Document:

<PAGE>

                                                                   EXHIBIT 10.27

                                     THIRD
                                   RESTATED
                               CREDIT AGREEMENT

                                     AMONG

                           3TEC ENERGY CORPORATION,
                        ENEX RESOURCES CORPORATION AND
                             3TEC/CRI CORPORATION,
                                 AS BORROWERS,

                                      AND

                                 BANK ONE, NA
                       AND THE INSTITUTIONS NAMED HEREIN
                                  AS LENDERS,

                                 BANK ONE, NA,
                            AS ADMINISTRATIVE AGENT

                                      AND

                               BANK OF MONTREAL
                             AS SYNDICATION AGENT

                                      AND

                        BANC ONE CAPITAL MARKETS, INC.
                                  AS ARRANGER

                                MARCH ___, 2001

                         $250,000,000 REVOLVING CREDIT
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                               Page No.
<S>  <C>                                                       <C>
1.   Definitions.................................................   3
2.   Commitments of the Lender...................................  14
     (a)      Terms of Commitment................................  14
     (b)      Procedure for Borrowing............................  14
     (c)      Letters of Credit..................................  15
     (d)      Procedure for Obtaining Letters of Credit..........  16
     (e)      Voluntary Reduction of Commitment..................  16
     (f)      Mandatory Commitment Reductions....................  16
     (g)      Several Obligations................................  17
     (h)      Type and Number of Advances........................  17
     (i)      Limited Liability of Enex and Classic..............  17
3.   Notes Evidencing Loans......................................  17
     (a)      Form of Notes.......... ...........................  17
     (b)      Issuance of Additional Notes.......................  17
     (c)      Interest Rates.....................................  18
     (d)      Payment of Interest................................  18
     (e)      Payment of Principal...............................  18
     (f)      Payment to Lenders.................................  18
     (g)      Sharing of Payments, Etc...........................  18
     (h)      Non-Receipt of Funds by the Agent..................  19
4.   Interest Rates..............................................  19
     (a)      Options............................................  19
     (b)      Interest Rate Determination........................  20
     (c)      Conversion Option..................................  20
     (d)      Recoupment.........................................  20
5.   Special Provisions Relating to Loans........................  20
     (a)      Unavailability of Funds or Inadequacy of Pricing...  20
     (b)      Change in Laws.....................................  21
     (c)      Increased Cost or Reduced Return...................  21
     (d)      Discretion of Lender as to Manner of Funding.......  23
     (e)      Breakage Fees......................................  23
6.   Collateral Security.........................................  24
7.   Borrowing Base..............................................  25
     (a)      Initial Borrowing Base.............................  25
     (b)      Subsequent Determinations of Borrowing Base........  25
8.   Fees........................................................  27
     (a)      Unused Commitment Fee..............................  27
     (b)      The Letter of Credit Fee...........................  27
</TABLE>

                                      (i)
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<TABLE>
<CAPTION>
<S>  <C>                                                               <C>
9.   Prepayments.....................................................  27
     (a)      Voluntary Prepayments..................................  27
     (b)      Mandatory Prepayment For Borrowing Base Deficiency.....  27
10.  Representations and Warranties..................................  28
     (a)      Creation and Existence.................................  28
     (b)      Power and Authority....................................  28
     (c)      Binding Obligations....................................  28
     (d)      No Legal Bar or Resultant Lien.........................  28
     (e)      No Consent.............................................  28
     (f)      Financial Condition....................................  29
     (g)      Liabilities............................................  29
     (h)      Litigation.............................................  29
     (i)      Taxes; Governmental Charges............................  29
     (j)      Titles, Etc............................................  29
     (k)      Defaults...............................................  29
     (l)      Casualties; Taking of Properties.......................  30
     (m)      Use of Proceeds; Margin Stock..........................  30
     (n)      Location of Business and Offices.......................  30
     (o)      Compliance with the Law................................  30
     (p)      No Material Misstatements..............................  31
     (q)      Not A Utility..........................................  31
     (r)      ERISA..................................................  31
     (s)      Public Utility Holding Company Act.....................  31
     (t)      Subsidiaries...........................................  31
     (u)      Environmental Matters..................................  31
     (v)      Liens..................................................  31
11.  Conditions of Lending...........................................  32
12.  Affirmative Covenants...........................................  33
     (a)      Financial Statements and Reports.......................  34
     (b)      Certificates of Compliance.............................  35
     (c)      Accountants' Certificate...............................  35
     (d)      Taxes and Other Liens..................................  35
     (e)      Compliance with Laws...................................  35
     (f)      Further Assurances.....................................  36
     (g)      Performance of Obligations.............................  36
     (h)      Insurance..............................................  37
     (i)      Accounts and Records...................................  37
     (j)      Right of Inspection....................................  37
     (k)      Notice of Certain Events...............................  37
     (l)      ERISA Information and Compliance.......................  38
     (m)      Environmental Reports and Notices......................  38
     (n)      Compliance and Maintenance.............................  38
     (o)      Operation of Properties................................  38
     (p)      Compliance with Leases and Other Instruments...........  39

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>  <C>                                                               <C>
     (q)      Certain Additional Assurances Regarding Maintenance
              and Operations of Properties...........................  39
     (r)      Sale of Certain Assets/Prepayment of Proceeds..........  39
     (s)      Title Matters..........................................  40
     (t)      Curative Matters.......................................  40
     (u)      Change of Principal Place of Business..................  40
     (v)      Cash Collateral Accounts...............................  40
     (w)      Additional Collateral..................................  41
13.  Negative Covenants..............................................  41
     (a)      Negative Pledge........................................  41
     (b)      Current Ratio..........................................  42
     (c)      Minimum Interest Coverage Ratio........................  42
     (d)      Consolidations and Mergers.............................  42
     (e)      Debts, Guaranties and Other Obligations................  42
     (f)      Dividends..............................................  43
     (g)      Loans and Advances.....................................  43
     (h)      Sale or Discount of Receivables........................  43
     (i)      Nature of Business.....................................  43
     (j)      Transactions with Affiliates...........................  43
     (k)      Hedging Transactions...................................  43
     (l)      Investments............................................  44
     (m)      Amendment to Articles of Incorporation or Bylaws.......  44
     (n)      Proceeds of Production.................................  44
     (o)      Issuance of  Preferred Stock...........................  44
     (p)      Amendments to and Redemption of Preferred Stock or
              Other Equity...........................................  44
     (q)      Payment or Pre-Payment of Other Indebtedness...........  44
     (r)      Subordinated Indebtedness..............................  45
14.  Events of Default...............................................  45
15.  The Agent and the Lenders.......................................  47
     (a)      Appointment and Authorization..........................  47
     (b)      Note Holders...........................................  48
     (c)      Consultation with Counsel..............................  48
     (d)      Documents..............................................  49
     (e)      Resignation or Removal of Agent........................  49
     (f)      Responsibility of Agent................................  49
     (g)      Independent Investigation..............................  51
     (h)      Indemnification........................................  51
     (i)      Benefit of Section 15..................................  51
     (j)      Pro Rata Treatment.....................................  51
     (k)      Assumption as to Payments..............................  52
     (l)      Other Financings.......................................  52
     (m)      Interests of Lenders...................................  52
     (n)      Investments............................................  53
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>  <C>                                                               <C>
16.  Exercise of Rights..............................................  53
17.  Notices.........................................................  53
18.  Expenses........................................................  54
19.  Indemnity.......................................................  54
20.  Governing Law...................................................  55
21.  Invalid Provisions..............................................  55
22.  Maximum Interest Rate...........................................  55
23.  Amendments......................................................  56
24.  Multiple Counterparts...........................................  56
25.  Conflict........................................................  56
26.  Survival........................................................  56
27.  Parties Bound...................................................  56
28.  Assignments and Participations..................................  56
29.  Choice of Forum: Consent to Service of Process and
     Jurisdiction....................................................  58
30.  Waiver of Jury Trial............................................  58
31.  Other Agreements................................................  59
32.  Financial Terms.................................................  59
</TABLE>

EXHIBITS
--------

Exhibit "A"    -   Notice of Borrowing
Exhibit "B"    -   Note
Exhibit "C"    -   Certificate of Compliance
Exhibit "D"    -   Form of Assignment and Acceptance Agreement

SCHEDULES
---------

Schedule 1     -   Liens
Schedule 2     -   Financial Condition
Schedule 3     -   Liabilities
Schedule 4     -   Litigation
Schedule 5     -   Subsidiaries
Schedule 6     -   Environmental Matters
Schedule 7     -   Title Matters
Schedule 8     -   Curative Matters
<PAGE>

                        THIRD RESTATED CREDIT AGREEMENT

     THIS THIRD RESTATED CREDIT AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the ____ day of March, 2001, by and between 3TEC
ENERGY CORPORATION, a Delaware corporation ("3TEC") (successor in interest to
Middle Bay Oil Company, Inc.), ENEX RESOURCES CORPORATION, a Delaware
corporation ("Enex") and 3TEC/CRI CORPORATION, a Texas corporation ("Classic")
(3TEC, Enex and Classic are hereinafter collectively referred to as "Borrowers",
and individually as a "Borrower") and BANK ONE, NA (successor by merger to Bank
One, Texas, N.A.), a national banking association ("Bank One"), and each of the
financial institutions which is a party hereto (as evidenced by the signature
pages to this Agreement) or which may from time to time become a party hereto
pursuant to the provisions of Section 28 hereof or any successor or assignee
thereof (hereinafter collectively referred to as "Lenders", and individually,
"Lender") and Bank One, as Administrative Agent (the "Agent") and Bank of
Montreal, as Syndication Agent.

                             W I T N E S S E T H:

     WHEREAS, as of March 27, 1998, Middle Bay Oil Company, Inc. ("Middle Bay")
entered into a Credit Agreement with Compass Bank, as Agent for itself and Bank
of Oklahoma, N.A., pursuant to which the Lenders made available to Middle Bay, a
credit facility of up to $100,000,000 (the "Credit Agreement"); and

     WHEREAS, as of November 23, 1999, Middle Bay, Enex, Middle Bay Production
Company, Inc. ("Production"), the Agent and the Lenders entered into a Restated
Credit Agreement pursuant to which the Lenders made available to Middle Bay, a
credit facility of up to $250,000,000 (the "Restated Credit Agreement"); and

     WHEREAS, as of November 23, 1999 the Lenders have acquired all of the
interest of Compass Bank and Bank of Oklahoma in the Credit Agreement and the
liens securing the same; and

     WHEREAS, as of December 7, 1999, Middle Bay merged with and into 3TEC
Energy Corporation; and

     WHEREAS, as of May 31, 2000, Enex, Production, Magellan Exploration, LLC
("Magellan"), Lenders and Agent entered into a Second Restated Credit Agreement
(the "Second Restated Credit Agreement") to reflect certain amendments to the
Restated Credit Agreement; and

     WHEREAS, as of September 27, 2000, the Second Restated Credit Agreement was
amended by the First Amendment to Second Restated Credit Agreement; and

     WHEREAS, as of September 30, 2000, Production merged into 3TEC and Magellan
dissolved and all of its assets and liabilities were distributed to 3TEC; and

                                       2
<PAGE>

     WHEREAS, as of January 30, 2001, all of the issued and outstanding voting
stock of Classic was acquired by 3TEC and it became a wholly-owned subsidiary of
3TEC; and

     WHEREAS, the Borrowers have requested that the Lenders restate the Restated
Credit Agreement to make certain changes thereto and the Lenders have agreed to
restate the Restated Credit Agreement and make the changes requested by the
Borrowers.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereby agree to restate the Credit Agreement as
follows:

1.   DEFINITIONS.  When used herein the terms "Agent", "Agreement", "Bank One",
"Borrower", "Borrowers", "Classic", "Enex", "Lender", "Lenders" and "3TEC" shall
have the meanings indicated above.  When used herein the following terms shall
have the following meanings:

          Advance or Advances means a loan or loans hereunder.

          Affiliate means any Person which, directly or indirectly, controls, is
     controlled by or is under common control with the relevant Person.  For the
     purposes of this definition, "control" (including, with correlative
     meanings, the terms "controlled by" and "under common control with"), as
     used with respect to any Person, shall mean a member of the board of
     directors, a partner or an officer of such Person, or any other Person with
     possession, directly or indirectly, of the power to direct or cause the
     direction of the management and policies of such Person, through the
     ownership (of record, as trustee, or by proxy) of voting shares,
     partnership interests or voting rights, through a management contract or
     otherwise.  Any Person owning or controlling directly or indirectly ten
     percent or more of the voting shares, partnership interests or voting
     rights, or other equity interest of another Person shall be deemed to be an
     Affiliate of such Person.

          Alternate Base Rate shall mean, as of any date, a rate of interest per
     annum equal to the higher of (i) the Prime Rate for such date, and (ii) the
     sum of the Federal Funds Effective Rate for such date plus one-half of one
     percent (.50%) per annum.

          Assignment and Acceptance means a document substantially in the form
     of Exhibit "D" hereto.

          Base Rate shall mean, as of any date, the sum of the Alternate Base
     Rate plus the Base Rate Margin.

          Base Rate Loans shall mean any loan during any period which bears
     interest based upon the Alternate Base Rate or which would bear interest
     based upon the Alternate Base Rate if the Maximum Rate ceiling was not in
     effect at that particular time.

                                       3
<PAGE>

          Base Rate Margin shall be:

               (i) one-half of one percent (.50%) per annum whenever the
          Borrowing Base Usage is equal to or greater than 90%; or

               (ii) three-eighths of one percent (.375%) per annum whenever the
          Borrowing Base Usage is equal to or greater than 75% but less than
          90%; or

               (iii)  one-quarter of one percent (.25%) per annum whenever the
          Borrowing Base Usage is equal to or greater than 50%, but less than
          75%; or

               (iv) zero percent (0%) per annum whenever the Borrowing Base
          Usage is less than 50%.

          Borrowing Base shall mean the value assigned by the Lenders from time
     to time to the Oil and Gas Properties pursuant to Section 7 hereof.  Until
     the next determination of the Borrowing Base pursuant to Section 7(b)
     hereof, the Borrowing Base shall be the amount shown in Section 7(a)
     hereof.

          Borrowing Base Usage shall mean, as of any date, all amounts
     outstanding on the Loan plus all outstanding Letters of Credit, divided by
     the Borrowing Base.

          Borrowing Date means the date elected by Borrowers pursuant to Section
     2(b) hereof for an Advance on the Loan.

          Business Day shall mean (i) with respect to any borrowing, payment or
     note selection of LIBOR Loans, a day (other than Saturdays or Sundays) on
     which banks are legally open for business in Dallas, Texas and New York,
     New York and on which dealings in United States dollars are carried on in
     the London interbank market, and (ii) for all other purposes a day (other
     than Saturdays and Sundays) on which banks are legally open for business in
     Dallas, Texas.

          Cash Collateral Accounts is used herein as defined in Section 12(v).

          Change of Control shall occur if any Person (or syndicate or group of
     Persons which is deemed a Person for the purposes of Sections 13(d) or
     14(d)(ii) of the Securities Act of 1934, as amended) shall acquire,
     directly or indirectly an amount of issued and outstanding voting stock of
     Borrowers (including the acquisition of newly-issued stock) sufficient to
     change the control of Borrowers by causing the election or change of a
     majority of the directors of Borrowers.

          Change of Management means a Change of Management shall occur if Floyd
     C. Wilson ever ceases to act as Chairman and Chief Executive Officer of
     3TEC and a

                                       4
<PAGE>

     replacement for such officer, acceptable to Agent, is not appointed within
     sixty (60) days thereafter.

          Commitment means (A) For all Lenders, the lesser of (i) $250,000,000
     or (ii) the Borrowing Base, as reduced or increased from time to time
     pursuant to Sections 2 and 7 hereof, and (B) as to any Lender, its
     obligation to make Advances hereunder on the Loan and purchase
     participations in Letters of Credit issued hereunder by the Agent in
     amounts not exceeding, in the aggregate, an amount equal to such Lender's
     Commitment Percentage times the total Commitment as of any date.  The
     Commitment of each Lender hereunder shall be adjusted from time to time to
     reflect assignments made by such Lender pursuant to Section 28 hereof.
     Each reduction in the Commitment shall result in a Pro Rata reduction in
     each Lender's Commitment.

          Commitment Percentage means for each Lender the percentage derived by
     dividing its Commitment at the time of the determination by the Commitments
     of all Lenders at the time of determination.  The Commitment Percentage of
     each Lender hereunder shall be adjusted from time to time to reflect
     assignments made by such Lender pursuant to Section 28 hereof.

          Consolidated Current Assets means the total of the consolidated
     current assets determined in accordance with GAAP, plus, as of any date,
     the unused availability on the Commitment.

          Consolidated Current Liabilities means the total of consolidated
     current obligations as determined in accordance with GAAP, excluding
     therefrom, as of any date, current maturities due on the Loans.

          Consolidated EBITDAX shall mean Consolidated Net Income (excluding
     gains and losses from asset sales, extraordinary and non-recurring gains
     and losses) plus the sum of (i) income tax expense (but excluding income
     tax expense relating to the sales or other disposition of assets, including
     capital stock, the gains and losses from which are excluded in the
     determination of Consolidated Net Income), plus (ii) Consolidated Interest
     Expense, plus (iii) depreciation, depletion and amortization expense, plus
     (iv) other non-cash expenses, plus (v) dry hole costs and geological and
     geophysical expenses, all as determined in accordance with GAAP.

          Consolidated Interest Expense shall mean the aggregate amount of
     interest expense of Borrowers as determined on a consolidated basis in
     accordance with GAAP.

          Consolidated Net Income shall mean Borrowers' consolidated net income
     after income taxes calculated in accordance with GAAP.

                                       5
<PAGE>

          Current Ratio means the ratio of Consolidated Current Assets for the
     period being measured to the Consolidated Current Liabilities for such
     period.

          Default means all the events specified in Section 14 hereof,
     regardless of whether there shall have occurred any passage of time or
     giving of notice, or both, that would be necessary in order to constitute
     such event as an Event of Default.

          Defaulting Lender is used herein as defined in Section 3(f) hereof.

          Effective Date means the date of this Agreement.

          Eligible Assignee means any of (i) a Lender or any Affiliate of a
     Lender; (ii) a commercial bank organized under the laws of the United
     States, or any state thereof, and having a combined capital and surplus of
     at least $100,000,000; (iii) a commercial bank organized under the laws of
     any other country which is a member of the Organization for Economic
     Cooperation and Development, or a political subdivision of any such
     country, and having a combined capital and surplus of at least
     $100,000,000.00, provided that such bank is acting through a branch or
     agency located in the United States; (iv) a Person that is primarily
     engaged in the business of commercial lending and that (A) is a subsidiary
     of a Lender, (B) a subsidiary of a Person of which a Lender is a
     subsidiary, or (C) a Person of which a Lender is a subsidiary; (v) any
     other entity (other than a natural person) which is an "accredited
     investor" (as defined in Regulation D under the Securities Act) which
     extends credit or buys loans as one of its businesses, including, but not
     limited to, insurance companies, mutual funds, investments funds and lease
     financing companies; and (vi) with respect to any Lender that is a fund
     that invests in loans, any other fund that invests in loans and is managed
     by the same investment advisor of such Lender or by an Affiliate of such
     investment advisor (and treating all such funds so managed as a single
     Eligible Assignee); provided, however, that no Affiliate of Borrowers shall
     be an Eligible Assignee.

          Engineered Value is used herein as defined in Section 6 hereof.

          Environmental Laws means the Comprehensive Environmental Response,
     Compensation and Liability Act of 1980, as amended by the Superfund
     Amendments and Reauthorization Act of 1986, 42 U.S.C.A. (S)9601, et seq.,
     the Resource Conservation and Recovery Act, as amended by the Hazardous
     Solid Waste Amendment of 1984, 42 U.S.C.A. (S)6901, et seq., the Clean
     Water Act, 33 U.S.C.A. (S)1251, et seq., the Clean Air Act, 42 U.S.C.A.
     (S)1251, et seq., the Toxic Substances Control Act, 15 U.S.C.A. (S)2601, et
     seq., The Oil Pollution Act of 1990, 33 U.S.G. (S)2701, et seq., and all
     other laws, statutes, codes, acts, ordinances, orders, judgments, decrees,
     injunctions, rules, regulations, orders, permits and restrictions of any
     federal, state, county, municipal and other governments, departments,
     commissions, boards, agencies, courts, authorities, officials and officers,
     domestic or foreign, relating to oil pollution, air pollution, water

                                       6
<PAGE>

     pollution, noise control and/or the handling, discharge, disposal or
     recovery of on-site or off-site asbestos, radioactive materials, spilled or
     leaked petroleum products, distillates or fractions and industrial solid
     waste or "hazardous substances" as defined by 42 U.S.C. (S) 9601, et seq.,
     as amended, as each of the foregoing may be amended from time to time.

          Environmental Liability means any claim, demand, obligation, cause of
     action, order, violation, damage, injury, judgment, penalty or fine, cost
     of enforcement, cost of remedial action or any other costs or expense
     whatsoever, including reasonable attorneys' fees and disbursements,
     resulting from the violation or alleged violation of any Environmental Law
     or the release of any substance into the environment which is required to
     be remediated by a regulatory agency or governmental authority or the
     imposition of any Environmental Lien (as hereinafter defined) which could
     reasonably be expected to individually or in the aggregate have a Material
     Adverse Effect.

          Environmental Lien means a Lien in favor of any court, governmental
     agency or instrumentality or any other Person (i) for any Environmental
     Liability or (ii) for damages arising from or cost incurred by such court
     or governmental agency or instrumentality or other person in response to a
     release or threatened release of asbestos or "hazardous substance" into the
     environment, the imposition of which Lien could reasonably be expected to
     have a Material Adverse Effect.

          ERISA means the Employee Retirement Income Security Act of 1974, as
     amended.

          Federal Funds Effective Rate shall mean, for any day, an interest rate
     per annum equal to the weighted average of the rates on overnight Federal
     funds transactions with members of the Federal Reserve System arranged by
     Federal funds brokers on such day, as published for such day (or, if such
     day is not a Business Day, for the immediately preceding Business Day) by
     the Federal Reserve Bank of New York, or, if such rate is not so published
     for any day which is a Business Day, the average of the quotations at
     approximately 10:00 a.m. (Dallas, Texas time) on such day on such
     transactions received by the Agent from three (3) Federal funds brokers of
     recognized standing selected by the Agent in its sole discretion.

          Financial Statements means balance sheets, income statements,
     statements of cash flows and appropriate footnotes and schedules, prepared
     in accordance with GAAP.

          GAAP means generally accepted accounting principles, consistently
     applied.

          Intercreditor Agreements means (i) the Intercreditor Agreement among
     3TEC, the Agent and W/E Energy Company LLC ("W/E LLC") (formerly known as
     3TEC Energy Company L.L.C.), (ii) the Intercreditor Agreement among 3TEC,
     the Agent and Shoemaker Family Partnership, LP, (iii) the Intercreditor
     Agreement among 3TEC, the

                                       7
<PAGE>

     Agent and Shoeinvest II, LP, and (iv) Letter Amendment No. 1 to Middle Bay
     Oil Company, Inc. Securities Purchase Agreement (dated October 19, 1999),
     between 3TEC and The Prudential Insurance Company of America, each dated
     November 23, 1999.

