EXHIBIT 10.1

$25,000,000

CREDIT AGREEMENT

Among

REOSTAR ENERGY, CORPORATION

as Borrower,

THE LENDERS PARTY HERETO FROM TIME TO TIME

as Lenders,

and

UNION BANK OF CALIFORNIA, N.A.

as Administrative Agent and as Issuing Lender

October 30, 2008

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TABLE OF CONTENTS

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS    1  

  Section 1.01 Certain Defined Terms    1               Section 1.02 Computation
of Time Periods 19               Section 1.03 Accounting Terms; Changes in GAAP
19               Section 1.04 Types of Advances 20               Section 1.05
Miscellaneous 20            

ARTICLE II CREDIT FACILITIES 20  

  Section 2.01 Commitment for Advances 20               Section 2.02 Borrowing
Base 20               Section 2.03 Method of Borrowing 23               Section
2.04 Reduction of the Commitments 25               Section 2.05 Prepayment of
Advances 26               Section 2.06 Repayment of Advances 28              
Section 2.07 Letters of Credit 28               Section 2.08 Fees 33            
  Section 2.09 Interest 33               Section 2.10 Payments and Computations
35               Section 2.11 Sharing of Payments, Etc 35               Section
2.12 Breakage Costs 36               Section 2.13 Increased Costs 36            
  Section 2.14 Taxes 38               Section 2.15 Replacement of Lender 40    
       

ARTICLE III CONDITIONS OF LENDING 41  

  Section 3.01 Conditions Precedent to Initial Borrowings and the Initial Letter
of Credit 41               Section 3.02 Conditions Precedent to All Borrowings
44  

ARTICLE IV REPRESENTATIONS AND WARRANTIES 45  

  Section 4.01 Existence; Subsidiaries 45               Section 4.02 Power 45  
            Section 4.03 Authorization and Approvals 45               Section
4.04 Enforceable Obligations 46               Section 4.05 Financial Statements
46  

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  Section 4.06 True and Complete Disclosure 46               Section 4.07
Litigation; Compliance with Laws 47               Section 4.08 Use of Proceeds
47               Section 4.09 Investment Company Act 47               Section
4.10 Taxes 47               Section 4.11 Pension Plans 48               Section
4.12 No Burdensome Restrictions; No Defaults 49               Section 4.13
Environmental Condition 49               Section 4.14 Permits, Licenses, Etc 50
              Section 4.15 Gas Contracts 50               Section 4.16 Liens;
Titles, Leases, Etc 51               Section 4.17 Solvency and Insurance 51    
          Section 4.18 Material Agreements 51               Section 4.19 Hedging
Agreements 51  

ARTICLE V AFFIRMATIVE COVENANTS 52  

  Section 5.01 Compliance with Laws, Etc 52               Section 5.02
Maintenance of Insurance 52               Section 5.03 Preservation of Corporate
Existence, Etc 53               Section 5.04 Payment of Taxes, Etc 53          
    Section 5.05 Visitation Rights 53               Section 5.06 Reporting
Requirements 53               Section 5.07 Maintenance of Property 58          
    Section 5.08 Agreement to Pledge 58               Section 5.09 Use of
Proceeds 58               Section 5.10 Title Evidence 58               Section
5.11 Further Assurances; Cure of Title Defects 58               Section 5.12
Material Agreements 59               Section 5.13 Leases; Development and
Maintenance 59  

ARTICLE VI NEGATIVE COVENANTS 59  

  Section 6.01 Liens, Etc 60               Section 6.02 Debts, Guaranties, and
Other Obligations 61               Section 6.03 Agreements Restricting Liens and
Distributions 62               Section 6.04 Merger or Consolidation; Asset Sales
62  

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  Section 6.05 Restricted Payments 63               Section 6.06 Investments 63
              Section 6.07 Affiliate Transactions 63               Section 6.08
Compliance with ERISA 64               Section 6.09 Sale-and-Leaseback 64      
        Section 6.10 Change of Business 65               Section 6.11
Organizational Documents, Name Change 65               Section 6.12 Use of
Proceeds; Letters of Credit 65               Section 6.13 Gas Imbalances,
Take-or-Pay or Other Prepayments 65               Section 6.14 Limitation on
Hedging. 65               Section 6.15 Maintain Hedge Contracts 66              
Section 6.16 Additional Subsidiaries 66               Section 6.17 Working
Capital 66               Section 6.18 Leverage Ratio 67               Section
6.19 Interest Coverage Ratio 67               Section 6.20 Account Payables 67  
            Section 6.21 Capital Expenditures 67               Section 6.22
Subordinated Debt 67               Section 6.23 Operating Leases 68  

ARTICLE VII EVENTS OF DEFAULT; REMEDIES 68  

  Section 7.01 Events of Default 68               Section 7.02 Optional
Acceleration of Maturity 70               Section 7.03 Automatic Acceleration of
Maturity 71               Section 7.04 Right of Set-off 71               Section
7.05 Non-exclusivity of Remedies 72               Section 7.06 Application of
Proceeds 72  

ARTICLE VIII THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER 72  

  Section 8.01 Authorization and Action 72               Section 8.02
Administrative Agent's Reliance, Etc 73               Section 8.03 The
Administrative Agent and Its Affiliates 73               Section 8.04 Lender
Credit Decision 73               Section 8.05 Indemnification 74              
Section 8.06 Successor Administrative Agent and Issuing Lender 75  

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  Section 8.07 Additional Agents 76               Section 8.08 Collateral
Matters 76            

ARTICLE IX MISCELLANEOUS 77  

  Section 9.01 Amendments, Etc 77               Section 9.02 Notices, Etc 77    
          Section 9.03 No Waiver; Remedies 77               Section 9.04 Costs
and Expenses 78               Section 9.05 Binding Effect 78              
Section 9.06 Lender Assignments and Participations 78               Section 9.07
Indemnification 80               Section 9.08 Execution in Counterparts 81      
        Section 9.09 Survival of Representations, Etc 81               Section
9.10 Severability 81               Section 9.11 Business Loans 81              
Section 9.12 Governing Law 81               Section 9.13 Submission to
Jurisdiction 81               Section 9.14 WAIVER OF JURY TRIAL 82              
Section 9.15 USA Patriot Act 82               Section 9.16 PRIOR OR ORAL
AGREEMENTS 82  

EXHIBITS:      

  Exhibit A - Form of Assignment and Acceptance     Exhibit B - Form of
Compliance Certificate     Exhibit C - Form of Guaranty     Exhibit D - Form of
Mortgage     Exhibit E - Form of Note     Exhibit F - Form of Notice of
Borrowing     Exhibit G - Form of Notice of Conversion or Continuation    
Exhibit H - Form of Pledge Agreement     Exhibit I - Form of Security Agreement
    Exhibit J - Form of Transfer Letters     Exhibit K - Form of Borrower's
Counsel Opinion  

SCHEDULES:

  Schedule I - Borrower, Administrative Agent, and Lender Information    
Schedule 1.01(a) - Refinancing Debt     Schedule 1.01(b) - Subordinated Debt  

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  Schedule 4.01 - Equity Interests     Schedule 4.05 - Permitted Debt    
Schedule 4.19 - Material Agreements     Schedule 4.20 - Hedging Agreements      
                                                                               
                         

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CREDIT AGREEMENT

                 This Credit Agreement dated as of October 30, 2008 is among
ReoStar Energy, Corporation, a Nevada corporation ("Borrower"), the lenders
party hereto from time to time ("Lenders"), and Union Bank of California, N.A.,
as administrative agent for such Lenders (in such capacity, the "Administrative
Agent") and as issuing lender for such Lenders (in such capacity, the "Issuing
Lender").

                 The Borrower, Lenders, Administrative Agent, and Issuing Lender
hereby agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

                 Section 1.01 Certain Defined Terms. As used in this Agreement,
the terms defined above shall have the meanings set forth therein and the
following terms shall have the following meanings (unless otherwise indicated,
such meanings to be equally applicable to both the singular and plural forms of
the terms defined):

                 "Acceptable Security Interest" in any Property means a Lien
which (a) exists in favor of the Administrative Agent for the benefit of the
Secured Parties, (b) is superior to all Liens or rights of any other Person in
the Property encumbered thereby, other than Permitted Subject Liens, (c) secures
the Obligations, and (d) is perfected and enforceable.

                 "Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (a) acquires any going business or all or
substantially all of the assets of any firm, corporation, general partnership,
limited liability partnership or limited liability company, or division thereof,
whether through the purchase of assets, merger or otherwise or (b) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage or voting power) of the
outstanding ownership interests of a partnership or limited liability company.

                 "Adjusted Reference Rate" means, for any day, the fluctuating
rate per annum of interest equal to the greatest of (a) the Reference Rate in
effect on such day, (b) the Federal Funds Rate in effect on such day plus ½ of
1% and (c) the Eurodollar Rate for an Interest Period of one month.

                 "Administrative Agent" means Union Bank of California, N.A. in
its capacity as agent pursuant to Article VIII, and any successor agent pursuant
to Section 8.06.

                 "Advance" means an advance by a Lender to the Borrower pursuant
to Section 2.01(a) as part of a Borrowing and refers to a Reference Rate Advance
or a Eurodollar Rate Advance

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                 "Affiliate" means, as to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person or any Subsidiary of
such Person. The term "control" (including the terms "controlled by" or "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through ownership of a Control Percentage, by contract, or otherwise.

                 "Agreement" means this Credit Agreement.

                 "Applicable Lending Office" means, with respect to each Lender,
such Lender's Domestic Lending Office in the case of a Reference Rate Advance
and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance.

                 "Applicable Margin" means, with respect to any Advance, (a)
during any time when an Event of Default exists, 2% per annum plus the rate per
annum set forth in the pricing grid set forth below for the relevant Type of
such Advance based on the present Utilization Level applicable at such time and
(b) at any other time, the rate per annum set forth in the pricing grid set
forth below for the relevant Type of such Advance based on the relevant
Utilization Level applicable at such time. The Applicable Margin for any Advance
shall change when and as the relevant Utilization Level changes.

Borrowing Base Utilization
Applicable Margin
 
Eurodollar Rate
Advance
Reference Rate
Advance
Less than or equal to 60%
2.00%
0.00%
Greater than 60% but less than or equal to 80%
2.25%
0.00%
Greater than 80% but less than or equal to 90%
2.50%
0.25%
Greater than 90%
2.75%
0.50%

                 "Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of the attached Exhibit A.

                 "Board of Directors" shall mean, with respect to any Person,
(i) in the case of any corporation, the board of directors of such Person, (ii)
in the case of any limited liability company, the board of managers or board of
directors, as applicable, of such Person, or if such limited liability company
does not have a board of managers or board of directors, the functional
equivalent of the foregoing, (iii) in the case of any partnership, the board of
directors or board of managers, as applicable, of the general partner of such
Person and (iv) in any other case, the functional equivalent of the foregoing.

                 "Borrowing" means a borrowing consisting of Advances made on
the same day by the Lenders pursuant to Section 2.01(a).

                 "Borrowing Base" means at any particular time, the Dollar
amount determined by the Lenders to be the Borrowing Base in accordance with
Section 2.02 on account of Prove

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Reserves attributable to Oil and Gas Properties of the Borrower and its
Subsidiaries and described in the most recent Engineering Report delivered to
the Administrative Agent and the Lenders pursuant to Section 2.02.

                 "Business Day" means (a) a day of the year other than (i) a
Saturday or a Sunday or (ii) a legal holiday on which banks are required or
authorized to close in Dallas, Texas or Los Angeles, California and (b) if the
applicable Business Day relates to any Eurodollar Rate Advances, then in
addition to the requirements of clause (a) above, a day on which dealings are
carried on by banks in the London interbank market.

                 "Capital Expenditures" means, for the Borrower and its
Subsidiaries for any period, the aggregate of all expenditures and costs paid,
or if applicable, budgeted to be paid, by the Borrower and such Subsidiaries
during such period that are for items which should be capitalized in accordance
with GAAP, including intangible drilling and development expenditures.

                 "Capital Leases" means, as applied to any Person, any lease of
any Property by such Person as lessee that would, in accordance with GAAP, be
required to be classified and accounted for as a capital lease on the balance
sheet of such Person.

                 "Cash Collateral Account" means a special interest bearing cash
collateral account pledged by the Borrower to the Issuing Lender containing cash
deposited pursuant to Sections 2.05(b), 7.02(b), or 7.03(b) hereof to be
maintained with the Issuing Lender in accordance with Section 2.07(g) and bear
interest or be invested in the Issuing Lender's reasonable discretion.

                 "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, state and local analogs,
and all rules and regulations and requirements thereunder in each case as now or
hereafter in effect.

                 "Change in Control" means the occurrence of any of the
following:

                 (a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of
such person or group or its respective subsidiaries, and any person acting in
its capacity as trustee, agent or other fiduciary or administrator of any such
plan), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause such person or
group shall be deemed to have "beneficial ownership" of all securities that such
person or group has the right to acquire, whether such right is exercisable
immediately or only after the passage of time (such right, an "option right")),
directly or indirectly, of Voting Stock of the Borrower representing more than
25% of the voting power of the total outstanding Voting Stock of the Borrower
(and taking into account all such securities that such person or group has the
right to acquire (whether pursuant to an option right or otherwise)); or

                 (b) during any period of 12 consecutive months, a majority of
the members of the Board of Directors of the Borrower cease to be composed of
individuals (i) who were members of that Board of Directors at the commencement
of such period, (ii) whose election or nomination to that Board of Directors was
approved by individuals referred to in preceding clause (i) constituting at the
time of such election or nomination at least a majority of that Board of
Directors or (iii) whose election or nomination to that Board of Directors was
approved by

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individuals referred to in preceding clauses (i) and (ii) constituting at the
time of such election or nomination at least a majority of that Board of
Directors (excluding, in the case of both preceding clauses (i) and (ii), any
individual whose initial nomination for, or assumption of office as, a member of
that Board of Directors occurs as a result of an actual (or threatened)
solicitation of proxies or consents for the election or removal of one or more
directors by any person or group other than a solicitation for the election of
one or more directors by or on behalf of the Board of Directors); or

                 (c) any Person or two or more Persons acting in concert shall
have acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation thereof, will result in its or their
acquisition of the power to exercise, directly or indirectly, a controlling
influence over the management or policies of the Borrower, or control over the
Equity Interests of the Borrower entitled to vote for members of the Board of
Directors of the Borrower on a fully-diluted basis (and taking into account all
such Equity Interests that such Person or Persons have the right to acquire
(whether pursuant to an option right or otherwise)) representing 25% or more of
the combined voting power of such Equity Interests; or

                 (d) Mark S. Zouvas ceases to be the Chief Executive Officer or
President of the Borrower or to be actively engaged in the executive management
of the Borrower and is not replaced with an individual of comparable
qualifications within six months after he ceases to be the Chief Executive
Officer or President of the Borrower or to be actively engaged in the executive
management of the Borrower.

                 "Closing Date" means October __, 2008.

                 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute and all regulations thereunder.

                 "Collateral" means (a) all "Collateral," "Pledged Collateral,"
and "Mortgaged Properties" (as defined in each of the Mortgages, the Security
Agreements, and the Pledge Agreements, as applicable) or similar terms used in
the Security Instruments, and (b) all amounts contained in the Borrower's and
its Subsidiaries' bank accounts.

                 "Commitment" means, for any Lender, the amount set opposite
such Lender's name on the Schedule I hereof as its Commitment, or if such Lender
has entered into any Assignment and Acceptance, as set forth for such Lender as
its Commitment in the Register maintained by the Administrative Agent pursuant
to Section 9.06(c), as such amount may be reduced or terminated pursuant to
Section 2.04 or Article VII or otherwise under this Agreement. The aggregate
amount of the Commitments on the date hereof is $25,000,000.

                 "Commitment Termination Date" means the earlier of (a) the
Maturity Date and (b) the earlier termination in whole of the Commitments
pursuant to Section 2.04 or Article VII.

                 "Compliance Certificate" means a compliance certificate in the
form of the attached Exhibit B signed by a Responsible Officer of the Borrower.

                 "Consolidated Net Income" means, with respect to the Borrower
and its consolidated Subsidiaries, for any period, the net income (or loss) for
such period after taxes, as determined in

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accordance with GAAP, excluding, however, (a) extraordinary items, including (i)
any net non-cash gain or loss during such period arising from the sale,
exchange, retirement or other disposition of capital assets (such term to
include all fixed assets and all securities) other than in the ordinary course
of business and (ii) any write-up or write-down of assets and (b) the cumulative
effect of any change in GAAP.

                 "Control Percentage" means, with respect to any Person, the
percentage of the outstanding Equity Interest (including any options, warrants
or similar rights to purchase such Equity Interest) of such Person having
ordinary voting power which gives the direct or indirect holder of such Equity
Interest the power to elect a majority of the Board of Directors of such Person.

                 "Controlled Group" means all members of a controlled group of
corporations and all businesses (whether or not incorporated) under common
control which, together with the Borrower, are treated as a single employer
under Section 414 of the Code.

                 "Convert," "Conversion," and "Converted" each refers to a
conversion of Advances of one Type into Advances of another Type pursuant to
Section 2.03(b).

                 "Credit Extensions" means (a) an Advance made by any Lender and
(b) the issuance, increase, or extension of any Letter of Credit by the Issuing
Lender.

                 "Debt," for any Person, means without duplication:

                 (a) indebtedness of such Person for borrowed money;

                 (b) obligations of such Person (whether contingent or
otherwise) under letters of credit and agreements relating to the issuance of
letters of credit or acceptance financing;

                 (c) obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;

                 (d) obligations of such Person to pay the deferred purchase
price of Property or services (including, without limitation, obligations that
are non-recourse to the credit of such Person but are secured by the assets of
such Person, but excluding trade accounts payable);

                 (e) obligations of such Person as lessee under Capital Leases
and obligations of such Person in respect of synthetic leases;

                 (f) obligations of such Person under any Hedge Contract;

                 (g) obligations of such Person owing in respect of redeemable
preferred stock or other preferred equity interest of such Person;

                 (h) any obligations of such Person owing in connection with any
volumetric or production prepayments;

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                 (i) obligations of such Person under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) of such
Person to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clauses (a) through (g) above;

                 (j) indebtedness or obligations of others of the kinds referred
to in clauses (a) through (h) secured by any Lien on or in respect of any
Property of such Person; and

                 (k) all liabilities of such Person in respect of unfunded
vested benefits under any Plan.

                 "Default" means (a) an Event of Default or (b) any event or
condition which with notice or lapse of time or both would become an Event of
Default.

                 "Defaulting Lender" means any Lender that (a) has failed to
fund any portion of the Advances, participations in Letter of Credit Obligations
required to be funded by it hereunder within one Business Day of the date
required to be funded by it hereunder unless such failure has been cured within
three Business Days (or such longer time period accepted by the Borrower and the
Administrative Agent), (b) has otherwise failed to pay over to the
Administrative Agent or any other Lender any other amount required to be paid by
it hereunder within one Business Day of the date when due, unless the subject of
a good faith dispute or unless such failure has been cured within three Business
Days (or such longer time period accepted by the Administrative Agent or such
other Lender, as applicable), or (c) has, or has an Affiliate that has, been
deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

                 "Disposition" means any sale, lease, transfer, assignment,
farm-out, conveyance, or other disposition of any Property (including any
working interest, overriding royalty interest, production payments, net profits
interest, royalty interest, or mineral fee interest).

                 "Dollars" and "$" mean lawful money of the United States of
America.

                 "Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I or such other office of such Lender as such Lender may
from time to time specify to the Borrower and the Administrative Agent.

                 "EBITDA" means without duplication, for the Borrower and its
consolidated Subsidiaries for any period, (a) Consolidated Net Income for such
period (and with respect to the portion of Consolidated Net Income attributable
to any Subsidiary of Borrower only if a corresponding amount of cash would be
permitted to be distributed to Borrower by such Subsidiary by operation of the
terms of its organizational documents and all agreements, instruments, and other
Legal Requirements applicable to such Subsidiary or its equityholders) plus (b)
to the extent deducted in determining Consolidated Net Income, Interest Expense,
income taxes, depreciation, amortization, and other non-cash charges for such
period, including non-cash losses under SFAS 133 as a result of changes in the
fair market value of derivatives minus (c) to the extent included in determining
Consolidated Net Income, non-cash income under SFAS 133 as a result of changes
in the fair market value of derivatives.

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                 "Eligible Assignee" means (a) any Lender, (b) any Subsidiary or
Affiliate of a Lender, and (c) any commercial bank or other financial
institution approved by the Administrative Agent, the Issuing Lender, and
provided that no Event of Default is then outstanding, the Borrower, in each
case which approval shall not be unreasonably withheld.

                 "Engineering Report" means either an Independent Engineering
Report or an Internal Engineering Report.

                 "Environment" or "Environmental" shall have the meanings set
forth in 43 U.S.C. 9601(8) (1988).

                 "Environmental Claim" means any third party (including
governmental agencies and employees) action, lawsuit, claim, demand, regulatory
action or proceeding, order, decree, consent agreement or notice of potential or
actual responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating to
health or safety of employees) that seeks to impose liability under any
Environmental Law.

                 "Environmental Law" means, as to the Borrower or its
Subsidiaries, all Legal Requirements or common law theories applicable to the
Borrower or its Subsidiaries arising from, relating to, or in connection with
the Environment, health, or safety, including without limitation CERCLA,
relating to (a) pollution, contamination, injury, destruction, loss, protection,
cleanup, reclamation or restoration of the air, surface water, groundwater, land
surface or subsurface strata, or other natural resources; (b) solid, gaseous or
liquid waste generation, treatment, processing, recycling, reclamation, cleanup,
storage, disposal or transportation; (c) exposure to pollutants, contaminants,
hazardous substances, medical infections, or toxic substances, materials or
wastes; (d) the safety or health of employees; or (e) the manufacture,
processing, handling, transportation, distribution in commerce, use, storage or
disposal of hazardous substances, medical infections, or toxic substances,
materials or wastes.

                 "Environmental Permit" means any permit, license, order,
approval, registration or other authorization under any Environmental Law.

                 "Equity Interest" means with respect to any Person, any shares,
interests, participation, or other equivalents (however designated) of corporate
stock, membership interests or partnership interests (or any other ownership
interests) of such Person, including any options, warrants or similar rights to
purchase such Equity Interest.

                 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated thereunder.

                 "Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Federal Reserve Board (or any successor), as in
effect from time to time. "Eurodollar Lending Office" means, with respect to any
Lender, the office of such Lender specified as its

                 "Eurodollar Lending Office" opposite its name on Schedule I
(or, if no such office is specified, its Domestic Lending Office), or such other
office of such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.

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                 "Eurodollar Base Rate" means for the Interest Period for each
Eurodollar Rate Advance comprising the same Borrowing, the interest rate per
annum (rounded upward to the nearest whole multiple of 1/100 of 1% per annum)
set forth on Reuters Reference LIBOR01 as the London Interbank Offered Rate, for
deposits in Dollars at 11:00 a.m. (London, England time) two Business Days
before the first day of such Interest Period and for a period equal to such
Interest Period; provided that, if no such quotation appears on the Reuters
Reference LIBOR01, the Eurodollar Base Rate shall be an interest rate per annum
equal to the rate per annum at which deposits in Dollars are offered by the
principal office of Union Bank of California, N.A. in London, England to prime
banks in the London interbank market at 11:00 a.m. (London, England time) two
Business Days before the first day of such Interest Period in an amount
substantially equal to the Eurodollar Rate Advance to be maintained by the
Lender that is the Administrative Agent in respect of such Borrowing and for a
period equal to such Interest Period.

                 "Eurodollar Rate" means for any Interest Period with respect to
any Eurodollar Rate Advance, a rate per annum determined by the Administrative
Agent (which determination shall be conclusive in the absence of manifest error)
pursuant to the following formula:

Eurodollar Rate =
                  Eurodollar Base Rate                   
 1.00 - Eurodollar Rate Reserve Percentage

                 "Eurodollar Rate Advance" means an Advance that bears interest
as provided in Section 2.09(a)(ii).

                 "Eurodollar Rate Reserve Percentage" of any Lender for the
Interest Period for any Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those days in
such Interest Period during which any such percentage shall be so applicable)
under regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental, or other marginal reserve requirement) for such Lender
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.

                 "Event of Default" has the meaning specified in Section 7.01.

                 "Exchange Act" means the Securities Exchange Act of 1934 or any
rule or regulation thereunder.

                 "Expiration Date" means, with respect to any Letter of Credit,
the date on which such Letter of Credit will expire or terminate in accordance
with its terms.

                 "Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for any such day
on such transactions

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received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.

                 "Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any of its successors.

                 "Fee Letter" means that certain letter agreement dated October
__, 2008 from Union Bank of California, N.A. to the Borrower.

                 "Financial Statements" means the balance sheet of the Borrower
and its consolidated Subsidiaries as at March 31, 2008, and the related
statements of income, cash flow, and retained earnings of the Borrower and its
consolidated Subsidiaries for the fiscal year then ended (with attached
auditor's report) and referred to in Section 4.05, copies of which have been
delivered to the Administrative Agent and the Lenders.

                 "Funded Debt" of any Person means, at any time, without
duplication, Debt of such Person (a) of the type described in clauses (a), (b),
(c), (e) and (h) of the definition of "Debt"; provided that Debt with respect to
letters of credit referred to in clause (b) of such definition shall be
considered "Funded Debt" only to the extent such letters of credit are drawn or
funded, and (b) of the type described in clauses (i) and (j) of the definition
of "Debt" to the extent that such guaranty covers, or such Lien secures, Debt of
the type described in clause (a) of this definition of "Funded Debt".

                 "GAAP" means United States generally accepted accounting
principles as in effect from time to time, applied on a basis consistent with
the requirements of Section 1.03.

                 "Governmental Authority" means, as to any Person in connection
with any subject, any foreign, national, state or provincial governmental
authority, or any political subdivision of any state thereof, or any agency,
department, commission, board, authority or instrumentality, bureau or court, in
each case having jurisdiction over such Person or such Person's Property in
connection with such subject.

                 "Guarantor" means each entity executing a Guaranty, including
each Subsidiary of the Borrower.

                 "Guaranty" means (a) a Guaranty in substantially the form of
the attached Exhibit C and executed by a Guarantor, and (b) such other forms of
guaranty acceptable to the Administrative Agent whereby the guarantors named
therein guaranties the Obligations.

                 "Hazardous Substance" means the substances identified as such
pursuant to CERCLA and those regulated under any other Environmental Law,
including without limitation pollutants, contaminants, petroleum, petroleum
products, radionuclides, radioactive materials, and medical and infectious
waste.

                 "Hazardous Waste" means the substances regulated as such
pursuant to any Environmental Law.

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                 "Hedge Contract" 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 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, 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 Derivatives Association, Inc., any
International Foreign Exchange Master Agreement, or any other master agreement
(any such master agreement, together with any related schedules, a "Master
Agreement"), including any such obligations or liabilities under any Master
Agreement.

                 "Hydrocarbon Hedge Agreement" means Hedge Contract that is
intended to reduce or eliminate the risk of fluctuations in the price of
Hydrocarbons.

