Document:

DEBENTURE AGREEMENT

THE  SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN  RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS.  THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE  TRANSFERRED  OR  RESOLD  EXCEPT  AS  PERMITTED  UNDER  SUCH LAWS PURSUANT TO
REGISTRATION  OR  AN EXEMPTION THEREFROM.  THE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS  OF  THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY  REPRESENTATION  TO  THE  CONTRARY  IS  UNLAWFUL.

FACE  AMOUNT                                              $1,500,000
PRICE                                                     $1,500,000
DEBENTURE  NUMBER                                August  -  2005-101
ISSUANCE  DATE                                     August  12,  2005
MATURITY  DATE                                     August  12,  2010

     FOR  VALUE  RECEIVED,  Hyperdynamics  Corp,  a  Delaware  corporation  (the
"Company"),  hereby  promises  to  pay  DUTCHESS PRIVATE EQUITIES FUND, II, LP (
"Holder")  by August 12, 2010 (the "Maturity Date"), the principal amount of One
Million Five Hundred Thousand Dollars ($1,500,000) U.S., and to pay interest and
redemption on the principal amount hereof, and any accrued penalties accrued, in
such  amounts,  at  such times and on such terms and conditions as are specified
herein.

     The  Debenture  is  subject  to automatic conversion at the end of five (5)
years  from the date of issuance at which time the Debenture outstanding will be
automatically  converted  based  upon  the formula set forth in Section 3.2 (c).

Article  1          Interest

     The  Company  shall  pay ten percent (10%) annual coupon on the unpaid Face
Amount  of this Debenture (the "Debenture") at such times and in such amounts as
outlined  in this section.  The Company will make mandatory prepaid payments, in
advance,  on  the  interest  ("Interest  Payment"),  with  the  minimum Interest
Payments  outlined  in  Exhibit  B  for  the  first  two  (2) months, and herein
incorporate  by  reference,  in the amount of fifteen thousand dollars ($15,000)
per  month  for  the  first  two  (2) months following Issuance Date.  The first
Interest  Payment  is  due  as  outlined  below  in  Article  2

     Any monies paid to the Holder in excess of the interest due when paid shall
be  credited  toward  the  Face  Amount  of  the  Debenture

Article  2          Method  of  Payment

     Section  2.1     Prior  to  the  U.S.  Securities  and  Exchange Commission
("SEC")  declaring  the  registration  statement  for  the shares underlying the
Debenture  ("Registration  Statement")  effective  ("Effective  Date").

     Amortizing  payments  will  be  made by the Company in satisfaction of this
Debenture  (each  a  "Payment,"  and collectively, the "Payments") shall be made
monthly  on  the  twenty-ninth  (29th)  day of each month, or the next available
business  day,  while  there  is an outstanding balance on the Debenture, to the
Holder,  in  the  amounts  ("Payment  Amount"  and  collectively,  the  "Payment
Amounts")  outlined  below  on  the  following  schedule:

Payment  for  Month  1     $15,000.00  due  by  August  29th,  2005   $15,000.00
Payment  for  Month  2  due by September 29th, 2005                   $15,000.00
Payment  for  Month  3  and  each  month  thereafter                  $87,888.18

Notwithstanding any provision to the contrary in this Debenture, the Company may
pay  in full to the Holder the Face Amount, or any balance remaining thereof, in
readily  available  funds  at  any  time  and from time to time without penalty.

The  minimum Payments are outlined on Exhibit B, attached hereto and incorporate
by  reference.

     Section  2.2     Subsequent  to  the  Effective  Date.

     Should  the  closing  bid  price of the Company's common stock be less than
Fixed  Conversion  Price  as defined below in Section 3.2 (c), the Company shall
make  Payments  that  are  due  hereunder.

     If  the Company's closing bid price of its common stock is greater than the
Fixed  Conversion  Price  as defined in Section 3.2 (c), The Holder, at its sole
option, shall be entitled to either a) request a Payment from the Company in the
amounts set forth in the table in Section 2.1 above; or, b) the Holder may elect
to  convert  a portion of the Debenture pursuant to Article 3 below in an amount
equal to the Payment Amount.   In the event the Holder is unable to convert that
portion  of  the  debenture equal to the Payment Amount during a calendar month,
the  Company  shall  make a payment in an amount equal to the difference between
the  amount  converted  by the Holder and the Payment Amount due for that month.

     Nothing  contained  in this Article 2 shall limit the amount the Holder can
elect  to  convert  during a calendar month except as defined in Section 3.2 (i)

     All Payments made in this Article 2, shall be applied toward the Redemption
Article  as  outlined  in  Article  14,  herein.

Article  3          Conversion

Section  3.1     Conversion  Privilege

(a)     The  Holder  of  this  Debenture shall have the right to convert it into
shares  of  Common  Stock  at  any  time following the Closing Date and which is
before  the  close  of  business  on  the  Maturity Date, except as set forth in
Section  3.1(c)  below.  The  number of shares of Common Stock issuable upon the
conversion  of this Debenture is determined pursuant to Section 3.2 and rounding
the  result  to  the  nearest  whole  share.

(b)     This Debenture may not be converted, whether in whole or in part, except
     in  accordance  with  this  Article  3.

(c)     In the event all or any portion of this Debenture remains outstanding on
     the  Maturity  Date,  the  unconverted  portion  of  such  Debenture  will
automatically  be  converted  into  shares  of  Common Stock on such date in the
manner  set  forth  in  Section  3.2.

Section  3.2     Conversion  Procedure.

(a)     Conversion  Procedures.  The  Face  Amount  of  this  Debenture  may  be
converted,  in  whole  or  in  part,  any time following the Closing Date.  Such
conversion  shall  be  effectuated  by sending to the Company a facsimile or via
electronic  mail  of  the  signed  Notice of Conversion which evidences Holder's
intention  to  convert the Debenture indicated.  The date on which the Notice of
Conversion  is  effective  ("Conversion Date") shall be deemed to be the date on
which  the  Holder has delivered to the Company a facsimile of the signed Notice
of  ConversionNotwithstanding  the  above, any Notice of Conversion received by
5:00  P.M. EST, shall be deemed to have been received the previous business day,
with  receipt  being  via  a  confirmation  of  time of facsimile of the Holder.

(b)     Common  Stock to be Issued.     Upon the conversion of any Debenture and
upon  receipt  by  the  Company  of  a  facsimile  of  Holder's signed Notice of
Conversion  the  Company  shall  instruct  its  transfer  agent  to  issue stock
certificates  without  restrictive  legend  or stop transfer instructions, if at
that time the Registration Statement has been declared effective (or with proper
     restrictive  legend  if  the  Registration  Statement  has  not as yet been
declared  effective),  in  such  denominations  to  be  specified  at conversion
representing the number of shares of Common Stock issuable upon such conversion,
as  applicable.   The  Company  shall  act  as  Registrar  and shall maintain an
appropriate  ledger  containing  the  necessary information with respect to each
Debenture.  The  Company  warrants  that  no  instructions,  other  than  these
instructions,  have  been  given or will be given to the transfer agent and that
the  Common  Stock  shall otherwise be freely resold, except as may be set forth
herein.

(c)     Conversion  Rate.  Holder is entitled to convert the Face Amount of this
Debenture,  plus  accrued  interest,  anytime following the Closing Date, at the
lesser of (i)  the lowest closing bid price during the fifteen (15) days of full
     trading,  defined  as  standard  market  hours from 9:30 AM to 4:00 PM EST,
partial trading days will not be counted for calculation purposes only ("Trading
Days")  prior to the Filing Date; or (ii) one dollar ($1.00). ("Fixed Conversion
Price"), also being referred to as the "Conversion Price".  No fractional shares
or  scrip representing fractions of shares will be issued on conversion, but the
number  of  shares  issuable  shall  be  rounded  up, as the case may be, to the
nearest  whole  share.  The Holder shall retain all rights of conversions during
any  partial  trading  days.

(d)     Nothing  contained  in  this  Debenture  shall be deemed to establish or
require the payment of interest to the Holder at a rate in excess of the maximum
     rate  permitted  by  governing law.  In the event that the rate of interest
required  to  be  paid  exceeds the maximum rate permitted by governing law, the
rate  of  interest required to be paid thereunder shall be automatically reduced
to  the  maximum rate permitted under the governing law and such excess shall be
returned  with  reasonable  promptness  by  the  Holder  to  the  Company.

(e)     It  shall  be the Company's responsibility to take all necessary actions
and  to  bear  all  such  costs  to  issue  the Common Stock as provided herein,
including  the  responsibility and cost for delivery of an opinion letter to the
transfer  agent,  if  so  required.  The person in whose name the certificate of
Common  Stock is to be registered shall be treated as a shareholder of record on
and  after  the conversion date. Upon surrender of any Debentures that are to be
converted  in  part, the Company shall issue to the Holder a new Debenture equal
to  the  unconverted  amount,  if  so  requested  in  writing  by  Holder.

(f)     Within  five  (5)  business  days  after  receipt  of  the documentation
referred to above in Section 3.2(a), the Company shall deliver a certificate, in
     accordance  with  Section  3.2(c)  for the number of shares of Common Stock
issuable  upon  the conversion.  In the event the Company does not make delivery
of  the  Common  Stock,  as  instructed by Holder, within five (5) business days
after  the  Conversion  Date, then in such event the Company shall pay to Holder
three  percent  (3%)  in  cash,  of  the  dollar  value  of the Debentures being
converted,  compounded  daily,  per  each day after the third (3rd) business day
following  the  Conversion  Date  that  the Common Stock is not delivered to the
Purchaser,  as  liquidated  damages.

