<PAGE>


                                                                    EXHIBIT 10.3
         VOID AFTER 5:00 P.M., NEW YORK CITY
         TIME, ON OCTOBER 4, 2009
         (UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)


         THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
         NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
         "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
         STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY
         NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
         LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
         EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.


                                             Right to Purchase 440,000 Shares of
                                            Common Stock, no par value per share

Date: October 4, 2004


                              NGAS RESOURCES, INC.
                             STOCK PURCHASE WARRANT

         THIS CERTIFIES THAT, for value received, BAYSTAR CAPITAL II, LP, or its
registered assigns, is entitled to purchase from NGAS Resources, Inc., a
corporation organized under the laws of British Columbia, Canada (the
"COMPANY"), at any time or from time to time during the period specified in
Section 2 hereof, FOUR HUNDRED FORTY THOUSAND (440,000) fully paid and
nonassessable shares (the "WARRANT SHARES") of the Company's common stock, no
par value per share (the "COMMON STOCK"), at an exercise price per share (the
"EXERCISE PRICE") equal to $6.00. The number of Warrant Shares and the Exercise
Price are subject to adjustment as provided in Section 4 hereof. The term
"WARRANT" or "WARRANTS" and all references thereto, as used throughout this
instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented, including all
Warrants issued upon transfer or exchange of this Warrant as provided herein,
issued pursuant to that certain Securities Purchase Agreement, dated as of
October 4, 2004, by and among the Company and the other signatories thereto (the
"SECURITIES PURCHASE AGREEMENT").

         This Warrant is subject to the following terms, provisions and
conditions:

         1.       Exercise of Warrant.

                  (a) Subject to the provisions hereof, including, without
limitation, the limitations contained in Section 9 hereof, this Warrant may be
exercised by the holder hereof, in whole or in part, by the surrender of this
Warrant, together with a completed exercise agreement in the form attached
hereto (the "EXERCISE AGREEMENT"), to the Company during normal business hours
on any business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by written notice to the
holder hereof), and upon payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company, of the
Exercise Price for the Warrant Shares specified in the Exercise Agreement.

                  (b) The Warrant Shares purchased upon exercise of this Warrant
in accordance with this Section 1 shall be deemed to be issued to the holder
hereof or the holder's designee, as the record owner of such shares, as of the
close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment shall
have been made for such shares as set forth above

<PAGE>

or, if such date is not a business day, on the next succeeding business day. The
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof or
the holder's designee within a reasonable time, not exceeding two business days,
after this Warrant shall have been so exercised (the "DELIVERY PERIOD"). If the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, and so long as the
certificates therefor do not bear a legend (pursuant to the terms of the
Securities Purchase Agreement) and the holder is not obligated to return such
certificate for the placement of a legend thereon (pursuant to the Securities
Purchase Agreement), the Company shall cause its transfer agent to
electronically transmit the Warrant Shares so purchased to the holder or the
holder's designee by crediting the account of the holder or the holder's
designee or its respective nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC
Transfer are not satisfied, the Company shall deliver to the holder or the
holder's designee physical certificates representing the Warrant Shares so
purchased. Notwithstanding the foregoing, the holder or the holder's designee
may instruct the Company to deliver to the holder or such designee physical
certificates representing the Warrant Shares so purchased in lieu of delivering
such shares by way of DTC Transfer. Any certificates so delivered shall be in
such denominations as may be reasonably requested by the holder hereof or the
holder's designee, shall be registered in the name of the holder or such other
name as shall be designated by the holder and, following the date on which the
Warrant Shares have been registered under the Securities Act pursuant to that
certain Registration Rights Agreement, dated as of October 4, 2004, by and among
the Company and the other signatories thereto (the "REGISTRATION RIGHTS
AGREEMENT") or otherwise may be sold by the holder pursuant to Rule 144
promulgated under the Securities Act (or a successor rule), shall not bear any
restrictive legend. If this Warrant shall have been exercised only in part, then
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.

