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                                                                EXHIBIT (10)(nn)


                            ASSET PURCHASE AGREEMENT

         THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this 22nd day
of September, 1999, by and among Howell Drilling, Inc., a Texas corporation
(hereinafter called "Seller") and South Texas Drilling & Exploration, Inc., a
Texas corporation (hereinafter called "Purchaser").


                                   WITNESSETH:

         WHEREAS, Seller owns two drilling rigs (designated as Rig 1 and Rig 2)
and is engaged in the land contract drilling business (the "Drilling Business");
and

         WHEREAS, Purchaser is desirous of purchasing from the Seller the assets
of Seller used in Seller's Drilling Business, including Rig 1 and Rig 2.

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

         1. Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, Seller shall sell, transfer and assign to
Purchaser and Purchaser shall purchase and acquire from Seller on the Closing
Date (as hereinafter defined), all of Seller's right, title, interest and
benefit in and to the assets, properties, and rights used in connection with the
operation of Seller's Drilling Business which are described below (the
"Assets"), free and clear and expressly excluding all debts, liabilities,
obligations, taxes, liens and encumbrances of any kind, character or
description:

                  (a) All of the Seller's drilling rigs and related equipment
         (the "Drilling Equipment") (the Drilling Equipment described on
         Schedule 1(a) are designated appropriately as either Rig 1 Assets or
         Rig 2 Assets, as the case may be), inventory and supplies of Seller
         (the "Inventory"), Seller's equipment ordinarily kept in its yard in
         Halletsville, Texas ("Yard Equipment"), Seller's vehicles relating to
         the Drilling Business ("Vehicles"), and the separator which is
         currently leased by Seller but which will be purchased by Seller prior
         to the Closing (as hereinafter defined), all of which are described on
         Schedule 1(a);

                  (b) Seller's office equipment related to the Drilling
         Business, and all support, maintenance, warranty, and similar
         agreements relating to such personal property (the "Office Equipment")
         described on Schedule 1(b);

                  (c) Only those contracts, agreements and commitments of Seller
         under which Seller has agreed or hereafter agrees (as set forth in
         Section 8(c) below) to perform land contract drilling for any third
         party which are set forth on Schedule 1(c) and which have not been
         performed, in whole or in part, as of the Closing (the "Drilling
         Contracts"), all of which shall be expressly assumed by Purchaser by
         written instrument at the Closing. In the event (i) of any adverse
         change with respect to any Drilling Contract which occurs at



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         any time before Closing or (ii) any Drilling Contract entered into
         after the date hereof and added to Schedule 1(c) pursuant to Section
         8(e) shall contain terms and conditions, taken as a whole, that are not
         as favorable in any material respect as those contained in the other
         Drilling Contracts listed in Schedule 1(c) as reasonably determined by
         Purchaser, then Purchaser shall have the right to terminate this
         Agreement by giving written notice to such effect to Seller.
         Notwithstanding the foregoing provisions of this Section 1(c), if
         Seller commences performance under any such Drilling Contract prior to
         the Closing, such Drilling Contract shall be deemed to have been
         deleted from Schedule 1(c), shall not be assigned to or assumed by
         Purchaser and shall be performed by Sellers, for its own account,
         pursuant to the Lease Agreement (as hereinafter defined);

                  (d) Those contracts, agreements and commitments of Seller set
         forth on Schedule 1(d) (the "Ancillary Agreements"), all of which shall
         be expressly assumed by Purchaser by written instrument at Closing;

                  (e) Seller's business records which relate to the Drilling
         Business as conducted by Seller during the past four years, including
         but not limited to personnel records, manuals, drilling files, well
         files, insurance files, bit record files, customer lists, drilling
         reports, maintenance records and supplier lists (collectively,
         "Business Records"); provided, however, Seller shall have the right to
         reasonable access to, and to copy, such records for a period of four
         years following the Closing Date; and, provided further, however, that
         such business records shall not include records, reports or other
         information relating to Seller's drilling activities in the
         Halletsville Field.

                  (f) All personal property acquired after the date of this
         Agreement but prior to Closing by Seller relating to the Drilling
         Business, all of which shall be included in the appropriate Schedules
         at the time of acquisition.

         The term "Assets" does not include, and Seller is not selling to
Purchaser, any cash or cash equivalents, deposits, accounts receivable,
trademarks, service marks or tradenames of Seller, any interests of Seller in
oil and gas properties or any other property or assets of Seller not described
above.

         2. Assumption of Liabilities. Except for (i) the obligations and
liabilities arising after Closing under the Drilling Contracts and the Ancillary
Agreements and (ii) property taxes relating to the Assets after taking into
account appropriate prorations thereof as provided in Section 11(a) hereof,
(collectively, the "Assumed Liabilities"), Purchaser does not and shall not
assume or be responsible for any obligation or liability of Seller whatsoever.

         3. Consideration.

                  (a) Based on the representations, warranties and agreements
         contained herein and subject to the terms and conditions set forth
         herein, Purchaser shall purchase, and Seller agrees to sell, assign,
         transfer and vest in Purchaser, the Assets for a total cash



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         consideration of Two Million Five Hundred Thousand Dollars
         ($2,500,000.00) (the "Purchase Price").

                  (b) As additional consideration for the Assets, at the Closing
         Purchaser and Seller shall execute and deliver the Assignment and
         Assumption Agreement in the form attached hereto as Exhibit "A" under
         the terms of which Purchaser shall assume the Assumed Liabilities.

                  (c) The Purchase Price paid by Purchaser for the Assets shall
         be allocated to the Assets shall be allocated to the Assets on the
         basis of the relative values set forth in the appraisal dated August
         16, 1999, conducted by M. E. L. Valuations, Inc. The parties agree that
         such allocation shall be reported on Internal Revenue Service Form
         8594.

