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CREDIT AGREEMENT

AMONG

LUCAS ENERGY, INC.

AMEGY BANK NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
AND LETTER OF CREDIT ISSUER

AND

THE LENDERS SIGNATORY HERETO

October 8, 2008

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REVOLVING LINE OF CREDIT AND LETTER OF CREDIT FACILITY
OF UP TO $100,000,000

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1

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TABLE OF CONTENTS       Page      ARTICLE I DEFINITIONS AND INTERPRETATION  1   
   1.1  Terms Defined Above  1       1.2  Additional Defined Terms  1       1.3 
Undefined Financial Accounting Terms  16       1.4  References  16       1.5 
Articles and Sections  17       1.6  Number and Gender  17       1.7 
Incorporation of Schedules and Exhibits  17       1.8  Negotiated Transaction 
17    ARTICLE II TERMS OF FACILITY  17       2.1  Revolving Line of Credit and
Letter of Credit Facility  17       2.2  Limitations on Interest Periods  20   
   2.3  Limitation on Types of Loans  21       2.4  Use of Loan Proceeds and
Letters of Credit  21       2.5  Interest  21       2.6  Repayment of Loans and
Interest  22       2.7  Outstanding Amounts  22       2.8  Taxes and Time,
Place, and Method of Payments  23       2.9  Pro Rata Treatment; Adjustments 
25       2.10  Borrowing Base and Monthly Reduction Amount  26       2.11 
Mandatory Prepayments  27       2.12  Voluntary Prepayments and Conversions of
Loans  28       2.13  Commitment Fees  28       2.14  Engineering Fees and
Expenses  29       2.15  Additional Fees  29       2.16  Loans to Satisfy
Obligations  29       2.17  General Provisions Relating to Interest  29     
 2.18  Yield Protection  30       2.19  Illegality  32       2.20  Replacement
Lenders  32       2.21  Regulatory Change  33       2.22  Letters in Lieu of
Transfer Orders or Division Orders  34       2.23  Power of Attorney  34     
 2.24  Security Interest in Accounts; Right of Offset  34    ARTICLE III
CONDITIONS  35       3.1  Receipt of Loan Documents and Other Items  35     
 3.2  Each Loan  38       3.3  Issuance of Letters of Credit  38 

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ARTICLE IV REPRESENTATIONS AND WARRANTIES  39       4.1  Due Authorization  39 
     4.2  Existence  40       4.3  Valid and Binding Obligations  40       4.4 
Security Documents  40       4.5  Title to Oil and Gas Properties  40       4.6 
Scope and Accuracy of Financial Statements  40       4.7  No Material Adverse
Effect or Default  40       4.8  No Material Misstatements  40       4.9 
Liabilities, Litigation and Restrictions  41       4.10  Authorizations;
Consents  41       4.11  Compliance with Laws  41       4.12  ERISA  41     
 4.13  Environmental Laws  41       4.14  Compliance with Federal Reserve
Regulations  42       4.15  Investment Company Act Compliance  42       4.16 
Proper Filing of Tax Returns; Payment of Taxes Due  42       4.17  Refunds  42 
     4.18  Gas Contracts  42       4.19  Intellectual Property  42       4.20 
Casualties or Taking of Property  42       4.21  Principal Location  43     
 4.22  Subsidiaries  43       4.23  Compliance with Anti-Terrorism Laws  43     
 4.24  Identification Numbers  44       4.25  Solvency  44    ARTICLE V
AFFIRMATIVE COVENANTS  44       5.1  Maintenance and Access to Records  44     
 5.2  Quarterly Financial Statements and Compliance Certificates  44       5.3 
Annual Financial Statements and Compliance Certificate  45       5.4  Oil and
Gas Reserve Reports and Production Reports  45       5.5  Title Opinions; Title
Defects; Mortgaged Properties  46       5.6  Notices of Certain Events  46     
 5.7  Letters in Lieu of Transfer Orders or Division Orders  47       5.8 
Commodity Hedging  47       5.9  Additional Information  47       5.10 
Compliance with Laws  47       5.11  Payment of Assessments and Charges  48     
 5.12  Maintenance of Existence or Qualification and Good Standing  48     
 5.13  Payment of Notes; Performance of Obligations  48       5.14  Further
Assurances  48       5.15  Initial Expenses of Agent  48       5.16  Subsequent
Expenses of Agent and Lenders  48       5.17  Operation of Oil and Gas
Properties  49       5.18  Maintenance and Inspection of Properties  49      -
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     5.19  Maintenance of Insurance  49       5.20  Environmental
Indemnification  49       5.21  General Indemnification  50       5.22  Evidence
of Compliance with Anti-Terrorism Laws  51    ARTICLE VI NEGATIVE COVENANTS  51 
     6.1  Indebtedness  51       6.2  Contingent Obligations  52       6.3 
Liens  52       6.4  Sales of Assets  52       6.5  Leasebacks  52       6.6 
Sale or Discount of Receivables  52       6.7  Loans or Advances  53       6.8 
Investments  53       6.9  Dividends, Distributions and Certain Payments  53   
   6.10  Issuance of Equity; Changes in Corporate Structure  53       6.11 
Transactions with Affiliates  53       6.12  Lines of Business  54       6.13 
Plan Obligation  54       6.14  Current Ratio  54       6.15  Total Indebtedness
to EBITDA Ratio  54       6.16  General and Administrative Expenses  54     
 6.17  Anti-Terrorism Laws  54       6.18  Activities of Subsidiary  54   
ARTICLE VII EVENTS OF DEFAULT  55       7.1  Enumeration of Events of Default 
55       7.2  Remedies  56    ARTICLE VIIITHE AGENT  58       8.1  Appointment 
58       8.2  Delegation of Duties  58       8.3  Exculpatory Provisions  58   
   8.4  Reliance by Agent  58       8.5  Notice of Default  59       8.6 
Non-Reliance on Agent and Other Lenders  59       8.7  Indemnification  60     
 8.8  Restitution  60       8.9  Agent in Its Individual Capacity  61     
 8.10  Successor Agent  61       8.11  Applicable Parties  61       8.12 
Releases  62    ARTICLE IX MISCELLANEOUS  62       9.1  Assignments;
Participations  62       9.2  Survival of Representations, Warranties, and
Covenants  63       9.3  Notices and Other Communications  63    - iii -

 

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9.4  Parties in Interest  64  9.5  Renewals; Extensions  64  9.6  Rights of
Third Parties  64  9.7  No Waiver; Rights Cumulative  65  9.8  Survival Upon
Unenforceability  65  9.9  Amendments; Waivers  65  9.10  Controlling Agreement 
65  9.11  Disposition of Collateral  65  9.12  Governing Law  66  9.13 
Arbitration  66  9.14  Jurisdiction and Venue  67  9.15  Integration  67  9.16 
Waiver of Punitive and Consequential Damages  67  9.17  Counterparts  67  9.18 
USA Patriot Act Notice  67  9.19  Tax Shelter Regulations  68 

LIST OF SCHEDULES      Schedule 4.8  -  Liabilities and Litigation  Schedule
4.12  -  Environmental Matters  Schedule 4.16  -  Refunds  Schedule 4.17  -  Gas
Contracts  Schedule 4.19  -  Casualties  Schedule 4.22  -  Subsidiaries 
Schedule 4.23  -  Taxpayer Identification and Organization Numbers    LIST OF
EXHIBITS        Exhibit I  -  Form of Note  Exhibit II  -  Form of Borrowing
Request  Exhibit III  -  Form of Compliance Certificate  Exhibit IV  -  Facility
Amounts  Exhibit V  -  Form of Opinion of Nevada Counsel  Exhibit VI  -  Form of
Opinion of Texas Counsel  Exhibit VII  -  Form of Assignment Agreement 

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CREDIT AGREEMENT

     This CREDIT AGREEMENT is made and entered into this 8th day of October,
2008, by and among LUCAS ENERGY, INC., a Nevada corporation (the “Borrower”),
each lender that is a signatory hereto or becomes a signatory hereto as provided
in Section 9.1 (individually, together with its successors and assigns, a
“Lender” and collectively, together with their respective successors and
assigns, the “Lenders”), and AMEGY BANK NATIONAL ASSOCIATION, a national banking
association (“Amegy”), as administrative agent for the Lenders, the issuing bank
for letters of credit issued hereunder and as collateral agent for the Lenders
and any other Approved Hedge Counterparties (as defined hereinafter) under
certain circumstances hereunder (in such capacities, together with its
successors in such capacities pursuant to the terms hereof, the “Agent”).

W I T N E S S E T H:

     NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

     1.1 Terms Defined Above. As used in this Credit Agreement, each of the
terms “Agent,” “Amegy,” “Borrower” and “Lenders” shall have the meaning assigned
to such term hereinabove.

     1.2 Additional Defined Terms. As used in this Credit Agreement, each of the
following terms shall have the meaning assigned thereto in this Section 1.2 or
in Sections referred to in this Section 1.2, unless the context otherwise
requires:

“Additional Amount” shall have the meaning assigned to such term in Section 2.8.

     “Additional Costs” shall mean costs which are attributable to the
obligation of the Agent or any Lender to make or its making or maintaining any
Loan, or any reduction in any amount receivable by the Agent or such Lender in
respect of any such obligation or any LIBO Rate Loan, resulting from any
Regulatory Change which (a) changes the basis of taxation of any amounts payable
to the Agent or such Lender under this Agreement or any Note in respect of any
LIBO Rate Loan (other than taxes imposed on the overall net income of the Agent
or such Lender or its Applicable Lending Office (including franchise or similar
taxes) for any such LIBO Rate Loan), (b) imposes or modifies any reserve,
special deposit, minimum capital, capital ratio, or similar requirements (other
than the Reserve Requirement utilized in the determination of the Adjusted LIBO
Rate for such Loan) relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Agent or such Lender (including
LIBO Rate Loans and Dollar deposits in the London interbank market in connection
with LIBO Rate Loans), or the Commitment of the Agent or such Lender, or the
London interbank market, or (c) imposes any other condition affecting this
Agreement or any Note or any of such extensions of credit, liabilities, or
Commitments.

 

 

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     “Adjusted Base Rate” shall mean, for any Base Rate Loan, an interest rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined
by the Agent to be the greater of (a) the Base Rate and (b) the sum of the
Federal Funds Rate plus one half of one percent (0.50%), such rate to be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day) during
the period for which payable, but in no event shall such rate exceed the Highest
Lawful Rate.

     “Adjusted LIBO Rate” shall mean, for any Interest Period for any LIBO Rate
Loan, an interest rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the quotient of (a) the LIBO
Rate for such Interest Period for such Loan, divided by (b) the remainder of
1.00 minus the Reserve Requirement for such Loan for such Interest Period, such
rate to be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) during the period for which
payable, but in no event shall such rate exceed the Highest Lawful Rate.

     “Affiliate” shall mean, as to any Person, any other Person directly or
indirectly, controlling, or under common control with, such Person, and includes
any “affiliate” of such Person within the meaning of Rule 12b-2 promulgated by
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, with “control,” as used in this definition, meaning possession,
directly or indirectly, of the power to direct or cause the direction of
management, policies or action through ownership of voting securities, contract,
voting trust, or membership in management or in the group appointing or electing
management or otherwise through formal or informal arrangements or business
relationships.

     “Agreement” shall mean this Credit Agreement, as it may be amended,
supplemented, restated, or otherwise modified from time to time.

     “Anti-Terrorism Laws” shall mean any laws relating to terrorism or money
laundering, including Executive Order No. 13224 and the USA Patriot Act.

     “Applicable Commitment Fee Percentage” shall mean a per annum rate
determined by reference to the following table:

  Borrowing Base Utilization   Applicable         Commitment Fee        
Percentage     e66 2/3 %  0.375 %    33 1/3% d but < 66 2/3%   0.375 %  < 33 1/3
%  0.500 % 

     “Applicable Lending Office” shall mean, for each Lender and type of Loan,
the lending office of such Lender (or an Affiliate of such Lender) designated
for such type of Loan on the

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signature pages hereof or in an Assignment Agreement or such other office of
such Lender (or an Affiliate of such Lender) as such Lender may from time to
time specify to the Agent and the Borrower as the office by which its Loans of
such type are to be made and maintained.

     “Applicable Margin” shall mean, on any day and as to each LIBO Rate Loan or
Base Rate Loan under the Facility, as the case may be, outstanding on such day
the amount determined by reference to the following table:

Borrowing Base Utilization Applicable Margin   LIBO Rate Loans Base Rate Loans
e66 2/3 % 2.50 % -0.25 % 33 1/3% d but < 66 2/3% 2.25 % -0.50 % <33 1/3 % 2.00
%  -0.75 %

     ; provided, however, during any period while there exists any Deficiency,
the relevant amount above shall be increased by two percent (2.00%) .

     “Approved Fund” shall mean any (a) investment company, fund, trust,
securitization vehicle or conduit that is (or will be) engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar
extensions of credit in the ordinary course of its business or (b) any Person
(other than a natural person) which temporarily warehouses loans for any Lender
or any entity described in the preceding clause (a) and that, with respect to
each of the preceding clauses (a) and (b), is administered or managed by (i) a
Lender, (ii) an Affiliate of a Lender or (iii) a Person (other than a natural
person) or an Affiliate of a Person (other than a natural person) that
administers or manages a Lender.

“Approved Hedge Counterparty” shall mean any Lender or an Affiliate of any
Lender.

     “Assignment Agreement” shall mean each Assignment Agreement, substantially
in the form of Exhibit VI, with appropriate insertions.

     “Available Commitment” shall mean, at any time, an amount equal to the
remainder, if any, of (a) the Commitment Amount in effect at such time minus (b)
the sum of the Loan Balance at such time plus the L/C Exposure at such time.

     “Base Rate” shall mean the interest rate announced by Amegy from time to
time as its prime rate or its general reference rate of interest, which Base
Rate shall change upon any change in such announced or published general
reference interest rate and which Base Rate may not be the lowest interest rate
charged by Amegy.

     “Base Rate Loan” shall mean any Loan and any portion of the Loan Balance
which the Borrower has requested, in the initial Borrowing Request for such Loan
or a subsequent

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Borrowing Request for such portion of the Loan Balance, bear interest on the
basis of the Adjusted Base Rate, or which pursuant to the terms hereof is
otherwise required to bear interest on the basis of the Adjusted Base Rate.

“Benefited Lender” shall have the meaning assigned to such term in Section
2.9(c).

“Blocked Person” shall have the meaning assigned to such term in Section 4.23.

     “Borrowing Base” shall mean, at any time, the amount stated in Section
2.10(a) and each other amount established and in effect from time to time in
accordance with the provisions of Section 2.10.

     “Borrowing Base Utilization” shall mean (a) the sum of (i) the Loan Balance
plus (ii) the L/C Exposure divided by (b) the Borrowing Base then in effect.

     “Borrowing Request” shall mean each written request, substantially in the
form attached hereto as Exhibit II, by the Borrower to the Agent for a
borrowing, conversion or prepayment pursuant to Section 2.1 or Section 2.12,
each of which shall:

(a) be signed by a Responsible Officer of the Borrower;

     (b) specify the amount and type of the Loan requested or to be converted or
prepaid and the date of the borrowing, conversion or prepayment (which shall be
a Business Day);

     (c) when requesting a Base Rate Loan, be delivered to the Agent no later
than 11:00 a.m., Central Standard or Central Daylight Savings Time, as the case
may be, on the Business Day preceding the requested borrowing or conversion; and

     (d) when requesting a LIBO Rate Loan, be delivered to the Agent no later
than 11:00 a.m., Central Standard or Central Daylight Savings Time, as the case
may be, the third Business Day preceding the requested borrowing or conversion
and designate the Interest Period requested with respect to such Loan.

     “Business Day” shall mean a day other than a Saturday, Sunday, legal
holiday for commercial banks under the laws of the State of Texas, or any other
day when banking is suspended in the State of Texas and, with respect to all
requests, notices, and determinations in connection with, and payments of
principal and interest on, LIBO Rate Loans, which is also a day for trading by
and between banks in Dollar deposits in the London interbank market.

     “Business Entity” shall mean a corporation, partnership, joint venture,
limited liability company, joint stock association, business trust, or other
business entity.

“Closing” shall mean the establishment of the Facility.

“Closing Date” shall mean the date of this Agreement.

     “Collateral” shall mean the Mortgaged Properties and any other Property now
or at any time used or intended as security for the payment or performance of
all or any portion of the

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Obligations, including any Property that was considered in determining or
redetermining the Borrowing Base and expressly including “as extracted
collateral” as defined in the UCC or the Uniform Commercial Code of any other
applicable state.

     “Commitments” shall mean the several obligations of the Lenders to make
Loans to or for the benefit of the Borrower and the obligation of the Agent to
issue and the Lenders to participate in Letters of Credit, all pursuant to
Section 2.1.

     “Commitment Amount” shall mean, subject to the applicable provisions of
this Agreement and the right of the Borrower to reduce such amount on an
irrevocable basis by written notice to the Agent, at any time (provided,
however, the Borrower shall not be entitled to any reduction to an amount less
than the sum of the then existing Loan Balance and L/C Exposure), the lesser of
(a) the sum of the Facility Amounts of the Lenders or (b) the Borrowing Base in
effect at such time.

     “Commitment Fees” shall mean the fees payable to the Agent by the Borrower
pursuant to the provisions of Section 2.13.

     “Commitment Period” shall mean the period from and including the Closing
Date to, but not including, the Commitment Termination Date.

     “Commitment Termination Date” shall mean the earlier of (a) October 8, 2011
and (b) the date the Commitments are terminated pursuant to the provisions of
Section 2.11(b) or Section 7.2.

     “Commodity Hedge Agreements” shall mean crude oil, natural gas or other
hydrocarbon floor, collar, cap, price protection or hedge agreements.

     “Commonly Controlled Entity” shall mean any Person which is under common
control with the Borrower within the meaning of Section 4001 of ERISA.

     “Compliance Certificate” shall mean each certificate, substantially in the
form attached hereto as Exhibit III, executed by a Responsible Officer of the
Borrower and furnished to the Agent from time to time in accordance with the
provisions of Section 5.2 or Section 5.3, as the case may be.

     “Contingent Obligation” shall mean, as to any Person, any obligation of
such Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends, or other obligations of any other Person (for purposes of this
definition, a “primary obligation”) in any manner, whether directly or
indirectly, including any obligation of such Person, regardless of whether such
obligation is contingent, (a) to purchase any primary obligation or any Property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any primary obligation, or (ii) to
maintain working or equity capital of any other Person in respect of any primary
obligation, or otherwise to maintain the net worth or solvency of any other
Person, (c) to purchase Property, securities or services primarily for the
purpose of assuring the owner of any primary obligation of the ability of the
Person primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any

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such primary obligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith.

     “Current Assets” shall mean all assets which would, in accordance with
GAAP, be included as current assets on a consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as of the date of calculation, after
deducting adequate reserves in each case in which a reserve is proper in
accordance with GAAP, plus the then current Available Commitment and, if not
already included, the amount of any cash on deposit with Amegy in accordance
with the provisions of Section 5.22, but excluding non-cash derivative current
assets arising from Commodity Hedge Agreements.

     “Current Liabilities” shall mean all liabilities which would, in accordance
with GAAP, be included as current liabilities on a consolidated balance sheet of
the Borrower and its consolidated Subsidiaries, but excluding current maturities
in respect of the Obligations, both principal and interest, and non-cash
derivative current liabilities arising from Commodity Hedge Agreements.

     “Default” shall mean any event or occurrence which with the lapse of time
or the giving of notice or both would become an Event of Default.

     “Default Rate” shall mean a daily interest rate equal to the per annum
interest rate equal to the Adjusted Base Rate for each relevant day plus three
percent (3%) converted to a daily rate on the basis of a year of 365 or 366
days, as the case may be, and the rate so determined for each relevant day being
applied on the basis of actual days elapsed (including the first day, but
excluding the last day) during the period for which interest is payable at the
Default Rate, but in no event shall the Default Rate exceed the Highest Lawful
Rate.

“Deficiency” shall have the meaning assigned to such term in Section 2.11.

“Dollars” and “$” shall mean dollars in lawful currency of the United States of
America.

     “EBITDA” shall mean, for any period for which the amount thereof is to be
determined and on a consolidated basis for the Borrower and its consolidated
Subsidiaries, Net Income for such period (but excluding (i) unrealized gains or
losses or charges in respect of Commodity Hedge Agreements (including those
under GAAP arising from the application of FAS 133), (ii) and extraordinary or
non-recurring income items and, to the extent acceptable to the Agent, expense
items and (iii) deferred financing costs written off, including equity
discounts, and premiums paid in connection with any early extinguishment of
Indebtedness permitted pursuant to this Agreement, including the retirement of
the senior secured Indebtedness of the Borrower outstanding prior to the Closing
Date), plus, in each case to the extent deducted in the determination of Net
Income for such period and without duplication of any item in more than one
category, each of the following for such period: (a) Interest Expense, (b)
Taxes, (c) depreciation and amortization expenses and (d) other non-cash
expenses, including write-downs of non-current assets and unrealized non-cash
losses resulting from foreign currency balance

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sheet adjustments required under GAAP, and minus, to the extent credited in the
determination of Net Income for such period, non-cash credits for such period.

     “Environmental Complaint” shall mean any written or oral complaint, order,
directive, claim, citation, notice of environmental report or investigation, or
other notice by any Governmental Authority or any other Person with respect to
(a) air emissions, (b) spills, releases, or discharges to soils, any
improvements located thereon, surface water, groundwater, or the sewer, septic,
waste treatment, storage, or disposal systems servicing any Property of the
Borrower, (c) solid or liquid waste disposal, (d) the use, generation, storage,
transportation, or disposal of any Hazardous Substance, or (e) other
environmental, health or safety matters affecting any Property of the Borrower
or the business conducted thereon.

     “Environmental Laws” shall mean (a) the following federal laws as they may
be cited, referenced, and amended from time to time: the Clean Air Act, the
Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Endangered Species Act, the
Resource Conservation and Recovery Act, the Hazardous Materials Transportation
Act, the Occupational Safety and Health Act, the Oil Pollution Act, the Resource
Conservation and Recovery Act, the Superfund Amendments and Reauthorization Act,
and the Toxic Substances Control Act; (b) any and all equivalent environmental
statutes of any state in which Property of the Borrower is situated, as they may
be cited, referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws; and
(d) any other equivalent federal, state, or local statute or any requirement,
rule, regulation, code, ordinance, or order adopted pursuant thereto, including
those relating to the generation, transportation, treatment, storage, recycling,
disposal, handling, or release of Hazardous Substances.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, and
the regulations thereunder and interpretations thereof.

“Event of Default” shall mean any of the events specified in Section 7.1.

     “Excluded Taxes” shall mean, with respect to any and all payments to the
Agent, any Lender or any other recipient of any payment to be made by or on
account of any Obligation, net income taxes, branch profits taxes, franchise and
excise taxes (to the extent imposed in lieu of net income taxes), and all
interest, penalties and liabilities with respect thereto, imposed on the Agent
or any Lender.

     “Executive Order No. 13224” shall mean Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001, as the same has been, or
shall hereafter be, renewed, extended, amended or replaced.

     “Facility” shall mean the credit facility extended to the Borrower pursuant
to this Agreement.

     “Facility Amount” shall mean, for each Lender and at any point in time, the
amount set forth opposite the name of such Lender on Exhibit IV under the
caption “Facility Amounts,” as modified from time to time to reflect assignments
permitted by Section 9.1 or otherwise pursuant

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to the terms hereof and to give effect to any written request of the Borrower
(any such request being irrevocable) to a reduction in the sum of the then
existing Facility Amounts of the Lenders; provided, however, the Borrower shall
not be entitled to any such reduction to an amount less than the sum of the then
existing Loan Balance and L/C Exposure.

     “Federal Funds Rate” shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers on such day, as published by
the Federal Reserve Bank of Dallas, Texas, on the Business Day next succeeding
such day, provided that (a) if the day for which such rate is to be determined
is not a Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (b) if such rate is not so published for any day,
the Federal Funds Rate for such day shall be the average rate charged to Amegy
on such day on such transactions as determined by the Agent.

     “Financial Statements” shall mean consolidated and consolidating financial
statements of the Borrower and its consolidated Subsidiaries as at the point in
time and for the period indicated, including all notes thereto, and consisting
of at least a balance sheet and related statements of operations, shareholders’
equity, and cash flows and, when required by applicable provisions of this
Agreement to be audited, accompanied by the unqualified certification of a
nationally-recognized or regionally-recognized firm of independent certified
public accountants or other independent certified public accountants acceptable
to the Agent and footnotes to any of the foregoing, all of which, unless
otherwise indicated, shall be prepared in accordance with GAAP consistently
applied and in comparative form with respect to the corresponding period of the
preceding fiscal year.

“Foreign Lender” shall have the meaning assigned to such term in Section 2.8.

     “GAAP” shall mean generally accepted accounting principles established by
the Financial Accounting Standards Board or the American Institute of Certified
Public Accountants and in effect in the United States from time to time.

     “Governmental Authority” shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality, or other political
subdivision and any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to government.

     “Hazardous Substances” shall mean flammables, explosives, radioactive
materials, hazardous wastes, asbestos, or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum, petroleum products, associated oil or natural gas exploration,
production, and development wastes, or any substances defined as “hazardous
substances,” “hazardous materials,” “hazardous wastes,” or “toxic substances”
under the Comprehensive Environmental Response, Compensation and Liability Act,
the Superfund Amendments and Reauthorization Act, the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the Toxic
Substances Control Act, or any other Requirement of Law.

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     “Highest Lawful Rate” shall mean, as to any Lender, the maximum
non-usurious interest rate, if any (or, if the context so requires, an amount
calculated at such rate), that at any time or from time to time may be
contracted for, taken, reserved, charged, or received under laws applicable to
such Lender, as such laws are presently in effect or, to the extent allowed by
applicable law, as such laws may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than such laws now allow.

     “Indebtedness” shall mean, as to any Person, without duplication, (a) all
liabilities (excluding capital, surplus, reserves for deferred income taxes,
deferred compensation liabilities, other deferred liabilities and credits and
asset retirement obligations) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet,
(b) all obligations of such Person evidenced by bonds, debentures, promissory
notes, or similar evidences of indebtedness, (c) all other indebtedness of such
Person for borrowed money, and (d) all obligations of others, to the extent any
such obligation is secured by a Lien on the assets of such Person (whether or
not such Person has assumed or become liable for the obligation secured by such
Lien), (e) all direct or contingent obligations of such Person under letters of
credit, banker’s acceptances, surety bonds, and similar instruments and (f) net
obligations of such Person under any Commodity Hedge Agreements or Interest Rate
Hedge Agreements.

“Indemnified Taxes” shall mean Taxes other than Excluded Taxes.

