
minerals produced from or attributable to the Leases, Wells, and Fee
Lands prior to the Effective Time and proceeds from the sale thereof.

1.4 Effective Time.  The purchase and sale of the Assets shall be effective as
of July 1, 2001, at 7:00 a.m., at the location of the Assets (the "Effective
Time").

2. PURCHASE PRICE

2.1 Purchase Price.  The purchase price for the Assets shall be $32,200,000
(the "Purchase Price"), subject to adjustment as set forth in Section 2.2, and
payable at Closing in immediately available funds. The term "Preliminary
Purchase Price" shall mean the Purchase Price, adjusted as provided in Section
2.2, using for such adjustments the best information then reasonably
available.  The Purchase Price will be allocated among the Assets as set forth
on Schedule 1.2(a), (which allocations shall be added to Schedule 1.2(a)
within two days after the date hereof) and is payable as follows:

(a)	10% of the Purchase Price representing an earnest money deposit
and payable to Seller by wire transfer 5% upon execution of this
agreement and 5% upon approval of this Agreement by Buyer's Board of
Directors ("Earnest Money"); and

(b)	The balance of the Purchase Price, as adjusted pursuant to Section
2.2, shall be payable to Seller by wire transfer of immediately
available funds at Closing.

2.2 Adjustments to Purchase Price.  The Purchase Price shall be adjusted as
follows:

(a)	The Purchase Price shall be adjusted upward by the following:

(i)	the value of all oil in storage above the pipeline
connection as of the Effective Time and not previously sold by
Seller that is attributable to the Assets, such value to be the
market price in effect as of the Effective Time, less taxes and
gravity adjustments deducted by the purchaser of such oil;

(ii)	the amount of all expenditures; rentals and other charges;
ad valorem, property, production, excise, severance and similar
taxes based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom;
expenses billed under applicable operating agreements and, in the
absence of an operating agreement, expenses of the sort
customarily billed under such agreements, paid by or on behalf of
Seller in connection with the operation of the Assets, to the
extent not provided for in Section 2.2 (a) (iii), that are
attributable to any period or periods of time (or any portion
thereof) after the Effective Time in accordance with generally
accepted accounting principles;

(iii)	an amount equal to all prepaid expenses attributable to the
Assets that are paid by or on behalf of Seller and that are, in
accordance with generally accepted accounting principles,
attributable to the period after the Effective Time, including,
without limitation, prepaid utility charges and prepaid ad
valorem, property, production, severance and similar taxes based
upon or measured by the ownership of property or the production of
hydrocarbons or the receipt of proceeds therefrom;

(iv)	the value of the underproduction of gas attributable to the
Assets as of the Effective Time, such value to be $1.25 per MCF,
less applicable royalties and taxes.  The volume of such
underproduction estimated for purposes of Closing will be set
forth on a Well-by-Well basis on Schedule 2.2(a)(iv) hereto and
subject to final adjustment as set forth in Section 9.1; and


(v)	any other amount agreed upon by Seller and Buyer.

(b)	The Purchase Price shall be adjusted downward by the following:

(i)	proceeds received by Seller attributable to the Assets that
are attributable to the period of time from and after the
Effective Time, in accordance with generally accepted accounting
principles;

(ii)	an amount equal to unpaid ad valorem, property, production,
severance and similar taxes and assessments based upon or measured
by the ownership of the Assets that are attributable to any period
or periods of time (or any portion thereof) occurring prior to the
Effective Time, which amounts shall, to the extent not actually
assessed and subject to final settlement under Section 11.8
hereof, be computed based on such taxes and assessments for the
preceding tax year (such amount to be prorated for the period of
Seller's and Buyer's ownership before and after the Effective
Time);

(iii)	an amount equal to the sum of all adjustments made for Title
Defects and Adverse Environmental Conditions pursuant to Section
5.2 and Section 6.2 respectively;

(iv)	the value of the overproduction of gas attributable to the
Assets as of the Effective Time, such value to be $1.25 per MCF,
less applicable royalties and taxes.  The volume of such
overproduction estimated for Closing purposes will be set forth on
a Well-by-Well basis on Schedule 2.2(a)(iv) hereto and subject to
final adjustment as set forth in Section 9.1; and,
(v)	any other amount agreed upon by Seller and Buyer.

3. REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of Seller.  Seller represents and warrants
as of the date hereof and as of the Closing Date to Buyer as follows:

(a)	Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado, and is duly
qualified to carry on its business in each state where the Assets are
located. Seller is not a non-resident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate (as those terms are
defined in the Internal Revenue Code and in the regulations promulgated
pursuant thereto).

(b)	Seller has all requisite corporate power and authority to carry on
its business as presently conducted, to enter into this Agreement, and
to perform its obligations under this Agreement.  Neither the execution
of this Agreement nor the consummation of the transactions contemplated
herein will violate, or be in conflict with: (i) any provision of its
articles of incorporation or bylaws; or (ii) any provision of any
agreement or instrument to which it is a party or by which it is bound,
noncompliance with which would have a material adverse effect upon any
of the transactions contemplated by this Agreement or, (iii) to its
knowledge, any judgment, decree, order, statute, rule or regulation
applicable to Seller.

(c)	This Agreement has been duly authorized, executed and delivered on
behalf of Seller and constitutes the legal, valid and binding obligation
of Seller, enforceable in accordance with its terms, subject, however,
to the effects of bankruptcy, insolvency, reorganization and other laws
for the protection of creditors.  Seller has been duly authorized to
execute this Agreement and to consummate the transactions contemplated
herein.

(d)	Seller has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by
this Agreement for which Buyer shall have any responsibility whatsoever.

(e)	There are no bankruptcy, reorganization or creditor arrangement
proceedings pending, being contemplated by or, to the knowledge of
Seller, threatened against Seller.

(f)	Except as shown on Schedule 3.1(f) or as otherwise set forth in
this Agreement, Seller is not a party to, and Seller's interest in and
to the Assets is not otherwise bound by, any production sales contracts
that cannot be terminated on notice of 60 days or less.

(g)	Except as described on Schedule 3.1(g) hereto, there is no suit,
action, arbitration proceeding, or legal, administrative or other
proceeding pending or, to the knowledge of Seller, threatened against
Seller that might result in loss of its title to any part of the Assets
or that might hinder or impede the operation of the Leases or the Wells.

(h)	All federal, state and local ad valorem, property, production,
severance and similar taxes and assessments based upon or measured by
the ownership of the Assets or the production  therefrom attributable to
the period through the Effective Time and then due and owing were paid
by such date, except to the extent their validity is being contested in
good faith in the ordinary course of business by appropriate action.

(i)	Except as set forth on Schedule 3.1(i), to Seller's knowledge,
there are no preferential rights held by third parties that affect any
of the Assets.

(j)	To Seller's knowledge, all of the Wells drilled, completed, and
operated by Seller are within the boundaries of the Leases or Assets or
within the limits otherwise permitted by contract, pooling, or unit
agreement, and by law.

(k) To Seller's knowledge and to the extent Seller is the operator, the
Wells are in material compliance with all applicable rules, regulations,
permits, judgments, orders and decrees of any court or the federal and
state regulatory authorities having jurisdiction thereof, excluding,
however, Environmental Laws as the term is defined herein.  Buyer
acknowledges that its sole remedy for any noncompliance with
Environmental Laws is provided in Article 6 herein.

(l) Seller has received no notice of default with respect to the
Leases and any other agreements, contracts or documents related to the
Leases which would have a material adverse effect on the value or the
operations of the Assets and (i) is not aware of any events which with
the giving of notice would cause any such agreement or instrument to be
in default and (ii) all monies and performance due and required under
the terms thereof through the Effective Time shall have been paid and
performed.

(m) To Seller's knowledge (i) there has been no sale or disposition of
Assets, except in the ordinary course of business, (ii) there has been
no waiver of a material right relating to the Assets, except in the
ordinary course of business, (iii) there has been no mortgage, pledge or
grant of a lien or security interest in any of the Assets and (iv) the
sale of the Assets by Seller will not result in the creation or other
imposition of a lien or encumbrance on the Assets.

(n) To Seller's knowledge all operating costs incurred in connection
with the operation of the Assets have been paid or discharged except
normal operating expenses within the past thirty days or as to which
Seller has not been billed.

(o) The Assets will be transferred free and clear of any commodity
price, hedging arrangements, formal sales or similar agreements with
respect to production from the Assets and will not be subject to any
marketing fees to Aquila Energy Capital Corporation or its affiliates.

3.2 Representations of Buyer.  Buyer represents and warrants as of the date
hereof, and as of the Closing Date, to Seller as follows:

(a)	Buyer is a corporation duly organized, validly existing and in
good standing under the laws of its state of organization, and duly
qualified to carry on its business and to own and operate oil and gas
properties in each jurisdiction in which the Assets are located.

(b)	Buyer has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement, to
purchase the Assets on the terms described in this Agreement and to
perform its other obligations under this Agreement.  Neither the
execution of this Agreement nor the consummation of the transactions
contemplated herein will violate, or be in conflict with: (i) any
provision of its articles of incorporation or bylaws; or (ii) any
provision of any agreement or instrument to which it is a party or by
which it is bound, noncompliance with which would have a material
adverse effect upon any of the transactions contemplated by this
Agreement; or, (iii) to its knowledge, any judgment, decree, order,
statute, rule or regulation applicable to Buyer.

(c)	This Agreement has been duly authorized, executed and delivered on
behalf of Buyer and constitutes the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms, subject, however, to
the effects of bankruptcy, insolvency, reorganization and other laws for
the protection of creditors.

(d)	Buyer has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by
this Agreement for which Seller shall have any responsibility
whatsoever.

(e)	Buyer is an experienced oil and gas company and operator.  It has
entered into this Agreement on the basis of its own independent judgment
and analysis. Buyer is in the business of purchasing and owning oil and
gas properties.  The Assets to be acquired by Buyer pursuant to this
Agreement are being acquired by it for its own account for investment
purposes and not for distribution within the meaning of any securities
law.  In acquiring the Assets, Buyer is acting in the conduct of its own
business and not under any specific contractual commitment to any third
party, or any specific nominee agreement with any third party, to
transfer to, or to hold title on behalf of, such third party, with
respect to all or any part of the Assets.

(f)	There are no bankruptcy, reorganization or creditor arrangement
proceedings pending, being contemplated by or, to the knowledge of
Buyer, threatened against Buyer.

(g)	Buyer has currently available, and will have at Closing, all funds
necessary to pay the Purchase Price and any other amounts contemplated
by this Agreement.  Buyer's ability to consummate the transactions
contemplated hereby is not contingent on its ability to complete any
public or private placement of securities prior to or upon Closing.

4. COVENANTS AND AGREEMENTS

4.1 Covenants and Agreements of Seller.  Seller covenants and agrees with Buyer
as follows:

(a)	Upon execution of this Agreement, Seller will make available to
Buyer for examination at a location designated by Seller and during
business hours, Seller's title information, production information and
other information relating to the Assets, including without limitation,
accounting files, production files, land files, lease files, well files,
division order files, contract files and marketing files, to the extent
in each case that Seller may do so without violating legal constraints
or any obligation of confidence or other contractual commitment of
Seller to a third party or the waiving of the attorney-client privilege.

(b)	Prior to the Closing Date, and subject to any necessary third-
party operator approval, Seller shall permit Buyer and its
representatives at reasonable times and at their sole risk, cost and
expense, to conduct reasonable inspections of the Leases; provided,
however, Buyer shall repair any damage to the Leases resulting from such
inspections and Buyer shall indemnify and hold harmless Seller and its
partners, joint interest owners, subsidiaries and affiliates and its and
their respective officers, directors, employees and agents from and
against any and all losses or causes of action arising from Buyer's
inspection of the Leases, including, without limitation, claims for (i)
property damage, (ii) personal injuries or death of employees of the
Buyer, its contractors, agents, consultants and representatives, (iii)
personal injuries or death of employees of Seller, its contractors,
agents, or consultants or representatives; and (iv) personal injuries or
death of third parties.  Buyer shall not indemnify Seller for Seller's
gross negligence or willful misconduct.

(c)	During the period from the date of this Agreement to the Closing
Date, Seller agrees, unless specifically waived by Buyer in writing, as
follows:

(i)	Subject to the provisions of applicable operating and other
agreements, Seller shall continue to operate and administer the
Assets in a good and workmanlike manner consistent with its past
practices, and shall carry on its business with respect to the
Assets in substantially the same manner as before execution of
this Agreement.

(ii)	Seller shall use its reasonable best efforts to provide
copies of all authorizations for expenditure relating to the
Assets to Buyer as soon as received.  Seller shall, except for
emergency action taken in the face of risk to life, property or
the environment, submit to Buyer for prior written approval, which
shall not be unreasonably denied, all requests for capital
expenditures and all proposed contracts and agreements relating to
the Assets that involve individual commitments of more than
$25,000, net to Seller's interest.  In addition, Seller shall not,
without the consent of Buyer, voluntarily incur any liability or
enter into any commitment with respect to the properties which
will cost in excess of $25,000 net to the Seller with respect to
any individual project; cancel any contract associated with the
Assets; or enter into any hedging, forward sales or similar
agreements with respect to production of the oil and gas
properties.  In addition, the standard of care used by Seller in
operating the properties shall be the reasonably prudent operator
standard.

	(iii)	Buyer acknowledges that Seller owns an undivided interest in
certain of the Assets, and Buyer agrees that the acts or omissions
of the other working interest owners who are not affiliated with
Seller shall not constitute a violation of the provisions of this
Section 4.1, nor shall any action required by a vote of working
interest owners constitute such a violation so long as Seller has
voted its interest in a manner that complies with the provisions
of this article.  To the extent that Seller is not the operator of
any of the Assets, the obligations of Seller in this article shall
be construed to require that Seller use reasonable efforts
(without being obligated to incur any expense or institute any
cause of action) to cause the operator of such Asset to take such
actions or render such performance within the constraints of the
applicable operating agreements and other applicable agreements.

(d)	Any unpaid invoices concerning the Assets for the period after the
Effective Time that are held by Seller at the Closing Date, and not
reflected in the adjustments to the Purchase Price made pursuant to
Section 2.2, or that are received by Seller after the Closing Date shall
be delivered to Buyer as soon as reasonably possible for disposition and
payment.

4.2 Covenants and Agreements of Buyer.  Buyer covenants and agrees with Seller
that:

(a)	Buyer shall maintain its corporate status and shall assure that as
of the Closing Date it will not be under any material corporate, legal
or contractual restriction that would prohibit or delay the timely
consummation of the transaction contemplated herein.

(b)	At Closing, Buyer shall, subject to the applicable terms of
existing operating agreements, take over operations of the Wells as of
7:00 a.m. local time at the wellsite on September 1, 2001, or, if the
Closing Date is extended under Section 8.1, the day after the Closing
Date.  Before taking over operations, Buyer will have posted all
necessary state, federal and local bonds and, after taking over
operations, shall assist Seller in having Seller's existing bonds
released, if so requested, or in the alternative, in having the wells
operated by Buyer released from Seller's existing bonds.

(c)	Prior to Closing, Buyer shall furnish to Seller reasonably
acceptable documentation that Buyer is qualified in the jurisdictions in
which the Assets are located to do business and to own and operate the
Assets.

5. TITLE MATTERS

5.1 Defensible Title.

(a)	The term "Defensible Title" shall mean, as to the Assets, such
title, whether held by Seller or by a third party for the benefit of
Seller, except for and subject to the Permitted Encumbrances (as defined
in Section 5.1(b)), that: (i) entitles Seller to receive as to each Well
set forth in Schedule 1.2(a) not less than the Net Revenue Interest set
forth on Schedule 1.2(a) in the oil, gas and associated liquid and
gaseous hydrocarbons produced, saved and marketed from the Well; (ii)
obligates Seller to bear costs and expenses relating to the maintenance,
development and operation of any Well in an amount not greater than the
Working Interest set forth in Schedule 1.2(a) unless there is a
proportionate increase in the Net Revenue Interest; (iii) is free and
clear of liens and material encumbrances and defects, other than the
Permitted Encumbrances; and, (iv) is free and clear of  a provision or
obligation affecting the Assets contained in any contract or agreement
disclosed in Seller's records which is not customary to currently
accepted oil and gas industry standards and (A) requires an
extraordinary expenditure in connection with the acquisition,
exploration, development or operation of the Asset (B) would materially
diminish the Net Revenue Interest, or materially increase the Working
Interest without a corresponding increase in the Net Revenue Interest.

(b)	The term "Permitted Encumbrances", as used herein, shall mean:

(i)	lessors' royalties, overriding royalties, unitization and
pooling designations and agreements, reversionary interests and
similar burdens that do not reduce the net revenue interest to
less than that shown on Schedule 1.2(a);

(ii)	required third party consents to assignments and similar
agreements which are obtained prior to Closing or the lack of
which do not invalidate a Lease or contract, and preferential
rights to purchase;

(iii)	all rights to consent, required notices to, filings with, or
other actions by governmental entities in connection with the sale
or conveyance of oil and gas leases or interests therein if
customarily obtained subsequent to such sale or conveyance;

(iv)	easements and  rights-of-way (including easements for
streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other easements and rights-of-way, on, over or
in respect of any of the Assets), servitudes, permits, surface
leases and other rights with respect to surface operations,
pipelines, grazing, logging, canals, ditches, reservoirs or the
like; conditions, covenants or other restrictions;

(v)	materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges
arising in the ordinary course of business incidental to
construction, maintenance or operation of any of the Assets: (A)
if they have not been filed pursuant to law; (B) if filed, they
have not yet become due and payable and payment is being withheld
as provided by law; or (C) if their validity is being contested in
good faith in the ordinary course of business by appropriate
action;

(vi)	matters disclosed on Schedule 1.2(a) or elsewhere in this
Agreement.

