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                                                                    EXHIBIT 10.1

Seventh Restated Loan Agreement dated as of December 1, 1999, among Clayton
Williams Energy, Inc., Warrior Gas Co., CWEI Acquisitions, Inc., Bank One,
Texas, N.A. and Union Bank of California, N.A.

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                         SEVENTH RESTATED LOAN AGREEMENT

                                      AMONG

                         CLAYTON WILLIAMS ENERGY, INC.,
                                WARRIOR GAS CO.,
                            CWEI ACQUISITIONS, INC.,
                              BANK ONE, TEXAS, N.A.
                       AND UNION BANK OF CALIFORNIA, N.A.

                                DECEMBER 1, 1999

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                                TABLE OF CONTENTS

                                                                            Page

1.   Definitions.  ............................................................1

2.   Commitments of the Banks..................................................9
     (a)       Terms of Revolving Commitment...................................9
     (b)       Letters of Credit..............................................10
     (c)       Procedure for Advances on the Revolving Loan...................11
     (d)       Procedure for Obtaining Letters of Credit......................12
     (e)       Several Obligations............................................12

3.   Notes Evidencing Loans...................................................12
     (a)       Form of Revolving Notes .......................................12
     (b)       Interest Rates ................................................13
     (c)       Payment of Interest ...........................................13
     (d)       Payment of Principal ..........................................13
     (e)       Issuance of Additional Notes ..................................13

4.   Interest Rates...........................................................13
     (a)       Options........................................................13
     (b)       Interest Rate Determination....................................14
     (c)       Conversion Option..............................................14
     (d)       Recoupment.....................................................14

5.   Special Provisions Relating to Eurodollar Loans..........................15
     (a)       Unavailability of Funds or Inadequacy of Pricing...............15
     (b)       Reserve Requirements...........................................15
     (c)       Taxes..........................................................16
     (d)       Change in Laws.................................................16
     (e)       Option to Fund.................................................16
     (f)       Indemnity......................................................17

6.   Collateral Security......................................................17

7.   Borrowing Base...........................................................18
     (a)       Initial Borrowing Base.........................................18
     (b)       Subsequent Determinations of Borrowing Base....................18
     (c)       Voluntary Decreases in Borrowing Base..........................18
     (d)       Monthly Commitment Reduction...................................19


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8.   Fees.....................................................................19
     (a)       Unused Portion Fee.............................................19
     (b)       Borrowing Base Increase Fee....................................19
     (c)       Letter of Credit Fee...........................................19
     (d)       Agency Fee.....................................................19

9.   Prepayments..............................................................19
     (a)       Voluntary Prepayments..........................................19
     (b)       Mandatory Prepayment...........................................20

10.  Representations and Warranties. .........................................20
     (a)       Creation and Existence.........................................20
     (b)       Power and Authorization........................................21
     (c)       Binding Obligations............................................21
     (d)       No Legal Bar or Resultant Lien.................................21
     (e)       No Consent.....................................................21
     (f)       Financial Condition............................................21
     (g)       Liabilities....................................................21
     (h)       Litigation.....................................................22
     (i)       Taxes; Governmental Charges....................................22
     (j)       Titles, Etc....................................................22
     (k)       Defaults.......................................................22
     (l)       Casualties; Taking of Properties...............................22
     (m)       Use of Proceeds; Margin Stock..................................23
     (n)       Location of Business and Offices...............................23
     (o)       Compliance with the Law........................................23
     (p)       No Material Misstatements......................................23
     (q)       ERISA..........................................................23
     (r)       Public Utility Holding Company Act.............................24
     (s)       Environmental Matters..........................................24
     (t)       Guarantor......................................................24
     (u)       Year 2000 Compliance...........................................24

11.  Conditions of Lending....................................................25

12.  Affirmative Covenants....................................................26
     (a)       Financial Statements and Reports...............................27
     (b)       Certificates of Compliance.....................................28
     (c)       Taxes and Other Liens..........................................28
     (d)       Compliance with Laws...........................................29
     (e)       Further Assurances.............................................29
     (f)       Performance of Obligations.....................................29
     (g)       Insurance......................................................29


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     (h)       Accounts and Records...........................................30
     (i)       Right of Inspection............................................30
     (j)       Notice of Certain Events.......................................30
     (k)       ERISA Information and Compliance...............................30
     (l)       Environmental Reports and Notices..............................31
     (m)       Maintenance....................................................31
     (n)       Title Matters..................................................31
     (o)       Curative Matters...............................................31
     (p)       Additional Collateral..........................................32
     (q)       Year 2000 Compatibility........................................32

13.  Negative Covenants.......................................................32
     (a)       Liens..........................................................33
     (b)       Debts, Guaranties and Other Obligations........................33
     (c)       Current Ratio..................................................34
     (d)       Ratio of Cash Flow to Debt Service.............................34
     (e)       Limitation on Sale of Collateral...............................34
     (f)       Mergers and Consolidations.....................................34
     (g)       Use of Proceeds................................................35
     (h)       Loans or Advances..............................................35
     (i)       Hedging Transactions...........................................35
     (j)       Dividends......................................................35
     (k)       Investments....................................................35
     (l)       Change of Control..............................................36
     (m)       Minimum Tangible Net Worth.....................................36

14.  Events of Default........................................................36

15.  Exercise of Rights. .....................................................39

16.  Notices..................................................................39

17.  The Agent and the Banks..................................................39
     (a)       Appointment and Authorization..................................39
     (b)       Note Holders...................................................40
     (c)       Consultation with Counsel......................................40
     (d)       Documents......................................................40
     (e)       Resignation or Removal of Agent................................40
     (f)       Responsibility of Agent........................................40
     (g)       Independent Investigation......................................42
     (h)       Indemnification................................................42
     (i)       Benefit of Section 17..........................................43
     (j)       Pro Rata Treatment.............................................43


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     (k)       Interests of Banks.............................................43
     (l)       Failure By Any Bank to Provide Funds to Agent..................43

18.  Expenses.................................................................44

19.  Indemnity................................................................45

20.  Governing Law............................................................45

21.  Invalid Provisions.......................................................46

22.  Maximum Interest Rate....................................................46

23.  Amendments...............................................................46

24.  Multiple Counterparts....................................................46

25.  Conflict.................................................................46

26.  Survival.................................................................46

27.  Parties Bound............................................................47

28.  Assignments and Participations...........................................47

29.  Waiver of Jury Trial.....................................................48

30.  Other Agreements.........................................................49

31.  Written Consent..........................................................49


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Exhibits:

Exhibit A     -   Notice of Borrowing
Exhibit B     -   Renewal Revolving Note
Exhibit C     -   Financial Condition
Exhibit D     -   Liabilities
Exhibit E     -   Litigation
Exhibit F     -   Environmental Matters


                                        v
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                         SEVENTH RESTATED LOAN AGREEMENT

      THIS SEVENTH RESTATED LOAN AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 1st day of December, 1999, by and among CLAYTON
WILLIAMS ENERGY, INC, a Delaware corporation ("CWE"), WARRIOR GAS CO., a Texas
corporation ("Warrior") (CWE and Warrior being hereinafter sometimes
collectively referred to as "Borrower"), CWEI ACQUISITIONS, INC., a Delaware
corporation (hereinafter referred to as "Guarantor"), BANK ONE, TEXAS, N.A., a
national banking association ("Bank One") and UNION BANK OF CALIFORNIA, N.A., a
national banking association ("Union") (Bank One and Union each in their
capacity as a lender hereunder together with each and every future holder of any
note issued pursuant to this Agreement are hereinafter collectively referred to
as "Banks" and individually as "Bank") and Bank One as "Agent".

                              W I T N E S S E T H:

      WHEREAS, as of July 16, 1998, Borrower, Bank One, Paribas and Union
entered into a Sixth Restated Loan Agreement (the "Loan Agreement"), pursuant to
the terms of which the Banks agreed to provide a $100,000,000 reducing revolving
loan facility to Borrower;

      WHEREAS, the Borrower, the Banks and the Agent entered into a First
Amendment to Sixth Restated Loan Agreement, a Second Amendment to Sixth Restated
Loan Agreement and a Third Amendment to Sixth Restated Loan Agreement;

      WHEREAS, Bank One and Union have acquired all of the interests of other
Banks, including Paribas, in the Loan Agreement and the rights and obligations
arising thereunder;

      WHEREAS, Borrower, Bank One and Union have agreed to renew, extend, amend
and restate the Sixth Restated Loan Agreement.

      NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:

      1. Definitions. When used herein the terms "Agent", "Agreement", "Bank
One", "Banks", "Borrower", "Guarantor" and "Union" shall have the meanings
indicated above. When used herein the following terms shall have the following
meanings:

            (a) Advance or Advances - A loan or loans hereunder.

            (b) Borrowing Base - The value, determined by the Banks in
      accordance with their customary standards, assigned by the Banks from time
      to time to the Collateral less the aggregate amount of any outstanding CWE
      guarantees of Vendor Financings.

            (c) Borrowing Base Deficiency - The term "Borrowing Base Deficiency"
      is used herein as defined in Section 9(b) hereof.

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            (d) Borrowing Date - The date elected by the Borrower pursuant to
      (i) Section 2(c) hereof for an Advance on the Revolving Loan or (ii)
      Section 4(c) hereof for a change in interest rate placement on the
      Revolving Loan.

            (e) Business Day - The normal banking hours during any day (other
      than Saturdays or Sundays) that banks are legally open for business in
      Dallas, Texas.

            (f) Cash Flow - The Williams Consolidated Entities' cash flow from
      operations before working capital changes, excluding cash flow
      attributable to Vendor Financing, calculated in accordance with GAAP for
      the fiscal quarter being measured.

            (g) Collateral - The term "Collateral" is used herein as defined in
      Section 6 hereof.

            (h) Commitment Percentage - The percentage of the Revolving
      Commitment that each Bank is severally obligated to fund hereunder, which,
      as of the date of this Agreement is:

            BANK ONE, TEXAS, N.A.                             55%
            UNION BANK OF CALIFORNIA, N.A.                    45%

            (i) Current Assets - The sum of the Williams Consolidated Entities'
      current assets, determined in accordance with GAAP, plus any unused
      portion of the Elected Borrowing Limit and less any current assets
      attributable to Vendor Financing transactions.

            (j) Current Liabilities - The total of the Williams Consolidated
      Entities' current liabilities, determined in accordance with GAAP,
      excluding therefrom (i) trade and revenue payables arising from Vendor
      Financings, and (ii) current maturities outstanding under the Notes.

            (k) Debt Service - At the end of each fiscal quarter, the sum of (i)
      the current portion of all notes payable as defined by GAAP (excluding
      amounts outstanding on the Revolving Commitment), plus (ii) the average
      Revolving Commitment during such quarter divided by twenty (20), plus
      (iii) the sum of all amounts paid or payable by Borrower during such
      fiscal quarter as a result of its election made pursuant to Section
      9(b)(C) hereof.

            (l) Effective Date - The date of this Agreement.

            (m) Elected Borrowing Limit - The term "Elected Borrowing Limit" is
      used herein as defined in Section 7(c) hereof.

            (n) Engineered Value - The term "Engineered Value" is used herein as
      defined in Section 12(p) hereof.


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            (o) Environmental Laws - The Comprehensive Environmental Response,
      Compensation and Liability Act of 1980, as amended by the Super Fund
      Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601, et
      seq., the Resource Conservation and Recovery Act, as amended by the
      Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A. Section 6901, et
      seq., the Clean Air Act, 42 U.S.C.A. Section 1251, et seq., the Toxic
      Substances Control Act, 15 U.S.C.A. Section 2601, et seq., and all other
      laws relating to air pollution, water pollution, noise control and/or the
      handling, discharge, disposal or recovery of on-site or off-site
      hazardous substances or materials, as each of the foregoing may be
      amended from time to time.

            (p) Environmental Liability - Any claim, demand, obligation, cause
      of action, accusation, allegation, order, violation, damage, injury,
      judgment, penalty or fine, cost of enforcement, cost of remedial action or
      any other costs or expense whatsoever, including reasonable attorneys'
      fees and disbursements, resulting from the violation or alleged violation
      of any Environmental Law or the imposition of any Environmental Lien (as
      hereinafter defined) which would individually or in the aggregate have a
      Material Adverse Effect.

            (q) Environmental Lien - A Lien in favor of any court, governmental
      agency or instrumentality or any other person (i) for any liability under
      any Environmental Law or (ii) for damages arising from or cost incurred by
      such court or governmental agency or instrumentality or other person in
      response to a release or threatened release of hazardous or toxic waste,
      substance or constituent into the environment.

            (r) ERISA - The Employee Retirement Income Security Act of 1974, as
      amended.

            (s) Eurodollar Business Day - A Business Day on which dealings in
      U.S. Dollar deposits are carried on in the London interbank market.

            (t) Eurodollar Interest Period - With respect to any Eurodollar Loan
      (i) initially, the period commencing on the date such Eurodollar Loan is
      made and ending thirty (30), sixty (60), ninety (90), one hundred twenty
      (120) or one hundred eighty (180) days thereafter as selected by the
      Borrower pursuant to Section 4(a)(ii) and (ii) thereafter, each period
      commencing on the day following the last day of the next preceding
      Interest Period applicable to such Eurodollar Loan and ending thirty (30),
      sixty (60), ninety (90), one hundred twenty (120) or one hundred eighty
      (180) days thereafter, as selected by the Borrower pursuant to Section
      4(a)(ii); provided, however, that (i) if any Eurodollar Interest Period
      would otherwise expire on a day which is not a Eurodollar Business Day,
      such Interest Period shall expire on the next succeeding Eurodollar
      Business Day unless the result of such extension would be to extend such
      Interest Period into the next calendar month, in which case such Interest
      Period shall end on the immediately preceding Eurodollar Business Day,
      (ii) if any Eurodollar Interest Period begins on the last Eurodollar
      Business Day of a calendar month (or on a day for which there is no
      numerically corresponding day in the


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      calendar month at the end of such Interest Period) such Interest Period
      shall end on the last Eurodollar Business Day of a calendar month, and
      (iii) any Eurodollar Interest Period which would otherwise expire after
      the Maturity Date shall end on such Maturity Date.

            (u) Eurodollar Loan - Any loan during any period which bears
      interest at the Eurodollar Rate, or which would bear interest at such rate
      if the Maximum Rate ceiling was not in effect at a particular time.

            (v) Eurodollar Margin - The fluctuating Eurodollar Margin in effect
      from day to day shall be:

                  (i) two and one-half percent (2.50%) per annum whenever the
            Total Outstandings are greater than 75% of the Elected Borrowing
            Limit in effect at the time in question;

                  (ii) two and one-quarter percent (2.25%) per annum whenever
            the Total Outstandings are greater than 50%, but less than or equal
            to 75%, of the Elected Borrowing Limit in effect at the time in
            question;

                  (iii) two percent (2%) per annum whenever the Total
            Outstandings are greater than 25%, but less than or equal to 50%, of
            the Elected Borrowing Limit in effect at the time in question;

                  (iv) one and three-quarters percent (1.75%), whenever the
            Total Outstandings are 25% or less of the Elected Borrowing Limit in
            effect at the time in question.

            (w) Eurodollar Rate - With respect to each Eurodollar Interest
      Period, the rate of interest per annum at which deposits in immediately
      available and freely transferable funds in U.S. Dollars are offered to the
      Agent (at approximately 10:00 a.m., Dallas, Texas time three Eurodollar
      Business Days prior to the first day of each Eurodollar Interest Period)
      in the London interbank market for delivery on the first day of such
      Eurodollar Interest Period in an amount equal to or comparable to the
      principal amount of the Eurodollar Loan to which such Eurodollar Interest
      Period relates. Each determination of the Eurodollar Rate by the Agent
      shall, in the absence of error, be conclusive and binding.

            (x) Event of Default - The term "Event of Default" is used herein as
      defined in Section 14 hereof.

            (y) Financial Statements - The Williams Consolidated Entities'
      consolidated balance sheets, income statements and statements of cash flow
      prepared in accordance with GAAP.


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            (z) GAAP - Generally accepted accounting principles, consistently
      applied.

            (aa) Good and Defensible Title - Title held by the Borrower and
      Guarantor that is free from defects as would cause a reasonable doubt in
      the mind of a reasonable and prudent purchaser in the area where the
      Collateral is situated and cause him if he were purchasing such Collateral
      to refuse to accept such Collateral at its full agreed value. The title of
      Borrower and Guarantor may be subject to drilling obligations in leases,
      farmout agreements, operating agreements, covenants, restrictions, rights,
      easements, liens, encumbrances and minor irregularities in title which
      collectively do not interfere with the occupation, use and enjoyment of
      such Collateral in the normal course of business as presently conducted or
      contemplated to be conducted by Borrower and Guarantor or materially
      impair the value thereof for such business.

            (bb) Hedging Transactions - Any contract, agreement or transaction
      for the hedging or forward sale of crude oil and/or natural gas including
      but not limited to transactions involving swaps, caps, collars, floors and
      futures transactions.

            (cc) Interest Payment Date - The earlier of (i) the last day of each
      Interest Period or (ii) the last day of each calendar quarter.

            (dd) Interest Period - Any Prime Rate Interest Period, or Eurodollar
      Interest Period.

            (ee) Letters of Credit - The term "Letters of Credit" is used herein
      as defined in Section 2(c) hereof.

            (ff) Lien - Any mortgage, deed of trust, pledge, security interest,
      assignment, encumbrance or lien (statutory or otherwise) of every kind and
      character.

            (gg) Loan Documents - This Agreement, the Note, the Security
      Instruments and all other documents executed in connection with the
      transaction described in this Agreement.

