Document:

EXHIBIT
      10.1

    

    

    14%
      PROMISSORY NOTE

    

    

    
      	
              $100,000

            	
              March
                14, 2008

            

    

    

    FOR
      VALUE
      RECEIVED, GigaBeam Corporation, a Delaware corporation (the “Maker”),
      with
      its primary offices located at 4021 Stirrup Creek Drive, Suite 400, Durham,
      NC
      27703, promises to pay to the order of Midsummer Investment, Ltd., or its
      registered assigns (the “Payee”),
      upon
      the terms set forth below, the principal sum of One Hundred Thousand Dollars
      ($100,000) plus interest on the unpaid principal sum outstanding at the rate
      of
      14% per annum (this “Note”).

    

    Notwithstanding
      anything herein to the contrary, in the event of any liquidation, insolvency,
      bankruptcy, reorganization, or similar proceedings relating to the Maker, all
      sums payable on the Senior Convertible Notes issued on January 28, 2005 and
      February 1, 2005 (“Senior
      Notes”),
      shall
      first be paid in full, with interest, if any, before any cash payment is made
      upon this Note, and, in any such event, any cash payment which shall be made
      in
      respect of this Note shall be paid over to the holders of the Senior Notes
      for
      application to the payment thereof, unless and until the obligations under
      the
      Senior Notes shall have been paid and satisfied in full. 

    

    1. Payments.

    

    (a)
       The
      full
      amount of principal and accrued interest under this Note shall be due on March
      12, 2009 (the “Maturity
      Date”),
      unless due earlier in accordance with the terms of this Note.

    

    (b)
       The
      Maker
      shall pay interest to the Payee on the aggregate then outstanding principal
      amount of this Note at the rate of 14% per annum, payable on the Maturity
      Date.

    

    (c)
       All
      overdue accrued and unpaid principal and interest to be paid hereunder shall
      entail a late fee at the rate of 22% per annum (or such lower maximum amount
      of
      interest permitted to be charged under applicable law) which will accrue daily,
      from the date such principal and/or interest is due hereunder through and
      including the date of payment.

    

    (d) Absent
      the occurrence of an Event of Default (unless waived in writing by the Payee),
      the Maker may prepay this Note for 100% of the full principal amount of this
      Note, together with all accrued interest thereon, at any time prior to the
      Maturity Date.

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    2.
      Events
      of Default.

    

    (a)
       “Event
      of Default”,
      wherever used herein, means any one of the following events (whatever the reason
      and whether it shall be voluntary or involuntary or effected by operation of
      law
      or pursuant to any judgment, decree or order of any court, or any order, rule
      or
      regulation of any administrative or governmental body):

    

    (i)
       any
      default in the payment of the principal of, or the interest on, this Note,
      as
      and when the same shall become due and payable;

    

    (ii)
       Maker
      or
      any of its subsidiaries shall fail to observe or perform any of their respective
      obligations owed to Payee under this Note or any other covenant, agreement,
      representation or warranty contained in, or otherwise commit any breach
      hereunder or in any other agreement executed in connection herewith and such
      failure or breach shall not have been remedied within ten days after the date
      on
      which notice of such failure or breach shall have been delivered;

    

    (iii)
       Maker
      or
      any of its subsidiaries shall commence, or there shall be commenced against
      Maker or any subsidiary a case under any applicable bankruptcy or insolvency
      laws as now or hereafter in effect or any successor thereto, or Maker or any
      subsidiary commences any other proceeding under any reorganization, arrangement,
      adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
      or
      similar law of any jurisdiction whether now or hereafter in effect relating
      to
      Maker or any subsidiary, or there is commenced against Maker or any subsidiary
      any such bankruptcy, insolvency or other proceeding which remains undismissed
      for a period of 60 days; or Maker or any subsidiary is adjudicated insolvent
      or
      bankrupt; or any order of relief or other order approving any such case or
      proceeding is entered; or Maker or any subsidiary suffers any appointment of
      any
      custodian or the like for it or any substantial part of its property which
      continues undischarged or unstayed for a period of 60 days; or Maker or any
      subsidiary makes a general assignment for the benefit of creditors; or Maker
      or
      any subsidiary shall call a meeting of its creditors with a view to arranging
      a
      composition, adjustment or restructuring of its debts; or Maker or any
      subsidiary shall by any act or failure to act expressly indicate its consent
      to,
      approval of or acquiescence in any of the foregoing; or any corporate or other
      action is taken by Maker or any subsidiary for the purpose of effecting any
      of
      the foregoing;

    

    (iv) Maker
      or
      any subsidiary shall default for the first time in any of its respective
      obligations under any other note or any mortgage, credit agreement or other
      facility, indenture agreement, factoring agreement or other instrument under
      which there may be issued, or by which there may be secured or evidenced any
      indebtedness for borrowed money or money due under any long term leasing or
      factoring arrangement of Maker or any subsidiary, whether such indebtedness
      now
      exists or shall hereafter be created and such default shall result in such
      indebtedness becoming or being declared due and payable prior to the date on
      which it would otherwise become due and payable;

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (v)
      any
      monetary judgment, writ or similar final process shall be entered or filed
      against the Maker, any subsidiary or any of their respective property or other
      assets for more than $300,000, and such judgment, writ or similar final process
      shall remain unvacated, unbonded or unstayed for a period of 15 calendar
      days.

    

    (vi)
       After
      March 12, 2008, Maker shall (a) be a party to any Change of Control Transaction
      (as defined below), (b) agree to sell or dispose all or in excess of 33% of
      its
      assets in one or more transactions (whether or not such sale would constitute
      a
      Change of Control Transaction), (c) redeem or repurchase more than a de minimis
      number of shares of Common Stock or other equity securities of Maker, or (d)
      other than regularly scheduled payments of dividends to the holders of the
      Maker’s Series A, Series B, Series C and Series D Preferred Stock, make any
      distribution or declare or pay any dividends (in cash or other property, other
      than common stock) on, or purchase, acquire, redeem, or retire any of Maker's
      capital stock, of any class, whether now or hereafter outstanding. “Change of
      Control Transaction” means the occurrence of any of: (i) an acquisition after
      the date hereof by an individual or legal entity or “group” (as described in
      Rule 13d-5(b)(1) promulgated under the Securities Exchange Act of 1934, as
      amended) of effective control (whether through legal or beneficial ownership
      of
      capital stock of Maker, by contract or otherwise) of in excess of 33% of the
      voting securities of Maker, (ii) a replacement at one time or over time of
      more
      than one-half of the members of Maker's board of directors which is not approved
      by a majority of those individuals who are members of the board of directors
      on
      the date hereof (or by those individuals who are serving as members of the
      board
      of directors on any date whose nomination to the board of directors was approved
      by a majority of the members of the board of directors who are members on the
      date hereof), (iii) the merger of Maker with or into another entity that is
      not
      wholly-owned by Maker, consolidation or sale of 33% or more of the assets of
      Maker in one or a series of related transactions, or (iv) the execution by
      Maker
      of an agreement to which Maker is a party or by which it is bound, providing
      for
      any of the events set forth above in (i), (ii) or (iii). This clause shall
      not
      include the recapitalization proposed to investors in December
      2007.

    

    (b)
      If
      any Event of Default occurs (unless waived in writing by the Payee), 115% of
      the
      full principal amount of this Note, together with all accrued interest thereon,
      shall become, at the Payee's election, immediately due and payable in cash.
      Commencing 5 days after the occurrence of any Event of Default that results
      in
      the acceleration of this Note, the interest rate on this Note shall accrue
      at
      the rate of 22% per annum, or such lower maximum amount of interest permitted
      to
      be charged under applicable law. The Payee need not provide and Maker hereby
      waives any presentment, demand, protest or other notice of any kind, and the
      Payee may immediately and without expiration of any grace period enforce any
      and
      all of its rights and remedies hereunder and all other remedies available to
      it
      under applicable law. Such declaration may be rescinded and annulled by Payee
      at
      any time prior to payment hereunder. No such rescission or annulment shall
      affect any subsequent Event of Default or impair any right consequent
      thereon.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    4.
       Negative
      Covenants.
       So
      long
      as any portion of this Note is outstanding, the Maker will not and will not
      permit any of its Subsidiaries to directly or indirectly, unless consented
      to in
      writing by the Payee:

    

    a) other
      than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
      suffer to exist any indebtedness for borrowed money of any kind, including
      but
      not limited to, a guarantee, on or with respect to any of its property or assets
      now owned or hereafter acquired or any interest therein or any income or profits
      therefrom;

     

    b) other
      than Permitted Liens, enter into, create, incur, assume or suffer to exist
      any
      liens of any kind, on or with respect to any of its property or assets now
      owned
      or hereafter acquired or any interest therein or any income or profits
      therefrom;

    

    c) amend
      its
      certificate of incorporation, bylaws or other charter documents so as to
      adversely affect any rights of the Payee other than to increase the number
      of
      authorized common shares;

    

    d) except
      as
      contractually required by the Maker as of the date of issuance of this Note,
      repay, repurchase or offer to repay, repurchase or otherwise acquire more than
      a
      de minimis number of securities;

    

    e) enter
      into any agreement with respect to any of the foregoing;
      or

    

    f) other
      than in respect of the Maker’s Series A, Series B, Series C and Series D
      Preferred Stock, pay cash dividends or distributions on any equity securities
      of
      the Maker.

    

    “Permitted
      Indebtedness”
      shall
      mean (a)
      the
      indebtedness of the Maker existing on the date of issuance of this Note, (b)
      lease obligations and purchase money indebtedness incurred in connection with
      the acquisition of capital assets and lease obligations with respect to newly
      acquired or leased assets (c) indebtedness
      incurred by the Maker that does not mature or require payments of principal
      prior to the Maturity Date of this Note and is made expressly subordinate in
      right of payment to the indebtedness evidenced by this Note, as reflected in
      a
      written agreement acceptable to the Payee and approved by the Payee in writing,
      (d) trade receivables in the ordinary course of business, and (e) up to
      $5,000,000 (five million dollars) in new financing.

    
      

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    “Permitted
      Lien”
shall
      mean the individual and collective reference to the following: (a) liens for
      taxes, assessments and other governmental charges or levies not yet due or
      liens
      for taxes, assessments and other governmental charges or levies being contested
      in good faith and by appropriate proceedings for which adequate reserves (in
      the
      good faith judgment of the management of the Maker) have been established in
      accordance with generally accepted accounting procedures, (b) liens imposed
      by
      law which were incurred in the ordinary course of business, such as carriers’,
      warehousemen’s and mechanics’ liens, statutory landlords’ liens, and other
      similar liens arising in the ordinary course of business, and (x) which do
      not
      individually or in the aggregate materially detract from the value of such
      property or assets or materially impair the use thereof in the operation of
      the
      business of the Maker and its consolidated subsidiaries or (y) which are being
      contested in good faith by appropriate proceedings, which proceedings have
      the
      effect of preventing the forfeiture or sale of the property or asset subject
      to
      such lien and (c) liens of the Maker existing on the date of issuance of this
      Note, including liens incurred in connection with the Permitted
      Indebtedness.

     

    The
      recapitalization proposed to investors in December 2007 is excluded from this
      Section 4.

    

    5. No
      Waiver of Payee’s Rights.
      All
      payments of principal and interest shall be made without setoff, deduction
      or
      counterclaim. No delay or failure on the part of the Payee in exercising any
      of
      its options, powers or rights, nor any partial or single exercise of its
      options, powers or rights shall constitute a waiver thereof or of any other
      option, power or right, and no waiver on the part of the Payee of any of its
      options, powers or rights shall constitute a waiver of any other option, power
      or right. Maker hereby waives presentment of payment, protest, and all notices
      or demands in connection with the delivery, acceptance, performance, default
      or
      endorsement of this Note. Acceptance by the Payee of less than the full amount
      due and payable hereunder shall in no way limit the right of the Payee to
      require full payment of all sums due and payable hereunder in accordance with
      the terms hereof.

    

    6.
       Modifications.
      No term
      or provision contained herein may be modified, amended or waived except by
      written agreement or consent signed by the party to be bound
      thereby.

    

    7.
       Cumulative
      Rights and Remedies; Usury.
      The
      rights and remedies of Payee expressed herein are cumulative and not exclusive
      of any rights and remedies otherwise available under this Note or applicable
      law
      (including at equity). The election of Payee to avail itself of any one or
      more
      remedies shall not be a bar to any other available remedies, which Maker agrees
      Payee may take from time to time. If it shall be found that any interest due
      hereunder shall violate applicable laws governing usury, the applicable rate
      of
      interest due hereunder shall be reduced to the maximum permitted rate of
      interest under such law.

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    8.
       Use
      of
      Proceeds.
      Maker
      shall use the proceeds from this Note hereunder for working capital purposes
      and
      not for the satisfaction of any portion of Maker’s or subsidiary’s debt (other
      than payment of trade payables in the ordinary course of Maker's business and
      prior practices), to redeem any of Maker’s or subsidiary’s equity or
      equity-equivalent securities or to settle any outstanding
      litigation.

    

    9.
       Collection
      Expenses.
      If
      Payee shall commence an action or proceeding to enforce this Note, then Maker
      shall reimburse Payee for its costs of collection and reasonable attorneys
      fees
      incurred with the investigation, preparation and prosecution of such action
      or
      proceeding.

    

    10.
       Severability.
      If any
      provision of this Note is declared by a court of competent jurisdiction to
      be in
      any way invalid, illegal or unenforceable, the balance of this Note shall remain
      in effect, and if any provision is inapplicable to any person or circumstance,
      it shall nevertheless remain applicable to all other persons and circumstances.
      If it shall be found that any interest or other amount deemed interest due
      hereunder shall violate applicable laws governing usury, the applicable rate
      of
      interest due hereunder shall automatically be lowered to equal the maximum
      permitted rate of interest.

    

    11.
       Successors
      and Assigns.
      This
      Note shall be binding upon Maker and its successors and shall inure to the
      benefit of the Payee and its successors and assigns. The term "Payee" as used
      herein, shall also include any endorsee, assignee or other holder of this
      Note.

    

    12.
       Lost
      or Stolen Promissory Note.
      If this
      Note is lost, stolen, mutilated or otherwise destroyed, Maker shall execute
      and
      deliver to the Payee a new promissory note containing the same terms, and in
      the
      same form, as this Note. In such event, Maker may require the Payee to deliver
      to Maker an affidavit of lost instrument and customary indemnity in respect
      thereof as a condition to the delivery of any such new promissory
      note.

    

    13.
       Due
      Authorization.
      This
      Note has been duly authorized, executed and delivered by Maker and is the legal
      obligation of Maker, enforceable against Maker in accordance with its terms
      except as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally. No consent of any other
      party and no consent, license, approval or authorization of, or registration
      or
      declaration with, any governmental authority, bureau or agency is required
      in
      connection with the execution, delivery or performance by the Maker, or the
      validity or enforceability of this Note other than such as have been met or
      obtained. The execution, delivery and performance of this Note and all other
      agreements and instruments executed and delivered or to be executed and
      delivered pursuant hereto or thereto or the securities issuable upon conversion
      of this Note will not violate any provision of any existing law or regulation
      or
      any order or decree of any court, regulatory body or administrative agency
      or
      the certificate of incorporation or by-laws of the Maker or any mortgage,
      indenture, contract or other agreement to which the Maker is a party or by
      which
      the Maker or any property or assets of the Maker may be bound.

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    14.
       Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Note shall be governed by and construed and enforced in accordance
      with
      the internal laws of the State of New York, without regard to the principles
      of
      conflicts of law thereof. Each of Maker and Payee agree that all legal
      proceedings concerning the interpretations, enforcement and defense of this
      Note
      shall be commenced in the state and federal courts sitting in the City of New
      York, Borough of Manhattan (the "New York Courts"). Each of Maker and Payee
      hereby irrevocably submit to the exclusive jurisdiction of the New York Courts
      for the adjudication of any dispute hereunder (including with respect to the
      enforcement of this Note), and hereby irrevocably waives, and agrees not to
      assert in any suit, action or proceeding, any claim that it is not personally
      subject to the jurisdiction of any such court, that such suit, action or
      proceeding is improper. Each of Maker and Payee hereby irrevocably waive
      personal service of process and consents to process being served in any such
      suit, action or proceeding by mailing a copy thereof via registered or certified
      mail or overnight delivery (with evidence of delivery) to the other at the
      address in effect for notices to it under this Note and agrees that such service
      shall constitute good and sufficient service of process and notice thereof.
      Nothing contained herein shall be deemed to limit in any way any right to serve
      process in any manner permitted by law. Each of Maker and Payee hereby
      irrevocably waive, to the fullest extent permitted by applicable law, any and
      all right to trial by jury in any legal proceeding arising out of or relating
      to
      this Note or the transactions contemplated hereby.

    

    15. Notice. 
      Any and
      all notices or other communications or deliveries to be provided by the Payee
      hereunder, including, without limitation, any conversion notice, shall be in
      writing and delivered personally, by facsimile, sent by a nationally recognized
      overnight courier service or sent by certified or registered mail, postage
      prepaid, addressed to the Maker, or such other address or facsimile number
      as
      the Maker may specify for such purposes by notice to the Payee delivered in
      accordance with this paragraph. Any and all notices or other communications
      or
      deliveries to be provided by the Maker hereunder shall be in writing and
      delivered personally, by facsimile, sent by a nationally recognized overnight
      courier service or sent by certified or registered mail, postage prepaid,
      addressed to the Payee at the address of the Payee appearing on the books of
      the
      Maker, or if no such address appears, at the principal place of business of
      the
      Payee. Any notice or other communication or deliveries hereunder shall be deemed
      given and effective on the earliest of (i) the date of transmission if delivered
      by
      hand
      or by telecopy that has been confirmed as received by 5:00 P.M. on a business
      day,
      (ii)
one
      business day after being sent by nationally recognized overnight courier or
      received by telecopy after 5:00 P.M. on any day,
      or
      (iii) five
      business
      days
      after being sent by certified or registered mail, postage and charges prepaid,
      return receipt requested.

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    16. Public
      Disclosure.
      The
      Maker shall, within four business days following the date hereof, issue a
      Current Report on Form 8-K, reasonably acceptable to the Payee, disclosing
      the
      material terms of the transactions contemplated hereby, and shall attach this
      Note thereto and other agreements entered into in connection herewith. The
      Maker
      shall consult with the Payee in issuing any other press releases with respect
      to
      the transactions contemplated hereby.

    

    [signature
      page follows]

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    The
      undersigned signs this Note as a maker and not as a surety or guarantor or
      in
      any other capacity.

     

    GIGABEAM
      CORPORATION

    

    By:
      /s/
      S.
      Jay Lawrence____

    Name:
      S.
      Jay Lawrence

    Title:
      Chief Executive Officer

     

     

    11Bank
      of
      Texas,
      N.A.

    5
      Houston
      Center

    1401
      McKinney, Suite 1650

    Houston,
      Texas 77010

    

    

    March
      14,
      2008

    

    

    Tandem
      Energy Corporation

    PER
      Gulf
      Coast, Inc.

    Attention:
      Michael G. Cunningham, Senior Vice President

    200
      N.
      Loraine, Suite 500

    Midland,
      Texas 79701

    

    Re:    Loan
      Agreement

    

    Gentlemen:

    

    This
      letter sets forth the Loan Agreement (this ALoan
      Agreement@)
      among
Tandem
      Energy Corporation,
      a
      Delaware corporation, and PER
      Gulf
      Coast, Inc.,
      a
      Delaware corporation (collectively ABorrowers@);
      Bank of
      Texas, N.A.,
      as
      administrative agent (AAgent@);
      and
      Bank of
      Texas, N.A.
      (ABank
      of Texas@),
      and
      all banks and financial institutions now or hereafter a party to this Loan
      Agreement (collectively ABanks@),
      with
      respect to loans from Banks to Borrowers and obligations of Borrowers to Agent
      and Banks. 

