WHEN
      RECORDED RETURN TO:

    Katten
      Muchin Rosenman LLP

    525
      W.
      Monroe Street

    Chicago,
      Illinois 60661

    Attn: Mark
      D.
      Wood Esq.

     

    MORTGAGE,
      DEED OF TRUST, ASSIGNMENT OF

    PRODUCTION,
      SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT

    


    FROM

    


    SONTERRA
      RESOURCES, INC.,
      a
      Delaware corporation

    


    TO

    


    WALTER
      H.
      WALNE, III,
      AS
      TRUSTEE

    


    FOR
      THE BENEFIT OF

    


    SUMMERLINE
      ASSET MANAGEMENT, LLC

    


    NOTICE
      OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE
      ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR
      RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S
      LICENSE NUMBER.

     

    A
      CARBON, PHOTOGRAPHIC, FACSIMILE OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
      SUFFICIENT AS A FINANCING STATEMENT.

     

    A
      POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER
      OF
      SALE MAY ALLOW THE TRUSTEE OR THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY
      AND
      SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
      MORTGAGOR UNDER THIS INSTRUMENT.

     

    THIS
      INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

     

    THIS
      INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES. 

     

    THIS
      INSTRUMENT COVERS PROCEEDS OF MORTGAGED PROPERTY.

     

    THIS
      INSTRUMENT COVERS AS-EXTRACTED COLLATERAL, MINERALS AND OTHER SUBSTANCES OF
      VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL
      AND GAS), AND ACCOUNTS RESULTING FROM THE SALE OF AS-EXTRACTED COLLATERAL,
      AND
      WHICH WILL BE FINANCED AT THE WELLHEADS OF THE WELL OR WELLS LOCATED ON THE
      PROPERTIES DESCRIBED IN EXHIBIT
      A
      HERETO. THIS FINANCING STATEMENT IS TO BE FILED OR FILED FOR RECORD, AMONG
      OTHER
      PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF THE COUNTY RECORDERS
      OF
      THE COUNTIES LISTED ON EXHIBIT
      A
      HERETO. THE MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED,
      WHICH INTEREST IS DESCRIBED IN EXHIBIT
      A
      ATTACHED HERETO.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    PORTIONS
      OF THE MORTGAGED PROPERTY ARE GOODS WHICH ARE OR ARE TO BECOME AFFIXED TO OR
      FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO IN EXHIBIT
      A
      HERETO. THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD OR RECORDED, AMONG
      OTHER PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF EACH COUNTY
      IN
      WHICH SAID LAND OR ANY PORTION THEREOF IS LOCATED. THE MORTGAGOR IS THE OWNER
      OF
      RECORD INTEREST IN THE REAL ESTATE CONCERNED. THIS INSTRUMENT IS ALSO TO BE
      INDEXED IN THE INDEX OF FINANCING STATEMENTS.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

     

    
      	
              ARTICLE
                I

            	 	 
	 	 	 
	
              Grant
                of Lien and Indebtedness Secured

            	
              1

            
	
              Section
                1.01

            	
              Grant
                of Liens

            	
              1

            
	
              Section
                1.02

            	
              Grant
                of Security Interest

            	
              4

            
	
              Section
                1.03

            	
              Indebtedness
                Secured

            	
              5

            
	
              Section
                1.04

            	
              Fixture
                Filing, Etc

            	
              5

            
	
              Section
                1.05

            	
              Defined
                Terms

            	
              5

            
	 	 	 
	
              ARTICLE
                II

            	 	 
	 	 	 
	
              Assignment
                of Production, Accounts and Proceeds

            	
              6

            
	
              Section
                2.01

            	
              Assignment

            	
              6

            
	
              Section
                2.02

            	
              [Reserved].

            	
              6

            
	
              Section
                2.03

            	
              No
                Modification of Payment Obligations

            	
              6

            
	
              Section
                2.04

            	
              Effectuating
                Payment of Production Proceeds to Mortgagee

            	
              7

            
	
              Section
                2.05

            	
              Application
                of Production Proceeds

            	
              7

            
	
              Section
                2.06

            	
              Release
                from Liability; Indemnification

            	
              8

            
	 	 	 
	
              ARTICLE
                III

            	 	 
	 	 	 
	
              Representations,
                Warranties and Covenants

            	
              8

            
	
              Section
                3.01

            	
              Title

            	
              8

            
	
              Section
                3.02

            	
              Defend
                Title

            	
              9

            
	
              Section
                3.03

            	
              Not
                a Foreign Person

            	
              9

            
	
              Section
                3.04

            	
              Rentals,
                Taxes, Insurance and Fees Paid; Leases in Effect

            	
              10

            
	
              Section
                3.05

            	
              Operation
                By Third Parties

            	
              10

            
	
              Section
                3.06

            	
              Failure
                to Perform

            	
              10

            
	
              Section
                3.07

            	
              Sale

            	
              10

            
	
              Section
                3.08

            	
              Sale
                of Production

            	
              11

            
	
              Section
                3.09

            	
              Operation
                of Mortgaged Property

            	
              12

            
	
              Section
                3.10

            	
              Suits
                and Claims

            	
              12

            
	
              Section
                3.11

            	
              Environmental.

            	
              13

            
	
              Section
                3.12

            	
              Not
                Abandon Wells; Participate in Operations

            	
              14

            
	
              Section
                3.13

            	
              Condemnation
                Awards

            	
              14

            
	
              Section
                3.14

            	
              Insurance

            	
              15

            
	
              Section
                3.15

            	
              Compliance
                with Leases

            	
              15

            
	
              Section
                3.16

            	
              Further
                Assurance

            	
              15

            
	
              Section
                3.17

            	
              Name
                and Place of Business

            	
              16

            
	
              Section
                3.18

            	
              Compliance
                with Laws and Agreements

            	
              16

            
	
              Section
                3.19

            	
              Inspection;
                Management

            	
              16

            
	 	 	 
	
              ARTICLE
                IV

            	 	 
	 	 	 
	
              Rights
                and Remedies

            	
              17

            
	
              Section
                4.01

            	
              Event
                of Default

            	
              17

            
	
              Section
                4.02

            	
              Foreclosure
                and Sale.

            	
              17

            
	
              Section
                4.03

            	
              Agents

            	
              19

            
	
              Section
                4.04

            	
              Judicial
                Foreclosure; Receivership

            	
              19

            


    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      	
              Section
                4.05

            	
              Foreclosure
                for Installments

            	
              20

            
	
              Section
                4.06

            	
              Separate
                Sales

            	
              20

            
	
              Section
                4.07

            	
              Possession
                of Mortgaged Property

            	
              20

            
	
              Section
                4.08

            	
              Occupancy
                After Foreclosure

            	
              20

            
	
              Section
                4.09

            	
              Remedies
                Cumulative, Concurrent and Nonexclusive

            	
              21

            
	
              Section
                4.10

            	
              No
                Release of Obligations

            	
              21

            
	
              Section
                4.11

            	
              Release
                of and Resort to Collateral

            	
              21

            
	
              Section
                4.12

            	
              Waiver
                of Redemption, Notice and Marshalling of Assets, Etc

            	
              21

            
	
              Section
                4.13

            	
              Discontinuance
                of Proceedings

            	
              22

            
	
              Section
                4.14

            	
              Application
                of Proceeds

            	
              22

            
	
              Section
                4.15

            	
              Resignation
                of Operator

            	
              22

            
	
              Section
                4.16

            	
              Indemnity

            	
              22

            
	 	 	 
	
              ARTICLE
                V

            	 	 
	 	 	 
	
              Trustee

            	
              23

            
	
              Section
                5.01

            	
              Duties,
                Rights, and Powers of Trustee

            	
              23

            
	
              Section
                5.02

            	
              Successor
                Trustee

            	
              23

            
	
              Section
                5.03

            	
              Retention
                of Moneys

            	
              24

            
	 	 	 
	
              ARTICLE
                VI

            	 	 
	 	 	 
	
              Miscellaneous

            	
              24

            
	
              Section
                6.01

            	
              Instrument
                Construed as Mortgage, Etc

            	
              24

            
	
              Section
                6.02

            	
              Release
                of Mortgage

            	
              24

            
	
              Section
                6.03

            	
              Severability

            	
              24

            
	
              Section
                6.04

            	
              Successors
                and Assigns of Parties

            	
              24

            
	
              Section
                6.05

            	
              Satisfaction
                of Prior Encumbrance

            	
              24

            
	
              Section
                6.06

            	
              Subrogation
                of Trustee

            	
              25

            
	
              Section
                6.07

            	
              Nature
                of Covenants

            	
              25

            
	
              Section
                6.08

            	
              Notices

            	
              25

            
	
              Section
                6.09

            	
              Counterparts

            	
              25

            
	
              Section
                6.10

            	
              Effective
                as a Financing Statement

            	
              25

            
	
              Section
                6.11

            	
              No
                Impairment of Security

            	
              26

            
	
              Section
                6.12

            	
              Acts
                Not Constituting Waiver

            	
              26

            
	
              Section
                6.13

            	
              Mortgagor’s
                Successors

            	
              26

            
	
              Section
                6.14

            	
              Certain
                Consents

            	
              26

            
	
              Section
                6.15

            	
              Governing
                Law

            	
              26

            
	
              Section
                6.16

            	
              Exculpation
                Provisions

            	
              27

            
	
              Section
                6.17

            	
              FINAL
                AGREEMENT

            	
              27

            
	
              Section
                6.18

            	
              Subrogation;
                Prior Mortgages

            	
              27

            
	
              Section
                6.19

            	
              Compliance
                with Usury Laws

            	
              27

            
	
              Section
                6.20

            	
              Certain
                Obligations of Mortgagor

            	
              28

            
	
              Section
                6.21

            	
              Authority
                of Mortgagee

            	
              28

            


    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    


    MORTGAGE,
      DEED OF TRUST, ASSIGNMENT OF

    PRODUCTION,
      SECURITY AGREEMENT, FIXTURE FILING AND FINANCING
      STATEMENT

     

    This
      MORTGAGE,
      DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FIXTURE FILING
      AND
      FINANCING STATEMENT (this
      “Mortgage”)
      is
      entered into as of the Effective Date (as hereinafter defined) by SONTERRA
      RESOURCES, INC.,
      a
      Delaware corporation, whose address for notice is 523 North Sam Houston Parkway
      East, Suite 175, Houston, Texas (“Mortgagor”),
      to
WALTER
      H. WALNE, III,
      as
      Trustee, whose address for notice is 17 South Briar Hollow, Houston, Texas
      77027
      (“Trustee”),
      for
      the benefit of SUMMERLINE
      ASSET MANAGEMENT, LLC,
      a
      Delaware limited liability company, 70 West Red Oak Lane, 4th Floor, White
      Plains, New York 10604, on its own behalf and in its capacity as collateral
      agent for the benefit of the holders of the Notes (as defined below) (together
      with its successors and assigns, the “Mortgagee”).

     

    RECITALS:

     

    A. Pursuant
      to that certain Securities Purchase Agreement dated as of November 13, 2008
      (as
      amended, restated, supplemented or otherwise modified from time to time, the
      “Purchase
      Agreement”),
      among
      Mortgagor and the investors listed on the Schedule of Buyers thereto, each
      of
      which is a holder of a Note (together with their respective successors and
      assigns, the “Buyers”),
      each
      individual Buyer made loans and certain other financial accommodations
      (collectively, the “Loans”)
      to
      Mortgagor, as evidenced by those certain senior secured notes in an original
      aggregate principal amount of $8,875,000 (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, supplemented,
      restated or modified and in effect from time to time, the “Notes”).

     

    B. Mortgagor
      has agreed that all of the Indebtedness (as defined in Section
      1.03
      hereof)
      is intended to be secured in part by this Mortgage and this Mortgage is to
      be
      recorded in those jurisdictions as set forth on Exhibit
      A
      of this
      Mortgage.

     

    C. Each
      Buyer has conditioned its obligation to purchase the Notes upon the execution
      and delivery by Mortgagor of this Mortgage, and Mortgagor has agreed to enter
      into this Mortgage.

     

    THEREFORE,
      in order to comply with the terms and conditions of the Purchase Agreement
      and
      for other good and valuable consideration, the receipt and sufficiency of which
      are hereby acknowledged, Mortgagor hereby agrees with Trustee and Mortgagee
      as
      follows:

     

    ARTICLE
      I

    Grant
      of Lien and Indebtedness Secured

     

    Section
      1.01 Grant
      of Liens.
      To
      secure payment of the Indebtedness and the performance of the covenants and
      obligations herein contained and contained in the Purchase Agreement and any
      other Loan Document to which Mortgagor is a party, Mortgagor does by these
      presents hereby GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, PLEDGE, HYPOTHECATE,
      TRANSFER and CONVEY unto Trustee and Trustee’s successors and substitutes in
      trust hereunder, WITH A POWER OF SALE, for the use and benefit of Mortgagee,
      the
      real and personal property, rights, titles, interests and estates described
      in
      the following paragraphs (a) through (g) (collectively called the “Mortgaged
      Property”):


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (a) All
      estates now owned or hereafter acquired by Mortgagor in and to the oil and
      gas
      leases and/or oil, gas and other mineral leases, other mineral properties,
      mineral servitudes and/or mineral rights, “as extracted collateral” as defined
      in the Applicable UCC (as defined in Section
      1.02)
      and
      other interests and estates and the lands and premises covered or affected
      thereby which are described on Exhibit A
      hereto
      without regard to any limitations as to specific lands or depths that may be
      set
      forth in Exhibit
      A
      (collectively called the “Hydrocarbon
      Property”)
      or
      which Hydrocarbon Property is otherwise referred to herein, and specifically,
      but without limitation, the undivided interests of Mortgagor which are more
      particularly described on attached Exhibit
      A.

     

    (b) All
      estates now owned or hereafter acquired by Mortgagor in and to (i) the
      properties now or hereafter pooled or unitized with any Hydrocarbon Property;
      (ii) all presently existing or future unitization, communitization, pooling
      agreements and designations, orders or declarations of pooled units and the
      units created thereby (including, without limitation, all units created under
      orders, regulations, rules or other official acts of any Federal, State or
      other
      governmental body or agency having jurisdiction and any units created solely
      among working interest owners pursuant to operating agreements or otherwise)
      which may affect all or any portion of the Hydrocarbon Property including,
      without limitation, those units which may be described or referred to on
      attached Exhibit A;
      (iii) all operating agreements, production sales or other contracts,
      processing agreements, transportation agreements, gas balancing agreements,
      farmout agreements, farm-in agreements, salt water disposal agreements, area
      of
      mutual interest agreements, equipment leases and other agreements described
      or
      referred to in this Mortgage or which relate to any of the Hydrocarbon Property
      or interests in the Hydrocarbon Property described or referred to herein or
      on
      attached Exhibit A
      or to
      the production, sale, purchase, exchange, processing, handling, storage,
      transporting or marketing of the Hydrocarbons (as defined in Section
      1.01(c)
      hereof)
      from or attributable to such Hydrocarbon Property or interests; (iv) all
      geological, geophysical, engineering, accounting, title, legal, and other
      technical or business data concerning the Hydrocarbon Property, the
      Hydrocarbons, or any other item of Hydrocarbon Property which are in the
      possession of Mortgagor or in which Mortgagor can otherwise grant a security
      interest, and all books, files, records, magnetic media, computer records,
      and
      other forms of recording or obtaining access to such data; and (v) the
      Hydrocarbon Property described on attached Exhibit A
      and
      covered by this Mortgage even though Mortgagor’s interests therein be
      incorrectly described or a description of a part or all of such Hydrocarbon
      Property or Mortgagor’s interests therein be omitted; it being intended by
      Mortgagor and Mortgagee herein to cover and affect hereby all interests which
      Mortgagor may now own or may hereafter acquire in and to the Hydrocarbon
      Property notwithstanding that the interests as specified on Exhibit A
      may be
      limited to particular lands, specified depths or particular types of property
      interests.

