THIRD AMENDED AND RESTATED CREDIT AGREEMENT,


                            dated as of May 17, 2001

                                      among

                         MAGNUM HUNTER RESOURCES, INC.,
                                as the Borrower,

                                       and

                    CERTAIN COMMERCIAL LENDING INSTITUTIONS,
                                  as the Banks,

                                       and

                             BANKERS TRUST COMPANY,
    as Administrative Agent, as Collateral Agent and as Issuer for the Banks,

                                       and

                                   CIBC INC.,
                              as Syndication Agent,

                                       and

                                  BNP PARIBAS,
                             as Documentation Agent,

                                       and

                       DEUTSCHE BANC ALEX. BROWN INC. and
                            CIBC WORLD MARKETS CORP.,
                                  as Arrangers

<PAGE>

                   THIRD AMENDED AND RESTATED CREDIT AGREEMENT


     THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 17, 2001,
among MAGNUM HUNTER  RESOURCES,  INC., a Nevada  corporation  ("Borrower"),  the
various   financial   institutions   that  are  or  may  become  parties  hereto
(collectively,  the "Banks"),  and BANKERS TRUST  COMPANY  ("Bankers  Trust") as
administrative agent (in such capacity together with any successors thereto, the
"Administrative  Agent") for the Banks,  as  collateral  agent for the Banks (in
such capacity together with any successor thereto,  the "Collateral Agent"), and
as letter of credit issuing bank (in such capacity  together with any successors
thereto,  the "Issuer"),  CIBC INC.  ("CIBC") as syndication agent for the Banks
(in  such  capacity  together  with any  successors  thereto,  the  "Syndication
Agent"),  BNP  PARIBAS,  a French Bank acting  through its Houston  Agency ("BNP
Paribas") as documentation  agent for the Banks (in such capacity  together with
any successors thereto, the "Documentation Agent") and DEUTSCHE BANC ALEX. BROWN
INC., and CIBC WORLD MARKETS CORP. as arrangers (collectively, the "Arrangers").

                              W I T N E S S E T H:

     WHEREAS, the Borrower,  Bankers Trust as administrative agent, CIBC Inc. as
syndication agent, Paribas as collateral agent, and certain banks (the "Original
Banks")  have  heretofore  entered  into a Second  Amended and  Restated  Credit
Agreement  dated as of June 1, 1998, as amended by that certain First  Amendment
to Second Amended and Restated  Credit  Agreement dated as of September 4, 1998,
and by that  certain  Second  Amendment to Second  Amended and  Restated  Credit
Agreement  dated as of December 23, 1998, and by that certain Third Amendment to
Second  Amended and Restated  Credit  Agreement  dated June 4, 1999, and by that
certain Fourth  Amendment to Second Amended and Restated Credit  Agreement dated
September 30, 1999,  and by that certain Fifth  Amendment to Second  Amended and
Restated  Credit  Agreement  dated as of May 23, 2000, and by that certain Sixth
Amendment to Second Amended and Restated  Credit  Agreement dated as of December
7, 2000,  and by that certain  Seventh  Amendment to Second Amended and Restated
Credit Agreement dated as of March 21, 2001 and by that certain Eighth Amendment
to Second Amended and Restated  Credit  Agreement dated as of April 27, 2001 (as
so amended,  the "Second Amended and Restated Credit  Agreement")  providing for
commitments  from the Original Banks to make revolving  loans for the benefit of
the Borrower on the terms and subject to the conditions set forth therein;

     WHEREAS,  the Borrower  desires to amend and restate the Second Amended and
Restated Credit Agreement in order to restructure,  rearrange, renew, extend and
continue all indebtedness  evidenced by and outstanding under the Second Amended
and Restated  Credit  Agreement  (the "Prior  Indebtedness"),  and to modify the
commitments  from the Banks pursuant to which Loans will be made by the Banks to
the  Borrower  and  Letters  of Credit  will be issued by the  Issuer  under the
several  responsibilities of the Banks for the account of the Borrower from time
to time prior to the Commitment Termination Date;

<PAGE>

     WHEREAS,  the Banks and the Issuer are willing, on the terms and subject to
the conditions hereinafter set forth (including Article V), to amend and restate
the Second  Amended  and  Restated  Credit  Agreement  in order to  restructure,
rearrange,  renew,  extend and continue all Prior Indebtedness and to modify the
commitments  and make such Loans to the  Borrower and issue and  participate  in
such Letters of Credit for the account of the Borrower; and

     WHEREAS, the proceeds of such Loans and Letters of Credit will be used

     (a) for restructuring,  rearranging, renewing, extending and continuing the
debt of the Borrower under the Second Amended and Restated Credit Agreement;

     (b) for general  corporate  purposes  including working capital purposes of
the Borrower; and

     (c) for the acquisition, exploration, development and production of oil and
gas properties and other energy related assets  including,  without  limitation,
the acquisition of Hydrocarbon Interests including the Bluebird Properties;

     NOW,  THEREFORE,  the  parties  hereto  agree that the Second  Amended  and
Restated Credit Agreement is amended and restated in its entirety as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

     SECTION  1.1.   Defined  Terms.   The  following   terms  (whether  or  not
underscored)  when used in this Agreement,  including its preamble and recitals,
shall, except where the context otherwise requires,  have the following meanings
(such  meanings  to be equally  applicable  to the  singular  and  plural  forms
thereof):

     "Additional  Mortgages"  shall  mean a  mortgage,  deed of trust,  security
agreement,  assignment  and  financing  statement  substantially  in the form of
Exhibit G hereto, with appropriate insertions.

     "Administrative  Agent" is defined in the preamble and includes  each other
Person as shall have subsequently been appointed as the successor Administrative
Agent pursuant to Section 9.4.

     "Affiliate"  means, when used with respect to any Person,  any other Person
(including any member of the immediate  family of any such natural  person) who,
directly or indirectly,  beneficially owns or controls ten percent (10%) or more
of the total voting power of shares of Capital  Stock of such Person  having the
right  to vote  for  directors  under  ordinary  circumstances,  and any  Person
controlling, controlled by or under common control with any such Person. As used
in this definition,  "control" means the possession,  directly or indirectly, of
the power to direct or cause the

                                        2
<PAGE>

     direction of the management and policies of a Person,  whether  through the
ownership of voting securities, by contract or otherwise.

     "Agent" means any of the  Administrative  Agent, the Syndication Agent, the
Documentation Agent, and the Collateral Agent.

     "Agents" means all of them.

     "Agreement"  means,  on any date,  this Third  Amended and Restated  Credit
Agreement as originally in effect on the Effective  Date and as thereafter  from
time to time amended,  supplemented and restated,  or otherwise  modified and in
effect on such date.

     "Alternate  Base Rate" means, on any date and with respect to all Base Rate
Loans, a fluctuating rate of interest per annum (rounded upwards,  if necessary,
to the next  1/100 of 1%) equal to the higher of (a) the rate of  interest  most
recently determined by Bankers Trust at its Domestic Office as its base rate for
Dollar loans;  and (b) the Federal  Funds Rate most  recently  determined by the
Administrative  Agent plus one-half  percent (1/2%).  The Alternate Base Rate is
not necessarily intended to be the lowest rate of interest determined by Bankers
Trust in connection with  extensions of credit.  Changes in the rate of interest
on that  portion of any Loans  maintained  as Base Rate  Loans will take  effect
simultaneously  with each change in the Alternate Base Rate. The  Administrative
Agent will give notice  promptly to the Borrower and the Banks of changes in the
Alternate  Base Rate;  provided  that failure to give such notice shall not give
rise to any liability.

     "Applicable  Margin" means, on any date, with respect to any Base Rate Loan
or LIBO  Rate Loan or Letter of Credit  then  outstanding,  as  applicable,  the
applicable  per annum  percentage  set forth below based on the  Borrowing  Base
Usage on the preceding Business Day:


<TABLE>
<CAPTION>
<S>                                <C>                          <C>                          <C>
     Borrowing Base
       Usage (BBU)                 Base Rate Loans              LIBO Rate Loans               Letters of Credit
BBU < 25%                                    0%                        1.00%                        1.00%
25% <= BBU < 50%                             0%                        1.25%                        1.25%
50 <= BBU < 65%                            0.25%                       1.50%                        1.50%
65% <= BBU <= 80%                          0.50%                       1.75%                        1.75%
BBU > 80%                                  1.00%                       2.50%                        2.50%
</TABLE>


     Changes in the  Applicable  Margin  resulting from changes in the Borrowing
Base Usage will occur automatically without prior notice.

     "Approved  Engineer" means any independent  engineer recognized in the U.S.
oil  and  gas  loan  syndication  market  and  reasonably  satisfactory  to  the
Administrative Agent. It is agreed that

                                        3
<PAGE>

     Ryder Scott Company Petroleum Consultants,  Cawley, Gillespie & Associates,
Inc., and DeGolyler & MacNaughton are each deemed to be an Approved Engineer.

     "Arrangers" is defined in the preamble.

     "Asset"  shall mean,  as to any Person,  all property of any kind,  name or
nature, real or personal,  tangible or intangible,  legal or equitable,  whether
now owned or hereafter acquired,  including, without limitation, the Hydrocarbon
Interests, money, stock, contract rights, franchises,  value as a going concern,
causes  of  action,  undivided  fractional  ownership  interests,   intellectual
property  rights,  and anything of any value which can be made available for, or
may be appropriated to, the payment of debts.

     "Assignee Bank" is defined in Section 10.11.1.

     "Authorization"  means  any  consent,   registration,   filing,  agreement,
notarization,  certificate,  license, approval, permit, authority, grant, right,
easement, decree, waiver, privilege or exemption from, by or with any government
or Governmental Authority, whether given or withheld by express action or deemed
given or withheld by failure to act within any  specified  time period,  and all
corporate, creditors and stockholders' approvals or consents.

     "Authorized  Officer" means those officers of the Borrower whose signatures
and  incumbency  shall have been certified to the  Administrative  Agent and the
Banks pursuant to Section 5.1.1.

     "Bank Assignment Agreement" means a Bank Assignment Agreement substantially
in the form of Exhibit D hereto.

     "Bankers Trust" is defined in the preamble.

     "Banks" is defined in the preamble.

     "Base  Rate Loan"  means a Loan  bearing  interest  at a  fluctuating  rate
determined by reference to the Alternate Base Rate.

     "Beneficial  Owner" shall be determined in accordance  with Rules 13d-3 and
13d-5 promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934,  as amended and as it may be amended from time to time, or
any successor  provision  thereto,  except that a Person shall be deemed to have
"beneficial  ownership" of all shares that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of time.

     "Bluebird" means Bluebird Energy,  Inc., an Oklahoma corporation and, as of
the date hereof, an Unrestricted Subsidiary of the Borrower.

                                        4
<PAGE>

     "Bluebird Acquisition Documents" means,  collectively,  (i) the Assignments
and Bills of Sale from Bluebird Energy, Inc. to Magnum Hunter Production,  Inc.,
dated  May  17,  2001,  covering  certain  Oil and Gas  Properties  situated  in
Arkansas,  Oklahoma,  and Texas,  (ii) the Assignment  from the Borrower  and/or
certain of its Subsidiaries to Bluebird assigning and transferring  68,182 units
in the Tel Offshore Trust and 1,000,000  shares of the Borrower's  1996 Series A
Convertible  Preferred  Stock issued to Trust Company of the West, and (iii) all
documents and other agreements executed in connection therewith.

     "Bluebird  Properties"  means  the Oil and Gas  Properties  to be  acquired
pursuant to the Bluebird Acquisition Documents.

     "Borrower" is defined in the preamble.

     "Borrower Pledge  Agreement" means that certain Second Amended and Restated
Pledge Agreement of the Borrower,  as amended by that certain First Amendment to
Borrower  Pledge  Agreement in  substantially  the form of Exhibit H hereto,  in
favor of the Collateral Agent for the benefit of itself,  the other Agents,  the
Banks and the Issuer,  as the same may be amended,  restated,  supplemented,  or
modified from time to time.

     "Borrowing"  means each extension of credit made by the Banks or the Issuer
by way of Loans of the same type,  having the same  Interest  Period made by the
same Banks on the same  Business Day pursuant to the same  Borrowing  Request or
pursuant to the same Letter of Credit.

     "Borrowing  Base" means the Borrowing  Base from time to time  certified by
the Administrative Agent and all the Banks pursuant to Section 2.8.

     "Borrowing  Base  Deficiency"  means  that  (x) the  outstanding  aggregate
principal amount of all Loans and Letter of Credit Liabilities,  exceeds (y) the
Borrowing Base then in effect.

     "Borrowing  Base Deficiency  Determination  Date" means any date on which a
Borrowing Base Deficiency shall occur.

     "Borrowing  Base  Deficiency  Payment  Date"  means,  with  respect to each
Borrowing Base Deficiency Determination Date, the corresponding day of the month
in each of the six months occurring after notice is given by the  Administrative
Agent to the Borrower of the occurrence of a Borrowing Base Deficiency or if any
of such months does not have a  corresponding  day,  then,  with respect to such
month(s), the last day of such month(s).

     "Borrowing  Base  Usage"  means,  on any date,  the ratio  (expressed  as a
percentage)  of (a)  the  total  unpaid  principal  amount  of  all  outstanding
Borrowings  (including,  without  limitation,  all  Loans  and  Letter of Credit
Liabilities)  on such date after giving  effect to all  Borrowings  made on such
date to (b) the Borrowing Base then in effect.

     "Borrowing  Request" means a loan request and certificate  duly executed by
an Authorized Officer of the Borrower,  substantially in the form of Exhibit B-1
hereto.

                                        5
<PAGE>

     "Business  Day" means (a) any day which is neither a Saturday or Sunday nor
a legal  holiday on which banks are  authorized  or required to be closed in New
York, New York, Dallas, Texas, Houston,  Texas or London,  England; (b) relative
to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day
on which  dealings in Dollars are carried on in the New York  interbank  market;
and (c) relative to the issuance or renewal of, or payment or disbursement  with
respect to, each Letter of Credit, any day on which the Issuer is not authorized
or required to be closed by the laws of the  jurisdiction in which the Issuer is
domiciled.

     "Canadian Dollars" means the lawful money of Canada.

     "Capital  Stock" means any and all shares,  interests,  participations,  or
other  equivalents  (however  designated)  of capital stock of a corporation  or
securities  convertible  into or exchangeable  therefor,  any and all equivalent
ownership  interests  in a Person  (other  than a  corporation)  and any and all
warrants or options to purchase any of the foregoing.

     "Capitalized  Lease  Liabilities"  means all  monetary  obligations  of the
Borrower  under any leasing or similar  arrangement  which,  in accordance  with
GAAP,  would be  classified  as  capitalized  leases,  and, for purposes of this
Agreement and each other Loan Document,  the amount of such obligations shall be
the  capitalized  amount  thereof,  determined in accordance  with GAAP, and the
stated  maturity  thereof  shall be the date of the last  payment of rent or any
other  amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.

     "Cash Equivalent Investment" means, at any time:

     (a) any  evidence of  Indebtedness,  maturing  not more than one year after
such time, issued or guaranteed by the United States Government;

     (b)  commercial  paper,  maturing not more than six months from the date of
issue,  which is issued by (i) a  corporation  (other than an  Affiliate  of the
Borrower)  organized  under the laws of any state of the United States or of the
District of Columbia and rated one of the three highest rating categories by S&P
or Moody's, or (ii) any Bank (or its holding company);

     (c) any  certificate  of deposit or bankers  acceptance,  maturing not more
than one year  after  such  time,  which is issued by  either  (i) a  commercial
banking  institution  that is a member of the Federal  Reserve  System and has a
combined   capital  and  surplus  and   undivided   profits  of  not  less  than
$250,000,000, and whose long-term certificates of deposit or bankers acceptances
are, at the time of acquisition thereof by the Borrower, rated A-1 by S&P or P-1
by Moody's or (ii) any Bank;

     (d)  any  repurchase  agreement  entered  into  with  any  Bank  (or  other
commercial  banking  institution  of the stature  referred to in clause  (c)(i))
which (i) is in any  obligation  of the type  described  in any of  clauses  (a)
through (c); and (ii) has a market value at the time

                                        6
<PAGE>

     such  repurchase  agreement  is  entered  into of not less than 100% of the
repurchase  obligation of such Bank (or other  commercial  banking  institution)
thereunder;

     (e) investments in certificates of deposit  maturing within six months from
the date of issuance  thereof issued by a bank or trust company  organized under
the laws of the United  States or any state thereof or under the laws of Canada,
having capital,  surplus and undivided profits aggregating at least $250,000,000
(or the  equivalent in Canadian  Dollars) and whose  long-term  certificates  of
deposit are, at the time of  acquisition  thereof by the Borrower,  rated A-1 by
S&P or P-1 by Moody's;

     (f) deposit  accounts (i) in a bank or trust  company  organized  under the
laws of the  United  States or any state  thereof  or under the laws of  Canada,
having capital,  surplus and undivided profits aggregating at least $250,000,000
(or the equivalent in Canadian Dollars) and whose commercial paper or short term
bank  deposits  (or that of the  holding  company  with which such bank or trust
company is affiliated) are rated A-1 by S&P or P-1 by Moody's;

     (g) marketable direct obligations  issued or unconditionally  guaranteed by
the United  States or Canadian  government  or issued by any agency  thereof and
backed by the full faith and credit of the United States or Canada,  as the case
may be,  in each  case  maturing  no  later  than  one  year  from  the  date of
acquisition; or

     (h) money  market,  mutual or  similar  funds  that  invest in  obligations
referred to clauses (a), (b), (c), (e), (f), or (g) of this  definition,  and in
each case such funds having assets in excess of $250,000,000  (or the equivalent
in Canadian Dollars).

     "CERCLA" means the Comprehensive  Environmental Response,  Compensation and
Liability Act of 1980, as amended.

     "CERCLIS"  means  the  Comprehensive  Environmental  Response  Compensation
Liability Information System List.

     "Change in Control"  means an  occurrence  of one or more of the  following
events:  (a) any Person,  or any Persons acting together in a manner which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the Securities
Exchange Act of 1934,  as amended and as it may be amended from time to time, or
any successor provision thereto,  together with any Affiliates  thereof,  become
the  Beneficial  Owners of Capital  Stock of the  Borrower  through a  purchase,
merger  or other  acquisition  transaction  (in one  transaction  or a series of
related  transactions),  entitling  such  Person  or  Persons  and its or  their
Affiliates to exercise more than 50% of the total voting power of all classes of
the  Borrower's  Capital  Stock  entitled to vote  generally  in the election of
directors,  (b) a plan is adopted  relating to the liquidation or dissolution of
the Borrower,  (c) the Borrower shall  consolidate  with or merge into any other
Person or convey,  transfer or lease its properties and assets  substantially as
an  entirety  to any Person  other than a  Restricted  Subsidiary,  or any other
Person shall  consolidate  with or merge into the Borrower  (other than,  in the
case of this clause (c),  pursuant to any  consolidation or merger where Persons
who are Beneficial Owners of the Borrower's Capital

                                        7
<PAGE>

     Stock entitled to vote  generally in the election of directors  immediately
prior  thereto  become the  Beneficial  Owners of shares of Capital Stock of the
surviving  corporation  entitling  such Persons to exercise more than 50% of the
total voting power of all classes of such surviving  corporation's Capital Stock
entitled to vote  generally  in the  election of  directors  or persons  holding
similar positions),  or (d) during any calendar year period,  individuals who at
the beginning of such period  constituted the board of directors of the Borrower
(together with any new directors  whose election to such board of directors,  or
whose nomination for election by the stockholders of the Borrower,  was approved
by a vote of 66-2/3%  of the  directors  then  still in office  who were  either
directors at the beginning of such period or whose  election or  nomination  for
election  was  previously  so  approved)  cease for any reason to  constitute  a
majority of the board of directors of the Borrower then in office.

     "CIBC" is defined in the preamble.

     "Code" means the Internal  Revenue  Code of 1986,  as amended,  reformed or
otherwise modified from time to time.

     "Collateral  Property" means any Mortgaged Property,  Collateral or Pledged
Collateral as defined in any Security Document.

     "Commitment"  means,  relative  to  any  Bank  on  any  date,  such  Bank's
obligation to make Loans  pursuant to Section 2.1.1 and to issue or  participate
in Letters of Credit pursuant to Section 2.1.2 and Section 2.1.3.

     "Commitment  Amount"  means,  on any date,  the  lesser of (a) the  Maximum
Facility  Amount  then in  effect,  and (b) the  Borrowing  Base then in effect,
provided  that in the event  that the  aggregate  value of all  margin  accounts
maintained  by the  Borrower  with respect to Hedging  Obligations  shall exceed
$100,000,  the Commitment Amount (as defined immediately above) shall be further
reduced automatically by an amount equal to such excess.

     "Commitment  Termination  Date" means the  earliest of (a) Stated  Maturity
Date;  (b) the date on which  the  Commitment  Amount is  terminated  in full or
reduced  to  zero  pursuant  to  Section  2.2;  and (c) the  date on  which  any
Commitment  Termination Event occurs. Upon the occurrence of any event described
in clause (b) or (c), the Commitments shall terminate  automatically and without
further action.

     "Commitment  Termination  Event"  means (a) the  occurrence  of any Default
described  in  clauses  (a)  through  (d) of Section  8.1.9 with  respect to the
Borrower;  or (b) the occurrence  and  continuance of any other Event of Default
and either (i) the  declaration  of the Loans to be due and payable  pursuant to
Section 8.3, or (ii) in the absence of such declaration, the giving of notice by
the Administrative  Agent, acting at the direction of the Majority Banks, to the
Borrower that the Commitments  have been terminated as a result of such Event of
Default.

                                        8
<PAGE>

     "Consolidated  Current Assets" means,  at any particular  time, all amounts
which in  conformity  with  GAAP,  would be  included  as  current  assets  on a
consolidated balance sheet of the Borrower and the Restricted  Subsidiaries plus
Unused Availability.

     "Consolidated  Current  Liabilities"  means,  at any  particular  time, all
amounts which, in conformity with GAAP, would be included as current liabilities
on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries;
provided, however, that the current portion of long-term Indebtedness under this
Agreement and the other Loan Documents shall be excluded from the calculation of
current liabilities.

     "Consolidated   EBITDA"   means,   for  the  Borrower  and  the  Restricted
Subsidiaries  on a  consolidated  basis,  with respect to any period for which a
determination  is to be made, the sum of (i) gross profit (revenues less cost of
sales),  minus (ii) operating  expenses,  minus (iii) general and administrative
expenses, plus (iv) cash equity earnings of any unconsolidated Subsidiary of the
Borrower or any  partnership,  joint  venture or entity in which the Borrower or
any of its Subsidiaries has an equity interest,  minus (v) cash equity losses of
any unconsolidated Subsidiary of the Borrower or any partnership,  joint venture
or  entity  in which  the  Borrower  or any of its  Subsidiaries  has an  equity
interest, plus (vi) interest, dividends or other income, all of (i) through (vi)
as determined in accordance with GAAP.

     "Consolidated  Interest  Coverage Ratio" means, at any particular time, the
ratio of (a) Consolidated EBITDA to (b) Total Interest Expense.

     "Contingent  Liability"  means, as to any Person,  those direct or indirect
liabilities of that Person with respect to any  Indebtedness,  lease,  dividend,
letter  of  credit or other  monetary  or  financial  obligation  (the  "primary
obligations")  of another  Person (the "primary  obligor"),  including,  without
limitation,  any obligation of such Person,  whether or not  contingent,  (a) to
purchase,  repurchase  or  otherwise  acquire such  primary  obligations  or any
property constituting direct or indirect security therefor, or (b) to advance or
provide  funds (i) for the payment or discharge of any such primary  obligation,
or (ii) to maintain  working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of the primary  obligation,  or (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such  primary  obligation  of the ability of the primary  obligor to make
payment of such primary obligation,  or (d) otherwise to assure or hold harmless
the owner of any such primary  obligation  against loss in respect thereof.  The
amount of any  Contingent  Liabilities  shall be deemed to be an amount equal to
the stated or determinable  amount of the primary obligation in respect of which
such  Contingent  Liabilities  are made or, if not stated or  determinable,  the
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.

     "Continuation/Conversion   Notice"  means  a  notice  of   continuation  or
conversion  and  certificate  duly  executed  by an  Authorized  Officer  of the
Borrower, substantially in the form of Exhibit C hereto.

                                        9
<PAGE>

     "Controlled  Group" means all members of a controlled group of corporations
and all members of a controlled  group of trades or  businesses  (whether or not
incorporated)  under common  control  which,  together  with the  Borrower,  are
treated  as a single  employer  under  Section  414(b)  or 414(c) of the Code or
Section 4001 of ERISA.

     "Current  Ratio"  means,  at any date of  determination,  the  ratio of (a)
Consolidated Current Assets to (b) Consolidated Current Liabilities.

     "Default" means any Event of Default or any condition,  occurrence or event
which,  after  notice  or lapse of time or both,  would  constitute  an Event of
Default.

     "Default Rate" is defined in Section 3.2.2.

     "Determination  Date"  means  each  April 1 and  October  1 of  each  year,
commencing October 1, 2001.

     "Disclosure  Schedule"  means the Disclosure  Schedule  attached  hereto as
Schedule I, as it may be amended,  supplemented or otherwise  modified from time
to time by the Borrower with the written consent of the Majority Banks.

     "Dollar" and the sign "$" mean lawful money of the United States.

     "Domestic  Office"  means,  relative  to any Bank,  the office of such Bank
designated  as such  below  its  signature  hereto  or  designated  in the  Bank
Assignment  Agreement or such other office of a Bank (or any successor or assign
of such Bank) within the United States as may be designated from time to time by
notice from such Bank, as the case may be, to each other Person party hereto.  A
Bank may have separate  Domestic Offices for purposes of making,  maintaining or
continuing,  as the case may be, Base Rate Loans or its participation in Letters
of Credit.

     "Effective Date" means the date this Agreement becomes  effective  pursuant
to Section 10.8.

     "Environmental  Laws"  means  federal,   state  or  local  laws,  rules  or
regulations,  and  any  judicial,  arbitral  or  administrative  interpretations
thereof,  including,  without limitation,  any applicable judicial,  arbitral or
administrative  order,  judgment,  permit,  approval,  decision or determination
pertaining  to  health,  safety  or the  environment  in  effect  at the time in
question,  including,  without  limitation,  CERCLA, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act, as amended, the
Resource  Conservation and Recovery Act, as amended ("RCRA"),  the Safe Drinking
Water Act, as  amended,  the Toxic  Substances  Control  Act,  as  amended,  the
Superfund Amendment and  Reauthorization Act of 1986, as amended,  the Hazardous
Materials  Transportation Act, as amended,  comparable state and local laws, and
other  environmental  conservation  and protection  laws.  The terms  "hazardous
substance," "release" and "threatened release" shall have the meanings specified
in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have
the  meanings  specified  in RCRA  and the term  "oil"  shall  have the  meaning
specified in Oil Pollution Act, as amended  ("OPA");  provided,  that (i) in the
event either CERCLA,  RCRA or OPA is amended so as to broaden the meaning of any
term defined

                                       10
<PAGE>

     thereby,  such broader meaning shall apply subsequent to the effective date
of such amendment with respect to all provisions of this Agreement,  (ii) to the
extent the laws of the state or states in which any  Property of the Borrower is
located establish a meaning for "hazardous  substance,"  "release,"  "threatened
release,"  "solid  waste,"  "disposal"  or "oil"  which  is  broader  than  that
specified in CERCLA, RCRA or OPA, such broader meaning shall apply subsequent to
the effective date of the establishment of such meaning.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended,  and any  successor  statute  of  similar  import,  together  with  the
regulations thereunder,  in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.

     "Event of Default" is defined in Section 8.1.

     "Existing Mortgages" means each of the mortgages,  deeds of trust, security
agreements and financing statements described in Schedule II hereto.

     "Extension  Request"  means a request  to extend  the  then-current  Stated
Maturity Date of this Agreement, substantially in the form of Exhibit K hereto.

     "Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to (a) the  weighted  average of the
rates on  overnight  federal  funds  transactions  with  members of the  Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next  preceding  Business Day) by the
Federal  Reserve Bank of New York;  or (b) if such rate is not so published  for
any day which is a Business Day, the average of the  quotations  for such day on
such transactions  received by Bankers Trust from three federal funds brokers of
recognized national standing selected by it.

     "Fee  Letter"  means any fee letter or other  agreement  dated May 8, 2001,
between or among the Borrower and any one or more of the Agents or the Arrangers
with respect to fees payable by the Borrower in connection  with this Agreement,
as the same may be amended,  supplemented,  restated or otherwise  modified from
time to time.

     "Final Borrowing Base Deficiency  Payment Date" means, with respect to each
Borrowing Base Deficiency Date, the  corresponding day of the month in the sixth
month after notice is given by the  Administrative  Agent to the Borrower of the
occurrence  of a  Borrowing  Base  Deficiency,  or if  such  month  has no  such
corresponding day, than the last day of such month.

     "Fiscal Quarter" means any calendar quarter of a Fiscal Year.

     "Fiscal Year" means any period of twelve consecutive calendar months ending
on December 31; each reference to a Fiscal Year with a number  corresponding  to
any calendar year (e.g. the "2001 Fiscal Year") refers to the Fiscal Year ending
on the December 31 occurring during such calendar year.

                                       11
<PAGE>

     "F.R.S.  Board" means the Board of Governors of the Federal  Reserve System
or any successor thereto.

     "Funded  Debt"  means,  on a  consolidated  basis for the  Borrower and the
Restricted Subsidiaries,  as of any date of determination (without duplication):
(a) all obligations for borrowed money, (b) all obligations  evidenced by bonds,
notes, debentures, or other similar instruments,  (c) all obligations to pay the
deferred  purchase price of property or services,  except trade accounts payable
of such Person arising in the ordinary course of business, (d) all Capital Lease
Obligations, (e) all obligations secured by a Lien existing on property owned by
the Borrower and the  Restricted  Subsidiaries,  whether or not the  obligations
secured  thereby have been assumed by the  Borrower or are  non-recourse  to the
credit of such Person,  (f) all Contingent  Liabilities,  (g) all  reimbursement
obligations  (whether  contingent or otherwise) in respect of letters of credit,
bankers' acceptances,  surety or other bonds and similar instruments and (h) all
Hedging  Obligations  to the  extent  secured by cash  deposited  as a result of
margin  calls;  provided  that for  purposes  hereof,  obligations  of the types
described  in the  foregoing  clauses (a)  through (h) owing to an  Unrestricted
Subsidiary by the Borrower or one of its Restricted  Subsidiaries  that have not
been expressly subordinated to the Obligations on terms reasonably  satisfactory
to the Administrative Agent shall be deemed to be Funded Debt. Funded Debt shall
not include any obligations (other than those described in subsection (h) above)
incurred in connection with Hedging  Obligations.  Funded Debt shall not include
Trade Guarantees except as provided in the definition thereof.

     "Funded Debt to EBITDA Ratio" means,  at any particular  time, the ratio of
(i)  all  Funded  Debt of the  Borrower  and its  Restricted  Subsidiaries  on a
consolidated basis to (ii) Consolidated EBITDA.

     "GAAP" is defined in Section 1.4.

     "Gas Gathering Systems" means the gas plant and those certain gas gathering
systems  consisting of all equipment,  assets,  rights-of-way,  surface  leases,
contracts  and  related  assets more  particularly  described  on  Schedule  1.1
attached hereto.

     "Governmental  Authority"  means the government of the United States or any
other nation or country or any political  subdivision thereof,  whether state or
local,  and any agency,  authority,  instrumentality,  regulatory  body,  court,
central  bank or  other  entity  exercising  executive,  legislative,  judicial,
taxing,  regulatory  or  administrative  powers or functions of or pertaining to
government.

     "Gruy" means Gruy Petroleum Management Company, a Texas corporation and one
of the Guarantors.

     "Guarantor" means each present and future Material Restricted Subsidiary of
the Borrower.

     "Hazardous  Material"  means any  pollutant or  contaminant  or  hazardous,
dangerous or toxic  chemical,  material or  substance  within the meaning of any
applicable  national,  regional,  state or local law,  regulation,  ordinance or
requirement (including consent decrees and administrative

                                       12
<PAGE>

     orders)  relating  to  or  imposing   liability  or  standards  of  conduct
concerning any hazardous,  toxic or dangerous waste,  substance or material, all
as amended or hereafter amended.

     "Hedge Agreements" means (i) interest rate hedge agreements,  interest rate
cap agreements and interest rate collar  agreements,  or any other agreements or
arrangements  designed to protect such Person against  fluctuations  in interest
rates, or (ii) commodity  hedge,  commodity swap,  exchange,  forward,  futures,
collar or cap  agreements,  fixed price  agreements  or any other  agreements or
arrangements  designed to protect such Person against  fluctuations in commodity
prices, or (iii) foreign exchange contract,  currency hedge agreement,  currency
option or any other  agreement  or  arrangement  designed to protect such Person
against fluctuations in currency exchange rates.

     "Hedging   Obligations"   means,  with  respect  to  any  Person,  (a)  all
liabilities of such Person under interest rate hedge  agreements,  interest rate
cap agreements and interest rate collar agreements,  and all other agreements or
arrangements  designed to protect such Person against  fluctuations  in interest
rates or currency  exchange rates,  and (b) all liabilities of such Person under
commodity hedges,  commodity swaps,  exchanges,  forward,  future, collar or cap
agreements,  fixed price  agreements,  and all other  agreements or arrangements
designed to protect such Person against the fluctuations in commodity prices.

     "herein",  "hereof",  "hereto",  "hereunder" and similar terms contained in
this  Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.

     "Highest Lawful Rate" is defined in Section 4.11.

     "Hydrocarbons"  means oil, gas,  casing head gas,  condensate,  distillate,
liquid  hydrocarbons,  gaseous  hydrocarbons,  all products refined,  separated,
settled and dehydrated therefrom and all products refined therefrom,  including,
without limitation, kerosene, liquefied petroleum gas, refined lubricating oils,
diesel fuel,  drip  gasoline,  natural  gasoline,  helium,  sulfur and all other
minerals.

     "Hydrocarbon Interests" means all rights, titles, interests and estates now
owned  or  hereafter   acquired  by  the  Borrower  or  any  of  its  Restricted
Subsidiaries  in any and all oil,  gas and other  liquid or gaseous  hydrocarbon
properties and interests,  including  without  limitation,  mineral fee or lease
interests,   production  sharing  agreements,   concession  agreements,  license
agreements,  service agreements,  risk service agreements or similar Hydrocarbon
interests granted by an appropriate Governmental Authority,  farmout, overriding
royalty and royalty interests,  net profit interests,  oil payments,  production
payment interests and similar interests in Hydrocarbons,  including any reserved
or residual interests of whatever nature.

     "Impermissible   Qualification"   means,   relative   to  the   opinion  or
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or certification
(a) which is of a "going  concern" or similar  nature;  (b) which relates to the
limited scope of examination of matters relevant to such financial statement;

                                       13
<PAGE>

     or (c) which relates to the treatment or classification of any item in such
financial  statement and which, as a condition to its removal,  would require an
adjustment to such item the effect of which would be to cause the Borrower to be
in default of any of its obligations under Section 7.2.4.

     "including"   means  including  without  limiting  the  generality  of  any
description  preceding  such term,  and, for purposes of this Agreement and each
other Loan Document,  the parties hereto agree that the rule of ejusdem  generis
shall not be  applicable to limit a general  statement,  which is followed by or
referable  to an  enumeration  of specific  matters,  to matters  similar to the
matters specifically mentioned.