         4. Closing. In the event that Purchaser and Seller satisfy those
conditions set forth in this Agreement, or the conditions unsatisfied are waived
in writing, the consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place at 10:00 A.M., local time on or before
September 30, 1999, or such other date as the parties mutually agree, and the
parties shall endeavor to effect the Closing on a date when both Rig 1 and Rig 2
will have completed drilling operations and have not yet started new drilling
operations. The time and date of the Closing shall be referred to herein as the
"Closing Date." The Closing shall take place at the offices of Matthews &
Branscomb, P.C., 106 S. St. Mary's Street, San Antonio, Texas, or such other
time and place as the parties mutually agree. In the event that either Rig 1 or
Rig 2 (including drill pipe and collars) is in use at the time of Closing,
notwithstanding the parties' efforts to schedule the Closing at a time when both
the Rig 1 Assets and Rig 2 Assets are not in use, Seller shall lease either the
Rig 1 Assets or Rig 2 Assets (including drill pipe and collars), as the case may
be, to complete for its own account the drilling operations which are in
progress at the time of Closing, pursuant to the terms of the Lease Agreement
attached as Exhibit "B" to this Agreement (the "Lease Agreement"). The
appropriate Rig Assets (including drill pipe and collars) shall be designated on
Exhibit A to the Lease Agreement and the drilling contract which the Seller is
performing at such time shall be appropriately referenced on Exhibit B to the
Lease Agreement.

                  (a) Seller's Obligations at Closing. At the Closing, Seller
         agrees to deliver to Purchaser the following:

                  (i) To the Purchaser, executed bills of sale, assignments,
                  certificates of title for motor vehicles, and such other
                  instruments satisfactory in form and substance to Purchaser
                  pursuant to which Seller shall convey the Assets to Purchaser;

                  (ii) To the Purchaser, certificates as to the existence and
                  good standing of Seller (as of the date not earlier than ten
                  days prior to the Closing) in the State of Texas;

                  (iii) To the Purchaser, resolutions evidencing the
                  authorization of the execution, delivery and performance of
                  this Agreement by Seller and the



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                  consummation of the transactions contemplated hereby,
                  certified by the Secretary of Seller;

                  (iv) To the Purchaser, a certificate dated as of the Closing
                  Date and signed by the President of Seller to the effect that
                  the representations and warranties of Seller set forth in this
                  Agreement, as of the date of this Agreement and as of the
                  Closing, are true and correct in all material respects and
                  that all covenants, agreements and conditions required by this
                  Agreement to be performed or complied with prior to or at the
                  Closing have been so performed or complied with;

                  (v) To the Purchaser, a certificate of No Tax Due issued by
                  the Comptroller of the State of Texas indicating that no sales
                  tax, motor vehicle tax, employment tax, or other tax is due
                  and owing to the State of Texas;

                  (vi) To the Purchaser, a certified search of the UCC records
                  of the Secretary of State of the State of Texas and the
                  applicable counties where Seller resides, showing that the
                  Assets are free and clear of any liens or encumbrances, or
                  executed UCC-3 termination statements releasing any security
                  interest are reflected in such search;

                  (vii) To the Purchaser, such additional certificates,
                  proceedings, instruments and other documents as Purchaser may
                  reasonably request to evidence compliance by Seller with this
                  Agreement and applicable legal requirements and the
                  performance and satisfaction by Seller, at or prior to the
                  time of Closing, of all agreements then to be performed and
                  all conditions then to be satisfied by Seller;

                  (viii) To the Purchaser, the Assignment and Assumption
                  Agreement in the form attached as Exhibit "A" executed by
                  Seller and Purchaser under which the Seller assigns all of its
                  rights under the Drilling Contracts and the Ancillary
                  Agreements;

                  (ix) If, at the time of Closing, the Assets designated as Rig
                  1 Assets on Schedule 1(a) or the Assets designated as Rig 2
                  Assets on Schedule 1(a) are being operated by Seller, the
                  Seller shall deliver the Lease Agreement attached hereto as
                  Exhibit B executed by the Purchaser and the Seller, with
                  respect to either the Rig 1 Assets or Rig 2 Assets, whichever
                  are in use at the time of the Closing; and

                  (x) To the Purchaser, to the extent that any Ancillary
                  Agreement or any contract or commitment is not freely
                  assignable by the Seller, and if the Seller shall have
                  obtained the same through its reasonable best efforts, the
                  Seller shall provide written consents by the parties to such
                  agreements, authorizing the assignment by the Seller to the
                  Purchaser.

                  (b) Purchaser's Obligations at Closing. At the Closing,
         Purchaser agrees to deliver to Seller, the following:



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                  (i) To the Seller, $2,500,000.00 by wire transfer, to an
                  account in San Antonio, Texas designated by Seller at or prior
                  to the Closing;

                  (ii) To the Seller, the fully executed Assignment and
                  Assumption Agreement in the form attached as Exhibit "A" under
                  which the Purchaser assumes the Assumed Liabilities;

                  (iii) If, at the time of Closing, the Assets designated as Rig
                  1 Assets on Schedule 1(a) or the Assets designated as Rig 2
                  Assets on Schedule 1(a) are being operated by Seller, the
                  Purchaser shall deliver the Lease Agreement attached hereto as
                  Exhibit 3 executed by the Purchaser and the Seller, with
                  respect to either the Rig 1 Assets or Rig 2 Assets, whichever
                  are in use at the time of the Closing;

                  (iv) To the Seller, resolutions evidencing the authorization
                  of the execution, delivery and performance of this Agreement
                  by Purchaser and the consummation of the transactions
                  contemplated hereby, certified by the Secretary of Purchaser;

                  (v) To the Seller, a certificate dated as of the Closing Date
                  and signed by the President of Purchaser to the effect that
                  the representations and warranties of Purchaser set forth in
                  this Agreement, as of the date of this Agreement and as of the
                  Closing, are true and correct in all material respects and
                  that all covenants, agreements and conditions required by this
                  Agreement to be performed or complied with prior to or at the
                  Closing have been so performed or complied with; and

                  (vi) To the Seller, such additional certificates, proceedings,
                  instruments and other documents as Seller may reasonably
                  request to evidence compliance by Purchaser with this
                  Agreement and applicable legal requirements and the
                  performance and satisfaction by Purchaser, at or prior to the
                  time of Closing, of all agreements then to be performed and
                  all conditions then to be satisfied by Purchaser.

                  (c) In addition, at Closing, Purchaser shall offer to employ
         E. E. Burns pursuant to the terms of the Employment Agreement attached
         as Exhibit "C".

