EXECUTION COPY
                                               9142.100.121662.10






        AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

                         by and between

                   SOUTHWEST ROYALTIES, INC.,

                          as Borrower,

                               and

             THE FINANCIAL INSTITUTIONS NAMED HEREIN

                         as the Lenders,

                               and

                  FOOTHILL CAPITAL CORPORATION

                            as Agent


                   Dated as of August 17, 2000






                        TABLE OF CONTENTS

                                                         Page(s)

1.   DEFINITIONS AND CONSTRUCTION                              2
     1.1  Definitions                                          2
     1.2  Accounting Terms                                    27
     1.3  Code                                                27
     1.4  Construction                                        27
     1.5  Schedules and Exhibits                              28
2.   LOAN AND TERMS OF PAYMENT                                28
     2.1  Revolving Advances                                  28
     2.2  Intentionally Omitted                               35
     2.3  Intentionally Omitted                               35
     2.4  Payments                                            35
     2.5  Overadvances                                        36
     2.6  Interest, Rates, Payments, and Calculations         36
     2.7  Collection of Accounts                              38
     2.8  Crediting Payments; Application of Collections      40
     2.9  Designated Account                                  40
     2.10 Maintenance of Loan Account; Statements of Obligations
     40
     2.11 Fees                                                41
     2.12 Loan Under Prior Credit Agreement                   42
3.   CONDITIONS; TERM OF AGREEMENT                            42
     3.1  Conditions Precedent to the Initial Advance         42
     3.2  Conditions Precedent to all Advances                48
     3.3  Condition Subsequent                                48
     3.4  Term; Automatic Renewal                             49
     3.5  Effect of Termination                               49
     3.6  Early Termination by Borrower                       49
     3.7  Termination Upon Event of Default                   50
4.   CREATION OF SECURITY INTEREST                            50
     4.1  Grant of Security Interest                          50
     4.2  Negotiable Collateral                               50
     4.3  Collection of Accounts, General Intangibles, and
     Negotiable Collateral                                    50
     4.4  Delivery of Additional Documentation Required       51
     4.5  Power of Attorney                                   51
     4.6  Right to Inspect                                    51
     4.7  Control Agreements                                  52
5.   REPRESENTATIONS AND WARRANTIES                           52
     5.1  No Encumbrances                                     52
     5.2  Eligible Proved Developed Producing Reserves; Ownership
     of Oil and Gas Properties                                52
     5.3  Operations of Oil and Gas Properties                54
     5.4  Equipment                                           54
     5.5  Location of Inventory and Equipment                 54
     5.6  Oil and Gas Property Collateral Records and Inventory
     Records                                                  55
     5.7  Location of Chief Executive Office; FEIN            55
     5.8  Due Organization and Qualification; Subsidiaries    55
     5.9  Due Authorization; No Conflict                      56
     5.10 Claims, Disputes, and Litigation                    57
     5.11 No Material Adverse Change                          58
     5.12 No Fraudulent Transfer                              58
     5.13 Employee Benefits                                   58
     5.14 Environmental Condition                             58
     5.15 Compliance with the Law                             59
     5.16 Bonds and Insurance                                 59
     5.17 Hedging Agreement                                   60
     5.18 Brokerage Fees                                      60
     5.19 Permits and other Intellectual Property             60
     5.20 [Intentionally Omitted                              61
     5.21 Locations; Leases                                   61
     5.22 Absence of Certain Changes                          61
     5.23 Operating Costs                                     62
     5.24 Imbalances                                          62
     5.25 No Default                                          62
     5.26 Leases                                              62
     5.27 Marketing Agreements                                63
     5.28 Non-Consent Operations                              63
     5.29 Condition of Equipment                              63
     5.30 Wells                                               63
6.   AFFIRMATIVE COVENANTS                                    63
     6.1  Accounting System                                   64
     6.2  Collateral Reporting                                64
     6.3  Financial Statements, Reports, Certificates         67
     6.4  Tax Returns                                         68
     6.5  Guarantor Reports                                   68
     6.6  [Intentionally Omitted]                             68
     6.7  Title to Equipment                                  68
     6.8  Maintenance of Oil and Gas Property Collateral and
     Equipment;  Operation of Business                        68
     6.9  Taxes                                               70
     6.10 Insurance                                           71
     6.11 No Setoffs or Counterclaims                         72
     6.12 Location of Inventory and Equipment                 73
     6.13 Compliance with Laws                                73
     6.14 Employee Benefits                                   74
     6.15 Leases                                              74
     6.16 Broker Commissions                                  74
     6.17.                Oil and Gas Property Title Information
     75
     6.18 Additional Collateral                               75
     6.19 Hedging Agreements                                  76
     6.20 Further Assurances                                  76
7.   NEGATIVE COVENANTS                                       77
     7.1  Indebtedness                                        77
     7.2  Liens                                               78
     7.3  Restrictions on Fundamental Changes                 78
     7.4  Disposal of Assets                                  78
     7.5  Change Name                                         80
     7.6  Guarantee                                           80
     7.7  Nature of Business                                  80
     7.8  Prepayments and Amendments                          80
     7.9  Change of Control                                   81
     7.10 Consignments                                        81
     7.11 Distributions; Repurchases of Capital Stock         81
     7.12 Accounting Methods                                  81
     7.13 Investments                                         81
     7.14 Transactions with Affiliates                        82
     7.15 Suspension                                          82
     7.16 Compensation                                        82
     7.17 Use of Proceeds                                     83
     7.18 Change in Location of Chief Executive Offices;
     Inventory and Equipment                                  83
     7.19 No Prohibited Transactions Under ERISA              83
     7.20 Financial Covenants                                 84
     7.21 Capital Expenditures                                85
     7.22 Securities Accounts                                 85
     7.23 Gas Imbalances, Take-or-Pay or Other Prepayments    86
     7.24 Payments on Unsecured Notes                         86
     7.25 Non-Consent Operations                              86
     7.26 Waivers of Rights Relating to Oil and Gas Properties86
     7.27 Contracts for Sale of Production                    86
     7.28 Exploration                                         87
8.   EVENTS OF DEFAULT                                        87
9.   THE LENDER GROUP'S RIGHTS AND REMEDIES                   90
     9.1  Rights and Remedies                                 90
     9.2  Remedies Cumulative                                 92
10.  TAXES AND EXPENSES                                       92
11.  WAIVERS; INDEMNIFICATION                                 93
     11.1 Demand; Protest; etc                                93
     11.2 The Lender Group's Liability for Collateral         93
     11.3 Indemnification                                     93
12.  NOTICES                                                  93
13.  CHOICE OF LAW AND VENUE; SERVICE OF PROCESS; JURY TRIAL
WAIVER                                                        94
14.  DESTRUCTION OF BORROWER'S DOCUMENTS                      96
15.  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS               96
     15.1 Assignments and Participations                      96
     15.2 Successors                                          98
16.  AMENDMENTS; WAIVERS                                      99
     16.1 Amendments and Waivers                              99
     16.2 No Waivers; Cumulative Remedies                    100
17.  AGENT; THE LENDER GROUP                                 100
     17.1 Appointment and Authorization of Agent             100
     17.2 Delegation of Duties                               101
     17.3 Liability of Agent                                 101
     17.4 Reliance by Agent                                  101
     17.5 Notice of Default or Event of Default              102
     17.6 Credit Decision                                    102
     17.7 Costs and Expenses; Indemnification                102
     17.8 Agent in Individual Capacity                       103
     17.9 Successor Agent                                    103
     17.10                                       Withholding Tax
     104
     17.11                                    Collateral Matters
     105
     17.12Restrictions on Actions by Lenders; Sharing of Payments
     106
     17.13                                 Agency for Perfection
     107
     17.14                      Payments by Agent to the Lenders
     107
     17.15  Concerning the Collateral and Related Loan Documents
     107
     17.16Field Audits and Examination Reports; Confidentiality;
     Disclaimers by Lenders; Other Reports and Information   108
     17.17                     Several Obligations; No Liability
     109
18.  GENERAL PROVISIONS                                      109
     18.1 Effectiveness                                      109
     18.2 Section Headings                                   109
     18.3 Interpretation                                     109
     18.4 Severability of Provisions                         110
     18.5 Amendments in Writing                              110
     18.6 Counterparts; Telefacsimile Execution              110
     18.7 Revival and Reinstatement of Obligations           110
     18.8 Integration                                        110
     18.9 Amendment and Restatement; Release                 111
     18.10.Borrower's Waiver of Rights Under Texas Deceptive Tra
     de Practices Act.                                       111



                     SCHEDULES AND EXHIBITS

Schedule C-1        Commitments
Schedule P-1        Permitted Liens
Schedule 5.1(a)     Certain Owned Oil and Gas Properties
Schedule 5.1(b)     Working Interest/Net Revenue
               Interest/Operator
Schedule 5.1(c)     Material Contract Rights & Obligations
Schedule 5.1(d)     Real Property Collateral
Schedule 5.2(b)     Imbalances in Gas Production or "Take or Pay"
               Payments
Schedule 5.8        Capital Stock/Subsidiaries
Schedule 5.10            Litigation
Schedule 5.13            ERISA Benefit Plans
Schedule 5.16            Insurance
Schedule 5.17            Hedging Agreements
Schedule 5.19            Permits and Other Intellectual Property
Schedule 5.21            Certain Additional Locations of
                    Collateral
Schedule 5.22            Certain Other Changes
Schedule 5.23            Certain Operating Costs
Schedule 5.27            Certain Marketing Agreements
Schedule 5.30            Certain Information Concerning Certain
                    Wells
Schedule 6.12            Location of Inventory and Equipment
Schedule 7.1             Permitted Other Indebtedness
Schedule 7.13            Certain Affiliate Limited Partnerships
Schedule 7.16            Certain Severance Arrangements
Exhibit A-1              Form of Agreement and Acceptance
Exhibit B-1         Mortgages, Opinions, Certificates and Certain
               Other Required Items and Information
Exhibit C-1              Form of Compliance Certificate
Exhibit P-1              Forms of Prior Lenders Assignment
                    Agreements
Exhibit T-1              Form of Transfer Order Letters
Exhibit 6.2              Form of Borrowing Base Certificate

        AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT


      THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement"),  is entered into as of August 17, 2000,  among  the
financial institutions listed on the signature pages hereof (such
financial institutions, together with their respective successors
and  assigns, are referred to hereinafter each individually as  a
"Lender"  and  collectively as the "Lenders"),  FOOTHILL  CAPITAL
CORPORATION, a California corporation, as agent for  the  Lenders
("Agent"),  with  a place of business located  at  2450  Colorado
Avenue,  Suite  3000  West, Santa Monica, California  90404,  and
SOUTHWEST  ROYALTIES, INC., a Delaware corporation  ("Borrower"),
with  its chief executive office located at 407 North Big  Spring
Street, Suite 300, Midland, Texas  79701.

                            RECITALS

     A.    Borrower,  certain lenders (the "Prior Lenders"),  and
Bank  One, Texas, N.A., as Agent (the "Prior Agent"), are parties
to  that certain Credit Agreement, dated as of December 29,  1999
(such   credit   agreement,  as  amended,   the   "Prior   Credit
Agreement").

     B.    Borrower has requested that (i) the Lenders assume the
obligations   of  the  Prior  Lenders  under  the  Prior   Credit
Agreement, (ii) Agent assume the agency responsibilities  of  the
Prior Agent under the Prior Credit Agreement, and (iii) Agent and
the Lenders amend and restate the Prior Credit Agreement and make
credit  available to Borrower on the terms and conditions  stated
herein.   It  is  Borrower's intention that for purposes  of  the
Unsecured  Notes Indenture (as defined below), (i) this Agreement
and the other Loan Documents (as defined below) renew, refinance,
replace  and succeed, but not constitute an extinguishment  or  a
novation  of,  the  Prior Credit Agreement,  and  (ii)  that  the
Obligations (as defined below) secured pursuant to this Agreement
and  the other Loan Documents renew, continue and refinance,  but
not  constitute  an  extinguishment of  or  a  novation  of,  the
Indebtedness  existing on the date hereof under the Prior  Credit
Agreement, and therefore, solely as among Borrower and the  other
parties  to the Unsecured Notes Indenture, the intent of Borrower
is  that  the Obligations incurred and secured pursuant  to  this
Agreement   and   the  other  Loan  Documents  shall   constitute
"Permitted  Indebtedness"  (as defined  in  the  Unsecured  Notes
Indenture)  and that the Liens securing the same shall constitute
"Permitted Liens" (as such term is defined in the Unsecured Notes
Indenture) for purposes of the Unsecured Notes Indenture.

     C.   Contemporaneously with the above transactions, Agent is
entering into the Prior Lender Assignment Agreements (as  defined
below)  wherein the assignment of the rights of the Prior Lenders
to the Agent, on behalf of the Lenders, is intended to be for the
ratable benefit of the Lenders.

     D.    Agent  and  the  Lenders, subject  to  the  terms  and
conditions  stated herein, are willing to amend and  restate  the
Prior  Credit  Agreement  and  to  make  such  credit  facilities
available.

     NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties
hereto agree as follows:

     1.   DEFINITIONS AND CONSTRUCTION.

           1.1   Definitions.   As used in  this  Agreement,  the
following terms shall have the following definitions:

                "Account Debtor" means any Person who is  or  who
may become obligated under, with respect to, or on account of, an
Account.

                 "Accounts"  means  all  currently  existing  and
hereafter arising accounts, contract rights, and all other  forms
of  obligations  owing  to Borrower or any  of  its  Subsidiaries
arising  out of the sale or lease of goods, Hydrocarbons  or  Oil
and  Gas  Properties or the rendition of services by Borrower  or
any  of  its  Subsidiaries, irrespective  of  whether  earned  by
performance,  and  any and all credit insurance,  guaranties,  or
security therefor.

                "Advances" has the meaning set forth  in  Section
2.1(a).

                "Affiliate" means, as applied to any Person,  any
other  Person who directly or indirectly controls, is  controlled
by,  is under common control with or is a director or officer  of
such  Person.   For purposes of this definition, "control"  means
the  possession, directly or indirectly, of the power to vote  5%
or  more  of the securities having ordinary voting power for  the
election  of directors or the direct or indirect power to  direct
the management and policies of a Person.

                "Agent" means Foothill, solely in its capacity as
agent for the Lenders, and shall include any successor agent.

                "Agent  Account"  means  an  account  at  a  bank
designated  by Agent from time to time as the account into  which
Borrower shall make all payments to Agent for the benefit of  the
Lender  Group,  and into which the Lender Group  shall  make  all
payments  to  Agent,  under this Agreement  and  the  other  Loan
Documents.   Initially, unless and until Agent notifies  Borrower
and the Lender Group to the contrary, the Agent Account shall  be
that  certain  deposit account bearing account number  323-266193
and  maintained  by  Agent with The Chase Manhattan  Bank,  N.A.,
4 New York Plaza, 15th Floor, New York, New York  10004, ABA #021-
000-021.

                "Agent  Advances" has the meaning  set  forth  in
Section 2.1(g).

                "Agent's  Liens"  has the meaning  set  forth  in
Section 4.1.

                 "Agent-Related  Persons"  means  Agent  and  any
successor  agent, together with their respective Affiliates,  and
the   officers,  directors,  employees,  counsel,   agents,   and
attorneys-in-fact of such Persons and their Affiliates.

                "Agreement"  has  the meaning set  forth  in  the
preamble hereto.

                "Assignee" has the meaning set forth  in  Section
15.1.

                "Assignment and Acceptance" has the  meaning  set
forth  in  Section 15.1 and shall be in the form of  Exhibit  A-1
attached hereto.

                "Authorized  Person" means any officer  or  other
employee of Borrower.

                "Availability" means the amount that Borrower  is
entitled  to  borrow as Advances under Section 2.1,  such  amount
being  the  difference derived when (a) the sum of the  principal
amount  of Advances (including Agent Advances and Foothill Loans)
then outstanding (including any amounts that the Lender Group may
have paid for the account of Borrower pursuant to any of the Loan
Documents  and  that  have not been reimbursed  by  Borrower)  is
subtracted  from  (b)  the  least of (i)  the  Maximum  Revolving
Amount,  or (ii) the Borrowing Base less the aggregate amount  of
the  Reserves  Against Availability, or (iii) the Unsecured  Note
Indebtedness Limitation.

If  the Revolving Facility Usage is equal to or greater than  the
least of the Borrowing Base, the Maximum Revolving Amount or  the
Unsecured Note Indebtedness Limitation, then the Availability  is
zero (-0-).

                "Average  Unused  Portion  of  Maximum  Revolving
Amount"  means, as of any date of determination, (a) the  Maximum
Revolving Amount, less (b) the average Daily Balance of  Advances
that were outstanding during the immediately preceding month.

                 "Bankruptcy   Code"  means  the  United   States
Bankruptcy  Code  (11 U.S.C.  101 et seq.), as amended,  and  any
successor statute.

                "Benefit Plan" means a "defined benefit plan" (as
defined  in  Section  3(35) of ERISA)  for  which  Borrower,  any
Subsidiary  of  Borrower,  or any ERISA  Affiliate  has  been  an
"employer" (as defined in Section 3(5) of ERISA) within the  past
six years.

                "Blue  Heel" means Blue Heel Company, a  Delaware
corporation.

                 "Books"   means  all  of  Borrower's   and   its
Subsidiaries'  books  and  records including:   ledgers;  records
indicating,  summarizing,  or  evidencing  Borrower's   and   its
Subsidiaries' properties or assets (including the Collateral)  or
liabilities,  including  but  not  limited  to  well   logs   and
seismographic reports; all information relating to Borrower's and
its Subsidiaries' business operations or financial condition; and
all  computer programs, disk or tape files, printouts,  runs,  or
other computer prepared information.

                "Borrower"  has  the meaning  set  forth  in  the
preamble to this Agreement.

               "Borrowing" means a borrowing hereunder consisting
of  Advances made on the same day by the Lenders to Borrower,  or
by  Foothill in the case of a Foothill Loan, or by Agent  in  the
case of an Agent Advance.

                "Borrowing  Base" has the meaning  set  forth  in
Section 2.1(a).

                "Borrowing Base Entities" means Borrower and Blue
Heel.

                "Borrowing Request" has the meaning set forth  in
Section 2.1(c).

                "Business  Day"  means any  day  that  is  not  a
Saturday,  Sunday,  or  other day on  which  national  banks  are
authorized or required to close.

                "Change  of  Control" shall  be  deemed  to  have
occurred at such time as:

                     (a)   a  "person"  or  "group"  (within  the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act  of 1934) becomes the "beneficial owner" (as defined in  Rule
13d-3  under  the Securities Exchange Act of 1934),  directly  or
indirectly,  of more than 10% of the total voting  power  of  all
classes  of Stock then outstanding of Parent entitled to vote  in
the election of directors, or

                     (b)   (i)  prior to the consummation  of  an
Initial  Public  Offering  by Borrower,  a  "person"  or  "group"
(within  the  meaning  of  Sections 13(d)  and  14(d)(2)  of  the
Securities  Exchange  Act of 1934) other than  Parent  becomes  a
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange  Act of 1934), directly or indirectly, of more than  30%
of  the  voting  power of all class of Stock then outstanding  of
Borrower entitled to vote in the election of directors, or

                           (ii)  after  the  consummation  of  an
Initial Public Offering by Borrower:

                               (A)  H. H. Wommack, III ceases  to
own,  directly  or indirectly, at least 30% of the  total  voting
power  of  all  classes  of  Stock then outstanding  of  Borrower
entitled to vote on the election of directors; or

                               (B)  a "person" or "group" (within
the  meaning  of  Sections 13(d) and 14(d)(2) of  the  Securities
Exchange Act of 1934) other than H. H. Wommack, III is or becomes
a  "beneficial  owner"  (as  defined  in  Rule  13d-3  under  the
Securities  Exchange  Act of 1934), directly  or  indirectly,  of
either (I) a greater percentage of the total voting power of  all
classes of Stock then outstanding of Borrower entitled to vote on
the  election of directors than the percentage thereof then owned
by  H. H. Wommack, III, or (II) more than 15% of the voting power
of  all  class of Stock then outstanding of Borrower entitled  to
vote in the election of directors, or

                     (c)   a  "person"  or  "group"  (within  the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act  of  1934), other than Borrower becomes a "beneficial  owner"
(as  defined in Rule 13d-3 under the Securities Exchange  Act  of
1934),  directly  or  indirectly, of  any  voting  power  of  any
partnership interest or equity interest then outstanding of  Blue
Heel or any Subsidiary of Borrower.

                "Closing  Date" means the date of  the  first  to
occur of the making of the initial Advance or the issuance of the
initial Letter of Credit.

                "Code"  means  the California Uniform  Commercial
Code.

               "Collateral" means all of Borrower's right, title,
and  interest (together with all of each Subsidiary of Borrower's
right, title and interest) in and to each of the following:

               (a)  the Accounts,

               (b)  the Books,

               (c)  the Equipment,

               (d)  the General Intangibles,

               (e)  the Inventory,

               (f)  the Investment Property,

               (g)  the Negotiable Collateral,

               (h)  the Oil and Gas Properties,

               (i)  the Real Property,

                (j)   any money, or other assets of Borrower that
now or hereafter come into the possession, custody, or control of
any member of the Lender Group, and

                (k)   the proceeds and products, whether tangible
or  intangible,  of any of the foregoing, including  proceeds  of
insurance covering any or all of the Collateral, and any and  all
Accounts,  the Books, Equipment, General Intangibles,  Inventory,
Investment  Property, Negotiable Collateral, Real  Property,  Oil
and Gas Properties, money, deposit accounts, or other tangible or
intangible   property   resulting  from   the   sale,   exchange,
collection, or other disposition of any of the foregoing, or  any
portion thereof or interest therein, and the proceeds thereof.

                "Collateral  Access Agreement" means  a  landlord
waiver or consent, mortgagee waiver or consent, bailee letter, or
a   similar   acknowledgement  agreement  of  any   warehouseman,
processor,  lessor, consignee, or other Person in possession  of,
having  a  Lien  upon,  or  having rights  or  interests  in  the
Equipment, Inventory, or Oil and Gas Properties, in each case, in
form and substance satisfactory to Agent.

                "Collections"  means  all  cash,  checks,  notes,
instruments,  and  other items of payment  (including,  insurance
proceeds,  proceeds  of  cash sales,  rental  proceeds,  and  tax
refunds).

                "Commitment" means, at any time with  respect  to
each  Lender,  its Commitment, and, with respect to all  Lenders,
their  Commitments, in each case as such Dollar amounts  are  set
forth beside such Lender's name under the heading "Commitment" on
Schedule  C-1  attached hereto or on the signature  page  of  the
Assignment and Acceptance pursuant to which such Lender became  a
Lender   hereunder   in  accordance  with   the   provisions   of
Section 15.1.

                "Compliance  Certificate"   means  a  certificate
substantially  in  the form of Exhibit C-1 and delivered  by  the
chief accounting officer of Borrower to Agent.

                "Consolidated Net Income" shall mean with respect
to  Borrower and its Subsidiaries, for any period, the  aggregate
of  the  net  income (or loss) of Borrower and  its  Subsidiaries
after  allowances  for  taxes for such period,  determined  on  a
consolidated basis in accordance with GAAP; provided  that  there
shall  be  excluded from such net income (to the extent otherwise
included therein) the following: (i) the net income of any Person
in  which  Borrower or any of its Subsidiaries  has  an  interest
(which  interest  does  not cause the net income  of  such  other
Person to be consolidated with the net income of Borrower and its
Subsidiaries  in accordance with GAAP), except to the  extent  of
the  amount of dividends or distributions actually paid  in  such
period  by  such  other  Person to Borrower  or  to  any  of  its
Subsidiaries,  as the case may be; (ii) the net income  (but  not
loss)  of  any of Borrower's Subsidiaries to the extent that  the
declaration  or payment of dividends or similar distributions  or
transfers  or  loans  by  that Subsidiary  is  not  at  the  time
permitted  by  operation  of the terms  of  its  charter  or  any
agreement,  instrument or Legal Requirement  applicable  to  such
Subsidiary, or is otherwise restricted or prohibited in each case
determined  in  accordance with GAAP; (iii) the  net  income  (or
loss)   of   any   Person   acquired  in  a  pooling-of-interests
transaction for any period prior to the date of such transaction;
(iv)  any  extraordinary gains, including gains  attributable  to
Property  sales not in the ordinary course of business;  (v)  the
cumulative  effect of a change in accounting principles  and  any
gains or losses attributable to writeups or writedowns of assets;
and  (vi) any writedowns of non-current assets, provided however,
that any ceiling limitation writedowns under SEC guidelines shall
be  treated as capitalized costs, as if such writedowns  had  not
occurred.

                "Control Agreement" means a control agreement, in
form  and  substance reasonably satisfactory  to  Agent,  between
Borrower, Agent, and the applicable securities intermediary  with
respect   to  the  applicable  Securities  Account  and   related
Investment Property.

                "Daily Balance" means the amount of an Obligation
owed at the end of a given day.

                "Default"  means an event, condition, or  default
that,  with the giving of notice, the passage of time,  or  both,
would be an Event of Default.

               "Defaulting Lender" means any Lender that fails to
make  any  Advance that it is required to make hereunder  on  any
Funding  Date and that has not cured such failure by making  such
Advance within one (1) Business Day after written demand upon  it
by Agent to do so.

               "Defaulting Lenders Rate" means the Reference Rate
for the first three (3) days from and after the date the relevant
payment  is  due  and,  thereafter, at  the  interest  rate  then
applicable to Advances.

                 "Defensible  Title"  means  as  to  the  Mineral
Interests,  such  title held by Borrower that (i)  is  free  from
reasonable  doubt to the end that a prudent purchaser engaged  in
the  business  of  the ownership, development  and  operation  of
producing  oil and gas properties, with knowledge of all  of  the
facts and their legal bearing, would be willing to accept and pay
full value therefor; (ii) is deducible of record from the records
of  the  applicable parish or county, or, in the case of  federal
leases,  from the records of the applicable office of the  Bureau
of  Lands Management or Minerals Management Service, or,  in  the
case  of  state  leases,  from  the  applicable  records  of  the
applicable  state land office; (iii) entitle Borrower to  receive
not   less   than  the  "Net  Revenue  Interest"  set  forth   in
Schedule  5.1(b) with respect to each Mineral Interest  owned  by
Borrower as of the date of this Agreement, and not less than  the
"Net  Revenue  Interest"  set forth in the  most  recent  Reserve
Report with respect to each Mineral Interest acquired by Borrower
after   the  date  of  this  Agreement,  in  each  case,  without
reduction,  suspension or termination throughout  the  productive
life  of  such Mineral Interest; (iv) obligates Borrower to  bear
costs  and expenses relating to operations on and the maintenance
and development of each Mineral Interest in an amount not greater
than  the  "Working Interest" set forth in Schedule  5.1(b)  with
respect to each Mineral Interest owned by Borrower as of the date
of  this  Agreement, and not greater than the "Working  Interest"
set  forth in the most recent Reserve Report with respect to each
Mineral  Interest  acquired by Borrower after the  date  of  this
Agreement (except to the extent that Borrower is obligated  under
an Operating Agreement to assume a portion of a defaulting or non-
consenting party's share of costs), in each case without increase
for  the respective productive life of such Mineral Interest; and
(v)  is  free  and  clear of Liens and material encumbrances  and
defects, except for Permitted Liens.

                 "Designated   Account"  means   account   number
1887235412  of  Borrower  maintained with  Borrower's  Designated
Account  Bank, or such other deposit account of Borrower (located
within  the United States) which has been designated, in  writing
and from time to time, by Borrower to Agent.

                "Designated Account Bank" means Bank One,  Texas,
N.A.,  whose  office is located at 1717 Main Street,  4th  Floor,
Dallas, Texas 75265, and whose ABA number is 111000614.

               "Designated Affiliated Limited Partnerships" means
those  certain  limited  partnerships  listed  on  Schedule  7.13
attached  hereto of which, at the date of determination  thereof,
Borrower  is  the  sole  general  partner  or  one  of  only  two
co-general partners (or, in the case of H.H. Wommack Income  Fund
1983-1, L.P., the sole general partner of which is H.H. Wommack),
as the case may be, as the same is set forth on such schedule.

                 "Disbursement  Letter"  means  an  instructional
letter executed and delivered by Borrower to Agent regarding  the
extensions of credit to be made on the Closing Date, the form and
substance of which shall be satisfactory to Agent.

               "Dollars or $" means United States dollars.

                "Early  Termination Premium" has the meaning  set
forth in Section 3.6.

                "EBITDA"  shall  mean, for any period,  the  sum,
determined   (without   duplication)   for   Borrower   and   its
Subsidiaries, of (i) Consolidated Net Income of Borrower and  its
Subsidiaries  plus  (ii) Interest Expense  of  Borrower  and  its
Subsidiaries  for  such  period to the  extent  deducted  in  the
determination  of  Consolidated Net Income of  Borrower  and  its
Subsidiaries   for   such   period   plus   (iii)   depreciation,
amortization and other similar non-cash items (with the exception
of  non-cash charges that require an accrual or reserve for  cash
charges for any future period and normally recurring accruals) to
the  extent  deducted  in the determination of  Consolidated  Net
Income of Borrower and its Subsidiaries for such period plus (iv)
all taxes accrued for such period on or measured by income to the
extent  deducted in the determination of Consolidated Net  Income
of Borrower and its Subsidiaries for such period.

                "Eligible  Proved  Developed Producing  Reserves"
means  the  value, as determined by Agent in its sole discretion,
of  Proved  Developed  Producing Reserves consisting  of  Mineral
Interests of the Borrowing Base Entities that: (i) are subject to
a  duly executed and recorded Oil and Gas Property Mortgage  that
creates a first priority perfected lien in such Mineral Interest;
(ii)  either  are  identified on Schedule  5.1(a)  or  constitute
Qualified Subsequent Oil and Gas Property; (iii) are included  as
Proved  Developed Producing Reserves in the Reserve  Report  most
recently  delivered to Agent; (iv) strictly comply with each  and
all  of  the  representations and warranties made by Borrower  to
Agent  in  the  Loan  Documents; and (v) are  and  at  all  times
continue  to  be  acceptable to Agent in all respects;  provided,
however,  the standards of eligibility may be fixed  and  revised
from  time  to  time  by Agent in Agent's  credit  judgment.   In
determining  the  amount  to  be  so  included,  Eligible  Proved
Developed Producing Reserves shall be valued based upon the NYMEX
Value of such Proved Developed Producing Reserves as of the  date
of determination of Eligible Proved Developed Producing Reserves,
with  such adjustments as Agent may deem appropriate in its  sole
discretion.  An item of Proved Developed Producing Reserves shall
not  be  included in Eligible Proved Developed Producing Reserves
if:

                (a)   it is not owned solely by a Borrowing  Base
Entity  or  a  Borrowing Base Entity does not have  either  good,
valid,  and marketable title thereto or Defensible Title  thereto
acceptable to Agent, or the title information relating thereto is
not satisfactory to Agent;

                (b)   it  is not subject to a valid and perfected
first  priority Lien and security interest in favor of Agent  for
the  benefit  of the Lender Group created by a duly recorded  Oil
and  Gas  Property  Mortgage, except  for  Permitted  Liens  with
respect   to  which  Agent  has  established  a  Reserve  Against
Availability in the full amount (or such other amount as  may  be
determined  by Agent in its sole discretion) that any holders  of
the  Permitted  Liens could assert from time to  time  thereunder
(whether   upon   the  passage  of  time,  the  satisfaction   of
conditions, or otherwise); or

               (c)  it is subject to a Lien in favor of any third
Person  or  any  order,  judgment, writ or decree,  which  either
restricts  or  purports  to  restrict  Borrower  or  any  of  its
Subsidiaries' ability to grant Liens to other Persons  on  or  in
respect of its respective assets or properties.

               "Eligible Transferee" means: (a) a commercial bank
organized  under  the  laws of the United States,  or  any  state
thereof, and having total assets in excess of $100,000,000; (b) a
commercial  bank  organized under the laws of any  other  country
which  is  a  member of the Organization for Economic Cooperation
and  Development or a political subdivision of any such  country,
and  having total assets in excess of $100,000,000; provided that
such  bank  is acting through a branch or agency located  in  the
United States; (c) a finance company, insurance company or  other
financial  institution  or  fund  that  is  engaged  in   making,
purchasing  or  otherwise investing in commercial  loans  in  the
ordinary course of its business and having total assets in excess
of $50,000,000; (d) any Affiliate (other than individuals) of, or
any  fund,  money  market account, investment  account  or  other
account  managed by, a pre-existing Lender under this  Agreement;
(e)  so  long  as  no  Event  of  Default  has  occurred  and  is
continuing, any other Person approved by Agent and Borrower;  and
(f)  during  the continuation of an Event of Default,  any  other
Person approved by Agent.

                "Environmental Laws" shall mean any and all Legal
Requirements pertaining to health or the environment in effect in
any and all jurisdictions in which the Borrower or any Subsidiary
is conducting or at any time has conducted business, or where any
Property  of the Borrower or any Subsidiary is located, including
without  limitation, the Oil Pollution Act of 1990  ("OPA"),  the
Clean  Air  Act,  as  amended,  the Comprehensive  Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"),  as
amended, the Federal Water Pollution Control Act, as amended, the
Occupational  Safety  and Health Act of  1970,  as  amended,  the
Resource  Conservation  and Recovery Act  of  1976  ("RCRA"),  as
amended,  the  Safe  Drinking Water Act, as  amended,  the  Toxic
Substances Control Act, as amended, the Superfund Amendments  and
Reauthorization Act of 1986, as amended, the Hazardous  Materials
Transportation   Act,   as  amended,  and   other   environmental
conservation or protection laws.  The term "oil" shall  have  the
meaning  specified  in  OPA, the term "release"  (or  "threatened
release")  has  the meaning specified in CERCLA,  and  the  terms
"solid  waste" and "disposal" (or "disposed") have  the  meanings
specified  in  RCRA; provided, however, that  (i)  in  the  event
either  OPA,  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
(ii) to the extent the laws of the state in which any Property of
the Borrower or any Subsidiary is located establish a meaning for
"oil,"  "release," "solid waste" or "disposal" which  is  broader
than  that specified in either OPA, CERCLA or RCRA, such  broader
meaning  shall  apply as to Borrower or such Subsidiary,  as  the
case  may  be,  and  the  Property thereof  located  within  that
particular state.

                "Equipment" means all of Borrower's  present  and
hereafter  acquired machinery, machine tools, motors,  equipment,
furniture,  furnishings, fixtures, drillsite equipment (including
separators,  dehydrators, meters, etc.),  compressors,  gathering
lines,   pipelines,  vehicles  (including  motor   vehicles   and
trailers),  tools,  parts, and other goods (other  than  consumer
goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all
attachments,      accessories,     accessions,      replacements,
substitutions,  additions,  and  improvements  to  any   of   the
foregoing.

                "ERISA"  means  the  Employee  Retirement  Income
Security  Act  of  1974,  29  U.S.C.  1000  et  seq.,  amendments
thereto,   successor  statutes,  and  regulations   or   guidance
promulgated thereunder.

                 "ERISA  Affiliate"  means  (a)  any  corporation
subject to ERISA whose employees are treated as employed  by  the
same   employer   as   the  employees  of  Borrower   under   IRC
Section 414(b), (b) any trade or business subject to ERISA  whose
employees  are  treated as employed by the same employer  as  the
employees  of Borrower under IRC Section 414(c), (c)  solely  for
purposes of Section 302 of ERISA and Section 412 of the IRC,  any
organization  subject to ERISA that is a member of an  affiliated
service   group  of  which  Borrower  is  a  member   under   IRC
Section  414(m),  or (d) solely for purposes of  Section  302  of
ERISA and Section 412 of the IRC, any party subject to ERISA that
is  a  party to an arrangement with Borrower and whose  employees
are   aggregated  with  the  employees  of  Borrower  under   IRC
Section 414(o).

                "ERISA  Event" means (a) a Reportable Event  with
respect  to  any  Benefit  Plan or Multiemployer  Plan,  (b)  the
withdrawal  of  Borrower  or  any of its  Subsidiaries  or  ERISA
Affiliates from a Benefit Plan during a plan year in which it was
a  "substantial  employer" (as defined in Section  4001(a)(2)  of
ERISA),  (c)  the providing of notice of intent  to  terminate  a
Benefit   Plan  in  a  distress  termination  (as  described   in
Section  4041(c) of ERISA), (d) the institution by  the  PBGC  of
proceedings  to  terminate a Benefit Plan or Multiemployer  Plan,
(e)  any  event  or  condition (i) that provides  a  basis  under
Section 4042(a)(1), (2), or (3) of ERISA for the termination  of,
or  the  appointment by the PBGC of a trustee to administer,  any
Benefit  Plan or Multiemployer Plan, or (ii) that may  result  in
termination of a Multiemployer Plan pursuant to Section 4041A  of
ERISA,  (f) the partial or complete withdrawal within the meaning
of  Sections  4203  and 4205 of ERISA, of Borrower,  any  of  its
Subsidiaries  or ERISA Affiliates from a Multiemployer  Plan,  or
(g)  providing any security to any Plan under Section  401(a)(29)
of  the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.

                "Event  of Default" has the meaning set forth  in
Section 8.

                "Exchange Act" means the Securities Exchange  Act
of 1934, as amended, and any successor statute thereto.

                 "FEIN"  means  Federal  Employer  Identification
Number.

                "Foothill" means Foothill Capital Corporation,  a
California corporation.

                "Foothill  Loans" has the meaning  set  forth  in
Section 2.1(f).

               "Funding Date" means the date on which a Borrowing
occurs.

                 "GAAP"   means  generally  accepted   accounting
principles  as in effect from time to time in the United  States,
consistently applied.

                "General  Intangibles" means  all  of  Borrower's
present   and  future  general  intangibles  and  other  personal
property (including contract rights, rights arising under  common
law,  statutes,  or  regulations, choses  or  things  in  action,
goodwill,    Permits,    patents,   trade   names,    trademarks,
servicemarks, copyrights, blueprints, drawings, purchase  orders,
customer  lists,  monies due or recoverable from  pension  funds,
route lists, rights to payment and other rights under any royalty
or  licensing agreements, infringement claims, computer programs,
information  contained  on computer disks or  tapes,  literature,
reports,  catalogs, deposit accounts, insurance premium  rebates,
tax  refunds, and tax refund claims), other than goods, Accounts,
and Negotiable Collateral.

                "Governing Documents" means, with respect to  any
Person, the certificate or articles of incorporation, by-laws, or
other organizational or governing documents of such Person.

                "Governmental  Authority"  means  any  nation  or
government,  any state, province, or other political  subdivision
thereof,  any  central  bank (or similar monetary  or  regulatory
authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining
to  government,  and  any corporation or other  entity  owned  or
controlled,  through Stock or capital ownership or otherwise,  by
any of the foregoing.

               "Guaranty Agreements" means, collectively, any and
all  of  the  guaranty agreements with respect to the Obligations
which  are,  or are to be, executed by a Guarantor  in  favor  of
Agent for the benefit of the Lender Group, as required from  time
to time by Agent, in form and substance satisfactory to Agent, in
each  case  as  the  same  may  be amended,  modified,  restated,
supplemented,  increased, renewed, extended, substituted  for  or
replaced from time to time.

               "Guarantor" means Blue Heel, each other Subsidiary
of  Borrower not a signatory to this Agreement, Parent, and  each
other  Person who may hereafter guarantee payment or  performance
of the whole or any part of the Obligations.

                "Hazardous  Materials" means (a) substances  that
are  defined  or listed in, or otherwise classified pursuant  to,
any  applicable  laws  or regulations as "hazardous  substances,"
"hazardous materials," "hazardous wastes," "toxic substances," or
any  other  formulation  intended to define,  list,  or  classify
substances   by   reason  of  deleterious  properties   such   as
ignitability,     corrosivity,    reactivity,    carcinogenicity,
reproductive  toxicity, or "EP toxicity", (b) oil, petroleum,  or
petroleum  derived substances, natural gas, natural gas  liquids,
synthetic gas, drilling fluids, produced waters, and other wastes
associated  with the exploration, development, or  production  of
crude  oil,  natural  gas,  or  geothermal  resources,  (c)   any
flammable  substances or explosives or any radioactive materials,
and  (d)  asbestos  in  any  form or  electrical  equipment  that
contains  any  oil  or  dielectric  fluid  containing  levels  of
polychlorinated biphenyls in excess of 50 parts per million.

                "Hedging Agreements" shall mean (i) any  interest
rate or currency swap, rate cap, rate floor, rate collar, forward
agreement or other exchange or rate protection agreements or  any
option  with  respect to any such transaction and (ii)  any  swap
agreement,  cap,  floor,  collar, exchange  transaction,  forward
agreement  or other exchange or protection agreement relating  to
Hydrocarbons or any option with respect to any such transaction.

                "Hedging  Agreement Undertaking" shall  mean  any
guaranty  of payment, indemnity, participation and/or undertaking
related to any Hedging Agreements.

                 "Hydrocarbons"  shall  mean  oil,  natural  gas,
casinghead  gas,  drip  gasoline, natural  gasoline,  condensate,
distillate,  liquid  hydrocarbons, gaseous hydrocarbons  and  all
constituents, elements or compounds thereof and products  refined
or separated therefrom.

                "Indebtedness"  means:  (a)  all  obligations  of
Borrower or any of its Subsidiaries for borrowed money,  (b)  all
obligations  of Borrower or any of its Subsidiaries evidenced  by
bonds,  debentures, notes, or other similar instruments  and  all
reimbursement  or other obligations of Borrower  or  any  of  its
Subsidiaries   in   respect  of  letters   of   credit,   bankers
acceptances,  interest rate swaps, or other  financial  products,
(c)  all obligations of Borrower or any of its Subsidiaries under
capital  leases,  (d)  all obligations or liabilities  of  others
secured by a Lien on any property or asset of Borrower or any  of
its  Subsidiaries,  irrespective of whether  such  obligation  or
liability is assumed, (e) all obligations of Borrower or  any  of
its Subsidiaries for the deferred purchase price of assets (other
than  trade  debt incurred in the ordinary course of a Borrower's
and  its Subsidiaries' business and repayable in accordance  with
customary  trade practices), (f) any obligation of a Borrower  or
any  of  its  Subsidiaries guaranteeing or intended to  guarantee
(whether  directly  or indirectly guaranteed, endorsed,  co-made,
discounted,  or sold with recourse to a Borrower) any  obligation
of  any  other  Person, (g) the net mark to market value  of  all
obligations  of  Borrower or any of its  Subsidiaries  under  any
Hedging Agreements and any Hedging Agreement Undertaking, (h) all
obligations  of  Borrower or any of its Subsidiaries  to  deliver
goods  or  services  including Hydrocarbons in  consideration  of
advance  payments, (i) the undischarged balance of any production
payment, (j) the undischarged balance of any net profits interest
or  overriding royalty interest created by Borrower or any of its
Subsidiaries or for the creation of which Borrower or any of  its
Subsidiaries directly or indirectly received payment.

                "Indemnified  Liabilities" has  the  meaning  set
forth in Section 11.3.

                "Indemnified Person" has the meaning set forth in
Section 11.3.

                "Initial  Public Offering" means the  first  firm
commitment,  underwritten  public offering  of  common  Stock  of
Borrower  to the general public under the federal Securities  Act
of  1933,  completed by Borrower and resulting in gross  proceeds
(before underwriting discounts and commissions) to Borrower of at
least $25,000,000.

                 "Insolvency  Proceeding"  means  any  proceeding
commenced  by  or against any Person under any provision  of  the
Bankruptcy Code or under any other bankruptcy or insolvency  law,
assignments  for  the benefit of creditors,  formal  or  informal
moratoria, compositions, extensions generally with creditors,  or
proceedings seeking reorganization, arrangement, or other similar
relief.

                "Intangible  Assets" means, with respect  to  any
Person,  that  portion of the book value of all of such  Person's
assets that would be treated as intangibles under GAAP.

                "Intellectual Property" has the meaning  ascribed
thereto in Section 5.19.

               "Interest Expense" shall mean, for any period, the
sum  (determined without duplication) of the aggregate amount  of
interest  expense accruing during such period on Indebtedness  of
Borrower and its Subsidiaries, including the interest portion  of
payments  under capitalized leases and any capitalized  interest,
but excluding amortization of debt discount and expense.

               "Inventory" means all present and future inventory
in  which  Borrower or any of its Subsidiaries has any  interest,
including goods and extracted Hydrocarbons held for sale or lease
or  to  be  furnished  under a contract of  service  and  all  of
Borrower's  present and future raw materials,  work  in  process,
finished  goods,  and  packing and shipping  materials,  wherever
located.

