Document:

<PAGE>

                                                                    EXHIBIT 10.1
================================================================================

                               CREDIT AGREEMENT

                                    BETWEEN

                         SOUTHERN MINERAL CORPORATION

                               SMC ECUADOR, INC.

                              SMC PRODUCTION CO.

                               BEC ENERGY, INC.

                                      AND

                     SPRUCE HILLS PRODUCTION COMPANY, INC.

                                      AND

                    BANK ONE, TEXAS, NATIONAL ASSOCIATION,
                              AS AGENT AND LENDER

                                      AND

                         THE LENDERS SIGNATORY HERETO

                                August 23, 2000

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

            REDUCING REVOLVING LINE OF CREDIT OF UP TO $30,000,000

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

================================================================================
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
<S>                                                                                       <C>
ARTICLE I       DEFINITIONS AND INTERPRETATION
                1.1   Terms Defined Above......................................              1
                1.2   Additional Defined Terms.................................              1
                1.3   Undefined Financial Accounting Terms.....................             13
                1.4   References...............................................             13
                1.5   Articles and Sections....................................             14
                1.6   Number and Gender........................................             14
                1.7   Incorporation of Exhibits................................             14

ARTICLE II      TERMS OF FACILITY
                2.1   Revolving Line of Credit.................................             14
                2.2   Letter of Credit Facility................................             15
                2.3   Use of Loan Proceeds and Letters of Credit...............             16
                2.4   Interest.................................................             17
                2.5   Repayment of Loans and Interest..........................             17
                2.6   Outstanding Amounts......................................             17
                2.7   Time, Place, and Method of Payments......................             17
                2.8   Pro Rata Treatment; Adjustments..........................             18
                2.9   Borrowing Base Determinations............................             18
                2.10  Mandatory Prepayments....................................             19
                2.11  Voluntary Prepayments of Loans...........................             20
                2.12  Commitment Fee...........................................             20
                2.13  Engineering Fee..........................................             20
                2.14  Facility Fee.............................................             20
                2.15  Letter of Credit Fee.....................................             20
                2.16  Loans to Satisfy Obligations of Borrower.................             21
                2.17  Security Interest in Accounts; Right of Offset...........             21
                2.18  General Provisions Relating to Interest..................             21
                2.19  Letters in Lieu of Transfer Orders.......................             22
                2.20  Power of Attorney........................................             22

ARTICLE III     CONDITIONS
                3.1   Receipt of Loan Documents and Other Items................             23
                3.2   Each Loan and Letter of Credit...........................             26

ARTICLE IV      REPRESENTATIONS AND WARRANTIES
                4.1   Due Authorization........................................             27
                4.2   Corporate Existence......................................             28
</TABLE>

                                      -i-
<PAGE>

<TABLE>
<S>                                                                                         <C>
                4.3   Valid and Binding Obligations............................             28
                4.4   Security Instruments.....................................             28
                4.5   Title to Assets..........................................             28
                4.6   Scope and Accuracy of Financial Statements...............             28
                4.7   No Material Misstatements................................             28
                4.8   Liabilities, Litigation, and Restrictions................             29
                4.9   Authorizations; Consents.................................             29
                4.10  Compliance with Laws.....................................             29
                4.11  ERISA....................................................             29
                4.12  Environmental Laws.......................................             29
                4.13  Compliance with Federal Reserve Regulations..............             30
                4.14  Investment Company Act Compliance........................             30
                4.15  Public Utility Holding Company Act Compliance............             30
                4.16  Proper Filing of Tax Returns; Payment of Taxes Due.......             30
                4.17  Refunds..................................................             30
                4.18  Gas Contracts............................................             30
                4.19  Intellectual Property....................................             31
                4.20  Casualties or Taking of Property.........................             31
                4.21  Locations of Borrower....................................             31
                4.22  Subsidiaries.............................................             31
                4.23  Existing Indebtedness; No Defenses.......................             31

ARTICLE V       AFFIRMATIVE COVENANTS
                5.1    Maintenance and Access to Records........................            32
                5.2    Quarterly Financial Statements; Compliance Certificates..            32
                5.3    Annual Financial Statements..............................            32
                5.4    Oil and Gas Reserve Reports..............................            32
                5.5    Title Opinions; Title Defects............................            33
                5.6    Notices of Certain Events................................            33
                5.7    Letters in Lieu of Transfer Orders; Division Orders......            34
                5.8    Additional Information...................................            34
                5.9    Compliance with Laws.....................................            34
                5.10   Payment of Assessments and Charges.......................            35
                5.11   Maintenance of Corporate Existence and Good Standing.....            35
                5.12   Payment of Notes; Performance of Obligations.............            35
                5.13   Further Assurances.......................................            35
                5.14   Initial Fees and Expenses of Counsel to Lender...........            35
                5.15   Subsequent Fees and Expenses of Lender...................            35
                5.16   Operation of Oil and Gas Properties......................            36
                5.17   Maintenance and Inspection of Properties.................            36
                5.18   Maintenance of Insurance.................................            36
                5.19   INDEMNIFICATION..........................................            36
                5.20   Bank Accounts............................................            38
</TABLE>

                                     -ii-
<PAGE>

<TABLE>
<S>                                                                                         <C>
                5.21   Hedging..................................................            38

ARTICLE VI      NEGATIVE COVENANTS
                6.1    Indebtedness.............................................            38
                6.2    Contingent Obligations...................................            38
                6.3    Liens....................................................            38
                6.4    Sales of Assets..........................................            39
                6.5    Leasebacks...............................................            39
                6.6    Acquisitions.............................................            39
                6.7    Loans or Advances........................................            39
                6.8    Investments..............................................            39
                6.9    Dividends and Distributions..............................            39
                6.10   Plan Obligations.........................................            39
                6.11   Management...............................................            40
                6.12   Change of Board of Directors.............................            40
                6.13   Issuance of Stock; Changes in Corporate Structure........            40
                6.14   Transactions with Affiliates.............................            40
                6.15   Lines of Business........................................            40
                6.16   Current Ratio............................................            40
                6.17   Tangible Net Worth.......................................            40
                6.18   Debt Coverage Ratio......................................            40
                6.19   General and Administrative Expenses......................            40

ARTICLE VII     EVENTS OF DEFAULT
                7.1    Enumeration of Events of Default.........................            40
                7.2    Remedies.................................................            42

ARTICLE VIII    THE AGENT
                8.1    Appointment..............................................            43
                8.2    Waivers, Amendments......................................            43
                8.3    Delegation of Duties.....................................            44
                8.4    Exculpatory Provisions...................................            44
                8.5    Reliance by Agent........................................            44
                8.6    Notice of Default........................................            45
                8.7    Non-Reliance on Agent and Other Lenders..................            45
                8.8    Indemnification..........................................            46
                8.9    Restitution..............................................            46
                8.10   Agent in Its Individual Capacity.........................            47
                8.11   Successor Agent..........................................            47
                8.12   Applicable Parties.......................................            47

ARTICLE IX             MISCELLANEOUS
                9.1    Assignments; Participations..............................            48
</TABLE>

                                     -iii-
<PAGE>

<TABLE>
<S>                                                                                         <C>
                9.2    Survival of Representations, Warranties, and Covenants...            49
                9.3    Notices and Other Communications.........................            49
                9.4    Parties in Interest......................................            50
                9.5    Rights of Third Parties..................................            50
                9.6    Renewals; Extensions.....................................            50
                9.7    No Waiver; Rights Cumulative.............................            50
                9.8    Survival Upon Unenforceability...........................            51
                9.9    Amendments; Waivers......................................            51
                9.10   Controlling Agreement....................................            51
                9.11   Disposition of Collateral................................            51
                9.12   GOVERNING LAW............................................            51
                9.13   JURISDICTION AND VENUE...................................            51
                9.14   WAIVER OF RIGHTS TO JURY TRIAL...........................            52
                9.15   ENTIRE AGREEMENT.........................................            52
                9.16   Counterparts.............................................            52
                9.17   Release by Borrower......................................            52
</TABLE>

                                     -iv-
<PAGE>

LIST OF EXHIBITS

Exhibit I            -       Form of Note
Exhibit II           -       Form of Borrowing Request
Exhibit III          -       Form of Compliance Certificate
Exhibit IV           -       Facility Amounts
Exhibit V            -       Form of Opinion of Counsel
Exhibit VI           -       Disclosures
Exhibit VII          -       Form of Assignment Agreement

                                      -v-
<PAGE>

                               CREDIT AGREEMENT
                               ----------------

          THIS CREDIT AGREEMENT is made and entered into this 23rd day of
August, 2000, by and among SOUTHERN MINERAL CORPORATION, a Nevada corporation,
SMC PRODUCTION CO., a Texas corporation, SMC ECUADOR, INC., a Delaware
corporation, BEC ENERGY, INC., a Texas corporation and SPRUCE HILLS PRODUCTION
COMPANY, INC., a Delaware corporation (collectively the "Borrower"), each lender
                                                         --------
that is signatory hereto or becomes a signatory hereto as provided in Section
9.1, (individually, together with its successors and assigns, a "Lender", and
                                                                 ------
collectively together with their respective successors and assigns, the
"Lenders"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
 -------
association, as agent for the Lenders (in such capacity, together with its
successors in such capacity pursuant to the terms hereof, the "Agent").
                                                               -----

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

          In consideration of the mutual covenants and agreements herein
contained, the Borrower and the Lenders hereby agree as follows, amending and
restating in its entirety the Amended and Restated Credit Agreement dated as of
June 19, 1998, by and between the Borrower and Compass Bank, as Agent and Lender
and First Union National Bank as a Lender (the "Existing Lenders"), as
                                                ----------------
heretofore amended, restated, or supplemented (the "Existing Credit Agreement").
                                                    -------------------------

                                   ARTICLE I
                                   ---------

                        DEFINITIONS AND INTERPRETATION
                        ------------------------------

          I.1  Terms Defined Above. As used in this Credit Agreement, the terms
               -------------------
"Agent", "Borrower", "Existing Credit Agreement", "Existing Lenders" and
 -----    --------    -------------------------    ----------------
"Lender" and "Lenders" shall have the meaning assigned to them hereinabove.
 ------       -------

          I.2  Additional Defined Terms. As used in this Credit Agreement, each
               ------------------------
of the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:

          "Affiliate" shall mean any Person directly or indirectly controlling,
           ---------
     or under common control with, the Borrower and includes any Subsidiary of
     the Borrower and any "affiliate" of the Borrower within the meaning of Reg.
     (S) 240.12b-2 of the Securities Exchange Act of 1934, as amended, with
     "control," as used in this definition, meaning possession, directly or
     indirectly, of the power to direct or cause the direction of management,
     policies or action through ownership of voting securities, contract, voting
     trust, or membership in management or in the group
<PAGE>

     appointing or electing management or otherwise through formal or informal
     arrangements or business relationships.

          "Agreement" shall mean this Credit Agreement, as it may be amended,
           ---------
     supplemented, or restated from time to time.

          "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 plus the L/C Exposure at such
     time.

          "Assignment" shall mean the Assignment of Notes, Liens, Security
           ----------
     Interests, and Other Rights, in form and substance satisfactory to the
     Lenders, executed by the Existing Lenders, assigning to the Agent the
     Existing Note, the indebtedness evidenced thereby, the Liens securing the
     Existing Note, and the rights of the Existing Lenders under the Existing
     Loan Documents, and financing statement changes constituent thereto.

          "Bank One Alternate Base Rate" shall mean a fluctuating rate of
           ----------------------------
     interest equal to the higher of (i) a rate per annum equal to the prime
     rate of interest announced by the Agent or its parent (which is not
     necessarily the lowest rate charged to any customer) changing when and as
     said prime rate changes, and (ii) the sum of the Federal Funds Effective
     Rate most recently determined by Bank One, Texas, National Association.

          "Borrowing Base" shall mean, at any time, the amount determined by the
           --------------
     Lenders in accordance with Section 2.9 and then in effect.

          "Borrowing Request" shall mean each written request, in substantially
           -----------------
     the form attached hereto as Exhibit II, by the Borrower to the Agent for a
     borrowing or prepayment pursuant to Sections 2.1 or 2.11, each of which
     shall:

               (a) be signed by a Responsible Officer of the Borrower;

               (b) specify the amount requested or prepaid and the date of the
          borrowing or prepayment (which shall be a Business Day); and

               (c) be delivered to the Lenders no later than 11:00 a.m., Central
          Standard or Daylight Savings Time, as the case may be, on the Business
          Day of the requested borrowing or prepayment.

          "Business Day" shall mean a day other than a Saturday, Sunday, legal
           ------------
     holiday for commercial banks under the laws of the State of Texas, or any
     other day when banking is suspended in the State of Texas.
<PAGE>

          "Closing Date" shall mean the effective date of this Agreement.
           ------------

          "Collateral" shall mean the Mortgaged Properties and any other
           ----------
     Property now or at any time used or intended as security for the payment or
     performance of all or any portion of the Obligations.

          "Commitment" shall mean the obligation of the Lenders, 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 2.2.

          "Commitment Amount" shall mean, subject to the applicable provisions
           -----------------
     of this Agreement, at any time, the lesser of (a) the sum of the Facility
     Amounts of the Lenders, or (b) the Borrowing Base in effect at such time.

          "Commitment Fee" shall mean each fee payable to the Lenders by the
           --------------
     Borrower pursuant to Section 2.12.

          "Commitment Period" shall mean the period from and including the
           -----------------
     Closing Date to but not including the Commitment Termination Date.

          "Commitment Termination Date" shall mean August 23, 2003.
           ---------------------------

          "Commodity Hedge Agreement" shall mean any crude oil, natural gas, or
           -------------------------
     other hydrocarbon floor, collar, cap, price protection, or swap agreement,
     in form and substance with a Person reasonably acceptable to the Agent.

          "Commonly Controlled Entity" shall mean any Person which is under
           --------------------------
     common control with the Borrower within the meaning of Section 4001 of
     ERISA.

          "Compliance Certificate" shall mean each certificate, substantially in
           ----------------------
     the form attached hereto as Exhibit III, executed by a Responsible Officer
     of the Borrower and furnished to the Lender from time to time in accordance
     with Section 5.2.

          "Contingent Obligation" shall mean, as to any Person, any obligation
           ---------------------
     of such Person guaranteeing or in effect guaranteeing any Indebtedness,
     leases, dividends, or other obligations of any other Person (for purposes
     of this definition, a "primary obligation") in any manner, whether directly
                            ------------------
     or indirectly, including, without limitation, any obligation of such
     Person, regardless of whether such obligation is contingent, (a) to
     purchase any primary obligation or any Property constituting direct or
     indirect security therefor, (b) to advance or supply funds (i) for the
     purchase or payment of any primary obligation, or (ii) to maintain working
     or equity capital of

                                       3
<PAGE>

     any other Person in respect of any primary obligation, or otherwise to
     maintain the net worth or solvency of any other Person, (c) to purchase
     Property, securities or services primarily for the purpose of assuring the
     owner of any primary obligation of the ability of the Person primarily
     liable for such primary obligation to make payment thereof, or (d)
     otherwise to assure or hold harmless the owner of any such primary
     obligation against loss in respect thereof, with the amount of any
     Contingent Obligation being deemed to be equal to the stated or
     determinable amount of the primary obligation in respect of which such
     Contingent Obligation is made or, if not stated or determinable, the
     maximum reasonably anticipated liability in respect thereof as determined
     by such Person in good faith.

          "Current Assets" shall mean all assets which would, in accordance with
           --------------
     GAAP, be included as current assets on a consolidated balance sheet of the
     Borrowers as of the date of calculation including unused availability under
     this facility.

          "Current Liabilities" shall mean all liabilities which would, in
           -------------------
     accordance with GAAP, be included as current liabilities on a consolidated
     balance sheet of the Borrowers as of the date of calculation

          "Debt Service" shall mean quarterly Interest Expense plus 1/20th of
           ------------
     the outstanding principal under this facility and the facility with Bank
     One Canada at the end of each quarter.

          "Default" shall mean any event or occurrence which with the lapse of
           -------
     time or the giving of notice or both would become an Event of Default.

          "Default Rate" shall mean a per annum interest rate equal to the Prime
           ------------
     Rate plus five percent (5%), but in no event exceeding the Highest Lawful
     Rate.

          "Dollars" and "$" shall mean dollars in lawful currency of the United
           -------       -
     States of America.

          "EBITDA" shall mean, for any period, Net Income for such period plus
           ------
     Interest Expense, federal and state income taxes, depreciation,
     amortization, and other non-cash expenses less cash taxes paid for such
     period deducted in the determination of Net Income for such period.

          "Engineering Fee" shall mean each fee payable to the Agent by the
           ---------------
     Borrower pursuant to Section 2.13.

          "Environmental Complaint" shall mean any written or oral complaint,
           -----------------------
     order, directive, claim, citation, notice of environmental report or
     investigation, or other

                                       4
<PAGE>

     notice by any Governmental Authority or any other Person with respect to
     (a) air emissions, (b) spills, releases, or discharges to soils, any
     improvements located thereon, surface water, groundwater, or the sewer,
     septic, waste treatment, storage, or disposal systems servicing any
     Property of the Borrower, (c) solid or liquid waste disposal, (d) the use,
     generation, storage, transportation, or disposal of any Hazardous
     Substance, or (e) other environmental, health, or safety matters affecting
     any Property of the Borrower or the business conducted thereon.

          "Environmental Laws" shall mean (a) the following federal laws as they
           ------------------
     may be cited, referenced, and amended from time to time: the Clean Air Act,
     the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
     Environmental Response, Compensation and Liability Act, the Endangered
     Species Act, the Resource Conservation and Recovery Act, the Occupational
     Safety and Health Act, the Hazardous Materials Transportation Act, the
     Superfund Amendments and Reauthorization Act, and the Toxic Substances
     Control Act; (b) any and all equivalent environmental statutes of any state
     in which Property of the Borrower is situated, as they may be cited,
     referenced and amended from time to time; (c) any rules or regulations
     promulgated under or adopted pursuant to the above federal and state laws;
     and (d) any other equivalent federal, state, or local statute or any
     requirement, rule, regulation, code, ordinance, or order adopted pursuant
     thereto, including, without limitation, those relating to the generation,
     transportation, treatment, storage, recycling, disposal, handling, or
     release of Hazardous Substances.

          "ERISA" shall mean the Employee Retirement Income Security Act of
           -----
     1974, as amended from time to time, and the regulations thereunder and
     interpretations thereof.

          "Event of Default" shall mean any of the events specified in Section
           ----------------
     7.1.

          "Existing Loan Documents" shall mean the Loan Documents, as such term
           -----------------------
     is defined in the Existing Credit Agreement, in existence on the Closing
     Date immediately prior to the Assignment.

          "Existing Note" shall mean the Note, as such term is defined in the
           -------------
     Existing Credit Agreement, in existence on the Closing Date immediately
     prior to the Assignment.

          "Existing Security Instruments" shall mean the Security Instruments,
           -----------------------------
     as such term is defined in the Existing Credit Agreement, in existence on
     the Closing Date immediately prior to the Assignment.

          "Facility Amount" shall mean, for each Lender, the amount set forth
           ---------------
     opposite the name of such Lender on Exhibit IV under the caption "Facility
                                         ----------
     Amounts," as

                                       5
<PAGE>

     modified from time to time to reflect assignments permitted by Section 9.1
                                                                    -----------
     or otherwise pursuant to the terms hereof and to give effect to any written
     request of the Borrower (any such request being irrevocable, absent written
     agreement of the Agent and the Required Lenders, which written agreement
     may be expressly conditioned on the payment of a fee (other than with
     respect to a reduction) by the Borrower to the Agent, for the account of
     the Lenders) to a reduction in the sum of the then existing Facility
     Amounts of the Lenders.

          "Facility Fee" shall mean the fee payable to the Lenders by the
           ------------
     Borrower pursuant to Section 2.14.

          Federal Funds Effective Rate" shall mean, for any day, an interest
          ----------------------------
     rate per annum equal to the weighted average of the rates on overnight
     federal funds transactions with members of the Federal Reserve System
     arranged by federal funds brokers, as published for such day by the Federal
     Reserve Bank of New York, or if such rate is not so published for such day,
     the average of the quotations for such day on such transactions received by
     Bank One, Texas, National Association from three federal funds brokers of
     recognized standing selected by Bank One, Texas, National Association.

          "Final Maturity" shall mean August 23, 2003.
           --------------

          "Financial Statements" shall mean statements of the financial
           --------------------
     condition of the Borrower as at the point in time and for the period
     indicated and consisting of at least a balance sheet and related statements
     of operations, common stock and other stockholders' equity, and cash flows
     for Southern Mineral Corporation, on a consolidated and consolidating basis
     with the other Borrowers and, when required by applicable provisions of
     this Agreement to be audited, accompanied by the unqualified certification
     of a nationally-recognized firm of independent certified public accountants
     or other independent certified public accountants acceptable to the Lender
     and footnotes to any of the foregoing, all of which shall be prepared in
     accordance with GAAP consistently applied and in comparative form with
     respect to the corresponding period of the preceding fiscal period.

          "Floating Rate" shall mean an interest rate per annum equal to the
           -------------
     Bank One Alternate Base Rate from time to time in effect plus one-half
     percent (2%), but in no event exceeding the Highest Lawful Rate.

          "GAAP" shall mean generally accepted accounting principles established
           ----
     by the Financial Accounting Standards Board or the American Institute of
     Certified Public Accountants and in effect in the United States from time
     to time.

                                       6
<PAGE>

          "Governmental Authority" shall mean any nation, country, commonwealth,
           ----------------------
     territory, government, state, county, parish, municipality, or other
     political subdivision and any entity exercising executive, legislative,
     judicial, regulatory, or administrative functions of or pertaining to
     government.

          "Guaranty" shall mean the Unlimited Guaranty of Borrower executed in
           --------
     favor of Bank One Canada and securing the Obligations of Neutrino
     Resources, Inc. under the Credit Facility evidenced by the Credit Agreement
     dated August 23, 2000, between Neutrino Resources, Inc. and Bank One
     Canada, as Agent and Lender and the Lenders signatory thereto.

          "Hazardous Substances" shall mean flammables, explosives, radioactive
           --------------------
     materials, hazardous wastes, asbestos, or any material containing asbestos,
     polychlorinated biphenyls (PCBs), toxic substances or related materials,
     petroleum, petroleum products, associated oil or natural gas exploration,
     production, and development wastes, or any substances defined as "hazardous
     substances," "hazardous materials," "hazardous wastes," or "toxic
     substances" under the Comprehensive Environmental Response, Compensation
     and Liability Act, as amended, the Superfund Amendments and Reauthorization
     Act, as amended, the Hazardous Materials Transportation Act, as amended,
     the Resource Conservation and Recovery Act, as amended, the Toxic
     Substances Control Act, as amended, or any other law or regulation now or
     hereafter enacted or promulgated by any Governmental Authority.

          "Highest Lawful Rate" shall mean the maximum non-usurious interest
           -------------------
     rate, if any (or, if the context so requires, an amount calculated at such
     rate), that at any time or from time to time may be contracted for, taken,
     reserved, charged, or received under applicable laws of the State of Texas
     or the United States of America, whichever authorizes the greater rate, as
     such laws are presently in effect or, to the extent allowed by applicable
     law, as such laws may hereafter be in effect and which allow a higher
     maximum non-usurious interest rate than such laws now allow.

          "Indebtedness" shall mean, as to any Person, without duplication, (a)
           ------------
     all liabilities (excluding reserves for deferred income taxes, deferred
     compensation liabilities, and other deferred liabilities and credits) which
     in accordance with GAAP would be included in determining total liabilities
     as shown on the liability side of a balance sheet, (b) all obligations of
     such Person evidenced by bonds, debentures, promissory notes, or similar
     evidences of indebtedness, (c) all other indebtedness of such Person for
     borrowed money, and (d) all obligations of others, to the extent any such
     obligation is secured by a Lien on the assets of such Person (whether or
     not such Person has assumed or become liable for the obligation secured by
     such Lien).

                                       7
<PAGE>

          "Insolvency Proceeding" shall mean application (whether voluntary or
           ---------------------
     instituted by another Person) for or the consent to the appointment of a
     receiver, trustee, conservator, custodian, or liquidator of any Person or
     of all or a substantial part of the Property of such Person, or the filing
     of a petition (whether voluntary or instituted by another Person)
     commencing a case under Title 11 of the United States Code, seeking
     liquidation, reorganization, or rearrangement or taking advantage of any
     bankruptcy, insolvency, debtor's relief, or other similar law of the United
     States, the State of Texas, or any other jurisdiction.

          "Intellectual Property" shall mean patents, patent applications,
           ---------------------
     trademarks, tradenames, copyrights, technology, know-how, and processes.

          "Interest Expense" shall mean, for any period, the total interest
           ----------------
     expense (including, without limitation, interest expense attributable to
     capitalized leases) of the Borrower on a consolidated basis for such
     period, determined in accordance with GAAP.

          "Investment" in any Person shall mean any stock, bond, note, or other
           ----------
     evidence of Indebtedness, or any other security (other than current trade
     and customer accounts) of, investment or partnership interest in or loan
     to, such Person.

          "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 2.2.

          "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 2.15 upon or in connection with the
     issuance of a Letter of Credit.

          "Lien" shall mean any interest in Property securing an obligation owed
           ----
     to, or a claim by, a Person other than the owner of such Property, whether
     such interest is based on common law, statute, or contract, and including,
     but not limited to, the lien or security interest arising from a mortgage,
     ship mortgage, encumbrance, pledge, security agreement, conditional sale or
     trust receipt, or a lease, consignment, or bailment for security purposes
     (other than true leases or true consignments), liens of mechanics,
     materialmen, and artisans, maritime liens and reservations, exceptions,
     encroachments, easements, rights of way, covenants, conditions,
     restrictions, leases,

                                       8
<PAGE>

     and other title exceptions and encumbrances affecting Property which secure
     an obligation owed to, or a claim by, a Person other than the owner of such
     Property (for the purpose of this Agreement, the Borrower shall be deemed
     to be the owner of any Property which it has acquired or holds subject to a
     conditional sale agreement, financing lease, or other arrangement pursuant
     to which title to the Property has been retained by or vested in some other
     Person for security purposes), and the filing or recording of any financing
     statement or other security instrument in any public office.

          "Limitation Period" shall mean any period while any amount remains
           -----------------
     owing on the Notes and interest on such amount, calculated at the
     applicable interest rate, plus any fees or other sums payable under any
     Loan Document and deemed to be interest under applicable law, would exceed
     the amount of interest which would accrue at the Highest Lawful Rate.

          "Loan" shall mean any loan made by any 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 Notes at such time.

          "Loan Documents" shall mean this Agreement, the Assignment, the Notes,
           --------------
     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 Notes, the Letter of Credit Applications, the Letters of Credit, or the
     Security Instruments, and all renewals and extensions of, amendments and
     supplements to, and restatements of, any or all of the foregoing from time
     to time in effect.

          "Material Adverse Effect" shall mean (a) any material adverse effect
           -----------------------
     on the business, operations, properties, condition (financial or
     otherwise), or prospects of the Borrower taken as a whole, which materially
     increases the risk that any of the Obligations will not be repaid as and
     when due, or (b) any material adverse effect upon the Collateral, taken as
     a whole.

          "Mortgaged Properties" shall mean all Oil and Gas Properties of the
           --------------------
     Borrower subject to a perfected first-priority Lien in favor of the Lender,
     subject only to Permitted Liens, as security for the Obligations.

          "Net Income" shall mean, for any period, the net income (or loss) of
           ----------
     the Borrower on a consolidated basis for such period, determined in
     accordance with GAAP.

                                       9
<PAGE>

          "Notes" shall mean, collectively, each of the promissory notes of the
           -----
     Borrower payable to a Lender in the amount of the Facility Amount of such
     Lender in the form attached hereto as Exhibit I with all blanks in such
                                           ---------
     form completed appropriately, together with all renewals, extensions for
     any period, increases, and rearrangements thereof.

          "Obligations" shall mean, without duplication, (a) all Indebtedness
           -----------
     evidenced by the Notes, (b) the undrawn, unexpired amount of all
     outstanding Letters of Credit, (c) the obligation of the Borrower for the
     payment of Commitment Fees, Facility Fees, Letter of Credit Fees, and
     Engineering Fees, (d) 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 (e) 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.

          "Oil and Gas Properties" shall mean fee, leasehold, or other interests
           ----------------------
     in or under mineral estates or oil, gas, and other liquid or gaseous
     hydrocarbon leases with respect to Properties situated in the United States
     or offshore from any State of the United States, including, without
     limitation, overriding royalty and royalty interests, leasehold estate
     interests, net profits interests, production payment interests, and mineral
     fee interests, together with contracts executed in connection therewith and
     all tenements, hereditaments, appurtenances and Properties appertaining,
     belonging, affixed, or incidental thereto.

          "Percentage Share" shall mean, as to each Lender, the percentage such
           ----------------
     Lender's Facility Amount constitutes of the sum of the Facility Amounts of
     all Lenders.

          "Permitted Indebtedness" shall mean (a) the Obligations under the Loan
           ----------------------
     Documents, (b) Indebtedness arising from endorsing negotiable instruments
     for deposit or collection in the ordinary course of business, (c) current
     liabilities incurred in the ordinary course of business, (d) purchase money
     Indebtedness which does not exceed an aggregate principal amount of
     $750,000 outstanding at any one time during the term of this Agreement, (e)
     the Guaranty, and (f) Indebtedness existing by virtue of the requirements
     of GAAP or any changes in the requirements of GAAP.

          "Permitted Liens" shall mean (a) Liens for taxes, assessments, or
           ---------------
     other governmental charges or levies not yet due or which (if foreclosure,
     distraint, sale, or other similar proceedings shall not have been
     initiated) are being contested in good faith by appropriate proceedings,
     and such reserve as may be required by GAAP shall

                                       10
<PAGE>

     have been made therefor, (b) Liens in connection with workers'
     compensation, unemployment insurance or other social security (other than
     Liens created by Section 4068 of ERISA), old-age pension, or public
     liability obligations which are not yet due or which are being contested in
     good faith by appropriate proceedings, if such reserve as may be required
     by GAAP shall have been made therefor, (c) Liens in favor of vendors,
     carriers, warehousemen, repairmen, mechanics, workmen, materialmen,
     construction, or similar Liens arising by operation of law in the ordinary
     course of business in respect of obligations which are not yet due or which
     are being contested in good faith by appropriate proceedings, if such
     reserve as may be required by GAAP shall have been made therefor, (d) Liens
     in favor of operators and non-operators under joint operating agreements or
     similar contractual arrangements arising in the ordinary course of the
     business of the Borrower to secure amounts owing, which amounts are not yet
     due or are being contested in good faith by appropriate proceedings, if
     such reserve as may be required by GAAP shall have been made therefor, (e)
     Liens under production sales agreements, division orders, operating
     agreements, and other agreements customary in the oil and gas business for
     processing, producing, and selling hydrocarbons securing obligations not
     constituting Indebtedness and provided that such Liens do not secure
     obligations to deliver hydrocarbons at some future date without receiving
     full payment therefor within 90 days of delivery, (f) easements, rights of
     way, restrictions, and other similar encumbrances, and minor defects in the
     chain of title which are customarily accepted in the oil and gas financing
     industry, none of which interfere with the ordinary conduct of the business
     of the Borrower or materially detract from the value or use of the Property
     to which they apply, (g) Liens created under the Guaranty, and (h) Liens in
     favor of the Agent for the benefit of the Lenders and other Liens expressly
     created or permitted under the Security Instruments.

          "Person" shall mean an individual, corporation, partnership, trust,
           ------
     unincorporated organization, government, any agency or political
     subdivision of any government, or any other form of entity.

          "Plan" shall mean, at any time, any employee benefit plan which is
           ----
     covered by ERISA and in respect of which the Borrower or any Commonly
     Controlled Entity is (or, if such plan were terminated at such time, would
     under Section 4069 of ERISA be deemed to be) an "employer" as defined in
     Section 3(5) of ERISA.

          "Principal Office" shall mean the principal office of the Agent in
           ----------------
     Houston, Texas, presently located at 910 Travis Street, Houston, Texas
     77002-5860.

          "Property" shall mean any interest of the Borrower in any kind of
           --------
     property or asset, whether real, personal or mixed, tangible or intangible.

                                       11
<PAGE>

          "Rate Management Transaction" shall mean any transaction (including an
           ---------------------------
     agreement with respect thereto) now existing or hereafter entered into
     between Borrower and the Agent and/or Lenders which is a rate swap, basis
     swap, forward rate transaction, commodity swap, commodity option, equity or
     equity index swap, equity or equity index option, bond option, interest
     rate option, foreign exchange transaction, cap transaction, floor
     transaction, collar transaction, forward transaction, currency swap
     transaction, cross-currency rate swap transaction, currency option or any
     other similar transaction (including any option with respect to any of
     these transactions) or any combination thereof, whether linked to on or
     more interest rates, foreign currencies, commodity prices, equity prices or
     other financial measures.

          "Regulation D" shall mean Regulation D of the Board of Governors of
           ------------
     the Federal Reserve System, as the same may be amended or supplemented from
     time to time.

          "Regulatory Change" shall mean the passage, adoption, institution, or
           -----------------
     amendment of any federal, state, local, or foreign Requirement of Law
     (including, without limitation, Regulation D), or any interpretation,
     directive, or request (whether or not having the force of law) of any
     Governmental Authority or monetary authority charged with the enforcement,
     interpretation, or administration thereof, occurring after the Closing Date
     and applying to a class of banks including the Lender.

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

          "Release of Hazardous Substances" shall mean any emission, spill,
           -------------------------------
     release, disposal, or discharge, except in accordance with a valid permit,
     license, certificate, or approval of the relevant Governmental Authority,
     of any Hazardous Substance into or upon (a) the air, (b) soils or any
     improvements located thereon, (c) surface water or groundwater, or (d) the
     sewer or septic system, or the waste treatment, storage, or disposal system
     servicing any Property of the Borrower.

          "Reorganization Plan" shall mean the Second Amended Plan of
           -------------------
     Reorganization of the Borrowers (except Spruce Hills Production Company,
     Inc.) filed May 2, 2000, as modified from time to time, by the U.S.
     Bankruptcy Court for the Southern District of Texas in jointly administered
     Case No. 99-60359-V2-11 and approved by order entered July 21, 2000, and by
     supplemental order entered August 8, 2000.

          "Required Lenders" shall mean, Lenders (including the Agent) holding
           ----------------
     more than 66 2/3% of the then Loan Balance, or, if there is no Loan
     Balance, Lenders

                                       12
<PAGE>

     (including the Agent) having more than 66 2/3% of the aggregate amount of
     the Commitments.

          "Requirement of Law" shall mean, as to any Person, the certificate or
           ------------------
     articles of incorporation and by-laws or other organizational or governing
     documents of such Person, and any applicable law, treaty, ordinance, order,
     judgment, rule, decree, regulation, or determination of an arbitrator,
     court, or other Governmental Authority, including, without limitation,
     rules, regulations, orders, and requirements for permits, licenses,
     registrations, approvals, or authorizations, in each case as such now exist
     or may be hereafter amended and are applicable to or binding upon such
     Person or any of its Property or to which such Person or any of its
     Property is subject.

          "Reserve Report" shall mean each report delivered to the Agent
           --------------
     pursuant to Section 5.4.

          "Responsible Officer" shall mean, as to any Person, its President,
           -------------------
     Chief Executive Officer or any Vice President.

          "Security Instruments" shall mean the Existing Security Instruments
           --------------------
     and the security instruments executed and delivered in satisfaction of the
     condition set forth in Section 3.1(g), and all other documents and
     instruments at any time executed as security for all or any portion of the
     Obligations, as such instruments may be amended, restated, or supplemented
     from time to time.

          "Subsidiary" shall mean, as to any Person, a corporation of which
           ----------
     shares of stock having ordinary voting power (other than stock having such
     power only by reason of the happening of a contingency) to elect a majority
     of the board of directors or other managers of such corporation are at the
     time owned, or the management of which is otherwise controlled, directly or
     indirectly through one or more intermediaries, or both, by such Person.

          "Superfund Site" shall mean those sites listed on the Environmental
           --------------
     Protection Agency National Priority List and eligible for remedial action
     or any comparable state registries or list in any state of the United
     States.

          "Tangible Net Worth" shall mean (a) total assets, as would be
           ------------------
     reflected on a balance sheet of the Borrower prepared on a consolidated
     basis and in accordance with GAAP, exclusive of Intellectual Property,
     experimental or organization expenses, franchises, licenses, permits, and
     other intangible assets, treasury stock, unamortized underwriters' debt
     discount and expenses, and goodwill minus (b) total liabilities, as would
     be reflected on a balance sheet of the Borrower prepared on a consolidated
     basis and in accordance with GAAP.

                                       13
<PAGE>

          "Transferee" shall mean any Person to which the Lender has sold,
           ----------
     assigned, transferred, or granted a participation in any of the
     Obligations, as authorized pursuant to Section 9.1, and any Person
     acquiring, by purchase, assignment, transfer, or participation, from any
     such purchaser, assignee, transferee, or participant, any part of such
     Obligations.

          "UCC" shall mean the Uniform Commercial Code as from time to time in
           ---
effect in the State of Texas.

          I.3  Undefined Financial Accounting Terms. Undefined financial
               ------------------------------------
accounting trms used in this Agreement shall be drfined according to GAAP at the
time in effect.

          I.4  References. References in this Agreement numbers shall be to
               ----------
Exhibits, Articles, or Sections of this Agreement, unless expressly stated to
the contrary. References in this Agreement to "hereby," "herein," "hereinafter,"
"hereinabove," "hereinbelow," "hereof," "hereunder" and words of similar import
shall be to this Agreement in its entirety and not only to the particular
Exhibit, Article, or Section in which such reference appears.

          I.5  Articles and Sections. This Agreement, for divided into Articles
               ---------------------
and Sections; and it is understood that the rights and other legal relations of
the parties hereto shall be determined from this instrument as an entirety and
without regard to the aforesaid division into Articles and Sections and without
regard to headings prefixed to such Articles or Sections.

          I.6  Number and Gender. Whenever the context to the single number
               -----------------
shall be understood to include the plural; and likewise, the plural shall be
understood to include the singular. Definitions of terms defined in the singular
or plural shall be equally applicable to the plural or singular, as the case may
be, unless otherwise indicated. Words denoting sex shall be construed to include
the masculine, feminine and neuter, when such construction is appropriate; and
specific enumeration shall not exclude the general but shall be construed as
cumulative.

          I.7  Incorporation of Exhibits. The Exhibits attached to this herein
               -------------------------
and shall be considered a part of this Agreement for all purposes.

                                  ARTICLE II
                                  ----------

                               TERMS OF FACILITY
                               -----------------

          II.1 Revolving Line of Credit. (a) Upon the terms and conditions
               ------------------------
(including, without limitation, the right of the Lenders to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lenders
severally agree, during the Commitment Period, to make Loans, in

                                       14
<PAGE>

immediately available funds at the Principal Office, to or for the benefit of
the Borrower, from time to time on any Business Day designated by the Borrower
following receipt by the Lenders of a Borrowing Request; provided, however, no
Loan shall exceed the then existing Available Commitment.

          (b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow such funds.  Except for
prepayments made pursuant to Section 2.10, each borrowing and prepayment of
principal of Loans shall be in an amount at least equal to $100,000.  Each
borrowing or prepayment shall be deemed a separate borrowing or prepayment for
purposes of the foregoing.

          (c) The Loans shall be made and maintained at the Principal Office and
shall be evidenced by the Notes.

          (d) Not later than 2:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on the date specified for each borrowing, each Lender
shall make available an amount equal to its Percentage Share of the borrowing to
be made on such date to the Agent, at an account designated by the Agent, in
immediately available funds, for the account of the Borrower.  The amount so
received by the Agent shall, subject to the terms and conditions hereof, be made
available to the Borrower in immediately available funds at the Principal Office
by the end of that Business Day.  All Loans by each Lender shall be maintained
at the Principal Office of such Lender and shall be evidenced by the Notes of
such Lender.

          (e) The failure of any Lender to make any Loan required to be made by
it hereunder shall not relieve any other Lender of its obligation to make any
Loan required to be made by it, and no Lender shall be responsible for the
failure of any other Lender to make any Loan.

          (f) The face amounts of the Notes have been established as an
administrative convenience and do not commit any Lender to advance funds
hereunder in excess of the then current Borrowing Base.

          II.2  Letter of Credit Facility. (a) Upon the terms and conditions and
                -------------------------
relying on the representations and warranties contained in this Agreement, the
Agent, as issuing bank for the Lenders, agrees from the date of this Agreement
until the date which is thirty days prior to the Commitment Termination Date, to
issue following the receipt, not less than three Business Days prior to the
requested date for issuance of the relevant Letter of Credit, on behalf of the
Lenders in their respective Percentage Shares Letters of Credit for the account
of the Borrower and/or the benefit of any Subsidiary of the Borrower and to
renew and extend such Letters of Credit. Letters of Credit shall be issued,
renewed, or extended from time to time on any Business Day designated by the
Borrower following the receipt in accordance with the terms hereof by the Agent
of the written (or oral, confirmed promptly in writing) request by a Responsible
Officer of the Borrower and a Letter of Credit Application. Letters of Credit
shall be issued in such amounts as the Borrower may request; provided, however,
that (i) no Letter of Credit shall have an expiration date which is

                                       15
<PAGE>

more than 365 days after the issuance thereof or subsequent to Final Maturity,
(ii) each automatically renewable Letter of Credit shall provide that it may be
terminated by the Agent at its then current expiry date by not less than 30
days' written notice by the Agent to the beneficiary of such Letter of Credit,
and (iii) the Agent shall not be obligated to issue any Letter of Credit if (A)
the face amount thereof would exceed the then existing Available Commitment, or
(B) after giving effect to the issuance thereof, (x) the L/C Exposure, when
added to the Loan Balance then outstanding, would exceed the Commitment Amount,
or (y) the L/C Exposure would exceed $500,000, other than with respect to
required Commodity Hedge Agreements and Rate Management Transactions.

          (b) Prior to any payment in respect of any Letter of Credit, each
Lender shall be deemed to be a participant through the Agent with respect to the
relevant Letter of Credit in the obligation of the Agent, as the issuer of such
Letter of Credit, in an amount equal to the Percentage Share of such Lender of
the maximum amount which is or at any time may become available to be drawn
thereunder. Upon delivery by such Lender of funds requested pursuant to Section
2.2(c), such Lender shall be treated as having purchased a participating
interest in an amount equal to such funds delivered by such Lender to the Agent
in the obligation of the Borrower to reimburse the Agent, as the issuer of such
Letter of Credit, for any amounts payable, paid, or incurred by the Agent, as
the issuer of such Letter of Credit, with respect to such Letter of Credit.

