Document:

CREDIT AGREEMENT

                                     between

                            UNION PLANTERS BANK, N.A.

                                       and

                        FIELDPOINT PETROLEUM CORPORATION

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

                                  $2,000,000.00

                              Revolving Credit Note

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

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

                                December 14, 2000
                              ---------------------

<PAGE>

                                TABLE OF CONTENTS

ARTICLE 1.  DEFINED TERMS....................................................  1
      Section 1.1  Certain Defined Terms.....................................  1
      Section 1.2  Other Definitional Provisions.............................  5

ARTICLE 2.  AMOUNT AND TERMS OF THE LOAN.....................................  5
      Section 2.1  Borrowing Base and the Loan...............................  5
      Section 2.2  Interest and Fees.........................................  6
      Section 2.3  Payments..................................................  6
      Section 2.4  Prepayment................................................  6
      Section 2.5  Payment on Non-Business Days..............................  7
      Section 2.6  Overdue Principal and Interest............................  7
      Section 2.7  Usury Not Intended........................................  7

ARTICLE 3.  CONDITIONS PRECEDENT.............................................  8
      Section 3.1  Conditions Precedent to the Initial Advance...............  8
      Section 3.2  Conditions Precedent to Each Subsequent Advance...........  8

ARTICLE 4.  REPRESENTATIONS AND WARRANTIES...................................  9
      Section 4.1  Corporate Authority.......................................  9
      Section 4.2  Authorization; Consent.................................... 10
      Section 4.3  Binding Obligations....................................... 10
      Section 4.4  Financial Condition....................................... 10
      Section 4.5  Title, Etc................................................ 10
      Section 4.6  Investments and Guaranties................................ 10
      Section 4.7  Liabilities; Litigation................................... 11
      Section 4.8  Taxes; Governmental Charges............................... 11
      Section 4.9  Licenses and Permits...................................... 11
      Section 4.10 Defaults.................................................. 11
      Section 4.11 ERISA..................................................... 11
      Section 4.12 Environmental............................................. 11
      Section 4.13 Margin Stock.............................................. 12
      Section 4.14 No Material Misstatements................................. 12

ARTICLE 5.  AFFIRMATIVE COVENANTS............................................ 13
      Section 5.1  Business and Financial Information........................ 13
      Section 5.2  Certificates of Compliance................................ 15
      Section 5.3  Books and Records......................................... 15
      Section 5.4  Inspection................................................ 15
      Section 5.5  Maintenance of the Property............................... 15
      Section 5.6  Compliance with Laws, etc................................. 15
      Section 5.7  Taxes and Other Liens..................................... 15
      Section 5.8  Performance of Obligations................................ 16
      Section 5.9  Maintenance............................................... 16
      Section 5.10 Further Assurances........................................ 16
      Section 5.11 Required Insurance........................................ 16
      Section 5.12 Conduct of Business....................................... 16

                                        i

<PAGE>

      Section 5.13 Title Opinion............................................. 16
      Section 5.14 Information............................................... 17
      Section 5.15 Access to Mortgaged Properties............................ 17
      Section 5.16 Maintenance of Borrower's Files........................... 17
      Section 5.17 Reservoir Reports......................................... 18
      Section 5.18 Title Opinions.  ......................................... 18
      Section 5.19 Notice of Change of Address; Transfer or Division
              Orders; Change of Purchaser.................................... 18

ARTICLE 6.  NEGATIVE COVENANTS............................................... 18
      Section 6.1  Debt...................................................... 18
      Section 6.2  Liens..................................................... 18
      Section 6.3  Dividends; Redemptions.................................... 19
      Section 6.4  Sale of Assets; Mortgaged Properties...................... 19
      Section 6.5  Limitations on Contingent Liabilities..................... 19
      Section 6.6  Investments, Loans and Advances........................... 20
      Section 6.7  Mergers; etc.............................................. 20
      Section 6.8  Nature of Business........................................ 20
      Section 6.9  ERISA..................................................... 21
      Section 6.10 Sale or Discount of Receivables........................... 21
      Section 6.11 Sale and Leasebacks....................................... 21
      Section 6.12 Transaction with Affiliates............................... 21
      Section 6.13 Environmental Matters..................................... 21
      Section 6.14 Cancellation of Insurance................................. 21
      Section 6.15 No Subsidiaries........................................... 21
      Section 6.16 Independence of Covenants................................. 21

ARTICLE 7.  DEFAULT.......................................................... 22
      Section 7.1  Events of Default......................................... 22
      Section 7.2  Rights and Remedies....................................... 23

ARTICLE 8.  MISCELLANEOUS.................................................... 24
      Section 8.1  Expenses.................................................. 24
      Section 8.2  Indemnification........................................... 24
      Section 8.3  Waivers................................................... 25
      Section 8.4  Applicable Law............................................ 25
      Section 8.5  Notices................................................... 25
      Section 8.6  Survival of Warranties and Agreements..................... 25
      Section 8.7  Waiver; Remedies Cumulative............................... 25
      Section 8.8  Severability.............................................. 26
      Section 8.9  Entire Agreement.......................................... 26
      Section 8.10 Further Assurances........................................ 26
      Section 8.11 Headings.................................................. 26
      Section 8.12 Successors and Assigns; Subsequent Holders of the
              Revolving Credit Note.......................................... 26
      Section 8.13 Amendments................................................ 27
      Section 8.14 Counterparts; Effectiveness............................... 27
      Section 8.15 Joinder................................................... 27

                                       ii

<PAGE>

                              ANNEXES AND SCHEDULES
                              ---------------------

      ANNEX A -     Essential Loan Terms
      ANNEX B -     Form of Revolving Credit Note
      ANNEX C -     Schedule of Mortgages
      ANNEX D -     Form of Guaranty Agreement
      ANNEX E -     Form of Advance Certificate
      ANNEX F -     Form of Security Agreement covering Bank Accounts

      Schedule 4.7  -      Existing Litigation
      Schedule 4.8  -      Outstanding Taxes
      Schedule 6.1  -      Existing Debt
      Schedule 6.2  -      Existing Liens

                                       iii

<PAGE>

                                CREDIT AGREEMENT
                       $2,000,000 REVOLVING LINE OF CREDIT
--------------------------------------------------------------------------------

         THIS CREDIT AGREEMENT dated as of this 14th day of December,  2000 , is
by and between each of the following named parties whose  respective  addresses,
telephone and telecopier numbers are set forth with their names:

         UNION PLANTERS BANK                                        (the "Bank")
         5005 Woodway
         Houston, Texas 77056
         Telephone:    713/867-6330
         Telecopier:   713/867-7439
         Attention:    Rebecca Dozier, Senior Vice President

         and

         FIELDPOINT PETROLEUM CORPORATION      (whether one or more, "Borrower")
         a Colorado corporation
         P.O. Box 200685
         Austin, Texas 78720
         Telephone:    512/250-8692
         Telecopier:   512/335-1294

                              W I T N E S S E T H:

         WHEREAS,  Borrower desires to obtain a loan, the proceeds of which will
be used for the purposes set forth on Annex A and which loan shall be secured by
those certain oil and gas properties  which are more  particularly  described on
Annex C; and

         WHEREAS,  the Bank is willing to make the loan to Borrower on the terms
and conditions provided herein;

         NOW,  THEREFORE,  for and in  consideration  of the  mutual  covenants,
agreements and undertakings herein contained, the Bank and Borrower hereby agree
as follows:

ARTICLE 1.  DEFINED TERMS

         Section 1.1  Certain  Defined  Terms.  As used in this  Agreement,  the
following terms shall have the following meanings:

         "Affiliate"  shall mean,  with respect to any Person,  any other Person
directly or indirectly  controlling,  controlled by or under,  controlled  with,
such Person.  For the purposes of this  definition,  "control"  (including  with
correlated meanings, the terms "controlling," "controlled by" and "under control
with"), as used with respect to any Person, shall mean the possession,  directly
or  indirectly,  of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.

         "Agreement"  means this Credit  Agreement,  as amended or  supplemented
from time to time in accordance  with the terms hereof.  This Agreement shall be
deemed to include each of the Security  Documents;  accordingly,  this Agreement
and the Security Documents should be read and treated as one agreement.

                                       -1-

<PAGE>

         "Borrowing  Base" means the aggregate  outstanding  indebtedness  in an
amount  determined by the Bank in its sole  discretion,  in accordance  with its
normal and customary oil and gas lending parameters and Procedures. The "Initial
Borrowing  Base" is set forth on Annex A. The Borrowing Base may be redetermined
from time to time, as provided in this Agreement.

         "Borrowing Base  Redetermination  Date" means the (i) date set forth on
Annex A,  (ii) the date that is thirty  (30) days  after the date that  Borrower
delivers  to the Bank a request for a  redetermination  of the  Borrowing  Base,
together with such  engineering,  title,  and other  information as the Bank may
require in  connection  with such  redetermination,  and (iii) any other date on
which  the  Bank,  in its sole  discretion,  redetermines  the  Borrowing  Base;
provided,  however, that the Bank will not exercise its rights under this clause
(iii) more often than once during any calendar year).

         "Borrower's  Files" means all now owned or hereafter  acquired,  books,
records,  files, land files, well logs,  engineering  data,  reports,  analyses,
title opinions, and any other information pertinent to the ownership,  operation
or evaluation of the Mortgaged Properties.

         "Business  Day"  means any day other than a  Saturday,  Sunday or legal
holiday under the laws of the State of Texas.

         "Corporate  Guarantor"  means  Bass  Petroleum,  Inc.  If  there  is no
corporate guarantor of the indebtedness of Borrower,  then all references herein
to Corporate Guarantor shall be deemed inapplicable, and this Agreement shall be
deemed  amended to the extent  necessary  to delete any  reference  to Corporate
Guarantors.

         "Debt" shall mean, as applied to any Person,  without duplication;  (a)
all  indebtedness  of  such  Person  for  borrowed  money  (whether  matured  or
unmatured,  liquidated or  unliquidated,  direct or indirect,  joint or several,
contingent or  otherwise);  (b) notes payable and drafts  accepted  representing
extensions of credit whether or not representing obligations for borrowed money;
(c) any  obligation  owed for the deferred  purchase price of assets or services
and all obligations  under leases which shall have been, or should have been, in
accordance with generally accepted  accounting  principles,  recorded as capital
leases in respect of which such Person is liable,  contingently or otherwise, as
obligor,  guarantor or otherwise, or in respect of which obligations such Person
otherwise  assures a creditor against loss; (d) all indebtedness  secured by any
Lien  on any  Property  owned  or  held  by  such  Person,  whether  or not  the
indebtedness  secured  thereby  shall  have been  assumed;  (e) all  direct  and
indirect liability,  contingent or otherwise, of that Person with respect to any
letter of credit (other than letters of credit secured by cash),  guaranty or in
respect of which such Person otherwise  assures a creditor against loss; and (f)
any other  indebtedness  or  obligation  which,  in  accordance  with  generally
accepted  accounting  principles,  would  be shown  on the  liability  side of a
balance sheet.

         "Default"  means  the  occurrence  of any of the  events  described  in
Section 7.1 hereof.

         "Environmental Laws" shall mean the Resource  Conservation and Recovery
Act of 1987, as amended, the Comprehensive  Environmental  Response Compensation
and  Liability  Act of 1980,  as  amended,  the Oil  Pollution  Act of 1990,  as
amended,  any so-called  "Superfund"  or "Superlien"  law, the Toxic  Substances
Control Act, the Clean Air Act and any other  federal,  state or local  statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste or substance,  whether now in existence or at any time hereafter
in effect.

         "Event of Default" means any of the events specified in Section 7.1.

                                       -2-

<PAGE>

         "Governmental  Requirement"  shall mean any  applicable  law,  statute,
code, ordinance,  order, rule, policy, regulation,  judgment, decree, directive,
injunction,  franchise,  permit,  certificate,  license,  authorization or other
direction or  requirement  of any domestic or foreign  Federal,  state,  county,
parish,  municipal or other government,  department,  commission,  board, court,
agency or any other instrumentality of any of them, which exercises jurisdiction
over Borrower or any of its property.

         "Guarantors" means the Corporate  Guarantor (if any) and Ray D. Reaves,
Jr., whose address is set forth on Annex A.

         "Guaranty  Agreement" means the Guaranty Agreement in the form of Annex
D, in favor of the Bank to be executed by each of the Guarantors.

         "Hazardous Materials" shall mean any hazardous substance,  pollutant or
contaminant  defined as such in (or for the purposes of) any  Environmental  Law
and shall include,  but not be limited to, petroleum  (except to the extent that
petroleum  is deemed  exempt for the  purpose  of any  Environmental  Law),  any
radioactive material and asbestos in any form or condition.

         "Hydrocarbons"  means all present and future oil, gas,  casinghead gas,
drip  gasoline,  natural  gasoline,  distillate,  all other  liquid  or  gaseous
hydrocarbons produced or to be produced in conjunction therewith,  all products,
by-products,  and all  other  substances  derived  therefrom  or the  processing
thereof,   and  all  other  similar  minerals  now  or  hereafter  accruing  to,
attributable to, or produced from the Mortgaged Property.

         "Laws" means all applicable statutes,  laws,  ordinances,  regulations,
orders,  units,  writs,  injunctions,  or decrees  of any  state,  commonwealth,
nation, territory, possession, county, parish, municipality, or Tribunal.

         "Lien"  means,  as applied to  property  or assets,  real or  personal,
tangible  or  intangible,  any claim,  pledge,  hypothecation,  mortgage,  lien,
charge,   restriction,   deposit   arrangement,   security  interest,   security
arrangement,  financing  lease,  deed  of  trust  or  encumbrance  of  any  kind
(including,  without  limitation,  any  conditional  sale agreement or any other
title  retention  agreement)  or any sale or similar  arrangement  of any Person
whether  arising by contract or under law.  The term "Lien"  shall also  include
reservations,  exceptions,  encroachments,  easements, rights of way, covenants,
conditions,  restrictions,  leases and other title  exceptions and  encumbrances
affecting property.

         "Material  Adverse  Effect"  means any set of  circumstances  or events
which  (i) will or could  reasonably  be  expected  to have any  adverse  effect
whatsoever upon the validity,  performance, or enforceability of this instrument
or the other Security  Documents,  (ii) is or could reasonably be expected to be
material and adverse to the financial  condition of Borrower as  represented  to
the  Bank  in the  financial  statements  heretofore  furnished  to the  Bank by
Borrower,  (iii)  will or could  reasonably  be  expected  to impair  Borrower's
ability to fulfill its  obligations  under the terms and conditions of the Note,
this  instrument,  or the  other  Security  Documents,  or (iv)  will  or  could
reasonably be expected to cause a Default (as defined herein).

