FOURTH AMENDMENT TO FIRST AMENDED AND RESTATED
                                CREDIT AGREEMENT

         THIS FOURTH  AMENDMENT TO FIRST AMENDED AND RESTATED  CREDIT  AGREEMENT
(this  "Amendment")  is made as of the 7th day of November,  1996,  by and among
CAIRN ENERGY USA, INC., a Delaware corporation ("Borrower"),  ING (U.S.) CAPITAL
CORPORATION,  f/k/a Internationale  Nederlanden (U.S.) Capital  Corporation,  as
agent ("Agent"), and ING (U.S.) CAPITAL CORPORATION ("ING Capital"), MEESPIERSON
N.V.   ("MeesPierson"),   and  CREDIT  LYONNAIS  NEW  YORK  BRANCH,  as  lenders
(collectively, "Lenders").

                                    RECITALS:

         Borrower, Agent and Lenders entered into that certain First Amended and
Restated  Credit  Agreement dated as of December 20, 1994, as amended by a First
Amendment to First  Amended and Restated  Credit  Agreement  dated  December 12,
1995, a Second  Amendment to First Amended and Restated  Credit  Agreement dated
January 15, 1996,  and a Third  Amendment to First  Amended and Restated  Credit
Agreement dated June 28, 1996 (the "Original  Agreement"),  for the purposes and
consideration  therein  expressed,  pursuant  to which  Lenders  made and became
obligated to make loans to Borrower as therein provided; and Borrower, Agent and
Lenders desire to amend the Original Agreement as provided herein.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants and  agreements  contained  herein and in the Original  Agreement,  in
consideration  of the loans which may  hereafter be made by Lenders to Borrower,
and for other good and valuable  consideration,  the receipt and  sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:

                     ARTICLE I - Definitions and References

         ss. 1.1.  Terms Defined in the Original  Agreement.  Unless the context
otherwise  requires or unless  otherwise  expressly  defined  herein,  the terms
defined in the Original  Agreement shall have the same meanings whenever used in
this  Amendment,  and the following terms when used in this Amendment shall have
the following meanings:

                  "Amendment" means this Fourth Amendment to First Amended and
         Restated Credit Agreement.

                  "Amendment Documents" means this Amendment, the Renewal Notes,
         the Facility B Notes,  the Third Amendment to Deed of Trust,  Mortgage,
         Assignment,  Security Agreement and Financing  Statement,  amending the
         Original Mortgage,  as heretofore amended, the Second Amendment to Deed
         of  Trust,  Mortgage,  Assignment,  Security  Agreement  and  Financing
         Statement,  amending the Supplemental  Mortgage, the First Amendment to
         Mortgage,  Assignment,  Security  Agreement  and  Financing  Statement,
         amending the Mortgage, Assignment,

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         Security  Agreement and Financing  Statement  dated February 1, 1995 by
         Borrower in favor of Agent for the benefit of Lenders.

       "Credit Agreement" means the Original Agreement as amended hereby.

          "Original Notes" means, collectively, the "Notes" referred to
         and defined as such in the Original Agreement.

          "Renewal Notes" has the meaning given it in Section 3.1(ii).

                  ARTICLE II - Amendments to Original Agreement

         ss. 2.1.  Defined  Terms.  The  definitions  of "Advance",  "Commitment
Period",  "Evaluation Date", "Fixed Rate", "Loan", "Note" and "Percentage Share"
set forth in Section 1.1 of the Original  Agreement are hereby  amended in their
entirety to read as follows:

          "Advance" means a Facility A Advance or a Facility B Advance.

        "Commitment Period" means the Facility A Commitment Period or the
         Facility B Commitment Period.

                 "Evaluation Date" means each of the following:

                  (a)  June 30 and December 31 of each year, beginning with 
          December 31, 1996; and

                  (b) Each  date  which  either  Borrower  or  Lender,  at their
         respective options,  specifies as a date as of which the Borrowing Base
         is to be  redetermined,  which date must be the first or last date of a
         current calendar month; provided that neither Borrower nor Lender shall
         be entitled to request any such redetermination pursuant to this clause
         (b) more than once during any six (6) month  period,  and that Borrower
         shall not be  entitled to request  any such  redetermination  after the
         expiration of the Facility A Commitment Period; and

                  (c)  Each date specified as an Evaluation Date pursuant to 
          Section 2.11(b).

                  "Fixed Rate" means, with respect to each particular Fixed Rate
         Portion and the associated Eurodollar Rate and Reserve Percentage,  the
         rate per annum calculated by Agent (rounded upwards,  if necessary,  to
         the next higher  0.01%)  determined  on a daily  basis  pursuant to the
         following formula:

                  Fixed Rate =

                  Eurodollar Rate             + Fixed Rate Spread
                  100.0% - Reserve Percentage


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         where Fixed Rate Spread means for any day:

                  (i)  with respect to Facility A:

                           (A) if the aggregate unpaid principal  balance of the
                  Facility A Loans at the end of such day plus the amount of all
                  LC Obligations outstanding at the end of such day is less than
                  seventy-five  percent  (75%) of the  Borrowing  Base,  one and
                  one-quarter percent (1.25%) per annum; and

                           (B) if the aggregate unpaid principal  balance of the
                  Facility A Loans at the end of such day plus the amount of all
                  LC Obligations  outstanding at the end of such day is equal to
                  or greater than  seventy-five  percent  (75%) of the Borrowing
                  Base, one and one half percent (1.5%) per annum.

                  (ii)  with respect to Facility B:

                           (A) if the Debt to Proved Reserves Ratio is less than
                  50%, three and one-quarter percent (3.25%) per annum;

                           (B) if the Debt to Proved  Reserves Ratio is equal to
                  or greater than 50%, but less than or equal to 55%,  three and
                  one-half percent (3.5%) per annum; and

                           (C) if the Debt to Proved  Reserves  Ratio is greater
                  than 55%, three and three-quarters percent (3.75%) per annum.

         If the Reserve  Percentage  changes  during the  Interest  Period for a
         Fixed Rate Portion,  Agent may, at its option,  either change the Fixed
         Rate for such Fixed Rate Portion or leave it unchanged for the duration
         of such Interest  Period.  If the Fixed Rate Spread  changes during the
         Interest  Period for a Fixed Rate Portion,  the Fixed Rate shall change
         for such Fixed Rate Portion. The Fixed Rate shall in no event, however,
         exceed the Highest Lawful Rate.

                  "Loan"  means each of the  Facility A Loan and the  Facility B
         Loan (collectively, "Loans").

                  "Note"  means each of the  Facility A Note and the  Facility B
         Note (collectively "Notes").

                  "Percentage  Share"  means,  with respect to any Lender (a) so
         long as no Facility B Loans are outstanding,  such Lender's  Facility A
         Percentage Share, and (b) when used otherwise,  the percentage equal to
         the  unpaid  principal  balance of such  Lender's  Loans at the time in
         question divided by the aggregate unpaid principal balance of all Loans
         at such time.

     The following new definitions of "Debt to PDP/PDNP  Reserves Ratio",  "Debt
to Proved  Reserves  Ratio",  "Facility",  "Facility  A",  "Facility A Advance",
"Facility A

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Commitment Period",  "Facility A Loan",  "Facility A Note",  "Facility A Maximum
Loan Amount", "Facility A Percentage Share", "Facility B", "Facility B Advance",
"Facility B Commitment Period",  "Facility B Loan", "Facility B Note", "Facility
B Maximum  Loan  Amount",  "Facility B  Percentage  Share",  "First  Allotment",
"Second Allotment", "Third Allotment",  "Proved Reserves", "PDP Reserves", "PDNP
Reserves"  "PUD Reserves" and "SEC 10 Present Value" are hereby added to Section
1.1 of the Original Agreement, to read as follows:

                  "Debt to PDP/PDNP  Reserves Ratio" means the ratio obtained by
         dividing (a)  Borrower's  Consolidated  Debt, by (b) the SEC 10 Present
         Value, as determined in the most-recent Engineering Report delivered to
         Agent and Lenders,  attributed to all PDP Reserves and PDNP Reserves of
         Borrower in such Engineering  Report ascribed to the properties subject
         to the Mortgage.

