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                                                                  Exhibit 10.136
                                December 21, 2000



Mr. Richard Staedtler
CEC, Inc.
One Radnor Corporation Center
100 Matsonford Road, Suite 250
Radnor, PA 19087

     Re: Second Amendment - Promissory Note ("Note") of Penn Octane
         Corporation (the "Company") Currently Held By You With a Due Date
         of December 15, 2000 and Related Agreements and Instruments (Revises
         Second Amendment dated December 19, 2000)

Dear Mr. Staedtler:

         Reference is made to the Note currently held by you and to all of the
various agreements and instruments, as amended, heretofore entered into in
connection therewith (collectively, the "Original Documents"), including,
without limitation, (i) the Purchase Agreement between you and the Company (the
"Purchase Agreement"); (ii) the Note; (iii) the Common Stock Purchase Warrant
(the "Warrants") issued to you by the Company that is exercisable for the
purchase of shares (the "Warrant Shares") of the Common Stock, $.01 par value
(the "Common Stock"), of the Company; (iv) the Registration Rights Agreement
(the "RR Agreement") between you and the Company covering the Warrant Shares;
and (v) the letter agreement between you and the Company amending certain of the
foregoing (the "First Amendment"). Contemporaneously with your acquisition of
the Note and Warrants, various other investors (the "Other Investors") also
acquired Promissory Notes (the "Other Notes") and Common Stock Purchase Warrants
(the "Other Warrants") exercisable for the purchase of shares of Common Stock;
and, in connection therewith, have entered into and/or received agreements and
instruments that are identical or similar to the Original Documents
(collectively, the "Other Original Documents"). Certain of the Other Investors
(but not all of such Other Investors) acquired their respective Other Notes and
Other Warrants through PMG Capital Corp. as placement agent for the Company
("PMG"). PMG or an affiliate is acting in a similar capacity in connection with
the transactions contemplated by this letter agreement, for which the Company
has agreed to pay PMG the amounts described in Schedule I hereto.

         For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and you hereby agree that the
Original Documents shall be, and they hereby are, amended, effective from and
after December 15, 2000, to the full extent necessary to provide for the
following:


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         1. Purchase Agreement. The Purchase Agreement, as heretofore amended by
the First Amendment, is hereby further amended to the full extent necessary to:

                  (a) Also make the Company's and your representations,
warranties and agreements contained in Sections 4 (other than Section 4(d)
thereof), 5, 8, 9, 10 (subject to item 1(b) below), 11, 12, 13, 14 and 15 of the
Purchase Agreement applicable to the transactions contemplated hereby and to the
securities and instruments you are acquiring or amending as contemplated hereby;
provided, however, that for purposes of this letter agreement, the references in
such sections to:

                           (i) this "Agreement" shall mean this letter
agreement;

                           (ii) the "Warrants" shall mean the Warrants, as
amended hereby, the New Warrants and the Additional New Warrants;

                           (iii) the "Warrant Shares" shall mean all shares of
the Company's Common Stock issued or issuable on exercise of the Warrants, the
New Warrants and the Additional New Warrants; and

                           (iv) the "Purchaser Securities" shall mean the Note
and the Warrants, each as amended hereby, and the New Warrants and the
Additional New Warrants.

                  (b) Also exclude from the definition of "Financing" contained
in Clause (i)(a) of Recital A to and Section 10 of the Agreement (as heretofore
amended by the First Amendment): (i) any future transactions engaged in by the
Company or its subsidiaries the net proceeds of which are used to acquire the
remaining 50% interest in the leases described in the second paragraph of
Section 4.3 of the original Note that is not presently owned by the Company or
its subsidiaries (and to pay expenses incurred in connection therewith); (ii)
the restructuring of up to $5,654,000 in principal amount of the Note and Other
Notes (and any borrowings or other financings the proceeds of which are used for
the purposes contemplated by item 6 hereof) (the "Restructured Debt"), and (iii)
any future transactions engaged in by the Company or its subsidiaries to provide
up to $5,000,000 in additional working capital for the Company and its
subsidiaries (the "Additional Working Capital Debt").

         2. Note. The Note, as heretofore amended by the First Amendment, is
hereby further amended to the full extent necessary to:

                  (a) Delete the reference in Section 1(i) thereof to "December
15, 2000" and insert in lieu thereof the date "December 15, 2001".