    

    1.  Loan.
      (a)
      Subject
      to the terms and conditions set forth in this Loan Agreement and the other
      agreements, instruments, and documents executed and delivered in connection
      herewith (collectively the ALoan
      Documents@),
      each
      of the Banks severally agrees to make a revolving loan (the ARevolving
      Loans@)
      to
      Borrowers for the purposes set forth below, in an amount not to exceed in the
      aggregate at any one time outstanding, the amount of each Banks=
      Percentage Share (as defined below) of the sums set forth below. Each
      Banks=
      Percentage Share of the Revolving Loans shall be evidenced by and under the
      terms set forth in separate notes in the form of the Revolving Promissory Note
      attached as Exhibit
      A
      and in
      an amount equal to such Banks=
      Percentage Share of $100,000,000.00 (collectively the ARevolving
      Notes@).
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
          Tandem
            Energy Corporation,
            et
            al

          March
            14,
            2008

          Page
            2
of
            26

        

      

    

    (b) Subject
      to the terms and conditions hereof, Borrowers may borrow, repay, and reborrow
      on
      a revolving basis from time to time during the period commencing on the date
      hereof and continuing through 11:00 a.m. (Houston, Texas time) on March 14,
      2012
      (the ATermination
      Date@),
      such
      amounts as Borrowers may request under the Revolving Loans; provided, however,
      the total principal amount outstanding at any time shall not exceed the lesser
      of (i) the aggregate sums permitted under the Borrowing Base (as defined below),
      which is initially set at $35,000,000.00, provided, however, that the principal
      amount outstanding on the Revolving Loan may not exceed $10,000,000.00 until
      Agent has satisfactorily completed the additional due diligence contemplated
      by
      Subsection (b) of Section 5 below, or (ii) $100,000,000.00. All sums advanced
      under the Revolving Loans, together with all accrued but unpaid interest
      thereon, shall be due and payable in full on the Termination Date. 

    

    (c) Banks
      shall share ratably in the principal advanced to Borrowers on the

    Revolving
      Notes and the payments of principal and interest received from Borrowers on
      the
      Revolving Notes, according to the percentages shown in Schedule
      1
      attached
      (the APercentage
      Share@).
      

    

    (d) All
      amounts owed on the Revolving Notes shall bear interest from the date advanced
      until paid or until default or maturity at the rates per annum elected by
      Borrowers from the following options under the terms of the Revolving Notes:
      (i)
      the Prime Rate, or (ii) the sum of the LIBOR Rate plus
      the
      LIBOR Spread. The LIBOR Spread will vary based on the Borrowing Base Utilization
      (as defined below) as in effect from time to time, with each change in the
      applicable rate resulting from a change in the Borrowing Base Utilization to
      take effect on the day such change in the Borrowing Base Utilization occurs.
      ABorrowing
      Base Utilization@
      is
      defined as an amount expressed as a percentage, equal to the quotient of (i)
      the
      sum of (A) the aggregate principal amount of the Revolving Loans outstanding,
      plus (B) the aggregate undrawn amount of all outstanding Letters of Credit,
      divided by (ii) the Borrowing Base. Based on the Borrowing Base Utilization,
      the
      LIBOR Spread will vary as set forth below: 

    

    
      	
              Borrowing
                Base Utilization

            	 	
              LIBOR
                Spread

            
	
              Greater
                than 90%

            	 	
              2.25%

            
	
              Less
                than or equal to 90%, 

            	 	 
	
              but
                greater than 66%

            	 	
              2.00%

            
	
              Less
                than or equal to 66%, 

            	 	 
	
              but
                greater than 33%

            	 	
              1.75%

            
	
              Less
                than or equal to 33%

            	 	
              1.50%
                

            

    

    The
      APrime
      Rate@
      shall be
      equal to the BOKF National Prime Rate, which is defined as the rate of interest
      set by BOK Financial
      Corporation,
      in its
      sole discretion, on a daily basis, as published by BOK Financial Corporation
      from time to time; and the ALIBOR
      Rate@
      means
      the rate of interest per annum at which deposits in U.S. dollars are offered
      by
      the major London clearing banks, as quoted by the British Banker=s
      Association and reported by Bloomberg Professional Service on page BBAM (or
      such
      other similar news reporting service as Agent may subscribe to at the time
      such
      LIBOR Rate is determined), in the London interbank offered rate market for
      a
      period of time equal or comparable to a one, two, or three month interest
      period, as elected by Borrowers, and in an amount equal to or comparable to
      the
      principal amount of the LIBOR Balance (as defined in the Revolving Note) to
      which such interest period relates; provided,
      however, that only four (4) interest period options shall be in effect at any
      one time and the selection of the LIBOR Rate for a particular interest period
      shall be for no less than $1,000,000.00 of unpaid principal and in even
      multiples of $100,000.00 in principal.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (e) Advances
      on the Revolving Loans may be used only for the following purposes: (i) to
      refinance indebtedness owed by Tandem Energy Corporation (ATEC@)
      to
Guaranty
      Bank,
      (ii) to
      fund capital expenditures, including, without limitation, the acquisition and
      development of oil and gas properties, (iii) the issuance of Letters of
      Credit (as
      defined below), and (iv) working capital and general corporate purposes.

    

    (f) Borrowers
      shall give Agent (which shall promptly notify the Banks) written
      notice (effective upon receipt) of any advance on the Revolving Loans not later
      than 10:00 a.m. (Houston, Texas time) at least one Business Day (as defined
      in
      the Revolving Notes) before the date of the advance, specifying (1) the date
      of
      proposed advance, and (2) the aggregate amount of the proposed advance on the
      Revolving Loans. By 12:00 noon (Houston, Texas time) on the date of
      Borrowers=
      notice,
      Agent shall promptly notify each of the Banks of Borrowers=
      request
      for an advance on the Revolving Loans. Not later than 12:00 noon (Houston,
      Texas
      time), on the date of the requested advance, each of the Banks will make
      available to Agent at Agent=s
      office
      in Houston, Texas, in immediately available funds, that Bank=s
      Percentage Share of advance on the Revolving Loans. After Agent=s
      receipt
      of these funds, not later than 2:00 p.m. (Houston, Texas time), on the date
      of
      the advance and subject to the conditions precedent set forth in this Loan
      Agreement, Agent will make the advance available to Borrowers in immediately
      available funds by crediting the amount thereof to Borrowers=
      account
      with Agent. Agent will not disburse any advance until Agent has received each
      Banks=
      Percentage Share of the advance; provided, however, that unless Agent receives
      notice from a Bank prior to the date on which Banks are to provide funds to
      Agent for an advance that a Bank will not make available to Agent the funds,
      Agent may assume that Banks have made the funds available to Agent on the date
      of the advance, and Agent in its sole discretion, may, but shall not be
      obligated to, in reliance upon such assumption, make available to Borrowers
      on
      the date a corresponding amount. If and to the extent Banks have not made such
      funds available to Agent, Banks agree to repay to Agent, immediately on demand,
      the corresponding amount together with interest thereon, for each day from
      the
      date the amount is made available to Borrowers until the date the amount is
      repaid to Agent, at the customary rate set by Agent for the correction of errors
      among banks for three Business Days and thereafter at the Contract Rate set
      forth in the Revolving Notes. When Banks shall repay to Agent the corresponding
      amount, such amount so repaid shall constitute Banks=
      loan for
      purposes of this Loan Agreement. All notices given by Borrowers under this
      Section shall be irrevocable.

    

    (g) All
      payments of principal of, and interest on, any Notes shall be made by Borrowers
      to Agent before 12:00 noon (Houston, Texas time), in immediately available
      funds, at Agent=s
      principal banking office in Houston, Texas. On the Business Day of receipt
      by
      Agent, if Agent=s
      receipt
      occurs before 12:00 noon (Houston, Texas time), Agent will promptly thereafter
      cause to be distributed, on the same Business Day, (1) each Banks=
      Percentage Share of the payments of principal and interest in like funds to
      each
      Bank for its account, and (2) other fees payable to any Banks to be applied
      in
      accordance with the terms of this Loan Agreement. All payments received by
      Agent
      after 12:00 noon (Houston, Texas time) will be distributed promptly by Agent,
      and in no event later than 2:00 p.m. (Houston, Texas time) on the next
      succeeding Business Day. If and to the extent Agent has not timely distributed
      the payment to Banks, Agent agrees to repay to Banks, immediately on demand,
      the
      corresponding amount together with interest thereon, for each day from the
      date
      the amount is paid by Borrowers until the date the amount is repaid to Banks,
      at
      the customary rate set by Agent for the correction of errors among banks for
      three Business Days and thereafter at the Contract Rate set forth in the
      Revolving Notes. Borrowers authorize each Bank, if and to the extent payment
      is
      not made when due under this Loan Agreement or under any Notes, to charge from
      time to time against any account of Borrowers with such Bank any amount as
      due.

    

    (h) All
      payments made on the Revolving Notes shall be credited, to the extent of the
      amount thereof, in the following manner: (i) first to fees, costs, and expenses
      which Borrowers have agreed to pay under the Loan Documents; (ii) second,
      against the amount of interest accrued that is due and unpaid on the Revolving
      Notes as of the date of such payment; (iii) third, against all principal (if
      any) due and owing on the Revolving Notes as of the date of such payment; (iv)
      fourth, as a prepayment of the Revolving Notes; and (v) fifth, as a prepayment
      of any remaining obligations; provided, however, that if an Event of Default
      has
      occurred and is continuing at the time of such payment, then, except for
      payments that cure the Event of Default which shall be applied to so cure,
      to
      the extent the payment does not cure the default, each of the Banks shall be
      entitled to apply the payment to Loans in the manner it shall deem appropriate.
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (i) (i)
      At
      the request of Borrowers, Banks shall from time to time issue one or more
      letters of credit for the account of Borrowers or affiliates (the ALetters
      of Credit@);
      provided, however, that Banks shall not be obligated to issue a Letter of Credit
      if the aggregate face amount of all outstanding Letters of Credit will exceed
      $5,000,000.00. Borrowers=
      availability on the Revolving Loans will be reduced by the face amount of all
      unexpired Letters of Credit. Any fundings under any Letters of Credit will
      be
      treated as an advance on the Revolving Loans and will be secured by the Security
      Documents (as defined below). All Letters of Credit shall be for a term of
      up to
      one year (or longer if necessary for regulatory requirements) but shall expire
      not later than five days prior to the Termination Date, unless adequately
      secured by cash collateral held by Banks. Borrowers will sign and deliver
      Banks=
      customary forms for the issuance of Letters of Credit. Borrowers agree to pay
      to
      Agent for the benefit of Banks a Letter of Credit fee equal to the Letter of
      Credit Fee Rate per annum set forth below, calculated on the aggregated stated
      amount of each Letter of Credit for the stated duration thereof (computed on
      the
      basis of actual days elapsed as if each year consisted of 360 days). The Letter
      of Credit Fee Rate will vary as set forth below based on the Borrowing Base
      Utilization:

    

      
        	
                Borrowing
                  Base Utilization

              	 	
                Letter
                  of Credit Fee Rate

              
	
                Greater
                  than 90%

              	 	
                2.25%

              
	
                Less
                  than or equal to 90%, 

              	 	 
	
                but
                  greater than 66%

              	 	
                2.00%

              
	
                Less
                  than or equal to 66%, 

              	 	 
	
                but
                  greater than 33%

              	 	
                1.75%

              
	
                Less
                  than or equal to 33%

              	 	
                1.50%
                  

              

      

    

    

    Any
      renewal or extension of a Letter of Credit will be treated as a new issuance
      for
      the purpose of the Letter of Credit fees. These fees are payable quarterly
      in
      arrears within fifteen (15) days of the last day of each calendar
      quarter.

    

    
      
        (ii)
          Each
          of
          the Banks issuing any Letter of Credit irrevocably grants to the
          other
          Banks and, Banks irrevocably accept and purchase from Banks, on the terms
          and
          conditions stated below, for each Bank=s
          own
          account and risk, an undivided interest equal to each Bank=s
          Percentage Share of Banks=s
          obligations and rights under each Letter of Credit issued hereunder and
          the
          amount of each draft paid by Banks thereunder. In the event that Borrowers
          fail
          to pay Banks on demand the amount of any draft or other request for payment
          drawn under a Letter of Credit as required by the letter of credit application,
          the draft or payment shall be treated as an advance on the Revolving Loans
          and
          each of the Banks shall pay to the issuing Bank at its lending office,
          in
          immediately available funds, the other Banks=
          Percentage Share of the amount of such draft or other request for payment
          from
          Borrowers. Banks=
          obligation to reimburse the issuing Bank pursuant to the terms of this
          subsection is irrevocable and unconditional; provided, however, that Banks
          shall
          not be obligated to reimburse the issuing Bank for any wrongful payment
          or
          disbursement made under any Letter of Credit as a result of acts or omissions
          constituting gross negligence or willful misconduct on the part of the
          issuing
          Bank. 

      

    

    

    (j) At
      the
      request of Borrowers and in the sole discretion of Banks, Banks may from time
      to
      time issue one or more auction letters or letters of guarantee in connection
      with auctions or other purchases of oil and gas properties by Borrowers. Each
      auction letter and letter of guarantee will have an expiration date not longer
      than five (5) days from the date of the letter. Notwithstanding any provision
      to
      the contrary, Borrowers=
      availability on the Revolving Loans will be reduced by the aggregate maximum
      amount stated in all unexpired auction letters and letters of guarantee until
      Banks are satisfied that (i) Borrowers were unsuccessful in the auction or
      purchase, or (ii) Borrowers consummate the purchase of the oil and gas
      properties. Any fundings pursuant to an auction letter or letter of guarantee
      will be treated as an advance on the Revolving Loans and will be secured by
      the
      Security Documents. 

    

    (k) Borrowers
      agree to pay to Agent for the benefit of Banks the following fees that are
      non-refundable and earned by Banks upon execution of this Loan Agreement (unless
      otherwise provided):

    

    
      
        (i)
          Upon
          execution of this Loan Agreement, Borrowers agree to pay Agent
          for
          the benefit of Banks the fees set forth in any separate fee
          letters.

      

    

    

    
      
        (ii)
          Upon
          any
          increase in the Borrowing Base, Borrowers agree to pay Agent
          for
          the benefit of Banks an Increase Fee equal to one-quarter of one percent
          (0.25%)
          of the increase in the Borrowing Base.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
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    (iii)
       Borrowers
      agree to pay to Agent for the benefit of Banks a Commitment Fee on the Revolving
      Loans equal to Commitment Fee Rate set forth below per annum (computed on the
      basis of actual days elapsed and as if each calendar year consisted of 360
      days)
      of the average for the period of calculation of an amount determined daily
      equal
      to the difference between the Borrowing Base and the sum of (i) the aggregate
      outstanding principal balance on the Revolving Loans at such time, plus (ii)
      the
      aggregate undrawn amount on all outstanding Letters of Credit. The Commitment
      Fee Rate will vary as set forth below based on the Borrowing Base
      Utilization:

    

      
        	
                Borrowing
                  Base Utilization

              	 	
                Facility
                  Fee Rate

              
	
                Greater
                  than 90%

              	 	
                0.250%

              
	
                Less
                  than or equal to 90%, 

              	 	 
	
                but
                  greater than 66%

              	 	
                0.375%

              
	
                Less
                  than or equal to 66%, 

              	 	 
	
                but
                  greater than 33%

              	 	
                0.375%

              
	
                Less
                  than or equal to 33%

              	 	
                0.500%
                  

              

      

       

    

    This
      Commitment Fee is payable quarterly within fifteen (15) days of the end of
      each
      calendar quarter. This Commitment Fee shall be shared by Banks ratably based
      on
      their respective Percentage Share. 

     

    (iv) Upon
      each
      request by Borrowers for a Special Redetermination (as defined below) of the
      Borrowing Base, Borrowers will pay to Agent for the benefit of Banks an
      Engineering Fee in the amount of $7,500.00.

    

    (l) The
      Revolving Loans, all other loans now or hereafter made by any of the Banks
      to
      Borrowers, or either of them, and any renewals or extensions of or substitutions
      for those loans, will be referred to collectively as the ALoans.@
      The
      Revolving Notes, all other promissory notes now or hereafter payable by
      Borrowers, or either of them, to any of the Banks, and any renewals or
      extensions of or substitutions for those notes, will be referred to collectively
      as the ANotes.@ 

    

    2.  Collateral.
      (a)
      Payment
      of the Notes and the Hedge Liabilities (as defined below) will be secured by
      the
      first liens and first security interests created or described in the following
      (collectively the ASecurity
      Documents@):
      (i) a
      Deed of
      Trust and Security Agreement (the ADeed
      of Trust@)
      of even
      date, executed by TEC in favor of Agent for the benefit of Banks, and covering
      oil and gas properties located in Eddy and Lea Counties, New Mexico, and Hardin,
      Harris, Jim Hogg, Palo Pinto, Pecos, and Scurry Counties, Texas; and
      (ii)
      any other security documents now or hereafter executed in connection with the
      Loans.
      All
      oil
      and gas properties now or hereafter mortgaged to Agent by Borrowers, including
      the oil and gas properties covered by the Security Documents, will be referred
      to as the AProperties.@
      The Deed
      of Trust will renew and consolidate liens and security interests granted by
      TEC
      to Guaranty Bank; and Borrowers shall cause Guaranty Bank to assign its liens
      and security interest to Agent for the ratable benefit of Banks. If requested
      by
      Agent, Borrowers will execute in favor of Agent for the ratable benefit of
      Banks
      mortgages, deeds of trust, security agreements, or amendments, in Proper Form
      (as defined below), mortgaging all additional oil and gas properties and all
      additional interests in the Properties acquired by Borrowers, or either of
      them,
      so that Agent will continuously maintain under mortgage not less than eighty
      percent (80%) of the aggregate present value (as calculated by Agent in its
      sole
      discretion in accordance with the methods set forth below for the Borrowing
      Base) assigned to Borrowers=
      oil and
      gas properties based upon Agent=s
      in-house evaluation.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (b) Payment
      of the Notes and the Hedge Liabilities will be guaranteed by all existing and
      hereafter acquired companies, subsidiaries, or partnerships of Borrowers; and
      Borrowers agree to cause all such companies, subsidiaries, and partnerships
      to
      execute and deliver guaranties in Proper Form to Agent for the benefit of Banks.
      

    

    (c) In
      connection with the Security Documents and at such time as Agent requires
      Borrowers to mortgage additional oil and gas properties, Borrowers shall, upon
      request of Agent, deliver to Agent for the benefit of Banks title opinions
      and/or other title information acceptable to Agent covering at least eighty
      percent (80%) of the present value (as determined by Agent in the manner set
      forth for Borrowing Base determinations below) of the Properties and the oil
      and
      gas properties which are to become Properties, along with such other information
      regarding title as Agent shall reasonably request, all in Proper Form and from
      attorneys or landmen acceptable to Agent. Agent reserves the right to
      immediately exclude any oil and gas property from the Borrowing Base if Agent
      learns of any material title issue with respect to the oil and gas property
      or
      if Agent=s
      review
      of Borrowers=
      title to
      the oil and gas property indicates that Borrowers=
      title is
      unacceptable to Agent, in its sole discretion.