                  "Debt to Proved  Reserves  Ratio" means the ratio  obtained by
         dividing (a)  Borrower's  Consolidated  Debt, by (b) the SEC 10 Present
         Value, as determined in the most-recent Engineering Report delivered to
         Agent and  Lenders,  attributed  to all Proved  Reserves of Borrower in
         such  Engineering  Report  ascribed  to the  properties  subject to the
         Mortgage.

               "Facility" means each of Facility A and Facility B.

               "Facility A" means the revolving credit facility provided for in
         Section 2.1(a).

                  "Facility A Advance",  "Facility A Loan" and "Facility A Note"
         have the meanings given in Section 2.1(a).

                  "Facility  A  Commitment  Period"  means the  period  from and
         including the date hereof until and  including  September 30, 1997 (or,
         if earlier,  the day on which the Facility A Notes first become due and
         payable in full).

                  "Facility  A  Maximum  Loan   Amount"   means  the  amount  of
         $75,000,000 as the same may be reduced by Borrower  pursuant to Section
         2.12.

                  "Facility  A  Percentage  Share"  means,  with  respect to any
         Lender (a) when used in Sections 2.1(a),  2.5(a),  2A.3 or 2A.4, in any
         Request  for Advance  for  Facility A Advances,  or when no Loans or LC
         Obligations  are  outstanding  hereunder,   the  percentage  set  forth
         opposite such Lender's name on the signature  pages of this  Agreement,
         and (b) when used  otherwise,  the percentage  obtained by dividing (i)
         the sum of the unpaid  principal  balance of such  Lender's  Facility A
         Loans at the time in  question  plus the Matured LC  Obligations  which
         such Lender has funded  pursuant to Section 2A.3(c) plus the portion of
         the Maximum Drawing Amount which such Lender might be obligated to fund
         under  Section  2A.3(c),  by  (ii)  the  sum  of the  aggregate  unpaid
         principal  balance  of all  Facility  A Loans  at such  time  plus  the
         aggregate amount of LC Obligations outstanding at such time.

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                "Facility B" means the revolving credit facility provided for in
         Section 2.1(b).

                  "Facility B Advance",  "Facility B Loan" and "Facility B Note"
         have the meanings given in Section 2.1(b).

                  "Facility  B  Commitment  Period"  means the  period  from and
         including the date hereof until and including December 31, 1997 (or, if
         earlier,  the day on which the  Facility B Notes  first  become due and
         payable in full).

                  "Facility  B  Maximum  Loan   Amount"   means  the  amount  of
         $14,000,000 as the same may be reduced by Borrower  pursuant to Section
         2.12.

                  "Facility  B  Percentage  Share"  means,  with  respect to any
         Lender,  the  percentage  set forth  opposite such Lender's name on the
         signature pages of this Agreement.

                  "First  Allotment",  "Second  Allotment" and "Third Allotment"
         shall have the meanings given them in Section 2.1(b).

                  "Proved  Reserves"  means "Proved  Reserves" as defined in the
         Definitions  for Oil and Gas  Reserves  promulgated  by the  Society of
         Petroleum  Engineers  (or any  generally  recognized  successor)  as in
         effect at the time in question.  "PDP Reserves"  means Proved  Reserves
         which are  categorized  as both  "Developed"  and  "Producing"  in such
         Definitions,   "PDNP   Reserves"   means  Proved   Reserves  which  are
         categorized as both "Developed" and "Nonproducing" in such Definitions,
         and "PUD  Reserves"  means Proved  Reserves  which are  categorized  as
         "Undeveloped" in such Definitions.

                  "SEC 10 Present Value" means the  discounted  present value of
         Proved Reserves,  PDP Reserves,  PDNP Reserves or PUD Reserves,  as the
         case may be, utilizing a discount rate of ten percent (10%) per annum.

         ss. 2.2.  Advances.  Section 2.1 of the Original Agreement is hereby 
         amended in its entirety to read as follows:

         Section 2.1  Advances.

                  (a) Facility A Advances.  Subject to the terms and  conditions
         hereof,  each Lender agrees to make advances to Borrower (herein called
         such  Lender's  "Facility A  Advances")  upon request from time to time
         during the Facility A Commitment  Period so long as (a) each Facility A
         Advance  by such  Lender  does not  exceed  such  Lender's  Facility  A
         Percentage  Share of the  aggregate  amount of Facility A Advances then
         requested from all Lenders,  (b) the sum of (i) the aggregate amount of
         such Lender's  Facility A Advances  outstanding at any time,  plus (ii)
         the Maximum  Drawing Amount for which such Lender is liable to purchase
         participations under Section 2A.3(c), plus (iii) the Matured LC

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     Obligations which have been funded by such Lender under such section,  does
     not exceed such Lender's  Facility A Percentage Share of the Borrowing Base
     determined as of the date on which the  requested  Facility A Advance is to
     be made,  and (c) the aggregate  amount of all Facility A Advances plus all
     LC Obligations  does not exceed the Borrowing Base. The aggregate amount of
     all Facility A Advances requested of all Lenders in any Request for Advance
     must be greater  than or equal to  $100,000  or must  equal the  unadvanced
     portion of the Borrowing  Base. The obligation of Borrower to repay to each
     Lender the aggregate  amount of all Facility A Advances made by such Lender
     (herein  called such  Lender's  "Facility A Loan"),  together with interest
     accruing in connection therewith, shall be evidenced by a single promissory
     note  (herein  called  such  Lender's  "Facility  A Note") made by Borrower
     payable to the order of each such  Lender in the form of  Exhibit  A-1 with
     appropriate  insertions.  For the  convenience of the parties  hereto,  the
     aggregate face amount of the Facility A Notes exceeds the Borrowing Base as
     of the date hereof. Notwithstanding the larger aggregate face amount of the
     Facility A Notes,  no  additional  commitment  to advance  funds beyond the
     amount of the  Borrowing  Base is intended by or should be implied from the
     aggregate  face  amount of the  Facility A Notes.  The amount of  principal
     owing  on any  Lender's  Facility  A Note at any  given  time  shall be the
     aggregate amount of all Facility A Advances theretofore made by such Lender
     minus all payments of principal theretofore received by such Lender on such
     Facility A Note.  Interest on each  Facility A Note shall accrue and be due
     and  payable  as  provided  herein  and  therein.  Subject to the terms and
     conditions  hereof,  Borrower may borrow,  repay,  and  reborrow  hereunder
     during the Facility A Commitment  Period.  It is contemplated that Borrower
     may request an  extension  of the  Facility A  Commitment  Period by giving
     written  notice of such  request to each  Lender at least 120 days prior to
     the end of the Facility A Commitment  Period. If such a request is given by
     such time and specifies an extension for a period of not more than one year
     and if Lenders have received all  information  which Lenders have requested
     for purposes of making such  determination,  Lenders will determine whether
     or not to grant such request  within 60 days after  receipt of such request
     (or if later,  receipt  of such  information).  Any such  determination  to
     extend  the  Facility  A  Commitment  Period  shall  be  within  the  sole,
     unconditional  discretion  of each Lender,  and may be made subject to such
     terms and  conditions  as each Lender may  specify its sole,  unconditional
     discretion.

