Document:

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                                                                    EXHIBIT 10.1
                                                                    ------------

                            ASSET PURCHASE AGREEMENT

                                  by and among

                            JUNEAU EXPLORATION, L.P.

                                       and

                           CONTANGO OIL & GAS COMPANY

                           Dated as of January 4, 2002

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                            ASSET PURCHASE AGREEMENT

     This ASSET PURCHASE AGREEMENT dated as of January 4, 2002 (this
"Agreement"), is entered into by and among Juneau Exploration, L.P., a Texas
limited partnership ("Seller") and Contango Oil & Gas Company, a Delaware
corporation ("Buyer") (collectively, the "Parties").

                                    RECITALS

     WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, all of Seller's oil and gas interests and related assets identified
in Exhibits "A," "B" and "C" attached hereto and made a part hereof, all on the
terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

                                   ARTICLE I

                           PURCHASE AND SALE OF ASSETS

     Section 1.1 Assets. On the terms and subject to the conditions set forth in
                 ------
this Agreement, at the Closings (as defined herein in Section 6.1) Seller agrees
                                                      -----------
to sell, transfer and assign to Buyer, and Buyer shall purchase and receive, all
of Seller's right, title and interest in and to the following tangible and
intangible assets:

          (a) Leases. The oil and gas leases described in Exhibit "A" and the
              ------                                      -----------
lands covered thereby ("First Leases," "Second Leases" and "Third Leases,"
collectively sometimes hereinafter referred to as the "Leases");

          (b) Wells. All oil and/or gas wells, equipment, machinery, tanks,
              -----
pipelines and other appurtenances and all other tangible property located
thereon, thereunder or associated therewith or used in connection with the
ownership or operation of the Leases and the production of oil and/or gas
therefrom, including, without limitation, all wells, whether producing,
operating, shut-in or temporarily abandoned, located on the lands covered by the
Leases described in Exhibit "B" ("First Wells," "Second Wells" and "Third
                    -----------
Wells," collectively sometimes hereinafter referred to as the "Wells");

          (c) Contracts. The agreements described in Exhibit "C" (the
              ---------                              -----------
"Contracts"), to the extent such agreements relate to the Leases; and

          (d) Other Assets. All tangible and intangible assets of Seller
              ------------
necessary to or used primarily in connection with the Leases, Wells and
Contracts, whether presently existing or arising hereafter, including without
limitation, any and all rights arising under or relating to the Exploration and
Operations Agreements described in Exhibit "C" (the "Other Assets").
                                   -----------

     First Leases and First Wells together with the related Contracts and
related Other Assets (collectively, the "First Tranche"), Second Leases and
Second Wells together with the related

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Contracts and related Other Assets (collectively, the "Second Tranche") and
Third Leases and Third Wells together with the related Contracts and related
Other Assets (collectively, the "Third Tranche"); and First Tranche, Second
Tranche and Third Tranche collectively hereinafter referred to as the "Assets."

     Section 1.2 Excluded Assets. The Assets do not include (the "Excluded
                 ---------------
Assets"), and Seller shall not sell, transfer or assign to Buyer, and Buyer
shall not acquire, or make any payments or otherwise discharge any liability or
obligation of Seller relating to, any of the following:

          (a) accounts receivable relating to any operation or ownership of the
Assets prior to (i) the First Effective Time (as defined in Section 6.1 herein)
                                                            -----------
as to the First Tranche of Assets, (ii) the Second Effective Time (as defined in
Section 6.1 herein) as to the Second Tranche of Assets and (iii) the Third
-----------
Effective Time (as defined in Section 6.1 herein) as to the Third Tranche of
                              -----------
Assets;

          (b) oil and liquid hydrocarbon inventories in tanks above the pipeline
connections as of the First Effective Time (relative to the First Tranche of
Assets), the Second Effective Time (relative to the Second Tranche of Assets)
and the Third Effective Time (relative to the Third Tranche of Assets); and

          (c) gas produced through designated sales meters prior to the First
Effective Time (as to the First Tranche of Assets), the Second Effective Time
(as to the Second Tranche of Assets) and the Third Effective Time (as to the
Third Tranche of Assets).

     Section 1.3 Purchase Price. As consideration for the sale of the Assets,
                 --------------
the aggregate purchase price to be paid by Buyer to Seller shall be Fourteen
Million Six Hundred Seventy-Three Thousand Sixty-Six Dollars ($14,673,066) (the
"Purchase Price"), subject to adjustment as set forth in Sections 1.4 and 1.5
                                                         --------------------
herein, allocated and payable as follows in each case by wire transfer of
immediately available funds to a bank account designated by Seller:

          (a) Eleven Million Sixty-One Thousand Twenty-Six Dollars ($11,061,026)
of the Purchase Price shall be payable by Buyer to Seller in cash on the First
Closing (as defined in Section 6.1 herein) for the purchase of the First Tranche
                       -----------
of Assets effective as of the First Effective Time (as defined in Section 6.1
                                                                  -----------
herein);

          (b) Two Million Six Hundred Ninety-Four Thousand Sixty-Eight Dollars
($2,694,068) of the Purchase Price shall be payable by Buyer to Seller in cash
on the Second Closing (as defined in Section 6.1 herein) for the purchase of the
                                     -----------
Second Tranche of Assets effective as of the Second Effective Time (as defined
in Section 6.1 herein); and
   -----------

          (c) Nine Hundred Seventeen Thousand Nine Hundred Seventy-Two Dollars
($917,972) of the Purchase Price shall be payable by Buyer to Seller in cash on
the Third Closing (as defined in Section 6.1 herein) for the purchase of the
                                 -----------
Third Tranche of Assets effective as of the Third Effective Time (as defined in
Section 6.1 herein).
-----------

     Section 1.4 Adjustments to Purchase Price. Notice of any adjustments to the
                 -----------------------------
portion of the Purchase Price otherwise payable at any Closing (as defined in
Section 6.1 herein) shall be
-----------

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delivered, as between the Parties, no later than two (2) business days prior to
such Closing in order to be considered at such Closing. Any notice of adjustment
not timely provided, together with any other adjustment will be made in the
final adjustment as set forth in Section 6.5 herein. The Purchase Price shall be
                                 -----------
adjusted as follows with respect to the First Tranche, Second Tranche and/or
Third Tranche of Assets, if and as applicable:

          (a)  The Purchase Price shall be increased by the following:

               (1) an amount equal to paid ad valorem, property, production,
excise, severance and similar taxes and assessments based upon or measured by
the ownership of the Assets that are attributable to periods of time from and
after the First Effective Time, Second Effective Time and/or Third Effective
Time of the First Tranche, Second Tranche and/or Third Tranche of Assets,
respectively, if and as applicable, which amounts shall, to the extent not
actually assessed, be computed based on such taxes and assessments for the
preceding tax year (such amount to be prorated for the period of Seller's and
Buyer's ownership before and from and after the First Effective Time, Second
Effective Time and/or Third Effective Time, as applicable);

               (2) an amount equal to all expenses attributable to the Assets
that are paid by or on behalf of Seller that are, in accordance with generally
accepted accounting principles, attributable to the periods from and after the
First Effective Time (relative to the First Tranche of Assets), Second Effective
Time (relative to the Second Tranche of Assets) and/or Third Effective Time
(relative to the Third Tranche of Assets), if and as applicable; and

               (3) any adjustment(s) to the Purchase Price pursuant to Section
                                                                       -------
1.5 herein.
---
          (b)  The Purchase Price shall be reduced by the following:

               (1) the amount of the proceeds received by Seller attributable to
the Assets that are, in accordance with generally accepted accounting
principles, attributable to the periods of time from and after the First
Effective Time, Second Effective Time and/or Third Effective Time of the First
Tranche, Second Tranche and/or Third Tranche of Assets, respectively, if and as
applicable;

               (2) an amount equal to unpaid ad valorem, property, production,
excise, severance and similar taxes and assessments based upon or measured by
the ownership of the Assets that are attributable to periods of time prior to
the First Effective Time, Second Effective Time and/or Third Effective Time of
the First Tranche, Second Tranche and/or Third Tranche of Assets, respectively,
if and as applicable, which amounts shall, to the extent not actually assessed,
be computed based on such taxes and assessments for the preceding tax year (such
amount to be prorated for the period of Seller's and Buyer's ownership before
and after the First Effective Time, Second Effective Time and/or Third Effective
Time, as applicable);

               (3) an amount equal to all expenses attributable to the Assets
that are paid by or on behalf of Buyer that are, in accordance with generally
accepted accounting principles, attributable to any periods prior to the First
Effective Time (relative to the First

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Tranche of Assets), Second Effective Time (relative to the Second Tranche of
Assets) and/or Third Effective Time (relative to the Third Tranche of Assets),
if and as applicable; and

