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                                                                    EXHIBIT 10.7

                                    GUARANTY

            This GUARANTY (this "GUARANTY") is made as of this 19th day of
August, 2004, by Dolphin Energy Corporation, a Nevada corporation, and Pannonian
International, Ltd., a Colorado corporation, (each such entity, together with
each other person or entity who becomes a party to this Guaranty by execution of
a joinder in the form of Exhibit A attached hereto, is referred to individually
as a "GUARANTOR" and collectively as the "GUARANTORS") in favor of Promethean
Asset Management L.L.C. (together with its successors and assigns, the
"COLLATERAL AGENT"), on its own behalf and in its capacity as agent for the
benefit of the entities identified on the Schedule of Buyers attached to the
Purchase Agreement defined below (together with their successors and assigns,
the "LENDERS").

            WHEREAS:

            A.    On the date hereof, Lenders have made loans and certain other
financial accommodations (collectively, the "LOANS") to Galaxy Energy
Corporation, a Colorado corporation ("BORROWER"), as evidenced by those certain
Senior Secured Convertible Notes, dated as of August 19, 2004, made by Borrower
payable to Lenders in the aggregate principal amount of up to $20,000,000 (such
notes, together with any promissory notes or other securities issued in exchange
or substitution therefor or replacement thereof, and as any of the same may be
amended, restated, modified or supplemented and in effect from time to time,
being herein referred to as the "NOTES").

            B.    The Notes are being acquired by Lenders pursuant to a
Securities Purchase Agreement with Borrower, dated as of August 19, 2004, as may
be amended, restated, modified or supplemented and in effect from time to time
(the "PURCHASE AGREEMENT").

            C.    Pursuant to a Security Agreement of even date herewith, as may
be amended, restated, modified or supplemented and in effect from time to time
(the "SECURITY AGREEMENT"), the Guarantors have granted the Collateral Agent,
for its benefit and the benefit of the Lenders, a first priority security
interest in, lien upon and pledge of its rights in the Collateral (each such
term, as defined in the Security Agreement).

            D.    The Guarantors are direct or indirect subsidiaries of Borrower
and, as such, will derive substantial benefit and advantage from the Loans, and
it will be to each Guarantor's direct interest and economic benefit to assist
the Borrower in procuring said Loans.

            NOW, THEREFORE, for and in consideration of the premises and in
order to induce Lenders to make the Loans, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Guarantors hereby agree as follows:

      1.    Definitions: Capitalized terms used herein without definition and
defined in the Notes are used herein as defined therein. In addition, as used
herein:

            "Obligations" shall mean (i) with respect to the Borrower, all
obligations, liabilities and indebtedness of every nature of the Borrower from
time to time owed or owing to the Lenders and Collateral Agent under the
Security Documents (as defined in the Notes), the Purchase Agreement, the Notes,
the Warrants and the Registration Rights Agreement, including, without
limitation, the principal amount of all debts, claims and indebtedness, accrued
and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable

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whether before or after the filing of a bankruptcy, insolvency or similar
proceeding under applicable federal, state, foreign or other law, and (ii) with
respect to the other Guarantors, all obligations and liabilities of the
Guarantors under or in respect of this Agreement, the Purchase Agreement, the
Notes, the Warrants, the Registration Rights Agreement, the Security Documents,
as the case may be.

            "Bankruptcy Code" shall mean the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, et seq.), as amended and in effect from time to
time thereunder.

      2.    Guaranty of Payment.

            (a)   Each Guarantor, jointly and severally, hereby unconditionally
and irrevocably guaranties the full and prompt payment and performance to
Lenders or Collateral Agent, on behalf of itself and in its capacity as agent
for the benefit of Lenders, when due, upon demand, at maturity or by reason of
acceleration or otherwise and at all times thereafter, of any and all of the
Obligations.

            (b)   Each Guarantor acknowledges that valuable consideration
supports this Guaranty, including, without limitation, the consideration set
forth in the recitals above, as well as any commitment to lend, extension of
credit or other financial accommodation, whether heretofore or hereafter made by
Lenders to the Borrower; any extension, renewal or replacement of any of the
Obligations; any forbearance with respect to any of the Obligations or
otherwise; any cancellation of an existing guaranty; any purchase of any of the
Borrower's assets by any Lender or Collateral Agent; or any other valuable
consideration.

            (c)   Each Guarantor agrees that all payments under this Guaranty
shall be made in United States currency and in the same manner as provided for
the Obligations.