         "Maturity  Date"  means,  unless  extended  by the  Bank  in  its  sole
discretion,  the earlier of the Maturity  Date  indicated in Annexes A and B, or
the acceleration by the Bank of amounts due under the Note.

         "Monthly  Borrowing  Base  Reduction"  means an  amount  by  which  the
Borrowing  Base shall reduced on a monthly  basis,  as set forth in Section 2.1,
below.

                                       -3-

<PAGE>

         "Mortgage" means each of the Deeds of Trust, Mortgages,  Assignments of
Production,  Security Agreements and Financing Statements referred to on Annex C
which have  heretofore  been executed for the benefit of Bank by Borrower or the
Corporate Guarantor.

         "Mortgaged Property" has the meaning specified in the Mortgages.

         "Person" means and includes natural persons, corporations, partnerships
or other  organizations,  whether or not legal  entities,  and  governments  and
agencies and political subdivisions thereof.

         "Plan" shall mean any  employee  pension,  retirement,  profit-sharing,
benefit or other  similar  employee  benefit  plan,  any part or all of which is
subject to or  governed  by any  provision  of the  Employee  Retirement  Income
Security Act of 1974, as amended.

         "Prime Rate" means at any time the prime rate of interest, as quoted in
the Wall Street Journal,  with the understanding that such prime rate may not be
the lowest of the rates of interest  available  from the Bank, and which rate of
interest shall change as and when announced in the Wall Street Journal,  without
notice to Borrower or any other Person.

         "Security Agreement" means the Security Agreement  substantially in the
form of the attached Annex F which is being executed by Borrower in favor of the
Bank and covers Borrower's accounts  established at the Bank, to which reference
is here made for all purposes.

         "Security  Documents"  means  the  Security  Agreements,  the  Guaranty
Agreements,  the Mortgages, and any related notices, powers of attorney, proxies
and other financing statements and any other documents now or hereafter existing
securing  all  amounts  due and owing  hereunder,  as the same may be amended or
supplemented from time to time in accordance with the terms thereof.

         "Taxes"  means  taxes,  assessments,  fees,  levies,  imposts,  duties,
deductions,  withholdings,  or other similar charges from time to time or at any
time  imposed by any Law or any  Tribunal,  including,  but not  limited  to, ad
valorem  taxes,  windfall  profits  taxes,  franchise  taxes,  severance  taxes,
production taxes, and excise taxes.

         "Loan" means the aggregate  outstanding  principal amount, at any time,
of the Loan Advances.

         "Loan Advances" means the advances by the Bank to Borrower  pursuant to
Section 2.1.

         "Note" means the promissory  note executed and delivered to the Bank by
Borrower with respect to the Loan,  substantially in the form of Annex B, as the
same may be modified,  amended,  endorsed or otherwise  rearranged  from time to
time in accordance with the terms hereof.

         "Tribunal"  means any  court or  governmental  department,  commission,
board, bureau,  agency, or instrumentality of any state,  commonwealth,  nation,
territory,  possession, county, parish, or municipality whether now or hereafter
constituted or existing.

         "Trustee" means the person identified in the Mortgage as the "Trustee".

         Section 1.2 Other  Definitional  Provisions.  References  to "Sections"
shall be to Sections of this Agreement unless otherwise  specifically  provided.
Any of the terms  defined  in Section  1.1 may,  unless  the  context  otherwise
requires, be used in the singular or the plural, depending on the reference.

                                       -4-

<PAGE>

                     ARTICLE 2. AMOUNT AND TERMS OF THE LOAN

         Section 2.1  Borrowing  Base and the Loan.  The Bank,  on the terms and
conditions hereinafter set forth, agrees to make a Loan to Borrower in an amount
up to  but no  greater  than  the  Borrowing  Base.  The  aggregate  outstanding
indebtedness,  including all presently  existing loans of Borrower,  shall never
exceed the Borrowing Base, as the same may be redetermined from time to time, as
provided in this Agreement.  The Initial Borrowing Base is set forth on Annex A.
The  amount of the  Borrowing  Base will be  redetemined  by the Bank as of each
Borrowing  Base  Redetermination  Date,  taking into account such matters as the
Bank,  in its sole  discretion,  deems  relevant.  The  Borrowing  Base shall be
increased or decreased, as the case may be, immediately upon each Borrowing Base
Redetermination  Date.  Effective as of the date of the Initial  Borrowing  Base
Reduction,  as set forth on Annex A, the Borrowing  Base shall be reduced by the
Monthly  Borrowing Base Reduction  which is set forth on Annex A, and each month
subsequent to such date,  the Borrowing  Based shall be deemed reduced by a like
amount.  Upon any change in the Borrowing Base, the Bank shall  redetermine,  in
its sole  discretion,  the  amount  by which  the  Borrowing  Base  will  reduce
effective the first day of each month thereafter.  If the requisite  engineering
report for the  Borrowing  Base  Redetermination  is not  submitted  in a timely
manner,  as required in this Agreement,  the line of credit offered herein shall
be frozen.

           The schedule for all Loan  advances is set forth on Annex A. The Loan
Advances shall be evidenced by the Note, a copy of which is attached as Annex B.
A duly  authorized  officer  of  Borrower  shall  request  each Loan  Advance by
delivering to the Bank a certificate in the form of Annex D.

         Section 2.2       Interest and Fees.

         (a)  Borrower  shall pay to the Bank,  at the Closing of the Loan,  the
Original  Transaction  Fee set forth on Annex A. Borrower  shall pay to the Bank
the sum  prescribed on Annex A as an Additional  Facility Fee upon the effective
date of any increase in the Borrowing Base.  Finally,  Borrower shall pay to the
Bank a Borrowing Base Redetermination Fee in the amount set forth on Annex A, or
such lesser amount as the Bank may determine,  in its sole discretion,  for each
redetermination  of the  Borrowing  Base  which  is  based  upon a  third  party
engineering report  satisfactory to the Bank and which has been delivered to the
Bank; in addition,  Borrower shall  reimburse the Bank for all  engineering  and
related expenses  incurred by the Bank in connection with such  redetermination,
including a reasonable charge for services performed by employees of the Bank or
its affiliates.

         (b) Interest shall accrue on the outstanding daily principal balance of
the Loan at the rate and in the manner  provided  on  Annexes A and B.  Borrower
acknowledges  and agrees that the rate of interest on the Loan may change at any
time,  and from time to time, on the effective  date of each change in the Prime
Rate. Borrower agrees that the amount shown on the books and records of the Bank
as being the aggregate  principal  amount of the Loan and any accrued and unpaid
interest,  fees or  expenses  shall  be  prima  facie  evidence  of the  amounts
outstanding  under  the Note and this  Agreement.  The Bank  agrees  to  provide
Borrower with monthly  statements setting forth the current principal balance of
the Loan and the  accrued  and  unpaid  interest,  fees  and  expenses  due from
Borrower.

         (c) All interest  due  pursuant to this  Agreement or the Note shall be
computed  on the basis of a 365 day year and paid for the actual  number of days
elapsed (including the first but excluding the last day) during any period.

                                       -5-

<PAGE>

         Section 2.3       Payments.

         (a) All  payments of principal  and accrued and unpaid  interest on the
Loan shall be made on the schedule set forth on Annex A. Borrower may reduce the
principal  amount of the Loan from time to time, in accordance with Section 2.4,
below, and thereafter  increase the amount of the Loan by reborrowing the amount
of any prepayement(s), subject to the limitations imposed by the Borrowing Base,
as provided in this Agreement.  All payments of principal and interest due under
the Note and all fees and expenses  provided for hereunder  shall be made to the
Bank without setoff, counterclaim or deduction in immediately available funds to
an account designated by the Bank to Borrower from time to time.

         (b) Any payment  made under this  Agreement,  the Note or the  Security
Documents  shall  be  applied  in the  following  order:  first,  to any fees or
expenses  payable  under this  Agreement,  the Note and the Security  Documents;
second,  to any accrued and unpaid  interest under the Note;  and third,  to any
principal outstanding under the Note.

         Section 2.4  Prepayment.  Borrower  may, on at least three (3) Business
Days' notice to the Bank specifying the date and amount of any such  prepayment,
prepay  the Loan in whole  or in part at any time or from  time to time  without
penalty or premium but with accrued  interest to the date of  prepayment  on the
amount so prepaid;  provided,  however,  that no such prepayment  shall be in an
amount less than the minimum  prepayment amount set forth on Annex B, unless the
Bank shall  otherwise  agree.  Borrower  shall have the right to  re-borrow  any
amounts prepaid hereunder, as provided in Section 2.3(a), above.

         Section 2.5 Payment on  Non-Business  Days.  Whenever any payment to be
made hereunder or under the Note shall be stated to be due on a day other than a
Business Day, such payment may be made on the next succeeding  Business Day, and
such  extension  of time shall in such case be  included in the  computation  of
payment of interest on the Note.

         Section 2.6 Overdue  Principal and Interest.  Any principal of, and, to
the extent  permitted by law,  interest on, the Note overdue for more than three
Business Days shall bear interest, payable on demand, for each day until paid at
a rate equal to 3% per annum above the rate  specified in Section 2.3, but in no
event to exceed the maximum non-usurious rate permitted by applicable law.

         Section 2.7 Usury Not  Intended.  It is the intent of Borrower  and the
Bank in the execution and  performance  of this  Agreement to contract in strict
compliance  with  applicable  usury  laws  governing  the  Note,  including  any
applicable law from time to time in effect. In furtherance thereof, the Bank and
Borrower stipulate and agree that none of the terms and provisions  contained in
this  Agreement or any Security  Document  delivered  pursuant to this Agreement
shall ever be  construed to create a contract to pay, as  consideration  for the
use,  forbearance  or  detention  of money,  interest at a rate in excess of the
maximum  nonusurious  rate of interest  permitted by applicable law and that for
purposes  hereof,  interest  shall  include the  aggregate of all charges  which
constitute interest under such laws that are contracted for, charged or received
under this  Agreement;  and in the event that,  notwithstanding  the  foregoing,
under any circumstances the aggregate amounts taken, reserved, charged, received
or paid on the Note include  amounts which by applicable law are deemed interest
which would  exceed the maximum  amount of  nonusurious  interest  permitted  by
applicable  law, then such excess shall be deemed to be a mistake,  and the Bank
shall credit the same against the principal  outstanding  under the Note. In the
event that the maturity of the Note has been accelerated under this Agreement or
otherwise,  or in the event of any required or permitted  prepayment,  then such
consideration that constitutes  interest may never include more than the maximum
nonusurious  amount  permitted by applicable law, and excess  interest,  if any,
provided for in this Agreement or otherwise shall be cancelled  automatically as
of the date of such  acceleration or prepayment and, if theretofore  paid, shall
be  credited  against  the amounts due under the Note or, if the Note shall have
been paid in

                                       -6-

<PAGE>

full,  refunded to Borrower.  It is further  agreed that,  without  limiting the
foregoing,  all calculations of the rate of interest  contracted for, charged or
received  by the Bank  under  the Note,  this  Agreement  or the other  Security
Documents  shall  be  made,  to the  extent  permitted  by  applicable  law,  by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of the  indebtedness  evidenced by the Note all interest
at any time  contracted  for,  charged or received by the the Bank in connection
therewith.  The  provisions  of this  Section 2.7 shall  control  over all other
provisions of this  Agreement,  the Note and any other  instrument  executed and
delivered pursuant to this Agreement which may be in apparent conflict herewith.

                         ARTICLE 3. CONDITIONS PRECEDENT

         Section 3.1  Conditions  Precedent  to the Initial  Loan  Advance.  The
obligation  of the Bank to make the  initial  Loan  Advance  is  subject  to the
conditions  precedent  that the Bank shall have  received  on or before the date
thereof all the following in form and substance satisfactory to the Bank:

         (a) this  Agreement,  the Note, the Security  Agreement and each of the
Security Documents properly executed on behalf of Borrower and the other Persons
specified therein;

         (b) Borrower  shall have delivered such number of completed and undated
letters-in-lieu of transfer or division orders as the Bank shall have requested;

         (c)  certificates of insurance  complying as to form and substance with
the terms of Section 11(i) of the Mortgage; and

         (d) any  other  documents  and  instruments  that the Bank  shall  have
requested  concerning  the  accuracy  and  validity  of or  compliance  with any
representation,  warranty and covenant made by Borrower in this  Agreement,  the
satisfaction of any conditions contained herein and any other matters pertaining
hereto.

         Section 3.2 Conditions  Precedent to Each Loan Advance.  The obligation
of the  Bank to make  each  Loan  Advance  shall  be  subject  to the  following
additional conditions precedent:

         (a) the representations and warranties  contained in Section 4 shall be
true and  correct in all  material  respects  on and as of the date of such Loan
Advance  as though  made on and as of such date and no Event of Default or event
which, with the passage of time, the giving of notice, or both, would constitute
an Event of Default, shall have occurred and be continuing;

         (b) The Bank shall have  received  satisfactory  evidence that Borrower
owns good and defensible title to the Mortgaged Properties free and clear of all
Liens not permitted pursuant to the terms of this Agreement or the Mortgage;

         (c) The Bank shall,  on the date of such Loan Advance and the filing of
all  appropriate  Security  Documents,  have a first priority  perfected deed of
trust Lien on and security  interest in the Mortgaged  Properties  and any Liens
otherwise  permitted  under  Section 6.2 of this  Agreement and permitted by the
Mortgage; and

         (d) Borrower  shall have paid all fees and expenses due with respect to
such Loan Advance.