                  (b) Provide for payment by the Company, on December 15, 2000,
of accrued and unpaid interest on the Note through December 15, 2000 at the
current interest


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rate of 9% per annum; and for an increase in such rate to interest at the rate
of 13.5% per annum commencing on December 16, 2000 until the Note has been paid
in full, with payments of accrued and unpaid interest due quarterly on March 15,
2001, June 15, 2001, September 15, 2001 and December 15, 2001.

                  (c) Provide for an increase in the interest rate contemplated
by item 2(b) hereof from 13.5% per annum to 17.5% per annum during the period
(i) from and after March 31, 2001 during which the Registration Statement
(hereinafter defined) has not been declared effective by the SEC (hereinafter
defined); provided, however, that the March 31, 2001 date shall instead be April
30, 2001 if the Company is at the time ineligible to use SEC Form S-3 for
purposes of such Registration Statement, and (ii) that the Company is obligated
to keep the Registration Statement effective pursuant to the RR Agreement but
does not do so.

                  (d) Incorporate and make applicable the provisions
contemplated by item 1(b) above, it being understood and agreed that the persons
or entities providing the funds referred to in item 1(b) hereof shall also be
deemed to constitute "Additional Fund Providers" for all purposes hereof.

                  (e) Amend Section 2.3 of the Note to read as follows:

                  The Company will grant to the holders of the Note, the Other
Notes, the Restructured Debt, if any, and the Additional Working Capital Debt,
if any, the security interest described in Schedule II attached hereto. Pending
the perfection of such security interest as described below, Jerome B. Richter
shall execute a guaranty of the Company's obligations under the Note, the Other
Notes, the Restructured Debt and the Additional Working Capital Debt
(collectively the "Secured Obligations"), which guaranty will be with recourse
only to a pledge of 2,000,000 shares of the Company's Common Stock held by Mr.
Richter and to be pledged by Mr. Richter to secure the aforementioned guaranty.
1,000,000 shares shall be released from the lien of such pledge upon the
perfection of the security interest of the holders of the Secured Obligations in
the American Assets (as defined in Schedule II). If the entire security interest
in Schedule II is not perfected on or before March 15, 2001, the interest rate
on the Note and the Other Notes, as amended by Section 2(b) hereof, shall be
further increased by 3% per annum for the period from and including March 15,
2001 though and including the date on which such security interest is perfected.
For purposes of this Section 2(e), a security interest will be deemed perfected
when either (a) PMG, as collateral agent, acting reasonably, is satisfied in its
discretion and based on the advice of its counsel that such security interest
has been validly perfected in accordance with all applicable laws with the
priority specified in Schedule II attached hereto, or (b) the Company delivers
to PMG, as collateral agent, a legal opinion, in form and substance satisfactory
to PMG and upon which PMG and each holder of any Secured Obligations shall be
permitted to rely, that the security interest has been validly perfected in
accordance with all applicable laws with the priority specified in Schedule II
attached hereto.



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                  (f) Amend Section 6 of the Note to read as follows:

                  Certain Restrictive Covenants. For so long as this Note is
outstanding, the Borrower covenants and agrees that the Borrower will not pay or
issue (i) cash management fees, cash bonuses or warrants or options to purchase
common stock to its officers or directors other than cash management fees, cash
bonuses, warrants or options which are paid in accordance with past practices of
the Borrower or are provided for in existing employment or other agreements or
are customary for other companies in the Borrower's industry or are customary
for persons having responsibilities similar to those in respect of which such
cash management fees, cash bonuses, warrants and options are paid or issued; or
(ii) cash dividends on its issued and outstanding common stock. The answer to
the question of whether a cash management fee or cash bonus is covered by the
restrictions contained in Section 6 (i) of this Note shall be determined solely
by the Borrower, acting in good faith.

         3. Warrants. The Warrants are hereby amended to the full extent
necessary to (a) extend the current expiration date from December 15, 2002 to
December 15, 2003; (b) reduce the current per Warrant Share exercise price from
$4.00 to $3.00 (subject to further reduction on June 15, 2001 if the Note is not
paid in full on or before June 15, 2001, to a price determined by assuming a per
Warrant Share exercise price of $2.50 on the date hereof and further adjusting
such price by any actual dilution/anti-dilution adjustments required to be made
after the date hereof pursuant to the terms of the Warrants through and
including June 15, 2001), in each case, subject to application of the
dilution/anti-dilution provisions of the Warrants; and (d) provide that the
Company's repurchase rights contained in Section 9 of the Warrants may not be
exercised prior to the first anniversary of payment in full of the Note. In
addition, the Warrants are hereby amended to allow the Holder to exercise the
Warrant through a cancellation of the Note up to the Aggregate Purchase Price,
in lieu of a cash exercise.

