Exhibit 10.3

                                     WARRANT
                       TO PURCHASE SHARES OF COMMON STOCK
                                       OF
                               CUBIC ENERGY, INC.


THE  WARRANTS  REPRESENTED  BY THIS  CERTIFICATE  AND THE SHARES OF COMMON STOCK
ISSUABLE  UPON  EXERCISE  OF THIS  WARRANT  HAVE NOT BEEN  REGISTERED  UNDER THE
SECURITIES  ACT OF 1933 (THE  "ACT"),  NOR HAS IT BEEN  APPROVED  BY THE  UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE. NEITHER THESE WARRANTS NOR ANY INTEREST THEREIN MAY BE OFFERED FOR
SALE, SOLD, MORTGAGED, PLEDGED, TRANSFERRED,  HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL  ACCEPTABLE  TO THE  COMPANY  THAT SUCH  REGISTRATION  IS NOT
REQUIRED.

No. 2006-1                                   Warrant to Purchase1,125,000 Shares
July 27, 2006                         of Common Stock, $0.05 Par Value Per Share



                        WARRANT TO PURCHASE COMMON STOCK
                                       of
                               CUBIC ENERGY, INC.,
                               a Texas corporation
           Void after the date set forth in the first paragraph hereof

     This  certifies  that,  for  value  received,   George  Karfunkel,  or  its
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase  from Cubic  Energy,  Inc.,  a Texas  corporation  (the  "Company"),
1,125,000  shares of Common  Stock,  $0.05 par value per share,  of the  Company
(such class of stock being referred to herein as "Common Stock"), as constituted
on July  27,  2006  (the  "Issue  Date"),  upon  compliance  with  the  exercise
provisions  set forth in Section 1 hereof,  at the price of $0.70 per share (the
"Exercise  Price").  This Warrant  must be  exercised,  if at all,  prior to the
earlier to occur of 5:00 p.m.,  Dallas,  Texas time on July 31, 2011. The shares
of Common Stock issued or issuable  upon  exercise of this Warrant are sometimes
referred to as the "Warrant  Shares." The term  "Warrants"  as used herein shall
include  this Warrant and any warrants  delivered  in  substitution  or exchange
therefor as provided herein.

     Section 1.  Exercise of Warrant.  This Warrant may be exercised at any time
or from time to time, on any business day, for all or part of the full number of
Warrant Shares during the period of time described  above,  by (i) delivery of a
written  notice,  in the form of the  subscription  notice  attached hereto or a
reasonable  facsimile  thereof  (the  "Exercise  Notice"),  to the  Company,  of
Holder's  election to exercise  all or a portion of this  Warrant,  which notice

<PAGE>

shall specify the number of Warrant Shares to be purchased,  (ii) (A) payment to
the Company of an amount equal to the Exercise Price multiplied by the number of
Warrant  Shares as to which this  Warrant  is being  exercised  (the  "Aggregate
Exercise  Price") in cash or delivery of a certified check or bank draft payable
to the order of the Company or wire transfer of immediately available funds, and
(iii) the surrender of this Warrant to a common  carrier for overnight  delivery
to the Company on the date the  Exercise  Notice is delivered to the Company (or
evidence  of lost  Warrant,  in  accordance  with  Section  7). No other form of
consideration  shall be acceptable  for the exercise of this Warrant.  A Warrant
shall be  deemed  to have  been  exercised  immediately  prior  to the  close of
business  on the date of  delivery  of the  Exercise  Notice,  this  Warrant and
Aggregate  Exercise Price  referred to in clause  (ii)(A) above,  and the person
entitled to receive the shares of Common Stock issuable upon such exercise shall
be treated for all purposes as the record  holder of such shares as of the close
of business on such date. As soon as  practicable  on or after such date, and in
any event  within 10 days  thereof,  the Company  shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the  number of shares of Common  Stock  issuable  upon such  exercise.  Upon any
partial  exercise,  the  Company  will issue and deliver to Holder a new Warrant
with  respect to the Warrant  Shares not  previously  purchased.  No  fractional
shares of Common  Stock shall be issued upon  exercise of a Warrant.  In lieu of
any  fractional  share to which  Holder  would be entitled  upon  exercise,  the
Company shall pay cash equal to the product of such  fraction  multiplied by the
then current fair market value of one share of Common  Stock,  as  determined in
good faith by the Company.