    

    (d) Agent
      shall hold the Properties and all related collateral, along with all payments
      and proceeds arising therefrom, for the benefit of Banks as security for the
      payment of the Loans and the Hedge Liabilities. Except as otherwise expressly
      provided for in this Section, Agent, in its own name or in the name of Banks,
      may enforce any of the collateral or the security therefor by any mode provided
      under the Loan Documents or by the law of the state in which the collateral
      or
      in which any of the Properties is located, and may collect and receive proceeds
      receivable on account of ownership of the Properties. Agent, in its sole
      discretion and in good faith, may (but is not required to) take whatever action
      it deems necessary to protect and enforce the Properties and other collateral
      or
      the rights of Banks under the Loan Documents. Specifically, Agent is authorized
      to sign and deliver partial releases of the Security Documents for sales of
      oil
      and gas properties permitted by Section 7(d) below.

    (e) After
      an
      Event of Default (as defined below) that remains uncured after the expiration
      of
      any notice and cure period required by this Loan Agreement, or if there is
      an
      existing Borrowing Base deficiency that is not addressed by Borrowers in
      accordance with Section 3(b) below, Agent reserves the right to require
      Borrowers to set up a lockbox account to be managed by Agent for the purpose
      of
      collection of production proceeds attributable to Borrowers=
      interest
      in the Properties. Borrowers agree that upon Agent=s
      election to require the lockbox after an Event of Default, Agent will receive
      the proceeds of oil and gas produced from or attributable to
      Borrowers=
      interest
      in the Properties for application to the Revolving Notes and the Hedge
      Liabilities; and Borrowers hereby direct all production purchasers or operators
      distributing proceeds to pay Borrowers=
      distributions attributable to Borrowers=
      interest
      in the Properties directly to Agent, if Agent so elects. All production proceeds
      attributable to the Properties received in the lockbox account by Agent that
      are
      attributable to another person=s
      or
      entities=
      interest
      in the Properties shall be released immediately to Borrowers upon
      Borrowers=
      request.
      All production proceeds attributable to Borrowers=
      interest
      in the Properties received in the lockbox account by Agent in excess of the
      current scheduled monthly payment and any other fees or expenses owed to Agent
      or Banks will be transferred to Borrowers at the end of each month for its
      use
      consistent with the provisions of this Loan Agreement, so long as there is
      no
      existing Event of Default. If the production proceeds attributable to
      Borrowers=
      interest
      in the Properties received by Agent during any month are not sufficient to
      make
      the scheduled monthly payment, Borrowers will pay Agent the deficiency within
      ten (10) days. Contemporaneously with the execution of this Loan Agreement,
      TEC
      will sign and deliver letters in lieu of transfer orders to all purchasers
      of
      production directing those parties to pay all proceeds attributable to
      TEC=s
      interest in the Properties to the lockbox account, and these letters, signed
      in
      blank, will be held by Agent until such time as Agent elects to require the
      lockbox after an Event of Default. 

    

    (f) All
      payments and proceeds of every kind from the Properties, when directly received
      by Agent (whether from payments on or with respect to the Properties, from
      production proceeds collected by Agent, from foreclosure and sale to third
      parties, from sale of collateral subsequent to a foreclosure at which Agent
      or
      another Bank was the purchaser, or otherwise) shall be held by it as a part
      of
      the collateral and, except as otherwise expressly provided hereinafter, shall
      be
      applied to the Revolving Loans and the Hedge Liabilities in the manner set
      forth
      below. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (g) Upon
      the
      occurrence and during the continuance of any Event of Default, Agent, after
      giving written notice and taking any other action necessary under applicable
      statutes of the jurisdiction in which the Properties are located, to Borrowers
      and to Banks of the action to be taken, may at any time or times thereafter
      exercise all available rights and remedies, including the right, if any, to
      sell, assign, and deliver all or any part of the Properties, or any substitution
      therefor or any additions thereto as provided hereafter. Any sale or assignment
      may be at any public or private sale at the option of Agent, without
      advertisement or any notice to Borrowers or any other person except those
      required by applicable law (Borrowers hereby agreeing that 10 days notice
      constitutes Areasonable
      notice@);
      and
      Banks, individually or collectively, may bid and become a purchaser at any
      such
      sale. Sales hereunder may be at such time or times, place or places, for cash
      or
      credit, and upon such terms and conditions as Agent may determine in its sole
      discretion. Upon the completion of any sale, Agent shall execute all instruments
      of transfer necessary to vest in the purchaser title to the property sold,
      and
      shall deliver to the purchaser any of the property so sold which may be in
      the
      possession of Agent. Agent, in its sole discretion and in good faith, may (but
      is not required to) take whatever action it deems necessary to protect and
      enforce the Properties and other collateral or the rights of Agent or Banks
      under the Loan Documents. 

    

    (h) In
      the
      case of any sale of all or part of the Properties or other collateral, the
      purchase money proceeds and all other proceeds which then may be held or
      recovered by Agent for the benefit of Banks, shall be applied in the following
      order: 

    

    (i)
       First,
      to
      the payment of the reasonable costs and expenses of the sale and of the
      collection or enforcement of the collateral, and reasonable compensation to
      Agent, its agents and attorneys, and of all reasonable expenses and liabilities
      incurred and advances made by Banks in connection therewith; 

    

    
      
        (ii)
          Second,
          to the payment of expenses of Banks which Borrowers are obligated
          to pay pursuant to this Loan Agreement; 

      

    

    

    
      
        (iii)
          Third,
          to
          the payment ratably of the sum of (i) amounts due for
          principal and interest on all Loans then outstanding, and (ii) amounts
          owed as
          the Hedge Liabilities, without preference or priority of the indebtedness
          owing
          to one Bank over another, or of Hedge Liabilities over Loans, or of Loans
          over
          Hedge Liabilities, or of principal over interest, or of interest over principal;
          and 

      

    

    

    
      
        (iv)
          Fourth,
          to the payment of the surplus, if any, to Borrowers, their
          successors or assigns, or to whomsoever may be lawfully entitled to receive
          the
          same, or as a court of competent jurisdiction may direct.

      

    

    

    (i) Unless
      a
      security interest would be prohibited by law or would render a nontaxable
      account taxable, Borrowers grant to Banks a contractual possessory security
      interest in, and hereby assigns, pledges, and transfers to Banks all
      Borrowers=
      rights
      in any deposits or accounts now or hereafter maintained with any of the Banks
      (whether checking, savings, or any other account), excluding, however, accounts
      maintained by Borrowers with any of the Banks for the purpose of revenue
      distribution to third parties entitled to those revenues and any other accounts
      held by Borrowers for the benefit of a third party. Borrowers authorize Banks,
      to the extent permitted by applicable law, to charge or setoff any sums owing
      on
      the Loans or the Hedge Liabilities against any and all such deposits and
      accounts; and Banks shall be entitled to exercise the rights of offset and
      banker=s
      lien
      against all such accounts and other property or assets of Borrowers, or either
      of them, with or in the possession of Banks to the extent of the full amount
      of
      the Loans and the Hedge Liabilities. Any amount offset by a Bank shall be shared
      with the other Banks in accordance with the Percentage Share of each, and each
      of the Banks shall apply its share in accordance with this Loan Agreement.
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    3.
       Borrowing
      Base.
      (a) On
      or
      around May 1 and November 1 of each year (APeriodic
      Redetermination@),
      commencing May 1, 2008, Agent may determine or redetermine, in its sole
      discretion, a Borrowing Base (as defined below). In addition, Required Banks
      (as
      defined below) shall have the right to request at any time, and Borrowers shall
      have the right to request once per six-month period between Periodic
      Redeterminations, an unscheduled redetermination (ASpecial
      Redetermination@)
      of the
      Borrowing Base by Banks, and Agent shall conduct such Special Redetermination
      using the methods described in this Section. The term ABorrowing
      Base@
      refers
      to the designated loan value (as calculated by Agent in its sole discretion)
      assigned to the discounted present value of future net income accruing to the
      Properties based upon Agent=s
      in-house evaluation of Borrowers=
      oil and
      gas properties. Agent=s
      determination of the Borrowing Base will use such methodology, assumptions,
      and
      discount rates customarily used by Agent with respect to credits of a similar
      size and nature in assigning collateral value to oil and gas properties and
      will
      be based upon such other credit factors or financial information available
      to
      Agent at the time of each determination, including, without limitation, current
      market conditions and Borrowers=
      assets,
      liabilities, cash flow, liquidity, business, properties, prospects, management,
      and ownership. Borrowers acknowledge that increases in the Borrowing Base are
      subject to appropriate credit approval by Banks. 

    

    (b) The
      outstanding principal balance owing on the Revolving Notes, plus the aggregate
      face amount of all Letters of Credit, may not exceed the Borrowing Base at
      any
      time, subject to the payout provisions below in the event of a Borrowing Base
      decrease. A decrease in the Borrowing Base will result in an immediate decrease
      in Banks=
      commitment under the Revolving Loans. If the redetermined Borrowing Base is
      less
      than the sum of the outstanding principal then owing on the Revolving Notes,
      plus the aggregate face amount of all Letters of Credit, Agent will notify
      Borrowers of the amount of the Borrowing Base and the amount of the deficiency.
      Within thirty (30) days after notice is sent by Agent, Borrowers shall remedy
      the deficiency by either: (i) making a lump sum payment on the Revolving Notes
      to reduce the principal outstanding plus Letters of Credit to an amount equal
      to
      or less than the new Borrowing Base; (ii) committing to make five equal monthly
      installment payments on the Revolving Notes to reduce the principal plus Letters
      of Credit to an amount equal to or less than the new Borrowing Base; or (iii)
      mortgaging additional collateral, which must be acceptable to Agent as to type,
      value, and title. 

    (c) Upon
      each
      Periodic or Special Redetermination, Agent will review and set the Borrowing
      Base and an MCR (as defined below) within thirty (30) days from receipt by
      Banks
      of all pertinent information, and Agent will advise Borrowers and Banks of
      Agent=s
      decision, which will be at Agent=s
      sole
      discretion. Each of the Banks must approve or reject the proposed Borrowing
      Base
      and MCR within twenty-one (21) days of Agent=s
      notice.
      The failure of any Bank to respond within the twenty-one day period shall be
      deemed to be approval of the proposed Borrowing Base and MCR. Any increase
      in
      the Borrowing Base and any decrease in the MCR must be unanimously approved
      by
      all Banks, and each reaffirmation or reduction in the Borrowing Base and
      reaffirmation or increase to the MCR must be approved by Agent and Required
      Banks. As used in this Loan Agreement, ARequired
      Banks@
      means
      Banks holding an aggregate Percentage Share not less than one hundred percent
      (100%). If, in conjunction with a Special Redetermination, Borrowers submit
      to
      Agent for its review additional oil and gas properties to be mortgaged and
      Banks
      elect to increase the Borrowing Base, the increase in the Borrowing Base will
      be
      effective as of the date upon which Borrowers execute and deliver to Agent
      appropriate mortgages or amendments in Proper Form, which will grant to Agent
      for the benefit of Banks a valid, enforceable and first priority lien against
      the additional Properties as security for the Revolving Loans.

    

    (d) At
      the
      time of any Periodic or Special Redetermination, Agent reserves the right to
      establish an equal Monthly Commitment Reduction (AMCR@)
      amount
      by which the Borrowing Base shall be automatically reduced effective as of
      the
      fifth (5th)
      day of
      each successive calendar month until the next Borrowing Base redetermination.
      Agent=s
      determination of the MCR will use such methodology, assumptions, and discount
      rates customarily used by Agent with respect to credits of a similar size and
      nature in determining commitment reductions and will be based upon such other
      credit factors or financial information available to Agent at the time of each
      determination, including, without limitation, the economic half-life of the
      Properties, and Borrowers=
      assets,
      liabilities, cash flow, liquidity, business, properties, prospects, management,
      and ownership. The MCR will be set at $0 until reset in connection with a
      Borrowing Base redetermination or until the Termination Date. If the outstanding
      principal balance owing on the Revolving Notes, plus the face amount of all
      unexpired and outstanding Letters of Credit, shall exceed the Borrowing Base
      solely because of an MCR reduction, Borrowers shall promptly make a single
      lump
      sum payment in an amount not to exceed the MCR to reduce the outstandings below
      the Borrowing Base. If the outstanding principal balance owing on the Revolving
      Notes, plus the face amount of all unexpired and outstanding Letters of Credit,
      shall exceed the Borrowing Base because of a Periodic or Special Redetermination
      (or a Periodic or Special Redetermination combined with a required MCR),
      Borrowers shall have the right to cure as set forth in subsection (b) above;
      provided, however, that if the MCR was applicable before the Periodic or Special
      Redetermination, then the MCR amount will be due in a lump sum and Banks may
      continue the MCR at the same amount or change the MCR effective on the
      redetermination date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (e) If
      Borrowers sell, transfer, or otherwise dispose of any oil and gas properties
      included in the Borrowing Base that have an aggregate sales price in excess
      of
      five percent (5%) of the most recent Borrowing Base, Agent reserves the right
      to
      redetermine the Borrowing Base in accordance with this Section 3, which
      redetermination will be in addition to any Special Redetermination permitted
      to
      Agent or Banks under subsection (a) above. Any Borrowing Base deficiency
      resulting from the sale of any oil and gas properties shall be immediately
      reduced by a single lump sum payment in an amount not to exceed the net proceeds
      from the sale of the oil and gas properties, and any remaining deficiency after
      the Borrowing Base redetermination shall be cured by Borrowers pursuant to
      subsection (b) above.

    

    4.  Hedges
      and Swaps.
      (a) Definitions.
      As used
      in this Loan Agreement and the Loan Documents, the following terms have the
      meanings assigned below:

    

    (i) AISDA
      Agreement@
      means
      any International Swaps and Derivatives Association, Inc. master agreement
      or
      any similar agreement (with all related schedules, annexes, exhibits,
      amendments, and confirmations), now existing or hereafter entered into by
      Borrowers, or either of them, as amended, modified, replaced, consolidated,
      extended, renewed, or supplemented from time to time.

    

    (ii) AHedge
      Transaction@
      means
      all Transactions (as defined in the ISDA Agreement) and any other commodity
      swap
      (including price protection for future production of oil, gas, or other
      hydrocarbons or mineral or mining interests and rights therein), commodity
      option, interest rate swap (including rate hedge products), basis or currency
      or
      cross-currency rate swap, forward rate, cap, call, floor, put, collar, future
      rate, forward agreement, spot contract, or other credit, price, foreign
      exchange, rate, equity, equity index option, bond option, interest rate option,
      rate protection agreement, currency option, or other option, or commodities
      derivative, exchange, risk management, or protection agreement, or
      commodity, securities, index, market, or price-linked transaction or
      agreement,
      or any
      option with respect to any such transaction or similar transaction or
      combination of any of the foregoing, now existing or hereafter entered into
      by
      Borrowers, whether linked to one or more interest rates, foreign currencies,
      commodity prices, equity prices, indexes, or other financial measures and
      whether such transactions or combinations thereof are governed by or subject
      to
      any ISDA Agreement or other similar agreement or arrangement, including all
      obligations and liabilities thereunder, and including all renewals, extensions,
      amendments, and other modifications or substitutions.

    (iii)
       AHedge
      Liabilities@
      means
      any and
      all liabilities and obligations of every nature and howsoever created, direct,
      indirect, absolute, contingent, or otherwise, whether now existing or hereafter
      arising, created, or accrued, of Borrowers, or either of them, from time to
      time
      owed or owing to Agent, Banks, or Hedge Providers in connection with any ISDA
      Agreement [and each Transaction (as defined in the ISDA Agreement) and each
      Confirmation (as defined in the ISDA Agreement)] or any Hedge Transaction,
      including, but not limited to, obligations and liabilities arising in connection
      with or as a result of early or premature termination, cancellation, rescission,
      buy back, reversal, or assignment or other transfer of a Hedge
      Transaction,
      and
      including any obligations or liabilities under the Letters of Credit issued
      in
      connection with Hedge Transactions to which another entity is a
      counter-party,
      whether
      for principal, interest (including interest which, but for the filing of a
      petition in bankruptcy with respect to such obligor, would have accrued on
      such
      obligation, whether or not a claim is allowed for such interest in the related
      bankruptcy proceedings), reimbursement obligations, fees, expenses,
      indemnification, or otherwise.

    

    (iv)
       AHedge
      Provider@
      means
      BOK or
      any affiliate of any of the Banks contracting with Agent or Banks with respect
      to Hedge Transactions for Borrowers.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (v)
       ABOK@
      means
collectively
      Bank of Oklahoma, N.A. and any affiliate of Bank of Oklahoma, N.A. or Bank
      of
      Texas, including without limitation, Bank of Albuquerque, N.A., Bank of
      Arkansas, N.A., Bank of Arizona, Colorado State Bank and Trust, N.A., and such
      other present or future banking or financial institution affiliates now or
      hereafter owned or controlled directly or indirectly by BOK
      Financial Corporation.
      

    

    (b) ISDA
      Agreement.
      Borrowers and Agent,
      Banks, or Hedge Providers
      may
      enter into an ISDA Agreement, governing certain Hedge Transactions available
      to
      Borrowers from Agent,
      Banks, or Hedge Providers.
      Borrowers may enter into Transactions (as defined in the ISDA Agreement) subject
      to the provisions of Confirmations (as defined in the ISDA Agreement).
      Notwithstanding any provision to the contrary, the provisions of this Loan
      Agreement shall remain in force until all Hedge Transactions with Agent, Banks,
      or Hedge Providers have expired and all Hedge Liabilities have been satisfied
      in
      full, even though the Loans may have previously been paid in full and
      terminated.

    

    (c) Security.
      Borrowers
      agree that the Security Documents shall secure payment of all Hedge Liabilities.
      Borrowers, Agent, and Banks hereby agree that the Loans and the Hedge
      Liabilities shall rank pari
      passu
      and
      shall collectively be secured by the Security Documents on a pro rata basis.
      Agent shall hold the Properties and all related collateral under the Security
      Documents, along with all payments and proceeds arising therefrom, for the
      benefit of Agent, as security for the payment of all Loans and as security
      for
      all Hedge Liabilities on a ratable basis. The
      benefit of the Security Documents and of the provisions of this Loan Agreement
      relating to the collateral shall also extend to and be available to Agent,
      Banks, or Hedge Providers to the extent any is a counter-party to any Hedge
      Transactions on a pro rata basis with respect to any obligations, liabilities,
      or indebtedness of Borrowers.

    (d) Termination.
      If
      and to
      the extent any Hedge Transaction is required by this Loan Agreement or used
      in
      calculation of the Borrowing Base, such Hedge Transaction cannot be cancelled,
      liquidated, or Aunwound@
      without
      the prior written consent of Agent and Required Banks. 