          Interest Payment Date shall mean the last day of each calendar quarter
     in the case of Base Rate Loans and, in the case of LIBOR Loans, the last
     day of the applicable Interest Period.

          Interest Period shall mean with respect to any LIBOR Loan (i)
     initially, the period commencing on the date such LIBOR Loan is made and
     ending one (1), three (3), or six (6) months thereafter as selected by the
     Borrowers pursuant to Section 4(a)(ii), and (ii) thereafter, each period
     commencing on the day following the last day of the next preceding Interest
     Period applicable to such LIBOR Loan and ending one (1), three (3) or six
     (6) months thereafter, as selected by the Borrowers pursuant to Section
     4(a)(ii); provided, however, that (i) if any Interest Period would
     otherwise expire on a day which is not a Business Day, such Interest Period
     shall expire on the next succeeding Business Day unless the result of such
     extension would be to extend such Interest Period into the next calendar
     month, in which case such Interest Period shall end on the immediately
     preceding Business Day, (ii) if any Interest Period begins on the last
     Business Day of a calendar month (or on a day for which there is no
     numerically corresponding day in the calendar month at the end of such
     Interest Period) such Interest Period shall end on the last Business Day of
     a calendar month, and (iii) any Interest Period which would otherwise
     expire after the Maturity Date shall end on such Maturity Date.

          Letters of Credit is used herein as defined in Section 2(c) hereof.

          LIBOR Base Rate shall mean, with respect to any LIBOR Loan for the
     relevant Interest Period, the applicable British Bankers' Association
     Interest Settlement Rate for deposits in U.S. dollars appearing on Reuter's
     Screen FRBD as of 11:00 a.m. (London time) two (2) Business Days prior to
     the first day of each Interest Period, and having a maturity equal to such
     Interest Period; provided that, if Reuter's Screen FRBD is not available to
     the Agent for any reason, the applicable LIBOR Rate for the relevant
     Interest Period shall instead be the applicable British Bankers'
     Association Interest Settlement Rate for deposits in U.S. dollars as
     reported by any other generally recognized financial information service as
     of 11:00 a.m. (London time) two (2) Business Days prior to the first day of
     such Interest Period, and having a maturity equal to such Interest Period.

          LIBOR Loans means any loans during any period which bear interest at
     the LIBOR Rate, or which would bear interest at such rate if the Maximum
     Rate ceiling was not in effect at a particular time.

          LIBOR Margin shall be:

                                       8
<PAGE>

               (i) two and one-eighths percent (2.125%) per annum whenever the
          Borrowing Base Usage is equal to or greater than 90%;

               (ii) two percent (2%) per annum whenever the Borrowing Base Usage
          is equal to or greater than 75%, but less than 90%;

               (iii)  one and three-quarters percent (1.75%) per annum whenever
          the Borrowing Base Usage is equal to or greater than 50%, but less
          than 75%; or

               (iv) one and one-half percent (1.50%) per annum whenever the
          Borrowing Base Usage is less than 50%.

          LIBOR Rate means, with respect to a LIBOR Loan for the relevant
     Interest Period, the sum of (i) the quotient of (A) the LIBOR Base Rate
     applicable to such Interest Period, divided by (B) one minus the Reserve
     Requirement (expressed as a decimal) applicable to such Interest Period,
     plus the (ii) LIBOR Margin.  The LIBOR Rate shall be rounded to the next
     higher multiple of 1/16th of one percent if the rate is not such a
     multiple.

          Lien means any mortgage, deed of trust, pledge, security interest,
     assignment, encumbrance or lien (statutory or otherwise) of every kind and
     character.

          Loan or Loans means an Advance or Advances made under the Commitment.

          Loan Documents means this Agreement, the Notes, the Intercreditor
     Agreements, the Assignment, Acknowledgment, Agreement and Waiver, the
     Security Instruments and all other documents executed in connection with
     the transaction described in this Agreement.

          Majority Lenders means Lenders holding 66-2/3% or more of the
     Commitments or if the Commitments have been terminated, Lenders holding 66-
     2/3% of the outstanding Loans.

          Material Adverse Effect shall mean a material adverse effect on (i)
     the assets or properties, liabilities, financial condition, business,
     operations, affairs or circumstances of the Borrowers, (ii) the ability of
     the Borrowers to carry out their respective businesses as of the date of
     this Agreement or as proposed at the date of this Agreement to be
     conducted, (iii) the ability of Borrowers to perform fully and on a timely
     basis their obligations under any of the Loan Documents, or (iv) the
     validity or enforceability of any of the Loan Documents or the rights and
     remedies of the Agent or the Lenders thereunder.

          Maturity Date shall mean May 31, 2003.

                                       9
<PAGE>

          Maximum Rate means at any particular time in question, the maximum
     non-usurious rate of interest which under applicable law may then be
     charged on the Note.  If such Maximum Rate changes after the date hereof,
     the Maximum Rate shall be automatically increased or decreased, as the case
     may be, without notice to Borrowers from time to time as the effective date
     of each change in such Maximum Rate.

          Minimum Interest Coverage Ratio means the ratio of Consolidated
     EBITDAX for the period being measured to the sum of Consolidated Interest
     Expense for the period being measured plus preferred stock dividends paid
     in cash during the period being measured.

          Notes means the Notes, substantially in the form of Exhibit  "B"
     hereto issued or to be issued hereunder to each Lender, respectively, to
     evidence the indebtedness to such Lender arising by reason of the Advances
     on the Loan, together with all modifications, renewals and extensions
     thereof or any part thereof.

          Oil and Gas Properties means all oil, gas and mineral properties and
     interests, and related personal property, in which Borrowers grant to the
     Lenders either a first and prior lien and security interest pursuant to
     Section 6 hereof or a negative pledge pursuant to Section 13(a) hereof.

          Operating Accounts is used herein as defined in Section 12(v).

          Other Financing is used herein as defined in Section 15(l) hereof.

          Payor is used herein as defined in Section 3(h)hereof.

          Permitted Liens shall mean (i) royalties, overriding royalties,
     reversionary interests, production payments and similar burdens; (ii) sales
     contracts or other arrangements for the sale of production of oil, gas or
     associated liquid or gaseous hydrocarbons which would not (when considered
     cumulatively with the matters discussed in clause (i) above) deprive
     Borrowers of any material right in respect of any such Borrower's assets or
     properties (except for rights customarily granted with respect to such
     contracts and arrangements); (iii) statutory Liens for taxes or other
     assessments that are not yet delinquent (or that, if delinquent, are being
     contested in good faith by appropriate proceedings, levy and execution
     thereon having been stayed and continue to be stayed and for which such
     Borrower has set aside on its books adequate reserves in accordance with
     GAAP); (iv) easements, rights of way, servitudes, permits, surface leases
     and other rights in respect to surface operations, pipelines, grazing,
     logging, canals, ditches, reservoirs or the like, conditions, covenants and
     other restrictions, and easements of streets, alleys, highways, pipelines,
     telephone lines, power lines, railways and other easements and rights of
     way on, over or in respect of Borrowers' assets or

                                      10
<PAGE>

     properties and that do not individually or in the aggregate, cause a
     Material Adverse Effect; (v) materialmen's, mechanic's, repairman's,
     employee's, warehousemen's, landlord's, carrier's, pipeline's,
     contractor's, sub-contractor's, operator's, non-operator's (arising under
     operating or joint operating agreements), and other Liens (including any
     financing statements filed in respect thereof) incidental to obligations
     incurred by Borrowers in connection with the construction, maintenance,
     development, transportation, storage or operation of Borrowers' assets or
     properties to the extent not delinquent (or which, if delinquent, are being
     contested in good faith by appropriate proceedings and for which such
     Borrower has set aside on its books adequate reserves in accordance with
     GAAP); (vi) all contracts, agreements and instruments, and all defects and
     irregularities and other matters affecting Borrowers' assets and properties
     which were in existence at the time Borrowers' assets and properties were
     originally acquired by Borrowers and all routine operational agreements
     entered into in the ordinary course of business, which contracts,
     agreements, instruments, defects, irregularities and other matters and
     routine operational agreements are not such as to, individually or in the
     aggregate, interfere materially with the operation, value or use of
     Borrowers' assets and properties, considered in the aggregate; (vii) liens
     in connection with workmen's compensation, unemployment insurance or other
     social security, old age pension or public liability obligations; (viii)
     legal or equitable encumbrances deemed to exist by reason of the existence
     of any litigation or other legal proceeding or arising out of a judgment or
     award with respect to which an appeal is being prosecuted in good faith and
     levy and execution thereon have been stayed and continue to be stayed; (ix)
     rights reserved to or vested in any municipality, governmental, statutory
     or other public authority to control or regulate Borrowers' assets and
     properties in any manner, and all applicable laws, rules and orders from
     any governmental authority; (x) landlord's liens; (xi) Liens incurred
     pursuant to the Security Instruments; and (xii) Liens existing at the date
     of this Agreement which are identified in Schedule "1" hereto.

          Person means an individual, a corporation, a partnership, an
     association, a trust or any other entity or organization, including a
     government or political subdivision or an agency or instrumentality
     thereof.

          Plan means any plan subject to Title IV of ERISA and maintained by
     Borrowers, or any such plan to which any Borrower is required to contribute
     on behalf of its employees.

          Pre-Approved Contracts as used herein shall mean any contracts or
     agreements entered into in connection with any Rate Management Transaction
     designed (i) to hedge, forward sell or swap crude oil or natural gas or
     otherwise sell up to 75% of the Borrowers' anticipated production from
     proved, developed producing reserves of crude oil, and/or up to 75% of the
     Borrowers' anticipated production from proved, developed producing reserves
     of natural gas, during the period from the immediately preceding settlement
     date (or the commencement of the term of such hedge transactions if there
     is

                                      11
<PAGE>

     no prior settlement date) to such settlement date, (ii) with a maturity
     of not exceeding the Maturity Date, and (iii) with counterparties to the
     hedging agreement (other than a Lender or Affiliate of a Lender which are
     approved counterparties) which are reasonably  approved by Agent.

          Prime Rate means the rate per annum equal to the Prime Rate announced
     by the Agent from time to time, changing when and as said Prime Rate
     changes.

          Pro Rata or Pro Rata Part means for each Lender, (i) for all purposes
     where no Loan is outstanding, such Lender's Commitment Percentage and (ii)
     otherwise, the proportion which the portion of the outstanding Loans owed
     to such Lender bears to the aggregate outstanding Loans owed to all Lenders
     at the time in question.

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

          Regulation D shall mean Regulation D of the Board of Governors of the
     Federal Reserve System as from time to time in effect and any successor
     thereto and other regulation or official interpretation of said Board of
     Governors relating to reserve requirements applicable to member banks of
     the Federal Reserve System.

          Reimbursement Obligations means, at any time, the obligations of the
     Borrowers in respect of all Letters of Credit then outstanding to reimburse
     amounts paid by any Lender in respect of any drawing or drawings under a
     Letter of Credit.

          Release Price is used herein as defined in Section 12(r) hereof.

          Required Payment is used herein as defined in Section 3(h) hereof.

          Reserve Requirement means, with respect to any Interest Period, the
     maximum aggregate reserve requirement (including all basic, supplemental,
     marginal and other reserves) which is imposed under Regulation D or
     Eurocurrency liabilities.

          Security Instruments  is used collectively herein to mean this
     Agreement, all Deeds of Trust, Mortgages, Security Agreements, Assignments
     of Production and

                                      12
<PAGE>

     Financing Statements and other collateral documents covering the Oil and
     Gas Properties and related personal property, equipment, oil and gas
     inventory and proceeds of the foregoing, all such documents to be in form
     and substance satisfactory to Agent.

          Security Purchase Agreements mean (i) a Securities Purchase Agreement
     dated August 27, 1999 between Middle Bay and Shoemaker Family Partnership,
     LP, (ii) a Securities Purchase Agreement dated August 27, 1999 between
     Middle Bay and Shoeinvest II, LP, (iii) a Securities Purchase Agreement
     dated July 1, 1999 between Middle Bay and W/E LLC and (iv) a Securities
     Purchase Agreement dated October 19, 1999 between Middle Bay and The
     Prudential Insurance Company of America, as amended by that certain Letter
     Amendment No. 1 to Middle Bay Securities Purchase Agreement dated November
     23, 1999.

          Series B Preferred Stock means 266,667 shares of 3TEC preferred stock
     which has been designated as Series B and has a stated value of $7.50 per
     share, all of which is issued and outstanding.

          Series D Preferred Stock means 725,167 shares of 3TEC preferred stock
     which has been designated as Series D and has a stated value of $24.00 per
     share, 621,930 of which are issued and outstanding.

          Subordinated Lenders W/E LLC, Shoemaker Family Partnership, LP,
     Shoeinvest II, LP and The Prudential Insurance Company of America.

          Subordinated Notes means promissory notes issued by 3TEC pursuant to
     the Security Purchase Agreements.

          Subsidiary means any corporation or other entity of which securities
     or other ownership interests having ordinary voting power to elect a
     majority of the board of directors or other persons performing similar
     functions are at the time directly or indirectly owned by Borrowers or
     another subsidiary.

          Total Outstandings means, as of any date, the sum of (i) the total
     principal balance outstanding on the Notes, plus (ii) the total face amount
     of all outstanding Letters of Credit, plus (iii) the total amount of all
     unpaid Reimbursement Obligations.

          Tranche means a set of LIBOR Loans made by the Lenders at the same
     time and for the same Interest Period.

          Unscheduled Redeterminations means a redetermination of the Borrowing
     Base made at any time other than on the dates set for the regular semi-
     annual redetermination of the Borrowing Base which are made (A) at the
     request of Borrowers (but only once between Borrowing Base
     redeterminations), (B) at the request of Majority Lenders.

                                      13
<PAGE>

          Unused Commitment Fee Rate shall be:

               (i) one-half of one percent (.50%) per annum whenever the
          Borrowing Base Usage is equal to or greater than 90%;

               (ii) three-eighths of one percent (.375%) per annum whenever the
          Borrowing Base Usage is equal to or greater than 50% but less than
          90%; or

               (iii)  one-fourth of one percent (.25%) per annum whenever the
          Borrowing Base Usage is less than 50%.

2.  COMMITMENTS OF THE LENDER.

         (a) Terms of Commitment. On the terms and conditions hereinafter set
     forth, each Lender agrees severally to make Advances to the Borrowers from
     time to time during the period beginning on the Effective Date and ending
     on the Maturity Date in such amounts as the Borrowers may request up to an
     amount not to exceed, in the aggregate principal amount outstanding at any
     time, the Commitment less Total Outstandings. The obligation of the
     Borrowers hereunder shall be evidenced by this Agreement and the Notes
     issued in connection herewith, said Notes to be as described in Section 3
     hereof. Notwithstanding any other provision of this Agreement, no Advance
     shall be required to be made hereunder if any Event of Default (as
     hereinafter defined) has occurred and is continuing or if any event or
     condition has occurred or failed to occur which with the passage of time or
     service of notice, or both, would constitute an Event of Default. Each
     Advance under the Commitment shall be an aggregate amount of at least
     $1,000,000 or any whole multiples of $100,000 in excess thereof.
     Irrespective of the face amount of the Note or Notes, the Lenders shall
     never have the obligation to Advance any amount or amounts in excess of the
     Commitment or to increase the Commitment.

         (b)  Procedure for Borrowing.  Whenever the Borrowers desire an Advance
     hereunder, they shall give Agent telegraphic, telex, facsimile or
     telephonic notice ("Notice of Borrowing") of such requested Advance, which
     in the case of telephonic notice, shall be promptly confirmed in writing.
     Each Notice of Borrowing shall be in the form of Exhibit "A" attached
     hereto and shall be received by Agent not later than 11:00 a.m. Dallas,
     Texas time, (i) one Business Day prior to the Borrowing Date in the case of
     the Base Rate Loan, or (ii) three Business Days prior to any proposed
     Borrowing Date in the case of LIBOR Loans.  Each Notice of Borrowing shall
     specify (i) the Borrowing Date (which, if at Base Rate Loan, shall be a
     Business Day and if a LIBOR Loan, a Business Day), (ii) the principal
     amount to be borrowed, (iii) the portion of the Advance constituting Base
     Rate Loans and/or LIBOR Loans, (iv) if any portion of the proposed Advance
     is to constitute LIBOR Loans, the initial Interest Period selected by
     Borrowers pursuant to Section 4 hereof to be applicable thereto, and (v)
     the date upon which such Advance is required.  Upon receipt of such Notice,
     Agent shall advise each Lender

                                      14
<PAGE>

     thereof; provided, that if the Lenders have received at least one (1) day's
     notice of such Advance prior to funding of a Base Rate Loan, or at least
     three (3) days' notice of each Advance prior to funding in the case of a
     LIBOR Loan, each Lender shall provide Agent at its office at 1717 Main
     Street, Dallas, Texas 75201, not later than 1:00 p.m., Dallas, Texas time,
     on the Borrowing Date, in immediately available funds, its pro rata share
     of the requested Advance, but the aggregate of all such fundings by each
     Lender shall never exceed such Lender's Commitment. Not later than 2:00
     p.m., Dallas, Texas time, on the Borrowing Date, Agent shall make available
     to the Borrowers at the same office, in like funds, the aggregate amount of
     such requested Advance. Neither Agent nor any Lender shall incur any
     liability to the Borrowers in acting upon any Notice referred to above
     which Agent or such Lender believes in good faith to have been given by a
     duly authorized officer or other person authorized to borrow on behalf of
     Borrowers or for otherwise acting in good faith under this Section 2(b).
     Upon funding of Advances by Lenders in accordance with this Agreement,
     pursuant to any such Notice, the Borrowers shall have effected Advances
     hereunder.

         (c) Letters of Credit. On the terms and conditions hereinafter set
     forth, the Agent shall from time to time during the period beginning on the
     Effective Date and ending on the Maturity Date upon request of Borrowers
     issue standby Letters of Credit for the account of Borrowers (the "Letters
     of Credit") in such face amounts as Borrowers may request, but not to
     exceed in the aggregate face amount at any time outstanding the sum of Five
     Million Dollars ($5,000,000). The face amount of all Letters of Credit
     issued and outstanding hereunder shall be considered as Advances on the
     Commitment for Borrowing Base purposes and all payments made by the Agent
     on such Letters of Credit shall be considered as Advances under the Notes.
     Each Letter of Credit issued for the account of Borrowers hereunder shall
     (i) be in favor of such beneficiaries as specifically requested by
     Borrowers, (ii) have an expiration date not exceeding the earlier of (a)
     one year or (b) the Maturity Date, and (iii) contain such other terms and
     provisions as may be required by issuing Lender. Each Lender (other than
     Agent) agrees that, upon issuance of any Letter of Credit hereunder, it
     shall automatically acquire a participation in the Agent's liability under
     such Letter of Credit in an amount equal to such Lender's Commitment
     Percentage of such liability, and each Lender (other than Agent) thereby
     shall absolutely, unconditionally and irrevocably assume, as primary
     obligor and not as surety, and shall be unconditionally obligated to Agent
     to pay and discharge when due, its Commitment Percentage of Agent's
     liability under such Letter of Credit. The Borrowers hereby unconditionally
     agree to pay and reimburse the Agent for the amount of each demand for
     payment under any Letter of Credit that is in substantial compliance with
     the provisions of any such Letter of Credit at or prior to the date on
     which payment is to be made by the Agent to the beneficiary thereunder,
     without presentment, demand, protest or other formalities of any kind. Upon
     receipt from any beneficiary of any Letter of Credit of any demand for
     payment under such Letter of Credit, the Agent shall promptly notify the
     Borrowers of the demand and the date upon which such payment is to be made
     by the Agent to such beneficiary in respect of such demand. Forthwith upon
     receipt of such notice from the Agent, Borrowers shall advise the Agent
     whether or not they intend
                                      15
<PAGE>

     to borrow hereunder to finance their obligations to reimburse the Agent,
     and if so, submit a Notice of Borrowing as provided in Section 2(b) hereof.
     If Borrowers fail to so advise Agent and thereafter fail to reimburse
     Agent, the Agent shall notify each Lender of the demand and the failure of
     the Borrowers to reimburse the Agent, and each Lender shall reimburse the
     Agent for its Commitment Percentage of each such draw paid by the Agent and
     unreimbursed by the Borrowers. All such amounts paid by Agent and/or
     reimbursed by the Lenders shall be treated as an Advance or Advances under
     the Commitment, which Advances shall be immediately due and payable and
     shall bear interest at the Maximum Rate.

         (d)  Procedure for Obtaining Letters of Credit.  The amount and date of
     issuance, renewal, extension or reissuance of a Letter of Credit pursuant
     to the Lenders' commitments above in Section 2(c) shall be designated by
     Borrowers' written request delivered to Agent at least three (3) Business
     Days prior to the date of such issuance, renewal, extension or reissuance.
     Concurrently with or promptly following the delivery of the request for a
     Letter of Credit, Borrowers shall execute and deliver to the Agent an
     application and agreement with respect to the Letters of Credit, said
     application and agreement to be in the form used by the Agent.  The Agent
     shall not be obligated to issue, renew, extend or reissue such Letters of
     Credit if (A) the amount thereon when added to the face amount of the
     outstanding Letters of Credit plus any Reimbursement Obligations exceeds
     Five Million Dollars ($5,000,000) or (B) the amount thereof when added to
     the Total Outstandings would exceed the Commitment.  Borrowers agree to pay
     the Agent for the benefit of the Lenders commissions for issuing the
     Letters of Credit (calculated separately for each Letter of Credit) in an
     amount equal to the greater of (i) the LIBOR Margin then in effect times
     the maximum face amount of the Letter of Credit or (ii) $500.00.  Borrowers
     further agree to pay Agent an additional fronting fee equal to one-eighth
     of one percent (0.125%) per annum on the maximum face amount of each Letter
     of Credit.  Such commissions shall be payable prior to the issuance of each
     Letter of Credit and thereafter on each anniversary date of such issuance
     while such Letter of Credit is outstanding.

         (e) Voluntary Reduction of Commitment. Subject to the provisions of
     Section 5(e) hereof, the Borrowers may at any time, or from time to time,
     upon not less than three (3) Business Days' prior written notice to Agent,
     reduce or terminate the Commitment; provided, however, that (i) each
     reduction in the Commitment must be in the amount of $1,000,000 or more, in
     increments of $1,000,000 and (ii) each reduction must be accompanied by a
     prepayment of the Notes in the amount by which the outstanding principal
     balance of the Notes exceeds the Commitment as reduced pursuant to this
     Section 2.

         (f) Mandatory Commitment Reductions. The Borrowing Base shall be
     reduced from time to time by the amount of any prepayment required by
     Section 12(r) hereof upon the sale of assets. If, as a result of any such
     reduction in the Borrowing Base, the Total Outstandings ever exceed the
     Borrowing Base then in effect, the

                                      16
<PAGE>

     Borrowers shall make the mandatory prepayment of principal required
     pursuant to Section 9(b) hereof.

