CREDIT AGREEMENT


                                     between


                      FORTUNE NATURAL RESOURCES CORPORATION
                                    BORROWER


                         CREDIT LYONNAIS NEW YORK BRANCH
                                      AGENT


                                       and


                                 CERTAIN LENDERS
                                     LENDERS




                                  July 11, 1997


<PAGE>



                                       TABLE OF CONTENTS

SECTION 1.     DEFINITIONS AND TERMS...........................................1
        1.1    Definitions.....................................................1
        1.2    Time References................................................10
        1.3    Other References...............................................10
        1.4    Accounting Principles..........................................10

SECTION 2.     COMMITMENT.....................................................11
        2.1    Revolving Facility.............................................11
        2.2    Borrowing Procedure............................................11
        2.3    Letters of Credit..............................................12
        2.4    Borrowing Notices and LC Requests..............................14
        2.5    Termination....................................................14
        2.6    Borrowing Base Determinations..................................14

SECTION 3.     TERMS OF PAYMENT...............................................16
        3.1    Notes and Payments.............................................16
        3.2    Interest and Principal Payments................................16
        3.3    Interest Options...............................................17
        3.4    Quotation of Rates.............................................17
        3.5    Default Rate...................................................17
        3.6    Interest Recapture.............................................17
        3.7    Interest Calculations..........................................17
        3.8    Maximum Rate...................................................17
        3.9    Interest Periods...............................................18
        3.10   Conversions....................................................18
        3.11   Order of Application...........................................18
        3.12   Sharing of Payments, Etc.......................................19
        3.13   Offset.........................................................19
        3.14   Booking Borrowings.............................................19
        3.15   Basis Unavailable or Inadequate for LIBOR Rate.................19
        3.16   Additional Costs...............................................20
        3.17   Change in Laws.................................................21
        3.18   Funding Loss...................................................21
        3.19   Foreign Lenders, Participants, and Assignees...................21

SECTION 4.     FEES...........................................................21
        4.1    Treatment of Fees..............................................21
        4.2    Fees to Agent and Affiliates...................................21
        4.3    LC Fees........................................................22

SECTION 5.     SECURITY.......................................................22
        5.1    Guaranty.......................................................22
        5.2    Collateral.....................................................22
        5.3    Collateral Account.............................................23
        5.4    Further Assurances.............................................24
        5.5    Release of Collateral..........................................24

SECTION 6.     CONDITIONS PRECEDENT...........................................24

SECTION 7.     REPRESENTATIONS AND WARRANTIES.................................24
        7.1    Purpose and Regulation U.......................................24
        7.2    Corporate Existence, Good Standing, and Authority..............25


                                       (i)
<PAGE>
        7.3    Subsidiaries and Names.........................................25
        7.4    Authorization and Contravention................................25
        7.5    Binding Effect.................................................25
        7.6    Financials and Existing Debt...................................25
        7.7    Budget.........................................................26
        7.9    Litigation.....................................................26
        7.10   Taxes..........................................................26
        7.11   Environmental Matters..........................................26
        7.12   Employee Plans.................................................27
        7.13   Properties; Liens..............................................27
        7.14   Government Regulations.........................................28
        7.15   Transactions with Affiliates...................................28
        7.16   Debt...........................................................28
        7.17   Leases.........................................................28
        7.18   Labor Matters..................................................28
        7.19   Intellectual Property..........................................28
        7.20   Full Disclosure................................................28
        7.21   Estimated Oil and Gas Reserves.................................29
        7.22   Working Interest...............................................29
        7.23   Net Revenue Interest...........................................29
        7.24   Burdensome Contracts...........................................29
        7.25   Regulatory Defects.............................................29
        7.26   Agreements Affecting Mineral Interests.........................29
        7.27   Locations of Business, Offices.................................29

SECTION 8.     AFFIRMATIVE COVENANTS..........................................29
        8.1    Certain Items Furnished........................................30
        8.2    Use of Credit..................................................32
        8.3    Books and Records..............................................32
        8.4    Inspections....................................................32
        8.5    Taxes..........................................................32
        8.6    Payment of Obligation..........................................32
        8.7    Expenses.......................................................32
        8.8    Maintenance of Existence, Assets, and Business.................32
        8.9    Insurance......................................................33
        8.10   Environmental Matters..........................................33
        8.11   Subsidiaries...................................................33
        8.12   INDEMNIFICATION................................................33
        8.13   Operations and Properties......................................34
        8.14   Leases.........................................................34
        8.15   Development and Maintenance....................................34
        8.16   Maintenance of Liens...........................................34

SECTION 9.     NEGATIVE COVENANTS.............................................35
        9.1    Payroll Taxes..................................................35
        9.2    Debt...........................................................35
        9.3    Letters of Credit..............................................35
        9.4    Liens..........................................................35
        9.5    Employee Plans.................................................35
        9.6    Transactions with Affiliates...................................35
        9.7    Compliance with Laws and Documents.............................35
        9.8    Loans, Advances, and Investments...............................36
        9.9    Distributions..................................................36


                                       (ii)
<PAGE>
        9.10   Disposition of Assets..........................................36
        9.11   Mergers, Consolidations, and Dissolutions......................36
        9.12   Assignment.....................................................36
        9.13   Fiscal Year and Accounting Methods.............................36
        9.14   New Businesses.................................................36
        9.15   Government Regulations.........................................36
        9.16   Strict Compliance..............................................36
        9.17   Alteration of Material Agreements..............................36
        9.18   Operating Agreements...........................................37
        9.19   Burdensome Contracts...........................................37
        9.20   Marketing Contracts............................................37

SECTION 10.    FINANCIAL COVENANTS............................................37
        10.1   Current Ratio..................................................37
        10.2   Fixed-Charge Coverage..........................................37
        10.3   Coverage of Subordinated Debt..................................37

SECTION 11.    DEFAULT........................................................37
        11.1   Payment of Obligation..........................................37
        11.2   Covenants......................................................37
        11.3   Debtor Relief..................................................38
        11.4   Judgments and Attachments......................................38
        11.5   Government Action..............................................38
        11.6   Misrepresentation..............................................38
        11.7   Ownership of Companies.........................................38
        11.8   Change of Control of Borrower..................................38
        11.9   Other Funded Debt..............................................39
        11.10  SEC Reporting Requirements.....................................39
        11.11  Validity and Enforceability....................................39
        11.12  LCs............................................................39

SECTION 12.    RIGHTS AND REMEDIES............................................39
        12.1   Remedies Upon Default..........................................39
        12.2   Company Waivers.  .............................................40
        12.3   Performance by Agent...........................................40
        12.4   Not in Control.................................................40
        12.5   Course of Dealing..............................................40
        12.6   Cumulative Rights..............................................40
        12.7   Application of Proceeds........................................41
        12.8   Certain Proceedings............................................41
        12.9   Expenditures by Lenders........................................41
        12.10  Diminution in Value of Collateral..............................41

SECTION 13.    AGENT AND LENDERS..............................................41
        13.1   Agent..........................................................41
        13.2   Expenses.......................................................42
        13.3   Proportionate Absorption of Losses.............................43
        13.4   Delegation of Duties; Reliance.................................43
        13.5   Limitation of Agent's Liability................................43
        13.6   Default........................................................44
        13.7   Collateral Matters.............................................44
        13.8   Limitation of Liability........................................45
        13.9   Relationship of Lenders........................................45


                                       (iii)
<PAGE>
        13.10  Benefits of Agreement..........................................45

SECTION 14.    MISCELLANEOUS..................................................45
        14.1   Nonbusiness Days...............................................45
        14.2   Communications.................................................45
        14.3   Form and Number of Documents...................................46
        14.4   Exceptions to Covenants........................................46
        14.5   Survival.......................................................46
        14.6   Governing Law..................................................46
        14.7   Invalid Provisions.............................................46
        14.8   Amendments, Consents, Conflicts, and Waivers...................46
        14.9   Multiple Counterparts..........................................47
        14.10  Parties........................................................47
        14.11  Venue, Service of Process, and Jury Trial......................48
        14.12  ENTIRETY.......................................................49


                                    SCHEDULES AND EXHIBITS

        Schedule 2     - Lenders  and  Commitments
        Schedule 6     - Closing Documents   
        Schedule 7.3   - Companies   and  Names  
        Schedule 7.9   - Litigation  
        Schedule 7.11  - Environmental  Matters 
        Schedule 7.15  - Affiliate  Transactions  
        Schedule 9.2   - Permitted Debt
        Schedule 9.4   - Permitted Liens
        Schedule 9.8   - Permitted Loans, Advances, and Investments

        Exhibit A      - Revolving Note
        Exhibit B      - Mortgaged Properties
        Exhibit C      - Form of Production Report
        Exhibit D-1    - Borrowing Request
        Exhibit D-2    - Conversion Notice
        Exhibit D-3    - LC Request
        Exhibit D-4    - Compliance Certificate
        Exhibit E-1    - Opinion of Counsel  to Companies
        Exhibit E-2    - Opinion of Louisiana Counsel to Companies
        Exhibit E-3    - Opinion of Texas Counsel to Companies
        Exhibit F      - Assignment and Assumption Agreement


                                       (iv)
<PAGE>
                                CREDIT AGREEMENT


               THIS  AGREEMENT  is  entered  into as of July 11,  1997,  between
FORTUNE  NATURAL  RESOURCES  CORPORATION,  a Delaware  corporation  ("BORROWER")
formerly known as Fortune Petroleum  Corporation,  Lenders (defined below),  and
CREDIT  LYONNAIS  NEW YORK  BRANCH,  a duly  licensed  branch under the New York
Banking Law of a foreign  banking  corporation  organized  under the laws of the
Republic of France, as agent for Lenders.

        The Borrower and Bank One, Texas, National Association ("BANK ONE") have
previously  entered into that certain Credit  Agreement  dated January 14, 1994,
(such Credit Agreement,  as the same may have been heretofore amended, is herein
referred to as the "PRIOR  CREDIT  AGREEMENT").  The Borrower  desires to obtain
refinancing  of  its  existing   obligations  and  indebtedness  (the  "EXISTING
INDEBTEDNESS") under the Prior Credit Agreement and the other Loan Documents (as
defined in the Prior Credit Agreement) and certain additional financing from the
Lenders.  The Agent and the Lenders have agreed to provide such  refinancing  of
the Existing  Indebtedness  and  additional  financing in the maximum  principal
amount not to exceed the lesser of $2,000,000 or the Borrowing Base (hereinafter
defined) on the terms and conditions  provided herein. Bank One has executed and
delivered,  contemporaneously  herewith,  the Bank One  Assignment  (hereinafter
defined) in favor of the Agent, for the benefit of the Lenders, resulting in the
Lenders being the current owners and holders of the Existing  Indebtedness.  The
Borrower,  the  Lenders and the Agent have agreed to amend and restate the Prior
Credit Agreement, in its entirety, as set forth below.

        ACCORDINGLY,  for  adequate  and  sufficient  consideration,   Borrower,
Lenders, and Agent agree as follows:

SECTION 1.     DEFINITIONS AND TERMS

        1.1    Definitions.  As used in the Loan Documents:

        AFFILIATE of a Person means any other  individual or entity who directly
or indirectly  controls,  is controlled by, or is under common control with that
Person.  For purposes of this  definition  (a) "CONTROL,"  "CONTROLLED  BY," and
"UNDER COMMON CONTROL WITH" mean possession, directly or indirectly, of power to
direct or cause  the  direction  of  management  or  policies  (whether  through
ownership of voting securities or other interests,  by contract,  or otherwise),
and (b) the Companies are "AFFILIATES" of each other.

        AGENT  means,  at any time,  Credit  Lyonnais  New York  Branch,  a duly
licensed branch under the New York Banking Law of a foreign banking  corporation
organized under the laws of the Republic of France -- or its successor appointed
under SECTION 13 -- acting as "AGENT" for Lenders under the Loan Documents.

        APPLICABLE  MARGIN  means,  for any day, a margin of  interest  equal to
1.25% over the Base Rate, or 4.00% over the LIBOR Rate, as the case may be, that
is  applicable  when the Base Rate or LIBOR Rate, as  applicable,  is determined
under this agreement.

        APPLICABLE  PERCENTAGE  means,  for any day, a commitment fee percentage
applicable under SECTION 4.4, equal to 0.50%.

        ASSIGNEE is defined in SECTION 14.10(C).

        ASSIGNMENTS is defined in SECTION 14.10(C).


                                       1
<PAGE>
        BANK ONE ASSIGNMENT shall mean that certain Assignment of Notes,  Liens,
Security Interests,  Collateral Security and other Rights of even date herewith,
executed  by Bank One,  acting in its  capacity  as the  Lender  under the Prior
Credit  Agreement,  in favor of the Agent,  for the benefit of the Banks, as the
same may be from time to time modified, amended or supplemented.

        BASE RATE  means,  for any day,  the  greater  of EITHER  (a) the annual
interest rate most recently announced by Agent as its reference rate of interest
for short-term commercial loans in U.S. dollars to Domestic borrowers (which may
not  necessarily  represent  the  lowest or best rate  actually  charged  to any
customer) in effect at its principal office in New York, New York, automatically
fluctuating  upward and  downward  as  specified  in each  announcement  without
special  notice  to  Borrower  or  any  other  Person,  OR  (b)  the  SUM of the
Federal-Funds Rate PLUS 0.5%.

        BASE-RATE BORROWING means a Borrowing bearing interest at the SUM of the
Base Rate plus the Applicable Margin.

        BORROWER is defined in the preamble to this agreement.

        BORROWING means any amount  disbursed under the Loan Documents by one or
more Lenders to or on behalf of Borrower under the Loan Documents,  either as an
original  disbursement  of funds, a renewal,  extension,  or  continuation of an
amount outstanding, or a payment under an LC.

        BORROWING BASE shall mean the loan value of the Mortgaged  Properties as
Lenders  determine,  in their sole  discretion,  from time to time  pursuant  to
SECTION 2.6 hereof.

        BORROWING-BASE  DEFICIENCY  means any amount by which the  limitation in
SECTION 2.2(C) is exceeded,  whether  because the  Commitments for the Revolving
Facility have been fully or partially terminated or canceled, the Borrowing Base
has been reduced or for any other reason.

        BORROWING DATE is defined in SECTION 2.2(A).

        BORROWING   REQUEST  means  a  request,   subject  to  SECTION   2.2(A),
substantially in the form of EXHIBIT D-1.

        BUDGET is defined in SECTION 8.1(E).

        BUSINESS  DAY means any day,  other than a  Saturday  or Sunday or legal
holiday,  on which (i) commercial  banks  generally are open for business in New
York, New York and Houston, Texas and (ii) in the case of LIBOR Rate Borrowings,
dealings  in  eurodollar  deposits  are  generally  carried  out in  the  London
interbank eurodollar market.

        CAPITAL  LEASE means any capital  lease or sublease  that is required by
GAAP to be capitalized on a balance sheet.

        CAPITALIZATION  means  -- for  any  Person,  at any  time,  and  without
duplication -- the SUM of (a) its stockholders' equity PLUS (b) its Funded Debt.

        CASH FLOW FROM  OPERATIONS  means,  for any  Person,  for any period and
without duplication,  Net Income plus or minus, as applicable, the net aggregate
amount of Non-Cash Adjustments.

        CERCLA means the COMPREHENSIVE ENVIRONMENTAL RESPONSE,  COMPENSATION AND
LIABILITY ACT OF 1980, 42 U.S.C. Sections 9601 ET SEQ.

                                       2
<PAGE>
        CLOSING  DATE  means the date  agreed to by  Borrower  and Agent for the
initial Borrowing, which must be a Business Day occurring no later than July 11,
1997.

        CODE means the INTERNAL REVENUE CODE OF 1986.

        COLLATERAL is defined in SECTION 5.2.

        COLLATERAL DOCUMENTS is defined in SECTION 5.2.

        COMMITMENT  means,  at any time and for any Lender,  the amounts  stated
beside  that  Lender's  name on the  most-recently  amended  SCHEDULE  2 for the
Revolving  Facility  (which amount is subject to reduction and  cancellation  as
provided in this agreement).

        COMMITMENT PERCENTAGE means, for any Lender, the proportion (stated as a
percentage) that its Commitment bears to the total Commitments of all Lenders.

        COMMITMENT  USAGE means,  at any time, the SUM of (a) the Principal Debt
PLUS (b) the LC Exposure.

        COMPANIES means, at any time, Borrower and each of its Subsidiaries.

        COMPLIANCE CERTIFICATE means a certificate  substantially in the form of
EXHIBIT D-4 and signed by a Responsible Officer.

        CONVERSION   NOTICE   means  a  request,   subject   to  SECTION   3.10,
substantially in the form of EXHIBIT D-2.

        CURRENT  FINANCIALS,  unless  otherwise  specified  means EITHER (i) the
Companies'  consolidated  Financials  for the  year  ended  December  31,  1996,
TOGETHER WITH the Companies'  Financials for the three months ended on March 31,
1997,  OR (ii) at any time after annual  Financials  are first  delivered  under
SECTION 8.1, the Companies'  annual  Financials then most recently  delivered to
Lenders under SECTION 8.1(A),  TOGETHER WITH the Companies' quarterly Financials
then most recently delivered to Lenders under SECTION 8.1(B).

        DEBT means -- for any person,  at any time,  and without  duplication --
the SUM of (a) all  obligations  required  by GAAP to be  classified  upon  that
Person's balance sheet as liabilities, (b) liabilities secured (or for which the
holder of the Debt has an existing  Right,  contingent  or  otherwise,  to be so
secured) by any Lien existing on property owned or acquired by that Person,  (c)
obligations  that have been (or under GAAP should be)  capitalized for financial
reporting purposes, PLUS (d) all guaranties,  endorsements, and other contingent
obligations for Debt of others.

        DEBTOR LAWS means the  BANKRUPTCY  CODE OF THE UNITED  STATES OF AMERICA
and all other applicable liquidation,  conservatorship,  bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
or similar Laws affecting creditors' Rights.

        DEFAULT is defined in SECTION 11.

        DEFAULT RATE means,  for any day, an annual interest rate equal from day
to day to the lesser of EITHER (a) the then-existing Base Rate PLUS 3.25% OR (b)
the Maximum Rate.

        DETERMINING  LENDERS  means,  at any time,  any  combination  of Lenders
holding  (directly  or  indirectly)  AT  LEAST  EITHER  (a)  60%  of  the  total
Commitments  while there is no  Principal  Debt or LC 

                                       3
<PAGE>

Exposure OR (b) 60% of the  Principal  Debt PLUS the LC Exposure  while there is
any Principal Debt or LC Exposure.

        DISTRIBUTION  means,  with respect to any shares of any capital stock or
other  equity  securities  issued by a Person  (a) the  retirement,  redemption,
purchase,  or  other  acquisition  for  value  of  those  securities,   (b)  the
declaration  or payment of any dividend on or with respect to those  securities,
(c) any loan or advance by that  Person to, or other  investment  by that Person
in, the  holder of any of those  securities,  and (d) any other  payment by that
Person with respect to those securities.

        DOMESTIC means, in respect of any Person, organized under the Laws of --
and domiciled in -- the United States of America or one of its states.

        EMPLOYEE PLAN means an employee-pension-benefit plan covered by TITLE IV
of ERISA and established or maintained by any Company.

        ENVIRONMENTAL   INDEMNITY  AGREEMENT  means  any  agreement  (including,
without  limitation,  insurance  policies)  by  which a  Restricted  Company  or
Predecessor is entitled to receive  reimbursement or other payment on account of
any  Environmental  Liability  OTHER  THAN any  agreements  (a) in the nature of
environmental  consulting or engineering agreements for professional services or
(b) the terms of which  preclude that Company or  Predecessor  from  asserting a
claim  for  reimbursement  or other  payment  on  account  of any  Environmental
Liability.

        ENVIRONMENTAL  INVESTIGATION means any health,  safety, or environmental
site assessment,  investigation,  study,  review,  audit,  compliance  audit, or
compliance  review  conducted at any time or from time to time -- whether at the
request of Agent or any Lender, upon the order or request of any Tribunal, or at
the voluntary  instigation of any Company -- concerning any Real Property or the
business operations or activities of any Company, including,  without limitation
(a) air,  soil,  groundwater,  or  surface-water  sampling and  monitoring,  (b)
repair,   cleanup,   remediation,   or   detoxification,   (c)  preparation  and
implementation of any closure,  remedial,  spill, emergency, or other plans, and
(d) any health, safety, or environmental compliance audit or review.

      ENVIRONMENTAL  LAW  means  any  applicable  Law  that  relates  to (a) the
condition of air, ground or surface water, soil, or other  environmental  media,
(b) the  environment  or natural  resources,  (c)  safety or health,  or (d) the
regulation of any contaminants,  wastes,  and Hazardous  Substances,  including,
without limitation, CERCLA, OSHA, the HAZARDOUS MATERIALS TRANSPORTATION ACT (49
U.S.C.  Section 1801 ET SEQ.),  the RESOURCE  CONSERVATION  AND RECOVERY ACT (42
U.S.C.  Section  6901 ET SEQ.),  the CLEAN WATER ACT (33 U.S.C.  Section 1251 ET
SEQ.), the CLEAN AIR ACT (42 U.S.C.  Section 7401 ET SEQ.), the TOXIC SUBSTANCES
CONTROL  ACT  (15  U.S.C.  Section  2601  ET  SEQ.),  the  FEDERAL  INSECTICIDE,
FUNGICIDE,  AND  RODENTICIDE ACT (7 U.S.C.  Section 136 ET SEQ.),  the EMERGENCY
PLANNING AND COMMUNITY  RIGHT-TO-KNOW ACT (42 U.S.C. Section 11001 ET SEQ.), the
SAFE DRINKING  WATER ACT (42 U.S.C.  Section 201 AND Section 300F ET SEQ.),  the
RIVERS AND HARBORS ACT (33 U.S.C.  Section 401 ET seq.),  the OIL  POLLUTION ACT
(33  U.S.C.  Section  2701 ET SEQ.),  analogous  state and local  Laws,  and any
analogous  future  enacted or adopted  Law, or (c) to the Release or  threatened
Release of Hazardous Substances.

        ENVIRONMENTAL  LIABILITY  means  any  liability,  loss,  fine,  penalty,
charge,  lien,  damage,  cost,  or expense of any kind that results  directly or
indirectly, in whole or in part (a) from the violation of any Environmental Law,
(b) from the Release or threatened Release of any Hazardous Substance,  (c) from
removal,  remediation, or other actions in response to the Release or threatened
Release of any Hazardous  Substance,  (d) from actual or  threatened  damages to
natural resources, (e) from the imposition of injunctive relief or other orders,
(f) from personal injury,  death, or property damage which occurs as a result of
any Company's use, storage,  handling, or the Release or threatened Release of 

                                       4
<PAGE>

a Hazardous Substance, or (g) from any Environmental Investigation performed at,
on, or for any Real Property.

        ENVIRONMENTAL  PERMIT means any permit,  license, or other authorization
from any Tribunal that is required  under any  Environmental  Law for the lawful
conduct of any business, process, or other activity.

        ENVIRONMENTAL  REPORT means any written or verbal  report  memorializing
any Environmental Investigation.

        ERISA means the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.

        FEDERAL-FUNDS RATE means, for any day, the annual rate (rounded upwards,
if  necessary,   to  the  nearest  0.01%)  determined  (which  determination  is
conclusive and binding,  absent  manifest error) by Agent to be equal to (a) the
weighted  average  of the rates on  overnight  federal-funds  transactions  with
member banks of the Federal Reserve System arranged by federal-funds  brokers on
that day,  as  published  by the  Federal  Reserve  Bank of New York on the next
Business  Day, or (b) if those rates are not  published for any day, the average
of the  quotations  at  approximately  10:00 a.m.  received  by Agent from three
federal-funds  brokers  of  recognized  standing  selected  by Agent in its sole
discretion.