     Section 2.  Payment of Taxes.  All shares of Common  Stock  issued upon the
exercise of a Warrant shall be duly authorized,  validly issued and outstanding,
fully paid and non-assessable. Holder shall pay all taxes and other governmental
charges that may be imposed in respect of the issue or delivery  thereof and any
tax or other charge  imposed in  connection  with any  transfer  involved in the
issue of any  certificate for shares of Common Stock in any name other than that
of the  registered  Holder of the Warrant  surrendered  in  connection  with the
purchase of such shares,  and in such case the Company  shall not be required to
issue or deliver any stock  certificate  until such tax or other charge has been
paid or it has been  established  to the Company's  satisfaction  that no tax or
other charge is due.

     Section 3. Transfer and Exchange.  Subject to the restrictions set forth in
Section  10(a)(iv),  this Warrant and all rights hereunder are transferable,  in
whole or in part. This Warrant is transferable  only on the books of the Company
maintained  for such purpose at its  principal  office by Holder in person or by
duly authorized  attorney,  upon surrender of this Warrant properly endorsed and
upon payment of any necessary transfer tax or other governmental  charge imposed
upon such transfer.

     Section 4. Certain Adjustments.

     (a) In order to prevent  dilution  of the  rights  granted  hereunder,  the
Exercise  Price shall be subject to  adjustment  from time to time in accordance
with this  Section 4. For purposes of this Section 4, the term "Number of Common
Shares Deemed  Outstanding" at any given time shall mean the number of shares of


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<PAGE>

Common Stock  outstanding at such time on a fully diluted  basis,  including all
options,  warrants and securities convertible into or exchangeable for shares of
Common Stock and, without duplication,  the number of shares of the Common Stock
deemed to be outstanding  under paragraphs  4(b)(1) to (9),  inclusive,  at such
time but  excluding  the  issuance,  from time to time of shares of Common Stock
issuable as  equity-based  compensation  to certain of the Company's  directors,
executive  officers or employees under the Company's equity incentive plans that
have been approved by the Company's stockholders.

     (b)  Except as  provided  in  Section  4(c),  4(d) or 4(e)  hereof,  if and
whenever  after the date  hereof the Company  shall  issue or sell,  or shall in
accordance with paragraphs 4(b)(1) to (9),  inclusive,  be deemed to have issued
or sold any shares of its Common Stock for a  consideration  per share less than
the Current Market Price in effect  immediately  prior to the time of such issue
or sale, then forthwith upon such issue or sale (the "Triggering  Transaction"),
the Exercise Price shall, subject to paragraphs (1) to (9) of this Section 4(b),
be reduced to an adjusted Exercise Price (calculated to the nearest hundredth of
a cent) determined by multiplying the Exercise Price  immediately  preceding the
new share issuance by a fraction:

          (i) the  numerator of which shall be an amount equal to the sum of (x)
     the Number of Common Shares Deemed  Outstanding  immediately  prior to such
     Triggering Transaction plus (y) the quotient of the consideration,  if any,
     received by the Company upon  consummation  of the  Triggering  Transaction
     divided by the Current Market Price  immediately  prior to the time of such
     issue or sale; and

          (ii) the  denominator  of which  shall be the Number of Common  Shares
     Deemed  Outstanding  immediately prior to such Triggering  Transaction plus
     (y) the number of shares of Common  Stock issued (or deemed to be issued in
     accordance  with  paragraphs   4(b)(1)  to  (9))  in  connection  with  the
     Triggering Transaction.

     "Current  Market  Price" on any date  specified  herein,  means the average
daily Market Price during the period of the most recent 20 consecutive  business
days,  ending on the business day  immediately  prior to such date, on which the
national  securities  exchanges were open for trading,  except that if no Common
Stock is then listed or admitted to trading on any national  securities exchange
or quoted in the over-the-counter  market, the Current Market Price shall be the
Market Price on such date.  "Market Price" on any date specified  herein,  means
the amount per share of the  Common  Stock,  equal to (a) the last sale price of
such Common Stock,  regular way, on such date or, if no such sale takes place on
such date, the average of the closing bid and asked prices thereof on such date,
in  each  case as  officially  reported  on the  principal  national  securities
exchange  on which such Common  Stock is then listed or admitted to trading,  or
(b) if such  Common  Stock is not then  listed or  admitted  to  trading  on any
national  securities  exchange but is  designated  as a national  market  system
security by the NASD,  the last trading  price of the Common Stock on such date,
or (c) if there  shall have been no trading on such date or if the Common  Stock
is not so  designated,  the average of the  closing bid and asked  prices of the
Common  Stock on such date as shown by the NASD  automated  quotation  system or


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<PAGE>

over-the-counter  market,  or (d) if such  Common  Stock is not then  listed  or
admitted to trading on any national  exchange or quoted in the  over-the-counter
market,  the  fair  value  thereof  determined  in good  faith  by the  Board of
Directors  of the Company as of a date which is within 20 days of the date as of
which the determination is to be made.