                  (c) If, at any time, a holder of this Warrant submits this
Warrant, an Exercise Agreement and payment to the Company of the Exercise Price
for each of the Warrant Shares specified in the Exercise Agreement, and the
Company fails for any reason (other than the reasons contemplated by Section 9
hereof) to deliver, on or prior to the fourth business day following the
expiration of the Delivery Period for such exercise, the number of shares of
Common Stock to which the holder is entitled upon such exercise (an "EXERCISE
DEFAULT"), then the Company shall pay to the holder payments ("EXERCISE DEFAULT
PAYMENTS") for an Exercise Default in the amount of (i) (N/365), multiplied by
(ii) the amount by which the Market Price (as defined in Section 10 hereof) of
the Common Stock on the date the Exercise Agreement giving rise to the Exercise
Default is transmitted in accordance with this Section 1 (the "EXERCISE DEFAULT
DATE") exceeds the Exercise Price in respect of such Warrant Shares, multiplied
by (iii) the number of shares of Common Stock the Company failed to so deliver
in such Exercise Default, multiplied by (iv) .24, where N equals the number of
days from the Exercise Default Date to the date that the Company effects the
full exercise of this Warrant which gave rise to the Exercise Default. The
accrued Exercise Default Payment for each calendar month shall be paid in cash
and shall be made to the holder by the fifth day of the month following the
month in which it has accrued. Nothing herein shall limit the holder's right to
pursue actual damages for the Company's failure to maintain a sufficient number
of authorized shares of Common Stock as required pursuant to the terms of
Section 3(b) hereof or to otherwise issue shares of Common Stock upon exercise
of this Warrant in accordance with the terms hereof, and the holder shall have
the right to pursue all remedies available at law or in equity (including a
decree of specific performance and/or injunctive relief).

         2. Period of Exercise. This Warrant shall be exercisable at any time or
from time to time during the period (the "EXERCISE PERIOD") commencing on the
date of initial issuance of this Warrant (the "ISSUE DATE") and ending at 5:00
p.m., New York City time, on the fifth anniversary of the Issue Date. The
Exercise Period shall automatically be extended by one day for each day on which
(a) the Company does not have a number of shares of Common Stock reserved for
issuance upon exercise hereof at least equal to the number of shares of Common
Stock issuable upon exercise hereof or otherwise fails to deliver shares of
Common Stock in the names set forth in Section 1 hereof upon exercise hereof, or
(b) the Warrant Shares are not then otherwise registered for resale as required
pursuant to the terms of the Registration Rights Agreement.




                                       2
<PAGE>

         3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:

                  (a) Shares to be Fully Paid. All Warrant Shares shall, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid and non-assessable and free from all taxes, liens, claims and encumbrances.

                  (b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise in full of this Warrant (without giving effect
to the limitations on exercise set forth in Section 9 hereof).

                  (c) Listing. The Company shall promptly secure the listing or
quotation of the shares of Common Stock issuable upon exercise of this Warrant
upon each national securities exchange or automated or electronic quotation
system, if any, upon which shares of Common Stock are then listed or quoted or
become listed or quoted (subject to official notice of issuance upon exercise of
this Warrant) and shall maintain, so long as any other shares of Common Stock
shall be so listed or quoted, such listing or quotation of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list or apply for quotation on each national securities
exchange or automated or electronic quotation system, as the case may be, and
shall maintain such listing or quotation of, any other shares of capital stock
of the Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed or quoted on such national securities
exchange or automated or electronic quotation system.

                  (d) Certain Actions Prohibited. The Company shall not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the economic benefit inuring to the holder
hereof and the exercise privilege of the holder of this Warrant against dilution
or other impairment, consistent with the tenor and purpose of this Warrant.
Without limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) shall
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

                  (e) Successors and Assigns. This Warrant shall be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.

                  (f) Blue Sky Laws. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(f), (ii) subject itself to general
taxation in any such jurisdiction or (iii) file a general consent to service of
process in any such jurisdiction.

         4. Antidilution Provisions. During the Exercise Period, the Exercise
Price, the Trigger Price (as defined in subsection (e) below) and the number of
Warrant Shares issuable hereunder shall be subject to adjustment from time to
time as provided in this Section 4.

                  (a) Stock Splits, Stock Dividends, Etc. If, at any time during
the Exercise Period, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Trigger Price and the Exercise Price in effect
immediately prior to such increase shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a


                                       3
<PAGE>

reverse stock split, combination, reclassification or other similar event, the
Trigger Price and the Exercise Price in effect immediately prior to such
decrease shall be proportionately increased.