                  (b) Facility B Advances.  Subject to the terms and  conditions
         hereof,  each Lender agrees to make advances to Borrower (herein called
         such  Lender's  "Facility B  Advances")  upon request from time to time
         during the Facility B Commitment  Period so long as (a) each Facility B
         Advance  by such  Lender  does not  exceed  such  Lender's  Facility  B
         Percentage  Share of the  aggregate  amount of Facility B Advances then
         requested from all Lenders,  (b) the aggregate  amount of such Lender's
         Facility  B  Advances  outstanding  at any time  does not  exceed  such
         Lender's  Facility B  Percentage  Share of the  Facility B Maximum Loan
         Amount,  determined  as of the date on which the  requested  Facility B
         Advance is to be made,  and (b) the aggregate  amount of all Facility B
         Advances does not exceed

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         the  Facility  B  Maximum  Loan  Amount.  The  aggregate  amount of all
         Facility B Advances requested of all Lenders in any Request for Advance
         must be greater than or equal to $100,000 or must equal the  unadvanced
         portion of the Facility B Maximum Loan Amount.  Upon Borrower's request
         in  compliance  with Section 2.2, one or more Facility B Advances in an
         aggregate  amount  of up to  $5,000,000  shall  be  made  in the  first
         allotment (the "First  Allotment"),  one or more Facility B Advances in
         an additional aggregate amount of up to $5,000,000 shall be made in the
         second allotment (the "Second  Allotment"),  and one or more Facility B
         Advances in an additional aggregate amount of up to $4,000,000 shall be
         made in the third allotment (the "Third Allotment").  The obligation of
         Borrower to repay to each Lender the aggregate amount of all Facility B
         Advances made by such Lender (herein  called such Lender's  "Facility B
         Loan"), together with interest accruing in connection therewith,  shall
         be evidenced by a single  promissory  note (herein called such Lender's
         "Facility B Note")  made by Borrower  payable to the order of each such
         Lender in the form of  Exhibit  A-2 with  appropriate  insertions.  The
         amount of principal owing on any Lender's  Facility B Note at any given
         time  shall  be  the  aggregate  amount  of  all  Facility  B  Advances
         theretofore  made  by such  Lender  minus  all  payments  of  principal
         theretofore  received by such Lender on such Facility B Note.  Interest
         on each Facility B Note shall accrue and be due and payable as provided
         herein and  therein.  Borrower  may not  borrow,  repay,  and  reborrow
         hereunder during the Facility B Commitment Period.

         ss. 2.3.  Use of Proceeds.  The first sentence of Section 2.3 of the 
Original Agreement is hereby amended in its entirety to read as follows:

                  Section 2.3. Use of Proceeds. Borrower shall use (a) all funds
         from Facility A Advances to provide funds for (i)  acquisitions  of oil
         and gas reserves,  (ii) exploratory drilling and developmental drilling
         with  respect to oil and gas  properties  owned as of September 1, 1996
         and  development  expenses  with  respect  to oil  and  gas  properties
         acquired  after  September  1,  1996,   (iii)  up  to  $10,000,000  for
         exploration  expenses  in  respect to oil and gas  properties  acquired
         after September 1, 1996,  (iv)  refinancing its Matured LC Obligations,
         and (v) for its  general  corporate  purposes,  and (b) all funds  from
         Facility B Advances  as  follows:  (i) under the First  Allotment,  for
         general corporate purposes, and (ii) under the Second Allotment and the
         Third Allotment, pursuant to the Development Proposal approved by Agent
         and Lenders  submitted by Borrower in  connection  with such Facility B
         Advances.

         ss. 2.4.  Rate Elections.  The first sentence of Section 2.4 of the 
Original Agreement is hereby amended in its entirety to read as follows:

                  Section 2.4.  Rate  Elections.  Borrower may from time to time
         designate  all or any  portions of the Loans  (including  any yet to be
         made Advances  which are to be made prior to or at the beginning of the
         designated  Interest  Period but  excluding  any  portions of the Loans
         which  are  required  to be repaid  prior to the end of the  designated
         Interest Period) as a "Tranche", which term refers to a set

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         of Fixed Rate Portions with  identical  Interest  Periods and with each
         Lender  participating in such Tranche in accordance with its Facility A
         Percentage  Share,  as to Facility A Loans,  or  Facility B  Percentage
         Share (as to Facility B Loans).

         ss. 2.5.  Commitment Fees.  Section 2.5 of the Original Agreement is 
hereby amended in its entirety to read as follows:

     Section 2.5.  Commitment Fees. In consideration of each Lender's commitment
to make Advances, Borrower will pay to Agent for the account of each Lender:

                           (a) a commitment  fee  determined on a daily basis by
                  applying a rate of one-half of one percent (0.5%) per annum to
                  such  Lender's  Facility  A  Percentage  Share  of the  unused
                  portion of the Borrowing  Base on each day during the Facility
                  A Commitment Period, determined for each such day by deducting
                  from the amount of the  Borrowing  Base at the end of such day
                  the sum of (i) the aggregate unpaid  principal  balance of the
                  Loans at the end of such day plus  (ii) the  amount  of all LC
                  Obligations outstanding at the end of such day;

                           (b) a commitment  fee  determined on a daily basis by
                  applying a rate of one-half of one percent (0.5%) per annum to
                  such  Lender's  Facility  B  Percentage  Share  of the  unused
                  portion  of the  Facility  B Maximum  Loan  Amount on each day
                  during the Facility B Commitment  Period,  determined for each
                  such  day by  deducting  from the  amount  of the  Facility  B
                  Maximum  Loan  Amount  at the  end of such  day the  aggregate
                  unpaid principal balance of the Facility B Loans at the end of
                  such day; and

                           (c) the  arrangement fee specified for such Lender in
                  a separate letter agreement between Borrower and Lenders.

         Such  commitment  fees shall be due and  payable in arrears on the last
         day of each Fiscal Quarter and at the end of the respective  Commitment
         Periods.  Such  arrangement  fee shall be payable as  specified in such
         letter.

     ss.  2.6. Optional  Prepayments.  Section 2.6 of the Original  Agreement is
          hereby amended in part by adding a new sentence immediately  following
          the first sentence thereof, to read as follows:

         Each partial prepayment of principal on the Facility A Loans made after
         the end of the  Facility A  Commitment  Period  shall be applied to the
         regular installments of principal due under the Facility A Notes in the
         inverse order of its maturity.

     ss.  2.7. Mandatory Prepayments.  The first clause of the first sentence of
          Section  2.7(a) of the  Original  Agreement  is hereby  amended in its
          entirety to read as follows:

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                  Section  2.7.  Mandatory  Prepayments.  (a) If  the  aggregate
         unpaid  principal  balance of the  Facility A Loans plus the  aggregate
         amount of outstanding LC Obligations  ever exceeds the Borrowing  Base,
         or if the aggregate  unpaid  principal  balance of the Facility B Loans
         ever exceeds the Facility B Maximum Loan Amount, Borrower shall, within
         thirty (30)  Business  Days after  Agent  gives  notice of such fact to
         Borrower, either

     ss.  2.8. Regular Payments. Section 2.8 of the Original Agreement is hereby
          amended in its entirety to read as follows:

                  Section 2.8 Regular  Payments.  Borrower  will pay interest on
         the Loans as specified in the Notes.  Borrower will repay the aggregate
         principal amount of the Facility A Loans outstanding on the last day of
         the  Facility  A   Commitment   Period  in  fourteen   (14)   quarterly
         installments,  on the  first  day of  each  January,  April,  July  and
         October,  beginning  January 1,  1998.  Each of the first four (4) such
         installments  shall be in an amount  equal to ten percent  (10%) of the
         aggregate unpaid  principal  balance of the Facility A Loans at the end
         of the  Facility A  Commitment  Period;  each of the next four (4) such
         installments  shall be in an amount  equal to nine  percent (9%) of the
         aggregate unpaid  principal  balance of the Facility A Loans at the end
         of the Facility A Commitment  Period; and each of the last six (6) such
         installments  shall be in an amount  equal to four  percent (4%) of the
         aggregate unpaid  principal  balance of the Facility A Loans at the end
         of the Facility A  Commitment  Period.  Such  amounts  shall be rounded
         upwards to the nearest $1,000. Agent shall determine the amount of each
         such principal  installment,  which amount shall be conclusive,  absent
         manifest error.  Borrower will repay the aggregate  principal amount of
         the Facility B Loans on the  maturity  date set forth in the Facility B
         Notes.

     ss.  2.9. Subsequent Determinations of Borrowing Base. The last sentence of
          Section  2.11(a) of the Original  Agreement  is hereby  amended in its
          entirety to read as follows:

         It is expressly  understood  that Lenders have no  obligation  to agree
         upon or designate the Borrowing Base at any particular amount,  whether
         in relation to the  Facility A Maximum  Loan Amount or  otherwise,  and
         that Lenders'  commitments to advance funds  hereunder is determined by
         reference  to the  Borrowing  Base from time to time in  effect,  which
         Borrowing  Base  shall  be  used  to the  extent  permitted  by law and
         regulatory authorities, for the purposes of Section 2.13.

     ss.  2.10.  Borrower's  Reduction of Borrowing  Base and Facility B Maximum
          Loan Amount.  Section 2.12 of the Original Agreement is hereby amended
          in its entirety to read as follows:

                  Section  2.12.  Borrower's  Reduction  of  Borrowing  Base and
         Facility B Maximum Loan Amount. Until the termination of the Facility A
         Commitment  Period Borrower may, during the ten-day period beginning on
         each  Determination Date (each such period being called in this section
         an "Option Period"), reduce

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         the  Borrowing  Base from the amount  designated by Agent to any lesser
         amount.  To exercise such option  Borrower must within an Option Period
         send  notice to Agent of the  amount of the  Borrowing  Base  chosen by
         Borrower.  If  Borrower  does not  affirmatively  exercise  this option
         during  an  Option  Period  the  Borrowing  Base  shall  be the  amount
         designated  by Agent under  Section  2.11.  Any choice by Borrower of a
         Borrowing  Base  shall be  effective  as of the first day of the Option
         Period  during which such choice was made and shall  continue in effect
         until  the next date as of which the  Borrowing  Base is  redetermined.
         Until the termination of the Facility B Commitment  Period Borrower may
         reduce the  Facility B Maximum Loan Amount.  Any such  reduction  shall
         permanently reduce the Facility B Maximum Loan Amount.

     ss.  2.11. Letters of Credit.  Section 2A.1(a), (b) and (c) of the Original
          Agreement are hereby amended in their entirety to read as follows:

                  Section  2A.1.  Letters  of  Credit.  Subject to the terms and
         conditions hereof, Borrower may during the Facility A Commitment Period
         request  Agent to issue one or more Letters of Credit,  provided  that,
         after taking such Letter of Credit into account:

                           (a) the sum of the  aggregate  amount of  Facility  A
                  Advances outstanding at such time plus the aggregate amount of
                  LC  Obligations  at such time,  does not exceed the  Borrowing
                  Base at such time; and

                           (b)   the aggregate amount of LC Obligations at such 
                  time does not exceed $10,000,000; and

                           (c) the  expiration  date of such Letter of Credit is
                  prior to the end of the Facility A Commitment Period.

     ss.  2.12.  Letters  of Credit  Advances;  Letter of Credit  Fees.  Section
          2A.3(b) of the Original Agreement is hereby amended in its entirety to
          read as follows:

                  (b)  Letter  of Credit  Advances.  If the  beneficiary  of any
         Letter of Credit makes a draft or other  demand for payment  thereunder
         then Borrower may,  during the interval  between the making thereof and
         the  honoring  thereof by Agent,  request  Lenders  to make  Facility A
         Advances  to  Borrower  in the amount of such  draft or  demand,  which
         Facility A Advances shall be made  concurrently with Agent's payment of
         such  draft or demand and shall be  immediately  used by Agent to repay
         the amount of the resulting  Matured LC  Obligation.  Such a request by
         Borrower shall be made in compliance with all of the provisions hereof,
         provided that for the purposes of Section  2A.1(a),  the amount of such
         Facility A Advances shall be considered,  but the amount of the Matured
         LC Obligation to be concurrently paid by such Facility A Advances shall
         not be considered.


58704 08037 CORP 133021
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<PAGE>



         The references to "Percentage  Share" in Sections 2A.3(c),  2A.3(d) and
2A.4 of the Original  Agreement are hereby amended to refer instead to "Facility
A Percentage Share".

     ss.  2.13. Additional Conditions Precedent to Facility B Advances.  Article
          III of the  Original  Agreement  is  hereby  amended  by  adding a new
          Section 3.3 at the end thereof, to read as follows:

           Section 3.3.  Additional Conditions Precedent to Facility B Advances.

                  (a) Conditions to Facility B Advances  under First  Allotment.
         No Lender has any  obligation  to make any Facility B Advance under the
         First  Allotment  unless:  Borrower  shall have paid to Agent,  for the
         account of each  Lender in  accordance  with such  Lender's  Facility B
         Percentage  Share, a drawdown fee equal to three-tenths  percent (0.3%)
         of such Facility B Advance under the First Allotment.

                  (b) Conditions to Facility B Advances under Second  Allotment.
         No Lender has any  obligation  to make any Facility B Advance under the
         Second Allotment unless: (i) Borrower shall have paid to Agent, for the
         account of each  Lender in  accordance  with such  Lender's  Facility B
         Percentage  Share,  a drawdown fee equal to one and fifteen  hundredths
         percent (1.15%) of such Facility B Advance under the Second  Allotment,
         (ii)  after the making of such  Facility B Advance,  the Debt to Proved
         Reserves  Ratio shall be less than or equal to sixtytwo  percent (62%),
         (iii) at the time of such Facility B Advance,  total Proved Reserves of
         Borrower, as determined in the most-recent Engineering Report delivered
         to Agent and Lenders, shall be not less than 75 billion cubic feet, and
         (iv)  Majority  Lenders shall have  approved the  Development  Proposal
         submitted by Borrower regarding such Facility B Advance.

                  (c) Conditions to Facility B Advances  under Third  Allotment.
         No Lender has any  obligation  to make any Facility B Advance under the
         Third Allotment unless:  (i) Borrower shall have paid to Agent, for the
         account of each  Lender in  accordance  with such  Lender's  Facility B
         Percentage  Share, a drawdown fee equal to one and  six-tenths  percent
         (1.6%) of such Facility B Advance under the Third Allotment, (ii) after
         the  making of such  Facility B  Advance,  the Debt to Proved  Reserves
         Ratio shall be less than or equal to  sixty-two  percent  (62%),  (iii)
         after the  making of such  Facility  B  Advance,  the Debt to  PDP/PDNP
         Reserves Ratio shall be less than or equal to one hundred eight percent
         (108%),  (iv) at the time of such  Facility  B  Advance,  total  Proved
         Reserves of Borrower,  as  determined  in the  most-recent  Engineering
         Report  delivered  to Agent  and  Lenders,  shall  be not less  than 85
         billion  cubic feet,  and (v) Majority  Lenders shall have approved the
         Development  Proposal  submitted by Borrower  regarding such Facility B
         Advance.

         For  purposes  of the  foregoing,  a  "Development  Proposal"  means  a
         detailed  proposal to Agent and Lenders from  Borrower  describing  the
         development of properties  subject to the Mortgage to be completed with
         the proceeds of a

58704 08037 CORP 133021
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<PAGE>



         Facility  B  Advance,  acceptable  to Agent and  Lenders  in their sole
         discretion in substance, form and detail, and expressly setting out (1)
         the specific development  activities on specified properties subject to
         the  Mortgage  that  are to be  completed  with  the  proceeds  of such
         Facility B Advance, (2) a timetable for such activities,  and (3) costs
         and expenses, net to the interest of Borrower.

     ss.  2.14. Exhibits.  Exhibits A and B to the Original Agreement are hereby
          amended in their entirety to read as set forth in Exhibits A-1 and A-2
          and Exhibit B, respectively, attached hereto.

         ss. 2.15.  Borrowing  Base. As  contemplated in and pursuant to Section
2.11 of the Credit  Agreement,  Agent hereby  designates  the new Borrowing Base
under the Credit  Agreement as $50,000,000,  effective as of the date hereof and
continuing  until but not including the next date as of which the Borrowing Base
is redetermined.

         ss.  2.16.  Percentage  Shares.  For  purposes  of the  definitions  of
"Facility  A  Percentage  Share"  and  "Facility  B  Percentage   Share",   such
definitions  shall not refer to the percentages set forth on the signature pages
to the Original Agreement,  but shall refer instead to the percentages set forth
on the signature pages hereto.