                 (4) any adjustment(s) to the Purchase Price pursuant to Section
                                                                         -------
1.5 herein.
---

     Section 1.5 Changes to the Purchase Price Allocable to the Second Tranche
                 -------------------------------------------------------------
or the Third Tranche of Assets. The portion of the Purchase Price payable for
------------------------------
the Second Tranche and/or the Third Tranche of Assets shall be increased or
decreased, as applicable, at or prior to the Second Closing and/or the Third
Closing, as the case may be, because of one or more of the following events:

          (a)    A change in oil and/or gas commodity prices, as determined by
reference to the NYMEX as of the date hereof as compared to the NYMEX as of the
Second Effective Date and Third Effective Date, respectively;

          (b)    A change in reserves with respect to any of the Second Wells or
the Third Wells as determined by Von Gonten & Co; provided, that (i) the change
                                                  --------  ----
of events which causes the increase or decrease is unrelated to the price of oil
or gas, and (ii) such increase or decrease in value is determined by comparing
the reserve report produced by Von Gonten attached as Exhibit "D" (the "Reserve
                                                      -----------
Report") to a revised reserve report produced by Von Gonten, and (iii) such
decrease in value is not attributable to production from the Second Wells or
Third Wells from January 1, 2002 to the Second Effective Time or Third Effective
Time, respectively.

     Section 1.6 Assumption of Liabilities. As additional consideration for the
                 -------------------------
sale of the Assets, if the Closings occur, Buyer shall assume the following
obligations and liabilities ("Assumed Liabilities"):

          (a)    all obligations and liabilities relating to the ownership or
use of the Assets that arise and are attributable to occurrences from and after
the First Effective Time (as to the First Tranche), the Second Effective Time
(as to the Second Tranche) and/or the Third Effective Time (as to the Third
Tranche), as applicable (except for (1) any liability or obligation that arises
under contracts or agreements, or that arises from or is the subject of a breach
by Seller of any of its covenants, representations or warranties hereunder, none
of which shall be Assumed Liabilities; and (2) any payment obligation associated
with an agreement for the supply of materials, goods or services, which shall be
an Assumed Liability only to the extent that such materials, goods or services
with respect to which such payment is due is received by Buyer and relates to
operation of the Assets from and after the First Effective Time (as to the First
Tranche of Assets), the Second Effective Time (as to the Second Tranche of
Assets) and/or the Third Effective Time (as to the Third Tranche of Assets), as
the case may be);

          (b)    all obligations and liabilities relating to the ownership or
use of the Assets that arise from and after the First Effective Time (as to the
First Tranche), the Second Effective Time (as to the Second Tranche) and/or the
Third Effective Time (as to the Third Tranche), as applicable, for site
reclamation and plugging and abandonment of all Wells. Buyer recognizes

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and specifically assumes the obligation to properly plug and abandon all Wells
and remove all personal property associated with the Assets when appropriate;

          (c) all obligations and liabilities (including, without limitation,
all liabilities and obligations under present and future federal, state and
local laws relating to the protection of health or the environment) in respect
of the condition of the Assets as of the Closings relating to such Assets
(including, without limitation, conditions resulting from, and remediation of,
Environmental Matters occurring on or before the respective Closings), other
than any condition that is the subject of a breach by Seller of any of its
representations and warranties under this Agreement.

As used herein, the term "Environmental Matters" shall mean any pollution,
contamination, degradation, damage or injury, caused by, related to or arising
from or in connection with the generation, use, handling, treatment,
remediation, storage, transportation, disposal, discharge, release or emission
of any Hazardous Materials by, in, on or underlying the Assets. As used in the
preceding definition, "Hazardous Materials" means any asbestos material,
pollutants, contaminants, hazardous, corrosive or toxic substances, special
waste or waste of any kind, and any other material or substance the storage,
manufacture, disposal, treatment, generation, use, transportation, remediation
or release into the environment of which is prohibited, controlled, regulated or
licensed under Environmental Laws. As used herein, "Environmental Laws" means
all laws, statutes, ordinances, rules, regulations, orders or determinations of
any governmental authority pertaining to human health or protection of the
environment in effect now or in the future in the jurisdictions in which the
respective Lease or lands pooled or unitized with such Lease are located.

     Section 1.7 Retained Liabilities. Seller shall retain, and Buyer shall not
                 --------------------
acquire or make any payments or otherwise discharge any liability or obligation
of Seller not specifically enumerated as an Assumed Liability at Section 1.6
                                                                 -----------
herein ("Retained Liabilities") including the following:

          (a) all liabilities and obligations relating to or arising out of
personal injury claims and accounts payable affecting the ownership of the
Assets that arose prior to, or are attributable to periods of times or acts or
omissions prior to, the First Effective Time (as to the First Tranche), the
Second Effective Time (as to the Second Tranche) and/or the Third Effective Time
(as to the Third Tranche), as the case may be, of the respective Closings (other
than those liabilities and obligations referred to in clauses (b) and (c) of the
definition of Assumed Liabilities);

          (b) those liabilities and obligations that result in a credit or
payment to Seller under Section 6.5 herein;

          (c) all liabilities and obligations incurred in violation of, or
arising out of or that are the subject matter of a breach of, the covenants,
representations or warranties of Seller under this Agreement;

          (d) all liabilities and obligations under contracts and agreements to
which the Assets are subject on the date of this Agreement other than the
Contracts;

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          (e)  all liabilities and obligations that result from a breach by
Seller with respect to the Assets as regards preferential rights, consents to
assign and/or notices of transfers.

                                   ARTICLE II

                    REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller hereby represents, warrants and covenants to Buyer that:

     Section 2.1 Organization and Good Standing. Seller is a limited partnership
                 ------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Texas. Seller has the power and authority to own its properties and to
carry on its business as now conducted and to enter into and to carry out the
terms of this Agreement. Seller does not have any subsidiaries.

     Section 2.2 Authorization. Seller has the requisite power and authority, to
                 -------------
execute, deliver and perform its obligations under this Agreement. The
execution, delivery and performance by Seller of this Agreement has been duly
authorized by all necessary action of Seller, and no other act or proceeding on
the part of Seller or its general partner is necessary to authorize the
execution, delivery or performance by Seller of this Agreement.

     Section 2.3 Purchased Assets; Defensible Title. Seller owns Defensible
                 ----------------------------------
Title (as such term is defined below) to all of the Assets. Seller has the right
to convey, and (a) after the First Closing, Seller will have conveyed, and Buyer
will be vested with, Defensible Title to the First Tranche of Assets; and (b)
after the Second Closing, Seller will have conveyed, and Buyer will be vested
with, Defensible Title to the Second Tranche of Assets; and (c) after the Third
Closing, Seller will have conveyed, and Buyer will be vested with, Defensible
Title to the Third Tranche of Assets. "Defensible Title" shall mean, with
respect to Seller, such title, free and clear of all liens and encumbrances and
defects, other than the Contracts, as will (a) entitle Buyer to receive a
percentage of the oil and gas produced and saved from the Wells that is not less
than the net revenue interest of Seller shown on Exhibit "B," without reduction
throughout the productive life of the Wells except as set forth in Exhibit "B,"
and (b) obligate Buyer to bear and pay a portion of the costs and expenses of
operating the Wells that is not greater than the working interest of Seller
shown on Exhibit "B," without increase throughout the productive life of the
Wells except as set forth in Exhibit "B."

     Section 2.4 Consents and Approvals. No consent, approval, order or
                 ----------------------
authorization of, or registration, declaration or filing with, any Person is
required to be made or obtained by Seller in connection with the authorization,
execution, delivery and performance by Seller of this Agreement and the
transactions contemplated hereby, other than those set forth on Schedule 2.4,
                                                                ------------
which will be obtained as soon as practicable following the date hereof, but in
any event prior to the First Closing.

     Section 2.5 No Violation. The execution, delivery and performance by Seller
                 ------------
of this Agreement and the consummation of the transactions contemplated herein,
will not: (a) result in the breach of any of the terms or conditions of, or
constitute a default under, or in any manner release any party thereto from any
obligation under, any mortgage, note, bond, indenture, contract, agreement,
license or other instrument or obligation of any kind or nature by which

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Seller may be bound or affected; (b) violate any law, order, writ, injunction,
rule, regulation, statute or decree of any court, administrative agency, or
Governmental Authority (as defined in Section 7.2 hereof); (c) result in the
                                      -----------
creation or imposition of any liens, mortgages, charges, security interests,
pledges or other encumbrances or adverse claims ("Liens") upon any of the
Assets; or (d) violate any provision of the organizational documents of Seller.