                The  Company acknowledges that its failure to deliver the Common
Stock  within  five  (5)  business days after the Conversion Date will cause the
Holder  to  suffer  damages  in  an  amount that will be difficult to ascertain.
Accordingly,  the  parties  agree  that  it  is  appropriate  to include in this
Debenture a provision for liquidated damages.  The parties acknowledge and agree
that  the  liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such, agree that the
form  and  amount  of  such  liquidated  damages  are  reasonable  and  will not
constitute  a  penalty.  The payment of liquidated damages shall not relieve the
Company  from  its obligations to deliver the Common Stock pursuant to the terms
of  this  Debenture.

              To  the extent that the failure of the Company to issue the Common
Stock pursuant to this Section 3.2(f) is due to the unavailability of authorized
but unissued shares of Common Stock, the provisions of this Section 3.2(f) shall
not  apply  but  instead  the  provisions  of  Section  3.2(m)  shall  apply.

              The  Company  shall  make any payments incurred under this Section
3.2(f)  in  immediately  available funds within three (3) business days from the
date the Common Stock is fully delivered.  Nothing herein shall limit a Holder's
right  to  pursue  actual  damages  or  cancel  the conversion for the Company's
failure to issue and deliver Common Stock to the Holder within five (5) business
days  after  the  Conversion  Date.

     The  Company  shall  at  all  times  reserve  (or  make alternative written
arrangements  for  reservation or contribution of shares) and have available all
Common  Stock  necessary  to meet conversion of the Debentures by all Holders of
the entire amount of Debentures then outstanding. If, at any time Holder submits
a  Notice  of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock (or alternative shares of Common Stock as may be
contributed  by  Stockholders) available to effect, in full, a conversion of the
Debentures  (a  "Conversion Default", the date of such default being referred to
herein  as the "Conversion Default Date"), the Company shall issue to the Holder
all  of  the  shares  of  Common  Stock  which  are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted  Debentures"), may be deemed null and void upon written notice sent
by  the  Holder  to  the  Company.  The  Company  shall  provide  notice of such
Conversion  Default  ("Notice of Conversion Default") to all existing Holders of
outstanding  Debentures,  by  facsimile,  within three (3) business days of such
default  (with  the original delivered by overnight or two day courier), and the
Holder  shall  give notice to the Company by facsimile within five business days
of  receipt  of the Notice of Conversion Default (with the original delivered by
overnight  or  two day courier) of its election to either nullify or confirm the
Notice  of  Conversion.

     The Company agrees to pay to Holder of outstanding Debenture payments for a
Conversion  Default  ("Conversion  Default Payments") in the amount of (N/365) x
(.24)  x  the  initial issuance price of the outstanding and/or tendered but not
converted  Debentures  held by each Holder where N = the number of days from the
Conversion  Default Date to the date (the "Authorization Date") that the Company
authorizes a sufficient number of shares of Common Stock to effect conversion of
all  remaining  Debentures.  The  Company  shall  send  notice  ("Authorization
Notice")  to  Holder  of  outstanding Debenture that additional shares of Common
Stock  have  been  authorized;  stating the Authorization Date and the amount of
Holder's  accrued  Conversion  Default Payments.  The accrued Conversion Default
shall  be  paid  in  cash  or  shall  be  convertible  into  Common Stock at the
Conversion  Rate,  upon  written notice sent by the Holder to the Company, which
Conversion  Default shall be payable as follows:  (i) in the event Holder elects
to  take  such  payment  in  cash, cash payments shall be made to such Holder of
outstanding  Debentures  by the fifth (5th) day of the following calendar month,
or (ii) in the event Holder elects to take such payment in stock, the Holder may
convert such payment amount into Common Stock  at  the conversion rate set forth
in  Section  3.2(c)  at any time after the fifth (5th) day of the calendar month
following  the  month  in which the Authorization Notice was received, until the
expiration  of  the  mandatory  five  (5)  year  conversion  period.

     The  Company  acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a conversion
of  the Debenture will cause the Holder to suffer damages in an amount that will
be  difficult  to  ascertain.  Accordingly,  the  parties  agree  that  it  is
appropriate  to  include  in  this Agreement a provision for liquidated damages.
The  parties  acknowledge  and  agree  that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages  and, as such, agree that the form and amount of such liquidated damages
are  reasonable  and  will  not constitute a penalty.  The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the Common
Stock  pursuant  to the terms of this Debenture.  Nothing herein shall limit the
Holder's  right to pursue actual damages for the Company's failure to maintain a
sufficient  number  of  authorized  shares  of  Common  Stock.

     If,  by  the  third  (3rd)  business  day  after the Conversion Date of any
portion  of  the  Debenture  to be converted (the "Delivery Date"), the transfer
agent  fails  for  any reason to deliver the Common Stock upon conversion by the
Holder  and  after  such  Delivery Date, the Holder purchases, in an open market
transaction  or otherwise, shares of Common Stock (the "Covering Shares") solely
in  order  to  make  delivery  in  satisfaction of a sale of Common Stock by the
Holder (the "Sold Shares"), which delivery such Holder anticipated to make using
the Common Stock issuable upon conversion (a "Buy-In"), the Company shall pay to
the  Holder,  in  addition  to  any other amounts due to Holder pursuant to this
Debenture,  and  not  in  lieu thereof, the Buy-In Adjustment Amount (as defined
below).  The  "Buy  In  Adjustment Amount" is the amount equal to the excess, if
any,  of (x) the Holder's total purchase price (including brokerage commissions,
if  any)  for  the  Covering  Shares  over (y) the net proceeds (after brokerage
commissions,  if  any)  received by the Holder from the sale of the Sold Shares.
The  Company shall pay the Buy-In Adjustment Amount to the Holder in immediately
available  funds within three (3) business days of written demand by the Holder.
By  way  of  illustration  and not in limitation of the foregoing, if the Holder
purchases  shares  of  Common  Stock  having  a  total purchase price (including
brokerage  commissions)  of  $11,000 to cover a Buy-In with respect to shares of
Common  Stock  it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which  the  Company  will  be  required  to  pay  to  the Holder will be $1,000.

(g)     Prospectus and Other Documents. The Company shall furnish to Holder such
     number  of  prospectuses and other documents incidental to the registration
of the shares of Common Stock underlying the Debentures, including any amendment
of  or  supplements  thereto.  Any  filings  submitted via EDGAR will constitute
fulfillment.

(h)     Limitation  on Issuance of Shares. If the Company's Common Stock becomes
listed  on  the  Nasdaq SmallCap Market after the issuance of the Debenture, the
Company  may  be limited in the number of shares of Common Stock it may issue by
virtue  of  (X)  the number of authorized shares or (Y) the applicable rules and
regulations  of  the  principal  securities  market on which the Common Stock is
listed  or  traded,  including,  but  not  necessarily  limited  to, NASDAQ Rule
4310(c)(25)(H)(i)  or  Rule  4460(i)(1), as may be applicable (collectively, the
"Cap  Regulations").  Without  limiting  the  other  provisions thereof, (i) the
Company  will  take  all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
     Regulations  and  (ii)  if,  despite  taking  such steps, the Company still
cannot  issue such shares of Common Stock without violating the Cap Regulations,
the  holder  of  a  Debenture  which  cannot  be  converted as result of the Cap
Regulations  (each  such  Debenture,  an "Unconverted Debenture") shall have the
right  to  elect  either  of  the  following  remedies:

     (x)  if  permitted  by  the  Cap  Regulations, require the Company to issue
shares  of Common Stock in accordance with such holder's Notice of Conversion at
a  conversion  purchase  price equal to the average of the closing bid price per
share  of  Common  Stock  for  any five (5) consecutive Trading Days (subject to
certain  equitable  adjustments for certain events occurring during such period)
during the sixty (60) Trading Days immediately preceding the Conversion Date; or

     (y)  require the Company to redeem each Unconverted Debenture for an amount
(the  "Redemption Amount"), payable in cash, equal to the sum of (i) one hundred
thirty-three  percent  (133%) of the principal of an Unconverted Debenture, plus
(ii) any accrued but unpaid interest thereon through and including the date (the
"Redemption  Date")  on  which  the  Redemption  Amount  is  paid to the holder.

     A  holder  of  an Unconverted Debenture may elect one of the above remedies
with  respect  to  a  portion of such Unconverted Debenture and the other remedy
with  respect  to  other  portions  of the Unconverted Debenture.  The Debenture
shall  contain  provisions  substantially  consistent with the above terms, with
such additional provisions as may be consented to by the Holder.  The provisions
of  this section are not intended to limit the scope of the provisions otherwise
included  in  the  Debenture.

(i)     Limitation  on  Amount  of  Conversion  and  Ownership.  Notwithstanding
anything  to  the  contrary  in  this Debenture, in no event shall the Holder be
entitled  to convert that amount of Debenture, and in no event shall the Company
permit  that  amount of conversion, into that number of shares, which when added
to  the sum of the number of shares of Common Stock beneficially owned, (as such
term  is  defined  under Section 13(d) and Rule 13d-3 of the Securities Exchange
Act  of  1934, as may be amended, (the "1934 Act")), by the Holder, would exceed
4.99%  of  the  number  of  shares of Common Stock outstanding on the Conversion
Date,  as  determined  in  accordance with Rule 13d-1(j) of the 1934 Act. In the
event  that  the  number  of shares of Common Stock outstanding as determined in
accordance  with  Section  13(d)  of the 1934 Act is different on any Conversion
Date  than it was on the Closing Date, then the number of shares of Common Stock
outstanding  on  such  Conversion  Date shall govern for purposes of determining
whether the Holder would be acquiring beneficial ownership of more than 4.99% of
     the  number  of shares of Common Stock outstanding on such Conversion Date.