    

    (e) Hedging
      Limitations.
      Borrowers shall not enter into any Hedge Transaction related to crude oil,
      natural gas, or other commodities, except hedging required by Agent and Banks
      and except for Hedge Transactions which meet the following
      requirements:

    

    (i) Hedge
      Transactions resulting in a cap on the price to be received by Borrowers,
      involving in the aggregate at any time not more than ninety percent (90%) of
      Borrowers=
      anticipated production from its proved developed producing oil and gas
      properties (as
      forecast in Agent and Banks=
      most
      recent engineering valuation
      of the
      Properties); provided, however, that there shall be no limitation on the volume
      of Hedge Transactions resulting only in a floor price per barrel or mcf;
      and

    

    (ii) Hedge
      Transactions that would not result in a price per barrel or mcf lower than
      the
      base case price used by Agent and Banks in the most-recent engineering
      evaluation of Borrowers=
      oil and
      gas properties, adjusted for variances between the hedging price and
      Borrowers=
      actual
      product price as determined by Agent and Banks, or otherwise at hedging prices
      acceptable to Agent; and

    

    (iii) Hedge
      Transactions that include
      a
Aprice
      floor@
      or
      comparable financial hedge or risk management agreement acceptable to Agent
      in
      all respects (including, without limitation, price and term);
      and

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (iv) Hedge
      Transactions that are each for a period not to exceed sixty (60) months or
      twelve (12) months beyond the Termination Date; and

    

    (v) Hedge
      Transactions
      where,
      in each case, the underlying contracts are with one or more of Agent, Banks,
      or
      Hedge Providers, as counterparty, with a counter-party (or the parent entity
      thereof) acceptable to Agent and who at the time the contract is made has
      long-term obligations rated BBB+ or better by Standard & Poor=s
      Ratings
      Group or Baa1 or better by Moody=s
      Investors Services, Inc., or with a counter-party that is otherwise approved
      by
      Agent in writing; and

    (vi) Hedge
      Transactions
      that are
      not effective at concurrent or overlapping periods of time on the same volumes
      of production on
      both
      a
      physical and financial basis, unless the combined volumes are in compliance
      with
      the volume limitations set forth above.
      

    

    Borrowers
      may enter into swaps, collars, floors, caps, options, corridors, or other
      contracts, as such terms are commonly referred to in the capital markets, which
      are intended to reduce or eliminate the risk of fluctuation in interest rates
      for
      the
      purpose and effect of fixing and capping interest rates on a principal amount
      of
      indebtedness of Borrowers;
      provided
      that (A)
      the floating rate index of each such contract generally matches the index used
      to determine the floating rates of interest on the corresponding indebtedness
      of
      Borrowers to be hedged by such contract and the interest rate exposure would
      not
      cause the notional amount of all such Hedge Transactions then in effect for
      the
      purpose of hedging interest rate exposure to exceed one
      hundred percent (100%)
      of the
      total consolidated indebtedness of Borrowers projected to be outstanding for
      any
      period covered by such Hedge Transaction, and (B) Borrowers shall not establish
      or maintain any margin accounts with respect to such contracts.
      

    

    (f) Required
      Hedges.
      Unless
      Agent agrees in writing to the contrary, Borrowers shall maintain the Hedge
      Transactions described in Schedule
      2
      attached
      and meeting the following requirements: (i) the Hedge Transactions shall cover
      the volumes set forth in Schedule
      2
      attached; (ii) the Hedge Transactions shall cover the periods set forth in
      Schedule
      2
      attached; and (iii) the Hedge Transactions shall have a fixed price or floor
      price per barrel equal to or greater than set forth in Schedule
      2
      attached. Within thirty (30) days of the date of this Loan Agreement, Borrowers
      shall provide evidence to Agent that all of the Existing Hedge Transactions
      described in Schedule
      3
      attached
      have been assigned from Parent to TEC.

    

    (g) Speculation.
      Borrowers shall not invest for speculative purposes in any Hedge Transactions
      or
      in any other options, futures, or derivatives.

    (h) Third
      Party Hedge Transactions.
      If
      any
      Hedge Transaction is entered into with an outside counter-party, (I)
      notwithstanding Subsection (i) of Section 1 of the Loan Agreement, Agent and
      Banks shall not be required to provide any Letter of Credit with respect to
      any
      margin call on the Hedge Transactions, unless Agent, in its sole discretion,
      agrees to do so; and (II) Borrowers shall collaterally assign and pledge in
      favor of Agent for the ratable benefit of Banks a first-priority continuing
      security interest in the applicable trading account and the hedging contract,
      including the Hedge Transactions listed in Schedules
      2 and 3
      attached, as additional security for the Loans. In connection therewith,
      Borrowers shall execute and deliver to Agent for the ratable benefit of Banks
      such security agreements, control agreements, and financing statements as deemed
      appropriate by Agent to create and perfect the continuing security interest
      therein.

    

    5.  Conditions
      Precedent.
      (a) The
      obligation of Banks to make the initial advance on the Revolving Loans is
      subject to Borrowers=
      satisfaction, in Agent=s
      sole
      discretion, of the following conditions precedent:

    

    (1) Agent=s
      receipt
      of satisfactory evidence that Borrowers have no

    outstanding
      indebtedness other than the Revolving Loans, the Subordinate Indebtedness as
      permitted below, and trade accounts payable and taxes incurred in the ordinary
      course of business.

    

    (2)
       except
      as
      approved by Agent in writing, Borrowers shall be in compliance in all material
      respects with all existing obligations, there shall be no default at closing
      or
      funding on any existing loans, and all representations and warranties in
      connection with existing obligations must be true in all material
      respects.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (3) the
      negotiation, execution, and delivery of Loan Documents in Proper Form,
      including, but not limited to, the following:

    

    (i) this
      Loan
      Agreement;

    (ii) the
      Revolving Note;

    (iii)
      the
      Deed of Trust; 

    (iv) Borrowing
      Resolutions;

    (v) Letters
      in Lieu; and

    (vi)
       the
      Subordination Agreement (as defined below) signed by Borrowers and Platinum
      Energy Resources, Inc. (AParent@),
      a
      Delaware corporation.

    

    (4) satisfactory
      evidence that Agent holds perfected liens and security interests in all
      collateral for the Loans, subject to no other liens or security
      interests.

    

    (5) there
      shall not have occurred a material adverse change in the business, assets,
      liabilities (actual and contingent), operations, or condition (financial or
      otherwise) of Borrowers or in the facts and information as represented to date,
      from that reflected in Borrowers=
      financial statements for the year ending December 31, 2007, as provided to
      Agent.

    

    (6) there
      being no order or injunction or other pending or threatened litigation in which
      there is a reasonable possibility, in Agent=s
      judgment, of a decision which could materially adversely affect the ability
      of
      Borrowers to perform under the Loan Documents. 

    (7) Agent
      shall have completed and approved a review of title to, and the status of the
      environmental condition of, Borrowers=
      oil and
      gas properties, including the Borrowing Base properties, and the results of
      such
      review shall be acceptable to Agent in its sole discretion.

    

    (8) Agent=s
      receipt
      and review, with results satisfactory to Agent and its counsel, of information
      regarding litigation, tax, accounting, insurance, pension liabilities (actual
      or
      contingent), real estate leases, material contracts, debt agreements, property
      ownership, and contingent liabilities of Borrowers.

    

    (9) Agent=s
      receipt
      of assignments in Proper Form of the mortgages and UCC financing statements
      of
      Guaranty Bank.

    

    (10)
       Borrowers
      shall cause BP Corporation
      North America, Inc.
      and
Shell
      Trading (U.S.) Company to
      assign
      and novate the existing Hedge Transactions listed in Schedule
      3
      attached
      to BOK on terms acceptable to Agent.

    

    (11) Borrowers
      shall deliver legal opinions in Proper Form, from Borrowers=
      counsel,
      addressed to Agent and Banks, regarding Borrowers=
      authority, the enforceability of the Loan Documents, and other matters
      reasonably required by Agent.

    

    (b) Notwithstanding
      any provision of the Loan Agreement or the Revolving Note to the contrary,
      the
      principal amount outstanding on the Revolving Loan may not exceed $10,000,000.00
      until Agent has satisfactorily completed the additional due diligence described
      below:

    

    (1) Agent=s
      receipt
      and satisfactory review of the audited financial statement for 2007 fiscal
      year
      for Parent,
      on
      a
      consolidated and consolidating basis, and internally-prepared financial
      statements for 2007 fiscal year for Borrowers, both statements prepared in
      conformity with generally accepted accounting principles in effect on the date
      such statement was prepared, consistently applied (AGAAP@).

    

    (2) Agent=s
      receipt
      and satisfactory review of a third-party reserve report in accordance with
      the
      requirements of Subsection (d) of Section 9 below, for the Borrowing Base
      properties, including data for valuation of Borrowers=
      proved
      developed non-producing reserves and proved undeveloped reserves.

    

    (3) Agent=s
      receipt
      and satisfactory review of background checks regarding Borrowers and its
      principals.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (c) Banks
      will not be obligated to make the Loans or any subsequent advance on the Loans,
      if, prior to the time that a loan or advance is made, (i) there has been any
      material adverse change in either Borrowers=
      financial condition since the most-recent financial statements furnished to
      Banks, (ii) any representation or warranty made by Borrowers in this Loan
      Agreement or the other Loan Documents is untrue or incorrect in any material
      respect as of the date of the advance or loan, (iii) Agent has not received
      all
      Loan Documents appropriately executed by Borrowers and all other proper parties,
      (iv) Agent has requested that Borrowers execute additional loan or security
      documents and those documents have not yet been properly executed, delivered,
      and recorded, (v) Borrowers are not in compliance with the Borrowing Base and
      all reporting requirements, or (vi) an Event of Default (as defined below)
      has
      occurred and is continuing.

    

    6.  Representations
      and Warranties.
      Borrowers hereby represent and warrant to Agent and Banks as
      follows:

    

    (a) The
      execution, delivery, and performance of this Loan Agreement, the Notes, the
      Security Documents, and all of the other Loan Documents by Borrowers have been
      duly authorized by Borrowers=
      respective boards of directors, and this Loan Agreement, the Notes, the Security
      Documents, and all of the other Loan Documents constitute legal, valid, and
      binding obligations of Borrowers, enforceable in accordance with their
      respective terms;

    

    (b) The
      execution, delivery, and performance of this Loan Agreement, the Notes, the
      Security Documents, and the other Loan Documents, and the consummation of the
      transaction contemplated, do not require the consent, approval, or authorization
      of any third party and do not and will not conflict with, result in a violation
      of, or constitute a default under (i) any provision of Borrowers=
      certificate of incorporation or bylaws, or any other agreement or instrument
      binding upon Borrowers, or (ii) any law, governmental regulation, court decree,
      or order applicable to Borrowers;

    

    (c) Each
      financial statement of Borrowers or Parent,
      hereafter supplied to Agent or Banks, will be prepared in accordance with GAAP,
      in Proper Form, and truly discloses and fairly presents in all material respects
      their respective financial condition as of the date of each such statement,
      and
      there has been no material adverse change in such financial condition subsequent
      to the date of the most recent financial statement supplied to
      Agent;

    (d) There
      are
      no actions, suits, or proceedings pending or, to Borrowers=
      knowledge, threatened against or affecting Borrowers, Parent, or the Properties,
      before any court or governmental department, commission, or board, which, if
      determined adversely, would reasonably be expected to have a material adverse
      effect on the Properties or the operations or financial condition of Borrowers
      or Parent; 

    

    (e) Borrowers
      have filed all federal, state, and local tax reports and returns required by
      any
      law or regulation to be filed and due and have either duly paid all taxes,
      duties, and charges indicated due on the basis of such returns and reports,
      or
      made adequate provision for the payment thereof, and the assessment of any
      material amount of additional taxes in excess of those paid and reported is
      not
      reasonably expected;

    

    (f) Borrowers
      are in compliance in all material respects with all applicable provisions of
      the
      Employee Retirement Income Security Act of 1974, as amended or recodified from
      time to time (AERISA@);
      Borrowers have not violated any provision of any Adefined
      benefit plan@
      (as
      defined in ERISA) maintained or contributed to by Borrowers (each a APlan@);
      no
AReportable
      Event@
      as
      defined in ERISA has occurred and is continuing with respect to any Plan
      initiated by Borrowers, unless
      the
      reporting requirements have been waived by the Pension Benefit Guaranty
      Corporation;
      and
      Borrowers have met their minimum funding requirements under ERISA with respect
      to each Plan;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (g) Borrowers
      have disclosed to Agent all of the terms of all material agreements affecting
      Borrowers=
      oil and
      gas properties or its operations, including all gas balancing agreements and
      advance payment contracts;

    

    (h) Borrowers
      certify that Borrowers have no existing subsidiaries or other entities owned
      by
      Borrowers; and

    

    (i) Schedule
      3
      sets
      forth, as of the date of this Loan Agreement, a true and complete list of all
      existing ISDA Agreements and Hedge Transactions of Borrowers, the material
      terms
      thereof (including the type, term, effective date, termination date, and
      notional volumes and prices), the net mark-to-market value thereof, all credit
      support agreements relating thereto (including any margin required or supplied),
      and the counter-party to each such Hedge Transactions. 

    7.
       Covenants.
      Until
      the Loans and the Hedge Liabilities and all other obligations and liabilities
      of
      Borrowers under this Loan Agreement, the Notes, the Security Documents, and
      the
      other Loan Documents are fully paid and satisfied, Borrowers agree and covenant
      that they shall, unless Agent and Required Banks otherwise consent in
      writing:

    

    (a)  (i)
      Maintain their existence in good standing in the State of Delaware, maintain
      their authority to do business in the States of New Mexico and Texas and all
      other states in which either is required to qualify, and maintain full legal
      capacity to perform all their obligations under this Loan Agreement and the
      Loan
      Documents, (ii) continue to operate their business as presently conducted,
      (iii)
      not permit a material change in their ownership, control, or management, (iv)
      not permit any changes in Borrowers=
      directors or officers that alter a majority of the current directors or
      officers, (v) not permit either of their dissolution, liquidation, or other
      termination of existence or forfeiture of right to do business, (vi) not form
      any subsidiary without notifying Agent in writing at least thirty (30) days
      in
      advance, (vii) not permit a merger or consolidation (unless a Borrower is the
      surviving entity), and (viii) not acquire all or substantially all of the assets
      of any other entity without first notifying Agent in writing at least thirty
      (30) days in advance.

    

    (b)  Manage
      the Properties in an orderly and efficient manner consistent with good business
      practices, and perform and comply in all material respects with all statutes,
      rules, regulations, and ordinances imposed by any governmental unit upon the
      Properties, Borrowers,, or their operations including, without limitation,
      compliance with all applicable laws relating to the environment.

    

    (c)  Maintain
      insurance as customary in the industry, including but not limited to, casualty,
      comprehensive property damage, and commercial general liability, and other
      insurance, including worker=s
      compensation (if necessary to comply with law), naming Agent as an additional
      insured or a loss payee, and containing provisions prohibiting their
      cancellation without prior written notice to Agent, and provide Agent with
      evidence of the continual coverage of those policies prior to the lapse of
      any
      policy.

    (d)
       Not
      sell,
      assign, transfer, or otherwise dispose of all or any interest in the Properties,
      any other oil and gas properties included in the Borrowing Base, or any other
      material assets, except for (i) the sale of hydrocarbons in the ordinary course
      of business, (ii) the sale or transfer of equipment that is no longer necessary
      for the business of Borrowers or that is replaced by equipment of at least
      comparable value and use, and (iii) the sale of oil and gas properties having
      an
      aggregate sales price and market value not in excess of five percent (5%) of
      the
      Borrowing Base per fiscal year, without the prior written consent of Agent,
      provided that Agent and Banks shall not unreasonably withhold its consent for
      any sale, farmout, farmin, or other disposition of any oil and gas properties
      or
      any interest therein, so
      long
      as: (x) the net sales proceeds received by Borrowers are equal to or greater
      than net present value of the proved developed producing oil and gas reserves
      as
      of the most recent redetermination date (scheduled or otherwise) discounted
      at
      nine percent (9%); (y) any resulting Borrowing Base deficiency after exclusion
      of the sale properties from the Borrowing Base is immediately eliminated by
      a
      single lump sum payment; and (z) there is no existing Event of
      Default.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (e)  Promptly
      inform Agent of (i) any and all material adverse changes in
      Borrowers=
      or
      Parent=s
      financial condition, (ii) all litigation and claims which could reasonably
      be
      expected to materially and adversely affect the financial condition of Borrowers
      or the Properties, (iii) all actual or contingent material liabilities of
      Borrowers, (iv) any change in name, identity, or structure of Borrowers or
      Parent, and (v) any uninsured or partially insured loss of any collateral
      through fire, theft, liability, or property damage.

    

    (f)  Maintain
      Borrowers=
      and
      Parent=s
      books
      and records in accordance with GAAP, and permit Agent and Banks to examine,
      audit, and make and take away copies or reproductions of their books and
      records, reasonably required by Agent or Banks, at all reasonable times; and
      permit such persons as Agent or Banks may designate at reasonable times to
      visit
      and inspect the Properties and examine all records with respect to the
      Properties, and pay for the reasonable cost of such examinations, audits, and
      inspections required by Agent or Banks.

    

    (g)  Pay
      and
      discharge when due all indebtedness and obligations, including without
      limitation, all assessments, taxes, governmental charges, levies, and liens,
      of
      every kind and nature, and all obligations under authorizations for expenditures
      for development of Borrowers=
      oil and
      gas properties, imposed upon Borrowers or the Properties, prior to the date
      on
      which penalties would attach, and all lawful claims that, if unpaid, might
      become a lien or charge upon the Properties, income, or profits, and pay all
      trade payables and other current liabilities incurred in the ordinary course
      of
      business within ninety (90) days of their due date; provided, however, Borrowers
      will not be required to pay and discharge any such assessment, tax, charge,
      levy, lien, or claim so long as (i) the legality of the same shall be contested
      in good faith by appropriate judicial, administrative, or other legal
      proceedings, and (ii) Borrowers have established adequate reserves with respect
      to such contested assessment, tax, charge, levy, lien, or claim in accordance
      with GAAP.

    (h)
       Not
      directly or indirectly create, incur, assume, or permit to exist any loans
      or
      indebtedness (including guaranties), secured or unsecured, absolute or
      contingent, except for (i) the indebtedness to Banks, (ii) any trade payables,
      taxes, and current liabilities incurred in the ordinary course of business,
      (iii) obligations related to Hedge Transactions permitted by this Loan
      Agreement, (iv) the Subordinate Indebtedness (as defined below) owed to Parent,
      and (v) additional indebtedness not to exceed $1,000,000.00 in the aggregate
      at
      any time.

    

    (i)  Not
      mortgage, assign, hypothecate, pledge, or encumber, and not create, incur,
      or
      assume any lien or security interest on or in, the Properties (or any interest
      in the Properties), any oil and gas properties included in the Borrowing Base
      determination, or any of Borrowers=
      property
      or assets, except (1) those in favor of Agent for the ratable benefit of Banks,
      (2) liens for taxes not delinquent or being contested in good faith, (3)
      mechanic=s
      and
      materialman=s
      liens
      with respect to obligations not overdue or being contested in good faith, (4)
      liens resulting from deposits to secure the payments of workers=
      compensation or social security, (5) purchase money security interests or
      construction liens that attach solely to the asset acquired or constructed,
      that
      secure indebtedness in an amount less than the cost and the fair market value
      of
      the asset acquired or constructed, and that are in an aggregate amount not
      to
      exceed $1,000,000.00, and (6) contractual liens that arise in the ordinary
      course of business under or in connection with operating agreements, oil and
      gas
      leases, farm-out agreements, contracts for the sale, transportation, or exchange
      of oil and natural gas, unitization and pooling declarations and agreements,
      area of mutual interest agreements, marketing agreements, processing agreements,
      development agreements, gas balancing or deferred production agreements,
      injection, repressuring, and recycling agreements, salt water or other disposal
      agreements, seismic or other geophysical permits or agreements, and other
      agreements which are usual and customary in the oil and gas business and are
      for
      claims which are not delinquent or which are being contested in good
      faith.

