Exhibit 10.1

                             PRODUCT SALES AGREEMENT
                             -----------------------

     This  Product  Sales  Agreement ("Agreement") is made and entered into this
9th  day  of December, 2003, ?ay and between Penn Octane Corporation, a Delaware
corporation  ("Penn  Octane"),  and  Koch  Hydrocarbon,  LP,  a Delaware limited
partnership  ("KHLP").

     WHEREAS,  KHLP  purchases  from its affiliate the entire Propane production
from  the  Flint  Hills  Resources,  LP  Refinery;  and

     WHEREAS,  Penn Octane desires to purchase from KHLP all of the Propane KHLP
purchases  from  its  affiliate from the Flint Hills Resources, LP Refinery; and

     WHEREAS,  KHLP  and  Penn  Octane desire to enter into an agreement for the
sale  of  such  Propane  on  the  terms  and  conditions  set  forth  below.

     NOW  THEREFORE,  in  consideration  of  the  mutual  covenants and premises
contained herein, and for other good and valuable consideration, the sufficiency
and  receipt  of  which  is  hereby  acknowledged, KHLP and Penn Octane agree as
follows:

     1.  DEFINITIONS.  For purposes of this Agreement, the following definitions
         ------------
shall  apply:

     (a)  "Barrel"  shall  mean  forty-two  (42)  U.S.  Gallons.

     (b)  "Gulf  Terra  Delivery  Point"  shall  mean the interconnection at the
          Flint Hills Resources, LP Refinery between Gulf Terra's Corpus Christi
          pipeline  and  the  pipeline  owned  by  KHLP's  affiliate.

     (c)  "Contract  Year"  shall  mean  such  periods  specified  in  Section 3
          ("Term").

     (d)  "Delivery  Point(s)"  shall mean, as specified in Section 4 below, (i)
          the  ExxonMobil Delivery Point, or (ii) the Gulf Terra Delivery Point,

     (e)  "Delivery Point Meter(s)" shall mean the meters maintained for custody
          transfer  purposes  at  or near the Delivery Point(s) specified above.

     (f)  "ExxonMobil Delivery Point" shall mean the interconnection between the
          12 inch ExxonMobil pipeline at the Viola valve station and the propane
          pipeline  owned  by  KHLP's  pipeline  affiliate.

     (g)  "Gallon"  shall  mean  a  U.S.  Gallon of 231 cubic inches or 0.133681
          cubic  feet  of  liquid  at  sixty (60 ) degrees Fahrenheit and at the
          equilibrium  vapor  pressure  of  the  liquid.

     (h)  "Month"  shall mean a period commencing at 12:01 a.m. CST on the first
          day  of a calendar month and ending at 12:01 a.m. CST on the first day
          of  the  next  succeeding  calendar  month.

     (i)  "Party"  or  "Parties" shall mean KHLP and/or Penn Octane individually
          or  collectively  as  the  context  requires.

     (j)  "Propane"  shall  mean  the  GPA  specifications  for  HD5  propane.

     (k)  "Flint Hills Resources, LP Refinery" shall mean both the east and west
          facilities  of the refinery owned by Flint Hills Resources, LP located
          near  Corpus  Christi,  Texas.

     2.  (a) COMMITMENT.  Subject  to the provisions herein, KHLP shall sell and
             -----------
deliver,  and  Penn Octane shall purchase and receive, a volume of Propane equal
to  the  Propane  purchased  by  KHLP  from its affiliate produced from the west
facility of the Flint Hills Resources, LP Refinery. The estimated amount of such
Propane  is  5000  Barrels  per  day. Notwithstanding the foregoing, the maximum
average  monthly  volume delivered from the west facility shall not exceed 5,500
Barrels  per  day  unless  otherwise  agreed  by  the  Parties.  In


<PAGE>
the  event  Flint Hills Resources should, in its sole discretion, decide to move
Propane  from  its east facility to its west facility, such volume (estimated to
be  500  -  1000  Barrels  per  day) not to exceed 1000 Barrels per day shall be
purchased and received in addition to the west facilities volumes by Penn Octane
hereunder.  The  Parties  understand  and  expressly agree that KHLP is under an
obligation  to  sell  or deliver the daily production of HD5 propane produced at
the Flint Hills Resources, LP Refinery to Penn Octane pursuant to this Agreement
however, KHLP is under no obligation to cause its affiliate to operate the Flint
Hills  Resources,  LP  Refinery  or  otherwise  produce  Propane.

