EXHIBIT  E
                                                                      ----------

                        REGISTRATION  RIGHTS  AGREEMENT

     This Registration Rights Agreement (this "Agreement") is entered into as of
the  Closing  Date  (as  defined herein) by and among Penn Octane Corporation, a
Delaware  corporation (the Borrower), and the persons whose signatures appear on
the  execution  pages  of  this  Agreement.

     This  Agreement  is  entered  into  pursuant  to the Rollover Agreement and
Assignment  of Judgment between the Borrower and each of the Lenders listed (the
"Rollover  Agreement").  In  order  to  induce  the  Lenders  to  enter into the
Rollover  Agreement,  the Borrower has agreed to provide the registration rights
set forth in this Agreement.  The execution of this Agreement by the Borrower is
a  condition  to  the  closing  under  the  Rollover  Agreement.


<PAGE>
The  parties  hereby  agree  as  follows:

1.   Definitions
     -----------

     Capitalized  terms used herein without definition shall have the respective
meanings  set  forth in the Agreement.  As used in this Agreement, the following
terms  shall  have  the  following  meanings:

     Closing  Date:  The  date  on  which  the  Closing  occurs  pursuant to the
     --------------
Rollover  Agreement.

     Exchange  Act:  The  Securities  Exchange  Act of 1934, as amended, and the
     --------------
rules  and  regulations  of  the  Commission  promulgated  thereunder.

     Losses:  The term  "Losses"  shall have the  meaning set forth in Section 6
     ------
hereof.


     Prospectus:   The  prospectus   included  in  any  Registration   Statement
     ----------
(including,   without  limitation,   a  prospectus  that  discloses  information
previously omitted from a prospectus filed as part of an effective  registration
statement in reliance upon Securities Act Rule 430A), as amended or supplemented
by any prospectus  supplement,  with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments,  and  all  material  incorporated  by  reference  or  deemed  to  be
incorporated by reference in such prospectus.

     Registrable  Securities:  All shares of Common Stock issuable upon exercise
     ------------------------
of the Warrants or conversion of the Amended Notes, plus any Common Stock issued
or  issuable  to  the  Lenders  in  respect of the Warrant Shares and Conversion
Shares,  pursuant  to  any  stock  split,  stock  dividend, recapitalization, or
similar  event.  The  Warrants  are not Registrable Securities hereunder.  As to
any  Registrable  Securities,  such  securities  shall  cease  to be Registrable
Securities  when  (i)  a registration statement with respect to the sale of such
securities  shall  have  become  effective  under  the  Securities  Act and such
securities  shall  have been disposed of pursuant to such effective registration
statement, (ii) such securities shall have been distributed pursuant to Rule 144
or  any  similar  provision  then in force, under the Securities Act, (iii) such
securities  shall  have  been  otherwise  transferred, new certificates or other
evidences  of  ownership  for  them  not  bearing  a  legend restricting further
transfer  and  not  subject  to any stop transfer order or other restrictions on
transfer shall have been delivered by the Borrower and subsequent disposition of

<PAGE>
such  securities  shall  not  require  registration  or  qualification  of  such
securities  under  the Securities Act or any state securities laws then in force
or  (iv)  the  sale  of  such  securities  by  a  Lender shall no longer require
registration  under  the  Securities  Act  or  such securities shall cease to be
outstanding.

     Registration Expenses:  All reasonable expenses incurred by the Borrower in
     ---------------------
complying  with  Section  3  hereof, including all registration and filing fees,
printing  expenses, fees and disbursements of counsel for the Borrower, and blue
sky  fees  and  expenses.

     Registration  Statement:  Any  registration statement of the Borrower which
     ------------------------
covers  any  of  the  Registrable  Securities pursuant to the provisions of this
Agreement,  including  the  Prospectus,  amendments  and  supplements  to  such
registration  statement,  including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated reference in
such  registration  statement.

     Restricted  Securities:  The  Warrant Shares and the Conversion Shares upon
     -----------------------
original  issuance  thereof,  and at all times subsequent thereto, until, in the
case of any such security, it is no longer required to bear the legend set forth
on  such  security pursuant to the terms of the security, the Rollover Agreement
and  applicable  law.

