Document:

FORM OF NOTE

                      FORTUNE NATURAL RESOURCES CORPORATION
                           10% SECURED PROMISSORY NOTE

$200,000.00                                                         May 14, 2002

FOR VALUE RECEIVED, the undersigned, FORTUNE NATURAL RESOURCES CORPORATION, a
Delaware corporation with offices at One Commerce Green, 515 West Greens Road,
Suite 720, Houston, Texas 77067 ("Maker"), promises to pay to the order of BARRY
W. BLANK TRUSTEE FBO BARRY W. BLANK LIVING TRUST with an address at P. O. Box
32056, Phoenix, Arizona 85064 ("Payee"), on August 18, 2002 except as otherwise
provided herein (the "Maturity Date"), the principal amount of Two Hundred
Thousand Dollars ($200,000.00) in lawful money of the United States of America
(the "Principal) together with all accrued interest.

The Note is secured by property of the Maker as provided herein. It bears simple
interest (the "Interest") at the annual rate of ten percent (10%), payable, in
arrears, on the Interest Payment Dates (as defined in Section 1 below), until
the Principal and all accrued Interest thereon shall be paid in full. The
Principal, Interest, and all interest on past due Principal and Interest, all
other sums due and owing hereunder and under the Security Agreements (as
hereinafter defined), are referred to as the "Obligations".

1.    Interest.
      --------

Maker will pay Interest on the first day of each January, April, July and
October (the "Interest Payment Dates") commencing on July 1, 2002. With respect
to the July payment, Interest on this Note will accrue from the date hereof;
with respect to subsequent payments, Interest on this Note will accrue from the
most recent date to which interest has been paid. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.

2.    Method of Payment.
      -----------------

Maker will pay Principal and Interest in money of the United States that at the
time of payment is legal tender for the payment of public and private debts.
Maker may, however, pay Principal and Interest by its check, subject to
collection, payable in such money. It may mail an Interest check to Payee's
address as it first appears on this Note or such other address as the holder of
this Note shall give by notice to Maker. The holder of this Note must surrender
this Note to Maker when the Obligations have been paid or performed in full.

                                       1
<PAGE>

3.    Designation of Collateral.
      -------------------------

This Note is secured by and entitled to the benefit of all security agreements,
deeds of trust, mortgages and lien instruments executed by the Maker in favor of
Payee (herein called the "Security Agreements"), and including without
limitation that certain Mortgage, Deed of Trust and Assignment of Production of
even date herewith from the Maker to the Payee, covering the Maker's interest in
certain oil and gas leases and the proceeds therefrom, together with the
personal property and fixtures located thereon, all as more particularly
described therein.

4.    Covenants.
      ---------

Maker covenants and agrees that from and after the date hereof and until the
date of repayment and performance in full of the Obligations it shall comply
with the following conditions:

      (i)   Maintenance of Existence and Conduct of Business. Maker shall, and
      shall cause each of its subsidiaries, if any, to (A) do or cause to be
      done all things necessary to preserve and keep in full force and effect
      its corporate existence and rights; and (B) continue to conduct its
      business so that the business carried on in connection therewith may be
      properly and advantageously conducted at all times.

      (ii)  Books and Records. Maker shall, and shall cause each of its
      subsidiaries, if any, to keep adequate books and records of account with
      respect to its business activities.

      (iii) Insurance. Maker shall, and shall cause each of its subsidiaries, if
      any, to maintain insurance policies insuring such risks as are customarily
      insured against by companies engaged in businesses similar to those
      operated by Maker or such subsidiaries, as the case may be. All such
      policies are to be carried with reputable insurance carriers and shall be
      in such amounts as are customarily insured against by companies with
      similar assets and properties engaged in a similar business.

      (iv)  Compliance with Law. Maker shall, and shall cause each of its
      subsidiaries, if any, to comply in all material respects with all federal,
      state and local laws and regulations applicable to it or such
      subsidiaries, as the case may be, which if breached would have a material
      adverse effect on Maker's or such subsidiaries', as the case may be,
      business or financial condition.

5.    Representations and Warranties of Maker.
      ---------------------------------------

Maker represents and warrants that it: (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power to carry on its business as now conducted
and to own its properties and assets it now owns; (ii) is duly qualified or
licensed to do business as a foreign corporation in good standing in the
jurisdictions in which ownership of property or the conduct of its business
requires such qualification except jurisdictions in which the failure to qualify
to do business will have no material adverse effect on its business, prospects,
operations, properties, assets or condition (financial or otherwise); (iii) has
full power and authority to execute and deliver this Note, and that the
execution and delivery of this Note will not result in the breach of or default
under, with or without the giving of notice and/or the passage of time, any
other agreement, arrangement or indenture to which it is a party or by which it
may be bound, or the violation of any law, statute, rule, decree, judgment or
regulation binding upon it; and (iv) has taken and will take all acts required,
including but not limited to authorizing the signatory hereof on its behalf to
execute this Note, so that upon the execution and delivery of this Note, it
shall constitute the valid and legally binding obligation of Maker enforceable
in accordance with the terms thereof.

                                       2
<PAGE>

6.    Maker's Right to Prepay.
      -----------------------

Maker may prepay this Note at any time.

7.    Acknowledgment of Payee's Investment Representations.
      ----------------------------------------------------

By accepting this Note, Payee acknowledges that this Note has not been and will
not be registered under the Securities Act of 1933 (the "Act") or qualified
under any state securities laws and that the transferability thereof is
restricted by the registration provisions of the Act as well as such state laws.
Based upon the representations and agreements being made by Payee herein, this
Note is being issued to Payee pursuant to an exemption from such registration
provided by Section 4 (2) of the Act and applicable state securities law
qualification exemptions. Payee represents that the acquisition of this Note is
for investment purposes only and not with a view to resale or other distribution
thereof, nor has it been acquired with the intention of selling, transferring or
otherwise disposing of all or any part of it for any particular event or
circumstance, except selling, transferring or disposing of it only upon full
compliance with all applicable provisions of the Act, the Securities Exchange
Act of 1934, the Rules and Regulations promulgated by the Commission thereunder,
and any applicable state securities laws. Payee further understands and agrees
that no transfer of this Note shall be valid unless made in compliance with the
restrictions set forth on the front of this Note, effected on Maker's books by
the registered holder hereof, in person or by an attorney duly authorized in
writing, and similarly noted hereon. Maker may charge Payee a reasonable fee for
any re- registration, transfer or exchange of this Note.

8.    Acceleration of Maturity.
      -------------------------

Each of the following events constitutes a default (each an "Event of Default")
under this Note.

(a)   Maker fails to pay any amount of  Principal  or Interest  when due
and payable, or

(b) Maker fails to pay or perform any other obligation when due, and such
Obligation remains unpaid or unperformed after the Payee has given the maker
thirty (30) days' notice and opportunity to cure; or

                                       3
<PAGE>

(c) Maker suffers the entry against it of a judgment, decree or order for relief
by a court of competent jurisdiction in an involuntary proceeding commenced
under any applicable bankruptcy, insolvency or other similar law of any
jurisdiction now or hereafter in effect, including the federal Bankruptcy Code,
as from time to time amended, or has any such proceeding commenced against it
which remains undismissed for a period of ninety days; or

(d) Maker commences a voluntary case under any applicable bankruptcy, insolvency
or similar law now or hereafter in effect, including the federal Bankruptcy
Code, as from time to time amended; or fails generally to pay (or admits in
writing its inability to pay) its debts as such debts become due; or

(e) Maker suffers the appointment of or taking possession by a receiver,
custodian, trustee, or similar official of all or part of its assets in a
proceeding brought against or initiated by it, and such appointment or taking
possession is neither made ineffective nor discharged within ninety days after
the making thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or

(f) Upon the occurrence of an Event of Default, this Note shall thereupon by
immediately due and payable, without any further demand, presentment, notice, or
demand, or any other notice or declaration of any kind; or

(g) A default occurs under any Security Agreement, and such default remains
uncured after Payee has given Maker thirty (30) days' notice and opportunity to
cure.

9.    Collection costs.
      -----------------

      If this Note is placed in the hands of attorneys for collection after
default, Maker agrees to pay to the holder of this Note in addition to the
Principal and Interest and all other sums comprising the Obligations, all the
costs and expenses of said holder in enforcing this Note including, without
limitation, reasonable attorneys' fees and legal expenses.

10.   Limitation of Liability.
      -----------------------

No director, officer, employee or stockholder, as such, of Maker shall have any
liability for any obligations of Maker under this Note or for any claim based
on, in respect or by reason of such obligations or their creation. Payee, by
accepting this Note, waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of this Note.

11.   Limitation of Interest Payments.
      -------------------------------

Nothing contained in this Note or in any other agreement between Maker and Payee
requires Maker to pay or Payee to accept Interest in an amount which would
subject Payee to any penalty or forfeiture under applicable law. In no event
shall the total of all charges payable hereunder, whether of Interest or of such
other charges which may or might be characterized as interest, exceed the
maximum rate permitted to be charged under the laws of the States of New York or
Texas. Should Payee receive any payment which is or would be in excess of that
permitted to be charged under such laws, such payment shall have been and shall
be deemed to have been made in error and shall automatically be applied to
reduce the Principal outstanding on this Note.

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<PAGE>

12.   Waiver of Presentment
      ---------------------

Maker and all endorsers, sureties, and guarantors of this instrument jointly and
severally waive, as of the occurrence of an Event of Default but not before,
presentment and notice of dishonor.