         5. Delivery of Assets. At the Closing, Seller shall deliver and
transfer title to the Assets to Purchaser free, clear and discharged of and from
any and all liens, charges, equities, security interests, encumbrances, claims
and demands of every kind and character whatsoever. The Drilling Equipment shall
be rigged down at the locations of the last completed drilling contracts and
delivery of the Drilling Equipment and Inventory shall be deemed to occur at
Closing at such locations. The Office Equipment and Business Records shall be
appropriately boxed and packaged for pick-up by Purchaser at Seller's office in
San Antonio, Texas and delivery shall be deemed to occur at Closing at such
location. Delivery of the Yard Equipment shall occur at Closing at Seller's Yard
in Halletsville, Texas. Purchaser shall have 30 days to pick-up the Yard
Equipment after Closing, with no charge to Purchaser for storage. The
certificates of title



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to the Vehicles shall be delivered at Closing at Purchaser's offices in San
Antonio, Texas. The above notwithstanding, to the extent that at Closing the Rig
1 Assets or Rig 2 Assets are being used to perform a drilling contract on behalf
of Seller, such assets shall not be rigged down, but shall be deemed delivered
to the Purchaser at the Closing, and shall continue in possession of the Seller
pursuant to the terms and conditions of the Lease Agreement until termination of
the Lease Agreement.

         (a) Risk of Loss. It is expressly agreed that the title to, and the
         risk of loss of, all of the Assets shall pass to the Purchaser at
         Closing. After Closing, to the extent that Seller continues to possess
         the Rig 1 Assets or Rig 2 Assets under the Lease Agreement, Seller
         agrees to maintain all insurance on such Rig 1 Assets or Rig 2 Assets,
         as required by the Lease Agreement. All such policies shall name the
         Purchaser as the named insured and sole loss payee. In addition,
         Purchaser shall be named as an insured on all general liability
         policies of the Seller during the term of the Lease Agreement.

         6. Covenants, Representations and Warranties of Seller. Seller
covenants, represents and warrants to Purchaser as follows and acknowledge that
Purchaser is relying upon such representations and warranties in entering into
this Agreement:

                  (a) Due Incorporation. Seller is a corporation duly organized,
         validly existing and in good standing under the laws of the State of
         Texas and has the corporate power to carry on its business as now being
         conducted. Seller is not qualified as a foreign corporation in any
         jurisdiction.

                  (b) Corporate Authority. The execution, delivery and
         performance of this Agreement, and the obligations undertaken by Seller
         herein, have been, or prior to the Closing will be, duly authorized and
         approved by the Board of Directors of Seller and by the shareholders of
         Seller.

                  (c) No Violation of Agreements, Etc. This Agreement
         constitutes a valid and binding obligation of Seller enforceable
         against Seller in accordance with its terms, and this Agreement and all
         transactions contemplated hereby will not result in the violation of
         any terms of the Articles of Incorporation or By-Laws of Seller or any
         law applicable to the Drilling Business or, except for the requirement
         for any consent or approval set forth in Schedule 6(g), any agreement
         to which Seller is a party or by which it is bound.

                  (d) Title to Assets. Seller presently owns all of the Assets,
         free and clear of all liens, charges, equities, pledges, mortgages,
         leases, options, assessments, security interests, restrictions and
         other encumbrances of any kind whatsoever ("Liens"), other than those
         disclosed in Schedule 6(d) (the "Existing Liens"), and Seller has, and
         on the Closing Date will have, full right, power, title and authority
         to sell, transfer and convey the Assets to Purchaser, free and clear of
         all Liens, including the Existing Liens.

                  (e) No Litigation. Except as described on Schedule 6(e), there
         presently exists no litigation, proceeding, action, claim, arbitration,
         or investigations at law, in equity or



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         otherwise, pending or threatened against Seller which relates to the
         Drilling Business, and Seller has no knowledge of any facts or
         circumstances that would indicate that any such claim exists. Seller is
         not subject to any notice, writ, injunction, order, or decree of any
         court, agency, or other governmental authority affecting the Drilling
         Business and in which it is a named party. Seller has not been served
         with process or otherwise received formal notice with respect to, nor,
         to Seller's knowledge, has Seller been threatened with, any litigation
         or judicial, administrative, arbitration or other proceeding affecting
         the Drilling Business or the Assets.

                  (f) Brokers. If Seller has retained any broker in connection
         with the transactions contemplated by this Agreement, Seller shall be
         solely responsible for the payment of any compensation due such broker
         by Seller.

                  (g) Contracts/Assignments. Other than those agreements set
         forth on Schedule 6(g), the lists of contracts and agreements
         identified on Schedules 1 (b), (c) and (d) are complete and accurate
         lists of all contracts and agreements between Seller and any other
         person related to the Drilling Business. Each of the Drilling Contracts
         and Ancillary Agreements described or referred to in Schedules 1(c) and
         1(d) are valid and binding obligations of Seller and, to the knowledge
         of Seller, the party or parties thereto. None of the parties to any of
         such contracts or agreements has terminated, canceled, or modified any
         of such contracts or agreements and neither Seller nor, to the
         knowledge of Seller, any other party is in default thereunder. Each of
         the Drilling Contracts and Ancillary Agreements may be freely assigned
         by Seller to Purchaser without the requirement of any consent or
         approval, except as set forth in Schedule 6(g). True and complete
         copies of the Drilling Contracts and the Ancillary Agreements have been
         provided to Purchaser and true and complete copies of any Drilling
         Contracts entered into after the date hereof will be provided to
         Purchaser when executed and delivered by Seller.

                  (h) Personal Property. Seller owns all of the Assets free and
         clear of any Liens, other than those Existing Liens set forth in
         Schedule 6(d) which will be released prior to or contemporaneously with
         the Closing. The Assets described in Schedules 1(a)-1(f) are a fill
         and complete list of all tangible and intangible personal property of
         Seller used in connection with the Drilling Business, and such property
         constitutes all of the assets necessary for the conduct of the Drilling
         Business as presently conducted. Seller has delivered or will deliver
         at Closing all support, maintenance, warranty, and similar agreements
         related to such property. Each of such assets is in good operating
         condition and at the time the Assets are delivered to Purchaser at the
         Closing, each of the Assets will be in good operating condition,
         subject to reasonable wear and tear. In order to ensure that the Assets
         are in good operating condition, immediately prior to Closing, the
         Seller and Purchaser shall conduct a joint inspection of the Assets. In
         addition, at all times prior to Closing, the Seller shall provide
         Purchaser with accurate daily drilling reports which shall specify any
         loss or damage to any of the Assets. It is understood and agreed that
         ALL ASSETS BEING PURCHASED FROM SELLER HEREUNDER ARE BEING PURCHASED
         AND SOLD "AS IS" AND "WHERE IS", WITH NO WARRANTY, EXPRESSED OR
         IMPLIED, OF ANY KIND, INCLUDING NO WARRANTY AS



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         TO FITNESS, CONDITION OR SUITABILITY FOR ANY INTENDED PURPOSE. The
         Drilling Business constitutes a separate and identifiable business of
         Seller and the income and expenses attributable to the Drilling
         Business could be separately established from the books of account or
         records of Seller. The Assets constitute the entire operating assets of
         the Drilling Business.