     Rollover  Agreement:  The  Agreement  by  and  among  the  Borrower and the
     --------------------
Lenders  thereunder  pursuant  to  which  the  Warrants  were  issued.

     Rule  144:  Rule  144 under the Securities Act, as such Rule may be amended
     ----------
from  time  to  time, or any similar rule or regulation hereafter adopted by the
Commission  (excluding  Rule  144A).

2.   Securities  Subject  to  this  Agreement
     ----------------------------------------

The  securities  entitled  to the benefits of this Agreement are the Registrable
Securities.

3.   "Piggy-Back"  Registrations.
     ---------------------------

     (a) If at any time the  Borrower  shall  determine  to register  any of its
Common  Stock under the  Securities  Act,  whether in  connection  with a public
offering by the Borrower, a public offering by shareholders, or both, including,
without  limitation,  by means of any shelf  registration  pursuant  to Rule 415
under the  Securities  Act or any similar rule or  regulation,  but other than a
registration to implement an employee benefit or dividend reinvestment plan, the
Borrower  shall promptly give written notice thereof to the Lenders who shall be
registered  holders  of  Registrable  Securities  and shall  use its  reasonable
efforts to effect the registration  under the Securities Act of such Registrable
Securities as may be requested in a writing  delivered to the Borrower within 30
days after such  notice by the  Lenders as well as to include  such  Registrable
Securities in any notifications, registrations or qualifications under any state
securities  laws which shall be made or obtained with respect to the  securities
being registered by the Borrower;  provided,  however, that (a) any distribution
                                   --------   -------
of Registrable Securities pursu-ant to such registration shall be managed by the
investment  banking firm, if any,  managing the  distribution  of the securities
being  offered by the Borrower on the same terms as all other  securities  to be
registered,  and (b) the Borrower  shall not be required under this Section 3 to
include Registrable Securities in any registration of securities if the Borrower
shall have been advised by the investment  banking firm managing the offering of
the  securities  proposed to be  registered  by the  Borrower or others that the
inclusion  of  Registrable  Securities  in  such  offering  would  substantially
interfere with the orderly sale of such securities  which the Borrower or others
propose to register;  provided,  however, that in making any determination under
this  subparagraph (b) as to the inclusion of the Registrable  Securities in any
such offering,  Registrable  Securities  shall be registered on a pro-rata basis
with any other  securities  as to which the  Borrower  has granted or may in the
future grant registration  rights. All expenses of any registration and offering
of Registrable Securities

                                        2
<PAGE>
pursuant to this Section 3 (including, without limitation, registration fees and
fees  and  disbursements  of  the  Borrower's  counsel)  shall  be  borne by the
Borrower,  except  that  the  Borrower shall not bear underwrit-ing discounts or
commissions  attributable  to  Registrable  Securities, the fees of any separate
counsel  for  the  holders  of Registrable Securities or related transfer taxes.

4.   Registration  Procedures.
     ------------------------

     (a) In connection with any registration  pursuant to Section 3 hereof,  the
Borrower will prepare and file with the SEC, a Registration  Statement,  and any
amendments  and  supplements  thereto,  on any form for which the Borrower  then
qualifies or which counsel for the Borrower shall deem appropriate,  and use its
reasonable  efforts to cause such  Registration  Statement to become  effective;
provided that before filing with the SEC a Registration  Statement or prospectus
--------
or any  amendments  or  supplements  thereto,  the Borrower  will (i) furnish to
counsel  selected by the  Lenders  copies of all such  documents  proposed to be
filed,  which documents will be subject to the review of such counsel,  and (ii)
notify the Lenders of any stop order  issued or  threatened  by the SEC and take
all  reasonable  actions  required to prevent the entry of such stop order or to
remove it if entered.  The Borrower will also (i) promptly notify each Lender of
the  effectiveness of such Registration  Statement,  (ii) furnish to each Lender
such number of copies of such  Registration  Statement,  and each  amendment and
supplement thereto,  the Prospectus included in such Registration  Statement and
such other  documents  as such  Lender  may  reasonably  request;  (iii) use its
reasonable efforts to register or qualify such securities to be registered under
such other  securities or blue sky laws of such  jurisdictions  as any Purchaser
reasonably  requests;  (iv)  use  its  reasonable  efforts  to  cause  all  such
securities to be registered  to be listed on each  securities  exchange on which
similar  securities  issued by the Borrower  are then  listed,  and to provide a
transfer agent and registrar for such  securities to be registered no later than
the  effective  date  of  such  Registration  Statement;  (v)  enter  in to such
customary agreements (including an underwriting agreement in customary form) and
take all such other actions as the Lenders or the  underwriters  retained by the
Lenders,  if any,  reasonably  request in order to  expedite or  facilitate  the
disposition   of  such   securities  to  be  registered,   including   customary
indemnification;  and (vi) otherwise use its  reasonable  efforts to comply with
all  applicable  rules and  regulations  of the SEC. The terms of this Section 4
shall not  require  the  Borrower  to qualify as a foreign  corporation  or as a
dealer in  securities  or to execute or file any  general  consent to service of
process under the laws of any such jurisdiction where it is not so subject.

