(Louisiana)

RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:

Jackson Walker L.L.P.
901 Main Street
Suite 6000
Dallas, Texas  75202
Attn: Mr. Frank P. McEachern


ACT OF MORTGAGE         )      UNITED STATES OF AMERICA
AND SECURITY AGREEMENT  )


BY: GLADSTONE RESOURCES, INC.

                              THE STATE OF TEXAS       )

                              COUNTY  OF DALLAS        )
TO: COMPASS BANK

     BE IT KNOWN, that on this 15th day of July, 1999, before me,
the undersigned Notary Public, duly commissioned and qualified in
and for the State and County aforesaid, and in the presence of
the undersigned competent witnesses, personally came and appeared
the parties to this act (this "Mortgage") who are hereinafter
identified and who declared that they contract as follows:

ARTICLE 1 -- PARTIES

Art. 1.01 -- Mortgagor.
---------    ----------
     Gladstone Resources, Inc., a Washington corporation, the
     address for which for purposes hereof is 3500 Oak Lawn,
     Suite 590, Dallas, Texas 75219 ("Mortgagor"), represented
     herein by its undersigned officer, duly authorized by
     resolution of its Board of Directors, a certified copy which
     of has been annexed hereto and made a part hereof for all
     purposes, and the Taxpayer I.D. No. for which is 91-0234563.

Art. 1.02 -- Mortgagee.
---------    ----------
     Compass Bank, an Alabama state bank, the address for which
     for purposes hereof is 8080 N. Central Expressway, Suite
     370, Dallas, Texas 75206 ("Mortgagee"), represented herein
     by its undersigned duly authorized officer, and the Taxpayer
     I.D. No. for which is 63-0476286.

                               -1-


<PAGE>

        ARTICLE 2 -- MORTGAGE, PLEDGE, HYPOTHECATION AND
                        SECURITY INTEREST

Art. 2.01 -- Subject Property.
---------    -----------------

     As used herein, the term "Subject Property" shall mean all
of Mortgagor's right, title and interest whether now owned or
hereafter acquired, in and to the following:

          (1)  The oil, gas and mineral and leasehold estates
more particularly described in, or described in the instruments
to which reference is made in, the schedule(s) attached hereto,
marked Exhibit A for identification, and incorporated herein and
made a part hereof for all purposes (such oil, gas and mineral
and leasehold estates being the "Leases"), whether Mortgagor's
interests therein be incorrectly described or omitted, it being
intended by Mortgagor and Mortgagee to cover and effect hereby
all interests which Mortgagor may now own or hereafter acquire in
and to the Lease and lands described on Exhibit A notwithstanding
that the interests as specified on Exhibit A may be limited to
particular lands, specified depths or particular types of
property interests;

          (2)  Any and all wells now or hereafter situated on the
lands which are the subject of the Leases or lands pooled,
unitized or communitized therewith (herein collectively referred
to as the "Wells" and individually as a "Well"), all equipment,
machinery, fixtures and other items of personal property of every
character in any manner whatsoever related to any of the Wells or
used or held for use in connection with mineral operations
related to any of the Wells, including all gauges, derricks,
rigs, machinery, supplies, separators, pumping units, tanks,
pipe, pipe lines, field gathering lines and systems, tubing,
casing, rods, fittings, meters, tools, valves, gasoline
extraction plants, processing, compression, dehydration,
extraction plants and other fixtures, facilities, equipment,
appurtenances, accessories and improvements of every kind and
character, and all additions, replacements or substitutions to or
for such equipment now owned or hereafter acquired for such
purposes, including, without limitation, those items of personal
property described in Exhibit A;

          (3)  Any and all oil, gas and other minerals which may
be produced from the well bores of the Wells and the products and
proceeds derived from the processing, manufacture, sale or other
disposition thereof; and

          (4)  Any and all operating agreements, gas purchase
agreements, farm out agreements, pooling and unitization
agreements, sales contracts, processing agreements and other
contracts, agreements or incorporeal or intangible rights
(whether movable or immovable) of every kind and nature now or
hereafter acquired which in any manner whatsoever relate to or
affect any of the Wells.

Art. 2.02 -- Security Granted.
---------    -----------------

     Mortgagor specially grants to Mortgagee, as security for the
Secured Indebtedness described in Article 4, the following rights
in or over the Encumbered Property described in Article 3:

                               -2-

<PAGE>


     A.   A mortgage, hypothecation and pledge of the Subject
Property and such other portions of the Encumbered Property as
may be susceptible of being so encumbered; and

     B.   A security interest in all of the goods, including all
equipment, inventory and fixtures and all intangibles, including
all accounts and general intangibles, now or hereafter comprising
a part of the Encumbered Property.