(j)     Legend.  The  Holder acknowledges that each certificate representing the
Debentures,  and the Common Stock unless registered pursuant to the Registration
Rights  Agreement,  shall  be  stamped  or  otherwise  imprinted  with  a legend
substantially  in  the  following  form:

THE  SECURITIES  EVIDENCED  BY  THIS  CERTIFICATE  MAY  NOT  BE OFFERED OR SOLD,
TRANSFERRED,  PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO  AN  EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE SECURITIES ACT OF 1933, AS
AMENDED,  (ii)  TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR
RULE  UNDER  SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) IF AN
EXEMPTION  FROM  REGISTRATION  UNDER  SUCH  ACT  IS  AVAILABLE.

     (m)  Prior to conversion of the Debenture, if at any time the conversion of
all  the Debentures and exercise of all the Warrants outstanding would result in
an  insufficient  number of authorized shares of Common Stock being available to
cover all the conversions, then in such event, the Company will move to call and
hold  a shareholder's meeting or have shareholder action with written consent of
the proper number of shareholders within thirty (30) days of such event, or such
greater  period  of  time  if  statutorily  required  or reasonably necessary as
regards  standard brokerage house and/or SEC requirements and/or procedures, for
the  purpose  of authorizing additional shares of Common Stock to facilitate the
conversions.   In such an event management of the Company shall recommend to all
shareholders  to  vote their shares in favor of increasing the authorized number
of  shares  of  Common  Stock.  Management  of the Company shall vote all of its
shares of Common Stock in favor of increasing the number of shares of authorized
Common  Stock.  The  Company represents and warrants that under no circumstances
will  it  deny  or prevent Holder's right to convert the Debentures as permitted
under  the  terms  of  this  Subscription  Agreement  or the Registration Rights
Agreement.  Nothing in this Section shall limit the obligation of the Company to
make the payments set forth in Section 3.2(g).  The investor, at his option, may
request  the  company  to  authorize and issue additional shares if the investor
feels  it  is necessary for conversions in the future In the event the Company's
shareholder's  meeting  does  not  result  in  the  necessary authorization, the
Company  shall  redeem the outstanding Debentures for an amount equal to (x) the
sum of the principal of the outstanding Debentures plus accrued interest thereon
multiplied  by  (y)  133%.

Section  3.3     Fractional  Shares.  The  Company  shall  not  issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
     conversion of this Debenture.  Instead, the Company shall round up or down,
as  the  case  may  be,  to  the  nearest  whole  share.

Section  3.4     Taxes  on  Conversion.  The  Company shall pay any documentary,
stamp  or  similar  issue  or  transfer tax due on the issue of shares of Common
Stock  upon the conversion of this Debenture.  However, the Holder shall pay any
such  tax  which  is  due because the shares are issued in a name other than its
name.

Section  3.5     Company to Reserve Stock.  The Company shall reserve the number
of  shares  of Common Stock required pursuant to and upon the terms set forth in
the  Subscription  Agreement  to  permit  the conversion of this Debenture.  All
shares of Common Stock which may be issued upon the conversion hereof shall upon
     issuance be validly issued,  fully paid and nonassessable and free from all
taxes,  liens  and  charges  with  respect  to  the  issuance  thereof.

Section  3.6     Restrictions  on  Sale.  This Debenture has not been registered
under  the  Securities  Act of 1933, as amended, (the "Act") and is being issued
under Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the
     Act.  This  Debenture  and  the  Common  Stock issuable upon the conversion
thereof may only be sold pursuant to registration under or an exemption from the
Act.

Article  4          Mergers
     The  Company  shall  not  consolidate  or  merge  into,  or transfer all or
substantially  all  of  its assets to, any person, unless such person assumes in
writing  the  obligations  of  the  Company under this Debenture and immediately
after  such transaction no Event of Default exists.  Any reference herein to the
Company  shall  refer  to  such  surviving  or  transferee  corporation  and the
obligations  of  the  Company  shall  terminate  upon  such  written assumption.

Article  5       Security

     This  Debenture  is  secured  by  a  Security  Agreement  (the  "Security
Agreement")  of  even  date  herewith  between  the  Company  and  the  Holder.

Article  6          Defaults  and  Remedies

Section  6.1  Events of Default. An "Event of Default" occurs if (a) the Company
does  not make the Payment of the principal of this Debenture by conversion into
Common Stock within five (5) business days of the Maturity Date, upon redemption
or  otherwise,  (b) the Company does not make a payment, other than a payment of
principal,  for  a  period of three (3) business days thereafter, (c) any of the
Company's  representations or warranties contained in the Subscription Agreement
or  this  Debenture were false when made or the Company fails to comply with any
of  its  other agreements in the Transaction Documents (as defined in Article 16
below)  and  such  failure continues for a period of five (5) business days, (d)
the  Company  pursuant  to  or  within  the  meaning  of  any Bankruptcy Law (as
hereinafter defined): (i) commences a voluntary case; (ii) consents to the entry
of  an order for relief against it in an involuntary case; (iii) consents to the
appointment  of  a  Custodian  (as  hereinafter  defined)  of  it  or for all or
substantially  all  of  its  property or (iv) makes a general assignment for the
benefit  of  its  creditors  or  (v) a court of competent jurisdiction enters an
order  or  decree  under  any Bankruptcy Law that: (A) is for relief against the
Company  in  an involuntary case; (B) appoints a Custodian of the Company or for
all  or  substantially  all of its property or (C) orders the liquidation of the
Company,  and  the order or decree remains unstayed and in effect for sixty (60)
calendar  days,  (e) the Company's Common Stock is suspended or no longer listed
on  any recognized exchange including electronic over-the-counter bulletin board
for  in excess of five (5) consecutive Trading Days (e) the Company violates any
terms  and  conditions of the Registration Rights Agreement (f) the Registration
Statement  underlying  the Debenture is not declared effective by the SEC within
twelve  (12)  months  of  the  Issuance  Date.

As  used  in  this  Section 6.1, the term "Bankruptcy Law" means Title 11 of the
United  States  Code  or  any  similar  federal  or  state law for the relief of
debtors.  The term "Custodian" means any receiver, trustee, assignee, liquidator
or  similar official under any Bankruptcy Law.  A default under clause (c) above
is  not  an  Event  of Default until the holders of at least one hundred percent
(100%)  of  the  aggregate principal amount of the Debentures outstanding notify
the  Company  of  such  default and the Company does not cure it within five (5)
business  days after the receipt of such notice, unless the Company commences to
cure  such  default  within  such period, which must specify the default, demand
that  it  be  remedied  and state that it is a "Notice of Default". Prior to the
expiration  of  the  time  for  curing  a  default as set forth in the preceding
sentence,  the  holders  of  a  majority  in  aggregate  principal amount of the
Debentures  at  the  time outstanding (exclusive of Debentures then owned by the
Company  or any subsidiary or affiliate) may, on behalf of the holders of all of
the  Debentures,  waive  any  past Event of Default hereunder (or any past event
which,  with  the  lapse  of  time  or  notice  and  lapse of time designated in
subsection  (a),  would  constitute  an  Event  of  Default  hereunder)  and its
consequences, except a default in the payment of the principal of or interest on
any  of the Debentures. In the case of any such waiver, such default or Event of
Default  shall  be deemed to have been cured for every purpose of this Debenture
and  the  Company  and  the holders of the Debentures shall be restored to their
former  positions  and  rights hereunder, respectively; but no such waiver shall
extend  to  any  subsequent  or  other  default  or  impair any right consequent
thereon.

          In  the  Event of Default, the Holder may elect to secure a portion of
the  Company's  assets  not  to  exceed 200% of the Face Amount of the Note,  in
Pledged  Collateral  (as  defined  in the Irrevocable Transfer Agent Agreement).
The  Holder  may  also  elect to garnishee Revenue from the Company in an amount
that  will  repay  the  Holder  on  the  schedules  outlined  in this Agreement.

          In the Event of Default, as outlined in this Agreement, the Holder can
exercise  its  right to increase the Face Amount of the Debenture by ten percent
(10%)  as an initial penalty and for each Event of Default under this Agreement.
In  addition,  the  Holder  may  elect  to  increase  the Face Amount by two and
one-half  percent  (2.5%)  per  month  (pro-rata  for partial periods) paid as a
penalty  for liquated damages ("Liquidated Damages").  The Liquated Damages will
be  compounded  daily.  It  is the intention and acknowledgement of both parties
that  the  Liquidated  Damages  not  be  deemed  as  interest.

          In  the  event of Default, specifically to Section 6.1 (f), the Holder
may elect to switch the Conversion Price of the Debenture as outlined in Section
3.2  (c) above ("Default Conversion Price").  The Default Conversion Price shall
be  equal  to  the lesser of a) the Fixed Conversion Price or b) seventy percent
(70%)  of  the  lowest  closing bid price of the Common Stock during the fifteen
(15)  trading  days  prior to conversion.  Upon written notice being sent to the
Company  by  the  Holder  of  Default  under  Section  6.1 (f), and the Holder's
election  to  exercise  the remedy to switch the conversion price to the Default
Conversion  Price,  the  Company  shall  immediately  withdraw  the Registration
Statement.  Further,  the  Company agrees that the date of consideration for the
Debenture  shall  remain  the  Issuance  Date  stated herein.  The Company shall
provide an opinion letter from counsel within two (2) days of written request by
the  Holder  stating  that  the  date  of consideration for the Debenture is the
Issuance  Date.  In  the  event  the Company does not deliver the opinion letter
within  two  business  days,  the  Default  Conversion  Price  shall immediately
decrease by two percent (2%) for each business day an opinion letter fails to be
delivered.  In  the event that counsel to the Company fails or refuses to render
an  opinion  as  required  to issue the Shares in accordance with this paragraph
(either  with  or  without restrictive legends, as applicable), then the Company
irrevocably  and  expressly  authorizes  counsel  to the Investor to render such
opinion  and  shall authorize the Transfer Agent shall accept and be entitled to
rely on such opinion for the purposes of issuing the Shares.  Any costs incurred
by  Holder  for  such  opinion  letter  shall be added to the Face Amount of the
Debenture.

