Document:

Exhibit 10.3
                                 PROMISSORY NOTE

$20,000,000.00                   Houston, Texas                    March 5, 2007

     FOR VALUE  RECEIVED and WITHOUT GRACE,  on or before  February 1, 2010, the
undersigned  ("Maker")  promises  to pay to the  order  of  WELLS  FARGO  ENERGY
CAPITAL,   INC.   ("Payee")  the  sum  of  TWENTY  MILLION  AND  NO/100  DOLLARS
($20,000,000.00), or so much thereof as may be advanced to or for the benefit of
Maker by Payee, which amounts Maker is permitted to borrow,  repay and reborrow,
pursuant to that certain Credit  Agreement  dated of even date herewith  between
Maker and Payee (as may be amended from time to time,  the "Credit  Agreement"),
together with interest as set forth in the Credit Agreement.

     All payments of  principal  and interest are payable in lawful money of the
United States of America to Payee at its offices at 1000  Louisiana,  9th Floor,
Houston, Harris County, Texas as set forth in the Credit Agreement.

     Each advance by Payee to Maker and each  payment of principal  hereunder by
Maker  shall be  reflected  by a notation  made by Payee on its  records and the
aggregate unpaid amount of advances  reflected by said notations shall be deemed
rebuttably presumptive evidence of the principal amount owing under this Note.

     This Note is issued pursuant to the Credit Agreement, and reference is made
to the  Credit  Agreement  for  matters  governed  thereby,  including,  without
limitation,  certain  events which will entitle the holder  hereof to accelerate
the maturity of all amounts due hereon.  Capitalized  terms used but not defined
herein shall have the same meanings as in the Credit Agreement.

     It is the  intention  of  Maker  and  Payee  to  comply  strictly  with all
applicable  usury laws as in effect from time to time; and there is no intention
to contract for, nor shall there ever be collected,  charged or received on this
Note,  interest in excess of that which would accrue and be payable on the basis
of the Highest  Lawful Rate.  To the extent that the  interest  rate Laws of the
State of Texas are  applicable to this Note,  for purposes of Chapter 303 of the
Texas Finance Code, as amended, Maker agrees that the maximum rate to be charged
shall be the "weekly rate ceiling" as defined in said Chapter 303; provided that

Payee  may also  rely on  alternative  maximum  rates of  interest  under  other
applicable laws, if greater.

     If under any  circumstances the aggregate amounts paid on this Note include
amounts  which by Law are deemed  interest  and which  would  exceed the maximum
non-usurious amount of interest which could lawfully have been collected on this
Note,  Maker stipulates that such payment and collection will have been and will
be deemed to have been the result of mathematical error on the part of Maker and
Payee or the holder of this Note, and the party  receiving such excess  payments
shall  promptly  refund  the amount of such  excess (to the extent  only of such
interest  payments  above the maximum  non-usurious  amount which could lawfully
have been  collected  and  retained)  upon  discovery of such error by the party
receiving such payment or notice thereof from the party making such payment.

     The principal  indebtedness evidenced by this Note and all interest accrued
thereon shall be payable  pursuant to the terms of the Credit  Agreement,  which
provides in part that all outstanding indebtedness evidenced by this Note on the
Termination  Date  shall be paid on the  Termination  Date.  If any  installment
provided for in the Credit  Agreement,  either of principal or interest,  is not
paid when due,  then Payee or the owner or holder  hereof  may,  at its  option,
without notice (including, without limitation, notice of intention to accelerate
maturity and/or notice of acceleration of maturity) or demand, declare this Note
at once matured,  due and payable in full, and in such case the entire amount of
unpaid principal hereunder and accrued interest thereon shall immediately become
due and payable.

<PAGE>

     If  default  is made in the  payment  of this  Note and it is placed in the
hands of an attorney for collection,  or collected through probate or bankruptcy
proceedings,  or if suit is brought on the same,  Maker agrees to pay reasonable
attorneys' fees and other costs of collection.

     Maker and any and all endorsers,  guarantors and sureties  severally  waive
notice  (including,  without  limitation,  notice  of  intention  to  accelerate
maturity  and/or notice of acceleration  of maturity),  demand,  presentment for
payment,  protest  and the  filing  of suit  hereon  for the  purpose  of fixing
liability  and  consent  that the time of  payment  hereof may be  extended  and
reextended  from  time to time  without  notice  to them or any of  them.  Maker
acknowledges and understands  that under the Laws of the State of Texas,  unless
waived,

waived,  Maker  has the  right to notice of  Payee's  intent to  accelerate  the
indebtedness  evidenced  by  this  Note,  the  right  to  notice  of the  actual
acceleration  of the  indebtedness  evidenced  by this  Note,  and the  right to
presentment of this Note by Payee's demand for payment.  Maker acknowledges that
it understands  that it can waive these rights and by Maker's  execution of this
Note it agrees to waive its right to notice of intent to  accelerate,  its right
to notice of  acceleration,  and its right to  presentment  or other  demand for
payment.

     Maker may at any time pay the full amount or any part of this Note  without
the payment of any premium or fee.

     THIS NOTE SHALL BE GOVERNED  AND  CONTROLLED  BY THE  INTERNAL  LAWS OF THE
STATE OF TEXAS.

     Without  being  limited  thereto  or  thereby,  this Note is secured by the
Security Documents more particularly described in the Credit Agreement.

                               CUBIC ENERGY, INC.

                                                  By: /s/ Calvin A. Wallen III
                                                      --------------------------
                                                      Calvin A. Wallen III
                                                      PresidentExhibit 10.4

                                     WARRANT
                       TO PURCHASE SHARES OF COMMON STOCK
                                       OF
                               CUBIC ENERGY, INC.