                ARTICLE 3 -- ENCUMBERED PROPERTY

Art. 3.01 -- Property Defined.
---------    -----------------

     The property in and over which the security described in
Article 2.02 is granted and which collectively is herein referred
to as the "Encumbered Property" is the Subject Property, whether
now owned or hereafter acquired by Mortgagor, and all accounts,
general intangibles for the payment of money or other amounts now
or hereafter owed or accruing to Mortgagor with respect to the
Subject Property or derived from the ownership thereof or
accruing thereto, or arising out of or acquired in connection
with the Subject Property and all products and proceeds from the
Subject Property.

                ARTICLE 4 -- SECURED INDEBTEDNESS

Art. 4.01 -- Secured Indebtedness Defined.
---------    -----------------------------

     The security described in Article 2 (and the other rights of
Mortgagee herein stipulated) are given to secure the full and
punctual payment and performance of the following, all of which
are referred to as the "Secured Indebtedness":

     A.   The obligations of Mortgagor under (a) that certain
Credit Agreement dated July 15, 1999, between Mortgagor and
Mortgagee (as amended, the "Loan Agreement") relating to the
borrowing by Mortgagor of amounts from Mortgagee and (b) that
certain Promissory Note dated July 15, 1999, in the stated
principal amount of $15,000,000 issued by Mortgagor to Mortgagee
pursuant to the aforesaid Loan Agreement and finally maturing at
Final Maturity, which unless accelerated or amended pursuant to
the Loan Agreement is August 1, 2001, as either of such
agreements may be amended, modified, supplemented, renewed,
extended or restated from time to time (the "Governing
Agreements"), including, without limitation, the obligations of
Mortgagor to perform covenants, for the accuracy and completeness
of representations and warranties, and to reimburse Mortgagee for
amounts paid (together with applicable interest thereon) by
Mortgagee as the result of any failure of Mortgagor to perform
any such covenant or any inaccuracy or incompleteness in any such
representation or warranty.

     B.   All other loans and future advances made by Mortgagee
to Mortgagor, and all other debts, obligations and liabilities of
Mortgagor of every kind and character now or hereafter existing
in favor of Mortgagee, whether direct or indirect, primary or
secondary, joint or several, fixed or contingent and whether
originally payable to Mortgagee or to a third party and
subsequently acquired by Mortgagee, if and to the extent that
such indebtedness is evidenced

                               -3-

<PAGE>

by a writing which provides that such indebtedness is secured
hereby, it being contemplated that Mortgagor may hereafter become
indebted to Mortgagee for such further debts, obligations and
liabilities.

Art. 4.02 -- Maximum Amount of Security.
---------    ---------------------------

     The obligations described in Articles 4.01 A and B above,
respectively, are each secured by the mortgage of the Encumbered
Property granted in Article 2.02 A to the extent they do not in
the aggregate, exceed, at any one time and from time to time, an
amount equal to FIFTY MILLION DOLLARS ($50,000,000).

Art. 4.03 -- Security Not Limited.
---------    ---------------------

     Except as provided by Article 4.02 (and then only to the
extent such limitations are required by law), the entire amount
of the Secured Indebtedness is secured hereby without limitation
or reduction.

Art. 4.04 -- Continuation in Event of Novation.
---------    ----------------------------------

     The security granted by and the provisions of this Mortgage
shall continue with respect to any new obligation arising from
any novation (subjective or objective) of the Secured
Indebtedness as permitted by Louisiana Civil Code Art. 1884 as
well as to any other renewals, modifications, amendments,
revisions or extensions of any of the Secured Indebtedness.

Art. 4.05 -- Confession of Judgment for Mortgage.
---------    ------------------------------------

     For purposes of foreclosure under Louisiana executory
process procedures, Mortgagor hereby acknowledges the Secured
Indebtedness and confesses judgment in favor of Mortgagee for the
full amount of the Secured Indebtedness.

       ARTICLE 5 -- SECURED INDEBTEDNESS AND CERTAIN OTHER
                           OBLIGATIONS

Art. 5.01 -- Acknowledgment and Description of Note.
---------    ---------------------------------------

     Mortgagor acknowledges that it is indebted to Mortgagee in
the amount of the Secured Indebtedness.

Art. 5.02 -- Transfers and Assignments.
---------    --------------------------

     A.   Mortgagee may freely transfer all or any part of the
Secured Indebtedness or its rights under the terms of this
Mortgage.

     B.   If less than all of the Secured Indebtedness is
transferred, unless the transferor and transferee otherwise agree
in writing, each part of such indebtedness shall continue to
share pro-

                               -4-

<PAGE>


rata in the security and the transferor shall not be deemed to
have warranted or agreed to have subordinated any remaining or
future indebtedness to that transferred.

     C.   If Mortgagee transfers all of the Secured Indebtedness
held by it and all of its rights under this Mortgage to any
person or financial institution, it may deliver to such person or
institution any evidence of the Secured Indebtedness, and shall
forthwith be relieved of any obligation to return or restore the
same to Mortgagor, grant releases hereunder or otherwise have any
responsibility to Mortgagor for obligations accruing or acts or
events occurring thereafter.

