EXHIBIT 10.1





<PAGE>













                    FIRST AMENDED AND RESTATED LOAN AGREEMENT

                                     between

                        NATURAL GAS SERVICES GROUP, INC.

                                       and

                              WESTERN NATIONAL BANK




                           Dated as of March 26, 2003















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         This First Amended and Restated Loan  Agreement,  dated as of March 26,
2003, is made and entered into by and among Natural Gas Services Group,  Inc., a
Colorado  corporation  (the  "Borrower"),  Rotary  Gas  Systems,  Inc.,  a Texas
corporation,  NGE Leasing,  Inc., a Texas corporation,  Great Lakes Compression,
Inc., a Colorado  corporation,  and Western  National  Bank, a national  banking
association (the "Lender").



                                    Recitals
                                    --------

         WHEREAS,  the  Borrower and the Lender are parties to that certain Loan
Agreement,  dated as of  September  15, 1999,  as amended by that certain  First
Amendment and Waiver to Loan Agreement, dated as of March 9, 2001, as amended by
that certain Second Amendment to Loan Agreement,  dated as of March 20, 2001, as
amended by that certain Third Amendment and Waiver to Loan  Agreement,  dated as
of July 25, 2001, as amended by that certain Fourth Amendment to Loan Agreement,
dated as of December 12, 2001,  as amended by that  certain  Fifth  Amendment to
Loan  Agreement,  dated as of April 3, 2002,  as amended by that  certain  Sixth
Amendment to Loan Agreement,  dated as of May 6, 2002, and as further amended by
that certain Seventh Amendment to Loan Agreement, dated as of September 30, 2002
(said Loan Agreement, as amended, the "Prior Loan Agreement");

         WHEREAS,  pursuant to the Prior Loan  Agreement,  the Borrower  issued,
executed and delivered to the Lender (i) that certain  Revolving  Line of Credit
Promissory  Note,  dated  April 3, 2002,  in the  original  principal  amount of
$750,000.00, (ii) that certain Consolidated Term Promissory Note, dated April 3,
2002,  in the original  principal  amount of  $2,146,660.93,  (iii) that certain
Multiple  Advance Term  Promissory  Note,  dated April 3, 2002,  in the original
principal amount of  $1,853,340.00,  and (iv) that certain Term Promissory Note,
dated September 30, 2002, in the original principal amount of $3,500,000.00.

         WHEREAS,  the Borrower has  requested  that the Lender make  additional
loans to the Borrower; and

         WHEREAS, the Bank is agreeable to the Borrower's requests but only upon
and subject to the terms and provisions which are hereinafter specified.

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


                                    ARTICLE I

                                   Definitions
                                   -----------



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         1.1 Defined Terms. In addition to the terms defined in the preamble and
elsewhere  in this  Agreement,  the  following  terms  shall have the  following
meanings:

         "Advance" means any loan disbursement to or on behalf of Borrower under
any of the Loan Papers, including, without limitation, all amounts advanced upon
the execution hereof under the Notes and all Subsequent Advances.

         "Affiliate" means, as to any person, (a) any other person (other than a
Subsidiary) which,  directly or indirectly,  is in control of, is controlled by,
or is  under  common  control  with,  such  person  or (b) any  person  who is a
director,  officer or partner (i) of such person, (ii) of any Subsidiary of such
person  or (iii) of any  person  described  in the  preceding  clause  (a).  For
purposes of this definition,  "control" of a person means the power, directly or
indirectly,  either to (i) vote 10% or more of the  securities  having  ordinary
voting  power for the  election of  directors or managers of such person or (ii)
direct or cause the  direction  of the  management  and  policies of such person
whether by contract or otherwise.

         "Agreement"   means  this  Loan   Agreement,   as  amended,   restated,
supplemented or otherwise modified from time to time.

         "Bank  Liens"  means Liens in favor of the Lender,  securing all or any
portion  of the  Obligations,  including,  but not  limited  to,  Rights  in any
Collateral  created  in  favor  of the  Lender,  whether  by  mortgage,  pledge,
hypothecation, assignment, transfer or other granting or creation of Liens.

         "Borrowing  Base" means at any date the amount  determined  pursuant to
Section 2.3 of this Agreement at such date.

         "Borrowing  Base Report"  shall have the meaning  given to such term as
set forth in Section 2.3(b) of this Agreement.

         "Business  Day"  means  every day on which  Lender is open for  banking
business.

         "Change  of  Control"  means  the  occurrence  after  the  date of this
Agreement  of any  circumstance  or event in which (i) a person  shall  cause or
bring  about  (through  solicitation  of proxies or  otherwise)  the  removal or
resignation  of a  majority  of the  members  of the Board of  Directors  of the
Borrower  serving in such  capacity  on the date of this  Agreement  or a person
causes or brings  about  (through  solicitation  of  proxies  or  otherwise)  an
increase in the size of the existing  Board of  Directors  of the Borrower  such
that the  existing  members of the Board of  Directors  thereafter  represent  a
minority of the total number of persons  comprising the entire Board;  or (ii) a
person,  including a "group" as defined in Section  13(d)(3)  of the  Securities
Exchange  Act of 1934,  becomes the  beneficial  owner of shares of any class of
stock of the Borrower having thirty percent (30%) or more of the total number of
votes that may be cast for the election of directors of the Borrower.


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         "Collateral"  means any and all property,  tangible or intangible,  now
existing or  hereafter  acquired,  mortgaged,  pledged,  assigned  or  otherwise
encumbered by the Borrower,  the  Subsidiaries or any other person to or for the
benefit  of the  Lender  pursuant  to any of the Loan  Papers  now or  hereafter
executed and delivered by the Borrower or any of its  Subsidiaries  or any other
person to secure the payment and performance of the Notes and obligations of the
Borrower hereunder or under any of the other Loan Papers, as any such Loan Paper
may be amended, supplemented or otherwise modified from time to time.

         "Consolidated   Cash  Flow"  means,  with  respect  to  any  period  of
calculation  thereof,  the sum of (i) the  consolidated  pre-tax  net income (or
loss),  less actual taxes paid, from  continuing  operations of the Borrower and
its  Subsidiaries  during  such  period  (excluding   extraordinary  income  but
including   extraordinary   expenses),   plus  (ii)   depreciation,   depletion,
amortization  and interest  expenses  deducted in determining  consolidated  net
income (or loss) of the Borrower and its  Subsidiaries  during such period,  all
determined on a consolidated basis.

         "Consolidated  Current  Ratio"  means  the  ratio of (i) the sum of the
current  assets  of the  Borrower  and its  Subsidiaries  to (ii) the sum of the
current  liabilities of the Borrower and its  Subsidiaries,  all determined on a
consolidated basis.

         "Consolidated  Debt" means at a  particular  date the total Debt of the
Borrower and its Subsidiaries, determined on a consolidated basis.

         "Consolidated  Fixed  Charges"  means,  with  respect  to any period of
calculation  thereof,  the sum of (a) the aggregate principal amount of all Debt
of the Borrower and its Subsidiaries  paid or due and payable during such period
plus (b) all  interest,  including,  without  limitation,  imputed  interest  in
connection  with  Financing  Leases,  paid or  accrued by the  Borrower  and its
Subsidiaries during such period; provided, however, that any principal amount of
Debt and any interest payable in one fiscal period and paid in another shall not
be twice included in Consolidated Fixed Charges.

         "Consolidated Intangible Assets" means those assets of the Borrower and
its Subsidiaries,  determined on a consolidated  basis, that would be classified
as  intangible   assets  in  accordance  with  generally   accepted   accounting
principles, but in any event including, without limitation, (i) deferred assets,
other than  prepaid  insurance  and prepaid  taxes;  (ii)  patents,  copyrights,
trademarks,  tradenames,  franchises,  goodwill, experimental expenses and other
similar assets which would be classified as intangible assets on a balance sheet
of such  person,  prepared in  accordance  with  generally  accepted  accounting
principles;  (iii)  unamortized  debt  discount  and  expense,  and  unamortized
organization and reorganization  expense; and (iv) assets located, and notes and
receivables due from obligors domiciled, outside of the United States.

         "Consolidated  Tangible Net Worth"  means at a particular  date (i) the
sum of (a) all amounts which would be included under stockholders'  equity, on a
consolidated  balance  sheet of the  Borrower and its  Subsidiaries  and (b) the
Subordinated  Notes in the outstanding  principal amount of $1,539,260.62,  less
(ii) the sum of the aggregate book value of Consolidated  Intangible Assets, all
determined on a consolidated basis.


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         "Consolidated  Term  Promissory  Note" means that certain  Consolidated
Term Promissory Note,  dated April 3, 2002, made,  executed and delivered by the
Borrower  pursuant to the Prior Loan  Agreement  and in the  original  principal
amount of  $2,146,660.93,  as the same may be renewed,  extended,  increased  or
otherwise modified from time to time.

         "Contractual  Obligation" means, as to any person, any provision of any
security  issued  by  such  person  or of any  agreement,  instrument  or  other
undertaking  to  which  such  person  is a party  or by  which  it or any of its
property is bound.

         "Debt" means,  for the Borrower and any  Subsidiary,  at any particular
date, and without  duplication,  the sum at such date of (i) all indebtedness of
such person for borrowed money or for the deferred purchase price of property or
services (other than current trade  liabilities  incurred in the ordinary course
of business and payable in accordance  with customary  practices) for which such
person is liable, contingently or otherwise, as obligor, guarantor or otherwise,
or in respect of which such person  otherwise  assures a creditor  against loss;
(ii) all  obligations  of such person  under  leases  which shall have been,  or
should have been, in accordance with generally accepted  accounting  principles,
recorded  as  capital  leases  in  respect  of  which  such  person  is  liable,
contingently or otherwise, as obligor,  guarantor or otherwise, or in respect of
which  obligations such person otherwise  assures a creditor against loss, (iii)
unfunded vested benefits under each ERISA Plan; (iv) all  indebtedness and other
liabilities secured by any Lien on any property owned by such person even though
such person has not assumed or otherwise become liable for payment thereof;  (v)
all  obligations of such person in respect of letters of credit,  acceptances or
similar  obligations  issued or created for the account of such person; and (vi)
indebtedness  of such person  evidenced  by a bond,  debenture,  note or similar
instrument,  excluding,  however,  the  Subordinated  Notes  in the  outstanding
principal amount of $1,539,260.62.

         "Environmental Complaint" means any complaint, request for information,
summons, order, demand, citation, notice or other written communication from any
person or  Governmental  Authority  with  respect  to the  existence  or alleged
existence of a violation of any  Requirement of Law or liability  resulting from
any air emission, water discharge, noise emission, asbestos, Hazardous Substance
or any other  environmental,  health or safety matter at, upon,  under or within
any of the  property  owned,  operated  or  used by the  Borrower  or any of its
Subsidiaries.

         "ERISA Plan" shall have the meaning  given to such term as set forth in
Section 4.15 of this Agreement.

         "Event of  Default"  shall have the  meaning  given to such term as set
forth in Section 7.1 of this Agreement.


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         "Existing Notes" means the Consolidated  Term Promissory Note, the Line
A Term Promissory Note and the Multiple Advance Term Promissory Note.

         "Financing  Lease" means any lease of property,  real or personal,  the
obligations  of the lessee in respect of which are required in  accordance  with
generally accepted accounting principles to be capitalized on a balance sheet of
the lessee.

         "Governmental  Authority" means any nation or government,  any state or
other  political  subdivision  thereof  and  any  entity  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government.

         "Guarantors" means Rotary Gas Systems,  Inc., a Texas corporation,  NGE
Leasing,  Inc.,  a Texas  corporation,  and Great  Lakes  Compression,  Inc.,  a
Colorado corporation.

         "Hazardous  Substance" shall have the meaning given to such term as set
forth in Section 4.20 of this Agreement.

         "Highest  Lawful Rate" means the maximum  rate of interest  (or, if the
context so requires,  an amount calculated at such rate) which Lender is allowed
to contract for,  charge,  take,  reserve or receive under  applicable law after
taking into  account,  to the extent  required by  applicable  law,  any and all
relevant payments or charges under the Loan Papers.

         "Lien" means any interest in property  securing an obligation  owed to,
or a claim by, a person  other  than the  owner of the  property,  whether  such
interest is based on the common law,  statute or  contract,  including,  but not
limited to, a lien or security interest arising from any mortgage,  encumbrance,
pledge, hypothecation,  assignment, deposit arrangement, or preference, priority
or other security agreement (including, without limitation, any conditional sale
or other title retention  agreement or trust receipt or a lease,  consignment or
bailment   for   security   purposes).   The  term  "Lien"  shall  also  include
reservations,  exceptions,  encroachments,  easements, rights of way, covenants,
conditions,  restrictions,  leases and other title  exceptions and  encumbrances
affecting property.

         "Line A Term Promissory  Note" means that certain Term Promissory Note,
dated September 30, 2002, made,  executed and delivered by the Borrower pursuant
to  the  Prior  Loan  Agreement  and  in  the  original   principal   amount  of
$3,500,000.00,  as the same may be renewed,  extended,  increased  or  otherwise
modified from time to time.

         "Line B Term  Promissory  Note" means the Line B Term  Promissory  Note
described  in  Section  2.1(a)  hereof,  as the same may be  renewed,  extended,
increased or otherwise modified from time to time.


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         "Loan  Papers" means (i) this  Agreement,  (ii) the Notes and (iii) any
and  all  notes,  mortgages,   deeds  of  trust,  security  agreements,   pledge
agreements, financing statements,  guaranties, and other agreements,  documents,
certificates, letters and instruments ever delivered or executed pursuant to, or
in  connection  with,  this  Agreement,  whether  existing on the date hereof or
thereafter created,  as any of the same may hereafter be amended,  supplemented,
extended or restated.

         "Material  Adverse  Effect"  means any set of  circumstances  or events
which (i) has, will or could reasonably be expected to have any material adverse
effect upon the validity or enforceability of this Agreement or any of the other
Loan  Papers or the Rights or remedies of the Lender  hereunder  or  thereunder;
(ii) is or could  reasonably  be  expected  to be  material  and  adverse to the
financial condition, business, operations, property or prospects of the Borrower
or any of its Subsidiaries; (iii) will or could reasonably be expected to impair
the ability of the Borrower or any of its Subsidiaries to perform its respective
obligations under the terms and conditions of any of the Loan Papers to which it
is a party;  or (iv) will or could  reasonably  be expected to cause an Event of
Default.

         "Material  Agreement" of any person means any material  written or oral
agreement,  contract,  commitment,  arrangement or  understanding  to which such
person is a party,  by which  such  person  is  directly  or,  to such  person's
knowledge,  indirectly  bound,  or to  which  any  asset of such  person  may be
subject,  which is not  cancelable  by such  person  upon 30 days or less notice
without liability for further payment other than nominal  penalties,  excluding,
however, such agreements, contracts, commitments, arrangements or understandings
pursuant to which the subject matter  thereof does not exceed  $50,000.00 in the
aggregate.