     

    (c) All
      rights, titles, interests and estates now owned or hereafter acquired by
      Mortgagor in and to all oil, gas, casinghead gas, condensate, distillate, liquid
      hydrocarbons, gaseous hydrocarbons and all products refined therefrom and all
      other minerals (collectively called the “Hydrocarbons”)
      in and
      under and which may be produced and saved from or attributable to the
      Hydrocarbon Property, the lands pooled or unitized therewith and Mortgagor’s
      interests therein, including all oil in tanks and all rents, issues, profits,
      proceeds, products, revenues and other income from or attributable to the
      Hydrocarbons, the Hydrocarbon Property, the lands pooled or unitized therewith
      and Mortgagor’s interests therein.

     

    (d) All
      tenements, hereditaments, appurtenances and properties in anywise appertaining,
      belonging, affixed or incidental to the Hydrocarbon Property, and estates
      described or referred to in paragraphs (a) and (b) above, which are now owned
      or
      which may hereafter be acquired by Mortgagor, including, without limitation,
      any
      and all property, real or personal, now owned or hereafter acquired and situated
      upon, used, held for use, or useful in connection with the operating, working,
      extraction, treatment, marketing, gathering, transmission or development of
      any
      of such Hydrocarbon Property or the lands pooled or unitized therewith
      (excluding drilling rigs, trucks, automotive equipment or other personal
      property which may be taken to the premises for the purpose of drilling a well
      or for other similar temporary uses) and including any and all oil wells, gas
      wells, injection wells or other wells, buildings, structures, field separators,
      liquid extraction plants, plant compressors, pumps, pumping units, pipelines,
      sales and flow lines, gathering systems, field gathering systems, salt water
      disposal facilities, tanks and tank batteries, fixtures, valves, fittings,
      machinery and parts, engines, boilers, meters, apparatus, goods, inventory,
      equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
      and rods, surface leases, rights-of-way, easements, servitudes, licenses and
      other surface and subsurface rights together with all additions, substitutions,
      replacements, accessions and attachments to any and all of the foregoing
      properties.


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (e) Any
      property that may from time to time hereafter, by delivery or by writing of
      any
      kind, be subjected to the lien and security interest hereof by Mortgagor or
      by
      anyone on Mortgagor’s behalf and Trustee or Mortgagee is hereby authorized to
      receive the same at any time as additional security hereunder.

     

    (f) All
      of
      the rights, titles and interests of every nature whatsoever now owned or
      hereafter acquired by Mortgagor in and to the Hydrocarbon Property rights,
      titles, interests and estates and every part and parcel thereof, including,
      without limitation, the Hydrocarbon Property rights, titles, interests and
      estates as the same may be enlarged by the discharge of any payments out of
      production or by the removal of any charges or Permitted Liens to which any
      of
      the Hydrocarbon Property rights, titles, interests or estates are subject,
      or
      otherwise; all rights of Mortgagor to liens and security interests securing
      payment of proceeds from the sale of production from the Mortgaged Property,
      including, but not limited to, those liens and security interests provided
      in
§9.343 of the Applicable UCC, as amended from time to time, any other statute
      enacted in the jurisdiction in which the Hydrocarbon Property is located or
      statute made applicable to the Hydrocarbon Property under federal law (or some
      combination of federal and state law); together with any and all renewals and
      extensions of any of the Hydrocarbon Property rights, titles, interests or
      estates; all contracts and agreements supplemental to or amendatory of or in
      substitution for the contracts and agreements described or mentioned above;
      and
      any and all additional interests of any kind hereafter acquired by Mortgagor
      in
      and to the Hydrocarbon Property rights, titles, interests or
      estates.

     

    (g) All
      accounts, contract rights, inventory, choses in action (i.e., rights to enforce
      contracts or to bring claims thereunder), commercial tort claims, general
      intangibles, insurance contracts and insurance proceeds (regardless of whether
      the same arose, and/or the events which gave rise to the same occurred, on
      or
      before or after the date hereof) and all proceeds and products of all such
      portions of the Hydrocarbon Property and payments in lieu of production, whether
      such proceeds or payments are goods, money, documents, instruments, chattel
      paper, securities, accounts, general intangibles, fixtures, real property,
      or
      other assets and regardless of whether such payments accrued, and/or the events
      which gave rise to such payments occurred, on or before or after the date
      hereof, including, without limitation, “take or pay” payments and similar
      payments, payments received in settlement of or pursuant to a judgment rendered
      with respect to take or pay or similar obligations or other obligations under
      a
      production sales contract, payments received in buyout or buydown or other
      settlement of a production sales contract, and payments received under a gas
      balancing or similar agreement as a result of (or received otherwise in
      settlement of or pursuant to judgment rendered with respect to) rights held
      by
      Mortgagor as a result of Mortgagor (and/or its predecessors in title) taking
      or
      having taken less gas from lands covered by a Hydrocarbon Property (or lands
      pooled or unitized therewith) than its ownership of such Hydrocarbon Property
      would entitle it to receive.

     

    (h) Without
      limitation of the generality of the foregoing, any rights and interests of
      Mortgagor under any present or future hedge or swap agreements, cap, floor,
      collar, exchange, forward or other hedge or protection agreements or
      transactions relating to crude oil, natural gas or other Hydrocarbons, or any
      option with respect to any such agreement or transaction now existing or
      hereafter entered into by or on behalf of Mortgagor.


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (i) All
      licenses, permits and other regulatory approvals held by Mortgagor relating
      to
      the Mortgaged Property. 

     

    (j) All
      proceeds of all of the rights, titles and interests of Mortgagor described
      in
      the foregoing paragraphs (a) through (i) whether such proceeds or payments
      are
      goods, money, documents, instruments, chattel paper, securities, accounts,
      payment intangibles, general intangibles, fixtures, real/immovable property,
      personal/movable property or other assets.

     

    (k) In
      addition to the rights granted to Trustee and/or Mortgagee in Section 1.01(f)
      of this
      Mortgage, any and all liens, security interests, financing statements or similar
      interests of Mortgagor attributable to its interest in the Hydrocarbons and
      proceeds of runs therefrom arising under or created by any statutory provision,
      judicial decision or otherwise.

     

    (l) All
      of
      Mortgagor’s rights and interests pursuant to the provisions of §9.343 of the
      Applicable UCC and of any similar state or local jurisdiction statute in any
      state wherein the Mortgaged Property is located, hereby vesting in Trustee
      and/or Mortgagee all of Mortgagor’s rights as an interest owner to the
      continuing security interest in and liens upon the Mortgaged Property.


     

    Any
      fractions or percentages specified on attached Exhibit A
      in
      referring to Mortgagor’s interests are solely for purposes of the warranties
      made by Mortgagor pursuant to Sections 3.01
      and
3.05
      hereof
      and shall in no manner limit the quantum of interest affected by this
Section 1.01
      with
      respect to any Hydrocarbon Property or with respect to any unit or well
      identified on said Exhibit A.

     

    TO
      HAVE
      AND TO HOLD the Mortgaged Property unto Trustee and to its successors and
      assigns forever to secure the payment of the Indebtedness and to secure the
      performance of the covenants, agreements, and obligations of Mortgagor herein
      contained.

     

    Section
      1.02 Grant
      of Security Interest.
      To
      further secure the Indebtedness, Mortgagor hereby grants to Mortgagee a security
      interest in and to the Mortgaged Property (whether now or hereafter acquired
      by
      operation of law or otherwise) insofar as the Mortgaged Property consists of
      equipment, accounts, contract rights, general intangibles, insurance contracts,
      insurance proceeds, inventory, Hydrocarbons, fixtures and any and all other
      personal property of any kind or character defined in and subject to the
      provisions of the Uniform Commercial Code presently in effect in the
      jurisdiction in which the Mortgaged Property is situated (“Applicable
      UCC”),
      including the proceeds and products from any and all of such personal property.
      Upon the happening of any of the Events of Default (as defined in Section
      4.01),
      Mortgagee is and shall be entitled to all of the rights, powers and remedies
      afforded a secured party by the Applicable UCC with reference to the personal
      property and fixtures in which Mortgagee has been granted a security interest
      herein, or Trustee or Mortgagee may proceed as to both the real and personal
      property covered hereby in accordance with the rights and remedies granted
      under
      this Mortgage in respect of the real property covered hereby. Such rights,
      powers and remedies shall be cumulative and in addition to those granted to
      Trustee or Mortgagee under any other provision of this Mortgage or under any
      other security instrument. Written notice mailed to Mortgagor as provided herein
      at least five (5) Business Days prior to the date of public sale of any part
      of
      the Mortgaged Property which is personal property subject to the provisions
      of
      the Applicable UCC, or prior to the date after which private sale of any such
      part of the Mortgaged Property will be made, shall constitute reasonable notice.
      Except as otherwise expressly provided in this Mortgage, all terms in this
      Mortgage relating to the Mortgaged Property and the grant of the foregoing
      security interest which are defined in the Applicable UCC shall have the
      meanings assigned to them in Article 9 (or, absent definition in Article 9,
      in
      any other Article) of the Applicable UCC, as those meanings may be amended,
      revised or replaced from time to time. Notwithstanding the foregoing, the
      parties intend that the terms used herein which are defined in the Applicable
      UCC have, at all times, the broadest and most inclusive meanings
      possible. 


    
      
        
        

      

      
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    Section
      1.03 Indebtedness
      Secured.
      This
      Mortgage is executed and delivered by Mortgagor to secure and enforce the
      following (the “Indebtedness”):

     

    (a) Payment
      of and performance of any and all indebtedness, obligations and liabilities
      of
      Mortgagor pursuant to the Purchase Agreement.

     

    (b) Payment
      of and performance of any and all other indebtedness, obligations and
      liabilities of Mortgagor and any direct or indirect subsidiary of Mortgagor
      (collectively, the “Mortgagor
      Parties”
and
      each, individually, a “Mortgagor
      Party”)
      pursuant to the Purchase Agreement, the Notes, this Mortgage, the other Security
      Documents (as defined in the Notes) and all of the other agreements, documents
      and instruments contemplated thereby and executed in connection therewith
      (collectively, the “Loan
      Documents”),
      including, without limitation, (i) principal and interest (including without
      limitation interest accruing subsequent to the filing of a petition or other
      action concerning bankruptcy or other similar proceeding, whether or not an
      allowed claim) on the Notes, (ii) reimbursement obligations under any letters
      of
      credit, (iii) obligations under any hedging agreements with any Buyer or its
      affiliates, and (iv) obligations owing under any other Loan Document; and all
      renewals, extensions, rearrangements and/or other modifications of any of the
      foregoing.

     

    (c) Any
      sums
      which may be advanced or paid by Mortgagee, Trustee or any Buyer under the
      terms
      hereof or under any other Loan Document on account of the failure of Mortgagor
      or any other Mortgagor Party to comply with the covenants contained herein
      or in
      any other Loan Document and all other indebtedness of the Mortgagor Parties
      arising pursuant to the provisions of the Loan Documents, this Mortgage and
      any
      other documents or instruments executed in connection therewith.

     

    (d) Without
      limiting the generality of the foregoing, all post-petition interest, expenses
      and other duties and liabilities with respect to indebtedness or other
      obligations described above in this Section
      1.03,
      which
      would be owed but for the fact that they are unenforceable or not allowable
      due
      to the existence of a bankruptcy, reorganization or similar
      proceeding.

     

    Section
      1.04 Fixture
      Filing, Etc.
      Without
      in any manner limiting the generality of any of the other provisions of this
      Mortgage: (i) some portions of the goods described or to which reference is
      made herein are or are to become fixtures on the land described or to which
      reference is made herein or on attached Exhibit A;
      (ii) the security interests created hereby under applicable provisions of
      the Applicable UCC will attach to Hydrocarbons (minerals including oil and
      gas),
      as extracted collateral or the accounts resulting from the sale thereof at
      the
      wellhead or minehead located on the land described or to which reference is
      made
      herein; (iii) this Mortgage is to be filed of record in the real estate
      records as a financing statement, and (iv) Mortgagor is the record owner of
      the
      real estate or interests in the real estate comprised of the Mortgaged
      Property.

     

    Section
      1.05 Defined
      Terms.
      Any
      capitalized term used in this Mortgage and not defined in this Mortgage shall
      have the meaning assigned to such term in the Purchase
      Agreement.


    
      
        
        

      

      
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    ARTICLE
      II

    Assignment
      of Production, Accounts and Proceeds

     

    Section
      2.01 Assignment.
      Mortgagor does hereby absolutely and unconditionally assign, transfer and convey
      unto Mortgagee, its successors and assigns, all of the Hydrocarbons and all
      products obtained or processed therefrom, which accrue to Mortgagor’s interest
      in the Mortgaged Properties, and the revenues and proceeds now and hereafter
      attributable to the Hydrocarbons and said products and all accounts arising
      therefrom or in connection therewith and all payments in lieu of the
      Hydrocarbons such as “take or pay” payments or settlements (all of the
      foregoing, the “Production
      Proceeds”),
      together with the immediate and continuing right, subject to the remaining
      provisions of this Section
      2.01
      and of
Section
      4(r)
      of the
      Purchase Agreement, to collect and receive such Production Proceeds. The
      Hydrocarbons and products are to be delivered into pipelines connected with
      the
      Mortgaged Property, or to the purchaser thereof, to the credit of Mortgagee
      (to
      the extent of the Mortgagor’s interest therein); and all Production Proceeds
      shall initially be deposited into a Deposit Account (as defined in the Security
      Agreement) subject to an Account Control Agreement (as defined in the Security
      Agreement). No party paying any Production Proceeds shall have any duty or
      obligation to inquire into any of the rights of Mortgagee under this
Section
      2.01,
      what
      application is made of the Production Proceeds, or as to any other matter.
      Mortgagor directs and instructs any and all purchasers of any Hydrocarbons
      to
      pay to such Deposit Accounts all of the Production Proceeds accruing to
      Mortgagor’s interest until such time as such purchasers have been furnished with
      evidence that all Indebtedness has been paid in full in cash and that this
      Mortgage has been released. Mortgagor agrees that no purchasers of the
      Hydrocarbons shall have any responsibility for the application of any funds
      paid
      to Mortgagee. Mortgagor agrees to perform all such acts, and to execute all
      such
      further assignments, transfer orders and division orders, and other instruments
      as may be required or desired by Mortgagee or any party in order to have the
      Production Proceeds paid to Mortgagee.
      Without
      limiting the generality of the foregoing, upon
      the
      occurrence and during the continuation of an Event of Default, Mortgagee is
      fully authorized to receive and receipt for the Production Proceeds; to endorse
      and cash any and all checks and drafts payable to the order of Mortgagor or
      Mortgagee for the account of Mortgagor received from or in connection with
      the
      Production Proceeds and, in accordance with Section
      4.5(b)
      of the
      Security Agreement, to hold the Production Proceeds in a bank account as
      additional collateral securing the Indebtedness; and to execute transfer and
      division orders in the name of Mortgagor, or otherwise, with warranties binding
      Mortgagor. All Production Proceeds received by Mortgagee pursuant to this
Section
      2.01
      after an
      Event of Default has occurred shall be applied as provided in the other Loan
      Documents. Mortgagee shall not be liable for any delay, neglect or failure
      to
      effect collection of any Production Proceeds or to take any other action in
      connection therewith or hereunder; but Mortgagee shall have the right,
      exercisable at its election at any time after an Event of Default has occurred
      and is continuing, in the name of Mortgagor or otherwise, to prosecute and
      defend any and all actions or legal proceedings deemed advisable by Mortgagee
      in
      order to collect such funds and to protect the interests of Mortgagee and/or
      Mortgagor, with all reasonable costs, expenses and attorneys’ fees incurred in
      connection therewith being paid by Mortgagor and until so paid being a part
      of
      the Indebtedness secured by this Mortgage. Mortgagor agrees to perform all
      such
      acts, and to execute all such further assignments, transfer orders and division
      orders, and other instruments as may be required or desired by Mortgagee or
      any
      party in order to effectuate the provisions contained in this Section
      2.01.
      Mortgagor hereby appoints Mortgagee as its attorney-in-fact to pursue any and
      all rights of Mortgagor to liens on and security interests in the Hydrocarbons
      securing payment of proceeds of runs attributable to the Hydrocarbons, provided
      Mortgagee shall only be permitted to exercise such power of attorney granted
      pursuant to this sentence after the occurrence and during the continuation
      of an
      Event of Default. The power of attorney granted to Mortgagee in this
Section
      2.01,
      being
      coupled with an interest, shall be irrevocable so long as the Indebtedness
      or
      any part thereof remains unpaid.