     (b) In connection with any effective  Registration Statement filed pursuant
to  this   Agreement,   the  Borrower  will   immediately   notify  each  Lender
participating in the distribution to which such  Registration  Statement relates
of the  happening of any event as a result of which the  prospectus  included in
such Registration  Statement  contains an untrue statement of a material fact or
omits to state any material fact  required to be stated  therein or necessary to
make the statements  therein not misleading in light of the  circumstances  then
existing, and will promptly prepare and furnish to each such Lender a supplement
or  amendment to such  prospectus  so that such  prospectus  will not contain an
untrue  statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements  therein not misleading
in light of the circumstances then existing.  Notwithstanding the foregoing,  if
the Borrower determines in its reasonable business judgment that an amendment or
supplement to any such prospectus  would interfere with any material  financing,
acquisition, corporate reorganization, or other material

                                        3
<PAGE>
corporate  transaction  or  development involving the Borrower, the Borrower may
delay the preparation and filing of such amendment or supplement for a period of
up to 60 days in order to complete or make a public announcement with respect to
such  material transaction or development (it being understood that the Borrower
shall  be  obligated  to extend the period of time it is required to maintain in
effect  any  such Registration Statement to take into account the period of time
that the Lenders are unable to offer or sell Registrable Securities by reason of
this  Section  4(c)).


<PAGE>
5.   Holdback  Agreements.
     --------------------

     (a) Restrictions on Public Sale by Holders of Registrable Securities.  Each
         ----------------------------------------------------------------
holder of Registrable  Securities whose Registrable  Securities are covered by a
Registration  Statement filed pursuant to Section 3 hereof agrees,  if requested
by the managing  underwriters in an underwritten  offering (to the extent timely
notified in writing by the Borrower or the managing underwriters), not to effect
any public  sale or  distribution  of  securities  of the  Borrower of any class
included in such Registration  Statement,  including a sale pursuant to Rule 144
(except as part of such underwritten  offering),  during the 10-day period prior
to, and the 90-day period  beginning on, the effective date of any  Registration
Statement.

     (b) The foregoing  provisions  shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable  statute or regulation from
entering into any such agreement;  provided, however, that any such holder shall
                                   -----------------
undertake in its request to participate in any such underwritten offering not to
effect any public sale or  distribution  of the class of Registrable  Securities
covered by such  Registration  Statement  (except  as part of such  underwritten
offering) during such period unless it has provided five (5) business days prior
written  notice of such sale or  distribution  to the  managing  underwriter  or
underwriters.