THE  WARRANT  REPRESENTED  BY THIS  CERTIFICATE  AND THE SHARES OF COMMON  STOCK
ISSUABLE  UPON  EXERCISE  OF THIS  WARRANT  HAVE NOT BEEN  REGISTERED  UNDER THE
SECURITIES  ACT OF 1933 (THE  "ACT"),  NOR HAS IT BEEN  APPROVED  BY THE  UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE.  NEITHER THIS WARRANT NOR ANY INTEREST  THEREIN MAY BE OFFERED FOR
SALE, SOLD, MORTGAGED, PLEDGED, TRANSFERRED,  HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL  ACCEPTABLE  TO THE  COMPANY  THAT SUCH  REGISTRATION  IS NOT
REQUIRED.

No. 2007-1                                  Warrant to Purchase 2,500,000 Shares
March 5, 2007                          of Common Stock,$0.05 Par Value Per Share

                        WARRANT TO PURCHASE COMMON STOCK
                                       of
                               CUBIC ENERGY, INC.,
                               a Texas corporation
           Void after the date set forth in the first paragraph hereof

     This certifies that, for value received,  Wells Fargo Energy Capital, Inc.,
a Texas corporation,  or its registered assigns ("Holder") is entitled,  subject
to the terms set forth  below,  to purchase  from Cubic  Energy,  Inc.,  a Texas
corporation (the "Company"),  2,500,000 shares of Common Stock,  $0.05 par value
per share,  of the  Company  (such  class of stock  being  referred to herein as
"Common  Stock"),  as  constituted  on March 5, 2007 (the  "Issue  Date"),  upon
compliance  with the exercise  provisions set forth in Section 1 hereof,  at the
price of $1.00 per share (the "Exercise Price"). This Warrant must be exercised,
if at all, prior to 5:00 p.m.,  Dallas,  Texas time on March 5, 2012. The shares
of Common Stock issued or issuable  upon  exercise of this Warrant are sometimes
referred to as the  "Warrant  Shares."  The term  "Warrant" as used herein shall
include  this Warrant and any warrants  delivered  in  substitution  or exchange
therefor as provided herein.

         Section 1.    Exercise of Warrant.

     (a) This Warrant may be exercised at any time or from time to time,  on any
business  day, for all or part of the full number of Warrant  Shares  during the
period of time described above, by (i) delivery of a written notice, in the form
of the  subscription  notice attached hereto or a reasonable  facsimile  thereof
(the "Exercise Notice"), to the Company, of Holder's election to exercise all or
a  portion  of this  Warrant,  specifying  the  number of  Warrant  Shares to be
                                      -1-

<PAGE>

purchased,  (ii) (A) payment to the Company of an amount  equal to the  Exercise
Price  multiplied  by the number of Warrant  Shares as to which this  Warrant is
being  exercised  (the  "Aggregate  Exercise  Price") in cash or  delivery  of a
certified  check or bank  draft  payable  to the  order of the  Company  or wire
transfer of immediately  available funds or (B) notification to the Company that
this Warrant is being exercised  pursuant to a Cashless  Exercise (as defined in
Section  1(b) of this  Warrant),  and (iii) the  surrender  of this Warrant to a
common  carrier for  overnight  delivery to the Company on the date the Exercise
Notice is delivered to the Company (or evidence of lost  Warrant,  in accordance
with  Section 7). No other form of  consideration  shall be  acceptable  for the
exercise  of this  Warrant.  A Warrant  shall be  deemed to have been  exercised
immediately  prior to the  close of  business  on the  date of  delivery  of the
Exercise Notice,  this Warrant and either the Aggregate  Exercise Price referred
to in clause (ii)(A) above or notification to the Company of a Cashless Exercise
referred to in Section 1(b) of this Warrant.  The person entitled to receive the
shares of Common  Stock  issuable  upon such  exercise  shall be treated for all
purposes as the record holder of such shares as of the close of business on such
date. As soon as  practicable  on or after such date, and in any event within 10
days  thereof,  the  Company  shall  issue and  deliver to the person or persons
entitled to receive the same a  certificate  or  certificates  for the number of
shares of Common Stock issuable upon such exercise.  Upon any partial  exercise,
the Company  will issue and deliver to Holder a new Warrant  with respect to the
Warrant Shares not previously  purchased.  No fractional  shares of Common Stock
shall be issued upon exercise of a Warrant.  In lieu of any fractional  share to
which Holder would be entitled upon  exercise,  the Company shall pay cash equal
to the product of such  fraction  multiplied  by the then Market Price  (defined
below) of one share of Common Stock, as determined in good faith by the Company.

     (b) Notwithstanding anything contained herein to the contrary,  Holder may,
at its election  exercised in its sole  discretion,  exercise this Warrant as to
all or a portion of the Warrant  Shares and, in lieu of making the cash  payment
otherwise  contemplated  to be made to the Company upon such exercise in payment
of the Aggregate Exercise Price, elect instead to receive upon such exercise the
"Net Number" of shares of Common  Stock  determined  according to the  following
formula (a "Cashless Exercise"):

                           Net Number =  A x (B - C)
                                         -----------
                                              B

                  For purposes of the foregoing formula:

                    A=   the total  number of shares with  respect to which this
                         Warrant is then being exercised.

                    B=   the Market Price of the Common Stock on the trading day
                         immediately preceding the date of the Exercise Notice.

                    C=   the  Exercise  Price then in effect for the  applicable
                         Warrant Shares at the time of such exercise.

     "Market Price" on any date specified herein,  means the amount per share of
the Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes  place on such date,  the average of
                                      -2-

<PAGE>

the  closing  bid and  asked  prices  thereof  on  such  date,  in each  case as
officially  reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading,  or (b) if such Common Stock
is not then listed or admitted to trading on any  national  securities  exchange
but is traded  in an  over-the-counter  market,  the last  trading  price of the
Common  Stock on such date,  or (c) if there  shall have been no trading on such
date,  the average of the closing  bid and asked  prices of the Common  Stock on
such date as shown by the automated quotation system or over-the-counter market,
or (d) if such  Common  Stock is not then  listed or  admitted to trading on any
national  exchange  or  quoted in an  over-the-counter  market,  the fair  value
thereof  determined in good faith by the Board of Directors of the Company as of
a date which is within 20 days of the date as of which the  determination  is to
be made.

