GENERAL SECURITY AGREEMENT

(a)

“ Act ” means the Personal Property Security Act , Statutes of Alberta, 2000, c. P-7 as amended;

(b)

“ Collateral ” means all personal property of the Debtor as of the date this Agreement is executed including all Goods, Chattel Paper, Securities, Documents of Title, Instruments, Money, Intangibles; and all real property of the Debtor including all charges on land or interests in land and petroleum and natural gas leases described in Schedule "A" attached hereto and forming part of this Agreement; and all parts, accessories, attachments, equipment, additions, accretions thereto and property thereof, together with any equipment or accessories placed upon or repairs made to the foregoing during the continuance of this Agreement;

(c)

“ Indebtedness ” means the Principal Amount or aggregate outstanding at any given time of all loans and advances made or credit granted, or which may be made or granted, by the Secured Party to the Debtor under the Share Purchase Agreement and otherwise and interest on such loans and advances or credit granted and all costs, charges and expenses of, or incurred by the Secured Party, in connection with protecting, preserving, realizing upon or collecting the Collateral or attempting to do so or otherwise and all other obligations and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, of the Debtor to the Secured Party arising from this or any other agreement or dealings between the Secured Party and the Debtor or from any agreement or dealings with any person by which the Secured Party may be or become in any manner whatsoever a creditor of the Debtor or otherwise howsoever arising and whether the Debtor be bound alone or with another or others and whether as principal or surety including all reasonable legal fees and disbursements incurred by the Secured Party in connection with all of the foregoing as between a solicitor and his own client;

(d)

Unless specifically defined herein, all capitalized terms used herein shall have the same meaning as ascribed to them in the Act.

(a)

that on execution of this Agreement the Debtor will be in possession of the Collateral or be entitled to possession of the Collateral;

(b)

to do, execute, acknowledge and deliver such financing statements and further assignments, transfers, conveyances, documents, acts, matters and things as may be reasonably requested by the Secured Party of or with respect to the Collateral in order to give effect to these presents and to pay all costs for searches and filings in connection therewith and for the preparation of this Agreement, including solicitor's fees and disbursements incurred by the Secured Party in connection with the foregoing, as between a solicitor and his own client; and including the issuance of notices of the filing of a financing statement in the PPR Alberta in respect of this Agreement to the lessors of freehold petroleum and natural gas leases included in the real property interests described in Schedule “A” hereto and the filing of Security Notices with Alberta Energy in respect of all Alberta Crown petroleum and natural gas leases included in the real property interests described in Schedule “A” hereto in which the Corporation holds a working interest of record with Alberta Energy;

(c)

to deliver to the Secured Party from time to time, forthwith upon request, any Documents of Title, Instruments, Securities and Chattel Paper constituting, representing or relating to the Collateral;

(d)

to give the Secured Party prompt and immediate notice of:

(i)

the occurrence of any event of default hereunder or of any other event which, with the giving of notice or the lapse of time, would constitute an event of default hereunder;

(ii)

any loss or damage to the Collateral;

(iii)

any change of the Debtor's name; and,

(iv)

any change in the information contained herein or in the Schedules hereto relating to the Debtor's business or the Collateral;

(e)

to prevent the Collateral, or any part thereof, from being or becoming an Accession or Fixture to other property not covered by this Agreement, if applicable;

(f)

that if by reason of location of the Collateral or otherwise the creation, validity or perfection of the Security Interest provided for herein is governed by a law of a jurisdiction other than Alberta, then the Debtor shall take such steps and execute and deliver such papers as the Secured Party may from time to time request to comply with the Personal Property Security Act and other laws of another province or provinces, or the laws of Canada.

(g)

To diligently maintain, use and operate the Collateral and to conduct the Debtor’s affairs in a proper and efficient manner so as to preserve and protect the Collateral and the earnings, income, rents and profits thereof;

(h)

Not to sell, exchange, transfer, assign, lease or otherwise dispose of the Collateral or any interest therein other than in the ordinary course of the Debtor’s business UNLESS with the prior written consent of the Secured Party had and delivered, not to be unreasonably withheld;

(i)

To maintain insurance on all of the Collateral which is of a character usually insured in comparable circumstances with reputable insurers against loss or damage by fire or other hazards and to deliver to the Secured Party evidence of such insurance satisfactory to the Secured Party;

(j)

To pay all rents, taxes, rates, levies, assessments and government fees or dues lawfully levied, assessed or imposed in respect of the Collateral or any part thereof as and when the same shall become due and payable and to exhibit to the Secured Party, on demand, the receipts and vouchers establishing such payments;