6.   Indemnification
     ---------------

     (a)  Indemnification  by Borrower.  The Borrower  shall  indemnify and hold
          ----------------------------
harmless,  to the full  extent  permitted  by law,  each  holder of  Registrable
Securities,  its  officers,  directors,  agents and  employees,  each person who
controls such holder  (within the meaning of Section 15 of the Securities Act or
Section  20 of the  Exchange  Act),  and  the  officers,  directors,  agents  or
employees of any such controlling person,  from and against all losses,  claims,
damages,  liabilities,  costs  (including,  without  limitation,  all reasonable
attorneys' fees) and expenses (collectively,  "Losses"), arising out of or based
upon any untrue  statement  of a material  fact  contained  in any  Registration
Statement, Prospectus or preliminary prospectus, or arising out of or based upon
any omission of a material  fact  required to be stated  therein or necessary to
make the statements therein in light of the circumstances  under which they were
made (in the case of any Prospectus) not misleading,  except insofar as the same
are based solely upon  information  furnished to the Borrower by such holder for
use therein;  provided,  however,  that the Borrower  shall not be liable in any
              ------------------
such case to the  extent  that any such Loss  arises  out of or is based upon an
untrue statement or omission made in any preliminary prospectus or Prospectus if
(i) such holder failed to send or deliver a copy of the Prospectus or Prospectus
supplement with or prior to the delivery of written  confirmation of the sale of
Registrable  Securities and (ii) the Prospectus or Prospectus  supplement  would
have corrected such untrue statement or omission.

     (b) Indemnification by Holder of Registrable Securities. In connection with
         ---------------------------------------------------
any  Registration  Statement  in which a holder  of  Registrable  Securities  is
participating,  such  holder of  Registrable  Securities  shall  furnish  to the
Borrower in writing such information as the Borrower may reasonably

                                        4
<PAGE>
request  for  use  in  connection with any Registration Statement or Prospectus.
Each  Lender  shall indemnify and hold harmless, to the full extent permitted by
law,  the  Borrower,  and  its  officers,  directors, agents and employees, each
person  who  controls  the  Borrower  (within  the  meaning of Section 15 of the
Securities  Act  or Section 20 of the Exchange Act) and the officers, directors,
agents  or employees of any such controlling person, from and against all Losses
arising  out  of or based upon any untrue statement of a material fact contained
in  any Registration Statement, Prospectus or preliminary prospectus, or arising
out  of  or  based  upon  any  omission of a material fact required to be stated
therein  or  necessary  to  make  the  statements  therein  in  light  of  the
circumstances  under  which  they  were made (in the case of any Prospectus) not
misleading, to the extent, but only to the extent, that such untrue statement or
omission  is contained in any information so furnished in writing by such holder
to  the  Borrower  for  use  in  such  Registration  Statement,  Prospectus  or
preliminary  prospectus.  Such  indemnity  shall remain in full force and effect
regardless  of  any  investigation  made  by or on behalf of the Borrower or any
holder  and  any  of  their respective directors, officers, agents, employees or
controlling  persons  (within the meaning of Section 15 of the Securities Act or
Section  20  of  the  Exchange  Act)  and  shall  survive  the  transfer of such
securities  by  such  holder.

     (c) Conduct of  Indemnification  Proceedings.  If any action or  proceeding
         ----------------------------------------
(including any  governmental  investigation  or inquiry) shall be brought or any
claim shall be asserted  against any person entitled to indemnity  hereunder (an
"indemnified  party"),  such  indemnified  party shall promptly notify the party
from which such indemnity is sought (the "indemnifying  party") in writing,  and
the  indemnifying  party  shall  assume  the  defense  thereof,   including  the
employment of counsel  reasonably  satisfactory to the indemnified party and the
payment  of all  fees and  expenses  incurred  in  connection  with the  defense
thereof. All such fees and expenses (including any fees and expenses incurred in
connection with  investigating or preparing to defend such action or proceeding)
incurred by the indemnified  party,  shall be paid to the indemnified  party, as
incurred,  within 20 days of written notice thereof to the  indemnifying  party;
provided,  however, that if, in accordance with this Section 6, the indemnifying
------------------
party is not liable to the  indemnified  party,  such fees and expenses shall be
returned  promptly to the indemnifying  party. Any such indemnified  party shall
have  the  right  to  employ  separate  counsel  in any  such  action,  claim or
proceeding and to participate in the defense thereof,  but the fees and expenses
of such counsel  shall be the expense of such  indemnified  party unless (a) the
indemnifying  party  has  agreed  to  pay  such  fees  and  expenses,   (b)  the
indemnifying  party  shall have  failed  promptly  to assume the defense of such
action, claim or proceeding and to employ counsel reasonably satisfactory to the
indemnified  party in any such  action,  claim or  proceeding,  or (c) the named
parties  to any  such  action,  claim or  proceeding  (including  any  impleaded
parties)  include both such indemnified  party and the  indemnifying  party, and
such indemnified  party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the  indemnifying  party (in which case, if such  indemnified
party  notifies  the  indemnifying  party in  writing  that it  elects to employ
separate  counsel at the expense of the  indemnifying  party,  the  indemnifying
party  shall not have the right to assume the defense of such  action,  claim or
proceeding on behalf of such indemnified  party, it being  understood,  however,
that the  indemnifying  party shall not, in connection with any one such action,
claim or proceeding or separate but  substantially  similar or related  actions,
claims or proceedings in the same  jurisdiction  arising out of the same general
allegations or circumstances,  be liable for the reasonable fees and expenses of
more than one  separate  firm of  attorneys  (together  with  appropriate  local
counsel) at any time for all such indemnified parties,  unless in the opinion of
counsel for such indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
action,  claim or  proceeding,  in which event the  indemnifying  party shall be
obligated to pay the fees and expenses of such additional  counsel or counsels).
No  indemnifying  party will  consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the release