     "Indebtedness"  of  any  Person  means,   without   duplication:   (a)  all
obligations of such Person for borrowed money and all obligations of such Person
evidenced by bonds,  debentures,  notes or other  similar  instruments;  (b) all
reimbursement obligations,  contingent or otherwise, relative to the face amount
of all letters of credit,  whether or not drawn, and banker's acceptances issued
for the account of such  Person;  (c) all  obligations  of such Person as lessee
under leases which have been or should be, in accordance with GAAP,  recorded as
Capitalized Lease Liabilities;  (d) liabilities of such Person under any Hedging
Agreements;  to the  extent  secured by cash  deposited  as a result of a margin
call, but expressly excluding all other obligations  incurred in connection with
Hedging  Agreements;  (e) all  obligations  of such  Person to pay the  deferred
purchase price of property or services (except trade accounts payable arising in
the ordinary course of business),  and indebtedness  (excluding prepaid interest
thereon)  secured by a Lien on property owned or being  purchased by such Person
(including indebtedness arising under conditional sales or other title retention
agreements),  whether or not such  indebtedness  shall have been assumed by such
Person or is limited in recourse;  (f) all Contingent Liabilities of such Person
in  respect  of any of the  foregoing;  and (g) all  liabilities  in  respect of
unfunded vested benefits under any Plan. For all purposes of this Agreement, the
Indebtedness of any Person shall include the  Indebtedness of any partnership or
joint  venture in which such  Person is a general  partner or a joint  venturer,
provided,  however, that notwithstanding the foregoing, the Indebtedness of such
Person  shall not  include (x) any  Indebtedness  of such  partnership  or joint
venture that is, by its express terms,  non-recourse  to such Person,  or (y) in
the case of  Indebtedness  for which  recourse to such  Person is limited,  that
portion of such  Indebtedness  for which such  Person is not liable  pursuant to
express  limited  recourse  terms  contained in the agreement  documenting  such
Indebtedness,  in each case, such  non-recourse or limited  recourse terms being
subject to the prior approval of the Administrative  Agent (which approval shall
not be unreasonably withheld).

     "Indemnified Liabilities" is defined in Section 10.4.

     "Indemnified Parties" is defined in Section 10.4.

     "Indenture" means that certain Indenture dated as of May 29, 1997, executed
by the Borrower,  the guarantors  party thereto and First Union National Bank of
North Carolina,  as trustee, as the same may be amended,  restated,  modified or
supplemented from time to time.

     "Interest  Period"  means,  relative  to any LIBO Rate  Loans,  the  period
beginning  on (and  including)  the date on which such LIBO Rate Loan is made or
continued as, or converted into, a

                                       14
<PAGE>

     LIBO  Rate  Loan  pursuant  to  Section  2.3 or 2.4 and  shall  end on (but
exclude) the day which  numerically  corresponds to such date one, two, three or
six months thereafter (or, if such month has no numerically  corresponding  day,
on the last  Business  Day of such  month),  in either case as the  Borrower may
select in its relevant notice pursuant to Section 2.3 or 2.4; provided, however,
that (a) the Borrower shall not be permitted to select Interest Periods to be in
effect at any one time which have  expiration  dates occurring on more than five
different  dates; (b) if such Interest Period would otherwise end on a day which
is not a Business  Day,  such  Interest  Period shall end on the next  following
Business Day (unless,  if such Interest Period applies to LIBO Rate Loans,  such
next following  Business Day is the first Business Day of a calendar  month,  in
which case such  Interest  Period shall end on the  Business Day next  preceding
such  numerically  corresponding  day); and (c) no Interest Period may end later
than  the  date  set  forth  in  clause  (a) of the  definition  of  "Commitment
Termination Date".

     "Investment" means, relative to any Person, (a) any loan or advance made by
such  Person to any other  Person  (excluding  commission,  travel  and  similar
advances to officers and employees made in the ordinary course of business); (b)
any  Contingent  Liability  of such  Person;  and (c) any  ownership  or similar
interest held by such Person in any other Person.  The amount of any  Investment
shall be the original principal or capital amount thereof (without adjustment by
reason of the financial  condition of such other  Person) and shall,  if made by
the  transfer or exchange  of property  other than cash,  be deemed to have been
made in an original  principal or capital  amount equal to the fair market value
of such property.

     "Issuer" is defined in the preamble.

     "Knowledge"  means either (a) actual knowledge of a responsible  officer of
the Borrower or employee of the Borrower  charged  with  responsibility  for the
matter at issue or in  question  or (b)  knowledge  that a  prudent  responsible
officer of the Borrower or employee of the Borrower charged with  responsibility
for the  matter  at issue  or in  question  could be  expected  to  discover  or
otherwise become aware of in the course of conducting the Borrower's business.

     "Letter of Credit" is defined in Section 2.1.2.

     "Letter of Credit  Commitment  Amount"  means at any time the lesser of (i)
$20,000,000, as such amount may be reduced from time to time pursuant to Section
2.2 or (ii) the Borrowing Base then in effect.

     "Letter of Credit  Liabilities"  means,  at any time,  with  respect to any
Letter of  Credit,  the sum of (i) the  undrawn  face  amount of such  Letter of
Credit plus (ii) the aggregate unpaid amount,  if any, of all obligations of the
Borrower to reimburse the Issuer and the Banks in respect of drawings under such
Letter of Credit.

     "Letter of Credit Request" means a letter of credit request and certificate
duly executed by an Authorized Officer of the Borrower substantially in the form
of Exhibit B-2 hereto, with appropriate insertions made therein.

                                       15
<PAGE>

     "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the
rate of interest equal to the offered quotation  appearing on Telerate Page 3750
or if such Telerate Page shall not be available, on the LIBO page on the Reuters
Screen (or on any page that can reasonably be considered a replacement  page) at
approximately  11:00 a.m. New York time (or as soon  thereafter as  practicable)
two  Business  Days prior to the  beginning of such  Interest  Period for Dollar
deposits having a term comparable to such Interest  Period.  If no such Telerate
Page 3750 or Reuters Screen LIBO page (or replacement  page) is available,  then
the "LIBO Rate" shall mean, relative to any Interest Period for LIBO Rate Loans,
the rate of interest  equal to (rounded  upwards,  if necessary,  to the nearest
1/100  of 1%) the  rate  per  annum at  which  Dollar  deposits  in  immediately
available  funds are  offered  to  Bankers  Trust  LIBOR  Office in the New York
interbank  market as at or about 11:00 a.m. New York time (or as soon thereafter
as practicable) two Business Days prior to the beginning of such Interest Period
for  delivery  on the  first  day of  such  Interest  Period,  and in an  amount
approximately  equal to the  amount of  Bankers  Trust  LIBO Rate Loan and for a
period approximately equal to such Interest Period.

     "LIBO Rate Loan"  means a Loan  bearing  interest,  at all times  during an
Interest Period applicable to such Loan, at a fixed rate of interest  determined
by reference to the LIBO Rate (Reserve Adjusted).

     "LIBO Rate  (Reserve  Adjusted)"  means,  relative  to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) determined pursuant to the following formula:

       LIBO Rate          =                     LIBO Rate
    (Reserve Adjusted)           ------------------------------------
                                    1.00 - LIBOR Reserve Percentage

     The LIBO Rate  (Reserve  Adjusted)  for any  Interest  Period for LIBO Rate
Loans will be determined by the  Administrative  Agent on the basis of the LIBOR
Reserve  Percentage  in effect two  Business  Days  before the first day of such
Interest Period.

     "LIBOR  Office"  means,  relative  to any  Bank,  the  office  of such Bank
designated  as such  below  its  signature  hereto  or  designated  in the  Bank
Assignment  Agreement or such other office of a Bank as designated  from time to
time by notice  from such Bank to the  Borrower  and the  Administrative  Agent,
whether or not outside the United  States,  which shall be making or maintaining
LIBO Rate Loans of such Bank hereunder.

     "LIBOR Reserve Percentage" means,  relative to any Interest Period for LIBO
Rate Loans,  the average maximum rate (expressed as a decimal) at which reserves
are required to be maintained  during such Interest Period under Regulation D of
the F.R.S.  Board by member banks of the Federal Reserve System in New York City
with  deposits  exceeding   $1,000,000,000   (including  all  basic,  emergency,
supplemental,   marginal  and  other   reserves  and  taking  into  account  any
transitional  adjustments or other scheduled changes in reserve requirements) as
"Eurocurrency  Liabilities",  as such term is  defined  in  Regulation  D of the
F.R.S.  Board.  Without limiting the effect of the foregoing,  the LIBOR Reserve
Percentage shall reflect any other reserves required to be maintained

                                       16
<PAGE>

     by such member  banks by reason of any  Regulatory  Change  against (i) any
category of liabilities  which includes deposits by reference to which the LIBOR
Rate (Reserve Adjusted) is to be determined,  or (ii) any category of extensions
of credit or other assets which include LIBO Rate Loans.

     "Lien" means, with respect to any Person, any security interest,  mortgage,
pledge,  hypothecation,   assignment,  deposit  arrangement,  encumbrance,  lien
(statutory  or  otherwise),  charge  against or  interest  in property to secure
payment  of a  debt  or  performance  of an  obligation  or  other  priority  or
preferential arrangement of any kind or nature whatsoever.  For purposes of this
Agreement,  the term "Lien"  shall  include any cash  deposited as a result of a
margin call,  but shall exclude  contractual  provisions  contained in any Hedge
Agreement   establishing   margin   requirements,   set-off  rights  or  netting
arrangements, and shall exclude negative pledges.

     "Loan" is defined in Section 2.1.1.

     "Loan  Document" means this  Agreement,  the Notes,  each Letter of Credit,
each  application  for a Letter of Credit,  each Security  Document,  each Hedge
Agreement with any Bank or the Issuer, or any Affiliate of any thereof, each Fee
Letter,  each Borrowing Request,  each Subsidiary Guaranty Agreement together in
each case with all exhibits,  schedules and attachments  thereto,  and all other
agreements,  documents or instruments from time to time executed or delivered in
connection with or pursuant to any of the foregoing.

     "Majority  Banks" means,  at any time,  Banks in the  aggregate  holding at
least 66-2/3% of the then aggregate  unpaid  principal amount of the outstanding
Borrowings, or, if no such principal amount is then outstanding, Banks having at
least 66-2/3% of the Commitments.

     "Marketing LLC" means NGTS LLC, a Texas limited liability company.

     "Material  Adverse  Effect"  means a  material  adverse  effect  on (i) the
business, operations, affairs, property, financial condition, assets, or results
of operations of the Borrower and its  Subsidiaries  on a consolidated  basis or
(ii) the ability of the  Borrower to perform  its  obligations  under any of the
Loan Documents or (iii) the validity or  enforceability of this Agreement or the
other Loan Documents.

     "Material  Restricted  Subsidiary"  means,  at any  time,  each  Restricted
Subsidiary having total gross assets equal to or exceeding $1,000,000.

     "Maximum Facility Amount" means $225,000,000, as such amount may be reduced
from time to time pursuant to Section 2.2 or terminated pursuant to Section 8.3.

     "Moody's" means Moody's Investors Service, Inc.

     "Mortgage" means (i) the Mortgage, Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement dated as of May 17, 2001, executed by
Magnum Hunter Production, Inc. in favor of the Collateral Agent, as the same may
be further amended, supplemented

                                       17
<PAGE>

     or otherwise  modified from time to time, and (ii) the Existing  Mortgages,
as amended, supplemented, or otherwise modified from time to time, and (iii) any
other  Mortgage  executed  and  delivered  pursuant  to Section  7.1.7,  whether
substantially  in the  form of  Exhibit  G  hereto  or  otherwise,  as  amended,
supplemented, restated or otherwise modified from time to time.

     "Mortgaged Properties" is defined in each Mortgage.

     "Net  Cash  Proceeds"  means in  connection  with (a) any  issuance  by the
Borrower or any of its Restricted  Subsidiaries of any  Indebtedness,  equity or
debt securities or instruments,  (b) the incurrence of other loans other than as
permitted by Section  7.2.2 or (c) the  disposition  of any assets  permitted by
Section  7.2.9,  the cash  proceeds  received  from such  issuance  or sale,  as
applicable,  net of all investment banking fees, legal fees,  accountants' fees,
underwriting  discounts and  commissions  and other customary fees and expenses,
actually incurred and satisfactorily documented in connection therewith.

     "Note" means a promissory note of the Borrower  payable to any Bank, in the
form of Exhibit A hereto (as such  promissory  note may be amended,  endorsed or
otherwise modified from time to time),  evidencing the aggregate Indebtedness of
the Borrower to such Bank resulting from  outstanding  Loans, and also means all
other  promissory  notes accepted from time to time in substitution  therefor or
renewal thereof.

     "Obligations"  means all  obligations,  Indebtedness and liabilities of the
Borrower  or any  Restricted  Subsidiary  or any,  some or all of  them,  to the
Agents,  the Banks or the Issuer,  or any, some or all of them,  now existing or
hereafter  arising under or in connection  with this Agreement,  the Notes,  the
Letters of  Credit,  and each other Loan  Document,  whether  direct,  indirect,
related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several,
or joint and several, including the obligations, Indebtedness and liabilities of
the Borrower,  and all interest  accruing  thereon  (including any interest that
accrues after the  commencement  of any proceeding by or against the Borrower or
any other  Person under any  bankruptcy,  insolvency,  liquidation,  moratorium,
receivership, reorganization or other debtor relief law) and all attorneys' fees
and other expenses incurred in the collection or enforcement thereof.

     "Obligor" means the Borrower and each Subsidiary of the Borrower which is a
party to a Loan Document.

     "Oil  and  Gas   Business"   means   (a)  the   acquisition,   exploration,
exploitation, development, operation, management and disposition of interests in
Hydrocarbon  Interests and  Hydrocarbons;  (b) gathering,  marketing,  treating,
processing,  storage,  selling  and  transporting  of any  production  from such
interests or Hydrocarbon Interests, including, without limitation, the marketing
of Hydrocarbons obtained from unrelated Persons; (c) any business relating to or
arising from exploration for or development,  production, treatment, processing,
storage, transportation or marketing of oil, gas and other minerals and products
produced in  association  therewith;  and (d) any activity  that is ancillary or
necessary or desirable to  facilitate  the  activities  described in clauses (a)
through (c) of this definition.

                                       18
<PAGE>

     "Oil and Gas Properties"  means  Hydrocarbon  Interests;  the Assets now or
hereafter pooled or unitized with Hydrocarbon Interests;  all presently existing
or future  unitization,  pooling agreements and declarations of pooled units and
the units created thereby  (including without limitation all units created under
orders,  regulations and rules of any  Governmental  Authority) which may affect
all or any  portion of the  Hydrocarbon  Interests;  all  operating  agreements,
contracts and other agreements which relate to any of the Hydrocarbon  Interests
or the production,  sale, purchase,  exchange or processing of Hydrocarbons from
or attributable to such Hydrocarbon Interest;  all Hydrocarbons in and under and
which may be produced and saved or attributable  to the  Hydrocarbon  Interests,
the lands covered thereby and all oil in tanks and all rents,  issues,  profits,
proceeds,  products,  revenues  and other  income  from or  attributable  to the
Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Assets in
any manner  appertaining,  belonging,  affixed or incidental to the  Hydrocarbon
Interests,  Assets, Gas Gathering System, rights, titles,  interests and estates
described or referred to above,  including any and all Assets, real or personal,
now owned or  hereinafter  acquired and  situated  upon,  used,  held for use or
useful in connection  with the operating,  working or development of any of such
Hydrocarbon Interests or Asset (excluding drilling rigs, automotive equipment or
other  personal  property  which  may be on such  premises  for the  purpose  of
drilling a well or for other similar  temporary  uses) and including any and all
oil wells,  gas wells,  injection wells or other wells,  buildings,  structures,
fuel separators,  liquid extraction plants,  plant compressors,  pumps,  pumping
units,  field gathering  systems,  tanks and tank batteries,  fixtures,  valves,
fittings,  machinery and parts, engines, boilers, meters, apparatus,  equipment,
appliances,  tools, implements,  cables, wires, towers, casing, tubing and rods,
surface  leases,  rights-  of-way,  easements and  servitudes  together with all
additions,  substitutions,  replacements,  accessions and attachments to any and
all of the foregoing.

     "Organic  Document" means,  for any Person,  its certificate or articles of
incorporation,  its by-laws,  certificate  of  formation,  regulations,  limited
liability  company  agreement,   partnership  agreement,  or  similar  governing
document,  and all  shareholder  membership or  partnership  agreements,  voting
trusts and similar arrangements.

     "Participant" is defined in Section 10.11.

     "PBGC"  means the  Pension  Benefit  Guaranty  Corporation  and any  entity
succeeding to any or all of its functions under ERISA.

     "Pension Plan" means a "pension  plan",  as such term is defined in section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section  4001(a)(3)  of ERISA),  and to which the Borrower or
any corporation, trade or business that is, along with the Borrower, a member of
a Controlled  Group,  may have  liability,  including any liability by reason of
having been a substantial  employer  within the meaning of section 4063 of ERISA
at any time during the preceding five years,  or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.

     "Percentage" means, relative to any Bank, the percentage set forth opposite
its  signature  hereto or set forth in the Bank  Assignment  Agreement,  as such
percentage may be adjusted from

                                       19
<PAGE>

     time to time pursuant to Bank Assignment Agreement(s) executed by such Bank
and its Assignee Bank(s) and delivered pursuant to Section 10.11.

     "Person" means any natural person, corporation,  limited liability company,
partnership,  firm, association,  trust, government,  governmental agency or any
other entity, whether acting in an individual, fiduciary or other capacity.

     "Plan" means any Pension Plan or Welfare Plan.

     "Pledge  Agreement" means (i) the Borrower Pledge  Agreement,  and (ii) any
Subsidiary Pledge Agreement, as each may be amended,  supplemented,  restated or
otherwise modified from time to time.

     "Prior Indebtedness" is defined in the second recital.

     "Proved Producing Reserves" means Proved Reserves that are recoverable from
existing wells with current operating methods and expenses and are producing.

     "Proved  Reserves"  means those  recoverable  Hydrocarbons  which have been
estimated  with  reasonable   certainty,   as  demonstrated  by  geological  and
engineering data, to be economically recoverable from the Oil and Gas Properties
by existing producing methods under existing economic conditions.

     "Qualifying Cash Distributions" means, as of any date, all cash received by
Bluebird  on or prior to such date from (i)  dividends  or returns of capital in
respect  of units of the Tel  Offshore  Trust or shares of the  Borrower's  1996
Series A  Convertible  Preferred  Stock issued to Trust  Company of the West, or
(ii)  proceeds  from the sale by Bluebird of units of the Tel Offshore  Trust or
shares of the  Borrower's  1996 Series A Convertible  Preferred  Stock issued to
Trust Company of the West.

     "Quarterly Payment Date" means the last day of each March, June, September,
and  December  or, if any such day is not a Business  Day,  the next  succeeding
Business Day.

     "Regulatory  Change" means,  with respect to any Bank, any change after the
date of this  Agreement  in United  States  federal,  state,  or foreign laws or
regulations  (including  Regulation  D of the F.R.S.  Board) or the  adoption or
making after such date of any interpretations,  directives, or requests applying
to a class of banks including such Bank of or under any United States federal or
state,  or any foreign laws or  regulations  (whether or not having the force of
law) by any  court  or  governmental  or  monetary  authority  charged  with the
interpretation or administration thereof.

     "Release" means "release" as such terms are defined in CERCLA.

     "Required  Banks" means,  at any time,  Banks in the  aggregate  holding at
least 51% of the then  aggregate  unpaid  principal  amount  of the  outstanding
Borrowings, or, if no such principal amount is then outstanding, Banks having at
least 51% of the Commitments.

                                       20
<PAGE>

     "Required  Deficiency  Payment"  means,  for each Borrowing Base Deficiency
Payment Date occurring after a Borrowing Base Deficiency Determination Date (the
"Subject  Determination  Date") in accordance  with the terms hereof,  an amount
equal to one-sixth of the  Borrowing  Base  Deficiency  (plus  accrued  interest
thereon)  existing  on the Subject  Determination  Date;  provided,  that if the
amount  of the  Borrowing  Base  Deficiency  has  increased  after  the  Subject
Determination  Date then each  remaining  Required  Deficiency  Payment shall be
increased  to  substantially  equal  amounts  sufficient  to  reduce to zero the
Borrowing Base  Deficiency on or before the then Final Borrowing Base Deficiency
Payment Date.

     "Reserve  Report"  means a report  setting  forth the  Proved  Reserves  by
reserve category attributable to the Hydrocarbon  Interests  constituting Proved
Reserves owned directly by the Borrower or any Restricted Subsidiary included in
the Borrowing  Base, a projection  of the rate of  production  and net operating
income with respect thereto,  as of a specified date, and such other information
as is customarily  obtained from and provided in such reports,  satisfactory  in
form and substance to the  Administrative  Agent,  the Issuer or the Banks.  All
Reserve  Reports  dated as of  December  31,  shall be  prepared  by an Approved
Engineer,  and all other Reserve Reports shall be prepared by engineers employed
by, or under contract to, the Borrower and certified by an Authorized Officer of
the Borrower.

     "Restricted  Subsidiary"  means each  Subsidiary of the Borrower other than
the Unrestricted Subsidiaries of the Borrower.

     "S&P" means Standard & Poor's Ratings Group.

     "Security Documents" means, individually,  (i) any Pledge Agreement and all
amendments,  supplements,  restatements or other modifications made from time to
time thereto, (ii) any Mortgage and all amendments, supplements, restatements or
other modifications made from time to time thereto, (iii) any additional similar
document  required by the Collateral  Agent pursuant to Section 7.1.7,  and (iv)
collectively, all of the foregoing.

     "Senior  Unsecured  Debt"  means up to  $140,000,000  of  senior  unsecured
Indebtedness  issued by the Borrower pursuant to the terms of the Indenture upon
the terms and conditions set forth therein.

     "Solvent" means,  with respect to any Person at any time, a condition under
which:  (a) the fair saleable  value of such Person's  assets is, on the date of
determination,  greater  than the  total  amount  of such  Person's  liabilities
(including  contingent  and  unliquidated  liabilities)  at such time;  (b) such
Person is able to pay all of its liabilities as such liabilities mature; and (c)
such Person does not have  unreasonably  small capital with which to conduct its
business.  For  purposes  of  this  definition  (i)  the  amount  of a  Person's
contingent or  unliquidated  liabilities at any time shall be that amount which,
in light of all the facts and circumstances then existing, represents the amount
which can reasonably be expected to become an actual or matured liability;  (ii)
the "fair saleable  value" of an asset shall be the amount which may be realized
within a reasonable time either through  collection or sale of such asset at its
regular market value; and (iii) the "regular market value" of an

                                       21
<PAGE>

     asset shall be the amount  which a capable  and  diligent  business  person
could obtain for such asset from an interested  buyer who is willing to purchase
such asset under ordinary selling conditions.

     "Stated  Amount"  has the meaning  assigned to such term in the  respective
Letter of Credit.

     "Stated  Maturity  Date"  means May 17,  2004 (as such date may be extended
from time to time pursuant to Section 2.9).

     "Subordinated  Debt" means all unsecured  Indebtedness  of the Borrower for
money  borrowed  which  is   subordinated,   upon  terms   satisfactory  to  the
Administrative Agent, in right of payment to the payment of all Obligations.

     "Subsidiary"  means,  with  respect  to any  Person,  (a) a  corporation  a
majority of whose voting stock is at the time, directly or indirectly,  owned by
such Person,  by one or more  Subsidiaries  of such Person or by such Person and
one or more subsidiaries of such Person,  (b) a partnership in which such Person
or a Subsidiary  of such Person is, at the date of  determination,  a general or
limited partner of such  partnership,  but only if such Person or its subsidiary
is entitled to receive more than 50% of the assets of such  partnership upon its
dissolution  and which is otherwise  directly or  indirectly  controlled by such
Person,  or (c) any other Person (other than a corporation  or  partnership)  in
which such Person, directly or indirectly, at the date of determination thereof,
as (i) at least a  majority  ownership  interest  or (ii) the  power to elect or
direct the election of a majority of the  directors or other  governing  body of
such Person.  Unless the context otherwise clearly requires,  references in this
Agreement to a "Subsidiary" or the  "Subsidiaries"  refer to a Subsidiary or the
Subsidiaries of the Borrower.

     "Subsidiary  Guaranty  Agreement"  means (i) that certain Third Amended and
Restated Guaranty Agreement executed by the Material Restricted  Subsidiaries in
substantially the form of Exhibit J hereto, in favor of the Collateral Agent for
the  benefit of  itself,  the other  Agents,  the Banks and the  Issuer,  as the
foregoing may be amended, restated,  supplemented or modified from time to time,
and (ii) each Subsidiary  Guaranty Agreement delivered pursuant to Section 7.1.7
hereto,  as each of the foregoing  may be amended,  restated,  supplemented,  or
modified from time to time.

     "Subsidiary  Pledge  Agreement"  means  that  certain  Second  Amended  and
Restated Pledge Agreement of the Material Restricted  Subsidiaries as amended by
that certain First Amendment to Subsidiary Pledge Agreement in substantially the
form of Exhibit I hereto,  in favor of the  Collateral  Agent for the benefit of
itself,  the other Agents,  the Banks and the Issuer, and each Subsidiary Pledge
Agreement or counterpart  thereof delivered pursuant to Section 7.1.7 hereto, as
each may be amended, restated, supplemented, or modified.

     "Taxes" is defined in Section 4.6.

     "Total  Interest  Expense"  means,  with  respect to any period for which a
determination  thereof is to be made, the sum, without  duplication,  of (i) the
aggregate  amount of all interest  accrued  (whether or not paid) or capitalized
during such period, on all Indebtedness plus (ii) the portion of any Capitalized
Lease Liabilities allocable to interest expense in accordance with GAAP plus

                                       22
<PAGE>

     (iii) the interest portion of any deferred payment obligation minus (iv) to
the extent included in the foregoing  clause (i), the non-cash  accretion of the
discount and  amortization of the fees payable  hereunder to the  Administrative
Agent, the Collateral Agent, the Documentation  Agent, the Issuer, the Banks and
the Arrangers,  all determined for the Borrower and its Restricted  Subsidiaries
on a consolidated basis in accordance with GAAP.

     "Trade  Guarantees"  means  Contingent  Liabilities  in lieu of  letters of
credit  issued on behalf of the  Marketing  LLC for which the Borrower or one of
its  Subsidiaries is severally,  or jointly and severally with one or more other
Persons,  or both, liable,  provided that all such Contingent  Liabilities shall
not exceed $25,000,000 in the aggregate.  All joint and several Trade Guarantees
shall be subject to written  indemnification  agreements,  in form and substance
and from  Persons  satisfactory  to the Agents,  in their sole  discretion,  the
effect of which  shall be to reduce the  liability  of the  Borrower to not more
than the  percentage  of the  joint and  several  Trade  Guarantee  equal to the
Borrower's then current  ownership  interest in Marketing LLC. Trade  Guarantees
shall only be treated as Funded Debt for  purposes of computing  the  Borrower's
Funded  Debt  to  EBITDA  Ratio  to the  extent  such  Trade  Guarantees  exceed
$15,000,000  in the  aggregate,  and the amount of any joint and  several  Trade
Guarantees that are characterized as Funded Debt in calculating such ratio shall
be  reduced  by giving  effect  to the  aforementioned  written  indemnification
agreements. Notwithstanding the foregoing, the Majority Banks shall at all times
reserve  the right to  include  the  entire  amount of joint and  several  Trade
Guarantees,  or any portion thereof,  as Funded Debt in computing the Borrower's
Funded Debt to EBITDA  Ratio,  based on such factors as the  Majority  Banks may
from time to time deem material,  in their discretion;  provided,  however, that
the Administrative  Agent on behalf of the Majority Banks must give the Borrower
written  notice at least 90 days prior to the end of the Fiscal Quarter in order
for any amount of joint and several Trade Guarantees in excess of the Borrower's
and its  Subsidiaries'  ratable share of such joint and several Trade Guarantees
to be included as Funded Debt in computing the Borrower's  Funded Debt to EBITDA
Ratio for such Fiscal Quarter.

     "Transfer" is defined in Section 7.2.9.

     "type" means,  relative to any Loan,  the portion  thereof,  if any,  being
maintained as a Base Rate Loan or a LIBO Rate Loan.

     "United  States" or "U.S."  means the United  States of America,  its fifty
States and the District of Columbia.

     "Unrestricted  Subsidiaries" means (a) Hunter Butcher International Limited
Liability  Company,  (b)  Bluebird,  and (c) any  future  Subsidiary  formed  or
acquired by the  Borrower  that is  designated  by the board of directors of the
Borrower as an Unrestricted  Subsidiary;  provided,  however, that no Subsidiary
shall be designated as an  Unrestricted  Subsidiary if (i) a Default or Event of
Default  has  occurred  and is  continuing,  (ii)  all or any  portion  of  such
Subsidiary's assets are pledged to the Agents and the Banks under this Agreement
or any other Loan Document,  (iii) all or any portion of such  Subsidiary's  Oil
and Gas Properties are included in the  calculation of the Borrowing  Base, (iv)
the creation or formation of such  Subsidiary  would not  otherwise be permitted
under Section 10.3 or 10.5 hereof, or (v) the creation,  existence, or formation
of such Subsidiary

                                       23
<PAGE>

     would not be permitted  under any other  material  contract or agreement to
which the Borrower is a party.

     "Unused  Availability"  means at any time an amount  equal to the excess of
(i) the Commitment  Amount over (ii) the sum of (a)  outstanding  Loans plus (b)
Letter of Credit Liabilities.

     "Welfare Plan" means a "welfare  plan",  as such term is defined in section
3(1) of ERISA.

     "Wholly Owned  Subsidiary"  means a Subsidiary of the Borrower all of whose
Capital Stock,  except for director's  qualifying  shares,  is owned directly or
indirectly by the Borrower.

     SECTION 1.2. Use of Defined Terms.  Unless otherwise defined or the context
otherwise  requires,  terms for which  meanings are  provided in this  Agreement
shall have such meanings when used in the Disclosure  Schedule and in each Note,
Borrowing Request,  Continuation/Conversion  Notice,  Loan Document,  notice and
other  communication  delivered  from  time  to  time in  connection  with  this
Agreement or any other Loan Document.

     SECTION 1.3.  Cross-References.  Unless otherwise specified,  references in
this  Agreement  and in each other Loan  Document  to any Article or Section are
references  to such  Article  or Section  of this  Agreement  or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article,  Section or definition  to any clause are  references to such clause of
such Article, Section or definition.

     SECTION 1.4.  Accounting  and Financial  Determinations.  Unless  otherwise
specified,  all accounting terms used herein or in any other Loan Document shall
be interpreted,  all accounting  determinations  and  computations  hereunder or
thereunder  (including  under  Section  7.2.4) shall be made,  and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those United States generally  accepted  accounting  principles
("GAAP") applied in the preparation of the financial  statements  referred to in
Section  6.5.  In the event  any  change in GAAP  after  the date  hereof  would
materially  affect the  calculation  of the  financial  covenants  contained  in
Section  7.2.4,  the Borrower  and the Majority  Banks agrees to enter into good
faith  negotiations  for an agreement to revise such financial  covenants or the
definitions  of terms used  therein to take into  account  such changes in GAAP;
provided,  however, that until the Borrower and the Banks have entered into such
an  agreement,  such  financial  calculations  shall  continue  to  be  made  in
accordance with GAAP as in effect immediately prior to such change.

                                   ARTICLE II

                  THE COMMITMENTS, BORROWING PROCEDURES, NOTES,
                      LETTERS OF CREDIT AND BORROWING BASE

     SECTION 2.1. The Commitments. On the terms and subject to the conditions of
this Agreement  (including  Article V), each Bank severally agrees to make Loans
and participate in Letters of Credit,  and the Issuer agrees to issue Letters of
Credit, as described in this Section 2.1.

                                       24
<PAGE>

     SECTION 2.1.1. Loan Commitment.  On the terms and subject to the conditions
of this Agreement  (including  Article V), each Bank hereby  severally agrees to
make loans to the Borrower (relative to such Bank, and of any type, its "Loans")
from  time  to  time on any  Business  Day  occurring  prior  to the  Commitment
Termination Date, equal to such Bank's Percentage of the aggregate amount of the
Borrowing  requested  by the  Borrower  to be  made on such  Business  Day.  The
commitment of each Bank described in this Section 2.1.1 is herein referred to as
its "Commitment". On the terms and conditions hereof, the Borrower may from time
to time borrow, prepay and reborrow Loans.

     SECTION 2.1.2.  Commitment to Issue Letters of Credit. The Issuer agrees to
issue under the several  responsibilities  of the Banks in accordance with their
respective Percentages, from time to time after the Effective Date and until the
date that is thirty (30) days prior to the Commitment  Termination  Date, one or
more  standby  letters of credit  (herein  collectively  called the  "Letters of
Credit" and  individually  called a "Letter of  Credit")  for the account of the
Borrower and in the name of the Borrower or any Restricted  Subsidiary,  and for
the general corporate  purposes of the Borrower.  Each Letter of Credit shall be
denominated in U.S.  Dollars,  shall be payable only upon  presentation of sight
drafts or other forms of demand  together with any other  documents which may be
required  to be  presented  at the time of any  drawing  thereunder  (the  exact
wording of any such documents,  if any, having been specified in, or attached as
a copy to,  the  relevant  Letter of  Credit  Request),  and shall be  otherwise
substantially  upon such terms as the Borrower may specify in a Letter of Credit
Request  delivered  to the  Issuer  at least  three (3)  Business  Days (or such
shorter period as may be agreed among the Issuer, the  Administrative  Agent and
the  Borrower)  before the  proposed  date of issuance  thereof.  Each Letter of
Credit must be in form and substance satisfactory to the Issuer and shall have a
fixed  expiration  date  occurring not later than one (1) year after the date of
the issuance thereof, provided that each Letter of Credit may contain provisions
to extend the expiry thereof automatically for one or more successive periods of
not more than one year; provided,  however, that in no event shall any Letter of
Credit  provide for an expiry  later than ten (10) days prior to the  Commitment
Termination  Date. It is understood by the parties  hereto that for all purposes
of this Agreement,  each renewal, if applicable,  of a Letter of Credit shall be
considered an issuance thereof and the Borrower shall be required to comply with
all the  provisions  of this  Agreement  with respect to any such renewal to the
same extent as if a new Letter of Credit was being issued on such renewal  date.
Upon  fulfillment  of the  applicable  conditions  set  forth in  Article V with
respect to such  Letter of Credit and  subject to the terms  hereof,  the Issuer
shall issue such Letter of Credit promptly to the requested beneficiary and give
to the Banks prompt  written  notice (in  reasonable  detail) of such  issuance.
Promptly  after the issuance of or  amendment to a Letter of Credit,  the Issuer
shall notify the  Administrative  Agent and the  Borrower,  in writing,  of such
issuance or amendment,  and such notice shall be  accompanied  by a copy of such
issuance or amendment.  Upon receipt of such notice,  the  Administrative  Agent
shall  notify the Banks in writing  of such  issuance  or  amendment  and,  upon
receipt of written  request from a Bank,  shall provide such Bank with copies of
such issuance or amendment.

     SECTION  2.1.3.  Purchase  and Sale of  Participations  in Each  Letter  of
Credit.  Upon the terms and subject to the  conditions of this  Agreement,  each
Bank hereby purchases from the Issuer, and the Issuer hereby sells to such Bank,
an undivided  participation  in and to each Letter of Credit and the obligations
of the Borrower under this Agreement with respect thereto equal to its

                                       25
<PAGE>

     respective  Percentage.  The  Borrower  agrees that each Bank  purchasing a
participation  from the Issuer  pursuant to this Section  2.1.3 may exercise all
its rights to payment against the Borrower  including the right of setoff,  with
respect to such  participation as fully as if such Bank were the direct creditor
of the Borrower in the amount of such participation.

     SECTION 2.1.4. Banks Not Permitted or Required to Make Loans. No Bank shall
be  permitted  or  required  to make  any  Loan and the  Borrower  shall  not be
permitted to effectuate a reduction in the Maximum  Facility  Amount pursuant to
Section 2.2 if, after giving effect thereto,

     (a) the aggregate  outstanding  principal  amount of all Loans of all Banks
plus the aggregate amount of all Letter of Credit  Liabilities  would exceed the
Commitment Amount, or

     (b) the  aggregate  outstanding  principal  amount  of all  Loans  plus the
aggregate  amount of all of the Letter of Credit  Liabilities of such Bank would
exceed such Bank's Percentage of the Commitment Amount.

     SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit.
The Issuer shall not be permitted or required to issue any Letter of Credit, nor
shall the  Borrower be permitted to  effectuate  any  reduction in the Letter of
Credit  Commitment  Amount  pursuant  to Section  2.2 if,  after  giving  effect
thereto,

     (a) the aggregate amount of all Letter of Credit  Liabilities  would exceed
the Letter of Credit Commitment Amount, or

     (b) the aggregate amount of all outstanding Loans plus all Letter of Credit
Liabilities would exceed the Commitment Amount.

     SECTION 2.2.  Reduction of Maximum Facility Amount.  The Borrower may, from
time to  time on any  Business  Day  occurring  after  the  time of the  initial
extension of credit hereunder,  voluntarily  reduce the Maximum Facility Amount;
provided,  however,  that all such  reductions  shall require at least three (3)
Business Days' prior notice to the Administrative  Agent and shall be permanent,
and any partial  reduction of the Maximum  Facility Amount shall be in a minimum
amount of $1,000,000 and in an integral multiple of $500,000.

     SECTION 2.3.  Borrowing  Procedures  for Loans.  By  delivering a Borrowing
Request to the  Administrative  Agent on or before (i) 11:00 a.m., New York time
in the case of Base Rate Loans on the Business Day on which such Borrowing is to
be made and (ii) 12:00 noon, New York time in the case of a LIBO Rate Loan three
(3) Business  Days prior to the  Business  Day on which such  Borrowing is to be
made, the Borrower may from time to time irrevocably request that a Borrowing be
made in a minimum amount of $500,000 and an integral multiple of $100,000, or in
the unused amount of the Commitments. The Administrative Agent at its option may
accept  telephonic  requests for Loans,  provided that such acceptance shall not
constitute  a  waiver  of the  Administrative  Agent's  right to  delivery  of a
Borrowing  Request in connection with subsequent  Loans. Any telephonic  request
for a Loan by the  Borrower  shall be  promptly  confirmed  by  submission  of a
properly completed Borrowing Request to the Administrative Agent. On the terms

                                       26
<PAGE>

     and subject to the conditions of this Agreement,  each Borrowing  comprised
of Loans  shall be  comprised  of the type of  Loans,  and  shall be made on the
Business Day, specified in such Borrowing Request.  On or before 12:00 noon (New
York time) on such Business Day each Bank shall deposit with the  Administrative
Agent  same  day  funds in an  amount  equal to such  Bank's  Percentage  of the
requested  Borrowing.  Such  deposit  will  be  made  to an  account  which  the
Administrative  Agent shall specify from time to time by notice to the Banks. To
the extent funds are received  from the Banks,  the  Administrative  Agent shall
make such funds  available to the Borrower by wire  transfer to the accounts the
Borrower shall have specified in its Borrowing Request.  No Bank's obligation to
make any Loan shall be affected by any other Bank's failure to make any Loan.

     SECTION  2.4.  Continuation  and  Conversion  Elections.  By  delivering  a
Continuation/Conversion  Notice to the  Administrative  Agent on or before 12:00
noon,  New York time,  on a Business  Day,  the  Borrower  may from time to time
irrevocably elect, on not less than three (3) Business Days' notice, that all or
any portion in an aggregate  minimum amount of $500,000 and an integral multiple
of  $100,000,  of any Loans to the  Borrower be, in the case of Base Rate Loans,
converted into LIBO Rate Loans or, in the case of LIBO Rate Loans,  converted on
the  last day of the then  current  Interest  Period  into a Base  Rate  Loan or
continued   as  a  LIBO   Rate  Loan  (in  the   absence   of   delivery   of  a
Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three
(3) Business Days before the last day of the then current  Interest  Period with
respect  thereto,  such LIBO Rate Loan  shall,  on such last day,  automatically
convert to a LIBO Rate Loan  having an  Interest  Period of one month  except as
provided in clause (ii) of the proviso to this Section 2.4); provided,  however,
that (i) each such  conversion  or  continuation  shall be pro  rated  among the
applicable  outstanding  Loans of all Banks to the Borrower,  (ii) no portion of
the outstanding  principal  amount of any Loans may be so continued as, or be so
converted into, LIBO Rate Loans when any Default has occurred and is continuing,
and (iii)  continuation  of a LIBO Rate Loan, the conversion of a Base Rate Loan
into a LIBO  Rate  Loan or the  conversion  of a LIBO Rate Loan into a Base Rate
Loan pursuant to this Section 2.4 shall not  constitute a Borrowing for purposes
of Section 5.2.1 or Article VI of this Agreement.

     SECTION  2.5.  Funding.  Each  Bank  may,  if it  so  elects,  fulfill  its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign  branches or Affiliates  (or an  international  banking  facility
created  by such  Bank) to make or  maintain  such  LIBO  Rate  Loan;  provided,
however,  that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Bank,  and the  obligations of the Borrower to repay such
LIBO Rate  Loan  shall  nevertheless  be to such  Bank for the  account  of such
foreign branch,  Affiliate or international banking facility.  In addition,  the
Borrower hereby consents and agrees that, for purposes of any  determination  to
be made for purposes of Sections 4.1, 4.2, 4.3 or 4.4, it shall be  conclusively
assumed that each Bank elected to fund all LIBO Rate Loans by purchasing  Dollar
deposits in its LIBOR Office's interbank eurodollar market.

     SECTION  2.6.  Notes.  Each  Bank's  Loans  under its  Commitment  shall be
evidenced  by a Note  payable  to the order of such Bank in a maximum  principal
amount  equal to such  Bank's  Percentage  of Two  Hundred  Twenty-Five  Million
Dollars. The Borrower hereby irrevocably  authorizes each Bank to make (or cause
to be made)  appropriate  notations on the grid attached to such Bank's Note (or
on any continuation of such grid or otherwise in its records), which notations,

                                       27
<PAGE>

     if made, shall evidence, inter alia, the date of, the outstanding principal
of, and the interest rate and Interest Period  applicable to the Loans evidenced
thereby.  Such notations  shall be conclusive and binding on the Borrower absent
manifest error; provided, however, that the failure of any Bank to make any such
notations shall not limit or otherwise affect any Obligations of the Borrower.

     SECTION 2.7. Certain Provisions Relating to the Letters of Credit.

     SECTION 2.7.1. Borrower's Agreement to Repay Letter of Credit Drawings. The
Borrower hereby agrees to reimburse the Issuer,  forthwith,  for each payment or
disbursement  made by the Issuer to settle its obligations under any draft drawn
under any Letter of Credit,  with interest on the amount so paid or disbursed by
the Issuer from and  including  the date of payment or  disbursement  to but not
including  the date the  Issuer  is  reimbursed  therefor,  at a rate per  annum
(computed on the basis of a year  consisting of 365, or where  appropriate  366,
days) equal to the rate set forth in Section  3.2.1(a).  In the event the Issuer
is not  reimbursed  by the Borrower on the  disbursement  date, or if the Issuer
must for any reason return or disgorge such  reimbursement,  the Banks shall, on
the  terms  and  subject  to  the  conditions  of  this   Agreement,   fund  the
reimbursement obligation therefor by making, on the next Business Day, Base Rate
Loans as provided in Section 2.1.1 to the Borrower (the Borrower being deemed to
have given a timely  Borrowing  Request  therefor  for such amount) by the Banks
making payment to the Issuer's account;  provided,  however,  for the purpose of
determining the availability of the Commitments to make Loans  immediately prior
to  giving  effect  to the  application  of the  proceeds  of such  Loans,  such
reimbursement obligation shall be deemed not to be outstanding at such time. The
Issuer  agrees to provide to the Borrower  prompt  notice of any such payment or
disbursement  made by the Issuer or Loans made by the Banks;  provided  that the
Issuer's  failure to provide such prompt notice shall not limit or impair in any
way the Borrower's obligations hereunder. The Borrower's obligation to reimburse
the Issuer  forthwith  under this Section  2.7.1 for payments and  disbursements
made by the Issuer under any Letter of Credit shall be  irrespective  of any set
off,  counterclaim or defense to payment which the Borrower may have or have had
against the Issuer, or the legality,  validity,  regularity or enforceability of
such Letter of Credit; provided, however, the Borrower shall not be obligated to
reimburse the Issuer for any wrongful payment or disbursement made by the Issuer
under any Letter of Credit which payment occurs as a result of acts or omissions
constituting gross negligence or willful misconduct on the part of the Issuer or
any of its  officers,  employees  or agents  determined  by a court of competent
jurisdiction in a final non-appealable judgment.

     SECTION 2.7.2.  Reimbursement Obligations of the Banks under the Letters of
Credit. If the Borrower shall fail pursuant to the terms of Section 2.7.1 hereof
forthwith to reimburse the Issuer for each payment or  disbursement  made by the
Issuer to settle  its  obligations  under any draft  drawn  under any  Letter of
Credit and the Banks shall not have made a Loan as provided in Section  2.7.1 to
fund such  reimbursement  obligation,  then upon  demand by the Issuer each Bank
shall  forthwith  make  available  to the Issuer at its office  indicated on its
signature page hereto (or at such other address  designated by the Issuer to the
Administrative  Agent)  immediately  available  funds in an amount equal to such
Bank's pro rata share (according to its respective  Percentage) of the amount so
paid or disbursed by the Issuer. Each Bank shall jointly and severally indemnify
and hold  harmless  the Issuer from and against any and all losses,  liabilities
(including,  without  limitation,  liabilities for penalties),  actions,  suits,
judgments, demands, damages, costs and expenses (including,

                                       28
<PAGE>

     without  limitation,  attorneys'  fees  and  expenses)  resulting  from any
failure on the part of such Bank to provide, or from any delay in providing, the
Issuer with such Bank's share of the amount of any payment or disbursement  made
by the Issuer to settle its  obligations  under any draft drawn under any Letter
of Credit in accordance with the provisions of the preceding sentence.

     The obligation of each Bank to provide the Issuer with such Bank's pro rata
share of the amount of any payment or disbursement  made by the Issuer to settle
its  obligations  under any draft drawn under any Letter of Credit in accordance
with  the  provisions  of  the  preceding   paragraph   shall  be  absolute  and
unconditional  under any and all  circumstances and irrespective of any set off,
withholding, abatement, reduction, counterclaim or defense to payment which such
Bank may have or have had against the Issuer, including, without limitation, any
defense  based on the  failure of the demand for  payment  under such  Letter of
Credit  to  conform  to the terms of such  Letter  of  Credit  or the  legality,
validity,  regularity  or  enforceability  of such  Letter of Credit;  provided,
however, that no Bank shall be obligated to reimburse the Issuer pursuant to the
preceding  provisions  of  this  Section  2.7.2  for  any  wrongful  payment  or
disbursement  made by the Issuer  under any Letter of Credit as a result of acts
or omissions  constituting gross negligence or willful misconduct on the part of
the Issuer or any of its officers,  employees or agents determined by a court of
competent jurisdiction in a final non-appealable judgment.

     SECTION 2.7.3.  Action Upon Occurrence of Default.  If any Event of Default
described  in clauses  (a)  through  (d) of  Section  8.1.9  shall  occur and be
continuing, the Borrower shall automatically,  without demand or request, and if
any other Event of Default shall occur and be continuing, the Borrower shall, if
requested by the Administrative Agent or the Majority Banks, immediately deposit
with and pledge to the Administrative Agent cash or Cash Equivalent  Investments
satisfactory to the Administrative  Agent, in an amount equal to the outstanding
Letter of Credit Liabilities as security for the Obligations.

     SECTION 2.7.4. Cash Collateral  Procedures.  Any amounts so received by the
Administrative  Agent pursuant to the provisions of Section 2.7.3 or Section 3.1
shall be held as collateral  security first for the repayment of all Obligations
in  connection  with the Letters of Credit and second for the  repayment  of all
other Obligations.  All amounts being held pursuant to this Section 2.7.4 shall,
until their  application to any Obligations or their return to the Borrower,  as
the  case  may be,  at the  written  request  of an  Authorized  Officer  of the
Borrower, be invested in Cash Equivalent  Investments designated by the Borrower
and  reasonably  satisfactory  to the  Administrative  Agent  but under the sole
dominion  and control of the  Administrative  Agent.  Such amounts and such Cash
Equivalent  Investments shall be held by the Administrative  Agent as additional
collateral  security for, and the Borrower  hereby grants to the  Administrative
Agent and its bailees for the benefit of the Agents,  the Issuer and the Banks a
security  interest  in  such  amounts  and  such  Cash  Equivalent   Investments
(including  all  interest  thereon  and all  proceeds  thereof)  to secure,  the
repayment of the Obligations  under and in connection with the Letters of Credit
and all other Obligations.  Any losses, net of earnings, and reasonable fees and
expenses  of such Cash  Equivalent  Investments  shall be  charged  against  the
principal amount invested. None of the Agents, the Issuer and the Banks shall be
liable for any loss resulting from any Cash  Equivalent  Investment  made by the
Administrative  Agent,  whether  at the  Borrower's  request or  otherwise.  The
Administrative Agent is not obligated hereby, or by any other Loan Documents, to
make or maintain

                                       29
<PAGE>

     any Cash  Equivalent  Investment,  except upon timely written request by an
Authorized  Officer  of  the  Borrower.  If  and  to the  extent  that  (a)  all
Obligations  have been fully and  indefeasibly  paid and satisfied,  and (b) the
commitments  and  obligations  of the Issuer and the Banks  under the Letters of
Credit and this  Agreement  have  terminated,  the  Administrative  Agent  shall
promptly  (and in any event by the end of the next  Business  Day) return to the
Borrower by wire transfer in immediately available funds, all amounts previously
paid to the  Administrative  Agent by the Borrower  pursuant to Section 2.7.3 or
Section 3.1 together with interest thereon,  if any, not theretofore  applied to
reduce  amounts  payable by the  Borrower to the Agents,  the Issuer or any Bank
under this Agreement or any other Loan Document.

     SECTION  2.7.5.  Nature of  Reimbursement  Obligations.  The Borrower shall
assume,  and, to the extent set forth in Section 2.7.2 each Bank shall severally
assume its pro rata share of, all risks of the acts, omissions, or misuse of any
Letter of Credit by the beneficiary thereof. The Issuer (except to the extent of
its own gross  negligence or willful  misconduct or that of any of its officers,
employees  or agents as  determined  by a court of competent  jurisdiction  in a
final  non-  appealable  judgment)  shall not be  responsible  for (a) the form,
validity,  sufficiency,  accuracy, genuineness, or legal effect of any Letter of
Credit or any document submitted by any party in connection with the application
for and issuance of a Letter of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient,  inaccurate,  fraudulent, ineffective
or forged; (b) the form, validity, sufficiency,  accuracy, genuineness, or legal
effect of any instrument  transferring or assigning or purporting to transfer or
assign a Letter of  Credit or the  rights or  benefits  thereunder  or  proceeds
thereof in whole or in part,  which may prove to be invalid or  ineffective  for
any  reason;  (c) failure of the  beneficiary  to comply  fully with  conditions
required in order to demand payment under a Letter of Credit,  including failure
of any  documents  to bear  adequate  reference  to such  Letter of Credit;  (d)
errors, omissions,  interruptions,  or delays in transmission or delivery of any
messages, by mail, cable, telegraph,  telex, or otherwise; (e) any loss or delay
in the  transmission  or otherwise of any document or draft required in order to
make a payment  or  disbursement  under a Letter  of  Credit or of the  proceeds
thereof; (f) the use which may be made of any Letter of Credit or of any acts of
any beneficiary or transferee in connection  therewith;  (g) any error, neglect,
default,  suspension or insolvency,  of any of the Issuer's correspondents;  (h)
errors in translation or for errors in interpretation of technical terms; or (i)
any other  circumstance  whatsoever in making or failing to make payment under a
Letter of Credit.  None of the foregoing  shall affect,  impair,  or prevent the
vesting of any of the rights or powers granted the Issuer or any Bank hereunder.
In furtherance and extension, and not in limitation or derogation, of any of the
foregoing,  any action taken or omitted to be taken by the Issuer in  connection
with a Letter of Credit in good faith (and not constituting  gross negligence or
wilful misconduct as determined by a court of competent  jurisdiction in a final
non-appealable  judgment)  shall be binding  upon the Borrower and each Bank and
shall not put the Issuer  under any  resulting  liability to the Borrower or any
Bank, as the case may be.

     SECTION 2.8. Borrowing Base.

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<PAGE>

     SECTION 2.8.1.  Determination of the Borrowing Base. During the period from
the date hereof to the date of the first  determination  of the  Borrowing  Base
pursuant to the further  provisions  of this Section 2.8, the initial  amount of
the Borrowing Base has been set by the Administrative  Agent and acknowledged by
the Borrower and agreed to by the Banks to be $112,500,000.

     SECTION 2.8.2.  Redetermination of Borrowing Base. The Borrowing Base shall
be redetermined  semiannually  as provided  below.  Upon delivery of the Reserve
Reports  required  by  Section  7.1.1(m)  and  such  other  reports,   data  and
supplemental  information as may, from time to time, be reasonably  requested by
the  Administrative  Agent and the Banks,  together with a  certificate  from an
Authorized Officer certifying that, to the best of such officer's Knowledge, (A)
the factual  information  upon which such Reserve  Reports are based is true and
correct,  (B) the certificate  identifies the Oil and Gas Properties  covered by
the Reserve Reports that have not been previously  included in any prior Reserve
Report,  and (C) the Mortgaged  Properties  constitute  not less than 80% of the
present value of the Proved Reserves (whether  developed or undeveloped) and (D)
no Mortgaged  Properties  have been sold since the last  Determination  Date, on
each Determination Date or on such other date as otherwise permitted  hereunder,
the Administrative Agent shall redetermine the Borrowing Base in accordance with
its  customary  practices  and  standards  for loans secured by similar types of
property.  Within 30 days of its receipt of the relevant  Reserve  Reports,  the
Administrative Agent shall recommend a redetermined Borrowing Base in writing to
the Banks (the  "Recommended  Borrowing  Base").  Within  ten days  after  their
receipt  of  the   Recommended   Borrowing   Base,  each  Bank  shall  give  the
Administrative  Agent  written  notice  of  whether  such Bank  approves  of the
Recommended  Borrowing  Base, and if such Bank does not approve the  Recommended
Borrowing Base, then the maximum Borrowing Base acceptable to such Bank. For any
redetermination  of the  Borrowing  Base that would,  if approved,  result in an
increase of the then- effective Borrowing Base, the approval of all of the Banks
shall be required.  For any other  redetermination  of the Borrowing  Base,  the
approval of the Majority  Banks shall be required.  In the event that all of the
Banks or the  Majority  Banks,  as  applicable,  shall  approve the  Recommended
Borrowing Base, the  Administrative  Agent shall, by written notice to each Bank
and the Borrower,  designate  the  Recommended  Borrowing  Base as the Borrowing
Base, which shall become immediately effective;  provided,  however, that in the
event that the  Recommended  Borrowing  Base would,  if  approved,  result in an
increase of the then-effective Borrowing Base and one or more of the Banks shall
disapprove (or be deemed to have  disapproved)  such Recommended  Borrowing Base
but the Majority Banks shall approve such Recommended  Borrowing Base (such Bank
hereinafter  called a  "Dissenting  Bank"),  then the  Administrative  Agent (i)
shall,  by  written  notice  to each  Bank and the  Borrower,  designate  as the
Borrowing Base the greater of (1) the greatest  amount  resulting in an increase
of the then-effective  Borrowing Base that was approved by all the Banks and (2)
the greatest amount equal to or less than the then-effective Borrowing Base that
was  approved by the Majority  Banks,  and (ii) shall notify the Borrower of the
name of each Dissenting Bank. The Borrower may, within 90 days after the date on
which the Borrower  received  notice of the Borrowing  Base and the  information
specified in clauses (i) and (ii) of the proviso above and so long as no Default
shall have  occurred  and be  continuing,  elect to  terminate  such  Dissenting
Bank(s) as a party to this  Agreement;  provided  that,  concurrently  with such
termination the Borrower shall (x) if the  Administrative  Agent, the Issuer and
each of the other  Banks shall  consent,  pay to each such  Dissenting  Bank all
principal, interest and fees and other amounts owed to each such

                                       31
<PAGE>

     Dissenting  Bank through such date of  termination or (y) have arranged for
an assignee  acceptable to the  Administrative  Agent and the Issuer to become a
substitute  Bank for all purposes under this Agreement in the manner provided in
Section 10.11.1; and further provided,  however, that, prior to substitution for
any  Dissenting  Bank,  the  Borrower  shall  have given  written  notice to the
Administrative  Agent of such intention  and, if requested by the Borrower,  the
Banks other than any Dissenting  Bank shall have the option,  but no obligation,
to increase their  Commitments in order to replace the Dissenting Bank. Upon the
termination of a Dissenting Bank in any manner  provided above,  the Recommended
Borrowing Base shall  automatically  and immediately  become the Borrowing Base.
Anything herein contained to the contrary notwithstanding,  any determination or
redetermination  of the  Borrowing  Base must be approved by all the Banks using
their  customary  practices  and  standards for oil and gas loans and letters of
credit and based upon the most recent Reserve Report and other  information;  it
being  understood that the Banks have no commitment or obligation  whatsoever to
increase the Borrowing Base to any amount in excess of $112,500,000  and nothing
herein contained shall be construed to be a commitment to increase the Borrowing
Base.

     SECTION 2.8.3.  Special  Redetermination  of Borrowing Base. In addition to
the  redeterminations  of the Borrowing Base required pursuant to Section 2.8.2,
special  redeterminations  thereof  may be made for any  reason at the option of
either (i) the Borrower or (ii) Majority  Banks (but not more than one time each
during  each  calendar  year).  To  request  a  special  redetermination  of the
Borrowing Base, the Person(s) requesting such redetermination  shall provide the
(x) Administrative Agent and (y) the Borrower or the Banks, as applicable,  with
a written request of such redetermination.  Any such special  redetermination of
the Borrowing Base shall be made by the Banks in  consultation  with one another
using their customary  standards for oil and gas lending and shall be based upon
the most recent Reserve  Report  delivered to the Banks by the Borrower and such
other reports and data as the Banks may reasonably  request.  The Administrative
Agent shall notify the  Borrower of the  redetermined  Borrowing  Base within 45
days  of the  Administrative  Agent's  receipt  of the  special  redetermination
request  and the  redetermined  Borrowing  Base  shall be  effective  upon  such
notification.  If the  special  redetermination  results  in a  decrease  in the
Borrowing Base such that a Borrowing Base Deficiency  exists after giving effect
to such  redetermined  Borrowing Base, the Borrower shall (i) repay the Loans or
(ii)  execute and deliver (or cause to be  executed  and  delivered)  additional
Security Documents, in either case as required by Section 3.1(c).

     SECTION 2.8.4.  General  Provisions With Respect to the Borrowing Base. For
the  purposes of this  Agreement,  the  Borrowing  Base to be  certified  by the
Administrative  Agent and the Banks from time to time may be, at the  discretion
of the Borrower,  the lesser of (x) the sum of the aggregate principal amount of
the Loans  and the  aggregate  face  amount of the  Letters  of Credit  that the
Administrative  Agent,  the Issuer and the Banks are willing to have outstanding
to the Borrower, and (y) the amount requested by the Borrower. The determination
of the Borrowing Base shall be made by the Administrative  Agent, the Issuer and
the Banks in  accordance  with the other  provisions of Section 2.8 based on the
most recently  delivered  Reserve Report and other relevant  information  and in
accordance with their  customary  practices for oil and gas loans and letters of
credit as in effect from time to time.

                                       32
<PAGE>

     SECTION 2.9.  Extension of Stated Maturity Date. (a) Provided no Default or
Event of Default shall have occurred and be continuing, the Borrower may request
an extension of the then current Stated  Maturity Date for  additional  one-year
periods by giving notice to the Administrative  Agent (an "Extension  Request"),
substantially  in the form of Exhibit K hereto,  on or before  thirty  (30) days
prior to, but not more than sixty (60) days prior to,  each of May 17, 2002 and,
if previously so extended, May 17, 2003. The Administrative Agent shall promptly
transmit the  contents of each such  Extension  Request to each Bank.  Each Bank
may, in its sole and absolute discretion, indicate its consent to such requested
extension  by  acknowledging  such  Extension  Request  and  indicating  in  its
acknowledgment  whether it consents to the extension of the then current  Stated
Maturity Date and returning  such  acknowledgment  to the  Administrative  Agent
within  fifteen (15) Business Days after receipt.  Failure to  acknowledge  such
Extension  Request shall be deemed to be a rejection of the Extension Request by
such Bank and  notwithstanding any other term or provision hereof, no Bank shall
have any obligation to consent to any extension of the Stated  Maturity Date and
no  extension  shall be  effective  unless the  Administrative  Agent shall have
received acknowledged consents from all of the Banks.

     (b)  Provided  the  Administrative  Agent shall have  received on or before
fifteen (15) days prior to May 17, 2002, or on or before fifteen (15) days prior
to May 17, 2003, as applicable, consents acknowledged by all of the Banks to the
extension of the Stated  Maturity Date,  the then current  Stated  Maturity Date
shall be extended for an additional one-year period, in each case subject to the
other terms and conditions of this Agreement,  and any other modification agreed
to by the parties in connection with such extension.

     SECTION 2.10. Replacement of Issuer. The Issuer may be replaced at any time
by written agreement among the Borrower,  the Administrative Agent, the replaced
Issuer and the  successor  Issuer,  which  successor  Issuer must be a financial
institution that is a Bank; provided,  however,  that, Bankers Trust, as Issuer,
may by written agreement between Bankers Trust, as replaced Issuer, and Deutsche
Bank AG New York  Branch,  as  successor  Issuer,  (with a copy of such  written
agreement  to be  provided  to the  Administrative  Agent) be replaced as Issuer
hereunder and under the other Loan  Documents.  The  Administrative  Agent shall
notify the Banks of any such  replacement  of the  Issuer.  At the time any such
replacement shall become  effective,  the Borrower shall pay any fees which have
become  payable for the account of the replaced  Issuer under this Agreement and
under any other Loan  Document,  and the  Administrative  Agent  shall  allocate
between the replaced Issuer and the successor Issuer the quarterly  fronting fee
payments  under  Section  3.3.5 when and as received  from the  Borrower for the
account of the replaced Issuer and/or the successor  Issuer, as the case may be.
From and after the  effective  date of any such  replacement,  (a) the successor
Issuer  shall have all of the rights and  obligations  of the Issuer  under this
Agreement  and under the other Loan  Documents  with  respect to the  Letters of
Credit to be issued  thereafter and (b) references  herein and in the other Loan
Documents to the term "Issuer"  shall be deemed to refer to such successor or to
any previous Issuer, as the context shall require.  After the replacement of the
Issuer  hereunder,  the  replaced  Issuer  shall remain a party hereto and shall
continue  to have all the  rights  and  obligations  of the  Issuer  under  this
Agreement  with  respect  to the  Letters  of Credit  issued by it prior to such
replacement, but shall not be required to issue additional, or any amendment to,
Letters of Credit.

                                       33
<PAGE>

                                   ARTICLE III

                   REPAYMENTS, PREPAYMENTS, INTEREST AND FEES

     SECTION 3.1.  Repayments and Prepayments.  The Borrower shall repay in full
the unpaid principal amount of each Loan upon the Stated Maturity Date therefor.
Prior thereto, the Borrower

     (a)  may,  from  time  to  time  on any  Business  Day,  make  a  voluntary
prepayment,  in whole or in part,  of the  outstanding  principal  amount of any
Loans of the Borrower;  provided, however, that (i) any such prepayment shall be
made pro rata among Loans to the  Borrower of the same type and, if  applicable,
having the same Interest Period,  of all Banks;  (ii) if the Borrower makes such
prepayment  of any  LIBO  Rate  Loan on any day  other  than the last day of the
Interest  Period for such Loan then the Borrower  shall be  responsible  for the
increased  cost to the Banks as provided  more fully in Section  4.4;  (iii) all
such  voluntary  prepayments  shall require at least three but no more than five
(5) Business Days' prior written notice to the  Administrative  Agent;  and (iv)
all such voluntary  partial  prepayments shall be in an aggregate minimum amount
of $500,000 and an integral multiple of $100,000;

     (b)  shall,  on each  date  when any  reduction  in or  termination  of the
Commitment Amount shall become effective (including pursuant to Section 2.2, but
excluding any such  reduction or  termination  resulting  from a Borrowing  Base
Deficiency),  first, make a mandatory  prepayment in an amount at least equal to
the  aggregate,  outstanding  principal  amount  of all  Loans in  excess of the
Commitment  Amount as reduced or terminated,  and, if such mandatory  prepayment
was not  sufficient  to reduce the unpaid  principal  balance of the Loans to an
amount  that,  when added to Letter of Credit  Liabilities,  does not exceed the
Commitment Amount as reduced or terminated, then second, deposit cash collateral
with the Administrative Agent as security for the Obligations,  such prepayments
and cash  deposits  to be in an  amount  equal  to the  excess,  if any,  of the
aggregate,  outstanding  principal  amount  of all  Loans  and  Letter of Credit
Liabilities over the Commitment Amount as so reduced or terminated;

     (c)  shall,   within   ten  (10)  days  of  receipt  of  notice   from  the
Administrative  Agent that a Borrowing Base  Deficiency then exists (or delivery
of notice from the Borrower of a Borrowing Base Deficiency  required pursuant to
Section 7.1.1(e)),  either (i) make mandatory  prepayments equal to at least the
Required  Deficiency Payment for each Borrowing Base Deficiency Payment Date, or
(ii) notify the Administrative Agent that it shall execute and deliver, or cause
one or more of its  Restricted  Subsidiaries  to  execute  and  deliver,  to the
Collateral  Agent within sixty (60) days from and after  receipt by the Borrower
of notice of the Borrowing Base Deficiency,  supplemental or additional Security
Documents,  in form and substance reasonably  satisfactory to the Administrative
Agent and the Collateral  Agent securing payment of the Obligations and covering
other  Properties  of the  Borrower or its  Restricted  Subsidiaries,  including
additional Oil and Gas Properties  directly owned by the Borrower or one or more
of the  Restricted  Subsidiaries  which  are not then  covered  by any  Security
Document and which are of a type and nature satisfactory to the Administrative

                                       34
<PAGE>

     Agent,  and having a value (as determined by the  Administrative  Agent and
the Banks in their sole discretion), in addition to other Oil and Gas Properties
already  subject to a Mortgage,  sufficient  to  eliminate  the  Borrowing  Base
Deficiency;  provided,  that if the Borrower  shall elect to execute and deliver
(or cause one or more of its  Restricted  Subsidiaries  to execute and  deliver)
supplemental  or  additional  Security  Documents  to the  Administrative  Agent
pursuant to subclause (ii) of this Section 3.1(c), it shall provide concurrently
with notice of such election to the  Administrative  Agent with  descriptions of
the  additional  assets  to be  collaterally  assigned  (together  with  current
valuations,  engineering reports, Security Documents described in such subclause
(ii),  title  evidence  or  opinions  applicable  thereto  and  other  documents
including  opinions  of counsel,  each of which  shall be in form and  substance
reasonably  satisfactory to the Administrative Agent); and further provided that
if the Administrative Agent has not received within such ten (10) day period the
required  notice  from the  Borrower  that the  Borrower  shall take the actions
described in subclause (ii) within such sixty (60) day period,  then without any
necessity for notice to the Borrower or any other person,  the Borrower shall be
deemed  to have  elected  to make  mandatory  prepayments  equal to at least the
Required Deficiency Payment for each Borrowing Base Deficiency Payment Date;

     (d) shall, immediately upon any acceleration of the Stated Maturity Date of
any Loans  pursuant to Section 8.2 or Section  8.3,  repay all Loans and deposit
cash  collateral  with the  Administrative  Agent as security  for the Letter of
Credit Liabilities, unless, pursuant to Section 8.3, only a portion of all Loans
and Letters of Credit is so accelerated; and

     (e) shall,  on the first  Business Day following any  disposition of assets
(other than  dispositions  of  Hydrocarbons  in the ordinary course of business)
permitted  by Section  7.2.9,  make a payment  of 100% of the Net Cash  Proceeds
received  from such  disposition  to be  applied  to the  outstanding  Loans (or
deposited as cash collateral with the  Administrative  Agent as security for the
Letter of Credit  Liabilities);  provided,  however,  that if no Borrowing  Base
Deficiency  shall exist as a result of such  disposition and no Event of Default
has  occurred  and is  continuing,  the  Borrower may retain such funds and such
payment shall not be required.

     Each  prepayment of any Loan made pursuant to this Section shall be without
premium or penalty, except for reimbursements as may be required by Section 4.4.
No  prepayment  of  principal  of any  Loans  shall  cause  a  reduction  in the
Commitment  Amount.  All amounts paid  pursuant to this Section shall be applied
first as  prepayments  on the Loans and to the extent all Loans are repaid,  any
excess amount shall be  transferred  to the  Administrative  Agent to be held as
cash  collateral for the  Obligations  and applied  thereto  pursuant to Section
2.7.4.

     SECTION 3.2.  Interest  Provisions.  Interest on the outstanding  principal
amount of Loans shall accrue and be payable by the Borrower in  accordance  with
this Section 3.2.

     SECTION 3.2.1.  Rates.  Pursuant to an  appropriately  delivered  Borrowing
Request or  Continuation/Conversion  Notice,  the  Borrower may elect that Loans
comprising a Borrowing to the Borrower accrue interest at a rate per annum:

                                       35
<PAGE>

     (a) on that portion maintained from time to time as a Base Rate Loan, equal
to the sum of the  Alternate  Base Rate  from  time to time in  effect  plus the
Applicable Margin with respect to Base Rate Loans;

     (b) on that portion  maintained  as a LIBO Rate Loan,  during each Interest
Period applicable thereto,  equal to the sum of the LIBO Rate (Reserve Adjusted)
for such Interest  Period plus the  Applicable  Margin with respect to LIBO Rate
Loans.

     All LIBO Rate Loans shall bear interest from and including the first day of
the  applicable  Interest  Period  to (but not  including)  the last day of such
Interest  Period at the interest rate determined as applicable to such LIBO Rate
Loan.

     SECTION  3.2.2.  Post-Default  Rates.  After the occurrence of any Event of
Default  or after  the date  (after  giving  effect  to any  grace  period)  any
principal  amount of any Loan is due and payable (whether on the Stated Maturity
Date, upon acceleration or otherwise), or after any other monetary Obligation of
the Borrower shall have become due and payable, the Borrower shall pay, but only
to the extent permitted by law, interest (after as well as before judgment) at a
rate per annum  equal to the sum of (x) the  Alternate  Base Rate plus (y) 2.00%
plus (z) the  Applicable  Margin from time to time in effect for Base Rate Loans
(the "Default Rate").

     SECTION  3.2.3.  Payment  Dates.  Interest  accrued  on each Loan  shall be
payable,  without duplication,  by the Borrower: (a) on the Stated Maturity Date
therefor; (b) on the date of any payment or prepayment,  in whole or in part, of
principal outstanding on such Loan; (c) with respect to Base Rate Loans, on each
Quarterly  Payment Date occurring  after the Effective Date; (d) with respect to
LIBO Rate Loans,  the last day of each applicable  Interest Period (and, if such
Interest Period shall exceed 90 days, on the 90th day of such Interest  Period);
(e) with respect to any Base Rate Loans  converted into LIBO Rate Loans on a day
when interest would not otherwise  have been payable  pursuant to clause (c), on
the date of such  conversion;  and (f) on that  portion  of any Loans the Stated
Maturity  Date of which is  accelerated  pursuant to Section 8.2 or Section 8.3,
immediately upon such acceleration.  Interest accrued on Loans or other monetary
Obligations  arising under this  Agreement or any other Loan Document  after the
date such amount is due and payable  (whether on the Stated  Maturity Date, upon
acceleration or otherwise) shall be payable, by the Borrower upon demand.

     SECTION 3.3.  Fees.  The Borrower  agrees to pay the fees set forth in this
Section 3.3. All such fees shall be non-refundable.

