Exhibit 10.4

$25,000,000

AMENDED AND RESTATED

senior first LIEN SECURED

CREDIT AGREEMENT

Non-Revolving

Between

Rampant Lion Energy, LLC

a Louisiana limited liability company

as Borrower

and

Macquarie Bank Limited,

a bank incorporated in accordance with the laws of Australia,

as Lender

_________________________________

Dated as of September 14, 2006

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TABLE OF CONTENTS

Article I Definitions

1

Section 1.1.

Specific Defined Terms

1

Section 1.2.

Other Capitalized Terms

12

Section 1.3.

Exhibits and Schedules

12

Section 1.4.

Amendment of Defined Instruments

12

Section 1.5.

References and Titles

12

Article II The Term Loan

12

Section 2.1.

Maximum Commitment; Development Plan.

12

Section 2.2.

Availability and Purpose of Advances

13

Section 2.3.

Advance Procedure.

13

Section 2.4.

Term Note

14

Section 2.5.

Interest.

14

Section 2.6.

Repayment of Principal of and Interest on the Term Loan; Net Operating Cash
Flow.

14

Section 2.7.

Time and Place of Payments

15

Section 2.8.

Borrower Sub-Account.

15

Section 2.9.

Optional Prepayment of the Term Loan

16

Section 2.10.

Mandatory Prepayment of the Term Loan

16

Section 2.11.

Revenues Remaining in the Borrower Sub-Account

16

Section 2.12.

Taxes.

16

Section 2.13.

Fees.

18

Article III Security

18

Section 3.1.

Grant of Security Interests

18

Section 3.2.

Pledged Interests

19

Section 3.3.

Equipment.

19

Section 3.4.

Subordination Agreements

19

Article IV Representations and Warranties

19

Section 4.1.

Formation and Existence

19

Section 4.2.

Executive Offices

19

Section 4.3.

Capitalization; Ownership; Subsidiaries

19

Section 4.4.

Authorization; Non-Contravention

19

Section 4.5.

Solvency

20

Section 4.6.

Omissions and Misstatements

20

Section 4.7.

Joint Venture

20

Section 4.8.

Commissions; Expenses

20

Section 4.9.

Tax Returns

20

Section 4.10.

Litigation; Governmental Proceedings

20

Section 4.11.

Ownership of Collateral; Interests

21

Section 4.12.

Indebtedness

21

Section 4.13.

Trademarks, Etc

21

Section 4.14.

Other Leases

21

Section 4.15.

Investments. Borrower:

21

Section 4.16.

Environmental Matters

21

Section 4.17.

Operating Permits and Licenses

22

Section 4.18.

Maintenance of Properties

22

Section 4.19.

USA Patriot Act Representation

22

Section 4.20.

Contingent Liabilities

23

Section 4.21.

Restrictions on Equipment

23

Section 4.22.

Unpaid Bills

23

Section 4.23.

Taxpayer Identification

23

Section 4.24.

Investment Company

23

Section 4.25.

Borrower Not a Public Company

23

Section 4.26.

Other Agreements

23

Section 4.27.

Basic Documents

23

Section 4.28.

Farmout Agreements and Subject Contracts, Etc

23

Section 4.29.

Operating Agreements

24

Section 4.30.

No Unusual Agreements

24

Section 4.31.

Suspense of Proceeds

24

Section 4.32.

Employee Plans

24

Section 4.33.

Use of Proceeds

24

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Section 4.34.

Borrower’s Interests in the Properties

24

Section 4.35.

Insurance

24

Section 4.36.

No Material Adverse Effect

24

Section 4.37.

No Other Interest in the Properties

24

Section 4.38.

Conduct of Business Since Formation

24

Section 4.39.

Restriction on Liens

25

Section 4.40.

Hedging Agreements

25

Section 4.41.

Marketing of Production

25

Section 4.42.

Deposit Accounts

25

Section 4.43.

Labor Matters

25

Section 4.44.

Vendor Liens

25

Section 4.45.

Eligible Contract Participant

25

Section 4.46.

Enforceability of Other Agreements

25

Article V Financial Statements and Information; Certain Notices to Lender

25

Section 5.1.

Property Operating Statement

25

Section 5.2.

Annual Reports

26

Section 5.3.

Monthly Financial Reports

26

Section 5.4.

Certificate of Financial Officer; Compliance

26

Section 5.5.

Default Notices

26

Section 5.6.

Reserve Reports.

27

Section 5.7.

Other Information

28

Section 5.8.

Daily Field Reports

28

Section 5.9.

Weekly Production Reports

28

Section 5.10.

Monthly Field Activity Reports

28

Section 5.11.

AFEs

29

Section 5.12.

Test Results; Core Analyses; Surveys and Logs

29

Section 5.13.

Advance Notice of Operations

29

Section 5.14.

Reports Made to a Governmental Authority

29

Section 5.15.

Charter Documents

29

Section 5.16.

Information to Members

29

Section 5.17.

Certificate of Authorized Officer; Hedging Agreements

29

Section 5.18.

Certificate of Insurer; Insurance Coverage

29

Section 5.19.

Updated Development Plan

29

Article VI Affirmative Covenants

29

Section 6.1.

Preservation of Existence

29

Section 6.2.

Affiliate Transactions

30

Section 6.3.

Compliance with Law

30

Section 6.4.

Environmental Matters

31

Section 6.5.

Records

31

Section 6.6.

Litigation

31

Section 6.7.

Damage to Collateral

31

Section 6.8.

Solvency

31

Section 6.9.

Insurance. Borrower shall

31

Section 6.10.

Delivery of Instruments

32

Section 6.11.

Consultants

32

Section 6.12.

Creditors

33

Section 6.13.

Inspection

33

Section 6.14.

Compliance Opinions and Reports

33

Section 6.15.

Operators

33

Section 6.16.

Purchasers of Hydrocarbons

34

Section 6.17.

Access to Officers, Employees and Agents

34

Section 6.18.

Use of Proceeds; Development of Properties

34

Section 6.19.

Bonds

34

Section 6.20.

Hedging Hydrocarbon Production

34

Section 6.21.

Minimum Payments

34

Section 6.22.

Post-Closing Title Opinions

34

Section 6.23.

Continuing Enterprise

35

Section 6.24.

Venue for Debtor Relief Proceedings

35

Section 6.25.

Access to Seismic and Geophysical Data

35

Section 6.26.

Liens on Collateral

35

ii

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Section 6.27.

Financial Ratios

35

Section 6.28.

Use of Additional Equity

35

Section 6.29.

Payment of Taxes

35

Section 6.30.

Event of Default

35

Section 6.31.

Legal Opinions

35

Section 6.32.

Documents

35

Section 6.33.

ERISA

35

Section 6.34.

Net Operating Cash Flow

35

Section 6.35.

Net Revenue Interest Production Levels

35

Article VII Negative Covenants

36

Section 7.1.

Debt

36

Section 7.2.

Accounts

36

Section 7.3.

Guaranties

36

Section 7.4.

Ownership and Business Operations

36

Section 7.5.

Liens and Encumbrances

37

Section 7.6.

Investments

37

Section 7.7.

Subsidiaries and Divestitures

37

Section 7.8.

Compliance with Laws

38

Section 7.9.

Dividends and Distributions

38

Section 7.10.

Modifications

38

Section 7.11.

Development Expenditures

38

Section 7.12.

Minimum Quarterly Net Operating Cash Flow

38

Section 7.13.

Minimum Quarterly Net Revenue Interest Production Levels

38

Section 7.14.

Other

38

Section 7.15.

Proceeds of Notes

39

Section 7.16.

Limitation on Leases

39

Section 7.17.

Nature of Business

39

Section 7.18.

Deposit Accounts

39

Section 7.19.

No Severance Agreements

39

Section 7.20.

G&A Expenses

39

Section 7.21.

Commodity Deliveries

39

Section 7.22.

Disqualified Capital Stock

39

Section 7.23.

Warranties, Representations, Covenants

39

Article VIII Further Rights of Lender

39

Section 8.1.

Delivery of Additional Documents; Power of Attorney

39

Section 8.2.

Payments by Lender

40

Section 8.3.

Possession

40

Section 8.4.

Indemnification from Borrower

40

Section 8.5.

Removal and Appointment of Operator

41

Article IX Closing; Conditions Precedent to Closing

41

Section 9.1.

Closing

41

Section 9.2.

Conditions to Making the Initial Advance

42

Section 9.3.

General Additional Conditions Precedent

45

Section 9.4.

Tranche C Additional Conditions Precedent

46

Section 9.5.

Post-Closing Condition

46

Article X Events of Default

46

Section 10.1.

Events of Default

46

Article XI Remedies of Lender

49

Section 11.1.

Remedies

49

Section 11.2.

Collateral

49

Section 11.3.

Set-Off Rights

49

Section 11.4.

Rights Under Operating Agreements

49

Article XII Miscellaneous

49

Section 12.1.

Remedies Cumulative

49

Section 12.2.

Assignment

50

Section 12.3.

Notices

50

Section 12.4.

Waivers; Amendments

51

Section 12.5.

Confidentiality

51

Section 12.6.

Final Agreement

51

Section 12.7.

WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC

51

iii

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Section 12.8.

GOVERNING LAW

52

Section 12.9.

No Third-Party Beneficiaries

52

Section 12.10.

Fees, Costs and Expenses

52

Section 12.11.

Compliance with Law

52

Section 12.12.

Obligations are Non-Recourse to Members

53

Section 12.13.

Severability

53

Section 12.14.

Captions; Headings

53

Section 12.15.

Construction

53

Section 12.16.

Additional Documents

53

Section 12.17.

Counterpart Execution

53

Section 12.18.

EXCULPATION PROVISIONS

53

Section 12.19.

No Other Agreements; No Parol Evidence

53

Exhibit A

Description of Properties; Interests

Exhibit B

Form of Term Note

Exhibit C

Form of Advance Request

Exhibit D

Form of Property Operating Statement

Exhibit E

Existing and Approved Purchasers

Exhibit F

Form of Subordination Agreement

Exhibit G

Form of Notice to Purchasers

Exhibit H

Aged Payables and Other Liabilities

Exhibit I

Deposit Account Control Agreement

Exhibit J

Medco Energi Participation Agreement

Annex A

Loan Documents

Schedule 2.1

Development Plan

Schedule 2.2(a)

Source and Use of Funds

Schedule 2.3(b)

Approved Authorizations for Expenditure (“AFEs”)

Schedule 2.3(d)

Authorized Signatories on Advance Requests

Schedule 4.3

Ownership of Equity Interests of Borrower

Schedule 4.10

Litigation

Schedule 4.12

Indebtedness

Schedule 4.16

Environmental Matters

Schedule 4.20

Contingent Liabilities

Schedule 4.28

Farmout Agreements and Subject Contracts

Schedule 4.29

Operators/Operating Agreements

Schedule 4.40

Hedging Agreements

Schedule 4.41

Marketing Contracts

Schedule 4.42

Deposit Accounts

Schedule 6.9

Insurance

Schedule 6.19

Bonds and Qualifications

Schedule 6.20

Price Risk Management Program

Schedule 7.1(b)

Authorized Capital Leases

Schedule 7.5

Liens and Encumbrances

Schedule 7.12

Minimum Quarterly Net Operating Cash Flow

Schedule 7.13

Minimum Quarterly Production Levels (Borrower’s NRI production)

Schedule 9.2

Minimum Price for Hedged Hydrocarbons

iv

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AMENDED AND RESTATED SENIOR FIRST LIEN

SECURED LOAN CREDIT AGREEMENT

This Amended and Restated Senior First Lien Secured Credit Agreement (this
“Agreement”) is dated as of September 14, 2006, between Rampant Lion Energy,
LLC, a Louisiana limited liability company, having its principal executive
office and place of business at 9700 Richmond Avenue, Suite 124, Houston, Texas
77042 (“Borrower”), and Macquarie Bank Limited, a bank incorporated in
accordance with the laws of Australia, with offices at Level 15, 1 Martin Place,
Sydney, New South Wales, 2000 Australia (“MBL” or “Lender”).

Background:

A.

Borrower and Lender entered into that certain $1,500,000 Secured Credit
Agreement, dated as of February 10, 2006 (the “Original Credit Agreement”), for
the purpose of making available to Borrower a senior, secured term loan on a
non-revolving basis;

B.

Borrower and Lender desire to amend and restate the Original Credit Agreement in
its entirety with this Agreement to make available to Borrower a senior secured
term loan for the purposes set forth in this Agreement;

C.

In connection with Lender making available to Borrower the financial
accommodations described in this Agreement, Borrower will grant to Lender a
first-priority mortgage Lien and a first-priority perfected security interest in
all of the real and personal property of Borrower subject only to the Permitted
Encumbrances (defined below); and

D.

To further induce Lender to enter into this Agreement, Borrower will assign the
Net Profits Interest (defined below) to Lender or its designee.

Agreements:

In consideration of the terms, covenants, provisions and conditions set forth in
this Agreement, Borrower and Lender agree as follows:

ARTICLE I
Definitions

Section 1.1.

Specific Defined Terms

As used herein, the following terms shall have the following meanings and, as
the context requires, the singular shall include the plural:

“Adjusted PV Ratio” means, as of any date, the ratio of (a) the Total Adjusted
Present Value to (b) Borrower’s Net Indebtedness.

“Advance” means an advance of funds under the Term Loan by Lender at the
Contract Rate pursuant to Article II of this Agreement.

“Advance Fee” has the meaning assigned to such term in Section 2.13(b
êêê.

“Advance Request” means a request for an Advance under the Term Loan in
substantially the form of Exhibit C hereto.

“AFE” means an authorization for expenditure representing an estimate of work to
be performed. AFE’s shall not include COPAS overhead or other similar expenses
related to Borrower’s overhead expense, except to the extent that the COPAS
charges are part of the Operator’s AFE, where Borrower (or any Affiliate of
Borrower) is not the Operator.

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“Affiliate” means as to any Person (a) any other Person who directly or
indirectly controls, is under common control with, or is controlled by such
Person, (b) any director or officer of such Person or of any Person referred to
in clause (a) above, or (c) if any Person in clause (a) above is an individual,
any member of the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such individual or
one or more members of such immediate family and any Person who is controlled by
any such member or trust. As used in this definition, “control” (including, with
its correlative meanings, “controlled by” and “under common control with”) means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of Equity Interests, by
contract or otherwise); provided that, in any event, (i) any Person who owns
directly or indirectly ten percent (10%) or more of the Equity Interests having
ordinary voting power for the election of directors or other governing body of a
corporation or ten percent (10%) or more of the Equity Interests of any other
Person (other than as a limited partner of such other Person) will be deemed to
control such corporation or other Person, and (ii) any Subsidiary of any
Borrower shall be deemed to be an Affiliate of Borrower. Notwithstanding the
foregoing, neither Lender nor Lender’s Affiliate shall be deemed an Affiliate of
Borrower.

“Agreement” has the meaning assigned to that term in the first paragraph hereof,
and any amendment, modification or restatement.

“Apache Production Handling Agreement” means that certain agreement by and among
Apache Corporation and Medco Energi US LLC, or a counterparty acceptable to
Lender in its sole and absolute discretion, and upon terms satisfactory in form
and substance to Lender in its sole and absolute discretion.

“Applicable Percentage” means one hundred percent (100%).

“Archie/Humble Formula” means equation number fifty-nine (59) as set forth in
the Petroleum Production Handbook, Thomas C. Frick, Editor-in-Chief, R. William
Taylor, Associate Editor, Volume II, Reservoir Engineering, copyright @ 1962,
Library of Congress Catalog Card Number: 60-10601, Second Printing.

“Authorized Officer” has the meaning assigned to that term in Section 5.1(b).

“Availability Termination Date” means, unless extended in writing by Lender,
(a) with respect to Tranche A, on Closing, (b) with respect to Tranches B, C,
and D, through a period twelve (12) months following Closing, and (c) with
respect to Tranche E, through a period eighteen (18) months following Closing.

“Bankruptcy Code” means Title 11 of the United States Code as amended from time
to time.

“Basic Documents” means Leases, Operating Agreements, Hydrocarbon purchase,
sales, exchange, processing, gathering, treatment, compression and
transportation agreements; farmout or farm-in agreements; unitization
agreements; joint venture, exploration, limited or general partnership, dry
hole, bottom hole, acreage contribution, purchase and acquisition agreements;
area of mutual interest agreements; salt water disposal agreements, servicing
contracts; easement and/or pooling agreements; surface leases, permits,
licenses, rights-of-way, servitudes or other interests appertaining to the
Properties and all other executory contracts and agreements relating to the
Properties.

“Borrower” has the meaning assigned to that term in the first paragraph hereof.

“Borrower Sub-Account” has the meaning assigned to such term in Section 2.8(a).

“Business Day” means any day other than a Saturday, Sunday or other day in which
banking institutions in the city of New York are authorized or obligated by law
or executive order to close.

“Capital Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital leases
on the balance sheet of the Person liable (whether contingent or otherwise) for
the payment of rent thereunder.

“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.

“Change of Control” means the occurrence of any event pursuant to which the
management of Borrower is, in the reasonable opinion of Lender, materially
diminished as a result of the failure of John M. Jurasin to devote sufficient
professional efforts to the management of Borrower and the development of the
Properties.

2

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“Charter Documents” means, as applicable for any Person that is not an
individual, the articles or certificate of incorporation or formation,
certificate of limited partnership, regulations, bylaws, partnership or limited
partnership agreement, limited liability agreement, company agreement, and all
similar documents related to the formation and governance of that Person,
together with all amendments to any of them.

“Closing” means the execution by Borrower and other applicable parties and the
delivery to Lender of the Loan Documents (as hereinafter defined) and all other
documents contemplated by this Agreement.

“Closing Date” has the meaning assigned to that term in Section 9.1.

“Collateral” means the Properties, all Personal Property and the Pledged
Interest.

“Commitment Fee” has the meaning assigned to such term in Section 2.13(a).

“Contract Rate” means a floating rate, calculated and payable on a monthly basis
in arrears based on a 360-day year, equal to the rate per annum of the Prime
Rate plus four percent (4.00%).

“COPAS” means the Accounting Procedures for Joint Operations Recommended by the
Council of Petroleum Accountants Societies, then in effect, with respect to
onshore or offshore operations, as applicable, and as applied to properties
located in the same geographical area with the Leases.

“Crude Oil” means all crude oil, condensate and other liquid hydrocarbon
substances.

“Current Assets” means on any date of determination, the consolidated current
assets that would, in accordance with GAAP, be classified as of that date as
current assets, less any non-cash amount required to be included in Current
Assets as the result of the application of FASB Statement 133 or FASB Statement
143 (or any successor GAAP which serves to amend, supplement or replace FASB
Statements 133 and 143).

“Current Liabilities” means, on any date of determination, the consolidated
obligations that would, in accordance with GAAP, be classified as of that date
as current liabilities, excluding (a) non-cash obligations under FASB Statement
133 or FASB Statement 143 (or any successor GAAP which serves to amend,
supplement or replace FASB statement 133 and 143) and (b) excluding the current
portion of long-term Debt.

“Current Ratio” means, as of any date, the ratio of (a) Borrower’s Current
Assets to (b) Borrower’s Current Liabilities on that date.

“Debt” means, for any Person, the sum of the following (without duplication):
(a) all obligations of such Person for borrowed money as evidenced by bonds,
bankers’ acceptances, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of property or services; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic Leases;
(f) all Debt (as defined in the other clauses of this definition) of others
secured by a Lien on any property of such Person, whether or not such Debt is
assumed by such Person; (g) all Debt (as defined in the other clauses of this
definition) of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the Debt (howsoever such assurance
shall be made) to the extent of the lesser of the amount of such Debt and the
maximum stated amount of such guarantee or assurance against loss; (h) all
obligations or undertakings of such Person to maintain or cause to be maintained
the financial position or covenants of others or to purchase the Debt or
property of others; (i) obligations to deliver commodities, goods or services,
including, without limitation, Hydrocarbons, in consideration of one or more
advance payments, other than gas balancing arrangements in the ordinary course
of business; (j) obligations to pay for goods or services whether or not such
goods or services are actually received or utilized by such Person; (k) any Debt
of a partnership for which such Person is liable either by agreement, by
operation of law or by a Governmental Requirement but only to the extent of such
liability; (l) Disqualified Capital Stock; and (m) the undischarged balance of
any production payment created by such Person or for the creation of which such
Person directly or indirectly received payment. The Debt of any Person shall
include all obligations of such Person of the character described above to the
extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is not included as a liability of such Person under
GAAP.

“Debtor Relief Laws” means the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, insolvency, rearrangement, moratorium,
reorganization, fraudulent transfer or conveyance, or similar debtor relief laws
affecting the rights of creditors generally from time to time in effect.

3

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“Default” means the occurrence of any event which, with the lapse of time or the
giving of notice or both will become an Event of Default hereunder.

“Default Rate” has the meaning assigned to that term in Section 2.5(a).

“Defensible Title” means with respect to each Property, title that (a) entitles
the Person to receive (free and clear of all royalties appearing or not
appearing of record, all overriding royalties except the Net Profits Interest,
and all net profits interests or other burdens on or measured by production of
Hydrocarbons) not less than the Net Revenue Interest set forth on Exhibit A in
all Hydrocarbons produced, saved and marketed from the Property for the
productive life of the Property, free and clear of any Lien, other than the
Permitted Encumbrances and any Liens, which are in favor of Lender and its
Affiliates or are permitted hereunder; and (b) obligates such Person to bear
costs and expenses relating to the maintenance, development and operation of
such Property in an amount not greater than the Working Interest set forth on
Exhibit A for the productive life of such Property.

“Deposit Account Control Agreement” means a Deposit Account Control Agreement
among Borrower, Lender and the depository bank(s) in the form of Exhibit I
covering the deposit accounts set forth in Schedule 4.42.

“Development Plan” means the comprehensive plan or plans in effect from time to
time with respect to development projects contemplated for Tranches B, C, D and
E including the initial Development Plan for projects to be funded under
Tranches B and C attached hereto as Schedule 2.1. The Development Plan shall
provide for but not be limited to the location, timing and estimated costs of
Wells to be drilled as well as names of key personnel required to undertake
those operations and their associated responsibilities, supported by
documentation of Well designs and procedures. The Development Plan shall be
satisfactory to Lender in its sole and absolute discretion. The Development Plan
may be amended, modified or replaced from time to time with the written approval
of Lender.

“Disqualified Capital Stock” means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible into or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after the earlier
of (a) the Maturity Date and (b) the date on which there are no Advances or
other obligations hereunder outstanding and all commitments (conditional or
otherwise) of Lender to make additional Advances are terminated.

“EBITDA” means for Borrower for any period (a) net income, in accordance with
GAAP for such period plus (b) to the extent deducted in determining net income
for such period, interest expense, income taxes and non-cash depreciation and
amortization expense for such period, minus (c) all non-cash income added to net
income for such period. EBITDA shall be calculated without including non-cash
mark-to-market adjustments arising from the application of FASB Statement 133 or
FASB Statement 143 (or any successor GAAP which serves to amend, supplement or
replace FASB Statements 133 and 143).

“Employee Plan” means an employee pension benefit plan covered by Title IV of
ERISA.

“Engineers” means an independent petroleum engineering firm selected by Borrower
and approved by Lender in writing from time to time.

“Environmental and Safety Regulations” means all applicable foreign, federal,
state or local laws, ordinances, codes, rules, orders and regulations with
respect to any environmental, pollution, toxic or hazardous waste or health and
safety law, including, without limitation, those promulgated by the United
States Environmental Protection Agency, the Federal Energy Regulatory
Commission, the Department of Energy, the Occupational Safety and Health
Administration, the Department of the Interior, or any other foreign, federal or
state regulatory agency, or any of their predecessor or successor agencies.

4

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“Environmental Laws” shall mean any and all Governmental Requirements and
Environmental and Safety Regulations pertaining to health or the environment in
effect in any and all jurisdictions in which Borrower is conducting or at any
time has conducted business, or where any Property of Borrower is located,
including without limitation, the OPA, CERCLA, RCRA, the Safe Drinking Water
Act, as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, and other environmental conservation or
protection laws. The term “oil” shall have the meaning specified in OPA, the
terms “hazardous substance” and “release” (or “threatened release”) have the
meanings specified in CERCLA, and the terms “solid waste” and “disposal” (or
“disposed”) have the meanings specified in RCRA; provided, however, that (a) in
the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of
any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (b) to the extent the laws of the state in
which any Property of Borrower is located establish a meaning for “oil,”
“hazardous substance,” “release,” “solid waste” or “disposal” which is broader
than that specified in either OPA, CERCLA or RCRA, such broader meaning shall
apply.

“Equipment” has the meaning assigned to that term in the UCC and includes all
surface or subsurface machinery, goods, equipment, fixtures, inventory,
facilities, supplies or other personal or moveable property of whatsoever kind
or nature (excluding property rented by Borrower or taken to the premises for
temporary uses) now owned or hereafter acquired by Borrower which are now or
hereafter located on or under any of the lands attributable to the Properties
which are used for the production, gathering, treatment, processing, storage or
transportation of Hydrocarbons and whether or not attributable to the Properties
(together with all accessions, additions and attachments to any thereof),
including, without limitation, all Wells, casing, tubing, tubular goods, rods,
pumping units and engines, Christmas trees, platforms, derricks, separators,
compressors, gun barrels, flow lines, water injection lines, tanks, gas systems
(for gathering, treating and compression), pipelines (including gathering lines,
laterals and trunklines), chemicals, solutions, water systems (for treating,
disposal and injection), power plants, poles, lines, transformers, starters and
controllers, machine shops, tools, storage yards and equipment stored therein,
telegraph, telephone and other communication systems, loading docks, loading
racks, shipping facilities, platforms, well equipment, wellhead valves, meters,
motors, pumps, tankage, regulators, furniture, fixtures, automotive equipment,
forklifts, storage and handling equipment, together with all additions and
accessions thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, documentation and processes, warranties and records in
connection therewith including, without limitation, any and, to the extent
permitted, all seismic data, geological data, geophysical data and
interpretation of any of the foregoing, all rights against suppliers,
warrantors, manufacturers, sellers or others in connection therewith, and
together with all substitutes for any of the foregoing.

“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and related rules and regulations.

“Event of Default” has the meaning assigned to that term in Section 10.1.

“Facility Termination Date” means the earliest of (i) the Maturity Date, (ii)
the date on which Borrower has paid and discharged in full all Obligations (as
hereinafter defined) to Lender, or (iii) the date on which Lender has notified
Borrower of the acceleration of payment of all Obligations hereunder because of
the occurrence of an Event of Default.

