SECURITY AGREEMENT

 This Security Agreement (this “Security Agreement”), dated as of March 9, 2012,
is executed by High Plains Gas, Inc., a Nevada corporation (“HPGS”), and Miller
Fabrication LLC, a Wyoming limited liability company (“Miller Fabrication”), in
favor of Tonaquint, Inc., a Utah corporation (“Secured Party”).  Each of HPGS
and Miller Fabrication may be referred to herein as a “Debtor,” and collectively
as the “Debtors.”

A.

HPGS has issued to Secured Party a certain Secured Convertible Promissory Note
dated March 9, 2012, in the face amount of $836,000.00 (the “Note”).

B.

Miller Fabrication is a wholly owned subsidiary of HPGS and will substantially
benefit from the credit extended to HPGS by the Secured Party as evidenced by
the Note.

C.

In order to induce Secured Party to extend the credit evidenced by the Note,
Debtors have agreed to enter into this Security Agreement and to grant Secured
Party the security interest in the Collateral (as defined below) described
below.

NOW, THEREFORE, in consideration of the above recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtors hereby agree with Secured Party as follows:

1.

Definitions and Interpretation.  When used in this Security Agreement, the
following terms have the following respective meanings:

“Collateral” has the meaning given to that term in Section 2 hereof.

“Lien” shall mean, with respect to any property, any security interest,
mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such
property or the income therefrom, including, without limitation, the interest of
a vendor or lessor under a conditional sale agreement, capital lease or other
title retention agreement, or any agreement to provide any of the foregoing, and
the filing of any financing statement or similar instrument under the UCC or
comparable law of any jurisdiction.

“Obligations” means (a) all loans, advances, debts, liabilities and obligations,
howsoever arising, owed by either Debtor to Secured Party or any affiliate of
Secured Party of every kind and description, now existing or hereafter arising,
whether created by the Note, this Security Agreement, that certain Securities
Purchase Agreement of even date herewith entered into by and between HPGS and
Secured Party, as the same may be amended from time to time (the “Purchase
Agreement”), any other Transaction Documents (as defined in the Purchase
Agreement), any modification or amendment to any of the foregoing, guaranty of
payment or other contract or by a quasi-contract, tort, statute or other
operation of law, whether incurred or owed directly to Secured Party or an
affiliate of Secured Party or acquired by Secured Party or an affiliate of
Secured Party by purchase, pledge or otherwise, (b) all costs and expenses,
including attorneys’ fees, incurred by Secured Party or any affiliate of Secured
Party in connection with the Note or in connection with the collection or
enforcement of any portion of the indebtedness, liabilities or obligations
described in the foregoing clause (a), (c) the payment of all other sums, with
interest thereon, advanced in accordance herewith to protect the security of
this Security Agreement, and (d) the performance of the covenants and agreements
of Debtors contained in this Security Agreement and all other Transaction
Documents.

“Permitted Liens” means: (a) Liens for taxes not yet delinquent or Liens for
taxes being contested in good faith and by appropriate proceedings for which
adequate reserves have been established; (b) Liens in respect of property or
assets imposed by law which were incurred in the ordinary course of business,
such as carriers’, warehousemen’s, materialmen’s and mechanics’ Liens and other
similar Liens arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings; (c) Liens incurred or deposits made
in the ordinary course of business in connection with workers’ compensation,
unemployment insurance and other types of social security, and mechanic’s Liens,
carrier’s Liens and other Liens to secure the performance of tenders, statutory
obligations, contract bids, government contracts, performance and return of
money bonds and other similar obligations, incurred in the ordinary course of
business, whether pursuant to statutory requirements, common law or consensual
arrangements; (d) Liens in favor of Secured Party under this Security Agreement;
(e) Liens securing obligations under a capital lease if such Liens do not extend
to property other than the property leased under such capital lease; and
(f) Liens upon any equipment acquired or held by Debtors to secure the purchase
price of such equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such equipment, so long as such Lien extends only
to the equipment financed, and any accessions, replacements, substitutions and
proceeds (including insurance proceeds) thereof or thereto.