     

    Section
      2.02 [Reserved]. 

     

    Section
      2.03 No
      Modification of Payment Obligations.
      Nothing
      herein contained shall modify or otherwise alter, limit or modify the absolute
      obligation of Mortgagor and the other Mortgagor Parties to make prompt payment
      of all principal, interest and other amounts owing on the Indebtedness when
      and
      as the same become due, regardless of whether the Production Proceeds are
      sufficient to pay the same and the rights provided in accordance with the
      foregoing assignment provision shall be cumulative of all other security of
      any
      and every character now or hereafter existing to secure payment of the
      Indebtedness.


    
      
        
        

      

      
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    Section
      2.04 Effectuating
      Payment of Production Proceeds to Mortgagee.
      If
      under any existing sales agreements, other than division orders or transfer
      orders, any Production Proceeds are required to be paid by the purchaser to
      Mortgagor so that under such existing agreements payment cannot be made of
      such
      Production Proceeds to Mortgagee, Mortgagor’s interest in all Production
      Proceeds under such sales agreements and in all other Production Proceeds which
      for any reason may be paid to Mortgagor shall, when received by Mortgagor,
      constitute trust funds in Mortgagor’s hands and shall be immediately paid over
      to Mortgagee. Without limitation upon any of the foregoing, Mortgagor hereby
      constitutes and appoints Mortgagee as Mortgagor’s special attorney-in-fact (with
      full power of substitution, either generally or for such periods or purposes
      as
      Mortgagee may from time to time prescribe) in the name, place and stead of
      Mortgagor to do any and every act and exercise any and every power that
      Mortgagor might or could do or exercise personally with respect to all
      Hydrocarbons and Production Proceeds expressly inclusive, but not limited to,
      giving and granting unto said attorney-in-fact full power and authority to
      do
      and perform any and every act and thing whatsoever necessary and requisite
      to be
      done as fully and to all intents and purposes, as Mortgagor might or could
      do if
      personally present (provided such power of attorney granted pursuant to this
      sentence shall only be exercisable by Mortgagee upon the occurrence and during
      the continuation of an Event of Default) and Mortgagor shall be bound thereby
      as
      fully and effectively as if Mortgagor had personally executed, acknowledged
      and
      delivered any of the foregoing certificates or documents. The powers and
      authorities herein conferred upon Mortgagee may be exercised by Mortgagee
      through any person who, at the time of the execution of the particular
      instrument, is an officer of Mortgagee. The power of attorney herein conferred
      is granted for valuable consideration and hence is coupled with an interest
      and
      is irrevocable so long as the Indebtedness, or any part thereof, shall remain
      unpaid or any commitment to lend under the Purchase Agreement remains
      outstanding. All persons dealing with Mortgagee or any substitute shall be
      fully
      protected in treating the powers and authorities conferred by this paragraph
      as
      continuing in full force and effect until advised by Mortgagee that all the
      Indebtedness is fully and totally paid. Mortgagee may, but shall not be
      obligated to, in accordance with the provisions of Section
      2.01
      above,
      take such action as it deems reasonably appropriate in an effort to collect
      the
      Production Proceeds and any reasonable expenses (including reasonable attorney’s
      fees) so incurred by Mortgagee shall be a demand obligation of Mortgagor and
      shall be part of the Indebtedness, and shall bear interest each day, from the
      date of such expenditure or payment until paid, at the Applicable Interest
      Rate
      (as defined in the Notes).

     

    Section
      2.05 Application
      of Production Proceeds.
      So long
      as no Event of Default has occurred, the Production Proceeds received by
      Mortgagee shall be paid directly into a Deposit Account in accordance with
      Section 2.01 hereof. After an Event of Default hereunder has occurred, all
      Production Proceeds from time to time in the hands of Mortgagee shall be applied
      to the payment of the Indebtedness at such times and in such manner and order
      as
      Mortgagee determines in Mortgagee’s sole and absolute
      discretion.


    
      
        
        

      

      
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    Section
      2.06 Release
      from Liability; Indemnification.
      Mortgagee and its successors and assigns are hereby released and absolved from
      all liability for failure to enforce collection of the Production Proceeds
      and
      from all other responsibility in connection therewith, except the responsibility
      to account to Mortgagor for funds actually received. Mortgagor agrees to
      indemnify and hold harmless Mortgagee (for purposes of this paragraph, the
      term
“Mortgagee” shall include the directors, officers, partners, employees and
      agents of Mortgagee and any persons or entities owned or controlled by or
      affiliated with Mortgagee and any other Indemnified Party as defined in
Section
      4.16
      hereof)
      from and against all claims, demands, liabilities, losses, damages (including
      without limitation consequential damages), causes of action, judgments,
      penalties, costs and expenses (including without limitation reasonable
      attorneys’ fees and expenses) imposed upon, asserted against or incurred or paid
      by Mortgagee by reason of the assertion that Mortgagee received, either before
      or after payment in full of the Indebtedness, funds from the production of
      oil,
      gas, other hydrocarbons or other minerals claimed by third persons (and/or
      funds
      attributable to sales of production which were made in violation of laws, rules,
      regulations and/or orders governing such sales), and Mortgagee shall have the
      right to defend against any such claims or actions, employing attorneys of
      its
      own selection, and if not furnished with indemnity satisfactory to it, Mortgagee
      shall have the right to compromise and adjust any such claims, actions and
      judgments, and in addition to the rights to be indemnified as herein provided,
      all amounts paid by Mortgagee in compromise, satisfaction or discharge of any
      such claim, action or judgment, and all court costs, reasonable attorneys’ fees
      and other expenses of every character expended by Mortgagee pursuant to the
      provisions of this section shall be a demand obligation (which obligation
      Mortgagor hereby expressly promises to pay) owing by Mortgagor to Mortgagee
      and
      shall bear interest, from the date expended until paid at the Applicable
      Interest Rate (as defined in the Notes). The foregoing indemnities shall not
      terminate upon the release, foreclosure or other termination of this Mortgage,
      but will survive the release, foreclosure of this Mortgage or conveyance in
      lieu
      of foreclosure, and the repayment of the Indebtedness and the discharge and
      release of this Mortgage and the other documents evidencing and/or securing
      the
      Indebtedness. WITHOUT
      LIMITATION, IT IS THE INTENTION OF MORTGAGOR, AND MORTGAGOR AGREES THAT THE
      FOREGOING RELEASES AND INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH
      RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING, WITHOUT
      LIMITATION, CONSEQUENTIAL DAMAGES), CAUSES OF ACTION, JUDGMENTS, PENALTIES,
      COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES
      AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE
      NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY, EXCLUDING THE GROSS
      NEGLIGENCE AND WILLFUL MISCONDUCT OF SUCH INDEMNIFIED
      PARTY.
      However,
      such indemnities shall not apply to any particular indemnified party (but shall
      apply to the other indemnified parties) to the extent the subject of the
      indemnification is caused by or arises out of the gross negligence or willful
      misconduct of such particular indemnified party.

     

    ARTICLE
      III

    Representations,
      Warranties and Covenants

     

    Mortgagor
      hereby covenants
      with the Mortgagee, and represents and warrants to the Mortgagee
      that:

     

    Section
      3.01 Title.
      Mortgagor
      has good and defensible title to the Mortgaged Property.
      With
      respect to each Mortgaged Property, the ownership of Mortgagor in such Mortgaged
      Property does and will, (i) with respect to each tract of land described in
      Exhibit A
      hereto,
      (whether described directly in such Exhibit A
      or
      described by reference to another instrument) in connection with such Mortgaged
      Property, (A) entitle Mortgagor to receive (subject to the terms and
      provisions of this Mortgage) a decimal or percentage share of the oil, gas
      and
      other hydrocarbons produced from, or allocated to, such tract equal to not
      less
      than the percentage share set forth in Exhibit
      A
      in
      connection with such tract in the column headed “NRI”, (B) cause Mortgagor to be
      obligated to bear a percentage share of the cost of exploration, development
      and
      operation of such tract of land not greater than the percentage share set forth
      in Exhibit
      A
      in
      connection with such tract in the column headed “WI”, and (ii) if such Mortgaged
      Property is shown on Exhibit
      A
      to be
      subject to a unit or units, with respect to each such unit, (A) entitle
      Mortgagor to receive (subject to the terms and provisions of this Mortgage)
      a
      percentage share of all substances covered by such unit which are produced
      from,
      or allocated to, such unit equal to not less than the percentage share set
      forth
      in Exhibit
      A
      in
      connection with such Mortgaged Property in connection with such tract in the
      column headed “NRI”, (and if such Mortgaged Property is subject to more than one
      unit, words identifying such interest with such unit), and (B) obligate
      Mortgagor to bear a percentage share of the cost of exploration, development
      and
      operation of such unit not greater than the percentage share set forth in
Exhibit
      A
      in
      connection with such tract in the column headed “WI”, (and if such Mortgaged
      Property is subject to more than one unit, words identifying such interest
      with
      such unit). With respect to each Mortgaged Property described in Exhibit
      A
      hereto
      (or in any of the instruments described or referred to in Exhibit
      A)
      which
      is subject to a voluntary or involuntary pooling, unitization or communitization
      agreement and/or order, the term "tract of land" as used in this Section
      3.01
      shall
      mean the pooled, unitized or communitized area as an entirety and shall not
      be
      deemed to refer to any individual tract committed to said pooled, unitized
      or
      communitized area. Without limitation of the foregoing, the ownership by
      Mortgagor of the Mortgaged Properties does and will, with respect to each well
      or unit identified on Exhibit
      A
      attached
      hereto and made a part hereof, entitle Mortgagor to receive (subject to the
      terms and provisions of this Mortgage) a percentage share of the oil, gas and
      other hydrocarbons produced from, or allocated to, such well or unit equal
      to
      not less than the percentage share set forth, for such well or unit, in the
      column headed "NRI" on Exhibit
      A,
      and
      cause Mortgagor to be obligated to bear a percentage share of the cost of
      operation of such well or unit equal to not more than the decimal or percentage
      share set forth, for such well or unit, in the column headed "WI" on
Exhibit
      A.
      The
      above-described shares of production which Mortgagor is entitled to receive
      and
      shares of expenses which Mortgagor is obligated to bear are not and will not
      be
      subject to change (other than changes which arise pursuant to non-consent
      provisions of operating agreements described in Exhibit A
      in
      connection with operations hereafter proposed), except, and only to the extent
      that, such changes are reflected in Exhibit A.
      Any
      fractional, percentage or decimal interests specified in Exhibit
      A
      in
      referring to Mortgagor’s interest in the Mortgaged Property are solely for the
      purposes of the representations and warranties set forth herein and shall in
      no
      manner limit the quantum of the interests of the Mortgagor or the Mortgagee
      in
      the Mortgaged Property mortgaged and pledged by the Mortgagor hereunder. The
      Mortgaged Property is free and clear of all Liens other than (i) Permitted
      Liens
      and (ii) the other encumbrances set forth in Exhibit
      A.
      


    
      
        
        

      

      
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    Section
      3.02 Defend
      Title.
      This
      Mortgage is a direct first Lien and security interest upon the Mortgaged
      Property, subject only to Permitted Liens.
      This
      Mortgage will always be kept a direct first Lien and security interest upon
      the
      Mortgaged Property,
      and
      Mortgagor will not grant, incur or create or suffer to be created or permit
      to
      exist any Lien, security interest or charge prior or junior to or on a parity
      with the Lien and security interest of this Mortgage upon the Mortgaged Property
      or any part thereof or upon the rents, issues, revenues, profits and other
      income therefrom, other than Permitted Liens. Mortgagor will warrant and defend
      the title to the Mortgaged Property against the claims and demands of all other
      persons whomsoever and will maintain and preserve the Lien created hereby so
      long as any of the Indebtedness secured hereby remains unpaid. Should an adverse
      claim be made against or a cloud develop upon the title to any part of the
      Mortgaged Property, other than Permitted Liens, Mortgagor agrees it will timely
      defend against such adverse claim or take appropriate action to remove such
      cloud at Mortgagor’s cost and expense, and Mortgagor further agrees that Trustee
      and/or Mortgagee may take such other action as they deem reasonably advisable
      to
      protect and preserve their interests in the Mortgaged Property, and in such
      event Mortgagor will indemnify Trustee and Mortgagee against any and all cost,
      attorney’s fees and other expenses which they may incur in defending against any
      such adverse claim or taking action to remove any such cloud.

     

    Section
      3.03 Not
      a
      Foreign Person.
      Mortgagor is not a “foreign person” within the meaning of the Internal Revenue
      Code of 1986, as amended (i.e. Mortgagor is not a non-resident alien, foreign
      corporation, foreign partnership, foreign trust or foreign estate as those
      terms
      are defined in the Internal Revenue Code of 1986, as amended, and any
      regulations promulgated thereunder).


    
      
        
        

      

      
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    Section
      3.04 Rentals,
      Taxes, Insurance and Fees Paid; Leases in Effect.
      All
      rentals and royalties due and payable in accordance with the terms of any leases
      or subleases comprising a part of the Hydrocarbon Property and all severance
      and
      production taxes payable with respect to the production therefrom have been
      duly
      paid or provided for and all leases or subleases comprising a part of the
      Hydrocarbon Property are in full force and effect. In addition to the
      foregoing,
      Mortgagor
      shall or shall cause to be paid when due, all taxes, permits, licenses,
      insurance premiums and other similar amounts with respect to the Mortgaged
      Property, the Hydrocarbon Property and the Hydrocarbons.

     

    Section
      3.05 Operation
      By Third Parties.
      As to
      any part of the Mortgaged Property which is not a working interest (if any),
      Mortgagor agrees to take all such action and to exercise all rights and remedies
      as are reasonably available to Mortgagor to cause the owner or owners of the
      working interest in such properties to comply with the covenants and agreements
      contained herein; and as to any part of the Mortgaged Property which is a
      working interest but which is operated by a party other than Mortgagor,
      Mortgagor agrees to take all such action and to exercise all rights and remedies
      as are reasonably available to Mortgagor (including, but not limited to, all
      rights under any operating agreement) to cause the party who is the operator
      of
      such property to comply with the covenants and agreements contained
      herein. 

     

    Section
      3.06 Failure
      to Perform.
      Mortgagor agrees that if Mortgagor fails to perform any act or to take any
      action which Mortgagor is required to perform or take hereunder or pay any
      money
      which Mortgagor is required to pay hereunder, each of Mortgagee and Trustee
      in
      Mortgagor’s name or its or their own name may, but shall not be obligated to,
      perform or cause to be performed such act or take such action or pay such money,
      and any expenses so incurred by either of them and any money so paid by either
      of them shall be a demand obligation owing by Mortgagor to Mortgagee or Trustee,
      as the case may be, and each of Mortgagee and Trustee, upon making such payment,
      shall be subrogated to all of the rights of the Person receiving such payment.
      Each amount due and owing by Mortgagor to each of Mortgagee and Trustee pursuant
      to this Mortgage shall bear interest from the date of such expenditure or
      payment or other occurrence which gives rise to such amount being owed to such
      Person until paid at the Applicable Interest Rate, and all such amounts together
      with such interest thereon shall be a part of the Indebtedness described in
      Section
      1.03
      hereof. 

     

    Section
      3.07 Sale
      of Mortgaged Property.
      Any
      proposed sale, transfer, farm-out, assignment or other disposition of the
      Mortgaged Property by the Mortgagor shall be governed by the provisions of
      Section
      5(f)
      of the
      Purchase Agreement; provided,
      that
      Mortgagor shall, except after the occurrence and during the continuation of
      an
      Event of Default, be permitted to (i) sell Hydrocarbons in the ordinary course
      of business in compliance with the terms of this Mortgage and (ii) sell or
      otherwise dispose of obsolete or worn out equipment or personal property which
      is replaced with property of equal or greater value in the ordinary course
      of
      business.