                    ARTICLE III - Conditions of Effectiveness

         ss. 3.1.  Effective Date.  This Amendment shall become  effective as of
the date first above written when (i) Agent shall have  received this  Amendment
at Agent's office duly  authorized,  executed and delivered by Borrower and each
Lender,  (ii)  Borrower  shall  have  issued  and  delivered  to each  Lender  a
Promissory  Note (each a "Renewal  Note") in the form attached hereto as Exhibit
A-1, duly executed on behalf of Borrower, a Promissory Note in the form attached
as Exhibit A-2, duly executed on behalf of Borrower, and shall have delivered to
Agent each other Amendment Document, duly executed on behalf of Borrower,  (iii)
Borrower  shall have paid to Agent (A) a Facility A extension  fee in the amount
of $20,000 for the account of ING Capital and MeesPierson,  to be shared ratably
in accordance with their Facility A Percentage Shares, (B) a Facility A facility
fee in the  amount of $15,000  for the  account  of Credit  Lyonnais,  and (C) a
Facility B facility fee in the amount of $75,000 for the account of Lenders, and
(iv) Agent shall have additionally  received all of the following documents each
being  duly  authorized,  executed  and  delivered,  and in form  and  substance
satisfactory to Agent and each Lender:

                  (a)  Opinion of Counsel  for  Borrower.  A written  opinion of
         Jenkens & Gilchrist, a Professional Corporation,  counsel for Borrower,
         dated as of the date of this Amendment, addressed to Agent and Lenders,
         to the effect that this Amendment and each other Amendment Document has
         been duly  authorized,  executed and delivered by Borrower and that the
         Credit Agreement  constitutes the legal, valid and binding  obligations
         of Borrower, enforceable in accordance with their terms (subject, as to
         enforcement  of remedies,  to  applicable  bankruptcy,  reorganization,
         insolvency and similar laws and to general principles of equity).


58704 08037 CORP 133021
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<PAGE>



                  (b)  Omnibus  Certificate.   An  Omnibus  Certificate  of  the
         Secretary  and of the Chairman of the Board or President of Borrower of
         even  date with  this  Amendment,  which  shall  contain  the names and
         signatures  of the officers  authorized  to execute this  Amendment and
         which shall certify to the truth,  correctness and completeness of: (i)
         all of the exhibits attached to that certain Omnibus  Certificate dated
         as of December 20, 1994, made by such officers of Borrower,  and (ii) a
         copy of resolutions  duly adopted by the Board of Directors of Borrower
         and in full  force and  effect at the time this  Amendment  is  entered
         into, authorizing the execution of this Amendment.

                  (c) Compliance  Certificate.  A Compliance  Certificate of the
         Chief Financial Officer of Borrower,  of even date with this Amendment,
         in which such officer shall  certify,  to the best of his knowledge and
         belief after due inquiry, to the satisfaction of the conditions set out
         in  subsections  (a)  through  (d),  inclusive,  of Section  3.2 of the
         Original Agreement as of the date hereof.

             ARTICLE IV - Representations, Warranties and Covenants

     ss.  4.1.  Representations,  Warranties and Covenants of Borrower. In order
          to induce  Agent and  Lenders to enter into this  Amendment,  Borrower
          represents, warrants and covenants to Agent and each Lender that:

                  (a) The  representations  and warranties  contained in Section
         4.1 of the  Original  Agreement  are true and  correct at and as of the
         time of the  effectiveness  hereof,  except  to the  extent  that  such
         representations  and warranties are made in the Original Agreement only
         in reference to a specific date and except to the extent that the facts
         upon which  such  representations  are based  have been  changed by the
         extension of credit under the Credit Agreement.

                  (b)  Borrower is duly  authorized  to execute and deliver this
         Amendment,  the Renewal Notes and each other Amendment  Document and is
         and will  continue to be duly  authorized  to borrow and to perform its
         obligations  under the Credit  Agreement.  Borrower  has duly taken all
         corporate  action  necessary to authorize the execution and delivery of
         this Amendment,  the Renewal Notes and each other  Amendment  Documents
         and to authorize  the  performance  of the  obligations  hereunder  and
         thereunder.

                  (c) The execution and delivery by Borrower of this  Amendment,
         the Renewal Notes and each other Amendment Document and the performance
         by it of its obligations  hereunder and under the Credit  Agreement and
         the consummation of the transactions contemplated hereby and thereby do
         not and will not conflict with any provision of law,  statute,  rule or
         regulation or of the articles of incorporation or bylaws of Borrower or
         of  any  material  agreement,   judgment,   license,  order  or  permit
         applicable to or binding upon Borrower or result in the creation of any
         lien,  charge or encumbrance upon any assets or properties of Borrower,
         except as  expressly  contemplated  in the Loan  Documents.  Except for
         those which have been duly obtained, no consent, approval,

58704 08037 CORP 133021
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<PAGE>



         authorization or order of any court or governmental  authority or third
         party is required in  connection  with the  execution  and  delivery by
         Borrower of this Amendment, the Renewal Notes or any Amendment Document
         or to consummate the transactions contemplated hereby and thereby.

                  (d) When this  Amendment,  the  Renewal  Notes and each  other
         Amendment  Document  is  duly  executed  and  delivered,  each  of this
         Amendment,  the Renewal Notes,  the other  Amendment  Documents and the
         Credit  Agreement will be a legal and binding  instrument and agreement
         of  Borrower,  enforceable  in  accordance  with its  terms,  except as
         limited  by  bankruptcy,  insolvency  and  similar  laws and by general
         principles of equity.

                  (e) The audited annual  Consolidated  financial  statements of
         Borrower  dated as of  December  31, 1995 and the  unaudited  quarterly
         Consolidated financial statements of Borrower dated as of September 30,
         1996 fairly present the Consolidated  financial  position at such dates
         and the  Consolidated  statement of  operations  and cash flows for the
         periods  ending on such dates for  Borrower.  Copies of such  financial
         statements have  heretofore  been delivered to Lender.  Since September
         30, 1996,  no material  adverse  change has  occurred in the  financial
         condition or businesses or in the Consolidated  financial  condition or
         businesses of Borrower.

                            ARTICLE V - Miscellaneous

         ss. 5.1.  Ratification of Agreements.  The Original Agreement as hereby
amended is hereby ratified and confirmed in all respects. The Loan Documents, as
they may be amended or affected by this  Amendment,  the Renewal Notes,  and the
other  Amendment  Documents,  are hereby ratified and confirmed in all respects.
Any reference to the Credit  Agreement in any Loan  Document  shall be deemed to
refer to this Amendment also and any reference in any Loan Document to any other
document or instrument amended,  renewed, extended or otherwise affected by this
Amendment,  the Renewal Notes or the other Amendment  Documents shall also refer
to such  Amendment,  such  Renewal  Notes  and  such  Amendment  Documents.  Any
reference  to any  Note in any  other  Loan  Document  shall be  deemed  to be a
reference to each Renewal Note. The  execution,  delivery and  effectiveness  of
this Amendment,  the Renewal Notes and each other  Amendment  Document shall not
operate as a waiver of any right,  power or remedy of Agent or any Lender  under
the Credit  Agreement or any other Loan Document nor  constitute a waiver of any
provision of the Credit Agreement or any other Loan Document.

         ss.  5.2.  Survival of  Agreements.  All  representations,  warranties,
covenants  and  agreements  of Borrower  herein shall  survive the execution and
delivery of this  Amendment  and the  performance  hereof and the  issuance  and
delivery  of each  Renewal  Note,  including  without  limitation  the making or
granting of the Loans,  and shall further  survive until all of the  Obligations
are paid in full. All statements and agreements  contained in any certificate or
instrument  delivered  by Borrower  hereunder  or under the Credit  Agreement to
Agent or any Lender shall be deemed to constitute representations

58704 08037 CORP 133021
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<PAGE>



and warranties by, or agreements and covenants of, Borrower under this Amendment
and under the Credit Agreement.

         ss. 5.3. Protection of Security Interests and Liens. Borrower agrees to
deliver to Agent within fifteen days after request any additional  amendments or
supplements  to any Security  Documents,  properly  completed  and executed (and
acknowledged when required) by Borrower,  in form and substance  satisfactory to
Agent,   which  Agent  reasonably   requests  for  the  purpose  of  perfecting,
confirming,  or protecting any Liens or other rights in Collateral  securing any
Obligations  in  connection  with the  extension  and renewal  herein and in the
Renewal Notes and the extension of Facility B.

         ss. 5.4.  Loan Documents.  This Amendment, each Renewal Note and each 
other Amendment Document is a Loan Document, and all provisions in the Credit 
Agreement pertaining to Loan Documents apply hereto.

         SS.  5.5.  GOVERNING  LAW.  THIS  AMENDMENT  SHALL BE  GOVERNED  BY AND
CONSTRUED  IN  ACCORDANCE  WITH  THE  LAWS  OF THE  STATE  OF NEW  YORK  AND ANY
APPLICABLE  LAWS OF THE  UNITED  STATES OF AMERICA  IN ALL  RESPECTS,  INCLUDING
CONSTRUCTION, VALIDITY AND PERFORMANCE.

         ss. 5.6.  Counterparts.  This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same 
Amendment.