            (hh) Majority Banks - Banks holding at least 100% ownership of the
      Revolving Commitment which shall include the Agent.

            (ii) Material Adverse Effect - Any Material Adverse Effect on the
      assets or properties, liabilities, financial condition, business,
      operations, affairs or circumstances of Borrower and Guarantor, taken as a
      whole, from those reflected in the Financial Statements of Borrower and
      Guarantor or from the facts represented or warranted in this Agreement or
      any other Security Instrument.

            (jj) Maturity Date - July 31, 2001.


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<PAGE>

            (kk) Maximum Rate - At the particular time in question, the maximum
      rate of interest which, under applicable law, may then be charged. If such
      maximum rate of interest changes after the date hereof, the Maximum Rate
      shall be increased or decreased, as the case may be, without notice to
      Borrower from time to time as of the effective date of each such change in
      the Maximum Rate. If applicable law ceases to provide for such a maximum
      rate of interest, the Maximum Rate shall be equal to eighteen percent
      (18%) per annum.

            (ll) Monthly Commitment Reduction - The term "Monthly Commitment
      Reduction" is used herein as defined in Section 7(d) hereof.

            (mm) Negative Pledge Property - All producing oil and gas properties
      and interests, from time to time, of Borrower or Guarantor which are not
      mortgaged or pledged to the Banks.

            (nn) Net Income - The Williams Consolidated Entities' Net Income
      determined in accordance with GAAP.

            (oo) Notes - The Revolving Notes.

            (pp) Notice of Borrowing - The term "Notice of Borrowing" is used
      herein as defined in Section 2(d) hereof.

            (qq) Oil and Gas Properties - All oil, gas and mineral properties
      and interests, and related personal properties, in which Borrower or
      Guarantor has granted and hereinafter grants (to the satisfaction of
      Agent) to Banks a first and prior lien and security interest.

            (rr) Permitted Liens - The term Permitted Lien shall mean (i)
      royalties, overriding royalties, reversionary interests, production
      payments and similar burdens granted by Borrower or Guarantor with respect
      to the Oil and Gas Properties if the net cumulative effect of such burdens
      does not operate to deprive Borrower or Guarantor of any material right in
      respect of its assets or properties (except for rights customarily granted
      with respect to such interests); (ii) statutory liens, including liens for
      taxes or other assessments that are not yet delinquent (or that, if
      delinquent, are being contested in good faith by appropriate proceedings
      and for which Borrower or Guarantor has set aside on its books adequate
      reserves in accordance with GAAP); (iii) easements, rights of way,
      servitudes, permits, surface leases and other rights in respect to surface
      operations, pipelines, grazing, logging, canals, ditches, reservoirs or
      the like, conditions, covenants and other restrictions, and easements of
      streets, alleys, highways, pipelines, telephone lines, power lines,
      railways and other easements and rights of way on, over or in respect of
      Borrower's or Guarantor's assets or properties; (iv) materialmen's,
      mechanic's, repairman's, employee's, contractor's, sub-contractor's,
      operator's and other Liens incidental to the construction, maintenance,
      development or operation of Borrower's or Guarantor's assets or properties
      to the extent not delinquent (or which, if delinquent, are being contested
      in good faith by appropriate


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<PAGE>

      proceedings and for which Borrower or Guarantor has set aside on its books
      adequate reserves in accordance with GAAP); (v) all contracts, agreements
      and instruments, and all defects and irregularities and other matters
      affecting Borrower's or Guarantor's assets and properties which were in
      existence at the time Borrower's or Guarantor's assets and properties were
      originally acquired by Borrower or Guarantor and all routine operational
      agreements entered into in the ordinary course of business, which
      contracts, agreements, instruments, defects, irregularities and other
      matters and routine operational agreements are not such as to,
      individually or in the aggregate, interfere materially with the operation,
      value or use of Borrower's or Guarantor's assets and properties,
      considered in the aggregate; (vi) liens in connection with workmen's
      compensation, unemployment insurance or other social security, old age
      pension or public liability obligations; (vii) legal or equitable
      encumbrances deemed to exist by reason of the existence of any litigation
      or other legal proceeding or arising out of a judgment or award with
      respect to which an appeal is being prosecuted in good faith; (viii)
      rights reserved to or vested in any municipality, governmental, statutory
      or other public authority to control or regulate Borrower's or Guarantor's
      assets and properties in any manner, and all applicable laws, rules and
      orders from any governmental authority; (ix) landlords liens; (x) liens
      created by or pursuant to this Agreement or the Security Instruments; (xi)
      liens existing at the date of this Agreement which have been disclosed to
      Banks in Borrower's or Guarantor's Financial Statements or identified on
      Exhibit "C" hereto; (xii) liens arising from indebtedness incurred by
      Borrower or Guarantor, which indebtedness is described in Section 13(b);
      and (xiii) Liens securing the Subordinated Debt. Provided, however, that
      the definition of the term "Permitted Liens" does not include liens of any
      kind or character which are prior by perfection to the liens on the
      Collateral held by the Banks, or which may, by operation of law, become
      prior to such liens held by the Banks.

            (ss) Person - An individual, a corporation, a partnership, an
      association, a trust or any other entity or organization, including a
      government or political subdivision or an agency or instrumentality
      thereof.

            (tt) Plan - Any plan subject to Title IV of ERISA and maintained by
      Borrower, or any such plan to which Borrower is required to contribute on
      behalf of its respective employees.

            (uu) Prime Rate - The fluctuating rate of interest per annum
      established from time to time by Bank One as its Prime Rate (which rate of
      interest may not be the lowest, best or most favorable rate of interest
      which Bank One may charge on loans to its customers). Each change in the
      Prime Rate shall become effective without prior notice to Borrower
      automatically as of the opening of business on the date of such change in
      the Prime Rate.

            (vv) Prime Rate Interest Period - With respect to any Advance on the
      Revolving Loan which is a Prime Rate Loan, the period ending on the last
      Business Day of each month; provided, however, that (A) if any Prime Rate
      Interest Period would end on a day which is not a Business Day, such
      Interest Period shall be extended to the next succeeding Business


                                       7
<PAGE>

      Day, and (B) if any Prime Rate Interest Period would otherwise end after
      the Maturity Date such Interest Period shall end on the Maturity Date.

            (ww) Prime Rate Loans - Any loan during any period which bears
      interest at the Prime Rate or which would bear interest at the Prime Rate
      if the Maximum Rate ceiling was not in effect at that particular time.

            (xx) Prime Rate Margin - The fluctuating Prime Rate Margin in effect
      from day to day shall be:

                  (i) three-eighths of one percent (3/8%) per annum whenever the
            Total Outstandings are greater than 75% of the Elected Borrowing
            Limit in effect at the time in question;

                  (ii) one-fourth of one percent (1/4%) per annum whenever the
            Total Outstandings are greater than 50%, but less than or equal to
            75%, of the Elected Borrowing Limit in effect at the time in
            question;

                  (iii) one-eighth of one percent (1/8%) per annum whenever the
            Total Outstandings are greater than 25%, but less than or equal to
            50%, of the Elected Borrowing Limit in effect at the time in
            question;

                  (iv) zero, whenever the Total Outstandings are 25% or less of
            the Elected Borrowing Limit in effect at the time in question.

            (yy) Release Price - The term "Release Price" is used herein as
      defined in Section 13(e) hereof.

            (zz) Revolving Commitment - Subject to the provisions of Section
      2(a) hereof, as to all Banks, the lesser of (i) $100,000,000.00 or (ii)
      the Elected Borrowing Limit, and as to each Bank its obligation to make a
      Revolving Loan in the amount of the lesser of (i) its Commitment
      Percentage times $100,000,000, or (ii) its Commitment Percentage times the
      Elected Borrowing Limit.

            (aaa) Revolving Loan - Loan or loans made under the Revolving
      Commitment pursuant to Section 2(a) hereof.

            (bbb) Revolving Notes - The $55,000,000 Renewal Revolving Note,
      dated the Effective Date, payable to Bank One and the $45,000,000 Renewal
      Revolving Note, dated the Effective Date, payable to Union.

            (ccc) Security Instruments - The term Security Instruments is used
      collectively herein to mean this Agreement, all Deeds of Trust, Mortgages,
      Security Agreements and


                                       8
<PAGE>

      Assignments of Production and Financing Statements, and other collateral
      documents covering certain of Borrower's and Guarantor's oil, gas and
      mineral properties and interest, and related personal property, and all
      amendments and supplements thereof, all pledge agreements covering stock
      and notes, and other collateral documents covering other collateral, all
      such documents to be in form and substance satisfactory to Agent.

            (ddd) Subsidiaries - Warrior, Clajon Industrial Gas, Inc.,
      Guarantor, Clayton Williams Venezuela, Inc., Clayton Williams Trading
      Company, Clayton Williams Midland, Inc. and any other corporation or
      entity of which voting securities or other ownership interests having
      ordinary voting power to elect a majority of the board of directors or
      other persons performing similar functions are at any time owned directly
      or indirectly by Borrower.

            (eee) Tangible Net Worth - An amount equal to the total
      shareholder's equity shown on the consolidated balance sheet of the
      Williams Consolidated Entities, less all intangible assets including, but
      not limited to, good will, all as determined in accordance with GAAP.

            (fff) Total Outstandings - As of any date, the total principal
      balance outstanding on the Notes plus the total face value of all
      outstanding Letters of Credit.

            (ggg) Unused Portion Fee - The term "Unused Portion Fee" is used
      herein as defined in Section 8(a) hereof.

            (hhh) Vendor Financings - Non-recourse vendor financings by CWE or
      its Subsidiaries for services, equipment or materials on other than
      customary trade payable terms.

            (iii) Williams Consolidated Entities - CWE and its Subsidiaries
      which are consolidated with it under GAAP.

      2. Commitments of the Banks.

            (a) Terms of Revolving Commitment. On the terms and conditions
      hereinafter set forth, each Bank agrees severally to make Advances to
      Borrower from time to time during the period beginning on the Effective
      Date and ending on the Maturity Date in such amounts as Borrower may
      request up to an amount not to exceed, in the aggregate principal amount
      outstanding at any time, the Revolving Commitment. Provided, however, that
      notwithstanding anything to the contrary contained herein, but subject to
      the right of Borrower under Section 9(b) hereof, the Total Outstandings,
      as of any date, shall never exceed the lesser of (i) $100,000,000.00, or
      (ii) the Borrowing Base. The obligation of each Bank to make Advances
      under the Revolving Commitment shall be limited to such Bank's Commitment
      Percentage of such Advance. Notwithstanding any other provision of this
      Agreement, no Advance shall be required to be made hereunder if any Event
      of Default (as


                                       9
<PAGE>

      hereinafter defined) has occurred and is continuing or if any event or
      condition has occurred that may, with notice, be an Event of Default.
      Borrower shall have the option pursuant to Section 4 hereof to determine
      whether Advances hereunder shall be made as Prime Rate Loans or Eurodollar
      Loans; provided, however, that Borrower shall not have the option to elect
      a Eurodollar Loan at any time when less than $5,000,000 in Prime Rate
      Loans are outstanding. Each Advance made as a Prime Rate Loan shall be an
      aggregate amount of at least $100,000 or a whole number multiple thereof.
      Each Advance made as a Eurodollar Loan shall be in an aggregate amount of
      at least $250,000, or in integral multiples thereof. No more than two (2)
      Eurodollar tranches may be outstanding at any time.

            (b) Letters of Credit. On the terms and conditions hereinafter set
      forth, Agent shall from time to time during the period beginning on the
      Effective Date and ending on the Maturity Date upon request of Borrower
      issue Letters of Credit for the account of Borrower (the "Letters of
      Credit") in such face amounts as Borrower may request, but not to exceed
      in the aggregate face amount at any time outstanding the sum of Ten
      Million Dollars ($10,000,000.00). The face amount of all Letters of Credit
      issued and outstanding hereunder shall be considered as Advances on the
      Revolving Commitment for Borrowing Base purposes and all payments made by
      Agent (or by another issuing Bank) on such Letters of Credit shall be
      considered as Advances under the Revolving Notes. The obligations of the
      Agent or any other issuing Bank on such Letters of Credit shall be secured
      by all of the Collateral. Each Letter of Credit issued for the account of
      Borrower hereunder shall (i) be in favor of such beneficiaries as
      specifically requested by Borrower, (ii) have an expiration date not
      exceeding the earlier of (A) two (2) years from the date of their
      issuance, or (B) the Maturity Date, and (iii) contain such other terms and
      provisions as may be required by Agent or the issuing Bank. In the event
      that at the Maturity Date there are outstanding Letters of Credit with
      expiration dates beyond the Maturity Date, Borrower and Banks agree that
      all Collateral pledged to secure the Notes and the other obligations of
      Borrower hereunder and under the other documents executed in connection
      herewith shall continue to secure the obligations of Borrower to Agent or
      other issuing Bank on such outstanding Letters of Credit until such time
      as either (a) all such Letters of Credit have expired by their terms or
      (b) the Agent or other issuing Bank has received indemnification from a
      party satisfactory to the Agent or the other issuing Bank, as the case may
      be, as to Borrower's obligations under any such outstanding Letters of
      Credit. Each Bank (other than the Agent) agrees that, upon issuance of any
      Letter of Credit hereunder, it shall automatically acquire a participation
      in the Agent's liability under such Letter of Credit in an amount equal to
      such Bank's Commitment Percentage of such liability, and each Bank (other
      than the Agent) thereby shall absolutely, unconditionally and irrevocably
      assume, as primary obligor and not as surety, and shall be unconditionally
      obligated to the Agent to pay and discharge when due, its Commitment
      Percentage of the Agent's liability under such Letter of Credit. Upon
      delivery by such Bank of funds to pay and discharge such liability, such
      Bank shall be treated as having purchased a participating interest in an
      amount equal to the amount of such funds delivered to the Agent by such
      Bank in the obligation of Borrower to reimburse Agent, as the issuer of
      such Letter of Credit, for any amounts payable, paid, or incurred by
      Agent, as


                                       10
<PAGE>

      the issuer of such Letter of Credit, with respect to such Letter of
      Credit. Each such payment by such Bank shall be considered an Advance
      under its Note and shall bear interest at the rates specified in Section 4
      hereof. The Borrower hereby conditionally agrees to pay and reimburse the
      Agent for its own account and for the account of each Bank providing funds
      for the purchase of a participation in such Letter of Credit for the
      amount of each demand for payment under any Letter of Credit that is in
      substantial compliance with the provisions of any such Letter of Credit at
      or prior to the date on which payment is made by the Agent to the
      beneficiary thereunder, without presentment, demand, protest or other
      formalities of any kind. Upon receipt from any beneficiary of any Letter
      of Credit of any demand for payment under such Letter of Credit, the Agent
      shall promptly notify the Borrower of the demand and the date upon which
      such payment is to be made by the Agent to such beneficiary in respect of
      such demand. Forthwith upon receipt of such notice from the Agent,
      Borrower shall advise Agent whether or not it intends to borrow hereunder
      to finance its obligations to reimburse the Agent, and if so, submit a
      Notice of Borrowing as provided in Section 2(c) hereof.

            (c) Procedure for Advances on the Revolving Loan. Whenever Borrower
      desires an Advance on the Revolving Loan, they shall give Agent
      telegraphic, telex, facsimile or telephonic notice ("Notice of Borrowing")
      of such requested Advance, which in the case of telephonic notice, shall
      be promptly confirmed in writing. Each Notice of Borrowing shall be in the
      form of Exhibit "A" attached hereto and shall be received by Agent not
      later than 11:00 a.m. Dallas, Texas time, (i) one Business Day prior to
      the Borrowing Date in the case of Prime Rate Loans; and (ii) three (3)
      Eurodollar Business Days prior to any proposed Borrowing Date in the case
      of Eurodollar Loans. Each Notice of Borrowing shall specify (i) the
      Borrowing Date (which, if a Prime Rate Loan shall be a Business Day, and
      if a Eurodollar Loan, a Eurodollar Business Day), (ii) the principal
      amount to be borrowed, (iii) the portion of the borrowing constituting
      Prime Rate Loans and/or Eurodollar Loans, (iv) if any portion of the
      proposed borrowing is to constitute Eurodollar Loans, the initial Interest
      Period selected by Borrower pursuant to Section 4 hereof to be applicable
      thereto, and (v) the date upon which disbursement is required. Upon
      receipt of such notice, Agent shall advise each Bank thereof. Not later
      than 1:00 p.m., Dallas, Texas time, on the date upon which the Advance is
      to be made, each Bank shall provide Agent at its office at 1717 Main
      Street, Dallas, Texas 75201, in immediately available funds, its pro rata
      share of the requested Advance. Not later than 2:00 p.m., Dallas, Texas
      time, on the date for which the Advance was requested, Agent shall make
      available to Borrower at the same office, in like funds, the aggregate
      amount of such requested Advance. Neither Agent nor any Bank shall incur
      any liability to Borrower in acting upon any notice referred to above
      which Agent or such Bank believes in good faith to have been given by a
      duly authorized officer or other person authorized to borrow on behalf of
      Borrower or for otherwise acting in good faith under this Section 2(c).
      Upon funding of Advances by Banks in accordance with this Agreement
      pursuant to any such notice, Borrower shall have effected Advances
      hereunder.