                                       -7-

<PAGE>

                    ARTICLE 4. REPRESENTATIONS AND WARRANTIES

         In order to induce  the Bank to enter into this  Agreement  and to make
the Loan, Borrower represents and warrants to the Bank as follows:

         Section 4.1 Corporate  Authority.  Borrower (i) is a  corporation  duly
organized, validly existing, and in good standing under the Laws of its state of
incorporation,  (ii)  is  duly  qualified  to  transact  business  as a  foreign
corporation in each jurisdiction where the nature and extent of its business and
properties  require the same,  (iii) possesses all requisite  authority,  power,
licenses,  permits,  and  franchises  to conduct  its  business  and to execute,
deliver,  and perform and comply with the terms of this Agreement,  the Note and
those  Security  Documents  to which it is a party,  to enter into the Note,  to
mortgage,  grant, bargain, sell, pledge, assign, convey,  transfer, and set over
the Mortgaged  Property and to grant and create the Liens of this instrument and
the  other  Security  Documents,  and  all of the  foregoing  having  been  duly
authorized and approved by all necessary  corporate action on behalf of Borrower
and for which no approval or consent of any Person or Tribunal is required which
has not been obtained,  (iv) has not used or transacted business under any other
corporate,  assumed,  or trade name in the five-year  period  preceding the date
hereof,  (v) is not a "utility"  as defined in Chapter 35 of the Texas  Business
and Commerce Code, as amended, and (vi) is not (and the execution, delivery, and
performance  of and  compliance  with the terms of this  instrument or any other
Security  Document will not cause  Borrower to be) in violation of the Bylaws or
Articles or Certificate of Incorporation of Borrower. Borrower does not have any
subsidiaries,  and does not own any other interest,  direct or indirect,  in any
other Person.  The address of the chief executive  office and principal place of
business of Borrower is as set forth in the opening paragraph of this Agreement.
Borrower has no other place of business.  All records pertaining to its accounts
receivable  (including  computer  records)  are kept at this  address.  Borrower
agrees to  maintain  its  principal  office  and place of  business  with all of
Borrower's  Files,  in the  jurisdiction  where  Borrower is entitled to receive
notices hereunder unless changed after 30 days prior written notice to the Bank.

         Section  4.2  Authorization;   Consent.  The  execution,  delivery  and
performance of this  Agreement,  the Note and those Security  Documents to which
Borrower  is a party  have  been  duly  authorized  by all  necessary  action by
Borrower  and do not  and  will  not  (i)  violate  any  provision  of any  Laws
applicable to Borrower, its certificate of incorporation,  by-laws or any order,
judgment  or decree  of any  court or other  agency  of  government  binding  on
Borrower;  (ii) conflict  with,  result in a breach of or  constitute  (with due
notice or lapse of time or both) a default under any  contractual  obligation of
Borrower,   other  than  any  such  breach  which  will  not,   collectively  or
individually,  cause a Material Adverse Effect,  and except those agreements for
which  appropriate  waivers or consents have been obtained and which are in full
force and  effect  and copies of which  have been  provided  to the Bank;  (iii)
result in or require  the  creation  or  imposition  of any Lien upon any of the
properties  or assets of  Borrower  (other  than in favor of the Bank);  or (iv)
require any approval,  authorization  or declaration of, or to, any other Person
except for those Persons from whom  appropriate  consents or approvals have been
obtained  and which are in full  force and  effect and copies of which have been
provided to the Bank.

         Section 4.3 Binding  Obligations.  This  Agreement,  the Note and those
Security  Documents to which  Borrower is a party,  when  executed and delivered
will be,  legal,  valid and  binding  obligations  of  Borrower  enforceable  in
accordance with their respective terms.

         Section 4.4 Financial Condition.  The consolidated financial statements
of Borrower and the Corporate Guarantor  previously delivered to the Bank fairly
present the consolidated  financial position of each of these entities as of the
date  thereof  and have been  prepared in  accordance  with  generally  accepted
accounting  principles,  and are correct and complete in all material  respects.
There  has been no  material  adverse  change  in the  condition,  financial  or
otherwise,  of either Borrower or the Corporate  Guarantor since the date of the
most recent financial statements delivered to the Bank.

                                      -8-

<PAGE>

         Section 4.5 Title,  Etc.  Borrower has good and defensible title in and
to all of its properties (i) shown as owned by Borrower on its books and records
and (ii) reflected in the financial statements  previously delivered to the Bank
free and clear of all Liens except Liens otherwise permitted under Section 6.2

         Section 4.6       Investments and Guaranties; Subsidiaries.

         (a) Borrower has not made  investments in, advances to or guaranties of
the obligations of any Person,  except for investments,  advances and guarantees
permitted by Section 6.6.

         (b)  Borrower has no subsidiaries except Bass Petroleum, Inc.

         Section 4.7       Liabilities; Litigation.

         (a)  Borrower has no Debt, except as permitted by Section 6.1.

         (b)  There  is  no  litigation,   legal,   administrative  or  arbitral
proceeding,  investigation  or other  action of any  nature  pending  or, to the
knowledge of Borrower,  threatened  against or affecting  Borrower or threatened
against or affecting  any property  owned or leased by Borrower  which will,  if
determined  adversely  against  Borrower,  will have a Material  Adverse Effect,
except as set forth on Schedule 4.7.

         Section 4.8 Taxes;  Governmental  Charges.  Borrower  has filed all tax
returns (federal, state and local) and reports required to be filed and has paid
all Taxes,  assessments,  fees and other governmental  charges levied upon it or
upon any of its  properties  or income  which are due and payable  except as set
forth in Schedule  4.8 and except such as are being  contested  in good faith by
appropriate  proceedings  diligently  conducted and for which adequate  reserves
under generally accepted accounting principles have been established.

         Section 4.9 Licenses and Permits.  Borrower  possesses all governmental
and regulatory licenses,  permits, franchises and authorizations material to the
conduct of its business.  All such leases,  licenses,  permits,  franchises  and
authorizations in any manner related to the property or business of Borrower and
all other instruments,  documents and agreements  pursuant to which Borrower has
obtained the right to use any property are in good standing, valid and effective
in accordance with their  respective  terms,  and there is not under any of such
leases, instruments, documents or agreements any existing breach or default, nor
has there occurred any event that (with or without the giving of notice of lapse
of time, or both) would constitute a breach or default.

         Section 4.10 Defaults.  Borrower is not in default  under,  nor has any
event or circumstance  occurred which, but for the passage of time or the giving
of  notice,  or both,  would  constitute  a  default  under,  any loan or credit
agreement,  indenture,  mortgage,  deed of trust,  security  agreement  or other
instrument  or agreement  evidencing  or  pertaining  to any Debt of Borrower or
under  any  contract  or  instrument  to which  Borrower  is a party or by which
Borrower  is bound  including,  without  limitation,  any oil  and/or gas lease,
operating  agreement,  unitization  agreement or other similar agreement for the
production of Hydrocarbons.

         Section 4.11 ERISA.  Borrower does not sponsor,  maintain or contribute
to any  Plan,  and has not at any  time in the  past  sponsored,  maintained  or
contributed to any Plan.

                                       -9-

<PAGE>

         Section 4.12 Environmental. (a) Except for matters which would not have
a material  adverse  effect on the  Borrower  or any  Corporate  Guarantor,  the
Borrower,  the  Corporate  Guarantor,  and all of their  respective  properties,
assets  and  operations  are in full  compliance  with all  Environmental  Laws.
Neither the  Borrower nor any  Corporate  Guarantor is aware of, or has received
notice  of,  any  past,  present,  or  future  conditions,  events,  activities,
practices,  or incidents  which may interfere  with or prevent the compliance or
continued compliance in all materials respects by the Borrower and the Corporate
Guarantor with all Environmental Laws.

         (b) The Borrower and the Corporate Guarantor have obtained all permits,
licenses,  and  authorizations  which are required under all Environmental  Laws
applicable to their respective businesses and properties.

         (c) Except for matters which would not have a material  adverse  effect
on the Borrower or the Corporate  Guarantor,  no non-exempt  Hazardous Materials
exist on, about, or within or have been used,  generated,  stored,  transported,
disposed of on, or released from any of the properties or assets of the Borrower
or the  Corporate  Guarantor.  The use  which  the  Borrower  and the  Corporate
Guarantor make and intend to make of their respective properties and assets will
not  result  in the  use,  generation,  storage,  transportation,  accumulation,
disposal,  or  release  of any  Hazardous  Materials  on,  in,  or from any such
properties or assets except for matters which would not have a material  adverse
effect on the Borrower or such Corporate Guarantor.

         (d) There is no action,  suit,  proceeding,  investigation,  or inquiry
before any court, administrative agency, or other governmental authority pending
or, to the  knowledge of the  Borrower,  threatened  against the Borrower or the
Corporate  Guarantor  relating in any way to any Environmental  Law. Neither the
Borrower nor the Corporate Guarantor has (i) any material liability for remedial
action under any Environmental Law, (ii) received any request for information by
any governmental  authority or other Person with respect to the condition,  use,
or operation of any of its  properties  or assets that is  reasonably  likely to
result in any material liability for remedial action under any Environmental Law
or that is reasonably  likely to have a material  adverse effect on the Borrower
or such Corporate  Guarantor or (iii) received any notice from any  governmental
authority or other Person with respect to any material  violation of or material
liability under any Environmental Law.

         Section 4.13 Margin  Stock.  None of the proceeds of the Loan  Advances
will be used for the purpose of purchasing or carrying "margin stock" as defined
in  Regulation  G of the Board of Governors  of the Federal  Reserve  System (12
C.F.R.  Part 207) or for the purpose of reducing or retiring  any Debt which was
originally  incurred to purchase or carry margin stock or for any other  purpose
which might constitute this transaction a "purpose" credit within the meaning of
such  Regulation G. Borrower is not engaged in the business of extending  credit
for the purpose of purchasing or carrying  margin stocks.  Neither  Borrower nor
any Person  acting on its behalf has taken or will take any action  which  might
cause  the  Notes  or this  Agreement  to  violate  Regulation  G, or any  other
regulation  thereunder,  in  each  case  as now in  effect  or as the  same  may
hereinafter be in effect.

         Section  4.14 No Material  Misstatements.  No  information,  exhibit or
report  including,  without  limitation,  the  reserve  reports  prepared by the
Borrower with respect to the Mortgaged Properties that has been furnished to the
Bank in connection with the  negotiation of this Agreement  contained any untrue
statement of any material  fact or omits to state a material  fact  necessary in
order to make the statement contained herein or therein not misleading; subject,
however,  in the case of the reserve  reports  provided  by the  Borrower to the
assumptions  set forth therein.  There is no fact known to the Borrower that the
Borrower  foresees  will  have a  material  adverse  effect  on the  operations,
Property,  assets or condition (financial of otherwise) of the Borrower that has
not been disclosed herein or in such other  documents,  certificates and written
statements furnished to the Bank for use in connection

                                      -10-

<PAGE>

with the transactions  contemplated hereby. Without limiting the foregoing,  the
Borrower's interest in each of the Mortgaged Properties will (i) with respect to
each  tract of land  described  in Exhibit A to the  Mortgage  (A)  entitle  the
Borrower  to  receive a decimal  share of the  Hydrocarbons  produced  from,  or
obligated to, such tract not less than a decimal share of net revenue  interests
set forth in Exhibit A to the Mortgage in connection with such tract,  (B) cause
the Borrower to be obligated to bear a decimal share of the cost of exploration,
development  and  operation  of such tract of land not greater  than the decimal
share of working  interests set forth in Exhibit A to the Mortgage in connection
with such tract and (ii) if such Mortgaged  Properties are shown in Exhibit A to
be subject to a unit or units,  with  respect  to each such  unit,  entitle  the
Borrower  to receive a decimal  share of all  Hydrocarbons  covered by such unit
which are  produced  from,  or  allocated  to, such unit not less than a decimal
share of unit working  interests set forth in Exhibit A in connection  with such
Mortgaged Properties.

                        ARTICLE 5. AFFIRMATIVE COVENANTS

         Borrower  covenants  and agrees  that,  so long as any  amounts are due
under the Note or this Agreement  unless the Bank shall otherwise give its prior
written consent:

         Section 5.1  Business and  Financial  Information.  The  Borrower  will
promptly  furnish to the Bank from time to time upon  request  such  information
regarding  the business and affairs and  financial  condition of the Borrower as
the Bank may reasonably request, and will furnish to the Bank:

                  (a) Annual Reports - promptly after becoming  available and in
         any event  within 90 days  after the close of each  fiscal  year of the
         Borrower,  the audited consolidated balance sheet of the Borrower as of
         the end of such year and the audited consolidated statements of income,
         cash flow and  stockholders'  equity of the Borrower and the  Corporate
         Guarantor  for such  year,  setting  forth in each case in  comparative
         form, the  corresponding  figures for the preceding fiscal year, all in
         reasonable  detail,  and certified by an independent  firm of certified
         public  accountants  reasonably  acceptable  to the Bank as having been
         prepared in accordance with generally accepted  accounting  principles;
         and

                  (b) Monthly  Statements - promptly after  becoming  available,
         and in any event within 30 days after the close of each calendar  month
         of the  Borrower,  the  unaudited  consolidated  balance  sheet  of the
         Borrower  as of the  end of such  period,  and  unaudited  consolidated
         statements of income, cash flow and stockholders' equity for such month
         and for the period from the  beginning  of the fiscal year to the close
         of such  month,  accompanied  by a  statement  of the  chief  financial
         officer of the  Borrower to the effect that such  statements  have been
         prepared in accordance with generally accepted  accounting  principles;
         and

                  (c) Production Information - promptly upon becoming available,
         and in any event within 45 days after the end of each calendar month, a
         report   showing,   for  such  calendar   month,   the  gross  proceeds
         attributable   to  the  interests  of  the  Borrower  of  the  sale  of
         Hydrocarbons produced from the Mortgaged Properties,  the quantities so
         sold, the taxes deducted from or paid out of such proceeds,  the number
         of wells operated, drilled and abandoned, the aggregate lease operating
         expenses  payable with  respect to the  Mortgaged  Properties  for such
         calendar  month and such other  information  as the Bank may reasonably
         request; and

                  (d) Notice of Default - promptly  upon  becoming  aware of the
         existence of any condition or event which  constitutes,  or with notice
         or lapse of time (or both) would constitute,  an Event of Default under
         this  Agreement,  a written notice  specifying the nature and period of
         existence thereof and what action the Borrower is taking or proposes to
         take with respect thereto; and

                                      -11-

<PAGE>

                  (e) Notice of Claimed  Default - promptly upon becoming  aware
         that any Person has given notice or taken any other action with respect
         to a claimed  default  under any  indenture,  mortgage,  deed of trust,
         promissory note, loan agreement or note agreement to which the Borrower
         or the Guarantor is a party or has given written notice with respect to
         a claimed default under any other material  agreement or undertaking to
         which the  Borrower  or the  Guarantor  is a party,  a  written  notice
         specifying  the  notice  given or action  taken by such  Person and the
         nature of the  claimed  default  and what  action the  Borrower or such
         Guarantor is taking or proposes to take with respect thereto; and

                  (f)  Environmental  Matters - give written  notice to the Bank
         immediately  upon  receipt of any  notice  that (i) the  operations  of
         Borrower  or the  Guarantor  are not in  material  compliance  with the
         requirements of all applicable Environmental Laws; (ii) Borrower or the
         Guarantor  is  subject to  federal  or state  investigation  evaluating
         whether any remedial  action is needed to respond to the release of any
         Hazardous  Material into the environment  that is reasonably  likely to
         result in any  material  liability  for remedial  action;  or (iii) any
         properties  or assets of  Borrower or the  Guarantor  are subject to an
         Environmental Lien; and

                  (g)  Litigation - promptly upon becoming  aware of any action,
         suit or proceeding  pending or  threatened  against the Borrower or the
         Guarantor  in any  court  or  before  any  arbitrator  or  governmental
         authority  which suit or  proceeding is not being handled by an insurer
         and is for any material amount, a written notice  specifying the nature
         thereof and what action the  Borrower  or such  Guarantor  is taking or
         proposes to take with respect thereto.