         Section 2.  Payment of Taxes.

     All shares of Common Stock  issued upon the exercise of a Warrant  shall be
duly authorized,  validly issued and outstanding, fully paid and non-assessable.
Holder shall pay all taxes and other governmental charges that may be imposed in
respect of the issue or delivery  thereof and any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for shares
of Common  Stock in any name  other  than that of the  registered  Holder of the
Warrant  surrendered in connection with the purchase of such shares, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been  established  to the
Company's satisfaction that no tax or other charge is due.

         Section 3.    Transfer and Exchange.

     Subject to the  restrictions set forth in Section  10(a)(iv),  this Warrant
and all rights hereunder are transferable,  in whole or in part. This Warrant is
transferable  on the books of the  Company  maintained  for such  purpose at its
principal  office  by Holder in  person  or by duly  authorized  attorney,  upon
surrender of this Warrant  properly  endorsed and upon payment of any  necessary
transfer tax or other governmental charge imposed upon such transfer. Each taker
and holder of this Warrant,  by taking or holding the same,  consents and agrees
that this Warrant,  when endorsed in blank,  shall be deemed negotiable and that
when this Warrant shall have been so endorsed,  the Holder hereof may be treated
by the Company and all other  persons  dealing with this Warrant as the absolute
owner  hereof for any purpose and as the person  entitled to exercise the rights
represented  hereby or to the transfer  hereof on the books of the Company,  any
notice to the contrary  notwithstanding;  but until such transfer on such books,
the  Company  may  treat  the  registered  Holder  hereof  as the  owner for all
purposes.

         Section 4.        Certain Adjustments.

     (a) In order to prevent  dilution  of the  rights  granted  hereunder,  the
Exercise  Price shall be subject to  adjustment  from time to time in accordance
with this  Section 4. For purposes of this Section 4, the term "Number of Common
Shares Deemed  Outstanding" at any given time shall mean the number of shares of
Common Stock  outstanding at such time on a fully diluted  basis,  including all
options,  warrants and securities convertible into or exchangeable for shares of
Common Stock and, without duplication,  the number of shares of the Common Stock
deemed to be outstanding under paragraphs  4(b)(1) to (10),  inclusive,  at such
time,  but excluding the issuance of up to 3,750,000  shares of Common Stock (as

                                      -3-
<PAGE>

adjusted for stock splits,  reverse stock splits and stock  dividends) or grants
of options to acquire  shares of Common Stock issued or granted as  equity-based
compensation  to certain  of the  Company's  directors,  executive  officers  or
employees under the Company's Director and Officer Compensation Plan approved by
its shareholders on December 29, 2005 (the "Plan").

     (b)  Except as  provided  in  Section  4(c),  4(d) or 4(e)  hereof,  if and
whenever  after the date  hereof the Company  shall  issue or sell,  or shall in
accordance with paragraphs 4(b)(1) to (10), inclusive,  be deemed to have issued
or sold any shares of its Common Stock for a  consideration  per share less than
the  Exercise  Price in effect  immediately  prior to the time of such  issue or
sale, then forthwith upon such issue or sale (the "Triggering Transaction"), the
Exercise Price shall, subject to paragraphs (1) to (10) of this Section 4(b), be
reduced to an adjusted  Exercise Price (calculated to the nearest hundredth of a
cent) determined by multiplying the Exercise Price immediately preceding the new
share issuance by a fraction:

          (i) the  numerator of which shall be an amount equal to the sum of (x)
     the product of the Number of Common Shares Deemed  Outstanding  immediately
     prior to such  Triggering  Transaction  multiplied  by the  prior  Exercise
     Price, as previously adjusted, plus (y) the consideration, if any, received
     by the Company upon consummation of the Triggering Transaction; and

          (ii) the  denominator  of which  shall be the Number of Common  Shares
     Deemed  Outstanding  immediately prior to such Triggering  Transaction plus
     (y) the number of shares of Common  Stock issued (or deemed to be issued in
     accordance  with  paragraphs  4(b)(1)  to  (10))  in  connection  with  the
     Triggering Transaction.

     For purposes of determining the adjusted  Exercise Price under this Section
4(b), the following paragraphs (1) to (10), inclusive, shall be applicable:

          (1) In case the  Company  at any time  shall in any  manner  (A) grant
     (whether  directly or by assumption in a merger or otherwise) any rights to
     subscribe  for or to purchase,  or any options for the purchase of,  Common
     Stock or any stock or other securities convertible into or exchangeable for
     Common Stock,  (such rights or options  being herein  called  "Options" and
     such  convertible or exchangeable  stock or securities  being herein called
     "Convertible  Securities"),  whether  or not such  Options  or the right to
     convert  or  exchange  any  such  Convertible  Securities  are  immediately
     exercisable,  other than  Options  (and the  securities  issued in exercise
     thereof) with respect to the 3,750,000  shares of Common Stock (as adjusted
     for stock splits,  reverse stock splits and stock dividends) issuable under
     the Plan,  and (B) the price  per  share  for  which  the  Common  Stock is
     issuable upon exercise,  conversion or exchange (determined by dividing (x)
     the  total  amount,  if any,  received  or  receivable  by the  Company  as
     consideration for the granting of such Options,  plus the minimum aggregate
     amount of additional consideration payable to the Company upon the exercise
     of  all  such  Options,  plus,  in the  case  of  Options  that  relate  to
     Convertible   Securities,   the  minimum  aggregate  amount  of  additional
     consideration,  if any,  payable upon the issue or sale of such Convertible
     Securities  and upon the conversion or exchange  thereof,  by (y) the total
     maximum number of shares of Common Stock issuable upon the exercise of such
     Options or the conversion or exchange of such Convertible Securities) shall
     be less than the Exercise Price in effect  immediately  prior tothe time of

                                      -4-
<PAGE>

     the granting of such Option,  then the total maximum amount of Common Stock
     issuable  upon the  exercise of such  Options or in the case of Options for
     Convertible Securities, upon the conversion or exchange of such Convertible
     Securities  shall (as of the date of granting of such Options) be deemed to
     be  outstanding  and to have been  issued and sold by the  Company for such
     price per share.  No additional  adjustment of the Exercise  Price shall be
     made  upon  the  actual  issue  of such  shares  of  Common  Stock  or such
     Convertible  Securities  upon  the  exercise  of such  Options,  except  as
     otherwise provided in paragraph (3) below.