    

    (j)  Not
      make
      any loans or advances to any party, including without limitation, Parent, or
      any
      of its other subsidiaries, shareholders, officers, directors, partners, joint
      venturers, members, managers, relatives, and affiliates, or any profit sharing
      or retirement plan.

    

    (k)  Not
      make
      any dividends or other distributions to any party, including without limitation,
      Parent, or any of its other subsidiaries, shareholders, officers, directors,
      partners, joint venturers, members, managers, relatives, and affiliates, or
      any
      profit sharing or retirement plan, except so long as there is not an Event
      of
      Default existing, no Event of Default will be caused by the dividend or
      distribution, and there is no Borrowing Base deficiency, Borrowers may
      (i) pay
      up to
      $1,000,000.00 per fiscal year to Parent as a management fee, and (ii) repay
      up
      to $2,000,000.00 in principal per fiscal year in Subordinate Indebtedness owed
      to Parent.

    

    (l)  Not
      purchase, acquire, redeem, or retire any stock or other ownership interest
      in
      Borrowers; and not permit any transaction or contract with any affiliates or
      related parties, except at arms length and on market terms.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (m)
       INDEMNIFY
      AGENT AND BANKS AGAINST ALL LOSSES, LIABILITIES, WITHHOLDING AND OTHER TAXES,
      CLAIMS, DAMAGES, OR EXPENSES RELATING TO THE LOANS, THE LOAN DOCUMENTS, OR
      THE
      BORROWERS=
      USE OF
      THE LOAN PROCEEDS, INCLUDING BUT NOT LIMITED TO ATTORNEYS AND OTHER PROFESSIONAL
      FEES AND SETTLEMENT COSTS, BUT EXCLUDING, HOWEVER, THOSE CAUSED SOLELY BY OR
      RESULTING SOLELY FROM ANY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY AGENT OR
      BANKS; AND THIS INDEMNITY SHALL SURVIVE THE TERMINATION OF THIS LOAN
      AGREEMENT.

    

    (n)  Comply
      in
      all material respects with all applicable provisions of ERISA, not violate
      any
      provision of any Plan, meet their minimum funding requirements under ERISA
      with
      respect to each Plan, and notify Agent in writing of the occurrence and nature
      of any Reportable Event or Prohibited Transaction, each as defined in ERISA,
      or
      any funding deficiency with respect to any Plan.

    

    (o)  If
      Borrowers now or hereafter acquire any wholly-owned subsidiary or owns any
      issued and outstanding capital stock or partnership interests of any companies
      or partnerships, Borrowers shall sign and deliver to Agent for the benefit
      of
      Banks within fifteen (15) days a pledge agreement in Proper Form, creating
      a
      first-priority security interest covering the issued and outstanding capital
      stock or partnership interests of all existing and hereafter acquired companies,
      subsidiaries, or partnerships of Borrowers, and Borrowers shall cause the
      wholly-owned subsidiary to sign and deliver to Agent for the benefit of Banks
      within fifteen (15) days a guaranty in Proper Form, guaranteeing payment of
      the
      Loans.

    

    (p)  Execute
      and deliver, or cause to be executed and delivered, any and all other
      agreements, instruments, or documents which Agent may reasonably request in
      order to give effect to the transactions contemplated under this Loan Agreement
      and the Loan Documents, and to grant, perfect, and maintain liens and security
      interests on or in the Properties and related collateral, and promptly cure
      any
      defects in the execution and delivery of any Loan Documents.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    8.
       Financial
      Covenants.
      Until
      the Loans and the Hedge Liabilities and all other obligations and liabilities
      of
      Borrowers under this Loan Agreement, the Notes, the Security Documents, and
      the
      other Loan Documents are fully paid and satisfied, Borrowers agree and covenant
      that they will, unless Agent and Required Banks otherwise consent in writing,
      maintain the following financial covenants on a consolidated basis:

    

    (a) Maintain
      at the end of each fiscal quarter a Current Ratio greater than or equal to
      1.0
      to 1.0. ACurrent
      Ratio@
      is
      defined as the ratio of (i) Borrowers=
      current
      assets, plus
      availability on the Revolving Loan, divided
      by (ii)
      Borrowers=
      current
      liabilities (excluding current maturities of long-term debt); provided, however,
      that the mark-to-market values for hedging positions in accordance with FASB
      133
      shall be excluded from this calculation until such time as the gains or losses
      from the hedges are actually realized and the hedges expire.

    

    (b) Maintain
      at the end of each fiscal quarter a Funded Debt to EBITDA Ratio less than or
      equal to 3.0 to 1.0. AFunded
      Debt to EBITDA Ratio@
      is
      defined as the ratio of (i) the total amount outstanding on the Loans,
divided
      by
      (ii) the
      sum of Borrowers=
      most
      recent quarter=s
      net
      income annualized, plus
      income
      taxes for the same period annualized, plus
      interest
      expense on the Loans for the same period annualized, plus
      depletion, depreciation, amortization, and other non-cash charges for the same
      period annualized, minus
      gains
      from the sale of assets (or plus
      losses
      from the sale of assets) for the same period annualized; provided, however,
      that
      EBITDA from acquisitions may only be included in this covenant after Agent
      has
      reviewed and approved pro-forma financial statements demonstrating the effect
      of
      the acquisition. 

    

    Unless
      otherwise specified, all accounting and financial terms and covenants set forth
      above are to be determined according to GAAP, consistently applied.

    

    9.  Reporting
      Requirements.
      Until
      the Loans and the Hedge Liabilities and all other obligations and liabilities
      of
      Borrowers under this Loan Agreement, the Notes, the Security Documents, and
      the
      other Loan Documents are fully paid and satisfied, Borrowers will, unless Agent
      and Required Banks otherwise consent in writing, furnish to Agent in Proper
      Form:

    (a)
       As
      soon
      as available, and in any event within ninety (90) days of the end of
      Borrowers=
      fiscal
      year, annual financial statements for Parent on a consolidated and consolidating
      basis, consisting of at least a balance sheet, an income statement, a statement
      of cash flows, a statement of changes in owners=
      equity,
      and a statement of contingent liabilities, audited by an independent certified
      public accountant acceptable to Agent and certified by an authorized officer
      of
      Parent and Borrowers (i) as being true and correct in all material aspects
      to
      the best of his knowledge, (ii) as fairly reporting the financial condition
      of
      Parent and its consolidated subsidiaries, including Borrowers, as of the close
      of the fiscal year and the results of their operations for the year, and (iii)
      as having been prepared in accordance with GAAP;

    

    (b)  As
      soon
      as available, and in any event within sixty (60) days of the end of each fiscal
      quarter, quarterly financial statements for Borrowers
      and Parent on a consolidated and consolidating basis, consisting of at least
      a
      balance sheet, an income statement, a statement of cash flows, a statement
      of
      changes in owners=
      equity,
      and a statement of contingent liabilities, for the quarter and for the period
      from the beginning of the fiscal year to the close of the quarter, certified
      by
      an authorized officer of Parent and Borrowers (i) as being true and correct
      in
      all material aspects to the best of his knowledge, (ii) as fairly reporting
      the
      financial condition of Parent and its consolidated subsidiaries, including
      Borrowers, as of the close of the fiscal quarter and the results of their
      operations for the quarter, and (iii) as having been prepared in accordance
      with
      GAAP, subject to normal year-end adjustments and the absence of
      footnotes;

    

    (c)  With
      the
      quarterly and annual financial statements required above, a quarterly compliance
      certificate in the form of Exhibit
      B
      attached, signed by an authorized officer of Borrowers, and certifying
      compliance with the financial covenants and other matters in this Loan
      Agreement;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (d)  On
      or
      before April 1 of each year, a reserve report dated as of December 31, prepared
      by an independent petroleum engineer or engineering firm acceptable to Agent,
      and on or before October 1 of each year, a reserve report dated as of June
      30,
      prepared by Borrowers, both reports to be prepared on a consistent basis in
      accordance with the customary standards and procedures of the petroleum
      industry, estimating the quantity of oil, gas, and associated hydrocarbons
      recoverable from the Properties and all of Borrowers=
      oil and
      gas properties, and the projected income and expense attributable to the
      Properties and all of Borrowers=
      oil and
      gas properties, including, without limitation, a description of reserves, net
      revenue interests and working interests attributable to the reserves, rates
      of
      production, gross revenues, operating expenses, ad valorem taxes, capital
      expenditures necessary to cause the Properties and all of Borrowers=
      oil and
      gas properties to achieve the rate of production set forth in the report, net
      revenues and present value of future net revenues attributable to the reserves
      and production therefrom, a statement of the assumptions upon which the
      determinations were made and any other matters related to the operations of
      the
      Properties and all of Borrowers=
      oil and
      gas properties and the estimated income therefrom;

    

    (e)  Within
      fifteen (15) days of filing, copies of Borrowers=
      federal,
      state, and local income tax filings or returns, with all schedules, attachments,
      forms, and exhibits;

    (f)
       With
      the
      semi-annual reserve reports required above or within thirty (30) days of
      Agent=s
      request, a
      hedging
      report setting forth as of the last business day of such prior fiscal quarter
      end, a summary of Borrowers=
      existing
      hedging positions under all Hedge Transactions (including forward agreements
      or
      contracts of sale which provide for prepayment for deferred shipment or delivery
      of oil, gas, and other commodities) of Borrowers, including the type, term,
      effective date, termination date, and notional volumes and prices for such
      volumes, the hedged prices, interest rates, or exchange rates, as applicable,
      and any new credit support agreements relating thereto not previously disclosed
      to Agent;

    

    (g)  Within
      five
      (5)
      days of
      Agent=s
      request, Borrowers shall provide to Agent and Banks full and complete copies
      of
      all agreements, documents, and instruments evidencing all existing Hedge
      Transactions and such other information regarding Hedge Transactions as Agent
      may reasonably request;

    

    (h)  Within
      sixty (60) days of the end of each month, a
      production report, on a lease-by-lease or unit basis, showing the gross proceeds
      from the sale of oil, gas, and associated hydrocarbons produced from the
      Properties, the quantity of oil, gas, and associated hydrocarbons sold, the
      severance, gross production, occupation, or gathering taxes deducted from or
      paid out of the proceeds, the lease operating expenses, and such other
      information as Agent may reasonably request;

    

    (i)  With
      the
      semi-annual reserve reports required above or within thirty (30) days of
      Agent=s
      request,
      a
      gas
      balancing report, in Proper Form and duly certified by an authorized
      representative of Borrowers as being true and correct in all material aspects
      to
      the best of his or her knowledge;

    

    (j)  At
      any
      time upon request by Agent and within thirty (30) days of any change thereafter,
      a list showing the name and address of each purchaser of oil, gas, and
      associated hydrocarbons produced from or attributable to the Properties;

    

    (k)  Within
      five (5) days after Borrowers learn of any such occurrence, a written report
      of
      any pending or threatened litigation which would reasonably be expected to
      have
      a material adverse effect upon Borrowers, the Properties, or
      Borrowers=
      financial condition or which asserts damages or claims in an amount in excess
      of
      $100,000;

    

    (l)  Within
      five (5) days after Borrowers learn of
      any
      default under one or more Hedge Transactions that results in an obligation
      of
      Borrowers to make one or more material payments, written notice of the default
      and copies of all documentation relating to the default; 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (m)
       As
      soon
      as possible and in any event within five (5) days after the occurrence of any
      Event of Default, or any event which, with the giving of notice or lapse of
      time
      or both, would constitute an Event of Default, the written statement of
      the President
      or Chief Financial Officer of Borrowers setting forth the details of such Event
      of Default and the action which Borrowers propose to take with respect thereto;
      and

    

    (n)  Such
      other information respecting the condition and the operations, financial or
      otherwise, of Parent, Borrowers, and the Properties as Agent or Banks may from
      time to time reasonably request.

    

    10.  Events
      of Default.
      (a) The
      occurrence at any time of any of the following events or the existence of any
      of
      the following conditions shall be called an AEvent
      of Default@:

    

    (1) Failure
      to make punctual payment when due of any sums owing on any of the Notes or
      any
      of the other secured indebtedness (as described in the Security Documents)
      or
      any other amounts owed by Borrowers, or either of them, to Agent or Banks,
      including amounts owed under any fee letters among Borrowers and Agent or Banks;
      or

    

    (2) Failure
      of any of the Obligated Parties (as defined below) to properly perform any
      of
      the obligations, covenants, or agreements, contained in this Loan Agreement
      or
      any of the other Loan Documents; or any representation or warranty made by
      Borrowers proves to have been false, misleading, or erroneous in any material
      respect; or

    

    (3) A
      material default by Borrowers under any ISDA Agreement or with respect to any
      Hedge Liabilities; or non-payment
      when due or the material breach by Borrowers or any Obligated Parties of any
      term, provision, or condition contained in any Hedge Transaction or any
      confirmation or other transaction consummated thereunder, whether or not Agent
      or Banks are a party thereto;
      or

    

    (4) If
      production payments for oil and gas produced from or attributable to
      Borrowers=
      oil and
      gas properties are directed to any party other than the lockbox maintained
      by
      Agent following the establishment of the lockbox under Section 2(e) of this
      Loan
      Agreement; or

    

    (5) A
      failure
      by Borrowers to resolve a Borrowing Base deficiency in accordance with Section
      3(b) of this Loan Agreement; or

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    (6) Levy,
      execution, attachment, sequestra-tion, or other writ against any real or
      personal property, representing the security for the Loans, and not removed,
      released, or bonded against within thirty (30) days; or

    

    (7) Any
      AEvent
      of
      Default@
      not
      promptly cured under the Notes or any of the other Loan Documents, the Events
      of
      Default defined in the Notes and Loan Documents being cumulative to those
      contained in this Loan Agreement; or

    

    (8) Except
      as
      expressly permitted by this Loan Agreement, the transfer, whether voluntarily
      or
      by operation of law, of all or any portion of the Properties, without obtaining
      Agent=s
      partial
      release; or

    

    (9) The
      failure of any of the Obligated Parties to pay any money judgment in excess
      of
      $200,000.00, against that party before the expiration of thirty (30) days after
      the judgment becomes final or the failure of any of the Obligated Parties to
      obtain dismissal within ninety (90) days of any involuntary proceeding filed
      against that party under any Debtor Relief Laws (as defined below);
      or

    

    (10) Borrowers=
      liquidation, termination of existence, merger or consolidation with another
      (unless a Borrower is the surviving entity), forfeiture of right to do business,
      or appointment of a trustee or receiver for any part of its property or the
      filing of an action seeking to appoint a trustee or receiver; or 

    

    (11) A
      filing
      by any of the Obligated Parties of a voluntary petition in bankruptcy, or taking
      advantage of any Debtor Relief Laws; or an answer admitting the material
      allegations of a petition filed against any of the Obligated Parties, under
      any
      Debtor Relief Laws; or an admission by any of the Obligated Parties in writing
      of an inability to pay its or their debts as they become due; or the calling
      of
      any meeting of creditors of any of the Obli-gated Parties for the purpose of
      considering an arrangement or composition; or

    

    (12) Any
      of
      the Obligated Parties revokes or disputes the validity of or liability under
      any
      of the Loan Documents, including any guaranty or security
      document.

    (b) The
      term
AObligated
      Parties@
      means
      Borrowers, or either of them, Parent, any other party liable, in whole or in
      part, for the payment of any of the Notes, whether as maker, endorser,
      guaran-tor, surety, or otherwise, and any party executing any deed of trust,
      mortgage, security agreement, pledge agreement, assignment, or other contract
      of
      any kind executed as securi-ty in connection with or pertaining to the Notes
      or
      the Loans. The term ADebtor
      Relief Laws@
      means
      any applicable liquidation, conservatorship, receivership, bankruptcy,
      morato-rium, rearrangement, insolvency, reorganization, or similar laws
      affecting the rights or remedies of creditors generally, as in effect from
      time
      to time.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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    11.  Remedies.
      (a)
      Upon the occurrence and during the continuance of any one or more of the
      foregoing Events of Default and the expiration of any notice, cure, or grace
      period required by Subsection (b) below, the entire unpaid principal balances
      of
      the Notes, together with all accrued but unpaid interest thereon, and all other
      indebtedness then owing by Borrowers to Banks, shall, at the option of Agent
      and
      Required Banks, become immediately due and payable without further presentation,
      demand for payment, notice of intent to accelerate, notice of acceleration
      or
      dishonor, protest or notice of protest of any kind, all of which are expressly
      waived by Borrowers. Any and all rights and remedies of Agent and Banks pursuant
      to this Loan Agreement or any of the other Loan Documents may be exercised
      by
      Agent and Banks, at their option, upon the occurrence and during the continuance
      of an Event of Default and the expiration of any cure or grace period required
      by Subsection (b) below. All remedies of Agent and Banks may be exercised
      singularly, concurrently, or consecutively, without waiver or
      election.

    

    (b) Upon
      any
      event described in Subsection 10 (a)(1) above regarding payment of sums owing
      to
      Banks, Agent shall provide Borrowers with an invoice for the payment due and
      Borrowers shall have five (5) days grace after the due date in order to cure
      the
      default prior to acceleration of the Notes and exercise of any remedies. Upon
      any other event described in Subsection 10 (a) above, Agent shall provide
      Borrowers with written notice of the default and Borrowers shall have twenty
      (20) days after notice in order to cure the default prior to acceleration of
      the
      Notes and exercise of any remedies; except Borrowers shall have no cure period
      for any voluntary filing by Borrowers under any Debtor Relief Laws, for any
      liquidation or termination of existence of Borrowers, or for any Event of
      Default that is not capable of cure during that period, and provided that Agent
      and Banks are not obligated to provide written notice of any default which
      Borrowers report to Agent, but Borrowers shall have the benefit of any
      applicable grace or cure period required herein.

    

    (c) All
      rights of Agent and Banks under the terms of this Loan Agreement shall be
      cumulative of, and in addition to, the rights of Agent and Banks under any
      and
      all other agreements among Borrowers, Agent, and Banks (including, but not
      limited to, the other Loan Documents), and not in substitution or diminution
      of
      any rights now or hereafter held by Agent or Banks under the terms of any other
      agreement.

    12.
       Subordinate
      Indebtedness.
      All
      debts now or hereafter payable by Borrowers, or either of them, to Parent shall
      be called the ASubordinate
      Indebtedness.@
      Borrowers have incurred and may hereafter incur Subordinate Indebtedness owed
      to
      Parent. Borrowers and Parent agree to sign and deliver in favor of Agent and
      Banks, a subordination agreement (the ASubordination
      Agreement@)
      in
      Proper Form, by which Borrowers and Parent subordinate the Subordinate
      Indebtedness to repayment of the Loans and
      the
      Hedge Liabilities. Borrowers and Parent hereby agree that (i) the Subordinate
      Indebtedness shall not exceed $2,000,000.00 in aggregate principal at any time,
      (ii) repayment of the Subordinate Indebtedness is subordinate to repayment
      of
      the Loans and the Hedge Liabilities, (iii) Borrowers will not grant, and
      subordinate creditors will not permit, any liens or security interests securing
      payment of the Subordinate Indebtedness covering the Properties, any other
      collateral of Agent, or any of Borrowers=
      assets,
      (iv) the Subordinate Indebtedness may not mature by its terms or by acceleration
      of the maturity before thirty (30) days after the Termination Date (as hereafter
      extended), (v) no payments, prepayments, or changes may be made to the
      Subordinate Indebtedness, except as specifically permitted hereunder, without
      the prior written consent of Agent, (vi) so long as there is not an Event of
      Default existing, no Event of Default will be caused by the payment, and so
      long
      that there is no Borrowing Base deficiency, Borrowers may pay up to
      $1,000,000.00 per fiscal year to Parent as a management fee, and repay up to
      $2,000,000.00 in principal per fiscal year in Subordinate Indebtedness, and
      (vii) unless and only to the extent that Agent gives its prior written consent,
      no other payments of principal or interest will be permitted on the Subordinate
      Indebtedness until the Loans and the Hedge Liabilities are paid in
      full.