(c)	The term "Title Defect" as used herein shall mean any encumbrance
or defect in Seller's title to the Assets (expressly excluding Permitted
Encumbrances) that renders Seller's title to the Assets less than
Defensible Title.  Also "Title Defect" shall mean those assets of Seller
which it cannot assign to Buyer for legal or contractual reasons. The
term "Allocated Value" as used herein means the value allocated to the
Well as set forth in Schedule 1.2(a) hereto, as adjusted for
overproduction or underproduction in the manner set forth in Section
2.2.

5.2 Title Defect Adjustments.

(a)	No adjustment to the Purchase Price for Title Defects shall be
made unless and until, and only to the extent that, the individual value
of each Title Defect exceeds $25,000 and the aggregate value of all
Title Defects exceeds $250,000.

(b)	Buyer shall give Seller written notice of Title Defects five (5)
business days prior to the Closing Date.  Such notice shall be in
writing and shall include: (i) a description of the Title Defect; (ii)
the Allocated Value of the Well affected by the Title Defect; and (iii)
the amount by which Buyer believes the Allocated Value of such Well has
been reduced because of such Title Defect.  Buyer shall be deemed to
have waived all Title Defects of which Seller has not been given timely
notice and all Title Defects that, individually or in the aggregate, do
not meet the individual requirements for an adjustment to the Purchase
Price set forth in Section 5.2(a).

(c)	Subject to the limitation contained in Section 5.2(a), a Well
affected by a Title Defect and the Leases comprising the production unit
or proration unit for the Well shall be excluded from the Assets to be
purchased by Buyer hereunder and the Purchase Price shall be reduced in
accordance with Section 2.2 by an amount equal to the Allocated Value of
such Well unless, prior to one day before the Closing Date, one of the
following has occurred: (i) the Title Defect has been removed; (ii)
Buyer agrees to waive the relevant Title Defect and purchase the
affected Assets notwithstanding the defect; (iii) Seller agrees to
indemnify Buyer against all losses, costs, expenses and liabilities with
respect to such Title Defect, and if the amount of the Title Defect is
greater than $250,000 it shall be agreed to by the Buyer; or, (iv) Buyer
and Seller agree to an amount by which the Allocated Value of the Well
has been reduced and the Purchase Price is reduced by such amount in
accordance with Section 2.2.

5.3 Preferential Rights and Consents.

(a)	Some of the Leases may be subject to preferential rights to
purchase in favor of third parties or to third party consents to
assignment and notices of sale.  The form and content of all
solicitations for the waivers and consents affecting the Assets shall be
determined by Seller and shall not be inconsistent with any of the terms
of this Agreement.

(b)	In the event a third party exercises an applicable preferential
right to purchase any of the Assets prior to the Closing Date, the
affected Assets shall be removed from this Agreement and the Purchase
Price shall be adjusted by the Allocated Value of the Assets.  If a
preferential right to purchase any portion of the Assets is exercised
after the Closing Date, such affected portion of the Assets shall not be
treated as a Title Defect, and no adjustment shall be made on account of
such exercise.  All Assets that are subject to preferential rights to
purchase that have not been exercised as of such date and time shall be
conveyed to Buyer at the Closing.  If any such preferential right is
exercised after such date and time, Buyer agrees to convey such affected
Assets to the party exercising such right on the same terms and
conditions under which Seller conveyed such Assets to Buyer.  Buyer
shall retain all amounts paid by the party exercising such preferential
right to purchase.  In the event of such exercise, Buyer shall prepare a
form of conveyance of such interest from Buyer to such exercising party,
such conveyance to be in form and substance as provided in this
Agreement, except that such conveyance shall be made free and clear of
all liens, encumbrances, royalty interests, production payments and
other charges or defects created by, through or under Buyer.  Buyer
agrees to hold harmless and indemnify Seller regarding any claims made
by third parties claiming preferential rights subsequent to Closing.

6. ENVIRONMENTAL MATTERS

6.1 Adverse Environmental Conditions

(a)	An Adverse Environmental Condition means any aspect of the Assets
which is not in compliance with applicable Environmental Law.
"Environmental Law" means all laws, statutes, ordinances, rules and
regulations of any governmental authority pertaining to protection of
the environment in effect as of the Effective Time and as interpreted by
court decisions or administrative orders as of the Effective Time in the
jurisdiction in which such Asset is located.  Environmental Law does not
include good or desirable operating practices or standards that may be
employed or adopted by other oil or gas well operators or recommended by
a governmental authority.

(b)	Buyer shall give Seller written notice of Adverse Environmental
Conditions five (5) business days prior to the Closing Date.  Such
notice shall be in writing and shall include: (i) a description of the
Adverse Environmental Conditions; (ii) the Allocated Value of the Well
affected by the Adverse Environmental Conditions; and (iii) the amount
which Buyer estimates will be needed to place the Adverse Environmental
Conditions into compliance with applicable Environmental Law.

(c)	Buyer shall be deemed to have waived all Adverse Environmental
Conditions of which Seller has not been given timely notice hereunder
and all Adverse Environmental Conditions that do not meet the individual
requirements for an adjustment to the Purchase Price set forth in
Section 6.2.

6.2 Remedies for Adverse Environmental Conditions.  Before Closing, with
respect to each Adverse Environmental Condition as to which proper notice has
been given, Seller and Buyer may agree: (a) on an adjustment to the Purchase
Price which adjustment shall reflect the cost to remedy such Adverse
Environmental Condition; (b) to remediate the condition at Seller's cost; or,
(c) to remove that Well from the Assets being conveyed and reduce the Purchase
Price by the Allocated Value of the removed Well.  If the parties cannot agree
on a course of action, option (c) above shall apply.  If Seller and Buyer
agree to an adjustment to the Purchase Price pursuant to (a) above, said
adjustment shall not reflect any costs to remediate to a more stringent
remediation standard than is required by Environmental Laws.  No adjustment to
the Purchase Price for Adverse Environmental Conditions shall be made unless
and until and only to the extent that the remediation cost for each Adverse
Environmental Condition exceeds $25,000 and the aggregate value of the
remediation cost for all Adverse Environmental Conditions exceeds $250,000.

6.3  PRIVATE  Limitations tc  \n "6.03	Limitations" .  THIS ARTICLE 6 SHALL
BE THE SOLE AND EXCLUSIVE REMEDY THAT BUYER SHALL HAVE AGAINST SELLER WITH
RESPECT TO ANY MATTER OR CIRCUMSTANCE OR LIABILITY RELATING TO ADVERSE
ENVIRONMENTAL CONDITIONS, ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO
THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR HEALTH.

7. CONDITIONS TO CLOSING

7.1 Seller's Conditions.  The obligations of Seller at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions:

(a)	All representations and warranties of Buyer contained in this
Agreement shall be true in all material respects at and as of the
Closing as if such representations and warranties were made at and as of
the Closing, and Buyer shall have performed and satisfied all material
agreements in all material respects required by this Agreement to be
performed and satisfied by Buyer at or prior to the Closing.

(b)	Buyer's Board of Directors shall have approved execution of this
Agreement on or before August 10, 2001, at 2:00 p.m.

7.2	Buyer's Conditions.  The obligations of Buyer at the Closing are subject
to the satisfaction at or prior to the Closing of the following condition:

(a)	All representations of Seller contained in this Agreement shall be
true in all material respects at and as of the Closing as if such
representations were made at and as of the Closing, and Seller shall
have performed and satisfied all material agreements in all material
respects required by this Agreement to be performed and satisfied by
Seller at or prior to the Closing.

(b)	Buyer's Board of Directors shall have approved execution of this
Agreement on or before August 10, 2001, at 2:00 p.m.

7.3 	Mutual Conditions. The obligations of Buyer and Seller at the Closing
are subject to the satisfaction at or prior to the Closing of the following
conditions:

(a)	No suit or proceeding brought by a party other than Buyer or
Seller shall be pending, nor shall any order shall have been entered by
any court or governmental agency having jurisdiction over the parties or
the subject matter of this contract that restrains or prohibits the
purchase and sale contemplated by this Agreement and which remains in
effect at the time of such Closing; and,

(b)	The aggregate sum of Title Defect adjustments and Adverse
Environmental Conditions adjustments shall not exceed 15% of the
Purchase Price.

8. CLOSING

8.1 Date of Closing.  Unless the parties agree otherwise in writing and subject
to the conditions stated in this Agreement, the consummation of the
transactions contemplated hereby (the "Closing") shall be held on or before
August 31, 2001 (the "Closing Date"), provided that either Seller or Buyer
shall have the right to extend the Closing Date for up to 15 days.

8.2 Place of Closing.  The Closing shall be held at the offices of Seller in
Denver, Colorado.

8.3 Closing Obligations.  At the Closing, the following events shall occur,
each being a condition precedent to the others and each being deemed to have
occurred simultaneously with the others:

(a)	Seller and Buyer shall execute, acknowledge and deliver an
assignment, bill of sale and conveyance (in sufficient counterparts to
facilitate recording) in substantially the form of Exhibit A hereto
conveying to Buyer the Assets (which form shall be attached hereto
within 2 days after the date of this Agreement);

(b)	Seller and Buyer shall execute and deliver a settlement statement,
prepared by Seller in accordance with this Agreement and generally
accepted accounting principles (the "Preliminary Settlement Statement")
that shall set forth the Preliminary Purchase Price and each adjustment
and the calculation of such adjustments used to determine such amount
pursuant to Section 2.2.  Seller shall provide Buyer with the
Preliminary Settlement Statement three days prior to Closing for Buyer's
review and approval;

(c)	Buyer shall deliver to Seller the Preliminary Purchase Price by
direct bank or wire transfer in immediately available federal funds;

(d)	Seller and Buyer shall execute, acknowledge and deliver transfer
orders or letters in lieu thereof directing all purchasers of production
to make payment to Buyer of proceeds attributable to production from the
Assets assigned to Buyer pursuant to the terms of this Agreement;

(e)	To the extent reasonable and customary in the industry, Seller
shall prepare notices to third-party operators of the change in
ownership of the Assets from Seller to Buyer and of the change in
operatorship for those Seller-operated Wells for which Buyer or its
affiliate Gruy Petroleum Management Co. has taken over operations.

(f)	Buyer and Seller shall execute change of operator forms as
required by the various state and/or federal regulatory agencies for the
Wells operated by Seller.

9. OBLIGATIONS AFTER CLOSING

9.1 Post-Closing Adjustment Procedure.

(a)	Seller shall use reasonable efforts to prepare and deliver to
Buyer, as soon as practicable but no later than 90 days after the
Closing Date, in accordance with this Agreement and generally accepted
accounting principles, a statement (the "Final Settlement Statement")
setting forth each adjustment or payment that was not finally determined
as of the Closing Date and showing the calculation of such adjustments,
including, but not limited to, an amount equal to all cash in, or
attributable to, suspense accounts relative to the Assets and held by
Seller.  Within fifteen days after receipt of the Final Settlement
Statement, Buyer shall deliver to Seller a written report containing any
changes that Buyer proposes be made to the Final Settlement Statement.
The parties shall undertake to agree with respect to the amounts due
pursuant to such post-closing adjustment no later than fifteen days
after Seller has received Buyer's proposed changes.  The date upon which
such agreement is reached or upon which the "Final Purchase Price" is
established, shall be called the "Final Settlement Date."  If the Final
Purchase Price is more than the Preliminary Purchase Price, Buyer shall
pay in immediately available federal funds the amount of such difference
to Seller or to Seller's account (as designated by Seller).  If the
Final Purchase Price is less than the Preliminary Purchase Price, Seller
shall pay in immediately available federal funds the amount of such
difference to Buyer or to Buyer's account (as designated by Buyer).
Payment by Buyer or Seller shall be made within five days after the
Final Settlement Date.

(b)	The parties will use their best efforts to update to the Effective
Time the volume amounts listed on Schedule 2.2(a)(iv) within 60 days
from the Closing Date.  If the gas imbalance of a Well indicated on
Schedule 2.2(a)(iv) changes or additional Wells are added as a result of
this update, the parties will make the appropriate adjustments on the
Final Settlement Statement based on a value of $1.25 per MCF, less
applicable royalties and taxes, to reflect the updated imbalance volume
and the resulting balancing value for the Well.  If Seller and a third
party operator disagree as to the amount of any imbalance, Buyer and
Seller shall mutually agree to an amount.  If a Well is deleted from the
transaction pursuant to some other provision of this Agreement, the Well
shall also be deleted from any adjustments pursuant to this section.
After the Final Settlement Date, there shall be no further adjustment
made as to gas imbalances on any of the Wells.

9.2 Files and Records.  Within thirty days after the Closing Date, Seller
shall furnish to Buyer originals of all of Seller's Records and Seismic Rights
relating to the Assets, (other than division order files, which will be
delivered at the earlier of 60 days following Closing or the time when Seller
ceases disbursing revenues), but excluding any records or data that cannot be
transferred because of prior contractual restrictions or confidentiality
restrictions or without waiving attorney-client privilege or disclosing
attorney work product.

(a)	Seller shall furnish originals of paper files to the extent they
are maintained in the normal course of business, and if all right, title and
interest in the property is conveyed. If only a portion of the property is
conveyed, copies of the original files will be made available to Buyer.  If
any related file information is maintained as imaged documents, this data will
be delivered to Buyer on CD format for Buyer to print the documents or load to
an imaging system.

(b)	Seller, at its sole cost, shall have the right to make copies of
all files and records delivered to Buyer.   Buyer shall retain and make
available to Seller for five full calendar years following the Closing Date,
in Buyer's office during normal business hours, files and records relating to
the Assets; any assignment by Buyer of the Assets shall be made subject to
this requirement.  Seller shall have the right to copy, at its own expense,
the files and records relating to the Assets before delivering them to Buyer.
However, records kept by Buyer may be maintained on compact discs and thus
Seller's access to such records may be limited to that medium.

9.3 Additional Covenants of Buyer and Seller.

[RESERVED]

9.4	Assumption of Obligations. Following Closing hereunder,

 	(a)	SELLER EXPRESSLY RETAINS RESPONSIBILITY FOR AND AGREES TO
PAY, PERFORM, FULFILL AND DISCHARGE ALL CLAIMS, COSTS, EXPENSES,
LIABILITIES AND OBLIGATIONS ACCRUING OR RELATING TO THE FOLLOWING
COLLECTIVELY, THE "RETAINED LIABILITES":

 		(i) THE EXISTING LITIGATION AND CLAIMS DISCLOSED ON SCHEDULE
3.1(g), INSOFAR AND ONLY INSOFAR AS SUCH LITIGATION AND CLAIMS
RELATE TO THE ASSETS AND TO PERIODS DURING SELLER'S OWNERSHIP OF
THE ASSETS PRIOR TO THE EFFECTIVE TIME;

 		(ii) AD VALOREM, PROPERTY, SEVERANCE, OR OTHER TAXES ON OR
MEASURED BY OWNERSHIP OF THE ASSETS OR PRODUCTION THEREFROM WHICH
ARE ATTRIBUTABLE TO PERIODS DURING SELLER'S OWNERSHIP OF THE
ASSETS PRIOR TO THE EFFECTIVE TIME; AND

 		(iii)  THIRD PARTY CLAIMS RELATING TO THE MISPAYMENT OF
ROYALTIES ON PRODUCTION FROM THE ASSETS DURING SELLER'S OWNERSHIP
OF THE ASSETS PRIOR TO THE EFFECTIVE TIME.

 	(iv)  ALL LIABILITIES, DUTIES AND OBLIGATIONS THAT ARISE
FROM THE OWNERSHIP OR OPERATION OF THE ASSETS PRIOR TO THE
EFFECTIVE DATE OTHER THAN THOSE EXPRESSLY ASSUMED BY BUYER
PURSUANT TO SECTION 6.

(b)	EXCEPT FOR THE RETAINED LIABILITIES, BUYER EXPRESSLY AGREES TO
ASSUME RESPONSIBILITY FOR AND AGREES TO PAY, PERFORM, FULFILL AND
DISCHARGE ALL CLAIMS, COSTS, EXPENSES, LIABILITIES AND OBLIGATIONS
ACCRUING OR RELATING TO THE OWNING, DEVELOPING, EXPLORING, OPERATING AND
MAINTAINING OF THE ASSETS, WHETHER RELATING TO PERIODS BEFORE OR AFTER
THE EFFECTIVE TIME, INCLUDING, WITHOUT LIMITATION, ALL ADVERSE
ENVIRONMENTAL CONDITIONS, WHETHER OCCURING BEFORE OR AFTER THE EFFECTIVE
TIME, REGARDLESS OF THE NEGLIGENCE OR STRICT LIABILITY OF SELLER.

(c)	BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY
EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, RELATING TO THE CONDITION OF ANY REAL OR IMMOVABLE PROPERTY,
PERSONAL OR MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND
FIXTURES CONSTITUTING PART OF THE ASSETS INCLUDING, WITHOUT LIMITATION:

(i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY;

(ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE;

(iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS;

(iv) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE;

(v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM
REDHIBITORY VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER
KNOWN OR UNKNOWN;

(vi) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT
OR TRADEMARK INFRINGEMENT;

(vii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT
INCLUDING NATURALLY OCCURING RADIOACTIVE MATERIAL, OR PROTECTION
OF THE ENVIRONMENT OR HEALTH.

