BUSINESS LOAN AGREEMENT

THIS AGREEMENT is made effective as of March 28, 2006, by and among THE BEARD
COMPANY, an Oklahoma corporation, having an address of Enterprise Plaza, Suite
320, 5600 North May Avenue, Oklahoma City, Oklahoma 73112 (“Borrower”) and FIRST
FIDELITY BANK. N.A., a national banking association, whose address is 5101 North
Classen, Oklahoma City, Oklahoma 73118 (“Lender”).

WHEREAS, the Borrower and the Lender have agreed to one or more extensions of
credit by the Lender to the Borrower which shall be subject to the terms and
conditions of this Agreement and, therefore, in consideration of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:

1.    Definitions. Terms used in this Agreement with their initial letters
capitalized shall have the meanings set forth in Section 11 of this Agreement,
except where the context otherwise requires.

2.            Loan. Subject to the terms and conditions hereof, and the terms
and conditions of the other Loan Documents, the Lender agrees to extend credit
to the Borrower and the Borrower agrees to such extensions of credit from the
Lender, in the maximum principal amount of $350,000.00, but not to exceed the
Borrowing Base Amount. Such extensions of credit shall be evidenced by and
payable in accordance with the terms and conditions of the Note.

3.            Conditions of Lending. The obligation of the Lender to perform
this Agreement and to extend the Loan as described herein is subject to the
performance of the following conditions precedent: (i) this Agreement, the Note,
the Loan Documents, and all other documents required by the Lender shall have
been duly executed, acknowledged (where appropriate) and delivered to the
Lender, all in form and substance satisfactory to the Lender; (ii) Borrower and
any Guarantor shall have furnished to the Lender such financial statements and
other information as the Lender shall have requested; (iii) no Events of Default
shall have occurred and be continuing under this Agreement or the Loan Documents
and all representations and warranties contained herein shall be true and
correct; (iv) Borrower shall have delivered to the Lender such authorizations
and other documents reasonably required by Lender to authorize the execution,
delivery and performance of the Loan Documents, all in form and substance
satisfactory to the Lender; (v) Lender shall have received satisfactory evidence
that no litigation, investigation or proceeding before or by an arbitrator,
administrative agency or court is continuing or threatened against the Borrower,
any Guarantor or the Collateral; (vi) Borrower shall have provided to the Lender
evidence satisfactory to Lender of the existence of insurance on Borrower’s
properties, assets and business in such amounts and against such risks as Lender
shall deem appropriate in its sole discretion, with endorsements to all such
insurance policies of the Borrower naming Lender as a loss payee or an
additional insured as Lender’s interest may appear; (vii) Borrower shall have
paid all of the Lender’s costs and expenses, including reasonable fees of legal
counsel, incurred in the preparation of the Loan Documents and in closing and
perfecting the Liens and rights of the Lender under the Loan Documents; and
(viii) Borrower shall have provided Lender with any such other information as
Lender might reasonably request.

3.1          Real Estate and Oil and Gas Secured Loan. The Lender shall have
received such of the following items as may be indicated, all of which shall be
satisfactory to Lender after reasonable opportunity for review by Lender and its
representatives:

 

(a)

Title Evidence.  The Lender shall have received satisfactory evidence of the
Borrower’s ownership interest in the Oil and Gas Properties.

 

(b)

Engineering Information. The Lender shall have received satisfactory engineering
reports and other information concerning the production capabilities of the Oil
and Gas Properties.

 

(c)

Division Orders, Evidence of Production Payments, Division Order Title Opinions.
Lender shall have received copies of all division orders, evidence of production
payments, and division order title opinions applicable to the Oil and Gas
Properties, review of which must be acceptable to Lender.

 

(d)

Environmental Information.  The Lender shall have received, reviewed and
approved environmental information with respect to the Oil and Gas Properties,
the results of which shall be satisfactory to the Lender.

 

(e)

UCC and Lien Search. The Lender shall have received a UCC and lien search with
respect to the Borrower, the results of which shall be satisfactory to the
Lender.

 

(f)

Inspections.  At the Lender's sole election, the Lender may conduct such
physical inspections of the Collateral as the Lender deems necessary, the
results of which shall be satisfactory to the Lender.

