UNITED FUEL & ENERGY CORPORATION

NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY  APPLICABLE  STATE  SECURITIES  LAWS  AND MAY  NOT BE  SOLD,  PLEDGED  OR
TRANSFERRED  IN THE  ABSENCE OF AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR SUCH
SECURITIES  UNDER THE ACT OR  UNLESS AN  EXEMPTION  FROM  SUCH  REGISTRATION  IS
AVAILABLE.


Warrant                                                         Date:
_________ Shares                                                May __, 2005

                        UNITED FUEL & ENERGY CORPORATION

                                     WARRANT

      UNITED FUEL & ENERGY CORPORATION,  a Nevada corporation  ("Company"),  for
value  received  hereby  grants this  warrant  ("Warrant")  to  [Purchaser],  or
registered  assigns (the "Holder").  The Warrant entitles the Holder to purchase
from Company at any time prior to the Expiration Date (as defined below) up to [
] shares of common stock of Company ("Common Stock"). The exercise price for the
Warrant shall be $1.50 per share of Common Stock (the  "Exercise  Price").  This
Warrant shall be issued in connection  with the  Securities  Purchase  Agreement
entered into by Holder and Company as of this date.


<PAGE>

1. Expiration Date; Exercise

      1.1  Exerciseability.   The  Warrant  granted  hereunder  shall  be  fully
exercisable as of the date hereof.

      1.2 Expiration Date. The Warrant shall expire on the fifth (5) anniversary
of the date of this  Warrant set forth on the first page.  After the  Expiration
Date, the Warrant shall expire and be of no further force or effect.

      1.3  Callable  Warrant.  If during any  consecutive  20 trading day period
(after the  effectiveness  of the  registration  statement if  applicable),  the
Common Stock of Company  closes at the prices set forth in the  following  table
("Trading Price"),  the Warrant shall be callable upon 10 days written notice at
$0.01 per share, in the following amounts:

        Number of Warrants callable                Trading Price
        ---------------------------                -------------
               1/2 of Warrants                           $4.00
               1/2 of Warrants                           $4.50

      If Company has called the applicable Warrants,  then Holder shall exercise
such Warrants at $1.50 per share. If Holder does not exercise such Warrants when
called within 10 days of receiving notice,  then such Warrants shall immediately
expire after such 10 day period.

2. Adjustments of Exercise Price and Number and Kind of Conversion Shares

      2.1 In the  event  that  Company  shall  at any time  hereafter  (a) pay a
dividend  in Common  Stock or  securities  convertible  into Common  Stock;  (b)
subdivide or split its  outstanding  Common Stock;  (c) combine its  outstanding
Common Stock into a smaller number of shares; (d) spin-off to its shareholders a
subsidiary or  operating-business  unit;  then the number of shares to be issued
immediately after the occurrence of any such event shall be adjusted so that the
Holder  thereafter  may  receive  the  number of  shares of Common  Stock or the
equivalent value it would have owned immediately following such action if it had
exercised the Warrant  immediately  prior to such action and the Exercise  Price
shall be adjusted to reflect  such  proportionate  increases or decreases in the
number of shares.


                                       2
<PAGE>

      2.2 In case of any  reclassification  of the outstanding  shares of Common
Stock  (other  than a change  covered  by Section  2.1 hereof or a change  which
solely  affects  the par value of such  shares)  or in the case of any merger or
consolidation  or merger in which Company is not the continuing  corporation and
which  results  in  any  reclassification  or  capital   reorganization  of  the
outstanding  shares),  the  holder  shall have the right  thereafter  (until the
Expiration  Date) to receive upon the exercise  hereof,  for the same  aggregate
Exercise Price payable  hereunder  immediately prior to such event, the kind and
amount of shares of stock or other  securities or property  receivable upon such
reclassification,  capital reorganization,  merger or consolidation, by a holder
of the number of shares of Common  Stock  obtainable  upon the  exercise  of the
Warrant  immediately  prior  to such  event;  and if any  reclassification  also
results in a change in shares covered by Section 2.1, then such adjustment shall
be made  pursuant to both this Section 2.2 and Section 2.1.  The  provisions  of
this Section 2.2 shall similarly apply to successive reclassifications,  capital
reorganizations and mergers or consolidations, sales or other transfers.

3. Transfer.  Subject to compliance with applicable securities laws, the Warrant
is transferable in person,  or by duly  authorized  attorney,  upon surrender of
this Warrant properly endorsed and upon payment of any necessary transfer tax or
other  governmental  charge imposed upon such transfer.  If less than all of the
Warrant is transferred,  Company will, upon transfer, execute and deliver to the
Holder a new certificate for the portion of the Warrant not so transferred.

