DEREK OIL & GAS CORPORATION Suite 1550 - 355 Burrard Street Vancouver, B. C., Canada, V6C 2G8 Tel.. (604) 331-1757 Fax: (604) 669-5193 October 3, 2003 Mr. Basil Smidt Bateman Engineering Inc., 12200 East lliff Avenue, Suite 100, Aurora Denver...

XXXXX OIL & GAS CORPORATION

Suite 1550 - 000 Xxxxxxx Xxxxxx

Xxxxxxxxx, X. X., Xxxxxx, X0X 0X0

Tel.. (000) 000-0000

Fax: (000) 000-0000

October 3, 2003

Xx. Xxxxx Xxxxx

Xxxxxxx Engineering Inc.,

12200 East lliff Avenue, Suite 100,

Aurora Denver

Colorado, U.S.A.

80014-1251

Dear Basil:

RE. LAK RANCH PROJECT, WYOMING, U.S.A.

When countersigned by each of the parties, the following will set forth the terms and conditions pursuant to which Xxxxx Oil and Gas Corporation ("Xxxxx") and Xxxxxxx Engineering, Inc. ('Xxxxxxx") have mutually agreed to defer payment of amounts currently owing by Xxxxx to Xxxxxxx:

1.

Xxxxxxx will agree to defer payment of US $285,756.74 ($284,220 of principal and US$1,536.74 of interest) (the "Debt") in amounts currently payable by Xxxxx to Xxxxxxx until March 31, 2004.

2.

Xxxxxxx will receive, and Xxxxx will pay, the sum of US 530,000 by October 31, 2003. This being the balance of interest earned from August 21, 2002 to September 30, 2003.

3.

Xxxxxxx will receive and Xxxxx will pay, interest on the Debt at a rate of ten per cent (1 0%) per annum, such interest to be accrued commencing October, 1, 2003.

4.

There are no fixed repayment terms; however all interest and principal is fully due and payable by no later than March 31, 2004. Xxxxx xxx make interim payments of principal and interest at any time, and may repay all amounts due at any time, without penalty for early repayment. Subsequent interest calculations will then be made on the remaining principal outstanding. Payments by Xxxxx will be make by certified cheque and will be considered effective at the date and time upon which Xxxxx completes the certification process.

5.

As security for the amount deferred, the lien currently granted in favour of Xxxxxxx will remain in place.

6.

Xxxxx previously granted Xxxxxxx the right to convert the Debt, in whole or in part into common shares of Xxxxx Resources Corporation at a price of Cdn$0.10 per share (Cdn.$0.30 per share for Xxxxx Oil and Gas Corporation) It is acknowledged by both Xxxxx and Xxxxxxx that this conversion right expired unexercised September 30, 2003.

7.

In consideration for past deferral of amounts due, Xxxxx granted a permanent, gross overriding royalty on the LAK Ranch Property to Xxxxxxx in the amount of US $0.0471 per barrel of oil produced net to Derek's interest. For clarity, it is stated here that this royalty remains in full force and effect.

8.

This Agreement is subject to the prior approval of the TSX Venture Exchange. If you are in agreement with the foregoing, please sign this letter where indicated below and return same to us and we will make the required $US 30,000.00 payment to you and proceed with the required

regulatory filings.

Yours truly,

XXXXX OIL AND GAS CORPORATION

“Xxxxx Xxxxxx”

Per: Xxxxx Xxxxxx

Acknowledged and Agreed by:

XXXXXXX ENGINEERING INC.

“Xxxxx Xxxxx”

Per: Xxxxx Xxxxx