“Indemnitee” shall have the meaning assigned to such term in Section 5.21.

     “Insolvency Proceeding” shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or of all
or a substantial part of the Property of such Person, or the filing of a
petition (whether voluntary or instituted by another Person) commencing a case
under Title 11 of the United States Code, seeking liquidation, reorganization,
or rearrangement or taking advantage of any bankruptcy, insolvency, debtor’s
relief, or other similar law of the United States, the State of Texas, or any
other jurisdiction.

     “Intellectual Property” shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.

     “Interest Expense” shall mean, for any period for which the amount thereof
is to be determined, any and all expenses relating to the accrual of interest on
Indebtedness of the Borrower on a consolidated basis with its consolidated
Subsidiaries and including interest expense attributable to capitalized leases.

     “Interest Period” shall mean, subject to the limitations set forth in
Section 2.2, with respect to any LIBO Rate Loan, a period commencing on the date
such Loan is made or converted from a Loan of another type pursuant to this
Agreement or the last day of the next preceding Interest Period with respect to
such Loan and ending on the numerically corresponding day in the calendar month
that is one, two, three or six months thereafter, as the Borrower may request in
the Borrowing Request for such Loan.

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     “Interest Rate Hedge Agreements” shall mean interest rate floor, collar,
cap, rate protection or hedge agreements.

     “Investment” in any Person shall mean any stock, bond, note, or other
evidence of Indebtedness, or any other security (other than current trade and
customer accounts) of, investment or partnership interest in or loan to, such
Person.

     “L/C Exposure” shall mean, at any time, the then aggregate maximum amount
available to be drawn under outstanding Letters of Credit plus, prior to the
making of any related Letter of Credit Payments in respect of Letters of Credit,
the aggregate of all unpaid reimbursement obligations in respect of Letters of
Credit.

“L/C Sublimit” shall mean $2,000,000.

     “Letter of Credit” shall mean any standby letter of credit issued for the
account of the Borrower pursuant to Section 2.1(e).

     “Letter of Credit Application” shall mean the standard letter of credit
application employed by Amegy, as the issuer of the Letters of Credit, from time
to time in connection with its issuance of letters of credit.

     “Letter of Credit Payment” shall mean any payment made by the Agent on
behalf of the Lenders under a Letter of Credit, to the extent that such payment
has not been repaid by the Borrower.

     “LIBO Rate” shall mean, with respect to any Interest Period for any LIBO
Rate Loan, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) that appears on Reuters Reference LIBOR01 (or any successor
thereto) for Interest Periods of one month, two months, three months or six
months, respectively (or if such shall not be available, any successor or
similar service selected by the Agent and the Borrower) as of approximately
11:00 a.m., Central Standard or Central Daylight Savings Time, as the case may
be, on the day two Business Days prior to the first day of such Interest Period
for Dollar deposits in an amount comparable to the principal amount of such LIBO
Rate Loan and having a term comparable to the Interest Period for such LIBO Rate
Loan. If neither Reuters nor any successor or similar service is available, the
term “LIBO Rate” shall mean, with respect to any Interest Period for any LIBO
Rate Loan, the rate per annum (rounded upwards if necessary, to the nearest 1/16
of 1%) quoted by the Agent at approximately 11:00 a.m., London time (or as soon
thereafter as practicable) two Business Days prior to the first day of the
Interest Period for such LIBO Rate Loan for the offering to Amegy by leading
banks in the London interbank market of Dollar deposits in an amount comparable
to the principal amount of such LIBO Rate Loan and having a term comparable to
the Interest Period for such LIBO Rate Loan.

     “LIBO Rate Loan” shall mean any Loan and any portion of the Loan Balance
which the Borrower has requested, in the initial Borrowing Request for such Loan
or a subsequent Borrowing Request for such portion of the Loan Balance, bear
interest on the basis of the Adjusted LIBO Rate and which are permitted by the
terms hereof to bear interest on the basis of the Adjusted LIBO Rate.

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     “Lien” shall mean any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of such Property, whether such
interest is based on common law, statute, or contract, and including, but not
limited to, the lien or security interest arising from a mortgage, ship
mortgage, encumbrance, pledge, security agreement, conditional sale or trust
receipt, or a lease, consignment, or bailment for security purposes (other than
true leases or true consignments), liens of mechanics, materialmen, and
artisans, maritime liens and reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Property which secure an obligation owed
to, or a claim by, a Person other than the owner of such Property (for the
purpose of this Agreement, the Borrower shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale agreement,
financing lease, or other arrangement pursuant to which title to the Property
has been retained by or vested in some other Person for security purposes).

     “Limitation Period” shall mean, with respect to any Lender, any period
while any amount remains owing on the Note payable to such Lender and interest
on such amount, calculated at the applicable interest rate, plus any fees or
other sums payable to such Lender under any Loan Document and deemed to be
interest under applicable law, would exceed the amount of interest which would
accrue at the Highest Lawful Rate.

     “Loan” shall mean any loan made by any Lender to or for the benefit of the
Borrower pursuant to this Agreement and any payment made by the Agent, on behalf
of any Lender, under a Letter of Credit.

     “Loan Balance” shall mean, at any point in time, the aggregate outstanding
principal balance of the Notes at such time.

     “Loan Documents” shall mean this Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit, the Security Documents, any Joinder
Agreements, the Guaranties, and all other documents and instruments now or
hereafter delivered pursuant to the terms of or in connection with this
Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit
or the Security Documents, and all renewals and extensions of, amendments and
supplements to, and restatements of, any or all of the foregoing from time to
time in effect.

     “Material Adverse Effect” shall mean (a) any adverse effect on the
business, operations, assets, properties, liabilities (actual or contingent) or
financial condition of the Borrower on a consolidated basis with its
consolidated Subsidiaries which increases, in any material respect, the risk
that any of the Obligations will not be repaid as and when due, (b) any material
and adverse effect upon the Collateral, including any material and adverse
effect upon the value or impairment of the Borrower or its Subsidiary’s
ownership of the Collateral, (c) any material adverse effect on the validity or
enforceability of any Loan Document or (d) any material adverse effect on the
rights or remedies of the Agent, the Lenders or any Approved Hedge Counterparty
under any Loan Document.

     “Monthly Reduction Amount” shall mean, at any time, the amount determined
as such by the Agent (with the approval of the Lenders or any Approved Hedge
Counterparty as required by

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the provisions of Section 9.9) and then in effect in accordance with the
provisions of Section 2.10.

     “Mortgaged Properties” shall mean all Oil and Gas Properties of the
Borrower subject to a perfected first priority Lien (subject only to Permitted
Liens) in favor of the Agent, as security for the Obligations.

     “Net Income” shall mean, for any relevant period, the net income of the
Borrower, on a consolidated basis with its consolidated Subsidiaries, during
such period, determined in accordance with GAAP.

     “Notes” shall mean, collectively, the promissory notes of the Borrower each
payable to a Lender in the face amount of up to the Facility Amount of the
relevant Lender and in the form attached hereto as Exhibit I with all blanks
completed appropriately, together with all renewals, extensions for any period,
increases, and rearrangements thereof.

“Notice of Termination” shall have the meaning assigned to such term in Section
2.20.

     “Obligations” shall mean, without duplication of the same amount in more
than one category, (a) all Indebtedness of the Borrower evidenced by the Notes,
(b) the obligation of the Borrower to provide to or reimburse the Agent, as the
issuer of the Letters of Credit, as the case may be, for amounts payable, paid
or incurred with respect to Letters of Credit, (c) the undrawn, unexpired amount
of all outstanding Letters of Credit, (d) Indebtedness of the Borrower in
respect of Commodity Hedge Agreements or Interest Rate Hedge Agreements with
Approved Hedge Counterparties, so long as in compliance with the provisions of
Section 6.1, (which it is agreed shall rank pari passu with all other items
listed in this definition), (e) the obligation of the Borrower for the payment
of Commitment Fees and other fees pursuant to the provisions of this Agreement,
and (f) all other obligations and liabilities of the Borrower to the Agent or
the Lenders, now existing or hereafter incurred, under, arising out of or in
connection with any Loan Document or any Commodity Hedge Agreement or Interest
Rate Hedge Agreement with an Approved Hedge Counterparty and in compliance with
the provisions of Section 6.1, and to the extent that any of the foregoing
includes or refers to the payment of amounts deemed or constituting interest,
only so much thereof as shall have accrued, been earned and which remains unpaid
at each relevant time of determination.

     “OFAC” shall mean the Office of Foreign Assets Control of the United States
Department of the Treasury or any successor Governmental Authority.

     “Oil and Gas Properties” shall mean fee, leasehold, or other interests in
or under mineral estates or oil, gas, and other liquid or gaseous hydrocarbon
leases, including undivided interests in any such property rights owned jointly
with others, with respect to Properties situated in the United States or
offshore from any State of the United States, including overriding royalty and
royalty interests, leasehold estate interests, net profits interests, production
payment interests, and mineral fee interests, together with contracts executed
in connection therewith and all tenements, hereditaments, appurtenances, and
Properties appertaining, belonging, affixed, or incidental thereto.

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     “Other Taxes” shall mean any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document.

     “Percentage Share” shall mean, as to each Lender, the percentage which such
Lender’s Facility Amount constitutes of the sum of the Facility Amounts of all
Lenders.

     “Permitted Liens” shall mean (a) Liens for taxes, assessments, or other
governmental charges or levies not yet due or which (if foreclosure, distraint,
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, (b) Liens in connection with
workers’ compensation, unemployment insurance or other social security (other
than Liens created by Section 4068 of ERISA), old age pension, employee
benefits, or public liability obligations which are not yet due or which are
being contested in good faith by appropriate proceedings, if such reserve as may
be required by GAAP shall have been made therefor, (c) Liens in favor of
vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen,
constructors, laborers, landlords or similar Liens arising by operation of law
in the ordinary course of business in respect of obligations that are not yet
due or which are being contested in good faith by appropriate proceedings, if
such reserve as may be required by GAAP shall have been made therefore, provided
that the aggregate amount secured by such Liens does not exceed $250,000, (d)
Liens in favor of operators and non-operators under joint operating agreements
or similar contractual arrangements arising in the ordinary course of the
business of the Borrower 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, (e) Liens under
production sales agreements, division orders, operating agreements, and other
agreements customary in the oil and gas business for processing, producing, and
selling hydrocarbons securing obligations not constituting Indebtedness and
provided that such Liens do not secure obligations to deliver hydrocarbons at
some future date without receiving full payment therefor within 90 days of
delivery, (f) covenants, liens, rights, easements, rights of way, restrictions,
and other similar encumbrances, and minor defects in the chain of title which
are customarily accepted in the oil and gas financing industry, none of which
interfere with the ordinary conduct of the business of the Borrower or
materially detract from the value or use of the Property to which they apply,
(g) Liens securing the purchase price of Property, including vehicles and
equipment, acquired by the Borrower in the ordinary course of business
(including Liens existing under conditional sale or title retention contracts),
provided that such Liens cover only the acquired Property and the aggregate
unpaid purchase price secured by such Liens does not exceed $250,000, (h) Liens
securing leases of equipment, provided that, as to any particular lease, the
Lien covers only the relevant leased equipment and secures only amounts which
are not yet due and payable under the relevant lease or are being contested in
good faith by appropriate proceedings and such reserve as required by GAAP shall
have been made therefor, (i) Liens in favor or for the benefit of providers of
such Commodity Hedge Agreements and Interest Rate Hedge Agreements approved by
the Agent securing Indebtedness of the Borrower in respect of Commodity Hedge
Agreements and Interest Rate Hedge Agreements (other than such as constitute a
portion of the Obligations) permitted

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pursuant to the provisions of Section 6.1, and (j) Liens in favor of the Agent
and other Liens expressly permitted hereunder or in the Security Documents.

     “Person” shall mean an individual, corporation, partnership, limited
liability company, trust, unincorporated organization, government, any agency or
political subdivision of any government, or any other form of entity.

     “Plan” shall mean, at any time, any employee benefit plan which is covered
by Title IV of ERISA and in respect of which the Borrower or any Commonly
Controlled Entity of any is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an “employer” as defined in
Section 3(5) of ERISA.

     “Principal Office” shall mean the office of the Agent in Houston, Texas
located at 4400 Post Oak Parkway, 4th Floor, Houston, Texas 77027 or such other
office as the Agent may designate in writing to the Borrower and/or the Lenders
from time to time.

     “Property” shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.

     “Regulation D” shall mean Regulation D of the Board of Governors of the
Federal Reserve System (or any successor).

     “Regulatory Change” shall mean, with respect to any Lender, the passage,
adoption, institution, or amendment of any federal, state, local, or foreign
Requirement of Law (including Regulation D), or any interpretation, directive,
or request (whether or not having the force of law) of any Governmental
Authority or monetary authority charged with the enforcement, interpretation, or
administration thereof, occurring after the Closing Date and applying to a class
of lenders including such Lender or its Applicable Lending Office.

     “Release of Hazardous Substances” shall mean any emission, spill, release,
disposal, or discharge, except in accordance with a valid permit, license,
certificate, or approval of the relevant Governmental Authority, of any
Hazardous Substance into or upon (a) the air, (b) soils or any improvements
located thereon, (c) surface water or groundwater, or (d) the sewer or septic
system, or the waste treatment, storage, or disposal system servicing any
Property of the Borrower.

“Replacement Lenders” shall have the meaning assigned to such term in Section
2.20.

     “Required Lenders” shall mean, at any time when no Loans or Letters of
Credit are outstanding, two or more Lenders holding in the aggregate Percentage
Shares greater than sixty six and sixty seven one hundredths percent (66.67%) of
the Commitment Amount, and at any time when any Loans or Letters of Credit are
outstanding, two or more Lenders which in the aggregate hold more than sixty six
and sixty seven one hundredths percent (66.67%) of the sum of the Loan Balance
(without regard to any sale of a participation in any Loan) and the L/C
Exposure.

“Required Payment” shall have the meaning assigned to such term in Section 2.7.

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     “Requirement of Law” shall mean, as to any Person, the certificate or
articles of incorporation and by-laws, the certificate or articles of
organization and regulations, operating agreement or limited liability company
agreement, the agreement of limited partnership or other organizational or
governing documents of such Person, and any applicable law, treaty, ordinance,
order, judgment, rule, decree, regulation, or determination of an arbitrator,
court, or other Governmental Authority, including rules, regulations, orders,
and requirements for permits, licenses, registrations, approvals, or
authorizations, in each case as such now exist or may be hereafter amended and
are applicable to or binding upon such Person or any of its Property or to which
such Person or any of its Property is subject.

     “Reserve Report” shall mean each report delivered to the Agent pursuant to
the provisions of Section 5.4.

     “Reserve Requirement” shall mean, for any Interest Period for any LIBO Rate
Loan, the average maximum rate at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in Dallas, Texas, with deposits exceeding one billion Dollars against
“Eurocurrency liabilities” (as such term is used in Regulation D) and any other
reserves required by reason of any Regulatory Change to be maintained by such
member banks against (a) any category of liabilities which includes deposits by
reference to which the LIBO Rate is to be determined as provided herein in the
definition of the term “LIBO Rate” or (b) any category of extensions of credit
or other assets which include a LIBO Rate Loan.

     “Responsible Officer” shall mean, as to any Business Entity, its President,
any Vice President or any other Person duly authorized in accordance with the
applicable organizational documents, bylaws, regulations or resolutions to act
on behalf of such Business Entity.

     “Secured Creditors” shall mean the Lenders, any other Approved Hedge
Counterparties and any Secured Third Party Hedge Counterparties.

     “Secured Third Party Hedge Counterparty” shall mean any counterparty of the
Borrower to a Commodity Hedge Agreement or Interest Rate Hedge Agreement that is
party to an intercreditor agreement with the Agent, in form and substance
satisfactory to the Agent and such counterparty.

     “Security Documents” shall mean the security documents executed and
delivered in satisfaction of the condition set forth in Section 3.1(f), any
existing security document assigned or amended by any of such documents set
forth in Section 3.1(f), and all other documents and instruments at any time
executed as security for all or any portion of the Obligations, as such
instruments may be amended, supplemented, restated, or otherwise modified from
time to time.

     “Subsidiary” shall mean, as to any Person, any Business Entity of which
shares of stock or other equity interests having ordinary voting power (other
than stock or other equity interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors or
other governing body or other managers of such Business Entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.

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     “Superfund Site” shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action or any
comparable state registries or list in any state of the United States.

     “Taxes” shall mean any and all present or future taxes, levies, imposts,
duties, fees, deductions, charges or withholdings imposed by any Governmental
Authority.

“Terminated Lender” shall have the meaning assigned to such term in Section
2.20.

“Termination Date” shall have the meaning assigned to such term in Section 2.20.

     “Transferee” shall mean any Person to which any Lender has sold, assigned,
transferred, or granted a participation in any of the Obligations, as authorized
pursuant to the provisions of Section 9.1, and any Person acquiring, by
purchase, assignment, transfer, or participation, from any such purchaser,
assignee, transferee, or participant, any part of such Obligations.

     “UCC” shall mean the Uniform Commercial Code as from time to time in effect
in the State of Texas.

     “USA Patriot Act” shall mean the Uniting and Strengthening America by
Providing Appropriate Tools required to Intercept and Obstruct Terrorism Act of
2001, Pub. L. No. 107-56, 115 Stat. 272 (2001), as the same has been, or shall
hereafter be, renewed, extended, amended or replaced.

     1.3 Undefined Financial Accounting Terms. Financial accounting terms used
in this Agreement without definition are used herein with the respective
meanings assigned thereto in accordance with GAAP at the time in effect.

     1.4 References. References in this Agreement to Schedules, Exhibits,
Articles or Section numbers shall be to Schedules, Exhibits, Articles or
Sections of this Agreement, unless expressly stated to the contrary. References
in this Agreement to “hereby,” “herein,” “hereinafter,” “hereinabove,”
“hereinbelow,” “hereof,” “hereunder” and words of similar import shall be to
this Agreement in its entirety and not only to the particular Schedule, Exhibit,
Article, or Section in which such reference appears. Specific enumeration herein
shall not exclude the general and, in such regard, the terms “includes” and
“including” used herein shall mean “includes, without limitation,” or
“including, without limitation,” as the case may be, where appropriate. Except
as otherwise indicated, references in this Agreement to statutes, sections, or
regulations are to be construed as including all statutory or regulatory
provisions consolidating, amending, replacing, succeeding, or supplementing the
statute, section, or regulation referred to. References in this Agreement to
“writing” include printing, typing, lithography, facsimile reproduction, and
other means of reproducing words in a tangible visible form. References in this
Agreement to agreements and other contractual instruments shall be deemed to
include all exhibits and appendices attached thereto and all subsequent
amendments and other modifications to such instruments, but only to the extent
such amendments and other modifications are not prohibited by the terms of this
Agreement. References in this Agreement to Persons include their respective
successors and permitted assigns.

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     1.5 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

     1.6 Number and Gender. Whenever the context requires, reference herein made
to the single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated. Words denoting sex
shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative.

     1.7 Incorporation of Schedules and Exhibits. The Schedules and Exhibits
attached to this Agreement are incorporated herein and shall be considered a
part of this Agreement for all purposes.

     1.8 Negotiated Transaction. Each party to this Agreement affirms to the
others that it has had the opportunity to consult, and discuss the provisions of
this Agreement with, independent counsel and fully understands the legal effect
of each provision.

ARTICLE II

TERMS OF FACILITY

     2.1 Revolving Line of Credit and Letter of Credit Facility. (a) Upon the
terms and conditions (including the right of the Lenders to decline to make any
Loan, other than a Letter of Credit Payment, so long as any condition to the
making of such Loan set forth in Section 3.2 has not been satisfied) and relying
on the representations and warranties contained in this Agreement, each Lender
severally agrees to make Loans during the Commitment Period to or for the
benefit of the Borrower in an aggregate outstanding principal amount not to
exceed at any time the lesser of the Facility Amount of such Lender or the
Percentage Share of such Lender of the Borrowing Base then in effect and, in
either case, minus the Percentage Share of such Lender of the then existing L/C
Exposure. Loans shall be made from time to time on any Business Day designated
in a Borrowing Request.

     (b) Subject to the provisions of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow and convert Loans of one
type or with one Interest Period into Loans of another type or with a different
Interest Period. Each borrowing or conversion of principal of (i) Base Rate
Loans shall be in an amount at least equal to $100,000 and a whole multiple of
$100,000 and (ii) LIBO Rate Loans shall be in an amount at least equal to
$100,000 and a whole multiple of $100,000 and, if any LIBO Rate Loan would
otherwise be in a lesser principal amount for any period, such Loan shall be a
Base Rate Loan during such period. Except for prepayments made pursuant to the
provisions of Section 2.11, each prepayment of principal shall be in an amount
at least equal to $10,000 and a whole multiple of $10,000. Each borrowing,
prepayment, or conversion of or into a Loan of a different

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type or, in the case of a LIBO Rate Loan, having a different Interest Period,
shall be deemed a separate borrowing, conversion, and prepayment for purposes of
the foregoing, one for each type of Loan or Interest Period.

     (c) The Agent shall notify each Lender of its receipt of a Borrowing
Request as soon as practicable following its receipt thereof, including in such
notice the amount of the requested Loan and the requested date for the making of
the requested Loan. Not later than 11:00 a.m., Central Standard or Central
Daylight Savings Time, as the case may be, on the date specified for each
borrowing, each Lender shall make available to the Agent, at an account
designated by the Agent, an amount equal to the Percentage Share of such Lender
of the borrowing to be made on such date. The amount so received by the Agent
shall, subject to the terms and conditions hereof, be made available to the
Borrower in immediately available funds at the Principal Office. All Loans by
each Lender shall be maintained at the Applicable Lending Office of such Lender
and shall be evidenced by the Note of such Lender.

     (d) The failure of any Lender to make any Loan required to be made by it
hereunder shall not relieve any other Lender of its obligation to make any Loan
required to be made by it, and no Lender shall be responsible for the failure of
any other Lender to make any Loan.

     (e) Upon the terms and conditions (including the right of the Agent to
decline to issue renew or extend any Letter of Credit so long as any condition
to the issuance, renewal or extension of such Letter of Credit set forth in
Section 3.3 has not been satisfied) and relying on the representations and
warranties contained in this Agreement, the Agent, as issuing bank for the
Lenders, agrees, from the date of this Agreement until the date which is 30 days
prior to the Commitment Termination Date, to issue, on behalf of the Lenders in
their respective Percentage Shares, Letters of Credit for the account of the
Borrower and to renew and extend such Letters of Credit. Letters of Credit shall
be issued, renewed, or extended from time to time on any Business Day designated
by the Borrower following the receipt in accordance with the terms hereof by the
Agent of the written (or oral, confirmed promptly in writing) request by a
Responsible Officer of the Borrower therefor and a Letter of Credit Application.
Letters of Credit shall be issued in such amounts as the Borrower may request;
provided, however, that (i) no Letter of Credit shall have an expiration date
which is less than 30 days prior to the Commitment Termination Date, (ii) the
Loan Balance plus the L/C Exposure, including that under any then requested
Letter of Credit, shall not exceed at any time the Commitment Amount, (iii) the
L/C Exposure, including that under any then requested Letter of Credit, shall
not exceed at any time the L/C Sublimit and (iv) no Letter of Credit shall be
issued in an amount less than $10,000.

     (f) In connection with the issuance, renewal or extension by the Agent of
any Letter of Credit pursuant to Section 2.1(e), (i) the Borrower shall pay to
the Agent, for the account of the Lenders, a letter of credit fee in an amount
equal to the greater of (i) the face amount of such Letter of Credit multiplied
by one and one-half percent (1.50%) per annum, calculated on the basis of a year
of 360 days, and actual days elapsed (including the first day but excluding the
last day), or (ii) $350. Such fee with respect to each Letter of Credit shall be
payable quarterly in advance commencing on the date of issuance, renewal or
extension of the relevant Letter of Credit and continuing on the corresponding
day of each third calendar month

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thereafter and at the expiry date of the relevant Letter of Credit. Neither the
Agent nor any Lender shall have any obligation to refund any portion of any such
fee upon early cancellation of the relevant Letter of Credit. The Borrower also
agrees to pay on demand to the Agent, solely for its account as issuer of the
relevant Letter of Credit, its customary letter of credit transaction fees and
expenses, including amendment fees, payable with respect to each Letter of
Credit.

     (g) The Borrower agrees that neither the Agent nor any Lender shall be
responsible for, nor shall the Obligations be affected by, among other things,
(i) the validity or genuineness of documents or any endorsements thereon
presented in connection with any Letter of Credit, even if such documents shall
in fact prove to be in any and all respects invalid, fraudulent or forged, so
long as the Agent, as the issuer of such Letter of Credit, has no actual
knowledge of any such invalidity, lack of genuineness, fraud, or forgery prior
to the presentment for payment of a corresponding Letter of Credit or any draft
thereunder or (ii) any dispute between or among the Borrower and any beneficiary
of any Letter of Credit or any other Person to which any Letter of Credit may be
transferred, or any claims whatsoever of the Borrower against any beneficiary of
any Letter of Credit or any such transferee. The Borrower further acknowledges
and agrees that the Agent, as the issuer of Letters of Credit, shall be liable
to the Borrower to the extent, but only to the extent, of any direct, as opposed
to consequential or punitive, damages suffered by the Borrower as a result of
the willful misconduct or gross negligence of the Agent as the issuer of Letters
of Credit in determining whether documents presented under a Letter of Credit
complied with the terms of such Letter of Credit that resulted in either a
wrongful payment under such Letter of Credit or a wrongful dishonor of a claim
or draft properly presented under such Letter of Credit. In the absence of gross
negligence or willful misconduct by the Agent as the issuer of Letters of
Credit, the Agent shall not be liable for any error, omission, interruption or
delay in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Agent, the Lenders,
and the Borrower agree that any action taken or omitted by the Agent, as issuer
of any Letter of Credit, under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct, shall be binding as among the Agent, as issuer of such
Letter of Credit or otherwise, the Lenders, and the Borrower shall not put the
Agent, as issuer of such Letter of Credit or otherwise, or any Lender under any
liability to the Borrower.

     (h) Unless the Borrower provides to the Agent funds sufficient to allow the
Agent to pay any drawing by a beneficiary under a Letter of Credit prior to the
Agent being obligated to pay the relevant drawing under a Letter of Credit, the
Agent shall make a Letter of Credit Payment in payment of such drawing. Prior to
any Letter of Credit Payment in respect of any Letter of Credit, each Lender
shall be deemed to be a participant, through the Agent with respect to the
relevant Letter of Credit, in the obligation of the Agent, as the issuer of such
Letter of Credit, in an amount equal to the Percentage Share of such Lender of
the maximum amount which is or at any time may become available to be drawn
thereunder. Upon delivery by such Lender of funds requested pursuant to Section
2.1(i), such Lender shall be treated as having purchased a participating
interest in an amount equal to such funds delivered by such Lender to the Agent
in the obligation of the Borrower to reimburse the Agent, as the issuer of such
Letter of Credit, for any amounts payable, paid, or incurred by the Agent, as
the issuer of such Letter of Credit, with respect to such Letter of Credit.

