Document:

<PAGE>
                                                                 EXHIBIT 10.DD.1

                               U.S. $1,230,000,000

            AMENDED AND RESTATED SPONSOR SUBSIDIARY CREDIT AGREEMENT

                       Originally Dated as of May 9, 2000
              Amended and Restated as of December 15, 2000 and June
                                    29, 2001
             and as further Amended and Restated as of July 19, 2002
                                      among

                             NORIC HOLDINGS, L.L.C.

                                   as borrower

                                       and

                   THE OTHER SPONSOR SUBSIDIARIES PARTY HERETO

                                 as co-obligors

                                       and

                           CLYDESDALE ASSOCIATES, L.P.

                                    as lender

                                       and

                            WILMINGTON TRUST COMPANY

                     as Sponsor Subsidiary Collateral Agent

Sponsor Subsidiary Credit Agreement

<PAGE>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               Page
<S>                                                                                                            <C>
                                     ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

Section 1.01. Certain Defined Terms...............................................................................1
Section 1.02. Computation of Time Periods.........................................................................1
Section 1.03. No Presumption Against Any Party....................................................................1
Section 1.04. Use of Certain Terms................................................................................1
Section 1.05. Headings and References.............................................................................2
Section 1.06. Accounting Terms....................................................................................2
Section 1.07. Balance in Cash Reserve.............................................................................2
Section 1.08. Face Value Amount...................................................................................2
Section 1.09. Supplements to Schedules............................................................................2
Section 1.10. E&P Assets - Interest Coverage......................................................................3
Section 1.11. Sponsor Subsidiary Notices..........................................................................4
Section 1.12. Material Adverse Effect.............................................................................4

                                    ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES

Section 2.01. The Advances........................................................................................4
Section 2.02. Making the Advances.................................................................................4
Section 2.03. Interest............................................................................................5
Section 2.04. Repayment of Advances...............................................................................5
Section 2.05. Prepayment of Advances..............................................................................5
Section 2.06. Payments and Computations; Additional Amounts......................................................10
Section 2.07. Taxes..............................................................................................10
Section 2.08. Evidence of Indebtedness...........................................................................11
Section 2.09. E&P Assets - E&P Borrowing Base Determinations.....................................................11
Section 2.10. Collateral Shortfall...............................................................................15
Section 2.11. Adjustments to Energy Investment Loan Values.......................................................17

                                         ARTICLE III CONDITIONS TO ADVANCES

Section 3.01. Conditions Precedent to Making the Initial Advance.................................................18
Section 3.02. Conditions Precedent to Making the Additional Advances.............................................23
Section 3.03. Conditions Precedent to Amending and Restating this Agreement on July 19, 2002.....................24

                                     ARTICLE IV REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties with Respect to Each Sponsor Subsidiary.............................30
Section 4.02. Representations and Warranties with Respect to Energy Investments and Controlled
                      Businesses.................................................................................35
Section 4.03. Representations and Warranties with Respect to E&P Assets..........................................38
</Table>

Sponsor Subsidiary Credit Agreement

<PAGE>

                                       ii

<Table>
<S>                                                                                                            <C>
Section 4.04. Timing of Representations and Warranties with respect to Operative Documents.......................39

                                    ARTICLE V COVENANTS OF SPONSOR SUBSIDIARIES

Section 5.01. Affirmative Covenants with Respect to Sponsor Subsidiaries.........................................40
Section 5.02. Negative Covenants with Respect to Sponsor Subsidiaries............................................43
Section 5.03. Refinancing of the Controlled Business Debt........................................................49
Section 5.04. Financial Covenants................................................................................50
Section 5.05. Certain Negative Covenants with respect to Lipizzan and Noric LP...................................52
Section 5.06. A-Loans and Total Cash Collateral Amount...........................................................54
Section 5.07. Appraisals of Energy Investments...................................................................55
Section 5.08. Affirmative Covenants with Respect to Controlled Businesses........................................55
Section 5.09. Negative Covenants with Respect to Each Controlled Business........................................58
Section 5.10. Covenants with Respect to E&P Participation Agreements and Production Payment
                      Agreements.................................................................................68
Section 5.11. Application of Amounts from Disposition of Transaction Assets......................................70

                                            ARTICLE VI EVENTS OF DEFAULT

Section 6.01. Events of Default..................................................................................71

                               ARTICLE VII ADMINISTRATION, SETTLEMENT AND COLLECTION

Section 7.01. Maintaining the Sponsor Subsidiary Cash Reserve and the Sponsor Subsidiary Operating
                      Account....................................................................................77
Section 7.02. Deposit of Funds into the Sponsor Subsidiary Cash Reserve..........................................79
Section 7.03. Permitted Investments..............................................................................80
Section 7.04. Transfers from the Sponsor Subsidiary Cash Reserve.................................................82
Section 7.05. Transfers from the Sponsor Subsidiary Operating Account............................................87
Section 7.06. Subsisting Event of Default or Incipient Event.....................................................88
Section 7.07. Transfers from the Sponsor Subsidiary Cash Reserve and the Sponsor Subsidiary
                      Operating Account in Respect of Payments on the Maturity Date and Application
                      of Proceeds of Collateral Pursuant to the Sponsor Subsidiary Security Agreement............88

                                         ARTICLE VIII THE COLLATERAL AGENT

Section 8.01. Authorization and Action...........................................................................89
Section 8.02. Sponsor Subsidiary Collateral Agent's Reliance, Etc................................................89
Section 8.03. Clydesdale Credit Decision.........................................................................90
Section 8.04. Fee................................................................................................90

                       ARTICLE IX ASSIGNMENTS; ACCESSION OF ADDITIONAL SPONSOR SUBSIDIARIES;
                                         ACQUISITIONS OF TRANSACTION ASSETS

Section 9.01. No Assignment by any Sponsor Subsidiary............................................................90
Section 9.02. Additional Sponsor Subsidiaries and Acquisitions of Transaction Assets.............................91
</Table>

Sponsor Subsidiary Credit Agreement

<PAGE>

                                       iii

<Table>
<S>                                                                                                            <C>
Section 9.03. Permitted Assignment by Clydesdale.................................................................91

                                             ARTICLE X INDEMNIFICATION

Section 10.01. Indemnities by Sponsor Subsidiaries...............................................................91
Section 10.02. Survival of Indemnification Obligations...........................................................92
Section 10.03. Limitations on Indemnification Obligations........................................................92
Section 10.04. Payments..........................................................................................93
Section 10.05. Procedural Requirements...........................................................................93

                                              ARTICLE XI MISCELLANEOUS

Section 11.01. Amendments, Etc...................................................................................95
Section 11.02. Notices, Etc......................................................................................95
Section 11.03. No Waiver, Remedies...............................................................................96
Section 11.04. Costs and Expenses................................................................................96
Section 11.05. Right of Setoff...................................................................................97
Section 11.06. Binding Effect....................................................................................97
Section 11.07. Governing Law.....................................................................................97
Section 11.08. Execution in Counterparts.........................................................................97
Section 11.09. Non-Recourse Liability............................................................................98
Section 11.10. WAIVER OF JURY TRIAL..............................................................................98
Section 11.11. Authorization of Noric Holdings as Sponsor Subsidiaries' Agent....................................98
Section 11.12. Consent to Jurisdiction...........................................................................98
</Table>

SCHEDULES

Schedule I                 Acquisition/Accession Procedures Schedule
Schedule 3.03(b)           Legal Opinions
Schedule 5.09(d)(A)        Oil and Gas Properties held by CIG Controlled
                           Business as at the Third Restatement Date

EXHIBITS

EXHIBIT A                  Form of E&P Participation Agreement
EXHIBIT B-1                Form of El Paso A-Loan Note
EXHIBIT B-2                Form of El Paso Affiliate A-Loan Note
EXHIBIT C-1                Form of El Paso Demand Loan (El Paso)
EXHIBIT C-2                Form of El Paso Demand Loan (El Paso Affiliates)
EXHIBIT D                  Form of E&P Borrowing Base Report
EXHIBIT E                  Hedge Agreements Trade Confirmations
EXHIBIT 5.03(b)            El Paso Undertaking

Sponsor Subsidiary Credit Agreement

<PAGE>

            AMENDED AND RESTATED SPONSOR SUBSIDIARY CREDIT AGREEMENT

                       Originally Dated as of May 9, 2000
          Amended and Restated as of December 15, 2000 and June 29,2001
             and as further Amended and Restated as of July 19, 2002

                  NORIC HOLDINGS, L.L.C., a Delaware limited liability company
("NORIC HOLDINGS"), as borrower, each other Sponsor Subsidiary listed on the
signature pages hereof and each other Additional Sponsor Subsidiary that
executes a Sponsor Subsidiary Accession Agreement, CLYDESDALE ASSOCIATES, L.P.,
a Delaware limited partnership ("CLYDESDALE"), as lender, and WILMINGTON TRUST
COMPANY, a Delaware banking corporation ("WILMINGTON"), as collateral agent for
Clydesdale (the "SPONSOR SUBSIDIARY COLLATERAL AGENT"), agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

                  Section 1.01. Certain Defined Terms. Words and expressions
defined in Exhibit A to the Third Amended and Restated Partnership Agreement of
Clydesdale, originally dated as of April 28, 2000 and amended and restated as of
May 9, 2000, December 15, 2000, June 29, 2001 and July 19, 2002, among Appaloosa
Holdings Company, Noric Holdings, Noric Holdings I, Mustang Investors, L.L.C.
and Clydesdale or in Exhibit A to the Amended and Restated El Paso Agreement,
dated as of the date of this Agreement, made by El Paso Corporation shall have
the same meanings in this Agreement. A reference to this "AGREEMENT" is a
reference to this Sponsor Subsidiary Credit Agreement, as amended, supplemented
or modified from time to time.

                  Section 1.02. Computation of Time Periods. In this Agreement,
in the computation of periods of time from a specified date to a later specified
date, the words "FROM" and "COMMENCING ON" mean "from and including" and the
words "TO", "THROUGH", "UNTIL" and "ENDING ON" each mean "to but excluding".

                  Section 1.03. No Presumption Against Any Party. Neither this
Agreement nor any uncertainty or ambiguity herein shall be construed against any
particular party, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by each party and its counsel and
shall be construed and interpreted according to the ordinary meaning of the
words used so as to fairly accomplish the purposes and intentions of all parties
hereto.

                  Section 1.04. Use of Certain Terms. Unless the context of this
Agreement requires otherwise, the plural includes the singular, the singular
includes the plural, and "INCLUDING" has the inclusive meaning of "including
without limitation". The words "HEREOF", "HEREIN", "HEREBY", "HEREUNDER" and
other similar terms of this Agreement refer to this Agreement as a whole and not
exclusively to any particular provision of this Agreement. All pronouns and any
variations thereof shall be deemed to refer to masculine, feminine, or neuter,
singular or plural, as the identity of the Person or Persons may require.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       2

                  Section 1.05. Headings and References. Section and other
headings are for reference only, and shall not affect the interpretation or
meaning of any provision of or to this Agreement. Unless otherwise provided,
references to Articles, Sections, Schedules, and Exhibits shall be deemed to be
references to Articles, Sections, Schedules, and Exhibits of or to this
Agreement. Whether or not stated herein or therein, references to this Agreement
and to any other Operative Document or any other agreement include this
Agreement and the other Operative Documents and agreements as the same may be
modified, amended, restated or supplemented from time to time pursuant to the
provisions hereof or thereof as permitted by the Operative Documents. Whether or
not stated herein, a reference to any law or Applicable Law shall mean that law
or Applicable Law as it may be amended, modified or supplemented from time to
time, and any successor law or Applicable Law. A reference to a Person includes
the successors and assigns of such Person, but such reference shall not
increase, decrease or otherwise modify in any way the provisions in this
Agreement governing the assignment of rights and obligations under or the
binding effect of any provision of this Agreement.

                  Section 1.06. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with, and
certificates of compliance with covenants shall be based upon, GAAP.

                  Section 1.07. Balance in Cash Reserve. A reference in this
Agreement to a "BALANCE IN" or the "BALANCE OF" the Sponsor Subsidiary Cash
Reserve, the Noric Holdings IV Cash Reserve, the Noric Cash Reserve or the Noric
LP Cash Reserve at any time is a reference to the aggregate value of:

                  (a) the cash balance standing to the credit of the Sponsor
         Subsidiary Cash Reserve, the Noric Holdings IV Cash Reserve, the Noric
         Cash Reserve or the Noric LP Cash Reserve, as the case may be, at that
         time; and

                  (b) the face value amount of all Permitted Investments in the
         Sponsor Subsidiary Cash Reserve, the Noric Holdings IV Cash Reserve,
         the Noric Cash Reserve or the Noric LP Cash Reserve, as the case may
         be, at that time. Any Investments that are not Permitted Investments or
         are in default at such time (after giving effect to any grace period
         provided for under clause (a) of the definition of El Paso Event) shall
         be deemed to have no value.

                  Section 1.08. Face Value Amount. A reference in this Agreement
to the "FACE VALUE AMOUNT" of any Permitted Investment at any time is a
reference to:

                  (a) where the Permitted Investment is a Cash Equivalent, the
         face value of such Cash Equivalent less any unamortized discount at
         such time; or

                  (b) where the Permitted Investment is an El Paso Demand Loan,
         the outstanding principal amount of such El Paso Demand Loan at that
         time.

                  Section 1.09. Supplements to Schedules. Parts I, II, III, IV,
V, IX and X of Schedule I to the Sponsor Subsidiary Security Agreement shall
automatically be supplemented by Parts I, II, III, IV, V, IX and X,
respectively, of any Transaction Asset Schedule attached to a Sponsor Subsidiary
Accession Agreement or to a Sponsor Subsidiary Security Agreement

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       3

Supplement on the applicable Acquisition/Accession Date, whereupon any reference
in any Operative Document to such Schedule shall be a reference to each such
Schedule as supplemented in accordance with this Section 1.09.

                  Section 1.10. E&P Assets - Interest Coverage(a) . (a) E&P
Participation Property. For the purposes of Section 6.01(f), if at the time of
testing the ratio in Section 6.01(f) any E&P Participation Property with respect
to any E&P Asset has been held by a Sponsor Subsidiary, Noric or Noric LP, as
the case may be, for less than four complete Fiscal Quarters, the aggregate net
cash received by the relevant Sponsor Subsidiary, Noric or Noric LP, as the case
may be, in respect of such E&P Participation Property for the most recently
completed four Fiscal Quarters shall be equal to the aggregate net cash received
by such Sponsor Subsidiary, Noric or Noric LP, as the case may be, in respect of
such E&P Participation Property for such number of complete Fiscal Quarters
since the Closing Date or the applicable Acquisition/Accession Date, as the case
may be, multiplied by a fraction of which the numerator is four and the
denominator is the number of complete Fiscal Quarters that have elapsed since
the Closing Date or the applicable Acquisition/Accession Date, as the case may
be.

                  (b) Production Payments. (i) For purposes of calculating the
amount under clause (x) of Section 6.01(f)(i), if at the time of testing the
ratio in Section 6.01(f) any Subject Interest has been held by any Counterparty
to any Production Payment Agreement for less than four complete Fiscal Quarters,
the aggregate cash revenues from such Subject Interest for the most recently
completed four Fiscal Quarters shall be deemed equal to the cash revenues from
such Subject Interest (without regard to the respective Production Payment)
minus all operating expenses, capital expenditures and Taxes attributable to
such Subject Interest for such number of complete Fiscal Quarters since the date
of acquisition of such Subject Interest by such Counterparty to such Production
Payment Agreement, multiplied by a fraction of which the numerator is four and
the denominator is the number of complete Fiscal Quarters that have elapsed
since the date of acquisition of such Subject Interest by such Counterparty to
such Production Payment Agreement.

                  (ii) For purposes of calculating the amount under clause (y)
of Section 6.01(f)(i), if at the time of testing the ratio in Section 6.01(f)
any increased portion of the Scheduled Quantities listed on Schedule 1 to any
Production Payment Conveyance for the most recently completed four Fiscal
Quarters has been included on such Schedule 1 for less than four complete Fiscal
Quarters, the aggregate cash received by Lipizzan in respect of the Production
Payment granted pursuant to such Production Payment Conveyance for the most
recently completed four Fiscal Quarters shall be deemed equal to (A) the
aggregate cash received by Lipizzan in respect of such portion of the Scheduled
Quantities for such number of complete Fiscal Quarters since the date such
Scheduled Quantities were included on such Schedule 1, multiplied by a fraction
of which the numerator is four and the denominator is the number of complete
Fiscal Quarters that have elapsed since the date such Scheduled Quantities were
included on such Schedule 1, plus (B) all other cash received by Lipizzan in
respect of the Production Payment granted pursuant to such Production Payment
Conveyance for the most recently completed four Fiscal Quarters.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       4

                  Section 1.11. Sponsor Subsidiary Notices. Any notice, request
or information required hereunder to be provided by a specified Sponsor
Subsidiary (other than in Article III hereof) may be provided by any Sponsor
Subsidiary on behalf of any or all Sponsor Subsidiaries.

                  Section 1.12. Material Adverse Effect. A reference in this
Agreement to a "MATERIAL ADVERSE EFFECT" on the business, operations,
performance, properties or financial condition (or any specified subset thereof)
of any Controlled Business means a "material adverse effect" on the business,
operations, performance, properties or financial condition (or any specified
subset thereof) of the issuer of any Energy Investment, and the related
Intermediate Holders and Underlying Businesses, taken as a whole on a
consolidated basis.

                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES

                  Section 2.01. The Advances. (a) On the terms and conditions
hereinafter set forth, Clydesdale has made available to Noric Holdings an
advance (the "INITIAL ADVANCE") on the Closing Date in a principal amount of
$280,000,000.

                  (b) On the terms and conditions hereinafter set forth,
Clydesdale has made available to Noric Holdings a subsequent advance (such
advance, together with each advance referred to in the following sentence of
this Section 2.01 (b), each an "ADDITIONAL ADVANCE") on December 15, 2000 in a
principal amount of $950,000,000. Clydesdale may in its absolute discretion from
time to time on or before the Capital Contribution Date, agree to make available
to Noric Holdings further advances.

                  (c) Amounts borrowed hereunder and repaid or prepaid may not
be reborrowed.

                  (d) Each Sponsor Subsidiary shall be jointly and severally
liable for the repayment of the principal amount of, and for the payment of
interest and all other amounts in respect of, each Advance made to Noric
Holdings hereunder and each Sponsor Subsidiary shall be jointly and severally
liable for all Obligations hereunder as a primary obligor and not as a surety.

                  Section 2.02. Making the Advances. (a) Subject to satisfaction
of the conditions precedent set forth herein, Clydesdale made and Noric Holdings
borrowed the Initial Advance on the Closing Date.

                  (b) Subject to Section 2.01(b), Noric Holdings may at any time
and from time to time prior to the Capital Contribution Termination Date by
written notice to Clydesdale request Clydesdale to make an Additional Advance.
Such notice shall state the following:

                  (i) the amount of such requested Additional Advance (which
         shall not be less than $25,000,000 and integral multiples of $5,000,000
         in excess thereof); and

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       5

                  (ii) the date for the making of such requested Additional
         Advance, which in any event shall be the corresponding Capital
         Contribution Date under the Clydesdale Partnership Agreement.

                  A notice by the Clydesdale General Partner to the Clydesdale
Class B Limited Partner under Section 5.4 of the Clydesdale Partnership
Agreement shall be deemed to satisfy the foregoing notification requirement.

                  (c) Clydesdale shall make the Initial Advance available to
Noric Holdings by deposit of the proceeds thereof to the Sponsor Subsidiary
Operating Account on the Closing Date. If Clydesdale agrees to make any
Additional Advance, Clydesdale shall, subject to the conditions precedent set
forth in Section 3.02, make such Additional Advance to Noric Holdings by deposit
of the proceeds thereof to the Sponsor Subsidiary Operating Account on the
applicable Capital Contribution Date.

                  (d) The Sponsor Subsidiaries shall jointly and severally
indemnify Clydesdale against any cost or expense incurred by Clydesdale as a
result of any failure to fulfill on or before the Closing Date or any Capital
Contribution Date (as applicable) the applicable conditions set forth in Article
III. A notice by Clydesdale to Noric Holdings of the amount of such cost or
expense shall, in the absence of manifest error, be conclusive and binding for
all purposes.

                  Section 2.03. Interest. (a) The Sponsor Subsidiaries shall
jointly and severally pay interest on the unpaid principal amount of each
Advance outstanding from time to time from the Closing Date or the applicable
Capital Contribution Date (as applicable) until the principal amount shall be
paid in full at a rate per annum at all times during each Interest Period equal
to the Funding Rate for such Interest Period, payable on the Payment Date next
succeeding the last day of such Interest Period.

                  (b) Clydesdale shall notify Noric Holdings of such Funding
Rate for an Interest Period (or portion thereof) three Business Days prior to
the Payment Date for such Interest Period. A notice by Clydesdale to Noric
Holdings of the Funding Rate shall be binding on each Sponsor Subsidiary.

                  Section 2.04. Repayment of Advances. The Sponsor Subsidiaries
shall jointly and severally repay on the Maturity Date the principal amount of
all Advances then outstanding in full.

                  Section 2.05. Prepayment of Advances. (a) Voluntary. A Sponsor
Subsidiary may, upon at least five Business Days' notice to Clydesdale stating
the proposed date and the aggregate principal amount of the prepayment, and, if
such notice is given, such Sponsor Subsidiary shall, prepay the outstanding
principal amount of an Advance in whole or in part together with all other
amounts required to be paid pursuant to Section 2.06(c) in connection with such
prepayment; provided, however, that each partial prepayment shall be in an
aggregate principal amount of not less than $1,000,000.

                  (b) Mandatory.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       6

                  (i) Disposition of Controlled Business upon Merger or
Consolidation. If any Controlled Business enters into any transaction of
consolidation or merger with or into any other Person (other than a merger
permitted pursuant to Section 5.09(c)), then such merger or consolidation shall
be treated as a Disposition of such Controlled Business, and on the effective
date of such consolidation or merger the Sponsor Subsidiaries shall prepay the
Advances in a principal amount equal to the Energy Investment Loan Value
applicable to such Controlled Business, together with all other amounts required
to be paid pursuant to Section 2.06(c) in connection with such prepayment.

                  (ii) Disposition of Energy Investments. Upon a Disposition of
any Energy Investment by a Sponsor Subsidiary (whether to El Paso, an Affiliate
of El Paso or any other Person), the Sponsor Subsidiaries shall forthwith on the
effective date of such Disposition, prepay Advances in a principal amount equal
to the Energy Investment Loan Value of such Energy Investment, together with all
other amounts required to be paid pursuant to Section 2.06(c) in connection with
such prepayment.

                  (iii) Disposition of Assets of Underlying Businesses. Except
in the case of any Disposition permitted by Section 5.09(d)(G), if all or
substantially all of the assets of, or Equity Interests in, any Intermediate
Holder or Underlying Business relating to an Energy Investment (other than a
Publicly Traded Investment) are Disposed of (whether to El Paso, an Affiliate of
El Paso or any other Person) at any time after the Closing Date or the
Acquisition/Accession Date of such Energy Investment (as applicable), then the
Sponsor Subsidiaries shall forthwith on the effective date of such Disposition,
prepay Advances in a principal amount equal to the Energy Investment Loan Value
of the Energy Investment to which such Intermediate Holder or Underlying
Business relates, together with all other amounts required to be paid pursuant
to Section 2.06(c) in connection with such prepayment.

                  (iv) Excess Distribution. On the date of each Distribution by
an Underlying Business, the Sponsor Subsidiaries shall prepay Advances in a
principal amount equal to the Excess Distribution (if any) calculated as of such
date, together with all other amounts required to be paid pursuant to Section
2.06(c) in connection with such prepayment.

                  (v) A-Loans. (A) If El Paso or any Affiliate of El Paso
prepays any principal under any A-Loan Note, the Sponsor Subsidiaries shall
forthwith prepay Advances in a principal amount equal to the principal amount of
such prepayment, together with all other amounts required to be paid pursuant to
Section 2.06(c) in connection with such prepayment.

                  (B) If the Sponsor Subsidiaries prepay Advances (other than in
accordance with clause (A) above), then El Paso or any Affiliate of El Paso that
is an obligor under an A-Loan Note shall (x) be deemed to have prepaid the
principal amount outstanding under such A-Loan Note in the principal amount of
such prepayment of Advances by the Sponsor Subsidiaries and (y) pay interest
accrued on the principal deemed to have been so prepaid under such A-Loan Note
in accordance with the terms thereof; provided that the amount described in
clause (x) above shall be deemed to be distributed to El Paso or such Affiliate
of El Paso and the outstanding principal amount of the A-Loan Notes shall be
reduced by the principal amount of such deemed prepayment.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       7

                  (vi) E&P Borrowing Base Reductions. The Sponsor Subsidiaries
shall prepay Advances in a principal amount equal to the amount, and at the
times, specified in Section 2.10(a)(i), Section 5.11(b)(i) or (ii) and Section
7.04(i)(A) or (B), together with all other amounts required to be paid pursuant
to Section 2.06(c) in connection with such prepayment.

                  (vii) Minimum Unrecovered Capital. If, as a result of any
voluntary or mandatory prepayment under this Section 2.05, the Unrecovered
Capital of Mustang in Clydesdale would be less than $150,000,000 (or
$300,000,000, if the aggregate principal amount of the Advances immediately
prior to such voluntary or mandatory prepayment is more than $500,000,000), then
the Sponsor Subsidiaries shall on the date of such voluntary or mandatory
prepayment prepay the Advances in full together with all other amounts required
to be paid pursuant to Section 2.06(c) in connection with such prepayment.

                  (viii) El Paso RA Event. If the senior unsecured long-term
debt credit ratings of El Paso fall below BBB- by S&P and below Baa3 by Moody's
(an "EL PASO RA EVENT"), then the Sponsor Subsidiaries shall prepay the Advances
in a principal amount equal to:

                  (A) the Net Cash Proceeds from any Dispositions described in
         Sections 5.02(d)(C)(3) and (4), 5.05(a)(C) and (D) and 5.09(d)(C) and
         (D) and the Disposition Value of the E&P Assets Disposed of pursuant to
         Section 5.05(a)(E) and (F) and occurring during the continuance of an
         El Paso RA Event; provided that such prepayment of the Advances shall
         be made at the earlier of (x) the next Payment Date following any such
         Disposition and (y) any date, following the initial occurrence of such
         El Paso RA Event and thereafter following the making of any prepayment
         under this clause (A), on which the aggregate amount of Net Cash
         Proceeds from all such Dispositions described in Sections 5.02(d)(C)(3)
         and (4), 5.05(a)(C) and (D) and 5.09(d)(C) and (D) and the Disposition
         Value of the E&P Assets from all such Dispositions described in
         Sections 5.05(a)(E) and (F) is at least $5,000,000;

                  (B) on each Payment Date during the continuance of an El Paso
         RA Event, the lesser of (x) the excess of (1) the gross revenues (other
         than proceeds from sales of assets (other than current assets as
         defined under GAAP) or capital contributions) for the Fiscal Quarter in
         which such El Paso RA Event occurs (and in each subsequent Fiscal
         Quarter while such El Paso RA Event continues) of the Energy
         Investments (other than any Publicly Traded Investment) over (2) the
         aggregate amount of all operating expenditures in the ordinary course
         of business and all Maintenance Capital Expenditures paid (or in
         respect of which an obligation to pay any such expenditure was
         incurred) in any such Fiscal Quarter with respect to the Energy
         Investments (other than any Publicly Traded Investment) (such aggregate
         amount not to exceed $76,000,000 in any such Fiscal Quarter solely for
         purposes of the calculation in this clause (B)(2)) and (y) the
         aggregate amount of the net income of the Energy Investments (other
         than any Publicly Traded Investment) reflected in the most recent
         financial statements delivered pursuant to Section 5.4 of the El Paso
         Agreement; provided that an amount (if any) equal to the positive value
         of the difference between the amount described in clause (x) above and
         the amount described in clause (y) above shall be deposited into the
         applicable Proceeds Account and held therein; and provided further
         that:

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       8

                  (I)      if such prepayment of the Advances falls on the first
                           Payment Date following the end of the fourth Fiscal
                           Quarter of the immediately preceding Fiscal Year, the
                           amount described in clause (y) above shall be the
                           amount of such net income as reflected in the
                           financial statements as of the end of the third
                           Fiscal Quarter of the immediately preceding Fiscal
                           Year, and such amount shall be (aa) increased by the
                           absolute amount (if any) by which the amount of net
                           income reflected in the financial statements as of
                           the end of such third Fiscal Quarter of the
                           immediately preceding Fiscal Year exceeds the amount
                           of net income used to determine the required
                           prepayment of the Advances on the first Payment Date
                           following the end of such third Fiscal Quarter of the
                           immediately preceding Fiscal Year or (bb) reduced by
                           the absolute amount (if any) by which the amount of
                           net income reflected in financial statements as of
                           the end of the third Fiscal Quarter of the
                           immediately preceding Fiscal Year is less than the
                           amount of net income used to determine the required
                           prepayment of the Advances on the first Payment Date
                           following the end of such third Fiscal Quarter of the
                           immediately preceding Fiscal Year;

                  (II)     if such prepayment of the Advances falls on the first
                           Payment Date following the end of the first Fiscal
                           Quarter of the current Fiscal Year, the amount
                           described in clause (y) above shall be the amount of
                           such net income as reflected in the financial
                           statements as of the end of the third Fiscal Quarter
                           of the immediately preceding Fiscal Year;

                  (III)    if such prepayment of the Advances falls on the first
                           Payment Date following the end of the second Fiscal
                           Quarter of the current Fiscal Year, the amount
                           described in clause (y) above shall be the amount of
                           such net income as reflected in the financial
                           statements as of the end of the first Fiscal Quarter
                           of the current Fiscal Year, and such amount shall be
                           (aa) increased by the absolute amount (if any), by
                           which the amount of net income reflected in financial
                           statements as of the end of the fourth Fiscal Quarter
                           of the immediately preceding Fiscal Year and as of
                           the end of the first Fiscal Quarter of the current
                           Fiscal Year, respectively, exceeds the amount of net
                           income used to determine the required prepayment of
                           the Advances on the first Payment Date following the
                           end of such fourth Fiscal Quarter of the immediately
                           preceding Fiscal Year and the end of such first
                           Fiscal Quarter of the current Fiscal Year,
                           respectively, or (bb) reduced by the absolute amount
                           (if any) by which the amount of net income reflected
                           in financial statements as of the end of the fourth
                           Fiscal Quarter of the immediately preceding Fiscal
                           Year and as of the end of the first Fiscal Quarter of
                           the current Fiscal Year, respectively, is less than
                           the amount of net income used to determine the
                           required prepayment of the Advances on the first
                           Payment Date following the end of such fourth Fiscal
                           Quarter of the immediately preceding Fiscal Year and
                           the end of such first Fiscal Quarter of the current
                           Fiscal Year, respectively; and

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       9

                  (IV)     if such prepayment of the Advances falls on first the
                           Payment Date following the end of the third Fiscal
                           Quarter of the current Fiscal Year, the amount
                           described in clause (y) above shall be the amount of
                           such net income as reflected in the financial
                           statements as of the end of the second Fiscal Quarter
                           of the current Fiscal Year, and such amount shall be
                           (aa) increased by the absolute amount (if any) by
                           which the amount of net income reflected in financial
                           statements as of the end of the second Fiscal Quarter
                           of the current Fiscal Year exceeds the amount of net
                           income used to determine the required prepayment of
                           the Advances on the first Payment Date following the
                           end of such second Fiscal Quarter of the current
                           Fiscal Year or (bb) reduced by the absolute amount
                           (if any) by which the amount of net income reflected
                           in financial statements as of the end of the second
                           Fiscal Quarter of the current Fiscal Year is less
                           than the amount of net income used to determine the
                           required prepayment of the Advances on the first
                           Payment Date following the end of such second Fiscal
                           Quarter of the current Fiscal Year.

         provided, however, that with respect to this clause (B), if in any
         Fiscal Quarter (1) the amount described in clause (x) thereof is
         greater than the amount described in clause (y) thereof, and (2) the
         sum of all cumulative amounts described in such clause (x) for all
         prior Fiscal Quarters is less than the sum of all cumulative amounts
         described in such clause (y) for all such prior Fiscal Quarters, then
         the Sponsor Subsidiaries shall make an additional prepayment of
         Advances in a principal amount equal to the lesser of (I) the amount
         described in clause (x) for such current Fiscal Quarter minus the
         amount described in clause (y) for such current Fiscal Quarter, and
         (II) the sum of all cumulative amounts described in such clause (y) for
         all such prior Fiscal Quarters minus the sum of all cumulative amounts
         described in such clause (x) for all such prior Fiscal Quarters;

                  (C) on each Payment Date during the continuance of an El Paso
         RA Event, the excess of (x) the aggregate (1) net cash received by the
         Sponsor Subsidiaries, Noric and Noric LP (without double counting) in
         respect of each E&P Participation Property (other than proceeds from
         sales of Relevant Assets or capital contributions) and (2) gross cash
         received by Lipizzan in respect of the Production Payments (other than
         proceeds from sales of Relevant Assets) for the Fiscal Quarter in which
         such El Paso RA Event occurs (and in each subsequent Fiscal Quarter
         while such El Paso RA Event continues) over (y) the aggregate ----
         amount of all operating expenditures in the ordinary course of business
         of the relevant Sponsor Subsidiary, Noric and Noric LP and, with
         respect to Noric and Noric LP only, Taxes consistent with past
         practice, for the Fiscal Quarter in which such El Paso RA Event occurs
         (and in each subsequent Fiscal Quarter while such El Paso RA Event
         continues); and

                  (D) the E&P Holdback Amount then in effect on the date of an
         El Paso RA Event,

in each case together with all other amounts required to be paid pursuant to
Section 2.06(c) in connection with such prepayment.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       10

                  Section 2.06. Payments and Computations; Additional Amounts.
(a) Clydesdale Operating Account. Each Sponsor Subsidiary shall make each
payment hereunder, irrespective of any right of setoff or counterclaim, no later
than 10:00 a.m. (New York City time) on the day when due in immediately
available Dollars to the Clydesdale Operating Account.

                  (b) Calculation. All computations of interest hereunder shall
be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) elapsed (except that where
interest is calculated by reference to the Base Rate, the computation of
interest hereunder shall be made on the basis of a year of 365 days or 366 days,
as applicable). Each determination by Clydesdale of an interest rate hereunder
shall be conclusive and binding for all purposes, in the absence of manifest
error.

                  (c) Additional Amounts. All payments of principal under this
Agreement (whether on prepayment or otherwise) shall be made together with
(without duplication) all accrued interest to the date of such payment or
prepayment on the principal amount paid or prepaid, any accrued and unpaid fees
to the date of such payment or prepayment, expenses and indemnities and other
Obligations of the Sponsor Subsidiaries (including any interest on the principal
amount paid or prepaid) owing hereunder.

                  (d) Notice. Each payment under this Agreement shall be
accompanied by written notice by Noric Holdings identifying the nature of the
payment.

                  Section 2.07. Taxes. (a) Any and all payments by each Sponsor
Subsidiary hereunder shall be made free and clear of and without deduction for
any and all present or future Taxes and all liabilities with respect thereto. If
a Sponsor Subsidiary shall be required by Applicable Law to deduct any Taxes
from or in respect of any sum payable hereunder to Clydesdale, (a) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.07) Clydesdale receives an amount equal to the sum it would have
received had no such deductions been made, (b) such Sponsor Subsidiary shall
make such deductions, and (c) such Sponsor Subsidiary shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with Applicable Law.

                  (b) In addition, the Sponsor Subsidiaries agree jointly and
severally to pay any present or future transfer, ad valorem, registration,
title, license, stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any transfer made under, from
possession arising under, from any action of the Sponsor Subsidiary Collateral
Agent contemplated in, or any payment made under, or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Sponsor Subsidiary Credit Document (hereinafter referred to as "OTHER
TAXES").

                  (c) Each Sponsor Subsidiary, to the fullest extent permitted
by Applicable Law, jointly and severally indemnifies Clydesdale and the
Clydesdale Partners (other than the Clydesdale Class A Limited Partners), on an
after-tax basis, for the full amount of Taxes or Other Taxes (including any
Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.07) paid by Clydesdale and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       11

Other Taxes were correctly or legally asserted. This indemnification shall be
made within two Business Days from the date Clydesdale makes written demand
therefor.

                  (d) Within 30 days after the date of any payment of Taxes by
or at the direction of any Sponsor Subsidiary, Noric Holdings will furnish to
Clydesdale the original or a certified copy of a receipt evidencing payment
thereof.

                  Section 2.08. Evidence of Indebtedness. Clydesdale shall
maintain an account or accounts evidencing the indebtedness of each Sponsor
Subsidiary to Clydesdale resulting from the Advances, including the amounts of
principal and interest payable and paid to Clydesdale from time to time
hereunder.

                  Section 2.09. E&P Assets - E&P Borrowing Base Determinations.
The E&P Borrowing Base of all E&P Participation Property and the Production
Payments shall be determined from time to time in the manner described in this
Section 2.09.

                  (a) Initial E&P Borrowing Base Determination. The E&P
         Borrowing Base shall be $506,600,000 during the period from the Third
         Restatement Date until the E&P Borrowing Base is determined or
         redetermined pursuant to this Section 2.09. The portion of the E&P
         Borrowing Base attributable to the E&P Participation Property shall be
         $61,600,000 and the portion of the E&P Borrowing Base attributable to
         the Production Payments shall be $445,000,000.

                  (b) Scheduled E&P Borrowing Base Determinations. A
         determination of the E&P Borrowing Base (each, an "E&P BORROWING BASE
         DETERMINATION") shall be made once during each calendar year in
         accordance with this Section 2.09(b).

                           (i) No later than March 1 of each calendar year,
                  Noric Holdings shall deliver a Reserve Report dated as of the
                  Reserve Report Date to the Calculation Agent, with a copy to
                  Clydesdale; provided that Noric Holdings shall have the right
                  to prepare such Reserve Report on a pro forma basis,
                  reflecting the Proved Reserves attributable to the E&P Assets
                  (including, for this purpose, Subject Interests relating to
                  any Production Payment) to be acquired and/or Disposed of
                  prior to the effectiveness of the E&P Borrowing Base to be
                  determined based on such pro forma Reserve Report.

                           (ii) No later than 30 days after the date of delivery
                  of the Reserve Report pursuant to clause (i) above, the
                  Calculation Agent on behalf of Clydesdale shall deliver to
                  Noric Holdings a copy of a draft E&P Borrowing Base Report. In
                  making its determination of such draft E&P Borrowing Base
                  Report the Calculation Agent shall, not later than 10 Business
                  Days prior to the delivery of such draft E&P Borrowing Base
                  Report to Noric Holdings, consult in good faith with the
                  Designated Representative and shall consult in good faith with
                  the Designated Representative through the remainder of the
                  process of establishing an ERP Borrowing Issue pursuant to
                  this Section 2.09.

                           (iii) No later than 10 days after the date of
                  delivery of the draft E&P Borrowing Base Report pursuant to
                  clause (ii) above, Noric Holdings shall deliver

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       12

                  to the Calculation Agent, with a copy to Clydesdale, its
                  written comments and adjustments to the draft E&P Borrowing
                  Base Report.

                           (iv) No later than 5 days after the date of delivery
                  of Noric Holdings' written comments and adjustments to the
                  draft E&P Borrowing Base Report pursuant to clause (iii) above
                  (during which period the Calculation Agent shall consult in
                  good faith with the Designated Representative), the
                  Calculation Agent on behalf of Clydesdale shall deliver to
                  Noric Holdings the final E&P Borrowing Base Report (the date
                  of delivery of such final report, the "FINAL BORROWING BASE
                  REPORT DELIVERY DATE") containing the Calculation Agent's
                  recommendation for the E&P Borrowing Base (the "E&P BORROWING
                  BASE RECOMMENDATION"). The E&P Borrowing Base Recommendation
                  shall (A) take into account the projected cash flows from
                  Proved Reserves only, (B) ignore any rights or benefits of any
                  Person other than a Sponsor Subsidiary, Noric or Noric LP, as
                  the case may be, under any Hedge Agreement permitted by the
                  Operative Documents and (C) be determined in accordance with
                  the Calculation Agent's normal and customary oil and gas
                  lending criteria.

                           (v) No later than 15 days after the Final Borrowing
                  Base Report Delivery Date (during which period the Calculation
                  Agent shall consult in good faith with the Designated
                  Representative), the Calculation Agent with the agreement of
                  Clydesdale shall furnish written notice to Noric Holdings of
                  the E&P Borrowing Base Determination, which shall contain the
                  determination of the new E&P Borrowing Base.

                           (vi) Such new E&P Borrowing Base shall become
                  effective, at Noric Holdings' discretion and upon delivery by
                  Noric Holdings of written notice to the Calculation Agent, on
                  any date (the "E&P BORROWING BASE EFFECTIVE DATE") from, and
                  including, the date of the notice to Noric Holdings under
                  clause (v) above to, and including, the date falling 60 days
                  after the date of such notice (the "OUTSIDE DATE"; it being
                  understood that if Noric Holdings does not deliver such
                  written notice to the Calculation Agent, the E&P Borrowing
                  Base Effective Date shall be the Outside Date) and shall
                  remain effective during the period from such date to the
                  effective date of the next change to the E&P Borrowing Base
                  occurring thereafter pursuant to this Section 2.09 (such
                  period being the "E&P BORROWING BASE PERIOD"). The E&P
                  Borrowing Base in effect during any E&P Borrowing Base Period
                  is referred to as the "CURRENT E&P BORROWING BASE").

                           (vii) During each E&P Borrowing Base Period, (A) the
                  "REDETERMINATION THRESHOLD" for such E&P Borrowing Base Period
                  shall be an amount equal to 10% of the Current E&P Borrowing
                  Base, (B) the "ADJUSTED REDETERMINATION THRESHOLD" for such
                  E&P Borrowing Base Period shall be an amount equal to the
                  Redetermination Threshold for such E&P Borrowing Base Period
                  minus the Disposition Value of all Relevant Assets which have
                  been Disposed of during the Threshold Adjustment Period for
                  such E&P Borrowing Base Period, and (C) the "THRESHOLD
                  ADJUSTMENT PERIOD" for such E&P Borrowing Base Period shall be
                  a period starting from the Reserve Report Date in

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       13

                  respect of the Current E&P Borrowing Base and ending on the
                  E&P Borrowing Base Effective Date for such E&P Borrowing Base
                  Period.

                           (viii) Notwithstanding anything to the contrary
                  contained herein, in the event the Reserve Report used to
                  determine a new E&P Borrowing Base was prepared on a pro forma
                  basis, a new E&P Borrowing Base shall not become effective
                  until any proposed acquisition reflected in such Reserve
                  Report has been completed (including, without limitation, the
                  completion of any amendment, filing, recordation and other
                  actions required in connection with such acquisition). If an
                  E&P Borrowing Base shall fail to become effective due to the
                  failure of one or more proposed acquisitions reflected in such
                  Reserve Report to be completed prior to or on the Outside Date
                  relating to such E&P Borrowing Base, the E&P Borrowing Base
                  shall be adjusted by the Calculation Agent by subtracting
                  therefrom the aggregate amount of the portion of the E&P
                  Borrowing Base attributable to the Relevant Asset in
                  connection with each of such proposed acquisitions, and such
                  adjusted E&P Borrowing Base shall become effective on the
                  Outside Date.

                  (c) Optional Redeterminations of the E&P Borrowing Base. (i)
         In addition to the annual E&P Borrowing Base Determination pursuant to
         Section 2.09(b), redeterminations of the E&P Borrowing Base (each an
         "E&P BORROWING BASE REDETERMINATION") may be made from time to time
         upon notice (each a "REDETERMINATION NOTICE") under Section 2.09(d) and
         Section 2.09(e), and subject to this Section 2.09(c).

                  (ii) An E&P Borrowing Base Redetermination shall become
         effective on the E&P Borrowing Base Effective Date applicable thereto
         and shall remain effective during the period from such date to the
         effective date of the next change to the E&P Borrowing Base occurring
         thereafter pursuant to this Section 2.09.

                  (d) E&P Borrowing Base Redeterminations - Annual Option. (i)
         Clydesdale may, not more than once per calendar year, deliver to Noric
         Holdings and the Calculation Agent a Redetermination Notice under this
         Section 2.09(d)(i) (and identifying this Section 2.09(d)(i)), following
         which the E&P Borrowing Base shall be determined in accordance with the
         procedure set forth in Section 2.09(b) above; provided that the
         reference to "March 1" in Section 2.09(b)(i) shall be construed as a
         reference to the date falling 30 days after the date of delivery of the
         Redetermination Notice.

                  (ii) Noric Holdings may, not more than once per calendar year,
         deliver a Redetermination Notice to Clydesdale and the Calculation
         Agent under this Section 2.09(d)(ii) (and identifying this Section
         2.09(d)(ii)), following which the E&P Borrowing Base shall be
         determined pursuant to the procedure set forth in Section 2.09(b)
         above; provided that the reference to "March 1" in Section 2.09(b)(i)
         shall be construed as a reference to the date of delivery of the
         Redetermination Notice.

                  (e) E&P Borrowing Base Redeterminations - Acquisitions and
         Dispositions. If any Sponsor Subsidiary, Lipizzan, Noric or Noric LP
         (as the case may be):

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       14

                           (i) acquires any E&P Asset (including as a result of
                  a proportional increase thereof); or

                           (ii) Disposes of any E&P Assets (or any portion
                  thereof),

                  (the E&P Assets so acquired or Disposed of, the "RELEVANT
                  ASSETS"), and:

                           (A) the PV-10 Value of the Relevant Assets acquired,
                  together with that of any other Relevant Assets acquired by
                  any Sponsor Subsidiary, Lipizzan, Noric or Noric LP, during
                  the current E&P Borrowing Base Period equals or exceeds the
                  Redetermination Threshold for such current E&P Borrowing Base
                  Period; or

                           (B) the Disposition Value of the Relevant Assets
                  Disposed of, together with that of any other Relevant Assets
                  Disposed of by any Sponsor Subsidiary, Lipizzan, Noric or
                  Noric LP, during the current E&P Borrowing Base Period equals
                  or exceeds the Adjusted Redetermination Threshold for such
                  current E&P Borrowing Base Period,

         then Clydesdale or Noric Holdings may deliver a Redetermination Notice
         to the other under this Section 2.09(e) (and identifying this Section
         2.09(e)), following which the E&P Borrowing Base shall be redetermined
         in accordance with the procedure set forth in Section 2.09(b) above;
         provided that Noric Holdings may, at its discretion, prepare a new
         Reserve Report to be dated as of the date of delivery of such
         Redetermination Notice and in contemplation of the occurrence of
         acquisitions and/or Dispositions that will result in an option to
         deliver a Redetermination Notice as provided above, on a pro forma
         basis reflecting the Proved Reserves attributable to the E&P Assets to
         be acquired and/or Disposed of and deliver such Reserve Report to the
         Calculation Agent, with a new E&P Borrowing Base becoming effective at
         the later of (x) the date on which all of such proposed acquisitions
         are completed (including, without limitation, the completion of any
         amendment, filing, recordation and other actions required in connection
         with such acquisitions) and (y) the new E&P Borrowing Base Effective
         Date determined in accordance with the procedure set forth in Section
         2.09(b) above (it being agreed that the date referred to in this clause
         (y) may be contemporaneous with the date referred to in clause (x)
         above); and provided further that, in making such redetermination, the
         reference to "March 1" in Section 2.09(b)(i) shall be construed as a
         reference to (1) the date of delivery of the Redetermination Notice
         (where Noric Holdings delivers such Redetermination Notice) and (2) the
         date falling 30 days after the date of delivery of the Redetermination
         Notice (where Clydesdale delivers such Redetermination Notice).

                  For the purposes of the calculation to be made pursuant to the
         immediately preceding paragraph:

                           (1) subject to paragraph (2) below, any Relevant
                  Assets acquired by Noric Holdings I and then transferred to
                  Noric by way of a capital contribution shall only be
                  considered to have been acquired by Noric;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       15

                           (2) any Relevant Asset that is acquired by Noric
                  (including pursuant to paragraph (1) above) and then
                  transferred to Noric LP by way of a capital contribution shall
                  only be considered to have been acquired by Noric LP;

                           (3) any Relevant Asset that is transferred by Noric
                  Holdings I to Noric or Noric to Noric LP by way of a capital
                  contribution shall not be considered as a Disposition of such
                  Relevant Asset;

                           (4) any Relevant Asset acquired by Noric Holdings IV
                  and then transferred to Lipizzan by way of a capital
                  contribution shall only be considered to have been acquired by
                  Lipizzan; and

                           (5) any Relevant Asset that is transferred by Noric
                  Holdings IV to Lipizzan by way of a capital contribution shall
                  not be considered as a Disposition of such Relevant Asset.

                  (f) Scheduled Quantity Adjustments. The Scheduled Quantities
         under any Production Payment Conveyance may, upon the request of Noric
         Holdings or Clydesdale, be adjusted on each E&P Borrowing Base
         Determination and each E&P Borrowing Base Redetermination. Such
         adjustment, if any, shall be agreed to by the Counterparty to such
         Production Payment Conveyance and shall be determined together with the
         new E&P Borrowing Base on the same terms and conditions and following
         the procedure set forth in Section 2.09(b) above; provided that the E&P
         Borrowing Base Report shall contain, in addition to the recommendation
         to the new E&P Borrowing Base, a recommendation of the new Scheduled
         Quantities under such Production Payment Conveyance and the written
         notice delivered by the Calculation Agent to Noric Holdings referred to
         in clause (v) of Section 2.09(b) shall contain the determination of
         such new Scheduled Quantities. The new Scheduled Quantities under such
         Production Payment Conveyance shall become effective on the E&P
         Borrowing Base Effective Date relating to such E&P Borrowing Base
         Determination or E&P Borrowing Base Redetermination and upon execution
         and delivery of an amendment to such Production Payment Conveyance
         reflecting the new Scheduled Quantities.

                  (g) Further Assurance. Each Sponsor Subsidiary shall, and
         Noric Holdings I in its capacity as the Noric Class A Member shall
         cause Noric and Noric LP to, and Noric Holdings IV in its capacity as
         the Lusitano Member shall cause Lusitano as the Lipizzan General
         Partner to, provide all documents and other information reasonably
         necessary to enable each E&P Borrowing Base Determination, E&P
         Borrowing Base Redetermination and adjustment of the Scheduled
         Quantities to be completed in accordance with this Section 2.09.

                  Section 2.10. Collateral Shortfall. The following provisions
shall apply in respect of each annual E&P Borrowing Base Determination made
pursuant to Section 2.09(b).