 

(g)

Loan Documents.  The Lender shall have received all of the Loan Documents fully
executed by Borrower.

 

(h)

Other Information.  The Borrower shall have provided the Lender with any such
other information concerning the Borrower or Collateral as the Lender might
reasonably require.

 

(i)

No Default.  No Event of Default shall have occurred and be continuing under any
of the Loan Documents.

 

4.            Representations and Warranties. To induce the Lender to extend the
Loan and enter into this Agreement, the Borrower represents and warrants to the
Lender during the term of the Loan and any and all renewals and extensions
thereof, as follows: (i) this Agreement and the Loan Documents, when duly
executed and delivered, will constitute legal, valid, and binding obligations of
the Borrower, fully enforceable in accordance with their respective terms; (ii)
all financial statements and information which have been or may hereafter be
furnished to the Lender in connection herewith, do or shall fairly represent the
financial condition of the Borrower and any Guarantor as of the dates and the
results of operations for the periods for which the same are furnished, and
shall be accurate, correct and complete; (iii) there is no action, suit,
investigation or proceeding pending or threatened against the Borrower, any
Guarantor or any of the Collateral; (iv) Borrower and any Guarantors have timely
filed all tax returns that are required to be filed and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Guarantor; (v) except for Permitted Liens, all of the Collateral is free
and clear of all Liens, and Borrower (or any other party for whom Lender has
been provided proper evidence of ownership) has good and marketable title to
such Collateral; (vi) there is no material fact that Borrower has not disclosed
to Lender which could have a material adverse effect on the properties,
business,

 

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prospects or condition (financial or otherwise) of Borrower or any Guarantor;
(vii) Borrower and all Guarantors are not in violation of any law, rule,
regulation, order or decree which is applicable to Borrower, any Guarantor or
their properties; (viii) the Collateral is insured in accordance with the
coverages approved by Lender, with the Lender named as a loss payee or an
additional insured to the extent of its interest therein and Borrower and all
other applicable parties are in full compliance with all such insurance
contracts, the same are in full force and effect and are enforceable in
accordance with their terms; and (ix) no Event of Default has occurred and is
continuing

4.1           Survival of Representations. All of the representations and
warranties made by the Borrower herein will survive the delivery of the Loan
Documents and any renewal and extension of the Loan hereunder. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Borrower or any Guarantor under or pursuant to this Agreement or in
connection with the transactions contemplated hereby shall constitute
representations and warranties made by the Borrower hereunder as applicable.

5.             Security. The Loan shall be secured by first and prior Liens on
the Collateral in favor of the Lender pursuant to the Loan Documents, subject
only to Permitted Liens and such other exceptions or other liens or encumbrances
as may be consented to by the Lender in writing. From time to time during the
term of this Agreement, the Lender may reasonably require the Borrower to
execute and deliver other and further Loan Documents to confirm and further
secure the interest of the Lender in the Collateral, which Borrower agrees it
will so execute and deliver upon request.

 

5.1

Guaranty. The Loan shall be unconditionally guaranteed by the Guarantors.

6.            Affirmative Covenants. Until payment in full of the Loan, the
Borrower agrees, unless the Lender shall otherwise consent in writing, to
perform or cause to be performed the following agreements:

6.1          Financial Statements and Information. Borrower shall provide, or
cause to be provided, to Lender within the time limits designated, the following
financial statements and other information:

 

(a)

Annual Audited Financial Statements of Borrower within 90 days of the end of
Borrower’s fiscal year beginning with the year ending December 31, 2006.

 

(b)

Quarterly Unadited Financial Statements of Borrower within 45 days of Borrower
quarter end, beginning with the quarter ending March 31, 2006.

 

(c)

Semi-Annual engineering information for the Oil and Gas Properties in form and
substance satisfactory to Lender, within 30 days of the end of each semi-annual
period ending on June 30 and December 31 of each year.

 

(d)

Semi-annual production information for the Oil and Gas Properties, including
detailed revenue and expense summaries, within 30 days of the end of the
semi-annual period ending on June 30 and December 31 of each year.