(k)

To keep proper books of accounts in accordance with generally accepted accounting principals, consistently applied,  and to furnish to the Secured Party, within 48 hours following the Secured Party’s request during normal business hours,  such financial information and statements relating to the Collateral as the Secured Party may from time to time require;

(l)

To notify the Secured Party promptly of:

(i)

Any significant default in the payment to the Debtor of accounts which are part of the Collateral; and

(ii)

All litigation before any court, administrative board or other tribunal affecting the Debtor or the Collateral;

(m)

To furnish to the Secured Party such other information with respect to the Collateral as the Secured Party may from time to time require;

(n)

Not to, without the prior written consent of the Secured Party, create any other

security interest, mortgage, hypothec charge, lien or other encumbrance upon the Collateral or any part thereof ranking or purporting to rank in priority to or equally with the Security Interest; and

(o)

To defend the title to the Collateral against all persons and, upon demand by the Secured Party, to furnish such further assurance of title and to execute any written instruments or do any other acts necessary to make effective the purposes and provisions of this Agreement.

(a)

if the Debtor shall default in making any payment due to the Secured Party with respect to the Indebtedness;

(b)

if the Debtor shall be in default under or be in breach of any provision of this Agreement or of any other agreement between the Debtor and the Secured Party including any promissory note;

(c)

if the Debtor shall fail to pay any charges, rents, taxes, or rates on leasehold property, or other charges of a like nature, or if the Debtor fails to observe and perform any of the covenants, payments or conditions in any lease, license, concession, agreement, mortgage, agreement for sale, charge or encumbrance;

(d)

if the Debtor makes default in the payment of the principal or interest forming part of the Indebtedness;

(e)

if an order shall be made or an effective resolution passed for the winding up of the Debtor, or if a petition is filed for the winding-up of the Debtor;

(f)

if the Debtor shall make an assignment for the benefit of creditors or be declared bankrupt, or if a custodian or receiver or receiver and manager or other officer with similar powers be appointed with respect to the Debtor or any of the Debtor's property or if the Debtor voluntarily files a petition in bankruptcy, or commits any act of bankruptcy or proposes to take the benefit of any provision of the Companies Creditors Arrangement Act as now or hereafter in force or makes any arrangement with its creditors pursuant to the terms of the Business Corporations Act of Alberta or the Canada Business Corporations Act as now or hereafter in force;

(g)

if the Debtor ceases or demonstrates an intention to cease carrying on business;

(h)

if the Debtor passes or purports to pass any resolution or takes or purports to take any corporate proceedings to enable it to take proceedings for its dissolution, liquidation or amalgamation;

(i)

if the Debtor shall lose its charter by expiration, forfeiture or otherwise or if a receiver or a receiver-manager for all or any part of the Debtor's assets or any other party with like powers shall be appointed;

(j)

except for sales of Inventory in the ordinary course of business, if any assets of the Debtor are either directly or indirectly (including, without limitation, by way of transfer or sale of shares) sold, transferred, removed, alienated or disposed of in any manner whatsoever by the Debtor without the written consent of the Secured Party, not to be unreasonably withheld, or if the Secured Party, in its sole discretion, deems the Debtor's assets or any part thereof are in danger of being sold, transferred, assigned, conveyed, removed, alienated or disposed of;

(k)

if the Secured Party, acting commercially reasonably, deems itself insecure or decides that the Collateral is or is likely to be in jeopardy or the Secured Party has commercially reasonable grounds to believe that the prospect of payment or performance of the obligations of the Debtor is or is likely to be impaired;

(l)

if the Security Interest granted to the Secured Party hereunder shall cease to be in full force and effect or the validity thereof or of any of the obligations of the Debtor hereunder shall be disaffirmed by or on behalf of the Debtor;

(m)

Any of the representations and warranties in this agreement were incorrect in any material respect when made or deemed to have been made;

(n)

Any encumbrancer takes possession or purports to or attempts to take possession of the Collateral or any part thereof without the prior written consent of the Secured Party had and received;

(o)

Any execution or other process of any court becomes enforceable against the Debtor or any distress or analogous process is levied upon the Collateral or any part thereof.

(a)

the Secured Party, at its sole discretion, may declare any or all of the Indebtedness, which is not by its terms payable on demand, to be immediately due and payable, without demand or notice of any kind.  Notwithstanding the foregoing, the Debtor acknowledges that the Secured Party may in its sole, absolute and unfettered discretion demand payment with respect to any portion of the Indebtedness which may now or hereaf