                                        5
<PAGE>
of  such  indemnified  party  from  all  liability  in  respect to such claim or
litigation  without  the written consent (which consent will not be unreasonably
withheld) of the indemnified party.  No indemnified party shall consent to entry
of any judgment or enter into any set-tlement without the written consent (which
consent  will not be unreasonably withheld) of the indemnifying party from which
indemnity  or  contribution  is  sought.

     (d)  Contribution.  If the  indemnification  provided for in this Section 6
          ------------
from the indemnifying  party is unavailable to an in-demnified  party in respect
of any Losses,  then each applicable  indemnifying party in lieu of indemnifying
such indemnified  party hereunder shall contribute to the amount paid or payable
by such indemnified  party as a result of such Losses,  in such proportion as is
appropriate  to  reflect  the  relative  fault  of the  indemnifying  party  and
indemnified party in connection with the actions,  statements or omissions which
resulted in such Losses as well as any other relevant equitable  considerations.
The relative fault of such indemnifying party and the indemnified party shall be
determined by reference to, among other things,  whether any action in question,
including  any untrue  statement  of a material  fact or  omission of a material
fact,  has been taken or made by, or relates to  information  supplied  by, such
indemnifying  party or  indemnified  party,  and the parties'  relative  intent,
knowledge,  access to  information  and  opportunity  to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include,  subject to the  limitations set forth
in Section 6(c), any legal or other fees or expenses reasonably incurred by such
party in connection with any action, suit, claim, investigation or proceeding.

     The  parties  hereto  agree  that  it  would  not  be just and equitable if
contribution  pursuant  to  this  Section  6(d)  were  determined  by  pro  rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No  person guilty of fraudulent misrepresentation (within the meaning of Section
11(f)  of  the Securities Act) shall be entitled to contribution from any person
who  was  not  guilty  of  such  fraudulent  misrepresentation.

7.   Rule  144
     ---------

     The  Borrower  shall  file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
Commission  thereunder,  and  will  take  such  further  action as any holder of
Registrable  Securities  may reasonably request, all to the extent required from
time  to  time  to  enable  such  holder  to sell Registrable Securities without
registration  under  the  Securities  Act within the limitation of the exemption
provided  by  Rule  144  or  Rule  144A.  Upon  the  request  of  any  holder of
Registrable  Securities,  the  Borrower  shall  deliver to such holder a written
statement  as  to  whether  the  Borrower has complied with such information and
requirements.  Notwithstanding the foregoing, nothing in this Section 7 shall be
deemed  to  require  the  Borrower  to  register any of its securities under any
section  of  the  Exchange  Act.

                                        6
<PAGE>
8.   Underwritten  Registrations
     ---------------------------

     If  any of the Registrable Securities covered by any registration are to be
sold  in  an  underwritten offering, the investment banker or investment bankers
and  manager  or  managers that will administer the offering will be selected by
the  Borrower.  No  Lender  may  participate  in  any  underwritten registration
hereunder  unless  such  Lender  (i)  agrees  to  sell such Lender's Registrable
Securities  on  the  basis provided in the underwriting arrangements approved by
the  Borrower,  and  (ii)  completes  and executes all questionnaires, powers of
attorney,  indemnities,  underwriting  agreements  and  other documents required
under  the  terms  of  such  underwriting  arrangements.