     For purposes of determining the adjusted  Exercise Price under this Section
4(b), the following paragraphs (1) to (9), inclusive, shall be applicable:

          (1) In case the Company at any time shall in any manner grant (whether
     directly or by assumption in a merger or otherwise) any rights to subscribe
     for or to purchase, or any options for the purchase of, Common Stock or any
     stock or other securities convertible into or exchangeable for Common Stock
     other than options (and the  securities  issued in exercise  thereof)  with
     respect to the  3,750,000  shares of Common  Stock (as  adjusted  for stock
     splits,  reverse  stock  splits  and stock  dividends)  issuable  under the
     Company's 2005 Stock Option Plan so long as the option price on the initial
     date of grant equals or exceeds the then Current  Market Price (such rights
     or  options  being  herein  called   "Options"  and  such   convertible  or
     exchangeable   stock  or  securities   being  herein  called   "Convertible
     Securities"),  whether  or not such  Options  or the  right to  convert  or
     exchange any such  Convertible  Securities are immediately  exercisable and
     the price per share for which the Common Stock is issuable  upon  exercise,
     conversion or exchange  (determined  by dividing (x) the total  amount,  if
     any,  received  or  receivable  by the  Company  as  consideration  for the
     granting of such Options,  plus the minimum  aggregate amount of additional
     consideration payable to the Company upon the exercise of all such Options,
     plus, in the case of such Options which relate to  Convertible  Securities,
     the minimum aggregate amount of additional  consideration,  if any, payable
     upon  the  issue  or sale of  such  Convertible  Securities  and  upon  the
     conversion or exchange  thereof,  by (y) the total maximum number of shares
     of  Common  Stock  issuable  upon  the  exercise  of  such  Options  or the
     conversion or exchange of such Convertible  Securities)  shall be less than
     the Exercise Price in effect  immediately prior to the time of the granting
     of such Option, then the total maximum amount of Common Stock issuable upon
     the  exercise  of such  Options or in the case of Options  for  Convertible
     Securities,  upon the conversion or exchange of such Convertible Securities
     shall  (as of the  date  of  granting  of such  Options)  be  deemed  to be
     outstanding  and to have been issued and sold by the Company for such price
     per share.  No  adjustment  of the  Exercise  Price  shall be made upon the
     actual issue of such shares of Common Stock or such Convertible  Securities
     upon  the  exercise  of such  Options,  except  as  otherwise  provided  in
     paragraph (3) below.

          (2) In case the Company at any time shall in any manner issue (whether
     directly or by assumption in a merger or otherwise) or sell any Convertible
     Securities, whether or not the rights to exchange or convert thereunder are
     immediately exercisable,  and the price per share for which Common Stock is
     issuable upon such  conversion or exchange  (determined by dividing (x) the
     total amount received or receivable by the Company as consideration for the
     issue or sale of such Convertible  Securities,  plus the minimum  aggregate


                                       4
<PAGE>

     amount of additional consideration, if any, payable to the Company upon the
     conversion or exchange  thereof,  by (y) the total maximum number of shares
     of Common  Stock  issuable  upon the  conversion  or  exchange  of all such
     Convertible  Securities)  shall be less than the  Exercise  Price in effect
     immediately prior to the time of such issue or sale, then the total maximum
     number of shares of Common Stock  issuable  upon  conversion or exchange of
     all such Convertible  Securities shall (as of the date of the issue or sale
     of such  Convertible  Securities) be deemed to be  outstanding  and to have
     been issued and sold by the Company for such price per share. No adjustment
     of the  Exercise  Price shall be made upon the actual  issue of such Common
     Stock  upon  exercise  of the  rights to  exchange  or  convert  under such
     Convertible  Securities,  except as  otherwise  provided in  paragraph  (3)
     below.

          (3) If the purchase price  provided for in any Options  referred to in
     paragraph  (1),  the  additional  consideration,  if any,  payable upon the
     conversion  or  exchange  of  any  Convertible  Securities  referred  to in
     paragraphs  (1) or (2),  or the rate at which  any  Convertible  Securities
     referred to in paragraphs (1) or (2) are  convertible  into or exchangeable
     for Common Stock shall change at any time (other than under or by reason of
     provisions  designed to protect  against  dilution of the type set forth in
     Section  4(d)),  the  Exercise  Price in effect at the time of such  change
     shall  forthwith be readjusted to the Exercise  Price which would have been
     in effect at such time had such  Options or  Convertible  Securities  still
     outstanding   provided  for  such  changed   purchase   price,   additional
     consideration or conversion rate, as the case may be, at the time initially
     granted, issued or sold.