                  (i) Permits and Approvals. Except as set forth in Schedule
         6(i), Seller has no permits, approvals, authorizations, licenses,
         consents, certifications, qualifications or clearances held, used, or
         required in the conduct of the Drilling Business, and none (other than
         those set forth in Schedule 6(i)) are required to be held by Seller.

                  (j) Compliance with Laws. To Seller's knowledge, the Drilling
         Business has been conducted in compliance with all statutes,
         ordinances, codes, restrictions, regulations, and other governmental
         requirements, including all Environmental Laws (as hereafter defined),
         except where the failure to so comply would not have a material adverse
         effect on the Drilling Business or the Assets.

                  (k) Taxes. The Assets are not in any manner encumbered by any
         liens arising out of unpaid taxes except for liens for current taxes
         not yet due and payable.

                  (l) True and Correct Copies. Seller has delivered or made
         available to Purchaser, but subject to the provisions of the
         Confidentiality Agreement (as hereinafter defined), true, correct, and
         complete copies of all contracts, agreements and documents referred to
         in this Agreement or material to the Drilling Business, together with
         all modifications thereof and amendments thereto, and all customer
         lists, supplier lists, maintenance records and daily drilling reports
         with respect to the Drilling Business and all other materials
         constituting the Business Records (as herein defined).

                  (m) Insurance. Schedule 6(m) contains a list of the policies
         and contracts (including insurer, named insured, type of coverage,
         limits of insurance, required deductibles or co-payments, annual
         premiums and expiration date) for fire, casualty, liability and other
         forms of insurance maintained by, or for the benefit of Seller, in
         connection with the Drilling Business. All such policies are in full
         force and effect. Seller has not received any notice of cancellation or
         non-renewal or of significant premium increases with respect to any
         policy. All premiums due prior to the date hereof for the period prior
         to the date hereof with respect to such policies have been timely paid,
         and all premiums due before the Closing Date for periods between the
         date hereof and the Closing Date will be timely paid.

         7. Covenants, Representations and Warranties of Purchaser. Purchaser
covenants, represents and warrants to Seller as follows and acknowledges that
Seller is relying upon such representations and warranties in entering into this
Agreement:



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                  (a) Corporate Existence. Purchaser is a corporation duly
         organized, validly existing and in good standing under the laws of
         Texas and has the corporate power to carry on its business as now being
         conducted.

                  (b) Corporate Authority. The execution, delivery and
         performance of this Agreement, and the obligations undertaken by the
         Purchaser herein, have been duly authorized by all necessary corporate
         action by and on behalf of the Purchaser.

                  (c) No Violation of Agreements. This Agreement constitutes a
         valid and binding obligation of Purchaser enforceable against Purchaser
         in accordance with its terms, and this Agreement and all transactions
         contemplated hereby will not result in the violation of any terms of
         the Articles of Incorporation or By-Laws of Purchaser or any law or
         agreement to which Purchaser is a party or by which it is bound.

                  (d) Brokers. If Purchaser has retained any broker in
         connection with the transactions contemplated by this Agreement,
         Purchaser shall be solely responsible for the payment of any
         compensation due such broker by Purchaser.

         8. Actions before Closing.

                  (a) Access. Between the date hereof and the Closing Date,
         Seller shall afford Purchaser and its counsel and other representatives
         reasonable access during normal business hours to Seller's contracts,
         properties and facilities which form a part of the Drilling Business,
         and Seller shall instruct its officers, employees, accountants and
         agents to fully cooperate with Purchaser and its counsel, accountants,
         lenders and other representatives in its investigation and to furnish
         such additional information as Purchaser and its counsel and other
         representatives may from time to time reasonably request. Seller
         specifically covenants that Seller will permit Purchaser to conduct
         such tests and investigations of the Assets as Purchaser may reasonably
         request. In addition, but subject to the provisions of the
         Confidentiality Agreement, Purchaser shall be permitted to make
         abstracts from, or take copies of, such documentation relating to the
         Assets as may be reasonably required by Purchaser.

                  (b) Interim Conduct of the Drilling Business. Seller hereby
         covenants to Purchaser that, from the date hereof to the Closing,
         Seller will conduct the Drilling Business only in the ordinary and
         usual course, consistent with past practices. Without limiting the
         generality of the foregoing, Seller hereby covenants to Purchaser that,
         insofar as the Drilling Business is concerned, Seller will use its
         reasonable best efforts to:

                  (i) preserve the Drilling Business and Seller's relationships
                  with suppliers, customers, employees, creditors, and others
                  having business dealings with the Drilling Business;

                  (ii) maintain in full force and effect its existing policies
                  of insurance listed on Schedule 6(m);



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                  (iii) maintain the Assets in good operating condition and
                  repair, subject to reasonable wear and tear;

                  (iv) continue performance in the ordinary course of its
                  obligations under the Drilling Contracts and Ancillary
                  Agreements; and

                  (v) subject to reasonable advance notice to Seller and
                  cooperation in scheduling the same, permit employees or other
                  representatives of Purchaser to consult with Seller's
                  employees who are employed in the Drilling Business in the
                  performance of their jobs for a period of not more than two
                  weeks prior to the Closing Date, provided that any such
                  discussions will be performed in a manner that will not
                  disrupt the operation of the Drilling Business.

                  (c) Purchaser's Approval of Certain Transactions. Seller
         hereby covenants to Purchaser that from the date hereof to the Closing,
         Seller shall not do any of the following acts without the prior written
         consent of Purchaser:

                  (i) sell, transfer, encumber or assign any of the Assets
                  (except to Purchaser in accordance with this Agreement or in
                  connection with the replacement of such Assets in the ordinary
                  course of business); or

                  (ii) enter into any transaction, contract or commitment
                  outside of the ordinary course of business.