          (2) In case the Company at any time shall in any manner issue (whether
     directly or by assumption in a merger or otherwise) or sell any Convertible
     Securities, whether or not the rights to exchange or convert thereunder are
     immediately exercisable,  and the price per share for which Common Stock is
     issuable upon such  conversion or exchange  (determined by dividing (x) the
     total amount received or receivable by the Company as consideration for the
     issue or sale of such Convertible  Securities,  plus the minimum  aggregate
     amount of additional consideration, if any, payable to the Company upon the
     conversion or exchange  thereof,  by (y) the total maximum number of shares
     of Common  Stock  issuable  upon the  conversion  or  exchange  of all such
     Convertible  Securities)  shall be less than the  Exercise  Price in effect
     immediately prior to the time of such issue or sale, then the total maximum
     number of shares of Common Stock  issuable  upon  conversion or exchange of
     all such Convertible  Securities shall (as of the date of the issue or sale
     of such  Convertible  Securities) be deemed to be  outstanding  and to have
     been issued and sold by the Company for such price per share. No additional
     adjustment  of the  Exercise  Price shall be made upon the actual  issue of
     such Common Stock upon  exercise of the rights to exchange or convert under
     such Convertible Securities,  except as otherwise provided in paragraph (3)
     below.

          (3) If the purchase price  provided for in any Options  referred to in
     paragraph  (1),  the  additional  consideration,  if any,  payable upon the
     conversion  or  exchange  of  any  Convertible  Securities  referred  to in
     paragraphs  (1) or (2),  or the rate at which  any  Convertible  Securities
     referred to in paragraphs (1) or (2) are  convertible  into or exchangeable
     for Common Stock shall change at any time (other than under or by reason of
     provisions  designed to protect  against  dilution of the type set forth in
     Section 4), the  Exercise  Price in effect at the time of such change shall
     forthwith  be  readjusted  to the  Exercise  Price which would have been in
     effect  at such  time had such  Options  or  Convertible  Securities  still
     outstanding   provided  for  such  changed   purchase   price,   additional
     consideration or conversion rate, as the case may be, at the time initially
     granted, issued or sold.

          (4) On the expiration of any Option or the termination of any right to
     convert or exchange any Convertible Securities described in paragraphs (1),
     (2) or (3), the Exercise Price then in effect  hereunder shall forthwith be
     increased to the Exercise Price which would have been in effect at the time
     of  such   expiration  or  termination   had  such  Option  or  Convertible
     Securities,  to the extent outstanding immediately prior to such expiration
     or termination, never been issued.

                                      -5-
<PAGE>

          (5) In case any Options shall be issued in  connection  with the issue
     or sale  of  other  securities  of the  Company,  together  comprising  one
     integral  transaction  in which no specific  consideration  is allocated to
     such Options by the parties  thereto,  such Options shall be deemed to have
     been issued without consideration.

          (6) In case  any  shares  of  Common  Stock,  Options  or  Convertible
     Securities  shall be issued  or sold or deemed to have been  issued or sold
     for cash,  the  consideration  received  therefor shall be deemed to be the
     amount  received  by the  Company  therefor.  In case any  shares of Common
     Stock,  Options  or  Convertible  Securities  shall be issued or sold for a
     consideration  other than cash, the amount of the consideration  other than
     cash received by the Company shall be the fair value of such  consideration
     as determined  in good faith by the Board of Directors.  In case any shares
     of Common  Stock,  Options  or  Convertible  Securities  shall be issued in
     connection   with  any  merger  in  which  the  Company  is  the  surviving
     corporation, the amount of consideration therefor shall be deemed to be the
     fair  value  of  such  portion  of  the  net  assets  and  business  of the
     non-surviving  corporation as shall be  attributable  to such Common Stock,
     Options or Convertible Securities, as the case may be as determined in good
     faith by the Board of Directors.

          (7) The number of shares of Common Stock outstanding at any given time
     shall  not  include  shares  owned  or held by or for  the  account  of the
     Company,  and the  disposition  of any  shares  so owned  or held  shall be
     considered an issue or sale of Common Stock for the purpose of this Section
     4(b).

          (8) In case the  Company  shall  declare a dividend  or make any other
     distribution   upon  the  stock  of  the  Company  payable  in  Options  or
     Convertible  Securities,  then in such  case  any  Options  or  Convertible
     Securities,  as the case may be,  issuable  in payment of such  dividend or
     distribution   shall  be  deemed  to  have  been  issued  or  sold  without
     consideration.

          (9) For purposes of this Section  4(b), in case the Company shall take
     a record of the holders of its Common  Stock for the  purpose of  entitling
     them (x) to  receive a  dividend  or other  distribution  payable in Common
     Stock,  Options or in  Convertible  Securities,  or (y) to subscribe for or
     purchase Common Stock, Options or Convertible Securities,  then such record
     date  shall be deemed to be the date of the issue or sale of the  shares of
     Common  Stock  deemed to have been issued or sold upon the  declaration  of
     such dividend or the making of such other  distribution  or the date of the
     granting of such right or subscription or purchase, as the case may be.

          (10)  Notwithstanding  anything herein to the contrary,  any grants of
     Common Stock,  Options,  appreciation or other rights under the Plan or the
     exercise of such  Options or rights  prior to or after the Issue Date shall
     not be considered  for purposes of making the  adjustments  to the Exercise
     Price provided in this Section 4(b).