                                       11
<PAGE>

            (d) Procedure for Obtaining Letters of Credit. The amount and date
      of issuance, renewal, extension or reissuance of a Letter of Credit
      pursuant to the Banks' commitment above in Section 2(b) shall be
      designated by Borrower's written request delivered to Agent at least three
      (3) Business Days prior to the date of such issuance, renewal, extension
      or reissuance. Concurrently with or promptly following the delivery of the
      request for a Letter of Credit, Borrower shall execute and deliver to the
      Agent an application and agreement with respect to the Letters of Credit
      on the customary forms of the Agent pertaining to such Letters of Credit.
      The Agent shall not be obligated to issue, renew, extend or reissue such
      Letters of Credit if (A) the amount thereon when added to the amount of
      the outstanding Letters of Credit exceed Ten Million Dollars
      ($10,000,000.00) or (B) the amount thereof when added to the amount of all
      outstanding Letters of Credit and all amounts outstanding under the Notes
      would exceed the Revolving Commitment. Borrower agrees to pay the Agent
      for the benefit of the Banks commissions for issuing the Letters of Credit
      (calculated separately for each Letter of Credit) at the rate of the
      greater of (i) 1-1/2% per annum on the maximum face amount of the Letter
      of Credit or (ii) $400.00. Such commission shall be payable prior to the
      issuance of the Letter of Credit and thereafter on each anniversary date
      of such issuance while such Letter of Credit is outstanding.

            (e) Several Obligations. The obligations of the Banks under the
      Revolving Commitment are several and not joint. The failure of any Bank to
      make an Advance required to be made by it shall not relieve any other Bank
      of its obligation to make its Advance, and no Bank shall be responsible
      for the failure of any other Bank to make the Advance to be made by such
      other Bank. No Bank shall ever be required to lend hereunder any amount in
      excess of its legal lending limit.

      3. Notes Evidencing Loans. The loans described above in Section 2 shall be
evidenced by promissory notes of Borrower as follows:

            (a) Form of Revolving Notes. The Revolving Loan shall be evidenced
      by two Revolving Notes in the total amount of $100,000,000, one in the
      amount of $55,000,000 payable to Bank One and one in the amount of
      $45,000,000 payable to Union, each in the form of the Note attached hereto
      as Exhibit "B" with appropriate insertions. Notwithstanding the principal
      amount of the Revolving Notes, as stated on the face thereof, the actual
      principal amount due from Borrower to Banks on account of the Revolving
      Notes, as of any date of computation, shall be the sum of Advances then
      and theretofore made on account thereof, less all principal payments
      actually received by Banks in collected funds with respect thereto.
      Interest in respect thereof shall be payable only for the period during
      which the Revolving Loan evidenced thereby is outstanding and, although
      the stated amount of the Revolving Notes may be higher, the Revolving
      Notes shall be enforceable, with respect to Borrower's obligation to pay
      the principal amount thereof, only to the extent of the unpaid principal
      amount of the Revolving Loan.


                                       12
<PAGE>

            (b) Interest Rates - The unpaid principal balance of the Revolving
      Notes shall bear interest from time to time at a rate of interest
      determined from time to time depending on the option or options selected
      by Borrower pursuant to Section 4(a) hereof.

            (c) Payment of Interest - Interest on the Notes shall be payable as
      specified in Section 4 hereof.

            (d) Payment of Principal - The entire unpaid principal balance of
      the Revolving Notes shall be due and payable on the Maturity Date.

            (e) Issuance of Additional Notes - At the Effective Date there shall
      be outstanding two Revolving Notes, one in the face amount of $55,000,000,
      payable to the order of Bank One and one in the face amount of
      $45,000,000, payable to the order of Union. From time to time during the
      period from the Effective Date to the Maturity Date, additional Notes may
      be issued to the Banks and other Banks as such other Banks become parties
      to this Agreement. The face amount of each such new Revolving Note shall
      be in an amount equal to the Commitment Percentage of such Bank times
      $100,000,000. The aggregate face amount of all such Revolving Notes issued
      and outstanding as of any date shall never exceed $100,000,000. Upon
      request from Agent, the Borrowers shall execute and deliver to Agent any
      such new or additional Notes. From time to time as new Notes are issued
      the Agent shall require that each Bank exchange their Notes for newly
      issued Notes to better reflect the extent of each Bank's commitment
      hereunder.

      4. Interest Rates.

            (a) Options.

                        (i) Prime Rate Loans. On Prime Rate Loans the Borrower
                  agrees to pay interest on the Notes calculated on the basis of
                  the actual days elapsed in a year consisting of 365 or, if
                  appropriate, 366 days with respect to the unpaid principal
                  amount of each Prime Rate Loan from the date the proceeds
                  thereof are made available to Borrower until maturity (whether
                  by acceleration or otherwise), at a varying rate per annum
                  equal to the lesser of (i) the Maximum Rate (defined herein),
                  or (ii) the sum of the Prime Rate plus the Prime Rate Margin.
                  Subject to the provisions of this Agreement as to prepayment,
                  the principal of the Notes representing Prime Rate Loans shall
                  be payable as specified in Section 3(d) hereof, the interest
                  in respect of each Prime Rate Loan shall be payable on each
                  Interest Payment Date. Past due principal and, to the extent
                  permitted by law, past due interest in respect to each Prime
                  Rate Loan, shall bear interest, payable on demand, at a rate
                  per annum equal to the Maximum Rate.


                                       13
<PAGE>

                        (ii) Eurodollar Loans. On Eurodollar Loans the Borrower
                  agrees to pay interest calculated on the basis of a year
                  consisting of 360 days with respect to the unpaid principal
                  amount of each Eurodollar Loan from the date the proceeds
                  thereof are made available to Borrower until maturity (whether
                  by acceleration or otherwise), at a varying rate per annum
                  equal to the lesser of (i) the Maximum Rate, or (ii) sum of
                  the Eurodollar Rate plus the Eurodollar Margin. Interest with
                  respect to each Eurodollar Loan shall be payable on each
                  Interest Payment Date. Upon three (3) Eurodollar Business
                  Days' written notice prior to the making by the Banks of any
                  Eurodollar Loan (in the case of the initial Interest Period
                  therefor) or the expiration date of each succeeding Interest
                  Period (in the case of subsequent Interest Periods therefor),
                  Borrower shall have the option, subject to compliance by
                  Borrower with all of the provisions of this Agreement, as long
                  as no Event of Default exists, to specify whether the Interest
                  Period commencing on any such date shall be a 30, 60, 90, 120
                  or 180 day period. If Agent shall not have received timely
                  notice of a designation of such Interest Period as herein
                  provided, Borrower shall be deemed to have elected to convert
                  all maturing Eurodollar Loans to Prime Rate Loans.

            (b) Interest Rate Determination. The Agent shall determine each
      interest rate applicable to the Revolving Loan hereunder. The Agent shall
      give prompt notice to the Borrower of each rate of interest so determined
      and its determination thereof shall be conclusive absent error.

            (c) Conversion Option. Borrower may elect from time to time (i) to
      convert all of any part of its Eurodollar Loans to Prime Rate Loans by
      giving Agent irrevocable notice of such election in writing prior to 10:00
      a.m. (Dallas, Texas time) on the conversion date and such conversion shall
      be made on the requested conversion date, provided that any such
      conversion of Eurodollar Loan shall only be made on the last day of the
      Eurodollar Interest Period with respect thereof, (ii) to convert all or
      any part of its Prime Rate Loans to Eurodollar Loans by giving the Agent
      irrevocable written notice of such election three (3) Eurodollar Business
      Days prior to the proposed conversion and such conversion shall be made on
      the requested conversion date or, if such requested conversion date is not
      a Eurodollar Business Day or a Business Day, as the case may be, on the
      next succeeding Eurodollar Business Day or Business Day, as the case may
      be. Any such conversion shall not be deemed to be a prepayment of any of
      the loans for purposes of this Agreement on either of the Notes.

            (d) Recoupment. If at any time the applicable rate of interest
      selected pursuant to Sections 4(a)(i) or 4(a)(ii) above shall exceed the
      Maximum Rate, thereby causing the interest on the Notes to be limited to
      the Maximum Rate, then any subsequent reduction in


                                       14
<PAGE>

      the interest rate so selected or subsequently selected shall not reduce
      the rate of interest on the Notes below the Maximum Rate until the total
      amount of interest accrued on the Notes equals the amount of interest
      which would have accrued on the Notes if the rate or rates selected
      pursuant to Sections 4(a)(i) or 4(a)(ii), as the case may be, had at all
      times been in effect.

      5. Special Provisions Relating to Eurodollar Loans.

            (a) Unavailability of Funds or Inadequacy of Pricing. In the event
      that, in connection with any proposed Eurodollar Loan, Agent (i) shall
      have determined that U.S. Dollar deposits of the relevant amount and for
      the relevant Eurodollar Interest Period for Eurodollar Loans are not
      available to Agent in the London interbank market; or (ii) in good faith
      determines that the Eurodollar Interest Rate will not adequately reflect
      the cost to the Banks of maintaining or funding the Eurodollar Loans for
      such Interest Period, the obligations of the Banks to make the Eurodollar
      Loans, as the case may be, shall be suspended until such time as Agent in
      its sole discretion reasonably exercised determines that the event
      resulting in such suspension has ceased to exist. If Agent shall make such
      determination it shall promptly notify Borrower in writing and Borrower
      shall either repay the outstanding Eurodollar Loans, as the case may be,
      owed to Banks, without penalty, on the last day of the current Interest
      Period or convert the same to Prime Rate Loans in the case of Eurodollar
      Loans on the last day of the then current Interest Period for such
      Eurodollar Loan.

            (b) Reserve Requirements. In the event of any change in any
      applicable law, treaty or regulation or in the interpretation or
      administration thereof, or in the event any central bank or other fiscal
      monetary or other authority having jurisdiction over the Banks or the
      loans contemplated by this Agreement shall impose, modify or deem
      applicable any reserve requirement of the Board of Governors of the
      Federal Reserve System on any Eurodollar Loan or loans, or any other
      reserve, special deposit, or some requirements against assets to, deposits
      with or for the account of, or credit extended by, the Banks or shall
      impose on the Banks or the London interbank market, as the case may be,
      any other condition affecting this Agreement or the Eurodollar Loans and
      the result of any of the foregoing is to increase the cost to the Banks in
      making or maintaining its Eurodollar Loans or to reduce any amount (or the
      effective return on any amount) received by the Banks hereunder, then
      Borrower shall pay to the Banks upon demand of the Banks as additional
      interest on the Revolving Notes evidencing the Eurodollar Loans such
      additional amount or amounts as will reimburse the Banks for such
      additional cost or such reduction. The Banks shall give notice to Borrower
      upon becoming aware of any such change or imposition which may result in
      any such increase or reduction. A certificate of any Bank setting forth
      the basis for the determination of such amount necessary to compensate
      Banks as aforesaid shall be delivered to Borrower and shall be conclusive
      as to such determination and such amount, absent error.


                                       15
<PAGE>

            (c) Taxes. Both principal and interest on the Revolving Notes
      evidencing the Eurodollar Loans are payable without withholding or
      deduction for or on account of any taxes. If any taxes are levied or
      imposed on or with respect to the Revolving Notes evidencing the
      Eurodollar Loans or on any payment on the Revolving Notes evidencing the
      Eurodollar Loans made to the Banks, then, and in any such event, Borrower
      shall pay to the Banks upon demand of the Banks such additional amounts as
      may be necessary so that every net payment of principal and interest on
      the Revolving Notes evidencing the Eurodollar Loans, after withholding or
      deduction for or on account of any such taxes, will not be less than any
      amount provided for herein. In addition, if at any time when the
      Eurodollar Loans are outstanding any laws enacted or promulgated, or any
      court of law or governmental agency interprets or administers any law,
      which, in any such case, materially changes the basis of taxation of
      payments to the Banks of principal of or interest on the Revolving Notes
      evidencing the Eurodollar Loans by reason of subjecting such payments to
      double taxation or otherwise (except through an increase in the rate of
      tax on the overall net income of Banks) then Borrower will pay the amount
      of loss to the extent that such loss is caused by such a change. The Banks
      shall give notice to Borrower upon becoming aware of the amount of any
      loss incurred by the Banks through enactment or promulgation of any such
      lawwhich materially changes the basis of taxation of payments to the
      Banks. The Banks shall also give notice on becoming aware of any such
      enactment or promulgation which may result in such payments becoming
      subject to double taxation or otherwise. A certificate of any Bank setting
      forth the basis for the determination of such loss and the computation of
      such amounts shall be delivered to Borrower and shall be conclusive of
      such determination and such amount, absent error.

            (d) Change in Laws. If at any time any new law or any change in
      existing laws or in the interpretation of any new or existing laws shall
      make it unlawful for the Banks to maintain or fund its Eurodollar Loans
      hereunder, then the Banks shall promptly notify Borrower in writing and
      Borrower shall either repay the outstanding Eurodollar Loans owed to the
      Banks, without penalty, on the last day of the current Interest Periods
      (or, if the Banks may not lawfully continue to maintain and fund such
      Eurodollar Loans, immediately), or Borrower may convert such Eurodollar
      Loans at such appropriate time to Prime Rate Loans.

            (e) Option to Fund. The Banks shall have the option if the Borrower
      elects a Eurodollar Loan, to purchase one or more deposits in order to
      fund or maintain its funding of the principal balance of the Revolving
      Notes to which such Eurodollar Loan is applicable during the Interest
      Period in question; it being understood that the provisions of this
      Agreement relating to such funding are included only for the purpose of
      determining the rate of interest to be paid under such Eurodollar Loan and
      any amounts owing hereunder and under the Revolving Notes. The Banks shall
      be entitled to fund and maintain its funding of all or any part of that
      portion of the principal balance of the Revolving Notes in any manner it
      sees fit, but all such determinations hereunder shall be made as if the
      Banks have actually funded and maintained that portion of the principal
      balance of the Revolving Notes to which a Eurodollar Loan is applicable
      during the applicable Interest Period through the purchase


                                       16
<PAGE>

      of deposits in an amount equal to the principal balance of the Revolving
      Notes to which such Eurodollar Loan is applicable and having a maturity
      corresponding to such Interest Period. The Banks may fund the outstanding
      principal balance of the Revolving Notes which is to be subject to any
      Eurodollar Loan from any branch or office of the Banks as the Banks may
      designate from time to time.

            (f) Indemnity. Borrower shall indemnify and hold harmless the Banks
      against all reasonable and necessary out-of-pocket costs and expenses
      (which costs and expenses are not intended to include, without limitation,
      any loss sustained by the Banks in connection with the borrowing or
      reemployment of funds with respect to any Eurodollar Loan) which the Banks
      may sustain (i) as a result of the making of any loan or loans as a
      Eurodollar Loan, or (ii) as a consequence of any default by Borrower under
      this Agreement.

      6. Collateral Security. To secure the performance by Borrower of its
obligations hereunder, and under the Notes and Security Instruments, whether now
or hereafter incurred, matured or unmatured, direct or contingent, joint or
several, or joint and several, including extensions, modification and renewals
thereof, and substitutions therefore, Borrower has heretofore granted and
assigned to the Agent, for the ratable benefit of the Banks, and shall herewith
and hereafter grant and assign to Agent, for the ratable benefit of the Banks, a
first and prior security interest and lien on the Oil and Gas Properties, the
stock of certain of the Subsidiaries, and the other collateral. Guarantor has
heretofore executed and delivered its guaranty agreement guaranteeing the prompt
payment and performance of Borrower's obligations hereunder and under the Notes.
As security for the performance of its guaranty agreement, Guarantor has
heretofore granted to Agent, for the ratable benefit of the Banks, and shall
herewith and hereafter grant and assign to Agent, for the ratable benefit of
Banks, a first and prior lien on its Oil and Gas Properties. Guarantor shall
execute this Agreement to confirm its consent to (i) the execution of the
Agreement by Borrower, and (ii) the amendments contained therein. All Oil and
Gas Properties, oil and gas related equipment, inventory and receivables, stock,
notes and other collateral in which Borrower or Guarantor has heretofore or
hereafter grants to the Agent, for the ratable benefit of the Banks, a first and
prior lien (to the satisfaction of the Banks) in accordance with this Section 6,
as such properties and interests are from time to time constituted, are
hereinafter collectively called the "Collateral."

      The granting and assigning of such security interests and liens by
Borrower shall be pursuant to Security Instruments in form and substance
satisfactory to the Agent. Borrower and Guarantor shall furnish to the Agent the
mortgage and title opinions and other documents satisfactory to Agent with
respect to the title and lien status of its interests in such of the Oil and Gas
Properties covered by the Security Instruments as required in Section 12(n) and
(o) hereof. Borrower and Guarantor will cause to be executed and delivered to
the Agent, for the ratable benefit of the Banks, in the future, additional
Security Instruments if the Agent deems such are necessary to insure perfection
or maintenance of their security interests and liens in the Collateral or any
part thereof.


                                       17
<PAGE>

      7. Borrowing Base.

            (a) Initial Borrowing Base. During the period from the date hereof
      to the next determination date, the Borrowing Base shall be
      $48,000,000.00.