         Section  5.2   Certificates  of  Compliance.   Concurrently   with  the
furnishing  of the annual and the  quarterly  financial  statements  pursuant to
Sections  5.1(a) and (b) the  Borrower  will furnish or cause to be furnished to
the Bank a certificate  signed by the President or chief  accounting  officer of
the Borrower stating that no Event of Default has occurred or is continuing.

         Section 5.3 Books and Records.  The Borrower shall, and shall cause the
Corporate Guarantor to, keep books of record and account in which full, true and
correct  entries  will be made of all  financial  dealings  or  transactions  in
relation to its business and activities,  in accordance with generally  accepted
accounting principles, consistently applied.

         Section  5.4  Inspection.  The  Borrower  shall,  and  shall  cause the
Corporate  Guarantor  to,  permit any officer,  employee or agent of the Bank to
visit and inspect any and all parts of its property, examine the books of record
and  accounts  of the  Borrower  and the  Corporate  Guarantor,  take copies and
extracts  therefrom,  and  discuss the  affairs,  finances  and  accounts of the
Borrower and the Corporate Guarantor with their respective officers, accountants
and auditors, all at such reasonable times and as often as the Bank may desire.

         Section 5.5 Maintenance of the Property.  The Borrower shall, and shall
cause  the  Corporate  Guarantor  to,  maintain  all  property  owned  by  it in
sufficient  condition,  or replace  such  property as is  necessary  in order to
continue the business of Borrower or such Guarantor in substantially  the manner
in which it is presently conducted.

         Section 5.6 Compliance with Laws,  etc. The Borrower  shall,  and shall
cause the  Corporate  Guarantor  to,  comply in all material  respects  with all
Governmental  Requirements (including,  without limitation,  Environmental Laws)
applicable to Borrower or such Guarantor or any property owned by any of them.

                                      -12-

<PAGE>

         Section  5.7  Taxes  and  Other  Liens.  The  Borrower  shall  pay  and
discharge,  and  shall  cause  the  Corporate  Guarantor  to pay and  discharge,
promptly when due, all taxes,  assessments  and  governmental  charges or levies
imposed upon the Borrower or such Corporate  Guarantor or upon the income or any
part of the  property  as well as all claims of any kind  (including  claims for
labor, materials,  supplies and rent) which, if unpaid, might become a Lien upon
any or all  of  the  property  of the  Borrower  or  such  Corporate  Guarantor;
provided,  however,  that the Borrower and the Corporate  Guarantor shall not be
required to pay any such tax,  assessment,  charge, levy or claim if the amount,
applicability  or validity thereof shall currently be contested in good faith by
appropriate  proceedings diligently conducted by or on behalf of the Borrower or
such Corporate Guarantor,  and if the Borrower or such Corporate Guarantor shall
have set up reserves  therefor  adequate  under  generally  accepted  accounting
principles.

         Section 5.8 Performance of Obligations.  The Borrower (a) shall pay the
Note  according  to the reading,  tenor and effect  thereof and (b) shall do and
perform, and shall cause each of the Guarantors to do and perform, every act and
discharge all of the obligations  provided to be performed and discharged  under
this Agreement, the Note and the Security Documents.

         Section  5.9  Maintenance.  The  Borrower  shall,  and shall  cause the
Corporate Guarantor to: (a) maintain its corporate  existence;  (b) maintain its
property  (and any  properties  leased by or consigned to it or held under title
retention or conditional sales contracts) in good and workable  condition at all
times  and  make  all  repairs,   replacements,   additions,   betterments   and
improvements  to its  property  as are  necessary  to  the  continuation  of the
business as it is presently conducted.

         Section 5.10 Further  Assurances.  The Borrower shall (a) cure promptly
any defects in the creation and issuance of the Note,  any Security  Document or
the execution and delivery of this Agreement,  and (b) at its expense,  promptly
do such  other  acts and  execute  and  deliver  to the Bank all such  other and
further  documents,  agreements and instruments as the Bank may request to carry
into effect the purposes of this Agreement, the Note or the Security Documents.

         Section  5.11  Required  Insurance.  In  addition  to the  requirements
provided  in the  Mortgage,  as to all  working  interests  owned  by  Borrower,
Borrower shall maintain at its sole cost, with  financially  sound and reputable
insurers  acceptable  to the Bank,  insurance  with respect to their  respective
interests  in the  property  against  such  liabilities,  casualties,  risks and
contingencies, including, but not limited to (i) comprehensive general liability
insurance,  protecting  against claims for bodily injury,  death and/or property
damage arising out of the use, ownership, possession, operation and condition of
the property  owned or operated by  Borrower,  and (ii)  workmen's  compensation
insurance,  and in such types and amounts as is customary for Persons engaged in
the same or similar businesses and similarly situated.

         Section 5.12 Conduct of Business.  The Borrower shall,  and shall cause
the Corporate  Guarantor to,  preserve and maintain all of its material  leases,
privileges,  franchises,   qualifications  and  rights  that  are  necessary  or
desirable in the ordinary  conduct of its business,  and conduct its business as
presently  conducted in an orderly and efficient  manner in accordance with good
business  practices.  The Borrower shall perform,  and shall cause the Corporate
Guarantor to perform,  all material  obligations it is required to perform under
the terms of each indenture, mortgage, deed of trust, security agreement, lease,
franchise  agreement,  operating  agreement or other instrument or obligation to
which it is a party or by which it or any of its properties is bound.

                                      -13-

<PAGE>

         Section 5.13 Title Opinion.  Borrower shall,  within thirty days of the
execution of this Agreement,  and, at the sole discretion of the Bank,  prior to
the initial Loan Advance to be made hereunder, deliver to the Bank an opinion of
counsel with respect to the Borrower's title in any of the Mortgaged  Properties
not heretofore committed to a Mortgage in favor of the Bank, which opinion shall
confirm the priority of the deed of trust Lien on and  security  interest of the
Bank in the Mortgaged  Properties covered by such opinion and the absence of any
defects in the Borrower's  title to such Mortgaged  Properties that could have a
material  adverse  effect on the  Borrower's  right,  title and  interest in the
Mortgaged  Properties  or that could  result in any of the  representations  and
warranties  of the  Borrower  with  respect to the  Mortgaged  Properties  being
untrue.  The Bank may waive or modify this requirement,  at its discretion,  and
any such waiver or modification of this requirement shall not be deemed to be an
amendment  of this  Agreement  except to the  extent of the  specific  waiver or
modification.

         Section 5.14 Information. The Borrower shall make available to the Bank
and  its  engineers,  attorneys,  or  representatives,  at any  time  requested,
Borrower's Files and if the Bank, or its representative, takes possession of the
Mortgaged Property pursuant to this instrument,  any other Security Document, or
Law, the Bank shall be entitled to prompt  possession of all  Borrower's  Files,
and should the Liens of any Security  Document be  foreclosed,  the purchaser at
the resulting foreclosure sale shall be entitled to all Borrower's Files.

         Section 5.15 Access to Mortgaged Properties.  Borrower shall permit the
Bank and its accredited agents, representatives, and employees at all times, and
at their own expense to go upon, examine,  inspect,  and remain on the Mortgaged
Properties, and to go on the derrick floor of any well being drilled thereon.

         Section 5.16 Maintenance of Borrower's  Files.  Borrower shall maintain
Borrower's  Files,  when  applicable,  as the  same  would  be  maintained  by a
reasonable and prudent operator,  in which full, true, and correct entries shall
be promptly  made as to all  operations,  and all of  Borrower's  Files shall be
subject to inspection by the Bank and its duly  accredited  representatives  and
attorneys during  reasonable  business hours; make a report of operations of the
Mortgaged  Property for the period since the last report setting out all data as
to production,  revenue, and expenses, prepared in such manner and in such form,
and  as  often  as the  Bank  may  request;  deliver  to the  Bank  as  soon  as
practicable,  but in no event  later than 60 days after the close of  Borrower's
fiscal  quarter  (or  calendar  quarter if  Borrower  is not on a fiscal  year),
Borrower's  balance  sheet  as of the end of such  quarter  and a  statement  of
Borrower's profits and losses for such quarter and for the year to date; deliver
to the Bank as soon as practicable, but in no event later than 90 days after the
end of  Borrower's  fiscal year (or calendar year if Borrower is not on a fiscal
year),  a  report  showing  for  such  year the  gross  proceeds  of the sale of
Hydrocarbons,  the  quantity so sold,  the Taxes,  and the  operating  and other
expenses  deducted from, or paid out of, or with respect to, such proceeds,  the
number of such wells operated, drilled, completed, and abandoned, and such other
information as The Bank may reasonably  request,  and such financial  statements
shall be  prepared  in a fashion  as set  forth  above,  shall be in  reasonable
detail, and shall otherwise be satisfactory in form to the Bank; and comply with
the Bank's  request,  which request  shall be Borrower's  discretion to make, to
have Borrower's  financial  statements for such year reviewed and reported upon,
within 30 days before the end of Borrower's fiscal or calendar year, as the case
may be, at Borrower's sole cost and expense,  by independent  public accountants
acceptable to the Bank.

         Section  5.17  Reservoir  Reports.  Within  thirty  (30)  days  of  the
Borrowing  Base  Redetermination  Date  (or at such  other  time as the Bank may
request; provided, however, that the Bank shall not make such request more often
than once each calendar year),  Borrower shall furnish, at Borrower's expense, a
report of an independent petroleum engineer or an engineering firm acceptable to
the Bank,  covering the prior and future productivity of the Mortgaged Property,
which  report will be prepared in such a manner and in such form as the Bank may
request.  If the report contemplated herein is not delivered in a timely manner,
Borrower shall be deemed in default under the terms of this Agreement.

                                      -14-

<PAGE>

         Section 5.18 Title Opinions.  Furnish the Bank with copies of any title
opinions  covering  Borrower's  interest  obtained by Borrower (either before or
after the date hereof) on all of the Mortgaged  Property  when  requested by the
Bank.

         Section 5.19 Notice of Change of Address;  Transfer or Division Orders;
Change of  Purchaser.  Upon the request of the Bank,  Borrower  will execute and
deliver  to any  persons,  corporations  or  other  entities  which  pay over to
Borrower the proceeds from the sale of production from the Mortgaged  Properties
a written  notice of change of address of Borrower so that all  transmittals  of
funds  representing  the proceeds from the sale of  production  shall be made to
Borrower in care of the Bank at the Bank's address,  as set forth on the opening
page hereof.  In addition,  upon the request of the Bank,  Borrower will execute
and deliver to the same  persons or  entities  described  above in this  section
notices of the assignment of production provided for in the Mortgage, as well as
assignment of all monies and accounts related to the properties described in the
Mortgage, and shall require and direct that future payments attributable to such
production or such monies or accounts,  including amounts then owing but unpaid,
shall be paid directly to the Bank.  Finally,  Borrower shall notify Bank of any
change of purchaser of the  production  from the Mortgaged  Properties and shall
notify the Bank of the name and address of any such new purchaser.

                          ARTICLE 6. NEGATIVE COVENANTS

         Borrower  covenants  and agrees  that,  so long as any  amounts are due
under the Note or this Agreement  unless the Bank shall otherwise give its prior
written consent:

         Section  6.1  Debt.  Borrower  shall  not,  and shall  not  permit  any
Corporate  Guarantor to, incur, assume or otherwise become or remain directly or
indirectly liable with respect to any Debt, except:

         (a) Debt  owing  to the  Bank or to any  Person  holding,  directly  or
indirectly, all of the voting stock of the Bank; and

         (b) Accounts payable incurred in the ordinary course of business; and

         (c) The Debt  identified on Schedule 6.1 and any renewals or extensions
thereof;  provided,  however,  that the  principal  amount  thereof shall not be
increased or the maturity date thereof accelerated; and

         (d) Any Debt  owing  to the  Guarantors;  provided  that  such  Debt is
effectively  subordinated  to the rights of the Bank  pursuant to the terms of a
subordination agreement on a form acceptable to Bank.

         Section  6.2  Liens.  Borrower  shall  not,  and shall not  permit  the
Corporate Guarantor to, make, create,  incur, assume or permit to exist any Lien
or  other  encumbrance  (including,   without  limitation,   licenses,   leases,
easements,  and  concessions)  on any of its  property  (now owned or  hereafter
acquired), except that the foregoing restrictions shall not apply to:

                                      -15-

<PAGE>

         (a) Liens  securing  Debt owing to the Bank or to any  Person  holding,
directly or indirectly, all of the voting stock of the Bank;

         (b) Liens for  taxes,  assessments  and other  governmental  charges or
levies or the Liens,  claims or demands of  landlords,  carriers,  warehousemen,
mechanics,  laborers,  materialmen,   operators  (except  with  respect  to  the
Mortgaged  Properties)  and other like  Persons  arising by law in the  ordinary
course of business for sums which are not yet due and payable or which are being
contested  in good faith by  appropriate  proceedings  diligently  conducted  if
reserves adequate under generally accepted accounting principles shall have been
established therefor;

         (c) easements,  rights-of-way,  restrictions,  title irregularities and
other  similar  charges  or  encumbrances  incurred  in the  ordinary  course of
business and not  materially  interfering  with (i) the ordinary  conduct of the
business of the Borrower or such Corporate  Guarantor,  or (ii) the value of the
particular property upon which said easement, right-of-way,  restrictions, title
irregularities or other similar charge or encumbrance is created;

         (d) Liens disclosed on Schedule 6.2; or

         (e) Liens disclosed on Exhibit B to any of the Mortgages.

         Section 6.3 Dividends;  Redemptions.  The Borrower shall not, and shall
not permit the Corporate  Guarantor to,  declare or pay any dividend or make any
other  distribution  in  respect of the  capital  stock  (other  than a dividend
payable in common stock) of the Borrower or the Corporate Guarantor or purchase,
retire, redeem or otherwise acquire for value any of such capital stock.