     (c) In the event the Company shall declare a dividend upon the Common Stock
(other than a dividend  payable in Common Stock)  payable  otherwise than out of
earnings or earned  surplus,  determined in accordance  with generally  accepted
accounting  principles,  including  the  making of  appropriate  deductions  for

                                      -6-
<PAGE>

minority interests,  if any, in subsidiaries (herein referred to as "Liquidating
Dividends"),  then, as soon as possible after the exercise of this Warrant,  the
Company shall pay to the person  converting  this Warrant an amount equal to the
aggregate  value at the time of such  exercise of all  Liquidating  Dividends to
which such holder  would have been  entitled if such holder had  converted  this
Warrant to Common Stock prior to the declaration of the  Liquidating  Dividends,
at the then applicable  Exercise Price. For the purposes of this Section 4(c), a
dividend  other than in cash shall be  considered  payable  out of  earnings  or
earned  surplus  only to the extent  that such  earnings  or earned  surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors.

     (d) In case the Company  shall at any time (i)  subdivide  the  outstanding
Common Stock or (ii) issue a dividend on its outstanding Common Stock payable in
shares of Common  Stock,  the  number of shares of Common  Stock  issuable  upon
exercise of the Warrant shall be proportionately  increased by the same ratio as
the subdivision or dividend (with appropriate  adjustments to the Exercise Price
in  effect  immediately  prior to such  subdivision  or  dividend).  In case the
Company shall at any time combine its  outstanding  Common Stock,  the number of
shares  issuable  upon  exercise  of  this  Warrant  immediately  prior  to such
combination  shall  be  proportionately  decreased  by  the  same  ratio  as the
combination  (with  appropriate  adjustments  to the  Exercise  Price in  effect
immediately prior to such combination).

     (e) If any capital  reorganization or reclassification of the capital stock
of the  Company,  or  consolidation  or  merger  of  the  Company  with  another
corporation,  or the sale of all or  substantially  all of its assets to another
corporation  shall be effected in such a way that  holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock,  then,  as a condition of such  reorganization,
reclassification,  consolidation,  merger or sale, lawful and adequate provision
shall be made  whereby  the  holders  of this  Warrant  shall  have the right to
acquire  and  receive  upon  exercise  of the  Warrant  such  shares  of  stock,
securities,  cash  or  other  property  issuable  or  payable  (as  part  of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange  for such number of  outstanding  shares of Common Stock as would
have been received upon exercise of the Warrant at the relevant  Exercise  Price
then in effect.  The Company will not effect any such  consolidation,  merger or
sale,  unless prior to or  contemporaneously  with the consummation  thereof the
successor   corporation  (if  other  than  the  Company)   resulting  from  such
consolidation  or merger or the Company  purchasing  such assets shall assume by
written instrument mailed or delivered to the holders of the Warrant at the last
address  of  each  such  holder  appearing  on the  books  of the  Company,  the
obligation  to deliver to each such holder such shares of stock,  securities  or
assets as, in  accordance  with the  foregoing  provisions,  such  holder may be
entitled to purchase.

          (f) In the event that:

               (1) The Company  shall  declare any cash dividend upon its Common
          Stock, or

               (2) The Company  shall declare any dividend upon its Common Stock
          payable in stock or make any special dividend or other distribution to
          the holders of its Common Stock, or

                                      -7-
<PAGE>

               (3) The  Company  shall  offer for  subscription  pro rata to the
          holders  of its  Common  Stock any  additional  shares of stock of any
          class or other rights, or

               (4) there shall be any capital reorganization or reclassification
          of the capital  stock of the Company,  including  any  subdivision  or
          combination   of  its   outstanding   shares  of  Common   Stock,   or
          consolidation  or  merger  of the  Company  with,  or  sale  of all or
          substantially all of its assets to, another corporation, or

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

          then,  in  connection  with such event,  the Company shall give to the
     holders of this Warrant:

               (i) at least twenty (20) days prior written notice of the date on
          which the books of the Company  shall close or a record shall be taken
          for  such  dividend,   distribution  or  subscription  rights  or  for
          determining  rights  to vote in  respect  of any such  reorganization,
          reclassification,    consolidation,    merger,   sale,    dissolution,
          liquidation or winding up; and

               (ii) in the  case of any such  reorganization,  reclassification,
          consolidation,  merger, sale, dissolution,  liquidation or winding up,
          at least  twenty (20) days prior  written  notice of the date when the
          same shall take place.

     Notice  given in  accordance  with the  foregoing  clause  (i)  shall  also
specify, in the case of any such dividend,  distribution or subscription rights,
the record date on which the holders of Common Stock shall be entitled  thereto,
and notice given in accordance with the foregoing clause (ii) shall also specify
the date on which the  holders of Common  Stock  shall be  entitled  to exchange
their  Common  Stock for  securities  or other  property  deliverable  upon such
reorganization,  reclassification,  consolidation,  merger,  sale,  dissolution,
liquidation or winding up, as the case may be. Each such written notice shall be
given by first class mail,  postage  prepaid,  addressed  to the holders of this
Warrant at the address of each such holder as shown on the books of the Company.

     (g) If at any time or from time to time after the date  hereof the  Company
shall grant,  issue or sell any  Options,  Convertible  Securities  or rights to
purchase property (the "Purchase  Rights") pro rata to the record holders of any
class of Common  Stock and such  grants,  issuances or sales do not result in an
adjustment of the Exercise Price under Section 4(b) hereof,  then each holder of
a Warrant shall be entitled to acquire  (within thirty (30) days after the later
to occur of the initial exercise date of such Purchase Rights or receipt by such
holder of the notice  concerning  Purchase  Rights to which such holder shall be
entitled under Section 4(g)) upon the terms  applicable to such Purchase  Rights
either:

          (i) the  aggregate  Purchase  Rights  which  such  holder  could  have
     acquired  if it had held the  number of shares of Common  Stock  acquirable
     upon exercise of the Warrant immediately before the grant, issuance or sale
     of  such  Purchase  Rights;  provided  that  if any  Purchase  Rights  were
     distributed  to holders of Common Stock  without the payment of  additional
     consideration  by such  holders,  corresponding  Purchase  Rights  shall be

                                      -8-
<PAGE>

     distributed to the holders of the Warrants as soon as possible and it shall
     not be necessary for the exercising holder of the Warrants  specifically to
     request delivery of such rights; or

          (ii) in the event that any such Purchase  Rights shall have expired or
     shall expire prior to the end of the 30-day period, the number of shares of
     Common  Stock or the  amount of  property  which  such  holder  could  have
     acquired  upon  such  exercise  at the time or times at which  the  Company
     granted, issued or sold such expired Purchase Rights.