                 "Hydrocarbons" means oil, gas, coal seam gas, coalbed methane,
casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all
other liquid and gaseous hydrocarbons produced or to be produced in conjunction
therewith from a well bore and all products, by-products, and other substances
derived therefrom or the processing thereof, and all other minerals and
substances produced in conjunction with such substances, including, but not
limited to, sulfur, geothermal steam, water, carbon dioxide, helium, and any and
all minerals, ores, or substances of value and the products and proceeds
therefrom.

                 "Independent Engineer" means Forrest A. Garb & Associates, Inc.
or any other independent, third-party engineering firm acceptable to the
Administrative Agent in its reasonable judgment.

                 "Independent Engineering Report" means a report, in form and
substance satisfactory to the Administrative Agent and each of the Lenders,
prepared by an Independent Engineer, addressed to the Administrative Agent and
the Lenders with respect to the Oil and Gas Properties owned by the Borrower or
its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries,
as applicable) that are or are to be included in the Borrowing Base, which
report shall (a) specify the location, quantity, and type of the estimated
Proven Reserves attributable to such Oil and Gas Properties, (b) contain a
projection of the rate of production of such Oil and Gas Properties, (c) contain
an estimate of the net operating revenues to be derived from the production and
sale of Hydrocarbons from such Proven Reserves based on product price and cost
escalation assumptions specified by the Administrative Agent and the Lenders,
and (d) contain such other information as is customarily obtained from and
provided in such reports or is otherwise reasonably requested by the
Administrative Agent or any Lender.

                 "Initial Engineering Report" means the report prepared by
Forrest A. Garb & Associates, Inc. dated May 21, 2008 covering the Oil and Gas
Properties of the Borrower and its Subsidiaries and filed with the SEC on July
15, 2008 with the Borrower's Form 10-KSB.

10

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                 "Interest Expense" means, for the Borrower and its consolidated
Subsidiaries for any period, total interest, letter of credit fees, and other
fees and expenses incurred in connection with any Debt for such period, whether
paid or accrued, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Hedge Agreements, all as
determined in conformity with GAAP.

                 "Interest Hedge Agreement" means a Hedge Contract between the
Borrower and one or more financial institutions providing for the exchange of
nominal interest obligations between the Borrower and such financial institution
or the cap of the interest rate on any Debt of the Borrower.

                 "Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Borrowing, the period commencing on the date of such
Eurodollar Rate Advance or the date of the Conversion of any Reference Rate
Advance into a Eurodollar Rate Advance and ending on the last day of the period
selected by the Borrower pursuant to the provisions below and Section 2.03 and,
thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period selected by
the Borrower pursuant to the provisions below and Section 2.03. The duration of
each such Interest Period shall be one month, two months, three months, or if
available, six months, in each case as the Borrower may, upon notice received by
the Administrative Agent not later than 12:00 p.m. (noon) (Dallas, Texas time)
on the third Business Day prior to the first day of such Interest Period,
select; provided, however, that:

                 (a) the Borrower may not select any Interest Period that ends
after the Commitment Termination Date;

                 (b) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same duration;

                 (c) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day,
provided that if such extension would cause the last day of such Interest Period
to occur in the next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day; and

                 (d) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month in which it would have ended if there
were a numerically corresponding day in such calendar month.

                 "Interim Financial Statements" means the unaudited balance
sheet of the Borrower and its consolidated Subsidiaries dated June 30, 2008, and
the related unaudited statements of income, cash flow, and retained earnings of
the Borrower and its consolidated Subsidiaries for the three months then ended
and referred to in Section 4.05, and including the certification of a
Responsible Officer of the Borrower, all prepared in accordance with GAAP, the
copies of which have been delivered to the Administrative Agent and the Lenders.

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                 "Internal Engineering Report" means a report, in form and
substance satisfactory to the Administrative Agent and each Lender, prepared by
the Borrower and certified by a Responsible Officer of the Borrower, addressed
to the Administrative Agent and the Lenders with respect to the Oil and Gas
Properties owned by the Borrower or any Subsidiary (or to be acquired by the
Borrower or any Subsidiary, as applicable), that are or are to be included in
the Borrowing Base, which report shall (a) specify the location, quantity, and
type of the estimated Proven Reserves attributable to such Oil and Gas
Properties, (b) contain a projection of the rate of production of such Oil and
Gas Properties, (c) contain an estimate of the net operating revenues to be
derived from the production and sale of Hydrocarbons from such Proven Reserves
based on product price and cost escalation assumptions specified by the
Administrative Agent and the Lenders, and (d) contain such other information as
is customarily obtained from and provided in such reports or is otherwise
reasonably requested by the Administrative Agent or any Lender.

                 "Issuing Lender" means Union Bank of California, N.A. and any
successor issuing bank pursuant to Section 8.06.

                 "Leases" means all oil and gas leases, oil, gas and mineral
leases, oil, gas and casinghead gas leases or any other instruments, agreements,
or conveyances under and pursuant to which the lessee thereof has or obtains the
right to enter upon lands and explore for, drill, and develop such lands for the
production of Hydrocarbons.

                 "Legal Requirement" means, as to any Person, any law, statute,
ordinance, decree, requirement, order, judgment, rule, regulation (or official
interpretation of any of the foregoing) of, and the terms of any license or
permit issued by, any Governmental Authority, including, but not limited to,
Regulations D, T, U, and X, that is applicable to such Person.

                 "Lenders" means a party hereto that (a) is a lender listed on
the signature pages of this Agreement on the date hereof or (b) is an Eligible
Assignee that became a lender under this Agreement pursuant to Section 2.15 or
9.06.

                 "Letter of Credit" means, individually, any standby letter of
credit issued by the Issuing Lender for the account of the Borrower in
connection with the Commitments and that is subject to this Agreement, and
"Letters of Credit" means all such letters of credit collectively.

                 "Letter of Credit Application" means the Issuing Lender's
standard form letter of credit application for standby letters of credit that
has been executed by the Borrower and accepted by the Issuing Lender in
connection with the issuance of a Letter of Credit.

                 "Letter of Credit Documents" means all Letters of Credit,
Letter of Credit Applications, and agreements, documents, and instruments
entered into in connection therewith or relating thereto.

                 "Letter of Credit Exposure" means, at any time, the sum of (a)
the aggregate undrawn maximum face amount of each Letter of Credit at such time
plus (b) the aggregate unpaid amount of all Reimbursement Obligations at such
time.

                 "Letter of Credit Obligations" means any obligations of the
Borrower under this Agreement in connection with the Letters of Credit,
including the Reimbursement Obligations.

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                 "Lien" means any mortgage, lien, pledge, assignment, charge,
deed of trust, security interest, hypothecation, preference, deposit arrangement
or encumbrance (or other type of arrangement having the practical effect of the
foregoing) to secure or provide for the payment of any obligation of any Person,
whether arising by contract, operation of law, or otherwise (including, without
limitation, the interest of a vendor or lessor under any conditional sale
agreement, synthetic lease, Capital Lease, or other title retention agreement).

                 "Liquid Investments" means:

                 (a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States maturing
within 180 days from the date of any acquisition thereof;

                 (b) (i) negotiable or nonnegotiable certificates of deposit,
time deposits, or other similar banking arrangements maturing within 180 days
from the date of acquisition thereof ("bank debt securities"), issued by (A) any
Lender (or any Affiliate of any Lender) or (B) any other bank or trust company
so long as such certificate of deposit is pledged to secure the Borrower's or
any Subsidiaries' ordinary course of business bonding requirements, or any other
bank or trust company which has primary capital of not less than $500,000,000,
if at the time of deposit or purchase, such bank debt securities are rated not
less than "AA" (or the then equivalent) by the rating service of Standard &
Poor's Ratings Group or of Moody's Investors Service, Inc., and (ii) commercial
paper issued by (A) any Lender (or any Affiliate of any Lender) or (B) any other
Person if at the time of purchase such commercial paper is rated not less than
"A-1" (or the then equivalent) by the rating service of Standard & Poor's
Ratings Group or not less than "P-1" (or the then equivalent) by the rating
service of Moody's Investors Service, Inc., or upon the discontinuance of both
of such services, such other nationally recognized rating service or services,
as the case may be, as shall be selected by the Borrower with the consent of the
Required Lenders;

                 (c) deposits in money market funds investing exclusively in
investments described in clauses (a) and (b) above;

                 (d) repurchase agreements relating to investments described in
clauses (a) and (b) above with a market value at least equal to the
consideration paid in connection therewith, with any Person who regularly
engages in the business of entering into repurchase agreements and has a
combined capital surplus and undivided profit of not less than $500,000,000, if
at the time of entering into such agreement the debt securities of such Person
are rated not less than "AA" (or the then equivalent) by the rating service of
Standard & Poor's Ratings Group or of Moody's Investors Service, Inc.; and

                 (e) such other instruments (within the meaning of Article 9 of
the Texas Business and Commerce Code) as the Borrower may request and the
Administrative Agent may approve in writing.

"Loan Documents" means this Agreement, the Notes, the Letter of Credit
Documents, the Guaranties, the Security Instruments, the Assignment, the Fee
Letter, and each other agreement,

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instrument, or document executed by the Borrower or any of its Subsidiaries or
any of their officers at any time in connection with this Agreement.

                 "Material Adverse Change" means (a) a material adverse change
in the business, assets (including the Oil and Gas Properties of the Borrower
and its Subsidiaries (when taken as a whole)), condition (financial or
otherwise), or results of operations or prospects of the Borrower and its
Subsidiaries, (b) a material adverse effect on the Borrower's ability to perform
its obligations under this Agreement, any Note, any other Loan Document, or any
Hedge Contract with a Swap Counterparty, or (c) a material adverse effect on the
Subsidiaries' (when taken as a whole) ability to perform its obligations under
this Agreement, any Guaranty, any Note, any other Loan Document, or any Hedge
Contract with a Swap Counterparty.

                 "Maturity Date" means October 30, 2011.

                 "Maximum Rate" means the maximum nonusurious interest rate
under applicable law (determined under such laws after giving effect to any
items which are required by such laws to be construed as interest in making such
determination, including without limitation if required by such laws, certain
fees and other costs).

                 "Mortgage" means any mortgage or deed of trust executed by any
one or more of the Borrower or its Subsidiaries in favor of the Administrative
Agent for the ratable benefit of the Secured Parties in substantially the form
of the attached Exhibit D or such other form as may be requested by the
Administrative Agent, and "Mortgages" shall mean all of such Mortgages
collectively.

                 "Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.

                 "Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of the attached Exhibit E,
evidencing indebtedness of the Borrower to such Lender resulting from Advances
owing to such Lender.

                 "Notice of Borrowing" means a notice of borrowing in the form
of the attached Exhibit F signed by a Responsible Officer of the Borrower.

                 "Notice of Conversion or Continuation" means a notice of
conversion or continuation in the form of the attached Exhibit G signed by a
Responsible Officer of the Borrower.

                 "Obligations" means (a) all principal, interest, fees,
reimbursements, indemnifications, and other amounts payable by the Borrower or
any Subsidiary to the Administrative Agent, the Issuing Lender or the Lenders
under the Loan Documents, including without limitation, the Letter of Credit
Obligations and (b) all obligations of the Borrower or any of its Subsidiaries
owing to any Swap Counterparty under any Hedge Contract; provided that, (i) when
any Swap Counterparty assigns or otherwise transfers any interest held by it
under any Hedge Contract to any other Person pursuant to the terms of such
agreement, the obligations thereunder shall constitute Obligations only if such
assignee or transferee is also then a Lender or an Affiliate of a Lender and
(ii) if a Swap Counterparty ceases to be a Lender hereunder or an Affiliate of a
Lender hereunder, obligations owing to such Swap Counterparty shall be included
as Obligations

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only to the extent such obligations arise from transactions under such Hedge
Contracts entered into at the time such Swap Counterparty was a Lender hereunder
or an Affiliate of a Lender hereunder, without giving effect to any extension,
increases, or modifications thereof which are made after such Swap Counterparty
ceases to be a Lender hereunder or an Affiliate of a Lender hereunder.

                 "Oil and Gas Properties" means fee mineral interests, term
mineral interests, Leases, subleases, farm-outs, royalties, overriding
royalties, net profit interests, carried interests, production payments and
similar mineral interests, and all unsevered and unextracted Hydrocarbons in,
under, or attributable to such oil and gas Properties and interests, or any
interest therein.

                 "PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

"PDP Reserves" means Proven Reserves which are categorized as both "Developed"
and "Producing" in the definitions promulgated by the Society of Petroleum
Evaluation Engineers and the World Petroleum Congress as in effect at the time
in question.

                 "Permit" means any approval, certificate of occupancy, consent,
waiver, exemption, variance, franchise, order, permit, authorization, right or
license of or from any Governmental Authority, including without limitation, an
Environmental Permit.

                 "Permitted Liens" means the Liens permitted to exist pursuant
to Section 6.01.

                 "Permitted Subject Liens" means all Permitted Liens other than
the Liens permitted to exist pursuant to clause (k) or (m) of Section 6.01.

                 "Permitted Subordinated Debt" means Debt of the Borrower listed
on Schedule 1.01(b), the payment of which has been subordinated to the payment
of the Obligations in a manner, and pursuant to documentation, satisfactory to
the Administrative Agent in its sole discretion.

                 "Permitted Subordination Agreements" means the subordination
agreements referred to in Section 3.01(n).

                 "Person" (whether or not capitalized) means an individual,
partnership, corporation (including a business trust), joint stock company,
limited liability corporation or company, limited liability partnership, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof or any trustee, receiver, custodian
or similar official.

                 "Plan" means an employee benefit plan (other than a
Multiemployer Plan) maintained for employees of the Borrower or any member of
the Controlled Group and covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code.

                 "Pledge Agreements" means pledge agreement in substantially the
form of the attached Exhibit H, executed by the Borrower or any of its
Subsidiaries or any of the Guarantors.

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                 "Pro Rata Share" means, with respect to any Lender, (a) with
respect to amounts owing under the Commitments, (i) if such Commitments have not
been canceled, the ratio (expressed as a percentage) of such Lender's
uncancelled Commitment at such time to the aggregate uncancelled Commitments at
such time or (ii) if the aggregate Commitments have been terminated, the Pro
Rata Share of such Lender as determined pursuant to the preceding clause (i)
immediately prior to such termination, or (b) with respect to amounts owing
generally under the Credit Agreement and the other Loan Documents, the ratio
(expressed as a percentage) of Commitment of such Lender to the aggregate
Commitments of all the Lenders (or if such Commitments have been terminated, the
ratio (expressed as a percentage) of Credit Extensions owing to such Lender to
the aggregate Credit Extensions owing to all such Lenders).

                 "Property" of any Person means any property or assets (whether
real, personal, or mixed, tangible or intangible) of such Person.

                 "Proven Reserves" means, at any particular time, the estimated
quantities of Hydrocarbons which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs attributable to Oil and Gas Properties under then existing economic
and operating conditions (i.e., prices and costs as of the date the estimate is
made).

                 "PUD Reserves" means Proved Reserves which are categorized as
"Undeveloped" in the definitions promulgated by the Society of Petroleum
Evaluation Engineers and the World Petroleum Congress as in effect at the time
in question.

                 "Reference Rate" means a fluctuating interest rate per annum as
shall be in effect from time to time equal to the rate of interest publicly
announced by Union Bank of California, N.A., as its reference rate, whether or
not the Borrower has notice thereof.

                 "Reference Rate Advance" means an Advance which bears interest
as provided in Section 2.09(a)(i).

                 "Refinancing" shall mean the repayment in full of, and the
termination of any commitment to make extensions of credit under, all of the
outstanding indebtedness of the Borrower or any Subsidiary thereof and listed on
Schedule 1.01(a).

                 "Register" has the meaning set forth in paragraph (c) of
Section 9.06.

                 "Regulations D, T, U, and X" mean Regulations D, T, U, and X of
the Federal Reserve Board, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.

                 "Reimbursement Obligations" means all of the obligations of the
Borrower to reimburse the Issuing Lender for amounts paid by the Issuing Lender
under Letters of Credit as established by the Letter of Credit Applications and
Section 2.07(d).

                 "Release" has the meaning set forth in CERCLA or under any
other Environmental Law.

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                 "Required Lenders" means, at any time, Lenders holding 66-2/3%
of the Commitments or, if the Commitments have been terminated, the outstanding
principal amount of the Advances and Letter of Credit Exposure; provided that,
if there are two or more Lenders, the Commitment of, and the portion of the
Advances held or deemed held by, any Defaulting Lender shall be excluded for
purposes of making a determination of Required Lenders.

                 "Response" has the meaning set forth in CERCLA or under any
other Environmental Law.

                 "Responsible Officer" means (a) with respect to any Person that
is a corporation, such Person's Chief Executive Officer, President, Chief
Financial Officer (or other financial officer), or Vice President, (b) with
respect to any Person that is a limited liability company, a manager or the
Responsible Officer of such Person's managing member or manager, and (c) with
respect to any Person that is a general partnership or a limited liability
partnership, the Responsible Officer of such Person's general partner or
partners.

                 "Restricted Payment" means, with respect to any Person, (a) any
direct or indirect dividend or distribution (whether in cash, securities or
other Property) in respect of the Equity Interest of such Person or any direct
or indirect payment of any kind or character (whether in cash, securities or
other Property) in consideration for or otherwise in connection with any
retirement, purchase, redemption or other acquisition of any Equity Interest of
such Person, or any options, warrants or rights to purchase or acquire any such
Equity Interest of such Person or (b) principal or interest payments (in cash,
Property or otherwise) on, or redemptions of, subordinated debt of such Person;
provided that the term "Restricted Payment" shall not include any dividend or
distribution payable solely in Equity Interests of the Borrower or warrants,
options or other rights to purchase such Equity Interests.

                 "SEC" means the United States Securities and Exchange
Commission.

                 "Secured Parties" means the Administrative Agent, the Issuing
Lender, the Lenders, and the Swap Counterparties.

                 "Security Agreements" means the security agreements, each in
substantially the form of the attached Exhibit I, executed by the Borrower or
any Subsidiary.

                 "Security Instruments" means, collectively, (a) the Mortgages,
(b) the Transfer Letters, (c) the Pledge Agreements, (d) the Security
Agreements, (e) each other agreement, instrument or document executed at any
time in connection with the Pledge Agreements, the Security Agreements, or the
Mortgages, (f) each agreement, instrument or document executed in connection
with the Cash Collateral Account, and (g) each other agreement, instrument or
document executed at any time in connection with securing the Obligations.

                 "Solvent" means, with respect to any Person as of the date of
any determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including contingent liabilities, of such Person,
(b) the present fair saleable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person is able
to realize upon its assets and pay its debts and other

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liabilities, contingent obligations, and other commitments as they mature in the
normal course of business, (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature, and (e) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's Property would constitute unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and the
prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.

                 "Subsidiary" of a Person means any corporation or other entity
of which more than 50% of the outstanding Equity Interests having ordinary
voting power under ordinary circumstances to elect a majority of the Board of
Directors such corporation or other entity (irrespective of whether at such time
Equity Interests of any other class or classes of such corporation or other
entity shall or might have voting power upon the occurrence of any contingency)
is at the time directly or indirectly owned or controlled by such Person, by
such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person. Unless otherwise indicated herein, each reference
to the term "Subsidiary" shall mean a Subsidiary of the Borrower.

                 "Swap Counterparty" means any counterparty to a Hedge Contract
with the Borrower or any Subsidiary; provided that such counterparty is a Lender
or an Affiliate of a Lender on the date hereof or was, at the time such Hedge
Contract was entered into, a Lender or an Affiliate of a Lender.

                 "Swap Termination Value" means, in respect of any one or more
Hedge Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Hedge Contracts, (a) for any date on or after
the date such Hedge Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Hedge Contracts, as determined based upon one
or more mid-market or other readily available quotations provided by any
recognized dealer in such Hedge Contracts (which may include a Lender or any
Affiliate of a Lender).

                 "Termination Event" means (a) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations), (b) the withdrawal of the Borrower or any of its
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice
of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (d) the institution of proceedings to
terminate a Plan by the PBGC, or (e) any other event or condition which
constitutes grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.

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                 "Transfer Letters" means, collectively, the letters in lieu of
transfer orders in substantially the form of the attached Exhibit J and executed
by the Borrower or any Subsidiary executing a Mortgage.

                 "Type" has the meaning set forth in Section 1.04.

                 "Unused Commitment Amount" means, with respect to a Lender at
any time, (a) the lesser of (i) such Lender's Commitment at such time and (ii)
such Lender's Pro Rata Share of the Borrowing Base in effect at such time minus,
in each case, (b) the sum of (i) the aggregate outstanding principal amount of
all Advances owed to such Lender at such time plus (ii) such Lender's Pro Rata
Share of the aggregate Letter of Credit Exposure at such time.

                 "Voting Stock" shall mean, with respect to any person, any
class or classes of Equity Interests pursuant to which the holders thereof have
the general voting power under ordinary circumstances to elect at least a
majority of the Board of Directors of such person.

                 Section 1.02 Computation of Time Periods. In this Agreement,
with respect to the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."

                 Section 1.03 Accounting Terms; Changes in GAAP. Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lenders hereunder shall
(unless otherwise disclosed to the Lenders in writing at the time of delivery
thereof) be prepared, in accordance with GAAP applied on a basis consistent with
those used in the preparation of the latest financial statements furnished to
the Lenders hereunder (which prior to the delivery of the first financial
statements under Section 5.06 hereof, shall mean the Financial Statements). All
calculations made for the purposes of determining compliance with this Agreement
shall (except as otherwise expressly provided herein) be made by application of
GAAP applied on a basis consistent with those used in the preparation of the
annual or quarterly financial statements furnished to the Lenders pursuant to
Section 5.06 hereof most recently delivered prior to or concurrently with such
calculations (or, prior to the delivery of the first financial statements under
Section 5.06 hereof, used in the preparation of the Interim Financial
Statements). If at any time any change in GAAP would affect the computation of
any financial ratio or requirement set forth herein, and either the Borrower or
the Required Lenders shall so request, the Administrative Agent, the Lenders and
the Borrower shall negotiate in good faith to amend such ratio or requirement to
preserve the original intent thereof in light of such change in GAAP (subject to
the approval of the Required Lenders); provided that, until so amended, (a) such
ratio or requirement shall continue to be computed in accordance with GAAP prior
to such change therein, and (b) the Borrower shall provide to the Administrative
Agent and the Lenders financial statements and other documents required under
this Agreement or as reasonably requested hereunder setting forth a
reconciliation between calculations of such ratio or requirement made before and
after giving effect to such change in GAAP. In addition, all calculations and
defined accounting terms used herein shall, unless expressly provided otherwise,
when referring to any Person, refer to such Person on a consolidated basis and
mean such Person and its consolidated Subsidiaries.

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                 Section 1.04 Types of Advances. Advances are distinguished by
"Type". The "Type" of an Advance refers to the determination whether such
Advance is a Eurodollar Rate Advance or Reference Rate Advance.

                 Section 1.05 Miscellaneous. Article, Section, Schedule, and
Exhibit references are to Articles and Sections of and Schedules and Exhibits to
this Agreement, unless otherwise specified. All references to instruments,
documents, contracts, and agreements are references to such instruments,
documents, contracts, and agreements as the same may be amended, supplemented,
and otherwise modified from time to time, unless otherwise specified and shall
include all schedules and exhibits thereto unless otherwise specified. The words
"hereof," "herein," and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The term "including" means "including,
without limitation,". Paragraph headings have been inserted in this Agreement as
a matter of convenience for reference only and it is agreed that such paragraph
headings are not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.

ARTICLE II

CREDIT FACILITIES

                 Section 2.01 Commitment for Advances.

                 (a) Advances. Each Lender severally agrees, on the terms and
conditions set forth in this Agreement, to make Advances to the Borrower from
time to time on any Business Day during the period from the date of this
Agreement until the Commitment Termination Date in an amount for each Lender not
to exceed such Lender's Unused Commitment Amount. Each Borrowing shall, in the
case of Borrowings consisting of Reference Rate Advances, be in an aggregate
amount not less than the lesser of (i) $500,000 and (ii) the Unused Commitment
Amount, and in integral multiples of $300,000 in excess thereof, and in the case
of Borrowings consisting of Eurodollar Rate Advances, be in an aggregate amount
not less than $1,000,000 and in integral multiples of $500,000 in excess
thereof, and in each case shall consist of Advances of the same Type made on the
same day by the Lenders ratably according to their respective Commitments.
Within the limits of each Lender's Commitment, and subject to the terms of this
Agreement, the Borrower may from time to time borrow, prepay, and reborrow
Advances.

                 (b) Notes. The indebtedness of the Borrower to each Lender
resulting from the Advances owing to such Lender shall be evidenced by a Note of
the Borrower payable to the order of such Lender.

                 Section 2.02 Borrowing Base.

                 (a) Borrowing Base. The initial Borrowing Base in effect as of
the date of this Agreement has been set by the Administrative Agent and the
Lenders and acknowledged by the Borrower as $14,000,000. Such initial Borrowing
Base shall remain in effect until the next redetermination made pursuant to this
Section 2.02. The Borrowing Base shall be determined in

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accordance with the standards set forth in Section 2.02(d) and is subject to
periodic redetermination pursuant to Sections 2.02(b) and 2.02(c).

                 (b) Calculation of Borrowing Base.

                                  (i) The Borrower shall deliver to the
Administrative Agent and each of the Lenders on or before each July 1, beginning
July 1, 2009, an Independent Engineering Report dated effective as of the
immediately preceding April 1, and such other information as may be reasonably
requested by any Lender with respect to the Oil and Gas Properties included or
to be included in the Borrowing Base. Within 45 days after the Administrative
Agent and the Lenders' receipt of such Independent Engineering Report and other
information, (A) the Administrative Agent shall deliver to each Lender the
Administrative Agent's recommendation for the redetermined Borrowing Base, (B)
the Administrative Agent and the Lenders shall redetermine the Borrowing Base in
accordance with Section 2.02(d), and (C) the Administrative Agent shall promptly
notify the Borrower in writing of the amount of the Borrowing Base as so
redetermined.

                                  (ii) The Borrower shall deliver to the
Administrative Agent and each Lender on or before each January 1, beginning
January 1, 2010, an Internal Engineering Report dated effective as of the
immediately preceding October 1, and such other information as may be reasonably
requested by the Administrative Agent or any Lender with respect to the Oil and
Gas Properties included or to be included in the Borrowing Base. Within 45 days
after the Administrative Agent and the Lenders' receipt of such Internal
Engineering Report and other information, (A) the Administrative Agent shall
deliver to each Lender the Administrative Agent's recommendation for the
redetermined Borrowing Base, (B) the Administrative Agent and the Lenders shall
redetermine the Borrowing Base in accordance with Section 2.02(d), and (C) the
Administrative Agent shall promptly notify the Borrower in writing of the amount
of the Borrowing Base as so redetermined.

                                  (iii) In the event that the Borrower does not
furnish to the Administrative Agent and the Lenders the Independent Engineering
Report, Internal Engineering Report, or other information specified in clauses
(i) and (ii) above by the date specified therein, the Administrative Agent and
the Required Lenders (except that any increase in the Borrowing Base shall
require the consent of all the Lenders) may nonetheless redetermine the
Borrowing Base and redesignate the Borrowing Base from time-to-time thereafter
in their sole discretion until the Administrative Agent and the Lenders receive
the relevant Independent Engineering Report, Internal Engineering Report, or
other information, as applicable, whereupon the Administrative Agent and the
Required Lenders (except that any increase in the Borrowing Base shall require
the consent of all the Lenders) shall redetermine the Borrowing Base as
otherwise specified in this Section 2.02.