Art. 5.03 -- Future Holders of Secured Indebtedness as Mortgagees.
---------    -----------------------------------------------------

     The term "Mortgagee," as used herein also includes any
person who subsequently takes the evidences of the Secured
Indebtedness after surrender thereof by the particular Mortgagee
named in Article 1.02.

        ARTICLE 6 -- ADDITIONAL DOCUMENTS AND ASSURANCES

     Mortgagor, upon request of Mortgagee, shall execute in
proper and customary form, adequate for their purposes, and file
or deliver to Mortgagee for filing or for such other purposes as
may be appropriate, any additional acts or instruments, and shall
take any other action that may be required, in Mortgagee's
opinion, to assure or confirm the rights granted Mortgagee
hereunder, to fully perfect Mortgagee's security as between the
parties or as to third persons as required by law and in the
manner contemplated and intended to be created by this Mortgage,
and to fully vest Mortgagee with the rights given by this
Mortgage or to fulfill Mortgagor's obligations hereunder.  The
entire cost and expense of such actions shall be paid by
Mortgagee.

          ARTICLE 7 -- WARRANTY AND LIMITATION THEREON

Art. 7.01 -- Express Warranty.
---------    ------------------

     Mortgagor expressly warrants to Mortgagee, that the
Mortgagor, to the extent of the interest specified in Exhibit A,
has legal, valid and defensible title to each property right or
interest constituting the Leases and the respective gross working
interests and net revenue interests of Mortgagor in and to the
hydrocarbons as set forth on Exhibit A hereto, and the
Mortgagor's percentage interests in the Leases, cash flow, net
income and other distributions and in the cost of exploration,
development and production, all as set forth in Exhibit A hereto,
are true and correct in all material respects and accurately
reflect the respective interests to which the Mortgagor is
legally entitled.

Art. 7.02 -- Defense and Indemnity.
---------    ---------------------

     A.   Mortgagor shall defend and indemnify Mortgagee against
any claim or demand made or asserted by any person contrary to
the warranty made in this or any other article of this Mortgage,
or inconsistent with Mortgagor's obligations thereunder, and
these obligations shall continue, notwithstanding the payment,
release, extinction or termination of the Secured

                               -6-

<PAGE>


Indebtedness or the security given herein, or the surrender by
Mortgagee of any evidence of the Secured Indebtedness and its
transfer to another.

     B.   If any claim, charge, lien or other encumbrance
contrary to the terms hereof exists or arises against Mortgagor
on all or any portion of the Encumbered Property, whether such
claim or encumbrance is inferior or superior to those created by
this Mortgage, Mortgagor shall promptly satisfy such claim and
remove such encumbrance from such Encumbered Property.

        ARTICLE 8 -- SALE OF PRODUCTION AND COLLECTION OF
                      ASSIGNED ACCOUNTS AND OTHER FUNDS

Art. 8.01 -- Right to Proceeds.
---------    ------------------

     Mortgagee may collect in its own name or that of Mortgagor
all amounts due to Mortgagor arising from or payable with respect
to the Encumbered Property, including all amounts derived from or
payable after the Effective Date, as defined in Article 12.13 of
this Mortgage, with respect to:

     A.   Oil, gas or other minerals produced from the Wells and
amounts payable with respect thereto under oil or gas sales
contracts, processing contracts or other contracts relating to
such minerals;

     B.   Rents, royalties, overriding royalties and other
amounts accruing to the Wells or receivable by Mortgagor as a
consequence thereof;

     C.   Amounts due Mortgagor under operating agreements,
service contracts or other contracts for the operation of the
Leases; and

     D.   Proceeds and any other amount or benefit accruing to
Mortgagor by, under or by virtue of the ownership, use, enjoyment
or disposition of the Encumbered Property.

Art. 8.02 -- Transfer and Division Orders and Other Documents.
---------    ------------------------------------------------

     Upon request of Mortgagee, Mortgagor shall execute and
deliver to Mortgagee or such persons as Mortgagee may direct,
written transfer or division orders, notices of assignment,
directions to pay Mortgagee, or any other document and shall take
such other steps as may in Mortgagee's judgment be necessary to
cause or permit Mortgagee to receive or enforce payment of any
amounts it is entitled to receive hereunder.

Art. 8.03 -- Representation to Payor.
---------    ------------------------

     To induce the person owing such amounts to make payment
directly to Mortgagee, Mortgagor relieves the payor of any
responsibility for seeing to the proper application thereof or
determining Mortgagee's right to receive or to continue to
receive such sums.  Mortgagor shall confirm these representations
directly to any person Mortgagee requests.

                               -6-

<PAGE>

Art. 8.04 -- Application of Funds.
---------    --------------------

     All amounts received by Mortgagee under the provisions of
this Mortgage from the Encumbered Property shall be applied to
the Secured Indebtedness, to the extent the same is due and
payable, and any excess shall be released to Mortgagor promptly.