          (b) PLANNED MAINTENANCE. Each party or its affiliates may periodically
              -------------------
require  the  partial,  or full shutdown, of certain of their facilities for the
purpose  of planned maintenance and which requirements may materially affect the
parties  respective  abilities to purchase and/or deliver the product commitment
specified  in article 2.0 (a) above during such periods. In recognition of these
maintenance needs, each party shall have the right to declare to the other party
such  periods  of maintenance as they arise, and be relieved of part, or all of,
the  obligations,  to  purchase or deliver during such periods. Such maintenance
periods  shall  not exceed 30 days in the aggregate in any contractual year. The
parties  will  make reasonable efforts to give advance notice to the other party
of  the  planned initiation and expected extend of such periods. In addition the
parties will use reasonable efforts to minimize the length and frequency of such
periods  and  to  maintain  as  much  of  the  commitment  as  practical.

     3.  TERM.  This  Agreement shall be effective, regardless of when executed,
         ----
as  of  December  1,  2003  and  shall continue until October 30, 2006 ("Primary
Term")  and  thereafter  from  year-to-year  unless  and  until (i) either Party
terminates  the  Agreement  by  providing  written  notice to the other at least
ninety  (90) days prior to the expiration of the Primary Term or any anniversary
of  the  expiration  of  the  Primary  Term or (ii) this Agreement is terminated
pursuant  to  Section  5  (b).

     4.  DELIVERY  POINTS.  KHLP shall deliver the Propane sold hereunder to the
         ----------------
ExxonMobil  Delivery  Point.  If  the  ExxonMobil  Delivery  Point  is unable or
unwilling  to  accept all or a portion of the Propane for any reason, KHLP shall
deliver  the Propane not accepted to the Gulf Terra Delivery Point.   KHLP shall
use  reasonable efforts to make deliveries to the Exxon Delivery Point, prior to
initiating  deliveries  to  Gulf  Terra.

     5.  (a)  PRICE.  Subject  to  the  following,  for  each  Gallon of Propane
              -----
delivered hereunder, Penn Octane shall pay KHLP an amount equal to the following
("Sale  Price"):

<TABLE>
<CAPTION>
     PERIOD                                                PRICE
     ------                                                -----
<S>                                                        <C>

     (i)     December 1, 2003 through March 31, 2004       Mt. Belvieu OPIS Average (non-TET)
                                                           plus 1/4 c /gal

     (ii)    April 1, 2004 through September 30, 2004      Mt. Belvieu OPIS Average (non-TET)

     (iii)   October 1, 2004 through September 30, 2005    Mt. Belvieu OPIS Average (non-TET)
                                                           minus 1/2 c /gal

     (iv)    October 1, 2005 through September 30, 2006    Mt. Belvieu OPIS Average (non-TET)
                                                           minus 1/2 c /gal
</TABLE>

          (b)  PRICE  REOPENER.  Either  party  shall have the right to open the
               ---------------
pricing  provisions  of  the  contract  for  the  period October 1, 2005 through
September  30,  2006  by  giving  the other party at least 90 days prior written
notice.  The  parties  shall  negotiate in good faith for the 90 days proceeding
October  1,  2005  to


<PAGE>
come  to  a mutually agreeable price. If after opening the pricing provisions of
the  contract,  no  Agreement  can  be  reached  by  October  1, 2005, then this
Agreement  shall  expire.

     6.  TITLE:  RISK  OF  LOSS.  Title to and risk of loss of the Propane shall
         ----------------------
pass  from  KHLP  to  Penn  Octane  as the Propane passes the flange connections
between  the  delivery  and  receiving  pipeline at the Delivery Point(s).  Penn
Octane shall own and have control, custody, and possession of the Propane, shall
bear  all costs and risks of transporting same, and shall be responsible for any
damage,  loss  or  injury  caused thereby after KHLP delivers the Propane at the
Delivery  Point(s).  Penn  Octane  shall  have  the right to inspect the Propane
immediately after delivery. Penn Octane's failure to give written notice to KHLP
of  any  claim, including off-spec Propane within fifteen (15) days from date of
delivery shall constitute an unqualified acceptance of such Propane and a waiver
by  Penn  Octane  of  all  claims  with  respect  thereto.