                                  (iv) Each delivery of an Engineering Report by
the Borrower to the Administrative Agent and the Lenders shall constitute a
representation and warranty by the Borrower to the Administrative Agent and the
Lenders that (A) the Borrower and its Subsidiaries, as applicable, own the Oil
and Gas Properties specified therein and that such Oil and Gas Properties are
subject to an Acceptable Security Interest and free and clear of any Liens
(except Permitted Liens), (B) on and as of the date of such Engineering Report,
the PDP

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Reserves identified therein was developed for Hydrocarbons, and the wells
pertaining to such Oil and Gas Properties that are described therein as
producing wells ("Wells"), were each producing Hydrocarbons in paying
quantities, except for Wells that were utilized as water or gas injection wells
or as water disposal wells, (C) the descriptions of quantum and nature of the
record title interests of the Borrower and its Subsidiaries, as applicable, set
forth in such Engineering Report include the entire record title interests of
the Borrower and its Subsidiaries in such Oil and Gas Properties, are complete
and accurate in all respects, and take into account all Permitted Liens, (D)
there are no "back-in" or "reversionary" interests held by third parties which
could reduce the interests of any Company in such Oil and Gas Properties as set
forth in Engineering Report, and (E) no operating or other agreement to which
the Borrower or any of its Subsidiaries is a party or by which the Borrower or
any of its Subsidiaries is bound affecting any part of such Oil and Gas
Properties requires the Borrower or any of its Subsidiaries to bear any of the
costs relating to such Oil and Gas Properties greater than the record title
interest of the Borrower or any of its Subsidiaries in such portion of the such
Oil and Gas Properties as set forth in such Engineering Report, except in the
event the Borrower or any of its Subsidiaries is obligated under an operating
agreement to assume a portion of a defaulting party's share of costs.

                 (c) Interim Redetermination. In addition to the Borrowing Base
redeterminations provided for in Section 2.02(b), the Administrative Agent and
the Lenders may, either in their sole discretion or at the request of the
Borrower and based on such information as the Administrative Agent and the
Lenders deem relevant (but in accordance with Section 2.02(d)), make one
additional redetermination of the Borrowing Base during any six-month period
between scheduled redeterminations. The party requesting the redetermination
shall give the other party at least 10 days' prior written notice that a
redetermination of the Borrowing Base pursuant to this paragraph (c) is to be
performed. In connection with any redetermination of the Borrowing Base under
this Section 2.02(c), the Borrower shall provide the Administrative Agent and
the Lenders with such information regarding the Borrower and its Subsidiaries'
business (including, without limitation, its Oil and Gas Properties, the Proven
Reserves, and production relating thereto) as the Administrative Agent or any
Lender may request, including an updated Independent Engineering Report. The
Administrative Agent shall promptly notify the Borrower in writing of each
redetermination of the Borrowing Base pursuant to this Section 2.02(c) and the
amount of the Borrowing Base as so redetermined.

                 (d) Standards for Redetermination. Each redetermination of the
Borrowing Base by the Administrative Agent and the Lenders pursuant to this
Section 2.02 shall be made (i) in the sole discretion of the Administrative
Agent and the Lenders (but in accordance with the other provisions of this
Section 2.02(d)), (ii) in accordance with the Administrative Agent's and the
Lenders' customary internal standards and practices for valuing and
redetermining the value of Oil and Gas Properties in connection with reserve
based oil and gas loan transactions, (iii) in conjunction with the most recent
Independent Engineering Report or Internal Engineering Report, as applicable, or
other information received by the Administrative Agent and the Lenders relating
to the Proven Reserves of the Borrower and its Subsidiaries, and (iv) based upon
the estimated value of the Proven Reserves owned by the Borrower and its
Subsidiaries as determined by the Administrative Agent and the Lenders. In
valuing and redetermining the Borrowing Base, the Administrative Agent and the
Lenders may also consider the business, financial condition, and Debt
obligations of the Borrower and its Subsidiaries and such other factors as the
Administrative Agent and the Lenders customarily deem appropriate, including

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without limitation, commodity price assumptions, projections of production,
operating expenses, general and administrative expenses, capital costs, working
capital requirements, liquidity evaluations, dividend payments, environmental
costs, and legal costs. In that regard, the Borrower acknowledges that the
determination of the Borrowing Base contains a value cushion (market value in
excess of loan value), which is essential for the adequate protection of the
Administrative Agent and the Lenders. No Proven Reserves of the Borrower's and
its Subsidiaries' Oil and Gas Properties shall be included or considered for
inclusion in the Borrowing Base unless the Administrative Agent and the Lenders
shall have received, at the Borrower's expense, evidence of title satisfactory
in form and substance to the Administrative Agent that the Administrative Agent
has an Acceptable Security Interest in the Oil and Gas Properties relating
thereto pursuant to the Security Instruments. Any changes in, or renewals of,
the Borrowing Base (other than increases in the Borrowing Base) must be
consented to in writing by the Required Lenders. Any increases in the Borrowing
Base must be consented to in writing by all the Lenders.

                 (e) At all times after the Administrative Agent has given the
Borrower notification of a redetermination of the Borrowing Base under this
Section 2.02, the Borrowing Base shall be equal (i) to the redetermined amount
or (ii) such lesser amount designated by the Borrower and disclosed in writing
to the Administrative Agent and the Lenders, provided that the Borrower shall
not request that the Borrowing Base be reduced to a level that would result in a
Borrowing Base deficiency, until the Borrowing Base is subsequently redetermined
in accordance with this Section 2.02.

                 Section 2.03 Method of Borrowing.

                 (a) Notice. Each Borrowing shall be made pursuant to a Notice
of Borrowing (or by telephone notice promptly confirmed in writing by a Notice
of Borrowing), given not later than 12:00 p.m. (noon) (Dallas, Texas time) (i)
on the third Business Day before the date of the proposed Borrowing, in the case
of a Borrowing comprised of Eurodollar Rate Advances or (ii) on the Business Day
of the proposed Borrowing, in the case of a Borrowing comprised of Reference
Rate Advances, by the Borrower to the Administrative Agent, which shall in turn
give to each Lender prompt notice of such proposed Borrowing by telecopier. Each
Notice of a Borrowing shall be given in writing, including by telecopier,
specifying the information required therein. In the case of a proposed Borrowing
comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly
notify each Lender of the applicable interest rate under Section 2.09(a)(ii).
Each Lender shall, before 12:00 p.m. (Dallas, Texas time) on the date of such
Borrowing, make available for the account of its Applicable Lending Office to
the Administrative Agent at its address referred to in Section 9.02, or such
other location as the Administrative Agent may specify by notice to the Lenders,
in same day funds, in the case of a Borrowing, such Lender's Pro Rata Share of
such Borrowing. After the Administrative Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent shall make such funds available to the Borrower at its
account with the Administrative Agent.

                 (b) Conversions and Continuations. The Borrower may elect to
Convert or continue any Borrowing under this Section 2.03 by delivering an
irrevocable Notice of Conversion or Continuation to the Administrative Agent at
the Administrative Agent's office no later than 12:00

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p.m. (noon) (Dallas, Texas time) (i) on the date which is at least three
Business Days in advance of the proposed Conversion or continuation date in the
case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar
Rate Advances and (ii) on the Business Day of the proposed Conversion in the
case of a Conversion to a Borrowing comprised of Reference Rate Advances. Each
such Notice of Conversion or Continuation shall be in writing or by telephone
notice promptly confirmed immediately in writing specifying the information
required therein. Promptly after receipt of a Notice of Conversion or
Continuation under this Section, the Administrative Agent shall provide each
Lender with a copy thereof and, in the case of a Conversion to or a continuation
of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the
applicable interest rate under Section 2.09(a)(ii).

                 (c) Certain Limitations. Notwithstanding anything to the
contrary contained in paragraphs (a) and (b) above:

                                  (i) at no time shall there be more than four
Interest Periods applicable to outstanding Eurodollar Rate Advances and the
Borrower may not select Eurodollar Rate Advances for any Borrowing at any time
that a Default has occurred and is continuing;

                                  (ii) if any Lender shall, at least one
Business Day before the date of any requested Borrowing, Conversion, or
continuation, notify the Administrative Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or that any central bank or other Governmental Authority asserts that it is
unlawful, for such Lender or its Eurodollar Lending Office to perform its
obligations under this Agreement to make Eurodollar Rate Advances or to fund or
maintain Eurodollar Rate Advances, the right of the Borrower to select
Eurodollar Rate Advances from such Lender shall be suspended until such Lender
shall notify the Administrative Agent that the circumstances causing such
suspension no longer exist, and the Advance made by such Lender in respect of
such Borrowing, Conversion, or continuation shall be a Reference Rate Advance;

                                  (iii) if the Administrative Agent is unable to
determine the Eurodollar Rate for Eurodollar Rate Advances comprising any
requested Borrowing, the right of the Borrower to select Eurodollar Rate
Advances for such Borrowing or for any subsequent Borrowing shall be suspended
until the Administrative Agent shall notify the Borrower and the Lenders that
the circumstances causing such suspension no longer exist, and each Advance
comprising such Borrowing shall be a Reference Rate Advance;

                                  (iv) if the Required Lenders shall, at least
one Business Day before the date of any requested Borrowing, notify the
Administrative Agent that the Eurodollar Rate for Eurodollar Rate Advances
comprising such Borrowing will not adequately reflect the cost to such Lenders
of making or funding their respective Eurodollar Rate Advances, as the case may
be, for such Borrowing, the right of the Borrower to select Eurodollar Rate
Advances for such Borrowing or for any subsequent Borrowing shall be suspended
until the Administrative Agent shall notify the Borrower and the Lenders that
the circumstances causing such suspension no longer exist, and each Advance
comprising such Borrowing shall be a Reference Rate Advance; and

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                                  (v) if the Borrower shall fail to select the
duration or continuation of any Interest Period for any Eurodollar Rate Advances
in accordance with the provisions contained in the definition of "Interest
Period" in Section 1.01 and paragraph (b) above, the Administrative Agent shall
forthwith so notify the Borrower and the Lenders and such Advances shall be made
available to the Borrower on the date of such Borrowing as Reference Rate
Advances or, if existing Eurodollar Rate Advances, Convert into Reference Rate
Advances.

                 (d) Notices Irrevocable. Each Notice of Borrowing and Notice of
Conversion or Continuation shall be irrevocable and binding on the Borrower. In
the case of any Borrowing for which the related Notice of Borrowing specifies is
to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each
Lender against any loss, out-of-pocket cost, or expense incurred by such Lender
as a result of any failure by the Borrower to fulfill on or before the date
specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III including, without limitation, any loss
(including any loss of anticipated profits), cost, or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender as part of such Borrowing
when such Advance, as a result of such failure, is not made on such date.

                 (e) Administrative Agent Reliance. Unless the Administrative
Agent shall have received notice from a Lender before the date of any Borrowing
that such Lender shall not make available to the Administrative Agent such
Lender's Pro Rata Share of a Borrowing, the Administrative Agent may assume that
such Lender has made its Pro Rata Share of such Borrowing available to the
Administrative Agent on the date of such Borrowing in accordance with paragraph
(a) of this Section 2.03 and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that any Lender shall not have so made its Pro Rata Share
of such Borrowing available to the Administrative Agent, such Lender and the
Borrower severally agree to immediately repay to the Administrative Agent on
demand such corresponding amount, together with interest on such amount, for
each day from the date such amount is made available to the Borrower until the
date such amount is repaid to the Administrative Agent, at (i) in the case of
the Borrower, the interest rate applicable on such day to Advances comprising
such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for
such day. If such Lender shall repay to the Administrative Agent such
corresponding amount and interest as provided above, such corresponding amount
so repaid shall constitute such Lender's Advance as part of such Borrowing for
purposes of this Agreement even though not made on the same day as the other
Advances comprising such Borrowing.

                 (f) Lender Obligations Several. The failure of any Lender to
make the Advance to be made by it as part of any Borrowing shall not relieve any
other Lender of its obligation, if any, to make its Advance on the date of such
Borrowing. No Lender shall be responsible for the failure of any other Lender to
make the Advance to be made by such other Lender on the date of any Borrowing.

                 Section 2.04 Reduction of the Commitments.

                 (a) The Borrower shall have the right, upon at least three
Business Days' irrevocable notice to the Administrative Agent, to terminate in
whole or reduce ratably in part the unused

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portion of the Commitment; provided that each partial reduction shall be in the
aggregate amount of $3,000,000 or in integral multiples of $1,000,000 in excess
thereof.

                 (b) Other than as provided in Section 2.04(c) below, any
reduction and termination of the Commitments pursuant to this Section 2.04 shall
be applied ratably to each Lender's Commitment and shall be permanent, with no
obligation of the Lenders to reinstate such Commitments.

                 (c) In the event of a Defaulting Lender, the Borrower, at the
Borrower's election may elect to terminate such Defaulting Lender's Commitment
hereunder; provided that (i) such termination must be of the Defaulting Lender's
entire Commitment, (ii) the Borrower shall pay all amounts owed by the Borrower
to such Defaulting Lender under this Agreement and under the other Loan
Documents (including principal of and interest on the Advances owed to such
Defaulting Lender, accrued commitment fees, and letter of credit fees but
specifically excluding any amounts owing under Section 2.12 as result of such
payment of Advances) and shall deposit with the Administrative Agent into the
Cash Collateral Account cash collateral in the amount equal to such Defaulting
Lender's ratable share of the Letter of Credit Exposure, (iii) a Defaulting
Lender's Commitment may be terminated by the Borrower under this Section 2.04(c)
if and only if at such time, the Borrower has elected, or is then electing, to
terminate the Commitments of all then existing Defaulting Lenders. Upon written
notice to the Defaulting Lender and Administrative Agent of the Borrower's
election to terminate a Defaulting Lender's Commitment pursuant to this clause
(c) and the payment and deposit of amounts required to be made by the Borrower
under clause (ii) above, (A) such Defaulting Lender shall cease to be a "Lender"
hereunder for all purposes except that such Lender's rights under Sections 2.13,
2.14, and 9.07 shall continue with respect to events and occurrences occurring
before or concurrently with its ceasing to be a "Lender" hereunder, (B) such
Defaulting Lender's Commitment shall be deemed terminated, and (C) such
Defaulting Lender shall be relieved of its obligations hereunder.

                 Section 2.05 Prepayment of Advances.

                 (a) Optional. The Borrower may prepay the Advances, after
giving by 10:00 a.m. (Dallas, Texas time) (i) in the case of Eurodollar Rate
Advances, at least three Business Days' or (ii) in the case of Reference Rate
Advances, same Business Day's, irrevocable prior written notice (or irrevocable
telephone notice promptly confirmed in writing) to the Administrative Agent
stating the proposed date, aggregate principal amount of such prepayment. If any
such notice is given, the Borrower shall prepay the Advances in whole or ratably
in part in an aggregate principal amount equal to the amount specified in such
notice, together with accrued interest to the date of such prepayment on the
principal amount prepaid and amounts, if any, required to be paid pursuant to
Section 2.12 as a result of such prepayment being made on such date; provided,
however, that each partial prepayment with respect to: (A) any amounts prepaid
in respect of Eurodollar Rate Advances shall be applied to Eurodollar Rate
Advances comprising part of the same Borrowing; (B) any amounts prepaid in
respect of Reference Rate Advances shall be made in a minimum amount of $500,000
and in integral multiples of $300,000 in excess thereof, and (C) any prepayments
made in respect of Borrowings comprised of Eurodollar Rate Advances shall be
made in a minimum amount of $1,000,000 and in integral multiples of $500,000 in
excess thereof and in an aggregate principal amount such that after giving
effect

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thereto such Borrowing shall have a remaining principal amount outstanding with
respect to such Borrowings of at least $3,000,000. Full prepayments of any
Borrowing are permitted without restriction of amounts.

                 (b) Borrowing Base Deficiencies.

                                  (i) If the aggregate outstanding amount of the
Advances plus the Letter of Credit Exposure ever exceeds the lesser of the (A)
Borrowing Base and (B) the aggregate Commitments, the Borrower shall, after
receipt of written notice from the Administrative Agent regarding such
deficiency, take any of the following actions (and the failure of the Borrower
to take such actions to remedy such Borrowing Base deficiency shall constitute
an Event of Default):

                                                   (A) prepay the Advances or,
if the Advances have been repaid in full, make deposits into the Cash Collateral
Account to provide cash collateral for the Letter of Credit Exposure, such that
the Borrowing Base deficiency is cured within 10 days after the date such
deficiency notice is received by the Borrower from the Administrative Agent;

                                                   (B) pledge as Collateral for
the Obligations additional Oil and Gas Properties acceptable to the
Administrative Agent and the Lenders such that the applicable Borrowing Base
deficiency is cured within 10 days after the date of such notice by the
Administrative Agent is received;

                                                   (C) (1) deliver within 10
days after the date such deficiency notice is received by the Borrower from the
Administrative Agent, written notice to the Administrative Agent indicating the
Borrower's election to repay the Advances and make deposits into the Cash
Collateral Account to provide cash collateral for the Letters of Credit, each in
six monthly installments equal to one-sixth of such Borrowing Base deficiency
with the first such installment due 30 days after the date such deficiency
notice is received by the Borrower from the Administrative Agent and each
following installment due 30 days after the preceding installment and (2) to
make such payments and deposits within such time period; or

                                                   (D) (1) deliver within 10
days after the date such deficiency notice is received by the Borrower to the
Administrative Agent written notice to the Administrative Agent indicating the
Borrower's election to combine the options provided in clause (B) and clause (C)
above, and also indicating the amount to be prepaid in installments and the
amount to be provided as additional Collateral, and (2) make such six equal
consecutive monthly installments and deliver such additional Collateral within
the time required under clause (B) and clause (C) above.

                                  (ii) Each prepayment pursuant to this Section
2.05(b) shall be accompanied by accrued interest on the amount prepaid to the
date of such prepayment and amounts, if any, required to be paid pursuant to
Section 2.12 as a result of such prepayment being made on such date. Each
prepayment under this Section 2.05(b) shall be applied to the Advances as
determined by the Administrative Agent and agreed to by the Lenders in their
sole discretion.

                 (c) Reduction of Commitments.

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                                  (i) On the date of each reduction of the
aggregate Commitments pursuant to Section 2.04, the Borrower agrees to make a
prepayment in respect of the outstanding amount of the Advances to the extent,
if any, that the aggregate unpaid principal amount of all Advances plus the
Letter of Credit Exposure exceeds the lesser of (A) the aggregate Commitments,
as so reduced, and (B) the Borrowing Base.

                                  (ii) Each prepayment pursuant to this Section
2.05(c) shall be accompanied by accrued interest on the amount prepaid to the
date of such prepayment and amounts, if any, required to be paid pursuant to
Section 2.12 as a result of such prepayment being made on such date. Each
prepayment under this Section 2.05(c) shall be applied to the Advances as
determined by the Administrative Agent and agreed to by the Lenders in their
sole discretion.

                 (d) Illegality. If any Lender shall notify the Administrative
Agent and the Borrower that the adoption of or any change in any applicable
Legal Requirement or in the interpretation of any applicable Legal Requirement
makes it unlawful, or that any central bank or other Governmental Authority
asserts that it is unlawful for such Lender or its Eurodollar Lending Office to
perform its obligations under this Agreement to maintain any Eurodollar Rate
Advances of such Lender then outstanding hereunder, (i) the Borrower shall, no
later than 12:00 p.m. (noon) (Dallas, Texas time) and if not prohibited by law,
(A) on the last day of the Interest Period for each outstanding Eurodollar Rate
Advance made by such Lender, or (B) if required by such notice, on the second
Business Day following its receipt of such notice, either prepay all of the
Eurodollar Rate Advances made by such Lender then outstanding or Convert all of
the Eurodollar Rate Advances made by such Lender then outstanding to Reference
Rate Advances, and, in either case, pay all accrued interest on the principal
amount prepaid or Converted to the date of such prepayment or Conversion and
amounts, if any, required to be paid pursuant to Section 2.12 as a result of
such prepayment or Conversion being made on such date, (ii) to the extent the
principal amount of Eurodollar Rate Advances are prepaid, such Lender shall
simultaneously make a Reference Rate Advance to the Borrower on such date in an
amount equal to the aggregate principal amount of the Eurodollar Rate Advances
prepaid to such Lender, and (iii) the right of the Borrower to select Eurodollar
Rate Advances from such Lender for any subsequent Borrowing shall be suspended
until such Lender gives notice referred to above shall notify the Administrative
Agent that the circumstances causing such suspension no longer exist.

                 (e) No Additional Right; Ratable Prepayment. The Borrower shall
have no right to prepay any principal amount of any Advance except as provided
in Section 2.04(c) and this Section 2.05, and all notices given pursuant to this
Section 2.05 shall be irrevocable and binding upon the Borrower. Each payment of
any Advance pursuant to this Section 2.05 shall be made in a manner such that
all Advances comprising part of the same Borrowing are paid in whole or ratably
in part.

                 Section 2.06 Repayment of Advances. The Borrower shall repay to
the Administrative Agent for the ratable benefit of the Lenders the outstanding
principal amount of each Advance, together with any accrued interest on the
Commitment Termination Date or such earlier date pursuant to Section 7.02 or
Section 7.03.

                 Section 2.07 Letters of Credit.

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                 (a) Commitment. From time to time from the date of this
Agreement until 30 days prior to the Commitment Termination Date, at the request
of the Borrower, the Issuing Lender shall, on the terms and conditions
hereinafter set forth, issue, increase, or extend the Expiration Date of,
Letters of Credit for the account of the Borrower on any Business Day. No Letter
of Credit will be issued, increased, or extended (and the Issuing Lender shall
not be under any obligation to issue any Letter of Credit):

                                  (i) if such issuance, increase, or extension
would cause the Letter of Credit Exposure to exceed the least of (A) $5,000,000,
(B) 10% of the Borrowing Base in effect at such time, and (C) an amount equal to
the lesser of (1) the aggregate Commitments at such time and (2) the Borrowing
Base in effect at such time minus, in each case under this clause (B), the sum
of the aggregate outstanding principal amount of all Advances at such time;

                                  (ii) if such Letter of Credit has an
Expiration Date later than the earlier of (A) one year after the date of
issuance thereof (or, in the case of any extension thereof, one year after the
date of such extension) and (B) thirty days prior to the Commitment Termination
Date;

                                  (iii) unless the Letter of Credit Documents
are in form and substance acceptable to the Issuing Lender in its sole
discretion;

                                  (iv) unless such Letter of Credit is a standby
letter of credit not supporting the repayment of indebtedness for borrowed money
of any Person;

                                  (v) unless the Borrower has delivered to the
Issuing Lender a completed and executed Letter of Credit Application (provided
that, if the terms of any such Letter of Credit Application conflicts with the
terms of this Agreement, the terms of this Agreement shall control);

                                  (vi) unless such Letter of Credit is governed
by (A) the Uniform Customs and Practice for Documentary Credits (2007 Revision),
International Chamber of Commerce Publication No. 600, or (B) the International
Standby Practices (ISP98), International Chamber of Commerce Publication No.
590, in either case, including any subsequent revisions thereof approved by a
Congress of the International Chamber of Commerce and adhered to by the Issuing
Lender;

                                  (vii) if any order, judgment or decree of any
Governmental Authority or arbitrator shall by its terms purport to enjoin or
restrain the Issuing Lender from issuing such Letter of Credit, or any Legal
Requirement applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority with
jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing
Lender refrain from, the issuance of letters of credit generally or such Letter
of Credit in particular or shall impose upon the Issuing Lender with respect to
such Letter of Credit any restriction, reserve or capital requirement (for which
the Issuing Lender is not otherwise compensated hereunder) not in effect on the
Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss,
cost or expense which was not applicable on the Closing Date and which the
Issuing Lender in good faith deems material to it;

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                                  (viii) if the issuance of such Letter of
Credit would violate one or more policies of the Issuing Lender applicable to
letters of credit generally;

                                  (ix) except as otherwise agreed by the Issuing
Lender, if such Letter of Credit is in an initial stated amount less than
$100,000;

                                  (x) except as otherwise agreed by the Issuing
Lender, if Letter of Credit is to be denominated in a currency other than
Dollars; or

                                  (xi) a default of any Lender's obligations to
fund under Section 2.07(d) exists or any Lender is at such time a Defaulting
Lender hereunder, unless the Issuing Lender has entered into satisfactory
arrangements with the Borrower or such Lender to eliminate the Issuing Lender's
risk with respect to such Lender.

                 (b) Participations. Upon the date of the issuance or increase
of a Letter of Credit, the Issuing Lender shall be deemed to have sold to each
other Lender having a Commitment and each other Lender having a Commitment shall
have been deemed to have purchased from the Issuing Lender a participation in
the related Letter of Credit Obligations equal to such Lender's Pro Rata Share
at such date and such sale and purchase shall otherwise be in accordance with
the terms of this Agreement. The Issuing Lender shall promptly notify each such
participant Lender having a Commitment by telephone or telecopy of each Letter
of Credit issued, increased, or extended or converted and the actual dollar
amount of such Lender's participation in such Letter of Credit.

                 (c) Issuing. Each Letter of Credit shall be issued, increased,
or extended pursuant to a Letter of Credit Application (or by telephone notice
promptly confirmed in writing by a Letter of Credit Application), given not
later than 10:00 a.m. (Dallas, Texas time) on the fifth Business Day before the
date of the proposed issuance, increase, or extension of the Letter of Credit,
and the Issuing Lender shall give to each other Lender prompt notice thereof by
telex, telephone or telecopy. Each Letter of Credit Application shall be
delivered by facsimile or by mail specifying the information required therein;
provided that if such Letter of Credit Application is delivered by facsimile,
the Borrower shall follow such facsimile with an original by mail. After the
Issuing Lender's receipt of such Letter of Credit Application (by facsimile or
by mail) and upon fulfillment of the applicable conditions set forth in Article
III, the Issuing Lender shall issue, increase, or extend such Letter of Credit
for the account of the Borrower. Each Letter of Credit Application shall be
irrevocable and binding on the Borrower.

                 (d) Reimbursement. The Borrower hereby agrees to pay on demand
to the Issuing Lender an amount equal to any amount paid by the Issuing Lender
under any Letter of Credit. In the event the Issuing Lender makes a payment
pursuant to a request for draw presented under a Letter of Credit and such
payment is not promptly reimbursed by the Borrower upon demand, the Issuing
Lender shall give the Administrative Agent notice of the Borrower's failure to
make such reimbursement and the Administrative Agent shall promptly notify each
Lender having a Commitment of the amount necessary to reimburse the Issuing
Lender. Upon such notice from the Administrative Agent, each Lender shall
promptly reimburse the Issuing Lender for such Lender's Pro Rata Share of such
amount, and such reimbursement shall be deemed for all purposes of this
Agreement to be a Advance to the Borrower transferred at the Borrower's

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request to the Issuing Lender. If such reimbursement is not made by any Lender
to the Issuing Lender on the same day on which the Administrative Agent notifies
such Lender to make reimbursement to the Issuing Lender hereunder, such Lender
shall pay interest on its Pro Rata Share thereof to the Issuing Lender at a rate
per annum equal to the Federal Funds Rate. The Borrower hereby unconditionally
and irrevocably authorizes, empowers, and directs the Administrative Agent and
the Lenders to record and otherwise treat such reimbursements to the Issuing
Lender as Reference Rate Advances under a Borrowing requested by the Borrower to
reimburse the Issuing Lender that have been transferred to the Issuing Lender at
the Borrower's request.