        FINANCIALS of a Person means balance sheets, profit and loss statements,
reconciliations of capital and surplus, and statements of cash flow prepared (a)
according to GAAP (subject to year end audit adjustments with respect to interim
Financials)  and (b) except as stated in SECTION  1.4,  in  comparative  form to
prior year-end figures or corresponding  periods of the preceding fiscal year or
other relevant period, as applicable.

        FOREIGN means,  in respect of any Person,  organized under the Laws of a
jurisdiction  OTHER THAN -- or  domiciled  outside  of -- the  United  States of
America or one of its states.

        FUNDED  DEBT  means  --  for  any  Person,  at  any  time,  and  without
duplication -- the SUM of (a) the balance of any obligation for borrowed  money,
PLUS (b) the total amount  capitalized  on the balance sheet of that Person with
respect to Capital Leases.

        FUNDING  LOSS means any loss,  expense,  or  reduction in yield that any
Lender  reasonably  incurs because (a) Borrower fails or refuses (for any reason
whatsoever  OTHER THAN a default  by Agent or that  Lender  claiming  that loss,
expense,  or reduction in yield) to take any  LIBOR-Rate  Borrowing  that it has
requested under this agreement,  or (b) Borrower  prepays or pays any LIBOR-Rate
Borrowing or converts any  LIBOR-Rate  Borrowing to a Borrowing of another Type,
in each case, other than on the last day of the applicable Interest Period.

        GAAP means generally  accepted  accounting  principles of the Accounting
Principles Board of the American  Institute of Certified Public  Accountants and
the Financial Accounting Standards Board that are applicable from time to time.

        HAZARDOUS  SUBSTANCE means (a) any substance that is reasonably expected
to require, removal, remediation, or other response under any Environmental Law,
(b) any  substance  that is  designated,  defined or  classified  as a hazardous
waste,  hazardous  material,  pollutant,   contaminant,   explosive,  corrosive,
flammable, infectious, carcinogenic, mutagenic, radioactive, dangerous, or toxic
or  hazardous  substance  under  any  Environmental  Law,   including,   without
limitation,  any hazardous  substance within the meaning of ' 101(14) of CERCLA,
(c)  petroleum,  oil,  gasoline,  natural gas, fuel oil,  motor oil,  waste oil,
diesel  fuel,  jet fuel,  and other  petroleum  hydrocarbons,  (d)  asbestos and
asbestos-containing  materials in any form, (e) polychlorinated  biphenyls,  (f)
urea  formaldehyde  foam, 

                                       5
<PAGE>

or (g) any substance the presence of which on any Real Property either (i) poses
or  threatens  to pose a hazard to the  health or  safety of  persons  or to the
environment or (ii) could constitute a health or safety hazard to persons or the
environment if it emanated or migrated from the Real Property.

        INTEREST  EXPENSE means -- for any Person,  for any period,  and without
duplication  -- all  interest  on Debt,  whether  paid in cash or  accrued  as a
liability and payable in cash during that period, including, without limitation,
the  interest  component  of  Capital  Leases and any  premium  or  penalty  for
repayment, redemption, or repurchase of Debt.

        INTEREST PERIOD is determined under SECTION 3.9.

        ISSUING LENDER means any Lender,  or any of its Affiliates,  that issues
an LC under this agreement.

        LAWS means all applicable statutes, laws, treaties,  ordinances,  rules,
regulations,  orders, writs,  injunctions,  decrees,  judgments,  opinions,  and
interpretations of any Tribunal.

        LC means a  documentary  or  standby  letter  of credit  issued  for the
account of Borrower by an Issuing  Lender under this  agreement  and under an LC
Agreement.

        LC AGREEMENT means a letter of credit application and agreement (in form
and substance  satisfactory to Agent)  submitted and executed by Borrower to the
Issuing Lender for an LC for the account of Borrower.

        LC EXPOSURE means,  without  duplication,  the SUM of (a) the total face
amount  of  all  undrawn  and   uncancelled   LCs  PLUS  (b)  the  total  unpaid
reimbursement obligations of Borrower under drawings under any LC.

        LC REQUEST means a request substantially in the form of EXHIBIT D-3.

        LC  SUBFACILITY  means a subfacility  of the Revolving  Facility for the
issuance of LCs, as described  in SECTION  2.3,  under which the LC Exposure may
never (a) collectively exceed twenty percent (20%) of the Borrowing Base and (b)
TOGETHER WITH Principal Debt MAY NEVER EXCEED the lesser of EITHER (i) the total
Commitments OR (ii) the Borrowing Base.

        LEASES shall have the meaning assigned to it in SECTION 7.17 hereof.

        LENDER LIEN means any  present or future  first-priority  Lien  (subject
only to any  applicable  Permitted  Lien)  securing the Obligation and assigned,
conveyed, or granted to or created in favor of Agent for the benefit of Lenders.

        LENDERS  means  the  financial   institutions   --  including,   without
limitation,  Agent  (possibly  acting  through one or more of its Affiliates for
LCs) in respect of its share of Borrowings  and LCs -- named on SCHEDULE 2 or on
the  most-recently-amended  SCHEDULE  2, if any,  delivered  by Agent under this
agreement,  and,  subject to this  agreement,  their  respective  successors and
permitted  assigns (but not any Participant who is not otherwise a party to this
agreement).

        LIBOR  RATE  means,  for a  LIBOR-Rate  Borrowing  and for the  relevant
Interest Period, the annual interest rate (rounded upward, if necessary,  to the
nearest 0.01%) equal to the quotient obtained by DIVIDING (a) the rate displayed
on page 3750 on the Teleratesystem  Incorporated  Service (or such other page as
may replace such page on such service) at  approximately  11:00 a.m. London time
two  Business  Days  before the first day of that  Interest  Period in an amount
comparable  to that  

                                       6
<PAGE>


LIBOR-Rate Borrowing and having a maturity  approximately equal to that Interest
Period,  BY (b) one MINUS  the  Reserve  Requirement  (expressed  as a  decimal)
applicable to the relevant Interest Period.

        LIBOR-RATE  BORROWING means a Borrowing  bearing  interest at the SUM of
the LIBOR Rate PLUS the Applicable Margin.

        LIEN means any lien, mortgage,  security interest,  pledge,  assignment,
charge,  title  retention  agreement,  or  encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.

        LITIGATION means any action by or before any Tribunal.

        LOAN  DOCUMENTS  means  (a) this  agreement,  certificates  and  reports
delivered  under this  agreement,  and exhibits and schedules to this agreement,
(b) the Notes, Collateral Documents,  and all other agreements,  documents,  and
instruments  in favor of Agent or Lenders (or Agent on behalf of  Lenders)  ever
delivered under this agreement or otherwise  delivered in connection with all or
any part of the Obligation  (OTHER THAN  Assignments  but including the Bank One
Assignment),  (c) all LCs and LC Agreements,  (d) the letter agreement described
in SECTION 4.2,  and (e) all  renewals,  extensions,  and  restatements  of, and
amendments and supplements to, any of the foregoing.

        MATERIAL   ADVERSE   EVENT  means  any   circumstance   or  event  that,
individually  or  collectively,  is  reasonably  expected  to  result in any (a)
material impairment of (i) the ability of Borrower to perform any of its payment
or other  material  obligations  under any Loan  Document,  (ii) the  Restricted
Companies  as a  whole  to  perform  any of  their  payment  or  other  material
obligations under any Loan Document, or (iii) the ability of Agent or any Lender
to enforce any of those  obligations or any of their respective Rights under the
Loan  Documents,  (b) material and adverse effect on the financial  condition of
the  Companies as a whole as  represented  to Lenders in the Current  Financials
most  recently  delivered  before the date of this  agreement  or (c) Default or
Potential Default.

        MAXIMUM AMOUNT and MAXIMUM RATE  respectively  mean,  for a Lender,  the
maximum  non-usurious amount and the maximum non-usurious rate of interest that,
under  applicable Law, that Lender is permitted to contract for,  charge,  take,
reserve, or receive on the Obligation.

        MINERAL  INTERESTS shall mean all present and future rights,  titles and
interests  that Borrower or any other Company may now have or hereafter  acquire
in and to all (i) oil, gas and/or mineral leases, royalty and overriding royalty
interests,  production payments,  farm-out agreements,  net profit interests and
mineral fee interests,  (ii) present and future  unitization,  communication and
pooling  arrangements  (and all properties  covered and units created  thereby),
whether arising by contract or operation of law, which now or hereafter  include
all or any part of the  foregoing;  and (iii) lands now or hereafter  subject to
any of the foregoing.

        MORTGAGED  PROPERTIES shall mean all of Mineral  Interests  described in
the  Collateral  Documents  and all  related  personal  property  and  rights to
payments or proceeds  thereon or  therefrom,  and all other  properties in which
Borrower or any other  Company has  heretofore  granted or purported to grant or
hereinafter  grants  or  purports  to grant to  Agent,  for the  benefit  of the
Lenders, a Lender Lien (including,  without limitation,  those assigned to Agent
by Bank One  pursuant  to,  among  other  things,  the Bank One  Assignment)  in
accordance  with  SECTION  5.2  hereof,  in order to  secure  the  Notes and the
Obligation.

        MULTIEMPLOYER  PLAN means a  multiemployer  plan as defined in  SECTIONS
3(37) or 4001(A)(3) of ERISA or SECTION  414(F) of the Code to which any Company
(or any  Person  that,  for  purposes  of TITLE  IV of  ERISA,  is a  member  of
Borrower's  controlled group or is under common control with 

                                       7
<PAGE>

Borrower within the meaning of SECTION 414 of the Code) is making,  or has made,
or is accruing, or has accrued, an obligation to make contributions.

        NET  INCOME of any  Person  means  that  Person's  profit or loss  after
deducting its Tax expense.

        NON-CASH  ADJUSTMENTS means for any Person,  for any period, and without
duplication,  any  adjustments  to  reconcile  net  income  or loss to net  cash
provided by or used in operating activities as reported in Borrower's Financials
for such period in its statement of cash flows, other than any changes in assets
and liabilities as reported in such Financials.

        NOTES means one of the  promissory  notes  substantially  in the form of
Exhibit A.

        OBLIGATION  means all  present  and future (a) Debts,  liabilities,  and
obligations  of any  Company  to Agent or any  Lender  and  related  to any Loan
Document,  whether  principal,   interest,  fees,  costs,  attorneys'  fees,  or
otherwise, (b) any Debts, liabilities, or obligations owed by any Company to any
Lender or its one or more Affiliates under any Swap Agreement, and (c) renewals,
extensions, and modifications of any of the foregoing.

      OSHA means the  OCCUPATIONAL  SAFETY  AND  HEALTH  ACT OF 1970,  29 U.S.C.
Section 651 ET SEQ.

        PARTICIPANT is defined in SECTION 14.10(B).

        PBGC means the Pension Benefit Guaranty Corporation.

        PERMITTED DEBT means Debt described on SCHEDULE 9.2.

        PERMITTED LIENS means the Liens described on SCHEDULE 9.4.

        PERSON means any individual, entity, or Tribunal.

        POTENTIAL  DEFAULT means any event's  occurrence  or any  circumstance's
existence that would -- upon any required notice,  time lapse, or both -- become
a Default.

        PREDECESSOR  means any Person for whose  obligations and liabilities any
Company is  reasonably  expected  to be liable as the result of any  merger,  DE
FACTO merger, stock purchase, asset purchase or divestiture,  combination, joint
venture, investment, reclassification, or other similar business transaction.

        PRINCIPAL DEBT means, at any time, the unpaid  principal  balance of all
Borrowings.

        PRO RATA and PRO RATA PART  mean,  at any time and for any  Lender,  the
proportion  (stated as a percentage) that the Principal Debt owed to it bears to
the total Principal Debt owed to all Lenders.

        REAL  PROPERTY   means  any  land,   buildings,   fixtures,   and  other
improvements  to land now or in the future  directly or indirectly  owned by any
Restricted  Company,  leased to or otherwise operated by any Restricted Company,
or subleased by any Restricted Company to any other Person.

        RELEASE  means  any  spilling,   leaking,  pumping,  pouring,  emitting,
emptying,   discharging,   injecting,  escaping,  leaching,  dumping,  disposal,
migrating, or other movement into the air, ground or surface water, or soil.

                                       8
<PAGE>
        REPRESENTATIVES means representatives,  officers, directors,  employees,
accountants, attorneys, and agents.

        RESERVE REPORT means each report  delivered to the Agent by the Borrower
pursuant to SECTION 8.1(C).

        RESERVE  REQUIREMENT  means,  for any  LIBOR-Rate  Borrowing and for the
relevant Interest Period, the total reserve  requirements  (including all basic,
supplemental,  emergency,  special,  marginal,  and other  reserves  required by
applicable  Law)  applicable to  eurocurrency  fundings or liabilities as of the
first day of that Interest Period.

        RESPONSIBLE  OFFICER  means  Borrower's   chairman,   president,   chief
executive officer, chief financial officer, or treasurer.

        RESTRICTED  COMPANY means Borrower and each Subsidiary of Borrower OTHER
THAN any Subsidiary that has no assets except its corporate name and conducts no
operations.

        REVOLVING  FACILITY means the revolving credit facility in the amount of
the total  Commitments  of the  Lenders to make  advances  and issue  letters of
credit in  accordance  with the  terms  and  conditions  of this  agreement  and
includes the LC Subfacility.

        RIGHTS means rights, remedies, powers, privileges, and benefits.

        SENIOR DEBT means, at any time, the Companies'  consolidated  Debt OTHER
THAN the Subordinated Debt.

        SOLVENT  means,  as to any Person,  that (a) the  aggregate  fair market
value of its assets exceeds its liabilities,  (b) it has sufficient cash flow to
enable it to pay its Debts as they mature, and (c) it does not have unreasonably
small capital to conduct its businesses.

        STATED-TERMINATION DATE means July 11, 1999.

        SUBORDINATED  DEBT  means,  at any  time,  (a)  the  Borrower's  10-1/2%
Convertible Subordinated Debentures not to exceed $1,028,000 in principal amount
outstanding,  and (b) any Debt that (i) is used  solely for the  redemption  and
repurchase  of (and may never  exceed)  the Debt  described  in the  immediately
preceding  clause (a) and related,  customary  transactional  expenses,  (ii) is
subject to subordination,  payment blockage,  and standstill provisions at least
as  favorable  to  Lenders  as those  applicable  to the  foregoing  under  this
agreement or otherwise, (iii) is subject to representations,  covenants,  events
of default and other provision not  significantly  more onerous to Borrower than
those  applicable to the Debt being redeemed or  repurchased,  and (iv) does not
have any scheduled or mandatory principal or sinking fund payment due before the
Stated-Termination Date.

        SUBSIDIARY  of any  Person  means any  entity of which more than 50% (in
number of votes) of the stock (or  equivalent  interests)  is owned of record or
beneficially, directly or indirectly, by that Person.

        SWAP  AGREEMENT  means any present or future,  whether master or single,
agreement, document, or instrument providing for -- or constituting an agreement
to enter  into -- an  interest-rate,  basis,  or  commodity  swap;  forward-rate
arrangement;  commodity option;  equity or equity-index swap or option;  bond or
interest-rate option;  forward-foreign-exchange  arrangement; rate-cap, -collar,
or -floor arrangement;  currency- or cross-currency-swap arrangement;  swaption;
currency-option; or any similar arrangement.

                                       9
<PAGE>

        TANGIBLE-NET WORTH means -- at any time and for any Person -- the SUM of
(i) its  stockholders'  equity,  PLUS (ii) amounts  excluded from  stockholders'
equity under GAAP relating to the  establishment  of an employee stock ownership
plan, MINUS (iii) the total (without  duplication of deductions  already made in
arriving at stockholders' equity) of the book value of all assets acquired after
the  Closing  Date that  would be  treated  as  intangible  assets  under  GAAP,
including,  without limitation,  goodwill,  trademarks, trade names, copyrights,
patents, and unamortized debt discount and expense.

        TAXES means, for any Person, taxes,  assessments,  or other governmental
charges  or  levies  imposed  upon it,  its  income,  or any of its  properties,
franchises, or assets.

        TERMINATION DATE means the earlier of EITHER (a) the  Stated-Termination
Date OR (b) the effective  date that Lenders'  commitments to lend and issue LCs
under this agreement are fully canceled or terminated.

        TRIBUNAL means any (a) local,  state,  territorial,  federal, or foreign
judicial, executive,  regulatory,  administrative,  legislative, or governmental
agency, board, bureau,  commission,  department,  or other instrumentality,  (b)
private arbitration board or panel, or (c) central bank.

        TYPE  means  any  type  of  Borrowing  determined  with  respect  to the
applicable interest option.

        WORKING  CAPITAL  means -- for any  Person and at any time -- the SUM of
(a) current assets MINUS (b) current liabilities.

        1.2 Time References.  Unless otherwise specified,  in the Loan Documents
(a) time  references  (E.G.,  11:00 a.m.) are to time in New York, New York, and
(b) in  calculating  a period  from one date to another,  the word "FROM"  means
"FROM AND INCLUDING" and the word "TO" or "UNTIL" means "TO BUT EXCLUDING."

        1.3 Other References.  Unless otherwise specified, in the Loan Documents
(a) where  appropriate,  the singular  includes  the plural and VICE VERSA,  and
words  of any  gender  include  each  other  gender,  (b)  heading  and  caption
references  may  not be  construed  in  interpreting  provisions,  (c)  monetary
references  are to  currency  of the  United  States of  America,  (d)  section,
paragraph,   annex,  schedule,  exhibit,  and  similar  references  are  to  the
particular  Loan Document in which they are used,  (e) references to "TELECOPY,"
"FACSIMILE," "FAX," or similar terms are to facsimile or telecopy transmissions,
(f) references to "INCLUDING" mean including  without limiting the generality of
any  description  preceding  that  word,  (g)  the  rule  of  construction  that
references to general items that follow references to specific items are limited
to the same type or character of those  specific  items is not applicable in the
Loan  Documents,  (h)  references  to any Person  include that  Person's  heirs,
personal  representatives,   successors,   trustees,  receivers,  and  permitted
assigns,  (i) references to any Law include every amendment or supplement to it,
rule and regulation  adopted under it, and successor or replacement  for it, and
(j) references to any Loan Document or other document  include every renewal and
extension of it, amendment and supplement to it, and replacement or substitution
for it.

        1.4  Accounting  Principles.  Unless  otherwise  specified,  in the Loan
Documents (a) GAAP  determines all accounting and financial terms and compliance
with  financial  covenants,  (b) GAAP in  effect  on the date of this  agreement
determines  compliance with financial covenants,  (c) otherwise,  all accounting
principles  applied  in a current  period  must be  comparable  in all  material
respects to those applied during the preceding  comparable period, and (d) while
Borrower has any  consolidated  Subsidiaries  (i) all  accounting  and financial
terms and compliance  with reporting  covenants must be on a  consolidating  and
consolidated basis, as applicable,  and (ii) compliance with financial covenants
must be on a consolidated basis.

                                       10
<PAGE>

SECTION 2.  COMMITMENT.  Subject to the provisions in the Loan  Documents,  each
Lender  severally but not jointly  agrees to extend credit to Borrower under the
Revolving Facility in accordance with the following provisions.

        2.1 Revolving Facility.  Each Lender severally but not jointly agrees to
lend to Borrower that  Lender's  Commitment  Percentage of requested  Borrowings
under the Revolving  Facility  which  Borrower may borrow,  repay,  and reborrow
under this agreement SUBJECT TO the following conditions:

               (a) Each  Borrowing  may only occur on a Business Day on or after
        the Closing Date and before the Termination Date;

               (b) Each  Borrowing  may only be $100,000  or a greater  integral
        multiple of $100,000 if a Base-Rate  Borrowing  or $500,000 or a greater
        integral multiple of $100,000 if a LIBOR-Rate Borrowing;

               (c) The Commitment  Usage MAY NEVER EXCEED (i) at any time during
        which any  Subordinated  Debt is outstanding,  the difference of (x) the
        lesser of either the total Commitments for the Revolving Facility or the
        Borrowing Base, minus (y)  $500,000.00,  and (ii) at any other time, the
        lesser of EITHER the total Commitments for the Revolving Facility OR the
        Borrowing Base; and

               (d) Subject to the other terms and conditions of this  Agreement,
        that  portion  of  the  Existing  Indebtedness  consisting  of  advances
        outstanding  under the Prior Credit  Agreement shall be and be deemed to
        constituted a Base-Rate  Borrowing hereunder effective as of the Closing
        Date.

        2.2 Borrowing Procedure. The following procedures apply to Borrowings:

               (a) Borrowing Request. Borrower may request a Borrowing by making
        or  delivering a Borrowing  Request (that may be telephonic if confirmed
        immediately  in writing by 2:00 p.m. on the same Business Day) to Agent,
        which is irrevocable and binding on Borrower,  stating the Type, amount,
        and  Interest  Period for each  Borrowing  and which must be received by
        Agent no later than 11:00 a.m. on the (i) third  Business Day before the
        date on  which  funds  are  requested  (the  "BORROWING  DATE")  for any
        LIBOR-Rate   Borrowing,   or  (ii)  Borrowing  Date  for  any  Base-Rate
        Borrowing.  Agent shall  promptly  notify  each Lender of any  Borrowing
        Request.

               (c) Funding. Each Lender shall remit its Commitment Percentage of
        each requested  Borrowing to Agent's  principal  office in New York, New
        York,  in funds that are  available  for  immediate use by Agent by 1:00
        p.m.  on the  applicable  Borrowing  Date.  Subject  to receipt of those
        funds, Agent shall (unless to its actual knowledge any of the applicable
        conditions  precedent  have not been  satisfied by Borrower or waived by
        the requisite  Lenders under SECTION 14.8) make those funds available to
        Borrower  by (at  Borrower's  option) (i) wiring the funds to or for the
        account of Borrower at the direction of Borrower or (ii)  depositing the
        funds in Borrower's account with Agent.

               (c)  Funding  Assumed.  Absent  contrary  written  notice  from a
        Lender,  Agent may  assume  that  each  Lender  has made its  Commitment
        Percentage  of  the  requested  Borrowing  available  to  Agent  on  the
        applicable  Borrowing  Date,  and  Agent  may,  in  reliance  upon  such
        assumption  (but shall not be required to), make available to Borrower a
        corresponding   amount.  If  a  Lender  fails  to  make  its  Commitment
        Percentage  of  any  requested  Borrowing  available  to  Agent  on  the
        applicable  Borrowing Date,  Agent may recover the applicable  amount on


                                       11
<PAGE>

        demand,  (i) from that Lender TOGETHER WITH interest,  commencing on the
        Borrowing Date and ending on (but excluding) the date Agent recovers the
        amount  from  that  Lender,  at an  annual  interest  rate  equal to the
        Federal-Funds  Rate, or (ii) if that Lender fails to pay its amount upon
        demand, then from Borrower.  No Lender is responsible for the failure of
        any other  Lender to make its  Commitment  Percentage  of any  Borrowing
        available as required by SECTION 2.2(B); however,  failure of any Lender
        to make its Commitment Percentage of any Borrowing so available does not
        excuse any other  Lender from making its  Commitment  Percentage  of any
        Borrowing so available.

        2.3    Letters of Credit.

               (a)  Conditions.  Subject  to the  terms and  conditions  of this
        agreement each Lender, if requested, agrees to issue LCs upon Borrower's
        making or delivering an LC Request and delivering an LC Agreement,  both
        of which must be received by Agent and the Issuing  Lender no later than
        the third Business Day before the Business Day on which the requested LC
        is to be issued,  SO LONG AS (i) no LC may expire  after the  earlier to
        occur of the first  anniversary  of its issuance date or three  Business
        Days before the  Termination  Date,  (ii) the LC Exposure  (after giving
        effect to such  requested LC) would not exceed  twenty  percent (20%) of
        the Borrowing Base and (iii) the  limitations in SECTIONS 2.1(C) are not
        exceeded.