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     (i) Each Lender shall be unconditionally and irrevocably liable, without
regard to the occurrence of any Default or Event of Default, to the extent of
the Percentage Share of such Lender at the time of issuance of each Letter of
Credit, to reimburse, on demand, the Agent, as the issuer of such Letter of
Credit, for the amount of each Letter of Credit Payment under such Letter of
Credit. Each Letter of Credit Payment shall be deemed to be a Loan by each
Lender to the extent of funds delivered by such Lender to the Agent with respect
to such Letter of Credit Payment and shall to such extent be deemed a Loan under
and shall be evidenced by the Note of such Lender and shall be payable by the
Borrower upon demand by the Agent.

     (j) EACH LENDER AGREES TO INDEMNIFY THE AGENT, AS THE ISSUER OF EACH LETTER
OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS IN FACT AND
AFFILIATES OF THE AGENT (TO THE EXTENT NOT REIMBURSED BY THE BORROWER AND
WITHOUT LIMITING THE OBLIGATION OF THE BORROWER TO DO SO), RATABLY ACCORDING TO
THE PERCENTAGE SHARE OF SUCH LENDER AT THE TIME OF ISSUANCE OF SUCH LETTER OF
CREDIT, FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS
OF ANY KIND WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING ANY TIME FOLLOWING THE
PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT AS THE
ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS IN FACT OR AFFILIATES IN ANY WAY RELATING TO OR ARISING OUT OF
THIS AGREEMENT OR SUCH LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY THE
AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS IN FACT OR AFFILIATES UNDER OR IN CONNECTION WITH
ANY OF THE FOREGOING, INCLUDING ANY LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS
IMPOSED, INCURRED OR ASSERTED AS A RESULT OF THE NEGLIGENCE, WHETHER SOLE OR
CONCURRENT, OF THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES;
PROVIDED THAT NO LENDER (OTHER THAN THE AGENT AS THE ISSUER OF A LETTER OF
CREDIT) SHALL BE LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE AGENT AS THE ISSUER OF A LETTER OF CREDIT. THE AGREEMENTS IN
THIS SECTION 2.1(J) SHALL SURVIVE THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS
AND THE TERMINATION OF THIS AGREEMENT.

     2.2 Limitations on Interest Periods. Each Interest Period selected by the
Borrower (a) which commences on the last Business Day of a calendar month (or
any day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month, (b) which would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day), (c) which would otherwise end after the Commitment
Termination Date shall end on the Commitment Termination Date, and (d) shall
have a duration of not less

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than one month and, if any Interest Period would otherwise be a shorter period,
the relevant Loan shall be a Base Rate Loan during such period.

     2.3 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, no more than five (5) separate LIBO Rate Loans shall be
outstanding at any one time, with, for purposes of this Section 2.3, all LIBO
Rate Loans for the same Interest Period constituting one LIBO Rate Loan.
Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any interest rate for any LIBO Rate Loan for any Interest
Period therefor:

     (a) the Agent determines (which determination shall be conclusive, absent
manifest error) that quotations of interest rates for the deposits referred to
in the definition of “LIBO Rate” in Section 1.2 are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest for such Loan as provided in this Agreement; or

     (b) the Agent determines (which determination shall be conclusive, absent
manifest error) that the rates of interest referred to in the definition of
“LIBO Rate” in Section 1.2 upon the basis of which the rate of interest for such
Loan for such Interest Period is to be determined do not adequately cover the
cost to the Lenders of making or maintaining such Loan for such Interest Period,
then the Agent shall give the Borrower and the Lenders prompt notice thereof;
and so long as such condition remains in effect, the Lenders shall be under no
obligation to make LIBO Rate Loans or to convert Base Rate Loans into LIBO Rate
Loans, and the Borrower shall, on the last day of the then current Interest
Period for each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or
convert such Loan into a LIBO Rate Loan with amounts and maturities for which
quotations are provided, or convert such Loan into a Base Rate Loan in
accordance with the provisions of Section 2.12.

     2.4 Use of Loan Proceeds and Letters of Credit. (a) Proceeds of all Loans
shall be used solely by the Borrower (i) to acquire and develop Oil and Gas
Properties, (ii) for the Borrower’s working capital and general business
purposes and capital expenditures not otherwise prohibited under applicable
provisions of this Agreement and (iii) to pay fees and expenses incurred in
connection with this Agreement.

     (b) Letters of Credit shall be issued solely for the account of the
Borrower for general business purposes of the Borrower not otherwise prohibited
under applicable provisions of this Agreement; provided, however, no Letter of
Credit may be used in lieu or in support of stay or appeal bonds or Obligations
in respect of Commodity Hedge Agreements or Interest Rate Hedge Agreements.

     2.5 Interest. Subject to applicable provisions of this Agreement (including
those of Section 2.17), (a) interest on Base Rate Loans shall accrue and be
payable at a rate per annum equal to the greater of (i) Adjusted Base Rate plus
the relevant Applicable Margin and (ii) five percent (5%), and (b) interest on
LIBO Rate Loans shall accrue and be payable at a rate per annum equal to the
greater of (i) the relevant adjusted LIBO Rate plus the relevant Applicable
Margin and (ii) five percent (5%). Notwithstanding the foregoing, interest on
past due principal and, to the extent permitted by applicable law, past due
interest and fees, shall accrue at the Default Rate and shall be payable upon
demand by the Agent at any time as to all or any portion

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of such interest. Interest provided for herein shall be calculated on unpaid
sums actually advanced and outstanding pursuant to the terms of this Agreement
and only for the period from the date or dates of such advances to, but not
including, the date or dates of repayment. In the event that the Borrower fails
to select the duration of any Interest Period for any LIBO Rate Loan within the
time period and otherwise as provided herein, such Loan (if outstanding as a
LIBO Rate Loan) shall be automatically converted into a Base Rate Loan on the
last day of the then current Interest Period for such Loan or (if outstanding as
a Base Rate Loan) shall remain as, or (if not then outstanding) shall be made
as, a Base Rate Loan. Interest provided for herein shall be calculated on unpaid
sums actually advanced and outstanding pursuant to the terms of this Agreement
and only for the period from the date or dates of such advances to, but not
including, the date or dates of repayment.

     2.6 Repayment of Loans and Interest. Accrued and unpaid interest on each
outstanding Base Rate Loan shall be due and payable monthly commencing on the
last day of July, 2008 and continuing on the first day of each calendar month
thereafter while any Base Rate Loan remains outstanding, the payment in each
instance to be the amount of interest which has accrued and remains unpaid in
respect of the relevant Loan. Accrued and unpaid interest on each outstanding
LIBO Rate Loan shall be due and payable on the earlier of (a) the last day of
the Interest Period for such LIBO Rate Loan, or (b) if any Interest Period is of
a duration longer than three months, on the day of the third month of the
relevant Interest Period corresponding to the day preceding the initial day of
such Interest Period and on the last day of the relevant Interest Period, the
payment in each instance to be the amount of interest which has accrued and
remains unpaid in respect of the relevant Loan. The Loan Balance, together with
all accrued and unpaid interest thereon, shall be due and payable on the
Commitment Termination Date. At the time of making each payment hereunder or
under the Notes, the Borrower shall specify to the Agent the Loans or other
amounts payable by the Borrower hereunder to which such payment is to be
applied. In the event the Borrower fails to so specify, or if an Event of
Default has occurred and is continuing, the Agent may apply such payment as it
may elect in its discretion and in accordance with the terms hereof.

     2.7 Outstanding Amounts. (a) The outstanding principal balance of the Note
of each Lender reflected by the notations of such Lender on its records shall be
deemed rebuttably presumptive evidence of the principal amount owing on such
Note. The liability for payment of principal and interest evidenced by each Note
shall be limited to principal amounts actually advanced and outstanding pursuant
to this Agreement and interest on such amounts calculated in accordance with
this Agreement.

     (b) Unless the Agent shall have been notified by a Lender or the Borrower
prior to the date on which any of them is scheduled to make payment to the Agent
of (in the case of a Lender) the proceeds of a Loan to be made by such Lender
hereunder or (in the case of the Borrower) a payment to the Agent for the
account of the Agent or one or more of the Lenders hereunder (such payment being
herein called the “Required Payment”), which notice shall be effective upon
receipt, that it does not intend to make the Required Payment to the Agent, the
Agent may assume that the Required Payment has been made and, in reliance upon
such assumption, may (but shall not be required to) make the amount thereof
available to the intended recipient on such date. If such Lender or the
Borrower, as the case may be, has not in fact made

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the Required Payment to the Agent, the recipient of such payment shall, on
demand, repay to the Agent solely for its account the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to, in the case of
a Lender as recipient, the Federal Funds Rate or, in the case of the Borrower as
recipient, the Adjusted Base Rate plus the relevant Applicable Margin.

     2.8 Taxes and Time, Place, and Method of Payments. (a) All payments
required pursuant to this Agreement or the Notes shall be made without set-off
or counterclaim in Dollars and in immediately available funds free and clear of,
and without deduction for, any Indemnified Taxes or Other Taxes; provided,
however that if the Borrower shall be required to deduct any Indemnified Taxes
or Other Taxes from such payments, then (i) the sum payable shall be increased
by the amount (the “Additional Amount”) necessary so that after making all
required deductions (including deductions applicable to additional sums
described in this paragraph) the Agent or any Lender, as the case may be,
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law. In addition, to the extent not paid
in accordance with the preceding sentence, the Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.

     (b) SUBJECT TO THE PROVISIONS OF SECTION 2.20, THE BORROWER SHALL INDEMNIFY
THE AGENT AND EACH LENDER FOR INDEMNIFIED TAXES AND OTHER TAXES PAID BY SUCH
PERSON, INCLUDING ANY INDEMNIFIED TAXES OR OTHER TAXES ARISING FROM THE
NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT OR ANY LENDER; PROVIDED,
HOWEVER, THAT THE BORROWER SHALL NOT BE OBLIGATED TO MAKE PAYMENT TO THE AGENT
OR ANY LENDER IN RESPECT OF PENALTIES, INTEREST AND OTHER SIMILAR LIABILITIES
ATTRIBUTABLE TO SUCH INDEMNIFIED TAXES OR OTHER TAXES IF SUCH PENALTIES,
INTEREST OR OTHER SIMILAR LIABILITIES ARE ATTRIBUTABLE TO THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF THE PERSON SEEKING INDEMNIFICATION.

     (c) If a Lender or the Agent shall become aware that it is entitled to
claim a refund from a Governmental Authority in respect of Indemnified Taxes or
Other Taxes paid by the Borrower pursuant to this Section 2.8, including
Indemnified Taxes or Other Taxes as to which it has been indemnified by the
Borrower, or with respect to which the Borrower has paid Additional Amounts
pursuant to the Loan Documents, it shall promptly notify the Borrower of the
availability of such refund claim and, if the Lender or the Agent, as the case
may be, determines in good faith that making a claim for refund will not have an
adverse effect to its taxes or business operations, shall, within 10 days after
receipt of a request by the Borrower, make a claim to such Governmental
Authority for such refund at the expense of the Borrower. If a Lender or the
Agent receives a refund in respect of any Indemnified Taxes or Other Taxes paid
by the Borrower pursuant to the Loan Documents, it shall within 30 days from the
date of such receipt pay over such refund to the Borrower (but only to the
extent of Indemnified Taxes or Other Taxes paid pursuant to the Loan Documents,
including indemnity payments made or Additional Amounts paid, by the Borrower
under this Section 2.8 with respect to the Indemnified Taxes or Other Taxes
giving rise to such refund), net of all out of pocket expenses of such

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Lender or the Agent, as the case may be, and without interest (other than
interest paid by the relevant Governmental Authority with respect to such
refund).

     (d) If any Lender or the Agent is or becomes eligible under any applicable
law, regulation, treaty or other rule to a reduced rate of taxation, or a
complete exemption from withholding, with respect to Indemnified Taxes or Other
Taxes on payments made to it or for its benefit by the Borrower, such Lender or
the Agent, as the case may be, shall, upon the request, and at the cost and
expense, of the Borrower, complete and deliver from time to time any
certificate, form or other document requested by the Borrower, the completion
and delivery of which are a precondition to obtaining the benefit of such
reduced rate or exemption, provided that the taking of such action by such
Lender or the Agent, as the case may be, would not, in the judgment of such
Lender or the Agent, as the case may be, be disadvantageous or prejudicial to
such Lender or the Agent, as the case may be, or inconsistent with its internal
policies or legal or regulatory restrictions. For any period with respect to
which a Lender or the Agent, as the case may be, has failed to provide any such
certificate, form or other document requested by the Borrower, such Lender or
the Agent, as the case may be, shall not be entitled to any payment under this
Section 2.8 in respect of any Indemnified Taxes or Other Taxes that would not
have been imposed but for such failure.

     (e) Each Lender organized under the laws of the United States, any State
thereof or the District of Columbia (other than Lenders that are corporations or
otherwise exempt from United States backup withholding Tax) shall (i) deliver to
the Borrower and the Agent, when such Lender first becomes a Lender, upon the
written request of the Borrower or the Agent, two original copies of United
States Internal Revenue Form W-9 or any successor form, properly completed and
duly executed by such Lender, certifying that such Lender is exempt from United
States backup withholding Tax on payments of interest made under the Loan
Documents and (ii) thereafter at each time it is so reasonably requested in
writing by the Borrower or the Agent, deliver within a reasonable time two
original copies of an updated United States Internal Revenue Service Form W-9 or
any successor form thereto.

     (f) Each Lender that is organized under the laws of a jurisdiction other
than the United States, any State thereof or the District of Columbia (each such
Lender, a “Foreign Lender”) that is entitled to an exemption from or reduction
of withholding Tax under the laws of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under the Loan Documents shall deliver to the Borrower and the Agent,
but only at the written request of the Borrower or the Agent, such properly
completed and duly executed documentation prescribed by applicable law or
reasonably requested by the Borrower or the Agent as will permit such payments
to be made without withholding or at a reduced rate, unless in the good faith
opinion of the Foreign Lender such documentation would expose the Foreign Lender
to any material adverse consequence or risk. Such documentation shall be
delivered by each Foreign Lender on or before the date it becomes a Lender and,
if required by law, on or before the date, if any, such Foreign Lender changes
its Applicable Lending Office by designating a different lending office with
respect to its Loans. In addition, each Foreign Lender shall deliver such forms
promptly upon the obsolescence or invalidity of any form previously delivered by
such Foreign Lender. Each Lender (and, in the case of a Foreign Lender its
lending office), represents that on the Closing Date, payments made

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hereunder by the Borrower or the Agent to it would not be subject to United
States Federal withholding tax.

     (g) Notwithstanding the provisions of subsection (a) above, the Borrower
shall not be required to indemnify any Foreign Lender or to pay any Additional
Amounts to any Foreign Lender, in respect of United States federal withholding
Tax pursuant to subsection (a) above, (i) to the extent that the obligation to
withhold amounts with respect to United States federal withholding tax existed
on the date such Foreign Lender became a Lender; (ii) with respect to payments
to a new Applicable Lending Office with respect to a Loan, but only to the
extent that such withholding tax exceeds any withholding tax that would have
been imposed on such Lender had it not designated such new Applicable Lending
Office; (iii) with respect to a change by such Foreign Lender of the
jurisdiction in which it is organized, incorporated, controlled or managed, or
in which it is doing business, from the date such Foreign Lender changed such
jurisdiction, but only to the extent that such withholding tax exceeds any
withholding tax that would have been imposed on such Lender had it not changed
the jurisdiction in which it is organized, incorporated, controlled or managed,
or in which it is doing business; or (iv) to the extent that the obligation to
indemnify any Foreign Lender or to pay such Additional Amounts would not have
arisen but for a failure by such Foreign Lender to comply with the provisions of
Section 2.8(f).

     (h) All payments by the Borrower shall be deemed received on (i) receipt or
(ii) the next Business Day following receipt if such receipt is after 3:00 p.m.,
Central Standard or Central Daylight Savings Time, as the case may be, on any
Business Day, and shall be made to the Agent at the Principal Office. Except as
provided to the contrary herein, if the due date of any payment hereunder or
under any Note would otherwise fall on a day which is not a Business Day, such
date shall be extended to the next succeeding Business Day, and interest shall
be payable for any principal so extended for the period of such extension;
provided, however, that in the case of any LIBO Rate Loan, if the result of such
extension would be to extend such payment into another calendar month, then the
relevant payment shall be due on the immediately preceding Business Day.

     2.9 Pro Rata Treatment; Adjustments. (a) Except to the extent otherwise
expressly provided herein, (i) each borrowing pursuant to this Agreement shall
be made from the Lenders pro rata in accordance with their respective Percentage
Shares, (ii) each reduction of the sum of the Facility Amounts of the Lenders at
the request of the Borrower, as well as any subsequent increase in the sum of
the Facility Amounts of the Lenders at the request of the Borrower and with
written agreement of the Agent and all the Lenders, shall serve to adjust the
Facility Amounts of the Lenders pro rata in accordance with the Facility Amounts
of the Lenders in effect immediately prior to any such adjustment, (iii) each
payment of Commitment Fees shall be made to the Agent for the account of the
Lenders pro rata in accordance with their respective Percentage Shares, (iv)
except as otherwise provided herein, each payment by the Borrower of other fees
pursuant to this Agreement shall be made to Amegy solely for its account, except
as agreed otherwise by Amegy and any other Lender, (v) each payment of principal
of Loans shall be made to the Agent for the account of the Lenders pro rata in
accordance with their respective shares of the Loan Balance, (vi) each payment
of interest on Loans shall be made to the Agent for the account of the Lenders
pro rata in accordance with their respective shares of the aggregate

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amount of interest due and payable to the Lenders, and (vii) each payment by the
Borrower under Commodity Hedge Agreements and Interest Rate Hedge Agreements
with Approved Hedge Counterparties shall be made only to the Person or Persons
entitled thereto.

     (b) The Agent shall distribute all payments with respect to the Obligations
under the Loan Documents promptly upon receipt in like funds as received to the
Lenders and any Approved Hedge Counterparties entitled to participate in any
relevant payment. In the event that any payments made hereunder by the Borrower
on the Obligations under the Loan Documents at any particular time are
insufficient to satisfy in full the Obligations under the Loan Documents due and
payable at such time, such payments shall be applied (i) first, to fees and
expenses due pursuant to the terms of this Agreement or any other Loan Document,
(ii) second, to accrued interest, (iii) third, to the Loan Balance and any other
Obligations under the Loan Documents pro rata on the basis of the ratio of the
amount of all such Obligations under the Loan Documents owing to the Agent or
the relevant Lender, as the case may be, to the total amount of the Obligations
under the Loan Documents then owing and (iv) fourth to cash collateralize the
L/C Exposure in the manner provided in Section 2.11.

     (c) If any Lender (for purposes of this Section, a “Benefited Lender”)
shall at any time receive any payment of all or part of its portion of the
Obligations under the Loan Documents, or receive any Collateral in respect
thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 7.1(f) or Section 7.1(g), or
otherwise) in an amount greater than such Lender was entitled to receive
pursuant to the terms hereof, such Benefited Lender shall purchase for cash from
the other Lenders such portion of the Obligations under the Loan Documents of
such other Lenders, or shall provide such other Lenders with the benefits of any
such Collateral or the proceeds thereof, as shall be necessary to cause such
Benefited Lender to share the excess payment or benefits of such Collateral or
proceeds with each of the Lenders according to the terms hereof. If all or any
portion of such excess payment or benefits is thereafter recovered from such
Benefited Lender, such purchase shall be rescinded and the purchase price and
benefits returned by such Lender, to the extent of such recovery, but without
interest. The Borrower agrees that each such Lender so purchasing a portion of
the Obligations under the Loan Documents of another Lender may exercise all
rights of payment (including rights of set-off) with respect to such portion as
fully as if such Lender were the direct holder of such portion. If any Lender
ever receives, by voluntary payment, exercise of rights of set-off or banker’s
lien, counterclaim, cross-action or otherwise, any funds of the Borrower to be
applied to the Obligations under the Loan Documents, or receives any proceeds by
realization on or with respect to any Collateral, all such funds and proceeds
shall be forwarded immediately to the Agent for distribution in accordance with
the terms of this Agreement.

     2.10 Borrowing Base and Monthly Reduction Amount. (a) The Borrowing Base as
of the Closing Date is acknowledged by the Borrower, the Agent and the Lenders
to be $3,000,000. Commencing on October 31, 2008 and continuing thereafter on
the last day of each calendar month through the Commitment Termination Date, the
amount of the Borrowing Base then in effect shall be reduced by the Monthly
Reduction Amount, which Monthly Reduction Amount as of the Closing Date is
acknowledged to be $0.00.

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     (b) The Borrowing Base and the Monthly Reduction Amount shall be
redetermined, by the Agent, with the approval of the Lenders as required
pursuant to the provisions of Section 9.9, semi-annually (on each June 1 and
December 1 prior to the Commitment Termination Date, commencing on December 1,
2008) on the basis of information supplied by the Borrower in compliance with
the provisions of this Agreement, including Reserve Reports, and all other
information available to the Agent and the Lenders. In addition, the Agent, with
the approval of the Lenders as required pursuant to the provisions of Section
9.9, shall, in the normal course of business following a request of the
Borrower, redetermine the Borrowing Base and the Monthly Reduction Amount;
provided, however, the Agent and the Lenders shall not be obligated to respond
to more than one such request during the period between the scheduled
semi-annual redeterminations provided for above. Notwithstanding the foregoing,
the Borrowing Base in effect at any time shall be subject to reduction in
accordance with applicable provisions of Section 6.4 and the Agent, with the
approval of the Lenders as required pursuant to the provisions of Section 9.9,
may at its discretion and shall, upon request by the Required Lenders and with
the approval of the Lenders as required pursuant to the provisions of Section
9.9, redetermine the Borrowing Base and the Monthly Reduction Amount at any
time; provided, however, the Agent and the Lenders shall not be entitled to more
than one such unscheduled redetermination between the scheduled redeterminations
provided for above.

     (c) Upon each determination of the Borrowing Base and the Monthly Reduction
Amount, the Agent shall notify the Borrower orally (confirming such notice
promptly in writing) of such determination, and, subject to the operation of the
Monthly Reduction Amount, the Borrowing Base and the Monthly Reduction Amount so
communicated to the Borrower shall become effective upon such oral notification
and shall remain in effect until the next subsequent determination of the
Borrowing Base and the Monthly Reduction Amount.

     (d) The Borrowing Base shall represent the determination by the Agent and
the Lenders, in accordance with the applicable definitions and provisions herein
contained and the customary lending practices of the Agent and the Lenders for
loans of this nature (but taking into account floor and cap prices or other
price protection under Commodity Hedge Agreements), of the value, for loan
purposes, of the Mortgaged Properties and any other Oil and Gas Properties of
the Borrower acceptable to the Agent and the Lenders, subject, in the case of
any increase in the Borrowing Base, to the credit approval processes of the
Agent and each of the Lenders. Furthermore, the Borrower acknowledges that the
determination of the Borrowing Base contains an equity cushion (market value in
excess of loan value), which is acknowledged by the Borrower to be essential for
the adequate protection of the Agent and the Lenders.

     2.11 Mandatory Prepayments. If at any time, as a result of the second
sentence of subsection (a) of Section 2.10, the sum of the Loan Balance and the
L/C Exposure exceeds the Commitment Amount then in effect, the Borrower shall,
within three Business Days of receipt of notice from the Agent of such
occurrence, prepay such portion of the Loan Balance and/or, as provided below in
this subsection (a), provide cash as Collateral so that the sum of the Loan
Balance and the L/C Exposure does not exceed the Commitment Amount then in
effect. If at any time, other than as a result of the second sentence of
subsection (a) of Section 2.10, the sum of the Loan Balance and the L/C Exposure
exceeds the Commitment Amount then in effect (such excess, a “Deficiency”), the
Borrower shall, at the option of the Borrower communicated to the

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Agent within 10 days of receipt of notice from the Agent of such occurrence, (i)
prepay the amount of the Deficiency in four substantially equal installment
payments, each for application on the Loan Balance and then to provide cash as
Collateral for the L/C Exposure in the manner provided below in this Section
2.11, the first of which being due on the thirtieth day following receipt by the
Borrower of the relevant notice from the Agent and the second, third and fourth
of which being due on the sixtieth, ninetieth and one hundred twentieth day,
respectively, following receipt by the Borrower of the relevant notice from the
Agent, (ii) provide, within 30 days of such election by the Borrower, additional
Collateral, of character and value satisfactory to the Required Lenders in their
sole discretion, and/or cash as Collateral to secure the Obligations, by way of
the execution and delivery to the Agent of Security Documents in form and
substance satisfactory to the Agent or (iii) affect any combination of the
alternatives described in clauses (i) and (ii) of this sentence and acceptable
to the Required Lenders in their sole discretion. Any prepayment pursuant to the
provisions of this Section 2.11 shall be without premium or penalty, except as
provided in Section 2.18, and the amount of any such prepayment may be
reborrowed if otherwise available to the Borrower pursuant to the terms of this
Agreement. In the event that a mandatory prepayment is to be made under this
Section 2.11 or under Section 6.4 and the Loan Balance is less than the amount
required to be prepaid, the Borrower shall repay the entire Loan Balance and, in
accordance with the provisions of the relevant Letter of Credit Applications
executed by the Borrower or otherwise to the satisfaction of the Agent, deposit
with the Agent, as additional collateral securing the Obligations, an amount of
cash, in immediately available funds, equal to the L/C Exposure minus the
Commitment Amount. The cash deposited with the Agent in satisfaction of the
requirement provided in this Section 2.11 shall be invested, at the express
direction of the Borrower as to investment vehicle and maturity (which shall be
no later than the latest expiry date of any then outstanding Letter of Credit),
for the account of the Borrower in cash or cash equivalent investments offered
by or through Amegy.