9.   Miscellaneous
     -------------

     (a) Amendments and Waivers. The provisions of this Agreement, including the
         ----------------------
provisions of this sentence, may not be amended,  modified or supplemented,  and
waivers or consents to departures  from the  provisions  hereof may not be given
unless  the  Borrower  obtains  the  written  consent  of  holders of at least a
majority  of the  then  outstanding  Registrable  Securities  affected  by  such
amendment,  modification or supplement.  Notwithstanding the foregoing, a waiver
or consent to depart from the  provisions  hereof with respect to a matter which
relates  exclusively  to the rights of holders of Registrable  Securities  whose
securi-ties  are being sold pursuant to a Registration  Statement and which does
not  directly  or  indirectly  affect  the  rights  of  holders  of  Registrable
Securities  whose  securities  are not being sold pursuant to such  Registration
Statement  may be given by holders of a majority of the  Registrable  Securities
being sold by such holders.

     (b) Notices. All notices and other communications provided for or permitted
         -------
hereunder  shall be made in writing  by  hand-delivery,  registered  first-class
mail,  next  day  air  courier,  telex,  or  telecopy:  (i)  if to a  holder  of
Registrable Securities,  at the most current address given by such holder to the
Borrower in accordance  with the provisions of this Section 9(b),  which address
initially  is, with respect to each Lender,  the address set forth on Schedule I
                                                                      ----------
to the  Rollover  Agreement;  and  (ii)  if to  the  Borrower,  at 900  Veterans
Boulevard,  Suite 240, Redwood City California 94063, attention:  Secretary, and
thereafter at such other  address,  notice of which is given in accordance  with
the provisions of this Section 8(b).

     All  such  notices  and  communications  shall  be deemed to have been duly
given:  when delivered by hand, if personally delivered; two business days after
being  deposited in the mail, postage prepaid, if mailed; one business day after
being  sent  by  next  day air courier; when answered back, if telexed; and when
receipt  acknowledged,  if  telecopied.

     (c)  Transfer of  Registration  Rights.  The rights  granted to the holders
          ---------------------------------
pursuant to this Agreement to cause the Borrower to register  securities may not
be assigned or  otherwise  transferred  in any way other than to an Affiliate of
the holder to whom the holder has  transferred all or any part of the Warrant or
the Amended Note.

     (d)  Counterparts.  This  Agreement  may  be  executed  in  any  number  of
          ------------
counterparts  by the parties  hereto,  each of which when so  executed  shall be
deemed to be an original and all of which taken  together  shall  constitute one
and the same agreement.

     (e)  Headings.  The  headings  in this  Agreement  are for  convenience  of
          --------
reference only and shall not limit or otherwise affect the meaning hereof.

     (f)  Governing  Law. This  Agreement  shall be governed by and construed in
          --------------
accordance  with the laws of the State of New York without  regard to principles
of conflict of laws.

     (g) Severability.  If any term, provision,  covenant or restriction of this
         ------------
Agreement is held by a court of competent  jurisdiction  to be invalid,  void or
unenforceable,   the   remainder  of  the  terms,   provisions,   covenants  and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected,  impaired or  invalidated,  and the parties hereto shall use
their best efforts to find and employ an  alternative  means to achieve the same
or substantially the same result as that  contemplated by such term,  provision,
covenant or restriction. It is hereby stipulated and declared to be the

                                        7
<PAGE>
intention  of  the  parties  that  they would have executed the remaining terms,
provisions,  covenants  and restrictions without including any of such which may
be  hereafter  declared  invalid,  void  or  unenforceable.