4. Reservation of Shares.  Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, such number of shares
of Common  Stock as shall from time to time be  issuable  upon  exercise  of the
Warrant.  If at any time the number of authorized but unissued  shares of Common
Stock shall not be  sufficient  to permit the exercise of the  Warrant,  Company
shall  promptly  seek such  corporate  action as may  necessary  to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.

5. Certificate as to Adjustments. In each case of any adjustment in the Exercise
Price,  or number or type of  shares  issuable  upon  exercise  of the  Warrant,
Company  shall  compute  such  adjustment  in  accordance  with the terms of the
Warrant and prepare a certificate  setting forth such  adjustment and showing in
detail the facts upon which such  adjustment is based,  including a statement of
the adjusted  Exercise  Price.  Company shall promptly send (by facsimile and by
either first class mail,  postage prepaid or overnight  delivery) a copy of each
such certificate to the Holder.


                                       3
<PAGE>

6. Loss or  Mutilation.  Upon  receipt of evidence  reasonably  satisfactory  to
Company of the ownership of and the loss,  theft,  destruction  or mutilation of
this Warrant, and of indemnity  reasonably  satisfactory to it, and (in the case
of mutilation)  upon  surrender and  cancellation  of the Warrant,  Company will
execute  and  deliver in lieu  thereof a new  Warrant of like tenor as the lost,
stolen, destroyed or mutilated Warrant.

7.  Representations  and Warranties of Company.  Company  hereby  represents and
warrants to Holder that:

      7.1 Due  Authorization.  All corporate action on the part of Company,  its
officers,  directors  and  shareholders  necessary  for (a)  the  authorization,
execution and delivery of, and the  performance  of all  obligations  of Company
under  this  Warrant,  and  (b) the  authorization,  issuance,  reservation  for
issuance and delivery of all of the Common Stock  issuable upon exercise of this
Warrant,  has been duly  taken.  This  Warrant  constitute  a valid and  binding
obligation of Company enforceable in accordance with their terms, subject, as to
enforcement  of remedies,  to  applicable  bankruptcy,  insolvency,  moratorium,
reorganization  and similar laws affecting  creditors'  rights  generally and to
general equitable principles.

      7.2  Organization.  Company  is  a  corporation  duly  organized,  validly
existing and in good standing under the laws of the Nevada and has all requisite
corporate power to grant this Warrant.

      7.3 Valid  Issuance  of Stock.  Any  shares of Common  Stock  issued  upon
exercise  of this  Warrant  will be duly  and  validly  issued,  fully  paid and
non-assessable.

      7.4 Governmental Consents. All consents, approvals, orders, authorizations
or  registrations,  qualifications,  declarations or filings with any federal or
state governmental  authority on the part of Company required in connection with
the consummation of the transactions contemplated herein have been obtained.


                                       4
<PAGE>

8. Notices of Record Date.  In case,  Company shall take a record of the holders
of its Common Stock (or other stock or  securities at the time  receivable  upon
the exercise of this Warrant), for the purpose:

      8.1 of entitling  them to receive any dividend or other  distribution,  or
any right to  subscribe  for or purchase any shares of stock of any class or any
other securities or to receive any other right; or

      8.2 of any  consolidation  or  merger  of  Company  with or  into  another
corporation,  any capital reorganization of Company, any reclassification of the
capital stock of Company,  or any conveyance of all or substantially  all of the
assets of Company to another  corporation  in which holders of Company stock are
to receive stock, securities or property of another corporation; or

      8.3 of any voluntary dissolution, liquidation or winding-up of Company; or

      8.4 of any redemption or conversion of all outstanding Common Stock; then,
and in each such case,  Company  will mail or cause to be mailed to the Holder a
copy of the notice with  respect to the  foregoing  received by it from  Company
specifying,  as the case may be,  (a) the date on which a record  is to be taken
for the  purpose of such  dividend,  distribution  or right,  or (b) the date on
which such reorganization, reclassification,  consolidation, merger, conveyance,
dissolution, liquidation, winding-up, redemption or conversion is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock  or (such  stock or  securities  as at the  time are  receivable  upon the
exercise of this Warrant),  shall be entitled to exchange their shares of Common
Stock (or such other stock or  securities),  for  securities  or other  property
deliverable upon such reorganization,  reclassification,  consolidation, merger,
conveyance,  dissolution,  liquidation  or  winding-up.  Company  shall  use all
reasonable  efforts to ensure such notice  shall be  delivered  at least 15 days
prior to the date therein specified.

