Document:

Exhibit 10.4

                                                                  EXECUTION COPY

                      FIRST AMENDMENT TO SECURITY AGREEMENT
                      -------------------------------------

         This FIRST AMENDMENT TO SECURITY AGREEMENT (this "Amendment"), dated as
of August 3, 2007, is by and between SONTERRA RESOURCES, INC., a Delaware
corporation ("Debtor"), and VIKING ASSET MANAGEMENT, LLC, a California limited
liability company, in its capacity as Collateral Agent (together with its
successors and assigns in such capacity, the "Secured Party") for the benefit of
itself and The Longview Fund, L.P., a California limited partnership (the
"Buyer").

                                R E C I T A L S:

         WHEREAS, Debtor and Secured Party are parties to that certain Security
Agreement dated as of July 9, 2007 (as the same has been and hereafter may be
amended, restated, supplemented or otherwise modified from time to time, the
"Security Agreement"), pursuant to which Debtor granted security interests in
substantially all of its assets to Secured Party in order to secure the
Liabilities (as defined in the Security Agreement);

         WHEREAS, Debtor and Secured Party have agreed to amend, supplement and
modify the Security Agreement in the manner set forth below.

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

         1        Incorporation of Recitals. The Recitals set forth above are
incorporated herein and are made a part hereof.

         2        Definitions. All capitalized terms used herein but not
elsewhere defined shall have the respective meanings ascribed to such terms in
that that certain Amended and Restated Securities Purchase Agreement dated as of
August 3, 2007 among Debtor, the Principals (as defined therein) and Buyer (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "Purchase Agreement").

         3        Amendments to Security Agreement.
                  --------------------------------

                  3.1      The Recitals to the Security Agreement are hereby
amended and restated in their entirety to read as follows:

                  "WHEREAS, the Company, The Longview Fund, L.P., a California
                  limited partnership ("Buyer"), and certain officers of the
                  Company are parties to that certain Amended and Restated
                  Securities Purchase Agreement, dated effective as of July 9,
                  2007 (as amended, restated, supplemented, or otherwise
                  modified from time to time, the "Purchase Agreement"),
                  pursuant to which Buyer purchased (i) 333 shares (the "New
                  Sonterra Shares") of common stock, no par value, of the
                  Company ("Sonterra Common Stock"); for an aggregate amount of

                                       1
<PAGE>

                  $9,990, which shares constitute 100% of the issued and
                  outstanding Capital Stock of the Company, and (ii) a senior
                  secured note of the Company in the initial principal amount of
                  $322,500 (the "Deposit Note");

                  WHEREAS, contemporaneously with the execution and delivery of
                  this Agreement and that certain Securities Exchange and
                  Additional Note Purchase Agreement, dated as of August 3, 2007
                  (as amended, restated, supplemented, or otherwise modified
                  from time to time, the "Exchange Agreement"), between RCGI (as
                  defined below) and Buyer, the transactions contemplated by the
                  Purchase Agreement to occur at the Equity Closing (as defined
                  in the Purchase Agreement) and the transactions contemplated
                  by the Cinco Purchase Agreement were consummated; without
                  limiting the foregoing, pursuant to the Purchase Agreement,
                  Buyer purchased from the Company a senior secured note of the
                  Company in the initial principal amount of $5,990,010 (of
                  which $322,500 represents refinancing of the Deposit Note,
                  which is now being surrendered to the Company and is being
                  cancelled) (as amended, restated, supplemented, or otherwise
                  modified from time to time, the "Sonterra Equity Note") and a
                  warrant to purchase 50 shares of Sonterra Common Stock (as
                  amended, restated, supplemented, or otherwise modified from
                  time to time, the "Sonterra Warrants");

                  WHEREAS, if the Flash Acquisition Closing is completed, the
                  transactions contemplated by the Purchase Agreement to occur
                  at the Flash Acquisition Closing and the transactions
                  contemplated by the Flash Purchase Agreement will be
                  consummated subject to the terms and conditions of the
                  Purchase Agreement; without limiting the foregoing, pursuant
                  to the Purchase Agreement, at the Flash Acquisition Closing
                  Buyer will purchase an additional senior secured note of the
                  Company in the initial principal amount of $2,000,000 (as
                  amended, restated, supplemented, or otherwise modified from
                  time to time, the "Sonterra Non-Equity Note");

                  WHEREAS, at the Exchange Closing (as defined in the Exchange
                  Agreement), subject to the terms and conditions thereof, Buyer
                  (i) will exchange all of its Sonterra Common Stock and the
                  Sonterra Equity Note for common stock of RCGI, par value
                  $0.001 per share (the common stock of RCGI being referred to
                  herein as "RCGI Common Stock"; and any shares thereof being
                  referred to herein as "RCGI Common Shares") (the RCGI Common
                  Shares received by Buyer in such exchange being referred to as
                  the "New RCGI Common Shares"), (ii) will exchange the Sonterra
                  Warrant for a warrant (such warrant, together with any
                  warrants or other securities issued in exchange or
                  substitution therefor or replacement thereof, and as any of
                  the same may be amended or modified and in effect from time to
                  time, the "RCGI Warrant") to purchase RCGI Common Shares (the
                  "Warrant Shares"), which RCGI Warrant shall have a term of

                                       2
<PAGE>

                  five years and be exercisable into the Warrant Shares at a
                  price per Warrant Share (the "Warrant Exercise Price") equal
                  to 110% of the quotient of $6,000,000 divided by the number of
                  New RCGI Common Shares issued to Buyer at the Exchange
                  Closing; and (iii) will exchange the Sonterra Non-Equity Note,
                  if issued, for a senior secured note of RCGI in an initial
                  principal amount equal to the principal amount owing under the
                  Sonterra Non-Equity Note on the Exchange Closing Date (such
                  note, together with any promissory notes or other securities
                  issued in exchange or substitution therefor or replacement
                  thereof, and as any of the same may be amended or modified
                  from time to time, the "Initial RCGI Note");

                  WHEREAS, subject to the terms and conditions set forth in the
                  Exchange Agreement, during the Additional Note Issuance Period
                  (as defined in the Exchange Agreement), RCGI will have the
                  option to sell, and if RCGI exercises such option Buyer shall
                  be obligated to purchase, additional senior secured notes
                  (including any promissory notes or other securities issued in
                  exchange or substitution for such senior secured notes or
                  replacement thereof, and as any of the same may be amended,
                  restated, modified or supplemented and in effect from time to
                  time, the "Additional RCGI Notes"), each with a maturity date
                  of August 31, 2010, in an original aggregate principal amount
                  of up to the result of $10,000,000 minus the original
                  principal amount of the Initial RCGI Note;

                  WHEREAS, (a) prior to the Transition Date, each Debtor (other
                  than the Company) that from time to time may be a party hereto
                  is a direct or indirect subsidiary of the Company and (b) on
                  and after the Transition Date, each Debtor that from time to
                  time may be a party hereto is a direct or indirect subsidiary
                  of RCGI, as such, each Debtor will derive substantial benefit
                  and advantage from the financial accommodations to the Company
                  set forth in the Purchase Agreement and the Sonterra Notes
                  and, on and after the Transition Date, the financial
                  accommodations to RCGI set forth in the Exchange Agreement and
                  the RCGI Notes, and it will be to each such Debtor's direct
                  interest and economic benefit to assist the Company (and, on
                  and after the Transition Date, RCGI) in procuring said
                  financial accommodations from Buyer; and

                  WHEREAS, to induce Buyer to enter into the Purchase Agreement
                  and purchase the Sonterra Notes (and, on and after the
                  Transition Date, to enter into the Exchange Agreement and
                  purchase the RCGI Notes), each Debtor has agreed to pledge and
                  grant a security interest in all of its right, title and
                  interest in and to the Collateral (as hereinafter defined) as
                  security for its Liabilities for the benefit of the Secured
                  Party, Buyer and their respective successors and assigns."

                  3.2      Section 1 of the Security Agreement is hereby further
amended by amending and restating the definition of the following terms in their
entirety to read as follows:

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<PAGE>

                  "Event of Default" shall have the meaning set forth in the
                  Sonterra Notes and, on and after the Transition Date, the RCGI
                  Notes.

                  "Liabilities" shall mean (i) prior to the Transition Date, all
                  obligations, liabilities and indebtedness of every nature of
                  Debtors from time to time owed or owing under or in respect of
                  this Agreement, the Purchase Agreement, the Sonterra Notes,
                  the Sonterra Warrants, any of the other Security Documents and
                  any of the other Transaction Documents, as the case may be,
                  and (ii) on and after the Transition Date, all obligations,
                  liabilities and indebtedness of every nature of Debtors from
                  time to time owed or owing under or in respect of this
                  Agreement, the Purchase Agreement, the remaining liabilities
                  (if any) under the Sonterra Notes, as applicable, the Exchange
                  Agreement, the RCGI Notes, the RCGI Warrants, the Registration
                  Right Agreement, the remaining liabilities (if any) under any
                  of the other Security Documents, any of the other Security
                  Documents (as defined in the Exchange Agreement), the Guaranty
                  (as defined in the Exchange Agreement), the remaining
                  liabilities (if any) under any of the other Transaction
                  Documents and any of the other Transaction Documents (as
                  defined in the Exchange Agreement), as the case may be, in
                  each case, including, without limitation, the principal amount
                  of all debts, claims and indebtedness, accrued and unpaid
                  interest and all fees, costs and expenses, whether primary,
                  secondary, direct, contingent, fixed or otherwise, heretofore,
                  now and/or from time to time hereafter owing, due or payable
                  whether before or after the filing of a bankruptcy, insolvency
                  or similar proceeding under applicable federal, state, foreign
                  or other law and whether or not an allowed claim in any such
                  proceeding."

                  "Lien" shall have the meaning set forth in the Purchase
                  Agreement and, on and after the Transition Date, the Exchange
                  Agreement.

                  "Permitted Lien" shall have the meaning set forth in the
                  Purchase Agreement and, on and after the Transition Date, the
                  Exchange Agreement.

                  3.3      Section 1 of the Security Agreement is hereby further
amended by inserting the following defined term therein in appropriate
alphabetical order:

                  "RCGI" shall mean River Capital Group, Inc., a Delaware
                  corporation.

                  "RCGI Notes" shall mean, collectively, the Initial RCGI Note
                  and the Additional RCGI Notes.

                  "Sonterra Notes" shall mean, collectively, the Sonterra Equity
                  Note and the Sonterra Non-Equity Note.

                  "Transition Date" shall mean the date on which RCGI and the
                  Included Subsidiaries (as defined in the Exchange Agreement)
                  become parties to this Agreement by execution of a joinder in
                  the form of Exhibit A attached hereto.

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<PAGE>

                  3.4      Clauses (a), (b), (g) and (i) of Section 3 of the
Security Agreement are hereby amended and restated in their entirety to read as
follows:

                  "(a)     all Instruments, together with all payments thereon
                  or thereunder (other than, on or after the Transition Date,
                  Instruments issued by River Sub (as defined in the Exchange
                  Agreement) or Holdings Sub (as defined in the Exchange
                  Agreement) or both);

                  (b)      all Accounts (other than, on or after the Transition
                  Date, Accounts on which the Account Debtor is River Sub or
                  Holdings Sub or both);

                  ...

                  (g)      all Contracts (other than, on or after the Transition
                  Date, Contracts with or relating to River Sub or Holding Sub
                  or both);

                  ...

                  (i)      all Investment Property (other than, on or after the
                  Transition Date, Investment Property consisting of securities
                  issued by River Sub or Holding Sub or both)."

                  3.5      Section 4.4(a) of the Security Agreement is hereby
amended by (i) deleting each reference to the phrase "Security Documents"
thereof and inserting the phrase "Security Documents (or, on and after the
Transition Date, the Security Documents (as defined in the Exchange Agreement))"
in its place therefor and (ii) deleting each reference to the phrase
"Transaction Documents" thereof and inserting the phrase "Transaction Documents
(or, on and after the Transition Date, the Transaction Documents (as defined in
the Exchange Agreement))" in its place therefor.

                  3.6      Section 4.4(c) of the Security Agreement is hereby
amended by deleting each reference to the phrase "Purchase Agreement" thereof
and inserting the phrase "Purchase Agreement (or, on and after the Transition
Date, the Exchange Agreement)" in its place therefor.

                  3.7      Section 4.6(g) of the Security Agreement is hereby
amended by deleting each reference to the phrase "Transaction Document" thereof
and inserting the phrase "Transaction Document (or, on and after the Transition
Date, the Transaction Document (as defined in the Exchange Agreement))" in its
place therefor.

                  3.8      Section 4.9 of the Security Agreement is hereby
amended and restated in its entirety to read as follows:

                  "4.9     Application of Proceeds. The proceeds of any
                  collection, sale or other realization of all or any part of
                  the Collateral, and any other cash at the time held by the
                  Secured Party under this Agreement, shall be applied in the
                  manner set forth in the Sonterra Notes (or, on and after the
                  Transition Date, the RCGI Notes) (or, if not so set forth, in
                  a manner acceptable to, and at the election of, the Secured
                  Party)."

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<PAGE>

                  3.9      Section 4.12 of the Security Agreement is hereby
amended by amending and restating the first sentence thereof in its entirety to
read as follows:

                  "This Agreement and the Liens and security interests granted
                  hereunder shall not terminate until the termination of the
                  Sonterra Notes (and, on and after the Transition Date, the
                  RCGI Notes) and the full and complete performance and
                  indefeasible satisfaction of all the Liabilities (i) in
                  respect of the Sonterra Notes (and, on and after the
                  Transition Date, the RCGI Notes) (including, without
                  limitation, the indefeasible payment in full in cash of all
                  such Liabilities) and (ii) with respect to which claims have
                  been asserted by Collateral Agent and/or Buyer, whereupon the
                  Secured Party shall forthwith cause to be assigned,
                  transferred and delivered, against receipt but without any
                  recourse, warranty or representation whatsoever, any remaining
                  Collateral to or on the order of Debtors."

                  3.10     Section 5.3 of the Security Agreement is hereby
amended by deleting each reference to the phrase "Purchase Agreement" thereof
and inserting the phrase "Purchase Agreement (or, on and after the Transition
Date, the Exchange Agreement)" in its place therefor.

                  3.11     Section 5.12(a) of the Security Agreement is hereby
amended by (i) deleting each reference to the phrase "Security Documents"
thereof and inserting the phrase "Security Documents (or, on and after the
Transition Date, the Security Documents (as defined in the Exchange Agreement))"
in its place therefor and (ii) deleting each reference to the phrase
"Transaction Documents" thereof and inserting the phrase "Transaction Documents
(or, on and after the Transition Date, the Transaction Documents (as defined in
the Exchange Agreement))" in its place therefor.

                  3.12     Section 5.12(b) of the Security Agreement is hereby
amended by (i) deleting each reference to the phrase "Notes" thereof and
inserting the phrase "Sonterra Notes (or, on and after the Transition Date, the
RCGI Notes)" in its place therefor and (ii) deleting each reference to the
phrase "Transaction Document" thereof and inserting the phrase "Transaction
Document (or, on and after the Transition Date, the Transaction Document (as
defined in the Exchange Agreement))" in its place therefor.

                  3.13     Sections 5.12(c) and (d) of the Security Agreement
are hereby amended by deleting each reference to the phrase "Transaction
Documents" thereof and inserting the phrase "Transaction Documents (or, on and
after the Transition Date, the Transaction Documents (as defined in the Exchange
Agreement))" in its place therefor.

                  3.14     Section 5.14 of the Security Agreement is hereby
amended by deleting each reference to the phrase "Transaction Documents" thereof
and inserting the phrase "Transaction Documents (or, on and after the Transition
Date, the Transaction Document (as defined in the Exchange Agreement))" in its
place therefor.

         4        Representations and Warranties. To induce Secured Party to
enter into this Amendment, Debtor represents and warrants to Secured Party that:

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<PAGE>

                  4.1      that the execution, delivery and performance of this
Amendment has been duly authorized by all requisite organizational action on the
part of Debtor and that this Amendment has been duly executed and delivered by
Debtor; and

                  4.2      that each of the representations and warranties set
forth in the Security Agreement (after giving effect to this Amendment) (other
than those which, by their terms, specifically are made as of certain date prior
to the date hereof) are true and correct in all material respects as of the date
hereof.