“UCC” means the Uniform Commercial Code as in effect in (a) the State of Nevada
and (b) the State of Wyoming from time to time.

Unless otherwise defined herein, all terms defined in the UCC have the
respective meanings given to those terms in the UCC.

2.

Grant of Security Interest.  As security for the Obligations, each Debtor hereby
pledges to Secured Party and grants to Secured Party a security interest in all
right, title and interests of such Debtor in and to the property described in
Schedule A hereto and all replacements, proceeds, products, and accessions
thereof (collectively, the “Collateral”).

3.

Authorization to File Financing Statements.  Each Debtor hereby irrevocably
authorizes Secured Party at any time and from time to time to file in any filing
office in any Uniform Commercial Code jurisdiction or other jurisdiction of such
Debtor (including without limitation Nevada, Montana and Wyoming) any financing
statements or documents having a similar effect and amendments thereto that
provide any information required by the Uniform Commercial Code (or similar law
of any non United States jurisdiction, if applicable) or such state or
jurisdiction for the sufficiency or filing office acceptance of any financing
statement or amendment, including whether such Debtor is an organization, the
type of organization and any organization identification number issued to such
Debtor. Each Debtor agrees to furnish any such information to Secured Party
promptly upon Secured Party’s request.

4.

General Representations and Warranties.  Each Debtor represents and warrants to
Secured Party that (a) Debtors are the owners of the Collateral and that no
other person has any right, title, claim or interest (by way of Lien or
otherwise) in, against or to the Collateral, other than Permitted Liens, and
(b) upon the filing of UCC-1 financing statements with the Nevada Secretary of
State and Wyoming Secretary of State, Secured Party shall have a perfected
first-position security interest in the Collateral to the extent that a security
interest in the Collateral can be perfected by such filing, except for Permitted
Liens.

5.

Additional Covenants.  Each Debtor hereby agrees:

(a)

to perform all acts that may be necessary to maintain, preserve, protect and
perfect in the Collateral, the Lien granted to Secured Party therein, and the
perfection and priority of such Lien, except for Permitted Liens;

(b)

to procure, execute and deliver from time to time any endorsements, assignments,
financing statements and other writings reasonably deemed necessary or
appropriate by Secured Party to perfect, maintain and protect Secured Party’s
Lien hereunder and the priority thereof;

(c)

to provide at least fifteen (15) days prior written notice to Secured Party of
any of the following events: (i) any changes or alterations of such Debtor’s
name, (ii) any changes with respect to such Debtor’s address or principal place
of business, (iii) any changes in the location of any Collateral, or (iv) the
formation of any subsidiaries of such Debtor;

(d)

to the extent the Collateral is not delivered to Secured Party pursuant to this
Security Agreement, to keep the Collateral owned by such Debtor at the principal
office of such Debtor and not to remove the Collateral from such location
without providing at least thirty (30) days prior written notice to Secured
Party; and

(e)

not to sell or otherwise dispose, or offer to sell or otherwise dispose, of the
Collateral or any interest therein.

6.