     (h) Entire  Agreement.  This  Agreement  is intended by the parties to be a
         -----------------
final  expression of their  agreement and a complete and exclusive  statement of
the agreement and  understanding of the parties hereto in respect of the subject
matter contained  herein.  There are no restrictions,  promises,  warranties nor
undertakings,  other than those set forth or referred to herein with  respect to
the  registration  rights granted by the Borrower with respect to the securities
sold pursuant to the Rollover  Agreement.  This  Agreement  supersedes all prior
agreements and  understandings  between the parties with respect to such subject
matter.

     (i) Attorneys'  Fees. If any action or proceeding is brought to enforce any
         ----------------
provision of this Agreement,  or where any provision  hereof is validly asserted
as a defense,  the  successful  party shall be  entitled  to recover  reasonable
attorneys'  fees in addition to its costs and expenses  and any other  available
remedy.

<PAGE>
     IN WITNESS WHEREOF, the parties have executed this agreement as of December
1,  1998.

                    PENN  OCTANE  CORPORATION



                         By:
                              --------------------------------------------------
                              Jerome  B.  Richter
                              Chairman,  President  and  Chief Executive Officer


                                        8
<PAGE>
     IN WITNESS WHEREOF, the parties have executed this agreement as of December
1, 1998.



                         CASTLE  ENERGY  CORPORATION


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


                                        9
<PAGE>
     IN WITNESS WHEREOF, the parties have executed this agreement as of December
1,  1998.





                              -----------------------------
                                   Clint  Norton



                         SOUTHWEST  CONCEPT  INC.


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


                                        10
<PAGE>
     IN WITNESS WHEREOF, the parties have executed this agreement as of December
1,  1998.




                                   -----------------------------
                                   James  F.  Meara,  Jr.




                         SEP  FBO  JAMES  F.  MEARA  IRA

                         By:     Donaldson,  Lufkin  &  Jenrette  as
                                   Securities  Corporation  Custodian



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



                                        11
<PAGE>
     IN WITNESS WHEREOF, the parties have executed this agreement as of December
1,  1998.



                    LINCOLN  TRUST  COMPANY  FBO  PERRY  D.  SNAVELY  IRA



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


                                        12
<PAGE>
                                    SCHEDULE  I

Lenders  and  Addresses
-----------------------

Castle  Energy  Corporation             Principal  amount  of promissory note:
$1,000,000
c/o  CEC,  Inc.
One  Radnor  Corporate  Center          Warrants:  225,000
100  Matsonford  Road,  Suite  250
Radnor,  Pennsylvania  19087
(610)  995-9400
Attention:  Mr.  Joseph  Castle

with  a  copy  to:

Tom  Spencer,  Esq.
Duane  Morris  &  Hecksher
One  Liberty  Place,  42nd  floor
Philadelphia,  Pennsylvania  19103-7396

                                         1
<PAGE>
                                    SCHEDULE  I


Lenders  and  Addresses
-----------------------

Clint  Norton                       Principal amount of promissory note: $90,000
17110 Dallas Parkway, Suite 120
Dallas,  Texas  75248               Warrants:  20,250
(972)  931-8509


Southwest  Concept  Inc.            Principal amount of promissory note: $60,000
17110 Dallas Parkway, Suite 120
Dallas,  Texas  75248               Warrants:  13,500
Attn:  Clint  Norton
(972)  931-8509


                                         2
<PAGE>
                                   SCHEDULE I


Lenders  and  Addresses
-----------------------

James  F.  Meara,  Jr.              Principal amount of promissory note: $75,000
8150 N. Central Expressway, #795
Dallas,  Texas  75206               Warrants:  16,875
(214)  692-7066




Donaldson Lufkin Jenrette           Principal amount of promissory note: $75,000
Securities Corporation Custodian
SEP FBO James F. Meara IRA          Warrants:  16,875
Pershing Division of Donaldson Lufkin &
Jenrette  Securities  Corporation
P.O.  Box  2050
Jersey  City,  New  Jersey  07399
(214)  692-7006

                                         3
<PAGE>
                                    SCHEDULE I


Lenders  and  Addresses
-----------------------

Lincoln  Trust  Company            Principal amount of promissory note: $200,000
FBO  Perry  D.  Snavely  IRA
P.O.  Box  5831                    Warrants:  45,000
Denver,  Colorado  80217
Attn:  Monique  Rice
(610)  260-6388


                                         4
<PAGE>