          (4) On the expiration of any Option or the termination of any right to
     convert or exchange any Convertible Securities,  the Exercise Price then in
     effect  hereunder  shall forthwith be increased to the Exercise Price which
     would have been in effect at the time of such expiration or termination had
     such  Option  or  Convertible   Securities,   to  the  extent   outstanding
     immediately prior to such expiration or termination, never been issued.

          (5) In case any Options shall be issued in  connection  with the issue
     or sale  of  other  securities  of the  Company,  together  comprising  one
     integral  transaction  in which no specific  consideration  is allocated to
     such Options by the parties  thereto,  such Options shall be deemed to have
     been issued without consideration.

          (6) In case  any  shares  of  Common  Stock,  Options  or  Convertible
     Securities  shall be issued  or sold or deemed to have been  issued or sold
     for cash,  the  consideration  received  therefor shall be deemed to be the
     amount  received  by the  Company  therefor.  In case any  shares of Common
     Stock,  Options  or  Convertible  Securities  shall be issued or sold for a
     consideration  other than cash, the amount of the consideration  other than
     cash received by the Company shall be the fair value of such  consideration
     as determined  in good faith by the Board of Directors.  In case any shares
     of Common  Stock,  Options  or  Convertible  Securities  shall be issued in
     connection   with  any  merger  in  which  the  Company  is  the  surviving


                                       5
<PAGE>

     corporation, the amount of consideration therefor shall be deemed to be the
     fair  value  of  such  portion  of  the  net  assets  and  business  of the
     non-surviving  corporation as shall be  attributable  to such Common Stock,
     Options or Convertible Securities, as the case may be as determined in good
     faith by the Board of Directors.

          (7) The number of shares of Common Stock outstanding at any given time
     shall  not  include  shares  owned  or held by or for  the  account  of the
     Company,  and the  disposition  of any  shares  so owned  or held  shall be
     considered an issue or sale of Common Stock for the purpose of this Section
     4(b).

          (8) In case the  Company  shall  declare a dividend  or make any other
     distribution   upon  the  stock  of  the  Company  payable  in  Options  or
     Convertible  Securities,  then in such  case  any  Options  or  Convertible
     Securities,  as the case may be,  issuable  in payment of such  dividend or
     distribution   shall  be  deemed  to  have  been  issued  or  sold  without
     consideration.

          (9) For purposes of this Section  4(b), in case the Company shall take
     a record of the holders of its Common  Stock for the  purpose of  entitling
     them (x) to  receive a  dividend  or other  distribution  payable in Common
     Stock,  Options or in  Convertible  Securities,  or (y) to subscribe for or
     purchase Common Stock, Options or Convertible Securities,  then such record
     date  shall be deemed to be the date of the issue or sale of the  shares of
     Common  Stock  deemed to have been issued or sold upon the  declaration  of
     such dividend or the making of such other  distribution  or the date of the
     granting of such right or subscription or purchase, as the case may be.

     (c) In the event the Company shall declare a dividend upon the Common Stock
(other than a dividend  payable in Common Stock)  payable  otherwise than out of
earnings or earned  surplus,  determined in accordance  with generally  accepted
accounting  principles,  including  the  making of  appropriate  deductions  for
minority interests,  if any, in subsidiaries (herein referred to as "Liquidating
Dividends"),  then, as soon as possible after the exercise of this Warrant,  the
Company shall pay to the person  converting  this Warrant an amount equal to the
aggregate  value at the time of such  exercise of all  Liquidating  Dividends to
which such holder  would have been  entitled if such holder had  converted  this
Warrant to Common Stock prior to the declaration of the  Liquidating  Dividends,
at the then applicable  Exercise Price. For the purposes of this Section 4(c), a
dividend  other than in cash shall be  considered  payable  out of  earnings  or
earned  surplus  only to the extent  that such  earnings  or earned  surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors.

     (d) In case the Company  shall at any time (i)  subdivide  the  outstanding
Common Stock or (ii) issue a dividend on its outstanding Common Stock payable in
shares of Common  Stock,  the  number of shares of Common  Stock  issuable  upon
exercise of the Warrant shall be proportionately  increased by the same ratio as
the subdivision or dividend (with appropriate  adjustments to the Exercise Price
in  effect  immediately  prior to such  subdivision  or  dividend).  In case the
Company shall at any time combine its  outstanding  Common Stock,  the number of


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<PAGE>

shares  issuable  upon  exercise  of  this  Warrant  immediately  prior  to such
combination  shall  be  proportionately  decreased  by  the  same  ratio  as the
combination  (with  appropriate  adjustments  to the  Exercise  Price in  effect
immediately prior to such combination).