13.   Miscellaneous.
      -------------

(a) Effect of Forbearance. No forbearance, indulgence, delay or failure to
exercise any right or remedy by Payee with respect to this Note shall operate as
a waiver or as an acquiescence in any default.

(b) Effect of Single or Partial Exercise of Right. No single or partial exercise
of any right or remedy by Payee shall preclude any other or further exercise
thereof or any exercise of any other right or remedy by Payee.

(c) Governing Law. This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the internal laws of the
State of Texas applicable to contracts made and to be performed entirely within
such State.

(d) Headings. The headings and captions of the various paragraphs herein are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.

(e) Loss, Theft, Destruction or Mutilation. Upon receipt by Maker of evidence
reasonably satisfactory to it of loss, theft, destruction or mutilation of this
Note, Maker shall make and deliver or caused to be made and delivered to Payee a
new Note of like tenor in lieu of this Note.

(f) Modification of Note or Waiver of Terms Thereof Relating to Payee. No
modification or waiver of any of the provisions of this Note shall be effective
unless in writing and signed by Payee and then only to the extent set forth in
such writing, nor shall any such modification or waiver be applicable except in
the specific instance for which it is given. This Note may not be discharged
orally but only in writing duly executed by Payee.

(g) Notice. All offers, acceptances, notices, requests, demands and other
communications under this Note shall be in writing and, except as otherwise
provided herein, shall be deemed to have been given only when delivered in
person, via facsimile transmission if receipt thereof is confirmed by the
recipient, or, if mailed, when mailed by certified or registered mail prepaid,
to the parties at their respective addresses first set forth above, or at such
other address as may be given in writing in future by either party to the other.

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<PAGE>

(h) Successors and Assigns. This Note shall be binding upon Maker, its
successors, assigns and transferees, and shall inure to the benefit of and be
enforceable by Payee and his heirs, successors and assigns.

(i) Severability. If one or more of the provisions or portions of this Note
shall be deemed by any court or quasi-judicial authority to be invalid, illegal
or unenforceable in any respect, the invalidity, illegality or unenforceability
of the remaining provisions, or portions of provisions contained herein shall
not in any way be affected or impaired thereby, so long as this Note still
expresses the intent of the parties. If the intent of the parties cannot be
preserved, this Agreement shall either be renegotiated or rendered null and
void.

IN WITNESS WHEREOF, Maker has caused this Note to be executed on its behalf by
an officer thereunto duly authorized as of the date set forth above.

                                  Fortune Natural Resources Corporation
                                  a Delaware corporation

        [SEAL]

                                  By: /s/ Tyrone J. Fairbanks
                                      -------------------------------------
                                      Tyrone J. Fairbanks, Chairman
                                      and Chief Executive Officer

ATTEST: /s/ Dean W. Drulias
        ---------------------------
        Dean W. Drulias, Secretary

                                       6
<PAGE>DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT
                          AND ASSIGNMENT OF PRODUCTION

            (THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY)
            ---------------------------------------------------------
          (THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)
          -------------------------------------------------------------

                                      FROM

                      FORTUNE NATURAL RESOURCES CORPORATION
                             (Mortgagor and Debtor)

                                       TO

                            HERBERT D. YATES, Trustee
                               for the benefit of

            BARRY W. BLANK, TRUSTEE, FBO BARRY W. BLANK LIVING TRUST
                          (Mortgagee and Secured Party)

                                  May 15, 2002

For purposes of filing this Deed of trust as a financing statement, the mailing
address of Mortgagor is 515 W. Greens Road, Suite 720, Houston, Texas 77067; the
mailing address of Mortgagee is P. O. Box 32056, Phoenix, Arizona 85064.

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

This instrument contains after-acquired property provisions, covers future
advances and proceeds to the fullest extent allowed by applicable law, and
grants a security interest by a utility.

ATTENTION OF RECORDING OFFICER: This instrument is a mortgage of both real and
personal property and is, among other things, a Security Agreement and Financing
Statement under the Uniform Commercial Code. This instrument creates a lien on
rights in or relating to lands of Mortgagor which are described in Exhibit A
hereto.

RECORDED DOCUMENT SHOULD BE RETURNED TO:

                                HERBERT D. YATES
                                 Attorney-At-Law
                              107 Broad Oaks Court
                              Houston, Texas 77056

<PAGE>

             DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT
             ------------------------------------------------------
                          AND ASSIGNMENT OF PRODUCTION
                          ----------------------------

            (THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY)
            ---------------------------------------------------------
          (THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)
          -------------------------------------------------------------

           KNOW ALL MEN BY THESE PRESENTS: That the undersigned FORTUNE NATURAL
RESOURCES CORPORATION, a Delaware corporation, acting herein by and through its
proper officers who have heretofore been duly authorized, and with its principal
office in Houston, Texas, and the mailing address for which is 515 W. Greens
Road, Suite 720, Houston, Texas 77067 (`Mortgagor") hereby agrees as follows:

                                   ARTICLE I.

                                      GRANT

           1.01 Lien. Mortgagor, for valuable consideration, the receipt of
which is hereby acknowledged, and in consideration of the debt and trust
hereinafter mentioned, has granted, bargained, sold, conveyed, transferred and
assigned, and by these presents does grant, bargain, sell, convey, transfer and
assign to Herbert D. Yates, Trustee, whose address is 107 Broad Oaks Court,
Houston, Texas 77056 and his successors and substitutes in trust, as hereinafter
provided (the "Trustee"), for the benefit of BARRY W. BLANK TRUSTEE FBO BARRY W.
BLANK LIVING TRUST, P. O. Box 32056, Phoenix, Arizona 85064 ("Mortgagee"), the
following described property:

           Those certain interests in oil, gas and mineral estates in the
           property more particularly described in the schedule attached hereto,
           marked Exhibit A for identification, incorporated herein and made a
           part hereof for all purposes (the "Land").

           1.02 Security Interest. Mortgagor, for the same consideration, hereby
grants to Mortgagee a continuing security interest in all improvements and all
personal property of any kind or character defined in and subject to the
provisions of the Uniform Commercial Code, including the proceeds and products
from any and all of such improvements and personal property, whether now owned
and existing or hereafter acquired or arising, and situated on any of the Land,
including, but not limited to, pipe, casing, tubing, rods, storage tanks,
boilers, loading racks, pumps, foundations, warehouses, and all other personal
property and equipment of every kind and character upon, incident, appurtenant
or belonging to and used in connection with the interest of Mortgagor, whether
now owned and existing or hereafter acquired or arising, in the Land, including
all oil, gas and other minerals produced or to be produced to the account of
Mortgagor from the Land and all accounts receivable, general intangibles and
contract rights of Mortgagor in connection with the Land or the leases described
in Exhibit A (the "Leases") and all proceeds, products, substitutions and
exchanges thereof (the Land, the Leases, and the real and personal property
interests hereinabove described being the "Mortgaged Property").

                                       2
<PAGE>

           1.03 Assignment of Security. Mortgagor, for the same consideration,
hereby grants to Mortgagee any and all rights of Mortgagor to liens and security
interests securing payment of proceeds from the sale of production from the
Mortgaged Property, including, but not limited to, those liens and security
interests provided for in TEX. BUS. & COM. CODE ANN.ss.9.319 (Tex. UCC) (Vernon
Supp. 1989), as amended from time to time.

           1.04 After-Acquired Property. Mortgagor, for the same consideration,
hereby grants, bargains, sells, conveys, transfers and assigns to the Trustee or
grants to Mortgagee a continuing security interest in, as the case may be, all
additional right, title or interest which Mortgagor may hereafter acquire or
become entitled to in the interests, properties, lands, Leases and premises
aforesaid, and in the oil, gas or other minerals in and under or produced from
or attributable to any of the Lands or Leases which are the subject of this Deed
of trust, Security Agreement, Financing Statement and Assignment of Production
(this "Deed of Trust"), which additional right, title and interest, when
acquired, shall constitute "Mortgaged Property," the same as if expressly
described and conveyed herein.

           1.05 Habendum. TO HAVE AND TO HOLD all and singular the Mortgaged
Property and all other property which, by the terms hereof, has or may hereafter
become subject to the lien and/or security interest of this Deed of Trust,
together with all rights, hereditaments and appurtenances in anywise belonging
to the Trustee or Mortgagee, as the case may be, or the successors or assigns of
either of them forever.

                                   ARTICLE II.

                              INDEBTEDNESS SECURED

           This conveyance is made, IN TRUST, HOWEVER, to secure and enforce the
payment of the following indebtedness, obligations and liabilities:

           2.01 Specific Obligation(s). The promissory note dated May 14, 2002,
executed by Mortgagor to the order of Mortgagee in the principal sum of TWO
HUNDRED THOUSAND AND NO/100 DOLLARS ($200,000.00), bearing interest and payable
as therein provided, with the final payment thereof due on or before August 18,
2002 and containing the usual provisions in notes of this character.

           2.02 Indebtedness. The word "Indebtedness" wherever used in this Deed
of Trust shall refer to all present and future debts, obligations and
liabilities, described or referred to in this Article II or otherwise in this
Deed of Trust, subject, however, to the limitations provided hereinabove in this
Article II.

                                       3
<PAGE>

                                  ARTICLE III.

                                   WARRANTIES

           3.01 Warranty of Title. Mortgagor hereby binds itself, its legal
representatives, successors and assigns, to warrant and forever defend all and
singular the above-described property, rights, and interests constituting the
Mortgaged Property to the Trustee and to the successors and assigns of the
Trustee forever, against every person whomsoever lawfully claiming or to claim
the same or any part thereof.