                "Investment" means, with respect to  any  Person,
any  investment  by  such Person in any other  Person  (including
Affiliates)  in  the  form  of loans,  guarantees,  advances,  or
capital  contributions  (excluding (a)  commission,  travel,  and
similar advances to officers and employees of such Person made in
the  ordinary  course  of business, and (b)  bona  fide  Accounts
arising  from the sale of goods or rendition of services  in  the
ordinary  course  of  business consistent  with  past  practice),
purchases or other acquisitions for consideration of Indebtedness
or  Stock, and any other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.

                "Investment  Property" means  all  of  Borrower's
present and hereafter acquired "investment property" as that term
is defined in the Code, and any and all supporting obligations in
respect thereof.

                "IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.

                 "Legal   Requirements"  means   all   applicable
international,   foreign,  federal,  state,   and   local   laws,
judgments,   decrees,   orders,  statutes,   ordinances,   rules,
regulations,  or  Permits,  including,  without  limitation,  all
Environmental Laws.

                 "Lender"   and  "Lenders"  have  the  respective
meanings  set forth in the preamble to this Agreement, and  shall
include  any  other  Person made a party  to  this  Agreement  in
accordance with the provisions of Section 15.1 hereof.

                  "Lender   Group"   means,   individually    and
collectively, each of the individual Lenders and Agent.

                "Lender  Group  Expenses" means  all:   costs  or
expenses (including taxes, and insurance premiums) required to be
paid by Borrower under any of the Loan Documents that are paid or
incurred by the Lender Group; reasonable fees or charges paid  or
incurred  by  the  Lender  Group in connection  with  the  Lender
Group's  transactions with Borrower, including, fees  or  charges
for   photocopying,   notarization,  couriers   and   messengers,
telecommunication,  public record searches (including  tax  lien,
litigation,  and  UCC  [or  equivalent]  searches  and  including
searches  with  the  patent and trademark office,  the  copyright
office,  or the department of motor vehicles), filing, recording,
publication,  appraisal (including periodic Oil and Gas  Property
Collateral appraisals and engineer reports), Reserve Reports  and
environmental audits; costs and expenses incurred by Agent in the
disbursement   of  funds  to  Borrower  (by  wire   transfer   or
otherwise);  reasonable  charges  paid  or  incurred   by   Agent
resulting from the dishonor of checks; costs and expenses paid or
incurred  by the Lender Group to correct any default  or  enforce
any provision of the Loan Documents, or in gaining possession of,
maintaining,  handling, preserving, storing,  shipping,  selling,
preparing for sale, or advertising to sell the Collateral, or any
portion  thereof, irrespective of whether a sale is  consummated;
reasonable  costs  and  expenses paid or  incurred  by  Agent  in
examining the Books; costs and expenses of third party claims  or
any  other suit paid or incurred by the Lender Group in enforcing
or  defending  the  Loan  Documents or  in  connection  with  the
transactions  contemplated by the Loan Documents  or  the  Lender
Group's  relationship with Borrower (or any of  its  Subsidiaries
party  to  one  or more Loan Documents); and the  Lender  Group's
reasonable  attorneys  fees and expenses  incurred  in  advising,
structuring,   drafting,   reviewing,  administering,   amending,
terminating,  enforcing (including attorneys  fees  and  expenses
incurred in connection with a "workout," a "restructuring," or an
Insolvency   Proceeding  concerning  Borrower),   defending,   or
concerning  the Loan Documents, irrespective of whether  suit  is
brought.

                "Lender-Related Persons" means, with  respect  to
any  Lender, such Lender, together with such Lender's Affiliates,
and  the  officers,  directors, employees, counsel,  agents,  and
attorneys-in-fact of such Lender and such Lender's Affiliates.

               "Letter of Credit Undertaking" means any letter of
credit  or  guaranty of payment, indemnity, participation  and/or
undertaking relating to any letter of credit.

                "Lien" means any interest in Property securing an
obligation  owed  to, or a claim by, any Person  other  than  the
owner  of  the Property, whether such interest shall be based  on
the common law, statute, or contract, whether such interest shall
be  recorded  or  perfected, and whether such interest  shall  be
contingent upon the occurrence of some future event or events  or
the  existence  of  some  future circumstance  or  circumstances,
including  (a)  the  lien  or security interest  arising  from  a
mortgage,  deed  of  trust, encumbrance,  pledge,  hypothecation,
assignment,  deposit  arrangement,  security  agreement,  adverse
claim  or  charge, conditional sale or trust receipt, or  from  a
lease,  consignment, or bailment for security purposes  and  also
including  reservations,  exceptions,  encroachments,  easements,
rights-of-way, covenants, conditions, restrictions,  leases,  and
other  title  exceptions and encumbrances affecting Oil  and  Gas
Property  or  Real Property and (b) production payments  and  the
like  payable out of Oil and Gas Property.  For purposes of  this
Agreement, Borrower or any of its Subsidiaries shall be deemed to
be  the  owner  of  any Property which it has acquired  or  holds
subject  to  a  conditional sale agreement,  or  leases  under  a
financing lease or other arrangement pursuant to which  title  to
the  Property has been retained by or vested in some other Person
in a transaction intended to create financing.

                "Loan  Account"  has  the meaning  set  forth  in
Section 2.10.

                 "Loan  Documents"  means  this  Agreement,   the
Disbursement   Letter,  the  Letters  of  Credit,   the   Lockbox
Agreements, the Oil and Gas Property Mortgages, the Real Property
Mortgages, the Guaranty Agreements, the Security Agreements,  the
Prior Lender Assignment Agreements, any note or notes executed by
Borrower and payable to the Lender Group, and any other agreement
entered  into,  now  or  in the future, in connection  with  this
Agreement.

               "Loan Party" means Borrower and each Guarantor.

                "Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.

                 "Lockbox  Agreements"  means  Lockbox  Operating
Procedural  Agreements  and  those  certain  Depository   Account
Agreements, in form and substance satisfactory to Agent, each  of
which is among Borrower, Agent, and one of the Lockbox Banks.

                "Lockbox Banks" means such banks as may be agreed
to by Borrower and Foothill from time to time.

                "Lockboxes" has the meaning set forth in  Section
2.7.

                "Material  Adverse Change" means (a)  a  material
adverse change in the business, prospects, operations, results of
operations,  assets,  liabilities  or  condition  (financial   or
otherwise)  of  Borrower, (b) a material adverse  effect  on  the
ability  of Borrower to carry out its business as at the  Closing
Date  or  as  proposed as of the Closing Date, (c)  the  material
impairment of Borrower's ability to perform its obligations under
the  Loan Documents to which it is a party or of the Lender Group
to  enforce  the Obligations or realize upon the Collateral,  (d)
any  event  or  circumstance that is likely to  have  a  material
adverse effect on the value of the Collateral or the amount  that
the  Lender  Group  would  be likely  to  receive  (after  giving
consideration  to delays in payment and costs of enforcement)  in
the  liquidation of the Collateral, or (e) a material  impairment
of  the  priority  of  the  Agent's Liens  with  respect  to  the
Collateral.

                "Material Contract" means, as to any Person,  any
supply,  purchase, service, employment, tax, indemnity,  farmout,
gas    marketing,   gas   imbalance,   operating,    unitization,
communitization, partnership, joint venture or other agreement of
such Person or any of its Subsidiaries or by which such Person or
any of its Subsidiaries or any of their respective properties are
otherwise bound, which is material to the business, operations or
properties of such Person, as the same shall be amended, modified
and supplemented and in effect from time to time.

               "Maximum Revolving Amount" means $50,000,000.

                "Mineral Interests" shall mean all right,  title,
interest  and estates now owned or hereafter acquired in  and  to
oil  and gas leases, oil, gas and mineral leases, or other liquid
or  gaseous hydrocarbon leases, mineral fee interests, overriding
royalty   and   royalty  interests,  net  profit  interests   and
production  payment interests, including any reserved  interests,
reversionary  interests, carried working interests,  or  residual
interests of whatever nature.

                "Moody's"  means Moody's Investors Service,  Inc.
and any successor thereto.

                 "Mortgage   Amendment  Agreements"   means   the
amendments  to  mortgages,  deeds  of  trust  and  other  mineral
interest security agreements covering the mineral interests which
secure the indebtedness, liabilities and other obligations  under
the Prior Credit Agreement, in form and substance satisfactory to
Agent.

                "Multiemployer Plan" means a "multiemployer plan"
(as  defined  in Section 4001(a)(3) of ERISA) to which  Borrower,
any  of its Subsidiaries, or any ERISA Affiliate has contributed,
or was obligated to contribute, within the past six years.

                "Negotiable Collateral" means all of  a  Person's
present and future letters of credit, notes, drafts, instruments,
Investment Property, documents, personal property leases (wherein
such Person is the lessor), chattel paper, and the Books relating
to any of the foregoing.

                "NYMEX  Price"  means, as  of  the  date  of  the
determination  thereof, the average of the 24 succeeding  monthly
futures  contract prices, commencing with the month during  which
the  determination  is to be made, for each  of  the  appropriate
crude  oil or natural gas categories included in the most  recent
Reserve  Report  provided  by  Borrower  to  Agent  pursuant   to
Section 6.2, as applicable, as quoted on the New York Merchantile
Exchange  ("NYMEX"), or, if the NYMEX no longer provides  futures
contract price quotes for 24 month periods, the longest period of
quotes of less than 24 months shall be used, and, if the NYMEX no
longer  provides such futures contract quotes or  has  ceased  to
operate,  the Agent shall designate another nationally recognized
commodities exchange to replace the NYMEX.

                "NYMEX Value" means, at any date of determination
thereof as to any Proved Reserves of the Borrowing Base Entities,
the result of

                     (a)   the discounted present value of future
net  revenues  (i.e., after deducting production and  ad  valorem
taxes and less future capital costs and operating expenses)  from
Proved  Reserves of the Borrowing Base Entities as of  such  date
utilizing the NYMEX Price for the appropriate category of oil  or
gas  as  quoted in a nationally recognized publication  for  such
pricing  as  selected as of such date by Agent and assuming  that
production costs thereafter remain constant, then discounted at a
rate of 10% per year to obtain the present value; minus

                     (b)  to the extent not taken into account in
subparagraph (a) above, the discounted present value  (discounted
at a rate of 10% per year) of the Borrowing Base Entities' future
plugging and abandonment expenses; minus

                     (c)  to the extent not taken into account in
subparagraph (a) above, minority interests and other interests of
Persons  other than a Borrowing Base Entity and any  natural  gas
balancing liabilities of a Borrowing Base Entity.

                "Obligations"  means all loans, Advances,  debts,
principal,  interest (including any interest that,  but  for  the
provisions   of   the  Bankruptcy  Code,  would  have   accrued),
contingent reimbursement obligations under any Letter  of  Credit
Undertakings   or   Hedging  Agreement   Undertakings,   premiums
(including  Early  Termination Premiums), liabilities  (including
all  amounts charged to Borrower's Loan Account pursuant hereto),
obligations,  fees,  charges, costs,  or  Lender  Group  Expenses
(including  any fees or expenses that, but for the provisions  of
the   Bankruptcy  Code,  would  have  accrued),  lease  payments,
guaranties, covenants, and duties owing by Borrower to the Lender
Group  of  any  kind  and  description (whether  pursuant  to  or
evidenced  by  the  Loan  Documents  or  pursuant  to  any  other
agreement between the Lender Group and Borrower, and irrespective
of whether for the payment of money), whether direct or indirect,
absolute  or  contingent, due or to become due, now  existing  or
hereafter   arising,  and  including  any  debt,  liability,   or
obligation  owing from Borrower to others that the  Lender  Group
may   have  obtained  by  assignment  or  otherwise,  any   debt,
liability,  or  obligation owing to Agent or any  Lender  arising
from any Hedging Agreements under which Agent or any Lender is  a
counterparty  or any Hedging Agreement Undertaking,  and  further
including  all  interest not paid when due and all  Lender  Group
Expenses  that  Borrower is required to pay or reimburse  by  the
Loan Documents, by law, or otherwise.

                "Oil and Gas Properties" means all of the present
and  future  right,  title and interest (real,  personal,  mixed,
contractual or otherwise) of Borrower and its Subsidiaries in, to
and under or derived from the following:

                (a)  All presently existing and hereafter arising
          Mineral Interests and surface interests;

                (b)  All presently existing and hereafter arising
          unitization,  communitization and pooling declarations,
          orders,  and agreements (including all units formed  by
          voluntary  agreement and those formed under the  rules,
          regulations,  orders  or other  official  acts  of  any
          governmental   entity   or  tribal   authority   having
          appropriate jurisdiction);

                (c)  All presently existing and arising oil sales
          contracts,  casinghead gas sales contracts,  gas  sales
          contracts,  processing contracts, gathering  contracts,
          transportation   contracts,  easements,  rights-of-way,
          servitudes, surface leases, subsurface leases, farm-out
          contracts,  farm-in  contracts,  operating  agreements,
          areas   of   mutual   interest  and  other   contracts,
          agreements and instruments;

                (d)  All presently existing and hereafter arising
          personal   property,  improvements,   fixtures,   wells
          (whether  producing,  plugged and  abandoned,  shut-in,
          injection,  disposal or water supply), tanks,  boilers,
          buildings,  machinery, vehicles,  Equipment,  gathering
          lines, pipelines, utility lines, power lines, telephone
          lines, water rights, roads, permits, licenses and other
          appurtenances, to the extent the same are situated upon
          and  used  or held for use by Borrower or  any  of  its
          Subsidiaries   in   connection  with   the   ownership,
          operation,   maintenance  or  repair  of  the   Mineral
          Interests and/or surface interests; and

                (e)  All reservoir, reserve, seismic, geologic or
          geophysical information and data.

                "Oil  and Gas Property Collateral" means the  Oil
and  Gas  Properties which are identified on Schedule  5.1(a)  or
Schedule  5.1(b), and any other Oil and Gas Properties now  owned
or hereafter acquired by Borrower or any of its Subsidiaries.

               "Oil and Gas Property Mortgages" means one or more
mortgages,  deeds of trust, or deeds to secure debt, executed  by
Borrower and each of its Subsidiaries in favor of Agent, the form
and  substance  of  which shall be satisfactory  to  Agent,  that
encumber  the  Oil and Gas Property Collateral  and  the  related
improvements  thereto  (including  the  Prior  Lender  Assignment
Agreements).

               "Overadvance" has the meaning set forth in Section
2.5.

               "Parent" means Southwest Royalties Holdings, Inc.,
a Delaware corporation.

               "Participant" has the meaning set forth in Section
15.1(e).

                 "PBGC"   means  the  Pension  Benefit   Guaranty
Corporation  as  defined in Title IV of ERISA, or  any  successor
thereto.

                "Permits"  of  a  Person shall mean  all  rights,
franchises,  permits,  authorities,  licenses,  certificates   of
approval   or  authorizations,  including  licenses   and   other
authorizations  issuable  by  a  Governmental  Authority,   which
pursuant to applicable Legal Requirements are necessary to permit
such  Person  lawfully  to conduct and operate  its  business  as
currently conducted and to own and use its assets.

                "Permitted Investments" means (a) investments  in
marketable   direct   obligations   issued   or   unconditionally
guaranteed  by the United States or issued by any agency  thereof
and backed by the full faith and credit of the United States,  in
each  case  maturing within 1 year from the date  of  acquisition
thereof, (b) investments in marketable direct obligations  issued
by any state of the United States or any political subdivision of
any  such  state  or any public instrumentality thereof  maturing
within  1 year from the date of acquisition thereof and,  at  the
time  of  acquisition, having the highest rating obtainable  from
either  S&P  or  Moody's,  (c) investments  in  commercial  paper
maturing no more than 1 year from the date of acquisition thereof
and,  at the time of acquisition, having a rating of A-1 or  P-1,
or  better,  from S&P or Moody's, (d) investments in certificates
of  deposit or bankers' acceptances maturing within 1  year  from
the  date  of acquisition thereof either (i) issued by  any  bank
organized  under  the  laws of the United  States  or  any  state
thereof  which bank has a rating of A or A2, or better, from  S&P
or Moody's, or (ii) certificates of deposit less than or equal to
$100,000 in the aggregate issued by any other bank insured by the
Federal   Deposit  Insurance  Corporation,  (e)  investments   in
negotiable   instruments  for  collection,  and  (f)   reasonable
advances  made in connection with purchases of goods or  services
in the ordinary course of business.

                "Permitted Liens" means (a) Liens held  by  Agent
for  the benefit of the Lender Group, (b) Liens for unpaid  taxes
that  either  (i)  are not yet due and payable or  (ii)  are  the
subject of Permitted Protests, (c) Liens set forth on Schedule P-
1,  (d)  the  interests  of lessors under  operating  leases  and
purchase money Liens of lessors under capital leases and purchase
money  Liens  on  motor vehicles arising after the  Closing  Date
solely  for  the  acquisition thereof  to  the  extent  that  the
acquisition  or lease of the underlying asset is permitted  under
Section  7.21 and so long as the Lien only attaches to the  asset
purchased or acquired and only secures the purchase price of  the
asset,  (e)  Liens  arising  by operation  of  law  in  favor  of
warehousemen,   landlords,  carriers,   mechanics,   materialmen,
laborers,  or suppliers, or other like Liens arising by operation
of  law incidental to the exploration, development, operation and
maintenance  of Oil and Gas Properties, in each case incurred  in
the ordinary course of business of Borrower and not in connection
with  the borrowing of money, and which Liens either (i) are  for
sums  not  yet  due  and  payable, or (ii)  are  the  subject  of
Permitted  Protests,  (f) Liens arising  from  deposits  made  in
connection   with  obtaining  worker's  compensation   or   other
unemployment insurance, (g) Liens on deposits and escrowed  funds
made  to  secure performance of bids, tenders and leases (to  the
extent  permitted under this Agreement) incurred in the  ordinary
course  of  business of Borrower and not in connection  with  the
borrowing  of money, (h) Liens of or resulting from any  judgment
or  award  that  do  not result in and reasonably  could  not  be
expected  to result in a Material Adverse Change and as to  which
the  time  for the appeal or petition for rehearing of which  has
not yet expired, or in respect of which Borrower is in good faith
prosecuting an appeal or proceeding for a review and  in  respect
of  which  a  stay of execution pending such appeal or proceeding
for  review has been secured, (i) Liens with respect to  the  Oil
and  Gas  Property Collateral that are exceptions  to  the  title
opinions  issued  in  connection with the Oil  and  Gas  Property
Mortgages, as accepted by Agent, (j) with respect to any Oil  and
Gas  Property Collateral consisting of Mineral Interests acquired
by  Borrower  or any of its Subsidiaries after the date  of  this
Agreement,  (I)  minor  easements,  rights  of  way,  servitudes,
permits,  surface  leases  and other rights  in  respect  to  the
surface operations, pipelines, grazing, logging, canals, ditches,
reservoirs   or  the  like,  conditions,  covenants   and   other
restrictions,   and  easements  of  streets,  alleys,   highways,
pipelines,  telephone  lines, power  lines,  railways  and  other
easements  and  rights  of way on, over  or  in  respect  of  the
Borrower's assets or properties and other minor defects in  title
which  (A) do not affect the Defensible Title of or restrict  the
full  use  or  other benefits of ownership by  Borrower  or  such
Subsidiary, as the case may be, thereto to an extent unacceptable
to  Agent  in its reasonable judgement and (B) do not affect  the
ability  of Borrower or such Subsidiary, as the case may  be,  to
receive a share of production or proceeds from, allocated to,  or
attributable to such Mineral Interests equal to the  interest  of
Borrower  or  such  Subsidiary, as the case may  be,  therein  as
represented herein or in the other Loan Documents, and (C) do not
materially interfere with the ordinary conduct of the business of
Borrower or such Subsidiary, as the case may be, and (D)  do  not
interfere  with or impair the value of Agent's Lien  therein  for
the  benefit of the Lender Group, and (E) are customarily  waived
by reasonable and prudent Mineral Interest owners, and (II) Liens
reserved  in  leases or farmout agreements for rent or  royalties
and  for  compliance with the terms of the farmout agreements  or
leases  in the case of leasehold estates, to the extent that  any
such  Lien referred to in this clause does not materially  impair
the  use  of  the Mineral Interest covered by such Lien  for  the
purposes  for which such Mineral Interest is held by the Borrower
or  any  Subsidiary, does not materially interfere with or impair
the  value  of such Mineral Interest subject thereto  or  Agent's
Lien  therein for the benefit of the Lender Group, is customarily
waived  by reasonable and prudent operators, and is consented  to
in  writing  by  Agent, (k) farmout, carried  working  interests,
joint  operating, unitization, royalty, overriding royalty, sales
and similar agreements relating to the exploration or development
of, or production from, Oil and Gas Properties or the sale of the
hydrocarbons  after they are produced which are existing  at  the
time  of acquisition of such Oil and Gas Property, are usual  and
customary for the industry, and are disclosed to and approved  by
Agent in writing prior to any Proved Developed Producing Reserves
attributable  to  such  Oil and Gas Property  being  included  in
Eligible Proved Developed Producing Reserves.

               "Permitted Protest" means the right of Borrower to
protest  any  Lien  other than any such  Lien  that  secures  the
Obligations, tax (other than payroll taxes or taxes that are  the
subject  of a United States federal tax lien), or rental payment,
provided  that  (a) a reserve with respect to such obligation  is
established  on  the  books of Borrower  in  an  amount  that  is
satisfactory  to  Agent, (b) any such protest is  instituted  and
diligently prosecuted by Borrower in good faith, and (c) Agent is
satisfied that, while any such protest is pending, there will  be
no impairment of the enforceability, validity, or priority of any
of the Agent's Liens in and to the Collateral.

                 "Permitted  SWP  Merger"  means  the  merger  or
consolidation after the Closing Date, but on or before March  31,
2001, of Southwest Partners, L.P., with and into Borrower (and no
other  entities involved) in a transaction in which  Borrower  is
the  sole surviving entity of the transaction; provided that  (i)
there  has  not occurred or then exist any Default  or  Event  of
Default,  and no Default or Event of Default would is  likely  to
occur  or  exist  after  giving effect  thereto,  (ii)  the  sole
consideration  in the transaction is the exchange of  partnership
interests in Southwest Partners, L.P., for shares of common Stock
of  Borrower, (iii) all documentation and compliance  with  Legal
Requirements pertaining to the transaction has been  provided  to
Agent  and is satisfactory to Agent in its reasonable discretion,
(iv)  neither  Borrower  nor any of its Subsidiaries  incurs  any
indebtedness, liabilities or other obligations in connection with
or  as  a result of the transaction other than up to $500,000  of
indebtedness  for borrowed money owing to Western National  Bank,
Odessa,  Texas, (v) neither Borrower nor any of its  Subsidiaries
incurs  or  suffers  to  exist any Liens in  connection  with  or
resulting  from  the  transaction other than  Liens  (other  than
Permitted Liens) existing on the date of this Agreement in  favor
of  Western National Bank, Odessa, Texas, which encumber only the
Mineral Interests acquired by Borrower in the transaction to  the
extent  of  only  up  to  $500,000 of the same  indebtedness  for
borrowed money owing to Western National Bank, Odessa, Texas,  as
is  described  in  the  immediately preceding  clause  (iv),  and
Borrower shall have provided to Agent such searches of UCC filing
offices, Title Opinions and such other evidence thereof as may be
requested by Agent, and (vi) no Person receives any consideration
in  connection with or resulting from the transaction which would
not otherwise be permitted to be paid to such Person at such time
under this Agreement.

                "Person"  means  and  includes  natural  persons,
corporations,  limited liability companies, limited partnerships,
general  partnerships,  limited  liability  partnerships,   joint
ventures,  trusts,  land  trusts,  business  trusts,   or   other
organizations,  irrespective of whether they are legal  entities,
and governments and agencies and political subdivisions thereof.

                 "Personal   Property   Collateral"   means   all
Collateral  other  than the Oil and Gas Property  Collateral  and
other than the Real Property Collateral.

                "Plan"  means any employee benefit plan, program,
or  arrangement maintained or contributed to by Borrower or  with
respect to which it may incur liability.

               "Prior Credit Agreement" has the meaning set forth
in the recitals hereto.

                "Prior  Lender Assignment Agreements"  means  the
assignment  agreements in the form and substance of  Exhibit  P-1
attached hereto.

                "Prior Lenders" has the meaning set forth in  the
recitals.

                "Property"  means any interest  in  any  kind  of
property  or asset, whether real, personal or mixed, tangible  or
intangible.

               "Pro Rata Share" means:

                    (a)  with respect to a Lender's obligation to
make  an  Advance  and  receive payments of principal,  interest,
fees,  costs,  and expenses with respect thereto, the  percentage
obtained  by  dividing (i) such Lender's Commitment by  (ii)  the
aggregate Commitments of all Lenders, and

                     (b)   with  respect  to  all  other  matters
(including   the   indemnification  obligations   arising   under
Section  17.7),  the  percentage obtained by  dividing  (i)  such
Lender's  Commitment, by (ii) the aggregate amount of Commitments
of all Lenders;

provided,  however,  that, in each case, in the  event  that  all
Commitments  have  been  terminated,  Pro  Rata  Share  shall  be
determined  according  to the Commitments in  effect  immediately
prior to such termination.

                "Proved  Developed Non-Producing Reserves"  means
Proved Reserves of the Borrowing Base Entities, other than Proved
Developed  Producing  Reserves and Proved  Undeveloped  Reserves,
that  can be expected to be recovered through existing wells with
existing equipment and operating methods.

               "Proved Developed Producing Reserves" means Proved
Reserves  of Borrowing Base Entities, other than Proved Developed
Non-Producing Reserves and Proved Undeveloped Reserves, that  can
be  expected to be recovered from currently producing zones under
the continuation of present operating methods.

                "Proved  Reserves" means at any particular  time,
the  estimated  quantities of Hydrocarbons which  geological  and
engineering  data  demonstrate with reasonable  certainty  to  be
recoverable in future years from known reservoirs attributable to
Mineral  Interests  included or to be  included  in  the  Reserve
Report under existing economic and operating conditions.

                 "Proved   Undeveloped  Reserves"  means   Proved
Reserves  of  the  Borrowing  Base Entities,  other  than  Proved
Developed  Producing Reserves and Proved Developed  Non-Producing
Reserves,  that are expected to be recovered from  new  wells  on
undrilled  acreage,  or from existing wells  where  a  relatively
major expenditure is required for recompletion.

               "Qualified Subsequent Oil and Gas Property" means,
as  at  any date of determination thereof, Oil and Gas Properties
acquired subsequent to the date of this Agreement with respect to
which  all  of the representations specified in Section  5.2  are
true and correct and Borrower has delivered to Agent the Oil  and
Gas   Mortgages,  opinions,  certificates  and  other  items  and
information described on Exhibit B-1.

                "Real Property" means any estates or interests in
real property now owned or hereafter acquired by Borrower or  any
Subsidiary of Borrower, excluding Oil and Gas Properties.

                "Real  Property Collateral" means the  parcel  or
parcels  of  real  property and the related improvements  thereto
identified  on  Schedule 5.1(d) and any Real  Property  hereafter
acquired by Borrower.

                "Real  Property  Mortgages"  means  one  or  more
mortgages,  deeds of trust, or deeds to secure debt, executed  by
Borrower  and each of its Subsidiaries in favor of Agent,  or  to
the Prior Agent and assigned to Agent, the form and substance  of
which  shall  be  satisfactory to Agent, that encumber  the  Real
Property Collateral and the related improvements thereto.

                "Reference  Rate"  means  the  variable  rate  of
interest, per annum, most recently announced by Wells Fargo Bank,
National  Association, or any successor thereto,  as  its  "prime
rate,"  irrespective of whether such announced rate is  the  best
rate available from such financial institution.

                "Refinancing Letter" means a letter, in form  and
substance  reasonably satisfactory to Agent,  from  Prior  Lender
respecting the amount necessary to purchase and refinance in full
all  of  the  obligations of Borrower owing to Prior Lenders  and
obtain  an  assignment to Agent of all of the Liens  existing  in
favor  of  Prior Lenders in and to the properties  or  assets  of
Borrower.

                "Renewal  Date"  has  the meaning  set  forth  in
Section 3.4.

                 "Reportable  Event"  means  any  of  the  events
described   in  Section  4043(c)  of  ERISA  or  the  regulations
thereunder  other  than  a  Reportable  Event  as  to  which  the
provision  of  30  days  notice  to  the  PBGC  is  waived  under
applicable regulations.

                "Required  Lenders" means, at any  time,  Lenders
whose  Pro  Rata Shares aggregate 51% or more of the Commitments,
or,  if the Commitments have been terminated irrevocably, 51%  of
the Obligations then outstanding.

                "Reserve  Report"  means a report,  in  form  and
substance satisfactory to Agent, prepared by Borrower and audited
by  Ryder Scott Company, Pollard Gore & Harrison or another  firm
of  independent  petroleum  engineers selected  by  Borrower  and
acceptable   to  Agent  evaluating  the  oil  and  gas   reserves
attributable  to  the  Mineral Interests of  the  Borrowing  Base
Entities (and no other Persons) which shall, among other  things,
(a)  identify the wells covered thereby, (b) specify  said  third
party's  opinions  with  respect to the total  volume  of  Proved
Reserves  (specifying with such opinions the terms of  categories
Proved  Developed  Producing  Reserves,  Proved  Developed   Non-
Producing   Reserves  and  Proved  Undeveloped  Reserves)   which
Borrower  has the right to produce (or cause to be produced)  for
its  own account, (c) set forth said firm's opinions with respect
to  the  NYMEX  Value  of each of the categories  of  the  Proved
Reserves as specified in subclause (b) above, (d) set forth  said
firm's  opinions  with respect to the projected  future  rate  of
production  of  the  Proved  Reserves,  (e)  contain  such  other
information  as requested by Agent with respect to the  projected
rate  of  production,  gross revenues,  operating  expenses,  net
income, taxes, capital expenditures and other capital costs,  net
revenues and present value of future net revenues attributable to
such  reserves  and  production  therefrom,  and  (f)  contain  a
statement of the price and escalation parameters, procedures  and
assumptions upon which such determinations were based.

                 "Reserves   Against  Availability"  means   such
reserves as Agent determines in Agent's sole discretion as  being
appropriate to reflect impediments to Agent's ability to  realize
upon the Collateral or impairments or reductions to the value  of
the   Collateral.   Without  limiting  the  generality   of   the
foregoing, Reserves Against Availability may include (but are not
limited to) reserves based upon the following:

                (a)   accounts payable which are 45 days or  more
          past the original invoice date thereof;

                 (b)    past  due  or  accrued  taxes  or   other
          governmental  charges, including ad  valorem,  personal
          property,  production, severance and other taxes  which
          may  have priority over the Liens or security interests
          of Agent in the Collateral;

                (c)  Liens in favor of third Persons (whether  or
          not such Liens are Permitted Liens);

               (d)  deposits which are due or scheduled to become
          due  during  the immediately following 180  day  period
          under  deposit or escrow arrangement concerning  costs,
          expenses  and liabilities relating to the plugging  and
          abandonment of Oil and Gas Properties;

                (e)   estimates  of  present  and  future  costs,
          expenses,  deposits  and  liabilities  related  to  the
          plugging  and abandonment of the Oil and Gas Properties
          net  of  the  amount thereof which has been taken  into
          account  in the most recent Reserve Report or is  fully
          secured by an escrow arrangement acceptable to Agent;

                (f)  sums which any Borrowing Base Entity may  be
          required  to  pay  which are due or  are  scheduled  to
          become due during such period as shall be determined by
          Agent  with respect to rental, lease and other  amounts
          payable  under  leases or the Oil  and  Gas  Properties
          (except for commercial building leases with respect  to
          which  Borrower  has  delivered to Agent  a  Collateral
          Access Agreement);

               (g)  without duplication of the foregoing, amounts
          owing by any Borrowing Base Entity to any Person to the
          extent secured by a Lien (whether or not such Lien is a
          Permitted   Lien)   on,  or  trust   (constructive   or
          otherwise)  over,  any  of  the  Collateral  (including
          proceeds  thereof  or  collections  from  the  sale  of
          Hydrocarbons or Mineral Interests which may  from  time
          to  time come into the possession of any of the  Lender
          Group  or  its  agents), which Lien or  trust,  in  the
          determination  of  Agent (from the  perspective  of  an
          asset-based  lender),  has a possibility  of  having  a
          priority  superior  to  the  Agent's  Liens  (such   as
          landlord  liens,  ad valorem taxes,  production  taxes,
          severance  taxes, sales taxes, Collections attributable
          to  Mineral Interests of Persons other than a Borrowing
          Base  Entity)  in  and  to  such  item  of  Collateral,
          proceeds or collection; and

                (h)  to the extent not taken into account in  the
          most  recent Reserve Report submitted to Agent  in  the
          determination of the NYMEX Value of any Proved Reserves
          of  the Borrowing Base Entities used in determining the
          Borrowing   Base,  sums  which  Agent  determines   are
          appropriate to account for minority interests and other
          interests of Persons other than a Borrowing Base Entity
          and any natural gas balancing liabilities of Borrower.

                "Retiree Health Plan" means an "employee  welfare
benefit  plan" within the meaning of Section 3(1) of  ERISA  that
provides  benefits  to  individuals after  termination  of  their
employment, other than as required by Section 601 of ERISA.

                "Revolving Facility Usage" means, as of any  date
of determination, the aggregate amount of Advances outstanding.

                "SEC"  means  the  United States  Securities  and
Exchange  Commission  and  any successor  Federal  agency  having
similar powers.

                "Securities Account" means a "securities account"
as that term is defined in Section 8501 of the Code.

               "Security Agreements" means, collectively, any and
all  of  the  security  agreement, pledges, mortgages,  deeds  of
trust,  assignments,  stock  pledge  agreements,  assignments  of
partnership  interests, and such other agreements, documents  and
instruments,  in form and substance satisfactory to Agent,  which
are, or are to be, executed by Borrower and/or any one or more of
its  Subsidiaries in favor of Agent and/or the Lenders as may  be
required  from  time to time by Agent to provide  Agent  for  the
benefit of the Lender Group with Liens upon all of the assets and
properties of Borrower and its Subsidiaries as security  for  the
payment and performance in full of the Obligations, in each  case
as  the  same  may be amended, modified, restated,  supplemented,
increased,  renewed, extended, substituted for or  replaced  from
time   to   time,  together  with  the  Prior  Lender  Assignment
Agreements and the security agreements, pledges, mortgages, deeds
of  trust,  assignments, stock pledge agreements, assignments  of
partnership  interests,  and  other  agreements,  documents   and
instruments covered thereby.

                "Settlement" has the meaning set forth in Section
2.1(h)(i).

                "Settlement  Date" has the meaning set  forth  in
Section 2.1(h)(i).

                "Solvent" means, with respect to any Person on  a
particular date, that on such date (a) at fair valuations, all of
the properties and assets of such Person are greater than the sum
of  the  debts, including contingent liabilities, of such Person,
(b)  the present fair salable value of the properties and  assets
of  such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they
become  absolute and matured, (c) such Person is able to  realize
upon  its  properties  and assets and pay  its  debts  and  other
liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not
intend  to, and does not believe that it will, incur debts beyond
such  Person's ability to pay as such debts mature, and (e)  such
Person  is not engaged in business or a transaction, and  is  not
about  to  engage in business or a transaction,  for  which  such
Person's  properties  and  assets would  constitute  unreasonably
small  capital  after giving due consideration to the  prevailing
practices  in the industry in which such Person is  engaged.   In
computing the amount of contingent liabilities at any time, it is
intended  that  such liabilities will be computed at  the  amount
that,  in  light of all the facts and circumstances  existing  at
such  time, represents the amount that reasonably can be expected
to become an actual or matured liability.

                "Standard  &  Poor's"  means  Standard  &  Poor's
Ratings Services, a division of The McGraw-Hill Companies,  Inc.,
and any successor thereto.

                "Stock"  means  all  shares,  options,  warrants,
interests,  participations, or other equivalents  (regardless  of
how  designated)  of  or in a corporation or  equivalent  entity,
whether  voting  or nonvoting, including common stock,  preferred
stock, or any other "equity security" (as such term is defined in
Rule  3a11-1 of the General Rules and Regulations promulgated  by
the SEC under the Exchange Act).

                "Subsidiary"  of  a Person means  a  corporation,
partnership, limited liability company, or other entity in  which
that Person directly or indirectly owns or controls the shares of
Stock  or other ownership interests having ordinary voting  power
to  elect a majority of the board of directors (or appoint  other
comparable  managers)  of such corporation, partnership,  limited
liability company, or other entity; provided, however,  that  (i)
Blue  Heel  shall  at  all times be considered  a  Subsidiary  of
Borrower  for  purposes  of  this Agreement,  (ii)  Basic  Energy
Services, Inc., a Delaware corporation, shall not be considered a
Subsidiary of Borrower for purposes of this Agreement, and  (iii)
none  of the Designated Affiliated Limited Partnerships shall  be
considered  a  Subsidiary  of  Borrower  for  purposes  of   this
Agreement other than for purposes of the definitions of  "Benefit
Plan",  "Environmental Laws" and "ERISA Event"  contained  herein
and  for  purposes of Sections 2.7, 5.8, 5.13, 5.14, 5.15,  5.18,
5.22,  6.2(l),  6.2(m), 6.9, 6.13, 6.14, 7.7,  7.8,  7.19,  7.24,
7.28, 17.3, 17.6, and 17.8 of this Agreement.

                "Tangible  Net Worth" means, as of  any  date  of
determination,   the   difference   of   (a)   Borrower's   total
stockholder's  equity, minus (b) the sum of:  (i) all  Intangible
Assets of Borrower, (ii) all of Borrower's prepaid expenses,  and
(iii) all amounts due to Borrower from Affiliates.

                "Title  Opinion"  has the meaning  set  forth  in
Section 3.1(l).

                "Transfer  Order  Letters" means  transfer  order
letters in the form of Exhibit T-1 attached hereto containing the
information as provided for therein.

                "Unsecured  Notes" means those  certain  10  1/2%
unsecured  notes  in the aggregate original principal  amount  of
$200,000,000,  dated  as of October 15,  1997,  and  maturing  on
October 15, 2004, issued under the Unsecured Notes Indenture,  as
amended, modified, renewed or restated from time to time.

               "Unsecured Notes Indebtedness Limitation" means at
any  particular date the maximum amount of Obligations which  may
at  such  time  be  outstanding pursuant to this  Agreement  that
constitute  "Permitted Indebtedness" (as such term is defined  in
the  Unsecured  Notes Indenture) and not cause  or  result  in  a
violation of the Unsecured Notes Indenture or cause or result  in
any  holders of the Unsecured Notes (or any trustee or agent  for
the  benefit  thereof)  having the  right  to  demand  repayment,
repurchase, retirement or redemption thereof or any similar right
with  respect  thereto,  as  determined  by  Agent  in  its  sole
discretion.

                "Unsecured  Notes Indenture" means  that  certain
Indenture,  dated as of October 15, 1997, among Borrower,  Parent
and State Street Bank and Trust Company, as Trustee, pursuant  to
which the Unsecured Notes have been issued, as amended, modified,
renewed or restated from time to time.

                "Voidable Transfer" has the meaning set forth  in
Section 18.7.

                "Working Interest" means that interest in an  oil
and  gas mineral lease which gives the owner the right to explore
for,  develop, exploit, and/or produce the minerals and  includes
the obligation to pay the expense of such activities.

           1.2   Accounting  Terms.   All  accounting  terms  not
specifically defined herein shall be construed in accordance with
GAAP.   When  used herein, the term "financial statements"  shall
include  the  notes  and schedules thereto.   Whenever  the  term
"Borrower"  is  used  in  respect of a financial  covenant  or  a
related definition, it shall be understood to mean Borrower on  a
consolidated basis unless the context clearly requires otherwise.

           1.3  Code.  Any terms used in this Agreement that  are
defined  in the Code shall be construed and defined as set  forth
in the Code unless otherwise defined herein.

            1.4    Construction.   Unless  the  context  of  this
Agreement  or any other Loan Document clearly requires otherwise,
references to the plural include the singular, references to  the
singular  include  the  plural,  the  term  "including"  is   not
limiting,   and  the  term  "or"  has,  except  where   otherwise
indicated,  the  inclusive  meaning  represented  by  the  phrase
"and/or."   The words "hereof," "herein," "hereby,"  "hereunder,"
and  similar  terms in this Agreement or any other Loan  Document
refer to this Agreement or any other Loan Documents, as the  case
may  be,  as a whole and not to any particular provision of  this
Agreement  or such other Loan Document, as the case may  be.   An
Event  of Default shall "continue" or be "continuing" until  such
Event  of  Default has been waived in writing by Agent.  Section,
subsection, clause, schedule, and exhibit references  herein  are
to  this Agreement unless otherwise specified.  Any reference  in
this Agreement or in the Loan Documents to this Agreement or  any
of  the Loan Documents shall include all alterations, amendments,
changes,   extensions,  modifications,  renewals,   replacements,
substitutions, joinders, and supplements, thereto and thereof, as
applicable.

           1.5  Schedules and Exhibits.  All of the schedules and
exhibits  attached to this Agreement shall be deemed incorporated
herein by reference.

     2.   LOAN AND TERMS OF PAYMENT

          2.1  Revolving Advances.

                (a)   Subject to the terms and conditions of this
Agreement  and  during  the term of this Agreement,  each  Lender
(severally, not jointly or jointly and severally) agrees to  make
advances  ("Advances") to Borrower in an amount at any  one  time
outstanding  not  to exceed such Lender's Pro Rata  Share  of  an
amount equal to the least of (i) the Maximum Revolving Amount, or
(ii) the Borrowing Base, or (iii) the Unsecured Note Indebtedness
Limitation.   For  purposes  of this  Agreement,  the  "Borrowing
Base," as of any date of determination (which, in the absence  of
the occurrence and continuation of an Event of Default, shall  be
determined  no  less  frequently than monthly),  shall  mean  the
result of:

                          (x)   45% of Borrower's Eligible Proved
          Developed Producing Reserves, minus

                          (y)   the  sum of aggregate  amount  of
          reserves,  if  any, established by Agent under  Section
          2.1(b).

In   determining   the  Borrowing  Base  as  of   any   date   of
determination,  the Proved Developed Producing  Reserves  of  any
Mineral Interest shall be based upon the volumetric quantity  and
production forecasts and the related lease operating expenses  of
the  Proved Developed Producing Reserves of such Mineral Interest
estimated  in the Reserve Report covering the same most  recently
delivered to Agent minus the amount of Proved Developed Producing
Reserves of such Mineral Interest that has been projected  to  be
produced  since the date of such Reserve Report as set  forth  in
the  independent petroleum engineer's opinion with respect to the
projected  rate  of  such  future production  contained  in  such
Reserve  Report  (subject to adjustment if  the  amount  actually
produced  since  such  date exceeds the amount  projected  to  be
produced  since such date).  Unless otherwise required by  Agent,
the  Borrowing Base shall be determined on the first day of  each
month.   The  Borrowing Base on the Closing Date shall  be  based
upon  the volumetric quantity and production forecasts of  Proved
Developed  Producing Reserves as of June 30, 2000, multiplied  by
the  NYMEX Price as of the day which is not more than 5  Business
Days immediately preceding the Closing Date.

The  Lenders shall have no obligation to make additional Advances
hereunder to the extent such additional Advances would cause  the
outstanding Revolving Facility Usage to exceed the least  of  (i)
the  Maximum  Revolving Amount, or (ii) the  Borrowing  Base,  or
(iii) the Unsecured Note Indebtedness Limitation.

Amounts borrowed pursuant to this Section 2.1 may be repaid  and,
subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.

               (b)  Advance Rate Adjustments and Reserves; Proved
Developed Producing Reserves Reappraisals.

                    (i)  Anything to the contrary in this Section
notwithstanding, Agent shall have the right to establish reserves
against  the  Borrowing Base in such amounts  as  Agent,  in  its
credit  judgment (from the perspective of an asset-based  lender)
shall  deem  necessary  or  appropriate,  including  reserves  on
account  of  (A) sums that Borrower is required to pay  (such  as
taxes, assessments, insurance premiums, or, in the case of leased
assets, rents or other amounts payable under such leases) and has
failed  to  pay under any Section of this Agreement or any  other
Loan  Document, (B) without duplication of the foregoing, amounts
owing by such Borrower to any Person to the extent secured  by  a
Lien  on,  or  trust over, any of the Collateral, which  Lien  or
trust, in the determination of Agent (from the perspective of  an
asset-based  lender),  could  have a  priority  superior  to  the
Agent's Liens (such as landlord liens, ad valorem taxes, or sales
taxes  where given priority under applicable law) in and to  such
item of Collateral, and (C) without duplication of the foregoing,
Reserves Against Availability.