     2.12 Voluntary Prepayments and Conversions of Loans. Subject to applicable
provisions of this Agreement, the Borrower shall have the right at any time or
from time to time to prepay Loans without prepayment penalty and to convert
Loans of one type or with one Interest Period into Loans of another type or with
a different Interest Period; provided, however, that (a) the Borrower shall give
the Agent notice of each such prepayment or conversion of (i) all or any portion
of a LIBO Rate Loan no less than three Business Days prior to prepayment or
conversion and (ii) all or any portion of a Base Rate Loan no less than one
Business Day prior to prepayment or conversion, (b) any prepayment of any LIBO
Rate Loan shall be in an amount of at least equal to $10,000 and a whole
multiple of $10,000, (c) the Borrower shall pay all accrued and unpaid interest
on the amounts prepaid or converted, (d) no such prepayment or conversion shall
serve to postpone the repayment when due of any Obligation or any installments
thereof and (e) the Borrower shall reimburse each Lender for any losses,
expenses or costs incurred by such Lender pursuant to prepayment or conversion
of a Loan, or the failure of the Borrower to make such prepayment or conversion,
as provided in Section 2.18. Except as provided in the immediately preceding
sentence, any prepayment pursuant to the provisions of this Section 2.12 shall
be without premium or penalty and the amount of any such prepayment may be
reborrowed if otherwise available to the Borrower pursuant to the terms of this
Agreement.

     2.13 Commitment Fees. In addition to interest on the Notes as provided
herein and other fees payable hereunder, and to compensate the Lenders for
maintaining funds available

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under the Facility, the Borrower shall pay to the Agent, for the account of the
Lenders, in immediately available funds, for the calendar quarter ending on the
last day of September, 2008 and for each calendar quarter thereafter during the
Commitment Period and on the Commitment Termination Date, a fee equal to the
Applicable Commitment Fee Percentage, determined on the first day of the
relevant quarterly or shorter period, for the period of calculation, calculated
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day, but excluding the last day), multiplied by the
average daily amount of the Available Commitment during the relevant quarterly
or shorter period, as the case may be. Commitment Fees shall be payable by the
Borrower upon receipt of an invoice therefor or statement thereof delivered by
the Agent and shall be past due if not paid within ten (10) days of receipt of
each such invoice or statement.

     2.14 Engineering Fees and Expenses. The Borrower shall pay directly, or
reimburse the Agent for its payment of, the fees and expenses of the independent
petroleum engineer or firm of independent petroleum engineers engaged by the
Agent in connection with the initial determination and each subsequent
redetermination of the Borrowing Base. Such amounts shall be payable by the
Borrower to the independent petroleum engineer or firm of independent petroleum
engineers or to the Agent, as the case may be, within thirty (30) days of
receipt by the Borrower of a statement therefor.

     2.15 Additional Fees. In addition to interest on the Notes as provided
herein and other fees payable hereunder, and to compensate the Lenders for the
costs of the extension of credit hereunder, the Borrower shall pay to the Agent,
for the account of the Lenders, on the Closing Date, in immediately available
funds, a fee in the amount of $15,000. Additionally, the Borrower shall pay a
fee to the Agent on the Closing Date and each anniversary of the Closing Date,
for its account, equal to $5,000 multiplied by the total number of Lenders
existing at such time; provided, however, that in the event that Amegy is the
sole Lender existing at such time, such fee shall not apply. Further, (a) the
Borrower shall pay a fee to the Agent, for the account of the Lenders, at any
time the Borrowing Base is increased above the Borrowing Base set at Closing,
and such fee shall be equal to the greater of (i) one half of one percent
(0.50%) of the amount of such increase or (ii) $2,000.00.

     2.16 Loans to Satisfy Obligations. Upon a Default, the Lenders may, but
shall not be obligated to, make Loans for the benefit of the Borrower and apply
proceeds thereof to the satisfaction of any condition, warranty, representation
or covenant of the Borrower contained in this Agreement or any other Loan
Document. Such Loans shall be evidenced by the Notes and shall bear interest at
the Adjusted Base Rate plus the relevant Applicable Margin, subject, however, to
the provisions of Section 2.5 regarding the accrual of interest at the Default
Rate in certain circumstances.

     2.17 General Provisions Relating to Interest. (a) It is the intention of
the parties hereto to comply strictly with the usury laws of the State of Texas
and the United States of America. In this connection, there shall never be
collected, charged, or received on the sums advanced hereunder interest in
excess of that which would accrue at the Highest Lawful Rate. The Borrower
agrees that, to the extent the Highest Lawful Rate is determined with reference
to the laws of the State to Texas, the Highest Lawful Rate shall be the “weekly”
rate as defined in Chapter 303 of the Texas Finance Code, provided that the
Agent or any Lender may, at its

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election, substitute for the “weekly” rate the “annualized” or “quarterly” rate,
as such terms are defined in the aforesaid statute, upon the giving of notices
provided for in such statute and effective upon the giving of such notices. The
Agent and each Lender may also rely, to the extent permitted by applicable laws
of the State of Texas or the United States of America, on alternative maximum
rates of interest under other laws of the State of Texas or the United States of
America applicable to the Agent or the relevant Lender, if greater.

     (b) Notwithstanding anything herein or in the Notes to the contrary, during
any Limitation Period, the interest rate to be charged on amounts evidenced by
the Notes held by any affected Lenders shall be the Highest Lawful Rate, and the
obligation, if any, of the Borrower for the payment of fees or other charges
deemed to be interest under applicable law shall be suspended. During any period
or periods of time following a Limitation Period, to the extent permitted by
applicable laws of the State of Texas or the United States of America, the
interest rate to be charged hereunder on amounts evidenced by the Notes held by
any affected Lenders shall remain at the Highest Lawful Rate until such time as
there has been paid to each applicable Lender (i) the amount of interest in
excess of that accruing at the Highest Lawful Rate that such Lender would have
received during the Limitation Period had the interest rate remained at the
otherwise applicable rate, and (ii) all interest and fees otherwise payable to
such Lender but for the effect of such Limitation Period.

     (c) If, under any circumstances, the aggregate amounts paid on the Notes or
under this Agreement or any other Loan Document include amounts which by law are
deemed interest and which would exceed the amount permitted if the Highest
Lawful Rate were in effect, the Borrower stipulates that such payment and
collection will have been and will be deemed to have been, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the result of mathematical error on the part of the Borrower, the
Agent, and the Lenders; and the party receiving such excess shall promptly
refund the amount of such excess (to the extent only of such interest payments
in excess of that which would have accrued and been payable on the basis of the
Highest Lawful Rate) upon discovery of such error by such party or notice
thereof from the Borrower. In the event that the maturity of any Obligation is
accelerated, by reason of an election by the Lenders or otherwise, or in the
event of any required or permitted prepayment, then the consideration
constituting interest under applicable laws may never exceed that payable on the
basis of the Highest Lawful Rate, and excess amounts paid which by law are
deemed interest, if any, shall be credited by the Agent and the Lenders on the
principal amount of the Obligations, or if the principal amount of the
Obligations shall have been paid in full, refunded to the Borrower.

     (d) All sums paid, or agreed to be paid, to the Agent and the Lenders for
the use, forbearance and detention of the proceeds of any advance hereunder
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full term hereof until paid in full so that
the actual rate of interest is uniform but does not exceed the Highest Lawful
Rate throughout the full term hereof.

     2.18 Yield Protection. (a) Without limiting the effect of the other
provisions of this Section 2.18 (but without duplication), the Borrower shall
pay to the Agent and each Lender from time to time such amounts as the Agent or
such Lender may determine are necessary to compensate it for any Additional
Costs incurred by the Agent or such Lender.

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     (b) Without limiting the effect of the other provisions of this Section
2.18 (but without duplication), the Borrower shall pay to each Lender from time
to time on request such amounts as such Lender may determine are necessary to
compensate such Lender or such Lender’s holding company for any costs
attributable to the maintenance by such Lender (or any Applicable Lending
Office), pursuant to any Regulatory Change, of capital in respect of its
Commitment, such compensation to include an amount equal to any reduction of the
rate of return on assets or equity of such Lender or such Lender’s holding
company (or any Applicable Lending Office) to a level below that which such
Lender or such Lender’s holding company (or any Applicable Lending Office) could
have achieved but for such Regulatory Change.

     (c) Without limiting the effect of the other provisions of this Section
2.18 (but without duplication), in the event that any Requirement of Law or
Regulatory Change or the compliance by the Agent or any Lender therewith shall
(i) impose, modify, or hold applicable any reserve, special deposit, or similar
requirement against any Letter of Credit or obligation to issue Letters of
Credit, or (ii) impose upon the Agent or such Lender any other condition
regarding any Letter of Credit or obligation to issue Letters of Credit, and the
result of any such event shall be to increase the cost to the Agent or such
Lender of issuing or maintaining any Letter of Credit or obligation to issue
Letters of Credit or any liability with respect to Letter of Credit Payments, or
to reduce any amount receivable in connection therewith, then upon demand by the
Agent or such Lender, as the case may be, the Borrower shall pay to the Agent or
such Lender, from time to time as specified by the Agent or such Lender,
additional amounts which shall be sufficient to compensate the Agent or such
Lender for such increased cost or reduced amount receivable.

     (d) Without limiting the effect of the other provisions of this Section
2.18 (but without duplication), the Borrower shall pay to the Agent and each
Lender such amounts as shall be sufficient in the opinion of the Agent and such
Lender to compensate them for any loss, cost, or expense incurred by and as a
result of:

(i)      any payment, prepayment, or conversion by the Borrower of a LIBO Rate
Loan on a date other than the last day of an Interest Period for such Loan; or  
(ii)      any failure by the Borrower to borrow a LIBO Rate Loan or to convert a
Base Rate Loan into a LIBO Rate Loan on the date for such borrowing or
conversion specified in the relevant Borrowing Request,  

such compensation to include with respect to any LIBO Rate Loan, an amount equal
to the excess, if any, of (A) the amount of interest which would have accrued on
the principal amount so paid, prepaid, converted, or not borrowed or converted
for the period from the date of such payment, prepayment, conversion, or failure
to borrow or convert to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow or convert, the Interest
Period for such Loan which would have commenced on the date of such failure to
borrow or convert) at the applicable rate of interest for such Loan provided for
herein over (B) the interest component of the amount the Agent or such Lender
would bid were it to bid at the commencement of such period in the London
interbank market for Dollar deposits of amounts

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comparable to such principal amount and maturities comparable to such period, as
determined by the Agent or such Lender.

     (e) Determinations by the Agent or any Lender for purposes of this Section
2.18 of the effect of any Regulatory Change on capital maintained, its costs or
rate of return, its obligation to make and maintain Loans, issuing or
participating in Letters of Credit, or on amounts receivable by it in respect of
Loans, Letters of Credit or such other obligations, and the additional amounts
required to compensate the Agent and such Lender under this Section 2.18 shall
be conclusive, absent manifest error. The Agent or the relevant Lender shall
furnish the Borrower with a certificate setting forth in reasonable detail the
basis and amount of Additional Costs or any other loss, cost or expense incurred
as a result of any such event, and the statements set forth therein shall be
conclusive, absent manifest error. The Agent or the relevant Lender shall notify
the Borrower, as promptly as practicable after the Agent or such Lender obtains
knowledge of any Additional Costs or other sums payable pursuant to this Section
and determines to request compensation therefor, of any event occurring after
the Closing Date which will entitle the Agent or such Lender to compensation
pursuant to this Section 2.18; and (ii) designate a different Applicable Lending
Office for the Loans affected by such event if such designation will avoid the
need for or reduce the amount of such compensation and will not, in the sole
opinion of the Agent or such Lender, be disadvantageous to the Agent or such
Lender. If any Lender requests compensation from the Borrower under this Section
2.18, the Borrower may, after payment of all compensation then accrued and by
notice to the Agent and such Lender, require that the Loans by such Lender of
the type with respect to which such compensation is requested be converted into
Base Rate Loans in accordance with Section 2.12. Any compensation requested by
the Agent or any Lender pursuant to this Section 2.18 shall be due and payable
within 30 days of receipt by the Borrower of any such notice.

     (f) The Agent and the Lenders agree not to request, and the Borrower shall
not be obligated to pay, any Additional Costs or other sums payable pursuant to
this Section unless similar Additional Costs and other sums payable are also
generally assessed by the Agent or such Lender against other customers similarly
situated where such customers are subject to documents providing for such
assessment.

     2.19 Illegality. Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful for any Lender or its Applicable Lending
Office to (a) honor its obligation to make LIBO Rate Loans, or (b) maintain LIBO
Rate Loans, then such Lender shall promptly notify the Agent and the Borrower
thereof. The obligation of such Lender to make LIBO Rate Loans and convert Base
Rate Loans into LIBO Rate Loans shall then be suspended until such time as such
Lender may again make and maintain LIBO Rate Loans, and the outstanding LIBO
Rate Loans of such Lender shall be converted into Base Rate Loans.

     2.20 Replacement Lenders. (a) If any Lender has notified the Borrower of
its incurring Additional Costs or any other loss, cost or expense under Section
2.18 or has invoked the indemnification as to certain Taxes set forth in Section
2.8, the Borrower may, unless such Lender has notified the Borrower that the
circumstances giving rise to such notice no longer apply, terminate, in whole
but not in part, the Commitment of such Lender (other than the Agent) (the
“Terminated Lender”) at any time upon five Business Days’ prior written notice
to the Terminated Lender and the Agent (a “Notice of Termination”).

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     (b) In order to effect the termination of the Commitment of the Terminated
Lender, the Borrower shall (i) obtain an agreement with one or more Lenders to
increase their Commitments and/or (ii) request any one or more other banking
institutions to become a “Lender” in place and instead of such Terminated Lender
and agree to accept a Commitment; provided, however, that such one or more other
banking institutions are acceptable to the Agent and become parties hereto by
executing an Assignment Agreement (the Lenders or other banking institutions
that agree to accept in whole or in part the Commitment of the Terminated Lender
being referred to herein as the “Replacement Lenders”), such that the aggregate
increased and/or accepted Facility Amounts of the Replacement Lenders under
clauses (i) and (ii) above equal the Facility Amount of the Terminated Lender.

     (c) The Notice of Termination shall include the name of the Terminated
Lender, the date the termination will occur (the “Termination Date”), the
Replacement Lender or Replacement Lenders to which the Terminated Lender will
assign its Commitment, and, if there will be more than one Replacement Lender,
the portion of the Terminated Lender’s Commitment to be assigned to each
Replacement Lender.

     (d) On the Termination Date, (i) the Terminated Lender shall by execution
and delivery of an Assignment Agreement assign its Commitment to the Replacement
Lender or Replacement Lenders (pro rata, if there is more than one Replacement
Lender, in proportion to the portion of the Terminated Lender’s Commitment to be
assigned to each Replacement Lender) indicated in the Notice of Termination and
shall assign to the Replacement Lender or Replacement Lenders its Loans (if any)
then outstanding pro rata as aforesaid, (ii) the Terminated Lender shall endorse
its Note, payable without recourse, representation or warranty to the order of
the Replacement Lender or Replacement Lenders (pro rata as aforesaid), (iii) the
Replacement Lender or Replacement Lenders shall purchase the Note held by the
Terminated Lender (pro rata as aforesaid) at a price equal to the unpaid
principal amount thereof plus interest and fees accrued and unpaid to the
Termination Date, (iv) the Replacement Lender or Replacement Lenders will
thereupon (pro rata as aforesaid) succeed to and be substituted in all respects
for the Terminated Lender with like effect as if becoming a Lender pursuant to
the terms of Section 9.1(b) and the Terminated Lender will have the rights and
benefits of an assignor under Section 9.1(b) and (v) the Terminated Lender shall
have received payment of an amount equal to its Percentage Share of the Loan
Balance and accrued interest thereon, accrued fees owed to it and all other
amounts due and owing to it hereunder and under the other Loan Documents
(including any loss, cost or expense under Section 2.18 incurred up to, but not
including, the Termination Date). To the extent not in conflict, the terms of
Section 9.1(b) shall supplement the provisions of this Section 2.20

     (e) Any Terminated Lender (including the Agent in its capacity as a Lender
and as Agent) shall reimburse the Borrower for all reasonable and necessary fees
and expenses of counsel to the Borrower and, if required by the Replacement
Lender or Replacement Lenders, of counsel to the Replacement Lender or
Replacement Lenders in connection with replacing such Terminated Lender with a
Replacement Lender or Replacement Lenders.

     2.21 Regulatory Change. In the event that by reason of any Regulatory
Change or any other circumstance arising after the Closing Date affecting any
Lender, such Lender (a) incurs Additional Costs based on or measured by the
excess above a level, as prescribed from time to

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time by any Governmental Authority with jurisdiction, of the amount of a
category of deposits or other liabilities of such Lender which includes deposits
by reference to which the interest rate on any LIBO Rate Loan is determined as
provided in this Agreement or a category of extensions of credit or other assets
of such Lender which includes any LIBO Rate Loan, or (b) becomes subject to
restrictions on the amount of such a category of liabilities or assets which it
may hold, then, at the election of such Lender with notice to the Agent and the
Borrower, the obligation of such Lender to make LIBO Rate Loans and to convert
Base Rate Loans into LIBO Rate Loans shall be suspended until such time as such
Regulatory Change or other circumstance ceases to be in effect, and all such
outstanding LIBO Rate Loans shall be converted into Base Rate Loans.

     2.22 Letters in Lieu of Transfer Orders or Division Orders. The Agent
agrees that none of the letters in lieu of transfer or division orders provided
pursuant to the provisions of Section 3.1(f) or Section 5.7 will be sent to the
addressees thereof unless an Event of Default has occurred and is continuing, at
which time the Agent may, at its option and in addition to the exercise of any
of its other rights and remedies, send any or all of such letters.

     2.23 Power of Attorney. The Borrower hereby designates the Agent as its
agent and attorney-in-fact, to act in its name, place, and stead solely for the
purpose of completing and, upon the occurrence and the continuance of an Event
of Default, delivering any and all of the letters in lieu of transfer or
division orders delivered by the Borrower pursuant to the provisions of Section
3.1(f) or Section 5.7, including completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Agent shall lawfully do or cause to be
done by virtue of this power of attorney and the rights granted with respect to
such power of attorney. This power of attorney is coupled with the interests of
the Agent in the Collateral, shall commence and be in full force and effect as
of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Agent by this appointment are
solely to protect the interests of the Agent, the Lenders and any other Approved
Hedge Counterparties under the Loan Documents with respect to the assignment of
production proceeds under certain of the Security Documents and shall not impose
any duty upon the Agent to exercise any such powers. The power of attorney under
this Section 2.23 is expressly limited to the rights and powers set forth herein
and no additional rights or powers are herein created or implied. The Agent
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.

     2.24 Security Interest in Accounts; Right of Offset. As security for the
payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Agent, each Lender and each other Approved Hedge
Counterparty (for the pro rata benefit of such Persons) and grants to the Agent,
each Lender and each other Approved Hedge Counterparty (for the pro rata benefit
of such Persons) a security interest in all of its funds now or hereafter or
from time to time on deposit with the Agent, such Lender or such other Approved
Hedge Counterparty, with such interest of the Agent, the Lenders and the other
Approved Hedge Counterparties to be retransferred, reassigned, and/or released
at the expense of the Borrower upon payment in full and complete performance of
all Obligations. All remedies as secured

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party or assignee of such funds shall be exercisable upon the occurrence of any
Event of Default, regardless of whether the exercise of any such remedy would
result in any penalty or loss of interest or profit with respect to any
withdrawal of funds deposited in a time deposit account prior to the maturity
thereof. Furthermore, the Borrower hereby grants to the Agent, each Lender and
each other Approved Hedge Counterparty (for the pro rata benefit of such
Persons) the right, exercisable at such time as any Obligation shall mature,
whether by acceleration of maturity or otherwise, of offset or banker’s lien
against all of its funds now or hereafter or from time to time on deposit with
the Agent, such Lender or such other Approved Hedge Counterparty, regardless of
whether the exercise of any such remedy would result in any penalty or loss of
interest or profit with respect to any withdrawal of funds deposited in a time
deposit account prior to the maturity thereof.

ARTICLE III

CONDITIONS

     The obligations of the Agent and the Lenders to enter into this Agreement
and to make Loans or issue or participate in, as the case may be, Letters of
Credit are subject to the satisfaction of the following conditions precedent:

     3.1 Receipt of Loan Documents and Other Items. Neither the Lenders nor the
Agent shall have any obligation under this Agreement unless and until all
matters incident to the consummation of the transactions contemplated herein
shall be satisfactory to the Agent and the Lenders, and the Agent and, upon
request, any Lender shall have received, reviewed and approved the following
documents and other items, appropriately executed when necessary and, where
applicable, acknowledged by one or more Responsible Officers of the Borrower or
other Persons, as the case may be, all in form and substance satisfactory to the
Agent and dated, where applicable, of even date herewith or a date prior thereto
or thereafter and acceptable to the Agent:

(a) multiple counterparts of this Agreement as requested by the Agent;

(b) the Notes to be in place on the Closing Date;

            (c) copies of the organizational documents of the Borrower and all
amendments to any of such documents, accompanied by a certificate dated the
Closing Date issued by the secretary or an assistant secretary or another
authorized representative of the Borrower to the effect that each such copy is
correct and complete;

            (d) a certificate of incumbency dated the Closing Date, including
specimen signatures of all officers or other representatives of the Borrower who
are authorized to execute Loan Documents on behalf of the Borrower, each such
certificate being executed by the secretary or an assistant secretary or another
authorized representative of the Borrower;

            (e) copies of resolutions adopted by the directors of the Borrower
approving the Loan Documents to which the Borrower is a party and authorizing
the transactions contemplated herein and therein, accompanied by a certificate
dated the Closing Date issued by the secretary or an assistant secretary of the
Borrower to the effect that such copies are true and

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correct copies of resolutions duly adopted and that such resolutions constitute
all the resolutions adopted with respect to such transactions, have not been
amended, modified or rescinded in any respect and are in full force and effect
as of the date of such certificate;

          (f) the following documents continuing in effect or establishing Liens
in favor or for the benefit of the Agent, for the benefit of the Secured
Creditors, in and to the Collateral, including Mortgaged Properties constituting
at least seventy five percent (75%) of the discounted present value, determined
by the Agent in its discretion, of the proved reserves attributable to the Oil
and Gas Properties of the Borrower:

(i)      security documents covering Oil and Gas Properties of the Borrower
sufficient for the Borrower to be in compliance with the provisions of Section
5.5;   (ii)      security agreement from the Borrower in favor of the Agent
covering certain Property of the Borrower;   (iii)      financing statement
constituent to the documents described in clauses (i) and (ii) above;   (iv)   
  undated letters, in form and substance satisfactory to the Agent, from the
Borrower to each purchaser of production and disburser of the proceeds of
production from or attributable to the Mortgaged Properties, with the addressees
left blank, authorizing and directing the addressees to make future payments
attributable to production from the Mortgaged Properties directly to the Agent;
and  

          (g) reviewed or audited consolidated Financial Statements of the
Borrower as of March 31, 2008 and unaudited consolidated Financial Statements of
the Borrower as of June 30, 2008, in each case certified by a Responsible
Officer of the Borrower as having been prepared in accordance with GAAP
consistently applied and as a fair presentation of the condition of the
Borrower, subject, as to such unaudited Financial Statements, to changes
resulting from normal year-end audit adjustments;

          (h) certificates dated as of a recent date from the Secretary of State
or other appropriate Governmental Authority evidencing the existence or
qualification and, if applicable, good standing of the Borrower in its
jurisdiction of organization and in any other jurisdictions where it owns
property or does business;

     (i) results of a search of the uniform commercial code records of the
Secretary of State of the State of Nevada, in the name of the Borrower, such
search reports to be from a source or sources acceptable to the Agent and
reflecting no Liens, other than Permitted Liens, against any of the Collateral
as to which perfection of a Lien is accomplished by the filing of a financing
statement;

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          (j) confirmation, acceptable to the Agent, of the title of the
Borrower, free and clear of Liens other than Permitted Liens, to Mortgaged
Properties constituting at least seventy five percent (75%) of the discounted
present value, as determined by the Agent in its discretion, of the proved
reserves attributable to such Mortgaged Properties;

          (k) confirmation acceptable to the Agent that the Oil and Gas
Properties of the Borrower are in compliance, in all material respects with
applicable Environmental Laws;

          (l) copies of executed counterparts of all operating, lease, sublease,
royalty, sales, exchange, processing, farmout, bidding, pooling, unitization,
communitization and other agreements relating to the Mortgaged Properties, as
requested by the Agent or any Lender;

          (m) engineering information regarding the Mortgaged Properties, as
requested by the Agent;

          (n) the opinion of Patrick C. Clary, Chartered, as Nevada counsel to
the Borrower, in connection with this Agreement and the other Loan Documents to
which the Borrower is a party, substantially in the form attached hereto as
Exhibit V;

          (o) the opinion of H. Clay Moore, as Texas counsel to the Borrower, in
connection with this Agreement and the other Loan Documents to which the
Borrower is a party, substantially in the form attached hereto as Exhibit VI;

          (p) certificates evidencing the insurance coverage required by the
provisions of Section 5.19;

          (q) payment to Amegy of any fees due as of the Closing Date pursuant
to this Agreement;

          (r) payment from the Borrower for estimated fees charged by filing
officers and other public officials incurred or to be incurred in connection
with the filing and recordation of any Security Documents and for which invoices
have been presented as of the Closing Date;

          (s) copies of all Commodity Hedge Agreements, in form and substance
and with counterparties acceptable to the Agent, for purposes of determining the
Borrowing Base as of the Closing Date;

          (t) certificates of Responsible Officers of the Borrower to the effect
that all representations and warranties made by the Borrower in this Agreement
or any other Loan Document in place on the Closing Date are true and correct as
of the Closing Date and that no Default or Event of Default exists as of the
Closing Date;

          (u) confirmation acceptable to the Agent that no event or
circumstance, including any action, suit, investigation or proceeding pending,
or, to the knowledge of the Borrower, threatened in any court or before any
arbitrator or Governmental Authority, shall have occurred which may have a
Material Adverse Effect; and

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          (v) such other agreements, documents, instruments, opinions,
certificates, waivers, consents and evidence as the Agent or any Lender may
request.

     3.2 Each Loan. In addition to the conditions precedent stated elsewhere
herein, the Lenders shall not be obligated to make any Loan, other than in
connection with a Letter of Credit Payment, unless:

          (a) at least the requisite time prior to the requested date for the
relevant Loan, the Borrower shall have delivered to the Agent a Borrowing
Request and a funding direction advising the Agent whether the requested Loan
should be funded to an account of the Borrower at Amegy or should be funded by
wire transfer to an account of another Person (in which case wire transfer
instructions shall be included) and each statement or certification made in such
Borrowing Request shall be true and correct in all material respects on the
requested date for such Loan;

          (b) no Event of Default, Default or Deficiency shall exist or will
occur as a result of the making of the requested Loan;

          (c) if requested by the Agent or any Lender, the Borrower shall have
delivered evidence satisfactory to the Agent or such Lender substantiating any
of the matters contained in this Agreement which are necessary to enable the
Borrower to qualify for such Loan;

          (d) the Agent shall have received, reviewed and approved such
additional documents and items as described in Section 3.1 as may be requested
by the Agent with respect to such Loan;

          (e) no event shall have occurred which, in the opinion of the Agent or
any of the Lenders, may have a Material Adverse Effect;

          (f) each of the representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents shall be true and
correct in all material respects and shall be deemed to be repeated by the
relevant entity as if made on the requested date for such Loan;

          (g) all of the Security Documents shall be in full force and effect
and provide to the Agent the security intended thereby; and

          (h) neither the consummation of the transactions contemplated hereby
nor the making of such Loan shall contravene, violate or conflict with any
Requirement of Law.