Section  6.2     Acceleration.  If an Event of Default occurs and is continuing,
the  Holder  hereof by notice to the Company may declare the remaining principal
amount  of this Debenture, together with all accrued interest and any liquidated
damages,  to be due and payable.  Upon such declaration, the remaining principal
amount  shall  be  due  and  payable  immediately.

Section 6.3     Seniority, No past indebtedness of the Company is senior to this
     Debenture in right of payment, whether with respect to interest, damages or
upon  liquidation  or  dissolution  or  otherwise.  The Company shall be able to
secure  specific  property  or  equipment  for  the continuing operations of the
Company.

Article  7          Registered  Debentures

Section  7.1     Record Ownership.  The Company, or its attorney, shall maintain
a register of the holders of the Debentures (the "Register") showing their names
     and  addresses  and  the serial numbers and principal amounts of Debentures
issued to them.  The Register may be maintained in electronic, magnetic or other
computerized form.  The Company may treat the person named as the Holder of this
Debenture  in  the Register as the sole owner of this Debenture.   The Holder of
this  Debenture  is  the  person  exclusively  entitled  to  receive payments of
interest  on  this  Debenture,  receive  notifications  with  respect  to  this
Debenture, convert it into Common Stock and otherwise exercise all of the rights
and  powers  as  the  absolute  owner  hereof.

Section  7.2     Worn  or  Lost  Debentures.  If  this  Debenture  becomes worn,
defaced  or  mutilated  but  is still substantially intact and recognizable, the
Company  or  its  agent  may  issue  a  new  Debenture  in  lieu hereof upon its
surrender.   Where  the  Holder  of this Debenture claims that the Debenture has
been  lost,  destroyed  or  wrongfully  taken,  the  Company  shall  issue a new
Debenture  in place of the Debenture if the Holder so requests by written notice
to  the  Company actually received by the Company before it is notified that the
Debenture  has  been  acquired  by  a  bona  fide  purchaser  and the Holder has
delivered  to  the  Company  an indemnity bond in such amount and issued by such
surety  as  the  Company  deems  satisfactory  together with an affidavit of the
Holder  setting  forth  the  facts concerning such loss, destruction or wrongful
taking  and  such other information in such form with such proof or verification
as  the  Company  may  request.

Article  8          Notice.

     Any  notices,  consents,  waivers  or  other  communications  required  or
permitted  to  be given under the terms of this Debenture must be in writing and
will  be  deemed  to  have  been  delivered  (i)  upon  receipt,  when delivered
personally;  (ii)  upon receipt, when sent by facsimile (provided a confirmation
of  transmission is mechanically or electronically generated and kept on file by
the  sending  party);  or  (iii)  one  (1)  day  after deposit with a nationally
recognized  overnight  delivery  service, in each case properly addressed to the
party  to  receive  the  same.  The  addresses  and  facsimile  numbers for such
communications  shall  be:

If  to  the  Company:

Kent  Watts
Hyperdynamics  Corp.
9700  Bissonnet,  Suite  1700
Houston,  Texas  77036
Telephone:  (713)  353-9400
Facsimile:  (713)  353-9421

If  to  the  Investor:

     At  the  address  listed  in  the  Questionnaire.

     Each  party  shall provide five (5) business days prior notice to the other
party  of  any  change  in  address,  phone  number  or  facsimile  number.

Article  9          Time
     Where  this  Debenture  authorizes  or requires the payment of money or the
performance  of  a  condition  or obligation on a Saturday or Sunday or a public
holiday,  or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday,  such  payment  may be made or condition or obligation performed on the
next  succeeding  business day, and if the period ends at a specified hour, such
payment  may  be made or condition performed, at or before the same hour of such
next  succeeding  business  day,  with  the  same force and effect as if made or
performed  in  accordance  with  the  terms of this Debenture.  A "business day"
shall  mean  a day on which the banks in New York are not required or allowed to
be  closed.

Article  10          No  Assignment
     This  Debenture  shall  not  be  assignable.

Article  11          Rules  of  Construction.
     In  this  Debenture,  unless  the  context otherwise requires, words in the
singular  number include the plural, and in the plural include the singular, and
words  of the masculine gender include the feminine and the neuter, and when the
sense  so  indicates,  words  of the neuter gender may refer to any gender.  The
numbers  and  titles  of  sections  contained  in the Debenture are inserted for
convenience  of  reference  only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof.  Wherever,
in  this  Debenture, a determination of the Company is required or allowed, such
determination  shall  be  made  by  a  majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the  Company  and  the  Holder  of  this  Debenture.

Article  12          Governing  Law
     The validity, terms, performance and enforcement of this Debenture shall be
governed  and construed by the provisions hereof and in accordance with the laws
of  the  Commonwealth  of  Massachusetts  applicable  to  agreements  that  are
negotiated,  executed,  delivered  and  performed  solely in the Commonwealth of
Massachusetts.

Article  13          Litigation

DISPUTES  SUBJECT  TO  ARBITRATION  GOVERNED  BY  MASSACHUSETTS  LAW
--------------------------------------------------------------------

     All  disputes  arising  under  this  agreement  shall  be  governed  by and
interpreted  in  accordance  with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws.  The parties to this agreement
will  submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA").  The  arbitrator  shall  be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an  attorney  admitted to practice law in the Commonwealth of Massachusetts.  No
party  to  this agreement will challenge the jurisdiction or venue provisions as
provided  in  this  section.

Article  14  Redemption

     The  Holder  shall  have  the  right  to be redeemed from the Debenture, in
whole or in part, at a price equal to one hundred and twenty-five percent (125%)
of the outstanding principal amount of the Debenture, including accrued interest
(and  penalties  if  applicable).  Any  Payments, as defined in Article 2 above,
shall  apply to the Redemption Amount.  The Investor also holds the right to use
the  existing  equity  line  to  redeem  the  Debenture

Article  15     Investor  Warrants

     As an additional inducement to Holder, the Company shall issue a warrant to
purchase  five hundred thousand (500,000) shares of its common stock exercisable
at  the  strike  prices  outlined  in the Warrant Agreement, attached hereto and
incorporated  by  reference,  to  Holder.

Article  16     Transaction  Documents

The  Company  agrees  that  contemporaneously with the execution and delivery of
this  Debenture,  the parties hereto are executing and delivering a Registration
Rights  Agreement, Subscription Agreement, Warrant Agreement, Security Agreement
and  the  Irrevocable  Transfer  Agent Agreement (collectively, the "Transaction
Documents")  pursuant  to which the Company has agreed to provide certain rights
and  obligations  as  defined  in  the  documents.

Article  17     Threshold  Amount

The Company will not enter into any additional equity-based financing agreements
without  prior  expressed  written  consent  from the Holder, which shall not be
unreasonably withheld. Upon receipt by the Company of an aggregate amount of one
million  ($1,000,000)  in  financing ("Threshold Amount") from Holder or another
source, including exercise of any existing Warrants , the Company shall pay back
one  hundred  percent  (100%)  of  the  amount above the Threshold Amount to the
Redemption  of the Debenture.  The payment shall be made regardless of whether a
Payment  is due at the time the Company reach the Threshold Amount, and for each
financing.

Article  18     Insider  Sales

The  Company  shall  cause  its officers, insiders, directors, and affiliates or
other  related  parties under control of the Company, to refrain from selling or
otherwise  disposing  any  Common  Stock  in  the open market, while there is an
outstanding  balance on the Debenture.  Failure to do so will result in an Event
of  Default  Remedies  pursuant  to  Article  6  can  be  taken  by  the Holder.

Article  19     Waiver

The  Holder's  delay or failure at any time or times hereafter to require strict
performance  by  Company  of any undertakings, agreements or covenants shall not
waiver,  affect,  or  diminish  any  right of the Holder under this Agreement to
demand  strict  compliance and performance herewith. Any waiver by the Holder of
any  Event  of  Default  shall  not  waive or affect any other Event of Default,
whether  such Event of Default is prior or subsequent thereto and whether of the
same  or a different type. None of the undertakings, agreements and covenants of
the  Company  contained  in  this  Agreement,  and no Event of Default, shall be
deemed  to  have  been  waived by the Holder, nor may this Agreement be amended,
changed  or  modified,  unless such waiver, amendment, change or modification is
evidenced  by an instrument in writing specifying such waiver, amendment, change
or  modification  and  signed  by  the  Holder.

Article  20     Waiver  of  Jury  Trial.

AS  A  MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
PARTIES  HERETO  HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
RELATED  IN  ANY  WAY  TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
ASSOCIATED  WITH  THIS  TRANSACTION.

                                      *.*.*

     IN  WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date  first  written  above  and  duly  authorized  to  sign  on  behalf  of:

                         HYPERDYNAMICS  CORP.
                         --------------------

                         By:/s/Kent Watts
                            --------------------------
                         Name:     Kent  Watts
                         Title:    Chief  Executive  Officer

                              DUTCHESS  PRIVATE  EQUITIES  FUND,  II,  L.P.
                              BY  ITS  GENERAL  PARTNER  DUTCHESS
                              CAPITAL  MANAGEMENT,  LLC

                         By:/s/Douglas Leighton
                            ---------------------------
                         Name:  Douglas  H.  Leighton
                         Title:  A  Managing  Member

                                    Exhibit A

                              NOTICE OF CONVERSION
                              --------------------

     (To be Executed by the Registered Owner in order to Convert Debenture)

     The  undersigned  hereby  irrevocably  elects,  as  of ________________, to
convert  $________________  of  its convertible debenture (the "Debenture") into
Common  Stock of  Hyperdynamics Corp.(the "Company") according to the conditions
                  -------------------
set  forth  in  the  Debenture  issued  by  the  Company.