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

                 - Remainder of Page Intentionally Left Blank -
                            [Signature Page Follows]

                                       7
<PAGE>

IN WITNESS WHEREOF, Debtors and Secured Party have caused this Amendment to be
duly executed and delivered as of the date first above written.

                                       DEBTOR:
                                       -------

                                       SONTERRA RESOURCES, INC., a Delaware
                                       corporation

                                       By:     /s/ Michael J. Pawelek
                                               ---------------------------------
                                       Name:   Michael J. Pawelek
                                       Title:  President

<PAGE>

                                       SECURED PARTY:
                                       --------------

                                       VIKING ASSET MANAGEMENT, LLC, a
                                       California limited liability company, in
                                       its capacity as Collateral Agent for
                                       Buyer

                                       By:     /s/ Wayne H. Coleson
                                               ---------------------------------
                                       Name:   Wayne H. Coleson
                                       Title:  Chief Investment OfficerExhibit 10.5

WHEN RECORDED RETURN TO:
Katten Muchin Rosenman LLP
525 W. Monroe Street
Chicago, Illinois 60661
Attn:      Mark D. Wood Esq.

                     MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
          PRODUCTION, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING
                                   STATEMENT

                                      FROM

                SONTERRA RESOURCES, INC., a Delaware corporation

                                       TO
                        WALTER H. WALNE, III, AS TRUSTEE

                               FOR THE BENEFIT OF

                          VIKING ASSET MANAGEMENT, LLC

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S
LICENSE NUMBER.

A CARBON, PHOTOGRAPHIC, FACSIMILE OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.

A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE TRUSTEE OR THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY
AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
MORTGAGOR UNDER THIS INSTRUMENT.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.

THIS INSTRUMENT COVERS PROCEEDS OF MORTGAGED PROPERTY.

THIS INSTRUMENT COVERS AS-EXTRACTED COLLATERAL, MINERALS AND OTHER SUBSTANCES OF
VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL
AND GAS), AND ACCOUNTS RESULTING FROM THE SALE OF AS-EXTRACTED COLLATERAL, AND
WHICH WILL BE FINANCED AT THE WELLHEADS OF THE WELL OR WELLS LOCATED ON THE
PROPERTIES DESCRIBED IN EXHIBIT A HERETO. THIS FINANCING STATEMENT IS TO BE
FILED OR FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OR
SIMILAR RECORDS OF THE COUNTY RECORDERS OF THE COUNTIES LISTED ON EXHIBIT A
HERETO. THE MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED,
WHICH INTEREST IS DESCRIBED IN EXHIBIT A ATTACHED HERETO.

<PAGE>

PORTIONS OF THE MORTGAGED PROPERTY ARE GOODS WHICH ARE OR ARE TO BECOME AFFIXED
TO OR FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO IN EXHIBIT A HERETO. THIS
FINANCING STATEMENT IS TO BE FILED FOR RECORD OR RECORDED, AMONG OTHER PLACES,
IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF EACH COUNTY IN WHICH SAID LAND
OR ANY PORTION THEREOF IS LOCATED. THE MORTGAGOR IS THE OWNER OF RECORD INTEREST
IN THE REAL ESTATE CONCERNED. THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX
OF FINANCING STATEMENTS.

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

ARTICLE I

  Grant of Lien and Indebtedness Secured......................................1
  Section 1.01     Grant of Liens.............................................1
  Section 1.02     Grant of Security Interest.................................4
  Section 1.03     Indebtedness Secured.......................................5
  Section 1.04     Fixture Filing, Etc........................................5
  Section 1.05     Defined Terms..............................................5

ARTICLE II

  Assignment of Production, Accounts and Proceeds.............................6
  Section 2.01     Assignment.................................................6
  Section 2.02     [Reserved].................................................7
  Section 2.03     No Modification of Payment Obligations.....................7
  Section 2.04     Effectuating Payment of Production Proceeds to
                   Mortgagee..................................................7
  Section 2.05     Application of Production Proceeds.........................7
  Section 2.06     Release from Liability; Indemnification....................7

ARTICLE III

  Representations, Warranties and Covenants...................................8
  Section 3.01     Title......................................................8
  Section 3.02     Defend Title...............................................9
  Section 3.03     Not a Foreign Person......................................10
  Section 3.04     Rentals, Taxes, Insurance and Fees Paid;  Leases in
                   Effect....................................................10
  Section 3.05     Operation By Third Parties................................10
  Section 3.06     Failure to Perform........................................10
  Section 3.07     Sale......................................................10
  Section 3.08     Sale of Production........................................10
  Section 3.09     Operation of Mortgaged Property...........................11
  Section 3.10     Suits and Claims..........................................13
  Section 3.11     Environmental.............................................13
  Section 3.12     Not Abandon Wells; Participate in Operations..............14
  Section 3.13     Condemnation Awards.......................................15
  Section 3.14     Insurance.................................................15
  Section 3.15     Compliance with Leases....................................15
  Section 3.16     Further Assurance.........................................16
  Section 3.17     Name and Place of Business................................16
  Section 3.18     Compliance with Laws and Agreements.......................16
  Section 3.19     Inspection; Management....................................17

ARTICLE IV

  Rights and Remedies........................................................17
  Section 4.01     Event of Default..........................................17
  Section 4.02     Foreclosure and Sale......................................17
  Section 4.03     Agents....................................................19

                                       i
<PAGE>

  Section 4.04     Judicial Foreclosure; Receivership........................19
  Section 4.05     Foreclosure for Installments..............................20
  Section 4.06     Separate Sales............................................20
  Section 4.07     Possession of Mortgaged Property..........................20
  Section 4.08     Occupancy After Foreclosure...............................20
  Section 4.09     Remedies Cumulative, Concurrent and Nonexclusive..........21
  Section 4.10     No Release of Obligations.................................21
  Section 4.11     Release of and Resort to Collateral.......................21
  Section 4.12     Waiver of Redemption, Notice and Marshalling of
                   Assets, Etc...............................................21
  Section 4.13     Discontinuance of Proceedings.............................22
  Section 4.14     Application of Proceeds...................................22
  Section 4.15     Resignation of Operator...................................22
  Section 4.16     Indemnity.................................................22

ARTICLE V

  Trustee....................................................................23
  Section 5.01     Duties, Rights, and Powers of Trustee.....................23
  Section 5.02     Successor Trustee.........................................23
  Section 5.03     Retention of Moneys.......................................24

ARTICLE VI

  Miscellaneous..............................................................24
  Section 6.01     Instrument Construed as Mortgage, Etc.....................24
  Section 6.02     Release of Mortgage.......................................24
  Section 6.03     Severability..............................................24
  Section 6.04     Successors and Assigns of Parties.........................25
  Section 6.05     Satisfaction of Prior Encumbrance.........................25
  Section 6.06     Subrogation of Trustee....................................25
  Section 6.07     Nature of Covenants.......................................25
  Section 6.08     Notices...................................................25
  Section 6.09     Counterparts..............................................25
  Section 6.10     Effective as a Financing Statement........................25
  Section 6.11     No Impairment of Security.................................26
  Section 6.12     Acts Not Constituting Waiver..............................26
  Section 6.13     Mortgagor's Successors....................................26
  Section 6.14     Certain Consents..........................................26
  Section 6.15     Governing Law.............................................27
  Section 6.16     Exculpation Provisions....................................27
  Section 6.17     FINAL AGREEMENT...........................................27
  Section 6.18     Subrogation; Prior Mortgages..............................27
  Section 6.19     Compliance with Usury Laws................................28
  Section 6.20     Certain Obligations of Mortgagor..........................28
  Section 6.21     Authority of Mortgagee....................................28

                                       ii
<PAGE>

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

         This MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY
AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "Mortgage") is entered
into as of the Effective Date (as hereinafter defined) by SONTERRA RESOURCES,
INC., a Delaware corporation, whose address for notice is 300 East Sonterra
Boulevard, Suite 1220, San Antonio, Texas ("Mortgagor"), to [_________], as
Trustee, whose address for notice is [_________] ("Trustee"), for the benefit of
VIKING ASSET MANAGEMENT, LLC, a California limited liability company, 600
Montgomery Street, 44th Floor, San Francisco, CA 94111, on its own behalf and in
its capacity as collateral agent for the benefit of the holders of the Notes (as
defined below) (together with its successors and assigns, the "Mortgagee").

                                R E C I T A L S:
                                - - - - - - - -

         A.       Pursuant to that certain Amended and Restated Securities
Purchase Agreement dated as of August 3, 2007 (as amended, restated,
supplemented or otherwise modified from time to time, the "Purchase Agreement"),
among Mortgagor, the Principals (as defined therein) and THE LONGVIEW FUND,
L.P., a California limited partnership with its principal offices located at 600
Montgomery Street, 44th Floor, San Francisco, CA 94111 ("Buyer"), Buyer will
purchase from the Mortgagor (i) certain senior secured notes (such notes,
together with any promissory notes or other securities issued in exchange or
substitution therefor or replacement thereof, and as any of the same may be
amended, supplemented, restated or modified and in effect from time to time, the
"Equity Acquisition Notes") in the principal amount of $5,990,010, and (ii)
certain additional senior secured notes (such notes, together with any
promissory notes or other securities issued in exchange or substitution therefor
or replacement thereof, and as any of the same may be amended, supplemented,
restated or modified and in effect from time to time, the "Non-Equity
Acquisition Notes" and, together with the Equity Acquisition Notes, the
"Notes").

         B.       Mortgagor has agreed that all of the Indebtedness (as defined
in Section 1.03 hereof) is intended to be secured in part by this Mortgage and
this Mortgage is to be recorded in those jurisdictions as set forth on Exhibit A
of this Mortgage.

         C.       Buyer has conditioned its obligation to purchase the Notes
upon the execution and delivery by Mortgagor of this Mortgage, and Mortgagor has
agreed to enter into this Mortgage.

         THEREFORE, in order to comply with the terms and conditions of the
Purchase Agreement and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Mortgagor hereby agrees with
Trustee and Mortgagee as follows:

                                   ARTICLE I
                     Grant of Lien and Indebtedness Secured
                     --------------------------------------

         Section 1.01   Grant of Liens. To secure payment of the Indebtedness
and the performance of the covenants and obligations herein contained and
contained in the Purchase Agreement and any other Loan Document to which
Mortgagor is a party, Mortgagor does by these presents hereby GRANT, BARGAIN,
SELL, ASSIGN, MORTGAGE, PLEDGE, HYPOTHECATE, TRANSFER and CONVEY unto Trustee
and Trustee's successors and substitutes in trust hereunder, WITH A POWER OF
SALE, for the use

                                       1
<PAGE>

and benefit of Mortgagee, the real and personal property, rights, titles,
interests and estates described in the following paragraphs (a) through (g)
(collectively called the "Mortgaged Property"):

         (a)      All estates now owned or hereafter acquired by Mortgagor in
and to the oil and gas leases and/or oil, gas and other mineral leases, other
mineral properties, mineral servitudes and/or mineral rights, "as extracted
collateral" as defined in the Applicable UCC (as defined in Section 1.02) and
other interests and estates and the lands and premises covered or affected
thereby which are described on Exhibit A hereto without regard to any
limitations as to specific lands or depths that may be set forth in Exhibit A
(collectively called the "Hydrocarbon Property") or which Hydrocarbon Property
is otherwise referred to herein, and specifically, but without limitation, the
undivided interests of Mortgagor which are more particularly described on
attached Exhibit A.

         (b)      All estates now owned or hereafter acquired by Mortgagor in
and to (i) the properties now or hereafter pooled or unitized with any
Hydrocarbon Property; (ii) all presently existing or future unitization,
communitization, pooling agreements and designations, orders or declarations of
pooled units and the units created thereby (including, without limitation, all
units created under orders, regulations, rules or other official acts of any
Federal, State or other governmental body or agency having jurisdiction and any
units created solely among working interest owners pursuant to operating
agreements or otherwise) which may affect all or any portion of the Hydrocarbon
Property including, without limitation, those units which may be described or
referred to on attached Exhibit A; (iii) all operating agreements, production
sales or other contracts, processing agreements, transportation agreements, gas
balancing agreements, farmout agreements, farm-in agreements, salt water
disposal agreements, area of mutual interest agreements, equipment leases and
other agreements described or referred to in this Mortgage or which relate to
any of the Hydrocarbon Property or interests in the Hydrocarbon Property
described or referred to herein or on attached Exhibit A or to the production,
sale, purchase, exchange, processing, handling, storage, transporting or
marketing of the Hydrocarbons (as defined in Section 1.01(c) hereof) from or
attributable to such Hydrocarbon Property or interests; (iv) all geological,
geophysical, engineering, accounting, title, legal, and other technical or
business data concerning the Hydrocarbon Property, the Hydrocarbons, or any
other item of Hydrocarbon Property which are in the possession of Mortgagor or
in which Mortgagor can otherwise grant a security interest, and all books,
files, records, magnetic media, computer records, and other forms of recording
or obtaining access to such data; and (v) the Hydrocarbon Property described on
attached Exhibit A and covered by this Mortgage even though Mortgagor's
interests therein be incorrectly described or a description of a part or all of
such Hydrocarbon Property or Mortgagor's interests therein be omitted; it being
intended by Mortgagor and Mortgagee herein to cover and affect hereby all
interests which Mortgagor may now own or may hereafter acquire in and to the
Hydrocarbon Property notwithstanding that the interests as specified on Exhibit
A may be limited to particular lands, specified depths or particular types of
property interests.

         (c)      All rights, titles, interests and estates now owned or
hereafter acquired by Mortgagor in and to all oil, gas, casinghead gas,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined therefrom and all other minerals (collectively called the
"Hydrocarbons") in and under and which may be produced and saved from or
attributable to the Hydrocarbon Property, the lands pooled or unitized therewith
and Mortgagor's interests therein, including all oil in tanks and all rents,
issues, profits, proceeds, products, revenues and other income from or
attributable to the Hydrocarbons, the Hydrocarbon Property, the lands pooled or
unitized therewith and Mortgagor's interests therein.

         (d)      All tenements, hereditaments, appurtenances and properties in
anywise appertaining, belonging, affixed or incidental to the Hydrocarbon
Property, and estates described or referred to in paragraphs (a) and (b) above,
which are now owned or which may hereafter be acquired by Mortgagor, including,
without limitation, any and all property, real or personal, now owned or
hereafter acquired and situated upon, used, held for use, or useful in

                                       2
<PAGE>

connection with the operating, working, extraction, treatment, marketing,
gathering, transmission or development of any of such Hydrocarbon Property or
the lands pooled or unitized therewith (excluding drilling rigs, trucks,
automotive equipment or other personal property which may be taken to the
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, field separators, liquid extraction plants, plant
compressors, pumps, pumping units, pipelines, sales and flow lines, gathering
systems, field gathering systems, salt water disposal facilities, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, goods, inventory, equipment, appliances, tools, implements,
cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way,
easements, servitudes, licenses and other surface and subsurface rights together
with all additions, substitutions, replacements, accessions and attachments to
any and all of the foregoing properties.

         (e)      Any property that may from time to time hereafter, by delivery
or by writing of any kind, be subjected to the lien and security interest hereof
by Mortgagor or by anyone on Mortgagor's behalf; and Trustee or Mortgagee is
hereby authorized to receive the same at any time as additional security
hereunder.

         (f)      All of the rights, titles and interests of every nature
whatsoever now owned or hereafter acquired by Mortgagor in and to the
Hydrocarbon Property rights, titles, interests and estates and every part and
parcel thereof, including, without limitation, the Hydrocarbon Property rights,
titles, interests and estates as the same may be enlarged by the discharge of
any payments out of production or by the removal of any charges or Permitted
Liens to which any of the Hydrocarbon Property rights, titles, interests or
estates are subject, or otherwise; 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 in ss.9.343 of the Applicable UCC, as amended from time to
time, any other statute enacted in the jurisdiction in which the Hydrocarbon
Property is located or statute made applicable to the Hydrocarbon Property under
federal law (or some combination of federal and state law); together with any
and all renewals and extensions of any of the Hydrocarbon Property rights,
titles, interests or estates; all contracts and agreements supplemental to or
amendatory of or in substitution for the contracts and agreements described or
mentioned above; and any and all additional interests of any kind hereafter
acquired by Mortgagor in and to the Hydrocarbon Property rights, titles,
interests or estates.