     3.3 Issuance of Letters of Credit. The obligation of the Agent, as the
issuer of the Letters of Credit, to issue, renew, or extend any Letter of Credit
is subject to the satisfaction of the following additional conditions precedent:

     (a) the Borrower shall have delivered to the Agent a written (or oral,
confirmed promptly in writing) request for the issuance, renewal or extension of
a Letter of Credit at least three Business Days prior to the requested issuance,
renewal or extension date and

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a Letter of Credit Application at least one Business Day prior to the requested
issuance date; and each statement or certification made in such Letter of Credit
Application shall be true and correct in all material respects on the requested
date for the issuance of such Letter of Credit;

          (b) no Event of Default, Default or Deficiency shall exist or will
occur as a result of the issuance, renewal, or extension of such Letter of
Credit;

          (c) if requested by the Agent or any Lender, the Borrower shall have
delivered evidence satisfactory to the Agent or such Lender substantiating any
of the matters contained in this Agreement which are necessary to enable the
Borrower to qualify for such Letter of Credit;

         (d) the Agent shall have received, reviewed, and approved such
additional documents and items as described in Section 3.1 as may be requested
by the Agent with respect to such Letter of Credit;

         (e) no event shall have occurred which, in the opinion of the Agent or
any of the Lenders, may have a Material Adverse Effect;

         (f) each of the representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents shall be true and
correct in all material respects and shall be deemed to be repeated by the
Borrower as if made on the requested date for issuance, renewal or extension of
such Letter of Credit;

         (g) all of the Security Documents shall be in full force and effect and
provide to the Lender the security intended thereby;

         (h) neither the consummation of the transactions contemplated hereby
nor the issuance, renewal or extension of such Letter of Credit shall
contravene, violate or conflict with any Requirement of Law; and

         (i) the terms, provisions and beneficiary of the Letter of Credit or
such renewal or extension shall be satisfactory to the Agent, as the issuer of
the Letters of Credit, in its sole discretion.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

     To induce the Agent and the Lenders to enter into this Agreement, to induce
the Agent to issue and renew Letters of Credit, and to induce the Lenders to
make the Loans and to participate in Letters of Credit, the Borrower represents
and warrants to the Agent and each Lender (which representations and warranties
shall survive the delivery of the Notes) that:

     4.1 Due Authorization. The execution and delivery by it of this Agreement
and the borrowings by the Borrower hereunder, the execution and delivery by the
Borrower of the Notes, the repayment by the Borrower of the Notes and interest
and fees provided for in the Notes and this Agreement, the execution and
delivery of the Security Documents to which it is a party and

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the performance by it of its obligations under the Loan Documents to which it is
a party are within the power of the Borrower or such Person as the case may be,
have been duly authorized by all necessary action by the Borrower or such
Person, as the case may be, and do not and will not (a) require the consent of
any Governmental Authority, (b) contravene or conflict with any Requirement of
Law, (c) contravene or conflict with any indenture, instrument or other
agreement to which it is a party or by which any of its Property may be
presently bound or encumbered or (d) result in or require the creation or
imposition of any Lien in, upon or on any of its Property under any such
indenture, instrument, or other agreement, other than under any of the Loan
Documents.

     4.2 Existence. The Borrower is a corporation, duly organized, legally
existing and, if applicable, in good standing under the laws of the state of its
organization or formation and is duly qualified as a foreign corporation and, if
applicable, in good standing in all jurisdictions wherein the ownership of its
Property or the operation of its business necessitates same.

     4.3 Valid and Binding Obligations. Each Loan Document to which it is a
party, when duly executed and delivered by it, constitutes its legal, valid and
binding obligation enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors’ rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.

     4.4 Security Documents. The provisions of each Security Document executed
by it are effective to create, in favor or for the benefit of the Agent, a
legal, valid and enforceable Lien in all of its right, title and interest in the
Collateral described therein, which Lien, assuming the accomplishment of
recording and filing in accordance with applicable laws prior to the
intervention of rights of other Persons, constitutes a fully perfected
first-priority Lien (except as to Permitted Liens) on all of its right, title
and interest in the Collateral described therein.

     4.5 Title to Oil and Gas Properties. It has good and indefeasible title to
all of its Oil and Gas Properties, free and clear of all Liens except Permitted
Liens. No Person other than it has any ownership interest, whether legal or
beneficial, in its interest in any of its Oil and Gas Properties.

     4.6 Scope and Accuracy of Financial Statements. The consolidated Financial
Statements of the Borrower and its consolidated Subsidiaries provided to the
Agent in satisfaction of the condition set forth in Section 3.1(h) present
fairly the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries in accordance with GAAP as at the
relevant point in time or for the period indicated, as applicable.

     4.7 No Material Adverse Effect or Default. No event or circumstance has
occurred since March 31, 2008, which could reasonably be expected to have a
Material Adverse Effect, and no Default has occurred and is continuing.

     4.8 No Material Misstatements. No information, exhibit, statement or report
furnished to the Agent or any Lender by it or at its direction in connection
with this Agreement or any other Loan Document contains any material
misstatement of fact or omits to state a

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material fact or any fact necessary to make the statements contained therein not
misleading as of the date made or deemed made.

     4.9 Liabilities, Litigation and Restrictions. Other than as reflected in
the Financial Statements provided to the Agent in satisfaction of the condition
set forth in Section 3.1(h) or listed on Schedule 4.8 under the heading
“Liabilities”, the Borrower has no liabilities, direct or contingent, which may
have a Material Adverse Effect. Except as set forth under the heading
“Litigation” on Schedule 4.8, no litigation or other action of any nature
affecting the Borrower is pending before any Governmental Authority or, to the
best of its knowledge, threatened against or affecting it or any of its
Subsidiaries which may have a Material Adverse Effect. No unusual or unduly
burdensome restriction, restraint or hazard exists by contract, Requirement of
Law or otherwise relative to the business or operations of the Borrower or the
ownership and operation of the Collateral other than such as relate generally to
Persons engaged in business activities similar to those conducted by the
Borrower.

     4.10 Authorizations; Consents. Except as expressly contemplated by this
Agreement, no authorization, consent, approval, exemption, franchise, permit or
license of, or filing with, any Governmental Authority or any other Person is
required to authorize, or is otherwise required in connection with, the valid
execution and delivery by it of the Loan Documents to which it is a party or any
instrument contemplated hereby, the repayment by the Borrower of the Notes and
interest and fees provided in the Notes and this Agreement, or the performance
by the Borrower of the Obligations.

     4.11 Compliance with Laws. It and its Properties, including any Mortgaged
Properties and Oil and Gas Properties owned by it, are in compliance with all
applicable Requirements of Law, including Environmental Laws.

     4.12 ERISA. It does not maintain, nor has it maintained, any Plan. It does
not currently contribute to or have any obligation to contribute to or otherwise
have any liability with respect to any Plan and ERISA.

     4.13 Environmental Laws. Except as described on Schedule 4.12:

     (a) no Property owned by it, or, to its knowledge, Property of others
adjacent to Property owned by it, is currently on or has ever been on any
federal or state list of Superfund Sites;

     (b) no Hazardous Substances have been generated, transported, and/or
disposed of by it at a site which was, at the time of such generation,
transportation, and/or disposal, or has since become, a Superfund Site;

     (c) except in accordance with applicable Requirements of Law or the terms
of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by it or from,
affecting or related to any Property owned by it has occurred; and

     (d) no Environmental Complaint has been received by it.

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     4.14 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of, and it has not taken any
action that would result in any transaction contemplated by the Loan Documents
being in violation of, any regulations promulgated by the Board of Governors of
the Federal Reserve System, including Regulations T, U or X.

     4.15 Investment Company Act Compliance. It is not an “investment company”
or subject to regulation as an “investment company” within the meaning of the
Investment Company Act of 1940.

     4.16 Proper Filing of Tax Returns; Payment of Taxes Due. It has duly and
properly filed its United States income tax returns and all other tax returns
which are required to be filed and has paid all taxes shown as due from it
thereon, except such as are being contested in good faith and as to which
adequate provisions and disclosures have been made. The respective charges and
reserves on its books with respect to taxes and other governmental charges are
adequate.

     4.17 Refunds. Except as described on Schedule 4.16, no orders of,
proceedings pending before, or other requirements of, the Federal Energy
Regulatory Commission, the Texas Railroad Commission, or any other Governmental
Authority exist which could result in it being required to refund any portion of
the proceeds received or to be received from the sale of hydrocarbons
constituting part of the Mortgaged Property or other Oil and Gas Properties
owned by it.

     4.18 Gas Contracts. Except as described on Schedule 4.17, (a) it is not
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 Mortgaged Property or other Oil and Gas Properties owned by it at some
future date without receiving full payment therefor within 90 days of delivery,
and (b) it has not produced gas, in any material amount, subject to, and neither
it nor any of the Mortgaged Properties or other Oil and Gas Properties owned by
it is subject to, balancing rights of third parties or subject to balancing
duties under Requirements of Law, except as to such matters for which it has
established monetary reserves adequate in amount to satisfy such obligations and
has segregated such reserves from other accounts.

     4.19 Intellectual Property. It owns or is licensed to use all Intellectual
Property necessary to conduct its business as currently conducted. No claim has
been asserted or is pending by any Person with respect to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any such Intellectual Property; and it knows of no valid basis
for any such claim. The use of such Intellectual Property by it does not
infringe on the rights of any Person, except for such claims and infringements
as do not, in the aggregate, give rise to any material liability on its part.

     4.20 Casualties or Taking of Property. Except as disclosed on Schedule
4.19, since the later of (a) March 31, 2008, or (b) the date of the most recent
Financial Statements furnished to the Agent pursuant to either Section 5.2 or
Section 5.3, neither its business nor any of its Property has been affected as a
result of any fire, explosion, earthquake, flood, drought,

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windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of Property, or cancellation of contracts, permits or concessions by any
Governmental Authority, riot, activities of armed forces or acts of God.

     4.21 Principal Location. Its principal place of business and chief
executive office is located at its address set forth in Section 9.3 or at such
other location as it may have, by proper written notice hereunder, advised the
Agent.

     4.22 Subsidiaries. The Borrower has no Subsidiaries other than as set forth
on Schedule 4.22 or as otherwise disclosed to the Agent in writing.

     4.23 Compliance with Anti-Terrorism Laws. (a) Neither the Borrower nor any
Affiliate of the Borrower is in violation of any Anti-Terrorism Law or knowingly
engages in or conspires to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.

     (b) Neither the Borrower nor any Affiliate of the Borrower is any of the
following (each a “Blocked Person”):

(i)      a Person that is listed in the annex, to, or is otherwise subject to
the provisions of, Executive Order No. 13224;   (ii)      a Person owned or
controlled by, or acting for or on behalf of, any Person that is listed in the
annex to, or is otherwise subject to the provisions of, Executive Order No.
13224;   (iii)      a Person or entity with which any bank or other financial
institution is prohibited from dealing or otherwise engaging in any transaction
by any Anti-Terrorism Law;   (iv)      a Person or entity that commits,
threatens or conspires to commit or supports “terrorism” as defined in Executive
Order No. 13224;   (v)      a Person or entity that is named as a “specially
designated national” on the most current list published by OFAC at its official
website or any replacement website or other replacement official publication of
such list; or   (vi)      a Person or entity who is affiliated with a Person or
entity listed above.  

     (c) Neither the Borrower nor any Affiliate of the Borrower (i) conducts any
business or engages in making or receiving any contribution of funds, goods or
services to or for the benefit of any Blocked Person or (ii) deals in, or
otherwise engages in any transaction relating to, any property or interests in
property blocked pursuant to Executive Order No. 13224.

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     (d) Neither the Borrower nor any Affiliate of the Borrower is in violation
of any rules or regulations promulgated by OFAC or of any economic or trade
sanctions administered and enforced by OFAC or engages in or conspires to engage
in any transaction that evades or avoids, or has the purpose of evading or
avoiding, or attempts to violate, any of the prohibitions set forth in any rules
or regulations promulgated by OFAC.

     4.24 Identification Numbers. The federal taxpayer identification number and
the organizational number with the Secretary of State of the state of its
organization or formation are as set out on Schedule 4.23.

     4.25 Solvency. Immediately after the Closing and immediately following the
making of each Loan made on the Closing Date and following the making of any
Loan made after the Closing Date, after giving effect to the application of the
proceeds of each such Loan, (a) the fair value of the assets of the Borrower, at
a fair valuation, will exceed its debts and liabilities, subordinated,
contingent or otherwise, at a fair valuation; (b) the present fair saleable
value of the property of the Borrower will be greater than the amount that will
be required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) the Borrower will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) the Borrower will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such businesses are now conducted and are proposed to be conducted
following the Closing Date.

ARTICLE V

AFFIRMATIVE COVENANTS

     So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower shall:

     5.1 Maintenance and Access to Records. Keep adequate records, in accordance
with GAAP, of all its transactions so that at any time, and from time to time,
its true and complete financial condition may be readily determined, and
promptly following the request of the Agent or any Lender, make such records
available for inspection by the Agent or any Lender and, at the expense of the
Borrower, allow the Agent or any Lender to make and take away copies thereof.

     5.2 Quarterly Financial Statements and Compliance Certificates. Deliver to
the Agent and, upon request, any Lender, on or before the 95th day after the
close of each of the first three quarterly periods of each fiscal year of the
Borrower, (a) a copy of the unaudited consolidated and consolidating Financial
Statements of the Borrower and its consolidated Subsidiaries as at the close of
such quarterly period and from the beginning of such fiscal year to the end of
such period, such Financial Statements to be certified by a Responsible Officer
of the Borrower as having been prepared in accordance with GAAP consistently
applied and as a fair presentation of the financial condition of the Borrower on
a consolidated basis with its consolidated Subsidiaries, subject to changes
resulting from normal year end audit adjustments, and (b) a Compliance
Certificate prepared as of the close of such quarterly period.

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     5.3 Annual Financial Statements and Compliance Certificate. Deliver to the
Agent and, upon request, any Lender, on or before the 150th day after the close
of each fiscal year of the Borrower, commencing with that ending on March 31,
2009, (a) a copy of the annual audited consolidated Financial Statements of the
Borrower and its consolidated Subsidiaries and the unaudited consolidating
Financial Statements of the Borrower and its consolidated Subsidiaries, such
Financial Statements to be certified by a Responsible Officer of the Borrower as
having been prepared in accordance with GAAP consistently applied and as a fair
presentation of the financial condition of the Borrower on a consolidated basis
with its consolidated Subsidiaries, with such audited Financial Statements
accompanied by an unqualified opinion from a nationally recognized or
regionally-recognized firm of independent certified public accountants or other
independent certified public accountants acceptable to the Agent, and (b) a
Compliance Certificate prepared as of the close of the relevant fiscal year.

     5.4 Oil and Gas Reserve Reports and Production Reports. (a) Deliver to the
Agent and, upon request, any Lender, no later than each February 28 during the
term of this Agreement, an engineering report in form and substance satisfactory
to the Agent, prepared as of the preceding December 31 and certified by a
nationally or regionally recognized firm of independent consulting petroleum
engineers or other firm of independent consulting petroleum engineers acceptable
to the Agent as fairly and accurately setting forth (A) the proved and
producing, non-producing, shut-in, behind-pipe and undeveloped oil and gas
reserves (separately classified as such) attributable to the Mortgaged
Properties and other Oil and Gas Properties of the Borrower and its Subsidiaries
as of the most recent practicable date, (B) the aggregate present value of the
future net income with respect to proved and producing reserves attributable to
the Mortgaged Properties and other Oil and Gas Properties of the Borrower and
its Subsidiaries, discounted at a stated per annum discount rate, (C)
projections of the annual rate of production, gross income and net income with
respect to such proved and producing reserves and (D) information with respect
to the “take-or-pay,” “prepayment” and gas-balancing liabilities of the Borrower
and its Subsidiaries with respect to such reserves, and (E) general economic
assumptions.

     (b) Deliver to the Agent and, upon request, any Lender, no later than each
August 31 during the term of this Agreement, an engineering report, in
substantially the format of and providing the information provided in the
engineering reports provided pursuant to Section 5.4(a), prepared as of the
preceding June 30 and certified, at the election of the Borrower, by either the
chief operating officer or senior reserve engineer of the Borrower or a
nationally or regionally recognized firm of independent consulting petroleum
engineers acceptable to the Agent as fairly and accurately setting forth the
information provided therein.

     (c) Deliver to the Agent and, upon request, any Lender, in connection with
each unscheduled redetermination of the Borrowing Base requested by the
Borrower, an engineering report, in substantially the format of and providing
the information provided in the engineering report provided pursuant to Section
5.4(a), prepared as of a date no more than 60 days prior to such redetermination
date (an in the case of an unscheduled redetermination requested by the Agent
and the Lenders, within 60 days of such request) and certified, at the election
of the Borrower, by either the chief operating officer or senior reserve
engineer of the Borrower or a nationally or regionally recognized firm of
independent consulting petroleum

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engineers acceptable to the Agent as fairly and accurately setting forth the
information provided therein.

     (d) Deliver to the Agent, no later than the 60th day following the end of
each calendar quarter, a report, in form satisfactory to the Agent, setting
forth information as to quantities of production from the Mortgaged Properties,
volumes of production sold, volumes of production committed to Commodity Hedge
Agreements, pricing, purchasers of production, gross revenues, lease operating
expenses, and such other information as the Agent may request with respect to
the relevant quarterly period.

     5.5 Title Opinions; Title Defects; Mortgaged Properties. Promptly upon the
request of the Agent, (a) furnish to the Agent title opinions, in form and
substance and by counsel satisfactory to the Agent, or other confirmation of
title acceptable to the Agent, covering Oil and Gas Properties of the Borrower
the discounted present value of the proved reserves attributable to which, in
the aggregate, equals no less than seventy five percent (75%) of the aggregate
discounted present value of the proved reserves attributable to the combined Oil
and Gas Properties of the Borrower; promptly, but in any event within 30 days
after notice by the Agent of any defect having a Material Adverse Effect on the
value of any Oil and Gas Property, clear such title defects; and promptly upon
request of the Agent, execute and deliver to the Agent additional Security
Documents as necessary to maintain, as Mortgaged Properties, Oil and Gas
Properties of the Borrower constituting no less than seventy five percent (75%)
of the aggregate discounted present value of the proved reserves attributable to
the Oil and Gas Properties of the Borrower.

     5.6 Notices of Certain Events. Deliver to the Agent, promptly, but in no
event later than the fifth Business Day after having knowledge of the occurrence
of any of the following events or circumstances, a written statement with
respect thereto, signed by a Responsible Officer of the relevant Business Entity
or its general partner and setting forth the relevant event or circumstance and
the steps being taken by the relevant Business Entity with respect to such event
or circumstance:

(a) any Default or Event of Default;

(b) any default by it under any contractual obligation or any litigation,
investigation, or proceeding between it and any Governmental Authority which, in
either case, if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;

(c) any litigation or proceeding involving it as a defendant or in which any of
its Property is subject to a claim and in which the amount involved is $500,000
or more and which is not covered by insurance or in which injunctive or similar
relief is sought;

(d) the receipt by it of any Environmental Complaint, which if adversely
determined could reasonably be expected to have a Material Adverse Effect;

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     (e) any actual, proposed, or threatened testing or other investigation by
any Governmental Authority or other Person concerning the environmental
condition of, or relating to, any of its Property following any allegation of a
violation of any Requirement of Law;

     (f) any Release of Hazardous Substances by it or from, affecting, or
related to any of its Property or Property of others adjacent to any of its
Property which could reasonably be expected to have a Material Adverse Effect,
except in accordance with applicable Requirements of Law or the terms of a valid
permit, license, certificate, or approval of the relevant Governmental
Authority, or the violation of any Environmental Law, or the revocation,
suspension, or forfeiture of or failure to renew, any permit, license,
registration, approval, or authorization which could reasonably be expected to
have a Material Adverse Effect;

     (g) any change in its senior management; and

     (h) any other event or condition which could reasonably be expected to have
a

Material Adverse Effect.

     5.7 Letters in Lieu of Transfer Orders or Division Orders. Promptly upon
request by the Agent at any time and from time to time, and without limitation
on the rights of the Agent pursuant to the provisions of Section 2.22 and
Section 2.23, execute such letters in lieu of transfer or division orders, in
addition to the letters delivered to the Agent in satisfaction of the condition
set forth in Section 3.1(f), as are necessary or appropriate to transfer and
deliver to the Agent proceeds from or attributable to any Mortgaged Property.

     5.8 Commodity Hedging. Comply in all material respects with any Commodity
Hedge Agreements entered into by the Borrower subsequent to the Closing Date and
not in violation of the provisions of Section 6.1.

     5.9 Additional Information. Furnish to the Agent and any Lender, promptly
upon the request of the Agent or any Lender, such additional financial or other
information concerning its assets, liabilities, operations and transactions as
the Agent or any Lender may from time to time request; and notify the Agent not
less than ten Business Days prior to the occurrence of any condition or event
that may change the proper location for the filing of any financing statement or
other public notice or recording for the purpose of perfecting a Lien in any
Collateral, including any change in its name or jurisdiction of organization;
and upon the request of the Agent, execute such additional Security Documents as
may be necessary or appropriate in connection therewith.

     5.10 Compliance with Laws. Comply with all applicable Requirements of Law,
including (a) ERISA, (b) Environmental Laws and (c) all permits, licenses,
registrations, approvals, and authorizations (i) related to any natural or
environmental resource or media located on, above, within, related to or
affected by any of its Property, (ii) required for the performance of its
operations, or (iii) applicable to the use, generation, handling, storage,
treatment, transport or disposal of any Hazardous Substances; and use its best
efforts to cause all of its employees, crew members, agents, contractors,
subcontractors and future lessees (pursuant to appropriate lease provisions),
while such Persons are acting within the scope of their

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relationship with it, to comply with all such Requirements of Law as may be
necessary or appropriate to enable it to so comply.

     5.11 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent and other Indebtedness which, if unpaid, might become
a Lien against any of its Property, except any of the foregoing being contested
in good faith and as to which an adequate reserve in accordance with GAAP has
been established or unless failure to pay would not have a Material Adverse
Effect.

     5.12 Maintenance of Existence or Qualification and Good Standing. Maintain
its separate corporate, limited partnership or limited liability company
existence and identity, as the case may be, and, if applicable, good standing
and qualification in its jurisdiction of organization and in all jurisdictions
wherein the Property now owned or hereafter acquired or business now or
hereafter conducted by it necessitates same.

     5.13 Payment of Notes; Performance of Obligations. Pay the Notes according
to the reading, tenor and effect thereof, as modified hereby, and do and perform
every act and discharge all of the other Obligations.

     5.14 Further Assurances. Promptly cure any defects in the execution and
delivery of any of the Loan Documents to which it is a party and all agreements
contemplated thereby, and execute, acknowledge and deliver to the Agent or any
Lender such other assurances and instruments as shall, in the opinion of the
Agent or any Lender, be necessary to fulfill the terms of the Loan Documents to
which it is a party.

     5.15 Initial Expenses of Agent. Upon request by the Agent, promptly
reimburse the Agent for, or pay directly to such special counsel, all fees and
expenses of Jackson Walker L.L.P., special counsel to the Agent, in connection
with the preparation of this Agreement and all documentation contemplated
hereby, the satisfaction of the conditions precedent set forth herein, the
filing and recordation of Security Documents and the consummation of the
transactions contemplated in this Agreement.

     5.16 Subsequent Expenses of Agent and Lenders. Upon request by the Agent,
promptly reimburse the Agent (to the fullest extent permitted by law) for all
third party, out of pocket amounts expended, advanced or incurred by or on
behalf of the Agent or any Lender to evaluate the Mortgaged Properties or to
satisfy any of its obligations under any of the Loan Documents; to collect the
Obligations; to ratify, amend, restate or prepare additional Loan Documents, as
the case may be; for the filing and recordation of Security Documents; to
enforce the rights of the Agent or any of the Lenders under any of the Loan
Documents; and to protect its Properties or business, including the Collateral,
which amounts shall be deemed compensatory in nature and liquidated as to amount
upon notice to the relevant Person by the Agent and which amounts shall include
(a) all court costs, (b) attorneys’ fees, (c) fees and expenses of auditors,
accountants, and independent petroleum engineers or incurred to protect the
interests of the Agent, the Lenders and any other Approved Hedge Counterparties,
(d) fees and expenses incurred in connection with the participation by the Agent
and the Lenders as members of the creditors’ committee in any Insolvency
Proceeding, (e) fees and expenses incurred in connection with lifting the
automatic stay prescribed in §362 Title 11 of the United States Code, and (f)
fees

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and expenses incurred in connection with any action pursuant to §1129 Title 11
of the United States Code all incurred by the Agent and the Lenders in
connection with the collection of any sums due under the Loan Documents,
together with interest at the per annum interest rate equal to the Adjusted Base
Rate plus the relevant Applicable Margin on each such amount from the date of
notification that the same was expended, advanced, or incurred by the Agent or
any Lender until the date it is repaid to the Agent or such Lender, with the
obligations under this Section 5.16 surviving the non-assumption of this
Agreement in any Insolvency Proceeding and being binding upon it and/or a
trustee, receiver, custodian, or liquidator of it appointed in any such case.

     5.17 Operation of Oil and Gas Properties. Develop, maintain and operate or,
to the extent that the right or obligation to do so rests with another Person,
exercise its best efforts to cause such other Person to develop, maintain and
operate its Oil and Gas Properties in a prudent and workmanlike manner and in
accordance with customary industry standards.

     5.18 Maintenance and Inspection of Properties. Maintain or, to the extent
that the right or obligation to do so rests with another Person, exercise its
best efforts to cause such other Person to maintain all of its material tangible
Properties in good repair and condition, ordinary wear and tear excepted; make
or, to the extent that the right or obligation to do so rests with another
Person, exercise its best efforts to cause such other Person to make all
necessary replacements thereof and operate such Properties in a good and
workmanlike manner; and permit any authorized representative of the Agent or any
Lender, upon prior notice to visit and inspect, at reasonable times, any of its
tangible Property.