Art. 8.05 -- Use of Proceeds.
---------    ---------------

     During periods when Mortgagee does not elect to receive any
proceeds or other amount accruing to the Encumbered Property,
Mortgagor may use such funds for any purpose that is not
inconsistent with this Mortgage.

Art. 8.06 -- Additional Security.
---------    -------------------

     All deposits or funds from any source or held for any reason
from time to time by Mortgagee and belonging or owed to Mortgagor
shall be part of the Encumbered Property.

Art. 8.07 -- Duty of Mortgagee.
---------    -----------------

     Mortgagee shall not be required to collect or exercise
diligence in collecting any funds or other amounts which it is
entitled to collect, hold or receive hereunder, nor for
improperly applying or crediting the same, whether or not the
obligor of such funds has been notified to pay Mortgagee and
shall be accountable only for such amounts as may actually and
finally be paid into Mortgagee's hands.

Art. 8.08 -- Authority to Act in Name of Mortgagor.
---------    -------------------------------------

     Mortgagee may act in the name and place of Mortgagor to take
any action necessary or appropriate in Mortgagee's judgment to
collect, enforce or otherwise realize any amounts it is entitled
to receive under the provisions of this Mortgage or to enjoy the
benefits of any right or privilege given Mortgagee hereunder or
by law.

       ARTICLE 9 -- MORTGAGEE'S RIGHT TO REMEDY FAILURE TO
          COMPLY WITH OBLIGATIONS OR BREACH OF WARRANTY

     A.   If Mortgagor for any reason fails to promptly make any
payment or perform any obligation required to be paid or
performed in accordance with the terms of this Mortgage or any
Governing Agreement or if Mortgagor performs any act inconsistent
with or contrary to such obligations; or if any representation or
warranty of Mortgagee made hereunder or in any Governing
Agreement or in connection herewith is materially incorrect or
false, Mortgagee may pay or perform the same or take such steps
as are, in Mortgagee's judgment necessary or appropriate to
remedy the actions of Mortgagor, discharge such claims of
encumbrances, or cause the matter that is the subject of the
representation or warranty to conform to the terms of this
Mortgage.

                               -7-

<PAGE>


     B.   Any amounts expended by Mortgagee and all costs and
expenses incurred by Mortgagee in exercising the rights granted
by Paragraph A immediately above, or by any other provision of
this Mortgage, resulting from the failure of Mortgagor to perform
its obligations hereunder in a timely manner shall be immediately
due and payable by Mortgagor to Mortgagee; become a part of the
Secured Indebtedness; be secured by the security created by this
Mortgage as previously provided and bear interest on such amounts
as are accrued or expended by Mortgagee until they are repaid by
Mortgagor at the highest rate permitted by law, or if no maximum
rate is authorized in such cases, at the highest rate of interest
provided in the Governing Agreements.  If Mortgagor fails to pay
such amounts when due, Mortgagee shall also recover all costs,
expenses and attorneys' fees incurred by Mortgagee in enforcing
the same.

    ARTICLE 10 -- PREPARATION OF ACT AND USE OF CERTAIN TERMS

Art. 10.01 -- Drafting of Act.
----------    ----------------

     Mortgagor and Mortgagee declare that each of them has
contributed to the drafting of this Mortgage and has had it
reviewed by its counsel before signing it.  Each agrees that it
has been purposefully drawn and correctly reflects its
understanding of the transaction that it contemplates.

Art. 10.02 -- Use of Defined Terms and Other Expressions.
----------    ------------------------------------------

     Mortgagor and Mortgagee particularly agree that those terms
that are given defined meanings in this article and elsewhere in
this Mortgage are intentionally utilized in those places where
they are employed and are to be understood in their defined sense
unless such meaning is expressly limited or qualified.

Art. 10.03 -- Headings and Construction of Agreement as a Whole.
----------    -------------------------------------------------

     A.   This Mortgage has been divided into articles,
subarticles and paragraphs for convenience only and such
subdivisions have been given titles for ease of reference.  The
titles to such subdivisions (and to the Exhibits) form no part of
the contract and resort is not to be had to them to aid in the
interpretation of this Mortgage or to limit, modify or restrict
its provisions.  The scope and nature of the obligations of the
parties is to be determined from the provisions of this Mortgage
as a whole and without regard to its divisions.

     B.   "Exhibit A" constitutes a part of this Mortgage and all
modifications, limitations or waivers of the warranties,
covenants and other general provisions hereof that are contained
in Exhibit A and described as pertaining to the property
particularly described therein modify such general provisions to
the extent such Exhibit expressly so provides.

