THIRD AMENDMENT TO FIRST AMENDED AND RESTATED
                                CREDIT AGREEMENT

         THIS THIRD  AMENDMENT TO FIRST  AMENDED AND RESTATED  CREDIT  AGREEMENT
(this  "Amendment") is made as of the 28th day of June, 1996, by and among CAIRN
ENERGY  USA,   INC.,  a  Delaware   corporation   ("Borrower"),   INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION,  as agent ("Agent"),  and INTERNATIONALE
NEDERLANDEN  (U.S.)  CAPITAL   CORPORATION  and  MEESPIERSON  N.V.,  as  lenders
("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
and a Second  Amendment to First  Amended and Restated  Credit  Agreement  dated
January 15, 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 Third Amendment to First Amended and
         Restated Credit Agreement.

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

                  ARTICLE II - Amendments to Original Agreement

         ss. 2.1.  Defined Terms.  The definition of "Fixed Rate" set forth in 
Section 1.1 of the Original Agreement is hereby amended in its entirety to read
as follows:

                  "Fixed Rate" means, with respect to each particular Fixed Rate
         Portion and the associated Eurodollar Rate and Reserve Percentage,  the
         rate per annum

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         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

         where Fixed Rate Spread means for any day:

                  (i) if the aggregate unpaid principal  balance of the 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

                   (ii) if the aggregate unpaid  principal  balance of the 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.

         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.

         ss. 2.2.  Letters of Credit.  Clause (b) of Section 2A.1. of the 
Original Agreement is hereby amended in its entirety to read as follows:

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

         ss. 2.3.  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.

                    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,  and (ii) Agent shall have  additionally  received all of the  following
documents each being duly  authorized,  executed and delivered,  and in form and
substance satisfactory to Lender:

                  (a)  Omnibus Certificate.  An Omnibus Certificate of the 
Secretary and of the Chairman of the Board or President of Borrower of even date
with this

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         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.

                  (b) 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 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 and to authorize the  performance of the
         obligations hereunder.

                  (c) The execution  and delivery by Borrower of this  Amendment
         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, 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  or  to   consummate   the
         transactions contemplated hereby.


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                  (d) When this Amendment is duly executed and  delivered,  each
         of this Amendment 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 March 31,
         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 March 31,
         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,  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 shall also refer to such Amendment.  The
execution,  delivery and  effectiveness of this Amendment 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,  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  and  warranties  by, or agreements  and covenants of,  Borrower
under this Amendment and under the Credit Agreement.

         ss. 5.3.  Loan Documents.  This Amendment is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.

         ss. 5.4.  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.


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         ss. 5.5.  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


                                                     INTERNATIONALE NEDERLANDEN
                                                     (U.S.) CAPITAL CORPORATION


                                            By:
                                               Nancy S. Frohman, Vice President


                                                   MEESPIERSON N.V.


                                            By:
                                               Darrell W. Holley, Vice President

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