IT IS THE EXPRESS INTENTION OF BUYER AND SELLER THAT THE REAL OR
IMMOVABLE PROPERTY, PERSONAL OR MOVABLE PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY AND FIXTURES SHALL BE CONVEYED TO BUYER AS IS AND IN THEIR
PRESENT CONDITION AND STATE OF REPAIR.  BUYER REPRESENTS TO SELLER THAT
BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO THE
REAL OR IMMOVABLE PROPERTY, PERSONAL OR MOVABLE PROPERTY, EQUIPMENT,
INVENTORY, MACHINERY AND FIXTURES AS BUYER DEEMS APPROPRIATE AND BUYER
WILL ACCEPT THE REAL OR IMMOVABLE PROPERTY, PERSONAL OR MOVABLE
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS IS, IN THEIR
PRESENT CONDITION AND STATE OF REPAIR.

BUYER HEREBY RELEASES AND DISCHARGES ANY AND ALL CLAIMS AT LAW OR
IN EQUITY, KNOWN OR UNKNOWN, WHETHER NOW EXISTING OR ARISING IN THE
FUTURE, CONTINGENT OR OTHERWISE, AGAINST SELLER WITH RESPECT TO ANY
ADVERSE ENVIRONMENTAL CONDITIONS, INCLUDING, BUT NOT LIMITED TO, MATTERS
OR CIRCUMSTANCES RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF
MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR
HEALTH. BUYER EXPRESSLY AGREES TO ASSUME THE RISK THAT THE ASSETS MAY
CONTAIN WASTE MATERIALS, INCLUDING NATURALLY OCCURRING RADIOACTIVE
MATERIALS, HYDROCARBONS, HAZARDOUS WASTES, HAZARDOUS MATERIALS OR
HAZARDOUS SUBSTANCES, AND THAT ADVERSE PHYSICAL CONDITIONS, INCLUDING,
BUT NOT LIMITED TO, THE PRESENCE OF UNKNOWN ABANDONED OIL AND GAS WELLS,
WATER WELLS, SUMPS AND PIPELINES MAY NOT HAVE BEEN REVEALED BY BUYER'S
INVESTIGATION.

(d)	SELLER HEREBY EXPRESSLY NEGATES AND DISCLAIMS, AND BUYER HEREBY
WAIVES AND ACKNOWLEDGES THAT SELLER HAS NOT MADE, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, RELATING TO:

(i) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY INFORMATION,
DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYER BY OR ON
BEHALF OF SELLER; OR

(ii) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES,
GEOLOGICAL OR GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY,
QUANTITY, RECOVERABILITY OR COST OF RECOVERY OF ANY HYDROCARBON
RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, OR THE ABILITY TO SELL OR
MARKET ANY HYDROCARBONS AFTER CLOSING.

(e)	The responsibility for payment of amounts held in suspense by
Seller for periods prior to the Final Settlement Date as to any of the
Assets (such as suspended royalties held in the ordinary course of
business as a result of title defects or changes of ownership) and the
funds so held shall be transferred to Buyer at the Final Settlement
Date.  Any such items accruing to suspense on account of production from
and after the Effective Time shall be the responsibility of Buyer. From
and after the Final Settlement Date, Buyer shall assume all
responsibility for such accounts and shall indemnify and hold Seller
harmless from any claim or liability with respect thereto.

9.5	Indemnification.  From and after the Closing Date, Buyer and Seller
shall indemnify each other as follows:

(a)	SELLER SHALL DEFEND, INDEMNIFY, RELEASE AND HOLD HARMLESS BUYER,
ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, AGAINST ALL LOSSES,
DAMAGES, CLAIMS, DEMANDS, SUITS, COSTS, EXPENSES, LIABILITIES AND
SANCTIONS OF EVERY KIND AND CHARACTER, INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES, COURT COSTS AND COSTS OF INVESTIGATION,
WHICH ARISE FROM OR IN CONNECTION WITH (i) THE RETAINED LIABILITIES; OR
(ii) ANY BREACH BY SELLER OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT ANY
CLAIMS FOR INDEMNIFICATION UNDER THIS SECTION 9.5(a) MUST BE ASSERTED
WITHIN TWO (2) YEARS AFTER CLOSING AND ANY CLAIMS NOT ASSERTED WITHIN
SUCH PERIOD SHALL BE DEEMED WAIVED.

(b)	BUYER SHALL DEFEND, INDEMNIFY, RELEASE AND HOLD HARMLESS SELLER
AGAINST ALL LOSSES, DAMAGES, CLAIMS, DEMANDS, SUITS, COSTS, EXPENSES,
LIABILITIES AND SANCTIONS OF EVERY KIND AND CHARACTER, INCLUDING WITHOUT
LIMITATION REASONABLE ATTORNEYS' FEES, COURT COSTS AND COSTS OF
INVESTIGATION, WHICH ARISE FROM OR IN CONNECTION WITH (i) ANY OF THE
CLAIMS, COSTS, EXPENSES, LIABILITIES AND OBLIGATIONS ASSUMED BY BUYER
PURSUANT TO SECTION 9.2, OR (ii) ANY BREACH BY BUYER OF THIS AGREEMENT.

10. TERMINATION OF AGREEMENT

10.1 Termination.  This Agreement and the transactions contemplated hereby
may be terminated in the following instances:

(a)	By Seller if any of the conditions set forth in Section 7.1 are
not satisfied in all material respects or waived as of the Closing Date;

(b)	By Buyer if any of the conditions set forth in Section 7.2 are not
satisfied in all material respects or waived as of the Closing Date;

(c)	By Buyer or Seller if any of the conditions set forth in Section
7.3 are not satisfied or waived as of the Closing Date; or

(d)	At any time by the mutual written agreement of Buyer and Seller.

10.2 Liabilities Upon Termination or Breach.

(a)	In the event of the termination of this Agreement by Seller in
accordance with Section 10.1(a) or 10.1(c), Seller shall have no
liability hereunder of any nature whatsoever to Buyer, including any
liability for damages.  If Buyer terminates this Agreement in accordance
with Section 10.1(b) or 10.1(c) above, it shall have no liability
hereunder of any nature whatsoever to the Seller including any liability
for damages.

(b)	Except as provided above in this Section 10.2, nothing contained
herein shall be construed to limit Seller's or Buyer's legal or
equitable remedies in the event of breach of this Agreement.

(c)	If Seller terminates this agreement pursuant to Section 10.1(a),
Seller shall retain the Earnest Money with all interest earned thereon
and Buyer shall have no further liability hereunder of any nature
whatsoever to the Seller including any liability for damages.  If this
Agreement is terminated by Buyer pursuant to Section 10.1(b) by either
Buyer or Seller pursuant to Section 10.1(c) or by Buyer and Seller
pursuant to Section 10.1(d), then Seller shall return the Earnest Money,
with all interest earned thereon, to Buyer at the time of termination.

11. MISCELLANEOUS

11.1 Schedules and Exhibits.  The Schedules and Exhibits listed below are
hereby incorporated in this Agreement by reference and constitute a part of
this Agreement.

Schedule 1.2(a)	The Wells, Working and Net Revenue Interests and
Allocated Values
Schedule 1.2(b)		The Leasehold Estates and Fee Lands
Schedule 2.2(a)(iv)		Gas Imbalances
Schedule 3.1(f)		Sales Contracts
Schedule 3.1(g)		Actions and Proceedings
Schedule 3.1(i)		Preferential Rights

Exhibit A			Form of Assignment
Exhibit B			[Reserved]
Exhibit C			Dispute Resolution

11.2 Expenses.  All fees, costs and expenses incurred by Buyer or Seller in
negotiating this Agreement or in consummating the transactions contemplated by
this Agreement shall be paid by the Party incurring the same, including,
without limitation, legal and accounting fees, costs and expenses.

11.3 Notices.  All notices and communications required or permitted under
this Agreement shall be in writing and any communication or delivery hereunder
shall be deemed to have been duly made when personally delivered to the
individual indicated below, or if mailed, when received by the Party charged
with such notice and addressed as follows:

    If to Seller:

            MALLON RESOURCES CORPORATION
            999 18th Street, Suite 1700
            Denver, Colorado 80202
            Attention:  George O. Mallon, Jr.
                        President
            Telephone:  303-293-2333
            Fax:        303-293-3601

    If to Buyer:

            Magnum Hunter Resources, Inc.
            600 E. Las Colinas Boulevard, Suite 1100
            Irving, Texas  75039
            Telephone:  972-401-0752
            Fax:        972-401-3110

            Attention:  Morgan F. Johnston
                        Vice President, General Counsel and Secretary


    With a copy to:  Magnum Hunter Resources, Inc.
                     600 E. Las Colinas Boulevard, Suite 1100
                     Irving, Texas  75039
                     Telephone:  972-401-0752
                     Fax:        972-401-3110

                     Attention:  Gary C. Evans
                                 President and Chief Executive Officer

Any Party may, by written notice so delivered to the other Party, change the
address or individual to which delivery shall thereafter be made.

11.4 Amendments.  This Agreement may not be amended nor any rights hereunder
waived except by an instrument in writing signed by the Party to be charged
with such amendment or waiver and delivered by such Party to the Party
claiming the benefit of such amendment or waiver.

11.5 Assignment.  Neither Party may assign all or any portion of its rights
or delegate all or any portion of its duties hereunder unless it continues to
remain liable for the performance of its obligations hereunder and obtains the
prior written consent of the other Party, which consent shall not be
unreasonably withheld.

11.6 Announcements.  Seller and Buyer shall consult with each other with
regard to all press releases and other announcements issued after the date of
this Agreement concerning this Agreement or the transactions contemplated
hereby and, except as may be required by applicable laws or the applicable
rules and regulations of any governmental agency or stock exchange, neither
Buyer nor Seller shall issue any such press release or other publicity without
the prior written consent of the other Party, which consent shall not be
unreasonably withheld.

11.7 Governing Law.  This Agreement and the transactions contemplated hereby
shall be construed in accordance with, and governed by, the laws of the State
of New Mexico, without giving effect to its conflicts of law provisions.

11.8 Taxes.

(a)	Like-Kind Exchange.  Seller may desire to exchange for other
property of like-kind and qualifying use within the meaning of Section 1031 of
the Internal Revenue Code of 1986 (the "Code"), as amended and the Regulations
promulgated thereunder, the Assets which are the subject of this Agreement.
In order to effect such an exchange, Seller expressly reserves the right to
assign its rights, but not its obligations, hereunder to a Qualified
Intermediary as provided in Treasury Regulation Section 1.1031(k)-1(g)(4) on
or before the Closing Date, and Buyer hereby agrees to recognize any such
assignment.  Notwithstanding any other provision of this Agreement, such an
assignment shall not require prior written consent from the Buyer.  Buyer
shall not be obligated to pay any additional costs or incur any additional
obligations in their acquisition of the Assets which are the subject of this
Agreement, and Seller shall indemnify and hold Buyer harmless from and against
all claims, expenses, losses and liabilities, if any, resulting from Buyer's
participation in such an exchange.

(b)	Real and Personal Equipment Taxes.  All ad valorem taxes, real
property taxes and personal property taxes for the year in which the Effective
Time occurs shall be apportioned as of the Effective Time ("Real and Personal
Equipment Taxes") between Seller and Buyer.  Seller shall be liable for the
portion of such Real and Personal Equipment Taxes based upon the number of
days in the year occurring prior to the Effective Time, and Buyer shall be
liable for the portion of such taxes based upon the number of days in the year
occurring on and after the Effective Time.  For any year in which an
apportionment is required, Buyer shall file all required reports and returns
incident to these taxes assessed for the year in which the Effective Time
occurs that are not paid by Seller as of the Closing Date.  Seller shall pay
to Buyer, at the time of Buyer's remittance, Seller's share of such taxes to
the extent such amounts were not credited to Buyer in calculating adjustments
in the Purchase Price in Section 2.2.

(c)	Sales and Other Transfer Taxes.  The Purchase Price does not
include any sales taxes or other transfer taxes imposed in connection with the
sale of the Assets.  Buyer shall pay any sales tax or other transfer tax, as
well as any applicable conveyance, transfer and recording fee, and real estate
transfer stamps or taxes imposed on the transfer of the Assets pursuant to the
Agreement.  If Buyer is of the opinion that it is exempt from the payment of
any such sales tax or other transfer tax, Buyer shall furnish to Seller the
appropriate tax exemption certificate.  	If Buyer is able to pay such taxes
directly to the appropriate authority, it shall have the right to do so.

(d)	Tax Proceedings.  In the event Buyer receives notice of any
examination, claim, adjustment or other proceeding relating to the liability
for taxes of or with respect to Seller for any period Seller is or may be
liable, Buyer shall notify Seller in writing within 30 days of receiving
notice thereof.  As to any such taxes for which Seller is or may be liable,
Seller shall, at Seller's expense, control or settle the contest of such
examination, claim, adjustment, or other proceeding, and shall indemnify Buyer
against all losses, damages, costs, expenses, liabilities, claims, demands,
penalties, fines, assessments, settlements, and any related expenses in
connection therewith.  In the event Seller receives notice of any examination,
claim, adjustment or other proceeding relating to the liability for taxes of
or with respect to Buyer for any period Buyer is or may be liable, Seller
shall notify Buyer in writing within 30 days of receiving notice thereof.  As
to any such taxes for which Buyer is or may be liable, Buyer shall, at Buyer's
expense, control or settle the contest of such examination, claim, adjustment,
or other proceeding, and shall indemnify Seller against all losses, damages,
costs, expenses, liabilities, claims, demands, penalties, fines, assessments,
settlements, and any related expenses in connection therewith.  The Parties
shall cooperate with each other and with their respective affiliates in the
negotiations and settlement of any proceeding described in this Section 11.8.
Each Party shall provide, or cause to be provided, to the other Party
necessary authorizations, including powers of attorney, to control any
proceeding which such Party is entitled to control.

(e)	Purchase Price Allocation.  The allocation of the Purchase Price
in accordance with Schedule 1.2(a) is intended to comply with the allocation
method required by Section 1060 of the Code.  Buyer and Seller shall cooperate
to comply with all substantive and procedural requirements of Section 1060 and
Regulations thereunder, including without limitation the filing by Buyer and
Seller of IRS Form 8594 with their federal income tax returns for the taxable
year in which the Closing occurs.  Buyer and Seller agree that each will not
take for income tax purposes, or permit any affiliate to take, any position
inconsistent with the allocation of the Purchase Price.

11.9 Entire Agreement.  This Agreement (including the Exhibits and Schedules
hereto) constitutes the entire understanding among the Parties with respect to
the subject matter hereof, superseding all negotiations, prior discussions and
prior agreements and understandings relating to such subject matter.

11.10 Parties in Interest.  This Agreement shall be binding upon, and shall
inure to the benefit of, the Parties hereto, and their respective successors
and assigns, and nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights or
remedies.

11.11 THE REPRESENTATIONS AND WARRANTIES PROVIDED FOR IN THIS AGREEMENT SHALL
SURVIVE THE CLOSING FOR TWELVE MONTHS ONLY.  EXCEPT AS EXPRESSLY LIMITED BY
THIS AGREEMENT, THE REMAINDER OF THIS AGREEMENT, INCLUDING ALL COVENANTS AND
INDEMNITIES HEREIN, SHALL SURVIVE WITHOUT LIMITATION. AND SHALL NOT BE
EXTINGUISHED BY THE DOCTRINE OF MERGER BY DEED OR ANY SIMILAR DOCTRINE.  NO
WAIVER, RELEASE, OR FORBEARANCE OF THE APPLICATION OF THE PROVISIONS OF A
PARAGRAPH IN ANY GIVEN CIRCUMSTANCE SHALL OPERATE AS A WAIVER, RELEASE, OR
FORBEARANCE OF THE PROVISIONS OF THE PARAGRAPH AS TO ANY OTHER CIRCUMSTANCE.

11.12 Arbitration.    Any disputes arising out of or in connection with this
Agreement or the application, implementation, validity, breach or termination
of this Agreement shall be finally and exclusively resolved by arbitration in
Denver, Colorado pursuant to the dispute resolution provisions contained in
Exhibit C.  Notwithstanding the above, in the event a third party brings an
action against Buyer or Seller concerning this Agreement or the Assets or
transactions contemplated herein, Buyer and Seller shall not be subject to
mandatory arbitration under this section and Buyer or Seller shall each be
entitled to assert their respective claims, if any, against each other in such
third party action.

11.13 Further Assurances.  After Closing, Seller and Buyer shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered
such instruments, and shall take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
document, certificate or other instrument delivered pursuant hereto.



     Executed as of the date first above mentioned.

                                          SELLER:

                                          MALLON RESOURCES CORPORATION

                                          _______________________________
                                          By:  George O. Mallon Jr.,
                                               President


                                          BUYER:

                                          MAGNUM HUNTER PRODUCTION, INC


                                          _______________________________
                                          By:  Gary C. Evans
                                               Chief Executive Officer
<PAGE>








EXHIBIT C

                                DISPUTE RESOLUTION

	 	Covered Dispute.  Any and all disputes concerning or arising out
of the Agreement to which this Exhibit is attached ("Arbitrable Dispute(s)")
shall be resolved in accordance with the terms contained in this Exhibit.