     7.  MEASUREMENT.  The  quantities of Propane delivered to Penn Octane shall
         -----------
be determined by the Delivery Point Meter(s).  All quantities shall he corrected
to  standard  conditions of sixty (60 ) degrees Fahrenheit and equilibrium vapor
pressure  in  accordance with the API Manual of Petroleum Measurement Standards,

     8.  WARRANTIES.  KHLP  warrants  that:  (a)  at  the  time  the  Propane is
         ----------
delivered  to  the  Delivery  Point(s), the Propane will meet the specifications
required  herein;  and  (b)  KHLP  has  good  title  to  the Propane at delivery
hereunder.  KHLP  EXTENDS NO IMPLIED WARRANTY OF MERCHANTABILITY, WHOLESOMENESS,
OR  FITNESS  FOR  A  PARTICULAR  PURPOSE.  WITHOUT  LIMITATION  OF THE FOREGOING
SENTENCE,  ALL  OTHER  WARRANTIES  OF  KHLP, EXPRESSED OR IMPLIED, ARE EXCLUDED.

     9.  UPFRONT  LETTER  OF  CREDIT.  Each  Month,  Penn  Octane  shall deliver
         ---------------------------
eligible  collateral  in  an  amount  equal  to  the Expected Aggregate Exposure
calculated by KHLP, at least three business days prior to the first calendar day
of  the  Month.  Eligible  collateral  shall  mean  US dollars or an irrevocable
standby letter of credit, issued in a format and by a bank acceptable to KHLP in
its  sole  discretion.  All banking charges, fees and expenses shall be borne by
Penn  Octane.  Expected Aggregate Exposure as of any calculation date shall mean
an  amount equal to the sum of the actual volume delivered each day of the Month
in question multiplied by the Sale Price, estimated by KHLP, plus the sum of the
expected  daily  volumes yet to be delivered in the same Month multiplied by the
Sale  Price, estimated by KHLP. The Expected Aggregate Exposure calculated prior
to  the  first  day  of  the  Month in order to determine the upfront collateral
requirement  will,  by  definition, not include any actual volumes delivered, in
which case, KHLP will estimate the expected daily volume for the entire month as
well  as  the  expected  Sales Price for the Month. KHLP may on any business day
recalculate  the  Expected  Aggregate Exposure for the entire month, and require
additional  collateral  from  Penn Octane. If at any time Penn Octane's Expected
Aggregate Exposure exceeds eighty percent (80%) of the Eligible Collateral, KHLP
may require additional Eligible Collateral until the Expected Aggregate Exposure
is  less than eighty percent (80%) of the eligible collateral, Penn Octane shall
deliver  additional  Eligible  Collateral  to  KHLP  within  two business day of
request  from  KHLP  to  the  following  address:

          Koch  Hydrocarbon,  LP
          4111  East  37th  Street,  North
          Wichita.  KS  67220  USA
          Phone:  (316)  828-6907
          Fax:  (316)  828-4967
          Telex:  417376
          Attn:  Kevin  Shelton


<PAGE>
     10.  PAYMENT  Penn  Octane  shall  remit  all sums due KHLP pursuant to any
          -------
invoice within ten (10) business days after the date of the invoice. Should Penn
Octane  fail  to  pay  all  or any part of any invoice when due, interest on the
outstanding  balance  shall  accrue  from the date due until the date payment is
received  by  KHLP  at the lesser of (i) the Chase Manhattan prime lending rate,
plus  two  percent  (2%) per annum, or (ii) the maximum interest rate allowed by
law.  Any  invoice shall be final as to the Parties unless questioned in writing
within  2 years after payment has been made thereon. If Penn Octane fails to pay
all  or  any  part  of  any invoice, it shall not be in breach of this provision
until  five  (5)  days  after  receiving  notice  from KHLP of such non-payment.