                  (a) If, following any such annual E&P Borrowing Base
         Determination, the Energy Investment Exposure exceeds the Aggregate
         Energy Investment Loan Value Amount at such time (after giving effect
         to such annual E&P Borrowing Base

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       16

         Determination) (such excess, the "COLLATERAL SHORTFALL AMOUNT"), then
         the Sponsor Subsidiaries shall on the E&P Borrowing Base Effective Date
         either:

                           (i)(A) prepay Advances from amounts standing to the
                  credit of the Sponsor Subsidiary Cash Reserve and/or the Noric
                  Holdings IV Cash Reserve at such time in an aggregate
                  principal amount equal to the lesser of (1) the Collateral
                  Shortfall Amount and (2) the excess of (I) the credit balance
                  of the Sponsor Subsidiary Cash Reserve, the Noric Holdings IV
                  Cash Reserve and the Noric LP Cash Reserve over (II) the sum
                  of (v) the E&P Holdback Amount for the most recently completed
                  Fiscal Quarter, (w) the Noric LP Required Cash Reserve Balance
                  at such time, (x) the Noric Holdings IV Required Cash Reserve
                  Balance at such time, (y) the Sponsor Subsidiary Required Cash
                  Reserve Balance at such time and (z) the Total Cash Collateral
                  Amount at such time; and

                              (B) pay, or make a deemed payment of, additional
                  Cash Collateral Amounts to the Sponsor Subsidiary Cash Reserve
                  and/or the Noric Holdings IV Cash Reserve in an aggregate
                  principal amount equal to the difference between the
                  Collateral Shortfall Amount and the amounts pre-paid pursuant
                  to clause (i)(A); or

                           (ii) pay, or make a deemed payment of, additional
                  Cash Collateral Amounts to the Sponsor Subsidiary Cash Reserve
                  and/or the Noric Holdings IV Cash Reserve in an aggregate
                  principal amount equal to the Collateral Shortfall Amount;

         provided, however, that, with respect to clause (a)(i)(A) above, such
         prepayment of Advances shall be required and, with respect to clause
         (a)(i)(B) and clause (a)(ii) above, such payment of additional Cash
         Collateral Amounts shall be required only if the Unrecovered Capital of
         Mustang in Clydesdale at such time shall be greater than the sum of (x)
         the Aggregate Energy Investment Loan Value Amount, (y) the new E&P
         Borrowing Base and (z) the Total Cash Collateral Amount at such time.

                  (b) Subject to clause (d) below, if the Sponsor Subsidiaries
         prepay Advances in accordance with clause (a)(i)(A) above or if no
         prepayments or payments are required pursuant to the proviso of Section
         2.10(a), then on the E&P Borrowing Base Effective Date the Sponsor
         Subsidiaries may Distribute from the Sponsor Subsidiary Cash Reserve
         and/or the Noric Holdings IV Cash Reserve (free of any Lien under the
         Sponsor Subsidiary Credit Documents) to any Sponsor Subsidiary Member
         or such other Person or account as Noric Holdings directs an aggregate
         amount equal to the amount (if any) by which the E&P Holdback Amount as
         of the end of the last Fiscal Quarter of the Fiscal Year ended
         immediately prior to such E&P Borrowing Base Effective Date exceeds the
         difference between the Collateral Shortfall Amount and the amounts
         pre-paid pursuant to clause (a)(i)(A) above.

                  (c) Subject to clause (d) below, if the Sponsor Subsidiaries
         pay, or make a deemed payment of, Cash Collateral Amounts to the
         Sponsor Subsidiary Cash Reserve and/or the Noric Holdings IV Cash
         Reserve in accordance with clause (a)(i)(B) or (a)(ii)

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       17

         above or if there is no Collateral Shortfall Amount or if no
         prepayments or payments are required pursuant to the proviso of Section
         2.10(a), then the Sponsor Subsidiaries may on the E&P Borrowing Base
         Effective Date Distribute from the Sponsor Subsidiary Cash Reserve
         and/or the Noric Holdings IV Cash Reserve (free from any Lien under the
         Sponsor Subsidiary Credit Documents) to the Noric Holdings Member or
         such other Person or account as Noric Holdings directs an aggregate
         amount equal to the E&P Holdback Amount as of the end of the last
         Fiscal Quarter of the Fiscal Year ended immediately prior to such E&P
         Borrowing Base Effective Date.

                  (d) The Sponsor Subsidiaries may only make a Distribution
         pursuant to clause (b) or (c) above:

                           (i) to the extent there are funds standing to the
                  credit of the Sponsor Subsidiary Cash Reserve and/or the Noric
                  Holdings IV Cash Reserve (after liquidation or calling in of
                  any Permitted Investments);

                           (ii) if immediately prior to and immediately after
                  such Distribution the Sponsor Subsidiaries are in compliance
                  with Section 5.04(c);

                           (iii) if no El Paso RA Event shall have occurred and
                  be continuing; and

                           (iv) if no Incipient Event, Event of Default, Notice
                  Event, Termination Event or Liquidating Event shall have
                  occurred and be continuing or would result therefrom;

         provided, however, that, after the occurrence and during the
         continuance of an El Paso RA Event, no such Distribution shall be
         permitted to be made, and the E&P Holdback Amount shall be applied to
         prepay the Advances in accordance with Section 2.05(b)(viii)(D).

                  Section 2.11. Adjustments to Energy Investment Loan Values.
(a) Noric Holdings may at any time deliver a written request to Clydesdale for
an approval to an increase in the Energy Investment Loan Value of any Energy
Investment (with respect to any Energy Investment, such increased amount being,
the "REVISED ENERGY INVESTMENT LOAN VALUE" of such Energy Investment). Noric
Holdings may not deliver more than two such requests per year, however each
request may request an increase in the Energy Investment Loan Value of any
number of Energy Investments. Such request shall be accompanied by such
documents and evidence necessary to support the request for such increase.

                  (b) Clydesdale shall no later than the applicable Energy
Investment Loan Value Voting Date advise Noric Holdings in writing as to whether
it agrees to the Revised Energy Investment Loan Value for each Energy Investment
the subject of such request.

                  (c) If Clydesdale agrees to the Revised Energy Investment Loan
Value for any Energy Investment the subject of such request, then as from the
applicable Energy Investment Loan Value Voting Date the Energy Investment Loan
Value Amount for such Energy Investment shall be deemed to be the Revised Energy
Investment Loan Value for such Energy Investment and shall remain effective
during the period from such date to the effective date of

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       18

the next change to the Energy Investment Loan Value for such Energy Investment
occurring thereafter pursuant to this Section 2.11.

                  (d) Each Energy Investment Loan Value shall be from time to
time:

                  (i) decreased by the amount of the Energy Investment Loan
         Value attributable to any Energy Investment Disposed of pursuant to
         Section 5.02(d)(B); and

                  (ii) decreased by the amount of the Energy Investment Loan
         Value attributable to the Disposition pursuant to Section 5.09(d)(B) of
         all or substantially all of the assets of, or Equity Interests in, any
         Intermediate Holder or Underlying Business (other than any Intermediate
         Holder or Underlying Business relating to a Publicly Traded Investment
         and other than any Disposition permitted under Section 5.09(d)(G))
         relating to such Energy Investment.

                  (e) The Aggregate Energy Investment Loan Value Amount shall be
$500,000,000 during the period from the Third Restatement Date until the
effective date of the next change of an Energy Investment Loan Value for any
Energy Investment pursuant to this Section 2.11.

                                   ARTICLE III

                             CONDITIONS TO ADVANCES

                  Section 3.01. Conditions Precedent to Making the Initial
Advance. The agreement of Clydesdale to make the Initial Advance on the Closing
Date was subject to the following conditions precedent being satisfied on or
prior to the Closing Date:

                  (a) In the case of El Paso and its Consolidated Subsidiaries,
         since December 31, 1999, nothing shall have occurred that will have
         resulted in a Material Adverse Effect (adopting for the purposes of
         this Section 3.01(a) the definition of "Material Adverse Effect" set
         forth in clause (b) of the definition thereof in Exhibit A to the
         Clydesdale Partnership Agreement).

                  (b) Clydesdale shall have received the following documents,
         each dated as of the Closing Date (other than the documents described
         in clause (b)(iv)) and duly executed by the respective party or parties
         thereto, and otherwise in form and substance reasonably satisfactory to
         Clydesdale and (except for any El Paso Demand Note, A-Loan Note, B-Loan
         Note (as defined in the Original Sponsor Subsidiary Credit Agreement),
         Convertible Note (as defined in the Original Sponsor Subsidiary Credit
         Agreement) and any document listed in clauses (b)(ii) and (b)(iv)) in
         four original counterparts:

                           (i) Each Operative Document.

                           (ii) Duly executed copies of proper financing
                  statements (Form UCC-1) under the UCC (or its equivalent) of
                  all jurisdictions that may be

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       19

                  necessary or advisable in order to perfect and protect the
                  Liens created by the Sponsor Subsidiary Security Agreement.

                           (iii) Evidence that all other actions to the extent
                  necessary to perfect and protect the Liens created by the
                  Sponsor Subsidiary Security Agreement have been taken.

                           (iv) Certificates of the Secretary of State of the
                  State of Delaware with respect to Noric, Appaloosa, Noric
                  Holdings, Noric Holdings I, Noric Holdings II, each other
                  Sponsor Subsidiary, El Paso, each Counterparty to each E&P
                  Participation Agreement and Assignment of Receivables (as
                  defined in the Original Sponsor Subsidiary Credit Agreement),
                  each Issuer of any A-Loan Note, B-Loan Note (as defined in the
                  Original Sponsor Subsidiary Credit Agreement), Convertible
                  Note (as defined in the Original Sponsor Subsidiary Credit
                  Agreement) and El Paso Demand Note and the Intermediate Lessee
                  (as defined in the Original Sponsor Subsidiary Credit
                  Agreement) (each dated on or a recent date prior to the
                  Closing Date), in each case, attaching the certificate of
                  formation or charter of such Person and each amendment thereto
                  on file in such office and certifying that (A) such
                  certificate of formation or charter is a true and complete
                  copy thereof, (B) such amendments are the only amendments to
                  such certificate of formation or charter on file in such
                  office, (C) such Person has paid all franchise taxes to the
                  date of such certificate, and (D) such Person is duly formed
                  and in good standing under the laws of Delaware.

                           (v) Certificates of each of Appaloosa, Noric, Noric
                  Holdings, Noric Holdings I, Noric Holdings II, each other
                  Sponsor Subsidiary, El Paso, each Counterparty to each E&P
                  Participation Agreement and Assignment of Receivables (as
                  defined in the Original Sponsor Subsidiary Credit Agreement),
                  each issuer of any A-Loan Note, B-Loan Note (as defined in the
                  Original Sponsor Subsidiary Credit Agreement), Convertible
                  Note (as defined in the Original Sponsor Subsidiary Credit
                  Agreement) and El Paso Demand Note and the Intermediate Lessee
                  (as defined in the Original Sponsor Subsidiary Credit
                  Agreement), signed on behalf of each such Person by a managing
                  member, President, Vice President, Treasurer, Assistant
                  Treasurer, Secretary, Deputy Corporate Secretary, Assistant
                  Secretary or Deputy Treasurer of each such Person (the
                  statements made in which certificate shall be true and correct
                  on and as of the Closing Date), certifying as to:

                                    (A) the absence of any amendments to the
                           charter or certificate of formation of such Person
                           since the date of the certificate referred to in
                           Section 3.01(b)(iv),

                                    (B) with respect to El Paso, Appaloosa, each
                           Counterparty to each E&P Participation Agreement and
                           Assignment of Receivables (as defined in the Original
                           Sponsor Subsidiary Credit Agreement), each issuer of
                           any A-Loan Note, B-Loan Note (as defined in the
                           Original Sponsor Subsidiary Credit Agreement),
                           Convertible Note (as defined in the

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       20

                           Original Sponsor Subsidiary Credit Agreement) and El
                           Paso Demand Note and the Intermediate Lessee (as
                           defined in the Original Sponsor Subsidiary Credit
                           Agreement), a true and correct copy of the by-laws of
                           such Person as in effect on the Closing Date,

                                    (C) the due incorporation or formation and
                           good standing of such Person as a corporation or
                           limited liability company, as the case may be, under
                           the laws of the jurisdiction of its organization, and
                           the absence of any proceeding for the dissolution or
                           liquidation of such Person,

                                    (D) in the case of each such Person, that
                           attached thereto is a true and complete copy of
                           resolutions duly adopted by the board of directors,
                           executive (or other) committee of the board of
                           directors, board of managers, managing member or
                           manager, as applicable, of such Person authorizing
                           the execution, delivery and performance of the
                           Operative Documents to which it is or is to be a
                           party,

                                    (E) in the case of each such Person, that
                           such resolutions have not been revoked, annulled or
                           modified in any manner and are in full force and
                           effect,

                                    (F) in the case of each such Person, the
                           incumbency and specimen signature of each officer or
                           managing member, as applicable, of such Person
                           executing the Operative Documents described in clause
                           (D) above, and a certification of another officer or
                           an authorized representative of such Person or of a
                           managing member of such Person, as applicable, as to
                           the signature of the officers signing certificates
                           referred to in this subclause (v),

                                    (G) no Liquidating Event, Termination Event,
                           Notice Event, Event of Default, or Incipient Event
                           has occurred and is continuing or would result from
                           the making of the Initial Advance,

                                    (H) in the case of Noric Holdings and Noric
                           Holdings I, Noric Holdings and Noric Holdings I have
                           each made or are simultaneously making all capital
                           contributions required to be made by Noric Holdings
                           and Noric Holdings I on the Closing Date pursuant to
                           the Clydesdale Partnership Agreement,

                                    (I) in the case of Noric Holdings I, Noric
                           Holdings I has made or is simultaneously making all
                           capital contributions required to be made by Noric
                           Holdings I on the Closing Date pursuant to the Noric
                           Company Agreement, and

                                    (J) in the case of Appaloosa, Appaloosa has
                           made or is simultaneously making all capital
                           contributions required to be made by it on the
                           Closing Date pursuant to the Clydesdale Partnership
                           Agreement and Appaloosa, as the Clydesdale General
                           Partner, will simultaneously

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       21

                           cause Clydesdale to make all capital contributions
                           required to be made by Clydesdale on the Closing Date
                           pursuant to the Noric Company Agreement.

                           (vi) The legal opinions described in Schedule
                  3.01(b)(vi) to the Original Sponsor Subsidiary Credit
                  Agreement.

                           (vii) A certificate of Appaloosa certifying that, on
                  the Closing Date and after giving effect to the use of
                  proceeds and the other transactions contemplated by the
                  Operative Documents on the Closing Date: (A) Appaloosa is the
                  Clydesdale General Partner, each of Noric Holdings and Noric
                  Holdings I is a Clydesdale Class A Limited Partner and Mustang
                  is the Clydesdale Class B Limited Partner and (B) Appaloosa's,
                  Noric Holdings', Noric Holdings I's and Mustang's Capital
                  Account under and as defined in the Clydesdale Partnership
                  Agreement (after giving effect to all allocations required to
                  be made through the Closing Date and the making of additional
                  capital contributions to Clydesdale in respect of Appaloosa's
                  Clydesdale General Partnership Interest, Noric Holdings'
                  Clydesdale Class A Limited Partnership Interest, Noric
                  Holdings I's Class A Limited Partnership Interest and
                  Mustang's Clydesdale Class B Limited Partnership Interest) is
                  not less than $5,000,000, $25,000,000, $25,000,000 and
                  $250,000,000, respectively.

                           (viii) A certificate of Noric Holdings I certifying
                  that, on the Closing Date and after giving effect to the use
                  of proceeds and the other transactions contemplated by the
                  Operative Documents on the Closing Date: (A) Noric Holdings I
                  is the Noric Class A Member and Clydesdale is the Noric Class
                  B Member and (B) Noric Holdings I and Clydesdale have made all
                  capital contributions required to be made by Noric Holdings I
                  and Clydesdale, respectively, to Noric on the Closing Date
                  pursuant to the terms of the Noric Company Agreement.

                           (ix) A copy of each notice by Noric Holdings required
                  pursuant to Section 7.01(b) and Section 7.02(b) hereof.

                           (x) Any other documents referred to in Exhibit 5 to
                  the Acquisition/Accession Procedures Schedule relating to any
                  Transaction Assets contributed on the Closing Date.

                           (xi) Certificates from Noric Holdings and Noric
                  Holdings I certifying that, on or prior to the Closing Date,
                  Noric Holdings and Noric Holdings I have received capital
                  contributions from their respective members in amounts not
                  less than $25,000,000 and $25,000,000, respectively.

                           (xii) Such other certificates, documents and opinions
                  as Clydesdale may reasonably request.

                  (c) Appaloosa shall be the Clydesdale General Partner, Noric
         Holdings and Noric Holdings I shall each be a Clydesdale Class A
         Limited Partner, Noric Holdings I

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       22

         shall be the Noric Class A Member, Mustang shall be the Clydesdale
         Class B Limited Partner and Clydesdale shall be the Noric Class B
         Member and each such Person shall have made all capital contributions
         to Clydesdale and Noric (as applicable) required by the terms of the
         Clydesdale Partnership Agreement and the Noric Company Agreement, as
         applicable.

                  (d) All agreements related to, and the capital and legal
         structure of, Appaloosa, Noric, the Sponsor Subsidiaries and any
         Intermediate Lessee (as defined in the Original Sponsor Subsidiary
         Credit Agreement) (including, but not limited to, the Operative
         Documents) and all organizational documents shall be reasonably
         satisfactory to Clydesdale.

                  (e) All necessary governmental and third-party approvals in
         connection with the Transactions shall have been received, except for
         such governmental and third party approvals that, pursuant to the
         provisions hereof or the Operative Documents, are not required to be
         obtained on or prior to the Closing Date.

                  (f) No litigation by any entity (private or governmental)
         shall be pending, or to Noric Holdings' knowledge threatened, against
         or involving (i) Noric, Clydesdale, any Sponsor Subsidiary, any
         Intermediate Holder, any Underlying Business or any Counterparty to any
         E&P Participation Agreement or any Assignment of Receivables (as
         defined in the Original Sponsor Subsidiary Credit Agreement) or
         affecting any of their respective properties, assets, rights or
         businesses or (ii) any E&P Participation Agreement, any Assignment of
         Receivables (as defined in the Original Sponsor Subsidiary Credit
         Agreement), any E&P Participation Property or any underlying property
         or affecting any of the rights of any party thereto, or owner thereof,
         in each case in any court, or before any arbitrator of any kind, or
         before or by any governmental body which, in the reasonable judgment of
         Clydesdale (taking into account the exhaustion of all appeals) would
         have a Material Adverse Effect or which purports to affect the
         legality, validity, binding effect or enforceability of any Operative
         Document.

                  (g) All fees and reasonable out-of-pocket costs and expenses,
         including reasonable legal fees and expenses (and other compensation
         contemplated hereby) payable to the Sponsor Subsidiary Collateral
         Agent, required to be paid by the Sponsor Subsidiaries hereunder shall
         have been paid to the extent due.

                  (h) Clydesdale shall be reasonably satisfied with all legal
         issues including tax and regulatory matters relating to the Operative
         Documents and the Transactions.

                  (i) Evidence that the Sponsor Subsidiary Cash Reserve, the
         Noric Cash Reserve, the Clydesdale Operating Account and the Sponsor
         Subsidiary Operating Account have been established.

                  (j) On the Closing Date, the following statements shall be
         true (and acceptance by Noric Holdings of the proceeds of the Initial
         Advance on the Closing Date shall constitute a representation and
         warranty by Noric Holdings that on the Closing Date such statements are
         true):

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       23

                           (i) the representations and warranties of each El
                  Paso Party contained in each Operative Document to which it is
                  a party are correct in all material respects on and as of the
                  Closing Date, before and after giving effect to the Initial
                  Advance and to the application of the proceeds therefrom, as
                  though made on and as of such date (except to the extent that
                  such representations and warranties relate solely to an
                  earlier date (in which case such representations and
                  warranties shall have been correct in all material respects on
                  and as of such earlier date));

                           (ii) no event has occurred and is continuing, or
                  would result from the making of the Initial Advance or from
                  the application of the proceeds therefrom, that constitutes a
                  Liquidating Event, Termination Event, Notice Event, Event of
                  Default or Incipient Event; and

                           (iii) the proceeds of the Initial Advance will be
                  used solely to make A-Loans and B-Loans (as defined in the
                  Original Sponsor Subsidiary Credit Agreement).

                  (k) Lord Securities shall have been appointed as (i) an
         independent member of each Sponsor Subsidiary pursuant to the terms of
         each Sponsor Subsidiary Company Agreement, (ii) an independent director
         of Appaloosa and (iii) an independent member of the Intermediate Lessee
         (as defined in the Original Sponsor Subsidiary Credit Agreement).

                  (l) The aggregate principal amount of A-Loans to be made on
         the Closing Date is equal to $231,711,000, and the aggregate principal
         amount of B-Loans (as defined in the Original Sponsor Subsidiary Credit
         Agreement) to be made on the Closing Date is equal to $48,289,000.

                  Section 3.02. Conditions Precedent to Making the Additional
Advances. If Clydesdale agrees to make an Additional Advance, the agreement of
Clydesdale to make such Additional Advance on the applicable Capital
Contribution Date is subject to the following conditions:

                  (a) On the date of the notice referred to in Section
         2.02(b)(i) and on such Capital Contribution Date, the following
         statements shall be true (and acceptance by Noric Holdings of the
         proceeds of an Additional Advance on the applicable Capital
         Contribution Date shall constitute a representation and warranty by
         Noric Holdings that on each such date such statements are true):

                           (i) the representations and warranties of each El
                  Paso Party contained in each Operative Document to which it is
                  a party are correct in all material respects on and as of each
                  such date, before and after giving effect to such Additional
                  Advance and to the application of the proceeds therefrom, as
                  though made on and as of each such date (except to the extent
                  that such representations and warranties relate solely to an
                  earlier date (in which case such representations and
                  warranties shall have been correct in all material respects on
                  and as of such earlier date));

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       24

                           (ii) no event has occurred and is continuing, or
                  would result from the making of such Additional Advance or
                  from the application of the proceeds therefrom, that
                  constitutes a Liquidating Event, Termination Event, Notice
                  Event, Event of Default or Incipient Event; and

                           (iii) the proceeds of such Additional Advance will be
                  used solely to make additional A-Loans.

                  (b) Evidence that the aggregate principal amount of the
         A-Loans on such Additional Advance Date is at least equal to the
         aggregate principal amount of the Advances outstanding on such
         Additional Advance Date.

                  (c) Each of Appaloosa, Noric Holdings, Noric Holdings I and
         Mustang shall have made all capital contributions to Clydesdale
         required by the terms of the Clydesdale Partnership Agreement on such
         Additional Advance Date.

                  (d) Any other documents referred to in Exhibit 5 to the
         Acquisition/Accession Procedures Schedule relating to any Transaction
         Assets contributed on such Additional Advance Date.

                  (e) All fees and reasonably out-of-pocket costs and expenses,
         including reasonable legal fees and expenses, required to be paid by
         the Sponsor Subsidiaries hereunder shall have been paid to the extent
         due.

                  (f) Unless waived by Clydesdale, certified copies of the
         resolutions of the Board of Directors of El Paso authorizing the
         transactions contemplated on such Capital Contribution Date, and of all
         documents evidencing other necessary corporate action and government
         approvals, if any, with respect to the transactions contemplated on
         such Capital Contribution Date.

                  (g) Such other certificates, documents and opinions as
         Clydesdale may reasonably request.

                  Section 3.03. Conditions Precedent to Amending and Restating
this Agreement on July 19, 2002. The third amendment and restatement of this
Agreement as of July 19, 2002 (the "THIRD RESTATEMENT DATE") is subject to, and
shall take effect upon, the following conditions precedent being satisfied on or
prior to such date:

                  (a) In the case of El Paso and its Consolidated Subsidiaries,
         since December 31, 2001, nothing shall have occurred that will have
         resulted in a Material Adverse Effect (adopting for the purposes of
         this Section 3.03(a) the definition of "Material Adverse Effect" set
         forth in clause (b) of the definition thereof in Exhibit A to the
         Clydesdale Partnership Agreement).

                  (b) Clydesdale shall have received the following documents,
         each dated as of the Third Restatement Date (other than the documents
         described in clause (b)(iii)) and duly executed by the respective party
         or parties thereto, and otherwise in form and

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       25

         substance reasonably satisfactory to Clydesdale and (except for any
         A-Loan Note and any document listed in clause (b)(iii)) in four
         original counterparts:

                           (i) This Agreement, as amended and restated as of the
                  Third Restatement Date.

                           (ii) A replacement A-Loan Note dated the Third
                  Restatement Date (to be delivered against receipt of the then
                  existing A-Loan Note and the then existing B-Loan Note (as
                  defined in the Original Sponsor Subsidiary Credit Agreement)).

                           (iii) Certificates of the Secretary of State of the
                  State of Delaware with respect to (without duplication)
                  Lusitano, Lipizzan, El Paso Production Oil & Gas USA, El Paso
                  Oil & Gas Resources and El Paso Energy Raton, L.L.C, in each
                  case, certifying that (A) such Person has paid all franchise
                  taxes to the date of such certificate and (B) such Person is
                  duly formed and in good standing under the laws of its state
                  of formation or incorporation and attaching the certificate of
                  formation or certificate of limited partnership and each
                  amendment thereto on file in such office and certifying, (1)
                  such certificate of formation or certificate of limited
                  partnership is a true and complete copy thereof and (2) such
                  amendments are the only amendments to such certificate of
                  formation or certificate of limited partnership on file in
                  such office.

                           (iv) Certificates of each of (without duplication)
                  Appaloosa, Noric, Noric LP, Palomino, Paso Fino, Noric
                  Holdings, Noric Holdings I, Noric Holdings III, Noric Holdings
                  IV, each other Sponsor Subsidiary, Lusitano, Lipizzan, El
                  Paso, each Counterparty to each E&P Participation Agreement,
                  El Paso Production Oil & Gas USA, El Paso Oil & Gas Resources,
                  El Paso Energy Raton, L.L.C, each issuer of any A-Loan Note
                  and El Paso Demand Note, signed on behalf of each such Person
                  by a managing member, President, Vice President, Treasurer,
                  Assistant Treasurer, Secretary, Deputy Corporate Secretary,
                  Assistant Secretary or Deputy Treasurer of each such Person or
                  its managing member or general partner, as applicable (the
                  statements made in which certificate shall be true and correct
                  on and as of the Third Restatement Date), certifying as to:

                                    (A) the absence of any amendments to the
                           charter, certificate of formation or certificate of
                           limited partnership of such Person since the date of
                           the certificate referred to in Section 3.01(b)(iv)
                           (or since December 15, 2000 in the case of Noric LP,
                           Palomino or Paso Fino or since June 19, 2001 in the
                           case of Noric Holdings III) and with respect to
                           Lusitano, Lipizzan, El Paso Production Oil & Gas USA,
                           El Paso Oil & Gas Resources and El Paso Energy Raton,
                           L.L.C, the absence of any amendments to the
                           certificate of formation or certificate of limited
                           partnership of such Person since the date of the
                           certificate referred to in Section 3.03(b)(iii),

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       26

                                    (B) with respect to (without duplication) El
                           Paso, Appaloosa, each Counterparty to each E&P
                           Participation Agreement, each issuer of any A-Loan
                           Note and El Paso Demand Note, the absence of any
                           amendments to the by-laws of such Person since
                           delivery of such by-laws under Section 3.01(b)(v)(B),
                           with respect to El Paso Energy Raton, L.L.C., a true
                           and correct copy of its company agreement and, with
                           respect to each Counterparty to any Production
                           Payment Agreement, a true and correct copy of the
                           partnership agreement of such Person,

                                    (C) the due incorporation or formation and
                           good standing of such Person as a corporation,
                           limited partnership or limited liability company, as
                           the case may be, under the laws of the jurisdiction
                           of its organization, and the absence of any
                           proceeding for the dissolution or liquidation of such
                           Person,

                                    (D) in the case of each such Person, that
                           attached thereto is a true and complete copy of
                           resolutions duly adopted by the board of directors,
                           executive (or other) committee of the board of
                           directors, board of managers, managing member,
                           general partner or manager, as applicable, of such
                           Person authorizing the execution, delivery and
                           performance of the Operative Documents to which it is
                           or is to be a party as amended and restated as of the
                           Third Restatement Date,

                                    (E) in the case of each such Person, that
                           such resolutions, or if no resolutions are delivered
                           as described in clause (D) above such resolutions as
                           were previously delivered under Section 3.01 with
                           respect to such Person, have not been revoked,
                           annulled or modified in any manner and are in full
                           force and effect,

                                    (F) in the case of each such Person, the
                           incumbency and specimen signature of each officer of
                           such Person or of a managing member or general
                           partner of such Person, as applicable, executing the
                           Operative Documents described in clause (D) above,
                           and a certification of another officer or an
                           authorized representative of such Person or of a
                           managing member or general partner of such Person, as
                           applicable, as to the signature of the officers
                           signing certificates referred to in this subclause
                           (v), and

                                    (G) no Liquidating Event, Termination Event,
                           Notice Event, Event of Default, or Incipient Event
                           has occurred and is continuing or would result from
                           the amendment and restatement of this Agreement and
                           the other transactions contemplated on the Third
                           Restatement Date.

                           (v) The Sponsor Subsidiary Security Agreement, as
                  amended and restated as of the Third Restatement Date.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       27

                           (vi) The El Paso Guaranty, as amended and restated as
                  of the Third Restatement Date.

                           (vii) The El Paso Agreement, as amended and restated
                  as of the Third Restatement Date.

                           (viii) The Clydesdale Partnership Agreement, as
                  amended and restated as of the Third Restatement Date.

                           (ix) The Noric Holdings Company Agreement, as amended
                  and restated as of the Third Restatement Date.

                           (x) The Noric Holdings I Company Agreement, as
                  amended and restated as of the Third Restatement Date.

                           (xi) The Noric Holdings III Company Agreement, as
                  amended and restated as of the Third Restatement Date.

                           (xii) The Noric Holdings IV Company Agreement.

                           (xiii) The Noric Company Agreement, as amended and
                  restated as of the Third Restatement Date.

                           (xiv) The Noric LP Partnership Agreement, as amended
                  and restated as of the Third Restatement Date.

                           (xv) The Lusitano Company Agreement.

                           (xvi) The Lipizzan Partnership Agreement.

                           (xvii) The Notice Agreement, as amended and restated
                  as of the Third Restatement Date.

                           (xviii) Each Production Payment Conveyance in
                  sufficient counterparts for recording in all appropriate
                  jurisdictions.

                           (xix) Each Production and Delivery Agreement in
                  sufficient counterparts for recording in all appropriate
                  jurisdictions.

                           (xx) Financing statements for filing in each
                  appropriate jurisdiction in order to perfect the security
                  interests granted under each Production and Delivery
                  Agreement.

                           (xxi) A Liquidation Indemnity with respect to each of
                  Noric Holdings IV, Lusitano and Lipizzan.

                           (xxii) The Mustang Company Agreement, as amended and
                  restated as of the Third Restatement Date.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       28

                           (xxiii) The Sponsor Subsidiary Consent.

                           (xxiv) Amendment No. 2 to the Administration
                  Agreement.

                           (xxv) A copy of each notice required pursuant to
                  Section 7.01(b) and Section 7.02(b).

                           (xxvi) The legal opinions described in Schedule
                  3.03(b).

                           (xxvii) A certificate of Noric Holdings IV certifying
                  that, on the Third Restatement Date and after giving effect to
                  the use of proceeds and the other transactions contemplated by
                  the Operative Documents on the Third Restatement Date: (A)
                  Noric Holdings IV is the Lusitano Member and the Lipizzan
                  Limited Partner, (B) Lusitano is the Lipizzan General Partner
                  and (C) Noric Holdings IV has made all capital contributions
                  required to be made by Noric Holdings IV to Lipizzan on the
                  Third Restatement Date pursuant to the terms of the Lipizzan
                  Partnership Agreement.

                           (xxviii) The Engage Letter

                           (xxix) Such other certificates, documents and
                  opinions as Clydesdale may reasonably request.

                  (c) Evidence that all other actions to the extent necessary or
         desirable, in the judgment of Clydesdale, to perfect and protect the
         Liens created by the Sponsor Subsidiary Security Agreement have been
         taken, including without limitation, the delivery of copies of proper
         Financing Statements (Form UCC-1 and/or UCC-3) with respect to the
         financing statements filed in connection with the Sponsor Subsidiary
         Security Agreement.

                  (d) All agreements related to, and the capital and legal
         structure of, Appaloosa, Noric, Noric LP, Palomino, Paso Fino, the
         Sponsor Subsidiaries, Lusitano and Lipizzan (including, but not limited
         to, the Operative Documents) and all organizational documents shall be
         reasonably satisfactory to Clydesdale.

                  (e) All necessary governmental and third-party approvals in
         connection with the transactions contemplated hereby and by the other
         Operative Documents on the Third Restatement Date or otherwise referred
         to herein shall have been received, except for such governmental and
         third party approvals that, pursuant to the provisions hereof or the
         Operative Documents, are not required to be obtained on or prior to the
         Third Restatement Date.

                  (f) No litigation by any entity (private or governmental)
         shall be pending, or to Noric Holdings' knowledge threatened, against
         or involving (i) Noric, Noric LP, Palomino, Paso Fino, Clydesdale, any
         Sponsor Subsidiary, Lusitano, Lipizzan, any Underlying Business or any
         Counterparty to any E&P Participation Agreement or any Production
         Payment Agreement or affecting any of their respective properties,
         assets, rights or businesses or (ii) any E&P Participation Agreement,
         any Production Payment

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       29

         Agreement, any E&P Participation Property, any Production Payment
         Interests or any underlying property or affecting any of the rights of
         any party thereto, or owner thereof, in each case in any court, or
         before any arbitrator of any kind, or before or by any governmental
         body which, in the reasonable judgment of Clydesdale (taking into
         account the exhaustion of all appeals) would have a Material Adverse
         Effect or which purports to affect the legality, validity, binding
         effect or enforceability of any Operative Document.

                  (g) All fees and reasonable out-of-pocket costs and expenses,
         including reasonable legal fees and expenses (and other compensation
         contemplated hereby) payable to the Sponsor Subsidiary Collateral
         Agent, required to be paid by the Sponsor Subsidiaries hereunder shall
         have been paid to the extent due.

                  (h) Clydesdale shall be reasonably satisfied with all legal
         issues including tax and regulatory matters relating to the Operative
         Documents and the Transactions.

                  (i) On the Third Restatement Date, the following statements
         shall be true (and each Sponsor Subsidiary hereby represents as of the
         Third Restatement Date that such statements are true):

                           (i) the representations and warranties of each El
                  Paso Party contained in each Operative Document to which it is
                  a party are correct in all material respects on and as of the
                  Third Restatement Date, before and after giving effect to the
                  amended and restatement of this Agreement as of such date, as
                  though made on and as of such date (except to the extent that
                  such representations and warranties relate solely to an
                  earlier date (in which case such representations and
                  warranties shall have been correct in all material respects on
                  and as of such earlier date)); and

                           (ii) no event has occurred and is continuing, or
                  would result from the amendment and restatement of this
                  Agreement as of such Date, that constitutes a Liquidating
                  Event, Termination Event, Notice Event, Event of Default or
                  Incipient Event.

                  (j) Lord Securities shall have been appointed as an
         independent member of Noric Holdings IV pursuant to the terms of the
         Noric Holdings IV Company Agreement.

                  (k) Evidence that all of the B-Loans (as defined in the
         Original Sponsor Subsidiary Credit Agreement) outstanding immediately
         prior to the Third Restatement Date have been converted to A-Loans.

                  (l) Evidence that the aggregate principal amount of the
         A-Loans on the Third Restatement Date is at least equal to the
         aggregate principal amount of the Advances outstanding on the Third
         Restatement Date.

                  (m) Evidence that, immediately after the Third Restatement
         Date, the Sponsor Subsidiaries shall be in compliance with the
         requirements of Section 5.04(b).

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       30

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

                  Section 4.01. Representations and Warranties with Respect to
Each Sponsor Subsidiary. Each Sponsor Subsidiary represents and warrants as
follows in respect of itself and, in the case of Noric Holdings I only, in
respect of each of Noric, Palomino, Paso Fino and Noric LP, and, in the case of
Noric Holdings IV only, in respect of each of Lusitano and Lipizzan:

                  (a) Due Formation. Each such Sponsor Subsidiary, Lusitano,
         Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case may be)
         is duly formed, validly existing and in good standing under the laws of
         the State of Delaware. Each such Sponsor Subsidiary, Lusitano,
         Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case may be)
         has all requisite limited liability company or limited partnership
         powers to carry on its business as now conducted and all governmental
         licenses, authorizations, consents and approvals required in each case
         to carry on its business as now conducted, except for such governmental
         licenses, authorizations, consents and approvals of which the failure
         to obtain could not reasonably be expected to have a Material Adverse
         Effect.

                  (b) Authorization of Agreements. Each such Sponsor Subsidiary,
         Lusitano, Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case
         may be) has the limited liability company or limited partnership (as
         the case may be) power and authority to execute and deliver each
         Operative Document to which it is a party and to perform its
         obligations thereunder. The execution, delivery and performance by each
         such Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino
         or Noric LP (as the case may be) of each Operative Document to which it
         is a party have been duly authorized by all necessary limited liability
         company or limited partnership action (as the case may be).

                  (c) Enforceability. Each Operative Document to which each such
         Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino or
         Noric LP (as the case may be) is a party constitutes the legal, valid
         and binding obligation of such Sponsor Subsidiary, Lusitano, Lipizzan,
         Noric, Palomino, Paso Fino or Noric LP (as the case may be) and is
         enforceable against such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be) in accordance with
         its terms, except as the enforceability thereof may be limited by the
         effect of any applicable bankruptcy, insolvency, reorganization,
         moratorium or similar laws affecting creditors' rights generally and by
         general principles of equity.

                  (d) Compliance with Applicable Laws. Each such Sponsor
         Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino or Noric LP
         (as the case may be) is in compliance with all Applicable Laws
         applicable to it and all licensing requirements of all Governmental
         Authorities the violation of which could reasonably be expected to have
         a Material Adverse Effect, and none of such Sponsor Subsidiary,
         Lusitano, Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case
         may be) is the subject of any outstanding or threatened citation,
         order, or investigation by any Governmental Authority that could
         reasonably be expected to have a Material Adverse Effect.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       31

                  (e) No Conflict with Restrictions; No Default. The execution,
         delivery and performance by such Sponsor Subsidiary, Lusitano,
         Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case may be)
         of each Operative Document to which such Sponsor Subsidiary, Lusitano,
         Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case may be)
         is a party does not (i) contravene or constitute a breach or default
         under (A) any provision of Applicable Law (including Regulation T, U,
         or X issued by the Board of Governors of the Federal Reserve System)
         applicable to such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be), (B) the
         Organizational Documents of such Sponsor Subsidiary, Lusitano,
         Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case may be),
         (C) any judgment, injunction, order, decree or agreement binding upon
         it, (D) any contract, loan agreement, indenture, mortgage, deed of
         trust, lease or other agreement or instrument binding upon or with
         respect to such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be), or (E) any of the
         properties of such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be), or (ii) result in
         the creation or imposition of any Lien on any of the assets of such
         Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino or
         Noric LP (as the case may be), except for Permitted Liens. None of such
         Sponsor Subsidiary, Noric, Lusitano, Lipizzan, Palomino, Paso Fino or
         Noric LP (as the case may be) is in violation of any such Applicable
         Law, or in breach of or in default under any such contract, loan
         agreement, indenture, mortgage, deed of trust, lease or other agreement
         or instrument, except for any violation, breach or default which could
         not reasonably be expected to have a Material Adverse Effect.

                  (f) Authorizations. (i) The execution, delivery and
         performance by such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be) of each Operative
         Document to which such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be) is a party and the
         consummation of the Transactions;

                  (ii) the grant by such Sponsor Subsidiary of the Liens
         pursuant to the Sponsor Subsidiary Security Agreement;

                  (iii) the perfection or maintenance of the Liens created
         pursuant to the Sponsor Subsidiary Security Agreement (including the
         first priority nature thereof, subject to Permitted Liens); and

                  (iv) the exercise by the Sponsor Subsidiary Collateral Agent
         or Clydesdale of their respective rights under the Operative Documents
         or the remedies in respect of the Collateral pursuant thereto (other
         than any consents, approvals, notices or filings that may be required
         under the Securities Act and Article 9 of the UCC (or its equivalent)
         as in effect in the relevant jurisdiction in connection with the
         perfection of the security interests in or with foreclosure on, and
         Disposition of, the Collateral and other than any consents, approvals,
         notices or filings that may be required under any securities laws or
         FERC regulations of general applicability in connection with the
         Disposition of the Collateral), in each case do not require any action
         by or in respect of (including any license or permit), or filing with,
         any Governmental Authority or any other Person that

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       32

         has not been obtained or made and that is not in full force and effect,
         except for (A) actions or filings expressly required by Section 4(d) of
         the Purchase Option Agreement that are to be performed or filed at a
         date after the date of the Purchase Option Agreement, (B) the filing of
         financing statements and any continuation statements with respect to
         filings under the UCC (or its equivalent) in relevant jurisdictions
         permitted by the provisions of the Operative Documents to be performed
         or filed at a later date and (C) the registration of the pledge of any
         Collateral constituting uncertificated securities on the books of the
         issuer thereof, and such consents, authorizations, approvals, actions,
         notices and filings as (1) have been obtained, made, taken or given are
         in full force and effect and copies of which have been furnished to
         Clydesdale and the Agent or (2) are not yet required to be obtained,
         made, taken or given under the terms of the Operative Documents to
         which such Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino,
         Paso Fino or Noric LP (as the case may be) is a party.

                  (g) Litigation. There is no action, suit or proceeding
         pending, or to such Sponsor Subsidiary's knowledge threatened, against
         or involving such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be) or affecting any
         of such Person's properties, assets, rights or businesses (excluding,
         for the purposes of this representation and warranty, any Intermediate
         Holder or Underlying Business relating to any Energy Investment) in any
         court, or before any arbitrator of any kind, or before or by any
         governmental body, which, in such Sponsor Subsidiary's reasonable
         judgment (taking into account the exhaustion of all appeals), would
         have a Material Adverse Effect or which purports to affect the
         legality, validity, binding effect or enforceability of any Operative
         Document.

                  (h) Investment Company Act; Public Utility Holding Company
         Act. None of such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be) is an "investment
         company" within the meaning of the Investment Company Act. None of such
         Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino or
         Noric LP (as the case may be) is a "holding company" or a "subsidiary
         company" of a "holding company" within the meaning of the Public
         Utility Holding Company Act of 1935.

                  (i) No Event. No Incipient Event, Event of Default,
         Liquidating Event, Termination Event or Notice Event has occurred and
         is continuing or would result from the making of any Advance.

                  (j) El Paso Company. Such Sponsor Subsidiary, Lusitano,
         Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case may be)
         is an El Paso Company.

                  (k) No Prior Activities. Since the date of its formation, none
         of such Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso
         Fino or Noric LP (as the case may be) has engaged in any activity other
         than that contemplated by the Operative Documents or entered into any
         commitment or incurred any Indebtedness other than pursuant to, or as
         permitted under, the Operative Documents to which it is a party.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       33

                  (l) Purpose. Such Sponsor Subsidiary was formed to carry out
         the activities set forth in its Sponsor Subsidiary Company Agreement
         and, except in connection therewith (and except as contemplated by the
         Operative Documents), it has no significant assets or liabilities.
         Noric was formed to carry out the activities set forth in the Noric
         Company Agreement and, except in connection therewith (and except as
         contemplated by the Operative Documents), Noric has no significant
         assets or liabilities. Each of Palomino and Paso Fino was formed to
         carry out the activities set forth in the Palomino Company Agreement
         and Paso Fino Company Agreement, respectively, and, except in
         connection therewith (and except as contemplated by the Operative
         Documents), neither Palomino nor Paso Fino has any significant assets
         or liabilities. Noric LP was formed to carry out the activities set
         forth in the Noric LP Partnership Agreement and, except in connection
         therewith (and except as contemplated by the Operative Documents),
         Noric LP has no significant assets or liabilities. Each of Lusitano and
         Lipizzan was formed to carry out the activities set forth in the
         Lusitano Company Agreement and Lipizzan Partnership Agreement,
         respectively, and, except in connection therewith (and except as
         contemplated by the Operative Documents), neither Lusitano nor Lipizzan
         has any significant assets or liabilities.

                  (m) No Material Adverse Effect. Since the date of its
         formation, there has been no event with respect to such Sponsor
         Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino or Noric LP
         (as the case may be) that has resulted, or is reasonably likely to
         result, in a Material Adverse Effect.

                  (n) Collateral. (i) All of the existing Collateral pledged by
         it pursuant to the Sponsor Subsidiary Security Agreement is owned
         legally and beneficially by it free and clear of all Liens, except for
         Permitted Liens.

                  (ii) The Sponsor Subsidiary Credit Agreement and the pledge
         and/or assignment of the Collateral created pursuant to the Sponsor
         Subsidiary Security Agreement together with the financing statements to
         be filed with respect thereto, the Sponsor Subsidiary Collateral
         Agent's taking and maintaining possession of all instruments and
         certificates representing or evidencing the Collateral, the
         registration of any Collateral constituting uncertificated securities
         on the books of the issuer thereof in the name of the Sponsor
         Subsidiary Collateral Agent and the other actions taken by it in
         accordance with Section 4 of the Sponsor Subsidiary Security Agreement
         and the filing of the financing statements referred to in Section
         3.01(b)(ii) of this Agreement, create valid and enforceable perfected
         security interests in and Liens on such Collateral, securing the
         payment of all Obligations purported to be secured thereby.

                  (iii) Such security interests are first priority, subject to
         Permitted Liens.

                  (iv) No effective financing statement or other instrument
         similar in effect covering all or any part of the Collateral is on file
         in any recording office, except such as may have been filed in favor of
         the Sponsor Subsidiary Collateral Agent relating to this Agreement.

                  (v) It has no trade names.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       34

                  (vi) Such Sponsor Subsidiary does not own any securities that
         are not Collateral.

                  (vii) Schedule I to the Sponsor Subsidiary Security Agreement
         and each Transaction Asset Schedule (other than Parts IX and X thereof)
         are true, correct and complete in all material respects.

                  (o) Agreement Collateral. (i) None of the Assigned Agreements
         has been amended or otherwise modified (except, in the case of each
         Assigned Agreement other than an Operative Document, any modifications
         made on or before the Closing Date) except as disclosed in Schedule I
         to the Sponsor Subsidiary Security Agreement or Schedule I to the Noric
         Company Agreement or as disclosed in any Transaction Asset Schedule,
         and as otherwise permitted by the Operative Documents, and each
         Assigned Agreement is in full force and effect.

                  (ii) It is not and, to the best of its knowledge, no other
         party to any Assigned Agreement is, in default of its material
         obligations under any Assigned Agreement.

                  (iii) None of the Agreement Collateral (as defined in the
         Sponsor Subsidiary Security Agreement) is evidenced by a promissory
         note or other instrument or chattel paper (each within the meaning of
         the UCC) that has not been delivered to the Sponsor Subsidiary
         Collateral Agent pursuant to Section 4 of the Sponsor Subsidiary
         Security Agreement.

                  (iv) Each party to the Assigned Agreements to which such
         Sponsor Subsidiary is a party other than the Sponsor Subsidiaries and
         the other parties to the Operative Documents has executed and delivered
         to such Sponsor Subsidiary a consent, in substantially the form of
         Exhibit A to the Sponsor Subsidiary Security Agreement, to the
         assignment of the Assigned Agreement to the Sponsor Subsidiary
         Collateral Agent pursuant to the Sponsor Subsidiary Security Agreement.

                  (p) Registered Office. Such Sponsor Subsidiary's chief place
         of business and chief executive office are located at the address
         specified for Noric Holdings in Section 2.2 of the Clydesdale
         Partnership Agreement.

                  (q) Tort Claims. Neither it nor any of its officers or
         directors nor any Responsible Officer of El Paso has actual knowledge
         of any facts, circumstances, conditions or occurrences that could
         reasonably be anticipated to form the basis of any tort claim against
         any Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino,
         Noric LP, Clydesdale or any Counterparty to any E&P Participation
         Agreement or any Production Payment Agreement, or any Sponsor
         Subsidiary Property, Lusitano Property, Lipizzan Property, Noric
         Property, Palomino Property, Paso Fino Property, Noric LP Property,
         Clydesdale Property, E&P Participation Property, Production Payment
         Interest or Subject Interest that individually or in the aggregate
         could reasonably be expected to have a Material Adverse Effect.

                  (r) A-Loans. As of the Third Restatement Date and each Capital
         Contribution Date, the aggregate outstanding principal amount of all
         A-Loans made by all Sponsor

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       35

         Subsidiaries equals at least the outstanding principal amount of all
         Advances made hereunder to all Sponsor Subsidiaries as of each such
         date.

                  (s) Assets. None of such Sponsor Subsidiary, Lusitano,
         Lipizzan, Noric, Palomino, Paso Fino or Noric LP (as the case may be)
         has any material assets other than Permitted Assets.

                  (t) Taxes. Such Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP (as the case may be) has filed and
         paid, or caused to be filed and paid on a timely basis, all tax returns
         and Taxes (whether gains Taxes, transfer Taxes, recording fees or Taxes
         or any other Taxes) due and owing, and such other tax returns and Taxes
         that arise in connection with the Transactions, on the Closing Date,
         the Third Restatement Date and each Capital Contribution Date, but
         excluding Taxes the non-timely filing or payment of which, in the
         context of the Operative Documents, the Transactions and the rights and
         remedies of the respective parties thereto, could not reasonably be
         expected to have a Material Adverse Effect.

                  (u) Principal Subsidiaries. None of any Sponsor Subsidiary,
         Lusitano, Lipizzan, Noric, Palomino, Paso Fino, Noric LP, any
         Intermediate Holder or any Underlying Business is:

                           (i) a Principal Subsidiary, a Restricted Subsidiary
                  or a Material Subsidiary; or

                           (ii) directly owned by El Paso.

                  (v) E&P Assets. (i) All of each E&P Asset held by such Sponsor
         Subsidiary, Lipizzan, Noric or Noric LP (as the case may be) has been
         Freely Transferred to it.

                           (ii) All of each E&P Asset held by such Sponsor
                  Subsidiary, Lipizzan, Noric or Noric LP (as the case may be)
                  is Freely Transferable.

                           (iii) Each E&P Asset held by such Sponsor Subsidiary,
                  Lipizzan, Noric or Noric LP (as the case may be) is an
                  Eligible Investment.

                           (iv) All of the rights and obligations of EPPC under
                  each Hedge Agreement the subject of each trade confirmation
                  attached as Exhibit E hereto have been validly assigned and
                  delegated to Noric or Noric LP, as the case the case may be,
                  free and clear of any Liens.

                  (w) Compliance with Financial Covenants. It is in compliance
         with the requirements of Section 5.04 of this Agreement.

                  Section 4.02. Representations and Warranties with Respect to
Energy Investments and Controlled Businesses. Each Sponsor Subsidiary represents
and warrants as follows with respect to (x) each Energy Investment owned by it
and (y) each Controlled Business which is a direct or indirect Subsidiary of
such Sponsor Subsidiary, subject in the case of this

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       36

clause (y) to Part VI of the Transaction Asset Schedule with respect to each
such Controlled Business:

                  (a) Energy Investments. After giving effect to the
         Transactions on the Closing Date and each Acquisition/Accession Date:

                           (i) Schedule I to the Sponsor Subsidiary Security
                  Agreement and each Transaction Asset Schedule together set
                  forth as of each such date a complete and accurate list of
                  each Energy Investment (including each Intermediate Holder (if
                  any) and each Underlying Business relating to each such Energy
                  Investment) owned by each Sponsor Subsidiary.

                           (ii) Each such Schedule sets forth as of each such
                  date for each such Energy Investment each outstanding class of
                  Investment with respect to each Intermediate Holder (if any)
                  and each Underlying Business related thereto and the
                  percentage of such class of such Investment held directly, or
                  indirectly through one or more Intermediate Holders (if any),
                  by each Sponsor Subsidiary.

                           (iii) Each such Energy Investment has been duly
                  authorized and validly issued by the issuer thereof.

                           (iv) Each such Energy Investment is fully paid and
                  nonassessable and is not subject to any mandatory capital call
                  or similar obligation, except as otherwise described in
                  Schedule I to the Sponsor Subsidiary Security Agreement and
                  each Transaction Asset Schedule.

                           (v) All of each Energy Investment held by such
                  Sponsor Subsidiary has been Freely Transferred to it.