     5.19 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Agent, name the Agent as an additional insured (in the case of
liability insurance) and co-loss payee (in the case of physical damage
insurance), and, upon any renewal of any such insurance and at other times upon
request by the Agent, furnish to the Agent evidence, satisfactory to the Agent,
of the maintenance of such insurance. The Agent shall have the right to collect,
and the Borrower hereby assigns to the Agent, any and all monies that may become
payable under any policies of insurance relating to business interruption or by
reason of damage, loss or destruction of any of the Collateral. In the event of
any damage, loss or destruction for which insurance proceeds relating to
business interruption or Collateral exceed $500,000, the Agent may, at its
option, apply all such sums or any part thereof received by it toward the
payment of the Obligations, whether matured or unmatured, application to be made
first to fees, then to interest and then to principal, and shall deliver to the
Borrower the balance, if any, after such application has been made. In the event
of any such damage, loss or destruction for which insurance proceeds are
$500,000 or less, provided that no Default or Event of Default has occurred and
is continuing, the Agent shall deliver any such proceeds received by it to the
Borrower for use to repair or replace the damaged, destroyed or lost property.
In the event the Agent receives insurance proceeds not attributable to
Collateral or business interruption, the Agent shall deliver any such proceeds
to the Borrower.

     5.20 Environmental Indemnification. INDEMNIFY AND HOLD THE AGENT AND EACH
OF THE LENDERS AND THEIR RESPECTIVE SHAREHOLDERS, OFFICERS, DIRECTORS,

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EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT AND AFFILIATES AND EACH TRUSTEE FOR THE
BENEFIT OF THE AGENT OR THE LENDERS UNDER ANY SECURITY DOCUMENT (EACH OF THE
FOREGOING AN “INDEMNITEE”) HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES,
DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL
PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND
ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH (INCLUDING ATTORNEYS’ FEES AND EXPENSES), ARISING DIRECTLY
OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS
SUBSTANCES ON, UNDER, OR FROM ANY OF ITS PROPERTY, WHETHER PRIOR TO OR DURING
THE TERM HEREOF, (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON ANY OF ITS
PROPERTY, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY IT OR ANY
OF ITS PREDECESSORS IN TITLE, EMPLOYEES, AGENTS, CONTRACTORS OR SUBCONTRACTORS
OR ANY OTHER PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN
CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION,
CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME
LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON
OR UNDER ANY OF ITS PROPERTY, (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL
RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE,
TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY IT OR ANY OF ITS
EMPLOYEES, AGENTS, CONTRACTORS, OR SUBCONTRACTORS WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH IT, IRRESPECTIVE OF WHETHER ANY OF
SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE
REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND ENFORCEMENT OF ANY LOAN DOCUMENT
OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT
OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING ANY SUCH CLAIM, LOSS,
DAMAGE, LIABILITY, FINE, PENALTY, CHARGE, ADMINISTRATIVE OR JUDICIAL PROCEEDING,
ORDER, JUDGMENT, REMEDIAL ACTION, REQUIREMENT, ENFORCEMENT ACTION, COST OR
EXPENSE, ARISING FROM THE NEGLIGENCE (BUT NOT THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT), WHETHER SOLE OR CONCURRENT, OF ANY INDEMNITEE; WITH THE FOREGOING
INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT, UNLESS ALL SUCH OBLIGATIONS HAVE BEEN SATISFIED WHOLLY IN CASH AND
NOT BY WAY OF REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY
PROPERTY IN LIEU THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY
ACT OR OMISSION BY THE AGENT OR ANY LENDER WITH RESPECT TO ANY PROPERTY
SUBSEQUENT TO THE AGENT OR ANY LENDER BECOMING THE OWNER OF SUCH PROPERTY AND
WITH RESPECT TO WHICH PROPERTY SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE,
PENALTY, CHARGE, PROCEEDING, ORDER, JUDGMENT, ACTION OR REQUIREMENT ARISES
SUBSEQUENT TO THE ACQUISITION OF TITLE THERETO BY THE AGENT OR ANY LENDER. ALL
AMOUNTS DUE UNDER THIS SECTION 5.20 SHALL BE PAYABLE ON WRITTEN DEMAND THEREFOR.

     5.21 General Indemnification. INDEMNIFY AND HOLD EACH INDEMNITEE HARMLESS
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED
EXPENSES, INCLUDING COUNSEL FEES AND EXPENSES (INCLUDING THE ALLOCATED COST OF
INTERNAL COUNSEL), INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT
OF, IN ANY WAY CONNECTED WITH, OR AS A RESULT OF (A) THE EXECUTION AND DELIVERY
OF THIS

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AGREEMENT AND THE OTHER LOAN DOCUMENTS, THE PERFORMANCE BY THE PARTIES HERETO
AND THERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER AND THEREUNDER AND
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, (B) THE USE OF
PROCEEDS OF THE LOANS OR LETTERS OF CREDIT, OR (C) ANY CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER OR NOT ANY
INDEMNITEE IS A PARTY THERETO, INCLUDING ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY
OR EXPENSE ARISING FROM THE NEGLIGENCE (BUT NOT THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT), WHETHER SOLE OR CONCURRENT, OF ANY INDEMNITEE; WITH THE FOREGOING
INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT. ALL AMOUNTS DUE UNDER THIS SECTION 5.21 SHALL BE PAYABLE ON WRITTEN
DEMAND THEREFOR.

     5.22 Evidence of Compliance with Anti-Terrorism Laws. Deliver to the Agent
and any Lender any certification or other evidence requested from time to time
by the Agent or such Lender confirming its compliance with the provisions of
Section 6.17.

ARTICLE VI

NEGATIVE COVENANTS

     So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower shall not:

     6.1 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable, taxes and other assessments, in each case incurred in the
ordinary course of business and which are not unpaid in excess of 90 days beyond
invoice date or are being contested in good faith and as to which such reserve
as is required by GAAP has been made, (c) Indebtedness under Commodity Hedge
Agreements, including reimbursement obligations under letters of credit securing
or supporting such Indebtedness, with any Approved Hedge Counterparty, Secured
Third Party Hedge Counterparty or, so long as each such Person is acceptable to
the Agent, other counterparties, provided that (i) such agreements shall not be
for a term in excess of four years and shall not be entered into with respect to
more than seventy five percent (75%), of the projected production of proved
developed producing volumes of each commodity category, as reflected in each
Reserve Report provided pursuant to the provisions of Section 5.4 during the
term of the relevant agreement, and (ii) the floor prices in such agreements are
not less than the prices used by the Agent in its most recent Borrowing Base
determination as of the time the relevant agreement is entered into, (d)
Indebtedness under Interest Rate Hedge Agreements with any Approved Hedge
Counterparty, Secured Third Party Hedge Counterparty or, so long as each such
Person is acceptable to the Agent, other counterparties, provided that such
agreements shall not be entered into with respect to notional principal amounts
in excess of seventy five percent (75%) of the Loan Balance, (e) Indebtedness
incurred with respect to all or a portion of the purchase price of Property
acquired in the ordinary course of business not exceeding $500,000 in the
aggregate for the Borrower on a consolidated basis with its Subsidiaries and (f)
other unsecured Indebtedness or Indebtedness secured by a Permitted Lien not
exceeding, in the aggregate at any time, $250,000 for the Borrower on a
consolidated basis with its consolidated Subsidiaries.

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     6.2 Contingent Obligations. Create, incur, assume, or suffer to exist any
Contingent Obligation; provided, however, the foregoing restriction shall not
apply to (a) performance guarantees, performance surety or other bonds or
endorsements of items deposited for collection, in each case provided in the
ordinary course of business or (b) trade credit incurred or operating leases
entered into in the ordinary course of business.

     6.3 Liens. Create, incur, assume or suffer to exist any Lien on any of its
Oil and Gas Properties or any other Property, whether now owned or hereafter
acquired; provided, however, the foregoing restriction shall not apply to
Permitted Liens.

     6.4 Sales of Assets. Sell, transfer or otherwise dispose of, in one or any
series of transactions, any of its Property, whether now owned or hereafter
acquired, or enter into any agreement to do so; provided, however, the foregoing
restriction shall not apply to (a) the sale of hydrocarbons or inventory in the
ordinary course of business, provided that no contract for the sale of
hydrocarbons shall obligate the relevant Person to deliver hydrocarbons produced
from any of its Oil and Gas Properties at some future date without receiving
full payment therefor within 60 days of delivery, or (b) the sale or other
disposition of Property destroyed, lost, worn out, damaged or having only
salvage value or no longer used or useful in the business in which it is used,
(c) so long as no Default or Event of Default exists, sales or other
dispositions of Oil and Gas Properties or of Subsidiaries of the Borrower
holding Oil and Gas Properties between redeterminations of the Borrowing Base as
provided in Section 2.10 the aggregate loan value of which, as assigned thereto
by the Agent in the most recent setting of the Borrowing Base in accordance with
the provisions of Section 2.10, equals ten percent (10%) or less of the amount
of the then existing Borrowing Base; provided, however, in connection with any
such transaction, the then existing Borrowing Base shall be automatically
reduced by an amount equal to such loan value of the relevant Mortgaged
Properties and further provided, however, that, upon consummation of any such
transaction, if a Deficiency exists, the Borrower shall proceed to cure such
Deficiency in accordance with the provisions of Section 2.11(a) or (d) so long
as no Default or Event of Default exists, sales or other dispositions of Oil and
Gas Properties or Subsidiaries of the Borrower holding Oil and Gas Properties
between redeterminations of the Borrowing Base as provided in Section 2.10 the
aggregate loan value of which, as assigned thereto by the Agent in the most
recent setting of the Borrowing Base in accordance with the provisions of
Section 2.10, exceeds ten percent (10%) of the amount of the then existing
Borrowing Base with the consent of the Agent and the Required Lenders; provided,
however, that the Borrowing Base to be in effect immediately upon consummation
of any such transaction shall be established by the Agent, with the approval of
the Lenders as required pursuant to the provisions of Section 9.9, prior to
consummation of the transaction, and further provided, however, that upon
consummation of any such transaction, if a Deficiency exists, the Borrower shall
proceed to cure any such Deficiency in accordance with the provisions of Section
2.11(a).

     6.5 Leasebacks. Enter into any agreement to sell or transfer any Property
and thereafter rent or lease as lessee such Property or other Property intended
for the same use or purpose as the Property sold or transferred.

     6.6 Sale or Discount of Receivables. Except to minimize losses on bona fide
debts previously contracted, discount or sell with recourse, or sell for less
than the greater of the face or market value thereof, any of its notes
receivable or accounts receivable.

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     6.7 Loans or Advances. Make or agree to make or allow to remain outstanding
any loans or advances to any Person; provided, however, the foregoing
restriction shall not apply to (a) advances or extensions of credit in the form
of accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, (b) advances to
employees for the payment of expenses in the ordinary course of business not
exceeding $50,000 in the aggregate for the Borrower on a consolidated basis with
its consolidated Subsidiaries or (c) other loans or advances so long as not
exceeding, in the aggregate outstanding at any time, $250,000 in the aggregate
for the Borrower on a consolidated basis with its consolidated Subsidiaries.

     6.8 Investments. Make or acquire Investments in, or purchase or otherwise
acquire all or substantially all of the assets of, any Person; provided,
however, the foregoing restriction shall not apply to the purchase or
acquisition of (a) Oil and Gas Properties, (b) Investments in the form of (i)
debt securities issued or directly and fully guaranteed or insured by the United
States Government or any agency or instrumentality thereof, with maturities of
no more than one year, (ii) commercial paper of a domestic issuer rated at the
date of acquisition at least P-2 by Moody’s Investor Service, Inc. or A-2 by
Standard & Poor’s Corporation and with maturities of no more than one year from
the date of acquisition or (iii) repurchase agreements covering debt securities
or commercial paper of the type permitted in this Section, certificates of
deposit, demand deposits, eurodollar time deposits, overnight bank deposits and
bankers’ acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through any Lender or any bank or
trust company organized under the laws of the United States of America or any
state thereof and having capital surplus and undivided profits aggregating at
least $100,000,000, (c) other short-term Investments similar in nature and
degree of risk to those described in clause (b) of this Section 6.8, (d)
Investments in money-market funds sponsored or administered by Persons
acceptable to the Agent and which funds invest in short-term Investments similar
in nature and degree of risk to those described in clause (b) of this Section
6.8 or (e) evidences of loans or advances not prohibited by the provisions of
Section 6.7.

     6.9 Dividends, Distributions and Certain Payments. Declare, pay, or make,
whether in cash or Property of the Borrower, any dividend or distribution on, or
purchase, redeem or otherwise acquire for value, any of its equity interests;
provided, however, the foregoing restriction shall not apply to (a) dividends or
distributions permitted by written consent of the Agent with the approval of the
Required Lenders at each semi-annual Borrowing Base redetermination or (b)
dividends paid in equity interests in the Borrower.

     6.10 Issuance of Equity; Changes in Corporate Structure. Except for
issuances of common shares by the Borrower, issue or agree to issue any equity
interests constituting Indebtedness or any additional common equity interests to
Persons other than its current equity owners; enter into any transaction of
consolidation, merger or amalgamation; or liquidate, wind up or dissolve (or
suffer any liquidation or dissolution).

     6.11 Transactions with Affiliates. Directly or indirectly, enter into any
transaction (including the sale, lease or exchange of Property or the rendering
of service) with any of its Affiliates other than upon fair and reasonable terms
no less favorable than could be obtained in an arm’s length transaction with a
Person which was not an Affiliate.

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     6.12 Lines of Business. Change its principal line of business from that in
which it is engaged as of the date hereof.

     6.13 Plan Obligation. Assume or otherwise become subject to an obligation
to contribute to or maintain any Plan or acquire any Person which has at any
time had an obligation to contribute to or maintain any Plan.

     6.14 Current Ratio. Permit the ratio of Current Assets to Current
Liabilities to be less than 1.00 to 1.00 at any time

     6.15 Total Indebtedness to EBITDA Ratio. Permit the ratio, determined as of
the end of each quarter of each fiscal year of the Borrower, commencing with
that ending on December 31, 2008, of (a) Indebtedness of the Borrower, on a
consolidated basis with its consolidated Subsidiaries, for borrowed money
(exclusive, for the avoidance of doubt, of trade accounts payable and accrued
liabilities, net unrealized losses or charges in respect of Commodity Hedge
Agreements or Interest Rate Hedge Agreements and the undrawn, unexpired amount
of all outstanding Letters of Credit, if such would otherwise be included) of
the Borrower on a consolidated basis with its consolidated Subsidiaries to (b)
EBITDA for the preceding four quarterly periods (including that ended on the
date of determination) to be more than 3.75 to 1.00 at any time.

     6.16 General and Administrative Expenses. Permit, as of the close of each
quarter of each fiscal year of the Borrower, commencing with the quarter ending
after the date of the initial Loan, general and administrative expenses of the
Borrower (determined in accordance with GAAP and on a consolidated basis for the
Borrower and its consolidated Subsidiaries, but excluding compensation in the
form of shares of common stock of the Borrower or rights to acquire shares of
common stock of the Borrower) for the relevant quarter to exceed twenty five
percent (25%) of revenue of the Borrower on a consolidated basis with its
consolidated Subsidiaries from the sale of hydrocarbons for the relevant quarter
less the sum of (a) lease operating expenses (other than non-recurring costs,
such as workover costs otherwise constituting lease operating expenses) and (b)
Taxes on hydrocarbon production for the relevant quarter.

     6.17 Anti-Terrorism Laws. Conduct any business or engage in any transaction
or dealing with any Blocked Person, including the making or receiving of any
contribution of funds, goods or services to or for the benefit of any Blocked
Person; deal in, or otherwise engage in any transaction relating to, any
Property or interests in Property blocked pursuant to Executive Order No. 13224;
or engage in or conspire to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, (i) any of the
prohibitions set forth in Executive Order No. 13224 or the USA Patriot Act, or
(ii) any prohibitions set forth in the rules or regulations issued by OFAC or
any sanctions against targeted foreign countries, terrorism sponsoring
organizations, and international narcotics traffickers based on United States
foreign policy.

     6.18 Activities of Subsidiary. Permit Lucas Energy Resources, Inc., a
Nevada corporation and a wholly-owned Subsidiary of the Borrower, to own any
Property, incur any Indebtedness or conduct any business.

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ARTICLE VII

EVENTS OF DEFAULT

     7.1 Enumeration of Events of Default. Any of the following events shall
constitute an Event of Default:

     (a) default shall be made in the payment when due of (i) any installment of
principal or interest under this Agreement or the Notes, (ii) in the payment
when due of any fee or other sum payable under any Loan Document, or (iii) any
Indebtedness of the Borrower under any Commodity Hedge Agreement or Interest
Rate Hedge Agreement permitted or required under applicable provisions of this
Agreement;

     (b) default shall be made by the Borrower in the due observance or
performance of any of its obligations, covenants or agreements under the Loan
Documents, and, as to compliance with the obligations, covenants or agreements
under Article V (other than Section 5.13), such default shall continue for 30
days after the earlier of notice thereof by the Agent or knowledge thereof by
the Borrower;

     (c) any representation or warranty made by or on behalf of the Borrower in
any of the Loan Documents proves to have been untrue in any material respect or
any representation, statement (including Financial Statements), certificate or
data furnished or made to the Agent or any Lender in connection herewith proves
to have been untrue in any material respect as of the date the facts therein set
forth were stated or certified;

     (d) default shall be made by the Borrower (as principal or guarantor or
other surety) in the payment or performance of any bond, debenture, note, or
other Indebtedness in excess of $250,000 in the aggregate or under any credit
agreement, loan agreement, indenture, promissory note or similar agreement or
instrument executed in connection with any of the foregoing, and such default
shall remain unremedied for in excess of the period of grace, if any, with
respect thereto;

     (e) the Borrower shall be unable to satisfy any condition or cure any
circumstance specified in Article III, the satisfaction or curing of which is
precedent to the right of the Borrower to obtain a Loan or the issuance, renewal
or extension of a Letter of Credit, and such inability shall continue for a
period in excess of 60 days;

     (f) the levy against any significant portion of the Property of the
Borrower of any execution, garnishment, attachment, sequestration or other writ
or similar proceeding in an amount in excess of $250,000 which is not
permanently dismissed or discharged within 90 days after the levy;

     (g) the Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, or liquidator of it or all or a substantial part of its
assets, (ii) file a voluntary petition commencing an Insolvency Proceeding,
(iii) make a general assignment for the benefit of creditors of all or
substantially all of its assets, (iv) be unable, or admit in writing its
inability,

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to pay its debts generally as they become due, or (v) file an answer admitting
the material allegations of a petition filed against it in any Insolvency
Proceeding;

     (h) an order, judgment or decree shall be entered against the Borrower by
any court of competent jurisdiction or by any other duly authorized authority,
on the petition of a creditor or otherwise, granting relief in any Insolvency
Proceeding or approving a petition seeking reorganization or an arrangement of
its debts or appointing a receiver, trustee, conservator, custodian, or
liquidator of it or all or any substantial part of its assets, and such order,
judgment, or decree shall not be dismissed or stayed within 90 days;

     (i) a final and non-appealable order, judgment or decree shall be entered
against the Borrower for money damages and/or Indebtedness due in an amount in
excess of $250,000, and such order, judgment or decree shall not be dismissed or
stayed within 90 days or is not fully covered by insurance;

     (j) the Borrower is found guilty of any offense under the Racketeering
Influence and Corrupt Organizations Statute (18 U.S.C. §1961 et seq.), the
result of which could be the forfeiture or transfer of any material Property of
the Borrower subject to a Lien in favor of the Agent without (i) satisfaction or
provision for satisfaction of such Lien or (ii) such forfeiture or transfer of
such Property being expressly made subject to such Lien;

     (k) the Borrower shall have (i) concealed, removed or diverted, or
permitted to be concealed, removed or diverted, any part of its Property, with
intent to hinder, delay or defraud its creditors or any of them, (ii) made or
suffered a transfer of any of its Property which is fraudulent under any
bankruptcy, fraudulent conveyance, or similar law with intent to hinder, delay
or defraud its creditors, (iii) made any transfer of its Property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid with intent to hinder, delay or defraud its creditors, or (iv) shall
have suffered or permitted, while insolvent, any creditor to obtain a Lien upon
any of its Property through legal proceedings or distraint which is not vacated
within 90 days from the date thereof;

     (l) any Security Document shall for any reason not, or cease to, create
valid and perfected first priority Liens (subject only to Permitted Liens)
against the Collateral purportedly covered thereby, except to the extent
permitted by this Agreement;

     (m) any provision of any Loan Document, at any time after its execution and
delivery and for any reason other than as expressly permitted hereunder or
thereunder or satisfaction in full of all Obligations and termination of the
Commitments and this Agreement, ceases to be in full force and effect;

     (n) the Borrower purports to revoke, terminate or rescind any Loan Document
or any provision of any Loan Document; or

(o) the occurrence of a Material Adverse Effect.

     7.2 Remedies. (a) Upon the occurrence of an Event of Default specified in
Section 7.1(f) or Section 7.1(g), immediately and without notice, (i) all
Obligations under the Loan

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Documents shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower and (ii) the
Commitments shall immediately cease and terminate unless and until reinstated by
the Agent and the Lenders in writing.

     (b) Upon the occurrence of any Event of Default other than those specified
in Section 7.1(f) or Section 7.1(g), (i) the Agent may and, upon the request of
the Required Lenders, shall, by notice in writing to the Borrower, declare all
Obligations under the Loan Documents immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower and (ii) the Agent may
and, upon the request of the Required Lenders, shall declare the Commitments
terminated, whereupon the Commitments shall immediately cease and terminate
unless and until reinstated by the Agent and the Lenders in writing.

     (c) Upon the occurrence of any Event of Default, the Agent may, in addition
to the foregoing in this Section 7.2, exercise any or all of the rights and
remedies provided by law or pursuant to the Loan Documents.

     (d) Should the Obligations under the Loan Documents become immediately due
and payable in accordance with any of the preceding subsections of this Section
7.2, the obligation of the Borrower with respect to the L/C Exposure shall be to
provide cash as Collateral therefor, to be held and administered by the Agent as
provided in Section 2.11 with respect to mandatory prepayments and, failing
receipt by the Agent of immediate payment in full of the Loan Balance, any
additional Obligations then due and payable, and all accrued and unpaid interest
and fees and such cash to serve as Collateral for the L/C Exposure, the Agent
shall be entitled to proceed against the Collateral, and proceeds from any
realization against any such Collateral, other than cash, in excess of the sum
of the costs of such realization, the Loan Balance, any additional Obligations
then due and payable, and accrued and unpaid interest and fees shall constitute
cash Collateral for the remaining L/C Exposure, if any, to be held and
administered by the Agent as provided in Section 2.11.

     (e) Proceeds from realization against the Collateral and any other funds
received by the Agent from the Borrower when an Event of Default has occurred
and is continuing shall be applied (i) first, to fees and expenses due pursuant
to the terms of this Agreement, any other Loan Document or any Commodity Hedge
Agreement or Interest Rate Hedge Agreement with an Approved Hedge Counterparty,
(ii) second, to accrued interest on the Obligations under the Loan Documents or
any Commodity Hedge Agreement or Interest Rate Hedge Agreement with an Approved
Hedge Counterparty, (iii) third, to the Loan Balance, in any manner elected by
the Agent (with the consent of the Required Lenders), and any other Obligations
then due and payable, pro rata in accordance with the ratio of the Loan Balance
or such other Obligations, as the case may be, to the sum of the Loan Balance
and such other Obligations and (iv) as provided in subsection (d) immediately
above, if applicable

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ARTICLE VIII

THE AGENT

     8.1 Appointment. Each Lender hereby designates and appoints the Agent as
the agent of such Lender under this Agreement and the other Loan Documents. The
Agent shall also act hereunder as agent for all Approved Hedge Counterparties.
Each Lender authorizes the Agent, as the agent for such Lender, to take such
action on behalf of such Lender under the provisions of this Agreement and the
other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities except those expressly set forth herein or in any other Loan
Document or any fiduciary relationship with any Lender; and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities on
the part of the Agent shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent.

     8.2 Delegation of Duties. The Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible to any
Lender for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.

     8.3 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (a)
required to initiate or conduct any litigation or collection proceedings
hereunder, except with the contribution by each Lender of its Percentage Share
of costs reasonably expected by the Agent to be incurred in connection
therewith, (b) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for gross negligence or willful misconduct of the Agent or such
Person) or (c) responsible in any manner to any Lender or any other Approved
Hedge Counterparty for any recitals, statements, representations or warranties
made by the Borrower or any officer or representative thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement or
other document referred to or provided for in, or received by the Agent under or
in connection with, this Agreement or any other Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of the Borrower to
perform its obligations hereunder or thereunder. The Agent shall not be under
any obligation to any Lender or any other Approved Hedge Counterparty to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.

     8.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent

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or made by the proper Person or Persons and upon advice and statements of legal
counsel (including counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless and until a written notice of
assignment, negotiation, or transfer thereof shall have been received by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate and contribution by each Lender of its Percentage Share of costs
reasonably expected by the Agent to be incurred in connection therewith. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders. Such request and any action taken or failure to
act pursuant thereto shall be binding upon the Lenders and all future holders of
the Notes. In no event shall the Agent be required to take any action that
exposes the Agent to personal liability or that is contrary to any Loan Document
or applicable Requirement of Law.

     8.5 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default unless the Agent has
received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
“notice of default.” In the event that the Agent receives such a notice, the
Agent shall promptly give notice thereof to the Lenders. The Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that unless and until the
Agent shall have received such directions, subject to the provisions of Section
7.2, the Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders. In the event that the
officer of the Agent primarily responsible for the lending relationship with the
Borrower or the officer of any Lender primarily responsible for the lending
relationship with the Borrower becomes aware that a Default or Event of Default
has occurred and is continuing, the Agent or such Lender, as the case may be,
shall use its good faith efforts to inform the other Lenders and/or the Agent,
as the case may be, promptly of such occurrence. Notwithstanding the preceding
sentence, failure to comply with the preceding sentence shall not result in any
liability to the Agent or any Lender.

     8.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any other Lender nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representation or warranty to such Lender and that no
act by the Agent or any other Lender hereafter taken, including any review of
the affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Agent or any Lender to any other Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, condition (financial and otherwise) and creditworthiness
of the Borrower and the value of the Collateral and other Properties of the
Borrower or any other Person and has made its own decision to enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the 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 analysis, appraisals and decisions in taking or not taking

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action under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, condition (financial and otherwise) and creditworthiness
of the Borrower and the value of the Collateral and other Properties of the
Borrower or any other Person. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, property,
condition (financial and otherwise), or creditworthiness of the Borrower or the
value of the Collateral or other Properties of the Borrower or any other Person
which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.