     Section 2.6  Litigation. To the best of Seller's knowledge, there are no
                  ----------
claims, counterclaims, actions, suits, orders, proceedings (arbitration or
otherwise) or investigations pending or threatened against or involving Seller
or the Assets, or relating to the transactions contemplated hereby, at law or in
equity in any court or agency, or before or by any Governmental Authority or
arbitral tribunal that, if granted, could be reasonably expected to have a
Materially Adverse Affect (as hereinafter defined). "Materially Adverse Effect"
shall mean a material adverse effect on the prospects, value, use, operation or
ownership of the First Tranche, the Second Tranche and the Third Tranche of the
Assets, taken not as a whole but individually as to each tranche.

     Section 2.7  No Brokers or Finders. Seller has not retained any broker or
                  ---------------------
finder, made any statement or representation to any Person which would entitle
such Person to, or agreed to pay, any broker's, finder's or similar fees or
commissions in connection with the transactions contemplated by this Agreement.

     Section 2.8  Contracts; Leases. Complete and correct copies of the
                  -----------------
Contracts and Leases have been furnished to Buyer. To the best of Seller's
knowledge, Seller is not in default under any order, judgment, Contract, Lease,
license or instrument, which default or potential default might reasonably be
expected to have a Materially Adverse Effect. To the best of Seller's knowledge,
all of the Contracts and Leases are in full force and effect, and Seller is not
in default or material breach and no event has occurred which, with the giving
of notice or the passage of time or both, would constitute a default by Seller
under any Contracts or Leases. Schedule 2.8(a) identifies all of those Contracts
                               ---------------
and Leases that may not be assigned to Buyer without the consent, approval,
notification or waiver of any Person. Schedule 2.8(b) identifies those Contracts
                                      ---------------
and Leases that are subject to a preferential right to purchase obligation.
Seller has obtained or will obtain as soon as practicable following the date
hereof (but in any event prior to the First Closing) such consents, approvals
and waivers of the preferential right to purchase provisions.

     Section 2.9  Environmental Matters. To Seller's knowledge, there are no
                  ---------------------
notices, claims, suits, actions or proceedings (including government
investigations and audits) now pending or threatened against Seller relating to
Environmental Matters with respect to any of the Assets, and Seller is not aware
of any reasonable basis for believing that any such claims for Environmental
Matters may be asserted against Seller with respect to the Assets.

     Section 2.10 Disclosure. No representation, warranty or statement made by
                  ----------
Seller in this Agreement or any of the exhibits or schedules hereto contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. To the knowledge of Seller, there is no material fact that has not
been

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disclosed to Buyer that might reasonably be expected to have a Materially
Adverse Effect on the Assets or Seller's ability to consummate the transactions
contemplated hereby.

     Section 2.11 Condition of the Assets. EXCEPT AS EXPRESSLY PROVIDED IN THIS
                  -----------------------
AGREEMENT TO THE CONTRARY, BUYER UNDERSTANDS AND AGREES THAT THE ASSETS ARE SOLD
"AS IS" AND "WHERE IS," WITH ALL FAULTS AND DEFECTS, WITHOUT COVENANT,
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED; AND WITHOUT LIMITATION OF THE
GENERALITY OF THE IMMEDIATELY PRECEDING CLAUSE, SELLER EXPRESSLY DISCLAIMS ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, QUALITY,
CONDITION OR MERCHANTABILITY OF THE ASSETS.

                                  ARTICLE III

                     REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer hereby represents, warrants and covenants to Seller that:

     Section 3.1  Corporate Organization. Buyer is a corporation duly organized,
                  ----------------------
validly existing and in good standing under the laws of the State of Delaware.

     Section 3.2  Authorization. The execution and delivery of this Agreement,
                  -------------
the performance by Buyer of its obligations hereunder and the consummation by
Buyer of the transactions contemplated hereby have been duly authorized by all
necessary organizational action and no other act or proceeding on the part of
Buyer is necessary. Buyer has full power and authority to enter into, execute
and deliver this Agreement and to perform its obligations hereunder.

     Section 3.3  No Violation. The execution, delivery and performance by Buyer
                  ------------
of this Agreement and the consummation of the transactions contemplated herein
do not and will not: (a) result in the breach of any of the terms or conditions
of, or constitute a default under, or in any manner release any party thereto
from any obligation under, any mortgage, note, bond, indenture, contract,
agreement, license or other instrument or obligation of any kind or nature by
which Buyer may be bound or affected; (b) violate any law, order, writ,
injunction, rule, regulation, statute or decree of any court, administrative
agency, or Governmental Authority; or (c) violate any provision of the
Certificate of Incorporation or by-laws of Buyer.

     Section 3.4  Consents and Approvals. No consent, approval or authorization
                  ----------------------
of, or declaration, filing or registration with, any Person is required to be
made or obtained by Buyer in connection with the execution and delivery of this
Agreement by Buyer, the performance by Buyer of its obligations hereunder, and
the consummation by it of the transactions contemplated hereby.

     Section 3.5  No Brokers or Finders. Buyer has not retained any broker or
                  ---------------------
finder, made any statement or representation to any Person which would entitle
such Person to, or agreed to pay, any broker's, finder's or similar fees or
commissions in connection with transactions contemplated by this Agreement.

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     Section 3.6  Knowledge of the Business. Buyer is directly and actively
                  -------------------------
engaged in the business of exploration for and production of oil and gas. Buyer
is a sophisticated investor in oil and gas properties and has knowledge and
expertise in financial and business matters relating to the evaluation and
purchase of producing oil and gas properties. Buyer is acquiring the interests
to be conveyed herein for investment purposes and not for distribution in
violation of any applicable securities laws.

                                   ARTICLE IV

                                 INDEMNIFICATION

     Section 4.1  Indemnification by Seller. If the Closings occur, Seller
                  -------------------------
hereby agrees to indemnify, defend and save Buyer and its officers, directors,
employees, agents and Affiliates (all or each, a "Buyer Indemnified Party")
harmless from and against (a) any and all liabilities (whether contingent, fixed
or unfixed, liquidated or unliquidated, or otherwise), obligations,
deficiencies, demands, claims, suits, actions, or causes of action, assessments,
losses, costs, expenses, interest, fines, penalties, and damages (including
reasonable fees and expenses of attorneys, accountants and other experts)
(individually and collectively, the "Losses") suffered, sustained or incurred by
any Buyer Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any misrepresentation or breach of the representations or
warranties of Seller contained in this Agreement or in any exhibit or schedule
hereto; (b) the failure of Seller to perform any of its covenants or obligations
contained in this Agreement; (c) the liabilities and obligations (other than
Assumed Liabilities) relating to or arising out of the ownership of the Assets
and attributable to any act, omission, occurrence or event occurring prior to
the First Effective Time as to the First Tranche of Assets, prior to the Second
Effective Time as to the Second Tranche of Assets and prior to the Third
Effective Time as to the Third Tranche of Assets; and (d) any and all Losses
arising directly or indirectly out of the Retained Liabilities.

     Section 4.2  Indemnification by Buyer. If the Closings occur, Buyer agrees
                  ------------------------
to indemnify, defend and save Seller and its Affiliates, and their respective
officers, directors, employees and agents (each, a "Seller Indemnified Party")
forever harmless from and against any and all Losses sustained or incurred by
any Seller Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of: (a) any misrepresentation in or breach of the
representations and warranties of Buyer contained in this Agreement or in any
schedule or exhibit hereto; (b) the failure of Buyer to perform any of its
covenants or obligations contained in this Agreement or in any exhibit or
schedule hereto; (c) the liabilities and obligations (other than Retained
Liabilities) relating to or arising out of ownership of the Assets and
attributable to any act, omission, occurrence or event occurring after the First
Effective Time as to the First Tranche of Assets, after the Second Effective
Time as to the Second Tranche of Assets and after the Third Effective Time as to
the Third Tranche of Assets; (d) all liabilities and obligations (including,
without limitation, all liabilities and obligations under present and future
federal, state and local laws relating to the protection of health or the
environment) in respect of Environmental Matters occurring before or after the
respective Closings, other than any condition that is the subject of a breach by
Seller or its representations and warranties under this Agreement and (e) all
Assumed Liabilities.

