PRODUCT SALES AGREEMENT

     This  Product  Sales  Agreement ("Agreement") is made and entered into this
23rd  day  of  February 2000, by and between Penn Octane Corporation, a Delaware
corporation  ("Penn  Octane"),  and Koch Hydrocarbon Company, a division of Koch
Industries,  Inc.,  a  Kansas  corporation  ("Koch").

     WHEREAS,  Koch  purchases  from its affiliate the entire Propane production
from  the  Koch  Refinery;  and

     WHEREAS,  Penn Octane desires to purchase from Koch all of the Propane Koch
purchases  from  its  affiliate  from  the  Koch  Refinery;  and

     WHEREAS,  Koch  and  Penn  Octane desire to enter into an agreement for the
sale  of  such  Propane  on  the  terms  and  conditions  set  forth  below.

     NOW,  THEREFORE,  in  consideration  of  the  mutual covenants and premises
contained herein, and for other good and valuable consideration, the sufficiency
and  receipt  of  which  is  hereby  acknowledged, Koch and Penn Octane agree as
follows:

     1.     Definitions.  For  purposes  of  this  Agreement,  the  following
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            definitions  shall  apply:

     (a) "Barrel" shall mean forty-two (42) U.S. Gallons.
     (b)  "Coastal  Delivery Point" shall mean the  interconnection  in the Koch
          Refinery   between   Coastal's   Corpus   Christi   pipeline  and  the
          propane/propylene pipeline owned by Koch's affiliate.
     (c)  "Contract Year" shall mean each 12 Month period  beginning on April 1,
          2000.
     (d)  "Delivery  Point(s)" shall mean, as specified in Section 4 below,  (i)
          the Exxon Delivery  Point,  (ii) the Coastal  Delivery Point, or (iii)
          the New Exxon Connection.
     (e)  "Delivery Point Meter(s)" shall mean the meters maintained for custody
          transfer purposes at or near the Delivery Point(s) specified above.
     (f)  "Exxon  Delivery  Point"  shall mean the  interconnection  between the
          Exxon  propane  pipeline at the Viola valve  station and the propylene
          pipeline owned by Koch's affiliate.
     (g)  "Gallon"  shall  mean a U.S.  Gallon of 231 cubic  inches or  0.133681
          cubic  feet of  liquid at sixty  (60)  degrees  Fahrenheit  and at the
          equilibrium vapor pressure of the liquid.
     (h)  "Month" shall mean a period  commencing at 12:01 a.m. CST on the first
          day of a calendar  month and ending at 12:01 a.m. CST on the first day
          of the next succeeding calendar month.
     (i)  "Party" or "Parties"  shall mean Koch and/or Penn Octane  individually
          or collectively as the context demands.
     (j)  "Propane" shall mean the API specifications for HD5 propane.


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     (k)  "Koch Refinery" shall mean the refinery owned by Koch Petroleum Group,
          L.P. located near Corpus Christi, Texas.

     2.     Commitment.  Subject  to  the provisions herein, Koch shall sell and
            ----------
deliver,  and  Penn Octane shall purchase and receive, a volume of Propane equal
to the Propane purchased by Koch from its affiliate from the Koch Refinery.  The
estimated  amount of such Propane is 6,500 Barrels per day.  Notwithstanding the
foregoing, the maximum daily volume delivered shall not exceed 7,000 Barrels per
day  unless  otherwise  agreed  by  the  Parties.  The  Parties  understand  and
expressly  agree that Koch is under no obligation to sell or deliver any minimum
quantity  of  Propane  to Penn Octane pursuant to this Agreement or to cause its
affiliate  to  operate the Koch Refinery or otherwise produce Propane.  However,
the Parties understand and expressly agree that if Koch's affiliate produces any
Propane  from  the  Koch  Refinery  and  Koch purchases such Propane, Koch shall
deliver  such  Propane  under  the  provisions  of  this  Agreement.