     (h) If any  event  occurs  as to  which,  in the  opinion  of the  Board of
Directors  of the  Company,  the  provisions  of this Section 4 are not strictly
applicable or if strictly  applicable would not fairly protect the rights of the
Holder of this Warrant in accordance with the essential intent and principles of
such  provisions,  then the Board of Directors  shall make an  adjustment in the
application of such  provisions,  in accordance  with such essential  intent and
principles, so as to protect such rights as aforesaid, but in no event shall any
adjustment  have the  effect  of  increasing  the  Exercise  Price as  otherwise
determined  pursuant to any of the  provisions  of this  Section 4 except in the
case of a combination  of shares of a type  contemplated  in Section 4(d) hereof
and then in no event to an amount  larger  than the  Exercise  Price as adjusted
pursuant to Section 4(d) hereof.

     Section  5.  Reorganization,  Reclassification,  Merger,  Consolidation  or
Disposition of Assets.

     If the Company shall reorganize its capital,  reclassify its capital stock,
consolidate  or merge  with or into  another  corporation  or entity  (where the
Company  is not the  surviving  corporation  or where  there  is a change  in or
distribution with respect to the shares of Common Stock of the Company) or sell,
transfer or otherwise dispose of all or substantially  all its property,  assets
or business to another  corporation or other entity (such successor or acquiring
corporation or entity,  an "Acquiring  Entity"),  and,  pursuant to the terms of
such reorganization,  reclassification,  merger, consolidation or disposition of
assets,  common shares of the Acquiring  Entity, or any cash, shares of stock or
other  securities or property of any nature  whatsoever  (including  warrants or
other  subscription  or  purchase  rights) in  addition  to or in lieu of common
shares of the  Acquiring  Entity  ("Other  Property"),  are to be received by or
distributed  to the holders of Common Stock of the  Company,  then the Holder of
this Warrant  shall have the right  thereafter  to receive in lieu of the Common
Stock  described  in  Section  1, the  number of  shares of common  stock of the
Acquiring  Entity  or  Common  Stock  of the  Company,  if it is  the  surviving
corporation,  and  Other  Property  receivable  upon  or  as a  result  of  such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the  number of shares  of Common  Stock  that the  Holder of this
Warrant  would have owned or been  entitled  to  receive  had Common  Stock been
issued  to such  Holder  under  Section  1 on  full  exercise  of  this  Warrant
immediately   prior  to  such  event.  In  case  of  any  such   reorganization,
reclassification,  merger, consolidation or disposition of assets, the Acquiring
Entity (if other than the Company) shall  expressly  assume all the  obligations
and liabilities of the Company  hereunder,  subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the board of
directors  of the  Company)  in order to provide  for  adjustments  of shares of
Common Stock  issuable  under  Section 1 which shall be as nearly  equivalent as
practicable to the  adjustments  provided for in Section 4. For purposes of this

                                      -9-
<PAGE>

Section 5, "common shares of the Acquiring Entity" shall include shares or other
ownership interests of such Acquiring Entity of any class which is not preferred
as to  dividends  or  assets  over any other  class of stock or other  ownership
interests of such  Acquiring  Entity and which is not subject to redemption  and
shall also include any  evidences of  indebtedness,  shares or other  securities
which  are  convertible  into or  exchangeable  for any  such  shares  or  other
ownership interests,  either immediately or upon the arrival of a specified date
or the  happening  of a  specified  event and any  warrants  or other  rights to
subscribe  for or  purchase  any such stock or other  ownership  interests.  The
foregoing  provisions  of this  Section 5 shall  similarly  apply to  successive
reorganizations,   reclassifications,  mergers,  consolidations,  spin-offs,  or
dispositions of assets.

     Section 6. Certain Notices, Etc.

     Whenever  the  Exercise  Price  shall be  adjusted as provided in Section 4
hereof,  the Company  shall  forthwith  file at each office  designated  for the
exercise of  Warrants,  a statement,  signed by the  Chairman of the Board,  the
President, any Vice President or Treasurer of the Company, showing in reasonable
detail the facts  requiring such  adjustment and the Exercise Price that will be
effective after such  adjustment.  The Company shall also cause a notice setting
forth any such adjustments to be sent by mail, first class,  postage prepaid, to
each  record  holder of a Warrant at his or its address  appearing  on the stock
register.  If such  notice  relates  to an  adjustment  resulting  from an event
referred to in Section 4(f) hereof, such notice shall be included as part of the
notice  required to be mailed and published under the provisions of Section 4(f)
hereof.

     Section 7. Loss or Mutilation.

     Upon receipt by the Company of evidence satisfactory to it (in the exercise
of reasonable  discretion) of the ownership of and the loss, theft,  destruction
or mutilation of any Warrant and (in the case of loss,  theft or destruction) of
indemnity satisfactory to it (in the exercise of reasonable discretion), and (in
the case of mutilation)  upon surrender and  cancellation  thereof,  the Company
will execute and deliver in lieu  thereof a new Warrant of like tenor;  provided
however,  if the Holder is other than Wells Fargo Energy  Capital,  Inc.,  Wells
Fargo & Co. or any  direct or  indirect  subsidiary  of Wells  Fargo & Co.,  the
Company may  require the Holder to furnish a customary  bond in the event of the
replacement of a lost Warrant.