                               -8-

<PAGE>

         ARTICLE 11 -- REMEDIES IN THE EVENT OF DEFAULT
             OR UPON THE HAPPENING OF CERTAIN EVENTS

Art. 11.01 -- Right to Accelerate Maturity.
----------    ----------------------------

     Mortgagee may declare the Secured Indebtedness immediately
due and payable if:

     A.   Mortgagor fails to pay when due or defaults in the
payment or performance of any part of the Secured Indebtedness or
other amount due under the terms of this Mortgage or any other
obligation owed by Mortgagor to Mortgagee, or if Mortgagor fails
to make any other payment or perform any other obligation
required to be paid or performed by Mortgagor to Mortgagee or any
other person under the terms of the Secured Indebtedness or this
Mortgage.

     B.   Mortgagor fails to perform or defaults in the
performance of any covenant, agreement, stipulation or condition
or other provision contained in this Mortgage or required to be
kept, observed or performed by Mortgagor in any Governing
Agreement or other document relating to the Secured Indebtedness;

     C.   Mortgagor becomes insolvent, is unable to pay its debts
as they mature, makes an assignment for the benefit of creditors,
applies for a respite or to be adjudicated a bankrupt, or applies
for relief under any state or federal statute for the relief of
debtors;

     D.   Any of the Wells or the Leases are levied upon or
seized in execution of a writ of executory process, attachment or
fieri facias or of any other writ or legal process of court;

     E.   A petition for voluntary or involuntary receivership,
bankruptcy, arrangement or reorganization is filed against
Mortgagor under any state or federal statute; or a trustee,
receiver or syndic is appointed for Mortgagor or its property;

     F.   Any of the warranties, representations or covenants
hereof or of any of the Governing Agreements is not or appears
not to be entirely true and correct or is breached; or

     G.   Mortgagor sells, leases, transfers or otherwise
disposes of all or substantially all of its properties or assets.

     H.   Any "Event of Default" occurs under any of the
Governing Agreements, as such term  is defined therein.

Art. 11.02 -- Additional Rights Upon Default.
----------    ------------------------------

     Upon the occurrence of any one or more of the events
described in Article 11.01, and in addition to any other right or
privilege granted to it by this Mortgage, by law or otherwise,
and without prejudice thereto:

     A.   Mortgagee may, at its option, without demand, notice of
intention to accelerate, notice of acceleration, notice of
nonpayment, presentment, protest, notice of dishonor, or any

                               -9-

<PAGE>

other notice to Mortgagor whatsoever, all of which are hereby
waived by Mortgagor to the full extent permitted by applicable
law, declare all Secured Indebtedness immediately due and
payable.

     B.   Mortgagee may cause the Encumbered Property to be
seized and sold under executory or other legal process issued by
any competent court, without appraisement (the benefit of all
laws relative to appraisement being hereby expressly waived), as
an entirety or in lots or parcels as Mortgagee may determine, to
the highest bidder for cash, or on such terms as the plaintiff in
such proceedings may direct.

     C.   In addition to the other rights granted herein to
Mortgagee, Mortgagee as Secured Party shall have and may exercise
all of the rights, remedies and powers of a secured party under
La. R.S. 10-9.101 et seq. (the "UCC"), including, without
limitation, the right and power to sell, at one or more public or
private sales, or otherwise dispose of or utilize the Encumbered
Property or any part thereof in any manner authorized or
permitted under the UCC after a default by a debtor, and to apply
the proceeds thereof toward payment of any reasonable costs and
expenses and attorney's fees and legal expenses thereby incurred
by Mortgagee as Secured Party and toward payment of the Secured
Indebtedness in such order or manner as Mortgagee may elect.

     D.   Mortgagor hereby expressly waives:

          (1)  The benefit of appraisement, as provided in
     Article 2332, 2336, 2723 and 2724, Louisiana Code of Civil
     Procedure, and all other laws conferring the same;

          (2)  The demand and three days' delay afforded by
     Articles 2639 and 2721, Louisiana Code of Civil Procedure;

          (3)  The notice of seizure required by Articles 2293
     and 2721 of the Louisiana Code of Civil Procedure;

          (4)  The three days' delay provided by Article 2331 and
     2722, Louisiana Code of Civil Procedure; and

          (5)  The benefit of the other provisions of Article
     2331, 2722 and 2723, Louisiana Code of Civil Procedure, and
     any other notices or conditions prescribed by law as a
     prerequisite to the institution of a suit or sale of the
     Encumbered Property.  Mortgagor expressly agrees to the
     immediate seizure of the Encumbered Property.

     E.   Mortgagee may purchase all or any portion of the
Encumbered Property at any sale made hereunder.

     F.   Mortgagee may cause a receiver or keeper to be
appointed to take possession of the Wells, the Leases and the
other Encumbered Property to manage, administer, operate and
conserve the value thereof and collect the rents, issues,
revenues, proceeds and profits thereof.  The receiver or keeper
may also take possession of, and for these purposes use any and
all movable property contained in or on the premises and used by
Mortgagor in the operation thereof

                              -10-


<PAGE>

or any part thereof, whether or not the same is covered by this
Mortgage.  After paying costs of collection and any other
expenses incurred, the proceeds shall be applied to the payment
of the Secured Indebtedness in such order as Mortgagee shall
elect, and Mortgagee shall not be liable to account to Mortgagor
for any loss, damage or neglect suffered to or by the Wells, the
Leases, the other Encumbered Property, or Mortgagor as a
consequence thereof, except such as are caused by the willful
misconduct or gross negligence of Mortgagee's own employees or
agents.