                           (vi) All of each Energy Investment held by such
                  Sponsor Subsidiary is Freely Transferable (it being understood
                  that the Pre-approved Energy Investment is subject to Section
                  4.14 (Change of Control) of the Indenture dated as of June 15,
                  1990 between Colorado Interstate Gas Company, a Delaware
                  corporation and Texas Commerce Bank National Association, a
                  national banking association, as trustee).

                           (vii) Each Energy Investment is an Eligible
                  Investment.

                           (viii) Part V of Schedule I to the Sponsor Subsidiary
                  Security Agreement and Part V of each Transaction Asset
                  Schedule together set forth all Material Agreements with
                  respect to each Energy Investment.

                  (b) Due Formation. Each Controlled Business is duly
         incorporated or formed, validly existing and in good standing under the
         laws of the jurisdiction of its incorporation or formation. Each
         Controlled Business possesses all corporate, limited liability company
         or other applicable Business Entity powers and other authorizations and
         licenses necessary to engage in its business and operations as now
         conducted, the failure to obtain or maintain which would have a
         Material Adverse Effect.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       37

                  (c) Authorization of Material Agreements. Part V of Schedule I
         to the Sponsor Subsidiary Security Agreement and Part V of each
         Transaction Asset Schedule, as applicable, with respect to each
         Controlled Business sets forth all Material Agreements with respect to
         such Controlled Business. The execution, delivery and performance by
         each Controlled Business of each Material Agreement to which it is a
         party are or were within its corporate, limited liability company or
         other applicable Business Entity powers, have been duly authorized by
         all necessary corporate, limited liability company or other applicable
         Business Entity action, and do not contravene (i) its Organizational
         Documents, (ii) any Applicable Law, except to the extent that such
         contravention would not have a Material Adverse Effect or (iii) any
         material contractual restriction binding on or affecting it.

                  (d) Governmental Approvals. No authorization or approval or
         other action by, and no notice to or filing with, any Governmental
         Authority is required for the due execution, delivery and performance
         by each Controlled Business of each Material Agreement to which it is a
         party, except filings necessary to comply with Applicable Laws in the
         ordinary course to enable the Sponsor Subsidiaries to comply with the
         ongoing obligations set forth in Sections 5.08 and 5.09 and under such
         Material Agreements and to perfect security interests.

                  (e) Enforceability. Each Material Agreement to which each
         Controlled Business is a party constitutes the legal, valid and binding
         obligation of such Controlled Business, enforceable against such
         Controlled Business in accordance with its terms, except as may be
         limited by any applicable bankruptcy, insolvency, reorganization,
         moratorium or similar laws affecting creditors' rights generally or by
         general principles of equity.

                  (f) Compliance with Laws, Etc. Each Controlled Business is in
         compliance with all laws, rules, regulations and orders of any
         Governmental Authority applicable to it or its property, except where
         the failure to so comply, individually or in the aggregate, would not
         in the reasonable judgment of such Sponsor Subsidiary be expected to
         result in a Material Adverse Effect.

                  (g) Litigation. There is no action, suit or proceeding
         pending, or to the knowledge of such Sponsor Subsidiary threatened,
         against or involving any Controlled Business in any court, or before
         any arbitrator of any kind, or before or by any governmental body,
         which, in the reasonable judgment of such Sponsor Subsidiary (taking
         into account the exhaustion of all appeals), would have a Material
         Adverse Effect, or which purports to affect the legality, validity,
         binding effect or enforceability of any Material Agreement.

                  (h) Taxes. Each Controlled Business has duly filed all tax
         returns required to be filed, and has duly paid and discharged all
         taxes, assessments and governmental charges upon it or against its
         properties due and payable on the Closing Date, each Additional Advance
         Date or the Acquisition/Accession Date with respect to such Controlled
         Business (as applicable), the failure to pay which would have a
         Material

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       38

         Adverse Effect, unless and to the extent only that the same are being
         contested by any such Person in good faith and by appropriate
         proceedings.

                  (i) Title to Property. Each Controlled Business has good title
         to its properties and assets, free and clear of all mortgages, liens
         and encumbrances, except for mortgages, liens and encumbrances
         (including covenants, restrictions, rights, easements and minor
         irregularities in title) which do not materially interfere with the
         business or operations of such Controlled Business as presently
         conducted or which are permitted by Section 5.09(a) and except that no
         representation or warranty is made with respect to Margin Stock.

                  (j) Investment Company; Holding Company. (i) No Controlled
         Business is an "investment company" within the meaning of the
         Investment Company Act of 1940.

                           (ii) No Controlled Business is a "holding company" or
         a "subsidiary company" of a "holding company" within the meaning of the
         Public Utility Holding Company Act of 1935.

                  Section 4.03. Representations and Warranties with Respect to
E&P Assets. Noric Holdings represents and warrants on the date of delivery of
each Reserve Report pursuant to Section 2.09(b), Section 2.09(d) and Section
2.09(e) that (provided that the representations and warranties to be made under
clauses (b) and (c) below shall only be made with respect to each Reserve Report
prepared by Noric Holdings):

                  (a) the information (excluding any projections or estimates)
         contained in such Reserve Report and any other information delivered
         therewith is true and correct in all material respects as of the date
         of the Reserve Report;

                  (b) any projections set forth in such Reserve Report and the
         estimates of the Proved Reserves attributable to the E&P Participation
         Properties and the Subject Interests, respectively, set forth therein
         were made in good faith and arrived at after due and careful
         consideration and are believed by the Sponsor Subsidiaries to have been
         fair and reasonable as of the date of such Reserve Report and no
         Sponsor Subsidiary is aware of anything which has occurred since the
         date of such Reserve Report which would render the foregoing statements
         in this clause inaccurate or misleading in any material respect;

                  (c) all of the assumptions upon which such projections and
         such estimates were predicated are outlined in such Reserve Report and
         are believed by the Sponsor Subsidiaries to have been fair and
         reasonable as of the date of such Reserve Report and the Sponsor
         Subsidiaries are not aware of anything which has occurred since the
         date of such Reserve Report which would render the foregoing statements
         in this clause inaccurate or misleading in any material respect;

                  (d) after giving effect to all Liens permitted under Section
         4.2.3 of the applicable E&P Participation Agreement and all lessor's
         royalties, overriding royalties, production payments, net profit
         interests and other similar burdens on, or payable from, production,
         the Sponsor Subsidiaries, Noric and/or Noric LP (as the case may be)
         own

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       39

         the net interests in production attributable to each E&P Participation
         Property the subject of such E&P Participation Agreement reflected in
         such Reserve Report;

                  (e) the ownership by the Sponsor Subsidiaries, Noric and/or
         Noric LP (as the case may be) of the Conveyed Interests (as defined in
         any E&P Participation Agreement) relating to an E&P Participation
         Property shall not obligate any such Person to bear costs and expenses
         relating to the maintenance, development and operations of such E&P
         Participation Property in an amount in excess of the working interest
         of such E&P Participation Property set forth in such Reserve Report;

                  (f) except as set forth in any certificate delivered pursuant
         to Section 5.4(b)(vi) of the El Paso Agreement, on a net basis there
         are no material gas imbalances, take or pay prepayments, or other
         prepayments, in each case with respect to any E&P Participation
         Property evaluated in such Reserve Report which would require any
         Sponsor Subsidiary, Noric or Noric LP (as the case may be) to deliver
         hydrocarbons produced from such E&P Participation Property at some
         future time without then or thereafter receiving payment therefor;

                  (g) after giving effect to all Permitted Encumbrances (as
         defined in each Production Payment Conveyance) and all lessor's
         royalties, overriding royalties, production payments, net profit
         interests and other similar burdens on, or payable from production
         (other than the relevant Production Payment), each Counterparty to such
         Production Payment Conveyance owns the net interests in the production
         attributable to each Subject Interest (and the wells attributable
         thereto) reflected in such Reserve Report and Lipizzan owns each
         Production Payment reflected in such Reserve Report;

                  (h) the ownership by each Counterparty to any Production
         Payment Agreement of the Subject Interests related thereto shall not
         obligate such Counterparty to such Production Payment Agreement to bear
         costs and expenses relating to the maintenance, development and
         operations of such Subject Interests (and the wells attributable
         thereto) in an amount in excess of the working interest of such Subject
         Interests or wells set forth in such Reserve Report; and

                  (i) except as set forth in any certificate delivered pursuant
         to Section 5.4(b)(vi) of the El Paso Agreement, on a net basis there
         are no material gas imbalances, take or pay prepayments, or other
         prepayments, in each case with respect to any Subject Interest or any
         Production Payment evaluated in such Reserve Report which would require
         any Counterparty to any Production Payment Agreement or Lipizzan (as
         the case may be) to deliver hydrocarbons produced from or attributable
         to such Subject Interests or such Production Payment at some future
         time without then or thereafter receiving payment therefor.

                  Section 4.04. Timing of Representations and Warranties with
respect to Operative Documents(a). (a) On the date of execution of each E&P
Participation Agreement or Novation Agreement, the Sponsor Subsidiary party
thereto and, in the case of each Novation Agreement, Noric Holdings I on behalf
of Noric or Noric LP, as the case may be, shall be deemed to repeat the
representations set forth in Section 4.01 (other than the representations and

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       40

warranties in Section 4.01(i), Section 4.01(k), Section 4.01(m), Section 4.01(r)
or Section 4.01(t)); provided that, any reference therein to an Operative
Document shall be construed as a reference to such E&P Participation Agreement
or Novation Agreement, as the case may be.

                  (b) On the date of execution of each Production Payment
Agreement Noric Holdings IV, on its behalf and on behalf of Lipizzan, as the
case may be, shall be deemed to repeat the representations set forth in Section
4.01 (other than the representations and warranties in Section 4.01(i), Section
4.01(k), Section 4.01(m), Section 4.01(r) or Section 4.01(t)); provided that,
any reference therein to an Operative Document shall be construed as a reference
to such Production Payment Agreement.

                                    ARTICLE V

                        COVENANTS OF SPONSOR SUBSIDIARIES

                  Section 5.01. Affirmative Covenants with Respect to Sponsor
Subsidiaries. Until the Debt Collection Date, each Sponsor Subsidiary will at
all times, unless otherwise consented to in writing by Clydesdale:

                  (a) Compliance with Laws, Etc. Comply with, and cause its
         properties to be maintained and used in accordance with, all Applicable
         Laws applicable to it or its properties, except where the failure to do
         so could not reasonably be expected to have a Material Adverse Effect.

                  (b) Payment of Taxes, Etc. Pay and discharge before the same
         shall become delinquent (i) all taxes, assessments and governmental
         charges or levies imposed upon it or upon its property and (ii) all
         lawful claims, which, in each case, if unpaid, might by law become a
         Lien upon its property; provided, however, that such Sponsor Subsidiary
         shall not be required to pay or discharge any such tax, assessment,
         governmental charge, levy or claim that is being contested in good
         faith and by proper proceedings and as to which appropriate reserves
         are being maintained in accordance with GAAP, unless and until any Lien
         resulting therefrom attaches to its property and becomes enforceable
         against its other creditors.

                  (c) Preservation of Existence, Etc. Preserve and maintain its
         existence as a limited liability company and its rights (charter and
         statutory) and authority.

                  (d) Inspection Rights. Upon reasonable notice, at any
         reasonable time during normal business hours and not more often than is
         reasonable under the circumstances, permit Clydesdale, any Clydesdale
         Partner or the Sponsor Subsidiary Collateral Agent or any agents or
         representatives thereof to examine the records and books of account of
         such Sponsor Subsidiary and to discuss the affairs, finances and
         accounts of such Sponsor Subsidiary with any officer of such Sponsor
         Subsidiary and to disclose to Clydesdale, such Clydesdale Partner and
         the Sponsor Subsidiary Collateral Agent or any agents or
         representatives thereof any and all financial statements and other
         information of any kind relating to such Sponsor Subsidiary and, after
         prior notice to Noric Holdings, to discuss the affairs, finances and
         accounts of such Sponsor Subsidiary with its independent

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       41

         certified public accountants and permit such accountants to disclose to
         Clydesdale, such Clydesdale Partner or the Sponsor Subsidiary
         Collateral Agent any and all financial statements and other information
         of any kind that they may have with respect to such Sponsor Subsidiary.
         The Sponsor Subsidiaries jointly and severally shall assume or pay all
         reasonable costs and expenses associated with any such examination,
         discussion or copying; provided, however, that, except (i) during the
         existence of an Event of Default, Incipient Event, Notice Event,
         Termination Event or Liquidating Event or (ii) where Clydesdale or any
         Clydesdale Partner acting in good faith reasonably believes there to be
         a reasonable expectation that an Event of Default, Incipient Event,
         Notice Event, Termination Event or Liquidating Event has occurred and
         is continuing, the Sponsor Subsidiaries shall only be liable for the
         costs and expenses of one such examination or discussion per Fiscal
         Year.

                  (e) Keeping of Books. Keep complete, proper and separate books
         of record and account, including a record of all costs and expenses
         incurred, all charges made, all credits made and received, and all
         income derived in connection with the operation of the business of such
         Sponsor Subsidiary, all in accordance with GAAP, in each case to the
         extent necessary to enable such Sponsor Subsidiary to comply with the
         periodic reporting requirements of this Agreement.

                  (f) Performance of Documents. Subject to Section 5.02(f), (i)
         perform and observe in all material respects all of the terms and
         provisions of, and obligations under, each Operative Document and each
         Assigned Agreement to be performed or observed by it (including, in
         respect of Noric Holdings I, causing Noric to take the Noric Required
         Actions, in respect of Noric Holdings IV taking all Noric Holdings IV
         Required Actions and, in respect of each Sponsor Subsidiary, taking the
         Sponsor Subsidiary Required Actions), (ii) maintain, to the extent it
         has the capacity to do so, each such Operative Document to which such
         Sponsor Subsidiary is a party and each Assigned Agreement to which it
         is a party in full force and effect, (iii) promptly enforce in all
         material respects its rights under each such Operative Document and
         Assigned Agreement in accordance with its terms (subject to the terms
         of Article VI hereof), (iv) take all such action to such end (not in
         violation of its Organizational Documents) as may be from time to time
         reasonably requested by Clydesdale or the Sponsor Subsidiary Collateral
         Agent, and (v) upon request of Clydesdale, make to each other party to
         each Operative Document to which such Sponsor Subsidiary is a party or
         a beneficiary such demands and requests for information and reports or
         for action as such Sponsor Subsidiary is entitled to make under such
         Operative Document.

                  (g) Maintenance of Licenses and Permits. Maintain all licenses
         and permits necessary to own its properties and to conduct its
         activities in accordance with all Applicable Laws applicable to it or
         its properties, except for such failures as could not reasonably be
         expected to result in a Material Adverse Effect.

                  (h) Search Reports. Promptly following the Closing Date and
         each Acquisition/Accession Date, deliver to Clydesdale, in form and
         substance reasonably satisfactory to Clydesdale, certified copies of
         reflective searches, or equivalent reports, listing all effective
         financing statements filed in the jurisdictions referred to in Section

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       42

         3.01(b)(ii) that name such Sponsor Subsidiary as debtor, together with
         copies of such other financing statements.

                  (i) Maintenance of Insurance. Maintain, or cause to be
         maintained, insurance with responsible and reputable insurance
         companies or associations in such amounts and covering such risks as is
         usually carried by entities engaged in similar businesses owning
         similar properties in the same general areas in which such Sponsor
         Subsidiary operates.

                  (j) Further Assurance. (i) Promptly upon request by
         Clydesdale, correct any material defect or error that may be discovered
         in any Operative Document to which it is a party or in the execution,
         acknowledgment, filing or recording thereof.

                           (ii) Promptly upon request by Clydesdale or the
         Sponsor Subsidiary Collateral Agent, do, execute, acknowledge, deliver,
         record, re-record, file, re-file, register and re-register any and all
         such further acts, deeds, conveyances, pledge agreements, mortgages,
         deeds of trust, trust deeds, assignments, financing statements and
         continuations thereof, termination statements, notices of assignment,
         transfers, certificates, assurances and other instruments as Clydesdale
         or the Sponsor Subsidiary Collateral Agent may reasonably require from
         time to time in order to (A) carry out more effectively the purposes of
         the Sponsor Subsidiary Credit Documents, (B) to the fullest extent
         permitted by Applicable Law, subject such Sponsor Subsidiary's
         properties, assets, rights or interests to the Liens now or hereafter
         intended to be covered by such Sponsor Subsidiary Credit Documents, (C)
         perfect and maintain the validity, effectiveness and priority (subject
         to Permitted Liens) of the Sponsor Subsidiary Credit Documents and any
         of the Liens intended to be created thereunder, and (D) assure, convey,
         grant, assign, transfer, preserve, protect and confirm more effectively
         unto Clydesdale the rights granted or now or hereafter purported to be
         granted to Clydesdale under any Sponsor Subsidiary Credit Document or
         under any other instrument executed in connection with any Sponsor
         Subsidiary Credit Document to which such Sponsor Subsidiary is or is to
         be a party.

                  (k) Controlled Businesses. Exercise (and use all reasonable
         efforts to cause each of its Affiliates to exercise) all of the rights
         and remedies of such Sponsor Subsidiary and each of its Affiliates
         under each document, instrument or agreement evidencing or relating to
         such Sponsor Subsidiary's interest in any Controlled Business:

                           (i) to comply in all material respects with all
                  Applicable Laws (including all Environmental Laws and
                  Environmental Permits) binding on each Controlled Business,
                  except to the extent that non-compliance would not reasonably
                  be expected to have a Material Adverse Effect;

                           (ii) to comply in all respects with all contractual
                  obligations binding on each Controlled Business, except to the
                  extent non-compliance would not reasonably be expected to have
                  a Material Adverse Effect; and

                           (iii) to operate and maintain each Controlled
                  Business in accordance with prudent industry practice.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       43

                  (l) Purpose. Apply the proceeds of the Advances solely for the
         purpose of making A-Loans.

                  (m) Maintenance of Title to Assets. Maintain legal and
         beneficial title to each of its assets, including each Transaction
         Asset, except to the extent permitted by Section 5.02(d) below.

                  (n) El Paso Demand Loans. Not make any further El Paso Demand
         Loans, or demand repayment of any outstanding El Paso Demand Loan, at
         the times and in accordance with Sections 7.03.

                  (o) Equity Interests. (i) In the case of Noric Holdings and
         Noric Holdings I, take all action necessary to maintain its Clydesdale
         Class A Partnership Interest (subject to the provisions of the
         Clydesdale Partnership Agreement and the other Operative Documents) in
         full force and effect.

                  (ii) In the case of Noric Holdings I only (subject to the
         provisions of the Noric Company Agreement and the other Operative
         Documents), (A) take all action necessary to maintain its Noric Class A
         Membership Interest in full force and effect and (B) cause Noric to (1)
         take all action necessary to maintain its Palomino Membership Interest
         and its Paso Fino Membership Interest and (2) to cause each of Palomino
         and Paso Fino to take all actions necessary to maintain its Noric LP
         General Partnership Interest and its Noric LP Limited Partnership
         Interest, respectively, in full force and effect.

                  (iii) In the case of Noric Holdings IV only, (A) take all
         action necessary to maintain its Lusitano Membership Interest and its
         Lipizzan Limited Partnership Interest in full force and effect and (B)
         cause Lusitano to take all actions necessary to maintain its Lipizzan
         General Partnership Interest in full force and effect.

                  (p) Eligible Investments. Maintain each Transaction Asset and
         each Intermediate Holder (if any) and Underlying Business with respect
         to each Energy Investment (except any Publicly Traded Investment and
         any Intermediate Holder or Underlying Business with respect thereto) as
         an Eligible Investment.

                  Section 5.02. Negative Covenants with Respect to Sponsor
Subsidiaries. Until the Debt Collection Date, each Sponsor Subsidiary will not
at any time without the written consent of Clydesdale:

                  (a) Liens, Etc. Create, incur, assume or suffer to exist any
         Lien on or with respect to any of its properties or assets of any
         character (including the Collateral) whether now owned or hereafter
         acquired, or assign any accounts or other right to receive income;
         excluding, however, from the operation of the foregoing restrictions
         any Permitted Lien.

                  (b) Indebtedness. Create, incur, assume or suffer to exist any
         Indebtedness other than Indebtedness created, incurred or assumed:

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       44

                           (i) of the type described in clause (i) of the
                  definition of "Indebtedness" constituting Sponsor Subsidiary
                  Expenses incurred in the ordinary course of business;

                           (ii) under any Hedge Agreement permitted by Section
                  5.02(o); or

                           (iii) under any Operative Document to which such
                  Sponsor Subsidiary is a party.

                  (c) Mergers, Etc. Enter into any transaction of consolidation
         or merger with or into any other Person, except (A) if immediately
         prior to or contemporaneous with such consolidation or merger all
         Advances are repaid in full together with all accrued interest, all
         amounts required to be paid pursuant to Section 2.06(c), all
         Indemnified Amounts and other amounts payable under the Sponsor
         Subsidiary Credit Documents, (B) any consolidation or merger of one
         Sponsor Subsidiary with or into another Sponsor Subsidiary, (C) if such
         Sponsor Subsidiary does not have (directly or indirectly) any
         Transaction Assets, any interest in any A-Loans, or any other material
         assets or rights of the kind described in Section 1 of the Sponsor
         Subsidiary Security Agreement, such Sponsor Subsidiary may consolidate
         with or merge into any other Subsidiary of El Paso (other than another
         Sponsor Subsidiary), or (D) any merger by Noric, Palomino, Paso Fino or
         Noric LP into Noric Holdings I (with Noric Holdings I as the surviving
         entity) following a transfer of all of Clydesdale's Noric Class B
         Membership Interest to Noric Holdings I in accordance with the terms of
         the Noric Company Agreement and the Clydesdale Partnership Agreement.

                  (d) Acquisitions, Sales, Etc., of Assets. (i) Enter into any
         partnership, joint venture or sale and leaseback transaction, (ii)
         purchase or otherwise acquire (in one or a series of related
         transactions) any portion of the property or assets of any Person or
         (iii) Dispose of, or grant any option with respect to, directly or
         indirectly (or agree to any of the foregoing at any future time), all
         or any portion of its property or assets (including any of the
         Collateral), except that:

                           (A) Permitted Investments may be acquired and
                  Disposed of in the ordinary course of business and subject to
                  and in accordance with the terms of Section 7.03;

                           (B) Energy Investments may be (x) Disposed of in
                  whole but not in part or (y) acquired; provided that:

                                    (1) In each case, no Liquidating Event,
                           Termination Event, Notice Event, Event of Default or
                           Incipient Event has occurred and is continuing or
                           would result from such acquisition or Disposition and
                           the Sponsor Subsidiaries, Lipizzan, Noric and Noric
                           LP shall be in compliance with Section 5.04 on a pro
                           forma basis as of the last date of the calculation of
                           the covenants in Section 5.04 (in the case of a
                           Disposition, after giving effect to any payment,
                           including any deemed

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       45

                           payment, of Cash Collateral Amounts to the Sponsor
                           Subsidiary Cash Reserve);

                                    (2) On the effective date of a Disposition,
                           the Sponsor Subsidiaries prepay the Advances in
                           accordance with Section 2.05(b)(ii); and

                                    (3) Any acquisition of an Energy Investment
                           shall be effected in accordance with the
                           Acquisition/Accession Procedures Schedule;

                           (C) E&P Assets constituting E&P Participation
                  Properties may be acquired or Disposed of from time to time,
                  in each case subject to Section 2.09(e); provided that:

                                    (1) In each case, no Liquidating Event,
                           Termination Event, Notice Event, Event of Default or
                           Incipient Event has occurred and is continuing or
                           would result from such acquisition or Disposition;

                                    (2) Any acquisition of an E&P Asset
                           constituting E&P Participation Properties shall be
                           effected in accordance with the Acquisition/Accession
                           Procedures Schedule;

                                    (3) Starting from the Third Restatement
                           Date, Relevant Assets may be Disposed of if the
                           aggregate Disposition Value of such Relevant Assets
                           to be Disposed of (together with the Disposition
                           Value of all Relevant Assets Disposed of by any
                           Sponsor Subsidiary, Noric LP and Lipizzan during the
                           current E&P Borrowing Base Period) does not exceed
                           the Adjusted Redetermination Threshold for such E&P
                           Borrowing Base Period; and

                                    (4) Starting from the Third Restatement
                           Date, Relevant Assets may be Disposed of if the
                           aggregate Disposition Value of such Relevant Assets
                           to be Disposed of (together with the Disposition
                           Value of all Relevant Assets Disposed of by any
                           Sponsor Subsidiary, Noric LP and Lipizzan during the
                           current E&P Borrowing Base Period) exceeds the
                           Adjusted Redetermination Threshold for such E&P
                           Borrowing Base Period; provided, however, that the
                           Net Cash Proceeds from any such Disposition in excess
                           of such Adjusted Redetermination Threshold shall be
                           deposited by the Sponsor Subsidiary in the Sponsor
                           Subsidiary Cash Reserve and shall be applied pursuant
                           to Section 7.04(i)(A) or (B);

                  provided, however, that if, at the time of any such
                  Disposition described in clauses (3) and (4) above, an El Paso
                  RA Event has occurred and is continuing, such Sponsor
                  Subsidiary shall apply the Net Cash Proceeds from any such
                  Disposition to prepay the Advances in accordance with Section
                  2.05(b)(viii)(A);

                           (D) Noric Holdings IV may from time to time (i)
                  acquire E&P Assets constituting Production Payment Interests
                  solely for the purpose of transferring

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       46

                  such Production Payment Interests to Lipizzan (which transfer
                  shall not be a Disposition for purposes of Section 5.02(d)(C))
                  or (ii) Dispose of E&P Assets constituting Production Payment
                  Interests solely in connection with a Disposition by Lipizzan
                  of such Production Payment Interests; and

                           (E) Equity Interests in a CIG Excluded Subsidiary,
                  Intermediate Holder or Underlying Business may be acquired and
                  Disposed of in connection with a Distribution under Section
                  5.02(j)(iii).

                  (e) Investments, Acquisitions of Transaction Assets, Etc. Make
         or hold any Investment except:

                           (i) in the case of Noric Holdings and Noric Holdings
                  I, for its acquisition and holding of a Clydesdale Class A
                  Limited Partnership Interest, and additional equity
                  contributions in Clydesdale in accordance with Section 5.3 of
                  the Clydesdale Partnership Agreement;

                           (ii) in the case of Noric Holdings I, for its
                  acquisition and holding of the Noric Class A Membership
                  Interest, and additional equity contributions in Noric in
                  accordance with Section 5.2 and Section 5.3 of the Noric
                  Company Agreement;

                           (iii) subject to Section 5.02(d) above, any
                  Investment in Permitted Assets of such Sponsor Subsidiary;

                           (iv) the making and holding of Permitted Investments
                  in accordance with the terms of Section 7.03; provided that
                  such Sponsor Subsidiary may only maintain any defaulted Cash
                  Equivalent for a reasonable period after the occurrence of
                  such default to Dispose of such Cash Equivalent in an orderly
                  fashion or to diligently pursue collection or enforcement
                  thereof;

                           (v) the making of any capital contribution in respect
                  of an Energy Investment with the proceeds of equity capital
                  contributions by the equity holders of such Sponsor
                  Subsidiary;

                           (vi) the payment, including any deemed payment, of
                  any Cash Collateral Amounts to the Sponsor Subsidiary Cash
                  Reserve and/or the Noric Holdings IV Cash Reserve; and

                           (vii) in the case of Noric Holdings IV, for its
                  acquisition and holding of the Lusitano Membership Interest
                  and the Lipizzan Limited Partnership Interest, and additional
                  equity contributions in Lipizzan in accordance with Sections
                  4.2 and 4.3 of the Lusitano Company Agreement and Sections 5.2
                  and 5.3 of the Lipizzan Partnership Agreement.

                  (f) Amendment, Etc., of Operative Documents. (i) Cancel or
         terminate any Operative Document to which it is a party;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       47

                  (ii) consent to or accept any cancellation or termination of
         any Operative Document to which it is a party;

                  (iii) forgive any obligation under, or amend, modify or change
         in any manner any term or condition of any Operative Document to which
         it is a party;

                  (iv) give any consent, waiver or approval under any Operative
         Document to which it is a party;

                  (v) waive any default under or any breach of any term or
         condition of any Operative Document to which it is a party;

                  (vi) agree in any manner to any other amendment, modification
         or change of any term or condition of any Operative Document to which
         it is a party; or

                  (vii) in the case of Noric Holdings IV, deliver to El Paso
         Production Oil & Gas USA and /or El Paso Oil & Gas Resources, the
         notice described in the Engage Letter,

         provided that this Section 5.02(f) shall not prohibit any Disposition
         of an E&P Asset permitted under Section 5.02(d) or any amendment
         permitted under Section 5.10(b).

                  (g) Negative Pledge. Enter into or suffer to exist any
         agreement prohibiting or conditioning the creation or assumption of any
         Lien upon any of its property or assets other than (i) any such
         agreement in favor of the Sponsor Subsidiary Collateral Agent and
         Clydesdale or (ii) as provided in the other Operative Documents.

                  (h) Subsidiaries. Establish, create or acquire any direct
         Subsidiary (other than with respect to Distributions permitted under
         Section 5.02(j)(iii)) that holds all or any part, directly or
         indirectly, of any Transaction Asset unless 100% of the Equity
         Interests of such Subsidiary (or at least 65% if such Subsidiary is not
         organized under the laws of the United States or any state thereof) is
         pledged to the Sponsor Subsidiary Collateral Agent pursuant to the
         Sponsor Subsidiary Security Agreement and such Sponsor Subsidiary has
         taken all actions reasonably requested thereunder in respect of further
         assurances in connection with such pledge.

                  (i) Nature of Activities. Engage in any activity other than as
         set forth in Section 2.6 of the Sponsor Subsidiary Company Agreement of
         such Sponsor Subsidiary or possess Sponsor Subsidiary Property or
         assign rights to Sponsor Subsidiary Property for other than a purpose
         described in Section 2.6 of such Sponsor Subsidiary Company Agreement,
         other than any assignment by way of security pursuant to the Sponsor
         Subsidiary Credit Documents.

                  (j) Distributions. Declare or pay any Distributions; provided,
         however, that:

                           (i) a Sponsor Subsidiary may make Distributions
                  constituting or in respect of Excluded Payments;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       48

                           (ii) if no Incipient Event, Event of Default, Notice
                  Event, Termination Event or Liquidating Event shall have
                  occurred and be continuing or shall result therefrom, the
                  Sponsor Subsidiaries may Distribute (w) on each Payment Date
                  cash from the Sponsor Subsidiary Cash Reserve in an amount
                  equal to the amount permitted to be so Distributed pursuant to
                  Section 7.04(a)(7), (x) on each E&P Borrowing Base Effective
                  Date cash from the Sponsor Subsidiary Cash Reserve and the
                  Noric Holdings IV Cash Reserve in an aggregate amount equal to
                  the aggregate amount permitted to be so Distributed pursuant
                  to Section 2.10(b) or Section 2.10(c), (y) on each Cash
                  Collateral Amount Distribution Date, cash from the Total Cash
                  Collateral Amount in the Sponsor Subsidiary Cash Reserve and
                  the Noric Holdings IV Cash Reserve in an aggregate amount
                  equal to the aggregate amount permitted to be so Distributed
                  pursuant to Section 7.04(g), and (z) from time to time, cash
                  from the Sponsor Subsidiary Cash Reserve and the Noric
                  Holdings IV Cash Reserve in an aggregate amount equal to the
                  aggregate amount permitted to be so Distributed pursuant to
                  Sections 7.04(h), (i) and (j), as applicable; and

                           (iii) a Sponsor Subsidiary may make Distributions
                  constituting Equity Interests in a CIG Excluded Subsidiary,
                  Intermediate Holder or Underlying Business to the extent a
                  Disposition of such Equity Interests is permitted under
                  Section 5.09(d)(C) or (G).

                  (k) Sponsor Subsidiary Member Transactions. Purchase, redeem,
         retire, defease or otherwise acquire any part of the interest of any
         Sponsor Subsidiary Member in any Sponsor Subsidiary.

                  (l) Reimbursement. Reimburse any holder of an Equity Interest
         in any Sponsor Subsidiary for any liability, loss, cost or expense
         other than as expressly provided for in or contemplated by the
         Operative Documents.

                  (m) Employees. Have any employees.

                  (n) Affiliate Transactions. Enter into any transaction or
         series of related transactions (including making any loan or advance or
         giving any credit) with any of its Affiliates, including El Paso or any
         of its Affiliates, other than:

                           (i) any Hedge Agreement permitted under Section
                  5.02(o);

                           (ii) the transactions contemplated by the Operative
                  Documents to which it is a party; and

                           (iii) any transaction or series of transactions
                  expressly required or permitted, or on terms expressly
                  required or permitted, under the Operative Documents to which
                  it is a party and, if applicable, upon the terms required for
                  such transaction or series of transactions under the relevant
                  Operative Document.

                  (o) Hedge Agreements. Enter into any Hedge Agreement without
         the prior written consent of Clydesdale, except Hedge Agreements with
         Approved Hedge

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       49

         Counterparties designed to hedge against fluctuations in oil and gas
         prices incurred in the ordinary course of business and consistent with
         prudent business practice so long as the aggregate volume of oil and/or
         gas (as applicable) hedged under each such Hedge Agreement does not
         materially exceed the projected actual production of oil and/or gas (as
         applicable) from Proved Reserves of all of the E&P Participation
         Properties for such period based on the most recent Reserve Report;

                  (p) El Paso Demand Loans. Make any Investment in El Paso or
         any Affiliate of El Paso to be evidenced by, or acquire by purchase or
         contribution, any El Paso Demand Loan except to the extent permitted by
         Section 7.03, unless at the time of such making or acquisition (i) the
         borrowing evidenced by the El Paso Demand Loan has been duly authorized
         by all required corporate action, such action has been duly certified
         by the secretary or an assistant secretary of El Paso or such
         Affiliate, and such certification has been delivered to it, together
         with certificates as to incumbency and due authorization of the
         officers of El Paso or such Affiliate authorized to execute and deliver
         such El Paso Demand Loan (which certified action may be one so taken
         and certification may be one so delivered before that Investment or
         acquisition if the certified action remains in effect at the time of,
         and is applicable to, that acquisition) and (ii) such El Paso Demand
         Loan is the legal, valid and binding obligation of El Paso or the
         Affiliate of El Paso (as applicable) enforceable against El Paso or
         such Affiliate of El Paso in accordance with its terms. The making or
         acquisition of any Demand Loan shall constitute a representation by the
         Sponsor Subsidiaries that this Section 5.02(p) has been satisfied and
         that the matters referred to in subclauses (i) and (ii) above are true
         and correct as of the date of such making or acquisition.

                  Section 5.03. Refinancing of the Controlled Business Debt.
Each Sponsor Subsidiary shall, unless otherwise consented to in writing by
Clydesdale:

                  (a) Cause each Controlled Business owned by such Sponsor
         Subsidiary that has Controlled Business Debt to use its commercially
         reasonable efforts to refinance all such Controlled Business Debt on or
         prior to the occurrence of any CBD Maturity Event with respect to such
         Controlled Business Debt on arm's length terms and conditions
         reasonably acceptable to Clydesdale, provided that no Sponsor
         Subsidiary shall be in breach of this Section 5.03(a) if El Paso
         contributes to the capital of such Controlled Business indirectly
         through such Sponsor Subsidiary on or prior to any CBD Maturity Event
         with respect to the Controlled Business Debt of such Controlled
         Business sufficient cash to pay any such Controlled Business Debt on or
         prior to the occurrence of any CBD Maturity Event with respect to such
         Controlled Business Debt and such Controlled Business pays such
         Controlled Business Debt in full on or prior to any such CBD Maturity
         Event.

                  (b) Deliver to Clydesdale prior to the Acquisition/Accession
         Date on which any Sponsor Subsidiary that owns any Controlled Business
         that has Controlled Business Debt accedes to the Sponsor Subsidiary
         Credit Documents an undertaking by El Paso in favor of Clydesdale (in
         the form of Exhibit 5.03(b) hereto and otherwise in form and substance
         reasonably acceptable to Clydesdale) to contribute to the capital of
         such Controlled Business indirectly through such Sponsor Subsidiary
         sufficient cash to pay

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       50

         any Controlled Business Debt of such Controlled Business on or prior to
         the occurrence of any CBD Maturity Event with respect to such
         Controlled Business Debt, together with customary legal opinions with
         respect thereto and in form and substance reasonably satisfactory to
         Clydesdale. The execution and delivery of such undertaking of El Paso
         to Clydesdale and the delivery of such opinions are conditions
         precedent to the accession of any such Sponsor Subsidiary to the
         Sponsor Subsidiary Credit Documents.

                  Section 5.04. Financial Covenants. Until the Debt Collection
Date, the Sponsor Subsidiaries shall, Noric Holdings I shall cause Noric,
Palomino, Paso Fino and Noric LP to, and Noric Holdings IV shall cause Lusitano
and Lipizzan to:

                  (a) Energy Investments - Fixed Charge Coverage. Maintain, at
         all times that the Energy Investment Exposure exceeds $0, as of the
         date of each Compliance Certificate with respect to each Fiscal Quarter
         (beginning with respect to the Fiscal Quarter ending on September 30,
         2001) and Fiscal Year pursuant to Section 5.4 of the El Paso Agreement
         (each such date a "COVERAGE TEST DATE") a ratio of:

                           (i) the sum of (A) for all Controlled Businesses, the
                  aggregate EBITDA (excluding EBITDA attributable to any CIG
                  Excluded Subsidiary) for the most recently completed four
                  Fiscal Quarters for the Underlying Businesses of all
                  Controlled Businesses owned by the Sponsor Subsidiaries at the
                  end of such Fiscal Quarter and (B) for all Publicly Traded
                  Investments, the aggregate distributions on the equity
                  securities of all Publicly Traded Investments received by the
                  Sponsor Subsidiaries during the most recently completed four
                  Fiscal Quarters less the aggregate amount ---- of all
                  Maintenance Capital Expenditures payable during the most
                  recently completed four Fiscal Quarters for the Underlying
                  Businesses relating to such Controlled Businesses, other than
                  Maintenance Capital Expenditures that were funded from capital
                  contributions made by El Paso or an Affiliate of El Paso
                  (other than a Sponsor Subsidiary or any Intermediate Holder
                  relating to such Controlled Business),

                           to

                           (ii) the sum of (A) the Energy Investment Notional
                  Amortization (after giving effect to any payment, including
                  any deemed payment, of Cash Collateral Amounts to the Sponsor
                  Subsidiary Cash Reserve and/or the Noric Holdings IV Cash
                  Reserve) computed as of the Coverage Test Date and (B)
                  interest payable during the most recently completed four
                  Fiscal Quarters on all Controlled Business Debt, Refinanced
                  Controlled Business Debt and CIG Existing Debt outstanding as
                  of the Coverage Test Date,

         greater than 1.3 to 1.

                  (b) Energy Investments - Loan to Value. Maintain, at all times
         that the Energy Investment Exposure exceeds $0, as of each Coverage
         Test Date and the date of each Disposition of an Energy Investment or a
         Disposition (other than in accordance with Section 5.09(d)(G)) of all
         or substantially all of the assets of or Equity Interests in any

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       51

         Intermediate Holder or Underlying Business (after giving effect to such
         Disposition, Sections 2.05(b)(i), (ii) and (iii) hereof, and Section
         7.3 of the Clydesdale Partnership Agreement) a ratio of:

                           (A) the sum of (A) the Energy Investment Exposure on
                  such date (after giving effect to any payment, including any
                  deemed payment, of Cash Collateral Amounts to the Sponsor
                  Subsidiary Cash Reserve and/or the Noric Holdings IV Cash
                  Reserve on such date) and (B) the Controlled Business Debt,
                  Refinanced Controlled Business Debt and the CIG Existing Debt
                  on such date,

         to

                           (B) the aggregate Carrying Value of all Energy
                  Investments (excluding all Energy Investments, or the Energy
                  Investments relating to the assets or Equity Interests,
                  Disposed of) on such date,

         of not more than 0.7 to 1.

                  (c) Required Cash Reserve Amounts. (i) Maintain on deposit in
         the Noric LP Cash Reserve at the end of each Fiscal Quarter an amount
         (such amount, the "NORIC LP REQUIRED CASH RESERVE BALANCE") equal to
         the lesser of (x) 20% of the portion of the E&P Borrowing Base
         attributable to the E&P Participation Properties at such time and (y)
         the sum of all of the Noric LP Required Cash Reserve Increases for all
         previously completed Fiscal Quarters, including such Fiscal Quarter.

                  (ii) Maintain on deposit in the Sponsor Subsidiary Cash
         Reserve and/or the Noric Holdings IV Cash Reserve at the end of each
         Fiscal Quarter an aggregate amount at least equal to the sum of (1)
         Sponsor Subsidiary Required Cash Reserve Balance and (2) an amount
         (such amount, the "NORIC HOLDINGS IV REQUIRED CASH RESERVE BALANCE")
         equal to the lesser of (x) 20% of the portion of the E&P Borrowing Base
         attributable to the Production Payments at such time and (y) the sum of
         all of the Noric Holdings IV Required Cash Reserve Increases for all
         previously completed Fiscal Quarters, including such Fiscal Quarter.

                  (d) Calculations. In determining compliance with Section
         5.04(a), "EBITDA" and "net income" of any Energy Investment or
         Underlying Business shall only include the portion thereof equal to the
         aggregate percentage interest of the Underlying Business owned directly
         or indirectly by the Sponsor Subsidiaries.

                  (e) E&P Borrowing Base Determinations and Revised Energy
         Investment Loan Values. In addition to being tested on each Coverage
         Test Date and each other specific date referred to herein and the
         Acquisition/Accession Procedures Schedule, the financial covenants in
         Sections 5.04(a) and (b) shall be tested on each E&P Borrowing Base
         Effective Date and each Energy Investment Loan Value Voting Date. If
         any ratio in Section 5.04(a) or (b) shall fail to be met on any such
         date, the Sponsor Subsidiaries, Lipizzan, Noric and Noric LP shall be
         deemed to have failed to comply with the covenant under such Sections.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       52

                  (f) Energy Investment Exposure and Energy Investment Loan
         Amount. Cause (by prepaying the Advance or by making a payment,
         including a deemed payment, of a Cash Collateral Amount), at all times
         that the Energy Exposure exceeds $0, as of each Coverage Test Date, the
         Energy Investment Exposure on such date not to exceed the Aggregate
         Energy Investment Loan Value Amount on such date.

                  Section 5.05. Certain Negative Covenants with respect to
Lipizzan and Noric LP. Except as otherwise permitted under the Noric Company
Agreement, Noric Holdings I shall cause Noric LP not to, and, except as
otherwise permitted under the Lipizzan Partnership Agreement, Noric Holdings IV
shall cause Lipizzan not to, at any time without the written consent of
Clydesdale:

                  (a) Acquisitions, Sales, Etc., of Assets. (x) Enter into any
         partnership, joint venture or sale and leaseback transaction, (y)
         purchase or otherwise acquire (in one or a series of related
         transactions) any portion of the property or assets of any Person or
         (z) Dispose of, or grant any option with respect to, directly or
         indirectly (or agree to any of the foregoing at any future time), all
         or any portion of its property or assets, except that interests in E&P
         Assets constituting E&P Participation Properties may be acquired or
         Disposed of from time to time by Noric LP and interests in Production
         Payment Interests may be acquired or Disposed of from time to time by
         Lipizzan in connection with acquisitions or Dispositions by any
         Counterparty to any Production Payment Agreement of Subject Interests
         burdened by a Production Payment, in each case subject to Section
         2.09(e); provided that:

                           (A) In each case, no Liquidating Event, Termination
                  Event, Notice Event, Event of Default or Incipient Event has
                  occurred and is continuing or would result from such
                  acquisition or Disposition;

                           (B) Any acquisition of an E&P Asset shall be effected
                  in accordance with the Acquisition/Accession Procedures
                  Schedule;

                           (C) Starting from the Third Restatement Date,
                  Relevant Assets may be Disposed of by Noric LP if the
                  aggregate Disposition Value of such Relevant Assets to be
                  Disposed of (together with the Disposition Value of all
                  Relevant Assets Disposed of by any Sponsor Subsidiary, Noric
                  LP and Lipizzan during the current E&P Borrowing Base Period)
                  does not exceed the Adjusted Redetermination Threshold for
                  such E&P Borrowing Base Period;

                           (D) Starting from the Third Restatement Date,
                  Relevant Assets may be Disposed of by Noric LP if the
                  aggregate Disposition Value of such Relevant Assets to be
                  Disposed of (together with the Disposition Value of all
                  Relevant Assets Disposed of by any Sponsor Subsidiary, Noric
                  LP and Lipizzan during the current E&P Borrowing Base Period)
                  exceeds the Adjusted Redetermination Threshold for such E&P
                  Borrowing Base Period; provided, however, that the Net Cash
                  Proceeds from any such Disposition in excess of such Adjusted
                  Redetermination Threshold shall be deposited by Noric LP in
                  the Noric LP Cash Reserve and shall be applied pursuant to
                  Section 5.11(b)(i) or (ii);

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       53

         provided, however, that if, at the time of any Disposition described in
         clauses (C) or (D) above, an El Paso RA Event has occurred and is
         continuing, the Sponsor Subsidiaries shall, and shall cause Noric LP
         to, apply the Net Cash Proceeds from any such Disposition to prepay the
         Advances in accordance with Section 2.05(b)(viii)(A);

                           (E) Starting from the Third Restatement Date,
                  Relevant Assets may be Disposed of by Lipizzan if the
                  aggregate Disposition Value of such Relevant Assets to be
                  Disposed of (together with the Disposition Value of all
                  Relevant Assets Disposed of by any Sponsor Subsidiary, Noric
                  LP and Lipizzan during the current E&P Borrowing Base Period)
                  does not exceed the Adjusted Redetermination Threshold for
                  such E&P Borrowing Base Period;

                           (F) Starting from the Third Restatement Date,
                  Relevant Assets may be Disposed of by Lipizzan if the
                  aggregate Disposition Value of such Relevant Assets to be
                  Disposed of (together with the Disposition Value of all
                  Relevant Assets Disposed of by any Sponsor Subsidiary, Noric
                  LP and Lipizzan during the current E&P Borrowing Base Period)
                  exceeds the Adjusted Redetermination Threshold for such E&P
                  Borrowing Base Period; provided, however, that the amount of
                  the Disposition Value of any such Relevant Assets Disposed of
                  by Lipizzan in excess of such Adjusted Redetermination
                  Threshold shall be deposited by Lipizzan and/or Noric Holdings
                  IV in the Noric Holdings IV Cash Reserve and shall be applied
                  pursuant to Section 7.04(i)(A) or (B); and

                           (G) As condition to any Disposition by Lipizzan under
                  clauses (E) and (F) above (including Dispositions under
                  Section 5.10(a)(ii)(C) and Section 5.10(b)(iii)) Lipizzan
                  shall receive from the applicable Counterparty to a Production
                  Payment Agreement the Disposition Value of the Relevant Asset
                  Disposed of; provided that any amount received pursuant to
                  clause (E) above shall be deposited in the Noric Holdings IV
                  Cash Reserve and may be invested in Permitted Investments and
                  any amount received pursuant to clause (F) above shall be
                  applied as described in such clause (F);

         provided, however, that if, at the time of any Disposition described in
         clauses (E) or (F) above, an El Paso RA Event has occurred and is
         continuing, the Sponsor Subsidiaries shall, and shall cause Lipizzan
         to, prepay the Advances in accordance with Section 2.05(b)(viii)(A) in
         an amount equal to the Disposition Value of such Relevant Assets.

                  (b) Permitted Investments. Make or hold any Investment except:

                  (i) subject to Section 5.05(a) above, any Investment in
         Permitted Assets of Noric LP and Lipizzan, as the case may be; and

                  (ii) in the case of Noric LP, Cash Equivalents and El Paso
         Demand Loans; provided that, after the occurrence and during the
         continuance of an El Paso RA Event, any existing El Paso Demand Loans
         shall be permitted to be maintained but no additional El Paso Demand
         Loans shall be permitted to be made.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       54

                  Section 5.06. A-Loans and Total Cash Collateral Amount. (a)
A-Loans. Each Sponsor Subsidiary shall ensure that the aggregate principal
amount of all A-Loans outstanding at any time is at least equal to the aggregate
principal amount of the Advances outstanding at that time.

                  (b) Payments of Cash Collateral Amounts. Subject to compliance
with clause (a) above and pursuant to clauses (c) and (d) below, the Sponsor
Subsidiaries may, on each date specified below, pay or make a deemed payment of
a Cash Collateral Amount to the Sponsor Subsidiary Cash Reserve and/or the Noric
Holdings IV Cash Reserve in order to ensure compliance with the covenants in
Section 5.04:

                  (i) each Coverage Test Date;

                  (ii) each Appraisal Date;

                  (iii) the date of any change in the Energy Investment Loan
         Value of any Energy Investment;

                  (iv) on the date of Disposition of any Transaction Asset
         pursuant to Sections 5.02(d) and 5.05(a) or the Disposition of all or
         substantially all of the assets of, or Equity Interests in, any
         Intermediate Holder or Underlying Business pursuant to Section
         5.09(d)(B);

                  (v) the date referred to in Section 5.07(f);

                  (vi) the date of any prepayment pursuant to Section 2.05;

                  (vii) each E&P Borrowing Base Effective Date; and

                  (viii) each Acquisition/Accession Date.

                  (c) Cash Collateral Amounts. Subject to Section 5.06(b), each
Sponsor Subsidiary Member shall have the right to make a cash capital
contribution to the Sponsor Subsidiary Cash Reserve and/or the Noric Holdings IV
Cash Reserve in an amount necessary for all El Paso Parties obligated under
Section 5.04 to comply with the financial covenants in Section 5.04 (each such
cash capital contribution being a "CASH COLLATERAL AMOUNT").

                  (d) Deemed Cash Collateral Amounts. Notwithstanding anything
to the contrary in clause (c) above and subject to Section 5.06(b), each Sponsor
Subsidiary Member shall have the right to make a deemed payment of a Cash
Collateral Amount to the Sponsor Subsidiary Cash Reserve and/or the Noric
Holdings IV Cash Reserve in an amount specified by El Paso up to an aggregate
amount, if any, by which the balance of the Sponsor Subsidiary Cash Reserve and
the Noric Holdings IV Cash Reserve exceeds the sum of (i) the Sponsor Subsidiary
Required Cash Reserve Balance, (ii) the Noric Holdings IV Required Cash Reserve
Balance, (iii) the E&P Holdback Amount (excluding net payments received by Noric
LP in respect of all E&P Participation Agreements) and (iv) the Total Cash
Collateral Amount (taking into account all other Cash Collateral Amounts deemed
paid under this Section 5.06(d)), each as in effect immediately prior to such
deemed payment; provided, however, that no portion of such excess

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       55

amount invested in El Paso Demand Loans (after giving effect to any payment
thereof on or prior to the date of such deemed payment of Cash Collateral
Amounts) shall be used to make such deemed payment of such Cash Collateral
Amount.

                  Section 5.07. Appraisals of Energy Investments. (a) An
Appraisal of each Energy Investment shall be undertaken by the Appraiser on the
occurrence of each Appraisal Event.

                  (b) Each Sponsor Subsidiary shall co-operate with the
Appraiser, Mustang and the Agent to ensure that each Appraisal is timely
completed in accordance with the provisions of this Section 5.07. Each Sponsor
Subsidiary shall promptly following the occurrence of an Appraisal Event,
provide the Appraiser with access to all documents, records and other
information necessary for the Appraiser to complete the Appraisal in accordance
with this Section 5.07.