          (c) Each Lender shall be unconditionally and irrevocably liable,
without regard to the occurrence of any Default or Event of Default, to the
extent of the Percentage Share of such Lender at the time of issuance of each
Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such
Letter of Credit, for the amount of each Letter of Credit payment under such
Letter of Credit.

          (d) EACH LENDER AGREES TO SEVERALLY INDEMNIFY THE AGENT, AS THE ISSUER
OF EACH LETTER OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES OF THE AGENT (TO THE EXTENT NOT REIMBURSED BY
THE BORROWER AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWER TO DO SO),
RATABLY ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER AT THE TIME OF ISSUANCE
OF SUCH LETTER OF CREDIT, FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER WHICH MAY AT ANY TIME
(INCLUDING, WITHOUT LIMITATION, ANY TIME FOLLOWING THE PAYMENT AND PERFORMANCE
OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT) BE IMPOSED ON,
INCURRED BY OR ASSERTED AGAINST THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT
OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR SUCH
LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY THE AGENT AS THE ISSUER OF
SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE

                                       16
<PAGE>

FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY LIABILITIES, CLAIMS, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND
DISBURSEMENTS IMPOSED, INCURRED OR ASSERTED AS A RESULT OF THE NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, OF THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT
OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES; PROVIDED THAT NO LENDER (OTHER THAN THE AGENT AS THE ISSUER OF A
LETTER OF CREDIT) SHALL BE LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE WHETHER
SOLE OR CONCURRENT OR WILLFUL MISCONDUCT OF THE AGENT AS THE ISSUER OF A LETTER
OF CREDIT. THE AGREEMENTS IN THIS SECTION 2.2(D) SHALL SURVIVE THE PAYMENT AND
PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.

          II.3 Use of Loan Proceeds and Letters of Credit. (a) As of the date
               ------------------------------------------
hereof, of CreditII.3 Letters of Credit indebtedness in the amount of under the
Existing Notes. The Agent shall use proceeds of the initial Loan to purchase
such indebtedness. Such indebtedness shall be renewed, extended, and rearranged
pursuant to the terms of this Agreement, the Notes, and the relevant Borrowing
Request and shall for all purposes be deemed a borrowing hereunder. Proceeds of
all subsequent Loans shall be used solely to finance exploration, development
and acquisition of oil and gas properties, certain bankruptcy related expenses
and for general corporate purposes.

          (b) Letters of Credit shall be used solely for general corporate
purposes.

          II.4 Interest. Subject to the terms of this limitation, Section
               --------
2.18), interest on the Loans shall accrue and be payable at a rate per annum
equal to the Floating Rate. Interest on all Loans shall be computed on the basis
of a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) during the period for which
payable. Interest provided for herein shall be calculated on unpaid sums
actually advanced and outstanding pursuant to the terms of this Agreement and
only for the period from the date or dates of such advances until repayment.
Notwithstanding the foregoing, interest on past-due principal and, to the extent
permitted by applicable law, past-due interest, shall accrue at the Default
Rate, computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
during the period for which payable, and shall be payable upon demand by the
Lender at any time as to all or any portion of such interest.

          II.5 Repayment of Loans and Interest. Accrued and unpaid interest on
               -------------------------------
monthly commencing on the first day of September, 2000, and continuing on the
first day of each calendar month thereafter while any amount of the Loan Balance
remains outstanding, the payment in each instance to be the amount of interest
which has accrued and remains unpaid in respect of the Loan Balance. The Loan
Balance, together with all accrued and unpaid interest thereon, shall be due and
payable at Final Maturity.

                                       17
<PAGE>

          II.6 Outstanding Amounts. The Loan Balance of the Notes Lenders on
               -------------------
their records shall be deemed rebuttably presumptive evidence of the Loan
Balance. The liability for payment of principal and interest evidenced by the
Notes shall be limited to principal amounts actually advanced and outstanding
pursuant to this Agreement and interest on such amounts calculated in accordance
with this Agreement.

          II.7 Time, Place, and Method of payments. All payments required
               -----------------------------------
pursuant PaymentsII.7 Payments to this Agreement or the Notes the United States
of America and in immediately available funds, shall be deemed received by the
Agent on the next Business Day following receipt if such receipt is after 2:00
p.m., Central Standard or Daylight Savings Time, as the case may be, on any
Business Day, and shall be made at the Principal Office. Except as provided to
the contrary herein, if the due date of any payment hereunder or under the Notes
would otherwise fall on a day which is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.

          II.8 Pro Rata Treatment; Adjustments. (a) Except to the extent
               -------------------------------
Adjustments otherwise expressly provided pursuant to this Agreement shall be
made from the Lenders pro rata in accordance with their respective Percentage
Shares, (ii) each reduction of the sum of the Facility Amounts of the Lenders at
the request of the Borrower, as well as any subsequent increase in the sum of
the Facility Amounts of the Lenders at the request of the Borrower and with
written agreement of the Agent and the Required Lenders shall serve to adjust
the Facility Amounts of the Lenders pro rata in accordance with the Facility
Amounts of the Lenders in effect immediately prior to any such adjustment, (iii)
each payment by the Borrower of fees shall be made for the account of the
Lenders pro rata in accordance with their respective Percentage Shares, (iv)
each payment of principal of Loans shall be made for the account of the Lenders
pro rata in accordance with their respective shares of the Loan Balance, and (v)
each payment of interest on Loans shall be made for the account of the Lenders
pro rata in accordance with their respective shares of the aggregate amount of
interest due and payable to the Lenders.

          (b)  The Agent shall distribute all payments with respect to the
Obligations to the Lenders promptly upon receipt in like funds as received.  In
the event that any payments made hereunder by the Borrower at any particular
time are insufficient to satisfy in full the Obligations due and payable at such
time, such payments shall be applied (i) first, to fees and expenses due
pursuant to the terms of this Agreement or any other Loan Document, (ii) second,
to accrued interest, (iii) third, to the Loan Balance, and (iv) last, to any
other Obligations.

          (c)  If any Lender (for purposes of this Section, a "Benefitted
                                                               ----------
Lender") shall at any time receive any payment of all or part of its portion of
the Obligations, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 7.1(f) or Section 7.1(g), or otherwise) in an
                          --------------    --------------
amount greater than such Lender was entitled to receive pursuant to the terms
hereof, such Benefitted Lender shall

                                       18
<PAGE>

purchase for cash from the other Lenders such portion of the Obligations of such
other Lenders, or shall provide such other Lenders with the benefits of any such
Collateral or the proceeds thereof, as shall be necessary to cause such
Benefitted Lender to share the excess payment or benefits of such Collateral or
proceeds with each of the Lenders according to the terms hereof. If all or any
portion of such excess payment or benefits is thereafter recovered from such
Benefitted Lender, such purchase shall be rescinded and the purchase price and
benefits returned by such Lender, to the extent of such recovery, but without
interest. The Borrower agrees that each such Lender so purchasing a portion of
the Obligations of another Lender may exercise all rights of payment (including
rights of set-off) with respect to such portion as fully as if such Lender were
the direct holder of such portion. If any Lender ever receives, by voluntary
payment, exercise of rights of set-off or banker's lien, counterclaim, cross-
action or otherwise, any funds of the Borrower to be applied to the Obligations,
or receives any proceeds by realization on or with respect to any Collateral,
all such funds and proceeds shall be forwarded immediately to the Agent for
distribution in accordance with the terms of this Agreement.

          II.9 Borrowing Base Determinations. (a) The Borrowing Base as of
               -----------------------------
August 1, 2000, is acknowledged by the Borrower and the Lenders to be
$18,725,000. Commencing on September 1, 2000, and continuing thereafter on the
first day of each calendar month through the Commitment Termination Date, the
amount of the Borrowing Base shall be reduced by $275,000 (subject to Adjustment
in accordance with Section 2.9(b).

          (b)  The Borrowing Base and monthly reduction in the Borrowing Base
shall be redetermined semi-annually by unanimous consent of the Lenders
beginning December 1, 2000, on the basis of information supplied by the Borrower
in compliance with the provisions of this Agreement, including, without
limitation, Reserve Reports, and all other information available to the Lenders.
In addition, the Lenders shall, in the normal course of business following a
request of the Borrower, redetermine the Borrowing Base; provided, however, the
Lenders shall not be obligated to respond to more than four such requests during
any calendar year, and in no event shall the Lender be required to redetermine
the Borrowing Base more than once in any three-month period, including, without
limitation, each scheduled semi-annual redetermination provided for above.
Notwithstanding the foregoing, the Lenders may at their discretion and by
unanimous consent redetermine the Borrowing Base and the amount by which the
Borrowing Base shall be reduced each calendar month as set forth in Section 2.9
(a) at any time and from time to time.

          (c)  Upon each determination of the Borrowing Base by the Lenders, the
Agent shall notify the Borrower orally (confirming such notice promptly in
writing) of such determination, and the Borrowing Base and the amount by which
the Borrowing Base shall be reduced so communicated to the Borrower shall become
effective upon such written notification and shall remain in effect until the
next subsequent determination of the Borrowing Base and the amount by which the
Borrowing Base shall be reduced.

          (d)  The Borrowing Base shall represent the determination by the
Lenders, in accordance with the applicable definitions and provisions herein
contained, their then current

                                       19
<PAGE>

engineering standards and their then current and customary lending standards for
loans of this nature, of the value, for loan purposes, of the Mortgaged
Properties, subject, in the case of any increase in the Borrowing Base, to the
credit approval process of the Lenders. Furthermore, the Borrower acknowledges
that the determination of the Borrowing Base contains an equity cushion (market
value in excess of loan value), which is acknowledged by the Borrower to be
essential for the adequate protection of the Lenders.

          II.10 Mandatory Prepayments. If at any time the sum of the Loan
                ---------------------
Balance and in effect, the Borrower shall, within 30 days of notice from the
Agent of such occurrence, (a) prepay, or make arrangements acceptable to the
Lenders 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 Lenders in their sole discretion, to secure the amount of
such excess by the execution and delivery to the Lenders of security instruments
in form and substance satisfactory to the Lenders, or (c) effect any combination
of the alternatives described in clauses (a) and (b) of this Section and
acceptable to the Lenders in their 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
Lenders, deposit with the Lenders, 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 Lenders in
satisfaction of the requirement provided in this Section may be invested, at the
sole discretion of the Lenders 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
Lenders.

          II.11 Voluntary Prepayments of Loans. Subject to applicable LoansII.11
                ------------------------------
of Loans provisions of this Borrower shall have the right at any time or from
time to time to prepay Loans without prepayment penalty provided, however, (a)
the Borrower shall pay all accrued and unpaid interest on the amounts prepaid,
and (b) no such prepayment shall serve to postpone the repayment when due of any
Obligation.

          II.12 Commitment Fee. In addition to interest on the Notes as provided
                --------------
herein and all other fees paid hereunder and to compensate the Lender for
maintaining funds available, the Borrower shall pay to the Lender, in
immediately available funds, on the first day of October, 2000, and on the first
day of each third calendar month thereafter during the Commitment Period, a fee
in the amount of one-half percent (2%) per annum, calculated on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed (including
the first day but excluding the last day), on the average daily amount of the
Available Commitment during the preceding quarterly period.

          II.13 Engineering Fee. In addition to interest on the Notes as and to
                ---------------
compensate the Agent for the costs of evaluating the Mortgaged Properties and
reviewing the Reserve Reports, the Borrower shall pay to the Agent, in
immediately

                                       20
<PAGE>

available funds, on the date of each semi-annual or Borrower requested
redetermination of the Borrowing Base in accordance with Section 2.9(b), an
engineering fee in the amount of $10,000.

          II.14 Facility Fee. In addition to interest on the Notes as and to
                ------------
compensate the Lenders for the costs of the extension of credit hereunder, the
Borrower shall pay to the Lenders on the Closing Date, in immediately available
funds, a facility fee in the amount of $93,625, $23,750 of which has been
previously paid leaving a balance of $69,875 due on the Closing Date. A facility
fee of one-half percent (2%) of any future incremental increase in the Borrowing
Base shall be paid to the Lenders on the date the Agent notifies the Borrower of
such increase.

          II.15 Letter of Credit Fee. In addition to interest on the Notes as
                --------------------
hereunder, the Borrower agrees to pay to the Lenders, on the date of issuance of
each Letter of Credit, a fee equal to the greater of $500.00 or one percent (1%)
per annum, calculated on the basis of a year of 365 or 366 days, as the 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.

          II.16 Loans to Satisfy Obligations of Borrower. The Lenders may, but
                ----------------------------------------
Obligations of Obligations of shall not be obligated BorrowerII.16 Borrower to,
make Loans for the and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrower contained in
this Agreement or any other Loan Document. Any such Loan shall be evidenced by
the Notes and shall be made at the Floating Rate.

          II.17 Security Interest in Accounts; Right of Offset. As security for
                ----------------------------------------------
the payment and performance of the Obligations, the transfers, assigns, and
pledges to the Agent for the benefit of the Lenders and grants to the Agent for
the benefit of the Lenders a security interest in all funds of the Borrower now
or hereafter or from time to time on deposit with the Agent and such Lender,
with such interest of the Lender to be retransferred, reassigned, and/or
released by the Agent and each Lender, as the case may be, at the expense of the
Borrower upon payment in full and complete performance by the Borrower of all
Obligations. All remedies as secured party or assignee of such funds shall be
exercisable by the Lender during the existence of the occurrence of any Event of
Default, regardless of whether the exercise of any such remedy would result in
any penalty or loss of interest or profit with respect to any withdrawal of
funds deposited in a time deposit account prior to the maturity thereof.
Furthermore, the Borrower hereby grants to the Agent and each Lender the right,
exercisable at such time as any Obligation shall mature, whether by acceleration
of maturity or otherwise of offset or banker's lien against all funds of the
Borrower now or hereafter or from time to time on deposit with the Agent and
each Lender, regardless of whether

                                       21
<PAGE>

the exercise of any such remedy would result in any penalty or loss of interest
or profit with respect to any withdrawal of funds deposited in a time deposit
account prior to the maturity thereof.

          II.18 General Provisions Relating to Interest. (a) It is the intention
                ---------------------------------------
of the parties hereto to comply strictly with the usury laws of the State of
Texas and the United States of America. In this connection, there shall never be
collected, charged, or received on the sums advanced hereunder interest in
excess of that which would accrue at the Highest Lawful Rate. For purposes of
Chapter 10 of Subtitle 1 of Title 79, Texas Revised Civil Statutes, the Borrower
agrees that the Highest Lawful Rate shall be the "weekly ceiling" as defined in
such Section, provided that the Lenders may also rely, to the extent permitted
by applicable laws of the State of Texas or the United States of America, on
alternative maximum rates of interest under other laws of the State of Texas or
the United States of America applicable to the Lenders, if greater.

          (b) Notwithstanding anything herein or in the Notes to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended.  During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
laws of the State of Texas or the United States of America, the interest rate to
be charged hereunder shall remain at the Highest Lawful Rate until such time as
there has been paid to the Lenders (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that the Lenders would have received during
the Limitation Period had the interest rate remained at the otherwise applicable
rate, and (ii) all interest and fees otherwise payable to the Lenders but for
the effect of such Limitation Period.

          (c) If, under any circumstances, the aggregate amounts paid on the
Notes or under this Agreement or any other Loan Document include amounts which
by law are deemed interest and which would exceed the amount permitted if the
Highest Lawful Rate were in effect, the Borrower stipulates that such payment
and collection will have been and will be deemed to have been, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the result of mathematical error on the part of the Borrower and the
Lenders; and the Lenders shall promptly refund the amount of such excess (to the
extent only of such interest payments in excess of that which would have accrued
and been payable on the basis of the Highest Lawful Rate) upon discovery of such
error by the Lenders or notice thereof from the Borrower.  In the event that the
maturity of any Obligation is accelerated, by reason of an election by the
Lenders or otherwise, or in the event of any required or permitted prepayment,
then the consideration constituting interest under applicable laws may never
exceed the Highest Lawful Rate; and excess amounts paid which by law are deemed
interest, if any, shall be credited by the Lenders on the principal amount of
the Obligations, or if the principal amount of the Obligations shall have been
paid in full, refunded to the Borrower.

          (d) All sums paid, or agreed to be paid, to the Lenders for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that

                                       22
<PAGE>

the actual rate of interest is uniform but does not exceed the Highest Lawful
Rate throughout the full term hereof.

          II.19  Letters in Lieu of Transfer Orders. The Agent agrees that none
                 ----------------------------------
of the letters in lieu of transfer or division orders provided by the Borrower
pursuant to Section 3.1(g)(iv) or Section 5.7 will be sent to the addressees
thereof prior to the occurrence of an Event of Default, at which time the Lender
may, at its option and in addition to the exercise of any of its other rights
and remedies, send any or all of such letters.

          II.20  Power of Attorney. The Borrower hereby designates the Agent as
                 -----------------
its agent and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and, upon the occurrence of an Event of Default,
delivering any and all of the letters in lieu of transfer orders delivered by
the Borrower to the Agent pursuant to Section 3.1(g)(iv) or Section 5.7,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Agent shall lawfully do or cause to be
done by virtue of this power of attorney and the rights granted with respect to
such power of attorney. This power of attorney is coupled with the interests of
the Agent in the Collateral, shall commence and be in full force and effect as
of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Agent by this appointment are
solely to protect the interests of the Agent under the Loan Documents and shall
not impose any duty upon the Agent to exercise any such powers. The Agent shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.

                                  ARTICLE III
                                  -----------

                                  CONDITIONS
                                  ----------

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

          III.1  Receipt of Loan Documents and Other Items. The Lenders shall
                 -----------------------------------------
have no obligation under this Agreement unless and until all matters incident to
the consummation of the transactions contemplated herein, including, without
limitation, the review by the Agent or its counsel of the title of the Borrower
to its Oil and Gas Properties, shall be satisfactory to the Agent, and the Agent
shall have received, reviewed, and approved the following documents and other
items, appropriately executed when necessary and, where applicable, acknowledged
by one or more authorized officers of the Borrower, all in form and substance
satisfactory to the Agent and dated, where applicable, of even date herewith or
a date prior thereto and acceptable to the Agent:

                                       23
<PAGE>

          (a)  multiple counterparts of this Agreement and the Assignment, as
     requested by the Agent;

          (b)  the Existing Notes, endorsed payable to the Agent;

          (c)  the Notes,

          (d)  copies of the Articles of Incorporation or Certificate of
     Incorporation and all amendments thereto and the bylaws and all amendments
     thereto of all Borrowers, accompanied by a certificate issued by the
     secretary or an assistant secretary of the Borrowers, to the effect that
     each such copy is correct and complete;

          (e)  certificates of incumbency and signatures of all officers of all
     Borrowers who are authorized to execute Loan Documents on behalf of the
     Borrowers, each such certificate being executed by the secretary or an
     assistant secretary of the Borrowers;

          (f)  copies of corporate resolutions approving the Loan Documents and
     authorizing the transactions contemplated herein and therein, duly adopted
     by the boards of directors of the Borrower, accompanied by certificates of
     the secretary or an assistant secretary of the Borrowers, to the effect
     that such copies are true and correct copies of resolutions duly adopted at
     a meeting or by unanimous consent of the board of directors of the
     Borrower, and that such resolutions constitute all the resolutions adopted
     with respect to such transactions, have not been amended, modified, or
     revoked in any respect, and are in full force and effect as of the date of
     such certificate;

          (g)  the following documents ratifying, amending, and/or restating the
     Existing Security Instruments and otherwise establishing Liens in favor of
     the Agent in and to the Collateral:

               (i)  Ratification and Amendment to Mortgage, Deed of Trust,
          Indenture, Security Agreement, Assignment of Production, and Financing
          Statement from Southern Mineral Corporation and BEC Energy, Inc.
          covering all Oil and Gas Properties of Southern Mineral Corporation
          and BEC Energy, Inc. and all improvements, personal property, and
          fixtures related thereto;

               (ii) Financing Statements from Southern Mineral Corporation and
          BEC Energy, Inc., as debtor, constituent to the instrument described
          in clause (i) above;

                                       24
<PAGE>

               (iii)  Assignment of Notes and Liens from Compass Bank, Agent and
          as a Lender and First Union National Bank to Agent for the benefit of
          the Lenders as consented to and acknowledged by Borrower and Financing
          Statement Assignment from Compass Bank and First Union National Bank
          to Agent for the benefit of the Lenders;

               (iv)   undated letters, in form and substance satisfactory to the
          Agent, from Southern Mineral Corporation, SMC Production Co., Spruce
          Hills Production Company, Inc., SMC Ecuador, Inc. and BEC Energy, Inc.
          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 Agent;

               (v)    Security Agreement (Stock Pledge) by Southern Mineral
          Corporation of Stock of SMC Production Co., SMC Ecuador, Inc., BEC
          Energy, Inc., and Spruce Hills Production Company, Inc.;

               (vi)   Security Agreement (Stock Pledge) by Spruce Hills
          Production Company, Inc. of the common stock of Neutrino Resources,
          Inc.;

               (vii)  Security Agreement from all Borrowers pledging all
          personal property;

               (viii) Financing Statements for all Borrowers, as debtor,
          constituent to the instrument described in clause (viii) above;

          (h)  audited Financial Statements of the Borrower as of December 31,
     1999, and unaudited Financial Statements of the Borrower as of June 30,
     2000.

          (i)  certificates dated as of a recent date from the Secretary of
     State or other appropriate Governmental Authority evidencing the existence
     or qualification and good standing of the Borrower in their respective
     jurisdictions of incorporation and in any other jurisdictions any of them
     do business;

          (j)  results of searches of the UCC Records of the Secretary of State
     of the States of Alabama, Arkansas, Louisiana, Michigan, Mississippi,
     Oklahoma, Texas and Wyoming from a source acceptable to the Lender and
     reflecting no Liens (other than Permitted Liens) against any of the
     Collateral as to which perfection of a Lien

                                       25
<PAGE>

     is accomplished by the filing of a financing statement other than in favor
     of the Agent;

          (k)  confirmation, acceptable to the Agent, of the title of the
     Borrower to the Mortgaged Properties, free and clear of Liens other than
     Permitted Liens;

          (l)  all operating, lease, sublease, royalty, sales, exchange,
     processing, farmout, bidding, pooling, unitization, communitization, and
     other agreements relating to the Mortgaged Properties requested by the
     Lender;

          (m)  engineering reports covering the Mortgaged Properties;

          (n)  the opinion of Akin, Gump, Strauss, Hauer & Feld, counsel to the
     Borrower, in the form attached hereto as Exhibit V, with such changes
     thereto as may be approved by the Lender;

          (o)  certificates evidencing the insurance coverage required pursuant
     to Section 5.18;

          (p)  certified copy of a final and non-appealable order entered July
     21, 2000, and the supplemental order entered August 8, 2000, confirming the
     Reorganization Plan;

          (q)  Agent shall have reviewed and become satisfied with the changes
     in the compilation of Southern Mineral Corporation's Board of Directors and
     senior management;

          (r)  enter into a Commodity Hedge Agreement acceptable to the Lenders
     of a minimum of 50% of its reasonably projected production from its Oil and
     Gas Properties during the 24 month period following the Closing Date within
     three days of Closing;

          (s)  Notice of Final Agreement; and

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

          III.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 Agent 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 three Business
     Days prior to the requested issuance date

                                       26
<PAGE>

     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 Agent, the Borrower shall have delivered
     evidence satisfactory to the Agent 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 Agent 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 Lenders, could have a Material Adverse Effect;

          (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 except to the extent such representation or
     warranty is expressly limited to a certain date;

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

          (h)  neither the consummation of the transactions contemplated hereby
     nor the making of such Loan or 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, subject
     only to Permitted Liens;

          (j)  the Agent and the Lenders shall have received the payment of all
     Engineering Fees, Facility Fees, Letter of Credit Fees, and other fees
     payable to the Agent and the Lenders hereunder and reimbursement from the
     Borrower, or special legal counsel for the Agent 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

                                       27
<PAGE>

     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.

                                  ARTICLE IV
                                  ----------

                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

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

          IV.1  Due Authorization. The execution and delivery by the Borrower of
                -----------------
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Notes, the repayment of the Notes and interest and fees provided
for in the Notes and this Agreement, the execution and delivery of the Security
Instruments by the Borrower and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary corporate action by the Borrower, and do
not and will not to our knowledge (a) require the consent of any Governmental
Authority, (b) contravene or conflict with any Requirement of Law, (c)
contravene or conflict with any indenture, instrument, or other agreement to
which the Borrower is a party or by which any Property of the Borrower may be
presently bound or encumbered, or (d) result in or require the creation or
imposition of any Lien in, upon or of any Property of the Borrower under any
such indenture, instrument, or other agreement, other than the Loan Documents.

          IV.2  Corporate Existence. The Borrowers are corporations duly
                -------------------
organized, legally existing, and in good standing under the laws of their state
of incorporation and are duly qualified as foreign corporations and are in good
standing in all jurisdictions wherein the ownership of Property or the operation
of their business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.

          IV.3  Valid and Binding. All Loan Documents, when duly executed and
                -----------------
delivered by the Borrower, will be the legal, valid, and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms.

          IV.4  Security Instruments. The provisions of each Security Instrument
                --------------------
are effective to create in favor of the Lenders, a legal, valid, and enforceable
Lien in all right, title, and interest of the Borrower in the Collateral
described therein, which Liens, assuming the accomplishment of recording and
filing in accordance with applicable laws prior to the intervention

                                       28
<PAGE>

of rights of other Persons, shall, except for Permitted Liens, constitute fully
perfected first-priority Liens on all right, title, and interest of the Borrower
in the Collateral described therein.

          IV.5  Title to Assets. Each Borrower has good and defensible title to
                ---------------
all of its respective Properties, free and clear of all Liens except Permitted
Liens.

          IV.6  Scope and Accuracy of Financial Statements. The Financial
                ------------------------------------------
Statements of each Borrower as of June 30, 2000, present fairly the financial
position and results of operations and cash flows of such Borrower in accordance
with GAAP as at the relevant point in time or for the period indicated, as
applicable. No event or circumstance has occurred since June 30, 2000, which
could reasonably be expected to have a Material Adverse Effect.

          IV.7  No Material Misstatements. To our knowledge, no information,
                -------------------------
exhibit, statement, or report furnished to the Lenders by or at the direction of
the Borrower in connection with this Agreement contains any material
misstatement of fact or omits to state a material fact or any fact necessary to
make the statements contained therein not misleading as of the date made or
deemed made.

          IV.8  Liabilities, Litigation, and Restrictions. Other than as listed
                -----------------------------------------
under the heading "Liabilities" on Exhibit VII attached hereto and included or
disclosed on the Financial Statements as of June 30, 2000, the Borrower has no
liabilities, direct, or contingent, which may materially and adversely affect
its business or operations or its ownership of the Collateral. Except as set
forth under the heading "Litigation" on Exhibit VII hereto, no litigation or
other action of any nature affecting the Borrower is pending before any
Governmental Authority or, to the best knowledge of the Borrower, threatened
against or affecting the Borrower which might reasonably be expected to result
in any impairment of its ownership of any Collateral or have a Material Adverse
Effect. To the best knowledge of the Borrower, after due inquiry, no unusual or
unduly burdensome restriction, restraint or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or operations of the
Borrower or the ownership and operation of the Collateral other than such as
relate generally to Persons engaged in business activities similar to those
conducted by the Borrower.

          IV.9  Authorizations; Consents. Except as expressly contemplated by
                ------------------------
this Agreement, no authorization, consent, approval, exemption, franchise,
permit, or license of, or filing with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection with the
valid execution and delivery by the Borrower of the Loan Documents or any
instrument contemplated hereby, the repayment by the Borrower of the Notes and
interest and fees provided in the Notes and this Agreement, or the performance
by the Borrower of the Obligations.

          IV.10 Compliance with Laws. The Borrower and its Property, including,
                --------------------
without limitation, the Mortgaged Property, are in compliance with all
applicable Requirements of Law, including, without limitation, Environmental
Laws, the Natural Gas Policy Act of 1978, as amended,

                                       29
<PAGE>

and ERISA, except to the extent non-compliance with any such Requirements of Law
could not reasonably be expected to have a Material Adverse Effect.

          IV.11 ERISA. The Borrower does not maintain, nor has it maintained,
                -----
any Plan. The Borrower does not currently contribute to or have any liability
with respect to any Plan.

          IV.12 Environmental Laws. To the best knowledge and belief of the
                ------------------
Borrower, except as would not have a Material Adverse Effect, or as described on
Exhibit VII under the heading "Environmental Matters:"

          (a)  no Property of the Borrower is currently on or has ever been on,
     or is adjacent to any Property which is on or has ever been on, any federal
     or state list of Superfund Sites;

          (b)  no Hazardous Substances have been generated, transported, and/or
     disposed of by the Borrower at a site which was, at the time of such
     generation, transportation, and/or disposal, or has since become, a
     Superfund Site;

          (c)  except in accordance with applicable Requirements of Law or the
     terms of a valid permit, license, certificate, or approval of the relevant
     Governmental Authority, no Release of Hazardous Substances by the Borrower
     or from, affecting, or related to any Property of the Borrower or adjacent
     to any Property of the Borrower has occurred; and

          (d)  no Environmental Complaint has been received by the Borrower
     except as noted on Exhibit VI.

          IV.13 Compliance with Federal Reserve Regulations. No transaction
                -------------------------------------------
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, T, U, or X.

          IV.14 Investment Company Act Compliance. The Borrower is not, nor is
                ---------------------------------
the Borrower directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" or an "affiliated person" of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

          IV.15 Public Utility Holding Company Act Compliance. The Borrower is
                ---------------------------------------------
not a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

          IV.16 Proper Filing of Tax Returns; Payment of Taxes Due. The Borrower
                --------------------------------------------------
has duly and properly filed or requested an extension as allowed by law of its
United States income tax return and all other tax returns which are required to
be filed and has paid all taxes due except such as are

                                       30
<PAGE>

being contested in good faith and as to which adequate provisions and
disclosures have been made. The respective charges and reserves on the books of
the Borrower with respect to taxes and other governmental charges are adequate.

          IV.17 Refunds. Except as described on Exhibit VII under the heading
                -------
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in the Borrower being required
to refund any material portion of the proceeds received or to be received from
the sale of hydrocarbons constituting part of the Mortgaged Property.

          IV.18 Gas Contracts. Except as described on Exhibit VII under the
                -------------
heading "Gas Contracts," the Borrower (a) is not obligated in any material
respect by virtue of any prepayment made under any contract containing a "take-
or-pay" or "prepayment" provision or under any similar agreement to deliver
hydrocarbons produced from or allocated to any of the Mortgaged Property at some
future date without receiving full payment therefor within 90 days of delivery,
and (b) has not produced gas, in any material amount, subject to, and neither
the Borrower nor any of the Mortgaged Properties is subject to, balancing rights
of third parties or subject to balancing duties under governmental requirements,
except as to such matters for which the Borrower has established monetary
reserves adequate in amount to satisfy such obligations and has segregated such
reserves from other accounts.

          IV.19 Intellectual Property. The Borrower owns or is licensed to use
                ---------------------
all Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted. No claim has been asserted or is pending by any Person with
the respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to any material liability on the part of the Borrower.

          IV.20 Casualties or Taking of Property. Except as disclosed on Exhibit
                --------------------------------
VII under the heading "Casualties," since June 30, 2000, neither the business
nor any Property of the Borrower has been materially adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property,
or cancellation of contracts, permits, or concessions by any Governmental
Authority, riot, activities of armed forces, or acts of God.

          IV.21 Locations of Borrower. The principal place of business and chief
                ---------------------
executive office of the Borrower is located at the address of the Borrower set
forth in Section 9.3 or at such other location as the Borrower may have, by
proper written notice hereunder, advised the Lender, provided that such other
location is within a state in which appropriate financing statements from the
Borrower in favor of the Lender have been filed.

                                       31
<PAGE>

          IV.22 Subsidiaries.  Southern Mineral Corporation has no Subsidiaries
                ------------
except the other Borrowers and those listed on Exhibit VI.

          IV.23 Existing Indebtedness; No Defenses.  As of the date hereof, (a)
                ----------------------------------
the Borrower is indebted to Existing Lenders under the Existing Notes in the
aggregate principal amount of $16,108,454.64, and (b) the Borrower has no
defenses to, rights of setoff against, claims or counterclaims with respect to,
and no default exists under or with respect to, any of the Existing Loan
Documents or any Indebtedness or obligation of the Borrower to the Existing
Lenders.

                                   ARTICLE V
                                   ---------

                             AFFIRMATIVE COVENANTS
                             ---------------------

          So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower shall:

          V.1   Maintenance and Access to Records.  Keep adequate records, in
                ---------------------------------
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and promptly following the reasonable request of the Lender, make such records
available for inspection by the Lender and, at the expense of the Borrower,
allow the Lender to make and take away copies thereof.

          V.2   Quarterly Financial Statements; Compliance Certificates.
                -------------------------------------------------------
Deliver to the Lender, (a) on or before the 60th day after the close
Certificates of each of the first three quarterly periods of each fiscal year of
the Borrower, a copy of the unaudited consolidated and consolidating Financial
Statements of the Borrower as at the close of such quarterly period and from the
beginning of such fiscal year to the end of such period, such Financial
Statements to be certified by Responsible Officers of the Borrower as having
been prepared in accordance with GAAP consistently applied and as a fair
presentation of the condition of the Borrower, subject to changes resulting from
normal year-end audit adjustments, and (b) on or before the 60th day after the
close of each fiscal quarter, a Compliance Certificate.

          V.3   Annual Financial Statements.  Deliver to the Agent and each
                ---------------------------
Lender, on or before the 120th day after the close of each fiscal year of the
Borrower, a copy of the annual audited consolidated and annual unaudited
consolidating Financial Statements of the Borrower.

          V.4   Oil and Gas Reserve Reports.  (a) Deliver to the Agent no later
                ---------------------------
than April 1 of each year during the term of this Agreement, engineering reports
in form and substance satisfactory to the Agent, certified by any nationally- or
regionally-recognized independent consulting petroleum engineers acceptable to
the Lender as fairly and accurately setting forth (i) the proven and producing,
shut-in, behind-pipe, and undeveloped oil and gas reserves (separately
classified as such) attributable to the Mortgaged Properties as of January 1 of
the year for which such

                                       32
<PAGE>

reserve reports are furnished, (ii) the aggregate present value of the future
net income with respect to such Mortgaged Properties, discounted at a stated per
annum discount rate of proven and producing reserves, (iii) projections of the
annual rate of production, gross income, and net income with respect to such
proven and producing reserves, and (iv) information with respect to the "take-
or-pay," "prepayment," and gas-balancing liabilities of the Borrower.

          (b  Deliver to the Agent and each Lender no later than October 1 of
each year during the term of this Agreement, engineering reports in form and
substance satisfactory to the Lender prepared by or under the supervision of the
chief petroleum engineer of the Borrower evaluating the Mortgaged Properties as
of July 1 of the year for which such reserve reports are furnished and updating
the information provided in the reports pursuant to Section 5.4(a).

          (c  Each of the reports provided pursuant to this Section shall be
submitted to the Agent and each Lender together with additional data concerning
pricing, quantities of production from the Mortgaged Properties, volumes of
production sold, purchasers of production, gross revenues, expenses, and such
other information and engineering and geological data with respect thereto as
the Lender may reasonably request.

          V.5   Title Opinions; Title Defects.  Promptly upon the request of the
                -----------------------------
Agent, furnish to the Agent title opinions, in form and substance and by counsel
satisfactory to the Agent, or other confirmation of title acceptable to the
Agent, covering Oil and Gas Properties constituting not less than 90% of the
value, determined by the Agent in its sole discretion, of the Mortgaged
Properties; and promptly, but in any event within 60 days after notice by the
Agent of any defect (other than Permitted Liens), material in the opinion of the
Agent in value, in the title of the Borrower to any of its Oil and Gas
Properties, clear such title defects, and, in the event any such title defects
are not cured in a timely manner, pay all related costs and fees incurred by the
Agent to do so.

          V.6   Notices of Certain Events.  Deliver to the Agent and each
                -------------------------
Lender, immediately upon having knowledge of the occurrence of any of the
following events or circumstances, a written statement with respect thereto,
signed by a Responsible Officer of the Borrower and setting forth the relevant
event or circumstance and the steps being taken by the Borrower with respect to
such event or circumstance:

          (a  any Default or Event of Default;

          (b  any default or event of default under any contractual obligation
     of the Borrower, or any litigation, investigation, or proceeding between
     the Borrower and any Governmental Authority which, in either case, if not
     cured or if adversely determined, as the case may be, could reasonably be
     expected to have a Material Adverse Effect;

                                       33
<PAGE>

          (c  any litigation or proceeding involving the Borrower as a defendant
     or in which any Property of the Borrower is subject to a claim and in which
     the amount involved is $500,000 or more and which is not covered by
     insurance or in which injunctive or similar relief is sought;

          (d  the receipt by the Borrower of any Environmental Complaint;

          (e  any actual, proposed, or threatened testing or other investigation
     by any Governmental Authority or other Person concerning the environmental
     condition of, or relating to, any Property of the Borrower or adjacent to
     any Property of the Borrower following any allegation of a violation of any
     Requirement of Law;

          (f  any Release of Hazardous Substances by the Borrower or from,
     affecting, or related to any Property of the Borrower or adjacent to any
     Property of the Borrower except in accordance with applicable Requirements
     of Law or the terms of a valid permit, license, certificate, or approval of
     the relevant Governmental Authority, or the violation of any Environmental
     Law, or the revocation, suspension, or forfeiture of or failure to renew,
     any permit, license, registration, approval, or authorization which could
     reasonably be expected to have a Material Adverse Effect;

          (g  the change in identity or address of any Person remitting to the
     Borrower proceeds from the sale of hydrocarbon production from or
     attributable to any Mortgaged Property;

          (h  any change in the senior management of the Borrower;

          (i  any Default or Event of Default in the Credit Agreement between
Neutrino Resources, Inc. and Bank One Canada; and

          (j  any other event or condition which could reasonably be expected to
     have a Material Adverse Effect.

          V.7   Letters in Lieu of Transfer Orders; Division Orders.  Promptly
                ----------------------------------------------------
upon request by the Agent at any time and from to time, execute such letters in
time lieu of transfer orders, in addition to the letters signed by the Borrower
and delivered to the Lender in satisfaction of the condition set forth in
Section 3.1(g)(iv) and/or division and/or transfer orders as are necessary or
appropriate to transfer and deliver to the Lender proceeds from or attributable
to any Mortgaged Property.

          V.8   Additional Information.  Furnish to the Agent and each Lender,
                ----------------------
promptly upon the request of the Lender, such additional financial or other
information concerning the assets, liabilities, operations, and transactions of
the Borrower as the Lender may from time to time request; and notify the Lender
not less than ten Business Days prior to the occurrence of any condition or
event that may change the proper location for the filing of any financing
statement or other public

                                       34
<PAGE>

notice or recording for the purpose of perfecting a Lien in any Collateral,
including, without limitation, any change in its name or the location of its
principal place of business or chief executive office; and upon the request of
the Lender, execute such additional Security Instruments as may be necessary or
appropriate in connection therewith.

          V.9   Compliance with Laws.  Except to the extent the failure to
                --------------------
comply or cause compliance would not have a Material Adverse Effect, comply with
all applicable Requirements of Law, including, without limitation, (a) the
Natural Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws,
and (d) all permits, licenses, registrations, approvals, and authorizations (i)
related to any natural or environmental resource or media located on, above,
within, in the vicinity of, related to or affected by any Property of the
Borrower, (ii) required for the performance of the operations of the Borrower,
or (iii) applicable to the use, generation, handling, storage, treatment,
transport, or disposal of any Hazardous Substances; and cause all employees,
crew members, agents, contractors, subcontractors, and future lessees (pursuant
to appropriate lease provisions) of the Borrower, while such Persons are acting
within the scope of their relationship with the Borrower, to comply with all
such Requirements of Law as may be necessary or appropriate to enable the
Borrower to so comply.

          V.10  Payment of Assessments and Charges.  Pay all taxes, assessments,
                ----------------------------------
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrower, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect.

          V.11  Maintenance of Corporate Existence and Good Standing.  Maintain
                ----------------------------------------------------
its corporate existence or qualification and good standing in its  jurisdictions
of incorporation and in all jurisdictions wherein the Property now owned or
hereafter acquired or business now or hereafter conducted necessitates same,
unless the failure to do so would not have a Material Adverse Effect.

          V.12  Payment of Notes; Performance of Obligations.  Pay the Notes
                --------------------------------------------
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.

          V.13  Further Assurances.  Promptly cure any defects in the execution
                ------------------
and delivery of any of the Loan Documents and all agreements contemplated
thereby, and execute, acknowledge, and deliver such other assurances and
instruments as shall, in the opinion of the Lender, be necessary to fulfill the
terms of the Loan Documents.

          V.14  Initial Fees and Expenses of Counsel to Lender.  On the Closing
                ----------------------------------------------
Date, promptly reimburse the Agent for all reasonable fees and expenses of
Jackson Walker L.L.P., special counsel to the Agent in connection with the
negotiations, preparation and all approval processes related to this Agreement
and all documentation contemplated hereby, the satisfaction of the conditions
precedent set forth herein, the filing and recordation of Security Instruments,
and the

                                       35
<PAGE>

consummation of the transactions contemplated in this Agreement. Jackson Walker
L.L.P. will furnish a detailed statement of legal services rendered and a
statement for estimated recording fees one day prior to the Closing Date.