    
      
        
        

      

      
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    Section
      3.08 Sale
      of Production.
      No
      Mortgaged Property is or will become subject to any contractual or other
      arrangement (a) whereby payment for production is or can be deferred for a
      substantial period after the month in which such production is delivered (i.e.,
      in the case of oil, not in excess of sixty (60) days, and in the case of gas,
      not in excess of ninety (90) days) or (b) whereby payments are made to Mortgagor
      other than by checks, drafts, wire transfer advises or other similar writings,
      instruments or communications for the immediate payment of money. Except for
      transportation, gathering, processing, compression or dehydration agreements
      (or
      other agreements relating to the marketing of Hydrocarbons), and, with respect
      to the immediately succeeding clause (i), except for agreements entered into
      by
      Mortgagor in the ordinary course of business consistent with prudent customs
      and
      practices in the industry in which Mortgagor operates, (i) no Mortgaged Property
      is or will become subject to any contractual or other arrangement for the sale,
      processing or transportation of production (or otherwise related to the
      marketing of Hydrocarbons) which cannot be cancelled on 120 days (or less)
      notice and (ii) all contractual or other arrangements for the sale, processing
      or transportation of Hydrocarbons (or otherwise related to the marketing of
      Hydrocarbons) shall be bona fide arm’s length transactions and shall be at
      generally prevailing market prices. Mortgagor is presently receiving a price
      for
      all production from (or attributable to) each Mortgaged Property covered by
      a
      production sales contract disclosed in writing to Mortgagee as computed in
      accordance with the terms of such contract, and is not having deliveries of
      production from such Mortgaged Property curtailed substantially below such
      property’s delivery capacity. Neither Mortgagor nor, to the best of Mortgagor’s
      knowledge, any of its predecessors in title, has received prepayments
      (including, but not limited to, payments for gas not taken pursuant to “take or
      pay” or other similar arrangements) for any Hydrocarbons produced or to be
      produced from the Mortgaged Properties after the date hereof, and Mortgagor
      hereby covenants not to enter into any such advance or prepayment arrangements
      whereby it accepts consideration for Hydrocarbons not yet produced. No Mortgaged
      Property is or will become subject to any “take or pay” or other similar
      arrangement (y) which can be satisfied in whole or in part by the production
      or
      transportation of gas from other properties or (z) as a result of which
      production from the Mortgaged Properties may be required to be delivered to
      one
      or more third parties without payment (or without full payment) therefor as
      a
      result of payments made, or other actions taken, with respect to other
      properties. There is no Mortgaged Property with respect to which Mortgagor,
      or,
      to the best of Mortgagor’s knowledge, its predecessors in title, has, prior to
      the date hereof, taken more (“overproduced”),
      or
      less (“underproduced”),
      gas
      from the lands covered thereby (or pooled or unitized therewith) than its
      ownership interest in such Mortgaged Property would entitle it to take, except
      in the ordinary course of business consistent with prudent customs and practices
      in the industry in which Mortgagor operates. Mortgagor will not after the date
      hereof become “overproduced” (as above defined) with respect to any well on the
      Mortgaged Property (or on any unit in which the Mortgaged Property participate),
      in an amount in excess of Mortgagor’s share of gas produced from such well,
      except in the ordinary course of business consistent with prudent customs and
      practices in the industry in which Mortgagor operates. No Mortgaged Property
      is
      or will become subject to a gas balancing arrangement under which one or more
      third parties may take a portion of the production attributable to such
      Mortgaged Property without payment (or without full payment) therefor as a
      result of production having been taken from, or as a result of other actions
      or
      inactions with respect to, other properties, except for any such gas balancing
      arrangement entered into in the ordinary course of business consistent with
      prudent customs and practices in the industry in which Mortgagor operates.
      No
      Mortgaged Property is subject at the present time to any regulatory refund
      obligation and, to the best of Mortgagor’s knowledge, no facts exist which might
      cause the same to be imposed. 


    
      
        
        

      

      
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    Section
      3.09 Operation
      of Mortgaged Property.
      The
      Mortgagor will promptly pay and discharge or cause to be paid and discharged
      all
      rentals, delay rentals, royalties and indebtedness accruing under, and perform
      or cause to be performed each and every act, matter or thing required by, each
      and all of the assignments, deeds, subject leases, sub-leases, contracts and
      agreements described or referred to herein or affecting the Mortgagor’s
      interests in the Mortgaged Property and will do or cause to be done all other
      things reasonably necessary to keep unimpaired the Mortgagor’s rights with
      respect thereto and prevent any intentional forfeiture thereof or default with
      respect thereto, other than a default which might occur as a result of cessation
      of production thereunder. Except as could not reasonably be expected, either
      individually or in the aggregate, to have a Material Adverse Effect,
      the Mortgaged
      Property (and properties unitized therewith) is
      being
      (and, to the extent the same could adversely affect the ownership or operation
      of such Mortgaged Property after the date hereof, have in the past been), and
      hereafter will be maintained,
      operated and
      developed in
      a good
      and workmanlike manner in
      accordance with
      customary industry
      standards and in conformity with all applicable laws and all rules, regulations
      and orders of all duly constituted authorities having jurisdiction and in
      conformity with all oil, gas and/or other mineral leases and other agreements
      forming part of the Mortgaged Property and in conformity with all Permitted
      Liens;
      specifically in this connection, (i) no Mortgaged Property is subject to having
      allowable production after the date hereof reduced below the full and regular
      allowable (including the maximum permissible tolerance) because of any
      overproduction (whether or not the same was permissible at the time) prior
      to
      the date hereof and (ii) none of the wells located on the Mortgaged Property
      (or
      properties unitized therewith) are or will be deviated from the vertical more
      than the maximum permitted by applicable laws, regulations, rules and orders,
      and such wells are, and will remain, bottomed under and producing from, with
      the
      well bores wholly within, the Mortgaged Property (or, in the case of wells
      located on properties unitized therewith, such unitized properties).
      With
      respect to any Mortgaged Property in which Mortgagor is the operator in
      connection therewith or in which Mortgagor has a majority working interest
      (and
      to the best of Mortgagor’s knowledge with respect to any Mortgaged Property in
      which Mortgagor has a minority working interest and is not an operator in
      connection therewith), there are no dry holes, or otherwise inactive wells,
      located on any Mortgaged Property or on lands pooled or unitized therewith
      (including, without limitation, any wells which would, if located in Texas,
      require compliance with Railroad Commission Rule 14(b)(2)), except for wells
      that have been properly plugged and abandoned or inactive and being maintained
      in accordance with local, state and federal law. Except as disclosed in
Schedule
      3(s)
      to the
      Purchase Agreement, the Mortgagor has, and will in the future, possess all
      certificates, authorizations, approvals, licenses and permits issued by the
      appropriate federal, state or foreign regulatory authorities (collectively,
      “Permits”)
      necessary to produce, extract, transport and sell the oil, gas, minerals and/or
      other Hydrocarbons in that portion of the Mortgaged Property that is producing
      oil, gas, minerals and/or other Hydrocarbons. Except as disclosed in
Schedule
      3(s)
      to the
      Purchase Agreement, Mortgagor has no reason to believe that it will not be
      able
      to obtain Permits as and when necessary to enable the Mortgagor to produce,
      extract, transport and sell the oil, gas, minerals and other Hydrocarbons in
      the
      Mortgaged Property. Mortgagor has not received notice of any violations in
      respect of any such licenses or permits described in the foregoing provisions
      of
      this Section
      3.09,
      except
      for notices of violations received prior to the date hereof that have been
      remedied by Mortgagor. The
      Mortgagor will operate the Mortgaged Property in a careful and efficient manner
      in accordance with the practices of the industry and in compliance with all
      applicable contracts and agreements and in compliance with all applicable
      spacing, proration and conservation laws of the jurisdiction in which the
      Mortgaged Property is situated, and all applicable laws, rules and regulations
      of every other agency and authority from time to time constituted to regulate
      the development and operation of the Mortgaged
      Property and
      the
      production and sale of Hydrocarbons and other minerals produced therefrom,
      except as could not reasonably be expected, individually or in the aggregate,
      to
      have a Material Adverse Effect. The Mortgagor will do or cause to be done,
      or
      shall participate in, such development work as may be reasonably necessary
      to
      the prudent and economical operation of the Mortgaged Property in accordance
      with the approved practices of prudent operators in the industry, including,
      without limitation, all to be done that may be appropriate to protect from
      diminution the productive capacity of the Mortgaged Property and each producing
      well thereon. Upon the reasonable request of the Mortgagee, and at reasonable
      times and intervals, the Mortgagor will (a) permit the Mortgagee and its
      respective designated representatives to enter upon any part of the Mortgaged
      Property under the control of the Mortgagor, and (b) cause the operator of
      any
      part of the Mortgaged Property not under the control of the Mortgagor to permit
      the Mortgagee and its designated representatives to enter upon the same (to
      the
      extent and subject to the conditions under which the Mortgagor may so enter),
      for the purposes of inspecting the condition and operation thereof.

     

    Section
      3.10 Suits
      and Claims.
      Except
      to the extent disclosed in the Schedules to the Purchase Agreement, there are
      no
      suits, actions, claims, investigations, inquiries, proceedings or demands
      pending (or, to Mortgagor’s knowledge, threatened) which affect the Mortgaged
      Property (including, without limitation, any which challenge or otherwise
      pertain to Mortgagor’s title to the Mortgaged Property) and no judicial or
      administrative actions, suits or proceedings pending (or, to Mortgagor’s
      knowledge, threatened) against Mortgagor. 


    
      
        
        

      

      
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    Section
      3.11 Environmental. 

     

    (a) Current
      Status.
      The
      representations and warranties in Section 3(p) of the Purchase Agreement are
      true and correct as of the date of the Purchase Agreement and on the Closing
      Date (except for representations and warranties that speak as of a specific
      date, which shall be true and correct as of such date).

     

    (b) Definitions.
      “Applicable
      Environmental Laws”
shall
      mean any applicable laws, orders, rules, or regulations pertaining to safety,
      health or the environment, as such laws, orders, rules or regulations now exist
      or are hereafter enacted and/or amended (including, without limitation, the
      Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
      as amended by the Superfund Amendments and Reauthorization Act of 1986 (as
      amended, hereinafter called “CERCLA”),
      the
      Resource Conservation and Recovery Act of 1976, as amended by the Used Oil
      Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and
      the
      Hazardous and Solid Waste Amendments of 1984 (as amended, hereinafter called
      “RCRA”)
      and
      applicable state and local law). Mortgagor undertook, at the time of acquisition
      of the Mortgaged Property, all appropriate inquiry into the previous ownership
      and uses of the Mortgaged Property consistent with good commercial or customary
      practice. Mortgagor has taken reasonable steps necessary, consistent with
      customary practice in the industry in which it operates its business, to
      determine and has determined that no hazardous substances or solid wastes have
      been disposed of or otherwise released at, into, upon or under the Mortgaged
      Property except in accordance with Applicable Environmental Laws. The use which
      Mortgagor makes and intends to make of the Mortgaged Property will not result
      in
      the use, treatment, storage or disposal or other release of any hazardous
      substance or solid waste at, into, upon or under the Mortgaged Property, except
      such usage, and temporary storage in anticipation of usage, as is in the
      ordinary course of business and in compliance with Applicable Environmental
      Laws. The terms “hazardous
      substance”
and
      “release”
as
      used
      in this Mortgage shall have the meanings specified in CERCLA, and the terms
      “solid
      waste”
and
      “disposal”
(or
      “disposed”)
      shall
      have the meanings specified in RCRA; provided, in the event either CERCLA or
      RCRA is amended so as to broaden the meaning of any term defined thereby, such
      broader meaning shall apply subsequent to the effective date of such amendment
      and provided further, to the extent that the laws of the states in which the
      Mortgaged Properties are located establish a meaning for “hazardous
      substance,”
      “release,”
      “solid
      waste,”
or
      “disposal”
which
      is broader than that specified in either CERCLA or RCRA, such broader meaning
      shall apply. The “Associated
      Property”
(as
      such term is hereinafter defined) is not in violation of any Applicable
      Environmental Laws for which Mortgagor or its predecessors in title to the
      Mortgaged Property would be responsible (to the best of Mortgagor’s knowledge
      with respect to Associated Property not owned or operated by Mortgagor). The
      term “Associated
      Property”
as
      used
      in this Mortgage shall mean any and all interests in and to (and/or carved
      out
      of) the lands which are described or referred to in Exhibit
      A
      hereto,
      or which are otherwise described in any of the oil, gas and/or mineral leases
      or
      other instruments described in or referred to in such Exhibit A,
      whether
      or not such property interests are owned by Mortgagor. 


    
      
        
        

      

      
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    (c) Future
      Performance.
      Except
      as
      could not reasonably be expected, individually or in the aggregate, to have
      a
      Material Adverse Effect, Mortgagor
      will operate
      each Mortgaged Property in a careful and efficient manner in accordance with
      the
      practices of the industry so as
      not to
      cause or permit such Mortgaged Property or Mortgagor to be in violation of,
      and
      Mortgagor shall not do anything or permit anything to be done which will subject
      such Mortgaged Property or any Associated Property to any remedial obligations
      under, or result in noncompliance with applicable permits and licenses under,
      any Applicable Environmental Laws, assuming disclosure to the applicable
      governmental authorities of all relevant facts, conditions and circumstances,
      if
      any, pertaining to the Mortgaged Property or any Associated Property and
      Mortgagor will promptly notify Mortgagee in writing of any existing, pending
      or,
      to the best knowledge of Mortgagor, threatened investigation, claim, suit or
      inquiry by any governmental authority or any person in connection with any
      Applicable Environmental Laws. Except
      as
      could not reasonably be expected, individually or in the aggregate, to have
      a
      Material Adverse Effect, Mortgagor
      will take steps necessary to determine that no hazardous substances or solid
      wastes have been disposed of or otherwise released on or to the Mortgaged
      Property or any Associated Property. Except
      as
      could not reasonably be expected, individually or in the aggregate, to have
      a
      Material Adverse Effect, Mortgagor
      will not cause or permit the disposal or other release of any hazardous
      substance or solid waste at, into, upon or under the Mortgaged Property or
      any
      Associated Property. Mortgagor covenants and agrees to keep or cause the
      Mortgaged Property to be kept free of any hazardous substance or solid waste
      (except such use, and temporary storage in anticipation of use, as is required
      in the ordinary course of business, all while in compliance with Applicable
      Environmental Laws), and to remove the same (or if removal is prohibited by
      law,
      to take whatever action is required by law), promptly upon discovery at its
      sole
      expense. Upon Mortgagee’s reasonable request, at any time and from time to time
      during the existence of this Mortgage, but not more often than once every
      calendar year (so long as no Event of Default has occurred), Mortgagor will
      provide at Mortgagor’s sole expense an inspection or audit of each Mortgaged
      Property from an engineering or consulting firm approved by Mortgagee,
      indicating the presence or absence of hazardous substances and solid waste
      on
      such Mortgaged Property and compliance with Applicable Environmental Laws.
      

     

    Section
      3.12 Not
      Abandon Wells; Participate in Operations; Non-Operated Interests.
      Mortgagor will not, without prior written consent of Mortgagee, which consent
      shall not be unreasonably conditioned, withheld, or delayed, abandon, or consent
      to the abandonment of, any well producing from the Mortgaged Property (or
      properties unitized therewith) so long as such well is capable (or is subject
      to
      being made capable through drilling, reworking or other operations which it
      would be commercially feasible to conduct) of producing oil, gas, or other
      Hydrocarbons or other minerals in commercial quantities (as determined without
      considering the effect of this Mortgage), except in the ordinary course of
      business consistent with prudent customs and practices in the industry in which
      Mortgagor operates.
      Mortgagor will not, without prior written consent of Mortgagee, which consent
      shall not be unreasonably conditioned, withheld, or delayed, elect not to
      participate in a proposed operation on the Mortgaged Properties where the effect
      of such election would be the forfeiture either temporarily (i.e. until a
      certain sum of money is received out of the forfeited interest) or permanently
      of any interest in the Mortgaged Properties. All
      or
      portions of the Mortgaged Property may be comprised of interests in the
      Hydrocarbon Property or lands pooled or unitized therewith which are other
      than
      working interests or which may be operated by a party or parties other than
      the
      Mortgagor and with respect to all such portions of the Mortgaged Property,
      the
      Mortgagor’s covenants and agreements as expressed in this Article
      III
      are
      modified to require that the Mortgagor use its commercially reasonable efforts
      to cause compliance with such covenants and agreements by the working interest
      owners or the operator or operators of such Hydrocarbon Properties.