         Section  6.4 Sale of Assets;  Mortgaged  Properties.  (a) The  Borrower
shall  not,  and shall not permit  the  Corporate  Guarantor  to,  sell,  lease,
transfer or  otherwise  dispose of any  property  material to the conduct of the
business  of  Borrower  or such  Corporate  Guarantor,  except  for the  sale of
Hydrocarbons  in the  ordinary  course of  business  and the sale or disposal of
inventory or equipment in the ordinary course of business.

         (b) The Borrower shall not (i) sell, lease, assign,  transfer,  abandon
or otherwise directly or indirectly dispose of all or any interest in any of the
Mortgaged  Properties,  (ii) forward sell  production of  Hydrocarbons  from the
Mortgaged  Properties pursuant to any arrangement that does not provide for full
payment  therefor at the time of  production  and delivery or (iii)  directly or
indirectly,  create, incur, assume or suffer to exist any mineral fee interests,
overriding  royalty and royalty  interests,  leasehold  interests,  interests in
production  or any other  interest in  Hydrocarbons  produced  on the  Mortgaged
Properties,  other than those in effect on the date hereof and  disclosed in the
Mortgage.

         Section 6.5 Limitations on Contingent Liabilities.  Borrower shall not,
and shall not permit the Corporate  Guarantor  to, enter into any  guarantees or
otherwise  become  responsible,  through  indemnity,  suretyship  or  any  other
contractual relationship,  contingently or otherwise, for the obligations of any
other Person,  except  endorsements of negotiable  instruments for collection in
the ordinary course of business.

         Section 6.6  Investments,  Loans and Advances.  The Borrower shall not,
and  shall not  permit  the  Corporate  Guarantor  to,  make or permit to remain
outstanding any investments, loans or advances to any Person, except:

         (a)  investments in obligations of the United States  government or any
agency thereof or obligations  guaranteed by the United States government having
a maturity not in excess of one year;

                                      -16-

<PAGE>

         (b) investments in  certificates  of deposit with any commercial  banks
with a combined  capital  and  surplus in excess of  $100,000,000.00  and having
maturities not in excess of one year;

         (c) repurchase agreements relating to investments described in Sections
6.9(a) and (b) with any Person with a combined  capital and surplus in excess of
$100,000,000.00;

         (d)  commercial  paper  issued by any Person if at the time of purchase
such commercial  paper is rated not less than "A-1" (or the then  equivalent) by
the rating  service of Standard & Poor's  Corporation or not less than "P-1" (or
the then equivalent) by the rating service of Moody's Investors Service;

         (e) loans or advances not exceeding  $50,000 at any time outstanding to
the Corporate Guarantor;

         (f) advances or extensions of credit in the form of accounts receivable
made in the ordinary course of business;

         (g) loans,  advances or extension of credit to the Corporate  Guarantor
under  applicable  contracts  or  agreements  in  connection  with  oil  and gas
development activities of the Borrower; or

         (h) loans and advances to  employees of the Borrower or any  subsidiary
of the Corporate Guarantor made in the ordinary course of business not exceeding
$15,000 in the aggregate at any time outstanding.

         Section 6.7 Mergers;  etc.  (a) The  Borrower  shall not, and shall not
permit the Corporate Guarantor to, merge or consolidate with any Person.

         (b) The Borrower shall not issue any additional shares of capital stock
or any other securities convertible or exchangeable into its capital stock.

         Section  6.8  Nature of  Business.  The  Borrower  will not  permit any
material  change to be made in the  character of its business or the business of
the Corporate Guarantor as carried on at the date hereof.

         Section 6.9 ERISA. Borrower will not, and will not permit the Corporate
Guarantor to, at any time sponsor, maintain or contribute to any Plan.

         Section 6.10 Sale or Discount of  Receivables.  The Borrower shall not,
and shall not permit the Corporate  Guarantor to, discount or sell with recourse
or sell for less than the market  value  thereof,  any of its notes or  accounts
receivables.

         Section 6.11 Sale and Leasebacks. The Borrower shall not, and shall not
permit the  Corporate  Guarantor  to,  enter into any  arrangement,  directly or
indirectly, with any Person where the Borrower or such Corporate Guarantor shall
sell or transfer any property,  whether now or hereafter  acquired,  and whereby
the Borrower or such Corporate  Guarantor shall then or thereafter rent or lease
as lessee such  property  or any part  thereof or any other  property  which the
Borrower or such Corporate  Guarantor  intends to use for substantially the same
purpose or purposes as the property sold or transferred.

         Section 6.12 Transaction with Affiliates.  The Borrower shall not enter
into any  transaction  (including  without  limitation,  the  purchase,  sale or
exchange of any property or the  rendering of any service)  with any  Affiliates
except transactions in the ordinary course of business and pursuant to the

                                      -17-

<PAGE>

reasonable  requirements of the Borrower's business and upon fair and reasonable
terms no less  favorable  to the Borrower  than the  Borrower  would obtain in a
comparable  arms-length  transaction  with a Person not an Affiliate;  provided,
however,  that  nothing  in this  Section  6.12  shall  permit  any  transaction
prohibited by the other provisions of this Agreement.

         Section 6.13 Environmental Matters.  Except in material compliance with
the relevant  Governmental  Requirements,  the Borrower will not cause or permit
any non-exempt Hazardous Material to be placed, held, located or disposed of on,
under or at any property now or hereafter owned, leased or otherwise  controlled
directly or indirectly by Borrower or any Corporate Guarantor.

         Section 6.14 Cancellation of Insurance. The Borrower shall not cause or
permit any insurance policy required to be carried hereunder to be terminated or
lapse or expire without provision for adequate renewal thereof.

         Section 6.15 No Subsidiaries. The Borrower will not create or suffer to
exist any subsidiary of the Borrower.

         Section 6.16 Independence of Covenants.  All covenants  hereunder shall
be given  independent  effect so that if a particular action or condition is not
permitted  by any of such  covenants,  the fact that it would be permitted by an
exception to, or be otherwise  within the limitations of, another covenant shall
not avoid  the  occurrence  of an Event of  Default  if such  action is taken or
condition exists.

                               ARTICLE 7. DEFAULT

         Section 7.1 Events of Default.  Any of the  following  events  shall be
considered an Event of Default:

         (a)  Default in the  payment of any  principal  or interest on the Note
when it becomes due and payable,  whether as a result of  mandatory  prepayment,
acceleration or otherwise;

         (b) Default in the payment of any fees or expenses  required to be paid
under this Agreement when the same become due and payable;

         (c) The  discovery by the Bank that any  statement,  representation  or
warranty made by the Borrower or any Guarantor in this Agreement or the Security
Documents or by the Borrower in a certificate, instrument or statement delivered
to or in connection with this Agreement is false, misleading or erroneous in any
material respect when made;

         (d) Default in the  performance  or breach of any covenant or agreement
contained in Sections 5 and 6 and the  continuance  of such default for a period
of ten (10)  Business  Days after the earlier of (A) receipt by the  Borrower of
written  notice  thereof  from the  Bank or (B) the  Borrower  otherwise  having
knowledge of such default or breach.

         (e) Default in the  performance  or breach of any covenant or agreement
in this Agreement (other than as specified in Articles 5 and 6 of this Agreement
or otherwise  provided for in this Section 7.1) or in any Security  Document and
the  continuance  of such  default  or breach  for a period of 30 days after the
earlier of (A) receipt by the Borrower of written  notice thereof from the Bank;
or (B) the Borrower otherwise having knowledge of such default or breach;

         (f) The Borrower or any Guarantor  shall execute an assignment  for the
benefit of their respective creditors or apply for or consent to the appointment
of any  receiver,  trustee or similar  officer for it or all or any  substantial
part of its property or assets,  or such  receiver,  trustee or similar  officer
shall be appointed  without the  application  or consent of the Borrower or such
Guarantor and such appointment shall continue for a period of 30 days;

                                      -18-

<PAGE>

         (g)  The  Borrower  or any  Guarantor  shall  institute  (by  petition,
application,   answer,   consent  or  otherwise)  any  bankruptcy,   insolvency,
reorganization,  readjustment  of  debt,  dissolution,  liquidation  or  similar
proceeding relating to it under the laws of any jurisdiction.

         (h) Any  proceeding  referred to in Section 7.1 (g) shall be instituted
against the Borrower or any  Guarantor or any writ,  warranty or  attachment  or
execution or similar  process  shall be issued or levied  against a  substantial
part of the property or assets of the Borrower or any  Guarantor  and such writ,
warrant of  attachment  or execution or similar  process  shall not be released,
vacated or fully bonded within 30 days after its issue or levy;

         (i) An event of default  (however  defined) shall occur with respect to
any bond,  debenture,  note or other  evidence of  indebtedness  of the Borrower
(other than this Agreement and the Note) or any Corporate Guarantor in an amount
exceeding  $50,000 or under any indenture or other  instrument  under which such
indebtedness  has been issued or by which it is governed and the  expiration  of
the  applicable  period  of  grace,  if  any,  specified  in  such  evidence  of
indebtedness or indenture or instrument.

         (j) Any change in one or more of the partners of Borrower,  if Borrower
is a partnership (other than by reason of death or legal incapacity).

         (k) Any change in one or more of the officers of Borrower,  if Borrower
is a corporation (other than by reason of death or legal incapacity).

         (l) Any change in ownership of more than 50% of the equity interests in
Borrower if Borrower is not one or more individuals.

         (m) The failure of Borrower or any Guarantor to pay any money judgment,
writ, warrant of attachment,  or similar process,  involving an amount in excess
of $10,000.00,  entered or filed against  Borrower or any  Guarantor,  or any of
Borrower's  or any  Guarantor's  assets that  remains  undischarged,  unvacated,
unbonded,  or  unstayed  for a period of ten days or in any event later than ten
days prior to the date on which the assets of Borrower or any  Guarantor  may be
sold to satisfy such judgment.

         (n) The  failure to have  discharged  within a period of ten days after
the commencement thereof, any attachment,  sequestration, or similar proceedings
against any of Borrower's or any Guarantor's assets.

         Section 7.2 Rights and  Remedies.  Upon the  occurrence  of an Event of
Default, the Bank may exercise any or all of the following rights and remedies:

         (a) By notice to the  Borrower,  declare  its  commitment  to make Loan
Advances terminated;  provided, however, that upon the occurrence of an Event of
Default  described in Section  7.1(f),  (g) or (h), any  commitment to make Loan
Advances shall terminate automatically without notice or any other action by the
Bank.

         (b) By notice to the  Borrower,  declare  the entire  unpaid  principal
amount of the Note outstanding, all interest accrued and unpaid thereon, and all
other  amounts  payable  under this  Agreement to be forthwith  due and payable,
whereupon the Note, all such accrued  interest and all such amounts shall become
and be forthwith due and payable without presentment, demand, protest or further
notice of any kind,  all of which are hereby  expressly  waived by the Borrower;
provided,  however, that upon the occurrence of an Event of Default described in
Section 7.1(f), (g) or (h), the entire unpaid principal of the Note, all accrued
interest and all other amounts  payable under this  Agreement and the Note shall
be automatically due and payable without any notice or demand.

                                      -19-

<PAGE>

         (c) Exercise or enforce any or all other  rights or remedies  available
to the Bank by applicable law, agreement or otherwise.

                            ARTICLE 8. MISCELLANEOUS

         Section 8.1 Expenses.  Borrower agrees to pay, reimburse,  and save the
Bank harmless against liability for the payment of, all  out-of-pocket  expenses
arising in connection with any transaction  contemplated by this Agreement which
may be payable in respect of the execution, delivery, performance or enforcement
of this  Agreement,  the  Note  and the  Security  Documents,  and the  fees and
expenses  of  the  Bank's  counsel  (a)  in  connection  with  the  negotiation,
preparation,  execution and delivery of any modifications to this Agreement, the
Note and the Security Documents, (b) the administration of any of the foregoing,
and (c) all  amounts  reasonably  expended,  advanced or incurred by the Bank to
satisfy any obligation of the Borrower under this  Agreement,  or to collect the
Note, or to enforce the rights of the Bank under this Agreement, the Note or any
of the Security Documents,  including,  but not limited to, fees of auditors and
accountants,  and investigation expenses incurred by the Bank in connection with
any such matters. The obligations of Borrower hereunder shall survive payment of
the amounts due under the Note.

         Section 8.2  Indemnification.  The Borrower  hereby agrees to indemnify
and defend the Bank and its directors,  officers,  agents, employees and special
counsel (the "Indemnified  Persons") from and hold each of them harmless against
any  and all  losses,  liabilities,  claims,  damages,  deficiencies,  interest,
judgments,  expenses, suits, actions, obligations,  penalties and disbursements,
including,  without  limitation,  reasonable  legal and  investigative  fees and
expenses of whatever kind and nature (the  "Liabilities")  which may be incurred
by or imposed, at any time, in any way relating to or arising out of or alleged,
by a Person other than such Indemnified  Person to in any way relate to or arise
out of (i) any of the  transactions  contemplated  by this  Agreement;  (ii) any
violation  by  the  Borrower  or the  Corporate  Guarantor  of any  Governmental
Requirement  including but not limited to any Environmental  Laws or any laws or
regulations  relating  to  Hazardous  Material,  treatment,  storage,  disposal,
generation and transportation, air, water and noise pollution, soil or ground or
water  contamination,  the handling,  storage or release into the environment of
Hazardous Materials;  or (iii) the presence on or under, or the escape, seepage,
leakage, spillage,  discharge,  emission or release from, properties utilized by
Borrower or the Corporate  Guarantor in the conduct of its business into or upon
any land, the atmosphere,  or any watercourse,  body of water or wetland, of any
Hazardous Material  (including,  without  limitation,  any losses,  liabilities,
damages,  injuries,  costs,  expenses or claims  asserted  or arising  under the
Environmental  Laws),  provided,  however,  that the  foregoing  indemnity  with
respect to any Indemnified Person shall not extend to any Liabilities  resulting
from the gross negligence or willful  misconduct of such Indemnified  Person. If
any such claim or action shall be brought  against any  Indemnified  Person that
the Indemnified  Person believes would be indemnified  against  hereunder,  such
Indemnified  Person shall give prompt  notice to the  Borrower.  Upon receipt of
such notice of any claim by Borrower from an  Indemnified  Person,  the Borrower
shall be entitled to participate in the joint defense thereof.  The provision of
and undertakings and  indemnifications set out in this Section 8.2 shall survive
the satisfaction,  payment and performance of the obligation and the termination
of this Agreement.