Authorized Action by Secured Party.  Each Debtor hereby irrevocably appoints
Secured Party as its attorney-in-fact (which appointment is coupled with an
interest) and agrees that Secured Party may perform (but Secured Party shall not
be obligated to and shall incur no liability to such Debtor or any third party
for failure so to do) any act which such Debtor is obligated by this Security
Agreement to perform, and to exercise such rights and powers as such Debtor
might exercise with respect to the Collateral, including the right to
(a) collect by legal proceedings or otherwise and endorse, receive and receipt
for all dividends, interest, payments, proceeds and other sums and property now
or hereafter payable on or on account of the Collateral, (b) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral, (c) make any compromise or settlement, and take any
action Secured Party deems advisable, with respect to the Collateral,
(d) insure, process and preserve the Collateral, (e) pay any indebtedness of
such Debtor relating to the Collateral, (f) execute and file UCC financing
statements and other documents, instruments and agreements with respect to the
Collateral or as otherwise required or permitted hereunder, and (g) take any and
all appropriate action and to execute any and all documents and instruments that
may be necessary or useful to accomplish the purposes of this Security
Agreement; provided, however, that Secured Party shall not exercise any such
powers granted pursuant to subsections (a) through (c) prior to the occurrence
of an Event of Default (as defined in the Note). The powers conferred on Secured
Party under this Section 6 are solely to protect its interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. Secured Party
shall be accountable only for the amounts that it actually receives as a result
of the exercise of such powers, and neither Secured Party nor any of its
stockholders, directors, officers, managers, employees or agents shall be
responsible to either Debtor for any act or failure to act, except with respect
to Secured Party’s own gross negligence or willful misconduct.

7.

Default and Remedies.

(a)

Default.  Debtors shall be deemed in default under this Security Agreement upon
the occurrence of an Event of Default (as defined in the Note).

(b)

Remedies.  Upon the occurrence of any such Event of Default, Secured Party shall
have the rights of a secured creditor under the UCC, all rights granted by this
Security Agreement and by law, including, without limiting the foregoing, (i)
the right to require Debtors to assemble the Collateral and make it available to
Secured Party at a place to be designated by Secured Party, and (ii) the right
to take possession of the Collateral, and for that purpose Secured Party may
enter upon premises on which the Collateral may be situated and remove the
Collateral therefrom.  Debtors hereby agree that fifteen (15) days’ notice of a
public sale of any Collateral or notice of the date after which a private sale
of any Collateral may take place is reasonable.  In addition, each Debtor waives
any and all rights that it may have to a judicial hearing in advance of the
enforcement of any of Secured Party’s rights and remedies hereunder, including,
without limitation, Secured Party’s right following an Event of Default to take
immediate possession of Collateral and to exercise Secured Party’s rights and
remedies with respect thereto.  Secured Party may also have a receiver appointed
to take charge of all or any portion of the Collateral and to exercise all
rights of Secured Party under this Security Agreement.  Secured Party may
exercise any of its rights under this Section 7(b) without demand or notice of
any kind.  The remedies in this Security Agreement, including without limitation
this Section 7(b), are in addition to, not in limitation of, any other right,
power, privilege, or remedy, either in law, in equity, or otherwise, to which
Secured Party may be entitled.  No failure or delay on the part of Secured party
in exercising any right, power, or remedy will operate as a waiver thereof, nor
will any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right hereunder.  All of Secured
Party’s rights and remedies, whether evidenced by this Security Agreement or by
any other agreement, instrument or document, shall be cumulative and may be
exercised singularly or concurrently.

(c)

Standards for Exercising Rights and Remedies. To the extent that applicable law
imposes duties on Secured Party to exercise remedies in a commercially
reasonable manner, each Debtor acknowledges and agrees that it is not
commercially unreasonable for Secured Party (i) to fail to incur expenses
reasonably deemed significant by Secured Party to prepare Collateral for
disposition, (ii) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to
fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to
exercise collection remedies against account debtors or other persons obligated
on Collateral or to fail to remove liens or encumbrances on, or any adverse
claims against, Collateral, (iv) to exercise collection remedies against account
debtors and other persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
persons, whether or not in the same business as Debtors, for expressions of
interest in acquiring all or any portion of the Collateral, (vii) to hire one or
more professional auctioneers to assist in the disposition of Collateral,
whether or not the Collateral is of a specialized nature, (viii) to dispose of
Collateral by utilizing Internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capability of
doing so, or that match buyers and sellers of assets, (ix) to dispose of assets
in wholesale rather than retail markets, (x) to disclaim disposition warranties,
(xi) to purchase insurance or credit enhancements to insure Secured Party
against risks of loss, collection or disposition of Collateral or to provide to
Secured Party a guaranteed return from the collection or disposition of
Collateral, or (xii) to the extent deemed appropriate by Secured Party, to
obtain the services of other brokers, investment bankers, consultants and other
professionals to assist Secured Party in the collection or disposition of any of
the Collateral. Each Debtor acknowledges that the purpose of this Section is to
provide non-exhaustive indications of what actions or omissions by Secured Party
would fulfill Secured Party’s duties under the UCC in Secured Party’s exercise
of remedies against the Collateral and that other actions or omissions by
Secured Party shall not be deemed to fail to fulfill such duties solely on
account of not being indicated in this Section. Without limitation upon the
foregoing, nothing contained in this Section shall be construed to grant any
rights to Debtors or to impose any duties on Secured Party that would not have
been granted or imposed by this Security Agreement or by applicable law in the
absence of this Section.