           3.02 Additional Warranties. For the same consideration, Mortgagor,
for itself, its legal representatives, successors and assigns, covenants,
represents and warrants that:

                      (a) Authority and Enforceability. The incurring by
           Mortgagor of the indebtedness secured by this Deed of Trust and the
           execution and delivery by Mortgagor of the evidences of such
           indebtedness and this Deed of Trust and the performance and
           observance by Mortgagor of the terms and provisions of such evidences
           of indebtedness and this Deed of Trust have been duly authorized by
           any necessary corporate proceedings and will not contravene any
           requirement of law or any provision of the charter or by-laws of
           Mortgagor or result in the breach or termination of, or constitute a
           default under, any indenture or other agreement or instrument to
           which Mortgagor is a party or by which it or any of its property may
           be bound or affected. Mortgagor has full right and authority to
           pledge, mortgage, assign, sell and convey the Mortgaged Property.

                      (b) Interests in Mortgaged Property. Mortgagor is the
           lawful owner of the Mortgaged Property, and the interests of
           Mortgagor in the Mortgaged Property, as set forth in Exhibit A
           hereto, are true and correct.

                      (c) Leases in Effect. All of the Leases specifically
           described in Exhibit A are in full force and effect, and all
           covenants, express or implied, in respect thereof, or of any
           assignment thereof which may affect the validity of any of the
           Leases, have been performed insofar as the Leases pertain to the
           Land.

                      (d) Interests Free of Liens. The interests of Mortgagor in
           the Leases are free and clear of all liens, mortgages, oil payments,
           or other burdens or encumbrances, and all gross production taxes and
           other taxes as to which non-payment could result in a lien against
           any of the Mortgaged Property have been paid.

                                       4
<PAGE>

                      (e) Compliance with Laws. To the best of Mortgagor's
           knowledge, Mortgagor and the Mortgaged Property are in compliance
           with all applicable federal, state and local laws, regulations and
           ordinances, including, without limitation, (i) the Natural Gas Policy
           Act, as amended, (ii) 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; (iii) any and all equivalent
           environmental statutes of any state in which any Mortgaged Property
           is situated, as they may be cited, referenced and amended from time
           to time; (iv) any rules or regulations promulgated under or adopted
           pursuant to the above federal and state laws; and (v) 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 flammables, explosives, radioactive materials, hazardous
           wastes, asbestos or any material containing asbestos, polychlorinated
           biphenyls (PCB's), toxic substances or related materials, petroleum
           and petroleum products and 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, statute, ordinance, rule, regulation or
           order now or hereafter enacted or promulgated by any governmental
           authority with jurisdiction and relation to the protection of the
           environment ("Hazardous Substances," with all laws, regulations and
           statutes referred to in clauses (i) through (v) of this subsection
           being collectively, "Environmental Laws").

                      (f) Gas Contracts. Mortgagor (i) 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 therefore at the time of delivery, and (ii)
           has not produced gas, in any material amount, subject to, and neither
           Mortgagor nor any of the Mortgaged Property is subject to, balancing
           rights of third parties except as disclosed to Mortgagee prior to the
           date of this document or balancing duties under governmental
           requirements, except as to such matters for which Mortgagor has
           established monetary reserves adequate in amount to satisfy such
           obligations and has segregated such reserves from other accounts.

                                       5
<PAGE>

                (g) Refunds. No orders of, proceedings pending before, or other
           governmental requirements of, the Federal Energy Regulatory
           Commission, the Texas Railroad Commission or any other similar state
           or federal regulatory body or governmental authority exist which
           could result in Mortgagor 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.

                                   ARTICLE IV.

                             COVENANTS OF MORTGAGOR

           In consideration of the Indebtedness hereinabove described,
Mortgagor, for itself, its legal representatives, successors and assigns,
covenants and agrees as follows:

           4.01 Title Curative. Mortgagor will proceed with reasonable diligence
to correct any defect in the title to the Mortgaged Property should any such
defect be found to exist after the execution and delivery of this Deed of trust.

           4.02 Further Assurances. Upon request of Mortgagee, Mortgagor will
promptly correct any defects, errors or omissions in the execution or
acknowledgment of this Deed of Trust or any other document executed in
connection herewith or relating to or evidencing all or any portion of the
Indebtedness, and will execute, acknowledge, and deliver such division orders,
transfer orders and other assurances and instruments as shall, in the opinion of
Mortgagee, be necessary or proper to convey and assign to the Trustee all of the
Mortgaged Property herein conveyed or assigned, or intended to be conveyed or
assigned.

           4.03 Maintenance of Leases. Mortgagor will keep and continue all
Leases, estates and interests herein described and all contracts and agreements
relating thereto in full force and effect in accordance with the terms thereof
and will not permit the same to lapse or otherwise become impaired for failure
to comply with the obligations thereof, whether express or implied. In this
connection, Mortgagor shall not release any of the Leases without the prior
written consent of Mortgagee.

           4.04 Maintenance of Equipment. Mortgagor will keep and maintain all
improvements and all personal property and equipment now or hereafter situated
on the Land and constituting a portion of the Mortgaged Property and used or
obtained in connection therewith in good state of repair and condition, ordinary
wear and tear excepted, and will not tear down or remove the same or permit the
same to be torn down or removed without the prior consent of Mortgagee, except
in the usual course of operations as may be required for replacement when
otherwise in compliance with the provisions of this Deed of Trust.

           4.05 Notification of Loss. Mortgagor will notify Mortgagee of the
destruction, loss, termination or acquisition of any Mortgaged Property within
three business days thereof.

                                       6
<PAGE>

           4.06 Pooling and Unitization. Mortgagor will not, without the prior
written consent of Mortgagee, pool or unitize all or any part of the Mortgaged
Property where the pooling or unitization would result in the diminution of the
net revenue interest of Mortgagor in production from the pooled or unitized
lands attributable to the Mortgaged Property constituting a portion of such
pooled or unitized lands. Immediately after the formation of any pool or unit in
accordance herewith, Mortgagor will furnish to Mortgagee a conformed copy of the
pooling agreement, declaration of pooling, or other instrument creating the pool
or unit. The interest of Mortgagor included in any pool or unit attributable to
the Mortgaged Property or any part thereof shall become a part of the Mortgaged
Property and shall be subject to liens and security interests hereof in the same
manner and with the same effect as though the pool or unit and the interest of
Mortgagor therein were specifically described in Exhibit A hereto. In the event
any proceedings of any governmental body which could result in pooling or
unitizing all or any part of the Mortgaged Property are commenced, Mortgagor
shall give immediate written notice thereof to Mortgagee. Any pooling or
unitization of all or any part of the Mortgaged Property in violation of this
Section shall be of no force or effect against the Trustee or Mortgagee.

           4.07 Payment of Lienable Claims. Mortgagor will pay all taxes now or
hereafter to accrue against any of the Mortgaged Property and all other taxes or
assessments, general or special, lawfully levied against it on such Mortgaged
Property which might become a lien thereon before such taxes become delinquent.

           4.08 Payment by Mortgagee of Lienable Claims. In the event Mortgagor
shall fail or neglect to pay any taxes, general or special, or shall fail or
neglect to relieve the Mortgaged Property from any lien which might become
superior or equal to the lien of this Deed of Trust, or fail to carry workers'
compensation or other insurance required herein, the Trustee, at his option, or
Mortgagee, at its option, may pay such taxes, liens, charges or encumbrances, or
any part thereof, or effect such workers' compensation insurance; and Mortgagor
will promptly reimburse the Trustee or Mortgagee, as the case may be, therefore;
and any and all such sums so paid hereunder shall be paid by Mortgagor upon
demand at the principal offices of Mortgagee and shall constitute a part of the
Indebtedness.

           4.09 Operation of Mortgaged Property. Mortgagor will operate or, to
the extent that the right of operation is vested in others, will exercise its
best efforts to require the operator to operate the Mortgaged Property and all
wells drilled thereon and that may hereafter be drilled thereon, continuously
and in good workmanlike manner in accordance with the best usage of the field
and in accordance with all laws of the United States of America and the state in
which the Mortgaged Property is situated, as well as all rules, regulations and
laws of any governmental agency having jurisdiction to regulate the manner in
which the operation of the Mortgaged Property shall be carried on, and will
comply with all terms and conditions of the Leases it now holds and each
assignment or contract obligating Mortgagor in any way with respect to the
Mortgaged Property; but nothing herein shall be construed to empower Mortgagor
to bind the Trustee or Mortgagee to any contract or obligation or render the
Trustee or Mortgagee in any way responsible or liable for bills or obligations
incurred by Mortgagor.

           4.10 Maintenance of Workers' Compensation Insurance. Mortgagor will
at all times maintain workers' compensation insurance with a responsible
insurance company where required by, and in accordance with, the laws of the
state in which the Mortgaged Property is located.

                                       7
<PAGE>

           4.11 Maintenance of Liability and Casualty Insurance. Mortgagor will
carry with standard insurance companies satisfactory to Mortgagee, public
liability and property damage insurance, as well as insurance against loss or
damage to the Mortgaged Property by fire, lightning, tornado and explosion, all
in amounts satisfactory to Mortgagee. All such policies shall be payable to
Mortgagee, and the policies evidencing the same or acceptable certificates
thereof shall be held by Mortgagee. Mortgagee shall have the right to collect,
and Mortgagor hereby assigns to Mortgagee, any and all monies that may become
payable under any policies of insurance by reason of damage, loss or destruction
of the Mortgaged Property or any part thereof; and Mortgagee shall apply all
such sums or any part thereof, at its election, toward the payment of the
Indebtedness, whether the same shall then be due, application to be made first
to interest and then to principal, and shall deliver to Mortgagor the balance,
if any, after such application has been made.