     Section 8. Reservation of Common Stock.

     The  Company  shall at all  times  reserve  and keep  available  out of its
authorized  but  unissued  shares of Common  Stock,  solely  for the  purpose of
effecting the exercise of the Warrant, such number of its shares of Common Stock
as shall from time to time be sufficient to effect exercise of the Warrant;  and
if at any time the number of  authorized  but  unissued  shares of Common  Stock
shall not be  sufficient  to effect such  exercise,  the Company  will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized  but unissued  shares of Common Stock to such number of shares as
shall be sufficient for such purpose.  Before taking any action that would cause
an adjustment reducing the Exercise Price below the then par value of the shares
of Common Stock  issuable upon  exercise of the Warrants,  the Company will take
any  corporate  action that may, in the opinion of its counsel,  be necessary in

                                      -10-
<PAGE>

order  that  the  Company  may  validly  and  legally   issue   fully-paid   and
nonassessable shares of such Common Stock at such adjusted exercise price.

     Section 9. Notices of Record Date.

     In the event of (i) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining  the holders  thereof who
are entitled to receive any dividend or other distribution,  or (ii) any capital
reorganization of the Company,  any  reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of the Company with or
into any other  corporation  (other than a merger of a wholly  owned  subsidiary
into the Company),  or any transfer of all or substantially all of the assets of
the Company to any other  person or any  voluntary or  involuntary  dissolution,
liquidation  or winding up of the  Company,  the  Company  shall  provide to the
Holder, at least twenty (20) days prior to the record date specified  therein, a
notice  specifying  (1) the date on which any such record is to be taken for the
purpose of such dividend or  distribution  and a description of such dividend or
distribution,  (2) the date on which any such reorganization,  reclassification,
transfer,  consolidation,  merger,  dissolution,  liquidation  or  winding up is
expected to become effective,  and (3) the date, if any, that is to be fixed, as
to when the  holders of record of Common  Stock (or other  securities)  shall be
entitled to exchange  their  shares of Common  Stock (or other  securities)  for
securities   or   other   property   deliverable   upon   such   reorganization,
reclassification,  transfer, consolidation,  merger, dissolution, liquidation or
winding up.

     Section 10. Investment Representation and Restriction on Transfer.

     (a)  Securities Law Requirements.

          (i) By its  acceptance of this Warrant,  Holder hereby  represents and
     warrants to the Company  that this  Warrant and the Warrant  Shares will be
     acquired for investment for its own account, not as a nominee or agent, and
     not with a view to the sale or distribution  of any part thereof,  and that
     it has no present  intention  of  selling,  granting  participations  in or
     otherwise  distributing  the same. By  acceptance  of this Warrant,  Holder
     further  represents  and  warrants  that it does  not  have  any  contract,
     undertaking,  agreement or arrangement with any person to sell, transfer or
     grant  participations  to any person,  with  respect to this Warrant or the
     Warrant Shares.

          (ii) By its acceptance of this Warrant,  Holder  understands that this
     Warrant is not, and the Warrant  Shares will not be,  registered  under the
     Securities  Act of 1933  (the  "Securities  Act"),  on the  basis  that the
     issuance  of  this   Warrant  and  the  Warrant   Shares  are  exempt  from
     registration  under the Act pursuant to Section 4(2) thereof,  and that the
     Company's   reliance  on  such   exemption   is   predicated   on  Holder's
     representations and warranties set forth herein.

          (iii) By its acceptance of this Warrant,  Holder  understands that the
     Warrant and the Warrant Shares may not be sold,  transferred,  or otherwise
     disposed of without  registration under the Act, or an exemption therefrom,
     and that in the absence of an effective registration statement covering the
     Warrant and the Warrant Shares or an available  exemption from registration

                                      -11-
<PAGE>

     under the  Securities  Act, the Warrant and the Warrant Shares must be held
     indefinitely.  In  particular,  Holder is aware  that the  Warrant  and the
     Warrant Shares may not be sold pursuant to Rule 144  promulgated  under the
     Securities  Act  unless all of the  conditions  of Rule 144  applicable  to
     Holder are  satisfied.  Among the conditions for use of Rule 144 in certain
     instances are the availability of current  information about the Company to
     the  public,  prescribed  holding  periods  which will  commence  only upon
     Holder's   payment  for  the   securities   being  sold,   manner  of  sale
     restrictions,  volume  limitations and certain other  restrictions.  By its
     acceptance of this Warrant,  Holder  represents  and warrants  that, in the
     absence of an effective  registration statement covering the Warrant or the
     Warrant Shares, it will sell,  transfer or otherwise dispose of the Warrant
     and the Warrant Shares only in a manner consistent with its representations
     and  warranties  set  forth  herein  and then only in  accordance  with the
     provisions of Section 10(a)(iv).

          (iv) By its acceptance of this Warrant, Holder agrees that in no event
     will it  transfer or dispose of any of the  Warrants or the Warrant  Shares
     other  than  pursuant  to an  effective  registration  statement  under the
     Securities Act, unless and until (i) Holder shall have notified the Company
     of the proposed  disposition  and shall have  furnished  the Company with a
     statement of the  circumstances  surrounding  the  disposition and adequate
     assurance  that the  transferee is an  "accredited  investor" as defined in
     Rule 501 of Regulation D promulgated  under the Securities Act, and (ii) if
     requested by the Company,  at the expense of the Holder or  transferee,  it
     shall have  furnished  to the  Company an  opinion of  counsel,  reasonably
     satisfactory  to the Company,  to the effect that (A) such  transfer may be
     made  without   registration  under  the  Act  and  (B)  such  transfer  or
     disposition will not cause the termination or the  non-applicability of any
     exemption to the registration and prospectus  delivery  requirements of the
     Securities Act or to the qualification or registration  requirements of the
     securities  laws of any other  jurisdiction  on which the Company relied in
     issuing the  Warrant or the Warrant  Shares;  provided,  however,  no legal
     opinion shall be required for any transfer of this Warrant to Wells Fargo &
     Co., any of its direct or indirect  subsidiaries  or any investor that is a
     "qualified   institutional  buyer"  as  defined  in  Rule  144A  under  the
     Securities Act.