(d)

Marshalling. Secured Party shall not be required to marshal any present or
future Collateral for, or other assurances of payment of, the Obligations or to
resort to such Collateral or other assurances of payment in any particular
order, and all of its rights and remedies hereunder and in respect of such
Collateral and other assurances of payment shall be cumulative and in addition
to all other rights and remedies, however existing or arising. To the extent
that it lawfully may, each Debtor hereby agrees that it will not invoke any law
relating to the marshalling of Collateral which might cause delay in or impede
the enforcement of Secured Party’s rights and remedies under this Security
Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which any
of the Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, each Debtor hereby irrevocably waives the
benefits of all such laws.

(e)

Application of Collateral Proceeds.  The proceeds and/or avails of the
Collateral, or any part thereof, and the proceeds and the avails of any remedy
hereunder (as well as any other amounts of any kind held by Secured Party at the
time of, or received by Secured Party after, the occurrence of an Event of
Default) shall be paid to and applied as follows:

(i)

First, to the payment of reasonable costs and expenses, including all amounts
expended to preserve the value of the Collateral, of foreclosure or suit, if
any, and of such sale and the exercise of any other rights or remedies, and of
all proper fees, expenses, liability and advances, including reasonable legal
expenses and attorneys’ fees, incurred or made hereunder by Secured Party;

(ii)

Second, to the payment to Secured Party of the amount then owing or unpaid on
the Note (to be applied first to accrued interest and second to outstanding
principal) and all amounts owed under any of the other Transaction Documents (as
defined in the Purchase Agreement); and

(iii)

Third, to the payment of the surplus, if any, to Debtors, their successors and
assigns, or to whosoever may be lawfully entitled to receive the same.

In the absence of final payment and satisfaction in full of all of the
Obligations, Debtors shall remain jointly and severally liable for any
deficiency.

8.

Miscellaneous.

(a)

Notices.  Except as otherwise provided herein, all notices, requests, demands,
consents, instructions or other communications to or upon Debtors or Secured
Party under this Security Agreement shall be directed as set forth below (or as
the recipient thereof shall otherwise have directed in writing in accordance
herewith) in a manner set forth below and will be deemed effectively given the
earlier of (i) when received, (ii) when delivered personally, (iii) one business
day after being delivered by facsimile, email or other form of electronic
communication (with receipt of appropriate confirmation and provided that notice
of an Event of Default may not be provided by email), (iv) one business day
after being deposited with an overnight courier service of recognized standing,
or (v) four days after being deposited in the U.S. mail, first class with
postage prepaid.

Either Debtor:

High Plains Gas, Inc.

Attn: Brandon W. Hargett

1200 East Lincoln

Gillette, Wyoming 82717

Copy to (which shall not constitute notice):

Cutler Law Group P.C.

Attn:  M. Richard Cutler

3355 W Alabama, Suite 1150

Houston, TX 77098

Secured Party:

Tonaquint, Inc.