     SECTION  3.3.1.   Commitment  Fee.  The  Borrower  agrees  to  pay  to  the
Administrative  Agent for the account of each Bank, for the period commencing on
the date hereof and continuing through the final Commitment  Termination Date, a
commitment  fee equal to (i) such  Bank's  Percentage  of the sum of the average
daily unused portion of the Commitment  Amount during the period  preceding each
Quarterly  Payment Date and  occurring on or after the prior  Quarterly  Payment
Date,  multiplied by (ii) the rate set forth in the following  grid opposite the
applicable  Borrowing Base Usage (which  percentage  shall change  automatically
without notice as and when the Borrowing Base Usage  changes).  Such  commitment
fees shall be payable by the Borrower in

                                       36
<PAGE>

     arrears on each Quarterly Payment Date,  commencing with the first such day
following the Effective Date, and on the Commitment Termination Date.


      Borrowing Base Usage
              (BBU)                        Commitment Fee
              -----                        --------------
            BBU < 50%                         25.0 bps
           BBU >= 50%                         37.5 bps

     SECTION  3.3.2.  Participation  Fees.  The  Borrower  agrees  to pay on the
Effective  Date to the  Administrative  Agent  for the  account  of each  Bank a
participation  fee in an amount equal to 3/8 of 1% of each Bank's  Commitment on
the Effective Date.

     SECTION 3.3.3.  Fees Pursuant to Fee Letter.  The Borrower agrees to pay to
the Agents and the  Arrangers for their own  respective  accounts as provided in
any Fee Letter all fees set forth  therein on the dates and in the  amounts  set
forth therein.

     SECTION 3.3.4.  Letter of Credit Standby Fee Payable to Banks. The Borrower
agrees to pay a fee to the Administrative Agent for the account of the Banks and
the Issuer,  to be  distributed  ratably (in  accordance  with their  respective
Percentages),  for each Letter of Credit for the period from and  including  the
date of the issuance of such Letter of Credit to (and  including)  the date upon
which such Letter of Credit expires or terminates in accordance  with its terms,
at a per annum rate equal to the  Applicable  Margin from time to time in effect
with  respect  to  Letters of Credit on the daily  undrawn  face  amount of such
Letter of Credit  during  the  applicable  period.  Such fee shall be payable in
arrears on each Quarterly  Payment Date,  with the first such payment to be made
on the first  Quarterly  Payment Date  following  the issuance of such Letter of
Credit.

     SECTION  3.3.5.  Letter of Credit  Fronting  Fee  Payable  to  Issuer.  The
Borrower agrees to pay to the Issuer for its own account a fronting fee for each
Letter of Credit at a per annum rate equal to  one-eighth of one percent (1/8 of
1%) of the daily  undrawn face amount of such Letter of Credit but not less than
$500 for each  Letter of  Credit.  Such fee shall be  payable in arrears on each
Quarterly  Payment  Date,  with the first  such  payment to be made on the first
Quarterly  Payment  Date  following  the  issuance of such Letter of Credit.  In
addition to the foregoing  fees,  the Borrower shall pay or reimburse the Issuer
for such normal and  customary  costs and expenses as are incurred by the Issuer
in  issuing,  effecting  payment  under,  transferring,  amending  or  otherwise
administering any Letter of Credit.

                                       37
<PAGE>

                                   ARTICLE IV

                     CERTAIN LIBO RATE AND OTHER PROVISIONS

     SECTION 4.1. Fixed Rate Lending Unlawful.  If any Bank shall determine that
the introduction of or any change in or in the  interpretation  of any law after
the Effective Date makes it unlawful,  or any central bank or other governmental
authority  asserts  that it is  unlawful,  for such  Bank to make,  continue  or
maintain  any Loan as,  or to  convert  any Loan  into,  a LIBO Rate  Loan,  the
obligations of such Bank to make,  continue,  maintain or convert any such Loans
shall,  upon such  determination,  forthwith be suspended  until such Bank shall
notify the Administrative  Agent that the circumstances  causing such suspension
no longer exist, and all such Bank's LIBO Rate Loans shall automatically convert
into  Base  Rate  Loans at the end of the then  current  Interest  Periods  with
respect thereto or sooner, if required by such law or assertion.

     SECTION 4.2. Deposits  Unavailable.  If the Administrative Agent shall have
determined  that (a) Dollar  deposits in the relevant amount or for the relevant
Interest  Period are not available to Bankers  Trust in its relevant  market (or
both); or (b) by reason of  circumstances  affecting  Bankers  Trust's  relevant
market,  adequate  means  do  not  exist  for  ascertaining  the  interest  rate
applicable   hereunder  to  LIBO  Rate  Loans,   then,   upon  notice  from  the
Administrative  Agent to the Borrower and the Banks,  (x) the obligations of all
Banks under  Section 2.3 and Section 2.4 to make or continue any Loans as, or to
convert any Loans into,  LIBO Rate Loans shall  forthwith be suspended until the
Administrative   Agent  shall  notify  the  Borrower  and  the  Banks  that  the
circumstances  causing such  suspension no longer  exist;  and (y) all LIBO Rate
Loans shall  automatically  convert  into Base Rate Loans at the end of the then
current Interest Periods with respect thereto.

     SECTION 4.3.  Increased LIBO Rate Loan Costs,  etc. The Borrower  agrees to
reimburse  each  Bank  for any  increase  in the cost to such  Bank  of,  or any
reduction  in the  amount  of any sum  receivable  by such Bank in  respect  of,
making,  continuing or maintaining  (or of its  obligation to make,  continue or
maintain) any Loans as, or of converting  (or of its  obligation to convert) any
Loans into, LIBO Rate Loans. Such Bank shall promptly notify the  Administrative
Agent and the Borrower in writing of the  occurrence  of any such event,  and in
any event, within 180 days, after it obtains knowledge thereof and determines to
request  such  compensation  such notice to state,  in  reasonable  detail,  the
reasons  therefor,  the additional amount required fully to compensate such Bank
for such  increased  cost or reduced amount and the basis upon which such amount
is computed (and including  calculations in reasonable detail).  Such additional
amount  shall be payable by the  Borrower  directly to such Bank upon 45 days of
its receipt of such notice,  and such notice  shall,  in the absence of manifest
error, be presumed  correct.  The Borrower shall not be obligated to pay for any
such  amounts  if such Bank does not notify the  Borrower  that such  additional
amounts  are  owing  within  180 days of the date such  Bank  obtains  knowledge
thereof.

     Anything in this  Section 4.3 or in Section 4.5 below  notwithstanding,  if
any Bank  elects to require  payment by the  Borrower  of any amount  under this
Section 4.3 or Section 4.5, the Borrower  may,  within 60 days after the date of
receiving  notice  thereof and so long as no Default  shall have occurred and be
continuing, elect to terminate such Bank (for purposes of this paragraph, the

                                       38
<PAGE>

     "Terminated   Bank")  as  a  party  to  this   Agreement;   provided  that,
concurrently with such termination the Borrower shall (i) if the  Administrative
Agent,  the Issuer and each of the Banks  other than the  Terminated  Bank shall
consent,  pay the  Terminated  Bank all  principal,  interest and fees and other
amounts owed to such Terminated  Bank through such date of termination,  or (ii)
have  arranged for an assignee  acceptable to the  Administrative  Agent and the
Issuer to become a substitute  Bank for all purposes under this Agreement in the
manner provided in Section 10.11.1; provided further that, prior to substitution
for any  Terminated  Bank,  the Borrower  shall have given written notice to the
Administrative  Agent of such intention  and, if requested by the Borrower,  the
Banks  (other  than  the  Terminated  Banks)  shall  have  the  option,  but  no
obligation,  for a period of sixty (60) days after  receipt of such  notice,  to
increase their Commitments in order to replace the Terminated Bank.

     SECTION 4.4. Funding Losses.  In the event any Bank shall incur any loss or
expense  (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to make,  continue
or maintain  any portion of the  principal  amount of any Loan as, or to convert
any  portion of the  principal  amount of any Loan into,  a LIBO Rate Loan) as a
result of (a) any conversion or repayment or prepayment of the principal  amount
of any LIBO  Rate  Loans on a date  other  than  the  scheduled  last day of the
Interest  Period  applicable  thereto,   whether  pursuant  to  Section  3.1  or
otherwise;  (b) any Loans not being made as LIBO Rate Loans in  accordance  with
the  Borrowing  Request  therefor;  or (c) any Loans not being  continued as, or
converted into,  LIBO Rate Loans in accordance with the  Continuation/Conversion
Notice  therefor,  then,  upon the written  notice of such Bank to the  Borrower
(with a copy to the Administrative Agent), the Borrower shall, within forty-five
days of its  receipt  thereof,  pay  directly  to such Bank such  amount as will
reimburse  such Bank for such loss or expense.  Such written notice (which shall
include  calculations  in reasonable  detail) shall,  in the absence of manifest
error, be conclusive.

     SECTION 4.5.  Increased  Capital  Costs.  If after the  Effective  Date any
change  in,  or  the  introduction,  adoption,  effectiveness,   interpretation,
reinterpretation  or phase-in of, any law or regulation,  directive,  guideline,
decision  or  request  (whether  or not  having  the force of law) of any court,
central bank, regulator or other governmental  authority affects or would affect
the amount of capital  required or expected to be  maintained by any Bank or the
Issuer or any Person  controlling such Bank or the Issuer,  and such Bank or the
Issuer determines (in its sole and absolute  discretion) that the rate of return
on its or such controlling  Person's capital as a consequence of its Commitment,
its issuance of a Letter of Credit or its  participation  in a Letter of Credit,
or the Loans made by such Bank or the  Issuer is  reduced to a level  materially
below that which such Bank or the Issuer or such  controlling  Person could have
achieved but for the occurrence of any such circumstance, then, in any such case
upon notice from time to time by such Bank or the Issuer to the  Borrower but in
no event  later than 180 days after  such Bank  makes  such  determination,  the
Borrower shall  immediately  pay directly to such Bank or the Issuer  additional
amounts  sufficient  to  compensate  such Bank,  the Issuer or such  controlling
Person  for  such  reduction  in rate of  return;  provided,  however,  that the
Borrower  shall  not be  required  to make  such  payment  if such Bank does not
provide  notice of such  determination  within 180 days thereof.  A statement of
such Bank or the Issuer as to any such additional  amount or amounts  (including
calculations  thereof in reasonable  detail)  shall,  in the absence of manifest
error or written objection by the Borrower within 10 days

                                       39
<PAGE>

     after its receipt of such  statement,  be conclusive.  In determining  such
amount,  such Bank or the Issuer may use any reasonable  method of averaging and
attribution that it shall deem applicable.

     SECTION 4.6.  Taxes.  (a) All payments by the Borrower of principal of, and
interest on, the Loans,  reimbursement  of Letter of Credit  Liabilities and all
other amounts payable  hereunder and under any other Loan Document shall be made
free and clear of and without deduction for any present or future excise,  stamp
or other  similar  taxes,  fees,  duties,  withholdings  or other charges of any
nature whatsoever imposed by any taxing authority, but excluding franchise taxes
and taxes  imposed on or measured by any Bank's or the Issuer's  income or gross
receipts (such non-excluded  items being called "Taxes").  In the event that any
withholding or deduction  from any payment to be made by the Borrower  hereunder
is required  in respect of any Taxes  pursuant to any  applicable  law,  rule or
regulation (except for any withholding  required in respect of any Agent or Bank
or the Issuer by the laws of any  jurisdiction  (other  than the United  States)
where  such Agent or Bank or the Issuer is doing  business),  then the  Borrower
will (i) pay directly to the relevant  authority the full amount  required to be
so withheld or deducted;  (ii) promptly forward to the  Administrative  Agent an
official receipt or other documentation satisfactory to the Administrative Agent
evidencing such payment to such authority;  and (iii) pay to the  Administrative
Agent for the account of such Agent or Bank or the Issuer such additional amount
or amounts as is  necessary to ensure that the net amount  actually  received by
such Agent or Bank or the Issuer will equal the full  amount  such Person  would
have received had no such withholding or deduction been required.  Moreover,  if
any Taxes are  directly  asserted  against  any Agent or Bank or the Issuer with
respect to any payment  received by such Agent or Bank or the Issuer  hereunder,
such  Agent or Bank or the  Issuer  may pay such  Taxes  and the  Borrower  will
promptly pay such  additional  amounts  (including  any  penalties,  interest or
expenses (other than any such penalties, interest or expense as a result of acts
or omissions constituting gross negligence as determined by a court of competent
jurisdiction in a final non- appealable judgment on the part of such Person)) as
is  necessary  in order that the net amount  received by such  Person  after the
payment of such Taxes  (including  any Taxes on such  additional  amount)  shall
equal the  amount  such  Person  would  have  received  had such  Taxes not been
asserted.

     If a Bank becomes  aware that any such  withholding  or deduction  from any
payment to be made by the Borrower hereunder or under any other Loan Document is
required,  then such Bank shall promptly notify the Administrative Agent and the
Borrower thereof stating the reasons therefor and the additional amount required
to be paid  under  this  Section.  Each Bank shall  execute  and  deliver to the
Administrative  Agent  and the  Borrower  such  forms as it may be  required  to
execute and  deliver  pursuant  to Section  4.6(b).  To the extent that any such
withholding or deduction  results from the failure or delay of a Bank to provide
a form required by Section  4.7(b)  (unless such failure or delay is due to some
prohibition  under  applicable  requirement  of Law), the Borrower shall have no
obligation to pay the additional  amount required by clause (b) below.  Anything
in this Section 4.6  notwithstanding,  if any Bank elects to require  payment by
the Borrower of any material amount under this Section, the Borrower may, within
60 days after the date of  receiving  notice  thereof  and so long as no Default
shall  have  occurred  and be  continuing,  elect to  terminate  such  Bank (for
purposes of this paragraph, the "Terminated Bank") as a party to this Agreement;
provided that,  concurrently with such termination the Borrower shall (i) if the
Administrative Agent, the Issuer and each of the Banks other than the Terminated
Bank shall consent, pay the Terminated Bank all principal, interest and fees and
other amounts owed to such Terminated Bank through such

                                       40
<PAGE>

     date of  termination,  or (ii) have arranged for an assignee  acceptable to
the  Administrative  Agent and the  Issuer to become a  substitute  Bank for all
purposes  under this  Agreement  in the  manner  provided  in  Section  10.11.1;
provided  further that,  prior to  substitution  for any  Terminated  Bank,  the
Borrower  shall have given written  notice to the  Administrative  Agent of such
intention  and,  if  requested  by the  Borrower,  the  Banks  (other  than  the
Terminated  Banks)  shall have the option,  but no  obligation,  for a period of
sixty (60) days after receipt of such notice,  to increase their  Commitments in
order to replace the Terminated Bank.

     If the Borrower fails to pay any Taxes when due to the  appropriate  taxing
authority or fails to remit to the Administrative  Agent, for the account of any
Agent or Bank or the Issuer, the required receipts or other required documentary
evidence,  the Borrower shall indemnify such Agent or Bank or the Issuer for any
incremental  Taxes,  interest or penalties that may become payable by such Agent
or Bank or the  Issuer as a result of any such  failure.  For  purposes  of this
Section 4.6, a distribution hereunder by any Agent, any Bank or the Issuer to or
for the account of any Agent,  any Bank or the Issuer  shall be deemed a payment
by the Borrower.

     (b) Each Bank which is organized  under the laws of a jurisdiction  outside
the United States shall, (i) on the day of the initial  borrowing from each such
Bank  hereunder  and (ii)  from  time to time  thereafter  if  requested  by the
Borrower or the Administrative  Agent,  provide the Administrative Agent and the
Borrower with the forms prescribed by the Internal Revenue Service of the United
States certifying as to such Bank's status for purposes of determining exemption
from United States  withholding taxes with respect to all payments to be made to
such  Bank  hereunder  and under the other  Loan  Documents  or other  documents
satisfactory  to such  Bank,  the  Borrower  and the  Administrative  Agent  and
indicating  that all  payments to be made to such Bank  hereunder  and under the
other Loan Documents are not subject to United States  withholding  tax.  Unless
the Borrower and the Administrative Agent shall have received such forms or such
documents  indicating  that payments to such Bank  hereunder and under the other
Loan  Documents are not subject to United States  withholding  tax, the Borrower
and the  Administrative  Agent  shall be  entitled  to  withhold  United  States
withholding taxes from such payments at the applicable statutory rate.

     SECTION  4.7.  Payments,  Computations,  etc.  Unless  otherwise  expressly
provided, all payments by the Borrower pursuant to this Agreement,  the Notes or
any other Loan  Document  shall be made by the  Borrower  to the  Administrative
Agent for the pro rata  account of the Banks and the Issuer  entitled to receive
such payment.  All such payments required to be made to the Administrative Agent
shall be made, without set off, deduction or counterclaim,  not later than 12:00
noon,  New York  time,  on the date due,  in same day or  immediately  available
funds,  to such account as the  Administrative  Agent shall specify from time to
time by notice to the Borrower.  Funds  received after that time shall be deemed
to have  been  received  by the  Administrative  Agent  on the  next  succeeding
Business Day. The Administrative Agent shall promptly remit in same day funds to
each Bank and the Issuer its share,  if any,  of such  payments  received by the
Administrative  Agent for the account of such Bank and the Issuer.  All interest
and fees shall be computed on the basis of the actual number of days  (including
the first day but excluding the last day) occurring  during the period for which
such  interest or fee is payable  over a year  comprised of 360 days (or, in the
case of interest on a Base Rate Loan,  365 days or, if  appropriate,  366 days).
Whenever any payment to

                                       41
<PAGE>

     be made shall  otherwise be due on a day which is not a Business  Day, such
payment shall (except as otherwise  required by clause (c) of the  definition of
the term "Interest  Period" with respect to LIBO Rate Loans) be made on the next
succeeding  Business  Day and  such  extension  of time  shall  be  included  in
computing interest and fees, if any, in connection with such payment.

     SECTION 4.8. Sharing of Payments.  (a) If any Bank shall obtain any payment
or other recovery (whether voluntary,  involuntary, by application of set off or
otherwise) on account of any Loan or any Letter of Credit  Liability (other than
pursuant  to the terms of  Sections  4.3,  4.4 4.5 and 4.6) in excess of its pro
rata share of payments then or therewith  obtained by all Banks, such Bank shall
purchase  from the other  Banks  such  participations  in Loans made by them and
Letter of Credit  Liabilities  held by them as shall be  necessary to cause such
purchasing Bank to share the excess payment or other recovery  ratably with each
of them; provided,  however, that if all or any portion of the excess payment or
other recovery is thereafter  recovered from such purchasing  Bank, the purchase
shall  be  rescinded  and  each  Bank  which  has  sold a  participation  to the
purchasing  Bank shall repay to the  purchasing  Bank the purchase  price to the
ratable  extent of such  recovery  together with an amount equal to such selling
Bank's ratable share  (according to the proportion of the amount of such selling
Bank's  required  repayment  to the  purchasing  Bank  to the  total  amount  so
recovered  from the  purchasing  Bank) of any  interest or other  amount paid or
payable by the purchasing Bank in respect of the total amount so recovered.  The
Borrower  agrees that any Bank so purchasing a  participation  from another Bank
pursuant to this Section may, to the fullest extent  permitted by law,  exercise
all its rights of payment  (including  pursuant to Section  4.9) with respect to
such  participation  as fully as if such Bank were the  direct  creditor  of the
Borrower  in  the  amount  of  such  participation.   If  under  any  applicable
bankruptcy,  insolvency  or other similar law, any Bank receives a secured claim
in lieu of a set off to which this  Section  applies,  such Bank  shall,  to the
extent  practicable,  exercise its rights in respect of such secured  claim in a
manner  consistent  with the rights of the Banks  entitled under this Section to
share in the benefits of any recovery on such secured claim.

     SECTION 4.9. Set off. Each Bank shall,  upon the  occurrence of any Default
described  in  clauses  (a)  through  (d) of Section  8.1.9 with  respect to the
Borrower or, with the consent of the Majority Banks,  upon the occurrence of any
other Event of Default,  have the right to  appropriate  and apply in set off to
the payment of the  Obligations  owing to it (whether or not then due),  and (as
security for such Obligations) any and all balances, credits, deposits, accounts
or  moneys  of the  Borrower  then or  thereafter  maintained  with  such  Bank;
provided,  however, that any such appropriation and application shall be subject
to the  provisions  of Section  4.8.  Each Bank  agrees  promptly  to notify the
Borrower  and the  Administrative  Agent after any such set off and  application
made by such Bank; provided, however, that the failure to give such notice shall
not affect the validity of such set off and application. The rights of each Bank
under this Section are in addition to other rights and remedies (including other
rights of set off under applicable law or otherwise) which such Bank may have.

     SECTION  4.10.  Use of Proceeds.  The Borrower  shall apply the proceeds of
each  Borrowing in  accordance  with the fourth  recital;  without  limiting the
foregoing,  no proceeds of any Loan will be used to acquire any equity  security
of a class which is registered pursuant to Section

                                       42
<PAGE>

     12 of the Securities Exchange Act of 1934 or any "margin stock", as defined
in F.R.S. Board Regulation U.

     SECTION 4.11.  Maximum Interest.  It is the intention of the parties hereto
to  conform  strictly  to  applicable  usury  laws and,  anything  herein to the
contrary  notwithstanding,  the obligations of the Borrower to each Bank and the
Issuer under this Agreement  shall be subject to the limitation that payments of
interest  shall not be  required  to the extent that  receipt  thereof  would be
contrary to  provisions of law  applicable  to such Bank or the Issuer  limiting
rates of interest  which may be charged or collected by such Bank or the Issuer.
Accordingly,  if the  transactions  contemplated  hereby would be usurious under
applicable  law  (including  the Federal and state laws of the United  States of
America, or of any other jurisdiction whose laws may be mandatorily  applicable)
with  respect  to a Bank or the  Issuer  then,  in that  event,  notwithstanding
anything to the  contrary in this  Agreement,  it is agreed as follows:  (a) the
provisions  of this Section 4.11 shall govern and control;  (b) the aggregate of
all  consideration  which  constitutes  interest  under  applicable  law that is
contracted for,  charged or received under this  Agreement,  or under any of the
other  aforesaid  agreements or otherwise in connection  with this  Agreement by
such Bank or the Issuer shall under no  circumstances  exceed the maximum amount
of interest  allowed by applicable  law (such maximum  lawful  interest rate, if
any, with respect to such Bank or the Issuer  herein called the "Highest  Lawful
Rate"),  and any excess  shall be credited  to the  Borrower by such Bank or the
Issuer  (or,  if such  consideration  shall have been paid in full,  such excess
promptly refunded to the Borrower);  (c) all sums paid, or agreed to be paid, to
such  Bank  or  the  Issuer  for  the  use,  forbearance  and  detention  of the
indebtedness of the Borrower to such Bank or the Issuer  hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness  until payment in full so that the
actual rate of interest is uniform throughout the full term thereof;  and (d) if
at any time the  interest  provided  pursuant to Section 3.2  together  with any
other  fees  payable  pursuant  to this  Agreement  and  deemed  interest  under
applicable  law,  exceeds  that amount  which would have  accrued at the Highest
Lawful Rate,  the amount of interest and any such fees to accrue to such Bank or
the Issuer pursuant to this Agreement shall be limited, notwithstanding anything
to the contrary in this Agreement to that amount which would have accrued at the
Highest  Lawful Rate, but any subsequent  reductions,  as applicable,  shall not
reduce  the  interest  to  accrue to such Bank or the  Issuer  pursuant  to this
Agreement  below the  Highest  Lawful  Rate until the total  amount of  interest
accrued  pursuant to this  Agreement and such fees deemed to be interest  equals
the amount of interest  which would have accrued to such Bank or the Issuer if a
varying  rate per annum equal to the interest  provided  pursuant to Section 3.2
had at all times been in effect,  plus the amount of fees which  would have been
received but for the effect of this Section 4.11.

                                    ARTICLE V

                             CONDITIONS TO BORROWING

     SECTION 5.1.  Initial  Borrowing.  The obligations of the Banks to fund the
initial  Borrowing  shall be subject to the prior or concurrent  satisfaction of
each of the conditions precedent set forth in this Section 5.1.

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<PAGE>

     SECTION  5.1.1.  Resolutions,  etc.  The  Administrative  Agent  shall have
received  from  each  Obligor  a  certificate,  dated  the  date of the  initial
Borrowing,  of its Secretary or Assistant Secretary as to (a) resolutions of its
Board of  Directors  or other  governing  body  then in full  force  and  effect
authorizing the execution, delivery and performance of this Agreement, the Notes
and each other Loan  Document to be executed by it; and (b) the  incumbency  and
signatures of those of its officers  authorized to act with respect to each Loan
Document  executed by it, upon which certificate each Bank may conclusively rely
until it shall have  received a further  certificate  of the  Secretary  of such
Obligor canceling or amending such prior certificate.  The Administrative  Agent
shall have received certificates of the appropriate  government officials of the
state of  organization  of each Obligor as to the existence and good standing of
such Person,  each dated  within 30 days prior to the date of delivery  pursuant
hereto.

     SECTION 5.1.2.  Delivery of Notes and Subsidiary  Guaranty  Agreement.  The
Administrative Agent shall have received, for the account of each Bank, its Note
duly  executed  and  delivered  by the  Borrower  and  the  Subsidiary  Guaranty
Agreement executed and delivered by each Obligor party thereto.

     SECTION  5.1.3.  Payment of  Outstanding  Bluebird  Indebtedness,  etc. All
Indebtedness  identified in Item 7.2.2(b) of the Disclosure  Schedule,  together
with all  interest,  all  prepayment  premiums and other amounts due and payable
with respect  thereto,  shall have been paid in full  (including,  to the extent
necessary,  from  proceeds of the  initial  Borrowing);  and all Liens  securing
payment of any such Indebtedness have been released and the Bluebird Acquisition
Documents shall have been duly executed and delivered by the parties thereto and
the Bluebird Properties shall have been conveyed to the Borrower.

     SECTION  5.1.4.  Mortgage.  The  Collateral  Agent  shall have  received an
amendment to the Existing Mortgages and shall have received Additional Mortgages
covering not less than 80% of the value of the Bluebird  Properties as set forth
in the Reserve Reports dated December 31, 2000, each duly executed and delivered
by  each  Obligor  party  thereto  in form  and  substance  satisfactory  to the
Administrative  Agent and the Collateral Agent for the prompt  completion of all
recording  and filing of the Security  Documents as may be necessary  or, in the
reasonable  opinion  of  the  Administrative  Agent  or  the  Collateral  Agent,
desirable to create or continue,  as  appropriate,  a valid perfected first Lien
against the Collateral Property covered by the Mortgage,  together with executed
copies of  proper  Uniform  Commercial  Code  Form  UCC-1 and UCC-3  statements,
necessary or in the opinion of the Administrative Agent or the Collateral Agent,
desirable,  to create in the Collateral Agent for the benefit of the Agents, the
Issuer  and the  Banks all  Liens  and  other  rights of any  Person as a valid,
perfected  first  priority  Lien in the  Collateral  Property  described  in the
Mortgage.

     SECTION 5.1.5. Pledge Agreements;  Stock Certificates and Blank Powers. The
Collateral  Agent  shall have  received  an  amendment  to the  Borrower  Pledge
Agreement and to each Subsidiary Pledge Agreement, duly executed by the relevant
Obligor  together with executed  copies of proper Uniform  Commercial  Code Form
UCC-1 and UCC-3  statements,  duly  executed  blank  stock  powers and all stock
certificates  necessary  or in the  opinion of the  Administrative  Agent or the
Collateral Agent,  desirable,  to create in the Collateral Agent for the benefit
of the Agents, the

                                       44
<PAGE>

     Issuer  and the Banks all Liens and other  rights of any Person as a valid,
perfected  first  priority  Lien in the  Collateral  Property  described  in the
respective Pledge Agreements.

     SECTION 5.1.6.  Opinions of Counsel.  The  Administrative  Agent shall have
received  opinions,  dated the date of the initial  extension  of credit or such
other date acceptable to the  Administrative  Agent and addressed to the Agents,
the Issuer and all Banks, from (a) Thompson & Knight, L.L.P., special counsel to
the  Obligors,  substantially  in the form of  Exhibit E hereto,  and (b) Morgan
Johnston, general counsel for the Obligors, substantially in the form of Exhibit
F hereto.

     SECTION 5.1.7. [Intentionally Omitted].

     SECTION  5.1.8.  Engineers'  Report.  The  Administrative  Agent shall have
received  Reserve  Reports  dated as of December 31, 2000,  prepared by Approved
Engineers  covering the Hydrocarbon  Interests included in the initial Borrowing
Base.

     SECTION 5.1.9.  Certificate as to Insurance  Policies.  The  Administrative
Agent shall have  received a  certificate  of the Borrower in form and substance
satisfactory to the Administrative Agent,  certified by an Authorized Officer of
the Borrower as true and correct in all  material  respects  and  describing  in
detail all  insurance  maintained  by Borrower  and its  Subsidiaries  as of the
Effective Date and certifying that such insurance  satisfies the requirements of
Section 7.1.4.

     SECTION 5.1.10.  Material Adverse Change.  No material adverse change shall
have occurred since the date of the most recent financial  statements  delivered
by the  Borrower  to the  Administrative  Agent,  in  the  financial  condition,
business,   operations,   or  prospects  of  the  Borrower  and  the  Restricted
Subsidiaries taken as a whole or in their consolidated  assets,  liabilities and
properties  and there  shall be no  material  threatened  or pending  litigation
adversely affecting its consolidated property.

     SECTION  5.1.11.  Satisfactory  Review and Legal Form. All legal matters in
connection  with  this  Agreement  and  the   consummation  of  the  transaction
contemplated  hereby  and  by  the  Loan  Documents  shall  be  approved  by the
Administrative  Agent and its legal counsel, and there shall have been furnished
to the Administrative  Agent by the Borrower,  at the Borrower's  expense,  such
agreements with respect to Borrower's and Restricted  Subsidiaries'  Oil and Gas
Properties not mortgaged under the Second Amended and Restated Credit  Agreement
or the Bluebird  indebtedness  described in Section  5.1.3  (including,  without
limitation,  environmental  reports,  opinions of counsel,  title opinions,  and
other  records  and  information),  in form,  substance,  scope and  methodology
satisfactory  to the  Administrative  Agent  in its sole  discretion,  as it may
reasonably have requested for that purpose.

     SECTION 5.1.12. Closing Fees, Expenses, etc. The Administrative Agent shall
have received the Fee Letter, duly executed by the Borrower.  The Administrative
Agent shall also have  received for its own account,  the account of the Issuer,
or for the account of the  Arrangers or each Bank, as the case may be, all fees,
costs  and  expenses  due and  payable  pursuant  to  Section  3.3 and,  if then
invoiced, Section 10.3.

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<PAGE>

     SECTION 5.1.13. UCC Searches.  The Administrative Agent shall have received
from the Borrower copies of Uniform Commercial Code searches with respect to the
Obligors in the jurisdictions set forth in Schedule 5.1.13.

     SECTION 5.2. All Borrowings  and Letters of Credit.  The obligation of each
Bank to fund any Loan on the occasion of any  Borrowing  (including  the initial
Borrowing)  and of the  obligations  of the Issuer to issue any Letter of Credit
(including the initial Letter of Credit) and of the Banks to participate therein
shall be subject to the  satisfaction  of each of the  conditions  precedent set
forth in this Section 5.2.

     SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before and
after giving effect to any Borrowing (but, if any Default of the nature referred
to in Section 8.1.5 shall have occurred with respect to any other  Indebtedness,
without  giving  effect  to the  application,  directly  or  indirectly,  of the
proceeds of such Borrowing) the following statements shall be true and correct:

     (a) the  representations  and warranties set forth in Article VI and in the
other Loan  Documents  shall be true and correct with the same effect as if then
made  (unless  stated to relate  solely to an earlier  date,  in which case such
representations  and  warranties  shall be true and  correct as of such  earlier
date);

     (b)  no  labor   controversy,   litigation,   arbitration  or  governmental
investigation  or  proceeding  shall be  pending  or,  to the  knowledge  of the
Borrower,   threatened   against  the  Borrower  or  any  of  their   respective
Subsidiaries  which would  reasonably  be  expected  to have a Material  Adverse
Effect or which purports to affect the legality,  validity or  enforceability of
this Agreement, the Notes or any other Loan Document; and

     (c) no Default shall have then occurred and be continuing, and the Obligors
are not in violation  of any law or  governmental  regulation  or court order or
decree except for such  violations as would not reasonably be expected to have a
Material Adverse Effect.

     SECTION  5.2.2.  Borrowing  Request.  The  Administrative  Agent shall have
received a Borrowing  Request for such Borrowing or such Letter of Credit.  Each
of the delivery of a Borrowing Request and the acceptance by the Borrower of the
proceeds of such Borrowing shall constitute a representation and warranty by the
Borrower  that,  on the date of such  Borrowing and the date of issuance of such
Letter of Credit  (both  immediately  before  and  after  giving  effect to such
Borrowing and the issuance of such Letter of Credit and the  application  of the
proceeds thereof), the statements made in Section 5.2.1 are true and correct. By
delivering the initial Borrowing  Request,  the Borrower shall be deemed to have
represented  and warranted  that on and as of the date of the initial  Borrowing
each of the conditions set forth in Article V has been satisfied.

     SECTION 5.2.3. Satisfactory Legal Form. All documents executed or submitted
pursuant hereto by or on behalf of any Obligor shall be satisfactory in form and
substance to the Administrative  Agent and its counsel; the Administrative Agent
and its counsel shall have received

                                       46
<PAGE>

     all  information,  approvals,  opinions,  documents or  instruments  as the
Administrative Agent or its counsel may reasonably request.

     SECTION 5.2.4. All Letters of Credit. The obligation of the Issuer to issue
each Letter of Credit is, in addition to the conditions  precedent  specified in
Sections  5.1 (with  respect to the  initial  Letter of Credit)  and Section 5.2
(with respect to all Letters of Credit), subject to the condition precedent that
the Issuer shall have  received,  at least three (3) Business  Days prior to the
requested  issuance  thereof,  an application from the Borrower relating to such
Letter of Credit, in form and substance satisfactory to the Issuer.


                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

     In order to induce the Banks,  the Issuer and the Agents to enter into this
Agreement  and to make  Borrowings  and issue Letters of Credit  hereunder,  the
Borrower  represents  and warrants unto the Agents,  the Issuer and each Bank as
set forth in this Article VI.

     SECTION 6.1. Organization, etc. Each Obligor is a corporation,  partnership
or limited liability company validly organized and existing and in good standing
under  the  laws  of the  jurisdiction  of its  incorporation,  organization  or
formation. Each Obligor is qualified to do business and is in good standing as a
foreign entity in each  jurisdiction  where the nature of its business  requires
such qualification, except where the failure to so qualify, would not reasonably
be expected to have a Material  Adverse Effect.  Each Obligor has full power and
authority and holds all requisite franchises,  patents, copyrights,  trademarks,
trade names or rights  thereto,  licenses,  permits and other  approvals  (i) to
enter into and perform its Obligations under this Agreement,  the Notes and each
other Loan  Document to which it is a party and (ii) except where  failure to do
so would not reasonably be expected to have a Material  Adverse  Effect,  to own
and hold under lease its property and to conduct its business  substantially  as
currently conducted by it.

     SECTION  6.2. Due  Authorization,  Non-Contravention,  etc. The  execution,
delivery and performance by each Obligor of this  Agreement,  the Notes and each
other Loan Document  executed or to be executed by it, are within such Obligor's
powers,  have been  duly  authorized  by all  necessary  action,  and do not (a)
violate any Obligor's Organic Documents;  (b) violate the terms or provisions of
the  Indenture;   (c)  violate  any  other  contractual   restriction,   law  or
governmental  regulation  or court decree or order  binding on or affecting  any
Obligor or its Assets;  or (d) result in, or require the creation or  imposition
of, any Lien on any of any Obligor's  properties  except for Liens granted under
the Loan Documents.

     SECTION 6.3.  Government  Approval,  Regulation,  etc. No  authorization or
approval or other action by, and no notice to or filing with,  any  Governmental
Authority or regulatory  body or other Person is required for the due execution,
delivery or performance by any Obligor of this Agreement, the Notes or any other
Loan Document to which it is a party other than recording of Security  Documents
with appropriate Governmental Authorities. No Obligor is an "investment

                                       47
<PAGE>

     company"  within  the  meaning  of and  subject  to  regulation  under  the
Investment  Company  Act of 1940,  as  amended,  or a  "holding  company",  or a
"subsidiary  company" of a "holding  company",  or an  "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of and subject to regulation  under the Public  Utility  Holding  Company Act of
1935, as amended.