            (b) Subsequent Determinations of Borrowing Base.Subsequent
      determinations of the Borrowing Base shall be made by Banks at least
      semi-annually and the Banks may make a redetermination at any time and
      shall make a redetermination if and when requested by Borrower. In
      connection with each such determination of the Borrowing Base, the Banks
      shall also determine the Monthly Commitment Reduction. Such Borrowing Base
      and Monthly Commitment Reduction determinations shall be made on or before
      each November 20 and May 20, commencing May 20, 2000, the same to be
      effective as of each November 1 and May 1, commencing May 1, 2000, and at
      such other dates as determined at the discretion of Majority Banks.
      Borrower may likewise request more frequent Borrowing Base
      redeterminations and Banks shall make the same if and when requested. In
      making such determinations, Banks may utilize such reports and appraisals
      as Borrower may furnish to Banks through Agent under other provisions
      hereof with respect to the Collateral, including the information required
      pursuant to Section 12(a)(iii), (iv), (v) and (vi), together with such
      other data as Banks may deem appropriate under the then circumstance,
      including, without limitation, cash flow and projections of cash flow,
      provided that nothing herein shall be construed to require that Banks or
      Agent shall or should obtain and pay for any reports, appraisals or other
      data from third parties in connection therewith. Such determinations shall
      be made by Banks in accordance with their respective customary practices
      and standards for loans in similar amounts to borrowers similarly
      situated, at the times and under the circumstances then prevailing which
      are considered by each Bank in its discretion, subject only to the
      requirement that such determination shall be reasonable and made in good
      faith. If the Banks cannot otherwise agree on the Borrowing Base or
      Monthly Commitment Reduction, each Bank will submit in writing to the
      Agent its proposed Borrowing Base and Monthly Commitment Reduction and the
      Borrowing Base and Monthly Commitment Reduction shall be set on the basis
      of the lowest Borrowing Base and highest Monthly Commitment Reduction
      proposed by any Bank. If at any time any of the Collateral is sold, the
      Borrowing Base then in effect shall automatically be reduced by a sum
      equal to the amount of prepayment required to be made pursuant to Section
      13(e) hereof. If a non-scheduled Borrowing Base redetermination is made,
      such non-scheduled redetermined Borrowing Base shall become effective
      immediately upon Agent giving notice thereof to the Borrower. Provided,
      however, that no Bank shall ever have an obligation to designate a
      Borrowing Base in an amount such that such Bank's Commitment Percentage
      thereof is in excess of its legal or internal lending limits.

            (c) Voluntary Decreases in Borrowing Base. Within ten (10) Business
      Days after notification to Borrower of a Borrowing Base redetermination
      pursuant to the provisions of this Section 7, Borrower may notify Agent as
      to what portion of the Borrowing Base they desire access (the "Elected
      Borrowing Limit"). Thereafter, Borrower may obtain Revolving


                                       18
<PAGE>

      Loans which do not exceed the lesser of (i) $100,000,000, or (ii) the
      Elected Borrowing Limit until the next Borrowing Base redetermination,
      subject to the provisions of Section 9(b) hereof. If no such notification
      is received by Agent, the Elected Borrowing Limit shall be the lesser of
      $100,000,000 or the Borrowing Base as so determined.

            (d) Monthly Commitment Reduction. The Borrowing Base shall be
      reduced as of the last day of each month after the Effective Date by an
      amount determined by the Banks pursuant to Section 7(b) hereof (the
      "Monthly Commitment Reduction"). Beginning November 30, 1999, the Monthly
      Commitment Reduction shall be $0 per month until redetermined pursuant to
      Section 7(b) hereof.

      8. Fees.

            (a) Unused Portion Fee. In consideration of the Revolving
      Commitment, Borrower shall pay to Agent, for the ratable benefit of Banks,
      an Unused Portion Fee (hereinafter referred to as the "Unused Portion
      Fee") equivalent to one-quarter of one percent (1/4%) per annum of the
      differential between the average Elected Borrowing Limit and the Total
      Outstandings for the preceding three months. The Unused Portion Fee shall
      be payable in arrears on the last Business Day of each January, April,
      July and October, commencing on January 31, 2000. All amounts due under
      Section 8(a) of the Sixth Restated Loan Agreement as of the Effective Date
      as Unused Portion Fees shall be paid to Agent on the Effective Date. The
      final fee payment shall be due on the Maturity Date for any period then
      ending for which the Unused Portion Fee shall not have been theretofore
      paid. In the event the Revolving Commitment terminates on any date prior
      to the end of any such quarterly period, Borrower shall pay to Banks, on
      the date of such termination, the prorated portion of the total Unused
      Portion Fee due for such of the period in which such termination occurs.

            (b) Borrowing Base Increase Fee. Borrower agrees to pay to Agent,
      for the ratable benefit of Banks, a Borrowing Base Increase Fee
      (hereinafter referred to as the "Borrowing Base Increase Fee") equal to
      one-half of one percent (.50%) of the amount of any increase in the
      Elected Borrowing Limit from the amount of the Elected Borrowing Limit as
      of the preceding determination date, said fee to payable upon notice to
      Borrower of such increase.

            (c) Letter of Credit Fee. Borrower agrees to pay to Agent, for the
      benefit of the issuing Banks, commissions for issuing Letters of Credit in
      the amounts and at the rates set forth hereinabove in Section 2(d).

            (d) Agency Fee. Borrower agrees to pay to Agent an Agency Fee for
      its services as Agent hereunder in an amount negotiated between Borrower
      and Agent.

      9. Prepayments.

            (a) Voluntary Prepayments. Borrower may at any time and from time to
      time, without penalty or premium, make voluntary prepayments in whole or
      in part on the Notes.


                                       19
<PAGE>

      Each such prepayment shall be made on at least one (1) Business Day's
      notice to Agent and shall be in an amount of $100,000 or any larger
      multiple thereof plus accrued interest thereon to the date of prepayment.

            (b) Mandatory Prepayment. In the event the Total Outstandings ever
      exceed the Borrowing Base as determined by the Banks pursuant to Section 7
      hereof (a "Borrowing Base Deficiency"), Borrower shall, within thirty (30)
      days after notification from Agent either (A) by instruments satisfactory
      in form and substance to Banks, provide the Banks with additional
      collateral with value and quality satisfactory to Banks in their sole
      discretion in order to increase the Borrowing Base by an amount at least
      equal to such excess, or (B) prepay, without premium or penalty, the
      principal amount of the Notes in an amount at least equal to such excess,
      or (C) prepay, without premium or penalty, the amount of such excess in
      five (5) equal monthly installments due and payable on the last Business
      Day of each of the next five (5) consecutive months, or (D) elect to
      convert the entire principal amount of the Notes to a term obligation with
      monthly installments of principal and interest due and payable on the last
      Business Day of each month from the date of such conversion to the
      Maturity Date, each such installment payment to be in the amount of
      accrued interest plus an amount of principal equal to the greater of (i)
      1/36th of the outstanding balance on the date of conversion or (ii) an
      amount determined by dividing the principal amount outstanding on the date
      of the conversion by the estimated economic half-life of the Oil and Gas
      Properties expressed in terms of months, as determined by the Agent in its
      sole and absolute discretion reasonably exercised. Notwithstanding any of
      the foregoing, all unpaid principal and interest shall be due and payable
      on the Maturity Date. Provided, however, that in the event the Borrower
      elects option (C) above, the Borrowing Base Deficiency must be cured at
      the end of the installment period specified above or the entire
      outstanding principal balance due on the Notes shall immediately convert
      to a term loan payable in accordance with the payment provisions set forth
      in subsection (D) above. Provided, further, however, that during the five
      (5) month prepayment period specified in subsection (C) above, Borrower
      may elect at any time to convert to a term loan pursuant to subsection (D)
      above. The determination of whether Borrower has cured any such Borrowing
      Base Deficiency at the end of the installment period specified in (C)
      above, shall be made by the Banks in their sole and absolute discretion
      based upon an unscheduled Borrowing Base redetermination made pursuant to
      Section 7(b) of this Agreement.

      10. Representations and Warranties. In order to induce the Banks to enter
into this Agreement, Borrower hereby represents and warrants to the Banks (which
representations and warranties will survive the delivery of the Notes) that:

            (a) Creation and Existence. Borrower and Guarantor are corporations
      duly organized and validly existing in good standing under the laws of
      their state of incorporation and are duly qualified as a foreign
      corporation in all jurisdictions wherein failure to qualify may result in
      a Material Adverse Effect. Borrower and Guarantor have all the power and


                                       20
<PAGE>

      authority to own their properties and assets and to transact the business
      in which they are engaged.

            (b) Power and Authorization. Borrower and Guarantor have the power
      and requisite authority, and has taken all action necessary, to execute,
      deliver and perform the Loan Documents.

            (c) Binding Obligations. This Agreement does, and the Notes and
      other Security Instruments upon their creation, issuance, execution and
      delivery will, constitute valid and binding obligations of Borrower and
      Guarantor, enforceable in accordance with their respective terms (except
      that enforcement may be subject to any applicable bankruptcy, insolvency,
      reorganization, moratorium or similar laws generally affecting the
      enforcement of creditors' rights and subject to availability of equitable
      remedies).

            (d) No Legal Bar or Resultant Lien. The Notes and the Security
      Instruments, including this Agreement, do not and will not conflict with
      or violate any provisions of the articles of incorporation or bylaws of
      Borrower or Guarantor or, except as disclosed to Banks prior to the
      Effective Date hereof, any contract, agreement, law, regulation, order,
      injunction, judgment, decree or writ to which Borrower or Guarantor is
      subject, or result in the creation or imposition of any lien or other
      encumbrance upon any assets or properties of Borrower or Guarantor, other
      than those contemplated by this Agreement which conflict, violation,
      creation or imposition is reasonably expected to have a Material Adverse
      Effect.

            (e) No Consent. The execution, delivery and performance by Borrower
      or Guarantor of the Notes and the Security Instruments, including this
      Agreement, does not require the consent or approval of any other person or
      entity, including without limitation any regulatory authority or
      governmental body of the United States or any state thereof or any
      political subdivision of the United States or any state thereof.

            (f) Financial Condition. The Financial Statements of the Williams
      Consolidated Entities which have been delivered to Banks are complete and
      correct in all material respects and fairly present in all material
      respects the financial condition and results of the operations of the
      Williams Consolidated Entities as of the date or dates and for the period
      or periods stated. No change has since occurred in the condition,
      financial or otherwise, of the Williams Consolidated Entities which is
      reasonably expected to have a Material Adverse Effect, except as disclosed
      to the Banks in Exhibit "C" attached hereto. The Financial Statements
      which have been delivered to Banks have been prepared substantially in
      accordance with GAAP.

            (g) Liabilities. Neither Borrower nor Guarantor has any material
      (individually or in the aggregate) liability, direct or contingent, except
      as disclosed to the Banks in the Financial Statements or in Exhibit "D"
      attached hereto. No unusual or unduly burdensome restrictions, restraint,
      or hazard exists by contract, law or governmental regulation or


                                       21
<PAGE>

      otherwise relative to the business, assets or properties of Borrower or
      Guarantor which is reasonably expected to have a Material Adverse Effect.

            (h) Litigation. Except as described in the Financial Statements or
      as otherwise disclosed to the Banks in Exhibit "E" attached hereto, there
      is no litigation, legal or administrative proceeding, investigation or
      other action of any nature pending or, to the knowledge of the officers of
      Borrower, threatened against or affecting Borrower or Guarantor which
      involves the possibility of any judgment or liability not fully covered by
      insurance, and which is reasonably expected to have a Material Adverse
      Effect.

            (i) Taxes; Governmental Charges. Borrower and Guarantor have filed
      all tax returns and reports required to be filed and has paid all taxes,
      assessments, fees and other governmental charges levied upon it or its
      assets, properties or income which are due and payable, including interest
      and penalties, or has provided adequate reserves, if required, in
      accordance with GAAP for the payment thereof, except such as are being
      contested in good faith by appropriate proceedings and for which adequate
      reserves for the payment thereof as required by GAAP have been provided.

            (j) Titles, Etc. Borrower and Guarantor have Good and Defensible
      title to all of the Collateral pledged or mortgaged by them except for
      defects which are not reasonably expected to have a Material Adverse
      Effect, free and clear of all liens or other encumbrances, except
      Permitted Liens; and Borrower and Guarantor, to the best of their
      knowledge after the exercise of such due diligence as a reasonable person
      would have done under the same or similar circumstances, have Good and
      Defensible Title to their other assets and properties (except for (i)
      undeveloped oil and gas properties, and (ii) defects which are not
      reasonably expected to have a Material Adverse Effect), free and clear of
      all liens or other encumbrances, except Permitted Liens.

            (k) Defaults. Neither Borrower nor Guarantor is in default and no
      event or circumstance has occurred which, but for the passage of time or
      the giving of notice, or both, would constitute a default under any loan
      or credit agreement, indenture, mortgage, deed of trust, security
      agreement or other agreement or instrument to which Borrower or Guarantor
      is a party in any respect that would be reasonably expected to have a
      Material Adverse Effect. No Event of Default hereunder has occurred and is
      continuing.

            (l) Casualties; Taking of Properties. Since the dates of the latest
      Financial Statements delivered to Banks, neither the business nor the
      assets or properties of Borrower or Guarantor have been affected as a
      result of any fire, explosion, earthquake, flood, drought, windstorm,
      accident, strike or other labor disturbance, embargo, requisition or
      taking of property or cancellation of contracts, permits or concessions by
      any domestic or foreign government or any agency thereof, riot, activities
      of armed forces or acts of God or of any public enemy that would
      reasonably be expected to have a Material Adverse Effect.


                                       22
<PAGE>

            (m) Use of Proceeds; Margin Stock. The proceeds of the loans
      hereunder will be used by Borrower for working capital, acquisition,
      letters of credit and general corporate purposes. Borrower is not engaged
      in the business of extending credit for the purpose of purchasing or
      carrying any "margin stock" as defined in Regulation U of the Board of
      Governors of the Federal Reserve System (12 C.F.R. Part 221), or for the
      purpose of reducing or retiring any indebtedness which was originally
      incurred to purchase or carry a margin stock or for any other purpose
      which might constitute this transaction a "purpose credit" within the
      meaning of said Regulation U. Borrower is not engaged principally, or as
      one of its important activities, in the business of extending credit for
      the purpose of purchasing or carrying margin stock.

            Neither Borrower nor any person or entity acting on behalf of
      Borrower has taken or will take any action which might cause the loans
      hereunder or any of the Security Instruments, including this Agreement, to
      violate Regulation U or any other regulation of the Board of Governors of
      the Federal Reserve System or to violate the Securities Exchange Act of
      1934 or any rule or regulation thereunder, in each case as now in effect
      or as the same may hereafter be in effect.

            (n) Location of Business and Offices. The principal place of
      business and chief executive offices of Borrower is located at the address
      stated in Section 16 hereof.

            (o) Compliance with the Law. To the best of Borrower's and
      Guarantor's knowledge, they:

                  (i) are not in violation of any law, judgment, decree, order,
            ordinance, or governmental rule or regulation to which Borrower or
            Guarantor, or any of their assets or properties are subject; or

                  (ii) have not failed to obtain any license, permit, franchise
            or other governmental authorization necessary to the ownership of
            any of its assets or properties or the conduct of their business;

      which violation or failure is reasonably expected to have a Material
      Adverse Effect.

            (p) No Material Misstatements. No information, exhibit or report
      furnished by Borrower or Guarantor to the Banks in connection with the
      negotiation of this Agreement contained any material misstatement of fact
      or omitted to state a material fact necessary to make the statement
      contained therein not misleading.

            (q) ERISA. Borrower is in compliance in all material respects with
      the applicable provisions of ERISA, and no "reportable event", as such
      term is defined in Section 4043 of ERISA, has occurred with respect to any
      Plan of Borrower.


                                       23
<PAGE>

            (r) Public Utility Holding Company Act. Borrower is not a "holding
      company", or "subsidiary company" of a "holding company", or an
      "affiliate" of a "holding company" or of a "subsidiary company" of a
      "holding company", or a "public utility" within the meaning of the Public
      Utility Holding Company Act of 1935, as amended.

            (s) Environmental Matters. Except as disclosed on Exhibit "F",
      neither Borrower nor Guarantor (i) has received notice or otherwise
      learned of any Environmental Liability which would individually or in the
      aggregate have a Material Adverse Effect arising in connection with (A)
      any non-compliance with or violation of the requirements of any
      Environmental Law or (B) the release or threatened release of any toxic or
      hazardous waste into the environment, (ii) to the knowledge of Borrower
      and Guarantor, have threatened or actual liability in connection with the
      release or threatened release of any toxic or hazardous waste into the
      environment which would individually or in the aggregate have a Material
      Adverse Effect or (iii) have received notice or otherwise learned of any
      federal or state investigation evaluating whether any remedial action is
      needed to respond to a release or threatened release of any toxic or
      hazardous waste into the environment for which Borrower or Guarantor is or
      may be liable.

            (t) Guarantor. CWE owns one hundred percent (100%) of the issued and
      outstanding equity securities of Guarantor.

            (u) Year 2000 Compliance. Borrower represents and warrants to Banks
      that:

                  (i) All devices, systems, machinery, information technology,
            computer software and hardware, and other date sensitive technology
            (jointly and severally the "Systems") necessary for Borrower to
            carry on its business as presently conducted and as contemplated to
            be conducted in the future are Year 2000 Compliant or will be Year
            2000 Compliant within a period of time calculated to result in no
            material disruption of any of Borrower's business operations. For
            purposes of these provisions, "Year 2000 Compliant" means that such
            Systems are designed to be used prior to, during and after the
            Gregorian calendar year 2000 A.D. and will operate during each such
            time period without error relating to date data, specifically
            including any error relating to, or the product of, date data which
            represents or references different centuries or more than one
            century.

                  (ii) Borrower has: (A) undertaken an inventory, review, and
            assessment of all areas within its business and operations that
            could be adversely affected by the failure of Borrower to be Year
            2000 Compliant on a timely basis; (B) developed a plan and time line
            for becoming Year 2000 Compliant on a timely basis; (C) to date,
            implemented that plan in accordance with that timetable in all
            material respects.