                                      -20-

<PAGE>

         Section 8.3  Waivers.  THE  BORROWER  IRREVOCABLY  AND  UNCONDITIONALLY
SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR  PROCEEDING  RELATING
TO THIS AGREEMENT,  THE Note AND THE SECURITY DOCUMENTS,  OR FOR RECOGNITION AND
ENFORCEMENT  OF ANY JUDGMENT IN RESPECT  THEREOF,  TO THE  NONEXCLUSIVE  GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF TEXAS,  CONSENTS THAT ANY SUCH ACTION
OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE VENUE OF ANY ACTION OR PROCEEDING IN ANY SUCH COURT
OR THAT ANY SUCH  ACTION OR  PROCEEDING  WAS BROUGHT IN AN  INCONVENIENT  FORUM,
AGREES  NOT TO PLEAD OR CLAIM ANY SUCH  OBJECTION  AND  AGREES  THAT AND  HEREBY
IRREVOCABLY  AND  UNCONDITIONALLY  WAIVES  TRIAL BY JURY IN ANY LEGAL  ACTION OR
PROCEEDING REFERRED TO IN THIS ARTICLE 8

         Section 8.4  Applicable  Law. THIS AGREEMENT AND Note SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS
OF THE STATE OF TEXAS.

         Section 8.5 Notices.  Except as may  otherwise  be  expressly  provided
herein,  any notice herein required or permitted to be given shall be in writing
or by telephone or facsimile  transmission with subsequent written confirmation,
and may be  personally  served or sent by United States mail and shall be deemed
to have  been  given  when  sent or  transmitted,  as the case  may be.  For the
purposes  hereof,  the addresses of the parties hereto (until notice of a change
thereof is  delivered  as provided in this Section 8.5) shall be as set forth in
the opening paragraph of this Agreement.

         Section 8.6 Survival of  Warranties  and  Agreements.  All  agreements,
representations  and  warranties  made herein shall  survive the  execution  and
delivery of this Agreement.

         Section 8.7  Waiver;  Remedies  Cumulative.  No failure or delay on the
part of the Bank in the exercise of any power,  right or privilege  hereunder or
under the Note shall  impair  such  power,  right or  privilege  or operate as a
waiver  thereof;  nor shall any single or partial  exercise  of any such  power,
right,  or privilege  preclude any other or further  exercise  thereof or of any
other right,  power or privilege.  The powers,  rights,  privileges and remedies
herein  provided  are  cumulative  and  not  exclusive  of any  rights,  powers,
privileges or remedies provided by law or in equity.

         Section 8.8 Severability.  In case any provision in or obligation under
this  Agreement or the Note shall be invalid,  illegal or  unenforceable  in any
jurisdiction,  the  validity,  legality  and  enforceability  of  the  remaining
provisions  or  obligations,  or of such  provision or  obligation  in any other
jurisdiction, shall not in any way be affected or impaired thereby.

         Section 8.9 Entire Agreement.  This Agreement,  the Security  Documents
and the various additional agreements and documents  contemplated hereby contain
the entire agreement of the parties concerning the subject matter hereof. In the
event of irreconcilable  conflict between this Agreement and the other documents
contemplated hereby, the provisions of this Agreement shall control.

         This Agreement  supercedes the following agreements entered into by and
between the Bank and Borrower and the Corporate Guarantor:

         (a)      Credit  Agreement  dated June 21,  1999,  entered  into by and
                  between  Borrower and Bank,  pertaining  to a Term Loan in the
                  original principal amount of $500,000;

         (b)      Credit  Agreement  dated August 18, 1999,  entered into by and
                  between  Borrower and Bank,  pertaining  to a Term Loan in the
                  original principal amount of $125,000.

                                      -21-

<PAGE>

         Both  Borrower  and the Bank  warrant  and  represent  that the  entire
agreement  made  between  them is contained  within this  Agreement,  as defined
herein,  as the same may be amended or supplemented  from time to time, and that
no  agreements  or promises  exist between the Parties that are not reflected in
the  language  of the  various  documents  executed  in  conjunction  with  this
transaction.

              THIS  WRITTEN  LOAN  AGREEMENT  REPRESENTS  THE FINAL
              AGREEMENT   BETWEEN   THE  PARTIES  AND  MAY  NOT  BE
              CONTRADICTED  BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,
              OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

           THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

         Section 8.10 Further Assurances.  At any time or from time to time upon
the  request  of the Bank,  Borrower  will  execute  and  deliver  such  further
documents and do such other acts and things as the Bank may  reasonably  request
in order to  effect  fully  the  purposes  of this  Agreement,  the Note and the
Security Documents.

         Section 8.11 Headings.  Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for an other purpose or be given any substantive effect.

         Section 8.12  Successors and Assigns;  Subsequent  Holders of the Note.
This  Agreement  shall be binding upon the parties  hereto and their  respective
permitted  successors  and assigns and shall inure to the benefit of the parties
hereto and the  successors  and  assigns of the Bank.  Borrower's  rights or any
interest therein  hereunder may not be assigned without the consent of the Bank.
Borrower hereby agrees that any disposition of the Note or an interest  therein,
will give rise to a direct  obligation of Borrower to the  subsequent  holder of
the Note and the  subsequent  holder shall for all purposes be  considered a the
Bank and shall have all rights of the Bank arising under this  Agreement and the
Note.

         Section 8.13  Amendments.  No  amendment or waiver of any  provision of
this Agreement shall be effective unless the same shall be in writing and signed
by the Borrower and the Bank.

         Section  8.14  Counterparts;  Effectiveness.  This  Agreement  and  any
amendments,  waivers,  consents, or supplements may be executed in any number of
counterparts, and by different parties hereto in separate counterparts,  each of
which when so executed and delivered  shall be deemed an original,  but all such
counterparts together shall constitute but one and the same instrument.

         Section  8.15  Joinder.   The  undersigned   accommodation  makers  and
guarantors join in the execution  hereof to evidence their approval of the terms
and  conditions  herein set forth and their  agreement to be bound by such terms
and conditions and to perform their obligations under each Note and Guaranty. In
respect of each such  obligation,  which is also an  obligation of the Borrower,
the  undersigned  accommodation  makers and  guarantors  and  Borrower  shall be
jointly and severally obligated thereon.

                                      -22-

<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Credit Agreement to be
executed the day and year first above written.

                                        UNION PLANTERS BANK, N.A.

                                        By:
                                           -------------------------------------
                                           Rebecca Dozier, Senior Vice President

                                        FIELDPOINT PETROLEUM CORPORATION

                                        By:
                                           -------------------------------------
                                           Ray D. Reaves, Jr., President

                                        GUARANTORS:

                                        BASS PETROLEUM, INC.

                                        By:
                                           -------------------------------------
                                           Ray D. Reaves, Jr., President

                                           -------------------------------------
                                           Ray D. Reaves, Jr.

         The  following  jurat  is  included  for  purposes  of the  declaration
         regarding the purpose of the Loan as set forth on Annex A:

         SUBSCRIBED AND sworn to before me by Ray D. Reaves,  Jr., this 14th day
         of December, 2000.

         [stamp]

                   -------------------------------------------
                   Notary Public in and for the State of Texas

                                      -23-

<PAGE>

                                     ANNEX A

                              Essential Loan Terms

Borrower:        Name:                     FieldPoint Petroleum Corporation
                 Address:                  P.O. Box 200685
                                           Austin, Texas 78720
                 Telephone:                512/250-8692
                 Telecopier:               512/335-1294
                 Tax ID number:            84-0811034

Purpose of Revolving Line of Credit::  For  acquisition  of  properties  and  to
                                       provide working capital.

Borrower  warrants  that the  Revolving  Line of Credit is to be used solely for
business,  commercial or agricultural  purposes.  Borrower further warrants that
the Revolving Line of Credit is specifically exempted under Section 226.3 (a) of
Regulation Z issued by the Governors of the Federal Reserve System under Title I
(viz., the Truth in Lending Act) and Title V (viz.,  General  Provisions) of the
Consumer  Protection Act, and that no disclosures are required to be given under
such  regulations  and federal laws in  connection  with the  Revolving  Line of
Credit.  Borrower further acknowledges that Lender is in reliance upon the truth
of the  foregoing  statements  and that Lender is making the  Revolving  Line of
Credit without giving to Borrower the disclosures that may otherwise be required
under such laws and regulations.

Original Principal Amount of Revolving Line of Credit (Section 2.1):  $2,000,000

Schedule for Revolving Line of Credit Advances (Section 2.1):

         Any amount,  which  combined with all prior draws and combined with the
         unpaid  principal  balances on Loan Nos. 27828 (dated June 21, 1999, in
         the original  principal amount of $500,000) and 27955 (dated August 18,
         1999, in the original  principal  amount of $125,000),  will not exceed
         the sum of  $2,000,000,  may be drawn upon one Business  Day's  written
         notice to the Bank in the form of Annex C by an  officer  of  Borrower.
         Each draw shall be deposited in Borrower's designated account.

Interest Rate and Manner of Calculation  (Section 2.2(b)):

         The prime rate of interest,  as quoted in the Wall Street Journal, plus
one percent (1%), floating

Maturity Date  (Section 2.3(a)):                       April 1, 2002

Initial Borrowing Base:                                $2,000,000

Borrowing Base Redetermination Date:  May 1  and  November 1 annually during the
                                      term of the loan

Monthly Borrowing Base Reduction:  One fiftieth of the aggregate  borrowing base
                                   in the first month and a fractional reduction
                                   each succeeding month equal to a fraction the
                                   numerator of which is one and the denominator
                                   of which is the denominator  of the preceding
                                   month minus one.

Effective Date of Initial Borrowing Base Reduction:    January 25, 2001

Payment Schedule and Commencement Date (Section 2.3(a)):

         Commencing  on January 25, 2001,  Borrower  shall pay to Bank 1/50th of
         the outstanding principal balance, together with all accrued and unpaid
         interest;  on February 25, 2001,  Borrower  shall pay to Bank 1/49th of
         the outstanding principal balance, together with all

<PAGE>

         accrued and unpaid interest;  on March 25, 2001,  Borrower shall pay to
         Bank 1/48th of the  outstanding  principal  balance,  together with all
         accrued and unpaid interest;  and continuing on the twenty-fifth day of
         each succeeding  calendar month until the Maturity Date, Borrower shall
         pay a fraction of the outstanding  principal balance,  the numerator of
         which  shall  be  one  and  the  denominator  of  which  shall  be  the
         denominator  of the  preceding  month less one.  On the  Maturity  Date
         Borrower shall pay to Bank all remaining  unpaid  principal and accrued
         and unpaid interest. Commencing on January 25, 2001, Borrower shall pay
         to Bank all accrued and unpaid interest, and on the twenty-fifth day of
         each  succeeding  calendar month until the Maturity Date Borrower shall
         continue to pay Bank all accrued and unpaid interest.

Revolving Line of Credit Advance Origination Fee  (Section 2.2(a)):   none

Original Transaction Fee  (Section 2.3(c)):                           $15,000.00

Minimum Prepayment Amount  (Section 2.4):                             none

Borrowing Base Redetermination Fee (Section 2)  For  each redetermination of the
                                                Borrowing  Base,  Borrower shall
                                                reimburse  the  Bank   for   all
                                                engineering and related expenses
                                                incurred by  Bank  in connection
                                                with    such    redetermination,
                                                including  a  reasonable  charge
                                                for   services   performed    by
                                                employees  of  the  Bank  or its
                                                affiliates.

Corporate Guarantor:                            Bass Petroleum, Inc.
                                                P. O.  Box 200685
                                                Austin, Texas 78720

Individual Guarantor:                           Ray D.  Reaves, Jr.
                                                1703 Edelweiss Drive
                                                Cedar Park, Texas 78613
                                                512/335-6920

<PAGE>

                                     ANNEX B

                                 PROMISSORY NOTE
================================================================================

                                 [See attached.]

<PAGE>

                                 PROMISSORY NOTE
--------------------------------------------------------------------------------
$2,000,000.00                                                  December 14, 2000

Maker:   FIELDPOINT PETROLEUM CORPORATION     Payee:   UNION PLANTERS BANK, N.A.
         P.O. Box 200685                               5005 Woodway
         Austin, Texas 78720                           Houston, Texas 77056

         FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned Maker named above
promises  to pay to the order of Payee named above at its offices at the address
set forth above in lawful money of the United  States of America,  the principal
sum of TWO MILLION and NO/100 DOLLARS ($2,000,000.00), or so much thereof as may
be advanced and outstanding  against this Note pursuant to the Revolving  Credit
Agreement  of even date  herewith  by and between  Maker and Payee (as  amended,
supplemented  or restated from time to time, the "Credit  Agreement"),  together
with interest on the principal balance from time to time remaining unpaid at the
rate and upon the terms provided in the Credit Agreement.

         Reference is hereby made to the Credit  Agreement for matters  governed
thereby, including,  without limitation,  certain events which will entitled the
holder hereof to accelerate  the maturity of all amounts due  hereunder.  Unless
otherwise defined herein or unless the context hereof otherwise  requires,  each
term used herein with its initial  letter  capitalized  has the meaning given to
such term in the Credit Agreement.

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

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

         IN WITNESS  WHEREOF,  the  undersigned has executed this note as of the
day and year first above written.