                  (b) Merger, Consolidation, Etc. If, at any time during the
Exercise Period, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the Company
with any other entity (other than a merger in which the Company is the surviving
or continuing entity and its capital stock is unchanged), (iii) any sale or
transfer of all or substantially all of the assets of the Company or (iv) any
share exchange or other transaction pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holder hereof shall
thereafter have the right to receive upon exercise of this Warrant, in lieu of
the Warrant Shares otherwise issuable, such shares of stock, securities and/or
other property as would have been issued or payable in such Corporate Change
with respect to or in exchange for the number of Warrant Shares which would have
been issuable upon exercise had such Corporate Change not taken place (without
giving effect to the limitations contained in Section 9), and in any such case,
appropriate provisions (in form and substance reasonably satisfactory to the
holder hereof) shall be made with respect to the rights and interests of the
holder to the end that the economic value of this Warrant is in no way
diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Company, an immediate
adjustment of the Exercise Price, the Trigger Price and the Warrant Shares so
that the Exercise Price, the Trigger Price and the Warrant Shares immediately
after the Corporate Change reflects the same relative value as compared to the
value of the surviving entity's common stock that existed between the Exercise
Price, the Trigger Price and the Warrant Shares and the value of the Company's
Common Stock immediately prior to such Corporate Change) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the exercise thereof. The Company
shall not effect any Corporate Change unless (A) the holder hereof has received
written notice of such transaction at least 45 days prior thereto, but in no
event later than 15 days prior to the record date for the determination of
stockholders entitled to vote with respect thereto, and (B) the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
(in form and substance reasonable satisfactory to the holder hereof) the
obligations of the Company under this Warrant. The above provisions shall apply
regardless of whether or not there would have been a sufficient number of shares
of Common Stock authorized and available for issuance upon exercise hereof as of
the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.

                  (c) Distributions. If, at any time during the Exercise Period,
the Company shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise (including any dividend or
distribution to the Company's stockholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a
"DISTRIBUTION"), then the holder hereof shall be entitled, upon any exercise of
this Warrant after the date of record for determining stockholders entitled to
such Distribution (or if no such record is taken, the date on which such
Distribution is declared or made), to receive the amount of such assets which
would have been payable to the holder with respect to the Warrant Shares
issuable upon such exercise (without giving effect to the limitations contained
in Section 9) had the holder hereof been the holder of such Warrant Shares on
the record date for the determination of stockholders entitled to such
Distribution (or if no such record is taken, the date on which such Distribution
is declared or made).

                  (d) Convertible Securities and Purchase Rights. If, at any
time during the Exercise Period, the Company issues any securities or other
instruments which are convertible into or exercisable or exchangeable for Common
Stock ("CONVERTIBLE SECURITIES") or options, warrants or other rights to
purchase or subscribe for Common Stock or Convertible Securities ("PURCHASE
RIGHTS") pro rata to the record holders of any class of Common Stock, whether or
not such Convertible Securities or Purchase Rights are immediately convertible,
exercisable or exchangeable, then the holder hereof shall be entitled, upon any
exercise of this Warrant after the date of record for determining stockholders
entitled to receive such Convertible Securities or Purchase Rights (or if no
such record is taken, the date on which such Convertible Securities or Purchase
Rights are issued), to receive the aggregate number of Convertible Securities or
Purchase Rights which the holder would have received with respect to the Warrant
Shares issuable upon such exercise (without giving effect to the limitations
contained in Section 9) had the holder hereof been the holder of such Warrant
Shares on the record date for the determination of


                                       4
<PAGE>

stockholders entitled to receive such Convertible Securities or Purchase Rights
(or if no such record is taken, the date on which such Convertible Securities or
Purchase Rights were issued). If the right to exercise or convert any such
Convertible Securities or Purchase Rights would expire in accordance with their
terms prior to the exercise of this Warrant, then the terms of such Convertible
Securities or Purchase Rights shall provide that such exercise or convertibility
right shall remain in effect until 30 days after the date the holder receives
such Convertible Securities or Purchase Rights pursuant to the exercise hereof.

                  (e) Dilutive Issuances.