                  (iii) Borrower has either made, or will make, written inquiry
            of each of its material purchasers of its oil and gas, and has
            obtained, or will obtain, in writing


                                       24
<PAGE>

            confirmations from all such persons, as to whether such persons have
            initiated programs to become Year 2000 Compliant and on the basis of
            such confirmations. Borrower reasonably believes that all such
            persons will be or become so compliant. For purposes hereof,
            "material purchasers of oil and gas" refers to those purchasers of
            oil and gas from Borrower whose business failure would, with
            reasonable probability, result in a material adverse change in the
            business, properties, condition (financial or otherwise), or
            prospects of Borrower. For purposes of this paragraph, Bank, as a
            lender of funds under the terms of this Agreement, confirms to
            Borrower that Bank has initiated its own corporate-wide Year 2000
            program with respect to its lending activities.

                  (iv) The fair market value of all Collateral pledged to Bank
            to secure the Revolving Loan and the Notes and all of Borrower's
            obligation hereunder is not and shall not be less than currently
            anticipated or subject to deterioration in value because of the
            failure of such Collateral to be Year 2000 Compliant.

      11. Conditions of Lending.

            (a) The effectiveness of this Agreement and the obligation of the
      Banks to make the initial Advance under the Revolving Commitment shall be
      subject to the following conditions precedent:

                  (i) Execution and Delivery. Borrower shall have executed and
            delivered to the Agent this Agreement, the Notes, the Security
            Instruments and other required documents, and Guarantor shall have
            executed and delivered to the Agent its guaranty agreement, all in
            form and substance satisfactory to the Banks;

                  (ii) Corporate Resolutions and Incumbency. The Agent shall
            have received appropriate (i) corporate resolutions for each
            Borrower and Guarantor, and (ii) incumbency certificates for each
            Borrower and Guarantor;

                  (iii) SEC Filings. The Banks shall have received copies of all
            documents filed by Borrower with the Securities and Exchange
            Commission prior to the Effective Date;

                  (iv) No Event of Default. No Event of Default shall have
            occurred and be continuing;

                  (v) No Material Adverse Change. No material adverse change in
            the consolidated financial condition of the Borrower shall have
            occurred;


                                       25
<PAGE>

                  (vi) Other Documents. The Banks shall have received such other
            instruments and documents incidental and appropriate to the
            transaction provided for herein as the Banks or its counsel may
            reasonably request, and all such documents shall be in form and
            substance satisfactory to the Banks; and

                  (vii) Legal Matters Satisfactory. All legal matters incident
            to the consummation of the transactions contemplated hereby shall be
            satisfactory to special counsel for the Banks retained at the
            expense of Borrower.

            (b) The obligation of the Banks to make any Advance (including the
      initial Advance) or issue any Letter of Credit on the Revolving Commitment
      shall be subject to the following additional conditions precedent that, at
      the date of making each such Advance and after giving effect thereto:

                  (i) Representation and Warranties. With respect to any
            Advance, the representations and warranties of Borrower and
            Guarantor under this Agreement (excluding, however, the
            representations and warranties set forth in Sections 10(h) and 10(s)
            as to any matter which has theretofore been disclosed in writing by
            Borrower to the Banks, but as to which Borrower and Guarantor
            represent and warrant as of the date of the requested Advance or
            issuance of Letter of Credit that the matters so disclosed are not
            reasonably expected to have a Material Adverse Effect) are true and
            correct in all material respects as of such date, as if then made
            (except to the extent that such representations and warranties
            related solely to an earlier date);

                  (ii) No Event of Default. No Event of Default shall have
            occurred and be continuing nor shall any event have occurred or
            failed to occur which, with the passage of time or service of
            notice, or both, would constitute an Event of Default;

                  (iii) Other Documents. The Banks shall have received such
            other instruments and documents incidental and appropriate to the
            transaction provided for herein as the Banks or its counsel may
            reasonably request, and all such documents shall be in form and
            substance satisfactory to the Banks; and

                  (iv) Legal Matters Satisfactory. All legal matters incident to
            the consummation of the transactions contemplated hereby shall be
            satisfactory to special counsel for the Banks retained at the
            expense of Borrower.

      12. Affirmative Covenants. A deviation from the provisions of this Section
12 shall not constitute an Event of Default under this Agreement if such
deviation is consented to in writing by


                                       26
<PAGE>

the Banks. Without the prior written consent of the Banks, Borrower and
Guarantor (to the extent applicable thereto) will at all times comply with the
covenants contained in this Section 12 from the date hereof and for so long as
any indebtedness or obligation of Borrower under the Loan Documents is
outstanding or any part of the Revolving Commitment is in existence.

            (a) Financial Statements and Reports. Borrower shall promptly
      furnish to the Banks from time to time upon request such information
      regarding the business and affairs and financial condition of Borrower, as
      the Banks may reasonably request, and will furnish to the Banks:

                  (i) Annual Financial Statements - as soon as available, and in
            any event within one hundred and twenty (120) days after the close
            of each fiscal year of the Williams Consolidated Entities, the
            annual audited Financial Statements of the Williams Consolidated
            Entities prepared Arthur Andersen, L.L.P. or by another independent
            accounting firm satisfactory to Banks;

                  (ii) Quarterly Financial Statements - as soon as available,
            and in any event sixty (60) days after the end of each calendar
            quarter (except the last calendar quarter) of each year, the
            quarterly unaudited Financial Statements of the Williams
            Consolidated Entities;

                  (iii) Reserve Reports on Oil and Gas Properties - no later
            than November 1 of each year beginning November 1, 2000 and at such
            other times as Banks shall request, an internally generated
            engineering report covering reserve and income projections for all
            Oil and Gas Properties (including those owned by Guarantor), which
            reports shall have an effective date of September 30 of each year.
            Borrower shall also furnish Banks on or before May 1 of each year
            beginning May 1, 2000 reserve reports and income projections for all
            Oil and Gas Properties, which reserve reports shall have an
            effective date of January 1 of each year and shall be prepared by
            Williamson Petroleum Consultants, Inc. (or other reservoir
            engineering firm satisfactory to Banks), which January 1 effective
            date report shall be accompanied by internally generated information
            sufficient to allow such January 1 report and the information
            contained therein to be rolled forward to an effective date of March
            31. All such engineering reports, shall be in a form acceptable to
            Banks and shall utilize oil and gas prices, escalation factors and
            discount rates currently then being used by Agent in its general
            petroleum lending business;

                  (iv) Monthly Operating and Production Reports. Borrower shall
            furnish Banks, within forty-five (45) days following the close of
            each month, oil and gas production reports (inclusive of prices
            received thereon), drilling and completion reports for the Williams
            Consolidated Entities;


                                       27
<PAGE>

                  (v) Budgets and Projections. On each June 1 and December 1
            Borrower shall furnish to Banks a budget and Cash Flow forecast for
            the Williams Consolidated Entities prepared on a twelve (12) month
            rolling forward basis with respect to their operations;

                  (vi) Monthly Hedging Report. Borrower shall furnish Banks,
            within forty-five (45) days following the close of each month, a
            report of Hedging Transactions, said information to be provided for
            both the subject month and on an aggregate basis for all such
            forward sales;

                  (vii) SEC Reports. As soon as available furnish Banks with
            copies of all filings by the Williams Consolidated Entities with the
            Securities and Exchange Commission; and

                  (viii) Additional Information. Promptly upon request of the
            Banks from time to time any additional financial information or
            other information that the Banks may reasonably request.

      All such reports referred to in Subsection 12(a) above shall be in such
      detail as the Banks may reasonably request.

            (b) Certificates of Compliance. Concurrently with the furnishing of
      the annual Financial Statements pursuant to Subsection 12(a)(i) hereof and
      each of the quarterly Financial Statements pursuant to Subsection
      12(a)(ii) hereof, Borrower will furnish or cause to be furnished to the
      Banks a certificate signed by a person duly authorized to execute such a
      certificate on behalf of Borrower (i) to the extent requested from time to
      time by the Banks, specifically affirming compliance of Borrower in all
      material respects with any of its representations or obligations under the
      Security Instruments; (ii) setting forth the computation, in reasonable
      detail as of the end of each period covered by such certificate, of
      compliance with Section 13(c), 13(d) and 13(m) containing or accompanied
      by such financial or other details, information and material as the Banks
      may reasonably request to evidence such compliance; and (iii) certifying
      to the beneficial ownership of at least 20% of Borrower's stock by Clayton
      W. Williams Jr., and his affiliates (specifying such affiliates by name
      and providing the number of shares owned by each).

            (c) Taxes and Other Liens. Borrower and Guarantor will pay and
      discharge promptly all taxes, assessments and governmental charges or
      levies imposed upon Borrower or Guarantor or upon the income or any assets
      or property of Borrower or Guarantor or any Subsidiary as well as all
      claims of any kind (including claims for labor, materials, supplies and
      rent) which, if unpaid, might become a lien or other encumbrance upon any
      or all of the assets or property of Borrower or Guarantor; provided,
      however, that neither Borrower nor Guarantor shall be required to pay any
      such tax, assessment, charge, levy or claim if the amount, applicability
      or validity thereof shall currently be contested in good faith by


                                       28
<PAGE>

      appropriate proceedings diligently conducted and if Borrower or Guarantor
      shall have set up adequate reserves therefor, if required, under GAAP.

            (d) Compliance with Laws. Borrower and Guarantor will observe and
      comply with all applicable laws, statutes, codes, acts, ordinances,
      orders, judgments, decrees, injunctions, rules, regulations, orders and
      restrictions relating to environmental standards or controls or to energy
      regulations of all federal, state, county, municipal and other
      governments, departments, commissions, boards, agencies, courts,
      authorities, officials and officers, domestic or foreign, where the
      violation or failure to observe would be reasonably expected to have a
      Material Adverse Effect.

            (e) Further Assurances. Borrower will cure promptly any defects in
      the creation and issuance of the Notes and the execution and delivery of
      the Notes and the Security Instruments, including this Agreement. Borrower
      and Guarantor at their sole expense will promptly execute and deliver to
      Banks upon request all such other and further documents, agreements and
      instruments in compliance with or accomplishment of the covenants and
      agreements in this Agreement, or to correct any omissions in the Notes or
      more fully to state the obligations set out herein.

            (f) Performance of Obligations. Borrower agrees to pay the Notes and
      other obligations incurred by it hereunder according to the reading, tenor
      and effect thereof and hereof; and Borrower and Guarantor will do and
      perform every act and discharge all of the obligations provided to be
      performed and discharged by Borrower or Guarantor under the Security
      Instruments, including this Agreement, at the time or times and in the
      manner specified.

            (g) Insurance. Borrower and Guarantor now maintain and will continue
      to maintain insurance with financially sound and reputable insurers with
      respect to its assets against such liabilities, fires, casualties, risks
      and contingencies and in such types and amounts as is customary in the
      case of persons engaged in the same or similar businesses and similarly
      situated. Upon request of the Agent, Borrower will furnish or cause to be
      furnished to the Agent from time to time a summary of the respective
      insurance coverage of Borrower and Guarantor in form and substance
      satisfactory to the Agent, and, if requested, will furnish the Agent
      copies of the applicable policies. Upon demand by Agent any insurance
      policies covering any such property shall be endorsed (i) to provide that
      such policies may not be cancelled, reduced or affected in any manner for
      any reason without fifteen (15) days prior notice to Agent, (ii) to
      provide for insurance against fire, casualty and other hazards normally
      insured against, in amounts customary in the industry for similarly
      situated business and properties, and (iii) to provide for such other
      matters as the Banks may reasonably require. Borrower and Guarantor shall
      at all times maintain insurance in amounts customary in the industry for
      similarly situated business and properties with respect to the Collateral
      against their liability for injury to persons or property, which insurance
      shall be by financially sound and reputable insurers and shall without
      limitation provide the following coverages:


                                       29
<PAGE>

      comprehensive general liability (including coverage for damage to
      underground resources and equipment, damage caused by blowouts or
      cratering, damage caused by explosion, damage to underground minerals or
      resources caused by saline substances, broad form property damage
      coverage, broad form coverage for contractually assumed liabilities and
      broad form coverage for acts of independent contractors), worker's
      compensation and automobile liability. Borrower and Guarantor shall at all
      times maintain insurance with respect to the Collateral which shall insure
      Borrower and Guarantor against seepage and pollution expense if deemed
      economical in the reasonable discretion of Borrower and Guarantor.
      Additionally, Borrower shall at all times maintain adequate insurance with
      respect to all of their other assets and wells in accordance with prudent
      business practices.

            (h) Accounts and Records. Borrower and Guarantor will keep books,
      records and accounts in which full, true and correct entries will be made
      of all dealings or transactions in relation to their business and
      activities.

            (i) Right of Inspection. Borrower and Guarantor will permit any
      officer, employee or agent of the Banks to examine Borrower's or
      Guarantor's books, records and accounts, and take copies and extracts
      therefrom, all at such reasonable times and as often as the Banks may
      reasonably request. Banks will use their best efforts to keep all such
      information confidential and will not without prior written consent
      disclose or reveal the information or any part thereof to any person other
      than the Banks' officers, employees, legal counsel, regulatory authorities
      or advisors to whom it is necessary to reveal such information for the
      purpose of effectuating the agreements and undertakings specified herein.

            (j) Notice of Certain Events. Borrower and Guarantor shall promptly
      notify the Banks if Borrower or Guarantor learns of the occurrence of (i)
      any event which constitutes, or with the passage of time would constitute,
      an Event of Default, together with a detailed statement by Borrower of the
      steps being taken to cure the Event of Default; or (ii) any legal,
      judicial or regulatory proceedings affecting Borrower, or any of the
      assets or properties of Borrower which, if adversely determined, could
      reasonably be expected to have a Material Adverse Effect; or (iii) any
      dispute between Borrower or Guarantor and any governmental or regulatory
      body or any other person or entity which, if adversely determined, might
      reasonably be expected to cause a Material Adverse Effect; or (iv) any
      other matter which in its reasonable opinion could be expected to have a
      Material Adverse Effect.

            (k) ERISA Information and Compliance. Borrower will promptly furnish
      to the Banks immediately upon becoming aware of the occurrence of any
      "reportable event", as such term is defined in Section 4043 of ERISA, or
      of any "prohibited transaction", as such term is defined in Section 4975
      of the Internal Revenue Code of 1954, as amended, in connection with any
      Plan or any trust created thereunder, a written notice specifying the
      nature thereof, what action Borrower is taking or proposes to take with
      respect thereto, and, when known, any action taken by the Internal Revenue
      Service with respect thereto.


                                       30
<PAGE>

            (l) Environmental Reports and Notices. Borrower and Guarantor will
      deliver to the Banks (i) promptly upon its becoming available, one copy of
      each report sent by Borrower or Guarantor to any court, governmental
      agency or instrumentality pursuant to any Environmental Law (excluding,
      however, reports filed with the Texas Railroad Commission or any similar
      state or federal agency in the ordinary course of conducting Borrower's
      business where the report does not disclose, or is not in response to
      allegations of, violation by Borrower of an Environmental Law), (ii)
      notice, in writing, promptly upon Borrower's or Guarantor's learning that
      either of them have received notice or otherwise learned of any claim,
      demand, action, event, condition, report or investigation indicating any
      potential or actual liability arising in connection with (x) the
      non-compliance with or violation of the requirements of any Environmental
      Law which reasonably could be expected to have a Material Adverse Effect;
      (y) the release or threatened release of any toxic or hazardous waste into
      the environment which reasonably could be expected to have a Material
      Adverse Effect or which release Borrower or Guarantor would have a duty to
      report to any court or government agency or instrumentality, or (z) the
      existence of any Environmental Lien on any properties or assets of
      Borrower or Guarantor, and Borrower or Guarantor shall immediately deliver
      a copy of any such notice to Banks.

            (m) Maintenance. Borrower and Guarantor will, to the best of their
      ability, act prudently and in accordance with customary applicable
      industry standards in managing and operating their assets, properties,
      businesses and investments, and Borrower will use their best efforts to
      keep in good working order and condition, ordinary wear and tear excepted,
      all of Borrower's and Guarantor's assets and properties, including, but
      not limited to, the Collateral, except where the failure to do so would
      not reasonably be expected to cause a Material Adverse Effect.

            (n) Title Matters. Within one hundred twenty (120) days after the
      date of this Agreement, Borrower or Guarantor will provide such title
      opinions on the Oil and Gas Properties, if any, being pledged to Agent for
      the ratable benefit of the Banks pursuant to Security Instruments executed
      as of the date of this Agreement as are requested by Agent. As to any Oil
      and Gas Properties hereafter pledged to Agent for the ratable benefit of
      Banks, Borrower or Guarantor will promptly (but in no event more than one
      hundred twenty (120) days following such pledges), furnish Agent with
      title opinions reasonably satisfactory to Agent, showing Good and
      Defensible Title of Borrower or Guarantor to such Oil and Gas Properties
      subject only to Permitted Liens.

            (o) Curative Matters. Within ninety (90) days after receipt by
      Borrower or Guarantor from Agent or its counsel of written notice of title
      defects the Agent reasonably requires to be cured, Borrower or Guarantor
      will either (i) provide such curative information, in form and substance
      satisfactory to Banks, or (ii) substitute oil and gas properties of value
      and quality satisfactory to the Banks for all Oil and Gas Properties for
      which such title curative was requested but upon which Borrower or
      Guarantor elected not to provide such


                                       31
<PAGE>

      title curative information, and, within sixty (60) days of such
      substitution, provide title opinions satisfactory to the Banks covering
      the Oil and Gas Properties so substituted.