“Federal Reserve Board” has the meaning assigned to that term in Section 4.33.

“First Reserve Report Effective Date” means that date commencing three months
after first production.

“G&A Cap” means $55,000 per calendar month for six months commencing the month
of first commercial production from the Properties and thereafter ten percent
(10%) of monthly Net Operating Cash Flow (calculated without deduction of such
capped G&A Expenses).

“G&A Expenses” means the general and administrative expenses of Borrower,
including capitalized general and administrative expenses, calculated in
accordance with GAAP (excluding all non-cash charges).

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“GAAP” means generally accepted accounting principles recognized as such by the
Financial Accounting Standards Board consistently applied and maintained
throughout the period indicated and consistent with applicable laws, except for
changes mandated by the Financial Accounting Standards Board or any similar
accounting authority of comparable standing. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board in
order for such principle or practice to continue as a generally accepted
principle or practice, all financial reports or statements required hereunder or
in connection herewith may be prepared in connection with such change, but all
calculations and determinations to be made hereunder may be made in accordance
with such change only if Borrower and Lender agree to do so. Whenever any
accounting term is used herein which is not otherwise defined, it shall be
interpreted in accordance with GAAP.

“Governmental Authority” means the government of the United States of America,
any other nation, or any political subdivision thereof, whether state, local or
tribal, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers, jurisdiction or functions of or
pertaining to government over Borrower, any Affiliate of Borrower, the
Properties, any Affiliate, any of their properties or Lender.

“Governmental Requirements” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
whether now or hereinafter in effect, including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.

“GR” means the gamma ray log reading.

“GR Sand” means the GR of sand.

“GR Shale” means the GR of shale.

“Guarantor” means Jurasin Oil & Gas, Inc.

“Guaranty” means a deed of guaranty and indemnity between the Guarantor and the
Lender, in form and substance acceptable to Lender, whereby Guarantor agrees to
guarantee the repayment of the Obligations.

“Hazardous Materials” means and include (a) all elements or compounds that are
contained in the list of hazardous substances adopted by the United States
Environmental Protection Agency and the list of toxic pollutants designated by
Congress or the Environmental Protection Agency or under any Hazardous Substance
Laws (as hereinafter defined), and (b) any “hazardous waste,” “hazardous
substance,” “toxic substance,” “regulated substance,” “pollutant” or
“contaminant” as defined under any Hazardous Substance Laws.

“Hazardous Substance Laws” means CERCLA, RCRA, the Federal Water Pollution
Control Act, as amended, 33 U.S.C. 1251 et seq., the Toxic Substances Control
Act, 15 U.S.C. 2601 et seq., the Hazardous Liquid Pipeline Safety Act of 1979,
as amended, 40 U.S.C. 2001 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. 136 et seq., the Federal Clean Air Act, 42 U.S.C. 7401
et seq., any so-called federal, state or local “superfund” or “superlien”
statute, and any other applicable federal, state or local law, rule, regulation
or ordinance related to the remediation, clean-up or reporting of environmental
pollution or contamination or imposing liability (including strict liability) or
standards of conduct concerning any Hazardous Materials.

“Hedging Agreement” means

(a)

any and all rate swap transactions, basis swaps, credit derivative transactions,
forward rate transactions, commodity swaps, commodity options, forward commodity
contracts, equity or equity index options, swaps or options, bond or bond price
or bond index swaps or options or forward bond or forward bond price or forward
bond index transactions, interest rate options, forward foreign exchange
transactions, cap transactions, floor transactions, collar transactions,
currency swap transactions, cross-currency rate swap transactions, currency
options, spot contracts or any other similar transactions or any combination of
any of the foregoing (including any options to enter into any of the foregoing),
whether or not any such transaction is governed by or subject to any Master
Agreement (as defined in paragraph (b) below); including any Swap Agreement, and

(b)

any and all transactions of any kind, and the related confirmations, which are
subject to the terms and conditions of, or governed by, any form of master
agreement published by the International Swaps and Derivates Association, Inc.
or any International Foreign Exchange Master Agreement (any such master
agreement, together with any related schedules, a “Master Agreement”), including
any such obligations or liabilities under any Master Agreement.

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“Highest Lawful Rate” means, with respect to Lender, the maximum nonusurious
interest rate, if any, that at any time, or from time to time may be contracted
for, taken, reserved, charged or received on the Term Note or on other
Obligations under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.

“Hydrocarbons” means all Crude Oil and Natural Gas.

“Indemnified Parties” has the meaning assigned to that term in Section 8.4(a).

“Interest Coverage Ratio” means, as of any date, the ratio of (i) Borrower’s
EBITDA for the four (4) most recent fiscal quarters commencing after the date
hereof (or, with respect to Borrower’s first fiscal year, an annualized EBITDA)
to (ii) Borrower’s aggregate interest expense for all Debt (including Debt under
this Agreement) for the same period.

“Investment” means, for any Person: (a) the acquisition (whether for cash,
property, services or securities or otherwise) of Equity Interests of any other
Person or any agreement to make any such acquisition (including, without
limitation, any “short sale” or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or other extension of credit to,
any other Person (including the purchase of property from another Person subject
to an understanding or agreement, contingent or otherwise, to resell such
property to such Person, but excluding any such advance, loan or extension of
credit having a term not exceeding ninety (90) days representing the purchase
price of inventory or supplies sold by such Person in the ordinary course of
business); or (c) the entering into of any guarantee of, or other contingent
obligation (including the deposit of any Equity Interests to be sold) with
respect to, Debt or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person.

“Lease” or “Leases” means, whether one or more, (a) those certain oil and gas
leases set forth in the descriptions of the Properties attached as Exhibit A
hereto, and any other interests in the Leases or any other lease of real
property, whether now owned or hereafter acquired by Borrower, and any
extension, renewals, corrections, modifications, elections or amendments (such
as those relating to unitization) of any such Lease or Leases, or (b) other oil,
gas and/or mineral leases or other interests pertaining to the Properties,
whether now owned or later acquired, which may now and hereafter be made subject
to the Lien of any of the Security Documents and any extension, renewals,
corrections, modifications, elections or amendments (such as those relating to
unitization) of any such lease or leases. The term shall include any permit,
concession or similar grant by a Governmental Authority authorizing the
development, exploration, extraction and sale of Hydrocarbons.

“Lender” has the meaning assigned to that term in the first paragraph of this
Agreement, and includes the initial Lender identified in this Agreement and its
successors and one or more assignees to the extent any of them is a holder of
the Term Note or any interest in the Term Note.

“Lender Participation Documents” means, collectively, (a) any participation and
intercreditor agreement evidencing any transaction (each a “Lender Participation
Transaction”) under which the initial Lender identified in this Agreement
assigns to any other Person an interest in the Term Note and the rights of
Lender under this Agreement and the other Loan Documents, (b) any Term Note
issued by Borrower to any other Person pursuant to any Lender Participation
Transaction and (c) all other documents, agreements, instruments and writings at
any time delivered in connection with a Lender Participation Transaction.

“Lien” means any interest in property (real or personal) securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (a)
the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes or (b) production payments and the like payable
out of oil and gas properties and the Properties. The term “Lien” shall include
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations. For the purposes of this Agreement, Borrower shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.

“Loan Documents” means this Agreement, the Term Note, the Security Documents,
Lender Participation Documents, the Guaranty, the Net Profits Overriding Royalty
Interest Conveyance, any Hedging Agreements, any Swap Agreements, and all other
agreements, certificates, documents, instruments and writings at any time
delivered in connection herewith or therewith (exclusive of term sheets,
commitment letters, correspondence and similar documents used in the negotiation
hereof, except to the extent the same contain information about Borrower or its
Affiliates, properties, business or prospects).

“Material Adverse Effect” means any effect, event or matter:

(a)

which is materially adverse to:

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(i)

the business, assets, liabilities, ownership, board membership, management or
condition (financial or otherwise) of Borrower or of the Guarantor; or

(ii)

the ability of Borrower or Guarantor to perform any of its payment obligations
under any of the Loan Documents; or

(b)

which results in any Security Document not providing to Lender security over the
assets expressed to be secured under that Security Document.

“Maturity Date” means September 14, 2009.

“Maximum Commitment” has the meaning assigned such term in Section 2.1.

“MBL” has the meaning assigned to that term in the first paragraph of this
Agreement.

“Medco Energi Participation Agreement” means that certain Mustang Island Block
758 Participation Agreement dated May 24, 2006 by and between Rampant Lion
Energy, LLC and Medco Energi US LLC, attached as Exhibit J.

“MMCF” and “MCF” means one million cubic feet and one thousand cubic feet,
respectively.

“MCFE” means the MCF Natural Gas equivalent. When determining the MCFE, Crude
Oil Production Volumes shall be converted to Natural Gas on a basis of 1:6 (1
barrel of Crude Oil = 6 MCF of Natural Gas).

“Mortgage” means a mortgage, deed of trust, assignment of production, security
agreement and financing statement and act of mortgage and security agreement
securing future advances executed by Borrower and granting a first and prior
Lien to or for the benefit of Lender in the Properties described therein subject
only to the Permitted Encumbrances, and otherwise in form and substance
satisfactory to Lender, as the same may be modified, amended or supplemented
pursuant to the terms of this Agreement.

“MMS” means the Minerals Management Service.

“Natural Gas” means all natural gas, and any natural gas liquids and all
products recovered in the processing of natural gas (other than condensate)
including, without limitation, natural gasoline, casinghead gas, iso-butane,
normal butane, propane and ethane (including such methane allowable in
commercial ethane) produced from or attributable to the Properties.

“Net Indebtedness” means, as of any date, an amount equal to the sum of, without
duplication, (i) the Total Committed Obligations plus (ii) the total amount of
Borrower’s other Debt classified as long-term Debt under GAAP plus (iii) any
Working Capital deficit or minus any cash Working Capital surplus.

“Net Operating Cash Flow” means Borrower’s gross revenue from sales of
Production Volumes and all other cash receipts from whatever source (including,
without limitation, if applicable, cash payments received from commodity
hedging) less (a) direct lease operating expenses; (b) related severance and ad
valorem taxes; (c) G&A Expenses (so long as no Event of Default has occurred and
continues) not to exceed the G&A Cap; and (d) as appropriate, plus or minus cash
oil and gas hedging inflows/outflows.

“Net Profits Interest” means the net profits overriding royalty interest in the
Properties conveyed by Borrower to Lender or its respective designees pursuant
to the Net Profits Overriding Royalty Interest Conveyance.

“Net Profits Overriding Royalty Interest Conveyance” means the Net Profits
Overriding Royalty Interest Conveyance in form and substance satisfactory to
Lender in its sole and absolute discretion, executed by Borrower in favor of
Lender or its respective designees from time to time.

“Net Revenue Interest” means, with respect to any Property, the decimal or
percentage share of Hydrocarbons produced and saved from or allocable to such
Property, after deduction of all lessor and overriding royalties and other
burdens on or paid out of such production.

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“Obligations” means and include all loans and advances (including the Term
Loan), debts, liabilities, obligations, covenants, duties and amounts owing or
to be owing by Borrower or any Affiliate of Borrower to Lender or any Affiliate
of Lender of any kind or nature, present or future, whether or not evidenced by
any note, guaranty, letter of credit or other instrument, arising directly or
indirectly, under this Agreement, the Term Note, the Security Documents, the
Swap Agreement or other Hedging Agreement, or under any Loan Documents, and all
renewals, extensions and/or rearrangements of any of the foregoing. The term
includes, but is not limited to, all interest, reasonable charges, expenses,
consultants’ and attorneys’ fees and any other sum chargeable to Borrower under
this Agreement, the Term Note, the Security Documents, or any of the Loan
Documents. “Obligations” shall not include any debts, liabilities, obligations,
covenants or duties owing by Borrower under the Net Profits Overriding Royalty
Interest Conveyance.

“OPA” means the Oil Pollution Act of 1990, as amended.

“Operating Agreement” means (a) any operating agreements covering or relating to
any one or more of the Properties and (b) any subsequently executed operating
agreement covering or relating to any one or more of the Properties that is
approved in writing by Lender.

“Operator” means with respect to the Properties, Borrower and any other
operators, including contract operators, of the Properties approved by Lender in
writing pursuant to Section 8.5. The Operators for each of the Properties as of
the date of execution of this Agreement are identified on Schedule 4.29.

“Other Taxes” has the meaning assigned such term in Section 2.12(b).

“Payment Date” means, prior to the repayment in full and final satisfaction of
all Obligations, the twentieth day of each month, commencing on the earlier of
(i) April 20, 2007 or (ii) fifty (50) days following the end of the month in
which Hydrocarbon production commences from the Properties.

“PDP Coverage Ratio” means, as of any date, the ratio of (a) the PDP Present
Value to (b) Total Committed Obligations.

“Permitted Encumbrances” means (a) Liens for property taxes and assessments or
governmental charges or levies, provided, that payment thereof is not past due
unless being contested in good faith by appropriate action promptly initiated
and diligently conducted and for which appropriate reserves as may be required
by GAAP have been made; (b) (i) deposits to secure the performance of bids,
tenders, trade contracts or leases (other than Capital Leases) or to secure
statutory obligations, surety or appeal bonds or other Liens of like general
nature incurred in the ordinary course of business and not in connection with
the borrowing of money or the acquisition of inventory or other property and
(ii) Liens, other than any Liens imposed by ERISA, arising in the ordinary
course of business or incidental to the ownership of Properties and assets
(including Liens in connection with worker’s compensation, unemployment
insurance and other like laws, carrier’s, mechanic’s, materialmen’s,
repairmen’s, vendor’s, warehousemen’s, attorneys’ Liens, and Liens of operators
and non-operators arising under Operating Agreements) for sums not past due or
being contested in good faith by appropriate action promptly initiated and
diligently conducted, if such reserves as may be required by GAAP have been
made; (c) survey exceptions, issues with regard to the merchantability of title,
easements or reservations, or rights of others for rights-of-way, servitudes,
utilities and other similar purposes, or zoning or other restrictions as to the
use of real properties, which could not reasonably be expected to have a
Material Adverse Effect; (d) Liens permitted by Lender in writing; (e) Liens on
Properties in respect of judgments or awards, the indebtedness with respect to
which it is permitted hereunder; (f) Liens against specific Equipment securing
Debt permitted hereunder; (g) the PPI Agreement; (h) the Medco Energi
Participation Agreement; (i) the Leases and the royalties reserved therein; (j)
the Operating Agreement entered into pursuant to the Medco Energi Participation
Agreement; and (k) the specific exceptions and encumbrances affecting one or
more of the Properties as described in the Mortgages and/or the title reports,
summaries and opinions delivered to Lender prior to the Closing Date BUT ONLY
INSOFAR as those exceptions and encumbrances are valid and subsisting and are
enforceable against the particular Lease which is made subject to those
exceptions and encumbrances.

“Person” means an individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization, joint stock
company or other similar organization, Governmental Authority, a court, or any
other legal entity, whether acting in an individual, fiduciary or other
capacity.

“Personal Property” means all personal property of every kind, whether now owned
or later acquired, including all goods (including Equipment), documents,
accounts, chattel paper (whether tangible or electronic), money, deposit
accounts, letters of credit and letter-of-credit rights (without regard to
whether the letter of credit is evidenced by a writing), documents, securities
and all other investment property, supporting obligations, any other contract
rights (including all rights in transportation agreements, processing
agreements, delivery agreements and seismic agreements related to the
Properties) or rights to the payment of money, insurance claims and proceeds,
all general intangibles (including all payment intangibles and rights to seismic
and other geophysical data) and all permits, licenses, books and records related
to the Properties or the business of Borrower as it relates to the Properties in
any way whatsoever.

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“Pledge Agreement” means the pledge agreement executed by Guarantor in favor of
Lender, as secured party, in form and substance satisfactory to Lender in its
sole and absolute discretion, pursuant to which Guarantor pledges all of its
Equity Interests in Borrower to Lender.

“Pledged Interests” has the meaning assigned such term in Section 3.2.

“PPI Agreement” means that agreement dated July 25, 2005, as amended by letters
dated February 8, 2006 and April 24, 2006, by and among Jurasin Oil & Gas, Inc.
and Paragon Petroleum, Inc.

“Prime Rate” means, at any time, the prime rate published in The Wall Street
Journal’s “Money Rates” or similar table; provided that, if multiple prime rates
are quoted in such table, then the highest such prime rate will be the Prime
Rate and, in the event that the prime rate is no longer published by The Wall
Street Journal’s “Money Rates” or similar table, then Lender may designate an
alternative published index based upon comparable information as a substitute
Prime Rate and upon the selection of such a substitute Prime Rate, the
applicable interest rate will thereafter vary in relation to the substitute
index.

“Production Volumes” means the sum of the Net Revenue Interest times gross
Hydrocarbons produced from all Properties.

“Project Account” means the account identified in Section 2.7(a) or as otherwise
specified in writing to Borrower by Lender.

“Property” or “Properties” means, collectively the Leases and all other real and
personal property of Borrower, whether now owned or later acquired and without
regard to whether such property is related to any of the Leases, including but
not limited to all Personal Property and all Basic Documents associated
therewith.

“Property Operating Statement” means a monthly statement substantially in the
form of Exhibit D, to be prepared and delivered by Borrower to Lender in
accordance with Section 2.6(b).

“Proved Developed Non-Producing Present Value” or “PDNP Present Value” means the
present value discounted at ten percent (10%) of future net revenues
attributable to all PDNP Reserves from the Properties calculated based on a
Reserve Report prepared in accordance with Section 5.6.

“Proved Developed Producing Present Value” or “PDP Present Value” means the
present value discounted at ten percent (10%) of future net revenues
attributable to all PDP Reserves from the Properties calculated based on a
Reserve Report prepared in accordance with Section 5.6.

“Proved Reserves” has the meaning given that term in the definitions promulgated
by the Society of Petroleum Evaluation Engineers and the World Petroleum
Congress as in effect at the time in question; “Proved Developed Producing
Reserves” or “PDP Reserves” means Proved Reserves which are categorized as both
“Developed” and “Producing” in such definitions; “Proved Developed Non-Producing
Reserves” or “PDNP Reserves” means Proved Reserves which are categorized as both
“Developed” and “Non-Producing” in such definitions; and “Proved Undeveloped
Reserves” or “PUD Reserves” means Proved Reserves which are categorized as
“Undeveloped” in such definitions.

“Proved Undeveloped Present Value” or “PUD Present Value” means the present
value discounted at ten percent (10%) of future net revenues attributable to all
PUD Reserves from the Properties calculated based on a Reserve Report prepared
in accordance with Section 5.6.

“Purchasers” means all Persons, including those parties listed on Exhibit E or
otherwise approved in writing by Lender, who purchase Hydrocarbons attributable
or allocable to Borrower’s Net Revenue Interest in the Properties.

“RCRA” means the Resource Conservation and Recovery Act of 1976, as amended.

“Related Costs” means the fees and expenses of counsel for Lender and other
consultants for Lender and Lender’s other out-of-pocket expenses incurred in
connection with the due diligence, negotiation and preparation of documents
relating to the Term Loan and execution, delivery and filing and/or recording of
the Loan Documents together with any amendments, supplements or modifications
thereto or administration or enforcement thereof.

“Release” means Hazardous Materials that are pumped, spilled, leaked, disposed
of, emptied, discharged or otherwise released into the environment in violation
of Governmental Requirements.

“Remedial Work” has the meaning assigned to that term in Section 6.4(a).

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“Reserve Report” has the meaning assigned to that term in Section 5.6.

“Royalty Interest” means the Production Volumes from or allocable to any
particular Property or proceeds thereto, as applicable, which the owners of
royalty rights, including but not limited to lessor and overriding royalty
rights, and other rights to receive production, other than by virtue of
ownership of Working Interests, in any particular Property are entitled to take
in kind or for which they are entitled to be paid.

“Security Agreements” means, collectively, the Pledge Agreement and any security
agreement executed by Borrower, as debtor, in favor of Lender, as secured party,
in form and substance satisfactory to Lender in its sole and absolute
discretion.

“Security Documents” means this Agreement, the Mortgages, the Security
Agreements, the Subordination Agreements, financing statements, the Deposit
Account Control Agreement, the Guaranty and any other agreement or writing
evidencing any assignment, Lien, encumbrance or security interest executed in
favor of Lender or any of its Affiliates in or on the Collateral and any other
documents relevant thereto; provided, however, that “Security Documents” shall
not include the Net Profits Overriding Royalty Interest Conveyance.

“Solvent” means that, as of the date on which a Person’s solvency is to be
measured: (a) the fair saleable value of its assets is in excess of the total
amount of its liabilities (including income tax liabilities) as they become
absolute and matured; and (b) it is able to meet its debts as they mature.

“Subordination Agreement” means a subordination agreement or agreements
substantially in the form of Exhibit F.

“Subsidiary” means any Person, corporation or other entity of which more than
fifty percent (50%) of the issued and outstanding securities having ordinary
voting power for the election of directors, members or general partners is
owned, directly or indirectly, by such Person and/or one or more of its
subsidiaries.

“Swap Agreement” means any ISDA Master Agreement and the schedule thereto
executed between Borrower and Lender or any Affiliate of Lender, together with
any confirmation of trade thereunder, including, without limitation, that
certain ISDA Master Agreement and Schedule dated September 14, 2006 and any
confirmation of trade executed in connection therewith.

“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, eighty percent
(80%) of the residual value of the property subject to such operating lease upon
expiration or early termination of such lease.

“Taxes” has the meaning assigned to that term in Section 2.12.

“Taxing Authorities” means any Governmental Authority that has the power to
impose taxes upon Borrower or any of the Collateral.

“Term Loan” has the meaning assigned to that term in Section 2.1(a).

“Term Note” means, collectively, one or more promissory notes substantially in
the form of Exhibit B executed by Borrower and delivered to Lender (including
any successors to and assignees of the initial Lender identified in this
Agreement) pursuant to Section 2.4, together with all renewals, extensions and
rearrangements.

“Total Adjusted Present Value” means an amount, based on the most recent Reserve
Report, equal to the sum of (a) the PDP Present Value plus (b) the PDNP Present
Value plus (c) the PUD Present Value; provided, however, if the sum of PDNP
Present Value plus the PUD Present Value exceeds fifty percent (50%) of the
amount that would otherwise be the Total Adjusted Present Value, the Total
Adjusted Present Value will be an amount equal to twice the sum of PDP Present
Value; and provided further that, in calculating the Total Adjusted Present
Value, Lender will make appropriate adjustments for material purchases, sales
and discoveries of Hydrocarbon reserves by Borrower since the effective date of
the last Reserve Report.

“Total Committed Obligations” means, as of any date, the total monetary
Obligations owing to Lender under this Agreement and the Swap Agreement or any
Hedging Agreement (including any Advances that Lender has unconditionally
committed to make but has not yet funded and including the face amount of any
unfunded letter of credit).

“Tranche A” has the meaning assigned to that term in Section 2.2(a).

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“Tranche B” has the meaning assigned to that term in Section 2.2(b).

“Tranche B Well” means that first Well drilled with Tranche B funds as
delineated in the initial Development Plan under this Agreement.

“Tranche C” has the meaning assigned to that term in Section 2.2(c).

“Tranche D” has the meaning assigned to that term in Section 2.2(d).

“Tranche E” has the meaning assigned to that term in Section 2.2(e).

“UCC” means the Uniform Commercial Code presently in effect in the State of
Texas or other applicable jurisdiction.

“USA PATRIOT Act” means the Uniting and Strengthening America by Producing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act
of 2001, Pub. L. 707-56, as amended, and regulations promulgated thereunder as
in effect from time to time.

“USD,” “$,” “dollars” or “Dollars” means currency of the United States of
America.

“Well” means any existing oil or gas well, salt water disposal well, injection
well, water supply well or any other well located on or related to the
Properties or any well which may hereafter be drilled and/or completed on any of
the Properties, or any facility or Equipment in addition to or replacement of
any well.

“Working Capital” means Current Assets minus Current Liabilities.

“Working Interest” means the property interest which entitles the owner thereof
to explore and develop certain land for oil and gas production purposes, whether
under an oil and gas lease or unit, a compulsory pooling order or otherwise.

Section 1.2.

Other Capitalized Terms. Capitalized terms not otherwise defined in Section 1.1
shall have the meanings given them elsewhere in this Agreement.

Section 1.3.

Exhibits and Schedules. All exhibits and schedules attached to this Agreement
are part of this Agreement for all purposes.

Section 1.4.

Amendment of Defined Instruments. Unless the context otherwise requires or
unless otherwise provided herein, the terms defined in this Agreement which
refer to a particular agreement, instrument or document also refer to and
include all renewals, extensions, modifications, amendments and restatements of
such agreement, instrument or document. Nothing contained in this Section 1.4
will be construed to authorize any renewal, extension, modification, amendment
or restatement.

Section 1.5.

References and Titles. All references in this Agreement to exhibits, schedules,
articles, sections, subsections and other subdivisions refer to the exhibits,
schedules, articles, sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the beginning
of any subdivisions are for convenience only, do not constitute any part of
those subdivisions and will be disregarded in construing the language contained
in those subdivisions. The words “this Agreement,” “this instrument,” “herein,”
“hereof,” “hereby,” “hereunder” and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. The phrases “this section” and “this subsection” and similar phrases
refer only to the sections or subsections of this Agreement in which those
phrases occur. The word “or” is not exclusive; the word “including” (in its
various forms) means “including without limitation.” Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires. The word “will” shall be construed
to have the same meaning and effect as the word “shall.” Unless the context
requires otherwise (a) any reference herein to any law shall be construed as
referring to such law as amended, modified, codified or reenacted, in whole or
in part, and in effect from time to time, (b) any reference herein to any Person
shall be construed to include such Person’s successors and assigns (subject to
the restrictions contained herein), (c) with respect to the determination of any
time period, the word “from” means “from and including” and the word “to” means
“to and including.” No provision of this Agreement or any other Loan Document
shall be interpreted or construed against any Person solely because such Person
or its legal representative drafted such provision.

ARTICLE II
The Term Loan

Section 2.1.

Maximum Commitment; Development Plan.