         IN WITNESS  WHEREOF,  this  Amendment  is executed as of the date first
above written.

                                                     CAIRN ENERGY USA, INC.


                                                     By:
                                                          J. Munro M. Sutherland
                                                          Senior Vice President

58704 08037 CORP 133021
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<PAGE>


<TABLE>
<CAPTION>

              Percentage         Maximum
                 Share         Loan Amount

<S>           <C>              <C>                                                 
Facility A:   40%              $30,000,000           ING (U.S.) CAPITAL CORPORATION

Facility B:   35.714286%       $5,000,000
                                                     By:
                                                          Trond O. Rokholt, Senior Vice President

              Percentage         Maximum
                 Share         Loan Amount

Facility A:   30%              $22,500,000           MEESPIERSON N.V.

Facility B:   32.142857%       $4,500,000
                                                     By:
                                                          Darrell W. Holley, Vice President

              Percentage         Maximum
                 Share         Loan Amount

Facility A:   30%              $22,500,000           CREDIT LYONNAIS NEW YORK BRANCH

Facility B:   32.142857%       $4,500,000
                                                     By:
                                                          Name:
                                                          Title:

                                                     Address for Notices:

                                                     1000 Louisiana - Suite 5360
                                                     Houston, Texas  77002
                                                     Attention: Christine Byerly

                                                     Telephone: (713) 751-0500
                                                     Telecopy: (713) 751-0307
</TABLE>

58704 08037 CORP 133021
                                       16

<PAGE>



                                   EXHIBIT A-1


                                 PROMISSORY NOTE
                                  (FACILITY A)

$_________________              New York, New York              November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
____________________________,  a ____________________  (herein called "Lender"),
the principal sum of  ______________________________  Dollars ($__________), or,
if greater or less, the aggregate unpaid principal amount of the Facility A Loan
made under this Note by Lender to  Borrower  pursuant to the terms of the Credit
Agreement  (as  hereinafter  defined),  together  with  interest  on the  unpaid
principal  balance thereof as hereinafter set forth, both principal and interest
payable as herein  provided in lawful  money of the United  States of America at
the offices of the Agent under the Credit Agreement,  135 East 57th Street,  New
York, New York or at such other place within New York, New York, as from time to
time may be designated by the holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility A Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.


58704 08037 CORP 133021
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<PAGE>



                  "Fixed Rate  Payment  Date"  means,  with respect to any Fixed
         Rate  Portion:  (i) the day on which the related  Interest  Period ends
         (and,  if  such  Interest  Period  is  three  months  or  longer,   the
         three-month  anniversary of the first day of such Interest Period), and
         (ii) any day on which past due  interest or past due  principal is owed
         hereunder with respect to such Fixed Rate Portion and is unpaid. If the
         terms  hereof or of the  Credit  Agreement  provide  that  payments  of
         interest or principal  with respect to such Fixed Rate Portion shall be
         deferred  from one Fixed Rate Payment  Date to another day,  such other
         day shall also be a Fixed Rate Payment Date.

         The principal  amount of this Note shall be due and payable in fourteen
(14)  quarterly  installments,  and shall be due and payable on the first day of
each January, April, July and October, beginning January 1, 1998, and continuing
regularly  thereafter  until March 31, 2001, at which time the unpaid  principal
balance of this Note and all interest accrued hereon shall be due and payable in
full. Each of the first four (4) such  installments  shall be in an amount equal
to ten percent (10%) of the aggregate unpaid principal balance of the Facility A
Loans at the end of the Facility A Commitment Period;  each of the next four (4)
such  installments  shall  be in an  amount  equal to nine  percent  (9%) of the
aggregate  unpaid  principal  balance of the  Facility A Loans at the end of the
Facility A  Commitment  Period;  and each of the last six (6) such  installments
shall  be in an  amount  equal  to four  percent  (4%) of the  aggregate  unpaid
principal  balance  of the  Facility  A  Loans  at the  end  of the  Facility  A
Commitment Period.  Such amounts shall be rounded upwards to the nearest $1,000.
Agent  shall  determine  the amount of each such  principal  installment,  which
amount shall be conclusive, absence manifest error. On March 31, 2001 the unpaid
principal  balance of this Note and all interest accrued hereon shall be due and
payable in full.

         The Base Rate Portion of the Facility A Loan (exclusive of any past due
principal or interest) from time to time outstanding shall bear interest on each
day  outstanding  at the Base  Rate in  effect  on such  day.  On each Base Rate
Payment Date Borrower  shall pay to the holder hereof all unpaid  interest which
has accrued on the Base Rate Portion to but not including such Base Rate Payment
Date.  Each Fixed Rate Portion of the Facility A Loan (exclusive of any past due
principal  or  interest)  shall bear  interest  on each day  during the  related
Interest  Period at the related  Fixed Rate in effect on such day. On each Fixed
Rate Payment Date relating to such Fixed Rate Portion  Borrower shall pay to the
holder hereof all unpaid  interest  which has accrued on such Fixed Rate Portion
to but not including such Fixed Rate Payment Date. All past due principal of and
past due  interest  on the  Facility  A Loan  shall  bear  interest  on each day
outstanding  at the Late Payment  Rate in effect on such day, and such  interest
shall be due and payable  daily as it  accrues.  Notwithstanding  the  foregoing
provisions of this paragraph:  (a) this Note shall never bear interest in excess
of the Highest Lawful Rate, and (b) if at any time the rate at which interest is
payable on this Note is limited by the  Highest  Lawful  Rate (by the  foregoing
clause (a) or by reference to the Highest Lawful Rate in the definitions of Base
Rate,  Fixed Rate, and Late Payment Rate),  this Note shall bear interest at the
Highest  Lawful Rate and shall  continue to bear interest at the Highest  Lawful
Rate until such time as the total amount of interest accrued hereon equals (but

58704 08037 CORP 133021
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<PAGE>



does not exceed) the total amount of interest  which would have  accrued  hereon
had there been no Highest Lawful Rate applicable hereto.

         Notwithstanding  the foregoing  paragraph  and all other  provisions of
this Note,  in no event shall the interest  payable  hereon,  whether  before or
after maturity,  exceed the maximum interest which, under applicable law, may be
charged on this Note,  and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon.

         If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and  guarantors  of this Note  jointly  and  severally  agree to pay  reasonable
attorneys'  fees and  collection  costs to the holder  hereof in addition to the
principal and interest payable hereunder.

         Borrower and all endorsers, sureties and guarantors of this Note hereby
severally  waive  demand,  presentment,  notice of demand  and of  dishonor  and
nonpayment  of this Note,  protest,  notice of protest,  notice of  intention to
accelerate the maturity of this Note,  declaration or notice of  acceleration of
the  maturity of this Note,  diligence in  collecting,  the bringing of any suit
against  any party and any notice of or  defense  on account of any  extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms,  provisions and covenants, or any releases or substitutions of any
security,  or any delay,  indulgence  or other act of any  trustee or any holder
hereof, whether before or after maturity.

         This Note and the other  Facility A Notes of even date  herewith in the
aggregate  principal  amount of $75,000,000 are given in renewal,  extension and
increase  of (but not in  extinguishment  or  novation  of):  (1) those  certain
Promissory  Notes dated December 20, 1994, in the aggregate  original  principal
amount of $50,000,000,  made by Borrower to the order of Lenders,  as amended by
Amendments  and  Allonges  dated  December  12,  1995,  which notes were made in
renewal,  extension and  replacement of (but not in  extinguishment  or novation
of): (2) that certain  promissory  note dated May 10, 1994,  made by Borrower in
the original  principal amount of $30,000,000,  made by Borrower to the order of
Internationale  Nederlanden  (U.S.) Capital  Corporation ("ING Capital"),  which
note was made in renewal,  extension and increase of (but not in  extinguishment
or novation of): (3) that certain  promissory  note (Facility A) in the original
principal amount of $25,000,000 and that certain promissory note (Facility B) in
the original  principal amount of $8,000,000,  each dated June 11, 1993, made by
Borrower  originally to the order of Internationale  Nederlanden Bank, N.V., New
York Branch ("ING Bank"),  which was assigned by ING Bank to ING Capital,  which
notes  were  made  in  renewal,   extension  and  restatement  of  (but  not  in
extinguishment or novation of): (4) that certain promissory note dated as of May
8, 1990 in the  original  principal  amount  of  $25,000,000,  made by  Borrower
originally to the order of Manufacturers  Hanover Trust Company ("MHTC"),  which
was assigned by MHTC to ING Bank.