                 (e) Obligations Unconditional. The obligations of the Borrower
under this Agreement in respect of each Letter of Credit shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:

                                  (i) any lack of validity or enforceability of
any Letter of Credit Documents;

                                  (ii) any amendment or waiver of, or any
consent to or departure from, any Letter of Credit Documents;

                                  (iii) the existence of any claim, set-off,
defense, or other right which the Borrower may have at any time against any
beneficiary or transferee of such Letter of Credit (or any Persons for whom any
such beneficiary or any such transferee may be acting), the Issuing Lender, or
any other person or entity, whether in connection with this Agreement, the
transactions contemplated in this Agreement or in any Letter of Credit
Documents, or any unrelated transaction;

                                  (iv) any statement or any other document
presented under such Letter of Credit proving to be forged, fraudulent, invalid,
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;

                                  (v) payment by the Issuing Lender under such
Letter of Credit against presentation of a draft or certificate which does not
comply with the terms of such Letter of Credit; or

                                  (vi) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing. provided, however,
that nothing contained in this paragraph (e) shall be deemed to constitute a
waiver of the Borrower's rights under Section 2.07 (f) below.

                 (f) Liability of Issuing Lender. The Borrower assumes all risks
of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Lender nor any of its officers or directors shall be liable or responsible for:

                                  (i) the use which may be made of any Letter of
Credit or any acts or omissions of any beneficiary or transferee in connection
therewith;

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                                  (ii) the validity, sufficiency, or genuineness
of documents, or of any endorsement thereon, even if such documents should prove
to be in any or all respects invalid, insufficient, fraudulent, or forged;

                                  (iii) payment by the Issuing Lender against
presentation of documents which do not comply with the terms of a Letter of
Credit, including failure of any documents to bear any reference or adequate
reference to the relevant Letter of Credit; or

                                  (iv) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit (INCLUDING THE
ISSUING LENDER'S OWN NEGLIGENCE), except that the Borrower shall have a claim
against the Issuing Lender, and the Issuing Lender shall be liable to the
Borrower, to the extent of any direct, as opposed to consequential, damages
suffered by the Borrower which a court determines in a final, non-appealable
judgment were caused by the Issuing Lender's willful misconduct or gross
negligence in determining whether documents presented under a Letter of Credit
comply with the terms of such Letter of Credit. In furtherance and not in
limitation of the foregoing, the Issuing Lender may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.

                 (g) Cash Collateral Account.

                                  (i) If the Borrower is required to deposit
funds in the Cash Collateral Account pursuant to Sections 2.04(c), 2.05(b),
2.07(g), 2.07(h), 7.02(b), or 7.03(b), then the Borrower and the Issuing Lender
shall establish the Cash Collateral Account and the Borrower shall execute any
documents and agreements, including the Issuing Lender's standard form
assignment of deposit accounts, that the Issuing Lender requests in connection
therewith to establish the Cash Collateral Account and grant the Issuing Lender
a first priority security interest in such account and the funds therein. The
Borrower hereby pledges to the Issuing Lender and grants the Issuing Lender a
security interest in the Cash Collateral Account, whenever established, all
funds held in the Cash Collateral Account from time to time, and all proceeds
thereof as security for the payment of the Obligations.

                                  (ii) So long as no Default or Event of Default
exists, (A) the Issuing Lender may apply the funds held in the Cash Collateral
Account only to the reimbursement of any Letter of Credit Obligations, and (B)
the Issuing Lender shall release to the Borrower at the Borrower's written
request any funds held in the Cash Collateral Account in an amount up to but not
exceeding the excess, if any (immediately prior to the release of any such
funds), of the total amount of funds held in the Cash Collateral Account over
the Letter of Credit Exposure. During the existence of any Default or Event of
Default, the Issuing Lender may apply any funds held in the Cash Collateral
Account to the Obligations in any order determined by the Issuing Lender,
regardless of any Letter of Credit Exposure that may remain outstanding. The
Issuing Lender may in its sole discretion at any time release to the Borrower
any funds held in the Cash Collateral Account.

                                  (iii) The Issuing Lender shall exercise
reasonable care in the custody and preservation of any funds held in the Cash
Collateral Account and shall be deemed to have

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exercised such care if such funds are accorded treatment substantially
equivalent to that which the Issuing Lender accords its own Property, it being
understood that the Issuing Lender shall not have any responsibility for taking
any necessary steps to preserve rights against any parties with respect to any
such funds.

                 (h) Defaulting Lender. If, at any time, a Defaulting Lender
exists hereunder, then, at the request of the Issuing Lender, the Borrower shall
deposit funds with Administrative Agent into the Cash Collateral Account Letter
of Credit Collateral Account an amount equal to such Defaulting Lender's pro
rata share of the Letter of Credit Exposure.

                 Section 2.08 Fees.

                 (a) Commitment Fees. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender having a Commitment a
commitment fee equal to 0.50% per annum of the daily Unused Commitment Amount of
such Lender, from the date of this Agreement until the Commitment Termination
Date. The commitment fees shall be due and payable quarterly in arrears on the
last day of each March, June, September, and December commencing on December 31,
2008 and continuing thereafter through and including the Commitment Termination
Date.

                 (b) Letter of Credit Fees.

                                  (i) Letter of Credit Fees. The Borrower agrees
to pay (A) to the Administrative Agent for the pro rata benefit of the Lenders
having a Commitment a per annum letter of credit fee for each Letter of Credit
issued hereunder in an amount equal to the Applicable Margin for Eurodollar Rate
Advances times the daily maximum amount available to be drawn under such Letter
of Credit and (B) to the Issuing Lender, a fronting fee for each Letter of
Credit equal to .125% per annum times on the face amount of such Letter of
Credit. The fees required under this clause (i) shall be computed on a quarterly
basis in arrears and be due and payable on the last day of each March, June,
September, and December commencing December 31, 2008.

                                  (ii) Other Fees. The Borrower also agrees to
pay to the Issuing Lender such other usual and customary fees associated with
any transfers, amendments, drawings, negotiations or reissuances of any Letters
of Credit.

                 (c) Borrowing Base Increase Fee. The Borrower agrees to pay to
the Administrative Agent for the account of the Lenders in connection with any
increase of the Borrowing Base, a borrowing base increase fee on the amount of
such increase. The borrowing base increase fee shall be in an amount equal to
.50% multiplied by the amount of the increase and shall be due and payable on
the date that the increase to the Borrowing Base becomes effective.

                 (d) Facility and Other Fees. To the extent not otherwise
included under Section 2.08(a) and (b), the Borrower agrees to pay to the
Administrative Agent the fees required to be paid under the Fee Letter.

Section 2.09 Interest.

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                 (a) Applicable Interest Rates. The Borrower shall pay interest
on the unpaid principal amount of each Advance made by each Lender from the date
of such Advance until such principal amount shall be paid in full, at the
following rates per annum:

                                  (i) Reference Rate Advances. If such Advance
is a Reference Rate Advance, a rate per annum equal at all times to the Adjusted
Reference Rate in effect from time to time plus the Applicable Margin in effect
from time to time, payable quarterly in arrears on the last day of each March,
June, September, and December commencing December 31, 2008, and on the date such
Reference Rate Advance shall be paid in full.

                                  (ii) Eurodollar Rate Advances. If such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during the
Interest Period for such Advance to the Eurodollar Rate for such Interest Period
plus the Applicable Margin in effect from time to time, payable on the last day
of such Interest Period, and, in the case of six-month Interest Periods, on the
day that occurs during such Interest Period three months from the first day of
such Interest Period.

                 (b) Usury Recapture.

                                  (i) If, with respect to any Lender, the
effective rate of interest contracted for under the Loan Documents, including
the stated rates of interest and fees contracted for hereunder and any other
amounts contracted for under the Loan Documents that are deemed to be interest,
at any time exceeds the Maximum Rate, then the outstanding principal amount of
the loans made by such Lender hereunder shall bear interest at a rate which
would make the effective rate of interest for such Lender under the Loan
Documents equal the Maximum Rate until the difference between the amounts which
would have been due at the stated rates and the amounts that were due at the
Maximum Rate (the "Lost Interest") has been recaptured by such Lender.

                                  (ii) If, when the loans made hereunder are
repaid in full, the Lost Interest has not been fully recaptured by such Lender
pursuant to the preceding paragraph, then, to the extent permitted by law, for
the loans made hereunder by such Lender the interest rates charged under Section
2.09 hereunder shall be retroactively increased such that the effective rate of
interest under the Loan Documents was at the Maximum Rate since the
effectiveness of this Agreement to the extent necessary to recapture the Lost
Interest not recaptured pursuant to the preceding sentence and, to the extent
allowed by law, the Borrower shall pay to such Lender the amount of the Lost
Interest remaining to be recaptured by such Lender.

                                  (iii) NOTWITHSTANDING THE FOREGOING OR ANY
OTHER TERM IN THIS AGREEMENT AND THE LOAN DOCUMENTS TO THE CONTRARY, IT IS THE
INTENTION OF EACH LENDER AND THE BORROWER TO CONFORM STRICTLY TO ANY APPLICABLE
USURY LAWS. ACCORDINGLY, IF ANY LENDER CONTRACTS FOR, CHARGES, OR RECEIVES ANY
CONSIDERATION THAT CONSTITUTES INTEREST IN EXCESS OF THE MAXIMUM RATE, THEN ANY
SUCH EXCESS SHALL BE CANCELED AUTOMATICALLY AND, IF PREVIOUSLY PAID, SHALL AT
SUCH LENDER'S OPTION BE APPLIED TO THE OUTSTANDING AMOUNT OF THE ADVANCES MADE
HEREUNDER BY SUCH LENDER OR BE REFUNDED TO THE BORROWER.

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                 Section 2.10 Payments and Computations.

                 (a) Payment Procedures. The Borrower shall make each payment
under this Agreement and under the Notes not later than 12:00 p.m. (noon)
(Dallas, Texas time) on the day when due in Dollars to the Administrative Agent
at the location referred to in the Notes (or such other location as the
Administrative Agent shall designate in writing to the Borrower) in same day
funds without deduction, setoff, or counterclaim of any kind. The Administrative
Agent shall promptly thereafter cause to be distributed like funds relating to
the payment of principal, interest or fees ratably (other than amounts payable
solely to the Administrative Agent, the Issuing Lender, or a specific Lender
pursuant to Section 2.08(c), 2.12, 2.13, 2.14, 8.05, or 9.07, but after taking
into account payments effected pursuant to Section 9.04) in accordance with each
Lender's Pro Rata Share to the Lenders for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of any other
amount payable to any Lender or the Issuing Lender to such Lender for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement.

                 (b) Computations. All computations of interest based on the
Reference Rate and of fees (other than Letter of Credit fees) shall be made by
the Administrative Agent on the basis of a year of 365 or 366 days, as the case
may be, and all computations of interest based on the Eurodollar Rate and the
Federal Funds Rate and Letter of Credit fees shall be made by the Administrative
Agent, on the basis of a year of 360 days, in each case for the actual number of
days (including the first day, but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination by the
Administrative Agent of an interest rate or fee shall be conclusive and binding
for all purposes, absent manifest error.

                 (c) Non-Business Day Payments. Whenever any payment shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or fees, as the case
may be; provided, however, that if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.

                 (d) Administrative Agent Reliance. Unless the Administrative
Agent shall have received written notice from the Borrower prior to the date on
which any payment is due to the Lenders that the Borrower shall not make such
payment in full, the Administrative Agent may assume that the Borrower has made
such payment in full to the Administrative Agent on such date and the
Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such date an amount equal to the amount then due
such Lender. If and to the extent the Borrower shall not have so made such
payment in full to the Administrative Agent, each Lender shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender,
together with interest, for each day from the date such amount is distributed to
such Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate for such day.

                 Section 2.11 Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Advances or Letter of Credit
Obligations made by it in excess of its Pro Rata

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Share of payments on account of the Advances or Letter of Credit Obligations
obtained by all the Lenders (other than as a result of a termination of a
Defaulting Lender's Commitment under Section 2.04(c)), such Lender shall notify
the Administrative Agent and forthwith purchase from the other Lenders such
participations in the Advances made by them or Letter of Credit Obligations held
by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such Lender's
ratable share (according to the proportion of (a) the amount of the
participation sold by such Lender to the purchasing Lender as a result of such
excess payment to (b) the total amount of such excess payment) of such recovery,
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to the
purchasing Lender to (ii) the total amount of all such required repayments to
the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.11 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

                 Section 2.12 Breakage Costs. Upon demand of any Lender (with a
copy to the Administrative Agent) from time to time, the Borrower shall promptly
compensate such Lender for and hold such Lender harmless from any loss, cost or
expense incurred by it as a result of: (a) any continuation, conversion, payment
or prepayment of any Advance other than a Reference Rate Advance on a day other
than the last day of the Interest Period for such Advance (whether voluntary,
mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure
by any Borrower (for a reason other than the failure of such Lender to make a
Advance) to prepay, borrow, continue or convert any Advance other than a
Reference Rate Advance on the date or in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Advance on a day other than the last day
of the Interest Period therefor as a result of a request by the Borrower
pursuant to Section 2.15; including any loss of anticipated profits, any foreign
exchange losses and any loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain such Advance, from fees payable
to terminate the deposits from which such funds were obtained or from the
performance of any foreign exchange contract. The Borrower shall also pay any
customary administrative fees charged by such Lender in connection with the
foregoing. For purposes of calculating amounts payable by the Borrower to the
Lenders under this Section 2.12, each Lender shall be deemed to have funded each
Eurodollar Rate Advance made by it at the Eurodollar Base Rate used in
determining the Eurodollar Rate for such Advance by a matching deposit or other
borrowing in the offshore interbank market for such currency for a comparable
amount and for a comparable period, whether or not such Eurodollar Rate Advance
was in fact so funded.

                 Section 2.13 Increased Costs.

                 (a) Eurodollar Rate Advances. If, due to either (i) the
adoption of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in any applicable Legal Requirement or in the

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interpretation of any applicable Legal Requirement or (ii) the compliance with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to any Lender of agreeing to make or making, funding, or maintaining
Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand
by such Lender (with a copy of such demand to the Administrative Agent),
immediately pay to the Administrative Agent for the account of such Lender
additional amounts sufficient to compensate such Lender for such increased cost.
A certificate as to the amount of such increased cost and detailing the
calculation of such cost submitted to the Borrower and the Administrative Agent
by such Lender shall be conclusive and binding for all purposes, absent manifest
error.

                 (b) Capital Adequacy. If any Lender or the Issuing Lender
determines in good faith that compliance with any applicable Legal Requirement
or any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law) affects or would affect the
amount of capital required or expected to be maintained by such Lender or the
Issuing Lender or any corporation controlling such Lender or the Issuing Lender
and that the amount of such capital is increased by or based upon the existence
of such Lender's commitment to lend or the Issuing Lender's commitment to issue
the Letters of Credit and other commitments of this type, then, upon 30 days'
prior written notice by such Lender or the Issuing Lender (with a copy of any
such demand to the Administrative Agent), the Borrower shall immediately pay to
the Administrative Agent for the account of such Lender or to the Issuing
Lender, as the case may be, from time to time as specified by such Lender or the
Issuing Lender, additional amounts sufficient to compensate such Lender or the
Issuing Lender, in light of such circumstances, (i) with respect to such Lender,
to the extent that such Lender reasonably determines such increase in capital to
be allocable to the existence of such Lender's commitment to lend under this
Agreement and (ii) with respect to the Issuing Lender, to the extent that the
Issuing Lender reasonably determines such increase in capital to be allocable to
the issuance or maintenance of the Letters of Credit. A certificate as to such
amounts and detailing the calculation of such amounts submitted to the Borrower
by such Lender or the Issuing Lender shall be conclusive and binding for all
purposes, absent manifest error.

                 (c) Letters of Credit. If any change in any applicable Legal
Requirement or in the interpretation thereof by any court or administrative or
Governmental Authority charged with the administration thereof shall either (i)
impose, modify, or deem applicable any reserve, special deposit, or similar
requirement against letters of credit issued by, or assets held by, or deposits
in or for the account of, the Issuing Lender or (ii) impose on the Issuing
Lender any other condition regarding the provisions of this Agreement relating
to the Letters of Credit or any Letter of Credit Obligations, and the result of
any event referred to in the preceding clause (i) or (ii) shall be to increase
the cost to the Issuing Lender of issuing or maintaining any Letter of Credit
(which increase in cost shall be determined by the Issuing Lender's reasonable
allocation of the aggregate of such cost increases resulting from such event),
then, upon demand by the Issuing Lender, the Borrower shall pay to the Issuing
Lender, from time to time as specified by the Issuing Lender, additional amounts
which shall be sufficient to compensate the Issuing Lender for such increased
cost. A certificate as to such increased cost incurred by the Issuing Lender, as
a result of any event mentioned in clause (i) or (ii) above, and detailing the
calculation of such increased costs submitted by the Issuing Lender to the
Borrower, shall be conclusive and binding for all purposes, absent manifest
error.

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                 Section 2.14 Taxes.

                 (a) No Deduction for Certain Taxes. Any and all payments by the
Borrower shall be made, in accordance with Section 2.10, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings sought by any Governmental Authority, and
all liabilities with respect thereto, excluding, in the case of each Lender, the
Issuing Lender, and the Administrative Agent, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction under the laws of which such
Lender, the Issuing Lender, or the Administrative Agent (as the case may be) is
organized or any political subdivision of the jurisdiction (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes") and, in the case of each
Lender and the Issuing Lender, Taxes by the jurisdiction of such Lender's
Applicable Lending Office or any political subdivision of such jurisdiction. If
the Borrower shall be required by applicable Legal Requirement to deduct any
Taxes from or in respect of any sum payable to any Lender, the Issuing Lender,
or the Administrative Agent, (i) the sum payable shall be increased as may be
necessary so that, after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.14), such Lender, the
Issuing Lender, or the Administrative Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made;
provided, however, that if the Borrower's obligation to deduct or withhold Taxes
is caused solely by such Lender's, the Issuing Lender's, or the Administrative
Agent's failure to provide the forms described in paragraph (d) of this Section
2.14 and such Lender, the Issuing Lender, or the Administrative Agent could have
provided such forms, no such increase shall be required; (ii) the Borrower shall
make such deductions; and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.

                 (b) Other Taxes. In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, the Notes, or the other Loan Documents (hereinafter referred to as
"Other Taxes").

                 (c) Indemnification. THE BORROWER INDEMNIFIES EACH LENDER, THE
ISSUING LENDER, AND THE ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF TAXES OR
OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY
ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2.14) PAID BY SUCH
LENDER, THE ISSUING LENDER, OR THE ADMINISTRATIVE AGENT (AS THE CASE MAY BE) AND
ANY LIABILITY (INCLUDING INTEREST AND EXPENSES) ARISING THEREFROM OR WITH
RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR
LEGALLY ASSERTED. EACH PAYMENT REQUIRED TO BE MADE BY THE BORROWER IN RESPECT OF
THIS INDEMNIFICATION SHALL BE MADE TO THE ADMINISTRATIVE AGENT FOR THE BENEFIT
OF ANY PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS FROM THE DATE THE
BORROWER RECEIVES WRITTEN DEMAND THEREFOR FROM THE ADMINISTRATIVE AGENT ON
BEHALF OF ITSELF AS ADMINISTRATIVE AGENT, THE ISSUING LENDER, OR ANY SUCH
LENDER. IF ANY LENDER, THE ADMINISTRATIVE AGENT, OR THE ISSUING

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LENDER RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID BY THE BORROWER UNDER THIS
PARAGRAPH (C), SUCH LENDER, THE ADMINISTRATIVE AGENT, OR THE ISSUING LENDER, AS
THE CASE MAY BE, SHALL PROMPTLY PAY TO THE BORROWER THE BORROWER'S SHARE OF SUCH
REFUND.

                 (d) Foreign Lender Withholding Exemption. Each Lender and
Issuing Lender that is not incorporated under the laws of the United States of
America or a state thereof agrees that it shall deliver to the Borrower and the
Administrative Agent (i) two duly completed copies of United States Internal
Revenue Service Form W8-ECI or W8-BEN or successor applicable form, as the case
may be, certifying in each case that such Lender is entitled to receive payments
under this Agreement and the Notes payable to it, without deduction or
withholding of any United States federal income taxes, (ii) if applicable, an
Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the
case may be, to establish an exemption from United States backup withholding
tax, and (iii) any other governmental forms which are necessary or required
under an applicable tax treaty or otherwise by law to reduce or eliminate any
withholding tax, which have been reasonably requested by the Borrower. Each
Lender which delivers to the Borrower and the Administrative Agent a Form W8-ECI
or W8-BEN and Form W-8 or W-9 pursuant to the next preceding sentence further
undertakes to deliver to the Borrower and the Administrative Agent two further
copies of the said letter and Form W8-ECI or W8-BEN and Form W-8 or W-9, or
successor applicable forms, or other manner of certification, as the case may
be, on or before the date that any such letter or form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent letter and form previously delivered by it to the Borrower and the
Administrative Agent, and such extensions or renewals thereof as may reasonably
be requested by the Borrower and the Administrative Agent certifying in the case
of a Form W8-ECI or W8-BEN that such Lender is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes. If an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any delivery
required by the preceding sentence would otherwise be required that renders all
such forms inapplicable or that would prevent any Lender from duly completing
and delivering any such letter or form with respect to it and such Lender
advises the Borrower and the Administrative Agent that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax, and in the case of a Form W-8 or W-9, establishing an exemption from
United States backup withholding tax, such Lender shall not be required to
deliver such letter or forms. The Borrower shall withhold tax at the rate and in
the manner required by the laws of the United States with respect to payments
made to a Lender failing to timely provide the requisite Internal Revenue
Service forms.

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                 Section 2.15 Replacement of Lender. If (i) any Lender requests
compensation under Section 2.13(a) or (b), (ii) any Lender suspends its
obligation to continue, or Convert Advances into, Eurodollar Rate Advances
pursuant to Section 2.03(c)(ii) or Section 2.11, or (iii) any Lender becomes a
Defaulting Lender (any such Lender, a "Subject Lender"), then (A) in the case of
a Defaulting Lender, the Administrative Agent may, upon notice to the Subject
Lender and the Borrower, require such Subject Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained
in, and consents required by, Section 9.06), all of its interests, rights and
obligations under this Agreement and the related Loan Documents to an assignee
that shall assume such obligations (which assignee may be another Lender, if a
Lender accepts such assignment) and (B) in the case of any Subject Lender,
including a Defaulting Lender, the Borrower may, upon notice to the Subject
Lender and the Administrative Agent and at the Borrower's sole cost and expense,
require such Subject Lender to assign and delegate, without recourse (in
accordance with and subject to the restrictions contained in, and consents
required by, Section 9.06), all of its interests, rights and obligations under
this Agreement and the related Loan Documents to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts such
assignment), provided that, in any event:

                 (A) as to assignments requested by the Borrower, the Borrower
shall have paid to the Administrative Agent the assignment fee specified in
Section 9.06;

                 (B) such Subject Lender shall have received payment of an
amount equal to the outstanding principal of its Advances and participations in
outstanding Letter of Credit Obligations, accrued interest thereon, accrued fees
and all other amounts payable to it hereunder and under the other Loan Documents
(including any amounts under Section 2.12) from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the Applicable
Borrower (in the case of all other amounts);

                 (C) in the case of any such assignment resulting from a claim
for compensation under Section 2.13, such assignment will result in a reduction
in such compensation or payments thereafter; and

                 (D) such assignment does not conflict with applicable Legal
Requirements.

A Lender shall not be required to make any such assignment or delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply. Solely for purposes of effecting the assignment required for a
Defaulting Lender under this Section 2.15 and to the extent permitted under
applicable Legal Requirements, each Lender hereby designates and appoints the
Administrative Agent as true and lawful agent and attorney-in-fact, with full
power and authority, for and on behalf of and in the name of such Lender to
execute, acknowledge and deliver the Assignment and Acceptance required
hereunder if such Lender was a Defaulting Lender and such Lender shall be bound
thereby as fully and effectively as if such Lender had personally executed,
acknowledged and delivered the same. In lieu of the Borrower or the
Administrative Agent replacing a Defaulting Lender as provided in this Section
2.15, the Borrower may terminate such Defaulting Lender's Commitment as provided
in Section 2.04.

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ARTICLE III

CONDITIONS OF LENDING

                 Section 3.01 Conditions Precedent to Initial Borrowings and the
Initial Letter of Credit. The obligations of each Lender to make its initial
Advance and the Issuing Lender to issue any initial Letter of Credit shall be
subject to the conditions precedent that:

                 (a) Documentation. The Administrative Agent shall have received
the following duly executed by all the parties thereto, in form and substance
satisfactory to the Administrative Agent, and where applicable, in sufficient
copies for each Lender:

                                  (i) this Agreement, a Note payable to the
order of each Lender in the amount of its Commitment, the Guaranties, the Pledge
Agreements, the Security Agreements, and Mortgages encumbering all of the
Borrower's and its Subsidiaries' Proven Reserves and Oil and Gas
Properties(other than Oil and Gas Properties located in the State of Arkansas),
and each of the other Loan Documents, and all attached exhibits and schedules;

                                  (ii) a favorable opinion of the Borrower's and
the Subsidiaries' counsel (including its local counsel) dated as of the date of
this Agreement and substantially in the form of the attached Exhibit K, covering
the matters discussed in such Exhibit and such other matters as the
Administrative Agent, on behalf of the Lenders, may reasonably request;

                                  (iii) copies, certified as of the date of this
Agreement by a Responsible Officer of the Borrower of (A) the resolutions of the
Board of Directors of the Borrower, approving the Loan Documents to which the
Borrower is a party and authorizing the entering into of Hedge Contracts, (B)
the bylaws of the Borrower, (C) the certificate (or articles) of incorporation
of the Borrower duly certified by the Secretary of State of Nevada, and (D) all
other documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement, the Note, and the other Loan
Documents;

                                  (iv) certificates of a Responsible Officer of
the Borrower certifying the names and true signatures of the officers authorized
to sign this Agreement, the Notes, Notices of Borrowing, Notices of Conversion
or Continuation, and the other Loan Documents and Hedge Contracts to which the
Borrower is a party;

                                  (v) copies, certified as of the date of this
Agreement by a Responsible Officer or the secretary or an assistant secretary of
each Subsidiary of (A) the resolutions of the Board of Directors of such
Subsidiary approving the Loan Documents to which it is a party and authorizing
the entering into of Hedge Contracts, (B) the articles or certificate (as
applicable) of incorporation (or organization) of such Subsidiary certified by
the Secretary of State for the state of organization, (C) the bylaws or other
governing documents of such Subsidiary, and (D) all other documents evidencing
other necessary corporate action and governmental approvals, if any, with
respect to the Guaranty, the Security Instruments, and the other Loan Documents
and Hedge Contracts to which such Subsidiary is a party;

                                  (vi) a certificate of a Responsible Officer of
each Subsidiary certifying the names and true signatures of officers of such
Subsidiary authorized to sign the Guaranty,

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Security Instruments and the other Loan Documents and Hedge Contracts to which
such Subsidiary is a party;

                                  (vii) certificates of good standing for the
Borrower and each Subsidiary in each state in which each such Person is
organized or qualified to do business, which certificate shall be dated a date
not sooner than 30 days prior to the date of this Agreement;

                                  (viii) a certificate dated as of the date of
this Agreement from the Responsible Officer of the Borrower stating that (A) all
representations and warranties of the Borrower set forth in this Agreement are
true and correct in all material respects as of such date (except in the case of
representations and warranties that are made solely as of an earlier date or
time, which representations and warranties shall be true and correct in all
material respects as of such earlier date or time); (B) no Default has occurred
and is continuing; and (C) the conditions in clauses (a), (b), (c), and (h) -
(n) of this Section 3.01 have been met;

                                  (ix) appropriate UCC-1 Financing Statements
covering the Collateral for filing with the appropriate authorities and any
other documents, agreements or instruments necessary to create an Acceptable
Security Interest in such Collateral;

                                  (x) certificates evidencing the Equity
Interests required in connection with the Pledge Agreements and powers executed
in blank for each such certificate;

                                  (xi) insurance certificates naming the
Administrative Agent loss payee or additional insured, as applicable, and
evidencing insurance that meet the requirements of this Agreement and the
Security Instruments, and that are otherwise satisfactory to the Administrative
Agent; (xii) the Initial Engineering Report; and

                                  (xiii) such other documents, governmental
certificates, agreements and lien searches as the Administrative Agent or any
Lender may reasonably request.

