PURCHASE AGREEMENT
                               ------------------


     THIS  PURCHASE  AGREEMENT made and entered into as of March 19, 1999 by and
between  Steve  Payne  (the "Purchaser") and Penn Octane Corporation, a Delaware
corporation  (the  "Company").

     WHEREAS,  the  Company  wishes to sell and the Purchaser wishes to purchase
(i)  60,606  shares (the "Shares") of common stock, par value $.01 per share, of
the  Company  ("Common  Stock")  for  $1.65  per  share,  and  (ii)  a  warrant,
exercisable  until March 19, 2002 at $2.59 per share of Common Stock (subject to
adjustment),  to  purchase  30,303 shares (the "Warrant Shares") of Common Stock
substantially in the form of Exhibit 1 hereto (the "Warrant"; the Shares and the
Warrant  being  herein  collectively  referred  to  as  the  "Securities");  and

     WHEREAS,  the Company and the Purchaser desire to enter into a Registration
Rights  Agreement  with  respect  to  the  Shares  and  the  Warrant  Shares,
substantially  in the form annexed as Exhibit 2 hereto (the "Registration Rights
Agreement"),  all  on  the  terms  and  conditions  set  forth  herein;
     NOW,  THEREFORE,  in consideration of the agreements and obligations herein
contained,  the  Purchaser  and  the  Company  hereby  agree  as  follows:

     1.     Purchase  and  Sale  of  the  Securities.  Subject  to the terms and
            ----------------------------------------
conditions  set  forth  in  this  Agreement,  the  Company agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, the Securities
for  a  purchase  price  equal  to  One  Hundred Thousand ($100,000.00) Dollars.

     2.     The  Closing.  The  closing (the "Closing") of the purchase and sale
            ------------
of  the Securities shall take place on March 19, 1999 at 5:00 P.M. local time at
the  offices  of  the Company in Redwood City, California, or at such other time
and  place  as  the  Company and the Purchaser shall agree.  At the Closing, the
Purchaser  shall  deliver  to  the  Company  payment  for  the  Securities being
purchased  in  immediately  available  funds  and  the Company shall deliver the
Shares  and  the  Warrant  to  the  Purchaser.

<PAGE>
     3.     Registration  Rights.  The  Purchaser  shall  have such registration
            --------------------
rights  with respect to the Share and the Warrant Shares as are set forth in the
Registration  Rights  Agreement.

     4.     Representations  and  Warranties of the Company,  As of the Closing,
            -----------------------------------------------
the  Company  represents  and  warrants  that:

          (a)     the  Company is a corporation duly organized, validly existing
and  in  good  standing  under  the  laws  of the State of Delaware, and has the
requisite  corporate  power  and authority to execute and deliver this Agreement
and  to  perform  its  obligations  hereunder;

          (b)     the execution, delivery and performance of this Agreement, and
the  sale  and  delivery  of  the  Securities  have  been duly authorized by all
necessary  corporate  action  on  the part of the Company and do not violate any
covenant  contained  in  any  agreement  to  which  the  Company is a party; and

          (c)     the  Warrant  Shares, when issued upon exercise of the Warrant
and  payment  therefor,  will  be  legally  and  validly  issued, fully paid and
nonassessable.

                                      - 2 -
<PAGE>
     5.     Representations  and  Warranties  of  the  Purchaser.  The Purchaser
            ----------------------------------------------------
represents  and  warrants  as  follows:

          (a)     General:
                  -------

               (i)     The  Purchaser  has all requisite authority to enter into
this Agreement and to perform all of the obligations required to be performed by
it  hereunder.

               (ii)     Neither  the  Company nor any person acting on behalf of
the  Company has offered or sold the Securities to the Purchaser by means of any
form  of  general  solicitation  or  general advertising.  The Purchaser has not
received,  paid or given, directly or indirectly, any commission or remuneration
for  or  on  account  of  any  sale,  or  the  solicitation  of any sale, of the
Securities.

          (b)     Information  Concerning  the  Company:
                  -------------------------------------

               (i)     The Purchaser is familiar with the business and financial
condition,  properties,  operations  and  prospects  of  the  Company.

               (ii)     The Purchaser has been given full access to all material
information  concerning  the  condition, properties, operations and prospects of
the Company.  The Purchaser and his advisors (if any) have had an opportunity to
ask  questions  of,  and  to  receive  information from, the Company and persons
acting  on  its  behalf  concerning  the terms and conditions of the Purchaser's
investment in the Securities, and to obtain any additional information necessary
to  verify  the  accuracy of the information and data received by the Purchaser.
The  Purchaser is satisfied that there is no material information concerning the
condition,  properties,  operations  and  prospects  of  the  Company  of  which
Purchaser  is  unaware.