                  (c) Prior to the Liquidation Start Date under the Clydesdale
Partnership Agreement, Noric Holdings shall, on the date of each Appraisal Event
with respect to a Publicly Traded Investment, deliver a certificate to
Clydesdale and the Sponsor Subsidiary Collateral Agent certifying the revised
Carrying Value of such Publicly Traded Investment. Absent manifest error, the
revised Carrying Value of such Publicly Traded Investment shall be deemed to be
the value set forth in such certificate.

                  (d) An Appraisal of an Energy Investment (other than an
Appraisal pursuant to clause (c) above and Section 5.04(c)(ii)) shall be
completed as soon as reasonably practicable after the occurrence of the relevant
Appraisal Event, but in any event within 30 days after the date of occurrence of
such Appraisal Event (or, if such 30th day is not a Business Day, the next
succeeding Business Day) (the date of completion of such Appraisal, the
"APPRAISAL DATE").

                  (e) If an Appraisal of an Energy Investment pursuant to clause
(d) above is not completed within 30 days after the date of occurrence of the
Appraisal Event giving rise to the Appraisal (or if such 30th day is not a
Business Day, the next succeeding Business Day), then the value of such Energy
Investment shall be deemed to be $0 until the next Appraisal Date for such
Energy Investment.

                  (f) Within 5 Business Days after each Appraisal Date, a
Responsible Officer of El Paso shall deliver to Clydesdale a Compliance
Certificate, showing the pro forma calculations of the financial covenants in
Sections 5.04(a), (b) and (f) in sufficient detail as of the date of such
Compliance Certificate, together with copies of any such Appraisals; provided
that such pro forma calculations shall use the newly appraised Carrying Values
of all Energy Investments and the EBITDA of such Energy Investments as of date
of the financial statements reflected in the last Compliance Certificate
delivered pursuant to Section 5.4 of the El Paso Agreement. For the purposes of
this clause (f), an Appraisal of each Publicly Traded Investment shall be
undertaken on the date of such Compliance Certificate to enable calculation of
such financial covenants.

                  Section 5.08. Affirmative Covenants with Respect to Controlled
Businesses. At all times until the Debt Collection Date, each Sponsor Subsidiary
will, unless otherwise

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       56

consented to in writing by Clydesdale, with respect to each Controlled Business
relating to each Energy Investment owned by such Sponsor Subsidiary (but subject
to Part VII of the Transaction Asset Schedule with respect to each such
Controlled Business):

                  (a) Compliance with Applicable Laws, Etc. Cause such
         Controlled Business to comply with, and its properties to be maintained
         and used in accordance with, all Applicable Laws applicable to it or
         its properties, except where the failure to do so could not reasonably
         be expected to have a Material Adverse Effect.

                  (b) Payment of Taxes, Etc. Cause such Controlled Business to
         pay and discharge, before the same shall become delinquent, (i) all
         taxes, assessments and governmental charges or levies imposed upon it
         or upon its property and (ii) all lawful claims which, if unpaid, might
         by law become a Lien upon its property; provided, however, that such
         Controlled Business shall not be required to pay or discharge any such
         tax, assessment, governmental charge, levy or claim that is being
         contested in good faith and by proper proceedings and as to which
         appropriate reserves are being maintained in accordance with GAAP,
         unless and until any Lien resulting therefrom attaches to its property
         and becomes enforceable against its other creditors.

                  (c) Preservation of Existence, Etc. Except as otherwise
         permitted under Section 5.09(c) below, cause such Controlled Business
         to preserve and maintain its existence as a corporation, limited
         liability company or other applicable Business Entity and its rights
         (charter and statutory) and authority.

                  (d) Inspection Rights. Upon reasonable, and in any event at
         least three Business Days', prior notice and during normal business
         hours and not more often than is reasonable under the circumstances,
         permit Clydesdale, any Clydesdale Partner or the Sponsor Subsidiary
         Collateral Agent or, in each case, any agents or representatives
         thereof to examine the records and books of account of such Controlled
         Business, and to discuss the affairs, finances and accounts of such
         Controlled Business with any officer of such Sponsor Subsidiary or its
         managing member and to disclose to such Person any and all financial
         statements and other information of any kind relating to such
         Controlled Business and, after prior notice to such Sponsor Subsidiary,
         to discuss the affairs, finances and accounts of such Sponsor
         Subsidiary with its independent certified public accountants and permit
         such accountants to disclose to such Person any and all financial
         statements and other information of any kind that they may have with
         respect to such Controlled Business. The Sponsor Subsidiaries jointly
         and severally shall assume or pay all reasonable costs and expenses
         associated with any such examination, discussion or copying; provided,
         however, that, except (i) during the existence of an Event of Default,
         Incipient Event, Notice Event, Termination Event or Liquidating Event
         or (ii) where Clydesdale or a Clydesdale Partner acting in good faith
         reasonably believes there to be a reasonable expectation that an Event
         of Default, Incipient Event, Notice Event, Termination Event or
         Liquidating Event has occurred and is continuing, the Sponsor
         Subsidiaries shall only be liable for the costs and expenses of one
         such examination or discussion per Fiscal Year.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       57

                  (e) Keeping of Books. Cause such Controlled Business to keep
         complete, proper and separate books of record and account, including a
         record of all costs and expenses incurred, all charges made, all
         credits made and received, and all income derived in connection with
         the operation of the business of such Controlled Business, all in
         accordance with GAAP, in each case to the extent necessary to enable
         such Sponsor Subsidiary to comply with the periodic reporting
         requirements of this Agreement.

                  (f) Performance of Documents. Cause such Controlled Business
         to:

                           (i) perform and observe in all material respects all
                  of the terms and provisions of each Material Agreement to be
                  performed or observed by it;

                           (ii) maintain, to the extent it has the capacity to
                  do so, each such Material Agreement to which such Controlled
                  Business is a party; provided that such Sponsor Subsidiary may
                  terminate, or permit a Controlled Business to terminate, a
                  Material Agreement if prior to or contemporaneously with such
                  termination a replacement or substitute agreement is entered
                  into, the terms (including the financial terms) of which are
                  not materially less favorable to such Sponsor Subsidiary or
                  Controlled Business, as the case may be, than the terminated
                  Material Agreement, and such Sponsor Subsidiary delivers to
                  Clydesdale and the Sponsor Subsidiary Collateral Agent a
                  revised Transaction Asset Schedule reflecting such termination
                  and replacement or substitution;

                           (iii) promptly enforce to the extent it is
                  commercially reasonable to do so in all material respects each
                  such Material Agreement in accordance with its terms (subject
                  to the terms of Article VI hereof);

                           (iv) take all such action to such end (not in
                  violation of its Organizational Documents) as may be from time
                  to time reasonably requested by Clydesdale or (in the case of
                  any Material Agreement relating to a Controlled Business held
                  by a Sponsor Subsidiary) the Sponsor Subsidiary Collateral
                  Agent; and

                           (v) upon the request of Clydesdale, make to each
                  other party to each such Material Agreement such demands and
                  requests for information and reports or for action as such
                  Controlled Business is entitled to make under such Material
                  Agreement.

                  (g) Maintenance of Licenses and Permits. Cause such Controlled
         Business to maintain all licenses and permits necessary to own its
         properties and to conduct its activities in accordance with all
         Applicable Laws applicable to it or its properties, except for such
         failures as could not reasonably be expected to result in a Material
         Adverse Effect.

                  (h) Maintenance of Insurance. Cause such Controlled Business
         to maintain or cause to be maintained, insurance with responsible and
         reputable insurance companies or associations in such amounts and
         covering such risks as is usually carried by companies

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       58

         engaged in similar businesses and owning similar properties in the same
         general areas in which such Controlled Business operates.

                  (i) Maintenance of Title to Assets. Cause such Controlled
         Business to maintain legal and beneficial title to each of its assets,
         except as otherwise permitted under Section 5.09(d) below.

                  (j) Transactions with Affiliates. Cause such Controlled
         Business to conduct all transactions otherwise permitted under the
         Operative Documents with any of its Affiliates, including El Paso and
         any of its Affiliates:

                           (i) on terms required for any such transaction under
                  the Operative Documents; or

                           (ii) otherwise on terms that are fair and reasonable
                  and that provide for exchanges of fair consideration and
                  reasonably equivalent value between or among the parties
                  thereto.

                  Section 5.09. Negative Covenants with Respect to Each
Controlled Business. At any time until the Debt Collection Date, each Sponsor
Subsidiary will not, without the written consent of Clydesdale with respect to
each Controlled Business held by such Sponsor Subsidiary (but subject to Part
VII of the Transaction Asset Schedule with respect to each such Controlled
Business):

                  (a) Liens, Etc. Permit such Controlled Business to create,
         incur, assume or suffer to exist any Lien on or with respect to any of
         its properties or assets of any character whether now owned or
         hereafter acquired, or assign any accounts or other right to receive
         income, excluding, however, from the operation of the foregoing
         restrictions:

                           (i) Liens to secure the performance of tenders, bids,
                  leases, trade contracts (not for borrowed money), regulatory
                  or statutory obligations, surety or appeal bonds, tender or
                  performance and return of money bonds, bankers' acceptances,
                  government contracts or other obligations of a like nature
                  incurred in the ordinary course of business;

                           (ii) Liens to secure any purchase money Indebtedness
                  permitted by Section 5.09(b)(iv) below and covering only the
                  property acquired by such Indebtedness, accessions thereto and
                  the proceeds thereof;

                           (iii) Liens arising out of any conditional sale or
                  other title retention agreement permitted by Section
                  5.09(b)(v) below and covering only the property subject
                  thereto and the proceeds thereof;

                           (iv) Liens to secure any Indebtedness under any
                  capital lease permitted by Section 5.09(b)(vi) below and
                  covering only the property subject thereto and the proceeds
                  thereof;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       59

                           (v) Liens for taxes, assessments or governmental
                  charges or claims that are not yet delinquent or that are
                  being contested in good faith by appropriate proceedings
                  promptly instituted and diligently concluded; provided that
                  any reserve or other appropriate provision as shall be
                  required in conformity with GAAP shall have been made
                  therefor;

                           (vi) Liens arising by operation of law of landlords
                  and carriers, warehousemen, mechanics, suppliers, sellers,
                  materialmen, or repairmen, or other similar Liens, in each
                  case arising in the ordinary course of business and with
                  respect to amounts not yet delinquent or that are being
                  contested in good faith by appropriate legal proceedings
                  promptly instituted and diligently conducted and for which a
                  reserve or other appropriate provision, if any, as shall be
                  required in conformity with GAAP shall have been made;

                           (vii) Liens incurred or deposits made in the ordinary
                  course of business in connection with workers' compensation,
                  unemployment insurance and other types of social security;

                           (viii) easements, rights-of-way, municipal and zoning
                  and building ordinances and similar charges, encumbrances,
                  title defects or other irregularities, governmental
                  restrictions on the use of property or conduct of business,
                  and Liens in favor of governmental authorities and public
                  utilities, that do not materially interfere with the ordinary
                  course of business of such Controlled Business;

                           (ix) leases or subleases granted to other Persons
                  that do not materially interfere with the ordinary course of
                  business of such Controlled Business;

                           (x) any interest or title of a lessor in the property
                  subject to any capital lease or operating lease permitted by
                  Section 5.09(b) below and the proceeds thereof;

                           (xi) any option or other agreement to purchase any
                  asset of such Controlled Business the purchase, sale or other
                  disposition of which is not prohibited by any other provision
                  of the Operative Documents;

                           (xii) Liens arising from the rendering of an interim
                  or final judgment or order against such Controlled Business;
                  provided that the aggregate principal amount of all Liens
                  arising under any judgment or order that is not stayed or
                  dismissed within 60 days of the date thereof does not exceed
                  $50,000,000, and Liens imposed against such Controlled
                  Business in connection with any claim against such Controlled
                  Business so long as the claim is being contested in good faith
                  and does not materially and adversely affect the business and
                  operations of such Controlled Business;

                           (xiii) Liens securing reimbursement obligations with
                  respect to letters of credit permitted by Section 5.09(b)(vii)
                  below that encumber documents and other property relating to
                  such letters of credit and the proceeds thereof;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       60

                           (xiv) Liens encumbering customary initial deposits
                  and margin deposits;

                           (xv) royalties, overriding royalties, reversionary
                  interests and similar burdens with respect to the Oil and Gas
                  Properties of any CIG Controlled Business to the extent such
                  burdens do not reduce such CIG Controlled Business' net
                  interest in production in its Oil and Gas Properties below the
                  interests as at the Third Restatement Date and do not operate
                  to deprive such CIG Controlled Business of any material right
                  in respect of its Oil and Gas Properties; or

                           (xvi) operator's Liens incidental to the maintenance,
                  development or operation of the Oil and Gas Properties of any
                  CIG Controlled Business in each case arising in the ordinary
                  course of business securing amounts not yet delinquent or that
                  are being contested in good faith by appropriate legal
                  proceedings promptly instituted and diligently conducted and
                  for which a reserve or other appropriate provision, if any, as
                  shall be required in conformity with GAAP shall have been
                  made; or

                           (xvii) Liens extending, renewing or replacing any of
                  the foregoing Liens; provided that the principal amount of the
                  Indebtedness or other obligation secured by such Lien is not
                  increased or the maturity thereof shortened and such Lien is
                  not extended to cover any additional Indebtedness, obligations
                  or property, other than like obligations and the substitution
                  of like property (or categories of property to the extent the
                  terms of the Lien being extended, renewed or replaced,
                  extended to or covered such categories of property) or the
                  proceeds of the property subject thereto.

                  (b) Indebtedness. Permit such Controlled Business to create,
         incur, assume or suffer to exist, any Indebtedness other than
         Indebtedness created, incurred or assumed for or in respect of:

                           (i) Indebtedness of the type described in clause (i)
                  of the definition thereof constituting accounts payable
                  incurred in the ordinary course of business;

                           (ii) Hedge Agreements designed to hedge against
                  fluctuations in interest rates or foreign exchange rates
                  incurred in the ordinary course of business and consistent
                  with prudent business practice;

                           (iii) obligations as lessee under leases of
                  Non-Principal Property that have been or should be, in
                  accordance with GAAP, recorded as operating leases;

                           (iv) obligations of such Controlled Business for the
                  deferred purchase price of property or services;

                           (v) obligations of such Controlled Business created
                  or arising under any conditional sale or other title retention
                  agreement with respect to property acquired by such Controlled
                  Business (whether or not the rights and remedies of the seller
                  or lender under such agreement in the event of default are
                  limited to repossession or sale of such property);

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       61

                           (vi)obligations of such Controlled Business in
                   respect of Capitalized Leases;

                           (vii) obligations, contingent or otherwise, of such
                  Controlled Business under acceptance, letter of credit or
                  similar facilities;

                           (viii) obligations of such Controlled Business
                  evidenced by bonds, notes, debentures or other similar
                  instruments, but only to the extent that such obligations
                  relate to any of the obligations referred to in clause (iv),
                  (v) or (vii) above;

                           (ix) obligations of other Persons of the type
                  described in clause (iv), (v), (vi), (vii) or (viii) above
                  guaranteed directly or indirectly in any manner by such
                  Controlled Business;

                           (x) any Indebtedness of such Controlled Business (not
                  otherwise described herein) secured by any Lien permitted
                  under Section 5.09(a) above;

                           (xi) obligations of such Controlled Business as
                  lessee under leases of Principal Property that have been or
                  should be, in accordance with GAAP, recorded as operating
                  leases;

                           (xii) Indebtedness of any Controlled Business
                  relating to an Energy Investment owing to any other Controlled
                  Business relating to the same Energy Investment;

                           (xiii) the Controlled Business Debt and the CIG
                  Existing Debt and any refinancings of the Debt referred to in
                  clause (i) of the definition of Controlled Business Debt
                  pursuant to Section 5.03(a) to the extent that any such
                  refinanced Debt is not subject to a CBD Maturity Condition
                  (any such refinanced Debt, the "REFINANCED CONTROLLED BUSINESS
                  DEBT"); and

                           (xiv) in the case of any CIG Controlled Business,
                  Hedge Agreements with Approved Hedge Counterparties designed
                  to hedge against fluctuations in oil and gas prices incurred
                  in the ordinary course of business and consistent with prudent
                  business practice so long as the aggregate volume of oil
                  and/or gas (as applicable) hedged under each such Hedge
                  Agreement of a CIG Controlled Business does not materially
                  exceed the projected actual production of oil and/or gas (as
                  applicable) from proved reserves of such CIG Controlled
                  Business for such period; and

                           (xv) any obligation of CIG Production Company, L.P.
                  to reimburse the general partner of such Underlying Business
                  for expenses reasonably incurred by the general partner in
                  connection with the operation of the business of such
                  Underlying Business as contemplated in Section 5(D) of the
                  Agreement of Limited Partnership of CIG Production Company,
                  L.P., dated as of March 15, 1994, by and between Interstate
                  Resource Management Company, as general partner, and Colorado
                  Water Supply Company, as limited partner.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       62

         provided, however, that the aggregate amount of all Indebtedness of all
         Controlled Businesses relating to Energy Investments owned by the
         Sponsor Subsidiaries under or in respect of clauses (iv) to (xi)
         (inclusive) shall not at any time exceed 10% of the Aggregate Energy
         Investment Loan Value Amount at such time (taking the Indebtedness
         under clause (xi) above at the net present value of the aggregate
         amount of (without duplication) all remaining lease payments and
         liquidated damages on or in respect of all such leases discounted to
         the time of determination at a discount rate of 8% per annum).

                  (c) Mergers, Etc. Permit such Controlled Business to enter
         into any transaction of consolidation or merger with or into any other
         Person, except (i) if the Sponsor Subsidiaries prepay the Advances in
         accordance with Section 2.05(b)(i), together with all amounts required
         to be paid pursuant to Section 2.06(c) or (ii) a Controlled Business
         may consolidate with or merge into another Controlled Business provided
         that (A) immediately before and after giving effect to such
         consolidation or merger no Notice Event, Termination Event, Event of
         Default, Liquidating Event or Incipient Event has occurred and is
         continuing and (B) the Energy Investment or Energy Investments, as the
         case may be, relating to such merged or consolidated Controlled
         Business or Controlled Businesses, as the case may be, are pledged,
         transferred and assigned to the Sponsor Subsidiary Collateral Agent
         under the Sponsor Subsidiary Security Agreement and such pledge,
         transfer and assignment is perfected in accordance with the terms
         thereof.

                  (d) Acquisitions, Sales, Etc. of Assets. Permit such
         Controlled Business to (i) enter into any sale and leaseback
         transaction, (ii) purchase or otherwise acquire (in one or a series of
         related transactions) any portion of the property or assets of any
         Person or (iii) Dispose of, or grant any option with respect to,
         directly or indirectly (or agree to any of the foregoing at any future
         time), all or any material portion of its property or assets, except:

                           (A) in the case of any Controlled Business:

                                    (1) any purchase or other acquisition of any
                           property or assets by such Controlled Business the
                           purchase price of which is individually or, if such
                           property or assets are purchased in a series of
                           related transactions, in the aggregate less than
                           $5,000,000;

                                    (2) any purchase or other acquisition of
                           property or assets by such Controlled Business which
                           would following such purchase or acquisition become
                           eligible for rate coverage under the regulations
                           promulgated by FERC; or

                                    (3) any purchase or other acquisition of Oil
                           and Gas Properties that are within reasonable
                           proximity to the geographic location of the Oil and
                           Gas Properties listed on Schedule 5.09(d)(A), and any
                           fixtures and equipment necessary for the production,
                           maintenance and operation of any such existing or
                           acquired Oil and Gas Properties; provided that such
                           purchase or acquisition is funded from capital
                           contributions made by El

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       63

                           Paso or an Affiliate of El Paso (other than a Sponsor
                           Subsidiary or any Intermediate Holder) through the
                           applicable Sponsor Subsidiary.

                           (B) any Disposition of all or substantially all of
                  the assets of, or Equity Interests in, any Intermediate Holder
                  or Underlying Business relating to any Energy Investment
                  (other than a Publicly Traded Investment, Dispositions
                  described in clause (C) below and except as otherwise
                  permitted under clause (G) below); provided that:

                                    (1) no Liquidating Event, Termination Event,
                           Notice Event, Event of Default or Incipient Event has
                           occurred and is continuing or would result from such
                           Disposition and the Sponsor Subsidiaries, Noric and
                           Noric LP shall be in compliance with Section 5.04 on
                           a pro forma basis as of the last date of the
                           calculation of the covenants in Section 5.04 (after
                           giving pro forma effect to any payment, including any
                           deemed payment, of Cash Collateral Amounts to the
                           Sponsor Subsidiary Cash Reserve and the Noric
                           Holdings IV Cash Reserve on the date of such
                           Disposition and the prepayment of Advances pursuant
                           to clause (2) below); and

                                    (2) on the effective date of a Disposition,
                           the Sponsor Subsidiaries shall prepay the Advances in
                           accordance with Section 2.05(b)(iii);

                           (C) starting from the Third Restatement Date, any
                  Disposition of property, plant and equipment (as defined under
                  GAAP) of an Underlying Business or Equity Interests in any
                  Intermediate Holder or Underlying Business relating to any
                  Energy Investment (not subject to clause (B) above or
                  otherwise permitted under clause (G) below) if the cumulative
                  aggregate amount of Net Cash Proceeds from such Disposition
                  (together with all such other Dispositions) does not exceed
                  $15,000,000;

                           (D) starting from the Third Restatement Date, any
                  Disposition of property, plant and equipment (as defined under
                  GAAP) of an Underlying Business or Equity Interests in any
                  Intermediate Holder or Underlying Business relating to any
                  Energy Investment (not subject to clause (B) above or
                  otherwise permitted under clause (G) below) if the cumulative
                  aggregate amount of Net Cash Proceeds from such Disposition
                  (together with all such other Dispositions) exceeds
                  $15,000,000; provided, however, that all such Net Cash
                  Proceeds in excess of $15,000,000 shall be deposited by the
                  Underlying Business that made such Disposition into the
                  Proceeds Account of such Underlying Business and shall be
                  applied pursuant to Section 5.11(a);

                           (E) any sale of current assets (as defined under
                  GAAP), other than as contemplated under clause (F) below, of
                  an Underlying Business in the ordinary course of business of
                  such Underlying Business;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       64

                           (F) the limited recourse sale of accounts receivable
                  providing, by their terms, for payment within 30 days from the
                  date of the original invoice, in connection with the factoring
                  or securitization thereof, which sale is non-recourse to the
                  extent customary in factoring or securitization transactions
                  (as applicable); and

                           (G) any Disposition of all or substantially all the
                  assets of, or Equity Interests in, any CIG Excluded
                  Subsidiary, provided that (i) such Disposition shall not be
                  permitted, in the case of CIG Exploration, Inc. or CIG Field
                  Services Company (as the case may be), to the extent that CIG
                  Exploration, Inc. or CIG Field Services Company (as the case
                  may be) has acquired assets on or after the Restatement Date
                  and, in the case of any other CIG Excluded Subsidiary, to the
                  extent that it has acquired assets on or after the Third
                  Restatement Date, unless such assets were acquired with funds
                  from (x) in the case of CIG Exploration, Inc. or CIG Field
                  Services Company, cash balances on hand at CIG Exploration,
                  Inc. or CIG Field Services Company as of the Third Restatement
                  Date or, in the case of any other CIG Excluded Subsidiary,
                  cash balances on hand at such CIG Excluded Subsidiary as of
                  the Third Restatement Date, (y) in the case of CIG Exploration
                  Inc. or CIG Field Services Company, EBITDA generated after the
                  Third Restatement Date by CIG Exploration, Inc. or CIG Field
                  Services Company or, in the case of any other CIG Excluded
                  Subsidiary, EBITDA generated after the Third Restatement Date
                  by such CIG Excluded Subsidiary, or (z) capital contributions
                  made by El Paso or an Affiliate of El Paso (other than a
                  Sponsor Subsidiary or any Intermediate Holder relating to the
                  CIG Excluded Subsidiaries) through the applicable Sponsor
                  Subsidiary and (ii) the Net Cash Proceeds from and to the
                  extent of any such permitted Disposition may be deposited, at
                  El Paso's election, in any account of El Paso or any of its
                  Affiliates;

         provided, however, that if, at the time of any such Disposition
         described in clauses (C) and (D) above, an El Paso RA Event has
         occurred and is continuing, such Sponsor Subsidiary shall apply such
         Net Cash Proceeds to prepay Advances in accordance with Section
         2.05(b)(viii).

                  (e) Investments. Permit such Controlled Business to make or
         hold any Investment other than:

                           (i) demand loans to El Paso or any of its Affiliates
                  ("AFFILIATE LOANS"); provided that an Affiliate Loan may only
                  be made if:

                                    (A) no Incipient Event, Event of Default,
                           Notice Event, Termination Event or Liquidating Event
                           shall have occurred and be outstanding or shall
                           result therefrom; and

                                    (B) (1) in the case of any Affiliate Loan
                                    made to El Paso, El Paso has; or

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       65

                                             (2) in the case of any Affiliate
                                    Loan made to an Affiliate of El Paso, such
                                    Affiliate Loan is guaranteed by El Paso and
                                    El Paso has,

                           a senior unsecured long term debt credit rating of at
                           least BBB- by S&P or at least Baa3 by Moody's,

                  provided further that (x) if a Liquidating Event shall occur,
                  such Sponsor Subsidiary shall cause such Controlled Business
                  to forthwith demand repayment of such Affiliate Loan and (y)
                  after the occurrence and during the continuance of an El Paso
                  RA Event, any existing Affiliate Loans shall be permitted to
                  be maintained but no additional Affiliate Loans shall be
                  permitted;

                           (ii) Investments by such Controlled Business in any
                  Cash Equivalents;

                           (iii) Investments by such Controlled Business in any
                  Indebtedness permitted under Section 5.09(b) above;

                           (iv) loans and advances to employees in the ordinary
                  course of the business of any such Controlled Business; and

                           (v) Investments by such Controlled Business in
                  limited partnership interests of CIG Production Company, L.P.,
                  a Delaware limited partnership, existing on the Third
                  Restatement Date, and additional Investments by such
                  Controlled Business in such limited partnership interests of
                  CIG Production Company, L.P. made on or after the Third
                  Restatement Date funded from capital contributions made by El
                  Paso or an Affiliate of El Paso (other than a Sponsor
                  Subsidiary or any Intermediate Holder relating to such
                  Controlled Business) through the applicable Sponsor
                  Subsidiary.

                  (f) Amendment, Etc. of Material Agreements. Permit such
         Controlled Business to:

                           (i) cancel or terminate any Material Agreement;

                           (ii) consent to or accept any cancellation or
                  termination of any Material Agreement;

                           (iii) amend, modify or change in any manner any term
                  or condition of any Material Agreement;

                           (iv) give any consent, waiver or approval under any
                  Material Agreement;

                           (v) waive any default under or any breach of any term
                  or condition of any Material Agreement; or

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       66

                           (vi) agree in any manner to any other amendment,
                  modification or change of any term or condition of any
                  Material Agreement,

         other than (A) any amendment, supplement, cancellation, termination,
         consent, approval, waiver or modification consented to or waived by
         Clydesdale or (B) any amendment, supplement, cancellation, termination,
         consent, approval, waiver or modification which would not have a
         material adverse effect on the business, operations, performance,
         properties, or financial condition of any Controlled Business and
         provided that after giving effect to any such amendment, supplement,
         cancellation, termination, consent, approval, waiver or modification no
         Liquidating Event, Termination Event, Notice Event, Event of Default or
         Incipient Event shall have occurred and be continuing and the Sponsor
         Subsidiaries, Noric and Noric LP shall be in compliance with the
         financial covenants in Section 5.04 on a pro forma basis as of the last
         date of the calculation of the covenants in Section 5.04.

                  (g) Negative Pledge. Permit such Controlled Business to enter
         into or suffer to exist any agreement prohibiting or conditioning the
         creation or assumption of any Lien upon any of its property or assets
         except as set forth in the Operative Documents or except in connection
         with:

                           (i) any purchase money Indebtedness permitted by
                  Section 5.09(b)(iv) solely to the extent that the agreement or
                  instrument governing such Indebtedness prohibits a Lien on the
                  property acquired with the proceeds of such Indebtedness,
                  accessions thereto or the proceeds thereof;

                           (ii) any Capitalized Lease of any Controlled Business
                  permitted by Section 5.09(b)(vi) solely to the extent that the
                  agreement or instrument governing such Capitalized Lease
                  prohibits a Lien on the property subject thereto or the
                  proceeds thereof; or

                           (iii) the Controlled Business Debt, the Refinanced
                  Controlled Business Debt or the CIG Existing Debt, as
                  applicable, solely to the extent that the agreements governing
                  such Controlled Business Debt, Refinance Controlled Business
                  Debt and CIG Existing Debt, as applicable, prohibit a Lien on
                  the property of the respective Controlled Business (including
                  property of Subsidiaries constituting Underlying Businesses
                  with respect to an Underlying Business that is the obligor on
                  any Controlled Business Debt, Refinanced Controlled Business
                  Debt or CIG Existing Debt, as applicable); provided that to
                  the extent any provision of the Loan Documents creates a Lien
                  (as defined in the agreements related to the Controlled
                  Business Debt, Refinanced Controlled Business Debt or CIG
                  Existing Debt, as applicable) on the property of any
                  Controlled Business, such Lien shall be permitted under such
                  agreements.

                  (h) Affiliate Loans. (i) Subject to Section 5.09(e), permit
         such Controlled Business to:

                           (A) cancel, terminate or forgive any Affiliate Loan;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       67

                           (B) consent to or accept any cancellation,
                  forgiveness or termination of any Affiliate Loan; or

                           (C) waive any default under or any breach of any term
                  or condition of any Affiliate Loan, other than (1) any waiver
                  consented to by Clydesdale or (2) any waiver which would not
                  have a Material Adverse Effect or a material adverse effect on
                  the business, operations, performance, properties, or
                  financial condition of any Controlled Business and provided
                  that after giving effect to such waiver no Liquidating Event,
                  Termination Event, Notice Event, Event of Default or Incipient
                  Event shall have occurred and be continuing and the Sponsor
                  Subsidiaries, Noric and Noric LP shall be in compliance with
                  the financial covenants in Section 5.04 on a pro forma basis
                  as of the last date of the calculation of covenants in Section
                  5.04.

                  (ii) Permit such Controlled Business to make any Investment in
         El Paso or any Affiliate of El Paso to be evidenced by, or acquire by
         purchase or contribution, any Affiliate Loan except to the extent
         permitted by Section 5.09(e), unless at the time of such making or
         acquisition (A) the borrowing evidenced by the Affiliate Loan has been
         duly authorized by all required corporate action, such action has been
         duly certified by the secretary or an assistant secretary of El Paso or
         such Affiliate, and such certification has been delivered to it,
         together with certificates as to incumbency and due authorization of
         the officers of El Paso or such Affiliate authorized to execute and
         deliver such Affiliate Loan (which certified action may be one so taken
         and certification may be one so delivered before that Investment or
         acquisition if the certified action remains in effect at the time of,
         and is applicable to, that acquisition) and (B) such Affiliate Loan is
         the legal, valid and binding obligation of El Paso or the Affiliate of
         El Paso (as applicable) enforceable against El Paso or such Affiliate
         of El Paso in accordance with its terms. The making or acquisition of
         any Affiliate Loan shall constitute a representation by the Sponsor
         Subsidiaries that this Section 5.09(h) has been satisfied and that the
         matters referred to in subclauses (A) and (B) above are true and
         correct as of the date of such making or acquisition.

                  (i) Payments under Controlled Business Debt, Refinanced
         Controlled Business Debt and CIG Existing Debt. Prepay, redeem,
         purchase, defease or otherwise satisfy prior to the scheduled maturity
         thereof in any manner any Controlled Business Debt, Refinanced
         Controlled Business Debt or CIG Existing Debt, except (i) with respect
         to the Controlled Business Debt, in connection with a refinancing of
         the Controlled Business Debt in accordance with Section 5.03, (ii) with
         respect to the CIG Existing Debt, a prepayment or redemption of the CIG
         Existing Debt funded from capital contributions made by El Paso or an
         Affiliate of El Paso (other than a Sponsor Subsidiary or any
         Intermediate Holder) through the applicable Sponsor Subsidiary, and
         (iii) with respect to the CIG Existing Debt, in connection with a
         refinancing of the CIG Existing Debt to the extent that such refinanced
         CIG Existing Debt (a) has a maturity date occurring after June 15, 2007
         and (b) is not redeemable at the option of the holder, or subject to
         scheduled mandatory redemption, prior to June 15, 2007.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       68

                  Section 5.10. Covenants with Respect to E&P Participation
Agreements and Production Payment Agreements.

                  (a) Performance of E&P Participation Agreements and Production
         Payment Agreements. Until the Debt Collection Date, each Sponsor
         Subsidiary will, and Noric Holdings I will cause Noric and Noric LP to,
         and Noric Holdings IV will cause Lusitano as the Lipizzan General
         Partner to cause Lipizzan to, at all times, unless otherwise consented
         to in writing by Clydesdale:

                           (i) perform and observe in all material respects all
                  of the terms and provisions of each E&P Participation
                  Agreement and each Production Payment Agreement to which it is
                  a party to be performed or observed by it;

                           (ii) maintain each such E&P Participation Agreement
                  and each such Production Payment Agreement; provided that (A)
                  such Sponsor Subsidiary may terminate or assign any of its
                  rights or obligations under any E&P Participation Agreement to
                  which it is a party in connection with a Disposition of an E&P
                  Asset relating thereto in accordance with Section 5.02(d), (B)
                  Noric LP may terminate or assign any of its rights or
                  obligations under any E&P Participation Agreement to which it
                  is a party in connection with a Disposition of an E&P Asset
                  relating thereto in accordance with Section 5.05(a), and (C)
                  Lipizzan may (but shall not be obligated to) assign, re-convey
                  or release any of its rights or interests in respect of any
                  Production Payment Interest (including any Liens granted under
                  the relevant Production and Delivery Agreement) to the extent
                  attributable to a Disposition of a Subject Interest by any
                  Counterparty to a Production Payment Agreement and otherwise
                  in accordance with Section 5.05(a);

                           (iii) promptly enforce each such E&P Participation
                  Agreement and each such Production Payment Agreement in
                  accordance with its respective terms (subject to the terms of
                  Article VI hereof and the Sponsor Subsidiary Security
                  Agreement);

                           (iv) promptly take all action under or in respect of
                  each such E&P Participation Agreement and each such Production
                  Payment Agreement as may be from time to time reasonably
                  requested by Clydesdale or the Sponsor Subsidiary Collateral
                  Agent; and

                           (v) upon the request of Clydesdale, promptly make to
                  each other Counterparty to each such E&P Participation
                  Agreement and each such Production Payment Agreement such
                  demands and requests for information and reports or for action
                  as such Sponsor Subsidiary, Noric LP or Lipizzan, as the case
                  may be, is entitled to make under such E&P Participation
                  Agreement and such Production Payment Agreement (excluding,
                  prior to the occurrence of a Liquidating Event, any request by
                  a Sponsor Subsidiary, Noric or Noric LP , as the case may be,
                  pursuant to Section 5.1 of any E&P Participation Agreement to
                  convey record title to such Person of all or any part of the
                  Conveyed Interests or

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       69

                  the Material E&P Agreement) (in each case, as defined in such
                  E&P Participation Agreement)).

                  (b) Amendment, Etc., of E&P Participation Agreements and
         Production Payment Agreements. Until the Debt Collection Date, each
         Sponsor Subsidiary will not, and Noric Holdings I will cause Noric and
         Noric LP not to, and Noric Holdings IV will cause Lusitano as the
         Lipizzan General Partner to cause Lipizzan not to, at any time, without
         the written consent of Clydesdale:

                           (i) cancel or terminate any E&P Participation
                  Agreement or any Production Payment Agreement to which it is a
                  party; provided that such Sponsor Subsidiary may cancel or
                  terminate any E&P Participation Agreement to which it is a
                  party in connection with a Disposition of an E&P Asset
                  relating thereto in accordance with Sections 5.02(d);

                           (ii) consent to or accept any cancellation or
                  termination of any E&P Participation Agreement to which it is
                  a party; provided that (A) such Sponsor Subsidiary may cancel
                  or terminate any E&P Participation Agreement to which it is a
                  party in connection with a Disposition of an E&P Asset
                  relating thereto in accordance with Section 5.02(d) and (B)
                  Noric LP may cancel or terminate any E&P Participation
                  Agreement to which it is a party in connection with a
                  Disposition of an E&P Asset relating thereto in accordance
                  with Section 5.05(a);

                           (iii) forgive any obligation under, or amend, modify
                  or change in any manner any term or condition of any E&P
                  Participation Agreement or any Production Payment Agreement to
                  which it is a party, other than (A) amendments to Exhibit A to
                  any E&P Participation Agreement to reflect any Disposition by
                  such Sponsor Subsidiary or Noric LP of any interest in any E&P
                  Participation Property, (B) amendments to Exhibit A to any
                  Production Payment Agreement to reflect (x) any assignment,
                  re-conveyance or release by Lipizzan of any of its rights or
                  interests in respect of any Production Payment Interest
                  (including any Liens granted under the relevant Production and
                  Delivery Agreement) to the extent attributable to a
                  Disposition of a Subject Interest by any Counterparty to a
                  Production Payment Agreement and otherwise in accordance with
                  Section 5.05(a) or (y) any acquisition of interests in
                  Production Payment Interests in connection with acquisitions
                  by any Counterparty to a Production Payment Agreement of
                  Subject Interests burdened by a Production Payment and
                  otherwise in accordance with Section 5.05(a) and (C) any
                  amendments to Schedule 1 to any Production Payment Conveyance
                  to reflect any adjustments to the Scheduled Quantities made
                  pursuant to Section 2.09(f); provided that the form of any
                  such assignment, re-conveyance, amendment or release shall be
                  reasonably satisfactory to the Calculation Agent;

                           (iv) give any consent, waiver or approval under any
                  E&P Participation Agreement or any Production Payment
                  Agreement to which it is a party;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       70

                           (v) waive any default under or any breach of any term
                  or condition of any E&P Participation Agreement or Production
                  Payment Agreement to which it is a party; or

                           (vi) agree in any manner to any other amendment,
                  modification or change of any term or condition of any E&P
                  Participation Agreement or any Production Payment Agreement to
                  which it is a party.

                  Section 5.11. Application of Amounts from Disposition of
Transaction Assets(a).

                  (a) Application of Amounts on Deposit in the Proceeds Account.
The amounts deposited by any Underlying Business into the Proceeds Account of
such Underlying Business pursuant to Section 2.05(b)(viii)(B) and 5.09(d)(D)
may, at any time, be invested by such Underlying Business in Cash Equivalents.
Each Underlying Business from time to time shall also have the right to apply
any amounts on deposit in the Proceeds Account of such Underlying Business
(except any amounts deposited thereto pursuant to Section 2.05(b)(viii)(B)) to
make Affiliate Loans or Distributions, provided that with respect to any amounts
deposited into any Proceeds Account pursuant to Section 5.09(d)(D), such amounts
shall be held in such Proceeds Account pending a new Appraisal of the relevant
Energy Investment and, on or after the date on which a Responsible Officer of El
Paso delivers a Compliance Certificate pursuant to Section 5.07(f), may be
applied by the applicable Underlying Business to make Affiliate Loans pursuant
to Section 5.09(e) or to make Distributions to a Sponsor Subsidiary by
depositing such amounts into the Sponsor Subsidiary Cash Reserve pursuant to
Section 7.02(a)(ii) and subsequently releasing such amounts from the Sponsor
Subsidiary Cash Reserve pursuant to Section 7.04(h); provided further that,
prior to such application of such amounts, to the extent that the Energy
Investment Exposure then in effect is greater than the Aggregate Energy
Investment Loan Value Amount at such time, an amount necessary to reduce such
Energy Investment Exposure (x) shall have been deposited, or deemed deposited,
into the Sponsor Subsidiary Cash Reserve and/or the Noric Holdings IV Cash
Reserve as a Cash Collateral Amount and/or (y) shall have been applied (by the
Sponsor Subsidiaries or by any Underlying Businesses relating thereto on behalf
of such Sponsor Subsidiaries) to prepay the Advances, together with all other
amounts required to be paid pursuant to Section 2.06(c) in connection with such
prepayment, in order to ensure compliance with the financial covenant set forth
in Section 5.04(f) after giving effect to such deposit and/or prepayment.

                  (b) Application of Amounts on Deposit in the Noric LP Cash
Reserve. The amounts deposited by Noric LP into the Noric LP Cash Reserve
pursuant to Section 2.05(b)(viii)(C) and Section 5.05(a)(D) may, at any time, be
invested by Noric LP in Cash Equivalents. Noric LP from time to time shall also
have the right, subject to sub-clauses (i) and (ii) below, to apply any amounts
on deposit in the Noric LP Cash Reserve to make El Paso Demand Loans or to make
Distributions, provided that:

                  (i) with respect to any amounts deposited into the Noric LP
         Cash Reserve pursuant to Section 5.05(a)(D), such amounts shall be held
         in the Noric LP Cash Reserve pending an E&P Borrowing Base
         Redetermination pursuant to Section 2.09(e) (or, in the absence of such
         redetermination, a redetermination pursuant to Section 2.09(b)) and, on
         or after the E&P Borrowing Base Effective Date occurring after any
         Disposition referred

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       71

         to in Section 5.05(a)(D), may be applied by Noric LP to make El Paso
         Demand Loans or to make Distributions by depositing such amounts in the
         Sponsor Subsidiary Cash Reserve pursuant to Section 7.02(a)(ii) and
         subsequently releasing such amounts from the Sponsor Subsidiary Cash
         Reserve pursuant to Section 7.04(h); provided that, prior to such
         application of such amounts, to the extent there is any Collateral
         Shortfall Amount, the amount necessary to cure such Collateral
         Shortfall Amount (x) shall have been deposited, or deemed deposited,
         into the Sponsor Subsidiary Cash Reserve and/or the Noric Holdings IV
         Cash Reserve as a Cash Collateral Amount and/or (y) shall have been
         applied to prepay the Advances in accordance with Section 2.05(b)(vi)
         in order to ensure compliance with the financial covenant set forth in
         Section 5.04(f) after giving effect to such deposit and/or prepayment;
         and

                  (ii) notwithstanding anything to the contrary contained in
         clause (i) above, if the new E&P Borrowing Base that will become
         effective on the next E&P Borrowing Base Effective Date has been
         determined on the basis of a pro forma Reserve Report, Noric LP may
         apply, immediately prior to or contemporaneously with such new E&P
         Borrowing Base becoming effective, (1) an amount not to exceed the
         aggregate Disposition Value of the Relevant Assets from any Disposition
         described in Section 5.05(a)(G) and (2) the Net Cash Proceeds from any
         Dispositions referred to in Sections 5.02(d)(C)(4) and 5.05(a)(D), as
         the case may be, solely to complete the proposed acquisition of the
         Relevant Assets reflected in such pro forma Reserve Report and in an
         aggregate amount not to exceed the aggregate PV-10 Value of such
         Relevant Assets to be acquired, provided that (x) the new E&P Borrowing
         Base shall become effective, in accordance with Section 2.09(e),
         immediately after or contemporaneously with the completion of such
         acquisition, (y) to the extent there is any Collateral Shortfall
         Amount, the amount necessary to cure such Collateral Shortfall Amount
         (A) shall have been deposited, or deemed deposited, into the Sponsor
         Subsidiary Cash Reserve and/or the Noric Holdings IV Cash Reserve as a
         Cash Collateral Amount and/or (B) shall have been applied to prepay the
         Advances in accordance with Section 2.05(b)(vi) in order to ensure
         compliance with the financial covenant set forth in Section 5.04(f)
         after giving effect to such deposit and/or prepayment, and (z) on or
         after such new E&P Borrowing Base Effective Date, the remaining
         balance, if any, of the Net Cash Proceeds from any Disposition referred
         to in Section 5.05(a)(D) may be applied by Noric LP to make El Paso
         Demand Loans or to make Distributions by depositing such amounts in the
         Sponsor Subsidiary Cash Reserve pursuant to Section 7.02(a)(ii) and
         subsequently releasing such amounts from the Sponsor Subsidiary Cash
         Reserve pursuant to Section 7.04(h).

                                   ARTICLE VI

                                EVENTS OF DEFAULT

                  Section 6.01. Events of Default. If any of the following
events (each an "EVENT OF DEFAULT") shall occur and be continuing:

                  (a) any Sponsor Subsidiary shall fail to pay:

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       72

                           (i) any principal on any Advance when the same
                  becomes due and payable; or

                           (ii) any interest on any Advance or any other amount
                  payable by it under this Agreement or under any other Sponsor
                  Subsidiary Credit Document when the same becomes due and
                  payable if such failure to pay shall remain unremedied for
                  five Business Days after such amount becomes due and payable;
                  or

                  (b) any written representation or warranty made or deemed made
         by any El Paso Party in any Operative Document, or in any certificate
         or report prepared by or furnished by or on behalf of any Sponsor
         Subsidiary pursuant to any Operative Document shall prove to have been
         incorrect in any material respect when made or deemed made; or

                  (c) any Sponsor Subsidiary shall fail to perform or observe
         any term, covenant or agreement contained in Sections 5.01(m), 5.01(n),
         5.01(p), 5.02(a), 5.02(b), 5.02(c), 5.02(d) (other than Section
         5.02(d)(C)(4) (but only with respect to the failure of the Sponsor
         Subsidiaries to deposit into the Sponsor Subsidiary Cash Reserve an
         amount equal to the Net Cash Proceeds from any Disposition described in
         Section 5.02(d)(C)(4) in an aggregate amount greater than an amount
         equal to the difference (but not less than zero) of (x) $5,000,000
         minus (y) the aggregate amount of Net Cash Proceeds from any
         Disposition described in Section 5.05(a)(D) that Noric LP has failed to
         deposit in the Noric LP Cash Reserve plus the aggregate amount of the
         Disposition Value of the Relevant Assets from any Disposition described
         in Section 5.05(a)(F) that Noric Holdings IV and Lipizzan have failed
         to deposit in the Noric Holdings IV Cash Reserve, in excess of the then
         effective Adjusted Redetermination Threshold)), 5.02(e), 5.02(f),
         5.02(i), 5.02(m), 5.02(o), 5.02(p), 5.03, 5.04 (excluding Section
         5.04(c)), 5.05 (other than Section 5.05(a)(D) (but only with respect to
         the failure of Noric LP to deposit into the Noric LP Cash Reserve an
         amount equal to the Net Cash Proceeds from any Disposition described in
         Section 5.05(a)(D) in an aggregate amount greater than an amount equal
         to the difference (but not less than zero) of (x) $5,000,000 minus (y)
         the aggregate amount of Net Cash Proceeds from any Disposition
         described in Section 5.02(d)(C)(4) that the Sponsor Subsidiaries have
         failed to deposit in the Sponsor Subsidiary Cash Reserve plus the
         aggregate amount of the Disposition Value of the Relevant Assets from
         any Disposition described in Section 5.05(a)(F) that Noric Holdings IV
         and Lipizzan have failed to deposit in the Noric Holdings IV Cash
         Reserve, in excess of the then effective Adjusted Redetermination
         Threshold) and other than Section 5.05(a)(F) (but only with respect to
         the failure of Noric Holdings IV and Lipizzan to deposit into the Noric
         Holdings IV Cash Reserve an amount equal to the Disposition Value of
         the Relevant Assets from any Disposition described in Section
         5.05(a)(F) in an aggregate amount greater than an amount equal to the
         difference (but not less than zero) of (x) $5,000,000 minus (y) the
         aggregate amount of Net Cash Proceeds from any Disposition described in
         Section 5.02(d)(C)(4) that the Sponsor Subsidiaries have failed to
         deposit in the Sponsor Subsidiary Cash Reserve plus the aggregate
         amount of Net Cash Proceeds from any Disposition described in Section
         5.05(a)(D) that Noric LP has failed to deposit in the Noric LP Cash
         Reserve, in excess of the then effective Adjusted Redetermination
         Threshold)), 5.06, 5.09 (other than Section 5.09(d)(D) (but only with
         respect to the failure

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       73

         of the Sponsor Subsidiaries to, or to cause any Controlled Business to,
         deposit into the relevant Proceeds Account any Net Cash Proceeds from
         any Dispositions described in Section 5.09(d)(D) in an aggregate amount
         greater than the first $5,000,000 in excess of $15,000,000) and Section
         5.09(g)), 5.10(a)(ii) or 5.10(b) (but, in each case, subject to any
         provisions relating to the cure of any Default or Event of Default
         referred to therein) or Section 7.02(a), 7.03(b) or 7.03(d) hereof or
         Section 20 of the Sponsor Subsidiary Security Agreement or El Paso
         shall fail to cause CIG Production Company L.P. (to the extent it is a
         CIG Controlled Business) to comply with any of such covenants or
         agreements applicable to it (as contemplated by Section 5.2(l) of the
         El Paso Agreement); or

                  (d) any Sponsor Subsidiary shall fail to perform or observe
         any term, covenant or agreement contained in Section 5.02 (other than
         as set forth in Section 6.01(c)), 5.09(d)(D) (but only with respect to
         the failure of the Sponsor Subsidiaries to, or to cause any Controlled
         Business to, deposit into the relevant Proceeds Account any Net Cash
         Proceeds from any Dispositions described in Section 5.09(d)(D) in an
         aggregate amount not greater than the first $5,000,000 in excess of
         $15,000,000), 5.09(g), 5.10(a)(iv) or 5.10(a)(v) or El Paso shall fail
         to cause CIG Production Company L.P. (to the extent it is a CIG
         Controlled Business) to comply with any of such covenants or agreements
         applicable to it (as contemplated by Section 5.2(l) of the El Paso
         Agreement), in each case, if such failure shall remain unremedied for
         five Business Days after the occurrence thereof; or

                  (e) any Sponsor Subsidiary shall fail to perform or observe in
         any material respect any other term, covenant or agreement contained in
         any Sponsor Subsidiary Credit Document (other than as set forth in,
         including giving effect to exclusions of Sections of the Sponsor
         Subsidiary Credit Agreement set forth in, Section 6.01(a), Section
         6.01(c), Section 6.01(d), or Section 6.01(m)) on its part to be
         performed or observed, or El Paso shall fail to cause CIG Production
         Company L.P. (to the extent it is a CIG Controlled Business) to comply
         with any covenants or agreements under Section 5.08, 5.09 or 5.10
         applicable to it (other than as set forth in Section 6.01(c) or
         6.01(d), in each case, if such failure shall remain unremedied for 30
         days following notice thereof by Clydesdale if such failure is
         reasonably curable; or

                  (f) subject to Section 1.10, at any time that the E&P
         Borrowing Base exceeds $0 (but tested only as of each Coverage Test
         Date), the ratio of:

                           (i) the aggregate net cash received by the Sponsor
                  Subsidiaries, Lipizzan, Noric, and Noric LP (without double
                  counting) in respect of each Production Payment and each E&P
                  Participation Property which is then part of any E&P Asset for
                  the most recently completed four Fiscal Quarters, provided
                  that, for the purpose of calculating this ratio with respect
                  to each Production Payment, the net cash received shall be
                  deemed to be equal to the lesser of (x) all cash revenues from
                  the Subject Interests (without regard to such Production
                  Payment) minus all operating expenses, capital expenditures
                  and Taxes attributable to the Subject Interests for such most
                  recently completed four Fiscal Quarters and (y) aggregate net
                  cash received by Lipizzan in respect of each

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       74

                  Production Payment for such most recently completed four
                  Fiscal Quarters; provided further that for purposes of
                  calculating this ratio for the period starting on the Third
                  Restatement Date and ending on September 30, 2002, the net
                  cash received with respect to each Production Payment shall be
                  deemed to be equal to that set forth in clause (x) above, over

                           (ii) E&P Notional Interest computed as of the end of
                  the most recently completed Payment Period,

         shall be less than 4.25 to 1; or

                  (g) any judgment or order for the payment of money in excess
         of $50,000 (or the equivalent in any foreign currency) shall be
         rendered against any Sponsor Subsidiary, Lusitano, Lipizzan, Noric,
         Palomino, Paso Fino or Noric LP and either (i) enforcement proceedings
         shall have been commenced by any creditor upon such judgment or order
         (other than any enforcement proceedings consisting of the mere
         obtaining and filing of a judgment lien or obtaining of a garnishment
         or similar order so long as no foreclosure, levy or similar process in
         respect of such lien, or payment over in respect of such garnishment or
         similar order, has commenced) or (ii) there shall be any period of 30
         consecutive days during which a stay of enforcement of such judgment or
         order, by reason of a pending appeal, bonding or otherwise, shall not
         be in effect; or

                  (h) any non-monetary judgment or order shall be rendered
         against any Sponsor Subsidiary, Lusitano, Lipizzan, Noric, Palomino,
         Paso Fino or Noric LP that is reasonably likely to have a Material
         Adverse Effect, and there shall be any period of ten consecutive
         Business Days during which a stay of enforcement of such judgment or
         order, by reason of a pending appeal or otherwise, shall not be in
         effect; or

                  (i) any provision of any Sponsor Subsidiary Credit Document
         after the delivery thereof pursuant to Section 3.01, 3.02 or 3.03 shall
         for any reason cease, in any material respect, to be valid and binding
         on or enforceable against any Sponsor Subsidiary; or

                  (j) the Sponsor Subsidiary Collateral Agent shall, at any time
         after the Closing Date, not have a valid and perfected first priority
         security interest in the Collateral (other than as a result of
         Permitted Liens); or

                  (k) any Person who holds an Equity Interest in Appaloosa,
         Clydesdale, Lusitano, Lipizzan, Noric, Palomino, Paso Fino, Noric LP or
         any Sponsor Subsidiary shall transfer its interest therein so that as a
         result of any such transfer Appaloosa, Clydesdale, Lusitano, Lipizzan,
         Noric, Palomino, Paso Fino, Noric LP or such Sponsor Subsidiary (as
         applicable) is caused to be required to be registered as an "investment
         company" within the meaning of the Investment Company Act; or

                  (l) a Liquidating Event shall have occurred, or the
         Liquidation Period with respect to Clydesdale, Lusitano, Lipizzan,
         Noric, Palomino, Paso Fino, Noric LP, Appaloosa or a Sponsor Subsidiary
         shall have expired or terminated; or

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       75

                  (m) the Sponsor Subsidiaries and Noric LP shall fail to
         maintain a credit balance (i) in the Noric LP Cash Reserve equal to at
         least the Noric LP Required Cash Reserve Balance, (ii) in the Noric
         Holdings IV Cash Reserve equal to at least the Noric Holdings IV
         Required Cash Reserve Balance, and (iii) in the Sponsor Subsidiary Cash
         Reserve equal to at least the Sponsor Subsidiary Required Cash Reserve
         Balance and any such failure remains unremedied for two Business Days;
         or

                  (n) any Counterparty to any E&P Participation Agreement shall
         fail to perform or observe any term, covenant or agreement contained in
         (i) Section 4.2.12, 4.2.20 or 5.1 of such E&P Participation Agreement,
         (ii) Section 4 (other than Sections 4.2.12 and 4.2.20) of such E&P
         Participation Agreement and such failure shall remain unremedied for
         five Business Days after the occurrence thereof, or (iii) any other
         Section of such E&P Participation Agreement in any material respect and
         such failure shall remain unremedied for 30 days after the occurrence
         thereof; or

                  (o) any written representation or warranty made or deemed made
         by any Counterparty in any E&P Participation Agreement or any
         Production Payment Agreement or in any certificate or report prepared
         by or furnished by or on behalf of any such Person pursuant to any E&P
         Participation Agreement or any Production Payment Agreement shall prove
         to have been incorrect in any material respect when made or deemed
         made; or

                  (p) any provision of any E&P Participation Agreement after the
         Closing Date or the applicable Acquisition/Accession Date shall for any
         reason cease, in any material respect, to be valid and binding on or
         enforceable against any Counterparty to any E&P Participation
         Agreement; or

                  (q) any Termination Event of the kind described in paragraph
         (c), (d) or (e) of the definition thereof in Exhibit A to the
         Clydesdale Partnership Agreement shall occur; or

                  (r) Any Counterparty to a Production Payment Agreement shall
         fail to perform or observe any term, covenant or agreement contained in
         (i) Section 1.08 of such Production Payment Conveyance or Sections 9(e)
         or 11(a) of such Production and Delivery Agreement, (ii) Section 1.07
         of such Production Payment Conveyance or Section 9 (other than Section
         9(e)) of such Production and Delivery Agreement and such failure shall
         remain unremedied for five Business Days after the occurrence thereof
         or (iii) any other Section of such Production Payment Agreement in any
         material respect and such failure shall remain unremedied for 30 days
         after the occurrence thereof; or

                  (s) any provision of any Production Payment Agreement after
         the Third Restatement Date or the applicable Acquisition/Accession Date
         shall for any reason cease, in any material respect, to be valid and
         binding on or enforceable against any Counterparty to any Production
         Payment Agreement,

then, and in any such event, Clydesdale may by notice to Noric Holdings (in its
individual capacity and on behalf of all Sponsor Subsidiaries) declare all
Advances, all interest thereon, all

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       76

amounts required to be paid pursuant to Section 2.06(c) and all other amounts
payable under this Agreement and the other Sponsor Subsidiary Credit Documents
to be forthwith due and payable, whereupon all Advances, all such interest,
amounts under Section 2.06(c) and other amounts under the Sponsor Subsidiary
Credit Documents shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each Sponsor Subsidiary; provided, however, that in
the event of either (i) an actual or deemed entry of an order for relief with
respect to any Sponsor Subsidiary under the United States Bankruptcy Code as
then in effect or (ii) the occurrence of the event described in clause (s)
above, all Advances, all such interest, all such amounts under Section 2.06(c)
and all such other amounts shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by each Sponsor Subsidiary. The Sponsor Subsidiary
Collateral Agent and Clydesdale shall each have, in addition to all other rights
and remedies under the Sponsor Subsidiary Credit Documents or otherwise, all
other rights and remedies provided under the UCC of each applicable jurisdiction
and other Applicable Laws, which rights shall be cumulative.