         4. New Warrants. The Company will issue to you, on or before January
15, 2001, warrants dated as of the date hereof to purchase 125 shares of Common
Stock for each $1,000 of principal amount of the Note (the "New Warrants"),
subject to the application of dilution/anti-dilution provisions thereof. The New
Warrants will have an initial exercise price of $3.00 per share (subject to
further reduction on June 15, 2001 if the Note is not paid in full on or before
June 15, 2001) to a price determined by assuming a per Warrant Share exercise
price of $2.50 on the date hereof and further adjusting such price by any actual
dilution adjustments required to be made after the date hereof pursuant to the
terms of the Warrants through and including June 15, 2001. All of the New
Warrants to the extent exercisable will be exercisable until December 15, 2003.
The Company will have the same repurchase rights in respect of the New Warrants
as it has in respect of the Warrants. The forms of the New Warrants will be
identical to the form Warrants except to the extent reflected above in this item
4 or otherwise necessary to reflect the transactions contemplated by this letter
agreement.



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         5. RR Agreement. The RR Agreement is hereby amended to the full extent
necessary to provide for the Company, at its expense, being obligated to file a
registration statement (the "Registration Statement") pursuant thereto under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
("SEC") covering the resale by you of the shares of Common Stock covered by the
New Warrants (the "New Warrant Shares"). Such New Warrant Shares and similar
securities acquired by the Other Investors or others in connection with
restructuring the Other Notes shall be deemed to be "Registrable Securities"
thereunder; and, thus, holders thereof shall also be entitled to participate in
any such registration. The Company shall be obligated to file such Registration
Statement with the SEC on or before February 28, 2001; provided, however, that
such date shall instead be March 31, 2001 if the Company is, at the time,
ineligible to use SEC Form S-3 for purposes of such Registration Statement.

         6. Company Representation. In addition to the representations and
warranties of the Company set forth in Section 4 of the Purchase Agreement and
incorporated herein pursuant to Section 1(a) of this Agreement, and subject to
the truth and accuracy of the Purchaser's representation set forth in Section 5
of the Purchase Agreement as incorporated into this Agreement pursuant to such
Section 1(a) and to the truth and accuracy of the representation of PMG in
Schedule I attached hereto, the offer, sale and issuance of the Purchaser
Securities as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended.

         7. Declining Noteholders. Notwithstanding anything to the contrary
contained in your Original Documents, you hereby agree that, to the extent that
any Other Investors do not agree to a counterpart of this letter agreement
(collectively, the "Declining Noteholders"), the Company shall be entitled to
repay such Declining Noteholders all amounts owing by the Company to such
Declining Noteholders under their respective Other Original Documents without,
by virtue thereof, in any way breaching or otherwise being in default of any of
your Original Documents. Any such amounts paid, shall be excluded from the
definition of "Financing" provided for in your Purchase Agreement and Note.

         8. PMG Director Nominees.


                  (a) So long as the Note or any Other Notes remain unpaid, PMG,
on behalf of you and the Other Investors who are not Declining Noteholders,
shall be allowed to nominate one director to the Company's board (currently
there are seven board members, including Messrs. Richter, Bracamontes, Lockett
and Bothwell); and Messrs. Richter, Bracamontes, Lockett and Bothwell shall vote
their shares in support of the election of such PMG nominee and, if applicable,
take such actions as directors to cause such nominee to be elected as a
director. If PMG does not elect to designate a nominee for election as a
director or if PMG's nominee is not then serving as a director, PMG shall
nonetheless have the right to designate a non-voting observer to attend each
board meeting. PMG's board representative or non-voting observer shall be
entitled to all notices, communications and information made available to the
other members of the Company's board. PMG's board representative shall receive
the same compensation, including director options, as any


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outside member of the Board. In addition, the Company shall reimburse all
reasonable out of pocket expenses for PMG's board representative or non-voting
observer to attend such board meetings. Board meetings shall be held not less
than quarterly; provided, however, that meetings by telephone or unanimous
written consents may be used in lieu of meetings at which the directors are
physically present. In the event of an Event of Default, as defined in Section
2.1 of the Note, PMG, on behalf of you and the Other Investors who are not
Declining Noteholders, shall be entitled to nominate an additional two outside
directors, and Messrs. Richter, Bracamontes, Lockett and Bothwell shall vote
their shares or, if applicable, take such action as directors to cause such
additional nominees to be elected as directors.