     3.     Term.  This  Agreement  shall  be  effective,  regardless  of  when
            ----
executed,  as of April 1, 2000 and shall continue until March 30, 2003 ("Primary
Term")  and  thereafter  from  year-to-year  unless  and  until (i) either Party
terminates  the  Agreement  by  providing  written  notice to the other at least
ninety  (90) days prior to the expiration of the Primary Term or any anniversary
of  the  expiration  of  the  Primary  Term or (ii) this Agreement is terminated
pursuant  to  Section  5.

     4.     Delivery  Points.  Koch  shall deliver the Propane sold hereunder to
            ----------------
the Exxon Delivery Point.  If the New Exxon Connection (defined in Section 5(c))
is  built  during  the term of this Agreement, Koch shall deliver the Propane to
the  New  Exxon  Connection  in  lieu of the Exxon Delivery Point.  If the Exxon
Delivery Point or New Exxon Connection, as applicable, is unable or unwilling to
accept  all  or  a portion of the Propane for any reason, Koch shall deliver the
Propane  not  accepted to the Coastal Delivery Point.  Koch shall use reasonable
efforts  to  make  deliveries  to  the  Exxon  Delivery  Point  or the New Exxon
Connection,  as  applicable,  prior  to  initiating  deliveries  to  Coastal.

     5.
          (a)     Price.  Subject  to  the following, for each Gallon of Propane
                  -----
     delivered  hereunder,  Penn  Octane  shall pay  Koch an amount equal to the
     following ("Sale Price"): (i) the monthly average of the daily high and low
     postings per Gallon as published by OPIS for Mont Belvieu TET Propane, xxxx
     (ii)  xxxxxxxxxxx.  The  Parties  recognize  that  Penn  Octane  shall  be
     responsible for any tariff rate, charge, penalty or fee  incurred  for  the
     transportation  on Coastal's Corpus Christi  pipeline.  If  Koch  pays such
     rates, charges, penalties or fee for the Propane delivered hereunder,  Penn
     Octane shall reimburse Koch for such costs.

          (b)     Third  Party  Offer.  Notwithstanding  the  foregoing, if Koch
                  -------------------
     receives a bona fide offer from a third party ("Offer") for the purchase of
     the Propane  sold  hereunder  for similar quantity and term during the next
     Contract  Year  at  a price more than the Sale Price, Koch may provide Penn
     Octane  a  copy  of  the  Offer  on or before the December 31 preceding the
     Contract  Year  at  issue.  If Penn Octane agrees to the price set forth in


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     the Offer prior to the March 1 preceding the Contract  Year  at  issue, the
     Sale  Price shall be changed to the price set forth  in  the  Offer for the
     applicable Contract Year.  If Penn Octane does not agree to  the  price set
     forth in the Offer prior to March 1 and Koch elects to accept  such  Offer,
     this  Agreement  shall  terminate  at the end of the Contract Year in which
     Koch  provided  notice  of  the  Offer.  Provided, however, notwithstanding
     the  foregoing,  if Koch completes construction of the New Exxon Connection
     during  the  first  Contract  Year  as described below, Koch cannot provide
     Penn  Octane  with  an  Offer  which  would  be  applicable  to  the second
     Contract  Year.

          (c)     New  Exxon  Connection.  Koch  and  its  affiliate  are
                  ----------------------
     investigating  the  feasibility  of  the  construction  of  a  new pipeline
     interconnection  ("New  Exxon  Connection")  between  the Koch Refinery and
     Exxon's 12-inch propane pipeline at Exxon's Viola valve station.  At Koch's
     option,  if  Koch  or  its  affiliate begins construction of this New Exxon
     Connection  during the  first  six months of the Primary Term and completes
     construction  by the end of  the first Contract Year, Penn Octane shall pay
     Koch,  for  the first 2,300,000 barrels  of  Propane,  xxxxxxxxxxx for each
     Gallon delivered hereunder up to the beginning  on  the  date the New Exxon
     Connection is operational, in addition to any other charges due hereunder