     G.   Mortgagee may designate any firm, person or corporation
to be the receiver or keeper of the Encumbered Property as
provided by La. R.S. 9:5132 and similar statutes.

     H.   All rights to the marshaling of assets are expressly
waived.  Neither Mortgagor nor any party claiming or asserting
any interest in or right over the Encumbered Property shall have
the right to require their sale in any special order or a
marshaling of assets, appraisement, redemption, stay or extension
of proceedings, or a moratorium on indebtedness with respect
thereto or to the Secured Indebtedness.

     I.   Mortgagee may require Mortgagor to assemble the
Encumbered Property and make it available to Mortgagee at a place
to be designated by Mortgagee that is reasonably convenient to
all parties.  Mortgagee shall be fully liable for all costs of
retaking, holding, preparing for sale, lease or other use or
disposition, selling, leasing or otherwise using or disposing of
the Encumbered Property which are incurred or paid by Mortgagee
as authorized or permitted hereunder, including also all
reasonable attorney's fees, legal expenses and costs, all of
which expenses and costs shall constitute a part of the Secured
Indebtedness.  MORTGAGOR SHALL AND DOES HEREBY AGREE TO INDEMNIFY
MORTGAGEE, AND ITS OFFICERS, DIRECTORS, PARTNERS, SHAREHOLDERS,
EMPLOYEES AND REPRESENTATIVES, AND THEIR SUCCESSORS AND ASSIGNS,
FOR, AND TO HOLD EACH OF THEM HARMLESS FROM, ANY AND ALL
LIABILITY, LOSS OR DAMAGE WHICH MAY OR MIGHT BE INCURRED BY ANY
OF THEM BY REASON OF THIS MORTGAGE OR THE EXERCISE OF RIGHTS OR
REMEDIES HEREUNDER; SHOULD MORTGAGEE INCUR ANY SUCH LIABILITY,
LOSS OR DAMAGE THE AMOUNT THEREOF, INCLUDING COSTS, EXPENSES AND
REASONABLE ATTORNEYS' FEES, SHALL BE A DEMAND OBLIGATION OWING BY
MORTGAGOR TO MORTGAGEE AND SHALL BEAR INTEREST FROM THE DATE
INCURRED UNTIL PAID AT THE RATE PROVIDED FOR IN ARTICLE 9 HEREOF
AND SHALL BE A PART OF THE SECURED INDEBTEDNESS AND SHALL BE
SECURED BY THIS MORTGAGE AND ANY OTHER INSTRUMENT SECURING THE
SECURED INDEBTEDNESS.  THE INDEMNITY PROVIDED HEREIN SHALL
TERMINATE FIVE YEARS AFTER THE REPAYMENT OF THE SECURED
INDEBTEDNESS.  NO PERSON SHALL BE ENTITLED UNDER THIS ARTICLE
11.02 TO RECEIVE INDEMNIFICATION FOR THAT PORTION, IF ANY, OF ANY
LIABILITIES AND COSTS WHICH ARE PROXIMATELY CAUSED BY ITS OWN
INDIVIDUAL FRAUD, NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED
IN A FINAL JUDGMENT.  Mortgagor hereby assents to, ratifies and
confirms any and all actions of Mortgagee taken with respect to
the Encumbered Property pursuant to this Article 11.

                              -11-

<PAGE>


Art. 11.03 -- Rights and Remedies Cumulative.
----------    ------------------------------

     All rights, powers, immunities, remedies and liens of
Mortgagee existing and to exist hereunder or under any other
instruments or at law or in equity and all other or additional
security shall be cumulative and not exclusive, each of the
other.  Mortgagee shall, in addition to the rights and remedies
herein expressly provided, be entitled to such other remedies as
may now or hereafter exist at law or in equity for securing and
collecting the Secured Indebtedness, for enforcing the covenants
herein, and for foreclosing the liens hereof.  Resort by
Mortgagee to any right or remedy provided for hereunder or at law
or in equity shall not prevent concurrent or subsequent resort to
the same or any other right or remedy.  No security heretofore,
herewith or subsequently taken by Mortgagee shall in any manner
impair or affect the security given by this instrument or any
security by endorsement or otherwise presently or previously
given; and all security shall be taken, considered and held as
cumulative.

                   ARTICLE 12 -- MISCELLANEOUS

Art. 12.01 -- Instrument Filed as Financing Statement.
----------    ---------------------------------------

     Any copy of this Mortgage which is signed by Mortgagor or
any carbon, photographic, facsimile or other reproduction of this
Mortgage may also serve as a financing statement under the UCC by
Mortgagor in favor of Mortgagee.