                  (d) Consent to Assignment. Seller hereby covenants to
         Purchaser that Purchaser will use its reasonable best efforts to
         obtain, prior to the Closing, the consents and approvals which are
         necessary to assign the Drilling Contracts and Ancillary Agreements.
         Any and all such approvals and consents shall be in writing, signed by
         the person entitled to consent or approve, and shall be delivered to
         Purchaser at Closing.

                  (e) Schedule Updates. Seller and Purchaser shall update by
         amendment or supplement each of the Schedules referred to herein and
         any other disclosure in writing from either party required by this
         Agreement to be disclosed by Seller or Purchaser promptly upon any
         change in the information set forth in such Schedules or other
         disclosures, and each party hereby represents and warrants to the other
         that such Schedules and such written disclosures, as so amended or
         supplemented by them, shall be true and correct as of the dates
         thereof; provided however, that the inclusion of any information in any
         such amendment or supplement, not included in the original Schedule or
         other disclosure at or prior to the date of this Agreement, shall not
         limit or impair any right that either party might otherwise have
         respecting the representations and warranties of Purchaser contained in
         this Agreement.

                  (f) Reports. On a daily basis, Seller shall provide Purchaser,
         via telefax, with the daily drilling reports pertaining to the
         operation of the Drilling Equipment. In addition,


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        as situations occur, Seller shall promptly notify Purchaser in writing
        with respect to any material damage to the Assets.

        9. Conditions Precedent to Closing by Purchaser. Except as expressly
waived in writing by the Purchaser, the obligation of Purchaser to purchase the
Assets is subject to the following conditions:

                (a) Approvals. All corporate and other proceedings or actions
        to be taken by Seller in connection with the transactions contemplated
        by this Agreement and all documents incidental thereto shall be
        satisfactory in form and substance to Purchaser and Purchaser's
        counsel. All consents set forth in Schedule 6(g) which must be obtained
        to assign the Drilling Contracts and Ancillary Agreements shall have
        been obtained.

                (b) Title. Transfer of title on the Closing Date, by Seller to
        Purchaser, of the Assets, free and clear of all Liens, including the
        Existing Liens, and delivery of the Assets on the Closing Date (except
        to the extent delivery of the Rig 1 or Rig 2 Assets is made subject to
        the Lease Agreement), free and clear of all Liens, including the
        Existing Liens.

                (c) Covenants. The fulfillment and/or performance of all
        agreements, conditions and covenants of Seller contained herein on or
        prior to the Closing Date.

                (d) Representations. The representations and warranties of
        Seller shall be true, accurate, and complete in all material respects
        as of the date hereof and as of Closing.

                (e) Documents. Delivery on the Closing Date, by Seller to
        Purchaser, of all such instruments of transfer, bills of sale,
        endorsements, assignments, and other instruments of transfer and
        conveyance, in form and substance reasonably satisfactory to Purchaser,
        as are necessary to vest in Purchaser good and indefeasible title to
        the Assets free and clear of all Liens, including Existing Liens.

                (f) Tax Certificate. Purchaser shall have received, in
        accordance with Section 111.020(c) of the Texas Tax Code, a certificate
        stating that no taxes are due by Seller.

                (g) Damage to Assets. In the event that any of the Assets are
        materially damaged or destroyed before the Closing Date, Purchaser may,
        at its option and as its sole remedy, terminate this Agreement or close
        the transactions contemplated by this Agreement, in which latter event
        Purchaser shall receive all of the insurance proceeds resulting from
        such damage or destruction.

                (h) Litigation. There shall not have been issued and in effect
        any injunction or similar legal order prohibiting or restraining
        consummation of any of the actions herein contemplated and no legal
        action or governmental investigation which might reasonably be expected
        to result in any such injunction or order shall be pending or
        threatened;


                                      11
<PAGE>   12

                (i) Deliveries Required by Seller. Seller shall have delivered
        to Purchaser all of the items enumerated in Section 4(a).

        10. Conditions Precedent to Closing by Seller. The obligation of Seller
to sell the Assets is subject to the following conditions:

                (a) Deliveries Required by Purchaser. Purchaser shall have
        delivered to Seller all items enumerated in Section 4(b).

                (b) Seller shall have obtained the requisite approval of this
        Agreement and the transactions contemplated hereby from its
        shareholders.

        11. Additional Covenants.

                (a) Proration of Taxes and Other Items. All personal property
        taxes applicable to the Assets shall be prorated to the Closing Date,
        and after giving effect to such proration adjustments Purchaser shall
        assume the obligation to pay such taxes for the current tax year. All
        motor vehicle transfer fees and taxes necessary to effect the transfer
        of the titles to the Vehicles from Seller to Purchaser shall be borne
        by Purchaser.

                (b) Transfer and Liability. Seller has the sole responsibility
        for any employment rights or benefits which any of its employees may
        have. Purchaser has no obligation whatsoever to employ any such
        employees or to pay any benefits which any employee has or claims to
        have by virtue of an employment relationship with Seller. Purchaser
        shall have the right to interview all of the employees of Seller. If
        Purchaser elects to hire an employee of Seller, Seller agrees to
        cooperate and not to interfere with such employee becoming an employee
        of Purchaser. However, Purchaser shall not employ any employee of
        Seller while they are assigned to Rig 1 or Rig 2, as the case may be,
        until the termination of the Lease Agreement. Seller shall be solely
        responsible for any salary, wages, bonuses, commissions, accrued
        vacation time, sick leave time, profit sharing or pension benefits and
        any other compensation or benefits as well as any actions or causes of
        action, including, but not limited to, unemployment compensation claims
        and workers compensation claims which may be asserted by and determined
        by a court or appropriate agency ruling to be due to any of its
        employees which are not hired by Purchaser or by any of its employees
        which are hired by Purchaser if the claims of such hired employee
        relate to or arise from employment with Seller or termination of
        employment by Seller.