           4.12 Compliance with Operating Agreements. Mortgagor agrees to
promptly pay all bills for labor and materials incurred in the operation of the
Mortgaged Property and will promptly pay its share of all costs and expenses
incurred under any joint operating agreement affecting the Mortgaged Property or
any portion thereof; will furnish Mortgagee, as and when requested, full
information as to the status of any joint account maintained with others under
any such operating agreement; will not take any action to incur any liability or
lien thereunder; and will not enter into any new operating agreement or any
amendment of any existing operating agreement affecting the Mortgaged Property
without prior written consent of Mortgagee. Furthermore, Mortgagor will not
consent or agree to participate in any proposed operation under any presently
existing operating agreement affecting the Mortgaged Property unless Mortgagor
obtains the prior written consent of Mortgagee and, if requested by Mortgagee,
deposits with the operator or Mortgagee, where Mortgagor is a non-operator, or
with Mortgagee, where Mortgagor is an operator, Mortgagor's share of the
estimated cost of the proposed operation prior to electing to participate in the
operation. To the extent that Mortgagor is unable to consent to any proposed
operation with respect to any of the Mortgaged Property, prior to electing not
to participate in the proposed operation, Mortgagor will use its best efforts,
to the extent practicable and to the extent allowed to do so under the relevant
operating agreement or other applicable contract, to farmout to others
acceptable to Mortgagee, on the best terms obtainable and acceptable to
Mortgagee, the interest or relevant portion of the interest of Mortgagor in the
proposed operation.

           4.13 Access to Mortgaged Property. Mortgagor will permit Mortgagee
and its accredited agents, representatives, attorneys and employees, at the
expense of Mortgagor, at all times to go upon, examine, inspect, conduct
environmental audits and other testing of, and remain on, the Mortgaged
Property, and to go upon the derrick floor of any well at any time drilled or
being drilled thereon, and will furnish Mortgagee, upon request, all pertinent
information regarding the development and operation of the Mortgaged Property.

           4.14 Evidence of Title. Promptly upon receipt of a request from
Mortgagee, Mortgagor will furnish and deliver, at the election of Mortgagee,
either (a) complete or supplemental abstracts of title, as the case may be,
prepared by competent abstractors, or (b) title opinions prepared by competent
legal counsel and, in either event, covering title to the real property herein
mortgaged from the sovereignty of the soil to the latest practicable date, when
taken together with abstracts and/or title opinions previously furnished to
Mortgagee by Mortgagor. Should Mortgagor fail to furnish such abstracts upon
such request, Mortgagee may obtain such abstracts, and any and all costs
incurred thereby shall be payable by Mortgagor to Mortgagee upon demand at the
principal offices of Mortgagee. The abstracts shall be and constitute a part of
the Mortgaged Property as defined above.

                                       8
<PAGE>

           4.15 Notification of Legal Proceedings. Mortgagor will notify
Mortgagee promptly and in writing of the commencement of any legal proceedings
affecting the Mortgaged Property or any part thereof, and will take such action
as may be necessary to preserve the rights of Mortgagor, the Trustee and
Mortgagee affected thereby; and should Mortgagor fail or refuse to take any such
action, Mortgagee may at its election take such action on behalf and in the name
and at the cost and expense of Mortgagor.

           4.16 Maintenance of Existence; Mergers. Mortgagor (a) will maintain
its corporate existence and will maintain and procure all necessary corporate
franchises and permits to the end that Mortgagor shall be and continue to be a
corporation in good standing in the state of its incorporation and in each state
wherein any portion of the Mortgaged Property is located, with full power and
authority to own and operate all of the Mortgaged Property as contemplated
herein until this Deed of Trust shall have been fully satisfied, and (b) will
not, without the prior written consent of Mortgagee, which consent will not be
unreasonably withheld, consolidate or merge into any other corporation or permit
another corporation to merge into it.

           4.17 Waivers. Mortgagor hereby expressly waives, to the full extent
permitted by applicable law, any and all rights or privileges of marshalling of
assets, sale in inverse order of alienation, notices, appraisements, redemption
and any prerequisite in the event of foreclosure of the liens and/or security
interests created herein. Mortgagee at all times shall have the right to release
any part of the Mortgaged Property now or hereafter subject to the liens or
security interests of this Deed of Trust, any part of the proceeds of production
or other income herein or hereafter assigned or pledged, or any other security
it now has or may hereafter have securing the Indebtedness, without releasing
any other part of the Mortgaged Property, proceeds or income, and without
affecting the liens or security interests hereof as to the part or parts of the
Mortgaged Property, proceeds or income not so released or the right to receive
future proceeds and income.

           4.18 Payment of Expenses of Mortgagee. Upon demand of Mortgagee,
Mortgagor will pay promptly all costs and expenses heretofore or hereafter
incurred by Mortgagee for legal, accounting, engineering or geological services
rendered to it in connection with the making of the initial or any future loan
to Mortgagor secured in whole or in part by the liens and security interests
hereof or in the enforcement of any of the rights of Mortgagee hereunder. The
obligations of Mortgagor hereunder shall survive the non-assumption of this Deed
of Trust in a case commenced under Title 11 of the United States Code or other
similar law of the United States of America, the State of Texas or any other
jurisdiction and be binding upon Mortgagor or a trustee, received, custodian or
liquidator of Mortgagor appointed in any such case.

           4.19 Liens. Without prior approval and written consent of Mortgagee,
Mortgagor will not create, incur, assume or suffer to exist any mortgage, lien,
security interest, charge, encumbrance or assessment on all or any portion of
the Mortgaged Property, regardless of whether the mortgage, lien, security
interest, charge, encumbrance or assessment is senior, coordinate, junior,
inferior or subordinate to the lien and security interest created hereby. Should
any such mortgage, lien, security interest, charge, encumbrance or assessment
not consented to in writing by Mortgagee arise, Mortgagor will promptly
discharge and remove the same from the Mortgaged Property. Any mortgage, lien,
security interest, charge, encumbrance or assessment in violation of this
Section shall be of no force or effect against Mortgagee.

                                       9
<PAGE>

           4.20 Transfer or Division Orders. Upon request of Mortgagee,
Mortgagor will execute and deliver written notices of assignments to any
persons, corporations or other entities owing or which may in the future owe to
Mortgagor monies or accounts arising in connection with (a) any oil, gas or
mineral production from all or any portion of the Mortgaged Property; (b) any
gas contracts, processing contracts or other contracts relating to all or any
portion of the Mortgaged Property; or (c) the operation of or production from
all or any portion of the Mortgaged Property. The notices of assignments shall
advise the third parties that all of the monies or accounts described above have
been assigned to Mortgagee, and if required by Mortgagee, shall also require and
direct that future payments thereof, including amounts then owing and unpaid, be
paid directly to Mortgagee.

           4.21 Sales of Assets. Without the prior written consent of Mortgagee,
Mortgagor will not sell, lease, transfer or otherwise dispose of all or
substantially all of its properties and assets.

           4.22 Compliance with Laws. Mortgagor will comply at all times with
all applicable federal, state and local laws, regulations and ordinances
applicable to the Mortgaged Property, including, without limitation,
Environmental Laws, (a) related to any natural or environmental resource or
media located on, above, within, in the vicinity of, related to or affected by
the Mortgaged Property or any other property of Mortgagor, (b) applicable to the
use, generation, handling, storage, treatment, transport and disposal of any
Hazardous Substances now or hereafter located or present on or under any
Mortgaged Property or any other property of Mortgagor, or (c) required for the
performance or conduct of the operations of Mortgagor and cause all employees,
agents, contractors, sub-contractors and future lessees (pursuant to appropriate
lease provisions) of Mortgagor, while such persons are acting within the scope
of their relationship with Mortgagor, to so comply with, all such laws,
regulations and ordinances.

           4.23 Notification of Hazardous Substances Inquiries. Mortgagor will
forthwith notify Mortgagee in writing of any request from any governmental
agency or other entity for information regarding releases of Hazardous
Substances from, affecting or related to the Mortgaged Property, any other
property of Mortgagor in which Mortgagee has a mortgage, security or other
interest or any other property of Mortgagor and of any actual, proposed or
threatened testing or other investigation by any governmental agency or other
entity concerning the environmental condition of or related to such property,
and will provide to Mortgagee such information as Mortgagee shall request
concerning the generation, storage, disposal, transportation or other
management, if any, of any Hazardous Substance.

           4.24 Hazardous Substances Indemnification. Mortgagor hereby
indemnifies and holds Mortgagee, its shareholders, officers, directors,
employees, agents, attorney-in-fact and affiliates and the Trustee 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 with any of the foregoing, including, without
limitation, attorneys' fees and expenses ("Claims"), arising directly or
indirectly, in whole or in part, from (a) the presence of any Hazardous
Substances on, under or from the Mortgaged Property or any other property of
Mortgagor whether prior to or during the term hereof, (b) any activity by
Mortgagor (or any predecessor in title or any employee, agent, contractor or

                                       10
<PAGE>

subcontractor of Mortgagor or Mortgagor's predecessors in title or other persons
or entities at any time occupying or present on any Mortgaged Property or any
other Property of Mortgagor in connection with the handling, treatment, removal,
storage, decontamination, cleanup, transport or disposal of any Hazardous
Substance at any time located or present on or under any Mortgaged Property or
any other property of Mortgagor, whether such activity is carried on prior to or
during the term hereof, or (c) any residual contamination on or under the
Mortgaged Property or affecting any natural resources in, on or under the
Mortgaged Property, or any contamination of any other property or natural
resources arising in connection with the generation, use, handling, storage,
transport or disposal of any Hazardous Substance by Mortgagor or any employee,
agent, contractor or subcontractor of Mortgagor, irrespective of whether any of
such activities were or will be undertaken in accordance with applicable laws,
regulations, codes and ordinances, including, without limitation, any of the
foregoing arising, in whole or in part, from negligence on the part of Mortgagee
or any of its shareholders, officers, directors, employees, agents,
attorneys-in-fact or affiliates or the Trustee (the foregoing indemnity being
the "Hazardous Substances Indemnity").