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(a)

Maximum Commitment. Subject to the terms and conditions of this Agreement, prior
to the applicable Availability Termination Date with respect to each tranche,
Lender agrees to make a secured, multiple-advance term loan (the “Term Loan”) to
Borrower not to exceed Twenty Five Million Dollars ($25,000,000) (the “Maximum
Commitment”) for the purposes set forth in Section 2.2. Borrower acknowledges
that Lender does not intend to advance Borrower any amount which would at any
point in time exceed the Maximum Commitment; provided, however, if the
obligations of Borrower under the Term Loan exceed the Maximum Commitment, all
obligations will nevertheless constitute Obligations under this Agreement and be
entitled to the benefit of all of Lender’s security interests in, and mortgage
Liens on, the Collateral. All amounts on the Term Loan will be fully due and
payable on the Maturity Date. Amounts repaid in respect of the Term Loan may not
be reborrowed.

(b)

Development Plan. Borrower’s initial Development Plan covering the development
activities contemplated for Tranches B and C is attached to this Agreement as
Schedule 2.1.

Section 2.2.

Availability and Purpose of Advances. Beginning on the Closing Date and
continuing through the applicable Availability Termination Date:

(a)

Tranche A. Up to Eight Hundred Seventy Five Thousand Dollars ($875,000) in
committed funds of the Term Loan (“Tranche A”) shall be used by Borrower for the
repayment of that certain $1,500,000 Secured Credit Agreement, as amended, dated
February 10, 2006, by and among Borrower and Lender; plus accrued interest; for
the payment of fees and costs related to the transaction contemplated by this
Agreement; and for working capital; as set forth in Schedule 2.2(a).

(b)

Tranche B. Up to Six Hundred Sixty Thousand Dollars ($660,000) in committed
funds of the Term Loan (“Tranche B”) may be used by Borrower for the purpose of
initial development activities within the Properties and related fees.
Specifically, Tranche B funding shall be used for drilling the Tranche B Well.
Funding shall be subject to a Development Plan approved by Lender in writing in
its sole and absolute discretion prior to Closing and on each modification
thereafter.

(c)

Tranche C. Up to One Million Forty Thousand Dollars ($1,040,000) in
conditionally committed funds of the Term Loan (“Tranche C”) may be used by
Borrower for the purpose of the casing of the Tranche B Well and related fees.
Specifically, this Tranche C shall be used for casing and temporary abandonment
of the Tranche B Well. Funding will be contingent upon criteria for the
determination of the economic viability of the well, as set forth in
Section 9.4(a)-(d). Funding shall be subject to a Development Plan approved by
Lender in writing in its sole and absolute discretion prior to Closing and on
each modification thereafter.

(d)

Tranche D. Up to Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000)
of the Term Loan (“Tranche D”) in uncommitted funds may be used solely for the
purpose of remaining completion and facilities costs associated with the Tranche
B Well and related fees. Specifically, this will include all funds required to
complete and tie-in the Tranche B Well to sales as delineated in the Development
Plan. Funding shall be subject to a Development Plan approved by Lender in
writing in its sole and absolute discretion and on each modification thereafter.

(e)

Tranche E. Up to Sixteen Million Six Hundred Seventy Five Thousand Dollars
($16,675,000) of the Term Loan (“Tranche E”) in uncommitted funds may be used
solely for the purpose of other development activities pursuant to the
Development Plan, to be funded at the sole and absolute discretion of Lender
after exhausting the funds available in Tranches A, B, C and D. Funding shall be
subject to a Development Plan approved by Lender in writing in its sole and
absolute discretion and on each modification thereafter.

Section 2.3.

Advance Procedure.

(a)

Advance Requests. In connection with each Advance under the Term Loan, Borrower
will submit to Lender a written Advance Request substantially in the form of
Exhibit C not later than 12:00 noon Houston, Texas time, at least three (3)
Business Days prior to the date on which the Advance, if approved, is to be
made; provided, however, that Lender will have no obligation to make any Advance
unless and until all of the conditions set forth in this Article II and the
applicable conditions in Article IX have been satisfied. Each Advance Request
must be accompanied by copies of all approved AFEs defined in the Development
Plan, and invoices or other supporting documentation satisfactory to Lender
evidencing the amounts to be paid out of the Advance. Each AFE delivered to
Lender will detail, on a line item basis, all amounts Advanced to date by Lender
under that AFE and the amount requested under the Advance Request. Unless Lender
provides Borrower with written notice during such three (3) Business Day period
describing in detail objections to the Advance Request, then Lender will be
deemed to have acknowledged such Advance Request and process the Advance
contained therein. Except for the initial Advance made to third parties, unless
otherwise agreed to in writing by Lender, all Advances to Borrower will be made
to an account or accounts specified in Schedule 4.42.

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(b)

Approval of AFEs. Notwithstanding Section 2.3(a) above, as supporting
documentation to the initial Development Plan or any revised Development Plan,
Borrower shall submit to Lender an AFE (including all supporting documentation)
for written approval at least fifteen (15) days in advance of the date it will
be seeking to make the first borrowing with respect to that AFE. If Borrower
seeks to amend an approved AFE to materially change the scope of the work to be
done or seeks an increase of more than ten percent (10%) in the amount of any
approved AFE, Borrower shall submit to Lender an additional AFE (including all
supporting documentation) with respect to that change or increase, and that
additional AFE will be subject to approval on the same basis as any other new
AFE. No Advance will be made for the development of the Properties or the
completion of any Well unless that Advance relates to an AFE that has been
approved in writing by Lender in its sole and absolute discretion. No Advance
will be made in connection with any AFE if the making of the Advance (or any
part of it) will result in the amount actually Advanced under the “Drilling” or
“Completion” categories of the AFE to exceed the amounts previously approved in
writing by Lender. Notwithstanding this Section 2.3(b), Lender will have no
obligation to make any Advance unless and until all of the conditions set forth
in this Article II and the applicable conditions set forth in Article IX have
been satisfied.

(c)

Minimum Advance. The minimum amount of any Advance will be One Hundred Thousand
Dollars ($100,000) except to the extent a lesser amount remains available under
the Term Loan or under a particular tranche of the Term Loan.

(d)

Authorized Signatories. Schedule 2.3(d) lists the Persons authorized to make an
Advance Request on behalf of Borrower and an original signature of each Person.
Unless specified on Schedule 2.3(d), only one signature from a Person listed on
Schedule 2.3(d) is required for an Advance Request.

Section 2.4.

Term Note. Borrower’s obligation to repay the Term Loan will be evidenced by a
Term Note in favor of Lender. The Term Note will be dated as of and delivered to
Lender on the Closing Date.

Section 2.5.

Interest.

(a)

The Advances comprising the Term Loan shall bear interest at the Contract Rate
on the outstanding borrowed and unpaid principal amount of the Term Loan for the
period commencing on the date of each Advance until all Obligations are paid in
full in accordance with this Agreement. Upon the occurrence and during the
continuation of an Event of Default, the rate of interest applicable to the Term
Note will be equal to the lesser of (i) the Highest Lawful Rate and (ii) four
percent (4.00%) over the Contract Rate (the “Default Rate”). In addition, if any
principal of or interest on any Advance or any fee or other amount payable by
Borrower or any other obligor hereunder or under any other Loan Document is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to the Default Rate.

(b)

All interest will be computed on the actual number of days elapsed over a year
comprised of 360 days. Interest will be due and payable in accordance with
Section 2.6 in immediately available funds monthly in arrears on the Payment
Date and in full on the Facility Termination Date.

(c)

The applicable interest rate shall be determined by Lender, and its
determination shall be conclusive, absent manifest error, and binding upon the
parties hereto.

Section 2.6.

Repayment of Principal of and Interest on the Term Loan; Net Operating Cash
Flow.

(a)

Payment of Obligations On each Payment Date, Borrower will, subject to Section
2.8(a), pay to Lender the Applicable Percentage of Net Operating Cash Flow to be
applied as set forth in Section 2.6(c). All interest on the outstanding
principal balance of the Term Loan from the Closing Date through the last day of
the month immediately preceding the first Payment Date will be due and payable
on the first Payment Date. On each subsequent Payment Date, interest will be due
and payable on the outstanding principal balance of the Term Loan for the
immediately preceding month, and Borrower will pay to Lender the Applicable
Percentage of Net Operating Cash Flow to be applied against the entire
outstanding balance of the Term Loan (including accrued interest) in the order
set forth in Section 2.6(c), subject to Section 6.21. In no event shall payments
made to Lender on any Payment Date be less than the interest accrued and payable
on the outstanding balance of the Term Loan through the applicable Payment Date.

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(b)

Calculation of Net Operating Cash Flow. Net Operating Cash Flow will be
calculated by Lender based on the Property Operating Statement. Borrower shall
prepare and deliver the Property Operating Statement to Lender no later than
forty-five (45) days after each month. The Property Operating Statement will be
substantially in the form of Exhibit D and will detail, without limitation,
Borrower’s Production Volumes, revenue, lease operating expenses, production
Taxes and other state and federal Taxes paid, G&A Expenses (as limited by
Section 7.20), cash payments made with respect to commodity hedging and any
other income with respect to each Property comprising the Properties relating to
production and operations for the month prior to the immediately preceding
month. The first Property Operating Statement is due forty-five (45) days
following the month in which Hydrocarbon production commences from the
Properties.

(c)

Application of Funds. Payments will be applied first to unpaid fees and Related
Costs, which Borrower is obligated for under the Loan Documents, second to
accrued interest on the Term Loan and third to principal on the Term Loan. The
amounts of any prepayments will be applied first to principal on the Term Loan
and second to accrued interest on the Term Loan under Tranche A, Tranche B,
Tranche C, Tranche D and Tranche E, in that order. Interest on the Term Loan is
due and payable in cash to Lender on each Payment Date irrespective of the
amount of Net Operating Cash Flow calculated pursuant to the Property Operating
Statement. All outstanding accrued interest on the Term Loan and principal on
the Term Loan is due and payable on the Maturity Date.

Section 2.7.

Time and Place of Payments

(a)

Project Account. To the extent not satisfied by debits from the Borrower
Sub-Account pursuant to Section 2.8(a), all payments (whether of principal,
interest, legal expenses, fees, costs, indemnities or otherwise) to be made by
Borrower to Lender will be made by wire transfer in immediately available funds
not later than 11:00a.m., E.T. time, on each Payment Date, to Lender at:

Account:

Bank of New York

New York, NY 10004

ABA # 021000018

Favour:

Macquarie Bank Limited – OBU Sydney

Sydney

A/C No.:

8900055375

Chips UID:

236386

Reference:

Rampant Lion Energy, LLC

(the “Project Account”) or to any other account Lender may designate in writing
to Borrower from time to time.

(b)

Business Days. If any payment to be made under this Agreement falls due on a day
that is not a Business Day, the payment will be payable on the next succeeding
Business Day.

(c)

Allocation. Funds in the Project Account at Closing will be allocated as follows
(i) $200,000 toward the dry hole cost of the Tranche B Well, and (ii) at the
Lender’s sole and absolute discretion, $300,000 may be released to Borrower for
use consistent with Section 4.33.

Section 2.8.

Borrower Sub-Account.

(a)

Collection of All Funds. Until the date on which Borrower has paid and
discharged in full all monetary Obligations to Lender and Lender has no further
commitment to make Advances under this Agreement, Borrower shall direct and
cause all Purchasers of Hydrocarbons, the Operator, all other obligors and, if
applicable, all payors of Royalty Interests, net profit interests and production
payment interests and any other customers of Borrower to deposit all payments of
any nature due and owing to Borrower directly into the Project Account;
provided, however, that Purchasers of Hydrocarbons listed on Exhibit E or the
Operator may make distributions directly to Royalty Interest owners and other
third-party payees. Lender will establish a sub-account (the “Borrower
Sub-Account”) on its internal books and records and credit to the Borrower
Sub-Account all collected funds which constitute payments referred to in the
preceding sentence at the time the amount to be credited has been identified to
Lender’s reasonable satisfaction. Borrower hereby irrevocably authorizes Lender
to debit the Borrower Sub-Account for the payment of all Obligations when due in
accordance with Section 2.6(a).

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(b)

Request for Disbursement for Direct Operating Expenses. Concurrently with
Borrower’s delivery to Lender of the Property Operating Statement for each
Payment Date, and provided, that no Event of Default has occurred and is
continuing (except as required by applicable laws and regulations), Borrower may
on a monthly basis, on at least five (5) Business Days’ written notice, request
a release of funds credited to the Borrower Sub-Account on or after the Payment
Date in order to pay (i) the lease operating expenses described in
subsection (a) of the definition of Net Operating Cash Flow incurred for the
month prior to the immediately preceding month, and (ii) any other payments or
distributions expressly permitted in this Agreement or otherwise consented to by
Lender in writing. The request will be accompanied by appropriate documentation
substantiating the payments to be made, including Borrower’s monthly joint
interest billing invoices and revenue distribution statements and shall be in
accordance with the provisions of Section 2.3(d). Unless Lender provides
Borrower with written notice during such five (5) Business Day period describing
in reasonable detail the objections to the Property Operating Statement, Lender
will be deemed to have acknowledged such Property Operating Statement and,
pursuant to the terms and conditions of this Agreement, will release the funds
to pay the amounts set forth therein.

(c)

Amounts Owed to Other Interest Owners; Taxes. Notwithstanding anything to the
contrary in this Section 2.8, any amounts deposited into the Project Account
owing to (i) third party Working Interest and Royalty Interest holders and (ii)
Governmental Authorities for Taxes or payments measured by production will be
released by Lender to Borrower upon receipt of a certificate from Borrower
detailing the amounts and the party to be paid so that Borrower may return those
amounts to the third party Working Interest and Royalty Interest holders and
Governmental Authorities (throughout this paragraph, all such interest holders
and Governmental Authorities are, collectively, the “recipient parties”);
provided, however, Lender will, at its option, have the right, but not the
obligation, to make payments directly to the recipient parties upon the
occurrence and during the continuation of an Event of Default; and provided,
further, if Lender elects not to make these payments directly, Lender shall
release sufficient funds to allow Borrower to make the payments described in
this Section 2.8(c) to the recipient parties. Except as provided in the
preceding sentence, Lender may, upon the occurrence and during the continuation
of an Event of Default, apply all of Borrower’s funds in the Borrower
Sub-Account against all unpaid Obligations. Lender will have the right to
undertake audit procedures during normal business hours and upon prior notice to
periodically confirm that the payments described in this Section 2.8(c) have
been made by Borrower.

Section 2.9.

Optional Prepayment of the Term Loan. Borrower will have the right to prepay the
Term Loan, in whole or in part at any time without penalty or premium.

Section 2.10.

Mandatory Prepayment of the Term Loan. Borrower shall promptly pay to Lender one
hundred percent (100%) of all net proceeds from the sale of any Collateral
(excluding sales of Hydrocarbons in the ordinary course of business and the sale
of Equipment pursuant to the Security Agreement), not to exceed the outstanding
balance under the Term Loan. The preceding sentence will not be deemed to be a
consent by Lender to any sale. Any such prepayments shall have no effect on the
Net Profits Overriding Royalty Interest Conveyance granted to Lender. All
amounts paid by Borrower to Lender under this Section 2.10 will be immediately
applied as a prepayment of the principal balance of the Term Loan.

Section 2.11.

Revenues Remaining in the Borrower Sub-Account. Upon the discharge by Borrower
of all Obligations owed by it to Lender (other than indemnity and similar
obligations that survive the termination of this Agreement), Lender will pay
promptly to Borrower all funds remaining, if any, in the Borrower Sub-Account.

Section 2.12.

Taxes.

(a)

Taxes Not Deducted from Payments to Lender. All payments made by Borrower under
this Agreement will be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all similar liabilities excluding, in the case of Lender,
taxes imposed on its income, and franchise or similar taxes imposed on it, by
any jurisdiction (or political subdivision thereof) of which Lender is a citizen
or resident, in which Lender is organized, or in which Lender is presently doing
business (collectively, “Taxes”). If Borrower is required by law to deduct any
Taxes from any sum payable to Lender, (i) the sum payable will be increased by
an amount so that, after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.12) Lender will
receive an amount equal to the sum it would have received had no deductions been
made, (ii) Borrower will deduct from the sum payable to Lender an amount
sufficient to pay the Taxes and pay the balance to Lender, and (iii) Borrower
will promptly pay the full amount deducted to the relevant taxing authority or
other Governmental Authority in accordance with applicable law.

(b)

Other Taxes. In addition, and to the fullest extent permitted by applicable law,
Borrower agrees to pay any present or future stamp, documentary, mortgage
registration or similar taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made or from the execution, delivery
or registration of, or otherwise with respect to, this Agreement, or any
Security Documents (collectively, the “Other Taxes”).

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(c)

INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, AND
PROVIDED, THAT THERE IS NO DEFAULT OF LENDER REPRESENTATIONS CONTAINED IN THIS
AGREEMENT, BORROWER WILL INDEMNIFY LENDER FOR THE FULL AMOUNT OF TAXES AND OTHER
TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY
GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS Section 2.12 AND PAID BY
LENDER) PAID BY LENDER (ON BEHALF OF BORROWER), AND ANY LIABILITY (INCLUDING
PENALTIES, INTEREST AND REASONABLE EXPENSES) ARISING FROM OR WITH RESPECT TO
THOSE AMOUNTS, WHETHER OR NOT THE TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY
ASSERTED. ANY PAYMENT PURSUANT TO THE INDEMNIFICATION DESCRIBED IN THIS Section
2.12 WILL BE MADE BY BORROWER WITHIN THIRTY (30) DAYS AFTER THE DATE LENDER
MAKES WRITTEN DEMAND FOR THOSE PAYMENTS. SUCH LENDER’S DEMAND WILL STATE WITH
SPECIFICITY THE BASIS FOR THE TAX, IDENTIFY THE TAXING AUTHORITY ASSERTING THE
TAX AND CERTIFY THAT LENDER HAS PAID THE TAX.

(d)

Certification of Tax Status By Lender. Lender agrees that it will, not more than
ten (10) Business Days after the date of this Agreement, (i) deliver to Borrower
a duly completed copy of United States Internal Revenue Service Form W-8BEN or
W-8ECI, certifying in either case that Lender is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes, and (ii) deliver to Borrower a United States Internal
Revenue Service Form W-8 or W-9, as the case may be, and certify that it is
entitled to an exemption from United States backup withholding tax. Lender
further agrees to deliver to Borrower (A) renewals or additional copies of such
form (or any successor form) on or before the date that such form expires or
becomes obsolete, and (B) after the occurrence of any event requiring a change
in the most recent forms so delivered by it, such additional forms or amendments
thereto as may be reasonably requested by Borrower. All forms or amendments
described in the preceding sentence shall certify that Lender is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes, unless an event (including without
limitation any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent Lender from duly completing and
delivering any such form or amendment with respect to it and Lender advises
Borrower that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax.

(e)

Certain Events Not Entitled to Indemnification. For any period during which
Lender has failed to provide Borrower with an appropriate form pursuant to
clause (d), above (unless such failure is due to a change in treaty, law or
regulation, or any change in the interpretation or administration thereof by any
Governmental Authority, occurring subsequent to the date on which a form
originally was required to be provided), Lender shall not be entitled to
indemnification under this Section 2.12 with respect to Taxes imposed by the
United States; provided that, if Lender becomes subject to Taxes because of its
failure to deliver a form required under clause (d) above, Borrower shall take
such steps as Lender shall reasonably request to assist Lender to recover such
Taxes.

(f)

Documentation of Exemptions. To the extent Lender is entitled to an exemption
from or reduction of withholding tax with respect to payments under this
Agreement or on any Note pursuant to the law of any relevant jurisdiction or any
treaty, Lender shall deliver to Borrower, at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.

(g)

INDEMNIFICATION BY LENDER FOR CERTAIN TAX CLAIMS. IF THE U.S. INTERNAL REVENUE
SERVICE OR ANY OTHER GOVERNMENTAL AUTHORITY ASSERTS A CLAIM THAT BORROWER DID
NOT PROPERLY WITHHOLD TAX FROM AMOUNTS PAID TO OR FOR THE ACCOUNT OF LENDER
(BECAUSE THE APPROPRIATE FORM WAS NOT DELIVERED OR PROPERLY COMPLETED, BECAUSE
LENDER FAILED TO NOTIFY BORROWER OF A CHANGE IN CIRCUMSTANCES WHICH RENDERED ITS
EXEMPTION FROM WITHHOLDING INEFFECTIVE, OR FOR ANY OTHER REASON), LENDER SHALL
INDEMNIFY BORROWER FULLY FOR ALL AMOUNTS PAID, DIRECTLY OR INDIRECTLY, BY
BORROWER AS TAX, WITHHOLDING THEREFORE, OR OTHERWISE, INCLUDING PENALTIES AND
INTEREST, AND INCLUDING TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE TO
BORROWER UNDER THIS SUBSECTION, TOGETHER WITH ALL COSTS AND EXPENSES RELATED
THERETO (INCLUDING ATTORNEYS’ FEES). THE OBLIGATIONS OF LENDER UNDER THIS
Section 2.12(g) SHALL SURVIVE THE PAYMENT OF THE OBLIGATIONS AND TERMINATION OF
THIS AGREEMENT.

(h)

Designation of Substitute Lending Office. Lender agrees that, upon the
occurrence of any event giving rise to the operation of this section, it will,
if requested by Borrower, use reasonable efforts (subject to overall policy
considerations of Lender) to designate another applicable lending office,
provided, that such designation is made on such terms that Lender and its
applicable lending office suffer no economic, legal or regulatory disadvantage,
with the object of avoiding the consequence of the event giving rise to the
operation of this section. Nothing in this Section 2.12(h) shall affect or
postpone any of the obligations of Borrower or the rights of Lender provided in
this section.

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(i)

Effect of Tax Refund. Lender shall use its reasonable efforts to obtain in a
timely fashion any refund, deduction or credit of any Taxes or Other Taxes paid
or reimbursed by Borrower pursuant to this Section 2.12. If Lender receives a
benefit in the nature of a refund, deduction or credit (including a refund in
the form of a deduction from or credit against taxes that are otherwise payable
by Lender) of any Taxes or Other Taxes with respect to which Borrower has made a
payment under this Section 2.12, Lender will notify Borrower and agrees to
reimburse Borrower to the extent of the benefit of such refund, deduction or
credit promptly after Lender reasonably determines that such refund, deduction
or credit has become final; provided, that nothing contained in this Section
2.12(i) shall require Lender to make available its tax returns (or any other
information relating to its taxes which it deems to be confidential) or to
attempt to obtain any such refund, deduction or credit, which attempt would be
inconsistent with any reporting position otherwise taken by Lender on its
applicable tax returns.

Section 2.13.

Fees.

(a)

Commitment Fee. At Closing, Borrower will pay to Lender a non-refundable
commitment fee (the “Commitment Fee”) of Eight Thousand Seven Hundred Dollars
($8,700), payable from the Tranche A initial advance. The Commitment Fee is for
the commitment of Lender hereunder and is fully earned on the date paid.

(b)

Advance Fee. In connection with each Advance (if any) under Tranches B, C, D and
E, Borrower will pay to Lender a non-refundable fee (the “Advance Fee”) equal to
one percent (1%) of any such Advance. Notwithstanding the above, Borrower will
not be required to pay any Advance Fee on Advances (or portions of Advances)
made to pay the Advance Fee itself. Any such Advance Fee shall be payable when
drawn.

ARTICLE III
Security

Section 3.1.

Grant of Security Interests

(a)

Mortgage and Security Interest. As collateral security for all of its
Obligations to Lender under this Agreement and the other Loan Documents,
Borrower shall and hereby grants, assigns, transfers and conveys to Lender a
first priority mortgage Lien on and first priority and perfected security
interest in the Collateral subject only to the Permitted Encumbrances.

(b)

Notice of Assignment of Proceeds. All of Borrower’s account debtors (including
any Operator and Purchasers) relating to Borrower’s Working Interest or Net
Revenue Interest in the Properties will receive notification from Lender (as
assignee) and Borrower, substantially in the form of Exhibit G, that all
proceeds from sales of all production or transmission of Hydrocarbons from, or
allocable to, Borrower’s Net Revenue Interest in the Properties have been
assigned to Lender and are to be paid into the Project Account. Borrower shall
(a) notify Lender within three days of the date Borrower enters into an
agreement to sell Hydrocarbons from the Properties and identify the Purchaser
thereof and (b) use its best efforts to cause all Purchasers to execute the
assignment notifications to confirm their agreement to remit all proceeds from
sales of all production from or allocable to Borrower’s Net Revenue Interest in
the Properties into the Project Account within thirty (30) days after the date
Borrower has identified Purchaser of Hydrocarbons. Subject to applicable
contractual restrictions, Lender will have the right to prohibit Borrower from
selling any Hydrocarbons from or allocable to the Properties to any Purchaser
who refuses to timely acknowledge and abide by the payment instructions set
forth in any notice under this Section 3.1(b).

(c)

Further Assurances. Borrower will, upon request, execute and deliver to Lender
any and all documents necessary or desirable, in the reasonable opinion of
Lender, to create, perfect, maintain and preserve the priority of Lender’s
security interests in and mortgage Liens on the Collateral subject only to the
Permitted Encumbrances. Borrower will, at its own expense, cause searches of the
Uniform Commercial Code filing records or similar public records to be conducted
at the reasonable request of Lender from time to time in order to evidence,
perfect, maintain or continue perfection, or confirm the rights and remedies, of
Lender in and to the Collateral granted by Borrower, perfect those security
interests in after-acquired property, continue the perfection of all security
interests granted by Borrower and file financing statements against Borrower
relating to the security interests securing any Obligations. Borrower
irrevocably authorizes Lender to prepare and file at any time and from time to
time, in any filing office, initial financings statements and amendments to them
necessary or convenient to the perfection or continuation of the security
interests granted by Borrower.

(d)

Release of Financing Statements. Upon the indefeasible payment in cash and
performance in full of all Obligations (including, without limitation, any
Obligation relating to the Swap Agreement) under this Agreement (other than
indemnity obligations and similar obligations that survive the termination of
this Agreement), Lender will deliver to Borrower, at Borrower’s expense,
releases of all financing statements and all other Security Documents with an
acknowledgment that the same have been terminated, and Borrower shall deliver to
Lender a general release of all of Lender’s liabilities and obligations under
this Agreement and the other Loan Documents. The obligations of Borrower under
the Net Profits Overriding Royalty Interest Conveyance will survive the
termination of this Agreement and the release of the Security Documents.

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Section 3.2.

Pledged Interests. Borrower will cause the Pledge Agreement to be entered into
on or before the Closing Date so as to grant to Lender, as additional security
for the Obligations, a first-priority security interest in all of the issued
and/or outstanding Equity Interests of Borrower (the “Pledged Interests”).