                     (ii)  Agent shall have the right to require,
from  time  to time, Borrower to deliver updated Reserve  Reports
whereby  the  volumetric  quantity and production  forecasts  and
related  lease  operating expenses of Proved Developed  Producing
Reserves  are  redetermined from time  to  time  by  a  qualified
petroleum engineer approved by Agent after the Closing  Date  for
the  purpose  of  recalculating the NYMEX  Value  of  the  Proved
Developed Producing Reserves located at the Oil and Gas  Property
Collateral.  In the absence of the occurrence and continuation of
an  Event  of  Default, such redeterminations shall  occur  semi-
annually  on  such  dates of each year as shall  be  required  by
Agent, and such appraisals shall be delivered to Agent not  later
than 90 days after each such date.

                (c)   Procedure  for Borrowing.   Each  Borrowing
shall  be made upon Borrower's irrevocable request therefor  (the
"Borrowing  Request")  either delivered in  writing  or  made  by
telephone  to Agent (which notice must be received  by  Agent  no
later  than  10:00  a.m. (California time)  on  the  fifth  (5th)
Business Day preceding the requested Funding Date specifying  (i)
the amount of the Borrowing, and (ii) the requested Funding Date,
which  shall  be a Business Day, and each such Borrowing  Request
shall be accompanied by a Reserve Report with respect to any  Oil
and  Gas  Properties which are to be acquired by  Borrower.   All
Advances requested in any Borrowing Request must be in an  amount
not  less  than $1,000,000 and integral multiples of $500,000  in
excess thereof, unless the amount available for further Revolving
Advances  under Section 2.1(a) is less than $1,000,000, in  which
event  the  Borrowing Request must be in an amount equal  to  the
maximum  amount  then  available for further Revolving  Advances.
There  may  be no more than one Advance made during any  specific
seven consecutive day period.

                (d)  Agent's Election.  Promptly after receipt of
a request for a Borrowing pursuant to Section 2.1(c), Agent shall
elect, in its discretion, (i) to have the terms of Section 2.1(e)
apply to such requested Borrowing, or (ii) to request Foothill to
make  a Foothill Loan pursuant to the terms of Section 2.1(f)  in
the amount of the requested Borrowing; provided, however, that if
Foothill declines in its sole discretion to make a Foothill  Loan
pursuant  to Section 2.1(f), Agent shall elect to have the  terms
of Section 2.1(e) apply to such requested Borrowing.

               (e)  Making of Advances.

                     (i)  In the event that Agent shall elect  to
have  the  terms  of  this Section 2.1(e) apply  to  a  requested
Borrowing  as  described in Section 2.1(d), then  promptly  after
receipt  of a request for a Borrowing pursuant to Section 2.1(c),
Agent  shall  notify  the  Lenders,  not  later  than  1:00  p.m.
(California  time) on the Business Day immediately preceding  the
Funding Date applicable thereto, by telecopy, telephone, or other
similar  form of transmission, of the requested Borrowing.   Each
Lender  shall make the amount of such Lender's Pro Rata Share  of
the   requested  Borrowing  available  to  Agent  in  immediately
available funds, to such account of Agent as Agent may designate,
not  later than 10:00 a.m. (California time) on the Funding  Date
applicable  thereto.  After Agent's receipt of  the  proceeds  of
such  Advances,  upon  satisfaction of the applicable  conditions
precedent  set  forth in Section 3 hereof, Agent shall  make  the
proceeds of such Advances available to Borrower on the applicable
Funding Date by transferring same day funds equal to the proceeds
of  such  Advances  received by Agent  to  Borrower's  Designated
Account;  provided, however, that, subject to the  provisions  of
Section  2.1(k), Agent shall not request any Lender to make,  and
no Lender shall have the obligation to make, any Advance if Agent
shall  have received written notice from any Lender, or otherwise
has  actual  knowledge, that (1) one or more  of  the  applicable
conditions precedent set forth in Section 3 will not be satisfied
on the requested Funding Date for the applicable Borrowing unless
such  condition  has been waived by Agent, or (2)  the  requested
Borrowing   would  exceed  the  Availability  of   the   Borrower
requesting the Advance on such Funding Date.

                     (ii)  Unless  Agent receives notice  from  a
Lender  on or prior to the Closing Date or, with respect  to  any
Borrowing  after the Closing Date, at least one (1) Business  Day
prior  to  the date of such Borrowing, that such Lender will  not
make  available as and when required hereunder to Agent  for  the
account of Borrower the amount of that Lender's Pro Rata Share of
the Borrowing, Agent may assume that each Lender has made or will
make  such  amount  available to Agent in  immediately  available
funds  on  the Funding Date and Agent may (but shall  not  be  so
required),  in reliance upon such assumption, make  available  to
Borrower  on  such date a corresponding amount.  If  and  to  the
extent  any Lender shall not have made its full amount  available
to  Agent  in  immediately  available funds  and  Agent  in  such
circumstances  has made available to Borrower such  amount,  that
Lender shall on the Business Day following such Funding Date make
such  amount  available to Agent, together with interest  at  the
Defaulting  Lenders  Rate for each day  during  such  period.   A
notice  submitted by Agent to any Lender with respect to  amounts
owing  under this subsection shall be conclusive, absent manifest
error.   If  such  amount is so made available, such  payment  to
Agent  shall  constitute such Lender's Advance  on  the  date  of
Borrowing for all purposes of this Agreement.  If such amount  is
not  made  available to Agent on the Business Day  following  the
Funding Date, Agent will notify Borrower of such failure to  fund
and,  upon  demand by Agent, Borrower shall pay  such  amount  to
Agent  for  Agent's account, together with interest  thereon  for
each day elapsed since the date of such Borrowing, at a rate  per
annum  equal to the interest rate applicable at the time  to  the
Advances composing such Borrowing.  The failure of any Lender  to
make  any Advance on any Funding Date shall not relieve any other
Lender  of  any obligation hereunder to make an Advance  on  such
Funding  Date, but no Lender shall be responsible for the failure
of  any other Lender to make the Advance to be made by such other
Lender on any Funding Date.

                     (iii)      Agent  shall not be obligated  to
transfer to a Defaulting Lender any payments made by Borrower  to
Agent for the Defaulting Lender's benefit; nor shall a Defaulting
Lender  be  entitled  to the sharing of any  payments  hereunder.
Amounts  payable to a Defaulting Lender shall instead be paid  to
or retained by Agent.  Agent may hold and, in its discretion, re-
lend  to  Borrower  the amount of all such payments  received  or
retained by it for the account of such Defaulting Lender.  Solely
for  the purposes of voting or consenting to matters with respect
to  the  Loan  Documents and determining Pro  Rata  Shares,  such
Defaulting Lender shall be deemed not to be a "Lender"  and  such
Lender's  Commitment  shall be deemed to  be  zero  (-0-).   This
section shall remain effective with respect to such Lender  until
(x) the Obligations under this Agreement shall have been declared
or  shall  have  become immediately due and payable  or  (y)  the
requisite non-Defaulting Lenders and Agent shall have waived such
Lender's default in writing.  The operation of this section shall
not  be  construed to increase or otherwise affect the Commitment
of  any  Lender, or relieve or excuse the performance by Borrower
of its duties and obligations hereunder.

               (f)  Making of Foothill Loans.

                    (i)  In the event Agent shall elect, with the
consent  of  Foothill  as a Lender, to have  the  terms  of  this
Section  2.1(f)  apply to a requested Borrowing as  described  in
Section 2.1(d), Foothill as a Lender shall make an Advance in the
amount  of  such  Borrowing  (any such  Advance  made  solely  by
Foothill  as  a  Lender  pursuant to this  Section  2.1(f)  being
referred to as a "Foothill Loan" and such Advances being referred
to collectively as "Foothill Loans") available to Borrower on the
Funding Date applicable thereto by transferring same day funds to
Borrower's Designated Account.  Each Foothill Loan is an  Advance
hereunder  and  shall be subject to all the terms and  conditions
applicable  to  other Advances, except that all payments  thereon
shall  be  payable  to Foothill as a Lender solely  for  its  own
account  (and  for the account of the holder of any participation
interest  with  respect  to  such  Advance).   Subject   to   the
provisions of Section 2.1(k), Agent shall not request Foothill as
a  Lender  to make, and Foothill as a Lender shall not make,  any
Foothill  Loan if Agent shall have received written  notice  from
any  Lender, or otherwise has actual knowledge, that (i)  one  or
more  of the applicable conditions precedent set forth in Section
3  will  not be satisfied on the requested Funding Date  for  the
applicable  Borrowing unless such condition has been  waived,  or
(ii)  the  requested Borrowing would exceed the  Availability  of
Borrower  on such Funding Date.  Foothill as a Lender  shall  not
otherwise   be  required  to  determine  whether  the  applicable
conditions  precedent set forth in Section 3 have been  satisfied
on  the  Funding Date applicable thereto prior to making, in  its
sole discretion, any Foothill Loan.

                     (ii) The Foothill Loans shall be secured  by
the  Collateral  and  shall constitute Advances  and  Obligations
hereunder,  and  shall bear interest at the rate applicable  from
time to time to Advances pursuant to Section 2.6 hereof.

               (g)  Agent Advances.

                     (i)  Subject to the limitations set forth in
the  proviso  contained in this Section 2.1(g), Agent  hereby  is
authorized  by  Borrower and the Lenders, from time  to  time  in
Agent's sole discretion, (1) after the occurrence and during  the
continuance of a Default or an Event of Default, or  (2)  at  any
time  that  any of the other applicable conditions precedent  set
forth  in Section 3 have not been satisfied, to make Advances  to
Borrower  on behalf of the Lenders that Agent, in its  reasonable
business  judgment, deems necessary or desirable (A) to  preserve
or protect the Collateral, or any portion thereof, (B) to enhance
the likelihood of repayment of the Obligations, or (C) to pay any
other amount chargeable to Borrower pursuant to the terms of this
Agreement,  including Lender Group Expenses and the costs,  fees,
and  expenses  described  in Section  10  (any  of  the  Advances
described  in this Section 2.1(g) shall be referred to as  "Agent
Advances").  Each Agent Advance is an Advance hereunder and shall
be  subject to all the terms and conditions applicable  to  other
Advances, except that all payments on such Agent Advance shall be
payable  to Agent solely for its own account (and for the account
of  the holder of any participation interest with respect to such
Agent Advance).

                     (ii)  Agent  Advances shall be repayable  on
demand  and secured by the Collateral, shall constitute  Advances
and  Obligations hereunder, and shall bear interest at  the  rate
applicable from time to time to the Advances pursuant to  Section
2.6 hereof.

                (h)  Settlement.  It is agreed that each Lender's
funded  portion  of the Advances is intended by  the  Lenders  to
equal,  at  all  times,  such Lender's  Pro  Rata  Share  of  the
outstanding  Advances.   Such agreement  notwithstanding,  Agent,
Foothill, and the other Lenders agree (which agreement shall  not
be  for the benefit of or enforceable by Borrower) that in  order
to  facilitate the administration of this Agreement and the other
Loan  Documents,  settlement among them as to the  Advances,  the
Foothill  Loans,  and the Agent Advances shall take  place  on  a
periodic basis in accordance with the following provisions:

                      (i)    Agent   shall   request   settlement
("Settlement") with the Lenders on a weekly basis, or on  a  more
frequent  basis  if  so determined by Agent,  (1)  on  behalf  of
Foothill, with respect to each outstanding Foothill Loan, (2) for
itself,  with respect to each Agent Advance, and (3) with respect
to  Collections received, as to each by notifying the Lenders  by
telecopy,  telephone, or other similar form of  transmission,  of
such  requested  Settlement, no later than 2:00 p.m.  (California
time)  on the Business Day immediately prior to the date of  such
requested Settlement (the date of such requested Settlement being
the  "Settlement Date").  Such notice of a Settlement Date  shall
include   a  summary  statement  of  the  amount  of  outstanding
Advances, Foothill Loans, and Agent Advances for the period since
the  prior Settlement Date, the amount of repayments received  in
such  period,  and the amounts allocated to each  Lender  of  the
interest,  fees, and other charges for such period.   Subject  to
the  terms  and  conditions contained herein  (including  Section
2.1(e)(iii)): (y) if a Lender's balance of the Advances, Foothill
Loans, and Agent Advances exceeds such Lender's Pro Rata Share of
the  Advances,  Foothill  Loans,  and  Agent  Advances  as  of  a
Settlement  Date, then Agent shall by no later  than  12:00  p.m.
(California  time) on the Settlement Date transfer in immediately
available funds to the account of such Lender as such Lender  may
designate,  an  amount  such that each such  Lender  shall,  upon
receipt  of such amount, have as of the Settlement Date, its  Pro
Rata  Share of the Advances, Foothill Loans, and Agent  Advances;
and  (z)  if a Lender's balance of the Advances, Foothill  Loans,
and  Agent Advances is less than such Lender's Pro Rata Share  of
the  Advances,  Foothill  Loans,  and  Agent  Advances  as  of  a
Settlement  Date,  such  Lender shall no later  than  12:00  p.m.
(California  time) on the Settlement Date transfer in immediately
available  funds to such account of Agent as Agent may designate,
an amount such that each such Lender shall, upon transfer of such
amount, have as of the Settlement Date, its Pro Rata Share of the
Advances, Foothill Loans, and Agent Advances.  Such amounts  made
available  to Agent under clause (z) of the immediately preceding
sentence  shall be applied against the amounts of the  applicable
Foothill Loan or Agent Advance and, together with the portion  of
such  Foothill Loan or Agent Advance representing Foothill's  Pro
Rata  Share  thereof, shall constitute Advances of such  Lenders.
If  any  such amount is not made available to Agent by any Lender
on  the Settlement Date applicable thereto to the extent required
by  the terms hereof, Agent shall be entitled to recover for  its
account  such  amount  on demand from such Lender  together  with
interest thereon at the Defaulting Lenders Rate.

                      (ii)  In  determining  whether  a  Lender's
balance  of  the Advances, Foothill Loans, and Agent Advances  is
less than, equal to, or greater than such Lender's Pro Rata Share
of  the  Advances,  Foothill Loans, and Agent Advances  as  of  a
Settlement Date, Agent shall, as part of the relevant Settlement,
apply  to  such balance the portion of payments actually received
in  good  funds  by Agent or Foothill with respect to  principal,
interest,  fees payable by Borrower and allocable to the  Lenders
hereunder, and proceeds of Collateral.  To the extent that a  net
amount  is  owed to any such Lender after such application,  such
net  amount  shall  be distributed by Agent or Foothill  to  that
Lender as part of such next Settlement.

                    (iii)     Between Settlement Dates, Agent, to
the  extent  no Agent Advances or Foothill Loans are outstanding,
may pay over to Foothill any payments received by Agent, that  in
accordance  with the terms of this Agreement would be applied  to
the  reduction of the Advances, for application to Foothill's Pro
Rata  Share  of  the  Advances.  If, as of any  Settlement  Date,
Collections   received  since  the  then  immediately   preceding
Settlement Date have been applied to Foothill's Pro Rata Share of
the  Advances other than to Foothill Loans or Agent Advances,  as
provided  for  in the previous sentence, Foothill  shall  pay  to
Agent for the accounts of the Lenders, and Agent shall pay to the
Lenders,  to  be  applied  to the outstanding  Advances  of  such
Lenders,  an amount such that each Lender shall, upon receipt  of
such amount, have, as of such Settlement Date, its Pro Rata Share
of  the  Advances.   During the period between Settlement  Dates,
Foothill  with respect to Foothill Loans, Agent with  respect  to
Agent  Advances,  and each Lender with respect  to  the  Advances
other  than Foothill Loans and Agent Advances, shall be  entitled
to  interest at the applicable rate or rates payable  under  this
Agreement  on  the  daily amount of funds employed  by  Foothill,
Agent, or the Lenders, as applicable.

                (i)   Notation.  Agent shall record on its  books
the  principal  amount  of the Advances  owing  to  each  Lender,
including  the  Foothill  Loans  owing  to  Foothill,  and  Agent
Advances  owing  to  Agent,  and the interests  therein  of  each
Lender,  from  time  to  time.   In  addition,  each  Lender   is
authorized, at such Lender's option, to note the date and  amount
of  each  payment  or prepayment of principal  of  such  Lender's
Advances  in  its books and records, including computer  records,
such   books  and  records  constituting  rebuttably  presumptive
evidence,  absent  manifest  error,  of  the  accuracy   of   the
information contained therein.

                (j)   Lenders' Failure to Perform.  All  Advances
(other  than Foothill Loans and Agent Advances) shall be made  by
the  Lenders simultaneously and in accordance with their Pro Rata
Shares.  It is understood that (i) no Lender shall be responsible
for any failure by any other Lender to perform its obligation  to
make  any  Advances  hereunder, nor shall any Commitment  of  any
Lender  be  increased or decreased as a result of any failure  by
any  other Lender to perform its obligation to make any  Advances
hereunder,  and  (ii)  no failure by any Lender  to  perform  its
obligation to make any Advances hereunder shall excuse any  other
Lender from its obligation to make any Advances hereunder.

                 (k)    Optional  Overadvances.    Any   contrary
provision of this Agreement notwithstanding, if the condition for
borrowing  under Section 3.2(d) cannot be fulfilled, the  Lenders
nonetheless  hereby authorize Agent or Foothill,  as  applicable,
and  Agent  or Foothill, as applicable, may, but is not obligated
to,   knowingly  and  intentionally  continue  to  make  Advances
(including Foothill Loans) to Borrower such failure of  condition
notwithstanding,  so  long as, at any time  (i)  the  outstanding
Revolving  Facility Usage does not exceed the Borrowing  Base  by
more than five percent (5.0%) of the Borrowing Base, and (ii) the
outstanding  Revolving Facility Usage (except for  and  excluding
amounts charged to the Loan Account for interest, fees, or Lender
Group  Expenses)  does not exceed the Maximum  Revolving  Amount.
The  foregoing provisions are for the sole and exclusive  benefit
of  Agent,  Foothill,  and the Lenders and are  not  intended  to
benefit Borrower in any way.  The Advances and Foothill Loans, as
applicable,  that are made pursuant to this Section 2.1(k)  shall
be  subject to the same terms and conditions as any other Advance
or Foothill Loan, as applicable, except that the rate of interest
applicable thereto shall be the rates set forth in Section 2.6(b)
hereof without regard to the presence or absence of a Default  or
Event of Default; provided, that the Required Lenders may, at any
time during the continuance of an Event of Default or if Borrower
fails  to  satisfy  any other material lending condition,  revoke
Agent's  authorization contained in this Section 2.1(k)  to  make
Overadvances  (except for and excluding amounts  charged  to  the
Loan  Account for interest, fees, or Lender Group Expenses),  any
such  revocation  to be in writing and to become  effective  upon
Agent's receipt thereof.

                In  the event Agent obtains actual knowledge that
Revolving  Facility  Usage exceeds the amount  permitted  by  the
preceding  paragraph, regardless of the amount of or  reason  for
such  excess,  Agent shall notify Lenders as soon as  practicable
(and   prior   to   making  any,  or  any  further,   intentional
Overadvances  (except for and excluding amounts  charged  to  the
Loan Account for interest, fees, or Lender Group Expenses) unless
Agent determines that prior notice would result in imminent  harm
to the Collateral or its value), and the Lenders thereupon shall,
together  with Agent, jointly determine the terms of arrangements
that  shall  be  implemented with Borrower  intended  to  reduce,
within a reasonable time, the outstanding principal amount of the
Advances  to  Borrower to an amount permitted  by  the  preceding
paragraph.  In the event any Lender disagrees over the  terms  of
reduction  and/or  repayment of any  Overadvance,  the  terms  of
reduction and/or repayment thereof shall be implemented according
to the determination of the Required Lenders.

                Each  Lender  shall be obligated to  settle  with
Agent  as  provided  in Section 2.1(h) for  the  amount  of  such
Lender's  Pro  Rata  Share of any unintentional  Overadvances  by
Agent reported to such Lender, any intentional Overadvances  made
as  permitted  under  this Section 2.1(k), and  any  Overadvances
resulting  from  the  charging to the Loan Account  of  interest,
fees, or Lender Group Expenses.

               (l)  Effect of Bankruptcy.  If a case is commenced
by  or  against Borrower under the U.S. Bankruptcy Code, or other
statute  providing  for  debtor relief,  then,  unless  otherwise
agreed by all Lenders, the Lender Group shall not make additional
loans  or  provide additional financial accommodations under  the
Loan Documents to Borrower as debtor or debtor-in-possession,  or
to  any  trustee  for Borrower, nor consent to the  use  of  cash
collateral (provided that the Loan Account shall continue  to  be
charged,  to  the fullest extent permitted by law,  for  accruing
interest, fees, and Lender Group Expenses).

          2.2  [Intentionally Omitted].

          2.3  [Intentionally Omitted].

          2.4  Payments.

               (a)  Payments by Borrower.

                     (i)   All  payments to be made  by  Borrower
shall   be  made  without  set-off,  recoupment,  deduction,   or
counterclaim,  except as otherwise required by  law.   Except  as
otherwise  expressly  provided herein, all payments  by  Borrower
shall  be made to Agent for the account of the Lenders at Agent's
address set forth in Section 12, and shall be made in immediately
available  funds, no later than 11:00 a.m. (California  time)  on
the  date specified herein.  Any payment received by Agent  later
than  11:00 a.m. (California time), at the option of Agent, shall
be deemed to have been received on the following Business Day and
any  applicable  interest or fee shall continue to  accrue  until
such following Business Day.

                     (ii)  Whenever any payment is due on  a  day
other  than  a Business Day, such payment shall be  made  on  the
following Business Day, and such extension of time shall in  such
case  be included in the computation of interest or fees, as  the
case may be.

                     (iii)     Unless Agent receives notice  from
Borrower  prior to the date on which any payment is  due  to  the
Lenders that Borrower will not make such payment in full  as  and
when  required,  Agent  may assume that Borrower  has  made  such
payment  in  full to Agent on such date in immediately  available
funds  and Agent may (but shall not be so required), in  reliance
upon  such assumption, distribute to each Lender on such due date
an  amount equal to the amount then due such Lender.  If  and  to
the  extent Borrower has not made such payment in full to  Agent,
each   Lender  shall  repay  to  Agent  on  demand  such   amount
distributed to such Lender, together with interest thereon at the
Reference  Rate  for  each  day from  the  date  such  amount  is
distributed to such Lender until the date repaid.

                (b)  Apportionment, Application, and Reversal  of
Payments.    Except  as  otherwise  provided  with   respect   to
Defaulting  Lenders and except as may otherwise be  agreed  among
the  Lenders, aggregate principal and interest payments shall  be
apportioned  ratably among the Lenders (according to  the  unpaid
principal  balance of the Advances to which such payments  relate
held  by  each Lender) and payments of the fees (other than  fees
designated  for  Agent's  sole and separate  account)  shall,  as
applicable,  be  apportioned  ratably  among  the  Lenders.   All
payments  shall  be remitted to Agent and all such  payments  not
relating  to principal or interest of specific Advances,  or  not
constituting  payment  of  specific fees,  and  all  proceeds  of
Accounts or other Collateral received by Agent, shall be applied,
first,  to  pay any fees, or expense reimbursements then  due  to
Agent   from  Borrower;  second,  to  pay  any  fees  or  expense
reimbursements then due to the Lenders from Borrower;  third,  to
pay  interest due in respect of all Advances (including  Foothill
Loans and Agent Advances); fourth, to pay or prepay principal  of
Foothill  Loans  and  Agent  Advances;  fifth,  ratably  to   pay
principal  of the Advances (other than Foothill Loans  and  Agent
Advances); and sixth, ratably to pay any other Obligations due to
Agent or any Lender by Borrower.

           2.5  Overadvances.  If, at any time or for any reason,
the  amount  of Obligations pursuant to Sections 2.1  is  greater
than  either  the Dollar or percentage limitations set  forth  in
Sections  2.1 (an "Overadvance"), Borrower immediately shall  pay
to  Agent, in cash, the amount of such excess, which amount shall
be used by Agent to reduce the Obligations in accordance with the
priority set forth in Section 2.4(b).

          2.6  Interest, Rates, Payments, and Calculations.

                (a)  Interest Rate.  Except as provided in clause
(c) and clause (d) below, all Obligations shall bear interest  on
the Daily Balance at a per annum rate equal to the sum of (i) one
and one-half percent (1.5%), plus (ii) the Reference Rate.

               (b)  [Intentionally omitted.]

               (c)  Default Rate.  Upon the occurrence and during
the  continuation  of an Event of Default, all Obligations  shall
bear  interest at a per annum rate equal to the sum of  (i)  five
and one-half percent (5.5%), plus (ii) the Reference Rate.

               (d)  Minimum Interest.  In no event shall the rate
of  interest chargeable under Section 2.6(a) for any day be  less
than 9% per annum.  To the extent that interest accrued hereunder
at  the  rate  set forth in such section would be less  than  the
foregoing  minimum  daily  rate,  the  interest  rate  chargeable
hereunder for such day automatically shall be deemed increased to
the minimum rate.

                (e)   Payments.  Interest payable hereunder shall
be  due  and payable, in arrears, on the first day of each  month
during the term hereof.  Borrower hereby authorizes Agent, at its
option,  without  prior  notice  to  Borrower,  to  charge   such
interest,  all Lender Group Expenses (as and when incurred),  the
fees  and  charges  provided for in Section  2.11  (as  and  when
accrued or incurred), and all installments or other payments  due
under any Loan Document to Borrower's Loan Account, which amounts
thereafter  shall accrue interest at the rate then applicable  to
Advances  hereunder.  Any interest not paid  when  due  shall  be
compounded and shall thereafter accrue interest at the rate  then
applicable to Advances hereunder.

                (f)   Computation.  The Reference Rate as of  the
date  of  this  Agreement is 9.5% per annum.  In  the  event  the
Reference Rate is changed from time to time hereafter,  the  rate
of  interest  provided for in Section 2.6(a) and  Section  2.6(c)
automatically and immediately shall be increased or decreased  by
an  amount  equal  to  such change in the  Reference  Rate.   All
interest  and fees chargeable under the Loan Documents  shall  be
computed on the basis of a 360 day year for the actual number  of
days elapsed.

                (g)   Intent  to Limit Charges to Maximum  Lawful
Rate.   It is the intention of the parties hereto that the  Agent
or each Lender shall conform strictly to usury laws applicable to
it.   Accordingly, if the transactions contemplated hereby or  by
any  other Loan Document would be usurious as to the Agent or any
Lender  under laws applicable to it (including the  laws  of  the
United States of America and the State of California or any other
jurisdiction  whose  laws may be mandatorily applicable  to  such
Lender  notwithstanding the other provisions of this  Agreement),
then, in that event, notwithstanding anything to the contrary  in
any  of  the  Loan  Documents or any agreement  entered  into  in
connection with or as security for the Indebtedness, it is agreed
as   follows:  (i)  the  aggregate  of  all  consideration  which
constitutes interest under law applicable to Agent or any  Lender
that  is contracted for, taken, reserved, charged or received  by
Agent  or  such  Lender  under  any  of  the  Loan  Documents  or
agreements or otherwise in connection with the Indebtedness shall
under no circumstances exceed the maximum amount allowed by  such
applicable  law,  and any excess shall be canceled  automatically
and  if  theretofore paid shall be credited by the Agent or  such
Lender  on the principal amount of the Indebtedness (or,  to  the
extent  that the principal amount of the Indebtedness shall  have
been  or would thereby be paid in full, refunded by the Agent  or
such  Lender, as applicable, to the Borrower); and  (ii)  in  the
event  that  the  maturity of the Indebtedness is accelerated  by
reason  of an election of the holder thereof resulting  from  any
Event  of  Default under this Agreement or otherwise, or  in  the
event  of  any  required  or  permitted  prepayment,  then   such
consideration  that constitutes interest under law applicable  to
Agent  or  any  Lender may never include more  than  the  maximum
amount  allowed by such applicable law, and excess  interest,  if
any,  provided  for  in  this Agreement  or  otherwise  shall  be
canceled automatically by Agent or such Lender, as applicable, as
of   the  date  of  such  acceleration  or  prepayment  and,   if
theretofore paid, shall be credited by Agent or such  Lender,  as
applicable, on the principal amount of the Indebtedness  (or,  to
the  extent  that the principal amount of the Indebtedness  shall
have been or would thereby be paid in full, refunded by Agent  or
such Lender to the Borrower).  All sums paid or agreed to be paid
to  Agent or any Lender for the use, forbearance or detention  of
sums  due  hereunder  shall,  to  the  extent  permitted  by  law
applicable  to  Agent  or  such Lender, be  amortized,  prorated,
allocated  and spread throughout the full term of the Obligations
until  payment in full so that the rate or amount of interest  on
account  of any Obligations hereunder does not exceed the maximum
amount  allowed by such applicable law.  If at any time and  from
time  to time (i) the amount of interest payable to Agent or  any
Lender  on any date shall be computed at the Highest Lawful  Rate
(as defined below) applicable to Agent or such Lender pursuant to
this  Section  2.6(g)  and  (ii) in  respect  of  any  subsequent
interest  computation  period the amount  of  interest  otherwise
payable to Agent or such Lender would be less than the amount  of
interest payable to Agent or such Lender computed at the  Highest
Lawful  Rate applicable to Agent or such Lender, then the  amount
of  interest payable to Agent or such Lender in respect  of  such
subsequent  interest  computation period  shall  continue  to  be
computed at the Highest Lawful Rate applicable to Agent  or  such
Lender  until the total amount of interest payable  to  Agent  or
such  Lender shall equal the total amount of interest which would
have been payable to Agent or such Lender if the total amount  of
interest  had  been  computed  without  giving  effect  to   this
Section  2.6(g).  For purposes of this Section 2.6(g),  the  term
"applicable law" shall mean that law in effect from time to  time
and  applicable to the loan transaction between Borrower and  the
Lender Group that lawfully permits the charging and collection of
the highest permissible, lawful non-usurious rate of interest  on
such  loan transaction and this Agreement, including laws of  the
State  of California and, to the extent controlling, laws of  the
United  States of America.  For purposes of this Section  2.6(g),
"Highest Lawful Rate" means, with respect to Agent or any Lender,
the  maximum non-usurious interest rate, if any, that at any time
or  from  time  to  time may be contracted for, taken,  reserved,
charged  or received on the Obligations under the laws applicable
to  Agent or such Lender which are currently in effect or, to the
extent  allowed  by  law, under such applicable  laws  which  may
hereafter  be  in  effect and which allow a higher  maximum  non-
usurious interest rate than applicable laws now allow.

          2.7  Collection of Accounts.

               (a)   Borrower  shall,  as of  the  date  of  this
Agreement   establish  and  at  all  times  thereafter   maintain
lockboxes (the "Lockboxes") at the Lockbox Banks and, immediately
after  the  Closing Date (i) shall, and shall cause each  of  its
Subsidiaries to, instruct all Account Debtors with respect to the
Accounts,  General  Intangibles,  and  Negotiable  Collateral  of
Borrower  or  such Subsidiary, as the case may be, to  remit  all
Collections in respect thereof to such Lockboxes, and (ii) shall,
and  shall  cause each of its Subsidiaries to, deposit all  other
Collections  received  by Borrower or such  Subsidiary  from  any
source  immediately  upon receipt into the Lockboxes,  and  (iii)
shall  request in writing and otherwise take such  steps  as  are
necessary  to  ensure  that all Account Debtors  forward  payment
directly  to  such Lockboxes. From time to time as  requested  by
Agent,  Borrower shall, and shall cause each of its  Subsidiaries
to,  execute  and deliver Transfer Orders to Agent, in  form  and
substance satisfactory to Agent, with respect to all present  and
future rights to payment relating to or arising from the Oil  and
Gas   Property   Collateral.   Borrower,   each   of   Borrower's
Subsidiaries, Agent, and the Lockbox Banks shall enter  into  the
Lockbox  Agreements, which among other things shall  provide  for
the  opening  of a Lockbox Account for the deposit of Collections
at  a  Lockbox  Bank.  Borrower agrees that all  Collections  and
other  amounts  received by Borrower or any of  its  Subsidiaries
from  any  Account  Debtor or any other source  (other  than  the
Advances  made  under  this Agreement) immediately  upon  receipt
shall  be deposited into a Lockbox Account.  No Lockbox Agreement
or arrangement contemplated thereby shall be modified by Borrower
or  any of its Subsidiaries without the prior written consent  of
Agent.  Upon the terms and subject to the conditions set forth in
the  Lockbox  Agreements, following Agent giving  notice  to  the
applicable  Lockbox Bank to do so (which notice Agent agrees  not
to give to the applicable Lockbox Bank prior to the occurrence of
a Triggering Event), all amounts received in each Lockbox Account
shall  be  wired  each  Business Day into  the  Agent's  Account;
provided,  however, that Agent reserves the right,  in  its  sole
discretion,  to require that any amounts received in any  Lockbox
Account  which may represent amounts attributable to trust  funds
(i.e.,  production taxes, severance taxes, or payroll  taxes)  or
amounts  attributable to Mineral Interests of  third  Persons  be
segregated by the Lockbox Bank and held in a separate account  or
otherwise as directed by Agent.  From and after the occurrence of
a  Triggering Event, no Borrower shall, or shall cause or  permit
any  Subsidiary  thereof  to,  accumulate  or  maintain  cash  in
disbursement  or payroll accounts as of any date of determination
in  excess of checks outstanding against such accounts as of that
date  and amounts necessary to meet minimum balance requirements.
As  used  in  this Agreement, "Triggering Event" means:  (A)  the
occurrence  or  continued existence of an  Event  of  Default  or
(B)  the  occurrence or continued existence of  the  sum  of  (I)
Availability  of Borrower, plus Borrower's immediately  available
unrestricted cash on hand, minus an amount determined by Agent in
its   sole  discretion  that  would  be  sufficient  to  maintain
Borrower's  and  its  Subsidiaries' accounts  payable  and  other
current liabilities within reasonable terms (as determined  on  a
consolidated basis) is less than (II) $2,500,000 at any time.

               (b)    Borrower  shall  not  establish  any   bank
accounts other than the Lockbox Accounts after the date  of  this
Agreement except upon not less than 10 days prior written  notice
to Agent and the delivery to Agent of a tri-party blocked account
agreement  in form and substance acceptable to Agent  among  such
bank,  Agent  and Borrower.  Each such blocked account  agreement
shall  provide, among other things, that (i) all Collections  and
proceeds  thereof  deposited in such accounts are  held  by  such
banks  as agent or bailee-in-possession for Agent, (ii) the  bank
executing such agreement has no rights of setoff or recoupment or
any  other claim against such account, as the case may be,  other
than  for  payment of its service fee and other charges  directly
related  to  the administration of such account and for  returned
checks  or  other  items  of payment, and (iii)  following  Agent
giving  notice to such bank to do so (which notice  Agent  agrees
not  to give to such bank prior to the occurrence of a Triggering
Event),  such  bank  agrees to immediately  forward  all  amounts
received in the applicable account to the Agent's Account.

               (c)   The Lockboxes, the Lockbox Accounts and  the
Designated  Account shall be cash collateral accounts,  with  all
cash,  checks  and  similar  items of payment  in  such  accounts
securing  payment of the Obligations and all other  Indebtedness,
and  in which each Loan Party shall have granted a Lien to  Agent
hereunder and pursuant to the other Loan Documents.

               (d)    Borrower   shall  and   shall   cause   its
Subsidiaries, Affiliates, officers, employees, agents,  directors
or  other  Persons  acting for or in concert with  such  Borrower
(each  a  "Related Person") to (i) hold in trust  for  Agent  all
Collections received by Borrower or any such Related Person,  and
(ii)  immediately upon receipt by Borrower or any Related  Person
of  any  Collections, deposit the same into a Lockbox Account  of
Borrower.   Borrower and each Related Person thereof acknowledges
and agrees that all Collections are the property of Agent for the
benefit  of  the  Lenders.  Without limiting the  foregoing,  all
proceeds  of  the  sale or other disposition of  any  Collateral,
shall be deposited directly into the applicable Lockbox Account.

           2.8   Crediting Payments; Application of  Collections.
The  receipt of any payment item by Agent (whether from transfers
to  Agent by the Lockbox Banks pursuant to the Lockbox Agreements
or otherwise) shall not be considered a payment on account unless
such  payment  item  is a wire transfer of immediately  available
federal  funds and is made to the Agent's Account or  unless  and
until  such  payment item is honored when presented for  payment;
provided,  however, that Agent reserves the right,  in  its  sole
discretion,  to  exclude  from  such  provisional  reduction  and
payment  the amount of any such Collections that Agent determines
may  constitute  trust funds  (e.g., production taxes,  severance
taxes,  or  payroll  taxes) or amounts  attributable  to  Mineral
Interests  of  third Persons.  From and after the  Closing  Date,
Agent shall be entitled to charge Borrower for 1 Business Day  of
`clearance'  or  `float'  at  the rate  then  applicable  to  the
Obligations under Section 2.6(a) or Section 2.6(c), as  the  case
may  be,  on all Collections that are received by Borrowers,  the
Lockbox  Banks  or  Agent  (regardless of  whether  forwarded  by
Borrower  or  the  Lockbox Banks to Agent, whether  provisionally
applied to reduce the Obligations under Section 2.1, whether wire
transferred   or  otherwise  paid  to  the  Agent   Account,   or
otherwise).   This across-the-board 1 Business Day  clearance  or
float charge on all Collections is acknowledged by the parties to
constitute an integral aspect of the pricing of the financing  of
Borrower, and shall apply irrespective of the characterization of
whether  receipts are owned by Borrower or Agent, and whether  or
not there are any outstanding monetary Obligations; the effect of
such clearance or float charge being the equivalent of charging 1
Business  Day  of  interest  on  such  Collections.   Should  any
Collection  item not be honored when presented for payment,  then
Borrower  shall  be  deemed not to have made  such  payment,  and
interest  shall  be recalculated accordingly.   Anything  to  the
contrary  contained herein notwithstanding, any  Collection  item
shall be deemed received by Agent only if it is received into the
Agent  Account  on  a  Business  Day  on  or  before  11:00  a.m.
California  time.   If any Collection item is received  into  the
Agent  Account  on  a  non-Business  Day  or  after  11:00   a.m.
California  time on a Business Day, it shall be  deemed  to  have
been  received  by  Agent as of the opening of  business  on  the
immediately following Business Day.  The parties acknowledge  and
agree  that  the economic benefit of the foregoing provisions  of
this Section 2.8 shall be for the exclusive benefit of Agent.

           2.9   Designated  Account.  Agent, Foothill,  and  the
Lenders  are authorized to make the Advances, and the Letters  of
Credit  under  this  Agreement based  upon  telephonic  or  other
instructions received from anyone purporting to be an  Authorized
Person,  or  without instructions if pursuant to Section  2.6(e).
Borrower agrees to establish and maintain the Designated  Account
with the Designated Account Bank for the purpose of receiving the
proceeds of the Advances requested by Borrower and made by Agent,
Foothill  or the Lenders hereunder.  Unless otherwise  agreed  by
Agent  and Borrower, any Advance requested by Borrower  and  made
hereunder shall be made to the Designated Account.

            2.10  Maintenance  of  Loan  Account;  Statements  of
Obligations.  Agent shall maintain an account on its books in the
name  of Borrower (the "Loan Account") on which Borrower will  be
charged with all Advances made by Agent, Foothill, or the Lenders
to   Borrower  or  for  Borrower's  account,  including,  accrued
interest,   Lender   Group  Expenses,  and  any   other   payment
Obligations  of  Borrower.  In accordance with Section  2.8,  the
Loan Account will be credited with all payments received by Agent
from  Borrower or for Borrower's account, including  all  amounts
received in the Agent Account from any Lockbox Bank.  Agent shall
render   statements  regarding  the  Loan  Account  to  Borrower,
including principal, interest, fees, and including an itemization
of  all  charges and expenses constituting Lender Group  Expenses
owing, and such statements shall be conclusively presumed  to  be
correct  and  accurate and constitute an account  stated  between
Borrower  and  the  Lender Group unless,  within  30  days  after
receipt  thereof  by Borrower, Borrower shall  deliver  to  Agent
written   objection  thereto  describing  the  error  or   errors
contained in any such statements.

           2.11  Fees.   Borrower shall pay  to  Agent,  for  the
ratable   benefit  of  the  Lender  Group  (except  as  otherwise
indicated), the following fees:

                (a)  Closing Fee.  On the Closing Date, a closing
fee  of  $1,500,000,  which  amount shall  be  fully  earned  and
nonrefundable  as of the Closing Date, and payment thereof  shall
be  as  follows:  (i)  $500,000 due on  the  Closing  Date;  (ii)
$500,000 due on the earlier to occur of (A) the first anniversary
of  the  Closing Date or (B) the date of the termination of  this
Agreement; and (iii) $500,000 due on the earlier to occur of  (A)
the second anniversary of the Closing Date or (B) the date of the
termination of this Agreement.

                (b)   Unused Line Fee.  On the first day of  each
month during the term of this Agreement, an unused line fee in an
amount  equal to 0.50% per annum times the Average Unused Portion
of  the Maximum Revolving Amount during the immediately preceding
month, payable in arrears.

               (c)  [Intentionally Omitted]

                (d)   Financial  Examination, Documentation,  and
Appraisal  Fees.   For the sole and separate  account  of  Agent:
Agent's  customary fee of $750 per day per examiner, plus Agent's
out-of-pocket   expenses   for  each   financial   analysis   and
examination  (i.e.,  audits) of Borrower performed  by  personnel
employed by Agent; Agent's customary appraisal fee of $1,500  per
day  per appraiser, plus Agent's out-of-pocket expenses for  each
appraisal  of the Collateral performed by personnel  employed  by
Agent;  and, the actual charges paid or incurred by Agent  if  it
elects  to  employ the services of one or more third  Persons  to
perform  such financial analyses and examinations (i.e.,  audits)
of Borrower or to appraise the Collateral.

                (e)   Loan  Servicing  Fee.   For  the  sole  and
separate account of Agent, on the first day of each month  during
the  term  of this Agreement, a loan servicing fee in  an  amount
equal to $5,000 per month, which amount shall be fully earned and
nonrefundable, and be payable in arrears on the first day of each
month.

          2.12 Loan Under Prior Credit Agreement.  On the Closing
Date:

               (a)   Borrower  shall pay all accrued  and  unpaid
commitment fees outstanding under the Prior Credit Agreement  for
the   account  of  each  Prior  Lender  under  the  Prior  Credit
Agreement;

               (b)   each  loan,  advance or other  extension  of
credit  under the Prior Loan Agreement shall be deemed to  be  an
Advance under this Agreement; and

               (c)    the   Prior   Credit  Agreement   and   the
commitments thereunder shall be superceded by this Agreement  and
such commitments shall terminate.