                                                MAKER:

                                                FIELDPOINT PETROLEUM CORPORATION
                                                a Colorado corporation

                                                By:
                                                   -----------------------------
                                                     Ray E. Reaves, President

<PAGE>
<TABLE>
<CAPTION>

                                     ANNEX C

                              SCHEDULE OF MORTGAGES
================================================================================

--------------------------------------------------------------------------------
         LIENS granted by FieldPoint  Petroleum  Corporation  for the benefit of
         Union Planters Bank, N.A., each dated August 18, 1999, originally given
         to secure the repayment of a Note in the original  principal  amount of
         $500,000
--------------------------------------------------------------------------------

Coal County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
<S>                  <C>                  <C>
Financing Statement  Aug. 24, 1999        Clerk's File No. 99711, UCC Records
Mortgage             Aug. 24, 1999        Book 581, page 741, Real Property Records

Logan County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  August 23, 1999      Clerk's File No. 555, UCC Records
Mortgage             August 23, 1999      Book 1516, page 439, Real Property Records

McClain County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  Aug. 23, 1999        Clerk's File No. 677, UCC Records
Mortgage             Aug. 23, 1999        Book 1525, page 15, Real Property Records

Oklahoma County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  September 27, 1999   Clerk's File No. N0007023, UCC Records
Mortgage             September 28, 1999   Book 7692, page 1065, Real Property Records

Pontotoc County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  September 23, 1999   Clerk's File No. 971, UCC Records
Mortgage             September 23, 1999   Book 1549, page 391, Real Property Records

--------------------------------------------------------------------------------
         LIENS granted by FieldPoint  Petroleum  Corporation  for the benefit of
         Union Planters Bank,  N.A., each dated June 21, 1999,  originally given
         to secure the repayment of a Note in the original  principal  amount of
         $500,000
--------------------------------------------------------------------------------

Blaine County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 394, UCC Records
Mortgage             July 19, 1999        Book 787, page 234, Real Property Records

Caddo County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 17, 1999        Clerk's File No. 1134, UCC Records
Mortgage             Aug. 12, 1999        Book 2249, page 319, Real Property Records

                                       -1-

<PAGE>

Carter County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  Aug. 16, 1999        Clerk's File No. 1080, UCC Records
Mortgage             Aug. 16, 1999        Book 3431, page 244, Real Property Records

Comanche County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  Aug. 25, 1999        Clerk's File No. R000922, UCC Records
Mortgage             Aug. 25, 1999        Book 3284, page 215, Real Property Records

Coal County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 20, 1999        Clerk's File No. R0684, UCC Records
Mortgage             July 20, 1999        Book 581, page 97, Real Property Records

Creek County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 915, UCC Records
Mortgage             July 19, 1999        Book 408, page 454, Real Property Records

Custer County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 596, UCC Records
Mortgage             July 19, 1999        Book 1075, page 215, Real Property Records

Dewey County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 708, UCC Records
Mortgage             July 19, 1999        Book 1114, page 464, Real Property Records

Grady County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 911-L, UCC Records
Mortgage             July 19, 1999        Book 3129, page 338, Real Property Records

Haskell County, Oklahoma*

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July __, 1999        Clerk's File No. _____, UCC Records
Mortgage             July __, 1999        Book ____, page ___, Real Property Records

Latimer County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 20, 1999        Clerk's File No. 283, UCC Records
Mortgage             July 20, 1999        Book 543, page 707, Real Property Records

                                       -2-

<PAGE>

LeFlore County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 20, 1999        Clerk's File No. 1598, UCC Records
Mortgage             July 20, 1999        Book 1288, page 387, Real Property Records

Logan County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 473, UCC Records
Mortgage             July 19, 1999        Book 1512, page 322, Real Property Records

McClain County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 577, UCC Records
Mortgage             July 19, 1999        Book 1521, page 884, Real Property Records

Oklahoma County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  Aug. 18, 1999        Clerk's File No. 42180, UCC Records
Mortgage             July 26, 1999        Book 7645, page 943, Real Property Records

Oklahoma County, Oklahoma - Statewide UCC Filings

Financing Statement  Filed August 18, 1999; Clerk's File No. 42181

Pittsburg County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 21, 1999        Clerk's File No. 1122, UCC Records
Mortgage             July 21, 1999        Book 1014, page 314, Real Property Records

Pontotoc County, Oklahoma

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July 19, 1999        Clerk's File No. 725, UCC Records
Mortgage             July 19, 1999        Book 1544, page 438, Real Property Records

Washita County, Oklahoma*

Instrument           Date filed           Recording data
----------           ----------           --------------
Financing Statement  July __, 1999        Clerk's File No. _____, UCC Records
Mortgage             July __, 1999        Book ____, page ___, Real Property Records

</TABLE>

-------------------
* Not returned by County Clerk as of August 12, 1999.

--------------------------------------------------------------------------------
         LIENS  granted  by Bass  Petroleum,  Inc.,  for the  benefit  of  Union
         Planters  Bank,  N.A.,  each dated June 18, 1998,  originally  given to
         secure the  repayment  of a Note in the  original  principal  amount of
         $125,000
--------------------------------------------------------------------------------

Deed of Trust,  recorded in Volume  1059,  page 364,  Official  Public  Records,
Fayette County, Texas.

Financing Statement, filed April 14, 1999, under Clerk's File No. 22471, Fayette
County, Texas, and filed April 14, 1999, under Clerk's File No. 99-074409 in the
office of the Secretary of State of Texas.

                                       -3-

<PAGE>

--------------------------------------------------------------------------------
         LIENS  granted  by Bass  Petroleum,  Inc.,  for the  benefit  of  Union
         Planters Bank, N.A., each dated December 18, 1996,  originally given to
         secure the  repayment  of a Note in the  original  principal  amount of
         $500,000
--------------------------------------------------------------------------------

Jurisdiction            Type of Instrument  Dated filed  Recording data
------------           -------------------  -----------  --------------
Bastrop County, Texas  Deed of Trust         12-30-96    Volume  830,  page 677,
                                                         Official Records
                       Financing Statement   12-30-96    Clerk's File No.41

Lee County, Texas      Deed of Trust         12-23-96    Volume  791,  page  65,
                                                         Real Property Records
                       Financing Statement   12-23-96    Clerk's File No. 13151

Secretary of State     Financing Statement   12-27-96    File Stamp
                                                         No. 96-255364

--------------------------------------------------------------------------------
         LIENS  granted by Bass  Petroleum,  Inc.,  for the benefit of Merchants
         Bank, the  predecessor in interest of Union Planters Bank,  N.A.,  each
         dated September 9, 1996,  originally given to secure the repayment of a
         Note in the original principal amount of $100,000
--------------------------------------------------------------------------------

Jurisdiction            Type of Instrument  Dated filed  Recording data
------------           -------------------  -----------  --------------
Converse County WY     Deed of Trust         09-17-96    Clerk's file No. 823078
                                                         and  recorded  in  Book
                                                         1099,     page     288,
                                                         Mortgage Records

                       Financing Statement   09-17-96    Clerk's file No. 823079

Secretary of State     Financing Statement   09-17-96    Clerk's file
                                                         No. 96261-11-1A07

                                       -4-

<PAGE>

                                     ANNEX D

                           FORM OF GUARANTY AGREEMENT
================================================================================

                                   [attached]

<PAGE>

                               GUARANTY AGREEMENT
--------------------------------------------------------------------------------

         THIS GUARANTY AGREEMENT,  dated as of December 14, 2000, is executed by
and between each of the following named parties whose  addresses,  telephone and
telecopier numbers are set forth with their respective names:

RAY D.  REAVES, JR.       and   BASS PETROLEUM, INC. (collectively "Guarantors")
1703 Edelweiss                  P. O.  Box 200685
Austin, Texas  78613            Austin, Texas 78720
Telephone: 512/335-6920         Telephone: 512/250-8692

                                       and

                         UNION PLANTERS BANK, N.A.                  ("Assignee")
                         a national banking corporation
                         5005 Woodway
                         Houston, Texas 77056
                         Telephone:   713/867-6330
                         Telecopier:  713/867-7439
                         Attention:   Rebecca Dozier, Senior Vice President

                              W I T N E S S E T H:

         WHEREAS,  the Bank and  FieldPoint  Petroleum  Corporation,  a Colorado
corporation  ("FieldPoint"),  have entered into that  certain  Revolving  Credit
Agreement  dated of even date  herewith  (the "Credit  Agreement"),  pursuant to
which the Bank has agreed to loan to  FieldPoint  the sum of $2 million,  on the
terms set forth in the Credit  Agreement,  which loan is secured by certain  oil
and gas  properties  and  related  rights  in  accordance  with  the  terms  and
conditions provided therein; and

         WHEREAS,  it is a  condition  precedent  of the Credit  Agreement  that
Guarantors shall execute and deliver to the Bank a satisfactory  guaranty of the
obligations of FieldPoint set forth in the Credit Agreement;

         NOW, THEREFORE, in consideration of the premises and of Ten Dollars and
other good and valuable consideration,  the receipt and sufficiency of which are
hereby acknowledge, Guarantor and the Bank hereby agree as follows:

         Section 1.  Definitions.  The following  terms shall have the following
meanings:

         "Guarantied  Obligations"  means  collectively  all of the undertakings
which are guaranteed by Guarantors and described in Section 2. hereof.

         Section  2.  Guaranty.

                  (a)   Guarantors   hereby   irrevocably,    absolutely,    and
unconditionally guarantee and agree with the Bank that:

                           (i)  FieldPoint   shall  perform,   in  all  material
respects,  all  duties,  obligations  and  undertakings  set froth in the Credit
Agreement; and

                           (ii) all sums payable by FieldPoint under the Note or
under the Credit  Agreement will be promptly paid in full when due in accordance
with the provisions thereof.

                                       -1-

<PAGE>

                  (b) If  FieldPoint  shall for any reason  fail to perform  any
Guarantied Obligation, Guarantors will either:

                           (i) cause such  Guarantied  Obligation to be promptly
and fully performed, or, at the Bank's election,

                           (ii)  make all  payments  to the Bank  which may from
time to time be required of FieldPoint.

                  (c) Regardless of whether the Bank is (at any time)  precluded
or stayed from  enforcing or exercising  any of its rights or remedies under the
Credit  Agreement  or any  related  instrument  or document  (collectively,  the
"Operative  Documents")  against  Guarantors,  such rights and  remedies  may be
enforced  directly against  Guarantors,  as a primary  obligation of Guarantors,
without  the  joinder of,  demand on or the taking of any other  action  against
FieldPoint or any other person.  Regardless of whether  FieldPoint or any person
is  precluded or stayed from (or  otherwise  fails to) pay or perform any of the
Guaranteed  Obligations  (upon  demand  by the  Bank),  Guarantors  shall pay or
perform (or cause to be paid or performed) such Guaranteed Obligations.  Without
limiting the foregoing  provisions,  if enforcement of the rights or remedies of
the Bank under the Operative  Documents is dependent upon delivering  notices or
taking  any other  actions  (such as  delivering  a  demand),  then the Bank may
deliver such  notices to and take such other  action with or against  Guarantors
(in lieu of FieldPoint)  for all purposes under this Agreement and the Operative
Documents.  Nothing  herein  requires  the Bank to  first  exercise  or  exhaust
remedies  against  FieldPoint  or any other person  before  exercising  remedies
against Guarantors pursuant to this Agreement.

         Section 3.  Successors and Assigns.  Guarantors'  rights or obligations
hereunder  may not be assigned or delegated.  This  Guaranty  shall apply to and
inure to the benefit of the Bank and its successors and assigns.

         Section 4. Representations and Warranties.  Guarantors hereby represent
and warrant as follows:

                  (a) The recitals at the  beginning  of this  Guaranty are true
and correct in all respects.

                  (b) This Guaranty is a legal,  valid and binding obligation of
Guarantors,  enforceable  against Guarantors in accordance with its terms except
as  limited by  bankruptcy,  insolvency  or other  laws of  general  application
relating  to the  enforcement  of  creditors'  rights and by  general  equitable
principles.

                  (c) There is no action,  suit or proceeding pending or, to the
knowledge of Guarantors,  threatened against or otherwise  affecting  Guarantors
before any court,  arbitrator or  governmental  department,  commission,  board,
bureau,  agency or  instrumentality  which may materially  and adversely  affect
Guarantors'  financial  condition or Guarantors'  ability to perform Guarantors'
obligations hereunder.

         Section 5.  Nature of  Guaranty.  This  Agreement  is (a)  irrevocable,
unconditional  and  absolute;  (b)  a  guaranty  of  payment,   performance  and
compliance  and not of collection;  and (c) in no way  conditioned or contingent
upon any  attempt  to collect  from or  enforce  performance  or  compliance  by
FieldPoint,  or upon any other event,  contingency or  circumstance  whatsoever.
This Agreement and the Guaranteed  Obligations shall be binding upon and against
Guarantors  without  regard  to the  validity  or  enforceability  of any of the
Operative  Documents,  or any provision thereof, and Guarantors hereby waive any
defense  relating  to the  enforceability  of such  documents  or any  provision
contained therein. Guarantors also agree to pay to the Bank such further amounts
as shall be  sufficient  to cover  the  costs of  collecting  or  enforcing  the
Guaranteed   Obligations  or  otherwise  enforcing  this  Agreement   (including
reasonable fees, expenses and disbursements of its counsel).

                                       -2-

<PAGE>

         Section  6.  Guarantors'  Obligations  Unconditional.   The  covenants,
agreements  and duties of Guarantors  set forth in this  Agreement  shall not be
subject to any counterclaim,  setoff, deduction,  diminution,  abatement,  stay,
recoupment,  suspension,  deferment,  reduction or defense  (other than full and
strict  compliance or performance  by Guarantors  with  Guarantors'  obligations
hereunder) based upon any claim that Guarantors,  or any other person,  may have
against the Bank or any other person,  and shall remain in full force and effect
without regard to, and shall not be released,  discharged or in any way affected
by, any circumstance or condition  whatsoever  (whether or not Guarantors or the
Bank shall have knowledge or notice  thereof or shall have assented  thereto and
notwithstanding  the fact that no rights were  reserved  against  Guarantors  in
connection therewith).

         Section 7. No Subrogation.  GUARANTORS  HEREBY WAIVE ANY AND ALL RIGHTS
OF SUBROGATION,  INDEMNIFY,  CONTRIBUTION OR  REIMBURSEMENT,  ANY BENEFIT OF, OR
RIGHT TO ENFORCE ANY REMEDY THAT THE BANK NOW HAS OR MAY HEREAFTER  HAVE AGAINST
FIELDPOINT IN RESPECT OF THE  GUARANTEED  OBLIGATIONS,  OR ANY PROPERTY,  NOW OR
HEREAFTER HELD BY FIELDPOINT AS SECURITY FOR THE GUARANTEED  OBLIGATIONS AND ANY
AND ALL  SIMILAR  RIGHTS  GUARANTORS  MAY HAVE  AGAINST  THE  CORPORATION  UNDER
APPLICABLE LAW OR OTHERWISE. If, notwithstanding the foregoing, any amount shall
be paid to  Guarantors  on  account  of any such  subrogation,  indemnification,
contribution or  reimbursement  rights at any time, such amount shall be held in
trust for the benefit of the Bank and shall  forthwith be paid to the Bank to be
credited  and  applied  against the  Guaranteed  Obligations,  whether  matured,
unmatured, absolute or contingent, as the Bank may see fit in its discretion.

         Section 8. Security.  This Agreement  shall be secured by the Mortgages
listed  on the  attached  Exhibit  A, to which  reference  is here  made for all
purposes, each of which is being modified by agreements of even date herewith to
be applicable to the Guaranteed Obligations.