            (d)   Notwithstanding any provision of this Guaranty to the
contrary, it is intended that this Guaranty, and any interests, liens and
security interests granted by Guarantors as security for this Guaranty, not
constitute a "Fraudulent Conveyance" (as defined below) in the event that this
Guaranty or such interest is subject to the Bankruptcy Code or any applicable
fraudulent conveyance or fraudulent transfer law or similar law of any state.
Consequently, Guarantors, Collateral Agent and Lenders agree that if this
Guaranty, or any such interests, liens or security interests securing this
Guaranty, would, but for the application of this sentence, constitute a
Fraudulent Conveyance, this Guaranty and each such lien and security interest
shall be valid and enforceable only to the maximum extent that would not cause
this Guaranty or such interest, lien or security interest to constitute a
Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have
been amended accordingly at all relevant times. For purposes hereof, "FRAUDULENT
CONVEYANCE" means a fraudulent conveyance under Section 548 of the Bankruptcy
Code or a fraudulent conveyance or fraudulent transfer under the provisions of
any applicable fraudulent conveyance or fraudulent transfer law or similar law
of any state, as in effect from time to time.

      3.    Costs and Expenses.

            Each Guarantor, jointly and severally, agrees to pay on demand, all
costs and expenses of every kind incurred by any Lender or Collateral Agent: (a)
in enforcing this

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Guaranty, (b) in collecting any of the Obligations from the Borrower or any
Guarantor, (c) in realizing upon or protecting any collateral for this Guaranty
or for payment of any of the Obligations, and (d) for any other purpose related
to the Obligations or this Guaranty. "COSTS AND EXPENSES" as used in the
preceding sentence shall include, without limitation, reasonable attorneys' fees
incurred by any Lender or Collateral Agent in retaining counsel for advice,
suit, appeal, any insolvency or other proceedings under the Bankruptcy Code or
otherwise, or for any purpose specified in the preceding sentence.

      4.    Nature of Guaranty: Continuing, Absolute and Unconditional.

            (a)   This Guaranty is and is intended to be a continuing guaranty
of payment of the Obligations, and not of collectibility, and is and is intended
to be independent of and in addition to any other guaranty, indorsement,
collateral or other agreement held by Lenders or Collateral Agent therefor or
with respect thereto, whether or not furnished by a Guarantor. None of Lenders
and Collateral Agent shall be required to prosecute collection, enforcement or
other remedies against Borrower, any other Guarantor or guarantor of the
Obligations or any other person or entity, or to enforce or resort to any of the
Collateral (as defined in the Security Agreement) or other rights or remedies
pertaining thereto, before calling on a Guarantor for payment. The obligations
of each Guarantor to repay the Obligations hereunder shall be unconditional.
Each Guarantor shall have no right of subrogation with respect to any payments
made by any Guarantor hereunder, and hereby waives any benefit of, and any right
to participate in, any security or collateral given to Lenders to secure payment
of the Obligations, and each Guarantor agrees that it will not take any action
to enforce any obligations of the Borrower to any Guarantor prior to the
Obligations being finally and irrevocably paid in full in cash, provided that,
in the event of the bankruptcy or insolvency of the Borrower, Collateral Agent,
for the benefit of itself and Lenders, and Lenders shall be entitled
notwithstanding the foregoing, to file in the name of any Guarantor or in its
own name a claim for any and all indebtedness owing to a Guarantor by the
Borrower (exclusive of this Guaranty), vote such claim and to apply the proceeds
of any such claim to the Obligations.

            (b)   For the further security of Lenders and without in any way
diminishing the liability of the Guarantors, following the occurrence of an
Event of Default or Triggering Event, all debts and liabilities, present or
future of the Borrower to the Guarantors and all monies received from the
Borrower or for its account by the Guarantors in respect thereof shall be
received in trust for Lenders and forthwith upon receipt shall be paid over to
Collateral Agent, for its benefit and in its capacity as collateral agent for
the benefit of Lenders, until all of the Obligations has been paid in full. This
assignment and postponement is independent of and severable from this Guaranty
and shall remain in full effect whether or not any Guarantor is liable for any
amount under this Guaranty.

            (c)   This Guaranty is absolute and unconditional and shall not be
changed or affected by any representation, oral agreement, act or thing
whatsoever, except as herein provided. This Guaranty is intended by the
Guarantors to be the final, complete and exclusive expression of the guaranty
agreement between the Guarantors and Lenders. No modification or amendment of
any provision of this Guaranty shall be effective against any party hereto
unless in writing and signed by a duly authorized officer of such party.