               (iii)     The  Purchaser  has made, either alone or together with
his  advisors  (if  any),  such  independent  investigation  of the Company, its
management, and related matters as the Purchaser deems to be, or the Purchaser's
advisors  (if any) have advised to be, necessary or advisable in connection with
this  investment;  and the Purchaser and his advisors (if any) have received all
information and data which the Purchaser and his advisors (if any) believe to be
necessary  in  order  to  reach  an  informed decision as to the advisability of
investing  in  the  Securities.

                                      - 3 -
<PAGE>
               (iv)     The  Purchaser  understands  that  all  the  Purchaser's
representations  and  warranties  contained  in this Agreement will be deemed to
have  been  reaffirmed  and  confirmed  as  of  the  Closing.

               (v)     The  Purchaser  understands  that  the  purchase  of  the
Securities  involves  various risks, including the risk that it is unlikely that
any  market  will  exist  for  any  resale of the Warrant and that resale of the
Shares,  the  Warrant  and  the  Warrant  Shares  will  be  restricted as herein
provided.

          (c)     Status  of  Purchaser:
                  ---------------------

               (i)     The  Purchaser  either alone or with Purchaser's advisors
(if  any)  has  such  knowledge, skill and experience in business, financial and
investment  matters  as  to  be capable of evaluating the merits and risks of an
investment  in  the  Securities.  To the extent that the Purchaser has deemed it
appropriate to do so, the Purchaser has retained at Purchaser's own expense, and
relied  upon,  appropriate professional advice regarding the investment, tax and
legal  merits  and  consequences  of  this  Agreement and owning the Shares, the
Warrant  and  Warrant  Shares,  as  the  case  may  be.

          (d)     Restrictions  on  Transfer  or  Sale
                  ------------------------------------

               (i)     The  Purchaser is acquiring the Securities and any shares
of  Common  Stock  purchased  upon  exercise  of  the Warrant solely for its own
account,  for  investment  purposes,  and  not  with a view to, or for resale in
connection  with,  any distribution of the Shares, the Warrant or such shares of
Common  Stock.  The  Purchaser  understands that neither the Shares, the Warrant
nor  such  underlying Common Stock have been registered under the Securities Act
of  1933, as amended (the "Securities Act"), or the securities laws of any state
(collectively  referred  to  as  "State  Securities Laws") by reason of specific
exemptions under the provisions thereof which depend in part upon the investment
intent  of  the Purchaser and of the other representations made by the Purchaser
in  this  Agreement.  The Purchaser understands that the Company is relying upon
the  representations  and  agreements  contained  in  this  Agreement  (and  any
supplemental  information)  for  the  purpose  of  determining  whether  this
transaction  meets  the  requirements  for  such  exemptions.

                                      - 4 -
<PAGE>
               (ii)     The  Purchaser  understands that the Shares, the Warrant
and  such  underlying  Common Stock are "restricted securities" under applicable
federal  securities  laws  and  that  the  Securities  Act  and the rules of the
Securities  and Exchange Commission (the "Commission") provide in substance that
the  Purchaser may dispose of such securities or any of them only pursuant to an
effective  registration  statement  under  the  Securities  Act  or an exemption
therefrom,  and understands that the Company has no obligations or intentions to
register any of such securities thereunder, or to take any other action so as to
permit  sales  pursuant  to  the  Securities  Act,  except  as  set forth in the
Registration  Rights  Agreement.  Accordingly,  the  Purchaser  understands that
under  the  Commission's  rules,  unless  disposed  of  pursuant to an effective
registration  statement  under  the Securities Act, the Purchaser may dispose of
the  Note,  Warrants  and  underlying  Common  Stock only in accordance with the
provisions  of Rule 144 under the Securities Act, to the extent available, or in
"private  placements"  which  are  exempt from registration under the Securities
Act,  in which event the transferee will acquire "restricted securities" subject
to  the  same  limitations  as in the hands of the Purchaser.  As a consequence,
absent  such  an  effective registration statement under the Securities Act, the
Purchaser  understands that it may be required to bear the economic risks of the
investment in the Securities (and the underlying Common Stock) for an indefinite
period  of  time.

               (iii)     The Purchaser agrees that (a) it will not sell, assign,
pledge,  give, transfer, of otherwise dispose of the Shares, the Warrant or such
underlying  Common  Stock or any interest in any thereof or therein, or make any
offer  or attempt to do any of the foregoing, except pursuant to registration of
such  securities  under  the  Securities Act and any applicable State Securities
Laws  or  in  a  transaction  which, in the opinion of counsel for the Purchaser
satisfactory to the Company (which requirement may be waived by the Company upon
advice of counsel), is exempt from the registration provisions of the Securities
Act  and  any  applicable State Securities Laws; (b) the Shares, the Warrant and
any  certificate(s)  representing shares of Common Stock issued upon exercise of
the  Warrant  may  bear a legend making reference to the foregoing restrictions;
and  (c) the Company and any transfer agent for shares of its Common Stock shall
not  be  required  to  give  effect  to  any  purported  transfer of any of such
securities  except  upon  compliance  with  the  foregoing  restrictions.