	 	Settlement Discussions.  If a dispute, claim or controversy arises
between the Parties to this Agreement which is an Arbitrable Dispute, a Party
may provide the other Party with written notice requesting prompt resolution
of the Arbitrable Dispute ("Settlement Notice").  For the purpose of the
provisions of this Appendix, the Party issuing the Settlement Notice (or the
Arbitration Notice under Section 3 below) shall be referred to herein as the
?Claimant,? and the Party receiving the Settlement Notice (or the Arbitration
Notice) shall be referred to herein as the ?Respondent?.  Within ten days
after the Claimant delivers the Settlement Notice, the Parties (by and through
a business representative having express authority to resolve the Arbitrable
Dispute and, if desirable, an attorney) shall meet and attempt in good faith
to resolve the Arbitrable Dispute.  If the parties are unable to resolve the
Arbitrable Dispute within fifteen days after the Claimant delivers the
Settlement Notice, the Parties shall be deemed (unless otherwise agreed by the
parties) to be at an impasse.  Any and all discussions which occur in
accordance with this Appendix shall be treated by the Parties as confidential
in nature, and shall, for the purpose of the U. S. Federal Rules of Evidence
(Rule 408) and any state counterpart, be deemed to be an offer of compromise.

	 	Dispute Resolution.  Unless the Parties mutually agree otherwise,
if the Parties are unable for any reason to resolve the Arbitrable Dispute in
accordance with Section 2 above and are deemed to have reached an impasse, the
Claimant may, within fifteen days after the date the Parties are deemed to
have reached an impasse, serve a notice on the Respondent requesting the
Arbitrable Dispute be submitted to binding arbitration in accordance with the
provisions set forth below (?Arbitration Notice?), or elect not to pursue such
Arbitrable Dispute at such time.

	 	Arbitration Procedures.  Within fifteen days after the Claimant
gives the Arbitration Notice, the Claimant shall submit the Arbitrable Dispute
to arbitration in accordance with the terms of this Appendix and the then
current American Arbitration Association ("AAA") Rules for Arbitration of
Commercial Disputes ("AAA Rules").  The arbitration shall be governed by the
Federal Arbitration Act, 9 U.S.C. Section 1 et seq. (?Federal Arbitration
Act?).  Judgment upon the award rendered by the arbitrator(s) may be entered
by any court having jurisdiction thereof.  If there is a conflict between the
provisions of this Appendix and the AAA Rules and/or the Federal Arbitration
Act, the provisions of this Appendix shall control the rights and obligations
of the Parties.

	 	Appointment of Arbitrator(s). One neutral arbitrator will decide
the Arbitrable Dispute, provided, however that either Party may, upon written
notice given contemporaneously with such Party's delivery of the Arbitration
Notice, or within three (3) business days after such Party's receipt of an
Arbitration Notice, as the case may be, elect to submit the Arbitrable Dispute
to a panel of three (3) arbitrators.

6.(a) Selection of arbitrator(s).  If the Arbitrable Dispute is
submitted to a single arbitrator, the arbitrator shall be selected as follows:

		(i)	Within ten days after the Arbitrable Dispute is submitted to
arbitration, the Claimant shall submit to the Respondent a written list
of five neutral arbitrators, which list shall contain for each proposed
arbitrator such arbitrator's address, educational background, employment
history, qualifications, areas of expertise, competence regarding the
dispute matter, arbitration experience and prior relationship to any
Party including acting as arbitrator or judge in a matter involving a
Party.  Within thirty days after receipt of the list of arbitrators, the
Respondent shall select one arbitrator from the list, provided that the
Respondent shall not be required to select an arbitrator from the list
if the Respondent, in its sole opinion, determines that none of the
arbitrators submitted for consideration is acceptable.  If the
Respondent determines that none of the arbitrators submitted for
consideration is acceptable, it shall notify the Claimant of such
determination in writing within the thirty day selection period, and
shall provide the Claimant with a list of five additional neutral
arbitrators (containing the same information referenced above).  Within
thirty days after receipt of Respondent's list of arbitrators, the
Claimant shall select one arbitrator from the list, provided that the
Claimant shall not be required to select an arbitrator from the list if
the Claimant, in its sole opinion, determines that none of the
arbitrators submitted for consideration is acceptable.

		(ii)	If within such thirty days the Claimant does not select one
of the proposed arbitrators submitted for consideration by the
Respondent, either Party may request AAA to provide a list of five
qualified neutral arbitrators within ten days after such request and,
within fifteen days after receipt of the AAA list, Claimant and
Respondent shall each strike two names from the list and the person
whose name remains unstricken shall be the arbitrator (if more than one
name remains unstricken, the first name on the list, by alphabetical
order, shall be the arbitrator).

		If either Party elects a panel of three (3) arbitrators, the
arbitrators shall be selected as follows:  Within ten days after the
sending and receipt of the Arbitration Notice, each Party shall specify
(by notice to the other) the name and address of an arbitrator appointed
by it.  At the end of such ten days, if one party has made a
specification of its appointed arbitrator but has not received notice of
a similar specification by the other party, then the party which has
made a specification shall give notice to the other party that it has
not received a specification from the other party.  If the other party
does not act to specify its arbitrator within an additional seven days
after the giving of such notice, the party who has made its
specification may appoint the second arbitrator in place of the party
who has failed to do so.  Within fifteen days after the first two
arbitrators have been appointed, they shall select the third arbitrator.
If a third arbitrator has not been selected within such period, either
party hereto may petition the Chief Judge of the United Sates District
Court for the District of Colorado, to appoint such third arbitrator,
whereupon such judge (or any person designated by such judge to make
such appointment) may make such appointment unless the first two
arbitrators have come to agreement on the third arbitrator.

		(b)	The compensation and expenses of the arbitrator(s) shall be
borne and paid equally by the Claimant and Respondent.

		(c)	The arbitrator(s), may employ any technical or other
expertise which he determines is necessary to resolve the dispute.

		(d)	No arbitrator(s) submitted for consideration and/or selected
shall be a present or former employee, contractor, attorney or agent of
any Party  or their respective Affiliates.

	7.	Representation.  Claimant and Respondent may be represented in the
arbitration by legal counsel or other technical or professional persons.

	8.	Pre-hearing Procedures.

		 	Unless the Parties agree otherwise, a preliminary conference
with the arbitrator will be held thirty days after selection of the
arbitrator, to assist the arbitrator in establishing procedures, setting
the hearing date (which shall be the earliest date which is reasonable
under the circumstances) and for other purposes necessary for the
efficient and expedient disposition of the proceedings.

		 	The Parties intend that there be a good faith exchange of
relevant information (written and documentary), without duplicating the
costly, time-consuming and burdensome procedures available in civil
litigation.  The Parties will promptly (if and as designated by the
arbitrator) designate and exchange the names and addressed of all
witnesses who may be called at the arbitration hearing; a brief
statement of the expected testimony of each witness; and lists and
copies of exhibits that may be presented at the hearing.  A witness may
be designated as a fact witness, an expert witness, or both.

		 	Each Party may submit to the other Party one set of requests
for production of relevant documents, one set of interrogatories
containing not more than fifteen questions (including subparts)
soliciting relevant information, and one set of requests for admission
containing not more than ten requests (which shall be deemed admitted if
not denied).  The arbitrator shall set the time period in which the
parties must respond to the requests for production, interrogatories and
requests for admission.  Each Party may depose up to three individuals.
The time limit for each deposition will be eight hours.  The arbitrator
may allow additional time if he deems it appropriate.  Each deposition
will be held at a location convenient for the deponent.  The arbitrator
may subpoena persons designated as witnesses, representatives of the
Parties, and persons with information relevant to the dispute to appear
for oral deposition.

		 	The arbitrator will establish a procedure to resolve
discovery disputes and rule on dispositive motions promptly and
efficiently.  The procedure may include presenting motions by letter, as
opposed to formal pleadings, and resolution by telephone conferences.

		 	The arbitrator may impose sanctions that he deems
appropriate (including, but not limited to, awarding costs and
attorneys' fees) for a Party's failure to identify witnesses and the
substance of their testimonies, to provide copies of exhibits, or to
respond timely and in good faith to discover requests.  The arbitrator
may extend any deadline in the interest of fairness.

		 	At least twenty days before the hearing, the Parties will
attempt to jointly prepare and file with the arbitrator an agreed pre-
hearing statement setting out the disputed issues to be decided by the
arbitration, a statement of agreed facts, the identity of witnesses, a
list of exhibits that will be used, and copies of the documents
concerning the disputed issues that the parties agree should be provided
to the arbitrator.  If not provided on a joint basis each Party shall
submit its own pre-hearing statement.

		 	If requested by the arbitrator, each Party will submit a
pre-hearing brief.  The Claimant's brief will be due twenty days before
the arbitration hearing, and the Respondent's brief will be due ten days
before the hearing.

	9.	Hearing.

		(a)	The arbitration hearing will be held in Denver, Colorado, at
a location designated by the arbitrator.

		(b)	The hearing will begin no later than thirty days after the
preliminary hearing.  The maximum length of the hearing shall not be
more than five consecutive business days.  Each Party will have one-half
of the scheduled hearing time for its case including direct, redirect,
and rebuttal testimony, cross-examination of the opposing Parties'
witnesses, and opening and closing statements.  The arbitrator will
preside at the hearing.  The hearing will be conducted as if it were an
informal court trial.  The arbitrator may subpoena persons designated as
witnesses, representatives of the Parties, and persons with information
relevant to the dispute to appear at the arbitration hearing.  Time
related to the arbitrator's actions under the preceding sentence shall
not be charged against the time limitations of either Party.

		(c)	The arbitrator will be guided by common sense and justice in
allowing evidence to be presented.  No federal or state rule relating to
the order of proof, the conduct of the hearing, or the presentation and
admissibility of evidence will be applicable in the arbitration hearing,
except that the arbitrator shall recognize and apply the attorney-client
privilege and the work-product doctrine during pre-hearing discovery and
at the hearing.

		(d)	The arbitrator will declare the hearing closed after the
Parties have presented their evidence and made their closing arguments.
The time limit within which the arbitrator is required to make his
decision will begin on the date the hearing closes.  Unless expressly
requested by the arbitrator, no briefs or other documents may be
submitted by any party after the arbitration hearing concludes.

		(e)	The arbitrator's expenses associated with conducting the
hearing shall be borne and paid equally by Claimant and Respondent, and
other expenses shall be handled in accordance with Section 13 below.

	10.	Award and Enforcement.

(a)	Unless the Parties agree otherwise, the arbitrator will
decide each Arbitrable Dispute within thirty days after the date the
hearing closes, based on applicable law, the testimony, documents and
other materials the parties submit before and during the arbitration
hearing.  The decision of the arbitrator and reasons for the award shall
be within the bounds set by the contentions of the Parties.  The decision
of the arbitrator shall be in writing, including findings of fact and
conclusions of law.

		(b)	Except as provided below, the decision of the arbitrator
shall be final and binding on the Parties and nonappealable.

		(c)	The arbitrator may award such damages and other relief as he
determines to be appropriate, provided that any applicable waivers of
exemplary, punitive, special or consequential damages that are contained
in an applicable agreement of the Parties shall be respected by the
arbitrator.

		(d)	Judgment may be entered on the award, and the award may be
judicially enforced.  The award is final and binding, and no appeal from
the award may be taken on the grounds of error in the application of the
law or the findings of fact.

		(e)	The arbitrator shall have the power to grant temporary or
permanent injunctive or other equitable relief in order to prevent
irreparable harm.  Before an arbitrator is appointed, a Party may,
notwithstanding any other provision of this Agreement, seek temporary
injunctive relief from any court of competent jurisdiction; provided
however, the Party seeking such relief shall (if arbitration has not
already been commenced) simultaneously initiate dispute resolution
procedures in accordance with this Appendix.  Such court ordered relief
shall not continue more than thirty days after arbitrator is appointed.

11.	Extension of Time.  The arbitrator may modify any time period or
any pre-hearing procedure provided in these arbitration provisions for good
cause.

	12.	Law.  The substantive law (including time bars) applicable to all
Arbitrable Disputes shall be the law of the State of Colorado. without regard
to the choice of law rules of Colorado or any other jurisdiction.

	13.	Costs and Expenses.  Absent an arbitrator's award to the contrary,
each Party shall bear its own costs, expenses and attorneys' fees; provided
however, if court proceedings to stay litigation or compel arbitration are
necessary, the unsuccessful Party in such proceedings shall pay all reasonable
expenses and attorneys' fees incurred in connection with such proceedings.

	14.	Statutes of Limitations.  All statutes of limitations and defenses
based upon passage of time applicable to any Arbitrable Dispute (including any
counterclaim or set-off) shall be tolled beginning on the date the Arbitration
Notice is given and while the arbitration is pending.

                                     Signatures

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

                                     Mallon Resources Corporation


August 15, 2001                      _________________________________
                                      Roy K. Ross, Executive Vice President


31
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SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C.  20549

Form 8-K
Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934

Date of Report (date of earliest event reported):  August 13, 2001

Mallon Resources Corporation
(exact name of registrant as specified in its charter)

     Colorado                      0-17267              84-1095959
(State or other                 (Commission          (I.R.S. Employer
jurisdiction                     File Number)         Identification No.)
of incorporation)

999 18th Street, Suite 1700, Denver, Colorado           80202
(address of principal executive offices)              (zip code)

Registrant's telephone number, including area code:  (303) 293-2333

not applicable
(former name or former address, if changed since last report)
Item 5.  Other Events

Mallon Resources Corporation (the "Company") issued the following press
release, dated August 13, 2001, the text of which follows:

    Denver, Colorado -- Mallon Resources Corporation (Nasdaq:  "MLRC") today
announced that it has executed a Purchase and Sale Agreement with Magnum
Hunter Resources, Inc. (AMEX: MHR), for the sale of its Delaware Basin oil and
gas reserves and related assets located in Eddy and Lee Counties of Southeast
New Mexico.  The sale includes Mallon's interest in 23 fields consisting of
141 producing wells and 13,742 net mineral acres.  The total purchase price is
approximately $32.2 million.

    Mallon Resources Corporation is a Denver-based oil and gas exploration and
production company operating primarily in the San Juan and Delaware Basins of
New Mexico. Mallon's Common Stock is quoted on Nasdaq under the symbol "MLRC."

Item 7.  Financial Statements and Exhibits

Exhibit 10.23:  Purchase and Sale Agreement for Delaware Basin Properties

                         PURCHASE AND SALE AGREEMENT

                                   dated

                              August 7, 2001

                                  between

                        MALLON RESOURCES CORPORATION

                                     as

                                   Seller

                                    and

                        MAGNUM HUNTER PRODUCTION, INC.

                                  as Buyer
TABLE OF CONTENTS
1. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Reserved Assets. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . .3
2. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Adjustments to Purchase Price. . . . . . . . . . . . . . . . . . 3
3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . .5
3.1 Representations and Warranties of Seller. . . . . . . . . . . . .5
3.2 Representations and Warranties of Buyer. . . . . . . . . . . . . 7
4. COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . .8
4.1 Covenants and Agreements of Seller. . . . . . . . . . . . . . . .8
4.2 Covenants and Agreements of Buyer. . . . . . . . . . . . . . . . 9
5. TITLE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 Defensible Title. . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Title Defect Adjustments. . . . . . . . . . . . . . . . . . . . 11
5.3 Preferential Rights and Consents. . . . . . . . . . . . . . . . 12
5.4 Casualty Loss. . . . . . . . . . . . . . . . . . . . . . . . . .12
6. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . .12
6.1 Adverse Environmental Conditions. . . . . . . . . . . . . . . . 13
6.2 Environmental Defect Adjustments. . . . . . . . . . . . . . . . 13
6.3 Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . .13
7. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . .14
7.1 Seller's Conditions. . . . . . . . . . . . . . . . . . . . . . .14
7.2 Buyer's Conditions. . . . . . . . . . . . . . . . . . . . . . . 14
  7.3 Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . 14
8. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
8.1 Date of Closing. . . . . . . . . . . . . . . . . . . . . . . . .15
8.2 Place of Closing. . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Closing Obligations. . . . . . . . . . . . . . . . . . . . . . .15
9. OBLIGATIONS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . .15
9.1 Post-Closing Adjustment Procedure. . . . . . . . . . . . . . . .16
9.2 Files and Records. . . . . . . . . . . . . . . . . . . . . . . .16
  9.3 Additional Covenants of Buyer and Seller . . . . . . . . . . . .16
9.4 Assumption of Obligations. . . . . . . . . . . . . . . . . . . .17
9.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .19
10. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . .20
10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 Liabilities Upon Termination or Breach. . . . . . . . . . . . .20
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.1 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . .21
11.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
11.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.4 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . .22
11.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . .22
11.6 Announcements. . . . . . . . . . . . . . . . . . . . . . . . . 22
11.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 22
  11.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
11.9 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . .24
11.10 Parties in Interest. . . . . . . . . . . . . . . . . . . . . .24
11.11 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . .
Error! Bookmark not defined.
11.12 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . .25
    11.13 Further Assurances . . . . . . . . . . . . . . . . . . . . .26

SCHEDULES AND EXHIBITS

Schedule 1.2(a)     The Wells, Working and Net Revenue Interests and Allocated
                       Values
Schedule 1.2(b)     The Leasehold Estates and Fee Lands
Schedule 1.2(c)     The Equipment
Schedule 2.2(a)(iv) Gas Imbalances
Schedule 3.1(f)     Sales Contracts
Schedule 3.1(g)     Actions and Proceedings
Schedule 3.1(i)     Preferential Rights

Exhibit A           Form of Assignment
Exhibit B           [Reserved]
Exhibit C           Dispute Resolution

                        PURCHASE AND SALE AGREEMENT

    This Purchase and Sale Agreement (the "Agreement"), dated August 7,
2001, is between MALLON RESOURCES CORPORATION, a Colorado corporation, with
offices at 999 18th Street, Suite 1700, Denver, Colorado ("Mallon" or
"Seller") and Magnum Hunter Production, Inc, a Texas corporation with offices
at 600 East Las Colinas Blvd, Suite 1100, Irving, Texas, and or its assignee
(collectively "Buyer").