     11.  Default
A.   Notwithstanding  any  other  provision  herein,  the  following  shall each
     constitute  an  event  of default: a party or if the obligations of a party
     are  guaranteed by another party whether under this agreement or otherwise,
     the  guarantor of such party (each or either a "Non-Performing Party" shall
     (I) default in the payment or performance of any material obligation to the
     other  party (the "Performing Party") under this or any other contract, and
     such  default  shall  continue for three Business Days after Notice of such
     Default  to  the  Non-Performing  Party;  (II) file a petition or otherwise
     commence  or  authorize  the commencement of a proceeding or case under any
     bankruptcy,  reorganization, or similar law for the protection of creditors
     or  have  any such petition filed or proceeding commenced against it; (III)
     otherwise  become bankrupt or insolvent (however evidenced); (IV) be unable
     to pay its debts as the fall due by acceleration or otherwise; (V) merge or
     become consolidated with any other entity or transfer, by any means, all or
     substantially  all of its assets to another entity and the creditworthiness
     of  the resulting, surviving or transferee entity is materially weaker than
     that  of  the  Non-Performing  Party  immediately  prior  to such action as
     reasonably  determined by the Performing Party; (VI) fails to give adequate
     security  for,  or  assurance  or,  its  ability to perform its obligations
     hereunder  or  under  any  other  contract  within  two  business days or a
     reasonable  request therefor from the Performing Party; or (VII) disaffirm,
     disclaim,  repudiate  or  reject,  in  whole  or  in part, or challenge the
     validity  of  the  Guaranty  issued  by  the  Guarantor.

B.   Upon the occurrence of an event of default described above, and for so long
     as  such  event  of  default  is continuing, the Performing Party shall, in
     addition  to  all  other  rights  and  remedies available to the Performing
     Party, have the right to immediately terminate this transaction (and in the
     case  of  any  event  of  default  described in subsections (A)(II) through
     (A)(VII)  above,  any other transaction, contract or obligation between the
     Non-Performing  Party  and  the  Performing Party and the affiliates of the
     Performing  Party  by  notice  in  writing  to  the  Non-Performing  Party.

C.   The  Non-Performing  Party  shall  indemnify  and hold the Performing Party
     harmless  from  all  losses damages costs and expenses including reasonable
     attorneys  fees  (collectively  "Losses"),  incurred  in connection with an
     event  of  default, termination, or exercise of any remedies hereunder. The
     Performing  Party  shall  in a commercially reasonable manner calculate its
     losses,  if  any,  resulting  from such default, termination or exercise of
     remedies.

D.   Without  limitation, the Performing Party may net and set off amounts which
     the  Performing  Party  or  any of its affiliates owe to the Non-Performing
     Party  against  any  amounts  which  the  Non-Performing  Party owes to the
     Performing  Party  or  any  of  its  affiliates (whether hereunder, under a
     forward  contract  or  any other contract and whether or not then due). The
     Performing  Party  shall  notify the Non-Performing Party of the net amount
     owed  to  the  Performing  Party and its affiliates, and the Non-Performing
     Party  shall  pay  such  amount to the Performing Party in full within five
     business  days  of  such  notice  being  given,  which  amount


<PAGE>
     shall bear interest at the prime rate as listed in the Wall Street Journal,
     plus  two  percentage  points  from  the  date  of  termination.

E.   This  section  shall  be  without prejudice and in addition to any right of
     termination, setoff, combination of accounts, lien, or other right to which
     the  Performing  Party  is  at  any  time  otherwise  entitled  (whether by
     operation  of  law,  contract,  or  otherwise).

F.   Notwithstanding  any provision herein to the contrary, the Performing Party
     shall  not  be  required  to pay to the Non-Performing Party any amount due
     under  this  contract  until  the  Performing  Party  receives confirmation
     satisfactory  to  it, in its reasonable discretion, that all obligations of
     any kind whatsoever of the Non-Performing Party to make any payments to the
     Performing  Party  or  any  of the affiliates of the Performing Party under
     this  or  any  other  contract  have  been  or  will  be  fully and finally
     performed;  nor  shall  the  Performing Party be required to compensate the
     Non-Performing Party for any losses incurred by the Non-Performing Party in
     connection  with  a  default  or  termination  hereunder.

G.   The  parties  agree that this contract constitutes a "Forward Contract" and
     that  each  party  is a "Forward Contract Merchant" for purposes of Section
     556  of  the  U.S.  Bankruptcy  Code.

H.   The Performing Party's rights under this provision shall be in addition to,
     and  not  in  limitation  or  exclusion  of,  any  other  rights  which the
     Performing  Party  may  have  (whether  by  agreement,  operation of law or
     otherwise),  including  any right and remedies under the Uniform Commercial
     Code.