     3.   CONDITIONS; TERM OF AGREEMENT.

           3.1  Conditions Precedent to the Initial Advance.  The
obligation  of the Lender Group (or any member thereof)  to  make
the  initial  Advance  is  subject to  the  fulfillment,  to  the
satisfaction  of Agent and its counsel, of each of the  following
conditions on or before the Closing Date:

                (a)   the  Closing Date shall occur on or  before
August 19, 2000;

                (b)   Agent  shall  have received  all  financing
statements  and fixture filings required by Agent, duly  executed
by  Borrower,  and  Agent  shall have received  searches  of  all
recording offices requested by Agent reflecting the filing of all
such  financing  statements and fixture  filings,  together  with
searches  of  such other offices as Agent may require  (including
those  of Borrower, and the Subsidiaries of Borrower), each  such
search dated a date within 15 days of the Closing Date;

                (c)   Agent  shall  have  received  each  of  the
following documents, in form and substance satisfactory to Agent,
duly  executed  (and acknowledged, as the case  may  be)  by  all
parties  and formalities contemplated thereunder, and  each  such
document shall be in full force and effect:

                    i.      the    tri-party   blocked    account
          agreements;

                    ii.  the Disbursement Letter;

                    iii.  the  Refinancing Letter, together  with
          the  Prior Lender Assignment Agreements, UCC assignment
          statements,  UCC  termination  statements   and   other
          documentation   evidencing   the   assignment    and/or
          termination  (as  determined by  Agent)  by  the  Prior
          Lenders  (and  all  other  holders,  if  any,  of   the
          indebtedness,  liabilities and other obligations  under
          or  relating  to the Prior Credit Agreement)  and  each
          other  holder of Liens against the properties or assets
          of  Borrower  or  any of its Subsidiaries  (other  than
          Permitted Liens), of its Liens in and to the properties
          and assets of Borrower and its Subsidiaries;

                    iv.   the  Oil  and  Gas Property  Mortgages,
          dated as of the Closing Date, covering each of the  Oil
          and Gas Properties;

                    v.     Guaranty  Agreements,  in   form   and
          substance  acceptable to Agent,  executed  by  each  of
          Borrower's Subsidiaries;

                    vi.    Security  Agreements,  in   form   and
          substance acceptable to Agent, executed by Borrower and
          each of Borrower's Subsidiaries, with respect to all of
          the assets and properties of any and all of them;

                    vii. the governmental permits, approvals  and
          orders for such wells and such units as may be required
          by  Agent  pertaining  to the Oil  and  Gas  Properties
          described in the Oil and Gas Property Mortgages,  which
          shall be in form and substance satisfactory to Agent;

                    viii.     the Transfer Order Letters for such
          purchasers of production from wells on the Oil and  Gas
          Properties as may be required by Agent, which shall  be
          in form and substance satisfactory to Agent;

                    ix.    assignments  in  form  and   substance
          acceptable   to   Agent  of  each   Material   Contract
          pertaining to the Oil and Gas Property Collateral which
          either   (i)   affects  Borrower's  or   any   of   its
          Subsidiaries', as the case may be, title to the Oil and
          Gas Property Collateral or otherwise affects the value,
          use or operation of the Oil and Gas Property Collateral
          in any material respect or (ii) creates or evidences  a
          material  obligation  or  liability  on  the  part   of
          Borrower  or  any  or its Subsidiaries,  together  with
          copies of each such Material Contract attached thereto;

                    x.    a solvency certificate with respect  to
          Borrower and each of its Subsidiaries, in the form  and
          substance acceptable to Agent, executed by an executive
          officer of Borrower;

                    xi.  the Mortgage Amendment Agreements, dated
          as  of the Closing Date covering each of the mortgages,
          deeds  of  trust  and other mineral  interest  security
          agreements  assigned to Agent for the  benefit  of  the
          Lenders   pursuant  to  the  Prior  Lender   Assignment
          Agreements;

                    xii.  all  original  Stock  certificates  and
          other  instruments or certificates evidencing  all  the
          issued and outstanding shares of capital Stock or other
          equity  interests, as the case may  be,  of  Blue  Heel
          owned by Borrower, together with Stock powers and other
          assignments  and  powers, as  the  case  may  be,  duly
          executed in blank by Borrower;

                    xiii.      all  original  Stock  certificates
          evidencing  all  the issued and outstanding  shares  of
          capital Stock of Borrower owned by Parent or any  other
          Person,  together  with Stock powers duly  executed  in
          blank by Parent and all of the other holders of all  of
          the legal and beneficial ownership thereof;

                    xiv. the Real Property Mortgages, dated as of
          the Closing Date; and

                    xv.    such  other  documents  as  shall   be
          required by Agent.

                (d)  Agent shall have received a certificate from
the  Secretary  of  Borrower  attesting  to  the  resolutions  of
Borrower's   Board  of  Directors  authorizing   its   execution,
delivery,  and performance of this Agreement and the  other  Loan
Documents  to which Borrower is a party and authorizing  specific
officers of Borrower to execute the same;

                 (e)    Agent  shall  have  received  copies   of
Borrower's   Governing  Documents,  as  amended,   modified,   or
supplemented  by the Closing Date, certified by the Secretary  of
Borrower;

                (f)   Agent shall have received a certificate  of
status  with  respect to Borrower, dated within 10  days  of  the
Closing  Date,  such certificate to be issued by the  appropriate
officer  of  the jurisdiction of organization of Borrower,  which
certificate  shall indicate that Borrower is in good standing  in
such jurisdiction;

                (g)   Agent  shall have received certificates  of
status with respect to Borrower, each dated within 15 days of the
Closing  Date, such certificates to be issued by the  appropriate
officer  of  the jurisdictions in which its failure  to  be  duly
qualified or licensed would constitute a Material Adverse Change,
which  certificates  shall  indicate that  Borrower  is  in  good
standing in such jurisdictions;

                (h)   Agent shall have received a certificate  of
insurance, which names Agent for the benefit of the Lender  Group
as  loss  payee  and  additional insured  on  all  of  Borrower's
policies   of   insurance   (other  than  worker's   compensation
insurance)  as  are  required  by  Section  6.10,  the  form  and
substance  of  which  shall  be satisfactory  to  Agent  and  its
counsel;

                (i)   Agent  shall have received such  Collateral
Access Agreements from lessors, warehousemen, bailees, and  other
third  persons with respect to (i) Borrower's leased premises  at
which  its chief executive offices, (ii) all locations  at  which
Borrower's  Books are located from time to time, and  (iii)  each
other location of Borrower except the Oil and Gas Properties;

                (j)   Agent  shall have received  copies  of  all
contracts set forth on Schedule 5.1(c), and such contracts  shall
be in form and substance satisfactory to Agent;

                (k)   Agent  shall have received  an  opinion  of
Borrower's   and  Guarantor's  counsel  in  form  and   substance
satisfactory  to  Agent in its sole discretion, and  opinions  of
Borrower's  and  Guarantors' counsel in  such  other  states  and
jurisdictions as may be requested by Agent in form and  substance
satisfactory to Agent in its sole discretion;

                (l)  Agent shall have received (i) appraisals  of
the  Oil  and  Gas  Properties in the  form  of  Reserve  Reports
prepared  by a third party petroleum engineering firm (including,
but  not  limited  to, appraisals, verifications and  liquidation
analyses  of  Borrower's Proved Reserves) covering the  Borrowing
Base  Entities'  Mineral Interests listed on Schedule  5.1(a)  in
each  case satisfactory to Agent, (ii) confirmations for such  of
the  Oil and Gas Properties as shall be required by Agent, in its
sole  discretion, issued to Agent for the benefit of  the  Lender
Group,  by abstractors satisfactory to Agent who record  the  Oil
and  Gas  Property Mortgages, that there have been no intervening
Liens,  transfers or conveyances pertaining to such Oil  and  Gas
Properties since the date of the updated title opinions described
in  subparagraph (A) below of this subparagraph  (l),  and  (iii)
title  reports  and/or  opinions for such  of  the  Oil  and  Gas
Properties as shall be required by Agent, in its sole discretion,
issued  to Agent for the benefit of the Lender Group by  a  legal
counsel  to Borrower or such other person that is experienced  in
the  examination of title to such Oil and Gas Properties  and  is
satisfactory  to Agent (each a "Title Opinion" and, collectively,
the  "Title Opinions"), to the extent of at least $94,000,000  of
NYMEX  Value  in the aggregate as of the Closing  Date,  each  of
which  Title  Opinions  (and  other legal  opinions  supplemental
thereto) shall be in form and substance satisfactory to Agent and
shall:

          (A)   as  to  the Oil and Gas Properties  as  shall  be
     required  by  Agent, in its sole discretion,  covered  by  a
     mortgage, deed of trust, or deed to secure debt executed  by
     Borrower  in favor of or for the benefit of the Prior  Agent
     and/or  a Prior Lender, be updated to a date within 15  days
     prior  to  the Closing Date to confirm the priority  of  the
     Lien  created under such mortgage, deed of trust or deed  to
     secure   debt,  as  the  case  may  be  (together   with   a
     confirmation  by  an abstractor satisfactory  to  Agent  who
     records  the Prior Lender Assignment Agreements with respect
     to  such  Oil  and  Gas Properties that there  has  been  no
     intervening  Liens, transfers or conveyances  pertaining  to
     such  Oil  and  Gas Properties since the date  of  the  most
     recent Title Opinion covering the same),

          (B)   opine as to such matters incident to such Oil and
     Gas Properties as Agent may reasonably request including the
     following  with  respect  to the Mineral  Interests  in  the
     particular Oil and Gas Property Collateral being reviewed:

                (I)  Borrower or its Subsidiary, as the case  may
          be,  that is the grantor under the Oil and Gas Property
          Mortgage  covering the Oil and Gas Properties has  good
          and marketable title to such Oil and Gas Properties  to
          the  extent  of  the  Mineral  Interests  as  specified
          therein, free and clear of all Liens and defects except
          Permitted Liens.

                (II) Borrower or its Subsidiary, as the case  may
          be,  that is the grantor under the Oil and Gas Property
          Mortgage  covering  the  Oil  and  Gas  Properties   is
          entitled  to  receive,  after  giving  effect  to   all
          royalties,  overriding  royalties  and  other   burdens
          payable  out  of  production, a decimal  share  of  all
          Hydrocarbons produced and sold from such  Oil  and  Gas
          Properties, before and after payout, not less than  set
          forth in the opinion.

                (III)     The operating interest in such Oil  and
          Gas  Properties of Borrower or its Subsidiary,  as  the
          case may be, that is the grantor under the Oil and  Gas
          Property  Mortgage covering the Oil and Gas Properties,
          is  not obligated to bear a decimal share of all  costs
          and  expenses from the operation thereof in  excess  of
          that set forth therein.

               (IV) The Liens created by the Oil and Gas Property
          Mortgage  are  valid  and  enforceable  first  priority
          mortgage  Liens which are first in right and  prior  in
          time  and  superior  to all other  Liens  against  such
          Mineral  Interests  and other Oil  and  Gas  Properties
          other than Permitted Liens.

                (m)   The  Mineral Interests in the Oil  and  Gas
Property  Collateral shall not be less than the Mineral Interests
for  such properties furnished by the Borrowing Base Entities  to
Agent  in connection with Agent's credit evaluation in connection
with this Agreement;

                (n)   Borrower  shall  have  delivered  to  Agent
evidence  satisfactory  to  Agent confirming  that  each  of  the
producing  wells  that are included in the  most  recent  Reserve
Report  delivered  to Agent covering the Oil and  Gas  Properties
listed  on Schedule 5.1(b) is located on an Oil and Gas  Property
(i) covered by the Title Opinions to the extent required by Agent
and  (ii) described in the legal description contained in an  Oil
and  Gas  Property  Mortgage which has  been  duly  executed  and
delivered to Agent;

                (o)   Borrower shall have delivered to Agent such
existing environmental reports as Borrower currently has (whether
prepared internally or by an outside party) with respect  to  the
Oil  and  Gas Property Collateral, including, without limitation,
spill  prevention  and control plans, and the  matters  contained
therein shall be reasonably acceptable to Agent;

                 (p)   Agent  shall  have  received  satisfactory
evidence  that all tax returns required to be filed  by  Borrower
have  been  timely  filed  and all taxes  upon  Borrower  or  its
properties,  assets,  income,  and  franchises  (including   real
property  taxes  and  payroll taxes)  have  been  paid  prior  to
delinquency,  except  such  taxes  that  are  the  subject  of  a
Permitted Protest;

                 (r)   Agent  shall  have  received  satisfactory
reference investigation reports of key officers and employees;

                (s)  On the Closing Date, Borrower shall have not
less   than   $10,000,000   of  Availability   and   unrestricted
immediately  available  cash on hand after  making  the  payments
described  in  Section 7.17(a)(i) and making the payment  of  the
$500,000  due on the Closing Date pursuant to Section  2.11(a)(i)
and  after reserving as an additional deduction from Availability
an  amount determined by Agent in its sole discretion that  would
be  sufficient  to  maintain  Borrower's  and  its  Subsidiaries'
accounts  payable and other current liabilities within reasonable
terms  (with  Borrower providing to Agent such  evidence  of  the
aging  of  such accounts payable and other liabilities as  is  in
form and substance acceptable to Agent);

               (t)  Agent shall have reviewed Borrower's and each
of   its  Subsidiaries'  Hedging  Agreements  and  other  hedging
arrangements (with respect to its present and future  Hydrocarbon
production and otherwise), and all of such Hedging Agreements and
other hedging arrangements shall be acceptable to Agent;

                 (u)    Agent   shall   have  received   evidence
satisfactory   to   Agent   including,  without   limitation,   a
certificate executed by the chief financial officer of  Borrower,
to  such effect, that no Material Adverse Change has occurred  in
the business, assets, operations, prospects or financial or other
condition of Borrower or any of its Subsidiaries since March  31,
2000;

                (v)   Agent  and  counsel  to  Agent  shall  have
received and reviewed all documentation relating to the Unsecured
Notes,   including,  without  limitation,  the  Unsecured   Notes
Indenture,  and  all of such documentation,  and  the  terms  and
provisions  of such documentation, including, without limitation,
the  Unsecured Notes and the Unsecured Notes Indenture, shall  be
acceptable to Agent and its counsel;

                (w)   Agent shall have received and reviewed  the
final  appraisal report prepared as of June 26, 2000, by Pollard,
Gore & Harrison or such other petroleum engineering consultant to
Agent as may be selected by Agent, relating to the Reserve Report
prepared  as  of  such date, and such report shall  contain  such
information as may be requested by Agent and shall be in form and
substance satisfactory to Agent;

                (x)   Agent shall have received commitments  from
Lenders  other  than Foothill Capital Corporation to  acquire  or
purchase  Commitments  under  this Agreement  in  the  amount  of
$20,000,000,  such  Lenders to be acceptable to  Agent  and  such
commitments to be in form and substance satisfactory to Agent;

                (y)   Agent shall have received evidence  of  the
dissolution  and  liquidation  of  each  of  Threading   Products
International, LLC, a Delaware limited liability company, and SWV
Aviation,  LLC, a Texas limited liability company,  in  form  and
substance satisfactory to Agent;

                (z)   Agent shall have received evidence  of  the
merger   of   Midland  Southwest  Software,  Inc.,   a   Delaware
corporation, and e-bacus Solutions, Inc., a Delaware corporation,
with  and  into  Borrower, with Borrower as  the  sole  surviving
entity, in form and substance satisfactory to Agent;

               (aa) [intentionally omitted];

                (bb)  Agent  shall  have  received  an  "Absolute
Assignment"  of  each  key man life insurance  policy  listed  on
Schedule 5.16 attached hereto; and

                (cc)  all  other documents and legal  matters  in
connection  with the transactions contemplated by this  Agreement
shall have been delivered, executed, or recorded and shall be  in
form and substance satisfactory to Agent and its counsel.

            3.2   Conditions  Precedent  to  all  Advances.   The
obligation  of the Lender Group (or any member thereof)  to  make
all  Advances  shall  be  subject  to  the  following  conditions
precedent:

                (a)  the representations and warranties contained
in  this Agreement and the other Loan Documents shall be true and
correct  in all respects on and as of the date of such  extension
of  credit, as though made on and as of such date (except to  the
extent that such representations and warranties relate solely  to
an earlier date);

                (b)   no  Default or Event of Default shall  have
occurred  and  be  continuing on the date of  such  extension  of
credit, nor shall either result from the making thereof;

                (c)   no injunction, writ, restraining order,  or
other  order  of any nature prohibiting, directly or  indirectly,
the extending of such credit shall have been issued and remain in
force  by any governmental authority against any Borrower, Agent,
the Lender Group, or any of their respective Affiliates;

                (d)   the amount of the Revolving Facility Usage,
after  giving effect to the requested Advance, shall  not  exceed
the Availability; and

                 (e)   no  Material  Adverse  Change  shall  have
occurred.

The  foregoing  conditions precedent are not conditions  to  each
Lender participating in or reimbursing Foothill or the Agent  for
such  Lenders'  Pro  Rata  Share of any Foothill  Loan  or  Agent
Advance as provided herein.

          3.3  Condition Subsequent.  As conditions subsequent to
initial closing hereunder, Borrower shall perform or cause to  be
performed the following (the failure by Borrower to so perform or
cause to be performed constituting an Event of Default):

                (a)   within 45 days of the Closing Date, deliver
to  Agent  the  certified  copies of the policies  of  insurance,
together  with  the  endorsements thereto,  as  are  required  by
Section   6.10,  the  form  and  substance  of  which  shall   be
satisfactory to Agent and its counsel;

                (b)   within 60 days of the Closing Date, deliver
to  Agent  an original of each "Absolute Assignment" of each  key
man  life insurance policy listed on Schedule 5.16 which has been
executed  by  the issuer of the respective policy  and  evidences
that  it has been recorded with such issuer and that such  issuer
has accepted such assignment; and

                (c)   within seven (7) days immediately following
the date of recordation of the Prior Lender Assignment Agreements
and the Mortgage Amendment Agreements, Borrower shall cause to be
issued to Agent for the benefit of the Lender Group updated Title
Opinions  and other legal opinions supplemental thereto  in  form
and   substance  satisfactory  to  Agent  which  conform  to  the
requirements  described in subparagraph  (B)  of  Section  3.1(l)
covering  such  of the Oil and Gas Properties, the  Prior  Lender
Assignment  Agreements and the Mortgage Amendment  Agreements  as
shall be required by Agent.

          3.4  Term; Automatic Renewal.

                (a)   This Agreement shall become effective  upon
the  execution  and delivery hereof by Borrower  and  the  Lender
Group  and  shall continue in full force and effect  for  a  term
ending on the date (the "Renewal Date") that is 3 years from  the
Closing Date and automatically shall be renewed for successive  1
year periods thereafter.

                (b)  Either party may terminate this Agreement on
the Renewal Date or on any 1 year anniversary of the Renewal Date
by  giving the other party at least 90 days prior written notice.
The  foregoing notwithstanding, the Lender Group shall  have  the
right   to   terminate  its  obligations  under  this   Agreement
immediately and without notice upon the occurrence and during the
continuation of an Event of Default.

          3.5  Effect of Termination

               (a)  On the date of termination of this Agreement,
all  Obligations immediately shall become due and payable without
notice  or  demand.   No termination of this Agreement,  however,
shall   relieve  or  discharge  Borrower  of  Borrower's  duties,
Obligations,  or  covenants hereunder or  under  the  other  Loan
Documents,  and  Agent's  continuing security  interests  in  the
Collateral, for the benefit of the Lender Group, shall remain  in
effect   until  all  Obligations  have  been  fully  and  finally
discharged   and  the  Lender  Group's  obligations  to   provide
additional credit hereunder have been terminated.

                (b)  If Borrower has sent a notice of termination
pursuant to the provisions of Section 3.4, but fails to  pay  the
Obligations  in full on the date set forth in such  notice,  then
the  Lender  Group may, but shall not be required to, renew  this
Agreement for an additional term of 1 years.

           3.6  Early Termination by Borrower.  The provisions of
Section  3.4 that allow termination of this Agreement by Borrower
only  on  the  Renewal  Date  and certain  anniversaries  thereof
notwithstanding,  Borrower has the option, at any  time  upon  30
days  prior written notice to Agent, to terminate this  Agreement
by  paying to Agent, for the ratable benefit of the Lender Group,
in  cash,  the Obligations in full, together with a premium  (the
"Early  Termination  Premium") equal to (a)  if  the  termination
occurs on or before the first anniversary of the Closing Date, an
amount  equal to 3% of the Maximum Revolving Amount, (ii) if  the
termination  occurs after the first anniversary  of  the  Closing
Date but on or before the second anniversary of the Closing Date,
an  amount equal to 2% of the Maximum Revolving Amount, and (iii)
if  the  termination occurs after the second anniversary  of  the
Closing  Date (other than on the Renewal Date or on the last  day
of  any successive renewal period), an amount equal to 1% of  the
Maximum Revolving Amount.

           3.7  Termination Upon Event of Default.  If the Lender
Group  terminates this Agreement upon the occurrence of an  Event
of   Default,  in  view  of  the  impracticability  and   extreme
difficulty of ascertaining actual damages and by mutual agreement
of  the  parties  as to a reasonable calculation  of  the  Lender
Group's lost profits as a result thereof, Borrower shall  pay  to
Agent,  for  the  ratable benefit of the Lender Group,  upon  the
effective date of such termination, a premium in an amount  equal
to  the Early Termination Premium.  The Early Termination Premium
shall  be presumed to be the amount of damages sustained  by  the
Lender  Group as the result of the early termination and Borrower
agrees  that  it is reasonable under the circumstances  currently
existing.   The Early Termination Premium provided  for  in  this
Section 3.7 shall be deemed included in the Obligations.

     4.   CREATION OF SECURITY INTEREST.

           4.1   Grant  of  Security Interest.   Borrower  hereby
grants  to Agent, for the benefit of the Lender Group, continuing
Liens on all right, title, and interest of Borrower in and to all
currently  existing and hereafter acquired or arising  Collateral
in  order  to  secure prompt repayment of any and all Obligations
and in order to secure prompt performance by Borrower of each  of
its  covenants and duties under the Loan Documents (the  "Agent's
Liens").  The Agent's Liens in and to the Collateral shall attach
to  all  Collateral without further act on the part of the Lender
Group  or Borrower.  Anything contained in this Agreement or  any
other  Loan Document to the contrary notwithstanding, except  for
the  sale  of  Inventory  to buyers in  the  ordinary  course  of
business and except as specifically permitted under Section  7.4,
Borrower has no authority, express or implied, to dispose of  any
item  or  portion of the Collateral.  Subject to Section  2.4(b),
the  secured claims of the Lender Group secured by the Collateral
shall  be  of  equal  priority,  and  ratable  according  to  the
respective Obligations due each member of the Lender Group.

           4.2   Negotiable Collateral.  In the  event  that  any
Collateral,  including proceeds, is evidenced by or  consists  of
Negotiable  Collateral, Borrower promptly shall, and shall  cause
each  of  its  Subsidiaries  to,  endorse  and  deliver  physical
possession of such Negotiable Collateral to Agent.

           4.3  Collection of Accounts, General Intangibles,  and
Negotiable  Collateral.  At any time, Agent or  Agent's  designee
may  (a)  notify customers or Account Debtors that the  Accounts,
General  Intangibles, or Negotiable Collateral have been assigned
to  Agent for the benefit of the Lender Group, or that Agent, for
the  benefit of the Lender Group, has a security interest therein
and (b) collect the Accounts, General Intangibles, and Negotiable
Collateral directly and charge the collection costs and  expenses
to  the  Loan  Account.  Borrower agrees that it will,  and  will
cause  each of its Subsidiaries to, hold in trust for the  Lender
Group,  as  the Lender Group's trustee, any Collections  that  it
receives  and immediately will deliver said Collections to  Agent
in  their  original form as received by Borrower or  any  of  its
Subsidiaries, as the case may be.

          4.4  Delivery of Additional Documentation Required.  At
any  time  upon the request of Agent, Borrower shall,  and  shall
cause  each of its Subsidiaries to, execute and deliver to  Agent
all  financing  statements, collateral assignments,  continuation
financing   statements,  fixture  filings,  security  agreements,
pledges,  assignments, mortgages, leasehold mortgages,  deeds  of
trust, leasehold deeds of trust, endorsements of certificates  of
title,  applications  for  title, affidavits,  reports,  notices,
schedules  of  accounts,  letters of  authority,  and  all  other
documents that Agent reasonably may request, in form satisfactory
to  Agent, to perfect and continue perfected the Agent's Liens on
the  Collateral  (whether  now  owned  or  hereafter  arising  or
acquired) or to give notice of perfection of Agent's Liens on the
Collateral,  and  in  order  to  consummate  fully  all  of   the
transactions  contemplated hereby and under the  other  the  Loan
Documents.

           4.5   Power  of Attorney.  Borrower hereby irrevocably
makes,  constitutes,  and  appoints Agent  (and  any  of  Agent's
officers, employees, or agents designated by Agent) as Borrower's
true  and lawful attorney, with power to (a) if Borrower  refuses
to,  or  fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) at any time that an Event
of  Default has occurred and is continuing, sign Borrower's  name
on  any invoice or bill of lading relating to any Account, drafts
against  Account Debtors, schedules and assignments of  Accounts,
verifications  of Accounts, and notices to Account  Debtors,  (c)
send   requests  for  verification  of  Accounts,   (d)   endorse
Borrower's  name on any Collection item that may  come  into  the
Lender  Group's  possession, (e) at any time  that  an  Event  of
Default  has  occurred and is continuing, notify the post  office
authorities to change the address for delivery of Borrower's mail
to  an address designated by Agent, to receive and open all  mail
addressed  to  Borrower, and to retain all mail relating  to  the
Collateral  and forward all other mail to Borrower,  (f)  at  any
time  that  an  Event of Default has occurred and is  continuing,
make, settle, and adjust all claims under Borrower's policies  of
insurance and make all determinations and decisions with  respect
to  such policies of insurance, and (g) at any time that an Event
of  Default  has  occurred and is continuing, settle  and  adjust
disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Agent determines  to  be
reasonable, and Agent may cause to be executed and delivered  any
documents  and  releases that Agent determines to  be  necessary.
The  appointment of Agent as Borrower's attorney,  and  each  and
every  one  of Agent's rights and powers, being coupled  with  an
interest,  is irrevocable until all of the Obligations have  been
fully  and  finally repaid and performed and the  Lender  Groups'
obligations to extend credit hereunder are terminated.

           4.6   Right  to Inspect.  Agent (through  any  of  its
officers,  employees, or agents) shall have the right, from  time
to  time hereafter to inspect the Books and to check, test, audit
and appraise the Collateral in order to verify Borrower's and its
Subsidiaries' financial condition or the amount, quality,  value,
condition  of,  or any other matter relating to,  the  Collateral
(including  checks,  tests and audits  by  a  qualified  engineer
selected  by  Agent  of Borrower's and each of its  Subsidiaries'
onshore  and offshore (if any) wells, rigs, pipeline distribution
systems and operations).

           4.7  Control Agreements.  Borrower agrees that it will
not,  and  that  it will cause each of its Subsidiaries  not  to,
transfer  assets  out of any Securities Accounts  other  than  as
permitted  under  Section  7.22 and,  if  to  another  securities
intermediary,  unless each of Borrower, such  Subsidiary,  Agent,
and  the substitute securities intermediary have entered  into  a
Control Agreement.  No arrangement contemplated hereby or by  any
Control Agreement in respect of any Securities Accounts or  other
investment property shall be modified by Borrower or any  of  its
Subsidiaries  without the prior written consent of  Agent.   Upon
the  occurrence and during the continuance of a Default or  Event
of  Default,  Agent  may  notify any securities  intermediary  to
liquidate  or transfer the applicable Securities Account  or  any
related investment property maintained or held thereby and  remit
the proceeds thereof to the Agent Account.

     5.   REPRESENTATIONS AND WARRANTIES.

           In order to induce the Lender Group to enter into this
Agreement,  Borrower  makes  the  following  representations  and
warranties to the Lender Group which shall be true, correct,  and
complete  in  all respects as of the date hereof,  and  shall  be
true,  correct,  and complete in all respects as of  the  Closing
Date,  and  at  and as of the date of the making of each  Advance
made  thereafter, as though made on and as of  the  date  of  the
making   of  such  Advance  (except  to  the  extent  that   such
representations and warranties relate solely to an earlier  date)
and   such  representations  and  warranties  shall  survive  the
execution and delivery of this Agreement:

          5.1  No Encumbrances.  The Borrowing Base Entities have
good,  valid  and  Defensible Title to the Collateral,  free  and
clear  of  all Liens (except for Permitted Liens), including  but
not limited to:

                (a)   Ownership of the Oil and Gas Properties  as
listed on Schedule 5.1(a);

                (b)   The amount of the Working Interest and  Net
Revenue  Interest of the Oil and Gas Properties, as set forth  on
Schedule 5.1(b);

                (c)   All  rights  under the  Material  Contracts
listed on Schedule 5.1(c); and

                (d)   Ownership  of the Real Property  listed  on
Schedule 5.1(d).

           5.2   Eligible  Proved Developed  Producing  Reserves;
Ownership of Oil and Gas Properties.

                (a)   All  Eligible  Proved  Developed  Producing
Reserves  are  Proved  Developed Producing Reserves  of  which  a
Borrowing  Base  Entity has fee simple legal title  to  or  valid
leasehold interest in (in each case, either good, marketable  and
indefeasible,  or Defensible Title, except for Permitted  Liens),
and  of which a Borrowing Base Entity is the beneficial owner of,
to  the full extent of the quantity of interest specified in  the
most  recent  Reserve Report delivered to Agent by Borrower,  and
all  of  the  information  with  respect  thereto  contained   on
Schedules 5.1(a), 5.1(b), 5.1(c), and 5.2(b) attached hereto (and
with  respect  to all future Eligible Proved Developed  Producing
Reserves  other  than  those  listed  on  Schedule  5.1(a),   the
analogous  supplemental  schedules contemplated  on  Exhibit  B-1
attached  hereto and made a part hereof with respect thereto)  is
true  and  correct.  All Mineral Interests of which the  Eligible
Proved Developed Producing Reserves are a part are in full  force
and  effect  and  each  of  the Borrowing  Base  Entities  is  in
compliance   in  all  material  respects  with  its   obligations
thereunder.   All wells drilled and Hydrocarbons  produced  by  a
Borrowing  Base Entity with respect to Eligible Proved  Developed
Producing  Reserves were drilled and produced in compliance  with
all applicable regulations.  To the best of Borrower's knowledge,
all  wells drilled and Hydrocarbons produced by any Person  other
than a Borrowing Base Entity with respect to such Eligible Proved
Developed  Producing  Reserves  were  drilled  and  produced   in
compliance  with  all  applicable regulations.  To  the  best  of
Borrower's knowledge, Schedule 5.2(a) attached hereto sets  forth
all  authorities for expenditures outstanding as of the  date  of
this  Agreement  and  as of the Closing Date.   To  the  best  of
Borrower's  knowledge, there are no outstanding  authorities  for
expenditures  with  respect  to  any  Eligible  Proved  Developed
Producing  Reserves which are not reflected in  the  most  recent
Reserve  Report delivered by Borrower to Agent, except for  those
which  first arise after the Closing Date and have been  reported
to  Agent  in writing as and when required under Section  6.2(b).
Except  as  set forth in Section 5.2(a), there are  no  proposed,
current  or  completed operations under any operating  agreement,
unit  agreement, governmental order or otherwise associated  with
any  Oil  and Gas Properties with respect to which any  Borrowing
Base  Entity  has  become or intends to become  a  non-consenting
party  other  than those operations commencing after the  Closing
Date as to which Borrower shall have given to Agent prior written
notice  of  such Borrowing Base Entity's intention to non-consent
within  the time periods specified in Section 7.25.  All of  such
Eligible  Proved Developed Producing Reserves are a part  of  the
Oil  and Gas Properties described in Schedule 5.1(a), are covered
by  the  engineering reports which Borrower has delivered to  and
which  have  been  relied upon by Agent in connection  with  this
Agreement  prior to their inclusion in Eligible Proved  Developed
Producing  Reserves,  are  part  of  the  Oil  and  Gas  Property
Collateral covered by the Oil and Gas Property Mortgages, and are
covered  by  Title Opinions and other legal opinions supplemental
thereto in form and substance satisfactory to Agent which conform
to   the   requirements   described  in   subparagraph   (B)   of
Section  3.1(l), Section 6.17 and Section 6.18.   Except  as  set
forth on Schedule 5.23, all bills in excess of $2,500 (except for
those which are less than 60 days past original invoice date  (or
those for which neither Borrower nor any of its Subsidiaries  has
received any invoice), are not past due and do not give rise to a
Lien  other than a Permitted Lien) and taxes have been paid  with
respect  to  all  Eligible Proved Developed  Producing  Reserves,
other  than  those which are the subject of a bona  fide  dispute
which is being contested in good faith by Borrower by appropriate
proceedings as to which a reserve is established on the books  of
Borrower  in an amount that is satisfactory to Agent  (and  if  a
Lien  secures  the  same or may secure the  same,  such  Lien  is
subject to a Permitted Protest).

                (b)  To the best of Borrower's knowledge, all  of
each  Borrowing Base Entity's marketing arrangements with respect
to  its Proved Reserves are valid, enforceable and in full  force
and  effect.  There do not exist any cumulative imbalances in gas
production  or  receipt  of  "take or  pay"  payments  except  as
disclosed  (as  to both existence and extent) on Schedule  5.2(b)
attached hereto.

                (c)  Without limiting the foregoing, after giving
full  effect  to the Permitted Liens, each Borrowing Base  Entity
owns   the   respective  net  revenue  interests  in   production
attributable to the Oil and Gas Properties covered by the Oil and
Gas  Property  Mortgages as is reflected  in  the  most  recently
delivered  Reserve  Report and the ownership of  such  Properties
shall  not  in  any material respect obligate any Borrowing  Base
Entity   to  bear  the  costs  and  expenses  relating   to   the
maintenance, development and operations of each such Property  in
an amount in excess of the working interest of each such Property
set  forth  in  the most recently delivered Reserve  Report.  All
information  contained  in  the most recently  delivered  Reserve
Report  is  true and correct in all material respects as  of  the
date thereof.

                (d)  Without limiting the foregoing, after giving
full effect to the Permitted Liens, Borrower owns the net revenue
interests  in  production  attributable  to  the  Oil   and   Gas
Properties  covered by the Oil and Gas Property Mortgages  as  is
reflected in the most recently delivered Reserve Report, and  the
ownership  of  such Properties shall not in any material  respect
obligate Borrower to bear the costs and expenses relating to  the
maintenance, development and operations of each such Property  in
an amount in excess of the working interest of each such Property
set  forth  in the most recently delivered Reserve  Report.   All
information  contained  in  the most recently  delivered  Reserve
Report  is  true and correct in all material respects as  of  the
date thereof.

                (e)   There  has  not been any  Material  Adverse
Change in the Oil and Gas Properties since December 31, 1999.

           5.3   Operations  of  Oil and  Gas  Properties.   With
respect  to  each  Mineral Interest which is a working  interest,
Schedule  5.1(b) attached hereto sets forth (i) the Oil  and  Gas
Property  as to which each Borrowing Base Entity is the operator,
(ii)  the  Oil  and Gas Property as to which the  operator  is  a
Person other than a Borrowing Base Entity, and (iii) the Oil  and
Gas Property which currently has no operator.

           5.4   Equipment.  All of the Equipment is used or held
for  use  in  Borrower's business and is fit for  such  purposes,
subject  to  (a)  normal  wear  and  tear  and  (b)  dispositions
permitted under Section 7.4.

          5.5  Location of Inventory and Equipment.

                (a)   The Inventory and Equipment are located  on
the  Oil and Gas Property Collateral or otherwise are located  in
Texas,  New  Mexico  or Oklahoma.  From time  to  time  upon  the
request of Agent, Borrower shall provide to Agent a list  of  the
specific  locations of the Inventory and Equipment and the  names
and  addresses of any bailee, warehouseman or similar party  with
whom  such  Inventory  or  Equipment  is  stored  (and  upon  the
reasonable request of Agent, Borrower shall obtain and deliver to
Agent a Collateral Access Agreement executed by each such bailee,
warehouseman or similar party with respect to such Inventory  and
Equipment).

                (b)   The primary accounting and business  books,
records and papers of Borrower (including those pertaining to the
Collateral)  are  kept and maintained solely at Borrower's  chief
executive  office set forth in the beginning of  this  Agreement.
The  name and address of Borrower's landlord for the premises  of
Borrower's  chief executive office set forth in the beginning  of
this  Agreement is Arthur S. Demoss Foundation, 777 South  Flager
Drive,  West  Tower, Suite 1600, West Palm Beach, Florida  33401,
Attention:  Lanny Nelson.

           5.6   Oil  and  Gas  Property Collateral  Records  and
Inventory  Records.  Borrower keeps correct and accurate  records
itemizing and describing the kind, type, quality, and quantity of
the  Oil  and  Gas  Property Collateral and  the  Inventory,  and
Borrower's cost therefor.

           5.7   Location  of Chief Executive Office;  FEIN.  The
chief  executive  office of Borrower is located  at  the  address
indicated  in the preamble to this Agreement and Borrower's  FEIN
is  75-1917432.  The chief executive office of Parent is  located
at  407 North Big Spring Street, Suite 300, Midland, Texas  79701
and  Parent's FEIN is 75-2724264.  The chief executive office  of
Blue  Heel is located at 407 North Big Spring Street, Suite  300,
Midland, Texas 79701.  Blue Heel's FEIN is 75-2740345.

          5.8  Due Organization and Qualification; Subsidiaries.

                (a)  Borrower is duly organized and existing  and
in  good  standing  under  the laws of the  jurisdiction  of  its
incorporation and qualified and licensed to do business  in,  and
in  good  standing  in,  any state where the  failure  to  be  so
licensed  or qualified could be expected to constitute a Material
Adverse Change. Each of Borrower's Subsidiaries is duly organized
and  existing  and  in  good  standing  under  the  laws  of  the
jurisdiction  of its incorporation or organization and  qualified
and  licensed  to  do business in, and in good standing  in,  any
state  where the failure to be so licensed or qualified could  be
expected to constitute a Material Adverse Change.

                (b)  Set forth on Schedule 5.8 is a complete  and
accurate description of the authorized capital Stock of Borrower,
by  class,  and,  as  of the Closing Date, a description  of  the
number  of  shares  of  each  such  class  that  are  issued  and
outstanding  and  the  number of such shares  that  are  held  in
Borrower's  treasury.   All  such outstanding  shares  have  been
validly  issued  and,  as of the Closing Date,  are  fully  paid,
nonassessable shares free of contractual preemptive rights.   The
issuance and sale of all such shares have been in compliance with
all applicable federal and state securities laws.  Other than  as
described  on Schedule 5.8, there are no subscriptions,  options,
warrants,  or calls relating to any shares of Borrower's  capital
Stock,  including any right of conversion or exchange  under  any
outstanding  security or other instrument.  Neither Borrower  nor
any  of its Subsidiaries is subject to any obligation (contingent
or  otherwise) to repurchase or otherwise acquire or  retire  any
shares  of its capital Stock or any security convertible into  or
exchangeable for any of its capital Stock.

                (c)  Set forth on Schedule 5.8 is a complete  and
accurate  list  of  Borrower's direct and indirect  Subsidiaries,
showing:   (i)   the  jurisdiction  of  their  incorporation   or
organization; (ii) the number of shares of each class  of  common
and preferred Stock authorized for each of such Subsidiaries; and
(iii) the number and the percentage of the outstanding shares  of
each such class owned directly or indirectly by Borrower.  All of
the  outstanding capital Stock of each such Subsidiary  has  been
validly  issued  and is fully paid and non-assessable.   Borrower
has  no  direct  or indirect interest in any partnerships  (other
than  as  set  forth in Schedule 5.8).  Borrower  has  no  equity
interest  having a value in excess of $5,000 in any Person  other
than as set forth in Schedule 5.8.

                (d)   Except  as  set forth on  Schedule  5.8  no
capital Stock (or any securities, instruments, warrants, options,
purchase   rights,   conversion  or   exchange   rights,   calls,
commitments  or  claims  of  any character  convertible  into  or
exercisable  for  capital  Stock)  of  any  direct  or   indirect
Subsidiary  of  Borrower  is  subject  to  the  issuance  of  any
security, instrument, warrant, option, purchase right, conversion
or exchange right, call, commitment or claim of any right, title,
or interest therein or thereto.

                (e)   On or before the Closing Date, (I) Borrower
has  caused  to  be  dissolved and liquidated each  of  Threading
Products   International,  LLC,  a  Delaware  limited   liability
company,  and  SWV  Aviation,  LLC,  a  Texas  limited  liability
company,  in form and substance satisfactory to Agent,  and  (II)
Borrower  has  caused  the merger of Midland Southwest  Software,
Inc.,  a  Delaware  corporation, and e-bacus Solutions,  Inc.,  a
Delaware  corporation, with and into Borrower, with  Borrower  as
the sole surviving entity, in form and substance satisfactory  to
Agent;  and  all of the foregoing dissolutions, liquidations  and
mergers  have been consummated in full on or before  the  Closing
Date.

          5.9  Due Authorization; No Conflict.

                (a)  The execution, delivery, and performance  by
Borrower of this Agreement and the Loan Documents to which it  is
a  party  have  been  duly authorized by all necessary  corporate
action.

                (b)  The execution, delivery, and performance  by
Borrower of this Agreement and the Loan Documents to which it  is
a party do not and will not (i) violate any provision of federal,
state, or local law or regulation (including Regulations U and  X
of  the  Federal  Reserve  Board)  applicable  to  Borrower,  the
Governing  Documents  of  Borrower, or any  order,  judgment,  or
decree  of  any court or other Governmental Authority binding  on
Borrower,  (ii)  conflict  with,  result  in  a  breach  of,   or
constitute (with due notice or lapse of time or both)  a  default
under   any  Material  Contract  or  other  material  contractual
obligation  or  material lease of Borrower, (iii)  result  in  or
require  the  creation or imposition of any Lien  of  any  nature
whatsoever upon any properties or assets of Borrower, other  than
Permitted Liens, or (iv) require any approval of stockholders  or
any approval or consent of any Person under any Material Contract
or other material contractual obligation of Borrower.

               (c)  Other than the taking of any action expressly
required  under  this  Agreement  and  the  Loan  Documents,  the
execution,  delivery,  and  performance  by  Borrower   of   this
Agreement and the Loan Documents to which Borrower is a party  do
not  and  will  not  require any registration with,  consent,  or
approval  of,  or  notice to, or other action  with  or  by,  any
federal, state, foreign, or other Governmental Authority or other
Person.

                (d)   This  Agreement and the Loan  Documents  to
which  Borrower is a party, and all other documents  contemplated
hereby and thereby, when executed and delivered by Borrower  will
be  the  legally  valid  and  binding  obligations  of  Borrower,
enforceable against Borrower in accordance with their  respective
terms,   except  as  enforcement  may  be  limited  by  equitable
principles   or   by   bankruptcy,  insolvency,   reorganization,
moratorium,  or  similar laws relating to or limiting  creditors'
rights generally.

                (e)   The  Agent's Liens granted by  Borrower  to
Agent,  for  the  benefit of the Lender  Group,  in  and  to  its
properties  and assets pursuant to this Agreement and  the  other
Loan Documents are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.

                 (f)   Neither  the  Borrower  nor  any  of   its
Subsidiaries  has  violated, and neither  the  Borrower  nor  any
Subsidiary will be in violation of, any provisions of the Natural
Gas  Act  or  the  Natural Gas Policy Act of 1978  or  any  other
Federal  or  State  law  or  any of  the  regulations  thereunder
(including  those of the respective Conservation Commissions  and
Land  Offices of the various jurisdictions having authority  over
its  Oil  and  Gas Properties) with respect to its  Oil  and  Gas
Properties which would create a Material Adverse Change, and  the
Borrower and each Subsidiary have or will have made all necessary
rate  filings,  certificate applications, well category  filings,
interim collection filings and notices, and any other filings  or
certifications,  and  has  or will have  received  all  necessary
regulatory authorizations (including without limitation necessary
authorizations,   if  any,  with  respect   to   any   processing
arrangements conducted by it or others respecting its Oil and Gas
Properties or production therefrom) required under said laws  and
regulations with respect to all of its Oil and Gas Properties  or
production  therefrom  so  as not to create  a  Material  Adverse
Change.   Said  material rate filings, certificate  applications,
well  category filings, interim collection filings  and  notices,
and other filings and certifications contain no untrue statements
of  material  facts nor do they omit any statements  of  material
facts necessary in said filings.

           5.10  Claims, Disputes, and Litigation.  There are  no
actions or proceedings pending by or against Borrower before  any
court  or  administrative  agency  and  Borrower  does  not  have
knowledge  or  belief  of  any pending or threatened  litigation,
governmental investigations, or claims, complaints,  actions,  or
prosecutions   involving  Borrower  or  any  guarantor   of   the
Obligations, except for:  (a) ongoing collection matters in which
Borrower  is  the claimant, petitioner or plaintiff; (b)  matters
disclosed on Schedule 5.10; (c) matters existing on the  date  of
this  Agreement which do not involve an amount in controversy  of
more than $25,000 individually or $100,000 in the aggregate;  and
(d)  matters  arising  after the date  hereof  that,  if  decided
adversely to Borrower, reasonably could not be expected to result
in a Material Adverse Change.

            5.11  No  Material  Adverse  Change.   All  financial
statements  relating  to  Borrower  or  any  guarantor   of   the
Obligations  that have been delivered by Borrower to  the  Lender
Group have been prepared in accordance with GAAP (except, in  the
case of unaudited financial statements, for the lack of footnotes
and  being  subject  to  year-end audit adjustments)  and  fairly
present Borrower's (or such guarantor's, as applicable) financial
condition  as  of  the  date thereof and  Borrower's  results  of
operations  for  the period then ended.  There  has  not  been  a
Material  Adverse  Change  with  respect  to  Borrower  (or  such
guarantor, as applicable) since the date of the latest  financial
statements  submitted  to the Lender  Group   on  or  before  the
Closing Date.

          5.12 No Fraudulent Transfer.

                (a)   Borrower  and each of its  Subsidiaries  is
Solvent.

                (b)   No  transfer of property is being  made  by
Borrower and no obligation is being incurred by Borrower  or  any
of   its   Subsidiaries  in  connection  with  the   transactions
contemplated  by this Agreement or the other Loan Documents  with
the  intent to hinder, delay, or defraud either present or future
creditors of Borrower or any of its Subsidiaries.