Section 3.3.

Equipment.

(a)

Preservation of Equipment. All Equipment currently owned or hereafter acquired
by or on behalf of Borrower will be kept at the applicable Property except as
permitted by this Agreement or the applicable Mortgage or except with the prior
written consent of Lender; provided, however, Borrower or the Operator may
dispose of Equipment in accordance with the terms of any applicable Operating
Agreement and may dispose of obsolete, broken or worn Equipment without Lender’s
consent; provided further, that Borrower promptly notifies Lender in writing
upon disposition of Equipment with a fair market value of $50,000 or greater.
Borrower shall use reasonable commercial efforts to cause the Operator at all
times to (i) keep correct and accurate records itemizing and describing the
location, kind, type, age, condition and cost of and accumulated depreciation on
all Equipment relating to the subject Operating Agreement and (ii) make those
records available during the Operator’s usual business hours upon prior written
notice to any of the officers, employees or agents of Borrower and Lender.

(b)

Sale or Disposal of Equipment. Where Borrower is permitted to dispose of any
Equipment, it shall do so, or shall cause the Operator to do so, at
arm’s-length, in good faith and by obtaining the maximum amount of recovery
practicable and without impairing the operating integrity of the remaining
Equipment.

Section 3.4.

Subordination Agreements. The members of Borrower, all Affiliates of Borrower
and any other Person designated by Lender, shall execute a Subordination
Agreement in favor of Lender subordinating to the Obligations any existing or
future Debt owed by Borrower to such Person and subordinating or releasing (as
deemed appropriate by Lender) any Lien in favor of such Person to the security
interests of Lender.

ARTICLE IV
Representations and Warranties

In order to induce Lender to make the Term Loan, Borrower makes the following
representations and warranties to Lender as of the Closing Date, each and all of
which will survive the execution and delivery of this Agreement and continue
until all Obligations (other than indemnity obligations and similar obligations
that survive the termination of this Agreement) have been satisfied and Lender
has no further commitment to make Advances under this Agreement.

Section 4.1.

Formation and Existence. Borrower is a limited liability company, duly
organized, validly existing and in good standing under the laws of the State of
Louisiana. Borrower is qualified to do business in every other jurisdiction
where the nature of its business or the ownership of its Property requires it to
be so qualified and where failure to so qualify could reasonably be expected to
have a Material Adverse Effect.

Section 4.2.

Executive Offices. The name of Borrower as listed in the public records of its
jurisdiction of organization is Rampant Lion Energy, LLC. Borrower’s principal
place of business and chief executive offices are located at the address
specified in Section 12.3 (or as set forth in a notice delivered pursuant to
Section 12.3).

Section 4.3.

Capitalization; Ownership; Subsidiaries. One hundred percent (100%) of the
Equity Interests in Borrower are owned as set forth on Schedule 4.3 and are
covered by the Pledge Agreement and have been pledged to Lender. Except for the
Equity Interests described in the preceding sentence, there are no other
classes, types or designations of equity interests in Borrower. No other Person
owns any interest in Borrower or is the holder of any right that could result in
the transfer or issuance of any interest in Borrower. Borrower has no
Subsidiaries.

Section 4.4.

Authorization; Non-Contravention. The execution, delivery and performance of
Borrower’s obligations under this Agreement, the Term Note, the Net Profits
Overriding Royalty Interest Conveyance, the Security Documents, the Swap
Agreement and all and any other Loan Documents and the creation of all Liens,
mortgages and security interests provided for in those agreements:

(a)

are within the power and authority of Borrower;

(b)

have been duly authorized by all necessary action of Borrower;

(c)

are not in contravention of (i) any agreement or indenture to which Borrower is
a party or by which it or its Property is bound, (ii) the Charter Documents of
Borrower, or (iii) to Borrower’s knowledge any provision of law applicable to
Borrower;

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(d)

do not require the consent or approval of any Governmental Authority or any
other Person which has not been obtained and a correct and complete copy of each
of those approvals has been furnished to Lender; and

(e)

are legal, valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms, except as enforceability may
be limited by applicable Debtor Relief Laws affecting the enforcement of
creditors rights generally and by general equitable principles.

Section 4.5.

Solvency. Borrower is Solvent and will continue to be Solvent after giving
effect to the transactions contemplated by this Agreement.

Section 4.6.

Omissions and Misstatements. Borrower has disclosed to Lender all agreements,
instruments or other restrictions to which it is subject, and all other matters
known to it, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. None of the other reports,
financial statements, certificates or other information furnished by or on
behalf of Borrower, or any Affiliate, to Lender, or any of their Affiliates, in
connection with the negotiation of this Agreement or any other Loan Document (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial
information, Borrower represents only that such information was prepared in good
faith based upon assumptions believed to be reasonable at the time. There is no
fact peculiar to Borrower or any Affiliate which could reasonably be expected to
have a Material Adverse Effect or in the future is reasonably likely to have a
Material Adverse Effect and which has not been set forth in this Agreement or
the Loan Documents or the other documents, certificates and statements furnished
to Lender by or on behalf of Borrower or any Affiliate prior to, or on, the date
hereof in connection with the transactions contemplated hereby. There are no
statements or conclusions in any Reserve Report which are based upon or include
misleading information or which fail to take into account material information
regarding the matters reported therein.

Section 4.7.

Joint Venture. Except for the Medco Energi Participation Agreement, the PPI
Agreement, and the Joint Operating Agreement between Medco Energi US LLC and
Rampant Lion Energy, LLC effective May 24, 2006 attached as Schedule 4.29,
Borrower is not engaged in any joint venture or partnership with any other
Person.

Section 4.8.

Commissions; Expenses. Except for the commissions for which Borrower is solely
responsible, no broker’s or finder’s fees or commissions have been paid or will
be payable by Borrower or any of its Affiliates to any Person in connection with
the transactions contemplated by this Agreement. BORROWER WILL INDEMNIFY LENDER
AND ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS FROM AND AGAINST, AND HOLD EACH OF THOSE PARTIES HARMLESS ON DEMAND FROM,
ALL LIABILITIES, COSTS, DAMAGES AND EXPENSES, INCLUDING ATTORNEYS’ FEES AND
DISBURSEMENTS RELATING TO ANY THIRD PARTIES CONCERNING FINDER’S, BROKERAGE,
FINANCING OR SIMILAR FEES ARISING IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED UNDER THIS AGREEMENT.

Section 4.9.

Tax Returns. Borrower has filed all tax returns required to be filed and has
either paid all taxes due (including interest and penalties) or is contesting
such taxes in good faith in appropriate proceedings and has adequate reserves
for such contested taxes. No assessments have been made against Borrower by any
Taxing Authority nor has any penalty or deficiency been assessed by any Taxing
Authority. To the best of Borrower’s knowledge, no federal or other income tax
return of Borrower or any Affiliate is presently being examined by the Internal
Revenue Service or any Governmental Authority nor are the results of any prior
examination by the Internal Revenue Service or any state or local Governmental
Authority being contested by Borrower or any Affiliate. No Tax Lien has been
filed against Borrower and, to the knowledge of Borrower, no claim is being
asserted with respect to any such Tax or other such governmental charge.

Section 4.10.

Litigation; Governmental Proceedings. Except as set forth on Schedule 4.10, no
claim, action, suit or other proceeding is pending or, to the best of Borrower’s
knowledge, has been threatened against Borrower or Borrower’s predecessor in
interest to the Properties with respect to the Properties or the transactions
contemplated by this Agreement, at law, in equity or otherwise, before or
involving any Governmental Authority or before any arbitrator or panel of
arbitrators, and Borrower has not accepted liability for any action or
proceeding. There is no proceeding pending before any Governmental Authority
and, to the best of Borrower’s knowledge, no investigation has been commenced
before any Governmental Authority the effect of which, if adversely decided,
could reasonably be expected to have a Material Adverse Effect.

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Section 4.11.

Ownership of Collateral; Interests.

(a)

All Collateral is owned of record by Borrower and the Net Profits Interest will
be conveyed to Lender or its designee by Borrower, free and clear of any
security interest, Lien, encumbrance, mortgages, security agreement or other
charge other than the Permitted Encumbrances. Borrower has Defensible Title to
the Collateral, including each Lease related to the Properties. Except for
Permitted Encumbrances or as otherwise consented to in writing by Lender,
Borrower’s interest in the Properties is not subject to any mineral reservations
or, to the best of Borrower’s knowledge, top leases of record. Except for
Permitted Encumbrances and the Liens and security interests contemplated by this
Agreement and the Security Documents, to Borrower’s knowledge there are no
unrecorded documents or agreements which may result in the impairment or loss of
Borrower’s ability to mortgage the Properties or of Lender’s ability to enforce
the Mortgage and convey the Collateral. Subject to the Permitted Encumbrances,
Borrower has all beneficial right, title and interest in and to the Net Revenue
Interest in all production from or allocable to Borrower’s interest in the
Collateral (including each Lease) and has the exclusive right to sell or
mortgage the Properties subject to any right in the owners of Royalty Interests
to take their royalty interest in kind.

(b)

All leases and agreements referenced in the title opinions and/or reports or
other title materials delivered in connection with the Closing are valid and
subsisting, in full force and effect and there exists no default or event or
circumstance which with the giving of notice or the passage of time or both
would give rise to a default under any such lease or leases, which would
adversely affect in any material respect the conduct of the business of
Borrower. All of the assets of Borrower which are reasonably necessary for the
operation of its business are in good working condition (ordinary wear and tear
excepted) and are maintained in accordance with prudent business standards.

Section 4.12.

Indebtedness. Except as set forth on Schedule 4.12, and as permitted by Section
7.1, upon consummation of the transactions contemplated by this Agreement,
Borrower will have no Debt outstanding other than the Obligations.

Section 4.13.

Trademarks, Etc. Borrower possesses or will possess all trademarks, trade names,
trade styles, copyrights and patents necessary to conduct its business as it is
presently conducted or as Borrower intends to conduct it in the future without
any infringement or conflict with the rights of any other Person with respect to
trademarks, trade names, trade styles, copyrights or patents, which failure
could reasonably be expected to have a Material Adverse Effect.

Section 4.14.

Other Leases. Borrower is not the lessor or lessee under any material leases
(including real property leases, equipment leases, capital leases, etc.), other
than Leases included in the Properties.

Section 4.15.

Investments. Borrower:

(a)

has not committed to make any Investment;

(b)

is not a party to any indenture, agreement, contract, instrument or lease, or
subject to any charter, by-law or other restriction or any injunction, order,
restriction or decree, which could materially and adversely affect its business,
operations, Properties or assets;

(c)

is not a party to any “take or pay” contract or settlement or any other contract
or agreement which (i) allows its gas purchaser to take gas previously paid for
out of future gas production or (ii) provides for a cash rebate to the gas
purchaser if reimbursement of take-or-pay monies is not made through gas
production;

(d)

has not produced Hydrocarbons from the Properties in excess of the percentage to
which its ownership interest in the applicable Property would entitle it,
pursuant to balancing rights of third parties or pursuant to balancing duties
under Governmental Requirements; or

(e)

has no material contingent or long term liability or commitment which could
materially affect its business.

Section 4.16.

Environmental Matters. Except as disclosed on Schedule 4.16, to Borrower’s
knowledge:

(a)

neither any Property of Borrower or any of its Affiliates, nor the operations
conducted thereon, violate any order or requirement of any court or Governmental
Authority or any Environmental Laws;

(b)

without limitation of clause (a) above, no Property of Borrower or any of its
Affiliates nor the operations currently conducted thereon or, to the best
knowledge of Borrower, by any prior owner or operator of such Property or
operation, are in violation of or subject to any existing, pending or threatened
action, suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority or to the best knowledge of Borrower, to any remedial
obligations under Environmental Laws;

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(c)

all notices, permits, licenses or similar authorizations, if any, required to be
obtained or filed in connection with the operation or use of any and all
Property of Borrower and each of its Affiliates, including without limitation
past or present treatment, storage, disposal or release of a Hazardous Materials
or solid waste into the environment, have been duly obtained or filed, and
Borrower and each such Affiliate are in compliance with the terms and conditions
of all such notices, permits, licenses and similar authorizations which the
failure to obtain, file or comply with could reasonably be expected to have a
Material Adverse Effect;

(d)

all Hazardous Materials, solid waste, and oil and gas exploration and production
wastes, if any, generated at any and all Property of Borrower or any of its
Affiliates has, to the best of Borrower’s knowledge, in the past been
transported, treated and disposed of in accordance with Environmental Laws and
so as not to pose an imminent and substantial endangerment to public health or
welfare or the environment, and, to the best knowledge of Borrower, all such
transport carriers and treatment and disposal facilities have been and are
operating in compliance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and are not the subject of any existing, pending or threatened
action, investigation or inquiry by any Governmental Authority in connection
with any Environmental Laws;

(e)

Borrower has taken all steps reasonably necessary to determine and has
determined that no Hazardous Materials, solid waste, or oil and gas exploration
and production wastes, have been disposed of or otherwise released and there has
been no threatened release of any Hazardous Materials on or to any Property of
Borrower or any of its Affiliates except in compliance with Environmental Laws;

(f)

to the extent applicable, all Property of Borrower and each of its Affiliates
currently satisfies, in all material respects, all design, operation, and
equipment requirements imposed by the OPA, and Borrower does not have any reason
to believe that such Property, to the extent subject to OPA, will not be able to
maintain compliance with the OPA requirements during the term of this Agreement;
and

(g)

neither Borrower nor any of its Affiliates has any known contingent liability in
connection with any release or threatened release of any oil, Hazardous
Materials or solid waste into the environment.

Section 4.17.

Operating Permits and Licenses. Borrower has fulfilled all requirements for
obtaining and has obtained and maintained all licenses, permits, operating
authorities and other authorizations necessary for the conduct of the business
of Borrower or for Borrower or Operator to operate or maintain each of the
Properties which the failure to obtain and maintain could reasonably be expected
to have a Material Adverse Effect, and Borrower or Operator is and will be fully
qualified to own and hold such Properties and to exercise rights under all
leases, contracts or other documents governing the operation or maintenance of
the Properties. There are no pending fees, assessments or penalties relating to
the permits, licenses and operating authorities. The continuation, validity and
effectiveness of each license, permit and other authorization are not and will
in no way be adversely affected by the transactions contemplated by this
Agreement or the Security Documents. Borrower is not in breach of, or in default
under the terms of, and has not engaged in any activity which would cause
revocation or suspension of, any such licenses, permits or authorizations which
could reasonably be expected to have a Material Adverse Effect and no action or
proceeding looking to or contemplating the revocation or suspension of any of
them is pending or, to the best of Borrower’s knowledge, threatened against
Borrower or Operator. Borrower is not in violation of any Governmental Authority
or Governmental Requirements or court decree relating to any of the Properties
or otherwise applicable to Borrower which could reasonably be expected to have a
Material Adverse Effect. No suspension of production on the Properties is in
effect.

Section 4.18.

Maintenance of Properties. Except for such acts or failures to act as could not
be reasonably expected to have a Material Adverse Effect, to the best of
Borrower’s knowledge, the Properties (together with any other properties
unitized with any of the Properties) have been maintained, operated and
developed in a good and workmanlike manner and in conformity with all
Governmental Requirements and in conformity with the provisions of all leases,
subleases or other contracts comprising a part of the Properties and other
contracts and agreements forming a part of the Properties. Except to the extent
it could not reasonably be expected to have a Material Adverse Effect, to the
extent applicable, and to the best of Borrower’s knowledge, (a) no Property is
subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time); (b) none
of the Wells comprising a part of the Properties (or properties unitized with
any of the Properties) deviates from the vertical more than the maximum
permitted by Governmental Requirements, and such Wells are, in fact, bottomed
under and are producing from, and the Well bores are wholly within, the
Properties (or in the case of Wells located on properties unitized with any of
the Properties, such unitized properties); and (c) Borrower, and to Borrower’s
knowledge, any other Operator are not in violation of, or in default under, any
material agreement affecting any Lease or any other contract or agreement to
which either Borrower and/or any other Operator is a party or is bound or its
property is bound.

Section 4.19.

USA Patriot Act Representation. Neither Borrower nor any of its Affiliates is a
country, individual or entity named on the Specifically Designated National and
Blocked Persons list issued by the Office of Foreign Asset Control of the
Department of the Treasury of the United States of America.

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Section 4.20.

Contingent Liabilities. Except for obligations arising under surety bonds
required by Governmental Authorities and which are detailed in Schedule 4.20,
indemnity, cleanup and other obligations of a customary nature assumed or
incurred (excluding Debt for borrowed money) in favor of any seller of the
Leases or related property, and Debt permitted by Section 7.1, Borrower has not
assumed, guaranteed, endorsed or otherwise become directly, indirectly or
contingently liable in connection with any liability of any other Person, except
for the endorsement of checks and other negotiable instruments for collection in
the ordinary course of business, or as may be required under the Operating
Agreements or the Security Documents or other documents executed in connection
with the Security Documents.

Section 4.21.

Restrictions on Equipment. Except for the Permitted Encumbrances, there is no
restriction or other limitation on Lender’s right to obtain or exercise its
security interests in the Equipment, including the right to foreclose on and
sell the Equipment or to exercise all other rights and remedies of a secured
party under the laws of each jurisdiction applicable to the Collateral but
subject to Debtor Relief Laws, laws related to the rights of co-owners of
property and laws related to the enforcement of security interests on personal
property.

Section 4.22.

Unpaid Bills. Except as set forth on Schedule 4.22, Borrower has no past due
bills for improvements to the Property that could give rise to mechanics’,
materialmen’s or other similar Liens arising by operation of applicable law.

Section 4.23.

Taxpayer Identification. Borrower’s federal taxpayer identification number is
38-3732913.

Section 4.24.

Investment Company. Borrower is not an “investment company” within the meaning
of the Investment Company Act of 1940, as amended.

Section 4.25.

Borrower Not a Public Company. Borrower is not an entity whose Equity Interests
are subject to regulation under either federal or state securities laws, nor
does Borrower presently contemplate becoming an entity that will be subject to
those regulations.

Section 4.26.

Other Agreements. Except as set forth on Schedule 4.26, there is no agreement in
force and effect (including, without limitation, letters of intent), whether
written or oral, between Borrower or any of its Affiliates and any other Person
regarding the acquisition or financing of any of the Properties or the purchase
and sale of production from or allocable to the Properties other than pursuant
to Hydrocarbon purchase and sale agreements satisfactory to Lender. Except for
rights set forth in the Permitted Encumbrances, no Person has any call upon,
option to purchase or similar rights under any agreement with respect to
Borrower’s Working Interest or Net Revenue Interest in the Properties or to the
production from the Properties other than pursuant to a Hydrocarbon purchase and
sale agreement satisfactory to Lender and Persons who have waived such rights in
writing with respect to the Properties.

Section 4.27.

Basic Documents. With respect to the Basic Documents:

(a)

all are in full force and effect in accordance with their terms and constitute
valid and binding obligations;

(b)

no other party to any Basic Document (or any successor in interest to that
party) is in breach or default with respect to any of its obligations under the
Basic Documents which could reasonably be expected to have a Material Adverse
Effect;

(c)

no party to any Basic Document has given or has threatened to give notice of any
action to terminate, cancel, rescind or procure a judicial reformation of any
Basic Document or any of their provisions; and

(d)

the execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not result in a breach of, a
default under, or other violation of the provisions of any Basic Document.

Section 4.28.

Farmout Agreements and Subject Contracts, Etc. With respect to the Properties
and the unit agreements, pooling agreements and other Basic Documents creating
the interests constituting the Properties, and except as set forth on
Schedule 4.28 and as set forth in any title opinions and/or reports or other
title materials provided by Borrower to Lender upon which Lender is expressly
entitled to rely:

(a)

there are no outstanding farmout agreements, obligations to drill additional
wells or agreements to engage in other development operations, except for
obligations arising under offset well provisions, obligations arising under
provisions of any Operating Agreement which allow the parties to elect whether
or not they will participate in development activities other than as specified
in those leases, contracts and other agreements;

(b)

there are no limitations as to the depths covered or substances to which such
interests purport to apply other than as specified in those leases, contracts
and other agreements; and

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(c)

there are no royalty provisions (other than those allowing a lessor the right to
take in kind) requiring the payment of royalties on any basis other than as
specified in those leases, contracts and other agreements.

Section 4.29.

Operating Agreements. With respect to the Operating Agreements relating to
Borrower’s Working Interest and Net Revenue Interest in the Properties:

(a)

Schedule 4.29 lists all Operating Agreements to which the Properties are subject
and the Operator for each of the Properties which Operators are hereby approved
by Lender;

(b)

there are no outstanding calls for payments under any AFE or payments which are
past due or which Borrower or, to the best of Borrower’s knowledge, any
predecessor of Borrower has committed to make which have not been or are not
being paid within the terms required; and

(c)

there are no operations under any of the Operating Agreements with respect to
which Borrower has become a non-consenting party nor are there any
non-consenting penalties binding or that will become binding upon Borrower that
are not reflected in the Net Revenue Interest or Working Interest as set forth
on Exhibit A.

Section 4.30.

No Unusual Agreements. All agreements applicable to Borrower’s Working Interest
and Net Revenue Interest in the Properties are of the type generally found in
the oil and gas industry and the gathering and transmission industry, as
applicable, and do not (individually or in the aggregate) contain any unusual
provisions which may operate in a material and adverse manner with respect to
Borrower’s Working Interest or Net Revenue Interest in the Properties.

Section 4.31.

Suspense of Proceeds. Except as disclosed by Borrower to Lender in writing prior
to the execution of this Agreement, as of the Closing Date, all proceeds from
the sale of Hydrocarbons from Borrower’s Working Interest or Net Revenue
Interest in the Properties are being received by Borrower in a timely manner and
are not being held in suspense for any reason.

Section 4.32.

Employee Plans. Borrower has no Employee Plans.

Section 4.33.

Use of Proceeds. Borrower has used and will use all Advances under the Term Loan
solely for the purposes described in this Agreement and in a manner consistent
with the AFEs and other supporting documentation provided to Lender in
connection with each Advance Request. Borrower is not engaged principally, or as
one of its material activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying margin
stock (within the meaning of Regulation T, U or X of the Board of Governors of
the Federal Reserve System (the “Federal Reserve Board”)). No part of the
proceeds of any Advance will be used for any purpose which violates the
provisions of Regulations T, U or X of the Board.

Section 4.34.

Borrower’s Interests in the Properties. Borrower’s Working Interest is not more
than, and its Net Revenue Interest is not less than, the percentages set forth
on Exhibit A for each of the Properties.

Section 4.35.

Insurance. Prior to the making of the initial Advance, Borrower will obtain and
will maintain, for as long as any Obligations remain owing to Lender, insurance
coverage of the types and in the amounts specified in Section 6.9. Prior to the
making of the initial Advance, one or more policies providing that coverage will
be in full force and effect, and Borrower has not received from any insurer a
notice of termination or non-renewal. Borrower has provided and will continue to
timely provide true, correct and complete copies of all of the insurance
policies, certificates and other documentation to be provided to Lender under
Section 6.9. Such insurance policies are sufficient for the compliance by
Borrower with all Governmental Requirements and all material agreements and such
insurance coverage is in at least amounts and against such risk (including,
without limitation, public liability) that are usually insured against by
companies similarly situated and engaged in the same or a similar business for
the assets and operations of Borrower. Lender has been named as an additional
insured in respect of such liability insurance policies and has been named as
loss payee with respect to property loss insurance.

Section 4.36.

No Material Adverse Effect. No Material Adverse Effect exists.

Section 4.37.

No Other Interest in the Properties. Neither Borrower nor any of its Affiliates
(including any Person owning any other security that could be exchanged for or
converted into an equity interest in Borrower) owns or is the beneficiary of any
direct or indirect interest in any of the Collateral other than through
Borrower.

Section 4.38.

Conduct of Business Since Formation. Since its formation on August 3, 2005
Borrower has conducted no business in any jurisdiction other than in the State
of Texas, the State of Louisiana, or federal waters off the coasts of the
aforementioned States.

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Section 4.39.

Restriction on Liens. Except for Permitted Encumbrances, Borrower is not a party
to any agreement or arrangement, or subject to any known order, judgment, writ
or decree, which either restricts or purports to restrict its ability to grant
Liens to Lender on or in respect of its Properties to secure the Obligations.

Section 4.40.

Hedging Agreements. Schedule 4.40 sets forth, as of the date of this Agreement
(and after the date of this Agreement, each report required to be delivered by
Borrower pursuant to Section 5.3 will set forth) a true and complete list of all
Hedging Agreements of Borrower, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark to market value thereof, all credit support agreements relating thereto
(including any margin required or supplied) and the counterparty to each such
agreement.

Section 4.41.

Marketing of Production. Except for contracts listed on Schedule 4.41 and in
effect on the date of this Agreement, and thereafter either disclosed in writing
to Lender (with respect to all of which contracts Borrower represents that it is
receiving a price for all production sold thereunder which is computed
substantially in accordance with the terms of the relevant contract and is not
having deliveries curtailed substantially below the subject Property’s delivery
capacity), no material agreements exist which are not cancelable on sixty (60)
days notice or less without penalty or detriment for the sale of production from
Borrower’s Hydrocarbons (including, without limitation, calls on or other rights
to purchase production, whether or not the same are currently being exercised)
that (a) pertain to the sale of production at a fixed price and (b) have a
maturity or expiry date of longer than six (6) months from the date hereof.

Section 4.42.

Deposit Accounts. Except as set forth on Schedule 4.42, Borrower does not
maintain any deposit accounts (as defined in the UCC).

Section 4.43.

Labor Matters. Neither Borrower nor any of its Affiliates are in violation of
any applicable law dealing with labor matters and all payments due from Borrower
or any Affiliate for employee health and welfare insurance have been paid or
accrued as a liability on its books, other than any non-payments that do not,
individually or in the aggregate, constitute a Material Adverse Effect.

Section 4.44.

Vendor Liens. There are no other Liens or inchoate Liens which, with notice, the
passage of time or both could be validly asserted and attached to the Properties
related to the provision of goods or services to Borrower for which payment is
past due.

Section 4.45.

Eligible Contract Participant. Borrower is an “eligible contract participant” as
that term is defined in the Commodities Futures Modernization Act of 2000, as
amended or supplemented from time to time, and the rules and regulations
promulgated thereunder.

Section 4.46.