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     Section 4.3  Indemnification Procedure. Any party seeking indemnification
                  -------------------------
pursuant to this Article IV shall promptly provide written notice of any claim
to the party from which it seeks indemnification within a reasonable period of
time. The indemnifying Person, if it so elects, shall assume and control the
defense thereof (and shall consult with the indemnified person with respect
thereto), including the employment of counsel reasonably satisfactory to the
indemnified person within ten (10) business days after receipt of the notice
with respect thereto, and the payment of all necessary expenses; provided that
                                                                 -------- ----
as a condition precedent to the indemnifying person's right to assume control of
such defense, it must first enter into an agreement with the indemnified person
(in form and substance reasonably satisfactory to the indemnified person)
pursuant to which the indemnifying person agrees to be fully responsible for all
losses relating to such claim and unconditionally guarantees the payment and
performance of any liability or obligation which may arise with respect to such
claim or the facts giving rise to such claim for indemnification; provided
                                                                  --------
further that the indemnifying person shall not have the right to assume control
-------
of such defense if the claim which the indemnifying person seeks to assume
control of (i) seeks non-monetary relief or (ii) involves criminal or
quasi-criminal allegations; and provided further that (i) the indemnifying
                                -------- -------
person shall not consent to the imposition of any injunction against the
indemnified person without the written consent of the indemnified person, (ii)
the indemnifying person shall permit the indemnified person to participate in
such conduct or settlement through counsel chosen by the indemnified person, but
the fees and expenses of such counsel shall be borne by the indemnified person
(except as provided below), and (iii) upon a final determination of such action,
suit or proceeding, the indemnifying person shall promptly reimburse to the full
extent required under this Article IV the indemnified person for the full amount
of any Loss resulting from such action, suit or proceeding and all reasonable
and related expenses incurred by the indemnified person, other than fees and
expenses of counsel for the indemnified person incurred after the assumption of
the conduct and control of such action, suit or proceeding by the indemnifying
person (except as provided below). If the indemnifying person is permitted to
assume and control the defense and elects to do so, the indemnified person shall
have the right to employ counsel separate from counsel employed by the
indemnifying person in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel employed by the indemnified
person shall be at the expense of the indemnified person unless (i) the
employment thereof has been specifically authorized by the indemnifying person
in writing, (ii) the indemnifying person has been advised by counsel that a
reasonable likelihood exists of a conflict of interest between the indemnifying
person and the indemnified person, (iii) the indemnifying person has failed to
assume the defense and employ counsel; or (iv) the indemnified person has
reasonably determined that an adverse outcome could have a material adverse
effect on its business reputation or could reasonably be expected to have a
materially adverse precedential effect; in which case the fees and expenses of
the indemnified person's counsel shall be paid by the indemnifying person. In
the event the indemnifying person fails to elect to defend such claim in
accordance with the foregoing, then the indemnified person may elect, but shall
not be required, to defend against or settle such claim as it sees fit, provided
that any settlement of such claim shall require the consent of the indemnifying
person, which consent shall not be unreasonably withheld.

     Section 4.4  Failure to Give Timely Notice. A failure by an indemnified
                  -----------------------------
person to give timely, complete or accurate notice as provided in Section 4.3
                                                                  -----------
will not affect the rights or

                                       10

<PAGE>

obligations of any party hereunder except and only to the extent that such
failure results in actual prejudice to the indemnifying person.

                                    ARTICLE V

                               CLOSING CONDITIONS

     Section 5.1 Buyer's Conditions to Closings. The obligation of Buyer to
                 ------------------------------
proceed with the Closings contemplated hereby is subject to the satisfaction on
or prior to the Closings of all of the following conditions:

          (a) Representations and Warranties. The representations and warranties
              ------------------------------
of Seller contained in Article II of this Agreement shall be true and correct in
all material respects with respect to the Assets (covered by such closing).

          (b) Board Approval. Buyer shall have received authorization to acquire
              --------------
the Assets (covered by such closing) from its Board of Directors.

          (c) Due Diligence. Buyer shall have reviewed and approved all
              -------------
documents and information, including title and production records, for the
Assets (covered by such closing) relating thereto.

                                   ARTICLE VI

                                    CLOSINGS

     Section 6.1 Closings. The transactions that are the subject of this
                 --------
Agreement shall be consummated at three closings (the "Closings").

          (a) The first closing shall be held at the offices of Seller in
Magnolia, Texas as soon as possible but no later than January 31, 2002 (the
"First Closing"). The ownership of the First Tranche of Assets shall be
transferred from Seller to Buyer at the First Closing but effective as of 7:00
a.m., Central Time, January 1, 2002 (the "First Effective Time").

          (b) The second closing shall be held at the offices of Seller in
Magnolia, Texas on April 1, 2002 (the "Second Closing"). The ownership of the
Second Tranche of Assets shall be transferred from Seller to Buyer at the Second
Closing but effective as of 7:00 a.m., Central Time, April 1, 2002 (the "Second
Effective Time").

          (c) The third closing shall be held at the offices of Seller in
Magnolia, Texas on July 1, 2002 (the "Third Closing"). The ownership of the
Second Tranche of Assets shall be transferred from Seller to Buyer at the Third
Closing effective as of 7:00 a.m., Central Time, July 1, 2002 (the "Third
Effective Time").

     Section 6.2 Deliveries by Seller.
                 --------------------

                                       11

<PAGE>

          (a) At the First Closing, pursuant to this Agreement, Seller shall
execute and deliver to Buyer: (i) an Assignment and Bill of Sale (in the form
attached hereto as Schedule 6.2) transferring to Buyer the First Tranche of
                   ------------
Assets; and (ii) such other documents and instruments as Buyer may reasonably
require.

          (b) At the Second Closing, pursuant to this Agreement, Seller shall
execute and deliver to Buyer: (i) an Assignment and Bill of Sale transferring to
Buyer the Second Tranche of Assets; and (ii) such other documents and
instruments as Buyer may reasonably require.

          (c) At the Third Closing, pursuant to this Agreement, Seller shall
execute and deliver to Buyer: (i) an Assignment and Bill of Sale transferring to
Buyer the Third Tranche of Assets; and (ii) such other documents and instruments
as Buyer may reasonably require.

     All such other documents and instruments delivered to Buyer, as applicable,
shall be in form and substance reasonably satisfactory to Buyer.

     Section 6.3 Deliveries by Buyer.
                 -------------------

          (a) At the First Closing, Buyer shall deliver to Seller: (i) a wire
transfer of immediately available funds for the portion of the Purchase Price
(as set forth in Section 1.3 hereof) payable at the First Closing and (ii) such
                 -----------
other documents and instruments as Seller may reasonably require in order to
effectuate the transactions which are the subject of this Agreement.

          (b) At the Second Closing, Buyer shall deliver to Seller: (i) a wire
transfer of immediately available funds for the portion of the Purchase Price
(as set forth in Section 1.3 hereof) payable at the Second Closing and (ii) such
                 -----------
other documents and instruments as Seller may reasonably require in order to
effectuate the transactions which are the subject of this Agreement.

          (c) At the Third Closing, Buyer shall deliver to Seller: (i) a wire
transfer of immediately available funds for the portion of the Purchase Price
(as set forth in Section 1.3 hereof) payable at the Third Closing and (ii) such
                 -----------
other documents and instruments as Seller may reasonably require in order to
effectuate the transactions which are the subject of this Agreement.

     All documents and instruments delivered to Seller shall be in form and
substance reasonably satisfactory to Seller.

     Section 6.4 Further Assurances. From time to time after each of the
                 ------------------
Closings, as applicable, and without further consideration, the Parties shall
execute such further documents and perform such further acts as may be necessary
to transfer and convey the Assets to Buyer, on the terms contained herein, and
to otherwise comply with the terms of this Agreement and consummate the
transactions contemplated hereby.

     Section 6.5 Post Closing Adjustments. Within 90 days after each Closing,
                 ------------------------
Seller and Buyer shall jointly prepare a final accounting statement for the
gross revenue, if any, received by Seller for hydrocarbons and liquid
hydrocarbon inventory produced from the Assets from and after the First
Effective Time (as to the First Tranche of Assets), the Second Effective Time
(as

                                       12

<PAGE>

to the Second Tranche of Assets) and the Third Effective Time (as to the Third
Tranche of Assets), as applicable, less reasonable and documented expenses
incurred by the Seller for periods of times from and after the applicable
effective times and attributable to the operation of the Assets or sale of such
hydrocarbons and liquid hydrocarbon inventory following the First, Second and
Third Effective Times, respectively. The Parties shall have 30 days following
completion of such accounting to agree as to its accuracy. Following such
agreement, Seller or Buyer, as the case may be, shall promptly pay to the other
such sum as may be found due. Nothing in this Section 6.5 in intended to limit
                                              -----------
any right of Seller or Buyer to assert a claim for reimbursement after the final
accounting with respect to each Closing.

     Section 6.6 Failure to Close. If any of the Closings do not occur on or
                 ----------------
before their scheduled closing dates as set forth hereunder, either party may
terminate this Agreement by giving written notice to the other party.
Thereafter, neither party shall have any further obligations to the other
hereunder, other than any obligations and liabilities arising prior to such
termination and those obligations that by their terms survive the termination of
this Agreement.