          V.15  Subsequent Fees and Expenses of Lender.  Upon request by the
                --------------------------------------
Agent, promptly reimburse the Agent (to the fullest extent permitted by law) for
all amounts reasonably expended, advanced, or incurred by or on behalf of the
Agent to satisfy any obligation of the Borrower under any of the Loan Documents;
to collect the Obligations; to ratify, amend, restate, or prepare additional
Loan Documents, as the case may be; for the filing and recordation of Security
Instruments; to enforce the rights of the Agent under any of the Loan Documents;
and to protect the Properties or business of the Borrower, including, without
limitation, the Collateral, which amounts shall be deemed compensatory in nature
and liquidated as to amount upon notice to the Borrower by the Agent and which
amounts shall include, but not be limited to (a) all court costs, (b) reasonable
attorneys' fees, (c) reasonable fees and expenses of auditors and accountants
incurred to protect the interests of the Agent, (d)fees and expenses incurred in
connection with the participation by the Agent as a member of the creditors'
committee in a case commenced under any Insolvency Proceeding, (e) fees and
expenses incurred in connection with lifting the automatic stay prescribed in
(S)362 Title 11 of the United States Code, and (f) fees and expenses incurred in
connection with any action pursuant to (S)1129 Title 11 of the United States
Code all reasonably incurred by the Agent in connection with the collection of
any sums due under the Loan Documents, together with interest at the per annum
interest rate equal to the Floating Rate, calculated on a basis of a calendar
year of 365 or 366 days, as the case may be, counting the actual number of days
elapsed, on each such amount from the date of notification that the same was
expended, advanced, or incurred by the Agent until the date it is repaid to the
Agent, with the obligations under this Section surviving the non-assumption of
this Agreement in a case commenced under any Insolvency Proceeding and being
binding upon the Borrower and/or a trustee, receiver, custodian, or liquidator
of the Borrower appointed in any such case.

          V.16  Operation of Oil and Gas Properties.  Develop, maintain, and
                -----------------------------------
operate its Oil and Gas Properties for which it is the operator (and use
commercially reasonably efforts to cause the operator of each other of its Oil
and Gas Properties to develop, maintain and operate such Oil and Gas Properties)
in a prudent and workmanlike manner in accordance with industry standards.

          V.17  Maintenance and Inspection of Properties.  Maintain all of its
                ----------------------------------------
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties in
a good and workmanlike manner; and permit any authorized representative of the
Lenders to visit and inspect, at the expense of the Borrower, any tangible
Property of the Borrower.

          V.18  Maintenance of Insurance.  Maintain insurance with respect to
                ------------------------
its Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lenders, maintained by Borrower, naming the Lenders

                                       36
<PAGE>

as loss payee, and, upon any renewal of any such insurance and at other times
upon request by the Lenders, furnish to the Lenders evidence, satisfactory to
the Lenders, within 30 days of the Closing Date of the maintenance of such
insurance. The Lenders shall have the right to collect, and the Borrower hereby
assigns to the Lenders, any and all monies that may become payable under any
policies of insurance relating to business interruption or by reason of damage,
loss, or destruction of any of the Collateral. In the event of any damage, loss,
or destruction for which insurance proceeds relating to business interruption or
Collateral exceed $100,000, the Lenders may, at their option, apply all such
sums or any part thereof received by it toward the payment of the Obligations,
whether matured or unmatured, application to be made first to interest and then
to principal, and shall deliver to the Borrower the balance, if any, after such
application has been made. In the event of any such damage, loss, or destruction
for which insurance proceeds are $100,000 or less, provided that no Default or
Event of Default has occurred and is continuing, the Lenders shall deliver any
such proceeds received by it to the Borrower. In the event the Lenders receive
insurance proceeds not attributable to Collateral or business interruption, the
Lenders shall deliver any such proceeds to the Borrower.

          V.19  INDEMNIFICATION. INDEMNIFY AND HOLD THE AGENT AND EACH LENDER
                ----------------
AND ITS SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT,
AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE AGENT AND EACH 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

                                       37
<PAGE>

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 LENDERS OF A CLAIM OR DRAFT PRESENTED THEREUNDER, OR
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 OTHER THAN GROSS NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, ON THE PART OF THE LENDERS OR ANY OF THEIR
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE LENDERS 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 AGENT OR ANY LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT TO THE AGENT OR
ANY 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 AGENT OR ANY LENDER.

          V.20 Bank Accounts.  Maintain all accounts and funds with the Agent
               -------------
and/or the Lenders.

          V.21 Hedging. Enter into a Commodity Hedge Agreement acceptable to the
               -------
Lenders of a minimum of 50% of its reasonably projected production from its Oil
and Gas Properties during the 24 month period following the Closing Date.

                                  ARTICLE VI
                                  ----------

                              NEGATIVE COVENANTS
                              ------------------

          So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower will not:

          VI.1 Indebtedness.  Create, incur, assume, or suffer to exist any
               ------------
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 75 days beyond invoice date, or agreed payment date or are
being

                                       38
<PAGE>

contested in good faith and as to which such reserve as is required by GAAP has
been made, (c) Commodity Hedge Agreements, in form and substance and with a
Person reasonably acceptable to the Agent and each Lender, provided that (i)
each commitment issued under such agreement must also be approved by the Agent
and each Lender, which approvals are not unreasonably withheld or delayed, (ii)
such agreements shall not be entered into with respect to Mortgaged Properties
constituting more than 75% of monthly production of proven producing reserves as
forecast in Agent and each Lender's most recent engineering evaluation, (iii)
that the strike prices in such agreements are not less than the prices used by
the Agent and each Lender in the most recent Borrowing Base determination, and
(iv) the Agent for the benefit of each Lender shall receive a security interest
in the Commodity Hedge Agreements, (d) Rate Management Transactions, in form and
substance and with a Person reasonably acceptable to the Agent and each Lender,
(e) $250,000 for financing of insurance premiums, (f) Indebtedness in respect of
Permitted Liens, (g) inter-company Indebtedness among the Borrowers, or (h)
Permitted Indebtedness.

          VI.2 Contingent Obligations. Create, incur, assume, or suffer to exist
               ----------------------
any Contingent Obligation; provided, however, the foregoing restriction shall
not apply to (a) performance guarantees and performance surety or other bonds
provided in the ordinary course of business, (b) trade credit incurred or
operating leases entered into in the ordinary course of business, or (c)
Permitted Indebtedness.

          VI.3 Liens. Create, incur, assume, or suffer to exist any Lien on any
               -----
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens.

          VI.4 Sales of Assets. Without the prior written consent of the Agent
               ---------------
and each Lender, sell, transfer, or otherwise dispose of, in one or any series
of transactions, assets, whether now owned or hereafter acquired, in excess of
$250,000 per annum, other than sales of severed hydrocarbons in the ordinary
course of business.

          VI.5 Leasebacks. Enter into any agreement to sell or transfer any
               ----------
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.

          VI.6 Acquisitions.  Make any acquisition in excess of $2,500,000,
               ------------
without the prior written consent of the Agent.

          VI.7 Loans or Advances.  Make or agree to make or allow to remain
               -----------------
outstanding any loans or advances to any Person; provided, however, the
foregoing restrictions shall not apply to (a) advances or extensions of credit
in the form of accounts receivable incurred in the ordinary course of business
and upon terms common in the industry for such accounts receivable, or (b)
advances to employees of the Borrower for the payment of expenses in the
ordinary course of business or (c) between the Borrowers in the ordinary course
of business.

                                       39
<PAGE>

          VI.8  Investments. Acquire Investments in, or purchase or otherwise
                -----------
acquire all or substantially all of the assets of, any Person; provided,
however, the foregoing restriction shall not apply to the purchase or
acquisition of (a) Oil and Gas Properties, (b) Investments in the form of (i)
debt securities issued or directly and fully guaranteed or insured by the United
States Government or any agency or instrumentality thereof, with maturities of
no more than one year, (ii) commercial paper of a domestic issuer rated at the
date of acquisition at least P-2 by Moody's Investor Service, Inc. or A-2 by
Standard & Poor's Corporation and with maturities of no more than one year from
the date of acquisition, or (iii) repurchase agreements covering debt securities
or commercial paper of the type permitted in this Section, certificates of
deposit, demand deposits, eurodollar time deposits, overnight bank deposits and
bankers' acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through the Lenders or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital surplus and undivided profits aggregating at least
$100,000,000, (c) other short-term Investments similar in nature and degree of
risk to those described in clause (b) of this Section, (d) money-market funds,
or (e) investments in the form of intercompany loans to, advances to or
investments in, the Borrowers or any of their wholly-owned Subsidiaries, as long
as there is no Default or Event of Default or such loan, advances or investments
would not result in a Default or Event of Default.

          VI.9  Dividends and Distributions. Declare, pay, or make, whether in
                ---------------------------
cash or Property of the Borrower, any dividend or distribution on, or purchase,
redeem, or otherwise acquire for value, any share of any class of its capital
stock.

          VI.10 Plan Obligations. Assume or otherwise become subject to an
                ----------------
obligation to contribute to or maintain any Plan or acquire any Person which has
at any time had an obligation to contribute to or maintain any Plan.

          VI.11 Management.  Make any changes in senior management.
                ----------

          VI.12 Change of Board of Directors.  Make any changes in the Board of
                ----------------------------
Directors of any Borrower.

          VI.13 Issuance of Stock; Changes in Corporate Structure.  Except as
                -------------------------------------------------
contemplated by the Reorganization Plan, issue or agree to issue additional
shares of capital stock, in one or any series of transactions which would change
the corporate structure; enter into any transaction of consolidation, merger, or
amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution).

          VI.14 Transactions with Affiliates. Directly or indirectly, enter into
                ----------------------------
any transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of its Affiliates, other than upon fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate.

                                       40
<PAGE>

          VI.15 Lines of Business. Expand, on its own or through any Subsidiary,
                -----------------
into any line of business other than those in which the Borrower is engaged as
of the Closing Date.

          VI.16 Current Ratio.  Permit the ratio of Current Assets to Current
                -------------
Liabilities to be less than 1.00 to 1.00 at any time.

          VI.17 Tangible Net Worth. Permit Tangible Net Worth as of the close of
                ------------------
any fiscal quarter to be less than 85% of Tangible Net Worth on month following
the effective date of confirmation of the plan by the United States Bankruptcy
Court, plus 75% of positive quarterly Net Income and 100% of any new equity,
tested quarterly.

          VI.18 Debt Coverage Ratio. Permit, as of the close of any fiscal
                -------------------
quarter, the ratio of (a) EBITDA for each quarter to (b) Debt Service for each
quarter to be less than 1.20 to 1.0.

          VI.19 General and Administrative Expenses.  Beginning with the fiscal
                -----------------------------------
quarter ending December 31, 2000, Borrower shall not permit general and
administrative expenses on a consolidated basis to exceed on a quarterly basis
12  1/2% of total quarterly revenues.

                                  ARTICLE VII
                                  -----------

                               EVENTS OF DEFAULT
                               -----------------

          VII.1 Enumeration of Events of Default.  Any of the following events
                --------------------------------
shall constitute an Event of Default:

          (a default shall be made in the payment when due of any installment of
     principal or interest under this Agreement or the Notes or in the payment
     when due of any fee or other sum payable under any Loan Document and such
     default as to interest or fees only shall have continued for three days;

          (b default shall be made by the Borrower in the due observance or
     performance of any of its obligations under the Loan Documents, and such
     default shall continue for 30 days after the earlier of notice thereof to
     the Borrower by the Lenders or knowledge thereof by the Borrower;

          (c any representation or warranty made by the Borrower in any of the
     Loan Documents proves to have been untrue in any material respect or any
     representation, statement (including Financial Statements), certificate, or
     data furnished or made to the Agent or any Lender in connection herewith
     proves to have been untrue in any material respect as of the date the facts
     therein set forth were stated or certified;

                                       41
<PAGE>

          (d default shall be made by the Borrower (as principal or guarantor or
     other surety) in the payment or performance of any bond, debenture, note,
     or other Indebtedness or under any credit agreement, loan agreement
     including, but not limited to, the Credit Agreement with Bank One Canada,
     indenture, promissory note, or similar agreement or instrument executed in
     connection with any of the foregoing, and such default shall remain
     unremedied for in excess of the period of grace, if any, with respect
     thereto;

          (e the Borrower shall be unable to satisfy any condition or cure any
     circumstance specified in Article , 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;

          (f the Borrower shall (i) apply for or consent to the appointment of a
     receiver, trustee, or liquidator of it or all or a substantial part of its
     assets, (ii) file a voluntary petition commencing an Insolvency Proceeding,
     (iii) make a general assignment for the benefit of creditors, (iv) be
     unable, or admit in writing its inability, to pay its debts generally as
     they become due, or (v) file an answer admitting the material allegations
     of a petition filed against it in any Insolvency Proceeding;

          (g after the Closing Date, an order, judgment, or decree shall be
     entered against the Borrower by any court of competent jurisdiction or by
     any other duly authorized authority, on the petition of a creditor or
     otherwise, granting relief in any Insolvency Proceeding or approving a
     petition seeking reorganization or an arrangement of its debts or
     appointing a receiver, trustee, conservator, custodian, or liquidator of it
     or all or any substantial part of its assets, and such order, judgment, or
     decree shall not be dismissed or stayed within 90 days;

          (h the levy against any significant portion of the Property of the
     Borrower or any execution, garnishment, attachment, sequestration, or other
     writ or similar proceeding which is not permanently dismissed or discharged
     within 30 days after the levy;

          (i a final and non-appealable order, judgment, or decree shall be
     entered against the Borrower for money damages and/or Indebtedness due in
     an amount in excess of $500,000, and such order, judgment, or decree shall
     not be dismissed or stayed within 30 days;

          (j any charges are filed or any other action or proceeding is
     instituted by any Governmental Authority against the Borrower under the
     Racketeering Influence and Corrupt Organizations Statute (18 U.S.C. (S)1961
     et seq.), the result of which could be the forfeiture or transfer of any
     -- ---
     material Property of the Borrower subject to a Lien in favor of the Lender
     without (i) satisfaction or provision for satisfaction of such

                                       42
<PAGE>

     Lien, or (ii) such forfeiture or transfer of such Property being expressly
     made subject to such Lien;

          (k after the Closing Date, the Borrower shall have (i) concealed,
     removed, or diverted, or permitted to be concealed, removed, or diverted,
     any part of its Property, with intent to hinder, delay, or defraud its
     creditors or any of them, (ii) made or suffered a transfer of any of its
     Property which may be fraudulent under any bankruptcy, fraudulent
     conveyance, or similar law, (iii) made any transfer of its Property to or
     for the benefit of a creditor at a time when other creditors similarly
     situated have not been paid, or (iv) shall have suffered or permitted,
     while insolvent, any creditor to obtain a Lien upon any of its Property
     through legal proceedings or distraint which is not vacated within 30 days
     from the date thereof;

          (l any Security Instrument shall for any reason (other than the
     existence of a Permitted Lien) not, or cease to, create valid and perfected
     first-priority Liens against the Collateral purportedly covered thereby; or

          (m the occurrence of a Material Adverse Effect and the same shall
     remain unremedied for in excess of 30 days after notice given by the Agent.

          VII.2 Remedies. Upon the occurrence of an Event of Default specified
                --------
in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lenders
in writing; and (iii) the Lenders are hereby authorized at any time and from
time to time, without notice to the Borrower (any such notice being expressly
waived by the Borrower), to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) held by the Lenders and any and
all other indebtedness at any time owing by the Lenders to or for the credit or
account of the Borrower against any and all of the Obligations although such
Obligations may be unmatured.

          (b Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Lenders may, by notice to the
Borrower, declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lenders
in writing; and (iii) to the extent permitted by and in compliance with
applicable law, the Lenders are hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held

                                       43
<PAGE>

by the Lenders and any and all other indebtedness at any time owing by the
Lenders to or for the credit or account of the Borrower against any and all of
the Obligations although such Obligations may be unmatured.

          (c Upon the occurrence of any Event of Default, the Lenders may, in
addition to the foregoing in this Section, exercise any or all of their rights
and remedies provided by law or pursuant to the Loan Documents.

                                 ARTICLE VIII
                                 ------------

                                   THE AGENT
                                   ---------

          VIII.1 Appointment. Each Lender hereby designates and appoints the
                 -----------
Agent as the agent of such Lender under this Agreement and the other Loan
Documents. Each Lender authorizes the Agent, as the agent for such Lender, to
take such action on behalf of such Lender under the provisions of this Agreement
and the other Loan Documents and to exercise such powers and perform such duties
as are expressly delegated to the Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement or in any other Loan Document, the Agent shall not have any
duties or responsibilities except those expressly set forth herein or in any
other Loan Document or any fiduciary relationship with any Lender; and no
implied covenants, functions, responsibilities, duties, obligations, or
liabilities on the part of the Agent shall be read into this Agreement or any
other Loan Document or otherwise exist against the Agent.

          VIII.2 Waivers, Amendments. The provisions of this Agreement and of
                 -------------------
each other Loan Document may from time to time be amended, modified or waived,
if such amendment, modification, or waiver is in writing and consented to by the
Borrower and the Required Lenders; provided, however, that no such amendment,
modification or waiver would: (a) modify any requirement hereunder that any
particular action be taken by all of the Lenders or by the Required Lenders
unless consented to by each Lender; (b) modify this Section 8.2, change the
definition of "Required Lenders", or change the Commitment Amount or Percentage
Share of any Lender, reduce the fees described in Article II, extend the
Commitment Termination Date or Final Maturity, release any Security Instrument
or Lien, or initiate any foreclosure, enforcement or collection procedure
without the consent of each Lender; (c) extend the due date for, (or reduce the
amount of any scheduled repayment or prepayment of principal of or interest on
any Loan) without the consent of the holder of that Notes evidencing such Loan;
(d) affect, adversely the interests, rights, or obligations of the Agent without
the consent of the Agent; or (e) to modify the Borrowing Base or modify the
monthly amount by which the Borrowing Base shall be reduced.

          VIII.3 Delegation of Duties.  The Agent may execute any of its
                 --------------------
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not

                                       44
<PAGE>

be responsible to any Lender for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.

          VIII.4  Exculpatory Provisions. Neither the Agent nor any of its
                  ----------------------
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) required to initiate or conduct any litigation or collection proceedings
hereunder, except with the concurrence of the Required Lenders and contribution
by each Lender of its Percentage Share of costs reasonably expected by the Agent
to be incurred in connection therewith, (b) liable for any action lawfully taken
or omitted to be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except for gross negligence or willful
misconduct of the Agent or such Person), or (c) responsible in any manner to any
Lender for any recitals, statements, representations or warranties made by the
Borrower or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.

          VIII.5  Reliance by Agent. The Agent shall be entitled to rely, and
                  -----------------
shall be fully protected in relying, upon any Notes, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Notes as
the owner thereof for all purposes unless and until a written notice of
assignment, negotiation, or transfer thereof shall have been received by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate and contribution by each Lender of its Percentage Share of costs
reasonably expected by the Agent to be incurred in connection therewith. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders. Such request and any action taken or failure to
act pursuant thereto shall be binding upon the Lenders and all future holders of
the Notes. In no event shall the Agent be required to take any action that
exposes the Agent to personal liability or that is contrary to any Loan Document
or applicable Requirement of Law.

          VIII.6  Notice of Default. The Agent shall not be deemed to have
                  -----------------
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Agent receives such

                                       45
<PAGE>

a notice, the Agent shall promptly give notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders; provided that unless and until
                                                --------
the Agent shall have received such directions, subject to the provisions of
Section 7.2, the Agent may (but shall not be obligated to) take such action, or
-----------
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders. In the
event that the officer of the Agent primarily responsible for the lending
relationship with the Borrower or the officer of any Lender primarily
responsible for the lending relationship with the Borrower becomes aware that a
Default or Event of Default has occurred and is continuing, the Agent or such
Lender, as the case may be, shall use its good faith efforts to inform the other
Lenders and/or the Agent, as the case may be, promptly of such occurrence.
Notwithstanding the preceding sentence, failure to comply with the preceding
sentence shall not result in any liability to the Agent or any Lender.

          VIII.7  Non-Reliance on Agent and Other Lenders. Each Lender expressly
                  ---------------------------------------
acknowledges that neither the Agent nor any other Lender nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representation or warranty to such Lender and that no
act by the Agent or any other Lender hereafter taken, including any review of
the affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Agent or any Lender to any other Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, condition (financial and otherwise) and creditworthiness
of the Borrower and the value of the Collateral and other Properties of the
Borrower and has made its own decision to enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon the Agent
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, condition (financial and
otherwise) and creditworthiness of the Borrower and the value of the Collateral
and other Properties of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial and otherwise), or creditworthiness of the
Borrower or the value of the Collateral or other Properties of the Borrower
which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.

          VIII.8  Indemnification.  Each Lender agrees to indemnify the Agent
                  ---------------
and its officers, directors, employees, agents, attorneys-in-fact and affiliates
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to the Percentage Share
of such Lender, from and against any and all liabilities, claims, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind

                                       46
<PAGE>

whatsoever which may at any time (including any time following the payment and
performance of all obligations and the termination of this Agreement) be imposed
on, incurred by or asserted against the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates in any way relating to or
arising out of this Agreement or any other Loan Document, or any other document
contemplated or referred to herein or the transactions contemplated hereby or
any action taken or omitted by the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates under or in connection with
any of the foregoing, including any liabilities, claims, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
imposed, incurred or asserted as a result of the negligence, whether sole or
concurrent, of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates; provided that no Lender shall be liable for the
                                 --------
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from the gross negligence or willful misconduct of the Agent or any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates.
The agreements in this Section shall survive the payment and performance of all
obligations and the termination of this Agreement.

          VIII.9  Restitution. Should the right of the Agent or any Lender to
                  -----------
realize funds with respect to the Obligations be challenged and any application
of such funds to the Obligations be reversed, whether by Governmental Authority
or otherwise, or should the Borrower otherwise be entitled to a refund or return
of funds distributed to the Lenders in connection with the Obligations, the
Agent or such Lender, as the case may be, shall promptly notify the Lenders of
such fact. Not later than Noon, Central Standard or Central Daylight Savings
Time, as the case may be, of the Business Day following such notice, each Lender
shall pay to the Agent an amount equal to the ratable share of such Lender of
the funds required to be returned to the Borrower. The ratable share of each
Lender shall be determined on the basis of the percentage of the payment all or
a portion of which is required to be refunded originally distributed to such
Lender, if such percentage can be determined, or, if such percentage cannot be
determined, on the basis of the Percentage Share of such Lender. The Agent shall
forward such funds to the Borrower or to the Lender required to return such
funds. If any such amount due to the Agent is made available by any Lender after
Noon, Central Standard or Central Daylight Savings Time, as the case may be, of
the Business Day following such notice, such Lender shall pay to the Agent (or
the Lender required to return funds to the Borrower, as the case may be) for its
own account interest on such amount at a rate equal to the Federal Funds Rate
for the period from and including the date on which restitution to the Borrower
is made by the Agent (or the Lender required to return funds to the Borrower, as
the case may be) to but not including the date on which such Lender failing to
timely forward its share of funds required to be returned to the Borrower shall
have made its ratable share of such funds available.

          VIII.10 Agent in Its Individual Capacity. The Agent and its affiliates
                  --------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower as though

                                       47
<PAGE>

the Agent were not the agent hereunder. With respect to any Notes issued to the
Lender serving as the Agent, the Agent shall have the same rights and powers
under this Agreement as a Lender and may exercise such rights and powers as
though it were not the Agent. The terms "Lender" and "Lenders" shall include the
Agent in its individual capacity.

          VIII.11  Succesor Agent. The Agent may resign as Agent upon ten days'
                   --------------
notice to the Lenders and the Borrower. If the Agent shall resign as Agent under
this Agreement and the other Loan Documents, Lenders for which the Percentage
Shares aggregate at least fifty-one percent (51%) shall appoint from among the
Lenders a successor agent for the Lenders, subject to the reasonable consent of
the Borrower whereupon such successor agent shall succeed to the rights, powers
and duties of the Agent. The term "Agent" shall mean such successor agent
effective upon its appointment. The rights, powers, and duties of the former
Agent as Agent shall be terminated, without any other or further act or deed on
the part of such former Agent or any of the parties to this Agreement or any
holders of the Notes. After the removal or resignation of any Agent hereunder as
Agent, the provisions of this Article VIII and those of any Section hereof
                              ------------
relating to the Agent, including Section 5,14, Section 5.15 and Section 5.19
                                 ------------  ------------     ------------
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other Loan Documents.

          VIII.11  Applicable Parties. The provisions of this Article are solely
                   ------------------
for the benefit of the Agent and the Lenders, and the Borrower shall not have
any rights as a third party beneficiary or otherwise under any of the provisions
of this Article. In performing functions and duties hereunder and under the
other Loan Documents, the Agent shall act solely as the agent of the Lenders and
does not assume, nor shall it be deemed to have assumed, any obligation or
relationship of trust or agency with or for the Borrower or any legal
representative, successor, and assign of the Borrower.

                                  ARTICLE IX
                                  ----------

                                 MISCELLANEOUS
                                 -------------

          IX.1     Assignments; Participations.  Each Lender may assign or sell
                   ---------------------------
participations in its Loans and Commitments to one or more other Persons in
accordance with this Section 9.1.

          (a) Assignments.  Any Lender,
              -----------

          (i) with the written consent of the Borrowers (in their sole
          discretion) and the Agent (which consent shall not be unreasonably
          delayed or withheld), may at any time, assign and delegate to one or
          more commercial banks or other financial institutions, and

                                       48
<PAGE>

          (ii)  with notice to the Borrower and the Agent, but without the
                consent of the Borrower or the Agent, may assign and delegate to
                any of its Affiliates or to any other Lender

          (each Person described in (i) or (ii) above as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans and
       ---------------
Commitments (which assignment and delegation shall be of a constant, and not a
varying percentage, of all the assigning Lender's Loans and Commitments), in a
minimum aggregate amount of $1,000,000 of such Lender's Percentage Share of the
Maximum Commitment Amount, if less; provided, however, that such Assignee Lender
will comply with all the provisions of this Agreement, and further, provided,
however, that the Borrower and Agent shall be entitled to continue to deal
solely and directly with such assigning Lender in connection with the interests
so assigned and delegated to an Assignee Lender until:

          (iii) written notice of such assignment and delegation together with
          payment instructions, addresses and related information with respect
          to such Assignee Lender, shall have been given to the Borrower and the
          Agent by such Lender and such Assignee Lender,

          (iv)  such Assignee Lender shall have executed and deliver to the
          Borrower the Agent a Lender Assignment Agreement, accepted by the
          Borrower and the Agent and attached hereto as Exhibit VIII, and

          (v)   the processing fees described below shall have been paid.

          From and after the date that the Borrower and the Agent accept such
Lender Assignment Agreement, (a) the Assignee Lender thereunder shall be deemed
automatically to have become a party hereto and to the extent that rights and
obligations hereunder have been assigned and delegated to such Assignee Lender
in connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (b)
the Assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the other
Loan Documents. Within five Business Days after its receipt of notice that the
Agent has received an executed Lender Assignment Agreement, the Borrower shall
execute and deliver to the Agent (for delivery to the relevant Assignee Lender)
new Notes evidencing such Assignee Lender's assigned Loans and Commitments and,
if the assignor Lender has retained Loans and Commitments hereunder, replacement
Notes in the principal amount of the Loans and Commitments retained by the
assignor Lender hereunder (such Notes to be in exchange for, but not in payment
of, those Notes then held by such assignor Lender). Each such Note shall be
dated the date of the predecessor Notes. The assignor Lender shall mark the
predecessor Notes "exchanged" and deliver them to the Borrower. Accrued interest
on that part of the predecessor Notes evidenced by the new Notes, and accrued
fees, shall be paid as provided in

                                       49
<PAGE>

the Lender Assignment Agreement. Accrued interest on that part of the
predecessor Notes evidenced by the replacement Notes shall be paid to the
assignor Lender. Accrued interest and accrued fees shall be paid at the same
time or times provided in the predecessor Notes and in this Agreement. Such
assignor Lender or such assignee Lender must also pay a processing fee to the
Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000.
Any attempted assignment and delegation not made in accordance with this Section
9.1 shall be null and void.

          (b) Participations.  Any Lender, with the prior written consent of the
              --------------
Borrower in its sole discretion, may at any time sell to one or more commercial
banks (each of such commercial banks being herein called a "Participant")
                                                            -----------
participating interests in any of the Loans, Commitments, or other interests of
such Lender hereunder; provided, however, that (a) no participation contemplated
in this Section 9.1 shall relieve such Lender from its Commitments or its other
obligations hereunder or under any other Loan Document, (b) such Lender shall
remain solely responsible for the performance of its Commitments and such other
obligations, (c) the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents, (d) no
Participant shall be entitled to require such Lender to take or refrain from
taking any action hereunder or under any other Loan Document.

          IX.2 Survival of Representations, Warranties, and Covenants. All
               ------------------------------------------------------
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Notes and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.

          IX.3  Notices and Other Communications.  Except as to oral notices
                --------------------------------
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:

          (a) if to the Agent and Lender, to:

               Bank One, Texas, National Association
               910 Travis, 6th Floor
               Houston, Texas 77002-5860
               Attention:  Energy Group, 6th Floor
               (or for notice by mail, to:
               P.O. Box 2629)
               Houston, Texas 77252-2629
               Attention:  Energy Group, 6th Floor
               Telecopy:  (713) 751-7894

                                       50
<PAGE>

          (b) if to the Borrower, to:

               Southern Mineral Corporation
               1201 Louisiana, Suite 3350
               Houston, Texas 77002
               Attention: Michael E. Luttrell
               Telecopy: (713) 658-0016

          Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall thereafter
be sent.

          IX.4 Parties in Interest. Subject to applicable restrictions contained
               -------------------
herein, all covenants and agreements herein contained by or on behalf of the
Borrower, the Agent or the Lenders shall be binding upon and inure to the
benefit of the Borrower, the Agent or the Lenders, as the case may be, and their
respective legal representatives, successors, and assigns.

          IX.5 Rights of Third Parties. All provisions herein are imposed solely
               -----------------------
and exclusively for the benefit of the Agent, Lenders and the Borrower. No other
Person shall have any right, benefit, priority, or interest hereunder or as a
result hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms.

          IX.6 Renewals; Extensions.  All provisions of this Agreement relating
               --------------------
to the Notes shall apply with equal force and effect to each promissory note
hereafter executed which in whole or in part represents a renewal or extension
of any part of the Indebtedness of the Borrower under this Agreement, the Notes,
or any other Loan Document.

          IX.7 No Waiver; Rights Cumulative.  No course of dealing on the part
               ----------------------------
of the Agent or the Lender, its officers or employees, nor any failure or delay
by the Agent or the Lender with respect to exercising any of its rights under
any Loan Document shall operate as a waiver thereof. The rights of the Agent or
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 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.

          IX.8 Survival Upon Unenforceability.  In the event any one or more
               ------------------------------
of the provisions contained in any of the Loan Documents or in any other
instrument referred to herein or executed in connection with the Obligations
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision of any Loan Document or of any other instrument referred to
herein or executed in connection with such Obligations.

                                       51
<PAGE>

         IX.9    Amendments; Waivers. Neither this Agreement nor any provision
                 -------------------
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.

         IX.10   Controlling Agreement. In the event of a conflict between the
                 ---------------------
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.

         IX.11   Disposition of Collateral. Notwithstanding any term or
                 -------------------------
provision, express or implied, in any of the Security Instruments, the
realization, liquidation, foreclosure, or any other disposition on or of any or
all of the Collateral shall be in the order and manner and determined in the
sole discretion of the Lender; provided, however, that in no event shall the
Lender violate applicable law or exercise rights and remedies other than those
provided in such Security Instruments or otherwise existing at law or in equity.

          IX.12  GOVERNING LAW. THIS AGREEMENT AND THE NOTES 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 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.

         IX.13   JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
                 ----------------------
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, SOLELY IN
COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE BORROWER HEREBY
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN
HOUSTON, 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 LENDER IN ACCORDANCE WITH THIS SECTION.

         IX.14   WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, AGENT AND THE
                 ------------------------------
LENDERS HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND
UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF
ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE
LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO.

                                       52
<PAGE>

THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING
INTO THIS AGREEMENT.

         IX.15   ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
                 ----------------
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

         IX.16   Counterparts. For the convenience of the parties, this
                 ------------
Agreement may be executed in multiple counterparts, each of which for all
purposes shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same Agreement.

         IX.17   Release by Borrower. Notwithstanding the assignment made and
                 -------------------
evidenced by the Assignment and the assumption by the Agent of certain
obligations and liabilities of the Existing Lenders pursuant thereto, the
Borrower hereby releases and discharges the Agent from all obligations, claims,
losses, causes of action, and liabilities, of whatsoever kind or nature, whether
heretofore or hereafter accruing, whether now known or unknown, arising under or
in connection with any Existing Loan Document or Existing Letter of Credit or
any act or omission by the Existing Lenders under or in connection with any
Existing Loan Document or Existing Letter of Credit; provided, however, nothing
set forth in this Section shall relieve the Lenders from their obligations and
liabilities under the Loan Documents (other than the Assignment) to which it is
a party.

         IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.

                                BORROWERS:
                                ---------

                                SOUTHERN MINERAL CORPORATION

                                SMC ECUADOR, INC.

                                SMC PRODUCTION CO.

                                BEC ENERGY, INC.

                                       53
<PAGE>

                                SPRUCE HILLS PRODUCTION COMPANY,
                                INC.

                                By:___________________________________________
                                    Michael E. Luttrell
                                    Vice President and Chief Financial Officer

                                AGENT AND LENDER:
                                ----------------

                                BANK ONE, TEXAS, NATIONAL
                                ASSOCIATION

                                By:___________________________________________
                                    Jonathan Gregory
                                    Vice President

                                       54
<PAGE>

                                   EXHIBIT I
                                   ---------

                                [FORM OF NOTE]

                                PROMISSORY NOTE
                                ---------------

$30,000,000                      Houston, Texas                 August 23, 2000

          FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker")
                                                                  -----
promises to pay to the order of Bank One, Texas, National Association ("Payee"),
                                                                        -----
at its banking quarters in Houston, Harris County, Texas,  the sum of THIRTY
MILLION DOLLARS ($30,000,000), or so much thereof as may be advanced against
this Note pursuant to the Credit Agreement dated of even date herewith by and
between Maker and Payee (as 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.

          Without being limited thereto or thereby, this Note is secured by the
Security Instruments.

          This Note is issued, in whole or in part, in renewal and extension,
but not in novation or discharge, of the remaining principal balance of the
Existing Note.

          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.

                          (Page One of Two Page Note)

                                      I-i
<PAGE>

                                SOUTHERN MINERAL CORPORATION

                                SMC ECUADOR, INC.

                                SMC PRODUCTION CO.

                                BEC ENERGY, INC.

                                SPRUCE HILLS PRODUCTION COMPANY,
                                INC.

                                By:___________________________________________
                                    Michael E. Luttrell
                                    Vice President and Chief Financial Officer

                                 (Page Two of Two Page Note)

                                     I-ii
<PAGE>

                                  EXHIBIT II
                                  ----------

                          [FORM OF BORROWING REQUEST]

BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 TRAVIS
HOUSTON, TEXAS 77002
Attention: Energy Group, 6th Floor

      Re: Credit Agreement dated as of August 23, 2000, by and between Southern
          Mineral Corporation, SMC Ecuador, Inc., SMC Production Co., BEC
          Energy, Inc., and Spruce Hills Production Company, Inc. and Bank One,
          Texas, National Association, as Agent and the Lenders signatory
          thereto from time to time (as amended, restated, or supplemented from
          time to time, the "Credit Agreement")
                             ----------------

Ladies and Gentlemen:

          Pursuant to the Credit Agreement, the Borrower hereby requests a Loan
on the date and in the amount as follows:

          Amount:  $__________

          Requested funding date: _____________, 19__

          The undersigned certifies that she is the ___________ of the Borrower,
has obtained all consents necessary, and as such she is authorized to execute
this request on behalf of the Borrower.  The undersigned further certifies,
represents, and warrants on behalf of the Borrower that the Borrower is entitled
to receive the requested Loan under the terms and conditions of the Credit
Agreement.

          Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.

                                Very truly yours,

                                SOUTHERN MINERAL CORPORATION

                                SMC ECUADOR, INC.

                                SMC PRODUCTION CO.

                                BEC ENERGY, INC.

                                     II-i
<PAGE>

                                SPRUCE HILLS PRODUCTION COMPANY,
                                INC.

                                By:___________________________________________
                                    Michael E. Luttrell
                                    Vice President and Chief Financial Officer

                                     II-ii
<PAGE>

                                  EXHIBIT III
                                  -----------

                       [FORM OF COMPLIANCE CERTIFICATE]

                                ________, 19__

BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 TRAVIS
HOUSTON, TEXAS 77002
Attention: Energy Group, 6th Floor

     Re:  Credit Agreement dated as of August 23, 2000, by and between Southern
          Mineral Corporation, SMC Ecuador, Inc., SMC Production Co., BEC
          Energy, Inc., and Spruce Hills Production Company, Inc. and Bank One,
          Texas, National Association, as Agent and the Lenders signatory
          thereto from time to time (as amended, restated, or supplemented from
          time to time, the "Credit Agreement")
                             ----------------

Ladies and Gentlemen:

          Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower, hereby certifies to you
the following information as true and correct as of the date hereof or for the
period indicated, as the case may be:

     1.   To the best of the knowledge of the undersigned, no Default or Event
     of Default exists as of the date hereof or has occurred since the date of
     our previous certification to you, if any.

     1.   To the best of the knowledge of the undersigned, the following
     Defaults or Events of Default exist as of the date hereof or have occurred
     since the date of our previous certification to you, if any, and the
     actions set forth below are being taken to remedy such circumstances:

     2.   The compliance of the Borrower with the financial covenants of the
     Credit Agreement, as of the close of business on ____________________, is
     evidenced by the following:

     (a)  Section 6.16: Current Ratio.  Permit the ratio of Current Assets to
                        -------------
     Current Liabilities to be less than 1.00 to 1.00 at any time.

                                    Actual
                                    ------

                                    ___ to 1.0

                                     III-i
<PAGE>

     (b) Section 6.17: Tangible Net Worth.  Permit Tangible Net Worth as of the
                       ------------------
     close of any fiscal quarter to be less than 85% of Tangible Net Worth on
     the effective date of confirmation of the plan by the United States
     Bankruptcy Court, plus 75% of positive quarterly Net Income and 100% of any
     new equity, tested quarterly.

                                    Actual
                                    ------

                                    ___ to 1.0

     (c)  Section 6.18: Debt Coverage Ratio. Permit, as of the close of any
                        -------------------
     fiscal quarter, the ratio of (a) EBITDA for each quarter to (b) Debt
     Service for each quarter to be less than 1.20 to 1.0.

                                    Actual
                                    ------

                                    ___ to 1.0

     (d)  Section 6.19: General and Administrative Expenses. Borrower shall not
                        -----------------------------------
     permit general and administrative expenses to exceed on a quarterly basis
     12 2% of total quarterly revenues.

                                    Actual
                                    ------

     3.   No Material Adverse Effect has occurred since the date of the
     Financial Statements dated as of ______________________.

          Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.

                                Very truly yours,

                                SOUTHERN MINERAL CORPORATION

                                SMC ECUADOR, INC.

                                SMC PRODUCTION CO.

                                BEC ENERGY, INC.

                                    III-ii
<PAGE>

                                SPRUCE HILLS PRODUCTION COMPANY,
                                INC.

                                By:___________________________________________
                                    Michael E. Luttrell
                                    Vice President and Chief Financial Officer

                                    III-iii
<PAGE>

                                  EXHIBIT IV
                                  ----------

                               FACILITY AMOUNTS
                               ----------------

                                                                      Facility
Name of Lender                                                         Amount
--------------                                                         ------

Bank One, Texas, National Association                                $30,000,000

                                                                     -----------
Total:                                                               $30,000,000

                                     IV-i
<PAGE>

                                   EXHIBIT V
                                   ---------

                         [FORM OF OPINION OF COUNSEL]

                [Akin, Gump will provide their form of opinion]

                                      V-i
<PAGE>

                                  EXHIBIT VI
                                  ----------

                                 [DISCLOSURES]

Section 4.8         Liabilities
                    -----------

                    Litigation
                    ----------

Section 4.12        Environmental Matters
                    ---------------------

Section 4.17        Refunds
                    -------

Section 4.18        Gas Contracts
                    -------------

Section 4.20        Casualties
                    ----------

Section 4.22        Subsidiaries
                    ------------

                                     VI-i
<PAGE>

                                  EXHIBIT VII
                                  -----------

                        [FORM OF ASSIGNMENT AGREEMENT]

                             ASSIGNMENT AGREEMENT
                             --------------------

     This ASSIGNMENT AGREEMENT (as amended, supplemented, restated or otherwise
modified from time to time, this "Agreement") is dated as of ________________,
                                  ---------
__________, by and between _______________ (the "Assignor") and _______________
                                                 --------
(the "Assignee").
      --------

                                   RECITALS
                                   --------

     WHEREAS, the Assignor is a party to the Credit Agreement dated as of August
23, 2000 (as amended, supplemented or restated from time to time, the "Credit
                                                                       ------
Agreement") by and among SOUTHERN MINERAL CORPORATION, a Nevada corporation, SMC
---------
PRODUCTION CO., a Texas corporation, SMC ECUADOR, INC., a Delaware corporation,
BEC ENERGY, INC., a Texas corporation and SPRUCE HILLS PRODUCTION COMPANY, a
Delaware corporation (collectively, the "Borrower"), each of the lenders that is
                                         --------
or becomes a party thereto as provided in Section 9.1(b) of the Credit Agreement
(individually, together with its successors and assigns, a "Lender", and
                                                            ------
collectively, together with their successors and assigns, the "Lenders"), and
                                                               -------
Bank One, Texas, National Association, a national banking association, as a
Lender (in such capacity, "Bank One") and as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Agent"); and
                                                              -----

     WHEREAS, the Assignor proposes to sell, assign and transfer to the
Assignee, and the Assignee proposes to purchase and assume from the Assignor,
[all][a portion] of the Assignor's Facility Amount and its outstanding Loans,
all on the terms and conditions of this Agreement;

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

                                   ARTICLE I

                        DEFINITIONS AND INTERPRETATION
                        ------------------------------

     1.1  Definitions from Credit Agreement.  All capitalized terms used but not
          ---------------------------------
defined herein have the respective meanings given to such terms in the Credit
Agreement.

     1.2  Additional Defined Terms.  As used herein, the following terms have
          ------------------------
the following respective meanings:

                                     VII-i
<PAGE>

          "Assigned Interest" shall mean all of Assignor's (in its capacity as a
           -----------------
     "Lender") rights and obligations (i) under the Credit Agreement and the
     other Loan Documents in respect of [all of] [the portion of the] Facility
     Amount of the Assignor in the principal amount equal to $_____________ and
     (ii) to make Loans under its Commitment up to such amount referenced above
     and any right to receive payments for the Loans currently outstanding under
     its Commitment in the principal amount of $_____________ (the "Loan
                                                                    ----
     Balance"), plus the interest and fees which will accrue with respect
     thereto from and after the Assignment Date.