Enforceability of Other Agreements. The Net Profits Overriding Royalty Interest
Conveyance is a valid and binding agreement enforceable in accordance with its
terms. No defaults have occurred and no events which, with notice or the lapse
of time or both, have occurred, which will result in the occurrences of a
default under the Net Profits Overriding Royalty Interest Conveyance.

ARTICLE V
Financial Statements and Information;
Certain Notices to Lender

So long as there are any Obligations owed to Lender under this Agreement,
including, without limitation, the obligations arising under the Swap Agreement,
and unless Lender has previously consented in writing to Borrower’s
non-compliance, Borrower shall deliver to Lender the following items:

Section 5.1.

Property Operating Statement.

(a)

no later than the 15th day of each month, a Property Operating Statement; and

(b)

concurrent with the delivery of each Property Operating Statement, statements
for the immediately preceding calendar month detailing: (i) Borrower’s
consolidated Working Capital position as of the last day of the immediately
preceding month, and (ii) aged accounts payable in the form attached as Exhibit
H, each prepared by Borrower and accompanied by a certification of an authorized
representative of Borrower acceptable to Lender (an “Authorized Officer”), dated
the date of the delivery of the statement to Lender, and further certifying that
to the knowledge of the Authorized Officer no Default exists under any provision
of this Agreement or any of the other Loan Documents; and

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(c)

concurrent with the delivery of each Property Operating Statement, a list of all
payments made by Borrower to any Person (other than Lender) during the calendar
month preceding the Payment Date and indicating whether the payment was (i) for
operating expenses of a type described in subsections (a), (b) and (c) of the
definition of “Net Operating Cash Flow,” or (ii) authorized under an AFE
approved by Lender.

Section 5.2.

Annual Reports. Within one hundred twenty (120) days after the close of each
fiscal year, a copy of the annual consolidated and consolidating financial
statements (including all notes) of Borrower, consisting of a balance sheet,
income statement and statement showing changes in financial position, all
audited by independent certified public accountants retained by Borrower and
acceptable to Lender and accompanied by the accountants’ certification that, in
the normal course of their audit, they have not become aware of any
circumstances constituting a Default under this Agreement. The first audited
financial statement will be delivered on or before April 30, 2007, or if first
production is after December 31, 2006, then on or before April 30, 2008.

Section 5.3.

Monthly Financial Reports. Within forty-five (45) days after the end of each
fiscal month, a balance sheet, income statement and statement of cash flows of
Borrower (including all notes thereto) for the period from the beginning of the
then current fiscal year to the end of such fiscal month, prepared by Borrower.

Section 5.4.

Certificate of Financial Officer; Compliance. Concurrently with any delivery of
financial statements under Section 5.2 or Section 5.3, a certificate of an
Authorized Officer of Borrower in form and substance satisfactory to Lender (a)
certifying (i) as to whether such Authorized Officer has knowledge of whether a
Default has occurred, dated the date of the delivery of the financial statements
to Lender, and, (ii) if a Default has occurred, specifying the details thereof
and any action taken or proposed to be taken with respect thereto, (b) setting
forth reasonably detailed calculations demonstrating compliance with Section
6.27, (c) stating whether any material change in GAAP or in the application
thereof has occurred since the date of the audited financial statements referred
to in Section 5.2 and Section 5.3 and, if any such material change has occurred,
specifying the effect of such change on the financial statements accompanying
such certificate, and (d) stating that such financial statements present fairly
in all material respects the consolidated financial position and results of
operations of Borrower on a consolidated basis in accordance with GAAP, subject
to normal year-end adjustments and the absence of footnotes (other than those
required to explain financial data).

Section 5.5.

Default Notices. Promptly after becoming aware of the existence of any Default
under this Agreement or any of the Loan Documents or a default by Borrower under
any Operating Agreement or any farmout agreement or after becoming aware of any
developments or other information which might materially and adversely affect
Borrower’s Properties, business, prospects, profits or condition (financial or
otherwise) or its ability to perform under this Agreement, including, without
limitation, the following:

(a)

any material dispute (including tax liability disputes) that may arise between
Borrower and any Governmental Authority;

(b)

the commencement of any litigation or proceeding involving amounts in dispute in
excess of Twenty Five Thousand Dollars ($25,000) affecting Borrower or any of
the Properties;

(c)

any labor dispute or controversy resulting in or threatening to result in a
general strike or work stoppage against Borrower;

(d)

any proposal by any Governmental Authority to acquire any of the assets or
business of Borrower;

(e)

any proposed or actual change in Borrower’s name or in any trade name used to
identify such Person in the conduct of its business or in the ownership of its
Properties, (i) in the location of Borrower’s chief executive office or
principal place of business, (ii) in Borrower’s identity or entity structure or
in the jurisdiction in which such Person is formed, (iii) in Borrower’s
jurisdiction of organization or such Person’s organizational identification
number in such jurisdiction of organization, and (iv) in Borrower’s federal
taxpayer identification number;

(f)

the loss of, suspension, termination or material adverse change to any of the
permits, licenses, operating authorities and other authorizations referred to in
Section 4.17 and Section 4.18;

(g)

any material loss or damage to any of the Collateral, or Borrower’s business or
operations;

(h)

the failure to make any payment when due with respect to any Debt or the failure
to comply with the terms of any material agreement (including, without
limitation, any Hedging Agreement or Swap Agreement) to which Borrower is a
party;

(i)

any proposed sale, transfer, assignment or other disposition of any Properties
permitted hereunder, prior written notice of such disposition, the price thereof
and the anticipated date of closing;

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(j)

the occurrence of any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of Borrower having a fair market value in
excess of Fifty Thousand Dollars ($50,000); and

(k)

any other development that results in, or could reasonably be expected to result
in a Material Adverse Effect;

in each case Borrower shall provide Lender with telephonic, facsimile or e-mail
notice specifying and describing the nature of the Default, development or
information, and the anticipated effect. Any notice delivered by telephone or
e-mail will be confirmed in writing (or, with respect to e-mail notices,
physically delivered to Lender) within five (5) days.

Section 5.6.

Reserve Reports.

(a)

Timing of Reports. Beginning on the First Reserve Report Effective Date and
continuing semi-annually throughout the term of this Agreement, Borrower shall,
at its sole expense (to be accounted for as a lease operating expense in the
calculation of Net Operating Cash Flow), cause to be prepared by the Engineers
(or, in the case of the mid-year report, prepared by Borrower, with Lender’s
written consent in its sole and absolute discretion) and delivered to Lender an
engineering reserve report (the “Reserve Report”) relating to the Properties.
The mid-year reports will have a June 30 effective date, and the year-end
reports will have a December 31 effective date. In the event that a mid-year
report prepared by Borrower is not acceptable to Lender in its sole and absolute
reasonable discretion, Borrower shall cause to be prepared by the Engineers a
mid-year report for that same period. The Reserve Reports will set forth,
without limitation, the projected recoverable reserves attributable to the
Working Interests and Net Revenue Interests of Borrower. Borrower shall deliver
each Reserve Report to Lender within forty-five (45) days of its effective date.

(b)

Preparation of Reports. The Reserve Report will be prepared in accordance with
the following assumptions:

(i)

reserves shall be adjusted for cumulative production since the effective date of
the most recent Reserve Report;

(ii)

(a)

for all Natural Gas to be sold by Borrower other than Natural Gas described in
Section 5.6(b)(ii)(B) below, the purchase price for each calendar year will be
the average of the monthly prices for that year for Natural Gas as reflected in
the New York Mercantile Exchange as of the settlement of the last trading day
for the contract month coincident with the effective date of the Reserve Report
(as adjusted for appropriate quality, transportation and location differentials
approved by Lender), using price escalators or de-escalators existing in the
market as determined by Lender at the time the Reserve Report is being prepared,
for the remaining life of the Properties;

(B)

for all Natural Gas to be sold by Borrower on a fixed price basis pursuant to
any bona fide contract or with respect to which the price has been hedged
pursuant to any New York Mercantile Exchange contract or bona fide price swap
agreement or arrangement, the purchase price will be the fixed price (as
adjusted for appropriate quality, transportation and location differentials
approved by Lender) for the volumes indicated in the contract, agreement or
arrangement;

(C)

for Crude Oil to be sold by Borrower other than Crude Oil described in Section
5.6(b)(ii)(D)  below, the purchase price for each calendar year shall be the
average of the monthly prices for that year for Crude Oil as reflected in the
New York Mercantile Exchange as of the settlement on the last trading day for
the contract month coincident with the effective date of the Reserve Report (as
adjusted for appropriate quality, transportation and location differentials
approved by Lender), using price escalators or de-escalators existing in the
market as determined by Lender at the time the Reserve Report is being prepared,
for the remaining life of the Properties;

(D)

for Crude Oil to be sold by Borrower on a fixed price basis pursuant to any bona
fide contract or for which the price has been hedged pursuant to any New York
Mercantile Exchange contract or bona fide price swap agreement or arrangement,
the purchase price will be the fixed price (as adjusted for appropriate quality,
transportation and location differentials approved by Lender) for the volumes
indicated in the contract, agreement or arrangement.

(iii)

reserves will be adjusted to reflect revisions to volume estimates of reserves
since the effective date of the last Reserve Report;

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(iv)

projected operating expenses and capital expenditures will be adjusted to
reflect (A) actual expense levels incurred since the effective date of the last
Reserve Report and (B) projected increases or decreases in anticipated operating
expenses and capital expenditure levels, both of which (A) and (B) shall
reasonably correspond to historical projected operating expenses and capital
expenditures;

(v)

each Reserve Report will not deduct, for the period commencing therewith, the
Net Profits Overriding Royalty Interest Conveyance;

(vi)

each Reserve Report will separately report on PDP Reserves, PDNP Reserves and
PUD Reserves and will utilize any other assumptions that Lender may request from
time to time; and

(vii)

each Reserve Report shall be accompanied with any updates to the then existing
Development Plan and by a certificate of an Authorized Officer of Borrower as
required pursuant to Section 5.4.

(c)

Preparation of Additional Reserve Reports. Borrower or Lender, at the sole
option of either of them, so long as there are any Obligations owing to Lender
under this Agreement (other than indemnity and similar obligations that survive
termination of this Agreement), may cause additional Reserve Reports, meeting
the requirements of the preceding paragraph, to be prepared by the Engineers to
be delivered to the other party. Except for the two (2) Reserve Reports each
year required in the first paragraph of this Section 5.6 which will be paid for
by Borrower (and accounted for as lease operating expenses in the calculation of
Net Operating Cash Flow), the costs and expenses of any additional reports will
be borne by the party requesting the report. Notwithstanding the foregoing, if
an Event of Default has occurred and is continuing, then Lender may request an
additional report to be prepared on an annual basis at the sole expense of
Borrower.

Section 5.7.

Other Information. Borrower shall provide Lender copies of any financial
statement, report or notice furnished to or by any Person pursuant to the terms
of any preferred stock designation, indenture, loan or credit or other similar
agreement, other than this Agreement, and not otherwise required to be furnished
to Lender pursuant to any other provision of this Agreement. Borrower shall
provide any other information concerning the financial condition of Borrower and
any property of Borrower as Lender may reasonably request from time to time.

Section 5.8.

Daily Field Reports. Borrower shall use commercially reasonable efforts to, but
in no event later than twenty-four (24) hours from any given production day
(excepting weekends), send reports on active field operations to Lender on a
daily basis, in form and substance satisfactory to Lender. Such reports will be
sent by e-mail or fax to designated representatives of Lender as soon as
possible on the day following each previous day’s reported activities (including
weekends); provided, however, with respect to reports on drilling activities,
Borrower shall be obligated to provide Lender such daily reports no later than
twenty-four (24) hours from any given production day (including weekends).
Active field operations include, but are not limited to: location work,
drilling, completions, well workovers, installation, modification or repair of
surface facilities and flowlines, and pipeline hookups. Drilling activities
include, but are not limited to: depth, corresponding lithological information,
data on drilling fluid characteristics, and information about drilling
difficulties or delays, if any.

Section 5.9.

Weekly Production Reports. Borrower will maintain a table of all daily
production data (current and historical) for all existing and future well
completions by Borrower in a form acceptable to Lender. Such table will be
supplied in a digital format to Lender at least once per week by e-mail to
designated representatives of Lender. Gas, oil/condensate, and water production
volumes will be reported, as well as choke sizes, wellhead pressures, hours
produced and notes relating to downtime or other factors affecting production.
The daily production volumes will be based on field estimates on as accurate a
basis as practical given the production equipment and metering devices in place.
For situations where production from multiple completions are combined upstream
of measurement equipment, production volumes for the individual completions
should be estimated based on appropriate allocations acceptable to Lender. The
raw metered data, explanatory notes and formulas related to the allocation
methodology, and the resulting allocated volumes should be included in the table
supplied.

Section 5.10.

Monthly Field Activity Reports. Borrower shall maintain a table of all monthly
gas and oil/condensate production volumes (historical and current) for all
existing and future well completions by Borrower. Such table will be supplied by
electronic mail to designated representatives of Lender, in a digital format
acceptable to Lender, within twenty-one (21) days following the end of each
production month. In the case of Natural Gas, the monthly production volumes
should be based on the integration of the charts recorded by the lease “check”
meter located downstream of the processing equipment and immediately upstream of
the sales delivery point. Any allocation of production among completions should
be documented as described above for the daily production table. Borrower shall
also supply a report reconciling Hydrocarbon Production Volumes (as measured by
the lease equipment) to sales volumes (reported by the Purchasers) for each of
Borrower’s existing and future well or lease. Such table will be supplied by
e-mail to designated representatives of Lender, in a format acceptable to
Lender, within twenty-one (21) days following the end of each production month.

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Section 5.11.

AFEs. Borrower shall provide Lender for Lender’s written approval a true and
complete copy of each AFE supported by appropriate invoices, bids, estimates,
contracts or other documentation prior to commencing the activity contemplated
by the AFE. Borrower shall promptly submit to Lender for written approval a
supplemental AFE for any anticipated expenditures in excess of one hundred ten
percent (110%) of those authorized on an approved AFE. Specifically, to the
extent that the initial Well completion costs exceed Tranche C funds (which
already reflect 110% of estimated AFE costs), Borrower shall submit a
supplemental AFE to Lender for funding at Lender’s sole and absolute discretion.

Section 5.12.

Test Results; Core Analyses; Surveys and Logs. Borrower shall promptly provide
Lender with true and complete copies of all test results, fluid analyses,
pressure surveys and core analyses related to the Properties. As soon as such
data are available, Borrower shall promptly provide Lender with true and correct
copies of all electrical surveys, radioactivity logs, temperature surveys,
deviation or directional surveys, caliper logs and all other logs and surveys
obtained during the drilling of any Well. In addition, promptly upon the
completion of any Well, Borrower will provide Lender with a composite of all
electrical formation evaluation logs to the extent reasonable and customary.

Section 5.13.

Advance Notice of Operations. To the extent practical, Borrower will use
commercially reasonable efforts to give Lender twenty-four (24) hours advance
notice of and access to all logging, coring, and testing operations.

Section 5.14.

Reports Made to a Governmental Authority. Concurrently with the delivery of any
such report or application to the applicable Governmental Authority, Borrower
shall provide Lender a copy of each report made and application submitted to a
Governmental Authority.

Section 5.15.

Charter Documents. Borrower shall provide Lender copies of all amendments or
modifications to any of its Charter Documents and the Charter Documents of any
Subsidiary and Affiliate.

Section 5.16.

Information to Members. Simultaneous with the distribution of such information
to Borrower’s members, Borrower shall furnish to Lender copies of all periodic
and other reports, proxy statements and other materials distributed by Borrower
to the members generally.

Section 5.17.

Certificate of Authorized Officer; Hedging Agreements. Concurrently with the
delivery of each Reserve Report hereunder, a certificate of an Authorized
Officer of Borrower, in form and substance satisfactory to Lender, setting forth
as of the effective date of the Reserve Report, a true and complete list of all
Hedging Agreements of Borrower, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, credit support agreements not previously
disclosed to Lender in writing, any margin required or supplied under any credit
support document, and the counterparty to each such agreement.

Section 5.18.

Certificate of Insurer; Insurance Coverage. Concurrently with any delivery of
financial statements hereunder (to the extent not previously provided to
Lender), a certificate of insurance coverage from each insurer with respect to
the insurance required by Section 6.9 in form and substance satisfactory to
Lender, and, if requested by Lender, all copies of the applicable policies.

Section 5.19.

Updated Development Plan. Contemporaneous with the delivery of each Reserve
Report bearing an effective date as of December 31st of any year, and as
otherwise updated from time-to-time, Borrower will prepare and deliver to Lender
a revised, proposed Development Plan covering at least the next twelve
(12) months and setting forth all capital expenditure development projects
proposed for that period, the anticipated timing of those projects, the net cost
of each of those projects to Borrower and such other information as Lender may
require. Each proposed Development Plan will be subject to the written approval
of Lender in its sole and absolute discretion, and Borrower agrees and
acknowledges that Lender has no obligation to approve any revised Development
Plan. If and when approved by Lender, each revised Development Plan will
supersede Schedule 2.1 to this Agreement.

ARTICLE VI
Affirmative Covenants

Borrower covenants and agrees that, so long as there are any Obligations owing
to Lender under this Agreement or under the Swap Agreement (other than indemnity
obligations and similar obligations that survive the termination of this
Agreement), or Lender has any commitment to make further Advances under this
Agreement, and unless Lender has previously consented in writing to Borrower’s
non-compliance, Borrower will comply with the following covenants:

Section 6.1.

Preservation of Existence. Borrower shall preserve and maintain its existence as
a limited liability company organized under the laws of the State of Louisiana
and all related rights, privileges and franchises.

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Section 6.2.

Affiliate Transactions. Borrower shall not enter into any transaction with any
Affiliates without the prior written consent of Lender, and, if approved by
Lender, Borrower shall conduct those transactions on an arm’s-length basis.

Section 6.3.

Compliance with Law. Borrower shall:

(a)

comply, and use all commercially reasonable efforts to cause the Operator to
comply, in all material respects with all Governmental Authorities and
Governmental Requirements regarding the collection, payment and deposit of
employees’ income, unemployment and Social Security taxes and use all
commercially reasonable efforts to cause the Operator to properly and timely
make all royalty or overriding royalty payments and payments to all other
interest owners in the Properties which it operates;

(b)

duly observe and conform, in all material respects, with all laws, rules and
regulations made by any Governmental Authority, and all valid requirements of
any Governmental Authority which may acquire jurisdiction, which apply or relate
to ownership and operation of any or all of the Properties, including, without
limitation, compliance with all obligations under the Environmental and Safety
Regulations;

(c)

operate or cause any Property to be operated (whether or not such Property
constitutes a “facility” as defined by CERCLA) so that no cleanup or other
obligation arises in respect of CERCLA or other applicable federal law or under
any state, local or municipal law, statute (including, without limitation,
Hazardous Substance Laws), ordinance, rule or regulation designed to protect the
environment or relating to the disposition, generation or transportation of
hazardous waste, which would constitute a Lien or charge on any property of
Borrower prior in right to that of Lender. If any claim of prior Lien or charge
is made or any similar obligation arises, Borrower will, at its own expense, (i)
immediately cure or cause a third party to immediately cure the same except for
claims, Liens or charges being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP and
(ii) INDEMNIFY AND HOLD HARMLESS LENDER AND ITS OFFICERS, DIRECTORS, AGENTS AND
EMPLOYEES FROM ANY RELATED LIABILITY, RESPONSIBILITY OR OBLIGATION IN CONNECTION
WITH ANY CLEANUP OR OTHER LIABILITY AS SUCCESSOR, SECURED PARTY OR OTHERWISE
(REGARDLESS OF WHETHER OR NOT LENDER MAY BE DEEMED TO BE AN “OWNER OR OPERATOR”
UNDER CERCLA) FOR ANY REASON INCLUDING, WITHOUT LIMITATION, THE ENFORCEMENT OF
LENDER’S RIGHTS AS A SECURED PARTY UNDER THIS AGREEMENT, THE SECURITY DOCUMENTS
OR BY OPERATION OF LAW;

(d)

comply with, and use all commercially reasonable efforts to cause material
compliance by all of its Operators, agents and invitees with, all Environmental
and Safety Regulations with respect to Hazardous Materials, and keep all of the
Properties free and clear of any Liens imposed by those regulations except for
claims, Liens or charges being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP. If
Borrower receives any notice from any Person with regard to the Release of
Hazardous Materials on or from any of the Properties, Borrower shall promptly
(and, in any event, prior to the expiration of any period in which to respond to
such notice under any applicable Environmental and Safety Regulation) send a
copy of the notice to Lender;

(e)

use all commercially reasonable efforts to cause any Operator to do or cause to
be done all things reasonably necessary to preserve and keep in good repair,
working order and efficiency (excepting ordinary wear and tear) all of its
Properties including, without limitation, all Equipment, machinery and
facilities, and from time to time will make all the reasonably necessary
repairs, renewals and replacements so that at all times the state and condition
of its Properties will be fully preserved and maintained, except to the extent a
portion of such Properties is no longer capable of producing in paying
quantities; and

(f)

promptly (i) pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties, expenses,
severance taxes and other taxes and indebtedness accruing under the Leases or
other agreements affecting or pertaining to its Properties, (ii) perform or make
reasonable and customary efforts to cause to be performed in all material
respects, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, Leases, sub-leases, contracts and
agreements affecting its interests in its Properties and (iii) will use
commercially reasonable efforts to cause the Operator to do all other things
necessary to keep unimpaired, except for Liens described in Section 7.5, its
rights with respect to its Properties and prevent any forfeiture thereof or a
default thereunder, except to the extent a portion of such Properties is no
longer capable of producing in paying quantities.

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Section 6.4.

Environmental Matters

(a)

Borrower shall at its expense: (i) comply, and shall cause its Properties and
operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
dispose of or otherwise release, any oil, oil and gas waste, hazardous
substance, or solid waste on, under, about or from any of Borrower’s Properties
or any other property to the extent caused by Borrower’s operations except in
compliance with applicable Environmental Laws, the disposal or release of which
could reasonably be expected to have a Material Adverse Effect; (iii) timely
obtain or file all notices, permits, licenses, exemptions, approvals,
registrations or other authorizations, if any, required under applicable
Environmental Laws to be obtained or filed in connection with the operation or
use of Borrower’s Properties, which failure to obtain or file could reasonably
be expected to have a Material Adverse Effect; (iv) promptly commence and
diligently prosecute to completion any assessment, evaluation, investigation,
monitoring, containment, cleanup, removal, repair, restoration, remediation or
other remedial obligations (collectively, the “Remedial Work”) in the event any
Remedial Work is required or reasonably necessary under applicable Environmental
Laws because of or in connection with the actual or suspected past, present or
future disposal or other release of any oil, oil and gas waste, hazardous
substance or solid waste on, under, about or from any of Borrower’s Properties,
which failure to commence and diligently prosecute to completion could
reasonably be expected to have a Material Adverse Effect; (v) establish and
implement such procedures as may be necessary to continuously determine and
assure that Borrower’s obligations under this Section 6.4(a) are timely and
fully satisfied, which failure to establish and implement could reasonably be
expected to have a Material Adverse Effect; and (vi) prepare environmental
reports in a form acceptable to Lender and at request of Lender, in its sole and
absolute discretion.

(b)

Borrower will promptly, but in no event later ten (10) days of the occurrence of
a triggering event, notify Lender in writing of any threatened action,
investigation or inquiry by any Governmental Authority or any threatened demand
or lawsuit by any landowner or other third party against Borrower or its
Properties of which Borrower has knowledge in connection with any Environmental
Laws (excluding routine testing and corrective action) if Borrower reasonably
anticipates that such action will result in liability (whether individually or
in the aggregate) in excess of Fifty Thousand Dollars ($50,000), not fully
covered by insurance, subject to normal deductibles.

(c)

Borrower will provide environmental audits and tests in accordance with American
Society for Testing and Materials Standards, as amended, upon request by Lender
and no more than once per year in the absence of any Event of Default (or as
otherwise required to be obtained by Lender by any Governmental Authority), in
connection with any future acquisitions of any other Properties.

Section 6.5.

Records. Borrower shall keep adequate records and books of account with respect
to its business activities and the Properties in which proper entries are made
in accordance with GAAP reflecting all financial transactions of Borrower.
Borrower shall keep separate books and records than its Affiliates and shall
conduct its business separately from the business of its Affiliates.

Section 6.6.

Litigation. Borrower shall give Lender prompt written notice of any suit at law
or in equity or any investigation or proceeding before or by any Governmental
Authority arising after the date hereof and known to Borrower that could:

(a)

limit, prohibit or restrict the manner in which Borrower presently conducts its
business; or

(b)

declare any substance contained in any product used, sold or distributed by
Borrower to be a Hazardous Material in violation of Hazardous Substance Laws.

Section 6.7.

Damage to Collateral. Borrower shall give Lender prompt written notice of:

(a)

damage to any of the Collateral causing a loss in excess of Twenty-Five Thousand
Dollars ($25,000); and

(b)

the occurrence of any condition or event which has caused, or may cause, loss or
depreciation in excess of Twenty-Five Thousand Dollars ($25,000) with respect to
any of the Collateral excluding market fluctuation for the price paid for
Hydrocarbons.

Section 6.8.

Solvency. Borrower shall conduct all operations in a manner as is necessary to
remain Solvent.

Section 6.9.