     SECTION 6.4. Validity,  etc. This Agreement constitutes,  and the Notes and
each other Loan  Document  executed by an Obligor will, on the due execution and
delivery thereof,  constitute,  the legal, valid and binding obligations of such
Obligor enforceable in accordance with their respective terms.  Without limiting
the foregoing,  each Security  Document  executed by an Obligor  constitutes the
legal,  valid and binding  obligation of such Obligor  enforceable in accordance
with its  respective  terms,  and creates a valid and perfected  first  priority
security interest in the Assets of such Obligor as provided therein.

     SECTION 6.5.  Financial  Information.  The  Borrower  has  delivered to the
Administrative Agent audited  consolidated  financial statements of the Borrower
and its Subsidiaries as at and for the fiscal year ended December 31, 2000. Such
financial  statements have been prepared in accordance with GAAP, and fairly and
accurately  present,  on a consolidated  basis,  the financial  condition of the
Borrower and its Subsidiaries as of the respective  dates indicated  therein and
the results of operations for the respective periods indicated  therein.  To the
Borrower's  Knowledge,  neither the Borrower nor any of its Subsidiaries has any
material  contingent  liabilities,  liabilities  for taxes,  unusual  forward or
long-term commitments,  or unrealized or anticipated losses from any unfavorable
commitments  except as scheduled  or referred to or reflected in such  financial
statements.

     SECTION 6.6. No Material Adverse Change. To the Borrower's Knowledge, there
has been no material  adverse  change in the business,  condition  (financial or
otherwise),  operations,  prospects,  or  properties  of the  Borrower  and  its
Subsidiaries  taken as a whole  since  the  effective  date of the  most  recent
audited financial statements delivered to the Agents, the Issuer and the Banks.

     SECTION 6.7. Litigation, Labor Controversies,  etc. There is no pending or,
to the Borrower's Knowledge, threatened litigation, action, proceeding, or labor
controversy  affecting  Borrower or any Subsidiary,  or any of their  respective
properties,  businesses,  assets or revenues, which could reasonably be expected
to have a Material  Adverse  Effect or which  purports  to affect the  legality,
validity  or  enforceability  of this  Agreement,  the Notes or any  other  Loan
Document, except as disclosed in Item 6.7 ("Litigation, Labor Controversies") of
the Disclosure Schedule. To the Borrower's  Knowledge,  there are no outstanding
judgments against the Borrower or any Subsidiary.

     SECTION  6.8.  Subsidiaries.  As  of  date  hereof,  the  Borrower  has  no
Subsidiaries except those Subsidiaries set forth in Item 6.8 ("Subsidiaries") of
the Disclosure Schedule.

     SECTION 6.9. Ownership of Properties. Each Obligor owns good and defensible
title to, or valid  leasehold  interests in, all of its  properties  and assets,
real and personal,  tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and

                                       48
<PAGE>

     copyrights),  free and clear of all  Liens,  charges  or claims  (including
infringement  claims with  respect to patents,  trademarks,  copyrights  and the
like) and free and clear of all  limitations  and  restrictions  on, and consent
requirements  for,  disposition  or transfer,  except as  permitted  pursuant to
Section  7.2.3 and  except  for  imperfections  and  burdens  that do not in the
aggregate   materially  detract  from  the  value  thereof.  The  interests  and
properties  described in Schedule 6.9 constitute all the  Hydrocarbon  Interests
owned by the Borrower and the other  Obligors as of the date of this  Agreement.
The  Collateral  Property  includes all the Capital Stock of each Obligor (other
than the Borrower), all Hedge Agreements to which any Obligor is a party and all
notes receivable of each Obligor.

     SECTION 6.10.  Taxes.  Except as set forth in Item 6.10 ("Tax  Matters") of
the  Disclosure  Schedule,  the Borrower and each  Subsidiary  has filed all tax
returns  and  reports  required by law to have been filed by it and has paid all
taxes and governmental  charges thereby shown to be owing, except any such taxes
or charges  which are being  diligently  contested in good faith by  appropriate
proceedings  and for which adequate  reserves in accordance with GAAP shall have
been set aside on its books.  The Borrower knows of no pending  investigation of
the  Borrower or any  Subsidiary  by any taxing  authority or of any pending but
unassessed tax liability of the Borrower or any Subsidiary.

     SECTION    6.11.     Pension    and    Welfare     Plans.     During    the
twelve-consecutive-month  period  prior to the date  hereof  and,  on a  rolling
basis, prior to the date of any Borrowing hereunder, no steps have been taken to
terminate any Pension Plan under Section  4041(c) of ERISA,  and no contribution
failure has occurred with respect to any Pension Plan sufficient to give rise to
a Lien  under  section  302(f)  of  ERISA.  No  condition  exists  or  event  or
transaction  has occurred with respect to any Pension Plan which might result in
the  incurrence  by the  Borrower or any member of the  Controlled  Group of any
liability,  fine or penalty. Except as disclosed in Item 6.11 ("Employee Benefit
Plans") of the Disclosure  Schedule,  neither the Borrower nor any member of the
Controlled   Group  has  any   contingent   liability   with   respect   to  any
post-retirement   benefit  under  a  Welfare  Plan,  other  than  liability  for
continuation coverage described in Part 6 of Title I of ERISA.

     SECTION 6.12.  Environmental  Warranties.  Except as set forth in Item 6.12
("Environmental Matters") of the Disclosure Schedule:

     (a) To the  Borrower's  Knowledge,  except  where the  failure to obtain or
comply could not reasonably be expected to have a Material  Adverse Effect,  the
Borrower and each Subsidiary and all of their  respective  Assets and operations
are in compliance in all material respects with all Environmental  Laws. Neither
the Borrower nor any  Subsidiary is aware of, and none of the Borrower or any of
its  Subsidiaries  has  received  notice  of,  any  past,   present,  or  future
conditions, events, activities, practices, or incidents which may interfere with
or prevent the material  compliance or continued  material  compliance of any of
them with all Environmental Laws;

     (b) To the  Borrower's  Knowledge,  except  where the  failure to obtain or
comply could not reasonably be expected to have a Material  Adverse Effect,  the
Borrower and each of its  Subsidiaries has obtained all permits,  licenses,  and
authorizations that are required

                                       49
<PAGE>

     under  applicable  Environmental  Laws, and has received no notice that all
such  permits  are not in good  standing,  or that  any  such  Person  is not in
compliance with all of the terms and conditions of such permits;

     (c) To the  Borrower's  Knowledge,  except  where the  failure to obtain or
comply could not reasonably be expected to have a Material  Adverse  Effect,  no
Hazardous  Materials  exist on, about,  or within or have been used,  generated,
stored,  transported,  disposed of on, or Released from any of the Assets of the
Borrower  or any of its  Subsidiaries  except in amounts  that would not violate
applicable law. The use which the Borrower or any of its Subsidiaries  makes and
intends  to make of its  properties  and  Assets  will  not  result  in the use,
generation, storage, transportation,  accumulation,  disposal, or Release of any
Hazardous  Material on, in, or from any of their  properties or assets except in
amounts that would not violate applicable law;

     (d) To the  Borrower's  Knowledge,  neither  the  Borrower  nor  any of its
Subsidiaries  nor any of such Person's  currently or previously  owned or leased
properties or operations is subject to any outstanding or threatened  order from
or agreement with any  Governmental  Authority or other Person or subject to any
judicial or docketed  administrative  proceeding  with respect to any failure to
comply with Environmental Laws;

     (e) To the  Borrower's  Knowledge,  except  where the  failure to obtain or
comply could not reasonably be expected to have a Material Adverse Effect, there
are no conditions or  circumstances  associated with the currently or previously
owned  or  leased  properties  or  operations  of  the  Borrower  or  any of its
Subsidiaries that could reasonably be expected to give rise to any Environmental
Liabilities;

     (f) Neither the Borrower nor any  Subsidiary  is a treatment,  storage,  or
disposal  facility  requiring  a permit  under  the  Resource  Conservation  and
Recovery  Act,  42  U.S.C.  ss.  6901 et  seq.,  regulations  thereunder  or any
comparable provision of state law. To the Borrower's Knowledge, the Borrower and
each of its  Subsidiaries  is in  substantial  compliance  with  all  applicable
financial responsibility requirements of all Environmental Laws;

     (g) Neither the Borrower nor any  Subsidiary  has filed,  or to the best of
the  Borrower's  and each  Subsidiary's  Knowledge,  failed to file,  any notice
required under applicable Environmental Law reporting a Release; and

     (h) Neither the Borrower nor any Subsidiary has received notice that a Lien
arising  under any  Environmental  Law has attached to any of their  property or
revenues.

     SECTION  6.13.  Regulations  U and X. The  Borrower  is not  engaged in the
business of extending  credit for the purpose of purchasing  or carrying  margin
stock,  and no proceeds of any Loans will be used for a purpose which  violates,
or would be inconsistent  with, F.R.S.  Board Regulation U or X. Terms for which
meanings are provided in F.R.S. Board Regulation U or X or

                                       50
<PAGE>

     any regulations  substituted  therefor, as from time to time in effect, are
used in this Section with such meanings.

     SECTION 6.14.  Accuracy of Information.  To the Borrower's  Knowledge,  all
factual information heretofore or contemporaneously furnished by or on behalf of
any of the  Obligors in writing to the  Administrative  Agent or the  Collateral
Agent or any Bank or the  Issuer  for  purposes  of or in  connection  with this
Agreement,  any other Loan Document,  or any transaction  contemplated hereby or
thereby is, and all other such factual information  hereafter furnished by or on
behalf of any of the  Obligors  to the  Administrative  Agent or the  Collateral
Agent or any Bank or the Issuer  will be, true and  accurate  in every  material
respect on the date as of which such information is dated or certified and as of
the date of  execution  and  delivery of this  Agreement  by the  Administrative
Agent, the Collateral Agent and such Bank or the Issuer, and such information is
not,  or shall not be, as the case may be,  incomplete  by omitting to state any
material fact necessary to make such  information not misleading in any material
respect.  There is no fact known to any  Obligor  which has a  Material  Adverse
Effect, or which could reasonable be expected to have a Material Adverse Effect,
on the business,  condition (financial or otherwise),  operations, or properties
of the  Borrower  and its  Subsidiaries  taken  as a  whole  that  has not  been
disclosed in writing to the  Administrative  Agent,  the Collateral  Agent,  the
Issuer and the Banks.

     SECTION 6.15. No Defaults  under Other  Agreements.  Except as disclosed in
Item 6.15 ("Existing Defaults") of the Disclosure Schedule, neither the Borrower
nor any of its  Subsidiaries  is in default in the payment  when due (subject to
any  applicable  grace period),  whether by  acceleration  or otherwise,  of any
Indebtedness  in excess of  $2,500,000,  and no  defaults  have  occurred in the
performance  or  observance of any  obligation or condition  with respect to any
such Indebtedness if the effect of such default is to accelerate the maturity of
any Indebtedness.

     SECTION 6.16. Solvency. The Borrower is Solvent. Each Restricted Subsidiary
is Solvent.

     SECTION  6.17.  Agreements.  Neither the Borrower nor any  Subsidiary  is a
party to any  indenture,  loan,  or credit  agreement,  or to any lease or other
material  agreement  or  instrument,  or  subject to any  charter  or  corporate
restriction  which  could  have a  material  adverse  effect  on  the  business,
condition (financial or otherwise),  operations, prospects, or properties of the
Borrower and its Subsidiaries (taken as a whole), or the ability of the Borrower
or any Obligor to pay and perform its  obligations  under the Loan  Documents to
which it is a party.  Neither the Borrower nor any  Restricted  Subsidiary is in
default in any respect in the performance,  observance, or fulfillment of any of
the obligations, covenants, or conditions contained in any material agreement or
instrument material to its business to which it is a party.

     SECTION  6.18.  Compliance  with Laws,  etc.  The  Borrower and each of its
Subsidiaries  has complied with all  applicable  statutes,  rules,  regulations,
orders and  restrictions  of any  government  or any  instrumentality  or agency
thereof,  having jurisdiction over the conduct of their respective businesses or
the ownership of their respective Hydrocarbon Interests except where the failure
to so comply would not reasonably be expected to have a Material Adverse Effect.

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<PAGE>

                                   ARTICLE VII

                                    COVENANTS

     SECTION 7.1.  Affirmative  Covenants.  The Borrower agrees with each Agent,
the Issuer and each Bank that,  until all  Commitments  have  terminated and all
Obligations  have been paid and performed in full, the Borrower will perform the
obligations set forth in this Section 7.1.

     SECTION 7.1.1. Financial Information,  Reports,  Notices, etc. The Borrower
will furnish,  or will cause to be furnished,  to the  Administrative  Agent for
distribution  to each Bank copies (in sufficient  number to provide at least one
copy to each Bank) of the following financial statements,  reports,  notices and
information:

     (a) as soon as  available  and in any event within 50 days after the end of
each of the first three  Fiscal  Quarters  of each Fiscal Year of the  Borrower,
consolidated balance sheets, statements of earnings, and statements of cash flow
as of the  end of  such  Fiscal  Quarter  (and,  if  required  by GAAP or by any
Governmental Authority, consolidating balance sheets, statements of earnings and
statements  of cash flows) of the Borrower  for such Fiscal  Quarter and for the
period commencing at the end of the previous Fiscal Year and ending with the end
of such Fiscal Quarter, certified by an Authorized Officer of the Borrower;

     (b) as soon as available  and in any event within 105 days after the end of
each Fiscal Year of the  Borrower,  a copy of the annual  audit  report for such
Fiscal Year for the Borrower,  including therein  consolidated (and, if required
by GAAP or by any Governmental Authority, consolidating) financial statements of
the Borrower as of the end of such Fiscal Year prepared in the manner  described
in clause (a) above and certified  (without any Impermissible  Qualification) by
independent  certified  public  accountants  of nationally  recognized  standing
selected by the Borrower;

     (c) as soon as available and in any event within 15 days of the delivery to
the Administrative  Agent of the financial  statements  described in clauses (a)
and (b) above, a certificate, executed by an Authorized Officer of the Borrower,
showing (in reasonable detail and with appropriate calculations and computations
in all respects  satisfactory to the  Administrative  Agent) compliance with the
financial covenants set forth in Section 7.2.4. together with a statement to the
effect that the Borrower has not become aware of any Default or Event of Default
that has occurred or is continuing, or, if the Borrower has become aware of such
Default or Event of Default, describing such Default or Event of Default and the
steps, if any, being taken to cure it;

     (d)  concurrently  with the  certificate  delivered  pursuant to clause (c)
above, (i) a production  statement which identifies the most recent  information
available  relating  to  the  gross  volumes  of  Hydrocarbons  produced  in the
aggregate from the Hydrocarbon  Interests included in the Borrowing Base, (ii) a
statement of revenues and expenses  attributable  to the  Hydrocarbon  Interests
included in the  Borrowing  Base for such  Fiscal  Quarter  ended,  and (iii) an
operating report which identifies the most recent information available relating
to the

                                       52
<PAGE>

     aggregate  Hydrocarbons  throughput of the Gas Gathering Systems,  revenues
and  expenses  and  operating  reports each  attributable  to the Gas  Gathering
Systems for such Fiscal Quarter then ended, such production report and statement
of  revenues  and  expenses  and  operating  reports  each  to be in a form  and
substance reasonably satisfactory to the Administrative Agent and the Banks;

     (e) promptly upon the Borrower learning of the occurrence of any Default or
Borrowing Base Deficiency,  a statement of an Authorized Officer of the Borrower
setting  forth  details of such Default or  Borrowing  Base  Deficiency  and the
action which the Borrower has taken and proposes to take with respect thereto;

     (f)  promptly  upon the  Borrower  learning  of (x) the  occurrence  of any
material adverse development with respect to any litigation, action, proceeding,
or labor  controversy  described in Section 6.7 or (y) the  commencement  of any
labor  controversy,  litigation,  action or proceeding of the type  described in
Section  6.7,  or (z) any  material  adverse  development  with  respect  to any
litigation,  action,  proceeding or controversy affecting any Obligor,  which in
the Borrower's opinion,  could reasonably be expected to have a material adverse
effect on the business, operations, affairs, condition (financial or otherwise),
prospects or assets of the Borrower on a consolidated basis;

     (g)  promptly  after the sending or filing  thereof,  copies of all reports
which the Borrower sends to its stockholders generally,  and all reports on form
10-K, 10-Q, 8-K, all definitive  proxy  statements,  and effective  registration
statements  (other than  registration  statements on Form S-8 or successor forms
for  sales  of  securities  under  Plans)  which  the  Borrower  files  with the
Securities and Exchange Commission or any national securities exchange;

     (h) immediately  upon becoming aware of the institution of any steps by the
Borrower or any  Affiliate of the Borrower to terminate any Pension Plan, or the
failure to make a required  contribution  to any Pension Plan if such failure is
sufficient to give rise to a Lien under section  302(f) of ERISA,  or the taking
of any  action  with  respect  to a  Pension  Plan  which  could  result  in the
requirement  that the Borrower  furnish a bond or other  security to the PBGC or
such Pension  Plan,  or the  occurrence of any event with respect to any Pension
Plan which could result in the incurrence by the Borrower of any liability, fine
or penalty, or any material increase in the contingent liability of the Borrower
with respect to any  post-retirement  Welfare Plan benefit,  notice  thereof and
copies of all documentation relating thereto;

     (i) [Intentionally Omitted];

     (j) Notice of Material Adverse Change. As soon as possible and in any event
within 10 days after the occurrence thereof,  written notice of any matter that,
in  the  good  faith  opinion  of the  Borrower's  management  after  exercising
reasonable  business  judgment,  could reasonably be expected to have a material
adverse effect on the business, condition

                                       53
<PAGE>

     (financial  or  otherwise),  operations,  prospects,  or  properties of the
Borrower and its Subsidiaries taken as a whole;

     (k) promptly upon the aggregate value of all margin accounts established by
the  Borrower or any of its  Subsidiaries  with  respect to Hedging  Obligations
exceeding $100,000, written notice of such excess;

     (l)  such  other  information   respecting  the  condition  or  operations,
financial or otherwise,  of the Borrower and its Subsidiaries as any Bank or the
Issuer  through  the  Administrative  Agent  may  from  time to time  reasonably
request; and

     (m) Reserve Reports.

     (i) On or before April 1 of each calendar year,  commencing  April 1, 2002,
at the Borrower's  expense,  Reserve  Reports  prepared by an Approved  Engineer
dated as of December 31 of the preceding year; and

     (ii) On or before  October 1 of each calendar year,  commencing  October 1,
2001, at the Borrower's expense,  Reserve Reports prepared by the Borrower dated
as of June 30 of such year;

     SECTION 7.1.2.  Compliance  with Laws,  Maintenance of Existence,  etc. The
Borrower will and will cause each Material  Restricted  Subsidiary to (a) comply
in all material  respects  with all  applicable  laws,  rules,  regulations  and
orders,  (b) do all things  necessary  and proper to maintain  and  preserve its
respective  corporate or other  existence and  franchises  and privileges in the
jurisdiction  of its  formation  and quality and remain  qualified  as a foreign
entity  authorized  to do business in each  jurisdiction  where it has Assets or
properties or conducts  business  except where a failure to so qualify or remain
qualified  would not reasonably be expected to have a Material  Adverse  Effect;
and (c) pay,  before the same  become  delinquent,  all taxes,  assessments  and
governmental  charges  imposed upon it or upon its property except to the extent
being  diligently  contested in good faith by  appropriate  proceedings  and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books. The Borrower will conduct,  and will cause each Restricted  Subsidiary to
conduct, its business in an orderly and efficient manner in accordance with good
business practices.

     SECTION 7.1.3.  Maintenance of Properties.  The Borrower, in its reasonable
business judgment,  and in the ordinary conduct of its business,  will, and will
cause each Restricted  Subsidiary to, maintain,  preserve,  protect and keep its
respective  properties  in good repair,  working order and  condition,  and make
necessary and proper  repairs,  renewals and  replacements  so that its business
carried on in connection therewith may be properly conducted at all times unless
the Borrower  determines in good faith that the continued  maintenance of any of
its properties is no longer economically desirable.

     SECTION  7.1.4.  Insurance.  The  Borrower  will  maintain  or  cause to be
maintained with responsible  insurance  companies  insurance with respect to its
and its Restricted Subsidiaries'

                                       54
<PAGE>

     properties and business  against such casualties and  contingencies  and of
such types and in such amounts as is customary in the case of similar businesses
in similar locales and will, upon request of the Administrative  Agent,  furnish
to each Bank at  reasonable  intervals a certificate  of an  Authorized  Officer
setting forth the nature and extent of all insurance  maintained by the Borrower
in accordance  with this Section.  Each  insurance  policy  covering  Collateral
Property shall provide that such policy will not be canceled or reduced  without
30 days' prior written notice to the Administrative Agent. In the event an Event
of Default  occurs and  continues  for a period of 90 days,  the  Borrower  will
cause, within 5 days, each insurance policy covering Collateral Property to name
the  Collateral  Agent as  additional  insured and loss payee for the benefit of
itself, the other Agents, the Banks and the Issuer.

     SECTION  7.1.5.  Books and Records.  The  Borrower  will and will cause its
Restricted  Subsidiaries to keep books and records which accurately  reflect all
of its business affairs and transactions and permit the Administrative Agent and
each Bank or any of their  respective  representatives,  at reasonable times and
intervals,  to visit all of its offices,  to discuss its financial  matters with
its  officers  and  independent  public  accountant  (and  the  Borrower  hereby
authorizes such independent  public accountant with prior notice to the Borrower
and an  opportunity to attend,  to discuss the Borrower's and its  Subsidiaries'
financial matters with each Bank or its representatives) and to examine (and, at
the expense of the Borrower,  photocopy extracts from) any of its or their books
or other  records.  The Borrower shall pay any fees of such  independent  public
accountant incurred in connection with the Administrative  Agent's or any Bank's
exercise of its rights pursuant to this Section.

     SECTION 7.1.6. [Intentionally Omitted].

     SECTION 7.1.7. Agreement to Deliver Security Documents.

     (a) The Borrower  agrees to and will cause its Restricted  Subsidiaries  to
deliver to further secure the Obligations  whenever  requested by the Collateral
Agent or the Administrative  Agent in good faith, Pledge Agreements,  Mortgages,
mortgages,  deeds, deeds of trust,  security agreements,  financing  statements,
continuation  statements,  extensions agreements and other similar agreements or
instruments  (in addition to those required to be delivered  under Article V) in
form and substance  satisfactory to the Collateral  Agent or the  Administrative
Agent in good faith for the purpose of granting, confirming and perfecting first
and prior liens or security  interests in any property which is at such time (i)
Collateral  Property or which was intended to be Collateral Property pursuant to
any Loan Document  previously  executed and not then released by the  Collateral
Agent, or (ii) Capital Stock or other ownership  interests in each Subsidiary of
the  Borrower;   provided,   however,  that  the  Borrower  and  the  Restricted
Subsidiaries  shall at all times  maintain in effect in favor of the  Collateral
Agent such  Mortgages as are  necessary to grant,  confirm and perfect first and
prior liens or security  interests  in at least 80% of the present  value of the
Proved  Reserves  (whether  developed  or  undeveloped);  and further  provided,
however,  that  in the  event  that  the  Hydrocarbon  Interests  on  which  the
Collateral Agent has a first priority  perfected Lien shall constitute less than
80%  of  the  present  value  of  the  Proved  Reserves  (whether  developed  or
undeveloped),  the  Borrower  shall  promptly  notify the  Collateral  Agent and
execute or cause to be executed additional  Mortgages necessary to increase such
percentage to at least 80%. The Borrower shall cause each Person that

                                       55
<PAGE>

     becomes a Material  Restricted  Subsidiary after the date hereof to execute
and deliver to the  Collateral  Agent a  counterpart  of each of the  Subsidiary
Pledge  Agreement and Subsidiary  Guaranty  Agreement  within 15 days after such
Person becomes a Restricted Subsidiary. Contemporaneously with the execution and
delivery  of any  such  counterpart  of the  Subsidiary  Pledge  Agreement,  the
Borrower  shall  deliver  to the  Collateral  Agent  the  original  certificates
evidencing all outstanding Capital Stock of such Restricted Subsidiary, together
with  stock  powers  relating  thereto  duly  executed  in blank and such  other
documents as the Administrative  Agent may reasonably request. The Borrower also
agrees to deliver  whenever  requested  by the  Collateral  Agent in good faith,
favorable  opinions (in addition to those required to be delivered under Article
V) from legal counsel acceptable to the Administrative  Agent in good faith with
respect to any Collateral  Property  confirming that such Collateral Property is
subject to Security  Documents  securing  Obligations that constitute and create
legal,  valid and duly perfected  Liens in such properties and interests and the
proceeds thereof,  and covering such other matters as the  Administrative  Agent
may request in good faith.

     (b) The  Borrower  shall  execute  and  deliver to the  Collateral  Agent a
counterpart  of the  Borrower  Pledge  Agreement  pursuant to which the Borrower
pledges to the Collateral Agent all of its ownership interest in Bluebird within
15  days  after  the  Borrower's  and  its  Restricted  Subsidiaries'  aggregate
Investments  in Bluebird  (excluding  (1) any loans to Bluebird in an  aggregate
principal  amount at any time  outstanding  not in  excess of the  amount of any
Qualifying  Cash  Distributions  of the  type  described  in  clause  (i) of the
definition  of  Qualifying  Cash  Distributions  received  from  Bluebird by the
Borrower or its Restricted  Subsidiaries  and (2) all Investments  made prior to
the date hereof) shall equal or exceed  $5,000,000 in the aggregate for all such
Investments in Bluebird.

     SECTION 7.1.8.  Perfection and Protection of Security  Interests and Liens.
The Borrower will and will cause its  Subsidiaries  to from time to time deliver
or cause to be  delivered  to the  Collateral  Agent any  financing  statements,
continuation  statements,  extension  agreements and other  documents,  properly
completed and executed (and  acknowledged when required) by the relevant Person,
in  form  and  substance  satisfactory  to  the  Administrative  Agent  and  the
Collateral  Agent,  which the  Administrative  Agent requests for the purpose of
perfecting,  confirming  or  protecting  any Liens or other rights in Collateral
Property.

     SECTION 7.1.9. Compliance with Other Contractual Obligations.  The Borrower
shall,  and shall cause its Restricted  Subsidiaries,  to perform and observe in
all material  respects all of the  covenants  and  agreements  contained in each
contract or  agreement  to which it is a party that are provided to be performed
and observed on the part of such Person,  taking into account any grace  period,
and shall in the reasonable  business judgment of the Borrower diligently and in
good faith enforce, using appropriate procedures and proceedings, all of its and
its  Subsidiaries'  material  rights and remedies  under  (including  taking all
diligent  actions  required to collect  amounts owed to such Person by any other
parties thereunder) each such contract or agreement.

     SECTION 7.1.10. Opinions of Local Counsel. Not later than May 31, 2001, the
Borrower shall deliver,  or shall cause to be delivered,  to the  Administrative
Agent for  distribution  to each Bank (in sufficient  number to provide at least
one copy to each Bank)  favorable  opinions from a local counsel to the Obligors
in the each of the states of Arkansas, New Mexico, Oklahoma,

                                       56
<PAGE>

     and Texas, dated as of the date of delivery thereof,  in form and substance
reasonably  satisfactory to the Administrative Agent and its counsel which shall
include an opinion (1) that the Mortgages  dated May 17, 2001, any amendments to
Existing Mortgages,  and any corresponding UCC financing  statements to be filed
in such state, respectively, are effective to create or maintain, as applicable,
a  valid,  perfected  Lien in  favor of the  Collateral  Agent on the  Mortgaged
Properties  located in such state and are in proper form for recordation in such
state,  and (2)  that,  if  applicable,  the  form of the  Bluebird  Acquisition
Documents by which  Mortgagor  obtained  rights in the Bluebird  Properties will
assign, and transfer the Bluebird  Properties to such Mortgagor thereof (subject
to the terms, conditions,  limitations, and exceptions contained in the Bluebird
Acquisition Documents).

     SECTION 7.2. Negative  Covenants.  The Borrower agrees with each Agent, the
Issuer  and each  Bank  that,  until all  Commitments  have  terminated  and all
Obligations  have been paid and performed in full, the Borrower will perform the
obligations set forth in this Section 7.2.

     SECTION  7.2.1.  Business  Activities.  The Borrower  will not and will not
permit its Restricted  Subsidiaries to engage in any business  activity,  except
the Oil and Gas Business.

     SECTION 7.2.2. Indebtedness.  The Borrower will not and will not permit its
Restricted Subsidiaries to create, incur, assume or suffer to exist or otherwise
become  or be  liable  in  respect  of any  Indebtedness,  other  than,  without
duplication, the following:

     (a) Indebtedness in respect of the Loans and other Obligations;

     (b) until the date of the initial  Borrowing,  Indebtedness  identified  in
Item  7.2.2(b)  ("Indebtedness  to  be  Repaid")  of  the  Disclosure  Schedule;

     (c)  Indebtedness  existing as of the Effective Date which is identified in
Item   7.2.2(c)   ("Ongoing   Indebtedness")   of   the   Disclosure   Schedule;

     (d)  unsecured   accounts  payable  by  the  Borrower  and  its  Restricted
Subsidiaries  incurred  in the  ordinary  course  of  business  (including  open
accounts  extended  by  suppliers  on  normal  trade  terms in  connection  with
purchases of goods and services, but excluding Indebtedness incurred through the
borrowing of money or Contingent Liabilities);

     (e) Trade Guarantees;

     (f)  Indebtedness  subordinate  to  the  Obligations  on  terms  reasonably
satisfactory to the  Administrative  Agent (such approval not to be unreasonably
withheld)  payable (i) solely in common stock of the Borrower or such Restricted
Subsidiary,  or (ii) in cash or common stock of the Borrower or such  Restricted
Subsidiary at the sole option of the obligor thereof,  provided that neither the
Borrower nor any Restricted  Subsidiary shall make aggregate cash payments after
the date  hereof  with  respect to such  Indebtedness  in an amount in excess of
$5,000,000;

                                       57
<PAGE>

     (g) unsecured Indebtedness of the Borrower or any Restricted Subsidiary, in
respect of  performance  bonds,  surety  bonds,  and appeal bonds issued for its
account, in each case in the ordinary course of business;

     (h) Indebtedness  not otherwise  permitted under this Section 7.2.2 that is
created,  incurred or assumed  after the  Effective  Date which is in respect of
Capitalized  Lease Liabilities or sales leaseback  transactions  covering assets
sold and then leased back;  provided  that the aggregate  outstanding  principal
amount of all such Indebtedness does not exceed  $17,500,000 in the aggregate at
any one time  outstanding  for all such  Indebtedness  of the  Borrower  and the
Restricted Subsidiaries;

     (i) unsecured  Indebtedness  of the Borrower or any  Restricted  Subsidiary
owing to the Borrower or to any other Restricted  Subsidiary  provided that such
other Restricted Subsidiary is also a Guarantor;

     (j) Indebtedness  not otherwise  permitted under this Section 7.2.2 that is
created,  incurred or assumed after the Effective Date by the Borrower or one or
more  Restricted  Subsidiaries  to a vendor  of any  equipment  to  finance  its
acquisition  of such equipment and costs  associated  with placing such acquired
equipment in service;  provided that the aggregate  outstanding principal amount
of all such Indebtedness does not exceed $25,000,000 at any time outstanding and
provided  further  that the  recourse  of the  vendor  shall be  limited  to the
equipment so acquired;

     (k)  Indebtedness in the form of a Contingent  Liability of the Borrower in
respect of  Indebtedness  of Bluebird;  provided that the aggregate  outstanding
principal  amount of all such  Indebtedness  does not exceed  $15,000,000 in the
aggregate;

     (l) unsecured  Indebtedness owing to Bluebird,  provided that the source of
any loan proceeds  received by the Borrower or its Restricted  Subsidiaries from
Bluebird must be Qualifying Cash  Distributions,  and provided  further that the
principal  amount of any  Indebtedness  permitted by this Section 7.2.2(l) shall
not exceed at any time the amount of all Qualifying Cash Distributions  received
by Bluebird prior to the incurrence of such  Indebtedness,  and provided further
that such Indebtedness shall not accrue interest at a rate exceeding the rate of
interest at which the Borrower  could have borrowed Base Rate Loans or LIBO Rate
Loans, whichever is less, under this Agreement on the date on which the Borrower
or its Restricted Subsidiary incurred such Indebtedness owing to Bluebird; and

     (m) unsecured  Indebtedness of the Borrower or a Restricted Subsidiary owed
to a Person or Persons other than Bluebird or any other Unrestricted  Subsidiary
not otherwise  permitted  under this Section 7.2.2 that is created,  incurred or
assumed after the Effective Date;  provided that the aggregate  principal amount
of  such  Indebtedness,   together  with  the  aggregate   principal  amount  of
Indebtedness  outstanding  as  permitted by the  foregoing  clause (h) shall not
exceed  $35,000,000  in the  aggregate  at any  time  outstanding;  and  further
provided that any  Indebtedness  outstanding  as permitted by this clause (m) in
excess of  $15,000,000  shall be on such usual and  customary  terms  (including
terms with respect to the

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<PAGE>

     scheduled  repayment and maturity  thereof) as shall be approved in advance
in writing by the Majority Banks, such approval not to be unreasonably  withheld
or delayed;

     provided,  however, that no additional  Indebtedness otherwise permitted by
clauses (f),  (h),  (i), (j), (k), (l) or (m) shall be incurred if, after giving
effect to the  incurrence  thereof,  any Default or Event of Default  shall have
occurred and be continuing.