     6.     Title; Risk of Loss.  Title to and risk of loss of the Propane shall
            -------------------
pass  from  Koch  to  Penn  Octane  as the Propane passes the flange connections
between  the  delivery  and  receiving  pipeline  at the Delivery Point(s). Penn
Octane shall own and have control, custody, and possession of the Propane, shall
bear  all costs and risks of transporting same, and shall be responsible for any
damage,  loss  or  injury  caused thereby after Koch delivers the Propane at the
Delivery  Point(s).  Penn  Octane  shall  inspect  the Propane immediately after
delivery.  Penn  Octane's  failure  to  give written notice to Koch of any claim
within  fifteen  (15) days from date of delivery shall constitute an unqualified
acceptance  of  such  product  and  a  waiver  by Penn Octane of all claims with
respect  thereto.

     7.     Measurement.  The  quantities  of  Propane  delivered to Penn Octane
            -----------
shall  be  determined  by  the Delivery Point Meter(s).  All quantities shall be
corrected  to  standard  conditions  of  sixty  (60)  degrees  Fahrenheit  and
equilibrium  vapor  pressure  in  accordance  with  the  API Manual of Petroleum
Measurement  Standards.

     8.     Warranties.     Koch  warrants that:  (a) at the time the Propane is
            ----------
delivered  to  the  Delivery  Point(s), the Propane will meet the specifications
required  herein;  and  (b)  Koch  has  good  title  to  the Propane at delivery
hereunder.  KOCH EXTENDS NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR  PURPOSE.  WITHOUT  LIMITATION  OF  THE FOREGOING SENTENCE, ALL OTHER
WARRANTIES  OF  KOCH,  EXPRESSED  OR  IMPLIED,  ARE  EXCLUDED.

     9.     Payment.  Penn  Octane shall remit all sums due Koch pursuant to any
            -------
invoice  within  ten  (10)  business days after the date of the invoice.  Should
Penn Octane fail to pay all or any part of any invoice when due, interest on the
outstanding  balance  shall  accrue  from the date due until the date payment is
received  by  Koch  at the lesser of (i) the Chase Manhattan prime lending rate,
plus  two  percent  (2%) per annum, or (ii) the maximum interest rate allowed by
law.  Any  invoice shall be final as to the Parties unless questioned in writing
within 2 years after payment has been made thereon.  If Penn Octane fails to pay
all  or  any  part  of  any invoice, it shall not be in breach of this provision
until  five  (5)  days  after  receiving  notice  from Koch of such non-payment.


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     10.     Taxes.  Penn  Octane  shall  be  responsible  for  all  other taxes
             -----
imposed or levied by a governmental agency upon or after the delivery of Propane
at  the  Delivery Point(s).  If Koch pays or remits a tax which is Penn Octane's
responsibility,  Penn  Octane shall reimburse Koch for such taxes within 10 days
after  the  date of Koch's invoice.  If Penn Octane is exempt from paying a tax,
it  shall  provide  Koch  with  a  certificate  evidencing  the  exemption.

     11.     Letter  of  Credit.  For  the  term  of this Agreement, Penn Octane
             ------------------
shall  obtain  and maintain an irrevocable, standby letter of credit in a format
satisfactory to Koch and issued by a bank acceptable to Koch.  Penn Octane shall
provide Koch's Credit Department, at the address below, this letter of credit at
least  3  business  days  prior  to  any  delivery  hereunder.