         (g) Several Obligations. The obligations of the Lenders under the
     Commitments are several and not joint. The failure of any Lender to make an
     Advance required to be made by it shall not relieve any other Lender of its
     obligation to make its Advance, and no Lender shall be responsible for the
     failure of any other Lender to make the Advance to be made by such other
     Lender. No Lender shall be required to lend hereunder any amount in excess
     of its legal lending limit.

         (h)  Type and Number of Advances. Any Advance of the Commitment may be
     a Base Rate Loan or a LIBOR Loan, or a combination thereof, as selected by
     the Borrowers pursuant to Section 4 hereof. The total number of Tranches
     which may be outstanding at any time shall never exceed four (4).

         (i) Limited Liability of Enex and Classic. While the obligations of the
     Borrowers under the Agreement and the Notes shall be joint and several
     obligations of 3TEC, Enex and Classic, the liability of Enex and Classic
     thereunder shall be limited to the maximum amount of liability that can be
     incurred without rendering the obligations of Enex and Classic under the
     Loan Documents voidable under applicable law relating to fraudulent
     conveyance or fraudulent transfer, and not for any greater amount.

3.  NOTES EVIDENCING LOANS.  The loans described above in Section 2 shall be
evidenced by promissory notes of Borrowers as follows:

         (a) Form of Notes. The Loan shall be evidenced by a Note or Notes in
     the aggregate face amount of $250,000,000, and shall be in the form of
     Exhibit "B" hereto with appropriate insertions (each a "Note").
     Notwithstanding the face amount of the Notes, the actual principal amount
     due from the Borrowers to Lenders on account of the Notes, as of any date
     of computation, shall be the sum of Advances then and theretofore made on
     account thereof, less all principal payments actually received by Lenders
     in collected funds with respect thereto. Although the Notes may be dated as
     of the Effective Date, interest in respect thereof shall be payable only
     for the period during which the loans evidenced thereby are outstanding
     and, although the stated amount of the Notes may be higher, the Notes shall
     be enforceable, with respect to Borrowers' obligation to pay the principal
     amount thereof, only to the extent of the unpaid principal amount of the
     Loans. Irrespective of the face amount of the Notes, no Lender shall ever
     be obligated to advance on the Commitment any amount in excess of its
     Commitment then in effect.

         (b) Issuance of Additional Notes. At the Effective Date there shall be
     outstanding Notes in the aggregate face amount of $250,000,000 payable to
     the order of Lenders. From time to time new Notes may be issued to other
     Lenders as such Lenders become parties to this Agreement. Upon request from
     Agent, the Borrowers shall execute and deliver to Agent any such new or
     additional Notes. From time to time as

                                      17
<PAGE>

     new Notes are issued the Agent shall require that each Lender exchange its
     Note(s) for newly issued Note(s) to better reflect the extent of each
     Lender's Commitments hereunder.

         (c) Interest Rates. The unpaid principal balance of the Notes shall
     bear interest from time to time as set forth in Section 4 hereof.

         (d) Payment of Interest. Interest on the Notes shall be payable on each
     Interest Payment Date.

         (e) Payment of Principal. Principal of the Note or Notes shall be due
     and payable to the Agent for the ratable benefit of the Lenders on the
     Maturity Date unless earlier due in whole or in part as a result of an
     acceleration of the amount due or pursuant to the mandatory prepayment
     provisions of Sections 2(f) and 9(b) hereof.

         (f) Payment to Lenders. Each Lender's Pro Rata Part of payment or
     prepayment of the Loans shall be directed by wire transfer to such Lender
     by the Agent at the address provided to the Agent for such Lender for
     payments no later than 2:00 p.m., Dallas, Texas, time on the Business Day
     such payments or prepayments are deemed hereunder to have been received by
     Agent; provided, however, in the event that any Lender shall have failed to
     make an Advance as contemplated under Section 2 hereof (a "Defaulting
     Lender") and the Agent or another Lender or Lenders shall have made such
     Advance, payment received by Agent for the account of such Defaulting
     Lender or Lenders shall not be distributed to such Defaulting Lender or
     Lenders until such Advance or Advances shall have been repaid in full to
     the Lender or Lenders who funded such Advance or Advances. Any payment or
     prepayment received by Agent at any time after 12:00 noon, Dallas, Texas,
     time on a Business Day shall be deemed to have been received on the next
     Business Day. Interest shall cease to accrue on any principal as of the end
     of the day preceding the Business Day on which any such payment or
     prepayment is deemed hereunder to have been received by Agent. If Agent
     fails to transfer any principal amount to any Lender as provided above,
     then Agent shall promptly direct such principal amount by wire transfer to
     such Lender.

         (g) Sharing of Payments, Etc. If any Lender shall obtain any payment
     (whether voluntary, involuntary, or otherwise) on account of the Loans,
     (including, without limitation, any set-off) which is in excess of its Pro
     Rata Part of payments on either of the Loans, as the case may be, obtained
     by all Lenders, such Lender shall purchase from the other Lenders such
     participation as shall be necessary to cause such purchasing Lender to
     share the excess payment pro rata with each of them; provided that, if all
     or any portion of such excess payment is thereafter recovered from such
     purchasing Lender, the purchase shall be rescinded and the purchase price
     restored to the extent of the recovery. The Borrowers agree that any Lender
     so purchasing a participation from another Lender pursuant to this Section
     may, to the fullest extent permitted by law, exercise all of its rights of
     payment (including the right of offset) with respect to such

                                      18
<PAGE>

     participation as fully as if such Lender were the direct creditor of the
     Borrowers in the amount of such participation.

         (h)  Non-Receipt of Funds by the Agent.  Unless the Agent shall have
     been notified by a Lender or the Borrowers (the "Payor") prior to the date
     on which such Lender is to make payment to the Agent of the proceeds of a
     Loan to be made by it hereunder or the Borrowers are to make a payment to
     the Agent for the account of one or more of the Lenders, as the case may be
     (such payment being herein called the "Required Payment"), which notice
     shall be effective upon receipt, that the Payor does not intend to make the
     Required Payment to the Agent, the Agent may assume that the Required
     Payment has been made and may, in reliance upon such assumption (but shall
     not be required to), make the amount thereof available to the intended
     recipient on such date and, if the Payor has not in fact made the Required
     Payment to the Agent, the recipient of such payment shall, on demand, pay
     to the Agent the amount made available to it together with interest thereon
     in respect of the period commencing on the date such amount was made
     available by the Agent until the date the Agent recovers such amount at the
     rate applicable to such portion of the applicable Loan.

     4.  INTEREST RATES.

         (a)  Options.

              (i) Base Rate Loans. On all Base Rate Loans the Borrowers agree to
     pay interest on the Notes calculated on the basis of the actual days
     elapsed in a year consisting of 365, or if appropriate, 366 days with
     respect to the unpaid principal amount of each Base Rate Loan from the date
     the proceeds thereof are made available to Borrowers until maturity
     (whether by acceleration or otherwise), at a varying rate per annum equal
     to the lesser of (i) the Maximum Rate (defined herein), or (ii) the Base
     Rate. Subject to the provisions of this Agreement as to prepayment, the
     principal of the Notes representing Base Rate Loans shall be payable as
     specified in Section 3(e) hereof and the interest in respect of each Base
     Rate Loan shall be payable on each Interest Payment Date. Past due
     principal and, to the extent permitted by law, past due interest in respect
     to each Base Rate Loan, shall bear interest, payable on demand, at a rate
     per annum equal to the Maximum Rate.

              (ii) LIBOR Loans. On all LIBOR Loans the Borrowers agree to pay
     interest calculated on the basis of a year consisting of 360 days with
     respect to the unpaid principal amount of each LIBOR Loan from the date the
     proceeds thereof are made available to Borrowers until maturity (whether by
     acceleration or otherwise), at a varying rate per annum equal to the lesser
     of (i) the Maximum Rate, or (ii) the LIBOR Rate. Subject to the provisions
     of this Agreement with respect to prepayment, the principal of the Notes
     shall be payable as specified in Section 3(e) hereof and the interest with
     respect to each LIBOR Loan shall be

                                      19
<PAGE>

     payable on each Interest Payment Date. Past due principal and, to the
     extent permitted by law, past due interest shall bear interest, payable on
     demand, at a rate per annum equal to the Maximum Rate. Upon three (3)
     Business Days' written notice prior to the making by the Lenders of any
     LIBOR Loan (in the case of the initial Interest Period therefor) or the
     expiration date of each succeeding Interest Period (in the case of
     subsequent Interest Periods therefor), Borrowers shall have the option,
     subject to compliance by Borrowers with all of the provisions of this
     Agreement, as long as no Event of Default exists, to specify whether the
     Interest Period commencing on any such date shall be a one (1), three (3)
     or six (6) month period. If Agent shall not have received timely notice of
     a designation of such Interest Period as herein provided, Borrowers shall
     be deemed to have elected to convert all maturing LIBOR Loans to Base Rate
     Loans.

         (b) Interest Rate Determination. The Agent shall determine each
     interest rate applicable to the Loans hereunder. The Agent shall give
     prompt notice to the Borrowers and the Lenders of each rate of interest so
     determined and its determination thereof shall be conclusive absent error.

         (c) Conversion Option. Borrowers may elect from time to time (i) to
     convert all or any part of their LIBOR Loans to Base Rate Loans by giving
     Agent irrevocable notice of such election in writing prior to 10:00 a.m.
     (Dallas, Texas time) on the conversion date and such conversion shall be
     made on the requested conversion date, provided that any such conversion of
     LIBOR Loan shall only be made on the last day of the Interest Period with
     respect thereof, (ii) to convert all or any part of their Base Rate Loans
     to LIBOR Loans by giving the Agent irrevocable written notice of such
     election three (3) Business Days prior to the proposed conversion and such
     conversion shall be made on the requested conversion date or, if such
     requested conversion date is not a Business Day, on the next succeeding
     Business Day. Any such conversion shall not be deemed to be a prepayment of
     any of the loans for purposes of this Agreement on the Notes.

         (d) Recoupment. If at any time the applicable rate of interest selected
     pursuant to Sections 4(a)(i) or 4(a)(ii) above shall exceed the Maximum
     Rate, thereby causing the interest on the Notes to be limited to the
     Maximum Rate, then any subsequent reduction in the interest rate so
     selected or subsequently selected shall not reduce the rate of interest on
     the Notes below the Maximum Rate until the total amount of interest accrued
     on the Note equals the amount of interest which would have accrued on the
     Notes if the rate or rates selected pursuant to Sections 4(a)(i) or (ii),
     as the case may be, had at all times been in effect.

5.       SPECIAL PROVISIONS RELATING TO LOANS.

         (a) Unavailability of Funds or Inadequacy of Pricing. In the event
     that, in connection with any proposed LIBOR Loan, the Agent reasonably
     determines, which

                                      20
<PAGE>

     determination shall, absent manifest error, be final, conclusive and
     binding upon all parties, due to changes in circumstances since the date
     hereof, adequate and fair means do not exist for determining the LIBOR Rate
     or such rate will not accurately reflect the costs to the Lenders of
     funding LIBOR Loan for such Interest Period, the Agent shall give notice of
     such determination to the Borrowers and the Lenders, whereupon, until the
     Agent notifies the Borrowers and the Lenders that the circumstances giving
     rise to such suspension no longer exist, the obligations of the Lenders to
     make, continue or convert Loan into LIBOR Loan shall be suspended, and all
     loans to Borrowers shall be Base Rate Loan during the period of suspension.

         (b) Change in Laws. If at any time any new law or any change in
     existing laws or in the interpretation of any new or existing laws shall
     make it unlawful for any Lender to make or continue to maintain or fund
     LIBOR Loan hereunder, then such Lender shall promptly notify Borrowers in
     writing and such Lender's obligation to make, continue or convert Loan into
     LIBOR Loan under this Agreement shall be suspended until it is no longer
     unlawful for such Lender to make or maintain LIBOR Loan. Upon receipt of
     such notice, Borrowers shall either repay the outstanding LIBOR Loan owed
     to the Lenders, without penalty, on the last day of the current Interest
     Periods (or, if any Lender may not lawfully continue to maintain and fund
     such LIBOR Loan, immediately), or Borrowers may convert such LIBOR Loan at
     such appropriate time to Base Rate Loan.

         (c)  Increased Cost or Reduced Return.

              (i) If, after the date hereof, the adoption of any applicable law,
     rule, or regulation, or any change in any applicable law, rule, or
     regulation, or any change in the interpretation or administration thereof
     by any governmental authority, central bank, or comparable agency charged
     with the interpretation or administration thereof, or compliance by any
     Lender with any request or directive (whether or not having the force of
     law) of any such governmental authority, central bank, or comparable
     agency:

                  (A) shall subject such Lender to any tax, duty, or other
     charge with respect to any LIBOR Loan, its Notes, or its obligation to make
     LIBOR Loan, or change the basis of taxation of any amounts payable to such
     Lender under this Agreement or its Notes in respect of any LIBOR Loan
     (other than franchise taxes and taxes imposed on the overall net income of
     such Lender);

                  (B) shall impose, modify, or deem applicable any reserve,
     special deposit, assessment, or similar requirement (other than reserve
     requirements, if any, taken into account in the determination of the LIBOR
     Rate) relating to any extensions of credit or other assets of, or any
     deposits with or other liabilities or

                                      21
<PAGE>

     commitments of, such Lender, including the Commitment of such Lender
     hereunder; or

                  (C) shall impose on such Lender or on the London interbank
     market any other condition affecting this Agreement or its Notes or any of
     such extensions of credit or liabilities or commitments;

     and the result of any of the foregoing is to increase the cost to such
     Lender of making, converting into, continuing, or maintaining any LIBOR
     Loan or to reduce any sum received or receivable by such Lender under this
     Agreement or its Notes with respect to any LIBOR Loan, then Borrowers shall
     pay to such Lender on demand such amount or amounts as will reasonably
     compensate such Lender for such increased cost or reduction. If any Lender
     requests compensation by Borrowers under this Section 5(c), Borrowers may,
     by notice to such Lender (with a copy to Agent), suspend the obligation of
     such Lender to make or continue LIBOR Loan, or to convert all or part of
     the Base Rate Loan owing to such Lender to LIBOR Loan, until the event or
     condition giving rise to such request ceases to be in effect (in which case
     the provisions of Section 5(c) shall be applicable); provided that such
     suspension shall not affect the right of such Lender to receive the
     compensation so requested.

              (ii) If, after the date hereof, any Lender shall have determined
     that the adoption of any applicable law, rule, or regulation regarding
     capital adequacy or any change therein or in the interpretation or
     administration thereof by any governmental authority, central bank, or
     comparable agency charged with the interpretation or administration
     thereof, or any request or directive regarding capital adequacy (whether or
     not having the force of law) of any such governmental authority, central
     bank, or comparable agency, has or would have the effect of reducing the
     rate of return on the capital of such Lender or any corporation controlling
     such Lender as a consequence of such Lender's obligations hereunder to a
     level below that which such Lender or such corporation could have achieved
     but for such adoption, change, request, or directive (taking into
     consideration its policies with respect to capital adequacy), then from
     time to time upon demand Borrowers shall pay to such Lender such additional
     amount or amounts as will reasonably compensate such Lender for such
     reduction.

              (iii) Each Lender shall promptly notify Borrowers and Agent of any
     event of which it has knowledge, occurring after the date hereof, which
     will entitle such Lender to compensation pursuant to this Section 5(c) and
     will designate a separate lending office, if applicable, if such
     designation will avoid the need for, or reduce the amount of, such
     compensation and will not, in the judgment of such Lender, be otherwise
     disadvantageous to it. Any Lender claiming compensation under this Section
     5(c) shall furnish to Borrowers and

                                      22
<PAGE>

     Agent a statement setting forth the additional amount or amounts to be paid
     to it hereunder which shall be conclusive in the absence of manifest error.
     In determining such amount, such Lender may use any reasonable averaging
     and attribution methods.

              (iv) Any Lender giving notice to the Borrowers through the Agent,
     pursuant to Sections 3(k) or 5(c) shall give to the Borrowers a statement
     signed by an officer of such Lender setting forth in reasonable detail the
     basis for, and the calculation of such additional cost, reduced payments or
     capital requirements, as the case may be, and the additional amounts
     required to compensate such Lender therefor.

              (v)  Within five (5) Business Days after receipt by the Borrowers
     of any notice referred to in Sections 3(k) or 5(c), the Borrowers shall pay
     to the Agent for the account of the Lender issuing such notice such
     additional amounts as are required to compensate such Lender for the
     increased cost, reduce payments or increase capital requirements identified
     therein, as the case may be.

         (d)  Discretion of Lender as to Manner of Funding.  Notwithstanding any
     provisions of this Agreement to the contrary, each Lender shall be entitled
     to fund and maintain its funding of all or any part of its Loan in any
     manner it sees fit, it being understood, however, that for the purposes of
     this Agreement all determinations hereunder shall be made as if each
     Lender had actually funded and maintained each LIBOR Loan through the
     purchase of deposits having a maturity corresponding to the last day of the
     Interest Period applicable to such LIBOR Loan and bearing an interest rate
     to the applicable interest rate for such LIBOR Period.

         (e) Breakage Fees. Without duplication under any other provision
     hereof, if any Lender incurs any loss, cost or expense including, without
     limitation, any loss of profit and loss, cost, expense or premium
     reasonably incurred by reason of the liquidation or re-employment of
     deposits or other funds acquired by such Lender to fund or maintain any
     LIBOR Loan or the relending or reinvesting of such deposits or amounts paid
     or prepaid to the Lenders as a result of any of the following events other
     than any such occurrence as a result in the change of circumstances
     described in Sections 5(a) and (b):

              (i) any payment, prepayment or conversion of a LIBOR Loan on a
     date other than the last day of its Interest Period (whether by
     acceleration, prepayment or otherwise);

              (ii) any failure to make a principal payment of a LIBOR Loan on
     the due date thereof; or

                                      23
<PAGE>

              (iii) any failure by the Borrowers to borrow, continue, prepay or
     convert to a LIBOR Loan on the dates specified in a notice given pursuant
     to Section 2(b) or 4(c) hereof;

     then the Borrowers shall pay to such Lender such amount as will reimburse
     such Lender for such loss, cost or expense.  If any Lender makes such a
     claim for compensation, it shall furnish to Borrowers and Agent a statement
     setting forth the amount of such loss, cost or expense in reasonable detail
     (including an explanation of the basis for and the computation of such
     loss, cost or expense) and the amounts shown on such statement shall be
     conclusive and binding absent manifest error.

     6.  COLLATERAL SECURITY.  To secure the performance by Borrowers of their
obligations hereunder, and under the Notes and Security Instruments, whether now
or hereafter incurred, matured or unmatured, direct or contingent, joint or
several, or joint and several, including extensions, modifications, renewals and
increases thereof, and substitutions therefore, Borrowers  have heretofore
granted and shall herewith grant and assign to Agent for the ratable benefit of
the Lenders a first and prior Lien on certain of their Oil and Gas Properties,
certain related equipment, oil and gas inventory and proceeds of the foregoing.
The Oil and Gas Properties heretofore and herewith mortgaged to the Agent shall
represent not less than 80% of the Engineered Value (as hereinafter defined) of
Borrowers' Oil and Gas Properties as of the Effective Date.  Obligations arising
from agreements arising from Rate Management Transactions between Borrowers and
one or more of the Lenders or an Affiliate of any of the Lenders providing for
the hedging, forward sale or swap of crude oil or natural gas or interest rate
protection shall be secured by the Collateral (as hereinafter defined) on a pari
passu basis with the indebtedness and obligations of the Borrowers under the
Loan Documents.  All Oil and Gas Properties and other collateral in which
Borrowers herewith grant or hereafter grant to Agent for the ratable benefit of
the Lenders a first and prior Lien (to the satisfaction of the Agent) in
accordance with this Section 6 or the Oil and Gas Properties and other
collateral in which the Agent has acquired an interest for the ratable benefit
of the Lenders from Compass Bank, as such properties and interests are from time
to time constituted, are hereinafter collectively called the "Collateral".

     The granting and assigning of such security interests and Liens by
Borrowers shall be pursuant to Security Instruments in form and substance
reasonably satisfactory to the Agent.  Concurrently with the delivery of each of
the Security Instruments or within a reasonable time thereafter, Borrowers shall
have furnished to the Agent mortgage and title opinions and other title
information satisfactory to Agent with respect to the title and Lien status of
Borrowers' interests in not less than 90% of the Engineered Value of the Oil and
Gas Properties covered by the Security Instruments as Agent shall have
designated.  "Engineered Value" for this purpose shall mean future net revenues
discounted at the discount rate being used by the Agent as of the date of any
such determination utilizing the pricing parameters used in the engineering
report furnished to the Agent for the ratable benefit of the Lenders, pursuant
to Sections 7 and 12 hereof.  Borrowers will cause to be executed and delivered
to the Agent, in the future, additional Security Instruments if the Agent
reasonably deems such are necessary to insure perfection or

                                      24
<PAGE>

maintenance of Lenders' security interests and Liens in the Oil and Gas
Properties or any part thereof.

     7.  BORROWING BASE.

         (a)  Initial Borrowing Base. At the Effective Date, the Borrowing Base
     shall be 175,000,000.