Insurance. Borrower shall:

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(a)

continuously keep all of its Personal Property together with all improvements on
its real property insured for replacement value of like kind and quality with
insurance companies licensed or approved to do business in the jurisdictions in
which the Properties are located with a Best’s Rating of A or better or as
otherwise satisfactory to Lender against loss or damage by fire or other risk
usually insured against by other prudent owners in similar businesses similarly
situated under extended coverage endorsement and against theft, burglary, and
pilferage together with other insurance covering any other hazards as Lender may
from time to time reasonably request;

(b)

deliver certificates of insurance to Lender if Lender so requests and, whether
or not so delivered, such policies and all proceeds thereof shall be security
for all Obligations. All such insurance shall contain endorsements in form
satisfactory to Lender showing Lender as a loss payee and additional insured as
its interest may appear. All insurance proceeds received by Lender shall be
retained by Lender at its option, for application to the payment of such portion
of the Obligations as Lender may determine in its reasonable discretion or shall
be applied to repair any such insurable loss or damage, provided that the
proceeds of the insurance shall be deposited in the Borrower Sub-Account and, so
long as no Event of Default shall have occurred and be continuing, at the
request of Borrower, such proceeds shall be disbursed to Borrower upon such
terms and conditions as Lender may deem appropriate for its protection to pay
the cost of repairing or restoring Collateral or purchasing replacement
Collateral;

(c)

promptly notify Lender of any event or occurrence causing a material loss or
decline in value of Collateral insured or the existence of an event justifying a
material claim under any insurance and the estimated amount thereof. In
furtherance, but not in limitation of the requirements of the preceding
sentence, Borrower shall continuously keep and maintain in full force and effect
during the term of this Agreement, at Borrower’s sole cost and expense, original
insurance policies for which the payment of premiums are current containing
waivers of subrogation by the respective insurers and non-contributory standard
mortgagee clauses or their equivalent or a satisfactory mortgagee loss payable
endorsement in favor of Lender providing the types of insurance covering each of
the Properties and the interest and liabilities incident to the ownership,
possession and operation thereof as specified on Schedule 6.9;

(d)

deliver to Lender all certificates of insurance (and if requested by Lender,
copies of all insurance policies and endorsements) which are required to be
obtained and maintained by Borrower. Such certificates shall show that (i) such
insurance is in full force and effect in accordance with the provisions of this
Agreement, (ii) such insurance is non-cancelable without at least fifteen (15)
days prior written notice to Lender sent by United States registered or
certified mail, return receipt requested, and (iii) written notice shall be sent
to Lender in the same manner at least fifteen (15) days prior to any non-renewal
of such policies;

(e)

obtain at least thirty (30) days prior to the expiration date of each policy
maintained pursuant to this Section 6.9, a renewal or replacement thereof and
deliver to Lender a certificate of such renewal or replacement policy; and

(f)

notwithstanding the foregoing, Borrower shall at all times employ industry
standard practices for insurance coverages to include, but not limited to,
drilling, workovers, flowline repairs, rig work and facilities work. Borrower
will exercise commercially reasonable efforts to ensure that third-party
operators also carry such insurance coverages. To the extent Borrower’s existing
coverage is not in compliance or falls below those standard for the industry as
determined by Lender, Borrower shall promptly act to increase, if necessary, its
insurance coverages and coverage amounts to come into compliance with industry
standards.

Section 6.10.

Delivery of Instruments. Borrower shall deliver to Lender upon its request
copies of all contracts, statements, invoices, notices, receipts and vouchers
under which Borrower has incurred or is to incur costs in excess of Ten Thousand
Dollars ($10,000), and deliver to Lender all other data or documents in
connection with Borrower’s operations as Lender may from time to time reasonably
request.

Section 6.11.

Consultants. Borrower shall accord to Lender the right, to be exercised in
Lender’s reasonable discretion, with prior written notice to Borrower (except
upon the occurrence and during the continuation of an Event of Default, in which
case no prior written notice is required), from time to time to select and
retain consultants, including engineers and public accountants, to advise Lender
as to technical and financial matters pertaining to Borrower’s operations
relating to the Properties and Borrower’s financial records. Upon Borrower’s
receipt of verifying invoices therefore, the reasonable fees and costs charged
by Lender’s consultants will be paid by Borrower, which may be paid out of Net
Operating Cash Flow as lease operating expense. Borrower shall allow Lender’s
consultants access during normal business hours to the Properties and all other
facilities owned, operated or used by Borrower in connection with the Properties
or the conduct of Borrower’s business and to Borrower’s records (financial or
otherwise) relating to the operation of the Properties. The access granted to
Lender and its consultants under this Section 6.11 will not unreasonably disrupt
the business of Borrower or the operation of the Properties.

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Section 6.12.

Creditors. Borrower shall promptly, upon Lender’s request, provide Lender with a
statement showing the identity of Borrower’s creditors, the amount due to each,
and the date each payment is due. Borrower shall notify Lender immediately if
Borrower fails to make any payment (other than a contested payment) in
accordance with required terms to lessors, suppliers, vendors, owners of Royalty
Interests, third-party Working Interest owners, tax authorities or others
relating to the Properties, including, without limitation, owners or holders of
net profits interests, production payments, or any other Liens or burdens on or
relating to the Properties, where non-payment would create any Lien rights
against any item of Collateral or otherwise interfere with or jeopardize
performance by Borrower under this Agreement. Upon receipt of a notice of
non-payment from Borrower, Lender may, but need not, make in its reasonable
discretion, any payments or agree to pay any persons as are required to enable
Borrower to complete performance under this Agreement or to protect the
interests of Lender in production from or allocable to Borrower’s Net Revenue
Interest in the Properties or other Collateral, and those payments will be
immediately reimbursed to Lender by Borrower on demand. Borrower’s obligation to
reimburse Lender for any payments will be secured by the security interests and
the Liens granted under the Security Documents.

Section 6.13.

Inspection. Borrower shall, so long as any Obligation remains owing to Lender or
any Collateral remains located at any of the Properties or other facilities
owned or leased by Borrower, accord Lender and its agents full and unrestricted
access (at Lender’s risk) upon the giving of reasonable notice under the
circumstances (subject to reasonable safety restrictions and in accordance with
prudent operator standards) during normal business hours to the Properties and
such other facilities to permit Lender or its agents to, among other things,
witness drilling, workovers and other field activities and inspect production.
Borrower shall give Lender or its agents due notice of drilling, workovers and
other field activities to permit Lender to exercise its rights under this
Section 6.13. The access granted to Lender under this Section 6.13 will not
unreasonably disrupt the business of Borrower or the operation of the
Properties.

Section 6.14.

Compliance Opinions and Reports. Borrower shall, upon Lender’s reasonable
request, obtain opinions and/or reports, as designated by Lender, from counsel
or other consultants reasonably satisfactory to Lender that Borrower has all
permits, licenses and other approvals required by all Governmental Authorities,
and the current and planned operation of the Properties is in compliance with
all Governmental Requirements.

Section 6.15.

Operators. To the extent Borrower has the legal right to do so (or to cause or
require any other Person to do so) Borrower shall, in the event of a material
failure by any Operator to perform any obligations under the respective
Operating Agreement or upon the occurrence of an Event of Default under this
Agreement:

(a)

immediately, upon the request of Lender, vote to remove the Operator or commence
any proceedings necessary under the applicable Operating Agreement to remove the
Operator or assign to Lender its right to vote to remove the Operator with
respect to the Properties,

(b)

seek indemnification or damages from the Operator and its successors or assigns
for any loss or liability incurred by Borrower,

(c)

pay the owners of Royalty Interests directly,

(d)

deliver or use all commercially reasonable efforts to cause the Operator to
deliver to any successor Operator all books, agreements, contracts, papers,
records (including but not limited to royalty payment records, computerized
tapes and other royalty payment information), division orders, farm-in and
farmout agreements, and all other records, contracts, agreements, papers or
documents, written, printed or computerized, which may be pertinent in any way
to the operations to be conducted by the successor Operator or which may have
been conducted by the former Operator,

(e)

cooperate, and use all commercially reasonable efforts to cause the Operator to
fully cooperate with the successor Operator to ensure that the Leases are not
terminated or the value of the Properties diminished by virtue of the
resignation or removal, and

(f)

take all other actions and use all commercially reasonable efforts to cause the
Operator to take all other actions necessary to ensure an orderly transition of
all operations to the successor Operator. Borrower shall promptly reimburse
Lender for any payments made pursuant to this Section 6.15. The rights and
remedies of Lender under this Section 6.15 are in addition to any other rights
or remedies available under Article XI or elsewhere in this Agreement.

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Section 6.16.

Purchasers of Hydrocarbons. Borrower shall:

(a)

in the event that any Purchaser of Hydrocarbons is, in Lender’s reasonable
judgment, not creditworthy, upon the request of Lender, (i) cause the Purchaser
to provide one or more letters of credit, in form and substance and from a bank
satisfactory to Lender in connection with its purchase of Hydrocarbons from the
Properties, (ii) sell Hydrocarbons only to Purchasers who are creditworthy in
Lender’s reasonable judgment or who prepay, or (iii) exercise its right to take
the Hydrocarbons in kind and sell to Purchasers of Hydrocarbons who are
creditworthy in Lender’s reasonable judgment, to the extent Borrower is legally
entitled to take such action; and

(b)

after the date of this Agreement, give Lender thirty (30) days prior written
notice if a Person other than a Person listed on Exhibit E will become a
Purchaser of Hydrocarbons. The notice will contain the Person’s name and address
(including contact person) and specify the Property or Properties to which the
purchases relate.

Section 6.17.

Access to Officers, Employees and Agents. Borrower shall allow Lender reasonable
access to appropriate officers, employees and agents of Borrower to discuss the
affairs, finances and accounts of Borrower at all reasonable times and as often
as Lender may reasonably request.

Section 6.18.

Use of Proceeds; Development of Properties. Borrower shall use all amounts
Advanced under the Term Loan solely for the purposes described in this Agreement
and in a manner consistent with the AFEs and other supporting documentation
provided to Lender in connection with each Advance Request. Borrower shall
diligently develop the Properties in accordance with the applicable AFE.

Section 6.19.

Bonds. Borrower shall maintain in full force and effect all federal and state
qualifications, bonds, permits and approvals necessary to own and operate the
Properties, and deliver to Lender certificates evidencing any bonds and copies
of any bonds in place (including renewals) as well as all bonds required by the
applicable Governmental Authority. Schedule 6.19 identifies (a) each of the
bonds, permits and qualifications maintained by Borrower or Operator in
connection with the ownership and operation of the Properties and compliance
with the applicable law as set forth in this Section 6.19, and (b) all payment
obligations of Borrower to the applicable bonding agent(s).

Section 6.20.

Hedging Hydrocarbon Production. Once production has been established, Borrower
shall enter into a Hedging Agreement in form and substance satisfactory to
Lender in its sole and absolute discretion such that a percentage of the volume
of PDP Reserves set forth on Schedule 6.20 is dedicated to the price risk
management program approved by Lender. Any gain or loss for volume adjustments
will be for Borrower’s account. From and after the period of time specified on
Schedule 6.20, Borrower shall maintain a price risk management program on a
portion not to exceed 80% of its PDP Reserves as determined by Lender in its
sole discretion, per the most recent Reserve Report, or such other greater or
lower amount as may be determined by Lender from time to time in its sole
discretion. Lender may review the adequacy of Borrower’s price hedge position at
any time to determine if it is in compliance with this Section 6.20. Lender may
require that Borrower’s hedging program be extended beyond the Maturity Date and
if so required, Borrower shall enter into such additional energy price hedging
arrangements necessary to comply with Lender’s request, such extension not to
exceed one hundred eighty (180) days after the Maturity Date.

To the extent Borrower enters into any hedging agreements pursuant to the Swap
Agreement which extends beyond the Maturity Date, the Obligations under the Swap
Agreement shall continue to be secured by the Security Documents notwithstanding
payment of the Term Loan.

Section 6.21.

Minimum Payments. Borrower shall pay to Lender interest at the rate specified in
this Agreement on all Obligations (including Obligations which are for fees or
to reimburse or indemnify Lender) on each Payment Date irrespective of whether
interest due exceeds the Applicable Percentage of Net Operating Cash Flow for a
given month; provided, further, that if the Applicable Percentage of Net
Operating Cash Flow is insufficient to pay to Lender such minimum payments
described in this Section 6.21, such minimum payments will be added to the
principal amount of the Term Loan.

Section 6.22.

Post-Closing Title Opinions

(a)

Within thirty (30) days of Closing, Borrower will deliver to Lender updated
title opinions and title information covering the Properties.

(b)

The opinions to be delivered under this Section 6.22 will show Defensible Title
in the Properties vested in Borrower subject only to the Permitted Encumbrances,
the Mortgages in favor of Lender as first and prior mortgage Liens subject only
to the Permitted Encumbrances, the Net Profits Interest, and will otherwise be
satisfactory to Lender and its counsel.

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Section 6.23.

Continuing Enterprise. Borrower shall continue to conduct its operations on such
a scale and in such a manner as is necessary to (a) perform its obligations
under this Agreement, the other Loan Documents and the Basic Documents, and (b)
preserve its rights to the Properties and its rights under the Basic Documents
unless a prudent operator would not do so.

Section 6.24.

Venue for Debtor Relief Proceedings. In the event Borrower voluntarily commences
any proceeding under any Debtor Relief Law, Borrower shall initiate and maintain
the proceeding in the United States District Court for the Southern District of
Texas.

Section 6.25.

Access to Seismic and Geophysical Data. Borrower shall provide Lender and its
engineering consultants with complete and full access to all engineering,
seismic, geological and geophysical data, studies and evaluations which Borrower
or any of its Affiliates possesses or to which any of them has access. Lender
will, upon reasonable notice to Borrower, have access to these records during
Borrower’s regular business hours; provided, however, to the extent the
information to be made available to Lender under this Section 6.25 is subject to
a confidentiality agreement, Borrower may require Lender to execute and deliver
to it a mutually acceptable confidentiality agreement prior to being allowed
access to the confidential information.

Section 6.26.

Liens on Collateral. Borrower will at all times cause all Collateral (whether
real, personal or mixed, tangible or intangible) of Borrower to be subject to a
senior first-priority perfected Lien in favor of Lender pursuant to the Security
Documents subject only to Permitted Encumbrances.

Section 6.27.

Financial Ratios.

(a)

Interest Coverage Ratio. Without prior written consent of Lender, beginning with
the First Reserve Report Effective Date, Borrower shall at all times maintain an
Interest Coverage Ratio of at least 2.50 to 1.00.

(b)

Current Ratio. Without prior written consent of Lender, beginning with the First
Reserve Report Effective Date, Borrower shall at all times maintain a Current
Ratio of at least 1.00 to 1.00.

(c)

Adjusted PV Ratio. Without prior written consent of Lender, Borrower shall at
all times maintain Adjusted PV Ratio of not less than 2.00 to 1.00 as of the
First Reserve Report Effective Date and with the delivery of each Reserve Report
pursuant to Section 5.6(a).

Section 6.28.

Use of Additional Equity. In the event that Borrower receives any additional
capital contributions or other infusions of equity, Borrower will only use the
proceeds of such capital contributions or equity infusions to repay the
Obligations or for such other uses approved by Lender in writing.

Section 6.29.

Payment of Taxes. Borrower shall pay all costs to be paid on Taxes, assessments,
governmental charges or private encumbrances levied, assessed, imposed or
payable upon or with respect to any of the Collateral except for Taxes,
assessments, charges or encumbrances being contested in good faith by
appropriate action and for which adequate reserves are maintained in accordance
with GAAP.

Section 6.30.

Event of Default. Borrower shall give Lender prompt written notice of any Event
of Default arising after the date hereof and known to Borrower.

Section 6.31.

Legal Opinions. See attached.

Section 6.32.

Documents. Borrower shall deliver to Lender such financial statements, reports,
accountants’ letters, projections, officers’ certificates and other information
requested by and acceptable to Lender in its sole and absolute discretion.

Section 6.33.

ERISA. Borrower shall deliver to Lender evidence of compliance with ERISA, if
applicable.

Section 6.34.

Net Operating Cash Flow. Borrower shall amend the New Operating Cash Flow
amounts on Schedule 7.12 prior to any Advance under Tranche E, to the
satisfaction of Lender in its sole and absolute discretion.

Section 6.35.

Net Revenue Interest Production Levels. Borrower shall amend the Net Revenue
Interest production levels on Schedule 7.13 prior to any Advance under Tranche
E, to the satisfaction of Lender in its sole and absolute discretion.

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ARTICLE VII
Negative Covenants

So long as there are any Obligations owing to Lender under this Agreement or the
Swap Agreement, and unless Lender has previously consented in writing to
Borrower’s non-compliance, Borrower will comply with the following covenants:

Section 7.1.

Debt. Borrower shall not create, incur, assume or suffer to exist any Debt,
except:

(a)

the Obligations;

(b)

Capital Leases which do not exceed Twenty-Five Thousand Dollars ($25,000) in the
aggregate, each of which is identified on Schedule 7.1(b);

(c)

obligations secured by Permitted Encumbrances;

(d)

Indebtedness in connection with a Hedging Agreement approved in writing by
Lender;

(e)

accounts payable and accrued expenses, liabilities or other obligations to pay
the deferred purchase price of property or services, from time to time incurred
in the ordinary course of business which are (i) delinquent or otherwise greater
than sixty (60) days past the date of invoice and do not exceed One Hundred
Thousand Dollars ($100,000) in the aggregate, unless permitted by Lender in
writing in its sole and absolute discretion, or (ii) being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP;

(f)

letters of credit, surety or other bonds incurred in the ordinary course of
business approved in writing in advance by Lender; and

(g)

endorsements of negotiable instruments for collection in the ordinary course of
business.

Section 7.2.

Accounts. Borrower shall not sell, discount or factor its accounts, instruments,
intangibles, Leases or chattel paper, except for accounts that are settled for
less than the amount thereof, discounted or extended in each case in the
ordinary course of business so long as no Default or Event of Default has
occurred and is continuing.

Section 7.3.

Guaranties. Other than Debt permitted by Section 7.1 and indemnity, cleanup and
other obligations of a customary nature assumed or incurred (excluding Debt for
borrowed money) in favor of any seller of the Leases or related property,
Borrower shall not assume, guaranty or endorse or otherwise become directly or
contingently liable for any liability of any other Person except for the
indemnification obligations contained in this Agreement and the Security
Documents. The preceding sentence will not prohibit the endorsement of
negotiable instruments for deposit or collection or the incurrence of
obligations under the Operating Agreements and similar transactions in the
ordinary course of business. For purposes of this Section 7.3, the term
“guaranty” includes any agreement, whether contingent or otherwise, to purchase,
repurchase or otherwise acquire any obligation or liability of any other Person,
or to purchase, sell or lease, as lessee or lessor, property or services, in any
case primarily for the purpose of enabling another Person to make payment of any
debt or liability, or to make any payment (whether as a capital contribution,
purchase of an equity interest or otherwise) to assure a minimum equity, asset
base, working capital or other balance sheet or financial condition, in
connection with a debt or liability of another Person, or to supply funds to or
in any manner invest in another Person in connection with that Person’s debts or
liabilities.

Section 7.4.

Ownership and Business Operations. Borrower shall not:

(a)

without the prior written consent of Lender, suffer any Change of Control or
merge into or consolidate with any other Person;

(b)

acquire or agree to acquire all or any material portion of the stock, securities
or assets of any other Person;

(c)

unless permitted by Lender in writing in its sole and absolute discretion, sell,
transfer, assign or grant any Person an option to acquire any of its assets (as
that term is defined in accordance with GAAP) or take any similar action except
for the sale of production or inventory in the ordinary course of Borrower’s
business;

(d)

cancel any claim or debt during the term of the Term Loan, except for
consideration and in the ordinary course of its business;

(e)

prepay any Debt other than the Obligations owing to Lender hereunder;

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(f)

cause or suffer to exist a default under any lease, mortgage, deed of trust or
Lien on real estate owned or leased by Borrower;

(g)

make any loan or advance or extend any credit during the term of the Term Loan
to any Person, whether or not an Affiliate of Borrower;

(h)

transfer its executive offices, or change its company name or reorganize as an
entity other than a limited liability company or in a jurisdiction other than
the jurisdiction under which it is organized on the date of this Agreement;

(i)

change its fiscal year;

(j)

allow (i) the abandonment of any Well capable of commercial production, or the
release or abandonment of all or any part of Borrower’s Working Interest or Net
Revenue Interest in any of the Properties capable of commercial production, or
release or abandon all or any portion of the Properties except in accordance
with prudent operator standards; (ii) Borrower’s Net Revenue Interest in the
Properties to be developed, maintained or operated in a manner less favorable
than prudent operator standards taken as a whole; and (iii) any material
alterations in the Basic Documents except as made by an Operator on behalf of
Borrower pursuant to the terms of an Operating Agreement;

(k)

except in the ordinary course of business and as permitted under this Agreement,
enter into any new agreement or contract with any Person relating to or
affecting any of the Properties that could be material in the context of any
particular Lease;

(l)

enter into any farmout agreements with any Person;

(m)

allow the commencement of any operation other than pursuant to an AFE approved
in writing by Lender excluding emergency operations, operations required under
presently existing contractual obligations, operations necessary to ensure
compliance with any Governmental Requirement.

Section 7.5.

Liens and Encumbrances. Except as set forth on Schedule 7.5, Borrower shall not:

(a)

unless permitted by Lender in writing in its sole and absolute discretion,
suffer to exist any Lien or consent to the filing of any financing statement on
any of its property (including Borrower’s Working Interest or Net Revenue
Interest in the Properties) other than

(i)

the Liens created by and granted to Lender under this Agreement and the Security
Documents;

(ii)

the Permitted Encumbrances;

(iii)

Liens being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; and

(iv)

Liens securing Capital Leases permitted by Section 7.1(b) and identified on
Schedule 7.1(b).

(b)

dedicate, sell, encumber or dispose of, or suffer to exist any agreement for the
sale, disposition or encumbrance of, Borrower’s Working Interest and/or Net
Revenue Interest in the Properties or of any Hydrocarbon production attributable
to Borrower’s Working Interest or Net Revenue Interest in the Properties except
in the ordinary course of business;

(c)

reserve any recorded or unrecorded executory rights in Borrower’s Working
Interest or Net Revenue Interest in the Properties except as consented to in
writing by Lender; or

(d)

allow any of its accounts payable to be more than ninety (90) days old, except
for amounts being contested in good faith for which sufficient reserves have
been established on the books of Borrower in accordance with GAAP.

Section 7.6.

Investments. Except for Permitted Investments, make, or suffer to exist, any
Investment.

Section 7.7.

Subsidiaries and Divestitures. Borrower shall not create any direct or indirect
Subsidiary or divest itself of any material assets by (a) transferring them to
any future Subsidiary or (b) by entering into a partnership, joint venture, or
similar arrangement. Borrower shall not make any material change in its capital
structure or enter into any management contract permitting a third party to
exercise management rights with respect to Borrower’s business other than
pursuant to the Operating Agreements.

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Section 7.8.

Compliance with Laws. Borrower shall not (a) violate any Environmental and
Safety Regulation in any manner which could reasonably be expected to have
Material Adverse Effect; or (b) use or permit the use of any of the Properties
to generate, treat, store, handle, transport or dispose of Hazardous Materials
except in compliance in all material respects with all applicable Environmental
and Safety Regulations, and which the failure to so comply could reasonably be
expected to have a Material Adverse Effect. Upon the occurrence of any Release
of Hazardous Materials, Borrower shall promptly commence and perform, or cause
to be promptly commenced and performed, without cost to Lender, all
investigations, studies, sampling and testing, and all remedial, removal and
other actions reasonably necessary to clean up and remove all Hazardous
Materials to comply with the requirements of all applicable Environmental and
Safety Regulations.

Section 7.9.

Dividends and Distributions. Borrower shall not:

(a)

declare or pay any cash dividends or distributions;

(b)

except as permitted by Section 7.9(a), declare or make any distribution in cash
or other property or return of capital;

(c)

purchase or redeem any of its Equity Interests or other securities;

(d)

issue additional Equity Interests of any class to any Person; or

(e)

take any other action that could have substantially the same effect as any of
the actions prohibited under items (a)–(d) above.

Section 7.10.

Modifications. Borrower shall not alter, amend or cause the alteration or
amendment of any of the Loan Documents, any Operating Agreement, any Hedging
Agreement or any farmout agreement without the prior written consent of Lender.

Section 7.11.

Development Expenditures. In connection with the development of the Properties,
Borrower shall not expend any proceeds of the Term Loan for activities not
expressly provided for herein or included on an AFE approved in writing by
Lender.

Section 7.12.

Minimum Quarterly Net Operating Cash Flow. Without prior written consent of
Lender, Borrower shall not permit cumulative Net Operating Cash Flow that is
sold to fall below the amounts set forth on Schedule 7.12 for the periods of
time set forth therein.

Section 7.13.

Minimum Quarterly Net Revenue Interest Production Levels. Borrower shall not
allow its Net Revenue Interest Hydrocarbon production sold to fall below the
amounts set forth on Schedule 7.13, as measured on a MCFE basis, for the periods
of time set forth therein.

Section 7.14.

Other. Borrower shall not:

(a)

fail to observe all of the provisions of Articles V and VI after the Closing, to
the extent not already subsumed in this Article VII;

(b)

declare an Early Termination Date (as that term may be defined in the Swap
Agreement) or any similar action pursuant to any Hedging Agreement without the
prior written consent of Lender;

(c)

enter into any Hedging Agreement not approved in writing by Lender;

(d)

enter into a unit operating agreement relating to the Properties without the
written consent of Lender;

(e)

except as set forth on Schedule 4.29, Borrower shall not enter into any
transaction with any Affiliates without the prior written consent of Lender,
and, if approved by Lender, Borrower shall conduct those transactions on an
arm’s-length basis;

(f)

except as otherwise authorized under this Agreement, (i) sell or enter into any
agreement to sell any assets of Borrower outside the ordinary course of business
without the prior written consent of Lender, or (ii) enter into any financial
transactions that are, in the opinion of Lender, unusual or not customary in the
oil and gas industry;

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(g)

except as authorized in this Agreement or pursuant to an approved Development
Plan, make expenditures on capital projects in excess of Twenty-Five Thousand
Dollars ($25,000) that have not been approved in writing by Lender; or

(h)

adopt any Employee Plan without approval of Lender.

Section 7.15.

Proceeds of Notes. Borrower will not permit the Advances of the Term Notes to be
used for any purpose other than those permitted by Section 2.3. Neither Borrower
nor any Person acting on behalf of Borrower has taken or will take any action
which might cause any of the Loan Documents to violate Regulations T, U or X or
any other regulation of the Federal Reserve Board or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect. If requested
by Lender, Borrower will furnish to Lender a statement to the foregoing effect
in conformity with the requirements of FR Form U-1 or such other form referred
to in Regulation T, U or X of the Federal Reserve Board, as the case may be.

Section 7.16.

Limitation on Leases. Borrower will not create, incur, assume or suffer to exist
any obligation for the payment of rent or hire of property of any kind
whatsoever (real or personal but excluding Capital Leases and leases of
Hydrocarbon Interests), under leases or lease agreements which would cause the
aggregate amount of all payments made by Borrower pursuant to all such leases or
lease agreements, including, without limitation, any residual payments at the
end of any lease, to exceed Ten Thousand Dollars ($10,000) in any period of
twelve (12) consecutive calendar months during the life of such leases.

Section 7.17.

Nature of Business. Borrower will not allow any material change to be made in
the character of its business as an independent Hydrocarbon exploration and
production company. Borrower will not acquire or make any other expenditure
(whether such expenditure is capital, operating or otherwise) in or related to,
any oil and gas properties not located within the geographical boundaries of the
United States.