               (b) Participation.  Immediately upon an Issuing Lender's issuance
        of any LC,  that  Issuing  Lender  shall  be  deemed  to have  sold  and
        transferred to each other Lender,  and each other Lender shall be deemed
        irrevocably and unconditionally to have purchased and received from that
        Issuing Lender,  without recourse or warranty, an undivided interest and
        participation to the extent of such Lender's Commitment Percentage under
        the  Revolving  Facility  in the LC and all  applicable  Rights  of that
        Issuing  Lender in the LC -- OTHER THAN Rights to receive  certain  fees
        provided in SECTION 4.3 to be for that Issuing Lender's sole account.

               (c)  Reimbursement  Obligation.  To induce each Issuing Lender to
        issue and maintain LCs, and to induce  Lenders to  participate in issued
        LCs,  Borrower agrees to pay or reimburse each Issuing Lender (i) on the
        first Business Day after an Issuing  Lender  notifies Agent and Borrower
        that it has made  payment  under an LC, the amount paid by that  Issuing
        Lender and (ii) within five Business  Days after  demand,  the amount of
        any  additional  fees  Agent   customarily   charges  for  amending  LCs
        Agreements,  for  honoring  drafts,  and for  taking  similar  action in
        connection  with letters of credit.  If Borrower has not reimbursed that
        Issuing Lender for any drafts paid by the date on which reimbursement is
        required  under this section,  then Agent is  irrevocably  authorized to
        fund Borrower's reimbursement obligations as a Base-Rate Borrowing under
        the  Revolving  Facility if proceeds are  available  under the Revolving
        Facility and if the  conditions  in this  agreement for such a Borrowing
        (OTHER THAN any notice requirements or minimum funding amounts) have, to
        Agent's knowledge,  been satisfied. The proceeds of that Borrowing shall
        be advanced  directly to that Issuing  Lender to pay  Borrower's  unpaid
        reimbursement  obligations.  If  funds  cannot  be  advanced  under  the
        Revolving  Facility,  then  Borrower's  reimbursement  obligation  shall
        constitute  a  demand  obligation.  Borrower's  obligations  under  this
        section are absolute and  unconditional  under any and all circumstances
        and irrespective of any setoff, counterclaim, or defense to payment that
        Borrower  may have at any time  against any Issuing  Lender or any other
        Person.  From the date that an Issuing  Lender  pays a draft  under a LC
        until  Borrower  either  reimburses  or is obligated  to reimburse  that
        Issuing  Lender for that draft  under this  section,  the amount of that
        draft bears  interest  payable to that  Issuing  Lender at the rate then
        applicable to Base-Rate Borrowings.  From the due date of the respective
        amounts due under this section,  to the date paid (including any payment


                                       12
<PAGE>
        from proceeds of a Base-Rate  Borrowing),  unpaid reimbursement  amounts
        accrue interest that is payable on demand at the Default Rate.

               (d) General.  The applicable Issuing Lender shall promptly notify
        Agent and  Borrower  of the date and amount of any draft  presented  for
        honor  under  any LC  (but  failure  to  give  notice  will  not  affect
        Borrower's obligations under this agreement).  That Issuing Lender shall
        pay the requested amount upon presentment of a draft unless  presentment
        on its face does not comply  with the terms of the  applicable  LC. When
        making  payment,  that Issuing  Lender may  disregard (i) any default or
        potential  default  that  exists  under  any  other  agreement  and (ii)
        obligations  under  any  other  agreement  that  have or have  not  been
        performed  by the  beneficiary  or any other  Person  (and that  Issuing
        Lender  is  not  liable  for  any  of  those  obligations).   Borrower's
        reimbursement  obligations to that Issuing Lender and Lenders,  and each
        Lender's  obligations  to that  Issuing  Lender,  under this section are
        absolute and  unconditional  irrespective of, and that Issuing Lender is
        not  responsible  for, (i) the  validity,  enforceability,  sufficiency,
        accuracy,  or genuineness of documents or endorsements (even if they are
        in  any  respect  invalid,  unenforceable,   insufficient,   inaccurate,
        fraudulent,  or forged),  (ii) any  dispute by any  Company  with or any
        Company's  claims,  setoffs,  defenses,  counterclaims,  or other Rights
        against that Issuing Lender,  any Lender,  or any other Person, or (iii)
        the occurrence of any Potential Default or Default.  However, nothing in
        this agreement  constitutes a waiver of Borrower's  Rights to assert any
        claim or defense based upon the gross  negligence or willful  misconduct
        of any Lender.  The Issuing Lender shall promptly pay to Agent for Agent
        to promptly distribute  reimbursement payments received from Borrower to
        all Lenders according to their Pro Rata Part of the Revolving Facility.

               (e)  Obligation  of Lenders.  If Borrower  fails to  reimburse an
        Issuing  Lender  as  provided  in  SECTION  2.3(C)  by the date on which
        reimbursement  is due under that  section,  and funds cannot be advanced
        under the Revolving  Facility to satisfy the reimbursement  obligations,
        then Agent shall promptly notify each Lender of Borrower's  failure,  of
        the date and amount paid, and of each Lender's Commitment  Percentage of
        the unreimbursed  amount. Each Lender shall promptly and unconditionally
        make  available to Agent in immediately  available  funds its Commitment
        Percentage  of  the  unpaid  reimbursement  obligation,  subject  to the
        limitations of SECTION 2.1(C). Funds are due and payable to Agent before
        the close of business  on the  Business  Day when Agent gives  notice to
        each  Lender of  Borrower's  reimbursement  failure  (if notice is given
        before 1:00 p.m.) or on the next  succeeding  Business Day (if notice is
        given  after 1:00  p.m.).  All  amounts  payable  by any  Lender  accrue
        interest after the due date at the  Federal-Funds  Rate from the day the
        applicable  draft or draw is paid by Agent  to (but not  including)  the
        date the  amount is paid by the Lender to Agent.  Upon  receipt of those
        funds, Agent shall make them available to the Issuing Lender.

               (f) Duties of Issuing  Lender.  Each Issuing  Lender  agrees with
        each Lender that it will  exercise and give the same care and  attention
        to each LC as it gives to its other  letters of credit.  Each Lender and
        Borrower agree that, in paying any draft under any LC, no Issuing Lender
        has any  responsibility to obtain any document (OTHER THAN any documents
        expressly  required by the  respective LC) or to ascertain or inquire as
        to any document's validity,  enforceability,  sufficiency,  accuracy, or
        genuineness  or the authority of any Person  delivering  it. Neither any
        Issuing Lender nor its  Representatives  will be liable to any Lender or
        any Company for any LC's use or for any beneficiary's acts or omissions.
        Any action, inaction, error, delay, or omission taken or suffered by any
        Issuing Lender or any of its  Representatives in connection with any LC,
        applicable  drafts  or  documents,  or the  transmission,  dispatch,  or
        delivery  of any  related  message  or  advice,  if in good faith and in
        conformity  with applicable Laws and in accordance with the standards of
        care  specified in the UNIFORM  CUSTOMS AND  PRACTICES  FOR  DOCUMENTARY
        CREDITS (1993 REVISION),  INTERNATIONAL  CHAMBER OF COMMERCE PUBLICATION


                                       13
<PAGE>
        NO. 500 (as amended or  modified),  is binding  upon the  Companies  and
        Lenders and, except as provided in Section  2.4(e),  does not place that
        Issuing  Lender  or any  of  its  Representatives  under  any  resulting
        liability  to any  Company  or any  Lender.  Agent is not  liable to any
        Company or any Lender for any action taken or omitted, in the absence of
        gross  negligence or willful  misconduct,  by that Issuing Lender or its
        Representative in connection with any LC.

               (g) Cash Collateral.  On the Termination Date and if requested by
        Determining  Lenders  while a Default  exists,  Borrower  shall  provide
        Agent, for the benefit of Lenders, cash collateral in an amount equal to
        the then-existing LC Exposure.

               (h) INDEMNIFICATION.  BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND
        SAVE AGENT, EACH LENDER, AND THEIR RESPECTIVE  REPRESENTATIVES  HARMLESS
        FROM AND  AGAINST  ANY AND ALL CLAIMS,  DEMANDS,  LIABILITIES,  DAMAGES,
        LOSSES,  COSTS,  CHARGES, AND EXPENSES (INCLUDING  REASONABLE ATTORNEYS'
        FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A  CONSEQUENCE  OF
        THE  ISSUANCE  OF ANY LC, ANY  DISPUTE  ABOUT IT, OR THE  FAILURE OF ANY
        ISSUING  LENDER TO HONOR A DRAW REQUEST  UNDER ANY LC AS A RESULT OF ANY
        ACT OR  OMISSION  (WHETHER  RIGHT OR  WRONG)  OF ANY  PRESENT  OR FUTURE
        TRIBUNAL.  HOWEVER,  NO  PERSON  IS  ENTITLED  TO  INDEMNITY  UNDER  THE
        FOREGOING FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

               (i) LC  Agreements.  Although  referenced in any LC, terms of any
        particular  agreement or other  obligation  to the  beneficiary  are not
        incorporated  into  this  agreement  in any  manner.  The fees and other
        amounts  payable  with  respect  to  each  LC are as  provided  in  this
        agreement,  drafts  under each LC are part of the  Obligation,  only the
        events  specified  in this  agreement  as a Default  shall  constitute a
        default  under  any LC,  and the  terms of this  agreement  control  any
        conflict between the terms of this agreement and any LC Agreement.

        2.4 Borrowing  Notices and LC Requests.  Each Borrowing Request (whether
telephonic or written) and LC Request  constitutes a representation and warranty
by  Borrower  that as of the  Borrowing  Date or the  date  of  issuance  of the
requested  LC,  as the case  may be,  that all of the  conditions  precedent  in
SECTION 6 have been satisfied.

        2.5 Termination. Borrower may -- upon giving at least five Business Days
prior  written and  irrevocable  notice to Agent -- terminate all or part of the
Revolving  Facility.  Each partial  termination must be in an amount of not less
than $1,000,000 or a greater integral multiple of $1,000,000 and must be ratable
in  accordance  with each  Lender's  Commitment  Percentage.  At the time of any
termination,  Borrower  shall pay to Agent,  for the account of each Lender,  as
applicable,  the amount of any Borrowing Base  Deficiency then existing or which
would  result after giving  effect to such  termination,  all accrued and unpaid
fees under this agreement and, the interest  attributable  to the amount of that
reduction,  and any related  Funding Loss. Any part of the  Commitments  for the
Revolving Facility that are terminated may not be reinstated.

               2.6 Borrowing Base  Determinations.  

               (a) The Borrowing Base as of the Closing Date is  acknowledged by
the Borrower, the Agent and the Lenders to be $2,000,000.00.

               (b) The  Borrowing  Base  shall be  redetermined  by the  Lenders
semi-annually  through the Termination  Date, within ninety (90) days after each
December  31 and June 30,  with the first such  Borrowing  Base  redetermination
under  this  Agreement  to be made  on or  before  September  30,  1997  for the
Mortgaged  Properties  as of June 30,  1997,  in  accordance  with the  standard
engineering  and lending  policies  and  practices  customary  for loans of this
nature and on the basis of  

                                       14
<PAGE>
information  supplied by the Borrower in compliance  with the provisions of this
Agreement,  including,  without limitation,  the Reserve Reports,  and all other
information available to the Lenders. Notwithstanding the foregoing, the Lenders
may at their discretion make  redeterminations of the Borrowing Base at any time
and from time to time, including, without limitation, upon the occurrence of any
sale,  transfer,  release or other  disposition or loss or relinquishment of any
Collateral by the Borrower,  provided,  that nothing in this provision  shall be
deemed  to  authorize  any  sale of any  property  prohibited  pursuant  to this
agreement or any other Loan Document.  In addition to the  determinations of the
Borrowing  Base  required  pursuant  to  this  SECTION  2.6(B)  hereof,  special
determinations  thereof may at any time be  requested by Borrower if it, in good
faith,  (i) believes that events have  occurred or  conditions  exist that could
increase the then current Borrowing Base by at least  twenty-five  percent (25%)
or (ii)  desires to  mortgage  additional  Mineral  Interests  to  increase  the
Borrowing Base by at least twenty-five  percent (25%), and Borrower has tendered
to the Agent, to be distributed by Agent Pro Rata to each Lender, an engineering
fee in the  amount of  $5,000.00.  Upon any such  special  determination  of the
Borrowing Base, if requested by Agent,  Borrower shall submit both (i) a current
report  of a firm  of  independent  petroleum  engineers  acceptable  to  Agent,
prepared in accordance with customary  standards and procedures of the petroleum
industry which report shall (A) evaluate the Mineral  Interests  subject to such
redetermination (in the same manner as provided in this SECTION 2.6(B) for other
such redeterminations) and (B) be dated within sixty (60) days of such requested
redetermination,  and,  (ii) title  opinions,  environmental  reports  and other
information  reasonably  requested by and in form and  substance  acceptable  to
Agent,  for those  additional  Mineral  Interests  which Borrower  desires to be
considered  within the Borrowing  Base.  Adjustments to the Borrowing Base based
upon the addition of Mineral  Interests shall not be effective prior to the date
of filing and recording of such Collateral Documents as required by Agent.

               (c) Upon each  borrowing  base  redetermination,  the Agent shall
notify the Borrower  verbally  (confirming  such notice  promptly in writing) of
such determination, and the Borrowing Base so communicated to the Borrower shall
become effective upon such verbal  notification and shall remain in effect until
the next subsequent  Borrowing Base redetermination in accordance with the terms
hereof.

               (d) The Borrowing Base shall represent the  determination  by the
Lenders,  in  their  sole  discretion  and in  accordance  with  their  standard
engineering  and lending  policies  and  practices  customary  for loans of this
nature,  of the value, for loan purposes,  of the Collateral.  Furthermore,  the
Borrower  acknowledges  that the determination of the Borrowing Base contains an
equity cushion (market value in excess of loan value),  which is acknowledged by
the Borrower to be essential for the adequate protection of the Lenders.

        2.7 Extension of Termination  Date.  Unless the  Termination  Date shall
have occurred, Borrower may request the Lenders, by written notice to the Agent,
at  least  90  but  not  more  than  180  days  prior  to  the  then   effective
Stated-Termination  Date,  to  consent to a one-year  extension  of the  Stated-
Termination  Date to July 11, 2000. Each Lender shall,  in its sole  discretion,
determine  whether to consent to such  request and shall notify the Agent of its
determination within 30 days of such Lender's receipt of notice of such request.
If such request shall have been consented to by all the Lenders, the Agent shall
notify  Borrower in writing of such  consent,  and such  extension  shall become
effective  upon the  delivery by Borrower  to the Agent and each  lender,  on or
prior to the then effective  Stated-Termination  Date, of (i) a certificate of a
Responsible  Officer of  Borrower,  dated such date,  as to the  accuracy,  both
before  and  after   giving   effect  to  such   proposed   extension,   of  the
representations  and  warranties  set forth in Section 7 and as to the  absence,
both before and after giving effect to such proposed extension,  of any Event of
Default  or  Potential  Default  and (ii) such other  information,  instruments,
reports and documents as Agent may reasonably request.

                                       15
<PAGE>
SECTION 3.     TERMS OF PAYMENT.

        3.1    Notes and Payments.

               (a)  Notes.  Principal  Debt  under  the  Revolving  Facility  is
        evidenced  by the Notes,  one payable to each Lender in amount  equal to
        its Pro Rata Part of $20,000,000. Borrower understands, acknowledges and
        agrees that the execution and delivery by Borrower of each Lender's Note
        in such original principal amount does not imply or infer, and shall not
        be construed to create,  any obligation or commitment on the part of any
        Lender  to make any  advances  or issue  or  participate  in any LC's in
        excess of, in the aggregate, such Lender's Commitment; the higher amount
        represented by such Lender's Note being for ease of administration  only
        in the event that the Lenders and the Borrower may hereafter  agree,  in
        writing, to increase the commitments upon the request of Borrower and in
        accordance  with  such  terms and  conditions  as the  Lenders  may then
        require after receipt of new and  independent  credit  approvals by each
        Lender, based upon such financial and engineering information,  industry
        trends and other economic  conditions as each Lender, in the exercise of
        its sole  discretion,  may deem appropriate at the time to evaluate such
        request.

               (b) Payment.  Borrower  must make each payment and  prepayment on
        the  Obligation  to Agent's  principal  office in New York,  New York in
        immediately available funds by 1:00 p.m. on the day due; otherwise,  but
        subject to SECTION 3.8,  those funds  continue to accrue  interest as if
        they were received on the next Business Day. Agent shall promptly pay to
        each Lender the part of any payment or  prepayment  to which that Lender
        is entitled  under this  agreement  on the same day Agent  receives  the
        funds from Borrower.

               (c)  Payment  Assumed.  Unless  Agent has  received  notice  from
        Borrower  prior to the date on  which  any  payment  is due  under  this
        agreement  that Borrower  will not make that payment in full,  Agent may
        assume  that  Borrower  has made the full  payment due and Agent may, in
        reliance upon that assumption, cause to be distributed to each Lender on
        that  date the  amount  then due to each  Lender.  If and to the  extent
        Borrower does not make the full payment due to Agent,  each Lender shall
        repay to Agent on demand the amount  distributed to that Lender by Agent
        together with  interest for each day from the date that Lender  received
        payment from Agent until the date that Lender  repays Agent (unless such
        repayment is made on the same day as such distribution),  at an interest
        rate equal to the Federal-Funds Rate.

        3.2    Interest and Principal Payments.

               (a) Interest.  Accrued  interest on each LIBOR-Rate  Borrowing is
        due and payable on the last day of its respective  Interest  Period.  If
        any  Interest  Period for a  LIBOR-Rate  Borrowing is greater than three
        months,  then accrued interest is also due and payable on the date three
        months after the commencement of the Interest  Period.  Accrued interest
        on each  Base-Rate  Borrowing is due and payable on the last day of each
        March, June, September, and December -- commencing on the first of those
        dates that follows the Closing Date -- and on the Termination Date.

               (b) Revolving  Facility  Principal.  The Principal Debt under the
        Revolving  Facility is due and payable on the Termination  Date.  Before
        that date, Borrower may at any time prepay, without penalty and in whole
        or in part, the Principal  Debt under the Revolving  Facility SO LONG AS
        (i) each voluntary partial  prepayment must be in a principal amount not
        less than $100,000 or a greater  integral  multiple of $100,000 and (ii)
        Borrower  shall pay any related  Funding Loss upon  demand.  Conversions
        under SECTION 3.10 are not prepayments.

                                       16
<PAGE>
                (c)  Revolving  Facility-Mandatory  Prepayments.  At any  time a
        Borrowing-Base  Deficiency  exists,  Borrower shall make  prepayments to
        Agent (with any related  Funding Loss) under the  Revolving  Facility so
        that (i) such Borrowing Base Deficiency has been reduced by at least 50%
        within  30  days  after  notice  from  Agent  of the  existence  of such
        Borrowing Base Deficiency,  and (ii) such  Borrowing-Base  Deficiency no
        longer exists by the sixtieth  (60th) day after notice from the Agent of
        the existence of such Borrowing Base Deficiency.

               3.3  Interest  Options.  Except  that the  LIBOR  Rate may not be
selected  when a Default or  Potential  Default  exists and except as  otherwise
provided in this agreement,  Borrowings bear interest at an annual rate equal to
the lesser of EITHER (a) the Base Rate plus the  Applicable  Margin or the LIBOR
Rate plus the Applicable Margin (in each case as designated or deemed designated
by Borrower),  as the case may be, OR (b) the Maximum  Rate.  Each change in the
Base Rate and Maximum Rate is effective, without notice to Borrower or any other
Person, upon the effective date of change.

               3.4 Quotation of Rates. Borrower may call Agent before delivering
a  Borrowing  Request to receive an  indication  of the  interest  rates then in
effect,  but the  indicated  rates do not bind  Agent or  Lenders  or affect the
interest rate that is actually in effect when Borrower makes a Borrowing request
or on the Borrowing Date.

               3.5 Default  Rate.  If permitted  by Law, all past-due  Principal
Debt,  Borrower's  past-due payment and reimbursement  obligations in connection
with LCs, and past-due  interest accruing on any of the foregoing bears interest
from the date due (stated or by  acceleration)  at the Default  Rate until paid,
regardless whether payment is made before or after entry of a judgment.

               3.6  Interest   Recapture.   If  the  designated   interest  rate
applicable to any Borrowing  exceeds the Maximum Rate, the interest rate on that
Borrowing is limited to the Maximum Rate, but any  subsequent  reductions in the
designated  rate shall not reduce the interest  rate  thereon  below the Maximum
Rate until the total  amount of accrued  interest  equals the amount of interest
that would have accrued if that designated rate had always been in effect. If at
maturity  (stated or by  acceleration),  or at final  payment of the Notes,  the
total interest paid or accrued is less than the interest that would have accrued
if the designated rates had always been in effect, then, at that time and to the
extent  permitted by Law,  Borrower  shall pay an amount equal to the difference
between (a) the LESSER of the amount of interest  that would have accrued if the
designated rates had always been in effect AND the amount of interest that would
have accrued if the Maximum  Rate had always been in effect,  and (b) the amount
of interest actually paid or accrued on the Notes.

               3.7 Interest  Calculations.  Interest  will be  calculated on the
basis of actual number of days  (including  the first day but excluding the last
day) elapsed but computed as if each calendar year consisted of 360 days (unless
the  calculation  would result in an interest rate greater than the Maximum Rate
or in the case of interest on Base-Rate  Borrowings in which event interest will
be  calculated  on the basis of a year of 365 or 366 days,  as the case may be).
All interest rate  determinations  and  calculations by Agent are conclusive and
binding absent manifest error.

               3.8 Maximum Rate.  Regardless  of any provision  contained in any
Loan Document,  no Lender is entitled to contract for,  charge,  take,  reserve,
receive, or apply, as interest on all or any part of the Obligation,  any amount
in excess of the Maximum Rate, and, if Lenders ever do so, then any excess shall
be treated as a partial  prepayment of principal and any remaining  excess shall
be refunded to Borrower.  In determining if the interest paid or payable exceeds
the Maximum Rate,  Borrower and Lenders shall,  to the maximum extent  permitted
under  applicable  Law, (a) treat all  Borrowings  as but a single  extension of
credit (and  Lenders and Borrower  agree that is the case and that  provision in
this  agreement  for  multiple   Borrowings  is  for  convenience   only),   (b)
characterize any 
                                       17
<PAGE>
nonprincipal payment as an expense, fee, or premium rather than as interest, (c)
exclude  voluntary  prepayments  and their effects,  and (d) amortize,  prorate,
allocate,  and  spread  the  total  amount of  interest  throughout  the  entire
contemplated term of the Obligation. However, if the Obligation are paid in full
before the end of their full contemplated term, and if the interest received for
its actual period of existence exceeds the Maximum Amount,  Lenders shall refund
any excess (and  Lenders may not, to the extent  permitted by Law, be subject to
any  penalties  provided  by any Laws for  contracting  for,  charging,  taking,
reserving,  or receiving interest in excess of the Maximum Amount).  If the Laws
of the State of Texas are applicable  for purposes of  determining  the "MAXIMUM
RATE" or the  "MAXIMUM  AMOUNT,"  then  those  terms  mean the  "INDICATED  RATE
CEILING" from time to time in effect under ARTICLE 5069-1.04,  TITLE 79, REVISED
CIVIL STATUTES OF TEXAS,  as amended.  Borrower agrees that CHAPTER 15, SUBTITLE
79, REVISED CIVIL STATUTES OF TEXAS,  1925, as amended (which regulates  certain
revolving credit loan accounts and revolving triparty accounts),  does not apply
to the Obligation.