     SECTION 7.2.3.  Liens. The Borrower will not and will not permit any of its
Restricted  Subsidiaries  to create,  incur,  assume or suffer to exist any Lien
upon any of its  property,  revenues or assets,  whether now owned or  hereafter
acquired, except:

     (a) Liens securing  payment of the Obligations and any Hedging  Obligations
owed to a Bank,  an Agent,  or the  Issuer  or any  Affiliate  thereof,  granted
pursuant to any Loan Document;

     (b) Liens granted to secure payment of  Indebtedness  of the type permitted
and  described in Section  7.2.2(h)  and (j) and  covering  only those assets or
equipment,  as the case may be,  acquired or financed  with the proceeds of such
Indebtedness;

     (c) Liens for taxes,  assessments or other  governmental  charges or levies
not at the  time  delinquent  or being  diligently  contested  in good  faith by
appropriate  proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;

     (d) Liens of carriers, warehousemen,  mechanics, materialmen, landlords and
other  like Liens  incurred  in the  ordinary  course of  business  for sums not
overdue or being diligently  contested in good faith by appropriate  proceedings
and for which  adequate  reserves  in  accordance  with GAAP shall have been set
aside on its books;

     (e) Liens  incurred in the ordinary  course of business in connection  with
workmen's  compensation,  unemployment  insurance or other forms of governmental
insurance or benefits;

     (f) judgment  Liens  resulting from a judgment or order to pay money not in
excess of $2,500,000 above applicable  insurance  coverage  rendered against the
Borrower or any  Restricted  Subsidiary  (or, in the event the  Borrower or such
Restricted  Subsidiary  shall have an  indemnity  reasonably  acceptable  to the
Majority  Banks from a Person  satisfactory  to the Majority Banks (which Person
acknowledges  in writing its  liability  for such  indemnity) in respect of such
judgment,  decree or order for the payment of money,  if after giving  effect to
such  indemnity,  the Borrower's or such  Restricted  Subsidiary's  liability in
respect of such judgment, decree or order is not in excess of $2,500,000, as the
case may be) and neither  enforcement  proceedings  shall have been commenced by
any creditor upon such  judgment or order,  nor shall there have been any period
of 30  consecutive  days during which a stay of  enforcement of such judgment or
order,  by  reason  of a pending  appeal  or  otherwise,  shall not have been in
effect;

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<PAGE>

     (g)   easements,   rights-of-way,    servitudes,   permits,   reservations,
exceptions,  covenants and other restrictions as to the use of real property and
other similar  encumbrances  incurred in the ordinary  course of business which,
with respect to all of the foregoing,  do not secure the payment of Indebtedness
and which,  in the aggregate,  are not substantial in amount and which do not in
any case materially  detract from the value of the Hydrocarbon  Interest subject
thereto or materially interfere with the ordinary conduct of the business of the
Borrower;

     (h) defects,  irregularities and deficiencies in the title to any rights of
way or any  Hydrocarbon  Interest of the Borrower or any  Restricted  Subsidiary
which in the aggregate do not materially impair the use of such rights of way or
any  Hydrocarbon  Interest for the purposes for which such rights of way and any
other Hydrocarbon Interest are held by such Person, and defects,  irregularities
and  deficiencies  in title to any  Hydrocarbon  Interest of the Borrower or any
Restricted Subsidiary,  which defects,  irregularities or deficiencies have been
cured by possession under applicable statutes of limitations;

     (i) royalties,  overriding  royalties and revenue interests,  provided that
the value of the  Hydrocarbon  Interests  shown on the Reserve Reports is net of
such Liens;

     (j) any Lien securing  Indebtedness,  neither assumed nor guaranteed by the
Borrower or any Restricted Subsidiary nor on which it customarily pays interest,
existing  upon real estate or rights in or  relating to real estate  acquired by
such Obligor for substation,  metering station, pump station,  storage gathering
line,   transmission  line,   transportation  line,  distribution  line  or  for
right-of-way  purposes,  and any  Liens  reserved  in  leases  for  rent and for
compliance with the terms of the leases in the case of leasehold estates, to the
extent that any such Lien referred to in this  paragraph (j) does not materially
impair the use or value of the  property  subject to such Lien for the  purposes
for which such property is held;

     (k) Liens  arising out of all  presently  existing and future  division and
transfer  orders,   advance  payment  agreements,   processing  contracts,   gas
processing plant  agreements,  operating  agreements,  gas balancing or deferred
production  agreements,  pooling,  unitization  or  communitization  agreements,
pipeline, gathering or transportation agreements,  platform agreements, drilling
contracts,   injection   or   repressuring   agreements,   cycling   agreements,
construction  agreements,  salt water or other  disposal  agreements,  leases or
rental agreements, farm-out and farm-in agreements,  exploration and development
agreements, and any and all other contracts or agreements covering, arising out,
used or useful in connection with or pertaining to the exploration, development,
operation,  production,  sale, use,  purchase,  exchange,  storage,  separation,
dehydration,  treatment,  compression,  gathering,  transportation,  processing,
improvement, marketing, disposal, or handling of any Hydrocarbon Interest of the
Borrower or any Restricted  Subsidiary provided that such agreements are entered
into in the ordinary  course of business and contain  terms  customary  for such
agreements in the industry and provided  further that no Liens described in this
paragraph (k) shall be granted or created in connection  with the  incurrence of
Indebtedness;

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<PAGE>

     (l)  customary  preferential  rights to purchase and calls on production by
sellers  relating  to  Hydrocarbon  Interests  acquired  by the  Borrower or any
Restricted Subsidiary after the Effective Date;

     (m) Liens on required  margin  collateral in accounts  which secure Hedging
Obligations;  provided,  that the  obligations  secured by such Liens  shall not
exceed $15,000,000 in the aggregate;

     (n) Liens  existing as of the  Effective  Date which is  identified in Item
7.2.3(n) ("Existing Liens") of the Disclosure Schedule;

     (o) Liens securing performance of bids, tenders, trade contracts, statutory
obligations,  return  of money  bonds  and other  obligations  of a like  nature
incurred in the ordinary course of business (all of the foregoing other than for
Indebtedness) or to secure  obligations on surety or appeal bonds, not to exceed
$2,500,000 in the aggregate  for all such  obligations  secured by such Liens at
any one time outstanding; and

     (p) Liens arising solely by virtue of any statutory or common law provision
relating to banker's liens,  rights of set-off or similar rights and remedies as
to  deposit  accounts  or other  funds  maintained  with a  creditor  depository
institution;  provided,  that (i) such deposit  account is not a dedicated  cash
collateral  account and is not  subject to  restrictions  against  access by the
Borrower  or  any  Restricted  Subsidiary  in  excess  of  those  set  forth  by
regulations  promulgated by the F.R.S.  Board,  and (ii) such deposit account is
not  intended by the Borrower or any  Subsidiary  to provide  collateral  to the
depository institution.

     SECTION 7.2.4. Financial Condition. The Borrower will not permit:

     (a) its Funded Debt to EBITDA  Ratio to be more than (i) 4.0 to 1.0 for any
four- Fiscal Quarter period ending on or before December 31, 2001 or (ii) 3.5 to
1.0 for any four- Fiscal Quarter period ending after December 31, 2001;

     (b) Consolidated Interest Coverage Ratio to be less than 2.5 to 1.0 for any
four- Fiscal Quarter period ending on the last day of any Fiscal Quarter; or

     (c) the  Current  Ratio to be less than 1.0 to 1.0 at the end of any Fiscal
Quarter.

     SECTION 7.2.5.  Investments.  The Borrower will not and will not permit any
Restricted  Subsidiary  to, make,  incur,  or assume any Investment in any other
Person except as provided in this Section 7.2.5:

     (a)  Investments  existing on the  Effective  Date and  identified  in Item
7.2.5(a) ("Ongoing Investments") of the Disclosure Schedule;

     (b) Investments permitted as Indebtedness pursuant to Section 7.2.2;

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<PAGE>

     (c) extensions of trade credit in the ordinary course of business;

     (d) Investments in Cash Equivalent Investments;

     (e) [Intentionally Omitted];

     (f)  Investments  in  joint  ventures  made  pursuant  to  exploration  and
development  activity in the ordinary  course of business of the Borrower or any
Restricted Subsidiaries;

     (g)  the  endorsement  of  negotiable  instruments  for  collection  in the
ordinary course of business;

     (h) the  acquisition  of the Capital  Stock or securities of a Wholly Owned
Subsidiary;

     (i)  Investments  made with common stock of the Borrower or any  Restricted
Subsidiary,  provided that any such  Investment  shall not result in a Change in
Control;

     (j) Investments  not otherwise  permitted by this Section 7.2.5 in Bluebird
not to  exceed  in  the  aggregate  for  all  such  Investments  the  sum of all
Qualifying  Cash  Distributions  received  by the  Borrower  or  its  Restricted
Subsidiaries  as  dividends  or returns of capital  (but  excluding  any amounts
received as loans  pursuant to Section  7.2.2.(l))  from Bluebird after December
31, 2000; and

     (k) so long as no Default has  occurred  and is  continuing  and so long as
after giving effect  thereto  Borrowing  Base Usage is not greater than 90%, the
Borrower may make Investments not otherwise  permitted  pursuant to this Section
7.2.5 not to exceed $25,000,000 in the aggregate for all such Investments;

     provided,  however,  that (i) any Investment  which when made complies with
the requirements of the definition of the term "Cash Equivalent  Investment" may
continue to be held  notwithstanding  that such  Investment  if made  thereafter
would  not  comply  with such  requirements;  and (ii) no  Investment  otherwise
permitted  by clause (j) or (k) shall be  permitted  to be made if,  immediately
before or after giving  effect  thereto,  any Default or Event of Default  shall
have occurred and be continuing.

     SECTION 7.2.6.  Restricted Payments,  etc. The Borrower shall not and shall
not permit any Restricted Subsidiary to (a) declare, pay or make any dividend or
distribution  (in cash,  property or  obligations) on any shares of any class of
the Borrower's Capital Stock (now or hereafter  outstanding) or on any warrants,
options or other  rights with  respect to any shares of any class of its Capital
Stock (now or  hereafter  outstanding)  other than  dividends  or  distributions
payable in the  Borrower's  common stock or warrants to purchase the  Borrower's
common stock or splitups or  reclassifications  of the Borrower's  Capital Stock
into additional or other shares of its common stock or apply any of its or their
funds,  property or assets to the  purchase,  redemption,  sinking fund or other
retirement of, or purchase or redeem,  any shares of any class of the Borrower's
Capital  Stock (now or hereafter  outstanding),  or  warrants,  options or other
rights with respect to any shares of any

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<PAGE>

     class of its Capital  Stock (now or hereafter  outstanding);  (b) except as
expressly  permitted in writing by the Administrative  Agent with the consent of
the Required Banks,  make any payment or prepayment of principal of, or make any
payment of  interest  on,  any  Indebtedness  on any day other than the  stated,
scheduled  date for such payment or  prepayment  set forth in the  documents and
instruments  memorializing  such  Indebtedness,   or  which  would  violate  the
subordination  provisions  of any  Subordinated  Debt;  (c) redeem,  purchase or
defease,  any  Subordinated  Debt;  and  (d)  make  any  deposit  for any of the
foregoing purposes (collectively, the "Restricted Payments"); provided, however,
that so long as no Default is  continuing  and,  after giving effect to any such
payment,  Borrowing  Base Usage is not greater  than 90%,  the  Borrower and its
Restricted  Subsidiaries may make payments otherwise prohibited by the foregoing
clauses (a), (b) and (c) so long as

     (i) the aggregate of all such payments does not exceed the  difference,  if
any,  between  (x) the sum of (A)  $25,000,000  plus (B) the  lesser  of (1) the
product of $5,000,000 times the sum of 1 plus the number of full Fiscal Years of
the Borrower  that have elapsed from January 1, 2001 to the time of such payment
and (2) twenty-five percent (25%) of the Borrower's  consolidated net income, to
be calculated on a cumulative  basis,  for each Fiscal Year  commencing with the
Fiscal Year ending  December 31, 2001,  minus (y) the amount,  if any,  that any
individual  Investments or series of related  Investments  permitted pursuant to
Section 7.2.5(k) exceed $10,000,000 and

     (ii)  the  aggregate  of all  such  payments  otherwise  prohibited  by the
foregoing  clause (a) does not exceed the  difference,  if any,  between (x) the
product of  $10,000,000  times the sum of 1 plus the number of full Fiscal Years
of the  Borrower  that have  elapsed  from  January  1, 2001 to the time of such
payment less (y) the amount,  if any, that any individual  Investments or series
of  related   Investments   permitted   pursuant  to  Section   7.2.5(k)  exceed
$10,000,000.

     SECTION 7.2.7.  Limitation on Baskets.  Notwithstanding the foregoing,  the
Borrower  will not and will not permit its  Restricted  Subsidiaries  to create,
incur,  assume or suffer to exist Indebtedness  otherwise  permitted pursuant to
Section  7.2.2(h),  (j), (k) or (m),  Restricted  Payments  otherwise  permitted
pursuant to Section 7.2.6 or Investments otherwise permitted pursuant to Section
7.2.5(k)  to the extent that the  aggregate  of all such  Indebtedness  created,
incurred and assumed as permitted by Section 7.2.2(h), (j), (k) and (m) together
with the  Restricted  Payments made pursuant to Section 7.2.6  together with the
aggregate of all Investments  made pursuant to Section  7.2.5(k) shall exceed in
the aggregate at any time outstanding $50,000,000.

     SECTION 7.2.8. Consolidation,  Merger, etc. The Borrower will not, and will
not  permit  any  Restricted  Subsidiary  to,  become  a party  to a  merger  or
consolidation,  or purchase or otherwise acquire all or substantially all of the
business  or assets of any Person or all or  substantially  all of the shares or
other evidence of beneficial ownership of any Person, or wind-up,  dissolve,  or
liquidate;   provided,  however,  that:  (a)  the  Borrower  or  any  Restricted
Subsidiary  shall be permitted to become a party to a merger or consolidation or
acquire  all or  substantially  all  of  the  assets  of  any  Person  or all or
substantially all of the shares or other beneficial  ownership of any Person, so
long as (i) no Default is existing or would result therefrom,  (ii) the Borrower
has given the Administrative Agent at least 10 days prior notice of such merger,
consolidation or acquisition, (iii) the Borrower

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<PAGE>

     has provided to the Administrative Agent calculations demonstrating the pro
forma compliance with all financial and other covenants contained herein,  after
giving effect to such merger,  consolidation  or acquisition,  based on the most
recently delivered financial statements,  (iv) the total cash consideration paid
in  connection  with  all  such  mergers,  consolidations,  or  acquisitions  is
otherwise permitted to be paid by Section 7.2.5(k) and any Indebtedness  assumed
or incurred by the Borrower or any Restricted  Subsidiary in connection with all
such  mergers,  consolidations  or  acquisitions,  is otherwise  permitted to be
incurred by Section 7.2.2,  and (v) the Borrower or such  Restricted  Subsidiary
(unless such merger is with the Borrower),  as the case may be, is the surviving
corporation in such merger or consolidation;  and (b) any Restricted  Subsidiary
may be dissolved,  liquidated or merged into the Borrower or another  Restricted
Subsidiary,  so long as such  dissolution,  liquidation or merger results in all
assets of such  Restricted  Subsidiary  being  owned by the  Borrower or another
Restricted Subsidiary.

     SECTION 7.2.9.  Disposition of Assets.  The Borrower will not sell,  lease,
assign, transfer, or otherwise dispose of any of its assets having a fair market
value in excess of $25,000,  or permit any  Restricted  Subsidiary to do so with
any of its assets,  except (a)  dispositions of Hydrocarbons and other inventory
in the ordinary course of business, (b) dispositions of obsolete,  damaged, worn
out or replaced  equipment,  (c) sales or  transfers of assets from a Restricted
Subsidiary or the Borrower to another Restricted Subsidiary or the Borrower, (d)
sales of Oil and Gas Properties  (including  volumetric  production payments but
excluding  sales of assets  pursuant to  sale/leaseback  transactions  permitted
pursuant to Section  7.2.2(h)  hereof)  having an aggregate fair market value of
10% or less of the then current Borrowing Base during any fiscal year, (e) sales
of other assets  having a fair market value of not more than  $2,500,000  during
any fiscal year, or (f) the assignment or termination of any Hedge Agreement.

     SECTION 7.2.10.  Transactions  with  Affiliates.  The Borrower will not and
will not permit any  Restricted  Subsidiary to enter into,  or cause,  suffer or
permit to exist any  arrangement  or  contract  with any  Affiliate  unless such
arrangement or contract is fair and equitable to the Borrower or such Restricted
Subsidiary,  as the  case  may be,  and is on  terms  no less  favorable  to the
Borrower  or such  Restricted  Subsidiary,  as the  case  may be,  than,  and is
otherwise, an arrangement or contract of the kind which would be entered into by
a prudent Person in the position of the Borrower or such  Restricted  Subsidiary
with a Person which is not one of its Affiliates except for

     (i) the payment of reasonable  and  customary  regular fees to directors of
the Borrower,

     (ii) loans and  advances (A) to officers,  directors  and  employees of the
Borrower or any Restricted  Subsidiary for travel,  entertainment and moving and
other relocation  expenses made in direct furtherance and in the ordinary course
of business of the Borrower or such Restricted  Subsidiary,  (B) to officers and
directors of the Borrower or any Restricted  Subsidiary as approved by the board
of directors of the Borrower, and (C) outstanding loans and advances existing as
of the Effective Date and identified in Item 7.2.10 ("Outstanding Loans") of the
Disclosure Schedule,

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<PAGE>

     (iii)  transactions in the ordinary course of business between the Borrower
and the Restricted Subsidiaries and between Restricted Subsidiaries,

     provided,  however,  the aggregate  principal  amount of loans and advances
made  pursuant  to clauses  (ii) (A) and (B) of this  sentence  shall not exceed
$500,000 at any one time outstanding.

     SECTION 7.2.11. Negative Pledges, Restrictive Agreements, etc. The Borrower
will  not and  will not  permit  any  Restricted  Subsidiary  to enter  into any
agreement  (excluding this Agreement,  any other Loan Document and any agreement
governing any Indebtedness permitted either by clause (b) of Section 7.2.2 as in
effect on the Effective  Date and, with respect to clause (a) below,  by clauses
(h) and (j) of Section 7.2.2 solely as to the assets  financed with the proceeds
of such  Indebtedness)  prohibiting  (a) the creation or  assumption of any Lien
upon its Oil and Gas Properties, whether now owned or hereafter acquired; or (b)
the ability of any Obligor to amend or  otherwise  modify this  Agreement or any
other Loan Document; or (c) the ability of any Restricted Subsidiary to make any
payments, directly or indirectly, to the Borrower by way of dividends, advances,
repayments  of  loans  or  advances,  reimbursements  of  management  and  other
intercompany charges, expenses and accruals or other returns on investments,  or
any other  agreement  or  arrangement  which  restricts  the ability of any such
Obligor to make any payment, directly or indirectly, to any other such Obligor.

     SECTION 7.2.12.  Limitation on Issuance of Subsidiaries' Capital Stock. The
Borrower will not and will not permit any of its Restricted  Subsidiaries to, at
any time issue, sell, assign, or otherwise dispose of (a) any of such Restricted
Subsidiary's  Capital Stock, (b) any securities  exchangeable for or convertible
into or  carrying  any rights to  acquire  any of such  Restricted  Subsidiary's
Capital Stock, or (c) any option, warrant, or other right to acquire any of such
Restricted  Subsidiary's  Capital  Stock;  provided,  however,  nothing  in this
Agreement of any of the Loan Documents shall restrict the Borrower or any of the
Restricted  Subsidiaries  from issuing  Capital Stock of the Borrower or Capital
Stock in a Restricted  Subsidiary which is convertible into Capital Stock of the
Borrower in  connection  with any purchase or  investment  in any Person that is
otherwise permitted under this Agreement.

     SECTION 7.2.13.  Environmental Protection.  The Borrower will not, and will
not permit any of its Restricted  Subsidiaries to, (a) use (or permit any tenant
to  use)  any of  their  respective  properties  or  assets  for  the  handling,
processing,  storage,  transportation,  or  disposal of any  Hazardous  Material
except in amounts that will not violate applicable law, (b) conduct any activity
that is  likely  to cause a  Release  or  threatened  Release  of any  Hazardous
Material,  or (c) otherwise  conduct any activity or use any of their respective
properties  or assets in any manner  that is likely in any  material  respect to
violate any Environmental Law or create any Environmental  Liabilities for which
the Borrower or any of its Subsidiaries would be responsible.

     SECTION 7.2.14.  Accounting. The Borrower will not, and will not permit any
of the Restricted Subsidiaries to, change its fiscal year or make any change (a)
in accounting treatment or material reporting  practices,  except as required by
GAAP  and  disclosed  to the  Administrative  Agent,  or  (b)  in tax  reporting
treatment, except as required by law and disclosed to the Administrative Agent.

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<PAGE>

     SECTION  7.2.15.   Hedge  Agreements.   The  Borrower  and  the  Restricted
Subsidiaries  have not entered and shall not enter into Hedge  Agreements of the
type  described  in clause (ii) of the  definition  thereof,  provided  that the
Borrower and the  Restricted  Subsidiaries  may enter into (a) Hedge  Agreements
which  provide for a floor,  but not a cap in an amount not to exceed during any
calendar year 100% of the  Borrower's  and the  Restricted  Subsidiaries'  total
projected  production  from  Oil and Gas  Properties,  which  constitute  Proved
Producing  Reserves for such year, and (b) Hedge  Agreements which provide for a
cap  (including  fixed price swaps),  provided such Hedge  Agreements  shall not
cover  during  any  calendar  year  more  than  75% of the  Borrower's  and  the
Restricted  Subsidiaries' total projected production from Oil and Gas Properties
which constitute Proved Producing Reserves for such year; provided that (x) such
Hedge  Agreements  have a tenor of no more than three (3) years from the date of
such Hedge Agreement;  (y) such Hedge  Agreements  shall be with  counterparties
acceptable to the  Administrative  Agent;  and (z) for purposes hereof the Banks
and their respective  Affiliates and Enron Corp.,  Texaco,  Inc., Morgan Stanley
Dean  Witter,  Inc.  and  their  respective  Affiliates  shall be  deemed  to be
acceptable counterparties. Such projections shall, at all times, be equal to the
projections  set out in the most current  Reserve  Report then available for the
Borrower's  and  the  Restricted  Subsidiaries'  Oil and  Gas  Properties  which
constitute Proved Producing Reserves.

                                  ARTICLE VIII

                                EVENTS OF DEFAULT

     SECTION 8.1. Listing of Events of Default.  Each of the following events or
occurrences  described  in this  Section  8.1  shall  constitute  an  "Event  of
Default".

     SECTION 8.1.1. Non-Payment of Obligations.  The Borrower shall default (and
such default shall  continue  unremedied  for a period of three (3) days) in the
payment  or  prepayment  when due of any  principal  of any Loan  including  any
Required  Deficiency  Payment,  or in the  payment  when  due  of any  interest,
commitment fee or of any other Obligation.

     SECTION 8.1.2. Breach of Representation or Warranty.  Any representation or
warranty of any Obligor made or deemed to be made hereunder or in any other Loan
Document  executed by it or any other writing or certificate  furnished by or on
behalf of any Obligor to the any Agent,  the  Arrangers,  the Issuer or any Bank
for the purposes of or in connection  with this Agreement or any such other Loan
Document  (including  any  certificates  delivered  pursuant to Article V) is or
shall be false or in any material respect incorrect when made or deemed made.

     SECTION 8.1.3.  Non-Performance  of Certain Covenants and Obligations.  The
Borrower  shall  default in the due  performance  and  observance  of any of its
obligations under Section 7.1.1(e), 7.1.2(b), 7.1.5, 7.2.2, 7.2.4, 7.2.5, 7.2.6,
7.2.8, 7.2.9 7.2.12, 7.2.13, or 7.2.15.

     SECTION 8.1.4.  Non-Performance  of Other  Covenants and  Obligations.  Any
Obligor  shall  default  in the due  performance  and  observance  of any  other
agreement  contained  herein or in any other Loan  Document  executed by it, and
such default shall continue unremedied for a period

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<PAGE>

     of 10 days after  notice  thereof  shall have been given to such Obligor by
the Administrative Agent or the Issuer.

     SECTION 8.1.5. Default on Other Indebtedness.  A default shall occur in the
payment  when  due  (subject  to  any  applicable  grace  period),   whether  by
acceleration  or otherwise,  of any  Indebtedness  the amount of which  exceeds,
either  individually or in the aggregate,  $2,500,000  (other than  Indebtedness
described in Section 8.1.1) of the Borrower,  any  Restricted  Subsidiary or any
Obligor,  or a default  shall  occur in the  performance  or  observance  of any
obligation or condition with respect to such Indebtedness, if the effect of such
default is to accelerate the maturity of any such  Indebtedness  or such default
shall continue unremedied for any applicable period of time sufficient to permit
the  holder or  holders of such  Indebtedness  or any  trustee or agent for such
holders,  to cause such  Indebtedness  to become or be declared  due and payable
prior to its expressed maturity.

     SECTION 8.1.6. Judgments. Any judgment or order for the payment of money in
excess of  $2,500,000  above  applicable  insurance  coverage  shall be rendered
against the Borrower, any Restricted Subsidiary or any Obligor (or, in the event
the Borrower, such Restricted Subsidiary or such Obligor shall have an indemnity
reasonably  acceptable to the Majority Banks from a Person  satisfactory  to the
Majority  Banks (which  Person  acknowledges  in writing its  liability for such
indemnity)  in  respect  of such  judgment,  decree or order for the  payment of
money, if after giving effect to such indemnity, the Borrower's, such Restricted
Subsidiary's or Obligor's liability in respect of such judgment, decree or order
is in excess  of  $2,500,000,  as the case may be) and  either  (a)  enforcement
proceedings  shall have been  commenced  by any creditor  upon such  judgment or
order;  or (b) there shall be any period of 30  consecutive  days during which a
stay of enforcement of such judgment or order,  by reason of a pending appeal or
otherwise, shall not be in effect.

     SECTION 8.1.7.  Pension Plans. Any of the following events shall occur with
respect to any Pension Plan: (a) the institution of any steps by the Borrower or
any  Restricted  Subsidiary,  any  member of its  Controlled  Group or any other
Person to  terminate  a Pension  Plan if, as a result of such  termination,  the
Borrower or any  Restricted  Subsidiary  or any such member could be required to
make a contribution to such Pension Plan, or could reasonably  expect to incur a
liability or obligation to such Pension Plan, in excess of $2,500,000;  or (b) a
contribution  failure occurs with respect to any Pension Plan sufficient to give
rise to a Lien under Section 302(f) of ERISA.

     SECTION 8.1.8. Change of Control. Any Change in Control shall occur.

     SECTION 8.1.9.  Bankruptcy,  Insolvency,  etc. The Borrower, any Restricted
Subsidiary  or any  Obligor  shall  (a) be  liquidated  or become  insolvent  or
generally  fail to pay, or admit in writing its  inability or  unwillingness  to
pay,  debts as they become due; (b) apply for,  consent to, or acquiesce in, the
appointment  of a trustee,  receiver,  sequestrator  or other  custodian for the
Borrower,  any  Restricted  Subsidiary  or any  Obligor or any  property  of any
thereof,  or make a general assignment for the benefit of creditors;  (c) in the
absence of such application, consent or acquiescence,  permit or suffer to exist
the appointment of a trustee, receiver,  sequestrator or other custodian for the
Borrower,  any Restricted Subsidiary or any Obligor or for a substantial part of
the property of any thereof, and such trustee,  receiver,  sequestrator or other
custodian shall not be

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<PAGE>

     discharged  within 60 days,  provided  that the Borrower,  each  Restricted
Subsidiary  and each Obligor  hereby  expressly  authorizes  the  Administrative
Agent,  the  Collateral  Agent,  the Issuer and each Bank to appear in any court
conducting  any  relevant  proceeding  during  such 60-day  period to  preserve,
protect and defend their rights under the Loan  Documents;  (d) permit or suffer
to exist the commencement of any bankruptcy,  reorganization,  liquidation, debt
arrangement or other case or proceeding  under any bankruptcy or insolvency law,
or any  dissolution,  winding up or  liquidation  proceeding,  in respect of the
Borrower,  any  Restricted  Subsidiary or any Obligor,  and, if any such case or
proceeding is not commenced by the Borrower,  such Restricted Subsidiary or such
Obligor,  such  case or  proceeding  or  winding  up  shall be  consented  to or
acquiesced in by the Borrower,  such Restricted  Subsidiary or such Obligor,  or
shall  result in the entry of an order for  relief or shall  remain  for 60 days
undismissed,  or (e) take any action  authorizing,  or in furtherance of, any of
the foregoing.

     SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, or any Lien
granted  thereunder,  shall  (except in accordance  with its terms),  terminate,
cease to be effective or cease to be the legally valid,  binding and enforceable
obligation of any Obligor party  thereto;  any Obligor or any other party shall,
directly  or  indirectly,  contest in any manner such  effectiveness,  validity,
binding  nature or  enforceability;  or any Lien securing any  Obligation  shall
cease to be a perfected  first priority Lien,  subject only to those  exceptions
expressly permitted by such Loan Document.

     SECTION 8.1.11. Attachment, etc. The Borrower, any Restricted Subsidiary or
any  Obligor  shall  fail to  discharge  within a period  of 30 days  after  the
commencement  thereof any attachment,  sequestration,  or similar  proceeding or
proceedings involving an aggregate amount in excess of $1,000,000 against any of
its assets or properties unless the Borrower, such Restricted Subsidiary or such
Obligor is in good faith contesting such action and taking  affirmative steps to
discharge the same, and adequate reserves have been set aside in accordance with
GAAP.

     SECTION 8.1.12.  Seizure, etc. The Borrower, any Restricted Subsidiary,  or
any  Obligor,  or any of  their  properties,  revenues,  or  assets  aggregating
$1,000,000  or  greater,  shall  become the  subject of an order of  forfeiture,
seizure, or divestiture (whether under RICO or otherwise) and the same shall not
have been discharged (or provisions shall not be made for such discharge) within
30 days from the date of entry thereof.

     SECTION  8.1.13.  Change  of  Control  Offer.  The  holders  of the  Senior
Unsecured  Debt shall  require the  Borrower to purchase all or a portion of the
notes  issued  under the  Indenture  pursuant  to a Change of Control  Offer (as
defined in the Indenture).

     SECTION 8.2.  Action if  Bankruptcy.  If any Event of Default  described in
clauses  (a)  through  (d) of Section  8.1.9  shall  occur  with  respect to the
Borrower,  the Commitments (if not theretofore  terminated) shall  automatically
terminate and the outstanding  principal amount of all outstanding Loans and all
other Obligations shall automatically be and become immediately due and payable,
without  notice or demand and the  Borrower  shall be  obligated to deliver cash
collateral pursuant to Section 2.7.4.

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<PAGE>

     SECTION  8.3.  Action if Other  Event of  Default.  If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of Section
8.1.9  with  respect  to the  Borrower)  shall  occur  for any  reason,  whether
voluntary or involuntary,  and be continuing, the Administrative Agent, upon the
direction of the Majority Banks,  shall by notice to the Borrower declare all or
any  portion  of the  outstanding  principal  amount  of  the  Loans  and  other
Obligations to be due and payable without further notice, demand or presentment,
and/or  the  Commitments  (if  not  theretofore  terminated)  to be  terminated,
whereupon the full unpaid amount of such Loans and other Obligations which shall
be so declared due and payable shall be and become  immediately  due and payable
and the  Borrower  shall be obligated  to deliver  cash  collateral  pursuant to
Section 2.7.4,  without further notice,  demand or presentment,  and/or,  as the
case may be, the Commitments shall terminate.


                                   ARTICLE IX

                            THE AGENTS AND THE ISSUER

     SECTION  9.1.  Actions.  Each Bank  hereby  appoints  Bankers  Trust as its
Administrative  Agent and as its Collateral Agent under and for purposes of this
Agreement,  the Notes and each other Loan  Document.  Each Bank  authorizes  the
Administrative  Agent  and the  Collateral  Agent to act on  behalf of such Bank
under this Agreement, the Notes and each other Loan Document and, in the absence
of other written instructions from the Majority Banks received from time to time
by the  Administrative  Agent or the Collateral Agent (with respect to which the
Administrative Agent or the Collateral Agent agrees that it will comply,  except
as otherwise  provided in this Section or as otherwise  advised by counsel),  to
exercise such powers hereunder and thereunder as are  specifically  delegated to
or required of the  Administrative  Agent or the  Collateral  Agent by the terms
hereof and thereof,  together with such powers as may be  reasonably  incidental
thereto.  Each Bank  hereby  indemnifies  (which  indemnity  shall  survive  any
termination of this Agreement) the  Administrative  Agent,  the Collateral Agent
and the Issuer,  pro rata  according to such Bank's  Percentage,  whether or not
related to any singular,  joint or concurrent  negligence of the  Administrative
Agent and the  Collateral  Agent and the  Issuer,  from and  against any and all
liabilities, obligations, losses, damages, claims, costs or expenses of any kind
or  nature  whatsoever  which may at any time be  imposed  on,  incurred  by, or
asserted against,  the Administrative  Agent, the Collateral Agent or the Issuer
in any way relating to or arising out of this Agreement, the Notes and any other
Loan  Document,  including  reasonable  attorneys'  fees,  and as to  which  the
Administrative Agent, the Collateral Agent or the Issuer, as the case may be, is
not reimbursed by the Borrower;  provided, however, that no Bank shall be liable
for the  payment  of any  portion  of  such  liabilities,  obligations,  losses,
damages,  claims, costs or expenses which are determined by a court of competent
jurisdiction in a final non-appealable judgment to have resulted solely from the
Administrative   Agent's  or  the  Collateral  Agent's  or  the  Issuer's  gross
negligence or wilful misconduct. The Administrative Agent, the Collateral Agent,
and the Issuer  shall not be  required to take any action  hereunder,  under the
Notes or under any other Loan  Document,  or to  prosecute or defend any suit in
respect of this  Agreement,  the Notes or any other Loan Document,  unless it is
indemnified  hereunder  to its  satisfaction.  If any  indemnity in favor of the
Administrative  Agent,  the  Collateral  Agent or the Issuer  shall be or become
inadequate, in the Administrative Agent's, the

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<PAGE>

     Collateral Agent's or the Issuer's  determination,  as the case may be, the
Administrative Agent, the Collateral Agent or the Issuer may call for additional
indemnification  from the  Banks and  cease to do the acts  indemnified  against
hereunder  until  such  additional  indemnity  is  given.   Notwithstanding  any
provision to the contrary contained  elsewhere in this Agreement or in any other
Loan Document,  the  Administrative  Agent,  the Collateral Agent and the Issuer
shall not have any duties or  responsibilities,  except as  expressly  set forth
herein, and the Administrative  Agent, the Collateral Agent and the Issuer shall
not have or be deemed to have any  fiduciary  relationship  with any Bank or any
other Agent,  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 any the Administrative Agent, the Collateral
Agent or the Issuer.

     SECTION 9.2. Funding Reliance,  etc. Unless the Administrative  Agent shall
have been notified by telephone, confirmed in writing, by any Bank by 5:00 p.m.,
New York  time,  on the day  prior to a  Borrowing  that such Bank will not make
available the amount which would  constitute its Percentage of such Borrowing on
the date specified therefor,  the Administrative Agent may assume that such Bank
has made such amount available to the Administrative Agent and, in reliance upon
such assumption,  make available to the Borrower a corresponding  amount. If and
to the extent  that such Bank shall not have made such amount  available  to the
Administrative  Agent,  such Bank and the Borrower  severally agree to repay the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon,  for each day from the date the Administrative Agent made such
amount  available  to the  Borrower  to the date  such  amount  is repaid to the
Administrative  Agent,  at the  interest  rate  applicable  at the time to Loans
comprising such Borrowing.

     SECTION 9.3.  Exculpation.  The Administrative  Agent, the Collateral Agent
and the Issuer and their  respective  directors,  officers,  employees or agents
shall not be liable to any Bank or any Agent or the Issuer for any action  taken
or omitted to be taken by it under this Agreement or any other Loan Document, or
in  connection  herewith or therewith,  except for its own wilful  misconduct or
gross  negligence as determined by a court of competent  jurisdiction in a final
non- appealable judgment,  nor responsible for any recitals or warranties herein
or therein, nor for the effectiveness, enforceability, validity or due execution
of this Agreement or any other Loan Document,  nor for the creation,  perfection
or priority of any Liens  purported to be created by any of the Loan  Documents,
or the validity, genuineness, enforceability, existence, value or sufficiency of
any collateral  security,  nor to make any inquiry respecting the performance by
the Borrower of its obligations hereunder or under any other Loan Document.  Any
such inquiry which may be made by the Administrative Agent, the Collateral Agent
or the Issuer shall not  obligate it to make any further  inquiry or to take any
action.  Each of the  Administrative  Agent, the Collateral Agent and the Issuer
shall be entitled to rely upon advice of counsel  concerning  legal  matters and
upon  any  notice,  consent,   certificate,   statement  or  writing  which  the
Administrative  Agent, the Collateral Agent or the Issuer believes to be genuine
and to have been presented by a proper Person.