    In consideration of the mutual promises contained herein, the
benefits to be derived by each Party hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer and Seller agree as follows:

1.  PURCHASE AND SALE

1.1 Purchase and Sale.  Seller agrees to sell and convey and Buyer agrees to
purchase and pay for the Assets (as defined in Section 1.2), subject to the
terms and conditions of this Agreement.

1.2 Assets.  Subject to the reservations set forth in Section 1.3, all of
Seller's, right, title and interest in and to the following shall herein be
called the "Assets":

(a)	The oil and gas wells described in Schedule 1.2(a) hereto and any
other wellbores, plugged or unplugged, shut in, or permanently or
temporarily abandoned that are located on the Leases (the "Wells");

(b)	The leasehold estates created by the oil and gas leases described
in Schedule 1.2(b) INSOFAR AND ONLY INSOFAR as the leases cover the
lands described in Schedule 1.2(b) (the "Leases") together with all
overriding royalty interests, production payments and other payments out
of or measured by the value of oil and gas production from or
attributable to the Leases;

(c)	All of the personal property, fixtures and improvements
appurtenant to the Wells, or the Leases or used or obtained in
connection with the operation of the Wells, or the Leases or with the
production, treatment, sale or disposal of hydrocarbons or water
produced therefrom or attributable thereto, including without
limitation, salt water disposal wells, pipelines, gathering systems and
compression facilities appurtenant to or located upon the Leases (the
"Equipment ");

(d)	The fee mineral interests described in Schedule 1.2(b) INSOFAR AND
ONLY INSOFAR as the fee mineral interests cover the lands described in
Schedule 1.2(b) (the "Fee Lands");

(e)	To the extent transferable, all agreements, product purchase and
sale contracts, surface leases, gas gathering contracts, salt water
disposal leases and wells, processing agreements, compression
agreements, equipment leases, permits, gathering lines, rights-of-way,
easements, licenses, farmouts and farmins, options, orders, pooling,
spacing or consolidation agreements and operating agreements and all
other agreements relating to the Wells, Leases, Hydrocarbons and
Equipment (the "Contracts") including all right, title and interest of
Seller in and to any pools or units which include any part of any Lease
and any production from any such pool or unit, whether such unit or
pooled production comes from wells located on or off a lease;

(f) 	All oil, gas and other hydrocarbons produced from or attributable
to the Leases after the Effective Time ("Hydrocarbons");

(g) To the extent transferable at no cost or liability to Seller, all
seismic licenses, permits and other rights to geological and/or
geophysical data and information directly relating to the Assets, but
not otherwise (the "Seismic Rights");

(h)	The originals (or copies, if the records also relate to Retained
Assets, as defined in Section 1.3 below) of all of Seller's records and
files which relate to any of the Assets, including but not limited to
the following: (i) lease, division order, contract, and land files and
title opinions; (ii) to the extent transferable at no cost to Seller,
geological, seismic and/or geophysical and engineering maps, data and
records; (iii) operations, production, environmental and engineering
records; (iv) facility and well records; (v) accounting, gas and/or oil
imbalance files, well payout files, lease operating statements and
files; and (vi) any other files in the possession of Seller relating to
the Assets and the operation thereof (collectively, the "Records"), save
and except for (A) records that Seller is prohibited from disclosing
under confidentiality agreements with third parties or, (B) except with
respect title opinions, records that are subject to the attorney-client
privilege; and (C) except where prohibited by law or contract, in which
case, copies will be provided;

(i)	All the property, rights, privileges, benefits and appurtenances
in any way belonging to, incidental to, or appertaining to the property,
interests and rights described in Sections 1.2(a) through 1.2(f),
including the Wells, the Leases, the Equipment, the Fee Lands, the
Contracts, the Hydrocarbons, the Seismic Rights, and the Records.
1.3  Reserved Assets.  Seller shall reserve and except from the sale and
conveyance of the Assets in favor of itself, its successors and assigns, the
following (collectively, the "Reserved Assets"):

(a)	All accounts receivable attributable to the Assets that are, in
accordance with generally accepted accounting principles, attributable
to the period prior to the Effective Time;

(b)	All claims and rights relating to overpayments or refunds of
costs, taxes and expenses attributable to periods prior to the Effective
Time, including, without limitation, the right to initiate, prosecute or
participate, at Seller's sole cost and expense, in all audits, audit
claims and tax claims or proceedings relating to or including periods
prior to the Effective Time, regardless of when commenced, arising out
of or under applicable law, operating or product sale agreements or
otherwise, and to recover all costs and expenses claimed or shown by
such audits or proceedings as owing to the owner of the Assets for
periods prior to the Effective Time; and

(c)	All oil, gas and other hydrocarbons and if applicable, other
minerals produced from or attributable to the Leases, Wells, and Fee
Lands prior to the Effective Time and proceeds from the sale thereof.

1.4 Effective Time.  The purchase and sale of the Assets shall be effective as
of July 1, 2001, at 7:00 a.m., at the location of the Assets (the "Effective
Time").

2. PURCHASE PRICE

2.1 Purchase Price.  The purchase price for the Assets shall be $32,200,000
(the "Purchase Price"), subject to adjustment as set forth in Section 2.2, and
payable at Closing in immediately available funds. The term "Preliminary
Purchase Price" shall mean the Purchase Price, adjusted as provided in Section
2.2, using for such adjustments the best information then reasonably
available.  The Purchase Price will be allocated among the Assets as set forth
on Schedule 1.2(a), (which allocations shall be added to Schedule 1.2(a)
within two days after the date hereof) and is payable as follows:

(a)	10% of the Purchase Price representing an earnest money deposit
and payable to Seller by wire transfer 5% upon execution of this
agreement and 5% upon approval of this Agreement by Buyer's Board of
Directors ("Earnest Money"); and

(b)	The balance of the Purchase Price, as adjusted pursuant to Section
2.2, shall be payable to Seller by wire transfer of immediately
available funds at Closing.

2.2 Adjustments to Purchase Price.  The Purchase Price shall be adjusted as
follows:

(a)	The Purchase Price shall be adjusted upward by the following:

(i)	the value of all oil in storage above the pipeline
connection as of the Effective Time and not previously sold by
Seller that is attributable to the Assets, such value to be the
market price in effect as of the Effective Time, less taxes and
gravity adjustments deducted by the purchaser of such oil;

(ii)	the amount of all expenditures; rentals and other charges;
ad valorem, property, production, excise, severance and similar
taxes based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom;
expenses billed under applicable operating agreements and, in the
absence of an operating agreement, expenses of the sort
customarily billed under such agreements, paid by or on behalf of
Seller in connection with the operation of the Assets, to the
extent not provided for in Section 2.2 (a) (iii), that are
attributable to any period or periods of time (or any portion
thereof) after the Effective Time in accordance with generally
accepted accounting principles;

(iii)	an amount equal to all prepaid expenses attributable to the
Assets that are paid by or on behalf of Seller and that are, in
accordance with generally accepted accounting principles,
attributable to the period after the Effective Time, including,
without limitation, prepaid utility charges and prepaid ad
valorem, property, production, severance and similar taxes based
upon or measured by the ownership of property or the production of
hydrocarbons or the receipt of proceeds therefrom;

(iv)	the value of the underproduction of gas attributable to the
Assets as of the Effective Time, such value to be $1.25 per MCF,
less applicable royalties and taxes.  The volume of such
underproduction estimated for purposes of Closing will be set
forth on a Well-by-Well basis on Schedule 2.2(a)(iv) hereto and
subject to final adjustment as set forth in Section 9.1; and

(v)	any other amount agreed upon by Seller and Buyer.

(b)	The Purchase Price shall be adjusted downward by the following:

(i)	proceeds received by Seller attributable to the Assets that
are attributable to the period of time from and after the
Effective Time, in accordance with generally accepted accounting
principles;

(ii)	an amount equal to unpaid ad valorem, property, production,
severance and similar taxes and assessments based upon or measured
by the ownership of the Assets that are attributable to any period
or periods of time (or any portion thereof) occurring prior to the
Effective Time, which amounts shall, to the extent not actually
assessed and subject to final settlement under Section 11.8
hereof, be computed based on such taxes and assessments for the
preceding tax year (such amount to be prorated for the period of
Seller's and Buyer's ownership before and after the Effective
Time);

(iii)	an amount equal to the sum of all adjustments made for Title
Defects and Adverse Environmental Conditions pursuant to Section
5.2 and Section 6.2 respectively;

(iv)	the value of the overproduction of gas attributable to the
Assets as of the Effective Time, such value to be $1.25 per MCF,
less applicable royalties and taxes.  The volume of such
overproduction estimated for Closing purposes will be set forth on
a Well-by-Well basis on Schedule 2.2(a)(iv) hereto and subject to
final adjustment as set forth in Section 9.1; and,
(v)	any other amount agreed upon by Seller and Buyer.

3. REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of Seller.  Seller represents and warrants
as of the date hereof and as of the Closing Date to Buyer as follows:

(a)	Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado, and is duly
qualified to carry on its business in each state where the Assets are
located. Seller is not a non-resident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate (as those terms are
defined in the Internal Revenue Code and in the regulations promulgated
pursuant thereto).

(b)	Seller has all requisite corporate power and authority to carry on
its business as presently conducted, to enter into this Agreement, and
to perform its obligations under this Agreement.  Neither the execution
of this Agreement nor the consummation of the transactions contemplated
herein will violate, or be in conflict with: (i) any provision of its
articles of incorporation or bylaws; or (ii) any provision of any
agreement or instrument to which it is a party or by which it is bound,
noncompliance with which would have a material adverse effect upon any
of the transactions contemplated by this Agreement or, (iii) to its
knowledge, any judgment, decree, order, statute, rule or regulation
applicable to Seller.

(c)	This Agreement has been duly authorized, executed and delivered on
behalf of Seller and constitutes the legal, valid and binding obligation
of Seller, enforceable in accordance with its terms, subject, however,
to the effects of bankruptcy, insolvency, reorganization and other laws
for the protection of creditors.  Seller has been duly authorized to
execute this Agreement and to consummate the transactions contemplated
herein.

(d)	Seller has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by
this Agreement for which Buyer shall have any responsibility whatsoever.

(e)	There are no bankruptcy, reorganization or creditor arrangement
proceedings pending, being contemplated by or, to the knowledge of
Seller, threatened against Seller.

(f)	Except as shown on Schedule 3.1(f) or as otherwise set forth in
this Agreement, Seller is not a party to, and Seller's interest in and
to the Assets is not otherwise bound by, any production sales contracts
that cannot be terminated on notice of 60 days or less.

(g)	Except as described on Schedule 3.1(g) hereto, there is no suit,
action, arbitration proceeding, or legal, administrative or other
proceeding pending or, to the knowledge of Seller, threatened against
Seller that might result in loss of its title to any part of the Assets
or that might hinder or impede the operation of the Leases or the Wells.

(h)	All federal, state and local ad valorem, property, production,
severance and similar taxes and assessments based upon or measured by
the ownership of the Assets or the production  therefrom attributable to
the period through the Effective Time and then due and owing were paid
by such date, except to the extent their validity is being contested in
good faith in the ordinary course of business by appropriate action.

(i)	Except as set forth on Schedule 3.1(i), to Seller's knowledge,
there are no preferential rights held by third parties that affect any
of the Assets.

(j)	To Seller's knowledge, all of the Wells drilled, completed, and
operated by Seller are within the boundaries of the Leases or Assets or
within the limits otherwise permitted by contract, pooling, or unit
agreement, and by law.

(k) To Seller's knowledge and to the extent Seller is the operator, the
Wells are in material compliance with all applicable rules, regulations,
permits, judgments, orders and decrees of any court or the federal and
state regulatory authorities having jurisdiction thereof, excluding,
however, Environmental Laws as the term is defined herein.  Buyer
acknowledges that its sole remedy for any noncompliance with
Environmental Laws is provided in Article 6 herein.

(l) Seller has received no notice of default with respect to the
Leases and any other agreements, contracts or documents related to the
Leases which would have a material adverse effect on the value or the
operations of the Assets and (i) is not aware of any events which with
the giving of notice would cause any such agreement or instrument to be
in default and (ii) all monies and performance due and required under
the terms thereof through the Effective Time shall have been paid and
performed.

(m) To Seller's knowledge (i) there has been no sale or disposition of
Assets, except in the ordinary course of business, (ii) there has been
no waiver of a material right relating to the Assets, except in the
ordinary course of business, (iii) there has been no mortgage, pledge or
grant of a lien or security interest in any of the Assets and (iv) the
sale of the Assets by Seller will not result in the creation or other
imposition of a lien or encumbrance on the Assets.

(n) To Seller's knowledge all operating costs incurred in connection
with the operation of the Assets have been paid or discharged except
normal operating expenses within the past thirty days or as to which
Seller has not been billed.

(o) The Assets will be transferred free and clear of any commodity
price, hedging arrangements, formal sales or similar agreements with
respect to production from the Assets and will not be subject to any
marketing fees to Aquila Energy Capital Corporation or its affiliates.

3.2 Representations of Buyer.  Buyer represents and warrants as of the date
hereof, and as of the Closing Date, to Seller as follows:

(a)	Buyer is a corporation duly organized, validly existing and in
good standing under the laws of its state of organization, and duly
qualified to carry on its business and to own and operate oil and gas
properties in each jurisdiction in which the Assets are located.

(b)	Buyer has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement, to
purchase the Assets on the terms described in this Agreement and to
perform its other obligations under this Agreement.  Neither the
execution of this Agreement nor the consummation of the transactions
contemplated herein will violate, or be in conflict with: (i) any
provision of its articles of incorporation or bylaws; or (ii) any
provision of any agreement or instrument to which it is a party or by
which it is bound, noncompliance with which would have a material
adverse effect upon any of the transactions contemplated by this
Agreement; or, (iii) to its knowledge, any judgment, decree, order,
statute, rule or regulation applicable to Buyer.

(c)	This Agreement has been duly authorized, executed and delivered on
behalf of Buyer and constitutes the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms, subject, however, to
the effects of bankruptcy, insolvency, reorganization and other laws for
the protection of creditors.

(d)	Buyer has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by
this Agreement for which Seller shall have any responsibility
whatsoever.

(e)	Buyer is an experienced oil and gas company and operator.  It has
entered into this Agreement on the basis of its own independent judgment
and analysis. Buyer is in the business of purchasing and owning oil and
gas properties.  The Assets to be acquired by Buyer pursuant to this
Agreement are being acquired by it for its own account for investment
purposes and not for distribution within the meaning of any securities
law.  In acquiring the Assets, Buyer is acting in the conduct of its own
business and not under any specific contractual commitment to any third
party, or any specific nominee agreement with any third party, to
transfer to, or to hold title on behalf of, such third party, with
respect to all or any part of the Assets.

(f)	There are no bankruptcy, reorganization or creditor arrangement
proceedings pending, being contemplated by or, to the knowledge of
Buyer, threatened against Buyer.

(g)	Buyer has currently available, and will have at Closing, all funds
necessary to pay the Purchase Price and any other amounts contemplated
by this Agreement.  Buyer's ability to consummate the transactions
contemplated hereby is not contingent on its ability to complete any
public or private placement of securities prior to or upon Closing.

4. COVENANTS AND AGREEMENTS

4.1 Covenants and Agreements of Seller.  Seller covenants and agrees with Buyer
as follows:

(a)	Upon execution of this Agreement, Seller will make available to
Buyer for examination at a location designated by Seller and during
business hours, Seller's title information, production information and
other information relating to the Assets, including without limitation,
accounting files, production files, land files, lease files, well files,
division order files, contract files and marketing files, to the extent
in each case that Seller may do so without violating legal constraints
or any obligation of confidence or other contractual commitment of
Seller to a third party or the waiving of the attorney-client privilege.

(b)	Prior to the Closing Date, and subject to any necessary third-
party operator approval, Seller shall permit Buyer and its
representatives at reasonable times and at their sole risk, cost and
expense, to conduct reasonable inspections of the Leases; provided,
however, Buyer shall repair any damage to the Leases resulting from such
inspections and Buyer shall indemnify and hold harmless Seller and its
partners, joint interest owners, subsidiaries and affiliates and its and
their respective officers, directors, employees and agents from and
against any and all losses or causes of action arising from Buyer's
inspection of the Leases, including, without limitation, claims for (i)
property damage, (ii) personal injuries or death of employees of the
Buyer, its contractors, agents, consultants and representatives, (iii)
personal injuries or death of employees of Seller, its contractors,
agents, or consultants or representatives; and (iv) personal injuries or
death of third parties.  Buyer shall not indemnify Seller for Seller's
gross negligence or willful misconduct.

(c)	During the period from the date of this Agreement to the Closing
Date, Seller agrees, unless specifically waived by Buyer in writing, as
follows:

(i)	Subject to the provisions of applicable operating and other
agreements, Seller shall continue to operate and administer the
Assets in a good and workmanlike manner consistent with its past
practices, and shall carry on its business with respect to the
Assets in substantially the same manner as before execution of
this Agreement.