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            (d)   Each Guarantor hereby releases the Borrower from all, and
agrees not to assert or enforce (whether by or in a legal or equitable
proceeding or otherwise) any "claims" (as defined in Section 101(5) of the
Bankruptcy Code), whether arising under any law, ordinance, rule, regulation,
order, policy or other requirement of any domestic or foreign government or any
instrumentality or agency thereof, having jurisdiction over the conduct of its
business or assets or otherwise, to which the Guarantors are or would at any
time be entitled by virtue of its obligations hereunder, any payment made
pursuant hereto or the exercise by any Lender or Collateral Agent of its rights
with respect to the Collateral, including any such claims to which such
Guarantors may be entitled as a result of any right of subrogation, exoneration
or reimbursement.

      5.    Certain Rights and Obligations.

            (a)   Each Guarantor acknowledges and agrees that Lenders and
Collateral Agent, for its benefit and as collateral agent for the benefit of
Lenders, may, without notice, demand or any reservation of rights against such
Guarantor and without affecting such Guarantor's obligations hereunder, from
time to time:

                  (i)   renew, extend, increase, accelerate or otherwise change
the time for payment of, the terms of or the interest on the Obligations or any
part thereof or grant other indulgences to the Borrower or others;

                  (ii)  accept from any person or entity and hold collateral for
the payment of the Obligations or any part thereof, and modify, exchange,
enforce or refrain from enforcing, or release, compromise, settle, waive,
subordinate or surrender, with or without consideration, such collateral or any
part thereof;

                  (iii) accept and hold any indorsement or guaranty of payment
of the Obligations or any part thereof, and discharge, release or substitute any
such obligation of any such indorser or guarantor, or discharge, release or
compromise any Guarantor, or any other person or entity who has given any
security interest in any collateral as security for the payment of the
Obligations or any part thereof, or any other person or entity in any way
obligated to pay the Obligations or any part thereof, and enforce or refrain
from enforcing, or compromise or modify, the terms of any obligation of any such
indorser, guarantor, or person or entity;

                  (iv)  dispose of any and all collateral securing the
Obligations in any manner as the Collateral Agent, in its sole discretion, may
deem appropriate, and direct the order or manner of such disposition and the
enforcement of any and all endorsements and guaranties relating to the
Obligations or any part thereof as Collateral Agent in its sole discretion may
determine;

                  (v)   determine the manner, amount and time of application of
payments and credits, if any, to be made on all or any part of any component or
components of the Obligations (whether principal, interest, fees, costs, and
expenses, or otherwise), including, without limitation, the application of
payments received from any source to the payment of indebtedness other than the
Obligations even though Lenders might lawfully have elected to apply such
payments to the Obligations to amounts which are not covered by this Guaranty;
and

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                  (vi)  take advantage or refrain from taking advantage of any
security or accept or make or refrain from accepting or making any compositions
or arrangements when and in such manner as Collateral Agent, in its sole
discretion, may deem appropriate;

and generally do or refrain from doing any act or thing which might otherwise,
at law or in equity, release the liability of such Guarantor as a guarantor or
surety in whole or in part, and in no case shall Lenders or Collateral Agent be
responsible or shall any Guarantor be released either in whole or in part for
any act or omission in connection with Lenders or Collateral Agent having sold
any security at less than its value.

            (b)   Following the occurrence of an Event of Default or Triggering
Event, and upon demand by Collateral Agent, each Guarantor, jointly and
severally, hereby agrees to pay the Obligations to the extent hereinafter
provided:

                  (i)   without deduction by reason of any setoff, defense
(other than payment) or counterclaim of the Borrower or any other Guarantor;

                  (ii)  without requiring presentment, protest or notice of
nonpayment or notice of default to any Guarantor, to the Borrower or to any
other person or entity;

                  (iii) without demand for payment or proof of such demand or
filing of claims with a court in the event of receivership, bankruptcy or
reorganization of the Borrower or any other Guarantor;

                  (iv)  without requiring Lenders or Collateral Agent to resort
first to the Borrower (this being a guaranty of payment and not of collection),
to any other Guarantor, or to any other guaranty or any collateral which Lenders
or Collateral Agent may hold;

                  (v)   without requiring notice of acceptance hereof or assent
hereto by any Lender or Collateral Agent; and

                  (vi)  without requiring notice that any of the Obligations has
been incurred, extended or continued or of the reliance by any Lender or
Collateral Agent upon this Guaranty;

all of which each Guarantor hereby waives.