                (c) Trading in Stock. Until the Closing, Seller will not trade
        (and Seller shall advise its employees, shareholders, officers and
        directors who have knowledge of this Agreement, not to trade) in any of
        the stock of the Purchaser and acknowledge that any such trading may be
        a violation of law and subject Seller to substantial liabilities. In
        order to protect against such unlawful trading in the Purchaser's
        stock, until the Closing, Seller agrees to keep the existence of this
        Agreement and the terms thereof confidential and only to disclose the
        existence of this Agreement and its terms, on an as needed basis.
        Purchaser acknowledges that Seller is required to disclose the
        existence of this Agreement and the


                                      12
<PAGE>   13

        terms hereof to its shareholders for purposes of obtaining their
        consideration and approval of this Agreement.

                (d) Survival of Covenants. Except with respect to (i) the
        representations and warranties of Seller set forth in Section 6(d)
        hereof and in the last two sentences of Section 6(h) hereof and (ii)
        the agreement of Purchaser to assume and perform the Assumed
        Liabilities, which representations and warranties of Seller and
        agreement of Purchaser shall survive indefinitely, and except for the
        Employment Agreement described in Section 4(c), the warranties,
        covenants, promises, undertakings, and obligations of each of the
        parties hereto, whether set forth in this Agreement, or in any
        document, exhibit or schedule delivered in connection with this
        Agreement shall survive the Closing for a period of one year following
        the Closing Date and then expire and, in the event of the dissolution
        and liquidation of Seller or Purchaser, survive such dissolution and
        liquidation and continue, notwithstanding such dissolution and
        liquidation, to be performable by, and actionable and enforceable
        against, any person, or persons, to whom, or to which, any of the
        assets of and property of Seller or Purchaser, shall have been
        distributed as a result of such dissolution and liquidation, but the
        liability of any such person on account thereof shall be limited to the
        assets and property received by any such person in any such
        distribution.

                (e) Further Consents and Conveyances. After the Closing, Seller
        shall, without further cost or expense to Purchaser, execute and
        deliver to Purchaser, such additional instruments of conveyance, and
        take such other and further actions to more completely sell, transfer,
        and assign to Purchaser, the Assets. In addition, to the extent that
        any consent or approval was not obtained prior to Closing and Purchaser
        nevertheless elected to proceed with Closing, Seller shall continue to
        use its reasonable best efforts to obtain from such person or persons
        any such consents or approvals.

                (f) Books and Records. If, in the reasonable opinion of
        Matthews & Branscomb, P.C., acting as counsel to Purchaser, it is
        necessary to do so in order for Purchaser to comply with the
        requirements of the Securities Act of 1933, as amended, or the
        Securities Exchange Act of 1934, as amended, during the two-year period
        following the Closing, Purchaser shall have the right to conduct an
        audit of Seller's Drilling Business operations, in which event Seller
        will fully cooperate with Purchaser and allow access to such books and
        records as is necessary to conduct such audit, but at no expense to
        Seller. As such, the books and records of Seller relating to the
        Drilling Business shall be maintained by Seller for a period of two
        years from the date of Closing.

                (g) Non-competition. Seller agrees that for a period of five
        years from the Closing, it will not engage in the Drilling Business
        anywhere in the State of Texas, whether as an owner, partner,
        shareholder, consultant or in any other capacity whatsoever. The
        parties agree that $5,000.00 of the Purchase Price shall be allocated
        to this covenant not to compete. The foregoing provisions of this
        Section 11(g) shall not apply to the ownership, directly or indirectly,
        in shares of stock or other securities of a corporation traded on a
        national securities exchange or on the national over-the-counter market
        that


                                      13
<PAGE>   14

        constitute less than 5% of the class of such stock or other securities
        of such corporation issued and outstanding at the time of the
        acquisition thereof.

                (h) Confidentiality. Seller and Purchaser have heretofore
        entered into that certain Confidentiality Agreement dated August 4,
        1999 and accepted by Purchaser on August 5, 1999 (the "Confidentiality
        Agreement"), and Seller and Purchaser hereby ratify and confirm the
        Confidentiality Agreement and agree that the provisions thereof are
        incorporated herein by reference and, that if the Closing hereunder
        shall not occur, the Confidentiality Agreement and the provisions
        thereof shall survive for a period of one year from the date hereof.

        12. Indemnification.

                (a) EACH PARTY, WHETHER THE SELLER OR THE PURCHASER
        ("INDEMNIFYING PARTY"), SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS THE
        OTHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS, AND
        ITS SUCCESSORS AND ASSIGNS (THE "INDEMNIFIED PARTIES") FROM AND AGAINST
        ANY AND ALL COSTS, LOSSES, CLAIMS, LIABILITIES, FINES, EXPENSES,
        PENALTIES, AND DAMAGES (INCLUDING INTEREST, REASONABLE LEGAL AND
        ACCOUNTING FEES, COURT COSTS AND FEES AND COSTS ON APPEAL, COSTS OF
        ARBITRATION AND DISBURSEMENTS OF COUNSEL) ("DAMAGES") SUFFERED BY AN
        INDEMNIFIED PARTY AS A PROXIMATE RESULT OF:

                        (i) ANY BREACH, VIOLATION, FALSIFICATION, FAILURE TO
                SATISFY, OR OTHER DEFAULT IN ANY RESPECT OF ANY WARRANTY,
                COVENANT OR REPRESENTATION PROVIDED HEREIN BY THE INDEMNIFYING
                PARTY.

                        (ii) ANY LIABILITY ARISING OUT OF THE OWNERSHIP, USE OR
                OPERATION BY THE INDEMNIFYING PARTY OF THE ASSETS OR DRILLING
                BUSINESS, INCLUDING, WITHOUT LIMITATION, THE VIOLATION OF ANY
                ENVIRONMENTAL LAW, RULE OR REGULATION, AND INCLUDING ANY
                LIABILITY ARISING OUT OF OR ATTRIBUTABLE TO ACTS OR OMISSIONS
                WITH RESPECT TO THE DRILLING CONTRACTS AND THE ANCILLARY
                AGREEMENTS.