58704 08037 CORP 133021
                                        3

<PAGE>



         THIS NOTE AND THE  RIGHTS  AND DUTIES OF THE  PARTIES  HERETO  SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK  (WITHOUT  REGARD TO PRINCIPLES OF
CONFLICTS  OF LAW),  EXCEPT TO THE EXTENT THE SAME ARE  GOVERNED  BY  APPLICABLE
FEDERAL LAW.

                                                     CAIRN ENERGY USA, INC.


                                                     By:
                                                          J. Munro M. Sutherland
                                                          Senior Vice President

58704 08037 CORP 133021
                                        4

<PAGE>



                                   EXHIBIT A-2


                                 PROMISSORY NOTE
                                  (FACILITY B)

$_________________              New York, New York            November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
____________________________,  a ____________________  (herein called "Lender"),
the principal sum of  ______________________________  Dollars ($__________), or,
if greater or less, the aggregate unpaid principal amount of the Facility B Loan
made under this Note by Lender to  Borrower  pursuant to the terms of the Credit
Agreement  (as  hereinafter  defined),  together  with  interest  on the  unpaid
principal  balance thereof as hereinafter set forth, both principal and interest
payable as herein  provided in lawful  money of the United  States of America at
the offices of the Agent under the Credit Agreement,  135 East 57th Street,  New
York, New York or at such other place within New York, New York, as from time to
time may be designated by the holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility B Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.


58704 08037 CORP 133021
                                        1

<PAGE>



                  "Fixed Rate  Payment  Date"  means,  with respect to any Fixed
         Rate  Portion:  (i) the day on which the related  Interest  Period ends
         (and,  if  such  Interest  Period  is  three  months  or  longer,   the
         three-month  anniversary of the first day of such Interest Period), and
         (ii) any day on which past due  interest or past due  principal is owed
         hereunder with respect to such Fixed Rate Portion and is unpaid. If the
         terms  hereof or of the  Credit  Agreement  provide  that  payments  of
         interest or principal  with respect to such Fixed Rate Portion shall be
         deferred  from one Fixed Rate Payment  Date to another day,  such other
         day shall also be a Fixed Rate Payment Date.

         On December 31, 1997 the unpaid principal  balance of this Note and all
interest accrued hereon shall be due and payable in full.

         The Base Rate Portion of the Facility B Loan (exclusive of any past due
principal or interest) from time to time outstanding shall bear interest on each
day  outstanding  at the Base  Rate in  effect  on such  day.  On each Base Rate
Payment Date Borrower  shall pay to the holder hereof all unpaid  interest which
has accrued on the Base Rate Portion to but not including such Base Rate Payment
Date.  Each Fixed Rate Portion of the Facility B Loan (exclusive of any past due
principal  or  interest)  shall bear  interest  on each day  during the  related
Interest  Period at the related  Fixed Rate in effect on such day. On each Fixed
Rate Payment Date relating to such Fixed Rate Portion  Borrower shall pay to the
holder hereof all unpaid  interest  which has accrued on such Fixed Rate Portion
to but not including such Fixed Rate Payment Date. All past due principal of and
past due  interest  on the  Facility  B Loan  shall  bear  interest  on each day
outstanding  at the Late Payment  Rate in effect on such day, and such  interest
shall be due and payable  daily as it  accrues.  Notwithstanding  the  foregoing
provisions of this paragraph:  (a) this Note shall never bear interest in excess
of the Highest Lawful Rate, and (b) if at any time the rate at which interest is
payable on this Note is limited by the  Highest  Lawful  Rate (by the  foregoing
clause (a) or by reference to the Highest Lawful Rate in the definitions of Base
Rate,  Fixed Rate, and Late Payment Rate),  this Note shall bear interest at the
Highest  Lawful Rate and shall  continue to bear interest at the Highest  Lawful
Rate until such time as the total amount of interest  accrued hereon equals (but
does not exceed) the total amount of interest  which would have  accrued  hereon
had there been no Highest Lawful Rate applicable hereto.

         Notwithstanding  the foregoing  paragraph  and all other  provisions of
this Note,  in no event shall the interest  payable  hereon,  whether  before or
after maturity,  exceed the maximum interest which, under applicable law, may be
charged on this Note,  and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon.

         If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and  guarantors  of this Note  jointly  and  severally  agree to pay  reasonable
attorneys'  fees and  collection  costs to the holder  hereof in addition to the
principal and interest payable hereunder.

58704 08037 CORP 133021
                                        2

<PAGE>




         Borrower and all endorsers, sureties and guarantors of this Note hereby
severally  waive  demand,  presentment,  notice of demand  and of  dishonor  and
nonpayment  of this Note,  protest,  notice of protest,  notice of  intention to
accelerate the maturity of this Note,  declaration or notice of  acceleration of
the  maturity of this Note,  diligence in  collecting,  the bringing of any suit
against  any party and any notice of or  defense  on account of any  extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms,  provisions and covenants, or any releases or substitutions of any
security,  or any delay,  indulgence  or other act of any  trustee or any holder
hereof, whether before or after maturity.

         THIS NOTE AND THE  RIGHTS  AND DUTIES OF THE  PARTIES  HERETO  SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK  (WITHOUT  REGARD TO PRINCIPLES OF
CONFLICTS  OF LAW),  EXCEPT TO THE EXTENT THE SAME ARE  GOVERNED  BY  APPLICABLE
FEDERAL LAW.

                                                     CAIRN ENERGY USA, INC.


                                                     By:
                                                          J. Munro M. Sutherland
                                                          Senior Vice President

58704 08037 CORP 133021
                                        3

<PAGE>



                                    EXHIBIT B

                              REQUEST FOR ADVANCES

         Reference is made to that certain Credit Agreement dated as of December
20, 1994 (as from time to time  amended,  the  "Agreement"),  by and among Cairn
Energy  USA,  Inc.  ("Borrower"),   Internationale  Nederlanden  (U.S.)  Capital
Corporation,  as Agent, and certain financial  institutions  ("Lenders").  Terms
which are defined in the Agreement are used herein with the meanings  given them
in the  Agreement.  Pursuant  to the  terms  of the  Agreement  Borrower  hereby
requests  Lenders to make Facility  [A/B]  Advances to Borrower in the aggregate
principal amount of $__________ and specifies  ____________,  199__, as the date
Borrower  desires for Lenders to make such  Advances and for Agent to deliver to
Borrower the proceeds thereof.

         To induce Lenders to make such Advances,  Borrower  hereby  represents,
warrants, acknowledges, and agrees to and with Agent and each Lender that:

                  (a) The officer of Borrower  signing  this  instrument  is the
         duly  elected,  qualified  and acting  officer of Borrower as indicated
         below such officer's signature hereto having all necessary authority to
         act for Borrower in making the request herein contained.

                  (b) The  representations  and warranties of Borrower set forth
         in the Agreement  and the other Loan  Documents are true and correct on
         and as of the date hereof (except to the extent that the facts on which
         such  representations and warranties are based have been changed by the
         extension  of credit  under  the  Agreement),  with the same  effect as
         though such  representations  and warranties had been made on and as of
         the date hereof.

                  (c) There does not exist on the date hereof any  condition  or
         event which  constitutes a Default which has not been waived in writing
         as  provided  in  Section  9.1(a) of the  Agreement;  nor will any such
         Default exist upon  Borrower's  receipt and application of the Advances
         requested  hereby.  Borrower will use the Advances hereby  requested in
         compliance with Section 2.3 of the Agreement.

                  (d) Except to the extent  waived in  writing  as  provided  in
         Section  9.1(a) of the  Agreement,  Borrower has performed and complied
         with all  agreements  and  conditions in the  Agreement  required to be
         performed or complied  with by Borrower on or prior to the date hereof,
         and each of the  conditions  precedent  to  Advances  contained  in the
         Agreement remains satisfied.