Art. 12.02 -- Fixtures.
----------    ---------

     Certain of the Encumbered Property is or may become
"fixtures" (as that term is defined in the UCC) on the real or
immovable property described in Exhibit A hereto and this
instrument shall operate also as a financing statement upon such
of the Encumbered Property which is or may become fixtures.
Mortgagor has an interest of record in the real estate.

Art. 12.03 -- Addresses.
----------    ----------

     For purposes of filing this instrument as a financing
statement, the addresses for Mortgagor, as debtor, and Mortgagee,
as secured party, are as set forth in Article 1 of this Mortgage.

Art. 12.04 -- Financing Statement.
----------    --------------------

     Mortgagee is authorized to file, in jurisdictions where this
authorization will be given effect, a financing statement signed
only by Mortgagee covering the Encumbered Property.  At the
request of Mortgagee, Mortgagor will join Mortgagee in executing
one or more financing statements covering the Encumbered Property
pursuant to the UCC in form satisfactory to Mortgagee.  Mortgagee
shall pay the cost of filing or refiling any such financing
statement and of filing or refiling or recording or re-recording
this Mortgage, as a financing statement, in all public offices at
any time and from time to time whenever filing or recording of
any financing statement or this Mortgage is deemed by Mortgagee
to be necessary or desirable.

                              -12-

<PAGE>

Art. 12.05 -- Future Obligations.
----------    ------------------

     In accordance with the provisions of Louisiana Civil Code
article 3298, as amended from time to time, if Mortgagor shall
pay in full when due the Secured Indebtedness and shall duly and
timely perform and observe all of the terms, provisions,
covenants and agreements herein and in the Governing Agreements
provided to be performed and observed by Mortgagor, and if
neither Mortgagor nor Mortgagee is bound to the other or to any
third person to permit any further obligation to be incurred then
or thereafter, then Mortgagor may give notice to Mortgagee of its
intent to terminate this Mortgage and may request that Mortgagee
execute a release of this Mortgage at the expense of Mortgagor.
Such termination shall not become effective, and Mortgagee shall
not be obligated to execute such a release, until thirty (30)
days after Mortgagee has actually received such notice at its
address set forth in Article 12.06 of this Mortgage and until
Mortgagee has determined, in good faith, that Mortgagor is
entitled to terminate this Mortgage and obtain such release under
the terms of this Article 12.05.

Art. 12.06 -- Notices.
----------    -------
     All notices, requests, consents, demands and other
communications required or permitted under this Mortgage shall be
in writing, unless otherwise specifically provided herein, and
shall be deemed sufficiently given or furnished if delivered by
personal delivery, by telecopy, by delivery service with proof of
delivery, or by registered or certified United States mail,
postage prepaid, to Mortgagor or Mortgagee, as the case may be,
at the address of such party specified in Article 1 of this
Mortgage (unless changed by similar notice in writing given by
the particular person whose address is to be changed).

Art. 12.07 -- Severability.
----------    ------------

     A determination that any provision of this Mortgage is
unenforceable or invalid shall not affect the enforceability or
validity of any other provision, and any determination that the
application of any provision of this Mortgage to any person or
circumstance is illegal or unenforceable shall not affect the
enforceability or validity of such provision as it may apply to
other persons or circumstances.

Art. 12.08 -- Recording.
----------    ---------

     Mortgagee, or Mortgagor at the request of Mortgagee, will
cause this Mortgage and all amendments and supplements thereto
and substitutions therefor and all financing statements, fixture
filings and continuation statements relating thereto to be
recorded, filed, re-recorded and re-filed in such manner and in
such places as Mortgagee shall reasonably request and Mortgagee
pay or reimburse Mortgagor for all such recording, filing,
re-recording and re-filing taxes, fees and other charges.

Art. 12.09 -- Execution in Counterparts.
----------    --------------------------

     This Mortgage is executed in multiple counterparts.  For
recording purposes, Exhibit A attached to various counterparts of
this Mortgage may contain a description of the Wells, the

                              -13-
<PAGE>


Leases, and other Encumbered Property relating only to the
jurisdiction in which the counterpart is to be filed for registry
or recordation.  Each counterpart shall for all purposes be
deemed to be an original and all such counterparts shall together
constitute but one and the same instrument and juridical act.
Complete copies of this Mortgage containing descriptions of all
the Wells, the Leases and other Encumbered Property have been
retained by Mortgagor and Mortgagee.