               3.9 Interest  Periods.  When  Borrower  requests  any  LIBOR-Rate
Borrowing,  Borrower may elect the applicable interest period (each an "INTEREST
PERIOD"), which may be, at Borrower's option, one, two, three, or six months for
LIBOR-Rate Borrowings, subject to SECTION 14.1 and the following conditions: (a)
the  initial  Interest  Period  for a  LIBOR-Rate  Borrowing  commences  on  the
applicable  Borrowing  Date or conversion  date,  and each  subsequent  Interest
Period applicable to any Borrowing  commences on the day when the next preceding
applicable Interest Period expires;  (b) if any Interest Period for a LIBOR-Rate
Borrowing begins on a day for which no numerically corresponding Business Day in
the calendar month at the end of the Interest  Period exists,  then the Interest
Period ends on the last Business Day of that calendar month;  (c) if Borrower is
required to pay any of a  LIBOR-Rate  Borrowing  before the end of its  Interest
Period in order to comply with the  payment  provisions  of the Loan  Documents,
Borrower  shall also pay any  related  Funding  Loss;  and (d) no more than five
Interest Periods may be in effect at one time.

               3.10 Conversions.  Subject to the dollar limits of SECTION 2.1(B)
and provided  that  Borrower may not convert to or select a new Interest  Period
for a  LIBOR-Rate  Borrowing  at any time when a Default  or  Potential  Default
exists,  Borrower may (a) convert a LIBOR-Rate  Borrowing on the last day of the
applicable  Interest  Period to a Base-Rate  Borrowing,  (b) convert a Base-Rate
Borrowing  at any time to a LIBOR-Rate  Borrowing,  and (c) elect a new Interest
Period for a  LIBOR-Rate  Borrowing.  That  election  may be made by  telephonic
request to Agent no later than 10:00 a.m. on the third  Business  Day before the
conversion date or the last day of the Interest Period,  as the case may be (for
conversion to a LIBOR-Rate  Borrowing or election of a new Interest Period), and
no later than 10:00 a.m. on the last day of the Interest  Period (for conversion
to a Base-Rate  Borrowing).  Borrower shall provide a Conversion Notice to Agent
no later  than two days after the date of the  conversion  or  election.  Absent
Borrower's  telephonic  request for  conversion  or  election of a new  Interest
Period or if a Default or Potential Default exists, then, a LIBOR-Rate Borrowing
shall be deemed converted to a Base-Rate Borrowing effective when the applicable
Interest Period expires.

        3.11   Order of Application.

               (a) No Default.  If no Default or Potential  Default exists,  any
        payment  shall be  applied  to the  Obligation  -- EXCEPT  as  otherwise
        specifically  provided in the Loan  Documents -- in the order and manner
        as Borrower directs.

               (b)  Default.  If a Default  or  Potential  Default  exists or if
Borrower  fails to give  direction,  any payment  (including  proceeds  from the
exercise of any Rights) shall be applied in the following order: (i) To all fees
and  expenses  for which Agent or Lenders  have not been paid or  reimbursed  in
accordance  with the Loan Documents (and if such payment is less than all unpaid
or unreimbursed fees and expenses, then the payment shall be paid against unpaid
and unreimbursed fees and expenses in the order of incurrence or due date); (ii)
to  accrued  interest  on the  Principal  Debt;  (iii)  to any LC  reimbursement
obligations  that are due and payable and that remain  unfunded by any Borrowing
under the Revolving Facility;  (iv) to the remaining Principal Debt in the order
as  Determining  Lenders  may  elect  (but  Determining  Lenders  agree to apply
proceeds in an order that will minimize any Funding Loss);  (v) to the remaining
Obligation in the order and manner  Determining  Lenders deem  appropriate;  and
(vi) as a deposit  with Agent,  for the benefit of Lenders,  as security for and
payment of any subsequent LC reimbursement obligations.

               (c) Pro Rata. Each payment or prepayment  shall be distributed to
each Lender in accordance with its Pro Rata Part of that payment or prepayment.

                                       18
<PAGE>
        3.12  Sharing of  Payments,  Etc.  If any Lender  obtains any payment or
prepayment with respect to the Obligation  (whether voluntary,  involuntary,  or
otherwise,  including,  without limitation, as a result of exercising its Rights
under SECTION 3.13) that exceeds the part of that payment or prepayment  that it
is then  entitled to receive  under the Loan  Documents,  then that Lender shall
purchase from the other Lenders  participations  that will cause the  purchasing
Lender to share the excess payment or prepayment ratably with each other Lender.
If all or any  portion  of any  excess  payment or  prepayment  is  subsequently
recovered from the purchasing  Lender,  then the purchase shall be rescinded and
the purchase price restored to the extent of the recovery.  Borrower agrees that
any Lender  purchasing a  participation  from another  Lender under this section
may, to the  fullest  extent  permitted  by Law,  exercise  all of its Rights of
payment  (including the Right of offset) with respect to that  participation  as
fully as if that  Lender  were the direct  creditor of Borrower in the amount of
that participation.

        3.13 Offset.  If a Default  exists,  each Lender is entitled to exercise
(for the benefit of all Lenders in  accordance  with SECTION 3.12) the Rights of
offset and banker's Lien against each and every account and other  property,  or
any interest therein,  that any Company may now or hereafter have with, or which
is now or hereafter in the  possession of, that Lender to the extent of the full
amount of the Obligation owed (directly or participated) to it.

        3.14 Booking Borrowings.  To the extent permitted by Law, any Lender may
make, carry, or transfer its Borrowings at, to, or for the account of any of its
branch  offices or the office or branch of any of its  Affiliates.  However,  no
Affiliate  or branch is entitled to receive any greater  payment  under  SECTION
3.16 than the transferor Lender would have been entitled to receive with respect
to those  Borrowings,  and a transfer may not be made if, as a direct  result of
it,  SECTION  3.15 or 3.17 would apply to any of the  Obligation.  If any of the
conditions  of SECTIONS  3.16 or 3.17 ever apply to a Lender,  that Lender shall
carry or transfer its Borrowings at, to, or for the account of any of its branch
offices or the office or branch of any of its Affiliates SO LONG AS the transfer
is consistent  with the other  provisions  of this section,  does not create any
burden or adverse  circumstance  for that Lender that would not otherwise exist,
and eliminates the conditions of SECTIONS 3.16 or 3.17 as applicable.

        3.15 Basis  Unavailable  or Inadequate  for LIBOR Rate. If, on or before
any date when a LIBOR Rate is to be determined for a Borrowing, Agent reasonably
determines  that the basis for  determining the applicable rate is not available
or any Lender reasonably  determines that the resulting rate does not accurately
reflect the cost to that Lender of making or converting  Borrowings at that rate
for the applicable  Interest  Period,  then Agent shall promptly notify Borrower
and Lenders of that  determination  (which is conclusive and binding on Borrower
absent manifest  error) and the applicable  Borrowing shall bear interest at the
SUM of the Base Rate PLUS the Applicable  Margin.  Until Agent notifies Borrower
that  those  circumstances  no longer  exist,  Lenders'  commitments  under this
agreement to make, or to convert to, LIBOR-Rate Borrowings,  as the case may be,
are suspended.
                                       19
<PAGE>
      3.16  Additional  Costs.  Each Lender  severally and not jointly agrees to
notify  Agent,  the other  Lenders,  and  Borrower  within 180 days after it has
actual  knowledge  that any  circumstances  exist  that  would  give rise to any
payment obligation by Borrower under CLAUSES (A) through (C) below.  Although no
Lender shall have any liability to Agent,  any other Lender,  or any Company for
its failure to give that  notice,  Borrower is not  obligated to pay any amounts
under those clauses that arise, accrue, or are imposed more than 180 days before
that  notice  to the  extent  it is  applicable  to those  amounts.  Any  Lender
demanding  payment of any additional  costs under this section must generally be
making similar demand for similar  additional  costs under credit  agreements to
which it is party that contain similar provisions to this section.

               (a) Reserves.  With respect to any or LIBOR-Rate Borrowing (i) if
        any present or future Law imposes,  modifies, or deems applicable (or if
        compliance by any Lender with any  requirement  of any Tribunal  results
        in) any requirement that any reserves  (including,  without  limitation,
        any  marginal,   emergency,   supplemental,   or  special  reserves)  be
        maintained (OTHER THAN any reserve included in the Reserve Requirement),
        and if (ii) those  reserves  reduce any sums  receivable  by that Lender
        under this  agreement or increase  the costs  incurred by that Lender in
        advancing or maintaining any portion of any LIBOR-Rate  Borrowing,  then
        (iii)  that  Lender   (through   Agent)  shall  deliver  to  Borrower  a
        certificate  setting forth in reasonable  detail the  calculation of the
        amount  necessary to compensate it for its reduction or increase  (which
        certificate is conclusive and binding absent manifest  error),  and (iv)
        Borrower  shall pay that amount to that Lender within five Business Days
        after demand. The provisions of and undertakings and  indemnification in
        this CLAUSE (A) survive the  satisfaction  and payment of the Obligation
        and termination of this agreement.

               (b) Capital Adequacy.  With respect to any Commitment,  Borrowing
        or LC if any  present  or  future  Law  regarding  capital  adequacy  or
        compliance  by Agent (as issuer of LCs) or any Lender with any  request,
        directive,  or  requirement  now  existing or  hereafter  imposed by any
        Tribunal  regarding  capital  adequacy,  or any  change  in its  written
        policies or in the risk category of this  transaction,  reduces the rate
        of return on its capital as a consequence of its obligations  under this
        agreement to a level below that which it otherwise  could have  achieved
        (taking  into   consideration  its  policies  with  respect  to  capital
        adequacy)  by an amount  deemed  by it to be  material  (and it may,  in
        determining the amount,  utilize reasonable  assumptions and allocations
        of costs and expenses and use any  reasonable  averaging or  attribution
        method in  apportioning  such costs to its  customers  generally),  then
        (unless the effect is already  reflected  in the rate of  interest  then
        applicable  under this  agreement)  Agent or that Lender (through Agent)
        shall  notify  Borrower  and deliver to Borrower a  certificate  setting
        forth in reasonable  detail the  calculation of the amount  necessary to
        compensate  it (which  certificate  is  conclusive  and  binding  absent
        manifest  error),  and  Borrower  shall pay that amount to Agent or that
        Lender within five Business  Days after  demand.  The  provisions of and
        undertakings  and  indemnification  in this CLAUSE (B) shall survive the
        satisfaction  and  payment of the  Obligation  and  termination  of this
        agreement.

               (c) Taxes. Subject to SECTION 3.19, any Taxes payable by Agent or
        any  Lender or ruled (by a  Tribunal)  payable by Agent or any Lender in
        respect of this agreement or any other Loan Document shall, if permitted
        by Law, be paid by Borrower,  together with interest and  penalties,  if
        any EXCEPT for Taxes payable on or measured by the overall net income of
        Agent  or that  Lender  (or  Agent or that  Lender,  as the case may be,
        TOGETHER  WITH any other  Person with whom Agent or that Lender  files a
        consolidated,  combined,  unitary, or similar Tax return) and except for
        interest and penalties  incurred as a result of the gross  negligence or
        willful  misconduct  of  Agent  or any  Lender).  Agent  or that  Lender
        (through  Agent)  shall  notify  Borrower  and  deliver  to  Borrower  a
        certificate  setting forth in reasonable  detail the  calculation of the
        amount of payable  Taxes,  which  certificate  is conclusive and binding
        (absent manifest error), and Borrower shall pay that amount to Agent for
        its  account or the  account of that  Lender,  as the case may be within
        five Business Days after  demand.  If Agent or that Lender  subsequently
        receives  a  refund  of the  Taxes  paid  to it by  Borrower,  then  the
        recipient shall promptly pay the refund to Borrower.

                                       20
<PAGE>
        3.17 Change in Laws. If any Law makes it unlawful for any Lender to make
or maintain  LIBOR-Rate  Borrowings,  then that  Lender  shall  promptly  notify
Borrower and Agent, and (a) as to undisbursed  funds,  that requested  Borrowing
shall be made as a Base-Rate Borrowing,  and (b) as to any outstanding Borrowing
(i) if maintaining the Borrowing  until the last day of the applicable  Interest
Period is unlawful, the Borrowing shall be converted to a Base-Rate Borrowing as
of the date of notice,  in which event  Borrower will not be required to pay any
related  Funding Loss, or (ii) if not prohibited by Law, the Borrowing  shall be
converted to a Base-Rate Borrowing as of the last day of the applicable Interest
Period, or (iii) if any conversion will not resolve the  unlawfulness,  Borrower
shall promptly  prepay the Borrowing,  without  penalty but with related Funding
Loss.

        3.18 FUNDING LOSS. BORROWER SHALL INDEMNIFY EACH LENDER AGAINST, AND PAY
TO IT UPON DEMAND, ANY FUNDING LOSS OF THAT LENDER. WHEN ANY LENDER DEMANDS THAT
BORROWER PAY ANY FUNDING LOSS, THAT LENDER SHALL DELIVER TO BORROWER AND AGENT A
CERTIFICATE  SETTING FORTH IN REASONABLE  DETAIL THE BASIS FOR IMPOSING  FUNDING
LOSS AND THE  CALCULATION  OF THE AMOUNT,  WHICH  CALCULATION  IS CONCLUSIVE AND
BINDING  ABSENT  MANIFEST  ERROR.   THE  PROVISIONS  OF  AND   UNDERTAKINGS  AND
INDEMNIFICATION  IN THIS  SECTION  SURVIVE THE  SATISFACTION  AND PAYMENT OF THE
OBLIGATION AND TERMINATION OF THIS AGREEMENT.

        3.19  Foreign  Lenders,   Participants,   and  Assignees.  Each  Lender,
Participant (by accepting a participation  interest under this  agreement),  and
Assignee (by executing an  Assignment)  that is not organized  under the Laws of
the United  States of America or one of its states (a)  represents  to Agent and
Borrower that (i) no Taxes are required to be withheld by Agent or Borrower with
respect to any payments to be made to it in respect of the  Obligation  and (ii)
it has furnished to Agent and Borrower two duly completed  copies of either U.S.
Internal  Revenue  Service  FORM 4224,  FORM 1001,  FORM W-8,  or any other form
acceptable to Agent and Borrower that entitles it to a complete  exemption  from
U.S. federal  withholding Tax on all interest payments under the Loan Documents,
and (b) covenants to (i) provide Agent and Borrower a new FORM 4224,  FORM 1001,
FORM W-8, or other form  acceptable to Agent upon the expiration or obsolescence
according to Law of any previously  delivered  form, duly executed and completed
by it, entitling it to a complete exemption from U.S. federal withholding Tax on
all  interest and fee payments  under the Loan  Documents,  and (ii) comply from
time to time with all Laws with regard to the withholding Tax exemption.  If any
of the  foregoing  is not  true at any  time  or the  applicable  forms  are not
provided,  then Borrower and Agent (without duplication) may deduct and withhold
from interest and fee payments  under the Loan  Documents any Tax at the maximum
rate  under the Code or other  applicable  Law,  and  amounts  so  deducted  and
withheld shall be treated as paid to that Lender for all purposes under the Loan
Documents.

SECTION 4. FEES.

        4.1 Treatment of Fees.  The fees described in this SECTION 4 (a) are not
compensation  for the  use,  detention,  or  forbearance  of  money,  (b) are in
addition to, and not in lieu of,  interest and expenses  otherwise  described in
this  agreement,  (c) are  payable  in  accordance  with  SECTION  3.1,  (d) are
non-refundable,  and (e) to the fullest extent  permitted by Law, bear interest,
if not paid when due, at the Default Rate.

                                       21
<PAGE>
        4.2 Fees to Agent and Affiliates.  Borrower shall pay to Agent,  and its
Affiliates as Agent may designate, the arrangement/structuring fee and borrowing
base fees described in the letter agreement (as it may be renewed,  extended, or
modified)  of even date  herewith  between  Borrower  and Agent.  Those fees are
solely for the  account of Agent and its  Affiliates  EXCEPT to the extent  that
Agent may  unilaterally  agree in  writing  with any  Lender in  respect  of the
sharing of such fees.

        4.3 LC Fees.  As an  inducement  for the  issuance  (including,  without
limitation,  the  extension) of each LC,  Borrower  agrees to pay to the Issuing
Lender:

               (a) For the account of each  Lender  according  to each  Lender's
        Commitment Percentage on the day the fee is payable for a standby LC, an
        issuance  fee equal to the  greater of (i)  $300.00  or (ii)  1.875% per
        annum,  payable quarterly in arrears, of the average-face amount of that
        LC during each applicable quarterly period.

               (b) For the  account  of the  Issuing  Lender a  fronting  fee of
        0.125%  per annum of the face  amount of the LC , payable on the date of
        issuance.

        4.4 Commitment Fee. From and after the Closing Date,  Borrower shall pay
to Agent a  commitment  fee for Lenders  according to each  Lender's  Commitment
Percentage.  The fee is payable  as it  accrues  on the last day of each  March,
June,  September,  and December --  commencing  on the first of those dates that
follows the date of this agreement -- and on the Termination  Date. Each payment
of the fee is equal to the following,  determined  for the calendar  quarter (or
portion of a calendar quarter commencing on the date of this agreement or ending
on the  Termination  Date)  preceding and including the date it is due: From the
Closing  Date until the  Termination  Date,  the  PRODUCT of (i) the  Applicable
Percentage  TIMES (ii) the amount by which (x) the lesser of the Borrowing  Base
or the total Commitments exceeds (y) the SUM of the average-daily Principal Debt
under the Notes PLUS the average-daily LC Exposure,  TIMES (iii) a fraction with
the number of days in the  applicable  quarter or portion of it as the numerator
and 360 as the denominator.

SECTION 5.     SECURITY.

        5.1  Guaranty.  Borrower  shall  cause  all of its  present  and  future
Subsidiaries  -- whether  now  existing  or in the future  formed or acquired as
permitted by the Loan  Documents -- that are  Restricted  Companies  and who own
Mineral  Interests which are included in the determination of the Borrowing Base
to unconditionally  guarantee the full payment and performance of the Obligation
by execution of a written guaranty agreement in form and substance  satisfactory
to Agent.

        5.2 Collateral. Borrower shall cause full payment and performance of the
Obligation  to be  secured  by  Lender  Liens on all of the  items  and types of
property --  (TOGETHER  WITH the  additional  collateral  described  in SECTIONS
2.3(G)  and  5.3,  if any,  and the  cash and  non-cash  proceeds  of all of the
foregoing,  the  "COLLATERAL")  --  described  in the  present  and future  Loan
Documents creating Lender Liens, including, without limitation:

               (a) all of the Mineral Interests  described in Exhibit B attached
hereto  and the  oil,  gas and  mineral  production  therefrom  or  attributable
thereto,  and in all operating agreements and oil or gas purchase contracts (now
existing or hereafter  arising) relating to the Mineral Interests and in related
personal properties, fixtures and other properties, pursuant to mortgages, deeds
of trust, assignments of production,  security agreements,  financing statements
and other documents  satisfactory to Agent (said documents and any documents and
instruments  from time to time  amending  or  supplementing  the same are herein
sometimes collectively called the "COLLATERAL DOCUMENTS"); and

                                       22
<PAGE>
               (b) all of the present and future issued and outstanding  capital
stock or  other  equity  securities  issued  by all of its  present  and  future
Subsidiaries  who are required to guarantee the payment and  performance  of the
Obligation pursuant to SECTION 5.1.

        5.3 Collateral  Account.  In order to secure further the  performance by
Borrower of the Obligation and to effect and facilitate Agent's right of offset,
immediately  following  Agent's  request,  Borrower  shall  execute  such forms,
authorizations,  documents and instruments,  and do such other things,  as Agent
shall  request,  in order to require that pipeline  companies,  operators of the
Mortgaged Properties and others (collectively,  the "Purchasers") purchasing (or
acting as agents for, or making  payments on behalf of,  those  purchasing)  the
oil, gas and other minerals produced or to be produced from, or relating to, the
Mineral  Interests  deliver to a post office box number  specified  by Agent all
royalties,  production  payments,  checks,  cash,  proceeds  and  monies  now or
hereafter  payable by the  Purchasers (or any of them) on account of oil, gas or
other minerals  produced from or relating to the Mineral  Interests or otherwise
with respect to the Mineral Interests.  Borrower agrees that all such royalties,
payments  and monies  delivered  to such post office box shall be  deposited  by
Agent in a cash collateral  account at Agent styled "Fortune  Natural  Resources
Corporation  Production  Account."  After the occurrence of an Event of Default,
Borrower  shall,  upon  receipt,   deposit  in  the  Fortune  Natural  Resources
Corporation  Production  Account all such  royalties,  payments and monies which
Borrower  receives  directly from the Purchasers.  Borrower  hereby  irrevocably
authorizes and directs Agent to charge from time to time after the occurrence of
an Event of  Default,  the  Fortune  Natural  Resources  Corporation  Production
Account  and any other  accounts  of Borrower at Agent or any Lender for amounts
due to the Lenders  hereunder  and under the Notes.  After the  occurrence of an
Event of Default, Agent is hereby authorized, in its own name or the name of the
Borrower, to notify any or all parties obligated to Borrower with respect to the
Mineral  Interests to make all payments due or to become due thereon directly to
the Agent,  or such other person or officer as Agent may require  whereupon  the
power and  authority of the Borrower to collect the same in the ordinary  course
of its business shall be deemed to be immediately  revoked and terminated.  With
or  without  such  general  notification,  after the  occurrence  of an Event of
Default,  Agent may take or bring in  Borrower's name or that of the Agent all
steps, actions,  suits or proceedings deemed by the Agent necessary or desirable
to effect  possession or  collection  of payments,  may complete any contract or
agreement  of the  Borrower in any way related to any of the Mineral  Interests,
may make  allowances  or  adjustments  related  to the  Mineral  Interests,  may
compromise  any claims  related to the Mineral  Interests or may issue credit in
its own name or the name of the Borrower.  Regardless  of any provision  hereof,
however,  Agent  shall  never be liable  for its  failure  to collect or for its
failure to exercise diligence in the collection,  possession, or any transaction
concerning,  all or part of the Mineral  Interests or sums due or paid  thereon,
nor shall it or they be under any  obligation  whatsoever to anyone by virtue of
its security interests and liens relating to the Mortgaged Properties.

        The Agent is hereby  authorized  and empowered on behalf of the Borrower
to endorse the name of the Borrower upon any check, draft, instrument,  receipt,
instruction or other document or items, including, but not limited to, all items
evidencing  payment upon any  indebtedness  of any Person to the Borrower coming
into the Agent's possession,  and to receive and apply the proceeds therefrom in
accordance  with the terms hereof.  The Agent is hereby  granted an  irrevocable
power of attorney,  which is coupled  with an  interest,  to execute all checks,
drafts, receipts,  instruments,  instructions or other documents,  agreements or
items on behalf of the Borrower, either before or after demand of payment on the
Notes, as shall be deemed by the Agent to be necessary or advisable, in the sole
discretion  of the Agent,  to protect its  security  interests  and liens in the
Mineral  Interests or the repayment of the  Obligation,  and the Agent shall not
incur any  liability  in  connection  with or arising  from its exercise of such
power of attorney.
                                       23
<PAGE>
        Borrower  acknowledges  that all funds so  transferred  into the Fortune
Natural Resources Corporation  Production Account shall be the property Borrower
only and not subject to any claim by any party other than Agent, for the benefit
of the Lenders.

        5.4 Further  Assurances.  Borrower  covenants and agrees that the Lender
Liens otherwise described in SECTION 5.2 and, when required,  SECTION 2.3(G) and
5.3 must be created and  perfected as a condition to funding any  Borrowings  or
the  issuance  of any LC.  Furthermore,  Borrower  shall -- and shall cause each
other  appropriate  Company to -- perform  the acts,  duly  authorize,  execute,
acknowledge,  deliver,  file,  and record any additional  writings,  and pay all
filings  fees and costs as Agent or  Determining  Lenders  may  reasonably  deem
appropriate  or  necessary to perfect and maintain the Lender Liens and preserve
and protect the Rights of Agent and Lenders under any Loan Document.