         "Multiple  Advance term  Promissory  Note" means that certain  Multiple
Advance Term Promissory Note, dated April 3, 2002, made,  executed and delivered
by the  Borrower  pursuant  to the  Prior  Loan  Agreement  and in the  original
principal  amount  of  $1,853,340.00,  as the  same  may be  renewed,  extended,
increased or otherwise modified from time to time.

         "Notes" means the Existing  Notes,  the Line B Term Promissory Note and
the Revolving Line of Credit Promissory Note.

         "Obligations"  means the unpaid  principal of and interest on the Notes
and all other present and future  indebtedness,  obligations  and liabilities of
the  Borrower  and any of its  Subsidiaries  to the  Lender,  and all  renewals,
rearrangements  and extensions  thereof,  or any part thereof,  now or hereafter
owed to Lender by the  Borrower  or any of its  Subsidiaries  arising  from,  by
virtue of, or  pursuant  to any Loan  Paper,  or  otherwise,  together  with all
interest  accruing thereon and all costs,  expenses and attorneys' fees incurred
in the enforcement or collection thereof, whether such indebtedness, obligations
and   liabilities  are  direct,   indirect,   fixed,   contingent,   liquidated,
unliquidated, joint, several, or joint and several or were, prior to acquisition
thereof by Lender, owed to some other person.


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         "Prime Rate" means that variable  rate of interest per annum  published
in the Money Rates section of The Wall Street  Journal as its "prime  rate".  If
the  Money  Rates  section  of The  Wall  Street  Journal  does  not have a rate
designated  by it as its "prime  rate," then the "Prime Rate" shall be deemed to
be the variable rate of interest per annum which is the general  reference  rate
designated by the Lender as its "reference  rate",  "base rate" or other similar
rate and which is comparable to the "Prime Rate" as described  above.  The Prime
Rate is used by Lender as a general  reference  rate of  interest,  taking  into
account such factors as Lender may deem appropriate, it being understood that it
is not necessarily the lowest or best rate actually  charged to any customer and
that  Lender may make  various  commercial  or other  loans at rates of interest
having no relationship to such rate.

         "Relevant Environmental Law" means any and all foreign, federal, state,
local or municipal  laws,  rules,  orders,  regulations,  statutes,  ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating,  relating to or imposing  liability or
standards of conduct  concerning  protection  of human  health,  wildlife or the
environment, as now or may at any time hereafter be in effect.

         "Requirement  of Law" means,  as to any  person,  the  certificate  and
articles of incorporation and bylaws,  articles of organization,  regulations or
other organizational or governing documents of such person, and any law, treaty,
rule or  regulation  or  determination  of an  arbitrator  or a court  or  other
Governmental  Authority,  in each case applicable to or binding upon such person
or any of its  property  or to  which  such  person  or any of its  property  is
subject.

         "Revolving Line of Credit  Promissory Note" means the Revolving Line of
Credit  Promissory  Note described in Section 2.1(c) hereof,  as the same may be
renewed, extended, increased or otherwise modified from time to time.

         "Rights" means rights, remedies, powers, privileges and benefits.

         "Subsequent Advance" means any disbursement to or on behalf of Borrower
after the initial  Advance under the Revolving  Line of Credit  Promissory  Note
pursuant to the provisions of Section 2.1 and Section 2.2 hereof.

         "Subordinated  Notes"  means the  Series A 10%  Subordinated  Notes due
December   31,  2006  in  the   aggregate   outstanding   principal   amount  of
$1,539,260.62.

         "Subsidiary"  means, as to the Borrower or any other designated person,
a corporation,  partnership,  limited liability company or other entity of which
shares of stock or other ownership interests having ordinary voting power (other
than stock or such other ownership interests having such power only by reason of
the happening of a  contingency)  to elect a majority of the board of directors,
managers  or other  governing  body of such  corporation,  partnership,  limited
liability  company or other 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 the Borrower or such other designated person.


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         1.2 Accounting  Principles.  Where the character or amount of any asset
or  liability or item of income or expense is required to be  determined  or any
consolidation  or other  accounting  computation  is required to be made for the
purposes  of  this  Agreement  or any  other  Loan  Paper,  such  determination,
consolidation or computation shall be made in accordance with generally accepted
accounting  principles  consistently  applied,  except where such principles are
inconsistent with the requirements or definitions of this Agreement.

         1.3 Directly or Indirectly. When any provision in this Agreement refers
to action to be taken by any  person,  or which such person is  prohibited  from
taking, such provision shall be applicable where the action in question is taken
directly or indirectly.

         1.4 Plural and Singular Forms.  The definitions  given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms.

         1.5 References. The words "hereof",  "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole  and not to any  particular  provision  of this  Agreement,  and  section,
subsection,  schedule  and  exhibit  references  are to  this  Agreement  unless
otherwise specified.

                                   ARTICLE II
                    Amount and Terms of Loans; Subordination
                    ----------------------------------------

         2.1 The Loans. Subject to and upon the terms and conditions and relying
on the representations and warranties contained in this Agreement, Lender agrees
to make loans to the Borrower as follows:

                  (a)  Additional  Term  Loans  -  Contemporaneously   with  the
execution  and delivery  hereof,  the Borrower  shall execute and deliver to the
Lender  the Line B Term  Promissory  Note in the form of Exhibit A hereto in the
original  principal amount of $2,150,000.00 (the "Line B Term Promissory Note").
Subject  to and upon the terms and  conditions  of this  Agreement,  the  entire
amount of the Line B Term  Promissory  Note will be funded in a single  Advance.
The Line B Term  Promissory  Note shall be stated to mature  five years from the
date of such note and shall bear interest on the unpaid principal amount thereof
from  time to time  outstanding  at the  applicable  interest  rate per annum as
provided in the Line B Term Promissory Note.  Principal and interest on the Line
B Term Promissory Note shall be payable in the manner and on the dates specified
therein.

                  (b) Existing Loans - Pursuant to the Prior Loan Agreement, the
Borrower issued, executed and delivered to the Lender the Existing Notes, all of
which are  outstanding  and not fully paid.  All amounts  outstanding  under the
Existing Notes on the date of this Agreement shall be deemed to be Advances made
under and  pursuant  to this  Agreement,  and the  Existing  Notes are and shall
remain in full force and effect  subject  in all  respects  to the terms of this
Agreement and the other Loan Papers.


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                  (c) Revolving Loans.  Contemporaneously with the execution and
delivery  hereof,  the  Borrower  shall  execute  and  deliver to the Lender the
Revolving Line of Credit  Promissory Note in the form of Exhibit B hereto in the
original  principal  amount  of  $750,000.00  (the  "Revolving  Line  of  Credit
Promissory  Note").  Subject  to and  upon  the  terms  and  conditions  of this
Agreement and the Revolving  Line of Credit  Promissory  Note,  the Borrower may
request one or more  Advances  and borrow,  prepay and  reborrow at any time and
from time to time under the Revolving Line of Credit Promissory Note;  provided,
however,  the aggregate principal amount of all Advances  outstanding at any one
time under the Revolving Line of Credit  Promissory  Note shall never exceed the
lesser  of (i)  $750,000.00  or (ii) the  Borrowing  Base  then in  effect.  The
Revolving  Line of Credit  Promissory  Note  shall be stated to mature two years
from the date of such note and  shall  bear  interest  on the  unpaid  principal
amount thereof from time to time outstanding at the applicable interest rate per
annum as provided in the Revolving Line of Credit Promissory Note. Principal and
interest on the Revolving Line of Credit Promissory Note shall be payable in the
manner and on the dates specified therein.

         2.2 Procedure For  Borrowings.  (a) At the time of the initial  Advance
under the Line B Term Promissory Note or the Revolving Line of Credit Promissory
Note,  as the case may be,  the  conditions  set  forth in  Section  3.1 of this
Agreement shall have been satisfied and, with respect to each Subsequent Advance
under the Revolving Line of Credit  Promissory Note, the conditions set forth in
Section 3.2 hereof shall have been satisfied at the time of each such Subsequent
Advance.  At the  time  of each  request  for a  Subsequent  Advance  under  the
Revolving Line of Credit  Promissory  Note,  the Borrower  shall  simultaneously
furnish to the Lender a written notice of borrowing (dated as of the date of the
request for such  Subsequent  Advance and otherwise being in  substantially  the
form attached  hereto as Exhibit C)  confirming  (i) the amount of the requested
Subsequent  Advance  and (ii) the absence of any Event of Default at the date of
such request.  Each request for a Subsequent Advance under the Revolving Line of
Credit  Promissory  Note  must be in the  minimum  amount of  $50,000.00  or the
unadvanced portion of the Revolving Line of Credit Promissory Note, whichever is
less. Assuming the satisfaction of the conditions set forth in this Section 2.2,
requests for Subsequent  Advances under the Revolving Line of Credit  Promissory
Note will be funded on the same  Business  Day that Lender  receives  Borrower's
request for each such Subsequent  Advance;  provided that Borrower's  request is
received by the Lender prior to 12:00 noon on the date of any such request.

                  (b) The Lender  shall  maintain in  accordance  with its usual
practice one or more accounts or other records evidencing the Obligations of the
Borrower to the Lender  resulting from each loan made by the Lender from time to
time under the Notes,  including the amounts of principal  and interest  payable
and  paid to the  Lender  from  time to  time  under  this  Agreement  and  each
respective  Note.  The  entries  made in such  accounts or records of the Lender
shall be prima facie evidence of the existence and amounts of the Obligations of
the Borrower and its Subsidiaries therein recorded;  provided, however, that the
failure of the Lender to maintain  any such  accounts  or records,  or any error
therein,  shall  not  in  any  manner  affect  the  absolute  and  unconditional
obligation of the Borrower to repay (with applicable interest) all loans made to
the Borrower in accordance with the terms of this Agreement and the Notes.


                                       10
<PAGE>

         2.3 Borrowing Base. The Borrowing Base shall be determined as follows:


                  (a) Initial  Borrowing Base. The initial  Borrowing Base shall
be  $750,000.00  during the period from the date hereof to the date on which the
Borrower receives notice of the first  redetermination  of the Borrowing Base by
the Lender pursuant to Section 2.3(b) and thereafter the amount of the Borrowing
Base shall be the Borrowing  Base most recently  determined  pursuant to Section
2.3(b).

                  (b)  Redeterminations of the Borrowing Base. (i) No later than
45 days after the end of each month,  the  Borrower  shall,  at its own expense,
furnish to the Bank a borrowing base report (the "Borrowing Base Report") in the
form  attached  hereto as Exhibit D, which  shall be dated as of the end of each
such month.

                           (ii) Within 15 days after it receives each  Borrowing
Base Report,  the Lender shall  redetermine the Borrowing Base, and shall notify
the Borrower of the new Borrowing Base, if any; provided, however, if the Lender
does not so notify the  Borrower  of a new  Borrowing  Base  within  such 15-day
period, then the Borrowing Base set forth in the Borrowing Base Report furnished
to the Lender by the Borrower  pursuant to Section  2.3(b)(i) shall be deemed to
be the redetermined Borrowing Base until a new Borrowing Base is redetermined by
the Lender and notice of such new  Borrowing  Base is given by the Lender to the
Borrower. Each redetermination of the Borrowing Base shall be made by the Lender
in the  exercise of its sole  discretion  in  accordance  with the then  current
standards  and  practices of the Lender for similar  loans,  taking into account
such factors as the Lender may deem appropriate,  including, without limitation,
the nature and extent of the  Borrower's  interest  in the  accounts  and leases
receivable and inventory upon which the Borrowing Base is then redetermined. The
Lender may in its sole discretion discount the value of any property included in
the  redetermination  of the  Borrowing  Base as set forth in a  Borrowing  Base
Report by the same factors utilized by it in discounting the value of comparable
borrowing base assets in comparable transactions for comparable borrowers.

                           (iii) Each  delivery by the Borrower to the Lender of
a Borrowing  Base Report  shall be deemed to  constitute  a  representation  and
warranty by the Borrower to the Lender that the  Borrower  and its  Subsidiaries
have  good  and  marketable  title to the  Collateral  owned by each of them and
described  therein,  and that such  Collateral  is not subject to any Lien other
than Bank Liens and Liens permitted by Section 6.8.

         2.4 Optional  and  Mandatory  Prepayments.  (a) The Borrower may at any
time and from time to time  prepay any one or all of the  Notes,  in whole or in
part, without premium or penalty, upon prior or simultaneous  irrevocable notice
to the Lender,  specifying  the Note to be  prepaid,  the date and the amount of
prepayment.  If any such notice is given,  the amount  specified  in such notice
shall be due and  payable on the date  specified  therein.  Partial  prepayments
shall be in an aggregate  principal  amount of  $20,000.00  or a whole  multiple
thereof,  or shall  equal the  aggregate  outstanding  balance of the Note being
prepaid.


                                       11
<PAGE>

                  (b) If the aggregate  unpaid principal amount of the Revolving
Line of Credit  Promissory  Note shall at any time exceed the Borrowing  Base at
such time,  the Lender shall so notify the  Borrower,  and the  Borrower  shall,
within fifteen  Business Days after such  notification,  prepay the principal of
the Revolving  Line of Credit  Promissory  Note in an aggregate  amount at least
equal to such excess,  together with accrued  interest on the amount  prepaid to
the date of such prepayment.

         2.5 Payment Procedure.  Each payment or prepayment on the Notes must be
made at the  principal  office of Lender in funds which are or will be available
for immediate  use by Lender on or before 12:00 noon Midland,  Texas time on the
day such payment is due or such  prepayment is made. In any case where a payment
of  principal  of,  or  interest  on,  the  Notes is due on a day which is not a
Business  Day,  the Borrower  shall be entitled to delay such payment  until the
next  succeeding  Business Day, but interest  shall continue to accrue until the
payment is in fact made.

         2.6 Order of  Application.  Except as  otherwise  provided  in the Loan
Papers, all payments and prepayments on the Obligations, including proceeds from
the exercise of any Rights of Lender under the Loan Papers,  shall be applied to
the Obligations in the following  order:  (i) first, to reasonable  expenses for
which  Lender shall not have been  reimbursed  under the Loan Papers and then to
all  amounts  to which  Lender is  entitled  to  indemnification  under the Loan
Papers; (ii) to the accrued interest on the Note being paid or prepaid; (iii) to
the  principal  of the Note being paid or prepaid  and,  with regard to the Term
Promissory Note, applied upon installments of most remote maturity;  and (iv) to
the remaining Obligations.

         2.7  Subordination  of  Subordinated  Notes.  Subject to  Section  6.15
hereof,  the  indebtedness of NGE Leasing,  Inc.  evidenced by the  Subordinated
Notes  and any  guarantee  thereof  by the  Borrower  and any and all  renewals,
extensions,  refundings and modifications (but not increases) thereto are hereby
subordinated  and subject in right of payment  and in all other  respects to the
prior payment in full of (a) all Debt of the Borrower and any  Subsidiary to the
Lender,  (b) any other  indebtedness,  liability or  obligation,  contingent  or
otherwise,  of  Borrower  or any  Subsidiary  or  Guarantor  to Lender,  and any
guaranty, endorsement or other contingent obligation in respect thereof, whether
outstanding on the date hereof or hereafter  created,  incurred or assumed,  and
(c)  modifications,   renewals,   extensions,   increases,   rearrangements  and
refundings of any such indebtedness, liabilities or obligations.