           4.25 Survival of Indemnification. The Hazardous Substances Indemnity
shall survive repayment of the Indebtedness, provided that the claims and other
actions of any kind against Mortgagee which give rise to the Hazardous
Substances Indemnity are not barred by the applicable statute of limitations at
the time such claims or actions are instituted.

           4.26 Site Assessments. Mortgagee (by its officers, employees and
agents) at any time and from time to time, either prior to or after the
occurrence of an Event of Default, may contract, at the expense of Mortgagor,
for the services of persons (the "Site Reviewers") to perform environmental site
assessments and other tests ("Site Assessments") on all or any portion of the
Mortgaged Property for the purpose of determining whether any environmental
condition exists on any Mortgaged Property which could reasonably be expected to
result in any liability, cost or expense to the owner, occupier or operator of
such Mortgaged Property. The Site Assessments may be performed at any time or
times, upon reasonable notice, and under reasonable conditions established by
Mortgagor which do not impede the performance of the Site Assessments. The Site
Reviewers are hereby authorized to enter upon all or any portion of the
Mortgaged Property for such purposes. The Sire Reviewers are further authorized
to perform both above and below the ground testing for environmental damage or
the presence of Hazardous Substances on the Mortgaged Property and such other
tests on the Mortgaged Property as may be necessary to conduct the Site
Assessments in the reasonable opinion of the Site Reviewers. Mortgagor will
supply to the Site Reviewers such historical and operational information
regarding the Mortgaged Property as may be reasonably requested by the Site
Reviewers to facilitate the Site Assessments and will make available for
meetings with the Site Reviewers appropriate personnel having knowledge of such
matters. On request, Mortgagee shall make the results of such Site Assessments
available to Mortgagor, which, prior to an Event of Default, may at its election
participate under reasonable procedures in the direction of such Site
Assessments and the description of tasks of the Site Reviewers. The cost of
performing all Site Assessments shall be paid by Mortgagor upon demand of
Mortgagee and any such obligations shall be Indebtedness secured by this Deed of
Trust.

           4.27 Uneconomic Wells. Should proceeds from the sale of production
from any oil and/or gas well constituting part of the Mortgaged Property (net of
production, severance and windfall profit taxes and royalties, overriding
royalties and other payments out of or measured by production) not exceed the
expense of operation of such well (including, but not limited to, operator's
overhead, payments to contractors and suppliers and annual taxes assessed on the
basis of the value of the property prorated on a monthly basis, but expressly
excluding any portion of the cost of drilling or completing the relevant well or
the cost of non-routine workover or remedial operators) for a period in excess
of three consecutive calendar months, then, upon receipt by Mortgagor of written

                                       11
<PAGE>

notification from Mortgagee, Mortgagor will (a) take all necessary steps to
abandon the relevant well, or (b) provide from sources other than proceeds from
the sale of production attributable to the Mortgaged Property (i.e., through
borrowings or contractual commitments obtained from third parties not in
violation of any provision of this Deed of Trust) the funds required to pay the
share of Mortgagor of the expenses associated with the continuing operation of
such well.

           4.28 Performance of Gas Contracts. Mortgagor will perform and observe
in all material respects all of its obligations under each contract relating to
the sale of gas produced from or attributable to the Mortgaged Property and will
not, except in good faith and as the result of arm's length negotiations and
with prior written notice to Mortgagee, change, modify, amend or waive any of
the terms or provisions of any such contract or take any other action which
would release any other party from its obligations or liabilities under any such
contract.

           4.29 Transactions with Affiliates. Mortgagor will not, directly or
indirectly, enter into any sale, lease or exchange of any property or any
contract for the rendering of goods or services with respect to any of the
Mortgaged Property (including, but not limited to, operating agreements under
which Mortgagor or an affiliate of Mortgagor serves as operator) with any
affiliate of Mortgagor other than upon fair and reasonable terms no less
favorable than could be obtained in an arm's length transaction with a person
not an affiliate of Mortgagor.

           4.30 Covenants Running with the Land. All covenants and agreements
herein contained shall constitute covenants running with the Land.

                                   ARTICLE V.

               DEFEASANCE, FORECLOSURE AND OTHER REMEDIES

           5.01 Defeasance. Should Mortgagor make due and punctual payment of
the Indebtedness, as the same becomes due and payable, and duly observe and
perform all of the covenants, conditions and agreements herein and in all other
agreements with Mortgagee provided to be observed and performed by Mortgagor,
then the conveyance of the Mortgaged Property shall become of no further force
and effect, and the lien and security interest hereof shall be released, without
recourse or warranty, at the cost and expense of Mortgagor; otherwise, it shall
remain in full force and effect.

           5.02 Events of Default. Any of the following events shall constitute
an Event of Default as that term is used herein:

                      (a) Payment of Indebtedness. Default shall be made by
           Mortgagor in the due and punctual payment of the Indebtedness, or any
           part thereof, principal or interest, as the same becomes due and
           payable, whether by acceleration of maturity or otherwise; or

                      (b) Covenants and Warranties. Default shall be made by
           Mortgagor in the due observance or performance of any of the
           covenants, conditions or agreements herein provided to be observed or
           performed by Mortgagor or any warranty of Mortgagor herein made
           proves to be untrue or inaccurate in any material respect; or

                                       12
<PAGE>

                      (c) Involuntary Insolvency. An order, judgment or decree
           shall be entered against Mortgagor by any court of competent
           jurisdiction or by any other duly authorized authority, on the
           petition of a creditor or otherwise, granting relief under Title 11
           of the United States Code or under any bankruptcy, insolvency,
           debtor's relief or other similar law of the United States or any
           state approving a petition seeking reorganization or an arrangement
           of the debts of Mortgagor or appointing a receiver, trustee,
           conservator, custodian or liquidator of Mortgagor or all or any
           substantial part of the assets of Mortgagor; or

                      (d) Voluntary Insolvency. Mortgagor shall (i) discontinue
           its usual business, or (ii) apply for or consent to the appointment
           of a receiver, trustee or liquidator of Mortgagor or all or a
           substantial part of its assets, or (iii) file a voluntary petition
           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 or any state, or (iv) make a general assignment for
           the benefit of creditors, or (v) be unable, or admit in writing its
           inability, to pay its debts generally as they become due, or (vi)
           file an answer admitting the material allegations of a petition filed
           against it in any case commenced under Title 11 of the United States
           Code or any reorganization, insolvency, conservatorship or similar
           proceeding under any bankruptcy, insolvency, debtor's relief or other
           similar law of the United States or any state, or apply for relief
           under any state or federal act for the relief of debtors; or

                      (e) Failure of Title. The title of Mortgagor to the
           Mortgaged Property, or any substantial part thereof, shall become the
           subject of actual or threatened litigation which would or might, in
           the opinion of Mortgagee, on final determination result in
           substantial impairment or loss of the security provided for herein;
           or

                      (f) Sale or Encumbrance. Mortgagor shall sell, assign,
           lease, transfer, mortgage, pledge, hypothecate or otherwise dispose
           of or encumber all or any portion of the Mortgaged Property or enter
           into any contractual arrangement to do so, without the prior written
           consent of Mortgagee (Mortgagee having an absolute right to refuse to
           consent or to condition its consent upon satisfaction of any one or
           more of the following requirements:

                                 (i) that the interest rate on the Indebtedness
                      be increased to a rate acceptable to Mortgagee;

                                 (ii) that a reasonable transfer fee, in an
                      amount determined by Mortgagee, be paid;

                                 (iii) that a principal amount deemed
                      appropriate by Mortgagee be paid against the Indebtedness
                      to reduce to a level acceptable to Mortgagee the ratio
                      that the outstanding balance of the Indebtedness bears to
                      the value of the Mortgaged Property as determined by
                      Mortgagee;

                                 (iv) that Mortgagor and each proposed
                      transferee execute such assumption agreements and other
                      instruments as Mortgagee shall reasonably require;

                                       13
<PAGE>

                                 (v) that the creditworthiness and experience of
                      the proposed transferee in owning and operating similar
                      properties by demonstrable and proven to the reasonable
                      satisfaction of Mortgagee as being at least as good as
                      that of Mortgagor;

                                 (vi) that the liability to Mortgagee of
                      Mortgagor and all other guarantors of all or any part of
                      the Indebtedness will be confirmed by them in writing to
                      be unaffected and unimpaired by such transfer, conveyance
                      or encumbering; and

                                 (vii) that any proposed junior Mortgagee
                      expressly subordinate to all liens and security interests
                      securing the Indebtedness as to both lien and payment
                      right priority; and

      irrespective of whether the transfer, conveyance or encumbrance would or
      might (A) diminish the value of any security for the Indebtedness, (B)
      increase the risk of default under this Deed of Trust, (C) increase the
      likelihood of Mortgagee having to resort to any security for the
      Indebtedness after default, or (D) add or remove the liability of any
      person or entity for payment or performance of the Indebtedness or any
      covenant or obligation under this Deed of trust); provided, however, the
      foregoing shall not apply to the sale of hydrocarbons in the ordinary
      course of business; or

           (g) Contracts Relating to Indebtedness. Default shall be made by
Mortgagor in the due observance or performance of any of the covenants,
conditions or agreements provided to be observed or performed by Mortgagor in
any note, guaranty, loan agreement or other contract or agreement relating to
any Indebtedness; or

           (h) Decline in Value of Collateral. The Mortgaged Property shall
materially decline in value in the determination of Mortgagee; or Mortgagee, in
its sole discretion, should deem payment of the Indebtedness to be insecure; or

           (i) Fraudulent Actions or preference of Creditor. Mortgagor shall
conceal, remove, or permit to be concealed or removed, any part of its property,
with intent to hinder, delay or defraud its creditors or any of them; or make or
suffer a transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or make any transfer of its
property to or for the benefit of a creditor at a time when other creditors
situated similarly to Mortgagee have not been paid amounts owing; or take any
other action in the nature of a fraud upon its creditors or any of them.