                        (iii) THE PRESENCE, MANAGEMENT, PRODUCTION, REFINEMENT,
                MANUFACTURE, PROCESSING, DISTRIBUTION, USE, TREATMENT, SALE,
                STORAGE, DISPOSAL, TRANSPORTATION OR HANDLING, OR THE EMISSION,
                DISCHARGE, RELEASE, OR THREATENED RELEASE OF ANY HAZARDOUS
                SUBSTANCES BY THE INDEMNIFYING PARTY; ANY DEATH, PERSONAL
                INJURY OR PROPERTY DAMAGE (REAL OR PERSONAL) ARISING OUT OF OR
                RELATED TO SUCH HAZARDOUS SUBSTANCES; ANY ACTION, SUIT,
                PROCEEDING OR INVESTIGATION BROUGHT OR THREATENED, SETTLEMENT
                REACHED OR GOVERNMENTAL ORDER RELATING TO SUCH HAZARDOUS
                SUBSTANCES; AND ANY VIOLATION OF ANY ENVIRONMENTAL LAW BY THE
                INDEMNIFYING PARTY OR ITS OFFICERS, DIRECTORS, AGENTS,
                EMPLOYEES OR REPRESENTATIVES.

                (b) THE FOLLOWING TERMS USED IN THIS SECTION 12 HAVE THE
        MEANINGS SET FORTH BELOW:


                                      14
<PAGE>   15

                "ENVIRONMENTAL LAWS" SHALL MEAN ALL FEDERAL, STATE, COUNTY,
        MUNICIPAL AND LOCAL, FOREIGN AND OTHER STATUTES, LAWS, REGULATIONS AND
        ORDINANCES WHICH RELATE TO OR DEAL WITH PROTECTION OF HUMAN HEALTH OR
        THE ENVIRONMENT, ALL AS MAY BE FROM TIME TO TIME AMENDED.

                "HAZARDOUS SUBSTANCE(S)" SHALL MEAN (i) ANY FLAMMABLE
        SUBSTANCES, EXPLOSIVES, RADIOACTIVE MATERIALS, HAZARDOUS SUBSTANCES,
        HAZARDOUS WASTES, TOXIC SUBSTANCES, POLLUTANTS, CONTAMINANTS OR ANY
        RELATED MATERIALS OR SUBSTANCES IDENTIFIED IN OR REGULATED BY ANY OF
        THE ENVIRONMENTAL LAWS, AND (ii) ASBESTOS, POLYCHLORINATED BIPHEYLS,
        UREA FORMALDEHYDE, NUCLEAR FUEL OR MATERIAL, CHEMICAL WASTE,
        EXPLOSIVES, KNOWN CARCINOGENS, PETROLEUM PRODUCTS AND BY-PRODUCTS
        (INCLUDING ANY FRACTION THEREOF) AND RADON.

                (c) THE INDEMNIFIED PARTIES SHALL GIVE NOTICE TO THE
        INDEMNIFYING PARTY OF AN EVENT GIVING RISE TO THE OBLIGATION TO
        INDEMNIFY, ALLOW THE INDEMNIFYING PARTY TO ASSUME AND CONDUCT THE
        DEFENSE OF THE CLAIM OR ACTION, AND SHALL COOPERATE WITH THE
        INDEMNIFYING PARTY IN THE DEFENSE THEREOF. AN INDEMNIFIED PARTY SHALL
        NOT ENTER INTO A SETTLEMENT OF ANY CLAIM OR ACTION SUBJECT TO
        INDEMNIFICATION WITHOUT THE CONSENT OF THE INDEMNIFYING PARTY, WHICH
        CONSENT SHALL NOT UNREASONABLY BE WITHHELD.

                (d) IF THE CLOSING HEREUNDER OCCURS, EXCEPT WITH RESPECT TO (i)
        THE REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN SECTION 6(d)
        HEREOF AND IN THE LAST TWO SENTENCES OF SECTION 6(h), AND (ii) THE
        AGREEMENT OF PURCHASER TO ASSUME AND PERFORM THE ASSUMED LIABILITIES,
        WHICH REPRESENTATION AND WARRANTIES OF SELLER AND AGREEMENT OF
        PURCHASER SHALL SURVIVE INDEFINITELY, THE INDEMNIFYING PARTY WILL HAVE
        NO LIABILITY WITH RESPECT TO ANY REPRESENTATION OR WARRANTY OR ANY
        COVENANT OR AGREEMENT TO BE PERFORMED OR COMPLIED WITH AT OR PRIOR TO
        THE CLOSING, UNLESS ON OR BEFORE THE FIRST ANNIVERSARY OF THE CLOSING
        DATE THE INDEMNIFIED PARTIES NOTIFY THE INDEMNIFYING PARTY OF A CLAIM
        SPECIFYING THE FACTUAL BASIS OF THAT CLAIM IN REASONABLE DETAIL TO THE
        EXTENT THEN KNOWN BY THE INDEMNIFIED PARTIES.

                (e) NOTWITHSTANDING ANY PROVISIONS CONTAINED IN THIS SECTION 12
        TO THE CONTRARY, THE INDEMNIFYING PARTY SHALL NOT HAVE THE OBLIGATION
        TO INDEMNIFY THE INDEMNIFIED PARTIES WITH RESPECT TO AN INDEMNIFIABLE
        CLAIM UNTIL THE INDEMNIFIED PARTIES HAVE SUFFERED DAMAGES IN EXCESS OF
        $25,000, AFTER WHICH THE INDEMNIFYING PARTY SHALL BE OBLIGATED ONLY TO
        INDEMNIFY THE INDEMNIFIED PARTIES AGAINST FURTHER DAMAGES IN EXCESS
        THEREOF, BUT IN NO EVENT SHALL THE INDEMNIFYING PARTY'S INDEMNIFICATION
        OBLIGATIONS HEREUNDER EXCEED THE AGGREGATE AMOUNT OF $1,000,000;
        PROVIDED, HOWEVER, THESE LIMITS SHALL NOT APPLY TO CLAIMS AND
        LIABILITIES RELATING TO (i) THE REPRESENTATIONS AND WARRANTIES OF
        SELLER SET FORTH IN SECTION 6(d) AND (ii) THE AGREEMENT OF PURCHASER TO
        ASSUME AND PERFORM THE ASSUMED LIABILITIES.

                (f) SUBJECT TO THE RIGHT OF THE PARTIES TO PURSUE INJUNCTIVE
        RELIEF WITH RESPECT TO SECTION 11(f) CONCERNING NON-COMPETITION AND
        SECTION 11(g) CONCERNING


                                      15
<PAGE>   16

CONFIDENTIALITY, SELLER AND PURCHASER AGREE THAT THE INDEMNIFICATION PROVISIONS
OF THIS SECTION 12 SHALL BE THE EXCLUSIVE REMEDY OF SELLER AND PURCHASER AND
ALL OF THE OTHER INDEMNIFIED PARTIES WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.