                                   ARTICLE VII

                                  MISCELLANEOUS

     Section 7.1 Notices. All notices, reports, records or other communications
                 -------
that are required or permitted to be given to the Parties under this Agreement
shall be sufficient in all respects if given in writing and delivered in person,
by telecopy, by overnight courier or by registered or certified mail, postage
prepaid, return receipt requested, to the receiving party at the following
address:

     If to Seller:              Juneau Exploration, L.P.
                                26902 Nichols Sawmill Road
                                Magnolia, TX 77355
                                Attention:  John B. Juneau
                                Telecopier: 281.356.2666
                                Phone: 281.356.6494

     If to Buyer:               Contango Oil & Gas Company
                                3700 Buffalo Speedway, Suite 960
                                Houston, TX  77098
                                Attention:  Kenneth R. Peak
                                Telecopier: 713.960.1065
                                Phone: 713.960.1901

or such other address as such party may have given to the other party by notice
pursuant to this Section 7.1. Notice shall be deemed given on (i) the date such
                 -----------
notice is personally delivered, (ii) three (3) days after the mailing if sent by
Certified or Registered Mail, (iii) one (1) day after the date of delivery to
the overnight courier if sent by overnight courier, or (iv) the next succeeding
day after transmission by facsimile.

                                       13

<PAGE>

     Section 7.2 General Definitions. For the purposes of this Agreement, the
                 -------------------
following terms have the meaning set forth below:

     "Affiliate" with respect to any party, any Person directly or indirectly
controlling, controlled by, or under common control with such party, and any
officer, director or executive employee of such party and includes any past or
present Affiliate of any such Person.

     "Governmental Authority" means any federal, state, provincial, local,
governmental, judicial, public, quasi-public or administrative authority or
agency.

     "Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated association,
corporation, other entity or any Governmental Authority.

     Section 7.3 Entire Agreement. The Schedules and Exhibits attached to this
                 ----------------
Agreement shall be deemed to be an integral part of this Agreement. This
Agreement, including the Schedules and Exhibits, set forth the entire
understanding of the Parties with respect to the subject matter hereof and may
be modified only by instruments signed by both of the Parties hereto.

     Section 7.4 Counterparts. This Agreement may be executed via facsimile in
                 ------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

     Section 7.5 Third Parties. Nothing in this Agreement, express or implied,
                 -------------
is intended to confer any right or remedy under or by reason of this Agreement
on any Person other than the Parties hereto and their respective heirs,
representatives, successors and assigns, nor is anything set forth herein
intended to affect or discharge the obligation or liability of any third persons
to any party to this Agreement, nor shall any provision give any third party any
right of subrogation or action over against any party to this Agreement.

     Section 7.6 Expenses. Each of the Parties shall pay all costs and expenses
                 --------
incurred or to be incurred by it in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated by hereunder,
including, without limitation, legal and accounting fees and expenses.

     Section 7.7 Waiver. No failure of any party to exercise any right or remedy
                 ------
given such party under this Agreement or otherwise available to such party or to
insist upon strict compliance by any other party with its obligations hereunder,
and no custom or practice of the Parties in variance with the terms hereof,
shall constitute a waiver of any party's right to demand exact compliance with
the terms hereof, unless such waiver is set forth in writing and executed by
such party.

     Section. 7.8 Survival. All representations, warranties, indemnifications
                  --------
and rights to set off of the Parties hereto contained in or arising out of this
Agreement or otherwise in connection herewith shall survive the Closings
hereunder and shall continue in effect until the expiration of all applicable
statute of limitations (including any extensions of said statute). Unless a
specified period is set forth in this Agreement (in which event such specified
period will

                                       14

<PAGE>

control), all covenants contained in this Agreement will survive the Closings
and remain in effect indefinitely.

     Section 7.8  Governing Law; Jurisdiction. This Agreement shall be construed
                  ---------------------------
and governed in accordance with the laws of the State of Texas without regard to
the principles of conflicting laws. Any action to enforce, or which arises out
of or relates in any way to, any of the provisions of this Agreement shall be
brought and prosecuted solely in the Texas state courts or the Federal district
courts located in Harris County, Texas.

     Section 7.9  Assignment. No party may assign its rights or delegate its
                  ----------
obligations hereunder without the consent of the other party. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
Parties hereto and their respective heirs, successors and assigns.

     Section 7.10 Confidentiality. Buyer and Seller acknowledge that all
                  ---------------
information furnished or disclosed pursuant hereto must remain confidential.
Buyer and Seller must mutually approve all press releases. Buyer may disclose
such information only to its subsidiaries or Affiliates, agents, advisors or
representatives who have need to know such information and who have agreed in
writing, prior to being given access to such information, to be bound by the
terms of this Section 7.10.
              ------------

     Section 7.11 Severability. If any term or other provision of this Agreement
                  ------------
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any adverse manner to
any party. Upon any binding determination that any term or other provision is
invalid, illegal or incapable of being enforced, the Parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible and in an acceptable manner, to the end that the
transaction hereby may be contemplated to the extent possible.

     Section 7.12 DTPA. Each party hereby certifies to the other that it is not
                  ----
a "Consumer" within the meaning of the Texas Deceptive Trade Practices -
Consumer Protection Act, Subchapter E of Chapter 17, Section 17.41, et. Seq. of
the Texas Business and Commerce Code, as amended (the "DTPA"). The Parties
covenant, for themselves and for an on behalf of any successors and assigns,
that if the DTPA is applicable, (a) the Parties are "business consumers"
thereunder and (b) each party hereby waives and releases all of its rights and
remedies thereunder (other than Section 17.555, Texas Business and Commercial
Code) as applicable to the other party and its successors and (c) each party
shall defend and indemnify the other party from and against any and all claims,
demands or causes of action of or by that party or any successor or any of its
Affiliates based in whole or in part on the DTPA, arising out of or in
connection with the transaction set forth in this Agreement.

     Section 7.13 Headings. The subject headings of paragraphs and subparagraphs
                  --------
of this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.

                                       15

<PAGE>

     Section 7.14 Construction. Where specific language is used to clarify by
                  ------------
example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. The language used in this Agreement shall
be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any party.

                                       16

<PAGE>

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

                                   SELLER:

                                   JUNEAU EXPLORATION, L.P.
                                   By:  Juneau GP, LLC
                                        Its General Partner

                                   By:  /s/  JOHN B. JUNEAU
                                        --------------------------------------
                                        John B. Juneau
                                        Sole Manager

                                   BUYER:

                                   CONTANGO OIL & GAS COMPANY,
                                   a Delaware corporation

                                   By:  /s/  KENNETH R. PEAK
                                        --------------------------------------
                                        Kenneth R. Peak
                                        President and Chief Executive Officer

                                       17<PAGE>
                                                                    EXHIBIT 10.2

--------------------------------------------------------------------------------

                       FIRST AMENDMENT TO CREDIT AGREEMENT

                                     BETWEEN

                           CONTANGO OIL & GAS COMPANY

                                       AND

                               GUARANTY BANK, FSB
                                    AS LENDER

                         Effective as of January 8, 2002

                       ----------------------------------

             REDUCING REVOLVING LINE OF CREDIT OF UP TO $50,000,000

                       -----------------------------------

--------------------------------------------------------------------------------

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
ARTICLE I   DEFINITIONS ..................................................   1
1.01        Terms Defined Above ..........................................   1
1.02        Terms Defined in Agreement ...................................   1
1.03        References ...................................................   1
1.04        Articles and Sections ........................................   1
1.05        Number and Gender ............................................   1
ARTICLE II  AMENDMENTS ...................................................   2
2.01        Amendment of Section 1.2 .....................................   2
2.02        Amendment of Section 2.2 .....................................   3
2.03        Amendment of Section 2.6(a) ..................................   3
2.04        Amendment of Section 2.7 .....................................   3
2.05        Addition of Section 2.17 .....................................   4
2.06        Addition of Section 2.18 .....................................   4
2.07        Amendment to Preamble to Article III .........................   5
2.08        Amendment of Section 3.2 .....................................   5
2.09        Amendment of Section 3.3 .....................................   6
2.10        Amendment of Article IV ......................................   7
2.11        Amendment of Section 5.18 ....................................   7
2.12        Amendment of Section 5.20 ....................................   8
2.13        Amendment of Section 7.1 .....................................   8
2.14        Amendment of Section 8.7 .....................................   8
2.15        Amendment of Exhibit I .......................................   9
ARTICLE III CONDITIONS ...................................................   9
3.01        Receipt of Documents .........................................   9
3.02        Accuracy of Representations and Warranties ...................   9
3.03        Matters Satisfactory to Lender ...............................   9
ARTICLE IV  REPRESENTATIONS AND WARRANTIES ...............................   9
ARTICLE V   RATIFICATION .................................................  10
ARTICLE VI  MISCELLANEOUS ................................................  10
6.01        Scope of Amendment ...........................................  10
6.02        Agreement as Amended .........................................  10
6.03        Parties in Interest ..........................................  10
6.04        Rights of Third Parties ......................................  10
6.05        ENTIRE AGREEMENT .............................................  10
6.06        GOVERNING LAW ................................................  10
6.07        JURISDICTION AND VENUE .......................................  11
</TABLE>