    

    13.  Waiver
      and Amendment.
      Neither
      the failure nor any delay on the part of Agent or Banks to exercise any right,
      power, or privilege herein or under any of the other Loan Documents shall
      operate as a waiver thereof, nor shall any single or partial exercise of such
      right, power, or privilege preclude any other or further exercise thereof or
      the
      exercise of any other right, power, or privilege. No waiver of any provision
      in
      this Loan Agreement or in any of the other Loan Documents and no departure
      by
      Borrowers therefrom shall be effective unless the same shall be in writing
      and
      signed by Agent, and then shall be effective only in the specific instance
      and
      for the purpose for which given and to the extent specified in such writing.
      No
      modification or amendment to this Loan Agreement or to any of the other Loan
      Documents shall be valid or effective unless the same is signed by the party
      against whom it is sought to be enforced.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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          Energy Corporation,
          et
          al
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            14,
            2008

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            of
            26

        

      

    

    14.
       Savings
      Clause.
      Regardless of any provision contained in this Loan Agreement, the Notes, or
      any
      of the Loan Documents, it is the express intent of the parties that at no time
      shall Borrowers or any of the Obligated Parties pay interest in excess of the
      Maximum Rate (or any other interest amount which might in any way be deemed
      usurious), and Banks will never be considered to have contracted for or to
      be
      entitled to charge, receive, collect, or apply as interest on any of the Notes,
      any amount in excess of the Maximum Rate (or any other interest amount which
      might in any way be deemed usurious). In the event that Banks ever receive,
      collect, or apply as interest any such excess, the amount which would be
      excessive interest will be applied to the reduction of the principal balances
      of
      the Notes, and, if the principal balances of the Notes are paid in full, any
      remaining excess shall forthwith be paid to Borrowers. In determining whether
      the interest paid or payable exceeds the Maximum Rate (or any other interest
      amount which might in any way be deemed usurious), Borrowers and Banks shall,
      to
      the maximum extent permitted under applicable law: (i) characterize any
      non-principal payment (other than payments which are expressly designated as
      interest payments hereunder) as an expense or fee rather than as interest;
      (ii)
      exclude voluntary prepayments and the effect thereof; and (iii) amortize, pro
      rate, or spread the total amount of interest throughout the entire contemplated
      term of the Notes so that the interest rate is uniform throughout the term.
      The
      term AMaximum
      Rate@
      means
      the maximum interest rate which may be lawfully charged under applicable
      law.

    

    15.  Notices.
      Any
      notice or other communications provided for in this Loan Agreement shall be
      in
      writing and shall be given to the party at the address shown below:

    

    
      	 	
              Agent:

            	 	
              Bank
                of Texas, N.A.

            

    

    Attention:
      Jeff Dalton, Senior Vice President

    5
      Houston
      Center

    1401
      McKinney, Suite 1650

    Houston,
      Texas 77010

    Fax
      Number (713) 289-5825

    

    
      	 	
              Banks:

            	 	
              Bank
                of Texas, N.A.

            

    

    Attention:
      Jeff Dalton, Senior Vice President

    5
      Houston
      Center

    1401
      McKinney, Suite 1650

    Houston,
      Texas 77010

    Fax
      Number (713) 289-5825

    

    With
      a
      copy

    to
      counsel for 

    
      	 	
              Agent:
                

            	 	
              Paul
                D. Bradford

            

    

    Harris,
      Finley & Bogle,
      P.C.

    777
      Main
      Street, Suite 3600

    Fort
      Worth, Texas 76102-5341

    Fax
      Number (817) 332-6121

    
      	
            	Borrowers:	
              Tandem
                Energy Corporation

            

    

    PER
      Gulf
      Coast, Inc.

    Attention:
      Michael G. Cunningham, Senior Vice President

    200
      N.
      Loraine, Suite 500

    Midland,
      Texas 79701

    Fax
      Number (432) 686-7136

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        Tandem
          Energy Corporation,
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          March
            14,
            2008

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    Any
      such
      notice or other communication shall be deemed to have been given on the day
      it
      is personally delivered or, if mailed, on the third day after it is deposited
      in
      an official receptacle for the United States mail, or, if faxed, on the date
      it
      is received by the party. Any party may change its address for the purposes
      of
      this Loan Agreement by giving notice of such change in accordance with this
      paragraph.

    

    16.  Miscellaneous.
      (a)
      This
      Loan Agreement shall be binding upon and inure to the benefit of Agent, Banks,
      Borrowers, and their respective heirs, personal representatives, successors,
      and
      assigns; provided, however, that Borrowers may not, without the prior written
      consent of Agent, assign any rights, powers, duties, or obligations under this
      Loan Agreement or any of the other Loan Documents.

    

    (b) THIS
      LOAN
      AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
      THE
      STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA AND
      SHALL
      BE PERFORMED IN HARRIS COUNTY, TEXAS. BORROWERS, AGENT, AND BANKS IRREVOCABLY
      AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS LOAN AGREEMENT, THE
      NOTES, THE LOANS, THE LOAN DOCUMENTS, OR THE PROPERTIES SHALL BE IN COURT IN
      HARRIS COUNTY, TEXAS.

    

    (c) If
      any
      provision of this Loan Agreement or any other Loan Documents is held to be
      illegal, invalid, or unenforceable under present or future laws, such provision
      shall be fully severable and the remaining provisions of this Loan Agreement or
      any of the other Loan Documents shall remain in full force and effect and shall
      not be affected by the illegal, invalid, or unenforceable provision or by its
      severance.

    

    (d) All
      covenants, agreements, undertakings, representations, and warranties made in
      this Loan Agreement and the other Loan Documents shall survive any closing
      hereunder.

    

    (e) All
      documents delivered by Borrowers or Parent to Agent or Banks must be in Proper
      Form. The term AProper
      Form@
      means in
      form, substance, and detail reasonably satisfactory to Agent in its sole
      discretion. 

    (f) Without
      limiting the effect of any provision of any Loan Document which provides for
      the
      payment of expenses and attorneys fees upon the occurrence of certain events,
      Borrowers shall pay all costs and expenses (including, without limitation,
      the
      reasonable attorneys fees of Agent=s
      and
      Banks=
      independent legal counsel) in connection with (i) the preparation of this Loan
      Agreement and the other Loan Documents, and any and all extensions, renewals,
      amendments, supplements, extensions, or modifications thereof, (ii) any action
      reasonably required in the course of administration of the Loans, (iii)
      resolution of any disputes with Borrowers or Parent related to the Loans or
      this
      Loan Agreement, and (iv) any action in the enforcement of Agent=s
      or
      Banks=
      rights
      upon the occurrence of an Event of Default. Notwithstanding any provision to
      the
      contrary, however, Agent agrees that if the legal fees (excluding expenses)
      on
      the initial preparation of this Loan Agreement and the other Loan Documents,
      legal fees related to title examination, and the original closing of the
      Revolving Loan exceed $25,000.00, then Agent shall pay one-half of any amount
      in
      excess of $25,000.00.

    

    (g) If
      there
      is a conflict between the terms of this Loan Agreement and the terms of any
      of
      the other Loan Documents, the terms of this Loan Agreement will
      control.

    

    (h) Banks
      shall have the right, with the consent of Borrowers (unless an Event of Default
      has occurred and is continuing, in which case no consent is needed), which
      will
      not be unreasonably withheld, (i) to assign the Loans or commitment and be
      released from liability thereunder, and (ii) to transfer or sell participations
      in the Loans or commitment with the transferability of voting rights limited
      to
      principal, rate, fees, and term; provided, however, that Bank of Texas shall
      have the right to make intercompany assignments to BOK, without restriction
      or
      consent.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        Tandem
          Energy Corporation,
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          March
            14,
            2008

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    (i) This
      Loan
      Agreement may be separately executed in any number of counterparts, each of
      which will be an original, but all of which, taken together, shall be deemed
      to
      constitute one agreement, and Agent is authorized to attach the signature pages
      from the counterparts to copies for Agent, Banks, and Borrowers. At
      Agent=s
      option,
      this Loan Agreement and the Loan Documents may also be executed by Borrowers
      and
      Banks in remote locations with signature pages faxed to Agent. Borrowers and
      Banks agree that the faxed signatures are binding upon Borrowers and Banks,
      and
      Borrowers further agree to promptly deliver the original signatures for the
      Loan
      Agreement and all Loan Documents, and it will be an Event of Default if
      Borrowers fail to promptly deliver all required original
      signatures.

    17.
       Agency
      Provisions.
      (a)
      Each of
      the Banks hereby irrevocably appoints and authorizes Agent to take such action
      as Agent on its behalf and to exercise such powers under this Loan Agreement
      as
      are delegated to Agent by the terms hereof, together with such powers as are
      reasonably incidental thereto. The duties of Agent shall be mechanical and
      administrative in nature, and Agent shall not by reason of this Loan Agreement
      be a trustee or fiduciary for Banks. Agent shall have no duties or
      responsibilities except those expressly set forth herein. As to any matters
      not
      expressly provided for by this Loan Agreement (including, without limitation,
      enforcement or collection of the Notes), Agent shall not be required to exercise
      any discretion or take any action, but shall be required to act or to refrain
      from acting (and shall be fully protected in so acting or so refraining from
      acting) upon the instructions of Banks, and such instructions shall be binding
      upon all Banks and all holders of the Notes; provided, however, that Agent
      shall
      not be required to take any action which exposes Agent to personal liability
      or
      which is contrary to this Loan Agreement or applicable law. Without the prior
      instructions of Banks, Agent may exercise any provisions of this Loan Agreement
      or the other Loan Documents which directly or indirectly authorize Agent to
      exercise its discretion or otherwise take actions which are discretionary in
      nature. 

    

    (b) Any
      provision of this Loan Agreement, the Notes, or the other Loan Documents may
      be
      amended or waived if, but only if such amendment or waiver is in writing and
      is
      signed by Borrowers and Agent; provided that no amendment or waiver shall,
      unless signed by Agent and all Banks: (i) modify the Percentage Share of any
      Bank, (ii) release a guarantor, (iii) amend or waive any of provisions related
      to the Borrowing Base, (iv) increase the commitment of any Bank or subject
      any
      Bank to any additional obligation, (v) forgive any of the principal of or reduce
      the rate of interest on any Loans or any fees hereunder, (vi) postpone the
      date
      fixed for any payment of principal of or interest on any Loans or any fees
      hereunder, or (vii) change the number or percentage of Banks required to take
      any action under this Section or any other provision of this Loan Agreement.
      All
      other major decisions with respect to the management of Banks=
      relationship with Borrowers and the credit facilities created under this Loan
      Agreement and the other Loan Documents, including without limitation (i) whether
      or not to accelerate the Notes, (ii) whether or not to agree to amendments
      or
      waivers under the terms of this Loan Agreement or any of the other Loan
      Documents, (iii) all material matters relating to foreclosure and collection,
      and (iv) what directions to give Agent regarding matters not covered by this
      Loan Agreement and the other Loan Documents, shall be made by the unanimous
      consent of all Banks.

    (c) Neither
      Agent nor any of its directors, officers, agents, or employees shall be liable
      for any action taken or omitted to be taken by it or them under or in connection
      with this Loan Agreement in the absence of its or their own gross negligence
      or
      willful misconduct. Without limitation of the generality of the foregoing,
      Agent
      (1) may treat the payee of any Notes as the holder thereof until Agent receives
      written notice of the assignment or transfer thereof signed by such payee and
      in
      form satisfactory to Agent; (2) may consult with legal counsel (including
      counsel for Borrowers), independent public accountants, and other experts
      selected by it and shall not be liable for any action taken or omitted to be
      taken in good faith by it in accordance with the advice of such counsel,
      accountants, or experts; (3) makes no warranty or representation to any Bank
      and
      shall not be responsible to any Bank for any statements, warranties, or
      representations made in or in connection with this Loan Agreement; (4) shall
      not
      have any duty to ascertain or to inquire as to the performance or observance
      of
      any of the terms, covenants, or conditions of this Loan Agreement on the part
      of
      Borrowers, or to inspect the property or assets (including the books and
      records) of Borrowers; (5) shall not be responsible to any Bank for the due
      execution, legality, validity, enforceability, genuineness, perfection,
      sufficiency, or value of this Loan Agreement or any other instrument or document
      furnished pursuant thereto; and (6) shall incur no liability under or in respect
      of this Loan Agreement by acting upon any notice, consent, certificate, or
      other
      instrument or writing (which may be sent by telegram, telex, or facsimile
      transmission) believed by it to be genuine and signed or sent by the proper
      party or parties. 

    

    (d) With
      respect to its Percentage Share, the advances on the Revolving Loans
made
      by
      it, and the Revolving Note payable to it, Bank of Texas shall have the same
      rights and powers under this Loan Agreement as any other Bank and may exercise
      the same as though it were not collateral agent; and the terms ABank,@ ABanks,@
      and
ARequired
      Banks@
      shall,
      unless otherwise expressly indicated, include Bank of Texas in its individual
      capacity. Bank of Texas and its affiliates may accept deposits from, lend money
      to, act as trustee under indentures of, and generally engage in any kind of
      business with, Borrowers, any subsidiary, and any person who may do business
      with or own securities of Borrowers, all as if Bank of Texas were not Agent
      and
      without any duty to account therefor to Banks. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
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            2008

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    (e) Each
      of
      the Banks acknowledges that it has, independently and without reliance
      upon Agent or any other Banks and based on such documents and information as
      it
      has deemed appropriate, made its own credit analysis and decision to enter
      into
      this Loan Agreement. Each of the Banks also acknowledges that it will,
      independently and without reliance upon Agent or any other Banks and based
      on
      such documents and information as it shall deem appropriate at the time,
      continue to make its own credit decisions in taking or not taking action under
      this Loan Agreement. Except for notices, reports, and other documents and
      information expressly required to be furnished to Banks by Agent hereunder,
      Agent shall have no duty or responsibility to provide any Bank with any credit
      or other information concerning the affairs, financial condition, or business
      of
      Borrowers which may come into the possession of Agent.

    

    (f) Each
      of
      the Banks agrees to indemnify Agent (to the extent not reimbursed
      by Borrowers), ratably according to its Percentage Share, from and against
      any
      and all liabilities, obligations, losses, damages, penalties, actions,
      judgments, suits, costs, expenses, or disbursements of any kind or nature
      whatsoever which may be imposed on, incurred by, or asserted against Agent
      in
      any way relating to or arising out of this Loan Agreement or any action taken
      or
      omitted by Agent under this Loan Agreement, provided that no Bank shall be
      liable for any portion of any of the foregoing resulting from Agent=s
      gross
      negligence or willful misconduct. Without limitation of the foregoing, each
      of
      the Banks agrees to reimburse Agent (to the extent not reimbursed by the
      Borrowers) promptly upon demand for its ratable share of any out-of-pocket
      expenses (including counsel fees) incurred by Agent in connection with the
      preparation, administration, or enforcement of, or legal advice in respect
      of
      rights or responsibilities under, this Loan Agreement. 

    

    (g) Agent
      may
      resign at any time by giving at least sixty (60) days prior written notice
      thereof to Banks and Borrowers. Upon any such resignation, within thirty (30)
      days after the retiring Agent=s
      giving
      of notice of resignation, then Banks may appoint a successor Agent, which shall
      be a commercial bank organized under the laws of the United States of America
      or
      of any State thereof and having a combined capital and surplus of at least
      $100,000,000. Upon the acceptance of any appointment as Agent hereunder by
      a
      successor Agent, such successor Agent shall thereupon succeed to and become
      vested with all the rights, powers, privileges, and duties of the retiring
      Agent, and the retiring Agent shall be discharged from its duties and
      obligations under this Loan Agreement. After any retiring Agent=s
      resignation, the provisions of this Section shall inure to its benefit as to
      any
      actions taken or omitted to be taken by it while it was Agent under this Loan
      Agreement.

    

    (h) If
      any
      Bank shall obtain any payment (whether voluntary, involuntary, through
      the exercise of any right of set off, or otherwise) on account of the Notes
      held
      by it in excess of its ratable share of payments on account of the Notes
      obtained by all Banks, such Bank shall purchase from the other Banks such
      participations in the Notes held by them as shall be necessary to cause such
      purchasing Bank to share the excess payment ratably with the other
      Banks.

    

    18.  Notice
      of Final Agreement.
      (a) In
      connection with the Loans, Borrowers, Agent, and Banks have executed and
      delivered this Loan Agreement and the Loan Documents (collectively the
AWritten
      Loan Agreement@).

    

    (b) It
      is the
      intention of Borrowers, Agent, and Banks that this paragraph be incorporated
      by
      reference into each of the Loan Documents. Borrowers, Agent, and Banks each
      warrant and represent that their entire agreement with respect to the Loans
      is
      contained within the Written Loan Agreement, and that no agreements or promises
      have been made by, or exist by or among, Borrowers, Agent, and Banks that are
      not reflected in the Written Loan Agreement.

    (c) THE
      WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
      MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
      ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
      PARTIES.

    

    If
      the
      foregoing correctly sets forth our agreement, please so acknowledge by signing
      and returning the additional copy of this Loan Agreement enclosed to
      me.

     

    
      	 	 	 
	 	Yours
              very
              truly,
	 	 
	
              AGENT:

            	Bank of Texas, N.A.
	 
 	 
 	 
 
	 	By:  	/s/
              Jeff
              Dalton
	 	
              
Jeff
              Dalton,
	 	Senior
              Vice President

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        Tandem
          Energy Corporation,
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            14,
            2008

          Page 26
            of
            26

        

      

    

    

    Accepted
      and agreed to 

    this
      14th
      day of March, 2008:

    

    BORROWERS: 

    

    Tandem
      Energy Corporation  

    

    By:     
      /s/
      Michael G. Cunningham  

    Michael
      G. Cunningham, 

    Senior
      Vice President

    

    PER
      Gulf
      Coast, Inc. 

    

    By:     
      /s/
      Michael G. Cunningham  

    Michael
      G. Cunningham, 

    Senior
      Vice President

    BANKS:

    

    Bank
      of
      Texas, N.A.

    

    By:     
      /s/
      Jeff Dalton

    Jeff
      Dalton,

    Senior
      Vice President

    

    

    Exhibits
      and Schedules:

    Schedule
      1 - Banks and Percentage Share

    Schedule
      2 - Required Hedge Transactions

    Schedule
      3 - Existing Hedge Transactions

    Exhibit
      A
      - Revolving Note

    Exhibit
      B
      - Compliance Certificate

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule
      1

    to
      Loan
      Agreement

    

    Banks
      and Percentage Share

    

    

    
      	
              Banks

            	
              Commitment
                Amount

            	
              Commitment
                Percentage

            	
              Face
                Amount of
                Note

            
	 	 	 	 
	
              Bank
                of Texas, N.A.