     12.  TAXES. Penn Octane shall be responsible for all other taxes imposed or
          -----
levied  by  a  governmental  agency upon or after the delivery of Propane at the
Delivery  Point(s).  If  KHLP  pays  or  remits  a  tax  which  is Penn Octane's
responsibility,  Penn  Octane shall reimburse KHLP for such taxes within 10 days
after the date of KHLP's invoice. If Penn Octane is exempt from paying a tax, it
shall  provide  KHLP  with  a  certificate  evidencing  the  exemption,

     13.  FORCE  MAJEURE. Notwithstanding any other provision in this Agreement,
          --------------
no  failure  to  carry  out  or observe any of the provisions of this Agreement,
except  the  obligation  to  pay  money  when  due, shall give rise to any claim
against  either Party or be deemed a breach of this Agreement if such failure or
omission  arises  from an event of Force Majeure. "Force Majeure" shall mean any
cause  or  causes  reasonably beyond the control of either Party or which either
Party  is unable to prevent or overcome by the exercise of reasonable diligence.
Without  limiting the generality of the foregoing, the following shall be deemed
to  be  events  of  Force  Majeure:  (a)  acts of God or the public enemy, fire,
explosion,  storms,  flood,  war,  riot,  sabotage,  accident,  embargo;  or (b)
interruption  of  or  delay  in  transportation,  lack of capacity on pipelines,
inadequacy, shortage or failure of a Party's normal source of supply of product,
breakdowns,  labor  trouble  from  whatever cause arising and whether or not the
demands  of  the employees involved are reasonable and within said party's power
to  concede;  or  (c) compliance with any order, action, direction or request of
any  governmental  officer,  department, agency, authority or committee thereof,
including  any  direction  or order restricting or limiting the selling price of
the  Propane  which  renders  it impossible for KHLP, in its sole discretion, to
make  a  reasonable  profit  on  such  sale.

In the event either Party hereto is rendered unable, by reason of Force Majeure,
to  carry  out  in  whole or in part its obligations under this Agreement, other
than the obligation to make payments due hereunder, that Party shall give notice
of the Force Majeure event in writing or by facsimile to the other Party as soon
as  possible after the occurrence of the event. The obligations of the notifying
Party  shall,  insofar  as they are affected by such Force Majeure, be suspended
during the continuance of any inability so caused, but for no longer period, and
Such


<PAGE>
cause  shall,  as  far  as  possible,  be remedied with all reasonable dispatch;
provided,  however,  that  the  settlement  of  strikes,  lockouts  and  labor
difficulties  shall  be solely within the discretion of the Party claiming Force
Majeure.

     14.  INDEMNITY.  Penn  Octane  shall  indemnify  and  hold  KHLP  and  its
          ---------
affiliates  harmless  from  any  claim, demand, lawsuit, cause of action, strict
liability  claim, penalty, fine, or administrative law action or order, and from
expenses  (including but not limited to attorneys' fees) and costs of every kind
and  character  on  account  of personal injuries, death, damage to property, or
damage  to  the  environment  and arising out of or related to Perm Octane's, or
Perm  Octane's  employees',  agents', contractors', or carriers' transportation,
use,  handling, re-sale, misuse, or disposal of the Propane purchased hereunder,
or  arising  out  of  or  in  any  way incident to the use or misuse of pipeline
facilities  in  which  the  Propane  is  transported or stored subsequent to the
passage  of  title  to  the  Propane  from  KHLP  to Penn Octane hereunder. Perm
Octane's duty to indemnify and hold harmless hereunder shall survive termination
of  this Agreement or the cessation of business transactions between Penn Octane
and  KHLP.

     15.  UNSAFE  CONDITIONS.  KHLP reserves the right, in it's sole discretion,
          ------------------
to  reject  any  pipelines  presented  for transportation which would present an
unsafe or potentially unsafe situation. In addition, KHLP reserves the right, in
its  sole  discretion,  to refuse to deliver any product under any conditions it
deems  unsafe,  which  is  caused  by,  including but not limited to, personnel,
equipment,  procedures,  and/or  weather  conditions.