        5.5    Release of Collateral.

               (a) Whenever no Lender has any  commitment to extend credit under
        any Loan Document and the  Obligation has been fully paid and performed,
        Agent shall, upon Borrower's  written request and at Borrower's cost and
        expense, cause the Lender Liens on all Collateral to be released.

               (b) In connection  with any sale or other  disposition  of assets
        permitted by SECTION 9.10, Agent shall,  upon Borrower's  request and at
        Borrower's  cost and  expenses,  release the Lender  Liens on the assets
        sold or disposed of.

SECTION 6.  CONDITIONS  PRECEDENT.  No Lender is  obligated  to fund the initial
Borrowing or issue any LC unless  Agent has received all of the items  described
in PART A on SCHEDULE 6. In addition, no Lender is obligated to fund (as opposed
to continue or convert) any  Borrowing or issue any LC unless on the  applicable
Borrowing  Date,  or issue  date  (and  after  giving  effect  to the  requested
Borrowing  or LC),  as the case may be: (a) Agent (and the  Issuing  Lender,  if
applicable) timely receives a Borrowing Request or LC Request (together with the
applicable LC Agreement),  as the case may be; (b) the Issuing  Lender  receives
any applicable LC fee then due and payable;  (c) all of the  representations and
warranties  of the  Companies in the Loan  Documents are true and correct in all
material  respects  (unless they speak to a specific  date or are based on facts
which have changed by transactions  contemplated or expressly  permitted by this
agreement); (d) no Material Adverse Event, Default, or Potential Default exists;
(e) no Borrowing-Base Deficiency will exist after giving effect to the Borrowing
or LC issuance;  and (f) no limitation  in SECTION 2.1 OR 2.3 is exceeded.  Each
Borrowing  Request and LC Request,  however  delivered,  constitutes  Borrower's
representation and warranty that the conditions in CLAUSES (C) through (F) above
are satisfied.  Upon Agent's or any Lender's reasonable request,  Borrower shall
deliver to Agent or such Lender  evidence  substantiating  any of the matters in
the Loan  Documents  that are  necessary  to enable  Borrower to qualify for the
Borrowing or LC, as the case may be. Each condition  precedent in this agreement
(including,  without  limitation,  those  on  SCHEDULE  6) is  material  to  the
transactions  contemplated  by this  agreement,  and time is of the essence with
respect to each condition precedent.

SECTION 7.  REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants to
Agent and Lenders as follows:

        7.1    Purpose and Regulation U.

               (a) Borrower will use LCs for general corporate  purposes and the
        proceeds of the  Revolving  Facility  for (i)  refinancing  the Existing
        Indebtedness,  and (ii) the Restricted  Companies'  working  capital and
        general corporate purposes.
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<PAGE>
                (b)  No  Company  is  engaged  principally,  or as  one  of  its
        important  activities,  in the  business  of  extending  credit  for the
        purpose of purchasing or carrying any "MARGIN  STOCK" within the meaning
        of REGULATION U of the Board of Governors of the Federal Reserve System,
        as  amended.  No part of the  proceeds  of any LC  draft or  drawing  or
        Borrowing  will be used,  directly  or  indirectly,  for a purpose  that
        violates any Law, including, without limitation, REGULATION U.

        7.2 Corporate Existence,  Good Standing, and Authority.  Each Restricted
Company is duly organized, validly existing, and in good standing under the Laws
of its jurisdiction of incorporation. Except where not a Material Adverse Event,
each  Restricted  Company is duly qualified to transact  business and is in good
standing  as a foreign  corporation  in each  jurisdiction  where the nature and
extent  of its  business  and  properties  require  due  qualification  and good
standing  (each of which  jurisdictions  is  identified  on  SCHEDULE  6).  Each
Restricted  Company  possesses all requisite  authority and power to conduct its
business as is now being  conducted and as proposed  under the Loan Documents to
be conducted  and to own and operate its assets as now owned and operated and as
proposed to be owned and operated under the Loan Documents.

        7.3 Subsidiaries and Names. SCHEDULE 7.3 -- as supplemented from time to
time by written notice from Borrower to Agent and Lenders specifically referring
to that schedule and this section and  reflecting  changes to that schedule as a
result of  transactions  permitted by the Loan Documents -- describes (a) all of
Borrower's direct and indirect Subsidiaries,  (b) all Restricted Companies,  (c)
every name or trade name used by each  Restricted  Company  during the five-year
period  before  the  date  of  this  agreement,  and (d)  every  change  of each
Subsidiary's  name  during  the  four-month  period  before  the  date  of  this
agreement.  All of the  outstanding  shares of capital stock (or similar  voting
interests) of Borrower's  Subsidiaries are (a) duly authorized,  validly issued,
fully paid, and nonassessable, (b) owned of record and beneficially as described
in that  schedule  or those  writings,  free  and  clear  of any  Liens,  EXCEPT
Permitted  Liens,  and  (c)  not  subject  to  any  warrant,  option,  or  other
acquisition  Right of any Person or subject to any transfer  restriction  EXCEPT
restrictions imposed by securities Laws and general corporate Laws.

        7.4 Authorization and Contravention.  The execution and delivery by each
Restricted  Company  of each  Loan  Document  to  which  it is a  party  and the
performance by it of its  obligations  under those Loan Documents (a) are within
its corporate  power,  (b) have been duly authorized by all necessary  corporate
action,  (c) require no action by or filing with any Tribunal (EXCEPT any action
or filing that has been taken or made on or before the Closing Date), (d) do not
violate  any  provision  of its  charter or bylaws,  and (e) do not  violate any
provision of Law  applicable  to it or any  material  agreement to which it is a
party EXCEPT  violations that  individually  or collectively  are not a Material
Adverse Event.

        7.5 Binding  Effect.  Upon  execution and delivery by all parties to it,
each Loan  Document  will  constitute  a legal and  binding  obligation  of each
Restricted Company party to it,  enforceable  against it in accordance with that
Loan  Document's  terms EXCEPT as that  enforceability  may be limited by Debtor
Laws and general principles of equity.

        7.6 Financials and Existing Debt. The Current  Financials  were prepared
in  accordance  with GAAP and present  fairly,  in all  material  respects,  the
Companies'  consolidated  financial condition,  results of operations,  and cash
flows as of,  and for the  portion  of the  fiscal  year  ending on their  dates
(subject  only to normal  year-end  adjustments  for  interim  statements).  All
material  liabilities  of the Companies as of those dates are reflected in those
Current  Financials or in the notes to them or have  otherwise been disclosed to
Lenders in writing.  Except for transactions  directly related to,  specifically
contemplated  by, or expressly  permitted by the Loan  Documents (a) no material
adverse changes have occurred in the Companies' consolidated financial condition
from that shown in the Current  Financials,  and (b) no Company has incurred any
material liability EXCEPT Debt that is not prohibited by the Loan Documents.

                                       25
<PAGE>
        7.7 Budget.  Although  Borrower  cannot assure Agent or Lenders that the
Budget will be achieved, the Budget is based upon reasonable assumptions,  which
are  consistent  with each other and with all facts then known to  Borrower  and
which includes all other material assumptions  necessary in order for the Budget
to not be misleading in any material respect.

        7.8 Solvency. On each Borrowing Date and the date any LC is issued, each
Restricted  Company is -- and after giving effect to the requested  Borrowing or
LC will be -- Solvent.

        7.9 Litigation.  Except as disclosed on SCHEDULE 7.9 and matters covered
(subject to reasonable  and customary  deductible and retention) by insurance or
indemnification  agreements (a) no Restricted Company is subject to, or aware of
the  threat  of,  any  Litigation  that is  reasonably  likely to be  determined
adversely  to any  Restricted  Company  and, if so  adversely  determined,  is a
Material Adverse Event, and (b) no outstanding and unpaid judgments  against any
Restricted Company exist.

        7.10  Taxes.  EXCEPT  where  not a  Material  Adverse  Event (a) all Tax
returns  of each  Restricted  Company  required  to be filed have been filed (or
extensions have been granted) before delinquency, and (b) all Taxes imposed upon
each  Restricted  Company  that  are due  and  payable  have  been  paid  before
delinquency except as being contested as permitted by SECTION 8.5.

        7.11 Environmental Matters. EXCEPT as disclosed on SCHEDULE 7.11:

               (a) No consent or other  approval of -- or  declaration  or other
        filing with -- any Tribunal is required under any  Environmental  Law in
        connection with any transaction contemplated by the Loan Documents.

               (b) EXCEPT where adequately covered by an Environmental Indemnity
        Agreement or where not a Material  Adverse Event,  none of the following
        are present at any Real Property  (including,  without  limitation,  the
        Leases and the Mineral Interests) of any Restricted Company in violation
        of any  Environmental  Law:  (i)  Any  asbestos  or  asbestos-containing
        material;  (ii) any  underground  or  aboveground  storage  tank or tank
        system subject to regulation under any  Environmental  Law; or (iii) any
        electrical  or other  fixtures or equipment  containing  polychlorinated
        biphenyls.

               (c) EXCEPT where adequately covered by an Environmental Indemnity
        Agreement or where not a Material  Adverse Event, no unreported  Release
        of any  Hazardous  Substance  has  occurred at or in the vicinity to any
        Real Property (including, without limitation, the Leases and the Mineral
        Interests) (i) in a quantity that requires any report or other notice to
        any Tribunal  under any  Environmental  Law or (ii) that has resulted or
        that  threatens to result in the presence of any Hazardous  Substance in
        the environment in a quantity, concentration,  state, or other condition
        that exceeds any applicable  standard for the protection of human health
        or the environment under any Environmental Law.

               (d) EXCEPT where not a Material  Adverse Event,  no Real Property
        (including,  without  limitation,  the Leases and the Mineral Interests)
        has  been  used for the  storage  (other  than  short-term  storage  not
        requiring  an  Environmental  Permit),  treatment,  or  disposal  of any
        Hazardous  Substance in any amounts that are reasonably likely to result
        in any  Environmental  Liabilities or violation of any Environmental Law
        while owned or operated by any Company or any Predecessor.

                                       26
<PAGE>
                (e)  EXCEPT  where   adequately   covered  by  an  Environmental
        Indemnity Agreement or where not a Material Adverse Event, no Restricted
        Company  or  Predecessor  is -- or has  received  any  notice  from  any
        Tribunal during the last five years that it is -- potentially liable for
        any   removal,   remediation,   or  other   response   costs  under  any
        Environmental Law as the result of the Release or threatened  Release of
        any Hazardous Substance.

               (f) No Company  knows of any  material  error or  omission in any
        Environmental Report delivered to Agent or any Lender.

        7.12 Employee  Plans.  EXCEPT where not a Material  Adverse Event (a) no
Employee Plan has incurred an  "ACCUMULATED  FUNDING  DEFICIENCY" (as defined in
SECTION  302 of ERISA or SECTION 412 of the Code),  (b) no Company has  incurred
liability -- EXCEPT for liabilities for premiums that have been paid or that are
not past due -- under ERISA to the PBGC in  connection  with any Employee  Plan,
(c) no  Company  has  withdrawn  in whole  or in part  from  participation  in a
Multiemployer  Plan, (d) no Company has engaged in any "PROHIBITED  TRANSACTION"
(as  defined  in  SECTION  406 of ERISA or  SECTION  4975 of the  Code),  (e) no
"REPORTABLE EVENT" (AS DEFINED IN SECTION 4043 of ERISA) has occurred, excluding
events  for  which  the  notice  requirement  is waived  under  applicable  PBGC
regulations,  (f) no Company or Affiliate of any Company has any liability under
or is  subject  to any Lien  under  ERISA or the  Code to or on  account  of any
employee benefit plan, program, scheme, or arrangement established or maintained
by any  Company  or  Affiliate  of any  Company  or to which any  Company or any
Affiliate of any Company  contributes  or had an obligation to  contribute,  (g)
each  Employee  Plan  complies  in all  material  respects,  both  in  form  and
operation,  with  ERISA  and  the  Code,  and  (h) no  Multiemployer  Plan is in
reorganization within the meaning of Section 418 of the Code.

        7.13 Properties;  Liens. Each Restricted  Company has indefeasible title
to the  Mortgaged  Properties  and all of its other  property  reflected  on the
Current  Financials as being owned by it EXCEPT for property that is obsolete or
that has been disposed of in the ordinary course of business between the date of
the Current  Financials  and the date of this  agreement or, with respect to its
property  (other  than the  Mortgaged  Properties),  failure of such  Restricted
Company to have such title would not constitute a Material  Adverse  Event,  or,
after the date of this agreement,  as permitted by SECTION 9.10 or SECTION 9.11.
No Lien exists on any property  (including,  without  limitation,  the Mortgaged
Properties)  of any Company EXCEPT  Permitted  Liens.  No Restricted  Company is
party  or  subject  to any  agreement,  instrument,  or  order  which in any way
restricts any Restricted  Company's  ability to allow Liens to exist upon any of
its assets EXCEPT relating to Permitted Liens. The provisions of each Collateral
Document are  effective to create in favor of the Agent for the ratable  benefit
of the Lenders,  a legal,  valid and enforceable Lender Lien in all right, title
and interest of the Borrower in the Collateral  described therein,  which Lender
Liens shall constitute fully perfected  first-priority Liens on all right, title
and interest of the Borrower in the Collateral  described therein,  subject only
to  Permitted  Liens.  No  orders  of,  proceedings  pending  before,  or  other
requirements of, the Federal Energy Regulatory  Commission or any other Tribunal
exist which could result in the Borrower  being  required to refund any material
portion of the proceeds received or to be received from the sale of hydrocarbons
constituting part of the Mortgaged Properties. The Borrower (a) is not obligated
in any  material  respect by virtue of any  prepayment  made under any  contract
containing  a  "take-or-pay"  or  "prepayment"  provision  or under any  similar
agreement  to deliver  hydrocarbons  produced  from or  allocated  to any of the
Mortgaged Properties at some future date without receiving full payment therefor
at the time of delivery,  and (b) has not produced gas, in any material  amount,
subject to, and is, nor is any of the Mortgaged Properties, subject to balancing
rights of third  parties or  subject  to  balancing  duties  under  governmental
requirements,  except as to such matters for which the Borrower has  established
monetary  reserves  adequate in an amount to satisfy  such  obligations  and has
segregated such reserves from other accounts.

                                       27
<PAGE>
        7.14  Government  Regulations.  No  Restricted  Company  is  subject  to
regulation under the INVESTMENT  COMPANY ACT OF 1940, as amended,  or the PUBLIC
UTILITY HOLDING COMPANY ACT OF 1935, as amended.

        7.15  Transactions  with Affiliates.  EXCEPT for transactions with other
Restricted  Companies and as otherwise disclosed on SCHEDULE 7.15, no Restricted
Company is a party to a material  transaction with any of its Affiliates  EXCEPT
transactions  in the ordinary  course of business  and upon fair and  reasonable
terms  not  materially  less  favorable  than it could  obtain  or could  become
entitled  to in an  arm's-length  transaction  with a  Person  that  was not its
Affiliate.

        7.16   Debt.  No Restricted Company has any Debt EXCEPT Permitted Debt.

        7.17  Leases.  EXCEPT  where  not a  Material  Adverse  Event  (a)  each
Restricted  Company  enjoys  peaceful and  undisturbed  possession of all leases
necessary for the operation of its properties and assets, none of which contains
any unusual or burdensome provisions which might materially affect or impair the
operation of those  properties  and assets,  and (b) all  material  leases under
which any  Restricted  Company is a lessee are in full force and effect,  and no
default -- or event that,  with  notice,  time lapse,  or both,  would  become a
default -- exists.  The leases which underlie or constitute  part of the Mineral
Interests (the "Leases") are in full force and effect,  and neither Borrower nor
any other person has  defaulted on any of its  obligations  thereunder  so as to
impair the value of such Leases.

        7.18 Labor  Matters.  EXCEPT where not a Material  Adverse  Event (a) no
actual or  threatened  strikes,  labor  disputes,  slow  downs,  walkouts,  work
stoppages,  or other  concerted  interruptions  of  operations  that involve any
employees  employed at any time in  connection  with the business  activities or
operations at the Real Property  exist,  (b) hours worked by and payment made to
the  employees of any  Restricted  Company or any  Predecessor  have not been in
violation  of  the  FAIR  LABOR  STANDARDS  ACT  or any  other  applicable  Laws
pertaining to labor matters,  (c) all payments due from any  Restricted  Company
for  employee  health and  welfare  insurance,  including,  without  limitation,
workers compensation insurance,  have been paid or accrued as a liability on its
books,  (d) the  business  activities  and  operations  of each  Company  are in
compliance with OSHA and other applicable health and safety Laws.

        7.19  Intellectual  Property.  EXCEPT where not a Material Adverse Event
(a) each Restricted  Company owns or has the right to use all material licenses,
patents, patent applications,  copyrights, service marks, trademarks,  trademark
applications  and trade names necessary to continue to conduct its businesses as
presently  conducted by it and proposed to be conducted by it immediately  after
the date of this  agreement,  (b) each  Restricted  Company  is  conducting  its
business without  infringement or claim of infringement of any license,  patent,
copyright,   service  mark,  trademark,   trade  name,  trade  secret  or  other
intellectual  property  right of  others,  and (c) no  infringement  or claim of
infringement by others of any material license, patent, copyright, service mark,
trademark,  trade  name,  trade  secret or other  intellectual  property  of any
Restricted Company exists.

        7.20  Full  Disclosure.  Each  fact or  condition  relating  to the Loan
Documents or any Restricted Company's financial condition, business, or property
that is a Material  Adverse  Event has been  disclosed in writing to Agent.  All
information  previously  furnished  to  Agent  by  or  at  the  direction  of  a
Responsible  Officer or the General  Counsel of or the attorneys for Borrower in
connection with the Loan Documents was -- and all information furnished to Agent
in the future by or at the  direction  of a  Responsible  Officer or the General
Counsel of or the  attorneys  for  Borrower  will be -- true and accurate in all
material  respects or based on reasonable  estimates on the date the information
is stated or certified.
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<PAGE>
        7.21 Estimated Oil and Gas Reserves.  Borrower has heretofore  delivered
to Agent copies of all requested  reports  (prepared by  independent  consulting
engineers),  which have been  obtained by Borrower and concern the estimated oil
and gas reserves and future net revenues  attributable to the Mineral Interests.
The  statements of fact  contained in said reports with respect to the character
and  ownership of the Mineral  Interests  (including,  without  limitation,  the
revenue  interest and working interest of Borrower stated therein) and the other
factual  data  furnished  by  Borrower  as a basis for the  estimates  set forth
therein are true and correct and do not omit any material fact necessary to make
said statements not misleading.

        7.22 Working Interest. Borrower owns a "working interest" in each of the
Mortgaged  Properties  described  in  Exhibit  B which is not  greater  than the
interest  specified in the  description  of such property in Exhibit B, with the
term "working interest", as used herein, meaning the right to explore for, drill
and produce oil, gas or other  minerals,  whether such right is created by lease
or  otherwise,  and being  equivalent to the  proportionate  part of the cost of
exploration,  development  and marketing of oil, gas and other minerals borne by
Borrower with respect to each respective property.

        7.23 Net Revenue  Interest.  Borrower  owns a "net revenue  interest" in
each of the Mortgaged  Properties  described on Exhibit B which is not less than
the interest  specified in the  description  of such property on Exhibit B, with
the term "net revenue interest", as used herein, meaning the proportionate share
of the  production of oil, gas or other  minerals to which  Borrower is entitled
after  deduction of all  royalties,  overriding  royalties  and other  interests
payable from or measured by production.

        7.24 Burdensome Contracts.  Borrower is not a party to, or bound by, nor
are any of the Mineral Interests or other Mortgaged  Properties  subject to, any
contract which could reasonably result in a Material Adverse Event.

        7.25  Regulatory  Defects.  As of the date hereof,  Borrower has advised
Agent, in writing,  of all regulatory defects of which Borrower has been advised
or has actual  knowledge  with  respect to the  ownership  or  operation  of the
Mortgaged Properties.  No such regulatory results in a Material Adverse Event or
affects  Borrower's  intended  operation of any of the Mineral  Interests or the
value of the sale of production therefrom.

        7.26 Agreements Affecting Mineral Interests.  Borrower has advised Agent
of, and delivered (to the extent  requested by Agent) true and correct copies to
Agent of, all material operating agreements,  pooling or unitization agreements,
sales  or  processing  contracts,  restrictions,   preferential  purchase  right
agreements,   farm-out,   drilling  and/or  development   agreements,   pipeline
transportation  agreements,  gas purchase or other  marketing  agreements,  Swap
Agreements and other material agreements which pertain to the Mineral Interests,
the operation thereof or the disposition of production attributable thereto.

        7.27 Locations of Business, Offices. The principal place of business and
chief  executive  office  of the  Borrower  is  located  at the  address  of the
Borrower,  set forth next to its name on the  signature  pages hereof or at such
other  location as the Borrower may have, by proper  written  notice  hereunder,
advised  the Agent and the  Lenders,  provided  that such other  location of the
Borrower is within a state in which  appropriate  financing  statements from the
Borrower in favor of the Agent have been filed.

SECTION 8. AFFIRMATIVE COVENANTS. For so long as any Lender is committed to lend
or issue LCs under this  agreement and until the  Obligation has been fully paid
and  performed,  Borrower  covenants  and agrees  with Agent and  Lenders  that,
without first obtaining  Agent's written notice of Determining  Lenders' consent
to the contrary:
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<PAGE>
      8.1 Certain Items Furnished.  Borrower shall furnish the following to each
Lender:

               (a) Annual  Financials,  Etc.  Promptly after  preparation but no
        later than 90 days after the last day of each  fiscal  year of  Borrower
        Financials showing the Companies'  consolidated  financial condition and
        results of  operations  as of, and for the year ended on, that last day,
        accompanied  by (i) the  opinion,  without  material  qualification,  of
        KPMG-Peat  Marwick,  L.L.P.  or  other  firm  of   nationally-recognized
        independent  certified  public  accountants   reasonably  acceptable  to
        Determining Lenders, based on an audit using generally accepted auditing
        standards,  that  the  consolidated  portion  of those  Financials  were
        prepared in  accordance  with GAAP and present  fairly,  in all material
        respects, the Companies' consolidated financial condition and results of
        operations, and (ii) a Compliance Certificate.

               (b) Quarterly Financials,  Etc. Promptly after preparation but no
        later than 45 days after the last day of each of the first three  fiscal
        quarters  of  Borrower  each year,  Financials  showing  the  Companies'
        consolidated  financial  condition  and results of  operations  for that
        fiscal  quarter  and for the period  from the  beginning  of the current
        fiscal year to the last day of that fiscal quarter, accompanied by (i) a
        Compliance Certificate.

               (c)    Reserve Report(s).
                      (1) The  Borrower  shall  deliver  to the  Agent  and each
        Lender  no later  than  March 31 of each  year  during  the term of this
        agreement,  engineering reports in form and substance  acceptable to the
        Lenders  prepared and  certified by  Huddleston & Company,  Inc. or such
        other   nationally-recognized   or   regionally-recognized   independent
        consulting  petroleum engineers  acceptable to the Lenders setting forth
        (i) the proven  producing,  non-producing  and  undeveloped  oil and gas
        reserves  (separately  classified as such) attributable to the Mortgaged
        Properties as of December 31 of the year for which such reserve  reports
        are furnished,  (ii) the aggregate present value determined on the basis
        of stated pricing assumptions,  of the future net income with respect to
        such  Mortgaged  Properties,  discounted at a stated per annum  discount
        rate, (iii)  projections of the annual rate of production,  gross income
        and net income with respect to such reserves,  and (iv) information with
        respect to any "take or pay," "prepayment" and gas balancing liabilities
        of the Borrower.