                                       12
<PAGE>

                                   ARTICLE III
                              Conditions Precedent
                              --------------------

         3.1 Conditions to Initial Advance. The obligation of Lender to make the
initial  Advance  pursuant to this  Agreement  under  either one of the Notes is
subject to the satisfaction and fulfillment of each of the following  conditions
precedent  which  shall  have  occurred  on  or  before  the  date  hereof,   or
simultaneously  with  the  closing  of the  transactions  contemplated  by  this
Agreement,  unless  compliance  therewith  shall have been  waived in writing by
Lender:

                  (a) There shall have been duly  executed,  where  appropriate,
and delivered by the Borrower  (and/or any other  requisite  party  thereto) the
following:

                           (1) this Agreement;

                           (2) the Line B Term Promissory Note;

                           (3) the Revolving Line of Credit Promissory Note;

                           (4) the Stock Pledge Agreements  covering the capital
                  stock of NGE Leasing, Inc., Rotary Gas Systems, Inc. and Great
                  Lakes  Compression,  Inc., in each case being in substantially
                  the form attached hereto as Exhibit E;


                           (5) the Security  Agreement in substantially the form
                  attached hereto as Exhibit F;

                           (6) a certificate of account  status (good  standing)
                  and  a   certificate   of   existence   for  Borrower  in  the
                  jurisdiction under the laws of which Borrower is organized and
                  in   each   jurisdiction   wherein   Borrower's    operations,
                  transaction   of  business  or  ownership  of  property   make
                  qualification as a foreign corporation necessary;

                           (7) an Officer's  Certificate  in  substantially  the
                  form  attached  hereto as Exhibit G, which  shall  contain the
                  names  and   signatures   of  the  officers  of  the  Borrower
                  authorized  to execute Loan Papers and which shall  certify to
                  the  truth,  correctness  and  completeness  of the  following
                  exhibits  attached  thereto:  (A) a copy of  resolutions  duly
                  adopted by the Board of  Directors of the Borrower and in full
                  force and effect at the time this  Agreement is entered  into,
                  covering the matters  described in  subparagraph  (d) below of
                  this  Section  3.1,  (B) a copy of the  charter  documents  of
                  Borrower  and  all  amendments   thereto,   certified  by  the
                  appropriate official of Borrower's state of organization,  and
                  (C) a copy of the bylaws of  Borrower,  and  certifying  as to
                  such other matters as Lender may reasonably require; and


                                       13
<PAGE>

                           (8) such other documents or instruments as Lender may
                  reasonably require.

                  (b) There shall have been  executed,  where  appropriate,  and
delivered by the  Subsidiaries  (and/or any other  requisite  party thereto) the
following,  all of which shall be in form and substance  satisfactory  to Lender
and its counsel:

                           (1) the Guaranty  Agreement in substantially the form
                  attached hereto as Exhibit H;

                           (2) a Security  Agreement in  substantially  the form
                  attached hereto as Exhibit I;

                           (3) a certificate of account  status (good  standing)
                  and a  certificate  of existence  for each  Subsidiary  in the
                  jurisdiction  under  the  laws of  which  each  Subsidiary  is
                  organized  and in each  jurisdiction  wherein its  operations,
                  transaction   of  business  or  ownership  of  property   made
                  qualification as a foreign entity necessary;

                           (4) an Officer's  Certificate  of each  Subsidiary in
                  substantially  the form  attached  hereto as  Exhibit J, which
                  shall  contain  the names and  signatures  of the  officers or
                  members of each  Subsidiary  authorized to execute Loan Papers
                  and  which  shall  certify  to  the  truth,   correctness  and
                  completeness of the following exhibits attached thereto: (A) a
                  copy of resolutions  duly adopted by the Board of Directors or
                  Managers,  as the case may be, of such  Subsidiary and in full
                  force and effect at the time this  Agreement is entered  into,
                  covering the matters  described in  subparagraph  (e) below of
                  this  Section  3.1,  (B)  a  copy  of  the  charter  or  other
                  organizational  documents  of  each  such  Subsidiary  and all
                  amendments thereto,  certified by the appropriate  official of
                  such Subsidiary's state of organization, and (C) a copy of the
                  bylaws or regulations of each such Subsidiary,  and certifying
                  as to such other matters as Lender may reasonably require; and

                           (5) such other documents or instruments as Lender may
                  reasonably require.

                  (c) All requirements of notice to perfect each Bank Lien shall
have been  accomplished  or  arrangements  made therefor to the  satisfaction of
Lender and its counsel;





                                       14
<PAGE>

                  (d) The Borrower shall have approved the  execution,  delivery
and  performance  of the Loan  Papers  to  which  it is a party  by  resolutions
satisfactory to Lender and its counsel, authorizing (i) the execution,  delivery
and performance of this Agreement,  the Notes and the other Loan Papers to which
the Borrower is a party,  (ii) the borrowings  contemplated  hereunder and (iii)
the  granting by it of the pledge and  security  interests  pursuant to the Loan
Papers to which the Borrower is a party and appropriate  certificates as to such
actions, showing the parties authorized to execute the Loan Papers and all items
required herein, shall have been delivered to the Lender;

                  (e) The  respective  boards of directors,  managers,  or other
governing  body, as the case may be, of each  Guarantor  shall have approved the
execution, delivery and performance of the Loan Papers to which it is a party by
resolutions  satisfactory  to  Lender  and  its  counsel,  authorizing  (i)  the
execution,  delivery and  performance of the Loan Papers to which it is a party,
(ii)  acknowledging  the benefits and  consideration  to such Guarantor from the
borrowings  contemplated  hereunder and (iii)  authorizing the granting by it of
the pledge and security  interests  pursuant to the Loan Papers to which it is a
party and  appropriate  certificates  as to such  actions,  showing  the parties
authorized to execute such Loan papers and all items required herein, shall have
been delivered to Lender;

                  (f) There shall exist no Event of Default hereunder, nor shall
any events or circumstances have occurred, and not theretofore been cured, which
with  notice  or lapse of time or both,  would  constitute  an Event of  Default
hereunder; and

                  (g)  The   representations  and  warranties  of  the  Borrower
contained in Article IV shall be true and correct in all material respects; and

                  (h) No suit,  action or other proceeding by a third party or a
Governmental  Authority  shall be pending or  threatened  which  relates to this
Agreement or the transactions contemplated hereby.

                  (i) All  Liens  (other  than  Bank  Liens)  securing  the Debt
described in Section 4.11 hereof  shall be released,  terminated  or assigned to
the Lender, or arrangements made therefor satisfactory to the Lender in its sole
discretion.

         3.2 Conditions to Subsequent Advances.  The obligation of the Lender to
make any Subsequent  Advance under the Revolving Line of Credit  Promissory Note
requested to be made by the Borrower on any date is subject to the  satisfaction
of the following conditions precedent:

                  (a) Each of the  representations  and  warranties  made by the
Borrower  in or  pursuant  to the Loan  Papers  shall be true and correct in all
material respects on and as of such date as if made on and as of such date.


                                       15
<PAGE>

                  (b) No Event of Default  shall have occurred and be continuing
on such date or after giving effect to the  Subsequent  Advance  requested to be
made on such date.

                  (c) Notwithstanding Section 2.4(b), after giving effect to the
Advances  under  the  Revolving  Line of Credit  Promissory  Note  requested  by
Borrower to be made on any date, the aggregate principal amount of the Revolving
Line of Credit  Promissory Note then outstanding  shall not exceed the lesser of
(i) $750,000.00 or (ii) the Borrowing Base then in effect.

                  (d) No  litigation,  investigation  or proceeding of or before
any arbitrator or  Governmental  Authority shall be pending or, to the knowledge
of the  Borrower,  threatened  by or against  the  Borrower  or the Lender  with
respect to this  Agreement  or any of the other Loan Papers or the  transactions
contemplated by this Agreement or any of the other Loan Papers.

                  (e) The Lender shall have received all Borrowing  Base Reports
required to be delivered by Borrower pursuant to Section 2.3(b)(i).

         Each   borrowing  by  the  Borrower   hereunder   shall   constitute  a
representation  and  warranty by the  Borrower as of the date  thereof  that the
conditions contained in this Section 3.2 have been satisfied.

         3.3 Corporate Proceedings and Documents.  In addition to the conditions
precedent  set forth in Section 3.1 and Section  3.2,  all  corporate  and other
proceedings,  and  all  documents,   instruments  and  other  legal  matters  in
connection  with the  transactions  contemplated by this Agreement and the other
Loan Papers shall be satisfactory in form, substance and date to the Lender, and
Lender shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions  contemplated hereby or thereby as
it shall reasonably request.

                                   ARTICLE IV
                         Representations and Warranties
                         ------------------------------

         As a material  inducement to Lender to enter into this  Agreement,  the
Borrower hereby represents and warrants to the Lender that:

         4.1 Organization, Existence and Good Standing; Compliance With Law. The
Borrower and each of its  Subsidiaries  (a) is duly organized,  validly existing
and in good standing  under the laws of its state of  organization,  (b) is duly
qualified,  in good standing and authorized to do business in each  jurisdiction
where the character of its  operations,  transaction of business or ownership of
property  makes  such  qualification  necessary,  except  where the  absence  of
qualification,  good standing or authorization would not have a Material Adverse
Effect and (c) is in  compliance  with all  Requirements  of Law,  except to the
extent  that the  failure  to comply  therewith  could  not,  in the  aggregate,
reasonably be expected to have a Material Adverse Effect.


                                       16
<PAGE>

         4.2  Authorization.  Each of the Borrower and its  Subsidiaries has the
corporate or limited liability company power and authority, and the legal right,
to make,  deliver and perform the Loan Papers to which it is a party and, in the
case of the Borrower, to borrow hereunder,  and in the case of the Subsidiaries,
to guarantee the obligations of the Borrower hereunder, and each of the Borrower
and its  Subsidiaries  has taken all  necessary  corporate or limited  liability
company action to authorize the borrowings and other  transactions  on the terms
and conditions of each Loan Paper to which it is a party,  the grant of the Bank
Liens on the  Collateral  pursuant to the Loan Papers to which it is a party and
the  execution,  delivery  and  performance  of the Loan Papers to which it is a
party.

         4.3 Enforceable Obligations.  This Agreement and each of the other Loan
Papers to which the  Borrower  or any of its  Subsidiaries  is a party have been
duly  executed and delivered on behalf of the Borrower or its  Subsidiaries,  as
the case may be. This Agreement  constitutes  and the other Loan Papers to which
the Borrower or any of its Subsidiaries is a party,  when executed and delivered
will constitute,  a legal,  valid and binding obligation of the Borrower and any
of its Subsidiaries,  as the case may be,  enforceable  against the Borrower and
any of its  Subsidiaries,  as the case may be,  in  accordance  with its  terms,
except as enforceability  may be limited by applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  fraudulent  conveyance,  fraudulent  transfer  or
similar laws  affecting the  enforcement of creditors'  rights  generally and by
general equitable  principles  (whether  enforcement is sought by proceedings in
equity or at law).

         4.4 No Conflicts or Consents.  The execution,  delivery and performance
of this Agreement, the Notes and the other Loan Papers, the borrowings hereunder
and the use of the proceeds  thereof will not violate any  Requirement of Law or
Contractual  Obligation of the Borrower or any of its  Subsidiaries and will not
result in, or require,  the creation or  imposition of any Lien on any of its or
their respective properties, assets or revenues pursuant to any such Requirement
of Law or Contractual Obligation,  except as contemplated by the Loan Papers. No
consent or  authorization  of, filing with or other act by or in respect of, any
Governmental  Authority or any other person is required in  connection  with the
borrowings hereunder or with the execution, delivery,  performance,  validity or
enforceability of this Agreement, the Notes or the other Loan Papers.

         4.5  Financial   Statements.   The  consolidated   unaudited  financial
statements of Natural Gas Services Group, Inc. and Rotary Gas Systems, Inc., NGE
Leasing,  Inc.  and Great  Lakes  Compression,  Inc.  for the fiscal  year ended
December 31, 2002, which have been delivered to Lender, are complete and correct
as they  relate to the  Borrower  and its  Subsidiaries,  have been  prepared in
accordance with generally accepted accounting principles,  consistently applied,
and  present  fairly  the  consolidated   financial  condition  and  results  of
operations  of the  Borrower and its  Subsidiaries,  as of the dates and for the
periods stated (subject only to normal year-end adjustments with respect to such
unaudited interim  statements).  During the period from December 31, 2002 to and
including the date hereof, no change has occurred in the condition, financial or
otherwise, of the Borrower and its consolidated Subsidiaries,  taken as a whole,
which could reasonably be expected to result in a Material  Adverse Effect,  and
there has been no sale,  transfer or other disposition by the Borrower or any of
its Subsidiaries since December 31, 2002 of any material part of its business or
property  and no  purchase  or other  acquisition  of any  business  or property
material in relation to the consolidated  condition,  financial or otherwise, of
the Borrower and its Subsidiaries.


                                       17
<PAGE>

         4.6 Other Obligations.  As of the date hereof, neither Borrower nor any
Subsidiary has any  outstanding  Debt or other material  liabilities,  direct or
indirect,  absolute or contingent,  which is, in the aggregate,  material to the
Borrower and its Subsidiaries and not shown in the financial statements referred
to in Section 4.5 hereof. Borrower is not aware of any fact, circumstance,  act,
condition or development which will have or which threatens to have any Material
Adverse Effect.

         4.7  Investments,   Advances  and  Guaranties.  At  the  date  of  this
Agreement,  Borrower has not made  investments  in, advances to or guaranties of
the obligations of any person,  except as reflected in the financial  statements
referred to in Section 4.5 hereof.

         4.8  Litigation.  There  is no  litigation,  legal,  administrative  or
arbitral proceeding,  investigation or other action of any nature pending or, to
the  knowledge of the  Borrower,  threatened  against or affecting  the Borrower
which involves the possibility of any judgment or liability not fully covered by
indemnity  agreements  or  insurance,  and which  would have a Material  Adverse
Effect.

         4.9  No  Burdensome  Restrictions.  No  unusual  or  unduly  burdensome
restriction,  restraint or hazard  exists under or by reason of any  Contractual
Obligation or, to the best of Borrower's knowledge, any Requirement of Law.