(ii)	Seller shall use its reasonable best efforts to provide
copies of all authorizations for expenditure relating to the
Assets to Buyer as soon as received.  Seller shall, except for
emergency action taken in the face of risk to life, property or
the environment, submit to Buyer for prior written approval, which
shall not be unreasonably denied, all requests for capital
expenditures and all proposed contracts and agreements relating to
the Assets that involve individual commitments of more than
$25,000, net to Seller's interest.  In addition, Seller shall not,
without the consent of Buyer, voluntarily incur any liability or
enter into any commitment with respect to the properties which
will cost in excess of $25,000 net to the Seller with respect to
any individual project; cancel any contract associated with the
Assets; or enter into any hedging, forward sales or similar
agreements with respect to production of the oil and gas
properties.  In addition, the standard of care used by Seller in
operating the properties shall be the reasonably prudent operator
standard.

	(iii)	Buyer acknowledges that Seller owns an undivided interest in
certain of the Assets, and Buyer agrees that the acts or omissions
of the other working interest owners who are not affiliated with
Seller shall not constitute a violation of the provisions of this
Section 4.1, nor shall any action required by a vote of working
interest owners constitute such a violation so long as Seller has
voted its interest in a manner that complies with the provisions
of this article.  To the extent that Seller is not the operator of
any of the Assets, the obligations of Seller in this article shall
be construed to require that Seller use reasonable efforts
(without being obligated to incur any expense or institute any
cause of action) to cause the operator of such Asset to take such
actions or render such performance within the constraints of the
applicable operating agreements and other applicable agreements.

(d)	Any unpaid invoices concerning the Assets for the period after the
Effective Time that are held by Seller at the Closing Date, and not
reflected in the adjustments to the Purchase Price made pursuant to
Section 2.2, or that are received by Seller after the Closing Date shall
be delivered to Buyer as soon as reasonably possible for disposition and
payment.

4.2 Covenants and Agreements of Buyer.  Buyer covenants and agrees with Seller
that:

(a)	Buyer shall maintain its corporate status and shall assure that as
of the Closing Date it will not be under any material corporate, legal
or contractual restriction that would prohibit or delay the timely
consummation of the transaction contemplated herein.

(b)	At Closing, Buyer shall, subject to the applicable terms of
existing operating agreements, take over operations of the Wells as of
7:00 a.m. local time at the wellsite on September 1, 2001, or, if the
Closing Date is extended under Section 8.1, the day after the Closing
Date.  Before taking over operations, Buyer will have posted all
necessary state, federal and local bonds and, after taking over
operations, shall assist Seller in having Seller's existing bonds
released, if so requested, or in the alternative, in having the wells
operated by Buyer released from Seller's existing bonds.

(c)	Prior to Closing, Buyer shall furnish to Seller reasonably
acceptable documentation that Buyer is qualified in the jurisdictions in
which the Assets are located to do business and to own and operate the
Assets.

5. TITLE MATTERS

5.1 Defensible Title.

(a)	The term "Defensible Title" shall mean, as to the Assets, such
title, whether held by Seller or by a third party for the benefit of
Seller, except for and subject to the Permitted Encumbrances (as defined
in Section 5.1(b)), that: (i) entitles Seller to receive as to each Well
set forth in Schedule 1.2(a) not less than the Net Revenue Interest set
forth on Schedule 1.2(a) in the oil, gas and associated liquid and
gaseous hydrocarbons produced, saved and marketed from the Well; (ii)
obligates Seller to bear costs and expenses relating to the maintenance,
development and operation of any Well in an amount not greater than the
Working Interest set forth in Schedule 1.2(a) unless there is a
proportionate increase in the Net Revenue Interest; (iii) is free and
clear of liens and material encumbrances and defects, other than the
Permitted Encumbrances; and, (iv) is free and clear of  a provision or
obligation affecting the Assets contained in any contract or agreement
disclosed in Seller's records which is not customary to currently
accepted oil and gas industry standards and (A) requires an
extraordinary expenditure in connection with the acquisition,
exploration, development or operation of the Asset (B) would materially
diminish the Net Revenue Interest, or materially increase the Working
Interest without a corresponding increase in the Net Revenue Interest.

(b)	The term "Permitted Encumbrances", as used herein, shall mean:

(i)	lessors' royalties, overriding royalties, unitization and
pooling designations and agreements, reversionary interests and
similar burdens that do not reduce the net revenue interest to
less than that shown on Schedule 1.2(a);

(ii)	required third party consents to assignments and similar
agreements which are obtained prior to Closing or the lack of
which do not invalidate a Lease or contract, and preferential
rights to purchase;

(iii)	all rights to consent, required notices to, filings with, or
other actions by governmental entities in connection with the sale
or conveyance of oil and gas leases or interests therein if
customarily obtained subsequent to such sale or conveyance;

(iv)	easements and  rights-of-way (including easements for
streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other easements and rights-of-way, on, over or
in respect of any of the Assets), servitudes, permits, surface
leases and other rights with respect to surface operations,
pipelines, grazing, logging, canals, ditches, reservoirs or the
like; conditions, covenants or other restrictions;

(v)	materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges
arising in the ordinary course of business incidental to
construction, maintenance or operation of any of the Assets: (A)
if they have not been filed pursuant to law; (B) if filed, they
have not yet become due and payable and payment is being withheld
as provided by law; or (C) if their validity is being contested in
good faith in the ordinary course of business by appropriate
action;

(vi)	matters disclosed on Schedule 1.2(a) or elsewhere in this
Agreement.

(c)	The term "Title Defect" as used herein shall mean any encumbrance
or defect in Seller's title to the Assets (expressly excluding Permitted
Encumbrances) that renders Seller's title to the Assets less than
Defensible Title.  Also "Title Defect" shall mean those assets of Seller
which it cannot assign to Buyer for legal or contractual reasons. The
term "Allocated Value" as used herein means the value allocated to the
Well as set forth in Schedule 1.2(a) hereto, as adjusted for
overproduction or underproduction in the manner set forth in Section
2.2.

5.2 Title Defect Adjustments.

(a)	No adjustment to the Purchase Price for Title Defects shall be
made unless and until, and only to the extent that, the individual value
of each Title Defect exceeds $25,000 and the aggregate value of all
Title Defects exceeds $250,000.

(b)	Buyer shall give Seller written notice of Title Defects five (5)
business days prior to the Closing Date.  Such notice shall be in
writing and shall include: (i) a description of the Title Defect; (ii)
the Allocated Value of the Well affected by the Title Defect; and (iii)
the amount by which Buyer believes the Allocated Value of such Well has
been reduced because of such Title Defect.  Buyer shall be deemed to
have waived all Title Defects of which Seller has not been given timely
notice and all Title Defects that, individually or in the aggregate, do
not meet the individual requirements for an adjustment to the Purchase
Price set forth in Section 5.2(a).

(c)	Subject to the limitation contained in Section 5.2(a), a Well
affected by a Title Defect and the Leases comprising the production unit
or proration unit for the Well shall be excluded from the Assets to be
purchased by Buyer hereunder and the Purchase Price shall be reduced in
accordance with Section 2.2 by an amount equal to the Allocated Value of
such Well unless, prior to one day before the Closing Date, one of the
following has occurred: (i) the Title Defect has been removed; (ii)
Buyer agrees to waive the relevant Title Defect and purchase the
affected Assets notwithstanding the defect; (iii) Seller agrees to
indemnify Buyer against all losses, costs, expenses and liabilities with
respect to such Title Defect, and if the amount of the Title Defect is
greater than $250,000 it shall be agreed to by the Buyer; or, (iv) Buyer
and Seller agree to an amount by which the Allocated Value of the Well
has been reduced and the Purchase Price is reduced by such amount in
accordance with Section 2.2.

5.3 Preferential Rights and Consents.

(a)	Some of the Leases may be subject to preferential rights to
purchase in favor of third parties or to third party consents to
assignment and notices of sale.  The form and content of all
solicitations for the waivers and consents affecting the Assets shall be
determined by Seller and shall not be inconsistent with any of the terms
of this Agreement.

(b)	In the event a third party exercises an applicable preferential
right to purchase any of the Assets prior to the Closing Date, the
affected Assets shall be removed from this Agreement and the Purchase
Price shall be adjusted by the Allocated Value of the Assets.  If a
preferential right to purchase any portion of the Assets is exercised
after the Closing Date, such affected portion of the Assets shall not be
treated as a Title Defect, and no adjustment shall be made on account of
such exercise.  All Assets that are subject to preferential rights to
purchase that have not been exercised as of such date and time shall be
conveyed to Buyer at the Closing.  If any such preferential right is
exercised after such date and time, Buyer agrees to convey such affected
Assets to the party exercising such right on the same terms and
conditions under which Seller conveyed such Assets to Buyer.  Buyer
shall retain all amounts paid by the party exercising such preferential
right to purchase.  In the event of such exercise, Buyer shall prepare a
form of conveyance of such interest from Buyer to such exercising party,
such conveyance to be in form and substance as provided in this
Agreement, except that such conveyance shall be made free and clear of
all liens, encumbrances, royalty interests, production payments and
other charges or defects created by, through or under Buyer.  Buyer
agrees to hold harmless and indemnify Seller regarding any claims made
by third parties claiming preferential rights subsequent to Closing.

6. ENVIRONMENTAL MATTERS

6.1 Adverse Environmental Conditions

(a)	An Adverse Environmental Condition means any aspect of the Assets
which is not in compliance with applicable Environmental Law.
"Environmental Law" means all laws, statutes, ordinances, rules and
regulations of any governmental authority pertaining to protection of
the environment in effect as of the Effective Time and as interpreted by
court decisions or administrative orders as of the Effective Time in the
jurisdiction in which such Asset is located.  Environmental Law does not
include good or desirable operating practices or standards that may be
employed or adopted by other oil or gas well operators or recommended by
a governmental authority.

(b)	Buyer shall give Seller written notice of Adverse Environmental
Conditions five (5) business days prior to the Closing Date.  Such
notice shall be in writing and shall include: (i) a description of the
Adverse Environmental Conditions; (ii) the Allocated Value of the Well
affected by the Adverse Environmental Conditions; and (iii) the amount
which Buyer estimates will be needed to place the Adverse Environmental
Conditions into compliance with applicable Environmental Law.

(c)	Buyer shall be deemed to have waived all Adverse Environmental
Conditions of which Seller has not been given timely notice hereunder
and all Adverse Environmental Conditions that do not meet the individual
requirements for an adjustment to the Purchase Price set forth in
Section 6.2.

6.2 Remedies for Adverse Environmental Conditions.  Before Closing, with
respect to each Adverse Environmental Condition as to which proper notice has
been given, Seller and Buyer may agree: (a) on an adjustment to the Purchase
Price which adjustment shall reflect the cost to remedy such Adverse
Environmental Condition; (b) to remediate the condition at Seller's cost; or,
(c) to remove that Well from the Assets being conveyed and reduce the Purchase
Price by the Allocated Value of the removed Well.  If the parties cannot agree
on a course of action, option (c) above shall apply.  If Seller and Buyer
agree to an adjustment to the Purchase Price pursuant to (a) above, said
adjustment shall not reflect any costs to remediate to a more stringent
remediation standard than is required by Environmental Laws.  No adjustment to
the Purchase Price for Adverse Environmental Conditions shall be made unless
and until and only to the extent that the remediation cost for each Adverse
Environmental Condition exceeds $25,000 and the aggregate value of the
remediation cost for all Adverse Environmental Conditions exceeds $250,000.

6.3  PRIVATE  Limitations tc  \n "6.03	Limitations" .  THIS ARTICLE 6 SHALL
BE THE SOLE AND EXCLUSIVE REMEDY THAT BUYER SHALL HAVE AGAINST SELLER WITH
RESPECT TO ANY MATTER OR CIRCUMSTANCE OR LIABILITY RELATING TO ADVERSE
ENVIRONMENTAL CONDITIONS, ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO
THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR HEALTH.

7. CONDITIONS TO CLOSING

7.1 Seller's Conditions.  The obligations of Seller at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions:

(a)	All representations and warranties of Buyer contained in this
Agreement shall be true in all material respects at and as of the
Closing as if such representations and warranties were made at and as of
the Closing, and Buyer shall have performed and satisfied all material
agreements in all material respects required by this Agreement to be
performed and satisfied by Buyer at or prior to the Closing.

(b)	Buyer's Board of Directors shall have approved execution of this
Agreement on or before August 10, 2001, at 2:00 p.m.

7.2	Buyer's Conditions.  The obligations of Buyer at the Closing are subject
to the satisfaction at or prior to the Closing of the following condition:

(a)	All representations of Seller contained in this Agreement shall be
true in all material respects at and as of the Closing as if such
representations were made at and as of the Closing, and Seller shall
have performed and satisfied all material agreements in all material
respects required by this Agreement to be performed and satisfied by
Seller at or prior to the Closing.

(b)	Buyer's Board of Directors shall have approved execution of this
Agreement on or before August 10, 2001, at 2:00 p.m.

7.3 	Mutual Conditions. The obligations of Buyer and Seller at the Closing
are subject to the satisfaction at or prior to the Closing of the following
conditions:

(a)	No suit or proceeding brought by a party other than Buyer or
Seller shall be pending, nor shall any order shall have been entered by
any court or governmental agency having jurisdiction over the parties or
the subject matter of this contract that restrains or prohibits the
purchase and sale contemplated by this Agreement and which remains in
effect at the time of such Closing; and,

(b)	The aggregate sum of Title Defect adjustments and Adverse
Environmental Conditions adjustments shall not exceed 15% of the
Purchase Price.

8. CLOSING

8.1 Date of Closing.  Unless the parties agree otherwise in writing and subject
to the conditions stated in this Agreement, the consummation of the
transactions contemplated hereby (the "Closing") shall be held on or before
August 31, 2001 (the "Closing Date"), provided that either Seller or Buyer
shall have the right to extend the Closing Date for up to 15 days.

8.2 Place of Closing.  The Closing shall be held at the offices of Seller in
Denver, Colorado.

8.3 Closing Obligations.  At the Closing, the following events shall occur,
each being a condition precedent to the others and each being deemed to have
occurred simultaneously with the others:

(a)	Seller and Buyer shall execute, acknowledge and deliver an
assignment, bill of sale and conveyance (in sufficient counterparts to
facilitate recording) in substantially the form of Exhibit A hereto
conveying to Buyer the Assets (which form shall be attached hereto
within 2 days after the date of this Agreement);

(b)	Seller and Buyer shall execute and deliver a settlement statement,
prepared by Seller in accordance with this Agreement and generally
accepted accounting principles (the "Preliminary Settlement Statement")
that shall set forth the Preliminary Purchase Price and each adjustment
and the calculation of such adjustments used to determine such amount
pursuant to Section 2.2.  Seller shall provide Buyer with the
Preliminary Settlement Statement three days prior to Closing for Buyer's
review and approval;

(c)	Buyer shall deliver to Seller the Preliminary Purchase Price by
direct bank or wire transfer in immediately available federal funds;

(d)	Seller and Buyer shall execute, acknowledge and deliver transfer
orders or letters in lieu thereof directing all purchasers of production
to make payment to Buyer of proceeds attributable to production from the
Assets assigned to Buyer pursuant to the terms of this Agreement;

(e)	To the extent reasonable and customary in the industry, Seller
shall prepare notices to third-party operators of the change in
ownership of the Assets from Seller to Buyer and of the change in
operatorship for those Seller-operated Wells for which Buyer or its
affiliate Gruy Petroleum Management Co. has taken over operations.

(f)	Buyer and Seller shall execute change of operator forms as
required by the various state and/or federal regulatory agencies for the
Wells operated by Seller.

9. OBLIGATIONS AFTER CLOSING

9.1 Post-Closing Adjustment Procedure.

(a)	Seller shall use reasonable efforts to prepare and deliver to
Buyer, as soon as practicable but no later than 90 days after the
Closing Date, in accordance with this Agreement and generally accepted
accounting principles, a statement (the "Final Settlement Statement")
setting forth each adjustment or payment that was not finally determined
as of the Closing Date and showing the calculation of such adjustments,
including, but not limited to, an amount equal to all cash in, or
attributable to, suspense accounts relative to the Assets and held by
Seller.  Within fifteen days after receipt of the Final Settlement
Statement, Buyer shall deliver to Seller a written report containing any
changes that Buyer proposes be made to the Final Settlement Statement.
The parties shall undertake to agree with respect to the amounts due
pursuant to such post-closing adjustment no later than fifteen days
after Seller has received Buyer's proposed changes.  The date upon which
such agreement is reached or upon which the "Final Purchase Price" is
established, shall be called the "Final Settlement Date."  If the Final
Purchase Price is more than the Preliminary Purchase Price, Buyer shall
pay in immediately available federal funds the amount of such difference
to Seller or to Seller's account (as designated by Seller).  If the
Final Purchase Price is less than the Preliminary Purchase Price, Seller
shall pay in immediately available federal funds the amount of such
difference to Buyer or to Buyer's account (as designated by Buyer).
Payment by Buyer or Seller shall be made within five days after the
Final Settlement Date.

(b)	The parties will use their best efforts to update to the Effective
Time the volume amounts listed on Schedule 2.2(a)(iv) within 60 days
from the Closing Date.  If the gas imbalance of a Well indicated on
Schedule 2.2(a)(iv) changes or additional Wells are added as a result of
this update, the parties will make the appropriate adjustments on the
Final Settlement Statement based on a value of $1.25 per MCF, less
applicable royalties and taxes, to reflect the updated imbalance volume
and the resulting balancing value for the Well.  If Seller and a third
party operator disagree as to the amount of any imbalance, Buyer and
Seller shall mutually agree to an amount.  If a Well is deleted from the
transaction pursuant to some other provision of this Agreement, the Well
shall also be deleted from any adjustments pursuant to this section.
After the Final Settlement Date, there shall be no further adjustment
made as to gas imbalances on any of the Wells.