Date  of  Conversion________________________________________________

Applicable  Conversion  Price________________________________________

Number  of  Debentures  Issuable  upon  this  Conversion_______________________

Name(Print)___________Dutchess  Private  Equities Fund, II, LP _________________
                      ----------------------------------------

Address______________312  Stuart  St,  3rd  Floor____________________________
                     ----------------------------

Phone_____617-960-3570_____________  Fax________617-249-0947___________
          -------------------------             ------------

                    By:/s/Douglas Leighton
                       --------------------
                       Douglas  Leighton

                       EXHIBIT B MINIMUM PAYMENT SCHEDULE

<TABLE>
<CAPTION>

Convertible Amount                 Interest Rate                  Redemption
1,500,000.00                           10%                          125%
<S>         <C>             <C>                    <C>            <C>
                            Amount with Accrued
              Amount Due.   Interest for Period    Payment        Applied to Principal   Applied to Interest Applied to Redemptions
8/29/2005 . $1,500,000.00      $1,512,377.87        $  15,000.00     $   2,097.70            $ 12,377.87          $   524.43
9/29/2005 . $1,497,902.30      $1,510,262.86        $  15,000.00     $   2,111.55            $ 12,360.56          $   527.89
10/29/2005. $1,495,790.74      $1,508,133.88        $  87,888.18     $  60,436.04            $ 12,343.14          $15,109.01
11/29/2005. $1,435,354.71      $1,447,199.13        $  87,888.18     $  60,835.01            $ 11,844.42          $15,208.75
12/29/2005. $1,374,519.70      $1,385,862.12        $  87,888.18     $  61,236.61            $ 11,342.42          $15,309.15
1/29/2006 . $1,313,283.09      $1,324,120.19        $  87,888.18     $  61,640.87            $ 10,837.10          $15,410.22
2/29/2006 . $1,251,642.22      $1,261,970.66        $  87,888.18     $  62,047.79            $ 10,328.44          $15,511.95
3/29/2006 . $1,189,594.43      $1,199,410.86        $  87,888.18     $  62,457.40            $  9,816.43          $15,614.35
4/29/2006 . $1,127,137.03      $1,136,438.06        $  87,888.18     $  62,869.72            $  9,301.04          $15,717.43
5/29/2006 . $1,064,267.31      $1,073,049.55        $  87,888.18     $  63,284.75            $  8,782.24          $15,821.19
6/29/2006 . $1,000,982.56      $1,009,242.58        $  87,888.18     $  63,702.53            $  8,260.02          $15,925.63
7/29/2006 . $  937,280.03      $  945,014.38        $  87,888.18     $  64,123.06            $  7,734.35          $16,030.77
8/29/2006 . $  873,156.97      $  880,362.18        $  87,888.18     $  64,546.37            $  7,205.22          $16,136.59
9/29/2006 . $  808,610.59      $  815,283.18        $  87,888.18     $  64,972.48            $  6,672.58          $16,243.12
10/29/2006. $  743,638.12      $  749,774.55        $  87,888.18     $  65,401.40            $  6,136.44          $16,350.35
11/29/2006. $  678,236.72      $  683,833.47        $  87,888.18     $  65,833.15            $  5,596.75          $16,458.29
12/29/2006. $  612,403.58      $  617,457.08        $  87,888.18     $  66,267.74            $  5,053.50          $16,566.94
1/29/2007 . $  546,135.83      $  550,642.50        $  87,888.18     $  66,705.21            $  4,506.67          $16,676.30
2/29/2007 . $  479,430.62      $  483,386.84        $  87,888.18     $  67,145.57            $  3,956.22          $16,786.39
3/29/2007 . $  412,285.05      $  415,687.19        $  87,888.18     $  67,588.83            $  3,402.14          $16,897.21
4/29/2007 . $  344,696.22      $  347,540.62        $  87,888.18     $  68,035.02            $  2,844.40          $17,008.76
5/29/2007 . $  276,661.19      $  278,944.18        $  87,888.18     $  68,484.16            $  2,282.98          $17,121.04
6/29/2007 . $  208,177.03      $  209,894.89        $  87,888.18     $  68,936.26            $  1,717.86          $17,234.06
7/29/2007 . $  139,240.78      $  140,389.78        $  87,888.18     $  69,391.34            $  1,149.00          $17,347.84
8/29/2007 . $   69,849.43      $   70,425.82        $  87,888.18     $  69,849.43            $    576.39          $17,462.36
9/29/2007 . $        0.00      $        0.00        $          -     $       0.00            $      0.00          $     0.00
TOTALS. . .                                        $2,051,428.18    $1,500,000.00            $176,428.18         $375,000.00

</TABLE>SECURITY AGREEMENT
                               ------------------

THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made effective as
of  August  12, 2005, by and between Hyperdynamics Corp., a Delaware corporation
with  its  principal  place  of  business located at 9700 Bissonnet, Suite 1700,
Houston,  Texas  77036  and  it's subsidiaries (the "Company"), and the Dutchess
Private  Equities  Fund,  II,  LP  (the  "Secured  Party").

WHEREAS,  the  Company shall issue and sell to the Secured Party, as provided in
the  Subscription  Agreement  of  even date herewith between the Company and the
Secured  Party  (the  "Subscription  Agreement"),  and  the  Secured Party shall
purchase up to One Million Five Hundred Thousand Dollars ($1,500,000) of secured
convertible  debentures  (the  "Convertible  Debentures"),  which  shall  be
convertible  into  shares  of  the Company's common stock, par value $0.001 (the
"Common  Stock")  (as  converted,  the  "Conversion  Shares")  in the respective
amounts  set  forth  in  the  Subscription  Agreement  ("Holder");

WHEREAS,  to induce the Secured Party to enter into the transaction contemplated
by  the  Subscription Agreement, the Debenture Agreement, Warrant Agreement, the
Debenture  Registration  Rights  Agreement  of  even  date  herewith between the
Company  and  the Secured Party (the "Debenture Registration Rights Agreement"),
and  the  Irrevocable Transfer Agent Instructions among the Company, the Secured
Party,  Transfer  Agent,  and Dutchess Capital Management, LLC (the "Irrevocable
Transfer  Agent  Agreement")  (collectively  referred  to  as  the  "Transaction
Documents"),  the Company hereby grants to the Secured Party a security interest
in  and  to  the  pledged  property identified on Exhibit A hereto (collectively
referred  to  as  the  "Pledged  Property")  until  the  satisfaction  of  the
Obligations,  as  defined  herein  below.

NOW, THEREFORE, in consideration of the promises and the mutual covenants herein
contained,  and  for  other  good  and  valuable consideration, the adequacy and
receipt  of  which  are  hereby acknowledged, the parties hereto hereby agree as
follows:

ARTICLE  1.   DEFINITIONS  AND  INTERPRETATIONS
              ---------------------------------

Section  1.1.  Recitals.

The  above  recitals  are true and correct and are incorporated herein, in their
entirety,  by  this  reference.

Section  1.2.  Interpretations.

Nothing  herein expressed or implied is intended or shall be construed to confer
upon any person other than the Secured Party any right, remedy or claim under or
by  reason  hereof.

Section  1.3.  Obligations  Secured.

The  obligations  secured  hereby are any and all obligations of the Company now
existing  or  hereinafter incurred to the Secured Party, whether oral or written
and  whether  arising  before,  on  or  after the date hereof including, without
limitation,  those  obligations  of  the Company to the Secured Party under this
Agreement,  the  Transaction  Documents,  and any other amounts now or hereafter
owed  to the Secured Party by the Company thereunder or hereunder (collectively,
the  "Obligations").

ARTICLE  2.   PLEDGED  COLLATERAL, ADMINISTRATION OF COLLATERAL  AND TERMINATION
              ------------------------------------------------------------------
OF  SECURITY  INTEREST
 ---------------------

Section  2.1.  Pledged  Property.

(a)  Company  hereby  pledges  to  the Secured Party, and creates in the Secured
Party  for  its benefit, a security interest for such time until the Obligations
are  paid  in full, in and to all of the property of the Company as set forth in
Exhibit  "A" attached hereto (collectively, the "Pledged Property"): The Pledged
Property,  as set forth in Exhibit "A" attached hereto, and the products thereof
and  the  proceeds of all such items are hereinafter collectively referred to as
the  "Pledged  Collateral."

     (b)  Simultaneously  with the execution and delivery of this Agreement, the
Company  shall  make,  execute,  acknowledge,  file,  record  and deliver to the
Secured Party any documents reasonably requested by the Secured Party to perfect
its security interest in the Pledged Property. Simultaneously with the execution
and delivery of this Agreement, the Company shall make, execute, acknowledge and
deliver  to the Secured Party such documents and instruments, including, without
limitation,  financing statements, certificates, affidavits and forms as may, in
the Secured Party's reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the Secured Party
in  the  Pledged  Property,  and the Secured Party shall hold such documents and
instruments  as  secured  party,  subject  to the terms and conditions contained
herein.

Section  2.2.  Rights;  Interests;  Etc.

     (a)  So  long  as  no  Event of Default (as hereinafter defined) shall have
occurred  and  be  continuing:
     (i) the Company shall be entitled to exercise any and all rights pertaining
to  the  Pledged  Property  or any part thereof for any purpose not inconsistent
with  the  terms  hereof;  and

     (ii)  the  Company  shall  be  entitled  to  receive and retain any and all
payments  paid  or  made  in  respect  of  the  Pledged  Property.