         4.10 Taxes.  All tax returns  required to be filed by the  Borrower and
its  Subsidiaries  with all  Governmental  Authorities  have been filed, and all
taxes,  assessments,  fees and other governmental  charges imposed upon Borrower
and its  Subsidiaries  or upon  any of  their  respective  property,  income  or
franchises which are due and payable,  have been paid (other than any the amount
or validity of which are currently  being contested in good faith by appropriate
proceedings  and with respect to which  reserves in  conformity  with  generally
accepted accounting principles have been provided on the consolidated  financial
statements  of the  Borrower);  and no tax  Lien  has  been  filed  and,  to the
knowledge of Borrower,  no claim is being asserted with respect to any such tax,
fee or other charge.

         4.11  Purpose  of Loan.  The  proceeds  of the loans made  pursuant  to
Section  2.1 and  evidenced  by the  Notes  have  been  or will be used  for the
following purposes:

                  (a) with  respect to loans made  pursuant to and  evidenced by
the Line A Term  Promissory  Note, for the payment of  indebtedness  owed by the
Borrower to Dominion Michigan Petroleum Services, Inc.;




                                       18
<PAGE>


                  (b) with  respect to loans made  pursuant to and  evidenced by
the  Revolving  Line of Credit  Promissory  Note,  for general  working  capital
purposes;

                  (c) with  respect to loans made  pursuant to and  evidenced by
the   Consolidated   Term  Promissory  Note,  in  renewal,   rearrangement   and
consolidation  of (i) that certain Term  Promissory  Note,  dated  September 15,
1999, in the original principal amount of $1,500,000.00,  (ii) that certain Term
B Promissory  Note,  dated March 9, 2001,  in the original  principal  amount of
$700,000.00  and (iii) that certain Term C Promissory  Note,  dated December 12,
2001, in the original principal amount of $750,000.00;

                  (d) with  respect to loans made  pursuant to and  evidenced by
the Multiple  Advance Term Promissory  Note, for the purchase of equipment to be
used in the  construction of natural gas compressors and for purchasing  natural
gas compressors; and

                  (e) with  respect to loans made  pursuant to and  evidenced by
the Line B Term Promissory Note, for the purchase by NGE Leasing, Inc. of twenty
eight gas compressors and related equipment.

         4.12  Title  to  Properties;  Liens.  Each  of  the  Borrower  and  its
Subsidiaries  have good  record and  defensible  title to, or a valid  leasehold
interest in, all its real property,  and good title to all its other  properties
and, except for Liens of the type permitted under Section 6.8 of this Agreement,
there are no Liens on any  properties  or assets of the  Borrower  or any of its
Subsidiaries.

         4.13  Insurance.  The  Borrower  and  its  Subsidiaries  maintain  with
financially sound and reputable  insurance  companies insurance in at least such
amounts  and  against at least such risks  (but  including  in any event  public
liability) as are usually  insured against in the same general area by companies
engaged in the same or a similar  business  and such  insurance  is otherwise in
compliance with the Loan Papers.

         4.14 No Default. Neither the Borrower nor any of its Subsidiaries is in
default  under or with  respect  to any of its  Contractual  Obligations  in any
respect,  other than defaults which could not have a Material Adverse Effect. No
Event of Default has occurred and is continuing.

         4.15  ERISA  Plans.  Borrower  does not have any plans  subject  to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA Plan").

         4.16 Principal Business Office and Location of Records.  The Borrower's
principal place of business and chief  executive  offices are located at 2911 S.
CR 1260,  Midland,  Texas 79706, and the records of the Borrower and each of its
Subsidiaries  concerning  its ownership of assets,  business and  operations are
located at such address.


                                       19
<PAGE>

         4.17 Licenses,  Permits and  Franchises,  etc. The Borrower and each of
its Subsidiaries owns, or is licensed to use, all permits, know-how,  processes,
technology,   franchises,  patents,  patent  rights,  trade  names,  trademarks,
trademark  rights  and  copyrights  which  are  necessary  or  required  for the
ownership  or  operation  of its  properties  and the  conduct of its  business.
Borrower  is not aware of any fact or  condition  that  might  cause any of such
rights not to be renewed in due course.

         4.18 Subsidiaries. The following constitute all the Subsidiaries of the
Borrower at the date hereof:

                           NGE Leasing, Inc.
                           Rotary Gas Systems, Inc.
                           Great Lakes Compression, Inc.

         Each such  Subsidiary  is wholly  owned by the  Borrower.  In addition,
Borrower  owns a 50%  membership  interest  in Hy-Bon  Rotary  Compression,  LLC
("HRC").

         4.19 No Material Omissions or Misstatements. No information, exhibit or
report furnished to Lender by the Borrower in connection with the negotiation of
this Agreement  contains any material  misstatement  of fact or omits to state a
material fact or any fact necessary to make the statements contained therein not
misleading.  Without  limiting the  generality  of the  foregoing,  there are no
material  facts  relating to the Loan Papers,  the  Collateral  or the financial
condition,  assets,  liabilities,  results  of  operations  or  business  of the
Borrower or any of its Subsidiaries  which could,  collectively or individually,
have a Material  Adverse  Effect and which have not been disclosed in writing to
Lender as an exhibit to this  Agreement or in the  financial  statements  of the
Borrower referred to in Section 4.5 of this Agreement.
























                                       20
<PAGE>

         4.20 Environmental Matters.

                  (a) No  Environmental  Complaint has been issued or filed,  no
penalty has been assessed and, to the knowledge of Borrower, no investigation or
review is pending or  threatened by any  Governmental  Authority or other person
(i)  with  respect  to any  alleged  violation  of  any  law,  ordinance,  rule,
regulation  or  order  of any  Governmental  Authority  in  connection  with the
property,  operations  or conduct of the  business of the Borrower or any of its
Subsidiaries,  or (ii) with  respect to any alleged  failure to have any permit,
certificate,   license,  approval,  requisition  or  authorization  required  in
connection  with the  property,  operations  or conduct of the  business  of the
Borrower or any of its  Subsidiaries  or (iii) with  respect to any  generation,
treatment,  storage,  recycling,  transportation or disposal or release,  all as
defined in 42 USC ss.  9601(22)  ("Release")  (other than Releases in compliance
with Relevant  Environmental Laws or permits issued  thereunder),  of any toxic,
caustic or otherwise hazardous substance,  including petroleum, its derivatives,
by-products and other hydrocarbons,  solid waste, contaminants,  polychlorinated
biphenyls,  paint  containing  lead, urea,  formaldehyde,  foam insulation,  and
discharge of sewage or effluent,  whether or not regulated under federal,  state
or local  environmental  statutes,  ordinances,  rules,  regulations  or  orders
("Hazardous  Substance")  generated by the operations or business, or located at
any property, of the Borrower or any of its Subsidiaries.

                  (b)   Except   in   substantial   compliance   with   Relevant
Environmental  Laws and permits  issued  thereunder (i) neither the Borrower nor
its  Subsidiaries,  nor  the  businesses  conducted  by  the  Borrower  and  its
Subsidiaries,  have placed, held, located or disposed of any Hazardous Substance
on, under or at any property now or  previously  owned or leased by the Borrower
or any of its  Subsidiaries,  and none of such  properties has been used (by the
Borrower  or  any of  its  Subsidiaries)  as a dump  site  or  storage  (whether
permanent   or   temporary)   site  for  any   Hazardous   Substance;   (ii)  no
polychlorinated  biphenyls,  urea or  formaldehyde is or has been present at any
property  now or  previously  owned  or  leased  by the  Borrower  or any of its
Subsidiaries;  (iii) no asbestos is or has been  present at any  property now or
previously  owned or leased by the  Borrower  or any of its  Subsidiaries;  (iv)
there are no  underground  storage  tanks  which have been used to store or have
contained any Hazardous Substance,  active or abandoned,  at any property now or
previously  owned or leased by the Borrower or any of its  Subsidiaries;  (v) no
Hazardous  Substance has been  released at, on or under any property  previously
owned  or  leased  by the  Borrower  or any of its  Subsidiaries;  and  (vi)  no
Hazardous  Substance  has  been  released  or is  present,  in a  reportable  or
threshold  quantity,  where such a quantity  has been  established  by  statute,
ordinance,  rule,  regulation  or order,  at, on or under  any  property  now or
previously owned by the Borrower or any of its Subsidiaries.

                  (c) The Borrower and its Subsidiaries  have not transported or
arranged  for the  transportation  (directly  or  indirectly)  of any  Hazardous
Substance  to any  location  which is listed or proposed  for listing  under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund  Amendments and Reauthorization Act of 1986 ("CERCLA"),
the Comprehensive Environmental Response, Compensation and Liability Information
System  ("CERCLIS")  or on any  similar  state  list or which is the  subject of
federal, state or local enforcement actions or other investigations.


                                       21
<PAGE>

                  (d) There are no environmental  Liens on any property owned or
leased  by  the  Borrower  or any of its  Subsidiaries,  and no  actions  by any
Governmental  Authority  have been taken or are in the  process  of being  taken
which could subject any of such properties to such Liens.

                  (e) Prior to the date  hereof,  the  Borrower  has provided to
Lender all environmental  investigations,  studies,  audits,  tests,  reviews or
other  analyses  conducted by or which are in the  possession of the Borrower or
any of  its  Subsidiaries  in  relation  to  any  property  or  facility  now or
previously owned or leased by the Borrower or any of its Subsidiaries.

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

         4.22 Public Utility Holding Company Act. The Borrower is not a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary  company" of a "holding  company",  or a
"public utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended.

         4.23 Federal  Regulations.  No part of the proceeds of any loan will be
used for  "purchasing"  or "carrying"  any "margin  stock" within the respective
meanings of each of the quoted terms under  Regulation G or  Regulation U of the
Board of  Governors of the Federal  Reserve  System as now and from time to time
hereafter in effect.  If requested by the Bank, the Borrower will furnish to the
Bank a statement to the foregoing  effect in conformity with the requirements of
FR From G-1 or FR Form U-1 referred to in said  Regulation G or Regulation U, as
the case may be.

         4.24 Casualties: Taking of Properties. Since the dates of the financial
statements  of the  Borrower  and its  Subsidiaries  delivered to the Lender and
described in Section 4.5,  neither the business nor the assets or  properties of
the  Borrower  or any  Subsidiary  have  been  affected  (to  the  extent  it is
reasonably likely to cause a Material Adverse Effect),  as a result of any fire,
explosion,  earthquake,  flood, drought,  windstorm,  accident,  strike or other
labor disturbance, embargo, requisition or taking of property or cancellation of
contracts,  permits or concessions by and domestic or foreign  government or any
agency thereof, riot, activities of armed forces or acts of God or of any public
enemy.

         4.25 Not A Utility. Neither the Borrower nor any of its Subsidiaries is
an entity engaged in the State of Texas in the (i)  generation,  transmission or
distribution and sale of electric power; (ii)  transportation,  distribution and
sale through a local  distribution  system of natural or other gas for domestic,
commercial,  industrial or other use; (iii)  provision of telephone or telegraph
service to others;  (iv)  production,  transmission or distribution  and sale of
steam or water; (v) operation of a railroad; or (vii) provision of sewer service
to others.


                                       22
<PAGE>

                                    ARTICLE V
                              Affirmative Covenants
                              ---------------------

         As a material  inducement to Lender to enter into this  Agreement,  the
Borrower hereby  covenants and agrees that from the date hereof until payment in
full  of the  Obligations,  the  Borrower  shall  and  shall  cause  each of its
Subsidiaries to:

         5.1 Financial  Statements and Other  Information.  Promptly  furnish to
Lender  copies of (i) such  information  regarding  its business and affairs and
financial condition as Lender may reasonably request,  and (ii) without request,
the following:

                  (a) as soon as  available,  but in any event not later than 90
days after the end of each  fiscal year of the  Borrower,  a copy of the audited
consolidated balance sheet of the Borrower and its consolidated  Subsidiaries as
at the end of such year and the related  consolidated  statements  of income and
changes in cash flows for such year,  setting forth in each case in  comparative
form the figures for the previous year, reported on without a "going concern" or
like  qualification or exception,  or qualification  arising out of the scope of
the  audit,  by Hein +  Associates  LLP or other  independent  certified  public
accounting firm of recognized standing acceptable to the Lender;

                  (b) as soon as  available,  but in any event not later than 45
days after the end of each month,  the unaudited  consolidated  balance sheet of
the Borrower and its  consolidated  Subsidiaries as at the end of such month and
the  related  unaudited  consolidated  statements  of income and changes in cash
flows of the Borrower and its  consolidated  Subsidiaries for such month and for
the period from the  beginning of the most recent fiscal year to the end of such
month,  certified by the chief  financial  officer of the  Borrower  (subject to
normal year-end audit adjustments);

                  (c) as soon as  available,  but in any event not later than 45
days  after the end of each  month,  calculations  of the  Consolidated  Current
Ratio, Consolidated Tangible Net Worth, Debt Service Ratio and Consolidated Debt
to  Consolidated  Tangible  Net  Worth  Ratio of the  Borrower  for the  periods
required as set forth in Section 6.1 of this Agreement;

                  (d) as soon as  available,  but in any event not later than 45
days after the end of each month,  a list of all  accounts  payable and accounts
receivable of the Borrower and its  consolidated  Subsidiaries,  and an aging of
such accounts on the basis of 30-60-90 and over 90 days from date of invoice;






                                       23
<PAGE>

                  (e) promptly upon their becoming  available,  but in any event
not  later  than five days  after  the same are  sent,  copies of all  financial
statements,  reports,  notices  and  proxy  statements  sent or  made  available
generally  by the  Borrower to its  shareholders,  of all  regular and  periodic
reports and all private  placement  memorandums and all registration  statements
and prospectuses,  if any, filed by the Borrower with any securities exchange or
with the  Securities and Exchange  Commission;  and all press releases and other
statements  made  available  generally by the Borrower to the public  concerning
material developments in the business of the Borrower;

                  (f)  immediately  after becoming aware of the existence of, or
any  material  change in the  status  of,  any  Environmental  Complaint  or any
litigation  which could have a Material  Adverse Effect if determined  adversely
against the  Borrower or any of its  Subsidiaries,  a written  communication  to
Lender of such matter;

                  (g) immediately  upon becoming aware of an Event of Default or
the  existence of any  condition or event which  constitutes,  or with notice or
lapse of  time,  or  both,  would  constitute  an  Event  of  Default,  a verbal
notification to Lender specifying the nature and period of existence thereof and
what action the Borrower is taking or proposes to take with respect thereto and,
immediately thereafter, a written confirmation to Lender of such matters;

                  (h) immediately after becoming aware that any person has given
notice  or taken  any  action  with  respect  to a  claimed  default  under  any
indenture,  mortgage,  deed of trust,  promissory  note,  loan  agreement,  note
agreement,  joint  venture  agreement or any other  Material  Agreement or other
undertaking  to which  the  Borrower  or any  Subsidiary  is a  party,  a verbal
notification  to Lender  specifying  the  notice  given or action  taken by such
person and the nature of the claimed  default  and what  action the  Borrower is
taking or proposes to take with respect thereto and, immediately  thereafter,  a
written communication to Lender of such matters;

                  (i) within 45 days after the end of each month,  the Borrowing
Base Report required by Section 2.3(b)(i) of this Agreement;

                  (j) within 45 days after the end of each month,  a  compliance
certificate  in the form attached  hereto as Exhibit K, which shall be signed by
the chief executive officer or principal financial officer of the Borrower;


                  (k) as soon as  available,  but in any event not later than 45
days after the end of each  calendar  quarter,  a report,  in detail  reasonably
satisfactory  to Lender,  (i) setting forth, by owner,  the unit number,  serial
number or other identifying  number of each gas compressor owned by the Borrower
and its Subsidiaries,  (ii) stating whether or not each compressor identified in
the  report  has  been  leased  or  rented  to any  person  and,  if so, a brief
description of the lease, including,  without limitation,  the date of the lease
and the name of the lessee,  (iii) describing the specific  location of each gas
compressor,  (iv) attaching copies of any lease or rental agreement entered into
during the prior month and (v) including such other  information as Lender shall
reasonably require.