                           (i) Adjustment Upon Dilutive Issuance. If, at any
time during the Exercise Period, the Company issues or sells, or in accordance
with subparagraph (ii) of this Section 4(e) is deemed to have issued or sold,
any shares of Common Stock for no consideration or for a consideration per share
less than the Trigger Price in effect on the date of issuance or sale (or deemed
issuance or sale) (a "DILUTIVE ISSUANCE"), then effective immediately upon the
Dilutive Issuance, (1) the Trigger Price shall be adjusted so as to equal an
amount determined by multiplying such Trigger Price by the following fraction:

                                   N(0) + N(1)
                                   -----------
                                   N(0) + N(2)

                  where:

                  N0 = the number of shares of Common Stock outstanding
immediately prior to the issuance, sale or deemed issuance or sale of such
additional shares of Common Stock in such Dilutive Issuance (without taking into
account any shares of Common Stock issuable upon conversion, exchange or
exercise of any Convertible Securities or Purchase Rights, including the Notes
or Warrants);

                  N1 = the number of shares of Common Stock which the aggregate
consideration, if any, received or receivable by the Company for the total
number of such additional shares of Common Stock so issued, sold or deemed
issued or sold in such Dilutive Issuance (which, in the case of a deemed
issuance or sale, shall be calculated in accordance with subparagraph (ii)
below) would purchase at the Trigger Price in effect immediately prior to such
Dilutive Issuance; and

                  N2 = the number of such additional shares of Common Stock so
issued, sold or deemed issued or sold in such Dilutive Issuance;

and (2) following such adjustment to the Trigger Price, the Exercise Price in
effect on the date of such Dilutive Issuance shall be adjusted so as to equal an
amount determined by multiplying such Exercise Price by a fraction, the
numerator of which is the Trigger Price as so adjusted and the denominator of
which is the Trigger Price in effect on the date of such Dilutive Issuance prior
to such adjustment. For purposes of this Section 4(e), the "TRIGGER PRICE" shall
initially equal $5.21 per share, but shall be subject to adjustment as provided
in this Section 4. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 4(e) if such adjustment would result in an increase in
either the Trigger Price or the Exercise Price.

                           (ii) Effect on Trigger Price and Exercise Price of
Certain Events. For purposes of determining the adjusted Trigger Price and
Exercise Price under clause (i) of this Section 4(e), the following will be
applicable:

                                    (1) Issuance of Purchase Rights. If the
Company issues or sells any Purchase Rights, whether or not immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Purchase Rights (and the price of any conversion of Convertible
Securities, if applicable) is less than the Trigger Price in effect on the date
of issuance or sale of such Purchase Rights, then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Purchase Rights
(assuming full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such Purchase
Rights, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding sentence, the
"price per share for which Common


                                       5
<PAGE>

Stock is issuable upon the exercise of such Purchase Rights" shall be determined
by dividing (A) the total amount, if any, received or receivable by the Company
as consideration for the issuance or sale of all such Purchase Rights, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Purchase Rights, plus, in the case of
Convertible Securities issuable upon the exercise of such Purchase Rights, the
minimum aggregate amount of additional consideration payable upon the
conversion, exercise or exchange thereof (determined in accordance with the
calculation method set forth in clause (ii)(2) of this Section 4(e)) at the time
such Convertible Securities first become convertible, exercisable or
exchangeable, by (B) the maximum total number of shares of Common Stock issuable
upon the exercise of all such Purchase Rights (assuming full conversion,
exercise or exchange of Convertible Securities, if applicable). No further
adjustment to the Trigger Price or the Exercise Price shall be made upon the
actual issuance of such Common Stock upon the exercise of such Purchase Rights
or upon the conversion, exercise or exchange of Convertible Securities issuable
upon exercise of such Purchase Rights.