     8.7 Indemnification. EACH LENDER AGREES TO INDEMNIFY THE AGENT AND ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT AND AFFILIATES (TO THE
EXTENT NOT REIMBURSED BY THE BORROWER AND WITHOUT LIMITING THE OBLIGATION OF THE
BORROWER TO DO SO), RATABLY ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER,
FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY
KIND WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING ANY TIME FOLLOWING THE PAYMENT
AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT) BE
IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY WAY
RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OTHER DOCUMENT CONTEMPLATED OR REFERRED TO HEREIN OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR
IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING ANY LIABILITIES, CLAIMS,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED OR ASSERTED AS A RESULT OF THE
NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT NO
LENDER SHALL BE LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS RESULTING SOLELY FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE AGENT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT OR AFFILIATES. THE AGREEMENTS IN THIS SECTION 8.7 SHALL
SURVIVE THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT.

     8.8 Restitution. Should the right of the Agent or any Lender to realize
funds with respect to the Obligations be challenged and any application of such
funds to the Obligations be reversed, whether by Governmental Authority or
otherwise, or should the Borrower otherwise be entitled to a refund or return of
funds distributed to the Lenders in connection with the Obligations, the Agent
or such Lender, as the case may be, shall promptly notify the Lenders of such
fact. Not later than noon, Central Standard or Central Daylight Savings Time, as
the case may be, of the Business Day following such notice, each Lender shall
pay to the Agent an amount equal to the ratable share of such Lender of the
funds required to be returned to the Borrower. The ratable share of each Lender
shall be determined on the basis of the percentage of

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the payment all or a portion of which is required to be refunded originally
distributed to such Lender, if such percentage can be determined, or, if such
percentage cannot be determined, on the basis of the Percentage Share of such
Lender. The Agent shall forward such funds to the Borrower or to the Lender
required to return such funds. If any such amount due to the Agent is made
available by any Lender after Noon, Central Standard or Central Daylight Savings
Time, as the case may be, of the Business Day following such notice, such Lender
shall pay to the Agent (or the Lender required to return funds to the Borrower,
as the case may be) for its own account interest on such amount at a rate equal
to the Federal Funds Rate for the period from and including the date on which
restitution to the Borrower is made by the Agent (or the Lender required to
return funds to the Borrower, as the case may be,) to, but not including, the
date on which such Lender failing to timely forward its share of funds required
to be returned to the Borrower shall have made its ratable share of such funds
available.

     8.9 Agent in Its Individual Capacity. The Agent and its Affiliates may make
loans to, accept deposits from, and generally engage in any kind of business
with the Borrower as though the Agent were not the agent hereunder. With respect
to any Note issued to the Lender serving as the Agent, the Agent shall have the
same rights and powers under this Agreement as a Lender and may exercise such
rights and powers as though it were not the Agent. The terms “Lender” and
“Lenders” shall include the Agent in its individual capacity.

     8.10 Successor Agent. The Agent may resign as Agent upon ten days’ notice
to the Lenders, all Approved Hedge Counterparties under then existing Commodity
Hedge Agreements or Interest Rate Hedge Agreements and the Borrower. If the
Agent shall resign as Agent under this Agreement and the other Loan Documents,
Lenders (other than the Agent in its capacity as a Lender) for which the
Percentage Shares aggregate at least fifty-one percent (51%) of the Percentage
Shares of all Lenders (other than the Agent in its capacity as a Lender) shall
appoint from among the Lenders a successor agent for the Lenders and the
Approved Hedge Counterparties, whereupon such successor agent shall succeed to
the rights, powers and duties of the Agent; provided, however, should the Agent
resign at a point when all Loans, accrued interest and fees hereunder have been
paid in full and the Commitments have terminated, resulting in the only then
existing Obligations being the liability of the Borrower under Commodity Hedge
Agreements and/or Interest Rate Hedge Agreements with Approved Hedge
Counterparties, the successor agent shall be selected from among such Approved
Hedge Counterparties by majority vote of such Approved Hedge Counterparties. The
term “Agent” shall mean such successor agent effective upon its appointment. The
rights, powers, and duties of the former Agent as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement or any holders of the Notes. After the removal
or resignation of any Agent hereunder as Agent, the provisions of this Article
VIII and those of any Section hereof relating to the Agent, including Section
5.16, Section 5.17, Section 5.21 and Section 5.22 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents.

     8.11 Applicable Parties. The provisions of this Article are solely for the
benefit of the Agent and the Lenders, and the Borrower shall not have any rights
as a third party beneficiary or otherwise under any of the provisions of this
Article. In performing functions and duties hereunder and under the other Loan
Documents, the Agent shall act solely as the agent of the

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Lenders and any other Approved Hedge Counterparties and does not assume, nor
shall it be deemed to have assumed, any obligation or relationship of trust or
agency with or for the Borrower or any legal representative, successor or assign
of any such Person.

     8.12 Releases. Each Lender hereby authorizes the Agent to release any
Collateral that is permitted to be sold or released pursuant to the terms of the
Loan Documents. Each Lender hereby authorizes the Agent to execute and deliver
to the Borrower, at the Borrower’s sole cost and expense, any and all releases
of Liens, termination statements, assignments or other documents reasonably
requested by the Borrower in connection with any sale or other disposition of
Property of the Borrower to the extent such sale or other disposition is
permitted by the terms of the Loan Documents.

ARTICLE IX

MISCELLANEOUS

     9.1 Assignments; Participations. (a) The Borrower may not assign any of its
rights or delegate any of its obligations under any Loan Document without the
prior consent of the Agent and the Lenders.

     (b) With the consent of the Agent and, except when a Default or an Event of
Default shall have occurred and is continuing, the Borrower (which shall not be
unreasonably withheld or delayed in either case), any Lender may assign to one
or more assignees all or a portion of its rights and obligations under this
Agreement pursuant to an Assignment Agreement; provided, however, (i) such
consents shall not be required with respect to an assignment from one Lender to
one or more other Lenders or Affiliates of Lenders, (ii) the consent of the
Borrower shall not be required with respect to an assignment from a Lender to
one or more Approved Funds or Affiliates of Approved Funds and (iii) any such
assignment shall be in the amount of at least $2,500,000 (or any whole multiple
of $100,000 in excess thereof), unless the relevant assignment is to an
Affiliate of the assigning Lender or is an assignment of the entire Commitment
of the assigning Lender. The assignee shall pay to the Agent a transfer fee in
the amount of $3,500 for each such assignment. Any such assignment shall become
effective upon the execution and delivery to the Agent of an Assignment
Agreement and, if required, the consent of the Agent and the Borrower. Promptly
following receipt of an executed Assignment Agreement, the Agent shall send to
the Borrower a copy of such executed Assignment Agreement. Promptly following
receipt of such executed Assignment Agreement, the Borrower shall execute and
deliver, at its own expense, a new Note to the assignee, if such assignee is not
then a Lender. Upon the effectiveness of any assignment pursuant to this Section
9.1(b), the assignee will become a “Lender,” if not already a “Lender,” for all
purposes of the Loan Documents, and the assignor shall be relieved of its
obligations hereunder to the extent of such assignment. If the assignor no
longer holds any rights or obligations under this Agreement, such assignor shall
cease to be a “Lender” hereunder, except that its rights under Section 5.17,
Section 5.21 and Section 5.22, shall not be affected. On the last Business Day
of each month during which an assignment has become effective pursuant to this
Section 9.1(b) or sooner following an assignment, the Agent shall prepare a new
Exhibit IV giving effect to all such assignments effected during such month or
any relevant assignment, as the case may be, and will promptly provide a copy
thereof to the Borrower and each Lender.

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     (c) Each Lender may transfer, grant, or assign participations in all or any
portion of its interests hereunder to any Person pursuant to this Section
9.1(c), provided that such Lender shall remain a “Lender” for all purposes of
this Agreement and the transferee of such participation shall not constitute a
“Lender” hereunder. In the case of any such participation, the participant shall
not have any rights under any Loan Document, the rights of the participant in
respect of such participation to be against the granting Lender as set forth in
the agreement with such Lender creating such participation, and all amounts
payable by the Borrower hereunder shall be determined as if such Lender had not
sold such participation. Each agreement creating a participation must include an
agreement by the participant to be bound by the provisions of Section 8.3,
Section 8.6 and Section 8.7.

     (d) The Lenders may furnish any information concerning the Borrower in the
possession of the Lenders from time to time to assignees and participants and
prospective assignees and participants.

     (e) Notwithstanding anything in this Section 9.1 to the contrary, any
Lender may assign and pledge all or any of its Notes or any interest therein to
any Federal Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any operating circular issued by such Federal Reserve System and/or such
Federal Reserve Bank. No such assignment or pledge shall release the assigning
or pledging Lender from its obligations hereunder.

     (f) Notwithstanding any other provisions of this Section 9.1, no transfer
or assignment of the interests or obligations of any Lender or grant of
participations therein shall be permitted if such transfer, assignment, or grant
would require the Borrower to file a registration statement with the Securities
and Exchange Commission or any successor Governmental Authority or qualify the
Loans under the “Blue Sky” laws of any state.

     9.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrower and all covenants and agreements
of the Borrower herein made shall survive the execution and delivery of the
Notes and the Security Documents and shall remain in force and effect so long as
any Obligation is outstanding or any Commitment exists.

     9.3 Notices and Other Communications. Except as to oral notices expressly
authorized herein, which oral notices shall be confirmed in writing, all
notices, requests, and communications hereunder shall be in writing (including
by facsimile, electronic mail or other electronic form). Unless otherwise
expressly provided herein, any such notice, request, demand, or other
communication shall be deemed to have been duly given or made when delivered by
hand, or, in the case of delivery by mail, five days after being deposited in
the mail, certified mail, return receipt requested, postage prepaid, or, in the
case of facsimile notice, when receipt thereof is acknowledged orally or by
written confirmation report, addressed as follows:

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(a) if to the Agent, to:

                    Amegy Bank National Association                      4400
Post Oak Parkway, 4th Floor                      Houston, Texas 77027-1739      
              Attention: Energy Lending Dept.                      Facsimile:
(713) 561-0345   or for notice by mail:                        Amegy Bank
National Association                      P.O. Box 27459                     
Houston, Texas 77227-7459                     Attention: Energy Lending Dept. 

(b) if to any Lender, to the address, including facsimile number, of such Lender
reflected on Exhibit IV or any replacement thereof.

(c) if to the Borrower, to:

Lucas Energy, Inc.  3000 Richmond Street, Suite 400  Houston, Texas 77098 
Attention: W. A. Sikora  President and Chief  Executive Officer  Facsimile:
(713) 337-1510 

     Any party may, by proper written notice hereunder to the others, change the
individuals or addresses to which such notices to it shall thereafter be sent.

     9.4 Parties in Interest. Subject to the restrictions on changes in
structure set forth in Section 6.10 and other applicable restrictions contained
herein, all covenants and agreements herein contained by or on behalf of the
Borrower, the Agent or the Lenders shall be binding upon and inure to the
benefit of the Borrower, the Agent or the Lenders, as the case may be, and their
respective legal representatives, successors and permitted assigns.

     9.5 Renewals; Extensions. All provisions of this Agreement relating to the
Notes shall apply with equal force and effect to each promissory note hereafter
executed which in whole or in part represents a renewal or extension of any part
of the Indebtedness of the Borrower under this Agreement, the Notes or any other
Loan Document.

     9.6 Rights of Third Parties. All provisions herein are imposed solely and
exclusively for the benefit of the Agent, the Lenders, any other Approved Hedge
Counterparties and the Borrower. No other Person shall have any right, benefit,
priority, or interest hereunder or as a result hereof or have standing to
require satisfaction of provisions hereof in accordance with their terms.

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     9.7 No Waiver; Rights Cumulative. No course of dealing on the part of the
Agent or the Lenders or their officers or employees, nor any failure or delay by
the Agent or the Lenders with respect to exercising any of their rights under
any Loan Document shall operate as a waiver thereof. The rights of the Agent and
the Lenders under the Loan Documents shall be cumulative and the exercise or
partial exercise of any such right shall not preclude the exercise of any other
right. Neither the making of any Loan nor the issuance of any Letter of Credit
shall constitute a waiver of any of the covenants, warranties, or conditions of
the Borrower contained herein. In the event the Borrower is unable to satisfy
any such covenant, warranty, or condition, neither the making of any Loan nor
the issuance of any Letter of Credit shall have the effect of precluding the
Agent or the Lenders from thereafter declaring such inability to be an Event of
Default as hereinabove provided.

     9.8 Survival Upon Unenforceability. In the event any one or more of the
provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.

     9.9 Amendments; Waivers. Neither this Agreement nor any provision hereof
may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge or termination is sought. Subject to the preceding
sentence, any provision of this Agreement or any other Loan Document may be
amended, modified or waived by the Borrower and the Required Lenders; provided
that, notwithstanding any provision of this Agreement to the contrary, (a) no
amendment, modification or waiver which extends the final maturity of the Loans,
increases the Commitment Amount, increases, affirms or reduces the Borrowing
Base or the Monthly Reduction Amount, forgives the principal amount of any
Indebtedness of the Borrower outstanding under this Agreement or interest
thereon or fees owing under this Agreement, releases any guarantor of such
Indebtedness, releases all or substantially all of the Collateral, reduces the
interest rate applicable to the Loans or the fees payable to the Lenders
generally, affects Section 2.1, Section 2.2, Section 7.2(c) or this Section 9.9,
modifies the definition of “Required Lenders” or postpones the date of payment
of any amount due as a result of the Monthly Reduction Amount or any fee payable
hereunder shall be effective without the consent of each Lender effected
thereby; (b) no amendment, modification or waiver which increases the Facility
Amount of any Lender shall be effective without the consent of such Lender; and
(c) no amendment, modification or waiver which modifies the rights, duties or
obligations of the Agent shall be effective without the consent of the Agent.

     9.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.

     9.11 Disposition of Collateral. Notwithstanding any term or provision,
express or implied, in any of the Security Documents, but subject to applicable
provisions of this Agreement, the realization, liquidation, foreclosure or any
other disposition on or of any or all of the Collateral shall be in the order
and manner and determined in the sole discretion of the

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Agent; provided, however, that in no event shall the Agent violate applicable
law or exercise rights and remedies other than those provided in such Security
Documents or otherwise existing at law or in equity.

     9.12 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE DEEMED TO BE
CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW.

     9.13 Arbitration. THE BORROWER, THE AGENT AND THE LENDERS AGREE THAT ALL
DISPUTES, CLAIMS AND CONTROVERSIES BETWEEN THE BORROWER AND THE AGENT OR ANY
LENDER OR BETWEEN THE BORROWER AND ANY SUCCESSOR TO OR ASSIGNEE OF ANY LENDER,
WHETHER INDIVIDUAL, JOINT OR CLASS IN NATURE, ARISING FROM THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT TO WHICH THE BORROWER IS A PARTY OR OTHERWISE, INCLUDING
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE
AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF ANY PARTY. NO ACT TO TAKE OR
DISPOSE OF ANY COLLATERAL SECURING THE OBLIGATIONS SHALL CONSTITUTE A WAIVER OF
THIS ARBITRATION PROVISION OR BE PROHIBITED BY THIS ARBITRATION PROVISION. THE
FOREGOING INCLUDES OBTAINING INJUNCTIVE RELIEF OR A TEMPORARY RESTRAINING ORDER;
INVOKING A POWER OF SALE UNDER ANY DEED OF TRUST OR MORTGAGE; OBTAINING A WRIT
OF ATTACHMENT OR IMPOSITION OF A RECEIVER; OR EXERCISING ANY RIGHTS RELATING TO
PERSONAL PROPERTY, INCLUDING TAKING OR DISPOSING OF SUCH PROPERTY WITH OR
WITHOUT JUDICIAL PROCESS. ANY DISPUTES, CLAIMS OR CONTROVERSIES CONCERNING THE
LAWFULNESS OR REASONABLENESS OF ANY ACT OR EXERCISE OF ANY RIGHT RELATING TO THE
COLLATERAL SECURING THE OBLIGATIONS, INCLUDING ANY CLAIM TO RESCIND, REFORM OR
OTHERWISE MODIFY ANY AGREEMENT RELATING TO THE COLLATERAL SECURING THE
OBLIGATIONS, SHALL ALSO BE ARBITRATED; PROVIDED, HOWEVER, THAT NO ARBITRATOR
SHALL HAVE THE RIGHT OR THE POWER TO ENJOIN OR RESTRAIN ANY ACT OF ANY PARTY.
JUDGMENT UPON ANY AWARD RENDERED BY ANY ARBITRATOR MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION; PROVIDED, HOWEVER, THAT NOTHING CONTAINED HEREIN SHALL BE
DEEMED TO BE A WAIVER BY THE AGENT OR ANY LENDER OF THE PROTECTIONS AFFORDED TO
THE AGENT OR SUCH LENDER UNDER 12 USC SECTION 91, TEXAS BANKING CODE ART.
342-609 OR 342-705 OR THE LAWS OF ANY OTHER STATE, TO THE EXTENT APPLICABLE TO
THE AGENT OR SUCH LENDER, OR ANY OTHER PROTECTION PROVIDED THE AGENT OR ANY
LENDER BY THE LAWS OF THE STATE OF TEXAS, ANY OTHER STATE OR THE UNITED STATES
OF AMERICA, TO THE EXTENT APPLICABLE TO THE AGENT OR SUCH LENDER. THE STATUTE OF
LIMITATIONS, ESTOPPEL, WAIVER, LACHES AND SIMILAR DOCTRINES WHICH WOULD
OTHERWISE BE APPLICABLE IN AN ACTION BROUGHT BY A PARTY SHALL BE APPLICABLE IN
ANY ARBITRATION PROCEEDING AND THE COMMENCEMENT OF AN ARBITRATION PROCEEDING
SHALL BE DEEMED THE COMMENCEMENT OF AN ACTION FOR THESE PURPOSES. THE FEDERAL
ARBITRATION ACT SHALL APPLY TO THE CONSTRUCTION, INTERPRETATION AND ENFORCEMENT
OF THIS ARBITRATION PROVISION. IF THE FEDERAL ARBITRATION ACT IS INAPPLICABLE TO
ANY SUCH CLAIM OR CONTROVERSY FOR ANY REASON, SUCH ARBITRATION SHALL BE
CONDUCTED PURSUANT TO THE TEXAS GENERAL ARBITRATION ACT AND IN ACCORDANCE WITH
THIS ARBITRATION PROVISION AND THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION.

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     9.14 Jurisdiction and Venue. SUBJECT TO THE PROVISIONS OF SECTION 9.13, ALL
ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN
CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE AGENT, IN
COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. IN SUCH REGARD, THE
BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY
HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT
AGAINST IT BY THE AGENT OR ANY LENDER IN ACCORDANCE WITH THIS SECTION 9.14.

     9.15 Integration. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE
THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND THERETO WITH RESPECT TO THE
SUBJECT HEREOF AND THEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT AMONG THE
PARTIES HERETO AND THERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT
HEREOF AND THEREOF, INCLUDING ANY TERM SHEET PROVIDED TO THE BORROWER BY THE
AGENT OR ANY LENDER. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER
WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

     9.16 Waiver of Punitive and Consequential Damages. EACH OF THE BORROWER,
THE AGENT AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND
IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT IT MAY LAWFULLY AND EFFECTIVELY DO
SO, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY DISPUTE BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED
THEREWITH, BEFORE OR AFTER MATURITY, ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES
AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION 9.16.

     9.17 Counterparts. For the convenience of the parties, this Agreement may
be executed in multiple counterparts and by different parties hereto in separate
counterparts, each of which for all purposes shall be deemed to be an original,
and all such counterparts shall together constitute but one and the same
Agreement and shall be enforceable as of the date hereof upon the execution of
one or more counterparts hereof by each of the parties hereto. In this regard,
each of the parties hereto acknowledges that a counterpart of this Agreement
containing a set of counterpart execution pages reflecting the execution of each
party hereto shall be sufficient to reflect the execution of this Agreement by
each party hereto and shall constitute one instrument.

     9.18 USA Patriot Act Notice. Each Lender and the Agent (for itself and not
on behalf of any Lender) hereby notifies the Borrower that, pursuant to the
requirements of the USA Patriot Act, it is required to obtain, verify and record
information that identifies the Borrower,

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--------------------------------------------------------------------------------

which information includes the name and address of the Borrower and other
information that will allow such Lender or the Agent, as applicable, to identify
the Borrower in accordance with the USA Patriot Act.

     9.19 Tax Shelter Regulations. The Borrower does not intend to treat the
Loans and related transactions hereunder and under the other Loan Documents as a
“reportable transaction” (within the meanings under current Treasury Regulation
Section 1.6011 -4 and Proposed Treasury Regulation Section 1.6011 -4,
promulgated on November 1, 2006). In the event the Borrower determines to take
any action inconsistent with the foregoing statement, it will promptly notify
the Agent thereof. If the Borrower so notifies the Agent, the Borrower
acknowledges that one or more of the Lenders may treat its Loans and related
transactions hereunder and under the other Loan Documents as part of a
transaction that is subject to current Treasury Regulation Section 301.6112 -1
or Proposed Treasury Regulation Section 301.6112 -1, promulgated on November 1,
2006, and, in such case, such Lender or Lenders, as applicable, will maintain
the lists and other records required, if any, by such Treasury Regulations.

(Signatures appear on following pages)

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IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.

 

BORROWER:
LUCAS ENERGY, INC.

By: _____________________
W. A. Sikora
President and Chief
Executive Officer

(Signatures continue on following pages)

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AGENT:

      AMEGY BANK NATIONAL ASSOCIATION, as Agent

      By:  ______________________________
             Kenneth R. Batson, III Vice President

LENDER:

      AMEGY BANK NATIONAL ASSOCIATION

      By:  ______________________________
             Kenneth R. Batson, III Vice President

Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:

4400 Post Oak Parkway, 4th Floor
Houston, Texas 77207

 

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Schedule 4.8

LIABILITIES AND LITIGATION

Liabilities:

None.

Litigation:

None.

 

Schedule 4.8 -i

--------------------------------------------------------------------------------

Schedule 4.12

ENVIRONMENTAL MATTERS

None.

 

 

 

 

 

Schedule 4.12 -i

--------------------------------------------------------------------------------

Schedule 4.16

REFUNDS

None.

 

 

 

 

 

Schedule 4.16 -i

--------------------------------------------------------------------------------

Schedule 4.17

GAS CONTRACTS

None.

 

 

 

 

 

Schedule 4.17 -i

--------------------------------------------------------------------------------

Schedule 4.19

CASUALTIES

None.

 

 

 

 

 

Schedule 4.19 - i

--------------------------------------------------------------------------------

Schedule 4.22

SUBSIDIARIES

Lucas Energy Resources, Inc.

 

 

 

 

 

Schedule 4.22 - i

--------------------------------------------------------------------------------

Schedule 4.23

TAXPAYER I.D. AND ORGANIZATIONAL NUMBERS

Taxpayer I.D. No.  Organizational No.  20-266024  C31179-2003 

 

 

 

 

 

Schedule 4.23 -i

--------------------------------------------------------------------------------

EXHIBIT I

[FORM OF NOTE]

PROMISSORY NOTE
(this “Note”)

$ __________________

Houston, Texas, 20__

     FOR VALUE RECEIVED and WITHOUT GRACE (except to the extent, if any,
provided in the Credit Agreement referred to hereinafter), the undersigned
(“Maker”, whether one or more, and if more than one, with liability hereunder
being joint and several) promises to pay to the order of 
_________________________ (“Payee”), at the Principal Office (as such term is
defined in the Credit Agreement referred to hereinafter) of Amegy Bank National
Association,  ___________________ AND NO/100 DOLLARS ($___________) or so much
thereof as may be advanced against this Note and remains unpaid pursuant to the
Credit Agreement dated October __, 2008 by and among Maker, the lenders
signatory thereto or bound thereby from time to time, including, without
limitation, Payee, and Amegy Bank National Association, in its capacities as
administrative agent, issuing bank for letters of credit issued thereunder and
collateral agent for such lenders and, under certain circumstances, certain
other parties (as amended, supplemented, restated or otherwise modified from
time to time, the “Credit Agreement”), together with interest at the rates and
calculated as provided in the Credit Agreement.

     Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, certain events which will entitle the
holder hereof to accelerate the maturity of all amounts due hereunder.
Capitalized terms used but not defined in this Note shall have the respective
meanings assigned to such terms in the Credit Agreement.

     This Note is issued pursuant to, is a “Note” under, and is payable as
provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.

Without being limited thereto or thereby, this Note is secured by the Security
Documents.

 

 

Page 1 of 2

Initialed:___

 

--------------------------------------------------------------------------------

     THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF
TEXAS, WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW.

LUCAS ENERGY, INC.

By:
Name:
Title:

 

 

Page 2 of 2

 

--------------------------------------------------------------------------------

EXHIBIT II

[FORM OF BORROWING REQUEST]

[Date]

Amegy Bank National
Association, as Agent
4400 Post Oak Parkway, 4th Floor
Houston, Texas 77027
Attention: Energy Lending Dept.

Re:

Credit Agreement dated as of October 8, 2008 by and among Lucas Energy, Inc.,
Amegy Bank National Association, a national banking association, as Agent, and
the lenders signatory thereto or bound thereby from time to time (as amended,
supplemented, restated or otherwise modified from time to time, the “Credit
Agreement”)

Ladies and Gentlemen:

     Pursuant to the Credit Agreement, the undersigned hereby makes the requests
indicated below:

1 .  Loans            (a)  Amount of new Loan: $__________        (b)  Requested
funding date: ______________, 20__      (c)  $______________ of such Loan is to
be a Base Rate Loan; and        $ ______________ of such Loan is to be a LIBO
Rate Loan.      (d)  Requested Interest Period for LIBO Rate Loan:       
months.   2 .  Continuation or conversion of LIBO Rate Loan maturing on
___________:     (a)  Amount to be continued as a LIBO Rate Loan is       
$______________, with an Interest Period of        months; and          (b) 
Amount to be converted to a Base Rate Loan is $______________.  3 .  Conversion
of Base Rate Loan:          (a)  Requested conversion date: ____________,
20___.      (b)  Amount to be converted to a LIBO Rate Loan is $___________,   
    with an Interest Period of  months.   

 

Exhibit II-i

 

--------------------------------------------------------------------------------

4. Certification

     The undersigned individual certifies that [s]he is the
___________
of the Borrower, has obtained all consents necessary, and as such [s]he is
authorized to execute this request on behalf of the Borrower. The undersigned
individual further certifies, represents, and warrants on behalf of the
Borrower, that the Borrower is entitled to receive the requested borrowing,
continuation, or conversion under the terms and conditions of the Credit
Agreement and that, to the best knowledge of such undersigned individual, there
exists as of the date hereof neither a Default nor an Event of Default under the
Credit Agreement.

     Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.