                                       24
<PAGE>

         5.2 Taxes; Other Claims.  Pay and discharge all taxes,  assessments and
governmental  charges or levies imposed upon the Borrower and its  Subsidiaries,
or upon or in respect of all or any part of the income,  property or business of
the Borrower and its Subsidiaries, all trade accounts payable in accordance with
usual and customary business terms, and all claims for work, labor or materials,
which, if unpaid,  might become a Lien or charge upon any or all of the property
of the Borrower or any of its Subsidiaries;  provided, however, the Borrower and
its Subsidiaries shall not be required to pay any such tax, assessment,  charge,
levy,  account  payable or claim if (i) the  validity,  applicability  or amount
thereof is currently  being  contested in good faith by  appropriate  actions or
proceedings  diligently  conducted  which will prevent the forfeiture or sale of
any property of the Borrower and its  Subsidiaries or any material  interference
with the use thereof by the Borrower or its Subsidiaries,  and (ii) the Borrower
shall have set aside on its consolidated  financial statements reserves therefor
deemed adequate under generally accepted accounting principles.

         5.3 Compliance and Maintenance.  (i) Maintain its corporate  existence,
rights and  franchises;  (ii) observe and comply with all  Requirements  of Law,
including,  without limitation,  Relevant Environmental Laws; and (iii) maintain
the  Collateral  and  all  other  equipment,  properties  and  assets  (and  any
properties,  equipment  and assets  leased by or  consigned  to it or held under
title retention or conditional  sales contracts) in good and workable  condition
at all times and make all  repairs,  replacements,  additions,  betterments  and
improvements to its  properties,  equipment and assets as are needful and proper
so that  the  business  carried  on in  connection  therewith  may be  conducted
properly and efficiently at all times.

         5.4  Maintenance  of  Insurance.  Maintain with  financially  sound and
reputable  insurers,  insurance  with  respect to its  properties  and  business
against such liabilities,  casualties, risks and contingencies and in such types
and  amounts  as is  customarily  carried  by  companies  engaged in the same or
similar  businesses and similarly  situated.  From time to time, upon request by
Lender,  the Borrower will furnish Lender with copies of  certificates,  binders
and policies  necessary to give Lender reasonable  assurance of the existence of
such coverage.  Borrower  agrees to promptly notify Lender of any termination or
other  material  change in  Borrower's  insurance  coverage and, if requested by
Lender,  to provide Lender with all information about the renewal of each policy
at  least 15 days  prior to the  expiration  thereof.  In the case of any  fire,
accident or other  casualty  causing loss or damage to any property of Borrower,
the  proceeds of such  policies in excess of  $50,000.00  shall,  at  Borrower's
option,  be used to (i)  replace  the  lost or  damaged  property  with  similar
property having a value at least equivalent to the lost or damaged property,  or
(ii) prepay the Existing Notes to the extent of such proceeds.




                                       25
<PAGE>


         5.5  Reimbursement  of Fees and Expenses.  Pay all reasonable  fees and
expenses  incurred by Lender and its  designated  representatives  in connection
with  this  Agreement,  all  renewals  hereof,  the other  Loan  Papers or other
transactions  pursuant hereto or to the other Loan Papers,  whether the services
provided  hereunder or thereunder are provided  directly by Lender or by a third
party selected by Lender,  as well as all costs of filing and  recordation,  all
reasonable legal and accounting fees, all costs associated with enforcing any of
Lender's Rights under the Loan Papers, including,  without limitation,  costs of
repossessing, storing, transporting, preserving and insuring any Collateral that
Borrower  or any of its  Subsidiaries  may  pledge to  Lender,  all court  costs
associated with enforcing or defending Lender's Rights against the Borrower, its
Subsidiaries  or any third party  challenging  said Rights and any other cost or
expense  incurred  by Lender or its  designated  representatives  in  connection
herewith or with the other Loan  Papers,  together  with  interest at a rate per
annum 2% above the Prime Rate on each such amount  commencing on the date notice
of such  expenditure  is given to the  Borrower  by Lender  until the date it is
repaid to Lender.






















                                       26
<PAGE>


         5.6 Indemnification.  Indemnify,  save and hold harmless the Lender and
its   Affiliates,   directors,   officers,   agents,   attorneys  and  employees
(collectively,  the  "Indemnitees")  from and  against:  (a) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee by
any person  (other than the Borrower) if the claim,  demand,  action or cause of
action  directly or indirectly  relates to a claim,  demand,  action or cause of
action  that such  person  asserts  or may  assert  against  the  Borrower,  any
Affiliate  of the  Borrower  or any  officer,  director  or  shareholder  of the
Borrower; (b) any and all claims, demands,  actions or causes of action that are
asserted  against any  Indemnitee by any person (other than the Borrower) if the
claim,  demand,  action or cause of action arises out of or relates to the loans
made by Lender to the Borrower  under the Notes and this  Agreement,  the use or
contemplated  use of proceeds of such loans or the  relationship of the Borrower
and the Lender under this Agreement;  (c) any  administrative  or  investigative
proceeding by any Governmental  Authority  arising out of or related to a claim,
demand, action or cause of action described in clauses (a) or (b) above; and (d)
any and  all  liabilities,  losses,  costs  or  expenses  (including  reasonable
attorneys' fees and  disbursements)  that any Indemnitee  suffers or incurs as a
result of any of the foregoing;  provided,  that no Indemnitee shall be entitled
to  indemnification  for any liability,  loss, cost or expense caused by its own
gross negligence or willful misconduct. If any claim, demand, action or cause of
action is asserted  against any Indemnitee and such Indemnitee  intends to claim
indemnification  from the Borrower under this Section 5.6, such Indemnitee shall
promptly notify the Borrower, but the failure to so promptly notify the Borrower
shall not affect the  obligations  of the Borrower under this Section 5.6 unless
such failure materially  prejudices the Borrower's right to participate,  or the
Borrower's rights, if any, in the contest of such claim, demand, action or cause
of action, as hereinafter provided. Each Indemnitee may, and if requested by the
Borrower in writing shall, in good faith contest the validity, applicability and
amount of such claim, demand, action or cause of action with counsel selected by
such Indemnitee and reasonably acceptable to the Borrower,  and shall permit the
Borrower to participate in such contest.  Any Indemnitee that proposes to settle
or compromise  any claim or proceeding  for which the Borrower may be liable for
payment of indemnity  hereunder  shall give the Borrower  written  notice of the
terms of such  proposed  settlement  or  compromise  reasonably  in  advance  of
settling  or  compromising  such  claim  or  proceeding  and  shall  obtain  the
Borrower's  prior  written  consent,  which  consent  shall not be  unreasonably
withheld.  In  connection  with any  claim,  demand,  action  or cause of action
covered  by this  Section  5.6  against  more  than  one  Indemnitee,  all  such
Indemnitees  shall be  represented  by the same legal  counsel  selected  by the
Indemnitees and reasonably  acceptable to the Borrower;  provided,  that if such
legal counsel  determines in good faith and advises the Borrower in writing that
representing  all such  Indemnitees  would  or could  result  in a  conflict  of
interest under legal requirements or ethical principles applicable to such legal
counsel or that a defense or  counterclaim is available to an Indemnitee that is
not available to all such Indemnitees,  then to the extent reasonably  necessary
to avoid such a conflict of interest or to permit unqualified  assertion of such
a defense  or  counterclaim,  each  Indemnitee  shall be  entitled  to  separate
representation  by legal  counsel  selected by that  Indemnitee  and  reasonably
acceptable to the Borrower.  Any  obligation or liability of the Borrower to any
Indemnitee under this Section 5.6 shall survive the expiration or termination of
this  Agreement  and the  repayment  of the Loans and the  payment  of all other
Obligations owing to the Lender for the statute of limitations period applicable
to such claim or contest.


                                       27
<PAGE>

         5.7 Further Assurances. Use its best efforts to cure any defects in the
execution  and  delivery of any of the Loan Papers to which it is a party and in
any  other  instrument  or  document  referred  to  or  mentioned  herein,   and
immediately execute and deliver to Lender, upon Lender's request, all such other
and  further  instruments  as may be  required or desired by Lender from time to
time in compliance with or accomplishment of the covenants and agreements of the
Borrower made herein and in the other Loan Papers.

         5.8 Inspection and Visitation.  Permit any officer,  employee, agent or
representative  of Lender to visit and inspect any of the  properties and assets
of the  Borrower  and its  Subsidiaries,  examine all of its books,  records and
accounts,  and take copies and extracts therefrom,  all at such reasonable times
and  during  normal  business  hours as Lender may  request  and,  further,  the
Borrower  shall  allow and does  hereby  grant  Lender the right to contact  any
employees,  associates,   Affiliates,  officers,  accountants  and  auditors  of
Borrower and its Subsidiaries as Lender may desire,  and upon the occurrence and
during the  continuance  of an Event of Default,  Lender shall have the right to
contact the customers of Borrower and its Subsidiaries.

         5.9  Compliance  With Laws.  Comply with all  Requirements  of Law, the
violation of which could have a Material Adverse Effect.

         5.10  Accounts and  Records.  Keep books of record and account in which
full,  true and correct  entries will be made of all dealings or transactions in
relation to its business and activities,  in accordance with generally  accepted
accounting  principles   consistently  applied,   except  only  for  changes  in
accounting principles or practices with which the Borrower's  independent public
accountants concur.

         5.11  Environmental  Complaints.  Promptly give notice to Lender (a) of
any Environmental  Complaint  affecting the Borrower or any of its Subsidiaries,
any property owned, operated or used by the Borrower or any of its Subsidiaries,
or  any  part  thereof  or  the  operations  of  the  Borrower  or  any  of  its
Subsidiaries,  or any other person on or in connection with such property or any
part thereof  (including  receipt by the Borrower or any of its  Subsidiaries of
any notice of (i) the happening of any event involving the use, spill,  release,
leak,  seepage,  discharge  or clean-up of any  Hazardous  Substance or (ii) any
complaint,  order,  citation  or  notice  with  regard to air  emissions,  water
discharges,  or any other  environmental,  health or safety matter affecting the
Borrower or any of its Subsidiaries from any person or entity (including without
limitation the United States Environmental  Protection Agency)),  and (b) of any
notice from any person of (i) any violation or alleged violation of any Relevant
Environmental  Law  relating  to any such  property  or any part  thereof or any
activity at any time conducted on any such property,  (ii) the occurrence of any
release,  spill or discharge in a quantity that is reportable under any Relevant
Environmental  Law or (iii) the  commencement of any clean-up  pursuant to or in
accordance with any Relevant  Environmental Law of any Hazardous Substance on or
about any such property or any part thereof.



                                       28
<PAGE>

         5.12 Hy-Bon Rotary  Compression,  LLC - Cause the dissolution of Hy-Bon
Rotary  Compression,  LLC not  later  than  ninety  days  after the date of this
Agreement.


                                   ARTICLE VI
                               Negative Covenants
                               ------------------

         As a material  inducement to Lender to enter into this  Agreement,  the
Borrower covenants and agrees that from the date hereof until payment in full of
the  Obligations,  the  Borrower  shall not, and (except with respect to Section
6.1) shall not permit any of its Subsidiaries to, directly or indirectly:

         6.1 Financial Covenants.

                  (a)  Consolidated   Current  Ratio.  Permit  the  Consolidated
Current Ratio, as defined herein and calculated pursuant to Exhibit L hereto, to
be less  than 1.5 to 1.0 as of April  30,  2003 and as of the end of each  month
after April 30, 2003.

                  (b) Consolidated  Tangible Net Worth.  Permit the Consolidated
Tangible  Net Worth,  as defined  herein and  calculated  pursuant  to Exhibit M
hereto, to be less than $11,500,000.00 as of April 30, 2003 and as of the end of
each month after April 30, 2003.

                  (c) Debt Service Ratio.  Permit the ratio of (i)  Consolidated
Cash Flow to (ii) Consolidated  Fixed Charges,  as such terms are defined herein
and as calculated  pursuant to Exhibit N hereto, to be less than 1.25 to 1.00 as
of the end of each fiscal quarter of the Borrower.

                  (d)  Consolidated  Debt to  Consolidated  Tangible  Net  Worth
Ratio.  Permit the ratio of (i) Consolidated Debt to (ii) Consolidated  Tangible
Net Worth, as such terms are defined herein and calculated pursuant to Exhibit O
hereof,  to be more than 1.00 to 1.00 as of April 30, 2003, and as of the end of
each month after April 30, 2003.

         6.2 Debt. Create, assume, incur or have outstanding any Debt, except:

                  (a) Debt of the Borrower and its Subsidiaries to the Lender;

                  (b) Debt existing on the date of this  Agreement  which is set
forth in the financial statements referred to in Section 4.5 of this Agreement ,
but not any increases thereof;

                  (c)  obligations  for the  payment of rent or hire of property
under leases or lease  agreements  which would not cause the aggregate amount of
all payments made by the Borrower and its  Subsidiaries  pursuant to such leases
or lease agreements to exceed $200,000.00 during any calendar year; and




                                       29
<PAGE>

                  (d) additional Debt of the Borrower and its  Subsidiaries  not
to  exceed  $100,000.00  in the  aggregate  principal  amount  at any  one  time
outstanding.

         6.3 ERISA  Compliance.  (a) Engage in any  "prohibited  transaction" as
such term is defined in Section  4975 of the Internal  Revenue Code of 1986,  as
amended;

                  (b) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA; or

                  (c)  terminate any such plan in a manner which could result in
the imposition of a Lien on the property of Borrower or any Subsidiary  pursuant
to Section 4068 of ERISA.

         6.4 Amendment of  Organizational  Documents.  Amend or otherwise modify
its  articles  of  incorporation,   regulations,  articles  of  organization  or
otherwise  change its corporate or limited  liability  company  structure in any
manner, except as required by Section 5.12 hereof.

         6.5 Fiscal Year.  Permit its fiscal year to end on a day other than the
last day of December of each year.

         6.6 Nature of Business.  Make any significant or substantial  change in
the nature of its business as being conducted on the date of this Agreement.