Attn: John M. Fife

303 East Wacker Drive, Suite 1200

Chicago, Illinois 60601

With a copy to (which shall not constitute notice):

Carman Lehnhof Israelsen LLP

Attn: Jonathan K. Hansen

4626 North 300 West, Suite 160

Provo, Utah 84604

(b)

Nonwaiver.  No failure or delay on Secured Party’s part in exercising any right
hereunder shall operate as a waiver thereof or of any other right nor shall any
single or partial exercise of any such right preclude any other further exercise
thereof or of any other right.

(c)

Amendments and Waivers.  This Security Agreement may not be amended or modified,
nor may any of its terms be waived, except by written instruments signed by
Debtors and Secured Party. Each waiver or consent under any provision hereof
shall be effective only in the specific instances for the purpose for which
given.

(d)

Assignment.  This Security Agreement shall be binding upon and inure to the
benefit of Secured Party and Debtors and their respective successors and
assigns; provided, however, that Debtors may not sell, assign or delegate rights
and obligations hereunder without the prior written consent of Secured Party.

(e)

Cumulative Rights, etc.  The rights, powers and remedies of Secured Party under
this Security Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any applicable law, rule or regulation of
any governmental authority, or the Note, all of which rights, powers, and
remedies shall be cumulative and may be exercised successively or concurrently
without impairing Secured Party’s rights hereunder.  Each Debtor waives any
right to require Secured Party to proceed against any person or entity or to
exhaust any Collateral or to pursue any remedy in Secured Party’s power.

(f)

 

Partial Invalidity.  If any part of this Security Agreement is construed to be
in violation of any law, such part shall be modified to achieve the objective of
the parties to the fullest extent permitted and the balance of this Security
Agreement shall remain in full force and effect.

(g)

Expenses.  Debtors shall jointly and severally shall pay on demand all
reasonable fees and expenses, including reasonable attorneys’ fees and expenses,
incurred by Secured Party in connection with the custody, preservation or sale
of, or other realization on, any of the Collateral or the enforcement or attempt
to enforce any of the Obligations which are not performed as and when required
by this Security Agreement.

(h)

Entire Agreement.  This Security Agreement and the other Transaction Documents,
taken together, constitute and contain the entire agreement of Debtors and
Secured Party with respect to this particular matter and supersede any and all
prior agreements, negotiations, correspondence, understandings and
communications between the parties, whether written or oral, respecting the
subject matter hereof.

(i)

Governing Law; Venue.  Except as otherwise specifically set forth herein, the
parties expressly agree that this Security Agreement shall be governed solely by
the laws of the State of Utah, without regard to its principles of conflict of
laws. Each Debtor hereby expressly consents to the personal jurisdiction of the
state and federal courts located in or about Salt Lake County, Utah for any
action or proceeding arising from or relating to this Security Agreement,
waives, to the maximum extent permitted by law, any argument that venue in any
such forum is not convenient, and agrees that any such action or proceeding
shall only be venued in such courts.

(j)

Counterparts.  This Security Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.  Facsimile copies of signed signature pages will be
deemed binding originals.

(k)

Termination of Security Interest.  Upon the payment in full of all Obligations,
the security interest granted herein shall terminate and all rights to the
Collateral shall revert to Debtors. Upon such termination, Secured Party hereby
authorizes Debtors to file any UCC termination statements necessary to effect
such termination and Secured Party will execute and deliver to Debtors any
additional documents or instruments as Debtors shall reasonably request to
evidence such termination.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, Secured Party and Debtors have caused this Security
Agreement to be executed as of the day and year first above written.

SECURED PARTY:

TONAQUINT, INC.

     

By:  

          John M. Fife, President

DEBTORS:

HIGH PLAINS GAS, INC.

By:

Name:

Title:

MILLER FABRICATION LLC

By: HIGH PLAINS GAS, INC., its Manager

By:

Name:

Title:

[Signature Page to Security Agreement]

SCHEDULE A

TO SECURITY AGREEMENT

All right, title, interest, claims and demands of Debtors in and to all of the
vehicles, trailers, equipment, tools and other property described on the
attached spreadsheets.