                                    (2) Issuance of Convertible Securities. If
the Company issues or sells any Convertible Securities, whether or not
immediately convertible, exercisable or exchangeable, and the price per share
for which Common Stock is issuable upon such conversion, exercise or exchange is
less than the Trigger Price in effect on the date of issuance or sale of such
Convertible Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion, exercise or exchange of all such Convertible
Securities shall, as of the date of the issuance or sale of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. If the Convertible Securities so issued or
sold do not have a fluctuating conversion or exercise price or exchange ratio,
then for the purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon such conversion, exercise or exchange" shall be
determined by dividing (A) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion, exercise or exchange thereof
(determined in accordance with the calculation method set forth in this clause
(ii)(2) of this Section 4(e)) at the time such Convertible Securities first
become convertible, exercisable or exchangeable, by (B) the maximum total number
of shares of Common Stock issuable upon the exercise, conversion or exchange of
all such Convertible Securities. If the Convertible Securities so issued or sold
have a fluctuating conversion or exercise price or exchange ratio (a "VARIABLE
RATE CONVERTIBLE SECURITY"), then for purposes of the next preceding sentence,
the "price per share for which Common Stock is issuable upon such conversion,
exercise or exchange" shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Variable Rate Convertible Security have been
satisfied) if the conversion price of such Variable Rate Convertible Security on
the date of issuance or sale thereof was seventy-five percent (75%) of the
actual conversion price on such date (the "ASSUMED VARIABLE MARKET PRICE"), and,
further, if the conversion price of such Variable Rate Convertible Security at
any time or times thereafter is less than or equal to the Assumed Variable
Market Price last used for making any adjustment under this Section 4(e) with
respect to any Variable Rate Convertible Security, the Trigger Price and the
Exercise Price in effect at such time shall be readjusted to equal the Trigger
Price and the Exercise Price which would have resulted if the Assumed Variable
Market Price at the time of issuance of the Variable Rate Convertible Security
had been seventy-five percent (75%) of the actual conversion price of such
Variable Rate Convertible Security existing at the time of the adjustment
required by this sentence. No further adjustment to the Trigger Price or the
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

                                    (3) Change in Option Price or Conversion
Rate. If there is a change at any time in (A) the amount of additional
consideration payable to the Company upon the exercise of any Purchase Rights;
(B) the amount of additional consideration, if any, payable to the Company upon
the conversion, exercise or exchange of any Convertible Securities; or (C) the
rate at which any Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock (in each such case, other than under or by reason
of provisions designed to protect against dilution), the Trigger Price and the
Exercise Price in effect at the time of such change shall be readjusted to the
Trigger Price and the Exercise Price which would have been in effect at such
time had such Purchase Rights or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion,
exercise or exchange rate, as the case may be, at the time initially issued or
sold.

                                    (4) Calculation of Consideration Received.
If any Common Stock, Purchase Rights or Convertible Securities are issued or
sold for cash, the consideration received therefor will be the


                                       6
<PAGE>

amount received by the Company therefor. In case any Common Stock, Purchase
Rights or Convertible Securities are issued or sold for a consideration part or
all of which shall be other than cash, including in the case of a strategic or
similar arrangement in which the other entity will provide services to the
Company, purchase services from the Company or otherwise provide intangible
consideration to the Company, the amount of the consideration other than cash
received by the Company (including the net present value of the consideration
expected by the Company for the provided or purchased services) shall be the
fair market value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of receipt. In case
any Common Stock, Purchase Rights or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Purchase
Rights or Convertible Securities, as the case may be. Notwithstanding anything
else herein to the contrary, if Common Stock, Purchase Rights or Convertible
Securities are issued or sold in conjunction with each other as part of a single
transaction or in a series of related transactions, the holder hereof may elect
to determine the amount of consideration deemed to be received by the Company
therefor by deducting the fair value of any type of securities (the "DISREGARDED
SECURITIES") issued or sold in such transaction or series of transactions. If
the holder makes an election pursuant to the immediately preceding sentence, no
adjustment to the Trigger Price or the Exercise Price shall be made pursuant to
this Section 4(e) for the issuance of the Disregarded Securities or upon any
conversion, exercise or exchange thereof. For example, if the Company were to
issue convertible notes having a face value of $1,000,000 and warrants to
purchase shares of Common Stock at an exercise price equal to the Market Price
of the Common Stock on the date of issuance of such warrants in exchange for
$1,000,000 of consideration, the fair value of the warrants would be subtracted
from the $1,000,000 of consideration received by the Company for the purposes of
determining whether the shares of Common Stock issuable upon conversion of the
convertible notes shall be deemed to be issued at a price per share below the
Trigger Price and, if so, for purposes of determining any adjustment to the
Trigger Price and the Exercise Price hereunder as a result of the issuance of
the convertible notes. The Company shall calculate, using standard commercial
valuation methods appropriate for valuing such assets, the fair market value of
any consideration other than cash or securities; provided, however, that if the
holder hereof does not agree to such fair market value calculation within three
business days after receipt thereof from the Company, then such fair market
value shall be determined in good faith by an investment banker or other
appropriate expert of national reputation selected by the Company and reasonably
acceptable to the holder, with the costs of such appraisal to be borne by the
Company.