                                        i

<PAGE>

                       FIRST AMENDMENT TO CREDIT AGREEMENT
                       -----------------------------------

     This FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is made
                                                     ---------------
and entered into effective as of January 8, 2002, between CONTANGO OIL & GAS
COMPANY, a Delaware corporation, (the "Borrower"), and GUARANTY BANK, FSB, a
                                       --------
federal savings bank (the "Lender").
                           ------

                               W I T N E S S E T H
                               - - - - - - - - - -

     WHEREAS, the above named parties did execute and exchange counterparts of
that certain Credit Agreement dated June 29, 2001 (the "Agreement"), to which
                                                        ---------
reference is here made for all purposes;

     WHEREAS, the parties subject to and bound by the Agreement are desirous of
amending the Agreement in the particulars hereinafter set forth;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties to the Agreement, as set forth therein, and the mutual covenants and
agreements of the parties hereto, as set forth in this First Amendment, the
parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     1.01 Terms Defined Above. As used herein, each of the terms "Agreement,"
          -------------------                                     ---------
"Borrower," "First Amendment," and "Lender" shall have the meaning assigned to
 --------    ---------------        ------
such term hereinabove.

     1.02 Terms Defined in Agreement. As used herein, each term defined in the
          --------------------------
Agreement shall have the meaning assigned thereto in the Agreement, unless
expressly provided herein to the contrary.

     1.03 References. References in this First Amendment to Article or Section
          ----------
numbers shall be to Articles and Sections of this First Amendment, unless
expressly stated herein to the contrary. References in this First Amendment to
"hereby," "herein," hereinafter," hereinabove," "hereinbelow," "hereof," and
"hereunder" shall be to this First Amendment in its entirety and not only to the
particular Article or Section in which such reference appears.

     1.04 Articles and Sections. This First Amendment, for convenience only, has
          ---------------------
been divided into Articles and Sections and it is understood that the rights,
powers, privileges, duties, and other legal relations of the parties hereto
shall be determined from this First Amendment as an entirety and without regard
to such division into Articles and Sections and without regard to headings
prefixed to such Articles and Sections.

     1.05 Number and Gender. Whenever the context requires, reference herein
          -----------------
made to the single number shall be understood to include the plural and likewise
the plural shall be understood to include the singular. Words denoting sex shall
be construed to include the masculine, feminine, and

                                        1

<PAGE>

neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative. Definitions of
terms defined in the singular and plural shall be equally applicable to the
plural or singular, as the case may be.

                                   ARTICLE II
                                   AMENDMENTS
                                   ----------

     The Borrower and the Lender hereby amend the Agreement in the following
particulars:

     2.01 Amendment of Section 1.2. Section 1.2 of the Agreement shall be
          ------------------------
amended to read as follows:

     Section 1.2 of the Agreement is hereby amended to add and/or amend the
     following definitions to read as follows, in proper alphabetical order:

     "Available Commitment" shall mean, at any time, an amount equal to the
      --------------------
     remainder, if any, of (a) the Borrowing Base in effect at such time minus
     (b) the sum of the Loan Balance at such time.

     "Commitment" shall mean the obligation of the Lender, subject to applicable
      ----------
     provisions of this Agreement, to make Loans to or for the benefit of the
     Borrower pursuant to Section 2.1 and to issue Letters of Credit pursuant to
     Section 2.17.

     "L/C Exposure" shall mean, at any time, the aggregate maximum amount
      ------------
     available to be drawn under outstanding Letters of Credit at such time.

     "Letter of Credit" shall mean any standby letter of credit issued by the
      ----------------
     Lender for the account of the Borrower pursuant to Section 2.17.

     "Letter of Credit Application" shall mean the standard letter of credit
      ----------------------------
     application employed by the Lender from time to time in connection with
     letters of credit.

     "Letter of Credit Fee" shall mean each fee payable to the Lender by the
      --------------------
     Borrower pursuant to Section 2.18 upon or in connection with the issuance
     of a Letter of Credit.

     "Loan" shall mean any loan made by the Lender to or for the benefit of the
      ----
     Borrower pursuant to this Agreement and any payment made by the Lender
     under a Letter of Credit.

     "Loan Balance" shall mean, at any time, the outstanding principal balance
      ------------
     of the Note plus the L/C Exposure at such time.

     "Loan Documents" shall mean this Agreement, the Note, the Letter of Credit
      --------------
     Applications, the Letters of Credit, the Security Instruments, and all
     other documents and instruments now or hereafter delivered pursuant to the
     terms of or in connection with this Agreement, the Note, the Letter of
     Credit Applications, the Letters of Credit, or the Security Instruments,
     and all renewals and extensions of, amendments

                                        2

<PAGE>

     and supplements to, and restatements of, any or all of the foregoing from
     time to time in effect.

     "Obligations" shall mean, without duplication, (a) all Indebtedness
      -----------
     evidenced by the Note, (b) the Reimbursement Obligations, (c) the undrawn,
     unexpired amount of all outstanding Letters of Credit, (d) the obligation
     of the Borrower for the payment of Commitment Fees, Facility Fees, Letter
     of Credit Fees, and Engineering Fees, (e) all obligations and liabilities
     whether now existing or hereafter arising of the Borrower to the Lender in
     connection with any Commodity Hedge Agreement or Rate Management
     Transaction, and (f) all other obligations and liabilities of the Borrower
     to the Lender, now existing or hereafter incurred, under, arising out of or
     in connection with any Loan Document, and to the extent that any of the
     foregoing includes or refers to the payment of amounts deemed or
     constituting interest, only so much thereof as shall have accrued, been
     earned and which remains unpaid at each relevant time of determination.

     "Reimbursement Obligation" shall mean the obligation of the Borrower to
      ------------------------
     provide to the Lender or reimburse the Lender for any amounts payable,
     paid, or incurred by the Lender with respect to Letters of Credit.

     2.02 Amendment of Section 2.2. Section 2.2 of the Agreement is hereby
          ------------------------
amended to read as follows:

     "2.2 Use of Loan Proceeds and Letters of Credit. (a) Proceeds of all Loans
          ------------------------------------------
     shall be used solely to refinance existing bank debt and for funding
     development, exploration and acquisition activities and other general
     corporate purposes.

     (b) Letters of Credit shall be used solely for general corporate purposes;
     provided, however, no Letter of Credit may be used in lieu or in support of
     stay or appeal bonds."

     2.03 Amendment of Section 2.6(a). Section 2.6(a) is amended to read as
          ---------------------------
follows:

     "2.6 Borrowing Base Determination. (a) The Borrowing Base as of January 1,
          ----------------------------
     2002, is acknowledged by the Borrower and the Lender to be $17,000.000.00.
     Commencing on February 1, 2002, and continuing thereafter on the first day
     of each calendar month through the next Borrowing Base review the amount of
     the Borrowing Base shall be reduced by $450,000.00."

     2.04 Amendment of Section 2.7. Section 2.7 of the Agreement is hereby
          ------------------------
amended to read as follows:

     "2.7 Mandatory Prepayments. If at any time the sum of the Loan Balance and
          ---------------------
     the L/C Exposure exceeds the Borrowing Base then in effect, the Borrower
     shall, within 30 days of notice from the Lender of such occurrence, (a)
     prepay, or make arrangements acceptable to the Lender for the prepayment
     of, the amount of such excess for application on the Loan Balance, (b)
     provide additional collateral, of character and value satisfactory to the
     Lender in its sole discretion, to secure the

                                        3

<PAGE>

     Obligations by the execution and delivery to the Lender of security
     instruments in form and substance satisfactory to the Lender, or (c) effect
     any combination of the alternatives described in clauses (a) and (b) of
     this Section and acceptable to the Lender in its sole discretion. In the
     event that a mandatory prepayment is required under this Section and the
     Loan Balance is less than the amount required to be prepaid, the Borrower
     shall repay the entire Loan Balance and, in accordance with the provisions
     of the relevant Letter of Credit Applications executed by the Borrower or
     otherwise to the satisfaction of the Lender, deposit with the Lender, as
     additional collateral securing the Obligations, an amount of cash, in
     immediately available funds, equal to the L/C Exposure minus the Borrowing
     Base. The cash deposited with the Lender in satisfaction of the requirement
     provided in this Section may be invested, at the sole discretion of the
     Lender and then only at the express direction of the Borrower as to
     investment vehicle and maturity (which shall be no later than the latest
     expiry date of any then outstanding Letter of Credit), for the account of
     the Borrower in cash or cash equivalent investments offered by or through
     the Lender."