     16.  LIMITATION OF REMEDIES.  KHLP's liability, and Penn Octane's exclusive
          ----------------------
remedy,  for  any  cause  of  action  (whether in contract, warranty, guarantee,
failure  of  essential  purpose,  tort,  violation  of  law, strict liability or
otherwise)  arising out of or related to this Agreement is expressly limited, at
KHLP's option, to:   (a) replacement of nonconforming product; or (b) payment of
the  Sale Price allocable to the Propane determined to be nonconforming.   IN NO
EVENT  SHALL  KHLP'S  CUMULATIVE  LIABILITY  HEREUNDER BE IN EXCESS OF THE TOTAL
SALES  PRICE  AT  THE  DELIVERY POINT OF THE PROPANE GIVING RISE TO THE CAUSE OF
ACTION.  WITHOUT  LIMITATION  OF  ANY  OTHER PROVISION HEREIN, KHLP SHALL NOT BE
OBLIGATED  FOR  LOST  PROFITS  OR  ANY  SPECIAL,  INDIRECT,  INCIDENTAL,  OR
CONSEQUENTIAL  DAMAGES. PENN OCTANE REPRESENTS AND AGREES THAT THE RETURN OF THE
FULL SALES PRICE BY KHLP AS ABOVE SET FORTH SHALL PREVENT THE FOREGOING REMEDIES
FROM  FAILING  OF  THEIR  ESSENTIAL PURPOSE, AND THAT SUCH REMEDIES ARE FAIR AND
ADEQUATE.

     17.  ODORIZATION.  PENN  OCTANE  ACKNOWLEDGES  AND  AGREES  THAT  AT  PENN
          -----------
          OCTANE'S  DIRECTION  KHLP  WILL NOT STENCH THE PROPANE SOLD HEREUNDER,
          AND THAT KHLP IS UNDER NO OBLIGATION, LEGAL OR OTHERWISE, TO DO SO. TO
          THE  FULLEST  EXTENT PERMITTED BY LAW, PENN OCTANE AGREES TO INDEMNIFY
          AND  HOLD HARMLESS KHLP AND ITS AFFILIATES FROM AND AGAINST ANY CLAIM,
          ACTION. CAUSE OF ACTION OR ADMINISTRATIVE OR ENFORCEMENT ACTION OF ANY
          KIND,  OR  ANY CLAIMED LIABILITY, LOSS, DAMAGE OR EXPENSE, ARISING OUT
          OF,  RELATED  TO,  OR  CONNECTED  WITH  THE  LACK  OF STENCHING OF THE
          PROPANE. Penn Octane hereby certifies that stenching or odorization of
          the  Propane will (1) be harmful to its use or farther processing; and
          (2) serves no useful purpose as a warning agent in such use or further
          processing. Penn Octane further represents and acknowledges that it is
          familiar  with  and  knowledgeable of the legal requirements regarding
          odorization,  and  that  Penn  Octane  will  comply  with  all  such
          requirements.  Penn Octane grants to KHLP the right, in its reasonably
          exercised  discretion,  to  conduct  such inquiries, audits, and other
          activities  as  may  be reasonably necessary to verify the accuracy of
          the  foregoing  certifications  and  representations.


<PAGE>
     18.  WARNINGS.  Penn  Octane acknowledges receipt from KHLP of the Material
          --------
Safety Data Sheet for the Propane, and has reviewed and understands the warnings
and  information  regarding the characteristics and hazards of handling or using
the  Propane  contained  therein  and  otherwise set forth in this Agreement The
Parties  acknowledge and agree that KHLP has no practical or effective method of
warning  Penn  Octane's  customers  of  the  characteristics  and hazards of the
Propane,  and  that  KHLP is under no obligation to provide any such warnings or
other  product  information  to  any  such  downstream  purchasers.  Penn Octane
warrants  and  represents  that it is capable of communicating such warnings and
information, and that Penn Octane will communicate such warnings and information
to  all  persons Penn Octane reasonably anticipates handling, using or otherwise
coming into contact with the Propane, including without limitation, warnings and
information  regarding  the  odorization  of  the  Propane.

     19.  HAZARDOUS  MATERIALS.  If,  and  to the extent, Penn Octane transports
          --------------------
hazardous materials (as listed in the Tables of 49 C.F.R. 172.101 and 172.102 as
amended  from  time  to  time)  pursuant  to  this Agreement, Penn Octane hereby
warrants  that  all  hazardous materials shall be prepared for transportation in
compliance  with  all  applicable  federal,  state  and  local  laws,  rules and
regulations  regarding  the  handling and transportation of hazardous materials,
Perm  Octane  shall  indemnify  and  defend KHLP from all liability, of whatever
nature, to which KHLP may become subject as a result of Penn Octane's failure to
comply  therewith.