Art. 12.10 -- Governing Law.
----------    -------------

     THE TERMS AND PROVISIONS OF THIS MORTGAGE RELATING TO THE
CREATION, PERFECTION AND ENFORCEMENT OF THE ENCUMBRANCES AND
SECURITY INTERESTS CREATED BY THIS MORTGAGE AND THE REALIZATION
BY MORTGAGEE OF ITS RIGHTS AND REMEDIES UNDER THIS MORTGAGE OR
WITH RESPECT TO THE ENCUMBERED PROPERTY LOCATED IN OR OFFSHORE
THE STATE OF LOUISIANA, SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF LOUISIANA
(WITHOUT GIVING EFFECT TO THE CONFLICTS-OF-LAW RULES AND
PRINCIPLES OF SUCH STATE) AND APPLICABLE LAWS OF THE UNITED
STATES.  ALL OTHER TERMS AND PROVISIONS OF THIS MORTGAGE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF TEXAS AND APPLICABLE FEDERAL LAW.

Art. 12.11 -- Jurisdiction.

     MORTGAGOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE
STATES OF TEXAS, LOUISIANA AND EACH OTHER STATE WHERE THE
ENCUMBERED PROPERTY IS LOCATED AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATING TO THIS MORTGAGE, THE GOVERNING AGREEMENTS OR THE
SECURED INDEBTEDNESS BY SERVING THE SECRETARY OF STATE OF SUCH
STATE IN ACCORDANCE WITH ANY PROVISION OF SUCH STATE'S LAWS
GOVERNING SERVICE OF PROCESS UPON FOREIGN CORPORATIONS OR
ENTITIES.

Art. 12.13 -- Effective Date.
----------    --------------

     This Mortgage is made to be effective as of 7:00 o'clock
a.m. local time on July 15, 1999, in Dallas, Dallas County, Texas
(the "Effective Date").

                              -14-

<PAGE>


     THUS DONE AND PASSED in multiple originals in my office in
Dallas, Dallas County, Texas, by the persons who appear above my
signature below in the presence of the two undersigned competent
witnesses who have signed their names hereto, and me, Notary, on
the date and in the month and year first herein above written,
after due reading of the whole.

                                   MORTGAGOR:

WITNESSES TO ALL                   GLADSTONE RESOURCES, INC.
SIGNATURES:


/s/MELISSA PARADIS                 By:  /s/ JOHNATHAN M. HILL
-----------------------------           -------------------------
                                   Printed Name: Johnathan M. Hill
Melissa Paradis                    Title:  President
-----------------------------
(Printed Name of Witness)
                                   MORTGAGEE:

/s/ ELIZABETH GRIFFIN              COMPASS BANK
------------------------------
Elizabeth Griffin
------------------------------
(Printed Name of Witness)          By:  /s/ TERRY O. MCCARTER
                                       -----------------------------
                                       Printed Name:  Terry O. McCarter
                                       Title:  Senior Vice President


                           /s/  LAURA A. DOOLEY
                         ------------------------------
                         Notary Public in and for
                              State of Texas

                         [Notary Seal of Laura A. Dooley
                          Notary Public, State of Texas
                           My Comm. Exp. 09/09/2000]

                              -15-

<PAGE>


                            EXHIBIT A
                               TO
             ACT OF MORTGAGE AND SECURITY AGREEMENT
             --------------------------------------

     The designation "Working Interest" or "W.I." when used in
this Exhibit means an interest owned in an oil, gas, and mineral
lease that determines the cost-bearing percentage of the owner of
such interest.  The designation "Net Revenue Interest" or
"N.R.I." means the equivalent interest in all oil, gas, and other
minerals which may be produced from any wells located on such
leases (or allocable to such leases if the leases described in
this Exhibit are included within a unit) and attributable to the
owner of a Working Interest after deduction for all royalty
burdens, overriding royalty burdens or other burdens on
production, except severance, production, and other similar
taxes.  The designation "Overriding Royalty Interest" or "ORRI"
means an interest in production which is free of any obligation
for the expense of exploration, development, and production,
bearing only its pro rata share of severance, production, and
other similar taxes and, in instances where the document creating
the overriding royalty interest so provides, costs associated
with compression, dehydration, other treating or processing, or
transportation of production of oil, gas, or other minerals
relating to the marketing of such production.  The designation
"Royalty Interest" or "RI" means an interest in production which
results from an ownership in the mineral fee estate or royalty
estate in the relevant land (or from ownership of the land or
royalty created by an owner of land) and which is free of any
obligation for the expense of exploration, development, and
production, bearing only its pro rata share of severance,
production, and other similar taxes and, in instances where the
document creating the royalty interest so provides, costs
associated with compression, dehydration, other treating or
processing or transportation of production of oil, gas, or other
minerals relating to the marketing of such production.

     Any reference in this Exhibit to wells or units or to
working interests, net revenue interests or overriding royalty
interests are for warranty of interests, administrative
convenience, and identification and shall not limit or restrict
the right, title, interest, or properties covered by this
Mortgage.  All right, title, and interest of Mortgagor in the
properties described herein are and shall be subject to this
Mortgage, regardless of the presence of any units or wells not
described herein and regardless if the interests of Mortgagor
exceed those interests delineated or warranted herein.