     

    Section
      3.13 Condemnation
      Awards.
      If at
      any time all or any portion of the Mortgaged Property shall be taken or damaged
      under the power of eminent domain, the award received by condemnation
      proceedings for any property so taken or any payment received in lieu of such
      condemnation proceedings shall be paid directly to Mortgagee as agent for
      Mortgagor and all or any portion of such award or payment, at the option of
      Mortgagee, shall be applied to the Indebtedness in payment of the last maturing
      installments of the Indebtedness or paid over, wholly or in part, to Mortgagor
      for any purpose or object satisfactory to Mortgagee; provided that Mortgagee
      shall not be obligated to see to the application of any amount paid over to
      Mortgagor. Mortgagor immediately upon obtaining knowledge of the institution
      of
      any proceedings or negotiations for the condemnation of the Mortgaged Property,
      or any portion thereof, will notify Mortgagee of the pendency of such
      negotiations or proceedings. Mortgagee may participate in any such negotiations
      or proceedings, and Mortgagor from time to time will execute and deliver to
      Mortgagee all instruments requested by Mortgagee to permit such
      participation.


    
      
        
        

      

      
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    Section
      3.14 Insurance.
      Mortgagor will maintain with financially sound and reputable insurance companies
      insurance on all its property in at least such amounts and against at least
      such
      risks (but including in any event general liability) as are usually insured
      against in the same general area by companies engaged in the same or a similar
      business and in any case no less comprehensive in scope than that maintained
      by
      the Mortgager as of the date hereof. In the event of any loss under any
      insurance policies so carried by Mortgagor, Mortgagee shall have the right
      (but
      not the obligation) to make proof of loss and collect the same, and all amounts
      so received shall be applied toward costs, charges and expenses (including
      reasonable attorneys’ fees), if any, incurred in the collection thereof, then to
      the payment, in the order determined by Mortgagee in its own discretion, of
      the
      Indebtedness, and any balance remaining shall be subject to the order of
      Mortgagor. Mortgagee is hereby authorized but not obligated to enforce in its
      name or in the name of Mortgagor payment of any or all of said policies or
      settle or compromise any claim in respect thereof, and to collect and make
      receipts for the proceeds thereof and Mortgagee is hereby appointed Mortgagor’s
      agent and attorney-in-fact to endorse any check or draft payable to Mortgagor
      in
      order to collect the proceeds of insurance (provided Mortgagee shall only be
      entitled to enforce the power of attorney provided in this sentence after the
      occurrence and during the continuation of an Event of Default). In
      the
      event of foreclosure of this Mortgage, or other transfer of title to the
      Mortgaged Property in extinguishment in whole or in part of the Indebtedness,
      all right, title and interest of Mortgagor in and to such policies then in
      force
      concerning the Mortgaged Property and all proceeds payable thereunder shall
      thereupon vest in the purchaser at such foreclosure or other transferee in
      the
      event of such other transfer of title.

     

    Section
      3.15 Compliance
      with Leases.
      Mortgagor (i) will observe and comply with all of the terms and provisions,
      express or implied, of the oil, gas and mineral leases covered by this Mortgage,
      and any other agreements or instruments applicable thereto; and, (ii) except
      with the prior written consent of Mortgagee, which consent shall not be
      unreasonably conditioned, withheld, or delayed, will not amend or terminate
      (in
      any manner adverse to Mortgagor, Mortgagee, or Mortgagor’s or Mortgagee’s
      interest in the Mortgaged Property or in any manner that could reasonably be
      expected to result in a Material Adverse Effect) any of such agreements or
      surrender, abandon or release any of such leases in whole or in part so long
      as
      any well situated thereon, or located on any unit containing all or any part
      of
      such leases, is capable of producing oil, gas, casinghead gas or other
      hydrocarbons in paying quantities.
      Mortgagor will cause all obligations to the holders of royalty interests and
      all
      other interests in the Mortgaged Properties to be promptly discharged and all
      covenants and conditions, express or implied, imposed upon the original lessee
      or his assigns by every such lease and every other agreement relative thereto
      to
      be fully and promptly performed and to cause all acts necessary or proper to
      accomplish the foregoing and prevent the breach or forfeiture of any such lease
      to be fully and promptly performed. Mortgagor will furnish to Mortgagee ten
      (10)
      day advance written notice of any intention not to pay (or immediately at such
      time that it anticipates that it will be unable to pay) any delay rentals on
      the
      due date thereof under any such lease.

     

    Section
      3.16 Further
      Assurance.
      Mortgagor will, on request of Mortgagee, (i) promptly correct any defect, error
      or omission which may be discovered in the contents of this Mortgage, or in
      any
      other document or instrument executed in connection with any of the Loan
      Documents, or in the execution or acknowledgment of this Mortgage or any other
      document; (ii) execute, acknowledge, deliver and record and/or file such further
      instruments (including, without limitation, further deeds of trust, mortgages,
      security agreements, financing statements, continuation statements, and
      assignments of production, accounts, funds, contract rights, general
      intangibles, and proceeds) and do such further acts as may be necessary,
      desirable or proper to carry out more effectively the purposes of this Mortgage
      and to more fully identify and subject to the liens and security interests
      hereof any property intended to be covered hereby, including specifically,
      but
      without limitation, any renewals, additions, substitutions, replacements, or
      appurtenances to the Mortgaged Property; and (iii) execute, acknowledge,
      deliver, and file and/or record any document or instrument (including
      specifically any financing statement) desired by Mortgagee to protect the lien
      or the security interest hereunder against the rights or interests of third
      persons. Mortgagor shall pay all reasonable costs connected with any of the
      foregoing. 


    
      
        
        

      

      
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    Section
      3.17 Name
      and Place of Business.
      Except
      as disclosed in writing to Mortgagee, Mortgagor has not during the preceding
      five (5) years been known by or used any other corporate or partnership, trade
      or fictitious name. Mortgagor will not cause or permit any change to be made
      in
      its name, identity, state of formation or corporate or partnership structure,
      or
      its federal employer identification number unless Mortgagor shall have notified
      Mortgagee of such change at least thirty (30) days prior to the effective date
      of such change, and shall have first taken all action required by Mortgagee
      for
      the purpose of further perfecting or protecting the liens and security interests
      in the Mortgaged Property created hereby. Mortgagor’s exact name is the name set
      forth in this Mortgage. Mortgagor is organized under the laws of one of the
      states comprising the United States (e.g. corporation, limited partnership,
      registered limited liability partnership or limited liability company).
      Mortgagor is located (as determined pursuant to the UCC) in the state under
      which it is organized, which is as set forth in the preamble to this Mortgage.
      Mortgagor’s principal place of business and chief executive office, and the
      place where Mortgagor keeps its books and records concerning the Mortgaged
      Property (including, particularly, the records with respect to Production
      Proceeds from the Mortgaged Property) has for the preceding four months, been,
      and will continue to be (unless Mortgagor notifies Mortgagee of any change
      in
      writing at least thirty (30) days prior to the date of such change), the address
      set forth on the signature page of this Mortgage.

     

    Section
      3.18 Compliance
      with Laws and Agreements.
      Mortgagor is in compliance with all governmental requirements applicable to
      it
      or its property, including, without limitation, all FERC regulations and the
      USA
      Patriot Act, and all indentures, agreements and other instruments binding upon
      it or its property the failure with which to comply would have a Material
      Adverse Effect on Mortgagor or the Mortgaged Property. The execution and
      performance of the Loan Documents, this Mortgage and the other documents and
      instruments contemplated hereby and thereby will not violate the Trading with
      the Enemy Act, as amended, any of the foreign assets control regulations of
      the
      United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended)
      or
      any enabling legislation or executive order relating thereto, the Executive
      Order referred to in the following sentence or the U.S. Bank Secrecy Act (31
      U.S.C. §§ 5311 et seq.). Mortgagor is not a Person described by section 1 of
      Executive Order 13224 of September 24, 2001 entitled Blocking Property and
      Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support
      Terrorism, 66 Fed. Reg. 49,079 (2001), as amended, and Mortgagor does not engage
      in any transactions or dealings, or is otherwise associated with any such
      Persons. Mortgagor is not bound by any agreement, document, instrument,
      judgment, decree, order, statute, law, rule or regulation that limits or could
      reasonably be expected to limit its performance under the Loan Documents or
      this
      Mortgage.

     

    Section
      3.19 Inspection;
      Management.
      Mortgagee and any persons authorized by Mortgagee shall have the right to enter
      and inspect the Mortgaged Property at all reasonable times. If, at any time
      after an Event of Default by Mortgagor, the management or maintenance of the
      Mortgaged Property is determined by Mortgagee to be unsatisfactory and is not
      corrected within thirty (30) days after notice to Mortgagor, Mortgagor will,
      to
      the extent Mortgagor is entitled under third party agreements affecting the
      same, employ, for the duration of such Event of Default, as managing agent
      of
      the Mortgaged Property, any person from time to time designated or approved
      by
      Mortgagee.


    
      
        
        

      

      
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    ARTICLE
      IV

    Rights
      and Remedies

     

    Section
      4.01 Event
      of Default.
      As used
      in this Mortgage, an “Event
      of Default”
means
      (i) the earlier to occur of (A) the failure by Mortgagor for ten (10) days
      from
      the date of receipt by Mortgagor of notice from Mortagee of such failure to
      comply with any covenant, agreement, warranty or condition herein required
      to be
      observed, kept or performed or (B) ten (10) days after any executive officer
      of
      Mortgagor obtains actual knowledge of such failure, or (ii) the occurrence
      of an
“Event of Default”, as defined under the Notes.

     

    Section
      4.02 Foreclosure
      and Sale. 

     

    (a) If
      an
      Event of Default shall occur and be continuing, Mortgagee shall have the right
      and option to proceed with foreclosure by directing Trustee, or his successors
      or substitutes in trust, to proceed with foreclosure and to sell, to the extent
      permitted by law, all or any portion of the Mortgaged Property at one or more
      sales, as an entirety or in parcels, at such place or places in otherwise such
      manner and upon such notice as may be required by law, or, in the absence of
      any
      such requirement, as Trustee may deem appropriate, and to make conveyance to
      the
      purchaser or purchasers. Where the Mortgaged Property is situated in more than
      one jurisdiction, notice as above provided shall be posted and filed in all
      such
      jurisdictions (if such notices are required by law), and all such Mortgaged
      Property may be sold in any such jurisdiction and any such notice shall
      designate the jurisdiction where such Mortgaged Property is to be sold.
      Cumulative of the foregoing and the other provisions of this Section 4.02 as
      to
      any portion of the Mortgaged Properties located in the State of Texas (or within
      the offshore area over which the United States of America asserts jurisdiction
      and to which the laws of such state are applicable with respect to this Mortgage
      and/or the liens or security interests created hereby), such sales of all or
      any
      part of such Mortgaged Properties shall be conducted at the courthouse of any
      county (whether or not the counties in which such Mortgaged Properties are
      located are contiguous) in the State of Texas in which any part of such
      Mortgaged Properties is situated or which lies shoreward of any Mortgaged
      Property (i.e., to the extent a particular Mortgaged Property lies offshore
      within the reasonable projected seaward extension of the relevant county
      boundary), at public venue to the highest bidder for cash between the hours
      of
      ten o'clock a.m. and four o'clock p.m. on the first Tuesday
      in any month or at such other place, time and date as provided by the statutes
      of the State of Texas then in force governing sales of real estate under powers
      conferred by deed of trust, after having given notice of such sale in accordance
      with such statutes. Nothing contained in this Section
      4.02
      shall be
      construed so as to limit in any way Trustee’s rights to sell the Mortgaged
      Property, or any portion thereof, by private sale if, and to the extent that,
      such private sale is permitted under the laws of the applicable jurisdiction
      or
      by public or private sale after entry of a judgment by any court of competent
      jurisdiction so ordering. Mortgagor hereby irrevocably appoints Trustee to
      be
      the attorney of Mortgagor and in the name and on behalf of Mortgagor to execute
      and deliver any deeds, transfers, conveyances, assignments, assurances and
      notices which Mortgagor ought to execute and deliver and do and perform any
      and
      all such acts and things which Mortgagor ought to do and perform under the
      covenants herein contained and generally, to use the name of Mortgagor in the
      exercise of all or any of the powers hereby conferred on Trustee. At any such
      sale: (i) whether made under the power herein contained or any other legal
      enactment, or by virtue of any judicial proceedings or any other legal right,
      remedy or recourse, it shall not be necessary for Trustee to have physically
      present, or to have constructive possession of, the Mortgaged Property
      (Mortgagor hereby covenanting and agreeing to deliver to Trustee any portion
      of
      the Mortgaged Property not actually or constructively possessed by Trustee
      immediately upon demand by Trustee) and the title to and right of possession
      of
      any such property shall pass to the purchaser thereof as completely as if the
      same had been actually present and delivered to purchaser at such sale,
      (ii) each instrument of conveyance executed by Trustee shall contain a
      general warranty of title, binding upon Mortgagor and its successors and
      assigns, (iii) each and every recital contained in any instrument of
      conveyance made by Trustee shall conclusively establish the truth and accuracy
      of the matters recited therein, including, without limitation, nonpayment of
      the
      Indebtedness, advertisement and conduct of such sale in the manner provided
      herein and otherwise by law and appointment of any successor Trustee hereunder,
      (iv) any and all prerequisites to the validity thereof shall be
      conclusively presumed to have been performed, (v) the receipt of Trustee or
      of such other party or officer making the sale shall be a sufficient discharge
      to the purchaser or purchasers for its purchase money and no such purchaser
      or
      purchasers, or its assigns or personal representatives, shall thereafter be
      obligated to see to the application of such purchase money, or be in any way
      answerable for any loss, misapplication or nonapplication thereof, (vi) to
      the fullest extent permitted by law, Mortgagor shall be completely and
      irrevocably divested of all of its right, title, interest, claim and demand
      whatsoever, either at law or in equity, in and to the property sold and such
      sale shall be a perpetual bar both at law and in equity against Mortgagor,
      and
      against any and all other persons claiming or to claim the property sold or
      any
      part thereof, by, through or under Mortgagor, and (vii) to the extent and
      under such circumstances as are permitted by law, Mortgagee may be a purchaser
      at any such sale, and shall have the right, after paying or accounting for
      all
      costs of said sale or sales, to credit the amount of the bid upon the amount
      of
      the Indebtedness (in the order of priority set forth in Section
      4.14
      hereof)
      in lieu of cash payment.