     SECTION  9.4.  Successor.  Subject to the  appointment  of a  successor  as
provided below, the  Administrative  Agent or the Collateral Agent may resign at
any time upon at least 30 days' prior notice to the  Borrower and all Banks.  If
the  Administrative  Agent or the Collateral Agent at any time shall resign,  so
long as no Event of Default shall have occurred and be continuing,

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<PAGE>

     the Borrower with the consent of the  remaining  Agents (and if an Event of
Default shall have occurred and be continuing,  the Majority  Banks) may appoint
another  a  successor  Administrative  Agent or  Collateral  Agent  which  shall
thereupon become the  Administrative  Agent or Collateral  Agent,  respectively,
hereunder.  In the event the successor  Administrative  Agent or the  Collateral
Agent is not at the time of its  appointment,  a Bank  hereunder,  so long as no
Event of Default shall have occurred and be continuing,  the Borrower shall have
the right to consent to the successor  Administrative Agent or Collateral Agent,
which consent  shall not be  unreasonably  withheld or delayed.  If no successor
Administrative  Agent or  Collateral  Agent shall have been so  appointed by the
Borrower and the  Majority  Banks,  and shall have  accepted  such  appointment,
within 30 days after the retiring  Administrative  Agent's or Collateral Agent's
giving  notice of  resignation,  then the retiring  Administrative  Agent or the
Collateral Agent may, on behalf of the Banks, appoint a successor Administrative
Agent or Collateral  Agent,  respectively,  which shall be one of the Banks or a
commercial  banking  institution  organized  under the laws of the U.S.  (or any
State thereof) or a U.S. branch or agency of a commercial  banking  institution,
and having a combined  capital  and surplus of at least  $100,000,000.  Upon the
acceptance  of any  appointment  as  Administrative  Agent or  Collateral  Agent
hereunder  by  a  successor  Administrative  Agent  or  Collateral  Agent,  such
successor  Administrative Agent or Collateral Agent shall be entitled to receive
from the retiring  Administrative  Agent or Collateral  Agent such  documents of
transfer and  assignment as such  successor  Administrative  Agent or Collateral
Agent may reasonably  request,  and shall thereupon succeed to and become vested
with all rights,  powers,  privileges and duties of the retiring  Administrative
Agent or  Collateral  Agent,  and the  retiring  Administrative  Agent  shall be
discharged  from its duties and  obligations  under  this  Agreement.  After any
retiring  Administrative  Agent's or Collateral Agent's resignation hereunder as
the Administrative  Agent or Collateral Agent,  respectively,  the provisions of
(a) this  Article  IX shall  inure to its  benefit  as to any  actions  taken or
omitted to be taken by it while it was the  Administrative  Agent or  Collateral
Agent under this Agreement; and (b) Section 10.3 and Section 10.4 shall continue
to inure to its benefit.

     SECTION 9.5.  Extensions  of Credit by the Agents,  the  Arrangers  and the
Issuer.  Each of the Agents,  the  Arrangers  and the Issuer shall have the same
rights  and  powers  with  respect  to (x)  the  Loans  made by it or any of its
Affiliates,  and  (y)  the  Notes  held  by it or any of its  Affiliates  or any
interest in any Letter of Credit issued by it as any other Bank and may exercise
the same as if it were not an Agent,  the  Arrangers or the Issuer,  as the case
may be. Each of the Agents,  the Arrangers  and the Issuer and their  respective
Affiliates may accept deposits from, lend money to, and generally  engage in any
kind of business  with the  Borrower or  Affiliate of the Borrower as if it were
not an Agent, the Arrangers or the Issuer hereunder, as the case may be.

     SECTION  9.6.  Credit  Decisions.  Each  Bank  acknowledges  that  it  has,
independently of the Agents, the Arrangers,  the Issuer and each other Bank, and
based on such Bank's review of the financial  information of the Borrower,  this
Agreement,  the other Loan  Documents  (the terms and  provisions of which being
satisfactory   to  such  Bank)  and  such  other   documents,   information  and
investigations as such Bank has deemed appropriate, made its own credit decision
to  extend  its  Commitment.   Each  Bank  also   acknowledges   that  it  will,
independently of the Agents, the Arrangers,  the Issuer and each other Bank, and
based on such other documents,  information and  investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as

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<PAGE>

     to exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any other Loan Document.

     SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt notice
to the  Collateral  Agent,  the Issuer  and each Bank of each  notice or request
required or  permitted to be given to the  Administrative  Agent by the Borrower
pursuant to the terms of this Agreement  (unless  concurrently  delivered to the
Issuer or the Banks by such Borrower).  The Administrative Agent will distribute
to the  Collateral  Agent,  the Issuer and each Bank each document or instrument
received for its account and copies of all other communications  received by the
Administrative Agent from the Borrower for distribution to the Collateral Agent,
the  Issuer and the Banks by the  Administrative  Agent in  accordance  with the
terms of this Agreement.

     SECTION 9.8.  Documentation  Agent and Syndication Agent and the Arrangers.
The  Documentation  Agent and the Syndication  Agent and the Arrangers shall not
have  any  obligations,  liabilities,  responsibilities  or  duties  under  this
Agreement  or the other Loan  Documents.  Without  limiting the  foregoing,  the
Documentation  Agent and the Syndication  Agent and the Arrangers shall not have
or be  deemed  to have any  fiduciary  relationship  with any Bank or any  other
Agent. Each Bank acknowledges that it has not relied,  and will not rely, on any
of the Banks so  identified  or on the  Documentation  Agent or the  Syndication
Agent or the Arrangers in deciding to enter into this  Agreement or in taking or
not taking action hereunder.


                                    ARTICLE X

                            MISCELLANEOUS PROVISIONS

     SECTION 10.1.  Waivers,  Amendments,  etc. The provisions of this Agreement
and of each other Loan  Document  may from time to time be amended,  modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the  Borrower  and  the  Majority  Banks;  provided,  however,  that  no such
amendment,  modification  or waiver  which  would:  (a) modify  any  requirement
hereunder  that  any  particular  action  be  taken  by all the  Banks or by the
Majority Banks shall be effective  unless  consented to by each Bank; (b) modify
this Section 10.1 or Section 2.8,  change the  definition  of "Required  Banks",
"Majority  Banks" or "Borrowing  Base",  increase the  Commitment  Amount or the
Percentage of any Bank,  reduce any fees  described in Article III,  release any
collateral  security  except  as  otherwise  specifically  provided  in any Loan
Document,  including,  that the Collateral Agent may release Collateral Property
to the extent such  Collateral  Property  is  disposed  of  pursuant  to, and as
permitted by, Section 7.2.9 of the this Agreement (however, nothing contained in
this  clause  affects the  obligation  of the  Borrower  to comply with  Section
3.1(e)),  reduce or limit the Obligations of any Subsidiary  Guarantor under the
Subsidiary Guaranty Agreement,  or extend the Commitment  Termination Date shall
be made  without  the  consent  of each  Bank,  and the  Issuer;  (c)  except as
otherwise  provided  pursuant to Section 2.9, extend the due date for, or reduce
the amount of, any scheduled repayment or prepayment of principal of or interest
on any Loan or any other  obligation (or reduce the principal  amount of or rate
of  interest on any Loan)  shall be made  without the consent of each Bank;  (d)
affect  adversely the interests,  rights or  obligations  of the  Administrative
Agent qua the

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<PAGE>

     Administrative  Agent or the Collateral  Agent qua Collateral  Agent or the
Issuer qua the Issuer  (including any change with respect to the  obligations of
the  Borrower  or the Banks with  respect  to the Letter of Credit  Liabilities)
shall be made without consent of the Administrative  Agent, the Collateral Agent
or the  Issuer,  as the case may be, or (e)  modify  Section  10.4  without  the
consent of the Issuer, the Administrative Agent, the Arrangers and each Bank. No
failure or delay on the part of any Agent, any Bank, the Issuer or the holder of
any Note in exercising any power or right under this Agreement or any other Loan
Document  shall  operate  as a waiver  thereof,  nor shall any single or partial
exercise  of any such  power or right  preclude  any other or  further  exercise
thereof or the  exercise of any other power or right.  No notice to or demand on
the Borrower in any case shall  entitle it to any notice or demand in similar or
other circumstances. No waiver or approval by any Agent, any Bank, the Issuer or
the holder of any Note under this  Agreement or any other Loan  Document  shall,
except as may be otherwise  stated in such waiver or approval,  be applicable to
subsequent  transactions.  No waiver or  approval  hereunder  shall  require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.

     SECTION 10.2. Notices. All notices and other communications provided to any
party hereto under this Agreement or any other Loan Document shall be in writing
or by facsimile and  addressed,  delivered or  transmitted  to such party at its
address or facsimile number set forth below its signature hereto or set forth in
the Bank  Assignment  Agreement or at such other address or facsimile  number as
may be designated by such party in a notice to the other parties. Any notice, if
mailed and properly  addressed with postage prepaid or if properly addressed and
sent by pre-paid  courier  service,  shall be deemed  given when  received;  any
notice, if transmitted by facsimile,  shall be deemed given when transmitted and
a receipt,  demonstrating  successful  transmission,  is received by the Sender.
Delivery by telecopier of an executed  counterpart of any amendment or waiver of
any provision of this Agreement or any other Loan Document shall be effective as
delivery of an original executed counterpart hereof.

     SECTION 10.3. Payment of Costs and Expenses.  The Borrower agrees to pay on
demand all  reasonable  expenses of the  Administrative  Agent,  the  Collateral
Agent,  the  Issuer  and  the  Arrangers  (including  the  reasonable  fees  and
out-of-pocket expenses of special New York counsel and of local counsel, if any,
who may be retained by said  counsel) in  connection  with (a) the  negotiation,
preparation,  execution  and delivery of this  Agreement  and of each other Loan
Document,  including  schedules  and  exhibits,  and  any  amendments,  waivers,
consents, supplements or other modifications to this Agreement or any other Loan
Document  as may from time to time  hereafter  be  required,  whether or not the
transactions contemplated hereby are consummated, and (b) the filing, recording,
refiling or  rerecording  of each of the Security  Documents  and/or any Uniform
Commercial  Code  financing  statements  relating  thereto  and all  amendments,
supplements and  modifications to any thereof and any and all other documents or
instruments of further assurance  required to be filed or recorded or refiled or
rerecorded  by the  terms  hereof  or of the  Security  Documents,  and  (c) the
preparation  and review of the form of any  document or  instrument  relevant to
this  Agreement or any other Loan  Document.  Each Bank agrees to reimburse  the
Administrative  Agent,  the  Collateral  Agent and the Issuer on demand for such
Bank's pro rata share (based upon its  respective  Percentage) of any such costs
or expenses not paid by the Borrower. The Borrower further agrees to pay, and to
save the Administrative  Agent, the Collateral Agent, the Arrangers,  the Issuer
and the Banks  harmless from all  liability  for, any stamp or other taxes which
may be payable

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<PAGE>

     in  connection  with the  execution  or  delivery  of this  Agreement,  the
Borrowings hereunder,  or the issuance of the Notes or any other Loan Documents.
The Borrower also agrees to reimburse the  Administrative  Agent, the Collateral
Agent and each Bank upon  demand  for all  reasonable  out-of-  pocket  expenses
(including  reasonable  attorneys'  fees and  legal  expenses)  incurred  by the
Administrative  Agent,  the Collateral Agent or such Bank in connection with (x)
the negotiation of any restructuring or "work-out",  whether or not consummated,
of any Obligations and (y) the enforcement of any Obligations. All such requests
for payment shall be accompanied by invoices  containing  reasonable detail. The
Administrative  Agent,  the Collateral  Agent, the Issuer and each Bank agree to
the extent feasible,  and to the extent a conflict of interest does not exist in
the reasonable opinion of any of the Administrative Agent, the Collateral Agent,
the Issuer and the Banks or their counsel, to use the same counsel (i.e. one law
firm in each  relevant  jurisdiction)  in  connection  with  any  investigation,
litigation or other proceeding under this Section 10.3.

     SECTION  10.4.  Indemnification.  In  consideration  of the  execution  and
delivery  of  this  Agreement  by  each  Bank,  the  Administrative  Agent,  the
Collateral Agent and the Issuer,  and the extension of the Commitments,  and the
arrangement of the facility represented by this Agreement by the Arrangers,  the
Borrower hereby indemnifies,  exonerates and holds the Administrative Agent, the
Collateral  Agent,  the  Arrangers,  the  Issuer and each Bank and each of their
respective  officers,  directors,   employees  and  agents  (collectively,   the
"Indemnified  Parties")  free and harmless from and against any and all actions,
causes of action,  suits, losses,  costs,  liabilities and damages, and expenses
incurred in connection  therewith  (irrespective of whether any such Indemnified
Party is a party to the action for which  indemnification  hereunder is sought),
including  reasonable  attorneys'  fees  and  disbursements  (collectively,  the
"Indemnified  Liabilities"),  incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to (a) any  transaction  financed
or to be financed in whole or in part, directly or indirectly, with the proceeds
of any Borrowing or any Letter of Credit;  (b) the entering into and performance
of this Agreement and any other Loan Document by any of the Indemnified Parties;
(c) any  investigation,  litigation or proceeding  related to any  environmental
cleanup,  audit,  compliance or other matter  relating to the  protection of the
environment  or the Release by the Borrower or any  Subsidiary  of any Hazardous
Material;  (d) the  presence  on or  under,  or the  escape,  seepage,  leakage,
spillage, discharge,  emission,  discharging or releases from, any real property
owned or operated by the Borrower or any  Subsidiary of any  Hazardous  Material
(including any losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under any Environmental  Law); or (e) any  misrepresentation
or  inaccuracy  or breach of Section 6.12  regardless  of whether  caused by, or
within the control of, the Borrower or any  Subsidiary;  in each case except for
any  such  Indemnified  Liabilities  arising  for the  account  of a  particular
Indemnified Party by reason of the relevant Indemnified Party's gross negligence
or wilful  misconduct as determined  by a court of competent  jurisdiction  in a
final non-appealable judgement, or such Indemnified Party's own unexcused breach
of any provision of any Loan Document (as determined by the final non-appealable
judgment  of a  court  of  competent  jurisdiction),  PROVIDED  THAT  IT IS  THE
INTENTION OF THE PARTIES HERETO THAT THE  INDEMNIFIED  PARTIES BE INDEMNIFIED IN
THE CASE OF THEIR OWN NEGLIGENCE,  REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE
OR CONTRIBUTORY,  ACTIVE OR PASSIVE,  IMPUTED, JOINT OR TECHNICAL. If and to the
extent that the foregoing  undertaking may be unenforceable for any reason,  the
Borrower  hereby  agrees to make the  maximum  contribution  to the  payment and
satisfaction of each of the

                                       74
<PAGE>

     Indemnified  Liabilities  which is permissible  under  applicable  law. The
Administrative  Agent,  the Collateral  Agent, the Issuer and each Bank agree to
the extent feasible,  and to the extent a conflict of interest does not exist in
the reasonable  opinion of the  Administrative  Agent, the Collateral Agent, the
Issuer and the Bank or their  counsel,  to use the same single counsel (i.e. one
law firm in each relevant  jurisdiction)  in connection with any  investigation,
litigation or other proceeding under this Section 10.4.

     SECTION 10.5. Survival. The obligations of the Borrower under Sections 4.3,
4.4,  4.5,  4.6,  9.3,  10.3 and 10.4,  and the  obligations  of the Banks under
Section 9.1, shall in each case survive any termination of this  Agreement,  the
payment in full of all Obligations and the termination of all  Commitments.  The
representations  and  warranties  made  by the  Borrower  or by  its  Restricted
Subsidiaries in this Agreement and in each other Loan Document shall survive the
execution and delivery of this Agreement and each such other Loan Document.

     SECTION 10.6.  Severability.  Any provision of this  Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such  provision and such  jurisdiction,  be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.

     SECTION 10.7. Headings.  The various headings of this Agreement and of each
other Loan Document are inserted for  convenience  only and shall not affect the
meaning or  interpretation  of this Agreement or such other Loan Document or any
provisions hereof or thereof.

     SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This Agreement
may be executed by the parties hereto in several  counterparts and each of which
shall be deemed to be an original and all of which shall constitute together but
one  and  the  same  agreement.  This  Agreement  shall  become  effective  when
counterparts  hereof executed on behalf of the Borrower and each Bank (or notice
thereof  satisfactory to the  Administrative  Agent) shall have been received by
the  Administrative  Agent and  notice  thereof  shall  have  been  given by the
Administrative Agent to the Borrower and each Bank.

     SECTION 10.9.  Governing Law; Entire Agreement.  THIS AGREEMENT,  THE NOTES
AND EACH OTHER LOAN  DOCUMENT  SHALL EACH BE DEEMED TO BE A CONTRACT  MADE UNDER
AND GOVERNED BY, AND  CONSTRUED IN  ACCORDANCE  WITH,  THE INTERNAL  LAWS OF THE
STATE OF NEW YORK.  This  Agreement,  the Notes  and the  other  Loan  Documents
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof and supersede any prior agreements,  written or oral, with
respect thereto.

     SECTION 10.10. Successors and Assigns. This Agreement shall be binding upon
and shall  inure to the  benefit  of the  parties  hereto  and their  respective
successors and assigns; provided, however, that: (a) the Borrower may not assign
or  transfer  its rights or  obligations  hereunder  without  the prior  written
consent  of the  Administrative  Agent,  the  Issuer  and all  Banks;  provided,
however,  that for purposes of this Section 10.10 if the survivor of a merger is
obligated in respect of all

                                       75
<PAGE>

     obligations of the Borrower hereunder and under all other Loan Documents, a
merger permitted  pursuant to Section 7.2.8 hereof shall not be an assignment or
transfer of the Borrower's rights or obligations  hereunder;  and (b) the rights
of sale, assignment and transfer of the Banks are subject to Section 10.11.

     SECTION 10.11. Sale and Transfer of Loans and Note; Participations in Loans
and  Note.  Each  Bank may  assign,  or sell  participations  in,  its Loans and
Commitment to one or more other Persons in accordance with this Section 10.11.

     SECTION  10.11.1.  Assignments.  Any Bank, (a) with the written consents of
the Borrower and the  Administrative  Agent and the Issuer (which consents shall
not be unreasonably  delayed or withheld) may at any time assign and delegate to
one or more  commercial  banks or  other  financial  institutions,  and (b) with
notice to the Borrower and the Administrative  Agent and the Issuer, but without
the consent of the Borrower,  the Administrative Agent or the Issuer, may assign
and  delegate  to any of its  Affiliates  or to any  other  Bank  already a Bank
hereunder (each Person described in either of the foregoing clauses as being the
Person to whom such assignment and delegation is to be made,  being  hereinafter
referred to as an  "Assignee  Bank"),  all or any  fraction of such Bank's total
Loans,  participations in Letters of Credit and Commitment (which assignment and
delegation  shall be of a  constant,  and not a varying,  percentage  of all the
assigning  Bank's  Loans  and  Commitment)  in a  minimum  aggregate  amount  of
$5,000,000  except that no assignment  to another Bank already a Bank  hereunder
need be in such  minimum  amount so long as after such  assignment  the assignor
shall hold no interest or a minimum $5,000,000 interest; provided, however, that
any such Assignee Bank will comply as a condition precedent to the effectiveness
of the  assignment  to it with the  provisions  contained in Section  4.6(b) and
further, provided,  however, that, the Borrower and the Administrative Agent and
the Issuer shall be entitled to continue to deal solely and  directly  with such
Bank in  connection  with the interests so assigned and delegated to an Assignee
Bank until (i) written notice of such assignment and  delegation,  together with
payment  instructions,  addresses and related  information  with respect to such
Assignee  Bank,  shall have been given to the  Borrower  and the  Administrative
Agent and the Issuer by such Bank and such  Assignee  Bank,  (ii) such  Assignee
Bank shall have  executed  and  delivered  to the  Borrower,  the Issuer and the
Administrative Agent a Bank Assignment Agreement, accepted by the Administrative
Agent and the Issuer, (iii) if necessary,  appropriate forms have been delivered
by the prospective Assignee Bank to the Borrower, as provided in Section 4.6(b),
and (iv) the processing  fees described below shall have been paid and provided,
further, however, that so long as an Event of Default shall have occurred and be
continuing,  the consent of the  Borrower  otherwise  required by the  foregoing
clause (a) shall not be required.

     From and after the date that the  Administrative  Agent  accepts  such Bank
Assignment  Agreement,   (x)  the  Assignee  Bank  thereunder  shall  be  deemed
automatically  to have  become a party  hereto and to the extent that rights and
obligations  hereunder have been assigned and delegated to such Assignee Bank in
connection  with such Bank  Assignment  Agreement,  shall  have the  rights  and
obligations of a Bank hereunder and under the other Loan Documents,  and (y) the
assignor  Bank, to the extent that rights and  obligations  hereunder  have been
assigned and delegated by it in connection with such Bank Assignment  Agreement,
shall be  released  from its  obligations  hereunder  and under  the other  Loan
Documents. Promptly after its receipt of notice that the Administrative

                                       76
<PAGE>

     Agent has  received an executed  Bank  Assignment  Agreement,  the Borrower
shall consent to such assignment, if applicable,  and execute and deliver to the
Administrative  Agent (for  delivery to the relevant  Assignee  Bank) a new Note
evidencing  such  Assignee  Bank's  assigned  Loans and  Commitment  and, if the
assignor Bank has retained Loans and a Commitment hereunder,  a replacement Note
in the  principal  amount of the Loans and  Commitment  retained by the assignor
Bank  hereunder  (such Note to be in exchange  for,  but not in payment of, that
Note then held by such assignor Bank). Each such Note shall be dated the date of
the  predecessor  Note.  The  assignor  Bank  shall  mark the  predecessor  Note
"exchanged" and deliver it to the Borrower. Accrued interest on that part of the
predecessor  Note evidenced by the new Note, and accrued fees,  shall be paid as
provided in the Bank Assignment Agreement.  Accrued interest on that part of the
predecessor Note evidenced by the replacement Note shall be paid to the assignor
Bank.  Accrued interest and accrued fees shall be paid at the same time or times
provided in the predecessor  Note and in this  Agreement.  Such assignor Bank or
such Assignee Bank must also pay a processing  fee to the  Administrative  Agent
upon delivery of any Bank Assignment Agreement in the amount of $3,500, it being
understood  that the Borrower  shall not be obligated to reimburse such assignor
Bank or Assignee  Bank for such  processing  fee. Any attempted  assignment  and
delegation  not made in accordance  with this Section  10.11.1 shall be null and
void. The foregoing  provisions shall not apply to, or restrict,  or require the
consent of or notice of any Person to  effectuate,  the pledge or  assignment by
any Bank of its  rights  under this  Agreement  and its Notes and the other Loan
Documents (i) if an Event of Default has occurred and is  continuing,  or (b) to
any Federal Reserve Bank.

     SECTION  10.11.2.  Participations.  Any Bank may at any time sell to one or
more commercial  banks or other Persons (each of such commercial banks and other
Persons being herein called a "Participant")  participating  interests in any of
the Loans,  its  participation  in Letters of Credit,  its Commitment,  or other
interests of such Bank hereunder;  provided,  however, that (a) no participation
contemplated  in this Section 10.11 shall relieve such Bank from its  Commitment
or its other  obligations  hereunder or under any other Loan Document,  (b) such
Bank shall remain solely  responsible  for the performance of its Commitment and
such other obligations,  (c) the Borrower and the  Administrative  Agent and the
Issuer shall  continue to deal solely and directly  with such Bank in connection
with such Bank's  rights and  obligations  under this  Agreement and each of the
other  Loan  Documents,  (d)  no  Participant,  unless  such  Participant  is an
Affiliate of such Bank,  or is itself a Bank,  shall be entitled to require such
Bank to take or refrain from taking any action hereunder or under any other Loan
Document,  except that such Bank may agree with any  Participant  that such Bank
will not,  without  such  Participant's  consent,  take any  actions of the type
described in clause (b) or (c) of Section 10.1,  and (e) the Borrower  shall not
be required to pay any amount under  Section 4.6 that is greater than the amount
which it would have been  required  to pay had no  participating  interest  been
sold.

     SECTION 10.12. Renewal and Continuation of Existing Loans. On the Effective
Date,  all of the Prior  Indebtedness  outstanding  on such date shall hereby be
restructured,  rearranged,  renewed,  extended and continued as provided in this
Agreement and all Loans outstanding under the Second Amended and Restated Credit
Agreement shall on the Effective Date become Loans outstanding hereunder.

                                       77
<PAGE>

     In  connection  herewith,  Banks party to the Second  Amended and  Restated
Credit  Agreement  (the  "Existing  Banks")  hereby sell,  assign,  transfer and
convey, and Banks party to this Agreement hereby purchase and accept, so much of
the Prior  Indebtedness (as defined in the second recital) such that each Bank's
percentage  of the loans and  obligations  outstanding  pursuant  to the  Second
Amended and Restated Credit Agreement,  as continued pursuant to this Agreement,
shall be equal to such Bank's  Percentage on the Effective  Date.  The foregoing
assignments,  transfers  and  conveyances  are without  recourse to the Existing
Banks and without any warranties whatsoever by any Agent or any Existing Bank as
to title, enforceability, collectibility, documentation or freedom from liens or
encumbrances, in whole or in part, other than the warranty of each Existing Bank
that it has not  previously  sold,  transferred,  conveyed  or  encumbered  such
Interests.

     SECTION 10.13. Other Transactions.  Nothing contained herein shall preclude
the Administrative Agent, the Collateral Agent, the Issuer, the Arrangers or any
other Bank from engaging in any transaction,  in addition to those  contemplated
by this  Agreement or any other Loan  Document,  with the Borrower or any of its
Affiliates in which the Borrower or such Affiliate is not restricted hereby from
engaging with any other Person.

     SECTION 10.14. [Intentionally Blank].

     SECTION  10.15.  Treatment of Certain  Information;  Confidentiality.  Each
Bank,  the  Administrative  Agent,  the  Collateral  Agent,  the  Issuer and the
Arrangers  agree (on  behalf of itself  and each of its  affiliates,  directors,
officers,  employees and  representatives)  to keep  confidential any non-public
information  supplied to it by the Borrower  pursuant to this Agreement that the
Borrower  identifies to such Bank,  the  Administrative  Agent,  the  Collateral
Agent,  the Issuer or the Arrangers (as the case may be) as  confidential at the
time Borrower so supplies such information,  provided, that nothing herein shall
limit the  disclosure  of any such  information  (i) to the extent  required  by
statute,  rule,  regulation or judicial process,  (ii) to counsel for any of the
Banks,  the  Administrative  Agent,  the  Collateral  Agent,  the  Issuer or the
Arrangers, (iii) to bank examiners, auditors or accountants, (iv) to the Issuer,
the Arrangers, the Administrative Agent, the Collateral Agent or any other Bank,
(v) in  connection  with any summons or subpoena to which any one or more of the
Banks, the Issuer,  the Arrangers,  the  Administrative  Agent or the Collateral
Agent is a party,  (vi) to a subsidiary or affiliate of such Person, or (vii) to
any assignee or participant (or prospective  assignee or participant) so long as
such subsidiary,  affiliate, assignee or participant (or prospective assignee or
participant),  as the case may be, first  executes and delivers to the Borrower,
an agreement containing provisions substantially identical to those contained in
this Section 10.15; and provided  further,  that in no event shall any Bank, the
Issuer,  the Arrangers,  the  Administrative  Agent or the  Collateral  Agent be
obligated or required to return any  materials  furnished to it by the Borrower,
unless in violation of this Section 10.15, each Bank agrees that it will use its
reasonable  efforts  to  advise  the  Borrower  as soon as  practicable,  of any
disclosure of information in connection with (v) above.

     SECTION 10.16. Forum Selection and Consent to Jurisdiction.  ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR

                                       78
<PAGE>

     ACTIONS OF THE AGENTS, THE ISSUER, THE ARRANGER,  THE BANKS OR THE BORROWER
MAY BE BROUGHT AND  MAINTAINED  IN THE COURTS OF THE STATE OF NEW YORK OR IN THE
UNITED STATES  DISTRICT COURT FOR THE SOUTHERN  DISTRICT OF NEW YORK;  PROVIDED,
HOWEVER,  THAT ANY SUIT  SEEKING  ENFORCEMENT  AGAINST ANY  COLLATERAL  OR OTHER
PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE  AGENT'S OPTION, IN THE COURTS OF
ANY JURISDICTION  WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH OF
THE  BORROWER,  THE  AGENTS,  THE ISSUER,  THE  ARRANGERS  AND THE BANKS  HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW  YORK  FOR THE  PURPOSE  OF ANY  SUCH  LITIGATION  AS SET  FORTH  ABOVE  AND
IRREVOCABLY  AGREES TO BE BOUND BY ANY JUDGMENT  RENDERED  THEREBY IN CONNECTION
WITH SUCH LITIGATION.  THE BORROWER FURTHER IRREVOCABLY  CONSENTS TO THE SERVICE
OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK. EACH OF THE BORROWER, THE AGENTS, THE ISSUER, THE
ARRANGERS, AND THE BANKS HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT  PERMITTED BY LAW, ANY OBJECTION  WHICH IT MAY HAVE OR HEREAFTER MAY HAVE
TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED
TO ABOVE  AND ANY  CLAIM  THAT  ANY  SUCH  LITIGATION  HAS  BEEN  BROUGHT  IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM  JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS  (WHETHER
THROUGH SERVICE OR NOTICE,  ATTACHMENT  PRIOR TO JUDGMENT,  ATTACHMENT IN AID OF
EXECUTION OR  OTHERWISE)  WITH RESPECT TO ITSELF OR ITS  PROPERTY,  THE BORROWER
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS. THE PARTIES HERETO AGREE THAT NOTHING IN
THIS SECTION SHALL AFFECT THEIR RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT ITS RIGHTS TO BRING ANY ACTION OR PROCEEDING  AGAINST
ANY  OTHER  PARTY  HERETO OR TO SUCH  PARTY'S  PROPERTY  IN THE  COURTS OF OTHER
JURISDICTIONS.

     SECTION 10.17. Waiver of Jury Trial. THE AGENTS, THE ISSUER, THE ARRANGERS,
THE BANKS AND THE BORROWER EACH HEREBY KNOWINGLY,  VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY  LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY AGENT,  THE ISSUER,  ANY ARRANGER,
ANY BANK OR THE  BORROWER.  THE  BORROWER  ACKNOWLEDGES  AND AGREES  THAT IT HAS
RECEIVED FULL AND  SUFFICIENT  CONSIDERATION  FOR THIS PROVISION (AND EACH OTHER
PROVISION OF EACH

                                       79
<PAGE>


     OTHER LOAN  DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS  PROVISION  IS A
MATERIAL  INDUCEMENT  FOR THE AGENTS,  THE ISSUER,  THE  ARRANGERS AND THE BANKS
ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.

     SECTION  10.18.  No Oral  Agreements.  THIS  AGREEMENT  AND THE OTHER  LOAN
DOCUMENTS  REPRESENT  THE FINAL  AGREEMENT  BETWEEN  THE  PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR  CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                                       80
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed by their  respective  officers  thereunto duly authorized as of the day
and year first above written.

                              MAGNUM HUNTER RESOURCES, INC., as
                              Borrower


                              By
                                ---------------------------------------------
                              Name:  Chris Tong
                              Title:    Senior Vice President and
                                           Chief Financial Officer

                              Address:  600 East Las Colinas Blvd., Suite 1100
                                              Irving, Texas 75039

                              Facsimile No.:      (972) 443-6483
                              Attention:          Chris Tong


                                      S - 1
<PAGE>

                              BANKERS TRUST COMPANY, as Administrative
                              Agent, Collateral Agent  and Issuer for the Banks



                              By
                                ----------------------------------------------
                              Name:               Marcus Tarkington
                              Title:              Director

                              Address:            130 Liberty Street, 14th Floor
                                                  New York, New York 10006

                              Facsimile No.:      (212) 250 6029
                              Attention:          Marcus Tarkington

                                      S - 2
<PAGE>

                              CIBC INC., as Syndication Agent


                              By
                                ---------------------------------------------
                              Name:
                              Title:

                              Address:          425 Lexington Avenue, 7th Floor
                                                New York, New York 10017

                              Facsimile No.:      212/856-3763
                              Attention:          Marybeth Ross

                                      S - 3
<PAGE>

                              BNP PARIBAS, as Documentation Agent for the
                              Banks



                              By
                                ---------------------------------------------
                              Name:
                              Title:


                              By
                                ---------------------------------------------
                              Name:
                              Title:


                              Address:            1200 Smith Street
                                                  Suite 3100
                                                  Houston, Texas 77002


                              Facsimile No.:      (713) 659-6915
                              Attention:          Brian Malone




                                      S - 4

<PAGE>



PERCENTAGE                               BANKS

22.22222%                                BANKERS TRUST COMPANY


(Note Amount:  $50,000,000)              By
                                           ----------------------------------
                                         Name:    Marcus Tarkington
                                         Title:   Director


                                         Domestic
                                         Office: 130 Liberty Street, 14th Floor
                                                 New York, New York 10006


                                         LIBOR
                                         Office: 130 Liberty Street, 14th Floor
                                                 New York, New York 10006

                                         Facsimile:   (212) 250-6029






                                      S - 5
<PAGE>

PERCENTAGE

22.22222%                           CIBC INC.


(Note Amount:  $50,000,000)         By
                                      ---------------------------------------
                                    Name:
                                    Title:

                                    Domestic
                                    Office:   2727 Paces Ferry Road, Suite 1200
                                              2 Paces West, Building 2
                                              Atlanta, Georgia 30339

                                    Facsimile No.:      770-319-4950

                                    Attention:          Tonya Hunter

                                    LIBOR Office:  2727 Paces Ferry Road,
                                                   Suite 1200
                                                   2 Paces West, Building 2
                                                   Atlanta, Georgia 30339

                                    Facsimile No.:   770-319-4950

                                    Attention:          Tonya Hunter

                                    With a copy to:

                                    CIBC Inc.
                                    1600 Smith Street Suite 3000
                                    Houston, TX 77002
                                    Attention:  Mark Wolf



                                      S - 6
<PAGE>

PERCENTAGE

22.22222%                        BNP PARIBAS


(Note Amount:  $50,000,000)      By
                                   -------------------------------------------
                                 Name:
                                 Title:


                                 By
                                   -------------------------------------------
                                 Name:
                                 Title:

                                 Domestic
                                 Office:             1200 Smith Street
                                                     Suite 3100
                                                     Houston, Texas 77002

                                 Telephone:          (713) 982-1153
                                 Facsimile No.:      (713) 659-6915

                                 Attention:          Brian Malone

                                 LIBOR Office:       1200 Smith Street
                                                     Suite 3100
                                                     Houston, Texas 77002

                                 Telephone:          (713) 982-1126
                                 Facsimile No.:      (713) 659-5305

                                 Attention:          Leah Hughes

                                 With a copy to:     Candace Grayson



                                      S - 7
<PAGE>

PERCENTAGE

17.77778%                          FORTIS CAPITAL CORP.


(Note Amount:  $40,000,000)        By
                                     --------------------------------------
                                   Name:
                                   Title:

                                   By
                                     --------------------------------------
                                   Name:
                                   Title:

                                   Domestic
                                   Office:     100 Crescent Court, Suite 1777
                                               Dallas, Texas  75201

                                   Telephone No.:      (214) 953-9311
                                   Facsimile No.:      (214) 754-5982

                                   Attention:          David Montgomery
                                                       Vice President

                                   LIBOR Office: 100 Crescent Court, Suite 1777
                                                 Dallas, Texas  75201


                                   Facsimile No.:   (214) 754-5982

                                   Attention:          David Montgomery
                                                       Vice President

                                   With a copy to:



                                      S - 8
<PAGE>

PERCENTAGE

15.55556%                        COMPASS BANK


(Note Amount:  $35,000,000)      By
                                   ---------------------------------------
                                 Name:    Dorothy Marchand
                                 Title:   Senior Vice President

                                 Domestic
                                 Office:    24 Greenway Plaza, 14th Floor
                                            Houston, Texas  77046


                                 Telephone No.:      (713) 968-8272
                                 Facsimile No.:      (713) 968-8292

                                 Attention:          Dorothy Marchand

                                 LIBOR Office:  24 Greenway Plaza, 14th Floor
                                                Houston, Texas  77046


                                 Facsimile No.:   (713) 968-8292

                                 Attention:          Dorothy Marchand

                                 With a copy to:




TOTAL PERCENTAGE:   100%
-------------------------

                                      S - 9
<PAGE>

                                   Schedule I


Item 6.7 - Litigation, Labor Controversies:

Item 6.8 - Subsidiaries

Item 6.10 - Tax Matters

Item 6.11 - Employee Benefits Plans:

Item 6.12 - Environmental Matters:

Item 6.15 - Existing Defaults:

Item 7.2.2(b) - Indebtedness to be Repaid:

Item 7.2.2(c) - Ongoing Indebtedness:

Item 7.2.3(n) - Existing Liens

Item 7.2.5(a) - Ongoing Investments:

Item 7.2.10 - Outstanding Loans


                                        1
<PAGE>

                       Schedule 1.1 - Gas Gathering System




<PAGE>

                         Schedule 5.1.13 - UCC Searches



Magnum Hunter Resources, Inc.
         Office of Secretary of State of Texas

Magnum Hunter Production, Inc.
         Office of Secretary of State of Arkansas
         Office of Secretary of State of Mississippi
         Office of Secretary of State of New Mexico
         Office of Secretary of State of Oklahoma
         Office of Secretary of State of Texas

Hunter Gas Gathering, Inc.
         Office of Secretary of State of Oklahoma
         Office of Secretary of State of Texas

ConMag Energy Corporation
         Office of Secretary of State of Oklahoma
         Office of Secretary of State of Texas



<PAGE>

                      Schedule 6.9 - Hydrocarbon Interests



<PAGE>

                                    EXHIBIT A

                              REVOLVING CREDIT NOTE


$_____________________________                                   May 17, 2001



     FOR VALUE  RECEIVED,  the  undersigned,  MAGNUM HUNTER  RESOURCES,  INC., a
Nevada  corporation,  (the  "Borrower"),  hereby promises to pay to the order of
______________________  (the "Bank") on the Stated  Maturity  Date the principal
sum of  __________________  DOLLARS  ($___________)  or, if less,  the aggregate
unpaid  principal amount of all Loans shown on the books and records of the Bank
or shown on the schedule attached hereto (and any continuation  thereof) made by
the Bank to the  Borrower  pursuant to that certain  Third  Amended and Restated
Credit  Agreement,  dated as of May 17, 2001  (together  with all amendments and
other  modifications,  if any, from time to time  thereafter  made thereto,  the
"Credit Agreement"), among the Borrower, the various financial institutions that
are or may  become a party  thereto  (including  the  Bank)  (collectively,  the
"Banks"),  Bankers  Trust  Company,  as  administrative  agent (in such capacity
together with any successors thereto, the "Administrative Agent") for the Banks,
as collateral agent for the Banks (in such capacity together with any successors
thereto,  the "Collateral Agent"), and as letter of credit issuing bank (in such
capacity  together with any successors  thereto,  the  "Issuer"),  CIBC Inc., as
syndication  agent for the Banks, BNP Paribas,  as  documentation  agent for the
Banks and  Deutsche  Banc Alex.  Brown Inc.  and CIBC World  Markets  Corp.,  as
Arrangers.