     2.05 Addition of Section 2.17. A new section designated "Section 2.17" is
          ------------------------
hereby added to the Agreement to read as follows:

     "2.17 Letter of Credit Facility. (a) Upon the terms and conditions
           -------------------------
     (including, without limitation, the right of the Lender to decline to issue
     any Letter of Credit so long as any Default or Event of Default exists) and
     relying on the representations and warranties contained in this Agreement,
     the Lender agrees, during the Commitment Period, to issue Letters of Credit
     following the receipt not less than two Business Days prior to the
     requested date for issuance of the relevant Letter of Credit, of a Letter
     of Credit Application executed by the Borrower; provided, however, (a) no
     Letter of Credit shall have an expiration date which is more than 60 days
     after the issuance thereof or subsequent to the Commitment Termination
     Date, and (b) the Lender shall not be obligated to issue any Letter of
     Credit if (i) the face amount thereof would exceed the Available
     Commitment, or (ii) after giving effect to the issuance thereof, (A) the
     L/C Exposure, when added to the Loan Balance then outstanding, would exceed
     the Borrowing Base then in effect, or (B) the L/C Exposure would exceed
     $3,000,000.

     (b) Should the Lender be called upon by the beneficiary of any Letter of
     Credit to honor all or any portion of the commitment thereunder, whether
     upon the presentation of drafts or otherwise, such payment by the Lender on
     account of such Letter of Credit shall be treated, for all purposes, as a
     Floating Rate Loan and an advance against the Note."

     2.06 Addition of Section 2.18. A new section designated "Section 2.18" is
          ------------------------
hereby added to the Agreement to read as follows:

     "2.18 Letter of Credit Fee. In addition to interest on the Note as provided
           --------------------
     herein and all other fees payable hereunder, the Borrower agrees to pay to
     the Lender, on the date of issuance of each Letter of Credit, a fee equal
     to two percent (2%) per annum, or a minimum of $500, calculated on the
     basis of a year of 365 or 366 days, as the

                                        4

<PAGE>

     case may be, and actual days elapsed (including the first day but excluding
     the last day), on the face amount of such Letter of Credit during the
     period for which such Letter of Credit is issued; provided, however, in the
     event such Letter of Credit is canceled prior to its original expiry date
     or a payment is made by the Lender with respect to such Letter of Credit,
     the Lender shall, within 30 days after such cancellation or the making of
     such payment, rebate to the Borrower the unearned portion of such fee. The
     Borrower also agrees to pay to the Lender on demand its customary letter of
     credit transactional fees, including, without limitation, amendment fees,
     payable with respect to each Letter of Credit."

     2.07 Amendment to Preamble to Article III. The preamble to Article III is
          ------------------------------------
hereby amended to read as follows:

     "The obligations of the Lender to enter into this Agreement and to make
     Loans and issue Letters of Credit are subject to the satisfaction of the
     following conditions precedent:"

     2.08 Amendment of Section 3.2. Section 3.2 of the Agreement is hereby
          ------------------------
amended to read as follows:

     "3.2 Each Loan and Letter of Credit. In addition to the conditions
          ------------------------------
     precedent stated elsewhere herein, the Lender shall not be obligated to
     make any Loan or issue any Letter of Credit unless:

     (a) the Borrower shall have delivered to the Lender a Borrowing Request at
     least the requisite time prior to the requested date for the relevant Loan,
     or a Letter of Credit Application at least two Business Days prior to the
     requested issuance date for the relevant Letter of Credit and each
     statement or certification made in such Borrowing Request or Letter of
     Credit Application, as the case may be, shall be true and correct in all
     material respects on the requested date for such Loan or the issuance of
     such Letter of Credit;

     (b) no Event of Default or Default shall exist or will occur as a result of
     the making of the requested Loan or the issuance of the requested Letter of
     Credit;

     (c) if requested by the Lender, the Borrower shall have delivered evidence
     satisfactory to the Lender substantiating any of the matters contained in
     this Agreement which are necessary to enable the Borrower to qualify for
     such Loan or the issuance of such Letter of Credit;

     (d) the Lender shall have received, reviewed, and approved such additional
     documents and items as described in Section 3.1 as may be requested by the
     Lender with respect to such Loan or Letter of Credit;

     (e) no event shall have occurred which, in the reasonable opinion of the
     Lender, could have a Material Adverse Effect;

                                        5

<PAGE>

     (f) each of the representations and warranties contained in this Agreement
     shall be true and correct and shall be deemed to be repeated by the
     Borrower as if made on the requested date for such Loan or the issuance of
     such Letter of Credit;

     (g) all of the Security Instruments shall be in full force and effect and
     provide to the Lender the security intended thereby;

     (h) neither the consummation of the transactions contemplated hereby nor
     the making of such Loan the issuance of such Letter of Credit shall
     contravene, violate, or conflict with any Requirement of Law;

     (i) the Borrower shall hold full legal title to the Collateral pledged by
     such entity and be the sole beneficial owner thereof;

     (j) the Lender shall have received the payment of all Engineering Fees,
     Facility Fees, Letter of Credit Fees, and other fees payable to the Lender
     hereunder and reimbursement from the Borrower, or special legal counsel for
     the Lender shall have received payment from the Borrower, for (i) all
     reasonable fees and expenses of counsel to the Lender for which the
     Borrower is responsible pursuant to applicable provisions of this Agreement
     and for which invoices have been presented as of or prior to the date of
     the relevant Loan or Letter of Credit Application, and (ii) estimated fees
     charged by filing officers and other public officials incurred or to be
     incurred in connection with the filing and recordation of any Security
     Instruments, for which invoices have been presented as of or prior to the
     date of the requested Loan or Letter of Credit Application; and

     (k) all matters incident to the consummation of the transactions hereby
     contemplated shall be satisfactory to the Lender."

     2.09 Amendment of Section 3.3. Section 3.3 of the Agreement is hereby
          ------------------------
amended to read as follows:

     "3.3 Mortgage of Oil and Gas Properties. The following documents will be
          ----------------------------------
     required upon the execution of this First Amendment:

     (a) Deed of Trust, Security Agreement, Assignment of Production, and
     Financing Statement from the Borrower covering all Oil and Gas Properties
     of the Borrower and all improvements, personal property, and fixtures
     related thereto;

     (b) Financing Statements from the Borrower, as debtors, constituent to the
     instrument described in clause (a) above;

     (c) undated letters, in form and substance satisfactory to the Lender, from
     the Borrower to each purchaser of production and disburser of the proceeds
     of production from or attributable to the Mortgaged Properties, together
     with additional letters with the addressees left blank, authorizing and
     directing the addressees to make future payments attributable to production
     from the Mortgaged Properties directly to the Lender;"

                                       6

<PAGE>

     2.10 Amendment of Article IV. The preamble to Article IV of the Agreement
          -----------------------
is hereby amended to read as follows:

     "To induce the Lender to enter into this Agreement and to make the Loans
     and issue Letters of Credit, the Borrower represents and warrants to the
     Lender (which representations and warranties shall survive the delivery of
     the Note) that:"

     2.11 Amendment of Section 5.18. Section 5.18 of the Agreement is hereby
          -------------------------
amended to read as follows:

     "5.18 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS SHAREHOLDERS,
           ---------------
     OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES
     AND EACH TRUSTEE FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY
     INSTRUMENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES,
     LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL
     PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND
     ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN
     CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND
     EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A)
     THE PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF
     THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY
     CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER, WHETHER
     PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY
     PREDECESSOR IN TITLE, EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE
     BORROWER OR ANY OTHER PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH
     PROPERTY, IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE,
     DECONTAMINATION, CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS
     SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C)
     ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE BORROWER, (D)
     ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING IN
     CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
     DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY EMPLOYEE,
     AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE
     ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER,
     IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN
     IN ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE
     AND ENFORCEMENT OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF
     A LETTER OF CREDIT OF A WRONGFUL DISHONOR BY THE LENDER OF A CLAIM OR DRAFT
     PRESENTED THEREUNDER, OR

                                        7

<PAGE>

     ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN
     DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
     LIMITATION, ANY OF THE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE,
     WHETHER SOLE OR CONCURRENT, ON THE PART OF THE LENDER OR ANY OF ITS
     SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
     AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY
     INSTRUMENT; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL
     OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH
     OBLIGATIONS HAVE BEEN SATISFIED WHOLLY IN CASH FROM THE BORROWER AND NOT BY
     WAY OF REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY PROPERTY
     IN LIEU THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY ACT
     OR OMISSION BY THE LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT TO THE
     LENDER BECOMING THE OWNER OF SUCH PROPERTY AND WITH RESPECT TO WHICH
     PROPERTY SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY, CHARGE,
     PROCEEDING, ORDER, JUDGMENT, ACTION, OR REQUIREMENT ARISES SUBSEQUENT TO
     THE ACQUISITION OF TITLE THERETO BY THE LENDER."