     (b)  Upon the occurrence and during the continuance of an Event of Default:
     (i)  All  rights  of  the  Company  to  exercise  the rights which it would
otherwise  be  entitled  to exercise pursuant to Section 2.2(a)(i) hereof and to
receive  payments  which  it would otherwise be authorized to receive and retain
pursuant  to  Section  2.2(a)(ii) hereof shall be suspended, and all such rights
shall  thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Collateral
such  payments;  provided,  however,  that  if  the  Secured  Party shall become
entitled  and  shall  elect  to  exercise  its  right  to realize on the Pledged
Collateral  pursuant  to  Article  5  hereof, then all cash sums received by the
Secured  Party, or held by Company for the benefit of the Secured Party and paid
over  pursuant  to  Section  2.2(b)(ii)  hereof,  shall  be  applied against any
outstanding  Obligations;  and,
(ii)  All interest, dividends, income and other payments and distributions which
are  received  by  the  Company contrary to the provisions of  Section 2.2(b)(i)
hereof shall be received in trust for the benefit of the Secured Party, shall be
segregated  from  other property of the Company and shall be forthwith paid over
to  the  Secured  Party;  or
(iii)  The  Secured Party in its sole discretion shall be authorized to sell any
or  all of the Pledged Property at public or private sale in order to recoup all
of  the  outstanding  principal  plus  accrued  interest  owed  pursuant  to the
Convertible  Debenture  as  described  herein
     (c) An Event of Default hereunder shall be deemed to occur upon an Event of
Default under Article 6 of the Convertible Debentures, or any material violation
of  the  Transaction  Documents.

ARTICLE  3.  ATTORNEY-IN-FACT;  PERFORMANCE
             ------------------------------

Section  3.1.  Secured  Party  Appointed  Attorney-In-Fact.

Upon  the  occurrence  of  an  Event of Default, the Company hereby appoints the
Secured  Party  as  its  attorney-in-fact,  with full authority in the place and
stead  of  the Company and in the name of the Company or otherwise, from time to
time  in  the  Secured  Party's discretion to take any action and to execute any
instrument  which  the Secured Party may reasonably deem necessary to accomplish
the  purposes  of  this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Collateral or any part thereof and to give full discharge
for  the  same.  The  Secured  Party  may  demand, collect, receipt for, settle,
compromise,  adjust,  sue  for, foreclose, or realize on the Pledged Property as
and  when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral  to  make  payments  directly  to  the  Secured  Party.

Section  3.2.  Secured  Party  May  Perform.

If  the  Company  fails  to  perform any agreement contained herein, the Secured
Party,  at  its  option,  may  itself  perform,  or  cause  performance of, such
agreement,  and  the  expenses  of  the  Secured  Party  incurred  in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company  under  Section  8.3.

ARTICLE  4.  REPRESENTATIONS  AND  WARRANTIES
             --------------------------------

Section  4.1.  Authorization;  Enforceability.

Each  of the parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and  the transactions contemplated hereby; and upon execution and delivery, this
Agreement  shall  constitute  a  valid  and binding obligation of the respective
party,  subject to applicable bankruptcy, insolvency, reorganization, moratorium
and  similar laws affecting creditors' rights or by the principles governing the
availability  of  equitable  remedies.

Section  4.2.  Ownership  of  Pledged  Property.

The Company warrants and represents that it is the legal and beneficial owner of
the  Pledged  Property  free and clear of any lien, security interest, option or
other  charge  or  encumbrance  for  the property and assets made by Trendsetter
Production  Company,  a  wholly-owned  subsidiary  of  the  Company

ARTICLE  5.   DEFAULT;  REMEDIES;  SUBSTITUTE  COLLATERAL
              -------------------------------------------

Section  5.1.  Default  and  Remedies

(a)  If an Event of Default occurs, then in each such case the Secured Party may
declare  the  Obligations  to  be  due  and  payable immediately, by a notice in
writing  to  the  Company,  and upon any such declaration, the Obligations shall
become  immediately  due  and  payable.  If  an  Event  of Default occurs and is
continuing  for  the  period  set  forth  therein,  then  the  Obligations shall
automatically  become  immediately  due and payable without declaration or other
act  on  the  part  of  the  Secured  Party.

     (b)  Upon  the  occurrence of an Event of Default, the Secured Party shall:
(i)  be  entitled  to  receive  all  distributions  with  respect to the Pledged
Collateral,  (ii)  to cause the Pledged Property to be transferred into the name
of  the  Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the  Secured  Party.

Section  5.2.  Method  of  Realizing  Upon the Pledged Property: Other Remedies.

Upon  the  occurrence  of  an  Event  of  Default, in addition to any rights and
remedies  available  at  law or in equity, the following provisions shall govern
the  Secured  Party's  right  to  realize  upon  the  Pledged  Property:

     (a) Any item of the Pledged Property may be sold for cash or other value in
any  number  of lots at brokers board, public auction or private sale and may be
sold  without  demand,  advertisement  or  notice (except that the Secured Party
shall give the Company ten (10) days' prior written notice of the time and place
or  of  the  time  after  which a private sale may be made (the "Sale Notice")),
which  notice period is hereby agreed to be commercially reasonable. At any sale
or sales of the Pledged Property, the Company may bid for and purchase the whole
or  any part of the Pledged Property and, upon compliance with the terms of such
sale,  may  hold, exploit and dispose of the same without further accountability
to  the  Secured  Party.  The  Company  will execute and deliver, or cause to be
executed  and  delivered,  such  instruments,  documents,  assignments, waivers,
certificates,  and  affidavits  and  supply or cause to be supplied such further
information  and  take such further action as the Secured Party reasonably shall
require  in  connection  with  any  such  sale.

     (b)  Any cash being held by the Secured Party as Pledged Collateral and all
cash  proceeds  received by the Secured Party in respect of, sale of, collection
from,  or other realization upon all or any part of the Pledged Collateral shall
be  applied  as  follows:
     (i)  to  the  payment of all amounts due the Secured Party for the expenses
reimbursable  to  it  hereunder  or  owed  to it pursuant to Section 8.3 hereof;
(ii)  to  the  payment  of  the  Obligations  then  due  and  unpaid.
(iii) the balance, if any, to the person or persons entitled thereto, including,
without  limitation,  the  Company.

     (c)  In  addition to all of the rights and remedies which the Secured Party
may  have  pursuant  to  this Agreement, the Secured Party shall have all of the
rights  and remedies provided by law, including, without limitation, those under
the  Uniform  Commercial  Code.
     (i)  If the Company fails to pay such amounts due upon the occurrence of an
Event  of  Default  which  is continuing, then the Secured Party may institute a
judicial  proceeding  for  the  collection  of  the  sums so due and unpaid, may
prosecute  such  proceeding to judgment or final decree and may enforce the same
against  the Company and collect the monies adjudged or decreed to be payable in
the  manner  provided  by law out of the property of Company, wherever situated.
(ii)  The  Company  agrees  that  it  shall  be  liable for any reasonable fees,
expenses and costs incurred by the Secured Party in connection with enforcement,
collection  and  preservation  of  the Transaction Documents, including, without
limitation, reasonable legal fees and expenses, and such amounts shall be deemed
included  as  Obligations secured hereby and payable as set forth in Section 8.3
hereof.

Section  5.3.  Proofs  of  Claim.

In  case  of  the  pendency  of  any  receivership,  insolvency,  liquidation,
bankruptcy,  reorganization,  arrangement,  adjustment,  composition  or  other
judicial proceeding relating to the Company or the property of the Company or of
such  other obligor or its creditors, the Secured Party (irrespective of whether
the  Obligations  shall  then  be  due  and  payable  as therein expressed or by
declaration  or  otherwise  and  irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to  the rights of Previous Security Holders, shall be entitled and empowered, by
intervention  in such proceeding or otherwise: (i) to file and prove a claim for
the  whole  amount of the Obligations and to file such other papers or documents
as  may  be  necessary  or  advisable in order to have the claims of the Secured
Party  (including any claim for the reasonable legal fees and expenses and other
expenses  paid  or  incurred by the Secured Party permitted hereunder and of the
Secured  Party  allowed  in  such  judicial proceeding), and (ii) to collect and
receive  any  monies or other property payable or deliverable on any such claims
and  to  distribute  the  same;  and any custodian, receiver, assignee, trustee,
liquidator,  sequestrator  or  other  similar  official  in  any  such  judicial
proceeding  is  hereby  authorized by the Secured Party to make such payments to
the  Secured Party and, in the event that the Secured Party shall consent to the
making  of  such  payments  directed to the Secured Party, to pay to the Secured
Party  any  amounts  for  expenses  due  it  hereunder.

Section  5.4.  Duties  Regarding  Pledged  Collateral.

The  Secured  Party shall have no duty as to the collection or protection of the
Pledged  Property  or any income thereon or as to the preservation of any rights
pertaining  thereto,  beyond  the safe custody and reasonable care of any of the
Pledged  Property  actually  in  the  Secured  Party's  possession.

ARTICLE  6.  AFFIRMATIVE  COVENANTS
             ----------------------

The  Company  covenants  and  agrees  that,  from  the date hereof and until the
Obligations  have  been fully paid and satisfied, unless the Secured Party shall
consent  otherwise  in  writing  (as  provided  in  Section  8.4  hereof):

Section  6.1.  Existence,  Properties,  Etc.