         Kevin  Shelton
         Koch  Industries,  Inc.
         4111  East  37th  Street,  North
         Wichita,  KS  67220  USA
         Phone:  (316)  828-6907
         Fax:  (316)  828-4509
         Telex:  417376

     12.     Force  Majeure.  Notwithstanding  any  other  provision  in  this
             --------------
Agreement,  no  failure  to  carry  out or observe any of the provisions of this
Agreement,  except  the obligation to pay money when due, shall give rise to any
claim  against  either  Party  or  be  deemed a breach of this Agreement if such
failure or omission arises from an event of Force Majeure. "Force Majeure" shall
mean  any cause or causes reasonably beyond the control of either Party or which
either  Party  is  unable  to  prevent or overcome by the exercise of reasonable
diligence.  Without  limiting  the  generality  of  the foregoing, the following
shall  be  deemed  to  be events of Force Majeure: (a) acts of God or the public
enemy,  fire,  explosion, storms, flood, war, riot, sabotage, accident, embargo;
or  (b)  interruption  of  or  delay  in  transportation,  lack  of  capacity on
pipelines,  inadequacy, shortage or failure of a Party's normal source of supply
of product, breakdowns, labor trouble from whatever cause arising and whether or
not the demands of the employees involved are reasonable and within said party's
power to concede; or (c) compliance with any order, action, direction or request
of any governmental officer, department, agency, authority or committee thereof,
including  any  direction  or order restricting or limiting the selling price of
the  Propane  which  renders  it impossible for Koch, in its sole discretion, to
make  a  reasonable  profit  on  such  sale.

In the event either Party hereto is rendered unable, by reason of Force Majeure,
to  carry  out  in  whole or in part its obligations under this Agreement, other
than the obligation to make payments due hereunder, that Party shall give notice
of the Force Majeure event in writing or by facsimile to the other Party as soon
as  possible after the occurrence of the event. The obligations of the notifying
Party  shall,  insofar  as they are affected by such Force Majeure, be suspended
during the continuance of any inability so caused, but for no longer period, and
such  cause shall, as far as possible, be remedied with all reasonable dispatch;
provided,  however,  that  the  settlement  of  strikes,  lockouts  and  labor
difficulties  shall  be solely within the discretion of the Party claiming Force
Majeure.


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     13.     Indemnity.  Penn  Octane  shall  indemnify  and  hold  Koch and its
             ---------
affiliates  harmless  from  any  claim, demand, lawsuit, cause of action, strict
liability  claim, penalty, fine, or administrative law action or order, and from
expenses  (including but not limited to attorneys' fees) and costs of every kind
and  character  on  account  of personal injuries, death, damage to property, or
damage  to  the  environment  and arising out of or related to Penn Octane's, or
Penn  Octane's  employees',  agents', contractors', or carriers' transportation,
use,  handling, re-sale, misuse, or disposal of the Propane purchased hereunder,
or  arising  out  of  or  in  any  way incident to the use or misuse of pipeline
facilities  in  which  the  Propane  is  transported or stored subsequent to the
passage  of  title  to  the  Propane  from  Koch to Penn Octane hereunder.  Penn
Octane's duty to indemnify and hold harmless hereunder shall survive termination
of  this Agreement or the cessation of business transactions between Penn Octane
and  Koch.

     14.     Unsafe  Conditions.  Koch  reserves  the  sole  right to reject any
             ------------------
pipelines  presented  for  transportation  which  would  present  an  unsafe  or
potentially  unsafe  situation.  In  addition,  Koch  reserves the sole right to
refuse  to  deliver  any  product under any conditions it deems unsafe, which is
caused  by,  including  but  not  limited to,  personnel, equipment, procedures,
and/or  weather  conditions.