         6.7  Disposition  of  Collateral.   Sell,  transfer,  lease,  exchange,
alienate or otherwise  dispose of (whether in one  transaction or in a series of
transactions) all or any part of the Collateral,  except as permitted by Section
6.12.

         6.8 Liens.  Create,  incur, assume or permit to exist any Lien upon any
of its properties,  assets or revenues, whether now owned or hereafter acquired,
or agree to do any of the foregoing, except:

                  (a) Bank Liens.

                  (b)  Liens  to  secure  payments  of  workmen's  compensation,
unemployment insurance, old age pensions or other social security;

                  (c)  deposits  or  pledges  to  secure  performance  of  bids,
tenders,  contracts  (other than  contracts  for the payment of money),  leases,
public or statutory  obligations,  surety or appeal bonds,  or other deposits or
pledges for purposes of like general nature in the ordinary course of business;



                                       30
<PAGE>


                  (d) Liens for taxes, assessments or other governmental charges
or levies which are not delinquent or which are in good faith being contested by
appropriate proceedings;  provided,  however, this exception shall not allow any
Lien imposed by the U.S. Government for failure to pay income,  payroll, FICA or
similar taxes, other than any such Lien where (i) the validity, applicability or
amount thereof is being contested in good faith by appropriate proceedings which
will  prevent the  forfeiture  or sale of any  property  of the  Borrower or any
Subsidiary or any material  interference with the use thereof by the Borrower or
any Subsidiary, and (ii) the Borrower shall have set aside on its books reserves
appropriate  within  generally  accepted  accounting   principles  with  respect
thereto;

                  (e)   vendors',   operators',    materialmen's,    mechanics',
carriers',  workmen's,  repairmen's  or other like Liens arising by operation of
law in the ordinary  course of business and  securing  obligations  less than 90
days from the date of invoice, and on which no suit to foreclose has been filed,
or which are in good faith being contested by appropriate proceedings;

                  (f) Liens created by or resulting from any litigation or legal
proceeding  which is being  contested in good faith by appropriate  proceedings;
and

                  (g) Liens permitted by the other Loan Papers.

         6.9  Dividends,  Redemptions  and Other  Payments.  Declare  or pay any
dividends  (except  dividends payable solely in its own capital stock or limited
liability  company  membership  interests,  as the case may be) on,  or  redeem,
retire,  purchase or otherwise acquire for value, any shares of any class of its
respective  shares of capital  stock or  limited  liability  company  membership
interests,  as the case may be,  now or  hereafter  outstanding,  or return  any
capital to its  shareholders  or members,  as the case may be, or make any other
distribution in respect  thereof,  whether in cash or property or in obligations
of the Borrower or any Subsidiary,  except that: (a) Borrower's Subsidiaries may
declare, pay or make dividends or distributions to Borrower and (b) Borrower may
declare and pay cash  dividends  on its  outstanding  shares of 10%  Convertible
Series A  Preferred  Stock,  $.01 par value per  share,  if: (i) there is not in
existence, at the time of the dividend payment to be made, an "Event of Default"
as defined in Section 7.1 of this Agreement; and (ii) the dividend payment to be
made would not cause or result in the occurrence of an Event of Default.

         6.10  Limitation  on  Fundamental  Changes.   Enter  into  any  merger,
consolidation  or  amalgamation,  or liquidate,  wind up or dissolve  itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise  dispose of (whether in one  transaction  or in a series of related
transactions),  all or  substantially  all of its  property,  business or assets
(whether now owned or hereafter  acquired),  or make any material  change in its
present  method of  conducting  business,  except as  required  by Section  5.12
hereof.

         6.11   Transactions   with  Affiliates.   Enter  into  any  transaction
(including,  but not  limited  to,  the  sale or  exchange  of  property  or the
rendering of services)  with any of its  Affiliates,  other than in the ordinary
course of business and upon terms no less favorable than could be obtained in an
arm's-length transaction with a person that was not an Affiliate.


                                       31
<PAGE>

         6.12 Disposition of Assets. Sell, convey,  transfer,  lease,  exchange,
alienate  or  otherwise  dispose of any of its  respective  property  or assets,
except, to the extent not otherwise prohibited under the other Loan Papers:

                  (a)  equipment  which is  worthless  or  obsolete  or which is
replaced by equipment of equal suitability and value; and

                  (b)  inventory  and  equipment  which is sold or leased in the
ordinary course of business.

         6.13 Limitation on Negative Pledge Clauses.  Enter into with any person
any  agreement,  other than (a) this  Agreement  and (b) the other Loan  Papers,
which prohibits or limits the ability of the Borrower or any of its Subsidiaries
to create,  incur,  assume or suffer to exist any Lien upon any of its property,
assets or revenues, whether now owned or hereafter acquired.

         6.14 Terms of Other Agreements. Become a party to any agreement (or any
amendment,  supplement,  extension  or other  modification  thereto or  thereof)
which, in any manner (i) violates,  conflicts with or creates a breach of any of
the terms or provisions of this Agreement or any of the other Loan Papers,  (ii)
provides for the granting or conveyance to any person other than Lender of Liens
on or affecting the Collateral,  or (iii) restricts the Borrower's or any of its
Subsidiaries (a) rights of ownership, possession or operation of all or any part
of the  Collateral or (b) rights or ability to direct the use or  disposition of
all or any part of the  Collateral  or (c) which  requires  the  consent  of any
person  (other than Lender) to use or dispose of any of the  Collateral  for any
purpose or to act or refrain from acting with respect thereto.

         6.15  Subordinated  Notes. Make any payment of principal or interest on
the Subordinated Notes, unless:

                  (i) there is not in existence, at the time of the principal or
         interest  payment  to be made,  an "Event of  Default"  as  defined  in
         Section 7.1 of this Agreement; and

                  (ii) the  principal  or interest  payment to be made would not
         cause or result in the  occurrence of an Event of Default as defined in
         Section 7.1 of this Agreement.

         6.16  Compressor  Leases.  Amend or  otherwise  modify in any  material
respect any lease agreement  covering any of the Borrower's or Subsidiaries' gas
compressors; provided, however, it shall not be a violation of this Section 6.16
if upon  expiration of a lease agreement by its own terms Borrower enters into a
new lease agreement with the same lessee;  the location of a compressor is moved
with the consent of Borrower.


                                       32
<PAGE>

                                   ARTICLE VII
                              Default and Remedies
                              --------------------

         7.1 Events of Default.  If any one or more of the following shall occur
and shall not have been remedied in the period,  if any, provided for, an "Event
of Default"  shall be deemed to have occurred  hereunder and with respect to all
of the Obligations, unless waived in writing by Lender:

                  (a)  default  shall  be made in the  payment  when  due of any
installment of principal or interest on the Notes or any other Obligations;

                  (b) any representation or warranty made by the Borrower herein
or in any of the other Loan Papers or in any certificate,  document or financial
or other  statement  furnished  to  Lender  under  or in  connection  with  this
Agreement or any other Loan Paper shall be or shall prove to have been incorrect
or untrue or  misleading  in any  material  respect on or as of the date made or
deemed  made and shall  continue  unremedied  for a period of 30 days  after the
earlier of (i) the  Borrower  becoming  aware of such default or (ii) the Lender
giving notice thereof to the Borrower;

                  (c) default shall be made by the Borrower or any Subsidiary in
the due  performance  or  observance  of any  covenant,  condition  or agreement
contained  in any of the Loan  Papers  to which it is a party  and such  default
shall  continue  unremedied  for a period of 30 days  after the  earlier  of (i)
Borrower becoming aware of such default or (ii) the Lender giving notice thereof
to the Borrower;

                  (d) Borrower or any Subsidiary  shall (i) apply for or consent
to the appointment of a receiver, trustee or liquidator of itself or of all or a
substantial  part of its  assets;  (ii) be  unable,  or  admit  in  writing  its
inability, or fail to confirm its ability (when requested to do so by Lender) to
pay its  debts as they  become  due;  (iii)  make a general  assignment  for the
benefit of  creditors;  (iv) be  adjudicated  a bankrupt or  insolvent or file a
voluntary  petition  in  bankruptcy;  (v) file a petition  or an answer  seeking
reorganization  or an  arrangement  with  creditors or to take  advantage of any
bankruptcy  or  insolvency  law;  (vi) file an  answer  admitting  the  material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy,  reorganization or insolvency  proceedings;  or (vii) take
any action for the purpose of effecting any of the foregoing;

                  (e) an order, judgment or decree shall be entered by any court
of competent  jurisdiction  approving a petition seeking  reorganization  of the
Borrower  or any of its  Subsidiaries  or  appointing  a  receiver,  trustee  or
liquidator of the Borrower or any of its Subsidiaries or of all or a substantial
part of its assets,  and such order,  judgment or decree shall continue unstayed
in effect for any period of 30 consecutive days;


                                       33
<PAGE>

                  (f) the failure of the Borrower or any of its  Subsidiaries to
have discharged  within a period of 30 days after the  commencement  thereof any
attachment, sequestration or similar proceeding against any of its properties or
assets having a value of $100,000 or more;

                  (g) any acceleration,  notice of default,  default,  filing of
suit or notice of breach by any lender,  lessor,  creditor or other party to any
Material  Agreement to which the Borrower or any of its Subsidiaries is a party,
or to which its properties or assets are subject;

                  (h) the  occurrence of a Material  Adverse Effect with respect
to Borrower or any of its Subsidiaries;

                  (i) the occurrence of a Change of Control;

                  (j) final judgment or judgments  shall be entered  against the
Borrower or any of its Subsidiaries  involving in the aggregate a liability (not
paid or fully  covered  by  insurance  or not  otherwise  covered  by  indemnity
agreements  acceptable to Lender in its sole  discretion) of $50,000.00 or more,
and such judgment or judgments shall not have been vacated,  discharged,  stayed
or bonded pending appeal within 60 days from the entry thereof;

                  (k) if,  at any  time,  the  then  existing  President  of the
Borrower or the then existing Chief Executive Officer (if there shall be one) of
the Borrower ceases,  for any reason,  to hold such office and a replacement for
such officer  acceptable to Lender is not appointed  within 120 days thereafter;
or

                  (l)  Borrower or any  Subsidiary  defaults in the payment when
due of any installment of principal or interest on the Subordinated Notes.

         7.2 Remedies.

                  (a) Upon the  occurrence of any Event of Default  described in
Section  7.1(d) or Section 7.1(e) hereof,  the lending  obligations,  if any, of
Lender hereunder shall immediately terminate, and the entire principal amount of
all Obligations then outstanding  together with interest then accrued and unpaid
thereon  shall  become  immediately  due and  payable,  all  without  demand and
presentment  for  payment,  notice of  nonpayment,  protest,  notice of protest,
notice of  dishonor,  notice of intention  to  accelerate  maturity or notice of
acceleration  of maturity,  or any other  notice of default of any kind,  all of
which are hereby expressly waived by the Borrower.










                                       34
<PAGE>

                  (b) Upon the occurrence and at any time during the continuance
of any other Event of Default  specified  in Section 7.1 hereof,  Lender may, by
written notice to the Borrower,  (i) declare the entire  principal amount of all
Obligations  then  outstanding,  together  with interest then accrued and unpaid
thereon,  to be immediately  due and payable  without demand and presentment for
payment,  notice of nonpayment,  protest, notice of protest, notice of dishonor,
notice  of  intention  to  accelerate  maturity  or notice  of  acceleration  of
maturity,  or any other  notice of default of any kind,  all of which are hereby
expressly waived by the Borrower, and (ii) terminate the lending obligations, if
any,  of Lender  hereunder  unless  and until  Lender  shall  reinstate  same in
writing.

         7.3 Right of Setoff.  Upon the occurrence and during the continuance of
any Event of Default,  or if the Borrower becomes insolvent,  however evidenced,
Lender is hereby  authorized  at any time and from time to time,  without  prior
notice to Borrower (any such notice being expressly waived by the Borrower),  to
setoff  and apply any and all  deposits  (general  or  special,  time or demand,
provisional or final) at any time held and other  indebtedness at any time owing
by Lender to or for the credit or the account of Borrower against any and all of
the  Obligations,  irrespective  of whether  or not  Lender  shall have made any
demand under this  Agreement or the Notes and although such  Obligations  may be
unmatured.  Lender agrees  promptly to notify Borrower after any such setoff and
application,  provided that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of Lender under this Section
7.3 are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which Lender may have.

         7.4  Delegation  of Duties and  Rights.  Lender may  perform any of its
duties or  exercise  any of its Rights  under the Loan  Papers by or through its
officers, directors, employees, attorneys, agents or other representatives.

         7.5 Lender Not in Control.  None of the  covenants or other  provisions
contained in this  Agreement or the other Loan Papers shall,  or shall be deemed
to, give Lender the Right to exercise  control over the affairs or management of
the Borrower.

         7.6 Waivers by Lender.  The  acceptance  by Lender at any time and from
time to time of part  payment  on the  Obligations  shall  not be deemed to be a
waiver of any Event of Default then  existing.  No waiver by Lender of any Event
of  Default  shall  be  deemed  to be a waiver  of any  other  then-existing  or
subsequent  Event of Default.  No delay or omission by Lender in exercising  any
Right under this  Agreement  or any of the other Loan Papers  shall  impair such
Right or be construed as a waiver thereof or any acquiescence therein.

         7.7  Cumulative  Rights.  All  Rights  available  to Lender  under this
Agreement and the other Loan Papers are  cumulative  of, and in addition to, all
other Rights  available  to Lender at law or in equity.  The exercise or partial
exercise of any such Right shall not  preclude  the  exercise of any other Right
under the Loan Papers or otherwise.




                                       35
<PAGE>

         7.8  Expenditures  by Lender.  All court costs,  reasonable  attorneys'
fees, other costs of collection,  and other sums spent by Lender pursuant to the
exercise  of any Right  provided  herein  shall be  payable to Lender on demand,
shall  become  part of the  Obligations,  and shall bear  interest at a rate per
annum 2% above the Prime Rate on each such amount  commencing on the date notice
of such  claims,  judgments,  costs,  charges  or  attorneys'  fees is  given to
Borrower by Lender until the date paid by Borrower.

                                  ARTICLE VIII
                                  Miscellaneous
                                  -------------

         8.1 Survival of Representations and Warranties. All representations and
warranties of the Borrower made herein,  in the other Loan Papers to which it is
a party and in any document,  certificate or statement delivered pursuant hereto
or in  connection  herewith  shall  survive the  execution  and delivery of this
Agreement and the Notes.