           5.13 Employee Benefits.  None of Borrower, any of  its
Subsidiaries,  or  any  of  their ERISA Affiliates  maintains  or
contributes  to  any  Benefit Plan, other than  those  listed  on
Schedule 5.13.  Borrower, each of its Subsidiaries and each ERISA
Affiliate have satisfied the minimum funding standards  of  ERISA
and  the  IRC  with respect to each Benefit Plan to which  it  is
obligated to contribute.  No ERISA Event has occurred nor has any
other  event  occurred that may result in  an  ERISA  Event  that
reasonably  could  be expected to result in  a  Material  Adverse
Change.   None  of  Borrower  or  its  Subsidiaries,  any   ERISA
Affiliate, or any fiduciary of any Plan is subject to any  direct
or  indirect  liability  with  respect  to  any  Plan  under  any
applicable law, treaty, rule, regulation, or agreement.  None  of
Borrower  or its Subsidiaries or any ERISA Affiliate is  required
to  provide security to any Plan under Section 401(a)(29) of  the
IRC.

           5.14  Environmental Condition.  Borrower has disclosed
in writing to Agent any currently known and pending environmental
conditions  or  matters which could result in a Material  Adverse
Change.   Other than as disclosed, to the knowledge  of  Borrower
and  its Subsidiaries:  none of the Oil and Gas Properties or the
Real  Property  has  ever been used in the  disposal  of,  or  to
produce, store, handle, treat, release or transport any Hazardous
Materials  in  a manner which could result in a Material  Adverse
Change,  or has ever been designated or identified in any  manner
pursuant  to  any  Environmental Laws is  a  Hazardous  Materials
disposal  site  or as a candidate for closure.  No  Lien  arising
under  any Environmental Laws has attached to any revenues or  to
any real or personal property owned or operated by Borrower or by
any  Subsidiary of Borrower.  Neither Borrower nor any Subsidiary
of   Borrower  has  received  a  summons,  citation,  notice,  or
directive  from the Environmental Protection Agency or any  other
federal  or  state governmental agency concerning any  action  or
omission  by Borrower or any Subsidiary of Borrower resulting  in
the  releasing  or  disposing  of Hazardous  Materials  into  the
environment and which could result in a Material Adverse  Change.
To  the  knowledge of Borrower and its Subsidiaries, no Hazardous
Materials, solid waste, or oil and gas exploration and production
wastes, have been disposed of or otherwise released on or to  any
Property  of  Borrower  or  any of its   Subsidiaries  except  in
compliance in all material respects with Environmental  Laws  and
so  as  not  to pose an imminent and substantial endangerment  to
public  health  or  welfare  or the environment.  To  the  extent
applicable,   and   to  the  knowledge  of   Borrower   and   its
Subsidiaries,  all  Property  of  Borrower  and   each   of   its
Subsidiaries  currently satisfies in all  material  respects  all
design, operation, and equipment requirements imposed by the  OPA
or known to Borrower to be or scheduled as of the Closing Date to
be imposed by OPA during the term of this Agreement, and Borrower
does  not have any reason to believe that such Property,  to  the
extent  subject  to  OPA, will not be able  to  maintain  in  all
material respects compliance with the OPA requirements during the
term  of  this  Agreement.   Neither  Borrower  nor  any  of  its
Subsidiaries  has  any known contingent liability  in  connection
with  any  release  or threatened release of any  oil,  Hazardous
Materials  or solid waste into the environment. To the  knowledge
of  Borrower and its Subsidiaries, all Hazardous Materials, solid
waste, and oil and gas exploration and production wastes, if any,
generated  at  any and all Property of Borrower  or  any  of  its
Subsidiaries  have  in  the  past been transported,  treated  and
disposed of in accordance with Environmental Laws and so  as  not
to pose an imminent and substantial endangerment to public health
or  welfare or the environment, and so as not to create a risk of
Material Adverse Change to Borrower or any of its Subsidiaries.

           5.15  Compliance  with the Law.  To  their  knowledge,
neither  Borrower  nor any of its Subsidiaries has  violated  any
requirement of a Governmental Authority or failed to  obtain  any
license,  permit,  franchise or other governmental  authorization
necessary for the ownership of the Property or the conduct of its
business, which violation or failure could be expected to  result
in  (in the event such violation or failure were asserted by  any
Person  through  appropriate action) a Material  Adverse  Change.
Except  for such acts or failures to act as do not result in  and
could not be expected to result in a Material Adverse Change, the
Oil  and  Gas  Properties  have  been  maintained,  operated  and
developed in a good and workmanlike manner and in conformity with
all  applicable laws and all rules, regulations and orders of all
duly   constituted   authorities  having  jurisdiction   and   in
conformity with the provisions of all leases, subleases or  other
contracts  comprising a part of the Mineral Interests  and  other
contracts  and  agreements forming a part  of  the  Oil  and  Gas
Properties;  specifically  in  this  connection,  (i)  after  the
Closing  Date,  no Oil and Gas Properties are subject  to  having
allowable production 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 Closing Date and (ii)  none  of  the  wells
comprising a part of the Oil and Gas Properties are deviated from
the  vertical more than the maximum permitted by applicable laws,
regulations,  rules  and orders, and such  wells  are,  in  fact,
bottomed under and are producing from the Oil and Gas Properties.
Neither  Borrower nor any of its Subsidiaries has  entered  into,
and   the  Oil  and  Gas  Properties  are  not  subject  to,  any
agreements,  consent  orders, administrative  orders  or  similar
obligations  based on a violation or alleged violation  of  Legal
Requirements  that  could be expected to  result  in  a  Material
Adverse Change

           5.16  Bonds  and  Insurance.  Schedule  5.16  attached
hereto  contains  an  accurate and complete  description  of  all
performance bonds related to operations on or pertaining  to  the
Oil  and  Gas Properties, and all material policies of  insurance
owned  or  held by Borrower and each Subsidiary.  Except  as  set
forth  on Schedule 5.16, all such policies are in full force  and
effect, all premiums with respect thereto covering all periods up
to  and  including the Closing Date have been paid, and no notice
of  cancellation or termination has been received with respect to
any  such  policy.   Such bonds and policies are  sufficient  for
compliance with all requirements of law and of all agreements  to
which  Borrower or any of its Subsidiaries is a party; are valid,
outstanding  and enforceable policies; provide adequate  coverage
in  at  least such amounts and against at least such  risks  (but
including  in  any  event public liability) as  are  required  by
Governmental Authorities and/or usually insured or bonded against
in  the same general area by companies engaged in the same  or  a
similar  business for the assets and operations of  Borrower  and
each  of  its Subsidiaries; will remain in full force and  effect
through  the respective dates set forth in Schedule 5.16  without
the  payment  of  additional premiums  except  as  set  forth  on
Schedule  5.16;  and  will not in any  way  be  affected  by,  or
terminate or lapse by reason of, the transactions contemplated by
this agreement.  Neither Borrower nor any of its Subsidiaries has
been refused any bonds or insurance with respect to its assets or
operations,  nor  has its coverage been limited below  usual  and
customary  bond  or  policy limits, by  any  bonding  company  or
insurance  carrier to which it has applied for any such  bond  or
insurance or with which it has carried insurance during the  last
three years.

          5.17 Hedging Agreement. Schedule 5.17 sets forth, as of
the  Closing  Date,  a  true and complete  list  of  all  Hedging
Agreements  (including commodity price swap  agreements,  forward
agreements or contracts of sale which provide for prepayment  for
deferred  shipment or delivery of oil, gas or other  commodities)
of  the Borrower and each of its Subsidiaries, the material terms
thereof  (including the type, term, effective  date,  termination
date  and  notional amounts or volumes), the net mark  to  market
value  thereof,  all credit support agreements  relating  thereto
(including any margin required or supplied), and the counterparty
to  each  such agreement. Borrower has delivered true and correct
copies  of each of the Hedging Agreements to Agent prior  to  the
date of this Agreement.

            5.18   Brokerage  Fees.  Except  as  set   forth   in
Schedule  5.18, no brokerage commission or finders  fees  has  or
shall be incurred or payable in connection with or as a result of
Borrower's  obtaining financing from the Lender Group under  this
Agreement,  and neither Borrower nor any of its Subsidiaries  has
utilized the services of any broker or finder in connection  with
Borrower's  obtaining financing from the Lender Group under  this
Agreement.   Borrower  acknowledges that neither  Agent  nor  any
Lender  is  in  any way liable for the payment of  any  brokerage
commission or finders fees in connection with or as a  result  of
Borrower's  obtaining financing from the Lender Group under  this
Agreement.

           5.19  Permits and other Intellectual Property.  Except
as  set  forth  on  Schedule  5.19, Borrower  owns  or  possesses
adequate  licenses  or other rights to use all Permits,  patents,
patent  applications, trademarks, trademark applications, service
marks, service mark applications, trade names, copyrights,  trade
secrets  and know-how (collectively, the "Intellectual Property")
that are necessary for the operation of its business as currently
conducted.  No claim is pending or threatened to the effect  that
Borrower  infringes upon, or conflicts with, the asserted  rights
of  any other Person under any Intellectual Property, and to  the
best of Borrower's knowledge there is no basis for any such claim
(whether  pending  or  threatened).  To the  best  of  Borrower's
knowledge,  no claim is pending or threatened to the effect  that
any such Intellectual Property owned or licensed by Borrower,  or
in  which  Borrower otherwise has the right to use is invalid  or
unenforceable  by  Borrower,  and  to  the  best  of   Borrower's
knowledge  there is no basis for any such claim (whether  or  not
pending or threatened).

          5.20 [Intentionally Omitted].

          5.21 Locations; Real Property Leases.

                (a)   The primary accounting and business  books,
records  and  papers of Borrower and its Subsidiaries  (including
those  pertaining  to  the Collateral) are  kept  and  maintained
solely  at  Borrower's chief executive office set  forth  in  the
beginning  of  this  Agreement.  In addition,  the  Oil  and  Gas
Property  Collateral  is  kept and  maintained  solely  at  those
locations which are listed on Schedule 5.1(a) attached hereto and
at  Borrower's chief executive office set forth in the  beginning
of  this  Agreement.  In addition, the Collateral  consisting  of
Inventory and Equipment are kept and maintained solely  at  those
locations  which  are listed on Schedule 5.1(a) attached  hereto,
those locations specified on Schedule 5.21 attached hereto and at
Borrower's  chief executive office set forth in the beginning  of
this  Agreement, which schedules include the names and  addresses
of  each of Borrower's landlords.  Except (i) to accomplish sales
of  Inventory  in  the ordinary course of business,  or  (ii)  to
dispose of Collateral to the extent prescribed under Section 7.4,
Borrower  shall  not  remove any Collateral from  said  executive
office   or   those  locations  listed  on  Schedule  5.1(a)   or
Schedule 5.21, as the case may be.

                (b)   Except  as Borrower shall have notified  in
writing prior thereto and Borrower shall have delivered to  Agent
a  Collateral Access Agreement in form and substance satisfactory
to Agent, no tangible personal property of Borrower or any of its
Subsidiaries shall be in the care or custody of any  third  party
or  stored  or entrusted with a bailee or other third  party  and
none  shall hereafter be placed under such care, custody, storage
or entrustment.

           5.22  Absence of Certain Changes.  Except as set forth
in  Schedule  5.22, since December 31, 1999, there has  not  been
without Agent's prior written consent:

               (a)  A waiver of any right relating to the Oil and
Gas Properties;

               (b)  A sale, lease or other disposition of the Oil
and Gas Properties;

                (c)   A  mortgage, pledge or grant of a  lien  or
security interest in any of the Oil and Gas Properties;

                (d)  A contract for the sale of products produced
from  the  Oil and Gas Properties, except for (i) such  contracts
that  have  been supplied to and reviewed and approved by  Agent,
and (ii) such contracts which do not (I) require sales of minimum
quantities  by Borrower or any of its Subsidiaries, (II)  involve
any  advance payments or other advances to or by Borrower or  any
of  its Subsidiaries, (III) provide for a sale price of less than
70%  of  (A)  for  oil,  the NYMEX EDQ calendar  month  price  as
reported by The New York Merchantile Exchange on NYMEX.com or  in
a  comparable  oil  and  gas industry publication  of  nationally
recognized  standing (or an equivalent price in  the  event  that
such  NYMEX  EDQ calendar month price is no longer reported)  for
the  appropriate  category of oil covered by  such  contract  and
(B)  for gas, the spot price for the appropriate category of  gas
covered  by  such  contract, and (IV) constitute Indebtedness  or
otherwise involve any material undertaking by Borrower or any  of
its Subsidiaries;

                (e)   A contract between Borrower and any of  its
Subsidiaries; or

                (f)   A  contract or commitment to do any of  the
foregoing.

            5.23  Operating  Costs.   Except  as  set  forth   in
Schedule 5.23, all costs and expenses incurred in connection with
the  operation  of  the  Properties  have  been  fully  paid  and
discharged by Borrower, except normal costs and expenses incurred
in  operating the Oil and Gas Properties within the  previous  60
days or for which Borrower has not yet been billed.

             5.24   Imbalances.    Except   as   set   forth   on
Schedule 5.2(b) or on the most recent Reserve Report delivered to
Agent  by  Borrower pursuant to Section 6.2(h), or following  the
Closing  Date as permitted pursuant to Section 7.23, no Borrowing
Base  Entity has taken or received any amount of gas, oil, liquid
hydrocarbons (or products refined therefrom) so that  any  person
or  entity  may thereafter be entitled to receive any portion  of
the  interests  of  any Borrowing Base Entity  to  "balance"  any
previous disproportionate allocation.

           5.25  No  Default.  Except as set  forth  on  Schedule
5.1(c),  no  contracts  exist which  encumber  the  Oil  and  Gas
Properties.  The  contracts  associated  with  the  Oil  and  Gas
Properties are in full force and effect in accordance with  their
respective terms, and there exist no violations or defaults  (and
Borrower  is  not  aware of any event or circumstance  that  with
notice or lapse of time, or both, would constitute a violation or
default)  in  the  performance of any obligation thereunder  that
could be expected to result in a Material Adverse Change, or that
is  likely to have a material adverse effect on the value of  any
such  Oil and Gas Properties or the amount that the Lender  Group
would  be likely to receive (after giving consideration to delays
in  payment and costs of enforcement) in the liquidation of  such
Oil  and Gas Property, or that could be expected to result  in  a
material  impairment of the priority of the  Agent's  Liens  with
respect to such Oil and Gas Property.

           5.26  Leases.  The oil and gas leases associated  with
the  Oil  and  Gas  Properties are in full force  and  effect  in
accordance  with  their  respective terms,  and  there  exist  no
violations  or  defaults  in the performance  of  any  obligation
thereunder that could be expected to result in a Material Adverse
Change,  or that is likely to have a material adverse  effect  on
the  value of any such Oil and Gas Properties or the amount  that
the  Lender  Group  would  be likely  to  receive  (after  giving
consideration  to delays in payment and costs of enforcement)  in
the  liquidation of such Oil and Gas Property, or that  could  be
expected  to  result in a material impairment of the priority  of
the  Agent's  Liens  with respect to such Oil and  Gas  Property.
Additionally, Borrower is not aware of any event that with notice
or  lapse of time, or both, would constitute a material violation
or default under any such oil and gas leases.

           5.27  Marketing Agreements.  Except as  set  forth  in
Schedule  5.27  and except to the extent permitted under  Section
7.27,  the  Oil and Gas Properties (and the production therefrom)
are  not  subject  to any purchase agreement, sale  agreement  or
similar marketing arrangement not cancelable on thirty (30)  days
notice,  nor are any of the Properties subject to any  agreements
with  any  companies  affiliated with  Borrower  that  cannot  be
terminated  immediately  upon Closing without  penalty,  cost  or
liability to Borrower.

           5.28  Non-Consent Operations.  Since  July  31,  2000,
there  have  been no operations associated with the Oil  and  Gas
Properties  under  an  operating  agreement,  unit  agreement  or
governmental  order  with  respect to which  any  Borrowing  Base
Entity  has  become  a  non-consenting party,  except  for  those
described  in  Schedule 5.2(a) and except for those  relating  to
periods  after  the  Closing Date to the extent  permitted  under
Section 7.25.

           5.29  Condition  of  Equipment.   All  of  the  wells,
facilities  and  equipment  associated  with  the  Oil  and   Gas
Properties  that  are  material to  the  operation  thereof  are:
(a)  structurally  sound  with  no  material  defects  known   to
Borrower, (b) in good operating condition, normal wear  and  tear
excepted, and suitable for the purposes for which they are  being
utilized, and (c) have been and are maintained in accordance with
prudent business standards.

           5.30  Wells.  Each oil or gas well located on the  Oil
and  Gas  Properties  is:  (a) except as otherwise  disclosed  on
Schedule  5.1(b), if such oil or gas well is listed on a  Reserve
Report,  capable of producing in paying quantities, (b)  properly
permitted, (c) to the best of Borrower's knowledge, in compliance
with   all   applicable  Laws,  and  (d)  within  the  production
tolerances  allocated  by  the  governmental  entity  or   tribal
authority having appropriate jurisdiction.  All of the leaseholds
in  which there are located Mineral Interests of a Borrowing Base
Entity are producing Hydrocarbons in commercial quantities except
for  those  leaseholds which either (i) are listed  on  the  most
recent  Reserve  Report  delivered  to  Agent  as  having  Proved
Developed  Producing Revenues with a NYMEX Value  at  $10,000  or
less  or  are  not  listed  on  the most  recent  Reserve  Report
delivered  to Agent or are not listed on the most recent  Reserve
Report  delivered  to Agent as having Proved Developed  Producing
Revenues.  Each of Borrowing Base Entity's producing wells listed
on Schedule 5.1(b) as having a NYMEX Value of $100,000 or more is
located  on an Oil and Gas Property (i) covered by Title Opinions
to  the  extent  of at least $94,000,000 of NYMEX  Value  in  the
aggregate as of the Closing Date, and thereafter as are  required
pursuant  to  Section 6.17(a), and (ii) described  in  the  legal
description  contained in an Oil and Gas Property Mortgage  which
has  been  duly  executed  and  delivered  to  Agent,  except  as
otherwise disclosed on Schedule 5.30 attached hereto.

     6.   AFFIRMATIVE COVENANTS.

           Borrower  covenants and agrees that, so  long  as  any
credit  hereunder  shall be available and until  full  and  final
payment of the Obligations, Borrower shall, and shall cause  each
of its Subsidiaries to, do all of the following:

          6.1  Accounting System.  Maintain a standard and modern
system  of  accounting that enables Borrower to produce financial
statements   in  accordance  with  GAAP,  and  maintain   records
pertaining  to  the Collateral that contain information  as  from
time to time may be requested by Agent.  Borrower also shall keep
a  modern  joint  interest  billing and  remittance  system  with
respect to each of the Oil and Gas Properties on which it is  the
operator  and a modern reporting system that shows,  among  other
things, the value, revenues and profits/losses of the Oil and Gas
Properties,   volume  of  production  and  value  of   sales   of
Hydrocarbon  production,  the  location  and  condition  of   the
Equipment  and Borrower's positions and liability exposure  under
the Hedging Agreements.

           6.2   Collateral Reporting.  Provide  Agent  with  the
following  documents at the following times in form  satisfactory
to Agent during the term of this Agreement:

                (a)  By no later than the last day of each month,
(i)  a  detailed update, for the previous month, of the Borrowing
Base  on  the  form  of the Borrowing Base Certificate  which  is
attached hereto as Exhibit 6.2 (or on such other form as Agent in
its   sole   discretion  may  require),  including   a   detailed
calculation  of  the  NYMEX Value of each  of  the  Oil  and  Gas
Properties  included  in the Eligible Proved Developed  Producing
Reserves (such update and calculation shall include Oil  and  Gas
Properties  converted  to  Eligible  Proved  Developed  Producing
Reserves during such previous month, if any, as approved by Agent
and  for which a Reserve Report described in Section 6.2(i) shall
have  been  prepared by Pollard Gore & Harrison and  received  by
Agent),  and  (ii) a detailed calculation of the Unsecured  Notes
Indebtedness Limitation;

                (b)   By no later than forty-five (45) days after
the  end of each fiscal quarter of Borrower (or with such greater
frequency  as  Agent may request from time to time),  a  detailed
update, for the previous month, of the Borrowing Base on the form
of  the  Borrowing Base Certificate which is attached  hereto  as
Exhibit  6.2  (or  on  such  other form  as  Agent  in  its  sole
discretion may require), including (i) a detailed calculation  of
the   NYMEX   Value  of  each  of  the  Oil  and  Gas  Properties
(categorized  by  Proved  Developed  Producing  Reserves,  Proved
Developed Non-Producing Reserves and Proved Undeveloped Reserves,
Eligible Proved Developed Producing Reserves, and "other"),  (ii)
a reconciliation and explanation of the changes of categorization
of  any  Oil and Gas Properties among Proved Developed  Producing
Reserves,  Proved  Developed Non-Producing  Reserves  and  Proved
Undeveloped   Reserves,  Eligible  Proved   Developed   Producing
Reserves,   and  "other",  since  the  date  of  the  immediately
preceding  Borrowing Base Certificate, (iii) an updated schedule,
in  substantially the form of Schedule 5.2(f) or such other  form
as  may  be requested by Agent, setting forth as to each Oil  and
Gas  Property  owned  by  any Borrowing  Base  Entity  the  name,
location, lease description, operator and ownership percentage of
costs  and  revenue  associated  with  such  property  and   also
indicating  any changes in such working interest or  net  revenue
interest  in  the  Oil  and  Gas Property  Collateral  since  the
previous report, (iv) a schedule of the aggregate amount  of  all
authorities  for expenditures for all Proved Reserves  which  are
outstanding as of such date, and (v) list of all authorities  for
expenditures for any Proved Reserves requiring an expenditure  in
excess  of  $25,000 by any Borrowing Base Entity  on  a  combined
basis  for  any single operation since the date of  the  previous
report;

                (c)  By no later than the last day of each month,
(i)  Borrower's "Lease Cash Flow Report", in form  and  substance
reasonably  acceptable to Agent, which will  include  a  detailed
statement  of  sales  and  revenues  derived  from  all  products
produced from the Oil and Gas Properties, for the previous month,
including  prices  received, lease operating  expenses  and  such
other information as Agent may deem necessary or appropriate,  in
Agent's  sole  discretion, (ii) Borrower's "Monthly  O&G  Revenue
Accrual  Report", in form and substance reasonably acceptable  to
Agent,  which will include the prior period adjustments  to  such
revenues  and  prices, and any Material Adverse Change  affecting
the  sales  or  marketing  agreements or  arrangements  with  the
purchasers of such products and historical production data of the
oil  and  gas  reserves  included in the  Oil  and  Gas  Property
Collateral  since  the  date of the most  recent  Reserve  Report
(except  that with respect to the portion of such reserves  which
are  being produced from Oil and Gas Properties on which  neither
Borrower  nor  any  of  its  Affiliates  is  the  operator,   the
information  pertaining thereto described in this subclause  (ii)
shall be due by no later than the 15th day after the last day  of
such month, rather than being due on the last day of such month),
and (iii) a receivables aging as to all customers of Borrower and
its Subsidiaries;

                (d)  By no later than the last day of each month,
a  written  report to Agent, in form and substance acceptable  to
Agent,  detailing and aging each Borrowing Base  Entity's  unpaid
lease  operating expenses and unpaid other liabilities,  for  the
previous   month,   with  respect  to  which  a   mineral   lien,
subcontractor's  lien,  mechanic's lien,  materialmen's  lien  or
other Lien against any of the Collateral may arise which may have
a priority superior to Agent's Lien on such Collateral;

                (e)  By no later than the last day of each month,
notice  of all claims, disputes, and litigation that have  arisen
since the date of the most recent statement to Agent pursuant  to
this  Section  6.2(e)  through the last day  of  the  immediately
preceding month; except (i) ongoing collection matters  in  which
Borrower is the claimant or plaintiff; and (ii) matters that,  if
decided  adversely to any Loan Party, do not result in and  could
not be expected to result in a Material Adverse Change;

                (f)  By no later than the last day of each month,
for  the  previous month, a written report, in form and substance
acceptable  to Agent, detailing the costs incurred  and  revenues
received  by  each  Borrowing  Base  Entity  under  its   Hedging
Agreements for oil and gas production;

                (g)   By the last day of the month following each
calendar quarter  (i.e., the last day of April, July, October and
January),  a report:  (i) listing the total amount actually  paid
by  each Borrowing Base Entity during the preceding quarter  for:
(A)  plugging  and  abandonment costs  for  previous  or  ongoing
plugging and abandonment operations pertaining to the Oil and Gas
Properties,  and (B) general bond and supplemental bond  payments
pertaining to plugging and abandonment costs; and (ii) estimating
the  future  payments for the items described in the  immediately
preceding  subclause (i) for each of the succeeding two  quarters
if the estimated aggregate amount thereof is greater than $25,000
for such period;

                (h)   Reserve  Reports prepared by  Borrower  and
audited  by  Ryder  Scott Company or other qualified  independent
petroleum   engineering  consultant  selected  by  Borrower   and
approved  by  Agent  pertaining to the  six-month  period  ending
December  31st  and  June 30th of each year  (with  such  Reserve
Reports  to be delivered as soon as available, but in  any  event
not  later  than  the 90th day following such six-month  period).
Each  Reserve Report described in this subparagraph (h) shall  be
in  form and substance satisfactory to Agent, and shall:  (i)  be
accompanied  by  a certification of Borrower to the  effect  that
nothing  has  occurred since the date of the last Reserve  Report
that could reasonably be expected to result in a Material Adverse
Change, except that which has previously been disclosed to  Agent
in  writing; (ii) be accompanied by a reconciliation showing  any
changes in the Oil and Gas Property Collateral since the date  of
the  most  recent of such Reserve Report in each  Borrowing  Base
Entity's  Working  Interest or net revenue  interest;  and  (iii)
contain such other information as may be requested by Agent;

                (i)   Promptly following the preparation thereof,
Reserve Reports prepared by Borrower and audited by Pollard  Gore
&  Harrison  or other qualified independent petroleum engineering
consultant  selected by Borrower and approved by Agent pertaining
to  Oil and Gas Properties of a Borrowing Base Entity which  were
included  in  the  then most recent Reserve Report  described  in
Section  6.2(h) as reserves other than Proved Developed Producing
Reserves  and  since  the date thereof were converted  to  Proved
Developed Producing Reserves of such Borrowing Base Entity.  Each
Reserve  Report described in this subparagraph (i)  shall  be  in
form  and substance satisfactory to Agent and shall contain  such
other information as may be requested by Agent;

                (j)   Upon  request by Agent from time  to  time,
copies  of  each Borrowing Base Entity's lease files, well  files
and  contract files (including production reports on  each  well,
marketing contracts, and information regarding locations  of  and
equipment located on each well);

                (k)  Such other information, reports, statements,
materials  and data as to the wells operated by a Borrowing  Base
Entity  or  in  which a Borrowing Base Entity  otherwise  has  an
interest  and the accounting and billing procedures  utilized  by
such Borrowing Base Entity in connection with such wells as shall
be  requested  by Agent, including, without limitation,  relevant
computer programs, disks and tapes;

                (l)   On  a  weekly  basis,  Collections  reports
specifying  Borrower's and each other Loan Party's, and  each  of
their  respective Subsidiaries', Collections for the  immediately
preceding calendar week; and

                (m)   Such other reports as to the Collateral  or
the   business  or  financial  condition  of  Borrower   or   its
Subsidiaries as Agent may request from time to time.

Each delivery of a Reserve Report or a Borrowing Base Certificate
by  Borrower  to  Agent  shall constitute  a  representation  and
warranty by Borrower to Agent that, unless otherwise disclosed to
Agent  in  writing on or prior to the date of such delivery,  (I)
Borrower (or its Subsidiary, as the case may be) owns the Oil and
Gas Properties described in the Reserve Report free and clear  of
any  Liens  (except Permitted Liens), and (II) the  Oil  and  Gas
Properties described in such Reserve Report constitute  at  least
ninety-five  percent  (95%)  of the value  of  Borrower's  Proved
Developed Producing Reserves.

            6.3   Financial  Statements,  Reports,  Certificates.
Deliver  to  Agent, with copies to each Lender: (a)  as  soon  as
available, but in any event within 45 days after the end of  each
month  during each of Borrower's fiscal years, a company prepared
balance  sheet,  income  statement, and statement  of  cash  flow
covering  Borrower's operations during such period;  and  (b)  as
soon as available, but in any event within 90 days after the  end
of  each  of  Borrower's  fiscal years, financial  statements  of
Borrower  for  each  such  fiscal year,  audited  by  independent
certified  public accountants reasonably acceptable to Agent  and
certified,  without  any qualifications, by such  accountants  to
have  been  prepared  in accordance with GAAP,  together  with  a
certificate  of such accountants addressed to Agent stating  that
such  accountants do not have knowledge of the existence  of  any
Default  or  Event of Default.  Such audited financial statements
shall  include  a balance sheet, profit and loss  statement,  and
statement of cash flow and, if prepared, such accountants' letter
to  management.  If Borrower is a parent company of one  or  more
Subsidiaries, or Affiliates, or is a Subsidiary or  Affiliate  of
another  company,  then, in addition to the financial  statements
referred   to   above,  Borrower  agrees  to  deliver   financial
statements prepared on a consolidating basis acceptable to  Agent
so   as   to  present  Borrower  and  each  such  related  entity
separately, and on a consolidated basis.

          Together with the above, Borrower also shall deliver to
Agent, with copies to each Lender, Borrower's Form 10-Q Quarterly
Reports,  Form 10-K Annual Reports, and Form 8-K Current Reports,
and  any other filings made by Borrower with the SEC, if any,  as
soon  as  the  same are filed, or any other information  that  is
provided   by  Borrower  to  its  shareholders,  and  any   other
information reasonably requested by the Lender Group relating  to
the financial condition of Borrower.

           Each  month,  together with the  financial  statements
provided  pursuant to Section 6.3(a), Borrower shall  deliver  to
Agent,  with copies to each Lender, a certificate signed  by  its
chief  financial officer to the effect that:  (i)  all  financial
statements delivered or caused to be delivered to any one or more
members  of  the  Lender Group hereunder have  been  prepared  in
accordance with GAAP (except, in the case of unaudited  financial
statements, for the lack of footnotes and being subject to  year-
end audit adjustments) and fairly present the financial condition
of  Borrower, (ii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true
and  correct  in all material respects on and as of the  date  of
such  certificate, as though made on and as of such date  (except
to  the  extent  that such representations and warranties  relate
solely to an earlier date), (iii) for each month that also is the
date  on  which  a financial covenant in Section 7.20  is  to  be
tested,  a  Compliance  Certificate demonstrating  in  reasonable
detail  compliance at the end of such period with the  applicable
financial  covenants contained in Section 7.20, and (iv)  on  the
date  of  delivery of such certificate to Agent  there  does  not
exist  any condition or event that constitutes a Default or Event
of  Default (or, in the case of clauses (i), (ii), or  (iii),  to
the  extent of any non-compliance, describing such non-compliance
as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto).

          As soon as available and in any event within forty-five
(45)  days after the last day of each calendar quarter, a report,
in form and substance satisfactory to the Agent, setting forth as
of  the  last Business day of such calendar quarter, a  true  and
complete  list  of  all  Hedging Agreements (including  commodity
price  swap agreements, forward agreements or contracts  of  sale
which provide for prepayment for deferred shipment or delivery of
oil,   gas  or  other  commodities)  of  the  Borrower  and  each
Subsidiary, the material terms thereof (including the type, term,
effective   date,  termination  date  and  notional  amounts   or
volumes), the net mark to market values therefor, any new  credit
support  agreements  relating thereto,  any  margin  required  or
supplied  under any credit support document, and the counterparty
to  each  such agreement; provided, however, that if  there  have
been  no changes since the date of the immediately preceding such
report delivered by Borrower to Agent, delivery by Borrower of  a
report  which  states  "no  changes  since  date  of  immediately
preceding  report"  (or words of equivalent substance)  shall  be
acceptable for purposes of this paragraph.

           Borrower shall have issued written instructions to its
independent  certified  public accountants  authorizing  them  to
communicate with Agent and to release to Agent whatever financial
information concerning Borrower that Agent may request.  Borrower
hereby   irrevocably   authorizes  and  directs   all   auditors,
accountants,  or  other third parties to  deliver  to  Agent,  at
Borrower's  expense,  copies of Borrower's financial  statements,
papers  related  thereto,  and other accounting  records  of  any
nature  in  their  possession,  and  to  disclose  to  Agent  any
information  they may have regarding Borrower's business  affairs
and financial conditions.

           6.4  Tax Returns.  Deliver to Agent copies of each  of
Borrower's  future federal income tax returns, and any amendments
thereto,  within 30 days of the filing thereof with the  Internal
Revenue Service.

           6.5  Guarantor Reports.  Cause any Guarantor of any of
the Obligations to deliver its annual financial statements at the
time  when Borrower provides its audited financial statements  to
Agent and copies of all federal income tax returns as soon as the
same  are available and in any event no later than 45 days  after
the same are required to be filed by law.

          6.6  [Intentionally Omitted].

            6.7   Title  to  Equipment.   Upon  Agent's  request,
Borrower promptly shall deliver to Agent, properly endorsed,  any
and  all  evidences of ownership of, certificates  of  title,  or
applications for title to any items of Equipment.

          6.8  Maintenance of Oil and Gas Property Collateral and
Equipment;  Operation of Business.

                (a)   At its expense, do or cause to be done  all
things  necessary  to preserve and keep in good  repair,  working
order and efficiency (except for normal wear and tear) all of its
Oil  and  Gas  Property Collateral and other material  Properties
including,  without  limitation,  all  equipment,  machinery  and
facilities material thereto, and from time to time make  all  the
necessary repairs, renewals and replacements so that at all times
the  state  and condition of its Oil and Gas Property  Collateral
and   other  material  Property  will  be  fully  preserved   and
maintained,  allowing  for depletion in the  ordinary  course  of
business, except (x) to the extent a portion of such Oil and  Gas
Property   Collateral   is  no  longer   capable   of   producing
Hydrocarbons in commercial quantities (in which case Borrower  or
the  relevant Subsidiary of Borrower, as the case may  be,  shall
fully  comply  with all of its obligations and Legal Requirements
pertaining to plugging and abandoning its wells related  to  such
portion), and (y) as long as no Default or Event of Default  then
exists and no Default or Event of Default would result therefrom,
Borrower  and  its  Subsidiaries shall be  permitted  to  abandon
Mineral   Interests  which  have  NYMEX  Value  as  only   Proved
Undeveloped Reserves, probable reserves or possible reserves (but
no  NYMEX  Value  as Proved Developed Producing Reserves  and  no
NYMEX Value as Proved Developed Non-Producing Reserves) of up  to
$500,000  in  the aggregate during any fiscal year  of  Borrower.
Borrower  and  its Subsidiaries shall be permitted  to.  Borrower
shall, and shall cause each of its Subsidiaries to, promptly: (i)
pay  and  discharge, or make reasonable and customary efforts  to
cause  to  be paid and discharged, all delay rentals,  royalties,
expenses  and  indebtedness accruing under the  leases  or  other
agreements  affecting or pertaining to its Oil and  Gas  Property
Collateral; (ii) perform or make reasonable and customary efforts
to  cause to be performed, in accordance with industry standards,
all  obligations  required by each and all  of  the  assignments,
deeds, leases, sub-leases, contracts and agreements affecting its
interests  in  its  Oil  and Gas Property  Collateral  and  other
material  Properties  necessary  or  desirable  to  maintain  its
interests  therein  in  full  force and  effect,  and  all  other
material  obligations  required under  such  assignments,  deeds,
leases,   subleases,  contracts  and  agreements  affecting   its
interests  in  its  Oil  and Gas Property  Collateral  and  other
material  Properties; (iii) shall, and shall cause  each  of  its
Subsidiaries   to,  do  all  other  things  necessary   to   keep
unimpaired,  except for Permitted Liens, its rights with  respect
to  each  and  all of the assignments, deeds, leases, sub-leases,
contracts and agreements affecting its interests in its  Oil  and
Gas  Property Collateral and other material Property and  prevent
any forfeiture thereof or a default thereunder, except (A) to the
extent  a portion of such Oil and Gas Property Collateral  is  no
longer   capable   of  producing  Hydrocarbons  in   economically
reasonable amounts and (B) for dispositions permitted by  Section
7.4  hereof.   Borrower  shall,  and  shall  cause  each  of  its
Subsidiaries, to operate its Oil and Gas Property Collateral  and
other material Property or cause or make reasonable and customary
efforts  to cause such Oil and Gas Property Collateral and  other
material Properties to be operated in a reasonably prudent manner
in   accordance  with  the  practices  of  the  industry  and  in
compliance in all material respects with all applicable contracts
and  agreements and in compliance in all material  respects  with
all Legal Requirements.

                 (b)   At  its  expense,  maintain  all  material
Equipment  in good operating condition and repair (ordinary  wear
and  tear excepted), and make all necessary replacements thereto,
so  that the value and operating efficiency thereof shall at  all
times  be  maintained and preserved.  Other than those  items  of
Equipment that constitute fixtures attached to the lands  covered
by  Mineral  Interests  subject to the  Oil  and  Gas  Mortgages,
Borrower  shall  not  permit any item of Equipment  to  become  a
fixture  to  real estate or an accession to other  property,  and
such Equipment shall at all times remain personal property.

                (c)   At  its expense, (i) develop and cause  the
other   Borrowing  Base  Entities  to  develop  (to  the   extent
reasonably  necessary to maintain the lease)  and  maintain,  and
cause  the other Borrowing Base Entities to maintain, the leases,
wells,  units  and  acreage to which the  Oil  and  Gas  Property
Collateral pertains in a prudent and economical manner, (ii)  act
prudently (and to cause the other Borrowing Base Entities to  act
prudently) and in accordance with customary industry standards in
managing or operating the Oil and Gas Property Collateral,  (iii)
pay and promptly discharge all rentals, delay rentals, royalties,
overriding   royalties,   payments  of   production   and   other
indebtedness or obligations accruing under the leases  comprising
the  Oil and Gas Property Collateral, and perform (and cause  the
other  Borrowing  Base  Entities to perform)  every  commercially
reasonable  act  required to keep such leases in full  force  and
effect,  (iv)  deliver  all  operating  agreements,  pooling   or
unitization  agreements, sales or processing contracts,  drilling
and/or development agreements, pipeline transportation agreements
and  other material agreements which pertain to the Oil  and  Gas
Property  Collateral,  (v) deliver production  information  on  a
monthly  basis,  (vi) deliver copies of all  reports,  forms  and
other  documents and data submitted by Borrower  or  any  of  its
Subsidiaries  to  the Federal Energy Regulatory  Commission,  the
applicable  state conservation agencies and any other  applicable
Governmental Authorities, (vii) not mortgage, pledge or otherwise
encumber or sell (and not permit any other Borrowing Base  Entity
to  mortgage, pledge or otherwise encumber or sell) the  Oil  and
Gas Property Collateral except to the limited extent specifically
permitted  under this Agreement, (viii) not alter (or permit  any
other  Borrowing  Base  Entity to alter)  any  Material  Contract
relating  to  the Oil and Gas Property Collateral except  to  the
limited extent specifically permitted under this Agreement,  (ix)
pay  on or before the due date thereof all of Borrower's and each
of   its   Subsidiaries'  lease  operating  expenses  and   other
liabilities with respect to which a mineral lien, subcontractor's
lien,  mechanic's lien, materialmen's lien or other Lien  against
any  of  the  Collateral  may arise which  may  have  a  priority
superior to Agent's Lien on such Collateral, and (x) perform  all
acts  and execute such documents as Agent may reasonably  require
in order to maintain the existence, perfection and first priority
of  Agent's Lien on the Oil and Gas Property Collateral  and  the
other Collateral.

          6.9  Taxes.

                (a)   Cause  all  assessments and taxes,  whether
real,  personal,  or otherwise, due or payable  by,  or  imposed,
levied,  or  assessed  against Borrower  (or  any  Subsidiary  of
Borrower)  or any of its property or assets to be paid  in  full,
before  delinquency  or before the expiration  of  any  extension
period, except to the extent that the validity of such assessment
or  tax  (other  than production taxes, severance taxes,  payroll
taxes  or  taxes that are the subject of a United States  federal
tax lien) shall be the subject of a Permitted Protest.

               (b)  Make due and timely payment or deposit of all
such   federal,   state,   and  local  taxes,   assessments,   or
contributions required of it (or any Subsidiary of  Borrower)  by
law,   and  will  execute  and  deliver  to  Agent,  on   demand,
appropriate  certificates attesting to  the  payment  thereof  or
deposit with respect thereto.

                (c)   Make timely payment or deposit of  all  tax
payments   and  withholding  taxes  required  of   it   and   its
Subsidiaries by applicable laws, including those laws  concerning
F.I.C.A.,  F.U.T.A.,  state disability,  and  local,  state,  and
federal income taxes, and will, upon request, furnish Agent  with
proof  satisfactory to Agent indicating that  Borrower  has  made
such payments or deposits.

          6.10 Insurance.

                (a)   At its expense, keep the Collateral insured
against  loss  or  damage  by  such  hazards  and  risks  as  are
ordinarily  insured against by other owners in similar businesses
and  in  such amounts as shall be reasonably required  by  Agent.
Borrower  shall also maintain such public liability and  property
damage  insurance  relating to Borrower's ownership  and  use  of
Collateral as is ordinarily maintained by other owners in similar
businesses and in such amounts as shall be reasonably required by
Agent.   In  addition to and not in limitation of the  foregoing,
Borrower  shall  at  its expense maintain the insurance  policies
described in Schedule 5.16 in full force and effect.

               (b)  [Intentionally Omitted.]

                (c)   All such policies of insurance shall be  in
such  form, with such companies, and in such amounts  as  may  be
reasonably satisfactory to Agent. All hazard insurance  and  such
other  insurance as Agent shall specify, shall contain a lender's
loss payable endorsement (or equivalent endorsement) satisfactory
to  Agent,  showing Agent as sole loss payee thereof,  and  shall
contain  a  waiver  of  warranties.  Every  policy  of  insurance
referred  to  in this Section 6.10 shall contain an agreement  by
the  insurer that it will not cancel such policy except after  30
days  prior  written notice to Agent and that  any  loss  payable
thereunder shall be payable notwithstanding any act or negligence
of  Borrower  or  the  Lender  Group  which  might,  absent  such
agreement,  result  in a forfeiture of all  or  a  part  of  such
insurance payment and notwithstanding (i) occupancy or use of the
Collateral  for  purposes more hazardous than  permitted  by  the
terms  of  such policy, (ii) any foreclosure or other  action  or
proceeding taken by the Lender Group pursuant to the Oil and  Gas
Mortgages or the Real Property Mortgages upon the happening of an
Event  of  Default, or (iii) any change in title or ownership  of
the Collateral.  Borrower shall deliver to Agent certified copies
of  such policies of insurance and evidence of the payment of all
premiums therefor.

                (d)   Original  policies or certificates  thereof
satisfactory  to  Agent  evidencing  such  insurance   shall   be
delivered  to  Agent at least 30 days prior to the expiration  of
the  existing or preceding policies.  Borrower shall  give  Agent
prompt  notice of any loss covered by such insurance.   Prior  to
the  occurrence or existence of a Default or an Event of Default,
Borrower  shall  have  the  right  to  adjust  any  loss   which,
individually and collectively, is less than $50,000.  Agent shall
have  the exclusive right to adjust all losses payable under  any
such  insurance  policies in excess of $50,000,  and  during  the
existence  of a Default or an Event of Default Agent  shall  have
the  right  to adjust all losses payable under any such insurance
policies, in each case without any liability to Borrower  or  any
Subsidiary of Borrower whatsoever in respect of such adjustments.
Borrower  shall  be permitted to discuss proposed adjustments  of
losses  with its insurance carriers; provided, however, that  (i)
Borrower  shall  not  have the authority to agree  to  or  settle
without  Agent's prior written approval any loss which Agent  has
the  exclusive right to adjust hereunder, and (ii) Agent reserves
the right to adjust such losses independently of Borrower and any
Subsidiary  of  Borrower  at any time.  Any  monies  received  as
payment  for  any loss under any insurance policy  including  the
insurance policies mentioned above, shall be paid over  to  Agent
to be applied at the option of the Required Lenders either to the
prepayment of the Obligations without premium, in such  order  or
manner  as  Agent  may elect, or shall be disbursed  to  Borrower
under  stage  payment terms satisfactory to Agent for application
to  the  cost  of  repairs, replacements, or  restorations.   All
repairs,  replacements, or restorations shall  be  effected  with
reasonable promptness and shall be of a value at least  equal  to
the value of the items or property destroyed prior to such damage
or  destruction.  Upon the occurrence of an Event of Default, the
Lender  Group shall have the right to apply all prepaid  premiums
to  the payment of the Obligations in such order or form as Agent
shall determine.