    
      
        
        

      

      
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    (b) With
      respect to that portion, if any, of the Mortgaged Property situated in the
      State
      of Texas,
      this instrument may be foreclosed by advertisement and sale as provided by
      applicable Texas statutes. In such regard, it shall be the duty of the Trustee,
      after advertising the time and place of the sale for at least 21 days prior
      to
      the day of sale, by posting or causing to be posted a written or printed notice
      thereof at the courthouse door and by filing a copy of such notice in the office
      of the county clerk of each county in which the Mortgaged Property or any part
      thereof may be situated, and serving written notice of the proposed sale on
      each
      debtor obligated to pay the Indebtedness according to the records of Mortgagee,
      by postage prepaid, certified United States mail, at the most recent address
      for
      such debtor as shown by the records of Mortgagee, at least 21 days prior to
      the
      day of sale, to sell the Mortgaged Property, either as a whole or in parcels,
      as
      the Trustee may deem proper, at public venue at the courthouse of the county
      in
      which the Mortgaged Property or any part thereof may be situated (and being
      the
      county designated in the notice of sale) on the first Tuesday of any month
      between the hours of 10:00 a.m. and 4:00 p.m., to the highest bidder for cash,
      and after such sale to execute and deliver to the purchaser or purchasers good
      and sufficient deeds and assignments, conveying such property so sold to the
      purchaser or purchasers with general warranty of title made on behalf of
      Mortgagor. The Trustee, or his successor or substitute, is hereby authorized
      and
      empowered to appoint any one or more persons or entities as his
      attorneys-in-fact or agents to act as Trustee under him and in his name, place
      and stead, such appointment to be evidenced by a written instrument executed
      by
      the Trustee, or his successor or substitute, to perform any one or more act
      or
      acts necessary or incident to any sale under the power of sale hereunder,
      including, without limitation, the posting and filing of any notices, the
      conduct of the sale and the execution and delivery of any instruments conveying
      the Mortgaged Property as a result of the sale, but in the name and on behalf
      of
      the Trustee, or his successor or substitute; and all acts done or performed
      by
      such attorneys-in-fact or agents shall be valid, lawful and binding as if done
      or performed by the Trustee, or his successor substitute.

     

    (c) Upon
      the
      occurrence of an Event of Default, Mortgagee may exercise its rights of
      enforcement with respect to the Mortgaged Properties or any part thereof under
      the Applicable UCC of any State where any portion of the Mortgaged Properties
      are located or under any other statute in force in any state to the extent
      the
      same is applicable law. Cumulative of the foregoing and the other provisions
      of
      this Section
      4.02:
      (i) to
      the extent permitted by law, upon the occurrence and during the continuation
      of
      an Event of Default Mortgagee may enter upon the Mortgaged Properties or
      otherwise upon Mortgagor’s premises to take possession of, assemble and collect
      the personal property portion of the Mortgaged Properties or to render it
      unusable; (ii) upon the occurrence and during the continuation of an Event
      of
      Default Mortgagee may require Mortgagor to assemble the personal property and
      make it available at a place Mortgagee designates which is mutually convenient
      to allow Mortgagee to take possession or dispose of the personal property;
      (iii)
      written notice mailed to Mortgagor as provided herein at least five (5) business
      days prior to the date of public sale of the personal property or prior to
      the
      date after which private sale of the personal property will be made shall
      constitute reasonable notice; (iv) in the event of a foreclosure of the liens,
      privileges and/or security interests evidenced hereby, the personal property,
      or
      any part thereof, and the Mortgaged Properties, or any part thereof, may, at
      the
      option of Mortgagee, be sold, as a whole or in parts, together or separately
      (including, without limitation, where a portion of the Mortgaged Properties
      is
      sold, the personal property related thereto may be sold in connection
      therewith); (v) upon the occurrence and during the continuation of an Event
      of
      Default, Mortgagee or the Trustee may, to the extent permitted under applicable
      law, elect to treat the fixtures included in the Mortgaged Properties either
      as
      real property or as personal property, or both, and proceed to exercise such
      rights as apply thereto; and (vi) with respect to any sale of real property
      included in the Mortgaged Properties made under the powers of sale herein
      granted and conferred, Mortgagee or the Trustee may, to the extent permitted
      by
      applicable law, include in such sale any personal property and fixtures included
      in the Mortgaged Properties and relating to such real property.


    
      
        
        

      

      
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    Section
      4.03 Agents.
      Trustee
      or his successor or substitute may appoint or delegate any one or more persons
      as agent to perform any act or acts necessary or incident to any sale held
      by
      Trustee, including the posting of notices and the conduct of sale, but in the
      name and on behalf of Trustee, his successor or substitute. If Trustee or his
      successor or substitute shall have given notice of sale hereunder, any successor
      or substitute trustee thereafter appointed may complete the sale and the
      conveyance of the property pursuant thereto as if such notice had been given
      by
      the successor or substitute trustee conducting the sale.

     

    Section
      4.04 Judicial
      Foreclosure; Receivership.
      If any
      of the Indebtedness shall become due and payable and shall not be promptly
      paid,
      Trustee or Mortgagee shall have the right and power to proceed by a suit or
      suits in equity or at law, whether for the specific performance of any covenant
      or agreement herein contained or in aid of the execution of any power herein
      granted, or for any foreclosure hereunder or for the sale of the Mortgaged
      Property under the judgment or decree of any court or courts of competent
      jurisdiction or for the enforcement of any other appropriate legal or equitable
      remedy. In addition to all other remedies herein provided for, Mortgagor agrees
      that, upon the occurrence of an Event of Default or any event or circumstance
      which, with the lapse of time or the giving of notice, or both, would constitute
      an Event of Default hereunder, Mortgagee shall as a matter of right be entitled
      to the appointment of a receiver or receivers for all or any part of the
      Mortgaged Property, whether such receivership be incident to a proposed sale
      (or
      sales) of such property or otherwise, and without regard to the value of the
      Mortgaged Property or the solvency of any person or persons liable for the
      payment of the Indebtedness secured hereby, and Mortgagor does hereby consent
      to
      the appointment of such receiver or receivers, waives any and all defenses
      to
      such appointment, and agrees not to oppose any application therefor by
      Mortgagee, and agrees that such appointment shall in no manner impair, prejudice
      or otherwise affect the rights of Mortgagee under Article II
      hereof.
      Mortgagor expressly waives notice of a hearing for appointment of a receiver
      and
      the necessity for bond or an accounting by the receiver. Nothing herein is
      to be
      construed to deprive Mortgagee of any other right, remedy or privilege it may
      now or hereafter have under the law to have a receiver appointed. Any money
      advanced by Trustee and/or Mortgagee in connection with any such receivership
      shall be a demand obligation (which obligation Mortgagor hereby expressly
      promises to pay) included in the Indebtedness owing by Mortgagor to the Trustee
      and/or Mortgagee and shall bear interest from the date of making such advance
      by
      Trustee and/or Mortgagee until paid at the then applicable interest rate under
      the Note (the “Applicable
      Rate”).


    
      
        
        

      

      
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    Section
      4.05 Foreclosure
      for Installments.
      Mortgagee shall also have the option to proceed with foreclosure in satisfaction
      of any installments of the Indebtedness which have not been paid when due either
      through the courts or by directing Trustee or his successors in trust to proceed
      with foreclosure in satisfaction of the matured but unpaid portion of the
      Indebtedness as if under a full foreclosure, conducting the sale as herein
      provided and without declaring the entire principal balance and accrued interest
      due; such sale may be made subject to the unmatured portion of the Indebtedness,
      and any such sale shall not in any manner affect the unmatured portion of the
      Indebtedness, but as to such unmatured portion of the Indebtedness, this
      Mortgage shall remain in full force and effect just as though no sale had been
      made hereunder. It is further agreed that several sales may be made hereunder
      without exhausting the right of sale for any unmatured part of the Indebtedness,
      it being the purpose hereof to provide for a foreclosure and sale of the
      security for any matured portion of the Indebtedness without exhausting the
      power to foreclose and sell the Mortgaged Property for any subsequently maturing
      portion of the Indebtedness.

     

    Section
      4.06 Separate
      Sales.
      The
      Mortgaged Property may be sold in one or more parcels and in such manner and
      order as Mortgagee, in its sole discretion, may elect, it being expressly
      understood and agreed that the right of sale arising out of any Event of Default
      shall not be exhausted by any one or more sales.

     

    Section
      4.07 Possession
      of Mortgaged Property.
      Mortgagor agrees to the full extent that it lawfully may, that, in case one
      or
      more of the Events of Default shall have occurred and shall not have been
      remedied, then, and in every such case, Trustee or Mortgagee shall have the
      right and power to enter into and upon and take possession of all or any part
      of
      the Mortgaged Property in the possession of Mortgagor, its successors or
      assigns, or its or their agents or servants, and may exclude Mortgagor, its
      successors or assigns, and all persons claiming under Mortgagor, and its or
      their agents or servants wholly or partly therefrom; and, holding the same,
      Trustee may use, administer, manage, operate and control the Mortgaged Property
      and conduct the business thereof to the same extent as Mortgagor, its successors
      or assigns, might at the time do and may exercise all rights and powers of
      Mortgagor, in the name, place and stead of Mortgagor, or otherwise as Trustee
      shall deem best. All reasonable costs, expenses and liabilities of every
      character incurred by Trustee and/or Mortgagee in administering, managing,
      operating, and controlling the Mortgaged Property shall constitute a demand
      obligation (which obligation Mortgagor hereby expressly promises to pay) owing
      by Mortgagor to Trustee and/or Mortgagee and shall bear interest from date
      of
      expenditure until paid at the Applicable Rate, all of which shall constitute
      a
      portion of the Indebtedness and shall be secured by this Mortgage and all other
      security instruments.

     

    Section
      4.08 Occupancy
      After Foreclosure.
      In the
      event there is a foreclosure sale hereunder and at the time of such sale
      Mortgagor or Mortgagor’s representatives, successors or assigns or any other
      person claiming any interest in the Mortgaged Property by, through or under
      Mortgagor, are occupying or using the Mortgaged Property or any part thereof,
      each and all shall immediately become the tenant of the purchaser at such sale,
      which tenancy shall be a tenancy from day to day, terminable at the will of
      either the landlord or tenant, or at a reasonable rental per day based upon
      the
      value of the property occupied, such rental to be due daily to the purchaser;
      to
      the extent permitted by applicable law, the purchaser at such sale shall,
      notwithstanding any language herein apparently to the contrary, have the sole
      option to demand immediate possession following the sale or to permit the
      occupants to remain as tenants at will. In the event the tenant fails to
      surrender possession of said property upon demand, the purchaser shall be
      entitled to institute and maintain a summary action for possession of the
      Mortgaged Property (such as an action for forcible entry and detainer) in any
      court having jurisdiction.


    
      
        
        

      

      
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    Section
      4.09 Remedies
      Cumulative, Concurrent and Nonexclusive.
      Every
      right, power and remedy herein given to Trustee or Mortgagee shall be cumulative
      and in addition to every other right, power and remedy herein specifically
      given
      or now or hereafter existing in equity, at law or by statute (including
      specifically those granted by the Applicable UCC in effect and applicable to
      the
      Mortgaged Property or any portion thereof) each and every right, power and
      remedy whether specifically herein given or otherwise existing may be exercised
      from time to time and so often and in such order as may be deemed expedient
      by
      Trustee or Mortgagee, and the exercise, or the beginning of the exercise, of
      any
      such right, power or remedy shall not be deemed a waiver of the right to
      exercise, at the same time or thereafter any other right, power or remedy.
      No
      delay or omission by Trustee or Mortgagee in the exercise of any right, power
      or
      remedy shall impair any such right, power or remedy or operate as a waiver
      thereof or of any other right, power or remedy then or thereafter
      existing.

     

    Section
      4.10 No
      Release of Obligations.
      Neither
      Mortgagor, any other Mortgagor Party, any guarantor nor any other person
      hereafter obligated for payment of all or any part of the Indebtedness shall
      be
      relieved of such obligation by reason of (a) the failure of Trustee to comply
      with any request of Mortgagor, or any guarantor or any other person so obligated
      to foreclose the lien of this Mortgage or to enforce any provision hereunder
      or
      under the any of the Loan Documents; (b) the release, regardless of
      consideration, of the Mortgaged Property or any portion thereof or interest
      therein or the addition of any other property to the Mortgaged Property; (c)
      any
      agreement or stipulation between any subsequent owner of the Mortgaged Property
      and Mortgagee extending, renewing, rearranging or in any other way modifying
      the
      terms of this Mortgage without first having obtained the consent of, given
      notice to or paid any consideration to Mortgagor, any other Mortgagor Party,
      any
      guarantor or such other person, and in such event Mortgagor, the Mortgagor
      Parties, guarantor and all such other persons shall continue to be liable to
      make payment according to the terms of any such extension or modification
      agreement unless expressly released and discharged in writing by Mortgagee;
      or
      (d) by any other act or occurrence, save and except the complete payment of
      the
      Indebtedness and the complete fulfillment of all obligations hereunder or under
      the Loan Documents.

     

    Section
      4.11 Release
      of and Resort to Collateral.
      Mortgagee may release, regardless of consideration, any part of the Mortgaged
      Property without, as to the remainder, in any way impairing, affecting,
      subordinating or releasing the lien or security interest created in or evidenced
      by this Mortgage or its stature as a first and prior lien and security interest
      in and to the Mortgaged Property, and without in any way releasing or
      diminishing the liability of any person or entity liable for the repayment
      of
      the Indebtedness. For payment of the Indebtedness, Mortgagee may resort to
      any
      other security therefor held by Mortgagee or Trustee in such order and manner
      as
      Mortgagee may elect.

     

    Section
      4.12 Waiver
      of Redemption, Notice and Marshalling of Assets, Etc.
      To the
      fullest extent permitted by law, Mortgagor hereby irrevocably and
      unconditionally waives and releases (a) all benefits that might accrue to
      Mortgagor by virtue of any present or future moratorium law or other law
      exempting the Mortgaged Property from attachment, levy or sale on execution
      or
      providing for any appraisement, valuation, stay of execution, exemption from
      civil process, redemption or extension of time for payment; provided, however,
      that if the laws of any state do not permit the redemption period to be waived,
      the redemption period is specifically reduced to the minimum amount of time
      allowable by statute; (b) all notices of any Event of Default or of Mortgagee’s
      intention to accelerate maturity of the Indebtedness or of Trustee’s election to
      exercise or his actual exercise of any right, remedy or recourse provided for
      hereunder or under the Loan Documents; and (c) any right to a marshalling of
      assets or a sale in inverse order of alienation. If any law referred to in
      this
      Mortgage and now in force, of which Mortgagor or its successor or successors
      might take advantage despite the provisions hereof, shall hereafter be repealed
      or cease to be in force, such law shall thereafter be deemed not to constitute
      any part of the contract herein contained or to preclude the operation or
      application of the provisions hereof.


    
      
        
        

      

      
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    Section
      4.13 Discontinuance
      of Proceedings.
      In case
      Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted
      hereunder or under the Loan Documents and shall thereafter elect to discontinue
      or abandon same for any reason, Mortgagee shall have the unqualified right
      to do
      so and, in such an event, Mortgagor and Mortgagee shall be restored to their
      former positions with respect to the Indebtedness, this Mortgage, the Loan
      Documents, the Mortgaged Property and otherwise, and the rights, remedies,
      recourses and powers of Mortgagee shall continue as if same had never been
      invoked.

     

    Section
      4.14 Application
      of Proceeds.
      The
      proceeds of any sale of the Mortgaged Property or any part thereof and all
      other
      monies received by Trustee or Mortgagee in any proceedings for the enforcement
      hereof or otherwise, whose application has not elsewhere herein been
      specifically provided for, shall be applied:

     

    (a) first,
      to
      the payment of all costs and expenses incurred by Trustee or Mortgagee incident
      to the enforcement of this Mortgage, the Loan Documents or any of the
      Indebtedness (including, without limiting the generality of the foregoing,
      expenses of any entry or taking of possession, of any sale, of advertisement
      thereof, and of conveyances, and court costs, compensation of agents and
      employees, legal fees and a reasonable commission to Trustee acting in
      connection herewith or hereunder), and to the payment of all other charges,
      expenses, liabilities and advances incurred or made by Trustee or Mortgagee
      under this Mortgage or in executing any trust or power hereunder;

     

    (b) second,
      to payment of the Indebtedness in such order and manner as Mortgagee may elect
      in Mortgagee’s sole discretion; and

     

    (c) third,
      to
      Mortgagor or such other persons as may be entitled thereto by law or as
      otherwise required by any court of competent jurisdiction.

     

    Section
      4.15 Resignation
      of Operator.
      In
      addition to all rights and remedies under this Mortgage, at law and in equity,
      if any Event of Default shall occur and Trustee or Mortgagee shall exercise
      any
      remedies under this Mortgage with respect to any portion of the Mortgaged
      Property (or Mortgagor shall transfer any Mortgaged Property “in lieu of”
foreclosure), Mortgagee or Trustee shall have the right to request that any
      operator of any Mortgaged Property which is either Mortgagor or any affiliate
      of
      Mortgagor to resign as operator under the joint operating agreement applicable
      thereto, and no later than 60 days after receipt by Mortgagor of any such
      request, Mortgagor shall resign (or cause such other party to resign) as
      operator of such Mortgaged Property.