     20.  LAY  AND  JURISDICTION.  This Agreement and its execution, performance
          ----------------------
or  nonperformance,  interpretation,  construction,  enforcement  and  any issue
arising  out  of  or  in connection therewith shall be governed by the law, both
procedural  and  substantive,  of  the  State  of  Kansas, without regard to its
principles  of  conflicts of law. The Parties agree that venue is to be Wichita,
Kansas.  This  Agreement  shall  be  subject  to  all  applicable  laws,  rules,
regulations  and orders of any governmental agency or tribunal with jurisdiction
over  the  Parties  or  the  subject  matter  hereof.   If any provision of this
Agreement  is held to be invalid, illegal or unenforceable, all other provisions
shall  remain  valid,  effective  and  fully  enforceable.

     21.  NOTICES.  All  notices,  reports  and other communications required or
          -------
permitted  hereunder  shall  be  deemed properly given if in writing and sent by
registered  or  certified  mail,  with  all postage or charges My prepaid, or by
facsimile  to  the  other  Party  at  the  address(es)  stated  below.



       PENN OCTANE CORP.:                     KOCHHVDROCARBON, LP.:
       -----------------                      ---------------------
       Penn Octane Corporation                Attn: NGL Accounting
       Attn: VP Gas Liquids                   4111 E. 37th St. North
                                                 P.O. Box 2911
       820 Gessner Rd., Suite 1285            Wichita, Kansas 67201-2911
       Houston, TX 77024
       Fax No.: 713-467-8258                  Fax No.: (316) 828-7972

Notices  of  change  of address of either Party shall be given in writing to the
other  in  accordance  with  this  section.

     22.  THIRD  PARTY BENEFICIARIES.  There are no third-party beneficiaries to
          --------------------------
this  Agreement,  and  the  provisions of this Agreement shall not impart rights
enforceable by any person, firm or organization not a Party or not a permissible
successor  or assignee of a Party to this Agreement, and neither are the Parties
an  agent  employee,  trustee  or  fiduciary  for  the  other  party.


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     23.  JOINT ACTION.  This Agreement was prepared jointly by the Parties, and
          ------------
not  by  either  Party  to  the  exclusion  of  the  other,

     24.  ASSIGNMENT.  Neither  this  Agreement nor any interest herein shall be
          ----------
assigned  by either Party  without the prior written consent of the other Party;
provided  that consent to an assignment shall not be unreasonably withheld.  Any
assignment  made in contravention of this section shall be void at the option of
the  other  Party,

     25.  TITLES.  The  numbering  and  titling of particular provisions of this
          ------
Agreement  are  solely  for convenience of reference and shall have no effect on
the  interpretation  or  construction  of  this  Agreement.

     26.  COUNTERPARTS.  This Agreement may be executed in multiple counterparts
          ------------
and  by  different  Parties  on  separate  counterparts,  each  of which when so
executed  shall  be  deemed  to be an original and all of which, taken together,
shall  constitute  one  agreement.

     27.  ENTIRE  AGREEMENT.  No  statements or agreements, oral or written, not
          -----------------
contained herein or in a future amendment, hereto executed by both Parties shall
vary  or  modify  the  terms  hereof.  Neither Party shall claim any amendments;
modifications  or  release  from  any  provisions  hereof  unless the same is in
writing signed by each of the Parties hereto and specifically states the same is
an  amendment  to  this  Agreement.

     28.  WAIVER.  Notwithstanding  any  other  provision  of this Agreement, no
          ------
waiver  by  either Party of any breach or default in performance of any covenant
herein by the other Party shall operate or be construed as a waiver of any other
breach  or  default,  whether  of  a  like or different character, nor shall any
failure  to exercise any right hereunder be considered a waiver of such right in
the  future.




     IN  WITNESS  WHEREOF, the Parties hereto have executed this Agreement as of
the  10th  day  of  December,  2003


PENN OCTANE CORPORATION                 KOCH HYDROCARBON,, LP


By:  /s/ Charles Handly                 By:  /s/ Steve Tatum
   -----------------------------           ---------------------------
Printed Name:  Charles Handly           Printed Name:  Steve Tatum
Title:  Exec. Vice President            Title:  President - KHLP


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