6.2          Expenses. The Borrower shall pay all costs and expenses required to
satisfy the conditions of this Agreement. Without limitation of the generality
of the foregoing Borrower will pay: (i) all of the reasonable fees and expenses
of counsel employed by the Lender in connection with preparing and perfecting
the loan documentation; (ii) all of the fees, expenses and costs of perfecting
the Liens on the Collateral; (iii) all reasonable costs and expenses of Lender
(including, without limitation, the reasonable attorneys’ fees of Lender’s legal
counsel) incurred by Lender in connection with the preservation and enforcement
of this Agreement, the Note, and/or the other Loan Documents; and (iv) all
reasonable costs and expenses, including any reasonable fees and expenses of
counsel employed by the Lender, in regard to any litigation arising out of or
relating to this transaction and all other reasonable costs, fees and expenses
involved in the enforcement or defense of this Agreement, the Loan Documents or
any instrument executed pursuant hereto.

 

(a)

Borrower shall also pay all fees associated with any third party analysis of the
engineering reports and related information with respect to Borrower’s Oil and
Gas Properties.

7.            Negative Covenants. Until payment in full of the Loan, the
Borrower shall not, unless the Lender shall otherwise consent in writing,
violate or cause to be violated the following:

7.1          Limitation on Liens.  Borrower shall not create, incur, permit or
suffer to exist any Lien upon any of the Collateral, except Permitted Liens.

7.2           Sale or Disposition of Collateral. Borrower shall not sell,
assign, lease, dispose or otherwise transfer any of the Collateral to any other
person or entity.

8.            Events of Default. The following shall constitute Events of
Default hereunder and under each of the Loan Documents: (i) default in payment
when due of any principal or interest due and owing on any Note after five (5)
days written notice thereof; (ii) default in payment when due of any other
amount payable to the Lender under the terms of this Agreement or the Loan
Documents; (iii) Default by the Borrower in the performance or observance of any
covenant or agreement contained in this Agreement, the Loan Documents, or any
agreement made in connection therewith, or under the terms of any other
instrument delivered to the Lender in connection with this Agreement, and the
continuance of such default without cure for a period of thirty (30) calendar
days after the occurrence of such default; (iv) any representation or warranty
herein or under any Loan Document, or any representation, statement,
certificate, schedule or report made or furnished to the Lender on behalf of the
Borrower or any Guarantor proves to be false or erroneous in any material
respect at the time of making thereof or any warranty ceases to be complied with
in any material respect; (v) Borrower or any Guarantor shall: (a) apply for or
consent to the appointment of a receiver, trustee or liquidator of their
respective properties; (b) admit in writing their inability to pay debts as they
mature; (c) make a general assignment for the benefit of creditors; or (d) any
material part of their assets or properties shall be placed in the hands of a
receiver, trustee or other officers or representatives of a court or of
creditors; (vi) Borrower or any Guarantor shall be adjudged bankrupt or any
voluntary proceeding shall be instituted by Borrower or any Guarantor in
insolvency or bankruptcy or for readjustment, extension or composition of debts
or for any other relief of debtors; (vii) any involuntary proceeding shall be
instituted against Borrower or any Guarantor in insolvency or for readjustment,
extension, or composition of debts, which proceeding is not dismissed within
thirty (30) days after the filing of the commencement of

 

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the same; (viii) entry by any court of a final judgment against Borrower or any
Guarantor, or the institution of any levy, attachment, garnishment or charging
order against the Borrower or any Guarantor which has a material adverse effect
as determined by Lender on the financial condition of the Borrower or any
Guarantor; or (ix) death of both of the individual Borrowers (provided the death
of both Borrowers shall not be an Event of Default if (i) the obligations
evidenced by the Note remain current at all times and are assumed by or
otherwise become a valid obligation of the estate or surviving trust of said
Borrowers that receives ownership of the Collateral, and (ii) the Collateral
continues to secure the Note).

9.            Remedies. Upon the occurrence of any Event of Default, which has
not been timely cured, the Lender may, at its option: (i) declare all Notes and
all sums outstanding under the Loan Documents to be immediately due and payable,
and the Lender will be entitled to proceed to selectively and successively
enforce the Lender’s rights under the Notes and all Loan Documents; (ii)
terminate any of the Lender’s obligations hereunder, (iii) exercise any right of
offset, (iv) without notice of default or demand, pursue and enforce any of the
Lender’s rights and remedies under the Loan Documents, or otherwise provided
under or pursuant to any applicable law or agreement, or (v) exercise any other
remedy at law or in equity. Lender may waive any Event of Default in writing,
and, in such event, the Lender and the Borrower will be restored to their
respective former positions, rights and obligations hereunder. Any Event of
Default so waived will for all purposes of this Agreement be deemed to have been
cured and not to be continuing; but no such waiver will extend to any subsequent
or other Event of Default or impair any consequence of such subsequent or other
Event of Default.