            (p) Additional Collateral. Borrower agrees to regularly monitor
      engineering data covering all producing oil and gas properties and
      interests acquired by Borrower or Guarantor on or after the date hereof
      and to pledge or cause to be pledged such of the same to Agent for the
      ratable benefit of the Banks in substantially the form of the Security
      Instruments, as applicable, to the extent that the Banks shall at all
      times during the existence of the Revolving Commitment be secured by
      perfected liens and security interests covering (i) not less than ninety
      percent (90%) of the engineered value of all producing oil and gas
      properties of Borrower and Guarantor in the aggregate; and (ii) each and
      all such properties which have an engineered value of $100,000 or more.
      For the purposes of this Section 12(p), "Engineered Value" shall mean
      future net revenue discounted at eight percent (8%) per annum utilizing
      the set of pricing parameters used in the most current engineering report
      required pursuant to Section 12(a)(iii) hereof.

            (q) Year 2000 Compatibility. Borrower covenants and agrees with
      Banks that it will:

                  (i) Furnish such additional information, statements and other
            reports with respect to Borrower's activities, course of action and
            progress towards becoming Year 2000 Compliant as Banks may
            reasonably request from time to time;

                  (ii) In the event of any change in circumstances that causes
            or will likely cause any of Borrower's representations and
            warranties with respect to its being or becoming Year 2000 Compliant
            to no longer be true (hereinafter, referred to as a "Change in
            Circumstances") then Borrower shall promptly, and in any event
            within ten (10) days of receipt of information regarding a Change in
            Circumstances, provide Bank with written notice (the "Notice") that
            describes in reasonable detail the Change in Circumstances and how
            such Change in Circumstances caused or will likely cause Borrower's
            representations and warranties with respect to being or becoming
            Year 2000 Compliant no longer to be true. Borrower shall, within ten
            (10) days of a request, also provide Banks with any additional
            information Banks reasonably request of Borrower in connection with
            the Notice and/or a Change in Circumstances;

      13. Negative Covenants. A deviation from the provisions of this Section 13
shall not constitute an Event of Default under this Agreement if such deviation
is consented to in writing by the Banks. Without the prior written consent of
the Banks, Borrower and Guarantor (to the extent applicable thereto) will at all
times comply with the covenants contained in this Section 13 from the date
hereof and for so long as any indebtedness or obligation of Borrower under the
Loan Documents is outstanding or any part of the Revolving Commitment is in
existence.


                                       32
<PAGE>

            (a) Liens. Neither Borrower nor Guarantor will create, incur, assume
      or permit to exist any lien, security interest or other encumbrance on any
      of its assets or properties except Permitted Liens.

            (b) Debts, Guaranties and Other Obligations. Neither Borrower nor
      any of its Subsidiaries (including Guarantor) will incur, create, assume
      or in any manner become or be liable in respect of any indebtedness, issue
      any preferred or other quasi-equity stock which requires the payment of a
      dividend thereon or the mandatory redemption thereof, or guarantee or
      otherwise in any manner become or be liable in respect of any
      indebtedness, liabilities or other obligations of any other person or
      entity, whether by agreement to purchase the indebtedness of any other
      person or entity or agreement for the furnishing of funds to any other
      person or entity through the purchase or lease of goods, supplies or
      services (or by way of stock purchase, capital contribution, advance or
      loan) for the purpose of paying or discharging the indebtedness of any
      other person or entity, or otherwise, except that the foregoing
      restrictions shall not apply to:

                  (i) the Notes, or other indebtedness or guarantees of Borrower
            disclosed in Exhibit "D" hereto;

                  (ii) taxes, assessments or other government charges which are
            not yet due or are being contested in good faith by appropriate
            action promptly initiated and diligently conducted, if such reserve
            as shall be required by GAAP shall have been made therefor;

                  (iii) indebtedness incurred in the ordinary course of
            business, including, but not limited to, drilling, completing,
            leasing and reworking oil and gas wells;

                  (iv) Hedging Transactions;

                  (v) indebtedness owed by Non-Borrower Subsidiaries to Borrower
            which is permitted hereunder;

                  (vi) Vendor Financing not to exceed $10,000,000 in the
            aggregate at any one time outstanding;

                  (vii) guarantees by CWE of Vendor Financings of its
            Subsidiaries, which guarantees shall never exceed $10,000,000 in the
            aggregate at any one time outstanding;

                  (viii) intercompany indebtedness among Borrower and Guarantor;
            or


                                       33
<PAGE>

                  (ix) guarantees by CWE of loans made by third parties to CWE
            employees, which loans may be extended for the sole purpose of
            allowing CWE employees to exercise options to purchase CWE common
            stock and/or to pay federal income tax liabilities relating from
            such exercise; provided, however, that such guarantees may not
            exceed $1,000,000 in the aggregate outstanding at any one time.

            (c) Current Ratio. The Borrower will not allow the Williams
      Consolidated Entities' ratio of Current Assets to Current Liabilities to
      ever be less than 1.0 to 1.0 as of the end of any calendar quarter.

            (d) Ratio of Cash Flow to Debt Service. The Borrower will not allow
      the Williams Consolidated Entities' ratio of Net Cash Flow (less cash
      distributions paid pursuant to Section 13(j) hereof) to Debt Service to
      ever be less than 1.10 to 1.0 as of the end of any calendar quarter.

            (e) Limitation on Sale of Collateral. Neither Borrower nor Guarantor
      will sell, assign or discount any of the Collateral or Negative Pledge
      Property other than (i) sales of oil and gas production in the ordinary
      course of business, and (ii) sales or other disposition of obsolete
      equipment which are no longer needed for the ordinary business of Borrower
      or Guarantor or which are being replaced by equipment of at least
      comparable value and utility. If and as any of such Collateral or Negative
      Pledge Properties and interests are sold, conveyed or assigned during the
      term of the Revolving Commitment, Borrower or Guarantor will prepay
      against the Notes or Guarantor's obligation under its guaranty agreement,
      as the case may be, 100% of the Release Price. The term "Release Price" as
      used herein shall mean the loan value of the Collateral or the Negative
      Pledge Property being sold as determined by the Agent. Any such prepayment
      of principal on the Notes required by this Section 13(e) shall not be in
      lieu of, but shall be in addition to, any Monthly Commitment Reduction or
      any mandatory prepayment of principal required to be made pursuant to
      Section 9(b) hereof. Any such prepayment shall be applied pro rata to the
      principal due on the Revolving Notes until such Revolving Notes are paid
      in full, principal, interest and other amounts. Provided, however, that
      the Borrower and Guarantor may, without consent of Banks and Agent and
      without prepaying the Notes, sell Negative Pledge Properties where the
      sales proceeds from any such sale do not exceed $500,000 on an annual
      basis.

            (f) Mergers and Consolidations. Neither Borrower nor Guarantor will
      merge or consolidate with any other entity or sell, assign, transfer or
      otherwise dispose of (whether in one transaction or in a series of
      transactions) all or substantially all of their assets or properties to
      any person or entity.

            (g) Use of Proceeds. Borrower shall not use any of the proceeds of
      the loans to be made hereunder for the purpose of purchasing or carrying
      margin stock as defined in Regulation U of the Board of Governors of the
      Federal Reserve System.


                                       34
<PAGE>

            (h) Loans or Advances. Neither Borrower nor any Subsidiary shall
      make or permit to remain outstanding any loans or advances other than (i)
      normal and customary advances to employees, which shall not exceed
      $250,000 in the aggregate at any point in time, (ii) intercompany loans
      and advances among Borrower and Guarantor, or (iii) loans and advances by
      CWE to Subsidiaries provided that such loans and advances shall be treated
      as investments for the purposes of Section 13(k)(iv) or (v) hereof.

            (i) Hedging Transactions. The Williams Consolidated Entities shall
      not enter into any Hedging Transactions (i) in amounts which exceed, in
      the aggregate, 100% of the Williams Consolidated Entities' estimated
      production from proved producing reserves existing as of the date of the
      execution of such Hedging Transactions, or (ii) the terms and provisions
      of which could require margin calls; or (iii) which are secured by any of
      the Collateral or the Negative Pledge Property.

            (j) Dividends. Borrower will not declare or pay any cash dividend,
      purchase, redeem or otherwise acquire for value any of its stock now or
      hereafter outstanding, return any capital to stock owners, or make any
      distribution of its assets to its stockholders as such, except (i)
      repurchase or redemption of its stock in an amount not to exceed
      $3,000,000 in the aggregate (excluding commissions) and (ii) cash
      dividends paid on the stock of Borrower which shall not exceed, in any
      fiscal year, an amount equal to 50% of Borrower's net income for such
      fiscal year determined in accordance with GAAP, provided that immediately
      before and after giving effect thereto no (x) default or Event of Default
      or (y) Borrowing Base Deficiency, shall exist.

            (k) Investments. Neither Borrower nor Guarantor shall make any
      investments in any person or entity, except that the foregoing restriction
      shall not apply to:

                  (i) investments and direct obligations of the United States of
            America or any agency thereof;

                  (ii) investments in certificates of deposit issued by the
            Agent or certificates of deposit with maturities of less than one
            year issued by other commercial banks in the United States having
            capital and surplus in excess of $500,000,000 and have a rating of
            (A) 50 or above by Sheshunoff and (B) "B" or above by Keef-Bruett;

                  (iii) investments such as insured money market funds,
            Eurodollar investment accounts and other similar accounts with the
            Agent or such investments with maturities of less than ninety (90)
            days at other commercial banks in the United States having capital
            and surplus in excess of $500,000,000 and having a rating of (A) 50
            or above by Sheshunoff and (B) "B" or above by Keef-Bruett;


                                       35
<PAGE>

                  (iv) investments in the Subsidiaries (other than Guarantor)
            existing on the Effective Date;

                  (v) Borrower's investments in Guarantor;

                  (vi) the repurchase of Borrower's stock as permitted by
            Section 13(j) hereof; and

                  (vii) Guarantor's initial investment of $425,000 in Clayton
            Williams Acquisition Partnership, Ltd. ("Acquisition") and
            additional investments in Acquisition equal to one percent (1%) of
            all capital contributions made to Acquisition by its general and
            limited partners, but only to the extent such contributions are
            required by the partnership agreement of Acquisition, provided that
            immediately before and after giving effect to such additional
            investments no default or Event of Default shall exist.

            (l) Change of Control. Borrower will not permit Clayton W. Williams,
      Jr. and his affiliates, in the aggregate, to ever own, of record or
      beneficially, less than 20% of the outstanding voting securities of CWE.
      Failure to comply with this covenant shall (i) immediately relieve the
      Banks of any further commitment to advance funds under the Revolving
      Commitment, and (ii) result in the entire amount of principal and interest
      due on the Notes to be accelerated so that the entire balance thereof
      shall be due and payable on or before one hundred twenty (120) days after
      the date the Agent first receives notice that such a change of control has
      occurred.

            (m) Minimum Tangible Net Worth. For each calendar quarter hereafter
      during the remaining term of the Revolving Commitment, the Williams
      Consolidated Entities' Tangible Net Worth shall never be less than
      $40,000,000 plus an amount equal to 50% of the Williams Consolidated
      Entities' Net Income (without reduction for losses) for each calendar
      quarter ending after December 31, 1998 on a cumulative basis.

      14. Events of Default. Any one or more of the following events shall be
considered an "Event of Default" as that term is used herein:

            (a) Borrower shall fail to pay when due or declared due the
      principal of or interest on the Notes or any fee or any other indebtedness
      of Borrower incurred pursuant to this Agreement or any other Security
      Instrument (but Borrower shall have a grace period of three (3) days
      following an applicable due date during which to correct a delinquency in
      payment); or

            (b) Any representation or warranty made by Borrower or Guarantor
      under this Agreement, or in any certificate or statement furnished or made
      to any Bank pursuant hereto,


                                       36
<PAGE>

      or in connection herewith, or in connection with any document furnished
      hereunder, shall prove to be untrue in any material respect as of the date
      on which such representation or warranty is made (or deemed made), or any
      representation, statement (including financial statements), certificate,
      report or other data furnished or to be furnished or made by Borrower or
      Guarantor under any Security Instrument, including this Agreement, proves
      to have been untrue in any material respect, as of the date as of which
      the facts therein set forth were stated or certified, and such default
      shall continue for more than ten (10) days after notice from Agent;

            (c) Default shall be made in the due observance or performance of
      any of the covenants or agreements of Borrower or Guarantor contained in
      the Security Instruments, including this Agreement, and such default shall
      continue for more than ten (10) days after notice from Agent; provided,
      however, that a default under Section 13(l) of this Agreement shall not
      become an Event of Default under this Section 14 unless Borrower fails to
      pay the outstanding balance on the Notes within the 120 day period
      specified therein; or

            (d) Default shall be made in respect of any obligation for borrowed
      money owed by Borrower or Guarantor in excess of $1,000,000, other than
      the Notes, (directly, by assumption, as guarantor or otherwise), or any
      obligations in excess of $1,000,000 secured by any mortgage, pledge or
      other security interest, lien, charge or encumbrance with respect thereto,
      on any asset or property of Borrower or Guarantor or in respect of any
      agreement relating to any such obligations, and such default shall
      continue beyond the applicable grace period, if any; or

            (e) Borrower or Guarantor shall commence a voluntary case or other
      proceedings seeking liquidation, reorganization or other relief with
      respect to either of them or their debts under any bankruptcy, insolvency
      or other similar law now or hereafter in effect or seeking an appointment
      of a trustee, receiver, liquidator, custodian or other similar official of
      it or any substantial part of their property, or shall consent to any such
      relief or to the appointment of or taking possession by any such official
      in an involuntary case or other proceeding commenced against either of
      them, or shall make a general assignment for the benefit of creditors, or
      shall fail generally to pay their debts as they become due, or shall take
      any corporate action authorizing the foregoing; or

            (f) An involuntary case or other proceeding, shall be commenced
      against Borrower or Guarantor seeking liquidation, reorganization or other
      relief with respect to either of them or their debts under any bankruptcy,
      insolvency or similar law now or hereafter in effect or seeking the
      appointment of a trustee, receiver, liquidator, custodian or other similar
      official of either of them or any substantial part of their property, and
      such involuntary case or other proceeding shall remain undismissed and
      unstayed for a period of thirty (30) days; or an order for relief shall be
      entered against Borrower or Guarantor under the federal bankruptcy laws as
      now or hereinafter in effect; or


                                       37
<PAGE>

            (g) A final judgment or order for the payment of money in excess of
      $1,000,000.00 (or judgments or orders aggregating in excess of
      $1,000,000.00) shall be rendered against Borrower or Guarantor and such
      judgments or orders shall continue unsatisfied and unstayed for a period
      of thirty (30) days; or

            (h) In the event the aggregate principal amount outstanding under
      the Notes shall at any time exceed the Borrowing Base established for the
      Notes, Borrower shall fail to provide such additional Collateral or prepay
      the principal of such Notes in compliance with the provisions of Section
      9(b) hereof.

      Upon occurrence of any Event of Default specified in Subsections 14(e) and
(f) hereof, the Revolving Commitment shall terminate and the entire principal
amount due under the Notes and all interest then accrued thereon, and any other
liabilities of Borrower hereunder, shall become immediately due and payable all
without notice and without presentment, demand, protest, notice of protest or
dishonor or any other notice of default of any kind, all of which are hereby
expressly waived by Borrower. In any other Event of Default, the Majority Banks
may by notice from Agent to Borrower, terminate the Revolving Commitment and
declare the principal of, and all interest then accrued on, the Notes and any
other liabilities hereunder to be forthwith due and payable, whereupon the same
shall forthwith become due and payable without presentment, demand, protest or
other notice of any kind, all of which Borrower hereby expressly waives,
anything contained herein or in the Notes to the contrary notwithstanding.
Nothing contained in this Section 14 shall be construed to limit or amend in any
way the Events of Default enumerated in the Notes, or any other document
executed in connection with the transaction contemplated herein.

      Upon the occurrence and during the continuance of any Event of Default,
the Banks are hereby authorized at any time and from time to time, without
notice to Borrower (any such notice being expressly waived by Borrower), to
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Banks to or for the credit or the account of Borrower against any and all
of the indebtedness of Borrower under the Notes and the Security Instrument,
including this Agreement, irrespective of whether or not the Banks shall have
made any demand under the Security Instrument, including this Agreement or the
Notes. Any amount set-off by either of the Banks shall be applied against the
indebtedness owed the Banks by Borrower pursuant to the provisions of Section 16
of this Agreement. The Banks agree promptly to notify Borrower after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the Banks
under this Section 14 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Banks may have.

      15. Exercise of Rights. No failure to exercise, and no delay in
exercising, on the part of the Banks, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The rights
of the Banks hereunder shall be in addition to all other rights provided by law.
No modification or waiver of any provision of the Security Instruments,
including this Agreement, or


                                       38
<PAGE>

the Notes nor consent to departure therefrom, shall be effective unless in
writing, and no such consent or waiver shall extend beyond the particular case
and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other
circumstances without such notice or demand.

      16. Notices. Any notices or other communications required or permitted to
be given by this Agreement or any of the other Loan Documents and instruments
referred to herein must be given in writing and must be delivered or mailed by
prepaid certified or registered mail or by facsimile to the party to whom such
notice or communication is directed at the address of such party as follows: (a)
BORROWER AND GUARANTOR: c/o Clayton Williams Energy, Inc., Six Desta Drive,
Suite 6500, Midland, Texas 79705, Attention: Paul Latham, Executive Vice
President, Facsimile No. (915) 688-3247; (b) AGENT: BANK ONE, TEXAS, N.A., 1717
Main Street, Dallas, Texas 75201, Attention: Wm. Mark Cranmer, Vice President,
Facsimile No. (214) 290-2332; and (c) UNION: Union Bank of California, N.A., 500
N. Akard Street, Suite 4200, Dallas, Texas 75201, Attention: John L. Clark, Vice
President, Facsimile No. (214) 920-4209. Any such notice or other communication
shall be deemed to have been given (whether actually received or not) on the day
it is delivered as aforesaid or, if mailed, on the fifth day after it is mailed
as aforesaid. Any party may change its address for purposes of this Agreement by
giving notice of such change to the other parties pursuant to this Section 16.
Upon receipt by Agent of any such notice, Agent shall promptly provide copies of
such notice or notices to the Banks.