                      (2) The  Borrower  shall  deliver  to the  Agent  and each
        Lender no later than  September  30 of each year during the term of this
        Agreement,  a supplement  to the most recent  year-end  Reserve  Report,
        satisfactory  to the Agent,  prepared by or under the supervision of the
        chief petroleum engineer of the Borrower and containing an update of the
        information described in Subsection 8.1(c)(1)(i)-(iv) to reflect changes
        from the most  recent  year-end  Reserve  Report  delivered  pursuant to
        Subsection 8.1(c)(1).

                      (3) Each of the reports provided  pursuant to this Section
        shall be submitted to the Agent and each Lender  together a  certificate
        of a Responsible Officer certifying that such report is true and correct
        in all  material  respects  and  stating  the  value  of  the  Mortgaged
        Properties  as a  percentage  of  all  Mineral  Interests  based  on the
        information  contained therein, and with additional data as the Agent or
        any Lender may  reasonably  request  concerning  pricing,  quantities of
        production from the Mortgaged  Properties,  purchasers of production and
        engineering and geological data.

               (d) Production Information.  Within 45 days after the last day of
        each month hereafter,  commencing with the month ending June 30, 1997, a
        production and operations report in the form of Exhibit C hereto or such
        other form from time to time submitted by Borrower and approved by Agent
        and  the  Determining  Lenders,   duly  completed  and  certified  by  a
        Responsible Officer.
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<PAGE>
                (e) Annual Budget. Prior to each December 31 of each year during
        the term of this agreement,  commencing  December 31, 1997, a budget for
        the  following  fiscal  year  of the  Borrower  in  form  and  substance
        satisfactory to the Agent (the "Budget").

               (f) Other Reports.  Promptly after  preparation and distribution,
        accurate  and  complete   copies  of  all  reports  and  other  material
        communications  about material  financial matters or material  corporate
        plans or  projections  by or for any  Company  for  distribution  to any
        Tribunal or any existing or potential  creditor (i)  including,  without
        limitation,  each FORM 10-K, 10-Q, and S-8 filed with the Securities and
        Exchange  Commission  but (ii)  excluding (A) credit,  trade,  and other
        reports prepared and distributed in the ordinary course of business, and
        (B)  information  otherwise  furnished  to Agent and Lenders  under this
        agreement.  Promptly upon Agent's  request  therefor,  copies of (i) any
        statements or other reports describing reserves,  future income or value
        attributable  to any of the Mineral  Interests  and  monthly  production
        reports  filed with the Minerals  Management  Service by the operator of
        any of the Mortgaged Properties; (ii) all material operating agreements,
        pooling  or  unitization  agreements,  sales  or  processing  contracts,
        restrictions,  preferential  purchase right agreements,  drilling and/or
        development  agreements,  pipeline  transportation  agreements and other
        material  agreements  which  pertain  to  the  Mineral  Interests,   the
        operation thereof or the disposition of production attributable thereto;
        and (iii) all reports,  forms and other  documents and data submitted by
        Borrower to the United States  Department of the Interior Bureau of Land
        Management Minerals  Management Service,  the Louisiana Oil Conservation
        Commission,  United States  Department of Energy,  United States Federal
        Energy Regulatory Commission or other Tribunal, concerning the operation
        of,  drilling  of wells  on,  sale of  production  from,  or the  prices
        received for the sale of production from, the Mineral Interests.

               (g) Employee  Plans. As soon as possible and within 30 days after
        Borrower knows that any event which would  constitute a reportable event
        under SECTION 4043(B) of TITLE IV of ERISA with respect to any Company's
        employee pension or other benefit plan subject to ERISA has occurred, or
        that the PBGC has instituted or will institute  proceedings  under ERISA
        to terminate that plan,  deliver a certificate of a Responsible  Officer
        of Borrower  setting forth details as to that  reportable  event and the
        action which the Companies  propose to take with respect to it, together
        with a copy of any notice of that reportable event which may be required
        to be  filed  with  the  PBGC,  or any  notice  delivered  by  the  PBGC
        evidencing  its intent to institute  those  proceedings or any notice to
        the PBGC that the plan is to be terminated,  as the case may be. For all
        purposes of this  section,  Borrower is deemed to have all  knowledge or
        knowledge  of all facts  attributable  to the plan  administrator  under
        ERISA.

               (h) Other Notices.  Promptly after Borrower has knowledge of, but
        in any event  prior to five  days  after  the  occurrence  of any of the
        following  events,  notice  of  (i)  the  existence  and  status  of any
        Litigation that is reasonably likely to be adversely  determined and, if
        determined adversely to any Company,  would be a Material Adverse Event,
        (ii) any change in any  material  fact or  circumstance  represented  or
        warranted  by any  Company  in any Loan  Document,  (iii) a  Default  or
        Potential  Default,  specifying  the nature  thereof and what action the
        Companies have taken, are taking, or propose to take or (iv) claims made
        against  any  Restricted  Company by any  Person in excess of  $100,000,
        other than for accounts payable in the ordinary course of business.

               (i) PART B on  SCHEDULE  6.  Promptly  as they  become  available
        (subject to the other  requirements  of this  agreement),  the items, if
        any, described in PART B on SCHEDULE 6.

                                       31
<PAGE>
                (j) Other  Information.  Promptly when  reasonably  requested by
        Agent or any Lender,  such  information  (not  otherwise  required to be
        furnished under this agreement)  about any Company's  business  affairs,
        assets, and liabilities.

        8.2 Use of Credit. Borrower shall use LCs and the proceeds of Borrowings
only for the purposes represented in this agreement.

        8.3 Books and Records.  Each Company shall maintain books,  records, and
accounts necessary to prepare Financials in accordance with GAAP.

        8.4 Inspections. Upon reasonable request, each Company shall allow Agent
or any  Lender  (or their  respective  Representatives)  to  inspect  any of its
properties,  to review  reports,  files,  and other records and to make and take
away  copies,  to conduct  tests or  investigations,  and to discuss  any of its
affairs, conditions, and finances with its other creditors, directors, officers,
employees,  or  representatives  from time to time, during  reasonable  business
hours.  Any reviews and  investigations  shall be limited to matters relevant to
the present or future financial  condition of the Companies and their compliance
with -- or ability to comply with -- the Loan Documents.

        8.5 Taxes.  Each Restricted  Company shall promptly pay when due any and
all  Taxes  EXCEPT  Taxes  that are  being  contested  in good  faith by  lawful
proceedings  diligently  conducted,  against  which  reserve or other  provision
required by GAAP has been made,  and in respect of which levy and  execution  of
any Lien has been and continues to be stayed.

        8.6 Payment of Obligation.  Each  Restricted  Company shall promptly pay
(or renew and extend) all of its material obligations as they become due (unless
the obligations are being contested in good faith by appropriate proceedings).

        8.7  Expenses.  Within ten Business  Days after being  presented  with a
reasonably-detailed  invoice,  Borrower  shall  pay (a)  all  costs,  fees,  and
expenses  paid or incurred by Agent  incident to any Loan  Document  (including,
without  limitation,  the  reasonable  fees and  expenses of Agent's  counsel in
connection with the  negotiation,  preparation,  delivery,  and execution of the
Loan  Documents  and  any  related  amendment,  waiver,  or  consent),  (b)  all
out-of-pocket  costs paid or  incurred  by the  Lenders in  connection  with any
redetermination  of the  Borrowing  Base  pursuant to Section 2.6 other than the
regular,  semi-annual  redeterminations  of the Borrowing  Base described in the
first  sentence  of Section  2.6(b),  (c) all other costs and  expenses  paid or
incurred by the Agent in connection with the normal, ongoing administration,  of
this  agreement and the other Loan  Documents,  including,  without  limitation,
independent  insurance  reviews  or  third  party  engineering  support,  in  an
aggregate  amount  not to exceed in any year the sum of  $5,000.00,  and (d) all
reasonable costs and expenses incurred by Agent or any Lender in connection with
the  enforcement of the  obligations  of any  Restricted  Company under the Loan
Documents  or the exercise of any Rights  under the Loan  Documents  (including,
without  limitation,  reasonable  allocated  costs of  in-house  counsel,  other
reasonable  attorneys'  fees,  and  court  costs),  all of which are part of the
Obligation,  bearing  interest,  if not paid when due at the Default  Rate until
paid.

        8.8  Maintenance of Existence,  Assets,  and Business.  Each  Restricted
Company shall (a) EXCEPT in connection with dispositions permitted under SECTION
9.10 and mergers and consolidations  permitted under SECTION 9.11,  maintain its
corporate existence and good standing in its state of incorporation, and (b) (i)
maintain  its  authority  to transact  business  and good  standing in all other
states where required or necessary for its business, (ii) maintain all licenses,
permits, and franchises (including,  without limitation,  Environmental Permits)
necessary for its business,  and (iii) keep all of its assets that are useful in
and necessary to its business in good working order and condition (ordinary wear
and tear excepted) and make all necessary repairs and replacements.

                                       32
<PAGE>
        8.9 Insurance.  Each Restricted  Company shall, at its cost and expense,
maintain with financially sound, responsible,  and reputable insurance companies
or associations -- or, as to workers' compensation or similar insurance, with an
insurance fund or by self-insurance  authorized by the jurisdictions in which it
operates  --  insurance   concerning  its  properties  and  businesses   against
casualties,  risks  and  contingencies  and of types  and in  amounts  (and with
co-insurance and deductibles) as is customary in the case of similar businesses.

        8.10  Environmental  Matters.  Each Restricted Company shall (a) operate
and manage its businesses,  processes,  and other  activities in compliance with
all Environmental  Laws,  Environmental  Permits,  and  Environmental  Indemnity
Agreements  and in a manner to avoid  incurring  Environmental  Liabilities,  to
prevent any Release of Hazardous Substances, and to minimize the risk of loss or
damage  in the  event of any  Release  of  Hazardous  Substances,  (b) keep each
Environmental  Indemnity  Agreement  in full force and effect  according  to its
terms,  take all steps that may be necessary or appropriate to timely assert and
receive  payment or all claims  under it, and (to the extent  that the  material
remediation  or  indemnity  protections  or  benefits  provided  by it  would be
jeopardized) not consent to any  modification or amendment of any  Environmental
Indemnity  Agreement  or waive,  compromise,  settle,  or  otherwise  release or
discharge any  obligation or indemnity of any  indemnitor or other obligor under
it, and (c)  continuously and diligently  carry out such removal,  remedial,  or
other response actions as may be necessary or appropriate (A) in respect of each
matter   (whether  or  not   disclosed  on  SCHEDULE   7.11)  that   constitutes
non-compliance  with  any  Environmental  Law and  (B) to  prevent  or  minimize
potential  Environmental  Liabilities  from any of those matters (whether or not
disclosed on SCHEDULE 7.11) or any Release of Hazardous Substances.

        8.11  Subsidiaries.  In respect of each  applicable  present  and future
Subsidiary  (whether  as a  result  of  acquisition,  creation,  or  otherwise),
Borrower shall cause such Subsidiary to promptly and fully comply with SECTION 5
and its capital  stock or other equity  securities  to become  subject to Lender
Liens as required by SECTION 5.2.

        8.12   INDEMNIFICATION.

               (a) BORROWER AND (PURSUANT TO ITS GUARANTY) EACH OTHER RESTRICTED
        COMPANY  SHALL,  JOINTLY AND SEVERALLY  INDEMNIFY  AGENT AND LENDERS AND
        THEIR RESPECTIVE PARENTS, SUBSIDIARIES,  DIRECTORS, OFFICERS, EMPLOYEES,
        REPRESENTATIVES,    AGENTS,    SUCCESSORS,    ASSIGNS,   AND   ATTORNEYS
        (COLLECTIVELY,  THE  "INDEMNIFIED  PARTIES"),  PROTECT AND DEFEND  (WITH
        COUNSEL ACCEPTABLE TO DETERMINING  LENDERS) AGAINST,  HOLD THEM HARMLESS
        FROM AND AGAINST,  AND ON DEMAND PAY OR  REIMBURSE  THEM FOR ANY AND ALL
        LIABILITIES, OBLIGATION, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
        SUITS,  CLAIMS,  AND  PROCEEDINGS  AND ALL COSTS,  EXPENSES  (INCLUDING,
        WITHOUT  LIMITATION,  ALL REASONABLE  ATTORNEYS' FEES AND LEGAL EXPENSES
        WHETHER OR NOT SUIT IS BROUGHT), AND DISBURSEMENTS OF ANY KIND OR NATURE
        (THE  "INDEMNIFIED  LIABILITIES")  THAT MAY AT ANY TIME BE  IMPOSED  ON,
        INCURRED BY, OR ASSERTED  AGAINST THE  INDEMNIFIED  PARTIES,  IN ANY WAY
        RELATING  TO  OR  ARISING  OUT  OF  (I)  ANY  LOAN  DOCUMENT,  (II)  ANY
        TRANSACTION  CONTEMPLATED  BY ANY LOAN DOCUMENT,  (III) ANY  COLLATERAL,
        (IV) ANY REAL PROPERTY  (INCLUDING,  WITHOUT LIMITATION,  THE LEASES AND
        MINERAL  INTERESTS)  OR OIL AND  GAS  PROPERTY,  (V)  ANY  ENVIRONMENTAL
        LIABILITY  IN ANY WAY RELATED TO ANY COMPANY,  PREDECESSOR,  COLLATERAL,
        REAL PROPERTY  (INCLUDING,  WITHOUT  LIMITATION,  THE LEASES AND MINERAL
        INTERESTS)  OIL  AND  GAS  PROPERTY,  OR  ANY  ACT,  OMISSION,   STATUS,
        OWNERSHIP,   OR   OTHER   RELATIONSHIP,   CONDITION,   OR   CIRCUMSTANCE
        CONTEMPLATED  BY, CREATED UNDER, OR ARISING PURSUANT TO OR IN CONNECTION
        WITH  ANY  LOAN  DOCUMENT,  OR  (VI)  ANY  INDEMNIFIED  PARTY'S  SOLE OR
        CONCURRENT ORDINARY NEGLIGENCE.
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                (B) THE FOREGOING PROVISIONS (I) ARE NOT LIMITED IN AMOUNT, EVEN
        IF THAT  AMOUNT  EXCEEDS  THE AMOUNT OF THE  OBLIGATION,  (II)  INCLUDE,
        WITHOUT LIMITATION,  REASONABLE FEES AND EXPENSES OF ATTORNEYS AND OTHER
        COSTS OR EXPENSES OF LITIGATION OR OF PREPARING FOR LITIGATION,  DAMAGES
        OR INJURY TO PERSONS,  PROPERTY,  OR NATURAL RESOURCES ARISING UNDER ANY
        STATUTORY OR COMMON LAW, PUNITIVE  DAMAGES,  FINES, AND OTHER PENALTIES,
        AND LOSS OF VALUE OF ANY REAL  PROPERTY  OR  COLLATERAL,  (III)  ARE NOT
        AFFECTED BY ANY ACT OR OMISSION OF ANY TRIBUNAL OR OTHER THIRD PARTY, OR
        THE  SOURCE  OR  ORIGIN  OF ANY  HAZARDOUS  SUBSTANCE,  AND (IV) ARE NOT
        AFFECTED   BY  ANY   INDEMNIFIED   PARTY'S   INVESTIGATION,   ACTUAL  OR
        CONSTRUCTIVE KNOWLEDGE, COURSE OF DEALING, OR WAIVER.

               (c) However, no indemnified party has the right to be indemnified
        under the loan documents for its own fraud, gross negligence, or willful
        misconduct.

               (d) The provisions of and  undertakings  and  indemnification  in
        this section  survive the foreclosure of any Lender Lien or any transfer
        in  lieu  of  that  foreclosure,  the  sale  or  other  transfer  of any
        Collateral  or real  property to any  Person,  the  satisfaction  of the
        obligation,  the termination of the Loan  Documents,  and the release of
        any or all Lender Liens.

        8.13  Operations  and  Properties.  Each  Restricted  Company  will  act
prudently and in accordance  with  customary  industry  standards in managing or
operating its assets,  properties,  business and  investments.  Each  Restricted
Company will keep in good working  order and  condition,  ordinary wear and tear
excepted, all of its assets and properties which are necessary to the conduct of
its business,  including without limitation all wells and equipment necessary or
useful in the operation of the Mineral Interests.

        8.14 Leases. Each Restricted Company will pay and discharge promptly, or
cause to be paid and discharged promptly, all rentals, delay rentals, royalties,
overriding  royalties,  payments out of  production  and other  indebtedness  or
obligations  accruing under, and perform or cause to be performed each and every
act,  matter or thing  required  by each and all of,  the  Leases  and all other
agreements and contracts constituting or affecting the Mineral Interests, and do
all other things necessary to keep unimpaired its rights  thereunder and prevent
any  forfeiture  thereof  or  default  thereunder,  and  operate  or cause to be
operated  such  properties in a diligent,  careful and  efficient  manner and in
compliance  with  all  applicable   proration  and  conservation  laws  and  all
applicable  rules and  regulations of every  Tribunal,  whether state,  federal,
municipal or other  jurisdiction,  from time to time constituted to regulate the
development and operations of oil and gas properties and the production and sale
of oil, gas and other hydrocarbons therefrom.

        8.15 Development and Maintenance.  Each Restricted Company will explore,
develop and maintain (or cause to be explored,  developed  and  maintained)  the
Leases,  wells,  units and acreage to which the Mineral  Interests  pertain in a
prudent  manner,  and  as  may be  reasonably  necessary  for  the  prudent  and
economical  operation of (and in an effort to maximize the  production  capacity
of) such Leases, wells, units and acreage.

        8.16  Maintenance of Liens.  Each  Restricted  Company shall perform all
such acts and  execute all such  documents  as Agent may  reasonably  request in
order to enable Agent to report, file and record every instrument that Agent may
deem  necessary  in  order to  perfect  and  maintain  the  Lender  Liens in the
Mortgaged  Properties  and  otherwise  to preserve and protect the rights of the
Agent and the Lenders in and to the Collateral.

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SECTION 9. NEGATIVE COVENANTS. For so long as any Lender is committed to lend or
issue LCs under this  agreement and until the Obligation has been fully paid and
performed,  Borrower  covenants and agrees with Agent and Lenders that,  without
first obtaining  Agent's written notice of Determining  Lenders'  consent to the
contrary:

        9.1 Payroll  Taxes.  No Company may use any proceeds of any Borrowing to
pay the wages of employees unless a timely payment to or deposit with the United
States of America of all amounts of Tax  required to be  deducted  and  withheld
with respect to such wages is also made.

        9.2 Debt. No Restricted Company may:

               (a)    Have any Debt EXCEPT Permitted Debt.

               (b) Pay or cause to be paid any principal of, or any interest on,
        any of its Debt EXCEPT (i) the Obligation,  (ii) any of its other Senior
        Debt if no  Default  or  Potential  Default  exists,  (iv) on any of the
        Subordinated  Debt if no Default  or  Potential  Default  exists and (v)
        conversions of Subordinated  Debt in accordance with its terms to equity
        issued by Borrower.

               (c) Amend or modify the terms of any of the Subordinated  Debt to
        any  extent  that  (i)  any of  the  applicable  subordination,  payment
        blockage,  or standstill  provisions  are less favorable to Lenders than
        exist for the Subordinated Debt on the date of this agreement,  (ii) the
        applicable  representations,  covenants,  events of  default,  and other
        provisions are significantly more onerous to Borrower than exist for the
        Subordinated  Debt on the date of this agreement,  or (iii) scheduled or
        mandatory  principal  or sinking  fund  payment  obligations  before the
        Stated-Termination Date are made applicable to any Subordinated Debt.

        9.3  Letters of Credit.  No  Restricted  Company may have issued for its
account -- or otherwise become obligated for any  reimbursement  obligations for
-- any letter of credit EXCEPT LCs.

        9.4 Liens.  No Restricted  Company may (a) create,  incur,  or suffer or
permit to be  created  or  incurred  or to exist any Lien upon any of its assets
except  Permitted  Liens or (b) enter into or permit to exist any arrangement or
agreement  that directly or indirectly  prohibits  any  Restricted  Company from
creating or incurring any Lien on any of its assets EXCEPT the Loan Documents.

        9.5 Employee Plans.  No Restricted  Company may permit any of the events
or circumstances described in SECTION 7.12 to exist or occur.

        9.6 Transactions with Affiliates.  No Restricted  Company may enter into
any material  transaction with any of its Affiliates  EXCEPT (a) those described
on SCHEDULE 7.15, (b) transactions between one or more Restricted Companies, (c)
transactions  permitted  under  SECTION  9.8, (d)  transactions  in the ordinary
course of  business  and upon fair and  reasonable  terms  not  materially  less
favorable  than it could obtain or could become  entitled to in an  arm's-length
transaction  with a Person  that  was not its  Affiliate,  and (e)  compensation
arrangements  in the ordinary  course of business with directors and officers of
the Companies.

        9.7 Compliance  with Laws and Documents.  No Restricted  Company may (a)
violate the provisions of any Laws (including, without limitation, Environmental
Laws)  applicable  to it or of any material  agreement to which it is a party if
that violation alone, or when aggregated with all other  violations,  would be a
Material Adverse Event, (b) violate in any material respect any provision of its
charter or bylaws, or (c) repeal, replace, or amend any provision of its charter
or bylaws if that action would be a Material Adverse Event.

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<PAGE>
        9.8 Loans, Advances, and Investments. No Restricted Company may make any
loan,  advance,  extension  of credit,  or  capital  contribution  to,  make any
investment in, or purchase or commit to purchase any stocks or other  securities
or  evidences  of Debt of, or  interests  in,  any  other  Person  EXCEPT  those
described on SCHEDULE 9.8.

        9.9 Distributions.  No Restricted Company may declare,  make, or pay any
Distribution  EXCEPT  Distributions paid in the form of additional common stock,
and distributions to any other Restricted Company.

        9.10  Disposition  of Assets.  No Restricted  Company may sell,  assign,
lease,  transfer, or otherwise dispose of any of its assets EXCEPT (a) sales and
dispositions  of oil and gas production in the ordinary course of business for a
fair and adequate  consideration,  (b) sales of assets which are obsolete or are
no  longer  in use and which are not  significant  to the  continuation  of that
Restricted  Company's  business,  (c) sales and dispositions from any Restricted
Company to any other  Restricted  Company,  (d)  dispositions of equipment where
substantially similar equipment has been or is being acquired,  (e) dispositions
of other assets (other than  Collateral) for an aggregate  consideration  not to
exceed, in any fiscal year, the GREATER of (i) $200,000.00,  or (ii) ten percent
(10%) of the lesser of the total  Commitments or the Borrowing Base in effect on
the last day of such fiscal year.

        9.11 Mergers,  Consolidations,  and Dissolutions.  No Restricted Company
may merge or consolidate with any other Person or dissolve EXCEPT:

               (a) if no Default or Potential  Default exists or will exist as a
        result  of it,  any  merger  or  consolidation  (i)  between  Restricted
        Companies (SO LONG AS, if Borrower is involved, it is the survivor); and

               (b)  dissolution  of any Subsidiary if  substantially  all of its
assets have been conveyed to any Restricted Company.

        9.12 Assignment. No Restricted Company may assign or transfer any of its
Rights, duties, or obligations under any of the Loan Documents.

        9.13 Fiscal  Year and  Accounting  Methods.  No  Restricted  Company may
change its fiscal year for  accounting  purposes or any  material  aspect of its
method of accounting EXCEPT (i) for changes which do not affect, change or alter
the  calculation  of any of the financial or accounting  terms (or any component
thereof)  described in any of the financial  covenants provided in Section 10 of
this agreement,  or (ii) to conform any new Subsidiary's  accounting  methods to
Borrower's accounting methods.

        9.14 New  Businesses.  No Restricted  Company may engage in any business
EXCEPT the businesses in which it is presently  engaged and any other reasonably
related business.

        9.15  Government  Regulations.  No  Restricted  Company  may conduct its
business in a way that it becomes regulated under the INVESTMENT  COMPANY ACT OF
1940, as amended, or the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, as amended.