          "Assignment Date" shall mean ___________, ________.
           ---------------

          1.3  References.  References in this Agreement to Schedule, Exhibit,
               ----------
Article, or Section numbers shall be to Schedules, Exhibits, Articles, or
Sections of this Agreement, unless expressly stated to the contrary.  References
in this Agreement to "hereby," "herein," "hereinafter," "hereinabove,"
"hereinbelow," "hereof," "hereunder" and words of similar import shall be to
this Agreement in its entirety and not only to the particular Schedule, Exhibit,
Article, or Section in which such reference appears.  Except as otherwise
indicated, references in this Agreement to statutes, sections, or regulations
are to be construed as including all statutory or regulatory provisions
consolidating, amending, replacing, succeeding, or supplementing the statute,
section, or regulation referred to.  References in this Agreement to "writing"
include printing, typing, lithography, facsimile reproduction, and other means
of reproducing words in a tangible visible form.  References in this Agreement
to agreements and other contractual instruments shall be deemed to include all
exhibits and appendices attached thereto and all subsequent amendments and other
modifications to such instruments, but only to the extent such amendments and
other modifications are not prohibited by the terms of this Agreement.
References in this Agreement to Persons include their respective successors and
permitted assigns.

          1.4  Articles and Sections.  This Agreement, for convenience only, has
               ---------------------
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

          1.5  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.  Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated.  Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.

          1.6  Negotiated Transaction.  Each party to this Agreement affirms to
               ----------------------
the other that it has had the opportunity to consult, and discuss the provisions
of this Agreement with, independent counsel and fully understands the legal
effect of each provision.

                                    VII-ii
<PAGE>

                                  ARTICLE II

                              SALE AND ASSIGNMENT
                              -------------------

     2.1  Sale and Assignment.  On the terms and conditions set forth herein,
          -------------------
effective on and as of the Assignment Date, the Assignor hereby sells, assigns
and transfers to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, all of the right, title and interest of the Assignor in and
to, and all of the obligations of the Assignor in respect of, the Assigned
Interest. Such sale, assignment and transfer is without recourse and, except as
expressly provided in this Agreement, without representation or warranty.

     2.2  Assumption of Obligations.  The Assignee agrees with the Assignor (for
          -------------------------
the express benefit of the Assignor and the Borrower) that the Assignee will,
from and after the Assignment Date, assume and perform all of the obligations of
the Assignor in respect of the Assigned Interest. From and after the Assignment
Date: (a) the Assignor shall be released from the Assignor's obligations in
respect of the Assigned Interest, and (b) the Assignee shall be entitled to all
of the Assignor's rights, powers and privileges under the Credit Agreement and
the other Loan Documents in respect of the Assigned Interest.

     2.3  Consent by Agent.  By executing this Agreement as provided below, in
          ----------------
accordance with Section 9.1(b) of the Credit Agreement, the Agent hereby
acknowledges notice of the transactions contemplated by this Agreement and
consents to such transactions.

                                  ARTICLE III

                                   PAYMENTS
                                   --------

     3.1  Payments.  As consideration for the sale, assignment and transfer
          --------
contemplated by Section 2.1, the Assignee shall, on the Assignment Date, assume
                -----------
Assignor's obligations in respect of the Assigned Interest and pay to the
Assignor an amount equal to the Loan Balance, if any, all accrued and unpaid
interest and fees with respect to the Assigned Interest as of the Assignment
Date. Except as otherwise provided in this Agreement, all payments hereunder
shall be made in Dollars and in immediately available funds, without setoff,
deduction or counterclaim.

     3.2  Allocation of Payments.  The Assignor and the Assignee agree that (i)
          ----------------------
the Assignor shall be entitled to any payments of principal with respect to the
Assigned Interest made prior to the Assignment Date, together with any interest
and fees with respect to the Assigned Interest accrued prior to the Assignment
Date, (ii) the Assignee shall be entitled to any payments of principal with
respect to the Assigned Interest made from and after the Assignment Date,
together with any and all interest and fees with respect to the Assigned
Interest accruing from and after the Assignment Date, and (iii) the Agent is
authorized and instructed to allocate payments received by it for the account

                                    VII-iii
<PAGE>

of the Assignor and the Assignee as provided in the foregoing clauses. Each
party hereto agrees that it will hold any interest, fees or other amounts that
it may receive to which the other party hereto shall be entitled pursuant to the
preceding sentence for account of such other party and pay, in like money and
funds, any such amounts that it may receive to such other party promptly upon
receipt.

     3.3  Delivery of Notes.  Promptly following the receipt by the Assignor of
          -----------------
the consideration required to be paid under Section 3.1 hereof, the Assignor
                                            -----------
shall, in the manner contemplated by Section 9.1(b) of the Credit Agreement, (i)
deliver to the Agent (or its counsel) the Notes held by the Assignor and (ii)
notify the Agent to request that the Borrower execute and deliver new Notes to
the Assignor, if Assignor continues to be a Lender, and the Assignee, dated the
Assignment Date in respective principal amounts equal to the respective Facility
Amounts of the Assignor (if appropriate) and the Assignee after giving effect to
the sale, assignment and transfer contemplated hereby.

     3.4  Further Assurances.  The Assignor and the Assignee hereby agree to
          ------------------
execute and deliver such other instruments, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.

                                  ARTICLE IV

                             CONDITIONS PRECEDENT
                             --------------------

     The effectiveness of the sale, assignment and transfer contemplated hereby
is subject to the satisfaction of each of the following conditions precedent:

          (a)  the execution and delivery of this Agreement by the Assignor and
     the Assignee;

          (b)  the receipt by the Assignor of the payments required to be made
     under Section 3.1; and
           -----------

          (c)  the acknowledgment and consent by the Agent contemplated by
     Section 2.3.
     ------------

                                   ARTICLE V

                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

     5.1  Representations and Warranties of Assignor.  The Assignor represents
          ------------------------------------------
and warrants to the Assignee as follows:

                                    VII-iv
<PAGE>

          (a)  it has all requisite power and authority, and has taken all
     action necessary to execute and deliver this Agreement and to fulfill its
     obligations under, and consummate the transactions contemplated by, this
     Agreement;

          (b)  the execution, delivery and compliance with the terms hereof by
     the Assignor and the delivery of all instruments required to be delivered
     by it hereunder do not and will not violate any Requirement of Law
     applicable to it;

          (c)  this Agreement has been duly executed and delivered by it and
     constitutes the legal, valid and binding obligation of the Assignor,
     enforceable against it in accordance with its terms;

          (d)  all approvals and authorizations of, all filings with and all
     actions by any Governmental Authority necessary for the validity or
     enforceability of its obligations under this Agreement have been obtained;

          (e)  the Assignor has good title to, and is the sole legal and
     beneficial owner of, the Assigned Interest, free and clear of all Liens,
     claims, participations or other charges of any nature whatsoever; and

          (f)  the transactions contemplated by this Agreement are commercial
     banking transactions entered into in the ordinary course of the banking
     business of the Assignor.

     5.2  Disclaimer.  Except as expressly provided in Section 5.1 hereof, the
          ----------                                   -----------
Assignor does not make any representation or warranty, nor shall it have any
responsibility to the Assignee, with respect to the accuracy of any recitals,
statements, representations or warranties contained in the Credit Agreement or
in any other Loan Document or for the value, validity, effectiveness,
genuineness, execution, legality, enforceability or sufficiency of the Credit
Agreement, the Notes or any other Loan Document or for any failure by the
Borrower or any other Person (other than Assignor) to perform any of its
obligations thereunder or for the existence, value, perfection or priority of
any collateral security or the financial or other condition of the Borrower or
any other Person, or any other matter relating to the Credit Agreement or any
other Loan Document or any extension of credit thereunder.

     5.3  Representations and Warranties of Assignee. The Assignee represents
          ------------------------------------------
and warrants to the Assignor as follows:

          (a)  it has all requisite power and authority, and has taken all
     action necessary to execute and deliver this Agreement and to fulfill its
     obligations under, and consummate the transactions contemplated by, this
     Agreement;

                                     VII-v
<PAGE>

          (b)  the execution, delivery and compliance with the terms hereof by
     the Assignee and the delivery of all instruments required to be delivered
     by it hereunder do not and will not violate any Requirement of Law
     applicable to it;

          (c)  this Agreement has been duly executed and delivered by it and
     constitutes the legal, valid and binding obligation of the Assignee,
     enforceable against it in accordance with its terms;

          (d)  all approvals and authorizations of, all filings with and all
     actions by any Governmental Authority necessary for the validity or
     enforceability of its obligations under this Agreement have been obtained;

          (e)  the Assignee has received copies of the Credit Agreement and the
     other Loan Documents, as well as copies of all Financial Statements
     previously provided by the Borrower in satisfaction of obligations under
     the Credit Agreement.

          (f)  the Assignee has fully reviewed the terms of the Credit Agreement
     and the other Loan Documents and has independently and without reliance
     upon the Assignor, and based on such information as the Assignee has deemed
     appropriate, made its own credit analysis and decision to enter into this
     Agreement;

          (g)  if the Assignee is not incorporated under the laws of the United
     Sates of America or a state thereof, the Assignee has contemporaneously
     herewith delivered to the Agent and the Borrower such documents as are
     required by Section 2.25(b) of the Credit Agreement; and

          (h)  the transactions contemplated by this Agreement are commercial
     banking transactions entered into in the ordinary course of the banking
     business of the Assignee.

                                  ARTICLE VI

                                 MISCELLANEOUS
                                 -------------

     6.1  Notices.  All notices and other communications provided for herein
          -------
(including any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including by telecopy) to the
intended recipient at its "Address for Notices" specified below its name on the
signature pages hereof or, as to either party, at such other address as shall be
designated by such party in a notice to the other party.

     6.2  Amendment, Modification or Waiver.  No provision of this Agreement may
          ---------------------------------
be amended, modified or waived except by an instrument in writing signed by the
Assignor and the Assignee, and consented to by the Agent.

                                    VII-vi
<PAGE>

     6.3  Successors and Assigns.  This Agreement shall be binding upon and
          ----------------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. The representations and warranties made herein by the
Assignee are also made for the benefit of the Agent, and the Assignee agrees
that the Agent is entitled to rely upon such representations and warranties.

     6.4  Assignments.  Neither party hereto may assign any of its rights or
          -----------
obligations hereunder except in accordance with the terms of the Credit
Agreement.

     6.5  Counterparts.  This Agreement may be executed in any number of
          ------------
counterparts, each of which shall be identical and all of which, taken together,
shall constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.

     6.6  Governing Law.  This Agreement (including the validity and
          -------------
enforceability hereof) shall be governed by, and construed in accordance with,
the laws of the State of Texas, other than the conflict of laws rules thereof.

     6.7  Expenses.  To the extent not paid by the Borrower pursuant to the
          --------
terms of the Credit Agreement, each party hereto shall bear its own expenses in
connection with the execution, delivery and performance of this Agreement.

     6.8  Waiver of Jury Trial.  Each of the parties hereto hereby irrevocably
          --------------------
waives, to the fullest extent permitted by law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

     IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered as of the date first above written.

                                 ASSIGNOR
                                 --------

                                     __________________________________

                                      By:______________________________
                                     Name:_____________________________
                                      Title:___________________________

                               Address for Notices:

                                     __________________________________

                                    VII-vii
<PAGE>

                                     __________________________________
                                     __________________________________

                                 Telecopier No.:_______________________
                                 Telephone No.:________________________
                                   Attention:__________________________

                                 ASSIGNEE
                                 --------

                                     __________________________________

                                    By:________________________________
                                  Name:________________________________
                                   Title:______________________________

                                 Address for Notices:

                                     __________________________________
                                     __________________________________
                                     __________________________________

                                 Telecopier No.:_______________________
                                 Telephone No.:________________________
                                   Attention:__________________________

ACKNOWLEDGED AND CONSENTED TO:

BANK ONE, TEXAS, NATIONAL ASSOCIATION
as Agent

By:_____________________________
Name:___________________________
Title:__________________________

                                   VII-viii<PAGE>

                                                                    EXHIBIT 10.2

________________________________________________________________________________

              U.S. $30,000,000 REVOLVING REDUCING CREDIT FACILITY

________________________________________________________________________________

                               CREDIT AGREEMENT

                                    BETWEEN

                            NEUTRINO RESOURCES INC.
                                  as Borrower

                                      AND

                      THE FINANCIAL INSTITUTIONS NAMED IN
                           SCHEDULE A ANNEXED HERETO
                                  as Lenders

                                      AND

                                BANK ONE CANADA
                            as Agent of the Lenders

                                  MADE AS OF

                                AUGUST 29, 2000

________________________________________________________________________________

                               McCarthy Tetrault
                          Burnet, Duckworth & Palmer

________________________________________________________________________________
<PAGE>

                               TABLE OF CONTENTS

                               CREDIT AGREEMENT

<TABLE>
<S>                                                                         <C>
ARTICLE 1
    INTERPRETATION ......................................................    2
    1.1   Definitions ...................................................    2
    1.3   Headings ......................................................   22
    1.4   Number; persons; including ....................................   22
    1.5   Accounting Principles .........................................   23
    1.6   Reference to Agreements and Enactments ........................   23
    1.7   Schedules .....................................................   23

ARTICLE 2
    THE CREDIT FACILITY .................................................   24
    2.1   The Credit Facility ...........................................   24
    2.2   Manner of Borrowing ...........................................   24
    2.3   Purpose .......................................................   24
    2.4   Tender Cheques ................................................   24
    2.5   Minimum Drawdowns..............................................   25
    2.6   Notice Periods for Drawdowns and Conversions ..................   25
    2.7   Conversion Option..............................................   26
    2.8   Conversions not Repayments.....................................   26
    2.9   Agent's Obligations with Respect to Canadian Dollar Loans and
          U.S. Base Rate Loans ..........................................   26
    2.10  Lenders' and Agent's Obligations with Respect to Canadian Prime
          Rate Loans and Alternate Base Rate Loans.......................   26
    2.11  Irrevocability ................................................   27
    2.12  Optional Repayment ............................................   27
    2.13  Mandatory Repayment ...........................................   28
    2.14  Currency Excess ...............................................   28
    2.15  Takeover Notification .........................................   29
    2.16  Determination of Borrowing Base ...............................   30

ARTICLE 3
    CONDITIONS PRECEDENT TO DRAWDOWNS ...................................   31
    3.1   Conditions for Drawdowns ......................................   31
    3.2   Additional Conditions for First Drawdown ......................   31
    3.3   Waiver ........................................................   32

ARTICLE 4
    EVIDENCE OF DRAWDOWNS ...............................................   33
    4.1   Account of Record..............................................   33
</TABLE>
<PAGE>

                                     -ii-

<TABLE>
<S>                                                                         <C>
ARTICLE 5
    PAYMENTS OF INTEREST AND FEES .......................................   33
    5.1   Interest on Canadian Prime Rate Loans .........................   33
    5.2   Interest on Alternate Base Rate Loans .........................   33
    5.3   Per Annum Calculations ........................................   34
    5.4   Interest Act (Canada) .........................................   34
    5.5   Nominal Rates; No Deemed Reinvestment .........................   34
    5.6   Stand-By Fees .................................................   34
    5.7   Facility Fee ..................................................   35
    5.8   Engineering Fees ..............................................   35
    5.9   Interest on Overdue Amounts ...................................   35
    5.10  Waiver ........................................................   35
    5.11  Maximum Rate Permitted by Law .................................   36

ARTICLE 6
    DOCUMENTARY INSTRUMENTS .............................................   36
    6.1   Availability ..................................................   36
    6.2   Form ..........................................................   36
    6.3   No Conversion .................................................   36
    6.4   Reimbursement or Conversion on Presentation; Issuing Lender
          Indemnity......................................................   36
    6.5   Fees ..........................................................   37
    6.6   Additional Provisions .........................................   38

ARTICLE 7
    PAYMENTS.............................................................   41
    7.1   Place of Payment of Principal, Interest and Fees; Payments to
          Agent .........................................................   41
    7.2   Designated Accounts of the Lenders.............................   41
    7.3   Funds .........................................................   41
    7.4   Application of Payments .......................................   42
    7.5   Set Off .......................................................   42

ARTICLE 8
    REPRESENTATIONS AND WARRANTIES ......................................   43
    8.1   Representations and Warranties ................................   43
    8.2   Deemed Repetition..............................................   48
    8.3   Other Documents ...............................................   49
    8.4   Effective Time of Repetition ..................................   49
    8.5   Nature of Representations and Warranties ......................   49

ARTICLE 9
    GENERAL COVENANTS ...................................................   49
    9.1   Affirmative Covenants .........................................   49
    9.2   Negative Covenants ............................................   56
</TABLE>
<PAGE>

                                     -iii-

<TABLE>
<S>                                                                         <C>
    9.3   Financial Covenants............................................   59
    9.4   Agent May Perform Covenants....................................   59

ARTICLE 10
   SECURITY..............................................................   60
   10.1   Security.......................................................   60
   10.2   Registration ..................................................   61
   10.3   Forms; Additional Security; Undertaking to Grant Fixed Charge
          Security.......................................................   61
   10.4   Continuing Security ...........................................   62
   10.5   Dealing with Security .........................................   62
   10.6   Effectiveness .................................................   63
   10.7   Saskatchewan Legislation ......................................   63
   10.8   Release and Discharge of Security .............................   63

ARTICLE 11
   EVENTS OF DEFAULT AND ACCELERATION....................................   64
   11.1   Events of Default..............................................   64
   11.2   Acceleration ..................................................   66
   11.3   Conversion on Default .........................................   67
   11.4   Remedies Cumulative and Waivers ...............................   67
   11.5   Termination of Lenders' Obligations............................   67

ARTICLE 12
   CHANGE OF CIRCUMSTANCES ..............................................   68
   12.1   Change in Law .................................................   68
   12.2   Prepayment of Portion .........................................   69
   12.3   Illegality ....................................................   69

ARTICLE 13
   COSTS, EXPENSES AND INDEMNIFICATION ..................................   70
   13.1   Costs and Expenses ............................................   70
   13.2   General Indemnity..............................................   70
   13.3   Environmental Indemnity .......................................   71
   13.4   Judgment Currency..............................................   72

ARTICLE 14
   THE AGENT AND ADMINISTRATION OF THE CREDIT FACILITY...................   72
   14.1   Authorization and Action.......................................   72
   14.2   Procedure for Making Loans.....................................   73
   14.3   Remittance of Payments.........................................   74
   14.4   Redistribution of Payment......................................   74
   14.5   Duties and Obligations ........................................   75
   14.6   Prompt Notice to the Lenders ..................................   77
</TABLE>
<PAGE>

                                     -iv-

<TABLE>
<S>                                                                         <C>
   14.7   Agent's and Lender's Authorities ..............................   77
   14.8   Lender Credit Decision ........................................   77
   14.9   Indemnification of Agent ......................................   78
   14.10  Successor Agent ...............................................   78
   14.11  Taking and Enforcement of Remedies.............................   79
   14.12  Reliance Upon Agent ...........................................   80
   14.13  No Liability of Agent .........................................   80
   14.14  Article for Benefit of Agents and Lenders .....................   80

ARTICLE 15
   GENERAL ..............................................................   80
   15.1   Exchange and Confidentiality of Information....................   80
   15.2   Nature of Obligation under this Agreement .....................   82
   15.3   Notices .......................................................   82
   15.4   Governing Law .................................................   83
   15.5   Benefit of the Agreement ......................................   83
   15.6   Assignment ....................................................   83
   15.7   Participations ................................................   84
   15.8   Severability ..................................................   84
   15.9   Whole Agreement ...............................................   84
   15.10  Amendments and Waivers ........................................   84
   15.11  Further Assurances ............................................   85
   15.12  Attornment ....................................................   85
   15.13  Time of the Essence ...........................................   86
   15.14  Credit Agreement Governs ......................................   86
   15.15  Counterparts ..................................................   86
</TABLE>
<PAGE>

                                      -v-

Schedule A   --   Lenders and Commitments
Schedule B   --   Compliance Certificate
Schedule C   --   Conversion Notice
Schedule D   --   Drawdown Notice
Schedule E   --   Repayment Notice
<PAGE>

                               CREDIT AGREEMENT
                               ----------------

                 THIS AGREEMENT is made as of August 29, 2000

AMONG:

          NEUTRINO RESOURCES INC., a corporation incorporated under
          the laws of the Province of Alberta (hereinafter referred to
          as the "Borrower")

                                     -and-

          BANK ONE CANADA and those other financial institutions named
          on Schedule A annexed hereto, together with such other
          financial institutions as become parties hereto pursuant to
          Section 15.6 hereof, as lenders (hereinafter sometimes
          collectively referred to as the "Lenders" and sometimes
          individually referred to as a "Lender")

                                     -and-

          BANK ONE CANADA, a Canadian chartered bank, as agent of the
          Lenders hereunder (hereinafter referred to as the "Agent")

     WHEREAS the Borrower has requested the Credit Facility to repay the
Existing National Facility, to finance exploration, development and acquisition
of oil and gas properties and for the general corporate purposes of the
Borrower;

     AND WHEREAS the Lenders have agreed to provide the Credit Facility to the
Borrower on the terms and conditions herein set forth;

     NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby conclusively
acknowledged by each of the parties hereto, the parties hereto covenant and
agree as follows:
<PAGE>

                                      -2-

                                   ARTICLE 1
                                INTERPRETATION

 1.1 Definitions

     In this Agreement and the recitals hereto, unless something in the subject
matter or context is inconsistent therewith:

"Additional Compensation" has the meaning set out in Section 12.1.

"Advance" means an advance of funds made by the Lenders or by any one or more of
them to the Borrower, but does not include any Conversion.

"Affected Loan" has the meaning set out in Section 12.2.

"Affiliate" means any person which, directly or indirectly, controls, is
controlled by or is under common control with another person; and for the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" or "under common control with") means the power to
direct or cause the direction of the management and policies of any person,
whether through the ownership of Voting Shares or by contract or otherwise.

"Agent's Branch" means the branch of the Agent at BCE Place, P.O. Box 613, 161
Bay Street, Suite 4240, Toronto, Ontario M5J 2S1, or such other branch in Canada
as the Agent may from time to time designate by notice to the Borrower and the
Lenders.

"Agreement" means this agreement, as amended, modified, supplemented or restated
from time to time in accordance with the provisions hereof.

"Alternate Base Rate" means, for any day, the greater of:

     (a)  the rate of interest per annum, expressed on the basis of a year of
          365 days, established from time to time by the Agent as the reference
          rate of interest for the determination of interest rates that the
          Agent will charge to customers of varying degrees of creditworthiness
          in Canada for United States Dollar loans in Canada; and

     (b)  the rate of interest per annum, expressed on the basis of a year of
          365 days, for such day or, if such day is not a Banking Day, on the
          immediately preceding Banking Day, equal to the sum of the Federal
          Funds Rate, plus 0.50% per annum;

provided that if both such rates are equal or if such Federal Funds Rate is
unavailable for any reason on the date of determination, then the "Alternate
Base Rate" shall be the rate specified in (a) above.
<PAGE>

                                      -3-

"Alternate Base Rate Loan" means an Advance in, or Conversion into, United
States Dollars made by the Lenders to the Borrower with respect to which the
Borrower has specified or a provision hereof requires that interest is to be
calculated by reference to the Alternate Base Rate.

"Applicable LC/LG Fee Rate" means a fee calculated in accordance with Section
6.5.

"Applicable Margin" means for Canadian Prime Rate Loans and Alternate Base Rate
Loans, 0.50% per annum expressed on the basis of a year of 365 days in the case
of Alternate Base Rate Loans and on the basis of a year of 365 or 366 days, as
the case may be, in the case of Canadian Prime Rate Loans.

"Banking Day" means a day on which banks are open for business in Calgary,
Alberta and Toronto, Ontario, but does not in any event include a Saturday or a
Sunday.

"Borrowing Base" means the United States Dollar limit for Debt established from
time to time by the Agent and the Lenders as the value, for Loan purposes, of
the Mortgaged Properties, such value to be determined by the Agent and the
Lenders in accordance with the applicable definitions and provisions herein
contained, their then current engineering standards and their then current and
customary lending standards for loans of this nature.

"Canadian Dollars" and "Cdn. $" mean the lawful money of Canada.

"Canadian Prime Rate" means, for any day, the greater of:

     (a)  the rate of interest per annum established and reported by the Agent
          to the Bank of Canada from time to time by the Agent as the reference
          rate of interest for the determination of interest rates that the
          Agent will charge to customers of varying degrees of creditworthiness
          in Canada for Canadian Dollar loans in Canada; and

     (b)  the rate of interest per annum equal to the average annual yield rate
          for one month Canadian Dollar bankers' acceptances which rate is shown
          on the display referred to as the "CDOR Page" (or any display
          substituted therefor) of Reuter Monitor Money Rates Service at 10:00
          a.m. (Toronto time) on such day or, if such day is not a Banking Day,
          on the immediately preceding Banking Day, plus the 0.50% per annum;

provided that if both such rates are equal or if such one month bankers'
acceptance rate is unavailable for any reason on any date of determination, then
the "Canadian Prime Rate" shall be the rate specified in (a) above.

"Canadian Prime Rate Loan" means an Advance in, or Conversion into, Canadian
Dollars made by the Lenders to the Borrower with respect to which the Borrower
has specified or a provision hereof requires that interest is to be calculated
by reference to the Canadian Prime Rate.
<PAGE>

                                      -4-

"Change of Control" means or shall be deemed to have occurred if and when any
person, joint owners or persons acting jointly or in concert (within the meaning
of the Securities Act (Alberta)) shall beneficially hold more than 50.0% of the
issued and outstanding Voting Shares in the capital of the Borrower.

"Commitment" means the commitment by each Lender to provide the amount of United
States Dollars (or the Equivalent Amount thereof) set opposite its name in
Schedule A annexed hereto subject to any reduction in accordance with the
provisions hereof.

"Commodity Agreement" means any agreement for the making or taking of delivery
of any commodity (including, without limitation, Petroleum Substances), any
commodity swap agreement, floor, cap or collar agreement or commodity future or
option or other similar agreements or arrangements, or any combination thereof,
entered into by the Borrower or a Material Subsidiary where the subject matter
of the same is any commodity or the price, value or amount payable thereunder is
dependent or based upon the price of any commodity or fluctuations in the price
of any commodity.

"Compliance Certificate" means a certificate of the Borrower signed on its
behalf by the president or chief financial officer of the Borrower,
substantially in the form annexed hereto as Schedule B, to be given to the Agent
by the Borrower pursuant hereto.

"Consolidated Assets" means, as at any date of determination, the total assets
of the Borrower determined on a consolidated basis in accordance with generally
accepted accounting principles, as the same would be set forth on a consolidated
balance sheet of the Borrower for such date.

"Conversion" means a conversion or deemed conversion of a Loan into another type
of Loan pursuant to the provisions hereof.

"Conversion Date" means the date specified by the Borrower or the terms hereof
as being the date on which the Borrower has elected to convert, or this
Agreement requires the conversion of, one type of Loan into another type of Loan
and which shall be a Banking Day.

"Conversion Notice" means a notice substantially in the form annexed hereto as
Schedule C to be given to the Agent by the Borrower pursuant hereto.

"Credit Facility" means the credit facility in the maximum principal amount of
U.S. $30,000,000 or the Equivalent Amount in Canadian Dollars to be made
available to the Borrower by the Lenders in accordance with the provisions
hereof, subject to any reduction in accordance with the provisions hereof.

"Currency Hedging Agreement" means any currency swap agreement, cross-currency
agreement, forward agreement, floor, cap or collar agreement, futures or
options, insurance or other similar
<PAGE>

                                      -5-

agreement or arrangement, or any combination thereof, entered into by a Borrower
or a Material Subsidiary where the subject matter of the same is currency
exchange rates or the price, value or amount payable thereunder is dependent or
based upon currency exchange rates or fluctuations in currency exchange rates as
in effect from time to time.

"Current Assets" and "Current Liabilities" of the Borrower mean the consolidated
current assets and consolidated current liabilities, respectively, of the
Borrower determined in accordance with generally accepted accounting principles
as the same would be set forth or reflected in a consolidated statement of
financial position of the Borrower, and including unused availability under this
Credit Facility.

"Debenture" means a debenture of the Borrower providing a fixed charge over
substantially all of the assets of the Borrower and a floating charge over all
of the assets of the Borrower, executed as of the date hereof.

"Default" means any event or condition which, with the giving of notice, lapse
of time or upon a declaration or determination being made (or any combination
thereof), would constitute an Event of Default.

"Debt" means, as at any date of determination, all obligations, liabilities and
indebtedness of the Borrower which would, in accordance with generally accepted
accounting principles, be classified upon a consolidated balance sheet of the
Borrower for such date as liabilities of the Borrower and, whether or not so
classified, shall include (without duplication):

     (a)  indebtedness of the Borrower and its Subsidiaries for borrowed money;

     (b)  obligations of the Borrower and its Subsidiaries arising pursuant to
          bankers' acceptance facilities and commercial paper programs, or
          letters of credit or indemnities issued in connection therewith;

     (c)  obligations of the Borrower and its Subsidiaries under guarantees,
          indemnities, assurances, legally binding comfort letters or other
          contingent obligations relating to the indebtedness of any other
          person and all other obligations incurred for the purpose of or having
          the effect of providing financial assistance to another person (other
          than a Subsidiary in the ordinary course of business), including,
          without limitation, endorsements of bills of exchange (other than for
          collection or deposit in the ordinary course of business);

     (d)  all obligations of the Borrower and its Subsidiaries created or
          arising under any: (i) conditional sales agreement or other title
          retention agreement, (ii) capital lease, or (iii) other lease
          financing (whether characterized as an operating lease under generally
          accepted accounting principles or not) in each case to the extent out
          of the ordinary course of business;
<PAGE>

                                      -6-

     (e)  obligations of the Borrower or any of its Subsidiaries with respect to
          Production Payments;

     (f)  deferred revenues relating to third party obligations; and

     (g)  Financial Instrument Obligations under Interest Hedging Agreements,
          Currency Hedging Agreements and Commodity Agreements entered into for
          speculative purposes (determined, where relevant, by reference to
          generally accepted accounting principles) or other than in the
          ordinary course of business; for certainty, Interest Hedging
          Agreements having as a subject matter principal amounts (either
          individually or in the aggregate, but determined on a net basis taking
          into account transactions or agreements entered into to reverse the
          position or limit the exposure under an existing Interest Hedging
          Agreement) greater than the aggregate liability of the Borrower and
          its Subsidiaries for borrowed money shall be for speculative purposes;

and shall exclude, in any event:

     (h)  current taxes payable and deferred taxes;

     (i)  accounts payable and accrued charges incurred in the ordinary course
          of business, including cash calls or reimbursement of operators
          pursuant to operating or similar agreements entered into by it in the
          ordinary course of business;

     (j)  pension liabilities; and

     (k)  other deferred credits determined in accordance with generally
          accepted accounting principles.

"Debt Service" shall mean quarterly Interest Expense, plus 1/20th of the
Outstanding Principal hereunder.
<PAGE>

                                      -7-

"Distribution" means:

     (a)  distribution on or in respect of any shares in the capital of the
          Borrower;

     (b)  the redemption, retraction, purchase, retirement or other acquisition,
          in whole or in part, of any shares in the capital of the Borrower or
          any securities, instruments or contractual rights capable of being
          converted into, exchanged or exercised for shares in the capital of
          the Borrower, including, without limitation, options, warrants,
          conversion or exchange privileges and similar rights;

     (c)  the making of any loan or advance or any other provision of credit to
          any shareholder of the Borrower; or

     (d)  the payment of any principal, interest, fees or other amounts on or in
          respect of any loans, advances or other Debt owing at any time by the
          Borrower to any shareholder of the Borrower, Affiliates of the
          Borrower or shareholders of Affiliates of the Borrower.

"Documentary Instruments" means collectively, Letters of Credit and Letters of
Guarantee and "Documentary Instrument" means a Letter of Credit or a Letter of
Guarantee.

"Documents" means this Agreement, the Security and all certificates, notices,
instruments and other documents delivered or to be delivered to the Agent in
relation to the Credit Facility pursuant hereto or thereto and, when used in
relation to any person, the term "Documents" shall mean and refer to the
Documents executed and delivered by such person.

"Drafts" means drafts, bills of exchange, receipts, acceptances, demands and
other requests for payment drawn or issued under a Documentary Instrument.

"Drawdown" means:

     (a)  an Advance of a Canadian Prime Rate Loan or Alternate Base Rate Loan;

     (b)  the issue of Documentary Instruments; or

     (c)  the issue of Tender Cheques.

"Drawdown Date" means the date on which a Drawdown is made by the Borrower
pursuant to the provisions hereof and which shall be a Banking Day.

"Drawdown Notice" means a notice substantially in the form annexed hereto as
Schedule D to be given to the Agent pursuant hereto.
<PAGE>

                                      -8-

"EBITDA" of the Borrower in any financial period means the Net Income for such
period, plus:

     (a)  Interest Expense, to the extent deducted in determining Net Income;

     (b)  all amounts deducted in the calculation of Net Income in respect of
          the provision for income taxes (in accordance with generally accepted
          accounting principles);

     (c)  all amounts deducted in the calculation of Net Income in respect of
          non-cash items including depletion, depreciation, amortization and
          deferred taxes; and

     (d)  equity loss and extraordinary and non-recurring losses except to the
          extent such losses involve a payment in cash;

less:(e)  equity income and extraordinary and non-recurring income and gains
          except to the extent such income and gains involve receipt of a cash
          payment.

"Engineering Report" means a report (in form and substance satisfactory to the
Agent, acting reasonably) prepared by an Independent Engineer, which report
shall, as of the date of such report, set forth the reserves of Petroleum
Substances attributable to substantially all of the Neutrino Assets and, for
each fiscal year: anticipated rates of production, shrinkage and reinjection of
Petroleum Substances; Crown, freehold and overriding royalties and freehold
mineral taxes with respect to Petroleum Substances produced from or attributable
to such Neutrino Assets; production, revenue, value-added, wellhead or severance
taxes, imposts or levies with respect to Petroleum Substances produced from or
attributable to such Neutrino Assets; operating costs; gathering, transporting,
processing, marketing and storage fees payable with respect to Petroleum
Substances produced from or attributable to such Neutrino Assets; capital
expenditures expected to be necessary to achieve anticipated rates of
production; and net cash flow with respect to such Neutrino Assets; but not, for
greater certainty, any overhead recoveries or operators' fees or charges from
third parties.

"Environmental Claims" means any and all administrative, regulatory or judicial
actions, suits, demands, claims, Security Interests, notices of non-compliance
or violation, investigations or proceedings relating in any way to any
Environmental Laws or to any permit issued under any such Environmental Laws
including, without limitation:

     (a)  any claim by a Governmental Authority for enforcement, clean-up,
          removal, response, remedial or other actions or damages pursuant to
          any Environmental Laws; and

     (b)  any claim by a person seeking damages, contribution, indemnification,
          cost recovery, compensation or injunctive or other relief resulting
          from or relating to Hazardous Materials, including any Release
          thereof, or arising from alleged injury or threat of injury to human
          health or safety (arising from environmental matters) or the
          environment.
<PAGE>

                                      -9-

"Environmental Laws" means all applicable federal, provincial, regional,
municipal or local laws with respect to the environment or environmental or
occupational health and safety matters contained in statutes, regulations,
rules, ordinances, orders, judgments, approvals, notices, permits, policies,
guidelines or directives, in each case only to the extent having the force of
law.

"Environmental Orders" includes all applicable orders, directives, judgments,
decisions or the like rendered by any Governmental Authority or court of
competent jurisdiction pursuant to Environmental Laws or Environmental Permits.

"Environmental Permits" includes all permits, certificates, approvals,
registrations, licences or other instruments issued by any Governmental
Authority and relating to or required for the Borrower or its Material
Subsidiaries to carry on their businesses, activities and operations in
compliance with all Environmental Laws and Environmental Orders.

"Equivalent Amount" means, on any date, the equivalent amount in Canadian
Dollars or United States Dollars, as the case may be, after giving effect to a
conversion of a specified amount of United States Dollars to Canadian Dollars or
of Canadian Dollars to United States Dollars, as the case may be, at the noon
rate of exchange for Canadian interbank transactions established by the Bank of
Canada for the day in question, or, if such rate is for any reason unavailable,
at the spot rate quoted for wholesale transactions by the Agent at approximately
noon (Toronto time) on that date in accordance with its normal practice;
provided that, in the case of Conversions, the aforementioned currency
conversion shall be made at the noon rate or spot rate, as the case may be, in
effect on the Banking Day the Conversion Notice is received by the Agent from
the Borrower in accordance herewith.

"Event of Default" has the meaning set out in Section 11.1.

"Existing National Facility" means all credit facilities established in favour
of the Borrower prior to the date hereof by the National Bank of Canada.

"Federal Funds Rate" means, for any day, the rate of interest per annum set
forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Board (including any
such successor, the "H.15(519)" for such day opposite the caption "Federal Funds
(Effective)".  If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate of interest per annum set
forth in the daily statistical release designated as the Composite 3:30 p.m.
Quotations for U.S. Government Securities, or any successor publication,
published by the Federal Reserve Bank of New York (including any successor, the
"Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds
Effective Rate". If on any relevant day the appropriate rate per annum for such
day is not yet published in either H.15(519) or the Composite 3:30 p.m.
Quotations, the rate for such day will be the arithmetic mean of the rates per
annum for the last transaction in overnight Federal funds arranged prior to 9:00
a.m.
<PAGE>

                                     -10-

(New York time) on that day by each of three major brokers of Federal funds
transactions in New York City, selected by the Agent in its sole discretion,
acting reasonably.

"Federal Reserve Board" or "Federal" means the Board of Governors of the Federal
Reserve System of the United States of America or any successor thereof.

"Financial Instrument Obligations" means obligations arising under Interest
Hedging Agreements, Currency Hedging Agreements and Commodity Agreements entered
into by a Borrower or a Material Subsidiary to the extent of the net amount due
or accruing due by the Borrower or Material Subsidiary thereunder (determined by
marking-to-market the same in accordance with their terms).

"Governmental Authority" means any federal, provincial, state, regional,
municipal or local government or any department, agency, board, tribunal or
authority thereof or other political subdivision thereof and any entity or
person exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, government or the operation thereof.

"Hazardous Materials" means any substance or mixture of substances which, if
released into the environment, would likely cause, immediately or at some future
time, material harm or degradation to the environment or to human health or
safety and includes any substance determined to be a pollutant, contaminant,
waste, hazardous waste, hazardous chemical, hazardous substance, toxic substance
or dangerous good under any Environmental Law.

"Independent Engineer" means any firm of independent petroleum engineers
approved by the Agent acting reasonably.

"Initial Borrowing Base" has the meaning set out in Section 2.16.

"Interest Expense" means for any period, the total interest expense (including,
without limitation, interest expense attributable to capitalized leases) of the
Borrower on a consolidated basis for such period, determined in accordance with
GAAP.

"Interest Hedging Agreement" means any interest swap agreement, forward rate
agreement, floor, cap or collar agreement, futures or options, insurance or
other similar agreement or arrangement, or any combination thereof, entered into
by the Borrower or a Material Subsidiary where the subject matter of the same is
interest rates or the price, value or amount payable thereunder is dependent or
based upon the interest rates or fluctuations in interest rates in effect from
time to time (but, for certainty, shall exclude conventional floating rate
debt).

"Interest Payment Date" means with respect to each Canadian Prime Rate Loan and
Alternate Base Rate Loan, the first Banking Day of each calendar month, provided
that, in any case, the Maturity Date or, if applicable, any earlier date on
which the Credit Facility is fully cancelled or permanently reduced in full,
shall be an Interest Payment Date with respect to all Loans then outstanding.
<PAGE>

                                     -11-

"Interest Period" means:

     (a)  with respect to each Canadian Prime Rate Loan and Alternate Base Rate
          Loan, the period commencing on the applicable Drawdown Date or
          Conversion Date, as the case may be, and terminating on the date
          selected by the Borrower hereunder for the Conversion of such Loan
          into another type of Loan or for the repayment of such Loan; and

     (b)  with respect to each Documentary Instrument, the period commencing on
          the date of issuance of such Documentary Instrument and terminating on
          the last day the Documentary Instrument is outstanding;

provided that in any case:  (i) the last day of each Interest Period shall be
also the first day of the next Interest Period whether with respect to the same
or another Loan; (ii) the last day of each Interest Period shall be a Banking
Day and if the last day of an Interest Period selected by the Borrower is not a
Banking Day the Borrower shall be deemed to have selected an Interest Period the
last day of which is the Banking Day next following the last day of the Interest
Period selected unless such next following Banking Day falls in the next
calendar month in which event the Borrower shall be deemed to have selected an
Interest Period the last day of which is the Banking Day next preceding the last
day of the Interest Period selected by the Borrower; and (iii) the last day of
all Interest Periods hereunder shall expire on or prior to the Maturity Date.

"Internal Engineering Report" means a report in form and substance satisfactory
to the Agent prepared by or under the supervision of the chief petroleum
engineer of the Borrower which report shall, as of the date of such report,
evaluate the Mortgaged Properties.

"Investment" means (a) any purchase or other acquisition of shares or other
securities of any person, (b) any loan, advance, extension or credit, guarantee,
indemnity or other form of financial assistance to or for the benefit of any
person, (c) any capital contribution to any other person and (d) any purchase or
other acquisition of any assets of a person other than an acquisition in the
ordinary course of business of the purchaser.

"Issuing Lender" means Bank One Canada or other any Lender which assumes in
writing with the Borrower, the Lenders and the Agent the obligation of issuing
Letters of Credit or Letters of Guarantee under the Credit Facility on behalf of
the Lenders.

"joint owners" means, with respect to any subject or matter, two or more persons
who are acting, have acted, or intend to act, jointly or in concert with respect
to the subject or matter in question.

"Lenders' Counsel" means the firm of McCarthy Tetrault or such other firm of
legal counsel as the Lenders may from time to time designate.
<PAGE>

                                     -12-

"Letter of Credit" or "LC" means a letter of credit in form satisfactory to and
issued by the Issuing Lender whereby the Issuing Lender, acting at the request
of and in accordance with the instructions of the Borrower, is to make payment
in accordance with the terms and conditions thereof of an amount to or to the
order of a third party.

"Letter of Guarantee" or "LG" means a guarantee in form satisfactory to and
issued by the Issuing Lender whereby the Issuing Lender, acting at the request
of and in accordance with the instructions of the Borrower, is to guarantee
payment in accordance with the terms and conditions thereof of an amount to or
to the order of a third party.