                 (b) Payment of Fees. On or prior to the date of this Agreement,
the Borrower shall have paid the fees required by Section 2.08(c) and all costs
and expenses that have been invoiced and are payable pursuant to Section 9.04.

                 (c) Delivery of Financial Statements. The Administrative Agent
and the Lenders shall have received true and correct copies of (i) Financial
Statements, (ii) the Interim Financial Statements and (iii) such other financial
information as the Lenders may reasonably request.

                 (d) Security Instruments. The Administrative Agent shall have
received all appropriate evidence required by the Administrative Agent and the
Lenders in their sole discretion necessary to determine that the Administrative
Agent (for its benefit and the benefit of the Secured Parties) shall have an
Acceptable Security Interest in the Collateral (which shall include all of the
Borrower's and its Subsidiaries' Proven Reserves and Oil and Gas Properties (as
set forth in the Initial Engineering Report)) and that all actions or filings
necessary to protect, preserve and validly perfect such Liens have been made,
taken or obtained, as the case may be, and are in full force and effect.

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                 (e) Title. The Administrative Agent shall be satisfied in its
sole discretion with the title to the Oil and Gas Properties of the Borrower and
its Subsidiaries and that such Oil and Gas Properties constitute at least 85% of
the present value of the Proven Reserves categorized as "total proved" of the
Borrower and its Subsidiaries as determined by the Administrative Agent in its
sole discretion.

                 (f) Environmental. The Administrative Agent shall have received
such environmental assessments or other reports as it may reasonably require and
shall be satisfied with the condition of the Oil and Gas Properties with respect
to the Borrower's compliance with Environmental Laws.

                 (g) No Default. No Default shall have occurred and be
continuing.

                 (h) Representations and Warranties. The representations and
warranties contained in Article IV hereof and in each other Loan Document shall
be true and correct in all material respects as of the date of the initial
Borrowing (except in the case of representations and warranties which are made
solely as of an earlier date or time, which representations and warranties shall
be true and correct in all material respects as of such earlier date or time).

                 (i) Material Adverse Change. No event or circumstance that
could cause a Material Adverse Change shall have occurred.

                 (j) No Proceeding or Litigation; No Injunctive Relief. No
action, suit, investigation or other proceeding (including, without limitation,
the enactment or promulgation of a statute or rule) by or before any arbitrator
or any Governmental Authority shall be threatened or pending and no preliminary
or permanent injunction or order by a state or federal court shall have been
entered (i) in connection with (A) any of the Oil and Gas Properties or other
Properties of the Borrower and its Subsidiaries or (B) this Agreement or any
transaction contemplated hereby or (ii) which, in any case, in the judgment of
the Administrative Agent, could reasonably be expected to result in a Material
Adverse Change.

                 (k) Consents, Licenses, Approvals, etc. The Administrative
Agent shall have received true copies (certified to be such by the Borrower or
other appropriate party) of all consents, licenses and approvals required in
accordance with applicable Legal Requirements, or in accordance with any
document, agreement, instrument or arrangement to which the Borrower, or any the
Subsidiary is a party, in connection with the execution, delivery, performance,
validity and enforceability of this Agreement and the other Loan Documents. In
addition, the Borrower and each Subsidiary shall have all such material
consents, licenses and approvals required in connection with the continued
operation of the Borrower or any Subsidiary, and such approvals shall be in full
force and effect, and all applicable waiting periods shall have expired without
any action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose adverse conditions on this Agreement and
the actions contemplated hereby.

                 (l) Material Contracts. The Borrower shall have delivered to
the Administrative Agent copies of all material contracts, agreements, or
instruments listed on Schedule 4.19.

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                 (m) Notice of Borrowing. The Administrative Agent shall have
received a Notice of Borrowing from the Borrower in the form of Exhibit F, with
appropriate insertions and executed by a duly authorized Responsible Officer of
the Borrower. (n) Subordination Agreements. The Administrative Agent shall have
received subordination agreements executed by the Borrower and the holders of
the Subordinated Debt listed on Schedule 1.01(b), the terms of which shall be
satisfactory to the Administrative Agent in its sole discretion.

                 (o) [Reserved].

                 (p) Budget. The Borrower shall have delivered to the
Administrative Agent a written budget for the 36 month period following the
Closing Date setting forth (a) a monthly cash flow budget for the 12 month
period following the Closing Date, (b) the Borrower's projections for production
volumes, revenues, expenses, taxes and budgeted Capital Expenditures during such
period, including evidences of sources and uses for the Advances under this
Agreement and (c) details of the Borrower's development activities during such
period.

                 (q) USA Patriot Act. The Borrower shall have delivered to each
Lender that is subject to the Act such information requested by such Lender in
order to comply with the Act.

                 Section 3.02 Conditions Precedent to All Borrowings. The
obligation of each Lender to make an Advance on the occasion of each Borrowing
and of the Issuing Lender to issue, increase, or extend any Letter of Credit
shall be subject to the further conditions precedent that on the date of such
Borrowing or the date of the issuance, increase, or extension of such Letter of
Credit:

                 (a) the following statements shall be true (and each of the
giving of the applicable Notice of Borrowing, Notice of Conversion or
Continuation, or Letter of Credit Application and the acceptance by the Borrower
of the proceeds of such Borrowing or the issuance, increase, or extension of
such Letter of Credit shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing or on the date of such issuance,
increase, or extension of such Letter of Credit, as applicable, such statements
are true):

                                  (i) the representations and warranties
contained in Article IV of this Agreement and the representations and warranties
contained in the Security Instruments, the Guaranties, and each of the other
Loan Documents are true and correct in all material respects on and as of the
date of such Borrowing or the date of the issuance, increase, or extension of
such Letter of Credit, before and after giving effect to such Borrowing or to
the issuance, increase, or extension of such Letter of Credit and to the
application of the proceeds from such Borrowing, as though made on and as of
such date (except in the case of representations and warranties which are made
solely as of an earlier date or time, which representations and warranties shall
be true and correct in all material respects as of such earlier date or time);
provided that, for the avoidance of doubt, any representation and warranty that
is qualified as to "materiality", "Material Adverse Effect" or similar language
shall be true and correct (after giving effect to any qualification therein) in
all respects on such respective dates; and

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                                  (ii) no Default has occurred and is continuing
or would result from such Borrowing or from the application of the proceeds
therefrom, or would result from the issuance, increase, or extension of such
Letter of Credit;

                 (b) the Administrative Agent shall have received such other
approvals, opinions, or documents as any Lender through the Administrative Agent
may reasonably request.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

                 The Borrower represents and warrants as follows:

                 Section 4.01 Existence; Subsidiaries. The Borrower is (a) a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and (b) in good standing and qualified to do
business as a foreign corporation in each jurisdiction where its ownership or
lease of Property or conduct of its business requires such qualification. Each
Subsidiary of the Borrower is (i) duly organized, validly existing, and in good
standing (if applicable) under the laws of its jurisdiction of formation and
(ii) in good standing and qualified to do business as a foreign corporation or
other foreign business entity in each jurisdiction where its ownership or lease
of Property or conduct of its business requires such qualification. As of the
date of this Agreement, the Borrower has no Subsidiaries other than listed on
Schedule 4.01 and the Borrower owns no other Equity Interests in any Person
except in such Subsidiaries and otherwise as set forth in Schedule 4.01.

                 Section 4.02 Power. The execution, delivery, and performance by
the Borrower and by each Subsidiary of this Agreement, the Notes, and the other
Loan Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby (a) are within the Borrower's and such
Subsidiaries' governing powers, (b) have been duly authorized by all necessary
governing action, (c) do not contravene (i) the Borrower's or any Subsidiary's
certificate or articles of incorporation or formation, limited partnership
agreement, bylaws, limited liability company agreement, or other similar
governance documents or (ii) any law or any contractual restriction binding on
or affecting the Borrower or any Subsidiary, and (d) will not result in or
require the creation or imposition of any Lien prohibited by this Agreement. At
the time of each Advance and the issuance, extension or increase of a Letter of
Credit, such Advance and such Letter of Credit, and the use of the proceeds of
such Advance and such Letter of Credit, will be within the Borrower's governing
powers, will have been duly authorized by all necessary partnership action, will
not contravene (i) the Borrower's bylaws, certificate (or articles) of
incorporation or other organizational documents, or (ii) any law or any
contractual restriction binding on or affecting the Borrower and will not result
in or require the creation or imposition of any Lien prohibited by this
Agreement.

                 Section 4.03 Authorization and Approvals. No consent, order,
authorization, or approval or other action by, and no notice to or filing with,
any Governmental Authority or any other Person is required for the due
execution, delivery, and performance by the Borrower of this Agreement, the
Notes, or the other Loan Documents to which the Borrower is a party or by each
Subsidiary of its Guaranty or the other Loan Documents to which it is a party or
the

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consummation of the transactions contemplated thereby, except for (a) the filing
of UCC-1 Financing Statements and the Mortgages in the state and county filing
offices and (b) those consents and approvals that have been obtained or made on
or prior to the date of this Agreement and that are in full force and effect. At
the time of each Borrowing and each issuance, increase or extension of a Letter
of Credit, no authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority will be required for such Borrowing or
such issuance, increase or extension of such Letter of Credit or the use of the
proceeds of such Borrowing or such Letter of Credit, except for (i) the filing
of any additional UCC-1 Financing Statements and the Mortgages in the state and
county filing offices and (ii) those consents and approvals that have been
obtained or made on or prior to the date of such Borrowing, which are, as of the
date of such Borrowing, in full force and effect.

                 Section 4.04 Enforceable Obligations. This Agreement, the
Notes, and the other Loan Documents to which the Borrower is a party have been
duly executed and delivered by the Borrower and the other Loan Documents to
which each Subsidiary is a party have been duly executed and delivered by its
Subsidiaries. Each Loan Document is the legal, valid, and binding obligation of
the Borrower and each Subsidiary that is a party to it, enforceable against the
Borrower and each such Subsidiary in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium, or similar law affecting creditors' rights generally
and by general principles of equity.

                 Section 4.05 Financial Statements.

                 (a) The Borrower has delivered to the Administrative Agent and
the Lenders copies of the Financial Statements and the Interim Financial
Statements, and the Financial Statements and the Interim Financial Statements
are accurate and complete in all material respects and present fairly in all
material respects the consolidated financial condition of Borrower and its
Subsidiaries as of their respective dates and for their respective periods in
accordance with GAAP. All projections, estimates, and pro forma financial
information furnished by the Borrower, whether pursuant to financial statements
or in connection with other information delivered to any Lender or the
Administrative Agent, were prepared on the basis of assumptions, data,
information, tests, or conditions believed to be reasonable at the time such
projections, estimates, and pro forma financial information were made in light
of current and foreseeable conditions (it being understood that projections as
to future events are not to be viewed as facts and that actual results may
differ from projected results).

                 (b) Since March 31, 2008, no event or circumstance that could
cause a Material Adverse Change has occurred.

                 (c) As of the date of this Agreement and after giving effect to
the making of the initial Advances or the issuance of the initial Letters of
Credit, neither the Borrower nor any Subsidiary has any Debt other than the Debt
listed on Schedule 4.05.

                 Section 4.06 True and Complete Disclosure. All factual
information (excluding estimates) heretofore or contemporaneously furnished by
or on behalf of the Borrower or any of its Subsidiaries in writing to any Lender
or the Administrative Agent for purposes of or in connection with this
Agreement, any other Loan Document or any transaction contemplated

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hereby or thereby is, and all other such factual information hereafter furnished
by or on behalf of the Borrower and its Subsidiaries in writing to the
Administrative Agent or any of the Lenders shall be, true and accurate in all
material respects on the date as of which such information is dated or certified
and does not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements contained therein not
misleading at such time.

                 Section 4.07 Litigation; Compliance with Laws.

                 (a) There is no pending or, to the best knowledge of the
Borrower, threatened action or proceeding affecting the Borrower or any of its
Subsidiaries before any court, Governmental Authority or arbitrator that could
reasonably be expected to cause a Material Adverse Change or which purports to
affect the legality, validity, binding effect or enforceability of this
Agreement, any Note, or any other Loan Document. Additionally, there is no
pending or, to the best knowledge of the Borrower, threatened action or
proceeding instituted against the Borrower or any of its Subsidiaries which
seeks to adjudicate the Borrower or any of its Subsidiaries as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
Property.

                 (b) The Borrower and its Subsidiaries have complied in all
material respects with all material statutes, rules, regulations, orders, and
restrictions of any Governmental Authority having jurisdiction over the conduct
of their respective businesses or the ownership of their respective Property.
The offer, sale, and issuance of all outstanding Equity Interests in the
Borrower have been made in compliance with all applicable Legal Requirements,
including without limitation federal and state Legal Requirements relating to
the offer and sale of securities.

                 Section 4.08 Use of Proceeds. The proceeds of the Advances will
be used by the Borrower for the purposes described in Section 5.09. The Borrower
is not engaged in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation U). No proceeds of
any Advance will be used to purchase or carry any margin stock in violation of
Regulation T, U or X.

                 Section 4.09 Investment Company Act. Neither the Borrower nor
any of its Subsidiaries is an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

                 Section 4.10 Taxes.

                 (a) Reports and Payments. All material Returns (as defined
below in clause (c) of this Section) required to be filed by or on behalf of the
Borrower, its Subsidiaries, or any member of the Controlled Group (hereafter
collectively called the "Tax Group") have been duly filed on a timely basis or
appropriate extensions have been obtained, and such Returns are and will be
true, complete, and correct in all material respects; and all Taxes shown to be
payable on the Returns or on subsequent assessments with respect thereto will
have been paid in full on a

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timely basis, and no other Taxes will be payable by the Tax Group with respect
to items or periods covered by such Returns, except in each case to the extent
of (i) reserves reflected in the Interim Financial Statements or (ii) taxes that
are being contested in good faith. The reserves for accrued Taxes reflected in
the financial statements delivered to the Lenders under this Agreement are
adequate in the aggregate for the payment of all unpaid Taxes, whether or not
disputed, for the period ended as of the date thereof and for any period prior
thereto, and for which the Tax Group may be liable in its own right, as
withholding agent or as a transferee of the assets of, or successor to, any
Person.

                 (b) Taxes Definition. "Taxes" in this Section 4.10 shall mean
all taxes, charges, fees, levies, or other assessments imposed by any federal,
state, local, or foreign taxing authority, including without limitation, income,
gross receipts, excise, real or personal property, sales, occupation, use,
service, leasing, environmental, value added, transfer, payroll, and franchise
taxes (and including any interest, penalties, or additions to tax attributable
to or imposed on with respect to any such assessment).

                 (c) Returns Definition. "Returns" in this Section 4.10 shall
mean any federal, state, local, or foreign report, estimate, declaration of
estimated Tax, information statement or return relating to, or required to be
filed in connection with, any Taxes, including any information return or report
with respect to backup withholding or other payments of third parties.

                 Section 4.11 Pension Plans. All Plans are in compliance in all
material respects with all applicable provisions of ERISA. No Termination Event
has occurred with respect to any Plan, and each Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. No "accumulated funding deficiency" (as defined in
Section 302 of ERISA) has occurred, and for plan years after December 31, 2007,
no unpaid minimum required contribution exists, and there has been no excise tax
imposed under Section 4971 of the Code. No Reportable Event has occurred with
respect to any Multiemployer Plan, and each Multiemployer Plan has complied with
and been administered in all material respects with applicable provisions of
ERISA and the Code. The present value of all benefits vested under each Plan
(based on the assumptions used to fund such Plan) did not, as of the last annual
valuation date applicable thereto, exceed the value of the assets of such Plan
allocable to such vested benefits. Neither the Borrower nor any member of the
Controlled Group has had a complete or partial withdrawal from any Multiemployer
Plan for which there is any withdrawal liability. As of the most recent
valuation date applicable thereto, neither the Borrower nor any member of the
Controlled Group would become subject to any liability under ERISA if the
Borrower or any member of the Controlled Group has received notice that any
Multiemployer Plan is insolvent or in reorganization. Based upon GAAP existing
as of the date of this Agreement and current factual circumstances, the Borrower
has no reason to believe that the annual cost during the term of this Agreement
to the Borrower or any member of the Controlled Group for post-retirement
benefits to be provided to the current and former employees of the Borrower or
any member of the Controlled Group under Plans that are welfare benefit plans
(as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be
expected to cause a Material Adverse Change.

                                  (i) Condition and Title of Property;
Casualties. Each of the Borrower and its Subsidiaries has good and defensible
title to, or a valid leasehold interest in, or has the right to

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use pursuant to valid licenses, all of its Oil and Gas Properties, free and
clear of all Liens, except for Permitted Liens. The material Properties owned or
leased by the Borrower or any of its Subsidiaries in the continuing operations
of the Borrower and each of its Subsidiaries are in good repair, working order
and operating condition (subject to normal wear and tear). Since March 31, 2008,
neither the business nor the material Properties of the Borrower and each of its
Subsidiaries, taken as a whole, has been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, Permits, or concessions by a Governmental Authority,
riot, activities of armed forces, or acts of God or of any public enemy. With
respect to the Initial Engineering Report, (A) the Borrower owns the Oil and Gas
Properties specified therein and such Oil and Gas Properties are free and clear
of any Liens (except Permitted Liens), (B) on and as of the date of such
Engineering Report, the PDP Reserves identified therein was developed for
Hydrocarbons, and the wells pertaining to such Oil and Gas Properties that are
described therein as producing wells ("Wells"), were each producing Hydrocarbons
in paying quantities, except for Wells that were utilized as water or gas
injection wells or as water disposal wells, (C) other than a decrease by no more
than 20% in the Borrower's interest in PUD Reserves identified therein
attributable to the "Barnett Project Area", the descriptions of quantum and
nature of the record title and beneficial interests of the Borrower set forth in
such Engineering Report include the entire record title and beneficial interests
of the Borrower in such Oil and Gas Properties, are complete and accurate in all
respects, and take into account all Permitted Liens, (D) there are no "back-in"
or "reversionary" interests held by third parties which could reduce the
interests of the Borrower in such Oil and Gas Properties as set forth in
Engineering Report, and (E) no operating or other agreement to which the
Borrower or any of its Subsidiaries is a party or by which the Borrower or any
of its Subsidiaries is bound affecting any part of such Oil and Gas Properties
requires the Borrower or any of its Subsidiaries to bear any of the costs
relating to such Oil and Gas Properties greater than the record title interest
of the Borrower or any of its Subsidiaries in such portion of the such Oil and
Gas Properties as set forth in such Engineering Report, except in the event the
Borrower or any of its Subsidiaries is obligated under an operating agreement to
assume a portion of a defaulting party's share of costs.

                 Section 4.12 No Burdensome Restrictions; No Defaults.

                 (a) Neither the Borrower nor any of its Subsidiaries is a party
to any indenture, loan, or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction or provision of
applicable law or governmental regulation that could reasonably be expected to
cause a Material Adverse Change. Neither the Borrower nor any of its
Subsidiaries is in default in any material respect under or with respect to any
contract, agreement, lease, or other instrument to which the Borrower or any
Subsidiary is a party. Neither the Borrower nor any of its Subsidiaries has
received any notice of default under any material contract, agreement, lease, or
other instrument to which the Borrower or such Subsidiary is a party.

                 (b) No Default has occurred and is continuing.

                 Section 4.13 Environmental Condition.

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                 (a) Permits, Etc. The Borrower and its Subsidiaries (i) have
obtained all Environmental Permits required under Environmental Law for the
ownership and operation of their respective Properties and the conduct of their
respective businesses; (ii) have at all times been and are in material
compliance with all terms and conditions of such Permits and with all other
material requirements of applicable Environmental Laws; (iii) have not received
notice of any outstanding material violation or alleged violation of any
Environmental Law or Permit; and (iv) are not subject to any actual, pending or
to the Borrower's knowledge, threatened Environmental Claim, that could
reasonably be expected to cause a Material Adverse Change.

                 (b) Certain Liabilities. To the Borrower's actual knowledge,
none of the present or previously owned, leased or operated Property of the
Borrower or any Subsidiary, wherever located, (i) has been placed on or proposed
to be placed on the National Priorities List, the Comprehensive Environmental
Response Compensation Liability Information System list, or their state or local
analogs, or have been otherwise investigated, designated, listed, or identified
as a potential site for removal, remediation, cleanup, closure, restoration,
reclamation, or other response activity under any Environmental Laws; (ii) is
subject to a Lien, arising under or in connection with any Environmental Laws,
that attaches to any revenues or to any Property owned, leased or operated by
the Borrower or any of its Subsidiaries, wherever located, that could reasonably
be expected to cause a Material Adverse Change; or (iii) has been the site of
any Release of Hazardous Substances or Hazardous Wastes from present or past
operations that has caused at the site or at any third-party site any condition
that has resulted in or could reasonably be expected to result in the need for
Response that would cause a Material Adverse Change.

                 (c) Certain Actions. Without limiting the foregoing, (i) all
necessary notices have been properly filed, and no further action is required
under current Environmental Law as to each Response or other restoration or
remedial project undertaken by the Borrower or its Subsidiaries on any of their
presently or formerly owned, leased or operated Property and (ii) there are no
facts, circumstances, conditions or occurrences with respect to any Property
owned, leased or operated by the Borrower or any of its Subsidiaries that could
reasonably be expected to form the basis of an Environmental Claim under
Environmental Laws that could reasonably be expected to result in a Material
Adverse Change.

                 Section 4.14 Permits, Licenses, Etc. The Borrower and its
Subsidiaries possess all authorizations, Permits, licenses, patents, patent
rights or licenses, trademarks, trademark rights, trade names rights and
copyrights which are material to the conduct of their business. The Borrower and
its Subsidiaries manage and operate their business in all material respects in
accordance with all applicable Legal Requirements and good industry practices.

                 Section 4.15 Gas Contracts. Neither the Borrower nor any of its
Subsidiaries, as of the date hereof, (a) is obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver Hydrocarbons
produced from or allocated to any of the Borrower's and its Subsidiaries' Oil
and Gas Properties at some future date without receiving full payment therefor
at the time of delivery or (b) except as has been disclosed to the
Administrative Agent, has produced gas, in any material amount, subject to
balancing rights of third parties or subject to balancing duties under
governmental requirements.

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                 Section 4.16 Liens; Titles, Leases, Etc. None of the Property
of the Borrower or any of the Subsidiaries is subject to any Lien other than
Permitted Liens. On the date of this Agreement, all governmental actions and all
other filings, recordings, registrations, third party consents and other actions
which are necessary to create and perfect the Liens provided for in the Security
Instruments will have been made, obtained and taken in all relevant
jurisdictions. Other than to the extent such could not reasonably be expected to
cause a Material Adverse Change, (i) all leases and agreements for the conduct
of business of the Borrower and its Subsidiaries are valid and subsisting, in
full force and effect and there exists no default or event of default or
circumstance which with the giving of notice or lapse of time or both would give
rise to a default by the Borrower or any Subsidiary, or to the Borrower's
knowledge, by any of the other parties thereto, under any such leases or
agreements. Neither the Borrower nor any of its Subsidiaries is a party to any
agreement or arrangement (other than this Agreement and the Security
Instruments), or subject to any order, judgment, writ or decree, that either
restricts or purports to restrict its ability to grant Liens to secure the
Obligations against their respective Properties.

                 Section 4.17 Solvency and Insurance. Before and after giving
effect to the making of the initial Advances, the Borrower and each of its
Subsidiaries is Solvent. Furthermore, each of the Borrower and its Subsidiaries
carry insurance required under Section 5.02 of this Agreement.

                 Section 4.18 Material Agreements. Schedule 4.19 sets forth a
complete and correct list of all material agreements, leases, indentures,
purchase agreements, obligations in respect of letters of credit, guarantees,
joint venture agreements, and other instruments in effect or to be in effect as
of the date hereof (other than the agreements set forth in Schedule 4.20)
providing for, evidencing, securing or otherwise relating to any Debt of the
Borrower or any of its Subsidiaries, and all obligations of the Borrower or any
of its Subsidiaries to issuers of surety or appeal bonds issued for account of
the Borrower or any such Subsidiary, and such list correctly sets forth the
names of the debtor or lessee and creditor or lessor with respect to the Debt or
lease obligations outstanding or to be outstanding and the Property subject to
any Lien securing such Debt or lease obligation. Also set forth on Schedule 4.19
hereto is a complete and correct list, as of the date of this Agreement, of all
material agreements and other instruments of the Borrower and its Subsidiaries
relating to the purchase, transportation by pipeline, gas processing, marketing,
sale and supply of natural gas and other Hydrocarbons and which either (a) has a
term longer than 6 months or (b) provides for liabilities of the Borrower and
its Subsidiaries in excess of $1,000,000. To the extent requested, the Borrower
has heretofore delivered to the Administrative Agent and the Lenders a complete
and correct copy of all such material credit agreements, indentures, purchase
agreements, contracts, letters of credit, guarantees, joint venture agreements,
or other instruments, including any modifications or supplements thereto, as in
effect on the date hereof.

                 Section 4.19 Hedging Agreements. Schedule 4.20 sets forth, as
of the date of this Agreement, a true and complete list of all Hedge Contracts
of the Borrower and each Subsidiary, 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.

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ARTICLE V

AFFIRMATIVE COVENANTS

                 So long as any Note or any amount under any Loan Document shall
remain unpaid, any Letter of Credit shall remain outstanding, or any Lender
shall have any Commitment hereunder, the Borrower agrees, unless the Required
Lenders shall otherwise consent in writing, to comply with the following
covenants.