                  Without limiting the foregoing, after the occurrence of an
Event of Default:

                  (i) Clydesdale may (acting on the instructions of Mustang):

                           (A) direct the Sponsor Subsidiary Collateral Agent to
                  apply all or any part of the credit balance in the Sponsor
                  Subsidiary Cash Reserve and the Noric Holdings IV Cash Reserve
                  in prepayment of any Obligations of any Sponsor Subsidiary
                  under the Sponsor Subsidiary Credit Documents; and/or

                           (B) exercise the rights of Noric Holdings I in
                  respect of its Noric Class A Membership Interest; and in turn
                  Noric's rights in respect of its Palomino Membership Interest
                  and its Paso Fino Membership Interest, and Palomino's and Paso
                  Fino's rights in respect of Palomino's Noric LP General
                  Partnership Interest and Paso Fino's Noric LP Limited
                  Partnership Interest; and/or

                           (C) exercise the rights of Noric Holdings IV in
                  respect of its Lipizzan Limited Partnership Interest and its
                  Lusitano Membership Interest; and in turn Lusitano's rights in
                  respect of its Lipizzan General Partnership Interest; and/or

                           (D) exercise the rights of each Sponsor Subsidiary
                  under each Sponsor Subsidiary Company Agreement to call for
                  mandatory capital contributions from the Sponsor Subsidiary
                  Members in respect of the Maximum Clawback Amount; and/or

                           (E) exercise any right, remedy, power or privilege of
                  any Sponsor Subsidiary, or cause Noric or Noric LP (as the
                  case may be) to exercise any right, remedy, power or privilege
                  of Noric or Noric LP (as the case may), under or in respect of
                  any E&P Participation Agreement to which such Sponsor
                  Subsidiary, Noric, or Noric LP (as the case may be) is a
                  party; and/or

                           (F) exercise any right, remedy, power or privilege of
                  Noric Holdings IV, or cause Lusitano or Lipizzan (as the case
                  may be) to exercise any right,

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       77

                  remedy, power or privilege of Lusitano or Lipizzan (as the
                  case may), under or in respect of any Production Payment
                  Agreement to which Noric Holdings IV or Lipizzan (as the case
                  may be) is a party; and/or

                           (G) exercise any right, remedy, power or privilege of
                  each Sponsor Subsidiary, or cause Lusitano, Lipizzan, Noric or
                  Noric LP to exercise any right, remedy, power or privilege of
                  Lusitano, Lipizzan, Noric or Noric LP, under the El Paso
                  Guaranty; and

                  (ii) the Sponsor Subsidiary Collateral Agent shall make such
         demands under any letter of credit issued for the benefit of any
         Sponsor Subsidiary or any El Paso Demand Loan or Affiliate Loan and
         liquidate such other Permitted Investments as are necessary to give
         effect to the prepayment referred to in clause (i)(A) above.

                                   ARTICLE VII

                    ADMINISTRATION, SETTLEMENT AND COLLECTION

                  Section 7.01. Maintaining the Sponsor Subsidiary Cash Reserve,
the Noric Holdings IV Cash Reserve and the Sponsor Subsidiary Operating Account.
Until the Debt Collection Date:

                  (a) Noric Holdings will maintain the Sponsor Subsidiary Cash
         Reserve and the Sponsor Subsidiary Operating Account with the Sponsor
         Subsidiary Collateral Agent, such accounts to be in the name of Noric
         Holdings, but subject to the sole dominion and control of the Sponsor
         Subsidiary Collateral Agent. Noric Holdings IV will maintain the Noric
         Holdings IV Cash Reserve with the Sponsor Subsidiary Collateral Agent,
         such account to be in the name of Noric Holdings IV, but subject to the
         sole dominion and control of the Sponsor Subsidiary Collateral Agent.

                  (b) It shall be a term and condition of the Noric Holdings IV
         Cash Reserve, the Sponsor Subsidiary Cash Reserve and the Sponsor
         Subsidiary Operating Account, and on or prior to the date hereof Noric
         Holdings IV and Noric Holdings, as the case may be, shall give to the
         Sponsor Subsidiary Collateral Agent written notice and shall obtain the
         Sponsor Subsidiary Collateral Agent's written agreement (such notice
         and agreement to be in form and substance satisfactory to the Sponsor
         Subsidiary Collateral Agent and Clydesdale), that notwithstanding any
         term or condition to the contrary in any other agreement relating to
         the Noric Holdings IV Cash Reserve, the Sponsor Subsidiary Cash Reserve
         and the Sponsor Subsidiary Operating Account, no amount (including
         interest on Permitted Investments held in the Noric Holdings IV Cash
         Reserve, the Sponsor Subsidiary Cash Reserve and the Sponsor Subsidiary
         Operating Account) shall be paid or released from the Noric Holdings IV
         Cash Reserve, the Sponsor Subsidiary Cash Reserve to or for the account
         of, or withdrawn by or for the account of, Noric Holdings IV, Noric
         Holdings, any other Sponsor Subsidiary, or any other Person other than
         pursuant to instructions originated by the Sponsor Subsidiary
         Collateral Agent, which shall in turn

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       78

         act at the direction of Clydesdale, and without the need for further
         consent by Noric Holdings IV, Noric Holdings, any other Sponsor
         Subsidiary, or any other Person.

                  (c) Clydesdale shall give all necessary directions to the
         Sponsor Subsidiary Collateral Agent to effect the following
         investments, payments or withdrawals under this Section 7.01 and the
         Sponsor Subsidiary Collateral Agent may rely on such directions as
         certifying that the requirements of the Operative Documents have been
         met with respect to such investments, payments and withdrawals:

                           (i) with respect to the Noric Holdings IV Cash
                  Reserve and the Sponsor Subsidiary Cash Reserve:

                                    (A) amounts standing to the credit of the
                           Noric Holdings IV Cash Reserve and the Sponsor
                           Subsidiary Cash Reserve may be invested in Permitted
                           Investments in accordance with Section 7.03;
                           provided, however, that the Total Cash Collateral
                           Amount shall not be invested in El Paso Demand Loans;
                           and

                                    (B) withdrawals may be made from the Noric
                           Holdings IV Cash Reserve and the Sponsor Subsidiary
                           Cash Reserve in accordance with Sections 7.04, 7.06
                           and 7.07; and

                           (ii) with respect to the Sponsor Subsidiary Operating
                  Account:

                                    (A) Noric Holdings may invest amounts
                           standing to the credit of the Sponsor Subsidiary
                           Operating Account in Permitted Investments in
                           accordance with Section 7.03; and

                                    (B) withdrawals may be made from the Sponsor
                           Subsidiary Operating Account in accordance with
                           Sections 7.05, 7.06 and 7.07.

                  The Sponsor Subsidiary Cash Reserve, the Noric Holdings IV
Cash Reserve and the Sponsor Subsidiary Operating Account shall be subject to
Applicable Laws and applicable regulations of any competent banking authority,
as may now or hereafter be in effect.

                  Each Sponsor Subsidiary shall have an undivided interest in
the Sponsor Subsidiary Cash Reserve to the extent of any funds deposited by or
on behalf of such Sponsor Subsidiary in the Sponsor Subsidiary Cash Reserve.

                  Each Sponsor Subsidiary hereby acknowledges and agrees that
the Sponsor Subsidiary Collateral Agent has sole dominion and control of the
Sponsor Subsidiary Cash Reserve, the Noric Holdings IV Cash Reserve and the
Sponsor Subsidiary Operating Account. Each Sponsor Subsidiary agrees not to take
any action inconsistent with the preceding sentence.

                  To the extent that El Paso or its Affiliates have arranged to
have letters of credit issued for the benefit of any Sponsor Subsidiary in
respect of any obligations owing to such Sponsor Subsidiary by El Paso or such
Affiliates, the Sponsor Subsidiary Collateral Agent shall be entitled to draw
under such letters of credit in compliance therewith.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       79

                  Section 7.02. Deposit of Funds into the Sponsor Subsidiary
Cash Reserve and Noric Holdings IV Cash Reserve. (a) Noric Holdings IV shall
deposit, or shall cause to be deposited, into the Noric Holdings IV Cash Reserve
forthwith upon receipt thereof all amounts received by it or payable to it on
any account whatsoever (including, in the case of any Disposition referred to in
clause (ii)(2) below, received by or payable to Lipizzan) and each other Sponsor
Subsidiary shall deposit, or shall cause to be deposited, into the Sponsor
Subsidiary Cash Reserve forthwith upon receipt thereof all amounts received by
it or payable to it on any account whatsoever (or, in the case of any
Disposition referred to in clause (ii)(3) below, received by or payable to any
Intermediate Holder or Underlying Business) including:

                  (i) any payment of interest under the A-Loan Notes and any
         prepayment of principal of the A-Loan Notes described in Section
         2.05(b)(v);

                  (ii) (1) the Net Cash Proceeds from the Disposition of any
         Energy Investments owned by any Sponsor Subsidiary and of any E&P Asset
         constituting E&P Participation Properties owned by any Sponsor
         Subsidiary and Noric, (2) the Disposition Value of any E&P Asset
         constituting a Production Payment Interest Disposed of by Lipizzan, (3)
         Net Cash Proceeds from any Disposition described in Section 5.09(d)(B)
         and any Disposition occurring under the circumstances described in the
         last proviso of Section 5.09(d) and (4) all amounts Distributed from
         the Proceeds Accounts and the Noric LP Cash Reserve pursuant to
         Sections 5.11(a) and (b);

                  (iii) (1) in the case of Noric Holdings, any Distribution in
         respect of its Clydesdale Class A Limited Partnership Interest after
         the Liquidation Start Date, (2) in the case of Noric Holdings I, any
         Distribution in respect of its Clydesdale Class A Limited Partnership
         Interest or Noric Class A Membership Interest after the Liquidation
         Start Date, and (3) in the case of Noric Holdings IV, any Distribution
         in respect of its Lusitano Membership Interest or Lipizzan Limited
         Partnership Interest;

                  (iv) (1) any proceeds of Sponsor Subsidiary Property, Noric
         Property or Noric LP Property distributable to Noric Holdings I as the
         Noric Class A Member, in each case, after the Liquidation Start Date
         and (2) any proceeds of Sponsor Subsidiary Property or Lipizzan
         Property distributable to Noric Holdings IV as the Lusitano Member or
         the Lipizzan Limited Partner;

                  (v) the proceeds of any Distribution made by any Intermediate
         Holder or Underlying Business; provided, however, a Distribution made
         by any Intermediate Holder shall not be required to be deposited into
         the Sponsor Subsidiary Cash Reserve to the extent that a capital
         contribution in the amount of such Distribution is made by any Sponsor
         Subsidiary Member pursuant to Section 5.2(a)(viii) of the relevant
         Sponsor Subsidiary Company Agreement and such capital contribution is
         deposited into the Sponsor Subsidiary Cash Reserve on or before the
         date such Distribution is made;

                  (vi) the proceeds of any capital contribution made by any
         Sponsor Subsidiary Member pursuant to the terms of the Sponsor
         Subsidiary Company Agreement of the Sponsor Subsidiary of which it is a
         member;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       80

                  (vii) any payments of principal and interest on any El Paso
         Demand Loan or any other Permitted Investment;

                  (viii) any amount received by a Sponsor Subsidiary under or in
         respect of any E&P Participation Agreement to which such Sponsor
         Subsidiary is a party; and

                  (ix) any payments of Cash Collateral Amounts made pursuant to
         Section 5.06(b),

but excluding (A) principal payments on the A-Loans (but including any amount
representing the prepayment of principal of the A-Loan Notes described in
Section 2.05(b)(v)), (B) the proceeds of the Advances deposited into the Sponsor
Subsidiary Operating Account in accordance with Section 2.02(c), and (C)
Excluded Payments.

                  (b) On or prior to the date hereof, (i) Noric Holdings shall
give to El Paso written notice (such notice to be in form and substance
satisfactory to Clydesdale) irrevocably instructing El Paso and its Affiliates
that all amounts payable by El Paso and its Affiliates to any Sponsor Subsidiary
under the A-Loan Notes (other than principal under the A-Loan Notes, except any
prepayment of principal of the A-Loan Notes described in Section 2.05(b)(v)),
the El Paso Demand Notes and each E&P Participation Agreement (including under
the El Paso Guaranty with respect to any of the foregoing) shall be deposited
directly into the Sponsor Subsidiary Cash Reserve and (ii) Noric Holdings IV
shall cause Lusitano as the Lipizzan General Partner to cause Lipizzan to give
to El Paso and to each Counterparty to any Production Payment Agreement written
notice (such notice to be in form and substance satisfactory to Clydesdale)
irrevocably instructing El Paso and such Counterparty that all amounts payable
by El Paso, such Counterparty and their respective Affiliates to Lipizzan under
any Production Payment Agreement and any El Paso Hydrocarbon Sales Contract
(including under the El Paso Guaranty and the El Paso Agreement with respect to
any of the foregoing) shall be deposited directly into the Noric Holdings IV
Cash Reserve.

                  (c) Noric Holdings shall cause the Sponsor Subsidiary
Collateral Agent to promptly notify Noric Holdings and Clydesdale of any such
deposit made pursuant to this Section 7.02 and to provide to Noric Holdings and
Clydesdale quarterly reports of holdings and transactions in the Sponsor
Subsidiary Cash Reserve and the Noric Holdings IV Cash Reserve.

                  Section 7.03. Permitted Investments. (a) The Sponsor
Subsidiary Collateral Agent at the direction of Clydesdale may from time to time
invest amounts on deposit in the Sponsor Subsidiary Cash Reserve, the Noric
Holdings IV Cash Reserve and the Sponsor Subsidiary Operating Account in
Permitted Investments in accordance with this Section 7.03; provided, however,
that the Total Cash Collateral Amount shall not be invested in El Paso Demand
Loans.

                  (b) Amounts on deposit in the Sponsor Subsidiary Cash Reserve
and the Noric Holdings IV Cash Reserve shall not be invested in other Permitted
Investments (and no Sponsor Subsidiary shall make any further El Paso Demand
Loans) if a Liquidating Event, Termination Event, Notice Event, Event of Default
or Incipient Event has occurred and is continuing or would result therefrom.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       81

                  (c) El Paso Demand Loans may only be made to El Paso or an
Affiliate of El Paso if, on the date any such El Paso Demand Loan is made, (i)
in the case of any El Paso Demand Loan made to El Paso, El Paso has, or (ii) in
the case of any El Paso Demand Loan made to an Affiliate of El Paso, such El
Paso Demand Loan is guaranteed by El Paso and El Paso has, a senior unsecured
long term debt credit rating of at least BBB- by S&P or at least Baa3 by
Moody's; provided that, if an El Paso RA Event has occurred and is continuing,
any existing El Paso Demand Loans shall be permitted to be maintained but no
additional El Paso Demand Loans shall be permitted to be made.

                  (d) If a Liquidating Event shall occur, the Sponsor
Subsidiaries shall forthwith demand repayment of each El Paso Demand Loan.

                  (e) [Intentionally Omitted].

                  (f) Any Permitted Investment (other than any El Paso Demand
Loan) made from amounts on deposit in the Sponsor Subsidiary Cash Reserve, the
Noric Holdings IV Cash Reserve or the Sponsor Subsidiary Operating Account shall
be made in the name of the Sponsor Subsidiary Collateral Agent.

                  (g) Clydesdale shall give notice of any such Permitted
Investment to the Sponsor Subsidiary Collateral Agent promptly after the making
of such Permitted Investment.

                  (h) The Sponsor Subsidiary Collateral Agent (at the direction
of Clydesdale), in the case of clause (i) below, and at the direction of the
Sponsor Subsidiary Liquidator, in the case of clause (ii) below), shall
liquidate, convert or call in, or demand payment of, any Permitted Investment
prior to its maturity:

                  (i) if the proceeds of such liquidation, conversion or calling
         in or demand are necessary for any payment required to be made by the
         Sponsor Subsidiary Collateral Agent in accordance with the provisions
         of Section 7.04 or Section 7.05; or

                  (ii) pursuant to an exercise by the Sponsor Subsidiary
         Collateral Agent of the rights and remedies available under the Sponsor
         Subsidiary Credit Documents.

                  (i) Clydesdale will give all necessary directions to the
Sponsor Subsidiary Collateral Agent to effect the investments made pursuant to
this Section 7.03.

                  (j) Interest and proceeds from or in respect of any Permitted
Investment may be invested or reinvested in additional Permitted Investments
and, if not so invested or reinvested, shall be deposited and held in the
Sponsor Subsidiary Cash Reserve (in the case of any Permitted Investment made
from amounts on deposit in the Sponsor Subsidiary Cash Reserve or the Sponsor
Subsidiary Operating Account) or the Noric Holdings IV Cash Reserve (in the case
of any Permitted Investment made from amounts on deposit in the Noric Holdings
IV Cash Reserve), all as directed by Clydesdale.

                  (k) The Sponsor Subsidiary Collateral Agent at the direction
of Clydesdale to the extent reasonably practicable, may dispose of Permitted
Investments in the Sponsor Subsidiary Cash Reserve, the Noric Holdings IV Cash
Reserve and the Sponsor Subsidiary

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       82

Operating Account so as to minimize any loss on such Permitted Investments, but
in no event shall the Sponsor Subsidiary Collateral Agent be liable for any
losses incurred as the result of any sale or disposition of Permitted
Investments, and each party hereto hereby releases the Sponsor Subsidiary
Collateral Agent from any liability arising out of, or in connection with, any
investment or liquidation or conversion made by it hereunder, except where such
liability arises from the Sponsor Subsidiary Collateral Agent's gross negligence
or willful misconduct.

                  Section 7.04. Transfers from the Cash Reserves. (a) Transfers
in Respect of Periodic Payments from the Cash Reserves. Subject to Section 7.06,
on each Payment Date Clydesdale shall direct the Sponsor Subsidiary Collateral
Agent to make the following transfers from funds in the Sponsor Subsidiary Cash
Reserve and, to the extent additional amounts are required, funds in the Noric
Holdings IV Cash Reserve (except in the case of clauses (1) to (5) (inclusive)
below, free from any Lien under the Sponsor Subsidiary Credit Documents) to the
following accounts, such transfers to be applied in the following order of
priority:

                  (1) First, to the Sponsor Subsidiary Operating Account in
         respect of Excluded Payments (to the extent not paid);

                  (2) Second, to the Sponsor Subsidiary Operating Account, such
         amount as is necessary to pay Sponsor Subsidiary Expenses (except any
         Sponsor Subsidiary Expenses specified in clause (6) below) then due or
         that are scheduled to become due within 30 days thereafter;

                  (3) Third, to the Sponsor Subsidiary Operating Account, such
         amount as is necessary to meet capital calls with respect to Energy
         Investments;

                  (4) Fourth, to the Sponsor Subsidiary Operating Account, such
         amount as represents capital contributions received from Sponsor
         Subsidiaries in respect of Noric Holdings' and Noric Holdings I's
         obligations to make mandatory capital contributions under Section 5.3
         of the Clydesdale Partnership Agreement so as to meet Noric Holdings'
         and Noric Holdings I's obligations to make such mandatory capital
         contributions;

                  (5) Fifth, to the Sponsor Subsidiary Operating Account, such
         amount as represents capital contributions received from Sponsor
         Subsidiaries in respect of the obligation of Noric Holdings I to make
         mandatory capital contributions under Section 5.3 of the Noric Company
         Agreement so as to meet the obligation of Noric Holdings I to make such
         mandatory capital contributions;

                  (6) Sixth, to the Clydesdale Operating Account such amount as
         is necessary to satisfy the Obligations of the Sponsor Subsidiaries
         under the Operative Documents payable on that Payment Date (including
         any mandatory prepayments), such transfer in turn to be applied to the
         Obligations of the Sponsor Subsidiaries in the following order of
         priority (without duplication):

                           (i) First, to the aggregate amount of fees and other
                  amounts then due and payable to the Sponsor Subsidiary
                  Collateral Agent under the Sponsor Subsidiary Credit
                  Documents;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       83

                           (ii) Second, to accrued and unpaid interest then due
                  and payable under this Agreement;

                           (iii) Third, to any Indemnified Amount then due and
                  payable under Section 10;

                           (iv) Fourth, to any prepayment of principal under
                  Section 2.05 (if any) to be made on such Payment Date; and

                           (v) Fifth, to any other payment to be made by the
                  Sponsor Subsidiaries under the Operative Documents on the
                  Payment Date; and

                  (7) Seventh, provided (A) no Incipient Event, Event of
         Default, Notice Event, Termination Event or Liquidating Event shall
         have occurred and be continuing or would result therefrom and (B) El
         Paso has a senior unsecured long-term debt credit rating of at least
         BBB- by S&P or at least Baa3 by Moody's, to the Noric Holdings Member
         or such other Person or account as Clydesdale directs (upon request
         therefor from Noric Holdings) an amount equal to the sum of (A) the
         balance (if any) standing to the credit of the Sponsor Subsidiary Cash
         Reserve, (B) the balance (if any) standing to the credit of the Noric
         Holdings IV Cash Reserve, (C) the balance (if any) standing to the
         credit of the Noric Cash Reserve and (D) the balance (if any) standing
         to the credit of the Noric LP Cash Reserve on such Payment Date, after
         accounting for any payments from the Noric Cash Reserve and the Noric
         LP Cash Reserve made or to be made on such Payment Date, less the sum
         of:

                           (x) (i) if, in relation to a Fiscal Year, such
                  Payment Date is a Payment Date falling prior to the E&P
                  Borrowing Base Effective Date for the E&P Borrowing Base
                  Determination pursuant to Section 2.09(b) to be made in such
                  Fiscal Year, the E&P Holdback Amount for the last Fiscal
                  Quarter of the prior Fiscal Year plus the E&P Holdback Amount
                  for the most recently completed Fiscal Quarter or (ii) in any
                  other case, the E&P Holdback Amount for the most recently
                  completed Fiscal Quarter;

                           (y) the Noric Holdings IV Required Cash Reserve
                  Balance, the Noric LP Required Cash Reserve Balance and the
                  Sponsor Subsidiary Required Cash Reserve Balance as of the end
                  of the Fiscal Quarter preceding such Payment Date; and

                           (z) the Total Cash Collateral Amount (subject to
                  Section 7.04(g) below),

         provided, however, that the balance in the Sponsor Subsidiary Cash
         Reserve and in the Noric Holdings IV Cash Reserve shall not in any
         circumstances be reduced to below $0.

                  (b) Transfers from the Cash Reserves in Respect of Sponsor
Subsidiary Expenses, Lusitano Expenses and Lipizzan Expenses Otherwise than on a
Payment Date. Subject to Section 7.06 and so long as no Incipient Event, Event
of Default, Notice Event, Termination Event or Liquidating Event would result
therefrom, Clydesdale may from time to

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       84

time (other than on a Payment Date), at Noric Holdings' request, direct the
Sponsor Subsidiary Collateral Agent to transfer funds in the Sponsor Subsidiary
Cash Reserve and, to the extent additional amounts are required, funds in the
Noric Holdings IV Cash Reserve to the Sponsor Subsidiary Operating Account such
amount as is necessary to pay Sponsor Subsidiary Expenses, Lusitano Expenses and
Lipizzan Expenses then due or that are scheduled to become due within 30 days
thereafter; provided, however, that, to the extent funds are required to be
applied from the Noric Holdings IV Cash Reserve to pay Lusitano Expenses and
Lipizzan Expenses, such payments shall be made directly from funds in the Noric
Holdings IV Cash Reserve with no intermediate transfer to the Sponsor Subsidiary
Operating Account.

                  (c) Transfers from the Cash Reserves in Respect of Prepayments
of Principal Under Section 2.05 Otherwise than on a Payment Date. Subject to
Section 7.06, on the date (other than a Payment Date) of each prepayment under
Section 2.05, Clydesdale shall direct the Sponsor Subsidiary Collateral Agent to
transfer funds in the Sponsor Subsidiary Cash Reserve and, to the extent
additional amounts are required, funds in the Noric Holdings IV Cash Reserve to
the Clydesdale Operating Account such amount as is necessary to satisfy the
Obligations of the Sponsor Subsidiaries under this Agreement in respect of that
prepayment (including amounts payable under Section 2.06(c) in respect of such
prepayment), such transfer to be applied to the Obligations of the Sponsor
Subsidiaries in the following order of priority (without duplication):

                  (1) First, to the aggregate amount of fees and other amounts
         then due and payable to the Sponsor Subsidiary Collateral Agent under
         the Sponsor Subsidiary Credit Documents;

                  (2) Second, to accrued and unpaid interest then due and
         payable under this Agreement in respect of such prepayment; and

                  (3) Third, to the prepayment of principal under Section 2.05.

                  (d) Transfers from the Cash Reserves in Respect of Excluded
Payments Otherwise than on a Payment Date. Clydesdale may, upon Noric Holdings'
request, from time to time (other than on a Payment Date) direct the Sponsor
Subsidiary Collateral Agent to transfer funds in the Sponsor Subsidiary Cash
Reserve and, to the extent additional amounts are required, funds in the Noric
Holdings IV Cash Reserve to the Sponsor Subsidiary Operating Account such amount
as is represented by Excluded Payments (to the extent not paid).

                  (e) Transfers from the Cash Reserves in Respect of Capital
Contributions Otherwise than on a Payment Date. Clydesdale may, upon Noric
Holdings' request, from time to time direct the Sponsor Subsidiary Collateral
Agent to transfer funds in the Sponsor Subsidiary Cash Reserve and, to the
extent additional amounts are required, funds in the Noric Holdings IV Cash
Reserve to the Sponsor Subsidiary Operating Account such amount as represents
the proceeds of capital contributions received from Sponsor Subsidiary Members
in respect of capital calls made in respect of the Energy Investments, capital
contributions pursuant to the Sponsor Subsidiary Company Agreements, in respect
of Noric Holdings, mandatory capital calls under Section 5.3 of the Clydesdale
Partnership Agreement, in respect of Noric Holdings IV, mandatory capital calls
under Section 5.3 of the Lusitano Company Agreement and Section 5.3 of the
Lipizzan Partnership Agreement and, in respect of Noric Holdings I, mandatory
capital

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       85

calls under Section 5.3 of the Clydesdale Partnership Agreement and mandatory
capital calls under Section 5.3 of the Noric Company Agreement and Section 5.3
of the Noric LP Partnership Agreement.

                  (f) Transfers from the Cash Reserves in Respect of
Distributions on the E&P Borrowing Base Effective Date. Clydesdale shall, upon
Noric Holdings' request, on the E&P Borrowing Base Effective Date direct the
Sponsor Subsidiary Collateral Agent to transfer funds in the Sponsor Subsidiary
Cash Reserve and the Noric Holdings IV Cash Reserve (free from any Lien under
the Sponsor Subsidiary Credit Documents) in accordance with Section 2.10(b) or
2.10(c) (as applicable) such aggregate amount as is permitted to be Distributed
thereby.

                  (g) Transfers from the Total Cash Collateral Amount in the
Cash Reserves. Subject to Section 7.06 and provided that (i) no Incipient Event,
Event of Default, Notice Event, Termination Event, or Liquidating Event shall
have occurred and be continuing or would result therefrom and (ii) El Paso has
senior unsecured long-term debt credit rating of at least BBB- by S&P or at
least Baa3 by Moody's, Noric Holdings shall have the right to direct the Sponsor
Subsidiary Collateral Agent to make transfers from the Total Cash Collateral
Amount in the Sponsor Subsidiary Cash Reserve and/or the Noric Holdings IV Cash
Reserve to a Sponsor Subsidiary Member or such other Person or account as Noric
Holdings directs in an amount not exceeding the balance of the Total Cash
Collateral Amount on (A) any date on which (x) any reduction of the Unrecovered
Capital of Mustang in Clydesdale, (y) any increase of the E&P Borrowing Base or
(z) any increase of the Aggregate Energy Investments Loan Value Amount becomes
effective pursuant to the terms of this Agreement, (B) each Coverage Test Date
and (C) the date referred to in Section 5.07(f) (each such date being a "CASH
COLLATERAL AMOUNT DISTRIBUTION DATE"); provided that such transfers shall be
permitted upon delivery by a Responsible Officer of El Paso of a Compliance
Certificate showing the amount of the Total Cash Collateral Amount to be so
transferred and the calculation of the financial covenant set forth in Section
5.04(f).

                  (h) Transfers from the Sponsor Subsidiary Cash Reserve in
Respect of Distributions from the Proceeds Accounts and the Noric LP Cash
Reserve. Subject to Section 7.06 and pursuant to Sections 5.11(a) and (b),
Clydesdale shall, upon Noric Holdings' request, from time to time direct the
Sponsor Subsidiary Collateral Agent to Distribute from the Sponsor Subsidiary
Cash Reserve any amounts deposited into the Sponsor Subsidiary Cash Reserve
pursuant to Section 7.02(a)(ii)(4) if, at any such time, Affiliate Loans are
permitted to be made pursuant to Section 5.09(e).

                  (i) Transfer from the Cash Reserves in Respect of Net Cash
Proceeds and Disposition Value. The amounts deposited by any Sponsor Subsidiary
into the Sponsor Subsidiary Cash Reserve pursuant to Section 5.02(d)(C)(4) and
the amounts deposited by Noric Holdings IV into the Noric Holdings IV Cash
Reserve pursuant to Section 5.05(a)(F) may, at any time, be invested by such
Sponsor Subsidiary and Noric Holdings IV, as the case may be, in Cash
Equivalents. Noric Holdings and Noric Holdings IV from time to time shall also
have the right, subject to clauses (A) and (B) below, to apply any amounts on
deposit in the Sponsor Subsidiary Cash Reserve and the Noric Holdings IV Cash
Reserve, as the case may be, to make El Paso Demand Loans or Distributions,
provided that:

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       86

                           (A) with respect to any amounts deposited into the
                  Sponsor Subsidiary Cash Reserve pursuant to Section
                  5.02(d)(C)(4) and into the Noric Holdings IV Cash Reserve
                  pursuant to Section 5.05(a)(F), such amounts shall be held in
                  the Sponsor Subsidiary Cash Reserve or the Noric Holdings IV
                  Cash Reserve, as the case may be, pending an E&P Borrowing
                  Base Redetermination pursuant to Section 2.09(e) (or, in the
                  absence of such redetermination, a redetermination pursuant to
                  Section 2.09(b)) and, on or after the E&P Borrowing Base
                  Effective Date occurring after any Disposition referred to in
                  Section 5.02(d)(C)(4) and Section 5.05(a)(F), may be applied
                  by Noric Holdings and Noric Holdings IV, as the case may be,
                  to make El Paso Demand Loans or Distributions; provided that,
                  prior to such application of such amounts, to the extent there
                  is any Collateral Shortfall Amount, the amount necessary to
                  cure such Collateral Shortfall Amount (x) shall have been
                  deposited, or deemed deposited, into the Sponsor Subsidiary
                  Cash Reserve and/or the Noric Holdings IV Cash Reserve as a
                  Cash Collateral Amount and/or (y) shall have been applied to
                  prepay the Advances in accordance with Section 2.05(b)(vi) in
                  order to ensure compliance with the financial covenant set
                  forth in Section 5.04(f) after giving effect to such deposit
                  and/or prepayment; and

                           (B) notwithstanding anything to the contrary
                  contained in clause (A) above, if the new E&P Borrowing Base
                  that will become effective on the next E&P Borrowing Base
                  Effective Date has been determined on the basis of a pro forma
                  Reserve Report, Noric Holdings and Noric Holdings IV, as the
                  case may be, may apply, immediately prior to or
                  contemporaneously with such new E&P Borrowing Base becoming
                  effective, (1) the Net Cash Proceeds from any Disposition
                  referred to in Sections 5.02(d)(C)(4) and 5.05(a)(D) and (2)
                  an amount not to exceed the aggregate Disposition Value of the
                  Relevant Assets from any Disposition described in Section
                  5.05(a)(F), as the case may be, solely to complete the
                  proposed acquisition of the Relevant Assets reflected in such
                  pro forma Reserve Report and in an aggregate amount not to
                  exceed the PV-10 Value of such Relevant Assets to be acquired,
                  provided that (x) the new E&P Borrowing Base shall become
                  effective, in accordance with Section 2.09(e), immediately
                  after or contemporaneously with the completion of such
                  acquisition, (y) to the extent there is any Collateral
                  Shortfall Amount, the amount necessary to cure such Collateral
                  Shortfall Amount (A) shall have been deposited, or deemed
                  deposited, into the Sponsor Subsidiary Cash Reserve and/or the
                  Noric Holdings IV Cash Reserve as a Cash Collateral Amount
                  and/or (B) shall have been applied to prepay the Advances in
                  accordance with Section 2.05(b)(v) in order to ensure
                  compliance with the financial covenant set forth in Section
                  5.04(f) after giving effect to such deposit and/or prepayment,
                  and (z) on or after such new E&P Borrowing Base Effective
                  Date, the remaining balance, if any, of the Net Cash Proceeds
                  from any Disposition referred to in Section 5.02(d)(C)(4) and
                  the remaining balance, if any, of the Disposition Value of the
                  Relevant Assets from any Disposition described in Section
                  5.05(a)(F) may be applied by Noric Holdings and Noric Holdings
                  IV, as the case may be, to make El Paso Demand Loans or
                  Distributions.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       87

                  (j) Application of Total Cash Collateral Amount. The Total
Cash Collateral Amount in the Sponsor Subsidiary Cash Reserve and/or Noric
Holdings IV Cash Reserve may be applied at any time to prepay Advances in
accordance with Section 2.05(a).

                  (k) Release of Net Cash Proceeds from Sponsor Subsidiary Cash
Reserve. Clydesdale hereby agrees that any amount maintained on deposit in the
Sponsor Subsidiary Cash Reserve pursuant to the Letter Waiver dated as of June
26, 2002, among the Sponsor Subsidiaries and Clydesdale, shall be released
together with earnings thereon through the date of release and hereby authorizes
Noric Holdings to direct the Sponsor Subsidiary Collateral Agent to Distribute
from the Sponsor Subsidiary Cash Reserve such amounts to any account specified
by Noric Holdings.

                  Section 7.05. Transfers from the Sponsor Subsidiary Operating
Account. (a) Excluded Payments. Clydesdale may from time to time, upon Noric
Holdings' request, direct the Sponsor Subsidiary Collateral Agent to transfer
from the Sponsor Subsidiary Operating Account (free from any Lien under the
Sponsor Subsidiary Credit Documents) to such account or Person as Noric Holdings
designates such amount as is represented by Excluded Payments (to the extent not
paid).

                  (b) Sponsor Subsidiary Expenses. Clydesdale may from time to
time, upon request from Noric Holdings, direct the Sponsor Subsidiary Collateral
Agent to transfer from the Sponsor Subsidiary Operating Account (free from any
Lien under the Sponsor Subsidiary Credit Documents) to such account or Person as
Noric Holdings designates such amounts as are necessary to pay Sponsor
Subsidiary Expenses when due.

                  (c) Energy Investments Capital Calls. Clydesdale may from time
to time, upon Noric Holdings' request, direct the Sponsor Subsidiary Collateral
Agent to transfer from the Sponsor Subsidiary Operating Account (free from any
Lien under the Sponsor Subsidiary Credit Documents) to such account or Person as
Noric Holdings designates such amounts as are necessary to meet capital calls
with respect to Energy Investments to the extent such funds have been
transferred to the Sponsor Subsidiary Operating Account pursuant to Section
7.04(e).

                  (d) Clydesdale Mandatory Capital Calls. Clydesdale may from
time to time, upon Noric Holdings' or Noric Holdings I's request, direct the
Sponsor Subsidiary Collateral Agent to transfer from the Sponsor Subsidiary
Operating Account to the Clydesdale Operating Account (free from any Lien under
the Sponsor Subsidiary Credit Documents) such amounts as are necessary to meet
Noric Holdings' or Noric Holdings I's obligation to make mandatory capital
contributions under Section 5.3 of the Clydesdale Partnership Agreement when due
to the extent such funds have been transferred to the Sponsor Subsidiary
Operating Account pursuant to Section 7.04(e).

                  (e) Noric and Noric LP Mandatory Capital Calls. Clydesdale may
from time to time, upon Noric Holdings I's request, direct the Sponsor
Subsidiary Collateral Agent to transfer from the Sponsor Subsidiary Operating
Account to the Noric Cash Reserve or the Noric LP Cash Reserve (free from any
Lien under the Sponsor Subsidiary Credit Documents) such amounts as are
necessary to meet the obligations of Noric Holdings I to make mandatory capital
contributions under Section 5.3 of the Noric Company Agreement, or of Noric or
any of its

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       88

Subsidiaries to make mandatory capital contributions to Noric LP under Section
5.3 of the Noric LP Partnership Agreement when due to the extent such funds have
been transferred to the Sponsor Subsidiary Operating Account pursuant to Section
7.04(e).

                  Section 7.06. Subsisting Event of Default or Incipient Event.
Notwithstanding anything to the contrary set forth in Section 7.04 or Section
7.05, if Clydesdale provides notice to the Sponsor Subsidiary Collateral Agent
of the occurrence and continuance of an Event of Default, Notice Event,
Termination Event or Incipient Event, and until such time as the Sponsor
Subsidiary Collateral Agent receives notice from Clydesdale that such Event of
Default, Notice Event, Termination Event or Incipient Event no longer continues,
the Sponsor Subsidiary Collateral Agent shall (and each Sponsor Subsidiary
agrees not to take any action inconsistent with any such action by the Sponsor
Subsidiary Collateral Agent) hold all funds in the Sponsor Subsidiary Cash
Reserve, the Noric Holdings IV Cash Reserve and the Sponsor Subsidiary Operating
Account for application, following and during the continuance of an Event of
Default, pursuant to Section 13 of the Sponsor Subsidiary Security Agreement and
Section 7.07 hereof, as directed by Clydesdale. Clydesdale shall promptly notify
the Sponsor Subsidiary Collateral Agent if any Incipient Event, Notice Event,
Termination Event or Event of Default ceases to exist or is waived.

                  Section 7.07. Transfers from the Cash Reserves and the Sponsor
Subsidiary Operating Account in Respect of Payments on the Maturity Date and
Application of Proceeds of Collateral Pursuant to the Sponsor Subsidiary
Security Agreement. Subject to Section 13 of the Sponsor Subsidiary Security
Agreement, on:

                  (a) the Maturity Date;

                  (b) receipt by the Sponsor Subsidiary Collateral Agent of any
         proceeds of Collateral upon and after any sale of, collection from, or
         other realization upon, all or any part of the Collateral pursuant to
         the exercise of remedies available to the Sponsor Subsidiary Collateral
         Agent under the Sponsor Subsidiary Security Agreement; or

                  (c) receipt by the Sponsor Subsidiary Collateral Agent of any
         proceeds of any Disposition of Sponsor Subsidiary Property after the
         Liquidation Start Date,

the Sponsor Subsidiary Collateral Agent shall (and each Sponsor Subsidiary
agrees not to take any action inconsistent with such action by the Sponsor
Subsidiary Collateral Agent) direct the Sponsor Subsidiary Collateral Agent to
transfer (free from any Lien under the Sponsor Subsidiary Credit Documents) to
the Clydesdale Operating Account all amounts on deposit in the Sponsor
Subsidiary Cash Reserve, the Noric Holdings IV Cash Reserve and the Sponsor
Subsidiary Operating Account and such proceeds, such transfer to be applied to
the Obligations of the Sponsor Subsidiaries in the following order of priority
(without duplication):

                  (1) First, to the aggregate amount of fees and other amounts
         then due and payable to the Sponsor Subsidiary Collateral Agent under
         this Agreement;

                  (2) Second, to accrued and unpaid interest then due and
         payable under this Agreement;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       89

                  (3) Third, to the repayment of principal;

                  (4) Fourth, to any other payment to be made by the Sponsor
         Subsidiaries on such date; and

                  (5) Fifth, the balance (if any) to Noric Holdings.

                                  ARTICLE VIII

                              THE COLLATERAL AGENT

                  Section 8.01. Authorization and Action. Clydesdale hereby
appoints and authorizes Wilmington as the Sponsor Subsidiary Collateral Agent
hereunder to take such action as Sponsor Subsidiary Collateral Agent on its
behalf and to exercise such powers under this Agreement and the other Sponsor
Subsidiary Credit Documents as are expressly delegated to the Sponsor Subsidiary
Collateral Agent by the terms hereof and thereof. As to any matters not
expressly provided for by the Sponsor Subsidiary Credit Documents, including
enforcement or collection of the Indebtedness resulting from the Advances and
enforcement of this Agreement, the Sponsor Subsidiary Collateral 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
refraining from acting) upon the instructions of Clydesdale and such
instructions shall be binding upon Clydesdale; provided, however, that the
Sponsor Subsidiary Collateral Agent shall not be required to take any action
that exposes it to personal liability or that is contrary to this Agreement or
Applicable Law. The Sponsor Subsidiary Collateral Agent agrees to give to
Clydesdale prompt notice of each notice and copies of all other documents (if
any) given to it by the Sponsor Subsidiaries pursuant to the terms of this
Agreement and the other Sponsor Subsidiary Credit Documents.

                  Section 8.02. Sponsor Subsidiary Collateral Agent's Reliance,
Etc. Neither the Sponsor Subsidiary Collateral 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 the Sponsor Subsidiary Credit
Documents, except for its or their own gross negligence, fraud or willful
misconduct, and each party hereto agrees that it will not assert or seek to
assert any claim it might have against any of them in violation of this
provision. Without limiting the generality of the foregoing:

                  (a) the Sponsor Subsidiary Collateral Agent may consult with
         legal counsel (including counsel for any Sponsor Subsidiary),
         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;

                  (b) the Sponsor Subsidiary Collateral Agent makes no warranty
         or representation to Clydesdale and shall not be responsible to
         Clydesdale for any statements, warranties or representations made in or
         in connection with the Sponsor Subsidiary Credit Documents;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       90

                  (c) the Sponsor Subsidiary Collateral Agent shall have no duty
         to ascertain or to inquire as to the performance or observance of any
         of the terms, covenants or conditions of any Sponsor Subsidiary Credit
         Document on the part of any Sponsor Subsidiary or to inspect the
         property (including the books and records) of any Sponsor Subsidiary;

                  (d) the Sponsor Subsidiary Collateral Agent shall not be
         responsible for the due execution, legality, validity, enforceability,
         genuineness, sufficiency, or value of any Operative Document or any
         other instrument or document furnished pursuant hereto or thereto;

                  (e) the Sponsor Subsidiary Collateral Agent shall not be
         liable under or in respect of any Operative Document by acting upon any
         notice, consent, certificate or other instrument or writing (which may
         be by telecopy or e-mail) believed by it to be genuine and signed or
         sent by the proper party or parties;

                  (f) the Sponsor Subsidiary Collateral Agent shall not be
         liable for any losses incurred as the result of any sale or disposition
         of Permitted Investments or the transfer of any funds pursuant to the
         terms hereof; and

                  (g) the Sponsor Subsidiary Collateral Agent makes no
         representation or warranty and shall have no responsibility concerning
         the value or validity of the Collateral or the validity or the
         perfection of the pledge thereof nor concerning Liens thereon, except
         as expressly set forth in Section 6.5 of the Sponsor Subsidiary
         Collateral Agent Agreement.

                  Section 8.03. Clydesdale Credit Decision. Clydesdale
acknowledges that it has, independently and without reliance upon the Sponsor
Subsidiary Collateral Agent and based on such documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Clydesdale also acknowledges that it will, independently and
without reliance upon the Sponsor Subsidiary Collateral Agent 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
Agreement.

                  Section 8.04. Fee. The Sponsor Subsidiaries shall jointly and
severally pay the Sponsor Subsidiary Collateral Agent an annual fee in the
amount set out in and pursuant to the terms of the Sponsor Subsidiary Collateral
Agent Fee Letter.

                                   ARTICLE IX

           ASSIGNMENTS; ACCESSION OF ADDITIONAL SPONSOR SUBSIDIARIES;
                       ACQUISITIONS OF TRANSACTION ASSETS

                  Section 9.01. No Assignment by any Sponsor Subsidiary. No
Sponsor Subsidiary may assign or otherwise transfer any of its rights or
obligations under this Agreement.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       91

                  Section 9.02. Additional Sponsor Subsidiaries and Acquisitions
of Transaction Assets. An El Paso Company may become an additional Sponsor
Subsidiary and an existing Sponsor Subsidiary may acquire a Transaction Asset in
accordance with the provisions of the Acquisition/Accession Procedures Schedule.
The terms of the Acquisition/Accession Procedures Schedule shall be incorporated
herein as if set out herein in full.

                  Section 9.03. Permitted Assignment by Clydesdale. After the
occurrence of a Liquidating Event, Clydesdale may assign or otherwise transfer
any or all of its rights or obligations under this Agreement to any Person;
provided, however, that such assignment shall only be valid if the assignee's
ownership of an interest in an Advance, and any interest thereon payable by a
Sponsor Subsidiary, is reflected in the books of such Sponsor Subsidiary.