     (e) In the event that:

          (1) The Company shall declare any cash dividend upon its Common Stock,
     or

          (2) The Company  shall  declare  any  dividend  upon its Common  Stock
     payable in stock or make any special dividend or other  distribution to the
     holders of its Common Stock, or

          (3) The Company shall offer for  subscription  pro rata to the holders
     of its Common  Stock any  additional  shares of stock of any class or other
     rights, or

          (4) there shall be any capital  reorganization or  reclassification of
     the capital stock of the Company,  including any subdivision or combination
     of its outstanding  shares of Common Stock, or  consolidation  or merger of
     the Company  with,  or sale of all or  substantially  all of its assets to,
     another corporation, or

          (5) there shall be a voluntary or involuntary dissolution, liquidation
     or winding up of the Company;

     then, in connection with such event,  the Company shall give to the holders
of this Warrant:

          (i) at least 20 days  prior  written  notice  of the date on which the
     books  of the  Company  shall  close or a  record  shall be taken  for such
     dividend,  distribution or subscription rights or for determining rights to
     vote   in   respect   of   any   such   reorganization,   reclassification,
     consolidation, merger, sale, dissolution, liquidation or winding up; and

          (ii)  in  the  case  of  any  such  reorganization,  reclassification,
     consolidation,  merger,  sale,  dissolution,  liquidation or winding up, at
     least 20 days  prior  written  notice of the date when the same  shall take
     place.

     Such notice in accordance with the foregoing clause (i) shall also specify,
in the case of any such dividend,  distribution or subscription rights, the date
on which the holders of Common Stock shall be entitled thereto,  and such notice
in  accordance  with the  foregoing  clause (ii) shall also  specify the date on
which the holders of Common  Stock shall be  entitled to exchange  their  Common
Stock for securities or other  property  deliverable  upon such  reorganization,
reclassification,  consolidation,  merger,  sale,  dissolution,  liquidation  or
winding up, as the case may be. Each such written notice shall be given by first
class mail,  postage  prepaid,  addressed  to the holders of this Warrant at the
address of each such holder as shown on the books of the Company.


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<PAGE>

     (f) If at any time or from time to time after the date  hereof the  Company
shall grant,  issue or sell any  Options,  Convertible  Securities  or rights to
purchase property (the "Purchase  Rights") pro rata to the record holders of any
class of Common  Stock and such  grants,  issuances or sales do not result in an
adjustment of the Exercise Price under Section 4(b) hereof,  then each holder of
a Warrant shall be entitled to acquire  (within thirty (30) days after the later
to occur of the initial exercise date of such Purchase Rights or receipt by such
holder of the notice  concerning  Purchase  Rights to which such holder shall be
entitled under Section 4(g)) upon the terms  applicable to such Purchase  Rights
either:

          (i) the  aggregate  Purchase  Rights  which  such  holder  could  have
     acquired  if it had held the  number of shares of Common  Stock  acquirable
     upon exercise of the Warrant immediately before the grant, issuance or sale
     of  such  Purchase  Rights;  provided  that  if any  Purchase  Rights  were
     distributed  to holders of Common Stock  without the payment of  additional
     consideration  by such  holders,  corresponding  Purchase  Rights  shall be
     distributed to the holders of the Warrants as soon as possible and it shall
     not be necessary for the exercising holder of the Warrants  specifically to
     request delivery of such rights; or

          (ii) in the event that any such Purchase  Rights shall have expired or
     shall expire  prior to the end of said 30 day period,  the number of shares
     of Common  Stock or the amount of  property  which such  holder  could have
     acquired  upon  such  exercise  at the time or times at which  the  Company
     granted, issued or sold such expired Purchase Rights.

     (g) If any  event  occurs  as to  which,  in the  opinion  of the  Board of
Directors  of the  Company,  the  provisions  of this Section 6 are not strictly
applicable or if strictly  applicable would not fairly protect the rights of the
holders of the Warrants in accordance  with the essential  intent and principles
of such provisions,  then the Board of Directors shall make an adjustment in the
application of such  provisions,  in accordance  with such essential  intent and
principles, so as to protect such rights as aforesaid, but in no event shall any
adjustment  have the  effect  of  increasing  the  Exercise  Price as  otherwise
determined  pursuant to any of the  provisions  of this  Section 4 except in the
case of a combination  of shares of a type  contemplated  in Section 4(d) hereof
and then in no event to an amount  larger  than the  Exercise  Price as adjusted
pursuant to Section 4(d) hereof.