                 Section 5.01 Compliance with Laws, Etc. The Borrower shall
comply, and cause each of its Subsidiaries to comply, in all material respects
with all applicable Legal Requirements. Without limiting the generality and
coverage of the foregoing, the Borrower shall comply, and shall cause each of
its Subsidiaries to comply, in all material respects, with all Environmental
Laws and all laws, regulations, or directives with respect to equal employment
opportunity and employee safety in all jurisdictions in which the Borrower, or
any of its Subsidiaries do business; provided, however, that this Section 5.01
shall not prevent the Borrower or any of its Subsidiaries from, in good faith
and with reasonable diligence, contesting the validity or application of any
such Legal Requirements by appropriate legal proceedings. Without limitation of
the foregoing, the Borrower shall, and shall cause each of its Subsidiaries to,
(a) maintain and possess all authorizations, Permits, licenses, trademarks,
trade names, rights and copyrights which are necessary to the conduct of its
business and (b) obtain, as soon as practicable, all consents or approvals
required from any states of the United States (or other Governmental
Authorities) necessary to grant the Administrative Agent an Acceptable Security
Interest in the Borrower's and its Subsidiaries' Oil and Gas Properties.

                 Section 5.02 Maintenance of Insurance.

                 (a) The Borrower shall, and shall cause each of its
Subsidiaries to, procure and maintain or shall cause to be procured and
maintained continuously in effect policies of insurance in form and amounts and
issued by companies, associations, or organizations reasonably satisfactory to
the Administrative Agent, covering such casualties, risks, perils, liabilities
and other hazards reasonably required by the Administrative Agent. In addition,
the Borrower shall, and shall cause each of its Subsidiaries to, comply with all
requirements regarding insurance contained in the Security Instruments.

                 (b) All certified copies of policies or certificates thereof,
and endorsements and renewals thereof shall be delivered to and retained by the
Administrative Agent. All policies of insurance shall either have attached
thereto a Lender's loss payable endorsement for the benefit of the
Administrative Agent, as loss payee in form reasonably satisfactory to the
Administrative Agent or shall name the Administrative Agent as an additional
insured, as applicable. The Borrower shall furnish the Administrative Agent with
a certificate of insurance or a certified copy of all policies of insurance
required. All policies or certificates of insurance shall set forth the
coverage, the limits of liability, the name of the carrier, the policy number,
and the period of coverage. In addition, all policies of insurance required
under the terms hereof shall contain an endorsement or agreement by the insurer
that any loss shall be payable in accordance with the terms of such policy
notwithstanding any act of negligence of the Borrower, or a Subsidiary or any
party holding under the Borrower or a Subsidiary which might otherwise result in
a

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forfeiture of the insurance and the further agreement of the insurer waiving all
rights of setoff, counterclaim or deductions against the Borrower and its
Subsidiaries. All such policies shall contain a provision that notwithstanding
any contrary agreements between the Borrower, its Subsidiaries, and the
applicable insurance company, such policies will not be canceled, allowed to
lapse without renewal, surrendered or amended (which provision shall include any
reduction in the scope or limits of coverage) without at least 30 days' prior
written notice to the Administrative Agent. In the event that, notwithstanding
the "lender's loss payable endorsement" requirement of this Section 5.02, the
proceeds of any insurance policy described above are paid to the Borrower or a
Subsidiary, the Borrower shall deliver such proceeds to the Administrative Agent
immediately upon receipt.

                 Section 5.03 Preservation of Corporate Existence, Etc. The
Borrower shall (a) preserve and maintain, and cause each of its Subsidiaries to
preserve and maintain, its limited partnership, corporate or limited liability
company, as applicable, existence (except as otherwise permitted pursuant to
Section 6.04), rights, franchises, and privileges in the jurisdiction of its
incorporation or organization, as applicable, and (b) qualify and remain
qualified, and cause each such Subsidiary to qualify and remain qualified, as a
foreign corporation or such other foreign business entity in each jurisdiction
in which qualification is necessary or desirable in view of its business and
operations or the ownership of its Properties, and, in each case, where failure
to qualify or preserve and maintain its rights and franchises could reasonably
be expected to cause a Material Adverse Change.

                 Section 5.04 Payment of Taxes, Etc. The Borrower shall pay and
discharge, and cause each of its Subsidiaries to pay and discharge, before the
same shall become delinquent, (a) all taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits or Property that
are material in amount, prior to the date on which penalties attach thereto and
(b) all lawful claims that are material in amount which, if unpaid, might by law
become a Lien upon its Property; provided, however, that neither the Borrower
nor any such Subsidiary shall be required to pay or discharge any such tax,
assessment, charge, levy, or claim which is being contested in good faith and by
appropriate proceedings, and with respect to which reserves in conformity with
GAAP have been provided.

                 Section 5.05 Visitation Rights. At any reasonable time and from
time to time, upon reasonable notice, the Borrower shall, and shall cause its
Subsidiaries to, permit the Administrative Agent and any Lender or any of their
respective agents or representatives thereof, to (a) examine and make copies of
and abstracts from the records and books of account of, and visit and inspect at
their reasonable discretion the Properties of, the Borrower and any such
Subsidiary and (b) discuss the affairs, finances and accounts of the Borrower
and any such Subsidiary with any of their respective officers or directors.

                 Section 5.06 Reporting Requirements. The Borrower shall furnish
to the Administrative Agent and each Lender:

                 (a) Annual Financials. As soon as available but in any event
not later than 90 days after the end of fiscal year of the Borrower, commencing
with the fiscal year ending March 31, 2009, (i) (A) a copy of the annual audit
report for such year for the Borrower and its consolidated Subsidiaries,
including therein the Borrower's and its consolidated Subsidiaries' balance
sheets as

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of the end of such fiscal year and the Borrower's and its consolidated
Subsidiaries' statements of income, cash flows, and retained earnings, in each
case certified by independent certified public accountants of national standing
reasonably acceptable to the Administrative Agent, and including any management
letters delivered by such accountants to the Borrower or any Subsidiary in
connection with such audit, (B) a certificate of such accounting firm to the
Administrative Agent and the Lenders stating that such audit was conducted by
such accounting firm in accordance with generally accepted auditing standards,
and (C) a Compliance Certificate executed by a Responsible Officer of the
Borrower and (ii) a copy of the unaudited annual consolidating financial
statements, if any, of each of its Subsidiaries, including therein such
Subsidiary's balance sheet and statements of income, cash flows, and retained
earnings for such fiscal year;

                 (b) Quarterly Financials. As soon as available and in any event
not later than 60 days after the end of each of the first three fiscal quarters
of each fiscal year of the Borrower and its consolidated Subsidiaries,
commencing with the fiscal quarter ended September 30, 2008, (i) the unaudited
balance sheet and the statements of income, cash flows, and retained earnings of
the Borrower and its consolidated Subsidiaries for the period commencing at the
end of the previous year and ending with the end of such fiscal quarter, all in
reasonable detail and duly certified with respect to such consolidated
statements (subject to year-end audit adjustments) by a Responsible Officer of
the Borrower as having been prepared in accordance with GAAP and (ii) a
Compliance Certificate executed by the Responsible Officer of the Borrower;

                 (c) Capital Expenditures. As soon as available and in any event
not later than 45 days after the end of each fiscal year, a budget detailing the
Capital Expenditures of the Borrower and its Subsidiaries for the immediately
subsequent fiscal year;

                 (d) Oil and Gas Engineering Reports.

                                  (i) As soon as available but in any event on
or before each July 1 of each year, an Independent Engineering Report dated
effective as of April 1 for such year;

                                  (ii) As soon as available but in any event on
or before January 1 of each year, commencing with January 1, 2010, an Internal
Engineering Report dated effective as of the immediately preceding October 1;

                                  (iii) Such other information as may be
reasonably requested by the Administrative Agent or any Lender with respect to
the Oil and Gas Properties included or to be included in the Borrowing Base;

                                  (iv) With the delivery of each Engineering
Report, a certificate from a Responsible Officer of the Borrower certifying
that, to the best of his knowledge and in all material respects: (a) the
information contained in the Engineering Report and any other information
delivered in connection therewith is true and correct in all material respects,
(b) the Borrower or its Subsidiary, as applicable, owns good and defensible
title to the Oil and Gas Properties evaluated in such Engineering Report and
classified as Proven Reserves and such Oil and Gas Properties classified as
Proven Reserves are subject to an Acceptable Security Interest and free of all
Liens except for Permitted Liens, (c) on a net basis there are no gas
imbalances,

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take or pay or other prepayments with respect to its Oil and Gas Properties
evaluated in such Engineering Report that would require the Borrower or any of
its Subsidiaries to deliver Hydrocarbons produced from such Oil and Gas
Properties at some future time without then or thereafter receiving full payment
therefor other than that which do not result in the Borrower or any Subsidiary
having net aggregate liability in excess of $500,000, the details of which shall
be set forth on an exhibit to the certificate upon request by the Administrative
Agent, (d) none of its Oil and Gas Properties have been sold since the date of
the last Borrowing Base determination except as set forth on an exhibit to the
certificate, which certificate shall list all of its Oil and Gas Properties sold
and in such detail as reasonably required by the Required Lenders, (e) attached
to the certificate is a list of its Oil and Gas Properties added to and deleted
from the immediately prior Engineering Report and a list showing any change in
working interest or net revenue interest in its Oil and Gas Properties occurring
and the reason for such change, (f) attached to the certificate is a list of all
Persons disbursing proceeds to the Borrower or to its Subsidiary, as applicable,
from its Oil and Gas Properties, and (g) attached to the certificate is a
monthly cash flow budget for the 12 months following the delivery of such
certificate setting forth the Borrower's projections for production volumes,
revenues, expenses, taxes and budgeted capital expenditures during such period;

                 (e) Production Reports. As soon as available and in any event
within 60 days after the end of each fiscal quarter, commencing with the fiscal
quarter ended September 30, 2008, a report certified by a Responsible Officer of
the Borrower in form and substance reasonably satisfactory to the Administrative
Agent prepared by the Borrower covering each of the Oil and Gas Properties of
the Borrower and its Subsidiaries and detailing on a quarterly basis (i) the
production and associated lease operating statements for the Oil and Gas
Properties of the Borrower and its Subsidiaries containing Proven Reserves in
form and substance reasonably satisfactory to the Administrative Agent, together
with a certificate signed by a Responsible Officer of the Borrower as to the
truth and accuracy of such analyses in all material respects; (ii) any material
changes to any producing reservoir, production equipment, or producing well from
the report delivered for the preceding fiscal quarter, and (iii) any sales of
the Borrower's or any Subsidiaries' Oil and Gas Properties since the delivery of
the report for the preceding fiscal quarter;

                 (f) Defaults. As soon as possible and in any event within three
business days after an officer of the Borrower or a Subsidiary has knowledge of
(i) the occurrence of any Default or (ii) the occurrence of any default under
any instrument or document evidencing Debt of the Borrower or any Subsidiary
having an aggregate principal amount in excess $100,000, in each case which
Default or default is continuing on the date of such statement, a statement of a
Responsible Officer of the Borrower setting forth the details of such Default or
default, as applicable, and the actions which the Borrower or such Subsidiary
has taken and proposes to take with respect thereto;

                 (g) Quarterly Report on Hedging and Deferred Purchase
Obligations. Upon the delivery of the Engineering Reports required to be
delivered by the Borrower to the Administrative Agent and the Lenders pursuant
to Section 2.02 and within 60 days after the end of each fiscal quarter end, a
statement prepared by Borrower and certified as being true and correct in all
material respects by a Responsible Officer of Borrower, setting forth in
reasonable detail:

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                                  (i) all Hydrocarbon Hedge Agreements to which
any production of oil, gas or other Hydrocarbons from the Oil and Gas Properties
of the Borrower and its Subsidiaries is then subject, together with a statement
of Borrower's position with respect to each such Hydrocarbon Hedge Agreement;
provided, however, if the price of any of the oil, gas or other Hydrocarbons
produced from such Oil and Gas Properties is subject to a Hydrocarbon Hedge
Agreement, then Borrower shall promptly notify the Administrative Agent and the
Lenders if such Hydrocarbon Hedge Agreement is terminated, modified, amended or
altered prior to the end of its contractual term, or if there is an amendment,
adjustment or modification of the price of any of the oil, gas or other
Hydrocarbons produced from such Oil and Gas Properties that is subject to or
established by a Hydrocarbon Hedge Agreement; and

                                  (ii) all Debt incurred in the form of deferred
purchase price of Oil and Gas Property as permitted under Section 6.02(b),
including the crude oil or natural gas pricing thresholds which would trigger a
payment thereunder; provided, however, the Borrower shall promptly notify the
Administrative Agent and the Lenders if there is an amendment, adjustment or
modification of such pricing thresholds.

                 (h) Termination Events. As soon as possible and in any event
(i) within 30 days after the Borrower or any member of the Controlled Group
knows or has reason to know that any Termination Event described in clause (a)
of the definition of Termination Event with respect to any Plan has occurred,
and (ii) within three Business Days after the Borrower or any member of the
Controlled Group knows or has reason to know that any other Termination Event
with respect to any Plan has occurred, a statement of a Responsible Officer of
the Borrower describing such Termination Event and the action, if any, which the
Borrower or such Controlled Group member proposes to take with respect thereto;

                 (i) Termination of Plans. Promptly and in any event within
three Business Days after receipt thereof by the Borrower or any member of the
Controlled Group from the PBGC, copies of each notice received by the Borrower
or any such member of the Controlled Group of the PBGC's intention to terminate
any Plan or to have a trustee appointed to administer any Plan;

                 (j) Other ERISA Notices. Promptly and in any event within three
Business Days after receipt thereof by the Borrower or any member of the
Controlled Group from a Multiemployer Plan sponsor, a copy of each notice
received by the Borrower or any member of the Controlled Group concerning the
imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA;

                 (k) Environmental Notices. Promptly upon the receipt thereof by
the Borrower or any of its Subsidiaries, a copy of any form of request, notice,
summons or citation received from the Environmental Protection Agency, or any
other Governmental Authority, concerning (i) violations or alleged violations of
Environmental Laws, which seeks to impose liability therefor, (ii) any action or
omission on the part of the Borrower or any Subsidiary or any former
Subsidiaries in connection with Hazardous Waste or Hazardous Substances that
could reasonably result in the imposition of liability therefor, including
without limitation any information request related to, or notice of, potential
responsibility under CERCLA, or (iii) concerning the filing of a Lien upon,
against or in connection with the Borrower or any Subsidiary, or any of their
leased or owned Property, wherever located;

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                 (l) Other Governmental Notices. Promptly and in any event
within three Business Days after receipt thereof by the Borrower or any
Subsidiary, a copy of any notice, summons, citation, or proceeding seeking to
modify in any material respect, revoke, or suspend any material contract,
license, permit or agreement with any Governmental Authority;

                 (m) Material Changes. Prompt written notice of any condition or
event of which the Borrower has knowledge, which condition or event has resulted
or may reasonably be expected to result in (i) a Material Adverse Change or (ii)
a breach of or noncompliance with any material term, condition, or covenant of
any material contract to which the Borrower or any of its Subsidiaries is a
party or by which they or their Properties may be bound;

                 (n) Disputes, Etc. Prompt written notice of (i) any claims,
legal or arbitration proceedings, proceedings before any Governmental Authority,
or disputes, or to the knowledge of the Borrower threatened, or affecting the
Borrower, or any of its Subsidiaries that could reasonably be expected to cause
a Material Adverse Change, or any material labor controversy of which the
Borrower or any of its Subsidiaries has knowledge resulting in or reasonably
considered to be likely to result in a strike against the Borrower or any of its
Subsidiaries and (ii) any claim, judgment, Lien or other encumbrance (other than
a Permitted Lien) affecting any Property of the Borrower or any Subsidiary if
the value of the claim, judgment, Lien, or other encumbrance affecting such
Property shall exceed $100,000;

                 (o) Other Accounting Reports. Promptly upon receipt thereof, a
copy of each other report or letter submitted to the Borrower or any Subsidiary
by independent accountants in connection with any annual, interim or special
audit made by them of the books of the Borrower and its Subsidiaries, and a copy
of any response by the Borrower or any Subsidiary of the Borrower, or the Board
of Directors of the Borrower or any Subsidiary of the Borrower, to such letter
or report;

                 (p) Notices Under Other Loan Agreements. Promptly after the
furnishing thereof, copies of any statement, report or notice furnished to any
Person pursuant to the terms of any indenture, loan or credit or other similar
agreement relating to Debt of the Borrower or its Subsidiaries in an aggregate
principal amount in excess of $100,000, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 5.06;

                 (q) SEC Filings. Promptly after the sending or filing thereof,
copies of all proxy material, reports and other information which the Borrower
or any of its Subsidiaries sends to or files with the SEC or sends to any
shareholder of the Borrower or of any of its Subsidiaries; and

                 (r) Other Information. Such other information respecting the
business or Properties, or the condition or operations, financial or otherwise,
of the Borrower or any of its Subsidiaries, as any Lender through the
Administrative Agent may from time to time reasonably request. The
Administrative Agent agrees to provide the Lenders with copies of any material
notices and information delivered solely to the Administrative Agent pursuant to
the terms of this Agreement.

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                 Section 5.07 Maintenance of Property. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain their owned, leased, or
operated Property in good condition and repair (normal wear and tear excepted)
and shall abstain, and cause each of its Subsidiaries to abstain from, knowingly
or willfully permitting the commission of waste or other injury, destruction, or
loss of natural resources, or the occurrence of pollution, contamination, or any
other condition in, on or about the owned, leased or operated Property involving
the Environment that could reasonably be expected to result in Response
activities and that could reasonably be expected to cause a Material Adverse
Change.

                 Section 5.08 Agreement to Pledge. The Borrower shall, and shall
cause each Subsidiary to, grant to the Administrative Agent an Acceptable
Security Interest in any Property of the Borrower or any Subsidiary now owned or
hereafter acquired promptly after receipt of a written request from the
Administrative Agent.

                 Section 5.09 Use of Proceeds. The Borrower shall use the
proceeds of the Advances and Letters of Credit for (a) the Refinancing, (b) the
payment of fees and expenses, including legal expenses, associated with the
closing of this Agreement, (c) the acquisition and development of Oil and Gas
Properties to the extent permitted herein, and (d) other working capital and
other general corporate purposes.

                 Section 5.10 Title Evidence. The Borrower shall from time to
time upon the reasonable request of the Administrative Agent, take such actions
and execute and deliver such documents and instruments as the Administrative
Agent shall require to ensure that the Administrative Agent shall, at all times,
have received satisfactory title information (including, if requested,
supplemental or new title opinions addressed to it), which title information (a)
shall collectively cover at least 85% of the present value of the Proven
Reserves of the Borrower and its Subsidiaries as determined by the
Administrative Agent, (b) shall be in form and substance acceptable to the
Administrative Agent in its sole discretion, and (c) may, if requested by the
Administrative Agent, include opinions regarding the before payout and after
payout ownership interests held by the Borrower and the Borrower's Subsidiaries
for all wells located on the Oil and Gas Properties covered thereby as to the
ownership of Oil and Gas Properties of the Borrower and its Subsidiaries.
Notwithstanding the generality of the foregoing, within 60 days after the date
hereof the Borrower shall provide copies of (or otherwise provide access to) all
participation agreements in effect as of the date hereof which may affect the
Borrower's title the Proven Reserves covered under Initial Independent
Engineering Report.

                 Section 5.11 Further Assurances; Cure of Title Defects. The
Borrower shall, and shall cause each Subsidiary to, cure promptly any defects in
the creation and issuance of the Notes and the execution and delivery of the
Security Instruments and this Agreement. The Borrower hereby authorizes the
Lenders or the Administrative Agent to file any financing statements without the
signature of the Borrower to the extent permitted by applicable law in order to
perfect or maintain the perfection of any security interest granted under any of
the Loan Documents. The Borrower at its expense will, and will cause each
Subsidiary to, promptly execute and deliver to the Administrative Agent upon its
reasonable request all such other documents, agreements and instruments to
comply with or accomplish the covenants and agreements of the Borrower or any
Subsidiary, as the case may be, in the Security Instruments and this Agreement,
or to further evidence and more fully describe the collateral intended as

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security for the Notes, or to correct any omissions in the Security Instruments,
or to state more fully the security obligations set out herein or in any of the
Security Instruments, or to perfect, protect or preserve any Liens created
pursuant to any of the Security Instruments, or to make any recordings, to file
any notices or obtain any consents, all as may be necessary or appropriate in
connection therewith or to enable the Administrative Agent to exercise and
enforce its rights and remedies with respect to any Collateral. Within 60 days
after (a) a request by the Administrative Agent or the Lenders to cure any title
defects or exceptions that are not Permitted Liens raised by such information or
(b) a notice by the Administrative Agent that the Borrower has failed to comply
with Section 5.10 above, the Borrower shall (i) cure such title defects or
exceptions that are not Permitted Liens or substitute acceptable Oil and Gas
Properties with no title defects or exceptions except for Permitted Liens
covering Collateral of an equivalent value and (ii) deliver to the
Administrative Agent satisfactory title evidence (including supplemental or new
title opinions meeting the foregoing requirements) in form and substance
acceptable to the Administrative Agent in its reasonable business judgment as to
the Borrower's and its Subsidiaries' ownership of such Oil and Gas Properties
and the Administrative Agent's Liens and security interests therein as are
required to maintain compliance with Section 5.10. In addition, the Borrower
shall cause the Administrative Agent to, at all times, have an Acceptable
Security Interest in all of the Borrower's and its Subsidiaries' Proven
Reserves.

                 Section 5.12 Material Agreements. The Borrower shall, and shall
cause each Subsidiary to, comply with all material terms, conditions, or
covenants of any material contract or agreement to which the Borrower or any of
its Subsidiaries is a party or by which they or their Properties may be bound.

                 Section 5.13 Leases; Development and Maintenance. The Borrower
will, and will cause its Subsidiaries to: (a) pay and discharge promptly, or
cause to be paid and discharged promptly, all rentals, delay rentals, royalties,
overriding royalties, payments out of production and other indebtedness or
obligations accruing under, and perform or cause to be performed each and every
act, matter or thing required by each and all of, the oil and gas leases and all
other agreements and contracts constituting or affecting the Oil and Gas
Properties of the Borrower and its Subsidiaries (except where the amount thereof
is being contested in good faith by appropriate proceedings), (b) do all other
things necessary to keep unimpaired its rights thereunder and prevent any
forfeiture thereof or default thereunder, and operate or cause to be operated
such Properties as a prudent operator would in accordance with industry standard
practices and in compliance with all applicable proration and conservation Legal
Requirements and any other Legal Requirements of every Governmental Authority,
whether state, federal, municipal or other jurisdiction, from time to time
constituted to regulate the development and operations of oil and gas properties
and the production and sale of oil, gas and other Hydrocarbons therefrom, and
(c) maintain (or cause to be maintained) the Leases, wells, units and acreage to
which the Oil and Gas Properties of the Borrower and its Subsidiaries pertain in
a prudent manner consistent with industry standard practices.

ARTICLE VI

NEGATIVE COVENANTS

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                 So long as any Note or any amount under any Loan Document shall
remain unpaid, any Letter of Credit shall remain outstanding, or any Lender
shall have any Commitment, the Borrower agrees, unless the Required Lenders
otherwise consent in writing, to comply with the following covenants.

                 Section 6.01 Liens, Etc. The Borrower shall not create, assume,
incur, or suffer to exist, or permit any of its Subsidiaries to create, assume,
incur, or suffer to exist, any Lien on or in respect of any of its Property
whether now owned or hereafter acquired, or assign any right to receive income,
except that the Borrower and its Subsidiaries may create, incur, assume, or
suffer to exist:

                 (a) Liens granted under a Loan Document and securing the
Obligations;

                 (b) purchase money Liens or purchase money security interests
upon or in any equipment acquired or held by the Borrower or any of its
Subsidiaries in the ordinary course of business prior to or at the time of the
Borrower's or such Subsidiary's acquisition of such equipment; provided that,
the Debt secured by such Liens (i) was incurred solely for the purpose of
financing the acquisition of such equipment, and does not exceed the aggregate
purchase price of such equipment, (ii) is secured only by such equipment and not
by any other Properties of the Borrower or its Subsidiaries, and (iii) is not
increased in amount;

                 (c) Liens securing Capital Leases which are permitted under
this Agreement; provided that the Debt secured by such Liens (i) is secured only
by the Property leased under such Capital Leases and not any other Properties of
the Borrower or any of its Subsidiaries and (ii) is not increased in amount;

                 (d) Liens for taxes, assessments, or other governmental charges
or levies not yet due or that (provided foreclosure, sale, or other similar
proceedings shall not have been initiated) are being contested in good faith by
appropriate proceedings, and such reserve as may be required by GAAP shall have
been made therefor;

                 (e) Liens in favor of vendors, carriers, warehousemen,
repairmen, mechanics, workmen, materialmen, construction, or similar Liens
arising by operation of law in the ordinary course of business in respect of
obligations that are not yet due or that are being contested in good faith by
appropriate proceedings, provided that such reserve as may be required by GAAP
shall have been made therefor;

                 (f) Liens to operators and non-operators under joint operating
agreements arising in the ordinary course of the business of the Borrower or the
relevant Subsidiary to secure amounts owing, which amounts are not yet due or
are being contested in good faith by appropriate proceedings, if such reserve as
may be required by GAAP shall have been made therefor;

                 (g) royalties, overriding royalties, net profits interests,
production payments, reversionary interests, calls on production, preferential
purchase rights and other burdens on or deductions from the proceeds of
production, that do not secure Debt for borrowed money and that are taken into
account in computing the net revenue interests and working interests of the
Borrower or any of its Subsidiaries warranted in the Security Instruments;

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                 (h) Liens arising in the ordinary course of business out of
pledges or deposits under workers' compensation laws, unemployment insurance,
old age pensions or other social security or retirement benefits, or similar
legislation or to secure public or statutory obligations of the Borrower;

                 (i) Liens arising under operating agreements, unitization and
pooling agreements and orders, farmout agreements, gas balancing agreements and
other agreements, in each case that are customary in the oil, gas and mineral
production business and that are entered into in the ordinary course of business
that are taken into account in computing the net revenue interests and working
interests of the Borrower or any of its Subsidiaries warranted in the Security
Instruments or herein, to the extent that any such Lien referred to in this
clause does not materially impair the use of the Property covered by such Lien
for the purposes for which such Property is held by the Borrower or any
Subsidiary or materially impair the value of such Property subject thereto;

                 (j) easements, rights-of-way, restrictions, and other similar
encumbrances, and minor defects in the chain of title that are customarily
accepted in the oil and gas financing industry, including in respect of surface
operations or for pipelines or power lines, none of which materially interfere
with the ordinary conduct of the business of Borrower or any Subsidiary or
materially detract from the value or use of the Property to which they apply;
(k) judgment liens in respect of judgments that do not constitute an Event of
Default under Section 7.01(f);

                 (l) rights reserved to or vested in any Governmental Authority
to control or regulate any Property of the Borrower or any of its Subsidiaries,
or to use such Property; provided that, such rights (a) could not reasonably be
expected to materially impair the use of such Property for the purpose for which
it is held by the Borrower or any such Subsidiary and (b) could not reasonably
be expected to materially diminish the value of such Property; and

                 (m) Liens arising in the ordinary course of business to secure
the Debt permitted under Section 6.02(f) below.