"Loan" means a Canadian Prime Rate Loan, Alternate Base Rate Loan, Tender Cheque
or Documentary Instrument outstanding hereunder.

"Majority Consent" means a consent, waiver or other approval made or given in
writing by the Majority of the Lenders in accordance with the provisions hereof.

"Majority of the Lenders" means those Lenders the Commitments of which are, in
the aggregate, at least 66 2/3% of the Commitments of all Lenders hereunder.

"Material Adverse Effect" means any material adverse effect on the business,
operations, properties, condition (financial or otherwise), or prospects of the
Borrower taken as a whole, which materially increases the risk that any of the
Obligations will not be repaid as and when due.

"Material Subsidiary" means any Subsidiary that owns more than 10% of the value
of the P&NG Rights, on a consolidated basis.

"Maturity Date" means the date which is the third anniversary of the date
hereof.

"Mortgaged Properties" means the properties set out in Schedule I to the
Debenture.

"National Security" means all of the Security Documents as defined in the
assignment agreement between National Bank of Canada, the Agent and the
Borrower, made as of the date hereof.

"Net Income" means, in respect of the period for which it is being determined,
the net income of the Borrower determined on a consolidated basis in accordance
with generally accepted accounting principles, as set forth in the consolidated
financial statements of the Borrower for such period.

"Neutrino Assets" means, collectively, all of the property (real and personal),
assets, undertakings, title, interests, rights and benefits of or possessed by
the Borrower and its Material Subsidiaries.

"Obligations" means, at any time and from time to time, all of the obligations,
indebtedness and liabilities (present or future, absolute or contingent, matured
or not) of the Borrower to the Lenders or the Agent under, pursuant or relating
to the Documents or the Credit Facility and whether the
<PAGE>

                                      -13-

same are from time to time reduced and thereafter increased or entirely
extinguished and thereafter incurred again and including all interest,
commissions, legal and other costs, charges and expenses under the Agreement.

"Officer's Certificate" means a certificate or notice signed by any duly
authorized officer of the Borrower; provided, however, that Drawdown Notices,
Conversion Notices and Repayment Notices may be executed on behalf of the
Borrower by such other persons as may from time to time be designated by written
notice from the Borrower to the Agent.

"Order" has the meaning set out in Section 3.2(h) herein.

"Outstanding Principal" means, at any time, the aggregate of (a) the principal
amount of all outstanding Alternate Base Rate Loans, (b) the Equivalent Amount
in United States Dollars of the principal of all outstanding Canadian Prime Rate
Loans; (c) the maximum amount available to be drawn under all outstanding
Letters of Credit denominated in United States Dollars, (d) the Equivalent
Amount in Canadian Dollars of the maximum amount available to be drawn under all
outstanding Letters of Credit denominated in United States Dollars, (e) the
amount guaranteed under all outstanding Letters of Guarantee denominated in
United States Dollars, (f) the Equivalent Amount in United States Dollars of the
amount guaranteed under all outstanding Letters of Guarantee denominated in
Canadian Dollars and (g) the Equivalent Amount in United States Dollars of all
amounts payable under all outstanding Tender Cheques.

"Permitted Disposition" means, in respect of the Borrower or any Material
Subsidiary, any of the following:

     (a)  a sale or disposition by such person of P&NG Rights (and related
          tangibles) resulting from any pooling, unit or farmout agreement
          entered into in the ordinary course of business and in accordance with
          sound industry practice when, in the reasonable judgment of such
          person, it is necessary to do so in order to facilitate the orderly
          exploration, development or operation of such P&NG Rights;

     (b)  a sale or disposition by such person in the ordinary course of
          business and in accordance with sound industry practice of tangible
          personal property that is obsolete, no longer useful for its intended
          purpose or being replaced in the ordinary course of business;

     (c)  a sale or disposition by such person of current production from P&NG
          Rights made in the ordinary course of business;
<PAGE>

                                      -14-

     (d)  sales or dispositions by a Material Subsidiary to the Borrower or by
          the Borrower or a Material Subsidiary to a Subsidiary which has
          previously provided Subsidiary Security to the Lenders; and

     (e)  sales or dispositions consented to by the Agent.

"Permitted Encumbrances" means:

     (a)  Security Interests for taxes, assessments or governmental charges
          which are not due and delinquent, or the validity of which the
          Borrower or any Material Subsidiary shall be contesting in good faith
          and provided the Borrower shall have established adequate reserves
          therefor (in accordance with generally accepted accounting principles)
          and such contestation would not reasonably be expected to have a
          Material Adverse Effect and will not result in forfeiture of any
          assets which are material to the Borrower and its Subsidiaries taken
          as a whole;

     (b)  the Security Interest of any judgment rendered, or claim filed,
          against the Borrower or any Material Subsidiary which the Borrower or
          such Material Subsidiary shall be contesting in good faith and
          provided the Borrower shall have established adequate reserves
          therefor (in accordance with generally accepted accounting principles)
          and such contestation would not reasonably be expected to have a
          Material Adverse Effect and will not result in forfeiture of any
          assets which are material to the Borrower and its Subsidiaries taken
          as a whole;

     (c)  Security Interests, privileges or other charges imposed or permitted
          by law such as statutory liens and deemed trusts, carriers' liens,
          builders' liens, warehousemen's liens, mechanics' liens, materialmen's
          liens, liens created by worker's compensation, unemployment insurance
          and other social security or employment legislation, and other liens,
          privileges or other charges of a similar nature which relate to
          obligations which are not due and delinquent or if due and delinquent
          the validity of which is being contested at the time in good faith and
          provided the Borrower shall have established adequate reserves
          therefor (in accordance with generally accepted accounting principles)
          and such contestation would not reasonably be expected to have a
          Material Adverse Effect and will not result in forfeiture of any
          assets which are material to the Borrower and its Subsidiaries taken
          as a whole;

     (d)  undetermined or inchoate Security Interests arising in the ordinary
          course of and incidental to construction, maintenance or current
          operations of the Borrower or any Material Subsidiary which relate to
          obligations which are not due and delinquent, or the validity of which
          the Borrower or such Material Subsidiary shall be contesting in good
          faith and provided the Borrower shall have established adequate
          reserves therefor (in accordance with generally accepted accounting
          principles) and such contestation would not reasonably be expected to
          have a Material Adverse Effect and
<PAGE>

                                      -15-

          will not result in forfeiture of any assets which are material to the
          Borrower and its Subsidiaries taken as a whole;

     (e)  Security Interests incurred or created in the ordinary course of
          business and in accordance with sound industry practice in respect of
          the exploration, development or operation of P&NG Rights, related
          production or processing facilities in which such person has an
          interest or the transmission of Petroleum Substances as security in
          favour of any other person conducting the exploration, development,
          operation or transmission of the property to which such Security
          Interests relate, for the Borrower's or any Material Subsidiary's
          portion of the costs and expenses of such exploration, development,
          operation or transmission, provided that such costs or expenses are
          not due and delinquent;

     (f)  overriding royalty interests, net profit interests, reversionary
          interests and carried interests or other similar burdens on production
          in respect of the P&NG Rights that are entered into with or granted to
          arm's length third parties in the ordinary course of business and in
          accordance with sound oil and gas industry practice in Alberta, and
          provided the same are disclosed in the most recent Engineering Report
          or Internal Engineering Report, as applicable;

     (g)  Security Interests for penalties arising under non-participation or
          independent operations provisions of operating or similar agreements
          in respect of the P&NG Rights, provided that such Security Interests
          do not materially detract from the value of the property of the
          Borrower and its Subsidiaries taken as a whole and would not
          reasonably be expected to have a Material Adverse Effect;

     (h)  Security Interests in favour of a public utility or any municipality
          or governmental or other public authority when required by such
          utility, municipality or authority in connection with the operations
          or the Borrower or any Material Subsidiary, to the extent such
          security does not materially detract from the value of the property of
          the Borrower and its Subsidiaries taken as a whole and would not
          reasonably be expected to have a Material Adverse Effect;

     (i)  reservations, limitations, provisions and conditions contained in an
          original grant from the Crown of any lands or interests therein and
          statutory exceptions to title;

     (j)  the Security Interest or any right of distress reserved in or
          exercisable under any real property lease for rent or otherwise to
          effect compliance with the terms of such lease in respect of which the
          rent or other obligations is not at the time overdue or if overdue the
          validity of which is being contested at the time in good faith and
          provided the Borrower shall have established adequate reserves
          therefor (in accordance with generally accepted accounting principles)
          and such contestation would not reasonably be expected to have a
          Material Adverse Effect and will not
<PAGE>

                                      -16-

          result in forfeiture of any assets which are material to the Borrower
          and its Subsidiaries taken as a whole;

     (k)  Purchase Money Security Interests; provided that the foregoing
          Security Interests are limited to all or any part of the property or
          assets purchased or acquired and provided further that such Security
          Interests shall not secure obligations which, in aggregate at any
          time, exceed Cdn. $250,000;

     (l)  Security Interests in favour of the Lenders or the Agent on behalf of
          the Lenders;

     (m)  such other Security Interests as may be consented to in writing by the
          Agent;

     (n)  Security Interests not referred to in (a) through (n) above created in
          the ordinary course of business, not to exceed, in the aggregate, Cdn.
          $250,000 in any calendar year; and

     (o)  any extension, renewal or replacement (or successive extensions,
          renewals or replacements), as a whole or in part, of any Security
          Interest referred to in the preceding subparagraphs (a) to (n)
          inclusive of this definition, so long as any such extension, renewal
          or replacement of such Security Interest is limited to all or any part
          of the same property that secured the Security Interest extended,
          renewed or replaced (plus improvements on such property) and the
          indebtedness or obligation secured thereby is not increased;

provided that nothing in this definition shall in and of itself cause the
Security or the Loans and other amounts owing by the Borrower hereunder to be
subordinated in priority to any such Permitted Encumbrance;

"Permitted Indebtedness" means:

     (a)  Debt which is secured by a Permitted Encumbrance;

     (b)  the Obligations;

     (c)  Financial Instrument Obligations;

     (d)  performance guarantees provided in the ordinary course of business to
          persons other than financial institutions or Affiliates thereof;
          provided that, for certainty, no such guarantee shall include a
          guarantee of indebtedness for borrowed money;
<PAGE>

                                      -17-

     (e)  Cdn. $100,000 utilized to finance insurance premiums required to
          insure Neutrino Assets in accordance herewith; or

     (f)  such other Debt as may be consented to in writing by the Lenders.

Permitted Investments" means:

     (a)  Investments which, in aggregate, do not exceed Cdn. $250,000 in any
          calendar year;

     (b)  Investments in the form of (i) debt securities issued or directly and
          fully guaranteed or insured by the Canadian or United States
          Government or any agency or instrumentality thereof, with maturities
          of no more than one year, (ii) commercial paper of a domestic issuer
          rated at the date of acquisition at least P-2 by Moody's Investor
          Service, Inc. or A-2 by Standard & Poor's Corporation and with
          maturities of no more than one year from the date of acquisition, or
          (iii) repurchase agreements covering debt securities or commercial
          paper of the type permitted in this Section, certificates of deposit,
          demand deposits, eurodollar time deposits, overnight bank deposits and
          bankers' acceptances, with maturities of no more than one year from
          the date of acquisition, issued by or acquired from or through the
          Lenders or any bank or trust company organized under the laws of
          Canada or the United States or any province of state thereof and
          having capital surplus and undivided profits aggregating at least U.S.
          $100,000,000;

     (c)  other short-term Investments similar in nature and degree of risk to
          those described in clause (b) of this Section;

     (d)  money-market funds;

     (e)  investments in the form of intercompany loans to, advances to or
          investments in, the Borrower, any of its wholly-owned Subsidiaries,
          SMC or Spruce Hills, as long as such loan, advances or investments
          would not result in a Default or Event of Default; and

     (f)  guarantees and other Security to be provided pursuant hereto.

"Permitted Title Defects" means, in respect of any particular asset of the
Borrower or any Subsidiary, the following defects in its title thereto:

     (a)  Permitted Encumbrances;
<PAGE>

                                      -18-

     (b)  title defects or irregularities which are of a minor nature and in the
          aggregate will not materially impair the use of the property for the
          purposes for which it held, or materially impair its saleability, or
          cause a material disruption or reduction in the production or cash
          flow (if any) associated therewith;

     (c)  all rights reserved to or vested in any person or Governmental
          Authority by the terms of any lease, licence, grant or permit, or by
          any statutory or regulatory provision, to terminate any such lease,
          licence, grant or permit or to require annual or other periodic
          payments as a condition of the continuance thereof;

     (d)  any right reserved to, or vested in, any Governmental Authority by the
          terms of any laws or regulations or any easement, right-of-way or
          servitude issued or granted pursuant thereto, to terminate any such
          laws or regulation or easement, right-of-way or servitude or to
          purchase, expropriate, appropriate or recapture, or designate a
          purchaser of, any property;

     (e)  surface rights, easements, rights-of-way, servitudes, zoning or other
          similar rights or restrictions in respect of land held by the Borrower
          or any Material Subsidiary (including, without limitation, rights-of-
          way and servitudes for railways, sewers, drains, pipe lines, gas and
          water mains, electric light and power and telephone or telegraph or
          cable television conduits, poles, wires and cables) which do not,
          either alone or in the aggregate, materially detract from the value of
          such land or materially impair its use in the operation of the
          business of the Borrower or any such Material Subsidiary;

     (f)  reservations, limitations, provisos and conditions expressed in or
          affecting any grant of real or immoveable property or any interest
          therein; and

     (g)  title defects which are disclosed to and expressly consented to by
          Majority of the Lenders as constituting Permitted Title Defects
          hereunder.

"Petroleum Substances" means crude oil, crude bitumen, synthetic crude oil,
petroleum, natural gas, natural gas liquids, related hydrocarbons and any and
all other substances, whether liquid, solid or gaseous, whether hydrocarbons or
not, produced or producible in association with any of the foregoing, including
hydrogen sulphide and sulphur.

"Pledge" means the pledge agreement respecting the Debenture by the Borrower in
favour of the Agent.

"P&NG Rights" means all of the right, title, estate and interest, whether
contingent or absolute, legal or beneficial, present or future, vested or not,
and whether or not an "interest in land", of the Borrower and its Subsidiaries
in and to any of the following, by whatever name the same are known:
<PAGE>

                                      -19-

     (a)  rights to explore for, drill for and produce, take, save or market
          Petroleum Substances;

     (b)  rights to a share of the production of Petroleum Substances;

     (c)  rights to a share of the proceeds of, or to receive payments
          calculated by reference to the quantity or value of, the production of
          Petroleum Substances;

     (d)  rights to acquire any of the rights described in subparagraphs (a)
          through (c) of this definition;

     (e)  interests in any rights described in subparagraphs (a) through (d) of
          this definition; and

     (f)  all extensions, renewals, replacements or amendments of or to the
          foregoing items described in subparagraphs (a) through (e) of this
          definition;

and including, without limitation, interests and rights known as working
interests, royalty interests, overriding royalty interests, gross overriding
royalty interests, production payments, profits interests, net profits
interests, revenue interests, net revenue interests, economic interests and
other interests and fractional or undivided interests in any of the foregoing
and freehold, leasehold or other interests.

"Production Payment" means:

     (a)  the sale or other transfer of any Petroleum Substances, whether in
          place or when produced, for a period of time until, or of an amount
          such that the purchaser will realize therefrom a specified amount of
          money (however determined, including by reference to interest rates or
          other factors which may not be fixed) or a specified amount of such
          substances; or

     (b)  any other interest in property of the character commonly referred to
          as a "production payment".

"Purchase Money Security Interest" means:

     (a)  a Security Interest taken or reserved in property to secure payment of
          all or part of its purchase price; and

     (b)  a Security Interest taken in property by a person who gives value for
          the purpose of enabling the Borrower or relevant Subsidiary to acquire
          rights in such property, to the extent that the value is applied to
          acquire those rights;

but does not include a transaction of sale by and lease back to the seller.
<PAGE>

                                      -20-

"Quarter End" means March 31, June 30, September 30 or December 31 in each year.

"Rateable Portion", as regards any Lender, with regard to any amount of money,
means in respect of the Credit Facility and Drawdowns, Conversions and Loans and
other amounts payable thereunder, the products obtained by multiplying that
amount by the quotient obtained by dividing (A) that Lender's Credit Facility
Commitment by (B) the aggregate of all of the Lenders' Credit Facility
Commitments.

"Release" means any release, spill, emission, leak, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration into the environment
including, without limitation, the movement of Hazardous Materials through
ambient air, soil, surface water, ground water, wetlands, land or sub-surface
strata.

"Repayment Notice" means a notice substantially in the form annexed hereto as
Schedule E to be given to the Agent by the Borrower pursuant to Section 2.12.

"Security" means the security and agreements described in Sections 10.1(1) and
10.1(2) together with any other security provided by the Borrower or any
Material Subsidiary in accordance herewith.

"Security Interest" means mortgages, charges, pledges, hypothecs, assignments by
way of security, conditional sales or other title retentions, security created
under the Bank Act (Canada), Security Interests, encumbrances, Security
Interests or other interests in property, howsoever created or arising, whether
fixed or floating, perfected or not, which secure payment or performance of an
obligation and, including, in any event, (a) rights of set-off created for the
purpose of, in effect, securing (directly or indirectly) the repayment of Debt
or Financial Instrument Obligations and (b) capital leases and any other lease
financing.

"Shareholders' Equity" means, as at any date of determination, the total amount
of shareholders' equity of the Borrower determined on a consolidated basis in
accordance with generally accepted accounting principles, as the same would be
set forth on a consolidated balance sheet of the Borrower for such date.

"shares of a publicly traded corporation" or similar expressions shall include
shares listed on any recognized exchange or traded in any over-the-counter
market quoted by any reporting system.

"SMC" means Southern Mineral Corporation, a Nevada corporation, owning all of
the shares of Spruce Hills.

"Southern Credit Facility" shall mean any and all credit facilities created
under or evidenced by the Credit Agreement between Southern Mineral Corporation,
SMC Ecuador, Inc., SMC Production Co., BEC Energy, Inc. and Spruce Hills
Production Company, Inc. and Bank One, Texas, National Association, as Agent and
Lender and The Lenders signatory thereto dated August 23, 2000, as amended from
time to time.
<PAGE>

                                      -21-

"Spruce Hills" means Spruce Hills Production Company Inc., a Delaware
corporation owning all of the shares of the Borrower.

"Subsidiary" means:

     (a)  any corporation of which at least a majority of the outstanding shares
          having by the terms thereof ordinary voting power to elect a majority
          of the board of directors of such corporation (irrespective of whether
          at the time shares of any other class or classes of such corporation
          might have voting power by reason of the happening of any contingency,
          unless the contingency has occurred and then only for as long as it
          continues) is at the time directly, indirectly or beneficially owned
          or controlled by the Borrower or one or more of its Subsidiaries or by
          the Borrower and one or more of its Subsidiaries; and

     (b)  in respect of any other person, any person which is controlled,
          directly or indirectly, by the Borrower or one or more of its
          Subsidiaries or by the Borrower and one or more of its Subsidiaries;
          and for the purposes of this subparagraph, "control" (including, with
          a correlative meaning, the term "controlled by") means the power to
          direct or cause the direction of the management and policies of any
          person, whether through the ownership of securities or by contract or
          otherwise.

"Subsidiary Security" means, collectively:

     (a)  an unconditional guarantee of the payment and performance by the
          Borrower of all Obligations and all other obligations, liabilities and
          indebtedness of the Borrower to the Lenders; and

     (b)  as collateral security for such guarantee a floating charge demand
          debenture in favour of the Agent on behalf of the Lenders, pledged to
          the Agent pursuant to a debenture pledge agreement with the Agent;

each in form and substance satisfactory to the Agent in its sole discretion,
provided or to be provided by a Material Subsidiary hereunder, and, where the
context so requires, shall mean any and all such guarantees and security
provided or to be provided by Material Subsidiaries in accordance herewith.

"Successor" has the meaning set out in Section 9.2(i).

"Tangible Net Worth" means, as at any date of determination, the Shareholders'
Equity less the aggregate amount of the following items which appear on the
consolidated balance sheet of the Borrower for such date as assets, namely,
goodwill, intellectual property and other intangible assets, all as determined
in accordance with generally accepted accounting principles.
<PAGE>

                                      -22-

"Taxes" means all taxes, levies, imposts, stamp taxes, duties, fees, deductions,
withholdings, charges, compulsory loans or restrictions or conditions resulting
in a charge which are imposed, levied, collected, withheld or assessed by any
country or political subdivision or taxing authority thereof now or at any time
in the future, together with interest thereon and penalties, charges or other
amounts with respect thereto, if any (but excluding any taxes, franchise taxes,
levies, imposts or charges imposed, levied or assessed in respect of or applied
on the overall net income or capital of any of the Lenders) and "Tax" and
"Taxation" shall be construed accordingly.

"Tender Cheque" means a cheque or draft drawn in Canadian Dollars issued by the
Agent at the request of the Borrower pursuant hereto intended for use in
connection with the purchase of P&NG Rights.

"United States Dollars" and "U.S. $" means the lawful money of the United States
of America.

"Voting Shares" means shares of any class of a corporation:

     (a)  carrying voting rights in all circumstances; or

     (b)  which carry the right to vote conditional on the happening of an event
          if such event shall have occurred and be continuing,

provided that subparagraph (b) above shall not include voting rights created
solely by statute, such as those rights created pursuant to section 183(4) of
the Business Corporations Act (Alberta) as in effect on the date hereof.

1.3  Headings

     The division of this Agreement into Articles and Sections and the insertion
of headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement.  The terms "this Agreement",
"hereof", "hereunder" and similar expressions refer to this Agreement and not to
any particular Article, Section or other portion hereof and include any
agreement supplemental hereto.  Unless something in the subject matter or
context is inconsistent therewith, references herein to Articles and Sections
are to Articles and Sections of this Agreement.

1.4  Number; persons; including

     Words importing the singular number only shall include the plural and vice
versa, words importing the masculine gender shall include the feminine and
neuter genders and vice versa, words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations and vice versa and words and terms denoting inclusiveness (such
as "include" or "includes" or "including"), whether or not so stated, are not
limited by their context or by the words or phrases which precede or succeed
them.
<PAGE>

                                      -23-

1.5  Accounting Principles

     Wherever in this Agreement reference is made to generally accepted
accounting principles or GAAP, such reference shall be deemed to be to the
generally accepted accounting principles established by the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants and in
effect in the United States from time to time.  Where the character or amount of
any asset or liability or item of revenue or expense or amount of equity is
required to be determined, or any consolidation or other accounting computation
is required to be made for the purpose of this Agreement or any other Document,
such determination or calculation shall, to the extent applicable and except as
otherwise specified herein or as otherwise agreed in writing by the parties, be
made in accordance with generally accepted accounting principles applied on a
consistent basis.

1.6  Reference to Agreements and Enactments

     Reference herein to any agreement, instrument, licence or other document
shall be deemed to include reference to such agreement, instrument, licence or
other document as the same may from time to time be amended, supplemented or
restated in accordance with the provisions of this Agreement; and reference
herein to any enactment shall be deemed to include reference to such enactment
as re-enacted, amended or extended from time to time and to any successor
enactment.

1.7  Schedules

     The following are the Schedules annexed hereto and incorporated by
reference and deemed to be part hereof:

          Schedule A  -    Lenders and Commitments
          Schedule B  -    Compliance Certificate
          Schedule C  -    Conversion Notice
          Schedule D  -    Drawdown Notice
          Schedule E  -    Repayment Notice
<PAGE>

                                      -24-

                                   ARTICLE 2
                              THE CREDIT FACILITY

 2.1 The Credit Facility

     Subject to the terms and conditions hereof, each of the Lenders,
individually and not jointly and severally, shall make available to the Borrower
such Lender's Rateable Portion of the Credit Facility.  Subject to Section 2.14,
the Outstanding Principal shall not exceed the maximum principal amount of the
Credit Facility.

2.2  Manner of Borrowing

     (1)  Under the Credit Facility, the Borrower may, prior to the Maturity
     Date, increase or decrease Loans in Canadian Dollars, make Drawdowns,
     repayments and further Drawdowns, and Conversions of Canadian Prime Rate
     Loans and Drawdowns, repayments and further Drawdowns of Documentary
     Instruments and Tender Cheques and may, in United States Dollars, make
     Drawdowns, repayments and further Drawdowns and Conversions of Alternate
     Base Rate Loans and Drawdowns, repayments and further Drawdowns of
     Documentary Instruments.

     (2)  The Borrower shall have the option, subject to the other terms and
     conditions hereof, to determine which types of Loans shall be drawn down
     and in which combinations or proportions.

2.3  Purpose

     The Credit Facility is being made available to repay in full the Existing
National Facility of the Borrower, to finance exploration, development and
acquisition of oil and gas properties and for the general corporate purposes of
the Borrower.

2.4  Tender Cheques

     (1)  The Borrower may give the Agent notice that Tender Cheques will be
     required under the Credit Facility pursuant to a Drawdown. Loans will be
     available by way of Tender Cheques to a maximum, in aggregate, of Cdn. $
     100,000; the issuance of Tender Cheques shall reduce the availability of
     the Credit Facility by the amount payable under such Tender Cheques. When a
     Tender Cheque is presented for payment, the Borrower shall be deemed to
     have effected a Conversion of the Tender Cheques to an advance to the
     Borrower under the Credit Facility by way of a Canadian Prime Rate Loan.
     Each unnegotiated Tender Cheque shall be returned to the Agent for
     cancellation not more than 7 days after its issuance; should any
     unnegotiated Tender Cheque not be returned and cancelled within the
     aforesaid period, the amount payable thereunder shall thereupon be deemed
     to be converted into a
<PAGE>

                                      -25-

     Canadian Prime Rate Loan under the Credit Facility until return of the
     unnegotiated Tender Cheque to the Agent for cancellation.

     (2)  Except as provided in Section 2.4(1), the Borrower may not effect a
     Conversion of Tender Cheques.

     (3)  The Borrower shall pay to the Agent for the account of all Lenders a
     cheque issuance fee in Canadian Dollars equal to .25% per annum calculated
     on the face amount of each Tender Cheque for the period of time elapsed
     from and including the date of issuance to but excluding the date of
     negotiation or its return to the Agent unnegotiated (such period not to
     exceed 7 days) in a year of 365 or 366 days, as the case may be; such fee
     shall be payable on the earlier of the negotiation of the Tender Cheque or
     expiry of the aforementioned 7 day period.

2.5  Minimum Drawdowns

     (1)  Drawdowns of the following types of Loans shall be in the following
     amounts indicated:

     (a)  Canadian Prime Rate Loans in minimum principal amounts of Cdn.
          $100,000 and Drawdowns in excess thereof in integral multiples of Cdn.
          $100,000; and

     (b)  Alternate Base Rate Loans in minimum principal amounts of U.S.
          $100,000 and Drawdowns in excess thereof in integral multiples of U.S.
          $100,000.

2.6  Notice Periods for Drawdowns and Conversions

     (1)  Subject to the provisions hereof, the Borrower may make a Drawdown or
     Conversion under the Credit Facility by delivering a Drawdown Notice or
     Conversion Notice as the case may be (executed in accordance with the
     definition of Officer's Certificate), with respect to a specified type of
     Loan to the Agent not later than:

     (a)  9:00 a.m. (Calgary time) two Banking Days prior to the proposed
          Drawdown Date for Drawdowns of or Conversions into Canadian Prime Rate
          Loans and/or Alternate Base Rate Loans where such Loans are, in
          aggregate, greater than $100,000 in the respective currencies of the
          Loans requested;

     (b)  9:00 a.m. (Calgary time) one Banking Day prior to the proposed
          Drawdown Date or Conversion Date for Drawdowns of or Conversions into
          Canadian Prime Rate Loans and/or Alternate Base Rate Loans where such
          Loans are, in aggregate, equal to or less than $100,000 in the
          respective currencies of the Loans requested;
<PAGE>

                                      -26-

     (c)  9:00 a.m. (Calgary time) one Banking Day prior to the proposed
          Drawdown Date for Drawdowns of Documentary Instruments; and

     (d)  9:00 a.m. (Calgary time) on the proposed Drawdown Date for Tender
          Cheques.

2.7  Conversion Option

     Subject to the provisions of this Agreement, the Borrower may convert at
the Equivalent Amount, if applicable, the whole or any part of any type of Loan
into any other type of Loan by giving the Agent a Conversion Notice in
accordance herewith; provided that the Borrower may not convert a portion only
or the whole of an outstanding Loan unless both the unconverted portion and
converted portion of such Loan are equal to or exceed, in the relevant currency
of each such portion, the minimum amounts required for Drawdowns of Loans of the
same type as that portion (as set forth in Section 2.5 above).

2.8  Conversions not Repayments

     Any amount converted shall be a Loan of the type converted to upon such
Conversion taking place, but such Conversion (to the extent of the amount
converted) shall not of itself constitute a repayment or a fresh utilization of
any part of the amount available under the Credit Facility.

2.9  Agent's Obligations with Respect to Canadian Dollar Loans and U.S. Base
     Rate Loans

     Upon receipt of a Drawdown Notice or Conversion Notice with respect to a
Canadian Dollar Loan or a U.S. Base Rate Loan, the Agent shall forthwith notify
the Lenders of the requested type of Loan, the proposed Drawdown Date or
Conversion Date, each Lender's Rateable Portion of such Loan and, if applicable,
the account of the Agent to which each Lender's Rateable Portion is to be
credited.

2.10 Lenders' and Agent's Obligations with Respect to Canadian Prime Rate Loans
     and Alternate Base Rate Loans

     Each Lender shall, for same day value on the Drawdown Date specified by the
Borrower in a Drawdown Notice with respect to a Canadian Prime Rate Loan or an
Alternate Base Rate Loan credit the Agent's account specified in the Agent's
notice given under Section 2.9 with such Lender's Rateable Portion of each such
requested Loan and for same day value on the same date the Agent shall pay to
the Borrower the full amount of the amounts so credited in accordance with any
payment instructions set forth in the applicable Drawdown Notice.
<PAGE>

                                      -27-

2.1  Irrevocability

     A Drawdown Notice, Conversion Notice or Repayment Notice given by the
Borrower hereunder shall be irrevocable and, subject to any options the Lenders
may have hereunder in regard thereto and the Borrower's rights hereunder in
regard thereto, shall oblige the Borrower to take the action contemplated on the
date specified therein.

2.11 Optional Repayment

     (1)  The Borrower may at any time and from time to time repay to the Agent
     for the account of the Lenders without penalty or, in the case of
     Documentary Instruments provide for the funding of, the whole or any part
     of any Loan outstanding to the Borrower together with accrued interest
     thereon (provided that if such repayment is not made on an Interest Payment
     Date in the case of Canadian Prime Rate Loans and Alternate Base Rate
     Loans, accrued interest on such Loans shall be paid on the next Interest
     Payment Date applicable to the Loan being repaid) to the date of such
     repayment provided that:

     (a)  the Borrower shall give a Repayment Notice (executed in accordance
          with the definition of Officer's Certificate) to the Agent not later
          than:  (i) 9:00 a.m. (Calgary time) 2 Banking Days prior to the
          proposed repayment for Documentary Instruments; and  (ii) 11:00 a.m.
          (Calgary time) one Banking Day prior to the date of the proposed
          repayment, for Canadian Prime Rate Loans and Alternate Base Rate
          Loans;

     (b)  repayments pursuant to this Section may only be made on a Banking Day;

     (c)  unexpired Documentary Instruments may only be prepaid by providing
          funding therefor in accordance with the following provisions;

     (d)  each such repayment shall be in a minimum amount of the lesser of: (i)
          the minimum amount required pursuant to Section 2.5 for Drawdowns of
          the type of Loan proposed to be repaid and (ii) the Outstanding
          Principal of all Loans immediately prior to such repayment; any
          repayment in excess of such amount shall be in integral multiples of
          the amount referred to in Section 2.12(1)(d)(i) above; and

     (e)  the Borrower may not repay a portion only of an outstanding Loan
          unless the unpaid portion is equal to or exceeds, in the relevant
          currency, the minimum amount required pursuant to Section 2.5 for
          Drawdowns of the type of Loan proposed to be repaid.

     (2)  With respect to the funding of the repayment of unexpired Documentary
     Instruments, it is agreed that the Borrower shall provide for the funding
     in full of the repayment of unexpired Documentary Instruments by depositing
     with the Agent amounts equal to the maximum amount of the relevant
     Documentary Instruments (in each case in the respective
<PAGE>

                                      -28-

     currency in which the relevant Loans are denominated); such amounts
     deposited by the Borrower shall belong to the Borrower and shall be held by
     the Agent in interest bearing cash collateral accounts with interest to be
     credited to the Borrower at rates prevailing at the time of deposit. Such
     cash collateral accounts shall be assigned to the Agent as security for the
     obligations of the Borrower in relation to such Documentary Instruments and
     the Security Interest of the Agent thereby created in such cash collateral
     shall rank in priority to all other Security Interests and adverse claims
     against such cash collateral. Such cash collateral shall be applied to
     satisfy the obligations of the Borrower for such Documentary Instruments as
     payments are made thereunder and the Agent is hereby irrevocably directed
     by the Borrower to so apply any such cash collateral. Amounts held in such
     cash collateral accounts may not be withdrawn by the Borrower without the
     consent of the Lenders; however, interest on such deposited amounts shall
     be for the account of the Borrower and may be withdrawn by the same. If
     after maturity or expiry, as the case may be, of the Loans for which such
     funds are held and application by the Agent of the amounts in such cash
     collateral accounts to satisfy the obligations of the Borrower hereunder
     with respect to the Loans being repaid, any excess remains, such excess
     shall be promptly paid by the Agent to the Borrower.

2.13 Mandatory Repayment

     Subject to Section 11.2, all Obligations owing hereunder shall be repaid or
paid, as the case may be, by the Borrower on or before the Maturity Date.

2.14 Currency Excess

     (1) The Agent shall determine the Outstanding Principal as at the day of
     any requested reduction or cancellation of the Credit Facility, on any
     Drawdown or Conversion (after giving effect to the requested Drawdown and
     any actual or notional repayment of Loans on the proposed Drawdown Date or
     Conversion Date) and as at the last Banking Day of each calendar month in
     each year, and on any other day selected by the Agent in its sole
     discretion (each, a "Currency Test Date").  If on a Currency Test Date the
     aggregate Outstanding Principal exceeds or would exceed the Borrowing Base,
     after giving effect to any reductions thereto on such date (the amount of
     such excess is herein called the "Currency Excess"), and such Currency
     Excess remains unremedied for a period of 3 Business Days, then upon the
     request in writing of the Agent (which request shall detail the applicable
     Currency Excess) the Borrower shall, in the sole discretion of the Lenders
     acting reasonably, either: (i) reduce the amount of requested Loans on such
     date or repay an amount of Canadian Prime Rate Loans or Alternate Base Rate
     Loans within 30 Banking Days after receipt of such request, or a
     combination of the foregoing, such that, except as otherwise contemplated
     in Section 2.14(2), the Equivalent Amount in United States Dollars of the
     reductions or payments is, in the aggregate, at least equal to the Currency
     Excess; (ii) provide additional collateral, of character and value
     satisfactory to the Lenders in their sole discretion acting reasonably, to
     secure the Obligations by the execution and delivery to the Lenders of
     security instruments in form and substance satisfactory to the Lenders
     acting reasonably, or (iii) effect any
<PAGE>

                                      -29-

     combination of the alternatives described in clauses (i) and (ii) of this
     Section and acceptable to the Lenders in their sole discretion acting
     reasonably.

     (2)  If, in respect of any Currency Excess existing as at any Currency Test
     Date, the actions taken by the Borrower in accordance with Section 2.14(1)
     have not completely removed such Currency Excess (the remainder thereof
     being herein called the "Currency Excess Deficiency"), the Borrower shall,
     within 5 Banking Days after such Currency Test Date, place an amount equal
     to the Currency Excess Deficiency on deposit with the Agent in an interest-
     bearing account in the Borrower's name with interest at rates prevailing at
     the time of deposit for the account of the Borrower, to be assigned to the
     Agent by instrument satisfactory to the Agent and to be applied to
     Documentary Instruments as payments are made thereunder (converted if
     necessary at the exchange rate for determining the Equivalent Amount on the
     date of such application).  The Agent is hereby irrevocably directed by the
     Borrower to apply any such sums on deposit to Loans as provided in the
     preceding sentence. In lieu of providing funds for the Currency Excess
     Deficiency, as provided in the preceding provisions of this Section
     2.14(2), the Borrower may within the said period of 5 Banking Days provide
     to the Agent an irrevocable standby letter of credit in an amount equal to
     the Currency Excess Deficiency and for a term which expires not sooner than
     10 Banking Days after the expiry of the relevant Documentary Instruments,
     such letter of credit shall be issued by a financial institution and shall
     be on terms and conditions acceptable to the Agent in its sole discretion.
     The Agent is hereby authorized and directed to draw upon such letter of
     credit and apply the proceeds of the same to Documentary Instruments as
     payments are made thereunder.  Upon the Currency Excess being eliminated as
     aforesaid or by virtue of subsequent changes in the exchange rate for
     determining the Outstanding Principal, such funds on deposit, together with
     interest thereon, or such letters of credit shall be returned to the
     Borrower, in the case of funds on deposit, or shall be cancelled or reduced
     in amount, in the case of letters of credit.

2.15 Takeover Notification

     The Agent shall have no obligation to make Drawdowns for the purpose of
enabling the Borrower (either directly or indirectly, through a Subsidiary or
otherwise) to acquire shares of a publicly traded corporation, the acquisition
of which requires disclosure pursuant to the requirements of applicable
securities law or any securities commission or exchange or other Governmental
Authority having jurisdiction over the sale or the issuance of securities of the
Borrower or such publicly traded corporation, if the Agent determines (in its
sole discretion having regard to such considerations as it deems appropriate)
that the utilization of Drawdowns for such purpose would result in it being in a
conflict of interest.  At least 5 Banking Days prior to the giving of any notice
pursuant to Section 2.5 requesting Drawdowns intended to be utilized for such
purpose, the Borrower shall provide, in strict confidence, details of such
proposed acquisition (including the name of such publicly traded corporation) to
the Agent so that the Agent can make the determination referred to above;
provided that, such details shall be made available by the Agent only to persons
that need to know such details in order to make such determination.  The Agent
shall advise the
<PAGE>

                                      -30-

Borrower whether such conflict of interest exists within 3 Banking Days after
receipt from the Borrower of such details. Failure by the Agent to so advise the
Borrower of a conflict shall be deemed to be a determination that no conflict
exists for the Agent.

2.16 Determination of Borrowing Base

     (a)  the Borrowing Base as of August 1, 2000, is acknowledged by the
          Borrower and the Lenders to be U.S. $10,815,000 (the "Initial
          Borrowing Base").  Commencing on September 1, 2000, and continuing
          thereafter on the first day of each calendar month through the
          Maturity Date, the amount of the Borrowing Base shall be reduced by
          U.S. $185,000;

     (b)  the Borrowing Base shall be redetermined semi-annually by unanimous
          consent of the Lenders beginning December 1, 2000 (and on the first
          days of June and December thereafter), on the basis of information
          supplied by the Borrower in compliance with the provisions of this
          Agreement, including, without limitation, Engineering Reports, and all
          other information available to the Lenders.  In addition, the Lenders
          shall, in the normal course of business following a request of the
          Borrower, redetermine the Borrowing Base; provided, however, the
          Lenders shall not be obligated to respond to more than four such
          requests during any calendar year, and in no event shall the Lenders
          be required to redetermine the Borrowing Base more than once in any
          three-month period, including, without limitation, each scheduled
          semi-annual redetermination provided for above.  Notwithstanding the
          foregoing, the Lenders may at their discretion and by unanimous
          consent redetermine the Borrowing Base and the amount by which the
          Borrowing Base shall be reduced each calendar month as set forth in
          Section 2.16(a) at any time and from time to time.

     (c)  upon each determination of the Borrowing Base by the Lenders, the
          Agent shall notify the Borrower orally (confirming such notice
          promptly in writing) of such determination, and the Borrowing Base and
          the amount by which the Borrowing Base shall be reduced or increased
          so communicated to the Borrower shall become effective upon such
          written notification and shall remain in effect until the next
          subsequent determination of the Borrowing Base and the amount by which
          the Borrowing Base shall be reduced.

     (d)  the Borrowing Base shall represent the determination by the Lenders,
          in accordance with the applicable definitions and provisions herein
          contained, their then current engineering standards and their then
          current and customary lending standards for loans of this nature, of
          the value, for loan purposes, of the Mortgaged Properties, subject, in
          the case of any increase in the Borrowing Base, to the credit approval
          process of the Lenders.  Furthermore, the Borrower acknowledges that
          the determination of the Borrowing Base contains an equity cushion
          (market value in
<PAGE>

                                      -31-

          excess of loan value), which is acknowledged by the Borrower to be
          essential for the adequate protection of the Lenders.

                                   ARTICLE 3
                       CONDITIONS PRECEDENT TO DRAWDOWNS

3.1  Conditions for Drawdowns

     On or before each Drawdown hereunder the following conditions shall be
satisfied:

     (a)  the Agent shall have received a proper and timely Drawdown Notice from
          the Borrower;

     (b)  the representations and warranties set forth in Section 8.1 shall be
          true and accurate in all material respects on and as of the date of
          the requested Drawdown;

     (c)  no event shall have occurred which would constitute an Event of
          Default or a Default nor shall the Drawdown result in the occurrence
          of any such event; and

     (d)  after giving effect to the proposed Drawdown, the Outstanding
          Principal of all Loans shall not exceed the maximum amount of the
          Credit Facility.