     Section  5.  Reorganization,  Reclassification,  Merger,  Consolidation  or
Disposition of Assets.  If the Company shall reorganize its capital,  reclassify
its capital  stock,  consolidate  or merge with or into another  corporation  or
entity (where the Company is not the surviving  corporation  or where there is a
change in or  distribution  with  respect to the  shares of Common  Stock of the
Company) or sell,  transfer or otherwise dispose of all or substantially all its
property,  assets or  business  to another  corporation  or other  entity  (such
successor or acquiring  corporation  or entity,  an  "Acquiring  Entity"),  and,
pursuant  to  the  terms  of  such  reorganization,   reclassification,  merger,
consolidation or disposition of assets,  common shares of the Acquiring  Entity,
or any cash,  shares of stock or other  securities  or  property  of any  nature
whatsoever  (including  warrants or other  subscription  or purchase  rights) in
addition  to or in  lieu  of  common  shares  of the  Acquiring  Entity  ("Other


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<PAGE>

Property"),  are to be received by or distributed to the holders of Common Stock
of the Company,  then the holder of this Warrant shall have the right thereafter
to  receive in lieu of the Common  Stock  described  in Section 1, the number of
shares of common stock of the  Acquiring  Entity or Common Stock of the Company,
if it is the surviving  corporation,  and Other Property receivable upon or as a
result  of  such  reorganization,  reclassification,  merger,  consolidation  or
disposition  of assets by a holder of the number of shares of Common  Stock that
the Holder of this  Warrant  would have owned or been  entitled  to receive  had
Common Stock been issued to such Holder under Section 1 on full exercise of this
Warrant  immediately  prior to such event.  In case of any such  reorganization,
reclassification,  merger, consolidation or disposition of assets, the Acquiring
Entity (if other than the Company) shall  expressly  assume all the  obligations
and liabilities of the Company  hereunder,  subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the board of
directors  of the  Company)  in order to provide  for  adjustments  of shares of
Common Stock  issuable  under  Section 1 which shall be as nearly  equivalent as
practicable to the  adjustments  provided for in Section 4. For purposes of this
Section 5, "common shares of the Acquiring Entity" shall include shares or other
ownership interests of such Acquiring Entity of any class which is not preferred
as to  dividends  or  assets  over any other  class of stock or other  ownership
interests of such  Acquiring  Entity and which is not subject to redemption  and
shall also include any  evidences of  indebtedness,  shares or other  securities
which  are  convertible  into or  exchangeable  for any  such  shares  or  other
ownership interests,  either immediately or upon the arrival of a specified date
or the  happening  of a  specified  event and any  warrants  or other  rights to
subscribe  for or  purchase  any such stock or other  ownership  interests.  The
foregoing  provisions  of this  Section 5 shall  similarly  apply to  successive
reorganizations,   reclassifications,  mergers,  consolidations,  spin-offs,  or
dispositions of assets.

     Section 6. Certain  Notices,  Etc.  Whenever  the  Exercise  Price shall be
adjusted as provided in Section 4 hereof,  the Company shall  forthwith  file at
each office designated for the exercise of Warrants, a statement,  signed by the
Chairman of the Board,  the  President,  any Vice  President or Treasurer of the
Company,  showing in reasonable  detail the facts  requiring such adjustment and
the Exercise  Price that will be effective  after such  adjustment.  The Company
shall also cause a notice setting forth any such adjustments to be sent by mail,
first class,  postage prepaid,  to each record holder of a Warrant at his or its
address appearing on the stock register. If such notice relates to an adjustment
resulting from an event referred to in Section 4(f) hereof, such notice shall be
included  as part of the notice  required to be mailed and  published  under the
provisions of Section 4(f) hereof.

     Section 7. Loss or  Mutilation.  Upon  receipt by the  Company of  evidence
satisfactory  to it (in the exercise of reasonable  discretion) of the ownership
of and the loss,  theft,  destruction  or  mutilation of any Warrant and (in the
case of loss,  theft or  destruction)  of indemnity  satisfactory  to it (in the
exercise  of  reasonable  discretion),  and (in the  case  of  mutilation)  upon
surrender and cancellation thereof, the Company will execute and deliver in lieu
thereof a new Warrant of like tenor.