     2.12  Amendment of Section 5.20. Section 5.20 of the Agreement is amended
           -------------------------
to read as follows:

     "5.20 Pledge of Collateral. Borrower agrees to pledge certain of the Oil
           --------------------
     and Gas Properties described in the Purchase and Sale Agreement dated
     effective as of January 1, 2002, between the Borrower and Juneau
     Exploration L.P. and conveyed to Borrower on April 1, 2002, and July 1,
     2002. The Lender will determine at its sole descretion which of the Oil and
     Gas Properties to be pledged.

     2.13  Amendment of Section 7.1. Subparagraph (e) of Section 7.1 of the
           ------------------------
Agreement is hereby amended to read as follows:

     "(e) the Borrower shall be unable to satisfy any condition or cure any
     circumstance specified in Article III, the satisfaction or curing of which
     is precedent to the right of the Borrower to obtain a Loan or the issuance
     of a Letter of Credit, and such inability shall continue for a period in
     excess of 30 days;"

     2.14  Amendment of Section 8.7. Section 8.7 of the Agreement is hereby
           ------------------------
amended to read as follows:

     "8.7  No Waiver; Rights Cumulative. No course of dealing on the part of the
           ----------------------------
     Lender, its officers or employees, nor any failure or delay by the Lender
     with respect to exercising any of its rights under any Loan Document shall
     operate as a waiver thereof. The rights of the Lender under the Loan
     Documents shall be cumulative and the exercise or partial exercise of any
     such right shall not preclude the exercise of

                                        8

<PAGE>

     any other right. Neither the making of any Loan nor the issuance of a
     Letter of Credit shall constitute a waiver of any of the covenants,
     warranties, or conditions of the Borrower contained herein. In the event
     the Borrower is unable to satisfy any such covenant, warranty, or
     condition, neither the making of any Loan nor the issuance of a Letter of
     Credit shall have the effect of precluding the Lender from thereafter
     declaring such inability to be an Event of Default as hereinabove
     provided."

     2.15 Amendment of Exhibit I. Exhibit I, i.e. the "Form of Promissory Note"
          ----------------------
shall be as set forth on Exhibit I to this First Amendment.

                                  ARTICLE III
                                   CONDITIONS
                                   ----------

     The obligation of the Lender to amend the Agreement as provided herein is
subject to the fulfillment of the following conditions precedent:

     3.01 Receipt of Documents. The Lender shall have received, reviewed, and
          --------------------
approved the following documents and other items, appropriately executed when
necessary and in form and substance satisfactory to the Lender:

     (a)  multiple counterparts of this First Amendment, as requested by the
          Lender;

     (b)  the Note;

     (c)  multiple counterparts of the documents listed in Section 3.3 above;

     (d)  closing of purchase of certain Oil and Gas Properties from Juneau
          Exploration L.P.;

     (e)  payment of Facility Fee in the amount of $52,500.00; and

     (f)  such other agreements, documents, items, instruments, opinions,
          certificates, waivers, consents, and evidence as the Lender may
          reasonably request.

     3.02 Accuracy of Representations and Warranties. The representations and
          ------------------------------------------
warranties contained in Article IV of the Agreement and this First Amendment
shall be true and correct.

     3.03 Matters Satisfactory to Lender. All matters incident to the
          ------------------------------
consummation of the transactions contemplated hereby shall be satisfactory to
the Lender.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

     The Borrower hereby expressly re-makes, in favor of the Lender, all of the
representations and warranties set forth in Article IV of the Agreement, and
represents and warrants that all such representations and warranties remain true
and unbreached.

                                        9

<PAGE>

                                   ARTICLE V
                                  RATIFICATION
                                  ------------

     Each of the parties hereto does hereby adopt, ratify, and confirm the
Agreement and the other Loan Documents, in all things in accordance with the
terms and provisions thereof, as amended by this First Amendment.

                                   ARTICLE VI
                                  MISCELLANEOUS
                                  -------------

     6.01 Scope of Amendment. The scope of this First Amendment is expressly
          ------------------
limited to the matters addressed herein and this First Amendment shall not
operate as a waiver of any past, present, or future breach, Default, or Event of
Default under the Agreement. except to the extent, if any, that any such breach,
Default, or Event of Default is remedied by the effect of this First Amendment.

     6.02 Agreement as Amended. All references to the Agreement in any document
          --------------------
heretofore or hereafter executed in connection with the transactions
contemplated in the Agreement shall be deemed to refer to the Agreement as
amended by this First Amendment.

     6.03 Parties in Interest. All provisions of this First Amendment shall be
          -------------------
binding upon and shall inure to the benefit of the Borrower, the Lender and
their respective successors and assigns.

     6.04 Rights of Third Parties. All provisions herein are imposed solely and
          -----------------------
exclusively for the benefit of the Lender and the Borrower, and no other Person
shall have standing to require satisfaction of such provisions in accordance
with their terms and any or all of such provisions may be freely waived in whole
or in part by the Lender at any time if in its sole discretion it deems it
advisable to do so.

     6.05 ENTIRE AGREEMENT. THIS FIRST AMENDMENT CONSTITUTES THE ENTIRE
          ----------------
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SUPERSEDES ANY PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, BETWEEN SUCH PARTIES
REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS FIRST AMENDMENT,
THE AGREEMENT, THE NOTE, THE SECURITY INSTRUMENTS, AND THE OTHER WRITTEN
DOCUMENTS REFERRED TO IN THE AGREEMENT OR EXECUTED IN CONNECTION WITH OR AS
SECURITY FOR THE NOTE REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

     6.06 GOVERNING LAW. THIS FIRST AMENDMENT, THE AGREEMENT AND THE NOTE SHALL
          -------------
BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. THE PARTIES ACKNOWLEDGE AND
AGREE THAT THIS AGREEMENT AND THE NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY
BEAR A NORMAL, REASONABLE, AND SUBSTANTIAL RELATIONSHIP TO THE STATE OF TEXAS.

                                       10

<PAGE>

     6.07 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
          ----------------------
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS FIRST AMENDMENT, THE AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED
IN COURTS HAVING SITUS IN HARRIS COUNTY, TEXAS. EACH OF THE BORROWER AND THE
LENDER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT
LOCATED IN HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE BORROWER OR THE LENDER IN ACCORDANCE WITH THIS SECTION.

     IN WITNESS WHEREOF, this First Amendment to Credit Agreement is executed
effective the date first hereinabove written.

                                      BORROWER
                                      --------

                                      CONTANGO OIL & GAS COMPANY

                                      By:   /s/ WILLIAM H. GIBBONS
                                         -----------------------------
                                            William H. Gibbons
                                            Vice President and Treasurer

                                       11

<PAGE>

                                      LENDER
                                      ------

                                      GUARANTY BANK, FSB

                                      By: /s/ RICHARD E. MENCHACA
                                         ---------------------------
                                          Richard E. Menchaca
                                          Vice President

                                       12

<PAGE>

                                    EXHIBIT I
                                    ---------

                             FORM OF PROMISSORY NOTE

$50,000,000.00                    Houston, Texas                January 8, 2002

     FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker") promises to
pay to the order of GUARANTY BANK, FSB ("Payee"), at its banking quarters in
Houston, Harris County, Texas, the sum of FIFTY MILLION DOLLARS
($50,000,000.00), or so much thereof as may be advanced against this Note
pursuant to the Credit Agreement dated June 29, 2001, as amended by First
Amendment of even date herewith by and between Maker and Payee (as further
amended, restated, or supplemented from time to time, the "Credit Agreement"),
together with interest at the rates and calculated as provided in the Credit
Agreement.

     Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, certain events which will entitle the
holder hereof to accelerate the maturity of all amounts due hereunder.
Capitalized terms used but not defined in this Note shall have the meanings
assigned to such terms in the Credit Agreement.

     This Note is issued pursuant to, is the "Note" under, and is payable as
provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.

     THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW;
PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY TO THIS NOTE.

                                         MAKER:

                                         CONTANGO OIL & GAS COMPANY

                                         By:_________________________________
                                                 William H. Gibbons
                                                 Vice President and Treasurer

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