                                    ARTICLE X

                                 INDEMNIFICATION

                  Section 10.01. Indemnities by Sponsor Subsidiaries. Each
Sponsor Subsidiary jointly and severally agrees, to the fullest extent permitted
by Applicable Law, to indemnify and hold harmless each Indemnified Person on an
After-Tax Basis from and against any and all claims, damages, liabilities and
expenses (including fees and disbursements of counsel and claims, damages,
liabilities and expenses relating to environmental matters) other than Taxes or
Other Taxes (except in the case of the Sponsor Subsidiary Collateral Agent) (all
of the foregoing to the extent not expressly excluded being collectively
referred to as the "INDEMNIFIED AMOUNTS") for which any of them may become
liable or which may be incurred or realized by or asserted against any such
Indemnified Person, in each case in connection with or arising out of or by
reason of any investigation, litigation, or proceeding, whether or not any
Indemnified Person is a party thereto, arising out of, related to or in
connection with this Agreement, any Sponsor Subsidiary Credit Document, any
Operative Document, or any Assigned Agreement, or the use of proceeds of any
Advance, including any and all Indemnified Amounts relating to, growing out of
or resulting from:

                  (i) reliance on any representation or warranty or statement
         made or deemed made by any El Paso Party (other than Clydesdale) in any
         Operative Document that shall have been incorrect in any material
         respect when made or deemed made;

                  (ii) the failure by any El Paso Party (other than Clydesdale)
         to comply with any Applicable Law with respect to any Operative
         Document or Assigned Agreement, or the nonconformity of any Operative
         Document or Assigned Agreement with any such Applicable Law;

                  (iii) the failure to vest in the Sponsor Subsidiary Collateral
         Agent a valid and perfected first priority security interest in the
         Collateral (subject to Permitted Liens);

                  (iv) the failure to have filed, or any delay in filing,
         financing statements or other similar instruments or documents under
         the UCC (or its equivalent) of any applicable jurisdiction or other
         Applicable Laws with respect to any Collateral;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       92

                  (v) any dispute, claim, offset or defense of Clydesdale, the
         Sponsor Subsidiary Collateral Agent or any other party to any Operative
         Document or Assigned Agreement to the payment of any amount owing to
         any Sponsor Subsidiary under the provisions thereof (including a
         defense based on such payment or the related Operative Document or
         Assigned Agreement not being a legal, valid and binding obligation of
         such Person enforceable against it in accordance with its terms);

                  (vi) any failure by any El Paso Party (other than Clydesdale)
         to perform any duty or obligation (other than a payment obligation)
         under any Operative Document or Assigned Agreement or any failure by
         any Intermediate Holder or Underlying Business to perform any duty or
         obligation under any Assigned Agreement;

                  (vii) any investigation, litigation or proceeding in respect
         of any Operative Document or Assigned Agreement or arising out of or
         related to the use of the proceeds of any Advance; or

                  (viii) (A) any petition or proceeding (x) seeking or asserting
         or (y) a court ordering, in any case or proceeding under the United
         States Bankruptcy Code involving El Paso, any El Paso Party or any
         other Subsidiary of El Paso, as debtor, that the assets and liabilities
         of Clydesdale, Lusitano, Lipizzan, Noric, Palomino, Paso Fino, Noric LP
         or any Sponsor Subsidiary be consolidated substantively with the assets
         and liabilities of El Paso, any El Paso Party (other than Clydesdale,
         Lusitano, Lippizan, Noric, Palomino, Paso Fino, Noric LP or any Sponsor
         Subsidiary) or any other Subsidiary of El Paso (other than Clydesdale,
         Lusitano, Lipizzan, Noric, Palomino, Paso Fino, Noric LP or any Sponsor
         Subsidiary) and (B) defending against any petition, proceeding or order
         referred to in clause (A) above; it being agreed that upon the
         occurrence of an event described in clause (A)(y) above which is or
         becomes a final judgment or order, the Indemnified Persons involved
         shall be entitled to recover from the Sponsor Subsidiaries, as
         liquidated damages for Indemnified Amounts under such clause (A) (but
         without prejudice to amounts recoverable under clause (B) above or any
         other provision of the Operative Documents), and not as a penalty, an
         aggregate amount equal to the sum of the amount that would be paid to
         Mustang as the Purchase Amount and all accrued and unpaid payments
         owing to Mustang pursuant to the Clydesdale Partnership Agreement
         through the date of payment in full of such amount in addition to all
         other Indemnified Amounts hereunder.

                  Section 10.02. Survival of Indemnification Obligations. All
indemnities provided for in this Agreement shall survive the termination of this
Agreement.

                  Section 10.03. Limitations on Indemnification Obligations. The
indemnities provided in Section 10.01 shall be subject to the following
limitations:

                  (a) Limitation by Law. Such sections shall be enforced only to
         the maximum extent permitted by Applicable Law.

                  (b) Misconduct. Etc. No Indemnified Person shall be
         indemnified or held harmless for and no Sponsor Subsidiary shall have
         any liability for or in respect of, any

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       93

         Expenses with respect to such Indemnified Person to the extent caused
         by or resulting from (i) the actual fraud, willful misconduct, bad
         faith or gross negligence of such Indemnified Person or any of its
         Related Persons or (ii) any inaccuracy in, or breach of, any written
         certification, representation or warranty made by such Indemnified
         Person or any of its Related Persons in any Operative Document or in
         any written report or certification required hereunder or under any
         other Operative Document (unless and to the extent such inaccuracy or
         breach is attributable to any written information provided by El Paso
         or its Affiliates), in each case under this clause (iii) (A) if, but
         only if, such certification, representation or warranty is made as of a
         specific date, as of the date as of which the facts stated therein were
         certified, represented or warranted and (B) in all other cases, as of
         any date or during any period to which such certification,
         representation or warranty may be applicable.

                  (c) No Duplication. Indemnified Amounts under this Article X
         shall be without duplication of any amounts payable under
         indemnification provisions of any other Operative Document or other
         agreement or any amounts actually paid thereunder.

                  (d) Limitation with Respect to Production Payments. No
         Indemnified Person shall be indemnified or held harmless for any
         insufficiency in the quantity of Hydrocarbons produced from the Subject
         Lands (as defined in each Production Payment Agreement) and
         attributable to the Subject Interests.

                  Section 10.04. Payments. Any amounts subject to the
indemnification provisions of this Article X shall be paid by each Sponsor
Subsidiary within two Business Days following demand therefor, accompanied, as
may be appropriate in the context, by supporting documentation in reasonable
detail. Payment shall be made to the bank account or at another location as such
Indemnified Person shall designate in writing or as is expressly required under
any Operative Document the obligations under which are the subject of any such
payment, not later than 10:00 AM (New York time) on the date for such payment in
immediately available funds.

                  Section 10.05. Procedural Requirements. (a) Notice of Claims.
Any Indemnified Person that proposes to assert a right to be indemnified under
this Article X will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such Indemnified Person in respect of which a
claim is to be made against any Sponsor Subsidiary under this Article X (an
"INDEMNIFIED PROCEEDING"), or the incurrence or realization of Indemnified
Amounts in respect of which a claim is to be made against any Sponsor Subsidiary
under this Article X, notify Noric Holdings of the commencement of such
Indemnified Proceeding or of such incurrence or realization, enclosing a copy of
all relevant documents, including all papers served and claims made, but the
omission so to notify Noric Holdings promptly of any such Indemnified Proceeding
or incurrence or realization shall not relieve (x) any Sponsor Subsidiary from
any liability that it may have to such Indemnified Person under this Article X
or otherwise, except, as to each Sponsor Subsidiary's liability under this
Article X, to the extent, but only to the extent, that such Sponsor Subsidiary
shall have been prejudiced by such omission, or (y) any other indemnitor from
liability that it may have to any Indemnified Person under the Operative
Documents.

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       94

                  (b) Defense of Proceedings. In case any Indemnified Proceeding
shall be brought against any Indemnified Person and it shall notify Noric
Holdings of the commencement thereof, the Sponsor Subsidiaries together shall be
entitled to participate in, and to assume the defense of, such Indemnified
Proceeding with counsel reasonably satisfactory to such Indemnified Person and,
after notice from Noric Holdings to such Indemnified Person of such Sponsor
Subsidiary's election so to assume the defense thereof and the failure by such
Indemnified Person to object to such counsel within ten Business Days following
its receipt of such notice, no Sponsor Subsidiary shall be liable to such
Indemnified Person for legal or other expenses incurred after such notice of
election to assume such defense except as provided below and except for the
reasonable costs of investigating, monitoring or cooperating in such defense
subsequently incurred by such Indemnified Person reasonably necessary in
connection with the defense thereof. Such Indemnified Person shall have the
right to employ its counsel in any such Indemnified Proceeding, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless:

                  (i) the employment of counsel by such Indemnified Person at
         the expense of the Sponsor Subsidiaries has been authorized in writing
         by Noric Holdings;

                  (ii) such Indemnified Person shall have reasonably concluded
         in its good faith (which conclusion shall be determinative unless a
         court determines that conclusion was not reached reasonably and in good
         faith) that there is or may be a conflict of interest between a Sponsor
         Subsidiary and such Indemnified Person in the conduct of the defense of
         such Indemnified Proceeding or that there are or may be one or more
         different or additional defenses, claims, counterclaims, or causes of
         action available to such Indemnified Person (it being agreed that in
         any case referred to in this clause (ii) the Sponsor Subsidiaries shall
         not have the right to direct the defense of such Indemnified Proceeding
         on behalf of the Indemnified Person);

                  (iii) the Sponsor Subsidiaries shall not have employed Jones,
         Day, Reavis and Pogue, or other counsel reasonably acceptable to the
         Indemnified Person, to assume the defense of such Indemnified
         Proceeding within a reasonable time after notice of the commencement
         thereof (provided, however, that this clause shall not be deemed to
         constitute a waiver of any conflict of interest which may arise with
         respect to any such counsel); or

                  (iv) any counsel employed by the Sponsor Subsidiaries shall
         fail to timely commence or maintain the defense of such Indemnified
         Proceeding;

in each of which cases the fees and expenses of counsel for such Indemnified
Person shall be at the expense of the Sponsor Subsidiaries jointly and
severally; provided that without the prior written consent of such Indemnified
Person, no Sponsor Subsidiary shall settle or compromise, or consent to the
entry of any judgment in, any pending or threatened Indemnified Proceeding,
unless such settlement, compromise or consent or related judgment includes an
unconditional release of such Indemnified Person from all liability for Expenses
arising out of such claim, action, investigation, suit or other legal
proceeding. No Indemnified Person shall settle or compromise, or consent to the
entry of any judgment in, any pending or threatened Indemnified Proceeding in
respect of which any payment would result hereunder or under the Operative

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       95

Documents without the prior written consent of El Paso, such consent not to be
unreasonably withheld or delayed. Only one counsel shall be retained by all
Indemnified Persons with respect to any Indemnified Proceeding, unless counsel
for any Indemnified Person reasonably concludes in good faith (which conclusion
shall be determinative unless a court determines that conclusion was not reached
reasonably and in good faith) that there is or may be a conflict of interest
between such Indemnified Person and one or more other Indemnified Persons in the
conduct of the defense of such Indemnified Proceeding or that there are or may
be one or more different or additional defenses, claims, counterclaims, or
causes of action available to such Indemnified Person (it being agreed that in
any case referred to in this sentence such Indemnified Person may retain
separate counsel together with all other Indemnified Persons subject to the same
conflict of interest or sharing such additional defenses, claims, counterclaims
or causes of action).

THE FOREGOING INDEMNITIES SHALL EXPRESSLY INCLUDE ANY INDEMNIFIED AMOUNTS
ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF ANY INDEMNIFIED
PERSON.

                                   ARTICLE XI

                                  MISCELLANEOUS

                  Section 11.01. Amendments, Etc. No amendment, waiver,
modification or supplement of any provision of this Agreement or any other
Sponsor Subsidiary Credit Document, nor consent to any departure by any Sponsor
Subsidiary therefrom, shall in any event be effective unless the same shall be
in writing and signed by Noric Holdings and Clydesdale; provided that if the
amendment, waiver, modification, or supplement relates to the rights or
obligations of the Sponsor Subsidiary Collateral Agent under this Agreement,
then the consent of the Sponsor Subsidiary Collateral Agent also shall be
required. Such amendment, waiver, modification, supplement or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

                  Section 11.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopy
communication) and mailed, telecopied or delivered:

                  (a) if to any Sponsor Subsidiary, to Noric Holdings at its
         address set forth in Section 2.2 of the Clydesdale Partnership
         Agreement, with a copy to El Paso at the address set forth in the
         Notice Agreement;

                  (b) if to Clydesdale, c/o Wilmington Trust Company at Rodney
         Square North, 1100 North Market Street, Wilmington, Delaware
         19890-1600, Attention: Corporate Trust Administration, Facsimile No.:
         (302) 651-8882 with a copy to Citibank, N.A., Attention: Jonathan
         Kaufman, Managing Director, Capital Structuring, Facsimile (212)
         816-0636 and Citicorp North America, Inc., 388 Greenwich Street, New
         York, New York 10013, Attention: James Huddleston, Vice President,
         Global Securitization, Facsimile (212) 816-0293;

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       96

                  (c) if to the Sponsor Subsidiary Collateral Agent, at Rodney
         Square North, 1100 North Market Street, Wilmington, Delaware
         19890-1600, Attention: James Hanley, Facsimile No.: (302) 651-8882,
         with a copy to Citibank, N.A., Attention: Jonathan Kaufman, Managing
         Director, Capital Structuring, Facsimile (212) 816-0636 and Citicorp
         North America, Inc., 388 Greenwich Street, New York, New York 10013,
         Attention: James Huddleston, Vice President, Global Securitization,
         Facsimile (212) 816-0293,

or at such other address as shall be designated by such party in a written
notice to the other parties. Any such notices and communications shall be deemed
to be delivered, given, and received for all purposes as of the date so
delivered, if delivered personally, or otherwise as of the date on which the
same was received (if a Business Day or, if not, on the next succeeding Business
Day).

                  Section 11.03. No Waiver, Remedies. No failure on the part of
Clydesdale or the Sponsor Subsidiary Collateral Agent to exercise, and no delay
in exercising, any right hereunder or under any other Sponsor Subsidiary Credit
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

                  Section 11.04. Costs and Expenses. (a) Each Sponsor Subsidiary
jointly and severally agrees to pay pursuant to Section 7.04:

                  (i) all reasonable costs and expenses of the Sponsor
         Subsidiary Collateral Agent and Clydesdale, in connection with the
         administration, modification and amendment of any Sponsor Subsidiary
         Credit Document (including (A) all due diligence, transportation,
         computer, duplication, appraisal, audit, insurance, consultant, search,
         filing, rating agency and recording fees and expenses, (B) the
         preservation of, or the sale (other than any registration under the
         securities laws with respect thereto) of, collection from, or other
         realization upon, any of the Collateral, (C) the enforcement of any of
         the rights of the Sponsor Subsidiary Collateral Agent or Clydesdale
         under any Sponsor Subsidiary Credit Document and (D) the reasonable
         fees and expenses of counsel for the Sponsor Subsidiary Collateral
         Agent and Clydesdale with respect to advising such Person as to its
         rights and responsibilities, or the perfection, protection, or
         preservation of rights or interests, under any Sponsor Subsidiary
         Credit Document, with respect to negotiations with any Sponsor
         Subsidiary or with other creditors of any Sponsor Subsidiary arising
         out of any Incipient Event or Event of Default or with Clydesdale or El
         Paso arising out of any Notice Event, Termination Event or Liquidating
         Event or any events or circumstances that may give rise to an Incipient
         Event or Event of Default or a Notice Event, Termination Event or
         Liquidating Event and with respect to presenting claims in or otherwise
         participating in or monitoring any bankruptcy, insolvency or other
         similar proceeding involving creditors' rights generally and any
         proceeding ancillary thereto with respect to any Sponsor Subsidiary,
         Clydesdale or El Paso); and

                  (ii) all reasonable out-of-pocket costs and expenses of the
         Sponsor Subsidiary Collateral Agent and Clydesdale in connection with
         the enforcement of any Sponsor

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       97

         Subsidiary Credit Document, whether in any action, suit or litigation,
         any bankruptcy, insolvency or other similar proceeding affecting
         creditors' rights generally or otherwise (including the reasonable fees
         and expenses of counsel for Clydesdale with respect thereto), subject,
         in each case to the limitations set forth in Section 10.03.

                  (b) If the Sponsor Subsidiaries fail to pay when due any
costs, expenses or other amounts payable by them under any Sponsor Subsidiary
Credit Document, including fees and expenses of counsel and indemnities, but
excluding principal and interest payments and commitment fees, such amount may
be paid on behalf of the Sponsor Subsidiaries by Clydesdale, in its sole
discretion.

                  (c) The indemnities set forth in Article X and this Section
11.04 shall be in addition to any other obligations or liabilities of any
Sponsor Subsidiary hereunder or at common law or otherwise; provided, however,
that the indemnities set forth in Article X and this Section 11.04 shall not
apply with respect to Relevant Taxes and liabilities with respect thereto, for
which the exclusive remedy of Clydesdale and the Sponsor Subsidiary Collateral
Agent against each Sponsor Subsidiary shall be pursuant to Section 2.07 hereof.
Without prejudice to the survival of any other obligation of any Sponsor
Subsidiary under this Agreement, but subject to the foregoing, the indemnities
and obligations contained in Article X and this Section 11.04 shall survive the
payment in full of the principal of and interest on the Advances or the
termination of this Agreement.

                  Section 11.05. Right of Setoff. On and after the Liquidation
Start Date, Clydesdale is hereby authorized at any time and from time to time,
to the fullest extent permitted by Applicable Law, to setoff and otherwise apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by Clydesdale to or
for the credit or the account of any Sponsor Subsidiary against any and all of
the Obligations of any Sponsor Subsidiary now or hereafter existing under this
Agreement and although such obligations may be unmatured. The rights of
Clydesdale under this Section are in addition to other rights and remedies
(including other rights of setoff) that Clydesdale may have.

                  Section 11.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by each Sponsor Subsidiary party
hereto on the date of this Agreement, Clydesdale and the Sponsor Subsidiary
Collateral Agent and thereafter shall be binding upon and inure to the benefit
of each Sponsor Subsidiary (including each Additional Sponsor Subsidiary
pursuant to Section 9.02 hereof and the terms of the Acquisition/Accession
Procedures Schedule), Clydesdale and the Designated Representative and their
respective successors and assigns and each other Indemnified Person; provided,
however, that the obligations of Clydesdale under Article II hereof shall not
become effective until satisfaction or waiver by Clydesdale of each of the
conditions set forth in Section 3.01 hereof.

                  Section 11.07. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York.

                  Section 11.08. Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       98

constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective as delivery of
a manually executed counterpart of this Agreement.

                  Section 11.09. Non-Recourse Liability. No recourse shall be
had against the principal amount of (as distinguished from any interest payable
on) any A-Loan (other than in respect of any prepayment of principal of the
A-Loan Notes described in Section 2.05(b)(iii)).

                  Section 11.10. WAIVER OF JURY TRIAL. EACH SPONSOR SUBSIDIARY,
THE SPONSOR SUBSIDIARY COLLATERAL AGENT AND CLYDESDALE EACH HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE
SPONSOR SUBSIDIARY CREDIT DOCUMENTS, THE ADVANCES OR ACTIONS OF THE SPONSOR
SUBSIDIARY COLLATERAL AGENT OR CLYDESDALE IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.

                  Section 11.11. Authorization of Noric Holdings as Sponsor
Subsidiaries' Agent. Each Sponsor Subsidiary (other than Noric Holdings) hereby
(a) appoints Noric Holdings as its agent to take all actions, do all things, and
exercise all discretions, in each case for and on behalf of such Sponsor
Subsidiary, that are expressly delegated to Noric Holdings under the Operative
Documents and/or that such Sponsor Subsidiary is entitled to take, do or
exercise, under the Sponsor Subsidiary Credit Documents or any other Operative
Document and (b) authorizes Noric Holdings, for and on behalf of such Sponsor
Subsidiary, to execute and deliver all certificates and notices to be delivered
by such Sponsor Subsidiary under the Sponsor Subsidiary Credit Documents or any
other Operative Document.

                  Section 11.12. Consent to Jurisdiction. (a) Each Sponsor
Subsidiary hereby irrevocably submits to the jurisdiction of any New York State
or Federal court sitting in New York City and any appellate court from any
thereof in any action or proceeding by Clydesdale or the Clydesdale Liquidator
or any other Indemnified Person (each such Person, a "CLAIMANT") in respect of,
but only in respect of, any claims or causes of action arising out of or
relating to any Sponsor Subsidiary Credit Document (such claims and causes of
action, collectively, being "PERMITTED CLAIMS"), and each Sponsor Subsidiary
hereby irrevocably agrees that all Permitted Claims may be heard and determined
in such New York State court or in such Federal court. Each Sponsor Subsidiary
hereby irrevocably waives, to the fullest extent it may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any aforementioned court in respect of Permitted Claims. Each Sponsor
Subsidiary hereby irrevocably appoints CT Corporation System (the "PROCESS
AGENT"), with an office on the date hereof at 111 8th Avenue, New York, New York
10011, as its agent to receive on behalf of such Person and its property service
of copies of the summons and complaint and other process which may be served on
a Claimant in any such action or proceeding in any aforementioned court in
respect of Permitted Claims. Such service may be made by delivering a copy of
such process to a Sponsor Subsidiary by courier and by certified mail (return
receipt requested), fees and postage prepaid, both (i) in care of the Process
Agent at the Process Agent's above address and (ii) at El Paso's address
specified pursuant to Section 6.2 of the El Paso Agreement, and each Sponsor
Subsidiary hereby irrevocably authorizes and directs the Process Agent to accept
such service on

Sponsor Subsidiary Credit Agreement
<PAGE>
                                       99

its behalf. Each Sponsor Subsidiary agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.

                  (b) Nothing in this Section 11.12 shall affect the right of
any Claimant to serve legal process in any other manner permitted by law or
affect any right otherwise existing of any Claimant to bring any action or
proceeding against any Sponsor Subsidiary or its property in the courts of other
jurisdictions or (ii) shall be deemed to be a general consent to jurisdiction in
any particular court or a general waiver of any defense or a consent to
jurisdiction of the courts expressly referred to in subsection (a) above in any
action or proceeding in respect of any claim or cause of action other than
Permitted Claims.

                  [Remainder of page intentionally left blank]

Sponsor Subsidiary Credit Agreement
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.

                                       SPONSOR SUBSIDIARIES

                                       NORIC HOLDINGS, L.L.C.

                                       By:  Shetland Holdings Company,
                                            the Noric Holdings, L.L.C. Class A
                                            Member

                                            By: /s/ John J. Hopper
                                               ---------------------------------
                                               Name: John J. Hopper
                                               Title: Vice President and
                                                      Treasurer

                                       NORIC HOLDINGS I, L.L.C.

                                       By:  El Paso Production Company,
                                            the Noric Holdings I, L.L.C.
                                            Managing Member

                                            By: /s/ John J. Hopper
                                               ---------------------------------
                                               Name: John J. Hopper
                                               Title: Vice President

                                       NORIC HOLDINGS III, L.L.C.

                                       By:  El Paso CNG Company,
                                            the Noric Holdings III, L.L.C. Class
                                            A Member

                                            By: /s/ Greg Gruber
                                               ---------------------------------
                                               Name: Greg Gruber
                                               Title: Senior Vice President,
                                                      Chief Financial Officer
                                                      and Treasurer

Sponsor Subsidiary Credit Agreement
<PAGE>

                                       NORIC HOLDINGS IV, L.L.C.

                                       By:  El Paso Production Oil & Gas USA,
                                            L.P., the Noric Holdings IV, L.L.C.
                                            Managing Member

                                       By:  El Paso Production Oil & Gas
                                            Company, its general partner

                                            By: /s/ John J. Hopper
                                               ---------------------------------
                                               Name: John J. Hopper
                                               Title: Vice President

Sponsor Subsidiary Credit Agreement
<PAGE>

                                       SPONSOR SUBSIDIARY COLLATERAL AGENT

                                       WILMINGTON TRUST COMPANY,
                                       Not in its individual capacity, but
                                       solely in its capacity as Sponsor
                                       Subsidiary Collateral Agent

                                       By: /s/ James A. Hanley
                                          --------------------------------------
                                          Name: James A. Hanley
                                          Title: Financial Services Officer

Sponsor Subsidiary Credit Agreement
<PAGE>

                                       CLYDESDALE

                                       CLYDESDALE ASSOCIATES, L.P.

                                       By:  Appaloosa Holdings Company,
                                            the Clydesdale Associates, L.P.
                                            General Partner

                                            By: /s/ John J. Hopper
                                               ---------------------------------
                                               Name: John J. Hopper
                                               Title: Vice President and
                                                      Treasurer

Sponsor Subsidiary Credit Agreement<PAGE>
                                                                 EXHIBIT 10.DD.2

                          -----------------------------
                              AMENDED AND RESTATED
                                EL PASO AGREEMENT
                          -----------------------------

                       ORIGINALLY DATED AS OF MAY 9, 2000
                           AMENDED AND RESTATED AS OF
                        DECEMBER 15, 2000, JUNE 29, 2001,
                       NOVEMBER 7, 2001 AND JULY 19, 2002

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                ----
 <S>                                                                                                              <C>
SECTION 1 Defined Terms; Rules of Construction....................................................................1

         1.1.     Definitions.....................................................................................1

         1.2.     Use of Certain Terms............................................................................1

         1.3.     Accounting Terms................................................................................2

         1.4.     No Presumption Against Any Party................................................................2

         1.5.     Headings and References.........................................................................2

SECTION 2 Representations and Warranties..........................................................................2

         2.1.     Due Formation...................................................................................2

         2.2.     Authorization of Operative Documents............................................................3

         2.3.     Governmental Approvals..........................................................................3

         2.4.     Enforceability..................................................................................3

         2.5.     Accounts........................................................................................3

         2.6.     Compliance with Laws, Etc.......................................................................3

         2.7.     Litigation......................................................................................3

         2.8.     Taxes...........................................................................................4

         2.9.     Title to Property...............................................................................4

         2.10.    ERISA...........................................................................................4

         2.11.    Proceeds........................................................................................5

         2.12.    Investment Company; Holding Company.............................................................5

         2.13.    El Paso Parties.................................................................................5

         2.14.    Priority........................................................................................5

         2.15.    No Default......................................................................................5

         2.16.    Disclosure......................................................................................5
</TABLE>
<PAGE>
                                       II

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                ----
 <S>                                                                                                            <C>

         2.17.    Representations of El Paso Parties..............................................................6

SECTION 3 Performance Guarantee and Indemnification...............................................................7

         3.1.     Subsidiary Guaranties...........................................................................7

         3.2.     General Indemnities.............................................................................9

         3.3.     Survival of Indemnification Obligations........................................................13

         3.4.     Limitations on Indemnification Obligations.....................................................13

         3.5.     Procedural Requirements........................................................................14

         3.6.     Limitation with Respect to Obligations Under Sponsor Credit Documents..........................16

         3.7.     Waiver of Fiduciary Duty.......................................................................17

SECTION 4 Payments...............................................................................................17

         4.1.     Payments.......................................................................................17

         4.2.     Taxes..........................................................................................17

SECTION 5 El Paso Covenants......................................................................................20

         5.1.     Separate Existence.............................................................................20

         5.2.     Affirmative Covenants..........................................................................25

         5.3.     Negative Covenants.............................................................................28

         5.4.     Reporting Requirements.........................................................................32

         5.5.     Restrictions on Material Subsidiaries..........................................................38

SECTION 6 Miscellaneous..........................................................................................38

         6.1.     Amendments.....................................................................................38

         6.2.     Addresses for Notices..........................................................................39

         6.3.     No Waiver; Cumulative Remedies.................................................................39

         6.4.     Waiver of Jury Trial...........................................................................39

         6.5.     Jurisdiction, Etc..............................................................................39

         6.6.     Assignment.....................................................................................40

         6.7.     Governing Law..................................................................................40
</TABLE>

<PAGE>

                                      III

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                ----
 <S>                                                                                                            <C>

         6.8.     Counterparts...................................................................................40

         6.9.     Survival of Representations, Warranties and Indemnities; Entire Agreement......................40

         6.10.    Severability...................................................................................41

         6.11.    No Third-Party Beneficiaries...................................................................41

         6.12.    Obligations Absolute...........................................................................41

         6.13.    Waiver   ......................................................................................43

         6.14.    Subrogation....................................................................................43
</TABLE>

EXHIBIT A                           DEFINITIONS

ANNEX I                             FINANCIAL MODEL

ANNEX II                            SUPPLEMENT TO FINANCIAL MODEL

SCHEDULE 2.8                        SPONSOR SUBSIDIARIES INCLUDED IN TAX RETURN

SCHEDULE 5.4(B)                     FORM OF OPERATING REPORT

<PAGE>

                                EL PASO AGREEMENT

         EL PASO AGREEMENT, originally dated as of May 9, 2000, and amended and
restated as of December 15, 2000, June 29, 2001, November 7, 2001 and July 19,
2002 (as amended, amended and restated, or otherwise modified from time to time,
this "AGREEMENT"), by El Paso Corporation (formerly known as El Paso Energy
Corporation), a Delaware corporation ("EL PASO"), in favor of Mustang Investors
L.L.C., a Delaware limited liability company ("MUSTANG"), and the other
Indemnified Persons (as defined below).

         PRELIMINARY STATEMENTS

         A. El Paso is, through one or more wholly owned subsidiaries, the owner
of 100% of the member interests of each of Noric Holdings, Noric Holdings I,
Noric Holdings III, Noric Holdings IV and Appaloosa. Appaloosa is the Clydesdale
General Partner and controls Clydesdale. Noric Holdings and Noric Holdings I are
Clydesdale Class A Limited Partners and Noric Holdings I is the Noric Class A
Member. Clydesdale controls Noric. Noric is the Palomino Member and the Paso
Fino Member. Noric controls Palomino and Paso Fino. Palomino is the Noric LP
General Partner and controls Noric LP. Noric Holdings IV is the Lipizzan Limited
Partner and the Lusitano Member and controls Lusitano. Lusitano is the Lipizzan
General Partner and controls Lipizzan.

         B. El Paso, Appaloosa, Noric Holdings and Noric Holdings I desire
Mustang to continue as a Clydesdale Class B Limited Partner in accordance with
the Second Amended and Restated Partnership Agreement of Clydesdale Associates,
L.P., dated as of May 9, 2000 and amended and restated as of December 15, 2000,
June 29, 2001 and July 19, 2002 (as amended, amended and restated or otherwise
modified from time to time, the "CLYDESDALE PARTNERSHIP AGREEMENT"), among
Mustang, Appaloosa, Noric Holdings, Noric Holdings I and Clydesdale.

         C. Mustang is willing to continue as a member of Clydesdale only on the
condition, among others, that El Paso provides certain assurances set forth in
this Agreement.

         In consideration of the premises, and intending to be legally bound by
this Agreement, El Paso agrees as follows:

                                   SECTION 1

                      DEFINED TERMS; RULES OF CONSTRUCTION

         1.1. Definitions. As used in this Agreement, capitalized terms defined
in the preamble and other Sections of this Agreement and Exhibit A to this
Agreement shall have the meanings set forth therein and capitalized terms used
herein (including in the Preliminary Statements) but not otherwise defined
herein shall have the meanings set forth in Exhibit A to the Clydesdale
Partnership Agreement.

         1.2. Use of Certain Terms. In this Agreement, in the computation of
periods of time from a specified date to a later specified date, the word "FROM"
means "FROM AND INCLUDING" and the words "TO" and "UNTIL" mean "to but
excluding". Unless the context of this Agreement requires otherwise, the plural
includes the singular, the singular includes the plural,

<PAGE>
                                       2

and "INCLUDING" has the meaning of "including without limitation". The words
"HEREOF", "HEREIN", "HEREBY", "HEREUNDER", and other similar terms of this
Agreement refer to this Agreement as a whole and not exclusively to any
particular provision of this Agreement. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, or singular or
plural, forms thereof, as the identity of the Person or Persons may require.

         1.3. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with, and certificates of compliance
with financial covenants shall be based upon, GAAP applied consistently.

         1.4. No Presumption Against Any Party. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed against any particular party,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by each of the parties and their counsel and shall
be construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.

         1.5. Headings and References. Section and other headings are for
reference only, and shall not affect the interpretation or meaning of any
provision of this Agreement. Unless otherwise provided, references to Articles,
Sections, Schedules and Exhibits shall be deemed references to Articles and
Sections of, and Schedules and Exhibits to, this Agreement. Whether or not
specified herein or therein, references to this Agreement and any other
Operative Document include this Agreement and the other Operative Documents as
the same may be modified, amended, restated or supplemented from time to time
pursuant to the provisions hereof or thereof as permitted by the Operative
Documents. References to any other agreement or contact are to such agreement or
contract as amended, modified or supplemented from time to time in accordance
with the terms hereof (if applicable) and thereof. Whether or not specified
herein, a reference to any law shall mean that law as it may be amended,
modified or supplemented from time to time, and any successor law. A reference
to a Person includes the successors and assigns of such Person, but such
reference shall not increase, decrease or otherwise modify in any way the
provisions in this Agreement governing the assignment of rights and obligations
under or the binding effect of any provision of this Agreement, including
Section 6.6.

                                   SECTION 2

                         REPRESENTATIONS AND WARRANTIES

         El Paso hereby represents and warrants as of the Closing Date, each
Capital Contribution Date, the Syndication Date, the Third Restatement Date and,
with respect to Section 2.16 only, the date of any Offering Materials as
follows:

         2.1. Due Formation. El Paso is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Each El
Paso Party (other than Clydesdale, Appaloosa, Noric or any Sponsor Subsidiary or
any Subsidiary of any of the foregoing) (each such El Paso Party, other than
those excluded in the immediately preceding parenthetical clause, a "RELEVANT EL
PASO PARTY") is duly incorporated or formed, validly existing

<PAGE>
                                       3

and in good standing in the jurisdiction of its incorporation or formation. Each
of El Paso and the Relevant El Paso Parties possesses all corporate, limited
liability company or other applicable Business Entity powers and other
authorizations and licenses necessary to engage in its business and operations
as now conducted, the failure to obtain or maintain which would have a Material
Adverse Effect.

         2.2. Authorization of Operative Documents. The execution, delivery and
performance by each of El Paso and the Relevant El Paso Parties of each
Operative Document to which it is a party are within its applicable Business
Entity powers, have been duly authorized by all necessary corporate, limited
liability company or other applicable Business Entity action, and do not
contravene (i) its Organizational Documents or (ii) any law or material
contractual restriction binding on or affecting it.

         2.3. Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
each of El Paso and the Relevant El Paso Parties of each Operative Document to
which it is a party, except those necessary to comply with laws, rules,
regulations and orders required in the ordinary course to comply with the
ongoing obligations of El Paso under Sections 5.2 and 5.3 and of the Relevant El
Paso Parties under the Operative Documents and to perfect security interests.

         2.4. Enforceability. Each Operative Document to which any of El Paso
and the Relevant El Paso Parties is a party constitutes the legal, valid and
binding obligations of such Person, enforceable against such Person in
accordance with its terms, except as may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors rights generally or by general principles of equity.

         2.5. Accounts. The consolidated balance sheet of El Paso and its
consolidated Subsidiaries as at December 31, 2001 and the related consolidated
statements of income and cash flows of El Paso and its consolidated Subsidiaries
for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP,
independent public accountants, fairly present the consolidated financial
condition of El Paso and its consolidated Subsidiaries as at such date and the
consolidated results of operations of El Paso and its consolidated Subsidiaries
for the period ended on such date, all in accordance with GAAP consistently
applied, and since December 31, 2001, there has been no material adverse change
in such condition or operations.

         2.6. Compliance with Laws, Etc. Each of El Paso and the Relevant El
Paso Parties is in compliance with all laws, rules, regulations and orders of
any governmental authority applicable to it or its property, except where the
failure to so comply, individually or in the aggregate, would not in the
reasonable judgment of El Paso be expected to result in a Material Adverse
Effect.

         2.7. Litigation. There is no action, suit or proceeding pending, or to
the knowledge of El Paso threatened, against or involving El Paso or any
Relevant El Paso Party or Principal Subsidiary in any court, or before any
arbitrator of any kind, or before or by any governmental body, which, in the
reasonable judgment of El Paso (taking into account the

<PAGE>
                                       4

exhaustion of all appeals), would have a Material Adverse Effect, or which
purports to affect the legality, validity, binding effect or enforceability of
any Operative Document.

         2.8. Taxes. El Paso, each Relevant El Paso Party and each Principal
Subsidiary have duly filed all tax returns required to be filed, and have duly
paid and discharged all taxes, assessments and governmental charges upon it or
against its properties now due and payable, the failure to file or pay which
would have a Material Adverse Effect, unless and to the extent only that the
same are being contested by any such Person in good faith and by appropriate
proceedings. Each Sponsor Subsidiary that is eligible to be included in the U.S.
federal income tax consolidated return of El Paso will elect to be so included.
The Sponsor Subsidiaries listed on Schedule 2.8 hereto are included in the U.S.
federal income tax consolidated return of El Paso.

         2.9. Title to Property. El Paso, each Relevant El Paso Party and each
Principal Subsidiary have good title to their respective properties and assets,
free and clear of all mortgages, liens and encumbrances, except for mortgages,
liens and encumbrances (including covenants, restrictions, rights, easements and
minor irregularities in title) which do not materially interfere with the
business or operations of such Person as presently conducted or which are
permitted by Section 5.3(a) and except that no representation or warranty is
made with respect to Margin Stock.

         2.10. ERISA. (a) No ERISA Termination Event has occurred or is
reasonably expected to occur with respect to any Plan which, with the giving of
notice or lapse of time, or both, would constitute an El Paso Event under clause
(g) of the definition thereof.

         (b) Each Plan has complied with the applicable provisions of ERISA and
the Code where the failure to so comply would reasonably be expected to result
in an aggregate liability that would exceed 10% of the Net Worth of El Paso.

         (c) The statement of assets and liabilities of each Plan and the
statements of changes in fund balance and in financial position, or the
statement of changes in net assets available for plan benefits, for the most
recent plan year for which an accountant s report with respect to such Plan has
been prepared, fairly present the financial condition of such Plan as at such
date and the results of operations of such Plan for the plan year ended on such
date.

         (d) Neither El Paso nor any ERISA Affiliate has incurred, or is
reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan
which, when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liability (as of the date of
determination), would exceed 10% of the Net Worth of El Paso.

         (e) Neither El Paso nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization, insolvent or has
been terminated, within the meaning of Title IV of ERISA, and no Multiemployer
Plan is reasonably expected to be in reorganization, to become insolvent or to
be terminated within the meaning of Title IV or ERISA, the effect of which
reorganization, insolvency or termination would be the occurrence of an El Paso
Event under clause (g) of the definition thereof.

<PAGE>
                                       5

         2.11. Proceeds. No proceeds of any Advance will be used to extend
credit to others for the purpose of purchasing or carrying Margin Stock.

         2.12 Investment Company; Holding Company. (a) Neither El Paso nor any
El Paso Party is an "investment company" within the meaning of the Investment
Company Act of 1940.

         (b) Neither El Paso nor any El Paso Party is a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935.

         2.13 El Paso Parties. (a) The Mustang El Paso Member is a wholly owned
Subsidiary of El Paso.

         (b) Each Sponsor Subsidiary Member is an El Paso Company.

         (c) None of Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan,
any Sponsor Subsidiary, any Intermediate Holder or any Underlying Business is:

         (i) a Principal Subsidiary, a Restricted Subsidiary or a Material
Subsidiary; or

         (ii) directly owned by El Paso.

         2.14. Priority. The obligations of El Paso and any Affiliate of El Paso
under or in respect of the El Paso Demand Loans, Affiliate Loans and interest on
the A-Loans (including any guarantee by El Paso of El Paso Demand Loans and
A-Loans made to Affiliates of El Paso pursuant to the El Paso Guaranty) rank in
priority of payment pari passu with all other senior unsecured Debt of El Paso
or such Affiliate of El Paso (as applicable).

         2.15. No Default. No Event of Default, Notice Event, Liquidating Event,
Termination Event or Incipient Event has occurred and is continuing.

         2.16. Disclosure. With respect to the Closing Date, the Third
Restatement Date, each Capital Contribution Date, the Syndication Date, each
Acquisition/Accession Date or the date of any Offering Materials (each, a
"RELEVANT DATE"), as the case may be:

         (a) Subject to the Disclosure Qualification, all information that has
     been made available to the Administrative Agent, CXC, the Lenders, the APA
     Purchasers and the Equity Investors (and the members of the Equity
     Investors or their agents (it being agreed that Citibank, N.A. and its
     Affiliates are not agents of the Equity Investors)) by El Paso or any of
     its directors, officers, employees, agents, advisors or representatives
     (all of the foregoing, collectively, "REPRESENTATIVES") prior to such
     Relevant Date in connection with the Operative Documents and the
     transactions contemplated by the Operative Documents, in each case taken as
     a whole and as modified or supplemented from time to time prior to such
     Relevant Date, was complete and correct in all material respects on such
     Relevant Date and did not on such Relevant Date contain any untrue
     statement of a material fact or omit to state a material fact necessary in
     order to make the statements

<PAGE>
                                       6

     contained therein not misleading in any material respect in light of the
     circumstances under which such statements were made.

         (b) Any historical financial data provided by El Paso or its Affiliates
     or any of their respective Representatives to the Administrative Agent,
     CXC, the Lenders, the APA Purchasers and the Equity Investors (and the
     members of the Equity Investors or their agents) prior to such Relevant
     Date in connection with the transactions contemplated by the Operative
     Documents was prepared in accordance with GAAP then in effect (or with
     appropriate reconciliation to such GAAP if required by Applicable Law or
     requested by the Administrative Agent or the Equity Investors) and fairly
     presents the financial condition and results of operations of El Paso
     (subject to year end audit adjustments) as of the dates and for the periods
     applicable thereto, except as otherwise disclosed therein or in the
     footnotes thereto or as otherwise disclosed in writing to the
     Administrative Agent and the Equity Investors.

         (c) All financial projections that were prepared by El Paso or its
     Representatives and made available to the Administrative Agent, CXC, the
     Lenders, the APA Purchasers and the Equity Investors (and the members of
     the Equity Investors of their agents) prior to such Relevant Date in
     connection with the transactions contemplated by the Operative Documents
     were prepared in good faith based upon assumptions believed by El Paso to
     be reasonable in the circumstances (it being understood that such
     projections are subject to significant uncertainties and contingencies,
     many of which are beyond El Paso's control, and that no assurance can be
     given that the projections will be realized).

         (d) The financial model for Mustang in the Information Memorandum dated
     on or about August 2001 and attached hereto as Annex I and the supplement
     thereto dated as of the Third Restatement Date attached hereto as Annex II
     (collectively, the "FINANCIAL MODEL"), subject to the qualifications and
     assumptions set forth in the Financial Model, (x) contains formulas which
     are consistent with and fairly reflect (i) the allocations provided in the
     Clydesdale Partnership Agreement and (ii) the other relevant financial
     terms of the Sponsor Subsidiary Credit Agreement, the Clydesdale
     Partnership Agreement and the Mustang Company Agreement and (y) sets forth
     computed amounts that fairly reflect the application of such formulae to
     the assumptions contained in the Financial Model.

         (e) El Paso is not obligated to supplement any information or
     projection or other materials referred to in this Section 2.16 after the
     Closing Date or the Third Restatement Date except with respect to the
     making of the foregoing representations and warranties on each Capital
     Contribution Date, the Syndication Date and on the date of any Offering
     Materials and except as otherwise required pursuant to the Operative
     Documents.

         2.17. Representations of El Paso Parties. All of the written
representations made by any El Paso Party in any Operative Document or any
certificate delivered pursuant to any Operative Document are true and correct in
all material respects as if made on each Relevant Date and Acquisition/Accession
Date, other than any such representations or warranties that, by

<PAGE>
                                       7

their terms, refer to a specific date other than any such date, in which case as
of such specific date.

                                   SECTION 3

                    PERFORMANCE GUARANTEE AND INDEMNIFICATION

         3.1. Subsidiary Guaranties. Subject to Section 3.6, El Paso hereby
absolutely, unconditionally and irrevocably guarantees, for the benefit of the
Indemnified Persons, the following Obligations:

         (a) Sponsor Subsidiary Obligations. The due and punctual payment,
     performance and observance by each Sponsor Subsidiary of each of its
     Obligations under each Operative Document to which it is a party, including
     (in the case of Noric Holdings) the obligations of Noric Holdings as a
     Clydesdale Class A Limited Partner under the Clydesdale Partnership
     Agreement, (in the case of Noric Holdings I) the obligations of Noric
     Holdings I as the Noric Class A Member under the Noric Company Agreement
     and the obligations of Noric Holdings I as a Clydesdale Class A Limited
     Partner under the Clydesdale Partnership Agreement and (in the case of
     Noric Holdings IV) the obligations of Noric Holdings IV as the Lipizzan
     Limited Partner under the Lipizzan Partnership Agreement and as the
     Lusitano Member under the Lusitano Company Agreement, including, in each
     case, any obligation to make mandatory Capital Contributions pursuant to
     the Clydesdale Partnership Agreement, the Noric Company Agreement, the
     Lusitano Company Agreement or the Lipizzan Partnership Agreement, as
     applicable (such Obligations, the "SPONSOR SUBSIDIARY OBLIGATIONS").

         (b) Sponsor Subsidiary Member Obligations. The due and punctual
     payment, performance and observance by each Sponsor Subsidiary Member of
     each of its Obligations under the Sponsor Subsidiary Company Agreement of
     the Sponsor Subsidiary of which it is a member and each other Operative
     Document to which it is a party, including the obligations of each Sponsor
     Subsidiary Member under Section 4 of each such Sponsor Subsidiary Company
     Agreement and the obligation of each Sponsor Subsidiary Member to make
     Capital Contributions (as defined in each Sponsor Subsidiary Company
     Agreement) pursuant to each such Sponsor Subsidiary Company Agreement (the
     "SPONSOR SUBSIDIARY MEMBER OBLIGATIONS").

         (c) Appaloosa Obligations. The due and punctual payment, performance
     and observance by Appaloosa of each of its Obligations under each Operative
     Document to which it is a party, including the obligations of Appaloosa as
     the Clydesdale General Partner under Section 4 of the Clydesdale
     Partnership Agreement and the obligations of Appaloosa to make Capital
     Contributions pursuant to Section 5.3 of the Clydesdale Partnership
     Agreement, but excluding any obligation of Appaloosa as the Clydesdale
     General Partner to cause Clydesdale to make any First Priority Return under
     the Clydesdale Partnership Agreement (except to the extent that there are
     funds on deposit in the Clydesdale Operating Account that are available to
     be applied to such payment at the time such payment is due, and then only
     from such funds) (such non-excluded Obligations, the "APPALOOSA
     OBLIGATIONS").

<PAGE>
                                       8

         (d) E&P Asset Counterparty Obligations. The due and punctual payment,
     performance and observance by each Counterparty to each E&P Participation
     Agreement and each Production Payment Agreement of each of its Obligations
     under each E&P Participation Agreement and each Production Payment
     Agreement to which it is a party and each other Operative Document to which
     it is a party (the "E&P ASSET COUNTERPARTY OBLIGATIONS").

         (e) Hydrocarbon Sales Contract Obligations. The due and punctual
     payment, performance and observance by each El Paso Party party to each El
     Paso Hydrocarbon Sales Contract of each of its Obligations under each El
     Paso Hydrocarbon Sales Contract to which it is a party and each other
     Operative Document to which it is a party (the "HYDROCARBON SALES CONTRACT
     OBLIGATIONS").

         (f) Noric Obligations. The due and punctual performance and observance
     by Noric of each of its Obligations under each Operative Document to which
     it is a party, including each obligation under Section 7.1 and Section 7.2
     of the Noric Company Agreement, the obligations of Noric as the Palomino
     Member under the Palomino Company Agreement and the obligations of Noric as
     the Paso Fino Member under the Paso Fino Company Agreement, including any
     obligation to make mandatory Capital Contributions pursuant to the Palomino
     Company Agreement or the Paso Fino Company Agreement, as applicable (such
     Obligations, the "NORIC OBLIGATIONS").

         (g) Palomino Obligations. The due and punctual performance and
     observance by Palomino of each of its Obligations under each Operative
     Document to which it is a party, including the obligations of Palomino as
     the Noric LP General Partner under the Noric LP Partnership Agreement,
     including any obligation to make mandatory Capital Contributions pursuant
     to the Noric LP Partnership Agreement (such Obligations, the "PALOMINO
     OBLIGATIONS").

         (h) Paso Fino Obligations. The due and punctual performance and
     observance by Paso Fino of each of its Obligations under each Operative
     Document to which it is a party, including the obligations of Paso Fino as
     the Noric LP Limited Partner under the Noric LP Partnership Agreement,
     including any obligation to make mandatory Capital Contributions pursuant
     to the Noric LP Partnership Agreement (such Obligations, the "PASO FINO
     OBLIGATIONS").

         (i) Noric LP Obligations. The due and punctual performance and
     observance by Noric LP of each of its Obligations under each Operative
     Document to which it is a party (such Obligations, the "NORIC LP
     OBLIGATIONS").

         (j) Lusitano Obligations. The due and punctual performance and
     observance by Lusitano of each of its Obligations under each Operative
     Document to which it is a party, including the obligations of Lusitano as
     the Lipizzan General Partner under the Lipizzan Partnership Agreement,
     including any obligation to make mandatory capital contributions pursuant
     to the Lipizzan Partnership Agreement (such Obligations, the "LUSITANO
     OBLIGATIONS").

<PAGE>
                                       9

         (k) Lipizzan Obligations. The due and punctual performance and
     observance by Lipizzan of each of its Obligations under each Operative
     Document to which it is a party (such Obligations, the "LIPIZZAN
     OBLIGATIONS").