        9.16 Strict Compliance. No Restricted Company may indirectly do anything
that it may not directly do under any covenant in any Loan Document.

        9.17 Alteration of Material Agreements.  Borrower will not consent to or
permit any material alterations, amendments, modifications, releases, waivers or
terminations of any material agreement to which it is a party.

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<PAGE>
        9.18 Operating  Agreements.  Borrower shall not enter into any operating
agreement or material amendment of existing  operating  agreement after the date
hereof covering any of the Mortgaged Properties.

        9.19 Burdensome  Contracts.  Borrower shall not enter into, become bound
by, or subject the Mortgaged  Properties  to any contract or agreement  which is
burdensome  on Borrower or  materially  adversely  affects the  operation of the
Mortgaged Properties.

        9.20 Marketing Contracts.  Borrower shall not (without the prior written
consent of Determining Lender, which consent shall not be unreasonably withheld)
enter  into any  contract  relating  to the  marketing  of  hydrocarbons  or gas
production  from the  Mortgaged  Properties,  or terminate or amend any existing
such contracts,  provided, however, Borrower may sell up to twenty percent (20%)
of its average daily  production of hydrocarbons  from the Mortgaged  Properties
under sales  contracts  with terms less than twelve (12) months,  provided  such
hydrocarbons  are  not  otherwise  subject  to  Borrower's   existing  marketing
contracts.

SECTION 10. FINANCIAL COVENANTS.  For so long as any Lender is committed to lend
or issue LCs under this  agreement and until the  Obligation has been fully paid
and  performed,  Borrower  covenants  and agrees  with Agent and  Lenders  that,
without first obtaining  Agent's written notice of Determining  Lenders' consent
to the contrary, it may not directly or indirectly permit:

        10.1 Current  Ratio.  The ratio --  determined at the end of each fiscal
quarter of Borrower -- of the Companies'  consolidated current assets to current
liabilities  (EXCLUDING  current maturities of long term Funded Debt) to ever be
LESS than 1.00 to 1.00.

        10.2 Fixed-Charge Coverage. The ratio -- determined as of (i) the fiscal
quarter of Borrower ending  September 30, 1997 for the quarter then ended,  (ii)
the fiscal quarter of Borrower  ending December 31, 1997 for the two consecutive
quarters then ended,  (iii) the fiscal quarter of Borrower ending March 31, 1998
for the three  consecutive  quarters  then ended,  and (iv) the last day of each
fiscal quarter  thereafter  (commencing  June 30, 1998) of Borrower for the four
consecutive  quarters then ended -- of the Companies'  Cash Flow From Operations
to Interest Expense to ever be LESS THAN 3.00 TO 1.00:

        10.3 Coverage of  Subordinated  Debt.  The value of all  investments  of
Borrower  permitted pursuant to paragraphs 1-8 on SCHEDULE 9.8, plus all cash on
hand, to be less than $500,000.00 at any time during which any Subordinated Debt
remains outstanding.

SECTION 11. DEFAULT.  The term "DEFAULT" means the occurrence of any one or more
of the following:

        11.1  Payment of  Obligation.  Borrower's  failure or refusal to pay (a)
principal  of any Note or any LC Exposure  or any part  thereof on or before the
date due or (b) any other part of the  Obligation  on or before  five days after
the date due.

        11.2  Covenants.  Any  Company's  failure or refusal to  punctually  and
properly perform, observe, and comply with any covenant (OTHER THAN covenants to
pay the Obligation) applicable to it:

               (a)    In SECTIONS 8.1(G), 8.2 OR 9; or

               (b) In SECTIONS 8.1, 8.3, 8.4, 8.8, 8.13, 8.14, OR 8.15, and that
        failure or refusal continues for 30 days after the earlier of either any
        Restricted  Company knowing of it or any Restricted  Company is notified
        of it by Agent or any Lender; or

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<PAGE>
                (c) In any  other  provision  of any  Loan  Document,  and  that
        failure or refusal continues for 15 days after the earlier of EITHER any
        Restricted  Company knowing of it OR any Restricted  Company is notified
        of it by Agent or any Lender.

        11.3 Debtor Relief. Any Restricted Company (a) is not Solvent, (b) fails
to pay its Debts generally as they become due, (c) voluntarily  seeks,  consents
to, or  acquiesces  in the  benefit of any Debtor  Relief  Law, or (d) becomes a
party to or is made the  subject of any  proceeding  provided  for by any Debtor
Relief  Law -- EXCEPT  as a  creditor  or  claimant  -- that  could  suspend  or
otherwise adversely affect the Rights of Agent or any Lender granted in the Loan
Documents (UNLESS, if the proceeding is involuntary,  the applicable petition is
dismissed within 60 days after its filing).

        11.4 Judgments and  Attachments.  Where the amounts in controversy or of
any  judgments,  as the case may be, not covered in full by  adequate  insurance
pursuant to policies  acceptable to Agent,  exceed -- from and after the Closing
Date and individually or collectively for all of the Restricted Companies -- the
greater of (i) 10% of the Borrowing Base or (ii) $200,000.00 (unless the payment
or  satisfaction  thereof  would not result in Working  Capital  being less than
zero),  the  Restricted  Companies fail (a) to have  discharged,  within 60 days
after its commencement,  any attachment,  sequestration,  or similar  proceeding
against any assets of any  Restricted  Company or (b) to pay any money  judgment
against  any  Restricted  Company  within ten days  before the date on which any
Restricted Company's assets may be lawfully sold to satisfy that judgment.

        11.5 Government  Action.  Where EITHER it is a Material Adverse Event OR
the fair value of the assets  involved exceed -- from and after the Closing Date
and  individually  or  collectively  for all of the Restricted  Companies -- the
greater  of (i)  10% of the  Borrowing  Base or  (ii)  $200,000.00,  (a) a final
non-appealable order is issued by any Tribunal  (including,  but not limited to,
the United States Justice  Department)  seeking to cause any Company to divest a
significant  portion  of its assets  under any  antitrust,  restraint  of trade,
unfair competition,  industry  regulation,  or similar Laws, or (b) any Tribunal
condemns, seizes, or otherwise appropriates,  or takes custody or control of all
or any substantial portion of any Restricted Company's assets.

        11.6 Misrepresentation.  Any material representation or warranty made by
any  Company in any Loan  Document  at any time  proves to have been  materially
incorrect when made.

        11.7  Ownership  of  Companies.  EXCEPT  as  a  result  of  transactions
permitted  by this  agreement,  one or more  Restricted  Companies  fail to own,
beneficially  and of  record,  with  power  to  vote,  100%  of the  issued  and
outstanding  shares of capital stock of each other Restricted Company OTHER THAN
Borrower.

        11.8 Change of Control of Borrower.  The individuals who, as of the date
of this agreement,  constitute the members of Borrower's board of directors (for
purposes of this SECTION 11.8, the "INCUMBENT BOARD") do not constitute or cease
for any reason to constitute at least 75% of:

               (a)    Borrower's board of directors; or

               (b) The surviving  corporation's  board of directors in the event
        of any merger or consolidation  (if permitted by SECTION 9.11) involving
        Borrower.

For purposes of this SECTION 11.8,  any  individual  who becomes a member of the
board of  directors  under  CLAUSES  (A) OR (B)  above,  after  the date of this
agreement and whose election, or nomination for election, was approved by a vote
of the individuals comprising at least 51% (but not less than four in number) of
the  incumbent  board -- OTHER THAN an election or  nomination  of an individual
whose initial assumption of office is in connection with an actual or threatened
election contest, as those terms are used in RULE 14A-11 of REGULATION 14A under
the  SECURITIES  AND  EXCHANGE ACT OF 1934) -- shall be deemed to be a member of
the incumbent board.
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        11.9 Other  Funded  Debt.  In respect of any Funded Debt (OTHER THAN the
Obligation) (a) any Restricted Company fails to make any payment when due beyond
any  applicable  grace or cure  period,  or (b) any  default  or other  event or
condition  occurs or exists  beyond the  applicable  grace or cure  period,  the
effect of which is to cause or to permit any holder of that Funded Debt to cause
--  whether or not it elects to cause -- any of that  Funded  Debt to become due
before its stated maturity or regularly  scheduled  payment dates, or (c) any of
that  Funded Debt is declared to be due and payable or required to be prepaid by
any Restricted Company before its stated maturity.

        11.10 SEC  Reporting  Requirements.  Borrower  fails to comply  with any
applicable  reporting  requirements  of the SECURITIES  EXCHANGE ACT OF 1934, as
amended,  for which the failure to report would  constitute  a Material  Adverse
Event.

        11.11 Validity and Enforceability.  Once executed,  this agreement,  any
Note, any LC Agreement,  any Guaranty,  any Collateral  Document ceases to be in
full force and effect in any material respect or is declared to be null and void
or its validity or  enforceability  is  contested  in writing by any  Restricted
Company party to it or any Restricted Company party to it denies in writing that
it has any further  liability or obligations  under it EXCEPT in accordance with
that document's express  provisions or as the appropriate  parties under SECTION
14.8 below may otherwise agree in writing.

        11.12 LCs.  Agent is served with, or becomes  subject to, a court order,
injunction,  or other  process or decree  restraining  or seeking to restrain it
from paying any amount under any LC and EITHER (a) a drawing has occurred  under
the LC, and Borrower has refused to reimburse the Issuing Lender for payment, OR
(b) the expiration date of the LC has occurred, but the Right of the beneficiary
to draw under the LC has been  extended past the  expiration  date in connection
with the pendency of the related  court action or  proceeding,  and Borrower has
failed to deposit with Agent cash  collateral  in an amount equal to the Issuing
Lender's maximum exposure under the LC.

SECTION 12.    RIGHTS AND REMEDIES.

        12.1   Remedies Upon Default.

               (a) Debtor  Relief.  If a Default  exists under SECTION 11.3, the
        commitment   to  extend  credit  under  this   agreement   automatically
        terminates,  the entire unpaid balance of the  Obligation  automatically
        becomes due and payable without any action of any kind whatsoever.

               (b) Other Defaults.  If any Default exists,  subject to the terms
        of SECTION  13.5(B),  Agent may (with the consent of, and must, upon the
        request of, Determining  Lenders),  do any one or more of the following:
        (i) If the maturity of the Obligation  has not already been  accelerated
        under SECTION  12.1(A),  declare the entire unpaid balance of all or any
        part of the Obligation immediately due and payable,  whereupon it is due
        and payable;  (ii) terminate the commitments of Lenders to extend credit
        under this  agreement;  (iii) reduce any claim to judgment;  (iv) demand
        payment of an amount equal to the LC Exposure  then  existing and retain
        as collateral for the LC Exposure any amounts received from any Company,
        from any property of any Company,  through offset, or otherwise; and (v)
        exercise  any and all other legal or  equitable  Rights  afforded by the
        Loan Documents, by applicable Laws, or in equity.

                (c) Offset.  If a Default  exists,  to the extent  permitted  by
        applicable  Law,  each  Lender  may  exercise  the  Rights of offset and
        banker's lien against each and every account and other property,  or any
        interest therein, which any Restricted Company may now or hereafter have
        with, or which is now or hereafter in the  possession of, that Lender to
        the extent of the full amount of the Obligation owed to that Lender.

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               (d)    Production  Proceeds.  Notify any and all  purchasers of
        production  and take all other actions specified in SECTION 5.3 of this 
        agreement.

        12.2  Company  Waivers.  To the extent  permitted  by Law,  Borrower and
(pursuant to its Guaranty) each other Restricted  Company waives presentment and
demand for  payment,  protest,  notice of  intention  to  accelerate,  notice of
acceleration,  and  notice  of  protest  and  nonpayment,  and  agrees  that its
liability  with respect to all or any part of the  Obligation is not affected by
any  renewal  or  extension  in the  time of  payment  of all or any part of the
Obligation,  by any indulgence,  or by any release or change in any security for
the payment of all or any part of the Obligation.

        12.3 Performance by Agent. If any Company's covenant, duty, or agreement
is not performed in accordance with the terms of the Loan Documents,  Agent may,
while  a  Default  exists,  at  its  option  (but  subject  to the  approval  of
Determining  Lenders),  perform or attempt to perform that  covenant,  duty,  or
agreement  on behalf of that  Company  (and any amount  expended by Agent in its
performance or attempted  performance  is payable by the Companies,  jointly and
severally,  to  Agent on  demand,  becomes  part of the  Obligation,  and  bears
interest at the Default Rate from the date of Agent's  expenditure  until paid).
However,  Agent does not  assume and shall  never  have,  except by its  express
written  consent,  any liability or  responsibility  for the  performance of any
Company's covenants, duties, or agreements.

        12.4  Not in  Control.  Nothing  in any Loan  Documents  gives or may be
deemed to give to Agent or any Lender  the Right to  exercise  control  over any
Company's  Real  Property  (including,  without  limitation,  the Leases and the
Mineral  Interests),  other  assets,  affairs,  or  management or to preclude or
interfere  with any  Company's  compliance  with any Law or  require  any act or
omission  by any  Company  that may be  harmful  to  Persons  or  property.  Any
"MATERIAL ADVERSE EVENT" or other materiality or substantiality qualifier of any
representation,  warranty,  covenant,  agreement, or other provision of any Loan
Document is included for credit  documentation  purposes only and does not imply
or be deemed to mean that Agent or any Lender  acquiesces in any  non-compliance
by any  Company  with any Law,  document,  or  otherwise  or does not expect the
Companies to promptly,  diligently,  and continuously  carry out all appropriate
removal,  remediation,  compliance,  closure,  or other  activities  required or
appropriate  in accordance  with all  Environmental  Laws.  Agent's and Lenders'
power is limited  to the Rights  provided  in the Loan  Documents.  All of those
Rights exist solely -- and may be  exercised  in manner  calculated  by Agent or
Lenders in their  respective  good faith  business  judgment -- to preserve  and
protect the Collateral and to assure payment and performance of the Obligation.

        12.5  Course of  Dealing.  The  acceptance  by Agent or  Lenders  of any
partial  payment on the Obligation is not a waiver of any Default then existing.
No waiver by Agent,  Determining  Lenders, or Lenders of any Default is a waiver
of any other then-existing or subsequent Default. No delay or omission by Agent,
Determining Lenders, or Lenders in exercising any Right under the Loan Documents
impairs that Right or is a waiver thereof or any acquiescence  therein, nor will
any single or partial  exercise of any Right preclude other or further  exercise
thereof  or the  exercise  of any  other  Right  under  the  Loan  Documents  or
otherwise.

        12.6  Cumulative  Rights.  All Rights  available  to Agent,  Determining
Lenders,  and Lenders under the Loan Documents are cumulative of and in addition
to all other Rights granted to Agent, Determining Lenders, and Lenders at law or
in equity,  whether or not the Obligation are due and payable and whether or not
Agent,  Determining Lenders, or Lenders have instituted any suit for collection,
foreclosure, or other action in connection with the Loan Documents.

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        12.7  Application  of Proceeds.  Any and all proceeds  ever  received by
Agent or Lenders from the exercise of any Rights  pertaining  to the  Obligation
shall be applied to the Obligation according to SECTION 3.

        12.8 Certain  Proceedings.  Borrower shall promptly execute and deliver,
or  cause  the  execution  and  delivery  of,  all  applications,  certificates,
instruments,  registration statements,  and all other documents and papers Agent
or Determining  Lenders  reasonably  request in connection with the obtaining of
any consent,  approval,  registration (OTHER THAN securities Law registrations),
qualification, permit, license, or authorization of any Tribunal or other Person
necessary or appropriate for the effective exercise of any Rights under the Loan
Documents.  Because  Borrower  agrees  that  Agent's  and  Determining  Lenders'
remedies at Law for failure of  Borrower to comply with the  provisions  of this
section would be inadequate and that failure would not be adequately compensable
in  damages,  Borrower  agrees  that  the  covenants  of  this  section  may  be
specifically enforced.

        12.9  Expenditures by Lenders.  Any sums spent by Agent or any Lender in
the exercise of any Right under any Loan Document is payable by the Companies to
Agent within five Business Days after  demand,  becomes part of the  Obligation,
and  bears  interest  at the  Default  Rate from the date  spent  until the date
repaid.

        12.10  Diminution in Value of  Collateral.  Neither Agent nor any Lender
has any liability or responsibility  whatsoever for any diminution in or loss of
value of any collateral now or in the future securing  payment or performance of
any of the Obligation  (OTHER THAN  diminution in or loss of value caused by its
own gross negligence or willful misconduct).

SECTION 13.    AGENT AND LENDERS.

        13.1   Agent.

               (a)  Appointment.  Each Lender  appoints Agent (and Agent accepts
        appointment)  as its nominee  and agent,  in its name and on its behalf:
        (i) To act as its  nominee  and on its  behalf  in and  under  all  Loan
        Documents;  (ii) to arrange  the means  whereby its funds are to be made
        available to Borrower under the Loan Documents; (iii) to take any action
        that it  properly  requests  under the Loan  Documents  (subject  to the
        concurrence  of  other  Lenders  as  may  be  required  under  the  Loan
        Documents);  (iv) to receive all  documents and items to be furnished to
        it under the Loan  Documents;  (v) to be the secured  party,  mortgagee,
        beneficiary,  recipient,  and similar party in respect of any collateral
        for the  benefit  of  Lenders;  (vi) to  promptly  distribute  to it all
        material  information,  requests,  documents,  and items  received  from
        Borrower under the Loan  Documents;  (vii) to promptly  distribute to it
        its ratable part of each payment or prepayment  (whether  voluntary,  as
        proceeds  of  collateral  upon or  after  foreclosure,  as  proceeds  of
        insurance  thereon,  or otherwise)  in accordance  with the terms of the
        Loan  Documents;  and  (viii)  to  deliver  to the  appropriate  Persons
        requests,  demands,  approvals,  and consents received from it. However,
        Agent may not be required to take any action that exposes it to personal
        liability or that is contrary to any Loan Document or applicable Law.

                (b)  Successor.  Agent may  voluntarily  resign and shall resign
        upon the  request  of  Determining  Lenders  for cause  (I.E.,  Agent is
        continuing  to fail to perform its  responsibilities  as Agent under the
        Loan Documents). If the initial or any successor Agent ever ceases to be
        a party to this agreement or if the initial or any successor  Agent ever
        resigns (whether voluntarily or at the request of Determining  Lenders),
        then  Determining  Lenders  shall  (which,  if no Default  or  Potential
        Default  exists,  is  subject  to  Borrower's  approval  that may not be
        unreasonably  withheld)  appoint the successor  Agent from among Lenders
        (OTHER THAN the resigning Agent). If Determining Lenders fail to appoint
        a successor  Agent  within 30 days after the  resigning  Agent has given
        notice of resignation or Determining  Lenders have removed the resigning
        Agent,  then the  resigning  Agent may, on behalf of Lenders,  appoint a
        successor  Agent,  which  must be a  commercial  bank  having a combined
        capital  and  surplus of at least  $1,000,000,000  (as shown on its most
        recently  published  statement of  condition).  Upon its  acceptance  of
        appointment  as successor  Agent,  the successor  Agent  succeeds to and
        becomes vested with all of the Rights of the prior Agent,  and the prior
        Agent is discharged  from its duties and  obligations of Agent under the
        Loan  Documents  (but,  when  used in  connection  with LCs  issued  and
        outstanding before the appointment of the successor Agent, "AGENT" shall
        continue to refer  solely to the prior  Agent -- but,  any LCs issued or
        renewed after the  appointment of any successor Agent shall be issued or
        renewed by the  successor  Agent),  and each  Lender  shall  execute the
        documents  that any  Lender,  the  resigning  or removed  Agent,  or the
        successor  Agent  reasonably  request to reflect the  change.  After any
        Agent's  resignation or removal as Agent under the Loan  Documents,  the
        provisions  of this section inure to its benefit as to any actions taken
        or not taken by it while it was Agent under the Loan Documents.

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<PAGE>
               (c) Rights as Lender. Agent, in its capacity as a Lender, has the
        same  Rights  under  the Loan  Documents  as any  other  Lender  and may
        exercise  those  Rights  as if it were not  acting  as  Agent.  The term
        "LENDER",  unless  the  context  otherwise  indicates,  includes  Agent.
        Agent's  resignation or removal does not impair or otherwise  affect any
        Rights that it has or may have in its capacity as an individual  Lender.
        Each Lender and Borrower agree that Agent is not a fiduciary for Lenders
        or for Borrower but is simply  acting in the capacity  described in this
        agreement to alleviate  administrative burdens for Borrower and Lenders,
        that Agent has no duties or  responsibilities  to  Lenders  or  Borrower
        except those expressly set forth in the Loan  Documents,  and that Agent
        in its capacity as a Lender has the same Rights as any other Lender.

               (d)  Other  Activities.  Agent  or any  Lender  may now or in the
        future be  engaged in one or more loan,  letter of credit,  leasing,  or
        other financing transactions with Borrower, act as trustee or depositary
        for  Borrower,  or  otherwise  be  engaged  in other  transactions  with
        Borrower  (collectively,  the "OTHER ACTIVITIES") not the subject of the
        Loan Documents.  Without limiting the Rights of Lenders specifically set
        forth in the Loan Documents, neither Agent nor any Lender is responsible
        to account  to the other  Lenders  for those  other  activities,  and no
        Lender shall have any  interest in any other  Lender's  activities,  any
        present or future  guaranties by or for the account of Borrower that are
        not  contemplated by or included in the Loan  Documents,  any present or
        future offset exercised by Agent or any Lender in respect of those other
        activities,  any present or future property taken as security for any of
        those other  activities,  or any property now or hereafter in Agent's or
        any other Lender's  possession or control that may be or become security
        for the  obligations  of Borrower  arising  under the Loan  Documents by
        reason of the general description of indebtedness secured or of property
        contained in any other agreements,  documents, or instruments related to
        any of those other  activities (but, if any payments in respect of those
        guaranties or that property or the proceeds  thereof is applied by Agent
        or any Lender to reduce the Obligation,  then each Lender is entitled to
        share ratably in the application as provided in the Loan Documents).

        13.2 Expenses. Each Lender shall pay its Pro Rata Part of any reasonable
expenses (including, without limitation, court costs, reasonable attorneys' fees
and other costs of collection) incurred by Agent (while acting in such capacity)
in connection  with any of the Loan  Documents if Agent is not  reimbursed  from
other  sources  within 30 days after  incurrence.  Each  Lender is  entitled  to
receive its Pro Rata Part of any  reimbursement  that it makes to Agent if Agent
is subsequently reimbursed from other sources.

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<PAGE>
        13.3 Proportionate Absorption of Losses. Except as otherwise provided in
the Loan Documents, nothing in the Loan Documents gives any Lender any advantage
over any other  Lender  insofar as the  Obligation  is concerned or relieves any
Lender  from  ratably  absorbing  any  losses  sustained  with  respect  to  the
Obligation  (except to the extent unilateral  actions or inactions by any Lender
result in Borrower  or any other  obligor on the  Obligation  having any credit,
allowance,  setoff,  defense,  or counterclaim solely with respect to all or any
part of that Lender's Pro Rata Part of the Obligation).

        13.4  Delegation of Duties;  Reliance.  Lenders may perform any of their
duties or exercise any of their  Rights  under the Loan  Documents by or through
Agent,  and Lenders and Agent may perform any of their duties or exercise any of
their  Rights  under  the  Loan   Documents  by  or  through  their   respective
Representatives.  Agent,  Lenders, and their respective  Representatives (a) are
entitled to rely upon (and shall be  protected  in relying  upon) any written or
oral statement believed by it or them to be genuine and correct and to have been
signed or made by the proper  Person and,  with respect to legal  matters,  upon
opinion of counsel  selected by Agent or that Lender (but nothing in this CLAUSE
(A)  permits  Agent to rely on (i) oral  statements  if a writing is required by
this  agreement or (ii) any other  writing if a specific  writing is required by
this agreement), (b) are entitled to deem and treat each Lender as the owner and
holder of its portion of the Obligation for all purposes  until,  written notice
of the  assignment  or  transfer  is given  to and  received  by Agent  (and any
request,  authorization,  consent,  or approval of any Lender is conclusive  and
binding on each subsequent holder,  assignee, or transferee of or Participant in
that  Lender's  portion  of the  Obligation  until  that  notice  is  given  and
received),  (c) are not  deemed to have  notice of the  occurrence  of a Default
unless a responsible  officer of Agent, who handles matters  associated with the
Loan Documents and  transactions  thereunder,  has actual knowledge or Agent has
been  notified by a Lender or  Borrower,  and (d) are  entitled to consult  with
legal counsel (including  counsel for Borrower),  independent  accountants,  and
other  experts  selected by Agent and are not liable for any action taken or not
taken in good faith by it in accordance with the advice of counsel, accountants,
or experts.