         (b) Subsequent Determinations of Borrowing Base. Subsequent
     determinations of the Borrowing Base shall be made by the Lenders at least
     semi-annually on May 1 and November 1 of each year beginning May 1, 2001 or
     as Unscheduled Redeterminations. The Borrowers shall furnish to the Lenders
     as soon as possible but in any event no later than April 1 of each year,
     beginning April 1, 2001, with an Engineering Report in form and substance
     satisfactory to the Agent prepared by an independent petroleum engineering
     firm or firms acceptable to Agent covering the Oil and Gas Properties
     utilizing economic and pricing parameters used by Agent as established from
     time to time, together with such other information concerning the value of
     the Oil and Gas Properties as the Agent shall deem necessary to determine
     the value of the Oil and Gas Properties. By October 1 of each year,
     beginning October 1, 2001, or within thirty (30) days after either (i)
     receipt of notice from Agent that the Lenders require an Unscheduled
     Redetermination, or (ii) the Borrowers give notice to Agent of their desire
     to have an Unscheduled Redetermination performed, the Borrowers shall
     furnish to the Lenders an engineering report in form and substance
     satisfactory to Agent prepared by Borrowers' in-house engineering staff
     valuing the Oil and Gas Properties utilizing economic and pricing
     parameters used by the Agent as established from time to time, together
     with such other information, reports and data concerning the value of the
     Oil and Gas Properties as Agent shall deem reasonably necessary to
     determine the value of such Oil and Gas Properties. Agent shall by written
     notice to the Borrowers no later than May 1 and November 1 of each year, or
     within a reasonable time thereafter (herein called the "Determination
     Date"), notify the Borrowers of the designation by the Lenders of the new
     Borrowing Base for the period beginning on such Determination Date and
     continuing until, but not including, the next Determination Date. If an
     Unscheduled Redetermination is made by the Lenders, the Agent shall notify
     the Borrowers within a reasonable time after receipt of all requested
     information of the new Borrowing Base, and such new Borrowing Base shall
     continue until the next Determination Date. If the Borrowers do not furnish
     all such information, reports and data by any date specified in this
     Section 7(b), unless such failure is of no fault of the Borrowers, the
     Lenders may nonetheless designate the Borrowing Base at any amounts which
     the Lenders in their reasonable discretion determine and may redesignate
     the Borrowing Base from time to time thereafter until the Lenders receive
     all such information, reports and data, whereupon the Lenders shall
     designate a new Borrowing Base as described above. Each Lender shall
     determine the amount of the Borrowing Base based upon the loan collateral
     value which such Lender in its reasonable discretion (using such
     methodology, assumptions and discounts rates as such Lender customarily
     uses in assigning collateral

                                      25
<PAGE>

     value to oil and gas properties, oil and gas gathering systems, gas
     processing and plant operations) assigns to such Oil and Gas Properties of
     the Borrowers at the time in question and based upon such other credit
     factors consistently applied (including, without limitation, the assets,
     liabilities, cash flow, business, properties, prospects, management and
     ownership of the Borrowers and their affiliates) as such Lender customarily
     considers in evaluating similar oil and gas credits, but such Lender in its
     discretion shall not be required to give any additional positive value to
     any Oil and Gas Property over the current economic and pricing parameters
     used by such Lender for such Determination Date which additional value is
     derived directly from a hedging, forward sale or swap agreement covering
     such Oil and Gas Property as of the date of such determination. All
     determinations or Unscheduled Redeterminations of the Borrowing Base
     require the approval of Majority Lenders; provided, however, that
     notwithstanding anything to the contrary herein, the amount of the
     Borrowing Base may not be increased, without the approval of all Lenders.
     If the Lenders cannot otherwise agree on the Borrowing Base, the Agent
     shall notify each of the Lenders of such fact or facts and each Lender will
     submit within five (5) days thereafter its proposed Borrowing Base. The
     redetermined Borrowing Base shall be then determined based upon the
     weighted arithmetic average of the proposed amounts submitted by each
     Lender, said proposals to be weighted according to each Lender's
     Commitment. If at any time any of the Oil and Gas Properties are sold, the
     Borrowing Base then in effect shall automatically be reduced by a sum equal
     to the amount of prepayment, if any, required to be made pursuant to
     Section 12(r) hereof. The Borrowing Base shall be additionally reduced from
     time to time pursuant to the provisions of Sections 2(e) and 2(f) hereof.
     It is expressly understood that the Lenders have no obligation to designate
     the Borrowing Base at any particular amounts, except in the exercise of
     their discretion, whether in relation to the Commitment or otherwise.
     Provided, however, that the Lenders shall not have the obligation to
     designate a Borrowing Base in an amount in excess of the Commitment.

                                      26
<PAGE>

     8.  FEES.

         (a) Unused Commitment Fee. The Borrowers shall pay to Agent for the
     ratable benefit of the Lenders an unused commitment fee (the "Unused
     Commitment Fee") equivalent to the Unused Commitment Fee Rate times the
     daily average of the unadvanced amount of the Commitment. Such Unused
     Commitment Fee shall be calculated on the basis of a year consisting of 360
     days. The Unused Commitment Fee shall be payable in arrears on the last
     Business Day of each calendar quarter beginning March 30, 2001 with the
     final fee payment due on the Maturity Date for any period then ending for
     which the Unused Commitment Fee shall not have been theretofore paid. In
     the event the Commitment terminates on any date prior to the end of any
     such monthly period, the Borrowers shall pay to the Agent for the ratable
     benefit of the Lenders, on the date of such termination, the total Unused
     Commitment Fee due for the period in which such termination occurs.

         (b) The Letter of Credit Fee. Borrowers shall pay to the Agent the
     Letter of Credit fees required above in Section 2(d).

     9.  PREPAYMENTS.

         (a) Voluntary Prepayments. Subject to the provisions of Section 5(e)
     hereof, the Borrowers may at any time and from time to time, without
     penalty or premium, prepay the Notes, in whole or in part. Each such
     prepayment shall be made on at least three (3) Business Days' notice to
     Agent in the case of LIBOR Loan Tranches and without notice in the case of
     Base Rate Loans and shall be in a minimum amount of (i) $500,000 or any
     whole multiple of $100,000 in excess thereof (or the unpaid balance of the
     Notes, whichever is less), for Base Rate Loans, plus accrued interest
     thereon and (ii) $1,000,000 or any whole multiple of $100,000 in excess
     thereof (or the unpaid balance on the Notes, whichever is less) for LIBOR
     Loans, plus accrued interest thereon to the date of prepayment.

         (b) Mandatory Prepayment For Borrowing Base Deficiency. In the event
     the Total Outstandings ever exceed the Borrowing Base as determined by
     Lenders pursuant to Section 7(b) hereof, the Borrowers shall, within thirty
     (30) days after written notification from the Agent, either (A) by
     instruments reasonably satisfactory in form and substance to the Lender,
     provide the Agent with collateral with value and quality in amounts
     satisfactory to all of the Lenders in their discretion in order to increase
     the Borrowing Base by an amount at least equal to such excess, or (B)
     prepay, without premium or penalty, the principal amount of the Notes in an
     amount at least equal to such excess plus accrued interest thereon to the
     date of prepayment, or (C) prepay, without premium or penalty, the
     principal amount of such excess in five (5) equal monthly installments to
     be applied to principal plus accrued interest thereon with the first such
     monthly payment being due upon the 30th day after receipt of notice of such
     deficiency. If the Total Outstandings ever exceed the Commitment as a
     result of any required

                                      27
<PAGE>

     reduction in the Commitment, then in such event, Borrowers shall, upon
     written notice, immediately prepay the principal amount of the Notes in an
     amount at least equal to such excess plus accrued interest to the date of
     prepayment.

     10. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to enter
into this Agreement, the Borrowers represent and warrant to the Lenders (which
representations and warranties will survive the delivery of the Notes) that:

         (a) Creation and Existence. Each Borrower is a corporation duly
     organized, validly existing and in good standing under the laws of the
     jurisdiction in which it was formed and is duly qualified in all
     jurisdictions wherein failure to qualify may result in a Material Adverse
     Effect. Each Borrower has all power and authority to own its properties and
     assets and to transact the business in which it is engaged.

         (b) Power and Authority. Each Borrower is duly authorized and empowered
     to create and issue the Notes; and is duly authorized and empowered to
     execute, deliver and perform the Loan Documents, including this Agreement;
     and all corporate action on each Borrower's part requisite for the due
     creation and issuance of the Notes and for the due execution, delivery and
     performance of the Loan Documents, including this Agreement, has been duly
     and effectively taken.

         (c) Binding Obligations. This Agreement does, and the Notes and other
     Loan Documents upon their creation, issuance, execution and delivery will,
     constitute valid and binding obligations of each Borrower, enforceable in
     accordance with its respective terms (except that enforcement may be
     subject to any applicable bankruptcy, insolvency, or similar debtor relief
     laws now or hereafter in effect and relating to or affecting the
     enforcement of creditors' rights generally).

         (d)  No Legal Bar or Resultant Lien.  The Notes and the Loan Documents,
     including this Agreement, do not and will not, to the best of each
     Borrower's knowledge violate any provisions of any contract, agreement,
     law, regulation, order, injunction, judgment, decree or writ to which any
     Borrower is subject, or result in the creation or imposition of any lien or
     other encumbrance upon any assets or properties of any Borrower, other than
     those contemplated by this Agreement.

         (e) No Consent. The execution, delivery and performance by each
     Borrower of the Notes and the Loan Documents, including this Agreement,
     does not require the consent or approval of any other person or entity,
     including without limitation any regulatory authority or governmental body
     of the United States or any state thereof or any political subdivision of
     the United States or any state thereof except for consents required for
     federal, state and, in some instances, private leases, right of ways and
     other conveyances or encumbrances of oil and gas leases.

                                      28
<PAGE>

         (f) Financial Condition. The unaudited consolidated Financial
     Statements of 3TEC dated September 30, 2000, which have been delivered to
     Lenders are complete and correct in all material respects, and fully and
     accurately reflect in all material respects the financial condition and
     results of the operations of the Borrowers on a consolidated basis as of
     the date or dates and for the period or periods stated subject to normal
     year-end adjustments and provided that such Financial Statements do not
     contain footnotes. No change has since occurred in the condition, financial
     or otherwise, of any Borrower which is reasonably expected to have a
     Material Adverse Effect, except as disclosed to the Lenders in Schedule "2"
     attached hereto.

         (g) Liabilities. No Borrower has any material liability, direct or
     contingent, except as disclosed to the Lenders in the Financial Statements
     and on Schedule "3" attached hereto. No unusual or unduly burdensome
     restrictions, restraint, or hazard exists by contract, law or governmental
     regulation or otherwise relative to the business, assets or properties of
     any Borrower which is reasonably expected to have a Material Adverse
     Effect.

         (h) Litigation. Except as described in the Financial Statements, or as
     otherwise disclosed to the Lenders in Schedule "4" attached hereto, there
     is no litigation, legal or administrative proceeding, investigation or
     other action of any nature pending or, to the knowledge of the officers of
     any of the Borrowers threatened against or affecting any of the Borrowers
     which involves the possibility of any judgment or liability not fully
     covered by insurance, and which is reasonably expected to have a Material
     Adverse Effect.

         (i) Taxes; Governmental Charges. Each Borrower has filed all tax
     returns and reports required to be filed and has paid all taxes,
     assessments, fees and other governmental charges levied upon it or its
     assets, properties or income which are due and payable, including interest
     and penalties, the failure of which to pay could reasonably be expected to
     have a Material Adverse Effect, except such as are being contested in good
     faith by appropriate proceedings and for which adequate reserves for the
     payment thereof as required by GAAP has been provided and levy and
     execution thereon have been stayed and continue to be stayed.

         (j) Titles, Etc. Each Borrower has good and defensible title to all of
     its assets, including without limitation, the Oil and Gas Properties, free
     and clear of all liens or other encumbrances except Permitted Liens.

         (k) Defaults. No Borrower is in default and no event or circumstance
     has 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 agreement
     or instrument to which any Borrower is a party in any respect that would be
     reasonably expected to have a Material Adverse Effect. No Event of Default
     hereunder has occurred and is continuing.

                                      29
<PAGE>

         (l) Casualties; Taking of Properties. Since the dates of the latest
     Financial Statements of the Borrowers delivered to Lenders, neither the
     business nor the assets or properties of any Borrower has been affected (to
     the extent it is reasonably likely to cause a Material Adverse Effect), as
     a result of any fire, explosion, earthquake, flood, drought, windstorm,
     accident, strike or other labor disturbance, embargo, requisition or taking
     of property or cancellation of contracts, permits or concessions by any
     domestic or foreign government or any agency thereof, riot, activities of
     armed forces or acts of God or of any public enemy.

         (m) Use of Proceeds; Margin Stock. The proceeds of the Commitment may
     be used by the Borrowers for the purposes of (i) refinance existing
     indebtedness, (ii) acquisition and development of oil and gas properties,
     (iii) Letters of Credit, (iv) working capital and (v) general corporate
     purposes. None of the Borrowers are engaged principally or as one of their
     important activities in the business of extending credit for the purpose of
     purchasing or carrying any "margin stock " as defined in Regulation U of
     the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221),
     or for the purpose of reducing or retiring any indebtedness which was
     originally incurred to purchase or carry a margin stock or for any other
     purpose which might constitute this transaction a "purpose credit" within
     the meaning of said Regulation U.

          No Borrower nor any person or entity acting on behalf of the Borrowers
     has taken or will take any action which might cause the loans hereunder or
     any of the Loan Documents, including this Agreement, to violate Regulation
     U or any other regulation of the Board of Governors of the Federal Reserve
     System or to violate the Securities Exchange Act of 1934 or any rule or
     regulation thereunder, in each case as now in effect or as the same may
     hereafter be in effect.

         (n) Location of Business and Offices. The principal place of business
     and chief executive offices of the each Borrower is located at the address
     stated in Section 17 hereof.

         (o) Compliance with the Law. To the best of each Borrower's knowledge,
     no Borrower:

             (i) is in violation of any law, judgment, decree, order, ordinance,
     or governmental rule or regulation to which Borrower, or any of its assets
     or properties are subject; or

             (ii) has failed to obtain any license, permit, franchise or other
     governmental authorization necessary to the ownership of any of its assets
     or properties or the conduct of its business;

     which violation or failure is reasonably expected to have a Material
     Adverse Effect.

                                      30
<PAGE>

         (p) No Material Misstatements. No information, exhibit or report
     furnished by any Borrower to the Lenders in connection with the negotiation
     of this Agreement or in the preparation of the offering memo contained any
     material misstatement of fact or omitted to state a material fact or any
     fact necessary to make the statement contained therein not materially
     misleading.

         (q) Not A Utility. No Borrower is an entity engaged in the State of
     Texas in the (i) generation, transmission, or distribution and sale of
     electric power; (ii) transportation, distribution and sale through a local
     distribution system of natural or other gas for domestic, commercial,
     industrial, or other use; (iii) provision of telephone or telegraph service
     to others; (iv) production, transmission, or distribution and sale of steam
     or water; (v) operation of a railroad; or (vii) provision of sewer service
     to others.

         (r) ERISA. Each Borrower is in compliance in all material respects with
     the applicable provisions of ERISA, and no "reportable event", as such term
     is defined in Section 403 of ERISA, has occurred with respect to any Plan
     of any Borrower.

         (s) Public Utility Holding Company Act. No Borrower is a "holding
     company", or "subsidiary company" of a "holding company", or an "affiliate"
     of a "holding company" or of a "subsidiary company" of a "holding company",
     or a "public utility" within the meaning of the Public Utility Holding
     Company Act of 1935, as amended.

         (t) Subsidiaries. Each of the Borrower's Subsidiaries are listed on
     Schedule "5" hereto.

         (u) Environmental Matters. Except as disclosed on Schedule "6", no
     Borrower (i) has received notice or otherwise learned of any Environmental
     Liability which would be reasonably likely to individually or in the
     aggregate have a Material Adverse Effect arising in connection with (A) any
     non-compliance with or violation of the requirements of any Environmental
     Law or (B) the release or threatened release of any toxic or hazardous
     waste into the environment, (ii) has received notice of any threatened or
     actual liability in connection with the release or notice of any threatened
     release of any toxic or hazardous waste into the environment which would be
     reasonably likely to individually or in the aggregate have a Material
     Adverse Effect or (iii) has received notice or otherwise learned of any
     federal or state investigation evaluating whether any remedial action is
     needed to respond to a release or threatened release of any toxic or
     hazardous waste into the environment for which any Borrower is or may be
     liable which may reasonably be expected to result in a Material Adverse
     Effect.

         (v) Liens. Except (i) as disclosed on Schedule "1" hereto and (ii) for
     Permitted Liens, the assets and properties of the each Borrower are free
     and clear of all liens and encumbrances.

                                      31
<PAGE>

     11. CONDITIONS OF LENDING.

         (a)  The effectiveness of this Agreement, and the obligation to make
     the initial Advance or issue any initial Letter of Credit under the
     Commitment shall be subject to satisfaction of the following conditions
     precedent:

              (i) Execution and Delivery. Each Borrower shall have executed and
         delivered the Agreement, the Notes and other required Loan Documents,
         all in form and substance satisfactory to the Agent;

              (ii) Legal Opinion. The Agent shall have received from Borrowers'
         legal counsel a favorable legal opinion in form and substance
         satisfactory to it (i) as to the matters set forth in Subsections
         10(a), (b), (c), (d), (e) and (h) hereof, and (ii) as to such other
         matters as Agent or its counsel may reasonably request; provided that
         the opinion as to 10(e) and 10(h) may be limited to knowledge;

              (iii) Corporate Resolutions. The Agent shall have received
         appropriate certified corporate resolutions of each Borrower;

              (iv) Good Standing. The Agent shall have received evidence of
         existence and good standing for each Borrower;

              (v) Incumbency. The Agent shall have received a signed certificate
         of each Borrower, certifying the names of the officers of each Borrower
         authorized to sign loan documents on behalf of each Borrower, together
         with the true signatures of each such officer. The Agent may
         conclusively rely on such certificate until the Agent receives a
         further certificate of any Borrower canceling or amending the prior
         certificate and submitting signatures of the officers named in such
         further certificate;

              (vi) Articles of Incorporation and Bylaws. The Agent shall have
         received copies of the Articles of Incorporation of each Borrower and
         all amendments thereto, certified by the Secretary of State of the
         State of its incorporation, and a copy of the bylaws of each Borrower
         and all amendments thereto, certified by each Borrower as being true,
         correct and complete;

              (vii) Representation and Warranties. The representations and
         warranties of Borrowers under this Agreement are true and correct in
         all material respects as of such date, as if then made (except to the
         extent that such representations and warranties related solely to an
         earlier date);

              (viii) No Event of Default. No Event of Default shall have
         occurred and be continuing nor shall any event have occurred or failed
         to

                                      32
<PAGE>

         occur which, with the passage of time or service of notice, or both,
         would constitute an Event of Default;

              (ix) Other Documents. Agent shall have received such other
         instruments and documents incidental and appropriate to the transaction
         provided for herein as Agent or its counsel may reasonably request, and
         all such documents shall be in form and substance reasonably
         satisfactory to the Agent; and

              (x) Legal Matters Satisfactory. All legal matters incident to the
         consummation of the transactions contemplated hereby shall be
         reasonably satisfactory to special counsel for Agent retained at the
         expense of the Borrowers.

         (b) The obligation of the Lenders to make any Advance or issue any
     Letter of Credit under the Commitment (including the initial Advance) shall
     be subject to the following additional conditions precedent that, at the
     date of making each such Advance and after giving effect thereto:

              (i) Representation and Warranties. The representations and
         warranties of Borrowers under this Agreement are true and correct in
         all material respects as of such date, as if then made (except to the
         extent that such representations and warranties related solely to an
         earlier date);

              (ii) No Event of Default. No Event of Default shall have occurred
         and be continuing nor shall any event have occurred or failed to occur
         which, with the passage of time or service of notice, or both, would
         constitute an Event of Default;

              (iii) Other Documents. Agent shall have received such other
         instruments and documents incidental and appropriate to the transaction
         provided for herein as Agent or its counsel may reasonably request, and
         all such documents shall be in form and substance reasonably
         satisfactory to the Agent; and

              (iv) Legal Matters Satisfactory. All legal matters incident to the
         consummation of the transactions contemplated hereby shall be
         reasonably satisfactory to special counsel for Agent retained at the
         expense of Borrowers.

     12. AFFIRMATIVE COVENANTS. A deviation from the provisions of this Section
12 shall not constitute an Event of Default under this Agreement if such
deviation is consented to in writing by Majority Lenders prior to the date of
deviation. The Borrowers will at all times comply with the covenants contained
in this Section 12 from the date hereof and for so long as

                                      33
<PAGE>

the Commitments are in existence or any amount is owed to the Agent or the
Lenders under this Agreement or the other Loan Documents.

         (a) Financial Statements and Reports. Each Borrower shall promptly
     furnish to the Agent from time to time upon request such information
     regarding the business and affairs and financial condition of each
     Borrower, as the Agent may reasonably request, and will furnish to the
     Agent:

              (i) Annual Audited Financial Statements. As soon as available, and
         in any event within ninety (90) days after the close of each fiscal
         year beginning with the fiscal year ended December 31, 2000, the annual
         audited consolidated Financial Statements of Borrowers, prepared in
         accordance with GAAP accompanied by an unqualified opinion rendered by
         an independent accounting firm reasonably acceptable to the Agent;

              (ii) Annual Unaudited Financial Statements. Contemporaneously with
         the delivery of the annual audited Financial Statements required above
         in Section 12(a)(i), the annual unaudited consolidating Financial
         Statements of Borrowers prepared in accordance with GAAP;

              (iii) Quarterly Financial Statements. As soon as available, and in
         any event within forty-five (45) days after the end of each fiscal
         quarter of each year beginning with the fiscal quarter ended March 31,
         2000, the quarterly unaudited, consolidated and consolidating Financial
         Statements of the Borrowers prepared in accordance with GAAP;

              (iv) Report on Properties. As soon as available and in any event
         on or before April 1 and October 1 of each calendar year, and at such
         other times as any Lender, in accordance with Section 7 hereof, may
         request, the engineering reports required to be furnished to the Agent
         under such Section 7 on the Oil and Gas Properties;

              (v) SEC Reports. As soon as available, and in any event within
         five (5) days of filing, copies of all filings by each Borrower with
         the Securities and Exchange Commission;

              (vi) Hedging Reports. As soon as available, and in any event
         within thirty (30) days after the end of each fiscal quarter, a report
         of all existing Rate Management Transactions , said report to be in
         form and substance satisfactory to Agent;

              (vii) Additional Information. Promptly upon request of the Agent
         from time to time any additional financial information or other
         information that the Agent may reasonably request.

                                      34
<PAGE>

     All such reports, information, balance sheets and Financial Statements
     referred to in Subsection 12(a) above shall be in such detail as the Agent
     may reasonably request and shall be prepared in a manner consistent with
     the Financial Statements.

         (b) Certificates of Compliance. Concurrently with the furnishing of the
     annual audited Financial Statements pursuant to Subsection 12(a)(i) hereof
     and the quarterly unaudited Financial Statements pursuant to Subsection
     12(a)(ii) hereof for the months coinciding with the end of each calendar
     quarter, each Borrower will furnish or cause to be furnished to the Agent a
     certificate in the form of Exhibit "C" attached hereto, signed by the
     President or Chief Financial Officer of each Borrower, (i) stating that
     each Borrower has fulfilled in all material respects its obligations under
     the Notes and the Loan Documents, including this Agreement, and that all
     representations and warranties made herein and therein continue (except to
     the extent they relate solely to an earlier date) to be true and correct in
     all material respects (or specifying the nature of any change), or if a
     Default has occurred, specifying the Default and the nature and status
     thereof; (ii) to the extent requested from time to time by the Agent,
     specifically affirming compliance of each Borrower in all material respects
     with any of its representations (except to the extent they relate solely to
     an earlier date) or obligations under said instruments; (iii) setting forth
     the computation, in reasonable detail as of the end of each period covered
     by such certificate, of compliance with Sections 13(b) and (c); and (iv)
     containing or accompanied by such financial or other details, information
     and material as the Agent may reasonably request to evidence such
     compliance.

         (c) Accountants' Certificate. Concurrently with the furnishing of the
     annual audited Financial Statement pursuant to Section 12(a)(i) hereof,
     Borrowers will furnish a statement from the firm of independent public
     accountants which prepared such Financial Statement to the effect that
     nothing has come to their attention to cause them to believe that there
     existed on the date of such statements any Event of Default and
     specifically calculating Borrowers' compliance with Sections 13(b) and (c)
     of this Agreement.

         (d) Taxes and Other Liens. Each Borrower will pay and discharge
     promptly all taxes, assessments and governmental charges or levies imposed
     upon each Borrower, or upon the income or any assets or property of any
     Borrower, as well as all claims of any kind (including claims for labor,
     materials, supplies and rent) which, if unpaid, might become a Lien or
     other encumbrance upon any or all of the assets or property of any Borrower
     and which could reasonably be expected to result in a Material Adverse
     Effect; provided, however, that such Borrower 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, levy and execution
     thereon have been stayed and continue to be stayed and if such Borrower
     shall have set up adequate reserves therefor, if required, under GAAP.