         (g)      All accounts, contract rights, inventory, choses in action
(i.e., rights to enforce contracts or to bring claims thereunder), commercial
tort claims, general intangibles, insurance contracts and insurance proceeds
(regardless of whether the same arose, and/or the events which gave rise to the
same occurred, on or before or after the date hereof) and all proceeds and
products of all such portions of the Hydrocarbon Property and payments in lieu
of production, whether such proceeds or payments are goods, money, documents,
instruments, chattel paper, securities, accounts, general intangibles, fixtures,
real property, or other assets and regardless of whether such payments accrued,
and/or the events which gave rise to such payments occurred, on or before or
after the date hereof, including, without limitation, "take or pay" payments and
similar payments, payments received in settlement of or pursuant to a judgment
rendered with respect to take or pay or similar obligations or other obligations
under a production sales contract, payments received in buyout or buydown or
other settlement of a production sales contract, and payments received under a
gas balancing or similar agreement as a result of (or received otherwise in
settlement of or pursuant to judgment rendered with respect to) rights held by
Mortgagor as a result of Mortgagor (and/or its predecessors in title) taking or
having taken less gas from lands covered by a Hydrocarbon Property (or lands
pooled or unitized therewith) than its ownership of such Hydrocarbon Property
would entitle it to receive.

                                       3
<PAGE>

         (h)      Without limitation of the generality of the foregoing, any
rights and interests of Mortgagor under any present or future hedge or swap
agreements, cap, floor, collar, exchange, forward or other hedge or protection
agreements or transactions relating to crude oil, natural gas or other
Hydrocarbons, or any option with respect to any such agreement or transaction
now existing or hereafter entered into by or on behalf of Mortgagor.

         (i)      All licenses, permits and other regulatory approvals held by
Mortgagor relating to the Mortgaged Property.

         (j)      All proceeds of all of the rights, titles and interests of
Mortgagor described in the foregoing paragraphs (a) through (i) whether such
proceeds or payments are goods, money, documents, instruments, chattel paper,
securities, accounts, payment intangibles, general intangibles, fixtures,
real/immovable property, personal/movable property or other assets.

         (k)      In addition to the rights granted to Trustee and/or Mortgagee
in Section 1.01(f) of this Mortgage, any and all liens, security interests,
financing statements or similar interests of Mortgagor attributable to its
interest in the Hydrocarbons and proceeds of runs therefrom arising under or
created by any statutory provision, judicial decision or otherwise.

         (l)      All of Mortgagor's rights and interests pursuant to the
provisions of ss.9.343 of the Applicable UCC and of any similar state or local
jurisdiction statute in any state wherein the Mortgaged Property is located,
hereby vesting in Trustee and/or Mortgagee all of Mortgagor's rights as an
interest owner to the continuing security interest in and liens upon the
Mortgaged Property.

         Any fractions or percentages specified on attached Exhibit A in
referring to Mortgagor's interests are solely for purposes of the warranties
made by Mortgagor pursuant to Sections 3.01 and 3.05 hereof and shall in no
manner limit the quantum of interest affected by this Section 1.01 with respect
to any Hydrocarbon Property or with respect to any unit or well identified on
said Exhibit A.

         TO HAVE AND TO HOLD the Mortgaged Property unto Trustee and to its
successors and assigns forever to secure the payment of the Indebtedness and to
secure the performance of the covenants, agreements, and obligations of
Mortgagor herein contained.

         Section 1.02   Grant of Security Interest. To further secure the
Indebtedness, Mortgagor hereby grants to Mortgagee a security interest in and to
the Mortgaged Property (whether now or hereafter acquired by operation of law or
otherwise) insofar as the Mortgaged Property consists of equipment, accounts,
contract rights, general intangibles, insurance contracts, insurance proceeds,
inventory, Hydrocarbons, fixtures and any and all other personal property of any
kind or character defined in and subject to the provisions of the Uniform
Commercial Code presently in effect in the jurisdiction in which the Mortgaged
Property is situated ("Applicable UCC"), including the proceeds and products
from any and all of such personal property. Upon the happening of any of the
Events of Default (as defined in Section 4.01), Mortgagee is and shall be
entitled to all of the rights, powers and remedies afforded a secured party by
the Applicable UCC with reference to the personal property and fixtures in which
Mortgagee has been granted a security interest herein, or Trustee or Mortgagee
may proceed as to both the real and personal property covered hereby in
accordance with the rights and remedies granted under this Mortgage in respect
of the real property covered hereby. Such rights, powers and remedies shall be
cumulative and in addition to those granted to Trustee or Mortgagee under any
other provision of this Mortgage or under any other security instrument. Written
notice mailed to Mortgagor as provided herein at least five (5) Business Days
prior to the date of public sale of any part of the Mortgaged Property which is
personal property subject to the provisions of the Applicable UCC, or prior to
the date after which private sale of any such part of the Mortgaged Property

                                       4
<PAGE>

will be made, shall constitute reasonable notice. Except as otherwise expressly
provided in this Mortgage, all terms in this Mortgage relating to the Mortgaged
Property and the grant of the foregoing security interest which are defined in
the Applicable UCC shall have the meanings assigned to them in Article 9 (or,
absent definition in Article 9, in any other Article) of the Applicable UCC, as
those meanings may be amended, revised or replaced from time to time.
Notwithstanding the foregoing, the parties intend that the terms used herein
which are defined in the Applicable UCC have, at all times, the broadest and
most inclusive meanings possible.

         Section 1.03   Indebtedness Secured. This Mortgage is executed and
delivered by Mortgagor to secure and enforce the following (the "Indebtedness"):

         (a)      Payment of and performance of any and all indebtedness,
obligations and liabilities of Mortgagor pursuant to the Purchase Agreement.

         (b)      Payment of and performance of any and all other indebtedness,
obligations and liabilities of Mortgagor and any direct or indirect subsidiary
of Mortgagor (collectively, the "Mortgagor Parties" and each, individually, a
"Mortgagor Party") pursuant to the Purchase Agreement, the Notes, the other
Security Documents (as defined in the Notes) and all of the other agreements,
documents and instruments contemplated thereby and executed in connection
therewith (collectively, the "Loan Documents"), including, without limitation,
(i) principal and interest (including without limitation, interest accruing
subsequent to the filing of a petition or other action concerning bankruptcy or
other similar proceeding, whether or not an allowed claim) on the Notes, (ii)
reimbursement obligations under any letters of credit, (iii) obligations under
any hedging agreements with Buyer or its affiliates, and (iv) obligations owing
under any other Loan Document; and all renewals, extensions, rearrangements
and/or other modifications of any of the foregoing.

         (c)      Any sums which may be advanced or paid by Mortgagee, Trustee
or Buyer under the terms hereof or under any other Loan Document on account of
the failure of Mortgagor or any other Mortgagor Party to comply with the
covenants contained herein or in any other Loan Document; and all other
indebtedness of the Mortgagor Parties arising pursuant to the provisions of the
Loan Documents, this Mortgage and any other documents or instruments executed in
connection therewith.

         (d)      Without limiting the generality of the foregoing, all
post-petition interest, expenses and other duties and liabilities with respect
to indebtedness or other obligations described above in this Section 1.03, which
would be owed but for the fact that they are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding.

         Section 1.04   Fixture Filing, Etc. Without in any manner limiting the
generality of any of the other provisions of this Mortgage: (i) some portions of
the goods described or to which reference is made herein are or are to become
fixtures on the land described or to which reference is made herein or on
attached Exhibit A; (ii) the security interests created hereby under applicable
provisions of the Applicable UCC will attach to Hydrocarbons (minerals including
oil and gas), as extracted collateral or the accounts resulting from the sale
thereof at the wellhead or minehead located on the land described or to which
reference is made herein; (iii) this Mortgage is to be filed of record in the
real estate records as a financing statement, and (iv) Mortgagor is the record
owner of the real estate or interests in the real estate comprised of the
Mortgaged Property.

         Section 1.05   Defined Terms. Any capitalized term used in this
Mortgage and not defined in this Mortgage shall have the meaning assigned to
such term in the Purchase Agreement.

                                       5
<PAGE>

                                   ARTICLE II
                 Assignment of Production, Accounts and Proceeds
                 -----------------------------------------------

         Section 2.01   Assignment. Mortgagor has absolutely and unconditionally
assigned, transferred, and conveyed, and does hereby absolutely and
unconditionally assign, transfer and convey unto Mortgagee, its successors and
assigns, all of the Hydrocarbons and all products obtained or processed
therefrom, and the revenues and proceeds now and hereafter attributable to the
Hydrocarbons and said products and all accounts arising therefrom or in
connection therewith and all payments in lieu of the Hydrocarbons such as "take
or pay" payments or settlements (all of the foregoing, the "Production
Proceeds"), together with the immediate and continuing right, subject to the
remaining provisions of this Section 2.01 and of Section 4(r) of the Purchase
Agreement, to collect and receive such Production Proceeds. The Hydrocarbons and
products are to be delivered into pipe lines connected with the Mortgaged
Property, or to the purchaser thereof, to the credit of Mortgagee (to the extent
of the Mortgagor's interest therein); and all Production Proceeds shall
initially be deposited into a Deposit Account (as defined in the Security
Agreement) subject to an Account Control Agreement (as defined in the Security
Agreement). No party paying any Production Proceeds shall have any duty or
obligation to inquire into any of the rights of Mortgagee under this Section
2.01, what application is made of the Production Proceeds, or as to any other
matter. Mortgagor directs and instructs any and all purchasers of any
Hydrocarbons to pay to such Deposit Accounts all of the Production Proceeds
accruing to Mortgagor's interest until such time as such purchasers have been
furnished with evidence that all Indebtedness has been paid in full in cash and
that this Mortgage has been released. Mortgagor agrees that no purchasers of the
Hydrocarbons shall have any responsibility for the application of any funds paid
to Mortgagee. Mortgagor agrees to perform all such acts, and to execute all such
further assignments, transfer orders and division orders, and other instruments
as may be required or desired by Mortgagee or any party in order to have the
Production Proceeds paid to Mortgagee. Without limiting the generality of the
foregoing, upon the occurrence and during the continuation of an Event of
Default, Mortgagee is fully authorized to receive and receipt for the Production
Proceeds; to endorse and cash any and all checks and drafts payable to the order
of Mortgagor or Mortgagee for the account of Mortgagor received from or in
connection with the Production Proceeds and, in accordance with Section 4.5(b)
of the Security Agreement, to hold the Production Proceeds in a bank account as
additional collateral securing the Indebtedness; and to execute transfer and
division orders in the name of Mortgagor, or otherwise, with warranties binding
Mortgagor. All Production Proceeds received by Mortgagee pursuant to this
Section 2.01 after an Event of Default has occurred shall be applied as provided
in the other Loan Documents. Mortgagee shall not be liable for any delay,
neglect or failure to effect collection of any Production Proceeds or to take
any other action in connection therewith or hereunder; but Mortgagee shall have
the right, exercisable at its election at any time after an Event of Default has
occurred and is continuing, in the name of Mortgagor or otherwise, to prosecute
and defend any and all actions or legal proceedings deemed advisable by
Mortgagee in order to collect such funds and to protect the interests of
Mortgagee and/or Mortgagor, with all reasonable costs, expenses and attorneys'
fees incurred in connection therewith being paid by Mortgagor and until so paid
being a part of the Indebtedness secured by this Mortgage. Mortgagor agrees to
perform all such acts, and to execute all such further assignments, transfer
orders and division orders, and other instruments as may be required or desired
by Mortgagee or any party in order to effectuate the provisions contained in
this Section 2.01. Mortgagor hereby appoints Mortgagee as its attorney-in-fact
to pursue any and all rights of Mortgagor to liens on and security interests in
the Hydrocarbons securing payment of proceeds of runs attributable to the
Hydrocarbons, provided Mortgagee shall only be permitted to exercise such power
of attorney granted pursuant to this sentence after the occurrence and during
the continuation of an Event of Default. The power of attorney granted to
Mortgagee in this Section 2.01, being coupled with an interest, shall be
irrevocable so long as the Indebtedness or any part thereof remains unpaid.

                                       6
<PAGE>

         Section 2.02   [Reserved].

         Section 2.03   No Modification of Payment Obligations. Nothing herein
contained shall modify or otherwise alter, limit or modify the absolute
obligation of Mortgagor and the other Mortgagor Parties to make prompt payment
of all principal, interest and other amounts owing on the Indebtedness when and
as the same become due regardless of whether the Production Proceeds are
sufficient to pay the same and the rights provided in accordance with the
foregoing assignment provision shall be cumulative of all other security of any
and every character now or hereafter existing to secure payment of the
Indebtedness.

         Section 2.04   Effectuating Payment of Production Proceeds to
Mortgagee. If under any existing sales agreements, other than division orders or
transfer orders, any Production Proceeds are required to be paid by the
purchaser to Mortgagor so that under such existing agreements payment cannot be
made of such Production Proceeds to Mortgagee, Mortgagor's interest in all
Production Proceeds under such sales agreements and in all other Production
Proceeds which for any reason may be paid to Mortgagor shall, when received by
Mortgagor, constitute trust funds in Mortgagor's hands and shall be immediately
paid over to Mortgagee. Without limitation upon any of the foregoing, Mortgagor
hereby constitutes and appoints Mortgagee as Mortgagor's special
attorney-in-fact (with full power of substitution, either generally or for such
periods or purposes as Mortgagee may from time to time prescribe) in the name,
place and stead of Mortgagor to do any and every act and exercise any and every
power that Mortgagor might or could do or exercise personally with respect to
all Hydrocarbons and Production Proceeds expressly inclusive, but not limited
to, giving and granting unto said attorney-in-fact full power and authority to
do and perform any and every act and thing whatsoever necessary and requisite to
be done as fully and to all intents and purposes, as Mortgagor might or could do
if personally present (provided such power of attorney granted pursuant to this
sentence shall only be exercisable by Mortgagee upon the occurrence and during
the continuation of an Event of Default); and Mortgagor shall be bound thereby
as fully and effectively as if Mortgagor had personally executed, acknowledged
and delivered any of the foregoing certificates or documents. The powers and
authorities herein conferred upon Mortgagee may be exercised by Mortgagee
through any person who, at the time of the execution of the particular
instrument, is an officer of Mortgagee. The power of attorney herein conferred
is granted for valuable consideration and hence is coupled with an interest and
is irrevocable so long as the Indebtedness, or any part thereof, shall remain
unpaid or any commitment to lend under the Purchase Agreement remains
outstanding. All persons dealing with Mortgagee or any substitute shall be fully
protected in treating the powers and authorities conferred by this paragraph as
continuing in full force and effect until advised by Mortgagee that all the
Indebtedness is fully and totally paid. Mortgagee may, but shall not be
obligated to, in accordance with the provisions of Section 2.01 above, take such
action as it deems reasonably appropriate in an effort to collect the Production
Proceeds and any reasonable expenses (including reasonable attorney's fees) so
incurred by Mortgagee shall be a demand obligation of Mortgagor and shall be
part of the Indebtedness, and shall bear interest each day, from the date of
such expenditure or payment until paid, at the Applicable Interest Rate (as
defined in the Notes).

         Section 2.05   Application of Production Proceeds. The Production
Proceeds received by Mortgagee shall be paid directly into a Deposit Account in
accordance with Section 2.01 hereof. After an Event of Default hereunder has
occurred, all Production Proceeds from time to time in the hands of Mortgagee
shall be applied to the payment of the Indebtedness at such times and in such
manner and order as Mortgagee determines in Mortgagee's sole and absolute
discretion.