            	
              $35,000,000.00

            	
              100.00000%

            	
              $100,000,000.00

            
	 	 	 	 
	
              Totals:

            	
              $35,000,000.00

            	
              100.00000%

            	
              $100,000,000.00

            

    

    

    

    
      	
              Banks

            	
              Lending
                Office

            	
              Address
                for Notice

            
	
               

              Bank
                of Texas, N.A.

            	
               

              Bank
                of Texas, N.A. Attention:
                Jeff Dalton, 

              Senior
                Vice President

              5
                Houston Center

              1401
                McKinney, Suite 1650

              Houston,
                Texas 77010

              Fax
                Number (713) 289-5825

            	
               

              Bank
                of Texas, N.A. Attention:
                Jeff Dalton, 

              Senior
                Vice President

              5
                Houston Center

              1401
                McKinney, Suite 1650

              Houston,
                Texas 77010

              Fax
                Number (713) 289-5825

            
	 	 	 

    

    

    
      	
              Administrative
                Agent

            	
              Address
                for Notice

            	 
	
               

              Bank
                of Texas, N.A.

            	
               

              Bank
                of Texas, N.A. Attention:
                Jeff Dalton, 

              Senior
                Vice President

              5
                Houston Center

              1401
                McKinney, Suite 1650

              Houston,
                Texas 77010

              Fax
                Number (713) 289-5825

            	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule
      2

    to
      Loan
      Agreement

     

    Required
      Hedge Transactions

    

      
        	
                Type
                  of Hedge Transaction

              	 	
                
                  Period

                

              	 	
                
                  Minimum
                    Price

                

              	 	
                Volume

              
	 	 	 	 	 	 	 	 
	
                1.

              	
                Crude
                  Oil Swaps

              	 	
                January
                  1, 2009 -

              	 	
                $71.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2009

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                2.

              	
                Crude
                  Oil Puts

              	 	
                January
                  1, 2010 -

              	 	
                $75.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2010

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                3.

              	
                Crude
                  Oil Puts

              	 	
                December
                  1, 2010 -

              	 	
                $85.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2010

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                4.

              	
                Crude
                  Oil Puts

              	 	
                January
                  1, 2011 -

              	 	
                $80.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2011

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                5.

              	
                Crude
                  Oil Collar

              	 	
                January
                  1, 2008 -

              	 	
                $40.00
                  per bbl floor

              	 	
                12,500
                  bbls per month

              
	
                 

              	
                 

              	 	
                October
                  31, 2008

              	 	
                $67.00
                  per bbl ceiling

              	 	 
	 	 	 	 	 	 	 	 
	
                6.

              	
                Natural
                  Gas Collar

              	 	
                January
                  1, 2008 -

              	 	
                $5.00
                  per mcf floor

              	 	
                35
                  MMcf per month

              
	
                 

              	
                 

              	 	
                October
                  31, 2008

              	 	
                $9.10
                  per mcf ceiling

              	 	 

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    Schedule
      3

    to
      Loan
      Agreement

    

    Existing
      Hedge Transactions

    

    A.    ISDA
      Master Agreement dated __________________, between Tandem Energy Corporation
      and
Shell
      Trading (U.S.) Company,
      with
      the following outstanding Hedge Transactions: 

     

    [Note
      to Borrowers: please identify which of the existing hedges are with Shell and
      with BP and please also make sure that we have all of the net positions
      covered.]

    

      
        	
                1.

              	
                Crude
                  Oil Puts

              	 	
                January
                  1, 2010 -

              	 	
                $75.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2010

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                2.

              	
                Crude
                  Oil Puts

              	 	
                December
                  1, 2010 -

              	 	
                $85.00
                  per bbl

              	 	
                10,000
                  bbls

              
	
                 

              	 	 	
                December
                  31, 2010

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                3.

              	
                Crude
                  Oil Puts

              	 	
                January
                  1, 2011 -

              	 	
                $80.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2011

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                4.

              	
                Crude
                  Oil Collar

              	 	
                January
                  1, 2008 -

              	 	
                $40.00
                  per bbl floor

              	 	
                12,500
                  bbls per month

              
	
                 

              	
                 

              	 	
                October
                  31, 2008

              	 	
                $67.00
                  per bbl ceiling

              	 	 
	 	 	 	 	 	 	 	 
	
                5.

              	
                Natural
                  Gas Collar

              	 	
                January
                  1, 2008 -

              	 	
                $5.00
                  per mcf floor

              	 	
                35
                  MMcf per month

              
	
                 

              	
                 

              	 	
                October
                  31, 2008

              	 	
                $9.10
                  per mcf ceiling

              	 	 

      

       

    

    B.    ISDA
      Master Agreement dated August 28, 2006, between Tandem Energy Corporation and
      BP
Corporation
      North America Inc.,
      with
      the following oustanding Hedge Transactions:

    

      
        	
                1.

              	
                Crude
                  Oil Swaps

              	 	
                January
                  1, 2009 -

              	 	
                $71.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2009

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                2.

              	
                Crude
                  Oil Puts

              	 	
                January
                  1, 2010 -

              	 	
                $75.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2010

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                3.

              	
                Crude
                  Oil Puts

              	 	
                December
                  1, 2010 -

              	 	
                $85.00
                  per bbl

              	 	
                10,000
                  bbls

              
	
                 

              	 	 	
                December
                  31, 2010

              	 	 	 	 
	 	 	 	 	 	 	 	 
	
                4.

              	
                Crude
                  Oil Puts

              	 	
                January
                  1, 2011 -

              	 	
                $80.00
                  per bbl

              	 	
                10,000
                  bbls per month

              
	
                 

              	 	 	
                December
                  31, 2011

              	 	 	 	 

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

        

          Exhibit
            A

           

          REVOLVING
            PROMISSORY NOTE

          

            
              	
                      $100,000,000.00

                    	
                      Houston,
                        Texas

                    	
                      March
                        14, 2008

                    

            

          

          

          Promise
            to Pay. For
            value
            received, on or before March 14, 2012 (AMaturity
            Date@),
            Tandem
            Energy Corporation,
            a
            Delaware corporation, and PER
            Gulf
            Coast, Inc.,
            a
            Delaware corporation (collectively ABorrowers@),
            jointly and severally promise to pay to the order of Bank
            of
            Texas, N.A.
            (ABank@),
            at the
            offices of Bank
            of
            Texas,
            N.A.
            (AAgent@)
            in
            Harris County, Texas at 5 Houston Center, 1401 McKinney, Suite 1650,
            Houston,
            Texas 77010, the principal amount of One Hundred Million Dollars
            ($100,000,000.00) (ATotal
            Principal Amount@),
            or
            such amount less than the Total Principal Amount which has been advanced
            to
            Borrowers under this Revolving Promissory Note (ANote@),
            together with interest on the portion of the Total Principal Amount advanced
            to
            Borrowers from the date advanced until paid at the rates per annum provided
            below.

          

          Definitions.
            For
            purposes of this Note, unless the context otherwise requires, certain
            terms used
            herein shall be defined as follows:

          

          AAdjusted
            LIBOR Rate@
            means
            with respect to each Interest Period, a rate per annum equal to the sum
            of (i)
            the LIBOR Spread, plus
            (ii) the
            LIBOR Rate with respect to such Interest Period. Each determination by
            Agent of
            the Adjusted LIBOR Rate shall, in the absence of manifest error, be prima
            facie and
            binding.

          

          ABanks@
            means
            all banks and financial institutions now or hereafter a party to the
            Loan
            Agreement.

          

          ABusiness
            Day@
            means
            any day other than a Saturday, Sunday or any other day on which national
            banking
            associations are authorized to be closed.

          

          AConsequential
            Loss@
            means,
            with respect to Borrowers=
            payment
            of all or any portion of the then-outstanding principal amount of any
            LIBOR
            Balance on a day other than the last day of the Interest Period related
            thereto,
            any loss, cost, or expense incurred by Bank in redepositing such principal
            amount, including the sum of (i) the interest which, but for such payment,
            Bank
            would have earned in respect of such principal amount so paid, for the
            remainder
            of the Interest Period applicable to such sum, reduced, if Bank is able
            to
            redeposit such principal amount so paid for the balance of such Interest
            Period,
            by the interest earned by Bank as a result of so redepositing such principal
            amount plus
            (ii) any
            expense or penalty incurred by Bank on redepositing such principal amount,
            but
            excluding taxes on the income of Bank imposed by any governmental
            authority.

          

          AContract
            Rate@
            means
            the Adjusted LIBOR Rate or the Prime Rate, as in effect from time to
            time under
            this Note.

          

          ADollars@
            means
            lawful currency of the United States of America.

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          AExcess
            Interest Amount@
            means,
            on any date, the amount by which (i) the amount of all interest which
            would have
            accrued prior to such date on the principal of this Note, had the applicable
            Contract Rate at all times been in effect without limitation by the Maximum
            Rate, exceeds
            (ii) the
            aggregate amount of interest accrued on this Note on or prior to such
            date as
            limited by the Maximum Rate.

          

          AInterest
            Notice@
            means
            the notice given by Borrowers to Agent of an Interest Option selected
            hereunder.
            Each Interest Notice given by Borrowers under this Note shall be irrevocable
            and
            must be given not later than 10:00 a.m. (Houston, Texas time) on a day
            which is
            not less than the number of Business Days or LIBOR Business Days required
            below
            for an Interest Option. 

          

          AInterest
            Option@
            means
            Borrowers=
            option
            to select an Adjusted LIBOR Rate or the Prime Rate, as described more
            fully
            below.

          

          AInterest
            Payment Date@
            means
            the first (1st)
            day of
            each month hereafter for interest on the Prime Rate Balance, the last
            day of the
            applicable Interest Period for interest on the LIBOR Balance, and the
            Maturity
            Date.

          

          AInterest
            Period@
            means,
            with respect to any LIBOR Balance, a period commencing: (i) on any date
            which,
            pursuant to an Interest Notice, the principal amount of such LIBOR Balance
            begins to accrue interest at the Adjusted LIBOR Rate, or (ii) the Business
            Day
            following the last day of the immediately preceding Interest Period in
            the case
            of a rollover to a successive Interest Period, and ending one, two, or three
            months thereafter as Borrowers shall elect in accordance with the provisions
            hereof; provided that: (A) any Interest Period which would otherwise
            end on a
            day which is not a LIBOR Business Day shall be extended to the succeeding
            LIBOR
            Business Day and (B) any Interest Period which would otherwise end after
            the
            Maturity Date shall end on the Maturity Date.

          

          ALIBOR
            Balance@
            means
            the principal balance of this Note, which, pursuant to an Interest Notice,
            bears
            interest at the Adjusted LIBOR Rate.

          

          ALIBOR
            Business Day@
            means a
            day on which dealings in Dollars are carried out in the London interbank
            offered
            rate market.

          

          ALIBOR
            Rate@
            means
            the rate of interest per annum at which deposits in Dollars are offered
            by the
            major London clearing banks, as quoted by the British Banker=s
            Association and reported by Bloomberg Professional Service on page BBAM
            (or such
            other similar news reporting service as Agent may subscribe to at the
            time such
            LIBOR Rate is determined), in the London interbank offered rate market
            for a
            period of time equal or comparable to an Interest Period and in an amount
            equal
            to or comparable to the principal amount of the LIBOR Balance to which
            such
            Interest Period relates. The LIBOR Rate for the Interest Period to which
            it
            relates shall (i) be determined as of 11:00 a.m. (London, England time)
            two (2)
            LIBOR Business Days prior to the first day of such Interest Period, and
            (ii)
            shall be rounded upward, if necessary, to the nearest one-hundreth of
            one
            percent.

           

          
            
              
              

            

            
              2

              
                

              

            

            
              
              

            

          

          ALIBOR
            Spread@
            means
            the ALIBOR
            Spread@
            as
            defined in the Loan Agreement; and the LIBOR Spread will vary as set
            forth in
            the Loan Agreement, based on the Borrowing Base Utilization (as defined
            in the
            Loan Agreement) as in effect from time to time, with each change in the
            applicable percentage resulting from a change in the Borrowing Base Utilization
            to take effect on the day such change in the Borrowing Base Utilization
            occurs.

          

          ALoan
            Agreement@
            means
            the Loan Agreement of even date, by and among Borrowers, Agent, and Banks,
            as
            amended.

          

          AMaximum
            Rate@
            means at
            the particular time in question the maximum rate of interest which, under
            applicable law, may then be charged on this Note. If the maximum rate
            of
            interest changes after the date hereof, the Maximum Rate shall be automatically
            increased or decreased, as the case may be, without notice to Borrowers
            from
            time to time as of the effective date of each change in the maximum rate.
            If
            applicable law ceases to provide for a maximum rate of interest, the
            Maximum
            Rate shall be equal to eighteen percent (18%) per annum.

          

          APrime
            Rate@
            means
            the BOKF National Prime Rate, which is defined as the rate of interest
            set by
            BOK Financial
            Corporation,
            in its
            sole discretion, on a daily basis, as published by BOK Financial Corporation
            from time to time (which may not be the lowest, best or most favorable
            rate of
            interest which Agent or Banks may charge on loans to their
            customers).

          

          APrime
            Rate Balance@
            means
            the principal balance of this Note bearing interest at a rate based upon
            the
            Prime Rate.

          

          Payments
            of Interest and Principal.
            The
            principal of and all accrued but unpaid interest on this Note shall be
            due and
            payable as follows:

          

          (a) accrued,
            unpaid interest on this Note shall be due and payable on each Interest
            Payment
            Date, commencing on the first (1st)
            day of
            April, 2008, and continuing until the Maturity Date;

          

          (b) the
            principal of this Note shall be due and payable as required by the Loan
            Agreement to meet any Borrowing Base deficiency or Monthly Commitment
            Reductions
            (if and when required by Agent and Banks under the Loan Agreement);
            and

          

          (c) the
            outstanding principal balance of this Note, together with all accrued
            but unpaid
            interest, shall be due and payable on the Maturity Date.

           

          
            
              
              

            

            
              3

              
                

              

            

            
              
              

            

          

          Revolving
            Credit. Under
            the
            Loan Agreement, Borrowers may request advances and make payments hereunder
            from
            time to time, provided that it is understood and agreed that the aggregate
            principal amount outstanding from time to time hereunder shall not at
            any time
            exceed the Total Principal Amount or the Borrowing Base (as defined in
            the Loan
            Agreement). In addition, Agent and Banks may set a monthly commitment
            reduction
            pursuant to the Loan Agreement, thereafter the Borrowing Base and
            Bank=s
            commitment under this Note will decline monthly, and the amount outstanding
            under this Note may not exceed the amount of Bank=s
            Commitment under the declining Borrowing Base. The unpaid balance of
            this Note
            shall increase and decrease with each new advance or payment hereunder,
            as the
            case may be. This Note shall not be deemed terminated or canceled prior
            to the
            Maturity Date, although the entire principal balance hereof may from
            time to
            time be paid in full. Borrowers may borrow, repay and reborrow hereunder.
            Unless
            otherwise agreed to in writing or otherwise required by applicable law,
            payments
            will be applied first to unpaid accrued interest, then to principal,
            and any
            remaining amount to any unpaid collection costs, delinquency charges,
            and other
            charges; provided, however, upon delinquency or other Event of Default,
            Bank
            reserves the right to apply payments among principal, interest, delinquency
            charges, collection costs, and other charges, in such order and manner
            as the
            holder of this Note may from time to time determine in its sole discretion.
            All
            payments and prepayments of principal of or interest on this Note shall
            be made
            in Dollars in immediately available funds, at the address of Agent indicated
            above, or such other place as the holder of this Note shall designate
            in writing
            to Borrowers. If any payment of principal of or interest on this Note
            shall
            become due on a day which is not a Business Day or LIBOR Business Day,
            such
            payment shall be made on the next succeeding Business Day or LIBOR Business
            Day,
            as applicable, and any such extension of time shall be included in computing
            interest in connection with such payment. The books and records of Agent
            shall
            be prima facie
            evidence
            of all outstanding principal of and accrued and unpaid interest on this
            Note.

          

          Accrual
            of Interest.
            The
            unpaid principal of the Prime Rate Balance shall bear interest at a rate
            per
            annum which shall from day to day be equal to the lesser of (i) the Prime
            Rate,
            or (ii) the Maximum Rate. The unpaid principal of each LIBOR Balance
            shall bear
            interest at a rate per annum which shall be equal to the lesser of (i)
            the
            Adjusted LIBOR Rate for the Interest Period in effect with respect to
            the LIBOR
            Balance, or (ii) the Maximum Rate. Each change in the Prime Rate shall
            become
            effective without prior notice to Borrowers automatically as of the opening
            of
            business on the date of such change in the Prime Rate. Interest on this
            Note
            shall be calculated on the basis of the actual days elapsed, but computed
            as if
            each year consisted of 360 days.

          

          Interest
            Options.
            Subject
            to the provisions hereof, Borrowers shall have the option (the AInterest
            Option@)
            of
            having the unpaid principal balance of this Note bear interest at the
            Adjusted
            LIBOR Rate or the Prime Rate; provided, however, that only four (4) Interest
            Period options shall be in effect at any one time and the selection of
            the
            Adjusted LIBOR Rate for a particular Interest Period shall be for no
            less than
            $1,000,000.00 of unpaid principal and in even multiples of $100,000.00
            in
            principal. The Interest Option shall be exercised in the manner provided
            below:

          

          (a) Advances.
            Each
            advance on the Note will initially be funded as a Prime Rate Balance
            and will
            accrue interest from the date advanced at the Prime Rate.

          

          (b) Conversion
            From Prime Rate.
            During
            any period in which the principal hereof bears interest at the Prime
            Rate,
            Borrowers shall have the right, on any LIBOR Business Day (the AConversion
            Date@),
            to
            convert all or part of the principal balance owed on the Note from the
            Prime
            Rate Balance to a LIBOR Balance by giving Agent an Interest Notice of
            such
            selection at least two (2) LIBOR Business Days prior to the Conversion
            Date.

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

          

          (c) At
            Expiration of Interest Periods.
            At
            least two (2) LIBOR Business Days prior to the termination of each Interest
            Period, Agent shall receive from Borrowers an Interest Notice indicating
            the
            Interest Option to be applicable to the corresponding LIBOR Balance upon
            the
            expiration of such Interest Period. If the required Interest Notice shall
            not
            have been timely received by Agent, Borrowers shall be deemed to have
            selected
            the Prime Rate to be applicable to the corresponding LIBOR Balance upon
            the
            expiration of the Interest Period and to have given Agent notice of such
            selection.

          

          Interest
            Recapture.
            If on
            each Interest Payment Date or any other date on which interest payments
            are
            required hereunder, Bank does not receive interest on this Note computed
            at the
            Prime Rate or Adjusted LIBOR Rate because such Contract Rate exceeds
            or has
            exceeded the Maximum Rate, then Borrowers shall, upon the written demand
            of
            Agent, pay to Bank in addition to the interest otherwise required to
            be paid
            hereunder, on each Interest Payment Date thereafter, the Excess Interest
            Amount
            (calculated as of such later Interest Payment Date); provided that in
            no event
            shall Borrowers be required to pay, for any Interest Period, interest
            at a rate
            exceeding the Maximum Rate effective during such period.

          

          Interest
            on Past Due Amounts and Default Interest.
            To the
            extent any interest is not paid on or before the date it becomes due
            and
            payable, Agent may, at its option, add such accrued but unpaid interest
            to the
            principal of this Note. Notwithstanding anything herein to the contrary,
            (i)
            while any Event of Default (as defined below) is outstanding, (ii) upon
            acceleration of the maturity hereof following an uncured Event of Default,
            or
            (iii) at the Maturity Date, all principal of this Note shall, at the
            option of
            Agent, bear interest at the Maximum Rate until paid.