        13. Arbitration. All disputes, controversies or claims that may arise
among the parties hereto including, without limitation, any dispute,
controversy or claim arising out of this Agreement, or any other document
described or referred to herein, or the breach, termination or invalidity
thereof, shall be submitted to and determined by binding arbitration. Such
arbitration shall be conducted pursuant to the rules of the American
Arbitration Association then in effect. The arbitration shall be conducted
by a single neutral arbitrator and, unless otherwise agreed by all of the
parties, shall be selected pursuant to such rules of the American Arbitration
Association. The prevailing party in any such arbitration shall be entitled to
recover such party's reasonable attorney's fees, costs and expenses incurred
in connection with the arbitration. Any award pursuant to such arbitration
shall be final and binding upon the parties, and judgment on the award may be
entered in any federal state court having jurisdiction. Any such arbitration
shall be conducted in San Antonio, Bexar County, Texas.


        14. Miscellaneous.

                (a) Entire Agreement and Amendment. This Agreement and the
        attached exhibits, schedules and other documents delivered hereunder
        contain the entire agreement between the parties with respect to the
        matters described herein and are a completely integrated and exclusive
        statement as to the terms thereof and supersede all previous
        agreements. This Agreement may not be altered or modified except by a
        writing signed by the parties hereto.

                (b) Notices. Any notice, demand or other writing of any kind
        whatsoever which may or shall be given pursuant to this Agreement shall
        be deemed given if personally delivered or on the third succeeding
        business day after being mailed by registered or certified mail,
        postage prepaid and return receipt requested, addressed as follows (or
        at such address as shall be specified by notice given hereunder):

               If to Seller:            Mr. Robert S. Rosow
                                        Howell Drilling, Inc.
                                        1420 NCNB Plaza
                                        300 Convent Street
                                        San Antonio, Texas 78205-3746

                    with copy to:       Dan G. Webster, III
                                        Cox & Smith Incorporated
                                        112 E. Pecan Street, Suite 1800
                                        San Antonio, Texas 78205


                                      16
<PAGE>   17


               If to Purchaser:         Mr. Wm. Stacy Locke
                                        South Texas Drilling & Exploration, Inc.
                                        9310 Broadway, Building 1
                                        San Antonio, Texas 78217

                    with copy to:       Daniel M. Elder
                                        Matthews & Branscomb, P.C.
                                        106 S. St. Mary's St. Suite 700
                                        San Antonio, Texas 78205

                (c) Headings. The Background section and all Section and
        paragraph headings contained herein are for reference purposes only and
        shall not affect in any way the meaning or interpretation of this
        Agreement.

                (d) Assignment. No party shall assign, transfer, pledge,
        hypothecate or encumber this Agreement, or any interest herein or
        hereunder, without the prior written consent of the other party.

                (e) Counterparts. This Agreement may be executed simultaneously
        in two or more counterparts, each of which shall be deemed an original,
        but all of which together shall constitute one and the same instrument.

                (f) Parties in Interest. This Agreement shall inure to the
        benefit of and be binding upon the parties named herein and their
        respective heirs, beneficiaries, legal representatives, successors and
        assigns, provided that any assignment of this Agreement or the rights
        hereunder by any party hereto, except as permitted hereunder, without
        the written consent of the other shall be void.

                (g) Waiver. The failure of any party at any time to require
        performance by any other party of any provision of this Agreement shall
        not be deemed a continuing waiver of that provision or a waiver of any
        other provision of this Agreement and shall in no way affect the full
        right to require such performance from the other party at any time
        thereafter.

                (h) Payment of Expenses. Except as specifically described
        herein, each of the parties shall pay all of the costs which each
        incurs incident to the preparation, execution and delivery of this
        Agreement and the performance of the obligations hereunder, including,
        without limitation, the fees and disbursements of counsel, accountants
        and consultants, whether or not the transactions contemplated by this
        Agreement shall be consummated; provided, however, if Purchaser shall
        not purchase the Assets pursuant to and in accordance with this
        Agreement for any reason other than the exercise of a termination right
        expressly provided for herein or the failure of Seller to satisfy the
        conditions set forth in Section 9, then Purchaser shall pay to Seller,
        as liquidated damages, an amount equal to the fees and disbursements of
        counsel, accountants and consultants incurred by Seller in connection
        with the negotiation, preparation, execution and delivery


                                      17
<PAGE>   18

        of this Agreement and the performance thereof up to an aggregate of
        $20,000, but not more.

                (i) Invalidity. The invalidity of any provision of this
        Agreement shall not affect the validity of the remainder of any such
        provision or the remaining provisions of this Agreement.

                (j) Severability. This Agreement and the transactions
        contemplated herein constitute one sale and shall not be divisible in
        any manner. A breach of any portion of this Agreement shall be deemed a
        breach of the whole Agreement.

                (k) Governing Law and Choice of Forum. Texas law shall govern
        the construction and enforceability of this Agreement. Subject to the
        provisions of Section 13 hereof, any and all actions concerning any
        dispute arising hereunder shall be filed and maintained only in a court
        sitting in San Antonio, Bexar County, Texas.

                (l) Further Assurances. Seller and Purchaser each agree that
        they shall execute and deliver any and all additional writings,
        instruments and other documents contemplated hereby or referred to
        herein and shall take such further action as shall be reasonably
        required in order to effectuate the terms and conditions of this
        Agreement.


                            [SIGNATURE PAGE FOLLOWS]


                                      18
<PAGE>   19

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

                                      Seller:

                                      HOWELL DRILLING, INC., a Texas corporation

                                      By:   [ILLEGIBLE]
                                          -------------------------------------
                                            Its: Chairman of the Board


                                      By:   [ILLEGIBLE]
                                          -------------------------------------
                                            Its: President

                                      Purchaser:

                                      SOUTH TEXAS DRILLING & EXPLORATION,
                                      INC., a Texas corporation

                                      By:   [ILLEGIBLE]
                                          -------------------------------------
                                            Its: Chairman & CEO
                                                 ------------------------------

                                      19