         Section 2.06   Release from Liability; Indemnification. Mortgagee and
its successors and assigns are hereby released and absolved from all liability
for failure to enforce collection of the Production Proceeds and from all other
responsibility in connection therewith, except the responsibility to account to
Mortgagor for funds actually received. Mortgagor agrees to indemnify and hold
harmless Mortgagee (for purposes of this paragraph, the term "Mortgagee" shall

                                       7
<PAGE>

include the directors, officers, partners, employees and agents of Mortgagee and
any persons or entities owned or controlled by or affiliated with Mortgagee and
any other Indemnified Party as defined in Section 4.16 hereof) from and against
all claims, demands, liabilities, losses, damages (including without limitation
consequential damages), causes of action, judgments, penalties, costs and
expenses (including without limitation reasonable attorneys' fees and expenses)
imposed upon, asserted against or incurred or paid by Mortgagee by reason of the
assertion that Mortgagee received, either before or after payment in full of the
Indebtedness, funds from the production of oil, gas, other hydrocarbons or other
minerals claimed by third persons (and/or funds attributable to sales of
production which were made in violation of laws, rules, regulations and/or
orders governing such sales), and Mortgagee shall have the right to defend
against any such claims or actions, employing attorneys of its own selection,
and if not furnished with indemnity satisfactory to it, Mortgagee shall have the
right to compromise and adjust any such claims, actions and judgments, and in
addition to the rights to be indemnified as herein provided, all amounts paid by
Mortgagee in compromise, satisfaction or discharge of any such claim, action or
judgment, and all court costs, reasonable attorneys' fees and other expenses of
every character expended by Mortgagee pursuant to the provisions of this section
shall be a demand obligation (which obligation Mortgagor hereby expressly
promises to pay) owing by Mortgagor to Mortgagee and shall bear interest, from
the date expended until paid at the Applicable Interest Rate (as defined in the
Notes). The foregoing indemnities shall not terminate upon the release,
foreclosure or other termination of this Mortgage but will survive the release,
foreclosure of this Mortgage or conveyance in lieu of foreclosure, and the
repayment of the Indebtedness and the discharge and release of this Mortgage and
the other documents evidencing and/or securing the Indebtedness. WITHOUT
LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT THE
FOREGOING RELEASES AND INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH
RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING, WITHOUT
LIMITATION, CONSEQUENTIAL DAMAGES), CAUSES OF ACTION, JUDGMENTS, PENALTIES,
COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES
AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE
NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY, EXCLUDING THE GROSS
NEGLIGENCE AND WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY. However, such
indemnities shall not apply to any particular indemnified party (but shall apply
to the other indemnified parties) to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such particular indemnified party.

                                  ARTICLE III
                    Representations, Warranties and Covenants
                    -----------------------------------------

         Mortgagor hereby covenants with the Mortgagee, and represents and
warrants to the Mortgagee that, immediately after giving effect to the
consummation of the Cinco Purchase:

         Section 3.01   Title. Mortgagor has good and indefeasible title to the
Mortgaged Property. With respect to each Mortgaged Property, the ownership of
Mortgagor in such Mortgaged Property does and will, (i) with respect to each
tract of land described in Exhibit A hereto, (whether described directly in such
Exhibit A or described by reference to another instrument) in connection with
such Mortgaged Property, (A) entitle Mortgagor to receive (subject to the terms
and provisions of this Mortgage) a decimal or percentage share of the oil, gas
and other hydrocarbons produced from, or allocated to, such tract equal to not
less than the percentage share set forth in Exhibit A in connection with such
tract in the column headed "NRI", (B) cause Mortgagor to be obligated to bear a
percentage share of the cost of exploration, development and operation of such

                                       8
<PAGE>

tract of land not greater than the percentage share set forth in Exhibit A in
connection with such tract in the column headed "WI", and (ii) if such Mortgaged
Property is shown on Exhibit A to be subject to a unit or units, with respect to
each such unit, (A) entitle Mortgagor to receive (subject to the terms and
provisions of this Mortgage) a percentage share of all substances covered by
such unit which are produced from, or allocated to, such unit equal to not less
than the percentage share set forth in Exhibit A in connection with such
Mortgaged Property in connection with such tract in the column headed "NRI",
(and if such Mortgaged Property is subject to more than one unit, words
identifying such interest with such unit), and (B) obligate Mortgagor to bear a
percentage share of the cost of exploration, development and operation of such
unit not greater than the percentage share set forth in Exhibit A in connection
with such tract in the column headed "WI", (and if such Mortgaged Property is
subject to more than one unit, words identifying such interest with such unit).
With respect to each Mortgaged Property described in Exhibit A hereto (or in any
of the instruments described or referred to in Exhibit A) which is subject to a
voluntary or involuntary pooling, unitization or communitization agreement
and/or order, the term "tract of land" as used in this Section 3.01 shall mean
the pooled, unitized or communitized area as an entirety and shall not be deemed
to refer to any individual tract committed to said pooled, unitized or
communitized area. Without limitation of the foregoing, the ownership by
Mortgagor of the Mortgaged Properties does and will, with respect to each well
or unit identified on Exhibit A attached hereto and made a part hereof, entitle
Mortgagor to receive (subject to the terms and provisions of this Mortgage) a
percentage share of the oil, gas and other hydrocarbons produced from, or
allocated to, such well or unit equal to not less than the percentage share set
forth, for such well or unit, in the column headed "NRI" on Exhibit A, and cause
Mortgagor to be obligated to bear a percentage share of the cost of operation of
such well or unit equal to not more than the decimal or percentage share set
forth, for such well or unit, in the column headed "WI" on Exhibit A. The
above-described shares of production which Mortgagor is entitled to receive and
shares of expenses which Mortgagor is obligated to bear are not and will not be
subject to change (other than changes which arise pursuant to non-consent
provisions of operating agreements described in Exhibit A in connection with
operations hereafter proposed), except, and only to the extent that, such
changes are reflected in Exhibit A. Any fractional, percentage or decimal
interests specified in Exhibit A in referring to Mortgagor's interest in the
Mortgaged Property are solely for the purposes of the representations and
warranties set forth herein and shall in no manner limit the quantum of the
interests of the Mortgagor or the Mortgagee in the Mortgaged Property mortgaged
and pledged by the Mortgagor hereunder. The Mortgaged Property is free and clear
of all Liens other than (i) Permitted Liens and (ii) the other encumbrances set
forth in Exhibit A.

         Section 3.02   Defend Title. This Mortgage is a direct first Lien and
security interest upon the Mortgaged Property, subject only to Permitted Liens.
This Mortgage will always be kept a direct first Lien and security interest upon
the Mortgaged Property, and Mortgagor will not grant, incur or create or suffer
to be created or permit to exist any Lien, security interest or charge prior or
junior to or on a parity with the Lien and security interest of this Mortgage
upon the Mortgaged Property or any part thereof or upon the rents, issues,
revenues, profits and other income therefrom, other than Permitted Liens.
Mortgagor will warrant and defend the title to the Mortgaged Property against
the claims and demands of all other persons whomsoever and will maintain and
preserve the Lien created hereby so long as any of the Indebtedness secured
hereby remains unpaid. Should an adverse claim be made against or a cloud
develop upon the title to any part of the Mortgaged Property, other than
Permitted Liens, Mortgagor agrees it will timely defend against such adverse
claim or take appropriate action to remove such cloud at Mortgagor's cost and
expense, and Mortgagor further agrees that Trustee and/or Mortgagee may take
such other action as they deem reasonably advisable to protect and preserve
their interests in the Mortgaged Property, and in such event Mortgagor will
indemnify Trustee and Mortgagee against any and all cost, attorney's fees and
other expenses which they may incur in defending against any such adverse claim
or taking action to remove any such cloud.

                                       9
<PAGE>

         Section 3.03   Not a Foreign Person. Mortgagor is not a "foreign
person" within the meaning of the Internal Revenue Code of 1986, as amended
(hereinafter called the "Code"), Sections 1445 and 7701 (i.e. Mortgagor is not a
non-resident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined in the Code and any regulations
promulgated thereunder).

         Section 3.04   Rentals, Taxes, Insurance and Fees Paid; Leases in
Effect. All rentals and royalties due and payable in accordance with the terms
of any leases or subleases comprising a part of the Hydrocarbon Property and all
severance and production taxes payable with respect to the production therefrom
have been duly paid or provided for and all leases or subleases comprising a
part of the Hydrocarbon Property are in full force and effect. In addition to
the foregoing, Mortgagor shall or shall cause to be paid when due, all taxes,
permits, licenses, insurance premiums and other similar amounts with respect to
the Mortgaged Property, the Hydrocarbon Property and the Hydrocarbons.

         Section 3.05   Operation By Third Parties. As to any part of the
Mortgaged Property which is not a working interest (if any), Mortgagor agrees to
take all such action and to exercise all rights and remedies as are reasonably
available to Mortgagor to cause the owner or owners of the working interest in
such properties to comply with the covenants and agreements contained herein;
and as to any part of the Mortgaged Property which is a working interest but
which is operated by a party other than Mortgagor, Mortgagor agrees to take all
such action and to exercise all rights and remedies as are reasonably available
to Mortgagor (including, but not limited to, all rights under any operating
agreement) to cause the party who is the operator of such property to comply
with the covenants and agreements contained herein.

         Section 3.06   Failure to Perform. Mortgagor agrees that if Mortgagor
fails to perform any act or to take any action which Mortgagor is required to
perform or take hereunder or pay any money which Mortgagor is required to pay
hereunder, each of Mortgagee and Trustee in Mortgagor's name or its or their own
name may, but shall not be obligated to, perform or cause to be performed such
act or take such action or pay such money, and any expenses so incurred by
either of them and any money so paid by either of them shall be a demand
obligation owing by Mortgagor to Mortgagee or Trustee, as the case may be, and
each of Mortgagee and Trustee, upon making such payment, shall be subrogated to
all of the rights of the Person receiving such payment. Each amount due and
owing by Mortgagor to each of Mortgagee and Trustee pursuant to this Mortgage
shall bear interest from the date of such expenditure or payment or other
occurrence which gives rise to such amount being owed to such Person until paid
at the Applicable Interest Rate, and all such amounts together with such
interest thereon shall be a part of the Indebtedness described in Section 1.03
hereof.

         Section 3.07   Sale of Mortgaged Property. Any proposed sale, transfer,
farm-out, assignment or other disposition of the Mortgaged Property by the
Mortgagor shall be governed by the provisions of Section 5(f) of the Purchase
Agreement; provided, that Mortgagor shall, except after the occurrence and
during the continuation of an Event of Default, be permitted to (i) sell
Hydrocarbons in the ordinary course of business in compliance with the terms of
this Mortgage and (ii) sell or otherwise dispose of obsolete or worn out
equipment or personal property which is replaced with property of equal or
greater value in the ordinary course of business.

         Section 3.08   Sale of Production. No Mortgaged Property is or will
become subject to any contractual or other arrangement (a) whereby payment for
production is or can be deferred for a substantial period after the month in
which such production is delivered (i.e., in the case of oil, not in excess of
sixty (60) days, and in the case of gas, not in excess of ninety (90) days) or
(b) whereby payments are made to Mortgagor other than by checks, drafts, wire
transfer advises or other similar writings, instruments or communications for
the immediate payment of money. Except for transportation, gathering,

                                       10
<PAGE>

processing, compression or dehydration agreements (or other agreements relating
to the marketing of Hydrocarbons) from time to time disclosed to Mortgagee in
writing (in connection with the Mortgaged Property to which they relate), and,
with respect to the immediately succeeding clause (i), except for agreements
entered into by Mortgagor in the ordinary course of business consistent with
prudent customs and practices in the industry in which Mortgagor operates, (i)
no Mortgaged Property is or will become subject to any contractual or other
arrangement for the sale, processing or transportation of production (or
otherwise related to the marketing of Hydrocarbons) which cannot be cancelled on
90 days (or less) notice and (ii) all contractual or other arrangements for the
sale, processing or transportation of Hydrocarbons (or otherwise related to the
marketing of Hydrocarbons) shall be bona fide arm's length transactions and
shall be at generally prevailing market prices. Mortgagor is presently receiving
a price for all production from (or attributable to) each Mortgaged Property
covered by a production sales contract disclosed in writing to Mortgagee as
computed in accordance with the terms of such contract, and is not having
deliveries of production from such Mortgaged Property curtailed substantially
below such property's delivery capacity. Neither Mortgagor nor, to the best of
Mortgagor's knowledge, any of its predecessors in title, has received
prepayments (including, but not limited to, payments for gas not taken pursuant
to "take or pay" or other similar arrangements) for any Hydrocarbons produced or
to be produced from the Mortgaged Properties after the date hereof, and
Mortgagor hereby covenants not to enter into any such advance or prepayment
arrangements whereby it accepts consideration for Hydrocarbons not yet produced.
No Mortgaged Property is or will become subject to any "take or pay" or other
similar arrangement (y) which can be satisfied in whole or in part by the
production or transportation of gas from other properties or (z) as a result of
which production from the Mortgaged Properties may be required to be delivered
to one or more third parties without payment (or without full payment) therefor
as a result of payments made, or other actions taken, with respect to other
properties. There is no Mortgaged Property with respect to which Mortgagor, or,
to the best of Mortgagor's knowledge, its predecessors in title, has, prior to
the date hereof, taken more ("overproduced"), or less ("underproduced"), gas
from the lands covered thereby (or pooled or unitized therewith) than its
ownership interest in such Mortgaged Property would entitle it to take, except
in the ordinary course of business consistent with prudent customs and practices
in the industry in which Mortgagor operates. Mortgagor will not after the date
hereof become "overproduced" (as above defined) with respect to any well on the
Mortgaged Property (or on any unit in which the Mortgaged Property participate),
in an amount in excess of Mortgagor's share of gas produced from such well,
except in the ordinary course of business consistent with prudent customs and
practices in the industry in which Mortgagor operates. No Mortgaged Property is
or will become subject to a gas balancing arrangement under which one or more
third parties may take a portion of the production attributable to such
Mortgaged Property without payment (or without full payment) therefor as a
result of production having been taken from, or as a result of other actions or
inactions with respect to, other properties, except for any such gas balancing
arrangement entered into in the ordinary course of business consistent with
prudent customs and practices in the industry in which Mortgagor operates. No
Mortgaged Property is subject at the present time to any regulatory refund
obligation and, to the best of Mortgagor's knowledge, no facts exist which might
cause the same to be imposed.

         Section 3.09   Operation of Mortgaged Property. The Mortgagor will
promptly pay and discharge or cause to be paid and discharged all rentals, delay
rentals, royalties and indebtedness accruing under, and perform or cause to be
performed each and every act, matter or thing required by, each and all of the
assignments, deeds, subject leases, sub-leases, contracts and agreements
described or referred to herein or affecting the Mortgagor's interests in the
Mortgaged Property and will do or cause to be done all other things reasonably
necessary to keep unimpaired the Mortgagor's rights with respect thereto and
prevent any intentional forfeiture thereof or default with respect thereto,
other than a default which might occur as a result of cessation of production
thereunder. Except as could not reasonably be expected, either individually or
in the aggregate, to have a Material Adverse Effect, the Mortgaged Property (and

                                       11
<PAGE>

properties unitized therewith) is being (and, to the extent the same could
adversely affect the ownership or operation of such Mortgaged Property after the
date hereof, have in the past been), and hereafter will be maintained, operated
and developed in a good and workmanlike manner in accordance with customary
industry standards and in conformity with all applicable laws and all rules,
regulations and orders of all duly constituted authorities having jurisdiction
and in conformity with all oil, gas and/or other mineral leases and other
agreements forming part of the Mortgaged Property and in conformity with all
Permitted Liens; specifically in this connection, (i) no Mortgaged Property is
subject to having allowable production after the date hereof reduced below the
full and regular allowable (including the maximum permissible tolerance) because
of any overproduction (whether or not the same was permissible at the time)
prior to the date hereof and (ii) none of the wells located on the Mortgaged
Property (or properties unitized therewith) are or will be deviated from the
vertical more than the maximum permitted by applicable laws, regulations, rules
and orders, and such wells are, and will remain, bottomed under and producing
from, with the well bores wholly within, the Mortgaged Property (or, in the case
of wells located on properties unitized therewith, such unitized properties).
With respect to any Mortgaged Property in which Mortgagor is the operator in
connection therewith or in which Mortgagor has a majority working interest (and
to the best of Mortgagor's knowledge with respect to any Mortgaged Property in
which Mortgagor has a minority working interest and is not an operator in
connection therewith), there are no dry holes, or otherwise inactive wells,
located on any Mortgaged Property or on lands pooled or unitized therewith
(including, without limitation, any wells which would, if located in Texas,
require compliance with Railroad Commission Rule 14(b)(2)), except for wells
that have been properly plugged and abandoned or inactive and being maintained
in accordance with local, state and federal law. Except as disclosed in Schedule
3(s) to the Purchase Agreement, the Mortgagor has, and will in the future,
possess all certificates, authorizations, approvals, licenses and permits issued
by the appropriate federal, state or foreign regulatory authorities
(collectively, "Permits") necessary to produce, extract, transport and sell the
oil, gas, minerals and/or other Hydrocarbons in that portion of the Mortgaged
Property that is producing oil, gas, minerals and/or other Hydrocarbons. Except
as disclosed in Schedule 3(s) to the Purchase Agreement, Mortgagor has no reason
to believe that it will not be able to obtain Permits as and when necessary to
enable the Mortgagor to produce, extract, transport and sell the oil, gas,
minerals and other Hydrocarbons in the Mortgaged Property. Mortgagor has not
received notice of any violations in respect of any such licenses or permits
described in the foregoing provisions of this Section 3.09 except for notices of
violations received prior to the date hereof that have been remedied by
Mortgagor. The Mortgagor will operate the Mortgaged Property in a careful and
efficient manner in accordance with the practices of the industry and in
compliance with all applicable contracts and agreements and in compliance with
all applicable spacing, proration and conservation laws of the jurisdiction in
which the Mortgaged Property is situated, and all applicable laws, rules and
regulations of every other agency and authority from time to time constituted to
regulate the development and operation of the Mortgaged Property and the
production and sale of Hydrocarbons and other minerals produced therefrom,
except as could not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. The Mortgagor will do or cause to be done, or
shall participate in, such development work as may be reasonably necessary to
the prudent and economical operation of the Mortgaged Property in accordance
with the approved practices of prudent operators in the industry, including,
without limitation, all to be done that may be appropriate to protect from
diminution the productive capacity of the Mortgaged Property and each producing
well thereon. Upon the reasonable request of the Mortgagee, and at reasonable
times and intervals, the Mortgagor will (a) permit the Mortgagee and its
respective designated representatives to enter upon any part of the Mortgaged
Property under the control of the Mortgagor, and (b) cause the operator of any
part of the Mortgaged Property not under the control of the Mortgagor to permit
the Mortgagee and its designated representatives to enter upon the same (to the
extent and subject to the conditions under which the Mortgagor may so enter),
for the purposes of inspecting the condition and operation thereof.