                                       9
<PAGE>

     Section 8.  Reservation  of Common  Stock.  The Company  shall at all times
reserve and keep available out of its  authorized but unissued  shares of Common
Stock,  solely for the purpose of effecting  the  exercise of the Warrant,  such
number of its shares of Common Stock as shall from time to time be sufficient to
effect exercise of the Warrant;  and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect such exercise,
the  Company  will take such  corporate  action as may,  in the  opinion  of its
counsel,  be necessary to increase its authorized but unissued  shares of Common
Stock to such number of shares as shall be sufficient  for such purpose.  Before
taking any action that would cause an  adjustment  reducing the  Exercise  Price
below the then par value of the shares of Common Stock issuable upon exercise of
the  Warrants,  the  Company  will take any  corporate  action  that may, in the
opinion of its  counsel,  be necessary in order that the Company may validly and
legally issue fully-paid and  nonassessable  shares of such Common Stock at such
adjusted exercise price.

     Section 9.  Notices of Record  Date.  In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining  the  holders  thereof who are  entitled to receive any  dividend or
other  distribution,  or (ii) any capital  reorganization  of the  Company,  any
reclassification or  recapitalization  of the capital stock of the Company,  any
merger or consolidation of the Company with or into any other corporation (other
than a merger of a wholly owned subsidiary into the Company), or any transfer of
all or substantially all of the assets of the Company to any other person or any
voluntary or involuntary dissolution,  liquidation or winding up of the Company,
the Company shall provide to the Holder,  at least twenty (20) days prior to the
record date  specified  therein,  a notice  specifying (1) the date on which any
such record is to be taken for the purpose of such dividend or distribution  and
a description of such dividend or  distribution,  (2) the date on which any such
reorganization,  reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective,  and (3) the date, if
any,  that is to be fixed,  as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other  securities)  for  securities  or other  property  deliverable  upon  such
reorganization,  reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.

     Section 10. Investment Representation and Restriction on Transfer.

     (a)  Securities Law Requirements.

          (i) By its  acceptance of this Warrant,  Holder hereby  represents and
     warrants to the Company  that this  Warrant and the Warrant  Shares will be
     acquired for investment for its own account, not as a nominee or agent, and
     not with a view to the sale or distribution  of any part thereof,  and that
     it has no present  intention  of  selling,  granting  participations  in or
     otherwise  distributing  the same. By  acceptance  of this Warrant,  Holder
     further  represents  and  warrants  that it does  not  have  any  contract,
     undertaking,  agreement or arrangement with any person to sell, transfer or
     grant  participations  to any person,  with  respect to this Warrant or the
     Warrant Shares.


                                       10
<PAGE>

          (ii) By its acceptance of this Warrant,  Holder  understands that this
     Warrant is not, and the Warrant  Shares will not be,  registered  under the
     Securities  Act,  on the basis that the  issuance  of this  Warrant and the
     Warrant  Shares are exempt  from  registration  under the Act  pursuant  to
     Section 4(2) thereof,  and that the Company's reliance on such exemption is
     predicated on Holder's representations and warranties set forth herein.

          (iii) By its acceptance of this Warrant,  Holder  understands that the
     Warrant and the Warrant Shares may not be sold,  transferred,  or otherwise
     disposed of without  registration under the Act, or an exemption therefrom,
     and that in the absence of an effective registration statement covering the
     Warrant and the Warrant Shares or an available  exemption from registration
     under  the  Act,   the  Warrant  and  the  Warrant   Shares  must  be  held
     indefinitely.  In  particular,  Holder is aware  that the  Warrant  and the
     Warrant Shares may not be sold pursuant to Rule 144  promulgated  under the
     Act  unless  all of the  conditions  of Rule 144 are  satisfied.  Among the
     conditions for use of Rule 144 are the availability of current  information
     about the  Company to the public,  prescribed  holding  periods  which will
     commence only upon Holder's payment for the securities  being sold,  manner
     of sale restrictions, volume limitations and certain other restrictions. By
     its acceptance of this Warrant, Holder represents and warrants that, in the
     absence of an effective  registration statement covering the Warrant or the
     Warrant Shares, it will sell,  transfer or otherwise dispose of the Warrant
     and the Warrant Shares only in a manner consistent with its representations
     and  warranties  set  forth  herein  and then only in  accordance  with the
     provisions of Section 10(a)(iv).

          (iv) By its acceptance of this Warrant, Holder agrees that in no event
     will it  transfer or dispose of any of the  Warrants or the Warrant  Shares
     other than pursuant to an effective  registration  statement under the Act,
     unless and until (i) Holder shall have notified the Company of the proposed
     disposition  and shall have  furnished  the Company with a statement of the
     circumstances  surrounding  the  disposition,  and (ii) if requested by the
     Company,  at the  expense  of the  Holder  or  transferee,  it  shall  have
     furnished to the Company an opinion of counsel,  reasonably satisfactory to
     the  Company,  to  the  effect  that  such  transfer  may be  made  without
     registration under the Act.