                                    (5) Issuances Pursuant to Existing
Securities. If the Company issues (or becomes obligated to issue) shares of
Common Stock pursuant to any antidilution or similar adjustments (other than as
a result of stock splits, stock dividends and the like) contained in any
Convertible Securities or Purchase Rights outstanding as of the date hereof but
not included in Section 3(c) of the Disclosure Schedule to the Securities
Purchase Agreement, then all shares of Common Stock so issued shall be deemed to
have been issued for no consideration. If the Company issues (or becomes
obligated to issue) shares of Common Stock pursuant to any antidilution or
similar adjustments contained in any Convertible Securities or Purchase Rights
included in Section 3(c) of the Disclosure Schedule to the Securities Purchase
Agreement as a result of the issuance of the Notes or Warrants pursuant to the
Securities Purchase Agreement and the number of shares that the Company issues
(or is obligated to issue) as a result of such initial issuance exceeds the
amount specified in Section 3(c) of the Disclosure Schedule to the Securities
Purchase Agreement, such excess shares shall be deemed to have been issued for
no consideration.

                           (iii) Limitation on Adjustments for Dilutive
Issuances. Notwithstanding the foregoing or any other provision of this Warrant
to the contrary, in no event shall the Trigger Price or the Exercise Price be
adjusted as a result of a Dilutive Issuance to the extent (but only to the
extent) that such adjustment would result in this Warrant, together with all
other Warrants (including any Warrants that have already been exercised for
Common Stock) and all Notes (including any portions of any Notes that have
already been converted into Common Stock), being convertible into and
exercisable for more than an aggregate of 3,000,487 shares of Common Stock. In
the event that any Dilutive Issuance would result in an adjustment to the
Trigger Price and the Exercise Price of the Warrants and such adjustment is
limited by operation of this Section 4(e)(iii), such adjustment shall be
allocated pro rata among the Warrants then outstanding. In the event that any
Dilutive Issuance would result in an adjustment to both the Conversion Price of
the Notes and the Trigger Price and the Exercise Price of the Warrants and such
adjustment is limited by operation of this 4(e)(iii), such adjustment shall
first be made to the Conversion Price of the


                                       7
<PAGE>

Notes to the maximum extent possible within the limitations set forth therein,
and only if such adjustment to the Conversion Price of the Notes has been made
in full shall any adjustments be made to the Trigger Price and the Exercise
Price of the Warrants (allocated pro rata in accordance with the foregoing
sentence).

                  (f) Exceptions to Adjustment of Trigger Price and Exercise
Price. Notwithstanding the foregoing, no adjustment to the Trigger Price or the
Exercise Price shall be made upon (i) the issuance of Common Stock upon the
exercise or conversion of any Convertible Securities or Purchase Rights
outstanding on the Issue Date and disclosed in Section 3(c) of the Disclosure
Schedule to the Securities Purchase Agreement in accordance with the terms of
such Convertible Securities and Purchase Rights as of such date; (ii) the grant
of options to purchase Common Stock, with exercise prices not less than the
Market Price of the Common Stock on the date of grant, or the grant of
restricted shares of Common Stock, in each case which are issued to employees,
officers, directors or consultants of the Company for the primary purpose of
soliciting or retaining their employment or service pursuant to an equity
compensation plan approved by the Company's Board of Directors, and the issuance
of shares of Common Stock upon the exercise thereof; (iii) the issuance of
securities pursuant to a bona fide underwritten public offering; or (iv) the
issuance of shares of Common Stock upon conversion of the Notes or the exercise
of the Warrants; (v) the issuance of securities in a bona fide business
acquisition; or (vi) the issuance of securities in connection with a strategic
business partnership with an oil and gas company, the primary purpose of which,
in the reasonable judgment of the Company's Board of Directors, is not to raise
additional capital.