                                       12
<PAGE>

         Section 3.10   Suits and Claims. Except to the extent disclosed in the
Schedules to the Purchase Agreement, there are no suits, actions, claims,
investigations, inquiries, proceedings or demands pending (or, to Mortgagor's
knowledge, threatened) which affect the Mortgaged Property (including, without
limitation, any which challenge or otherwise pertain to Mortgagor's title to the
Mortgaged Property) and no judicial or administrative actions, suits or
proceedings pending (or, to Mortgagor's knowledge, threatened) against
Mortgagor.

         Section 3.11   Environmental.
                        -------------

         (a)      Current Status. The Mortgaged Property and Mortgagor are not
in violation of Applicable Environmental Laws (as hereinafter defined), or
subject to any existing, pending or, to the best knowledge of Mortgagor,
threatened investigation or inquiry by any governmental authority or any other
person under or with respect to Applicable Environmental Laws, or subject to any
remedial obligations under Applicable Environmental Laws, and are in compliance
with all permits and licenses required under Applicable Environmental Laws,
other than with respect to any such violation, investigation, inquiry or
remedial obligations that could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect and, to the best
knowledge of Mortgagor, this representation will continue to be true and correct
following disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the Mortgaged
Property and Mortgagor. "Applicable Environmental Laws" shall mean any
applicable laws, orders, rules, or regulations pertaining to safety, health or
the environment, as such laws, orders, rules or regulations now exist or are
hereafter enacted and/or amended (including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986 (as
amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery
Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of
1984 (as amended, hereinafter called "RCRA") and applicable state and local
law). Mortgagor undertook, at the time of acquisition of the Mortgaged Property,
all appropriate inquiry into the previous ownership and uses of the Mortgaged
Property consistent with good commercial or customary practice. Mortgagor has
taken reasonable steps necessary, consistent with customary practice in the
industry in which it operates its business, to determine and has determined that
no hazardous substances or solid wastes have been disposed of or otherwise
released at, into, upon or under the Mortgaged Property except in accordance
with Applicable Environmental Laws. The use which Mortgagor makes and intends to
make of the Mortgaged Property will not result in the use, treatment, storage or
disposal or other release of any hazardous substance or solid waste at, into,
upon or under the Mortgaged Property, except such usage, and temporary storage
in anticipation of usage, as is in the ordinary course of business and in
compliance with Applicable Environmental Laws. The terms "hazardous substance"
and "release" as used in this Mortgage shall have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have
the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and
provided further, to the extent that the laws of the states in which the
Mortgaged Properties are located establish a meaning for "hazardous substance,"
"release," "solid waste," or "disposal" which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply. The "Associated
Property" (as such term is hereinafter defined) is not in violation of any
Applicable Environmental Laws for which Mortgagor or its predecessors in title
to the Mortgaged Property would be responsible (to the best of Mortgagor's
knowledge with respect to Associated Property not owned or operated by
Mortgagor). The term "Associated Property" as used in this Mortgage shall mean
any and all interests in and to (and/or carved out of) the lands which are
described or referred to in Exhibit A hereto, or which are otherwise described
in any of the oil, gas and/or mineral leases or other instruments described in

                                       13
<PAGE>

or referred to in such Exhibit A, whether or not such property interests are
owned by Mortgagor.

         (b)      Future Performance. Except as could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect,
Mortgagor will operate each Mortgaged Property in a careful and efficient manner
in accordance with the practices of the industry so as not to cause or permit
such Mortgaged Property or Mortgagor to be in violation of, and Mortgagor shall
not do anything or permit anything to be done which will subject such Mortgaged
Property or any Associated Property to any remedial obligations under, or result
in noncompliance with applicable permits and licenses under, any Applicable
Environmental Laws, assuming disclosure to the applicable governmental
authorities of all relevant facts, conditions and circumstances, if any,
pertaining to the Mortgaged Property or any Associated Property and Mortgagor
will promptly notify Mortgagee in writing of any existing, pending or, to the
best knowledge of Mortgagor, threatened investigation, claim, suit or inquiry by
any governmental authority or any person in connection with any Applicable
Environmental Laws. Except as could not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect, Mortgagor will take steps
necessary to determine that no hazardous substances or solid wastes have been
disposed of or otherwise released on or to the Mortgaged Property or any
Associated Property. Except as could not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect, Mortgagor will not cause or
permit the disposal or other release of any hazardous substance or solid waste
at, into, upon or under the Mortgaged Property or any Associated Property.
Mortgagor covenants and agrees to keep or cause the Mortgaged Property to be
kept free of any hazardous substance or solid waste (except such use, and
temporary storage in anticipation of use, as is required in the ordinary course
of business, all while in compliance with Applicable Environmental Laws), and to
remove the same (or if removal is prohibited by law, to take whatever action is
required by law), promptly upon discovery at its sole expense. Upon Mortgagee's
reasonable request, at any time and from time to time during the existence of
this Mortgage, but not more often than once every calendar year (so long as no
Event of Default has occurred), Mortgagor will provide at Mortgagor's sole
expense an inspection or audit of each Mortgaged Property from an engineering or
consulting firm approved by Mortgagee, indicating the presence or absence of
hazardous substances and solid waste on such Mortgaged Property and compliance
with Applicable Environmental Laws.

         Section 3.12   Not Abandon Wells; Participate in Operations;
Non-Operated Interests. Mortgagor will not, without prior written consent of
Mortgagee, which consent shall not be unreasonably conditioned, withheld, or
delayed, abandon, or consent to the abandonment of, any well producing from the
Mortgaged Property (or properties unitized therewith) so long as such well is
capable (or is subject to being made capable through drilling, reworking or
other operations which it would be commercially feasible to conduct) of
producing oil, gas, or other Hydrocarbons or other minerals in commercial
quantities (as determined without considering the effect of this Mortgage),
except in the ordinary course of business consistent with prudent customs and
practices in the industry in which Mortgagor operates. Mortgagor will not,
without prior written consent of Mortgagee, which consent shall not be
unreasonably conditioned, withheld, or delayed, elect not to participate in a
proposed operation on the Mortgaged Properties where the effect of such election
would be the forfeiture either temporarily (i.e. until a certain sum of money is
received out of the forfeited interest) or permanently of any interest in the
Mortgaged Properties. All or portions of the Mortgaged Property may be comprised
of interests in the Hydrocarbon Property or lands pooled or unitized therewith
which are other than working interests or which may be operated by a party or
parties other than the Mortgagor and with respect to all such portions of the
Mortgaged Property, the Mortgagor's covenants and agreements as expressed in
this Article III are modified to require that the Mortgagor use its commercially
reasonable efforts to cause compliance with such covenants and agreements by the
working interest owners or the operator or operators of such Hydrocarbon
Properties.

                                       14
<PAGE>

         Section 3.13   Condemnation Awards. If at any time all or any portion
of the Mortgaged Property shall be taken or damaged under the power of eminent
domain, the award received by condemnation proceedings for any property so taken
or any payment received in lieu of such condemnation proceedings shall be paid
directly to Mortgagee as agent for Mortgagor and all or any portion of such
award or payment, at the option of Mortgagee, shall be applied to the Secured
Indebtedness in payment of the last maturing installments of the Secured
Indebtedness or paid over, wholly or in part, to Mortgagor for any purpose or
object satisfactory to Mortgagee; provided that Mortgagee shall not be obligated
to see to the application of any amount paid over to Mortgagor. Mortgagor
immediately upon obtaining knowledge of the institution of any proceedings or
negotiations for the condemnation of the Mortgaged Property, or any portion
thereof, will notify Mortgagee of the pendency of such negotiations or
proceedings. Mortgagee may participate in any such negotiations or proceedings,
and Mortgagor from time to time will execute and deliver to Mortgagee all
instruments requested by Mortgagee to permit such participation.

         Section 3.14   Insurance. Mortgagor will maintain with financially
sound and reputable insurance companies insurance on all its property in at
least such amounts and against at least such risks (but including in any event
general liability) as are usually insured against in the same general area by
companies engaged in the same or a similar business and in any case no less
comprehensive in scope than that maintained by the Mortgager as of the date
hereof. In the event of any loss under any insurance policies so carried by
Mortgagor, Mortgagee shall have the right (but not the obligation) to make proof
of loss and collect the same, and all amounts so received shall be applied
toward costs, charges and expenses (including reasonable attorneys' fees), if
any, incurred in the collection thereof, then to the payment, in the order
determined by Mortgagee in its own discretion, of the Indebtedness, and any
balance remaining shall be subject to the order of Mortgagor. Mortgagee is
hereby authorized but not obligated to enforce in its name or in the name of
Mortgagor payment of any or all of said policies or settle or compromise any
claim in respect thereof, and to collect and make receipts for the proceeds
thereof and Mortgagee is hereby appointed Mortgagor's agent and attorney-in-fact
to endorse any check or draft payable to Mortgagor in order to collect the
proceeds of insurance (provided Mortgagee shall only be entitled to enforce the
power of attorney provided in this sentence after the occurrence and during the
continuation of an Event of Default). In the event of foreclosure of this
Mortgage, or other transfer of title to the Mortgaged Property in extinguishment
in whole or in part of the Indebtedness, all right, title and interest of
Mortgagor in and to such policies then in force concerning the Mortgaged
Property and all proceeds payable thereunder shall thereupon vest in the
purchaser at such foreclosure or other transferee in the event of such other
transfer of title.

         Section 3.15   Compliance with Leases. Mortgagor (i) will observe and
comply with all of the terms and provisions, express or implied, of the oil, gas
and mineral leases covered by this Mortgage, and any other agreements or
instruments applicable thereto; and, (ii) except with the prior written consent
of Mortgagee, which consent shall not be unreasonably conditioned, withheld, or
delayed, will not amend or terminate (in any manner adverse to Mortgagor,
Mortgagee, or Mortgagor's or Mortgagee's interest in the Mortgaged Property or
in any manner that could reasonably be expected to result in a Material Adverse
Effect) any of such agreements or surrender, abandon or release any of such
leases in whole or in part so long as any well situated thereon, or located on
any unit containing all or any part of such leases, is capable of producing oil,
gas, casinghead gas or other hydrocarbons in paying quantities. Mortgagor will
cause all obligations to the holders of royalty interests and all other
interests in the Mortgaged Properties to be promptly discharged and all
covenants and conditions, express or implied, imposed upon the original lessee
or his assigns by every such lease and every other agreement relative thereto to
be fully and promptly performed and to cause all acts necessary or proper to
accomplish the foregoing and prevent the breach or forfeiture of any such lease
to be fully and promptly performed. Mortgagor will furnish to Mortgagee ten (10)
day advance written notice of any intention not to pay (or immediately at such

                                       15
<PAGE>

time that it anticipates that it will be unable to pay) any delay rentals on the
due date thereof under any such lease.

         Section 3.16   Further Assurance. Mortgagor will, on request of
Mortgagee, (i) promptly correct any defect, error or omission which may be
discovered in the contents of this Mortgage, or in any other document or
instrument executed in connection with any of the Loan Documents, or in the
execution or acknowledgment of this Mortgage or any other document; (ii)
execute, acknowledge, deliver and record and/or file such further instruments
(including, without limitation, further deeds of trust, mortgages, security
agreements, financing statements, continuation statements, and assignments of
production, accounts, funds, contract rights, general intangibles, and proceeds)
and do such further acts as may be necessary, desirable or proper to carry out
more effectively the purposes of this Mortgage and to more fully identify and
subject to the liens and security interests hereof any property intended to be
covered hereby, including specifically, but without limitation, any renewals,
additions, substitutions, replacements, or appurtenances to the Mortgaged
Property; and (iii) execute, acknowledge, deliver, and file and/or record any
document or instrument (including specifically any financing statement) desired
by Mortgagee to protect the lien or the security interest hereunder against the
rights or interests of third persons. Mortgagor shall pay all reasonable costs
connected with any of the foregoing.

         Section 3.17   Name and Place of Business. Except as disclosed in
writing to Mortgagee, Mortgagor has not during the preceding five (5) years been
known by or used any other corporate or partnership, trade or fictitious name.
Mortgagor will not cause or permit any change to be made in its name, identity,
state of formation or corporate or partnership structure, or its federal
employer identification number unless Mortgagor shall have notified Mortgagee of
such change at least thirty (30) days prior to the effective date of such
change, and shall have first taken all action required by Mortgagee for the
purpose of further perfecting or protecting the liens and security interests in
the Mortgaged Property created hereby. Mortgagor's exact name is the name set
forth in this Mortgage. Mortgagor is organized under the laws of one of the
states comprising the United States (e.g. corporation, limited partnership,
registered limited liability partnership or limited liability company).
Mortgagor is located (as determined pursuant to the UCC) in the state under
which it is organized, which is as set forth in the preamble to this Mortgage.
Mortgagor's principal place of business and chief executive office, and the
place where Mortgagor keeps its books and records concerning the Mortgaged
Property (including, particularly, the records with respect to Production
Proceeds from the Mortgaged Property) has for the preceding four months, been,
and will continue to be (unless Mortgagor notifies Mortgagee of any change in
writing at least thirty (30) days prior to the date of such change), the address
set forth on the signature page of this Mortgage.

         Section 3.18   Compliance with Laws and Agreements. Mortgagor is in
compliance with all governmental requirements applicable to it or its property,
including, without limitation, all FERC regulations and the USA Patriot Act, and
all indentures, agreements and other instruments binding upon it or its
property. The execution and performance of the Loan Documents, this Mortgage and
the other documents and instruments contemplated hereby and thereby will not
violate the Trading with the Enemy Act, as amended, any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto, the Executive Order referred to in the following sentence or
the U.S. Bank Secrecy Act (31 U.S.C. ss.ss. 5311 et seq.). Mortgagor is not a
Person described by section 1 of Executive Order 13224 of September 24, 2001
entitled Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit or Support Terrorism, 66 Fed. Reg. 49,079 (2001), as amended,
and Mortgagor does not engage in any transactions or dealings, or is otherwise
associated with any such Persons. Mortgagor is not bound by any agreement,
document, instrument, judgment, decree, order, statute, law, rule or regulation

                                       16
<PAGE>

that limits or could reasonably be expected to limit its performance under the
Loan Documents or this Mortgage.

         Section 3.19   Inspection; Management. Mortgagee and any persons
authorized by Mortgagee shall have the right to enter and inspect the Mortgaged
Property at all reasonable times. If, at any time after an Event of Default by
Mortgagor, the management or maintenance of the Mortgaged Property is determined
by Mortgagee to be unsatisfactory and is not corrected within thirty (30) days
after notice to Mortgagor, Mortgagor will, to the extent Mortgagor is entitled
under third party agreements affecting the same, employ, for the duration of
such Event of Default, as managing agent of the Mortgaged Property, any person
from time to time designated or approved by Mortgagee.