         8.2 Communications.  Unless specifically  otherwise provided,  whenever
any Loan Paper requires or permits any consent,  approval,  notice,  request, or
demand from one party to another,  such  communication must be in writing (which
may be by cable, telex, telecopy, fax or other similar means of remote facsimile
transmission)  to be effective and shall be deemed to have been given on the day
actually  delivered or, if mailed, on the third day (or if such third day is not
a Business Day, then on the next  succeeding  Business Day) after it is enclosed
in an  envelope,  addressed  to the party to be notified  at the address  stated
below,  properly  stamped,  sealed,  and deposited in the  appropriate  official
postal  service.  Until changed by notice pursuant  hereto,  the address of each
party for purposes of this Agreement is as follows:

                           BORROWER:

                             Natural Gas Services Group, Inc.
                             2911 S. CR 1260
                             Midland, Texas  79706
                             Attn. Earl Wait
                             Facsimile Number for Notice: (915) 563-5567

                                            or

                           LENDER:

                             Western National Bank
                             500 W. Wall, Suite 100
                             Midland, Texas  79701
                             Attn:  Scott A. Lovett
                             Facsimile Number for Notice:  (915) 570-9567




                                       36
<PAGE>

         8.3  Binding  on  Successors.   All  covenants  and  agreements  herein
contained by or on behalf of the Borrower shall bind the  Borrower's  successors
and  assigns and shall  inure to the  benefit of Lender and its  successors  and
assigns;  provided,  however,  that  Borrower  may  not  assign  its  Rights  or
obligations hereunder without the prior written consent of Lender. If the Lender
sells  participations  in or assigns the Notes or other Obligations owing to the
Lender to other  lenders  (which  the  Lender  may  undertake  to do in its sole
discretion),  each of such other lenders shall have the rights to setoff against
such  Obligations  and  similar  rights  or Liens to the same  extent  as may be
available to the Lender.

         8.4 Governing  Law.  THIS  AGREEMENT AND THE OTHER LOAN PAPERS 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;  PROVIDED,  HOWEVER,  THAT THE
RIGHTS  PROVIDED IN ANY LOAN PAPER WITH REFERENCE TO PROPERTIES  COVERED THEREBY
THAT ARE  SITUATED  IN OTHER  STATES MAY BE  GOVERNED  BY THE LAWS OF SUCH OTHER
STATES, AND PROVIDED,  FURTHER,  THAT THE LAWS PERTAINING TO THE ALLOWABLE RATES
OF INTEREST MAY, FROM TIME TO TIME, BE GOVERNED BY THE LAWS OF THE UNITED STATES
OF AMERICA.

         8.5 Usury Savings  Clause.  It is the  intention of the parties  hereto
that Lender shall conform strictly to usury laws applicable to it.  Accordingly,
if the  transactions  contemplated  hereby  would be usurious as to Lender under
laws  applicable to it  (including  the laws of the United States of America and
the  State of Texas or any  other  jurisdiction  whose  laws may be  mandatorily
applicable to Lender notwithstanding the other provisions hereof), then, in that
event,  notwithstanding anything to the contrary in the Notes, this Agreement or
any other Loan Paper or other  agreement  entered into in connection  with or as
security  for the  Notes,  (i)  the  aggregate  of all  consideration  which  is
contracted for, taken, reserved,  charged or received by Lender under the Notes,
this  Agreement or any other Loan Paper or agreement  entered into in connection
with or as  security  for the Notes  shall  under no  circumstances  exceed  the
maximum amount allowed by such  applicable law, and any excess shall be credited
by Lender on the  principal  amount of the  Obligations  to Lender  (or,  to the
extent that the  principal  amount of the  Obligations  shall have been or would
thereby be paid in full,  refunded by Lender to the  Borrower);  and (ii) in the
event that the  maturity  of the Notes is  accelerated  by reason of an Event of
Default under this  Agreement or otherwise,  or in the event of any  prepayment,
then such consideration that constitutes interest under law applicable to Lender
may never include more than the maximum amount allowed by such  applicable  law,
and excess  interest,  if any,  provided  for in the Notes,  this  Agreement  or
otherwise  shall be  cancelled  automatically  by  Lender as of the date of such
acceleration of prepayment and, if theretofore paid, shall be credited by Lender
on the principal amount of the Obligations (or, to the extent that the principal
amount of such  Obligations  shall  have been or would  thereby be paid in full,
refunded by Lender to the Borrower).




                                       37
<PAGE>

         To the extent that Texas  Finance Code  Section  303.002 is relevant to
Lender for the purposes of  determining  the Highest Lawful Rate, the applicable
rate ceiling under such provisions shall be determined by the indicated (weekly)
rate ceiling from time to time in effect, subject to Lender's right subsequently
to change  such  method  in  accordance  with  applicable  law.  Notwithstanding
anything to the contrary contained herein or in any of the other Loan Papers, it
is not the  intention of the Lender to  accelerate  the maturity of any interest
that has not  accrued at the time of such  acceleration  or to collect  unearned
interest at the time of such acceleration.

         8.6 Severability.  If one or more of the provisions contained herein or
in the Notes or any of the other Loan  Papers  shall,  for any  reason,  be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability  shall not affect any other  provision of this  Agreement,  the
Notes or any of the other Loan Papers.

         8.7 Non-Waiver.  No Advance  hereunder shall constitute a waiver of the
representations,  warranties,  conditions or agreements of Borrower or of any of
the conditions of Lender's obligations to make further Advances.  If Borrower is
unable to satisfy any such representation,  warranty, condition or agreement, no
such  Advance  shall  have the  effect  of  precluding  Lender  from  thereafter
declaring such inability to be an Event of Default as hereinabove provided.

         8.8 Counterparts.  This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts,  each of which
shall be  deemed  to be an  original,  but all of  which  taken  together  shall
constitute one and the same instrument.

         8.9 Amendments and Waivers.  Neither this Agreement,  the Notes nor any
of the  other  Loan  Papers  may be  amended  or waived  orally,  but only by an
instrument  in writing  signed by Borrower  and Lender  (and/or any other person
which is a party to the Loan Paper being amended or waived).

         8.10 Terms and  Headings.  Terms used herein but not defined shall have
the meanings accorded them under generally accepted  accounting  principles,  or
the Texas Uniform Commercial Code, as appropriate.  All headings used herein are
for convenience  and reference  purposes only and shall not affect the substance
of this Agreement.

         8.11 Conflicts.  If there is ever a conflict  between any of the terms,
conditions, representations, warranties or covenants contained in this Agreement
and the terms,  conditions,  representations,  warranties or covenants in any of
the other Loan Papers executed by the Borrower, the provisions of this Agreement
shall govern and control; provided,  however, the fact that any term, condition,
representation,  warranty or covenant  contained in such other Loan Paper is not
contained herein shall not be, or be deemed to be, a conflict.




                                       38
<PAGE>

         8.12  Environmental  Indemnity.   Borrower  hereby  agrees  to  defend,
indemnify, pay and hold Lender and its officers, directors, employees and agents
(each,  an  "Indemnitee")  harmless from and against,  and shall  reimburse each
Indemnitee for, any and all loss, claim, liability,  damages, injunctive relief,
penalty,  judgment,  suit,  obligation,  injury to persons,  property or natural
resources,  cost,  expense  or  disbursement  of any kind or  nature  whatsoever
including,  without  limitation,  attorneys' fees and costs  attributable to any
action or cause of action (whether or not each Indemnitee  shall be designated a
party thereto), arising, directly or indirectly, in whole or in part, out of the
release or presence,  or alleged release or alleged  presence,  or any Hazardous
Substance,  at, on, or under,  surrounding or in connection with any of the real
property  owned or leased by  Borrower  ("Premises"),  or any  portion  thereof,
whether  foreseeable or unforeseeable,  regardless of the source of such release
and regardless of when such release occurred or such presence is discovered. The
foregoing indemnity includes,  without limitation,  all cost in law or in equity
of  removal,  remediation  of  any  kind  and  disposal  of any  such  Hazardous
Substance, all costs of determining whether the Premises are in compliance,  and
causing the Premises to be in compliance,  with all Requirements of Law relating
to  Hazardous  Substances,  all costs  associated  with  claims  for  damages to
persons,  property or natural resources, and each Indemnitee's consultants' fees
(including  attorneys'  fees and  costs) and court  costs.  The  obligations  of
Borrower under this indemnity shall survive the repayment of the Notes and shall
be independent of the  obligations of Borrower to the  Indemnitees in connection
with the Notes.  The rights of each Indemnitee  under this indemnity shall be in
addition to any other rights and remedies of such Indemnitee  under any guaranty
or any document or instrument now or hereafter  executed in connection with this
Agreement, the Notes, the Loan Papers or at law or in equity.

         8.13  Renewal,  Extension  or  Rearrangement.  All  provisions  of this
Agreement  and any of the other Loan  Papers  relating to the Notes or any other
Obligations  shall apply with equal force and effect to each and all  promissory
notes  hereafter  executed  which  in  whole  or in part  represent  a  renewal,
extension  for  any  period,  increase  or  rearrangement  of  any  part  of the
Obligations  originally  represented  by the  Notes  or any  part of such  other
Obligations.

         8.14 Direct Benefit.  The loans hereunder and any additional  loans are
for the direct  benefit of each of the  Borrower  and its  Subsidiaries  and the
loans hereunder will be used by them for general working capital  purposes.  The
Borrower  and  its  Subsidiaries  are  engaged  as an  integrated  group  in the
manufacturing, leasing and financing of industrial equipment and systems for the
oil and gas industry and other  industries,  and any benefits to the Borrower or
any  of  its  Subsidiaries  are a  benefit  to all of  them,  both  directly  or
indirectly,  inasmuch as the successful  operation and condition of the Borrower
and its Subsidiaries is dependent upon the continued  successful  performance of
the functions of the integrated group as a whole.

         8.15  Waivers.  No course of  dealing  on the part of the  Lender,  its
officers,  employees,  consultants  or agents,  nor any  failure or delay by the
Lender with respect to  exercising  any right,  power or privilege of the Lender
under  this  Agreement,  the Notes or any other Loan  paper  shall  operate as a
waiver thereof, except as otherwise provided in Section 8.9 hereof.



                                       39
<PAGE>

         8.16  Cumulative  Rights.  Rights and remedies of the Lender under this
Agreement,  the Notes and the other Loan  Papers  shall be  cumulative,  and the
exercise or partial  exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.

         8.17 Governmental Regulation. Anything contained herein to the contrary
notwithstanding,  the  Lender  shall not be  obligated  to extend  credit to the
Borrower in an amount in violation of any limitation or prohibition  provided by
any applicable statute or regulation.

         8.18  Exhibits.  The exhibits,  annexes and schedules  attached to this
Agreement  are  incorporated  herein  and  shall  be  considered  a part of this
Agreement  for the  purposes  stated  herein,  except  that in the  event of any
conflict  between any of the provisions of such exhibits,  annexes and schedules
and the provisions of this  Agreement,  the  provisions of this Agreement  shall
prevail. All capitalized terms used in such exhibits, annexes and schedules, but
not defined therein, shall have the same meanings as given to such terms in this
Agreement.

         THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE ENTIRE AGREEMENT
BETWEEN  THE  PARTIES  AND  MAY  NOT  BE  CONTRADICTED  BY  EVIDENCE  OF  PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

















                                       40
<PAGE>


         EXECUTED EFFECTIVE as of the date first above written.

                                            BORROWER:


                                            NATURAL GAS SERVICES GROUP, INC.


                                            By: /s/ Wayne L. Vinson
                                               ---------------------------------
                                               Wayne L. Vinson, President


                                            GUARANTORS:


                                            ROTARY GAS SYSTEMS, INC.


                                            By: /s/ Wayne L. Vinson
                                               ---------------------------------
                                                Wayne L. Vinson, President


                                            NGE LEASING, INC.


                                            By: /s/ Wallace C. Sparkman
                                               ---------------------------------
                                               Wallace C. Sparkman, President


                                            GREAT LAKES COMPRESSION, INC.


                                            By: /s/ Ronald D. Bingham
                                               ---------------------------------
                                               Ronald D. Bingham, President


                                            LENDER:

                                            WESTERN NATIONAL BANK


                                            By: /s/ Scott A. Lovett
                                               --------------------------------
                                               Scott A. Lovett, Executive Vice
                                               President


                                       23

<PAGE>





                                    EXHIBIT A

                                       TO

                                 LOAN AGREEMENT

                                     between

                        NATURAL GAS SERVICES GROUP, INC.

                                       and

                              WESTERN NATIONAL BANK


<PAGE>

                           LINE B TERM PROMISSORY NOTE



$2,150,000.00                                                 March 26, 2003

         FOR VALUE  RECEIVED,  in the  manner,  on the dates and in the  amounts
herein  stipulated,  NATURAL GAS SERVICES  GROUP,  INC., a Colorado  corporation
("Borrower"), hereby promises and agrees to pay to the order of WESTERN NATIONAL
BANK, a national banking  association  ("Lender"),  in Midland,  Midland County,
Texas,  the principal  sum of TWO MILLION ONE HUNDRED FIFTY  THOUSAND AND NO/100
DOLLARS  ($2,150,000.00) in lawful money of the United States of America,  which
shall be legal tender in payment of all debts and dues,  public and private,  at
the time of  payment,  together  with  interest on the unpaid  principal  amount
hereof from time to time  outstanding  until  maturity at a rate per annum which
shall  from day to day be  equal to the  lesser  of (a) a rate  per  annum  (the
"Established  Rate")  equal to the greater of (i) one percent  (1.00%)  over the
Prime  Rate in  effect  from day to day,  or (ii)  five and  one-fourth  percent
(5.25%), calculated on the basis of actual days elapsed, but computed as if each
calendar year consisted of 360 days, or (b) the Highest Lawful Rate. Each change
in the rate of interest  charged  under this Line B Term  Promissory  Note (this
"Note") shall, subject to the terms hereof, become effective,  without notice to
Borrower,  upon the  effective  date of each  change  in the  Prime  Rate or the
Highest Lawful Rate, as the case may be.  Notwithstanding  the foregoing,  if at
any time the  Established  Rate  exceeds the Highest  Lawful  Rate,  the rate of
interest  on this Note shall be  limited to the  Highest  Lawful  Rate,  but any
subsequent  reductions  in the  Established  Rate  shall not  reduce the rate of
interest hereon below the Highest Lawful Rate until the total amount of interest
accrued  hereon  approximately  equals the amount of  interest  which would have
accrued hereon if the Established  Rate had at all times been in effect.  In the
event that at maturity (stated or by acceleration),  or at final payment of this
Note,  the total  amount of  interest  paid or  accrued  hereon is less than the
amount of interest which would have accrued if the  Established  Rate had at all
times  been in  effect,  then,  at such  time  and to the  extent  permitted  by
applicable laws,  Borrower shall pay to Lender an amount equal to the difference
between (a) the lesser of the amount of interest which would have accrued if the
Established Rate had at all times been in effect or the amount of interest which
would have  accrued if the Highest  Lawful Rate had at all times been in effect,
and (b) the amount of interest  actually paid or accrued on this Note.  Interest
calculations  may be made ten days prior to any  interest  installment  due date
under this Note, in which event,  if there is an adjustment in the interest rate
in accordance  with the terms hereof during such ten-day  period,  then Borrower
shall subsequently,  on demand, pay to Lender any underpayment,  or Lender shall
pay to  Borrower,  any  overpayment,  as the  case may be,  as a  result  of any
adjustment during such ten-day period.
         This Note is the Line B Term  Promissory  Note referred to in the First
Amend ed and Restated Loan  Agreement,  dated as of March 26, 2003,  (said First
Amended and Restated Loan Agreement, as the same may be amended, supplemented or
otherwise  modified  from  time to time,  the  "Loan  Agreement"),  by and among
Borrower,  the Guarantors  parties thereto and the Lender, and is subject to the
terms  and  conditions  thereof.  Reference  is made to the Loan  Agreement  for
provisions for the  disbursement of funds hereunder and for a further  statement
of the rights, remedies, powers, privileges, benefits, duties and obligations of
Borrower and Lender under the Loan  Agreement  and this Note.  Terms used herein
which are defined in the Loan Agreement shall have such defined  meanings unless
otherwise  defined  herein.  The  holder of this Note shall be  entitled  to the
benefits of the Loan Agreement.