            (c)   Each Guarantor's obligation hereunder shall not be affected by
any of the following, all of which such Guarantor hereby waives:

                  (i)   any failure to perfect or continue the perfection of any
security interest in or other lien on any collateral securing payment of any of
the Obligations or any Guarantor's obligation hereunder;

                  (ii)  the invalidity, unenforceability, propriety of manner of
enforcement of, or loss or change in priority of any document or any such
security interest or other lien or guaranty of the Obligations;

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                  (iii) any failure to protect, preserve or insure any such
collateral;

                  (iv)  failure of a Guarantor to receive notice of any intended
disposition of such collateral;

                  (v)   any defense arising by reason of the cessation from any
cause whatsoever of liability of the Borrower including, without limitation, any
failure, negligence or omission by any Lender or Collateral Agent in enforcing
its claims against the Borrower;

                  (vi)  any release, settlement or compromise of any obligation
of the Borrower or any other Guarantor;

                  (vii) the invalidity or unenforceability of any of the
Obligations;

                  (viii) any change of ownership of the Borrower or any other
Guarantor or the insolvency, bankruptcy or any other change in the legal status
of the Borrower or any other Guarantor;

                  (ix)  any change in, or the imposition of, any law, decree,
regulation or other governmental act which does or might impair, delay or in any
way affect the validity, enforceability or the payment when due of the
Obligations;

                  (x)   the existence of any claim, setoff or other rights which
the Guarantor, Borrower, any other Guarantor or guarantor of the Obligations or
any other person or entity may have at any time against any Lender, Collateral
Agent or the Borrower in connection herewith or any unrelated transaction;

                  (xi)  any Lender's or Collateral Agent's election in any case
instituted under chapter 11 of the Bankruptcy Code, of the application of
section 1111(b)(2) of the Bankruptcy Code;

                  (xii) any use of cash collateral, or grant of a security
interest by the Borrower, as debtor in possession, under sections 363 or 364 of
the Bankruptcy Code;

                  (xiii) the disallowance of all or any portion of any of any
Lender's or Collateral Agent's claims for repayment of the Obligations under
sections 502 or 506 of the Bankruptcy Code; or

                  (xiv) any other fact or circumstance which might otherwise
constitute grounds at law or equity for the discharge or release of a Guarantor
from its obligations hereunder, all whether or not such Guarantor shall have had
notice or knowledge of any act or omission referred to in the foregoing clauses
(i) through (xiii) of this subsection 5(c).

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      6.    Representations and Warranties.

            Each Guarantor further represents and warrants to Lenders and
Collateral Agent that: (a) such Guarantor is a corporation or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, as applicable, and has full
power, authority and legal right to own its property and assets and to transact
the business in which it is engaged; (b) such Guarantor has full power,
authority and legal right to execute and deliver, and to perform its obligations
under, this Guaranty, and has taken all necessary action to authorize the
guarantee hereunder on the terms and conditions of this Guaranty and to
authorize the execution, delivery and performance of this Guaranty; (c) this
Guaranty has been duly executed and delivered by such Guarantor and constitutes
a legal, valid and binding obligation of such Guarantor enforceable against such
Guarantor in accordance with its terms, except to the extent that such
enforceability is subject to applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally, or the availability of
equitable remedies, which are subject to the discretion of the court before
which an action may be brought; and (d) the execution, delivery and performance
by each Guarantor of this Guaranty does not require any action by or in respect
of, or filing with, any governmental body, agency or official and do not
violate, conflict with or cause a breach or a default under any provision of
applicable law or regulation or of the organizational documents of any Guarantor
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon it.

      7.    Negative Covenants.

            Each Guarantor covenants with Lenders and Collateral Agent that such
Guarantor shall not grant any security interest in or permit any lien, claim or
encumbrance upon any of its assets in favor of any person or entity other than
liens and security interests in favor of Lenders and Collateral Agent and
Permitted Liens (as defined in the Security Agreement).