           5.03 Acceleration and Exercise of Power of Sale. (a) Upon the
occurrence of an Event of Default specified in Section 5.02(c) or (d), the
aggregate principal amount of all Indebtedness then outstanding and all interest
accrued thereon 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, all of which are hereby expressly waived by Mortgagor to the
full extent permitted by applicable law. Upon the occurrence of any other Event
of Default, Mortgagee may declare the aggregate principal amount of all
indebtedness then outstanding and all interest accrued thereon immediately due

                                       14
<PAGE>

and payable, whereupon the same shall 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, all of which are hereby expressly waived by Mortgagor to the
full extent permitted by applicable law.

           (b) Upon the occurrence of any Event of Default or at any time
thereafter while the Indebtedness or any part thereof remains unpaid, it shall
be the duty of the Trustee, on request of Mortgagee (which request is hereby
presumed), to enforce this Trust and, after advertising the time and place of
the sale for at least 21 days prior to the day of sale, by posting or causing to
be posted a written or printed notice thereof at the courthouse door and by
filing a copy of such notice in the office of the county clerk of each county in
which the Mortgaged Property or any part thereof may be situated, and serving
written notice of the proposed sale on each debtor obligated to pay the
Indebtedness according to the records of Mortgagee, by postage prepaid,
certified United States mail, at the most recent address for such debtor as
shown by the records of Mortgagee, at least 21 days prior to the day of sale, to
sell the Mortgaged Property, either as a whole or in parcels, as the Trustee may
deem proper, at public venue at the courthouse of the county in which the
Mortgaged Property or any part thereof may be situated (and being the county
designated in the notice of sale) on the first Tuesday of any month between the
hours of 10:00 a.m. and 4:00 p.m., to the highest bidder for cash, and after
such sale to execute and deliver to the purchaser or purchasers good and
sufficient deeds and assignments, conveying such property so sold to the
purchaser or purchasers with general warranty of title made on behalf of
Mortgagor. The Trustee, or his successor or substitute, is hereby authorized and
empowered to appoint any one or more persons as his attorneys-in-fact or agent
to act as Trustee under him and in his name, place and stead, such appointment
to be evidenced by a written instrument executed by the trustee, or his
successor or substitute, to perform any one or more act or acts necessary or
incident to any sale under the power of sale hereunder, including, without
limitation, the posting and filing of any notices, the conduct of the sale and
the execution and delivery of any instruments conveying the Mortgaged Property
as a result of the sale, but in the name and on behalf of the Trustee, or his
successor or substitute; and all acts done or performed by such
attorneys-in-fact or agents shall be valid, lawful and binding as if done or
performed by the Trustee or his successor or substitute. No single sale or
series of sales by the Trustee shall extinguish the lien or exhaust the power of
sale hereunder except with respect to the items of property sold, but such lien
and power shall exist for so long as and may be exercised in any manner by law
or as herein provided as often as the circumstances require to give Mortgagee
full relief hereunder. The purchaser at any such sale shall not assume, nor
shall the heirs, legal representatives, successors or assigns of such purchaser,
be deemed to have assumed, by reason of the acquisition of property or rights
mortgaged hereunder, any liability or obligation of any lessee or operator of
the Mortgaged Property, or any part thereof, arising by reason of any occurrence
taking place prior to such sale. It shall not be necessary to have present, or
to exhibit at any such sale, any of the personal property subject to the lien or
security interest hereof.

           5.04 Rights as Secured Party. Upon the occurrence of any Event of
Default, Mortgagee shall be entitled to all of the rights, powers and remedies
afforded a secured party by the Uniform Commercial Code with respect to the
personal property and fixtures in which Mortgagee has been granted a security
interest hereby, or Mortgagee may proceed in accordance with the provisions
hereof as to both the real and personal property covered hereby.

           5.05 Application of Proceeds of Sale. The Trustee is authorized to
receive the proceeds of each sale of Mortgaged Property and apply the same as
follows:

           FIRST:  to the payment of all  necessary  costs and
           expenses  incident to the execution of this Deed of
           Trust, including,  but not limited to, a fee to the
           Trustee of 5% of the amount  realized  at the sale,
           if required by the Trustee:

                                       15
<PAGE>

           SECOND:  to any and all  Indebtedness  then  hereby
           secured,  application  to be made in such order and
           in  such   manner   as   Mortgagee   may,   in  its
           discretion, elect;

           THIRD:  the  balance,  if any, to  Mortgagor or its
           successors or assigns.

           5.06 Substitute Trustee. In the event of the death of the Trustee, or
his removal from the State of Texas, or his failure, refusal, or inability for
any reason to make any such sale or to perform any of the trusts herein
declared, or at any time, whether with or without cause, Mortgagee may appoint,
in writing, a substitute trustee who shall thereupon succeed to all the estates,
rights, powers, and trusts herein granted to and vested in the Trustee. In the
same events as first above stated, and in the same manner, successive substitute
Trustees may thereafter be appointed.

           5.07 Statements by Trustee. It is agreed that in any deed or deeds
given by any Trustee any and all statements of fact or other recitals therein
made as to the identity of the holder or holders of the Indebtedness, or as to
default in the payments thereof or any part thereof, or as to the breach of any
covenants herein contained, or as to the request to sell, notice of sale, time,
place, terms and manner of sale, and receipt, application, and distribution of
the money realized therefrom, or as to the due and proper appointment of a
substitute trustee, and, without being limited by the foregoing, as to any other
or additional act or thing having been done by Mortgagee or the Trustee, shall
be taken by all courts of law and equity as prima facie evidence that the
statements or recitals state facts and are without further question to be so
accepted; and Mortgagor does hereby ratify and confirm any and all acts that the
Trustee may lawfully do in the premises by virtue of the terms and conditions of
this instrument.

           5.08 Suit to Collect and Foreclose. Mortgagee, at its election, or
the Trustee, upon written request of Mortgagee, may proceed by suit or suits, at
law or in equity, to enforce the payment of the Indebtedness in accordance with
the terms hereof and of the notes, guaranties or other documents evidencing it,
and to foreclose the lien and/or security interest of this Deed of Trust as
against all or any portion of the Mortgaged Property and to have such property
sold under the judgment or decree of a court of competent jurisdiction.

           5.09 Mortgagee or Trustee as Purchaser. It is expressly understood
that Mortgagee or the Trustee may be a purchaser of the Mortgaged Property, or
of any part thereof, at any sale thereof, whether such sale be under the power
of sale hereinabove vested in the Trustee or upon any other foreclosure of the
lien and/or security interest hereof, or otherwise; and Mortgagee or the Trustee
so purchasing shall, upon any such purchase, acquire good title to the Mortgaged
Property so purchased, free of the lien and/or security interest of this Deed of
Trust and free of all rights of redemption in Mortgagor.

           5.10 Performance by Mortgagee or Trustee. If Mortgagor should fail to
comply with any of the covenants or obligations of Mortgagor hereunder, then
Mortgagee or the Trustee may perform the same for the account and at the expense
of Mortgagor but shall not be obligated so to do. Any and all expenses incurred

                                       16
<PAGE>

or paid in so doing shall be payable by Mortgagor to Mortgagee, with interest at
the greater of (a) the rate of 10% per annum, or (b) the rate agreed upon in any
other document or instrument relating to the Indebtedness or any part thereof,
from the date when same was so incurred or paid, and the amount thereof shall be
payable on demand and shall be secured by and under this Deed of Trust. The
amount and nature of such expense and the time when paid shall be fully
established by the affidavit of Mortgagee or any officer or agent thereof or by
the affidavit of any Trustee acting hereunder; provided, however, that the
exercise of the privileges granted in this Section shall in no way be considered
or constitute a waiver of the right of Mortgagee upon the occurrence of an Event
of Default hereunder to declare the Indebtedness at once due and payable but
shall be cumulative of such right and all other rights herein given.

           5.11 Entry and Operation. Upon the occurrence of any one or more
Events of Default, then in each and every such case and in addition to the other
rights and remedies hereunder, the Trustee or Mortgagee, whether or not the
Indebtedness shall have become due and payable, may, but shall not be obligated
to, enter into and upon and take possession of all or any part of the Mortgaged
Property and may exclude Mortgagor, its agents and servants wholly therefrom and
have, hold, use, operate, manage and control all or any part of the Mortgaged
Property and produce the oil, gas and other minerals therefrom and market the
same, all at the sole risk and expense of Mortgagor and at the expense of the
Mortgaged Property, applying the net proceeds so derived, first, to the cost of
maintenance and operation of such Mortgaged Property; second, to the payment of
all Indebtedness secured hereby, principal and interest, application to be made
first to interest and then to principal; and the balance thereof, if any, shall
be paid to Mortgagor. Upon such payment of all such costs and Indebtedness, the
Mortgaged Property shall be returned to Mortgagor in its then condition and
neither the Trustee nor Mortgagee shall be liable to Mortgagor for any damage or
injury to the Mortgaged Property except such as may be caused through the fraud
or willful misconduct of the Trustee or Mortgagee, as the case may be.