                                      - 5 -
<PAGE>
               (iv)     In  no  event  shall  any  sale,  assignment,  pledge or
transfer  of  the  Shares,  the  Warrant  or such underlying Common Stock by the
Purchaser  to  a transferee give rise to rights of any such transferee under the
Registration  Rights  Agreement.

     6.     Conditions  to  Obligations  of  Purchaser  and  the  Company.  The
            -------------------------------------------------------------
obligations  of  the  Purchaser to purchase and pay for the Securities specified
herein and of the Company to sell and deliver such Securities are subject to the
satisfaction  at  or prior to the Closing of the following conditions precedent:

          (a)     The representations and warranties of the Company contained in
Section  4  hereof  and  of the Purchaser contained in Section 5 hereof shall be
true  and  correct on and as of the Closing in all respects with the same effect
as though representations and warranties had been made on and as of the Closing.

          (b)     The  Company  and  the  Purchaser  shall  each have received a
certificate  from an executive officer of the other party to the effect that its
representations  and  warranties  are  still  valid.

          (c)     The  Company  and  the  Purchaser shall each have executed and
delivered  the  Registration  Rights  Agreement.

     7.     Fee.   No  fee.
            ---

     8.     Waiver, Amendment.  Neither this Agreement nor any provisions hereof
            -----------------
shall  be modified, changed, discharged or terminated except by an instrument in
writing  signed  by  the  party  against  whom  any waiver, change, discharge or
termination  is  sought.

                                      - 6 -
<PAGE>
     9.     Assignability.  Neither  this  Agreement  nor  any  right,  remedy,
            -------------
obligation  or  liability  arising  hereunder  or  by  reason  hereof  shall  be
assignable  by  either  the  Company  or the Purchaser without the prior written
consent  of  the  other party, which consent shall not be unreasonably withheld.

     10.     Applicable  Law.  This Agreement shall be governed by and construed
             ---------------
in  accordance with the law of the State of New York, regardless of the law that
might  be  applied  under  principles  of  conflicts  of  law.

     11.     Section  and  Other  Headings.  The  section  and  other  headings
             -----------------------------
contained in this Agreement are for reference purposes only and shall not affect
the  meaning  or  interpretation  of  this  Agreement.

     12.     Counterparts.  This  Agreement  may  be  executed  in any number of
             ------------
counterparts, each of which when so executed and delivered shall be deemed to be
an  original  and  all  of which together shall be deemed to be one and the same
agreement.
     13.     Notices.  All  notices and other communications provided for herein
             -------
shall  be  in  writing  and shall be deemed to have been duly given if delivered
personally  or  by  facsimile  (with  proof of receipt) or sent by registered or
certified  mail,  return  receipt  requested,  postage  prepaid:

          (a)     If  to  the  Company,  to  it  at  the  following  address:

               Penn  Octane  Corporation
               900  Veterans  Boulevard,  Suite  540
               Redwood  City,  California  94603

               Attn:  Jerome  B.  Richter,
                      President

               with  a  copy  to:

               Kevin  Finck,  Esq.
               Two  Embarcadero  Center,  Suite  1670
               San  Francisco,  CA  94111

                                      - 7 -
<PAGE>
          (b)  If  to  the  Purchaser,  at  the  following  address:
               Steve  Payne
               1707  Sunset  Drive
               Carbondale,  IL  62901

               with  a  copy  to:

               ______________________
               ______________________
               ______________________
               ______________________

or  at  such  other  address  as  either party shall have specified by notice in
writing  to  the  other.

     14.     Binding  Effect.  The provisions of this Agreement shall be binding
             ---------------
upon and accrue to the benefit of the parties hereto and their respective heirs,
legal  representatives,  successors  and  permitted  assigns.

                                      - 8 -
<PAGE>
     IN  WITNESS  WHEREOF,  the  Company  and the undersigned have executed this
Agreement  as  of  this  19  day  of  March  1999.

                                   STEVE  PAYNE


                                   By: /s/ Steve Payne
                                      ------------------------------------------
                                   Name:  Steve  Payne
                                   Title:


                                   PENN  OCTANE  CORPORATION


                                   By: /s/ Jerome B. Richter
                                      ------------------------------------------
                                   Name:  Jerome  B.  Richter
                                   Title:  President and Chief Executive Officer

                                      - 9 -
<PAGE>