          (v)  Holder   represents  and  warrants  that  it  is  an  "accredited
               investor."

     (b) Legends; Stop Transfer.

          (i) All certificates evidencing the Warrant Shares shall bear a legend
     in substantially the following form:

               THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE NOT BEEN
               REGISTERED  UNDER THE  SECURITIES  ACT OF 1933 OR UNDER ANY STATE
               SECURITIES   LAWS.   THESE  SECURITIES  HAVE  BEEN  ACQUIRED  FOR
               INVESTMENT  AND NOT  WITH A VIEW TO  DISTRIBUTION  AND MAY NOT BE
               OFFERED FOR SALE, SOLD,  PLEDGED OR OTHERWISE  TRANSFERRED IN THE
               ABSENCE  OF  AN  EFFECTIVE   REGISTRATION   STATEMENT   FOR  SUCH
               SECURITIES  UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE

                                      -12-
<PAGE>

               SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY  SATISFACTORY
               IN FORM AND CONTENT TO THE ISSUER THAT SUCH  REGISTRATION  IS NOT
               REQUIRED UNDER SUCH ACT.

          (ii) The  certificates  evidencing  the Warrant Shares shall also bear
     any legend required by any applicable state securities law.

          (iii) In addition, the Company shall make, or cause its transfer agent
     to make, a notation regarding the transfer  restrictions of the Warrant and
     the  Warrant  Shares in its stock  books,  and the  Warrant and the Warrant
     Shares shall be transferred on the books of the Company only if transferred
     or  sold  pursuant  to  an  effective   registration  statement  under  the
     Securities Act covering the same or pursuant to and in compliance  with the
     provisions of Section 4 and Section 10(a)(iv).

     Section 11. Company Indemnification.

     The  Company  shall  indemnify  and  hold  harmless  the  Holder,  and  its
respective  officers,   directors,   employees,   agents,   representatives  and
affiliates  (collectively  "Indemnitees") from and against any and all expenses,
claims,  charges,  losses,  damages,  fines  or  penalties,   including  without
limitation  reasonable  attorneys'  fees  incurred in defending or resisting any
claims,  actions or  proceedings  or in enforcing  this  indemnity  (hereinafter
"Damages"),  that an Indemnitee may suffer, sustain, incur or become subject to,
whether  directly or  indirectly,  arising out of, based upon, or resulting from
any violation or inaccuracy of any representations,  warranties,  obligations or
covenants  of the Company set forth in this  Warrant  other than with respect to
Damages resulting from the Holder's own gross negligence or willful misconduct.

     Section 12. Notices.

     All notices and other communications from the Company to the Holder of this
Warrant shall be mailed by hand delivery, by telecopier, by courier guaranteeing
overnight delivery or by first-class mail, return receipt  requested,  and shall
be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation,
if made by  telecopier,  (iii) one (1) Business Day after being  deposited  with
such courier,  if made by overnight courier or (iv) on the date indicated on the
notice of receipt, if made by first-class mail.

         Section 13.       Change; Waiver.

         Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.

     Section 14. Headings.

     The headings in this Warrant are for purposes of  convenience  in reference
only, and shall not be deemed to constitute a part hereof.

                                      -13-
<PAGE>

     Section 15. Governing Law.

     This  Warrant  shall be  construed  and  enforced  in  accordance  with and
governed by the internal  laws,  and not the law of  conflicts,  of the State of
Texas.

                            ************************

                                                    CUBIC ENERGY, INC.,
                                                    a Texas corporation

                                                    By: /s/ Calvin A. Wallen III
                                                        ------------------------
                                                    Name: Calvin A. Wallen III
                                                          ----------------------
                                                    Title: President
                                                           ---------------------

                                      -14-
<PAGE>

                               SUBSCRIPTION NOTICE
                 (To be executed only upon exercise of Warrant)

     The undersigned,  registered owner of this Warrant,  irrevocably  exercises
this Warrant and purchases ____________ of the number of shares of Common Stock,
$0.05 par value per share  ("Warrant  Shares"),  of Cubic Energy,  Inc., a Texas
corporation  (the  "Company"),   purchasable  with  the  attached  Warrant  (the
"Warrant").  Capitalized  terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.

     1. Form of Exercise  Price:  Holder  intends  that  payment of the Exercise
Price shall be made as:

     _______ "Cash Exercise" with respect to ________ Warrant Shares; and/or

     _______ "Cashless Exercise" with respect to ________ Warrant Shares (to the
             extent permitted by the terms of the Warrant)

     2. Payment of Exercise  Price:  In the event that Holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto,  Holder  shall  pay  the  sum of  $________________  to the  Company  in
accordance with the terms of the Warrant.

DATED:  ______________

                                                    ----------------------------
                                                    (Signature of Holder)

                                                    ----------------------------
                                                    (Street Address)

                                                    ----------------------------
                                                    (City) (State) (Zip)

<PAGE>

                               FORM OF ASSIGNMENT

     FOR VALUE  RECEIVED  the  undersigned,  registered  owner of this  Warrant,
hereby  sells,  assigns and transfers  unto the Assignee  named below all of the
rights of the undersigned  under the within Warrant,  with respect to the number
of shares of Common Stock, $0.05 par value per share, set forth below:

Name of Assignee                Address                           No. of Shares

and does hereby  irrevocably  constitute  and appoint  _________________________
_________________________________________________ Attorney to make such transfer
on the books of Cubic  Energy,  Inc., a Texas  corporation,  maintained  for the
purpose, with full power of substitution in the premises.

DATED:  ___________________

                                                    ----------------------------
                                                    (Signature)

                                                    ----------------------------
                                                    (Witness)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}]]