      8.    Termination.

            This Guaranty shall remain in full force and effect until all of the
Obligations shall be finally and irrevocably paid in full in cash. Thereafter,
but subject to the following, Collateral Agent, on its behalf and as agent for
Lenders, shall take such action and execute such documents as the Guarantors may
request (and at the Guarantors' cost and expense) in order to evidence the
termination of this Guaranty. Payment of all of the Obligations from time to
time shall not operate as a discontinuance of this Guaranty. Each Guarantor
further agrees that, to the extent that the Borrower makes a payment or payments
to Lenders or Collateral Agent on the Obligations, or Lenders or Collateral
Agent receive any proceeds of collateral securing the Obligations or any other
payments with respect to the Obligations, which payment or receipt of proceeds
or any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be returned or repaid to the Borrower,
its estate, trustee, receiver, debtor in possession or any other person or
entity, including, without limitation, the Guarantors, under any insolvency or
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such payment, return or repayment, the obligation or part thereof
which has been paid, reduced or satisfied by such amount shall be reinstated and
continued in full force and effect as of the date when such initial payment,
reduction or satisfaction occurred, and this

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Guaranty shall continue in full force notwithstanding any contrary action which
may have been taken by any Lender or Collateral Agent in reliance upon such
payment, and any such contrary action so taken shall be without prejudice to any
Lender's or Collateral Agent's rights under this Guaranty and shall be deemed to
have been conditioned upon such payment having become final and irrevocable.

      9.    Guaranty of Performance.

            Each Guarantor also guaranties the full, prompt and unconditional
performance of all obligations and agreements of every kind owed or hereafter to
be owed by the Borrower to Lenders and Collateral Agent under the Purchase
Agreement, Registration Rights Agreement, the Warrants, Security Documents and
the Notes. Every provision for the benefit of Lenders and Collateral Agent
contained in this Guaranty shall apply to the guaranty of performance given in
this paragraph.

      10.   Assumption of Liens and Obligations.

            To the extent that a Guarantor has received or shall hereafter
receive distributions or transfers from the Borrower of property or cash that
are subject, at the time of such contribution, to liens and security interests
in favor of Lenders in accordance with the Notes and Security Agreement, such
Guarantor hereby expressly agrees that (i) it shall hold such assets subject to
such liens and security interests, and (ii) it shall be liable for the payment
of the Obligations secured thereby. Each Guarantor's obligations under this
Section 10 shall be in addition to its obligations as set forth in other
sections of this Guaranty and not in substitution therefor or in lieu thereof.

      11.   Miscellaneous.

            (a)   The terms "Borrower" and the "Guarantor" as used in this
Guaranty shall include: (i) any successor individual or individuals,
association, partnership, limited liability company or corporation to which all
or substantially all of the business or assets of the Borrower or such Guarantor
shall have been transferred and (ii) any other association, partnership, limited
liability company, corporation or entity into or with which the Borrower or such
Guarantor shall have been merged, consolidated, reorganized, or absorbed.

            (b)   Without limiting any other right of any Lender or Collateral
Agent, whenever any Lender or Collateral Agent has the right to declare any of
the Obligations to be immediately due and payable (whether or not it has been so
declared), Collateral Agent, on its behalf and in its capacity as agent for the
benefit of Lenders, at its sole election without notice to the undersigned may
appropriate and set off against the Obligations:

                  (i)   any and all indebtedness or other moneys due or to
become due to any Guarantor by any Lender or Collateral Agent in any capacity;
and

                  (ii)  any credits or other property belonging to any Guarantor
(including all account balances, whether provisional or final and whether or not
collected or available) at any time held by or coming into the possession of any
Lender or Collateral Agent, or any affiliate of any Lender or Collateral Agent,
whether for deposit or otherwise;

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whether or not the Obligations or the obligation to pay such moneys owed by any
Lender or Collateral Agent is then due, and the applicable Lender or Collateral
Agent shall be deemed to have exercised such right of set off immediately at the
time of such election even though any charge therefor is made or entered on such
Lender's or Collateral Agent's records subsequent thereto. Collateral Agent
agrees to notify such Guarantor in a reasonably practicable time of any such
set-off; however, failure to so notify such Guarantor shall not affect the
validity of any set-off.

            (c)   Each Guarantor's obligation hereunder is to pay the
Obligations in full in cash when due according to the Notes to the extent
provided herein, and shall not be affected by any stay or extension of time for
payment by the Borrower or any other Guarantor resulting from any proceeding
under the Bankruptcy Code or any similar law.