     (a)  The Company shall do, or cause to be done, all things, or proceed with
due  diligence  with  any  actions  or courses of action, that may be reasonably
necessary  (i)  to maintain Company's due organization, valid existence and good
standing  under the laws of its state of incorporation, and (ii) to preserve and
keep  in full force and effect all qualifications, licenses and registrations in
those  jurisdictions in which the failure to do so could have a Material Adverse
Effect  (as  defined  below);  and  (b) the Company shall not do, or cause to be
done,  any act impairing the Company's corporate power or authority (i) to carry
on  the Company's business as now conducted, and (ii) to execute or deliver this
Agreement  or  any  other  document delivered in connection herewith, including,
without  limitation,  any  UCC-1  Financing  Statements,  if  so required by the
Secured  Party  to  which  it  is  or  will  be  a  party, or perform any of its
obligations  hereunder  or  thereunder.  For purpose of this Agreement, the term
"Material  Adverse  Effect"  shall  mean  any  material  and  adverse  affect as
determined  by  Secured Party in its sole discretion, whether individually or in
the  aggregate,  upon (a) the Company's assets, business, operations, properties
or  condition,  financial or otherwise; (b) the Company's to make payment as and
when  due  of  all  or any part of the Obligations; or (c) the Pledged Property.

Section  6.2.  Financial  Statements  and  Reports.

The  Company  shall  furnish  to the Secured Party within a reasonable time such
financial  data  as the Secured Party may reasonably request, including, without
limitation,  the  following:

     (a)  The  balance sheet of the Company as of the close of each fiscal year,
the  statement  of earnings and retained earnings of the Company as of the close
of such fiscal year, and statement of cash flows for the Company for such fiscal
year,  all  in reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied, certified by the chief executive and
chief  financial  officers  of  the  Company  as  being  true  and  correct  and
accompanied by a certificate of the chief executive and chief financial officers
of  the  Company,  stating  that  the  Company has kept, observed, performed and
fulfilled each covenant, term and condition of this Agreement during such fiscal
year  and  that no Event of Default hereunder has occurred and is continuing, or
if  an Event of Default has occurred and is continuing, specifying the nature of
same,  the  period  of  existence of same and the action the Company proposes to
take  in  connection  therewith;
(b)  A balance sheet of the Company as of the close of each month, and statement
of  earnings and retained earnings of the Company as of the close of such month,
all  in  reasonable  detail,  and  prepared  substantially  in  accordance  with
generally  accepted accounting principles consistently applied, certified by the
chief  executive  and  chief financial officers of the Company as being true and
correct;  and
(c)  Copies  of  all  accountants'  reports  and  accompanying financial reports
submitted  to  the  Company  by  independent accountants in connection with each
annual  examination  of  the  Company.

Section  6.3.  Accounts  and  Reports.

The  Company  shall  maintain a standard system of accounting in accordance with
generally  accepted  accounting  principles consistently applied and provide, at
its  sole  expense,  to  the  Secured  Party  the  following:

     (a)  as  soon  as  available,  a  copy of any notice or other communication
alleging  any nonpayment or other material breach or default, or any foreclosure
or  other  action  respecting any material portion of its assets and properties,
received  respecting any of the indebtedness of the Company in excess of $15,000
(other  than  the Obligations), or any demand or other request for payment under
any guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting  the  indebtedness  or  obligations  of  others in excess of $15,000,
including  any received from any person acting on behalf of the Secured Party or
beneficiary  thereof;  and

     (b) within fifteen (15) days after the making of each submission or filing,
a  copy  of  any  report, financial statement, notice or other document, whether
periodic  or  otherwise,  submitted  to  the  shareholders  of  the  Company, or
submitted  to  or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations;  (iii)  any  part  of  the  Pledged  Collateral; or (iv) any of the
transactions  contemplated  in  this  Agreement  or  the  Loan  Instruments.

Section  6.4.  Maintenance  of  Books  and  Records;  Inspection.

The  Company  shall  maintain its books, accounts and records in accordance with
generally  accepted  accounting  principles consistently applied, and permit the
Secured  Party,  its  officers and employees and any professionals designated by
the  Secured  Party  in  writing,  at  any  time to visit and inspect any of its
properties  (including  but  not limited to the collateral security described in
the  Transaction  Documents  and/or  the  Loan Instruments), corporate books and
financial  records,  and  to discuss its accounts, affairs and finances with any
employee,  officer  or  director  thereof.

Section  6.5.  Maintenance  and  Insurance.

     (a)  The  Company  shall  maintain  or  cause  to be maintained, at its own
expense,  all  of its assets and properties in good working order and condition,
making  all  necessary  repairs  thereto  and renewals and replacements thereof.

     (b)  The  Company  shall  maintain  or  cause  to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the  Company  deems reasonably necessary to the Company's business, (i) adequate
to  insure all assets and properties of the Company, which assets and properties
are  of  a  character  usually insured by persons engaged in the same or similar
business  against  loss or damage resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents  and/or  applicable  law  and  (iv)  as may be reasonably requested by
Secured  Party,  all  with  adequate,  financially sound and reputable insurers.

Section  6.6.  Contracts  and  Other  Collateral.

The  Company  shall perform all of its obligations under or with respect to each
instrument,  receivable,  contract  and other intangible included in the Pledged
Property  to  which  the  Company  is now or hereafter will be party on a timely
basis  and  in  the manner therein required, including, without limitation, this
Agreement.

Section  6.7.  Defense  of  Collateral,  Etc.

The Company shall defend and enforce its right, title and interest in and to any
part  of:  (a)  the Pledged Property; and (b) if not included within the Pledged
Property,  those  assets and properties whose loss could have a Material Adverse
Effect,  the  Company shall defend the Secured Party's right, title and interest
in  and  to each and every part of the Pledged Property, each against all manner
of  claims  and  demands  on  a  timely  basis  to  the full extent permitted by
applicable  law.

Section  6.8.  Payment  of  Debts,  Taxes,  Etc.

The  Company  shall  pay, or cause to be paid, all of its indebtedness and other
liabilities  and  perform,  or  cause to be performed, all of its obligations in
accordance with the respective terms thereof, and pay and discharge, or cause to
be paid or discharged, all taxes, assessments and other governmental charges and
levies  imposed  upon it, upon any of its assets and properties on or before the
last day on which the same may be paid without penalty, as well as pay all other
lawful claims (whether for services, labor, materials, supplies or otherwise) as
and  when  due.

Section  6.9.  Taxes  and  Assessments;  Tax  Indemnity.

The  Company  shall  (a)  file all tax returns and appropriate schedules thereto
that  are  required  to  be  filed  under  applicable  law, prior to the date of
delinquency,  (b)  pay  and  discharge  all  taxes, assessments and governmental
charges  or levies imposed upon the Company, upon its income and profits or upon
any  properties  belonging  to  it,  prior to the date on which penalties attach
thereto,  and  (c) pay all taxes, assessments and governmental charges or levies
that,  if  unpaid,  might  become  a  lien or charge upon any of its properties;
provided,  however,  that  the  Company  in good faith may contest any such tax,
assessment,  governmental  charge or levy described in the foregoing clauses (b)
and  (c)  so  long  as appropriate reserves are maintained with respect thereto.

Section  6.10.  Compliance  with  Law  and  Other  Agreements.

The Company shall maintain its business operations and property owned or used in
connection  therewith  in  material  compliance with (a) all applicable federal,
state  and  local  laws,  regulations  and  ordinances  governing  such business
operations  and  the use and ownership of such property, and (b) all agreements,
licenses,  franchises,  indentures and mortgages to which the Company is a party
or  by which the Company or any of its properties is bound. Without limiting the
foregoing,  the Company shall pay all of its indebtedness promptly in accordance
with  the  terms  thereof.

Section  6.11.  Notice  of  Default.

The  Company shall give written notice to the Secured Party of the occurrence of
any  default or Event of Default under this Agreement, the Transaction Documents
or  any  other Loan Instrument or any other agreement of Company for the payment
of  money,  promptly  upon  the  occurrence  thereof.

Section  6.12.  Notice  of  Litigation.
The  Company  shall  give  notice,  in  writing, to the Secured Party of (a) any
actions,  suits  or  proceedings  wherein  the  amount  at issue is in excess of
$10,000,  instituted by any persons against the Company, or materially affecting
any  of  the  assets  of  the  Company, and (b) any dispute, not resolved within
fifteen  (15)  days  of the commencement thereof, between the Company on the one
hand  and  any  governmental  or  regulatory body on the other hand, which might
reasonably  be  expected  to  have  a  Material  Adverse  Effect on the business
operations  or  financial  condition  of  the  Company.

ARTICLE  7.  NEGATIVE  COVENANTS
             -------------------

The  Company  covenants  and  agrees  that,  from  the  date  hereof  until  the
Obligations  have  been  fully paid and satisfied, the Company shall not, unless
the  Secured  Party  shall  consent  otherwise  in  writing:

Section  7.1.  Liens  and  Encumbrances.

The  Company  shall  not  directly  or indirectly make, create, incur, assume or
permit to exist any assignment, transfer, pledge, mortgage, security interest or
other  lien  or  encumbrance  of  any  nature  in, to or against any part of the
Pledged  Property or of the Company's capital stock, or offer or agree to do so,
or  own  or  acquire  or agree to acquire any asset or property of any character
subject  to  any  of  the foregoing encumbrances (including any conditional sale
contract  or  other  title retention agreement), or assign, pledge or in any way
transfer  or  encumber  its right to receive any income or other distribution or
proceeds  from  any part of the Pledged Property or the Company's capital stock;
or  enter  into  any sale-leaseback financing respecting any part of the Pledged
Property  as  lessee, or cause or assist the inception or continuation of any of
the  foregoing.

Section  7.2.  Certificate  of  Incorporation, By-Laws, Mergers, Consolidations,
Acquisitions  and  Sales.