                  (b) PMG shall cause any non-voting observer to keep
confidential any notices, communications and information such observer receives
pursuant to Section 8(a) hereof that is nonpublic, confidential or proprietary
in nature with respect to the Company; provided, however, that the foregoing
shall be inoperative as to any such information which (i) is or becomes
generally available to the public other than as a result of a disclosure by such
observer or PMG; (ii) becomes available to PMG or such observer on a non-
confidential basis from a third-party that is not, to the knowledge of PMG or
such observer, subject to a similar confidentiality undertaking; or (iii) was
known to PMG or the observer on a nonconfidential basis prior to its disclosure
by the Company.

                  (c) The Purchaser agrees that, for purposes of this Section 8,
the Note and each Other Note shall be considered paid when the Company furnishes
to PMG evidence reasonably satisfactory to PMG that it has forwarded payment to
the holders of such Note and Other Notes pursuant to Section 1 thereof;
provided, however, that such Note or Other Note shall no longer be deemed to
have been paid in the event that any such payment forwarded by check is not
honored when presented for payment. For purposes of this Section 8(c), the
following shall be considered reasonably satisfactory evidence of payment: (i) a
copy of a certified check and evidence that such check has been sent by
registered mail, return receipt requested to the holder's address set forth in
Section 14 of such holder's Purchase Agreement or such other address as such
holder may have designated to the Company pursuant to Section 1 of such holder's
Note or Other Note or (ii) a copy of wire transfer instructions from a holder
together with confirmation of receipt of any such wire transfer duly made
pursuant to such instructions.

                  (d) The Purchaser acknowledges that, if requested by the
Company, upon payment in full of the Note and all Other Notes within the meaning
of this Section 8, every PMG board representative shall resign as a director of
the Company.

         9. Designation of Collateral Agent. The undersigned holder of the Note
agrees that PMG will serve as collateral agent for all holders of Secured
Obligations. The terms of this agency appointment will be contained in the
agreements evidencing the security interests (including the stock pledge)
referenced in Section 2(e) hereof.



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         Please indicate your agreement with the above by signing below and
faxing an executed copy to Ian Bothwell at (562) 929-1921.


Very truly yours,

Penn Octane Corporation


By:   /s/ Ian Bothwell
      ------------------------------------------
Its:  Vice President and Chief Financial Officer


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         The undersigned holder of the Note and other Original Documents
referred to in the within letter agreement hereby acknowledges his/her/its
agreement to all of the provisions of such letter agreement. The undersigned
also agrees to keep the contents of this letter agreement and any documents or
discussions regarding the same strictly confidential and not to use the same for
any purpose pending public disclosure thereof by the Company;* provided,
however, that the undersigned may consult with his, her or its agents and
advisors with respect to the transactions contemplated hereby and, in connection
therewith, disclose the terms and contents of this letter agreement and any
other documents relating to the subject matter thereof or hereof.

Mr. Richard Staedtler
CEC, Inc.


By: /s/ Richard E Staedtler
    --------------------------------------------

Its: CFO
     -------------------------------------------

Promissory Note Amount: $500,000.00
                        ------------

Name and Telephone Number of Holder:

Castle Energy Corporation

610-995-9400



*Except as required by SEC


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                                   Schedule I


         The Company has paid to PMG a cash retainer in the amount of $25,000.
The Company will pay to PMG a cash fee equal to 3% of the amount of the Note and
the Other Notes the holders of which execute the letter agreement in the form to
which this Schedule I is attached (other than certain such holders affiliated
with the Company), against which the $25,000 retainer will be credited. In the
event that PMG sells any additional notes on terms substantially similar to the
terms of the Note, as amended by the letter agreement to which this Schedule I
is attached, including without limitation new notes the proceeds of which are
used to repay any Declining Noteholders, the Company will pay PMG a placement
fee of 7% of the proceeds of such sale. The Company will also reimburse PMG for
all reasonable out-of-pocket expenses, including reasonable attorneys fees.