         Section 9. Non-Exclusive Remedies. No right or remedy of the Bank under
any Operative  Document shall be exclusive of any other right,  power or remedy,
but shall be  cumulative  and in  addition to any other  right,  power or remedy
thereunder or now or hereafter  existing by law or in equity and the exercise by
the  Bank of any  one or more of such  rights,  powers  or  remedies  shall  not
preclude  the  simultaneous  or  further  exercise  of any or all of such  other
rights, powers or remedies. Any failure to insist upon the strict performance of
any provision hereof or to exercise any option, right, power or remedy contained
herein shall not constitute a waiver or  relinquishment  thereof for the future.
Receipt by the Bank of any amount  payable  under any  Operative  Document  with
knowledge of a default or event of default shall not constitute a waiver of such
default or event of default,  and no waiver by the Bank or any  provision of the
Operative Documents shall be deemed to be made unless made in writing.  The Bank
shall be entitled to injunctive  relief in case of the violation or attempted or
threatened  violation of any of the provisions of the Operative Documents by any
other party hereto,  a decree  compelling  performance  or any of the provisions
hereof, or any other remedy allowed by Law or in equity.

         Section 10.  Severability.  If any  provision of this  Agreement or the
application   thereof  to  any  person  or  circumstance  shall  be  invalid  or
unenforceable,  then  the  remaining  provisions  or  the  application  of  such
provision to persons or circumstances other than those as to which it is invalid
or unenforceable,  shall continue to be valid and enforceable. The provisions of
this  Section  9 shall  not be  construed  to limit  the  rights  of the Bank to
exercise  remedies as a  consequence  of an event of default  arising  under any
Operative Document.

                                       -3-

<PAGE>

         Section  11.  Governing Law and Submission to Jurisdiction.

         (a) THIS AGREEMENT  SHALL BE GOVERNED BY AND  INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS.

         (b) ANY LEGAL  ACTION  OR  PROCEEDING  WITH  RESPECT  TO ANY  OPERATIVE
DOCUMENT, OR ANY CONVEYANCING DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN  DISTRICT OF TEXAS,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,  GUARANTORS  HEREBY ACCEPT FOR
GUARANTORS   AND   IN   RESPECT   OF   GUARANTORS'   PROPERTY,   GENERALLY   AND
UNCONDITIONALLY,  THE JURISDICTION OF THE AFORESAID  COURTS.  GUARANTORS  HEREBY
IRREVOCABLY WAIVE ANY OBJECTION,  INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON  CONVENIENS,  WHICH  GUARANTORS  MAY NOW OR
HEREAFTER  HAVE  TO THE  BRINGING  OF ANY  SUCH  ACTION  OR  PROCEEDING  IN SUCH
RESPECTIVE  JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE  AND
DOES NOT PRECLUDE THE BANK FROM OBTAINING  JURISDICTION  OVER  GUARANTORS IN ANY
COURT OTHERWISE HAVING JURISDICTION.

         Section 12. Entire Agreement.  The parties hereto acknowledge and agree
that this Guaranty and the Operative  Documents  represent all of the agreements
and understandings  relating to the transactions  contemplated by such documents
as between the Bank, on the one hand, and Guarantors and their affiliates on the
other hand, and the parties hereto  acknowledge and agree that all prior written
and oral agreements or  understandings  between or among such persons are hereby
superseded in their entirety.

         Section 13.  Interpretation and Reliance.  No presumption will apply in
favor of any party hereto in the interpretation of the Operative Documents or in
the resolution of any ambiguity of any provision  hereof or thereof.  Guarantors
acknowledge  that it has not  relied  upon any  statements,  representations  or
warranties of the Bank in entering into this guaranty.

         Section 14.  Time.  TIME IS OF THE ESSENCE IN THIS  AGREEMENT,  AND THE
TERMS HEREIN SHALL BE SO CONSTRUED.

         Section 15. Reasonableness  Standard. If and when in this Agreement any
party is required to exercise  any  discretion  in a  "reasonable"  manner,  the
parties hereto acknowledge that the term "reasonable" or "reasonably" shall have
the meaning given to such term under (and shall be consistent  with any standard
of  commercial  reasonableness  implied  by) the  laws of the  State of Texas in
effect as of the date hereof.

         Section 16. No Oral  Change.  No  amendment  of any  provision  of this
Guaranty shall be effective unless it is in writing and signed by Guarantors and
the Bank, and no waiver of any provision of this Guaranty, and no consent to any
departure by Guarantors  therefrom,  shall be effective  unless it is in writing
and signed by the Bank,  and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.

         Section 17. Headings and  References.  The headings used herein are for
purposes of convenience  only and shall not be used in construing the provisions
hereof.  the words  "this  Guaranty,"  "this  instrument,"  "herein",  "hereof,"
"hereby" and words of similar  import refer to this  Guaranty as a whole and not
to any particular  subdivision unless expressly so limited. The word "or" is not
exclusive. Pronouns in masculine, feminine and neuter genders shall be construed
to include any other  gender,  and words in the singular form shall be construed
to include the plural and vice versa, unless the context otherwise requires.

                                       -4-

<PAGE>

         Section 18. Term. The term of this Guaranty shall be the earlier of the
full payment of the  Guaranteed  Obligations  or sixty (60) months from the date
hereof.

         Section 19. Notices. Any notice or communication  required or permitted
hereunder  shall  be  given  in  writing,  sent by (a)  personal  delivery,  (b)
expedited  delivery service with proof of delivery,  (c) registered or certified
United States mail, postage prepaid, or (d) telegram or telex,  addressed to the
appropriate  party at the  address set forth in the  opening  paragraph  of this
Agreement or to such other address or to the attention of such other  individual
as hereafter  shall be  designated  in writing by the  applicable  party sent in
accordance  herewith.  Any such notice or communication  shall be deemed to have
been given  either at the time of personal  delivery or, in the case of delivery
service or mail, as of the date of first  attempted  delivery at the address and
in the  manner  provided  herein,  or in the case of  telegram  or  telex,  upon
receipt.

         IN  WITNESS  WHEREOF,  Guarantors  have  executed  and  delivered  this
Guaranty as of the date first above written.

GUARANTORS:                             BANK:

BASS PETROLEUM, INC.                    UNION PLANTERS BANK, N.A.

By:                                     By:
   ------------------------------          -------------------------------------
   Ray D.  Reaves, Jr., President          Rebecca Dozier, Senior Vice President

   ------------------------------
   Ray D. Reaves, Jr.

                                       -5-

<PAGE>

                                     ANNEX E

                           FORM OF ADVANCE CERTIFICATE
================================================================================

                               ADVANCE CERTIFICATE

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

         I,  Ray D.  Reaves,  Jr.,  the duly  elected  President  of  FieldPoint
Petroleum Corporation,  a Colorado corporation  ("Borrower"),  do hereby certify
that:

1.       This  Certificate  is  furnished  pursuant to Section 2.1 of the Credit
         Agreement (the  "Agreement")  between Borrower and Union Planters Bank,
         N.A., dated as of December 14, 2000.  Unless otherwise  defined herein,
         capitalized  terms used in this Certificate have the meanings  assigned
         to such terms in the Agreement;

2.       Borrower requests an Advance of $____________________ on ______________
         , 200__;

3.       The  representations and warranties made by Borrower and the Guarantors
         in the Agreement and Security  Documents are true and correct as of the
         date hereof as though made on and as of the date hereof;

4.       No Event of Default has occurred and is continuing or would result from
         the consummation of the  transactions  contemplated by the Agreement on
         the date hereof;

5.       Borrower has performed and complied with all  agreements and conditions
         in the Agreement  required to be complied with prior to the date of the
         above requested Advance; and

6.       I have carefully  examined this  Certificate and assert that all of the
         statements and representations contained herein are true to the best of
         my knowledge, information and belief.

         IN WITNESS WHEREOF, I have executed this certificate as of the day of ,
200__.

                                              __________________________________
                                                       Ray D. Reaves, Jr.

<PAGE>

                                     ANNEX F

                    SECURITY AGREEMENT COVERING BANK ACCOUNT
================================================================================

                                   [attached]10.4
                        FIELDPOINT PETROLEUM CORPORATION

                    AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
                                     CHARTER

General

         The role of the Audit  Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by:

         o        Serving as an independent  and objective  party to monitor the
                  Corporation's financial reporting process and internal control
                  system.

         o        Reviewing   and   appraising   the   audit   efforts   of  the
                  Corporation's independent accountants.

         o        Providing   an  open   avenue  of   communication   among  the
                  independent  accountants,  financial and senior management and
                  the Board of Directors.

Composition

         The  Audit  Committee  shall  consist  of  two  or  more  directors  as
determined by the Board, each of whom shall be independent  directors,  and free
from any  relationship  that, in the opinion of the Board,  would interfere with
the exercise of his or her  independent  judgement as a member of the Committee.
In determining  whether any director is  independent,  the Board shall take into
consideration the requirements of the principal  exchange or system on which the
Corporation's  common  stock is traded.  Directors,  who are  affiliates  of the
Company,  or officers or employees of the Company or of its  subsidiaries,  will
not be considered independent

         All  members  of the  Committee  must be able  to read  and  understand
fundamental  financial  statements,  including a  corporation's  balance  sheet,
income  statement,  and cash flow  statement  or  become  able to do so within a
reasonable period of time after his or her appointment to the Committee,  and at
least one  member of the  Committee  is to have past  employment  experience  in
finance or accounting,  requisite professional  certification in accounting,  or
any other  comparable  experience  or  background  which results in the member's
financial  sophistication,  including  being or  having  been a chief  executive
officer,  chief  financial  officer  or  other  senior  officer  with  financial
oversight responsibilities.1

         The members of the  Committee  are to be elected by the Board and shall
serve until their  successors are duly elected and qualified.  Unless a Chair is
elected by the full Board, the members of the Committee may designate a Chair by
majority vote of the full Committee membership.

--------
1 Exception  for Small  Business  issuers - These  issuers  must  establish  and
maintain an Audit Committee of at least two members, a majority of which must be
independent directors.  The understanding of accounting and financial management
by members is not required.

<PAGE>

Meetings

         The  Committee  shall hold  regular  meetings as may be  necessary  and
special  meetings as may be called by the Chairman of the Committee.  As part of
its job to  foster  open  communication,  the  Committee  should  meet at  least
annually with management and the independent  accountants in separate  executive
sessions to discuss any matters  that the  Committee  or either of these  groups
believe should be discussed privately.  In addition,  the Committee or its Chair
should meet with the independent  accountants and management quarterly to review
the Corporation's financial statements.

Relationship with Independent Accountants

         The  Corporation's   independent   accountants  are  to  be  ultimately
accountable  to the Board and the  Committee,  and the  Committee  and the Board
shall have the ultimate  authority and  responsibility to select,  evaluate and,
where appropriate,  replace the independent accountants (or nominate the outside
auditor to be proposed for shareholder approval in any proxy statement).

Responsibilities and Duties

         To fulfill its responsibilities and duties the Audit Committee shall:

Documents/Reports Review
------------------------

1.       Review and assess the adequacy of this Charter at least  annually,  and
         otherwise as conditions dictate.

2.       Review the Corporation's annual financial statements and any reports or
         other  financial  information  submitted to the Securities and Exchange
         Commission or the public; including any certification, report, opinion,
         or review rendered by the independent accountants.

3.       Review with financial  management and the  independent  accountants the
         Corporation's  filings with the Securities  and Exchange  Commission on
         Form 10-Q2 prior to their  filing or prior to the release of  earnings.
         The Chair of the  Committee  may  represent  the entire  Committee  for
         purposes of this review.

Independent Accountants
-----------------------

4.       Recommend to the Board the  selection of the  independent  accountants,
         considering  independence and  effectiveness,  and approve the fees and
         other compensation to be paid to the independent accountants.

5.       On an annual basis, obtain from the independent accountants, and review
         and  discuss  with  the  independent  accountants,   a  formal  written
         statement  delineating all  relationships  the independent  accountants
         have with the Corporation, consistent with Independence Standards Board
         Standard  1, and  actively  engage in a dialogue  with the  independent
         accountants  with respect to any  disclosed  relationships  or services
         that may impact the  objectivity  and  independence  of the independent
         accountants.

6.       Recommend  to  the  Board  any   appropriate   action  to  oversee  the
         independence of the independent accountants.

7.       Review the performance of the  independent  accountants and approve any
         proposed  discharge of the independent  accountants when  circumstances
         warrant.

--------------
2 Or Form 10-QSB if applicable.

                                       2

<PAGE>

8.       Periodically  consult  with  the  independent  accountants  out  of the
         presence of  management  about  internal  controls and the fullness and
         accuracy of the Corporation's financial statements.

Financial Reporting Processes3
------------------------------

9.       In consultation with the independent accountants,  review the integrity
         of the organization's financial reporting processes,  both internal and
         external.

10.      Consider the independent  accountant's  judgments about the quality and
         appropriateness of the Corporation's  accounting  principles as applied
         in its financial reporting.

11.      Consider,   and  approve,   if   appropriate,   major  changes  to  the
         Corporation's auditing and accounting principles.

12.      Establish  regular and separate  reporting to the  Committee by each of
         management and the  independent  accountants  regarding any significant
         judgments made in management's  preparation of the financial statements
         and the view of each as to appropriateness of such judgments.

13.      Following  completion of the annual audit,  review separately with each
         of  management  and  the   independent   accountants   any  significant
         difficulties  encountered during the course of the audit, including any
         restrictions on the scope of work or access to required information.

14.      Review  any   significant   disagreement   among   management  and  the
         independent  accountants  in  connection  with the  preparation  of the
         financial statements.

15.      Review with the  independent  accountants  and management the extent to
         which changes or improvements in financial or accounting practices,  as
         approved by the Committee, have been implemented.

Ethical and Legal Compliance
----------------------------

16.      Establish,  review and update periodically a Code of Conduct and ensure
         that management has established a system to enforce this Code.

17.      Review,  with the  Corporation's  counsel,  any legal matter that could
         have a significant impact on the Corporation's financial statements.

18.      Perform  any  other  activities   consistent  with  this  Charter,  the
         Corporation's  bylaws and governing  law, as the Committee or the Board
         deems necessary or appropriate.

                              Adopted by Resolution of the Board of Directors

                              March 28, 2001

-------------
3 If the company has an internal audit department, appropriate references should
be made to the  communications  between the Committee and that department and to
the Committee's review of that department.

                                       3

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