     

    Section
      4.16 Indemnity.
      In
      connection with any action taken by Trustee and/or Mortgagee pursuant to this
      Mortgage, Trustee and/or Mortgagee and their officers, directors, Partners,
      Members, Investors, Equity Holders, employees, representatives, agents,
      advisors, attorneys, accountants and experts and any persons or entities owned
      or controlled by Trustee, or Mortgagee or any such other person or entity
      (“Indemnified
      Parties”)
      shall
      not be liable for any loss sustained by Mortgagor resulting from an assertion
      that Mortgagee has received funds from the production of Hydrocarbons claimed
      by
      third persons or any act or omission of any Indemnified Party in administering,
      managing, operating or controlling the Mortgaged Property, including such loss
      which may result from the ordinary negligence of an Indemnified Party, unless
      such loss is caused by the gross negligence or willful misconduct of an
      Indemnified Party, nor shall Trustee and/or Mortgagee be obligated to perform
      or
      discharge any obligation, duty or liability of Mortgagor. Mortgagor shall and
      does hereby agree to indemnify each Indemnified Party for, and to hold each
      Indemnified Party harmless from, any and all liability, loss or damage which
      may
      or might be incurred by any Indemnified Party by reason of this Mortgage or
      the
      exercise of rights or remedies hereunder; should Trustee and/or Mortgagee make
      any expenditure on account of any such liability, loss or damage, the amount
      thereof, including reasonable costs and expenses and reasonable attorneys’ fees,
      shall be a demand obligation (which obligation Mortgagor hereby expressly
      promises to pay) owing by Mortgagor to Trustee and/or Mortgagee and shall bear
      interest from the date expended until paid at the applicable interest rate,
      shall be a part of the Indebtedness and shall be secured by this Mortgage and
      any other Security Instrument. Mortgagor hereby assents to, ratifies and
      confirms any and all actions of Trustee and/or Mortgagee with respect to the
      Mortgaged Property taken under this Mortgage. The liabilities of Mortgagor
      as
      set forth in this Section
      4.16
      shall
      survive the termination of this Mortgage.


    
      
        
        

      

      
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    ARTICLE
      V

    Trustee

     

    Section
      5.01 Duties,
      Rights, and Powers of Trustee.
      It
      shall be no part of the duty of Trustee to see to any recording, filing or
      registration of this Mortgage or any other instrument in addition or
      supplemental thereto, or to give any notice thereof, or to see to the payment
      of
      or be under any duty in respect of any tax or assessment or other governmental
      charge which may be levied or assessed on the Mortgaged Property, or any part
      thereof, or against Mortgagor, or to see to the performance or observance by
      Mortgagor of any of the covenants and agreements contained herein. Trustee
      shall
      not be responsible for the execution, acknowledgment or validity of this
      Mortgage or of any instrument in addition or supplemental hereto or for the
      sufficiency of the security purported to be created hereby, and makes no
      representation in respect thereof or in respect of the rights of Mortgagee.
      Trustee shall have the right to advise with counsel upon any matters arising
      hereunder and shall be fully protected in relying as to legal matters on the
      advice of counsel. Trustee shall not incur any personal liability hereunder,
      except for Trustee’s own willful misconduct; and Trustee shall have the right to
      rely on any instrument, document or signature authorizing or supporting any
      action taken or proposed to be taken by him hereunder, believed by him in good
      faith to be genuine.

     

    Section
      5.02 Successor
      Trustee.
      Trustee
      may resign by written notice addressed to Mortgagee or be removed at any time
      with or without cause by an instrument in writing duly executed on behalf of
      Mortgagee. In case of the death, resignation or removal of Trustee, a successor
      trustee may be appointed by Mortgagee by instrument of substitution complying
      with any applicable requirements of law, or, in the absence of any such
      requirement, without other formality than appointment and designation in
      writing. Written notice of such appointment and designation shall be given
      by
      Mortgagee to Mortgagor, but the validity of any such appointment shall not
      be
      impaired or affected by failure to give such notice or by any defect therein.
      Such appointment and designation shall be full evidence of the right and
      authority to make the same and of all the facts therein recited, and, upon
      the
      making of any such appointment and designation, this Mortgage shall vest in
      the
      successor trustee all the estate and title in and to all of the Mortgaged
      Property, and the successor trustee shall thereupon succeed to all of the
      rights, powers, privileges, immunities and duties hereby conferred upon Trustee
      named herein, and one such appointment and designation shall not exhaust the
      right to appoint and designate a successor trustee hereunder but such right
      may
      be exercised repeatedly as long as any Indebtedness remains unpaid hereunder.
      To
      facilitate the administration of the duties hereunder, Mortgagee may appoint
      multiple trustees to serve in such capacity or in such jurisdictions as
      Mortgagee may designate.


    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    Section
      5.03 Retention
      of Moneys.
      All
      moneys received by Trustee shall, until used or applied as herein provided,
      be
      held in trust for the purposes for which they were received, but need not be
      segregated in any manner from any other moneys (except to the extent required
      by
      law), and Trustee shall be under no liability for interest on any moneys
      received by him hereunder. 

     

    ARTICLE
      VI

    Miscellaneous

     

    Section
      6.01 Instrument
      Construed as Mortgage, Etc.
      With
      respect to any portions of the Mortgaged Property located in any state or other
      jurisdiction the laws of which do not provide for the use or enforcement of
      a
      deed of trust or the office, rights and authority of Trustee as herein provided,
      the general language of conveyance hereof to Trustee is intended and the same
      shall be construed as words of mortgage unto and in favor of Mortgagee and
      the
      rights and authority granted to Trustee herein may be enforced and asserted
      by
      Mortgagee in accordance with the laws of the jurisdiction in which such portion
      of the Mortgaged Property is located and the same may be foreclosed at the
      option of Mortgagee as to any or all such portions of the Mortgaged Property
      in
      any manner permitted by the laws of the jurisdiction in which such portions
      of
      the Mortgaged Property is situated. This Mortgage may be construed as a
      mortgage, deed of trust, chattel mortgage, conveyance, assignment, security
      agreement, pledge, financing statement, hypothecation or contract, or any one
      or
      more of them, in order fully to effectuate the lien hereof and the purposes
      and
      agreements herein set forth. 

     

    Section
      6.02 Release
      of Mortgage.
      At such
      time, if any, as (i) all Indebtedness under the Notes secured hereby shall
      be
      finally and irrevocably paid in full in cash, (ii) no Notes shall remain
      outstanding, (iii) all commitments to lend under the Purchase Agreement shall
      have terminated and (iv) there shall exist no other outstanding payment or
      reimbursement obligations (other than contingent indemnification obligations
      for
      which no claims shall have been asserted) of the Mortgagor or any of its
      Subsidiaries to the Mortgagee under any of the Transaction Documents, Mortgagee
      shall forthwith cause satisfaction and discharge of this Mortgage to be entered
      upon the record at the expense of Mortgagor and shall execute and deliver or
      cause to be executed and delivered such instruments of satisfaction and
      reassignment as may be appropriate. Otherwise, this Mortgage shall remain and
      continue in full force and effect. 

     

    Section
      6.03 Severability.
      If any
      provision hereof is invalid or unenforceable in any jurisdiction, the other
      provisions hereof shall remain in full force and effect in such jurisdiction
      and
      the remaining provisions hereof shall be liberally construed in favor of Trustee
      and Mortgagee in order to effectuate the provisions hereof, and the invalidity
      or unenforceability of any provision hereof in any jurisdiction shall not affect
      the validity or enforceability of any such provision in any other
      jurisdiction.

     

    Section
      6.04 Successors
      and Assigns of Parties.
      The
      term “Mortgagee” as used herein shall mean and include any legal owner, holder,
      assignee or pledgee of any of the Indebtedness secured hereby. The terms used
      to
      designate Trustee, Mortgagee and Mortgagor shall be deemed to include the
      respective successors and assigns of such parties.

     

    Section
      6.05 Satisfaction
      of Prior Encumbrance.
      To the
      extent that proceeds of the Notes are used to pay indebtedness secured by any
      outstanding lien, security interest, charge or prior encumbrance against the
      Mortgaged Property, such proceeds have been advanced by Mortgagee at Mortgagor’s
      request, and Mortgagee shall be subrogated to any and all rights, security
      interests and liens owned by any owner or holder of such outstanding liens,
      security interests, charges or encumbrances, irrespective of whether said liens,
      security interests, charges or encumbrances are released, and it is expressly
      understood that, in consideration of the payment of such other indebtedness
      by
      Mortgagee, Mortgagor hereby waives and releases all demands and causes of action
      for offsets and payments to, upon and in connection with the said
      indebtedness.


    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    Section
      6.06 Subrogation
      of Trustee.
      This
      Mortgage is made with full substitution and subrogation of Trustee and his
      successors in this trust and his and their assigns in and to all covenants
      and
      warranties by others heretofore given or made in respect of the Mortgaged
      Property or any part thereof.

     

    Section
      6.07 Nature
      of Covenants.
      The
      covenants and agreements herein contained shall constitute covenants running
      with the land and interests covered or affected hereby and shall be binding
      upon
      the heirs, legal representatives, successors and assigns of the parties
      hereto.

     

    Section
      6.08 Notices.
      All
      notices, requests, consents, demands and other communications required or
      permitted hereunder shall be given or furnished in accordance with the terms
      of
      the Purchase Agreement relating to the giving of notices (it being agreed to
      and
      understood that delivery to Mortgagor of any such notice, request, consent,
      demand or other communication shall be deemed delivery to
      Mortgagor).

     

    Section
      6.09 Counterparts.
      This
      Mortgage is being executed in several counterparts, all of which are identical,
      except that to facilitate recordation, if the Mortgaged Property is situated
      in
      more than one jurisdiction, descriptions of only those portions of the Mortgaged
      Property located in, and descriptions of the Prior Mortgages (as defined herein)
      for, the jurisdiction in which a particular counterpart is recorded shall be
      attached as Exhibit
      A
      thereto.
      An Exhibit
      A
      containing a description of all Mortgaged Property wheresoever situated will
      be
      attached to that certain counterpart to be attached to a Financing Statement
      and
      filed with the Secretary of State of Delaware and Texas in their respective
      Uniform Commercial Code Records. Each of such counterparts shall for all
      purposes be deemed to be an original and all such counterparts shall together
      constitute but one and the same instrument 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.

     

    Section
      6.10 Effective
      as a Financing Statement.
      This
      Mortgage, among other things, covers goods which are or are to become fixtures
      on the real property described herein and covers as-extracted collateral related
      to the real/immovable property described herein. This Mortgage shall be
      effective as a financing statement (i) filed as a fixture filing with respect
      to
      all fixtures included within the Mortgaged Property, (ii) covering as-extracted
      collateral with respect to all as-extracted collateral included within the
      Mortgaged Property (including, without limitation, all oil, gas, other minerals
      and other substances of value which may be extracted from the earth at the
      wellhead or minehead) and (iii) covering all other Mortgaged Property. This
      Mortgage is to be filed for record in the real/immovable property records of
      each county or parish where any part of the Mortgaged Property is situated
      and
      may also be filed in the offices of the Bureau of Land Management or the
      Minerals Management Service or any relevant state agency (or any successor
      agencies). The mailing address of Mortgagor is the address of Mortgagor set
      forth at the end of this Mortgage and the address of Mortgagee from which
      information concerning the security interests hereunder may be obtained is
      the
      address of Mortgagee set forth at the end of this Mortgage. Nothing contained
      in
      this paragraph shall be construed to limit the scope of this Mortgage nor its
      effectiveness as a financing statement covering any type of property. A carbon,
      photographic, facsimile or other reproduction of this Mortgage or of any
      financing statement relating to this Mortgage shall be sufficient as a financing
      statement for any of the purposes referred to this Section. Without limiting
      any
      other provision herein, Mortgagor hereby authorizes Mortgagee to file, in any
      filing or recording office, one or more financing statements and any renewal
      or
      continuation statements thereof.


    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    Section
      6.11 No
      Impairment of Security.
      To the
      extent allowed by applicable law, the lien, privilege, security interest and
      other security rights hereunder shall not be impaired by any indulgence,
      moratorium or release which may be granted including, but not limited to, any
      renewal, extension or modification which may be granted with respect to any
      secured obligations, or any surrender, compromise, release, renewal, extension,
      exchange or substitution which may be granted in respect of the Mortgaged
      Property (including, without limitation, Production Proceeds), or any part
      thereof or any interest therein, or any release or indulgence granted to any
      borrower, endorser, guarantor or surety of any Indebtedness. 

     

    Section
      6.12 Acts
      Not Constituting Waiver.
      Any
      default may be waived without waiving any other prior or subsequent default.
      Any
      default may be remedied without waiving any other default. Neither failure
      to
      exercise, nor delay in exercising, any right, power or remedy upon any default
      shall be construed as a waiver of such default or as a waiver of the right
      to
      exercise any such right, power or remedy at a later date. No single or partial
      exercise of any right, power or remedy hereunder shall exhaust the same or
      shall
      preclude any other or further exercise thereof, and every such right, power
      or
      remedy hereunder may be exercised at any time and from time to time. No
      modification or waiver of any provision hereof nor consent to any departure
      by
      Mortgagor therefrom shall in any event be effective unless the same shall be
      in
      writing and signed by Mortgagee and then such waiver or consent shall be
      effective only in the specific instances, for the purpose for which given and
      to
      the extent therein specified. No notice nor demand on Mortgagor in any case
      shall of itself entitle Mortgagor to any other or further notice or demand
      in
      similar or other circumstances. Acceptance of any payment in an amount less
      than
      the amount then due on any Indebtedness shall be deemed an acceptance on account
      only and shall not in any way excuse the existence of default
      hereunder. 

     

    Section
      6.13 Mortgagor’s
      Successors.
      In the
      event the ownership of any Mortgaged Property or any part thereof becomes vested
      in a person other than Mortgagor, then, without notice to Mortgagor, such
      successor or successors in interest may be dealt with, with reference to this
      Mortgage and to the obligations secured hereby, in the same manner as with
      Mortgagor, without in any way vitiating or discharging Mortgagor’s liability
      hereunder or for the payment of the Indebtedness or performance of the
      obligations secured hereby. No transfer of any Mortgaged Property, no
      forbearance, and no extension of the time for the payment of any Indebtedness
      secured hereby, shall operate to release, discharge, modify, change or affect,
      in whole or in part, the liability of Mortgagor hereunder or for the payment
      of
      the Indebtedness or performance of the obligations secured hereby, or the
      liability of any other person hereunder or for the payment of the
      Indebtedness.

     

    Section
      6.14 Certain
      Consents.
      Except
      where otherwise expressly provided herein, in any instance hereunder where
      the
      approval, consent or the exercise of judgment of Mortgagee is required, the
      granting or denial of such approval or consent and the exercise of such judgment
      shall be within the sole discretion of Mortgagee, and Mortgagee shall not,
      for
      any reason or to any extent, be required to grant such approval or consent
      or
      exercise such judgment in any particular manner, regardless of the
      reasonableness of either the request or the judgment of such party. 

     

    Section
      6.15 Governing
      Law.
      WITHOUT
      REGARD TO PRINCIPLES OF CONFLICTS OF LAW, THIS MORTGAGE SHALL BE CONSTRUED
      AND
      ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
      APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE
      AND
      THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE EXTENT
      THAT
      THE LAW OF A STATE IN WHICH A PORTION OF THE MORTGAGED PROPERTY IS LOCATED
      (OR
      WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE MORTGAGED PROPERTY)
      NECESSARILY OR, IN THE SOLE DISCRETION OF THE MORTGAGEE, APPROPRIATELY GOVERNS
      WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION,
      PERFECTION AND ENFORCEMENT OF THE LIENS, PRIVILEGES, SECURITY INTERESTS AND
      OTHER RIGHTS AND REMEDIES OF THE TRUSTEE OR MORTGAGEE GRANTED HEREIN, THE LAW
      OF
      SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE MORTGAGED PROPERTY LOCATED
      IN
      (OR WHICH IS OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.