          (v) Holder represents and warrants that it is an "accredited investor"
     as defined in Rule 501 of  Regulation D  promulgated  under the  Securities
     Act.

     (b)  Legends; Stop Transfer.

          (i) All certificates evidencing the Warrant Shares shall bear a legend
     in substantially the following form:

          THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933 OR UNDER ANY
          STATE  SECURITIES  LAWS. THESE SECURITIES HAVE BEEN ACQUIRED
          FOR INVESTMENT AND NOT WITH A VIEW TO  DISTRIBUTION  AND MAY


                                       11
<PAGE>

          NOT  BE  OFFERED  FOR  SALE,  SOLD,   PLEDGED  OR  OTHERWISE
          TRANSFERRED  IN THE  ABSENCE  OF AN  EFFECTIVE  REGISTRATION
          STATEMENT FOR SUCH  SECURITIES  UNDER THE  SECURITIES ACT OF
          1933 AND APPLICABLE  STATE  SECURITIES LAWS OR AN OPINION OF
          COUNSEL  REASONABLY  SATISFACTORY IN FORM AND CONTENT TO THE
          ISSUER THAT SUCH  REGISTRATION  IS NOT  REQUIRED  UNDER SUCH
          ACT.

          (ii) The  certificates  evidencing  the Warrant Shares shall also bear
     any legend required by any applicable state securities law.

          (iii) In addition, the Company shall make, or cause its transfer agent
     to make, a notation regarding the transfer  restrictions of the Warrant and
     the  Warrant  Shares in its stock  books,  and the  Warrant and the Warrant
     Shares shall be transferred on the books of the Company only if transferred
     or  sold  pursuant  to  an  effective   registration  statement  under  the
     Securities Act covering the same or pursuant to and in compliance  with the
     provisions of Section 4 and Section 10(a)(iv).

     Section 11. Notices.  All notices and other communications from the Company
to the Holder of this Warrant shall be mailed by hand  delivery,  by telecopier,
by courier  guaranteeing  overnight  delivery  or by  first-class  mail,  return
receipt  requested,  and shall be deemed  given (i) when  made,  if made by hand
delivery, (ii) upon confirmation,  if made by telecopier, (iii) one (1) Business
Day after being  deposited  with such courier,  if made by overnight  courier or
(iv) on the date  indicated  on the notice of  receipt,  if made by  first-class
mail.

     Section 12. Change; Waiver. Neither this Warrant nor any term hereof may be
changed,  waived,  discharged or terminated orally, but only by an instrument in
writing  signed by the party against which  enforcement  of the change,  waiver,
discharge or termination is sought.

     Section 13.  Headings.  The  headings in this  Warrant are for  purposes of
convenience  in  reference  only,  and shall not be deemed to  constitute a part
hereof.

     Section 14.  Governing Law. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws, and not the law of conflicts,
of the State of Texas.

                                                     CUBIC ENERGY, INC.,
                                                     a Texas corporation


                                                     By:
                                                        ------------------------
                                                        Jon S. Ross
                                                        Secretary


                                       12
<PAGE>

                               SUBSCRIPTION NOTICE
                 (To be executed only upon exercise of Warrant)

     The undersigned,  registered owner of this Warrant,  irrevocably  exercises
this Warrant and purchases ____________ of the number of shares of Common Stock,
$0.05 par value per share  ("Warrant  Shares"),  of Cubic Energy,  Inc., a Texas
corporation  (the  "Company"),   purchasable  with  the  attached  Warrant  (the
"Warrant").  Holder  shall pay the sum of  $________________  to the  Company in
accordance with the terms of the Warrant.  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

DATED:______________


                                       -----------------------------------------
                                       (Signature of Holder)

                                       -----------------------------------------
                                       (Street Address)

                                       -----------------------------------------
                                       (City) (State) (Zip)



















<PAGE>

                               FORM OF ASSIGNMENT

     FOR VALUE  RECEIVED  the  undersigned,  registered  owner of this  Warrant,
hereby  sells,  assigns and transfers  unto the Assignee  named below all of the
rights of the undersigned  under the within Warrant,  with respect to the number
of shares of Common Stock, $0.05 par value per share, set forth below:

     Name of Assignee                  Address                No. of Shares
     ----------------                  -------                -------------




and does hereby  irrevocably  constitute  and appoint  _________________________
_________________________________________________ Attorney to make such transfer
on the books of Cubic  Energy,  Inc., a Texas  corporation,  maintained  for the
purpose, with full power of substitution in the premises.

DATED:______________

                                       -----------------------------------------
                                       (Signature)

                                       -----------------------------------------
                                       (Witness)