3.2  Additional Conditions for First Drawdown

     In addition to the conditions set forth in Section 3.1, on or before the
first Drawdown hereunder the following further conditions shall be satisfied:

     (a)  the Security shall have been executed and delivered by the Borrower
          and all registrations, filings or recordings necessary or desirable to
          preserve, protect or perfect the Security Interests constituted by
          such Security shall have been delivered to the appropriate registry
          for registration, filing or recording;

     (b)  the National Security shall have been duly assigned and all
          registrations, filings or recordings necessary or desirable to
          preserve, protect or perfect the Security Interests constituted by
          such assignment of the National Security shall have been delivered to
          the appropriate registry for registration, filing or recording;

     (c)  the Borrower shall have delivered to the Agent a certificate of
          status, compliance or good standing, as the case may be, in respect of
          its jurisdiction of incorporation (dated not more than 10 days earlier
          than the date of such Drawdown) and certified copies, dated the date
          of such Drawdown, of its constating documents, by-laws and the
          resolutions authorizing the Documents and transactions hereunder and
          an
<PAGE>

                                      -32-

          Officer's Certificate as to the incumbency of the officers of the
          Borrower signing this Agreement and any other Documents;

     (d)  the Agent shall have received confirmation, acceptable to the Agent,
          that the title of the Borrower to the Mortgaged Properties is
          confirmed, and is free and clear of all Security Interests other than
          Permitted Security Interests;

     (e)  the Borrower shall have delivered to the Agent copies of all
          operating, lease, sublease, royalty, sales, exchange, processing,
          farmout, bidding, pooling, unitization, and other similar agreements
          relating to the Mortgaged Properties as requested by the Agent;

     (f)  the Borrower shall have delivered to the Agent Engineering Reports
          relating to the Mortgaged Properties;

     (g)  the Borrower shall have delivered to the Agent a certified copy of a
          final and non-appealable order (the "Order") by the U.S. Bankruptcy
          Court for the Southern District of Texas in jointly administered case
          No. 99-60359-V2-11 confirming the Second Amended Plan of
          Reorganization filed May 2, 2000, as such plan was modified on June
          19, 2000, and further modified on each of June 29, 2000 and July 5,
          2000, respecting Southern Mineral Corporation, SMC Ecuador, Inc., SMC
          Production Co., and BEC Energy, Inc.;

     (h)  the Borrower shall, within 3 days of the date hereof, enter into a
          Commodity Agreement acceptable to the Agent with respect to a minimum
          of 50% of the Borrower's current production of Petroleum Substances
          for a minimum of 24 months;

     (i)  the Borrower shall deliver such other agreements, documents,
          instruments, opinions, certificates, waivers and consents as the Agent
          may reasonably request; and

     (j)  an opinion of Borrower's legal counsel in form and substance
          satisfactory to the Agent, and an opinion of Lenders' Counsel in form
          and substance satisfactory to the Agent and each of the Lenders, each
          dated the date of such Drawdown, shall have been delivered to the
          Agent.

3.3  Waiver

     The conditions set forth in Sections 3.1 and 3.2 are inserted for the sole
benefit of the Lenders and the Agent and may be waived by the Lenders, in whole
or in part (with or without terms or conditions), without prejudicing the right
of the Lenders or the Agent at any time to assert such waived conditions in
respect of any subsequent Drawdown.
<PAGE>

                                      -33-

                                   ARTICLE 4
                             EVIDENCE OF DRAWDOWNS

4.1  Account of Record

     The Agent shall open and maintain books of account evidencing all Loans and
all other amounts owing by the Borrower to the Lenders hereunder.  The Agent
shall enter in the foregoing accounts details of all amounts from time to time
owing, paid or repaid by the Borrower hereunder.  The information entered in the
foregoing accounts shall, absent manifest error, constitute prima facie evidence
of the obligations of the Borrower to the Lenders hereunder with respect to all
Loans and all other amounts owing by the Borrower to the Lenders hereunder.
After a request by the Borrower, the Agent shall promptly advise the Borrower of
such entries made in the Agent's books of account.

                                   ARTICLE 5
                         PAYMENTS OF INTEREST AND FEES

5.1  Interest on Canadian Prime Rate Loans

     The Borrower shall pay interest on each Canadian Prime Rate Loan owing by
it during each Interest Period applicable thereto in Canadian Dollars at a rate
per annum equal to the Canadian Prime Rate in effect from time to time during
such Interest Period plus the Applicable Margin.  Each determination by the
Agent of the Canadian Prime Rate applicable from time to time during an Interest
Period shall, in the absence of manifest error, be conclusive evidence thereof.
Such interest shall accrue daily and shall be payable in arrears on each
Interest Payment Date for such Loan for the period from and including the
Drawdown Date or the preceding Conversion Date or Interest Payment Date, as the
case may be, for such Loan to and including the day preceding such Interest
Payment Date and shall be calculated on the principal amount of the Canadian
Prime Rate Loan outstanding during such period and on the basis of the actual
number of days elapsed in a year of 365 days or 366 days, as the case may be.
Changes in the Canadian Prime Rate shall cause an immediate adjustment of the
interest rate applicable to such Loan without the necessity of any notice to the
Borrower.

5.2  Interest on Alternate Base Rate Loans

     The Borrower shall pay interest on each Alternate Base Rate Loan owing by
it during each Interest Period applicable thereto in United States Dollars at a
rate per annum, calculated on the basis of a 365 day year, equal to the
Alternate Base Rate in effect from time to time during such Interest Period plus
the Applicable Margin.  Each determination by the Agent of the Alternate Base
Rate applicable from time to time during an Interest Period shall, in the
absence of manifest error, be conclusive evidence thereof.  Such interest shall
be payable in arrears on each Interest Payment Date for such Loan for the period
from and including the Drawdown Date or the preceding Conversion Date or
Interest Payment Date, as the case may be, for such Loan to and including the
day preceding
<PAGE>

                                      -34-

such Interest Payment Date and shall be calculated on the principal amount of
the Alternate Base Rate Loan outstanding during such period and on the basis of
the actual number of days elapsed divided by 365. Changes in the Alternate Base
Rate shall cause an immediate adjustment of the interest rate applicable to such
Loan without the necessity of any notice to the Borrower.

5.3  Per Annum Calculations

     Unless otherwise stated, wherever in this Agreement reference is made to a
rate of interest "per annum" or a similar expression is used, such interest
shall be calculated on the basis of a calendar year of 365 days or 366 days, as
the case may be.

5.4  Interest Act (Canada)

     Whenever a rate of interest hereunder is calculated on the basis of a year
(the "deemed year") which contains fewer days than the actual number of days in
the calendar year of calculation, such rate of interest shall be expressed as a
yearly rate for purposes of the Interest Act (Canada) by multiplying such rate
of interest by the actual number of days in the calendar year of calculation and
dividing it by the number of days in the deemed year.

5.5  Nominal Rates; No Deemed Reinvestment

     The principle of deemed reinvestment of interest shall not apply to any
interest calculation under this Agreement; all interest payments to be made
hereunder shall be paid without allowance or deduction for deemed reinvestment
or otherwise, before and after maturity, default and judgment. The rates of
interest specified in this Agreement are intended to be nominal rates and not
effective rates.  Interest calculated hereunder shall be calculated using the
nominal rate method and not the effective rate method of calculation.

5.6  Stand-By Fees

     (1)  The Borrower shall pay to the Agent for the account of the Lenders a
     stand-by fee in United States Dollars calculated at the rate of 0.50% per
     annum on the amount, if any, by which the amount of the Outstanding
     Principal for each day in the period of determination is less than the
     amount for each such day of the Borrowing Base.  Fees determined in
     accordance with this Section shall accrue daily from and after the date
     hereof and be payable by the Borrower quarterly in arrears and on
     cancellation in full of the Credit Facility or the Maturity Date.

     (2)  As of: (a) January 1, April 1, July 1 and October 1 in each year, (b)
     the date of any cancellation in full of the Credit Facility, and (c) the
     Maturity Date, the Agent shall determine the stand-by fees under this
     Section for the period from and including the date hereof or the date of
     the immediately preceding determination, as the case may be, to but
     excluding that date of determination and shall deliver to the Borrower a
     written request for
<PAGE>

                                      -35-

     payment of the stand-by fees so determined, as detailed therein. The
     Borrower shall pay to the Agent for the account of the Lenders the stand-by
     fees referred to above within 5 Banking Days after receipt of each such
     written request.

5.7  Facility Fee

     The Borrower shall pay to the Agent on or before the date hereof a facility
fee in United States Dollars equal to 0.50% of the Initial Borrowing Base, of
which U.S. $13,750 has already been paid by the Borrower to the Agent and the
Agent hereby acknowledges receipt thereof.  The Borrower shall pay to the Agent
on the date of each and every increase in the Borrowing Base, a further facility
fee in United States Dollars equal to .50% of such increase in the Borrowing
Base. The Agent shall determine the facility fees payable under this Section on
or prior to the foregoing dates and shall deliver to the Borrower a written
request for payment of the facility fee so determined, as detailed therein.

5.8  Engineering Fees

     The Borrower shall pay to the Agent on or before the date of each
redetermination of the Borrowing Base an engineering fee in the amount of U.S.
$10,000.

5.9  Interest on Overdue Amounts

     In the event that any amount due hereunder (including, without limitation,
any interest payment) is not paid when due (whether by acceleration or
otherwise), the Borrower shall pay interest on such unpaid amount (including,
without limitation, interest on interest), if and to the fullest extent
permitted by applicable law, from the date that such amount is due until the
date that such amount is paid in full (but excluding the date of such payment if
the payment is received for value at the required place of payment on the date
of such payment), and such interest shall accrue daily, be calculated and
compounded monthly and be payable on demand, after as well as before maturity,
default and judgment, at a rate per annum that is equal to (a) in respect of
amounts due in Canadian Dollars, the interest rate applicable hereunder to
Canadian Prime Rate Loans plus 5.0% per annum or (b) in respect of amounts due
in United States Dollars, the interest rate applicable hereunder to Alternate
Base Rate Loans plus 5.0% per annum.

5.10 Waiver

     To the extent permitted by applicable law, the covenant of the Borrower to
pay interest at the rates provided herein shall not merge in any judgment
relating to any obligation of the Borrower to the Lenders or the Agent. To the
extent permitted by applicable law, any provision of the Interest Act (Canada),
Judgment Interest Act (Alberta), Pre-Judgment Interest Act (Saskatchewan),
Executions Act (Saskatchewan) or other similar legislation which restricts any
rate of interest set forth herein shall be inapplicable to this Agreement and is
hereby waived by the Borrower.
<PAGE>

                                      -36-

5.11 Maximum Rate Permitted by Law

     No interest or fee to be paid hereunder shall be paid at a rate exceeding
the maximum rate permitted by applicable law.  In the event that such interest
or fee exceeds such maximum rate, such interest or fees shall be reduced or
refunded, as the case may be, so as to be payable at the highest rate
recoverable under applicable law.

                                   ARTICLE 6
                            DOCUMENTARY INSTRUMENTS

6.1  Availability

     Subject to the provisions hereof, the Issuing Lender shall issue, renew or
extend Documentary Instruments under the Credit Facility in accordance with the
Drawdown Notices of the Borrower; provided that the aggregate outstanding
Principal represented by all outstanding Documentary Instruments shall not
exceed U.S. $500,000 or the Equivalent Amount in Canadian Dollars.  The issuance
of Documentary Instruments shall constitute Drawdowns hereunder and shall reduce
the availability of the Credit Facility by the amount of such Documentary
Instruments.

6.2  Form

     Documentary Instruments shall be in a form satisfactory to the Issuing
Lender and shall have an expiration date not in excess of one year from the date
of issue.

6.3  No Conversion

     Except as provided in Section 6.4, the Borrower may not effect a Conversion
of a Documentary Instrument.

6.4  Reimbursement or Conversion on Presentation; Issuing Lender Indemnity

     (1)  On presentation of a Documentary Instrument and payment thereunder by
          the Issuing   Lender, the Borrower shall forthwith pay to and
          reimburse the Issuing Lender for all amounts paid by the Issuing
          Lender pursuant to such Documentary Instrument; failing such payment,
          the Borrower shall be deemed to have effected a Conversion of such
          Documentary Instrument into: (a) a Canadian Prime Rate Loan, in the
          case of a Documentary Instrument denominated in Canadian Dollars; and
          (b) an Alternate Base Rate Loan, in the case of a Documentary
          Instrument denominated in United States Dollars, in each case to the
          extent of the payment of the Issuing Lender thereunder.
<PAGE>

                                      -37-

     (2)  (a)  If the Issuing Lender makes payment under any Documentary
               Instrument and the Borrower does not fully reimburse the Issuing
               Lender on or before the date of payment, then Section 6.4(1)
               shall apply to deem a Loan to be outstanding to the Borrower
               under this Agreement in the manner therein set out. Each Lender
               shall, on request by the Issuing Lender, immediately pay to the
               Issuing Lender an amount equal to such Lender's Rateable Portion
               of the amount paid by the Issuing Lender such that each Lender is
               participating in the deemed Loan in accordance with its Rateable
               Portion.

          (b)  Each Lender shall immediately on demand indemnify the Issuing
               Lender to the extent of such Lender's Rateable Portion of any
               amount paid or liability incurred by the Issuing Lender under
               each Documentary Instrument issued by it to the extent that the
               Borrower does not full reimburse the Issuing Lender therefor.

          (c)  For certainty, the obligations in this Section 6.4(2) shall
               continue as obligations of the persons who were Lenders at the
               time each such Documentary Instrument was issued notwithstanding
               that such Lender may assign its rights and obligations hereunder,
               unless the Issuing Lender specifically releases such Lender from
               such obligations in writing.

6.5  Fees

     The Borrower shall pay to the Issuing Lender for the account of all Lenders
an issuance fee (in the currency which the Documentary Instrument is
denominated) in advance on the date each Documentary Instrument is issued equal
to the greater of $500, or one percent (1%) per annum, calculated on the basis
of a year of 365 or 366, as the case may be, and actual days elapsed (including
the first day but excluding the last), on the face amount of such Documentary
Instrument during the period for which such Documentary Instrument is issued;
provided however, in the event such Documentary Instrument is cancelled prior to
its original expiry date or a payment is made by the Issuing Lender with respect
to such Documentary Instrument, the Issuing Lender shall, within 30 days after
such cancellation or the making of such payment, rebate the Borrower the
unearned portion of such fee.  In addition, with respect to all Documentary
Instruments the Borrower shall from time to time pay to the Issuing Lender its
usual and customary fees (at the then prevailing rates) for the amendment,
delivery and administration of letters of credit and letters of guarantee such
as the Documentary Instruments.
<PAGE>

                                      -38-

6.6  Additional Provisions

     (a)  Indemnity and No Lender Liability
          ---------------------------------

          The Borrower shall indemnify and save harmless the Lenders, the
          Issuing Lender and the Agent against all claims, losses, costs,
          expenses or damages to the Lenders, Issuing Lender or Agent arising
          out of or in connection with any Documentary Instrument, the issuance
          thereof, any payment thereunder or any action taken by the Lenders,
          the Issuing Lender or the Agent or any other person in connection
          therewith, including, without limitation, all costs relating to any
          legal process or proceeding instituted by any party restraining or
          seeking to restrain the Issuing Lender from accepting or paying any
          Draft or any amount under any such Documentary Instrument, but
          excepting from the foregoing those which result from the Agent's or a
          Lender's gross negligence or wilful misconduct. The Borrower also
          agrees that the Lenders, the Issuing Lender and the Agent shall have
          no liability to it for any reason in respect of or in connection with
          any Documentary Instrument, the issuance thereof, any payment
          thereunder or any other action taken by the Lenders, or any other
          person in connection therewith, except as a result of the Lenders',
          Issuing Lender's or Agent's gross negligence or wilful misconduct.

     (b)  No Obligation to Inquire
          ------------------------

          The Borrower hereby acknowledges and confirms to the Issuing Lender
          that the Issuing Lender shall not be obliged to make any inquiry or
          investigation as to the right of any beneficiary to make any claim or
          Draft or request any payment under a Documentary Instrument and
          payment by the Issuing Lender pursuant to a Documentary Instrument
          shall not be withheld by the Issuing Lender by reason of any matters
          in dispute between the beneficiary thereof and the Borrower. The sole
          obligation of the Issuing Lender with respect to Documentary
          Instruments is to cause to be paid a Draft drawn or purporting to be
          drawn in accordance with the terms of the applicable Documentary
          Instrument and for such purpose the Issuing Lender is only obliged to
          determine that the Draft purports to comply with the terms and
          conditions of the relevant Documentary Instrument.

          The Issuing Lender shall not have any responsibility or liability for
          or any duty to inquire into the form, sufficiency (other than to the
          extent provided in the preceding paragraph), authorization, execution,
          signature, endorsement, correctness (other than to the extent provided
          in the preceding paragraph), genuineness or legal effect of any Draft,
          certificate or other document presented to it pursuant to a
          Documentary Instrument and the Borrower unconditionally assumes all
          risks with respect to the same. The Borrower agrees that it assumes
          all risks of the acts or omissions of the beneficiary of any
          Documentary Instrument with respect to the use by such beneficiary of
          the relevant Documentary Instrument.
<PAGE>

                                      -39-

     (c)  The obligations of a Borrower hereunder with respect to all
          Documentary Instruments shall be absolute, unconditional and
          irrevocable and shall not be reduced by any event, circumstance or
          occurrence including, without limitation, any lack of validity or
          enforceability of a Documentary Instrument, or any Draft paid or acted
          upon by the Issuing Lender or any of its correspondents being
          fraudulent, forged, invalid or insufficient in any respect, or any
          defenses or claims which the Borrower may have against any beneficiary
          or transferee of any Documentary Instrument. The obligations of a
          Borrower hereunder shall remain in full force and effect and shall
          apply to any alteration to or extension of the expiration date of any
          Documentary Instrument or any letter of credit or letter of guarantee
          issued to replace, extend or alter any Documentary Instrument.

     (d)  Issuing Lender Actions
          ----------------------

          Any action, inaction or omission taken or suffered by the Issuing
          Lender or by any of the Issuing Lender's correspondents under or in
          connection with a Documentary Instrument or any Draft made thereunder,
          if in good faith and in conformity with foreign or domestic laws,
          regulation or customs applicable thereto shall be binding upon the
          Borrower and shall not place the Issuing Lender or any of its
          correspondents under any resulting liability to the Borrower. Without
          limiting the generality of the foregoing, the Issuing Lender and its
          correspondents may receive, accept or pay as complying with the terms
          of a Documentary Instrument, any Draft thereunder, otherwise in order
          which may be signed by, or issued to, the administrator or any
          executor of, or the trustee in bankruptcy of, or the receiver for any
          property of, or any person or entity acting as a representative or in
          the place of, such beneficiary or its successors and assigns. The
          Borrower covenants that it will not take any steps, issue any
          instructions to the Issuing Lender or any of its correspondents or
          institute any proceedings intended to derogate from the right or
          ability of the Issuing Lender or its correspondents to honour and pay
          any Documentary Instrument or any Drafts.

     (e)  Payment of Contingent Liabilities
          ---------------------------------

          The Borrower shall pay to the Issuing Lender an amount equal to the
          maximum amount available to be drawn under any unexpired Documentary
          Instrument which becomes the subject of any order, judgment,
          injunction or other such determination (an "Order"), or any petition,
          proceeding or other application for any Order by the Borrower or any
          other party, restricting payment by the Issuing Lender under and in
          accordance with such Documentary Instrument or extending the Issuing
          Lender's liability under such Documentary Instrument beyond the
          expiration date stated therein (a "Proceeding"); payment in respect of
          each such Documentary Instrument shall be due forthwith upon demand in
          the currency in which such Documentary Instrument is denominated.
<PAGE>

                                      -40-

          Any amount paid to the Issuing Lender pursuant to the preceding
          paragraph shall be held by the Issuing Lender in interest bearing cash
          collateral accounts (with interest payable for the account of the
          Borrower at the rates and in accordance with the then prevailing
          practices of the Issuing Lender for accounts of such type) as
          continuing security for the Obligations and shall, prior to an Event
          of Default be applied by the Issuing Lender against the Obligations
          for, or (at the option of the Issuing Lender) be applied in payment
          of, such Documentary Instrument if payment is required thereunder;
          after an Event of Default the Issuing Lender may apply such amounts
          against any Obligations as it sees fit.

          The Issuing Lender shall release to the Borrower any amount remaining
          in the cash collateral accounts after applying the amounts necessary
          to discharge the Obligations relating to such Documentary Instrument,
          upon the later of:

          (i)    if the Documentary Instrument is subject to an Order or is the
                 subject of an outstanding Proceeding, the date on which any
                 final and non-appealable order, judgment or other determination
                 has been rendered or issued either terminating any applicable
                 Order or Proceeding or permanently enjoining the Issuing Lender
                 from paying under such Documentary Instrument or, in the case
                 of a Proceeding, it has been terminated by the agreement of the
                 parties thereto;

          (ii)   the earlier of:

                 A.   the date on which either the original counterpart of such
                      Documentary Instrument is returned to the Issuing Lender
                      for cancellation or the Issuing Lender is released by the
                      beneficiary thereof from any other obligation in respect
                      of such Documentary Instrument; and

                 B.   the expiry of such Documentary Instrument; and

          (iii)  if an Event of Default has occurred and is continuing, the
                 payment and satisfaction of all Obligations and the
                 cancellation or termination of the Credit Facility.

     (f)  Uniform Customs and Practice
          ----------------------------

          The Uniform Customs and Practice for Documentary Credits as most
          recently published by the International Chamber of Commerce (the
          "Uniform Customs") shall in all respects apply to each Letter of
          Credit unless expressly provided to the contrary therein and shall be
          deemed for such purpose to be a part of this Agreement as if fully
          incorporated herein. In the event of any conflict or inconsistency
          between the Uniform Customs and the governing law of this Agreement,
          the Uniform Customs
<PAGE>

                                      -41-

          shall, to the extent permitted by applicable law, prevail to the
          extent necessary to remove the conflict or inconsistency.

                                   ARTICLE 7
                                   PAYMENTS

7.1  Place of Payment of Principal, Interest and Fees; Payments to Agent

     All payments of principal, interest, fees and other amounts to be made by
the Borrower to the Agent and the Lenders pursuant to this Agreement shall be
made to the Agent (for, as applicable, the account of the Lenders or its own
account) in the currency in which the Loan is outstanding for value on the day
such amount is due, and if such day is not a Banking Day on the Banking Day next
following, by deposit or transfer thereof to the account or accounts of the
Agent maintained at the Agent's Branch and designated by the Agent for such
purpose or at such other place as the Borrower and the Agent may from time to
time agree.  Notwithstanding anything to the contrary expressed or implied in
this Agreement, the receipt by the Agent in accordance with this Agreement of
any payment made by the Borrower for the account of any of the Lenders shall,
insofar as the Borrower's obligations to the relevant Lenders are concerned, be
deemed also to be receipt by such Lenders and the Borrower shall have no
liability in respect of any failure or delay on the part of the Agent in
disbursing and/or accounting to the relevant Lenders in regard thereto.

7.2  Designated Accounts of the Lenders

     All payments of principal, interest, fees or other amounts to be made by
the Agent to the Lenders pursuant to this Agreement shall be made for value on
the day required hereunder, provided the Agent receives funds from the Borrower
for value on such day, and if such funds are not so received from the Borrower
or if such day is not a Banking Day, on the Banking Day next following, by
deposit or transfer thereof at the time specified herein to the account of each
Lender designated by such Lender to the Agent for such purpose or to such other
place or account as the Lenders may from time to time notify the Agent.

7.3  Funds

     Each amount advanced, disbursed or paid hereunder shall be advanced,
disbursed or paid, as the case may be, in such form of funds as may from time to
time be customarily used for Canadian Dollars in Calgary, Alberta and Toronto,
Ontario or for United States Dollars in New York, New York in the settlement of
banking transactions similar to the banking transactions required to give effect
to the provisions of this Agreement on the day such advance, disbursement or
payment is to be made.
<PAGE>

                                      -42-

7.4  Application of Payments

     All payments made by the Borrower hereunder shall be applied in the
following order:

     (a)  to amounts due hereunder as costs and expenses;

     (b)  to amounts due hereunder as default interest;

     (c)  to amounts due hereunder as stand-by fees;

     (d)  to amounts due hereunder as fees other than stand-by fees;

     (e)  to amounts due hereunder as interest; and

     (f)  to amounts due hereunder as principal.

7.5  Set Off

     (1)  The Obligations shall be paid by the Borrower without any set-off,
     withholding or deduction whatsoever.

     (2)  In addition to any rights now or hereafter granted under applicable
     law and not by way of limitation of any such rights, upon the occurrence of
     an Event of Default which remains unremedied (whether or not the Loans have
     been accelerated hereunder), the Agent and each Lender shall have the right
     (and are hereby authorized by the Borrower) at any time and from time to
     time to combine all or any of the Borrower's accounts with the Agent or the
     Lenders, as the case may be, and to set off and to appropriate and to apply
     any and all deposits (general or special, term or demand) including, but
     not limited to, indebtedness evidenced by certificates of deposit whether
     matured or unmatured, and any other indebtedness at any time held by the
     Borrower or owing by such Lender or the Agent, as the case may be, to or
     for the credit or account of the Borrower against and towards the
     satisfaction of any Obligations, and may do so notwithstanding that the
     balances of such accounts and the liabilities are expressed in different
     currencies, and the Agent and each Lender are hereby authorized to effect
     any necessary currency conversions at the noon spot rate of exchange
     announced by the Bank of Canada on the Banking Day before the day of
     conversion.

     (3)  The Agent or the applicable Lender, as the case may be, shall notify
     the Borrower of any such set-off from the Borrower's accounts within a
     reasonable period of time thereafter, although the Agent or the Lender, as
     the case may be, shall not be liable to the Borrower for its failure to so
     notify.
<PAGE>

                                      -43-

                                   ARTICLE 8
                        REPRESENTATIONS AND WARRANTIES

8.1  Representations and Warranties

     The Borrower hereby represents and warrants as follows to the Agent and the
Lenders and acknowledges and confirms that the Agent and the Lenders are relying
upon such representations and warranties:

     (a)  Corporate Status
          ----------------

          The Borrower is a corporation duly incorporated and validly existing
          under the laws of the Province of Alberta and has all necessary
          corporate power and authority to own its properties and carry on its
          business as presently carried on and is duly licensed, registered or
          qualified in all jurisdictions where the character of its property
          owned or leased or the nature of the activities conducted by it makes
          such licensing, registration or qualification necessary.

     (b)  Corporate Authority
          -------------------

          The Borrower has full corporate power and authority to enter into this
          Agreement and the Documents to which it is a party and to do all acts
          and execute and deliver all other documents as are required hereunder
          or thereunder to be done, observed or performed by it in accordance
          with their respective terms.

     (c)  Valid Authorization
          -------------------

          The Borrower has taken all necessary corporate and other action to
          authorize the creation, execution, delivery and performance of this
          Agreement and the other Documents and to observe and perform the
          provisions of each in accordance with their respective terms.

     (d)  Validity of Documents and Enforceability; No Resulting Violation
          ----------------------------------------------------------------

          This Agreement constitutes and, when executed and delivered, each of
          the Documents will constitute valid and legally binding obligations of
          the Borrower enforceable against it in accordance with their
          respective terms subject to applicable bankruptcy, insolvency and
          other laws of general application limiting the enforceability of
          creditors' rights and to the fact that specific performance is an
          equitable remedy available only in the discretion of the court.
          Neither the execution and delivery of this Agreement or any other
          Document, nor compliance with the
<PAGE>

                                      -44-

          terms and conditions of any of them, (i) has resulted or will result
          in a violation of the articles or the by-laws of the Borrower or any
          resolutions passed by the directors or shareholders of the Borrower or
          any applicable law, rule, regulation, order, judgment, injunction,
          award or decree, (ii) has resulted or will result in a material breach
          of, or constitute a default under, any material loan agreement,
          indenture, trust deed or any other material agreement or instrument to
          which the Borrower is a party or by which it is bound, (iii) requires
          any material approval or consent of any Governmental Authority having
          jurisdiction except such as has already been obtained, or (iv) has
          resulted or will result in the creation of or the obligation to create
          any material Security Interest on, against or in respect of any of the
          material property, assets and undertakings of the Borrower and its
          Material Subsidiaries except as permitted or contemplated hereby.

     (e)  Title to Assets
          ---------------

          (i)    No person has any agreement or right to acquire any of the
                 assets of the Borrower or any of its Material Subsidiaries or
                 any interest therein other than with respect to Permitted
                 Dispositions.

          (ii)   The Borrower and each of its Material Subsidiaries have good
                 title to their assets, subject to Permitted Title Defects and
                 Permitted Encumbrances, and have not received any notice of a
                 potential defect or irregularity in their title to any of their
                 assets which, if substantiated, would be reasonably likely to
                 have a Material Adverse Effect.

          (iii)  The Borrower and each Material Subsidiary has good and
                 defensible title to the P&NG Rights described in the most
                 recent Engineering Report provided to the Lenders, subject only
                 to Permitted Title Defects and Permitted Encumbrances.

     (f)  Engineering Reports
          -------------------

          The most recent Engineering Report and other related data provided by
          the Borrower to the Agent in respect of the reserves attributable to
          the P&NG Rights is substantially accurate and fairly reflects the
          interests of the persons specified therein and thereto as of the date
          thereof net of all royalties and other burdens affecting the same.

     (g)  Non-Default
          -----------

          No Default or Event of Default has occurred and is continuing.
<PAGE>

                                      -45-

     (h)  Financial Condition
          -------------------

          (i)  The unaudited consolidated financial statements of the Borrower
               previously delivered to the Agent present fairly, in all material
               respects, the consolidated financial condition of the Borrower as
               at the date thereof and the results of the consolidated
               operations thereof for the year then ending, all in accordance
               with generally accepted accounting principles consistently
               applied.

          (ii) Except as has been disclosed to the Agent by written notice in
               accordance with the provisions of this Agreement, no change in
               the Borrower's consolidated financial condition (as disclosed or
               reflected in the Borrower's most recent consolidated financial
               statements delivered to the Agent) has occurred which would
               reasonably be expected to have a Material Adverse Effect.

     (i)  Absence of Litigation
          ---------------------

          There are no actions, suits or proceedings pending or, to the
          knowledge of the Borrower, threatened against or affecting the
          Borrower or any of its Subsidiaries, including without limitation any
          aboriginal claims against their property or any of their undertakings
          and assets, at law, in equity or before any arbitrator or before or by
          any governmental department, body, commission, board, bureau, agency
          or instrumentality having jurisdiction in the premises in respect of
          which there is a reasonable possibility of a determination adverse to
          the Borrower or any Subsidiary and which, if determined adversely,
          would reasonably be expected to have a Material Adverse Effect.

     (j)  Compliance with Applicable Laws, Court Orders and Material Agreements
          ---------------------------------------------------------------------

          The Borrower and its Subsidiaries and their respective businesses and
          operations are in compliance with all applicable laws (including,
          without limitation, all applicable Environmental Laws), all applicable
          directives, judgments, decrees, injunctions and orders rendered by any
          Governmental Authority or court of competent jurisdiction, its
          constating documents and by-laws, all agreements or instruments to
          which it is a party or by which its property or assets are bound, and
          any employee benefit plans, except to the extent that non-compliance
          would not reasonably be expected to have a Material Adverse Effect.

     (k)  Authorizations in Effect
          ------------------------

          All authorizations, approvals, consents, licences, exemptions,
          filings, registrations, notarizations and other requirements of
          Governmental Authorities reasonably necessary to carry on the
          businesses of the Borrower and its Subsidiaries are in full
<PAGE>

                                      -46-

          force and effect, except to the extent that the failure to have or
          maintain the same in full force and effect would not, when taken in
          the aggregate, reasonably be expected to have a Material Adverse
          Effect.

     (l)  Remittances Up to Date
          ----------------------

          All of the remittances required to be made by the Borrower and its
          Subsidiaries to the federal, provincial and municipal governments have
          been made, are currently up to date and there are no outstanding
          arrears, except where and to the extent the failure to remit or delay
          in remitting would not, when taken in the aggregate, reasonably be
          expected to have a Material Adverse Effect.

     (m)  Subsidiaries
          ------------

          The Borrower has no Subsidiaries as at the date hereof.

     (n)  Environmental
          -------------

          (i)  To the best of the knowledge and belief of the Borrower, after
               due inquiry, the Borrower, its Subsidiaries and the Neutrino
               Assets comply in all material respects and the businesses,
               activities and operations of same and the use of the Neutrino
               Assets and the processes and undertakings performed thereon
               comply in all material respects with all Environmental Laws,
               Environmental Permits and Environmental Orders; further, the
               Borrower does not know, and has no reasonable grounds to know, of
               any facts which result in or constitute or are likely to give
               rise to non-compliance with any Environmental Laws, Environmental
               Permits or Environmental Orders which facts or non-compliance do
               or could reasonably be expected to have a Material Adverse
               Effect.

          (ii) To the best of the knowledge and belief of the Borrower, after
               due inquiry, the Borrower and its Subsidiaries have obtained all
               Environmental Permits which are required of any of them to the
               date hereof in relation to the Neutrino Assets or in respect of
               their businesses, activities, operations, processes and
               undertakings; all such Environmental Permits are valid and in
               full force and effect, and no material violations thereof have
               been experienced, noted or recorded which are continuing and no
               proceeding is pending and, to the best of the knowledge and
               belief of the Borrower, after due inquiry, no proceedings have
               been or are being taken by any Governmental Authority to remove
               or invalidate any of the Environmental Permits, the removal or
               invalidation of which would reasonably be expected to have a
               Material Adverse Effect.
<PAGE>

                                      -47-

          (iii)   To the best of the knowledge and belief of the Borrower, after
                  due inquiry, the processes and undertakings associated with
                  the Neutrino Assets and the businesses, activities and
                  operations of the Borrower and its Subsidiaries have not and
                  will not be used to generate, manufacture, refine, treat,
                  transport, store, handle, dispose, transfer, produce or
                  process Hazardous Materials except in compliance in all
                  material respects with all Environmental Laws, Environmental
                  Permits and Environmental Orders, except to the extent that
                  such non-compliance would not have or would not reasonably be
                  expected to have a Material Adverse Effect.

          (iv)    To the best of the knowledge and belief of the Borrower, after
                  due inquiry, all contaminants and Hazardous Materials owned or
                  controlled by the Borrower or its Material Subsidiaries and
                  disposed of, treated or stored on or in relation to the
                  Neutrino Assets have been or are in the process of being
                  disposed of, treated and stored in compliance with all
                  Environmental Laws, Environmental Permits and Environmental
                  Orders except to the extent that such non-compliance would not
                  have or would not reasonably be expected to have a Material
                  Adverse Effect.

          (v)     The Borrower has not received written notice under any
                  Environmental Laws, Environmental Permits or Environmental
                  Orders, and has no knowledge after due inquiry, of any facts
                  which could give rise to any notice, of non-compliance with
                  any Environmental Laws, Environmental Permits and
                  Environmental Orders which facts or non-compliance do or could
                  reasonably be expected to have a Material Adverse Effect or
                  any notice that the Borrower or any of its Subsidiaries is a
                  potentially responsible party for a federal, provincial,
                  regional, municipal or local clean-up or corrective action in
                  connection with the Neutrino Assets which could reasonably be
                  expected to have a Material Adverse Effect.

          (vi)    To the best of the knowledge and belief of the Borrower, there
                  are no pending changes to Environmental Laws which would
                  render illegal or materially restrict the businesses,
                  activities or operations of the Borrower or its Material
                  Subsidiaries.

          (vii)   To the best of the knowledge and belief of the Borrower
                  neither it nor any of its Material Subsidiaries have since
                  their respective dates of incorporation been convicted of an
                  offence for non-compliance with any Environmental Laws,
                  Environmental Permits or Environmental Orders or been fined or
                  otherwise sentenced or settled such prosecution short of
                  conviction.

          (viii)  To the best of the knowledge and belief of the Borrower, after
                  due inquiry, the Borrower and its Material Subsidiaries have
                  maintained all material
<PAGE>

                                      -48-

                  environmental and operating documents and records in the
                  manner and for the time periods required by Environmental
                  Laws, Environmental Permits and Environmental Orders except to
                  the extent that such non-compliance would not have or would
                  not reasonably be expected to have a Material Adverse Effect.

          (ix)    The Borrower and its Material Subsidiaries have in effect a
                  management structure and policies and procedures that will
                  permit the Borrower to effectively manage environmental risk
                  and respond in a timely manner in compliance with the
                  Environmental Laws, Environmental Orders and Environmental
                  Permits in the event of Release of Hazardous Materials in, on
                  or under property of the Borrower or its Material
                  Subsidiaries.

     (o)  Taxes
          -----

          The Borrower and each of its Subsidiaries has duly filed on a timely
          basis all tax returns required to be filed by each of them and have
          paid all Taxes which are due and payable, and have paid all
          assessments and reassessments, and all other Taxes, governmental
          charges, governmental royalties, penalties, interest and fines claimed
          against them, other than those which are being contested by them in
          good faith by appropriate proceedings; they have made adequate
          provision for, and all required instalment payments have been made in
          respect of, Taxes payable for the current period for which returns are
          not yet required to be filed; there are no agreements, waivers or
          other arrangements providing for an extension of time with respect to
          the filing of any tax return by them or the payment of any Taxes;
          there are no actions or proceedings being taken by Revenue Canada,
          Taxation or any provincial or municipal taxation authority to enforce
          the payment of any Taxes by them other than those which are being
          contested by them in good faith by appropriate proceedings where such
          contestation would not be reasonably expected to have a Material
          Adverse Effect.

8.2  Deemed Repetition

     On the date of delivery by the Borrower of a Drawdown Notice to the Agent,
and again on the date of any Drawdown made by the Borrower pursuant thereto:

     (a)  except those representations and warranties which the Borrower has
          previously notified the Agent in writing cannot be repeated for such
          Drawdown and in respect of which a Majority of the Lenders have waived
          in writing (with or without terms or conditions) the application of
          the condition precedent in Section 31 for such Drawdown, each of the
          representations and warranties contained in Section 8.1 shall be
          deemed to be repeated; and
<PAGE>

                                      -49-

     (b)  the Borrower shall be deemed to have represented to the Agent and the
          Lenders that, except as has otherwise been notified to the Agent in
          writing and has been waived by a Majority of the Lenders in writing,
          no event has occurred and remains outstanding which would constitute a
          Default or an Event of Default nor will any such event occur as a
          result of the aforementioned Drawdown.

8.3  Other Documents

     All representations, warranties and statements contained in any Document
delivered hereunder shall constitute representations and warranties made by the
Borrower to the Agent under Section 8.1 of this Agreement.

8.4  Effective Time of Repetition

     All representations and warranties, when repeated or deemed to be repeated
hereunder, shall be construed with reference to the facts and circumstances
existing at the time of repetition, unless they are stated herein to be made as
at the date hereof.

8.5  Nature of Representations and Warranties

     The representations and warranties set out in this Agreement or deemed to
be made pursuant hereto shall survive the execution and delivery of this
Agreement and the making of each Drawdown, notwithstanding any investigations or
examinations which may be made by the Agent, Lenders or Lenders' Counsel.  Such
representations and warranties shall survive until this Agreement has been
terminated, provided that the representations and warranties relating to
environmental matters shall survive the termination of this Agreement.

                                   ARTICLE 9
                               GENERAL COVENANTS

9.1  Affirmative Covenants

     So long as any Obligation is outstanding or the Credit Facility is
available hereunder, the Borrower covenants and agrees with each of the Lenders
and the Agent that, unless a Majority of the Lenders otherwise consent in
writing:

     (a)  Punctual Payment and Performance
          --------------------------------

          The Borrower shall duly and punctually pay the principal of all Loans,
          all interest thereon and all fees and other amounts required to be
          paid by the Borrower hereunder in the manner specified hereunder and
          the Borrower shall maintain, perform and observe all of its
          obligations under this Agreement and under any other Document.
<PAGE>

                                      -50-

     (b)  Corporate Existence and Conduct of Business
          -------------------------------------------

          Subject to Section 9.2(i), the Borrower shall maintain its corporate
          existence in good standing and do or cause to be done all things
          necessary to keep in full force and effect all properties, rights,
          franchises, licences and qualifications to carry on business in any
          jurisdiction in which it carries on business and it shall, and shall
          cause its Material Subsidiaries to, maintain all of its or their
          respective properties and assets and conduct their businesses,
          activities and operations in a manner consistent with industry
          standards.

     (c)  Compliance with Legislation Generally
          -------------------------------------

          The Borrower shall do or cause to be done, and shall cause its
          Subsidiaries to do or cause to be done, all acts necessary or
          desirable to comply with all applicable federal, provincial and
          municipal laws, requirements or standards, except to the extent that
          failure to so comply would not reasonably be expected to have a
          Material Adverse Effect, and to preserve and keep in full force and
          effect all franchises, licences, rights, privileges and permits
          necessary to enable the Borrower and each of its Subsidiaries to
          operate and conduct their respective businesses in accordance with
          standard industry practice and to advise the Agent of any proposed
          changes to or loss or sale of such franchises, licences, rights,
          privileges and permits which would reasonably be expected to have a
          Material Adverse Effect.

     (d)  Material Litigation
          -------------------

          The Borrower shall promptly give written notice to the Agent of any
          litigation, proceeding or dispute affecting the Borrower or any of its
          Subsidiaries which, if the result thereof was adverse to its
          interests, might be reasonably expected to have a Material Adverse
          Effect on the Borrower and its Subsidiaries, taken as a whole, and
          from time to time furnish to the Agent all reasonable information
          requested by the Agent concerning the status of any such litigation,
          proceeding or dispute.

     (e)  Financial Statements and Other Information
          ------------------------------------------

          The Borrower shall deliver to the Agent with sufficient copies for
          each of the Lenders:

          (i)  Annual Financials - as soon as available and, in any event,
               -----------------
               within 120 days after the end of each of its fiscal years, (A)
               copies of the Borrower's unaudited annual financial statements
               and (B) from SMC, copies of SMC's audited annual financial
               statements on a consolidated basis consisting of a balance sheet,
               statement of profit and loss and surplus and statement of changes
               in financial position for each such year, together with the notes

<PAGE>

                                      -51-

                thereto, all prepared in accordance with generally accepted
                accounting principles consistently applied together with a
                report of SMC's auditors thereon;

          (ii)  Quarterly Financials - as soon as available and, in any event
                --------------------
                within 60 days after the end of each of its first, second and
                third fiscal quarters, copies of its unaudited quarterly
                financial statements on a consolidated basis, in each case
                consisting of a balance sheet, statement of profit and loss and
                surplus and statement of changes in financial position for each
                such period all in reasonable detail and stating in comparative
                form the figures for the corresponding date and period in the
                previous fiscal year, all prepared in accordance with generally
                accepted accounting principles consistently applied and
                certified by the Borrower's chief financial officer;

          (iii) Compliance Certificate - concurrently with furnishing the
                ----------------------
                financial statements pursuant to Sections 91 and 9.1(e)(ii), a
                Compliance Certificate signed by the president or chief
                financial officer of the Borrower and stating that, inter alia,
                the Borrower that no Default or Event of Default has occurred
                and is continuing (or, if applicable, specifying those defaults
                or events notified in accordance with Section 91) and detailing
                calculations determining whether or not the covenants contained
                in Section 93 have been or are being complied with;

          (iv)  Internal Engineering Report - Internal Engineering Reports (or,
                ---------------------------
                to the extent previously delivered and approved pursuant hereto,
                an Officer's Certificate confirming that there have been no
                changes thereto since the most recently delivered or detailing
                any modifications or amendments thereto), no later than 30 days
                prior to each scheduled Borrowing Base review, each such report
                or updating certificate to be in form and containing particulars
                as are satisfactory to the Majority of Lenders;

          (v)   Annual Engineering Report - On or prior to April 1 of each year,
                -------------------------
                an Engineering Report (or, to the extent previously delivered
                and approved pursuant hereto, an Officer's Certificate
                confirming that there have been no changes thereto since the
                most recently delivered or detailing any modifications or
                amendments thereto), effective as of the immediately preceding
                December 31, prepared by an Independent Engineer, each such
                report or updating certificate to be in form and containing
                particulars as are satisfactory to the Majority of the Lenders;
                and

          (vi)  Other - at the request of the Agent, such other information,
                -----
                reports, certificates, projections of income and cash flow or
                other matters affecting the business, affairs, financial
                condition, property or assets of the Borrower
<PAGE>

                                      -52-

                or the business, affairs, financial condition, property or
                assets of any of its Subsidiaries as the Agent may reasonably
                request, including, without limitation, legal descriptions of
                real property and particulars of any serial number goods (as
                such term is defined pursuant to the Personal Property Security
                Act (Alberta) and the regulations thereto).