         (e) Compliance with Laws. Each Borrower will observe and comply, in all
     material respects, with all applicable laws, statutes, codes, acts,
     ordinances, orders,

                                      35
<PAGE>

     judgments, decrees, injunctions, rules, regulations, orders and
     restrictions relating to environmental standards or controls or to energy
     regulations of all federal, state, county, municipal and other governments,
     departments, commissions, boards, agencies, courts, authorities, officials
     and officers, domestic or foreign.

         (f) Further Assurances. Borrowers will cure promptly any defects in the
     creation and issuance of the Notes and the execution and delivery of the
     Notes and the Loan Documents, including this Agreement. Borrowers at their
     sole expense will promptly execute and deliver to Agent upon its reasonable
     request all such other and further documents, agreements and instruments in
     compliance with or accomplishment of the covenants and agreements in this
     Agreement, or to correct any omissions in the Notes or more fully to state
     the obligations set out herein.

         (g) Performance of Obligations. Borrowers will pay the Notes and other
     obligations incurred by them hereunder according to the reading, tenor and
     effect thereof and hereof; and Borrowers will do and perform every act and
     discharge all of the obligations provided to be performed and discharged by
     the Borrowers under the Loan Documents, including this Agreement, at the
     time or times and in the manner specified.

         (h) Insurance. The Borrowers now maintain and will continue to maintain
     insurance with financially sound and reputable insurers with respect to
     their respective assets against such liabilities, fires, casualties, risks
     and contingencies and in such types and amounts as is customary in the case
     of persons engaged in the same or similar businesses and similarly
     situated. Upon request of the Agent, the Borrowers will furnish or cause to
     be furnished to the Agent from time to time a summary of the respective
     insurance coverage of Borrowers in form and substance satisfactory to the
     Agent, and, if requested, will furnish the Agent copies of the applicable
     policies. Upon demand by Agent any insurance policies covering any such
     property shall be endorsed (i) to provide that such policies may not be
     canceled, reduced or affected in any manner for any reason without fifteen
     (15) days prior notice to Agent, (ii) to provide for insurance against
     fire, casualty and other hazards normally insured against, in the amount of
     the full value (less a reasonable deductible not to exceed amounts
     customary in the industry for similarly situated business and properties)
     of the property insured, and (iii) to provide for such other matters as the
     Agent may reasonably require. The Borrowers shall at all times maintain
     adequate insurance with respect to all of their assets, including but not
     limited to, the Oil and Gas Properties or any collateral against their
     liability for injury to persons or property, which insurance shall be by
     financially sound and reputable insurers and shall without limitation
     provide the following coverages: comprehensive general liability (including
     coverage for damage to underground resources and equipment, damage caused
     by blowouts or cratering, damage caused by explosion, damage to underground
     minerals or resources caused by saline substances, broad form property
     damage coverage, broad form coverage for contractually assumed liabilities
     and broad form coverage for acts of independent contractors), worker's
     compensation and automobile liability. The Borrowers shall at all times
     maintain cost of control of well insurance with respect to the

                                      36
<PAGE>

     Oil and Gas Properties which shall insure the Borrowers against seepage and
     pollution expense; redrilling expense; and cost of control of well; fires,
     blowouts, etc., if deemed economical in the reasonable discretion of the
     Borrowers. Additionally, the Borrowers shall at all times maintain adequate
     insurance with respect to all of their other assets and wells in accordance
     with prudent business practices.

         (i) Accounts and Records. Each Borrower will keep books, records and
     accounts in which full, true and correct entries will be made of all
     dealings or transactions in relation to its business and activities,
     prepared in a manner consistent with prior years, subject to changes
     suggested by such Borrower's auditors.

         (j) Right of Inspection. Each Borrower will permit any officer,
     employee or agent of the Lenders to examine such Borrower's books, records
     and accounts, and take copies and extracts therefrom, all at such
     reasonable times during normal business hours and as often as the Lenders
     may reasonably request. The Lenders will use best efforts to keep all
     Confidential Information (as herein defined) confidential and will not
     disclose or reveal the Confidential Information or any part thereof other
     than (i) as required by law, and (ii) to the Lenders', and the Lenders'
     subsidiaries', Affiliates, officers, employees, legal counsel and
     regulatory authorities or advisors to whom it is necessary to reveal such
     information for the purpose of effectuating the agreements and undertakings
     specified herein or as otherwise required in connection with the
     enforcement of the Lenders' and the Agent's rights and remedies under the
     Notes, this Agreement and the other Loan Documents, all of whom shall be
     specifically informed by Lenders of the confidential character of the
     Confidential Information and that by receiving such Confidential
     Information they are agreeing to be bound by the terms of this Agreement
     relating to the treatment of such Confidential Information. As used herein,
     "Confidential Information" means information about the Borrowers furnished
     by the Borrowers to the Lenders, but does not include information (i) which
     was publicly known, or otherwise known to the Lenders, at the time of the
     disclosure, (ii) which subsequently becomes publicly known through no act
     or omission by the Lenders, or (iii) which otherwise becomes known to the
     Lenders, other than through disclosure by the Borrowers.

         (k) Notice of Certain Events. The Borrowers shall promptly notify the
     Agent if Borrowers learn of the occurrence of (i) any event which
     constitutes an Event of Default together with a detailed statement by
     Borrowers of the steps being taken to cure such Event of Default; (ii) any
     legal, judicial or regulatory proceedings affecting Borrowers or any of the
     assets or properties of Borrowers which, if adversely determined, could
     reasonably be expected to have a Material Adverse Effect; (iii) any dispute
     between Borrowers and any governmental or regulatory body or any other
     Person or entity which, if adversely determined, might reasonably be
     expected to cause a Material Adverse Effect; (iv) any other matter which in
     Borrowers' reasonable opinion could have a Material Adverse Effect.

                                      37
<PAGE>

         (l) ERISA Information and Compliance. The Borrowers will promptly
     furnish to the Agent immediately upon becoming aware of the occurrence of
     any "reportable event", as such term is defined in Section 4043 of ERISA,
     or of any "prohibited transaction", as such term is defined in Section 4975
     of the Internal Revenue Code of 1954, as amended, in connection with any
     Plan or any trust created thereunder, a written notice signed by the chief
     financial officer of Borrowers specifying the nature thereof, what action
     Borrowers are taking or proposes to take with respect thereto, and, when
     known, any action taken by the Internal Revenue Service with respect
     thereto.

         (m) Environmental Reports and Notices. The Borrowers will deliver to
     the Agent (i) promptly upon its becoming available, one copy of each report
     sent by any Borrower to any court, governmental agency or instrumentality
     pursuant to any Environmental Law, (ii) notice, in writing, promptly upon
     any Borrower's receipt of notice or otherwise learning of any claim,
     demand, action, event, condition, report or investigation indicating any
     potential or actual liability arising in connection with (x) the non-
     compliance with or violation of the requirements of any Environmental Law
     which reasonably could be expected to have a Material Adverse Effect; (y)
     the release or threatened release of any toxic or hazardous waste into the
     environment which reasonably could be expected to have a Material Adverse
     Effect or which release any Borrower would have a duty to report to any
     court or government agency or instrumentality, or (iii) the existence of
     any Environmental Lien on any properties or assets of any Borrower, and
     Borrowers shall immediately deliver a copy of any such notice to Agent.

         (n) Compliance and Maintenance. The Borrowers will (i) observe and
     comply in all material respects with all Environmental Laws; (ii) except as
     provided in Subsections 12(o) and 12(p) below, maintain the Oil and Gas
     Properties and other assets and properties in good and workable condition
     at all times and make all repairs, replacements, additions, betterments and
     improvements to the Oil and Gas Properties and other assets and properties
     as are needed and proper so that the business carried on in connection
     therewith may be conducted properly and efficiently at all times in the
     opinion of the Borrowers exercised in good faith; (iii) take or cause to be
     taken whatever actions are necessary or desirable to prevent an event or
     condition of default by Borrowers under the provisions of any gas purchase
     or sales contract or any other contract, agreement or lease comprising a
     part of the Oil and Gas Properties or other collateral security hereunder
     which default could reasonably be expected to result in a Material Adverse
     Effect; and (iv) furnish Agent upon request evidence satisfactory to Agent
     that there are no Liens, claims or encumbrances on the Oil and Gas
     Properties, except laborers', vendors', repairmen's, mechanics', worker's,
     or materialmen's liens arising by operation of law or incident to the
     construction or improvement of property if the obligations secured thereby
     are not yet due or are being contested in good faith by appropriate legal
     proceedings or Permitted Liens.

         (o) Operation of Properties. Except as provided in Subsection 12(p) and
     (q) below, the Borrowers will operate, or use reasonable efforts to cause
     to be operated, all

                                      38
<PAGE>

     Oil and Gas Properties in a careful and efficient manner in accordance with
     the practice of the industry and in compliance in all material respects
     with all applicable laws, rules, and regulations, and in compliance in all
     material respects with all applicable proration and conservation laws of
     the jurisdiction in which the properties are situated, and all applicable
     laws, rules, and regulations, of every other agency and authority from time
     to time constituted to regulate the development and operation of the
     properties and the production and sale of hydrocarbons and other minerals
     therefrom; provided, however, that the Borrowers shall have the right to
     contest in good faith by appropriate proceedings, the applicability or
     lawfulness of any such law, rule or regulation and pending such contest may
     defer compliance therewith, as long as such deferment shall not subject the
     properties or any part thereof to foreclosure or loss .

         (p)  Compliance with Leases and Other Instruments. The Borrowers will
     pay or cause to be paid and discharge all rentals, delay rentals,
     royalties, production payment, and indebtedness required to be paid by
     Borrowers (or required to keep unimpaired in all material respects the
     rights of Borrowers in Oil and Gas Properties) accruing under, and perform
     or cause to be performed in all material respects each and every act,
     matter, or thing required of Borrowers by each and all of the assignments,
     deeds, leases, subleases, contracts, and agreements in any way relating to
     Borrowers or any of the Oil and Gas Properties and do all other things
     necessary of Borrowers to keep unimpaired in all material respects the
     rights of Borrowers thereunder and to prevent the forfeiture thereof or
     default thereunder; provided, however, that nothing in this Agreement shall
     be deemed to require Borrowers to perpetuate or renew any oil and gas lease
     or other lease by payment of rental or delay rental or by commencement or
     continuation of operations nor to prevent Borrowers from abandoning or
     releasing any oil and gas lease or other lease or well thereon when, in any
     of such events, in the opinion of Borrowers exercised in good faith, it is
     not in the best interest of the Borrowers to perpetuate the same.

         (q) Certain Additional Assurances Regarding Maintenance and Operations
     of Properties. With respect to those Oil and Gas Properties which are being
     operated by operators other than the Borrowers, the Borrowers shall not be
     obligated to perform any undertakings contemplated by the covenants and
     agreement contained in Subsections 12(o) or 12(p) hereof which are
     performable only by such operators and are beyond the control of the
     Borrowers; however, the Borrowers agree to promptly take all reasonable
     actions available under any operating agreements or otherwise to bring
     about the performance of any such material undertakings required to be
     performed thereunder.

         (r)  Sale of Certain Assets/Prepayment of Proceeds.  The Borrowers will
     immediately pay over to the Agent for the ratable benefit of the Lenders as
     a prepayment of principal on the Notes and a reduction of the Commitments,
     an amount equal to 100% of the Release Price from the proceeds of the sale
     of the Oil and Gas Properties (other than sales permitted by Sections
     13(a)(ii)(A) and (B) hereof), which sale has been approved in advance by
     the Majority Lenders.  The term "Release Price" as used herein shall mean a
     price determined by the Majority Lenders in their discretion based upon the

                                      39
<PAGE>

     loan collateral value of the Oil and Gas Properties being sold by Borrowers
     which such Lenders in their discretion (using such methodology, assumptions
     and discounts rates as such Lenders customarily use in assigning collateral
     value to oil and gas properties, oil and gas gathering systems, gas
     processing and plant operations) assign to such Oil and Gas Properties at
     the time in question.  Any such prepayment of principal on the Notes
     required by this Section 12(r), shall not be in lieu of, but shall be in
     addition to any mandatory prepayment of principal required to be paid
     pursuant to Sections 9(b) hereof.

         (s) Title Matters. Within ninety (90) days after the Effective Date
     with respect to the Oil and Gas Properties listed on Schedule "7" hereto,
     Borrowers shall furnish Agent with title opinions and/or title information
     reasonably satisfactory to Agent showing good and defensible title of
     Borrowers to such Oil and Gas Properties subject only to the Permitted
     Liens. As to any Oil and Gas Properties hereafter mortgaged to Agent,
     Borrowers will promptly (but in no event more than thirty (30) days
     following such mortgaging), furnish, if requested, Agent with title
     opinions and/or title information reasonably satisfactory to Agent showing
     good and defensible title of Borrowers to such Oil and Gas Properties
     subject only to Permitted Liens.

         (t) Curative Matters. Within sixty (60) days after the Effective Date
     with respect to matters listed on Schedule "8" and, thereafter, within
     sixty (60) days after receipt by Borrowers from Agent or its counsel of
     written notice of title defects the Agent reasonably requires to be cured,
     Borrowers shall either (i) provide such curative information, in form and
     substance satisfactory to Agent, or (ii) substitute Oil and Gas Properties
     of value and quality satisfactory to the Agent for all of Oil and Gas
     Properties for which such title curative was requested but upon which
     Borrowers elected not to provide such title curative information, and,
     within sixty (60) days of such substitution, provide title opinions or
     title information satisfactory to the Agent covering the Oil and Gas
     Properties so substituted. If the Borrowers fail to satisfy (i) or (ii)
     above within the time specified, the loan collateral value assigned by the
     Lenders to the Oil and Gas Properties for which such curative information
     was requested shall be deducted from the Borrowing Base resulting in a
     reduction thereof.

         (u) Change of Principal Place of Business. Borrowers shall give Agent
     at least thirty (30) days prior written notice of their intention to move
     their principal place of business from the address set forth in Section 17
     hereof.

         (v)  Cash Collateral Accounts.  Each Borrower shall establish and
     maintain with Agent one or more operating accounts (the "Operating
     Accounts"), the maintenance of each of which shall be subject to such rules
     and regulations as Agent from time to time specify. Such Operating Accounts
     shall be the sole operating accounts of the Borrowers. Such accounts shall
     be maintained with the Agent until all amounts due hereunder and under the
     Notes have been paid in full. To the extent not already so instructed,
     Borrowers shall within sixty (60) days of the Effective Date instruct and
     cause all monetary proceeds of production from the Oil and Gas Properties
     to be remitted to their respective Operating Accounts. Such proceeds of
     production shall not be redirected without the prior written consent of the
     Agent until such time as all indebtedness due Lenders by Borrowers has been
     paid in full and the Commitments have been terminated. Each Borrower hereby
     grants a security interest to Lenders in and to their

                                      40
<PAGE>

     respective Operating Accounts (collectively, the "Cash Collateral
     Accounts") and all checks, drafts and other items ever received by any
     Lender for deposit therein. If any Event of Default shall occur and be
     continuing, Agent shall have the immediate right, without prior notice or
     demand, to take and apply against the Borrowers' obligations hereunder any
     and all funds legally and beneficially owned by the Borrowers then or
     thereafter on deposit in the Cash Collateral Accounts for the ratable
     benefit of the Lenders.

         (w)  Additional Collateral.  The Borrowers agree to regularly monitor
     engineering data covering all producing oil and gas properties and
     interests owned or acquired by Borrowers on or after the date hereof and to
     mortgage or cause to be mortgaged such of the same to Agent for the ratable
     benefit of the Lenders in substantially the form of the Security
     Instruments, as applicable, to the extent that the Lenders shall at all
     times during the existence of the Commitment be secured by perfected Liens
     and security interests covering not less than eighty percent (80%) of the
     Engineered Value of all producing oil and gas properties of Borrowers.  In
     addition, the Borrowers agree that in connection with the mortgaging of
     such additional oil and gas properties, they shall within a reasonable time
     thereafter, deliver to the Agent such mortgage and title opinions and other
     title information with respect to the title and Lien status of such oil and
     gas properties as may be necessary to maintain at all times a level of such
     title opinions and title information of not less than ninety percent (90%)
     of the Engineered Value of all Oil and Gas Properties mortgaged to the
     Agent for the ratable benefit of the Lenders.

     13. NEGATIVE COVENANTS. A deviation from the provisions of this Section 13
shall not constitute an Event of Default under this Agreement if such deviation
is consented to in writing by Majority Lenders prior to the date of deviation.
The Borrowers will at all times comply with the covenants contained in this
Section 13 from the date hereof and for so long as the Commitment is in
existence or any amount is owed to the Agent or the Lenders under this Agreement
or the other Loan Documents.

         (a)  Negative Pledge. Borrowers shall not without the prior written
     consent of the Lenders:

              (i) create, incur, assume or permit to exist any Lien, security
         interest or other encumbrance on any of their assets or properties
         except Permitted Liens; or

              (ii) sell, lease, transfer or otherwise dispose of, in any fiscal
         year, any of their assets except for (A) sales, leases, transfers or
         other dispositions made in the ordinary course of Borrowers' oil and
         gas businesses, (B) sales, leases or

                                      41
<PAGE>

         transfers or other dispositions made by Borrowers between Borrowing
         Base Determination Dates which do not exceed $10,000,000 of net
         proceeds in the aggregate between such Determination Dates, and (C)
         other sales, leases, transfer or other dispositions made with the
         consent of Majority Lenders which are made pursuant to, and in full
         compliance with, Section 12(r) hereof;

         (b) Current Ratio. Borrowers shall not allow their ratio Current Ratio
     to be less than 1.0 to 1.0 as of the end of any fiscal quarter.

         (c)  Minimum Interest Coverage Ratio. The Borrowers will not allow
     their Minimum Interest Coverage Ratio to be less than (i) 2.5 to 1.0 for
     the two quarter period ending March 31, 2000, (ii) 2.5 to 1.0 for the three
     quarter period ending June 30, 2000, (iii) 2.5 to 1.0 for the four quarter
     period ending September 30, 2000 and each four quarter period thereafter.

         (d) Consolidations and Mergers. No Borrower will consolidate or merge
     with or into any other Person, except that any Borrower may merge with
     another Person if such Borrower is the surviving entity in such merger and
     if, after giving effect thereto, no Default or Event of Default shall have
     occurred and be continuing except that Enex and Classic may merge into
     3TEC .

         (e) Debts, Guaranties and Other Obligations. Without the consent of
     Majority Lenders, no Borrower will incur, create, assume or in any manner
     become or be liable in respect of any indebtedness, nor will any Borrower
     guarantee or otherwise in any manner become or be liable in respect of any
     indebtedness, liabilities or other obligations of any other person or
     entity, whether by agreement to purchase the indebtedness of any other
     person or entity or agreement for the furnishing of funds to any other
     person or entity through the purchase or lease of goods, supplies or
     services (or by way of stock purchase, capital contribution, advance or
     loan) for the purpose of paying or discharging the indebtedness of any
     other person or entity, or otherwise, except that the foregoing
     restrictions shall not apply to:

              (i) the Notes and any renewal or increase thereof, or other
         indebtedness of the Borrowers heretofore disclosed to Lenders in the
         Borrower's Financial Statements or on Schedule "3" hereto; or

              (ii) taxes, assessments or other government charges which are not
         yet due or are being contested in good faith by appropriate action
         promptly initiated and diligently conducted, if such reserve as shall
         be required by GAAP shall have been made therefor and levy and
         execution thereon have been stayed and continue to be stayed; or

              (iii) indebtedness (other than in connection with a loan or
         lending transaction) incurred in the ordinary course of business,
         including, but not limited

                                      42
<PAGE>

        to indebtedness for drilling, completing, leasing and reworking oil and
        gas wells; or

              (iv) indebtedness evidenced by the Subordinated Notes; or

              (v) any renewals or extensions of (but not increases in) any of
         the foregoing.

         (f)  Dividends. No Borrower will declare or pay any cash dividend,
     purchase, redeem or otherwise acquire for value any of its stock now or
     hereafter outstanding, return any capital to its stockholders, or make any
     distribution of its assets to its stockholders as such, except the
     foregoing shall not apply to dividends on the Series D Preferred Stock;
     provided, however, that no dividend may be paid on the Series D Preferred
     Stock, if, immediately before or after giving effect thereto, a Default or
     Event of Default exists.

         (g)  Loans and Advances. Borrowers shall not make or permit to remain
     outstanding any loans or advances to or in any person or entity, except
     that the foregoing restriction shall not apply to:

              (i)  loans or advances to any person, the material details of
         which have been set forth in the Financial Statements of the Borrowers
         heretofore furnished to Lenders; or

              (ii) advances made in the ordinary course of Borrowers' oil and
         gas business; or

              (iii) loans or advances to Affiliates and non-related third
         parties not exceeding $100,000 in the aggregate during the existence of
         the Commitment.

         (h)  Sale or Discount of Receivables. Borrowers will not discount or
     sell with recourse, or sell for less than the greater of the face or market
     value thereof, any of their notes receivable or accounts receivable.

         (i)  Nature of Business. Borrowers will not permit any material change
     to be made in the character of their respective businesses as carried on at
     the date hereof.

         (j)  Transactions with Affiliates.  Borrowers will not enter into any
     transaction with any Affiliate, except transactions upon terms that are no
     less favorable to them than would be obtained in a transaction negotiated
     at arm's length with an unrelated third party.

         (k)  Hedging Transactions. Borrowers will not enter into any Rate
     Management Transactions, except the foregoing prohibitions shall not apply
     to

                                      43
<PAGE>

     (x) transactions consented to in writing by the Majority Lenders which
     are on terms acceptable to the Majority Lenders, or (y) Pre-Approved
     Contracts.

         (l)  Investments. Borrowers shall not make any investments in any
     person or entity, except such restriction shall not apply to:

              (i)  investments and direct obligations of the United States of
         America or any agency thereof; or

              (ii) investments in certificates of deposit issued by the Lenders
         or certificates of deposit with maturities of less than one year,
         issued by other commercial banks in the United States having capital
         and surplus in excess of $500,000,000 and which have a senior unsecured
         debt rating of A+ by Standard & Poors or A1 by Moody's; or

              (iii)  investments in insured money market funds, LIBOR investment
         accounts and other similar accounts at Agent or such investment with
         maturities of less than ninety (90) days at other commercial banks
         having capital and surplus in excess of $500,000,000 and which have a
         senior unsecured debt rating of A+ by Standard & Poors or A1 by
         Moody's.

         (m)  Amendment to Articles of Incorporation or Bylaws. Borrowers will
     not permit any material amendment to, or any alteration of, their Articles
     of Incorporation or Bylaws, except 3TEC may amend its Articles of
     Incorporation to provide for staggered terms of its directors and to remove
     the right of stockholders to act by majority written consent.

         (n)  Proceeds of Production. Borrowers shall not redirect the payment
     of the proceeds of production from the Oil and Gas Properties to anyone or
     any place other than to the Operating Accounts at the Agent.

         (o)  Issuance of Preferred Stock. Borrowers shall not issue any
     additional preferred stock after the Effective Date without the consent of
     Majority Lenders, except as permitted for the exchange of securities for
     the Exchangeable Preferred Stock or as payment in kind to the holders of
     Series D Preferred Stock.