                                        1
<PAGE>

         The  principal of this Note shall be due and payable (a) in  fifty-nine
consecutive  monthly  installments  of  $35,833.00  each,  with the  first  such
installment  being due and  payable on April 15,  2003,  and a like  installment
being due and  payable  on the  fifteenth  day of each  succeeding  month to and
including February 15, 2008; and (b) one final installment in an amount equal to
all  remaining  unpaid  principal  and accrued and unpaid  interest on this Note
shall be due and  payable on March 15,  2008.  Interest,  computed on the unpaid
balance of this Note, shall be due and payable as it accrues,  on the same dates
as,  but in  addition  to, the  installments  of  principal.  All  payments  and
prepayments  shall be applied  first to accrued  and  unpaid  interest,  and the
balance to principal.  Partial  prepayments of principal shall be applied to the
installments of principal thereof in the inverse order of their maturity. All of
the past due principal and accrued  interest  hereunder  shall, at the option of
Lender,  bear interest from maturity (stated or by acceleration) until paid at a
rate per annum equal to the Highest Lawful Rate.

         This Note is secured as provided in the Loan Agreement and in the other
Loan  Papers,  to  which  reference  is  hereby  made for a  description  of the
properties  and assets in which a lien and security  interest has been  granted,
the nature and extent of the security,  the terms and conditions  upon which the
liens and security  interests  were granted and the rights of the holder of this
Note with respect thereto.

         Time is of the essence of this Note.  Upon the occurrence of any one or
more of the Events of Default specified in the Loan Agreement,  all amounts then
remaining  unpaid  on  this  Note  shall  become,  or  may  be  declared  to be,
immediately due and payable, all as provided therein.

         Borrower and any and all co-makers,  endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest, notice
of dishonor, notice of intent to accelerate and notice of acceleration), demand,
presentment for payment,  protest,  diligence in collecting or bringing suit and
the filing of suit for the purpose of fixing  liability,  and  consent  that the
time of payment hereof may be extended and re-extended from time to time without
notice to them or any of them, and each agrees that his, her or its liability on
or with  respect to this Note shall not be affected,  diminished  or impaired by
any (a)  release  of any  security  at any  time  existing  for this  Note,  (b)
substitution for any security at any time existing for this Note, or (c) failure
to perfect (or to maintain  perfection  of) any lien on or security  interest in
any such  security,  in each case in whole or in part,  with or without  notice,
before or after maturity.

         It is the  intention of Borrower  and Lender that Lender shall  conform
strictly  to usury  laws  applicable  to it.  Accordingly,  if the  transactions
contemplated  by the Loan Agreement and this Note would be usurious as to Lender
under laws  applicable to it (including the laws of the United States of America
and the State of Texas or any other  jurisdiction  whose laws may be mandatorily
applicable to Lender  notwithstanding the other provisions of the Loan Agreement
and this Note), then, in that event, notwithstanding anything to the contrary in
this Note, the Loan Agreement or any other Loan Paper or other agreement entered
into in connection  with or as security for this Note,  (i) the aggregate of all


                                        2
<PAGE>

consideration which is contracted for, taken,  reserved,  charged or received by
Lender under this Note,  the Loan Agreement or any other Loan Paper or agreement
entered  into in  connection  with or as  security  for this Note shall under no
circumstances  exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligations to
Lender (or, to the extent that the  principal  amount of the  Obligations  shall
have been or would thereby be paid in full, refunded by Lender to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an Event of Default under the Loan  Agreement or  otherwise,  or in the event of
any prepayment,  then such  consideration  that  constitutes  interest under law
applicable to Lender may never include more than the maximum  amount  allowed by
such applicable law, and excess interest, if any, provided for in this Note, the
Loan Agreement or otherwise shall be cancelled automatically by Lender as of the
date of such  acceleration  or prepayment  and, if  theretofore  paid,  shall be
credited by Lender on the principal amount of the Obligations (or, to the extent
that the principal amount of such  Obligations  shall have been or would thereby
be paid in full, refunded by Lender to the Borrower).

         To the extent that Texas  Finance Code  Section  303.002 is relevant to
Lender for the purposes of  determining  the Highest Lawful Rate, the applicable
rate ceiling under such provisions shall be determined by the indicated (weekly)
rate ceiling from time to time in effect, subject to Lender's right subsequently
to change  such  method  in  accordance  with  applicable  law.  Notwithstanding
anything to the contrary contained herein or in any of the other Loan Papers, it
is not the  intention of the Lender to  accelerate  the maturity of any interest
that has not  accrued at the time of such  acceleration  or to collect  unearned
interest at the time of such acceleration.

         This Note is performable and payable in the County of Midland, State of
Texas,  and shall be construed in accordance  with, and governed by, the laws of
the State of Texas;  provided,  however,  that the laws  pertaining to allowable
rates of interest  may, from time to time, be governed by the laws of the United
States of America.


                                                NATURAL GAS SERVICES GROUP, INC.


                                                By:
                                                   -----------------------------
                                                   Wayne L. Vinson, President




                                       3
<PAGE>









                                    EXHIBIT B

                                       TO

                                 LOAN AGREEMENT

                                     between

                        NATURAL GAS SERVICES GROUP, INC.

                                       and

                              WESTERN NATIONAL BANK


<PAGE>


                    REVOLVING LINE OF CREDIT PROMISSORY NOTE


$750,000.00       March 26, 2003

         FOR VALUE  RECEIVED,  in the  manner,  on the dates and in the  amounts
herein  stipulated,  NATURAL GAS SERVICES  GROUP,  INC., a Colorado  corporation
("Borrower"), hereby promises and agrees to pay to the order of WESTERN NATIONAL
BANK, a national banking  association  ("Lender"),  in Midland,  Midland County,
Texas,  the principal sum of SEVEN  HUNDRED  FIFTY  THOUSAND AND NO/100  DOLLARS
($750,000.00)  or, if less, the aggregate unpaid  principal  amount  outstanding
hereunder  from time to time,  in lawful money of the United  States of America,
which  shall be legal  tender in  payment  of all debts  and  dues,  public  and
private, at the time of payment,  together with interest on the unpaid principal
amount hereof from time to time  outstanding  until maturity at a rate per annum
which  shall from day to day be equal to the lesser of (a) a rate per annum (the
"Established  Rate")  equal to the greater of (i) one percent  (1.00%)  over the
Prime  Rate in  effect  from day to day,  or (ii)  five and  one-fourth  percent
(5.25%), calculated on the basis of actual days elapsed, but computed as if each
calendar year consisted of 360 days or (b) the Highest Lawful Rate.  Each change
in the rate of interest  charged under this Revolving Line of Credit  Promissory
Note (this "Note") shall, subject to the terms hereof, become effective, without
notice to Borrower,  upon the effective date of each change in the Prime Rate or
the Highest Lawful Rate, as the case may be.  Notwithstanding the foregoing,  if
at any time the  Established  Rate exceeds the Highest  Lawful Rate, the rate of
interest  on this Note shall be  limited to the  Highest  Lawful  Rate,  but any
subsequent  reductions  in the  Established  Rate  shall not  reduce the rate of
interest hereon below the Highest Lawful Rate until the total amount of interest
accrued  hereon  approximately  equals the amount of  interest  which would have
accrued hereon if the Established  Rate had at all times been in effect.  In the
event that at maturity (stated or by acceleration),  or at final payment of this
Note,  the total  amount of  interest  paid or  accrued  hereon is less than the
amount of interest which would have accrued if the  Established  Rate had at all
times  been in  effect,  then,  at such  time  and to the  extent  permitted  by
applicable laws,  Borrower shall pay to Lender an amount equal to the difference
between (a) the lesser of the amount of interest which would have accrued if the
Established Rate had at all times been in effect or the amount of interest which
would have  accrued if the Highest  Lawful Rate had at all times been in effect,
and (b) the amount of interest  actually paid or accrued on this Note.  Interest
calculations  may be made ten days prior to any  interest  installment  due date
under this Note, in which event,  if there is an adjustment in the interest rate
in accordance  with the terms hereof during such ten-day  period,  then Borrower
shall subsequently,  on demand, pay to Lender any underpayment,  or Lender shall
pay to  Borrower,  any  overpayment,  as the  case may be,  as a  result  of any
adjustment during such ten-day period.

         This Note is given in renewal and extension,  but not in extinguishment
or novation,  of that certain  Revolving Line of Credit  Promissory  Note, dated
April 3, 2002,  in the  original  principal  amount of  $750,000.00,  and is the
Revolving  Line of Credit  Promissory  Note referred to in the First Amended and
Restated  Loan  Agreement,  dated as of March 26, 2003 (said  First  Amended and
Restated Loan Agreement,  as the same may be amended,  supplemented or otherwise
modified from time to time, the "Loan  Agreement"),  by and among Borrower,  the
Guarantors  parties  thereto  and the  Lender,  and is  subject to the terms and
conditions  thereof.  Reference is made to the Loan Agreement for provisions for
the  disbursement of funds hereunder and for a further  statement of the rights,
remedies, powers,  privileges,  benefits, duties and obligations of Borrower and
Lender  under the Loan  Agreement  and this Note.  Terms used  herein  which are
defined in the Loan Agreement shall have such defined  meanings unless otherwise
defined herein. The holder of this Note shall be entitled to the benefits of the
Loan Agreement.

<PAGE>

         Advances  and  Subsequent  Advances  under  this Note  shall be made in
accordance  with the  provisions  of the Loan  Agreement.  Subject  to the terms
hereof and of the Loan Agreement, Borrower may borrow, repay and reborrow at any
time  and  from  time to time  under  this  Note;  provided,  however,  that the
principal  sum  outstanding  hereunder  at any one time shall  never  exceed the
lesser of (i) $750,000.00 or (ii) the Borrowing Base then in effect.

         Interest on the outstanding principal balance of this Note shall be due
and payable  monthly on the  fifteenth day of each month,  commencing  April 15,
2003. The then  outstanding  principal  balance of this Note and all accrued and
unpaid  interest shall be due and payable on March 15, 2004. All of the past due
principal and accrued interest  hereunder  shall, at the option of Lender,  bear
interest  from  maturity  (stated or by  acceleration)  until paid at a rate per
annum equal to the Highest Lawful Rate.

         This Note is secured as provided in the Loan Agreement and in the other
Loan  Papers,  to  which  reference  is  hereby  made for a  description  of the
properties  and assets in which a lien and security  interest has been  granted,
the nature and extent of the security,  the terms and conditions  upon which the
liens and security  interests  were granted and the rights of the holder of this
Note with respect thereto.

         Time is of the essence of this Note.  Upon the occurrence of any one or
more of the Events of Default specified in the Loan Agreement,  all amounts then
remaining  unpaid  on  this  Note  shall  become,  or  may  be  declared  to be,
immediately due and payable, all as provided therein.

         Borrower and any and all co-makers,  endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest, notice
of dishonor, notice of intent to accelerate and notice of acceleration), demand,
presentment for payment,  protest,  diligence in collecting or bringing suit and
the filing of suit for the purpose of fixing  liability,  and  consent  that the
time of payment hereof may be extended and re-extended from time to time without
notice to them or any of them, and each agrees that his, her or its liability on
or with  respect to this Note shall not be affected,  diminished  or impaired by
any (a)  release  of any  security  at any  time  existing  for this  Note,  (b)
substitution for any security at any time existing for this Note, or (c) failure
to perfect (or to maintain  perfection  of) any lien on or security  interest in
any such  security,  in each case in whole or in part,  with or without  notice,
before or after maturity.

         It is the  intention of Borrower  and Lender that Lender shall  conform
strictly  to usury  laws  applicable  to it.  Accordingly,  if the  transactions
contemplated  by the Loan Agreement and this Note would be usurious as to Lender
under laws  applicable to it (including the laws of the United States of America
and the State of Texas or any other  jurisdiction  whose laws may be mandatorily
applicable to Lender  notwithstanding the other provisions of the Loan Agreement
and this Note), then, in that event, notwithstanding anything to the contrary in
this Note, the Loan Agreement or any other Loan Paper or other agreement entered
into in connection  with or as security for this Note,  (i) the aggregate of all
consideration which is contracted for, taken,  reserved,  charged or received by
Lender under this Note,  the Loan Agreement or any other Loan Paper or agreement
entered  into in  connection  with or as  security  for this Note shall under no
circumstances  exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligations to
Lender (or, to the extent that the  principal  amount of the  Obligations  shall
have been or would thereby be paid in full, refunded by Lender to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason of
an Event of Default under the Loan  Agreement or  otherwise,  or in the event of
any prepayment,  then such  consideration  that  constitutes  interest under law
applicable to Lender may never include more than the maximum  amount  allowed by
such applicable law, and excess interest, if any, provided for in this Note, the
Loan Agreement or otherwise shall be cancelled automatically by Lender as of the
date of such  acceleration  or prepayment  and, if  theretofore  paid,  shall be
credited by Lender on the principal amount of the Obligations (or, to the extent
that the principal amount of such  Obligations  shall have been or would thereby
be paid in full, refunded by Lender to the Borrower).

<PAGE>

         To the extent that Texas  Finance Code  Section  303.002 is relevant to
Lender for the purposes of  determining  the Highest Lawful Rate, the applicable
rate ceiling under such provisions shall be determined by the indicated (weekly)
rate ceiling from time to time in effect, subject to Lender's right subsequently
to change  such  method  in  accordance  with  applicable  law.  Notwithstanding
anything to the contrary contained herein or in any of the other Loan Papers, it
is not the  intention of the Lender to  accelerate  the maturity of any interest
that has not  accrued at the time of such  acceleration  or to collect  unearned
interest at the time of such acceleration.

         This Note is performable and payable in the County of Midland, State of
Texas,  and shall be construed in accordance  with, and governed by, the laws of
the State of Texas;  provided,  however,  that the laws  pertaining to allowable
rates of interest  may, from time to time, be governed by the laws of the United
States of America.


                                                NATURAL GAS SERVICES GROUP, INC.



                                                By:
                                                   -----------------------------
                                                   Wayne L. Vinson, President