         3.2. General Indemnities. Subject to Sections 3.4 and 3.6, El Paso
agrees to the fullest extent permitted by Applicable Law to indemnify and hold
harmless each Indemnified Person for and against, and to pay on an After-Tax
Basis, all Expenses (the Expenses on an After-Tax Basis being referred to
collectively as the "INDEMNIFIED Amounts") that may be incurred or realized by
or asserted against such Indemnified Person relating to, growing out of or
resulting from:

         (a) Sponsor Subsidiary Obligations. Any breach by any Sponsor
     Subsidiary of any Sponsor Subsidiary Obligation; or

         (b) Sponsor Subsidiary Member Obligations. Any breach by any Sponsor
     Subsidiary Member of any Sponsor Subsidiary Member Obligation; or

         (c) Appaloosa Obligations. Any breach by Appaloosa of any Appaloosa
     Obligation; or

         (d) E&P Asset Counterparty Obligations. Any breach by any Counterparty
     to an E&P Participation Agreement or a Production Payment Agreement of any
     E&P Asset Counterparty Obligation; or

         (e) El Paso Hydrocarbon Sales Contract Obligations. Any breach by any
     El Paso Party party to an El Paso Hydrocarbon Sales Contract; or

         (f) El Paso Obligations. Any breach by El Paso or any El Paso Party
     (other than any Sponsor Subsidiary, Clydesdale, any Sponsor Subsidiary
     Member, Appaloosa, each Counterparty to each E&P Participation Agreement
     and each Counterparty to each Production Payment Agreement) in the
     performance or observance of each of its covenants and obligations under
     this Agreement and each other Operative Document to which it is a party; or

         (g) Noric Obligations. Any breach by Noric of any Noric Obligation,
     including any failure by the Noric Board of Directors to cause Noric to
     comply with any Noric Obligation; or

         (h) Palomino Obligations. Any breach by Palomino of any Palomino
     Obligation, including any failure by the Palomino Member to cause Palomino
     to comply with any Palomino Obligation; or

         (i) Paso Fino Obligations. Any breach by Paso Fino of any Paso Fino
     Obligation, including any failure by the Paso Fino Member to cause Paso
     Fino to comply with any Paso Fino Obligation; or

<PAGE>
                                       10

         (j) Noric LP Obligations. Any breach by Noric LP of any Noric LP
     Obligation, including any failure by Palomino or Paso Fino to cause Noric
     LP to comply with any Noric LP Obligation; or

         (k) Lusitano Obligations. Any breach by Lusitano of any Lusitano
     Obligation, including any failure by Noric Holdings IV to cause Lusitano to
     comply with any Lusitano Obligation; or

         (l) Lipizzan Obligations. Any breach by Lipizzan of any Lipizzan
     Obligation, including any failure by Lusitano or Noric Holdings IV to cause
     Lipizzan to comply with any Lipizzan Obligation; or

         (m) Representations and Warranties. Any inaccuracy in, or any breach
     of, any written certification, representation or warranty made or deemed
     made:

             (i) by El Paso in this Agreement or by El Paso or any El Paso Party
         or other Affiliate of El Paso (or any officer or other authorized
         representative thereof) to or for the benefit of any Indemnified
         Person, any Sponsor Subsidiary or Clydesdale in any Operative Document
         to which El Paso, any El Paso Party or any such Affiliate is a party;
         or

             (ii) by El Paso or any El Paso Party or any other Affiliate of El
         Paso (or any officer or other authorized representative thereof) in any
         written report or certification required hereunder or under any
         Operative Document to which El Paso, any El Paso Party or any such
         Affiliate is a party, in each case in the case of clauses (i) and (ii)
         above (A) if but only if such certification, representation or warranty
         is made as of a specific date, as of the date as of which the facts
         stated therein were certified, represented or warranted and (B) in all
         other cases, as of any date or during any period to which such
         certification, representation or warranty may be applicable; or

         (n) Investigations; Litigation; Proceedings; Enforcement. (i)
     Enforcement of this Agreement or any other Operative Document to which an
     El Paso Party is a party and (ii) any investigation, litigation or
     proceeding, whether or not such Indemnified Person is a party thereto,
     that:

             (A) relates to, grows out of or results from any action or
         omission, or alleged action or omission, by or on behalf of or
         attributable to El Paso or any El Paso Party (whether relating to
         Clydesdale, any Sponsor Subsidiary or otherwise) in the performance or
         observance of its obligations under or in relation to the Operative
         Documents or the transactions contemplated thereby; and

             (B) would not have resulted in Indemnified Amounts incurred or
         realized by or asserted against such Indemnified Person but for their
         being a party to, or a direct or indirect participant in, or having a
         relationship described in the definition of "Indemnified Person" to a
         party to, or a direct or indirect participant in, the Operative
         Documents or any of the transactions contemplated thereby; or

<PAGE>
                                       11

         (o) Substantive Consolidation. (i) Any petition or proceeding (x)
     seeking or asserting or (y) a court ordering, in any case or proceeding
     under the United States Bankruptcy Code involving El Paso, any El Paso
     Party or any other Subsidiary of El Paso, as debtor, that the assets and
     liabilities of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan or any Sponsor Subsidiary be consolidated substantively with the
     assets and liabilities of El Paso, any El Paso Party (other than
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     Sponsor Subsidiary) or any other Subsidiary of El Paso (other than
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP or any Sponsor Subsidiary)
     and (ii) defending against any petition, proceeding or order referred to in
     clause (i) above; it being agreed that upon the occurrence of an event
     described in clause (i)(y) above which is or becomes a final judgment or
     order, the Indemnified Persons involved shall be entitled to recover from
     El Paso, as liquidated damages for Indemnified Amounts under such clause
     (i) (but without prejudice to amounts recoverable under clause (ii) above
     or any other provision of the Operative Documents), and not as a penalty,
     an aggregate amount equal to the sum of the amount that would be paid to
     Mustang as the "Purchase Amount" (as defined in the Purchase Option
     Agreement) and all accrued and unpaid payments owing to Mustang pursuant to
     the Clydesdale Partnership Agreement through the date of payment in full of
     such amount in addition to all other Indemnified Amounts hereunder; or

         (p) ERISA. Any liability or other Indemnified Amounts that Clydesdale,
     Noric or any Sponsor Subsidiary may incur in connection with any Plan or
     Multiemployer Plan or otherwise under Title IV of ERISA; or

         (q) Expenses. Any amendment, supplement, modification, consent or
     waiver of, to or under any Operative Document (to the extent not otherwise
     reimbursed pursuant to any Operative Document); or

         (r) Freely Transferable Transaction Assets. Any portion of any
     Transaction Asset not being Freely Transferable at the time of any
     attempted Disposition thereof by the Sponsor Subsidiary Collateral Agent,
     the Noric Liquidator, the Noric LP Liquidator or the Lipizzan Liquidator,
     as the case may be (other than the Pre-Approved Energy Investment to the
     extent that it is subject to Section 4.14 (Change of Control) of the
     Indenture dated as of June 15, 1990 between Colorado Interstate Gas
     Company, a Delaware corporation and Texas Commerce Bank National
     Association, a national banking association, as trustee); or

         (s) Environmental Liabilities. The actual or alleged, release,
     discharge or presence of Hazardous Materials on or from any property of any
     Intermediate Holder, any Underlying Business, any Sponsor Subsidiary,
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     other El Paso Party, or on any E&P Participation Property or any Subject
     Interest, or any Environmental Action relating in any way to any such
     Person or property; or

         (t) Casualty, Etc. Any casualty, theft, personal injury, tort or other
     liability to a third party arising under or in connection with or
     attributable to any E&P Participation

<PAGE>
                                       12

     Property, Subject Interest or Energy Investment or any Intermediate Holder
     or Underlying Business relating thereto; or

         (u) Fraudulent Transfer or Conveyance. Any transfer, pledge or
     conveyance by any Sponsor Subsidiary to the extent found in any bankruptcy,
     insolvency, receivership or other similar proceeding to be a "fraudulent
     transfer" or "fraudulent conveyance" or "fraudulent preference"; or

         (v) Consolidated Tax Liability. Any Consolidated Taxes paid by any
     Sponsor Subsidiary with respect to any taxable period for which such
     Sponsor Subsidiary was a member of the El Paso Consolidated group
     (including, without limitation, by reason of the application of Treasury
     Regulation Section 1.1502-6 or any similar provision of state, local or
     foreign tax law or regulation). If the shares of any Sponsor Subsidiary and
     any assets directly or indirectly held thereby (including any assets held
     by any partnership in which the Sponsor Subsidiary is a partner) are sold
     following a Liquidating Event, the benefits of this Section 3.2(v) shall
     inure to the purchaser of such shares or assets with respect to any such
     taxable period for which such Sponsor Subsidiary was a member of the El
     Paso Consolidated group; or

         (w) E&P Participation Agreements and Production Payment Agreements. (i)
     Any repudiation or purported repudiation by any Counterparty (whether such
     Counterparty is in Bankruptcy or otherwise) of any E&P Participation
     Agreement or any Production Payment Agreement, (ii) any rejection or
     attempted rejection by any trustee in bankruptcy or any other Person of any
     E&P Participation Agreement or any Production Payment Agreement in the
     Bankruptcy of any Counterparty or any avoidance of any transfer of rights
     and/or interests or other property under any such Operative Document in any
     such Bankruptcy, or (iii) any E&P Participation Agreement or any Production
     Payment Agreement is not, or is asserted by any Counterparty or other party
     thereto not to be, the legal, valid and binding obligation of such
     Counterparty or other party thereto, enforceable in accordance with its
     terms against such Counterparty or other party thereto, including by reason
     of a lack of certainty of contract or subject matter; or

         (x) E&P Participation Agreements. Without limiting the provisions of
     paragraph (w) above, any failure of an E&P Participation Agreement to
     convey to the relevant Sponsor Subsidiary, Noric or Noric LP, as the case
     may be, all of the net economic benefits and rights, and the legal and
     beneficial interest, of the Counterparty to such E&P Participation
     Agreement in the underlying E&P Participation Property, or to assign to
     such Sponsor Subsidiary, Noric or Noric LP, as the case may be, all of the
     rights under the Material E&P Agreements (as defined in such E&P
     Participation Agreement); or

         (y) Perfection. Any failure to (x) perfect any Lien or other interest
     in any E&P Asset or (y) file, record or register any E&P Participation
     Agreement or any Production Payment Agreement or the interest of any
     Sponsor Subsidiary, Lipizzan, Noric or Noric LP, as the case may be, under
     any E&P Participation Agreement or any Production Payment Agreement with
     any Governmental Authority; or

<PAGE>
                                       13

         (z) Qualification to Do Business. Any failure by any Sponsor
     Subsidiary, Lipizzan, Noric or Noric LP to qualify to do business in any
     state or other jurisdiction in which such Sponsor Subsidiary, Lipizzan,
     Noric or Noric LP, as the case may be, would not be required to qualify to
     do business but for its owning an E&P Asset.

         El Paso hereby agrees that damages arising as a result of any matter
indemnified under Section 3.2(w) or (x) (or under Section 3.2(y) or (z), if any
failure referred to therein directly or indirectly has any of the effects
described in Section 3.2(w) or (x)) relating to an E&P Asset (or a Sponsor
Subsidiary's, Lipizzan's, Noric's or Noric LP's interest in any E&P
Participation Property, any Production Payment or any Subject Interest), or
under Section 3.2(m) resulting from a breach or inaccuracy of a representation
or warranty under Section 4.03 of the Sponsor Subsidiary Credit Agreement in
respect of an E&P Asset (or a Sponsor Subsidiary's, Lipizzan's, Noric's or Noric
LP's interest in any E&P Participation Property, any Production Payment or any
Subject Interest), are difficult to ascertain as at the date hereof and
accordingly El Paso agrees that a reasonable forecast of such damages would be
an amount, determined as at the Liquidation Start Date, equal to the discounted
present value of the Proved Reserves set forth in the most recent Reserve Report
with respect to such E&P Asset (or such Sponsor Subsidiary's, Lipizzan's,
Noric's or Noric LP's interest in such E&P Participation Property, in such
Production Payment or in such Subject Interest) upon which an E&P Borrowing Base
Determination or E&P Borrowing Base Redetermination was made determined using
the standardized methodology prescribed by the Securities and Exchange
Commission for the calculation of the discounted present value of Proved
Reserves for Securities and Exchange Commission reporting purposes (commonly
known as the "PV-10").

         3.3. Survival of Indemnification Obligations. All indemnities provided
for in this Agreement shall survive the Transfer of any Clydesdale Partnership
Interest, any Noric Membership Interest, any Palomino Membership Interest, any
Paso Fino Membership Interest, any Noric LP Partnership Interest, any Lusitano
Membership Interest, any Lipizzan Partnership Interest or any Sponsor Subsidiary
Membership Interest or the liquidation of Clydesdale, Noric, Palomino, Paso
Fino, Noric LP, Lusitano, Lipizzan or any Sponsor Subsidiary. After any such
Transfer or liquidation, the provisions of Section 3.2 shall inure to the
benefit of each Indemnified Person with respect to Indemnified Amounts arising
in respect of the period during which the partner, member or shareholder or
other holder of an Equity Interest (as applicable) who has Transferred its
Clydesdale Partnership Interest, Noric Membership Interest, Palomino Membership
Interest, Paso Fino Membership Interest, Noric LP Partnership Interest, any
Lusitano Membership Interest, any Lipizzan Partnership Interest or Sponsor
Subsidiary Membership Interest (as applicable) was a partner or member of
Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
Sponsor Subsidiary, as applicable (including with respect to actions taken or
omitted to be taken, and events occurring and circumstances existing, during
such period).

         3.4. Limitations on Indemnification Obligations. The indemnities
provided in Section 3.2 shall be subject to the following limitations:

         (a) Limitation by Law. Such Sections shall be enforced only to the
     maximum extent permitted by Applicable Law.

<PAGE>
                                       14

         (b) Misconduct, Etc. No Person shall be indemnified or held harmless
     for, and El Paso shall have no liability for or in respect of, any Expenses
     with respect to such Person to the extent caused by or resulting from (i)
     the actual fraud, willful misconduct, bad faith or gross negligence of such
     Person or any of its Related Persons or (ii) any inaccuracy in, or breach
     of, any written certification, representation or warranty made by such
     Person or any of its Related Persons in any Operative Document or in any
     written report or certification required hereunder or under any other
     Operative Document (unless and to the extent such inaccuracy or breach is
     attributable to any written information provided by El Paso or its
     Affiliates), in each case under this clause (ii) (A) if, but only if, such
     certification, representation or warranty is made as of a specific date, as
     of the date as of which the facts stated therein were certified,
     represented or warranted and (B) in all other cases, as of any date or
     during any period to which such certification, representation or warranty
     may be applicable or (iii) any failure by such Person or any other Person
     to comply with any requirement under or pursuant to Section 6111(d) of the
     Code.

         (c) No Duplication. Indemnified Amounts under Section 3.2 shall be
     without duplication of any amounts payable and actually paid under
     indemnification provisions of any other Operative Document or other
     agreement.

         3.5. Procedural Requirements. (a) Notice of Claims. Any Indemnified
Person that proposes to assert a right to be indemnified under this Section 3
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such Indemnified Person in respect of which a claim is to be
made against El Paso under this Section 3 (an "INDEMNIFIED PROCEEDING"), or the
incurrence or realization of Indemnified Amounts in respect of which a claim is
to be made against El Paso under this Section 3, notify El Paso of the
commencement of such Indemnified Proceeding or of such incurrence or
realization, enclosing a copy of all relevant documents, including all papers
served and claims made, but the omission so to notify El Paso promptly of any
such Indemnified Proceeding or incurrence or realization shall not relieve (i)
El Paso from any liability that it may have to such Indemnified Person under
this Section 3 or otherwise, except, as to El Paso's liability under this
Section 3, to the extent, but only to the extent, that El Paso shall have been
prejudiced by such omission or (ii) any other indemnitor from liability that it
may have to any Indemnified Person under the Operative Documents.

         (b) Defense of Proceedings. In case any Indemnified Proceeding shall be
brought against any Indemnified Person and it shall notify El Paso of the
commencement thereof, El Paso shall be entitled to participate in, and to assume
the defense of, such Indemnified Proceeding with counsel reasonably satisfactory
to such Indemnified Person, and, after notice from El Paso to such Indemnified
Person of El Paso's election so to assume the defense thereof and the failure by
such Indemnified Person to object to such counsel within ten Business Days
following its receipt of such notice, El Paso shall not be liable to such
Indemnified Person for legal or other expenses incurred after such notice of
election to assume such defense except as provided below and except for the
reasonable costs of investigating, monitoring or cooperating in such defense
subsequently incurred by such Indemnified Person reasonably necessary in
connection with the defense thereof. Such Indemnified Person shall have the
right to employ its counsel in any such Indemnified Proceeding, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless:

<PAGE>
                                       15

         (i) the employment of counsel by such Indemnified Person at the expense
     of El Paso has been authorized in writing by El Paso;

         (ii) such Indemnified Person shall have reasonably concluded in its
     good faith (which conclusion shall be determinative unless a court
     determines that conclusion was not reached reasonably and in good faith)
     that there is or may be a conflict of interest between El Paso and such
     Indemnified Person in the conduct of the defense of such Indemnified
     Proceeding or that there are or may be one or more different or additional
     defenses, claims, counterclaims, or causes of action available to such
     Indemnified Person (it being agreed that in any case referred to in this
     clause (ii) El Paso shall not have the right to direct the defense of such
     Indemnified Proceeding on behalf of the Indemnified Person);

         (iii) El Paso shall not have employed Jones, Day, Reavis and Pogue, or
     other counsel reasonably acceptable to the Indemnified Person, to assume
     the defense of such Indemnified Proceeding within a reasonable time after
     notice of the commencement thereof (provided, however, that this clause
     shall not be deemed to constitute a waiver of any conflict of interest
     which may arise with respect to any such counsel); or

         (iv) any counsel employed by El Paso shall fail to timely commence or
     maintain the defense of such Indemnified Proceeding,

in each of which cases the fees and expenses of counsel for such Indemnified
Person shall be at the expense of El Paso; provided that without the prior
written consent of such Indemnified Person, El Paso shall not settle or
compromise, or consent to the entry of any judgment in, any pending or
threatened Indemnified Proceeding, unless such settlement, compromise or consent
or related judgment includes an unconditional release of such Indemnified Person
from all liability for Expenses arising out of such claim, action,
investigation, suit or other legal proceeding. No Indemnified Person shall
settle or compromise, or consent to the entry of any judgment in, any pending or
threatened Indemnified Proceeding in respect of which any payment would result
hereunder or under the other Operative Documents without the prior written
consent of El Paso, such consent not to be unreasonably withheld or delayed.
Only one counsel shall be retained by all Indemnified Persons with respect to
any Indemnified Proceeding, unless counsel for any Indemnified Person reasonably
concludes in good faith (which conclusion shall be determinative unless a court
determines that conclusion was not reached reasonably and in good faith) that
there is or may be a conflict of interest between such Indemnified Person and
one or more other Indemnified Persons in the conduct of the defense of such
Indemnified Proceeding or that there are or may be one or more different or
additional defenses, claims, counterclaims, or causes of action available to
such Indemnified Person (it being agreed that in any case referred to in this
sentence such Indemnified Person may retain separate counsel together with all
other Indemnified Persons subject to the same conflict of interest or sharing
such additional defenses, claims, counterclaims or causes of action).

THE FOREGOING INDEMNITIES SHALL EXPRESSLY INCLUDE ANY INDEMNIFIED AMOUNTS
ATTRIBUTABLE TO THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF ANY INDEMNIFIED
PERSON.

<PAGE>
                                       16

         3.6. Limitation with Respect to Obligations Under Sponsor Subsidiary
Credit Documents. (a) Notwithstanding anything to the contrary contained in this
Agreement or in any other Operative Document, El Paso does not guarantee:

         (i) any payment obligation or deficiency of any Sponsor Subsidiary for
     or in respect of principal or interest under the Sponsor Subsidiary Credit
     Documents (or any instrument or security evidencing any obligation in
     respect thereof); provided, however, that without having or incurring any
     liability itself to make such payment, El Paso will exercise its power as
     direct or indirect owner of all of the Equity Interests issued by each
     Sponsor Subsidiary and each Sponsor Subsidiary Member to cause such Sponsor
     Subsidiary and such Sponsor Subsidiary Member to deposit into the Sponsor
     Subsidiary Operating Account, the Sponsor Subsidiary Cash Reserve or the
     Noric Holdings IV Cash Reserve (as applicable) any amounts that are
     required to be deposited into the Sponsor Subsidiary Operating Account, the
     Sponsor Subsidiary Cash Reserve or the Noric Holdings IV Cash Reserve
     pursuant to the Sponsor Subsidiary Credit Documents and to direct that
     payment of such items of principal or interest be made from the Sponsor
     Subsidiary Operating Account, the Sponsor Subsidiary Cash Reserve or the
     Noric Holdings IV Cash Reserve (as applicable) to the extent that there are
     funds on deposit in the Sponsor Subsidiary Operating Account, the Sponsor
     Subsidiary Cash Reserve or the Noric Holdings IV Cash Reserve that,
     pursuant to the Operative Documents, are available to be applied to such
     payment at the time such payment is due, but then only from such available
     funds; or

         (ii) any obligation of any Sponsor Subsidiary under Section 5.04(a),
     Section 5.04(b), Section 5.04(c) or Section 5.04(f) of, or the absence of
     any condition that would result in an Event of Default under Section
     6.01(f) of, the Sponsor Subsidiary Credit Agreement.

         (b) Notwithstanding anything to the contrary contained in this
Agreement or in any other Operative Document, neither El Paso nor any Affiliate
of El Paso (other than any Sponsor Subsidiary) shall have any liability to
indemnify or hold harmless any Indemnified Person for, or to pay, any Expense
arising out of any failure by any Sponsor Subsidiary to pay any payment
obligation or any deficiency of any Sponsor Subsidiary for or in respect of
principal or interest under the Sponsor Subsidiary Credit Documents (or any
instrument or security evidencing any obligation in respect thereof); provided,
however, that without having or incurring any liability itself to make such
payment, El Paso will exercise its power as direct or indirect owner of all of
the Equity Interests issued by each Sponsor Subsidiary and each Sponsor
Subsidiary Member to cause such Sponsor Subsidiary and such Sponsor Subsidiary
Member to deposit into the Sponsor Subsidiary Operating Account, the Sponsor
Subsidiary Cash Reserve or the Noric Holdings IV Cash Reserve (as applicable)
any amounts that are required to be deposited into the Sponsor Subsidiary
Operating Account, the Sponsor Subsidiary Cash Reserve or the Noric Holdings IV
Cash Reserve pursuant to the Sponsor Subsidiary Credit Documents and to direct
that payment of such items of principal or interest be made from the Sponsor
Subsidiary Operating Account, the Sponsor Subsidiary Cash Reserve or the Noric
Holdings IV Cash Reserve (as applicable) to the extent that there are funds on
deposit in the Sponsor Subsidiary Operating Account, the Sponsor Subsidiary Cash
Reserve or the Noric Holdings IV Cash Reserve after payment of all amounts
referred to in Section 3.6(a) that are then owing,

<PAGE>
                                       17

which funds, pursuant to the Operative Documents, are available to be applied to
such payment at the time such payment is due, but then only from such available
funds.

         (c) The foregoing clauses (a) and (b) are not intended to limit any
claim under this Agreement (including this Section 3) that is measured, in whole
or in part, by reference to the payment obligations of the Sponsor Subsidiaries
under the Sponsor Subsidiary Credit Documents (it being understood, for example,
that although this Agreement does not constitute a direct or indirect guaranty
of the principal or interest on the Advances, if a Sponsor Subsidiary breaches
the covenant as to Indebtedness under Section 5.09(b) of the Sponsor Subsidiary
Credit Agreement and as a result there is deficiency with respect to the payment
of the Advances, a claim may be made hereunder against El Paso for such
deficiency, the damages for which claim may be measured by the amount of such
deficiency).

         3.7. Limitation with Respect to Production Payments. El Paso does not
guarantee that the quantity of Hydrocarbons produced from the Subject Lands (as
defined in each Production Payment Agreement) and attributable to the Subject
Interests will be sufficient to satisfy and discharge the Production Payments
and El Paso shall have no liability to indemnify or hold harmless any
Indemnified Person for any such insufficiency in the quantity of Hydrocarbons
produced from the Subject Lands and attributable to the Subject Interests;
provided, however, the foregoing does otherwise restrict or limit any of El
Paso's guarantees, indemnities, representations or other obligations under this
Agreement that are related to the Production Payment Interests, including El
Paso's Obligations under Sections 3.1(d), 3.1(e), 3.2(d), 3.2(e), 3.2(w), 3.2(y)
and 5.4(b)(vi).

         3.8. Waiver of Fiduciary Duty. El Paso hereby agrees that the Class B
Member of each Sponsor Subsidiary shall not be bound by a fiduciary duty to act
in the best interests of such Sponsor Subsidiary or any holder of any interest
therein, but shall be entitled to vote in a manner and to take actions which it
shall determine, in its sole discretion, to be in the best interests of
Clydesdale, Mustang and the members and creditors of Mustang, and shall be fully
indemnified and held harmless in so voting or acting in accordance with this
Section 3.

                                    SECTION 4

                                    PAYMENTS

         4.1. Payments. All payments to be made by El Paso under Section 3 shall
be paid by El Paso within two Business Days following demand therefor,
accompanied, as may be appropriate in the context, by supporting documentation
in reasonable detail. Payment shall be made to the bank account or at another
location as such Indemnified Person shall designate in writing or as is
expressly required under any Operative Document the obligations under which are
the subject of any such payment, not later than 10:00 AM (New York time) on the
date for such payment in immediately available funds.

         4.2. Taxes. (a) Any and all payments by El Paso hereunder to each
Indemnified Person shall be made, in accordance with Section 4.1, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding all taxes, levies, imposts,

<PAGE>
                                       18

deductions, charges or withholdings, and all liabilities with respect thereto,
imposed by the jurisdiction under the laws of which such Indemnified Person is
organized, domiciled, resident or doing business, or any political subdivision
thereof or by any jurisdiction in which such Indemnified Person holds any
interest in connection with this Agreement or any other Operative Document
(including, without limitation, in the case of each Lender or APA Purchaser or
CXC, the jurisdiction of such Person's lending or funding office) or any
political subdivision thereof, other than by any jurisdiction with which the
Indemnified Person's connection arises solely from having executed, delivered or
performed obligations or received a payment under, or enforced, this Agreement
or any other Operative Document (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "TAXES"). If El Paso shall be required by Applicable Law to deduct any Taxes
from or in respect of any sum payable hereunder to any Indemnified Person, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 4.2) such Indemnified Person receives an amount equal to the
sum it would have received had no such deductions been made, (ii) El Paso shall
make or cause to be made such deductions and (iii) El Paso shall pay or cause to
be paid the full amount deducted to the relevant taxation authority or other
authority in accordance with Applicable Law; provided that El Paso shall not be
required to pay any additional amount (and shall be relieved of any liability
with respect thereto) pursuant to this Section 4.2(a) to any Indemnified Person
that either (A) on the date such Person became an Indemnified Person hereunder,
(I) was not entitled to submit a U.S. Internal Revenue Service form W-8BEN
(relating to such Indemnified Person, and entitling it to a complete exemption
from United States withholding taxes on all amounts to be received by such
Indemnified Person pursuant to this Agreement) or any applicable successor form
to similar effect or a U.S. Internal Revenue Service form W-8ECI (relating to
all amounts to be received by such Indemnified Person pursuant to this
Agreement) or any applicable successor form to similar effect and (II) was not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) or (B) has failed to submit any form or certificate that it was required
to file or provide pursuant to Section 4.2(d) and is entitled to file or give,
as applicable, under Applicable Law; provided further that should an Indemnified
Person become subject to Taxes because of its failure to deliver a form required
hereunder, El Paso shall take such steps as such Indemnified Person shall
reasonably request to assist such Indemnified Person to recover such Taxes; and
provided further that each Indemnified Person (other than an SC Lenders), with
respect to itself, agrees to indemnify and hold harmless El Paso from any taxes,
penalties, interest or other expenses, costs and losses incurred or payable by
El Paso as a result of the failure of El Paso to comply with its obligations
under Section 4.2(a)(ii) or (iii) in reliance on any form or certificate
provided to it by such Indemnified Person pursuant to this Section 4.2. If any
Indemnified Person (other than an SC Lender) receives a net credit or refund in
respect of such Taxes or amounts so paid by El Paso, it shall promptly notify El
Paso of such net credit or refund and shall promptly pay such net credit or
refund to El Paso; provided that El Paso agrees to return such net credit or
refund if the Indemnified Person to which such net credit or refund is
applicable is required to repay it.

         (b) In addition, El Paso agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made by El Paso hereunder or from the
execution, delivery or performance of, or otherwise with respect to, this
Agreement (hereinafter referred to as "OTHER TAXES").

<PAGE>
                                       19

         (c) El Paso will indemnify each Indemnified Person for the full amount
of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 4.2) paid by
such Indemnified Person and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto except as a result of the
gross negligence (which shall in any event include the failure of such
Indemnified Person to provide to El Paso any form or certificate that it was
required to provide pursuant to subsection (d) below) or willful misconduct of
such Indemnified Person, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within 30 days from the
date such Indemnified Person makes written demand therefor.

         (d) On or prior to the date on which each Indemnified Person organized
under the laws of a jurisdiction outside the United States becomes an
Indemnified Person hereunder, such Indemnified Person shall provide El Paso with
U.S. Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any
successor form prescribed by the U.S. Internal Revenue Service, certifying that
such Indemnified Person is fully exempt from United States withholding taxes
with respect to all payments to be made to such Indemnified Person hereunder, or
other documents satisfactory to El Paso indicating that all payments to be made
to such Indemnified Person hereunder are fully exempt from such taxes.
Thereafter and from time to time (but only so long as such Indemnified Person
remains lawfully able to do so), each such Indemnified Person shall submit to El
Paso such additional duly completed and signed copies of one or the other of
such Forms (or such successor Forms as shall be adopted from time to time by the
relevant United States taxing authorities) as may be (i) notified by El Paso to
such Indemnified Person and (ii) required under then-current United States law
or regulations to avoid United States withholding taxes on payments in respect
of all amounts to be received by such Indemnified Person pursuant to this
Agreement. Upon the request of El Paso from time to time, each Indemnified
Person that is a United States person (as such term is defined in Section
7701(a)(30) of the Code) shall submit to El Paso a certificate to the effect
that it is such a United States person. If any Indemnified Person determines, as
a result of any change in Applicable Law, or in any official application or
interpretation thereof, that it is unable to submit to El Paso any form or
certificate that such Indemnified Person is obligated to submit pursuant to this
subsection (d), or that such Indemnified Person is required to withdraw or
cancel any such form or certificate previously submitted, such Indemnified
Person shall promptly notify El Paso of such fact.

         (e) Any Indemnified Person claiming any additional amounts payable
pursuant to this Section 4.2 shall use its best efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its lending or funding office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
which may thereafter accrue and would not, in the reasonable judgment of such
Indemnified Person, be otherwise disadvantageous to such Indemnified Person.

         (f) Without prejudice to the survival of any other agreement of El Paso
hereunder, the agreements and obligations of El Paso and each Indemnified Person
contained in this Section 4.2 shall survive the payment in full of principal and
interest owing under the Sponsor Subsidiary Credit Agreement.

<PAGE>
                                       20

         (g) Any other provision of this Agreement to the contrary
notwithstanding, any amounts which are payable by El Paso under this Section 4.2
shall not be payable under Section 3.

                                   SECTION 5

                                EL PASO COVENANTS

         5.1. Separate Existence. El Paso hereby covenants and agrees that, so
long as Mustang, or its successors and assigns (other than El Paso or any
Subsidiary of El Paso), holds an interest in Clydesdale, El Paso will, and will
cause each of the El Paso Companies (including the El Paso Parties), Clydesdale
(for so long as the Clydesdale General Partner is an El Paso Company and has the
power and authority to manage the business and affairs of Clydesdale) Noric,
Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and each Sponsor Subsidiary
to, comply with the following undertakings (except for such non-compliance that,
in the aggregate, is not material):

         (i) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and any Sponsor
     Subsidiary) will maintain their books, financial records and accounts,
     including checking and other bank accounts and custodian and other
     securities safekeeping accounts, separate and distinct from those of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     Sponsor Subsidiary, as the case may be.

         (ii) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and any Sponsor
     Subsidiary) will maintain their books, financial records and accounts
     (including inter-entity transaction accounts) in a manner so that it will
     not be difficult or costly to segregate, ascertain or otherwise identify
     their assets and liabilities separate and distinct from the assets and
     liabilities of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan or any Sponsor Subsidiary, as the case may be. (iii) El Paso and
     the El Paso Companies (other than Clydesdale, Noric, Palomino, Paso Fino,
     Noric LP, Lusitano, Lipizzan and any Sponsor Subsidiary), on the one hand,
     will not commingle any of their assets, funds, liabilities or business
     functions with the assets, funds, liabilities or business functions of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     Sponsor Subsidiary, as the case may be, on the other hand.

         (iv) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and any Sponsor
     Subsidiary) will each observe all requisite corporate procedures and
     formalities, including the holding of periodic and special meetings of
     partners, shareholders and boards of directors, the recordation and
     maintenance of minutes of such meetings, and the recordation and
     maintenance of resolutions adopted at such meetings.

<PAGE>
                                       21

         (v) Each of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan and each Sponsor Subsidiary will observe all requisite
     organizational procedures and formalities, including the holding of
     meetings of members and boards of managers as required by the Clydesdale
     Partnership Agreement, the Noric Company Agreement, the Palomino Company
     Agreement, the Paso Fino Company Agreement, the Noric LP Partnership
     Agreement, the Lusitano Company Agreement, the Lipizzan Partnership
     Agreement and the Sponsor Subsidiary Company Agreements, as applicable, the
     recordation and maintenance of minutes of such meetings, and the
     recordation of and maintenance of resolutions adopted at such meetings.

         (vi) None of El Paso and the El Paso Companies (other than Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and any Sponsor
     Subsidiary) will be consensually merged or consolidated with Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any Sponsor
     Subsidiary, as the case may be (other than, with respect to Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and any Sponsor
     Subsidiary, for financial reporting purposes, and with respect to any
     Sponsor Subsidiary, for tax purposes). None of El Paso and the El Paso
     Companies will be consensually merged or consolidated with Mustang for any
     purpose.

         (vii) El Paso will include in its consolidated financial statements
     footnotes that clearly disclose, among other things, the separate existence
     and identity of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan and each Sponsor Subsidiary from El Paso and its other
     Subsidiaries, and that each of Clydesdale, Noric, Palomino, Paso Fino,
     Noric LP, Lusitano, Lipizzan and each Sponsor Subsidiary has separate
     assets and liabilities. Mustang will not be consolidated with El Paso for
     the purposes of El Paso's consolidated financial statements.

         (viii) All transactions, agreements and dealings between El Paso and
     the El Paso Companies (other than Clydesdale, Noric, Palomino, Paso Fino,
     Noric LP, Lusitano, Lipizzan and any Sponsor Subsidiary), on the one hand,
     and Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or
     any Sponsor Subsidiary, as the case may be, on the other hand (including
     transactions, agreements and dealings pursuant to which the assets or
     property of one is used or to be used by the other), will reflect the
     separate identity and legal existence of each entity.

         (ix) Transactions between Clydesdale, Noric, Palomino, Paso Fino, Noric
     LP, Lusitano, Lipizzan or any Sponsor Subsidiary, on the one hand, and any
     third parties, on the other hand, will be conducted in the name of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or
     such Sponsor Subsidiary (as applicable) as an entity separate and distinct
     from El Paso or any El Paso Company (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and any Sponsor
     Subsidiary).

         (x) Except as otherwise specified in the Operative Documents, each of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and
     each Sponsor Subsidiary, on the one hand, will pay its liabilities and
     losses from its respective assets, and El Paso and the El Paso Companies
     (other than Clydesdale, Noric, Palomino, Paso

<PAGE>
                                       22

     Fino, Noric LP, Lusitano, Lipizzan and any Sponsor Subsidiary), on the
     other hand, will pay their liabilities and losses from their respective
     assets.

         (xi) Representatives and agents of Clydesdale, Noric, Palomino, Paso
     Fino, Noric LP, Lusitano, Lipizzan or any Sponsor Subsidiary (whether or
     not they are "loaned" employees of El Paso or any El Paso Company (other
     than Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan
     and the Sponsor Subsidiaries)) will, when purporting to act on behalf of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     Sponsor Subsidiary (as applicable), hold themselves out to third parties as
     being representatives or agents, as the case may be, of Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or such Sponsor
     Subsidiary (as applicable) and, to the extent such items are used, will
     utilize business cards, letterhead, purchase orders, invoices and the like
     of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or
     such Sponsor Subsidiary (as applicable).

         (xii) Except as otherwise specified in the Operative Documents, each of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and
     the Sponsor Subsidiaries will compensate all consultants, independent
     contractors and agents from its own funds for services provided to it by
     such consultants, independent contractors and agents.

         (xiii) To the extent that Clydesdale, Noric, Palomino, Paso Fino, Noric
     LP, Lusitano, Lipizzan or any Sponsor Subsidiary, on the one hand, and El
     Paso or any of the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and any Sponsor
     Subsidiary), on the other hand, jointly contract or do business with
     vendors or service providers or share overhead expenses, the costs and
     expenses incurred in so doing will be fairly and nonarbitrarily allocated
     between or among such entities, with the result that each such entity bears
     its fair share of all such costs and expenses. To the extent that
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     Sponsor Subsidiary, on the one hand, and El Paso or any of the El Paso
     Companies (other than Clydesdale, Noric, Palomino, Paso Fino, Noric LP,
     Lusitano, Lipizzan and any Sponsor Subsidiary), on the other hand,
     contracts or does business with vendors or service providers where the
     goods or services are wholly or partially for the benefit of the other,
     then the costs incurred in so doing will be fairly and nonarbitrarily
     allocated to the entity for whose benefit the goods or services are
     provided, with the result that each such entity bears its fair share of all
     such costs, except to the extent otherwise provided in the Operative
     Documents.

         (xiv) Clydesdale and each Sponsor Subsidiary will have annual financial
     statements prepared in accordance with GAAP (in the case of Noric Holdings
     I, including Noric, Palomino, Paso Fino and Noric LP on a consolidated
     basis, in the case of Noric Holdings IV, including Lusitano and Lipizzan on
     a consolidated basis and, in the case of all Sponsor Subsidiaries, on a
     combined basis), separate from El Paso and the El Paso Companies (other
     than Clydesdale, Noric, any Subsidiary of Noric, Lusitano, Lipizzan and any
     Sponsor Subsidiary); provided that El Paso may consolidate Clydesdale,
     Noric, any Subsidiary of Noric, Lusitano, Lipizzan and any Sponsor
     Subsidiary for El Paso's financial reporting purposes.

<PAGE>
                                       23

         (xv) None of El Paso and the El Paso Companies (other than Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries) will make any inter-entity loans, advances, guarantees,
     extensions of credit or contributions of capital to, from or for the
     benefit of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan or any Sponsor Subsidiary, as the case may be, without proper
     documentation and accounting in accordance with GAAP and only in accordance
     with, or as contemplated by, the provisions of the Clydesdale Partnership
     Agreement, the Noric Company Agreement, the Palomino Company Agreement, the
     Paso Fino Company Agreement, the Noric LP Partnership Agreement, the
     Lusitano Company Agreement, the Lipizzan Partnership Agreement or the
     relevant Sponsor Subsidiary Company Agreement, as the case may be, and the
     other Operative Documents.

         (xvi) Clydesdale will not be included in the consolidated tax returns
     of El Paso and the consolidated El Paso Companies (other than Clydesdale).

         (xvii) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries) will not refer to Clydesdale, Noric, Palomino, Paso Fino,
     Noric LP, Lusitano, Lipizzan or any Sponsor Subsidiary, as the case may be,
     as a department or division of El Paso or any of the El Paso Companies
     (other than Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan and any Sponsor Subsidiary) and will not otherwise refer to
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     Sponsor Subsidiary, as the case may be, in a manner inconsistent with its
     status as a separate and distinct legal entity. In addition, each of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and
     the Sponsor Subsidiaries will hold itself out as separate and distinct from
     El Paso and the El Paso Companies (other than Clydesdale, Noric, Palomino,
     Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor Subsidiaries).

         (xviii) El Paso shall (A) cause Lord Securities to be an independent
     member of each Sponsor Subsidiary and (B) cause Lord Securities to be
     elected as an independent director of Appaloosa at each election of the
     board of directors of Appaloosa.

         (xix) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries) will not hold out the credit of Clydesdale, Noric, Palomino,
     Paso Fino, Noric LP, Lusitano, Lipizzan or the Sponsor Subsidiaries as
     being available to satisfy the obligations of El Paso or the El Paso
     Companies (other than Clydesdale, Noric, Palomino, Paso Fino, Noric LP,
     Lusitano, Lipizzan and the Sponsor Subsidiaries).

         (xx) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or the Sponsor
     Subsidiaries) will not acquire the obligations or securities of Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or the Sponsor
     Subsidiaries (except as contemplated by or permitted under the Operative
     Documents).

<PAGE>
                                       24

         (xxi) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries) will not use stationery, invoices, and checks bearing the
     name of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan or any Sponsor Subsidiaries, except in their respective capacities
     as general partners or managers or managing members of any such Persons.

         (xxii) El Paso and the El Paso Companies (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries) will not pledge their respective assets for the benefit of
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any
     Sponsor Subsidiary (except as contemplated by or permitted under the
     Operative Documents).

         (xxiii) El Paso and the El Paso Companies (other than Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries) will correct any known misunderstanding regarding their
     respective identities as separate from the identity of each of Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and each Sponsor
     Subsidiary.

         (xxiv) None of El Paso and the El Paso Companies (other than
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and
     the Sponsor Subsidiaries) will use the separate existence of Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan or any Sponsor
     Subsidiary to abuse creditors or to perpetrate a fraud, injury, or
     injustice on creditors.

         (xxv) All transactions between El Paso and the El Paso Companies (other
     than Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan
     and the Sponsor Subsidiaries), on the one hand, and each of Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and each Sponsor
     Subsidiary, on the other, are, and will be, duly authorized and documented,
     and recorded accurately in the appropriate books and records of such
     entities. All such transactions will be made in good faith and without any
     intent to hinder, delay, or defraud creditors.

         (xxvi) No El Paso Company (including Clydesdale, Noric, Palomino, Paso
     Fino, Noric LP, Lusitano, Lipizzan and each Sponsor Subsidiary) has entered
     into the transactions contemplated by this Agreement or any Operative
     Document to which it is a party in contemplation of insolvency or with a
     design to prefer one or more creditors of such Person to the exclusion in
     whole or in part of others in violation of Applicable Law or with an intent
     to hinder, delay or defraud any of its creditors.

         (xxvii) The assets of each El Paso Company (including Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and each Sponsor
     Subsidiary) are, as of the date hereof, intended to be sufficient to pay
     the ongoing business expenses of each such respective entity as they are
     incurred and to discharge all of their respective liabilities.

<PAGE>
                                       25

         (xxviii) El Paso shall cause the Sponsor Subsidiary Members to appoint
     a Sponsor Subsidiary Liquidator in compliance with, and to the extent
     required by Section 11.9 of each Sponsor Subsidiary Company Agreement or,
     in the case of Noric Holdings IV, Section 12.9 of the Noric Holdings IV
     Company Agreement.

         (xxix) El Paso shall cause Noric Holdings or the Noric Class A Member
     to appoint a Noric Liquidator in compliance with, and to the extent
     required by Section 12.4 of the Noric Company Agreement.

         (xxx) El Paso shall cause Noric to appoint a Palomino Liquidator in
     accordance with, and to the extent required by Section 10.4 of the Palomino
     Company Agreement.

         (xxxi) El Paso shall cause Noric to appoint a Paso Fino Liquidator in
     accordance with, and to the extent required by Section 10.4 of the Paso
     Fino Company Agreement.

         (xxxii) El Paso shall cause Palomino to appoint a Noric LP Liquidator
     in accordance with, and to the extent required by Section 11.4 of the Noric
     LP Partnership Agreement.

         (xxxiii) El Paso shall cause Noric Holdings IV to appoint a Lusitano
     Liquidator in accordance with, and to the extent required by, Section 10.4
     of the Lusitano Company Agreement.

         (xxxiv) El Paso shall cause Lusitano to appoint a Lipizzan Liquidator
     in accordance with, and to the extent required by, Section 11.4 of the
     Lipizzan Partnership Agreement.

         5.2. Affirmative Covenants. El Paso hereby covenants and agrees that,
until the Collection Date, it will:

         (a) Preservation of Corporate Existence, Etc. Preserve and maintain,
     and cause each Relevant El Paso Party and each Principal Subsidiary to
     preserve and maintain, its existence, rights (organizational and statutory)
     and material franchises, except in the case of each such Person as
     otherwise permitted by Section 5.3(d) or 5.3(e) and except that nothing
     herein shall prevent any change in Business Entity form of El Paso or any
     Principal Subsidiary.

         (b) Compliance with Laws, Etc. Comply, and cause each Relevant El Paso
     Party and each Principal Subsidiary to comply, in all material respects
     with all Applicable Laws (including, without limitation, all environmental
     laws and laws requiring payment of all taxes, assessments and governmental
     charges imposed upon it or upon its property except to the extent contested
     in good faith by appropriate proceedings) the failure to comply with which
     would have a Material Adverse Effect.

         (c) Visitation Rights. Permit Mustang, the Administrative Agent, the
     Collateral Agent, the Equity Investors and the Surety (as such terms are
     defined in the Mustang Credit Agreement), or any agents or representatives
     thereof, to visit and inspect any of the properties of and examine and make
     copies of and abstracts from any financial

<PAGE>

                                       26

     and operating records and books of account of El Paso or any Relevant El
     Paso Party or any of El Paso's Subsidiaries (other than Clydesdale, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries), and discuss the affairs, finances and accounts of El Paso or
     any Relevant El Paso Party or any of El Paso's Subsidiaries (other than
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and
     the Sponsor Subsidiaries) with their respective officers, all at such
     reasonable time (i.e., during normal business hours, at reasonable
     intervals and upon reasonable notice) and, other than during the
     continuance of any Incipient Event, Event of Default, Notice, Notice Event,
     Termination Event or Liquidating Event, at such reasonable intervals as
     such Person or any agents or representatives of such Person may reasonably
     request for purposes related to the Operative Documents. In addition, any
     such Person may discuss the affairs, finances and accounts of El Paso or
     any Relevant El Paso Party or any of El Paso's Subsidiaries (other than
     Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and
     the Sponsor Subsidiaries) with their respective independent accountants at
     reasonable intervals and with the knowledge of El Paso where feasible and
     provided that the Chief Financial Officer of El Paso will be given a
     reasonable opportunity to be present at any such discussion; provided that
     the Chief Financial Officer of El Paso shall be deemed to have been given a
     reasonable opportunity to be present at any such discussion if the Chief
     Financial Officer is given 2 Business Days' prior notice of such
     discussion. El Paso shall assume or pay all reasonable costs and expenses
     associated with any such discussion, inspection or examination; provided,
     however, that prior to the occurrence of a Notice Event, El Paso shall only
     be liable for costs and expenses associated with any such discussion,
     inspection or examination once per Fiscal Year.

         (d) Books and Records. Keep, and cause each of its Subsidiaries (other
     than Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan
     and the Sponsor Subsidiaries) and each Relevant El Paso Party to keep,
     proper books of record and account, in which full and correct entries shall
     be made of all its respective financial transactions and the assets and
     business of El Paso, each of its Subsidiaries (other than Clydesdale,
     Noric, Palomino, Paso Fino, Noric LP, Lusitano, Lipizzan and the Sponsor
     Subsidiaries) and each Relevant El Paso Party, as applicable, in accordance
     with GAAP either (i) consistently applied or (ii) applied in a changed
     manner provided such change shall have been disclosed to the Administrative
     Agent, Mustang, the Equity Investors and the Surety (as such terms are
     defined in the Mustang Credit Agreement) and shall have been consented to
     by the accountants which (as required by Section 5.4(b)) report on the
     financial statements of El Paso and its consolidated Subsidiaries for the
     fiscal year in which such change shall have occurred.

         (e) Maintenance of Properties, Etc. Maintain and preserve, and cause
     each Principal Subsidiary and each Relevant El Paso Party to maintain and
     preserve, all of its properties which are used in the conduct of its
     business in good working order and condition, ordinary wear and tear
     excepted, to the extent that any failure to do so would have a Material
     Adverse Effect.

         (f) Maintenance of Insurance. Maintain, and cause each Principal
     Subsidiary and each Relevant El Paso Party to maintain, insurance with
     responsible and reputable

<PAGE>

                                       27

     insurance companies or associations in such amounts and covering such risks
     as is usually carried by companies engaged in similar businesses and owning
     similar properties in the same general areas in which El Paso, such
     Subsidiary or such Relevant El Paso Party operates.

         (g) El Paso Companies. Cause each Relevant El Paso Party to be an El
     Paso Company.

         (h) Turnover. To the extent that El Paso is making any payment that,
     pursuant to the Operative Documents, is required to be paid into the
     Sponsor Subsidiary Cash Reserve, the Noric Holdings IV Cash Reserve, the
     Noric Cash Reserve, the Noric LP Cash Reserve, the Sponsor Subsidiary
     Operating Account or the Clydesdale Operating Account, as the case may be,
     make such payment into the Sponsor Subsidiary Cash Reserve, the Noric
     Holdings IV Cash Reserves, the Noric Cash Reserve, the Noric LP Cash
     Reserve, the Sponsor Subsidiary Operating Account or the Clydesdale
     Operating Account, as the case may be. To the extent that any El Paso
     Company is making any payment that, pursuant to the Operative Documents, is
     required to be paid into the Sponsor Subsidiary Cash Reserve, the Noric
     Holdings IV Cash Reserves, the Noric Cash Reserve, the Noric LP Cash
     Reserve, the Sponsor Subsidiary Operating Account or the Clydesdale
     Operating Account, as the case may be, cause such El Paso Company to direct
     that such payment be so paid into the Sponsor Subsidiary Cash Reserve, the
     Noric Holdings IV Cash Reserve, the Noric Cash Reserve, the Noric LP Cash
     Reserve, the Sponsor Subsidiary Operating Account or the Clydesdale
     Operating Account, as the case may be.

         (i) Income Tax Liabilities. Pay, or cause to be paid by any Relevant El
     Paso Party, all Taxes based on net income of the Sponsor Subsidiaries,
     Lusitano, Lipizzan, Noric, Palomino, Paso Fino or Noric LP to the extent
     that such Sponsor Subsidiaries, Lusitano, Lipizzan, Noric, Palomino, Paso
     Fino or Noric LP are included in a consolidated, combined, unitary or any
     similar Tax return with El Paso or with any Relevant El Paso Party (the
     "CONSOLIDATED TAXES").

         (j) Clydesdale Liquidator Notices. Upon receipt of a notice from the
     Clydesdale Liquidator following the occurrence of a Liquidating Event, El
     Paso will (i) contribute to the capital of the Sponsor Subsidiaries or, at
     El Paso's sole option waive repayment of, those amounts receivable from
     such Sponsor Subsidiaries in respect of Consolidated Taxes as may be
     specified in the notice from the Clydesdale Liquidator and (ii) cause those
     Sponsor Subsidiaries that the Clydesdale Liquidator may request to make the
     election provided in Code Section 754 provided that the relevant Sponsor
     Subsidiary Company Agreement permits such election to be made and that such
     Sponsor Subsidiary is classified as a partnership for U.S. federal income
     tax purposes.

         (k) Insurance Proceeds. Forthwith upon receipt of the proceeds from any
     insurance relating to the E&P Assets, deposit such proceeds into the
     Sponsor Subsidiary Cash Reserve (where such E&P Asset is held by a Sponsor
     Subsidiary), the Noric Cash Reserve (where such E&P Asset is held by
     Noric), the Noric LP Cash Reserve (where

<PAGE>

                                       28

     such E&P Asset is held by Noric LP) or the Noric Holdings IV Cash Reserve
     (where such E&P Asset is held by Lipizzan).

         (l) CIG Controlled Business. Cause CIG Production Company L.P. a
     Delaware limited partnership, to comply with Sections 5.08, 5.09 and 5.10
     of the Sponsor Subsidiary Credit Agreement, to the extent applicable to
     such Controlled Business and to the extent CIG Production Company L.P. is a
     CIG Controlled Business.

