PENN OCTANE CORPORATION
              AGREEMENTFOR EXCHANGE OF WARRANTS FOR COMMON STOCK


1.      Penn Octane Corporation (Penn Octane) hereby offers to exchange shares
of  its  Common  Stock, $0.01 par value per share (Common Stock), for all (but
not  less  than  all)  outstanding  warrants  to purchase Common Stock held by
Thomas  A.  Serleth  (Serleth)  (260,000  warrant)  at an exchange rate of 4.4
warrants  for  each share of Common Stock, or an aggregate of 59,091 shares of
Common  Stock.

2.     Penn Octane agrees that the Common Stock so exchanged shall be included
in  the  next  registration  statement (other than with respect to an employee
benefit  plan) filed by the Company, but in no event shall the Company fail to
file such a registration statement with the Securities and Exchange Commission
later  than  six  months  following  the  date  hereof.

3.          In  the  event  that such Common Stock is registered as part of an
underwritten  offering  by the Company, Serleth agrees to be bound by the same
underwriters'  conditions  regarding  sale  of  the registered stock and other
matters  as  the  Company  and  all  other  sellers.    Penn Octane shall  use
reasonable efforts to limit Serleth's "lock up" period, if any, for any Common
Stock  acquired  in  this exchange and not purchased by the underwriter to not
longer  than ninety days, although the parties recognize that such decision is
solely  that  of  the  underwriter.

4.       If the lock up period referred to in paragraph 3 exceeds ninety days,
Serleth may elect not to include his stock in the registration and the Company
shall,  within  a  reasonable  period  of  time  but not later than six months
following  the  underwriting,  file  a  separate  registration for the sale of
Serleth's  shares.

5.          Serleth  represents  and  warrants:

a)       he is the record and beneficial owner of the warrants with full power
and  authority  to  convey  such  warrants to Penn Octane free of any liens or
encumbrances  or  interests  of  third  party;

b)       he is familiar with the business and financial condition, properties,
operations  and  prospects  of  Penn Octane, has been given full access to all
material  information  with respect thereto, and has had an opportunity to ask
questions  of  and  receive information from Penn Octane and persons acting on
its  behalf;

c)          he  has  made, either alone or with his advisors, such independent
investigation  of Penn Octane, its operations and related matters as he and/or
his  advisors  have  deemed  necessary  or  advisable  in  connection with the
exchange  referred  to above, and has received all information and data deemed
necessary  in  order  to  reach an informed decision as to the advisability of
such  exchange;  and

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d)       he is acquiring the Common Stock in such exchange for his own account
for  investment  and with no intention of engaging in any distribution of such
shares,  will  not  dispose  of  any  of such shares except in compliance with
applicable  securities  laws,  and agrees that any certificate(s) representing
such  shares  may  contain  an  appropriate  legend    to  such  effect.

6.     By his execution hereof, Serleth agrees to the above-described exchange
of  Common  Stock
     for warrants on the terms herein set forth.  The Closing on such exchange
shall  take  place
     at the office of the Company, 5847 San Felipe, Suite 3420, Houston, Texas
77057,  at
     10:00 A.M. Houston time on Friday, February 28, 1997.  Promptly following
the  Closing,
     Serleth  will  file  any  required  reports of ownership changes with the
Securities  and
Exchange  Commission.


Dated  February  19,  1997                             Penn Octane Corporation


                                 By: /S/ IAN  T.  BOTHWELL
                                         ____________________________
                                         Ian  T.  Bothwell,  Vice  President