                  (g) Other Action Affecting Trigger Price and Exercise Price.
If, at any time during the Exercise Period, the Company takes any action
affecting the Common Stock that would be covered by Section 4(a) through (e),
but for the manner in which such action is taken or structured, which would in
any way diminish the value of this Warrant, then the Trigger Price and the
Exercise Price shall be adjusted in such manner as the Board of Directors of the
Company shall in good faith determine to be equitable under the circumstances.

                  (h) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant at each such
Exercise Price shall be adjusted by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon exercise of this Warrant at such Exercise Price
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.

                  (i) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment or readjustment of the Trigger Price and/or the
Exercise Price or change in number or type of stock, securities and/or other
property issuable upon exercise of this Warrant, then, and in each such case,
the Company shall give notice thereof to the holder hereof, which notice shall
state the Trigger Price and the Exercise Price resulting from such adjustment or
readjustment and any change in the number of type of stock, securities and/or
other property issuable upon exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Such calculation shall be certified by the chief financial
officer of the Company.

                  (j) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.

                  (k) Other Notices. In case at any time:

                           (i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;

                           (ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;




                                       8
<PAGE>

                           (iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or

                           (iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant
(A) notice of the date or estimated date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common Stock
entitled to receive any such dividend, distribution, or subscription rights or
for determining the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable estimate
thereof by the Company) when the same shall take place. Such notice shall also
specify the date on which the holders of Common Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to exchange their
Common Stock for stock or other securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at
least thirty (30) days prior to the record date or the date on which the
Company's books are closed in respect thereto. Failure to give any such notice
or any defect therein shall not affect the validity of the proceedings referred
to in clauses (i), (ii), (iii) and (iv) above. Notwithstanding the foregoing,
the Company shall publicly disclose the substance of any notice delivered
hereunder prior to delivery of such notice to the holder hereof.

         5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

         6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

         7. Transfer, Exchange, Redemption and Replacement of Warrant.

                  (a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Sections 7(f) and 9 hereof and to the
provisions of Section 5 of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.

                  (b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares (at the Exercise Price therefor) as shall be
designated by the holder hereof at the time of such surrender.

                  (c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or


                                       9
<PAGE>

destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.

                  (d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
holder of this Warrant or transferees) and charges payable in connection with
the preparation, execution, and delivery of Warrants pursuant to this Section 7.
The Company shall indemnify and reimburse the holder of this Warrant for all
losses and damages arising as a result of or related to any breach of the terms
of this Warrant, including costs and expenses (including legal fees) incurred by
such holder in connection with the enforcement of its rights hereunder.

                  (e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.

                  (f) Transfer or Exchange Without Registration. If, at the time
of the surrender of this Warrant in connection with any transfer or exchange of
this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares
issuable hereunder) shall not be registered under the Securities Act and under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such transfer or exchange, (i) that the holder or
transferee of this Warrant, as the case may be, furnish to the Company a written
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
such transfer or exchange may be made without registration under the Securities
Act and under applicable state securities or blue sky laws (the cost of which
shall be borne by the Company if the Company's counsel renders such an opinion,
and up to $1,000 of such cost shall be borne by the Company if the holder's
counsel is required to render such opinion), (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an "ACCREDITED
INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act;
provided, however, that no such opinion, letter, or status as an "accredited
investor" shall be required in connection with a transfer pursuant to Rule 144
under the Securities Act.

         8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, including the right to assign such rights to certain assignees, as
set forth therein.

         9. Additional Restrictions on Exercise and Transfer. In no event shall
the holder hereof have the right to exercise any portion of this Warrant for
shares of Common Stock or to dispose of any portion of this Warrant to the
extent that such right to effect such exercise or disposition would result in
the holder and its affiliates together beneficially owning more than 4.99% of
the outstanding shares of Common Stock. For purposes of this Section 9,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.
The restriction contained in this Section 9 may not be altered, amended, deleted
or changed in any manner whatsoever unless the holders of a majority of the
outstanding shares of Common Stock and the holder hereof shall approve, in
writing, such alteration, amendment, deletion or change.

         10. Certain Definitions. For purposes of this Warrant, the following
capitalized terms shall have the respective meanings assigned to them:

                  (a) "BUSINESS DAY" means any day, other than a Saturday or
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law, regulation or executive order to close.