9.2 Files and Records.  Within thirty days after the Closing Date, Seller
shall furnish to Buyer originals of all of Seller's Records and Seismic Rights
relating to the Assets, (other than division order files, which will be
delivered at the earlier of 60 days following Closing or the time when Seller
ceases disbursing revenues), but excluding any records or data that cannot be
transferred because of prior contractual restrictions or confidentiality
restrictions or without waiving attorney-client privilege or disclosing
attorney work product.

(a)	Seller shall furnish originals of paper files to the extent they
are maintained in the normal course of business, and if all right, title and
interest in the property is conveyed. If only a portion of the property is
conveyed, copies of the original files will be made available to Buyer.  If
any related file information is maintained as imaged documents, this data will
be delivered to Buyer on CD format for Buyer to print the documents or load to
an imaging system.

(b)	Seller, at its sole cost, shall have the right to make copies of
all files and records delivered to Buyer.   Buyer shall retain and make
available to Seller for five full calendar years following the Closing Date,
in Buyer's office during normal business hours, files and records relating to
the Assets; any assignment by Buyer of the Assets shall be made subject to
this requirement.  Seller shall have the right to copy, at its own expense,
the files and records relating to the Assets before delivering them to Buyer.
However, records kept by Buyer may be maintained on compact discs and thus
Seller's access to such records may be limited to that medium.

9.3 Additional Covenants of Buyer and Seller.

[RESERVED]

9.4	Assumption of Obligations. Following Closing hereunder,

 	(a)	SELLER EXPRESSLY RETAINS RESPONSIBILITY FOR AND AGREES TO
PAY, PERFORM, FULFILL AND DISCHARGE ALL CLAIMS, COSTS, EXPENSES,
LIABILITIES AND OBLIGATIONS ACCRUING OR RELATING TO THE FOLLOWING
COLLECTIVELY, THE "RETAINED LIABILITES":

 		(i) THE EXISTING LITIGATION AND CLAIMS DISCLOSED ON SCHEDULE
3.1(g), INSOFAR AND ONLY INSOFAR AS SUCH LITIGATION AND CLAIMS
RELATE TO THE ASSETS AND TO PERIODS DURING SELLER'S OWNERSHIP OF
THE ASSETS PRIOR TO THE EFFECTIVE TIME;

 		(ii) AD VALOREM, PROPERTY, SEVERANCE, OR OTHER TAXES ON OR
MEASURED BY OWNERSHIP OF THE ASSETS OR PRODUCTION THEREFROM WHICH
ARE ATTRIBUTABLE TO PERIODS DURING SELLER'S OWNERSHIP OF THE
ASSETS PRIOR TO THE EFFECTIVE TIME; AND

 		(iii)  THIRD PARTY CLAIMS RELATING TO THE MISPAYMENT OF
ROYALTIES ON PRODUCTION FROM THE ASSETS DURING SELLER'S OWNERSHIP
OF THE ASSETS PRIOR TO THE EFFECTIVE TIME.

 	(iv)  ALL LIABILITIES, DUTIES AND OBLIGATIONS THAT ARISE
FROM THE OWNERSHIP OR OPERATION OF THE ASSETS PRIOR TO THE
EFFECTIVE DATE OTHER THAN THOSE EXPRESSLY ASSUMED BY BUYER
PURSUANT TO SECTION 6.

(b)	EXCEPT FOR THE RETAINED LIABILITIES, BUYER EXPRESSLY AGREES TO
ASSUME RESPONSIBILITY FOR AND AGREES TO PAY, PERFORM, FULFILL AND
DISCHARGE ALL CLAIMS, COSTS, EXPENSES, LIABILITIES AND OBLIGATIONS
ACCRUING OR RELATING TO THE OWNING, DEVELOPING, EXPLORING, OPERATING AND
MAINTAINING OF THE ASSETS, WHETHER RELATING TO PERIODS BEFORE OR AFTER
THE EFFECTIVE TIME, INCLUDING, WITHOUT LIMITATION, ALL ADVERSE
ENVIRONMENTAL CONDITIONS, WHETHER OCCURING BEFORE OR AFTER THE EFFECTIVE
TIME, REGARDLESS OF THE NEGLIGENCE OR STRICT LIABILITY OF SELLER.

(c)	BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND SELLER HEREBY
EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, RELATING TO THE CONDITION OF ANY REAL OR IMMOVABLE PROPERTY,
PERSONAL OR MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND
FIXTURES CONSTITUTING PART OF THE ASSETS INCLUDING, WITHOUT LIMITATION:

(i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY;

(ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE;

(iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS;

(iv) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE;

(v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM
REDHIBITORY VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER
KNOWN OR UNKNOWN;

(vi) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT
OR TRADEMARK INFRINGEMENT;

(vii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING
ENVIRONMENTAL LAWS, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT
INCLUDING NATURALLY OCCURING RADIOACTIVE MATERIAL, OR PROTECTION
OF THE ENVIRONMENT OR HEALTH.

IT IS THE EXPRESS INTENTION OF BUYER AND SELLER THAT THE REAL OR
IMMOVABLE PROPERTY, PERSONAL OR MOVABLE PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY AND FIXTURES SHALL BE CONVEYED TO BUYER AS IS AND IN THEIR
PRESENT CONDITION AND STATE OF REPAIR.  BUYER REPRESENTS TO SELLER THAT
BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO THE
REAL OR IMMOVABLE PROPERTY, PERSONAL OR MOVABLE PROPERTY, EQUIPMENT,
INVENTORY, MACHINERY AND FIXTURES AS BUYER DEEMS APPROPRIATE AND BUYER
WILL ACCEPT THE REAL OR IMMOVABLE PROPERTY, PERSONAL OR MOVABLE
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES AS IS, IN THEIR
PRESENT CONDITION AND STATE OF REPAIR.

BUYER HEREBY RELEASES AND DISCHARGES ANY AND ALL CLAIMS AT LAW OR
IN EQUITY, KNOWN OR UNKNOWN, WHETHER NOW EXISTING OR ARISING IN THE
FUTURE, CONTINGENT OR OTHERWISE, AGAINST SELLER WITH RESPECT TO ANY
ADVERSE ENVIRONMENTAL CONDITIONS, INCLUDING, BUT NOT LIMITED TO, MATTERS
OR CIRCUMSTANCES RELATING TO ENVIRONMENTAL LAWS, THE RELEASE OF
MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR
HEALTH. BUYER EXPRESSLY AGREES TO ASSUME THE RISK THAT THE ASSETS MAY
CONTAIN WASTE MATERIALS, INCLUDING NATURALLY OCCURRING RADIOACTIVE
MATERIALS, HYDROCARBONS, HAZARDOUS WASTES, HAZARDOUS MATERIALS OR
HAZARDOUS SUBSTANCES, AND THAT ADVERSE PHYSICAL CONDITIONS, INCLUDING,
BUT NOT LIMITED TO, THE PRESENCE OF UNKNOWN ABANDONED OIL AND GAS WELLS,
WATER WELLS, SUMPS AND PIPELINES MAY NOT HAVE BEEN REVEALED BY BUYER'S
INVESTIGATION.

(d)	SELLER HEREBY EXPRESSLY NEGATES AND DISCLAIMS, AND BUYER HEREBY
WAIVES AND ACKNOWLEDGES THAT SELLER HAS NOT MADE, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, RELATING TO:

(i) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY INFORMATION,
DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYER BY OR ON
BEHALF OF SELLER; OR

(ii) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES,
GEOLOGICAL OR GEOPHYSICAL DATA OR INTERPRETATIONS, THE QUALITY,
QUANTITY, RECOVERABILITY OR COST OF RECOVERY OF ANY HYDROCARBON
RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, OR THE ABILITY TO SELL OR
MARKET ANY HYDROCARBONS AFTER CLOSING.

(e)	The responsibility for payment of amounts held in suspense by
Seller for periods prior to the Final Settlement Date as to any of the
Assets (such as suspended royalties held in the ordinary course of
business as a result of title defects or changes of ownership) and the
funds so held shall be transferred to Buyer at the Final Settlement
Date.  Any such items accruing to suspense on account of production from
and after the Effective Time shall be the responsibility of Buyer. From
and after the Final Settlement Date, Buyer shall assume all
responsibility for such accounts and shall indemnify and hold Seller
harmless from any claim or liability with respect thereto.

9.5	Indemnification.  From and after the Closing Date, Buyer and Seller
shall indemnify each other as follows:

(a)	SELLER SHALL DEFEND, INDEMNIFY, RELEASE AND HOLD HARMLESS BUYER,
ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, AGAINST ALL LOSSES,
DAMAGES, CLAIMS, DEMANDS, SUITS, COSTS, EXPENSES, LIABILITIES AND
SANCTIONS OF EVERY KIND AND CHARACTER, INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES, COURT COSTS AND COSTS OF INVESTIGATION,
WHICH ARISE FROM OR IN CONNECTION WITH (i) THE RETAINED LIABILITIES; OR
(ii) ANY BREACH BY SELLER OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT ANY
CLAIMS FOR INDEMNIFICATION UNDER THIS SECTION 9.5(a) MUST BE ASSERTED
WITHIN TWO (2) YEARS AFTER CLOSING AND ANY CLAIMS NOT ASSERTED WITHIN
SUCH PERIOD SHALL BE DEEMED WAIVED.

(b)	BUYER SHALL DEFEND, INDEMNIFY, RELEASE AND HOLD HARMLESS SELLER
AGAINST ALL LOSSES, DAMAGES, CLAIMS, DEMANDS, SUITS, COSTS, EXPENSES,
LIABILITIES AND SANCTIONS OF EVERY KIND AND CHARACTER, INCLUDING WITHOUT
LIMITATION REASONABLE ATTORNEYS' FEES, COURT COSTS AND COSTS OF
INVESTIGATION, WHICH ARISE FROM OR IN CONNECTION WITH (i) ANY OF THE
CLAIMS, COSTS, EXPENSES, LIABILITIES AND OBLIGATIONS ASSUMED BY BUYER
PURSUANT TO SECTION 9.2, OR (ii) ANY BREACH BY BUYER OF THIS AGREEMENT.

10. TERMINATION OF AGREEMENT

10.1 Termination.  This Agreement and the transactions contemplated hereby
may be terminated in the following instances:

(a)	By Seller if any of the conditions set forth in Section 7.1 are
not satisfied in all material respects or waived as of the Closing Date;

(b)	By Buyer if any of the conditions set forth in Section 7.2 are not
satisfied in all material respects or waived as of the Closing Date;

(c)	By Buyer or Seller if any of the conditions set forth in Section
7.3 are not satisfied or waived as of the Closing Date; or

(d)	At any time by the mutual written agreement of Buyer and Seller.

10.2 Liabilities Upon Termination or Breach.

(a)	In the event of the termination of this Agreement by Seller in
accordance with Section 10.1(a) or 10.1(c), Seller shall have no
liability hereunder of any nature whatsoever to Buyer, including any
liability for damages.  If Buyer terminates this Agreement in accordance
with Section 10.1(b) or 10.1(c) above, it shall have no liability
hereunder of any nature whatsoever to the Seller including any liability
for damages.

(b)	Except as provided above in this Section 10.2, nothing contained
herein shall be construed to limit Seller's or Buyer's legal or
equitable remedies in the event of breach of this Agreement.

(c)	If Seller terminates this agreement pursuant to Section 10.1(a),
Seller shall retain the Earnest Money with all interest earned thereon
and Buyer shall have no further liability hereunder of any nature
whatsoever to the Seller including any liability for damages.  If this
Agreement is terminated by Buyer pursuant to Section 10.1(b) by either
Buyer or Seller pursuant to Section 10.1(c) or by Buyer and Seller
pursuant to Section 10.1(d), then Seller shall return the Earnest Money,
with all interest earned thereon, to Buyer at the time of termination.

11. MISCELLANEOUS

11.1 Schedules and Exhibits.  The Schedules and Exhibits listed below are
hereby incorporated in this Agreement by reference and constitute a part of
this Agreement.

Schedule 1.2(a)	The Wells, Working and Net Revenue Interests and
Allocated Values
Schedule 1.2(b)		The Leasehold Estates and Fee Lands
Schedule 2.2(a)(iv)		Gas Imbalances
Schedule 3.1(f)		Sales Contracts
Schedule 3.1(g)		Actions and Proceedings
Schedule 3.1(i)		Preferential Rights

Exhibit A			Form of Assignment
Exhibit B			[Reserved]
Exhibit C			Dispute Resolution

11.2 Expenses.  All fees, costs and expenses incurred by Buyer or Seller in
negotiating this Agreement or in consummating the transactions contemplated by
this Agreement shall be paid by the Party incurring the same, including,
without limitation, legal and accounting fees, costs and expenses.

11.3 Notices.  All notices and communications required or permitted under
this Agreement shall be in writing and any communication or delivery hereunder
shall be deemed to have been duly made when personally delivered to the
individual indicated below, or if mailed, when received by the Party charged
with such notice and addressed as follows:

    If to Seller:

            MALLON RESOURCES CORPORATION
            999 18th Street, Suite 1700
            Denver, Colorado 80202
            Attention:  George O. Mallon, Jr.
                        President
            Telephone:  303-293-2333
            Fax:        303-293-3601

    If to Buyer:

            Magnum Hunter Resources, Inc.
            600 E. Las Colinas Boulevard, Suite 1100
            Irving, Texas  75039
            Telephone:  972-401-0752
            Fax:        972-401-3110

            Attention:  Morgan F. Johnston
                        Vice President, General Counsel and Secretary

    With a copy to:  Magnum Hunter Resources, Inc.
                     600 E. Las Colinas Boulevard, Suite 1100
                     Irving, Texas  75039
                     Telephone:  972-401-0752
                     Fax:        972-401-3110

                     Attention:  Gary C. Evans
                                 President and Chief Executive Officer

Any Party may, by written notice so delivered to the other Party, change the
address or individual to which delivery shall thereafter be made.

11.4 Amendments.  This Agreement may not be amended nor any rights hereunder
waived except by an instrument in writing signed by the Party to be charged
with such amendment or waiver and delivered by such Party to the Party
claiming the benefit of such amendment or waiver.

11.5 Assignment.  Neither Party may assign all or any portion of its rights
or delegate all or any portion of its duties hereunder unless it continues to
remain liable for the performance of its obligations hereunder and obtains the
prior written consent of the other Party, which consent shall not be
unreasonably withheld.

11.6 Announcements.  Seller and Buyer shall consult with each other with
regard to all press releases and other announcements issued after the date of
this Agreement concerning this Agreement or the transactions contemplated
hereby and, except as may be required by applicable laws or the applicable
rules and regulations of any governmental agency or stock exchange, neither
Buyer nor Seller shall issue any such press release or other publicity without
the prior written consent of the other Party, which consent shall not be
unreasonably withheld.

11.7 Governing Law.  This Agreement and the transactions contemplated hereby
shall be construed in accordance with, and governed by, the laws of the State
of New Mexico, without giving effect to its conflicts of law provisions.

11.8 Taxes.

(a)	Like-Kind Exchange.  Seller may desire to exchange for other
property of like-kind and qualifying use within the meaning of Section 1031 of
the Internal Revenue Code of 1986 (the "Code"), as amended and the Regulations
promulgated thereunder, the Assets which are the subject of this Agreement.
In order to effect such an exchange, Seller expressly reserves the right to
assign its rights, but not its obligations, hereunder to a Qualified
Intermediary as provided in Treasury Regulation Section 1.1031(k)-1(g)(4) on
or before the Closing Date, and Buyer hereby agrees to recognize any such
assignment.  Notwithstanding any other provision of this Agreement, such an
assignment shall not require prior written consent from the Buyer.  Buyer
shall not be obligated to pay any additional costs or incur any additional
obligations in their acquisition of the Assets which are the subject of this
Agreement, and Seller shall indemnify and hold Buyer harmless from and against
all claims, expenses, losses and liabilities, if any, resulting from Buyer's
participation in such an exchange.

(b)	Real and Personal Equipment Taxes.  All ad valorem taxes, real
property taxes and personal property taxes for the year in which the Effective
Time occurs shall be apportioned as of the Effective Time ("Real and Personal
Equipment Taxes") between Seller and Buyer.  Seller shall be liable for the
portion of such Real and Personal Equipment Taxes based upon the number of
days in the year occurring prior to the Effective Time, and Buyer shall be
liable for the portion of such taxes based upon the number of days in the year
occurring on and after the Effective Time.  For any year in which an
apportionment is required, Buyer shall file all required reports and returns
incident to these taxes assessed for the year in which the Effective Time
occurs that are not paid by Seller as of the Closing Date.  Seller shall pay
to Buyer, at the time of Buyer's remittance, Seller's share of such taxes to
the extent such amounts were not credited to Buyer in calculating adjustments
in the Purchase Price in Section 2.2.

(c)	Sales and Other Transfer Taxes.  The Purchase Price does not
include any sales taxes or other transfer taxes imposed in connection with the
sale of the Assets.  Buyer shall pay any sales tax or other transfer tax, as
well as any applicable conveyance, transfer and recording fee, and real estate
transfer stamps or taxes imposed on the transfer of the Assets pursuant to the
Agreement.  If Buyer is of the opinion that it is exempt from the payment of
any such sales tax or other transfer tax, Buyer shall furnish to Seller the
appropriate tax exemption certificate.  	If Buyer is able to pay such taxes
directly to the appropriate authority, it shall have the right to do so.