      17. The Agent and the Banks.

            (a) Appointment and Authorization. Each Bank hereby irrevocably
      appoints and authorizes Agent to take such action on its behalf and to
      exercise such powers under the Loan Documents as are delegated to Agent by
      the terms thereof, together with such powers as are reasonably incidental
      thereto. With respect to its commitments hereunder and the Notes issued to
      it, Bank One and any successor Agent shall have the same rights under the
      Loan Documents as any other Bank and may exercise the same as though it
      were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise
      expressly indicated, include Bank One and any successor Agent in its
      capacity as a Bank. Bank One and any successor Agent and its affiliates
      may accept deposits from, lend money to, act as trustee under indentures
      of and generally engage in any kind of business with Borrower, and any
      person which may do business with Borrower, all as if Bank One and any
      successor Agent were not Agent hereunder and without any duty to account
      therefor to the Banks. Each Bank shall disclose to all other Banks all
      indebtedness and liabilities, direct and contingent, of Borrower to Banks
      from time to time.

            (b) Note Holders. Agent may treat the payee of any Note as the
      holder thereof until written notice of transfer has been filed with it,
      signed by such payee and in form satisfactory to Agent.


                                       39
<PAGE>

            (c) Consultation with Counsel. Banks agree that Agent may consult
      with legal counsel selected by it and shall not be liable for any action
      taken or suffered in good faith by it in accordance with the advice of
      such counsel.

            (d) Documents. Agent shall not be under a duty to examine or pass
      upon the validity, effectiveness, enforceability, genuineness or value of
      any of the Collateral or any of the Loan Documents or any other instrument
      or document furnished pursuant thereto or in connection therewith, and
      Agent shall be entitled to assume that the same are valid, effective,
      enforceable and genuine and what they purport to be.

            (e) Resignation or Removal of Agent. Subject to the appointment and
      acceptance of a successor Agent as provided below, Agent may resign at any
      time by giving written notice thereof to Banks and Borrower, and Agent may
      be removed at any time with or without cause by Majority Banks. If no
      successor Agent has been so appointed by all Banks (and approved by
      Borrower) and has accepted such appointment within 30 days after the
      retiring Agent's giving of notice of resignation or removal of the
      retiring Agent, then the retiring Agent may, on behalf of Banks, appoint a
      successor Agent, which appointment shall require the approval of Borrower
      only if a party other than one of the other Banks is so appointed. Upon
      the acceptance of any appointment as Agent hereunder by a successor Agent,
      such successor Agent shall thereupon succeed to and become vested with all
      the rights and duties of the retiring Agent, and the retiring Agent shall
      be discharged from its duties and obligations hereunder. After any
      retiring Agent's resignation or removal hereunder as Agent, (i) the
      provisions of this Section 17 shall continue in effect for its benefit in
      respect to any actions take or omitted to be taken by it while it was
      acting as Agent, and (ii) any Collateral held in possession of the
      retiring Agent shall be delivered to the successor Agent.

            (f) Responsibility of Agent. It is expressly understood and agreed
      that the obligations of Agent under the Loan Documents are only those
      expressly set forth in the Loan Documents and that Agent shall be entitled
      to assume that no default or Event of Default has occurred and is
      continuing, unless Agent has actual knowledge of such fact or has received
      notice from a Bank that such Bank considers that a default or an Event of
      Default has occurred and is continuing and specifying the nature thereof.
      Neither Agent nor any of its directors, officers or employees shall be
      liable for any action taken or omitted to be taken by it under or in
      connection with the Loan Documents, except for its or their own gross
      negligence or willful misconduct. Agent shall incur no liability under or
      in respect of any of the Loan Documents by acting upon any notice,
      consent, certificate, warranty or other paper or instrument believed by it
      to be genuine or authentic or to be signed by the proper party or parties,
      or with respect to anything which it may do or refrain from doing in the
      reasonable exercise of its judgment, or which may seem to it to be
      necessary or desirable.

            Agent shall not be responsible to Banks for any recitals,
      statements, representations or warranties contained in any of the Loan
      Documents, or in any certificate or other


                                       40
<PAGE>

      document referred to or provided for in, or received by any Bank under,
      the Loan Documents, or for the value, validity, effectiveness,
      genuineness, enforceability or sufficiency of any of the Collateral or any
      of the Loan Documents or for any failure by Borrower to perform any of
      their obligations hereunder or thereunder. Agent may employ agents and
      attorneys-in-fact and shall not be answerable, except as to money or
      securities received by it or its authorized agents, for the negligence or
      misconduct of any such agents or attorneys-in-fact selected by it with
      reasonable care.

            The relationship between Agent and each Bank is only that of agent
      and principal and has no fiduciary aspects. Nothing in the Loan Documents
      or elsewhere shall be construed to impose on Agent any duties or
      responsibilities other than those for which express provision is therein
      made. In performing its duties and functions hereunder, Agent does not
      assume and shall not be deemed to have assumed, and hereby expressly
      disclaims, any obligation or responsibility toward or any relationship of
      agency or trust with or for Borrower or any of their shareholders or other
      creditors. As to any matters not expressly provided for by the Loan
      Documents (including, without limitation, enforcement or collection of the
      Notes), Agent shall not be required to exercise any discretion or take any
      action, but shall be required to act or to refrain from acting (and shall
      be fully protected in so acting or refraining from acting) upon the
      instructions of all Banks and such instructions shall be binding upon all
      Banks and all holders of Notes; provided, however, that Agent shall not be
      required to take any action which is contrary to the Loan Documents or
      applicable law.

            Agent shall have the right to exercise or refrain from exercising,
      without notice or liability to the Banks, any and all rights afforded to
      Agent by the Loan Documents or which Agent may have as a matter of law;
      provided, however, that Agent shall not (A) without the consent of all
      Banks (i) amend the Loan Documents to (x) change the method of computing
      interest so as to decrease the interest payable on the Notes, (y) increase
      or decrease the principal amount of the Notes, (z) extend the Maturity
      Date; or (ii) waive any default under the Loan Documents; or (iii) make a
      redetermination of the Borrowing Base; or (iv) defer the date for payment
      of principal interest or any fee; or (v) make any changes in the fees
      payable hereunder (except the Agency fee which does not require the
      consent of the Banks other than the Agent); or (vi) release any guaranty;
      or (vii) make any change in the definition of Majority Banks; or (viii)
      make any change in the number of Banks required to take any action under
      this Agreement; or (ix) make any change in Sections 7(b), 13(e) or 13(n)
      of this Agreement; and (B) without the consent of Majority Banks (i) make
      any other amendment to the Loan Documents; or (ii) accelerate the
      outstanding balance due on the Notes. Agent shall have the right and
      authority without necessity of notice or liability to the Banks to release
      Collateral, if 100% of the net proceeds from the sale of such Collateral,
      after payment of superior lien indebtedness and taxes relating thereto, is
      paid to Agent for the ratable benefit of the Banks as a prepayment of the
      Notes; provided, however, that Agent's right to release Collateral
      hereunder shall be limited to releases of Collateral the net sale proceeds
      of which shall not exceed, in the aggregate, on an annual basis,
      $5,000,000.00. For purposes


                                       41
<PAGE>

      of this paragraph, a Bank shall be deemed to have consented to any such
      action by the Agent upon the passage of ten (10) Business Days after
      written notice thereof is given to such Bank in accordance with Section 16
      hereof, unless such Bank shall have previously given Agent notice,
      complying with the provision of Section 16 hereof, to the contrary. Agent
      shall have no liability to Banks for failure or delay in exercising any
      right or power possessed by Agent pursuant to the Loan Documents or
      otherwise unless such failure or delay is caused by the gross negligence
      of the Agent.

            (g) Independent Investigation. Each Bank severally represents and
      warrants to Agent that it has made its own independent investigation and
      assessment of the financial condition and affairs of Borrower in
      connection with the making and continuation of its participation hereunder
      and has not relied exclusively on any information provided to such Bank by
      Agent in connection herewith, and each Bank represents, warrants and
      undertakes to Agent that it shall continue to make its own independent
      appraisal of the credit worthiness of Borrower while the Notes is
      outstanding or its commitments hereunder are in force. Agent shall not be
      required to keep itself informed as to the performance or observance by
      Borrower of this Agreement or any other document referred to or provided
      for herein or to inspect the properties or books of Borrower. Other than
      as provided in this Agreement, Agent shall have no duty, responsibility or
      liability to provide any Bank with any credit or other information
      concerning the affairs, financial condition or business of Borrower which
      may come into the possession of Agent.

            (h) Indemnification. Banks agree to indemnify Agent (to the extent
      not reimbursed by Borrower), ratably according to their Commitment
      Percentage, from and against any and all liabilities, obligations, losses,
      damages, penalties, actions, judgments, suits, costs, expenses or
      disbursements of any kind or nature whatsoever which may be imposed on,
      incurred by or asserted against Agent in any way relating to or arising
      out of the Loan Documents or any action taken or omitted by Agent under
      the Loan Documents, provided that no Bank shall be liable for any portion
      of such liabilities, obligations, losses, damages, penalties, actions,
      judgments, suits, costs, expenses or disbursements resulting from Agent's
      gross negligence or willful misconduct. The parties intend the provisions
      of this paragraph to apply to and protect the Bank from the consequences
      of its own negligence, whether or not such negligence is the sole,
      contributing or concurring cause of any such loss, cost, liability, damage
      or expense indemnified against in this paragraph.

            (i) Benefit of Section 17. The agreements contained in this Section
      17 are solely for the benefit of Agent and the Banks and are not for the
      benefit of, or to be relied upon by, Borrower, any affiliate of Borrower
      or any other person.

            (j) Pro Rata Treatment. Subject to the provisions of this Agreement,
      each payment (including each prepayment) by Borrower and collections by
      Banks (including offsets) on account of the principal of and interest on
      the Notes and fees payable by


                                       42
<PAGE>

      Borrower shall be made pro rata to Banks according to the then ownership
      interest of each Bank in loans to Borrower under this Agreement. Upon
      receipt of a request for disbursement by Borrower under the Revolving
      Commitment, Agent shall notify Banks of such request or draft and the
      requested disbursement date or payment date, whereupon each Bank shall
      fund to Agent its pro rata share of the loan requested by Borrower at such
      time and in such manner as to reasonably permit the disbursement by Agent
      to Borrower on the disbursement date requested.

            (k) Interests of Banks. Nothing in this Agreement shall be construed
      to create a partnership or joint venture between Banks for any purpose.
      Agent, Banks and Borrower each recognize that the respective obligations
      of Banks under the Revolving Commitment shall be several and not joint and
      that neither Agent nor any of Banks shall be responsible or liable to
      perform any of the obligations of the other under this Agreement. Each
      Bank is deemed to be the owner of an undivided interest in and to all
      rights, titles, benefits and interests belonging and accruing to Agent
      under this Agreement, including, without limitation, the Notes, liens and
      security interests in the Collateral, fees and payments of principal and
      interest by Borrower under the Revolving Commitment in the proportion that
      each Banks' Commitment Percentage bears to the total of all of such loan
      commitments of all Banks taken in the aggregate. Each Bank shall perform
      all duties and obligations of Banks under this Agreement in the same
      proportion as its ownership interest.

            (l) Failure By Any Bank to Provide Funds to Agent.

                  (i) Unless a Bank has determined that in accordance with the
            provisions of this Agreement it is not obligated to fund its share
            of a borrowing hereunder prior to 1:00 p.m., Dallas, Texas time, on
            the requested date of disbursement, Agent may assume that each Bank
            has made its pro rata share of the Borrowing available to Agent on
            such date and Agent may, in reliance upon such assumption (but shall
            not be required to) make available to Borrower a corresponding
            amount. If Agent has made such amount available to Borrower and if
            such corresponding amount is not in fact made available to Agent by
            any such Bank, Agent shall be entitled on demand to receive such
            amount from such Bank (or if such Bank fails to pay such amount
            forthwith upon demand, to recover such amount from Borrower)
            together with interest thereon in respect of each day during the
            period commencing on the date such amount was made available to
            Borrower and ending on (but excluding) the date Agent recovers such
            amount at the Prime Rate.

                  (ii) If any Bank shall fail or refuse to fund its pro rata
            share of a requested disbursement for any reason (hereinafter called
            the "Under-Funded Bank(s)") and other Bank or Banks fund their own
            pro rata shares of such requested disbursement (hereinafter called
            the "Fully-Funded Bank(s)") so


                                       43
<PAGE>

            that Banks are out-of-balance to the extent of the unfunded share of
            a requested advance (hereinafter called the "Out-of-Balance"), if
            the refusal to fund by Under Funded Banks was:

                        (1) in accordance with the provisions of this Agreement,
                  then in lieu of the pro rata distribution of payments
                  thereafter received and collections thereafter made as
                  specified in Section 17(j) hereof, Agent is authorized and
                  directed by Banks to thereafter make distributions of such
                  payments and collections on account of the principal of and
                  interest on the Notes and fees paid by Borrower to Banks pro
                  rata on the basis of principal sums funded by each Bank under
                  the Revolving Commitment.

                        (2) not in accordance with the provisions of this
                  Agreement, then notwithstanding the provisions of Section
                  17(j) hereof and in addition to any other rights and remedies
                  which the Fully-Funded Bank(s) may have as against the
                  Under-Funded Bank(s), Agent shall as to subsequent payments or
                  recoveries (whether voluntary, involuntary, by application of
                  offset or otherwise) on account of principal of or interest on
                  the Notes, distribute first to the Fully-Funded Bank(s) (pro
                  rata if more than one Fully-Funded Bank) until any such
                  Out-of-Balance is discharged, then pro rata among all Banks in
                  accordance with Section 17(j).

      18. Expenses. Borrower shall pay (i) all reasonable and necessary
out-of-pocket expenses of the Agent, including fees and disbursements of special
counsel for the Agent, in connection with the preparation of this Agreement, any
waiver or consent hereunder or any amendment hereof or any default or Event of
Default or alleged default or Event of Default hereunder, and (ii) if a default
or an Event of Default occurs, all reasonable and necessary out-of-pocket
expenses incurred by the Banks, including fees and disbursements of counsel, in
connection with such default and Event of Default and collection and other
enforcement proceedings resulting therefrom. Borrower shall indemnify the Banks
against any transfer taxes, document taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of this Agreement
or the Notes.

      19. Indemnity. The Borrowers agree to indemnify and hold harmless the
Banks and their respective officers, employees, agents, attorneys and
representatives (singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
the Banks, including all local counsel hired by such counsel) ("Claim") incurred
by the Banks in investigating or preparing for, defending against, or providing
evidence, producing documents or taking any other action in respect of any
commenced or threatened litigation, administrative proceeding or investigation
under any federal securities law, federal or state environmental law, or any
other statute


                                       44
<PAGE>

of any jurisdiction, or any regulation, or at common law or otherwise, which is
alleged to arise out of or is based upon any acts, practices or omissions or
alleged acts, practices or omissions of the Borrower or their agents or arises
in connection with the duties, obligations or performance of the Indemnified
Parties in negotiating, preparing, executing, accepting, keeping, completing,
countersigning, issuing, selling, delivering, releasing, assigning, handling,
certifying, processing or receiving or taking any other action with respect to
the Loan Documents and all documents, items and materials contemplated thereby
even if any of the foregoing arises out of an Indemnified Party's ordinary
negligence. The indemnity set forth herein shall be in addition to any other
obligations or liabilities of the Borrowers to the Banks hereunder or at common
law or otherwise, and shall survive any termination of this Agreement, the
expiration of the Loan and the payment of all indebtedness of the Borrowers to
the Banks hereunder and under the Notes, provided that the Borrowers shall have
no obligation under this Section 19 to the Bank with respect to any of the
foregoing arising out of the gross negligence or willful misconduct of the
Banks. If any Claim is asserted against any Indemnified Party, the Indemnified
Party shall endeavor to notify the Borrowers of such Claim (but failure to do so
shall not affect the indemnification herein made except to the extent of the
actual harm caused by such failure). The Indemnified Party shall have the right
to employ, at the Borrowers' expense, counsel of the Indemnified Parties'
choosing and to control the defense of the Claim. The Borrowers may at their own
expense also participate in the defense of any Claim. Each Indemnified Party may
employ separate counsel in connection with any Claim to the extent such
Indemnified Party believes it reasonably prudent to protect such Indemnified
Party.

      THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION 19 TO APPLY TO AND
PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE,
WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR CONCURRING CAUSE OF
ANY CLAIM.

      20. Governing Law. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS
INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND THE SUBSTANTIVE LAWS OF TEXAS
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN, UNLESS
OTHERWISE SPECIFIED THEREIN OR UNLESS THE LAWS OF ANOTHER STATE REQUIRE THE
APPLICATION OF THE LAWS OF SUCH STATE.

      21. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.