        13.5   Limitation of Agent's Liability.

               (a)  Exculpation.  Neither  Agent nor any of its  Representatives
        will be liable for any action taken or omitted to be taken by it or them
        under the Loan  Documents in good faith and believed by it or them to be
        within the  discretion  or power  conferred  upon it or them by the Loan
        Documents  or be  responsible  for  the  consequences  of any  error  of
        judgment (except for fraud,  gross negligence,  or willful  misconduct),
        and  neither  Agent  nor  any of  its  representatives  has a  fiduciary
        relationship  with any  Lender  by  virtue  of the Loan  Documents  (but
        nothing in this agreement negates the obligation of Agent to account for
        funds received by it for the account of any Lender).

               (b) Indemnity.  Unless  indemnified to its  satisfaction  against
        loss, cost, liability, and expense, Agent may not be compelled to do any
        act under the Loan  Documents or to take any action toward the execution
        or enforcement  of the powers thereby  created or to prosecute or defend
        any  suit  in  respect  of  the  Loan   Documents.   If  Agent  requests
        instructions from Lenders,  or Determining  Lenders, as the case may be,
        with respect to any act or action in connection  with any Loan Document,
        Agent is entitled to refrain  (without  incurring  any  liability to any
        Person by so refraining) from that act or action unless and until it has
        received  instructions.  In no event,  however,  may Agent or any of its
        Representatives be required to take any action that it or they determine
        could incur for it or them criminal or onerous civil liability.  Without
        limiting the  generality  of the  foregoing,  no Lender has any right of
        action  against Agent as a result of Agent's  acting or refraining  from
        acting  under  this  agreement  in  accordance   with   instructions  of
        Determining Lenders.
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<PAGE>
                (c)  Reliance.  Agent is not  responsible  to any  Lender or any
        Participant for, and each Lender represents and warrants that it has not
        relied upon Agent in respect of, (i) the creditworthiness of any Company
        and  the  risks  involved  to  that  Lender,   (ii)  the  effectiveness,
        enforceability,  genuineness, validity, or the due execution of any Loan
        Document  (EXCEPT  by  Agent),   (iii)  any  representation,   warranty,
        document,  certificate,  report,  or statement  made therein  (EXCEPT by
        Agent) or furnished  thereunder  or in  connection  therewith,  (iv) the
        adequacy of any collateral  now or hereafter  securing the Obligation or
        the  existence,  priority,  or  perfection  of any Lien now or hereafter
        granted or  purported  to be granted  on the  collateral  under any Loan
        Document,  or (v)  observation  of or compliance  with any of the terms,
        covenants,  or  conditions  of any  Loan  Document  on the  part  of any
        Company.  EACH LENDER AGREES TO INDEMNIFY AGENT AND ITS  REPRESENTATIVES
        AND HOLD THEM  HARMLESS  FROM AND AGAINST (BUT LIMITED TO SUCH  LENDER'S
        COMMITMENT PERCENTAGE OF) ANY AND ALL LIABILITIES,  OBLIGATIONS, LOSSES,
        DAMAGES,   PENALTIES,   ACTIONS,  JUDGMENTS,  SUITS,  COSTS,  REASONABLE
        EXPENSES, AND REASONABLE  DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
        THAT MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THEM IN ANY WAY
        RELATING TO OR ARISING OUT OF THE LOAN  DOCUMENTS OR ANY ACTION TAKEN OR
        OMITTED   BY  THEM   UNDER   THE  LOAN   DOCUMENTS   IF  AGENT  AND  ITS
        REPRESENTATIVES  ARE NOT  REIMBURSED  FOR SUCH  AMOUNTS BY ANY  COMPANY.
        ALTHOUGH AGENT AND ITS REPRESENTATIVES  HAVE THE RIGHT TO BE INDEMNIFIED
        UNDER THIS AGREEMENT FOR ITS OR THEIR OWN ORDINARY NEGLIGENCE, AGENT AND
        ITS  REPRESENTATIVES  DO NOT HAVE THE RIGHT TO BE INDEMNIFIED UNDER THIS
        AGREEMENT  FOR ITS OR THEIR OWN  FRAUD,  GROSS  NEGLIGENCE,  OR  WILLFUL
        MISCONDUCT.

        13.6 Default.  While a Default exists,  Lenders agree to promptly confer
in order that Determining Lenders or Lenders, as the case may be, may agree upon
a course of action  for the  enforcement  of the  Rights  of  Lenders.  Agent is
entitled  to act or  refrain  from  taking  any action  (without  incurring  any
liability  to any  Person for so acting or  refraining)  unless and until it has
received  instructions from Determining  Lenders. In actions with respect to any
Company's property, Agent is acting for the ratable benefit of each Lender.

        13.7   Collateral Matters.

               (a) Each Lender  authorizes  and directs  Agent to enter into the
        Loan  Documents for the Lender Liens and agrees that any action taken by
        Agent  concerning any Collateral  (with the consent or at the request of
        Determining Lenders) in accordance with any Loan Document,  that Agent's
        exercise (with the consent or at the request of Determining  Lenders) of
        powers  concerning  the  Collateral in any Loan  Document,  and that all
        other reasonably  incidental  powers are authorized and binding upon all
        Lenders.

               (b) Agent is  authorized  on behalf of all  Lenders,  without the
        necessity of any notice to or further consent from any Lender, from time
        to time before a Default or Potential  Default,  to take any action with
        respect to any Collateral or Loan Documents  related to Collateral  that
        may be necessary to perfect and maintain perfected the Lender Liens upon
        the Collateral.

               (c) Except to use the same  standard  of care that it  ordinarily
        uses  for  collateral  for its sole  benefit,  Agent  has no  obligation
        whatsoever  to any  Lender  or to any other  Person  to assure  that the
        Collateral exists or is owned by any Company or is cared for, protected,
        or insured  or has been  encumbered  or that the Lender  Liens have been
        properly or sufficiently or lawfully created,  perfected,  protected, or
        enforced or are entitled to any particular priority.

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<PAGE>
                (d) Agent shall exercise the same care and prudent judgment with
        respect to the  Collateral  and the Loan  Documents  as it normally  and
        customarily  exercises  in respect of similar  collateral  and  security
        documents.

               (e) Lenders irrevocably authorize Agent, at its option and in its
        discretion, to release any Lender Lien upon any Collateral (i) upon full
        payment of the Obligation,  (ii) constituting property being disposed of
        as permitted  under any Loan Document,  (iii)  constituting  property in
        which no Company  owned any  interest  at the time the  Lender  Lien was
        granted or at any time after that, (iv) constituting  property leased to
        any  Company  under a lease  that has  expired or been  terminated  in a
        transaction permitted under the Loan Documents or is about to expire and
        that has not been,  and is not intended by that Company to be,  renewed,
        (v)  consisting of an instrument  evidencing  Debt pledged to Agent (for
        the benefit of Lenders),  if the underlying  Debt has been paid in full,
        or (vi) if approved, authorized, or ratified in writing by Lenders. Upon
        request by Agent at any time,  Lenders shall confirm in writing  Agent's
        authority to release  particular types or items of Collateral under this
        CLAUSE (E).

        13.8 Limitation of Liability.  No Lender or any  Participant  will incur
any liability to any other Lender or Participant except for acts or omissions in
bad  faith,  and  neither  Agent nor any  Lender or  Participant  will incur any
liability to any other Person for any act or omission of any other Lender or any
Participant.

        13.9  Relationship  of  Lenders.  The  Loan  Documents  do not  create a
partnership or joint venture among Agent and Lenders or among Lenders.

        13.10  Benefits of  Agreement.  None of the  provisions  of this section
inure to the  benefit  of any  Company  or any  other  Person  EXCEPT  Agent and
Lenders. Therefore, no Company or any other Person is responsible or liable for,
entitled  to rely  upon,  or  entitled  to raise as a defense  -- in any  manner
whatsoever  -- the  failure  of  Agent  or  any  Lender  to  comply  with  these
provisions.

SECTION 14.    MISCELLANEOUS.

        14.1 Nonbusiness  Days. Any payment or action that is due under any Loan
Document on a non-Business Day may be delayed until the next-succeeding Business
Day (but  interest  shall  continue to accrue on any  applicable  payment  until
payment is in fact made) unless the payment concerns a LIBOR-Rate Borrowing,  in
which case if the  next-succeeding  Business Day is in the next calendar  month,
then such payment shall be made on the next-preceding Business Day.

        14.2 Communications.  Unless otherwise specifically  provided,  whenever
any Loan Document requires or permits any consent, approval, notice, request, or
demand from one party to another, communication must be in writing (which may be
by telex or fax) to be  effective  and shall be deemed to have been given (a) if
by telex,  when transmitted to the appropriate  telex number and the appropriate
answer back is received,  (b) if by fax, when transmitted to the appropriate fax
number (and all communications sent by fax must be confirmed promptly thereafter
by telephone;  but any  requirement in this  parenthetical  shall not affect the
date when the fax shall be deemed to have been  delivered),  (c) if by mail,  on
the  third  Business  Day  after it is  enclosed  in an  envelope  and  properly
addressed,  stamped,  sealed,  and deposited in the appropriate  official postal
service, or (d) if by any other means, when actually delivered. Until changed by
notice pursuant to this agreement, the address (and fax number) for Borrower and
Agent is stated beside their  respective  signatures  to this  agreement and for
each Lender is stated beside its name on SCHEDULE 2.

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        14.3 Form and Number of Documents.  The form,  substance,  and number of
counterparts  of each  writing  to be  furnished  under this  agreement  must be
satisfactory to Agent and its counsel.

        14.4  Exceptions to  Covenants.  No Company may take or fail to take any
action that is permitted as an  exception to any of the  covenants  contained in
any Loan  Document if that action or omission  would result in the breach of any
other covenant contained in any Loan Document.

        14.5 Survival. All covenants, agreements, undertakings, representations,
and warranties made in any of the Loan Documents  survive all closings under the
Loan  Documents  and,  except as  otherwise  indicated,  are not affected by any
investigation made by any party.

        14.6 Governing Law. Unless  otherwise  stated in any Loan Document,  the
laws of the State of New York and of the  United  States of  America  govern the
Rights  and  duties  of the  parties  to the Loan  Documents  and the  validity,
construction, enforcement, and interpretation of the Loan Documents.

        14.7 Invalid  Provisions.  Any provision in any Loan Document held to be
illegal,  invalid,  or unenforceable  is fully  severable;  the appropriate Loan
Document  shall be construed  and enforced as if that  provision  had never been
included; and the remaining provisions shall remain in full force and effect and
shall not be affected by the severed provision. Agent, Lenders, and each Company
party to the affected Loan Document agree to negotiate, in good faith, the terms
of a  replacement  provision  as  similar  to the  severed  provision  as may be
possible and be legal, valid, and enforceable.

        14.8 Amendments, Consents, Conflicts, and Waivers.

               (a) Determining Lenders.  Unless otherwise  specifically provided
        (i) the  provisions  of this  agreement  may be  amended,  modified,  or
        waived,  only by an instrument in writing  executed by Borrower,  Agent,
        and Determining  Lenders and supplemented only by documents delivered or
        to be delivered in accordance  with the express terms of this agreement,
        and  (ii)  the  other  Loan  Documents  may  only be the  subject  of an
        amendment, modification, or waiver that has been approved by Determining
        Lenders and Borrower.

               (b) All Lenders. Any amendment to or consent or waiver under this
        agreement or any Loan Document  that  purports to accomplish  any of the
        following  must be by an instrument in writing  executed by Borrower and
        Agent and executed (or approved, as the case may be) by each Lender: (i)
        Extends the due date or decreases the amount of any scheduled payment or
        amortization  of the  Obligation  beyond the date  specified in the Loan
        Documents; (ii) decreases any rate or amount of interest, fees, or other
        sums  payable to Agent or  Lenders  under this  agreement  (except  such
        reductions as are  contemplated  by this  agreement);  (iii) changes the
        definition  of  "COMMITMENT,"   "COMMITMENT  PERCENTAGE,"   "DETERMINING
        LENDERS," and "PRO RATA PART" or the definition of "BORROWING BASE" (iv)
        increases any one or more  Lenders'  Commitment;  (v) waives  compliance
        with,  amends,  or fully or  partially  releases -- EXCEPT as  expressly
        provided by the Loan  Documents  or when a Company  merges into  another
        Person or dissolves when specifically permitted in the Loan Documents --
        any  Guaranty  or  Collateral;  (vi)  change  the  requirement  that any
        redetermination  of the  Borrowing  Base be approved and consented to by
        all of the Lenders; or (vii) changes this CLAUSE (B) or any other matter
        specifically requiring the consent of all Lenders under this agreement.

               (c) Agency Fees.  Any amendment or consent or waiver with respect
        to fees payable solely to Agent under a separate  letter  agreement must
        be executed in writing only by Agent and Borrower.

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               (d)  Conflicts.  Any conflict or ambiguity  between the terms and
        provisions of this  agreement and terms and provisions in any other Loan
        Document is controlled by the terms and provisions of this agreement.

               (e)  Waivers.  No course of  dealing  or any  failure or delay by
        Agent,  any  Lender,  or any of their  respective  Representatives  with
        respect  to  exercising  any  Right of Agent or any  Lender  under  this
        agreement  operates as a waiver thereof. A waiver must be in writing and
        signed by Agent and Lenders (or Determining  Lenders, if permitted under
        this agreement) to be effective,  and a waiver will be effective only in
        the  specific  instance  and for the  specific  purpose  for which it is
        given.

        14.9  Multiple  Counterparts.  Any Loan  Document  may be  executed in a
number of identical  counterparts with the same effect as if all signatories had
signed  the same  document.  All  counterparts  must be  construed  together  to
constitute one and the same instrument.

        14.10 Parties.

               (a) Parties  Bound.  Each Loan  Document  binds and inures to the
        parties  to it,  any  intended  beneficiary  of it,  and  each of  their
        respective  successors and permitted  assigns.  No Company may assign or
        transfer any Rights or obligations under any Loan Document without first
        obtaining all Lenders' consent, and any purported assignment or transfer
        without  Lenders'  consent  is void.  No Lender  may  transfer,  pledge,
        assign,  sell any participation in, or otherwise encumber its portion of
        the Obligation EXCEPT as permitted by CLAUSES (B) or (C) below.

               (b) Participations.  Any Lender may (subject to the provisions of
        this section,  in accordance with applicable Law, in the ordinary course
        of its  business,  and at any time) sell to one or more Persons  (each a
        "PARTICIPANT") participating interests in its portion of the Obligation.
        The selling  Lender  remains a "LENDER"  under the Loan  Documents,  the
        Participant does not become a "LENDER" under the Loan Documents, and the
        selling Lender's  obligations under the Loan Documents remain unchanged.
        The selling Lender remains solely responsible for the performance of its
        obligations  and remains the holder of its share of the  Principal  Debt
        for all  purposes  under the Loan  Documents.  Borrower  and Agent shall
        continue  to deal  solely  and  directly  with  the  selling  Lender  in
        connection  with that  Lender's  Rights and  obligations  under the Loan
        Documents, and each Lender must retain the sole right and responsibility
        to enforce due obligations of the Companies. Participants have no Rights
        under  the Loan  Documents  EXCEPT as  provided  below.  Subject  to the
        following,  each Lender may obtain (on behalf of its  Participants)  the
        benefits of SECTION 3 with respect to all  participations in its part of
        the Obligation  outstanding from time to time SO LONG AS Borrower is not
        obligated to pay any amount in excess of the amount that would be due to
        that Lender under SECTION 3 calculated as though no participations  have
        been made. No Lender may sell any participating interest under which the
        Participant  has any Rights to approve any amendment,  modification,  or
        waiver of any Loan Document  EXCEPT as to matters in SECTION  14.8(B)(I)
        and (II).

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                (c) Assignments. Each Lender may make assignments to the Federal
        Reserve Bank. Each Lender may also assign to one or more assignees (each
        an "ASSIGNEE") all or any part of its Rights and  obligations  under the
        Loan Documents SO LONG AS (i) the assignor  Lender and Assignee  execute
        and deliver to Agent and Borrower for their consent and acceptance (that
        may not be unreasonably  withheld in any instance and is not required if
        the Assignee is an Affiliate of the assigning  Lender) an assignment and
        assumption  agreement  in  substantially  the  form  of  EXHIBIT  F  (an
        "ASSIGNMENT")  and pay to Agent a  processing  fee of  $2,500,  (ii) the
        assignment  is for an  identical  percentage  of the  assignor  Lender's
        Rights and obligations  under the Term Loan and the Revolving  Facility,
        (iii)  the  assignment  must  be  for  a  minimum  total  Commitment  of
        $1,000,000  and  the  assigning  Lender  must  retain  a  minimum  total
        Commitment  of  $1,000,000,  (iv) after giving  effect to such  proposed
        assignment,  there would not be more than four (4) Lenders,  and (v) the
        conditions for that  assignment  set forth in the applicable  Assignment
        are  satisfied.  The EFFECTIVE  DATE in each  Assignment  must (unless a
        shorter  period is  agreeable  to  Borrower  and Agent) be at least five
        Business Days after it is executed and delivered by the assignor  Lender
        and the  Assignee  to Agent  and  Borrower  for  acceptance.  Once  that
        Assignment is accepted by Agent and Borrower,  and subject to all of the
        following occurring,  then, on and after the EFFECTIVE DATE stated in it
        (i) the Assignee automatically becomes a party to this agreement and, to
        the extent provided in that  Assignment,  has the Rights and obligations
        of a Lender under the Loan Documents,  (ii) the assignor Lender,  to the
        extent provided in that Assignment,  is released from its obligations to
        fund Borrowings under this agreement and its  reimbursement  obligations
        under this agreement  and, in the case of an Assignment  covering all of
        the remaining  portion of the assignor  Lender's  Rights and obligations
        under the Loan  Documents,  that Lender ceases to be a party to the Loan
        Documents,  (iii)  Borrower  shall  execute and deliver to the  assignor
        Lender and the Assignee the  appropriate  Notes in accordance  with this
        agreement following the transfer,  (iv) upon delivery of the Notes under
        CLAUSE (III) preceding, the assignor Lender shall return to Borrower all
        Notes previously delivered to that Lender under this agreement,  and (v)
        SCHEDULE 2 is  automatically  deemed to be amended to reflect  the name,
        address,  telecopy  number,  and  Commitment  of the  Assignee  and  the
        remaining  Commitment (if any) of the assignor  Lender,  and Agent shall
        prepare  and  circulate  to Borrower  and Lenders an amended  SCHEDULE 2
        reflecting those changes.

        14.11  Venue,  Service  of  Process,  and Jury  TrialVenue,  Service  of
Process, and Jury Trial. BORROWER AND (PURSUANT TO ITS GUARANTY) EACH RESTRICTED
COMPANY, IN EACH CASE FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, IRREVOCABLY (A)
SUBMITS TO THE NONEXCLUSIVE  JURISDICTION OF THE STATE AND FEDERAL COURTS IN NEW
YORK, (B) WAIVES,  TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT
MAY NOT OR IN THE FUTURE HAVE TO THE LAYING OF VENUE OF ANY  LITIGATION  ARISING
OUT OF OR IN CONNECTION WITH ANY LOAN DOCUMENT AND THE OBLIGATION BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK, OR IN THE UNITED  STATES COURTS  LOCATED IN THE
BOROUGH OF MANHATTAN,  (C) WAIVES ANY CLAIMS THAT ANY LITIGATION  BROUGHT IN ANY
OF THE FOREGOING COURTS HAS BEEN BROUGHT IN AN INCONVENIENT  FORUM, (D) CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE  COURTS IN ANY  LITIGATION  BY THE
MAILING OF COPIES OF THAT PROCESS BY CERTIFIED MAIL,  RETURN RECEIPT  REQUESTED,
POSTAGE  PREPAID,  BY HAND DELIVERY,  OR BY DELIVERY BY A  NATIONALLY-RECOGNIZED
COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL
PROCESS AT ITS ADDRESS FOR PURPOSES OF THIS AGREEMENT, (E) AGREES THAT ANY LEGAL
PROCEEDING  AGAINST  ANY  PARTY  TO  ANY  LOAN  DOCUMENT  ARISING  OUT  OF OR IN
CONNECTION  WITH THE LOAN  DOCUMENTS OR THE  OBLIGATION MAY BE BROUGHT IN ONE OF
THE FOREGOING COURTS, AND (F) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ITS
RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUR OF ANY LOAN DOCUMENT.  The scope of each of the foregoing waivers is
intended to be all encompassing of any and all disputes that may be filed in any
court and that  relate to the  subject  matter of this  transaction,  including,
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory  claims.  BORROWER AND (PURSUANT TO ITS GUARANTY)
EACH OTHER  RESTRICTED  COMPANY  ACKNOWLEDGES  THAT THESE WAIVERS ARE A MATERIAL
INDUCEMENT  TO  AGENT'S  AND EACH  LENDER'S  AGREEMENT  TO ENTER INTO A BUSINESS
RELATIONSHIP,  THAT AGENT AND EACH LENDER HAS ALREADY RELIED ON THESE WAIVERS IN
ENTERING  INTO THIS  AGREEMENT,  AND THAT AGENT AND EACH LENDER WILL CONTINUE TO
RELY ON EACH OF THESE WAIVERS IN RELATED FUTURE DEALINGS. BORROWER AND (PURSUANT
TO ITS GUARANTY) EACH OTHER  RESTRICTED  COMPANY FURTHER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THESE WAIVERS WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY

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AND VOLUNTARILY AGREES TO EACH WAIVER FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
The  waivers  in this  section  are  irrevocable,  meaning  that they may not be
modified  either  orally or in writing,  and these  waivers  apply to any future
renewals, extensions,  amendments,  modifications, or replacements in respect of
the applicable Loan Document. In connection with any Litigation,  this agreement
may be filed as a written consent to a trial by the court.

        14.12 ENTIRETY. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
BORROWER,  LENDERS,  AND AGENT AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS,  OR SUBSEQUENT  ORAL  AGREEMENTS  OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                     REMAINDER OF PAGE INTENTIONALLY BLANK.
                             SIGNATURE PAGES FOLLOW.


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        EXECUTED as of the date first stated above.

Address for notices:

One Commercial Green                      FORTUNE NATURAL RESOURCES CORPORATION,
515 W. Greens Road, Suite 720             formerly known as Fortune Petroleum
Houston, Texas 77067                      Corporation,
Attention: Mr. J. Michael Urban             AS BORROWER
           Vice President and
           Chief Financial Officer
                                          By: /s/ Tyrone J. Fairbanks
                                              ----------------------------------
Fax:       713-872-1213                   Name:  Tyrone J. Fairbanks
                                          Title: President


                                          CREDIT LYONNAIS NEW YORK BRANCH,
1000 Louisiana St., Suite 5360              AS AGENT AND A LENDER
Houston, Texas 77002
Attention: Mr. John M. Falbo
           Vice President and 
           Group Manager                  By: /s/ Jacques Yves Mulliez
                                              ----------------------------------
Fax:       713-751-0307                   Name:  Jacques Yves Mulliez
                                          Title: Senior Vice President