EX-10.7






TERM NOTE




$425,000.00 Midland, Texas September 28, 2006



1. For value received, ESCONDE RESOURCES LP, a Texas limited partnership (the “Maker”), promises to
pay to the order of CHARLES W. DARTER, JR., (hereinafter called the “Lender”), at its offices at
8008 Slide Road, Suite 7, Lubbock, Lubbock County, Texas 79424, in lawful money of the United
States of America, the sum of FOUR HUNDRED TWENTY-FIVE THOUSAND and NO/100 DOLLARS ($425,000.00),
together with interest on the principal amount from time to time outstanding hereunder, from the
date of each disbursement of such principal until maturity, at a rate of interest of ten percent
(10%) per annum, but in no event to exceed the “Highest Lawful Rate”.



2. This Note is executed pursuant to the terms of that certain Asset Purchase Agreement, dated as
of September 28, 2006, by and among Maker, as Borrower and the Lender. This Note incorporates by
reference the terms of the Asset Purchase Agreement.



3. If at maturity or final payment of this Note the total amount of interest paid or accrued under
the foregoing provisions is less than the total amount of interest which would have accrued if the
Variable Rate had at all times been in effect, then Maker agrees to pay to Lender, to the extent
permitted by law, an amount equal to the difference between (a) the lesser of (i) the amount of
interest which would have accrued on this Note if the Highest Lawful Rate had at all times been in
effect, or (ii) the amount of interest which would have accrued if the Variable Rate had at all
times been in effect, and (b) the amount of interest accrued in accordance with the other
provisions of this Note.



4. The term “Highest Lawful Rate” will mean the maximum nonusurious interest rate, if any, that at
any time or from time to time may be contracted for, taken, reserved, charged, collected or
received by the Lender in connection with this Note under laws applicable to the Lender which are
presently in effect or, to the extent allowed by law, under applicable laws which may hereafter be
in effect and which allow a higher maximum nonusurious interest rate than applicable laws now
allow.



5. This Note shall be payable at maturity on October 15, 2007, at which time all of the outstanding
principal and accrued, unpaid interest hereunder shall be due and payable in full.



6. All past due principal and interest on this Note will bear interest from the maturity thereof
until paid, at the Highest Lawful Rate. Interest on this Note will be computed on a 365/365 or 366
simple interest basis, depending upon the number of days in the applicable year; that is, by
applying the ratio of the annual interest over a year of 365 or 366 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the principal is
outstanding.



7. If an Event of Default should occur under the terms of the Asset Purchase Agreement or the Deed
of Trust, thereupon at the option of Lender, the principal balance and accrued interest of the
Note, and any and all other indebtedness of Maker to Lender will become and be due and payable
forthwith without demand, notice of default, notice of acceleration, notice of intent to accelerate
the maturity hereof, notice of nonpayment, presentment, protest or notice of dishonor, all of which
are hereby expressly waived by Maker and each other liable party. Lender may waive any default
without waiving any prior or subsequent default.



8. To the extent not prohibited by applicable law, Maker will pay all costs and expenses and
reimburse Lender for any and all expenditures of every character incurred or expended from time to
time, regardless of whether a default or event of default will have occurred, in connection with
(a) Lender’s evaluating, monitoring, administering and protecting the Mortgaged Property, as
hereinafter defined, in connection with it, and (b) Lender’s creating, perfecting or realizing upon
Lender’s security interest in and liens on the Mortgaged Property, and all costs and expenses
relating to Lender’s exercising any of its rights and remedies under this or any other instrument
now or hereafter securing the Indebtedness or at law, including, without limitation, all filing
fees, taxes, brokerage fees and commissions, title review and abstract fees, Uniform Commercial
Code search fees, other fees and expenses incident to title searches, reports and security
interests, escrow fees, attorneys’ fees, legal expenses, court costs, fees and expenses incurred in
connection with any complete or partial liquidation of the Mortgaged Property, and all fees and
expenses for any professional services relating to the Mortgaged Property or any operations
conducted in connection with it; provided, however, that no right or option granted by Maker or
Lender or otherwise arising pursuant to any provision of this or any other instrument will be
deemed to impose or admit a duty on the Lender to supervise, monitor or control any aspect of the
character or condition of the Mortgaged Property or any operations conducted in connection with it
for the benefit of Maker or any other person or entity other than the Lender.



9. If this Note is not paid at maturity whether by acceleration or otherwise and is placed in the
hands of an attorney for collection, or suit is filed hereon, or proceedings are had in probate,
Lenderruptcy, receivership, reorganization, arrangement or other legal proceedings for collection
hereof, Maker and each other liable party agree to pay Lender its collection costs, including a
reasonable amount for attorney’s fees, but in no event to exceed the maximum amount permitted by
law. Maker and each other liable party are and will be directly and primarily, jointly and
severally, liable for the payment o fall sums called for hereunder, and Maker and each other liable
party hereby expressly waive bringing of suit and diligence in taking any action to collect any
sums owing hereon and in the handling of any security, and Maker and each other liable party hereby
consent to and agree to remain liable hereon regardless of any renewals, extensions for any period
or rearrangements hereof, or partial prepayments hereon, or any release or substitution of security
hereof, in whole or in part, with or without notice, from time to time, before or after maturity.