Section 7.18.

Deposit Accounts. Except for those identified on Schedule 4.42, Borrower will
not maintain any additional deposit accounts (as defined in the UCC) without the
prior written approval of Lender.

Section 7.19.

No Severance Agreements. Without the prior written approval of Lender, Borrower
will not enter into or become bound by or cause or allow any of the Collateral
to become subject to any agreement under which Borrower could become obligated
to pay any amounts or make the accommodations to any Person, in connection with
that Person’s resignation, termination or any similar occurrence.

Section 7.20.

G&A Expenses. Borrower will not allow G&A Expenses to exceed the G&A Cap.

Section 7.21.

Commodity Deliveries. Enter into obligations to deliver commodities, goods or
services, including, without limitation, Hydrocarbons, in consideration of one
or more advance payments, other than gas balancing arrangements in the ordinary
course of business.

Section 7.22.

Disqualified Capital Stock. Neither Borrower nor Parent may issue any
Disqualified Capital Stock.

Section 7.23.

Warranties, Representations, Covenants. Without prior written consent of Lender,
Borrower shall not violate such other warranties, representations and covenants
as are usual and customary.

ARTICLE VIII
Further Rights of Lender

Section 8.1.

Delivery of Additional Documents; Power of Attorney. Until the Obligations are
repaid in full, Borrower, at its own expense, shall do all things and shall
deliver all instruments requested by Lender to create, perfect, protect or
continue any security interest, Mortgage or Lien granted or created under this
Agreement or any of the Security Documents. Lender may examine, inspect and copy
or make extracts from all books and records of Borrower at any time during
regular business hours upon prior written notice to Borrower. Borrower
authorizes Lender to execute alone any other instruments that Lender may require
to establish, perfect, protect or continue any Lien or security interest under
this Agreement or any of the Security Documents and further authorizes Lender to
sign Borrower’s name on any of those instruments. Borrower authorizes Lender to
appoint any Person or Persons as Lender may designate as its agent and
attorney-in-fact to endorse the name of Borrower on any checks, notes, drafts or
other forms of payment or security that may come into the possession of either
Lender or any Affiliate of Lender, to sign Borrower’s name on invoices or bills
of lading, drafts against customers, notices of assignment, verifications and
schedules and, generally, to do all things necessary to carry out this Agreement
and the Security Documents. The powers granted in this Section 8.1 are coupled
with an interest and are, therefore, irrevocable. Neither Lender nor any agent
or attorney-in-fact will be liable to any Person for any act or omission, error
in judgment or mistake of law that is not intentional, willful or grossly
negligent. Upon payment and performance of all Obligations of Borrower to
Lender, this power of attorney will become null and void.

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Section 8.2.

Payments by Lender. If Borrower fails to purchase or maintain insurance in
accordance with this Agreement, or to pay any tax, assessment, government charge
or levy in accordance with this Agreement, or in the event that any prohibited
Lien, encumbrance or security interest is not discharged in accordance with this
Agreement, or in the event that Borrower materially fails to perform or comply
with any other covenant, promise or Obligation under any Loan Document, Lender
may, but will not be required to, perform, pay, satisfy, discharge or bond the
same for the account of Borrower, and all amounts paid by Lender, including
reasonable attorneys’ fees and disbursements, will be deemed to be additional
Obligations owing by Borrower to Lender under this Agreement; provided, however,
that Lender will not make any payments on behalf of Borrower without providing
Borrower prior written notice of at least three (3) Business Days.

Section 8.3.

Possession. Upon the occurrence and during the continuation of an Event of
Default, Lender may (a) enter Borrower’s premises at any time, and (b) until it
completes the enforcement of its rights in the Equipment or other Collateral
subject to its security interest or Lien under the Security Documents and the
sale or other disposition of any property subject to those documents, take
possession of those premises without charge, rent or payment, or place
custodians in control of any of the premises, remain on and use the premises and
any of Borrower’s Equipment and other Collateral for the purpose of completing
any work in progress, preparing any Collateral for disposition or collecting any
Collateral.

Section 8.4.

Indemnification from Borrower

(a)

BORROWER SHALL, TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW, DEFEND, RELEASE
AND INDEMNIFY LENDER AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AUTHORIZED
AGENTS (COLLECTIVELY, THE “INDEMNIFIED PARTY OR PARTIES”) AND HOLD EACH OF THEM
HARMLESS FROM AND AGAINST ANY AND ALL INJURIES, CLAIMS, DAMAGES, JUDGMENTS,
LIABILITIES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, FEES AND
DISBURSEMENTS OF COUNSEL), CHARGES AND ENCUMBRANCES WHICH MAY BE INCURRED BY OR
ASSERTED AGAINST ANY OF THE INDEMNIFIED PARTIES IN CONNECTION WITH OR ARISING
OUT OF ANY ASSERTION, DECLARATION OR DEFENSE OF LENDER’S RIGHTS OR SECURITY
INTERESTS UNDER THE PROVISIONS OF THIS AGREEMENT, ANY SECURITY DOCUMENT OR ANY
OTHER LOAN DOCUMENT OR IN CONNECTION WITH:

(i)

THE ACQUISITION OR OPERATION OF THE COLLATERAL;

(ii)

THE REALIZATION, REPOSSESSION, SAFEGUARDING, INSURING OR OTHER PROTECTION OF THE
COLLATERAL WHILE AN EVENT OF DEFAULT IS CONTINUING;

(iii)

THE COLLECTING, PERFECTING OR PROTECTING OF LENDER’S LIENS AND SECURITY
INTERESTS UNDER THIS AGREEMENT AND THE OTHER SECURITY DOCUMENTS; AND

(iv)

ANY INVESTIGATION, LITIGATION, OR PROCEEDING RELATED TO ANY PRESENT OR FUTURE
ACQUISITION OR PROPOSED ACQUISITION BY BORROWER. BORROWER WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHTS IT MIGHT HAVE IN CONNECTION WITH
ANY SUIT OR ACTION AGAINST LENDER TO CLAIM SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES TO IT, ITS BUSINESS OR ITS PROSPECTS. BORROWER HAS CONSULTED
WITH ITS COUNSEL WITH RESPECT TO THE PROVISIONS OF THIS Section 8.4 AND
UNDERSTANDS THAT IT IS TO BE INTERPRETED BROADLY AGAINST BORROWER.

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(b)

BORROWER SHALL, TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW, DEFEND, RELEASE
AND INDEMNIFY THE INDEMNIFIED PARTIES, AGAINST, AND HOLD EACH INDEMNIFIED PARTY
HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED
EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY
INDEMNIFIED PARTY, INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PARTY ARISING
OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT
CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE
PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR
THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY
OTHER LOAN DOCUMENT, (ii) THE FAILURE OF BORROWER OR ANY OTHER PERSON TO COMPLY
WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY
GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY
BREACH OF ANY WARRANTY OR COVENANT OF BORROWER SET FORTH IN ANY OF THE LOAN
DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN
CONNECTION THEREWITH, (iv) ANY LOAN OR ADVANCE OR THE USE OF THE PROCEEDS
THEREFROM, (v) THE OPERATIONS OF THE BUSINESS OF BORROWER AND ITS AFFILIATES BY
BORROWER AND ITS AFFILIATES, (vi) ANY ASSERTION THAT LENDER WAS NOT ENTITLED TO
RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS (AFTER GIVING
EFFECT TO THE PERMITTED ENCUMBRANCES), (vii) ANY ENVIRONMENTAL LAW APPLICABLE TO
BORROWER OR ANY AFFILIATE OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT
LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE,
TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS
WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES,
(viii) THE BREACH OR NON-COMPLIANCE BY BORROWER OR ANY AFFILIATE WITH ANY
ENVIRONMENTAL LAW APPLICABLE TO BORROWER OR ANY AFFILIATE, (ix) THE PAST
OWNERSHIP BY BORROWER OR ANY AFFILIATE OF ANY OF THEIR PROPERTIES OR PAST
ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE
AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (x) THE PRESENCE, USE, RELEASE,
STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT,
ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS
WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES
OWNED OR OPERATED BY BORROWER OR ANY AFFILIATE OR ANY ACTUAL OR ALLEGED PRESENCE
OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY
BORROWER OR ANY OF ITS AFFILIATES, (xi) ANY ENVIRONMENTAL LIABILITY RELATED IN
ANY WAY TO BORROWER OR ANY OF ITS AFFILIATES, OR (xii) ANY OTHER ENVIRONMENTAL,
HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiii) ANY
ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO
ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNIFIED PARTY IS A PARTY THERETO, AND SUCH
INDEMNITY SHALL EXPRESSLY EXTEND TO EACH INDEMNIFIED PARTY NOTWITHSTANDING THE
SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER
ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS, AS AMENDED, OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY
REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE
INDEMNIFIED PARTIES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNIFIED PARTY, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY.

(c)

All amounts due under this Section 8.4 shall be payable not later than ten (10)
days after written demand therefor.

Section 8.5.

Removal and Appointment of Operator. Lender will, in its reasonable discretion,
have the right to approve or disapprove any action taken by Borrower to appoint,
remove or replace the Operator of any of the Properties.

ARTICLE IX
Closing; Conditions Precedent to Closing

Section 9.1.

Closing. Subject to the conditions stated in this Agreement, Closing of the Term
Loan will occur at a mutually agreeable time on or before September 14, 2006.
The dates on which the Loan Documents are executed and each of the conditions in
Section 9.2 are satisfied will be known as the “Closing Date.” Closing will
occur at the offices of Greenberg Traurig, LLP, 1000 Louisiana, 18th Floor,
Houston, Texas 77002, at 10:00a.m., Texas time, on the Closing Date, or at any
other place and time as Borrower and Lender may agree in writing.

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Section 9.2.

Conditions to Making the Initial Advance. As conditions to the making of the
initial Advance under the Term Loan:

(a)

Borrower will execute and deliver to Lender each of the Loan Documents to which
Borrower is a party, each in form and substance satisfactory to Lender;

(b)

Borrower will cause each Person designated by Lender to execute and deliver to
Lender the Subordination Agreement;

(c)

Borrower will have obtained, on terms satisfactory to Lender, and shall be in
full force and effect: (i) all permits, licenses and bonds required to own and
operate the Properties under any applicable Governmental Regulations which are
set forth in Schedule 6.19, and (ii) all approvals from any Governmental
Authority or third party necessary or, in the reasonable discretion of Lender,
appropriate, for the contemplated financing and for the continuing operations of
Borrower and enforcement of rights of Lender under the Loan Documents;

(d)

Borrower will execute and deliver to Lender or its designee the Net Profits
Overriding Royalty Interest Conveyance;

(e)

the sole member of Borrower will have executed and delivered to Lender a Pledge
Agreement;

(f)

Lender shall have completed and be satisfied with all business, financial,
legal, title, engineering and environmental due diligence with respect to
Borrower, the Properties, and any of Borrower’s assets in Lender’s sole
discretion;

(g)

Borrower will confirm, to the satisfaction of Lender, the location premium and
transport costs for Hydrocarbons produced by the Wells within the Properties;

(h)

Borrower will deliver to Lender its pro forma financial statement and balance
sheet prepared in accordance with GAAP except for the omission of the notes
required by GAAP and subject to the assumptions stated and normal “year-end
adjustments” and certified as of the Closing Date by Borrower’s Authorized
Officer as accurately showing the financial position of Borrower after giving
effect to this Agreement (including the payment of all fees and expenses to be
paid or payable in connection with this Agreement and the initial Advance to be
requested by Borrower under the Term Loan, if such an Advance is to be requested
at Closing); in addition, Borrower will have no contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
unanticipated losses from any unfavorable commitments that are not disclosed in
the financial statements;

(i)

Borrower will deliver to Lender (i) title opinions or other evidence of title
relating to and agreed upon acreage of the Properties (current to the interests
owned by Borrower and the security interests and Liens being granted under the
Mortgage or otherwise satisfactory in form and substance to Lender) showing
Defensible Title to the Properties vested in Borrower subject only to the
Permitted Encumbrances and otherwise satisfactory in form and substance to
Lender; (ii) a map indicating the location of each Lease comprising the
Properties and identifying each PDP well, each PDNP well and each PUD location
on the Properties; and (iii) a list of all Leases comprising the Properties
together with the expiration dates of each Lease and a summary of any
affirmative drilling obligations or other mandatory capital expenditures
required to maintain each Lease in force and effect;

(j)

any necessary Governmental Authority will have approved in writing the transfer
of the Properties to Borrower, and that written approval will be satisfactory in
form and substance to Lender in its sole and absolute discretion;

(k)

Borrower will deliver to Lender the Basic Documents and all other documents and
instruments as Lender may reasonably request, all of which will be satisfactory,
in form and substance, to Lender;

(l)

Borrower will deliver to Lender satisfactory legal opinions, including usury
opinions, in form and substance satisfactory to Lender in its sole and absolute
discretion;

(m)

Borrower will deliver to Lender or cause to be delivered to Lender by each
Person that is a party to a Loan Document that is not an individual:

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(i)

a copy of resolutions, in form and substance satisfactory to Lender, authorizing
(A) the execution, delivery and performance by Borrower of this Agreement, the
Term Note, the Swap Agreement, the Net Profits Overriding Royalty Interest
Conveyance, and the other Loan Documents to which it is or will be a party, (B)
the borrowings contemplated by this Agreement, (C) the granting of the Liens,
pledges and security interests contemplated by the Mortgage and the other
Security Documents, certified as true and correct by an Authorized Officer of
Borrower as of the Closing Date and certifying that the resolutions have not
been amended, modified, revoked or rescinded as of the Closing Date;

(ii)

a certificate of the Secretary or other Authorized Officer of Borrower dated the
Closing Date, certifying the Authorized Officer’s signature on behalf of
Borrower executing this Agreement, and the Term Note, the Security Documents,
the Net Profits Overriding Royalty Interest Conveyance, and any other Loan
Documents to which Borrower is a party and any certificate or other documents to
be delivered in connection with any of the Loan Documents; and

(iii)

(A) a copy of the Articles of Organization of Borrower, certified as of a date
not more than thirty (30) Business Days prior to the Closing Date by the
Secretary of State for the State of Louisiana, (B) a copy of the operating
agreement (including any modifications) of Borrower, (C) a certificate as of a
date not more than thirty (30) Business Days prior to the Closing Date from the
Secretary of State for the State of Louisiana as to the existence and good
standing of Borrower as a Louisiana limited liability company, and (D) a
certificate dated the Closing Date from an Authorized Officer of Borrower to the
effect that the documents delivered pursuant to (A)–(C) are true and correct
copies and, with regard to item (A) as on file with the Secretary of State for
the State of Louisiana, no action has been taken to amend, modify or repeal that
document and it remains in full force and effect in that same form on the
Closing Date.

(n)

Lender will have reviewed and found acceptable Borrower’s accounting and
business systems (including “back-office” and administrative functions);

(o)

Borrower will have identified to Lender independent public accountants Borrower
will retain, which independent public accountants shall be satisfactory to
Borrower and Lender;

(p)

Borrower will execute and deliver to Lender the Swap Agreement with Lender,
satisfactory to Lender in form and substance in its sole and absolute
discretion;

(q)

Borrower will deliver to Lender copies of all insurance certificates required
under this Agreement listing Lender as a loss payee and additional insured or as
otherwise required by Lender, each certified as true and correct by an
Authorized Officer of Borrower and acceptable to Lender in its sole and absolute
discretion (provided, however, Borrower shall provide copies of any such
insurance policy upon Lender’s request);

(r)

Borrower has provided any other information required by Section 326 of the USA
PATRIOT Act or deemed necessary in the opinion of Lender to enable Lender to
verify the identify of Borrower as required by Section 326 of the USA PATRIOT
Act;

(s)

no material adverse change has occurred in the financial condition of Borrower
or in the physical, operational or financial status of any of the Properties;

(t)

except as disclosed in this Agreement, there are no past due bills for
improvements or services to the Properties that could give rise to mechanic’s or
materialmen’s Liens or any other similar encumbrance arising by operation of
applicable law that are not subject to a Subordination Agreement in favor of
Lender;

(u)

Lender is satisfied with the management of Borrower;

(v)

the representations in each of the Loan Documents of Borrower and each other
Person are true, complete and correct in all material respects;

(w)

Lender is satisfied, in its sole discretion, with the results of its due
diligence examination of Borrower and the Properties, including Borrower’s
proposed development of the Properties, satisfactory information regarding
existing oil and gas sales, and all aspects of Borrower’s existing and
contemplated oil and gas marketing activities;

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(x)

no suit or other proceeding is pending or threatened before any court or
Governmental Authority seeking to restrain, enjoin or prohibit or declare
illegal, or seeking damages from Borrower in connection with the transactions
contemplated in this Agreement or alleging the breach of any material contract;

(y)

Borrower will reimburse Lender for all Related Costs, including but not limited
to environmental expenses, for which invoices have been presented;

(z)

Borrower will have delivered to Lender such financial statements as Lender may
request, including the financial statements of the Borrower, Guarantor and any
Affiliates, and such financial statements will be acceptable to Lender in its
sole and absolute discretion;

(aa)

Borrower will have received all requisite approvals to own and operate the
Properties;

(bb)

each Person designated by Lender will have executed and delivered to Lender a
Deposit Account Control Agreement substantially in the form of Exhibit I;

(cc)

Borrower will have on hand working capital sufficient to conduct the operations
contemplated by this Agreement as determined by Lender in its sole and absolute
discretion;

(dd)

all Operating Agreements (inclusive of all COPAS provisions) with respect to the
Properties will be in form and substance satisfactory to Lender in its sole and
absolute discretion;

(ee)

Borrower will deliver to Lender the Development Plan covering development
activities and all capital expenditures for the Properties to the satisfaction
of Lender in its sole and absolute discretion;

(ff)

the transactions contemplated by this Agreement are not prohibited by law or
regulations applicable to Borrower or Lender, including, but not limited to, the
USA Patriot Act;

(gg)

Borrower’s Project Account will be funded with $500,000 consisting of (i)
$200,000 from Jurasin Oil & Gas, Inc., which will be allocated toward the dry
hole cost of the Tranche B Well; and (ii) $300,000 of fees and reimbursed
expenses from the transaction contemplated by the Medco Energi Participation
Agreement;

(hh)

Borrower will execute and deliver to Lender the Medco Energi Participation
Agreement;

(ii)

all applicable waiting periods shall have expired without any action being taken
or threatened by any Governmental Authority or third party that would restrain,
prevent or otherwise impose material adverse conditions on the transactions
contemplated by the Loan Documents;

(jj)

Borrower shall have provided documentation of all overrides and participation
agreements to the satisfaction of Lender;

(kk)

Borrower shall have executed a joint operating agreement governing the
operations of the Properties and provided a copy to Lender;

(ll)

(i) all MMS bonds for environmental liabilities shall have been funded to
Lender’s satisfaction, and (ii) Borrower shall have provided all documentation
and taken all steps necessary and sufficient such that Lender or a designee of
Lender will be included as a signatory on the signatory qualification card on
file with the MMS and any corresponding instrument with any applicable state
regulatory body; provided, however, when Lender or its designee becomes such
signatory, Lender or its designee shall only be able to sign MMS or applicable
state regulatory authority documents on behalf of Borrower if an Event of
Default has occurred and is continuing;

(mm)

Borrower shall have no unpaid bills for improvements to the Properties that may
give rise to mechanic’s, materialmen’s or other similar Liens or privileges
arising by operation of applicable law, except for unpaid bills the payment of
which is not yet due and as disclosed to Lender in writing prior to Closing; and

(nn)

Borrower shall have executed and delivered Loan Documents amending and restating
the loan documents in the Original Credit Agreement, duly executed by the
applicable parties and in form and substance satisfactory to Lender and its
counsel in their sole and absolute discretion.

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Section 9.3.

General Additional Conditions Precedent. The following additional conditions
apply to the making of each subsequent Advance under the Term Loan:

(a)

Borrower will deliver to Lender an Advance Request substantially in the form of
Exhibit C;

(b)

if applicable, any necessary Governmental Authority will have consented in
writing to the granting of the Liens and other rights contemplated by the
Mortgage, and that written consent will be satisfactory in form and substance to
Lender in its sole and absolute discretion;

(c)

upon Lender’s request and to the extent not previously provided, Borrower will
obtain and deliver to Lender any other documents, including Lien waivers,
additional Subordination Agreements, certificates, consents and other approvals
required from third parties, all in form and substance acceptable to Lender,
necessary or convenient to the preservation of all of the rights of Lender
contemplated by this Agreement and the other Loan Documents;

(d)

for each Well for which Borrower is not the Operator, Borrower and Operator will
execute and deliver to Lender the Operating Agreements for each Well that is the
subject of any pending Advance, and each of those agreements (including the
COPAS provisions) will be in form and substance satisfactory to Lender;

(e)

to the extent not previously delivered to Lender or its designee, Borrower will
execute and deliver to Lender or its designee a Net Profits Overriding Royalty
Interest Conveyance covering any Properties on which it has not previously
granted to Lender a Net Profits Interest;

(f)

to the extent not previously delivered to Lender or its designee and
acknowledged in writing by Lender, Borrower will deliver to Lender any other
documents as Lender may reasonably request, including supplemental or additional
title opinions, permits or consents required by any Governmental Authority
and/or legal opinions (including usury opinions) from counsel to Borrower;

(g)

to the extent not previously delivered to Lender or its designee and
acknowledged in writing by Lender, Borrower will have provided evidence
satisfactory to Lender that all seismic and other geological, geophysical,
engineering and well data relating to the Properties and owned by Borrower and
has been or will be assigned to Borrower free of any encumbrance except for
existing third party agreements;

(h)

to the extent not previously delivered to Lender or its designee and
acknowledged in writing by Lender, Borrower will deliver to Lender an opinion or
opinions of counsel to Borrower (including title opinions deemed reasonably
necessary by Lender), and each opinion will be satisfactory to Lender and its
counsel and will provide that Lender’s lenders or Lender’s assignees will be
entitled to rely upon it; Borrower will also deliver to Lender each other
document identified on Annex A, duly executed by the applicable parties and in
form and substance satisfactory to Lender and its counsel;

(i)

to the extent not previously delivered to Lender, mortgages and a Net Profits
Overriding Royalty Interest Conveyance in form and substance satisfactory to
Lender in its sole and absolute discretion on any Properties of Borrower that
constitute real property;

(j)

at the time of and immediately after giving effect to such Advance, no Default
shall have occurred and be continuing;

(k)

at the time of and immediately after giving effect to such Advance, no Material
Adverse Effect shall have occurred;

(l)

the representations and warranties of Borrower set forth in this Agreement and
in the other Loan Documents shall be true and correct on and as of the date of
such Advance, except to the extent any such representations and warranties are
expressly limited to an earlier date, in which case, on and as of the date of
such Advance, such representations and warranties shall continue to be true and
correct as of such specified earlier date;

(m)

the making of such Advances would not conflict with, or cause Lender to violate
or exceed, any applicable Governmental Requirement, and no change in law shall
have occurred, and no litigation shall be pending or threatened, which does or,
seeks to, enjoin, prohibit or restrain, the making or repayment of any Advance
or any participations therein or the consummation of the transactions
contemplated by this Agreement or any other Loan Document;

(n)

Lender has approved Borrower’s insurance coverage and determined that it is
satisfactory for Borrower’s operations as contemplated by the then applicable
Development Plan; and

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(o)

Borrower will deliver to Lender a certificate from an authorized officer of
Borrower representing and warranting that the matters specified in Section
9.3(j)–(n) are true and correct as of the date of the certification.

Section 9.4.

Tranche C Additional Conditions Precedent. Lender may elect to not participate
in completion of the Tranche B Well if any one or more of the following
conditions are not met; provided, further, if Lender elects not to so
participate, Lender shall reassign the Net Profit Interest in the Tranche B Well
to Borrower. Specifically, the following additional conditions apply to the
making of an Advance under Tranche C to the Term Loan:

(a)

Tranche B Well must log at least thirty (30) feet of net pay (true vertical
thickness) in the Marg A sand horizon, as determined from open hole log analysis
using the following criteria, all of which must be satisfied to qualify a
particular logged foot as pay:

(i)

GR is less than GR Sand plus fifty percent (50%) multiplied by the difference
between GR Shale and GR Sand;

(ii)

density log porosity is greater than eighteen percent (18%);

(iii)

neutron-density cross-plot porosity is greater than eighteen percent (18%); and

(iv)

water saturation is less than seventy percent (70%) using the Archie/Humble
Formula, formation water resistivity of 0.045 ohmmeters, and a saturation
exponent of 2.0;

(b)

average reservoir pressure in the Marg A sand horizon must be 2800 pounds per
square inch absolute or greater, as determined by at least five (5) valid,
stabilized, and consistent reservoir pressure measurements per Section 9.4(c) as
recorded by a modern downhole formation testing device (using a modular
formation dynamics tester or its equivalent) at depths coincident with logged
porous and gas-productive sand;

(c)

all reservoir pressure measurements taken in the Marg A sand horizon must be
within ten percent (10%) of the average of all pressures taken in this zone;

(d)

if a fluid sample is taken, the final water-gas ratio must be less than ten (10)
barrels of water per MMCF of gas;

(e)

other working interest partners must be unanimously in favor of completion;

(f)

completion costs by the Operator per the applicable AFE for completion shall not
exceed Tranche C funding (which already reflects 110% of estimated AFE costs),
provided, however, Lender at its sole discretion may still fund and Borrower
must fund excess amounts; and

(g)

Borrower shall have executed and delivered to Lender the Apache Production
Handling Agreement for Lender’s review.

Section 9.5.

Post-Closing Condition. Within forty-five (45) days after Closing, Lender or a
designee of Lender shall been included as a signatory on the signatory
qualification card on file with the MMS and any corresponding instrument with
any applicable state regulatory body; provided, however, Lender or its designee
shall only be able to execute, acknowledge (where appropriate), deliver and file
MMS or applicable state regulatory authority documents on behalf of Borrower if
an Event of Default has occurred and is continuing.

ARTICLE X
Events of Default

Section 10.1.