         In consideration of the Company's agreement to pay the foregoing to
PMG, PMG hereby represents to the Company that the transactions contemplated by
the letter agreement to which this Schedule I is attached, and all of PMG's
filings in connection therewith, and the consideration to be received by PMG as
contemplated by this Schedule I, in each case comply with all applicable federal
and state securities laws and the National Association of Securities Dealers,
Inc. rules in connection with such transactions, and PMG further represents and
covenants that it, on behalf of the Company, has made and will continue to
timely make all filings required to be made by the Company in order to make the
transactions contemplated by this letter agreement exempt from the registration
or qualification requirements of all applicable federal and state securities
laws, and that such filings comply (or will comply) with the applicable
requirements of all such laws.

         PMG has executed this Schedule I solely for purposes of the provisions
of the second paragraph hereof as of this 19th day of December, 2000.

PMG Capital Corp.

By: /s/ Richard Hansen
    --------------------------------------------

         Name:  Richard Hansen
                --------------------------------

         Title: President
                --------------------------------



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                                   Schedule II

                         Security Interest to be Granted
                         -------------------------------

1. Security interest is all inventory and accounts receivable of the Company,
subordinate only to the prior security interest thereon held by RZB Finance
L.L.C. and Bayerische Hypo-und Vereinsbank Aktiengeselischaft (collectively,
"RZB").

2. Security interest in all other assets of the Company located in the United
States of America, including without limitation all of the Company's right,
title and interest to: a terminal facility in Brownsville, Texas (including
eleven storage and mixing tanks, four mixed product truck loading racks, one
specification product propane loading rack, two racks capable of receiving LPG
delivered by truck, three railcar loading racks which permit loading and
unloading of LPG by railcar and the rights under a lease for the 31(+/-) acres
of real estate upon which such facility is located) (collectively the
"Brownsville Terminal"); a 132-mile pipeline connecting Exxon Company, USA's
King Ranch Gas Plant in Kleberg County, Texas and Duke Energy's La Gloria Gas
Plant in Jim Wells County, Texas to the Brownsville Terminal; 21 million gallons
of storage capacity in Markham, Texas; and two parallel pipelines running from
the Brownsville Terminal to the United States/Mexico border (the "US Pipelines")
and connecting to the Mexican Pipelines (as hereinafter defined). The foregoing
security interest shall be senior to all other liens on such assets (other than
liens for taxes not yet due and, in the case of the US Pipelines, for a
contractor's lien in an amount not to exceed $1 million), and RZB shall execute
an appropriate subordination and intercreditor agreement in form and substance
reasonably satisfactory to PMG as collateral agent.

3. A security interest in all of the Company's right, title and interest to: a
terminal facility in Matamoros, Mexico (including three storage tanks, ten
specification product truck loading racks for LPG product and approximately
35(+/-) acres upon which such facility is located (the "Matamoros Terminal") and
two parallel pipelines running from the Matamoros Terminal to the Mexico/United
States border (the "Mexican Pipelines") and connecting to the US Pipelines. The
foregoing security interest shall be senior to all other liens on such assets
(other than liens for taxes not yet due), and RZB shall execute an appropriate
subordination and intercreditor agreement in form and substance reasonably
satisfactory o PMG as collateral agent.

4. For purposes of this Schedule II and the letter agreement to which it is
attached, the assets described in the Items 1-2 hereof are referred to as the
"American Assets" and the assets described in Item 3 hereof are referred to as
the "Mexican Assets."


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                                     JOINDER


         The undersigned hereby join in this letter agreement as of this 19th
day of December, 2000 for the purposes of agreeing to their respective
obligations under the provisions of Section 8 hereof and Jerome B. Richter
further joins in this letter agreement for the purpose of agreeing to his
obligations under the provisions of Section 2(e) hereof.

                                               /s/ Jerome B. Richter
                                               ---------------------------------
                                               Jerome B. Richter

                                               /s/ Jorge R. Bracamontes
                                               ---------------------------------
                                               Jorge R. Bracamontes

                                               /s/ Jerry L. Lockett
                                               ---------------------------------
                                               Jerry L. Lockett

                                               /s/ Ian T. Bothwell
                                               ---------------------------------
                                               Ian T. Bothwell





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