EX-10.11






PROMISSORY NOTE NO. 2




$175,000.00 Midland, Texas September 28, 2006



FOR VALUE RECEIVED, ESCONDE RESOURCES LP (the “Borrower”) whose principal address is 415 W.
Wall, Suite 625, Midland, Texas 79701, promises to pay to the order of BASELINE CAPITAL, INC. (the
“Lender”) at 508 West Wall, Suite 775, Midland, Midland County, Texas 79701 the sum of ONE HUNDRED
SEVENTY-FIVE THOUSAND DOLLARS ($175,000.00), together with interest from date until maturity on the
unpaid principal balance thereof from time to time outstanding at the Stated Rate and with interest
on all past due amounts, both principal and accrued interest, at the Past Due Rate, provided, that
for the full term of this Note the interest rate produced by the aggregate of all sums paid or
agreed to be paid to the holder of this Note for the use, forbearance or detention of the debt
evidenced hereby shall not exceed the Ceiling Rate.



This Note is described in and is subject to the terms and provisions of that certain Loan
Agreement (the “Agreement”) dated as of the date of this Note by and between Borrower and Lender.
This Note is subject to the terms and conditions of the Agreement. Capitalized terms used but not
defined herein shall have the meanings assigned thereto in the Agreement.



This Note is subject to the terms and conditions of that certain Subordination Agreement of
even date herewith, by and among Borrower, Lender, as subordinated creditor, and Bank, as senior
creditor.



“Stated Rate” means, on any day, a rate per annum equal to twelve percent (12.0%) per annum
provided, that if at any time the Stated Rate plus the aggregate of all other sums paid or agreed
to be paid to the Lender for the use forbearance or detention of the debt evidenced hereby shall
exceed the Ceiling Rate, then the Stated Rate shall be fixed at the Ceiling Rate



“Past Due Rate” means, on any day, a rate per annum equal to eighteen percent (18.0%). All
past due payments shall bear interest from the due date thereof until paid at the Past Due Rate.



“Ceiling Rate” means, on any day, the maximum nonusurious rate of interest permitted for that
day by whichever of applicable federal or Texas law permits the higher interest rate, stated as a
rate per annum. Without notice to the Borrower or any other person or entity, the Ceiling Rate
shall automatically fluctuate upward and downward as and in the amount by which the maximum
nonusurious rate of interest fluctuates.



Interest on the amount of each advance against this Note shall be computed on the amount of
each advance and from the date of each advance. Interest shall be computed for the actual number of
days elapsed and on the basis of a year consisting of 365 or 366 days, as the case may be.



If, for any reason whatever, the interest and any and all other amounts paid or agreed to be
paid to Lender during the full term of this Note and for any time thereafter shall produce a rate
which exceeds the Ceiling Rate, Lender shall, at the Lender’s option, credit against the principal
of this Note and any other amounts owed by Borrower to Lender such portion of said interest and/or
other payments as shall be necessary to cause the interest and/or other amounts paid on this Note
to produce a rate equal to the Ceiling Rate, or refund any excess amount to Borrower. All interest
paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full period until payment in full of all obligations
of Borrower to Lender (including the period of any renewal or extension).



The above sum and accrued interest shall be due and payable as follows:




	 	(a)	 	Interest only payments shall be due and payable in monthly installments for six
(6) months from the date of this Note, beginning on October 28, 2006 and continuing on
the 28th day of each month until and including March 28, 2007.






	 	(b)	 	Principal and interest shall be due and payable in monthly installments, each
in the amount of $1,823.00 of principal plus accrued and unpaid interest, for six (6)
months beginning April 28, 2007 and continuing on the 28th day of each month thereafter
until and including September 28, 2007.






	 	(c)	 	Principal and interest shall be due and payable in forty-one (41) monthly
installments, each in the amount of $3,906.00 of principal plus accrued and unpaid
interest, beginning October 28, 2007 and continuing on the 28th day of each month
thereafter until and including February 28, 2011.






	 	(d)	 	On March 28, 2011, the remaining balance, including principal and balance, then
remaining unpaid on this Note shall be due and payable.





The unpaid principal balance of this Note at any time shall be the total of all amounts loaned
or advanced by the holder hereof less the amount of all payments or prepayments of principal made
hereon by or for Borrower. Notwithstanding anything hereto to the contrary, the entire remaining
principal balance of this Note, plus all accrued unpaid interest, shall be due and payable in its
entirety on March 28, 2011, unless such maturity is accelerated in accordance with the Agreement
and the other Loan Documents.



Unless otherwise agreed to, in writing, or otherwise required by applicable law, payments will
be applied first to accrued, unpaid interest, then to current principal due and owing, and any
remaining amount to any unpaid collection costs, late charges and other charges and the balance to
the principal in inverse order of maturity; provided, however, upon delinquency or other default,
Lender reserves the right to apply payments among principal, interest, late charges, collection
costs and other charges at its discretion. The Borrower may at any time pay the full amount or any
part of this Note without the payment of any premium or fee except as provided in the Agreement.



In addition to all principal and accrued interest on this Note, the Borrower agrees to pay
(a) all reasonable costs and expenses actually incurred by Lender in any probate, reorganization,
bankruptcy or any other proceedings for the establishment or collection or any amount hereunder, or
in collecting this Note through any such proceedings, and (b) reasonable attorney’s fees when and
if this Note is placed in the hands of an attorney for collection after default.



The Borrower and all co-borrowers, sureties and guarantors severally waive notice (including,
but not limited to, notice of intent to accelerate and notice of acceleration), demand, presentment
for payment, protest and the filing of suit for the purpose of fixing liability and consent that
the time of payment hereof may be extended and re-extended from time to time without notice to him,
and they agree that his, her or its liability on or with respect to this Note shall not be affected
by any release of or change in any security at any time existing or by any failure to perfect or to
maintain perfection of any lien on or security interest in any such security.



Lender reserves the right, exercisable in Lender’s sole discretion and without notice to
Borrower or any other person, to sell participations, to assign its interest or both, in all or any
part of this Note or the debt evidenced by this Note.



This Note shall be construed under and governed by the laws of the State of Texas.



THIS AGREEMENT, THE NOTE, THE SECURITY DOCUMENTS, THE GUARANTY AND/OR ANY AND ALL OTHER
DOCUMENTS EXECUTED AT OR NEAR THE TIME OF EXECUTION OF THIS DOCUMENT CONSTITUTE A “LOAN AGREEMENT”
AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE, AND 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.



[Remainder of Page Intentionally Left Blank]





1






DATED the 28th day of September, 2006.




ESCONDE RESOURCES LP




By: Esconde Energy LLC, its general partner



	 	 	 
	By:/s/
	 	Paul W. Heard

	 
	 	 

	 	 	Paul W. Heard, Managing Member

	By:/s/
	 	Ronnie L. Steinocher

	 
	 	 

	 	 	Ronnie L. Steinocher, Managing Member








	 	 	By: Pierce-Hamilton Energy Partners LP,






Managing Member




By: Muscoda Hill Energy LLC,




its general partner



	 	 	 
	By:/s/
	 	Lisa P. Hamilton

	 
	 	 

	 	 	Lisa P. Hamilton, President








	 	 	THE LENDER: (The Lender’s signature is provided as
its acknowledgment of the above as the final written
agreement between the parties.)






BASELINE CAPITAL, INC.



	 	 	 
	By:/s/
	 	Karl J. Reiter

	 
	 	 

	 	 	Karl J. Reiter, President








2