                                   ARTICLE IV
                               Rights and Remedies
                               -------------------

         Section 4.01   Event of Default. As used in this Mortgage, an "Event of
Default" means (i) the earlier to occur of (A) the failure by Mortgagor for ten
(10) days from the date of receipt by Mortgagor of notice from Mortagee of such
failure to comply with any covenant, agreement, warranty or condition herein
required to be observed, kept or performed or (B) ten (10) days after any
executive officer of Mortgagor obtains actual knowledge of such failure, or (ii)
the occurrence of an "Event of Default", as defined under the Notes.

         Section 4.02   Foreclosure and Sale.
                        --------------------

         (a)      If an Event of Default shall occur and be continuing,
Mortgagee shall have the right and option to proceed with foreclosure by
directing Trustee, or his successors or substitutes in trust, to proceed with
foreclosure and to sell, to the extent permitted by law, all or any portion of
the Mortgaged Property at one or more sales, as an entirety or in parcels, at
such place or places in otherwise such manner and upon such notice as may be
required by law, or, in the absence of any such requirement, as Mortgagee may
deem appropriate, and to make conveyance to the purchaser or purchasers. Where
the Mortgaged Property is situated in more than one jurisdiction, notice as
above provided shall be posted and filed in all such jurisdictions (if such
notices are required by law), and all such Mortgaged Property may be sold in any
such jurisdiction and any such notice shall designate the jurisdiction where
such Mortgaged Property is to be sold. Cumulative of the foregoing and the other
provisions of this Section 4.02 as to any portion of the Mortgaged Properties
located in the State of Texas (or within the offshore area over which the United
States of America asserts jurisdiction and to which the laws of such state are
applicable with respect to this Mortgage and/or the liens or security interests
created hereby), such sales of all or any part of such Mortgaged Properties
shall be conducted at the courthouse of any county (whether or not the counties
in which such Mortgaged Properties are located are contiguous) in the State of
Texas in which any part of such Mortgaged Properties is situated or which lies
shoreward of any Mortgaged Property (i.e., to the extent a particular Mortgaged
Property lies offshore within the reasonable projected seaward extension of the
relevant county boundary), at public venue to the highest bidder for cash
between the hours of ten o'clock a.m. and four o'clock p.m. on the first Tuesday
in any month or at such other place, time and date as provided by the statutes
of the State of Texas then in force governing sales of real estate under powers
conferred by deed of trust, after having given notice of such sale in accordance
with such statutes. Nothing contained in this Section 4.02 shall be construed so
as to limit in any way Trustee's rights to sell the Mortgaged Property, or any
portion thereof, by private sale if, and to the extent that, such private sale
is permitted under the laws of the applicable jurisdiction or by public or
private sale after entry of a judgment by any court of competent jurisdiction so
ordering. Mortgagor hereby irrevocably appoints Trustee to be the attorney of
Mortgagor and in the name and on behalf of Mortgagor to execute and deliver any

                                       17
<PAGE>

deeds, transfers, conveyances, assignments, assurances and notices which
Mortgagor ought to execute and deliver and do and perform any and all such acts
and things which Mortgagor ought to do and perform under the covenants herein
contained and generally, to use the name of Mortgagor in the exercise of all or
any of the powers hereby conferred on Trustee. At any such sale: (i) whether
made under the power herein contained or any other legal enactment, or by virtue
of any judicial proceedings or any other legal right, remedy or recourse, it
shall not be necessary for Trustee to have physically present, or to have
constructive possession of, the Mortgaged Property (Mortgagor hereby covenanting
and agreeing to deliver to Trustee any portion of the Mortgaged Property not
actually or constructively possessed by Trustee immediately upon demand by
Trustee) and the title to and right of possession of any such property shall
pass to the purchaser thereof as completely as if the same had been actually
present and delivered to purchaser at such sale, (ii) each instrument of
conveyance executed by Trustee shall contain a general warranty of title,
binding upon Mortgagor and its successors and assigns, (iii) each and every
recital contained in any instrument of conveyance made by Trustee shall
conclusively establish the truth and accuracy of the matters recited therein,
including, without limitation, nonpayment of the Indebtedness, advertisement and
conduct of such sale in the manner provided herein and otherwise by law and
appointment of any successor Trustee hereunder, (iv) any and all prerequisites
to the validity thereof shall be conclusively presumed to have been performed,
(v) the receipt of Trustee or of such other party or officer making the sale
shall be a sufficient discharge to the purchaser or purchasers for its purchase
money and no such purchaser or purchasers, or its assigns or personal
representatives, shall thereafter be obligated to see to the application of such
purchase money, or be in any way answerable for any loss, misapplication or
nonapplication thereof, (vi) to the fullest extent permitted by law, Mortgagor
shall be completely and irrevocably divested of all of its right, title,
interest, claim and demand whatsoever, either at law or in equity, in and to the
property sold and such sale shall be a perpetual bar both at law and in equity
against Mortgagor, and against any and all other persons claiming or to claim
the property sold or any part thereof, by, through or under Mortgagor, and (vii)
to the extent and under such circumstances as are permitted by law, Mortgagee
may be a purchaser at any such sale, and shall have the right, after paying or
accounting for all costs of said sale or sales, to credit the amount of the bid
upon the amount of the Indebtedness (in the order of priority set forth in
Section 4.14 hereof) in lieu of cash payment.

         (b)      With respect to that portion, if any, of the Mortgaged
Property situated in the State of Texas, this instrument may be foreclosed by
advertisement and sale as provided by applicable Texas statutes. In such regard,
it shall be the duty of the Trustee, 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 or entities as his attorneys-in-fact or agents 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

                                       18
<PAGE>

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 substitute.

         (c)      Upon the occurrence of an Event of Default, Mortgagee may
exercise its rights of enforcement with respect to the Mortgaged Properties or
any part thereof under the Applicable UCC of any State where any portion of the
Mortgaged Properties are located or under any other statute in force in any
state to the extent the same is applicable law. Cumulative of the foregoing and
the other provisions of this Section 4.02: (i) to the extent permitted by law,
upon the occurrence and during the continuation of an Event of Default Mortgagee
may enter upon the Mortgaged Properties or otherwise upon Mortgagor's premises
to take possession of, assemble and collect the personal property portion of the
Mortgaged Properties or to render it unusable; (ii) upon the occurrence and
during the continuation of an Event of Default Mortgagee may require Mortgagor
to assemble the personal property and make it available at a place Mortgagee
designates which is mutually convenient to allow Mortgagee to take possession or
dispose of the personal property; (iii) written notice mailed to Mortgagor as
provided herein at least five (5) business days prior to the date of public sale
of the personal property or prior to the date after which private sale of the
personal property will be made shall constitute reasonable notice; (iv) in the
event of a foreclosure of the liens, privileges and/or security interests
evidenced hereby, the personal property, or any part thereof, and the Mortgaged
Properties, or any part thereof, may, at the option of Mortgagee, be sold, as a
whole or in parts, together or separately (including, without limitation, where
a portion of the Mortgaged Properties is sold, the personal property related
thereto may be sold in connection therewith); (v) upon the occurrence and during
the continuation of an Event of Default, Mortgagee or the Trustee may, to the
extent permitted under applicable law, elect to treat the fixtures included in
the Mortgaged Properties either as real property or as personal property, or
both, and proceed to exercise such rights as apply thereto; and (vi) with
respect to any sale of real property included in the Mortgaged Properties made
under the powers of sale herein granted and conferred, Mortgagee or the Trustee
may, to the extent permitted by applicable law, include in such sale any
personal property and fixtures included in the Mortgaged Properties and relating
to such real property.

         Section 4.03   Agents. Trustee or his successor or substitute may
appoint or delegate any one or more persons as agent to perform any act or acts
necessary or incident to any sale held by Trustee, including the posting of
notices and the conduct of sale, but in the name and on behalf of Trustee, his
successor or substitute. If Trustee or his successor or substitute shall have
given notice of sale hereunder, any successor or substitute trustee thereafter
appointed may complete the sale and the conveyance of the property pursuant
thereto as if such notice had been given by the successor or substitute trustee
conducting the sale.

         Section 4.04   Judicial Foreclosure; Receivership. If any of the
Indebtedness shall become due and payable and shall not be promptly paid,
Trustee or Mortgagee shall have the right and power to proceed by a suit or
suits in equity or at law, whether for the specific performance of any covenant
or agreement herein contained or in aid of the execution of any power herein
granted, or for any foreclosure hereunder or for the sale of the Mortgaged
Property under the judgment or decree of any court or courts of competent
jurisdiction or for the enforcement of any other appropriate legal or equitable
remedy. In addition to all other remedies herein provided for, Mortgagor agrees
that, upon the occurrence of an Event of Default or any event or circumstance
which, with the lapse of time or the giving of notice, or both, would constitute
an Event of Default hereunder, Mortgagee shall as a matter of right be entitled
to the appointment of a receiver or receivers for all or any part of the
Mortgaged Property, whether such receivership be incident to a proposed sale (or
sales) of such property or otherwise, and without regard to the value of the
Mortgaged Property or the solvency of any person or persons liable for the
payment of the Indebtedness secured hereby, and Mortgagor does hereby consent to
the appointment of such receiver or receivers, waives any and all defenses to

                                       19
<PAGE>

such appointment, and agrees not to oppose any application therefor by
Mortgagee, and agrees that such appointment shall in no manner impair, prejudice
or otherwise affect the rights of Mortgagee under Article II hereof. Mortgagor
expressly waives notice of a hearing for appointment of a receiver and the
necessity for bond or an accounting by the receiver. Nothing herein is to be
construed to deprive Mortgagee of any other right, remedy or privilege it may
now or hereafter have under the law to have a receiver appointed. Any money
advanced by Trustee and/or Mortgagee in connection with any such receivership
shall be a demand obligation (which obligation Mortgagor hereby expressly
promises to pay) included in the Indebtedness owing by Mortgagor to the Trustee
and/or Mortgagee and shall bear interest from the date of making such advance by
Trustee and/or Mortgagee until paid at the then applicable interest rate under
the Note (the "Applicable Rate").

         Section 4.05   Foreclosure for Installments. Mortgagee shall also have
the option to proceed with foreclosure in satisfaction of any installments of
the Indebtedness which have not been paid when due either through the courts or
by directing Trustee or his successors in trust to proceed with foreclosure in
satisfaction of the matured but unpaid portion of the Indebtedness as if under a
full foreclosure, conducting the sale as herein provided and without declaring
the entire principal balance and accrued interest due; such sale may be made
subject to the unmatured portion of the Indebtedness, and any such sale shall
not in any manner affect the unmatured portion of the Indebtedness, but as to
such unmatured portion of the Indebtedness this Mortgage shall remain in full
force and effect just as though no sale had been made hereunder. It is further
agreed that several sales may be made hereunder without exhausting the right of
sale for any unmatured part of the Indebtedness, it being the purpose hereof to
provide for a foreclosure and sale of the security for any matured portion of
the Indebtedness without exhausting the power to foreclose and sell the
Mortgaged Property for any subsequently maturing portion of the Indebtedness.

         Section 4.06   Separate Sales. The Mortgaged Property may be sold in
one or more parcels and in such manner and order as Mortgagee, in its sole
discretion, may elect, it being expressly understood and agreed that the right
of sale arising out of any Event of Default shall not be exhausted by any one or
more sales.

         Section 4.07   Possession of Mortgaged Property. Mortgagor agrees to
the full extent that it lawfully may, that, in case one or more of the Events of
Default shall have occurred and shall not have been remedied, then, and in every
such case, Trustee or Mortgagee shall have the right and power to enter into and
upon and take possession of all or any part of the Mortgaged Property in the
possession of Mortgagor, its successors or assigns, or its or their agents or
servants, and may exclude Mortgagor, its successors or assigns, and all persons
claiming under Mortgagor, and its or their agents or servants wholly or partly
therefrom; and, holding the same, Trustee may use, administer, manage, operate
and control the Mortgaged Property and conduct the business thereof to the same
extent as Mortgagor, its successors or assigns, might at the time do and may
exercise all rights and powers of Mortgagor, in the name, place and stead of
Mortgagor, or otherwise as Trustee shall deem best. All reasonable costs,
expenses and liabilities of every character incurred by Trustee and/or Mortgagee
in administering, managing, operating, and controlling the Mortgaged Property
shall constitute a demand obligation (which obligation Mortgagor hereby
expressly promises to pay) owing by Mortgagor to Trustee and/or Mortgagee and
shall bear interest from date of expenditure until paid at the Applicable Rate,
all of which shall constitute a portion of the Indebtedness and shall be secured
by this Mortgage and all other security instruments.

         Section 4.08   Occupancy After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale Mortgagor or Mortgagor's
representatives, successors or assigns or any other person claiming any interest
in the Mortgaged Property by, through or under Mortgagor, are occupying or using
the Mortgaged Property or any part thereof, each and all shall immediately
become the tenant of the purchaser at such sale, which tenancy shall be a

                                       20
<PAGE>

tenancy from day to day, terminable at the will of either the landlord or
tenant, or at a reasonable rental per day based upon the value of the property
occupied, such rental to be due daily to the purchaser; to the extent permitted
by applicable law, the purchaser at such sale shall, notwithstanding any
language herein apparently to the contrary, have the sole option to demand
immediate possession following the sale or to permit the occupants to remain as
tenants at will. In the event the tenant fails to surrender possession of said
property upon demand, the purchaser shall be entitled to institute and maintain
a summary action for possession of the Mortgaged Property (such as an action for
forcible entry and detainer) in any court having jurisdiction.

         Section 4.09   Remedies Cumulative, Concurrent and Nonexclusive. Every
right, power and remedy herein given to Trustee or Mortgagee shall be cumulative
and in addition to every other right, power and remedy herein specifically given
or now or hereafter existing in equity, at law or by statute (including
specifically those granted by the Applicable UCC in effect and applicable to the
Mortgaged Property or any portion thereof) each and every right, power and
remedy whether specifically herein given or otherwise existing may be exercised
from time to time and so often and in such order as may be deemed expedient by
Trustee or Mortgagee, and the exercise, or the beginning of the exercise, of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter any other right, power or remedy. No
delay or omission by Trustee or Mortgagee in the exercise of any right, power or
remedy shall impair any such right, power or remedy or operate as a waiver
thereof or of any other right, power or remedy then or thereafter existing.

         Section 4.10   No Release of Obligations. Neither Mortgagor, any other
Mortgagor Party, any guarantor nor any other person hereafter obligated for
payment of all or any part of the Indebtedness shall be relieved of such
obligation by reason of (a) the failure of Trustee to comply with any request of
Mortgagor, or any guarantor or any other person so obligated to foreclose the
lien of this Mortgage or to enforce any provision hereunder or under the any of
the Loan Documents; (b) the release, regardless of consideration, of the
Mortgaged Property or any portion thereof or interest therein or the addition of
any other property to the Mortgaged Property; (c) any agreement or stipulation
between any subsequent owner of the Mortgaged Property and Mortgagee extending,
renewing, rearranging or in any other way modifying the terms of this Mortgage
without first having obtained the consent of, given notice to or paid any
consideration to Mortgagor, any other Mortgagor Party, any guarantor or such
other person, and in such event Mortgagor, the Mortgagor Parties, guarantor and
all such other persons shall continue to be liable to make payment according to
the terms of any such extension or modification agreement unless expressly
released and discharged in writing by Mortgagee; or (d) by any other act or
occurrence save and except the complete payment of the Indebtedness and the
complete fulfillment of all obligations hereunder or under the Loan Documents.

         Section 4.11   Release of and Resort to Collateral. Mortgagee may
release, regardless of consideration, any part of the Mortgaged Property
without, as to the remainder, in any way impairing, affecting, subordinating or
releasing the lien or security interest created in or evidenced by this Mortgage
or its stature as a first and prior lien and security interest in and to the
Mortgaged Property, and without in any way releasing or diminishing the
liability of any person or entity liable for the repayment of the Indebtedness.
For payment of the Indebtedness, Mortgagee may resort to any other security
therefor held by Mortgagee or Trustee in such order and manner as Mortgagee may
elect.