                (e)   Neither  Borrower  nor  any  Subsidiary  of
Borrower shall take out separate insurance concurrent in form  or
contributing  in  the  event of loss with  that  required  to  be
maintained  under  this Section 6.10, unless  Agent  is  included
thereon  as named insured with the loss payable to Agent under  a
lender's   loss   payable   endorsement   (or   its   equivalent)
satisfactory  to Agent.  Borrower immediately shall notify  Agent
whenever  such  separate insurance is taken out,  specifying  the
insurer  thereunder  and  full particulars  as  to  the  policies
evidencing  the same, and originals of such policies  immediately
shall be provided to Agent.

                (f)  Borrower shall, and shall cause each of  its
Subsidiaries  to, either (i) maintain its own, or  (ii)  use  its
best  efforts to cause the operator of each Oil and Gas  Property
Collateral  in which Borrower or any of its Subsidiaries  owns  a
non-operating Working Interest to maintain for the benefit of all
Working  Interest  owners, insurance of  the  types  and  in  the
coverage amounts and with reasonable deductibles as is usual  and
customary, including those specified in Section 6.10(b), to  name
the non-operating Working Interest owners, including Borrower and
its  Subsidiaries, as an additional insured on  the  liabilities,
and  to  otherwise  have  the  such  insurance  comply  with  the
requirements specified in Section 6.10(c).  Borrower  shall,  and
shall cause each of its Subsidiaries to, use its best efforts  to
obtain  from  its operators certificates of insurance  evidencing
coverage  of  the Oil and Gas Property Collateral  as  set  forth
above as and when requested by Agent.

                 (g)   Borrower  shall  furnish  Agent  with   an
"Absolute  Assignment"  of  each key man  life  insurance  policy
listed  on Schedule 5.16 attached hereto, shall record each  such
"Absolute  Assignment" with the issuer of the respective  policy,
and  shall  finish  proof  of such issuer's  acceptance  of  such
assignment.   All  proceeds  payable  under  such  key  man  life
insurance  policies shall be payable to Agent to  be  applied  on
account of the Obligations.

            6.11  No  Setoffs  or  Counterclaims   Make  payments
hereunder  and under the other Loan Documents by or on behalf  of
Borrower  without setoff or counterclaim and free and  clear  of,
and  without deduction or withholding for or on account  of,  any
federal, state, or local taxes.

           6.12  Location  of Inventory and Equipment   Keep  the
Inventory  and  Equipment  only at the  locations  identified  in
Schedule  5.21,  the  locations specified  in  the  Oil  and  Gas
Property  Mortgages in Schedule 5.1(a) and in the  States  listed
(or  only  in the counties listed, in cases in which counties  in
any State are listed) on Schedule 6.12 attached hereto; provided,
however, that Borrower may amend Schedule 5.21 and Schedule  6.12
so  long as such amendment occurs by written notice to Agent  not
more  than  15  days  after the date on which  the  Inventory  or
Equipment  is  moved to such new location, so long  as  such  new
location is within the continental United States, and so long as,
at  the time of such written notification, Borrower provides  any
financing statements or fixture filings necessary or advisable to
perfect  and continue perfected the Agent's Liens on such  assets
and also provides to Agent a Collateral Access Agreement.

          6.13 Compliance with Laws.

                 (a)    Comply  with  the  requirements  of   all
applicable   laws,  rules,  regulations,  and   orders   of   any
Governmental  Authority,  including all Environmental  Laws,  the
Fair Labor Standards Act and the Americans With Disabilities Act,
other  than  laws,  rules,  regulations,  and  orders  the   non-
compliance  with  which, individually or in the aggregate,  would
not result in and reasonably could not be expected to result in a
Material Adverse Change.

                (b)   Establish and implement such procedures  as
may  be  necessary to continuously determine and assure that  any
failure  of  the following would not result in and could  not  be
expected to result in a Material Adverse Change: (i) all Property
of the Borrower and its Subsidiaries and the operations conducted
thereon and other activities of the Borrower and its Subsidiaries
are in compliance with and do not violate the requirements of any
Environmental  Laws, (ii) no oil, Hazardous  Materials  or  solid
wastes  are  disposed  of or otherwise  released  on  or  to  any
Property  owned  by  any  such party except  in  compliance  with
Environmental Laws, (iii) no Hazardous Materials will be released
on  or  to  any such Property in a quantity equal to or exceeding
that quantity which requires reporting pursuant to Section 103 of
CERCLA,  and (iv) no oil, oil and gas exploration and  production
wastes,  or  Hazardous Materials is released on or  to  any  such
Property  so  as to pose an imminent and substantial endangerment
to public health or welfare or the environment.

                (c)   Promptly  notify Agent in  writing  of  any
threatened  action, investigation or inquiry by any  Governmental
Authority  of  which  Borrower or any  of  its  Subsidiaries  has
knowledge  in  connection with any Environmental Laws,  excluding
routine testing and minor corrective action.

                (d)   Provide environmental audits and  tests  in
accordance  with  American  Society  for  Testing  and  Materials
standards,  as  reasonably requested by  Agent  or  as  otherwise
reasonably  required  to  be  obtained  by  Agent   or   by   any
Governmental Authority in connection with Borrower's existing and
hereafter  acquired  Oil  and Gas Properties  or  other  material
Properties.

          6.14 Employee Benefits.

               (a)  Cause to be delivered to Agent: (i) promptly,
and in any event within 15 Business Days after Borrower or any of
its  Subsidiaries knows or has reason to know that an ERISA Event
has occurred that has resulted in or reasonably could be expected
to  result  in a Material Adverse Change, a written statement  of
the  chief  financial officer of Borrower describing  such  ERISA
Event and any action that is being taking with respect thereto by
Borrower, any such Subsidiary or ERISA Affiliate, and any  action
taken  or  threatened by the IRS, Department of Labor,  or  PBGC.
Borrower  or such Subsidiary, as applicable, shall be  deemed  to
know all facts known by the administrator of any Benefit Plan  of
which  it  is the plan sponsor, (ii) promptly, and in  any  event
within  5 Business Days after the filing thereof with the IRS,  a
copy  of  each funding waiver request filed with respect  to  any
Benefit Plan and all communications received by Borrower, any  of
its  Subsidiaries  or, to the knowledge of  Borrower,  any  ERISA
Affiliate  with respect to such request, and (iii) promptly,  and
in  any  event within 5 Business Days after receipt by  Borrower,
any  of  its  Subsidiaries or, to the knowledge of Borrower,  any
ERISA  Affiliate, of the PBGC's intention to terminate a  Benefit
Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice.

               (b)  Cause to be delivered to Agent, promptly, and
in  any  event  within  15 Business Days, after  Agent's  request
therefor,  each of the following:  (i) a copy of each  Plan  (or,
where  any  such  plan  is not in writing,  complete  description
thereof)  (and if applicable, related trust agreements  or  other
funding  instruments) and all amendments thereto; (ii)  the  most
recent  determination letter issued by the IRS  with  respect  to
each  Benefit Plan, if any; (iii) for the three most recent  plan
years,  annual reports on Form 5500 Series required to  be  filed
with  any  governmental  agency for each Benefit  Plan,  if  any;
(iv) all actuarial reports prepared for the last three plan years
for  each Benefit Plan; (v) a listing of all Multiemployer Plans,
with the aggregate amount of the most recent annual contributions
required  to be made by Borrower or any ERISA Affiliate  to  each
such  plan  and  copies  of the collective bargaining  agreements
requiring such contributions; (vi) any information that has  been
provided  to Borrower or any ERISA Affiliate regarding withdrawal
liability  under any Multiemployer Plan; and (vii) the  aggregate
amount  of  the  most  recent  annual  payments  made  to  former
employees  of  Borrower  or its Subsidiaries  under  any  Retiree
Health Plan.

           6.15 Leases.  Pay when due all rents and other amounts
payable  under  any  material leases to  which  Borrower  or  any
Subsidiary of Borrower is a party or by which Borrower's or  such
Subsidiary's Oil and Gas Properties or other material  properties
and  assets are bound, unless such payments are the subject of  a
Permitted Protest.  To the extent that Borrower or any Subsidiary
of  Borrower fails timely to make payment of such rents and other
amounts  payable  when  due  under its  leases,  Agent  shall  be
entitled, in its discretion, to reserve an amount equal  to  such
unpaid amounts against the Borrowing Base.

           6.16  Broker  Commissions.  Pay any and all  brokerage
commission or finders fees incurred or payable in connection with
or  as a result of Borrower's obtaining financing from the Lender
Group under this Agreement.

          6.17.     Oil and Gas Property Title Information.

                (a)   Within  90 days following the  delivery  to
Agent  of  each  Reserve Report required  by  Section  2.1(b)  or
Section  6.2,  Borrower  will provide Agent  with  current  Title
Opinions  covering  such of the Oil and Gas  Property  Collateral
which  are  acquired after the Closing Date, which become  Proved
Developed Producing Reserves after the Closing Date, or the value
of  the  Proved  Developed Producing Reserves  portion  of  which
increases  materially  after the date of  the  Closing  as  shall
reasonably be required by Agent for which current Title  Opinions
have  not  previously been provided to Agent, and  covering  such
other  Oil and Gas Property Collateral as Agent may from time  to
time  require  so that at all times the value of Eligible  Proved
Developed Producing Reserves for which Title Opinions are or have
been provided to Agent shall equal or exceed seventy-five percent
(75%)  of  the NYMEX Value of all Oil and Gas Property Collateral
as  set  forth in the most recently delivered Reserve  Report  of
Proved Developed Producing Reserves.

                (b)   Borrower  shall cure all title  defects  or
exceptions   which  are  not  Permitted  Liens,   or   substitute
acceptable Oil and Gas Property Collateral with no title  defects
or  exceptions except for Permitted Liens covering  Oil  and  Gas
Property Collateral of an equivalent value, within 90 days  after
a  request by Agent to cure such defects or exceptions.   If  the
Borrower is unable to cure any title defect requested by Agent to
be cured within the 90 day period, such failure to cure shall not
be  a  Default or an Event of Default, but instead such  Property
shall  remain  excluded from the Borrowing Base  as  provided  in
Section  2.1 until such time as title is satisfactory  to  Agent.
Upon the discovery of any title defect or exception which is  not
a  Permitted  Lien, Agent shall have the right  to  exercise  the
right  to  remedy  such  title defect or exception  in  its  sole
discretion from time to time (and any failure to so exercise this
remedy at any time shall not be a waiver as to future exercise of
the remedy by Agent).

          6.18 Additional Collateral.

                 (a)    (i)  Should  Borrower  or  any   of   its
Subsidiaries purchase, otherwise acquire or own any Oil  and  Gas
Property  having  a NYMEX value of $50,000 or more  that  is  not
already  included in the Oil and Gas Property Collateral and  the
subject of an Oil and Gas Property Mortgage in favor of Agent for
the benefit of the Lender Group, Borrower will grant or cause  to
be  granted  to  Agent as security for the Obligations  a  first-
priority  Lien  (subject  only to  Permitted  Liens)  on  all  of
Borrower's or such Subsidiary's, as the case may be, interest  in
such Oil and Gas Properties not already subject to a Lien of such
an  Oil  and Gas Property Mortgage simultaneously with Borrower's
or  such Subsidiary's purchase, acquisition or ownership of  such
Oil and Gas Property which Lien will be created and perfected  by
and  in accordance with the provisions of an Oil and Gas Property
Mortgage  and other security agreements and financing statements,
or   other  security  instruments,  all  in  form  and  substance
satisfactory  to Agent in its sole discretion and  in  sufficient
executed   (and  acknowledged  where  necessary  or  appropriate)
counterparts for recording purposes; and (ii) should Borrower  or
any  of  its Subsidiaries purchase, otherwise acquire or own  any
Real  Property that is not already included in the Real  Property
Collateral and the subject of a Real Property Mortgage  in  favor
of Agent for the benefit of the Lender Group, Borrower will grant
or cause to be granted to Agent as security for the Obligations a
first-priority Lien (subject only to Permitted Liens) on  all  of
Borrower's or such Subsidiary's, as the case may be, interest  in
such  Real Property not already subject to a Lien of such a  Real
Property   Mortgage  simultaneously  with  Borrower's   or   such
Subsidiary's  purchase,  acquisition or ownership  of  such  Real
Property  which  Lien  will be created and perfected  by  and  in
accordance  with the provisions of a Real Property  Mortgage  and
other  security  agreements and financing  statements,  or  other
security  instruments, all in form and substance satisfactory  to
Agent  in  its  sole discretion and in sufficient  executed  (and
acknowledged  where  necessary or appropriate)  counterparts  for
recording purposes,

               (b)  Concurrently with the granting of the Lien or
other  action referred to in Section 6.18(a) above as to Oil  and
Gas  Property,  Borrower will provide to Agent title  information
and  a  title opinion in form and substance satisfactory to Agent
in  its  sole  discretion  with respect  to  Borrower's  or  such
Subsidiary's, as the case may be, interests in such Oil  and  Gas
Properties,  and concurrently with the granting of  the  Lien  or
other  action  referred to in Section 6.18(a) above  as  to  Real
Property, Borrower will provide to Agent title information and  a
mortgagee  title  insurance  commitment  in  form  and  substance
satisfactory  to  Agent in its sole discretion  with  respect  to
Borrower's or such Subsidiary's, as the case may be, interests in
such Real Property.

                (c)  Borrower shall cause all of its present  and
future  Subsidiaries  that  are 50% or  more  owned  directly  or
indirectly  by  Borrower  to execute  a  Guaranty  Agreement  and
Security Agreements.

           6.19  Hedging Agreements. The Borrowing Base  Entities
shall  maintain in effect at all times on a continuous basis  one
or more Hedging Agreements satisfactory to the Agent with respect
to  its Hydrocarbon production with one or more investment  grade
counterparties,  rated  Aa3 or better by Moody's,  A+  or  better
according  to Standard & Poor's, or the equivalent  by  a  rating
agency  acceptable  to  Agent or with  a  counterparty  otherwise
acceptable  to  Agent in its reasonable judgment,  which  Hedging
Agreements  taken  together shall at all  times  cover,  for  the
period  ending  not  less than 6 months  from  the  date  of  any
determination  of  compliance with this Section  6.19,  aggregate
notional volumes of Hydrocarbons equal to not less than  50%  and
not  more  than  90%  of the Borrowing Base Entities'  forecasted
Hydrocarbon  production  for  such  period  from  Oil   and   Gas
Properties  classified as Proved Developed Producing Reserves  as
of  the  date of the most recent Reserve Report.  Borrower  shall
use  such  Hedging  Agreements solely as a  part  of  its  normal
business  operations as a risk management strategy  and/or  hedge
against  changes  resulting  from market  conditions  related  to
Borrower's and its Subsidiaries' oil and gas operations  and  not
as  a  means  to speculate for investment purposes on trends  and
shifts in financial or commodities markets. Borrower shall notify
Agent  immediately upon becoming aware (in any  event  not  later
than  the  close of business on the same Business Day)  that  the
production  of  Hydrocarbons  by  Borrower  could  reasonably  be
expected  to  be insufficient to meet its obligations  under  any
Hedging Agreements.

           6.20 Further Assurances.  Cure promptly any defects in
the  creation or issuance of the Obligations or the execution  or
delivery of the Obligations and/or Loan Documents, including this
Agreement. Borrower at its expense shall, and shall cause each or
its  Subsidiaries to promptly execute and deliver to  Agent  upon
request  all such other documents, agreements and instruments  to
comply  with  or  accomplish  the  covenants  and  agreements  of
Borrower  or  any  of  its Subsidiaries in  the  Loan  Documents,
including  this Agreement, or to further evidence and more  fully
describe the collateral intended as security for the Obligations,
or  to  correct any omissions in the Loan Documents, or to  state
more  fully the security obligations set out herein or in any  of
the  Loan Documents, or to perfect, protect or preserve any Liens
created  pursuant to any of the Loan Documents, or  to  make  any
recordings,  to file any notices or obtain any consents,  all  as
may   be   reasonably  necessary  or  appropriate  in  connection
therewith.

     7.   NEGATIVE COVENANTS.

           Borrower  covenants and agrees that, so  long  as  any
credit  hereunder  shall be available and until  full  and  final
payment  of  the  Obligations, Borrower will not,  and  will  not
permit  any  of  its  Subsidiaries to, do any  of  the  following
without the Required Lenders' prior written consent:

           7.1   Indebtedness.  Create,  incur,  assume,  permit,
guarantee, or otherwise become or remain, directly or indirectly,
liable with respect to any Indebtedness, except:

               (a)  Indebtedness evidenced by this Agreement;

               (b)  Indebtedness set forth on Schedule 7.1;

               (c)  Indebtedness secured by Permitted Liens;

               (d)  the Unsecured Notes;

                (e)   accounts payable (for the deferred purchase
price of Property or services) from time to time incurred in  the
ordinary  course of business which, if greater than 90 days  past
the  invoice or billing date, are subject to a bona fide  dispute
which is being contested in good faith by appropriate proceedings
as  to which a reserve is established on the books of Borrower in
an  amount  that is satisfactory to Agent (and if a Lien  secures
the  same  or  may  secure the same, such Lien is  subject  to  a
Permitted Protest);

                (f)  Indebtedness associated with bonds or surety
obligations required by Legal Requirements in connection with the
operation  of  Borrower's  and  its  Subsidiaries'  Oil  and  Gas
Properties;

               (g)  Indebtedness which does not exceed $2,000,000
in the aggregate outstanding at any time under Hedging Agreements
(or  to  issuers of letters of credit for the account of Borrower
which  support  Hedging  Agreements)  entered  into  by  Borrower
covering  oil or gas entered into as a part of Borrower's  normal
business  operations as a risk management strategy  and/or  hedge
against  changes  resulting  from market  conditions  related  to
Borrower's and its Subsidiaries' oil and gas operations (but  not
as  a  means  to speculate for investment purposes on trends  and
shifts  in  financial or commodities markets)  but  only  to  the
extent that the total volumes hedged for any 12 month period  are
not greater than 90% of the forecasted Hydrocarbon production  of
the  Borrowing  Base Entities for such period from  Oil  and  Gas
Properties  classified as Proved Developed Producing Reserves  as
indicated in the most recent Reserve Report; and

                (h)   refinancings,  replacements,  renewals,  or
extensions of Indebtedness permitted under clauses (b) and (c) of
this  Section  7.1 (and continuance or renewal of  any  Permitted
Liens  associated therewith) and under clause (d) of this Section
7.1,  in  each such case so long as: (i) the terms and conditions
of  such  refinancings, replacements, renewals, or extensions  do
not   materially  impair  the  prospects  of  repayment  of   the
Obligations  by  Borrower, (ii) the net  cash  proceeds  of  such
refinancings, replacements, renewals, or extensions do not result
in   an  increase  in  the  aggregate  principal  amount  of  the
Indebtedness  so  refinanced, renewed, or  extended,  (iii)  such
refinancings, replacements, renewals or extensions do not  result
in   a  shortening  of  the  average  weighted  maturity  of  the
Indebtedness so refinanced, renewed, or extended, and (iv) to the
extent that Indebtedness that is refinanced, replaced, renewed or
extended was subordinated in right of payment to the Obligations,
then  the  subordination terms and conditions of the refinancing,
replacement, renewal or extension, Indebtedness must be at  least
as  favorable  to  the Lender Group as those  applicable  to  the
refinanced, replaced, renewed or extended Indebtedness.

          7.2  Liens.  Create, incur, assume, or permit to exist,
directly or indirectly, any Lien on or with respect to any of its
property  or assets, of any kind, whether now owned or  hereafter
acquired,  or  any  income  or  profits  therefrom,  except   for
Permitted  Liens  (including  Liens  that  are  replacements   of
Permitted  Liens to the extent that the original Indebtedness  is
refinanced  under Section 7.1(g) and so long as  the  replacement
Liens  only  encumber those assets or property that  secured  the
original Indebtedness).

          7.3  Restrictions on Fundamental Changes.

               (a)  Enter into any merger or consolidation (other
than  the  Permitted  SWP  Merger),  or  any  reorganization   or
recapitalization,  or reclassify its capital  Stock  (except  for
solely  an  increase in the number of shares of common  Stock  of
Borrower in connection with the Initial Public Offering).

                (b)   Liquidate, wind up, or dissolve itself  (or
suffer any liquidation or dissolution).

                 (c)    Convey,  sell,  assign,  lease,  license,
transfer, or otherwise dispose of, in one transaction or a series
of  transactions, all or any substantial part of its property  or
assets.

           7.4   Disposal of Assets.  Sell, lease, assign,  farm-
out,  convey,  transfer,  or otherwise  dispose  of  any  of  any
Borrower's or any of its Subsidiaries' Properties or assets other
than:

                (a)  sales of Inventory to buyers in the ordinary
course of such Borrower's business as currently conducted;

               (b)  the sale or transfer of Equipment (other than
in connection with the sale of an Oil and Gas Property, Equipment
located  on  such  Oil  and Gas Property which  is  an  essential
component of the existing Hydrocarbon production, if any, of  the
wells on such Oil and Gas Property), having a fair saleable value
of  less  than an aggregate amount of $100,000 during any  fiscal
year  of  Borrower and its Subsidiaries during the term  of  this
Agreement  that  is  no  longer necessary  for  the  business  of
Borrower  or  such Subsidiary or is replaced by Equipment  of  at
least  comparable value and use, provided that  the  proceeds  of
such  sale  or  transfer  are  immediately  paid  to  Agent   for
application  to  the Obligations by wire transfer of  immediately
available funds to the Agent Account; and

               (c)  cash sales in the ordinary course of business
of Proved Reserves, as long as:

                     (i)   no  Default  or Event  of  Default  is
existing  or  would  result therefrom and  no  Overadvance  would
result therefrom, and

                     (ii)  Borrower at such time has at least  an
aggregate  amount  of  $1.00  of  Availability  and  unrestricted
immediately  available cash on hand reserving  as  an  additional
deduction from Availability an amount determined by Agent in  its
sole  discretion that would be sufficient to maintain  Borrower's
and   its   Subsidiaries'  accounts  payable  and  other  current
liabilities within reasonable terms, and

                     (iii)      the proceeds of the sale of  such
Proved Reserves are immediately paid to Agent for application  to
the  Obligations by wire transfer of immediately available  funds
to the Agent Account, and

                     (iv)  the sale price of such Proved Reserves
is  equal  to  or greater than fifty percent (50%) of  the  NYMEX
Value  of such Proved Reserves as of the date of the most  recent
applicable  Reserve  Report  delivered  to  Agent  by   Borrower,
provided that:

                          (w)  in  the  case of Proved  Developed
Producing  Reserves,  the aggregate NYMEX Value  of  such  Proved
Developed  Reserves, as of the date of the most recent applicable
Reserve  Report  delivered by Borrower to Agent, may  not  exceed
$250,000 in the aggregate during any twelve calendar month period
during the term of this Agreement,

                         (x) in the case of Proved Reserves other
than  Proved  Developed Producing Reserves, the  aggregate  NYMEX
Value  of such Proved Reserves, as of the date of the most recent
applicable Reserve Report delivered by Borrower to Agent, may not
exceed  $500,000  in  the  aggregate  during  the  term  of  this
Agreement,

                         (y) the Borrowing Base shall be adjusted
by  an amount equal to the value, if any, assigned to such Proved
Reserves in the most recently determined Borrowing Base, and

                          (z) at or prior to the closing date  of
any such sale of any such Proved Reserves, and as a condition  of
Borrower's authority to do so, Borrower shall deliver to Agent  a
certificate  executed  by the chief executive  officer  or  chief
financial  officer of Borrower certifying (I) that no Default  or
Event  of  Default has occurred and is continuing,  (II)  to  the
valuation  of  the Proved Reserves involved utilizing  the  NYMEX
Price   for  valuation  purposes,  (III)  that  the  dispositions
proposed will not violate the dollar limitation set forth in this
Section  7.4,  (IV) that the disposition will not  result  in  an
Overadvance,  (V)  the consideration and manner  of  the  payment
thereof  to  be received by Borrower for the disposition  of  the
Proved  Reserves involved, and (VI) that Borrower has the minimum
Availability required for such sale.

           7.5   Change Name.  Change Borrower's or  any  of  its
Subsidiaries' name, FEIN, corporate structure (within the meaning
of  Section  9402(7) of the Code), or identity, or  add  any  new
fictitious name.

           7.6  Guarantee.  Guarantee or otherwise become in  any
way  liable  with respect to the obligations of any third  Person
except  by  endorsement of instruments or items  of  payment  for
deposit  to  the account of Borrower or which are transmitted  or
turned over to Agent.

           7.7  Nature of Business.  Make any material change  in
the  principal  nature of Borrower's or any of its  Subsidiaries'
business as an independent oil and gas exploration and production
company,  except that Borrower may continue to pursue development
of  its  software and back office outsourcing efforts related  to
the oil and gas business provided that the aggregate expenditures
for  Borrower  and  its  Subsidiaries  thereon  does  not  exceed
$1,000,000 during any fiscal year.

          7.8  Prepayments and Amendments.

                (a)   Except  in  connection with  a  refinancing
permitted  by  Section 7.1(h), prepay, redeem,  retire,  defease,
purchase,  or  otherwise acquire any Indebtedness  owing  to  any
third  Person  (including,  but not  limited  to,  the  Unsecured
Notes),  other  than  the  Obligations in  accordance  with  this
Agreement (provided, however, that Borrower shall be permitted to
repurchase or redeem additional amounts of the Unsecured Notes as
long as a condition precedent thereto, (x) no Default or Event of
Default  then  exists or reasonably could be expected  to  result
therefrom,  and  (y) Borrower at such time, after  giving  effect
thereto,  has  at  least an aggregate amount  of  $10,000,000  of
Availability and unrestricted immediately available cash on  hand
reserving as an additional deduction from Availability an  amount
determined  by  Agent  in  its  sole  discretion  that  would  be
sufficient to maintain Borrower's and its Subsidiaries'  accounts
payable within reasonable terms), or

                (b)   Except  in  connection with  a  refinancing
permitted  by  Section  7.1(h), directly  or  indirectly,  amend,
modify, alter, increase, or change any of the terms or conditions
of any agreement, instrument, document, indenture (including, but
not  limited to, the Unsecured Notes Indenture) or other  writing
evidencing  or  concerning Indebtedness permitted under  Sections
7.1(b), (c), (d) or (g).

           7.9   Change  of Control.  Cause, permit,  or  suffer,
directly or indirectly, any Change of Control.

           7.10  Consignments. Consign any Inventory or sell  any
Inventory on bill and hold, sale or return, sale on approval,  or
other conditional terms of sale.

          7.11 Distributions; Repurchases of Capital Stock.  Make
any  distribution  or declare or pay any dividends  (in  cash  or
other  property,  other  than capital  Stock)  on,  or  purchase,
acquire,  redeem, or retire any of Borrower's capital  Stock,  of
any class, whether now or hereafter outstanding.

           7.12  Accounting Methods.  Modify or change its method
of  accounting or enter into, modify, or terminate any  agreement
currently  existing, or at any time hereafter entered  into  with
any  third  party  accounting firm  or  service  bureau  for  the
preparation  or storage of Borrower's accounting records  without
said  accounting firm or service bureau agreeing to provide Agent
information  regarding  the Collateral  or  Borrower's  financial
condition.   Borrower waives the right to assert  a  confidential
relationship,  if  any, it may have with any accounting  firm  or
service  bureau in connection with any information  requested  by
Agent  pursuant  to  or in accordance with  this  Agreement,  and
agrees  that Agent may contact directly any such accounting  firm
or service bureau in order to obtain such information.

           7.13  Investments.  Except for Permitted  Investments,
directly or indirectly, make or acquire any Investment, or  incur
any  liabilities  (including contingent obligations)  for  or  in
connection with any Investment; provided, however, that:

          (a)   if no Default or Event of Default is existing  or
     could be expected to result therefrom, and Borrower at  such
     time, after giving effect thereto, has at least an aggregate
     amount of $1.00 of Availability and unrestricted immediately
     available  cash on hand reserving as an additional deduction
     from  Availability an amount determined by Agent in its sole
     discretion  that would be sufficient to maintain  Borrower's
     and  its  Subsidiaries' accounts payable  within  reasonable
     terms,   then  Borrower  may  purchase  limited  partnership
     interests  in the Designated Affiliated Limited Partnerships
     for  not more than fair value on an arm's length basis  from
     the  limited  partners thereof which are not  Affiliates  of
     Borrower or any of its Subsidiaries for an aggregate  amount
     which  does not exceed $500,000 in the aggregate during  any
     fiscal year of Borrower; provided further, however, that  as
     a  condition  precedent  to each such  purchase  of  limited
     partner  interests  described  in  this  subparagraph   (a),
     Borrower shall have granted to Agent for the benefit of  the
     Lender Group a first priority perfected Lien on and security
     interest in and to all of such limited partnership interests
     so purchased; and

          (b)   if no Default or Event of Default is existing  or
     could be expected to result therefrom, and Borrower at  such
     time, after giving effect thereto, has at least an aggregate
     amount   of  $5,000,000  of  Availability  and  unrestricted
     immediately   available  cash  on  hand  reserving   as   an
     additional  deduction from Availability an amount determined
     by  Agent in its sole discretion that would be sufficient to
     maintain  Borrower's and its Subsidiaries' accounts  payable
     within  reasonable terms, then Borrower may purchase limited
     partnership  interests in the Designated Affiliated  Limited
     Partnerships for not more than fair value on an arm's length
     basis  from  the  limited partners  thereof  which  are  not
     Affiliates  of  Borrower or any of its Subsidiaries  for  an
     aggregate  amount  which does not exceed $4,000,000  in  the
     aggregate  during  any  fiscal year  of  Borrower;  provided
     further, however, that as a condition precedent to each such
     purchase  of  limited partner interests  described  in  this
     subparagraph (b), Borrower shall have granted to  Agent  for
     the  benefit of the Lender Group a first priority  perfected
     Lien  on and security interest in and to all of such limited
     partnership interests so purchased; and

          (c)   Borrower  shall be permitted  to  make  loans  or
     advances  to  Parent in an aggregate amount  that  does  not
     exceeding $2,500,000 outstanding at any time; and

          (d)   Borrower  shall  be  permitted  to  continue  the
     $76,000  outstanding  balance of accrued  unpaid  management
     fees  owing  to  it  on  the date  of  this  Agreement  from
     Southwest Partners II, L.P., a Delaware limited partnership,
     and  the  $325,000  outstanding balance  of  accrued  unpaid
     management  fees owing to it on the date of  this  Agreement
     from  Southwest  Partners  III,  L.P.,  a  Delaware  limited
     partnership; and

          (e)   Borrower shall be permitted to maintain  balances
     of  up to $100,000 in the aggregate outstanding at any  time
     owing  to  it from Southwest Partners II, L.P.,  a  Delaware
     limited  partnership, and Southwest Partners  III,  L.P.,  a
     Delaware limited partnership.

            7.14  Transactions  with  Affiliates.   Directly   or
indirectly  (a)  enter  into  or permit  to  exist  any  material
transaction   with   any  Affiliate  of   Borrower   except   for
transactions  that  are  in  the ordinary  course  of  Borrower's
business,  upon  fair  and  reasonable  terms,  that  are   fully
disclosed  to Agent, and that are no less favorable  to  Borrower
than would be obtained in an arm's length transaction with a non-
Affiliate  or (b) make any payments to or otherwise transfer  any
assets  or funds to any of Basic Well Services, Inc., a  Delaware
corporation,  Midland  Red Oak Realty,  a  Delaware  corporation,
Parent,  or  any  limited partnership of which  Borrower  is  the
general  partner  except  for  (i)  those  purchases  of  limited
partnership  interests  in  the  Designated  Affiliated   Limited
Partnerships to the extent permitted under subclauses (a) and (b)
of  Section 7.13, and (ii) those loans or advances to  Parent  to
the extent permitted under subclause (c) of Section 7.13.

           7.15  Suspension.  Suspend or go out of a  substantial
portion of its business.

          7.16 Compensation.

                (a)   Increase the annual fee or per-meeting fees
paid to the members of its Board of Directors during any year  by
more than 15% over (i) that paid or accrued in the prior year, or
(ii) for fiscal year 2000 of Borrower, the amounts thereof on the
books  of  Borrower as of June 30, 2000 as provided to  Agent  in
writing prior to the date of this Agreement;

               (b)  Pay or accrue total cash compensation, during
any  year,  to  officers and senior management  employees  in  an
aggregate amount in excess of 125% of that (i) paid or accrued in
the  prior  year  or (ii) for fiscal year 2000 of  Borrower,  the
budgeted salary and bonus on the books of Borrower as of June 30,
2000  as  provided to Agent in writing prior to the date of  this
Agreement; or

                (c)   Pay  or  accrue  any severance  amounts  or
retirement amounts except as described on Schedule 7.16  attached
hereto.

          7.17 Use of Proceeds.  Use the proceeds of the Advances
made  hereunder  for any purpose other than (a)  on  the  Closing
Date,  (i)  to  fund the assignment to the Agent and  the  Lender
Group  in  full  of the outstanding principal, accrued  interest,
accrued fees and expenses owing to Prior Lenders, and (ii) to pay
transactional  fees, costs, and expenses incurred  in  connection
with  this  Agreement, and (b) thereafter,  consistent  with  the
terms  and  conditions  hereof,  for  its  lawful  and  permitted
corporate purposes.

           7.18  Change  in Location of Chief Executive  Offices;
Inventory and Equipment.  Relocate its chief executive office  to
a  new  location  without  providing to  Agent,  within  15  days
immediately   following  such  relocation,  written  notification
thereof  and,  at  the  time  of such written  notification,  any
financing statements or fixture filings necessary to perfect  and
continue perfected the Agent's Liens and also provides to Agent a
Collateral  Access Agreement with respect to such  new  location.
The  Inventory  and  Equipment shall  not  at  any  time  now  or
hereafter be stored with a bailee, warehouseman, or similar party
without  Agent's prior written consent.  Borrower will  not,  and
will not permit its Subsidiaries to store, warehouse or bail  the
Inventory and Equipment of Borrower and its Subsidiaries at  Real
Property  other  than  such  Real Property   listed  on  Schedule
5.1(d).

           7.19 No Prohibited Transactions Under ERISA.  Directly
or indirectly:

                (a)  engage, or permit any Subsidiary of Borrower
to  engage,  in  any prohibited transaction which  is  reasonably
likely  to  result in a civil penalty or excise tax described  in
Sections 406 of ERISA or 4975 of the IRC for which a statutory or
class  exemption is not available or a private exemption has  not
been previously obtained from the Department of Labor;

                (b)   permit to exist with respect to any Benefit
Plan   any   accumulated  funding  deficiency  (as   defined   in
Sections 302 of ERISA and 412 of the IRC), whether or not waived;

               (c)  fail, or permit any Subsidiary of Borrower to
fail, to pay timely required contributions or annual installments
due  with respect to any waived funding deficiency to any Benefit
Plan;

                (d)   terminate,  or  permit  any  Subsidiary  of
Borrower  to  terminate, any Benefit Plan where such event  would
result  in any liability of Borrower, any of its Subsidiaries  or
any ERISA Affiliate under Title IV of ERISA;

               (e)  fail, or permit any Subsidiary of Borrower to
fail,  to  make  any  required contribution  or  payment  to  any
Multiemployer Plan;

               (f)  fail, or permit any Subsidiary of Borrower to
fail,  to  pay  any  required installment or  any  other  payment
required  under Section 412 of the IRC on or before the due  date
for such installment or other payment;

                (g)   amend, or permit any Subsidiary of Borrower
to  amend,  a Plan resulting in an increase in current  liability
for the plan year such that either of Borrower, any Subsidiary of
Borrower  or any ERISA Affiliate is required to provide  security
to such Plan under Section 401(a)(29) of the IRC; or

                 (h)   withdraw,  or  permit  any  Subsidiary  of
Borrower  to  withdraw, from any Multiemployer  Plan  where  such
withdrawal is reasonably likely to result in any liability of any
such entity under Title IV of ERISA;

which, individually or in the aggregate, results in or reasonably
would  be  expected to result in a claim against or liability  of
Borrower,  any  of  its Subsidiaries or any  ERISA  Affiliate  in
excess of $50,000.

          7.20 Financial Covenants.  Fail to maintain:

                (a)   Tangible Net Worth.  As of the last day  of
each month set forth below, a consolidated Tangible Net Worth  of
Borrower  and its Subsidiaries of at least the amount  set  forth
below corresponding to such month:

             Month                    Amount

Each   month   during   the      ($90,750,000)
period  commencing  on  the
Closing Date and ending  on
November 30, 2001

December   2001  and   each     ($88,400,000);
month thereafter


provided, however, that with respect to each month ending  on  or
after December 31, 2001, the applicable Amount pertaining thereto
may  be  modified upon mutual written agreement between  Borrower
and Agent in accordance with the following procedure:  (i) on  or
before  the 30th day prior to the last day of each calendar  year
ending  on or after December 31, 2001, Borrower shall deliver  to
Agent  Borrower's  financial projections for the  next  following
calendar  year, which financial projections shall be in form  and
substance acceptable to Agent, and (ii) Borrower and Agent  shall
negotiate  in good faith regarding the proposed minimum  Tangible
Net  Worth  amounts to be the applicable Amounts for  each  month
during such next following calendar year; and

                (b)  Consolidated Interest Coverage Ratio.  As of
the  last day of each month set forth below, Borrower's ratio  of
(i) consolidated EBITDA for the three-month period then ended, to
(ii)  consolidated  Interest Expense for the  three-month  period
then   ended,  of  not  less  than  the  ratio  set  forth  below
corresponding to such period:

              Month                     Ratio

Each month during the period           1.0:1.0
commencing on the Closing Date
and ending on September 30, 2000

October 2000 and each month            1.6:1.0;
ending thereafter


provided, however, that with respect to each month ending  on  or
after  December 31, 2001, the applicable Ratio pertaining thereto
may  be  modified upon mutual written agreement between  Borrower
and Agent in accordance with the following procedure:  (i) on  or
before  the 30th day prior to the last day of each calendar  year
ending  on or after December 31, 2001, Borrower shall deliver  to
Agent  Borrower's  financial projections for the  next  following
calendar  year, which financial projections shall be in form  and
substance acceptable to Agent, and (ii) Borrower and Agent  shall
negotiate in good faith regarding the proposed minimum  ratio  to
be the applicable Ratio for each month during such next following
calendar year.

           7.21  Capital Expenditures.  Make capital expenditures
in any fiscal year in excess of $13,000,000 in the aggregate.

           7.22  Securities  Accounts. Neither Borrower  nor  any
Subsidiary of Borrower shall establish or maintain any Securities
Account  unless  Borrower  shall  have  notified  Agent  of   the
existence, location and other particulars thereof and Agent shall
have  received  a Control Agreement, duly executed  and  in  full
force   and  effect,  in  respect  of  such  Securities  Account;
provided,  however,  that  no  such Control  Agreement  shall  be
required  prior  to  Agent requesting the same  in  writing  from
Borrower.   Borrower  agrees  that neither  it  nor  any  of  its
Subsidiaries will transfer assets out of any Securities Accounts;
provided,  however,  that, so long as no  Event  of  Default  has
occurred  and  is continuing or would result therefrom,  Borrower
may use such assets to the extent permitted by this Agreement.

           7.23 Gas Imbalances, Take-or-Pay or Other Prepayments.
Borrower  shall not, and shall not permit any of its Subsidiaries
to,   enter  into  any  contracts  or  agreements  which  warrant
production   of  Hydrocarbons  (other  than  Hedging   Agreements
otherwise  permitted hereunder) and will not hereafter  allow  or
accept  gas  imbalances,  take-or-pay or other  prepayments  with
respect  to  its Oil and Gas Properties which would require  such
Person to deliver Hydrocarbons produced from such Oil and Gas  at
some  future  time  without  then or  thereafter  receiving  full
payment  therefor to exceed, in the aggregate, five percent  (5%)
of  the current aggregate monthly gas production for such monthly
period from the Oil and Gas Properties.

           7.24 Payments on Unsecured Notes  Make any payment  of
interest,  principal, premium or other amount  on  the  Unsecured
Notes,  provided, however, that Borrower shall  be  permitted  to
make  regularly scheduled payments of interest on  the  Unsecured
Notes  as  long  as,  as a condition precedent  thereto,  (i)  no
Default  or Event of Default then exists or reasonably  could  be
expected  to result therefrom, and (ii) Borrower, at  such  time,
after giving effect thereto, has at least an aggregate amount  of
$5,000,000 of Availability and unrestricted immediately available
cash   on   hand  reserving  as  an  additional  deduction   from
Availability an amount determined by Agent in its sole discretion
that   would  be  sufficient  to  maintain  Borrower's  and   its
Subsidiaries'  accounts  payable and  other  current  liabilities
within reasonable terms.

           7.25  Non-Consent Operations. Become a  non-consenting
party  with  respect  to (a) any operations under  any  operating
agreement,  unit  agreement,  governmental  order  or   otherwise
associated with any Oil and Gas Property having Proved  Developed
Producing  Reserves  with a NYMEX value of $100,000  or  more  on
which  neither Borrower nor any of its Affiliates is the operator
unless  Borrower  shall  have provided reasonable  prior  written
notice  to  Agent  of  Borrower's  intention  to  become  a  non-
consenting party with respect thereto, such notice to be not less
than  5  days  prior to Borrower becoming a non-consenting  party
(except  in  cases in which the period for notice of  non-consent
under  the  applicable  agreement,  order  or  other  arrangement
pertaining  to the operation is less than 5 days, in  which  case
Borrower  shall provide prior notice to Agent which is  not  less
than the period for notice of non-consent thereunder), or (b) any
operations   under  any  operating  agreement,  unit   agreement,
governmental order or otherwise associated with any Oil  and  Gas
Property  on  which  Borrower or any of  its  Affiliates  is  the
operator.

           7.26  Waivers  of  Rights  Relating  to  Oil  and  Gas
Properties.  Waive any right relating to any of the Oil  and  Gas
Properties other than waivers and consents relating to immaterial
easements,  rights  of  way and other similar  rights  which  the
waiver  thereof does not have an adverse effect on the  value  of
such  Oil and Gas Property to which it pertains, does not  impair
or adversely affect any Lien held by the Agent for the benefit of
the  Lender Group, and could not reasonably be expected to result
in a Material Adverse Change.

           7.27  Contracts for Sale of Production.   Enter  into,
renew,  extend or continue beyond its original scheduled maturing
date  any contract for the sale of Hydrocarbons or other products
produced from the Oil and Gas Properties except (a) for a  period
of  one month or less at a fixed price or (b) for contracts which
do not (I) require sales of minimum quantities by Borrower or any
of  its Subsidiaries, (II) involve any advance payments or  other
advances   to   or  by  Borrower  or  any  of  its  Subsidiaries,
(III)  provide for a sale price of less than 70% of (A) for  oil,
the  NYMEX EDQ calendar month price as reported by The  New  York
Merchantile Exchange on NYMEX.com or in a comparable oil and  gas
industry  publication of nationally recognized  standing  (or  an
equivalent price in the event that such NYMEX EDQ calendar  month
price is no longer reported) for the appropriate category of  oil
covered by such contract, and (B) for gas, the spot price for the
appropriate  category  of  gas  covered  by  such  contract,  and
(IV)  constitute Indebtedness or otherwise involve  any  material
undertaking by Borrower or any of its Subsidiaries.

           7.28  Exploration.  Neither Borrower nor  any  of  its
Subsidiaries  shall  conduct, consent to or  participate  in  any
exploratory   oil   and  gas  activities  or  operations   having
authorities  for  expenditures  of  $1,000,000  or  more  in  the
aggregate  during any fiscal year attributable to  Borrower's  or
such Subsidiaries' interest therein on a combined basis.