(d)	Tax Proceedings.  In the event Buyer receives notice of any
examination, claim, adjustment or other proceeding relating to the liability
for taxes of or with respect to Seller for any period Seller is or may be
liable, Buyer shall notify Seller in writing within 30 days of receiving
notice thereof.  As to any such taxes for which Seller is or may be liable,
Seller shall, at Seller's expense, control or settle the contest of such
examination, claim, adjustment, or other proceeding, and shall indemnify Buyer
against all losses, damages, costs, expenses, liabilities, claims, demands,
penalties, fines, assessments, settlements, and any related expenses in
connection therewith.  In the event Seller receives notice of any examination,
claim, adjustment or other proceeding relating to the liability for taxes of
or with respect to Buyer for any period Buyer is or may be liable, Seller
shall notify Buyer in writing within 30 days of receiving notice thereof.  As
to any such taxes for which Buyer is or may be liable, Buyer shall, at Buyer's
expense, control or settle the contest of such examination, claim, adjustment,
or other proceeding, and shall indemnify Seller against all losses, damages,
costs, expenses, liabilities, claims, demands, penalties, fines, assessments,
settlements, and any related expenses in connection therewith.  The Parties
shall cooperate with each other and with their respective affiliates in the
negotiations and settlement of any proceeding described in this Section 11.8.
Each Party shall provide, or cause to be provided, to the other Party
necessary authorizations, including powers of attorney, to control any
proceeding which such Party is entitled to control.

(e)	Purchase Price Allocation.  The allocation of the Purchase Price
in accordance with Schedule 1.2(a) is intended to comply with the allocation
method required by Section 1060 of the Code.  Buyer and Seller shall cooperate
to comply with all substantive and procedural requirements of Section 1060 and
Regulations thereunder, including without limitation the filing by Buyer and
Seller of IRS Form 8594 with their federal income tax returns for the taxable
year in which the Closing occurs.  Buyer and Seller agree that each will not
take for income tax purposes, or permit any affiliate to take, any position
inconsistent with the allocation of the Purchase Price.

11.9 Entire Agreement.  This Agreement (including the Exhibits and Schedules
hereto) constitutes the entire understanding among the Parties with respect to
the subject matter hereof, superseding all negotiations, prior discussions and
prior agreements and understandings relating to such subject matter.

11.10 Parties in Interest.  This Agreement shall be binding upon, and shall
inure to the benefit of, the Parties hereto, and their respective successors
and assigns, and nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights or
remedies.

11.11 THE REPRESENTATIONS AND WARRANTIES PROVIDED FOR IN THIS AGREEMENT SHALL
SURVIVE THE CLOSING FOR TWELVE MONTHS ONLY.  EXCEPT AS EXPRESSLY LIMITED BY
THIS AGREEMENT, THE REMAINDER OF THIS AGREEMENT, INCLUDING ALL COVENANTS AND
INDEMNITIES HEREIN, SHALL SURVIVE WITHOUT LIMITATION. AND SHALL NOT BE
EXTINGUISHED BY THE DOCTRINE OF MERGER BY DEED OR ANY SIMILAR DOCTRINE.  NO
WAIVER, RELEASE, OR FORBEARANCE OF THE APPLICATION OF THE PROVISIONS OF A
PARAGRAPH IN ANY GIVEN CIRCUMSTANCE SHALL OPERATE AS A WAIVER, RELEASE, OR
FORBEARANCE OF THE PROVISIONS OF THE PARAGRAPH AS TO ANY OTHER CIRCUMSTANCE.

11.12 Arbitration.    Any disputes arising out of or in connection with this
Agreement or the application, implementation, validity, breach or termination
of this Agreement shall be finally and exclusively resolved by arbitration in
Denver, Colorado pursuant to the dispute resolution provisions contained in
Exhibit C.  Notwithstanding the above, in the event a third party brings an
action against Buyer or Seller concerning this Agreement or the Assets or
transactions contemplated herein, Buyer and Seller shall not be subject to
mandatory arbitration under this section and Buyer or Seller shall each be
entitled to assert their respective claims, if any, against each other in such
third party action.

11.13 Further Assurances.  After Closing, Seller and Buyer shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered
such instruments, and shall take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
document, certificate or other instrument delivered pursuant hereto.

     Executed as of the date first above mentioned.

                                          SELLER:

                                          MALLON RESOURCES CORPORATION

                                          _______________________________
                                          By:  George O. Mallon Jr.,
                                               President

                                          BUYER:

                                          MAGNUM HUNTER PRODUCTION, INC

                                          _______________________________
                                          By:  Gary C. Evans
                                               Chief Executive Officer
EXHIBIT C

                                DISPUTE RESOLUTION

	 	Covered Dispute.  Any and all disputes concerning or arising out
of the Agreement to which this Exhibit is attached ("Arbitrable Dispute(s)")
shall be resolved in accordance with the terms contained in this Exhibit.

	 	Settlement Discussions.  If a dispute, claim or controversy arises
between the Parties to this Agreement which is an Arbitrable Dispute, a Party
may provide the other Party with written notice requesting prompt resolution
of the Arbitrable Dispute ("Settlement Notice").  For the purpose of the
provisions of this Appendix, the Party issuing the Settlement Notice (or the
Arbitration Notice under Section 3 below) shall be referred to herein as the
?Claimant,? and the Party receiving the Settlement Notice (or the Arbitration
Notice) shall be referred to herein as the ?Respondent?.  Within ten days
after the Claimant delivers the Settlement Notice, the Parties (by and through
a business representative having express authority to resolve the Arbitrable
Dispute and, if desirable, an attorney) shall meet and attempt in good faith
to resolve the Arbitrable Dispute.  If the parties are unable to resolve the
Arbitrable Dispute within fifteen days after the Claimant delivers the
Settlement Notice, the Parties shall be deemed (unless otherwise agreed by the
parties) to be at an impasse.  Any and all discussions which occur in
accordance with this Appendix shall be treated by the Parties as confidential
in nature, and shall, for the purpose of the U. S. Federal Rules of Evidence
(Rule 408) and any state counterpart, be deemed to be an offer of compromise.

	 	Dispute Resolution.  Unless the Parties mutually agree otherwise,
if the Parties are unable for any reason to resolve the Arbitrable Dispute in
accordance with Section 2 above and are deemed to have reached an impasse, the
Claimant may, within fifteen days after the date the Parties are deemed to
have reached an impasse, serve a notice on the Respondent requesting the
Arbitrable Dispute be submitted to binding arbitration in accordance with the
provisions set forth below (?Arbitration Notice?), or elect not to pursue such
Arbitrable Dispute at such time.

	 	Arbitration Procedures.  Within fifteen days after the Claimant
gives the Arbitration Notice, the Claimant shall submit the Arbitrable Dispute
to arbitration in accordance with the terms of this Appendix and the then
current American Arbitration Association ("AAA") Rules for Arbitration of
Commercial Disputes ("AAA Rules").  The arbitration shall be governed by the
Federal Arbitration Act, 9 U.S.C. Section 1 et seq. (?Federal Arbitration
Act?).  Judgment upon the award rendered by the arbitrator(s) may be entered
by any court having jurisdiction thereof.  If there is a conflict between the
provisions of this Appendix and the AAA Rules and/or the Federal Arbitration
Act, the provisions of this Appendix shall control the rights and obligations
of the Parties.

	 	Appointment of Arbitrator(s). One neutral arbitrator will decide
the Arbitrable Dispute, provided, however that either Party may, upon written
notice given contemporaneously with such Party's delivery of the Arbitration
Notice, or within three (3) business days after such Party's receipt of an
Arbitration Notice, as the case may be, elect to submit the Arbitrable Dispute
to a panel of three (3) arbitrators.

6.(a) Selection of arbitrator(s).  If the Arbitrable Dispute is
submitted to a single arbitrator, the arbitrator shall be selected as follows:

		(i)	Within ten days after the Arbitrable Dispute is submitted to
arbitration, the Claimant shall submit to the Respondent a written list
of five neutral arbitrators, which list shall contain for each proposed
arbitrator such arbitrator's address, educational background, employment
history, qualifications, areas of expertise, competence regarding the
dispute matter, arbitration experience and prior relationship to any
Party including acting as arbitrator or judge in a matter involving a
Party.  Within thirty days after receipt of the list of arbitrators, the
Respondent shall select one arbitrator from the list, provided that the
Respondent shall not be required to select an arbitrator from the list
if the Respondent, in its sole opinion, determines that none of the
arbitrators submitted for consideration is acceptable.  If the
Respondent determines that none of the arbitrators submitted for
consideration is acceptable, it shall notify the Claimant of such
determination in writing within the thirty day selection period, and
shall provide the Claimant with a list of five additional neutral
arbitrators (containing the same information referenced above).  Within
thirty days after receipt of Respondent's list of arbitrators, the
Claimant shall select one arbitrator from the list, provided that the
Claimant shall not be required to select an arbitrator from the list if
the Claimant, in its sole opinion, determines that none of the
arbitrators submitted for consideration is acceptable.

		(ii)	If within such thirty days the Claimant does not select one
of the proposed arbitrators submitted for consideration by the
Respondent, either Party may request AAA to provide a list of five
qualified neutral arbitrators within ten days after such request and,
within fifteen days after receipt of the AAA list, Claimant and
Respondent shall each strike two names from the list and the person
whose name remains unstricken shall be the arbitrator (if more than one
name remains unstricken, the first name on the list, by alphabetical
order, shall be the arbitrator).

		If either Party elects a panel of three (3) arbitrators, the
arbitrators shall be selected as follows:  Within ten days after the
sending and receipt of the Arbitration Notice, each Party shall specify
(by notice to the other) the name and address of an arbitrator appointed
by it.  At the end of such ten days, if one party has made a
specification of its appointed arbitrator but has not received notice of
a similar specification by the other party, then the party which has
made a specification shall give notice to the other party that it has
not received a specification from the other party.  If the other party
does not act to specify its arbitrator within an additional seven days
after the giving of such notice, the party who has made its
specification may appoint the second arbitrator in place of the party
who has failed to do so.  Within fifteen days after the first two
arbitrators have been appointed, they shall select the third arbitrator.
If a third arbitrator has not been selected within such period, either
party hereto may petition the Chief Judge of the United Sates District
Court for the District of Colorado, to appoint such third arbitrator,
whereupon such judge (or any person designated by such judge to make
such appointment) may make such appointment unless the first two
arbitrators have come to agreement on the third arbitrator.

		(b)	The compensation and expenses of the arbitrator(s) shall be
borne and paid equally by the Claimant and Respondent.

		(c)	The arbitrator(s), may employ any technical or other
expertise which he determines is necessary to resolve the dispute.

		(d)	No arbitrator(s) submitted for consideration and/or selected
shall be a present or former employee, contractor, attorney or agent of
any Party  or their respective Affiliates.

	7.	Representation.  Claimant and Respondent may be represented in the
arbitration by legal counsel or other technical or professional persons.

	8.	Pre-hearing Procedures.

		 	Unless the Parties agree otherwise, a preliminary conference
with the arbitrator will be held thirty days after selection of the
arbitrator, to assist the arbitrator in establishing procedures, setting
the hearing date (which shall be the earliest date which is reasonable
under the circumstances) and for other purposes necessary for the
efficient and expedient disposition of the proceedings.

		 	The Parties intend that there be a good faith exchange of
relevant information (written and documentary), without duplicating the
costly, time-consuming and burdensome procedures available in civil
litigation.  The Parties will promptly (if and as designated by the
arbitrator) designate and exchange the names and addressed of all
witnesses who may be called at the arbitration hearing; a brief
statement of the expected testimony of each witness; and lists and
copies of exhibits that may be presented at the hearing.  A witness may
be designated as a fact witness, an expert witness, or both.

		 	Each Party may submit to the other Party one set of requests
for production of relevant documents, one set of interrogatories
containing not more than fifteen questions (including subparts)
soliciting relevant information, and one set of requests for admission
containing not more than ten requests (which shall be deemed admitted if
not denied).  The arbitrator shall set the time period in which the
parties must respond to the requests for production, interrogatories and
requests for admission.  Each Party may depose up to three individuals.
The time limit for each deposition will be eight hours.  The arbitrator
may allow additional time if he deems it appropriate.  Each deposition
will be held at a location convenient for the deponent.  The arbitrator
may subpoena persons designated as witnesses, representatives of the
Parties, and persons with information relevant to the dispute to appear
for oral deposition.

		 	The arbitrator will establish a procedure to resolve
discovery disputes and rule on dispositive motions promptly and
efficiently.  The procedure may include presenting motions by letter, as
opposed to formal pleadings, and resolution by telephone conferences.

		 	The arbitrator may impose sanctions that he deems
appropriate (including, but not limited to, awarding costs and
attorneys' fees) for a Party's failure to identify witnesses and the
substance of their testimonies, to provide copies of exhibits, or to
respond timely and in good faith to discover requests.  The arbitrator
may extend any deadline in the interest of fairness.

		 	At least twenty days before the hearing, the Parties will
attempt to jointly prepare and file with the arbitrator an agreed pre-
hearing statement setting out the disputed issues to be decided by the
arbitration, a statement of agreed facts, the identity of witnesses, a
list of exhibits that will be used, and copies of the documents
concerning the disputed issues that the parties agree should be provided
to the arbitrator.  If not provided on a joint basis each Party shall
submit its own pre-hearing statement.

		 	If requested by the arbitrator, each Party will submit a
pre-hearing brief.  The Claimant's brief will be due twenty days before
the arbitration hearing, and the Respondent's brief will be due ten days
before the hearing.

	9.	Hearing.

		(a)	The arbitration hearing will be held in Denver, Colorado, at
a location designated by the arbitrator.

		(b)	The hearing will begin no later than thirty days after the
preliminary hearing.  The maximum length of the hearing shall not be
more than five consecutive business days.  Each Party will have one-half
of the scheduled hearing time for its case including direct, redirect,
and rebuttal testimony, cross-examination of the opposing Parties'
witnesses, and opening and closing statements.  The arbitrator will
preside at the hearing.  The hearing will be conducted as if it were an
informal court trial.  The arbitrator may subpoena persons designated as
witnesses, representatives of the Parties, and persons with information
relevant to the dispute to appear at the arbitration hearing.  Time
related to the arbitrator's actions under the preceding sentence shall
not be charged against the time limitations of either Party.

		(c)	The arbitrator will be guided by common sense and justice in
allowing evidence to be presented.  No federal or state rule relating to
the order of proof, the conduct of the hearing, or the presentation and
admissibility of evidence will be applicable in the arbitration hearing,
except that the arbitrator shall recognize and apply the attorney-client
privilege and the work-product doctrine during pre-hearing discovery and
at the hearing.

		(d)	The arbitrator will declare the hearing closed after the
Parties have presented their evidence and made their closing arguments.
The time limit within which the arbitrator is required to make his
decision will begin on the date the hearing closes.  Unless expressly
requested by the arbitrator, no briefs or other documents may be
submitted by any party after the arbitration hearing concludes.

		(e)	The arbitrator's expenses associated with conducting the
hearing shall be borne and paid equally by Claimant and Respondent, and
other expenses shall be handled in accordance with Section 13 below.

	10.	Award and Enforcement.

(a)	Unless the Parties agree otherwise, the arbitrator will
decide each Arbitrable Dispute within thirty days after the date the
hearing closes, based on applicable law, the testimony, documents and
other materials the parties submit before and during the arbitration
hearing.  The decision of the arbitrator and reasons for the award shall
be within the bounds set by the contentions of the Parties.  The decision
of the arbitrator shall be in writing, including findings of fact and
conclusions of law.

		(b)	Except as provided below, the decision of the arbitrator
shall be final and binding on the Parties and nonappealable.

		(c)	The arbitrator may award such damages and other relief as he
determines to be appropriate, provided that any applicable waivers of
exemplary, punitive, special or consequential damages that are contained
in an applicable agreement of the Parties shall be respected by the
arbitrator.

		(d)	Judgment may be entered on the award, and the award may be
judicially enforced.  The award is final and binding, and no appeal from
the award may be taken on the grounds of error in the application of the
law or the findings of fact.

		(e)	The arbitrator shall have the power to grant temporary or
permanent injunctive or other equitable relief in order to prevent
irreparable harm.  Before an arbitrator is appointed, a Party may,
notwithstanding any other provision of this Agreement, seek temporary
injunctive relief from any court of competent jurisdiction; provided
however, the Party seeking such relief shall (if arbitration has not
already been commenced) simultaneously initiate dispute resolution
procedures in accordance with this Appendix.  Such court ordered relief
shall not continue more than thirty days after arbitrator is appointed.

11.	Extension of Time.  The arbitrator may modify any time period or
any pre-hearing procedure provided in these arbitration provisions for good
cause.

	12.	Law.  The substantive law (including time bars) applicable to all
Arbitrable Disputes shall be the law of the State of Colorado. without regard
to the choice of law rules of Colorado or any other jurisdiction.

	13.	Costs and Expenses.  Absent an arbitrator's award to the contrary,
each Party shall bear its own costs, expenses and attorneys' fees; provided
however, if court proceedings to stay litigation or compel arbitration are
necessary, the unsuccessful Party in such proceedings shall pay all reasonable
expenses and attorneys' fees incurred in connection with such proceedings.

	14.	Statutes of Limitations.  All statutes of limitations and defenses
based upon passage of time applicable to any Arbitrable Dispute (including any
counterclaim or set-off) shall be tolled beginning on the date the Arbitration
Notice is given and while the arbitration is pending.

                                     Signatures

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

                                     Mallon Resources Corporation

August 15, 2001                      _________________________________
                                      Roy K. Ross, Executive Vice President

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