         (p)  Amendments to and Redemption of Preferred Stock or Other Equity.
     Borrowers shall not (i) amend any outstanding equity issue after the
     Effective Date without the consent of Majority Lenders, or (ii) redeem any
     preferred stock without consent of Majority Lenders.

         (q)  Payment or Pre-Payment of Other Indebtedness. Except as otherwise
     provided for in this Agreement, Borrowers shall not make any unscheduled
     payments on or redeem any of their indebtedness (other than indebtedness
     owed the Lenders

                                      44
<PAGE>

     hereunder) unless such payment, pre-payment or redemption is approved by
     Majority Lenders.

         (r)  Subordinated Indebtedness. Borrowers shall not fail in any respect
     to comply with all of the provisions of the Intercreditor Agreements or the
     subordination provisions of the Security Purchase Agreements and shall not
     make any payments on the Subordinated Notes in violation of the provisions
     thereof. 3TEC shall not amend in any respect the provisions of the
     Subordinated Notes or the Security Purchase Agreements, except as permitted
     by the provisions of the Intercreditor Agreements or any of the Security
     Purchase Agreements.

     14. EVENTS OF DEFAULT.  Any one or more of the following events shall be
considered an "Event of Default" as that term is used herein:

         (a)  The Borrowers shall fail to pay when due or declared due the
     principal of any note or any Reimbursement Obligation when due; or

         (b)  Borrowers shall fail to pay any accrued interest due and owing on
     any Note or any fees or any other amount payable hereunder when due and
     such failure shall continue for a period of three (3) business days
     following the due date;

         (c)  Any representation or warranty made by Borrowers under this
     Agreement, or in any certificate or statement furnished or made to the
     Lenders pursuant hereto, or in connection herewith, or in connection with
     any document furnished hereunder, shall prove to be untrue in any material
     respect as of the date on which such representation or warranty is made (or
     deemed made), or any representation, statement (including financial
     statements), certificate, report or other data furnished or to be furnished
     or made by Borrowers under any Loan Document, including this Agreement,
     proves to have been untrue in any material respect, as of the date as of
     which the facts therein set forth were stated or certified; or

         (d)  Default shall be made in the due observance or performance of any
     of the covenants or agreements of the Borrowers contained in the Loan
     Documents, including this Agreement (excluding covenants contained in
     Section 13 of the Agreement for which there is a twenty (20) day cure
     period), and such default shall continue for more than thirty (30) days
     after written notice is received by Borrowers; or

         (e)  Default shall be made in the due observance or performance of the
     covenants of the Borrowers contained in Section 13 of this Agreement and
     such default shall continue for more than twenty (20) days after written
     notice is received by Borrowers; or

                                      45
<PAGE>

         (f)  Default shall be made in respect of any obligation for borrowed
     money, other than the Notes, for which Borrowers are liable (directly, by
     assumption, as guarantor or otherwise), or any obligations secured by any
     mortgage, pledge or other security interest, lien, charge or encumbrance
     with respect thereto, on any asset or property of any Borrower or in
     respect of any agreement relating to any such obligations unless such
     Borrower is not liable for same (i.e., unless remedies or recourse for
     failure to pay such obligations is limited to foreclosure of the collateral
     security therefor), and if such default shall continue beyond the
     applicable grace period, if any; or

         (g)  Borrowers shall commence a voluntary case or other proceeding
     seeking liquidation, reorganization or other relief with respect to any of
     them or their debts under any bankruptcy, insolvency or other similar law
     now or hereafter in effect or seeking an appointment of a trustee,
     receiver, liquidator, custodian or other similar official of any of them or
     any substantial part of their property, or shall consent to any such relief
     or to the appointment of or taking possession by any such official in an
     involuntary case or other proceeding commenced against them, or shall make
     a general assignment for the benefit of creditors, or shall fail generally
     to pay their debts as they become due, or shall take any corporate action
     authorizing the foregoing; or

         (h)  An involuntary case or other proceeding, shall be commenced
     against Borrowers seeking liquidation, reorganization or other relief with
     respect to them or their debts under any bankruptcy, insolvency or similar
     law now or hereafter in effect or seeking the appointment of a trustee,
     receiver, liquidator, custodian or other similar official of it or any
     substantial part of their property, and such involuntary case or other
     proceeding shall remain undismissed and unstayed for a period of sixty (60)
     days; or an order for relief shall be entered against Borrowers under the
     federal bankruptcy laws as now or hereinafter in effect; or

         (i)  A final judgment or order for the payment of money in excess of
     $4,000,000 (or judgments or orders aggregating in excess of $4,000,000)
     shall be rendered against Borrowers and such judgments or orders shall
     continue unsatisfied and unstayed for a period of thirty (30) days; or

         (j)  In the event the Total Outstandings shall at any time exceed the
     Borrowing Base established for the Notes, and the Borrowers shall fail to
     comply with the provisions of Section 9(b) hereof; or

         (k)  A Change of Control shall occur; or

         (l)  A Change of Management shall occur.

                                      46
<PAGE>

     Upon occurrence of any Event of Default specified in Subsections 14(g) and
(h) hereof, the entire principal amount due under the Notes and all interest
then accrued thereon, and any other liabilities of the Borrowers hereunder,
shall become immediately due and payable all without notice and without
presentment, demand, protest, notice of protest or dishonor or any other notice
of default of any kind, all of which are hereby expressly waived by the
Borrowers.  In any other Event of Default, the Agent, upon request of Majority
Lenders, shall by written notice to the Borrowers declare the principal of, and
all interest then accrued on, the Notes and any other liabilities hereunder to
be forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other notice of any kind, all of which the Borrowers
hereby expressly waive, anything contained herein or in the Note to the contrary
notwithstanding.  Nothing contained in this Section 14 shall be construed to
limit or amend in any way the Events of Default enumerated in the Note, or any
other document executed in connection with the transaction contemplated herein.

     Upon the occurrence and during the continuance of any Event of Default, the
Lenders are hereby authorized at any time and from time to time, without notice
to the Borrowers (any such notice being expressly waived by the Borrowers), to
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by any of the Lenders to or for the credit or the account of the Borrowers
against any and all of the indebtedness of the Borrowers under the Notes and the
Loan Documents, including this Agreement, irrespective of whether or not the
Lenders shall have made any demand under the Loan Documents, including this
Agreement or the Notes and although such indebtedness may be unmatured.  Any
amount set-off by any of the Lenders shall be applied against the indebtedness
owed the Lenders by the Borrowers pursuant to this Agreement and the Notes.  The
Lenders agree promptly to notify the Borrowers after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application.  The rights of the Lender under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Lenders may have.

     15. THE AGENT AND THE LENDERS.

         (a)  Appointment and Authorization. Each Lender hereby appoints Agent
     as its nominee and agent, in its name and on its behalf: (i) to act as
     nominee for and on behalf of such Lender in and under all Loan Documents;
     (ii) to arrange the means whereby the funds of Lenders are to be made
     available to the Borrowers under the Loan Documents; (iii) to take such
     action as may be requested by any Lender under the Loan Documents (when
     such Lender is entitled to make such request under the Loan Documents);
     (iv) to receive all documents and items to be furnished to Lenders under
     the Loan Documents; (v) to be the secured party, mortgagee, beneficiary,
     and similar party in respect of, and to receive, as the case may be, any
     collateral for the benefit of Lenders; (vi) to promptly distribute to each
     Lender all material information, requests, documents and items received
     from the Borrowers under the Loan Documents; (vii) to promptly

                                      47
<PAGE>

     distribute to each Lender such Lender's Pro Rata Part of each payment or
     prepayment (whether voluntary, as proceeds of insurance thereon, or
     otherwise) in accordance with the terms of the Loan Documents and (viii) to
     deliver to the appropriate Persons requests, demands, approvals and
     consents received from Lenders. Each Lender hereby authorizes Agent to take
     all actions and to exercise such powers under the Loan Documents as are
     specifically delegated to Agent by the terms hereof or thereof, together
     with all other powers reasonably incidental thereto. With respect to its
     commitments hereunder and the Notes issued to it, Agent and any successor
     Agent shall have the same rights under the Loan Documents as any other
     Lender and may exercise the same as though it were not the Agent; and the
     term "Lender" or "Lenders" shall, unless otherwise expressly indicated,
     include Agent and any successor Agent in its capacity as a Lender. Agent
     and any successor Agent and its Affiliates may accept deposits from, lend
     money to, act as trustee under indentures of and generally engage in any
     kind of business with the Borrowers, and any person which may do business
     with the Borrowers, all as if Agent and any successor Agent was not Agent
     hereunder and without any duty to account therefor to the Lenders; provided
     that, if any payments in respect of any property (or the proceeds thereof)
     now or hereafter in the possession or control of Agent which may be or
     become security for the obligations of the Borrowers arising under the Loan
     Documents by reason of the general description of indebtedness secured or
     of property contained in any other agreements, documents or instruments
     related to any such other business shall be applied to reduction of the
     obligations of the Borrowers arising under the Loan Documents, then each
     Lender shall be entitled to share in such application according to its pro
     rata part thereof. Each Lender, upon request of any other Lender, shall
     disclose to all other Lenders all indebtedness and liabilities, direct and
     contingent, of the Borrowers to such Lender as of the time of such request.

         (b)  Note Holders. From time to time as other Lenders become a party to
     this Agreement, Agent shall obtain execution by the Borrowers of additional
     Notes in amounts representing the Commitment of each such new Lender, up to
     an aggregate face amount of all Notes not exceeding $250,000,000. The
     obligation of such Lender shall be governed by the provisions of this
     Agreement, including but not limited to, the obligations specified in
     Section 2 hereof. From time to time, Agent may require that the Lenders
     exchange their Notes for newly issued Notes to better reflect the
     Commitments of the Lenders. Agent may treat the payee of any Note as the
     holder thereof until written notice of transfer has been filed with it,
     signed by such payee and in form satisfactory to Agent.

         (c)  Consultation with Counsel. Lenders agree that Agent may consult
     with legal counsel selected by Agent and shall not be liable for any action
     taken or suffered in good faith by it in accordance with the advice of such
     counsel. LENDERS ACKNOWLEDGE THAT GARDERE WYNNE SEWELL LLP IS COUNSEL FOR
     BANK ONE, BOTH AS AGENT AND AS A LENDER, AND THAT SUCH FIRM DOES NOT
     REPRESENT ANY OF THE OTHER LENDERS IN CONNECTION WITH THIS TRANSACTION.

                                      48
<PAGE>

         (d)  Documents. Agent shall not be under a duty to examine or pass upon
     the validity, effectiveness, enforceability, genuineness or value of any of
     the Loan Documents or any other instrument or document furnished pursuant
     thereto or in connection therewith, and Agent shall be entitled to assume
     that the same are valid, effective, enforceable and genuine and what they
     purport to be.

         (e)  Resignation or Removal of Agent. Subject to the appointment and
     acceptance of a successor Agent as provided below, Agent may resign at any
     time by giving written notice thereof to Lenders and the Borrowers, and
     Agent may be removed at any time with or without cause by all Lenders. If
     no successor Agent has been so appointed by all Lenders (and approved by
     the Borrowers) and has accepted such appointment within 30 days after the
     retiring Agent's giving of notice of resignation or removal of the retiring
     Agent, then the retiring Agent may, on behalf of Lenders, appoint a
     successor Agent. Any successor Agent must be approved by Borrowers, which
     approval will not be unreasonably withheld. Upon the acceptance of any
     appointment as Agent hereunder by a successor Agent, such successor Agent
     shall thereupon succeed to and become vested with all the rights and duties
     of the retiring Agent, and the retiring Agent, as the case may be, shall be
     discharged from its duties and obligations hereunder. After any retiring
     Agent's resignation or removal hereunder as Agent, the provisions of this
     Section 15 shall continue in effect for its benefit in respect to any
     actions taken or omitted to be taken by it while it was acting as Agent. To
     be eligible to be an Agent hereunder the party serving, or to serve, in
     such capacity must own a Pro Rata Part of the Commitments equal to the
     level of Commitment required to be held by any Lender pursuant to Section
     28 hereof .

         (f)  Responsibility of Agent. It is expressly understood and agreed
     that the obligations of Agent under the Loan Documents are only those
     expressly set forth in the Loan Documents as to each and that Agent, shall
     be entitled to assume that no Default or Event of Default has occurred and
     is continuing, unless Agent has actual knowledge of such fact or has
     received notice from a Lender or the Borrowers that such Lender or the
     Borrowers considers that a Default or an Event of Default has occurred and
     is continuing and specifying the nature thereof. Neither Agent nor any of
     its directors, officers, attorneys or employees shall be liable for any
     action taken or omitted to be taken by them under or in connection with the
     Loan Documents, except for its or their own gross negligence or willful
     misconduct. Agent shall not incur liability under or in respect of any of
     the Loan Documents by acting upon any notice, consent, certificate,
     warranty or other paper or instrument believed by it to be genuine or
     authentic or to be signed by the proper party or parties, or with respect
     to anything which it may do or refrain from doing in the reasonable
     exercise of its judgment, or which may seem to it to be necessary or
     desirable.

          Agent shall not be responsible to Lenders for any of the Borrowers'
     recitals, statements, representations or warranties contained in any of the
     Loan Documents, or in any certificate or other document referred to or
     provided for in, or received by any

                                      49
<PAGE>

     Lender under, the Loan Documents, or for the value, validity,
     effectiveness, genuineness, enforceability or sufficiency of or any of the
     Loan Documents or for any failure by the Borrowers to perform any of its
     obligations hereunder or thereunder. Agent may employ agents and attorneys-
     in-fact and shall not be answerable, except as to money or securities
     received by it or its authorized agents, for the negligence or misconduct
     of any such agents or attorneys-in-fact selected by it with reasonable
     care.

          The relationship between Agent and each Lender is only that of agent
     and principal and has no fiduciary aspects.  Nothing in the Loan Documents
     or elsewhere shall be construed to impose on Agent any duties or
     responsibilities other than those for which express provision is therein
     made.  In performing its duties and functions hereunder, Agent does not
     assume and shall not be deemed to have assumed, and hereby expressly
     disclaims, any obligation or responsibility toward or any relationship of
     agency or trust with or for the Borrowers or any of their beneficiaries or
     other creditors.  As to any matters not expressly provided for by the Loan
     Documents, Agent shall not be required to exercise any discretion or take
     any action, but shall be required to act or to refrain from acting (and
     shall be fully protected in so acting or refraining from acting) upon the
     instructions of all Lenders and such instructions shall be binding upon all
     Lenders and all holders of the Notes; provided, however, that Agent shall
     not be required to take any action which is contrary to the Loan Documents
     or applicable law.

          Agent shall have the right to exercise or refrain from exercising,
     without notice or liability to the Lenders, any and all rights afforded to
     Agent by the Loan Documents or which Agent may have as a matter of law;
     provided, however, Agent shall not (i) except as provided herein and in
     Section 7(b) hereof, without the consent of Majority Lenders designate the
     amount of the Borrowing Base or (ii) take any other action with regard to
     amending the Loan Documents, waiving any default under the Loan Documents
     or taking any other action with respect to the Loan Documents.  Provided
     further, however, that no amendment, waiver, or other action shall be
     effected pursuant to the preceding clause (ii) without the consent of all
     Lenders which: (i) would increase the Borrowing Base, (ii) would reduce any
     fees hereunder, or the principal of, or the interest on, any Lender's Note
     or Notes, (iii) would postpone any date fixed for any payment of any fees
     hereunder, or any principal or interest of any Lender's Note or Notes, (iv)
     would materially increase any Lender's obligations hereunder or would
     materially alter Agent's obligations to any Lender hereunder, (v) would
     release Borrowers from their obligation to pay any Lender's Note or Notes,
     (vi) release any of the Collateral except as permitted by Sections 12(r)
     and 13(a)(ii) hereof, (vii) would change the definition of Majority
     Lenders, (viii) would amend, modify or change any provision of this
     Agreement requiring the consent of all the Lenders, (ix) would waive any of
     the conditions precedent to the Effective Date or the making of any Loan or
     issuance of any Letter of Credit or (x) would extend the Maturity Date or
     (xi) would amend this sentence or the previous sentence.  Agent shall not
     have liability to Lenders for failure or delay in exercising any right or
     power possessed by Agent pursuant to the Loan Documents or otherwise unless

                                      50
<PAGE>

     such failure or delay is caused by the gross negligence of the Agent, in
     which case only the Agent responsible for such gross negligence shall have
     liability therefor to the Lenders.

         (g)  Independent Investigation. Each Lender severally represents and
     warrants to Agent that it has made its own independent investigation and
     assessment of the financial condition and affairs of the Borrowers in
     connection with the making and continuation of its participation hereunder
     and has not relied exclusively on any information provided to such Lender
     by Agent in connection herewith, and each Lender represents, warrants and
     undertakes to Agent that it shall continue to make its own independent
     appraisal of the credit worthiness of the Borrowers while the Notes are
     outstanding or its commitments hereunder are in force. Agent shall not be
     required to keep itself informed as to the performance or observance by the
     Borrowers of this Agreement or any other document referred to or provided
     for herein or to inspect the properties or books of the Borrowers. Other
     than as provided in this Agreement, Agent shall not have any duty,
     responsibility or liability to provide any Lender with any credit or other
     information concerning the affairs, financial condition or business of the
     Borrowers which may come into the possession of Agent.

         (h)  Indemnification. Lenders agree to indemnify Agent, ratably
     according to their respective Commitments on a Pro Rata basis, from and
     against any and all liabilities, obligations, losses, damages, penalties,
     actions, judgments, suits, costs, expenses or disbursements of any proper
     and reasonable kind or nature whatsoever which may be imposed on, incurred
     by or asserted against Agent in any way relating to or arising out of the
     Loan Documents or any action taken or omitted by Agent under the Loan
     Documents, provided that no Lender shall be liable for any portion of such
     liabilities, obligations, losses, damages, penalties, actions, judgments,
     suits, costs, expenses or disbursements resulting from Agent's gross
     negligence or willful misconduct. Each Lender shall be entitled to be
     reimbursed by the Agent for any amount such Lender paid to Agent under this
     Section 15(h) to the extent the Agent has been reimbursed for such payments
     by the Borrowers or any other Person. THE PARTIES INTEND FOR THE PROVISIONS
     OF THIS SECTION TO APPLY TO AND PROTECT THE AGENT FROM THE CONSEQUENCES OF
     ANY LIABILITY INCLUDING STRICT LIABILITY IMPOSED OR THREATENED TO BE
     IMPOSED ON AGENT AS WELL AS FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE,
     WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR CONCURRING
     CAUSE OF ANY SUCH LIABILITY.

         (i)  Benefit of Section 15. The agreements contained in this Section 15
     are solely for the benefit of Agent and the Lenders and are not for the
     benefit of, or to be relied upon by, the Borrowers, any affiliate of the
     Borrowers or any other person.

         (j)  Pro Rata Treatment. Subject to the provisions of this Agreement,
     each payment (including each prepayment) by the Borrowers and collection by
     Lenders (including offsets) on account of the principal of and interest on
     the Notes and fees

                                      51
<PAGE>

     provided for in this Agreement, payable by the Borrowers shall be made Pro
     Rata; provided, however, in the event that any Defaulting Lender shall have
     failed to make an Advance as contemplated under Section 3 hereof and Agent
     or another Lender or Lenders shall have made such Advance, payment received
     by Agent for the account of such Defaulting Lender or Lenders shall not be
     distributed to such Defaulting Lender or Lenders until such Advance or
     Advances shall have been repaid in full to the Lender or Lenders who funded
     such Advance or Advances.

         (k)  Assumption as to Payments. Except as specifically provided herein,
     unless Agent shall have received notice from the Borrowers prior to the
     date on which any payment is due to Lenders hereunder that the Borrowers
     will not make such payment in full, Agent may, but shall not be required
     to, assume that the Borrowers have made such payment in full to Agent on
     such date and Agent may, in reliance upon such assumption, cause to be
     distributed to each Lender on such due date an amount equal to the amount
     then due such Lender. If and to the extent the Borrowers shall not have so
     made such payment in full to Agent, each Lender shall repay to Agent
     forthwith on demand such amount distributed to such Lender together with
     interest thereon, for each day from the date such amount is distributed to
     such Lender until the date such Lender repays such amount to Agent, at the
     interest rate applicable to such portion of the Loan.

         (l)  Other Financings.  Without limiting the rights to which any Lender
     otherwise is or may become entitled, such Lender shall have no interest, by
     virtue of this Agreement or the Loan Documents, in (a) any present or
     future loans from, letters of credit issued by, or leasing or other
     financial transactions by, any other Lender to, on behalf of, or with the
     Borrowers (collectively referred to herein as "Other Financings") other
     than the obligations hereunder; (b) any present or future guarantees by or
     for the account of the Borrowers which are not contemplated by the Loan
     Documents; (c) any present or future property taken as security for any
     such Other Financings; or (d) any property now or hereafter in the
     possession or control of any other Lender which may be or become security
     for the obligations of the Borrowers arising under any loan document by
     reason of the general description of indebtedness secured or property
     contained in any other agreements, documents or instruments relating to any
     such Other Financings.

         (m)  Interests of Lenders. Nothing in this Agreement shall be construed
     to create a partnership or joint venture between Lenders for any purpose.
     Agent, Lenders and the Borrowers recognize that the respective obligations
     of Lenders under the Commitments shall be several and not joint and that
     neither Agent nor any of Lenders shall be responsible or liable to perform
     any of the obligations of the other under this Agreement. Each Lender is
     deemed to be the owner of an undivided interest in and to all rights,
     titles, benefits and interests belonging and accruing to Agent under the
     Security Instruments, including, without limitation, liens and security
     interests in any collateral, fees and payments of principal and interest by
     the Borrowers under the Commitments on a Pro Rata basis. Each Lender shall
     perform all duties and obligations of Lenders under

                                      52
<PAGE>

     this Agreement in the same proportion as its ownership interest in the
     Loans outstanding at the date of determination thereof.

         (n)  Investments. Whenever Agent in good faith determines that it is
     uncertain about how to distribute to Lenders any funds which it has
     received, or whenever Agent in good faith determines that there is any
     dispute among the Lenders about how such funds should be distributed, Agent
     may choose to defer distribution of the funds which are the subject of such
     uncertainty or dispute. If Agent in good faith believes that the
     uncertainty or dispute will not be promptly resolved, or if Agent is
     otherwise required to invest funds pending distribution to the Lenders,
     Agent may invest such funds pending distribution (at the risk of the
     Borrowers). All interest on any such investment shall be distributed upon
     the distribution of such investment and in the same proportions and to the
     same Persons as such investment. All monies received by Agent for
     distribution to the Lenders (other than to the Person who is Agent in its
     separate capacity as a Lender) shall be held by the Agent pending such
     distribution solely as Agent for such Lenders, and Agent shall have no
     equitable title to any portion thereof.

     16. EXERCISE OF RIGHTS. No failure to exercise, and no delay in exercising,
on the part of the Agent or the Lenders, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The rights
of the Agent and the Lenders hereunder shall be in addition to all other rights
provided by law. No modification or waiver of any provision of the Loan
Documents, including this Agreement, or the Note nor consent to departure
therefrom, shall be effective unless in writing, and no such consent or waiver
shall extend beyond the particular case and purpose involved. No notice or
demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other circumstances without such notice or
demand.