          (vii) For the purposes of approving the aforementioned Internal
                Engineering Report, Annual Engineering Report or relevant
                updating Officer's Certificates (each, a "Report"):

                A.  each Lender shall advise the Agent in writing, within 20
                    days after receipt of the relevant Report by the Agent,
                    whether such Report is in a form and contains particulars
                    satisfactory to such Lender (acting reasonably) and, if
                    unsatisfactory, the reasons of such Lender for such
                    determination; provided that if any Lender shall fail to so
                    advise the Agent within such period, then such Lender shall
                    be deemed to have confirmed that the relevant Report is
                    satisfactory to such Lender;

                B.  if the Majority of the Lenders have advised the Agent that
                    the relevant Report is not satisfactory to them (acting
                    reasonably), then the Agent shall so notify the Borrower in
                    writing within 10 days after the expiry of the
                    aforementioned 20-day period (which notice shall include
                    details of the reasons of such Lenders for the same);

                C.  upon receipt from the Agent of the notice referenced in
                    Section 9.1(vii)(B) above, the Borrower shall revise and
                    supplement the relevant Report to take account of the
                    reasons for rejection provided by the Lenders and within a
                    further 30 days after receipt of such notice shall deliver
                    copies of the modified Report to the Agent for distribution
                    to the Lenders, whereupon the provisions of subparagraph (A)
                    above shall again apply to such modified Report, mutatis
                    mutandis; and

                D.  if the Majority of the Lenders have advised the Agent that
                    the modified Report re-submitted as in subparagraph (C)
                    above is not satisfactory to them (acting reasonably), then
                    the Agent shall promptly so notify the Borrower in writing,
                    whereupon the Agent and the Lenders shall redetermine the
                    Borrowing Base in accordance with Section 2.16.
<PAGE>

                                      -53-

     (f)  Accuracy of Engineering Reports
          -------------------------------

          The Borrower shall ensure that each Engineering Report, each Internal
          Engineering Report and all other related data provided by the Borrower
          or any Material Subsidiary to the Agent with respect to the P&NG
          Rights evaluated in such Engineering Report and Internal Engineering
          Report or discussed in such related data are substantially accurate
          and fairly reflect the interests of the Borrower and each Material
          Subsidiary therein and thereto net of all royalties and other burdens
          affecting the same.

     (g)  Rights of Inspection
          --------------------

          At any reasonable time and from time to time upon reasonable prior
          notice, the Borrower shall permit the Agent or any representative
          thereof (at the reasonable expense of the Borrower) or any Lender or
          any representative thereof (at the expense of such Lender) to examine
          and make copies of and abstracts from the records and books of account
          of the Borrower or any of its Subsidiaries and to visit and inspect
          the premises and properties of the Borrower or any of its Subsidiaries
          (in each case at the risk of the Lenders and during normal business
          hours of the Borrower) and to discuss the affairs, finances and
          accounts of the Borrower or any of its Subsidiaries with any of the
          officers of the Borrower or any of its Subsidiaries.

     (h)  Insurance
          ---------

          The Borrower shall maintain and shall cause its Material Subsidiaries
          to maintain all risks property insurance in connection with their
          assets and businesses and other types of insurance, including
          liability insurance with respect to claims for personal injury, death
          or property damage, with respect to the operation of their businesses,
          all with responsible and reputable insurance companies in such amounts
          and with such deductibles as are customary in the case of businesses
          of established reputation engaged in the same or similar businesses
          and in any event as are acceptable to the Agent.

     (i)  Notice of Default or Event of Default
          -------------------------------------

          The Borrower shall deliver to the Agent, forthwith upon becoming aware
          of a Default or the occurrence of an Event of Default, an Officer's
          Certificate describing in detail such Default or such Event of Default
          and specifying the steps, if any, being taken to cure or remedy the
          same.
<PAGE>

                                      -54-

     (j)  Notice of Material Adverse Effect
          ---------------------------------

          The Borrower shall promptly notify the Agent of any event,
          circumstance or condition that has had or is reasonably likely to have
          a Material Adverse Effect.

     (k)  Notice of New Subsidiaries
          --------------------------

          The Borrower shall promptly give written notice to the Agent of the
          acquisition, creation or existence of each new Subsidiary after the
          date hereof.

     (l)  Payment of Taxes, Withholdings, etc.
          ------------------------------------

          The Borrower shall, and shall cause its Material Subsidiaries to, from
          time to time pay or cause to be paid all rents, taxes, rates, levies
          or assessments, ordinary or extraordinary, governmental fees or dues,
          and to make and remit all withholdings, lawfully levied, assessed or
          imposed upon the Borrower or its Material Subsidiaries or any of the
          assets of the Borrower or its Material Subsidiaries, as and when the
          same become due and payable, except when and so long as the validity
          of any such rents, taxes, rates, levies, assessments, fees, dues or
          withholdings is in good faith being contested by the Borrower or its
          Material Subsidiaries and provided that they shall have established
          adequate reserves therefor (in accordance with generally accepted
          accounting principles) and such contestation would not reasonably be
          expected to have a Material Adverse Effect and will not involve
          forfeiture of any part of its assets which are material to the
          Borrower and its Subsidiaries taken as a whole.

     (m)  Security
          --------

          The Borrower shall provide the Security contemplated hereunder
          registered, filed, recorded or perfected to the satisfaction of the
          Agent, acting reasonably.

     (n)  Payment of Preferred Claims
          ---------------------------

          The Borrower shall, and shall cause its Subsidiaries to, from time to
          time pay or cause to be paid all amounts related to Taxes, wages,
          workers' compensation obligations, government royalties or pension
          fund obligations and any other amount which may result in a Security
          Interest, charge or similar encumbrance against the assets of the
          Borrower or such Subsidiary arising under statute or regulation and
          which has or could reasonably be expected to have a Material Adverse
          Effect.
<PAGE>

                                      -55-

     (o)  Environmental Covenants
          -----------------------

          (i)   Without limiting the generality of Section 9.1(c), the Borrower
                shall, and shall cause its Subsidiaries and any other party
                acting under their primary direction to, conduct their business
                and operations so as to comply at all times with all
                Environmental Laws, Environmental Permits and Environmental
                Orders (to the extent applicable to them) if the consequence of
                a failure to comply could reasonably be expected, either alone
                or in conjunction with any other such noncompliances, to have a
                Material Adverse Effect.

          (ii)  If the Borrower or its Material Subsidiaries shall:

                A.  receive or give any notice that a violation of any
                    Environmental Law, Environmental Permit or Environmental
                    Order has or may have been committed or is about to be
                    committed by the same, if such violation would reasonably be
                    expected to have a Material Adverse Effect;

                B.  receive any notice that a complaint, proceeding or order has
                    been filed or is about to be filed against the same alleging
                    a violation of any Environmental Law, Environmental Permit
                    or Environmental Order, if such violation would reasonably
                    be expected to have a Material Adverse Effect; or

                C.  receive any notice requiring the Borrower or a Subsidiary,
                    as the case may be, to take any action in connection with
                    the Release of Hazardous Materials into the environment or
                    alleging that the Borrower or the Material Subsidiary may be
                    liable or responsible for costs associated with a response
                    to or to clean-up a Release of Hazardous Materials into the
                    environment or any damages caused thereby, if such action or
                    liability would reasonably be expected to have a Material
                    Adverse Effect;

                the Borrower shall promptly provide the Agent with a copy of
                such notice and shall, or shall cause its Subsidiary to, furnish
                to the Agent from time to time all reasonable information
                requested by the Agent relating to the same.

          (iii) The Borrower shall notify the Agent promptly of any event or
                occurrence of which it is aware which would reasonably be
                expected to result in violation of any Environmental Law,
                Environmental Permit or Environmental Order if such event or
                occurrence would reasonably be expected to have a Material
                Adverse Effect.
<PAGE>

                                      -56-

     (p)  Environmental Assessments
          -------------------------

          The Borrower shall perform or cause to be performed at its expense,
          either or both independent and in-house environmental site
          assessments, environmental reviews or audits of its or its Material
          Subsidiaries' property:

          (i)   from time to time in accordance with prudent industry practice;

          (ii)  if such assessment or review is required by Environmental Law;
                and

          (iii) if a Default or an Event of Default relating to an Environmental
                Claim has occurred and the Agent has made a written request to
                it for such assessment, review or audit, within sixty (60) days
                after such request,

          and it shall provide to the Agent, on a confidential basis, a copy of
          each such assessment and review.

     (q)  Bank Accounts
          -------------

          The Borrowers shall maintain all accounts and fund with the Agent or
          one or any of the Lenders (or their Affiliates) or other mutually
          acceptable Canadian banks.

     (r)  Commodity Hedging
          -----------------

          The Borrower shall enter into a Commodity Agreement in form and
          substance acceptable to the Agent, with respect to a minimum of 50% of
          the Borrower's current production of Petroleum Substances for a
          minimum of 24 months.

9.2  Negative Covenants

     So long as any Obligation is outstanding or the Credit Facility is
available hereunder, the Borrower covenants and agrees with the Agent and each
of the Lenders that, unless a Majority of the Lenders otherwise consent in
writing:

     (a)  Change of Business
          ------------------

          The Borrower shall not, and shall not permit any Subsidiary on the
          date hereof to, change in any material respect the nature of its
          business or operations or conduct businesses or operations which are
          materially different from the businesses and operations carried on by
          the Borrower and its Subsidiaries on the date hereof.
<PAGE>

                                      -57-

     (b)  Negative Pledge
          ---------------

          The Borrower shall not, nor shall it permit any of its Material
          Subsidiaries to, create, issue, incur, assume or permit to exist any
          Security Interests on any of their property, undertakings or assets
          other than Permitted Encumbrances.

     (c)  Limitation on Debt
          ------------------

          The Borrower shall not have or incur, or permit any Material
          Subsidiary to have or incur, any Debt other than Permitted
          Indebtedness unless, in all cases, the proceeds thereof shall be paid
          to the Lenders to permanently reduce the Credit Facility and any such
          repayment shall constitute a permanent reduction of the Credit
          Facility equal to each such payment.

     (d)  No Distributions without Consent
          --------------------------------

          The Borrower shall not make Distributions in any calendar year except
          to SMC and Spruce Hills which Distributions shall be limited to the
          original capital investment made by SMC and Spruce Hills in the
          Borrower.

     (e)  Limit on Investments
          --------------------

          The Borrower shall not, nor shall it permit any Material Subsidiary
          to, make any Investment, other than Permitted Investments.

     (f)  No Dissolution
          --------------

          The Borrower shall not liquidate, dissolve or wind-up or take any
          steps or proceedings in connection therewith.

     (g)  Non-Arm's Length Transactions
          -----------------------------

          The Borrower shall not, nor shall it permit any Material Subsidiary
          to, enter into any contract whatsoever one with the other or another
          or an Affiliate thereof for the sale, purchase, lease or other dealing
          in any property (excluding services) other than at a consideration
          which equals the fair market value of such property or other than at a
          fair market rental as regards leased property, unless such contract or
          transaction involves the sale, lease or other disposition of property
          to transferees which are the Borrower and/or other Material
          Subsidiaries.
<PAGE>

                                      -58-

     (h)  Limit on Sale of Assets
          -----------------------

          Except for Permitted Dispositions, the Borrower shall not, and shall
          not permit its Material Subsidiaries to, sell, transfer or otherwise
          dispose of any of their respective property or assets in any calendar
          year, whether in one or a series of transactions, which, in aggregate,
          have a fair market value in excess of Cdn. $250,000.

     (i)  No Merger, Amalgamation, etc.
          -----------------------------

          The Borrower shall not, and shall not permit any Material Subsidiary
          to, enter into any transaction whereby all or substantially all of its
          undertaking, property and assets would become the property of any
          other person (herein called a "Successor") whether by way of
          reconstruction, reorganization, recapitalization, consolidation,
          amalgamation, merger, transfer, sale or otherwise, unless:

          (i)   in the case of the Borrower, the Successor is a corporation with
                limited liability and incorporated under the federal laws of
                Canada or the laws of any province of Canada;

          (ii)  prior to or contemporaneously with the consummation of such
                transaction the Borrower or Material Subsidiary, as the case may
                be, and the Successor shall have executed such instruments and
                done such things as, in the opinion of Lenders' Counsel, are
                necessary or advisable to establish that upon the consummation
                of such transaction:

                A.  the Successor will have assumed all the covenants and
                    obligations of the Borrower or Material Subsidiary, as the
                    case may be, under the Documents to which the Borrower or
                    Material Subsidiary is a party; and

                B.  this Agreement and the other Documents, as the case may be,
                    will be valid and binding obligations of the Successor
                    entitling the Agent and the Lenders, as against the
                    Successor, to exercise all their rights under the Documents
                    to which it is a party;

          (iii) such transaction shall be on such terms and shall be carried out
                in such manner as to preserve and not to impair any of the
                rights and powers of the Agent and the Lenders hereunder or
                pursuant to the Security and not to affect adversely the
                potential liability of the Lenders for any present or future
                Taxes or charges of whatsoever nature imposed or levied by or on
                behalf of any Governmental Authority;
<PAGE>

                                      -59-

          (iv) such transactions shall not result in the assets of the Successor
               being subject to any Security Interests other than Permitted
               Encumbrances; and

          (v)  no Event of Default and no Default shall have occurred and be
               continuing, or will occur as a result of such transaction, or
               shall exist immediately after the consummation of such
               transaction.

     (j)  No Material Expenditures
          ------------------------

          Except for Permitted Indebtedness, the Borrower shall not make any
          single acquisition annually in excess of U.S. $2,500,000.

9.3  Financial Covenants

     So long as any Obligation is outstanding or the Credit Facility is
available hereunder, the Borrower covenants and agrees with the Lenders, unless
a Majority of the Lenders otherwise consent in writing:

     (a)  Debt Coverage Ratio
          -------------------

          As at each Quarter End in each calendar year, the Borrower shall not
          permit the ratio of EBITDA to Debt Service to be less than 1.2:1.0.

     (b)  Minimum Tangible Net Worth
          --------------------------

          The Borrower shall not at any time permit its Tangible Net Worth to be
          less than 85% of the Borrower's Tangible Net Worth at August 31, 2000,
          plus 75% of the Borrower's positive quarterly net income and 100% of
          ----
          new equity in each case received subsequent to August 31, 2000,
          measured as at each Quarter End.

     (c)  Working Capital Ratio
          ---------------------

          The Borrower shall not at any time permit the ratio of (i) Current
          Assets to (ii) Current Liabilities to be less than 1.0:1.0.

9.4  Agent May Perform Covenants

     If the Borrower fails to perform any covenants on its part herein
contained, subject to any consents or notice or cure periods required by Section
11.1, the Agent may give notice to the Borrower of such failure and if, within
10 days after such notice, such covenant remains unperformed, the Agent may, in
its discretion but need not, perform any such covenant capable of being
performed by the Agent and if the covenant requires the payment or expenditure
of money, the Agent may make such payment or expenditure and all sums so
expended shall be forthwith
<PAGE>

                                      -60-

payable by the Borrower to the Agent and shall bear interest at the applicable
interest rate provided in Section 5.9 for amounts due in Canadian Dollars or
United States Dollars, as the case may be. No such performance, payment or
expenditure by the Agent shall be deemed to relieve the Borrower of any default
hereunder or under the other Documents.

                                  ARTICLE 10
                                   SECURITY

10.1 Security

     (1)  The Borrower shall execute and deliver, or shall cause to be executed
     and delivered, to the Agent the following:

     (a)  assignment agreement with respect to the National Security;

     (b)  Cdn. $40,000,000 Debenture;

     (c)  Debenture Pledge Agreement; and

     (d)  a guarantee from SMC,

as continuing collateral security for the payment and performance by the
Borrower of all Obligations and all other obligations, liabilities and
indebtedness of the Borrower to the Agent and the Lenders.

     (2)  The Borrower shall cause to be executed and delivered to the Lender
     Subsidiary Security:

     (a)  from Material Subsidiaries if at any time, and at such time as any
          Subsidiary is or becomes a Material Subsidiary, in which case the
          Borrower shall promptly, and in any event within 15 days after such
          occurrence, cause such Subsidiaries to provide Subsidiary Security to
          the extent required to ensure that, after provision of the same, 90%
          or more of the P&NG Rights shall be directly owned or held by persons
          providing Security hereunder;

     (b)  together with certified copies of such Subsidiary's constating
          documents, by-laws and the resolutions authorizing the Subsidiary
          Security, a certificate as to the incumbency of the officers of such
          Subsidiary signing such Subsidiary Security and an opinion of legal
          counsel to such Subsidiary, with all such certificates and opinions to
          be in form and substance satisfactory to the Agent in its sole
          discretion, acting reasonably; and
<PAGE>

                                      -61-

     (c)  as continuing collateral security for the payment and performance by
          the Borrower of all Obligations and all other obligations, liabilities
          and indebtedness of the Borrower to the Agent and the Lenders.

10.2 Registration

     The Borrower shall, at its expense, register, file or record the Security
in all offices where such registration, filing or recording is necessary or of
advantage to the creation, perfection and preserving of the security applicable
to it including, without limitation, any land registry offices. The Borrower
shall amend and renew such registrations, filings and recordings from time to
time as and when required to keep them in full force and effect or to preserve
the priority established by any prior registration, filing or recording thereof.

10.3 Forms; Additional Security; Undertaking to Grant Fixed Charge Security

     (1)  The forms of Security have been prepared based upon the laws of
     Alberta and of Canada applicable thereto in effect at the date hereof. The
     Agent shall have the right to require that: (a) any such Security be
     amended to reflect any changes in such laws, whether arising as a result of
     statutory amendments, court decisions or otherwise, in order to confer upon
     the Agent and the Lenders the Security Interests intended to be created
     thereby, and (b) the Borrower execute and deliver to the Agent such other
     and further debentures, mortgages, trust deeds, assignments and security
     agreements as may be reasonably required by the Agent.

     (2)  In addition to and without limiting Section 10.3(1), if the Agent
     determines in its sole discretion that it is necessary or desirable for the
     adequate protection of the Lenders, the Borrower, upon 20 days' prior
     written request from the Agent, shall grant and shall cause its Material
     Subsidiaries to grant to the Agent, fixed mortgages and charges, subject
     only to Permitted Encumbrances, on proven producing P&NG Rights having an
     aggregate fair market value of not less than 90% of the then current net
     present value (as determined by the Agent) of the P&NG Rights, as security
     for the Obligations and all other obligations, liabilities and indebtedness
     of the Borrower to the Agent and the Lenders.  In this connection, the
     Borrower shall promptly provide the Agent with such information as is
     reasonably required by the Agent to identify the property to be charged
     pursuant to this Section and the Borrower shall, as soon as possible after
     the notice period set forth in the request by the Agent (but in any event
     within 20 days after the expiration of such 20 day notice period):

     (a)  execute and deliver, and cause to be executed and delivered, all such
          mortgages, debentures, security agreements, trust deeds, guarantees,
          agreements and other instruments (each in form and substance
          satisfactory to the Agent) as may be necessary to create the aforesaid
          fixed mortgages and charges and shall do all other things as may be
          necessary to grant in favour of the Agent the aforesaid fixed
          mortgages and charges;
<PAGE>

                                      -62-

     (b)  provide and cause its Material Subsidiaries required pursuant to
          Section 10.1(2) to provide to the Agent certified copies of all
          corporate resolutions and other authorizations necessary for the
          Borrower and such Subsidiaries to grant to the Agent the fixed
          mortgages and charges as aforesaid, together with such opinions of
          legal counsel to the Borrower and such Subsidiaries as the Agent may
          reasonably require with respect to the due authorization, execution,
          delivery and enforceability of the above agreements and instruments
          and as to the registration or recording of such agreements and
          instruments;

     (c)  assist and cause such Subsidiaries to assist the Agent in the
          registration or recording of such agreements and instruments in such
          public registry offices as the Agent, acting reasonably, deems
          necessary to give full force and effect to the provisions of this
          Section; and

     (d)  pay all reasonable costs and expenses incurred by the Agent and the
          Lenders in connection with the preparation, execution and registration
          of all agreements and instruments, including any amendments to the
          Security, made in connection with this Section.

10.4 Continuing Security

     Each item or part of the Security shall for all purposes be treated as a
separate and continuing collateral security and shall be deemed to have been
given in addition to and not in place of any other item or part of the Security
or any other security now held or hereafter acquired by the Agent or the
Lenders.  No item or part of the Security shall be merged or be deemed to have
been merged in or by this Agreement or any documents, instruments or
acknowledgements delivered hereunder, or any simple contract debt or any
judgment, and any realization of or steps taken under or pursuant to any
security, instrument or agreement shall be independent of and not create a
merger with any other right available to the Agent or the Lenders under any
security, instruments or agreements held by it or at law or in equity.

10.5 Dealing with Security

     The Agent, with the consent of all the Lenders, may grant extensions of
time or other indulgences, take and give up security (including, without
limitation, the Security or any part or parts thereof), accept compositions,
grant releases and discharges.  The Agent may otherwise deal with the Borrower,
its Subsidiaries and other parties and with security (including without
limitation, the Security and each part thereof) as the Agent and the Lenders may
see fit, and may, subject to Section 7.4, apply all amounts received from the
Borrower or others or from security (including without limitation, the Security
or any part thereof) upon such part of the liabilities of the Borrower hereunder
or under any of the Security as the Agent may think best, without prejudice to
or in any
<PAGE>

                                      -63-

way limiting the liability of the Borrower under this Agreement or under any of
the Security or any other collateral security.

10.6 Effectiveness

     The Security and the security created by any other Document constituted or
required to be created shall be effective, and the undertakings as to the
Security herein or in any other Document shall be continuing, whether any Loans
are then outstanding or any amounts thereby secured or any part thereof shall be
owing before or after, or at the same time as, the creation of such Security
Interests or before or after or upon the date of execution of any amendments to
this Agreement.

10.7 Saskatchewan Legislation

     The Land Contracts (Actions) Act (Saskatchewan) shall have no application
to any action, as defined in the said Land Contracts (Actions) Act, with respect
to this Agreement and the other Documents; and The Limitation of Civil Rights
Act (Saskatchewan) shall have no application to this Agreement and the other
Documents, any Security Interest for the payment of money made, given or created
by this Agreement or the other Documents, any agreement or instrument renewing
or extending this Agreement or the other Documents or any such Security
Interest, or the rights, powers or remedies of the Agent or any of the Lenders
under this Agreement, the other Documents or any such Security Interest.  The
Borrower agrees that the provisions of both The Land Contracts (Actions) Act and
The Limitation of Civil Rights Act are hereby waived and covenants that each
Subsidiary providing security to the Lenders (if any) shall waive such
provisions in writing to the satisfaction of the Agent.

10.8 Release and Discharge of Security

     The Borrower and the Material Subsidiaries shall not be discharged from the
Security or any part thereof, other than to the extent such Security applies to
a Permitted Disposition, except by a written release and discharge signed by the
Agent with the prior consent of the Lenders.  If all of the Obligations,
Financial Instrument Obligations and other obligations of the Borrower to the
Agent and the Lenders have been repaid, paid, satisfied and discharged, as the
case may be, in full, the Credit Facility has been fully cancelled and the
Lenders then have no credit facilities in favour of or obligation to provide
credit to the Borrower, then the Security shall be released and discharged by
the Agent and the Lenders.  The Agent, at the cost and expense of the Borrower,
shall from time to time do, execute and deliver, or cause to be done, executed
and delivered, all such agreements, instruments, certificates, financing
statements, notices and other documents and all acts, matters and things as may
be reasonably requested by the Borrower to give effect to, establish, evidence
or record the foregoing release and discharge.
<PAGE>

                                      -64-

                                  ARTICLE 11
                      EVENTS OF DEFAULT AND ACCELERATION

11.1 Events of Default

     The occurrence of any one or more of the following events (each such event
being herein referred to as an "Event of Default") shall constitute a default
under this Agreement:

     (a)  if the Borrower defaults in payment of the principal of any Loan
          hereunder when due and payable and such default shall not be remedied
          within 3 days of the occurrence of such default;

     (b)  if the Borrower defaults in payment of:

          (i)   any interest (including, if applicable, default interest) due on
                any Loan;

          (ii)  any fee with respect to a Documentary Instrument; or

          (iii) any other amount not specifically referred to in paragraph (a)
                above or in this paragraph (b) payable by the Borrower
                hereunder;

          in each case when due and payable and such default shall not be
          remedied within 3 days of the occurrence of such default;

     (c)  If a default, event of default or other similar condition or event
          (however described) in respect of the Borrower, any Material
          Subsidiary, SMC or Spruce Hills occurs or exists under any indentures,
          credit agreements, agreements or other instruments evidencing or
          relating to Debt of the Borrower, any Material Subsidiary, SMC or
          Spruce Hills, and such default, event or condition has resulted in a
          Debt in excess of Cdn. $100,000 or the Equivalent Amount thereof
          becoming, or becoming capable at such time of being declared, due and
          payable thereunder before it would otherwise have been due and
          payable, and the default, event or condition has not been waived and
          is not being disputed in good faith by the Borrower, SMC, Spruce Hills
          or such Material Subsidiary, as applicable;

     (d)  if the Borrower fails to observe or perform its covenant in Section
          9.1(i);

     (e)  if the Borrower or a Material Subsidiary fails to observe or perform
          any covenant or obligation herein or in any Document contained on its
          part to be observed or performed (other than a covenant or condition
          whose breach or default in performance is specifically dealt with
          elsewhere in this Section 11.1) and, after notice has been given by
          the Agent to the Borrower specifying such default and requiring the
          Borrower or such Subsidiary to put an end to the same, the Borrower or
          such
<PAGE>

                                      -65-

          Material Subsidiary shall fail to remedy such default within a period
          of 30 days after the giving of such notice;

     (f)  if any representation or warranty made or deemed to be made by the
          Borrower in this Agreement or in any certificate or other Document at
          any time delivered to the Agent or the Lenders pursuant hereto shall
          prove to have been incorrect or misleading in any material respect on
          and as of the date made;

     (g)  if a decree or order of a court of competent jurisdiction is entered
          adjudging the Borrower or a Material Subsidiary a bankrupt or
          insolvent or approving as properly filed a petition seeking the
          winding-up of the Borrower or a Material Subsidiary under the
          Companies' Creditors Arrangement Act (Canada), the Bankruptcy and
          Insolvency Act (Canada), the Winding Up Act (Canada) or any other
          bankruptcy, insolvency or analogous laws or ordering the winding up or
          liquidation of its affairs, and any such decree or order continues
          unstayed and in effect for a period of 30 days;

     (h)  if the Borrower or a Material Subsidiary makes any assignment in
          bankruptcy or makes any other assignment for the benefit of creditors,
          makes any proposal under the Bankruptcy and Insolvency Act (Canada) or
          any comparable law, seeks relief under the Companies' Creditors
          Arrangement Act (Canada), the Winding Up Act (Canada) or any other
          bankruptcy, insolvency or analogous law, files a petition or proposal
          to take advantage of any act of insolvency, consents to or acquiesces
          in the appointment of a trustee, receiver, receiver and manager,
          interim receiver, custodian, sequestrator or other person with similar
          powers with respect to the Borrower or a Material Subsidiary or of all
          or any substantial portion of its assets, or files a petition or
          otherwise commences any proceeding seeking any reorganization,
          arrangement, composition, administration or readjustment under any
          applicable bankruptcy, insolvency, moratorium, reorganization or other
          similar law affecting creditors' rights or consents to, or acquiesces
          in, the filing of such a petition;

     (i)  if a secured party, holder of a Security Interest or other
          encumbrancer lawfully takes possession of any portion of the property
          of the Borrower or any Material Subsidiary which is material to the
          Borrower and its Subsidiaries taken as a whole or if a distress or
          execution or any similar process is lawfully levied and enforced
          against any such property and remains unsatisfied for a period of 30
          days;

     (j)  if one or more judgments, decrees or orders shall be rendered against
          the Borrower or a Material Subsidiary for the payment of money in
          excess of Cdn. $500,000 or the Equivalent Amount thereof in the
          aggregate and any of such judgments, decrees or orders shall continue
          unsatisfied and in effect for a period of more than 30 Banking Days
          without being vacated, discharged, satisfied or stayed pending appeal;
<PAGE>

                                      -66-

     (k)  except for Permitted Encumbrances, if any of the Security Interests
          created by the Security, to the extent such Security Interests have
          been perfected by registration or otherwise, shall cease to be a valid
          first priority Security Interest as against third parties;

     (l)  if any Document or any material provision thereof shall at any time
          for any reason cease to be in full force and effect, be declared to be
          void or voidable or shall be repudiated, or the validity or
          enforceability thereof shall at any time be contested by the Borrower
          or a Material Subsidiary, or the Borrower or a Material Subsidiary
          shall deny that it has any or any further liability or obligation
          thereunder, or at any time it shall be unlawful or impossible for any
          of them to perform any of the Obligations;

     (m)  except in compliance herewith, if the Borrower shall dissolve, be
          wound-up or liquidated, shall cease to carry on all or any material
          part of its business as now conducted, shall sell, transfer or
          otherwise dispose of all or substantially of its assets, or shall
          threaten or take any step, proceeding or other action in furtherance
          of any of the foregoing; or

     (n)  if there is a Change of Control.

11.2 Acceleration

     If any Event of Default shall occur,

     (a)  the entire principal amount of all Loans then outstanding and all
          accrued and unpaid interest thereon,

     (b)  an amount equal to the maximum amount available to be drawn under all
          unexpired LCs,

     (c)  an amount equal to the maximum amount guaranteed under all unexpired
          LGs, and

     (d)  all other Obligations outstanding hereunder,

shall, at the option of the Agent, and in accordance with Section 14.11, or upon
the request of a Majority of the Lenders, become immediately due and payable
upon written notice to that effect from the Agent to the Borrower, all without
any other notice and without presentment, protest, demand, notice of dishonour
or any other demand whatsoever (all of which are hereby expressly waived by the
Borrower).  In such event and if the Borrower does not immediately pay all such
amounts upon receipt of such notice, either the Lenders or the Agent on their
behalf may, in their discretion, exercise any right or recourse and/or proceed
by any action, suit, remedy or proceeding against the Borrower authorized or
permitted by law for the recovery of all the indebtedness and liabilities of the
Borrower to the Lenders and proceed to exercise any and all rights hereunder and
under the other
<PAGE>

                                      -67-

Documents and no such remedy for the enforcement of the rights of the Lenders
shall be exclusive of or dependent on any other remedy but any one or more of
such remedies may from time to time be exercised independently or in
combination.

11.3 Conversion on Default

     Upon the occurrence of an Event of Default, the Agent on behalf of the
Lenders may convert, at the Equivalent Amount, if applicable, an Alternate Base
Rate Loan at any time, to a Canadian Prime Rate Loan.  Interest shall accrue on
each such Canadian Prime Rate Loan at the rates provided in Section 5.1, such
interest to be calculated daily and payable on demand.

11.4 Remedies Cumulative and Waivers

     For greater certainty, it is expressly understood and agreed that the
rights and remedies of the Lenders and the Agent hereunder or under any other
Document are cumulative and are in addition to and not in substitution for any
rights or remedies provided by law or by equity; and any single or partial
exercise by the Lenders or the Agent of any right or remedy for a default or
breach of any term, covenant, condition or agreement contained in this Agreement
or other Document shall not be deemed to be a waiver of or to alter, affect or
prejudice any other right or remedy or other rights or remedies to which any one
or more of the Lenders or the Agent may be lawfully entitled for such default or
breach.  Any waiver by, as applicable, the Majority of the Lenders, the Lenders
or the Agent of the strict observance, performance or compliance with any term,
covenant, condition or other matter contained herein or in the other Documents
and any indulgence granted, either expressly or by course of conduct, by, as
applicable, the Majority of the Lenders, the Lenders or the Agent shall be
effective only in the specific instance and for the purpose for which it was
given and shall be deemed not to be a waiver of any rights and remedies of such
Person or Persons under this Agreement or any other Document as a result of any
other default or breach hereunder or thereunder.

11.5 Termination of Lenders' Obligations

     The occurrence of a Default which is continuing shall relieve the Lenders
of all obligations to provide any further Drawdowns or Conversions hereunder;
provided that the foregoing shall not prevent the Lenders or the Agent from
disbursing money or effecting any Conversion which, by the terms hereof, they
are entitled to effect, or any Conversion requested by the Borrower and
acceptable to the Lenders and the Agent.
<PAGE>

                                      -68-

                                  ARTICLE 12
                            CHANGE OF CIRCUMSTANCES

12.1 Change in Law

     If the adoption of any applicable law, regulation, treaty or official
directive (whether or not having the force of law) or any change therein or in
the interpretation or application thereof by any court or by any Governmental
Authority or any other entity charged with the interpretation or administration
thereof or compliance by the Lender with any request or direction (whether or
not having the force of law) of any such authority or entity, hereafter:

     (a)  subjects any Lender to, or causes the withdrawal or termination of any
          previously granted exemption with respect to, any tax or changes the
          basis of taxation, or increases any existing tax, on payments of
          principal, interest, fees or other amounts payable by the Borrower to
          such Lender under this Agreement (except for taxes based on the
          capital or overall income of such Lender);

     (b)  imposes, modifies or deems applicable any reserve, liquidity, cash
          margin, capital, deposit insurance, special deposit or similar
          requirements against assets held by, or deposits in or for the account
          of or loans by or to or any other acquisition of funds by, or drafts
          accepted by, an office of any Lender;

     (c)  imposes on any Lender or expects there to be maintained by any Lender
          any capital adequacy or additional capital requirements in respect of
          any Loans or the Credit Facility hereunder or any other condition with
          respect to this Agreement; or

     (d)  imposes on any Lender any other conditions or requirements relevant to
          the Documents or the Credit Facility,

and the result of any of the foregoing, in the sole determination of such Lender
acting reasonably and in good faith, shall be to increase the cost to, or reduce
the amount of principal, interest, fees or other amount received or receivable
by such Lender hereunder or its effective return hereunder or on its capital in
respect of the Credit Facility or the making, maintaining or funding a Loan
under the Credit Facility or cause such Lender to make any payment or forego any
interest, fees or other return hereunder, such Lender shall determine that
amount of money which shall compensate such Lender for such increase in cost,
payments to be made or reduction in income or return or interest foregone
(herein referred to as "Additional Compensation").  Upon a Lender having
determined that it is entitled to Additional Compensation in accordance with the
provisions of this Section, such Lender shall promptly so notify the Borrower
and the Agent and shall provide the Borrower and the Agent with a photocopy of
the relevant law, rule, guideline, regulation, treaty or official directive (or,
if it is impracticable to provide a photocopy, a written summary of the same)
and a certificate of a duly authorized officer of such Lender setting forth the
Additional Compensation and the basis of calculation therefor, which shall be
conclusive evidence of such Additional Compensation in the
<PAGE>

                                      -69-

absence of manifest error. The Borrower shall pay to such Lender within 10
Banking Days of the giving of such notice such Lender's Additional Compensation
calculated from the later of (i) the effective date of the relevant introduction
or change and (ii) 3 months prior to the date of such notification. Each of the
Lenders shall be entitled to be paid such Additional Compensation from time to
time to the extent that the provisions of this Section are then applicable
notwithstanding that any Lender has previously been paid any Additional
Compensation. The Lenders shall endeavour to limit the incidence of any such
Additional Compensation, including (without limitation) seeking recovery for the
account of the Borrower by appealing any assessment (providing that the same
shall not be adverse to the interests of the Lenders, in their sole discretion)
at the expense of the Borrower upon the Borrower's request.

12.2 Prepayment of Portion

     In addition to the other rights and options of the Borrower hereunder and
notwithstanding any contrary provisions hereof, if a Lender gives the notice
provided for in Section 12.2 with respect to any Loan (an "Affected Loan"), the
Borrower may, upon 3 Banking Days notice to that effect given to such Lender and
the Agent (which notice shall be irrevocable), prepay in full without penalty
such Lender's Rateable Portion of the Affected Loan outstanding together with
accrued and unpaid interest on the principal amount so prepaid up to the date of
such prepayment, such Additional Compensation as may be applicable to the date
of such payment and all costs, losses and expenses incurred by such Lender by
reason of the liquidation or re-deployment of deposits or other funds or for any
other reason whatsoever resulting from the repayment of such Affected Loan or
any part thereof on other than the last day of the applicable Interest Period,
and upon such payment being made that Lender's obligations to make such Affected
Loans to the Borrower under this Agreement shall terminate.

12.3 Illegality

     If the adoption of any applicable law, regulation, treaty or official
directive (whether or not having the force of law) or any change therein or in
the interpretation or application thereof by any court or by any Governmental
Authority or any other entity charged with the interpretation or administration
thereof or compliance by such Lender with any request or direction (whether or
not having the force of law) of any such authority or entity, now or hereafter
makes it unlawful or impossible for such Lender to make, fund or maintain the
Credit Facility or a Loan under the Credit Facility or to give effect to its
obligations in respect of such a Loan, such Lender may, by written notice
thereof to the Borrower declare its obligations under this Agreement in respect
of such Loan to be terminated whereupon the same shall forthwith terminate, and
the Borrower shall, within the time required by such law (or at the end of such
longer period as such Lender at its discretion has agreed), either effect a
Conversion of such Loan in accordance with the provisions hereof (if such
Conversion would resolve the unlawfulness or impossibility) or prepay the
principal of such Loan together with accrued interest.  If any such change shall
only affect a portion of a Lender's obligations under this Agreement which is,
in the sole opinion of such Lender, severable from the
<PAGE>

                                      -70-

remainder of this Agreement so that the remainder of this Agreement may be
continued in full force and effect without otherwise affecting any of the other
obligations of such Lender or the Borrower hereunder, such Lender shall only
declare its obligations under that portion so terminated.

                                  ARTICLE 13
                      COSTS, EXPENSES AND INDEMNIFICATION

13.1 Costs and Expenses

     The Borrower shall pay promptly upon notice from the Agent all reasonable
costs and expenses of the Lenders and the Agent in connection with the Documents
and the establishment of the Credit Facility, including, without limitation, in
connection with preparation, printing, execution and delivery of this Agreement
and the other Documents whether or not any Drawdown has been made hereunder, and
also including, without limitation, the reasonable fees and out-of-pocket
expenses of Lenders' Counsel with respect thereto and with respect to advising
the Agent and the Lenders as to their rights and responsibilities under this
Agreement and the other Documents. Except for ordinary expenses of the Lenders
and the Agent relating to the day-to-day administration of this Agreement, the
Borrower further agrees to pay within 30 days of demand by the Agent all
reasonable costs and expenses in connection with the preparation or review of
waivers, consents and amendments pertaining to this Agreement and in connection
with the establishment of the validity and enforceability of this Agreement and
the preservation or enforcement of rights of the Lenders and the Agent under
this Agreement and other Documents, including, without limitation, all
reasonable costs and expenses sustained by the Lenders and the Agent as a result
of any failure by the Borrower to perform or observe any of its obligations
hereunder, together with interest thereon from and after such 30th day if such
payment is not made by such time.

13.2 General Indemnity

     In addition to any liability of the Borrower to the Agent and the Lenders
under any other provision hereof, the Borrower shall indemnify each Lender and
the Agent and their respective Affiliates, directors, officers, agents and
employees (collectively in this Section the 'Indemnified Parties") and hold each
Indemnified Party harmless against any loss, cost, expense, damage, claim or
liability and reasonable out-of-pocket expenses and reasonable legal fees on a
solicitor and his own client basis) as a result of or in connection with:

     (a)  all claims, suits, debts, damages, costs, losses, liabilities,
          penalties, obligations, judgments, charges, expenses and disbursements
          arising in connection with any action, suit, or proceeding (whether or
          not an Indemnified Party is a party or subject thereto) relating to
          the Credit Facilities or the Documents;
<PAGE>

                                      -71-

     (b)  any cost or expense incurred by reason of the liquidation or re-
          deployment in whole or in part of deposits or other funds required by
          any Lender to fund or maintain any Loan as a result of the Borrower's
          failure to complete a Drawdown or to make any payment, repayment or
          prepayment on the date required hereunder or specified by it in any
          notice given hereunder;

     (c)  the Borrower's failure to pay any other amount, including without
          limitation any interest or fee, due hereunder on its due date after
          the expiration of any applicable grace or notice periods (subject,
          however, to the interest obligations hereunder for overdue amounts);

     (d)  the Borrower's failure to give any notice required to be given by it
          to the Lenders hereunder;

     (e)  the inaccuracy of the Borrower's representations and warranties
          contained in Section 8.1;

     (f)  the failure of the Borrower to make any other payment due hereunder;

     (g)  any failure of the Borrower or any Material Subsidiary to observe or
          fulfil any other Obligation not specifically referred to above; or

     (h)  any Default or Event of Default.