          

          Loan
            Agreement/Security.
            This
            Note is subject to the terms and provisions of the Loan Agreement. This
            Note is
            secured by all liens and security interests described in the Loan Agreement.
            This Note, the Loan Agreement, and all other documents evidencing, securing,
            governing, guaranteeing, or pertaining to this Note are hereinafter collectively
            referred to as the ALoan
            Documents.@
            The
            holder of this Note is entitled to the benefits and security provided
            in the
            Loan Documents. 

          

          Prepayments;
            Consequential Loss.
            Borrowers may from time to time prepay all or any portion of the principal
            of
            this Note without premium or penalty, except as set forth herein. Any
            prepayment
            made hereunder shall be made together with all interest accrued but unpaid
            on
            this Note through the date of such prepayment. If Borrowers make any
            prepayment
            of principal with respect to any LIBOR Balance on any day prior to the
            last day
            of the Interest Period applicable to such LIBOR Balance, Borrowers shall
            reimburse the Bank on demand the Consequential Loss incurred by Bank
            as a result
            of the timing of such payment. A certificate of Agent setting forth the
            basis
            for the determination of a Consequential Loss shall be delivered to Borrowers
            and shall, in the absence of manifest error, be prima facie evidence
            as to such
            determination and amount. 

           

          
            
              
              

            

            
              5

              
                

              

            

            
              
              

            

          

          Special
            Provisions for LIBOR Pricing. Borrowers
            agree to the following special provisions regarding LIBOR pricing:

          

          (a)
             If
            Agent
            determines that, by reason of circumstances affecting the London interbank
            offered rate market generally, deposits in Dollars (in the applicable
            amounts)
            are not being offered to United States financial institutions in the
            London
            interbank offered rate market for the applicable Interest Period, or
            that the
            rate at which such Dollar deposits are being offered will not adequately and
            fairly reflect the cost to Bank of making or maintaining a LIBOR Balance
            for the
            applicable Interest Period, Agent shall forthwith give written notice
            to
            Borrowers, and thereafter until Agent notifies Borrowers that the circumstances
            giving rise to such suspension no longer exist, (i) the right of Borrowers
            to
            select the Adjusted LIBOR Rate as an Interest Option under this Note
            shall be
            suspended, and (ii) Borrowers shall be deemed to have converted each
            LIBOR
            Balance to a Prime Rate Balance under this Note in accordance with the
            provisions hereof on the last day of the then-current Interest Period
            applicable
            to such LIBOR Balance. 

          

          (b) If
            the
            adoption of any applicable law, rule, or regulation, or any change therein,
            or
            any change in the interpretation or administration thereof by any governmental
            authority, central bank, or agency charged with the interpretation or
            administration thereof, or compliance by Bank with any request or directive
            (whether or not having the force of law) of any such authority, central
            bank, or
            agency shall make it unlawful or impossible for Bank to make or maintain
            a LIBOR
            Balance, Agent shall so notify Borrowers. Upon receipt of such written
            notice,
            Borrowers shall be deemed to have converted any LIBOR Balance to a Prime
            Rate
            Balance under this Note, on either (i) the last day of the then-current
            Interest
            Period applicable to such LIBOR Balance if Bank may lawfully continue
            to
            maintain and fund such LIBOR Balance to such day, or (ii) immediately
            if Bank
            may not lawfully continue to maintain such LIBOR Balance to such
            day.

          (c)
             If
            any
            governmental authority, central bank, or other comparable authority,
            shall at
            any time after the date of this Note impose, modify, or deem applicable
            any
            reserve (including, without limitation, any imposed by the Board of Governors
            of
            the Federal Reserve System), special deposit, or similar requirement
            against
            assets of, deposits with or for the account of, or credit extended by,
            Bank, or
            shall impose on Bank (or its LIBOR lending office) or the London interbank
            offered rate market any other condition affecting its LIBOR Balance,
            this Note,
            or its obligation to make LIBOR advances; and the result of any of the
            foregoing
            is to increase the cost to Bank of making or maintaining its LIBOR Balance,
            or
            to reduce the amount of any sum received or receivable by Bank under
            this Note
            by an amount reasonably deemed by Bank to be material; then, within five
            (5)
            days after demand by Agent, Borrowers shall pay to Bank, such additional
            amount
            or amounts as will compensate Bank for such increased cost or reduction.
            Agent
            will promptly notify Borrowers of any event of which it has knowledge,
            occurring
            after the date hereof, which will entitle Bank to compensation pursuant
            to this
            Subsection. A certificate of Agent claiming compensation under this Subsection
            and setting forth the additional amount or amounts to be paid to it hereunder
            shall be prima
            facie in
            the
            absence of manifest error. If Agent demands compensation under this Subsection,
            then Borrowers may at any time, upon at least two (2) Business Days prior
            notice
            to Agent, either (i) repay in full the then outstanding LIBOR Balance,
            together
            with accrued interest thereon to the date of prepayment, or (ii) convert
            such
            LIBOR Balance to Prime Rate Balance in accordance with the provisions
            of this
            Note; provided, however, that Borrowers shall be liable for any Consequential
            Loss arising pursuant to such actions.

           

          
            
              
              

            

            
              6

              
                

              

            

            
              
              

            

          

          

          (d) If
            (i)
            the obligation of Bank to permit LIBOR Balance has been suspended pursuant
            to
            subsections (a) or (b) above or (ii) Bank has demanded compensation under
            subsection (c) above, then, unless and until Agent notifies Borrowers
            that the
            circumstances giving rise to such suspension or demand for compensation
            no
            longer apply, all advances on this Note which would otherwise be made
            by Bank as
            LIBOR Balance shall be made instead as Prime Rate Balance.

          

          Business
            Loan. Borrowers
            represent to and covenant with Agent and Banks that: (1) all loans evidenced
            by
            this Note are and shall be Abusiness
            loans@
            as that
            term is used in the Depository Institutions Deregulation and Monetary
            Control
            Act of 1980, as amended; and (2) the loans are for business, commercial,
            investment, or other similar purposes and not for personal, family, household,
            or agricultural use, as those terms are used in the Texas Finance Code.
            

          

          Event
            of Default. Borrowers
            agree that upon the occurrence of any one or more of the following events
            of
            default (AEvent
            of Default@):

          

          (a) failure
            of Borrowers to pay any installment of principal of or interest on this
            Note
            when due; or

          

          (b) the
            occurrence of any Event of Default specified in the Loan Agreement or
            any other
            Loan Documents; 

          

          and
            the
            expiration of any notice, grace, or cure period required in the Loan
            Agreement,
            the holder of this Note may, at its option, without further notice or
            demand,
            (i) declare the outstanding principal balance of and accrued but unpaid
            interest
            on this Note at once due and payable, (ii) refuse to advance any additional
            amounts under this Note, (iii) foreclose all liens securing payment hereof,
            (iv)
            pursue any and all other rights, remedies, and recourses available to
            the holder
            hereof, including but not limited to any such rights, remedies, or recourses
            under the Loan Documents, at law or in equity, or (v) pursue any combination
            of
            the foregoing.

          No
            Waiver by Agent or Banks. The
            failure to exercise the option to accelerate the maturity of this Note
            or any
            other right, remedy, or recourse available to Agent or the holder hereof
            upon
            the occurrence of an Event of Default hereunder shall not constitute
            a waiver of
            the right of Agent or the holder of this Note to exercise the same at
            that time
            or at any subsequent time with respect to such Event of Default or any
            other
            Event of Default. The rights, remedies, and recourses of Agent and the
            holder
            hereof, as provided in this Note and in any other Loan Documents, shall
            be
            cumulative and concurrent and may be pursued separately, successively,
            or
            together as often as occasion therefor shall arise, at the sole discretion
            of
            the holder hereof. The acceptance by the holder hereof of any payment
            under this
            Note which is less than the payment in full of all amounts due and payable
            at
            the time of such payment shall not (i) constitute a waiver of or impair,
            reduce,
            release, or extinguish any right, remedy, or recourse of the holder hereof,
            or
            nullify any prior exercise of any such right, remedy, or recourse, or
            (ii)
            impair, reduce, release, or extinguish the obligations of any party liable
            under
            any of the Loan Documents as originally provided herein or therein.

           

          
            
              
              

            

            
              7

              
                

              

            

            
              
              

            

          

          

          Usury
            Savings Clause. This
            Note
            and all other Loan Documents are intended to be performed in accordance
            with,
            and only to the extent permitted by, all applicable usury laws. If any
            provision
            hereof or of any other Loan Documents or the application thereof to any
            person
            or circumstance shall, for any reason and to any extent, be invalid or
            unenforceable, neither the application of such provision to any other
            person or
            circumstance nor the remainder of the instrument in which such provision
            is
            contained shall be affected thereby, and all provisions shall be enforced
            to the
            greatest extent permitted by law. It is expressly stipulated and agreed
            to be
            the intent of the holder hereof to at all times comply with the usury
            and other
            applicable laws now or hereafter governing the interest payable on the
            indebtedness evidenced by this Note. If the applicable law is ever revised,
            repealed, or judicially interpreted so as to render usurious any amount
            called
            for under this Note or under any other Loan Documents, or contracted
            for,
            charged, taken, reserved, or received with respect to the indebtedness
            evidenced
            by this Note, or if Agent=s
            exercise of the option to accelerate the maturity of this Note or if
            any
            prepayment by Borrowers results in Borrowers having paid any interest
            in excess
            of that permitted by law, then it is the express intent of Borrowers,
            Agent, and
            Banks that all excess amounts theretofore collected by Agent or Bank
            be credited
            on the principal balance of this Note (or, if this Note and all other
            indebtedness arising under or pursuant to the other Loan Documents have
            been
            paid in full, refunded to Borrowers), and the provisions of this Note
            and the
            other Loan Documents immediately be deemed reformed and the amounts thereafter
            collectable hereunder and thereunder reduced, without the necessity of
            the
            execution of any new document, so as to comply with the then-applicable
            law, but
            so as to permit the recovery of the fullest amount otherwise called for
            hereunder or thereunder. All sums paid, or agreed to be paid, by Borrowers
            for
            the use, forbearance, detention, taking, charging, receiving, or reserving
            of
            the indebtedness of Borrowers to Bank under this Note or arising under
            or
            pursuant to the other Loan Documents shall, to the maximum extent permitted
            by
            applicable law, be amortized, prorated, allocated, and spread throughout
            the
            full term of such indebtedness until payment in full so that the rate
            or amount
            of interest on account of such indebtedness does not exceed the usury
            ceiling
            from time to time in effect and applicable to such indebtedness for so
            long as
            such indebtedness is outstanding. To the extent federal law permits Bank
            to
            contract for, charge, or receive a greater amount of interest, Bank will
            rely on
            federal law instead of  Texas
            Finance Code, for the purpose of determining the Maximum Rate. Additionally,
            to
            the maximum extent permitted by applicable law now or hereafter in effect,
            Bank
            may, at its option and from time to time, implement any other method
            of
            computing the Maximum Rate under the Texas Finance Code, or under other
            applicable law by giving notice, if required, to Borrowers as provided
            by
            applicable law now or hereafter in effect. Notwithstanding anything to
            the
            contrary contained herein or in any other Loan Documents, it is not the
            intention of Agent or Bank to accelerate the maturity of any interest
            that has
            not accrued at the time of such acceleration or to collect unearned interest
            at
            the time of such acceleration.

           

          
            
              
              

            

            
              8

              
                

              

            

            
              
              

            

          

          Applicability
            of Laws.
            In
            no
            event shall Chapter 346 of the Texas Finance Code (which regulates certain
            revolving loan accounts and revolving tri-party accounts) apply to this
            Note. To
            the extent that Chapter 303 of the Texas Finance Code is applicable to
            this
            Note, the Aweekly
            ceiling@
            specified in Chapter 303 is the applicable ceiling; provided that, if
            any
            applicable law permits greater interest, the law permitting the greatest
            interest shall apply.

          

          Attorneys
            Fees. If
            this
            Note is placed in the hands of an attorney for collection, or is collected
            in
            whole or in part by suit or through probate, bankruptcy, or other legal
            proceedings of any kind, Borrowers agree to pay, in addition to all other
            sums
            payable hereunder, all costs and expenses of collection, including but
            not
            limited to reasonable attorneys fees.

          

          Borrowers=
            Waiver. Except
            as
            expressly provided herein, Borrowers and any and all endorsers and guarantors
            of
            this Note severally waive presentment for payment, notice of nonpayment,
            protest, demand, notice of protest, notice of intent to accelerate, notice
            of
            acceleration and dishonor, diligence in enforcement and indulgences of
            every
            kind and without further notice hereby agree to renewals, extensions,
            exchanges
            or releases of collateral, taking of additional collateral, indulgences,
            or
            partial payments, either before or after maturity.

          

          Applicable
            Law. EXCEPT
            TO THE EXTENT THAT THE LAWS OF THE UNITED STATES MAY APPLY, THIS NOTE
            SHALL BE
            GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
            TEXAS.
            THIS INSTRU-MENT IS MADE AND IS PERFORMABLE IN HOUSTON, HARRIS COUNTY,
            TEXAS,
            AND IN THE EVENT OF A DISPUTE INVOLVING THIS NOTE OR ANY OTHER INSTRUMENT
            EXECUTED IN CONNECTION HEREWITH, BORROWERS IRREVOCABLY AGREES THAT VENUE
            FOR
            SUCH DISPUTES SHALL BE IN ANY COURT OF COMPETENT JURIS-DICTION IN HARRIS
            COUNTY,
            TEXAS.

          

          Renewal.
            This
            Note is given in renewal and extension, but not extinguishment, of amounts
            left
            owing and unpaid on the promissory note (the APrior
            Note@)
            executed and delivered by Tandem Energy Corporation, and payable to the
            order of
Guaranty
            Bank F.S.B.,
            and
            Bank is the owner and holder of the Prior Note as assignee of Guaranty
            Bank F.S.B.

          

          Captions.
            Captions
            used herein are for convenience only and should not be used in interpreting
            this
            Note.

           

          
            
              
              

            

            
              9

              
                

              

            

            
              
              

            

          

          Final
            Agreement.
            THE
            WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
            AND
            MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
            ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN
            THE
            PARTIES.

          

          Executed
            and delivered to Bank in Houston, Texas, on the date stated above.

          

          
            	 	
                    BORROWERS:

                    

                    Tandem
                      Energy Corporation  

                    

                    By:______________________________  

                    Michael
                      G. Cunningham, 

                    Senior
                      Vice President

                    

                    PER
                      Gulf Coast, Inc. 

                    

                    By:______________________________  

                    Michael
                      G. Cunningham, 

                    Senior
                      Vice President 

                  

          

          

          

          This
            note
            was prepared by:

          Harris,
            Finley & Bogle,
            P.C.

          777
            Main
            Street, Suite 3600

          Fort
            Worth, Texas 76102

          (817)
            870-8700

          

          1410028.1
            [March
            20,
            2008]

           

          
            
              
              

            

            
              10

              
                

              

            

            
              
              

            

            

              Exhibit
                B

            

            
              

              

              

              QUARTERLY
                COMPLIANCE CERTIFICATE

               

              Pursuant
                to the Loan Agreement (the ALoan
                Agreement@)
                dated
                March 14, 2008, among Tandem
                Energy Corporation,
                a
                Delaware corporation, and PER
                Gulf
                Coast, Inc.,
                a
                Delaware corporation (collectively ABorrowers@);
                Bank of
                Texas, N.A.,
                as
                administrative agent (AAgent@);
                and
                Bank of
                Texas, N.A.
                (ABank
                of Texas@),
                and
                all banks and financial institutions now or hereafter a party to
                this Loan
                Agreement (collectively ABanks@),
                Borrowers have reviewed their activities for the fiscal quarter ending
                on
                ______________________, 200___, and hereby represent and warrant
                to Agent and
                Banks that the information set forth below, calculated on a consolidated
                basis,
                is true and correct as of that date (capitalized terms below have
                the meanings
                assigned in the Loan Agreement):

               

              
                	
                         

                      	
                        1.
                          Financial Covenants.

                      	 	Required	 	Actual
	 	 	 	 	 	 
	
                        (a)

                      	Current Ratio (minimum)	 	1.0 to 1.0 _____
                        to 1.0	 	 
	 	to be tested quarterly	 	 	 	 
	 	 	 	 	 	 
	 	Current assets	$__________	 	 	 
	 	Availability on Revolving Loan	$__________	 	 	 
	 	Current liabilities	$__________	 	 	 

              

              

              For
                the
                purpose of this calculation, ACurrent
                Ratio@
                is
                defined as the ratio of (i) Borrowers=
                current
                assets, plus
                availability on the Revolving Loan, divided
                by (ii)
                Borrowers=
                current
                liabilities (excluding current maturities of long-term debt); provided,
                however,
                that the mark-to-market values for hedging positions in accordance
                with FASB 133
                shall be excluded from this calculation until such time as the gains
                or losses
                from the hedges are actually realized and the hedges expire.

               

              
                	
                        (b)

                      	Funded Debt to EBITDA Ratio 	 	3.0 to 1.0	 	_____ to 1.0
	 	(maximum) to be tested quarterly	 	 	 	 
	 	 	 	 	 	 
	 	Amount outstanding on Loans	$__________	 	 	 
	 	Net income annualized	$__________	 	 	 
	 	Income taxes annualized	$__________	 	 	 
	 	Interest expense annualized	$__________ 	 	 	 
	 	DD&A annualized	$__________ 	 	 	 
	 	Gains or losses annualized	$__________ 	 	 	 

              

               

              
                
                  
                  

                

                
                  
                  

                  
                    

                  

                

                
                  
                  

                

              

              For
                the
                purposes of this calculation, AFunded
                Debt to EBITDA Ratio@
                is
                defined as the ratio of (i) the total amount outstanding on the Loans,
                divided
                by
                (ii) the
                sum of Borrowers=
                most
                recent quarter=s
                net
                income annualized, plus
                income
                taxes for the same period annualized, plus
                interest
                expense on the Loans for the same period annualized, plus
                depletion, depreciation, amortization, and other non-cash charges
                for the same
                period annualized, minus
                gains
                from the sale of assets (or plus
                losses
                from the sale of assets) for the same period annualized; provided,
                however, that
                EBITDA from acquisitions may only be included in this covenant after
                Agent has
                reviewed and approved pro-forma financial statements demonstrating
                the effect of
                the acquisition. 

              

              2.  The
                undersigned officers hereby certify on behalf of Borrowers that (a)
                Borrowers
                are in compliance with all covenants of the Loan Agreement, and (b)
                as of the
                effective date of this compliance certificate and the date received
                by Agent, no
                Event of Default or event that would, with the lapse of time or giving
                of
                notice, or both, be an Event of Default, has occurred. The Revolving
                Note and
                the Loan Agreement are acknowledged, ratified, confirmed, and agreed
                by
                Borrowers to be valid, subsisting, and binding obligations. Borrowers
                agree that
                there is no right to set off or defense to payment of the Revolving
                Note.

              

              Dated
                ____________________, 200__.

               

              
                	 	
                        Tandem
                          Energy Corporation

                         

                        By:
                          ____________________________

                        Name:

                        Title:

                        

                        PER
                          Gulf Coast, Inc.

                        

                        By:
                          ____________________________

                        Name:

                        Title:

                      

              

              

              1410033.1
                [March
                20,
                2008]

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