10. It is the intent of the Maker and Lender in the execution and performance of this note to
contract in strict compliance with the usury laws of the State of Texas and the United States of
America from time to time in effect. For purposes hereof, “interest” will include the aggregate of
all charges which constitute interest under such laws that are contracted for, reserved, taken,
charged or received under this note. In furtherance thereof, the Lender and the Maker stipulate
and agree that none of the terms and provisions contained in this note, will ever be construed to
create a contract to pay for the use, forbearance or detention of money with interest at a rate in
excess of the Highest Lawful Rate. In the event the Lender or any other holder of the note ever
charges or contracts for any amount in excess of lawful interest, the documents or instruments
constituting such charge or contract will be ipso facto modified without any further action by any
party so that no amount in excess of lawful interest will be charged or contracted for. If the
Lender or any other holder of the note ever receives, collects or applies as interest any amount in
excess of lawful interest, such amount which would be excessive interest will be applied to the
reduction of the unpaid principal balance of the note, and, if upon such application the principal
balance of the note is paid in full, any remaining excess will be forthwith paid to the Maker. In
determining whether or not the interest paid or payable under any specific contingency exceeds the
Highest Lawful Rate, the Maker and the Lender will, to the maximum extent permitted under
applicable law, (a) treat all advances as but a single extension of credit (and the Maker and the
Lender agree that such is the case and that provision herein for multiple advances is for
convenience only), (b) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (c) exclude voluntary prepayments and the effects thereof, and (d) “spread” the
total amount of interest throughout the entire contemplated term of the note. The provisions of
this paragraph will control over all other provisions of the note or other documents executed in
connection with this note which may be in apparent conflict herewith.



11. Maker reserves the option of prepaying the principal of this Note, in whole or in part, at any
time after the date hereof without penalty. At the option of Lender, it may demand (at any time at
or after prepayment) all accrued and unpaid interest with respect to the principal amount prepaid
through the date of prepayment. All amounts of principal so prepaid and received by the owner and
holder of this Note will be applied to the last maturing installments of this Note in their inverse
order of maturity.



12. If Maker is composed of more than one person or entity, whether as individuals, partners,
partnership, or corporation, each such person or entity will be jointly and severally liable for
Maker’s obligations hereunder.



13. This Note is secured by that certain Deed of Trust, or amendments thereto, of even date
herewith, executed by Maker in favor of the Lender, covering certain oil and gas properties owned
by Maker in Garza County, Texas, as well as a pledge of certain units in Maker. Any failure to
describe all or part of the security will not be considered as a waiver of such security.



14. Unless otherwise specified below, this Note shall be construed under and governed by the laws
of the State of Texas (including applicable federal law), but in any event TEX. FIN. CODE ANN.
SECTION 346.001 et. seq. (which regulates certain revolving loan accounts and revolving tripartite
accounts) shall not apply to the loan evidenced by this Note.



15. Unless changed in accordance with the law, the applicable rate ceiling under Texas law shall be
the indicated (weekly) rate ceiling from time to time in effect as provided in TEX. FIN. CODE ANN.
Section 303.001 et seq., as amended.



16. Maker warrants and represents to the Lender, and to all other holders of this note that all
loans evidenced by this Note are and will be for business, commercial, investment or other similar
purposes and not primarily for personal, family, household or agricultural use, as such terms are
used in TEX. REV. CIV. STAT. ANN. ART. 5069-ID. 201, as amended.



17. By execution of this Note, Maker acknowledges the receipt of the following notices from Lender:



“THIS NOTE, AND ALL OTHER LOAN PAPERS EXECUTED SUBSTANTIALLY CONCURRENTLY HEREWITH
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.”



“THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.”



Address:


415 W. Wall, Suite 625


Midland, Texas 79701




ESCONDE RESOURCES LP




By: Esconde Energy LP, General Partner




By: /s/ Ronnie L. Steinocher




	 	 	Ronnie L. Steinocher, Managing Member






By: /s/ Paul W. Heard




	 	 	Paul W. Heard, Managing Member






By: Pierce-Hamilton Energy Partners LP, Managing Member




By: Muscoda Hill Energy LLC, General Partner




BY:/s/ Lisa Hamilton




	 	 	Lisa Hamilton, President





MAKER





/s/ CHARLES J. DARTER




	 	 	CHARLES J. DARTER, JR.





LENDER