                 Section 6.02 Debts, Guaranties, and Other Obligations. The
Borrower shall not, and shall not permit any of its Subsidiaries to, create,
assume, suffer to exist, or in any manner become or be liable in respect of, any
Debt except:

                 (a) Debt of the Borrower and its Subsidiaries under the Loan
Documents;

                 (b) Permitted Subordinated Debt;

                 (c) Debt in the form of obligations for the deferred purchase
price of Oil and Gas Property acquired in the ordinary course of business which
(i) is not yet past due and payable or is being contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
have been established; (ii) is payable solely out of production revenues
generated from the purchased Oil and Gas Properties; (iii) is due if, and only
if, prices for crude oil or natural gas, as applicable, exceed certain
thresholds agreed to between the seller and the buyer; (iv) cannot be
accelerated or demanded for any reason unless and until such Debt

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becomes due as permitted in clause (iii) above; (v) does not accrue any
interest; and (vi) is not secured; provided that, the aggregate amount of Debt
incurred by the Borrower and its Subsidiaries as permitted under this paragraph
(c) shall not exceed $750 ,000;

                 (d) Debt secured by the Liens permitted under paragraphs (b) or
(c) of Section 6.01 in an aggregate amount not to exceed $500,000 at any time;

                 (e) Debt under Hedge Contracts that are not prohibited by the
terms of Section 6.14 provided that (i) such Debt shall not be secured, other
than such Debt owing to Swap Counerparties which are secured under the Loan
Documents, and (ii) such Debt shall not obligate the Borrower or any of its
Subsidiaries to any margin call requirements;

                 (f) Debt consisting of sureties or bonds provided to any
Governmental Authority or other Person and assuring payment of contingent
liabilities of the Borrower or any of its Subsidiaries in connection with the
operation of the Oil and Gas Properties, including with respect to plugging,
facility removal and abandonment of its Oil and Gas Properties;

                 (g) Debt of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary; provided that, such Debt is
fully subordinated to the Obligations on terms acceptable to the Administrative
Agent;

                 (h) Other unsecured Debt in an aggregate principal amount not
exceeding $250,000.

                 Section 6.03 Agreements Restricting Liens and Distributions.
The Borrower shall not, nor shall it permit any of its Subsidiaries to, create,
incur, assume or permit to exist any contract, agreement or understanding (other
than this Agreement and the Security Instruments) that in any way prohibits or
restricts the granting, conveying, creation or imposition of any Lien on any of
its Property, whether now owned or hereafter acquired, to secure the Obligations
or restricts any Subsidiary from paying dividends to the Borrower, or that
requires the consent of or notice to other Persons in connection therewith;
provided, that the foregoing shall not apply to (i) restrictions and conditions
imposed by Legal Requirements or (ii) customary restrictions or conditions
imposed by any agreement relating to other secured Debt permitted by this
Agreement if such restrictions or conditions apply only to the Property securing
such Debt.

                 Section 6.04 Merger or Consolidation; Asset Sales.

                 (a) The Borrower shall not, nor shall it permit any of its
Subsidiaries to merge or consolidate with or into any other Person without the
prior consent of all of the Lenders other than the merger of a Subsidiary into
the Borrower or another Subsidiary (except that, with respect to any such merger
or consolidation involving the Borrower, the Borrower must be the surviving
entity); provided that at the time thereof and immediately after giving effect
thereto no Default shall have occurred and the Administrative Agent shall
continue to have an Acceptable Security Interest in the Collateral.

                 (b) The Borrower shall not, nor shall it permit any of its
Subsidiaries to make a Disposition without the prior consent of all of the
Lenders other than:

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                                  (i) the sale of Hydrocarbons or Liquid
Investments in the ordinary course of business;

                                  (ii) the Disposition of equipment that is (A)
obsolete, worn out, depleted or uneconomic and disposed of in the ordinary
course of business, (B) no longer necessary for the business of such Person, or
(C) contemporaneously replaced by equipment of at least comparable value and
use;

                                  (iii) the Disposition of Property to the
Borrower or a Subsidiary of the Borrower; provided that at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be
continuing and the Administrative Agent shall continue to have an Acceptable
Security Interest in the Collateral; and

                                  (iv) the Disposition of Property which does
not constitute Proven Reserves and which does not constitute Collateral.

                 Section 6.05 Restricted Payments. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, make any Restricted Payments, except
that if no Default or Event of Default has occurred both before and after giving
effect to the making of such Restricted Payment, (a) the Subsidiaries may make
Restricted Payments to the Borrower, and (b) the Borrower may make payments of
interest on Permitted Subordinated Debt which is permitted pursuant to the
Permitted Subordination Agreements.

                 Section 6.06 Investments. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, make or permit to exist any loans, advances,
or capital contributions to, or make any investment in (including, without
limitation, the making of any Acquisition), or purchase or commit to purchase
any stock or other securities or evidences of indebtedness of or interests in
any Person or purchase any Oil and Gas Properties except:

                 (a) Liquid Investments;

                 (b) trade and customer accounts receivable which are for goods
furnished or services rendered in the ordinary course of business and are
payable in accordance with customary trade terms;

                 (c) loans, advances, or investments between or among the
Borrower and any Subsidiaries that are Guarantors;

                 (d) creation of any additional Subsidiaries in compliance with
Section 6.16; and

                 (e) acquisition of Oil and Gas Properties (directly rather than
an acquisition of Equity Interests in a Person that owns Oil and Gas
Properties); provided that no Default exists before and after giving effect to
such acquisition.

                 Section 6.07 Affiliate Transactions. The Borrower shall not,
nor shall it permit any of its Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of transactions (including,
but not limited to, the purchase, sale, lease or exchange of Property, the
making of any investment, the giving of any guaranty, the assumption of any
obligation or the

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rendering of any service) with any of their Affiliates (other than transactions
among the Borrower and its Subsidiaries that are Guarantors) unless such
transaction or series of transactions is on terms no less favorable to the
Borrower or the Subsidiary, as applicable, than those that could be obtained in
a comparable arm's length transaction with a Person that is not such an
Affiliate.

                 Section 6.08 Compliance with ERISA. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, directly or indirectly, (a) engage
in, or permit any Subsidiary to engage in, any transaction in connection with
which the Borrower or any Controlled Group member could be subjected to either a
civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax
imposed by Chapter 43 of Subtitle D of the Code; (b) terminate, or permit any
Subsidiary to terminate, any Plan in a manner, or take any other action with
respect to any Plan, which could result in any liability to the Borrower or any
Controlled Group member to the PBGC; (c) fail to make, or permit any Subsidiary
to fail to make, full payment when due of all amounts which, under the
provisions of any Plan, agreement relating thereto or applicable law, the
Borrower or any Controlled Group member is required to pay as contributions
thereto; (d) permit to exist, or allow any Subsidiary to permit to exist, any
accumulated funding deficiency (or unpaid minimum required contribution for plan
years after December 31, 2007) within the meaning of Section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan; (e)
permit, or allow any Subsidiary to permit, the actuarial present value of the
benefit liabilities (as "actuarial present value of the benefit liabilities"
shall have the meaning specified in section 4041 of ERISA) under any Plan
maintained by the Borrower or any Controlled Group member which is regulated
under Title IV of ERISA to exceed the current value of the assets (computed on a
plan termination basis in accordance with Title IV of ERISA) of such Plan
allocable to such benefit liabilities; (f) assume an obligation to contribute
to, or permit any Subsidiary to assume an obligation to contribute to, any
Multiemployer Plan; (g) acquire, or permit any Subsidiary to acquire, an 80% or
greater interest in any Person if such Person sponsors, maintains or contributes
to, or at any time in the six-year period preceding such acquisition has
sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any
other Plan that is subject to Title IV of ERISA, and in either case, the
actuarial present value of the benefit liabilities under such Plan exceeds the
current value of the assets (computed on a plan termination basis in accordance
with Title IV of ERISA) of such Plan allocable to such benefit liabilities, and
the withdrawal liability, if assessed, could reasonably be expected to exceed
$1,000,000; (h) incur, or permit any Subsidiary to incur, a liability to or on
account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;
(i) assume an obligation to contribute to, or permit any Subsidiary to assume an
obligation to contribute to, any employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained
to provide benefits to former employees of such entities, that may not be
terminated by such entities in their sole discretion without any material
liability; (j) amend or permit any Subsidiary to amend, a Plan resulting in an
increase in current liability such that the Borrower or any Controlled Group
member is required to provide security to such Plan under section 401(a)(29) of
the Code; or (k) permit to exist any occurrence of any Reportable Event (as
defined in Title IV of ERISA), or any other event or condition, which presents a
material (in the opinion of the Required Lenders) risk of such a termination by
the PBGC of any Plan.

                 Section 6.09 Sale-and-Leaseback. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, sell or transfer to a Person any
Property, whether now owned or hereafter

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acquired, if at the time or thereafter the Borrower or a Subsidiary shall lease
as lessee such Property or any part thereof or other Property that the Borrower
or a Subsidiary intends to use for substantially the same purpose as the
Property sold or transferred, except for the sale-and-leaseback of furniture,
fixtures, and equipment not to exceed $250,000.

                 Section 6.10 Change of Business. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, make any material change in the
character of its business as an independent oil and gas exploration and
production company, nor will the Borrower or any Subsidiary operate or carry on
business in any jurisdiction other than the United States, including the Gulf of
Mexico.

                 Section 6.11 Organizational Documents, Name Change. The
Borrower shall not, nor shall it permit any of its Subsidiaries to, amend,
supplement, modify or restate their articles or certificate of incorporation or
formation, limited partnership agreement, bylaws, limited liability company
agreements, or other equivalent organizational documents, or amend its name or
change its jurisdiction of incorporation, organization or formation without
prior written notice to, and prior consent of, the Administrative Agent.

                 Section 6.12 Use of Proceeds; Letters of Credit. The Borrower
will not permit the proceeds of any Advance or Letters of Credit to be used for
any purpose other than those permitted by Section 5.09. The Borrower will not
engage in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U). Neither the Borrower
nor any Person acting on behalf of the Borrower has taken or shall take, nor
permit any of the Borrower's Subsidiaries to take any action which might cause
any of the Loan Documents to violate Regulation T, U or X or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
Section 7 of the Exchange Act, in each case as now in effect or as the same may
hereinafter be in effect, including without limitation, the use of the proceeds
of any Advance or Letters of Credit to purchase or carry any margin stock in
violation of Regulation T, U or X.

                 Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments.
The Borrower shall not, nor shall it permit any of its Subsidiaries to, allow
gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas
Properties of the Borrower or any Subsidiary that would require the Borrower or
any Subsidiary to deliver their respective Hydrocarbons produced on a monthly
basis from such Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefore other than that which do not result
in the Borrower or any Subsidiary having net aggregate liability in excess of
$500,000.

                 Section 6.14 Limitation on Hedging.

                 (a) Speculative Purposes. The Borrower shall not, nor shall it
permit any of its Subsidiaries to purchase, assume, or hold a speculative
position in any commodities market or futures market or enter into any Hedge
Contract for speculative purposes.

                 (b) Risk Management; Term. The Borrower shall not, nor shall it
permit any of its Subsidiaries to be party to or otherwise enter into any Hedge
Contract that (i) is entered into for reasons other than as a part of its normal
business operations as a risk management strategy

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and/or hedge against changes resulting from market conditions related to the
Borrower's operations or (ii) is longer than five years in duration.

                 (c) Additional Limitations on Hedging. The Borrower shall not,
nor shall it permit any of its Subsidiaries to, be party to or enter into any
Hedge Contract; provided that, the Borrower and its Subsidiaries may be party to
and enter into Hedge Contract covering PDP Reserves subject to the following
limitations:

                                  (A) other than as provided in the immediately
following clause (B), before and after giving effect to such Hedge Contract no
more than 75% of the anticipated production of gas volumes and no more than 75%
of the anticipated production of oil volumes, in either case, attributable to
the Borrower's and its Subsidiaries' PDP Reserves (as reflect in the most
recently delivered Engineering Report under Section 2.02(b)(i) or Section
2.02(b)(ii)) may be covered by Hedge Contracts;

                                  (B) the volume limitations in clause (A) shall
not apply to put option contracts that are not related to corresponding calls,
collars or swaps; and

                                  (C) such Hedge Contracts shall otherwise
comply with the terms of this Agreement.

                 Section 6.15 Maintain Hedge Contracts. The Borrower shall not,
nor shall it permit any of its Subsidiaries to, unwind or otherwise terminate
any Hedge Contract in effect as of the date of this Agreement unless such
existing Hedge Contracts are replaced with Hedge Contracts with terms
satisfactory to the Administrative Agent.

                 Section 6.16 Additional Subsidiaries. The Borrower shall not,
nor shall it permit any of its Subsidiaries to, create or acquire any additional
Subsidiaries without (a) prior written notice to the Administrative Agent, (b)
such new Subsidiary executing and delivering to the Administrative Agent, at its
request, a Guaranty, a Pledge Agreement, a Security Agreement, and a Mortgage,
and such other Security Instruments as the Administrative Agent or the Required
Lenders may reasonably request, (c) the equity holder of such Subsidiary
executing and delivering to the Administrative Agent a Pledge Agreement pledging
100% of the Equity Interest of such Subsidiary along with the certificates
pledged thereby, if any, and appropriately executed powers in blank, if
applicable, (d) the delivery by the Borrower and each Subsidiary of any
certificates, opinions of counsel, title opinions, or other documents as the
Administrative Agent may reasonably request relating to such Subsidiary, and (e)
the Borrower and its Subsidiaries owning 100% of the Equity Interests of such
Subsidiary.

                 Section 6.17 Working Capital. The Borrower shall not permit its
consolidated current assets minus its consolidated current liabilities to be
less than $1,500,000, as of the last day of each fiscal quarter of the Borrower,
commencing with fiscal quarter ending December 31, 2008. For purposes of this
calculation (i) "current assets" shall include, as of the date of calculation,
the Unused Commitment Amount but shall exclude (A) any cash deposited with or at
the request of a counterparty to any Hedge Contract and (B) any asset
representing a valuation account arising from the application of SFAS 133 or
143, and (ii) "current liabilities" shall exclude, as of the

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date of calculation, the current portion of long-term Debt existing under this
Agreement and any liabilities representing a valuation account arising from the
application of SFAS 133 and 143.

                 Section 6.18 Leverage Ratio. The Borrower shall not permit, as
of the end of each fiscal quarter commencing with fiscal quarter ending December
31, 2008, the ratio of (a) all Funded Debt of the Borrower and its Subsidiaries
as of such fiscal quarter end to (b) the consolidated EBITDA of the Borrower and
its Subsidiaries for the four-fiscal quarter period then ended, to be greater
than 3.50 to 1.00; provided that, in calculating such ratio (i) for the fiscal
quarter ending December 31, 2008, EBITDA shall be measured by multiplying EBITDA
for the fiscal quarter then ended by four; (ii) for the fiscal quarter ending
March 31, 2009, EBITDA shall be measured by multiplying EBITDA for the two
fiscal quarters then ended by two; (iii) for the fiscal quarter ending June 30,
2009, EBITDA shall be measured by multiplying EBITDA for the three fiscal
quarters then ended by 4/3; and (iv) for each fiscal quarter ending on or after
September 30, 2009, EBITDA shall be EBITDA for the four-fiscal quarter period
then ended.

                 Section 6.19 Interest Coverage Ratio. The Borrower shall not
permit, as of the end of each fiscal quarter, commencing with fiscal quarter
ending December 31, 2008, the ratio of (a) the consolidated EBITDA of the
Borrower and its Subsidiaries for the four-fiscal quarter period then ended to
(b) the consolidated Interest Expense of the Borrower and its Subsidiaries for
the four-fiscal quarter period then ended, to be less than 3.00 to 1.00;
provided that, in calculating such ratio (i) for the fiscal quarter ending
December 31, 2008, EBITDA shall be measured by multiplying EBITDA for the fiscal
quarter period then ended by four and Interest Expense shall be measured by
multiplying Interest Expense for the fiscal quarter period then ended by four;
(ii) for the fiscal quarter ending March 31, 2009, EBITDA shall be measured by
multiplying EBITDA for the two fiscal quarters then ended by two and Interest
Expense shall be measured by multiplying Interest Expense for the two fiscal
quarter period then ended by two; (iii) for the fiscal quarter ending June 30,
2009, EBITDA shall be measured by multiplying EBITDA for the three fiscal
quarters then ended by 4/3 and Interest Expense shall be measured by multiplying
Interest Expense for the three fiscal quarter period then ended by 4/3; and (iv)
for each fiscal quarter ending on or after September 30, 2009, EBITDA shall be
EBITDA for the four-fiscal quarter period then ended and Interest Expense shall
Interest Expense for the four fiscal quarter.

                 Section 6.20 Account Payables. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, allow (a) any of its trade payables
or other accounts payable to be outstanding for more than 90 days (except in
cases where any such trade payable is being disputed in good faith and adequate
reserves under GAAP have been established) or (b) the weighted average maturity
of all such trade payables to exceed 75 days.

                 Section 6.21 Capital Expenditures. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, allow the aggregate amount of
Capital Expenditures made in any fiscal year to exceed $14,000,000.

                 Section 6.22 Subordinated Debt. Except as otherwise permitted
by the terms of the Permitted Subordination Agreements, none of the Borrower or
any of its Subsidiaries shall (b) make any optional, mandatory or scheduled
payments on account of principal (whether by redemption, purchase, retirement,
defeasance, set-off or otherwise), interest, premiums and fees

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in respect of the Permitted Subordinated Debt, or (b) amend, supplement or
otherwise modify the terms of the Permitted Subordinated Debt.

                 Section 6.23 Operating Leases. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any obligations as lessee (other than pursuant to sale-and-leaseback
transactions which the parties hereto acknowledge are covered under Section
6.09) for the rental or hire of real or personal property of any kind under
leases or agreements to rent or lease (other than Leases) having an original
term of one year or more that would cause the direct and contingent liabilities
of Borrower and its Subsidiaries, on a consolidated basis, in respect of all
such obligations to exceed $250,000 payable in any period of 12 consecutive
months.

ARTICLE VII

EVENTS OF DEFAULT; REMEDIES

                 Section 7.01 Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default" under any Loan Document:

                 (a) Payment. The Borrower (i) shall fail to pay when due any
principal under the Notes or any other Loan Document or (ii) shall fail to pay
any interest, fees, reimbursements, indemnifications, or other amounts due and
payable hereunder, under the Notes, or under any other Loan Document and such
failure shall continue for a period of three Business Days after the due date
therefor;

                 (b) Representation and Warranties. Any representation or
warranty made or deemed to be made (i) by the Borrower or any of its
Subsidiaries or any other Guarantor (or any of their respective officers) in
this Agreement or in any other Loan Document or (ii) by the Borrower or any of
its Subsidiaries (or any of their respective officers) in connection with this
Agreement or any other Loan Document shall prove to have been incorrect in any
material respect when made or deemed to be made; provided that, for the
avoidance of doubt, as to any representation and warranty that is qualified as
to "materiality", "Material Adverse Effect" or similar language, such
representation or warranty shall prove to be have been incorrect (after giving
effect to any qualification therein) in all respects when made or deemed to be
made;

                 (c) Covenant Breaches. The Borrower or any of its Subsidiaries
or any other Guarantor shall (i) fail to perform or observe any term or covenant
set forth in Section 2.05(b), Section 5.03 (with respect to the existence of the
Borrower or any Subsidiary), or Article VI of this Agreement or (ii) fail to
perform or observe any other term or covenant set forth in this Agreement or in
any other Loan Document that is not covered by clause (i) above or any other
provision of this Section 7.01 and such failure shall remain unremedied for a
period of thirty days after the occurrence of such breach or failure (such grace
period to be applicable only in the event such Default can be remedied by
corrective action of the Borrower or any of its Subsidiaries);

                 (d) Cross-Defaults. (i) The Borrower and or any of its
Subsidiaries shall fail to pay any principal of or premium or interest on its
Debt that is outstanding in a principal amount of at

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least $1,000,000 individually or when aggregated with all such Debt of the
Borrower or any of its Subsidiaries so in default (but excluding Debt evidenced
by the Notes) when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt; (ii) any other event shall
occur or condition shall exist under any agreement or instrument relating to
Debt (including, without limitation, any event of default or termination event
under any Hedge Contract) that is outstanding in a principal amount (or
termination payment amount or similar amount) of at least $1,000,000
individually or when aggregated with all such Debt of the Borrower or such
Subsidiary so in default, and shall continue after the applicable grace period,
if any, specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or (iii) any such Debt in a principal amount of at least $1,000,000
individually or when aggregated with all such Debt of the Borrower or such
Subsidiary shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; provided that for purposes of this paragraph (d), the
"principal amount" of the obligations in respect of Hedge Contracts at any time
shall be the Swap Termination Value thereof.

                 (e) Insolvency. (i) The Borrower or any of its Subsidiaries or
any other Guarantor shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; (ii) any proceeding
shall be instituted by or against the Borrower or any of its Subsidiaries
seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee or other similar official for
it or for any substantial part of its Property and, in the case of any such
proceeding instituted against the Borrower or any such Subsidiary either such
proceeding shall remain undismissed or unstayed for a period of 30 days or any
of the actions sought in such proceeding shall occur; or (iii) the Borrower or
any of its Subsidiaries, shall take any corporate action to authorize any of the
actions set forth above in this paragraph (e);

                 (f) Judgments. Any judgment or order for the payment of money
in excess of $1,000,000 shall be rendered against the Borrower or any of its
Subsidiaries and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;

                 (g) Termination Events. Any Termination Event with respect to a
Plan shall have occurred, and, 30 days after notice thereof shall have been
given to the Borrower by the Administrative Agent, (i) such Termination Event
shall not have been corrected and (ii) the then present value of such Plan's
vested benefits exceeds the then current value of assets accumulated in such
Plan by more than the amount of $1,000,000 (or in the case of a Termination
Event involving the withdrawal of a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA), the withdrawing employer's proportionate share of
such excess shall exceed such amount);

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                 (h) Plan Withdrawals. The Borrower or any member of the
Controlled Group as employer under a Multiemployer Plan shall have made a
complete or partial withdrawal from such Multiemployer Plan and the plan sponsor
of such Multiemployer Plan shall have notified such withdrawing employer that
such employer has incurred a withdrawal liability in an annual amount exceeding
$1,000,000;

                 (i) Change in Control. The Borrower shall have discontinued its
usual business or a Change in Control shall have occurred;

                 (j) Borrowing Base. Any failure to cure any Borrowing Base
deficiency in accordance with Section 2.05;

                 (k) Loan Documents. Any provision of any Loan Document shall
for any reason cease to be valid and binding on the Borrower or any of its
Subsidiaries or any such Person shall so state in writing;

                 (l) Security Instruments. (i) The Administrative Agent shall
fail to have an Acceptable Security Interest in any portion of the Collateral or
(ii) any Security Instrument shall at any time and for any reason cease to
create the Lien on the Property purported to be subject to such agreement in
accordance with the terms of such agreement, or cease to be in full force and
effect, or shall be contested by the Borrower or any of its Subsidiaries except
as a result of the sale or other disposition of the applicable Collateral
permitted under the Loan Documents;

                 (m) Potential Failure of Title. The title of the Borrower or
any of its Subsidiaries to any of the Oil and Gas Properties subject to the
Mortgages, or any material part thereof, shall become the subject matter of
litigation before any Governmental Authority or arbitrator that could reasonably
be expected to result in a Material Adverse Change with respect to the
Borrower's or such Subsidiary's title to such Oil and Gas Properties;

                 (n) Material Adverse Change. An event resulting in a Material
Adverse Change shall have occurred;

                 (o) Casualty. Loss, theft, substantial damage, or destruction
of a material portion of the Collateral the subject of any Security Instrument
not fully covered by insurance (except for deductibles and allowing for the
depreciated value of such Collateral) shall have occurred; or

                 p) Subordination Agreements. The subordination provisions of
the Permitted Subordination Agreements shall be invalidated or otherwise cease
to be in full force and effect or any holder of the Permitted Subordinated Debt
(or any representative, agent or trustee on behalf of such holders) shall so
assert to the Administrative Agent in writing or shall assert so in a claim,
litigation, investigation or proceeding before or with any Governmental
Authority or any holder of the Permitted Subordinated Debt is in breach of the
terms of the Permitted Subordination Agreements.

                 Section 7.02 Optional Acceleration of Maturity. If any Event of
Default (other than an Event of Default pursuant to paragraph (e) of Section
7.01) shall have occurred and be continuing, then, and in any such event,

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                 (a) the Administrative Agent (i) shall at the request, or may
with the consent, of the Required Lenders, by notice to the Borrower, declare
the obligation of each Lender and the Issuing Lender to make extensions of
credit hereunder, including making Advances and issuing, increasing, or
extending Letters of Credit, to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the Required Lenders, by notice to the Borrower, declare all principal,
interest, fees, reimbursements, indemnifications, and all other amounts payable
under this Agreement, the Notes, and the other Loan Documents to be forthwith
due and payable, whereupon all such amounts shall become and be forthwith due
and payable in full, without notice of intent to demand, demand, presentment for
payment, notice of nonpayment, protest, notice of protest, grace, notice of
dishonor, notice of intent to accelerate, notice of acceleration, and all other
notices, all of which are hereby expressly waived by the Borrower;

                 (b) the Borrower shall, on demand of the Administrative Agent
at the request or with the consent of the Required Lenders, deposit with the
Administrative Agent into the Cash Collateral Account an amount of cash equal to
the Letter of Credit Exposure as security for the Obligations; and

                 (c) the Administrative Agent shall at the request of, or may
with the consent of, the Required Lenders proceed to enforce its rights and
remedies under the Security Instruments, the Guaranties, and any other Loan
Document for the ratable benefit of itself, the Issuing Lender and the Lenders
by appropriate proceedings.

                 Section 7.03 Automatic Acceleration of Maturity. If any Event
of Default pursuant to paragraph (e) of Section 7.01 shall occur,

                 (a) (i) the obligation of each Lender and the Issuing Lender to
make extensions of credit hereunder, including making Advances and issuing,
increasing, or extending Letters of Credit, shall terminate, and (ii) all
principal, interest, fees, reimbursements, indemnifications, and all other
amounts payable under this Agreement, the Notes, and the other Loan Documents
shall become and be forthwith due and payable in full, without notice of intent
to demand, demand, presentment for payment, notice of nonpayment, protest,
notice of protest, grace, notice of dishonor, notice of intent to accelerate,
notice of acceleration, and all other notices, all of which are hereby expressly
waived by the Borrower;

                 (b) the Borrower shall deposit with the Administrative Agent
into the Cash Collateral Account an amount of cash equal to the outstanding
Letter of Credit Exposure as security for the Obligations; and

                 (c) the Administrative Agent shall at the request of, or may
with the consent of, the Required Lenders proceed to enforce its rights and
remedies under the Security Instruments, the Guaranties, and any other Loan
Document for the ratable benefit of itself, the Issuing Lender and the Lenders
by appropriate proceedings.