            (d)   No course of dealing between the Borrower or any Guarantor and
Lenders or Collateral Agent and no act, delay or omission by Lenders or
Collateral Agent in exercising any right or remedy hereunder or with respect to
any of the Obligations shall operate as a waiver thereof or of any other right
or remedy, and no single or partial exercise thereof shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. Any
Lender or Collateral Agent may remedy any default by the Borrower under any
agreement with the Borrower or with respect to any of the Obligations in any
reasonable manner without waiving the default remedied and without waiving any
other prior or subsequent default by the Borrower. All rights and remedies of
Lenders and Collateral Agent hereunder are cumulative.

            (e)   This Guaranty shall inure to the benefit of each Lender and
Collateral Agent, and each such entity's successors and assigns.

            (f)   Collateral Agent may assign its rights hereunder without the
consent of Guarantors, in which event such assignee shall be deemed to be
Collateral Agent hereunder with respect to such assigned rights.

            (g)   Captions of the sections of this Guaranty are solely for the
convenience of the parties hereto, and are not an aid in the interpretation of
this Guaranty and do not constitute part of the agreement of the parties set
forth herein.

            (h)   If any provision of this Guaranty is unenforceable in whole or
in part for any reason, the remaining provisions shall continue to be effective.

            (i)   Each Guarantor hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each Guarantor hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any

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right to serve process in any manner permitted by law. The Parties acknowledge
that each of the Funds has executed each of the Transaction Documents to be
executed by it in the State of New York and will have made the payment of the
Purchase Price from its bank account located in the State of New York. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

            (j)   Notices. All notices, approvals, requests, demands and other
communications hereunder shall be delivered or made in the manner set forth in,
and shall be effective in accordance with the terms of, the Purchase Agreement;
provided, that any communication shall be effective as to any Guarantor if made
or sent to the Borrower in accordance with the foregoing.

      12.   WAIVERS.

            (a)   EACH GUARANTOR WAIVES THE BENEFIT OF ALL VALUATION, APPRAISAL
AND EXEMPTION LAWS.

            (b)   UPON THE OCCURRENCE OF A DEFAULT OR EVENT OF DEFAULT OR
TRIGGERING EVENT, EACH GUARANTOR HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING
OF ANY KIND PRIOR TO THE EXERCISE BY ANY LENDER OR COLLATERAL AGENT, ON ITS
BEHALF AND IN ITS CAPACITY AS AGENT FOR THE BENEFIT OF LENDERS, OF ITS RIGHTS TO
REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. EACH GUARANTOR ACKNOWLEDGES
THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS
TRANSACTION AND THIS GUARANTY.

            (c)   EACH GUARANTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
GUARANTY, OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY LENDER OR COLLATERAL AGENT. EACH
GUARANTOR AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH GUARANTOR
FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY
PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.

      13.   Counterparts; Headings. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall

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become effective when counterparts have been signed by each party and delivered
to each other party; provided that a facsimile signature shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile signature. The
headings in this Agreement are for convenience of reference only and shall not
alter or otherwise affect the meaning hereof.

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<PAGE>

            IN WITNESS WHEREOF, Guarantors have executed this Guaranty as of the
date first written above.

                                        DOLPHIN ENERGY CORPORATION

                                        By: /s/Richard E. Kurtenbach
                                            ------------------------------------
                                        Name:  Richard E. Kurtenbach
                                        Title: Secretary

                                        PANNONIAN INTERNATIONAL, LTD.

                                        By: /s/Richard E. Kurtenbach
                                            ------------------------------------
                                        Name:  Richard E. Kurtenbach
                                        Title: Secretary

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<PAGE>

                                                                       EXHIBIT A

                                 FORM OF JOINDER
                         JOINDER TO SUBSIDIARY GUARANTY

      The undersigned, _______ a _______, hereby joins in the execution of that
certain Guaranty dated as of _______, 2004 (the "GUARANTY"), by Dolphin Energy
Corporation, a Nevada corporation, Pannonian International, Ltd., a Colorado
corporation, and each other person or entity that becomes a Guarantor thereunder
after the date and pursuant to the terms thereof, to and in favor of Promethean
Asset Management L.L.C., as collateral agent By executing this Joinder, the
undersigned hereby agrees that it is a Guarantor thereunder with the same force
and effect as if originally named therein as a Guarantor. The undersigned agrees
to be bound by all of the terms and provisions of the Guaranty and represents
and warrants that the representations and warranties set forth in Section 6 of
the Guaranty are, with respect to the undersigned, true and correct as of the
date hereof. Each reference to a Guarantor in the Guaranty shall be deemed to
include the undersigned.

      In Witness Whereof, the undersigned has executed this Joinder this ___ day
of _________, 200_.

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