         Section 4.12   Waiver of Redemption, Notice and Marshalling of Assets,
Etc. To the fullest extent permitted by law, Mortgagor hereby irrevocably and
unconditionally waives and releases (a) all benefits that might accrue to
Mortgagor by virtue of any present or future moratorium law or other law
exempting the Mortgaged Property from attachment, levy or sale on execution or
providing for any appraisement, valuation, stay of execution, exemption from
civil process, redemption or extension of time for payment; provided, however,

                                       21
<PAGE>

that if the laws of any state do not permit the redemption period to be waived,
the redemption period is specifically reduced to the minimum amount of time
allowable by statute; (b) all notices of any Event of Default or of Mortgagee's
intention to accelerate maturity of the Indebtedness or of Trustee's election to
exercise or his actual exercise of any right, remedy or recourse provided for
hereunder or under the Loan Documents; and (c) any right to a marshalling of
assets or a sale in inverse order of alienation. If any law referred to in this
Mortgage and now in force, of which Mortgagor or its successor or successors
might take advantage despite the provisions hereof, shall hereafter be repealed
or cease to be in force, such law shall thereafter be deemed not to constitute
any part of the contract herein contained or to preclude the operation or
application of the provisions hereof.

         Section 4.13   Discontinuance of Proceedings. In case Mortgagee shall
have proceeded to invoke any right, remedy or recourse permitted hereunder or
under the Loan Documents and shall thereafter elect to discontinue or abandon
same for any reason, Mortgagee shall have the unqualified right so to do and, in
such an event, Mortgagor and Mortgagee shall be restored to their former
positions with respect to the Indebtedness, this Mortgage, the Loan Documents,
the Mortgaged Property and otherwise, and the rights, remedies, recourses and
powers of Mortgagee shall continue as if same had never been invoked.

         Section 4.14   Application of Proceeds. The proceeds of any sale of the
Mortgaged Property or any part thereof and all other monies received by Trustee
or Mortgagee in any proceedings for the enforcement hereof or otherwise, whose
application has not elsewhere herein been specifically provided for, shall be
applied:

         (a)      first, to the payment of all costs and expenses incurred by
Trustee or Mortgagee incident to the enforcement of this Mortgage, the Loan
Documents or any of the Indebtedness (including, without limiting the generality
of the foregoing, expenses of any entry or taking of possession, of any sale, of
advertisement thereof, and of conveyances, and court costs, compensation of
agents and employees, legal fees and a reasonable commission to Trustee acting
in connection herewith or hereunder), and to the payment of all other charges,
expenses, liabilities and advances incurred or made by Trustee or Mortgagee
under this Mortgage or in executing any trust or power hereunder;

         (b)      second, to payment of the Indebtedness in such order and
manner as Mortgagee may elect in Mortgagee's sole discretion; and

         (c)      third, to Mortgagor or such other persons as may be entitled
thereto by law or as otherwise required by any court of competent jurisdiction.

         Section 4.15   Resignation of Operator. In addition to all rights and
remedies under this Mortgage, at law and in equity, if any Event of Default
shall occur and Trustee or Mortgagee shall exercise any remedies under this
Mortgage with respect to any portion of the Mortgaged Property (or Mortgagor
shall transfer any Mortgaged Property "in lieu of" foreclosure), Mortgagee or
Trustee shall have the right to request that any operator of any Mortgaged
Property which is either Mortgagor or any affiliate of Mortgagor to resign as
operator under the joint operating agreement applicable thereto, and no later
than 60 days after receipt by Mortgagor of any such request, Mortgagor shall
resign (or cause such other party to resign) as operator of such Mortgaged
Property.

         Section 4.16   INDEMNITY. IN CONNECTION WITH ANY ACTION TAKEN BY
TRUSTEE AND/OR MORTGAGEE PURSUANT TO THIS MORTGAGE, TRUSTEE AND/OR MORTGAGEE AND
THEIR OFFICERS, DIRECTORS, PARTNERS, MEMBERS, INVESTORS, EQUITY HOLDERS,
EMPLOYEES, REPRESENTATIVES, AGENTS, ADVISORS, ATTORNEYS, ACCOUNTANTS AND EXPERTS
AND ANY PERSONS OR ENTITIES OWNED OR CONTROLLED BY TRUSTEE, OR MORTGAGEE OR ANY

                                       22
<PAGE>

SUCH OTHER PERSON OR ENTITY ("INDEMNIFIED PARTIES") SHALL NOT BE LIABLE FOR ANY
LOSS SUSTAINED BY MORTGAGOR RESULTING FROM AN ASSERTION THAT MORTGAGEE HAS
RECEIVED FUNDS FROM THE PRODUCTION OF HYDROCARBONS CLAIMED BY THIRD PERSONS OR
ANY ACT OR OMISSION OF ANY INDEMNIFIED PARTY IN ADMINISTERING, MANAGING,
OPERATING OR CONTROLLING THE MORTGAGED PROPERTY INCLUDING SUCH LOSS WHICH MAY
RESULT FROM THE ORDINARY NEGLIGENCE OF AN INDEMNIFIED PARTY UNLESS SUCH LOSS IS
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF AN INDEMNIFIED PARTY,
NOR SHALL TRUSTEE AND/OR MORTGAGEE BE OBLIGATED TO PERFORM OR DISCHARGE ANY
OBLIGATION, DUTY OR LIABILITY OF MORTGAGOR. MORTGAGOR SHALL AND DOES HEREBY
AGREE TO INDEMNIFY EACH INDEMNIFIED PARTY FOR, AND TO HOLD EACH INDEMNIFIED
PARTY HARMLESS FROM, ANY AND ALL LIABILITY, LOSS OR DAMAGE WHICH MAY OR MIGHT BE
INCURRED BY ANY INDEMNIFIED PARTY BY REASON OF THIS MORTGAGE OR THE EXERCISE OF
RIGHTS OR REMEDIES HEREUNDER; SHOULD TRUSTEE AND/OR MORTGAGEE MAKE ANY
EXPENDITURE ON ACCOUNT OF ANY SUCH LIABILITY, LOSS OR DAMAGE, THE AMOUNT
THEREOF, INCLUDING REASONABLE COSTS AND EXPENSES AND REASONABLE ATTORNEYS' FEES,
SHALL BE A DEMAND OBLIGATION (WHICH OBLIGATION MORTGAGOR HEREBY EXPRESSLY
PROMISES TO PAY) OWING BY MORTGAGOR TO TRUSTEE AND/OR MORTGAGEE AND SHALL BEAR
INTEREST FROM THE DATE EXPENDED UNTIL PAID AT THE APPLICABLE INTEREST RATE,
SHALL BE A PART OF THE INDEBTEDNESS AND SHALL BE SECURED BY THIS MORTGAGE AND
ANY OTHER SECURITY INSTRUMENT. MORTGAGOR HEREBY ASSENTS TO, RATIFIES AND
CONFIRMS ANY AND ALL ACTIONS OF TRUSTEE AND/OR MORTGAGEE WITH RESPECT TO THE
MORTGAGED PROPERTY TAKEN UNDER THIS MORTGAGE. THE LIABILITIES OF MORTGAGOR AS
SET FORTH IN THIS SECTION 4.16 SHALL SURVIVE THE TERMINATION OF THIS MORTGAGE.

                                    ARTICLE V
                                     Trustee
                                     -------

         Section 5.01   Duties, Rights, and Powers of Trustee. It shall be no
part of the duty of Trustee to see to any recording, filing or registration of
this Mortgage or any other instrument in addition or supplemental thereto, or to
give any notice thereof, or to see to the payment of or be under any duty in
respect of any tax or assessment or other governmental charge which may be
levied or assessed on the Mortgaged Property, or any part thereof, or against
Mortgagor, or to see to the performance or observance by Mortgagor of any of the
covenants and agreements contained herein. Trustee shall not be responsible for
the execution, acknowledgment or validity of this Mortgage or of any instrument
in addition or supplemental hereto or for the sufficiency of the security
purported to be created hereby, and makes no representation in respect thereof
or in respect of the rights of Mortgagee. Trustee shall have the right to advise
with counsel upon any matters arising hereunder and shall be fully protected in
relying as to legal matters on the advice of counsel. Trustee shall not incur
any personal liability hereunder except for Trustee's own willful misconduct;
and Trustee shall have the right to rely on any instrument, document or
signature authorizing or supporting any action taken or proposed to be taken by
him hereunder, believed by him in good faith to be genuine.

         Section 5.02   Successor Trustee. Trustee may resign by written notice
addressed to Mortgagee or be removed at any time with or without cause by an
instrument in writing duly executed on behalf of Mortgagee. In case of the
death, resignation or removal of Trustee, a successor trustee may be appointed
by Mortgagee by instrument of substitution complying with any applicable
requirements of law, or, in the absence of any such requirement, without other
formality than appointment and designation in writing. Written notice of such
appointment and designation shall be given by Mortgagee to Mortgagor, but the
validity of any such appointment shall not be impaired or affected by failure to
give such notice or by any defect therein. Such appointment and designation

                                       23
<PAGE>

shall be full evidence of the right and authority to make the same and of all
the facts therein recited, and, upon the making of any such appointment and
designation, this Mortgage shall vest in the successor trustee all the estate
and title in and to all of the Mortgaged Property, and the successor trustee
shall thereupon succeed to all of the rights, powers, privileges, immunities and
duties hereby conferred upon Trustee named herein, and one such appointment and
designation shall not exhaust the right to appoint and designate a successor
trustee hereunder but such right may be exercised repeatedly as long as any
Indebtedness remains unpaid hereunder. To facilitate the administration of the
duties hereunder, Mortgagee may appoint multiple trustees to serve in such
capacity or in such jurisdictions as Mortgagee may designate.

         Section 5.03   Retention of Moneys. All moneys received by Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated in any manner
from any other moneys (except to the extent required by law), and Trustee shall
be under no liability for interest on any moneys received by him hereunder.

                                   ARTICLE VI
                                  Miscellaneous
                                  -------------

         Section 6.01   Instrument Construed as Mortgage, Etc. With respect to
any portions of the Mortgaged Property located in any state or other
jurisdiction the laws of which do not provide for the use or enforcement of a
deed of trust or the office, rights and authority of Trustee as herein provided,
the general language of conveyance hereof to Trustee is intended and the same
shall be construed as words of mortgage unto and in favor of Mortgagee and the
rights and authority granted to Trustee herein may be enforced and asserted by
Mortgagee in accordance with the laws of the jurisdiction in which such portion
of the Mortgaged Property is located and the same may be foreclosed at the
option of Mortgagee as to any or all such portions of the Mortgaged Property in
any manner permitted by the laws of the jurisdiction in which such portions of
the Mortgaged Property is situated. This Mortgage may be construed as a
mortgage, deed of trust, chattel mortgage, conveyance, assignment, security
agreement, pledge, financing statement, hypothecation or contract, or any one or
more of them, in order fully to effectuate the lien hereof and the purposes and
agreements herein set forth.

         Section 6.02   Release of Mortgage. At such time, if any, as (i) all
Indebtedness under the Notes secured hereby shall be finally and irrevocably
paid in full in cash, (ii) no Notes shall remain outstanding, (iii) all
commitments to lend under the Purchase Agreement shall have terminated and (iv)
there shall exist no other outstanding payment or reimbursement obligations
(other than contingent indemnification obligations for which no claims shall
have been asserted) of the Mortgagor or any of its Subsidiaries to the Mortgagee
under any of the Transaction Documents, Mortgagee shall forthwith cause
satisfaction and discharge of this Mortgage to be entered upon the record at the
expense of Mortgagor and shall execute and deliver or cause to be executed and
delivered such instruments of satisfaction and reassignment as may be
appropriate. Otherwise, this Mortgage shall remain and continue in full force
and effect.

         Section 6.03   Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions hereof
shall be liberally construed in favor of Trustee and Mortgagee in order to
effectuate the provisions hereof, and the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of any such provision in any other jurisdiction.

                                       24
<PAGE>

         Section 6.04   Successors and Assigns of Parties. The term "Mortgagee"
as used herein shall mean and include any legal owner, holder, assignee or
pledgee of any of the Indebtedness secured hereby. The terms used to designate
Trustee, Mortgagee and Mortgagor shall be deemed to include the respective
heirs, legal representatives, successors and assigns of such parties.

         Section 6.05   Satisfaction of Prior Encumbrance. To the extent that
proceeds of the Notes are used to pay indebtedness secured by any outstanding
lien, security interest, charge or prior encumbrance against the Mortgaged
Property, such proceeds have been advanced by Mortgagee at Mortgagor's request,
and Mortgagee shall be subrogated to any and all rights, security interests and
liens owned by any owner or holder of such outstanding liens, security
interests, charges or encumbrances, irrespective of whether said liens, security
interests, charges or encumbrances are released, and it is expressly understood
that, in consideration of the payment of such other indebtedness by Mortgagee,
Mortgagor hereby waives and releases all demands and causes of action for
offsets and payments to, upon and in connection with the said indebtedness.

         Section 6.06   Subrogation of Trustee. This Mortgage is made with full
substitution and subrogation of Trustee and his successors in this trust and his
and their assigns in and to all covenants and warranties by others heretofore
given or made in respect of the Mortgaged Property or any part thereof.

         Section 6.07   Nature of Covenants. The covenants and agreements herein
contained shall constitute covenants running with the land and interests covered
or affected hereby and shall be binding upon the heirs, legal representatives,
successors and assigns of the parties hereto.

         Section 6.08   Notices. All notices, requests, consents, demands and
other communications required or permitted hereunder shall be given or furnished
in accordance with the terms of the Purchase Agreement relating to the giving of
notices (it being agreed to and understood that delivery to Mortgagor of any
such notice, request, consent, demand or other communication shall be deemed
delivery to Mortgagor).

         Section 6.09   Counterparts. This Mortgage is being executed in several
counterparts, all of which are identical, except that to facilitate recordation,
if the Mortgaged Property is situated in more than one jurisdiction,
descriptions of only those portions of the Mortgaged Property located in, and
descriptions of the Prior Mortgages (as defined herein) for, the jurisdiction in
which a particular counterpart is recorded shall be attached as Exhibit A
thereto. An Exhibit A containing a description of all Mortgaged Property
wheresoever situated will be attached to that certain counterpart to be attached
to a Financing Statement and filed with the Secretary of State of Delaware and
Texas in their respective Uniform Commercial Code Records. Each of such
counterparts shall for all purposes be deemed to be an original and all such
counterparts shall together constitute but one and the same instrument provided
that a facsimile signature shall be considered due execution and shall be
binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

         Section 6.10   Effective as a Financing Statement. This Mortgage, among
other things, covers goods which are or are to become fixtures on the real
property described herein and covers as-extracted collateral related to the
real/immovable property described herein. This Mortgage shall be effective as a
financing statement (i) filed as a fixture filing with respect to all fixtures
included within the Mortgaged Property, (ii) covering as-extracted collateral
with respect to all as-extracted collateral included within the Mortgaged
Property (including, without limitation, all oil, gas, other minerals and other
substances of value which may be extracted from the earth at the wellhead or
minehead) and (iii) covering all other Mortgaged Property. This Mortgage is to
be filed for record in the real/immovable property records of each county or
parish where any part of the Mortgaged Property is situated and may also be
filed in the offices of the Bureau of Land Management or the Minerals Management

                                       25
<PAGE>

Service or any relevant state agency (or any successor agencies). The mailing
address of Mortgagor is the address of Mortgagor set forth at the end of this
Mortgage and the address of Mortgagee from which information concerning the
security interests hereunder may be obtained is the address of Mortgagee set
forth at the end of this Mortgage. Nothing contained in this paragraph shall be
construed to limit the scope of this Mortgage nor its effectiveness as a
financing statement covering any type of property. A carbon, photographic,
facsimile or other reproduction of this Mortgage or of any financing statement
relating to this Mortgage shall be sufficient as a financing statement for any
of the purposes referred to this Section. Without limiting any other provision
herein, Mortgagor hereby authorizes Mortgagee to file, in any filing or
recording office, one or more financing statements and any renewal or
continuation statements thereof.

         Section 6.11   No Impairment of Security. To the extent allowed by
applicable law, the lien, privilege, security interest and other security rights
hereunder shall not be impaired by any indulgence, moratorium or release which
may be granted including, but not limited to, any renewal, extension or
modification which may be granted with respect to any secured obligations, or
any surrender, compromise, release, renewal, extension, exchange or substitution
which may be granted in respect of the Mortgaged Property (including, without
limitation, Production Proceeds), or any part thereof or any interest therein,
or any release or indulgence granted to any borrower, endorser, guarantor or
surety of any Indebtedness.