           5.12 Power of Attorney to Mortgagee. Mortgagor does hereby designate
Mortgagee as the agent of Mortgagor to act in the name, place and stead of
Mortgagor in the exercise of each and every remedy set forth herein and in
conducting any and all operations and taking any and all action reasonably
necessary to do so, recognizing such agency in favor of Mortgagee to be coupled
with the interest of Mortgagee under this Deed of Trust and, thus, irrevocable
so long as this Deed of Trust is in force and effect.

           5.13 Remedies Cumulative and Non-Exclusive. The rights of entry,
sale, or suit, as hereinabove or hereinafter conferred, are cumulative of all
other rights and remedies herein or by law or in equity provided, and shall not
be deemed to deprive Mortgagee or the Trustee of any such other legal or
equitable rights or remedies, by judicial proceedings or otherwise, appropriate
to enforce the conditions, covenants and terms of this Deed of Trust and of any
note, guaranty or other document reflecting the Indebtedness; and the employment
of any remedy hereunder or otherwise shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies.

                                   ARTICLE VI.

                            ASSIGNMENT OF PRODUCTION

      6.01 Assignment. In addition to the conveyance to the Trustee herein made,
Mortgagor does hereby transfer, assign, deliver and convey unto Mortgagee, its
successors and assigns, all of the oil, gas and other minerals produced, saved
or sold from the Mortgaged Property and attributable to the interest of
Mortgagor therein subsequent to 7:00 a.m. on the first day of the month in which
this Deed of Trust is executed, together with the proceeds of any sale thereof.

                                       17
<PAGE>

Mortgagor hereby directs any purchaser now or hereafter taking any production
from the Mortgaged Property to pay to Mortgagee such proceeds derived from the
sale thereof and to continue to make payments directly to Mortgagee until
notified in writing by Mortgagee to discontinue the same, and the purchaser of
any such production shall not be required to see to the application of the
proceeds thereof by Mortgagee, and payment made to Mortgagee shall be binding
and conclusive as between such purchaser and Mortgagor. Mortgagor further agrees
to perform all such acts and to execute all such further assignments, transfer
and division orders and other instruments as may be required or desired by
Mortgagee or any other party to have such proceeds and revenues so paid to
Mortgagee.

           6.02 Change of Purchaser. Should any purchaser taking the production
from the Mortgaged Property fail to make prompt payment to Mortgagee in
accordance with the provisions of Section 6.01, Mortgagee shall have the right,
at the expense of Mortgagor, to demand a change of connection and to designate
another purchaser with whom a new connection may be made, without any liability
on the part of Mortgagee in making such selection, so long as ordinary care is
used in the making thereof; and promptly upon such demand, Mortgagor shall take
all necessary and appropriate action to effect such change of connection.

           6.03 Application of Proceeds. Mortgagor authorizes and empowers
Mortgagee to receive, hold and collect all sums of money paid to Mortgagee in
accordance with the provisions of Section 6.01, and to apply the same as
hereinafter provided, all without any liability or responsibility on the part of
Mortgagee, save and except as to good faith in so receiving and applying such
sums. All payments provided for in Section 6.01 shall be paid promptly to
Mortgagee, and any provisions contained in any note, guaranty or other document
evidencing the Indebtedness or any part thereof to the contrary notwithstanding,
Mortgagee may apply the same or so much thereof as it elects to the payment of
the Indebtedness, application to be made in such manner as Mortgagee may elect,
regardless of whether the application so made shall exceed the payments of
principal and interest then due as provided in the notes, guaranties or other
documents evidencing the Indebtedness. After such application has been so made
by Mortgagee, the balance of any such payment or payments remaining shall be
paid to Mortgagor.

           6.04 No Postponement of Installments on Indebtedness. It is
understood and agreed that should such payments provided for by Section 6.01 be
less than the sum or sums then due on the Indebtedness, such sum or sums then
due shall nevertheless be paid by Mortgagor in accordance with the provisions of
the notes, guaranties or other documents evidencing the Indebtedness, and
neither the assignment made pursuant to Section 6.01 nor any other provisions
hereof shall in any manner be construed to affect the terms and provisions of
such notes, guaranties or other documents evidencing the Indebtedness. Likewise,
neither the assignment made pursuant to Section 6.01 nor any other provisions
hereof shall in any manner be construed to affect the liens, rights, title and
remedies herein granted securing the Indebtedness or the liability of Mortgagor
therefore. The rights under this Article VI are cumulative of all other rights,
remedies, and powers granted under this Deed of Trust and are cumulative of any
other security which Mortgagee now holds or may hereafter hold to secure the
payment of the Indebtedness.

           6.05 Turnover to Mortgagee. Should Mortgagor receive any of the
proceeds of any sale of oil, gas or other minerals produced, saved or sold from
the Mortgaged Property, which under the terms hereof should have been remitted
to Mortgagee, Mortgagor will immediately remit same in full to Mortgagee.

                                       18
<PAGE>

           6.06 Release of Proceeds Upon Payment of Indebtedness. Upon payment
in full of all Indebtedness, the remainder of such proceeds held by Mortgagee,
if any, shall be paid over to Mortgagor upon demand, and a release of the
interest hereby assigned will be made, without recourse or warranty, by
Mortgagee to Mortgagor at its request and its expense.

           6.07 Duty of Mortgagee. Mortgagee shall not be liable for any failure
to collect, or for any failure to exercise diligence in collecting, any funds
assigned hereunder. Mortgagee shall be accountable only for funds actually
received.

           6.08 Power of Attorney to Mortgagee. Mortgagor does hereby designate
Mortgagee as the agent of Mortgagor to act in the name, place and stead of
Mortgagor for the purpose of taking any and all actions deemed by Mortgagee
necessary for the realization by Mortgagee of the benefits of the assignment of
production provided herein, recognizing such agency in favor of Mortgagee to be
coupled with the interests of Mortgagee under this Deed of Trust and, thus,
irrevocable so long as this Deed of Trust is in force and effect.

                                  ARTICLE VII.

                                  MISCELLANEOUS

           7.01 Interest. Any provision in any document that may be executed in
connection herewith to the contrary notwithstanding, Mortgagee shall in no event
be entitled to receive or collect, nor shall any amounts received hereunder be
credited so that Mortgagee shall be paid, as interest a sum greater than that
authorized by law. If any possible construction of this Deed of Trust or any
note, guaranty or other document evidencing or relating to all of any portion of
the Indebtedness seems to indicate any possibility of a different power given to
Mortgagee or any authority to ask for, demand or receive any larger rate of
interest, this clause shall override and control, and proper adjustments shall
be made accordingly.

           7.02 Agreement as Entirety. This Deed of Trust, for convenience only,
has been divided into Articles, Sections and subsections; and it is understood
that the rights, powers, privileges, duties and other legal relations of
Mortgagor, the Trustee and Mortgagee shall be determined from this instrument as
an entirety and without regard to the aforesaid division into Articles, Section
and subsections and without regard to headings affixed to such Articles,
Sections or subsections.

           7.03 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural, and
the plural shall likewise be understood to include the singular. 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.

           7.04 Rights and Remedies Cumulative. All rights, powers, immunities,
remedies and liens of Mortgagee existing and to exist hereunder or under any
other instruments or at law or in equity and all other or additional security
shall be cumulative and not exclusive, each of the other. Mortgagee shall, in
addition to the rights and remedies herein expressly provided, be entitled to
such other remedies as may now or hereafter exist at law or in equity for
securing and collecting the Indebtedness, for enforcing the covenants herein,

                                       19
<PAGE>

and for foreclosing the liens hereof. Resort by Mortgagee to any right or remedy
provided for hereunder or at law or in equity shall not prevent concurrent or
subsequent resort to the same or any other right or remedy. No security
heretofore, herewith or subsequently taken by Mortgagee shall in any manner
impair or affect the security given by this instrument or any security by
endorsement or otherwise presently or previously given; and all security shall
be taken, considered and held as cumulative.

           7.05 Parties in Interest. This Deed of Trust shall be binding upon
the parties and their respective heirs, administrators, legal representatives,
successors and assigns, and shall inure to the benefit of the Mortgagee and its
legal representatives, successors and assigns. The terms used to designate any
of the parties herein shall be deemed to include the heirs, administrators,
legal representatives, successors and assigns of such parties; and the term
"Mortgagee" shall also include any lawful owner, holder or pledgee of any
Indebtedness.

           7.06 Supplements. Without in any manner limiting the effect of
Section 1.04 or any other provisions of this Deed of trust as to the binding
effect of this Deed of Trust on after-acquired rights of Mortgagor, it is
contemplated by the parties hereto that from time to time additional interests
and properties may or will be added to the interests and properties subject to
the liens, rights, titles and interests created by this Deed of Trust by means
of supplemental indentures identifying this Deed of Trust and describing such
interests and properties to be so added and included. Upon the execution of any
such supplemental indenture, the liens, rights, titles and interests created
herein shall immediately attach to and be effective with respect to any such
interests and properties so described, the same as if such interests and
properties had been specifically described herein, and such interests and
properties being included in the term "Mortgaged Property," as used herein.