 

10.

General Conditions. The following conditions shall be applicable throughout the
term of this Agreement:

10.1         Waiver; Modification.  No failure to exercise, and no delay in
exercising, on the part of Lender, any right hereunder or under any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right. The rights of Lender hereunder and under the Loan Documents
shall be in addition to all other rights provided by law. No modification or
waiver of any provision of this Agreement, any Note or any Loan Document, nor
consent to departure therefrom, shall be effective unless in writing signed by
Lender and no such consent or waiver shall extend beyond the particular case and
purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances
without such notice or demand.

10.2        Notices.  Any notices or other communications required or permitted
to be given by this Agreement or any other Loan Documents must be (i) given in
writing, and (ii) personally delivered or mailed by prepaid mail or overnight
courier, to the address of such party as provided at the beginning of this
Agreement. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day three days after it is
mailed by prepaid certified or registered mail, one day after sent by over night
courier, or on the day it is personally delivered as aforesaid, and otherwise
when actually received. Any party may, for purposes of the Loan Documents,
change its address or the person to whom a notice or other communication is
marked to the attention of, by giving notice of such change to the other parties
pursuant hereto.

10.3        Governing Law; Choice of Forum.  This Agreement has been executed
and delivered in the State of Oklahoma, and the substantive laws of Oklahoma and
the applicable federal laws of the United States shall govern the validity,
construction, enforcement and interpretation of this Agreement and all of the
Loan Documents. Any suit, action or proceeding against Borrower with respect to
this Agreement or any Loan Document may be brought in the courts of Oklahoma
County, Oklahoma, or in the United States courts located in Oklahoma County,
Oklahoma as Lender in its sole discretion may elect and Borrower hereby submits
to the non-exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding. Borrower hereby irrevocably waives any objections
which Borrower may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any Loan
Document brought in the courts located in Oklahoma County, Oklahoma, and hereby
further irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.

10.4        No Oral Agreements; Invalid Provisions; Multiple Counterparts.  THIS
WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES.  If any provision of any Loan Document is held to be illegal, invalid
or unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provisions or by its severance from such
Loan Document. This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same agreement, and any of
the parties hereto may execute this Agreement by signing any such counterpart.

10.5         Binding Effect; No Third-Party Beneficiary.  The Loan Documents
shall be binding upon and inure to the benefit of Borrower and Lender and their
respective successors, assigns and legal representatives; provided, however,
that Borrower may not, without the prior written consent of Lender, assign any
rights, powers, duties or obligations thereunder.   Nothing contained in the
Loan Documents, nor any conduct or course of conduct by any or all of the
parties hereto, before or after signing this Agreement or any other Loan
Document, shall be construed as creating any right, claim or cause of action
against Lender, or any of its officers, directors, agents or employees, in favor
of any materialman, supplier, contractor, subcontractor, purchaser or lessee of
any property owned by Borrower, nor to any other person or entity.

11.          Definitions. As used in this Agreement, the following terms with
their initial letters capitalized shall have the following meanings except where
the context otherwise requires:

“Agreement” shall mean this Business Loan Agreement, as amended, supplemented or
modified from time to time.

“Borrowing Base Amount” shall mean the loan value of the Oil and Gas Properties
of the Borrower as determined by the Lender using the engineering reports and
other pertinent information as the Lender may request and determine, with the
Lender making such determination of value on a semi-annual basis or at such
other or additional times as the Lender may, in its sole discretion, elect.

 

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All such determinations of value shall be made by the Lender in its sole
discretion and in accordance with its customary practices and standards for
loans of a similar nature applicable at the time of determination.

“Collateral” means all of Borrower’s right, title and interest in and to all of
the Oil and Gas Properties and, and such other property as may be described in
any other Loan Document made and delivered as security for the Loan.