                  [(e) The sum of (i) the aggregate unpaid principal balances of
         the  Facility  A Loans,  after the  making of the  Facility  A Advances
         requested  hereby,  plus (ii) the aggregate amount of LC Obligations at
         such  time,  will not be in  excess of the  Borrowing  Base on the date
         requested for the making of such Facility A Advances.]
                  or

58704 08037 CORP 133021
                                        1

<PAGE>




                  [(e) The aggregate unpaid principal balances of the Facility B
         Loans,  after the making of the Facility B Advances  requested  hereby,
         will not be in excess of the Facility B Maximum Loan Amount on the date
         requested for the making of such Facility B Advances.]

                  (f) The Loan  Documents  have not been  modified,  amended  or
         supplemented  by any  unwritten  representations  or  promises,  by any
         course of dealing,  or by any other means not  provided  for in Section
         9.1(a) of the Agreement. The Agreement and the other Loan Documents are
         hereby ratified, approved, and confirmed in all respects.

         The officer of Borrower  signing this  instrument as an officer and not
individually  hereby  certifies  that,  to the best of his  knowledge  after due
inquiry, the above representations, warranties, acknowledgements, and agreements
of Borrower are true, correct and complete.

         IN WITNESS  WHEREOF,  this  instrument is executed by the  undersigned,
only as an officer of Borrower and not individually, as of ____________, 199__.

                                                     CAIRN ENERGY USA, INC.


                                                     By:
                                                          Name:
                                                          Title:

58704 08037 CORP 133021
                                        2

<PAGE>






                                 PROMISSORY NOTE
                                  (FACILITY A)

$30,000,000                     New York, New York              November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
ING (U.S.) CAPITAL CORPORATION, a Delaware corporation (herein called "Lender"),
the principal sum of Thirty  Million  Dollars  ($30,000,000),  or, if greater or
less, the aggregate  unpaid  principal  amount of the Facility A Loan made under
this Note by Lender to Borrower  pursuant  to the terms of the Credit  Agreement
(as hereinafter defined), together with interest on the unpaid principal balance
thereof as hereinafter set forth,  both principal and interest payable as herein
provided in lawful  money of the United  States of America at the offices of the
Agent under the Credit Agreement, 135 East 57th Street, New York, New York or at
such  other  place  within  New  York,  New  York,  as from  time to time may be
designated by the holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility A Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.

58704 08037 CORP 133021
                                        1

<PAGE>






                                 PROMISSORY NOTE
                                  (FACILITY B)

$5,000,000                      New York, New York              November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
ING (U.S.) CAPITAL CORPORATION, a Delaware corporation (herein called "Lender"),
the principal sum of Five Million Dollars ($5,000,000),  or, if greater or less,
the  aggregate  unpaid  principal  amount of the Facility B Loan made under this
Note by Lender to  Borrower  pursuant to the terms of the Credit  Agreement  (as
hereinafter  defined),  together with interest on the unpaid  principal  balance
thereof as hereinafter set forth,  both principal and interest payable as herein
provided in lawful  money of the United  States of America at the offices of the
Agent under the Credit Agreement, 135 East 57th Street, New York, New York or at
such  other  place  within  New  York,  New  York,  as from  time to time may be
designated by the holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility B Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.

58704 08037 CORP 133021
                                        1

<PAGE>






                                 PROMISSORY NOTE
                                  (FACILITY A)

$22,500,000                    New York, New York               November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
MEESPIERSON  N.V.  (herein  called  "Lender"),  the  principal sum of Twenty-Two
Million Five Hundred Thousand Dollars ($22,500,000), or, if greater or less, the
aggregate unpaid principal amount of the Facility A Loan made under this Note by
Lender to Borrower pursuant to the terms of the Credit Agreement (as hereinafter
defined),  together with  interest on the unpaid  principal  balance  thereof as
hereinafter set forth, both principal and interest payable as herein provided in
lawful  money of the United  States of America at the offices of the Agent under
the Credit Agreement,  135 East 57th Street, New York, New York or at such other
place within New York,  New York,  as from time to time may be designated by the
holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility A Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.

58704 08037 CORP 133021
                                        1

<PAGE>






                                 PROMISSORY NOTE
                                  (FACILITY B)

$4,500,000                      New York, New York             November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
MEESPIERSON  N.V.  (herein called  "Lender"),  the principal sum of Four Million
Five  Hundred  Thousand  Dollars  ($4,500,000),  or,  if  greater  or less,  the
aggregate unpaid principal amount of the Facility B Loan made under this Note by
Lender to Borrower pursuant to the terms of the Credit Agreement (as hereinafter
defined),  together with  interest on the unpaid  principal  balance  thereof as
hereinafter set forth, both principal and interest payable as herein provided in
lawful  money of the United  States of America at the offices of the Agent under
the Credit Agreement,  135 East 57th Street, New York, New York or at such other
place within New York,  New York,  as from time to time may be designated by the
holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility B Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.

58704 08037 CORP 133021
                                        1

<PAGE>






                                 PROMISSORY NOTE
                                  (FACILITY A)

$22,500,000                    New York, New York               November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
CREDIT LYONNAIS NEW YORK BRANCH (herein called  "Lender"),  the principal sum of
Twenty-Two Million Five Hundred Thousand Dollars  ($22,500,000),  or, if greater
or less, the aggregate unpaid principal amount of the Facility A Loan made under
this Note by Lender to Borrower  pursuant  to the terms of the Credit  Agreement
(as hereinafter defined), together with interest on the unpaid principal balance
thereof as hereinafter set forth,  both principal and interest payable as herein
provided in lawful  money of the United  States of America at the offices of the
Agent under the Credit Agreement, 135 East 57th Street, New York, New York or at
such  other  place  within  New  York,  New  York,  as from  time to time may be
designated by the holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility A Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.

58704 08037 CORP 133021
                                        1

<PAGE>





                                 PROMISSORY NOTE
                                  (FACILITY B)

$4,500,000                     New York, New York              November 7, 1996

         FOR VALUE RECEIVED, the undersigned, Cairn Energy USA, Inc., a Delaware
corporation (herein called  "Borrower"),  hereby promises to pay to the order of
CREDIT LYONNAIS NEW YORK BRANCH (herein called  "Lender"),  the principal sum of
Four Million Five Hundred Thousand Dollars ($4,500,000), or, if greater or less,
the  aggregate  unpaid  principal  amount of the Facility B Loan made under this
Note by Lender to  Borrower  pursuant to the terms of the Credit  Agreement  (as
hereinafter  defined),  together with interest on the unpaid  principal  balance
thereof as hereinafter set forth,  both principal and interest payable as herein
provided in lawful  money of the United  States of America at the offices of the
Agent under the Credit Agreement, 135 East 57th Street, New York, New York or at
such  other  place  within  New  York,  New  York,  as from  time to time may be
designated by the holder of this Note.

         This  Note (a) is  issued  and  delivered  under  that  certain  Credit
Agreement  dated December 20, 1994 among  Borrower,  Internationale  Nederlanden
(U.S.)  Capital  Corporation,  as  Agent,  and the  lenders  (including  Lender)
referred  to  therein  (herein,  as from time to time  supplemented,  amended or
restated, called the "Credit Agreement"),  and is a "Facility B Note" as defined
therein,  (b) is subject to the terms and  provisions  of the Credit  Agreement,
which   contains   provisions  for  payments  and   prepayments   hereunder  and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby  made to the  Credit  Agreement  for a  description  of  certain  rights,
limitations of rights,  obligations and duties of the parties hereto and for the
meanings  assigned  to terms used and not  defined  herein  and to the  Security
Documents  for a  description  of the nature and extent of the security  thereby
provided and the rights of the parties thereto.

         For the purposes of this Note,  the  following  terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning December 31, 1996, and (ii) any
         day on which past due interest or principal  is owed  hereunder  and is
         unpaid.  If the terms  hereof or of the Credit  Agreement  provide that
         payments of interest or  principal  hereon  shall be deferred  from one
         Base Rate Payment  Date to another day,  such other day shall also be a
         Base Rate Payment Date.

58704 08037 CORP 133021
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