     17. NOTICES. Any notices or other communications required or permitted to
be given by this Agreement or any other documents and instruments referred to
herein must be given in writing (which may be by facsimile transmission) and
must be personally delivered or mailed by prepaid certified or registered mail
to the party to whom such notice or communication is directed at the address of
such party as follows: (a) BORROWERS: c/o 3TEC ENERGY CORPORATION, Two Shell
Plaza, 777 Walker, Suite 2400, Houston, Texas 77002, Attn: R.A. Walker,
President and Chief Financial Officer, Facsimile (713) 821-7200; (b) AGENT: BANK
ONE, NA, 910 Travis Street, 6th Floor, Houston, Texas 77002, Facsimile No. (713)
751-3544, Attention: Ronald L. Dierker, First Vice President. Any such notice or
other communication shall be deemed to have been given (whether actually
received or not) on the day it is personally delivered or delivered by facsimile
as aforesaid or, if mailed, on the third day after it is mailed as aforesaid.
Any party may change its address for purposes of this Agreement by giving notice
of such change to the other party pursuant to this Section 17. Any notice
required to be given to the Lenders shall be given to the Agent and distributed
to all Lenders by the Agent.

                                      53
<PAGE>

     18. EXPENSES. The Borrowers shall pay (i) all reasonable and necessary out-
of-pocket expenses of the Lenders, including reasonable fees and disbursements
of special counsel for the Agent, in connection with the preparation of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
default or Event of Default or alleged default or Event of Default hereunder,
(ii) all reasonable and necessary out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of special counsel for the Agent in connection
with the preparation of any participation agreement for a participant or
participants requested by the Borrowers or any amendment thereof and (iii) if a
default or an Event of Default occurs, all reasonable and necessary out-of-
pocket expenses incurred by the Lenders, including fees and disbursements of
counsel, in connection with such default and Event of Default and collection and
other enforcement proceedings resulting therefrom. THE BORROWERS HEREBY
ACKNOWLEDGE THAT GARDERE WYNNE SEWELL LLP IS SPECIAL COUNSEL TO BANK ONE, AS
AGENT AND AS A LENDER, UNDER THIS AGREEMENT AND THAT IT IS NOT COUNSEL TO, NOR
DOES IT REPRESENT THE BORROWERS IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN
THIS AGREEMENT. The Borrowers are relying on separate counsel in the transaction
described herein. The Borrowers shall indemnify the Lenders against any transfer
taxes, document taxes, assessments or charges made by any governmental authority
by reason of the execution, delivery and filing of the Loan Documents. The
obligations of this Section 18 shall survive any termination of this Agreement,
the expiration of the Loans and the payment of all indebtedness of the Borrowers
to the Lenders hereunder and under the Notes.

     19. INDEMNITY. The Borrowers agree to indemnify and hold harmless the
Lenders and their respective officers, employees, agents, attorneys and
representatives (singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
the Lenders, including all local counsel hired by such counsel) ("Claim")
incurred by the Lenders in investigating or preparing for, defending against, or
providing evidence, producing documents or taking any other action in respect of
any commenced or threatened litigation, administrative proceeding or
investigation under any federal securities law, federal or state environmental
law, or any other statute of any jurisdiction, or any regulation, or at common
law or otherwise, which is alleged to arise out of or is based upon any acts,
practices or omissions or alleged acts, practices or omissions of the Borrowers
or their agents or arises in connection with the duties, obligations or
performance of the Indemnified Parties in negotiating, preparing, executing,
accepting, keeping, completing, countersigning, issuing, selling, delivering,
releasing, assigning, handling, certifying, processing or receiving or taking
any other action with respect to the Loan Documents and all documents, items and
materials contemplated thereby even if any of the foregoing arises out of an
Indemnified Party's ordinary negligence. The indemnity set forth herein shall be
in addition to any other obligations or liabilities of the Borrowers to the
Lenders hereunder or at common law or otherwise, and shall survive any
termination of this Agreement, the expiration of the Loans and the payment of
all indebtedness of the Borrowers to the Lenders hereunder and under the Notes,
provided that the Borrowers shall have no obligation under this Section to the
Lender with respect to any of the foregoing arising out of the gross negligence
or willful misconduct of the Lender. If any Claim is asserted against any
Indemnified Party, the Indemnified Party shall endeavor to notify the Borrowers
of

                                      54
<PAGE>

such Claim (but failure to do so shall not affect the indemnification herein
made except to the extent of the actual harm caused by such failure).  The
Indemnified Party shall have the right to employ, at the Borrowers' expense,
counsel of the Indemnified Parties' choosing and to control the defense of the
Claim.  The Borrowers may at their own expense also participate in the defense
of any Claim.  Each Indemnified Party may employ separate counsel in connection
with any Claim to the extent such Indemnified Party believes it reasonably
prudent to protect such Indemnified Party.  THE PARTIES INTEND FOR THE
PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT EACH INDEMNIFIED PARTY FROM
THE CONSEQUENCES OF ANY LIABILITY INCLUDING STRICT LIABILITY IMPOSED OR
THREATENED TO BE IMPOSED ON AGENT AS WELL AS FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR
CONCURRING CAUSE OF ANY CLAIM.

     20. GOVERNING LAW.  THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS
INTENDED TO BE PERFORMED, IN HOUSTON, HARRIS COUNTY, TEXAS, AND THE SUBSTANTIVE
LAWS OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS
REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN.

     21. INVALID PROVISIONS.  If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.

     22. MAXIMUM INTEREST RATE.  Regardless of any provisions contained in this
Agreement or in any other documents and instruments referred to herein, the
Lenders shall never be deemed to have contracted for or be entitled to receive,
collect or apply as interest on the Notes any amount in excess of the Maximum
Rate, and in the event any Lender ever receives, collects or applies as interest
any such excess, or if an acceleration of the maturities of any Notes or if any
prepayment by the Borrowers results in the Borrowers having paid any interest in
excess of the Maximum Rate, such amount which would be excessive interest shall
be applied to the reduction of the unpaid principal balance of the Notes for
which such excess was received, collected or applied, and, if the principal
balance of such Note is paid in full, any remaining excess shall forthwith be
paid to the Borrowers.  All sums paid or agreed to be paid to the Lenders for
the use, forbearance or detention of the indebtedness evidenced by the Notes
and/or this Agreement shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the Maximum Rate.  In determining
whether or not the interest paid or payable under any specific contingency
exceeds the Maximum Rate of interest permitted by law, the Borrowers and the
Lenders shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment as

                                      55
<PAGE>

an expense, fee or premium, rather than as interest; and (ii) exclude voluntary
prepayments and the effect thereof; and (iii) compare the total amount of
interest contracted for, charged or received with the total amount of interest
which could be contracted for, charged or received throughout the entire
contemplated term of the Note at the Maximum Rate.

     23. AMENDMENTS.  Subject to the provisions of Section 15(f) hereof, this
Agreement may be amended only by an instrument in writing executed by an
authorized officer of the party against whom such amendment is sought to be
enforced.

     24. MULTIPLE COUNTERPARTS.  This Agreement may be executed in a number of
identical separate counterparts, each of which for all purposes is to be deemed
an original, but all of which shall constitute, collectively, one agreement.  No
party to this Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.

     25. CONFLICT. In the event any term or provision hereof is inconsistent
with or conflicts with any provision of the Loan Documents, the terms or
provisions contained in this Agreement shall be controlling.

     26. SURVIVAL.  All covenants, agreements, undertakings, representations and
warranties made in the Loan Documents, including this Agreement, the Notes or
other documents and instruments referred to herein shall survive all closings
hereunder and shall not be affected by any investigation made by any party.

     27. PARTIES BOUND.  This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs,
legal representatives and estates, provided, however, that the Borrowers may
not, without the prior written consent of all of the Lenders, assign any rights,
powers, duties or obligations hereunder.

     28. ASSIGNMENTS AND PARTICIPATIONS.

         (a)  Each Lender shall have the right to sell, assign or transfer all
     or any part of its Note or Notes, its Commitment and its rights and
     obligations hereunder to one or more Affiliates, Lenders, financial
     institutions, pension plans, insurance companies, investment funds, or
     similar Persons who are Eligible Assignees or to a Federal Reserve Bank;
     provided, that in connection with each sale, assignment or transfer (other
     than to an Affiliate, a Bank or a Federal Reserve Bank), shall require the
     consent of Agent and the Borrowers, which consents will not be unreasonably
     withheld; provided, however, that if an Event of Default has occurred and
     is continuing, the consent of the Borrowers shall not be required. Any such
     assignee, transferee or recipient shall have, to the extent of such sale,
     assignment, or transfer, the same rights, benefits and obligations as it
     would if it were such Lender and a holder of such Note, Commitment and
     rights and obligations, including, without limitation, the right to vote on
     decisions requiring consent or approval of all Lenders or Majority Lenders
     and the

                                      56
<PAGE>

     obligation to fund its Commitment; provided, that (1) each such sale,
     assignment, or transfer (other than to an Affiliate, a Bank or a Federal
     Reserve Bank) shall be in an aggregate principal amount not less than
     $5,000,000, (2) each remaining Lender shall at all times maintain
     Commitment then outstanding in an aggregate principal amount at least equal
     to $5,000,000; (3) each such sale, assignment or transfer shall be of a Pro
     Rata portion of such Lender's Commitment, (4) no Lender may offer to sell
     its Note or Notes, Commitment, rights and obligations or interests therein
     in violation of any securities laws; and (5) no such assignments (other
     than to a Federal Reserve Bank) shall become effective until the assigning
     Lender and its assignee delivers to Agent and Borrowers an Assignment and
     Acceptance and the Note or Notes subject to such assignment and other
     documents evidencing any such assignment. An assignment fee in the amount
     of $3,500 for each such assignment (other than to an Affiliate, a Bank or
     the Federal Reserve Bank) will be payable to Agent by assignor or assignee.
     Within five (5) Business Days after its receipt of copies of the Assignment
     and Acceptance and the other documents relating thereto and the Note or
     Notes, the Borrowers shall execute and deliver to Agent (for delivery to
     the relevant assignee) a new Note or Notes evidencing such assignee's
     assigned Commitment and if the assignor Lender has retained a portion of
     its Commitment, a replacement Note in the principal amount of the
     Commitment retained by the assignor (except as provided in the last
     sentence of this paragraph (a) such Note or Notes to be in exchange for,
     but not in payment of, the Note or Notes held by such Lender). On and after
     the effective date of an assignment hereunder, the assignee shall for all
     purposes be a Lender, party to this Agreement and any other Loan Document
     executed by the Lenders and shall have all the rights and obligations of a
     Lender under the Loan Documents, to the same extent as if it were an
     original party thereto, and no further consent or action by Borrowers,
     Lenders or the Agent shall be required to release the transferor Lender
     with respect to its Commitment assigned to such assignee and the transferor
     Lender shall henceforth be so released.

         (b)  Each Lender shall have the right to grant participations in all or
     any part of such Lender's Notes and Commitment hereunder to one or more
     pension plans, investment funds, insurance companies, financial
     institutions or other Persons, provided, that:

         (c)  each Lender granting a participation shall retain the right to
     vote hereunder, and no participant shall be entitled to vote hereunder on
     decisions requiring consent or approval of Lender or Majority Lenders
     (except as set forth in (iii) below);

         (d)  in the event any Lender grants a participation hereunder, such
     Lender's obligations under the Loan Documents shall remain unchanged, such
     Lender shall remain solely responsible to the other parties hereto for the
     performance of such obligations, such Lender shall remain the holder of any
     such

                                      57
<PAGE>

     Note or Notes for all purposes under the Loan Documents, and Agent, each
     Lender and Borrowers shall be entitled to deal with the Lender granting a
     participation in the same manner as if no participation had been granted;
     and

         (e)  no participant shall ever have any right by reason of its
     participation to exercise any of the rights of Lenders hereunder, except
     that any Lender may agree with any participant that such Lender will not,
     without the consent of such participant (which consent may not be
     unreasonably withheld) consent to any amendment or waiver requiring
     approval of all Lenders.

              (i)  It is understood and agreed that any Lender may provide to
         assignees and participants and prospective assignees and participants
         financial information and reports and data concerning Borrowers'
         properties and operations which was provided to such Lender pursuant to
         this Agreement.

              (ii) Upon the reasonable request of either Agent or Borrowers,
         each Lender will identify those to whom it has assigned or participated
         any part of its Notes and Commitment, and provide the amounts so
         assigned or participated.

     29. CHOICE OF FORUM: CONSENT TO SERVICE OF PROCESS AND JURISDICTION.  THE
OBLIGATIONS OF BORROWERS UNDER THE LOAN DOCUMENTS ARE PERFORMABLE IN HARRIS
COUNTY, TEXAS.  ANY SUIT, ACTION OR PROCEEDING AGAINST THE BORROWERS WITH
RESPECT TO THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
THEREOF, MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF HARRIS,
OR IN THE UNITED STATES COURTS LOCATED IN HARRIS COUNTY, TEXAS AND THE BORROWERS
HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE
OF ANY SUCH SUIT, ACTION OR PROCEEDING.  THE BORROWERS HEREBY IRREVOCABLY
CONSENT TO SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT BY
THE MAILING THEREOF BY LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
TO THE BORROWERS, AS APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN
SECTION 17.  THE BORROWERS HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH THEY MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED IN
THE STATE OF TEXAS, COUNTY OF HARRIS, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

     30. WAIVER OF JURY TRIAL. THE BORROWERS HEREBY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO

                                      58
<PAGE>

TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     31. OTHER AGREEMENTS.  THIS WRITTEN CREDIT 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.

      32. FINANCIAL TERMS. All accounting terms used in this Agreement which are
not specifically defined herein shall be construed in accordance with GAAP.

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

                                       BORROWERS:

                                       3TEC ENERGY CORPORATION
                                       a Delaware corporation

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                       ENEX RESOURCES CORPORATION
                                       a Delaware corporation

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                       3TEC/CRI CORPORATION, A TEXAS CORPORATION

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                      59
<PAGE>

                                       LENDERS:

                                       BANK ONE, NA (Chicago Office)
                                       (successor by merger to Bank One,
                                       Texas, N.A.)

                                       By:
                                          -----------------------------
                                          Ronald L. Dierker, Director,
                                          Capital Markets

                                       THE BANK OF NOVA SCOTIA

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                      60
<PAGE>

                                       UNION BANK OF CALIFORNIA, N.A.

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                       BANK OF MONTREAL

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                       WELLS FARGO BANK TEXAS, NATIONAL
                                       ASSOCIATION

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------
                                       CIBC, INC.

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                       COMERICA BANK

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                      61
<PAGE>

                                       FLEET NATIONAL BANK

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                       ADMINISTRATIVE AGENT:

                                       BANK ONE, NA (Chicago Office),
                                       (successor by merger to Bank One,
                                       Texas, N.A.)

                                       By:
                                          -----------------------------
                                          Ronald L. Dierker, Director,
                                          Capital Markets

                                       SYNDICATION AGENT:

                                       BANK OF MONTREAL

                                       By:
                                          -----------------------------
                                       Name:
                                            ---------------------------
                                       Title:
                                             --------------------------

                                      62
<PAGE>

                                                                     EXHIBIT "A"

                              NOTICE OF BORROWING

     The undersigned hereby certifies that he is the ___________________ of 3TEC
ENERGY CORPORATION, a Delaware corporation and that as such he is authorized
execute this Notice of Borrowing on behalf of all of the Borrowers (as such term
is defined in the Agreement).  With reference to that certain Third Restated
Credit Agreement dated as of March __, 2001 (as same may be amended, modified,
increased, supplemented and/or restated from time to time, the "Agreement")
entered into by and between Borrowers and BANK ONE, NA (successor by merger to
Bank One, Texas, N.A.) ("Bank One"), and the financial institutions party
thereto (the "Lenders"), the undersigned further certifies, represents and
warrants on behalf of the Borrowers that all of the foregoing statements are
true and correct (each capitalized term used herein having the same meaning
given to it in the Agreement unless otherwise specified):

          (a) Borrowers request that the Lenders advance Borrowers on the Loan
     _____________ the aggregate sum of $________________ by no later than
     __________________.  Immediately following such Advance, the aggregate
     outstanding balance of Advances shall equal $_________________ on the Loan.

          (b) This Advance shall be a: Prime Rate Loan ____________, or a LIBOR
     Loan ______________, (if LIBOR please state requested Interest Period
     ____months).

          (c) As of the date hereof, and as a result of the making of the
     requested Advance, there does not and will not exist any Default or Event
     of Default.

          (d) Borrowers have performed and complied with all agreements and
     conditions contained in the Agreement which are required to be performed or
     complied with by Borrowers before or on the date hereof.

          (e) The representations and warranties contained in the Agreement are
     true and correct in all material respects as of the date hereof and shall
     be true and correct upon the making of the Advance, with the same force and
     effect as though made on and as of the date hereof and thereof.

          (f) No change that would cause a Material Adverse Effect to the
     condition, financial or otherwise, of Borrowers has occurred since the most
     recent Financial Statement provided to the Lenders.
<PAGE>

     EXECUTED AND DELIVERED this _____ day of ___________, ______.

                                    3TEC ENERGY CORPORATION
                                    a Delaware corporation

                                    By:______________________________

                                    Name:____________________________

                                    Title:___________________________

                                       2
<PAGE>

                                  EXHIBIT "B"

                                      NOTE

$_____________                    Dallas,Texas                 ___________, ____

     FOR VALUE RECEIVED, the undersigned 3TEC ENERGY CORPORATION, a Delaware
corporation ("3TEC") (successor in interest to Middle Bay Oil Company, Inc.),
ENEX RESOURCES CORPORATION, a Delaware corporation ("Enex") and 3TEC/CRI
CORPORATION, a Texas corporation ("Classic") (3TEC, Enex and Classic are
hereinafter collectively referred to as "Borrowers", and individually as a
"Borrower") hereby unconditionally,, jointly and severally, promise to pay to
the order of _____________________ (the "Lender") at the offices of BANK ONE, NA
(successor by merger to Bank One, Texas, N.A.) (the "Agent") in Dallas County,
Texas, the principal sum of _____________________ AND __/100 DOLLARS
($______________), in lawful money of the United States of America together with
interest from the date hereof until paid at the rates specified in the Third
Restated Credit Agreement (as hereinafter defined).  All payments of principal
and interest due hereunder are payable at the offices of Agent at 1717 Main
Street, Dallas, Texas 75201 attention:  Energy Department, or at such other
address as Lender shall designate in writing to Borrowers.

     The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Third Restated Credit
Agreement.

     Notwithstanding anything to the contrary contained herein, while the
obligations of the Borrowers under this Note and the Third Restated Credit
Agreement are joint and several obligations, the liability of Enex Resources
Corporation and 3TEC/CRI Corporation under the Notes and the Third Restated
Credit Agreement shall be limited to the maximum amount of liability that can be
incurred without rendering the obligations of Enex Resources Corporation and
3TEC/CRI Corporation under the Notes and the Third Restated Credit Agreement
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer, and not for any greater amount.

     This Note is executed pursuant to that certain Third Restated Credit
Agreement dated of even date herewith between Borrowers, the Agents and Lenders
(the "Restated Credit Agreement"), and is one of the Notes referred to therein.
Reference is made to the Restated Credit Agreement and the Loan Documents (as
that term is defined in the Restated Credit Agreement) for a statement of
prepayment, rights and obligations of Borrowers, for a statement of the terms
and conditions under which the due date of this Note may be accelerated and for
statements regarding other matters affecting this Note (including without
limitation the obligations of the holder hereof to advance funds hereunder,
principal and interest payment due dates, voluntary and mandatory prepayments,
exercise of rights and remedies, payment of attorneys' fees, court costs and
other costs of collection and certain waivers by Borrowers and others now or
hereafter obligated for payment of any sums due hereunder).  Upon the occurrence
of an Event of Default, as that term is defined in the Restated Credit Agreement
and Loan
<PAGE>

Documents, the holder hereof (i) may declare forthwith to be entirely
and immediately due and payable the principal balance hereof and the interest
accrued hereon, and (ii) shall have all rights and remedies of the Lender under
the Restated Credit Agreement and Loan Documents.  This Note may be prepaid in
accordance with the terms and provisions of the Restated Credit Agreement.

     Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate (as such term is defined in the Restated
Credit Agreement), and, if the holder hereof ever receives, collects, or applies
as interest, any such amount which would be excessive interest, it shall be
deemed a partial prepayment of principal and treated hereunder as such; and, if
the indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrowers.  In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrowers
and the holder hereof shall, to the maximum extent permitted under applicable
law (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) spread the total amount of interest throughout the entire
contemplated term of the obligations evidenced by this Note and/or referred to
in the Restated Credit Agreement so that the interest rate is uniform throughout
the entire term of this Note; provided that, if this Note is paid and performed
in full prior to the end of the full contemplated term thereof; and if the
interest received for the actual period of existence thereof exceeds the Maximum
Rate, the holder hereof shall refund to Borrowers the amount of such excess or
credit the amount of such excess against the indebtedness evidenced hereby, and,
in such event, the holder hereof shall not be subject to any penalties provided
by any laws for contracting for, charging, taking, reserving or receiving
interest in excess of the Maximum Rate.

     If any payment of principal or interest on this Note shall become due on a
day other than a Business Day (as such term is defined in the Restated Credit
Agreement), such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in computing interest in
connection with such payment.

     If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrowers agree to pay all costs of
collection, including, but not limited to, court costs and reasonable attorneys'
fees.

     Borrowers and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, protest, notice of protest and nonpayment, as to this Note and as to
each and all installments hereof, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes.

                                       2
<PAGE>

     This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas.

     THIS WRITTEN NOTE, THE THIRD RESTATED CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENTS 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.

     EXECUTED as of the date and year first above written.

                                    BORROWERS:

                                    3TEC ENERGY CORPORATION
                                    a Delaware corporation

                                    By:______________________________

                                    Name:____________________________

                                    Title:___________________________

                                    ENEX RESOURCES CORPORATION
                                    a Delaware corporation

                                    By:______________________________

                                    Name:____________________________

                                    Title:___________________________

                                    3TEC/CRI CORPORATION
                                    a Texas corporation

                                    By:______________________________

                                    Name:____________________________

                                    Title:___________________________

                                       3
<PAGE>

                                  EXHIBIT "C"

                           CERTIFICATE OF COMPLIANCE

     The undersigned hereby certifies that he is the ___________________ of
3TEC ENERGY CORPORATION, a Delaware corporation and that as such he is
authorized to execute this Certificate of Compliance on behalf of the 3TEC
Energy Corporation, Enex Resources Corporation and 3TEC/CRI Corporation (the
"Borrowers").  With reference to that certain Third Restated Credit Agreement,
dated as of March ___, 2001, (as same may be amended, modified, increased,
supplemented and/or restated from time to time, the "Agreement") entered into
between the Borrowers and BANK ONE, NA (successor by merger to Bank One, Texas,
N.A.) as "Agent," for itself and the Lenders signatory thereto (the "Lenders"),
the undersigned further certifies, represents and warrants on behalf of the
Borrowers that all of the following statements are true and correct (each
capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified):

          (a) The Borrowers have fulfilled in all material respects its
     obligations under the Notes and Security Instruments, including the
     Agreement, and all representations and warranties made herein and therein
     continue (except to the extent they relate solely to an earlier date) to be
     true and correct in all material respects [if the representations and
     warranties are not true and correct, the party signing this certificate
     shall except from the foregoing statement the matters for which such
     representations and warranties are no longer true specifying the nature of
     any such change.]