         Section 6.12   Acts Not Constituting Waiver. Any Event of Default may
be waived without waiving any other prior or subsequent Event of Default. Any
Event of Default may be remedied without waiving the Event of Default remedied.
Neither failure to exercise, nor delay in exercising, any right, power or remedy
upon any Event of Default shall be construed as a waiver of such Event of
Default or as a waiver of the right to exercise any such right, power or remedy
at a later date. No single or partial exercise of any right, power or remedy
hereunder shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, power or remedy hereunder may be exercised at any
time and from time to time. No modification or waiver of any provision hereof
nor consent to any departure by Mortgagor therefrom shall in any event be
effective unless the same shall be in writing and signed by Mortgagee and then
such waiver or consent shall be effective only in the specific instances, for
the purpose for which given and to the extent therein specified. No notice nor
demand on Mortgagor in any case shall of itself entitle Mortgagor to any other
or further notice or demand in similar or other circumstances. Acceptance of any
payment in an amount less than the amount then due on any Indebtedness shall be
deemed an acceptance on account only and shall not in any way excuse the
existence of an Event of Default hereunder.

         Section 6.13   Mortgagor's Successors. In the event the ownership of
any Mortgaged Property or any part thereof becomes vested in a person other than
Mortgagor, then, without notice to Mortgagor, such successor or successors in
interest may be dealt with, with reference to this Mortgage and to the
obligations secured hereby, in the same manner as with Mortgagor, without in any
way vitiating or discharging Mortgagor's liability hereunder or for the payment
of the Indebtedness or performance of the obligations secured hereby. No
transfer of any Mortgaged Property, no forbearance, and no extension of the time
for the payment of any Indebtedness secured hereby, shall operate to release,
discharge, modify, change or affect, in whole or in part, the liability of
Mortgagor hereunder or for the payment of the Indebtedness or performance of the
obligations secured hereby, or the liability of any other person hereunder or
for the payment of the Indebtedness.

         Section 6.14   Certain Consents. Except where otherwise expressly
provided herein, in any instance hereunder where the approval, consent or the
exercise of judgment of Mortgagee is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole

                                       26
<PAGE>

discretion of Mortgagee, and Mortgagee shall not, for any reason or to any
extent, be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the request
or the judgment of such party.

         Section 6.15   GOVERNING LAW. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW, THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE FEDERAL LAWS OF THE UNITED
STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A
PORTION OF THE MORTGAGED PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE
TO A PORTION OF THE MORTGAGED PROPERTY) NECESSARILY OR, IN THE SOLE DISCRETION
OF THE MORTGAGEE, APPROPRIATELY GOVERNS WITH RESPECT TO PROCEDURAL AND
SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE
LIENS, PRIVILEGES, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE
TRUSTEE OR MORTGAGEE GRANTED HEREIN, THE LAW OF SUCH STATE SHALL APPLY AS TO
THAT PORTION OF THE MORTGAGED PROPERTY LOCATED IN (OR WHICH IS OTHERWISE SUBJECT
TO THE LAWS OF) SUCH STATE.

         Section 6.16   EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS MORTGAGE; AND AGREES THAT IT
IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS MORTGAGE; THAT IT HAS
IN FACT READ THIS MORTGAGE AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS MORTGAGE; THAT IT HAS
BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS MORTGAGE; AND HAS RECEIVED THE
ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS MORTGAGE; AND THAT IT RECOGNIZES
THAT CERTAIN OF THE TERMS OF THIS MORTGAGE RESULT IN ONE PARTY ASSUMING THE
LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER
PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS MORTGAGE ON THE BASIS THAT THE PARTY HAD NO NOTICE
OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."

         Section 6.17   FINAL AGREEMENT. THE LOAN DOCUMENTS, THIS MORTGAGE AND
THE SECURITY DOCUMENTS AND THE OTHER WRITTEN DOCUMENTS EXECUTED IN CONNECTION
THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

         Section 6.18   Subrogation; Prior Mortgages. To the extent that
proceeds of the Indebtedness are used to pay obligations secured by any
outstanding lien, privilege, security interest, charge or prior encumbrance
against any Mortgaged Property ("Prior Mortgages"), such proceeds have been
advanced at Mortgagor's request, and the Trustee for the benefit of the
Mortgagee or the Mortgagee as agent for the party or parties advancing the same
shall be subrogated to any and all rights, security interests and liens owned by
any owner or holder of such Prior Mortgages, privileges, security interests,
charges or encumbrances, irrespective of whether said liens, privileges,
security interests, charges or encumbrances are released, and it is expressly
understood that, in consideration of the payment of such obligations, Mortgagor
hereby waives and releases all demands and causes of action for offsets and
payments to, upon and in connection with the said obligations. Mortgagor and
Mortgagee acknowledge that this Mortgage amends, restates and consolidates the

                                       27
<PAGE>

Prior Mortgages, and all liens, claims, rights, titles, interests and benefits
created and granted by the Prior Mortgages shall continue to exist, remain valid
and subsisting, shall not be impaired or released hereby, shall remain in full
force and effect and are hereby renewed, extended, carried forward and conveyed
as security for the Indebtedness.

         Section 6.19   Compliance with Usury Laws. It is the intent of
Mortgagor, Mortgagee and all other parties to the Transaction Documents to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof, it is stipulated and agreed that none of the
terms and provisions contained herein or in the other Transaction Documents
shall ever be construed to create a contract to pay, for the use, forbearance or
detention of money, interest in excess of the maximum amount of interest
permitted to be collected, charged, taken or received by applicable law from
time to time in effect.

         Section 6.20   Certain Obligations of Mortgagor. Without limiting
Mortgagor's obligations hereunder, Mortgagor's liability hereunder and the
obligations secured hereby shall extend to and include all post petition
interest, expenses and other duties and liabilities with respect to Mortgagor's
obligations hereunder which would be owed but for the fact that the same may be
unenforceable due to the existence of a bankruptcy, reorganization or similar
proceeding.

         Section 6.21   Authority of Mortgagee. The holders of the Indebtedness
secured hereby may, by agreement among them, provide for and regulate the
exercise of rights and remedies hereunder, but, unless and until modified to the
contrary in writing signed by all such persons and recorded in the same counties
as this Mortgage is recorded, (i) all persons other than Mortgagor and its
affiliates shall be entitled to rely on the releases, waivers, consents,
approvals, notifications and other acts (including, without limitation, or the
appointment or substitution of trustees hereunder and the bidding in of all or
any part of the Indebtedness held by any one or more persons, whether the same
be conducted under the provisions hereof or otherwise) of Mortgagee, without
inquiry into any such agreements or the existence of required consent or
approval of any holders of Indebtedness and without the joinder of any party
other than Mortgagee in such releases, waivers, consents, approvals,
notifications or other acts and (ii) all notices, requests, consents, demands
and other communications required or permitted to be given hereunder may be
given to Mortgagee.

         [rest of page intentionally left blank; signature page follows]

                                       28
<PAGE>

         WITNESS THE EXECUTION HEREOF, this 3rd day of August, 2007, to be
effective as of said date (the "Effective Date").

                                       MORTGAGOR:

                                       SONTERRA RESOURCES, INC., a Delaware
                                       corporation

                                       By: /s/ Michael J. Pawelek
                                           -------------------------------------
                                           Name:   Michael J. Pawelek
                                           Title:  President

The name and address of the Debtor/Mortgagor is:

           300 East Sonterra Boulevard, Suite 1220
           San Antonio, Texas

The name and address of the Secured Party/Mortgagee is:

           Viking Asset Management, LLC
           600 Montgomery Street, 44th Floor
           San Francisco, CA  94111
           Attention: Michael Rudolph

With a copy to:

           c/o Viking Asset Management, LLC
           10 Glenville Street, 3rd Floor
           Greenwich, Connecticut 06831
           Attention: Robert J. Brantman

                                       29
<PAGE>

STATE OF TEXAS                         )
                                       )
COUNTY OF [_____]                      )
                                       )
CITY OF [_______________]              )

The foregoing instrument was acknowledged before me this 3rd day of August,
2007, by __________________ as _______________________ of SONTERRA RESOURCES,
INC., a Delaware corporation, on behalf of said corporation.

Witness my hand and official seal.

My Commission Expires: _______________________________

                                       _________________________________________
                                       Notary Public

<PAGE>

                                    EXHIBIT A
                                    ---------

                              Property Descriptions
                              ---------------------

                          Property Description (Cinco)
                          ----------------------------

Shark Prospect

     1.  Oil and Gas Lease dated July 1, 2003, from the State of Texas, as
         Lessor, to Cinco Natural Resources Corporation, as Lessee, covering Oil
         and Gas Lease No. M-103194, being the south one-half (S/2) of State
         Tract 150, Matagorda Bay, Calhoun County, Texas, containing
         approximately 320.0 acres, recorded in File No. 82095, Volume 349, Page
         1 of the Official Records of Calhoun County, Texas.

     Lease Interest:
     ---------------

     Surface down to 9400' true vertical depth as seen in the Cockrell
     -----------------------------------------------------------------
     Corporation - Aquamarine Unit Well No. 1 (API No. 42-057-31600).
     ----------------------------------------------------------------

     37.80% WI / 29.862% NRI

     Rights between 9401' and 50' below the stratigraphic equivalent of the top
     --------------------------------------------------------------------------
     of the 9800' Sand, said top of the 9800' Sand being equal to 9790' TVD as
     -------------------------------------------------------------------------
     seen on the electric log for the Cockrell Corporation - Aquamarine Unit
     -----------------------------------------------------------------------
     Well No. 1 (API No. 42-057-31600).
     ----------------------------------

     30.30% WI / 23.55825% NRI

     Rights below 50' below the stratigraphic equivalent of the top o the 9800'
     --------------------------------------------------------------------------
     Sand, said top of the 9800' Sand being equal to 9790' TVD as seen on the
     ------------------------------------------------------------------------
     electric log for the Cockrell Corporation - Aquamarine Unit Well No. 1 (API
     ---------------------------------------------------------------------------
     No. 42-057-31600).
     ------------------

     30.30% WI / 23.331% NRI

     Well Interest:
     --------------

     Flash - State Tract 150 No. 1: 37.80% WI / 29.862% NRI

     BOSS - State Tract 150 No. 2: 36.708% WI BPO / 28.54047% NRI BPO / 30.30%
     WI APO / 23.55825% NRI APO

Ray Prospect

     2.  Oil and Gas Lease dated October 19, 2004, from the State of Texas, by
         and through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Natural Resources Corporation, as Lessee,
         covering Oil and Gas Lease Number M-104265, being the South One-Half
         (S/2) of Tract 175, Matagorda Bay, Matagorda and Calhoun Counties,
         Texas, containing approximately 320 acres as shown on the applicable
         Official Submerged Area Map on file in the Texas General Land Office,
         Austin, Texas, and recorded in the Official Records of Matagorda

<PAGE>

         County, Texas, as File No. 050427, and recorded in the Official Records
         of Calhoun County, Texas, as File No. 91879, Volume 400, Page 525.

     Lease Interest: 30.30% WI / 23.55825% NRI
     --------------

     3.  Oil and Gas Lease dated October 19, 2004, from the State of Texas, by
         and through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Natural Resources Corporation, as Lessee,
         covering Oil and Gas Lease Number M-104266, being the South One-Half
         (S/2) of Tract 178, Matagorda Bay, Matagorda County, Texas, containing
         approximately 320 acres as shown on the applicable Official Submerged
         Area Map on file in the Texas General Land Office, Austin, Texas, and
         recorded in the Official Records of Matagorda County, Texas, as File
         No. 050428.

     Lease Interest: 30.30% WI / 23.55825% NRI
     --------------

     4.  Oil and Gas Lease dated October 19, 2004, from the State of Texas, by
         and through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Natural Resources Corporation, as Lessee,
         covering Oil and Gas Lease Number M-104267, being the North One-Half
         (N/2) of Tract 179, Matagorda Bay, Matagorda County, Texas, containing
         approximately 320 acres as shown on the applicable Official Submerged
         Area Map on file in the Texas General Land Office, Austin, Texas, and
         recorded in the Official Records of Matagorda County, Texas, as File
         No. 050429.

     Lease Interest: 30.30% WI / 23.55825% NRI
     --------------

Starfish Prospect

     5.  Oil and Gas Lease dated April 5, 2005, from the State of Texas, by and
         through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Energy Corporation, as Lessee, covering Oil
         and Gas Lease Number M-104829, being the South One-Half (S/2) of Tract
         96, Matagorda Bay, Calhoun County, Texas, containing approximately 320
         acres as shown on the applicable Official Submerged Area Map on file in
         the Texas General Land Office, Austin, Texas, and recorded in the
         Official Records of Calhoun County, Texas, as File No. 92724, Volume
         406, Page 35.

     Lease Interest: 30.30% WI / 23.1795% NRI
     --------------

     6.  Oil and Gas Lease dated July 19, 2005, from the State of Texas, by and
         through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and
         Gas Lease Number M-105371, being the North One-Half (N/2) of Tract 104,
         Matagorda Bay, Calhoun County, Texas, containing approximately 320
         acres as shown on the applicable Official Submerged Area Map on file in
         the Texas General Land Office, Austin, Texas, and recorded in the
         Official Records of Calhoun County, Texas, as File No. 96377, Volume
         426, Page 912.

     Lease Interest: 30.30% WI / 23.1795% NRI
     --------------

<PAGE>

Barracuda Prospect

     7.  Oil and Gas Lease dated April 5, 2005, from the State of Texas, by and
         through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Energy Corporation, as Lessee, covering Oil
         and Gas Lease Number M-104827, being the North One-Half (N/2) of Tract
         94, Matagorda Bay, Calhoun County, Texas, containing approximately 320
         acres as shown on the applicable Official Submerged Area Map on file in
         the Texas General Land Office, Austin, Texas, and recorded in the
         Official Records of Calhoun County, Texas, as File No. 92722, Volume
         406, Page 21.

     Lease Interest: 30.30% WI / 23.1795% NRI
     --------------

     8.  Oil and Gas Lease dated April 5, 2005, from the State of Texas, by and
         through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Energy Corporation, as Lessee, covering Oil
         and Gas Lease Number M-104828, being the South One-Half (S/2) of Tract
         94, Matagorda Bay, Calhoun County, Texas, containing approximately 320
         acres as shown on the applicable Official Submerged Area Map on file in
         the Texas General Land Office, Austin, Texas, and recorded in the
         Official Records of Calhoun County, Texas, as File No. 92723, Volume
         406, Page 28.

     Lease Interest: 30.30% WI / 23.1795% NRI
     --------------

Mackerel Prospect

     9.  Oil and Gas Lease dated July 19, 2005, from the State of Texas, by and
         through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and
         Gas Lease Number M-105373, being the North One-Half (N/2) of Tract 175,
         Matagorda Bay, Calhoun and Matagorda Counties, Texas, containing
         approximately 320 acres as shown on the applicable Official Submerged
         Area Map on file in the Texas General Land Office, Austin, Texas, and
         recorded in the Official Records of Calhoun County, Texas, as File No.
         96378, Volume 426, Page 919, and recorded in the Official Records of
         Matagorda County, Texas, as File No. 063722.

     Lease Interest: 30.30% WI / 23.1795% NRI
     --------------

     10. Oil and Gas Lease dated October 4, 2005, from the State of Texas, by
         and through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and
         Gas Lease Number M-105679, being the North One-Half (N/2) of Tract 178,
         Matagorda Bay, Matagorda County, Texas, containing approximately 320
         acres as shown on the applicable Official Submerged Area Map on file in
         the Texas General Land Office, Austin, Texas, and recorded in the
         Official Records of Matagorda County, Texas, as File No. 059741.

     Lease Interest: 30.30% WI / 23.1795% NRI
     --------------

     11. Oil and Gas Lease dated October 4, 2005, from the State of Texas, by
         and through the Commissioner of the General Land office of the State of
         Texas, as Lessor, to Cinco Resources, Inc., as Lessee, covering Oil and
         Gas Lease Number M-105678, being the South One-Half (S/2) of Tract 176,
         Matagorda Bay, Calhoun and Matagorda Counties, Texas, containing
         approximately 320 acres as shown on the applicable Official Submerged

<PAGE>

         Area Map on file in the Texas General Land Office, Austin, Texas, and
         recorded in the Official Records of Calhoun County, Texas, as File No.
         96971, Volume 429, Page 918, and recorded in the Official Records of
         Matagorda County, Texas, as File No. 059740.

     Lease Interest: 30.30% WI / 23.1795% NRI
     --------------

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