Events of Default. The occurrence and continuance of any of the following at any
time during the term of this Agreement will be an Event of Default:

(a)

Borrower fails to make any payment under this Agreement, the Term Note or any
Security Document within two (2) Business Days after the date due; or

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(b)

Borrower or any Affiliate of Borrower or any other obligor fails to comply with
any material term, any condition, any covenant, or any document delivery
requirement under Article V of this Agreement (other than a payment Obligation
under Section 10.1(a) or Section 6.21), the Term Note, any Security Document,
the Subordination Agreement or any other Loan Document, whether or not related
to any payment Obligation; or

(c)

Borrower (i) executes an assignment for the benefit of its creditors, (ii)
becomes or is adjudicated bankrupt or insolvent, (iii) admits in writing its
inability to pay its debts generally as they become due, (iv) applies for or
consents to the appointment of a conservator, receiver, trustee, or liquidator
of Borrower or of all or any substantial part of its assets, (v) files a
voluntary petition seeking reorganization or an arrangement with creditors, or
to take advantage of or seek any other relief under any Debtor Relief Laws, (vi)
files an answer admitting the material allegations of or consenting to, or
defaults in, a petition filed against it in any proceeding under any Debtor
Relief Laws, or (vii) institutes or voluntarily becomes a party to any other
judicial proceedings intended to effect a discharge of its debts, in whole or in
part, or seeking to postpone the maturity or the collection of any of its debts
or to suspend any of the rights of Lender or any of its Affiliates under any of
the Loan Documents; or

(d)

(i) an order, judgment, or decree is entered by any court of competent
jurisdiction approving a petition seeking reorganization of Borrower or
appointing a conservator, receiver, trustee, or liquidator of Borrower, or of
all or any substantial part of its assets, and the order, judgment, or decree is
not permanently stayed or reversed within sixty (60) days after its entry, or
(ii) a petition is filed against Borrower seeking reorganization, an arrangement
with creditors, or any other relief under any Debtor Relief Laws, and the
petition is not discharged within ninety (90) days after its filing; or

(e)

if any statement or representation or warranty contained in this Agreement, any
Security Document, any other Loan Document, any financial statement or any
certificate delivered by Borrower to Lender was willfully or materially false
when made or deemed made; or

(f)

if any federal tax Lien or any other Liens totaling Fifty Thousand Dollars
($50,000) or more are filed of record against Borrower, Operator or the
Properties and not bonded or discharged within thirty (30) days after Borrower
receives actual or constructive notice of its filing; or

(g)

if a judgment (i) for more than Fifty Thousand Dollars ($50,000) or (ii) for any
amount if the execution and enforcement of such judgment could adversely affect
Borrower’s or Operator’s ability to operate the Properties is entered against
Borrower or Operator and not stayed, vacated, bonded, paid, or discharged within
thirty (30) days of its entry, except a judgment where the claim is fully
covered by insurance and the insurance company has accepted liability for the
claim or for which Borrower has adequate reserves under GAAP; or

(h)

upon the occurrence of any material violation by Borrower or Operator at the
Properties of any applicable Governmental Regulation, including, without
limitation, any Environmental Law; or

(i)

unless Borrower provides written notice to Lender (prior to the date on which
such Debt becomes due) detailing to the satisfaction of Lender the basis upon
which Borrower intends to dispute the obligation, Borrower fails to pay any Debt
in excess of Fifty Thousand Dollars ($50,000) (other than Debt under this
Agreement) or any related interest or premium, when due (whether at scheduled
maturity or by acceleration, demand or otherwise) and the failure continues
after the applicable grace period, if any, specified in the agreement or
instrument relating to the Debt, or any other event occurs and continues after
the applicable grace period, if any, specified in the applicable agreement or
instrument, if the effect of the default or event is to accelerate or to permit
the acceleration of the maturity of the Debt or permit the Debt to be declared
to be due and payable prior to the stated maturity; or

(j)

the occurrence of a “default” or an “Event of Default” under any of the Security
Documents that continues beyond any applicable grace period; or

(k)

(i) this Agreement, the Term Note, any Security Document, the Net Profits
Overriding Royalty Interest Conveyance, or any other Loan Document ceases to be
in full force and effect (except in accordance with its terms) or is declared
null and void or the validity or enforceability is contested or challenged by
Borrower, any Affiliate of Borrower or any of their respective members, partners
or shareholders; (ii) Borrower denies that it has any further liability or
obligation under this Agreement, the Term Note or any of the Security Documents;
or (iii) any of the Liens and security interests granted to Lender under the
Security Documents cease to be valid or perfected or cease to have the priority
required hereby or under the Security Documents; or

(l)

Borrower fails to provide satisfactory evidence to Lender, within thirty (30)
days of Closing, that any Lien (other than Permitted Encumbrances) against the
Properties in favor of a third-party has been released or subordinated to
Lender; or

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(m)

Borrower or Operator fails to comply with any Governmental Regulation pertaining
in any way to Borrower, the Properties, the Hydrocarbons or any of the other
Collateral and such failure could, in Lender’s judgment, reasonably be expected
to have a Material Adverse Effect; or

(n)

Operator is removed or withdraws and the replacement Operator is not acceptable
to Lender in Lender’s reasonable discretion; or

(o)

Borrower’s Working Interest or Net Revenue Interest in the Properties is
decreased (other than by the conveyance of the Net Profits Overriding Royalty
Interest Conveyance) from those set forth in Exhibit A without the prior written
consent of Lender; or

(p)

Borrower fails to perform its obligations under the Net Profits Overriding
Royalty Interest Conveyance, the Swap Agreement or any Hedging Agreement and the
failure continues beyond any applicable grace period; or

(q)

Borrower defaults in the performance of its obligations under any bonds beyond
the applicable grace period; or

(r)

projected PDP Reserves to be produced for the remaining term of the Swap
Agreement or Hedging Agreement, as applicable, is estimated in the most recent
Reserve Report to be less than the remaining volumes to be delivered according
to the minimum monthly notional schedule (set forth in any Hydrocarbon Hedging
Agreement or the Swap Agreement); or

(s)

Borrower modifies or amends any of its Charter Documents in any material manner
without Lender’s prior written consent; or

(t)

an “Event of Default” or “Early Termination Date” is designated under the Swap
Agreement or any Hedging Agreement, if caused by the action or inaction of
Borrower; or

(u)

a Change of Control occurs without Lender’s prior written consent; or

(v)

a Material Adverse Effect occurs; or

(w)

Borrower fails to allocate and maintain allocation in Project Account pursuant
to Section 2.7(c);

provided, however, that the events described in any of subsections 10.1(b), (e),
(h), (i), (j), (l), (m), (n), (q), (v) and (w) will constitute an Event of
Default only if the event described is not remedied by Borrower within fifteen
(15) days after the earlier of (i) any officer of Borrower (or, in the case of
any other obligor, any officer of that obligor) becoming aware of the occurrence
of the event and (ii) Borrower’s receipt of a notice from Lender of the
occurrence of the event.

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ARTICLE XI
Remedies of Lender

Section 11.1.

Remedies. Upon the occurrence of any Event of Default other than under Section
10.1(c) or Section 10.1(d), Lender shall, by written notice to Borrower, take
either or both of the following actions, at the same or different times:
(a) terminate the commitments and thereupon the commitments shall terminate
immediately and (b) declare the Term Note and the Term Loan due and payable in
whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Term Loan so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of Borrower accrued
hereunder and under the Term Note and the other Loan Documents, shall become due
and payable immediately, without presentment, demand, protest, notice of intent
to accelerate, notice of acceleration or other notice of any kind, all of which
are hereby waived by Borrower. Upon the occurrence of an Event of Default
described in Section 10.1(c) or Section 10.1(d), the commitments to make
additional Advances shall automatically terminate and the Term Note and the
principal of the Term Loan then outstanding, together with accrued interest
thereon and all fees and the other obligations of Borrower accrued hereunder and
under the Term Note and the other Loan Documents, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by Borrower. Upon the occurrence of any Event of
Default, Lender shall have no further responsibility to extend and credit or
afford any financial accommodation to Borrower. Upon a termination of its
commitments following an Event of Default, Lender will have, in addition to all
of its other rights arising under any of the Loan Documents or by operation of
law or otherwise (which rights shall be cumulative), all of the rights and
remedies of a secured party under the Uniform Commercial Code and will have the
right to enter upon any premises where the Collateral is kept and peacefully
retake possession. Upon the occurrence of any Event of Default which is not
cured within the applicable cure period, immediately upon the request of Lender,
Borrower shall (i) immediately withdraw as record title operator with respect to
any Properties operated by Borrower, (ii) support Lender’s designated interim
record title operator until a successor record title operator is elected, and
(iii) support Lender’s designated nomination for successor record title
operator.

Section 11.2.

Collateral. Lender will have no obligation to preserve rights to any Collateral
against prior parties or to proceed first against any Collateral or to marshal
any Collateral of any kind for the benefit of any other creditor of Borrower or
any other Person. Borrower grants to Lender a license or other right to use,
without charge, Borrower’s labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature related to the Collateral and necessary or
convenient in connection with Lender completing production of, advertising for
sale and selling any Collateral, and Borrower’s rights under all licenses and
any franchise, sales or distribution agreements will inure to Lender’s benefit.

Section 11.3.

Set-Off Rights. Upon the occurrence and during the continuation of an Event of
Default, Lender will have the right, at any time and from time to time, to
set-off and apply against the Obligations, in any manner Lender may determine,
any and all deposits (general or special, time or demand, provisional or final)
or other amounts at any time credited by or owing from Lender or any depositary
to Borrower whether or not the Obligations are then due; provided, however, that
this sentence will not apply to any amounts owing to third-party Working
Interest and Royalty Interest previously identified in writing to Lender. Lender
will provide notice to Borrower not later than ten (10) days following the
application of any funds under this Section 11.3. As further security for the
Obligations, Borrower grants to Lender a security interest in and Lien on all
money, instruments, and other property of Borrower now or at any time held by
Lender, including property held in safekeeping. In addition to Lender’s right of
set-off and as further security for the Obligations, Borrower grants to Lender a
security interest in and Lien on all deposits (general or special, time or
demand, provisional or final) and other accounts of Borrower now or at any time
on deposit with or held by Lender or any depositary together with all other
amounts at any time credited by or owing from Lender or any depositary to
Borrower. The rights and remedies of Lender under this Section 11.3 are in
addition to other rights and remedies (including other rights of set-off) that
Lender may have.

Section 11.4.

Rights Under Operating Agreements. Upon the occurrence and during the
continuation of an Event of Default, Lender will have the right to exercise
Borrower’s rights under any Operating Agreement or any other Basic Document.

ARTICLE XII
Miscellaneous

Section 12.1.

Remedies Cumulative. Lender’s rights and remedies under this Agreement are
cumulative and non-exclusive of any other rights or remedies it may have under
any other agreement or instrument, or by operation of law or otherwise.

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Section 12.2.

Assignment. This Agreement is entered into for the benefit of Borrower and
Lender and their respective successors and assigns. It will be binding upon and
inure to the benefit of those parties and their respective successors and
assigns. The rights and obligations of Borrower under this Agreement, the Term
Note, the other Security Documents, the Swap Agreement, the Net Profits
Overriding Royalty Interest Conveyance or any other Loan Document to which
Borrower is a party may not be assigned without Lender’s prior written consent.
Lender may assign, transfer or otherwise dispose of any of its rights or
obligations under this Agreement or any of the other Loan Documents in Lender’s
sole and absolute discretion. To the extent Lender assigns to any other Person
an interest in the Term Note pursuant to one or more lender participation
transactions, Borrower shall execute and deliver to Lender any Lender
Participation Documents reasonably necessary in connection with such
transaction, including the issuance by Borrower of one or more Term Notes.
Additionally, so long as Borrower’s rights and obligations hereunder are not
adversely affected, Lender will be entitled to grant and assign a security
interest in its right, title and interest in and to the Term Note, the Security
Documents and all other Loan Documents to its lender or lenders as security for
indebtedness of Lender.

Section 12.3.

Notices. Any notice, demand or document which either party is required or may
desire to give to the other will be in writing and, except as otherwise provided
in this Agreement, given by messenger, nationally recognized courier, overnight
delivery, facsimile or other electronic transmission, or United States certified
mail, postage prepaid, return receipt requested, addressed to the recipient at
the location shown below, or at any other address as either party may furnish to
the other by notice given in accordance with this provision.

If to Lender, to:

Macquarie Bank Limited

Houston Representative Office

333 Clay Street, Suite 4550

Houston, Texas 77002

Attention:

Michael Sextro

Telephone:

(713) 986-3607

Facsimile:

(713) 986-3610

E-Mail:

michael.sextro@macquarie.com

with copies to:

Macquarie Bank Limited

Houston Representative Office

333 Clay Street, Suite 4550

Houston, Texas 77002

Attention:

Alma Torres

Telephone:

(713) 986-3600

Facsimile:

(713) 986-3610

E-Mail:

alma.torres@macquarie.com

And

Macquarie Bank Limited

Level 15, 1 Martin Place

Sydney, New South Wales 2000

Australia

Attention:

Executive Director

Telephone:

+61 2 8232 3333

Facsimile:

+61 2 8232 3590

If to Borrower, to:

Rampant Lion Energy, LLC

9700 Richmond Avenue, Suite 124

Houston, Texas 77042

Attention:

John M. Jurasin

Telephone:

(832) 242-6000

Facsimile:

(713) 917-0493

E-Mail:

johnjurasin@jurasinoilgas.com

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If to any other obligor party, the notice will be sent to Borrower and to the
address set forth in the Security Document or other Loan Document to which the
recipient is a party.

Any notice delivered or made by messenger, facsimile, electronic mail or United
States mail will be deemed to be given on the date of actual delivery as shown
by messenger receipt, the sender’s facsimile machine confirmation or other
verifiable electronic receipt, or the registry or certification receipt.
Notwithstanding the previous sentence, if either party receives from the other
any message via electronic mail that purports to be a notice under this
Agreement but that contains information that is syntactically incorrect, garbled
or otherwise unintelligible, the recipient will notify the sender and the
message containing the unintelligible information will not be deemed to be given
until it is successfully delivered (including redelivery by electronic mail)
pursuant to this Section 12.3. If Lender receives oral notice of any event from
an Authorized Officer of Borrower, Lender will not be required to delay the
exercise of any rights arising from the occurrence of that event until it
receives written confirmation of the oral notice. In the event that a
discrepancy exists between the notice received by Lender orally and the written
confirmation, or in the absence of a written confirmation, the oral notice, as
understood by Lender will be deemed the controlling and proper notice.

Section 12.4.

Waivers; Amendments. Neither the failure nor any delay on the part of any party
to exercise any right, remedy, power, privilege or option under this Agreement
will operate as a waiver of that or any other right, remedy, power, privilege or
option. No single or partial exercise of any right, remedy, power, privilege or
option under this Agreement will preclude any other or further exercise or the
exercise of any other right, remedy, power, privilege or option. No waiver of
any right, remedy, power, privilege or option with respect to any occurrence
will be construed as a waiver of that right, remedy, power, privilege or option
with respect to any subsequent or other occurrence. No waiver will be valid
unless in writing and signed by an officer of the waiving party and then only to
the extent provided in the written waiver.

Section 12.5.

Confidentiality. Except as may be required by Debtor Relief Laws or by other law
or in response to or in connection with arbitration proceedings or legal process
or in any legal proceeding to enforce or interpret the Security Documents
(including a sale by foreclosure) or any other document or instrument executed
in connection with the Security Documents, and in any filings necessary or
appropriate to create, maintain and perfect Liens and security interests
contemplated by this Agreement, neither party will release this Agreement or any
other document, agreement or instrument relating to or executed in conjunction
with this Agreement, or disclose the substantive terms of any of them except to
its attorneys, accountants or engineers on a need-to-know basis, without the
prior written consent of the other party. Notwithstanding the previous sentence,
Lender may disclose the substantive terms of or furnish its lenders and
potential lenders and investment bankers and their respective attorneys,
accountants or engineers with copies of this Agreement or any Security Document
or any other document agreement or instrument relating to or executed or
delivered to Lender in conjunction with this Agreement without the consent of
Borrower. Neither party or any of their respective Affiliates will issue any
press release or make any other public announcement relating to this Agreement
without the prior written consent of the other party; provided, however, Lender
and Borrower may each publish a “tombstone” announcement regarding this
Agreement.

Section 12.6.

Final Agreement. This Agreement and the other agreements to which this Agreement
refers, together with all exhibits, schedules and annexes attached to any of
them, constitute the final, entire agreement among the parties and supersede any
prior oral or written and all contemporaneous oral proposals, commitments,
promises, agreements and understandings between the parties with respect to the
subject matter of this Agreement and the other Loan Documents, all of which are
merged into and replaced by the Loan Documents.

Section 12.7.

WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF BORROWER AND LENDER
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON THIS AGREEMENT, OR DIRECTLY OR INDIRECTLY
AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR
ANY TRANSACTION CONTEMPLATED OR ASSOCIATED WITH ANY OF THEM, BEFORE OR AFTER
MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY “SPECIAL DAMAGES,” AS
DEFINED BELOW; (C) CERTIFIES THAT NEITHER IT NOR ANY OF ITS REPRESENTATIVES,
AGENTS OR COUNSELORS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT
THE CERTIFYING PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS; AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION. AS USED IN THIS SECTION, “SPECIAL DAMAGES” INCLUDES ALL SPECIAL,
CONSEQUENTIAL, INDIRECT, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW
NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HAS EXPRESSLY
PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY.

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Section 12.8.

GOVERNING LAW. THIS AGREEMENT, THE TERM NOTE, THE NET PROFITS OVERRIDING ROYALTY
INTEREST CONVEYANCE, THE SWAP AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS
(OTHER THAN THE LOAN DOCUMENTS TO THE EXTENT THEY MAY BE EXPRESSLY OR
MANDATORILY GOVERNED BY LAWS OF ANOTHER JURISDICTION) ARE TO BE PERFORMED IN THE
STATE OF TEXAS. EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE
EXPRESSLY OR MANDATORILY APPLICABLE, THIS AGREEMENT, THE TERM NOTE AND ALL OF
THE OTHER LOAN DOCUMENTS (EXCEPT FOR THE SWAP AGREEMENT WHICH WILL BE GOVERNED
BY, INTERPRETED AND CONSTRUED UNDER AND ENFORCED PURSUANT TO THE LAWS OF THE
STATE OF NEW YORK) TOGETHER WITH ALL TRANSACTIONS PROVIDED FOR IN THEM WILL BE
GOVERNED BY, INTERPRETED AND CONSTRUED UNDER AND ENFORCED PURSUANT TO THE LAWS
OF THE STATE OF TEXAS WITHOUT REGARD TO ITS CONFLICTS OF LAWS PROVISIONS.

Section 12.9.

No Third-Party Beneficiaries. Subject to Section 12.2, the benefits of this
Agreement will not inure to any third party. Notwithstanding anything contained
in this Agreement or the other Loan Documents, or any conduct or course of
conduct by the parties, before or after signing this Agreement or the Loan
Documents, this Agreement will not be construed as creating any rights, claims
or causes of action against Lender, or any of its officers, directors, agents or
employees by any Person other than Borrower.

Section 12.10.

Fees, Costs and Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, Borrower will promptly (and in any event, within
thirty (30) days after any invoice or other statement or notice) pay all Related
Costs. Additionally, except as otherwise provided herein, Borrower will promptly
pay (within thirty (30) days after receipt of invoice or other statement or
notice) (a) all transfer, stamp, mortgage, documentary or other similar taxes,
assessments or charges levied by any Governmental Authority in respect of this
Agreement or any of the other Loan Documents or any other document referred to
herein or therein, (b) all reasonable costs and expenses incurred by or on
behalf of Lender (including attorneys’ fees, consultants’ fees and engineering
fees, travel costs and miscellaneous expenses) in connection with (i) the
negotiation, preparation, execution and delivery of any and all consents,
waivers and amendments to any of the Loan Documents, (ii) the filing, recording,
refiling and re-recording of any Loan Documents and any other documents or
instruments or further assurances required to be filed or recorded or refiled or
re-recorded by the terms of any Loan Document, (iii) the borrowings hereunder
and other action reasonably required in the course of administration hereof, and
(iv) monitoring or confirming (or preparation or negotiation of any documents
related to) Borrower’s compliance with any covenants or conditions contained in
this Agreement or in any other Loan Document, and (c) all reasonable costs and
expenses incurred by or on behalf of Lender (including attorneys’ fees,
consultants’ fees and accounting fees) in connection with the defense or
enforcement of any of the Loan Documents (including this section) or the defense
of Lender’s exercise of its rights thereunder. In addition, except as otherwise
provided herein, until all Obligations are paid in full, Borrower shall also pay
or reimburse Lender for all reasonable out-of-pocket costs and expenses of
Lender or its agents or employees in connection with the continuing
administration of the Term Loan and the related due diligence of Lender,
including travel and miscellaneous expenses and fees and expenses of Lender’s
outside counsel, reserve engineers and consultants engaged in connection with
the Loan Documents.

Section 12.11.

Compliance with Law. It is the intention of the parties to comply with
applicable usury laws (now or later enacted). Accordingly, and notwithstanding
any provision to the contrary in this Agreement, the other Security Documents or
any other Loan Document, in no event will this Agreement or any other Loan
Document require the payment or permit the collection of interest in excess of
the Highest Lawful Rate. If, under any circumstances, the fulfillment of any
provision of this Agreement or of any other Loan Document will involve exceeding
the Highest Lawful Rate for the contracting for or charging or collecting
interest, then the obligation to be fulfilled will, ipso facto, be reduced to
the allowable limit, and if, under any circumstances, Lender ever receives
pursuant to any of the Loan Documents anything of value as interest or that is
deemed to be interest under applicable law that would exceed the Highest Lawful
Rate, the amount that would otherwise be excessive interest will be applied to
the reduction of the principal amount owing under the Term Note or on account of
any other indebtedness owed by Borrower to Lender, and not to the payment of
interest; or, if any portion of the excessive interest exceeds the unpaid
balance of principal of that indebtedness, then the excess amount will be
refunded to Borrower. In determining whether or not the interest paid or payable
with respect to any indebtedness owed by Borrower to Lender exceeds the Highest
Lawful Rate, Borrower and Lender will, to the maximum extent permitted by
applicable law, (a) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (b) exclude voluntary prepayments and the
effects of them, (c) amortize, prorate, allocate and spread the total amount of
interest throughout the full term of the indebtedness so that the actual rate of
interest on account of the indebtedness does not exceed the Highest Lawful Rate,
and (d) allocate interest between portions of the indebtedness so that no
portion will bear interest at a rate greater than the Highest Lawful Rate.

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Section 12.12.

Obligations are Non-Recourse to Members. Except for the rights of Lender under
the Pledge Agreement (including Lender’s rights in and to the Collateral
described in the Pledge Agreement), neither Lender nor its successors or
assigns, nor any holder or holders of the Term Note will have any claim, remedy,
or right to proceed (at law or in equity) against any of Borrower’s members for
the payment or performance of any of the Obligations. Notwithstanding the
previous sentence, however, nothing contained in this Section 12.12 will limit,
restrict, or impair the rights of the holders of the Term Note to (a) accelerate
the maturity of the Term Note during the continuation of an Event of Default,
(b) bring suit and obtain a judgment against Borrower on the Term Note,
(c) exercise all of Lender’s rights and remedies under each of the Security
Documents, including the right to foreclose or otherwise realize upon the
Collateral and collect sums due or to become due in connection with the
Collateral, or (d) exercise any of the other rights of Lender under this
Agreement or any of the other Loan Documents.

Section 12.13.

Severability. Any section, clause, subsection, sentence, paragraph, provision or
term this Agreement held invalid, illegal, or ineffective by a court of
competent jurisdiction will not impair, invalidate or nullify the remainder of
this Agreement.

Section 12.14.

Captions; Headings. The headings, captions and arrangements contained in this
Agreement have been inserted for convenience only and will not be deemed in any
manner to modify, explain, enlarge or restrict any provision in this Agreement.

Section 12.15.

Construction. Borrower and Lender acknowledge that each of them has had the
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement, the Term Note and each of the other Loan Documents
with its legal counsel and that this Agreement and the other Security Documents
will be construed as if jointly drafted by Borrower and Lender. In the event of
a conflict between the terms of this Agreement and the Security Documents, the
terms of this Agreement shall be controlling.

Section 12.16.

Additional Documents. From time to time after the date of this Agreement, each
of the parties hereto agrees to execute and deliver or cause to be executed and
delivered, all reasonable documents and instruments, and take any other
reasonable and lawful action as the other party may deem necessary or desirable
to perfect or evidence perfection of its security interest, to enforce its
rights under this Agreement or to otherwise effectuate the purposes of this
Agreement. Upon the full payment and complete discharge of Borrower’s
Obligations under this Agreement and the other Loan Documents, Lender will, at
the request and expense of Borrower, prepare and deliver documents evidencing
the release and termination of the Liens, security interests, and other
interests of Lender under the Security Documents.

Section 12.17.

Counterpart Execution. This Agreement may be executed simultaneously in one or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

Section 12.18.

EXCULPATION PROVISIONS. EACH OF THE PARTIES AGREES THAT IT HAS A DUTY TO READ
THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS
CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND EACH OF THE OTHER
LOAN DOCUMENTS AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE
TERMS AND CONDITIONS CONTAINED IN THEM; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATION OF EACH OF
THE LOAN DOCUMENTS AND HAS RECEIVED THE ADVICE OF ITS LEGAL COUNSEL IN ENTERING
INTO THE LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE
LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER
PARTY OF ITS RESPONSIBILITY FOR THAT LIABILITY. EACH PARTY AGREES AND COVENANTS
THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY
PROVISION OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS ON THE BASIS THAT
THE PARTY HAD NO NOTICE OR KNOWLEDGE OF THE PROVISION OR THAT THE PROVISION IS
NOT “CONSPICUOUS.”

Section 12.19.

No Other Agreements; No Parol Evidence. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
MATTERS ADDRESSED IN THEM AND CANNOT AND WILL NOT BE CONTRADICTED BY EVIDENCE OF
ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS.

[SIGNATURES BEGIN ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the 14th day of September, 2006.

Borrower:

Rampant Lion Energy, LLC,

a Louisiana limited liability company

By: Jurasin Oil & Gas, Inc.,
a Louisiana corporation, its Managing Member

By: /s/ John M. Jurasin

John M. Jurasin, President

THIS IS AN ACKNOWLEDGMENT PAGE TO THE NET PROFITS

OVERRIDING ROYALTY INTEREST CONVEYANCE

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the14th day of September, 2006.

Lender:

Macquarie Bank Limited,

a bank incorporated under the laws of Australia

SIGNATURE PAGE TO THE CREDIT AGREEMENT