     8.   EVENTS OF DEFAULT.

            Any  one  or  more  of  the  following  events  shall
constitute  an  event  of default (each, an "Event  of  Default")
under this Agreement:

           8.1  If Borrower or any other Loan Party fails to  pay
when  due  and  payable  or when declared due  and  payable,  any
portion  of  the  Obligations  (whether  of  principal,  interest
(including  any  interest which, but for the  provisions  of  the
Bankruptcy  Code, would have accrued on such amounts),  fees  and
charges  due  the  Lender Group, reimbursement  of  Lender  Group
Expenses,  or other amounts constituting Obligations);  provided,
however, that in the case of Overadvances that are caused by  the
charging  of interest, fees or Lender Group Expenses to the  Loan
Account, such event shall not constitute an Event of Default  if,
within 5 Business Days of incurring such Overadvance, Borrower or
any  other  Loan  Party  repays,  or  otherwise  eliminates  such
Overadvance;

           8.2    (a)  If Borrower fails or neglects to  perform,
keep,  or  observe any term, provision, condition,  covenant,  or
agreement   contained  in  Section  6.2  (Collateral  Reporting),
6.3  (Financial  Statements,  Reports,  Certificates),  6.4  (Tax
Returns),  6.14  (Employee Benefits), or 6.15  (Leases)  of  this
Agreement  and such failure continues for a period of 5  Business
Days;  (b)  If  Borrower fails or neglects to perform,  keep,  or
observe  any  term, provision, condition, covenant, or  agreement
contained  in  Section  6.1 (Accounting System),  6.7  (Title  to
Equipment),  6.8 (Maintenance of Oil and Gas Property  Collateral
and  Equipment), 6.12 (Location of Inventory and  Equipment),  or
6.13  (Compliance with Laws) of this Agreement and  such  failure
continues  for  a period of 15 Business Days following  the  date
upon  which  Borrower or any other Loan Party first became  aware
(or, with the exercise of reasonable diligence, would have become
aware)  of the occurrence of such failure or neglect; or  (c)  If
Borrower  or  any other Loan Party fails or neglects to  perform,
keep,  or observe any other term, provision, condition, covenant,
or  agreement contained in this Agreement, or in any of the other
Loan Documents (giving effect to any grace periods, cure periods,
or  required notices, if any, expressly provided for in such Loan
Documents);  in  each case, other than any such term,  provision,
condition, covenant, or agreement that is the subject of  another
provision  of this Section 8, in which event such other provision
of  this Section 8 shall govern; provided that, during any period
of  time  that  any such failure or neglect of Borrower  or  such
other  Loan Party referred to in this paragraph exists,  even  if
such  failure or neglect is not yet an Event of Default by virtue
of  the  existence of a grace or cure period or the pre-condition
of  the giving of a notice, neither Agent nor any Lender shall be
required during such period to make Advances to Borrower;

          8.3  [Intentionally omitted];

          8.4  If any material portion of Borrower's or any other
Loan  Party's properties or assets is attached, seized, subjected
to  a  writ or distress warrant, or is levied upon, or comes into
the possession of any third Person;

           8.5   If  an  Insolvency Proceeding  is  commenced  by
Borrower or any other Loan Party;

           8.6   If an Insolvency Proceeding is commenced against
Borrower or any other Loan Party and any of the following  events
occur:   (a)  Borrower or such Loan Party, as the  case  may  be,
consents to the institution of the Insolvency Proceeding  against
it;  (b) the petition commencing the Insolvency Proceeding is not
timely  controverted; (c) the petition commencing the  Insolvency
Proceeding is not dismissed within 60 calendar days of  the  date
of  the  filing  thereof;  provided, however,  that,  during  the
pendency of such period, Agent, Foothill, and any other member of
the  Lender Group shall be relieved of its obligation  to  extend
credit  hereunder;  (d) an interim trustee is appointed  to  take
possession  of all or a substantial portion of the properties  or
assets  of, or to operate all or any substantial portion  of  the
business of, Borrower or such Loan Party, as the case may be;  or
(e)  an  order  for  relief shall have  been  issued  or  entered
therein;

           8.7   If Borrower or any other Loan Party is enjoined,
restrained,  or  in  any  way  prevented  by  court  order   from
continuing  to conduct all or any material part of  its  business
affairs;

           8.8  If a notice of Lien, levy, or assessment is filed
of  record  with respect to any of Borrower's or any  other  Loan
Party's properties or assets by the United States Government,  or
any  department, agency, or instrumentality thereof,  or  by  any
state, county, municipal, or governmental agency, or if any taxes
or  debts owing at any time hereafter to any one or more of  such
entities becomes a Lien, whether choate or otherwise, upon any of
Borrower's or any other Loan Party's properties or assets and the
same is not paid on the payment date thereof;

           8.9  If a judgment, in excess of $100,000 individually
or  in  the  aggregate  for  all judgments,  becomes  a  Lien  or
encumbrance upon any material portion of Borrower's or any  other
Loan  Party's  properties or assets and such Lien or  encumbrance
remains  unpaid  or the enforcement or execution thereof  is  not
bonded  against  and stayed an amount and manner satisfactory  to
Agent;

           8.10 If a claim (other than a judgment), in excess  of
$100,000  individually or in the aggregate for all claims  (other
than  judgments),  becomes a Lien or encumbrance  (other  than  a
Permitted  Lien) upon any material portion of Borrower's  or  any
other  Loan  Party's  properties  or  assets  and  such  Lien  or
encumbrance  remains  unpaid  or  the  enforcement  or  execution
thereof  is  not bonded against and stayed an amount  and  manner
satisfactory to Agent;

          8.12 If there is (a) a default by Borrower or any other
Loan  Party  in  any material agreement (including the  Unsecured
Notes or the Unsecured Notes Indenture) to which Borrower or  any
other  Loan  Party is a party with one or more third Persons  and
such  default (i) occurs at the final maturity of the obligations
thereunder,  or (ii) results in a right by such third  Person(s),
irrespective of whether exercised, to accelerate the maturity  of
Borrower's  or any other Loan Party's obligations thereunder,  to
terminate  such  agreement, or to refuse to renew such  agreement
pursuant  to  an  automatic renewal right  therein,  or  (b)  any
payment default under the Unsecured Notes or the Unsecured  Notes
Indenture;

           8.12  If  Borrower or any other Loan Party  makes  any
payment  on  account of Indebtedness that has been  contractually
subordinated  in  right  of  payment  to  the  payment   of   the
Obligations,  except to the extent such payment is  permitted  by
the  terms  of  the subordination provisions applicable  to  such
Indebtedness;

           8.13 If any material misstatement or misrepresentation
exists   now   or  hereafter  in  any  warranty,  representation,
statement, or report made to the Lender Group by Borrower or  any
other Loan Party or any officer, employee, agent, or director  of
Borrower  or  any  other Loan Party, or if any such  warranty  or
representation is withdrawn;

           8.14  If  the  obligation of any Guarantor  under  its
Guaranty  Agreement  or  under any Loan Document  is  limited  or
terminated by operation of law or by such Guarantor thereunder;

          8.15  If this Agreement or any other Loan Document that
purports  to create a Lien, shall, for any reason, fail or  cease
to  create  a  valid  and perfected and,  except  to  the  extent
permitted by the terms hereof or thereof, first priority Lien  on
or security interest in the Collateral covered hereby or thereby;
or

          8.16  Any provision of any Loan Document shall  at  any
time  for  any  reason be declared to be null and  void,  or  the
validity  or  enforceability thereof shall be  contested  by  any
Borrower  or  any  other  Loan Party, or a  proceeding  shall  be
commenced  by  Borrower  or  any other  Loan  Party,  or  by  any
Governmental Authority having jurisdiction over Borrower  or  any
other  Loan  Party,  seeking  to  establish  the  invalidity   or
unenforceability  thereof, or Borrower or any  other  Loan  Party
shall  deny  that  Borrower  or any  other  Loan  Party  has  any
liability  or obligation purported to be created under  any  Loan
Document.

     9.   THE LENDER GROUP'S RIGHTS AND REMEDIES.

           9.1   Rights  and Remedies.  Upon the occurrence,  and
during  the  continuation, of an Event of Default,  the  Required
Lenders  (at their election but without notice of their  election
and without demand) may, except to the extent otherwise expressly
provided  or required below, authorize and instruct Agent  to  do
any  one  or more of the following on behalf of the Lender  Group
(and Agent, acting upon the instructions of the Required Lenders,
shall  do  the same on behalf of the Lender Group), all of  which
are authorized by Borrower:

               (a)  Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;

                (b)  Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement, under any of
the Loan Documents, or under any other agreement between Borrower
and the Lender Group;

               (c)  Terminate this Agreement and any of the other
Loan  Documents as to any future liability or obligation  of  the
Lender  Group, but without affecting Agent's rights and  security
interests, for the benefit of the Lender Group, in the Collateral
and without affecting the Obligations;

               (d)  Settle or adjust disputes and claims directly
with  Account  Debtors  for amounts and upon  terms  which  Agent
considers  advisable,  and  in  such  cases,  Agent  will  credit
Borrower's  Loan  Account with only the net amounts  received  by
Agent  in  payment of such disputed Accounts after deducting  all
Lender   Group  Expenses  incurred  or  expended  in   connection
therewith;

               (e)  Cause Borrower to hold all returned Inventory
in  trust  for the Lender Group, segregate all returned Inventory
from  all  other property of Borrower or in Borrower's possession
and  conspicuously label said returned Inventory as the  property
of the Lender Group;

                (f)  Without notice to or demand upon Borrower or
any  guarantor,  make such payments and do  such  acts  as  Agent
considers  necessary  or  reasonable  to  protect  its   security
interests  in  the Collateral.  Borrower agrees to  assemble  the
Personal  Property Collateral if Agent so requires, and  to  make
the  Personal Property Collateral available to Agent as Agent may
designate.  Borrower authorizes Agent to enter the premises where
the Personal Property Collateral is located, to take and maintain
possession  of the Personal Property Collateral, or any  part  of
it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Agent's determination appears to conflict
with  the  Agent's  Liens  and to pay all  expenses  incurred  in
connection therewith.  With respect to any of Borrower's owned or
leased premises, Borrower hereby grants Agent a license to  enter
into  possession of such premises and to occupy the same, without
charge, for up to 120 days in order to exercise any of the Lender
Group's rights or remedies provided herein, at law, in equity, or
otherwise;

               (g)  Without notice to Borrower (such notice being
expressly  waived), and without constituting a retention  of  any
collateral  in satisfaction of an obligation (within the  meaning
of  the  Code), set off and apply to the Obligations any and  all
(i)  balances  and deposits of Borrower held by the Lender  Group
(including any amounts received in the Lockbox Accounts), or (ii)
indebtedness  at  any  time owing to or for  the  credit  or  the
account of Borrower held by the Lender Group;

                (h)   Hold,  as  cash  collateral,  any  and  all
balances  and deposits of Borrower held by the Lender Group,  and
any  amounts received in the Lockbox Accounts, to secure the full
and final repayment of all of the Obligations;

                 (i)   Ship,  reclaim,  recover,  store,  finish,
maintain, repair, prepare for sale, advertise for sale, and  sell
(in  the  manner  provided  for  herein)  the  Personal  Property
Collateral.  Borrower hereby grants to Agent a license  or  other
right   to  use,  without  charge,  Borrower's  labels,  patents,
copyrights,  rights  of  use of any name,  trade  secrets,  trade
names, trademarks, service marks, and advertising matter, or  any
property  of  a  similar nature, as it pertains to  the  Personal
Property Collateral, in completing production of, advertising for
sale, and selling any Personal Property Collateral and Borrower's
rights  under  all  licenses and all franchise  agreements  shall
inure to the Lender Group's benefit;

                (j)   Sell  the  Personal Property Collateral  at
either  a public or private sale, or both, by way of one or  more
contracts  or transactions, for cash or on terms, in such  manner
and  at  such  places  (including Borrower's premises)  as  Agent
determines is commercially reasonable.  It is not necessary  that
the Personal Property Collateral be present at any such sale;

               (k)  Agent shall give notice of the disposition of
the Personal Property Collateral as follows:

                     (1)   Agent  shall  give Borrower  and  each
holder of a security interest in the Personal Property Collateral
who  has filed with Agent a written request for notice, a  notice
in  writing of the time and place of public sale, or, if the sale
is  a  private sale or some other disposition other than a public
sale is to be made of the Personal Property Collateral, then  the
time  on or after which the private sale or other disposition  is
to be made;

                    (2)  The notice shall be personally delivered
or  mailed,  postage prepaid, to Borrower as provided in  Section
12,  at  least 5 days before the date fixed for the sale,  or  at
least  5 days before the date on or after which the private  sale
or  other disposition is to be made; no notice needs to be  given
prior  to the disposition of any portion of the Personal Property
Collateral that is perishable or threatens to decline speedily in
value  or  that  is of a type customarily sold  on  a  recognized
market.   Notice  to  Persons  other than  Borrower  claiming  an
interest  in the Personal Property Collateral shall  be  sent  to
such addresses as they have furnished to Agent;

                     (3)   If  the  sale is to be a public  sale,
Agent  also shall give notice of the time and place by publishing
a  notice one time at least 5 days before the date of the sale in
a  newspaper  of general circulation in the county in  which  the
sale is to be held;

                (l)  The Lender Group may credit bid and purchase
at any public sale;

                (m)  The Lender Group shall have all other rights
and  remedies available to it at law or in equity pursuant to any
other Loan Documents; and

                (n)  Any deficiency that exists after disposition
of  the  Personal Property Collateral as provided above  will  be
paid  immediately  by  Borrower.  Any excess  will  be  returned,
without  interest and subject to the rights of third Persons,  by
Agent to Borrower.

           9.2  Remedies Cumulative.  The rights and remedies  of
the  Lender Group under this Agreement, the other Loan Documents,
and  all other agreements shall be cumulative.  The Lender  Group
shall  have  all  other  rights  and  remedies  not  inconsistent
herewith  as provided under the Code, by law, or in  equity.   No
exercise  by  the  Lender Group of one right or remedy  shall  be
deemed  an  election, and no waiver by the Lender  Group  of  any
Event  of Default shall be deemed a continuing waiver.  No  delay
by  the  Lender  Group  shall constitute a waiver,  election,  or
acquiescence by it.  Nothing in this Agreement in any way limits,
impairs  or reduces any rights of the Lender Group under the  Oil
and  Gas Property Mortgages or the Real Property Mortgages or any
of the other Loan Documents.

     10.  TAXES AND EXPENSES.

           If  Borrower  fails to pay any monies (whether  taxes,
assessments,  insurance  premiums, or,  in  the  case  of  leased
properties  or assets, rents or other amounts payable under  such
leases)  due  to third Persons, or fails to make any deposits  or
furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that Agent
determines  that  such  failure by Borrower  could  result  in  a
Material  Adverse  Change, in its discretion  and  without  prior
notice  to  Borrower, Agent may do any or all of  the  following:
(a) make payment of the same or any part thereof; (b) set up such
reserves  in Borrower's Loan Account as Agent deems necessary  to
protect  the  Lender  Group  from the exposure  created  by  such
failure;  or  (c) obtain and maintain insurance policies  of  the
type  described in Section 6.10, and take any action with respect
to  such policies as Agent deems prudent.  Any such amounts  paid
by  Agent  shall  constitute Lender  Group  Expenses.   Any  such
payments made by Agent shall not constitute an agreement  by  the
Lender  Group to make similar payments in the future or a  waiver
by the Lender Group of any Event of Default under this Agreement.
Agent  need  not inquire as to, or contest the validity  of,  any
such  expense, tax, or Lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence  that
the same was validly due and owing.

     11.  WAIVERS; INDEMNIFICATION.

           11.1  Demand;  Protest; etc.  Borrower waives  demand,
protest, notice of protest, notice of default or dishonor, notice
of  payment  and  nonpayment, nonpayment  at  maturity,  release,
compromise,  settlement,  extension,  or  renewal  of   accounts,
documents, instruments, chattel paper, and guarantees at any time
held  by  the Lender Group on which Borrower may in  any  way  be
liable.

           11.2  The  Lender  Group's Liability  for  Collateral.
Borrower  hereby  agrees that: (a) so long as  the  Lender  Group
complies with its obligations, if any, under Section 9207 of  the
Code,  the Lender Group shall not in any way or manner be  liable
or  responsible for:  (i) the safekeeping of the Collateral; (ii)
any loss or damage thereto occurring or arising in any manner  or
fashion  from  any  cause;  (iii) any  diminution  in  the  value
thereof; or (iv) any act or default of any carrier, warehouseman,
bailee,  forwarding agency, or other Person; and (b) all risk  of
loss, damage, or destruction of the Collateral shall be borne  by
Borrower.

           11.3  Indemnification.  Borrower shall pay, indemnify,
defend,  and  hold the Agent-Related Persons, the  Lender-Related
Persons  with respect to each Lender, each Participant, and  each
of  their  respective  officers, directors,  employees,  counsel,
agents,  and  attorneys-in-fact (each, an  "Indemnified  Person")
harmless  (to  the  fullest extent permitted  by  law)  from  and
against   any   and   all   claims,  demands,   suits,   actions,
investigations,  proceedings, and  damages,  and  all  reasonable
attorneys  fees  and disbursements and other costs  and  expenses
actually  incurred in connection therewith (as and when they  are
incurred  and  irrespective of whether suit is brought),  at  any
time  asserted against, imposed upon, or incurred by any of  them
in connection with or as a result of or related to the execution,
delivery,  enforcement, performance, and administration  of  this
Agreement  and  any  other  Loan Documents  or  the  transactions
contemplated  herein,  and  with respect  to  any  investigation,
litigation,  or proceeding related to this Agreement,  any  other
Loan  Document, or the use of the proceeds of the credit provided
hereunder  (irrespective of whether any Indemnified Person  is  a
party  thereto),  or any act, omission, event or circumstance  in
any  manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities").  Borrower shall have no obligation to
any  Indemnified Person under this Section 11.3 with  respect  to
any  Indemnified Liability that a court of competent jurisdiction
finally determines to have resulted from the gross negligence  or
willful  misconduct of such Indemnified Person.   This  provision
shall survive the termination of this Agreement and the repayment
of the other Obligations.

     12.  NOTICES.

           Unless  otherwise  provided  in  this  Agreement,  all
notices or demands by any party relating to this Agreement or any
other Loan Document shall be in writing and (except for financial
statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally  delivered
or  sent by registered or certified mail (postage prepaid, return
receipt  requested), overnight courier, or telefacsimile  to  the
relevant party at its address set forth below:

          If to Borrower:          Southwest Royalties, Inc.
                                                        407 North
                              Big Spring Street, Suite 300
                                                         Midland,
                              Texas  79701
                              Attn:  President
                              Fax No. 915.688.0191

          with copies to:          Baker, Donelson, Bearman &
Caldwell, P.C.
                              1800 Republic Centre
                              635 Chestnut Street
                              Chattanooga, Tennessee  37450
                              Attn: J. Porter Durham, Esq.
                              Fax No. 425.756.3447

          If to Agent or
          the Lender Group
                               in  care of Agent:        FOOTHILL
                         CAPITAL CORPORATION
                               2450  Colorado Avenue, Suite  3000
West
                              Santa Monica, California 90404
                               Attn:   Business Finance  Division
Manager
                              Fax No. 310.453.7413

                                        with      copies      to:
                              Patton Boggs LLP
                              2001 Ross Avenue, Suite 3000
                              Dallas, Texas 75201
                              Attn:  James C. Chadwick, Esq.
                              Fax No. 214.758.1550

          The parties hereto may change the address at which they
are  to  receive notices hereunder, by notice in writing  in  the
foregoing  manner  given to all other parties.   All  notices  or
demands  sent  in  accordance with this Section  12,  other  than
notices  by the Lender Group in connection with Sections 9504  or
9505 of the Code, shall be deemed received on the earlier of  the
date of actual receipt or 3 days after the deposit thereof in the
mail.  Borrower acknowledges and agrees that notices sent by  the
Lender Group in connection with Sections 9504 or 9505 of the Code
shall  be  deemed sent when deposited in the mail  or  personally
delivered,  or, where permitted by law, transmitted telefacsimile
or other similar method set forth above.

     13.  CHOICE OF LAW AND VENUE; SERVICE OF PROCESS; JURY TRIAL
WAIVER.

           THE  VALIDITY  OF THIS AGREEMENT AND  THE  OTHER  LOAN
DOCUMENTS  (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN  ANOTHER
LOAN  DOCUMENT  IN  RESPECT  OF SUCH OTHER  LOAN  DOCUMENT),  THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT  TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO  OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED  IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

           THE  PARTIES  AGREE  THAT ALL ACTIONS  OR  PROCEEDINGS
ARISING  IN  CONNECTION WITH THIS AGREEMENT AND  THE  OTHER  LOAN
DOCUMENTS  SHALL  BE TRIED AND LITIGATED ONLY IN  THE  STATE  AND
FEDERAL  COURTS  LOCATED IN THE COUNTY OF LOS ANGELES,  STATE  OF
CALIFORNIA,  PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST  ANY  COLLATERAL OR OTHER PROPERTY  MAY  BE  BROUGHT,  AT
AGENT'S  OPTION,  IN THE COURTS OF ANY JURISDICTION  WHERE  AGENT
ELECTS  TO  BRING SUCH ACTION OR WHERE SUCH COLLATERAL  OR  OTHER
PROPERTY  MAY BE FOUND.  BORROWER AND THE LENDER GROUP WAIVE,  TO
THE  EXTENT  PERMITTED UNDER APPLICABLE LAW, ANY RIGHT  EACH  MAY
HAVE  TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO  VENUE  TO THE EXTENT ANY PROCEEDING IS BROUGHT IN  ACCORDANCE
WITH THIS SECTION 13.  BORROWER HEREBY IRREVOCABLY DESIGNATES  CT
CORPORATION  SYSTEM WITH OFFICES AT 818 WEST SEVENTH STREET,  LOS
ANGELES,  CALIFORNIA, 90017 AS THE DESIGNEE, APPOINTEE AND  AGENT
OF BORROWER TO RECEIVE, FOR AND ON BEHALF OF BORROWER, SERVICE OF
PROCESS  IN SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION  OR
PROCEEDING  WITH RESPECT TO THE LOAN DOCUMENTS.  IT IS UNDERSTOOD
THAT SUCH PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED
BY  OVERNIGHT COURIER TO BORROWER AT ITS ADDRESS SET FORTH IN THE
PREAMBLE  TO  THIS  AGREEMENT, BUT THE  FAILURE  OF  BORROWER  TO
RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS.   IN  THE  EVENT THAT CT CORPORATION SYSTEM  RESIGNS  OR
CEASES  TO  SERVE AS THE BORROWER'S AGENT FOR SERVICE OF  PROCESS
HEREUNDER,  BORROWER  AGREES FORTHWITH (i) TO  DESIGNATE  ANOTHER
AGENT  FOR  SERVICE  OF PROCESS IN LOS ANGELES,  CALIFORNIA;  AND
(ii)  TO  GIVE PROMPT WRITTEN NOTICE TO THE LENDER GROUP  OF  THE
NAME  AND  ADDRESS  OF SUCH AGENT.  BORROWER FURTHER  IRREVOCABLY
CONSENTS  TO  THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS  IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF  BY  REGISTERED  OR CERTIFIED MAIL,  POSTAGE  REPAID,  TO
BORROWER  AT  ITS SAID ADDRESS, SUCH SERVICE TO BECOME  EFFECTIVE
THIRTY  (30)  DAYS AFTER SUCH MAILING. BORROWER  AND  THE  LENDER
GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF  THE
LOAN  DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED  THEREIN,
INCLUDING  CONTRACT CLAIMS, TORT CLAIMS, BREACH OF  DUTY  CLAIMS,
AND  ALL  OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND  THE
LENDER  GROUP  REPRESENT THAT EACH HAS REVIEWED THIS  WAIVER  AND
EACH  KNOWINGLY  AND  VOLUNTARILY WAIVES ITS  JURY  TRIAL  RIGHTS
FOLLOWING  CONSULTATION  WITH LEGAL COUNSEL.   IN  THE  EVENT  OF
LITIGATION,  A COPY OF THIS AGREEMENT MAY BE FILED AS  A  WRITTEN
CONSENT TO A TRIAL BY THE COURT.

     14.  DESTRUCTION OF BORROWER'S DOCUMENTS.

           All  documents, schedules, invoices, agings, or  other
papers  delivered to any one or more members of the Lender  Group
may  be destroyed or otherwise disposed of by such member of  the
Lender Group 4 months after they are delivered to or received  by
such  member  of the Lender Group, unless Borrower  requests,  in
writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.

     15.  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

          15.1 Assignments and Participations.

                (a)  Any Lender may, with the written consent  of
Agent,  assign  and  delegate to one or more assignees  (provided
that  no written consent of Agent shall be required in connection
with  any  assignment and delegation by a Lender to  an  Eligible
Transferee) (each an "Assignee") all, or any ratable part of all,
of  the  Obligations, the Commitments and the  other  rights  and
obligations  of  such Lender hereunder and under the  other  Loan
Documents,  in a minimum amount of $5,000,000 (except  that  such
minimum  amount shall not apply in connection with any assignment
and  delegation  by  a  Lender (x) to any Affiliate  (other  than
individuals)  of,  or any fund, money market account,  investment
account or other account managed by, a pre-existing Lender  under
this Agreement or (y) of the entire Obligations, Commitments  and
other  rights and obligations of such Lender hereunder and  under
the  other Loan Documents); provided, however, that Borrower  and
Agent  may continue to deal solely and directly with such  Lender
in  connection with the interest so assigned to an Assignee until
(i)  written  notice  of such assignment, together  with  payment
instructions, addresses and related information with  respect  to
the Assignee, shall have been given to Borrower and Agent by such
Lender and the Assignee; (ii) such Lender and its Assignee  shall
have delivered to Borrower and Agent an Assignment and Acceptance
("Assignment  and Acceptance") in form and substance satisfactory
to  Agent; and (iii) the assignor Lender or Assignee has paid  to
Agent  for Agent's sole and separate account a processing fee  in
the  amount of $5,000.  Anything contained herein to the contrary
notwithstanding, the consent of Agent shall not be required  (and
payment of any fees shall not be required) if such assignment  is
in  connection with any merger, consolidation, sale, transfer, or
other  disposition  of  all  or any substantial  portion  of  the
business or loan portfolio of such Lender.

                (b)   From and after the date that Agent notifies
the  assignor Lender that it has received an executed  Assignment
and  Acceptance  and  payment of the above-referenced  processing
fee, (i) the Assignee thereunder shall be a party hereto and,  to
the  extent  that  rights  and obligations  hereunder  have  been
assigned to it pursuant to such Assignment and Acceptance,  shall
have  the  rights  and  obligations of a Lender  under  the  Loan
Documents, and (ii) the assignor Lender shall, to the extent that
rights  and  obligations  hereunder  and  under  the  other  Loan
Documents  have  been assigned by it pursuant to such  Assignment
and  Acceptance,  relinquish its rights (except with  respect  to
Section  11.3 hereof) and be released from its obligations  under
this  Agreement (and in the case of an Assignment and  Acceptance
covering  all  or the remaining portion of an assigning  Lender's
rights  and  obligations under this Agreement and the other  Loan
Documents,  such  Lender shall cease to be  a  party  hereto  and
thereto),  and  such assignment shall effect a  novation  between
Borrower and the Assignee.

               (c)  By executing and delivering an Assignment and
Acceptance,  the  assigning Lender thereunder  and  the  Assignee
thereunder  confirm to and agree with each other  and  the  other
parties  hereto as follows:  (1) other than as provided  in  such
Assignment  and  Acceptance,  such  assigning  Lender  makes   no
representation  or  warranty and assumes no  responsibility  with
respect to any statements, warranties or representations made  in
or  in connection with this Agreement or the execution, legality,
validity,  enforceability, genuineness, sufficiency or  value  of
this  Agreement  or  any other Loan Document  furnished  pursuant
hereto;  (2)  such  assigning Lender makes no  representation  or
warranty  and  assumes  no responsibility  with  respect  to  the
financial  condition of Borrower or the performance or observance
by Borrower of any of its obligations under this Agreement or any
other  Loan Document furnished pursuant hereto; (3) such Assignee
confirms  that it has received a copy of this Agreement, together
with  such  other  documents and information  as  it  has  deemed
appropriate to make its own credit analysis and decision to enter
into  such  Assignment and Acceptance; (4)  such  Assignee  will,
independently  and  without reliance upon Agent,  such  assigning
Lender  or  any  other Lender, and based on  such  documents  and
information as it shall deem appropriate at the time, continue to
make  its  own  credit decisions in taking or not  taking  action
under  this  Agreement; (5) such Assignee appoints and authorizes
Agent  to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to Agent by the
terms  hereof,  together  with  such  powers  as  are  reasonably
incidental  thereto; and (6) such Assignee agrees  that  it  will
perform  in  accordance with their terms all of  the  obligations
which by the terms of this Agreement are required to be performed
by it as a Lender.

                (d)  Immediately upon each Assignee's making  its
processing fee payment under the Assignment and Acceptance,  this
Agreement shall be deemed to be amended to the extent,  but  only
to  the extent, necessary to reflect the addition of the Assignee
and   the   resulting  adjustment  of  the  Commitments   arising
therefrom. The Commitment allocated to each Assignee shall reduce
such Commitments of the assigning Lender pro tanto.

                (e)  Any Lender may at any time, with the written
consent of Agent, sell to one or more commercial banks, financial
institutions, or other Persons not Affiliates of such  Lender  (a
"Participant")  participating interests in the  Obligations,  the
Commitment,  and the other rights and interests  of  that  Lender
(the  "originating Lender") hereunder and under  the  other  Loan
Documents  (provided that no written consent of  Agent  shall  be
required  in  connection with any sale of any such  participating
interests  by  a  Lender  to an Eligible  Transferee);  provided,
however, that (i) the originating Lender's obligations under this
Agreement  shall  remain unchanged, (ii) the  originating  Lender
shall  remain  solely  responsible for the  performance  of  such
obligations,  (iii)  Borrower and Agent shall  continue  to  deal
solely  and  directly with the originating Lender  in  connection
with  the originating Lender's rights and obligations under  this
Agreement  and  the other Loan Documents, (iv)  no  Lender  shall
transfer  or  grant any participating interest  under  which  the
Participant  has  the  sole and exclusive right  to  approve  any
amendment  to,  or  any consent or waiver with respect  to,  this
Agreement  or any other Loan Document, except to the extent  such
amendment to, or consent or waiver with respect to this Agreement
or of any other Loan Document would (A) extend the final maturity
date  of  the Obligations hereunder in which such Participant  is
participating;  (B) reduce the interest rate  applicable  to  the
Obligations hereunder in which such Participant is participating;
(C)  release  all  or  a material portion of  the  Collateral  or
guaranties (except to the extent expressly provided herein or  in
any  of  the Loan Documents) supporting the Obligations hereunder
in  which  such  Participant is participating; (D)  postpone  the
payment of, or reduce the amount of, the interest or fees payable
to such Participant through such Lender; or (E) change the amount
or  due dates of scheduled principal repayments or prepayments or
premiums; and (v) all amounts payable by Borrower hereunder shall
be  determined as if such Lender had not sold such participation;
except that, if amounts outstanding under this Agreement are  due
and  unpaid, or shall have been declared or shall have become due
and  payable  upon  the occurrence of an Event of  Default,  each
Participant  shall  be deemed to have the  right  of  set-off  in
respect of its participating interest in amounts owing under this
Agreement   to  the  same  extent  as  if  the  amount   of   its
participating  interest were owing directly to  it  as  a  Lender
under  this Agreement.  The rights of any Participant only  shall
be  derivative  through  the originating Lender  with  whom  such
Participant participates and no Participant shall have any direct
rights as to the other Lenders, Agent, Borrower, the Collections,
the  Collateral, or otherwise in respect of the Obligations.   No
Participant shall have the right to participate directly  in  the
making of decisions by the Lenders among themselves.

                (f)   In  connection with any such assignment  or
participation or proposed assignment or participation,  a  Lender
may  disclose  all  documents and information  which  it  now  or
hereafter may have relating to Borrower or Borrower's business.

                 (g)   Any  other  provision  in  this  Agreement
notwithstanding,  any Lender may at any time  create  a  security
interest  in,  or pledge, all or any portion of its rights  under
and  interest  in this Agreement in favor of any Federal  Reserve
Bank  in accordance with Regulation A of the Federal Reserve Bank
or  U.S.  Treasury  Regulation 31 CFR 203.14,  and  such  Federal
Reserve Bank may enforce such pledge or security interest in  any
manner permitted under applicable law.

           15.2  Successors.  This Agreement shall bind and inure
to  the benefit of the respective successors and assigns of  each
of  the  parties; provided, however, that Borrower may not assign
this  Agreement  or  any rights or duties hereunder  without  the
Lenders'  prior  written  consent and any  prohibited  assignment
shall be absolutely void ab initio.  No consent to assignment  by
the  Lenders  shall  release Borrower from  its  Obligations.   A
Lender may assign this Agreement and the other Loan Documents and
its  rights  and  duties  hereunder and  thereunder  pursuant  to
Section 15.1 hereof and, except as expressly required pursuant to
Section  15.1  hereof,  no  consent or approval  by  Borrower  is
required in connection with any such assignment.

     16.  AMENDMENTS; WAIVERS

          16.1 Amendments and Waivers.  No amendment or waiver of
any  provision of this Agreement or any other Loan Document,  and
no  consent  with respect to any departure by Borrower therefrom,
shall be effective unless the same shall be in writing and signed
by  the  Required Lenders (or by Agent at the written request  of
the  Required Lenders) and Borrower and then any such  waiver  or
consent shall be effective only in the specific instance and  for
the specific purpose for which given; provided, however, that  no
such  waiver, amendment, or consent shall, unless in writing  and
signed by all the Lenders and Borrower and acknowledged by Agent,
do any of the following:

                (a)   increase  or extend the Commitment  of  any
Lender;

                (b)   postpone  or delay any date fixed  by  this
Agreement  or  any  other  Loan  Document  for  any  payment   of
principal, interest, fees or other amounts due to the Lenders (or
any of them) hereunder or under any other Loan Document;

                (c)   reduce  the principal of, or  the  rate  of
interest  specified  herein on any Loan, or  any  fees  or  other
amounts payable hereunder or under any other Loan Document;

                (d)  change the percentage of the Commitments  or
Obligations, as the case may be, that is required for the Lenders
or any of them to take any action hereunder;

                (f)   amend this Section or any provision of  the
Agreement providing for consent or other action by all Lenders;

               (g)  release Collateral other than as permitted by
Section 17.11;

               (h)  change the definition of "Required Lenders";

                (i)   release  Borrower  or  Guarantor  from  any
Obligation for the payment of money; or

               (j)  amend any of the provisions of Article 17.

and,  provided  further, however, that no  amendment,  waiver  or
consent shall, unless in writing and signed by Agent, affect  the
rights or duties of Agent under this Agreement or any other  Loan
Document;  and,  provided further, however,  that  no  amendment,
waiver or consent shall, unless in writing and signed by Foothill
in  its  individual  capacity as a Lender,  affect  the  specific
rights  or  duties of Foothill in its individual  capacity  as  a
Lender  (as  contrasted with rights or duties of  Foothill  as  a
member  of  the Lender Group) under this Agreement or  any  other
Loan  Document.   The foregoing notwithstanding,  any  amendment,
modification, waiver, consent, termination, or release of or with
respect  to  any  provision of this Agreement or any  other  Loan
Document  that  relates only to the relationship  of  the  Lender
Group  among themselves, and that does not affect the  rights  or
obligations  of  Borrower, shall not require consent  by  or  the
agreement of Borrower.

           16.2  No Waivers; Cumulative Remedies.  No failure  by
Agent  or  any  Lender to exercise any right, remedy,  or  option
under this Agreement, any other Loan Document, or any present  or
future  supplement hereto or thereto, or in any  other  agreement
between  or among Borrower and Agent or any Lender, or  delay  by
Agent  or  any Lender in exercising the same, will operate  as  a
waiver  thereof.   No  waiver by Agent  or  any  Lender  will  be
effective  unless it is in writing, and then only to  the  extent
specifically  stated.  No waiver by Agent or the Lenders  on  any
occasion  shall  affect  or diminish Agent's  and  each  Lender's
rights  thereafter to require strict performance by  Borrower  of
any  provision  of  this Agreement.  Agent's  and  each  Lender's
rights under this Agreement and the other Loan Documents will  be
cumulative  and not exclusive of any other right or remedy  which
Agent or any Lender may have.

     17.  AGENT; THE LENDER GROUP.

           17.1  Appointment and Authorization  of  Agent.   Each
Lender hereby designates and appoints Foothill as its agent under
this  Agreement  and  the other Loan Documents  and  each  Lender
hereby  irrevocably authorizes Agent to take such action  on  its
behalf under the provisions of this Agreement and each other Loan
Document  and to exercise such powers and perform such duties  as
are  expressly delegated to it by the terms of this Agreement  or
any  other  Loan  Document, together  with  such  powers  as  are
reasonably  incidental thereto.  Agent agrees to act as  such  on
the  express  conditions  contained  in  this  Article  17.   The
provisions of this Article 17 are solely for the benefit of Agent
and  the  Lenders, and Borrower shall have no rights as  a  third
party  beneficiary  of  any of the provisions  contained  herein;
provided,  however,  that certain of the  provisions  of  Section
17.10  hereof  also shall be for the benefit  of  Borrower.   Any
provision  to the contrary contained elsewhere in this  Agreement
or  in  any other Loan Document notwithstanding, Agent shall  not
have  any duties or responsibilities, except those expressly  set
forth  herein,  nor  shall Agent have or be deemed  to  have  any
fiduciary relationship with any Lender, and no implied covenants,
functions,  responsibilities, duties, obligations or  liabilities
shall  be read into this Agreement or any other Loan Document  or
otherwise exist against Agent; it being expressly understood  and
agreed that the use of the word "Agent" is for convenience  only,
that  Foothill is merely the representative of the  Lenders,  and
has  only  the  contractual duties set forth herein.   Except  as
expressly otherwise provided in this Agreement, Agent shall  have
and  may  use  its sole discretion with respect to exercising  or
refraining from exercising any discretionary rights or taking  or
refraining  from  taking  any actions which  Agent  is  expressly
entitled  to  take or assert under or pursuant to this  Agreement
and the other Loan Documents.  Without limiting the generality of
the  foregoing,  or of any other provision of the Loan  Documents
that provides rights or powers to Agent, Lenders agree that Agent
shall have the right to exercise the following powers as long  as
this  Agreement remains in effect:  (a) maintain,  in  accordance
with  its  customary  business  practices,  ledgers  and  records
reflecting  the  status  of  the Advances,  the  Collateral,  the
Collections, and related matters; (b) execute or file any and all
financing or similar statements or notices, amendments, renewals,
supplements, documents, instruments, proofs of claim, notices and
other written agreements with respect to the Loan Documents;  (c)
make  Advances for itself or on behalf of Lenders as provided  in
the   Loan   Documents;  (d)  exclusively  receive,  apply,   and
distribute the Collections as provided in the Loan Documents; (e)
open  and  maintain such bank accounts and lock  boxes  as  Agent
deems  necessary  and  appropriate in accordance  with  the  Loan
Documents  for  the  foregoing  purposes  with  respect  to   the
Collateral  and  the  Collections;  (f)  perform,  exercise,  and
enforce any and all other rights and remedies of the Lender Group
with  respect  to Borrower, the Obligations, the Collateral,  the
Collections, or otherwise related to any of same as  provided  in
the  Loan  Documents;  and (g) incur and pay  such  Lender  Group
Expenses  as  Agent  may deem necessary or  appropriate  for  the
performance and fulfillment of its functions and powers  pursuant
to the Loan Documents.

            17.2  Delegation  of  Duties.   Except  as  otherwise
provided  in  this section, Agent may execute any of  its  duties
under  this  Agreement or any other Loan Document by  or  through
agents,  employees or attorneys-in-fact and shall be entitled  to
advice  of  counsel  concerning all matters  pertaining  to  such
duties.   Agent  shall not be responsible for the  negligence  or
misconduct  of any agent or attorney-in-fact that it  selects  as
long  as  such selection was made in compliance with this section
and without gross negligence or willful misconduct.

           17.3  Liability  of Agent.  None of the  Agent-Related
Persons shall (i) be liable for any action taken or omitted to be
taken  by  any of them under or in connection with this Agreement
or  any  other  Loan  Document or the  transactions  contemplated
hereby   (except  for  its  own  gross  negligence   or   willful
misconduct), or (ii) be responsible in any manner to any  of  the
Lenders  for  any recital, statement, representation or  warranty
made  by Borrower or any Subsidiary or Affiliate of Borrower,  or
any  officer or director thereof, contained in this Agreement  or
in  any  other  Loan  Document, or in  any  certificate,  report,
statement  or other document referred to or provided for  in,  or
received by Agent under or in connection with, this Agreement  or
any   other   Loan  Document,  or  the  validity,  effectiveness,
genuineness,  enforceability or sufficiency of this Agreement  or
any  other Loan Document, or for any failure of Borrower  or  any
other  party  to  any  Loan Document to perform  its  obligations
hereunder or thereunder.  No Agent-Related Person shall be  under
any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained  in,
or  conditions of, this Agreement or any other Loan Document,  or
to inspect the properties, books or records of Borrower or any of
Borrower's Subsidiaries or Affiliates.

           17.4  Reliance by Agent.  Agent shall be  entitled  to
rely,  and shall be fully protected in relying, upon any writing,
resolution,  notice,  consent,  certificate,  affidavit,  letter,
telegraph,  facsimile, telex or telephone message,  statement  or
other  document or conversation believed by it to be genuine  and
correct  and  to have been signed, sent, or made  by  the  proper
Person  or  Persons,  and  upon advice and  statements  of  legal
counsel (including counsel to Borrower or counsel to any Lender),
independent  accountants  and other experts  selected  by  Agent.
Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless  it
shall first receive such advice or concurrence of the Lenders  as
it  deems  appropriate and until such instructions are  received,
Agent  shall act, or refrain from acting, as it deems  advisable.
If  Agent  so  requests,  it shall first be  indemnified  to  its
reasonable satisfaction by Lenders against any and all  liability
and  expense  that may be incurred by it by reason of  taking  or
continuing to take any such action.  Agent shall in all cases  be
fully  protected in acting, or in refraining from  acting,  under
this  Agreement or any other Loan Document in accordance  with  a
request or consent of the Lenders and such request and any action
taken  or  failure to act pursuant thereto shall be binding  upon
all of the Lenders.

           17.5  Notice  of Default or Event of  Default.   Agent
shall not be deemed to have knowledge or notice of the occurrence
of  any  Default  or  Event of Default, except  with  respect  to
defaults  in  the  payment  of  principal,  interest,  fees,  and
expenses  required  to be paid to Agent for the  account  of  the
Lenders, except with respect to Events of Default of which  Agent
has  actual  knowledge, unless Agent shall have received  written
notice  from  a  Lender or Borrower referring to this  Agreement,
describing  such  Default or Event of Default, and  stating  that
such notice is a "notice of default."  Agent promptly will notify
the Lenders of its receipt of any such notice or of any Event  of
Default  of  which  Agent has actual knowledge.   If  any  Lender
obtains  actual  knowledge of any Event of Default,  such  Lender
promptly  shall notify the other Lenders and Agent of such  Event
of  Default.  Each Lender shall be solely responsible for  giving
any  notices  to  its Participants, if any.  Subject  to  Section
17.4,  Agent shall take such action with respect to such  Default
or  Event of Default as may be requested by the Required  Lenders
in  accordance with Section 9; provided, however, that unless and
until  Agent has received any such request, Agent may (but  shall
not  be  obligated to) take such action, or refrain  from  taking
such action, with respect to such Default or Event of Default  as
it shall deem advisable.

           17.6  Credit Decision.  Each Lender acknowledges  that
none of the Agent-Related Persons has made any representation  or
warranty  to  it,  and  that no act by Agent  hereinafter  taken,
including  any  review  of  the  affairs  of  Borrower  and   its
Subsidiaries  or  Affiliates, shall be deemed to  constitute  any
representation  or warranty by any Agent-Related  Person  to  any
Lender.    Each   Lender  represents  to  Agent  that   it   has,
independently and without reliance upon any Agent-Related  Person
and  based  on  such documents and information as it  has  deemed
appropriate, made its own appraisal of and investigation into the
business,  prospects, operations, property, financial  and  other
condition  and creditworthiness of Borrower and any other  Person
(other  than the Lender Group) party to a Loan Document, and  all
applicable  bank  regulatory laws relating  to  the  transactions
contemplated hereby, and made its own decision to enter into this
Agreement  and  to extend credit to Borrower.  Each  Lender  also
represents that it will, independently and without reliance  upon
any   Agent-Related  Person  and  based  on  such  documents  and
information as it shall deem appropriate at the time, continue to
make  its own credit analysis, appraisals and decisions in taking
or  not  taking  action under this Agreement and the  other  Loan
Documents, and to make such investigations as it deems  necessary
to  inform  itself  as  to  the business, prospects,  operations,
property,  financial and other condition and creditworthiness  of
Borrower and any other Person (other than the Lender Group) party
to  a  Loan  Document.   Except for notices,  reports  and  other
documents  expressly  herein required  to  be  furnished  to  the
Lenders by Agent, Agent shall not have any duty or responsibility
to  provide  any  Lender  with any credit  or  other  information
concerning   the   business,  prospects,  operations,   property,
financial and other condition or creditworthiness of Borrower and
any  other Person party to a Loan Document that may come into the
possession of any of the Agent-Related Persons.