9. Severability.  If any term, provision, covenant or restriction of the Warrant
is  held  by  a  court  of  competent   jurisdiction  to  be  invalid,  void  or
unenforceable,   the   remainder  of  the  terms,   provisions,   covenants  and
restrictions  of the Warrant  shall remain in full force and effect and shall in
no way be affected,  impaired or invalidated to the same extent as if Company is
owner of the underlying Common Stock.


                                       5
<PAGE>

10. Notices. All notices,  requests,  consents and other communications required
hereunder  shall be in  writing  and by first  class  mail or by  registered  or
certified mail, postage prepaid,  return receipt  requested,  and (other than in
connection  with the exercise of the Warrant)  shall be deemed to have been duly
made when received or, if sent  registered or certified mail,  postage  prepaid,
return receipt  requested,  on the third day following  deposit in the mails: if
addressed  to the Holder,  to the address set forth on the  Securities  Purchase
Agreement  between  the  Holder  and  Company;  and  if  addressed  to  Company,
Attention,  Scott Heller, 405 North Marienfeld,  Suite 300, Midland, Texas 79701
or such other address as it may designate in writing.

11. No Rights as  Shareholder.  The Holder shall have no rights as a shareholder
of Company  with  respect to the shares  issuable  upon  exercise of the Warrant
until the actual exercise hereunder.

UNITED FUEL &ENERGY, INC.



By: __________________________________
    Scott Heller, Chief Executive Officer


                                       6
<PAGE>

                                   EXHIBIT "A"
                               NOTICE OF EXERCISE
                (To be signed only upon exercise of the Warrant)

To: UNITED FUEL & ENERGY CORPORATION.

      The  undersigned  hereby  elects to purchase  shares of Common  Stock (the
"Warrant Shares") of UNITED FUEL & ENERGY CORPORATION.  ("Company"), pursuant to
the terms of the  enclosed  Warrant (the  "Warrant").  The  undersigned  tenders
herewith payment of the exercise price pursuant to the terms of the Warrant.

The  undersigned  hereby  represents and warrants to, and agrees with Company as
follows:

      1.  Holder is  acquiring  the  Warrant  Shares  for its own  account,  for
investment purposes only.

      2. Holder  understands that an investment in the Warrant Shares involves a
high degree of risk,  and Holder has the financial  ability to bear the economic
risk of this investment in the Warrant Shares, including a complete loss of such
investment.  Holder has adequate  means for providing for its current  financial
needs and has no need for liquidity with respect to this investment.

      3. Holder has such  knowledge  and  experience  in financial  and business
matters that it is capable of  evaluating  the merits and risks of an investment
in the Warrant Shares and in protecting its own interest in connection with this
transaction.

      4. Holder  understands  that the Warrant  Shares have not been  registered
under the Securities Act or under any state securities laws.  Holder is familiar
with  the  provisions  of  the  Securities  Act  and  Rule  144  thereunder  and
understands  that the  restrictions on transfer on the Warrant Shares may result
in Holder being required to hold the Warrant Shares for an indefinite  period of
time.

      5. Holder agrees not to sell,  transfer,  assign,  gift, create a security
interest   in,  or   otherwise   dispose  of,  with  or  without   consideration
(collectively,  "Transfer")  any of the  Warrant  Shares  except  pursuant to an
effective  registration  statement under the Securities Act or an exemption from
registration.  As a further condition to any such Transfer,  except in the event
that such Transfer is made pursuant to an effective registration statement under
the  Securities  Act,  if in the  reasonable  opinion of counsel to Company  any
Transfer of the Warrant Shares by the contemplated  transferee thereof would not
be exempt from the  registration  and prospectus  delivery  requirements  of the
Securities  Act,  Company  may require the  contemplated  transferee  to furnish
Company with an investment  letter setting forth such information and agreements
as may  be  reasonable  requested  by  Company  to  ensure  compliance  by  such
transferee with the Securities Act.


                                       7
<PAGE>

      Until the  effectiveness  of the  registration  statement each certificate
evidencing the Warrant Shares will bear the following legend:

"THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY APPLICABLE  STATE  SECURITIES LAWS
AND MAY NOT BE  EXERCISED,  SOLD,  PLEDGED OR  TRANSFERRED  IN THE ABSENCE OF AN
EFFECTIVE  REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.



Number of Warrant Exercised:  ________
Dated:
                                                             [Name]


                                       8