13.3 Environmental Indemnity

     The Borrower shall indemnify and hold harmless the Agent and the Lenders
including a receiver, receiver-manager or similar person appointed under
applicable law and its respective Affiliates, officers, directors, employees and
agents (collectively, the "Indemnified Parties") forthwith on demand by the
Agent from and against any and all claims, suits, actions, debts, damages,
costs, losses, liabilities, penalties, obligations, judgments, charges, expenses
and disbursements (including without limitation, all reasonable legal fees and
disbursements on a solicitor and his own client basis) of any nature whatsoever,
suffered or incurred by the Indemnified Parties or any of them in connection
with the Credit Facility, whether as beneficiaries under the Documents, as
successors in interest of the Borrower or any of its Subsidiaries, or voluntary
transfer in lieu of foreclosure, or otherwise howsoever, with respect to any
Environmental Claims relating to the property of the Borrower or any of its
Subsidiaries arising under any Environmental Laws as a result of the past,
present or future operations of the Borrower or any of its Subsidiaries (or any
predecessor in interest to the Borrower or any of its Subsidiaries) relating to
the property of the Borrower or of its Subsidiaries, or the past, present or
future condition of any part of the property of the Borrower or its Subsidiaries
owned, operated or leased by the Borrower or by any of its Subsidiaries (or any
such predecessor in interest), including any liabilities arising after an
acceleration of all Loans as a result of any indemnity covering Environmental
Claims given to any
<PAGE>

                                      -72-

person by the Lenders or a receiver, receiver-manager or similar person
appointed hereunder or under applicable law (collectively, the "Indemnified
Third Party"); but excluding any Environmental Claims or liabilities relating
thereto to the extent that such Environmental Claims or liabilities arise by
reason of the gross negligence or wilful misconduct of the Indemnified Party or
the Indemnified Third Party claiming indemnity hereunder. The provisions of this
Section shall survive the repayment of the Obligations.

13.4 Judgment Currency

     If, for the purposes of obtaining or enforcing judgment in any court in any
jurisdiction, it becomes necessary to convert into the currency of the country
giving such judgment (the "Judgment Currency") an amount due hereunder in
different currency (the "Agreed Currency"), then the date on which the rate of
exchange for conversion is selected by that court is referred to herein as the
"Exchange Date".  If there is a change in the rate of exchange between the
Judgment Currency and the Agreed Currency between the Exchange Date and the
actual receipt of any Lender of the amount due hereunder or under such judgment,
the Borrower will, notwithstanding such judgment, pay to such Lender all such
additional amounts as may be necessary to ensure that the amount received by
such Lender in the Judgment Currency, when converted at the rate of exchange
prevailing on the date of receipt, will produce the amount due in the Agreed
Currency.  The Borrower's liability hereunder constitutes a separate and
independent liability which will not merge with any judgment or any partial
payment or enforcement of payment of sums due under the Documents and such
liability, together with interest thereon, shall be added to the amount payable
hereunder.  The term "rate of exchange", as used in this paragraph, includes any
premiums or costs payable in connection with the currency conversion then being
effected.

                                  ARTICLE 14
              THE AGENT AND ADMINISTRATION OF THE CREDIT FACILITY

14.1 Authorization and Action

     (1)  Each Lender hereby irrevocably appoints and authorizes the Agent to be
its agent in its name and on its behalf to exercise such rights or powers
granted to the Agent or the Lenders under this Agreement to the extent
specifically provided herein and on the terms hereof, together with such powers
as are reasonably incidental thereto and the Agent hereby accepts such
appointment and authorization. As to any matters not expressly provided for by
this Agreement, the Agent shall not be required to exercise any discretion or
take any action, but, subject to Section 15.10, shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Majority of the Lenders and such
instructions shall be binding upon all Lenders; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
liability in such capacity or which could result in the Agent's incurring any
costs and expenses, without provision being made for indemnity of the Agent by
the Lenders against
<PAGE>

                                      -73-

any loss, liability, cost or expense incurred, or to be incurred or which is
contrary to this Agreement or applicable law.

     (2)  The Lenders agree that all decisions as to actions to be or not to be
taken, as to consents or waivers to be given or not to be given, as to
determinations to be made and otherwise in connection with this Agreement and
the Documents, shall be made upon the decision of the Majority of the Lenders
except in respect of a decision or determination where it is specifically
provided in this Agreement that "all of the Lenders" or "the Lenders" or words
to similar effect, or the Agent alone, is to be responsible for same.  Each of
the Lenders shall be bound by and agrees to abide by and adopt all decisions
made as aforesaid and covenants in all communications with the Borrower to act
in concert and to join in the action, consent, waiver, determination or other
matter decided as aforesaid.

14.2 Procedure for Making Loans

     (1)  The Agent shall make Loans available to the Borrower as required
hereunder by debiting the account of the Agent to which the Lenders' Rateable
Portions of such Loans have been credited in accordance with Section 2.10 (or
causing such account to be debited) and, in the absence of other arrangements
agreed to by the Agent and the Borrower in writing, by crediting the account of
the Borrower or, at the expense of the Borrower, transferring (or causing to be
transferred) like funds in accordance with the instructions of the Borrower as
set forth in the Drawdown Notice or Conversion Notice, as the case may be, in
respect of each Loan; provided that the obligation of the Agent hereunder to
effect such a transfer shall be limited to taking such steps as are commercially
reasonable to implement such instructions, which steps once taken shall
constitute conclusive and binding evidence that such funds were advanced
hereunder in accordance with the provisions relating thereto and the Agent shall
not be liable for any damages, claims or costs which may be suffered by the
Borrower and occasioned by the failure of such Loan to reach the designated
destination.

     (2)  Unless the Agent has been notified by a Lender at least one Banking
Day prior to the Drawdown Date or Conversion Date, as the case may be, requested
by the Borrower that such Lender will not make available to the Agent its
Rateable Portion of such Loan, the Agent may assume that such Lender has made or
will make such portion of the Loan available to the Agent on the Drawdown Date
or Conversion Date, as the case may be, in accordance with the provisions hereof
and the Agent may, but shall be in no way obligated to, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent such Lender shall not have so made its Rateable Portion of
a Loan available to the Agent, such Lender agrees to pay to the Agent forthwith
on demand such Lender's Rateable Portion of the Loan and all reasonable costs
and expenses incurred by the Agent in connection therewith together with
interest thereon (at the rate payable hereunder by the Borrower in respect of
such Loan for each day from the date such amount is made available to the
Borrower until the date such amount is paid to the Agent; provided, however,
that notwithstanding such obligation if such Lender fails to so pay, the
Borrower covenants and agrees that without prejudice to any rights the Borrower
may have against such Lender, it shall repay such amount to the Agent forthwith
after demand therefor by the Agent. The amount payable
<PAGE>

                                      -74-

to the Agent pursuant hereto shall be set forth in a certificate delivered by
the Agent to such Lender and the Borrower (which certificate shall contain
reasonable details of how the amount payable is calculated) and shall be prima
facie evidence thereof, in the absence of manifest error. If such Lender makes
the payment to the Agent required herein, the amount so paid shall constitute
such Lender's Rateable Portion of the Loan for purposes of this Agreement. The
failure of any Lender to make its Rateable Portion of any Loan shall not relieve
any other Lender of its obligation, if any, hereunder to make its Rateable
Portion of such Loan on the Drawdown Date or Conversion Date, as the case may
be, but no Lender shall be responsible for the failure of any other Lender to
make the Rateable Portion of any Loan to be made by such other Lender on the
date of any Drawdown or Conversion, as the case may be.

14.3 Remittance of Payments

     Forthwith after receipt of any repayment pursuant hereto or payment of
interest or fees pursuant to Article 5 or payment pursuant to Article 7, the
Agent shall remit to each Lender its Rateable Portion of such payment; provided
that, if the Agent, on the assumption that it will receive on any particular
date a payment of principal, interest or fees hereunder, remits to a Lender its
Rateable Portion of such payment and the Borrower fails to make such payment,
each of the Lenders on receipt of such remittance from the Agent agrees to repay
to the Agent forthwith on demand an amount equal to the remittance together with
all reasonable costs and expenses incurred by the Agent in connection therewith
and interest thereon at the rate and calculated in the manner applicable to the
Loan in respect of which such payment is made for each day from the date such
amount is remitted to the Lenders without prejudice to any right such Lender may
have against the Borrower. The exact amount of the repayment required to be made
by the Lenders pursuant hereto shall be as set forth in a certificate delivered
by the Agent to each Lender, which certificate shall be conclusive and binding
for all purposes in the absence of manifest error.

14.4 Redistribution of Payment

     Each Lender agrees that:

     (a)  if it exercises any security against or right of counter-claim, set
          off or banker's Security Interest or similar right with respect to the
          property of the Borrower or if under any applicable bankruptcy,
          insolvency or other similar law it receives a secured claim and
          collateral for which it is, or is entitled to exercise any set-off
          against, a debt owed by it to the Borrower, the Lender shall apportion
          the amount thereof proportionately between:

          (i)  such Lender's Rateable Portion of all outstanding Obligations
               which amounts shall be applied in accordance with Section
               14.4(b); and

          (ii) amounts otherwise owed to such Lender by the Borrower,
<PAGE>

                                      -75-

     provided that (A) any cash collateral account held by such Lender as
     collateral for a letter of credit issued or accepted by such Lender on
     behalf of the Borrower may be applied by such Lender to such amounts owed
     by the Borrower to such Lender pursuant to such letter of credit without
     apportionment and (B) these provisions do not apply to a right or claim
     which arises or exists in respect of a loan or other debt in respect of
     which the relevant Lender holds a Security Interest excluded from the
     application of Section 9.2(b) and

     (b)  if, in the aforementioned circumstances, the Lender, through the
          exercise of a right, or the receipt of a secured claim described in
          Section 14.4(a) above or otherwise, receives payment of a proportion
          of the aggregate amount of Obligations due to it hereunder which is
          greater than the proportion received by any other Lender in respect of
          the aggregate Obligations due to such Lender (having regard to the
          respective Rateable Portions of the Lenders), the Lender receiving
          such proportionately greater payment shall purchase, on a non-recourse
          basis at par, and make payment for a participation (which shall be
          deemed to have been done simultaneously with receipt of such payment)
          in the outstanding Loans of the other Lender or Lenders so that their
          respective receipts shall be pro rata to their respective Rateable
          Portions; provided, however, that if all or part of such
          proportionately greater payment received by such purchasing Lender
          shall be recovered by or on behalf of the Borrower or any trustee,
          liquidator, receiver or receiver-manager or person with analogous
          powers from the purchasing Lender, such purchase shall be rescinded
          and the purchase price paid for such participation shall be returned
          to the extent of such recovery, but without interest unless the
          purchasing Lender is required to pay interest on such amount, in which
          case each selling Lender shall reimburse the purchasing Lender pro
          rata in relation to the amounts received by it.  Such Lender shall
          exercise its rights in respect of such secured claim in a manner
          consistent with the rights of the Lenders entitled under this Section
          to share in the benefits of any recovery on such secured claims; and

     (c)  if the Lender does, or is required to do, any act or thing permitted
          by Section 14.4(a) or (b) above, it shall promptly provide full
          particulars thereof to the Agent.

14.5 Duties and Obligations

     Neither the Agent nor any of its directors, officers, agents or employees
(and, for purposes hereof, the Agent shall be deemed to be contracting as agent
and trustee for and on behalf of such persons) shall be liable to the Lenders
for any action taken or omitted to be taken by it or them under or in connection
with this Agreement except for its or their own gross negligence or wilful
misconduct.  Without limiting the generality of the foregoing, the Agent:
<PAGE>

                                      -76-

     (a)  may assume that there has been no assignment or transfer by any means
          by the Lenders of their rights hereunder, unless and until the Agent
          receives written notice of the assignment thereof from such Lender and
          the Agent receives from the assignee an executed assignment agreement
          providing, inter alia, that such assignee is bound hereby as it would
          have been if it had been an original Lender party hereto;

     (b)  may consult with legal counsel (including receiving the opinions of
          Borrower's counsel required hereunder), independent public accountants
          and other experts selected by it and shall not be liable for any
          action taken or omitted to be taken in good faith by it in accordance
          with the advice or such counsel, accountants or experts;

     (c)  shall incur no liability under or in respect of this Agreement by
          acting upon any notice, consent, certificate or other instrument or
          writing (which may be by telegram, cable, telecopier or telex)
          believed by it to be genuine and signed or sent by the proper party or
          parties or by acting upon any representation or warranty of the
          Borrower made or deemed to be made hereunder;

     (d)  may assume that no Event of Default has occurred and is continuing
          unless it has actual knowledge to the contrary;

     (e)  may rely as to any matters of fact which might reasonably be expected
          to be within the knowledge of any person upon a certificate signed by
          or on behalf of such person;

     (f)  shall not be bound to disclose to any other person any information
          relating to the Borrower, any of its Subsidiaries or any other person
          if such disclosure would or might in its or their opinion constitute a
          breach of any applicable law, be in default of the provisions hereof
          or be otherwise actionable at the suit of any other person; and

     (g)  may refrain from exercising any right, power or discretion vested in
          it which would or might in its or their reasonable opinion be contrary
          to any applicable law or any directive or otherwise render it or them
          liable to any person, and may do anything which is in its or their
          reasonable opinion necessary to comply with such applicable law.

     Further, the Agent (i) does not make any warranty or representation to any
Lender nor shall it be responsible to any Lender for the accuracy or
completeness of the representations and warranties of the Borrower herein or the
data made available to any of the Lenders in connection with the negotiation of
this Agreement, or for any statements, warranties or representations (whether
written or oral) made in or in connection with this Agreement; (ii) shall not
have any duty to ascertain or to enquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement on the part of the
Borrower or to inspect the property (including the
<PAGE>

                                      -77-

books and records) of the Borrower or any of its Subsidiaries; and (iii) shall
not be responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any
instrument or document furnished pursuant hereto.

14.6 Prompt Notice to the Lenders

     Notwithstanding any other provision herein, the Agent agrees to provide to
the Lenders, with copies where appropriate, all information, notices and reports
required to be given to the Agent by the Borrower, promptly upon receipt of
same, excepting therefrom information and notices relating solely to the role of
Agent hereunder.

14.7 Agent's and Lender's Authorities

     With respect to its Commitment and the Drawdowns, Conversions and Loans
made by it as a Lender, the Agent shall have the same rights and powers under
this Agreement as any other Lender and may exercise the same as though it were
not the Agent.  Subject to the express provisions hereof relating to the rights
and obligations of the Agent and the Lenders in such capacities, the Agent and
each Lender may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower and its Subsidiaries or any corporation or
other entity owned or controlled by any of them and any person which may do
business with any of them without any duties to account therefor to the Agent or
the other Lenders and, in the case of the Agent, all as if it was not the Agent
hereunder.

14.8 Lender Credit Decision

     It is understood and agreed by each Lender that it has itself been, and
will continue to be, solely responsible for making its own independent appraisal
of and investigations into the financial condition, creditworthiness, condition,
affairs, status and nature of the Borrower and its Subsidiaries. Each Lender
represents to the Agent that it is engaged in the business of making and
evaluating the risks associated with commercial revolving or term loans, or
both, to corporations similar to the Borrower, that it can bear the economic
risks related to the transaction contemplated hereby, that it has had access to
all information deemed necessary by it in making such decision (provided that
this representation shall not impair its rights against the Borrower) and that
it is entering into this Agreement in the ordinary course of its commercial
lending business.  Accordingly, each Lender confirms with the Agent that it has
not relied, and will not hereafter rely, on the Agent (i) to check or enquire on
its behalf into the adequacy, accuracy or completeness of any information
provided by the Borrower or any other person under or in connection with this
Agreement or the transactions herein contemplated (whether or not such
information has been or is hereafter distributed to such Lender by the Agent),
or (ii) to assess or keep under review on its behalf the financial condition,
creditworthiness, condition, affairs, status or nature of the Borrower or any of
its Subsidiaries.  Each Lender acknowledges that a copy of this Agreement has
been made available to it for review and each Lender acknowledges that it is
satisfied with the form and substance of this Agreement.  Each Lender hereby
covenants and agrees that, subject to Section 14.4, it will not make any
arrangements
<PAGE>

                                      -78-

with the Borrower for the satisfaction of any Loans or other Obligations without
the consent of all the other Lenders.

14.9  Indemnification of Agent

      The Lenders hereby agree to indemnify the Agent (to the extent not
reimbursed by the Borrower), on a pro rata basis in accordance with their
respective Commitments as a proportion of the aggregate of all outstanding
Commitments, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under or in respect of
this Agreement in its capacity as Agent; provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs expenses or disbursements resulting from the
Agent's gross negligence or wilful misconduct.  If the Borrower subsequently
repays all or a portion of such amounts to the Agent, the Agent shall reimburse
the Lenders their pro rata shares (according to the amounts paid by them in
respect thereof) of the amounts received from the Borrower.  Without limiting
the generality of the foregoing, each Lender agrees to reimburse the Agent
promptly upon demand for its portion (determined as above) of any out-of-pocket
expenses (including counsel fees) incurred by the Agent in connection with the
preservation of any rights of the Agent or the Lenders under, or the enforcement
of, or legal advice in respect of rights or responsibilities under, this
Agreement, to the extent that the Agent is not reimbursed for such expenses by
the Borrower.

14.10 Successor Agent

      (1) The Agent may, as hereinafter provided, resign at any time by giving
45 days' prior written notice thereof to the Lenders and the Borrower. Upon any
such resignation, the Lenders shall have the right to appoint another Lender as
a successor agent (the "Successor Agent") who shall be acceptable to the
Borrower, acting reasonably. If no Successor Agent shall have been so appointed
by the Lenders and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation, then the retiring Agent shall,
on behalf of the Lenders, appoint a Successor Agent who shall be a Lender
acceptable to the Borrower, acting reasonably. Upon the acceptance of any
appointment as Agent hereunder by a Successor Agent, such Successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall thereupon be
discharged from its further duties and obligations as Agent under this
Agreement. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article shall continue to enure to its benefit as to any
actions taken or omitted to be taken by it as Agent or in its capacity as Agent
while it was Agent hereunder.

      (2) Notwithstanding Section 14.10(1), no Lender shall become the Agent
unless such Lender's Commitment constitutes 10.0% or more of all outstanding
Commitments; accordingly, an Agent may not resign unless the Successor Agent
meets this requirement.
<PAGE>

                                      -79-

14.11 Taking and Enforcement of Remedies

      Each of the Lenders hereby acknowledges that, to the extent permitted by
applicable law, the remedies provided hereunder to the Lenders are for the
benefit of the Lenders collectively and acting together and not severally and
further acknowledges that its rights hereunder are to be exercised not
severally, but collectively by the Agent upon the decision of the Majority of
the Lenders regardless of whether acceleration was made pursuant to Section
11.2.  Notwithstanding any of the provisions contained herein, each of the
Lenders hereby covenants and agrees that it shall not be entitled to
individually take any action with respect to the Credit Facilities, including,
without limitation, any acceleration under Section 11.2, but that any such
action shall be taken only by the Agent with the prior written agreement or
instructions of the Majority of the Lenders; provided that, notwithstanding the
foregoing, if (i) the Agent, having been adequately indemnified against costs
and expenses of so doing by the Lenders, shall fail to carry out any such
instructions of a Majority of the Lenders, any Lender may do so on behalf of all
Lenders and shall, in so doing, be entitled to the benefit of all protections
given the Agent hereunder or elsewhere, and (ii) in the absence of instructions
from the Majority of the Lenders and where in the sole opinion of the Agent the
exigencies of the situation warrant such action, the Agent may without notice to
or consent of the Lenders or any of them take such action on behalf of the
Lenders as it deems appropriate or desirable in the interests of the Lenders.
Each of the Lenders hereby further covenants and agrees that upon any such
written consent being given by the Majority of the Lenders, or upon a Lender or
the Agent taking action as aforesaid, it shall cooperate fully with the Lender
or the Agent to the extent requested by the Lender or the Agent in the
collective realization including, without limitation, and, if applicable, the
appointment of a receiver, or receiver and manager to act for their collective
benefit.  Each Lender covenants and agrees to do all acts and things and to
make, execute and deliver all agreements and other instruments, including,
without limitation, any instruments necessary to effect any registrations, so as
to fully carry out the intent and purpose of this Section; and each of the
Lenders hereby covenants and agrees that, subject to Section 14.4 and Section
9.2(b) it has not heretofore and shall not seek, take, accept or receive any
security for any of the obligations and liabilities of the Borrower hereunder or
under any other document, instrument, writing or agreement ancillary hereto and
shall not enter into any agreement with any of the parties hereto or thereto
relating in any manner whatsoever to the Credit Facilities, unless all of the
Lenders shall at the same time obtain the benefit of any such security or
agreement.

      With respect to any enforcement, realization or the taking of any rights
or remedies to enforce the rights of the Lenders hereunder, the Agent shall be a
trustee for each Lender, and all monies received from time to time by the Agent
in respect of the foregoing shall be held in trust and shall be trust assets
within the meaning of applicable bankruptcy or insolvency legislation and shall
be considered for the purposes of such legislation to be held separate and apart
from the other assets of the Agent, and each Lender shall be entitled to their
Rateable Portion of such monies. In its capacity as trustee, the Agent shall be
obliged to exercise only the degree of care it would exercise in the conduct and
management of its own business and in accordance with its usual practice
concurrently employed or hereafter instituted for other substantial commercial
loans.
<PAGE>

                                      -80-

14.12 Reliance Upon Agent

      The Borrower shall be entitled to rely upon any certificate, notice or
other document or other advice, statement or instruction provided to it by the
Agent pursuant to this Agreement, and the Borrower shall generally be entitled
to deal with the Agent with respect to matters under this Agreement which the
Agent is authorized to deal with without any obligation whatsoever to satisfy
itself as to the authority of the Agent to act on behalf of the Lenders and
without any liability whatsoever to the Lenders for relying upon any
certificate, notice or other document or other advice, statement or instruction
provided to it by the Agent, notwithstanding any lack of authority of the Agent
to provide the same.

14.13 No Liability of Agent

      The Agent shall have no responsibility or liability to the Borrower on
account of the failure of any Lender to perform its obligations hereunder
(unless such failure was caused, in whole or in part, by the Agent's failure to
observe or perform its obligations hereunder), or to any Lender on account of
the failure of the Borrower or any Lender to perform its obligations hereunder.

14.14 Article for Benefit of Agents and Lenders

      The provisions of this Article Fourteen which relate to the rights and
obligations of the Lenders to each other or to the rights and obligations
between the Agent and the Lenders shall be for the exclusive benefit of the
Agent and the Lenders, and, except to the extent provided in Sections 14.1,
14.2, 14.6, 14.10, 14.11, 14.12, 14.13 and this Section 14.14, the Borrower
shall not have any rights or obligations thereunder or be entitled to rely for
any purpose upon such provisions.  Any Lender may waive in writing any right or
rights which it may have against the Agent or the other Lenders hereunder
without the consent of or notice to the Borrower.

                                  ARTICLE 15
                                    GENERAL

15.1  Exchange and Confidentiality of Information

      (1) The Borrower agrees that the Agent and each Lender may provide any
assignee or participant or any prospective assignee or participant pursuant to
Sections 16.6 or 16.7 with any information concerning the financial condition of
the Borrower and its Subsidiaries provided such party agrees in writing with the
Agent or such Lender for the benefit of the Borrower to be bound by a like duty
of confidentiality to that contained in this Section.

      (2) Each of the Agent and the Lenders acknowledges the confidential nature
of the financial, operational and other information and data provided and to be
provided to them by the
<PAGE>

                                      -81-

Borrower pursuant hereto (the "Information") and agrees to use all reasonable
efforts to prevent the disclosure thereof provided, however, that:

     (a)  the Agent and the Lenders may if, in their reasonable opinion,
          disclosure is required in connection with any actual or threatened
          judicial, administrative or governmental proceedings including,
          without limitation, proceedings initiated under or in respect of this
          Agreement disclose all or any part of the Information pursuant to
          those proceedings;

     (b)  the Agent and the Lenders shall incur no liability in respect of any
          Information required to be disclosed by any applicable law or
          regulation, or by applicable order, policy or directive having the
          force of law, to the extent of such requirement;

     (c)  the Agent and the Lenders may provide Lenders' Counsel and their other
          agents and professional advisors with any Information; provided that
          such persons shall have agreed to be under a like duty of
          confidentiality to that contained in this Section;

     (d)  the Agent and each of the Lenders shall incur no liability in respect
          of any Information:  (i) which is or becomes readily available to the
          public (other than by a breach hereof) or which has been made readily
          available to the public by the Borrower or its Subsidiaries, (ii)
          which the Agent or the relevant Lender can show was, prior to receipt
          thereof from the Borrower, lawfully in the Agent's or Lender's
          possession and not then subject to any obligation on its part to the
          Borrower to maintain confidentiality, or (iii) which the Agent or the
          relevant Lender received from a third party who was not, to the
          knowledge of the Agent or such Lender, under a duty of confidentiality
          to the Borrower at the time the information was so received;

     (e)  the Agent and the Lenders may disclose the information to other
          financial institutions in connection with the syndication by the Agent
          or Lenders of the Credit Facilities or the granting by a Lender of a
          participation in the Credit Facilities where such financial
          institution agrees to be under a like duty of confidentiality to that
          contained in this Section; and

     (f)  the Agent and the Lenders may disclose all or any part of the
          Information so as to enable the Agent and the Lenders to initiate any
          lawsuit against the Borrower or to defend any lawsuit commenced by the
          Borrower the issues of which touch on the Information, but only to the
          extent such disclosure is necessary to the initiation or defense of
          such lawsuit.
<PAGE>

                                      -82-

15.2 Nature of Obligation under this Agreement

     (1)  The obligations of each Lender and of the Agent under this Agreement
are several. The failure of any Lender to carry out its obligations hereunder
shall not relieve the other Lenders, the Agent or the Borrower of any of their
respective obligations hereunder.

     (2)  Neither the Agent nor any Lender shall be responsible for the
obligations of any other Lender hereunder.

15.3 Notices

     Any demand, notice or communication to be made or given hereunder (a
"Communication") shall be in writing and shall be made or given by personal
delivery or by transmittal by telecopy or other electronic means of
communication addressed to the respective parties as follows:

To the Borrower:

Neutrino Resources Inc.
c/o Southern Minerals Corporation
1201 Louisiana, Suite 3350
Houston, Texas 77002

Attention:          Michael E. Luttrell
Telecopy No.:       (713) 658-9447

To the Lenders:

Bank One Canada
BCE Place, P.O. Box 613
161 Bay Street, Suite 4240
Toronto, Ontario M5J 2S1

Attention:          First Vice President
Telecopy No.:       (416) 363-7574

with a copy (other than copies of Drawdown
Notices, Conversion Notices, Rollover Notices
and Repayment Notices given hereunder) to:

Bank One, Texas N.A.
910 Travis Street, 6/th/ Floor
Houston, Texas 77002
<PAGE>

                                      -83-

Attention:          Jonathan Gregory, Vice President
Telecopy No.:       (713) 751-7894

or to such other address or telecopy number as either party may from time to
time notify the other in accordance with this provision.  Any Communication made
or given hereunder during normal business hours at the place of receipt on a
Banking Day shall be conclusively deemed to have been made or given at the time
of actual delivery or receipt of Communication, as the case may be, on such
Banking Day.  Any Communication made or given hereunder after normal business
hours at the place of receipt or otherwise than on a Banking Day shall be
conclusively deemed to have been made or given by 9:00 a.m. (Calgary time) on
the first Banking Day following actual delivery or receipt of Communication, as
the case may be.  Any Communication made or given hereunder on a Banking Day
before normal business hours at the place of receipt shall be conclusively
deemed to have been made or given at 9:00 a.m. (Calgary time) on the date of
actual delivery or receipt of Communication, as the case may be.

15.4 Governing Law

     This Agreement shall be governed by and construed in accordance with the
laws of the Province of Alberta and the federal laws of Canada applicable
therein.

15.5 Benefit of the Agreement

     This Agreement shall enure to the benefit of and be binding upon the
Borrower, the Agent and the Lenders and their respective successors and
permitted assigns.

15.6 Assignment

     Any Lender may, without the consent of the Borrower during the continuance
of an Event of Default and at all other times with the prior written consent of
the Borrower and the Agent, which consents shall not be unreasonably withheld,
sell, assign, transfer or grant an interest in its Commitments and its Rateable
Portion of the Loans; provided that, without the consent of the Borrower and the
Agent, no Lender shall sell, assign, transfer or grant an interest in any
Commitment or Loan if the effect of the same would be to have a Lender with
aggregate Commitments which represent less than 25% of the aggregate Commitments
of all Lenders; and further provided that, it shall be a precondition to any
such sale, assignment, transfer or grant that the contemplated assignee Lender
shall have paid to the Agent, for the Agent's own account, a transfer fee to be
determined by the Agent.   Upon any such sale, assignment, transfer or grant ,
the granting Lender shall have no further obligation hereunder with respect to
such interest except in case of a grant to a person affiliated with the granting
Lender (determined in accordance with the Bank Act (Canada)), in which case such
Lender shall remain obligated hereunder with respect to such interest.  Upon any
such sale, assignment, transfer or grant, the granting Lender, the new Lender,
the Agent and the Borrower shall execute and deliver an assignment agreement.
Subject to the provisions of Section 9.2(i), the Borrower shall not assign its
rights or obligations hereunder without the prior written consent of all
<PAGE>

                                      -84-

of the Lenders. The Borrower shall assist the Agent in connection with any such
assignment or participations referred to in Section 15.7 including, without
limitation and at the Borrower's expense (i) providing all information
reasonably required by the Agent to successfully complete such assignment, (ii)
assisting the Agent, on the Agent's request in the preparation of a syndication
memorandum and all other marketing materials to be used in connection with the
syndication, (iii) participating in syndication presentations and meetings and
(iv) using the Borrower's best efforts to make use of the relationships of the
Borrower with other financial institutions to benefit the syndication efforts.

15.7  Participations

      Any Lender may, without the consent of the Borrower, grant one or more
participations in its Commitment and its Rateable Portion of the Loans to other
financial institutions, provided that the granting of such a participation shall
be at the Lender's own cost and shall not affect the obligations of such Lender
hereunder nor shall it increase the costs to the Borrower hereunder or under any
of the other Documents and such Lender shall remain solely liable and
responsible for all of its Commitment in respect of all of the Documents and the
Borrower shall be entitled to deal exclusively with such Lender in relation
thereto.

15.8  Severability

      Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall not invalidate the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

15.9  Whole Agreement

      This Agreement and the other Documents constitute the whole and entire
agreement between the parties hereto regarding the subject matter hereof and
thereof and cancel and supersede any prior agreements, undertakings,
declarations, commitments, representations, written or oral, in respect thereof.

15.10 Amendments and Waivers

      Any provision of this Agreement (including, without limitation, any Event
of Default) may be amended only if the Borrower and the Majority of the Lenders
so agree in writing and, except as otherwise specifically provided herein, may
be waived only if the Majority of the Lenders so agree in writing, but:
<PAGE>

                                      -85-

      (a) an amendment or waiver which changes or relates to (i) the amount of
          the Loans available hereunder or any Lender's Commitment, (ii) the
          rate or dates of payment of interest, Bankers' Acceptance or
          Documentary Instrument fees, or mandatory repayments of principal,
          (iii) Sections 2.5 and 2.6, (iv) the amount or dates of payment of
          fees hereunder, (v) the definition of "Majority Consent" and "Majority
          of the Lenders", (vi) any provision hereof contemplating or requiring
          consent, approval or agreement of "all Lenders", "the Lenders" or
          similar expressions or permitting waiver of conditions or covenants or
          agreements by "all Lenders", "the Lenders" or similar expressions,
          (vii) Sections 10.3(d) and 10.4, (viii) the definition of "Event of
          Default", or (ix) this Section, shall require the agreement or waiver
          of all the Lenders and also (in the case of an amendment) of the other
          parties hereto; and

      (b) an amendment or waiver which changes or relates to the rights and/or
          obligations of the Agent shall also require the agreement of the Agent
          thereto.

      Any such waiver and any consent by the Agent, any Lender, the Majority of
the Lenders or all of the Lenders under any provision of this Agreement must be
in writing and may be given subject to any conditions thought fit by the person
giving that waiver or consent.  Any waiver or consent shall be effective only in
the instance and for the purpose for which it is given.

15.11 Further Assurances

      Each of the Borrower, the Lenders and the Agent shall promptly cure any
default by it in the execution and delivery of this Agreement, the Documents or
of any the agreements provided for hereunder to which it is a party.  The
Borrower, at its expense, shall promptly execute and deliver to the Agent, upon
request by the Agent (acting reasonably), all such other and further deeds,
agreements, opinions, certificates, instruments, affidavits, registration
materials and other documents reasonably necessary for the Borrower's compliance
with, or accomplishment of the covenants and agreements of the Borrower
hereunder or more fully to state the obligations of the Borrower as set out
herein or to make any registration, recording, file any notice or obtain any
consent, all as may be reasonably necessary or appropriate in connection
therewith.

15.12 Attornment

      The parties hereto each hereby attorn and submit to the jurisdiction of
the courts of the Province of Alberta in regard to legal proceedings relating to
the Documents. For the purpose of all such legal proceedings, this Agreement
shall be deemed to have been performed in the Province of Alberta and the courts
of the Province of Alberta shall have jurisdiction to entertain any action
arising under this Agreement. Notwithstanding the foregoing, nothing in this
Section shall be construed nor operate to limit the right of any party hereto to
commence any action relating hereto in any other jurisdiction, nor to limit the
right of the courts of any other jurisdiction to take jurisdiction over any
action or matter relating hereto.
<PAGE>

                                     -86-

15.13  Time of the Essence

     Time shall be of the essence of this Agreement.

15.14  Credit Agreement Governs

     In the event of any conflict or inconsistency between the provisions of
this Agreement and the provisions of the other Documents, the provisions of this
Agreement, to the extent of the conflict or inconsistency, shall govern and
prevail.

15.15  Counterparts

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which taken together shall be
deemed to constitute one and the same instrument, and it shall not be necessary
in making proof of this Agreement to produce or account for more than one such
counterpart.

     IN WITNESS WHEREOF the parties hereto have executed this Agreement.

                                   NEUTRINO RESOURCES INC.

                                   By:__________________________
                                      Steven H. Mikel
                                      President
                                                                 c/s
                                   By:__________________________
                                      Michael E. Luttrell
                                      Vice President Finance and Chief
                                      Financial Officer
<PAGE>

                                     -87-

                                   BANK ONE CANADA, in its capacity as the Agent

                                   By:___________________________
                                      Jeanie Harman
                                      First Vice President

                                   BANK ONE CANADA, in its capacity as Lender

                                   By:___________________________
                                      Jeanie Harman
                                      First Vice President
<PAGE>

                                  SCHEDULE A
                            LENDERS AND COMMITMENTS
                            -----------------------

Lender and Address                            Commitments
------------------                            -----------

Bank One Canada                               Commitment: U.S. $30,000,000
BCE Place, P.O. Box 613
161 Bay Street, Suite 4240
Toronto, Ontario M5J 2S1

Attention:    First Vice-President
Telecopy No.: (416) 363-7574
<PAGE>

                                  SCHEDULE B
                            to the Credit Agreement
                         dated August 29, 2000 between
                          Neutrino Resources Inc. and
                                Bank One Canada
________________________________________________________________________________

                            COMPLIANCE CERTIFICATE
                            ----------------------

TO:       BANK ONE CANADA (the "Bank")

     Reference is made to the credit agreement dated August 29, 2000 between
Neutrino Resources Inc. and the Bank, as amended, modified, supplemented or
restated (the "Credit Agreement"). Capitalized terms used herein, and not
otherwise defined herein, shall have the meanings attributed to such terms in
the Credit Agreement.

     This Compliance Certificate is delivered to the Bank pursuant to the Credit
Agreement.

     The undersigned, [name], [title] of the Borrower, hereby certifies that, as
of the date of this Compliance Certificate:

1.   I have made or caused to be made such investigations as are necessary or
     appropriate for the purposes of this Compliance Certificate.

2.   To the best of my knowledge after due enquiry:

     (a)  the financial statements for the [fiscal quarter OR fiscal year]
                                                           --
          ending [],[] provided to the Bank pursuant to Section 9.1(e) of the
          Credit Agreement were prepared in accordance with generally accepted
          accounting principles and present fairly, in all material respects,
          the financial position of the Borrower as at the date thereof;

     (b)  the representations and warranties made by the Borrower in Section 8.1
          of the Credit Agreement are true and correct in all material respects,
          except as has heretofore been notified to the Bank by the Borrower in
          writing [or except as described in Schedule ___ hereto];

     (c)  the Borrower is in compliance in all respects with all covenants in
          the Credit Agreement including the financial tests set forth in
          Section 9.3 as at [date], being the most recently completed fiscal
          [quarter OR year] of the Borrower as evidenced by the calculations of
                   --
          such financial tests as attached hereto, except as has heretofore been
          notified to the Bank by the Borrower in writing [or except as
          described in Schedule ____ hereto]; and

     (d)  no Default or Event of Default has occurred and is continuing except
          as has heretofore been notified to the Bank by the Borrower in writing
          [or except as described in Schedule ____ hereto].

3.   Except as has heretofore been notified to the Bank by the Borrower in
     writing [or except as described in Schedule _____ hereto], to the best of
     my knowledge after due enquiry:
<PAGE>

     (a)  all properties of the Borrower and its Material Subsidiaries are
          owned, leased, controlled and operated in compliance with all
          Environmental Laws except to the extent such non-compliance would not
          have or would not reasonably be expected to have a Material Adverse
          Effect;

     (b)  there are not existing, pending or threatened any:

          (i)  claims, complaints, notices or requests for information received
               from a Governmental Authority by the Borrower or any of its
               Material Subsidiaries, or which any of them is otherwise aware,
               with respect to any alleged violation of or alleged liability
               under any Environmental Law; or

          (ii) stop, clean-up or preventative orders, directions, cautions or
               requests, notice of which has been received from a Governmental
               Authority by the Borrower or any of its Material Subsidiaries, or
               of which any of them is otherwise aware, relating to the
               environment which requires any work, repair, remediation, clean-
               up, construction or capital expenditure with respect to any
               property owned, leased, managed, controlled or operated by the
               Borrower or any of its Material Subsidiaries; and

     (c)  the result of which would be a Material Adverse Effect on the Borrower
          or its Material Subsidiaries except in compliance with all
          Environmental Laws, no contaminant or hazardous substance has been
          received, handled, used, stored, treated or shipped at or from, and
          there has been no discharge or release of a contaminant or hazardous
          substances at, on, from or under any property owned, leased, managed,
          controlled or operated by the Borrower or any of its Material
          Subsidiaries except to the extent such non-compliance would not have
          or would not reasonably be expected to have a Material Adverse Effect.

          I give this Compliance Certificate on behalf of the Borrower and in my
capacity as the [title] of the Borrower, and no personal liability is created
against or assumed by me in the giving of this Certificate.

          Dated at [], this [] day of [], [].

                                             ______________________
                                             Name:
                                             Title:
<PAGE>

                                  SCHEDULE C
                            to the Credit Agreement
                         dated August 29, 2000 between
                          Neutrino Resources Inc. and
                                Bank One Canada
________________________________________________________________________________

                               CONVERSION NOTICE
                               -----------------

TO:       BANK ONE CANADA (the "Bank")

DATE:
________________________________________________________________________________

1.   This Conversion Notice is delivered to you pursuant to the terms and
conditions of the credit agreement dated August 29, 2000 between the undersigned
and the Bank relating to the establishment of a U.S. $30,000,000 credit facility
in favour of the undersigned, as amended, modified, supplemented or restated
(the "Credit Agreement").  All defined terms set forth in this Conversion Notice
shall have the respective meanings set forth in the Credit Agreement.

2.   The Borrower hereby requests a Conversion as follows:

     (a)  Conversion Date:_________________________________________

     (b)  Conversion of the following Loan:

          (i)   Type of Loan:______________________________________

          (ii)  Amount:____________________________________________

          INTO the following Loan:

          (iii) Type of Loan:______________________________________

          (iv)  Amount being converted:____________________________

     (c)  Payment, delivery or issuance instructions (if any):_____

          ________________________________

                                        Yours very truly,

                                        NEUTRINO RESOURCES INC.

                                        Per: _______________________
                                             Name:
                                             Title:
<PAGE>

                                  SCHEDULE D
                            to the Credit Agreement
                         dated August 29, 2000 between
                          Neutrino Resources Inc. and
                                Bank One Canada
________________________________________________________________________________

                                DRAWDOWN NOTICE
                                ---------------

TO:       BANK ONE CANADA (the "Bank")

DATE:
________________________________________________________________________________

1.   This Drawdown Notice is delivered to you pursuant to the terms and
conditions of the credit agreement dated August 29, 2000 between the undersigned
and the Bank relating to the establishment of a U.S. $30,000,000 credit facility
in favour of the undersigned, as amended, modified, supplemented or restated
(the "Credit Agreement"). All defined terms set forth in this Drawdown Notice
shall have the respective meanings set forth in the Credit Agreement.

2.   The Borrower hereby requests a Drawdown as follows:

     (a)  Drawdown Date: _______________________________________________

     (b)  Amount of Drawdown:___________________________________________

     (c)  Type of Loan:_________________________________________________

     (d)  Payment, delivery or issuance instructions (if any):__________

          _______________________________

3.   The Borrower hereby certifies and represents and warrants to the Bank that
no Default or Event of Default has occurred and remains outstanding nor will any
such event occur as a result of the aforementioned Drawdown.

                                        Yours very truly,

                                        NEUTRINO RESOURCES INC.

                                        Per:____________________________
                                            Name:
                                            Title:
<PAGE>

                                  SCHEDULE E
                            to the Credit Agreement
                         dated August 29, 2000 between
                          Neutrino Resources Inc. and
                                Bank One Canada
________________________________________________________________________________

                               REPAYMENT NOTICE
                               ----------------

TO:       Bank One Canada (the "Bank")

DATE:     ____________________

1.   This Repayment Notice is delivered to you pursuant to the credit agreement
dated August 29, 2000 between Neutrino Resources Inc. and the Bank relating to
the establishment of a U.S.. $30,000,000 credit facility in favour of the
undersigned, as amended, modified, supplemented or restated (the "Credit
Agreement").  All defined terms set forth in this Repayment Notice shall have
the respective meanings set forth in the Credit Agreement.

2.   The Borrower hereby gives notice of a repayment as follows:

     (a)  Date of repayment:________________________________

     (b)  Loan(s):__________________________________________

     (c)  Principal amount:_________________________________

                                        Yours very truly,

                                        NEUTRINO RESOURCES INC.

                                        Per:________________
                                            Name:
                                            Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00017-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00017-of-00352.parquet"}]]