           17.7  Costs and Expenses; Indemnification.  Agent  may
incur  and  pay Lender Group Expenses to the extent  Agent  deems
reasonably  necessary  or  appropriate for  the  performance  and
fulfillment of its functions, powers, and obligations pursuant to
the Loan Documents, including without limiting the generality  of
the   foregoing,  court  costs,  reasonable  attorneys  fees  and
expenses, costs of collection by outside collection agencies  and
auctioneer  fees  and  costs  of  security  guards  or  insurance
premiums paid to maintain the Collateral, whether or not Borrower
is  obligated  to  reimburse Agent or Lenders for  such  expenses
pursuant to the Loan Agreement or otherwise.  Agent is authorized
and  directed  to  deduct  and  retain  sufficient  amounts  from
Collections to reimburse Agent for such out-of-pocket  costs  and
expenses prior to the distribution of any amounts to Lenders.  In
the  event  Agent is not reimbursed for such costs  and  expenses
from  Collections, each Lender hereby agrees that it is and shall
be  obligated to pay to or reimburse Agent for the amount of such
Lender's Pro Rata Share thereof.  Whether or not the transactions
contemplated hereby are consummated, the Lenders shall  indemnify
upon  demand  the  Agent-Related  Persons  (to  the  extent   not
reimbursed  by or on behalf of Borrower and without limiting  the
obligation  of  Borrower to do so), according to their  Pro  Rata
Shares,  from  and  against any and all Indemnified  Liabilities;
provided, however, that no Lender shall be liable for the payment
to  the  Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross  negligence
or willful misconduct.  Without limitation of the foregoing, each
Lender shall reimburse Agent upon demand for its ratable share of
any costs or out-of-pocket expenses (including attorneys fees and
expenses)  incurred by Agent in connection with the  preparation,
execution,  delivery, administration, modification, amendment  or
enforcement  (whether through negotiations, legal proceedings  or
otherwise)  of,  or  legal  advice  in  respect  of   rights   or
responsibilities under, this Agreement, any other Loan  Document,
or  any  document contemplated by or referred to herein,  to  the
extent  that Agent is not reimbursed for such expenses by  or  on
behalf  of  Borrower.   The undertaking  in  this  section  shall
survive  the  payment  of  all  Obligations  hereunder  and   the
resignation or replacement of Agent.

           17.8  Agent in Individual Capacity.  Foothill and  its
Affiliates  may  make loans to, issue letters of credit  for  the
account of, accept deposits from, acquire equity interests in and
generally  engage  in  any  kind  of  banking,  trust,  financial
advisory,  underwriting or other business with Borrower  and  its
Subsidiaries and Affiliates and any other Person (other than  the
Lender Group) party to any Loan Documents as though Foothill were
not  Agent  hereunder and without notice to  or  consent  of  the
Lenders.   The  Lenders  acknowledge  that,  pursuant   to   such
activities,  Foothill or its Affiliates may  receive  information
regarding Borrower or its Affiliates and any other Person  (other
than  the  Lender  Group)  party to any Loan  Documents  that  is
subject  to  confidentiality obligations in favor of Borrower  or
such  other  Person  and  that prohibit the  disclosure  of  such
information to the Lenders, and the Lenders acknowledge that,  in
such  circumstances  (and in the absence  of  a  waiver  of  such
confidentiality  obligations, which waiver  Agent  will  use  its
reasonable  best  efforts to obtain), Agent  shall  be  under  no
obligation to provide such information to them.  With respect  to
the  Foothill Loans and Agent Advances, Foothill shall  have  the
same  rights and powers under this Agreement as any other  Lender
and  may  exercise the same as though it were not Agent, and  the
terms  "Lender" and "Lenders" include Foothill in its  individual
capacity.

           17.9 Successor Agent.  Agent may resign as Agent  upon
45  days  notice  to  the Lenders.  If Agent resigns  under  this
Agreement,  the Required Lenders shall appoint a successor  Agent
for the Lenders.  If no successor Agent is appointed prior to the
effective date of the resignation of Agent, Agent shall  appoint,
after  consulting with the Lenders, a successor  Agent  and  such
appointed  successor  Agent shall be  deemed  acceptable  to  the
Lenders.   If Agent has materially breached or failed to  perform
any  material  provision of this Agreement or of applicable  law,
the  Required Lenders may agree in writing to remove and  replace
Agent with a successor Agent from among the Lenders.  In any such
event, upon the acceptance of its appointment as successor  Agent
hereunder, such successor Agent shall succeed to all the  rights,
powers  and  duties of the retiring Agent and  the  term  "Agent"
shall   mean  such  successor  Agent  and  the  retiring  Agent's
appointment,  powers  and duties as Agent  shall  be  terminated.
After  any  retiring Agent's resignation hereunder as Agent,  the
provisions  of this Section 17 shall inure to its benefit  as  to
any actions taken or omitted to be taken by it while it was Agent
under  this  Agreement.   If  no  successor  Agent  has  accepted
appointment  as  Agent by the date which is 45 days  following  a
retiring  Agent's  notice of resignation,  the  retiring  Agent's
resignation shall nevertheless thereupon become effective and the
Lenders shall perform all of the duties of Agent hereunder  until
such  time, if any, as the Lenders appoint a successor  Agent  as
provided for above.

          17.10     Withholding Tax.

                (a)   If  any  Lender is a "foreign  corporation,
partnership  or  trust" within the meaning of the  IRC  and  such
Lender claims exemption from, or a reduction of, U.S. withholding
tax  under  Sections 1441 or 1442 of the IRC, such Lender  agrees
with and in favor of Agent and Borrower, to deliver to Agent  and
Borrower:

                    (i)  if such Lender claims an exemption from,
or  a  reduction  of, withholding tax under a United  States  tax
treaty,  properly  completed IRS Forms 1001 and  W-8  before  the
payment of any interest in the first calendar year and before the
payment  of  any interest in each third succeeding calendar  year
during which interest may be paid under this Agreement;

                    (ii) if such Lender claims that interest paid
under this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade or
business  of  such  Lender, two properly completed  and  executed
copies of IRS Form 4224 before the payment of any interest is due
in  the  first taxable year of such Lender and in each succeeding
taxable  year of such Lender during which interest  may  be  paid
under this Agreement, and IRS Form W-9; and

                     (iii)     such other form or forms as may be
required  under the IRC or other laws of the United States  as  a
condition  to  exemption  from, or reduction  of,  United  States
withholding tax.

Such  Lender agrees promptly to notify Agent and Borrower of  any
change in circumstances which would modify or render invalid  any
claimed exemption or reduction.

                (b)   If  any  Lender claims exemption  from,  or
reduction of, withholding tax under a United States tax treaty by
providing IRS Form 1001 and such Lender sells, assigns, grants  a
participation  in,  or otherwise transfers all  or  part  of  the
Obligations  of  Borrower to such Lender, such Lender  agrees  to
notify  Agent of the percentage amount in which it is  no  longer
the  beneficial owner of Obligations of Borrower to such  Lender.
To  the  extent of such percentage amount, Agent will treat  such
Lender's IRS Form 1001 as no longer valid.

                (c)  If any Lender claiming exemption from United
States  withholding tax by filing IRS Form 4224 with Agent sells,
assigns, grants a participation in, or otherwise transfers all or
part  of the Obligations of Borrower to such Lender, such  Lender
agrees  to undertake sole responsibility for complying  with  the
withholding tax requirements imposed by Sections 1441 and 1442 of
the IRC.

                (d)  If any Lender is entitled to a reduction  in
the  applicable  withholding tax, Agent  may  withhold  from  any
interest  payment  to  such Lender an amount  equivalent  to  the
applicable  withholding  tax  after  taking  into  account   such
reduction.   If  the  forms  or other documentation  required  by
subsection  (a) of this Section are not delivered to Agent,  then
Agent  may withhold from any interest payment to such Lender  not
providing  such forms or other documentation an amount equivalent
to the applicable withholding tax.

                 (e)   If  the  IRS  or  any  other  Governmental
Authority  of the United States or other jurisdiction  asserts  a
claim that Agent did not properly withhold tax from amounts  paid
to or for the account of any Lender (because the appropriate form
was  not  delivered, was not properly executed, or  because  such
Lender failed to notify Agent of a change in circumstances  which
rendered  the  exemption from, or reduction of,  withholding  tax
ineffective, or for any other reason) such Lender shall indemnify
Agent  fully  for  all amounts paid, directly or  indirectly,  by
Agent as tax or otherwise, including penalties and interest,  and
including  any taxes imposed by any jurisdiction on  the  amounts
payable to Agent under this Section, together with all costs  and
expenses (including attorneys fees and expenses).  The obligation
of the Lenders under this subsection shall survive the payment of
all Obligations and the resignation or replacement of Agent.

          17.11     Collateral Matters.

                (a)   The  Lenders  hereby irrevocably  authorize
Agent,  at its option and in its sole discretion, to release  any
Lien   on  any  Collateral  (i)  upon  the  termination  of   the
Commitments  and payment and satisfaction in full by Borrower  of
all  Obligations;  (ii)  constituting  property  being  sold   or
disposed  of if a release is required or desirable in  connection
therewith  and if Borrower certifies to Agent that  the  sale  or
disposition  is permitted under Section 7.4 of this Agreement  or
the  other Loan Documents (and Agent may rely conclusively on any
such  certificate,  without further inquiry); (iii)  constituting
property  in  which Borrower owned no interest at  the  time  the
security interest was granted or at any time thereafter; or  (iv)
constituting property leased to Borrower under a lease  that  has
expired  or  is terminated in a transaction permitted under  this
Agreement.  Except as provided above, Agent will not execute  and
deliver a release of any Lien on any Collateral without the prior
written  authorization  of  (y) if  the  release  is  of  all  or
substantially  all of the Collateral, of all of the  Lenders,  or
(z)  otherwise,  all of the Lenders.  Upon request  by  Agent  or
Borrower at any time, the Lenders will confirm in writing Agent's
authority to release any such Liens on particular types or  items
of  Collateral pursuant to this Section 17.11; provided, however,
that  (1)  Agent  shall not be required to execute  any  document
necessary  to  evidence such release on terms  that,  in  Agent's
opinion, would expose Agent to liability or create any obligation
or  entail  any consequence other than the release of  such  Lien
without  recourse,  representation, or  warranty,  and  (2)  such
release shall not in any manner discharge, affect, or impair  the
Obligations  or  any  Liens  (other than  those  expressly  being
released)  upon  (or obligations of Borrower in respect  of)  all
interests  retained by Borrower, including, the proceeds  of  any
sale,  all  of  which shall continue to constitute  part  of  the
Collateral.

                (c)  Agent shall have no obligation whatsoever to
any  of  the Lenders to assure that the Collateral exists  or  is
owned  by Borrower or is cared for, protected, or insured or  has
been encumbered, or that the Agent's Liens have been properly  or
sufficiently  or  lawfully  created,  perfected,  protected,   or
enforced  or  are  entitled  to any particular  priority,  or  to
exercise at all or in any particular manner or under any duty  of
care,  disclosure or fidelity, or to continue exercising, any  of
the  rights, authorities and powers granted or available to Agent
pursuant  to  any of the Loan Documents, it being understood  and
agreed that in respect of the Collateral, or any act, omission or
event  related  thereto,  subject to  the  terms  and  conditions
contained  herein,  Agent  may act in  any  manner  it  may  deem
appropriate, in its sole discretion given Agent's own interest in
the  Collateral  in its capacity as one of the Lenders  and  that
Agent  shall  have no other duty or liability whatsoever  to  any
Lender  as to any of the foregoing, except as otherwise  provided
herein.

           17.12      Restrictions on Actions by Lenders; Sharing
of Payments.

               (a)  Each of the Lenders agrees that it shall not,
without the express consent of Agent, and that it shall,  to  the
extent  it  is  lawfully entitled to do so, upon the  request  of
Agent, set off against the Obligations, any amounts owing by such
Lender  to  Borrower or any accounts of Borrower now or hereafter
maintained with such Lender.  Each of the Lenders further  agrees
that  it  shall not, unless specifically requested to  do  so  by
Agent,  take  or  cause  to be taken any action,  including,  the
commencement of any legal or equitable proceedings, to  foreclose
any  Lien on, or otherwise enforce any security interest in,  any
of  the Collateral the purpose of which is, or could be, to  give
such  Lender any preference or priority against the other Lenders
with respect to the Collateral.

                (b)  Subject to Section 17.8, if, at any time  or
times  any  Lender  shall  receive (i) by  payment,  foreclosure,
setoff  or otherwise, any proceeds of Collateral or any  payments
with  respect  to the Obligations arising under, or relating  to,
this  Agreement or the other Loan Documents, except for any  such
proceeds  or payments received by such Lender from Agent pursuant
to  the  terms of this Agreement, or (ii) payments from Agent  in
excess of such Lender's ratable portion of all such distributions
by  Agent, such Lender promptly shall (1) turn the same  over  to
Agent, in kind, and with such endorsements as may be required  to
negotiate the same to Agent, or in same day funds, as applicable,
for  the account of all of the Lenders and for application to the
Obligations in accordance with the applicable provisions of  this
Agreement,  or  (2) purchase, without recourse  or  warranty,  an
undivided interest and participation in the Obligations  owed  to
the  other Lenders so that such excess payment received shall  be
applied ratably as among the Lenders in accordance with their Pro
Rata  Shares;  provided, however, that if all  or  part  of  such
excess  payment  received by the purchasing party  is  thereafter
recovered  from  it, those purchases of participations  shall  be
rescinded  in whole or in part, as applicable, and the applicable
portion of the purchase price paid therefor shall be returned  to
such  purchasing party, but without interest except to the extent
that  such  purchasing  party  is required  to  pay  interest  in
connection with the recovery of the excess payment.

          17.13     Agency for Perfection.  Agent and each Lender
hereby  appoints each other Lender as agent for  the  purpose  of
perfecting the Agent's Liens in assets which, in accordance  with
Article 9 of the UCC can be perfected only by possession.  Should
any  Lender obtain possession of any such Collateral, such Lender
shall  notify  Agent thereof, and, promptly upon Agent's  request
therefor  shall deliver such Collateral to Agent or in accordance
with Agent's instructions.

           17.14      Payments  by  Agent to  the  Lenders.   All
payments to be made by Agent to the Lenders shall be made by bank
wire transfer or internal transfer of immediately available funds
to:

               If to Foothill:          The Chase Manhattan Bank
                              New York, New York
                              ABA # 021-000-021
                                 Credit:      Foothill    Capital
               Corporation
                              Account No. 323-266193
                              Re:  Southwest Royalties, Inc.

               If to Foothill
               Income Trust, L.P.: The Chase Manhattan Bank
                              New York, New York
                              ABA # 021-000-021
                               Credit:    Foothill Income  Trust,
               L.P.
                              Account No. 323-008062
                              Re:  Southwest Royalties, Inc.

or  pursuant  to  such other wire transfer instructions  as  each
party  may  designate  for  itself by written  notice  to  Agent.
Concurrently with each such payment, Agent shall identify whether
such  payment  (or  any  portion thereof)  represents  principal,
premium or interest on revolving advances or otherwise.

           17.15      Concerning the Collateral and Related  Loan
Documents.   Each  member  of  the Lender  Group  authorizes  and
directs  Agent  to enter into this Agreement and the  other  Loan
Documents  relating  to the Collateral, for the  benefit  of  the
Lender  Group.  Each member of the Lender Group agrees  that  any
action  taken  by  Agent  or  all  Lenders,  as  applicable,   in
accordance  with the terms of this Agreement or  the  other  Loan
Documents relating to the Collateral and the exercise by Agent or
all  Lenders, as applicable, of their respective powers set forth
therein  or  herein,  together with such other  powers  that  are
reasonably incidental thereto, shall be binding upon all  of  the
Lenders.

            17.16       Field  Audits  and  Examination  Reports;
Confidentiality;  Disclaimers  by  Lenders;  Other  Reports   and
Information.  By signing this Agreement, each Lender:

                (a)   is  deemed  to  have requested  that  Agent
furnish such Lender, promptly after it becomes available, a  copy
of  each  field audit or examination report (each a "Report"  and
collectively,  "Reports") prepared by Agent, and Agent  shall  so
furnish each Lender with such Reports;

                 (b)   expressly  agrees  and  acknowledges  that
neither  Foothill  nor  Agent  (i) makes  any  representation  or
warranty  as  to  the accuracy of any Report, or  (ii)  shall  be
liable for any information contained in any Report;

                (c)   expressly agrees and acknowledges that  the
Reports are not comprehensive audits or examinations, that  Agent
or  other party performing any audit or examination will  inspect
only  specific  information  regarding  Borrower  and  will  rely
significantly upon Borrower's books and records, as  well  as  on
representations of Borrower's personnel;

                 (d)   agrees  to  keep  all  Reports  and  other
material,  non-public  information  regarding  Borrower  and  its
Subsidiaries  and  their  operations, assets,  and  existing  and
contemplated  business plans in a confidential manner;  it  being
understood  and agreed by Borrower that in any event such  Lender
may  make  disclosures  (a) to counsel for  and  other  advisors,
accountants, and auditors to such Lender, (b) reasonably required
by  any  bona  fide potential or actual Assignee, transferee,  or
Participant  in  connection  with  any  contemplated  or   actual
assignment  or transfer by such Lender of an interest  herein  or
any participation interest in such Lender's rights hereunder, (c)
of  information  that  has become public by disclosures  made  by
Persons  other  than  such  Lender,  its  Affiliates,  assignees,
transferees, or participants, or (d) as required or requested  by
any court, governmental or administrative agency, pursuant to any
subpoena  or  other  legal  process,  or  by  any  law,  statute,
regulation,  or  court  order; provided,  however,  that,  unless
prohibited  by  applicable  law, statute,  regulation,  or  court
order,  such Lender shall notify Borrower of any request  by  any
court, governmental or administrative agency, or pursuant to  any
subpoena  or other legal process for disclosure of any such  non-
public   material   information   concurrent   with,   or   where
practicable, prior to the disclosure thereof; and

                (e)  without limiting the generality of any other
indemnification  provision contained in this  Agreement,  agrees:
(i)  to  hold Agent and any such other Lender preparing a  Report
harmless  from  any action the indemnifying Lender  may  take  or
conclusion  the indemnifying Lender may reach or  draw  from  any
Report   in   connection   with  any  loans   or   other   credit
accommodations that the indemnifying Lender has made or may  make
to  Borrower, or the indemnifying Lender's participation  in,  or
the  indemnifying  Lender's purchase  of,  a  loan  or  loans  of
Borrower; and (ii) to pay and protect, and indemnify, defend  and
hold  Agent and any such other Lender preparing a Report harmless
from  and  against,  the  claims, actions, proceedings,  damages,
costs,  expenses  and other amounts (including,  attorney  costs)
incurred by Agent and any such other Lender preparing a Report as
the  direct  or  indirect result of any third parties  who  might
obtain all or part of any Report through the indemnifying Lender.

In  addition to the foregoing:  (x) Any Lender may from  time  to
time  request  of  Agent in writing that Agent  provide  to  such
Lender  a copy of any report or document provided by Borrower  to
Agent that has not been contemporaneously provided by Borrower to
such  Lender,  and,  upon receipt of such  request,  Agent  shall
provide  a  copy  of  same to such Lender promptly  upon  receipt
thereof  from Borrower; (y) To the extent that Agent is entitled,
under  any provision of the Loan Documents, to request additional
reports  or information from Borrower, any Lender may, from  time
to  time,  reasonably  request Agent to exercise  such  right  as
specified  in  such  Lender's notice to  Agent,  whereupon  Agent
promptly  shall  request of Borrower the  additional  reports  or
information  specified by such Lender, and, upon receipt  thereof
from  Borrower, Agent promptly shall provide a copy  of  same  to
such  Lender; and (z) Any time that Agent renders to  Borrower  a
statement regarding the Loan Account, Agent shall send a copy  of
such statement to each Lender.

             17.17       Several   Obligations;   No   Liability.
Notwithstanding  that  certain  of  the  Loan  Documents  now  or
hereafter may have been or will be executed only by or  in  favor
of  Agent in its capacity as such, and not by or in favor of  the
Lenders, any and all obligations on the part of Agent (if any) to
make  any credit available hereunder shall constitute the several
(and  not  joint)  obligations of the  respective  Lenders  on  a
ratable basis, according to their respective Commitments, to make
an  amount of such credit not to exceed, in principal amount,  at
any   one  time  outstanding,  the  amount  of  their  respective
Commitments.   Nothing  contained herein shall  confer  upon  any
Lender  any  interest in, or subject any Lender to any  liability
for, or in respect of, the business, assets, profits, losses,  or
liabilities  of  any other Lender.  Each Lender shall  be  solely
responsible  for  notifying  its  Participants  of  any   matters
relating to the Loan Documents to the extent any such notice  may
be  required, and no Lender shall have any obligation,  duty,  or
liability  to  any  Participant of any other Lender.   Except  as
provided  in  Section 17.7, no member of the Lender  Group  shall
have any liability for the acts or any other member of the Lender
Group.   No Lender shall be responsible to Borrower or any  other
Person  for  any  failure  by any other  Lender  to  fulfill  its
obligations  to make credit available hereunder, nor  to  advance
for it or on its behalf in connection with its Commitment, nor to
take  any  other action on its behalf hereunder or in  connection
with the financing contemplated herein.

     18.  GENERAL PROVISIONS.

           18.1  Effectiveness.  This Agreement shall be  binding
and deemed effective when executed by Borrower and each member of
the Lender Group whose signature is provided for on the signature
pages hereof.

           18.2 Section Headings.  Headings and numbers have been
set  forth  herein for convenience only.  Unless the contrary  is
compelled  by  the context, everything contained in each  section
applies equally to this entire Agreement.

           18.3  Interpretation.  Neither this Agreement nor  any
uncertainty  or ambiguity herein shall be construed  or  resolved
against  the Lender Group or Borrower, whether under any rule  of
construction  or otherwise.  On the contrary, this Agreement  has
been  reviewed  by  all  parties  and  shall  be  construed   and
interpreted according to the ordinary meaning of the  words  used
so  as  to fairly accomplish the purposes and intentions  of  all
parties hereto.

           18.4  Severability of Provisions.  Each  provision  of
this  Agreement shall be severable from every other provision  of
this   Agreement  for  the  purpose  of  determining  the   legal
enforceability of any specific provision.

          18.5 Amendments in Writing.  This Agreement can only be
amended by a writing signed by Agent, the requisite Lenders,  and
Borrower.

            18.6  Counterparts;  Telefacsimile  Execution.   This
Agreement  may be executed in any number of counterparts  and  by
different  parties on separate counterparts, each of which,  when
executed  and  delivered, shall be deemed to be an original,  and
all  of which, when taken together, shall constitute but one  and
the  same Agreement.  Delivery of an executed counterpart of this
Agreement  by  telefacsimile shall be  equally  as  effective  as
delivery  of an original executed counterpart of this  Agreement.
Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart
of this Agreement but the failure to deliver an original executed
counterpart  shall  not affect the validity, enforceability,  and
binding  effect of this Agreement.  The forgoing shall  apply  to
each other Loan Document mutatis mutandis.

           18.7 Revival and Reinstatement of Obligations.  If the
incurrence  or  payment of the Obligations  by  Borrower  or  any
guarantor of the Obligations or the transfer by either or both of
such  parties  to the Lender Group of any property of  either  or
both  of  such  parties  should for any  reason  subsequently  be
declared  to  be void or voidable under any state or federal  law
relating  to  creditors'  rights,  including  provisions  of  the
Bankruptcy  Code relating to fraudulent conveyances, preferences,
and  other voidable or recoverable payments of money or transfers
of  property (collectively, a "Voidable Transfer"),  and  if  the
Lender  Group  is required to repay or restore, in  whole  or  in
part,  any  such Voidable Transfer, or elects to do so  upon  the
reasonable  advice of its counsel, then, as to any such  Voidable
Transfer, or the amount thereof that the Lender Group is required
or  elects  to repay or restore, and as to all reasonable  costs,
expenses, and attorneys fees of the Lender Group related thereto,
the  liability of Borrower or such guarantor automatically  shall
be  revived, reinstated, and restored and shall exist  as  though
such Voidable Transfer had never been made.

           18.8  Integration. THIS AGREEMENT AND THE  OTHER  LOAN
DOCUMENTS  REPRESENT THE ENTIRE UNDERSTANDING AND FINAL AGREEMENT
AMONG  THE  PARTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
HEREBY  AND  THEREBY,  AND THE SAME MAY NOT  BE  CONTRADICTED  OR
QUALIFIED  BY  EVIDENCE  OF  PRIOR, ORAL  OR  WRITTEN  AGREEMENTS
BETWEEN  OR  AMONG THE PARTIES OR CONTEMPORANEOUS  OR  SUBSEQUENT
ORAL  AGREEMENTS  BETWEEN OR AMONG THE  PARTIES.   THERE  ARE  NO
UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES.

            18.9   Amendment  and  Restatement;  Release.    This
Agreement  and  the  obligations of  Borrower  set  forth  herein
constitute an amendment, modification and restatement, but not an
extinguishment  or  novation,  of  obligations  of  the  Borrower
originally  owed to the Prior Lenders and/or the predecessors  in
interest  to Prior Lenders (the "Prior Obligations"),  the  Prior
Lenders  having assigned all of such Prior Obligations  (together
with all Liens and security documents securing the same) to Agent
and  the  Lender  Group pursuant to the Prior  Lender  Assignment
Agreements.  This Agreement and the other Loan Documents are  not
intended as, and shall not be construed as, a release, impairment
or  novation  of the Prior Obligations or the other indebtedness,
liabilities and obligations of Borrower or any of the other  Loan
Parties  under the agreements, documents and instruments executed
in  connection therewith or relating thereto or the Liens granted
therein,  all  of which Liens are hereby modified  and  affirmed.
BORROWER  AND  EACH  OTHER  LOAN  PARTY  HEREBY  VOLUNTARILY  AND
KNOWINGLY  RELEASE AND FOREVER DISCHARGE AGENT AND  EACH  OF  THE
LENDERS,   ITS   PREDECESSORS,  AGENTS,   EMPLOYEES,   ATTORNEYS,
SUCCESSORS  AND  ASSIGNS,  FROM  ALL  POSSIBLE  CLAIMS,  DEMANDS,
ACTIONS,   CAUSES  OF  ACTION,  DAMAGES,  COSTS,  EXPENSES,   AND
LIABILITIES   WHATSOEVER,  KNOWN  OR  UNKNOWN,   ANTICIPATED   OR
UNANTICIPATED,  SUSPECTED OR UNSUSPECTED, FIXED,  CONTINGENT,  OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON  OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH BORROWER
AND  SUCH  OTHER LOAN PARTIES, INDIVIDUALLY OR COLLECTIVELY,  MAY
NOW  OR  HEREAFTER  HAVE AGAINST AGENT, ANY OF THE  LENDERS,  ITS
PREDECESSORS,   AGENTS,  EMPLOYEES,  ATTORNEYS,  SUCCESSORS   AND
ASSIGNS,  IF  ANY, AND IRRESPECTIVE OF WHETHER  ANY  SUCH  CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS,  OR
OTHERWISE,  AND ARISING FROM ANY ADVANCES, LETTERS OF  CREDIT  OR
OTHER   INDEBTEDNESS,   INCLUDING,   WITHOUT   LIMITATION,    ANY
CONTRACTING  FOR,  CHARGING,  TAKING,  RESERVING,  COLLECTING  OR
RECEIVING   INTEREST  IN  EXCESS  OF  THE  HIGHEST  LAWFUL   RATE
APPLICABLE,  THE  EXERCISE OF ANY RIGHTS AND REMEDIES  UNDER  THE
AGREEMENT OR OTHER TRANSACTION DOCUMENTS, AND NEGOTIATION FOR AND
EXECUTION OF THIS AGREEMENT.

           18.10.     Borrower's  Waiver of  Rights  Under  Texas
Deceptive Trade Practices Act.  BORROWER HEREBY WAIVES ITS RIGHTS
UNDER  THE  DECEPTIVE  TRADE PRACTICES-CONSUMER  PROTECTION  ACT,
SECTION 17.41 ET SEQ. TEXAS BUSINESS & COMMERCE CODE, A LAW  THAT
GIVES   CONSUMERS   SPECIAL  RIGHTS   AND   PROTECTIONS.    AFTER
CONSULTATION  WITH  AN  ATTORNEY  OF  BORROWER'S  OWN  SELECTION,
BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER.  BORROWER EXPRESSLY
WARRANTS   AND  REPRESENTS  THAT  BORROWER  (A)  IS  NOT   IN   A
SIGNIFICANTLY  DISPARATE BARGAINING POSITION  RELATIVE  TO  AGENT
AND/OR  ANY LENDER, AND (B) HAS BEEN REPRESENTED BY LEGAL COUNSEL
IN   CONNECTION  WITH  THE  TRANSACTIONS  CONTEMPLATED  BY   THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.

[Remainder of Page Intentionally Blank; Signature Pages Follow.]
          IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed.

                         BORROWER:


SOUTHWEST ROYALTIES, INC.
                                        a Delaware corporation


By /s/ Bill E. Coggin
                         Title: Vice President


                         AGENT:

                                        FOOTHILL CAPITAL
                    CORPORATION,
                                        a California corporation,
                    as Agent for the Lenders


By:/s/ Scott D. Ryan
                         Title: Vice President


                         LENDER:

                                        FOOTHILL CAPITAL
                    CORPORATION,
                                        a California corporation,
                    as a Lender


By: /s/ Scott D. Ryan
                         Title: Vice President


                                        FOOTHILL INCOME TRUST,
                    L.P.,
                                        a Delaware limited
                    partnership

                                        By:  FIT GP, LLC, a
                    Delaware limited liability
                                             company, its general
                    partner


                                             By: /s/ Dennis R.
                    Ascher
                                             Title:    Managing
                    Member



                          SCHEDULE C-1

                               TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
  SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
     FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS

                           COMMITMENTS



       Name of Lender                       Commitment


       Foothill Capital                     $30,000,000
       Corporation

       Foothill Income Trust, L.P.          $20,000,000

                          SCHEDULE 6.12
                               TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
  SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
     FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS

              LOCATIONS OF INVENTORY AND EQUIPMENT



               State                         Counties

               Alabama                  All
               Delaware                 All
               Kansas                        All
               Louisiana                All
               Montana                  All
               New Mexico                    All
               North Dakota                  All
               Oklahoma                 All
               Texas                         All
               Wyoming                  All


                           EXHIBIT B-1
                               TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
  SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
     FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS

  MORTGAGES, OPINIONS, CERTIFICATES AND CERTAIN OTHER REQUIRED
                      ITEMS AND INFORMATION

1.   Agent has received each of the following documents, in  form
     and  substance  satisfactory to Agent,  duly  executed  (and
     acknowledged,  as  the case may be) by  the  Borrowing  Base
     Entity  that  is  the owner thereof and all other  necessary
     parties  and  all  formalities contemplated thereunder  have
     been  completed,  and each such document shall  be  in  full
     force and effect and shall have been recorded in each office
     required by Agent:

     (a)  Oil and Gas Property Mortgages, dated as of the Closing
          Date,  covering the Applicable Oil and Gas Property  on
          which  the Proved Reserves are located (the "Applicable
          Oil and Gas Property");

     (b)  Copies  of  the  governmental  permits,  approvals  and
          orders  for each well and each unit pertaining  to  the
          Applicable Oil and Gas Property;

     (c)  Transfer  Order Letters for each well on the Applicable
          Oil and Gas Property;

     (d)  Assignments in form and substance acceptable  to  Agent
          of  each Material Contract pertaining to the Applicable
          Oil  and  Gas  Property which either  (i)  affects  any
          Borrowing  Base  Entity's title to  such  Oil  and  Gas
          Property  or  otherwise  affects  the  value,  use   or
          operation of such Oil and Gas Property in any  material
          respect   or  (ii)  creates  or  evidences  a  material
          obligation or liability on the part of Borrower or  any
          or  its Subsidiaries, together with copies of each such
          Material Contract.

2.   Agent has received a certificate of insurance, together with
     the  endorsements thereto with respect to the Applicable Oil
     and   Gas   Property  and  the  insurable  risks  associated
     therewith as described in Section 6.10, with Agent  for  the
     benefit  of  the  Lender Group being named thereon  as  loss
     payee  and additional insured, all in form and substance  of
     which shall be satisfactory to Agent and its counsel.

3.   Agent has received copies of all Material Contracts relating
     to  the  Applicable Oil and Gas Property, and such contracts
     shall be in form and substance satisfactory to Agent.

4.   Agent has received an opinion of Borrower's counsel covering
     the  Oil  and Gas Property Mortgages covering the Applicable
     Oil   and  Gas  Property  and  matters  pertaining  thereto,
     including  the  due  execution, delivery and  enforceability
     thereof,  and  creation  of lien  thereunder,  in  form  and
     substance satisfactory to Agent in its sole discretion.

5.   Agent has received (i) appraisals of the Applicable Oil  and
     Gas  Property  in  the form of Reserve Reports  prepared  by
     Borrower and audited by Ryder Scott Company, Pollard Gore  &
     Harrison  or another firm of independent petroleum engineers
     selected by Borrower and acceptable to Agent (including, but
     not  limited  to, appraisals, verifications and  liquidation
     analyses  of  the  Proved  Reserves thereof  categorized  by
     "Proved Developed Producing Reserves," "Proved Developed Non-
     Producing  Reserves,"  "Proved  Undeveloped  Reserves,"  and
     other),  in each case satisfactory to Agent, and (ii)  title
     opinions  for the Applicable Oil and Gas Property issued  to
     Agent for the benefit of the Lender Group by a legal counsel
     to  Borrower that is experienced in the examination of title
     to  the  Applicable Oil and Gas Property and is satisfactory
     to  Agent, each of which title opinions shall be in form and
     substance satisfactory to Agent and:

     (A)  have been updated within 15 days after the date of  the
          filing  of the Applicable Oil and Gas Property Mortgage
          to  confirm  the  priority of the Lien created  by  the
          Applicable Oil and Gas Property Mortgage, and

     (B)  opine as to such matters incident to the Applicable Oil
          and  Gas  Property  as  Agent  may  reasonably  request
          including  the  following with respect to  the  Mineral
          Interests in the Applicable Oil and Gas Property:

          (I)  The  Borrowing  Base Entity that  is  the  grantor
               under the Applicable Oil and Gas Property Mortgage
               covering  the  Applicable Oil and  Gas  Properties
               (the  "Applicable  Borrowing  Base  Entity")   has
               Defensible Title to such Oil and Gas Properties to
               the  extent of the Mineral Interests as  specified
               therein,  free and clear of all Liens and  defects
               except Permitted Liens.

          (II) The  Applicable Borrowing Base Entity is  entitled
               to  receive, after giving effect to all royalties,
               overriding royalties and other burdens payable out
               of production, a decimal share of all Hydrocarbons
               produced   and  sold  from  such   Oil   and   Gas
               Properties, before and after payout, not less than
               set forth in the opinion.

          (III)           The operating interest in such Oil  and
               Gas  Properties  of the Applicable Borrowing  Base
               Entity,  is not obligated to bear a decimal  share
               of  all  costs  and  expenses from  the  operation
               thereof in excess of that set forth therein.

          (IV) The  Liens  created by the Oil  and  Gas  Property
               Mortgage  are valid and enforceable first priority
               mortgage Liens which are first in right and  prior
               in  time  and superior to all other Liens  against
               such  Mineral  Interests and  other  Oil  and  Gas
               Properties other than Permitted Liens.

6.   Borrower  has  delivered to Agent evidence  satisfactory  to
     Agent confirming that each of the producing wells located on
     the  Applicable Oil and Gas Property is (i) covered  by  the
     title   opinions   required   under   the   Agreement    and
     (ii) described in the legal description contained in an  Oil
     and  Gas Property Mortgage which has been duly executed  and
     delivered to Agent.

7.   If reasonably requested by Agent, Agent has received a phase-
     I  environmental report with respect to the  Applicable  Oil
     and  Gas  Property, and the environmental  consultants,  the
     scope  of  the  reports or surveys, and the results  thereof
     shall  be  reasonably  acceptable  to  Agent  in  its   sole
     discretion.

8.   Agent  has  received  all financing statements  and  fixture
     filings  required by Agent, duly executed by each  Borrowing
     Base Entity that is the owner of the Applicable Oil and  Gas
     Property and all other necessary parties and all formalities
     contemplated thereunder have been completed, and Agent shall
     have received searches of all recording offices requested by
     Agent reflecting the filing of all such financing statements
     and  fixture filings, together with searches of  such  other
     offices  as  Agent  may require, each dated  as  of  a  date
     acceptable to Agent.

9.   Borrower  has  delivered  to  Agent  additional  information
     concerning the Applicable Oil and Gas Property of  the  type
     contemplated (without regard to value) by Schedules  5.1(a),
     5.1(b),  5.1(c)  and  5.2(b), with  such  information  being
     presented  in  substantially the  same  format  as  in  such
     Schedules.

10.  All other documents and legal matters in connection with the
     Applicable  Oil  and  Gas Properties  and  the  purchase  or
     ownership thereof have been delivered, executed, or recorded
     and  are in form and substance satisfactory to Agent and its
     counsel.

                           EXHIBIT C-1

                               TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
  SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
     FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS

                 FORM OF COMPLIANCE CERTIFICATE

                      [COMPANY LETTERHEAD]

Foothill Capital Corporation, as agent
2450 Colorado Avenue, Suite 3000 West
Santa Monica, California  90404

RE:  Compliance Certificate

In accordance with our Amended and Restated Loan and Security
Agreement ("Agreement") dated as of August 17, 2000, I hereby
certify:

     All  financial  reports,  statements  or  computer  prepared
     information of any kind or nature delivered or caused to  be
     delivered to Foothill have been prepared in accordance  with
     GAAP  consistently applied and fairly present the  financial
     condition of Borrower, except as follows:

     Borrower  is  in timely compliance with all representations,
     warranties,  and covenants as defined within the  Agreement,
     except as follows:

     On  the  date  of delivery of such certificate  to  Foothill
     there   does   not  exist  any  condition  or  event   which
     constitutes  an  Event  of Default, as  defined  within  the
     Agreement, except as follows:

     As  of the date hereof, the amount of the Revolving Facility
     Usage,  as  defined in the Agreement, does  not  exceed  the
     Availability, as defined in the Agreement.

PLEASE ATTACH A SCHEDULE OF FINANCIAL COVENANTS (AND CALCULATIONS
THEREOF),  INCLUDING YEAR TO DATE CAPITAL EXPENDITURES,  TO  THIS
COMPLIANCE CERTIFICATE.

SOUTHWEST ROYALTIES, INC.,
a Delaware corporation

By:
Name:
Title:
                           EXHIBIT T-1

                               TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
  SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
     FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS

          Letter in Lieu of Division or Transfer Orders

                      __________ ___, 20__

VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED

TO:



Re:  Letter in Lieu of Transfer Order

Ladies and Gentlemen:

      [Pursuant to the Mortgage, a copy of which is enclosed with
this letter,] Southwest Royalties, Inc. (hereinafter collectively
referred  to  as  the "Company") has granted to Foothill  Capital
Corporation, a California corporation, as agent (in such capacity
together with its successors in such capacity, "Agent")  for  one
or  more  lenders  (such lenders, together with their  respective
successors  and assigns, the "Lenders"), a lien on  and  security
interest  in  the  [property interests described  on  Schedule  I
attached  hereto]  [oil and gas properties of the  Company]  (the
"Properties"),   including  without   limitation   a   collateral
assignment  and  transfer  of  all  of  the  present  and  future
production and proceeds of production from the Properties.

      We  understand that, pursuant to division orders,  transfer
orders,  letters-in-lieu  thereof or other  agreements,  you  are
currently  disbursing  proceeds  of  the  production   from   the
Properties to the Company or its designees.

      The  Company and Agent on behalf of the Lenders hereby give
you  written  notice  of  the matters set  forth  above  and  the
collateral  assignment and transfer to Agent for the  benefit  of
the  Lenders  of all accounts from the sale of [Hydrocarbons  (as
defined in the Mortgage)], [oil, gas and other hydrocarbons] from
the  Properties and products and proceeds thereof.   Furthermore,
you  are  hereby  authorized  and directed  to  commence  paying,
immediately  upon  your  receipt of  this  letter,  100%  of  all
proceeds of production distributed by you and attributable to the
interest   of  the  Company  in  the  Properties,  less  royalty,
overriding royalty and applicable severance and ad valorem taxes,
directly to Agent for the benefit of the Lenders at the following
address:

               The Chase Manhattan Bank, N.A.
               4 New York Plaza, 15th Floor
               New York, New York  10004
               ABA #021-000-021
               Account Number 323-266193
               Credit:   Foothill Capital Corporation
               Re:  Southwest Royalties, Inc.

You are hereby further authorized and directed to continue to pay
royalty,  overriding  royalty  and applicable  severance  and  ad
valorem taxes to the appropriate parties.  You are hereby further
authorized and directed to change your records in accordance with
this  letter  effective immediately upon  your  receipt  of  this
letter.

      If  you  require  the execution of a division  or  transfer
order, please forward the division or transfer order to Agent  at
its address listed below.

     In order that we have a record evidencing your acceptance of
this  letter, we request that you sign two copies of this  letter
in  the  space  provided below and return them to Agent  at  2450
Colorado  Avenue,  Suite  3000  West,  Santa  Monica,  California
90404,   Attn:   Business  Finance  Division  Manager  (Fax   No.
310.453.7413)  and  to Company at 407 North  Big  Spring  Street,
Suite  300,  Midland,  Texas 79701,  Attn:   President  (Fax  No.
915.688.0191) in the enclosed, self-addressed envelope.   If  you
have further requirements concerning this transfer, please notify
Agent  at  the  address specified above. None  of  the  terms  or
provisions  of  this  letter  may be changed  without  the  prior
written consent of Agent and Company.

                              Sincerely,

                              SOUTHWEST ROYALTIES, INC.


                              By:  ___________________________
                              Name:
                              Title:


                              FOOTHILL CAPITAL CORPORATION,
                                   as Agent

                              By:  ______________________________
                              Name:
                              Title:


ACCEPTED AND AGREED this ____ day of ___________, ______, and our
records have been changed
effective with _____________________, 20__ production.

___________________________________________


By:  ____________________________________
Name:     ____________________________________
Title:    ____________________________________
                           SCHEDULE I

         Attachment to Letter in Lieu of Transfer Order


DIVISI OPERATO WELL FIEL LOCATIO COUNT  STAT INTERESOPERATO   NET
  ON   R WELL  NAME  D      N      Y      E  T OWNER   R    REVENUE
ORDER     #                                                 INTERES
  #                                                            T




























                           EXHIBIT 6.2
                               TO
  AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
  SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
     FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS

               FORM OF BORROWING BASE CERTIFICATE

Southwest Royalties, Inc. - Form of Borrowing Base Certificate as of ___,
2000

Advances to Borrower at any one time shall not exceed an
amount equal to the lesser of:

I.     "Maximum                                     $50,000,0
       Amount":                                            00
       (or)
II.    The "Borrowing Base" less the aggregate
       amount of the "Reserves
       Against
       Availability"
       :
       (or)
III.   the "Unsecured Note                          $________
       Indebtedness Limitation"                           ___


II.    The "Borrowing Base" less the aggregate
       amount of the "Reserves
       Against
       Availability"
       :

       The "Borrowing Base"
       is:

       Proved Developed Producing Reserves
       as of __/__/__:

       Less Ineligible Proved Developed
       Producing Reserves:

       Eligible Proved Developed
       Producing Reserves:

       Advance Rate                                       45%

       Availability prior to "Reserves
       Against Availability"

       "Reserves Against
       Availability" include:
        LSA
        Def.
        (a)   Accounts Payable Greater than 90 Days
              from Invoice:                                 -
        (b)   Past Due Taxes or Other Governmental
              Charges:                                      -
        (c)   Certain Other Liens
        (d)   180 Day P&A Escrows
        (e)   Estimated Net
              P&A                                           -
        (f)   180 Day Rents Reserve
        (g)   Amounts owed by Borrower subject to
              Certain Other Liens:                          -
        (h)   Reserves for Gas/Oil
              Imbalances                                    -

                     Sub-total of
                     Reserves

       Availability after "Reserves Against
       Availability"
       Other Reserves under Section 2.1