    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    Section
      6.16 Exculpation
      Provisions.
      Each of
      the parties hereto specifically agrees that it has a duty to read this Mortgage;
      and agrees that it is charged with notice and knowledge of the terms of this
      Mortgage; that it has in fact read this Mortgage and is fully informed and
      has
      full notice and knowledge of the terms, conditions and effects of this Mortgage;
      that it has been represented by independent legal counsel of its choice
      throughout the negotiations preceding its execution of this Mortgage; and has
      received the advice of its attorney in entering into this Mortgage; and that
      it
      recognizes that certain of the terms of this Mortgage result in one party
      assuming the liability inherent in some aspects of the transaction and relieving
      the other party of its responsibility for such liability. Each party hereto
      agrees and covenants that it will not contest the validity or enforceability
      of
      any exculpatory provision of this Mortgage on the basis that the party had
      no
      notice or knowledge of such provision or that the provision is not
“conspicuous.”

     

    Section
      6.17 FINAL
      AGREEMENT.
      THE
      TRANSACTION DOCUMENTS, THIS MORTGAGE AND THE SECURITY DOCUMENTS AND THE OTHER
      WRITTEN DOCUMENTS EXECUTED IN CONNECTION THEREWITH REPRESENT THE FINAL AGREEMENT
      BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OR PRIOR,
      CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
      UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     

    Section
      6.18 Subrogation;
      Prior Mortgages.
      To the
      extent that proceeds of the Indebtedness are used to pay obligations secured
      by
      any outstanding lien, privilege, security interest, charge or prior encumbrance
      against any Mortgaged Property (“Prior
      Mortgages”),
      such
      proceeds have been advanced at Mortgagor's request, and the Trustee for the
      benefit of the Mortgagee or the Mortgagee as agent for the party or parties
      advancing the same shall be subrogated to any and all rights, security interests
      and liens owned by any owner or holder of such Prior Mortgages, privileges,
      security interests, charges or encumbrances, irrespective of whether said liens,
      privileges, security interests, charges or encumbrances are released, and it
      is
      expressly understood that, in consideration of the payment of such obligations,
      Mortgagor hereby waives and releases all demands and causes of action for
      offsets and payments to, upon and in connection with the said obligations.
      Mortgagor and Mortgagee acknowledge that this Mortgage amends, restates and
      consolidates the Prior Mortgages, and all liens, claims, rights, titles,
      interests and benefits created and granted by the Prior Mortgages shall continue
      to exist, remain valid and subsisting, shall not be impaired or released hereby,
      shall remain in full force and effect and are hereby renewed, extended, carried
      forward and conveyed as security for the Indebtedness.

     

    Section
      6.19 Compliance
      with Usury Laws.
      It is
      the intent of Mortgagor, Mortgagee and all other parties to the Transaction
      Documents to contract in strict compliance with applicable usury law from time
      to time in effect. In furtherance thereof, it is stipulated and agreed that
      none
      of the terms and provisions contained herein or in the other Transaction
      Documents shall ever be construed to create a contract to pay, for the use,
      forbearance or detention of money, interest in excess of the maximum amount
      of
      interest permitted to be collected, charged, taken or received by applicable
      law
      from time to time in effect.
      The
      parties expressly agree that the laws of the state of the location of payment
      (the State of New York) and not the laws of the State of Texas govern the
      applicable interest rates.


    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    Section
      6.20 Certain
      Obligations of Mortgagor.
      Without
      limiting Mortgagor's obligations hereunder, Mortgagor's liability hereunder
      and
      the obligations secured hereby shall extend to and include all post petition
      interest, expenses and other duties and liabilities with respect to Mortgagor's
      obligations hereunder which would be owed but for the fact that the same may
      be
      unenforceable due to the existence of a bankruptcy, reorganization or similar
      proceeding.

     

    Section
      6.21 Authority
      of Mortgagee.
      The
      holders of the Indebtedness secured hereby may, by agreement among them, provide
      for and regulate the exercise of rights and remedies hereunder, but, unless
      and
      until modified to the contrary in writing signed by all such persons and
      recorded in the same counties as this Mortgage is recorded, (i) all persons
      other than Mortgagor and its affiliates shall be entitled to rely on the
      releases, waivers, consents, approvals, notifications and other acts (including,
      without limitation, or the appointment or substitution of trustees hereunder
      and
      the bidding in of all or any part of the Indebtedness held by any one or more
      persons, whether the same be conducted under the provisions hereof or otherwise)
      of Mortgagee, without inquiry into any such agreements or the existence of
      required consent or approval of any holders of Indebtedness and without the
      joinder of any party other than Mortgagee in such releases, waivers, consents,
      approvals, notifications or other acts and (ii) all notices, requests, consents,
      demands and other communications required or permitted to be given hereunder
      may
      be given to Mortgagee.

     

    [rest
      of
      page intentionally left blank; signature page follows]


    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    


    WITNESS
      THE EXECUTION HEREOF, this ___ day of November, 2008, to be effective as of
      said
      date (the “Effective
      Date”).

     

    
      	
              MORTGAGOR:

            
	 
	
              SONTERRA
                RESOURCES, INC.,
                a
                Delaware corporation

            
	 	 	 
	
              By:

            	      

	 	
              Name:

            	
              D.E.
                Vandenberg

            
	 	
              Title:

            	
              President

            


    

    


    The
      name
      and address of the Debtor/Mortgagor is:

    


    523
      N.
      Sam Houston Parkway. East, Suite 175

    Houston,
      TX 77060

     

    The
      name
      and address of the Secured Party/Mortgagee is:

    


    Summerline
      Asset Management, LLC

    70
      West
      Red Oak Lane, 4th Floor

    White
      Plains, New York 10604

    Attention:
      Robert J. Brantman

    Telecopy:
      (914) 697-4767


    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    


    
      	
              STATE
                OF TEXAS

            	
              )

            
	 	
              )

            
	
              COUNTY
                OF HARRIS

            	
              )

            
	 	
              )

            
	
              CITY
                OF HOUSTON

            	
              )

            


    

     

    
      	 	
              The
                foregoing instrument was acknowledged before me this __ day of November,
                2008, by D.E. Vandenberg as President of SONTERRA
                RESOURCES, INC.,
                a
                Delaware corporation, on behalf of said
                corporation.

            


    

     

    Witness
      my hand and official seal.

     

    My
      Commission Expires: _______________________________  

     

    
      	    

	
              Notary
                Public

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

    


    Property
      Descriptions

    


    Property
      Description (Cinco)

    


    Shark
      Prospect 

    


    
      	 	
              1.

            	
              Oil
                and Gas Lease dated July 1, 2003, from the State of Texas, as Lessor,
                to
                Cinco Natural Resources Corporation, as Lessee, covering Oil and
                Gas Lease
                No. M-103194, being the south one-half (S/2) of State Tract 150,
                Matagorda
                Bay, Calhoun County, Texas, containing approximately 320.0 acres,
                recorded
                in File No. 82095, Volume 349, Page 1 of the Official Records of
                Calhoun
                County, Texas.

            


    

     

    Lease
      Interest:

     

    Surface
      down to 9400' true vertical depth as seen in the Cockrell Corporation –
Aquamarine Unit Well No. 1 (API No. 42-057-31600).

     

    37.80%
      WI
      / 29.862% NRI

     

    Rights
      between 9401' and 50' below the stratigraphic equivalent of the top of the
      9800'
      Sand, said top of the 9800' Sand being equal to 9790' TVD as seen on the
      electric log for the Cockrell Corporation – Aquamarine Unit Well No. 1 (API No.
      42-057-31600).

     

    30.30%
      WI
      / 23.55825% NRI

     

    Rights
      below 50' below the stratigraphic equivalent of the top o the 9800' Sand, said
      top of the 9800' Sand being equal to 9790' TVD as seen on the electric log
      for
      the Cockrell Corporation – Aquamarine Unit Well No. 1 (API No.
      42-057-31600).

     

    30.30%
      WI
      / 23.331% NRI

     

    Well
      Interest:

     

    Flash
      -
      State Tract 150 No. 1: 37.80% WI / 29.862% NRI

     

    BOSS
–
      State Tract 150 No. 2: 36.708% WI BPO / 28.54047% NRI BPO / 30.30% WI APO /
      23.55825% NRI APO

    


    Ray
      Prospect

    


    
      	 	
              2.

            	
              Oil
                and Gas Lease dated October 19, 2004, from the State of Texas, by
                and
                through the Commissioner of the General Land office of the State
                of Texas,
                as Lessor, to Cinco Natural Resources Corporation, as Lessee, covering
                Oil
                and Gas Lease Number M-104265, being the South One-Half (S/2) of
                Tract
                175, Matagorda Bay, Matagorda and Calhoun Counties, Texas, containing
                approximately 320 acres as shown on the applicable Official Submerged
                Area
                Map on file in the Texas General Land Office, Austin, Texas, and
                recorded
                in the Official Records of Matagorda County, Texas, as File No. 050427,
                and recorded in the Official Records of Calhoun County, Texas, as
                File No.
                91879, Volume 400, Page 525.

            


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    Lease
      Interest:
      30.30%
      WI / 23.55825% NRI

    


    
      	 	
              3.

            	
              Oil
                and Gas Lease dated October 19, 2004, from the State of Texas, by
                and
                through the Commissioner of the General Land office of the State
                of Texas,
                as Lessor, to Cinco Natural Resources Corporation, as Lessee, covering
                Oil
                and Gas Lease Number M-104266, being the South One-Half (S/2) of
                Tract
                178, Matagorda Bay, Matagorda County, Texas, containing approximately
                320
                acres as shown on the applicable Official Submerged Area Map on file
                in
                the Texas General Land Office, Austin, Texas, and recorded in the
                Official
                Records of Matagorda County, Texas, as File No.
                050428.

            


    

     

    Lease
      Interest:
      30.30%
      WI / 23.55825% NRI

    


    
      	 	
              4.

            	
              Oil
                and Gas Lease dated October 19, 2004, from the State of Texas, by
                and
                through the Commissioner of the General Land office of the State
                of Texas,
                as Lessor, to Cinco Natural Resources Corporation, as Lessee, covering
                Oil
                and Gas Lease Number M-104267, being the North One-Half (N/2) of
                Tract
                179, Matagorda Bay, Matagorda County, Texas, containing approximately
                320
                acres as shown on the applicable Official Submerged Area Map on file
                in
                the Texas General Land Office, Austin, Texas, and recorded in the
                Official
                Records of Matagorda County, Texas, as File No.
                050429.

            


    

    


    Lease
      Interest:
      30.30%
      WI / 23.55825% NRI

    


    Starfish
      Prospect 

    


    
      	 	
              5.

            	
              Oil
                and Gas Lease dated April 5, 2005, from the State of Texas, by and
                through
                the Commissioner of the General Land office of the State of Texas,
                as
                Lessor, to Cinco Energy Corporation, as Lessee, covering Oil and
                Gas Lease
                Number M-104829, being the South One-Half (S/2) of Tract 96, Matagorda
                Bay, Calhoun County, Texas, containing approximately 320 acres as
                shown on
                the applicable Official Submerged Area Map on file in the Texas General
                Land Office, Austin, Texas, and recorded in the Official Records
                of
                Calhoun County, Texas, as File No. 92724, Volume 406, Page
                35.

            


    

    


    Lease
      Interest:
      30.30%
      WI / 23.1795% NRI

     

    
      	 	
              6.

            	
              Oil
                and Gas Lease dated July 19, 2005, from the State of Texas, by and
                through
                the Commissioner of the General Land office of the State of Texas,
                as
                Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and Gas
                Lease
                Number M-105371, being the North One-Half (N/2) of Tract 104, Matagorda
                Bay, Calhoun County, Texas, containing approximately 320 acres as
                shown on
                the applicable Official Submerged Area Map on file in the Texas General
                Land Office, Austin, Texas, and recorded in the Official Records
                of
                Calhoun County, Texas, as File No. 96377, Volume 426, Page
                912.

            


    

    


    Lease
      Interest: 30.30%
      WI
      / 23.1795% NRI


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Barracuda
      Prospect 

    


    
      	 	
              7.

            	
              Oil
                and Gas Lease dated April 5, 2005, from the State of Texas, by and
                through
                the Commissioner of the General Land office of the State of Texas,
                as
                Lessor, to Cinco Energy Corporation, as Lessee, covering Oil and
                Gas Lease
                Number M-104827, being the North One-Half (N/2) of Tract 94, Matagorda
                Bay, Calhoun County, Texas, containing approximately 320 acres as
                shown on
                the applicable Official Submerged Area Map on file in the Texas General
                Land Office, Austin, Texas, and recorded in the Official Records
                of
                Calhoun County, Texas, as File No. 92722, Volume 406, Page
                21.

            


    

    


    Lease
      Interest:
      30.30%
      WI / 23.1795% NRI

     

    
      	 	
              8.

            	
              Oil
                and Gas Lease dated April 5, 2005, from the State of Texas, by and
                through
                the Commissioner of the General Land office of the State of Texas,
                as
                Lessor, to Cinco Energy Corporation, as Lessee, covering Oil and
                Gas Lease
                Number M-104828, being the South One-Half (S/2) of Tract 94, Matagorda
                Bay, Calhoun County, Texas, containing approximately 320 acres as
                shown on
                the applicable Official Submerged Area Map on file in the Texas General
                Land Office, Austin, Texas, and recorded in the Official Records
                of
                Calhoun County, Texas, as File No. 92723, Volume 406, Page
                28.

            


    

    


    Lease
      Interest:
      30.30%
      WI / 23.1795% NRI

     

    Mackerel
      Prospect 

    


    
      	 	
              9.

            	
              Oil
                and Gas Lease dated July 19, 2005, from the State of Texas, by and
                through
                the Commissioner of the General Land office of the State of Texas,
                as
                Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and Gas
                Lease
                Number M-105373, being the North One-Half (N/2) of Tract 175, Matagorda
                Bay, Calhoun and Matagorda Counties, Texas, containing approximately
                320
                acres as shown on the applicable Official Submerged Area Map on file
                in
                the Texas General Land Office, Austin, Texas, and recorded in the
                Official
                Records of Calhoun County, Texas, as File No. 96378, Volume 426,
                Page 919,
                and recorded in the Official Records of Matagorda County, Texas,
                as File
                No. 063722.

            


    

     

    Lease
      Interest:
      30.30%
      WI / 23.1795% NRI

     

    
      	 	
              10.

            	
              Oil
                and Gas Lease dated October 4, 2005, from the State of Texas, by
                and
                through the Commissioner of the General Land office of the State
                of Texas,
                as Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and
                Gas Lease
                Number M-105679, being the North One-Half (N/2) of Tract 178, Matagorda
                Bay, Matagorda County, Texas, containing approximately 320 acres
                as shown
                on the applicable Official Submerged Area Map on file in the Texas
                General
                Land Office, Austin, Texas, and recorded in the Official Records
                of
                Matagorda County, Texas, as File No.
                059741.

            


    

    


    Lease
      Interest:
      30.30%
      WI / 23.1795% NRI


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    
      	 	
              11.

            	
              Oil
                and Gas Lease dated October 4, 2005, from the State of Texas, by
                and
                through the Commissioner of the General Land office of the State
                of Texas,
                as Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and
                Gas Lease
                Number M-105678, being the South One-Half (S/2) of Tract 176, Matagorda
                Bay, Calhoun and Matagorda Counties, Texas, containing approximately
                320
                acres as shown on the applicable Official Submerged Area Map on file
                in
                the Texas General Land Office, Austin, Texas, and recorded in the
                Official
                Records of Calhoun County, Texas, as File No. 96971, Volume 429,
                Page 918,
                and recorded in the Official Records of Matagorda County, Texas,
                as File
                No. 059740.

            


    

     

    Lease
      Interest:
      30.30%
      WI / 23.1795% NRI