     15.     Limitation  of  Remedies.  Koch's  liability,  and  Penn  Octane's
             ------------------------
exclusive  remedy,  for  any  cause  of  action  (whether in contract, warranty,
guarantee,  failure  of  essential  purpose,  tort,  violation  of  law,  strict
liability or otherwise) arising out of or related to this Agreement is expressly
limited, at Koch's option, to:  (a) replacement of nonconforming product; or (b)
payment  of  the  Sale  Price  allocable  to  the  Propane  determined  to  be
nonconforming.  IN  NO  EVENT  SHALL KOCH'S CUMULATIVE LIABILITY HEREUNDER BE IN
EXCESS  OF  THE  TOTAL SALES PRICE AT THE DELIVERY POINT.  WITHOUT LIMITATION OF
ANY  OTHER PROVISION HEREIN, KOCH SHALL NOT BE OBLIGATED FOR LOST PROFITS OR ANY
SPECIAL,  INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES. PENN OCTANE REPRESENTS
AND  AGREES  THAT  THE  RETURN OF THE FULL SALES PRICE BY KOCH SHALL PREVENT THE
FOREGOING  REMEDIES  FROM  FAILING  OF  THEIR  ESSENTIAL  PURPOSE, AND THAT SUCH
REMEDIES  ARE  FAIR  AND  ADEQUATE.

     16.     Odorization. PENN OCTANE ACKNOWLEDGES AND AGREES THAT KOCH WILL NOT
             -----------
STENCH  THE  PROPANE SOLD HEREUNDER, AND THAT KOCH IS UNDER NO OBLIGATION, LEGAL
OR  OTHERWISE,  TO  DO  SO.  TO THE FULLEST EXTENT PERMITTED BY LAW, PENN OCTANE
AGREES  TO  INDEMNIFY AND HOLD HARMLESS KOCH AND ITS AFFILIATES FROM AND AGAINST
ANY  CLAIM,  ACTION,  CAUSE OF ACTION OR ADMINISTRATIVE OR ENFORCEMENT ACTION OF
ANY  KIND,  OR  ANY  CLAIMED LIABILITY, LOSS, DAMAGE OR EXPENSE, ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THE LACK OF STENCHING OF THE PROPANE.  Penn Octane
hereby  certifies  that  stenching  or  odorization  of  the Propane will (1) be
harmful  to its use or further processing; and (2) serves no useful purpose as a
warning agent in such use or further processing.  Penn Octane further represents
and  acknowledges  that  it  is  familiar  with  and  knowledgeable of the legal


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requirements  regarding  odorization,  and that Penn Octane will comply with all
such  requirements.  Penn  Octane  grants  to  Koch the right, in its reasonably
exercised discretion, to conduct such inquiries, audits, and other activities as
may  be  reasonably  necessary  to  verify  the  accuracy  of  the  foregoing
certifications  and  representations.

     17.     Warnings.  Penn  Octane acknowledges receipt of the Material Safety
             --------
Data  Sheet  for  the Propane, and has reviewed and understands the warnings and
information  regarding  the characteristics and hazards of handling or using the
Propane  contained  therein  and  otherwise  set  forth  in this Agreement.  The
Parties  acknowledge and agree that Koch has no practical or effective method of
warning  Penn  Octane's  customers  of  the  characteristics  and hazards of the
Propane,  and  that  Koch is under no obligation to provide any such warnings or
other  product  information  to  any  such  downstream  purchasers.  Penn Octane
warrants  and  represents  that it is capable of communicating such warnings and
information, and that Penn Octane will communicate such warnings and information
to  all  persons Penn Octane reasonably anticipates handling, using or otherwise
coming into contact with the Propane, including without limitation, warnings and
information  regarding  the  odorization  of  the  Propane.

     18.     Hazardous Materials.  If, and to the extent, Penn Octane transports
             -------------------
hazardous materials (as listed in the Tables of 49 C.F.R. 172.101 and 172.102 as
amended  from  time  to  time)  pursuant  to  this Agreement, Penn Octane hereby
warrants  that  all  hazardous materials shall be prepared for transportation in
compliance  with  all  applicable  federal,  state  and  local  laws,  rules and
regulations  regarding  the  handling and transportation of hazardous materials.
Penn  Octane  shall  indemnify  and  defend Koch from all liability, of whatever
nature, to which Koch may become subject as a result of Penn Octane's failure to
comply  therewith.