         5.3. Negative Covenants. El Paso hereby covenants and agrees that,
until the Collection Date, it will not at any time:

         (a) Liens, Etc. (i) Create, assume or suffer to exist, or permit any
     Principal Subsidiary or any Relevant El Paso Party to create, assume or
     suffer to exist, any Relevant Liens upon or with respect to any of its
     Equity Interests in any Principal Subsidiary or any Relevant El Paso Party,
     whether now owned or hereafter acquired, or (ii) create or assume, or
     permit any Principal Subsidiary or any Relevant El Paso Party to create or
     assume, any Relevant Liens upon or with respect to any other assets
     material to the consolidated operations of El Paso and its consolidated
     Subsidiaries taken as a whole securing the payment of Relevant Indebtedness
     and Guaranties in an aggregate amount (determined without duplication of
     amount (so that the amount of a Guaranty will be excluded to the extent the
     Relevant Indebtedness Guaranteed thereby is included in computing such
     aggregate amount)) exceeding the greater of (x) $300,000,000 and (y) 10% of
     Net Worth as at the date of such creation or assumption; provided, however,
     that this Section 5.3(a) shall not apply to:

             (A) Relevant Liens on the Equity Interests in, or Indebtedness or
         other obligations of, or assets of, any Project Financing Subsidiary
         (or any Equity Interests in, or Indebtedness or other obligations of,
         any Business Entity which are directly or indirectly owned by a Project
         Finance Subsidiary) securing the payment of a Project Financing and
         related obligations;

             (B) Relevant Liens on (1) assets acquired by El Paso or any of its
         Subsidiaries after February 11, 1992, to the extent that such Relevant
         Liens existed at the time of such acquisition and were not placed
         thereon by or with the consent of El Paso in contemplation of such
         acquisition and (2) Equity Interests acquired after February 11, 1992
         in a Business Entity that has become or becomes a Subsidiary of El
         Paso, or on assets of any such Business Entity, to the extent that such
         Relevant Liens existed at the time of such acquisition and were not
         placed thereon by or with the consent of El Paso in contemplation of
         such acquisition;

             (C) Relevant Liens created by any Alternate Program or any document
         executed by any "Borrower" or any "Subsidary" (other than any Sponsor
         Subsidiary, Lusitano, Lipizzan, Noric, Palomino, Paso Fino, Noric LP,
         any Controlled Business or Clydesdale) under and as defined in the El
         Paso Revolving Credit Facility Agreement or the El Paso Additional
         Credit Facility Agreement in connection therewith;

<PAGE>
                                       29

             (D) Relevant Liens on Margin Stock;

             (E) Permitted Relevant Liens;

             (F) Relevant Liens arising out of the refinancing, extension,
         renewal or refunding of any Indebtedness or Guaranty or other
         obligation secured by any Lien permitted by any of the foregoing
         clauses of this Section, provided that the principal amount of such
         Indebtedness or Guaranty or other obligation is not increased (except
         by the amount of costs reasonably incurred in connection with the
         issuance thereof) beyond the highest previous amount thereof and such
         Indebtedness or Guaranty or other obligation is outstanding immediately
         prior to the refinancing, extension, renewal or refunding and is not
         secured by any additional assets that would not have been permitted by
         this Section to secure the Indebtedness or Guaranty or other obligation
         refinanced, extended, renewed or refunded; and

             (G) Relevant Liens on products and proceeds (including dividend,
         interest and like payments on, and insurance and condemnation proceeds
         and rental, lease, licensing and similar proceeds) of, and property
         evidencing or embodying, or constituting rights or other general
         intangibles directly relating to or arising out of, and accessions and
         improvements to, collateral subject to Liens permitted by this Section
         5.3(a).

         (b) Consolidated Debt and Guarantees to Capitalization. Permit the
     ratio of (i) the sum of (A) the aggregate amount of consolidated Debt of El
     Paso and its consolidated Subsidiaries (without duplication of amounts
     under this clause (i) and determined as to all of the foregoing entities on
     a consolidated basis) plus (B) the aggregate amount of consolidated
     Guaranties of El Paso and its consolidated Subsidiaries (without
     duplication of amounts under this clause (i) and determined as to all of
     the foregoing entities on a consolidated basis) to (ii) Capitalization of
     El Paso (without duplication and determined as to all of the foregoing
     entities on a consolidated basis) to exceed 0.7 to 1.

         (c) Debt, Etc. Permit any of its consolidated Subsidiaries to incur or
     become liable for any Debt, any Guaranty or any reimbursement obligation
     with respect to any letter of credit (other than any Project Financing),
     if, immediately after giving effect to such Debt, Guaranty or reimbursement
     obligation and the receipt and application of any proceeds thereof or value
     received in connection therewith, the aggregate amount (determined without
     duplication of amount) of Debt, Guaranties and letter of credit
     reimbursement obligations of El Paso's consolidated Subsidiaries owing to
     Persons other than El Paso and its consolidated Subsidiaries (other than
     any Project Financing) would exceed the greater of (i) $600,000,000 and
     (ii) 10% of Net Worth determined as at the date of incurrence or assumption
     thereof; provided, however, that the following Debt, Guaranties or
     reimbursement obligations shall be excluded from the
     application of, and calculation set forth in, this paragraph (c): (A) Debt,
     Guaranties or reimbursement obligations incurred by (x) Mojave or (y)
     EPNGC, (B) Debt, Guaranties or reimbursement obligations arising under (x)
     the EPTPC Facility or (y) the El Paso

<PAGE>
                                       30

     Existing 364-Day Facility, or the El Paso Existing 3-Year Facility, (C)
     Debt, Guaranties or reimbursement obligations incurred by El Paso Field
     Services Company up to an amount not to exceed at any time outstanding the
     tangible net worth of El Paso Field Services Company; provided that such
     Debt may be guaranteed by El Paso, (D) Excluded Acquisition Debt, (E)
     successive extensions, refinancings or replacements (at the same Subsidiary
     or at any other consolidated Subsidiary of El Paso) of Debt, Guaranties or
     reimbursement obligations (or commitments in respect thereof) referred to
     in clauses (A), (B) and (D) above and in an amount not in excess of the
     amounts so extended, refinanced or replaced (or the amount of commitments
     in respect thereof) and (F) Debt, Guarantees or reimbursement obligations
     incurred by Tennessee pursuant to one or more commercial paper programs
     allowing for the issuance by Tennessee of items of commercial paper having
     maturity dates not later than one year from the dates of their respective
     issuance; provided that such Debt, Guarantees or reimbursement obligations
     of Tennessee shall be in an aggregate principal amount not to exceed at any
     time the excess of (x) the sum of (1) the aggregate amount of "Commitments"
     as defined in the El Paso Existing 364-Day Facility and (2) the aggregate
     amount of "Commitments" as defined in the El Paso Existing 3-Year Facility,
     over (y) the sum of (1) the aggregate amount of "Advances", as defined in
     and outstanding pursuant to, the El Paso Existing 364-Day Facility, (2) the
     aggregate amount of "Advances", as defined in and outstanding pursuant to,
     the El Paso Existing 3-Year Facility, and (3) the aggregate principal
     amount of commercial paper outstanding from time to time that (I) is issued
     by El Paso and its Subsidiaries (other than Tennessee), and (II) relies
     upon credit availability under either the El Paso Existing 364-Day Facility
     or the El Paso Existing 3-Year Facility for commercial paper liquidity
     purposes.

         (d) Sale, Etc., of Assets. Sell, lease or otherwise transfer, or permit
     any Principal Subsidiary or Relevant El Paso Party to sell, lease or
     otherwise transfer, (in either case, whether in one transaction or in a
     series of transactions) assets constituting all or substantially all of the
     consolidated assets of El Paso and its Principal Subsidiaries taken as a
     whole; provided that the provisions of this clause (d) shall not apply to:

             (i) any sale of receivables and related rights pursuant to any
         Alternate Program;

             (ii) any Project Financing Subsidiary and the assets thereof;

             (iii) sales, leases or other transfers of assets or capital stock
         of any Subsidiary of El Paso other than any Principal Subsidiary;

             (iv) any sale of Margin Stock;

             (v) any sale of up to 20% of the equity of El Paso Field Services
         Company in an initial public offering of such Person's Equity
         Interests;

             (vi) any sale, lease or other transfer to El Paso or any Principal
         Subsidiary, or to any Business Entity that after giving effect to such
         transfer will become and be either (A) a Principal Subsidiary in which
         El Paso's direct or indirect equity interest will be at least as great
         as its direct or

<PAGE>

                                       31

         indirect equity interest in the transferor immediately prior thereto or
         (B) a directly or indirectly wholly-owned Principal Subsidiary;

             (vii) any transfer permitted by Section 5.3(e); and

             (viii) any transfer to El Paso or any of its Subsidiaries of any
         stock or assets other than FERC regulated assets (or stock or any other
         equity interest in an entity owning FERC regulated assets) used in the
         mainline gas transmission business; provided that no El Paso Event or
         El Paso Default, shall have occurred and be continuing before and after
         giving effect to such transfer.

         (e) Merger, Etc. Merge or consolidate with any Person, or permit any of
     its Principal Subsidiaries to merge or consolidate with any Person, except
     that (i) any Principal Subsidiary may merge or consolidate with (or
     liquidate into) any other Subsidiary (other than a Project Financing
     Subsidiary, unless the successor Business Entity is not treated as a
     Project Financing Subsidiary under this Agreement) or may merge or
     consolidate with (or liquidate into) El Paso; provided that (A) if such
     Principal Subsidiary merges or consolidates with (or liquidates into) El
     Paso, either (x) El Paso shall be the continuing or surviving Business
     Entity or (y) the continuing or surviving Business Entity is organized
     under the laws of the United States or a State thereof and unconditionally
     assumes by agreement all of the performance obligations and payment
     obligations of El Paso under this Agreement and the other Operative
     Documents to which El Paso is a party, and (B) if any such Principal
     Subsidiary merges or consolidates with (or liquidates into) any other
     Subsidiary of El Paso, one or more Business Entities that are Subsidiaries
     are the continuing or surviving Business Entity(ies) and, if either such
     Subsidiary is not directly or indirectly wholly owned by El Paso, such
     merger or consolidation is on an arm's-length basis, and (ii) El Paso or
     any Principal Subsidiary may merge or consolidate with any other Business
     Entity (that is, in addition to El Paso or any Subsidiary of El Paso);
     provided that (A) if El Paso merges or consolidates with any such other
     Business Entity, either (x) El Paso is the continuing or surviving Business
     Entity or (y) the continuing or surviving Business Entity is organized
     under the laws of the United States or a State thereof and unconditionally
     assumes by agreement all of the performance obligations and payment
     obligations of El Paso under this Agreement and the other Operative
     Documents to which El Paso is a party, (B) if any Principal Subsidiary
     merges or consolidates with any such other Business Entity, the surviving
     Business Entity is directly or indirectly a wholly owned Principal
     Subsidiary of El Paso, and (C) if either El Paso or any Principal
     Subsidiary merges or consolidates with any such other Business Entity,
     after giving effect to such merger or consolidation no El Paso Event or El
     Paso Default shall have occurred and be continuing.

         (f) Bankruptcy. (i) Consent to, vote for, or otherwise cause or permit
     (or permit any of its Affiliates, to consent to, or vote for, or otherwise
     cause or permit) Clydesdale, Noric, Palomino, Paso Fino, Noric LP,
     Lusitano, Lipizzan, any Sponsor Subsidiary, any Counterparty to an E&P
     Participation Agreement or any Production Payment Agreement or any other El
     Paso Party voluntarily to take any action of the type

<PAGE>
                                       32

     referred to in clause (a)(iii) or (b), or clause (c) insofar as such
     clause (c) refers to clause (a)(iii) or (b), of the definition of
     "VOLUNTARY BANKRUPTCY".

             (ii) Consent to, vote for, or otherwise cause (or permit any of its
         Affiliates, to consent to, or vote for, or otherwise cause) Mustang
         voluntarily to take any action of the type referred to in clause
         (a)(iii) or (b), or clause (c) insofar as such clause (c) refers to
         clause (a)(iii) or (b), of the definition of "VOLUNTARY BANKRUPTCY".

         (g) Principal Subsidiaries and Material Subsidiaries. Permit at any
     time any Sponsor Subsidiary, Noric, Palomino, Paso Fino, Noric LP,
     Lusitano, Lipizzan, any Intermediate Holder, any Underlying Business, or
     Clydesdale to be:

             (i) a Principal Subsidiary, a Restricted Subsidiary or a Material
         Subsidiary of El Paso; or

             (ii) directly owned by El Paso.

         (h) Consolidated Taxes. Notwithstanding the El Paso Natural Gas Company
     Income Tax Provision and Settlement Policy dated July 1, 1992 or any
     successor agreement or document (with respect to which El Paso, on its own
     behalf and on behalf of any affiliated party, hereby waives any right to
     payment as long as this Agreement is in effect), permit any Sponsor
     Subsidiary to pay any Consolidated Taxes (including, without limitation,
     any Consolidated Taxes attributable to such Sponsor Subsidiary) or to pay
     or reimburse El Paso, any Relevant El Paso Party or any other El Paso
     Affiliate for or in respect of any Consolidated Taxes (including, without
     limitation, any Consolidated Taxes attributable to such Sponsor
     Subsidiary).

         5.4. Reporting Requirements. (a) El Paso hereby covenants and agrees
that, until the Collection Date, it will furnish to the Mustang the following:

             (i) Quarterly Reports. As soon as publicly available and in any
         event within 60 days after the end of each of the first three fiscal
         quarters of each fiscal year of El Paso, a consolidated balance sheet
         of El Paso and its consolidated subsidiaries as of the end of such
         quarter, and consolidated statements of income and cash flows of El
         Paso and its consolidated subsidiaries each for the period commencing
         at the end of the previous fiscal year and ending with the end of such
         quarter, certified (subject to normal year-end adjustments) as being
         fairly stated in all material respects by the chief financial officer,
         controller or treasurer of El Paso and accompanied by a certificate of
         such officer stating (A) whether or not such officer has knowledge of
         the occurrence of any El Paso Event that is continuing or of any event
         not theretofore remedied that with notice or lapse of time or both
         would constitute an El Paso Event and, if so, stating in reasonable
         detail the facts with respect thereto, (B) all relevant facts in
         reasonable detail to evidence, and the computations as to, whether or
         not El Paso is in compliance with the requirements set forth in
         Sections 5.3(b) and (c), and (C) a listing of all Principal
         Subsidiaries and consolidated Subsidiaries of El Paso showing the
         extent of its direct and indirect holdings of their stocks.

<PAGE>

                                       33

             (ii) Annual Reports. As soon as publicly available and in any event
         within 120 days after the end of each fiscal year of El Paso, a copy of
         the annual report for such year for El Paso and its consolidated
         Subsidiaries containing financial statements for such year reported on
         by PricewaterhouseCoopers LLP or other nationally recognized
         independent public accountants accompanied by (A) a report signed by
         said accountants stating that such financial statements have been
         prepared in accordance with generally accepted accounting principles
         and (B) a letter from such accountants stating that in making the
         investigations necessary for such report they obtained no knowledge,
         except as specifically stated therein, of any event of default (however
         described) under the El Paso Existing 3-Year Facility or the El Paso
         Existing 364-Day Facility that is continuing or of any event not
         theretofore remedied that with notice or lapse of time or both would
         constitute such an event of default.

             (iii) Compliance Certificate. Within 120 days after the close of
         each of El Paso's fiscal years, a certificate of the chief financial
         officer, controller or treasurer of El Paso stating (A) whether or not
         such chief financial officer, controller or treasurer has knowledge of
         the occurrence of any El Paso Event that is continuing or of any event
         not theretofore remedied that with notice or lapse of time or both
         would constitute such an El Paso Event and, if so, stating in
         reasonable detail the facts with respect thereto, (B) all relevant
         facts in reasonable detail to evidence, and the computations as to,
         whether or not El Paso is in compliance with the requirements set forth
         in Sections 5.3(b) and (c) and (C) a listing of all Principal
         Subsidiaries and consolidated Subsidiaries of El Paso showing the
         extent of its direct and indirect holdings of their stocks.

             (iv) Public Reports. Promptly after the sending or filing thereof,
         copies of all publicly available reports that El Paso or any Principal
         Subsidiary sends to any of its security holders and copies of all
         publicly available reports and registration statements that El Paso or
         any Principal Subsidiary files with the Securities and Exchange
         Commission or any national securities exchange other than registration
         statements relating to employee benefit plans and to registrations of
         securities for selling security holders.

             (v) Litigation. Promptly in writing, notice of all litigation and
         of all proceedings before any governmental or regulatory agencies
         against or involving El Paso or any Principal Subsidiary except any
         litigation or proceeding that in the reasonable judgment of El Paso
         (taking into account the exhaustion of all appeals) is not likely to
         have a material adverse effect on the consolidated financial condition
         of El Paso and its consolidated Subsidiaries taken as a whole.

             (vi) Notice Event, Liquidating Event, Termination Event, Event of
         Default and Incipient Event. Promptly, but in any event no later than
         three Business Days, after an officer of El Paso or a Responsible
         Officer of the sole member or managing member, as applicable, of any
         Sponsor Subsidiary, has actual knowledge of such occurrence or such
         event becomes generally publicly known, a notice of the occurrence of
         any Notice Event, Liquidating Event, Termination Event, Event of
         Default or Incipient Event, and a notice setting forth details of the
         actions that El Paso and its Subsidiaries have taken or propose to take
         with respect thereto within ten Business Days after such officer or
         Responsible

<PAGE>
                                       34

         Officer obtains actual knowledge of such event or after such event
         becomes generally publicly known.

             (vii) ERISA Termination Event. As soon as practicable and in any
         event (A) within 30 days after El Paso or any ERISA Affiliate knows or
         has reason to know that any ERISA Termination Event described in clause
         (a) of the definition of ERISA Termination Event with respect to any
         Plan has occurred and (B) within 10 days after El Paso or any ERISA
         Affiliate knows or has reason to know that any other ERISA Termination
         Event with respect to any Plan has occurred, a statement of the chief
         financial officer or treasurer of El Paso describing such ERISA
         Termination Event and the action, if any, which El Paso or such ERISA
         Affiliate proposes to take with respect thereto.

             (viii) Pension Benefit Guaranty Corporation Notices. Promptly and
         in any event within two Business Days after receipt thereof by El Paso
         or any ERISA Affiliate, copies of each notice received by El Paso or
         any ERISA Affiliate from the Pension Benefit Guaranty Corporation (or
         any successor) stating its intention to terminate any Plan or to have a
         trustee appointed to administer any Plan.

             (ix) Actuarial Information. Promptly and in any event within 30
         days after the filing thereof with the Internal Revenue Service, copies
         of each Schedule B (Actuarial Information) to the annual report (Form
         5500 Series) with respect to each Single Employer Plan.

             (x) Multiemployer Plan. Promptly and in any event within five
         Business Days after receipt thereof by El Paso or any ERISA Affiliate
         from the sponsor of a Multiemployer Plan, a copy of each notice
         received by El Paso or any ERISA Affiliate concerning (A) the
         imposition of Withdrawal Liability by a Multiemployer Plan, (B) the
         determination that a Multiemployer Plan is, or is expected to be, in
         reorganization or insolvent within the meaning of Title IV of ERISA,
         (C) the termination of a Multiemployer Plan within the meaning of Title
         IV of ERISA, or (D) the amount of liability incurred, or expected to be
         incurred, by El Paso or any ERISA Affiliate in connection with any
         event described in clause (A), (B) or (C) above.

             (xi) Other Information. as soon as practicable but in any event
         within 60 days of any notice of request therefor, such other
         information respecting the financial condition and results of
         operations of El Paso or any Subsidiary of El Paso as any Indemnified
         Person may from time to time reasonably request.

         (b) Until the Debt Collection Date, El Paso will, on behalf of all
Sponsor Subsidiaries, unless otherwise consented to in writing by the Equity
Investor, the Administrative Agent, the Surety and the Majority Instructing
Group, furnish to Mustang and, in the case of subsections (iii), (vii), (viii),
(ix) and (x) below, to the Sponsor Subsidiary Collateral Agent and, in the case
of subsection (vi)(C) below, to the Designated Representative:

<PAGE>
                                       35

         (i) Annual Reports. Within 120 days after the end of each Sponsor
     Subsidiary's Fiscal Years beginning with the Fiscal Year ending December
     31, 2001, the following:

             (A) a Compliance Certificate;

             (B) for such Fiscal Year and with respect to all of the Sponsor
         Subsidiaries and their respective consolidated Subsidiaries on a
         consolidated basis, combined audited consolidated (and, if more than
         one Intermediate Holder and/or Underlying Business is directly or
         indirectly owned by any Sponsor Subsidiary or Sponsor Subsidiaries,
         consolidating) balance sheets as of the last day of such Fiscal Year
         and the preceding Fiscal Year (if any) and combined audited
         consolidated (and, if more than one Intermediate Holder and/or
         Underlying Business is directly or indirectly owned by any Sponsor
         Subsidiary or Sponsor Subsidiaries, consolidating) income statements
         and statements of cash flows for such periods and the notes associated
         with each, for all Sponsor Subsidiaries and their respective
         consolidated Subsidiaries; and

             (C) an Operating Report in the form of Schedule 5.4(b) hereto.

         (ii) Quarterly Reports. Beginning with the Fiscal Quarter ending March
     31, 2001, within 60 days after the end of each Fiscal Quarter in respect of
     the first three Fiscal Quarters of each Fiscal Year, copies of each of the
     following:

             (A) a Compliance Certificate;

             (B) for such Fiscal Quarter and with respect to all of the Sponsor
         Subsidiaries and their respective consolidated Subsidiaries on a
         consolidated basis, combined unaudited consolidated (and, if more than
         one Intermediate Holder and/or Underlying Business is directly or
         indirectly owned by any Sponsor Subsidiary or Sponsor Subsidiaries,
         consolidating) balance sheets as of the last day of such Fiscal Quarter
         and for the comparable quarter of the prior year (if any) and combined
         unaudited consolidated (and, if more than one Intermediate Holder
         and/or Underlying Business is directly or indirectly owned by any
         Sponsor Subsidiary or Sponsor Subsidiaries, consolidating) income
         statements and statements of cash flows for such Fiscal Quarter and, in
         respect of the first three Fiscal Quarters of each Fiscal Year, for the
         Fiscal Year to date, if any, ending on the last day of such Fiscal
         Quarter and for the comparable periods of the prior Fiscal Year (if
         any) for such Sponsor Subsidiary or Sponsor Subsidiaries and their
         respective consolidated Subsidiaries;

             (C) a certification by a Responsible Officer of El Paso that the
         statements and balance sheets described in Section 5.4(b)(ii)(B) are
         fairly stated in all material respects (subject to normal year-end
         adjustments); and

             (D) an Operating Report in the form of Schedule 5.4(b) hereto.

<PAGE>

                                       36

             (iii) Litigation. Promptly in writing, notice of all litigation and
     of all proceedings of the kind contemplated by Section 4.01(g) and Section
     4.02(g) of the Sponsor Subsidiary Credit Agreement.

             (iv) Dispositions and Distributions. To the extent reasonably
     practicable to do so, 5 Business Days (or such lesser period as may be
     practicable) prior notice of any proposed Disposition, Distribution or
     voluntary prepayment of any A-Loan that would give rise to a prepayment
     under Section 2.05(b)(i), (ii), (iii), (iv), (v), (vii) or (viii) of the
     Sponsor Subsidiary Credit Agreement, and, to the extent it is not
     reasonably practicable to give such prior notice, El Paso shall give notice
     of any such Disposition, Distribution or prepayment immediately after such
     Disposition, Distribution or prepayment.

             (v) FERC Forms. Within 10 days after sending or filing thereof, a
     copy of FERC Form No. 2: Annual Report of Major Natural Gas Companies, sent
     or filed by any Sponsor Subsidiary, any Intermediate Holder or any
     Underlying Business relating to any Energy Investment held by any Sponsor
     Subsidiary to or with FERC with respect to each Fiscal Year.

             (vi) Reserve Reports. (A) On or before March 1 of each calendar
     year commencing March 1, 2001 and each other date required in connection
     with an E&P Borrowing Base Redetermination under Section 2.09(d) and
     Section 2.09(e) of the Sponsor Subsidiary Credit Agreement, a Reserve
     Report. Each Reserve Report delivered in connection with an E&P Borrowing
     Base Determination under Section 2.09(b) of the Sponsor Subsidiary Credit
     Agreement shall be calculated and dated as of the immediately preceding
     December 31 and each Reserve Report delivered in connection with an E&P
     Borrowing Base Redetermination under Section 2.09(d) or Section 2.09(e) of
     the Sponsor Subsidiary Credit Agreement shall be dated as of the date of
     the applicable Redetermination Notice.

             (B) With the delivery of each Reserve Report, a certificate from a
     Responsible Officer of El Paso confirming that the representations and
     warranties set forth in Section 4.03(a) of the Sponsor Subsidiary Credit
     Agreement are correct in all material respects. Such certificate shall
     attach details of each acquisition and Disposition described in Section
     2.09(e) of the Sponsor Subsidiary Credit Agreement made since delivery of
     the last Reserve Report.

             (C) With the delivery of each Reserve Report, a certificate from a
     Responsible Officer of El Paso setting forth whether the total Proved
     Reserves from Subject Interests and E&P Participation Properties reflected
     in such Reserve Report has increased or decreased by more than 10% with
     respect to the Proved Reserves reflected in the Reserve Report delivered in
     connection with the determination of the E&P Borrowing Base on the date
     hereof or, after the Designated Representative has approved or consented to
     an E&P Borrowing Base following the delivery of a certificate in the
     affirmative pursuant to this clause (C), the Reserve Report relating to the
     E&P Borrowing Base most recently approved or consented to by the Designated
     Representative immediately following the delivery of a certificate in the
     affirmative pursuant to this clause (C).

<PAGE>
                                       37

             (vii) Notice of Redetermination Threshold. Notice of the attainment
     of the Redetermination Threshold promptly after any acquisition or
     Disposition referred to in Section 2.09(e) of the Sponsor Subsidiary Credit
     Agreement which causes such Redetermination Threshold to be attained.

             (viii) Notices Under the E&P Participation Agreements and
     Production Payment Agreements Receivables. Upon request by Mustang, a copy
     of any notice, demand or other document furnished to any Sponsor
     Subsidiary, Lipizzan, Noric or Noric LP under any E&P Participation
     Agreement or any Production Payment Agreement to which any Sponsor
     Subsidiary, Lipizzan, Noric or Noric LP is a party.

             (ix) A-Loans. Upon request by Mustang at any time, notice of
     aggregate relative amount of the A-Loans at such time. Such notice may
     comprise a copy of the grids attached to the A-Loan Notes.

             (x) E&P Participation Properties. Upon request by Mustang, a copy
     of each Exhibit A to each E&P Participation Agreement to which Noric, Noric
     LP or a Sponsor Subsidiary is a party.

             (xi) [Intentionally Omitted]

             (xii) Production Payments. Upon request by Mustang, a copy of each
     Exhibit A to each Production Payment Agreement and Schedule 1 to each
     Production Payment Conveyance.

             (xiii) Other Information. As promptly as is reasonably practicable,
     such other information relating to the business, financial condition,
     operations, performance or properties of any Sponsor Subsidiary, each
     Transaction Asset, each Intermediate Holder and each Underlying Business in
     the possession or control of any Sponsor Subsidiary, as reasonably
     requested in writing by Mustang (such written request to identify this
     Section 5.4(b)(xiii)).

             (c) El Paso shall furnish to Mustang, on behalf of Clydesdale, the
     following:

             (i) Annual Reports. Within 120 days after the end of each Fiscal
     Year beginning with the Fiscal Year ended December 31, 2000, the following:

                 (A) a Compliance Certificate;

                 (B) for each Fiscal Year, audited balance sheets as of the last
             day of such Fiscal Year and the preceding Fiscal Year (if any) and
             audited income statements and statements of cash flows for such
             periods and the notes associated with each, for Clydesdale; and

                 (C) a statement of such Clydesdale Partner's Capital Account
             balances at the end of the Fiscal Year and a statement of the
             changes therein since the end of the prior Fiscal Year (if any).

<PAGE>
                                       38

             (ii) Quarterly Reports. Within 60 days after the close of each
         Fiscal Quarter (other than the final Fiscal Quarter of any Fiscal Year)
         the following:

                 (A) unaudited statements of cash flows of Clydesdale for such
             Fiscal Quarter;

                 (B) balance sheets of Clydesdale as of the end of such Fiscal
             Quarter and for the comparable quarter of the prior Fiscal Year (if
             any);

                 (C) income statements of Clydesdale for such Fiscal Quarter,
             for the year to date ending such Fiscal Quarter and for the
             comparable periods of the prior Fiscal Year (if any);

                 (D) a Compliance Certificate; and

                 (E) a certification by a Responsible Officer of El Paso that
             the statements described in Sections 5.4(c)(ii)(A) and (C) and
             (iii) and the balance sheets referred to in Section 5.4(c)(ii)(B)
             are fairly stated in all material respects.

Each balance sheet and other financial statement furnished pursuant to Section
5.4(a)(i) or (ii) shall contain comparative financial information that conforms
to the presentation required in Forms 10-Q and 10-K, as appropriate, under the
Securities Exchange Act of 1934, as amended. The accounts, financial statements,
financial reports, and other financial information to be provided pursuant to
Section 5.4(b) or (c) shall be prepared in accordance with GAAP; provided that
there shall be no requirement to provide footnotes to unaudited financial
statements.

         5.5. Restrictions on Material Subsidiaries. El Paso will not, and will
not permit any Material Subsidiary to, enter into any agreement or understanding
(a) pursuant to which any non-equity interest claim El Paso may have against any
Material Subsidiary would be subordinate in any manner to the payment of any
other obligation of such Material Subsidiary (other than waivers or
subordination of subrogation, contribution or similar rights under Guaranties
and similar agreements) or (b) that by its terms limits or restricts the ability
of such Material Subsidiary to make funds available to El Paso (whether by
dividend or other distribution, by replacement of any inter-company advance or
otherwise) if, in any such case referred to in this Section 5.5, there is, at
the time any such agreement is entered into, a reasonable likelihood that all
such agreements and understandings, considered together, would materially and
adversely affect the ability of El Paso to meet its obligations as they become
due.

                                   SECTION 6

                                  MISCELLANEOUS

         6.1. Amendments. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by El Paso herefrom, shall in any
event be effective unless the same shall be in writing and signed by Mustang and
El Paso. No such waiver of a provision or consent to a departure in any one
instance shall be construed as a further or continuing waiver of or consent to
subsequent occurrences, or a waiver of any other provision or

<PAGE>
                                       39

consent to any other departure. Any such amendment, waiver or consent signed by
Mustang shall be binding on all Indemnified Persons.

         6.2. Addresses for Notices. Any notice, payment, demand, or
communication required or permitted to be given by any provision of this
Agreement shall be in writing or by facsimile and shall be deemed to have been
delivered, given, and received for all purposes (a) if delivered personally to
the Person or to an officer of the Person to whom the same is directed, or (b)
when the same is actually received (if during the recipient s normal business
hours if during a Business Day, or, if not, on the next succeeding Business
Day), if sent by facsimile (followed by a hard copy of the facsimiled
communication sent by certified mail, postage and charges prepaid), or by
courier or delivery service or by mail, addressed as follows, or to such other
address as such Person may from time to time specify by notice, if to El Paso,
at its address at c/o El Paso Corporation, 1001 Louisiana Street, Houston, TX
77002, Attention: Chief Financial Officer, Facsimile No.: 713 420 4975, if to
Mustang, at its address specified in Section 2.2 of the Clydesdale Partnership
Agreement, and if to any other Indemnified Person, at its address specified by
notice given in the manner provided herein to each other Person entitled to
receive notice hereunder, or, in each case, to such other address (and with
copies to such other Persons) as the Person entitled to receive notice hereunder
shall specify by notice given in the manner provided herein to the other Persons
entitled to receive notice hereunder.

         6.3. No Waiver; Cumulative Remedies. No failure on the part of any
Indemnified Person to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by Applicable Law.

         6.4. Waiver of Jury Trial. EL PASO AND, BY ACCEPTING THE BENEFITS
HEREOF, EACH INDEMNIFIED PERSON, EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREBY.

         6.5. Jurisdiction, Etc. (a) El Paso hereby irrevocably submits to the
jurisdiction of any New York State or Federal court sitting in New York City and
any appellate court from any thereof in any action or proceeding by any
Indemnified Person in respect of, but only in respect of, any claims or causes
of action arising out of or relating to this Agreement (such claims and causes
of action, collectively, being "PERMITTED CLAIMS"), and El Paso hereby
irrevocably agrees that all Permitted Claims may be heard and determined in such
New York State court or in such Federal court. El Paso hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any
aforementioned court in respect of Permitted Claims. El Paso hereby irrevocably
appoints CT Corporation System (the "PROCESS AGENT"), with an office on the date
hereof at 111 8th Avenue, New York, New York 10011, as its agent to receive on
behalf of El Paso and its property service of copies of the summons and
complaint and any other process which may be served by any Indemnified Person in
any such action or proceeding in any aforementioned court in respect of
Permitted Claims. Such service may be made by delivering a

<PAGE>
                                       40

copy of such process to El Paso by courier and by certified mail (return receipt
requested), fees and postage prepaid, both (i) in care of the Process Agent at
the Process Agent's above address and (ii) at El Paso's address specified
pursuant to Section 6.2, and El Paso hereby irrevocably authorizes and directs
the Process Agent to accept such service on its behalf. El Paso agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by Applicable Law.

         (a) Nothing in this Section 6.5 shall affect the right of any
Indemnified Person to serve legal process in any other manner permitted by
Applicable Law or affect any right otherwise existing of any Indemnified Person
to bring any action or proceeding against El Paso or its property in the courts
of other jurisdictions or (ii) shall be deemed to be a general consent to
jurisdiction in any particular court or a general waiver of any defense or a
consent to jurisdiction of the courts expressly referred to in subsection (a)
above in any action or proceeding in respect of any claim or cause of action
other than Permitted Claims.

         6.6. Assignment. All covenants and other agreements and obligations in
this Agreement shall (a) be binding upon El Paso and its successors, but El Paso
may not assign its obligations hereunder without the consent of Mustang, except
pursuant to a merger or consolidation not prohibited by Section 5.3(e), and (b)
inure to the exclusive benefit of, and be enforceable by, Mustang and any
Indemnified Person.

         6.7. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York.

         6.8. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. This agreement may be
delivered by facsimile transmission of the relevant signature pages hereof.

         6.9. Survival of Representations, Warranties and Indemnities; Entire
Agreement. All representations, warranties and indemnities and undertakings to
pay costs and expenses contained herein or made by or on behalf of El Paso, as
the case may be, in connection herewith or in connection with the Operative
Documents shall survive (a) the execution and delivery of this Agreement, (b)
the completion of the performance by (i) any Sponsor Subsidiary of the Sponsor
Subsidiary Obligations, (ii) any Sponsor Subsidiary Member of the Sponsor
Subsidiary Member Obligations, (iii) Appaloosa of the Appaloosa Obligations,
(iv) any Counterparty to an E&P Participation Agreement or a Production Payment
Agreement of the E&P Asset Counterparty Obligations, (v) any El Paso Party of
the Hydrocarbon Sales Contract Obligations, (vi) each other El Paso Party of its
Obligations under the Operative Documents to which it is a party, (vii) Noric of
the Noric Obligations, (viii) Palomino of the Palomino Obligations, (ix) Paso
Fino of the Paso Fino Obligations, (x) Noric LP of the Noric LP Obligations,
(xi) Lusitano of the Lusitano Obligations or (xii) Lipizzan of the Lipizzan
Obligations, and (c) the Transfer (whether or not such Transfer was a permitted
Transfer) by (A) Noric Holdings of all or a portion of its Clydesdale Class A
Limited Partnership Interest or any termination of its status as a Clydesdale
Class A Limited Partner, (B) Appaloosa of all or a portion of its Clydesdale
General Partnership Interest or any termination of its status as a

<PAGE>
                                       41

Clydesdale General Partner, (C) Noric Holdings I of all or a portion of its
Clydesdale Class A Limited Partnership Interest or any termination of its status
as a Clydesdale Class A Limited Partner (D) Noric Holdings I of all or a portion
of its Noric Class A Membership Interest or any termination of its status as the
Noric Class A Member, (E) Clydesdale of all or a portion of its Noric Class B
Membership Interest or any termination of its status as the Noric Class B
Member, (F) any Sponsor Subsidiary Member of all or a portion of its interest in
any Sponsor Subsidiary or any termination of its status as a Sponsor Subsidiary
Member, (G) Noric of all or a portion of its Palomino Membership Interest or
Paso Fino Membership Interest or any termination of its status as the Palomino
Member or Paso Fino Member, (H) Palomino of all or a portion of its Noric LP
General Partnership Interest or any termination of its status as the Noric LP
General Partner, (I) Paso Fino of all or a portion of its Noric LP Limited
Partnership Interest or any termination of its status as the Noric LP Limited
Partner, (J) Noric Holdings IV of all or a portion of its Lusitano Membership
Interest or Lipizzan Limited Partner Interest or any termination of its status
as the Lusitano Member or Lipizzan Limited Partner or (K) Lusitano of all or a
portion of its Lipizzan General Partnership Interest or any termination of its
status as the Lipizzan General Partner, and may be relied upon by any
Indemnified Person, regardless of any investigation made at any time by or on
behalf of any Indemnified Person or any such assignee.

         6.10. Severability. Every provision of this Agreement that is
prohibited by or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

         6.11. No Third-Party Beneficiaries. This Agreement is intended for the
exclusive benefit of the Indemnified Persons and no other Person shall have any
rights hereunder, whether as a third-party beneficiary or otherwise.

         6.12. Obligations Absolute. (a) To the fullest extent permitted under
Applicable Law, El Paso covenants and agrees that its obligations hereunder will
be performed strictly in accordance with the terms of this Agreement, regardless
of any Applicable Law now or hereafter in effect in any jurisdiction affecting
the ability of any El Paso Party to perform its obligations under any Operative
Document or the rights of any Indemnified Person with respect thereto.

         (b) To the fullest extent permitted under Applicable Law, any action or
actions may be brought hereunder by any Indemnified Person without the necessity
of joining any prior or other Indemnified Person in such action or actions. To
the fullest extent permitted under Applicable Law, the liability of El Paso
under this Agreement shall be irrevocable, absolute and unconditional
irrespective of, and El Paso hereby irrevocably waives any defenses it may now
or hereafter have in any way relating to, any or all of the following:

         (i) Any change in the time, manner or place of performance, or in any
     other term, of all or any of the Obligations of El Paso or any El Paso
     Party under any other Operative Document, or any other amendment,
     supplement or waiver of or any consent to departure from any of the
     Operative Documents, including any increase in or

<PAGE>
                                       42

     modification of the Obligations of El Paso or any El Paso Party thereunder,
     or the dissolution of any of the El Paso Parties;

         (ii) Any change, restructuring or termination of the corporate, limited
     liability company, or partnership structure, as the case may be, or in the
     existence or ownership of any of the El Paso Parties;

         (iii) Any act or omission of any Indemnified Person or any prior or
     subsequent Indemnified Person hereunder (other than any written amendment
     or waiver of, or consent to departure from, this Agreement meeting the
     requirements of Section 6.1 and except to the extent contemplated by
     Section 3.4);

         (iv) Any failure of any Indemnified Person to disclose to El Paso any
     information relating to the financial condition, operations, properties or
     prospects of Clydesdale, Noric, Palomino, Paso Fino, Noric LP, Lusitano,
     Lipizzan, Appaloosa, any Mustang El Paso Member, any Sponsor Subsidiary or
     any Sponsor Subsidiary Member now or in the future known to any Indemnified
     Person (El Paso waiving any duty on the part of each Indemnified Person to
     disclose such information);

         (v) Any lack of validity or unenforceability of any of the Sponsor
     Subsidiary Obligations, the Sponsor Subsidiary Member Obligations, the
     Appaloosa Obligations, the E&P Asset Counterparty Obligations, the
     Hydrocarbon Sales Contract Obligations, the Noric Obligations, the Palomino
     Obligations, the Paso Fino Obligations, the Noric LP Obligations, the
     Lusitano Obligations or the Lipizzan Obligations;

         (vi) Any Sponsor Subsidiary Obligation, Sponsor Subsidiary Member
     Obligation, Appaloosa Obligation, E&P Asset Counterparty Obligation, Noric
     Obligation, Palomino Obligation, Paso Fino Obligation, Noric LP Obligation,
     Lusitano Obligation or Lipizzan Obligation being unenforceable or not
     allowable due to the existence of a Bankruptcy involving any Sponsor
     Subsidiary, any Sponsor Subsidiary Member, Appaloosa, any Counterparty to
     an E&P Participation Agreement or any Production Payment Agreement, Noric,
     Palomino, Paso Fino, Noric LP, Lusitano or Lipizzan; or

         (vii) Any other circumstance (including any statute of limitations or
     any existence of or reliance on any representation by any Indemnified
     Person) that might otherwise constitute a defense available to, or a
     discharge of, any of the El Paso Parties or El Paso or a guarantor or
     indemnitor generally other than payment and performance when due.

         (c) El Paso's obligations under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment by El
Paso or any El Paso Party in satisfaction of any of the obligations of El Paso
or any El Paso Party under the Operative Documents is rescinded or must
otherwise be returned upon the insolvency, bankruptcy or reorganization of El
Paso or any El Paso Party, or any Subsidiary of such Person, or otherwise, all
as though such payment had not been made.

<PAGE>
                                       43

         6.13. Waiver. Subject to the provisions of Section 3, El Paso hereby
waives (to the extent it may do so under Applicable Law) promptness, diligence,
and any notice from any Indemnified Person with respect to any of El Paso's
obligations under this Agreement and any requirement that any Indemnified Person
exhaust any right or take any action against any of the El Paso Parties or any
other Person.

         6.14. Subrogation. Until indefeasible payment in full of (a) El Paso's
obligations hereunder, (b) the Sponsor Subsidiary Obligations, and (c) any other
obligations of any other El Paso Party under the Operative Documents, El Paso
hereby waives any rights that it may acquire by way of subrogation hereunder, by
any payment made hereunder or otherwise. If any amount shall be paid to El Paso
on account of such subrogation rights at any time prior to such obligations
having been paid in full, such amount shall be held in trust for the benefit of
the relevant Indemnified Person and shall forthwith be paid to such Indemnified
Person to be credited and applied to any such obligations, whether matured or
unmatured, in accordance with the terms hereof.

                  [Remainder of page intentionally left blank]

<PAGE>
                                       44

                  IN WITNESS WHEREOF, El Paso has caused this Agreement to be
duly executed and delivered by its officer or other duly authorized signatory
thereunto duly authorized as of the date first above written.

                                       EL PASO CORPORATION

                                       By: /s/ John J. Hopper
                                           -------------------------------------
                                           Name:  John J. Hopper
                                           Title: Vice President and Treasurer

<PAGE>

ACKNOWLEDGED:

MUSTANG INVESTORS, L.L.C.,

By:      Dongola, Inc., as its Managing Member

By /s/ James A. Hanley
   -------------------------
     Name:  James A. Hanley
     Title: Vice President

<PAGE>

                                  EXHIBIT A TO
                                EL PASO AGREEMENT

                                   DEFINITIONS

         "ADMINISTRATIVE AGENT" has the meaning set forth in the Mustang Credit
Agreement.

         "APA PURCHASERS" has the same meaning as "Purchaser" in the Mustang
Credit Agreement.

         "APA PURCHASERS OFFERING MATERIALS" means any information memorandum
prepared for the prospective APA Purchasers in connection with the syndication
of the commitments under the Mustang Credit Agreement, together with any
amendments, supplements or exhibits thereto and any other materials or documents
prepared for the prospective APA Purchasers in connection with the syndication
of the commitments under the Mustang Credit Agreement, in each case in form and
substance approved in writing by El Paso.

         "APPALOOSA OBLIGATIONS" has the meaning set forth in Section 3.1(c) of
the El Paso Agreement.

         "COLLATERAL AGENT" has the meaning set forth in the Mustang Credit
Agreement.

         "CXC" shall mean CXC, LLC a Delaware limited liability company.

         "DISCLOSURE QUALIFICATION" shall mean that (i) no representation,
warranty or covenant is made with respect to any information concerning the
Surety, CNAI, any APA Purchaser, the Administrator, the Clydesdale Custodian,
the Noric Custodian, the Sponsor Subsidiary Collateral Agent or Mustang, any
other lender, collateral agent, credit enhancer or surety provider to or for, or
any direct or indirect members of, Mustang (other than any member that is an
Affiliate of El Paso), or any Affiliates or agents or other representatives of
any of the foregoing, (ii) no representation, warranty or covenant is made with
respect to any Financial Projections, Securitization Information or Third Party
Information, (iii) no representation, warranty or covenant is made with respect
to the terms or effects of or any Person's rights or obligations under any
agreement or document other than the Operative Documents to which El Paso or an
Affiliate of El Paso is a party and any documents with respect to any
Transaction Assets, and (iv) any representation, warranty or covenant that is
stated to be subject to the Disclosure Qualification in any Offering Materials
is subject to the foregoing clauses (i) to (iii) and to the additional
qualifications, assumptions and disclaimers set forth in such Offering
Materials.

         "E&P ASSET COUNTERPARTY OBLIGATIONS" has the meaning set forth in
Section 3.1(d) of the El Paso Agreement.

         "EQUITY INVESTOR" means each "Equity Participant" under and as defined
in the Mustang Company Agreement.

<PAGE>

                                       2

         "EQUITY INVESTORS OFFERING MATERIALS" means the information memorandum
(if any) prepared for the prospective equity investors whether such information
memorandum is prepared solely for such equity investor or for the APA Purchaser
or both, together with any amendments, supplements, or exhibits thereto and any
other materials or documents prepared for the prospective equity investors, in
connection with the sale of the Mustang Member Interests under the Mustang
Company Agreement, in each case in form and substance as approved in writing by
El Paso.

         "ESCROW AGENT" shall mean Citicorp North America, Inc. or any successor
escrow agent appointed pursuant to the terms of the Escrow Agreement and acting
as such pursuant to the Escrow Agreement.

         "ESCROW AGREEMENT" means the Escrow Agreement, dated as of May 9, 2000,
among El Paso, Clydesdale, Mustang, Citicorp North America, Inc. and the Escrow
Agent.

         "ESCROWED DOCUMENT" has the meaning set forth in the Escrow Agreement.

         "FINANCIAL PROJECTIONS" shall mean (a) any forward looking statement
(as defined in Rule 175 under the Securities Act), (b) any prospective financial
statement, financial forecast or financial projection (as defined in guidelines
published by the American Institute of Certified Public Accountants) and (c) any
information under the heading "Financial Forecasts and Assumptions" (or any
summary thereof), in each case included in (including as an exhibit to) any
Offering Materials.

         "HYDROCARBON SALES CONTRACT OBLIGATIONS" has the meaning set forth in
Section 3.1(e) of the El Paso Agreement.

         "INDEMNIFIED PERSON" means Mustang, the Administrative Agent, the
Mustang Collateral Agent, each Lender, each APA Purchaser, each agent for the
APA Purchasers, the Surety, Lord Securities, the Residual Credit Enhancer, the
Sponsor Subsidiary Collateral Agent, the Administrator, the Clydesdale
Custodian, the Noric Custodian, any Appraiser, each Equity Investor and any
successor and permitted assignee of any such Person (whether pursuant to an
assignment for security or otherwise, but excluding any assignee for security of
any Equity Investor) and the direct and indirect members, partners, shareholders
and other equity or residual interest holders of any of the foregoing, and each
of the respective directors, officers, trustees, managers, employees,
administrators and agents of any of the foregoing.

         "INDEMNIFIED PROCEEDING" has the meaning set forth in Section 3.5 of
the El Paso Agreement.

         "LENDER" has the meaning set forth in the Mustang Credit Agreement.

         "LIPIZZAN OBLIGATIONS" has the meaning set forth in Section 3.1(k) of
the El Paso Agreement.

         "LUSITANO OBLIGATIONS" has the meaning set forth in Section 3.1(j) of
the El Paso Agreement.

<PAGE>
                                       3

         "MUSTANG COLLATERAL AGENT" means the "Collateral Agent" as such term is
defined in the Mustang Credit Agreement.

         "MUSTANG COMPANY AGREEMENT" means the Amended and Restated Company
Agreement of Mustang Investors, L.L.C., originally dated as of April 28, 2000,
and amended and restated as of May 9, 2000, December 15, 2000 and July 19, 2002,
among Mustang Holdings, L.L.C., each Equity Investor, Dongola, Inc., Lord
Securities and the Mustang El Paso Member.

         "MUSTANG CREDIT AGREEMENT" means the Amended and Restated Credit and
Security Agreement, originally dated as of May 9, 2000 and amended and restated
as of December 15, 2000, June 29, 2001, November 7, 2001 and July 19, 2002,
among Mustang, CXC as the initial SC Lender and Citicorp North America, Inc., as
administrative agent, as RCE Agent (as therein defined), as Escrow Agent (as
therein defined) and as collateral agent.

         "MUSTANG EL PASO MEMBER" means Shetland.

         "MUSTANG LOAN DOCUMENTS" has the same meaning as "Loan Documents" in
the Mustang Credit Agreement.

         "MUSTANG MEMBER INTEREST" has the meaning set forth for the term
"Member Interest" in the Mustang Company Agreement.

         "PALOMINO OBLIGATIONS" has the meaning set forth in Section 3.1(g) of
the El Paso Agreement.

         "PASO FINO OBLIGATIONS" has the meaning set forth in Section 3.1(h) of
the El Paso Agreement.

         "NORIC LP OBLIGATIONS" has the meaning set forth in Section 3.1(i) of
the El Paso Agreement.

         "OFFERING MATERIALS" means each of the Equity Investors Offering
Materials and the APA Purchasers Offering Materials.

         "OPERATIVE DOCUMENTS" means all of the "Operative Documents" as defined
in Exhibit A to the Clydesdale Partnership Agreement and the Tax Indemnity
Agreement.

         "PURCHASE AMOUNT" has the meaning set forth in the Purchase Option
Agreement.

         "PURCHASE CLOSING DATE" has the meaning set forth in the Purchase
Option Agreement.

         "PURCHASE DEFAULT" has the meaning set forth in the Purchase Option
Agreement.

         "PURCHASE EXERCISE DATE" has the meaning set forth in the Purchase
Option Agreement.

<PAGE>
                                       4

         "PURCHASE EXERCISE NOTICE" has the meaning set forth in the Purchase
Option Agreement.

         "PURCHASE OPTION PERIOD" has the meaning set forth in the Purchase
Option Agreement.

         "RELEVANT EL PASO PARTY" has the meaning set forth in Section 2.1 of
the El Paso Agreement.

         "RESIDUAL CREDIT ENHANCER" means Royal Bank of Canada or any other
provider of "Residual Credit Enhancement" (as defined in the Mustang Credit
Agreement).

         "SC LENDER" has the meaning set forth in the Mustang Credit Agreement.

         "SECURITIZATION INFORMATION" shall mean any information included in any
Offering Materials concerning (a) the Asset Purchase Agreement, (b) the
Insurance Agreement, (c) the Residual Credit Enhancement Agreement, (d) the
Administration Agreement, (e) the Mustang Credit Agreement, (f) the Investor
Note (as defined in the Mustang Credit Agreement), (g) the Surety Bond (as
defined in the Mustang Credit Agreement), (h) any other contract, agreement or
instrument entered into in connection with the Transactions by any other lender,
credit enhancer or surety provider to or for, or any direct or indirect members
of, Mustang (other than any Mustang Member that is an Affiliate of El Paso) or
(i) any Person who is a party to any of the foregoing contracts, agreements or
instruments or any of the transactions contemplated thereby, other than any such
contract, agreement or instrument (excluding any consents entered into in
connection with the Transactions) to which (1) El Paso, (2) Noric Holdings, any
other Sponsor Subsidiary, Noric, Palomino, Paso Fino, Noric LP or Clydesdale or
(3) any other Affiliate of El Paso is a party and, in each case above in this
clause (i), any Affiliates or agents or other representatives of any such
non-excluded Persons.

         "SPONSOR SUBSIDIARY MEMBER OBLIGATIONS" has the meaning set forth in
Section 3.1(b) of the El Paso Agreement.

         "SPONSOR SUBSIDIARY OBLIGATIONS" has the meaning set forth in Section
3.1(a) of the El Paso Agreement.

         "SURETY" has the meaning given to the term "Surety Provider" in the
Mustang Credit Agreement.

         "SYNDICATION DATE" means the date on which the closing of the
syndication of the commitments of the APA Purchasers occurs, as notified to El
Paso by the Administrative Agent.

         "TAX INDEMNITY AGREEMENT" means the Amended and Restated Tax Indemnity
Agreement, originally dated as of May 9, 2000 among El Paso and the Class A
Members of Mustang.

         "THIRD PARTY INFORMATION" shall mean any information included in an
Information Memorandum (a) that is available from generally recognized public
sources or (b) for which the source is any separately identified third party
source or any other Person not affiliated with or acting as agent or
representative for El Paso or any Affiliate of El Paso.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}]]