Very truly yours,

________________
of
Lucas Energy, Inc.

 

Exhibit II-ii

--------------------------------------------------------------------------------

EXHIBIT III

[FORM OF COMPLIANCE CERTIFICATE]
[Date]

Amegy Bank National
Association, as Agent
4400 Post Oak Parkway, 4th Floor
Houston, Texas 77027
Attention: Energy Lending Dept.

Re:

Credit Agreement dated as of October 8, 2008 by and among Lucas Energy, Inc.,
Amegy Bank National Association, a national banking association, as Agent, and
the lenders signatory thereto or bound thereby from time to time (as amended,
supplemented, restated or otherwise modified from time to time, the “Credit
Agreement”)

Ladies and Gentlemen:

     Pursuant to applicable requirements of the Credit Agreement, the
undersigned individual, as a Responsible Officer of the Borrower, hereby
certifies to you the following information as true and correct as of the date
hereof or for the period indicated, as the case may be:

     1. [To the best of the knowledge of the undersigned, no Default or Event of
Default exists as of the date hereof or has occurred since the date of our
previous certification to you, if any.]

     [1. To the best of the knowledge of the undersigned, the following Defaults
or Events of Default exist as of the date hereof or have occurred since the date
of our previous certification to you, if any, and the actions set forth below
are being taken to remedy such circumstances:]

     2. The compliance of the Borrower, on a consolidated basis with its
consolidated Subsidiaries, with the financial covenants of the Credit Agreement,
as of the close of business on ____________, is evidenced by the following:

(a)  Section 6.14: Current Ratio       Required  Actual     Not less than 1.00
to 1.00             to 1.00  (b)  Section 6.15: Total Net Indebtedness to EBITDA
Ratio     Required  Actual     Not more than 3.75 to 1.0             to 1.0 

 

 

Exhibit III-i

--------------------------------------------------------------------------------

(c)   Section 6.16: General and Administrative Expense       Required  Actual   
   No more than $
__________  $
________________  3 .  The Borrower [is] [is not] in compliance with the
provisions of Section 6.1 

of the Credit Agreement relating to Commodity Hedge Agreements.

     4. No Material Adverse Effect has occurred since the date of the combined
consolidated Financial Statements of the Borrower as of [_____________] and for
the period then ended.

     Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.

 

Very truly yours,

________________
of
Lucas Energy, Inc.

 

Exhibit III-ii

--------------------------------------------------------------------------------

EXHIBIT IV

FACILITY AMOUNTS
AND PERCENTAGE SHARES

 

Name/Address of Lender  Percentage Share     Facility Amount        Amegy Bank
National Association  100%     $100,000,000  4400 Post Oak Parkway          4th
Floor          Houston, Texas 77027          Attn: Energy Lending Dept.         
Facsimile: (713) 561-0345          E-mail: kenneth.batson@amegybank.com         

 

 

Exhibit IV-i

--------------------------------------------------------------------------------

EXHIBIT V

[Form of Opinion of Nevada Counsel]

[Closing Date]

Amegy Bank National Association,
as Agent
4400 Post Oak Parkway, 4th Floor
Houston, Texas 77027
Attention: Energy Lending Dept.

Re:

Credit Agreement dated as of October 8, 2008 by and among Lucas Energy, Inc., a
Nevada corporation (the “Borrower”), Amegy Bank National Association, a national
banking association, as Agent, and the lenders signatory thereto or bound
thereby from time to time (the “Lenders”) (as amended, supplemented, restated or
otherwise modified from time to time, the “Credit Agreement”)

Ladies and Gentlemen:

     [We][I] have acted as special counsel to the Borrower in the State of
Nevada in connection with the transactions contemplated in the Credit Agreement.
This opinion is delivered pursuant to Section 3.1(n) of the Credit Agreement,
and the Agent and the Lenders are hereby authorized to rely upon this opinion in
connection with the transactions contemplated in the Credit Agreement. For
convenience, each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement, unless expressly provided
to the contrary herein.

     In [our][my] representation of the Borrower, [we][I] have examined an
executed counterpart or a copy of an executed counterpart of each of the
following (collectively, the “Loan Documents”), each of which is dated of even
date herewith:

(a)      the Credit Agreement;   (b)      the Note in effect on the Closing
Date;   (c)      Deed of Trust, Security Agreement, Financing Statement and
Assignment of  

Production from the Borrower in favor of Kenneth R. Batson, III, Trustee for the
benefit of Amegy Bank National Association, as agent for the Lenders and certain
other parties under certain circumstances under the terms of the Credit
Agreement and, in such capacity, as collateral agent for any additional Secured
Creditors (in such capacities, the “Collateral Agent”); and

     (d) Security Agreement from the Borrower, as Debtor, in favor of the
Collateral Agent, as Secured Party (the “Security Agreement”).

 

 

Exhibit V-i

--------------------------------------------------------------------------------

     [We][I] have also examined a copy of a UCC Financing Statement reflecting
the Borrower as the Debtor and the Collateral Agent as the Secured Party to be
filed with the Secretary of State of the State of Nevada (the “Financing
Statement”).

In making such examinations, [we][I] have, with your permission, assumed:

     (i) the genuineness of all signatures to the Loan Documents other than
those of officers of the Borrower;

     (ii) the authenticity of all documents submitted to [us][me] as originals
and the conformity with the originals of all documents submitted to [us] [me] as
copies;

     (iii) that Amegy Bank National Association is duly organized, legally
existing and in good standing under the laws of its jurisdiction of
organization;

     (iv) that Amegy Bank National Association, for itself and as the Agent and
the Collateral Agent, is authorized and has the power to enter into and perform
its obligations under the Credit Agreement and the other Loan Documents to which
it is a party; and

     (v) the due authorization, execution and delivery of all Loan Documents by
each party thereto other than the Borrower.

     Based upon the foregoing and subject to the qualifications set forth
herein, [we are][I am] of the opinion that:

1. The Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of Nevada.

2. The execution and delivery by the Borrower of the Credit Agreement and the
borrowings and obtaining of Letters of Credit thereunder, the execution and
delivery by the Borrower of the other Loan Documents to which the Borrower is a
party, and the payment and performance by the Borrower of all Obligations under
the Credit Agreement and the other Loan Documents to which the Borrower is a
party are within the power of the Borrower, have been duly authorized by all
necessary action by the Borrower, and do not (a) require the consent of any
Governmental Authority, (b) contravene or conflict with any Requirement of Law,
(c) to [our][my] knowledge, contravene or conflict with any indenture,
instrument or other agreement to which the Borrower is a party or by which any
Property of the Borrower may be presently bound or encumbered or (d) result in
or require the creation or imposition of any Lien upon any Property of the
Borrower other than as contemplated by the Loan Documents.

 

 

Exhibit V-ii

--------------------------------------------------------------------------------

3. The Borrower is not, nor is the Borrower directly or indirectly controlled by
or acting on behalf of any Person which is, an “investment company” or an
“affiliate person” of an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

4. The form of Financing Statement satisfies all applicable laws of the State of
Nevada and is legally sufficient under the laws of the State of Nevada to enable
Amegy Bank National Association, as the Agent and the Collateral Agent, to
realize the practical benefits purported to be afforded by the Security
Agreement.

5. The filings of a counterpart of the Financing Statement with the Secretary of
State of the State of Nevada is the only filing in the State of Nevada necessary
to perfect the security interests created by the Security Agreement or to permit
Amegy Bank National Association, as the Agent and the Collateral Agent, to
enforce the rights of the Secured Party under the Security Agreement.

6. No state or local mortgage registration tax, stamp tax or other similar tax,
fee or governmental charge (other than statutory filing fees to be paid upon
filing) is required to be paid to the State of Nevada or any subdivision thereof
in connection with the filing of a counterpart of the Financing Statement.

     The opinions expressed herein are subject to the qualification and
limitation that [we are][I am] licensed to practice law only in the State of
Nevada [and other jurisdictions the laws of which are not applicable to the
opinions expressed herein]; accordingly, the foregoing opinions are limited
solely to the laws of the State of Nevada and applicable United States federal
law.

     This opinion is furnished for the benefit of the Agent, any successor to
the Agent in such capacity, the Collateral Agent, any successor to the
Collateral Agent in such capacity, each Lender under the Credit Agreement, any
transferee or assignee of any such Lender, any other Secured Creditor and any
transferee or assignee of any such other Secured Creditor in connection with the
transactions contemplated by the Credit Agreement and the other Loan Documents
and is not to be quoted in whole or in part or otherwise referred to or
disclosed to any other person or entity or in any other transaction.

Very truly yours,

 

 

 

Exhibit V-iii

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EXHIBIT VI

[Form of Opinion of Texas Counsel]

[Closing Date]

Amegy Bank National Association,
as Agent
4400 Post Oak Parkway, 4th Floor
Houston, Texas 77027
Attention: Energy Lending Dept.

Re:

Credit Agreement dated as of October 8, 2008 by and among Lucas Energy, Inc., a
Nevada corporation (the “Borrower”), Amegy Bank National Association, a national
banking association, as Agent, and the lenders signatory thereto or bound
thereby from time to time (the “Lenders”) (as amended, supplemented, restated or
otherwise modified from time to time, the “Credit Agreement”)

Ladies and Gentlemen:

     [We][I] have acted as special counsel to the Borrower in the State of Texas
in connection with the transactions contemplated in the Credit Agreement. This
opinion is delivered pursuant to Section 3.1(o) of the Credit Agreement, and the
Agent and the Lenders are hereby authorized to rely upon this opinion in
connection with the transactions contemplated in the Credit Agreement. For
convenience, each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement, unless expressly provided
to the contrary herein.

     In [our][my] representation of the Borrower, [we][I] have examined an
executed counterpart or a copy of an executed counterpart of each of the
following (collectively, the “Loan Documents”), each of which is dated of even
date herewith:

(a)      the Credit Agreement;   (b)      the Note in effect on the Closing
Date;   (c)      Deed of Trust, Security Agreement, Financing Statement and
Assignment of  

Production from the Borrower in favor of Kenneth R. Batson, III, Trustee for the
benefit of Amegy Bank National Association, as agent for the Lenders and certain
other parties under certain circumstances under the terms of the Credit
Agreement and, in such capacity, as collateral agent for any additional Secured
Creditors (in such capacities, the “Collateral Agent”) (the “Deed of Trust”);
and

     (d) Security Agreement from the Borrower, as Debtor, in favor of the
Collateral Agent, as Secured Party (the “Security Agreement”).

 

 

 

Exhibit VI-i

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In making such examinations, [we][I] have, with your permission, assumed:

     (i) the genuineness of all signatures to the Loan Documents other than
those of officers of the Borrower;

     (ii) the authenticity of all documents submitted to [us][me] as originals
and the conformity with the originals of all documents submitted to [us] [me] as
copies;

     (iii) that each of Amegy Bank National Association and the Borrower is duly
organized, legally existing and in good standing under the laws of its
jurisdiction of organization;

     (iv) that each of Amegy Bank National Association, for itself and as the
Agent and the Collateral Agent, and the Borrower is authorized and has the power
to enter into and perform its obligations under the Credit Agreement and the
other Loan Documents to which it is a party;

     (v) the due authorization, execution and delivery of all Loan Documents by
each party thereto; and

     (vi) that the Borrower has good and indefeasible title to all Mortgaged
Property (as such term is defined in the Deed of Trust) and rights in the
Collateral (as such term is defined in the Security Agreement).

     Based upon the foregoing and subject to the qualifications set forth
herein, [we are][I am] of the opinion that:

1. The Borrower is qualified as a foreign corporation and in good standing under
the laws of the State of Texas.

2. The Loan Documents to which the Borrower is a party constitute legal, valid
and binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms.

3. The form of the Deed of Trust and the forms of the descriptions in the Deed
of Trust of the Mortgaged Property (as defined therein) satisfy all applicable
laws of the State of Texas and are legally sufficient under the laws of the
State of Texas to enable Amegy Bank National Association, as the Agent and the
Collateral Agent to realize the practical benefits purported to be afforded by
the Deed of Trust.

4. The Deed of Trust is in satisfactory form for filing and recording in the
offices described in paragraph 7 hereof.

 

Exhibit VI-ii

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5. The Deed of Trust (a) creates liens upon and security interests in all
Mortgaged Property (as defined therein) to secure the Indebtedness (as defined
therein) and (b) provides for nonjudicial foreclosure remedies customarily used
in the State of Texas.

6. The Security Agreement creates security interests in all Collateral (as
defined therein) to secure the Secured Obligations (as defined therein).

7. The filing and/or recording, as the case may be, of a counterpart of the Deed
of Trust in the office of the county clerk of each county in the State of Texas
in which any portion of the Mortgaged Property (as defined in the Deed of Trust)
is located is the only recording or filing in the State of Texas necessary to
perfect the liens and security interests created by the Deed of Trust or to
permit the Collateral Agent to enforce in the State of Texas its rights under
the Deed of Trust.

8. No state or local mortgage registration tax, stamp tax or other similar tax,
fee or governmental charge (other than statutory filing and recording fees to be
paid upon filing) is required to be paid to the State of Texas or any
subdivision thereof in connection with the execution, delivery, filing or
recording of the Deed of Trust or the consummation of the transactions
contemplated in the Deed of Trust.

The opinions expressed herein are subject to the following qualifications and
limitations:

     (a) [We are][I am] licensed to practice law only in the State of Texas [and
other jurisdictions the laws of which are not applicable to the opinions
expressed herein]; accordingly, the foregoing opinions are limited solely to the
laws of the State of Texas and applicable United States federal law.

     (b) The validity, binding effect and enforceability of the Loan Documents
may be limited or affected by bankruptcy, insolvency, moratorium, reorganization
or other similar laws affecting rights of creditors generally, including,
without limitation, statutes or rules of law which limit the effect of waivers
of rights by a debtor or grantor; provided, however, that the limitations and
other effects of such statutes or rules of law upon the validity and binding
effect of the Loan Documents should not differ materially from the limitations
and other effects of such statutes or rules of law upon the validity and binding
effect of assignments and security documents generally.

 

 

Exhibit VI-iii

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     (c) The enforceability of the obligations of the Borrower under the Loan
Documents is subject to general principles of equity (whether such
enforceability is considered in a suit in equity or at law).

     This opinion is furnished for the benefit of the Agent, any successor to
the Agent in such capacity, the Collateral Agent, any successor to the
Collateral Agent in such capacity, each Lender under the Credit Agreement, any
transferee or assignee of any such Lender, any other Secured Creditor and any
transferee or assignee of any such other Secured Creditor in connection with the
transactions contemplated by the Credit Agreement and the other Loan Documents
and is not to be quoted in whole or in part or otherwise referred to or
disclosed to any other person or entity or in any other transaction.

 

 

Very truly yours,

 

 

 

 

Exhibit VI-iv

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EXHIBIT VII

[Form of Assignment Agreement]

     This ASSIGNMENT AGREEMENT (as amended, supplemented, restated or otherwise
modified from time to time, this “Agreement”) is dated as of  ________________,
____ by and between _____________________(the “Assignor”) and _________________
(the “Assignee”).

RECITALS

     WHEREAS, the Assignor is a party to the Credit Agreement dated as of
October 8, 2008 (as amended, supplemented, restated or otherwise modified from
time to time, the “Credit Agreement”), by and among Lucas Energy, Inc., each of
the lenders that is or becomes a party thereto as provided in Section 9.1(b) of
the Credit Agreement (individually, together with its successors and assigns, a
“Lender”, and collectively, together with their successors and assigns, the
“Lenders”), and Amegy Bank National Association, a national banking association,
as agent for the Lenders and certain other parties under certain circumstances
(in such capacity, together with its successors in such capacity, the “Agent”);
and

     WHEREAS, the Assignor proposes to sell, assign and transfer to the
Assignee, and the Assignee proposes to purchase and assume from the Assignor,
[all][a portion] of the Assignor’s Facility Amount and its outstanding Loans,
all on the terms and conditions of this Agreement;

     NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

     1.1 Definitions from Credit Agreement. All capitalized terms used but not
defined herein have the respective meanings given to such terms in the Credit
Agreement.

     1.2 Additional Defined Terms. As used herein, the following terms have the
following respective meanings:

     “Assigned Interest” shall mean all of Assignor’s (in its capacity as a
“Lender”) rights and obligations (i) under the Credit Agreement and the other
Loan Documents in respect of [all of] [the portion of] the Facility Amount of
the Assignor in the principal amount equal to $____________, (ii) to make Loans
and participate in Letter of Credit under its Commitment up to such amount
referenced above and any right to receive payments for the Loans currently
outstanding under its Commitment in the principal amount of $___________, plus
the interest and fees which will accrue with respect thereto from and after the
Assignment Date.

“Assignment Date” shall mean _____________, ____.

 

 

Exhibit VII-i

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     1.3 References. References in this Agreement to Schedule, Exhibit, Article,
or Section numbers shall be to Schedules, Exhibits, Articles, or Sections of
this Agreement, unless expressly stated to the contrary. References in this
Agreement to “hereby,” “herein,” “hereinafter,” “hereinabove,” “hereinbelow,”
“hereof,” “hereunder” and words of similar import shall be to this Agreement in
its entirety and not only to the particular Schedule, Exhibit, Article, or
Section in which such reference appears. Except as otherwise indicated,
references in this Agreement to statutes, sections, or regulations are to be
construed as including all statutory or regulatory provisions consolidating,
amending, replacing, succeeding, or supplementing the statute, section, or
regulation referred to. References in this Agreement to “writing” include
printing, typing, lithography, facsimile reproduction, and other means of
reproducing words in a tangible visible form. References in this Agreement to
agreements and other contractual instruments shall be deemed to include all
exhibits and appendices attached thereto and all subsequent amendments and other
modifications to such instruments, but only to the extent such amendments and
other modifications are not prohibited by the terms of this Agreement.
References in this Agreement to Persons include their respective successors and
permitted assigns.

     1.4 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

     1.5 Number and Gender. Whenever the context requires, reference herein made
to the single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated. Words denoting sex
shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative.

     1.6 Negotiated Transaction. Each party to this Agreement affirms to the
other that it has had the opportunity to consult, and discuss the provisions of
this Agreement with, independent counsel and fully understands the legal effect
of each provision.

ARTICLE II

SALE AND ASSIGNMENT

     2.1 Sale and Assignment. On the terms and conditions set forth herein,
effective on and as of the Assignment Date, the Assignor hereby sells, assigns
and transfers to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, all of the right, title and interest of the Assignor in and
to, and all of the obligations of the Assignor in respect of, the Assigned
Interest. Such sale, assignment and transfer is without recourse and, except as
expressly provided in this Agreement, without representation or warranty.

 

Exhibit VII-ii

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     2.2 Assumption of Obligations. The Assignee agrees with the Assignor (for
the express benefit of the Assignor and the Borrower) that the Assignee will,
from and after the Assignment Date, assume and perform all of the obligations of
the Assignor in respect of the Assigned Interest. From and after the Assignment
Date: (a) the Assignor shall be released from the Assignor’s obligations in
respect of the Assigned Interest, and (b) the Assignee shall be entitled to all
of the Assignor’s rights, powers and privileges under the Credit Agreement and
the other Loan Documents in respect of the Assigned Interest.

     2.3 Consent by Agent. By executing this Agreement as provided below, in
accordance with Section 9.1(b) of the Credit Agreement, the Agent hereby
acknowledges notice of the transactions contemplated by this Agreement and
consents to such transactions.

ARTICLE III

PAYMENTS

     3.1 Payments. As consideration for the sale, assignment and transfer
contemplated by Section 2.1, the Assignee shall, on the Assignment Date, assume
Assignor’s obligations in respect of the Assigned Interest and pay to the
Assignor an amount equal to the Loan Balance, if any, all accrued and unpaid
interest and fees with respect to the Assigned Interest as of the Assignment
Date. Except as otherwise provided in this Agreement, all payments hereunder
shall be made in Dollars and in immediately available funds, without setoff,
deduction or counterclaim.

     3.2 Allocation of Payments. The Assignor and the Assignee agree that (i)
the Assignor shall be entitled to any payments of principal with respect to the
Assigned Interest made prior to the Assignment Date, together with any interest
and fees with respect to the Assigned Interest accrued prior to the Assignment
Date, (ii) the Assignee shall be entitled to any payments of principal with
respect to the Assigned Interest made from and after the Assignment Date,
together with any and all interest and fees with respect to the Assigned
Interest accruing from and after the Assignment Date, and (iii) the Agent is
authorized and instructed to allocate payments received by it for the account of
the Assignor and the Assignee as provided in the foregoing clauses. Each party
hereto agrees that it will hold any interest, fees or other amounts that it may
receive to which the other party hereto shall be entitled pursuant to the
preceding sentence for account of such other party and pay, in like money and
funds, any such amounts that it may receive to such other party promptly upon
receipt.

     3.3 Delivery of Note. In the event the Assignee is not already a Lender
under the Credit Agreement, promptly following the receipt by the Assignor of
the consideration required to be paid under Section 3.1 hereof, the Assignor
shall notify the Agent to request that the Borrower execute and deliver a new
Note to the Assignee dated the Assignment Date.

     3.4 Further Assurances. The Assignor and the Assignee hereby agree to
execute and deliver such other instruments, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.

 

 

Exhibit VII-iii

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ARTICLE IV

CONDITIONS PRECEDENT

     The effectiveness of the sale, assignment and transfer contemplated hereby
is subject to the satisfaction of each of the following conditions precedent:

     (a) the execution and delivery of this Agreement by the Assignor and the
Assignee;

     (b) the receipt by the Assignor of the payments required to be made under
Section 3.1; and

     (c) the acknowledgment and consent by the Agent contemplated by Section
2.3.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

     5.1 Representations and Warranties of Assignor. The Assignor represents and
warrants to the Assignee as follows:

     (a) it has all requisite power and authority, and has taken all action
necessary to execute and deliver this Agreement and to fulfill its obligations
under, and consummate the transactions contemplated by, this Agreement;

     (b) the execution, delivery and compliance with the terms hereof by the
Assignor and the delivery of all instruments required to be delivered by it
hereunder do not and will not violate any Requirement of Law applicable to it;

     (c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor, enforceable
against it in accordance with its terms;

     (d) all approvals and authorizations of, all filings with and all actions
by any Governmental Authority necessary for the validity or enforceability of
its obligations under this Agreement have been obtained;

     (e) the Assignor has good title to, and is the sole legal and beneficial
owner of, the Assigned Interest, free and clear of all Liens, claims,
participations or other charges of any nature whatsoever; and

     (f) the transactions contemplated by this Agreement are commercial banking
transactions entered into in the ordinary course of the banking business of the
Assignor.

 

 

Exhibit VII-iv

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     5.2 Disclaimer. Except as expressly provided in Section 5.1 hereof, the
Assignor does not make any representation or warranty, nor shall it have any
responsibility to the Assignee, with respect to the accuracy of any recitals,
statements, representations or warranties contained in the Credit Agreement or
in any other Loan Document or for the value, validity, effectiveness,
genuineness, execution, legality, enforceability or sufficiency of the Credit
Agreement, the Notes or any other Loan Document or for any failure by the
Borrower or any other Person (other than Assignor) to perform any of its
obligations thereunder or for the existence, value, perfection or priority of
any collateral security or the financial or other condition of the Borrower or
any other Person, or any other matter relating to the Credit Agreement or any
other Loan Document or any extension of credit thereunder.

     5.3 Representations and Warranties of Assignee. The Assignee represents and
warrants to the Assignor as follows:

     (a) it has all requisite power and authority, and has taken all action
necessary to execute and deliver this Agreement and to fulfill its obligations
under, and consummate the transactions contemplated by, this Agreement;

     (b) the execution, delivery and compliance with the terms hereof by the
Assignee and the delivery of all instruments required to be delivered by it
hereunder do not and will not violate any Requirement of Law applicable to it;

     (c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignee, enforceable
against it in accordance with its terms;

     (d) all approvals and authorizations of, all filings with and all actions
by any Governmental Authority necessary for the validity or enforceability of
its obligations under this Agreement have been obtained;

     (e) the Assignee has received copies of the Credit Agreement and the other
Loan Documents, as well as copies of all Financial Statements previously
provided by the Borrower in satisfaction of obligations under the Credit
Agreement.

     (f) the Assignee has fully reviewed the terms of the Credit Agreement and
the other Loan Documents and has independently and without reliance upon the
Assignor, and based on such information as the Assignee has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement;

     (g) if the Assignee is not incorporated under the laws of the United Sates
of America or a state thereof, the Assignee has contemporaneously herewith
delivered to the Agent and the Borrower such documents as are required by the
Credit Agreement; and

 

Exhibit VII-v

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     (h) the transactions contemplated by this Agreement are commercial banking
transactions entered into in the ordinary course of the banking business of the
Assignee.

ARTICLE VI

MISCELLANEOUS

     6.1 Notices. All notices and other communications provided for herein
(including any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including by telecopy) to the
intended recipient at its “Address for Notices” specified below its name on the
signature pages hereof or, as to either party, at such other address as shall be
designated by such party in a notice to the other party.

     6.2 Amendment, Modification or Waiver. No provision of this Agreement may
be amended, modified or waived except by an instrument in writing signed by the
Assignor and the Assignee, and consented to by the Agent.

     6.3 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. The representations and warranties made herein by the
Assignee are also made for the benefit of the Agent, and the Assignee agrees
that the Agent is entitled to rely upon such representations and warranties.

     6.4 Assignments. Neither party hereto may assign any of its rights or
obligations hereunder except in accordance with the terms of the Credit
Agreement.

     6.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, taken together,
shall constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.

     6.6 Governing Law. This Agreement (including the validity and
enforceability hereof) shall be governed by, and construed in accordance with,
the laws of the State of Texas, other than the conflict of laws rules thereof.

     6.7 Expenses. To the extent not paid by the Borrower pursuant to the terms
of the Credit Agreement, each party hereto shall bear its own expenses in
connection with the execution, delivery and performance of this Agreement.

     6.8 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

 

Exhibit VII-vi

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     IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered as of the date first above written.

ASSIGNOR:

By:___________________
 Name:___________________
Title:___________________

Address for Notices

Facsimile No.:___________________
Telephone No.:___________________
Attention:___________________

 

 

Exhibit VII-vii

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ASSIGNEE:

By:________________________
Name:________________________
Title:________________________

Applicable Lending Office
For Base Rate Loans and
LIBO Rate Loans:

Address for Notices:

Facsimile No.: ________________________
Telephone No.:________________________
Attention:________________________

 

Exhibit VII-viii

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ACKNOWLEDGED AND CONSENTED TO:
AMEGY BANK NATIONAL ASSOCIATION, as Agent

By:
Name:
Title:

LUCAS ENERGY, INC.

By:
Name:
Title:

 

 

Exhibit VII-ix

5147582v.6

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