                                       10
<PAGE>

                  (b) "MARKET PRICE" means, for any security as of any date, the
last sales price of such security on the principal trading market where such
security is listed or traded as reported by Bloomberg Financial Markets (or a
comparable reporting service of national reputation selected by the Company and
reasonably acceptable to the holder hereof if Bloomberg Financial Markets is not
then reporting closing bid prices of such security) (in any case, "BLOOMBERG"),
or if the foregoing does not apply, the last reported sales price of such
security on a national exchange or in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
such price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc., in each case for such date or, if such
date was not a trading day for such security, on the next preceding date which
was a trading day. If the Market Price cannot be calculated for such security as
of either of such dates on any of the foregoing bases, the Market Price of such
security on such date shall be the fair market value as reasonably determined by
an investment banking firm selected by the Company and reasonably acceptable to
the holder hereof, with the costs of such appraisal to be borne by the Company.

                  (c) "NOTES" shall have the meaning assigned to such term in
the Securities Purchase Agreement.

                  (d) "TRADING DAY" means any day on which principal United
States securities exchange or trading market where the Common Stock is then
listed or traded, is open for trading.

         11. Miscellaneous.

                  (a) Governing Law; Jurisdiction. This Warrant shall be
governed by and construed in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in the State of Delaware. The
Company irrevocably consents to the jurisdiction of the United States federal
courts and the state courts located in the County of New Castle, State of
Delaware, in any suit or proceeding based on or arising under this Warrant and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding in such forum.
The Company further agrees that service of process upon the Company mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
right of the holder to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.

                  (b) Construction. Whenever the context requires, the gender of
any word used in this Warrant includes the masculine, feminine or neuter, and
the number of any word includes the singular or plural. Unless the context
otherwise requires, all references to articles and sections refer to articles
and sections of this Warrant, and all references to schedules are to schedules
attached hereto, each of which is made a part hereof for all purposes. The
descriptive headings of the several articles and sections of this Warrant are
inserted for purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.

                  (c) Severability. If any provision of this Warrant shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Warrant or the validity or enforceability of this Warrant in
any other jurisdiction.

                  (d) Entire Agreement; Amendments. This Warrant contains the
entire understanding of the Company and the holder hereof with respect to the
matters covered herein. Subject to any additional express provisions of this
Warrant, no provision of this Warrant may be waived other than by an instrument
in writing signed by the party to be charged with enforcement, and no provision
of this Warrant may be amended other than by an instrument in writing signed by
the Company and the holder.

                  (e) Notices. Any notices required or permitted to be given
under the terms of this Warrant shall be sent by certified or registered mail
(return receipt requested) or delivered personally, by responsible overnight
carrier or by confirmed facsimile, and shall be effective five days after being
placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by responsible overnight carrier or confirmed


                                       11
<PAGE>

facsimile, in each case addressed to a party. The initial addresses for such
communications shall be as follows, and each party shall provide notice to the
other parties of any change in such party's address:

                           (i)      If to the Company:
                                    NGAS Resources, Inc.
                                    120 Prosperous Place, Suite 201
                                    Lexington, Kentucky  40509
                                    Telephone:  (859) 263-3948
                                    Facsimile:  (859) 263-4228
                                    Attention: William Daugherty, President

                                    with a copy simultaneously transmitted by
                                    like means (which transmittal shall not
                                    constitute notice hereunder) to:
                                    Stahl & Zelmanovitz
                                    767 Third Avenue, Suite 1401
                                    New York, New York 10017
                                    Telephone: (212) 826-6435
                                    Facsimile: (212) 826-6402
                                    Attention: Douglas Stahl, Esq.

                           (ii) If to the holder, at such address as shall be
set forth in the Warrant Register from time to time.

                  (f) Successors and Assigns. This Warrant shall be binding upon
and inure to the benefit of the parties and their successors and assigns. Except
as provided herein, the Company shall not assign this Warrant or its obligations
hereunder. The holder hereof may assign or transfer this Warrant and such
holders rights hereunder in accordance with Section 7 hereof.

                  (g) Equitable Relief. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the holder by
vitiating the intent and purpose of this Warrant. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations hereunder
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Warrant, that the holder shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

                [REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]




                                       12
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.


                                         NGAS RESOURCES, INC.



                                         By: /s/ William G. Barr III
                                             -----------------------------------
                                              William G. Barr III
                                              Vice President -- Acquisitions and
                                              Legal Affairs



                                       13