     19.     Law  and  Jurisdiction.  This  Agreement  shall  be  governed  by,
             ----------------------
construed  and  enforced  in  accordance  with  the laws of the State of Kansas,
without  regard  to principles of conflicts of law. The Parties agree that venue
is  to  be  Wichita,  Kansas.  This Agreement shall be subject to all applicable
laws,  rules, regulations and orders of any governmental agency or tribunal with
jurisdiction over the Parties or the subject matter hereof.  If any provision of
this  Agreement  is  held  to  be  invalid,  illegal or unenforceable, all other
provisions  shall  remain  valid,  effective  and  fully  enforceable.

     20.     Notices.  All notices, reports and other communications required or
             -------
permitted  hereunder  shall  be  deemed properly given if in writing and sent by
registered  or  certified mail, with all postage or charges fully prepaid, or by
facsimile  to  the  other  Party  at  the  address(es)  stated  below.

       PENN  OCTANE:                         KOCH:
       Penn  Octane Corporation                       Koch  Hydrocarbon Company
       1110  Kingwood  Drive,  Suite  200  L          P.O.  Box  2256
       Kingwood,  TX  77339                           Wichita, Kansas 67201-2256
       Attn:  VP  Gas  Liquids                        Attn:  NGL  Accounting
       Fax  No.:  (281)  359-4587                     Fax  No.:  (316)  828-7972


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Notices  of  change  of address of either Party shall be given in writing to the
other  in  accordance  with  this  section.

     21.     Third  Party Beneficiaries.  There are no third-party beneficiaries
             --------------------------
to  this Agreement, and the provisions of this Agreement shall not impart rights
enforceable  by  any person, firm or organization not a Party or not a successor
or  assignee  of  a  Party  to  this  Agreement.

     22.     Joint  Action.  This Agreement was prepared jointly by the Parties,
             -------------
and  not  by  either  Party  to  the  exclusion  of  the  other.

     23.     Assignment.  Neither  this  Agreement nor any interest herein shall
             ----------
be  assigned  by  either  Party  without  the prior written consent of the other
Party;  provided  that  consent  to  an  assignment  shall  not  be unreasonably
withheld.  Any assignment made in contravention of this section shall be void at
the  option  of  the  other  Party.

     24.     Titles.  The numbering and titling of particular provisions of this
             ------
Agreement  are  solely  for convenience of reference and shall have no effect on
the  interpretation  or  construction  of  this  Agreement.

     25.     Counterparts.  This  Agreement  may  be  executed  in  multiple
             ------------
counterparts  and  by  different Parties on separate counterparts, each of which
when  so  executed  shall  be  deemed  to be an original and all of which, taken
together,  shall  constitute  one  agreement.

     26.     Entire Agreement. No statements or agreements, oral or written, not
             ----------------
contained  herein or in a future amendment hereto executed by both Parties shall
vary  or  modify  the  terms  hereof.  Neither Party shall claim any amendments,
modifications  or  release  from  any  provisions  hereof  unless the same is in
writing signed by each of the Parties hereto and specifically states the same is
an  amendment  to  this  Agreement.

     27.     Waiver.  Notwithstanding  any other provision of this Agreement, no
             ------
waiver  by  either Party of any breach or default in performance of any covenant
herein by the other Party shall operate or be construed as a waiver of any other
breach  or  default,  whether  of  a  like or different character, nor shall any
failure  to exercise any right hereunder be considered a waiver of such right in
the  future.

     IN  WITNESS  WHEREOF, the Parties hereto have executed this Agreement as of
the  23rd day  of  February  2000.

PENN  OCTANECORPORATION                 KOCH  HYDROCARBON  COMPANY,
                                        a  division  of  Koch  Industries,  Inc.

By:                                     By:
   -------------------------------         -------------------------------
Printed  Name:                          Printed  Name:
Title:                                  Title:


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