           7.07 Invalidity. In the event that any one or more of the provisions
contained in this Deed of Trust shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Deed of Trust or any provision of
any other document relating to any Indebtedness.

           7.08 Construction. All titles or headings to Articles, Sections,
subsections or other divisions of this Deed of Trust or the exhibits hereto are
only for the convenience of the parties and shall not be construed to have any
effect or meaning with respect to the other content of such Articles, Sections,
subsections or other divisions, such other content being controlling as to the
agreement among the parties hereto. Article, Section, subsection and Exhibit
references herein are to such Articles, Sections, subsections and Exhibits of
this Deed of Trust unless otherwise specified. The words "hereby," "herein,"
"hereinabove," "hereinafter," "hereinbelow," "hereof" and "hereunder" when used
in this Deed of Trust shall refer to this Deed of Trust as a whole and not to
any particular Article, Section, subsection or provision of this Deed of Trust.

           7.09 Fixtures, Minerals and Accounts. Without in any manner limiting
the generality of any of the foregoing hereof, some portions of the personal
property described hereinabove are or are to become fixtures on the land
described herein or to which reference is made herein. In addition, the security
interest created hereby under applicable provisions of the Uni8form Commercial
Code attaches to minerals, including oil and gas, and accounts resulting from
the sale thereof, at the wellhead or minehead located on the land described or
to which reference is made herein.

                                       20
<PAGE>

           7.10 Financing Statement and Utility Security Instrument Filings.
This Deed of Trust may be filed as provided in Article 9 of the Uniform
Commercial Code as adopted and in effect from time to time in any relevant
jurisdiction (the "UCC"), to assure that the security interests granted by this
Deed of Trust are perfected. In this connection, this instrument will be
presented to a filing officer under the UCC to be filed in the real estate
records as a Financing Statement covering minerals and fixtures. The Deed of
Trust may also be filed as provided in TEX. BUS. & COM. CODE ANN. Ch. 35 (Vernon
1987), as amended from time to time, relating to the granting of a security
interest by utilities. The filing of this Deed of Trust under the provisions of
TEX. BUS. & COM. CODE ANN. Ch. 35 (Vernon 1987), as amended from time to time,
shall not constitute an admission by Mortgagor that it is a utility for purposes
of TEX. BUS. & COM. CODE ANN. Ch. 35 (Vernon 1987), as amended from time to
time, or any other statute, rule or regulation of any governmental authority or
agency.

           7.11 Addresses. For purposes of filing this Deed of Trust as a
financing statement, the addresses for Mortgagor, as the debtor, and Mortgagee,
as the secured party, are as set forth hereinabove.

           7.12 Counterparts. For the convenience of the parties, this
instrument may be executed in multiple counterparts, each of which for all
purposes shall be deemed, and may be enforced from time to time as, a chattel
mortgage, real estate mortgage, deed of trust, security agreement, assignment or
contract, or as one of more thereof. For recording purposes, various
counterparts have been executed, and there may be attached to each such
counterpart an Exhibit A containing only the description of the Mortgaged
Property, or portions thereof, which relates to the county or state in which the
particular counterpart is to be recorded. A complete, original counterpart of
this instrument with a complete Exhibit A may be obtained from Mortgagee. Each
of the counterparts hereof so executed shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.

           7.13 No Waiver by Mortgagee. No course of dealing on the part of
Mortgagee, its officers or employees, nor any failure or delay by Mortgagee with
respect to exercising any of its rights or remedies hereunder shall operate as a
waiver thereof nor shall the exercise or partial exercise of any such right or
remedy shall preclude the exercise of any other right or remedy.

           IN WITNESS WHEREOF, this Deed of Trust, Security Agreement, Financing
Statement and Assignment of Production is executed on this 15th day of May,
2002.

                               MORTGAGOR (DEBTOR):
                               -----------------

                               FORTUNE NATURAL RESOURCES CORPORATION

                               By: /s/ Tyrone J. Fairbanks
                                   ------------------------------
                                   Tyrone J. Fairbanks
                                   Chairman of the Board and CEO

                                       22
<PAGE>

THE STATE OF TEXAS

COUNTY OF HARRIS

      BEFORE ME, the undersigned authority, on this day personally appeared
Tyrone J. Fairbanks, Chairman of the Board and Chief Executive Office, of
FORTUNE NATURAL RESOURCES CORPORATION, a Delaware corporation, known to me to be
the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed, as the act and deed of such corporation, and in the capacity
therein stated.

      GIVEN UNDER MY HAND AND SEAL OF OFFICE this 15th day of May, 2002.

                               /s/ Michal J. King
                               ------------------------------------
                               NOTARY PUBLIC in and for the
                                 State of Texas

                               Michal J. King
                               ------------------------------------
                               (Printed Name of Notary Public)
My Commission Expires:

April 15, 2005

                                       23
<PAGE>

                                    EXHIBIT A

           This Exhibit A sets forth the description of certain property
interests covered by the Deed of Trust to which this exhibit is attached. All of
the terms defined in the Deed of Trust are used in this Exhibit A with the same
meanings given therein.

           This Exhibit A and the Deed of Trust cover and include the following:

                      (a) All right, title and interest, whether now owned and
           existing or hereafter acquired or arising, of Mortgagor in and to the
           oil, gas, and mineral leases described herein and/or lands described
           in and subject to such oil, gas, and mineral leases (regardless, as
           to such leases and/or lands, of any surface acreage and/or depth
           limitations set forth in any description of any such oil, gas, and
           mineral leases), and all right, title and interest, whether now owned
           and existing or hereafter acquired or arising, of Mortgagor in and to
           any of the oil, gas, and minerals in, on, or under the lands, if any,
           described on this Exhibit, including, without limitation, all
           contractual rights, fee interests, leasehold interests, overriding
           royalty interests, non-participating royalty interests, mineral
           interests, production payments, net profits interests or any other
           interest measured by or payable out of production of oil, gas, or
           other minerals from the oil, gas, and mineral leases and/or lands
           described herein;

                      (b) All of the foregoing interests of Mortgagor as such
           interests may be enlarged by the discharge of any payments out of
           production or by the removal of any charges or encumbrances, together
           with all interests, whether now owned and existing or hereafter
           acquired or arising, of Mortgagor in, to, and under or derived from
           all renewals and extensions of any oil, gas, and mineral leases
           described herein, it being specifically intended hereby that any new
           oil or gas lease (i) in which an interest is acquired by Mortgagor
           after the termination or expiration of any oil and gas lease, the
           interests of Mortgagor in, to, and under or derived from which are
           subject to the lien and security interest hereof, and (ii) that
           covers all or any part of the property described in and covered by
           such terminated or expired leases, shall, to the extent, and only to
           the extent such new oil and gas lease may cover such property, be
           considered a renewal or extension of such terminated or expired
           lease;

                      (c) All right, title and interest, whether now owned or
           existing or hereafter acquired or arising, of Mortgagor in, to and
           under or derived from any operating, farmout, or bidding agreements,
           assignments and subleases, whether described in this Exhibit A, to
           the extent, and only to the extent, that such agreements, assignments
           and subleases (i) cover or include any present right, title, and
           interest of Mortgagor in and to the leases and/or lands described in
           this Exhibit A, or (ii) cover or include any other undivided
           interests now or hereafter held by Mortgagor in, to and under the
           described leases and/or lands, including, without limitation, any
           future operating, farmout, or bidding agreements, assignments,
           subleases, and pooling, unitization, and communitization agreements
           and the units created thereby (including, without limitation, all
           units formed under orders, regulations, rules, or other official acts
           of any governmental body or agency having jurisdiction) to the extent
           and only to the extent that such agreements, assignments, subleases,
           or units cover or include the described leases and/or lands;

                                       24
<PAGE>

                      (d) All right, title and interest, whether now owned and
           existing or hereafter acquired or arising, of Mortgagor in, to, and
           under or derived from all presently existing and future advance
           payment agreements, oil, casinghead gas and gas sales, exchange, and
           processing contracts and agreements, including, without limitation,
           those contracts and agreements that are described in this Exhibit A,
           to the extent, and only to the extent, those contracts and agreements
           cover or include the described leases and/or lands; and

                      (e) All right, title and interest, whether now owned and
           existing or hereafter acquired or arising, of Mortgagor in, to, and
           under or derived from all existing and future permits, licenses,
           easements, and similar rights and privileges that relate to or are
           appurtenant to any of the described leases and/or lands.

                      1. Webb County, Texas.
                         -------------------

                      Each and all of the above-described leases, interests,
                      payments, owned by Mortgagor in such county as of the date
                      hereof or hereafter acquired or arising.

                      2. McMullen County, Texas.
                         ----------------------

                      Each and all of the above-described leases, interests,
                      payments, owned by Mortgagor in such county as of the date
                      hereof or hereafter acquired or arising.

                      3. Refugio County, Texas.
                         ---------------------

                      Each and all of the above-described leases, interests,
                      payments, owned by Mortgagor in such county as of the date
                      hereof or hereafter acquired or arising.

                      4. Live Oak County, Texas.
                         ----------------------

                      Each and all of the above-described leases, interests,
                      payments, owned by Mortgagor in such county as of the date
                      hereof or hereafter acquired or arising.

                      5. Chickasaw County, Mississippi.
                         -----------------------------

                      Each and all of the above-described leases, interests,
                      payments, owned by Mortgagor in such county as of the date
                      hereof or hereafter acquired or arising.

                                       25
<PAGE>

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