Without  the prior express written consent of the Secured Party, which shall not
be  unreasonably  withheld,  the  Company  shall  not:
(a)  Amend  its  Certificate  of  Incorporation  or  By-Laws;
(b)  issue  any new Common Stock including those on Form S8, or issue any Common
Stock  from  the  currently  filed  S8  ("S8  Shares"),  unless  the:
i)  recipient(s)  of  the  S8  Shares is issued an amount equal to less than two
hundred  and  fifty  thousand  (250,0000)  shares  per  ninety  (90)  day period
ii)  recipient(s)  of the S8 Shares execute(s) a leak-out agreement stating that
the collective recipient(s) of the S8 Shares shall restrict selling to a maximum
of  ten  percent  (10%)  of  the  total  volume  each  day;  or,
iii)  Company's  stock  price  is  above  one dollar and fifty cents ($1.50) per
share;
iv)  Company issues restricted 144 common stock issued for purchase of operating
assets,  oil  companies,  or oil leases for HYD Resources Corporation or if such
issuance of stock, stock option, bond, or note or other corporate securities, or
obligations  is  required  by  existing  agreements  the  company  already  has
outstanding  prior  to  closing.
(c) sell, transfer, convey, grant a security additional interest in or lease all
or  any  substantial  part  of  its  assets,  nor
(d)  create  any  subsidiaries  nor  convey any of its assets to any subsidiary.

Section  7.3.  Management,  Ownership.

The  Company  acknowledges that the ownership, executive staff and management of
the Company are material factors in the Secured Party's willingness to institute
and  maintain  a  lending  relationship  with  the  Company.

Section  7.4.  Dividends,  Etc.

The  Company  shall  not  declare or pay any dividend of any kind, in cash or in
property,  on  any  class  of its capital stock, nor purchase, redeem, retire or
otherwise  acquire for value any shares of such stock, nor make any distribution
of  any kind in respect thereof, nor make any return of capital to shareholders,
nor  make  any  payments  in respect of any pension, profit sharing, retirement,
stock  option,  stock  bonus,  incentive compensation or similar plan (except as
required  or  permitted  hereunder),  without  the  prior written consent of the
Secured  Party.

Section  7.5.  Guaranties;  Loans.

The Company shall not guarantee nor be liable in any manner, whether directly or
indirectly,  or  become  contingently liable after the date of this Agreement in
connection with the obligations or indebtedness of any person or persons, except
for  (i)  the  indebtedness  currently  secured  by  the liens identified on the
Pledged  Property  identified  on  Exhibit  A hereto and (ii) the endorsement of
negotiable  instruments  payable to the Company for deposit or collection in the
ordinary  course  of  business.  The Company shall not make any loan, advance or
extension  of  credit  to  any  person  other  than  in the normal course of its
business.

Section  7.6.  Intentionally  Omitted.

Section  7.7.  Conduct  of  Business.

The Company will continue to engage, in an efficient and economical manner, in a
business  of  the  same  general  type  as  conducted  by it on the date of this
Agreement.

Section  7.8.  Places  of  Business.

Without prior written consent of the Secured Party, the Company shall not change
the location of its chief place of business, chief executive office or any place
of  business  disclosed to the Secured Party or move any of the Pledged Property
from  its current location without thirty (30) days' prior written notice to the
Secured  Party  in  each  instance.

ARTICLE  8.  MISCELLANEOUS
             -------------

Section  8.1.  Notices.

All  notices  or other communications required or permitted to be given pursuant
to  this Agreement shall be in writing and shall be considered as duly given on:
(a)  the  date  of  delivery,  if  delivered in person, by nationally recognized
overnight  delivery  service  or  (b) five (5) days after mailing if mailed from
within the continental United States by certified mail, return receipt requested
to  the  party  entitled  to  receive  the  same:

If  to  the  Secured  Party:
          Douglas  Leighton
          Dutchess  Private  Equities  Fund,  II,  LP
                        312  Stuart  St,  Third  Floor
                        Boston,  MA  02116
                        Telephone:  617-960-3570
                        Facsimile:  617-249-0947

And  if  to  the  Company:
     Kent  Watts
Hyperdynamics  Corp.
9700  Bissonnet,  Suite  1700
Houston,  Texas  77036
Telephone:  (713)  353-9400
Facsimile:  (713)  353-9421

With  a  copy  to:

Any party may change its address by giving notice to the other party stating its
new address. Commencing on the tenth (10th) day after the giving of such notice,
such  newly  designated address shall be such party's address for the purpose of
all  notices  or other communications required or permitted to be given pursuant
to  this  Agreement.

Section  8.2.  Severability.

If  any provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall not
in  any  manner  affect  or  render invalid or unenforceable any other severable
provision  of  this Agreement, and this Agreement shall be carried out as if any
such  invalid  or  unenforceable  provision  were  not  contained  herein.

Section  8.3.  Expenses.

In  the  event of an Event of Default, the Company will pay to the Secured Party
the amount of any and all reasonable expenses, including the reasonable fees and
expenses  of  its counsel, which the Secured Party may incur in connection with:
(i)  the  custody  or  preservation  of,  or the sale, collection from, or other
realization  upon, any of the Pledged Property; (ii) the exercise or enforcement
of  any of the rights of the Secured Party hereunder or (iii) the failure by the
Company  to  perform  or  observe  any  of  the  provisions  hereof.

Section  8.4.  Waivers,  Amendments,  Etc.

The  Secured  Party's delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not  waiver,  affect,  or  diminish  any  right  of the Secured Party under this
Agreement  to  demand  strict compliance and performance herewith. Any waiver by
the  Secured  Party  of any Event of Default shall not waive or affect any other
Event  of  Default, whether such Event of Default is prior or subsequent thereto
and  whether  of  the  same  or  a  different  type.  None  of the undertakings,
agreements  and  covenants  of  the  Company contained in this Agreement, and no
Event  of Default, shall be deemed to have been waived by the Secured Party, nor
may  this  Agreement  be  amended,  changed  or  modified,  unless  such waiver,
amendment,  change  or  modification  is  evidenced  by an instrument in writing
specifying  such  waiver,  amendment,  change  or modification and signed by the
Secured  Party.

Section  8.5.  Continuing  Security  Interest.

This  Agreement  shall  create  a  continuing  security  interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the  Obligations;  and  (ii)  be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns.  Upon  the  payment  or  satisfaction  in  full of the Obligations, the
Company  shall be entitled to the return, at its expense, of such of the Pledged
Property  as  shall  not have been sold in accordance with Section 5.2 hereof or
otherwise  applied  pursuant  to  the  terms  hereof.

Section  8.6.  Independent  Representation.

Each  party  hereto  acknowledges and agrees that it has received or has had the
opportunity  to  receive independent legal counsel of its own choice and that it
has been sufficiently apprised of its rights and responsibilities with regard to
the  substance  of  this  Agreement.

Section  8.7.  Applicable  Law:  Jurisdiction.

This  Agreement shall be governed by and interpreted in accordance with the laws
of  the  Commonwealth  of  Massachusetts  without  regard  to  the principles of
conflict  of  laws. The parties further agree that any action between them shall
be  heard  in  Suffolk  County,  Massachusetts.

Section  8.8.  Waiver  of  Jury  Trial.

AS  A  FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND
TO  MAKE  THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
ANY  RIGHT  TO  TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
AGREEMENT  AND/OR  ANY  AND  ALL  OTHER  DOCUMENTS  RELATED TO THIS TRANSACTION.

DISPUTES  SUBJECT  TO  ARBITRATION  GOVERNED  BY  MASSACHUSETTS  LAW
--------------------------------------------------------------------

     All  disputes  arising  under  this  agreement  shall  be  governed  by and
interpreted  in  accordance  with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws.  The parties to this agreement
will  submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA").  The  arbitrator  shall  be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an  attorney  admitted to practice law in the Commonwealth of Massachusetts.  No
party  to  this agreement will challenge the jurisdiction or venue provisions as
provided  in  this  section.

Section  8.9.  Entire  Agreement.

This Agreement constitutes the entire agreement among the parties and supersedes
any  prior  agreement  or  understanding  among them with respect to the subject
matter  hereof.

                                                         *  *  *

IN  WITNESS WHEREOF, the parties hereto have executed this Security Agreement as
of  the  date  first  above  written.

COMPANY:
HYPDERDYNAMICS,  INC.

/s/Kent Watts
-----------------
KENT  WATTS,  CEO

SECURED  PARTY:
DUTCHESS  PRIVATE  EQUITIES  FUND,  II,  LP

/s/Douglas Leighton
-------------------
Douglas  H.  Leighton,  Managing  Member
Dutchess  Capital  Management,  LLC;
General  Partner  to:
Dutchess  Private  Equities  Fund,  II,  LP

                    EXHIBIT A DEFINITION OF PLEDGED PROPERTY
                              ------------------------------

For  the  purpose of securing prompt and complete payment and performance by the
Company  of  all of the Obligations, the Company unconditionally and irrevocably
hereby grants to the Secured Party a continuing security interest in and to, and
lien  upon,  the  following  Pledged  Property  of  the  Company:

-  51%  working  interest in Oil, Gas and Mineral leases specified hereunder and
owned  by  the Company's wholly-owned subsidiary, Trendsetter Production Company
as  follows:

a)Katherine  Breland  Kelly  oil  and gas lease dated October 1st, 2004 of Jena,
Louisiana  for  Section 8, Township 6 North, Range 3 East, the north one-half of
the Northwest quarter less four acres, comprising of sixteen (16) acres, more or
less,  by  and  between  the  Company's  wholly-owned  subsidiary,  Trendsetter
Production  Company  and  Katherine  Breland  Kelly:

b)  Willard  J.  Norris  and  Shirley  L  Norris dated October 13, 2004 of Jena,
Louisiana  for  Section 8, Township 6 North, Range 3 East, the southeast quarter
of  the  northwest  quarter  including  Lot  23B,  and  23A.

The  leases  are  hereby  attached  and  incorporated  by  reference.

OMITTED

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