                 Section 7.04 Right of Set-off. Upon the occurrence and during
the continuance of any Event of Default, the Administrative Agent, the Issuing
Lender, and each Lender is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and

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apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the
Administrative Agent, the Issuing Lender, or such Lender to or for the credit or
the account of the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under this Agreement, the Notes held by the
Administrative Agent, the Issuing Lender, or such Lender, and the other Loan
Documents, irrespective of whether or not the Administrative Agent, the Issuing
Lender, or such Lender shall have made any demand under this Agreement, such
Notes, or such other Loan Documents, and although such obligations may be
unmatured. The Administrative Agent, the Issuing Lender, and each Lender agrees
to promptly notify the Borrower after any such set-off and application made by
the Administrative Agent, the Issuing Lender, or such Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent, the Issuing Lender, and
each Lender under this Section 7.04 are in addition to any other rights and
remedies (including, without limitation, other rights of set-off) which the
Administrative Agent, the Issuing Lender, or such Lender may have.

                 Section 7.05 Non-exclusivity of Remedies. No remedy conferred
upon the Administrative Agent, the Issuing Lender, and the Lenders is intended
to be exclusive of any other remedy, and each remedy shall be cumulative of all
other remedies existing by contract, at law, in equity, by statute or otherwise.

                 Section 7.06 Application of Proceeds. From and during the
continuance of any Event of Default, any monies or Property actually received by
the Administrative Agent pursuant to this Agreement or any other Loan Document,
the exercise of any rights or remedies under any Security Instrument, or any
other agreement with the Borrower or any of its Subsidiaries that secures any of
the Obligations, shall be applied in the following order:

                 (a) First, to the payment of all amounts, including without
limitation costs and expenses incurred in connection with the collection of such
proceeds and the payment of any part of the Obligations, due to the
Administrative Agent under any of the expense reimbursement or indemnity
provisions of this Agreement or any other Loan Document, any Security
Instrument, or other collateral documents, and any applicable law;

                 (b) Second, ratably, according to the then unpaid amounts
thereof, without preference or priority of any kind among them, to the payment
of the Obligations then due and payable, including Obligations with respect to
Letters of Credit and any Obligations of the Borrower or its Subsidiaries owing
to any Swap Counterparty under any Hedge Contract; and

                 (c) Third, the remainder, if any, to the Borrower, its
Subsidiaries, their respective successors or assigns, or such other Person as
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.

ARTICLE VIII

THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

                 Section 8.01 Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers

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under this Agreement as are delegated to the Administrative Agent by the terms
hereof and of the other Loan Documents, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or any other Loan Document (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action that exposes the Administrative Agent to personal liability or that
is contrary to this Agreement, any other Loan Document, or applicable law.

                 Section 8.02 Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents, or employees
shall be liable for any action taken or omitted to be taken (INCLUDING THE
ADMINISTRATIVE AGENT'S OWN NEGLIGENCE) by it or them under or in connection with
this Agreement or the other Loan Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (a) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
the Administrative Agent; (b) may consult with legal counsel (including counsel
for the Borrower), independent public accountants, and other experts selected by
it and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, or
experts; (c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties, or representations
made in or in connection with this Agreement or the other Loan Documents; (d)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement or any
other Loan Document on the part of the Borrower or its Subsidiaries or to
inspect the Property (including the books and records) of the Borrower or its
Subsidiaries; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency, or value of this
Agreement or any other Loan Document; and (f) shall incur no liability under or
in respect of this Agreement or any other Loan Document by acting upon any
notice, consent, certificate, or other instrument or writing (which may be by
telecopier) believed by it to be genuine and signed or sent by the proper party
or parties.

                 Section 8.03 The Administrative Agent and Its Affiliates. With
respect to its Commitment, the Advances made by it, and the Notes issued to it,
the Administrative Agent shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the Administrative Agent. The term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include the Administrative Agent in its individual
capacity. The Administrative Agent and its Affiliates may accept deposits from,
lend money to, act as trustee under indentures of, and generally engage in any
kind of business with, the Borrower or any of its Subsidiaries, and any Person
who may do business with or own securities of the Borrower or any such
Subsidiary, all as if the Administrative Agent were not an agent hereunder and
without any duty to account therefor to the Lenders.

                 Section 8.04 Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Administrative Agent or
any other Lender and

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based on the Interim Financial Statements and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
shall, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.

                 Section 8.05 Indemnification. THE LENDERS SEVERALLY AGREE TO
INDEMNIFY THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER AND EACH AFFILIATE
THEREOF AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS (TO THE
EXTENT NOT REIMBURSED BY THE BORROWER), ACCORDING TO THEIR RESPECTIVE PRO RATA
SHARES FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER IN ANY WAY RELATING TO
OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY THE
ADMINISTRATIVE AGENT OR THE ISSUING LENDER UNDER THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT (INCLUDING THE ADMINISTRATIVE AGENT'S AND THE ISSUING LENDER'S OWN
NEGLIGENCE), AND INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL CLAIMS AND ANY
LIABILITIES ARISING UNDER ENVIRONMENTAL LAW, PROVIDED THAT NO LENDER SHALL BE
LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS
RESULTING FROM THE ADMINISTRATIVE AGENT'S OR THE ISSUING LENDER'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, EACH
LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER
PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES
(INCLUDING COUNSEL FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN CONNECTION WITH
THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT,
OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE)
OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, TO THE EXTENT THAT THE ADMINISTRATIVE
AGENT OR THE ISSUING LENDER IS NOT REIMBURSED FOR SUCH BY THE BORROWER. To the
extent that the indemnity obligations provided in this Section 8.05 are for the
benefit of the Administrative Agent as the named secured party under the Liens
granted under the Security Instruments, each Lender hereby agrees that if such
Lender ceases to be a Lender hereunder but Obligations owing to such Lender or
an Affiliate of such Lender continue to be secured by such Liens, then such
Lender shall continue to be bound by the provisions of this Section 8.05 until
such time as such Obligations have been satisfied or terminated in full and
subject to the terms of the last sentence of Section 909. In such event, in
determining the pro rata shares under this Section 8.05, the Lenders shall
include the aggregate amount (giving effect to any netting agreements) that
would be owing to such Swap Counterparty if such Hedge Contracts were terminated
at the time of determination.

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                 Section 8.06 Successor Administrative Agent and Issuing Lender.
The Administrative Agent or the Issuing Lender may resign at any time by giving
not less than 30 days prior written notice thereof to the Lenders and the
Borrower and may be removed at any time with or without cause by the Required
Lenders upon receipt of written notice from the Required Lenders to such effect.
Upon receipt of notice of any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Administrative Agent or Issuing
Lender with, if any Event of Default has not occurred and is not continuing, the
consent of the Borrower, which consent shall not be unreasonably withheld. If no
successor Administrative Agent or Issuing Lender shall have been so appointed by
the Required Lenders with the consent of the Borrower, and shall have accepted
such appointment, within 30 days after the retiring Administrative Agent's or
Issuing Lender's giving of notice of resignation or the Required Lenders'
removal of the retiring Administrative Agent or Issuing Lender, then the
retiring Administrative Agent or Issuing Lender may, on behalf of the Lenders
and the Borrower, appoint a successor Administrative Agent or Issuing Lender,
which shall be, in the case of a successor agent, a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000 and, in the case
of the Issuing Lender, a Lender; provided that, if the Administrative Agent or
Issuing Lender shall notify the Borrower and the Lenders that no qualifying
Person has accepted such appointment, then such resignation shall nonetheless
become effective in accordance with such notice and (1) the retiring
Administrative Agent or Issuing Lender shall be discharged from its duties and
obligations hereunder and under the other Loan Documents (except that (A) in the
case of any collateral security held by the Administrative Agent on behalf of
the Lenders or the Issuing Lender under any of the Loan Documents, the retiring
Administrative Agent shall continue to hold such collateral security until such
time as a successor Administrative Agent is appointed and (B) the retiring
Issuing Lender shall remain the Issuing Lender with respect to any Letters of
Credit outstanding on the effective date of its resignation or removal and the
provisions affecting the Issuing Lender with respect to such Letters of Credit
shall inure to the benefit of the retiring Issuing Lender until the termination
of all such Letters of Credit) and (2) all payments, communications and
determinations provided to be made by, to or through the retiring Administrative
Agent shall instead be made by or to each Lender and the Issuing Lender
directly, until such time as the Required Lenders appoint a successor
Administrative Agent or Issuing Lender, as applicable, as provided for above in
this paragraph. Upon the acceptance of any appointment as Administrative Agent
or Issuing Lender by a successor Administrative Agent or Issuing Lender, such
successor Administrative Agent or Issuing Lender shall thereupon succeed to and
become vested with all the rights, powers, privileges, and duties of the
retiring Administrative Agent or Issuing Lender, and the retiring Administrative
Agent or Issuing Lender shall be discharged from its duties and obligations
under this Agreement and the other Loan Documents, except that the retiring
Issuing Lender shall remain the Issuing Lender with respect to any Letters of
Credit outstanding on the effective date of its resignation or removal and the
provisions affecting the Issuing Lender with respect to such Letters of Credit
shall inure to the benefit of the retiring Issuing Lender until the termination
of all such Letters of Credit. After any retiring Administrative Agent's or
Issuing Lender's resignation or removal hereunder as Administrative Agent or
Issuing Lender, the provisions of this Article VIII shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Administrative
Agent or Issuing Lender under this Agreement and the other Loan Documents.

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                 Section 8.07 Additional Agents. None of the agents (other than
the Administrative Agent) or arrangers referred to on the cover of this
Agreement shall have any duties, obligations or liabilities in their respective
capacities as agents or arrangers.

                 Section 8.08 Collateral Matters.

                 (a) Administrative Agent is authorized on behalf of the Secured
Parties, without the necessity of any notice to or further consent from the
Secured Parties, from time to time, to take any actions with respect to any
Collateral or Security Instruments which may be necessary to perfect and
maintain Acceptable Security Interests in and Liens upon the Collateral granted
pursuant to the Security Instruments. Administrative Agent is further authorized
on behalf of the Secured Parties, without the necessity of any notice to or
further consent from the Secured Parties, from time to time, to take any action
(other than enforcement actions requiring the consent of, or request by, the
Required Lenders as set forth in Section 7.02 or Section 7.03 above) in exigent
circumstances as may be reasonably necessary to preserve any rights or
privileges of the Secured Parties under the Loan Documents or applicable law. By
accepting the benefit of the Liens granted pursuant to the Security Instruments,
each Secured Party not party hereto hereby agrees to the terms of this paragraph
(a).

                 (b) Each Secured Party irrevocably authorizes Administrative
Agent to release any Lien granted to or held by the Administrative Agent upon
any Collateral: (i) upon termination of the Commitments, termination or
expiration of all Letters of Credit (other than Letters of Credit as to which
other arrangements satisfactory to the Administrative Agent and the Issuing
Lender have been made), termination of all Hedge Contracts with Swap
Counterparties that are secured by the Liens on the Collateral (other than Hedge
Contracts with any Swap Counterparty with respect to which other arrangements
satisfactory to the Swap Counterparty and the Borrower have been made; provided
that, unless a Swap Counterparty notifies the Administrative Agent in writing at
least 2 Business Days prior to the expected termination of the Commitments that
such arrangements have not been made, then solely for purposes of this clause
(b), it shall be deemed that such satisfactory arrangements have been made), and
payment in full of all Obligations (other than Obligations arising under Hedge
Contracts with any Swap Counterparty with respect to which other arrangements
satisfactory to the Swap Counterparty and the Borrower have been made; provided
that, unless a Swap Counterparty notifies the Administrative Agent in writing at
least 2 Business Days prior to the expected termination of the Commitments that
such arrangements have not been made, then solely for purposes of this clause
(b), it shall be deemed that such satisfactory arrangements have been made);
(ii) constituting Property sold or to be sold or otherwise disposed of as part
of or in connection with any disposition permitted under this Agreement or the
other Loan Documents; (iii) constituting Property in which the Borrower or any
Subsidiary owned no interest at the time the Lien was granted or at any time
thereafter; (iv) constituting Property leased to the Borrower or any Subsidiary
under a lease which has expired or has been terminated in a transaction
permitted under this Agreement or is about to expire and which has not been, and
is not intended by the Borrower or such Subsidiary to be, renewed or extended;
or (v) if approved, authorized or ratified in writing by the applicable Required
Lenders or all the Lenders, as the case may be, as required by Section 9.01.
Upon the request of the Administrative Agent at any time, the Secured Parties
will confirm in writing the Administrative Agent's authority to release
particular types or items of Collateral pursuant to this Section 8.08.

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                 By accepting the benefit of the Liens granted pursuant to the
Security Instruments, each Secured Party not party hereto hereby agrees to the
terms of this paragraph (b).

ARTICLE IX

MISCELLANEOUS

                 Section 9.01 Amendments, Etc. No amendment or waiver of any
provision of this Agreement, the Notes, or any other Loan Document (other than
the Fee Letter), nor consent to any departure by the Borrower or any Subsidiary
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders and the Borrower, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver, or
consent shall, unless in writing and signed by all the Lenders, do any of the
following: (a) waive any of the conditions specified in Section 3.01, (b)
increase the Borrowing Base or the Commitments of the Lenders, (c) reduce the
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder or under any other Loan Document, (d) postpone any date fixed for any
payment of principal of, or interest on, the Notes, or any fees or other amounts
payable hereunder or extend the Maturity Date, or the Commitment Termination
Date, (e) change the percentage of Lenders that shall be required for the
Lenders or any of them to take any action hereunder or under any other Loan
Document, (f) amend Section 2.11 or this Section 9.01, (g) amend the definition
of "Required Lenders," (h) release any Subsidiary from its obligations under any
Guaranty, (i) permit the Borrower or any Subsidiary to enter into any merger or
consolidation with or into any other Person, except for mergers or
consolidations permitted pursuant to Section 6.04 or amend clause (a) of Section
6.04, or (j) release any Collateral securing the Obligations except as permitted
under this Agreement and except for releases of Collateral sold, transferred, or
otherwise disposed of as permitted by this Agreement; and provided, further,
that no amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent or the Issuing Lender in addition to the Lenders required
above to take such action, affect the rights or duties of the Administrative
Agent or the Issuing Lender, as the case may be, under this Agreement or any
other Loan Document. No Lender or any Affiliate of a Lender shall have any
voting rights under any Loan Document as a result of the existence of
obligations owed to it under Hedge Contracts.

                 Section 9.02 Notices, Etc. All notices and other communications
shall be in writing (including, without limitation, telecopy) and mailed by
certified mail, return receipt requested, telecopied, hand delivered, or
delivered by a nationally recognized overnight courier, at the address for the
appropriate party specified in Schedule I or at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall, when so mailed, telecopied, or hand delivered
or delivered by a nationally recognized overnight courier, be effective when
received if mailed, when telecopy transmission is completed or when delivered by
such messenger or courier, respectively, except that notices and communications
to the Administrative Agent pursuant to Article II or VIII shall not be
effective until received by the Administrative Agent.

                 Section 9.03 No Waiver; Remedies. No failure on the part of any
Lender, the Administrative Agent, or the Issuing Lender to exercise, and no
delay in exercising, any right hereunder or under any Note shall operate as a
waiver thereof; nor shall any single or partial

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exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

                 Section 9.04 Costs and Expenses. The Borrower agrees to pay on
demand (a) all reasonable out-of-pocket costs and expenses of the Administrative
Agent in connection with the preparation, execution, waiver, delivery,
administration, modification, and amendment of this Agreement, the Notes, the
Guaranties, and the other Loan Documents including, without limitation, the
reasonable fees and reasonable out-of-pocket expenses of counsel for the
Administrative Agent with respect to advising the Administrative Agent as to its
rights and responsibilities under this Agreement, and (b) all out-of-pocket
costs and expenses, if any, of the Administrative Agent, the Issuing Lender, and
each Lender (including, without limitation, counsel fees and expenses of the
Administrative Agent, the Issuing Lender, and each Lender) in connection with
the enforcement (whether through negotiations, legal proceedings, or otherwise)
of this Agreement, the Notes, the Guaranties, and the other Loan Documents.

                 Section 9.05 Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the
Administrative Agent, and when the Administrative Agent shall have, as to each
Lender, either received a counterpart hereof executed by such Lender or been
notified by such Lender that such Lender has executed it and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Administrative Agent,
the Issuing Lender, and each Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights or
delegate its duties under this Agreement or any interest in this Agreement
without the prior written consent of each Lender.

                 Section 9.06 Lender Assignments and Participations.

(a) Assignments. Any Lender may assign to one or more Eligible Assignee all or
any portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitments, the Advances owing to
it, the Notes held by it, and the participation interest in the Letter of Credit
Obligations held by it); provided, however, that (i) each such assignment shall
be of a constant, and not a varying, percentage of such Lender's rights and
obligations assigned under this Agreement and shall be an equal percentage with
respect to both its obligations owing in respect of the Commitments and the
related Advances and Letters of Credit, (ii) the amount of the Commitments and
Advances of such Lender being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall be, if to an entity other than a Lender, not less than
$3,000,000 and shall be an integral multiple of $1,000,000 in excess thereof,
(iii) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with the Notes subject to such assignment,
and (iv) each Eligible Assignee (other than the Eligible Assignee of the
Administrative Agent) shall pay to the Administrative Agent a $3,500
administrative fee. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least three Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto for all purposes
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (B) such

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Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of such Lender's rights and obligations under this Agreement, such Lender shall
cease to be a party hereto).

                 (b) Term of Assignments. By executing and delivering an
Assignment and Acceptance, the Lender thereunder and the assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties, or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness, or
sufficiency of value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or its Subsidiaries or the performance or observance by the Borrower or
its Subsidiaries of any of their obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
Financial Statements and Interim Financial Statements referred to in Section
4.05 and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without reliance upon the
Administrative Agent, such Lender or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.

                 (c) The Register. The Administrative Agent shall maintain at
its address referred to in Section 9.02 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitments of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Administrative Agent, the Issuing Lender,
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.

                 (d) Procedures. Upon its receipt of an Assignment and
Acceptance executed by a Lender and an Eligible Assignee, together with the
Notes subject to such assignment, the Administrative Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form of
the attached Exhibit A, (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register, and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower shall execute and deliver to the Administrative Agent in
exchange for the surrendered Notes (A) if

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such Eligible Assignee has acquired a Commitment, a new Note to the order of
such Eligible Assignee in an amount equal to the Commitment assumed by it
pursuant to such Assignment and Acceptance and (B) if such Lender has retained
any Commitment, a new Note to the order of such Lender in an amount equal to the
Commitment retained by it hereunder. Such new Notes shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of the attached Exhibit E.

                 (e) Participations. Each Lender may sell participations to one
or more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitments, the Advances owing to it, its participation interest
in the Letter of Credit Obligations, and the Notes held by it); provided,
however, that (i) such Lender's obligations under this Agreement (including,
without limitation, its Commitments to the Borrower hereunder) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Lender shall remain
the holder of any such Notes for all purposes of this Agreement, (iv) the
Borrower, the Administrative Agent, the Issuing Lender, and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement, and (v) such Lender
shall not require the participant's consent to any matter under this Agreement,
except for change in the principal amount of the Notes, reductions in fees or
interest, releasing all or substantially all of any Collateral, permitting the
Borrower or any Subsidiary to enter into any merger or consolidation with or
into any other, postponement of any date fixed for any payment of principal of,
or interest on, the Notes or any fees or other amounts payable hereunder, or
extensions of the Maturity Date, or the Commitment Termination Date. The
Borrower hereby agrees that participants shall have the same rights under
Sections 2.12, 2.13, 2.14(c), and 9.07 as a Lender to the extent of their
respective participations.

                 Section 9.07 Indemnification. THE BORROWER SHALL INDEMNIFY THE
ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUING LENDER, AND EACH AFFILIATE
THEREOF AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM,
AND DISCHARGE, RELEASE, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES, CLAIMS, OR DAMAGES THAT MAY BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST THEM IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED BY THEM UNDER
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (A) INCLUDING ANY SUCH LOSSES,
LIABILITIES, CLAIMS, DAMAGES, OR EXPENSE INCURRED BY REASON OF THE PERSON BEING
INDEMNIFIED'S OWN NEGLIGENCE OR STRICT LIABILITY, (B) INCLUDING WITHOUT
LIMITATION ENVIRONMENTAL CLAIMS AND ANY LIABILITIES ARISING UNDER ENVIRONMENTAL
LAW, AND (C) INCLUDING WITHOUT LIMITATION ANY SUCH OTHER LOSSES, LIABILITIES,
CLAIMS, DAMAGES, OR EXPENSES RESULTING FROM ANY LITIGATION, LEGAL PROCEEDING OR
OTHER TYPE OF ACTION, REGARDLESS OF WHETHER ANY PARTY BEING INDEMNIFIED IS PARTY
TO SUCH LITIGATION, LEGAL PROCEEDING OR OTHER ACTION, BUT EXCLUDING ANY SUCH
LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSES INCURRED BY REASON OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED.

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                 Section 9.08 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.

                 Section 9.09 Survival of Representations, Etc. All
representations and warranties contained in this Agreement or made in writing by
or on behalf of the Borrower in connection herewith shall survive the execution
and delivery of this Agreement and the Loan Documents, the making of the
Advances and any investigation made by or on behalf of the Lenders, none of
which investigations shall diminish any Lender's right to rely on such
representations and warranties. All obligations of the Borrower provided for in
Sections 2.12, 2.13, 2.14(c), 9.04, and 9.07 and all of the obligations of the
Lenders in Section 8.05 shall survive any termination of this Agreement and
repayment in full of the Obligations.

                 Section 9.10 Severability. In case one or more provisions of
this Agreement or the other Loan Documents shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality,
and enforceability of the remaining provisions contained herein or therein shall
not be affected or impaired thereby.

                  Section 9.11 Business Loans. The Borrower warrants and
represents that the Loans evidenced by the Notes are and shall be for business,
commercial, investment, or other similar purposes and not primarily for
personal, family, household, or agricultural use, as such terms are used in
Chapter One ("Chapter One") of the Texas Credit Code. At all such times, if any,
as Chapter One shall establish a Maximum Rate, the Maximum Rate shall be the
"indicated rate ceiling" (as such term is defined in Chapter One) from time to
time in effect.

                 Section 9.12 Governing Law. This Agreement, the Notes, and the
other Loan Documents shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas. Without limiting the intent of
the parties set forth above, (a) Chapter 346 of the Texas Finance Code, as
amended (relating to revolving loans and revolving tri-party accounts), shall
not apply to this Agreement, the Notes, or the transactions contemplated hereby
and (b) to the extent that any Lender may be subject to Texas law limiting the
amount of interest payable for its account, such Lender shall utilize the
indicated (weekly) rate ceiling from time to time in effect. Each Letter of
Credit shall be governed by either the Uniform Customs and Practice for
Documentary Credits (2007 Revision), International Chamber of Commerce
Publication No. 600, or the International Standby Practices (ISP98),
International Chamber of Commerce Publication No. 590 (and any subsequent
revisions thereof approved by a Congress of the International Chamber of
Commerce and adhered to by the Issuing Lender).

                 Section 9.13 Submission to Jurisdiction. The Borrower hereby
irrevocably submits to the jurisdiction of any Texas state or federal court
sitting in Dallas, Texas in any action or proceeding arising out of or relating
to this Agreement or the other Loan Documents, and the Borrower hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such court. The Borrower hereby unconditionally and
irrevocably waives, to the fullest extent it may effectively do so, any right it
may have to the defense of an inconvenient forum to the maintenance of such
action or proceeding. The Borrower hereby agrees that service of copies of the
summons and complaint and any other process which may be

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served in any such action or proceeding may be made by mailing or delivering a
copy of such process to such Borrower at its address set forth in this
Agreement. The Borrower agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Section shall affect the rights of any Lender to serve legal process in any
other manner permitted by the law or affect the right of any Lender to bring any
action or proceeding against the Borrower or its Property in the courts of any
other jurisdiction.

                 Section 9.14 WAIVER OF JURY TRIAL. THE BORROWER, THE LENDERS,
THE ISSUING LENDER, AND THE ADMINISTRATIVE AGENT HEREBY ACKNOWLEDGE THAT THEY
HAVE BEEN REPRESENTED BY AND HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE, AND
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE ANY AND ALL
RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

                 Section 9.15 USA Patriot Act. Each Lender that is subject to
the Act (as hereinafter defined) and the Administrative Agent (for itself and
not on behalf of any Lender) hereby notifies the Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the "Act"), it is required to obtain, verify and record
information that identifies the Borrower, which information includes the name
and address of the Borrower and other information that will allow such Lender or
the Administrative Agent, as applicable, to identify the Borrower in accordance
with the Act.

                 Section 9.16 PRIOR OR ORAL AGREEMENTS. THIS WRITTEN AGREEMENT
AND THE LOAN DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND SUPERSEDE ALL PRIOR UNDERSTANDINGS AND
AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATING TO THE TRANSACTIONS PROVIDED FOR
HEREIN AND THEREIN. ADDITIONALLY, THIS AGREEMENT AND THE LOAN DOCUMENTS MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

                 THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

                 IN EXECUTING THIS AGREEMENT, THE BORROWER HEREBY WARRANTS AND
REPRESENTS IT IS NOT RELYING ON ANY STATEMENT OR REPRESENTATION OTHER THAN THOSE
IN THIS AGREEMENT AND IS RELYING UPON ITS OWN JUDGMENT AND ADVICE OF ITS
ATTORNEYS.

[Remainder of this page intentionally left blank. Signature page follows.]

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                 EXECUTED as of the date first above written.

  BORROWER:

REOSTAR ENERGY, CORPORATION

By:   /s/ Mark S. Zouvas                                            
         Mark S. Zouvas
         Chief Executive Officer        

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  ADMINISTRATIVE AGENT/LENDER:

UNION BANK OF CALIFORNIA, N.A.
as Administrative Agent, Issuing Lender and
Lender

By:    /s/ Randall Osterberg                                         
         Randall Osterberg
         Senior Vice President        

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SCHEDULE I
BORROWER, ADMINISTRATIVE AGENT, AND LENDER INFORMATION

Each of the commitments to lend set forth herein is governed by the terms of the
Credit Agreement, which provides for, among other things, Borrowing Base
limitations which may restrict the Borrower's ability to request (and the
Lenders' obligation to provide) Credit Extensions to a maximum amount which is
less than the commitments set forth in this Schedule I.

Administrative Agent:
Union Bank of California, N.A.
Lincoln Plaza
500 N. Akard Street, Suite 4200
Dallas, Texas 75201
Attention: Mr. Randall Osterberg
Facsimile: 214-922-4209

Borrower:
ReoStar Energy, Corporation
3880 Hulen Street, Suite 500
Fort Worth, Texas 76107
Attention: Mr. Scott Allen
Facsimile: 817-989-7368                   

Lenders:
                                                                                                     Applicable
Lending Offices:

Union Bank of California, N.A.

Commitment:
$25,000,000.00 Eurodollar Lending Office
1980 Saturn Street, Mail Code V01-120
Monterey Park, CA 91754
Telephone: (323) 720-2870
Telecopy: (323) 724-6198 and (323) 724-0042
Attention: Silvia Cruz, Commercial Loan Operations
Department
Email: #clo_synd @uboc.com

Domestic Lending Office
Same as Eurodollar Lending Office

Address for Notices:
500 N. Akard Street, Suite 4200
Dallas, Texas 75201
Attention: Mr. Randall Osterberg
Facsimile: 214-922-4209

Schedule I
Page 1 of 1

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