“GAAP” means the generally accepted accounting principles, practices and
procedures, set forth by the Accounting Principles Board and the American
Institute of Certified Public Accountants and the Financial Accounting Standards
Board, which are applicable as of the date of the end of the fiscal quarter
immediately preceding such date of determination.

“Guarantor” shall mean any guarantor of the Loan who may hereafter execute a
Guaranty.

“Guaranty” shall mean any unconditional and absolute guaranty of the Loan by a
Guarantor pursuant to a guaranty agreement in form satisfactory to the Lender.

“Lien” means any lien, mortgage, deed of trust, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention arrangement, or any
other interest in property designed to secure the repayment of debt, whether
arising by agreement or under any statute or law, or otherwise.

“Loan” means any loan or credit extensions contemplated by this Agreement or
that may be evidenced by a Note or any other Loan Document.

“Loan Documents” collectively means this Agreement, any Note, any Guaranty, all
mortgages, deeds of trust, security agreements, assignments, and financing
statements securing the Loan, and all other promissory notes, guaranties,
agreements and all other documents, agreements, certificates and instruments
executed and delivered in connection with the Loan described herein and any
renewals, amendments, supplements or modifications thereof or thereto.

“Maximum Commitment Amount” shall have the meaning of such term as contained in
the Note.

“Note” means any Promissory Note from the Borrower payable to the order of the
Lender, whether now or hereafter made and delivered to Lender, together with all
renewals, extensions, modifications and substitutions thereto and therefor.

“Oil and Gas Properties” means the oil, gas and mineral interests and properties
described on Exhibit “A” attached hereto and made a part hereof.

“Permitted Liens” means any Lien designated as a Permitted Lien under any Loan
Document and any other Lien approved in writing by Lender.

“Reducing Revolving Amount” shall mean (i) the initial principal amount of
$350,000.00, and (ii) on April 30, 2006, and on the last day of each month
thereafter, the principal amount resulting from the reduction of $10,000.00 per
month throughout the term of the Note.

“Uniform Commercial Code” means the Uniform Commercial Code of the State of
Oklahoma (12A O.S. §1-101 et. seq.), inclusive of Uniform Commercial Code –
Secured Transactions of the State of Oklahoma (12A O.S. §1-9-101 et. seq.), as
amended from time to time.

12.          Conflicts. In the event of a conflict between the terms and
conditions of this Agreement and any other Loan Document, this Agreement shall
prevail.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of day and
year first above written.

 

 

“BORROWER”

THE BEARD COMPANY,

an Oklahoma corporation

 

 

By:  

/s/ Herb Mee, Jr.

 

Herb Mee, Jr., President

 

 

“LENDER”

FIRST FIDELITY BANK, N.A.

 

a national banking association

 

 

By:  

/s/ Danny Lawson

Danny Lawson,

Executive Vice President

 

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EXHIBIT A

Yuma County, Colorado

 

All of Borrower’s right, title and interest in and to all oil, gas and mineral
leases, and all rights derived therefrom, including without limitation, all
working interests, royalty interests, overriding royalty interests and other
interests of any kind, as described in any Loan Document made in connection
herewith, and covering, in whole or in part, the lands described as:

 

Section 36, Township 3 North, Range 48 West, Yuma County, Colorado,

 

Including Lease No. 00/7284-S between State of Colorado and Beard Oil Company
covering said lands,

 

And including all interests in the following wells located within such lands:

 

Yuma 5 State 12-36 Well (SW/4 NW/4, Section 36, T3N, R48W);

 

Yuma 5 State 21-36 Well (NE/4 NW/4, Section 36, T3N, R48W);

 

Yuma 5 State 23-36 Well (NE/4 SW/4, Section 36, T3N, R48W);

 

Yuma 5 State 32-36 Well (SW/4 NE/4, Section 36, T3N, R48W);

 

Yuma 5 State 33-36 Well (NW/4 SE/4, Section 36, T3N, R48W);

 

Yuma 5 State 42-36 Well (SE/4 NE/4, Section 36, T3N, R48W);

 

Yuma 5 State 43-36 Well (NE/4 SE/4, Section 36, T3N, R48W);

 

Yuma 5 State 44-36 Well (SE/4 SE/4, Section 36, T3N, R48W);

 

 

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