     The Borrower also promises to pay interest on the unpaid  principal  amount
hereof  from  time to time  outstanding  from the  date  hereof  until  maturity
(whether by acceleration  or otherwise) and, after maturity,  until paid, at the
rates per annum and on the dates specified in the Credit Agreement.

     Payments of both  principal  and  interest are payable in same day funds in
lawful  money of the  United  States of America to  Bankers  Trust  Company,  as
Administrative  Agent, at the office of the Administrative  Agent located at 130
Liberty  Street,  New  York,  New  York  10006,  or at such  other  place as the
Administrative  Agent shall designate in writing to the Borrower.  The amount of
each Loan made by the Bank to the Borrower and the borrowing  date,  the rate of
interest  applicable  thereto and all payments  made on account of principal and
interest  hereof,  shall be  recorded  by the Bank  and,  prior to any  transfer
hereof,  endorsed  on the  grid  attached  hereto  which  is part of this  Note;
provided,  however,  that the  failure of the Bank to make such  notation or any
error therein  shall not in any manner affect the  obligation of the Borrower to
repay  such  Loan in  accordance  with  the  terms of this  Note and the  Credit
Agreement.

     This Note is an extension,  renewal,  and  replacement  of, and is given in
substitution and exchange for,  certain  promissory notes of the Borrower in the
original  aggregate  principal  amount of $125,000,000  executed by the Borrower
under that certain Second Amended and Restated Credit Agreement dated as of June
1, 1998 (the  "Prior  Credit  Agreement"),  among the  Borrower,  Bankers  Trust
Company, as administrative  agent, CIBC Inc., as syndication agent,  Paribas, as
documentation  agent  and as  collateral  agent,  and  certain  banks  and other
financial institutions which were, or


<PAGE>

     thereafter became,  parties thereto,  as such Prior Credit Agreement was or
may  have  been  from  time to time  thereafter  amended  or  modified,  and the
indebtedness  evidenced  hereby and  thereby is a  continuing  indebtedness  and
nothing herein contained or implied shall be construed to deem such indebtedness
or  any  accrued  and  unpaid  interest  thereon  paid,  satisfied,  novated  or
terminated, or any collateral or security therefore released or terminated.

     Notwithstanding  anything to the contrary,  in accordance with Section 4.11
of the  Credit  Agreement,  in no  event  shall  any  payment  or  consideration
applicable to any amount  hereunder and which would  constitute  interest exceed
the maximum amount of interest  allowed by applicable  law, as amended from time
to time.  Any payment of interest or in the nature of interest in excess of such
limitation  shall be credited  as a payment of  principal  unless the  principal
amount  hereunder  has been paid in full,  in which  case such  amount  shall be
refunded.

     This Note is a Note  referred to in, and  evidences  Indebtedness  incurred
under, the Credit Agreement, to which reference is made for a description of the
security for this Note and for a statement of the terms and  conditions on which
the Borrower are permitted and required to make  prepayments  and  repayments of
principal  of  the  Indebtedness  evidenced  by  this  Note  and on  which  such
Indebtedness may be declared to be immediately due and payable. Unless otherwise
defined, terms used herein have the meanings provided in the Credit Agreement.

     All parties hereto, whether as makers,  endorsers, or otherwise,  severally
waive presentment for payment,  demand, protest,  notice of dishonor,  notice of
acceleration and notice of intent to accelerate.

               [Remainder of this page intentionally left blank.]

                                       2
<PAGE>

     THIS NOTE SHALL BE DEEMED TO BE A CONTRACT  MADE UNDER AND  GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK.

                                MAGNUM HUNTER RESOURCES, INC.


                                By
                                  -------------------------------------
                                Name:
                                Title:


                                       3
<PAGE>

                          LOANS AND PRINCIPAL PAYMENTS



<TABLE>
<CAPTION>
<S>       <C>          <C>         <C>                  <C>        <C>           <C>         <C>        <C>       <C>
                                                            Amount of                 Unpaid
               Amount of                                    Principal                Principal
               Loan Made                                     Repaid                   Balance
                                                            Interest
            -----------------------                                         ------------------------------------------------
            Base         LIBO       Period (if           Base         LIBO        Base         LIBO                 Notation
Date        Rate         Rate       applicable)          Rate         Rate        Rate         Rate      Total      Made By
----        ----         ----       -----------          ----         ----        ----         ----      -----      --------

</TABLE>



                                        4

<PAGE>

                                   EXHIBIT B-1


                                BORROWING REQUEST


Bankers Trust Company
-------------------
New York, New York  _____

Attention:        [Name]
                  [Title]



Gentlemen and Ladies:

     This  Borrowing  Request is delivered to you pursuant to Section 2.3 of the
Third Amended and Restated Credit Agreement,  dated as of May 17, 2001 (together
with  all  amendments,  if any,  from  time to time  made  thereto  the  "Credit
Agreement")  among  Magnum  Hunter  Resources,  Inc.,  a  Nevada  corporation  (
"Borrower"),  the various financial  institutions that are or may become a party
thereto  (collectively,  the "Banks"),  Bankers Trust Company, as administrative
agent  (in  such   capacity   together   with  any   successors   thereto,   the
"Administrative  Agent") for the Banks,  as  collateral  agent for the Banks (in
such capacity together with its successors thereto, the "Collateral Agent"), and
as letter of credit issuing bank (in such capacity  together with any successors
thereto,  the  "Issuer"),  CIBC Inc.  as  syndication  agent for the Banks,  BNP
Paribas,  as  documentation  agent and Deutsche  Banc Alex.  Brown Inc. and CIBC
World  Markets  Corp.,  as Arrangers.  Unless  otherwise  defined  herein or the
context otherwise requires,  terms used herein have the meanings provided in the
Credit Agreement.

     The  undersigned  Borrower  hereby  requests  that a Loan  be  made  in the
aggregate  principal amount of $__________ on __________,  ____ as a *[LIBO Rate
Loan having an Interest Period of _______ months] [Base Rate Loan].

     The undersigned  Borrower  hereby  acknowledges  that,  pursuant to Section
5.2.2 of the Credit  Agreement,  each of the delivery of this Borrowing  Request
and the  acceptance  by Borrower of the proceeds of the Loans  requested  hereby
constitutes a representation  and warranty by the undersigned  Borrower that, on
the date of such Loans,  and before and after giving  effect  thereto and to the
application of the proceeds therefrom, all statements set forth in Section 5.2.1
of the Credit Agreement are true and correct in all material respects.

     The undersigned Borrower agrees that if, prior to the time of the Borrowing
requested  hereby,  any  matter  certified  to herein by it will not be true and
correct at such time as if then made (except for  representations and warranties
as are by their  express  terms limited to a specific  date),  --------

*Select appropriate interest rate option.


<PAGE>

     it will  immediately  so notify  the  Administrative  Agent.  Except to the
extent,  if any,  that prior to the time of the Borrowing  requested  hereby the
Administrative  Agent shall  receive  written  notice to the  contrary  from the
undersigned Borrower, each matter certified to herein shall be deemed once again
to be  certified  as true and correct at the date of such  Borrowing  as if then
made (except for  representations  and  warranties as are by their express terms
limited to a specific date).

     Please wire  transfer the proceeds of the  Borrowing to the accounts of the
following persons at the financial institutions indicated respectively:
<TABLE>
<CAPTION>
<S>                         <C>                     <C>                       <C>
Amount to be                       Person to be Paid                            Name, Address, etc.
Transferred                  ----------------------------                       of Transferee Bank
                             Name                    Account No.

$-----------                 ------------            ----------                 --------------------
                                                                                --------------------
                                                                                Attention: _________

$-----------                 ------------            ----------                 --------------------
                                                                                --------------------
                                                                                Attention: _________


Balance of                   [Borrower]              ___________                ____________________
such proceeds                                                                   ____________________
                                                                                Attention: _________
</TABLE>

     The undersigned  Borrower has caused this Borrowing  Request to be executed
and delivered, and the certification and warranties contained herein to be made,
by its duly Authorized Officer this ___ day of ___________, ___.


                           Magnum Hunter Resources, Inc.

                           By
                              -----------------------------------------
                           Name:
                           Title:

                                        2

<PAGE>

                                   EXHIBIT B-2

                            LETTER OF CREDIT REQUEST

TO:      Bankers Trust Company
         as Administrative Agent
         130 Liberty Street
         New York, New York  10006
         Attention:        Commercial Loan Division,
                           Standby Letter of Credit Unit
                           MS NYC02-1403

Ladies and Gentlemen:

     The  undersigned is an officer of MAGNUM HUNTER  RESOURCES,  INC., a Nevada
corporation  (the  "Borrower"),  and is  authorized  to make  and  deliver  this
certificate pursuant to that certain Third Amended and Restated Credit Agreement
dated  as  of  May  17,  2001,  among  Borrower,   Bankers  Trust  Company,   as
administrative  agent  (in  such  capacity,  the  "Administrative   Agent"),  as
collateral  agent  and as  letter  of  credit  issuing  bank,  BNP  Paribas,  as
documentation  agent, CIBC Inc., as syndication  agent, the lenders from time to
time party  thereto (as the same may be amended,  supplemented  or modified from
time to time, the "Credit Agreement"). All terms defined in the Credit Agreement
shall have the same meaning herein.

     In accordance with the Credit Agreement,  the Borrower hereby requests that
___________________** issue a Letter of Credit. The Letter of Credit shall:


     (a) be issued on ___________________, 200__;***

     (b) be in the amount of $_____________;****

     (c) permit [a single drawing/multiple drawings];

     (d) be payable upon presentation of a sight draft; and

     (e)  expire on  _______________,  200__.*****  --------  ** Insert  name of
Issuer.  ***  Insert  date not  later  than  thirty  days  prior  to  Commitment
Termination  Date.  **** Insert fax amount of Letter of Credit,  which shall not
exceed the sum of the  Letter of Credit  Commitment  Amount and all  outstanding
Letter of Credit  Liabilities.  *****  Insert date not later than the earlier of
(a) one  year  after  issuance  or (b) the  date  ten  (10)  days  prior  to the
Commitment Termination Date.


<PAGE>

     The   Letter   of   Credit   is  to  be   delivered   by  the   Issuer   to
__________________.******

     In connection  with the foregoing and pursuant to the terms and  provisions
of the Credit  Agreement,  the undersigned  hereby certifies to the Agents,  the
Banks and the Issuer that the following statements are true and correct:

     (i) The  representations  and  warranties  contained  in  Article VI of the
Credit  Agreement  and in each of the  other  Loan  Documents  are not  false or
misleading  in any  material  respect on and as of the date hereof with the same
force and effect as if made on and as of such date.

     (ii) No Default has  occurred  and is  continuing  or would result from the
issuance of the Letter of Credit requested hereunder.

     (iii) The face  amount of the Letter of Credit  requested  hereunder,  when
added to all outstanding Loans and Letter of Credit Liabilities, will not exceed
the Commitment Amount.

     (iv) The proposed terms of the Letter of Credit requested hereunder and the
transactions  proposed to be supported  thereby are  accurately  and  completely
described herein.

     (v) All information supplied below is true, correct, and complete as of the
date  hereof.  --------  ******  Insert  name of Borrower or name and address of
beneficiary.

                                        2
<PAGE>

                                   Information

(a)      Commitment Amount                                     $_________

(b)      Sublimit availability for Letters of Credit           $20,000,000.00

(c)      Aggregate outstanding principal amount of all Loans   $_________

(d)      Aggregate outstanding amount of all Letter of
         Credit Liabilities                                    $_________

(e)      Net availability for Loans: [line (a) minus the
         sum of line (c) and line (d)]                         $_________

(f)      Net availability for Letters of Credit:
         [line (b) minus line (d)]                             $_________

(g)      Face amount of requested Letter of Credit             $_________

(h)      Date requested for issuance of Letter of Credit        _____, 200__


                                   BORROWER:

                                   MAGNUM HUNTER RESOURCES, INC.


                                   By:
                                      --------------------------------
                                   Name:
                                   Title:


Dated as of:_________________
            [insert date of
             proposed issuance
             of Letter of Credit]


                                        3
<PAGE>

                                    EXHIBIT C

                         CONTINUATION/CONVERSION NOTICE


Bankers Trust Company
-------------------
New York, New York   _____

Attention:  [Name]
            [Title]



Gentlemen and Ladies:

     This Continuation/Conversion Notice is delivered to you pursuant to Section
2.4 of the Third Amended and Restated Credit Agreement, dated as of May 17, 2001
(together  with all  amendments,  if any,  from  time to time made  thereto  the
"Credit Agreement") among Magnum Hunter Resources,  Inc., a Nevada corporation (
"Borrower"),  the various financial  institutions that are or may become a party
thereto  (collectively,  the "Banks"),  Bankers Trust Company, as administrative
agent  (in  such   capacity   together   with  any   successors   thereto,   the
"Administrative  Agent") for the Banks,  as  collateral  agent for the Banks (in
such capacity together with its successors thereto, the "Collateral Agent"), and
as letter of credit issuing bank (in such capacity  together with any successors
thereto,  the  "Issuer"),  CIBC Inc.  as  syndication  agent for the Banks,  BNP
Paribas,  as  documentation  agent and Deutsche  Banc Alex.  Brown Inc. and CIBC
World  Markets  Corp.,  as Arrangers.  Unless  otherwise  defined  herein or the
context otherwise requires,  terms used herein have the meanings provided in the
Credit Agreement.

     The undersigned Borrower hereby requests that on ____________, ____,

     (1) $___________ of the presently outstanding principal amount of the Loans
originally  made  on  __________,   _____  [and  $__________  of  the  presently
outstanding principal amount of the Loans originally made on __________, _____],

     (2) and all presently being  maintained as  *******[Base  Rate Loans] [LIBO
Rate Loans],

     (3) be [converted into] [continued as],

--------

* Select appropriate interest rate option.


<PAGE>

     (4) [LIBO Rate Loans having an Interest Period of ______ months] [Base Rate
Loans].

     The undesigned Borrower hereby:

     (a) certifies and warrants that no Default has occurred and is  continuing;
and

     (b) agrees that if prior to the time of such continuation or conversion any
matter certified to herein by it will not be true and correct at such time as if
then made, it will immediately so notify the Agent.

     Except to the extent, if any, that prior to the time of the continuation or
conversion  requested  hereby the  Administrative  Agent shall  receive  written
notice to the contrary from the undersigned  Borrower,  each matter certified to
herein  shall be  deemed to be  certified  at the date of such  continuation  or
conversion as if then made except for such representations and warranties as are
by their express terms limited to a specific date.

     The undersigned Borrower has caused this Continuation/Conversion  Notice to
be executed and delivered, and the certification and warranties contained herein
to be made, by its Authorized Officer this ___ day of _________, _____.


                        Magnum Hunter Resources, Inc.


                        By
                           --------------------------------------
                        Name:
                        Title:


                                        2
<PAGE>


                                    EXHIBIT D

                            BANK ASSIGNMENT AGREEMENT

To:      Magnum Hunter Resources, Inc.

To:      Bankers Trust Company
         as the Administrative Agent and as Issuer


Gentlemen and Ladies:

     We refer to clause (d) of Section  10.11.1 of the of the Third  Amended and
Restated  Credit  Agreement,  dated  as of  May  17,  2001  (together  with  all
amendments, if any, from time to time made thereto the "Credit Agreement") among
Magnum Hunter Resources,  Inc., a Nevada corporation ( "Borrower"),  the various
financial institutions that are or may become a party thereto (collectively, the
"Banks"),  Bankers  Trust  Company,  as  administrative  agent (in such capacity
together with any successors thereto, the "Administrative Agent") for the Banks,
as collateral agent for the Banks (in such capacity together with its successors
thereto,  the "Collateral Agent"), and as letter of credit issuing bank (in such
capacity  together with any  successors  thereto,  the  "Issuer"),  CIBC Inc. as
syndication  agent  for the  Banks,  BNP  Paribas,  as  documentation  agent and
Deutsche  Banc Alex.  Brown Inc. and CIBC World  Markets  Corp.,  as  Arrangers.
Unless otherwise  defined herein or the context otherwise  requires,  terms used
herein have the meanings provided in the Credit Agreement.

     This  agreement  is  delivered  to you  pursuant  to clause  (d) of Section
10.11.1  of the Credit  Agreement  and also  constitutes  notice to each of you,
pursuant  to clause (c) of  Section  10.11.1  of the  Credit  Agreement,  of the
assignment and  delegation to  _______________  (the  "Assignee") of ___% of the
Loans,  participations in Letters of Credit and Commitment of _____________ (the
"Assignor")  outstanding  under the Credit  Agreement on the date hereof.  After
giving effect to the foregoing assignment and delegation, the Assignor's and the
Assignee's  Percentages  for the purposes of the Credit  Agreement are set forth
opposite such Person's name on the signature pages hereof.

     [Add paragraph dealing with accrued interest and fees with respect to Loans
assigned.]

     The  Assignee  (i)  confirms  that it has  received  a copy  of the  Credit
Agreement,  together  with  copies of the  financial  statements  referred to in
Section 7.1.1 thereof and such other  documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this Bank
Assignment  Agreement  and the  Credit  Agreement,  (ii)  agrees  that it  will,
independently and without reliance upon any Agent, any Assignor, the Issuer, any
Arranger or any Bank 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 the Credit  Agreement;  (iii)  represents  and
warrants  that its name set forth  herein is its legal name;  (iv)  appoints and
authorizes each Agent to take such action as agent on its behalf and to exercise
such powers and  discretion  under the Loan  Documents as are  delegated to such
Agent by the terms thereof, together with such powers and


<PAGE>

     discretion as are reasonably  incidental thereto;  (vi) agrees that it will
perform in accordance with their terms all of the obligations  that by the terms
of the Credit  Agreement are required to be performed by it as a Bank; and (vii)
attaches any U.S.  Internal  Revenue Service forms required under Section 4.6(b)
of the Credit Agreement.

     Except as otherwise  provided in the Credit Agreement,  effective as of the
date of acceptance hereof by the Administrative Agent and the Issuer

     (a) the Assignee

     (i)  shall be deemed  automatically  to have  become a party to the  Credit
Agreement,  have all the rights  and  obligations  of a "Bank"  under the Credit
Agreement  and the other  Loan  Documents  as if it were an  original  signatory
thereto to the extent specified in the second paragraph hereof; and

     (ii) agrees to be bound by the terms and conditions set forth in the Credit
Agreement  and the other  Loan  Documents  as if it were an  original  signatory
thereto; and

     (b) the Assignor  shall be released from its  obligations  under the Credit
Agreement  and the other Loan  Documents  to the extent  specified in the second
paragraph hereof.

     The Assignor and the Assignee  hereby agree that the [Assignor]  [Assignee]
will pay to the  Administrative  Agent the processing fee referred to in Section
10.11.1 of the Credit Agreement upon the delivery hereof.

     The Assignee  hereby  advises each of you of the  following  administrative
details  with  respect to the  assigned  Loans and  Commitment  and requests the
Administrative Agent to acknowledge receipt of this document:

    (A)      Address for Notices:
                      Institution Name:
                      Attention:
                      Domestic Office:
                      Telephone:
                      Facsimile:
                      Telex (Answerback):
                      LIBOR Office:
                      Telephone:

                                        2
<PAGE>

                      Facsimile:
                      Telex (Answerback):

    (B)      Payment Instructions:

     The Assignee  shall furnish the tax form required by the Section 4.6 of the
Credit  Agreement,  if any, no later than the date of  acceptance  hereof by the
Administrative Agent.

     This  Agreement  may be executed by the  Assignor  and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken  together  shall  constitute one and the same
agreement.

                                        3
<PAGE>

Adjusted Percentage                             [ASSIGNOR]
-------------------

     Commitment
        and
       Loans:              ___%
                                              By:
                                                 -----------------------------
                                              Name:
                                              Title:

Percentage                                      [ASSIGNEE]
----------

     Commitment
        and
       Loans:              ___%
                                              By:__________________________
                                              Name:
                                              Title:

                                        4
<PAGE>

Accepted and Acknowledged
this ___ day of _______, _____


BANKERS TRUST COMPANY,
as Administrative Agent and as Issuer

By:
   -------------------------------------------------------
Name:
     -----------------------------------------------------
Title:
      ----------------------------------------------------


MAGNUM HUNTER RESOURCES, INC.
as the Borrower


By:
   -------------------------------------------------------
Name:
     -----------------------------------------------------
Title:
      ----------------------------------------------------




                                        5
<PAGE>

                                    EXHIBIT E



                  [Opinion of Special Counsel to the Obligors]




<PAGE>

                                    EXHIBIT F



                  [Opinion of In-House Counsel to the Obligors]





<PAGE>

                                    EXHIBIT G



                               [Form of Mortgage]


<PAGE>

                                    EXHIBIT H



             [Form of First Amendment to Borrower Pledge Agreement]




<PAGE>

                                    EXHIBIT I



            [Form of First Amendment to Subsidiary Pledge Agreement]



<PAGE>

                                    EXHIBIT J



       [Form of Third Amended and Restated Subsidiary Guaranty Agreement]



<PAGE>

                                    EXHIBIT K

                                     FORM OF
                                EXTENSION REQUEST

                           ____________________, 200__


Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006

Attention: _______________

Gentlemen:

     Reference is made to the Third Amended and Restated Credit Agreement, dated
as of May 17, 2001 (together with all amendments, if any, from time to time made
thereto the "Credit  Agreement") among Magnum Hunter  Resources,  Inc., a Nevada
corporation ( "Borrower"),  the various  financial  institutions that are or may
become a party thereto,  Bankers Trust Company, as administrative agent (in such
capacity together with any successors thereto,  the "Administrative  Agent") for
the Banks, as collateral agent for the Banks (in such capacity together with its
successors  thereto,  the "Collateral  Agent"),  and as letter of credit issuing
bank,  CIBC  Inc.  as  syndication   agent  for  the  Banks,  BNP  Paribas,   as
documentation  agent and Deutsche  Banc Alex.  Brown Inc. and CIBC World Markets
Corp., as Arrangers.  Unless otherwise  defined herein or the context  otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.

     Borrower  hereby  gives notice to the  Administrative  Agent as required by
Section 2.9 of the Credit Agreement of its request to extend the Stated Maturity
Date for an additional one-year period.

     Borrower hereby  certifies that (i) this request complies with the terms of
the Credit  Agreement  and the  provisions  of Section  2.9  thereof and (ii) no
Default or Event of Default has  occurred  and is  continuing  as of the date of
this request.

                                      Sincerely,

                                      MAGNUM HUNTER RESOURCES, INC.

                                       By:
                                          ------------------------------
                                       Name:
                                       Title:



<PAGE>

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
<S>                                                                                                            <C>

                                                                                                                Page
ARTICLE I

         DEFINITIONS AND ACCOUNTING TERMS.........................................................................2
         1.1.       Defined Terms.................................................................................2
         1.2.       Use of Defined Terms.........................................................................24
         1.3.       Cross-References.............................................................................24
         1.4.       Accounting and Financial Determinations......................................................25

ARTICLE II

         THE COMMITMENTS, BORROWING PROCEDURES, NOTES,
         LETTERS OF CREDIT AND BORROWING BASE....................................................................25
         2.1.       The Commitments..............................................................................25
         2.1.1.     Loan Commitment..............................................................................25
         2.1.2.     Commitment to Issue Letters of Credit........................................................25
         2.1.3.     Purchase and Sale of Participations in Each Letter of Credit.................................26
         2.1.4.     Banks Not Permitted or Required to Make Loans................................................26
         2.1.5.     Issuer Not Permitted or Required to Issue Letters of Credit..................................26
         2.2.       Reduction of Maximum Facility Amount.........................................................27
         2.3.       Borrowing Procedures for Loans...............................................................27
         2.4.       Continuation and Conversion Elections........................................................27
         2.5.       Funding......................................................................................28
         2.6.       Notes........................................................................................28
         2.7.       Certain Provisions Relating to the Letters of Credit.........................................28
         2.7.1.     Borrower's Agreement to Repay Letter of Credit Drawings......................................28
         2.7.2.     Reimbursement Obligations of the Banks under the Letters of Credit...........................29
         2.7.3.     Action Upon Occurrence of Default............................................................30
         2.7.4.     Cash Collateral Procedures...................................................................30
         2.7.5.     Nature of Reimbursement Obligations..........................................................30
         2.8.       Borrowing Base...............................................................................31
         2.8.1.     Determination of the Borrowing Base..........................................................31
         2.8.2.     Redetermination of Borrowing Base............................................................31
         2.8.3.     Special Redetermination of Borrowing Base....................................................32
         2.8.4.     General Provisions With Respect to the Borrowing Base........................................33
         2.9.       Extension of Stated Maturity Date............................................................33
         2.10.      Replacement of Issuer........................................................................34


                                        i

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ARTICLE III

         REPAYMENTS, PREPAYMENTS, INTEREST AND FEES..............................................................34
         3.1.       Repayments and Prepayments...................................................................34
         3.2.       Interest Provisions..........................................................................36
         3.2.1.     Rates........................................................................................36
         3.2.2.     Post-Default Rates...........................................................................36
         3.2.3.     Payment Dates................................................................................37
         3.3.       Fees.........................................................................................37
         3.3.1.     Commitment Fee...............................................................................37
         3.3.2.     Participation Fees...........................................................................37
         3.3.3.     Fees Pursuant to Fee Letter..................................................................38
         3.3.4.     Letter of Credit Standby Fee Payable to Banks................................................38
         3.3.5.     Letter of Credit Fronting Fee Payable to Issuer..............................................38

ARTICLE IV

         CERTAIN LIBO RATE AND OTHER PROVISIONS..................................................................38
         4.1.       Fixed Rate Lending Unlawful..................................................................38
         4.2.       Deposits Unavailable.........................................................................38
         4.3.       Increased LIBO Rate Loan Costs, etc..........................................................39
         4.4.       Funding Losses...............................................................................39
         4.5.       Increased Capital Costs......................................................................40
         4.6.       Taxes........................................................................................40
         4.7.       Payments, Computations, etc..................................................................42
         4.8.       Sharing of Payments..........................................................................42
         4.9.       Set off......................................................................................43
         4.10.      Use of Proceeds..............................................................................43
         4.11.      Maximum Interest.............................................................................43

ARTICLE V

         CONDITIONS TO BORROWING.................................................................................44
         5.1.       Initial Borrowing............................................................................44
         5.1.1.     Resolutions, etc.............................................................................44
         5.1.2.     Delivery of Notes and Subsidiary Guaranty Agreement..........................................45
         5.1.3.     Payment of Outstanding Bluebird Indebtedness, etc............................................45
         5.1.4.     Mortgage.....................................................................................45
         5.1.5.     Pledge Agreements; Stock Certificates and Blank Powers.......................................45
         5.1.6.     Opinions of Counsel..........................................................................45
         5.1.7.     [Intentionally Omitted]......................................................................45
         5.1.8.     Engineers' Report............................................................................46
         5.1.9.     Certificate as to Insurance Policies.........................................................46
         5.1.10.    Material Adverse Change......................................................................46
         5.1.11.    Satisfactory Review and Legal Form...........................................................46

                                                        ii
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         5.1.12.    Closing Fees, Expenses, etc..................................................................46
         5.1.13.    UCC Searches.................................................................................46
         5.2.       All Borrowings and Letters of Credit.........................................................46
         5.2.1.     Compliance with Warranties, No Default, etc..................................................47
         5.2.2.     Borrowing Request............................................................................47
         5.2.3.     Satisfactory Legal Form......................................................................47
         5.2.4.     All Letters of Credit........................................................................47

ARTICLE VI

         REPRESENTATIONS AND WARRANTIES..........................................................................48
         6.1.       Organization, etc............................................................................48
         6.2.       Due Authorization, Non-Contravention, etc....................................................48
         6.3.       Government Approval, Regulation, etc.........................................................48
         6.4.       Validity, etc................................................................................48
         6.5.       Financial Information........................................................................49
         6.6.       No Material Adverse Change...................................................................49
         6.7.       Litigation, Labor Controversies, etc.........................................................49
         6.8.       Subsidiaries.................................................................................49
         6.9.       Ownership of Properties......................................................................49
         6.10.      Taxes........................................................................................50
         6.11.      Pension and Welfare Plans....................................................................50
         6.12.      Environmental Warranties.....................................................................50
         6.13.      Regulations U and X..........................................................................51
         6.14.      Accuracy of Information......................................................................51
         6.15.      No Defaults under Other Agreements...........................................................52
         6.16.      Solvency.....................................................................................52
         6.17.      Agreements...................................................................................52
         6.18.      Compliance with Laws, etc....................................................................52

ARTICLE VII

         COVENANTS...............................................................................................53
         7.1.       Affirmative Covenants........................................................................53
         7.1.1.     Financial Information, Reports, Notices, etc.................................................53
         7.1.2.     Compliance with Laws, Maintenance of Existence, etc..........................................55
         7.1.3.     Maintenance of Properties....................................................................55
         7.1.4.     Insurance....................................................................................56
         7.1.5.     Books and Records............................................................................56
         7.1.6.     [Intentionally Omitted]......................................................................56
         7.1.7.     Agreement to Deliver Security Documents......................................................56
         7.1.8.     Perfection and Protection of Security Interests and Liens....................................57
         7.1.9.     Compliance with Other Contractual Obligations................................................57
         7.1.10.    Opinions of Local Counsel....................................................................58
         7.2.       Negative Covenants...........................................................................58

                                       iii

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         7.2.1.     Business Activities..........................................................................58
         7.2.2.     Indebtedness.................................................................................58
         7.2.3.     Liens........................................................................................60
         7.2.4.     Financial Condition..........................................................................62
         7.2.5.     Investments..................................................................................63
         7.2.6.     Restricted Payments, etc.....................................................................64
         7.2.7.     Limitation on Baskets........................................................................64
         7.2.8.     Consolidation, Merger, etc...................................................................65
         7.2.9.     Disposition of Assets........................................................................65
         7.2.10.    Transactions with Affiliates.................................................................65
         7.2.11.    Negative Pledges, Restrictive Agreements, etc................................................66
         7.2.12.    Limitation on Issuance of Subsidiaries' Capital Stock........................................66
         7.2.13.    Environmental Protection.....................................................................66
         7.2.14.    Accounting...................................................................................67
         7.2.15.    Hedge Agreements.............................................................................67

ARTICLE VIII

         EVENTS OF DEFAULT.......................................................................................67
         8.1.       Listing of Events of Default.................................................................67
         8.1.1.     Non-Payment of Obligations...................................................................67
         8.1.2.     Breach of Representation or Warranty.........................................................68
         8.1.3.     Non-Performance of Certain Covenants and Obligations.........................................68
         8.1.4.     Non-Performance of Other Covenants and Obligations...........................................68
         8.1.5.     Default on Other Indebtedness................................................................68
         8.1.6.     Judgments....................................................................................68
         8.1.7.     Pension Plans................................................................................68
         8.1.8.     Change of Control............................................................................69
         8.1.9.     Bankruptcy, Insolvency, etc..................................................................69
         8.1.10.    Impairment of Security, etc..................................................................69
         8.1.11.    Attachment, etc..............................................................................69
         8.1.12.    Seizure, etc.................................................................................70
         8.1.13.    Change of Control Offer......................................................................70
         8.2.       Action if Bankruptcy.........................................................................70
         8.3.       Action if Other Event of Default.............................................................70

ARTICLE IX

         THE AGENTS AND THE ISSUER...............................................................................70
                    9.1.   Actions...............................................................................70
         9.2.       Funding Reliance, etc........................................................................71
         9.3.       Exculpation..................................................................................71
         9.4.       Successor....................................................................................72
         9.5.       Extensions of Credit by the Agents, the Arrangers and the Issuer.............................73
         9.6.       Credit Decisions.............................................................................73

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         9.7.       Copies, etc..................................................................................73
         9.8.       Documentation Agent and Syndication Agent and the Arrangers..................................73

ARTICLE X

         MISCELLANEOUS PROVISIONS................................................................................74
         10.1.      Waivers, Amendments, etc.....................................................................74
         10.2.      Notices......................................................................................74
         10.3.      Payment of Costs and Expenses................................................................75
         10.4.      Indemnification..............................................................................75
         10.5.      Survival.....................................................................................76
         10.6.      Severability.................................................................................76
         10.7.      Headings.....................................................................................77
         10.8.      Execution in Counterparts, Effectiveness, etc................................................77
         10.9.      Governing Law; Entire Agreement..............................................................77
         10.10.     Successors and Assigns.......................................................................77
         10.11.     Sale and Transfer of Loans and Note; Participations in Loans and Note........................77
         10.11.1.   Assignments..................................................................................77
         10.11.2.   Participations...............................................................................79
         10.12.     Renewal and Continuation of Existing Loans...................................................79
         10.13.     Other Transactions...........................................................................79
         10.14.     [Intentionally Blank]........................................................................79
         10.15.     Treatment of Certain Information; Confidentiality............................................80
         10.16.     Forum Selection and Consent to Jurisdiction..................................................80
         10.17.     Waiver of Jury Trial.........................................................................81
         10.18.     No Oral Agreements...........................................................................81
</TABLE>
<TABLE>
<CAPTION>
<S>                     <C>
SCHEDULE I               -   Disclosure Schedule
SCHEDULE II              -   Existing Mortgages
SCHEDULE 1.1             -   Gas Gathering Systems
SCHEDULE 5.1.13          -   UCC Searches
SCHEDULE 6.9             -   Hydrocarbon Interests


                                        v
<PAGE>


EXHIBIT A                -   Form of Note
EXHIBIT B-1              -   Form of Borrowing Request
EXHIBIT B-2              -   Form of Letter of Credit Request
EXHIBIT C                -   Form of Continuation/Conversion Notice
EXHIBIT D                -   Form of Bank Assignment Agreement
EXHIBIT E                -   Form of Opinion of Special Counsel to Obligors
EXHIBIT F                -   Form of Opinion of In-House Counsel to Obligors
EXHIBIT G                -   Form of Mortgage
EXHIBIT H                -   Form of First Amendment to Borrower Pledge Agreement
EXHIBIT I                -   Form of First Amendment to Subsidiary Pledge Agreement
EXHIBIT J                -   Form of Third Amended and Restated Subsidiary Guaranty Agreement
EXHIBIT K                -   Form of Extension Request


</TABLE>

                                       vi
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