                                       45
<PAGE>

      22. Maximum Interest Rate. Regardless of any provisions contained in this
Agreement or in any other documents and instruments referred to herein, the
Banks shall never be deemed to have contracted for or be entitled to receive,
collect or apply as interest on the Notes any amount in excess of the Maximum
Rate and in the event the Banks ever receive, collect or apply as interest any
such excess, or if an acceleration of the maturity of the Notes or if any
prepayment by Borrower results in Borrower having paid any interest in excess of
the Maximum Rate, such amount which would be excessive interest shall be applied
to the reduction of the unpaid principal balance of the Notes for which such
excess was received, collected or applied, and, if the principal balance of such
Notes is paid in full, any remaining excess shall forthwith be paid to Borrower.
All sums paid or agreed to be paid to the Banks for the use, forbearance or
detention of the indebtedness evidenced by the Notes and/or this Agreement
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 rate or amount of interest on account of such indebtedness
does not exceed the Maximum Rate. In determining whether or not the interest
paid or payable under any specific contingency exceeds the Maximum Rate,
Borrower and the Banks shall, to the maximum extent permitted under applicable
law, (i) characterize any non-principal payment as an expense, fee or premium,
rather than as interest; and (ii) exclude voluntary prepayments and the effect
thereof; and (iii) compare the total amount of interest contracted for, charged
or received with the total amount of interest which could be contracted for,
charged or received throughout the entire contemplated term of the Notes at the
Maximum Rate.

      23. Amendments. This Agreement may be amended only by an instrument in
writing executed by an authorized officer of the party against whom such
amendment is sought to be enforced.

      24. Multiple Counterparts. This Agreement may be executed in a number of
identical separate counterparts, each of which for all purposes is to be deemed
an original, but all of which shall constitute, collectively, one agreement. No
party to this Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.

      25. Conflict. In the event any term or provision hereof is inconsistent
with or conflicts with any provision of the Security Instruments, the terms or
provisions contained in this Agreement shall be controlling.

      26. Survival. All covenants, agreements, undertakings, representations and
warranties made in the Security Instrument, including this Agreement, the Notes
or other documents and instruments referred to herein shall survive all closings
hereunder and shall not be affected by any investigation made by any party.

      27. Parties Bound. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs,
legal representatives and estates, provided, however, that Borrower may not,
without the prior written consent of the Banks, assign any rights, powers,
duties or obligations hereunder.


                                       46
<PAGE>

      28. Assignments and Participations.

            (a) Each Bank shall have the right to sell, assign or transfer all
      or any part of its Note or Notes, its Revolving Commitment and its rights
      and obligations hereunder to one or more Affiliates, Banks, financial
      institutions, pension plans, insurance companies, investment funds, or
      similar Persons who are Eligible Assignees or to a Federal Reserve Bank;
      provided, that in connection with each sale, assignment or transfer (other
      than to an Affiliate, a Bank or a Federal Reserve Bank), but each such
      sale, assignment, or transfer (other than to an Affiliate, a Bank or a
      Federal Reserve Bank), shall require the consent of both the Borrower and
      Agent, which consent, in either case, will not be unreasonably withheld,
      and the assignee, transferee or recipient shall have, to the extent of
      such sale, assignment, or transfer, the same rights, benefits and
      obligations as it would if it were such Bank and a holder of such Note,
      Revolving Commitment and rights and obligations, including, without
      limitation, the right to vote on decisions requiring consent or approval
      of all Banks or Majority Banks and the obligation to fund its Revolving
      Commitment; provided, further, that (1) each such sale, assignment, or
      transfer (other than to an Affiliate, a Bank or a Federal Reserve Bank)
      shall be in an aggregate principal amount not less than $5,000,000, (2)
      each remaining Bank shall at all times maintain Revolving Commitment then
      outstanding in an aggregate principal amount at least equal to $5,000,000;
      (3) each such sale, assignment or transfer shall be of a Pro Rata portion
      of such Bank's Revolving Commitment, (4) no Bank may offer to sell its
      Note or Notes, Revolving Commitment, rights and obligations or interests
      therein in violation of any securities laws; and (5) no such assignments
      (other than to a Federal Reserve Bank) shall become effective until the
      assigning Bank and its assignee delivers to Agent and Borrowers an
      Assignment and Acceptance and the Note or Notes subject to such assignment
      and other documents evidencing any such assignment. An assignment fee in
      the amount of $5,000 for each such assignment (other than to an Affiliate,
      a Bank or the Federal Reserve Bank) will be payable to Agent by assignor
      or assignee. Within five (5) Business Days after its receipt of copies of
      the Assignment and Acceptance and the other documents relating thereto and
      the Note or Notes, the Borrowers shall execute and deliver to Agent (for
      delivery to the relevant assignee) a new Note or Notes evidencing such
      assignee's assigned Revolving Commitment and if the assignor Bank has
      retained a portion of its Revolving Commitment, a replacement Note in the
      principal amount of the Revolving Commitment retained by the assignor
      (except as provided in the last sentence of this paragraph (a) such Note
      or Notes to be in exchange for, but not in payment of, the Note or Notes
      held by such Bank). On and after the effective date of an assignment
      hereunder, the assignee shall for all purposes be a Bank, party to this
      Agreement and any other Loan Document executed by the Banks and shall have
      all the rights and obligations of a Bank under the Loan Documents, to the
      same extent as if it were an original party thereto, and no further
      consent or action by Borrowers, Banks or the Agent shall be required to
      release the transferor Bank with respect to its Revolving Commitment
      assigned to such assignee and the transferor Bank shall henceforth be so
      released.


                                       47
<PAGE>

            (b) Each Bank shall have the right to grant participations in all or
      any part of such Bank's Notes and Revolving Commitment hereunder to one or
      more pension plans, investment funds, insurance companies, financial
      institutions or other Persons, provided, that:

                  (i) each Bank granting a participation shall retain the right
            to vote hereunder, and no participant shall be entitled to vote
            hereunder on decisions requiring consent or approval of Bank or
            Majority Banks (except as set forth in (iii) below);

                  (ii) in the event any Bank grants a participation hereunder,
            such Bank's obligations under the Loan Documents shall remain
            unchanged, such Bank shall remain solely responsible to the other
            parties hereto for the performance of such obligations, such Bank
            shall remain the holder of any such Note or Notes for all purposes
            under the Loan Documents, and Agent, each Bank and Borrowers shall
            be entitled to deal with the Bank granting a participation in the
            same manner as if no participation had been granted; and

                  (iii) no participant shall ever have any right by reason of
            its participation to exercise any of the rights of Banks hereunder,
            except that any Bank may agree with any participant that such Bank
            will not, without the consent of such participant (which consent may
            not be unreasonably withheld) consent to any amendment or waiver
            requiring approval of all Banks.

            (c) It is understood and agreed that any Bank may provide to
      assignees and participants and prospective assignees and participants
      financial information and reports and data concerning Borrowers'
      properties and operations which was provided to such Bank pursuant to this
      Agreement.

            (d) Upon the reasonable request of either Agent or Borrowers, each
      Bank will identify those to whom it has assigned or participated any part
      of its Notes and Commitment, and provide the amounts so assigned or
      participated.

      29. Waiver of Jury Trial. THE BORROWER, THE AGENT AND THE BANKS (BY THEIR
ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE
BORROWER, THE AGENT AND THE BANKS, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
DOCUMENT, ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP BETWEEN THE AGENT, THE
BANKS AND THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE AGENT AND
THE BANKS TO PROVIDE THE FINANCING DESCRIBED HEREIN.


                                       48
<PAGE>

      30. Other Agreements. THIS WRITTEN LOAN AGREEMENT REPRESENTS 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.

      31. Written Consent. The Guarantor is executing this Seventh Restated Loan
Agreement in its capacity as Guarantor for the purpose of acknowledging the
existence of the Seventh Restated Loan Agreement, consenting to the execution
thereof by the Borrower and reaffirming its guaranty of the obligations of
Borrower to Banks.

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

                                    BORROWER:


                                    CLAYTON WILLIAMS ENERGY, INC.


                                    By: /s/ L. Paul Latham
                                        ----------------------------------------
                                        L. Paul Latham, Executive Vice President


                                    WARRIOR GAS CO.


                                    By: /s/ L. Paul Latham
                                        ----------------------------------------
                                        L. Paul Latham, Executive Vice President


                                    GUARANTOR:


                                    CWEI ACQUISITIONS, INC.


                                    By: /s/ L. Paul Latham
                                        ----------------------------------------
                                        L. Paul Latham, Executive Vice President


                                       49
<PAGE>

                                    BANKS:


                                    BANK ONE, TEXAS, N.A.,
                                    a national banking association


                                    By: /s/ Wm. Mark Cranmer
                                        ----------------------------------------
                                           Wm. Mark Cranmer, Vice President


                                    UNION BANK OF CALIFORNIA, N.A.
                                    a national banking association


                                    By:
                                        ----------------------------------------
                                            John A. Clark, Vice President


                                    By: ________________________________________
                                    Name: ______________________________________
                                    Title: _____________________________________


                                    AGENT:


                                    BANK ONE, TEXAS, N.A.,
                                    a national banking association


                                    By: /s/ Wm. Mark Cranmer
                                        ----------------------------------------
                                           Wm. Mark Cranmer, Vice President


                                       50
<PAGE>

                                    BANKS:


                                    BANK ONE, TEXAS, N.A.,
                                    a national banking association


                                    By:
                                        ----------------------------------------
                                           Wm. Mark Cranmer, Vice President


                                    UNION BANK OF CALIFORNIA, N.A.
                                    a national banking association


                                    By: /s/ John A. Clark
                                        ----------------------------------------
                                            John A. Clark, Vice President


                                    By: /s/ Gary Shakerjian
                                        ----------------------------------------
                                    Name:  Gary Shakerjian
                                    Title: Assistant Vice President


                                    AGENT:


                                    BANK ONE, TEXAS, N.A.,
                                    a national banking association


                                    By:
                                        ----------------------------------------
                                           Wm. Mark Cranmer, Vice President


                                       50

<PAGE>

                                   EXHIBIT "A"

                               NOTICE OF BORROWING

      The undersigned hereby certifies that he is the ____________________ of
_________________, a ________________ corporation ("Borrower"), and that as such
he is authorized to executed this Notice of Borrowing on behalf of Borrower.
With reference to that certain Seventh Restated Loan Agreement, dated December
1, 1999, (as same may be amended, modified, increased, supplemented and/or
restated from time to time, the "Agreement") entered into among Borrower, Bank
One, Texas, N.A. and Union Bank of California, N.A. ("Banks"), and Bank One,
Texas, N.A. as Agent ("Agent"), the undersigned further certifies, represents
and warrants on behalf of Borrower that to his best knowledge and belief after
reasonable and due investigation and review, all of the following statements are
true and correct (each capitalized term used herein having the same meaning
given to it in the Agreement unless otherwise specified):

            (a) Borrower requests that the Banks advance Borrower the aggregate
      sum of $_____________________ by no later than _______________________,
      19___. Immediately following such Advance, the aggregate outstanding
      balance of Advances shall equal $____________________________.

            (b) Type of Advance: [Prime Rate or Eurodollar Loan].

            (c) Eurodollar Loan - Interest Period of _________ days.

            (d) As of the date hereof, and as a result of the making of the
      requested Advance, there does not and will not exist any Event of Default.

            (e) Borrower has performed and complied with all agreements and
      conditions contained in the Loan Documents which are required to be
      performed or complied with by Borrower before or on the date hereof.

            (f) The representations and warranties contained in the Agreement
      and in the other Loan Documents (excluding, however, the representations
      and warranties set forth in Sections 10(h) and 10(s) as to any matter
      which has theretofore been disclosed in writing by Borrowers to Banks, but
      as to which Borrower and Guarantor hereby represent and warrant that as of
      the date hereof the matters so disclosed are not reasonably expected to
      have a Material Adverse Effect) are true and correct in all material
      respects as of the date hereof and shall be true and correct upon the
      making of the Advance, with the same force and effect as though made on
      and as of the date hereof and thereof.

<PAGE>

            EXECUTED AND DELIVERED this _______ day of ___________________,
      19___.


                                       [Borrower]
                                       -----------------------------------------


                                       By: _____________________________________
                                       Name: ___________________________________
                                       Title: __________________________________


                                      -2-
<PAGE>

                                   EXHIBIT "B"

                             RENEWAL REVOLVING NOTE

$_____________                    Dallas, Texas                 December 1, 1999

      FOR VALUE RECEIVED, the undersigned, Clayton Williams Energy, Inc., a
Delaware corporation and Warrior Gas Co., a Texas corporation (the "Borrowers")
hereby jointly and severally promise to pay to the order of ________________
(the "Payee"), at the offices of the Agent at 1717 Main Street, Dallas, Texas
75201, or at such other place as the holder hereof may direct, in lawful money
of the United States of America, the principal amount of ____________________
AND 00/100 DOLLARS ($_____________), or, if less than such amount, the aggregate
unpaid principal amount of all Advances made by Payee to Borrowers hereunder in
accordance with the terms of that certain Seventh Restated Loan Agreement, dated
as of even date herewith, entered into among Borrowers, Bank One, Texas, N.A.
("Bank One"), Union Bank of California, N.A. ("Union") and Bank One, as Agent
(as same may be amended, modified, increased, supplemented and/or restated from
time to time, the "Agreement"), and Borrowers further promise to pay interest to
Payee at such office or other place, in like money, from the date hereof on the
unpaid principal amount hereof from time to time outstanding at the rates stated
in the Agreement. All terms defined in the Agreement shall have the same meaning
when used herein.

      1. Payment Terms. The principal of, and all accrued interest upon, this
Note shall be due and payable in the amounts and at the times stated in the
Agreement as follows:

            (a) Interest shall be due and payable as provided in the Agreement;

            (b) The entire unpaid principal amount of this Note shall be due and
      payable on the Maturity Date.

      2. Disbursement and Prepayment. Payee may disburse the principal of this
Note to Borrowers in one or more Advances from time to time in accordance with
the Agreement. Borrowers shall be entitled and in certain instances may be
required to prepay the principal of this Note from time to time in accordance
with the Agreement. Borrowers may borrow, repay and reborrow under this Note in
accordance with the terms of the Agreement. It is contemplated that by reason of
prepayments hereon there may be times when no indebtedness is owing hereunder;
but notwithstanding such occurrences, this Note shall remain valid and shall be
in full force and effect as to Advances made pursuant to the Agreement
subsequent to each such occurrence.

      3. Benefits. This Note is the Note referred to in the Agreement, and Agent
and the holder(s) hereof are entitled to the benefits thereof and may enforce
the agreements contained therein and exercise the rights provided for thereby or
otherwise in respect thereof. Reference to the Agreement shall not affect or
impair the absolute unconditional obligation of Borrowers to

<PAGE>

pay the principal of, interest on and any additional payment in connection
with this Note when due.

      4. Security. The payment of this Note is secured by Collateral more
particularly described in the Agreement.

      5. Acceleration of Maturity. Upon the occurrence of an Event of Default
under the Agreement, Banks may (i) declare the principal of, and all interest
then accrued on, this Note, to be forthwith due and payable, whereupon the same
shall forthwith become due and payable without presentment, demand, protest, or
notice of any kind, all of which Borrowers hereby expressly waive, and/or (ii)
exercise of any other right provided in the Loan Documents, or at law or in
equity. Reference is hereby made to the Agreement for a statement of the events
upon which the maturity of this Note may be accelerated automatically. Borrowers
grant to each Bank the right to set off against this Note, and the right of
recoupment from, any and all deposit and other liabilities of each Bank to
Borrowers and all money or property in the possession of any Bank held for or
owed to Borrowers.

      6. Waiver. Except as otherwise expressly provided herein or in the other
Loan Documents, Borrowers and all sureties, endorsers and guarantors of this
Note (i) waive demand, presentment for payment, notice of intention to
accelerate, notice of acceleration, protest, notice of protest, notice of
default and all other notices, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, (ii) agree to any substitution,
exchange or release of any such security or the release of any person or entity
primarily or secondarily liable herefor, (iii) agree that it will not be
necessary for Agent or any holder hereof, in order to enforce payment of this
Note by Agent or such holder, to first institute suit or exhaust its rights
against Borrowers or others liable herefor, or to enforce its rights against any
security herefor, and (iv) consent to any and all extensions for any period,
renewals or postponements of time of payment of this Note or any other
indulgences with respect hereto, without notice thereof to any of them.

      7. Attorneys' Fees. If this Note is collected by legal proceedings or in
or through a bankruptcy court, or is placed in the hands of an attorney for
collection after maturity, no matter how maturity is brought about, Borrowers
agree to pay reasonable attorneys fees and all other collection costs incurred
by Agent and the holder(s) of this Note.

      8. GOVERNING LAW AND VENUE. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW
AND SHALL BE PERFORMABLE IN DALLAS COUNTY, TEXAS, OR AT SUCH OTHER PLACE AS MAY
BE DESIGNATED IN WRITING BY THE HOLDER HEREOF.

      9. Headings. The headings of the sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part hereof.


                                      -2-
<PAGE>

      IN WITNESS WHEREOF, Borrowers have executed this Note as of the date and
year first herein written.

                                     BORROWERS:


                                     CLAYTON WILLIAMS ENERGY, INC.


                                     By:________________________________________
                                        L. Paul Latham, Executive Vice President


                                     WARRIOR GAS CO.


                                     By:________________________________________
                                        L. Paul Latham, Executive Vice President


                                      -3-
<PAGE>

                                   EXHIBIT "C"

                               FINANCIAL CONDITION

                                      NONE


                                      -1-
<PAGE>

                                   EXHIBIT "D"

                                   LIABILITIES

                                      NONE


                                      -2-
<PAGE>

                                   EXHIBIT "E"

                                   LITIGATION

                                      NONE


                                      -3-
<PAGE>

                                   EXHIBIT "F"

                              ENVIRONMENTAL MATTERS

                                      NONE


                                      -4-