FARMOUT AGREEMENT







                           ENTERED INTO BY AND BETWEEN





                           FX ENERGY POLAND Sp. z o.o.





                                       AND





                       CALENERGY POWER (POLSKA) Sp. z o.o.















                           COVERING THE "FENCES AREA"

                          IN THE FORESUDETIC MONOCLINE



<PAGE>



THIS Farmout Agreement (hereinafter referred to as the "Agreement") is made as

of the 9th day of January, 2003, among:



FX ENERGY POLAND Sp. z o.o. with its registered seat in Warsaw, at al. Jana

Paw(3)a II 29, 00-867 Warsaw, entered into the Polish Court Register maintained

by the District Court in Warsaw under the KRS No. 0000052459 ("FX"), represented

by Mr. David Pierce, a member of the Management Board; and



CALENERGY POWER (POLSKA) Sp. z o.o. with its registered seat in Warsaw at

Niedzwiedzia 8C, 02-737, Warsaw entered into the Polish Court Register

maintained by the District Court in Warsaw under the RHB No. 52059 ("CE Power"),

represented under power of attorney by Mr. Peter Youngs;



                                   WITNESSETH:



WHEREAS, Polskie Gornictwo Naftowe I Gazownictwo S.A. with its registered seat

in Warsaw, at Krucza 6/14, 00-537 Warsaw, entered into the Polish Court Register

maintained by the District Court in Warsaw under the KRS No. [ ] ("POGC") has

entered into that certain Mining Usufruct dated September 28, 2001, with the

State Treasury of the Republic of Poland, dated September 28, 2001, covering

prospecting for and exploring deposits of oil and natural gas in the

"Srem-Jarocin" area (the "Fences Mining Usufruct") and POGC has also received

Concession #29/2001/p relating thereto (the "Fences Concession");



WHEREAS, POGC and FX entered into that certain Agreement on Cooperation in

Exploration of Hydrocarbons on Foresudetic Monocline dated April 11, 2000, (the

"Fences Cooperation Agreement") and that certain Joint Operating Agreement dated

May 12, 2000, (the "Fences JOA"), all of which agreements grant FX certain

rights and obligations with respect to the area (the "Fences Area") covered by

the Fences Mining Usufruct and the Fences Concession;



WHEREAS, POGC and FX entered into that certain Settlement Agreement (the "Fences

Settlement Agreement") dated January 8, 2003 such agreement clarifying and

resolving matters and issues arising under the Fences Cooperation Agreement.



WHEREAS, CE Power wishes to earn and acquire from FX undivided interests in the

Fences Mining Usufruct and the Fences JOA, and FX is willing to have CE Power

participate in operations conducted in the Fences Area and to earn the

interests;



WHEREAS, the Parties wish to set out the terms and conditions upon which FX will

transfer and CE Power will earn and receive a transfer of such interests;



WHEREAS this Agreement is intended to set forth in more detail the respective

rights and obligations of the Parties hereto with respect to the aforesaid

agreements;



NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:



1.       Definitions



         1.1      In this Agreement the following capitalized words and

                  expressions shall have the following respective meanings:



                                       2

<PAGE>



         "AFE" shall have the meaning defined in the Fences JOA.



         "Affiliate" shall have the meaning defined in the Fences JOA.



         "Agreement" means this agreement.



         "Best Efforts" means that the Party in question shall immediately carry

         out all actions that could be expected of it in order to discharge the

         relevant obligation placed upon it by this Agreement, which shall

         include lending all assistance to the other Parties as could reasonably

         be expected.



         "Business Day" shall have the meaning defined in the Fences JOA.



         "CE Gas" means CalEnergy Gas (Holdings) Ltd, an English company with

         its registered office in London at 60 Gray's Inn Road, London, England

         (Registration Number 2772202).



         "CalEnergy Resources Limited" means an English company with its

         registered office in Carliol House, Market Street, Newcastle, England

         (Registration Number 04508881).



         "Contract Area" shall have the meaning defined in the Fences JOA.



         "Data" means all data which any Party has a right to dispose of,

         whether in hard copy or digital form (where available) including, but

         not limited to, geoscientific and engineering data and logs.



         "Day" shall have the meaning defined in the Fences JOA.



         "Dollars" means United States of America dollars.



         "Drilling" means (in addition to its usual meaning) preparation for

         drilling, drilling, taking and running logs, cores and flow and

         formation tests to evaluate formations encountered which are

         prospectively productive of hydrocarbons, together with plugging and

         abandonment (in the case of a dry hole), suspension or completion as a

         producer.



         "End Date" means the date specified in Clause 3.10.



         "Fences Area" means the land area covered by the Fences JOA, the Fences

         Mining Usufruct and the Fences Concession.



         "Fences Concession" means that certain concession, number 29/2001/p,

         issued to POGC by the Minister of Environment, a copy of which is

         attached at Exhibit 2.



         "Fences Cooperation Agreement" means that certain Agreement on

         Cooperation in Exploration of Hydrocarbons on Foresudetic Monocline

         dated April 11, 2000, between POGC and FX, pertaining to exploration

         and exploitation of hydrocarbons in the Fences Area, a copy of which is

         attached at Exhibit 3.



                                       3

<PAGE>



         "Fences JOA" means that certain Joint Operating Agreement dated May 12,

         2000, between POGC and FX, as amended by inter alia the Fences

         Settlement Agreement, a copy of which is attached at Exhibit 4.



         "Fences Mining Usufruct" means that certain Mining Usufruct dated

         September 28, 2001 between the State Treasury of the Republic of Poland

         represented by the Minister of Environment and POGC covering

         prospecting for and exploring deposits of oil and natural gas in the

         "Srem-Jarocin" area, a copy of which is attached at Exhibit 1.



         "Fences Settlement Agreement" means that certain Settlement Agreement

         regarding the Fences Area dated January 8, 2003, a copy of which is

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