          (b) No Event of Default has occurred under the Security Instruments,
     including the Agreement [if an Event of Default has occurred, the party
     certifying hereto shall specify the facts constituting the Event of Default
     and the nature and status thereof].

          (c) To the extent requested from time to time by the Agent, the
     certifying party shall specifically affirm compliance of the Borrowers in
     all material respects with any of their representations and warranties
     (except to the extent they relate solely to an earlier date) or obligations
     under said instruments.

          (d) Financial Computations for the period ending ________________
     (provide calculations on a consolidated basis):

               (i)  Current Ratio; and

               (ii) Minimum Interest Coverage Ratio.
<PAGE>

     EXECUTED, DELIVERED AND CERTIFIED TO this ______ day of __________, 20__.

                                    3TEC ENERGY CORPORATION
                                    a Delaware corporation

                                    By:______________________________

                                    Name:____________________________

                                    Title:___________________________

                                       2
<PAGE>

                                  EXHIBIT "D"

                      ASSIGNMENT AND ACCEPTANCE AGREEMENT

     This Assignment Agreement (this "Assignment Agreement") between
___________________ (the "Assignor") and ____________________________ (the
"Assignee") is dated as of ____________, 20_____.  The parties hereto agree as
follows:

     1.  PRELIMINARY STATEMENT. The Assignor is a party to a Third Restated
Credit Agreement (which, as it may be amended, modified, renewed or extended
from time to time is herein called the "Restated Credit Agreement") described in
Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed to
them in the Restated Credit Agreement.

     2.  ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Restated
Credit Agreement and the other Loan Documents, such that after giving effect to
such assignment the Assignee shall have purchased pursuant to this Assignment
Agreement the percentage interest specified in Item 3 of Schedule 1 of all
outstanding rights and obligations under the Restated Credit Agreement and the
other Loan Documents relating to the facilities listed in Item 3 of Schedule 1.
The aggregate Commitment (or Loans, if the applicable Commitment has been
terminated) purchased by the Assignee hereunder is set forth in Item 4 of
Schedule 1.

     3.  EFFECTIVE DATE.  The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 or two Business Days (or such shorter period agreed to by the Agent) after
this Assignment Agreement, together with any consents required under the
Restated Credit Agreement, are delivered to the Agent. In no event will the
Effective Date occur if the payments required to be made by the Assignee to the
Assignor on the Effective Date are not made on the proposed Effective Date.

     4.  PAYMENT OBLIGATIONS. In consideration for the sale and assignment of
Loans hereunder, the Assignee shall pay the Assignor, on the Effective Date, the
amount agreed to by the Assignor and the Assignee. On and after the Effective
Date, the Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby. The
Assignee will promptly remit to the Assignor any interest on Loans and fees
received from the Agent which relate to the portion of the Commitment or Loans
assigned to the Assignee hereunder for periods prior to the Effective Date and
not previously paid by the Assignee to the Assignor. In the event that either
party hereto receives any payment to which the other party hereto is entitled
under this Assignment Agreement, then the party receiving such amount shall
promptly remit it to the other party hereto.

     5.  RECORDATION FEE. The Assignor and Assignee each agree to pay one-half
of the recordation fee required to be paid to the Agent in connection with this
Assignment

                                    Page 1
<PAGE>

Agreement unless otherwise specified in Item 6 of Schedule 1.

     6.  REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder, (ii) such
interest is free and clear of any adverse claim created by the Assignor and
(iii) the execution and delivery of this Assignment Agreement by the Assignor is
duly authorized. It is understood and agreed that the assignment and assumption
hereunder are made without recourse to the Assignor and that the Assignor makes
no other representation or warranty of any kind to the Assignee. Neither the
Assignor nor any of its officers, directors, employees, agents or attorneys
shall be responsible for (i) the due execution, legality, validity,
enforceability, genuineness, sufficiency or collectability of any Loan Document,
including without limitation, documents granting the Assignor and the other
Lenders a security interest in assets of the Borrowers or any guarantor, (ii)
any representation, warranty or statement made in or in connection with any of
the Loan Documents, (iii) the financial condition or creditworthiness of the
Borrowers or any guarantor, (iv) the performance of or compliance with any of
the terms or provisions of any of the Loan Documents, (v) inspecting any of the
property, books or records of the Borrowers, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any collateral securing
or purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the Loan
Documents.

     7.  REPRESENTATIONS AND UNDERTAKINGS OF THE ASSIGNEE. The Assignee (i)
confirms that it has received a copy of the Restated Credit Agreement, together
with copies of the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment Agreement, (ii) agrees that
it will, independently and without reliance upon the Agent, the Assignor or any
other Lender and based on such documents and information at it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, (iii) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto, (iv) confirms
that the execution and delivery of this Assignment Agreement by the Assignee is
duly authorized, (v) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Loan Documents are required to
be performed by it as a Lender, (vi) agrees that its payment instructions and
notice instructions are as set forth in the attachment to Schedule 1, (vii)
confirms that none of the funds, monies, assets or other consideration being
used to make the purchase and assumption hereunder are "plan assets" as defined
under ERISA and that its rights, benefits and interests in and under the Loan
Documents will not be "plan assets" under ERISA, (viii) agrees to indemnify and
hold the Assignor harmless against all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's non-
performance of the obligations assumed under this Assignment Agreement, and

                                       2
<PAGE>

(ix) if applicable, attaches the forms prescribed by the Internal Revenue
Service of the United States certifying that the Assignee is entitled to receive
payments under the Loan Documents without deduction or withholding of any United
States federal income taxes.

     8.  GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas.

     9.  NOTICES.  Notices shall be given under this Assignment Agreement in the
manner set forth in the Restated Credit Agreement.  For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall be
the address set forth in the attachment to Schedule 1.

     10.  COUNTERPARTS; DELIVERY BY FACSIMILE.  This Assignment Agreement may be
executed in counterparts.  Transmission by facsimile of an executed counterpart
of this Assignment Agreement shall be deemed to constitute due and sufficient
delivery of such counterpart and such facsimile shall be deemed to be an
original counterpart of this Assignment Agreement.

     IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have
executed this Assignment Agreement by executing Schedule 1 hereto as of the date
first above written.

                                    [ASSIGNOR]

                                    By:______________________________

                                    Name:____________________________

                                    Title:___________________________

                                    Address:_________________________

                                            _________________________

                                            _________________________

                                    [ASSIGNEE]

                                    By:______________________________

                                    Name:____________________________

                                    Title:___________________________

                                    Address:_________________________

                                            _________________________

                                            _________________________

                                       3
<PAGE>

(If required)

ACKNOWLEDGED AND CONSENTED TO:

BANK ONE, NA (successor by merger to
Bank One, Texas, N.A) (as Agent)
(Chicago Office)

By:___________________________________

Name:_________________________________

Title:________________________________

By:___________________________________

Name:_________________________________

Title:________________________________

                                       4
<PAGE>

                                   SCHEDULE 1

                                     LIENS

NONE
<PAGE>

                                   SCHEDULE 2

                              FINANCIAL CONDITION

NONE
<PAGE>

                                   SCHEDULE 3

                                  LIABILITIES

1.   Senior Subordinate Promissory Note dated August 27, 1999 from 3TEC ENERGY
     CORPORATION, successor in interest to Middle Bay Oil Company, Inc., to W/E
     Energy  Company, L.L.C., formerly known as 3TEC Energy Company L.L.C.,
     which was successor in interest to 3TEC Energy Corporation, in the
     principal amount of $10,700,000.

2.   Senior Subordinate Promissory Note dated August 27, 1999 from 3TEC ENERGY
     CORPORATION, successor in interest to Middle Bay Oil Company, Inc. to
     Shoeinvest II, LP in the principal amount of $100,000.

3.   Senior Subordinate Promissory Note dated August 27, 1999 from 3TEC ENERGY
     CORPORATION, successor in interest to Middle Bay Oil Company, Inc., to
     Shoemaker Family Partners, LP in the principal amount of $50,000.

4.   Senior Subordinate Convertible Promissory Note dated October 19, 1999 from
     3TEC ENERGY CORPORATION, successor in interest to Middle Bay Oil Company,
     Inc. to The Prudential Insurance Company of America in the principal amount
     of $2,373,844.
<PAGE>

                                   SCHEDULE 4

                                   LITIGATION
1.   Civil Action No. 97-40-A-M2; J. B. Hanks Co., Inc. v. Shore Oil Company; In
     the United States District Court for the Middle District of Louisiana.

2.   Cause No. 17522; Famcor Oil, Inc. v. Middle Bay Oil Company, Inc., et al;
     In the 411th Judicial District Court of Polk County, Texas.

3.   Cause No. 97-2452-B; C. W. Resources, Inc. and Wagner & Brown, Ltd. v.
     Valence Operating Company; In the 124th Judicial District Court of Gregg
     County, Texas.

4.   Cause No. 2000-975-A; Madera Production Company v. Atlantic Richfield
     Company, Wagner & Brown, Ltd., C W Resources, Inc. Carl Westerman,
     Westerman Royalty Company, Estate of H. G. Westerman; In the 188th Judicial
     District Court in and for Gregg County, Texas.
<PAGE>

                                   SCHEDULE 5

                                  SUBSIDIARIES

Subsidiaries of 3TEC Energy Corporation

1.   Enex Resources Corporation, a Delaware corporation (80% owned by 3TEC
     Energy Corporation)

2.   3TEC/CRI Corporation (formerly known as "Classic Resources, Inc."), a Texas
     corporation
<PAGE>

                                   SCHEDULE 6

                             ENVIRONMENTAL MATTERS

1.   See environmental report regarding 3TEC Energy Corporation, successor in
     interest to Middle Bay Oil Company, Inc., which has previously been
     delivered to Agent.

2.   See report from The Hinds Group, Inc., dated October 18, 1999, regarding
     the Floyd Oil Company properties which has previously been delivered to
     Agent.

3.   See environmental assessment from White Rock Consulting, Inc., dated May,
     2000, regarding certain fo the CWR, et. al. properties which has previously
     been delivered to Agent.

4.   See environmental report from Kane Environmental Engineering, Inc., dated
     January 20, 2001, regarding certain of the 3TEC/CRI properties which has
     previously been delivered to Agent.
<PAGE>

                                   SCHEDULE 7

                                 TITLE MATTERS

   1.  Mortgages required on these properties when the word "NEED" appears
       opposite the property name under the column "Date-Mortgaged."

   2.  Title Opinions required on those properties where the word "NEED" appears
       opposite the property name under the column "Title-Acceptable."

<TABLE>
<CAPTION>

===================================================================================================================================
                                                                        ENGINEERING        DATE           TITLE INFORMATION
                                                                       =============================================================
 STATE   COUNTY      FIELD              PROPERTY NAME                  WI        NRI     MORTGAGED ACCEPTABLE  CURATIVE UNACCEPTABLE
====================================================================================================================================
<S> <C>   <C>        <C>                <C>                            <C>        <C>     <C>        <C>         <C>       <C>
-----------------------------------------------------------------------------------------------------------------------------------
1   LA   LAFOURCHE   BAY DE CHENE       S/L 356 A-135 LT (UA-8 SND)    0.5000    0.3773   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
2   LA   LAFOURCHE   BAY DE CHENE       S/L 356 A-135 UT (5050'SND)    0.4315    0.3236   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
3   LA   LAFOURCHE   BAY DE CHENE       S/L 356 B-137 (LR/MD 9950')    0.5000    0.3773   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
4   LA   LAFOURCHE   BAY DE CHENE       S/L 356 B-45 ST (9950')        0.5000    0.3773   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
5   OK   CADDO       BINGER NORTHEAST   EAST BINGER UNIT               0.0255    0.0223   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
6   OK   PAYNE       ORLANDO EAST       BARNES 1A                      1.0000    0.7586   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
7   TX   GREGG       GLENWOOD           COLLINS, T.GU 1                0.3548    0.2886   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
8   TX   GREGG       GLENWOOD           RICHEY, G W GU 10              0.3165    0.2720   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
9   TX   GREGG       GLENWOOD           RICHEY, G W GU 11              0.3165    0.2720   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
10   TX  GREGG       GLENWOOD           RICHEY, G W GU 9               0.3165    0.2720   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
11   TX  HANSFORD    HANNAS DRAW        GRAVES, SUSIE 2                0.9800    0.8575   Nov-99     NEED
-----------------------------------------------------------------------------------------------------------------------------------
12   TX  UPSHUR      GLENWOOD           BRAWLEY 2                      0.3450    0.2414   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
13   TX  UPSHUR      GLENWOOD           COLLINS, T. GU 2               0.3548    0.2886   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
14   TX  UPSHUR      GLENWOOD           GLADEWATER GU 14 2             0.3272    0.2377   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
15   TX  UPSHUR      GLENWOOD           GLADEWATER GU 15 10            0.2392    0.1832   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
16   TX  UPSHUR      GLENWOOD           GLADEWATER GU 16 12            0.2120    0.1653   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
17   TX  UPSHUR      GLENWOOD           SOUTH BRAWLEY GU 4             0.3450    0.2466   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
18   TX  UPSHUR      GLENWOOD           SOUTH BRAWLEY GU 5             0.3450    0.2466   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
19   TX  UPSHUR      ROSEWOOD           SOWELL, J.L. 2                 0.7921    0.6853   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
20   LA  LAFOURCHE   BAY DE CHENE       S/L 356 A-135 (5100' GAS PNP)  0.4315    0.3236   Jun-00     NEED
===================================================================================================================================
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

===================================================================================================================================
                                                                        ENGINEERING        DATE           TITLE INFORMATION
                                                                       =============================================================
 STATE   COUNTY      FIELD              PROPERTY NAME                  WI        NRI     MORTGAGED ACCEPTABLE  CURATIVE UNACCEPTABLE
====================================================================================================================================
<S> <C>   <C>        <C>                <C>                            <C>        <C>     <C>        <C>         <C>       <C>
-----------------------------------------------------------------------------------------------------------------------------------
22   LA  LAFOURCHE   BAY DE CHENE       S/L 356 A-135 LT (UA-8 GAS       0.5000  0.3773   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
23   LA  LAFOURCHE   BAY DE CHENE       S/L 356 B-137 (LR 9500 GAS       0.5000  0.3867   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
24   LA  LAFOURCHE   BAY DE CHENE       S/L 356 B-137 (U 9500 PNP)       0.5000  0.3773   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
25   LA  LAFOURCHE   BAY DE CHENE       S/L 356 B-137 (U 9950 PNP)       0.5000  0.3773   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
26   LA  LAFOURCHE   BAY DE CHENE       S/L 356 B-45 ST (8900' PNP)      0.5000  0.3867   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
27   LA  LAFOURCHE   BAY DE CHENE       S/L 356 B-45 ST (9225'/9500 PNP) 0.5000  0.3867   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
28   LA  LAFOURCHE   BAY DE CHENE       S/L 356 B-45 ST (9950' USND PNP) 0.5000  0.3867   Jun-00     NEED
-----------------------------------------------------------------------------------------------------------------------------------
29   TX  PANOLA      BECKVILLE          CRAWFORD, BELLE 5                0.8028  0.5794   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
30   TX  PANOLA      BECKVILLE          CRAWFORD, BELLE 6                0.8395  0.6053   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
31   TX  PANOLA      BECKVILLE          CRAWFORD, BELLE 7                0.8395  0.6053   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
32   TX  PANOLA      BECKVILLE          CRAWFORD, BELLE 8                0.8799  0.6336   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
33   TX  PANOLA      BECKVILLE          CRAWFORD, BELLE 9                0.8799  0.6336   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
34   TX  PANOLA      BECKVILLE          WILLIAMS, MAYO 2                 0.8116  0.6451   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
35   TX  PANOLA      BECKVILLE          WILLIAMS, MAYO 3                 0.8116  0.6451   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
36   TX  PANOLA      BECKVILLE          WILLIAMS, MAYO 4                 0.8116  0.6451   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
37   TX  PANOLA      BECKVILLE WEST     CRAWFORD, BELLE 1                0.6598  0.4637   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
38   TX  PANOLA      BECKVILLE WEST     CRAWFORD, BELLE 2                0.6223  0.4339   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
39   TX  PANOLA      BECKVILLE WEST     CRAWFORD, BELLE 3                0.6236  0.4383   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
40   TX  PANOLA      BECKVILLE WEST     CRAWFORD, BELLE 4                0.5766  0.4054   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
41   TX  PANOLA      BECKVILLE WEST     TOMPKINS, ELVE 2                 0.5607  0.4260   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
42   TX  PANOLA      BECKVILLE WEST     TOMPKINS, ELVE 3                 0.5322  0.4041   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
43   TX  PANOLA      BECKVILLE WEST     TOMPKINS, ELVE 4                 0.6805  0.4246   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
44   TX  PANOLA      CARTHAGE           HUNT 5                           1.0000  0.7300   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
45   TX  PANOLA      CARTHAGE           HUNT 6                           1.0000  0.7300   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
46   TX  PANOLA      CARTHAGE           HUNT 9                           1.0000  0.7300   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
47   TX  RUSK        OAK HILL           HENDERSON "E" 1                  0.9433  0.7722   NEED       NEED
===================================================================================================================================
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

===================================================================================================================================
                                                                        ENGINEERING        DATE           TITLE INFORMATION
                                                                       =============================================================
 STATE   COUNTY      FIELD              PROPERTY NAME                  WI        NRI     MORTGAGED ACCEPTABLE  CURATIVE UNACCEPTABLE
====================================================================================================================================
<S> <C>   <C>        <C>                <C>                            <C>        <C>     <C>        <C>         <C>       <C>
-----------------------------------------------------------------------------------------------------------------------------------
49   TX  RUSK        OAK HILL           HENDERSON "E" 3                  0.9392  0.7721   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
50   TX  RUSK        OAK HILL           HENDERSON "E" 4                  0.9399  0.7731   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
51   TX  RUSK        OAK HILL           HENDERSON "E" 5                  0.9396  0.7728   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
52   TX  RUSK        OAK HILL           HENDERSON "E" 6                  0.9389  0.7722   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
53   TX  RUSK        OAK HILL           HENDERSON "E" 7                  0.9392  0.7725   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
54   TX  RUSK        OAK HILL           HENDERSON "E" 8                  0.9389  0.7722   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
55   TX  PANOLA      BECKVILLE          CRAWFORD 10                      0.8799  0.6336   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
56   TX  PANOLA      BECKVILLE          CRAWFORD 11                      0.8799  0.6336   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
57   TX  PANOLA      BECKVILLE          CRAWFORD 12                      0.8799  0.6336   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
58   TX  PANOLA      BECKVILLE          WILLIAMS, MAYO 5                 0.8116  0.6451   NEED       NEED
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                   SCHEDULE 8

                                CURATIVE MATTERS

CWR ACQUISITION GLOBAL REQUIREMENT:

One of the participating sellers (and assignors) to 3TEC Energy Corporation in
the CW Resources ("CWR") acquisition was Westerman Royalty, Inc., a Texas
corporation ("WRI").  WRI derived its interest from an unrecorded assignment out
of Dawn W. Tadlock ("Tadlock") and Michelle W. Cook ("Cook"), the sole partners
of Westerman Royalty Company, a Texas general partnership ("WRC").  The exhibit
attached to the unrecorded assignment from Tadlock and Cook to WRI does not
contain a legally sufficient description of the oil and gas interest sought to
be conveyed.  This issue effects approximately 6% of the entire CWR acquisition
value, and is a recurring title requirement in the Limited Oil and Gas Leasehold
Title Opinions delivered in connection with 3TEC acquisition of the CWR
interest, i.e. Requirement 2 in the Supplemental Limited Oil and Gas Leasehold
Title Opinion dated January 22, 2001 from Cotton, Bledsoe, Tighe & Dawson
("CBTD") covering the John Barksdale Gas Unit, Wells 4 & 5 (T.O. 16,138).
REQUIREMENT:  Secure and file for record an assignment from WRC, and Dawn W.
Tadlock and Michelle W. Cook, sole partners of WRC, conveying the interest of
WRC in the applicable lands and leases, utilizing property descriptions
satisfactory to CBTD.

AMY AYCOCK, ST. MARY PARISH, LA:
Prior opinion covered drillsite lease only. REQUIREMENT:  Furnish a division
order title opinion as regards the 14,800' RA SUA Amy Aycock #1, Garden City
Field, St. Mary Parish, Louisiana, established in connection with the Amy Aycock
well.

KUEHLING #5 PLAN 1 RB SUA MBPDP, VERMILION PARISH, LA:
REQUIREMENT:  Furnish a recorded copy of the release of the following mortgage:
Deed of Trust, Mortgage, Assignment, Security Agreement and Financing Statement,
effective 4/27/1995, recorded as Entry # 9504681 in Vermilion Parish from Shore
Oil Company to Wells Fargo Bank, N.A. as regards the 13,400 RB SU A Kuehling #5.

VALL K 1-2 & VALL K 1-4, TEXAS COUNTY, OK:
REQUIREMENT:  Furnish complete copy of drilling title opinion from George H.
Williams dated May 16, 1999 covering Sec. 1, T IN-R12-E Texas County, Oklahoma.
Copy previously furnished is missing last 12 pages.

                                    Page 1
<PAGE>

ARCO TOOKE, TW LEE GU1, JR WILLIAMS 1, GLADEWATER GAS UNIT 19-5 AND GLADEWATER
GAS UNIT 19-7, GREGG & UPSHUR COUNTIES, TX:

These properties are subject to litigation styled Madera Production Company v.
Atlantic Richfield Company, et al, CV99-5652, C-68th Judicial District Court for
Dallas County, Texas, transferred on venue motion to the 188th Judicial District
Court for Gregg County, Texas, docketed as 2000-975-A, in which plaintiff seeks
to divest the CWR sellers of all interest acquired from ARCO in these
properties. REQUIREMENT:  Furnish dismissal or judgment in favor of the CWR
defendants, or indemnity satisfactory to Bank and Bank's counsel.

G. W. RICHEY GU #3, GREGG COUNTY, TX:
Supplemental Limited Oil and Gas Leasehold Title Opinion dated June 5, 2000 from
Cotton, Bledsoe, Tighe & Dawson, as regards G. W. Richey GU #3, credits all
working interest to the Estate of H. G. Westerman, subject to the Liens and
Encumbrances tabulated therein.  REQUIREMENT:  Satisfy Requirements 2 and 3 in
the Cotton Bledsoe opinion and furnish supplemental title opinion.

G. W. RICHEY GU #7, GREGG COUNTY, TX:
Supplemental Limited Oil and Gas Leasehold Title Opinion dated June 5, 2000 from
Cotton, Bledsoe, Tighe & Dawson, as regards G. W. Richey GU #7 credits, all
working interest to the Estate of H. G. Westerman, subject to the Liens and
Encumbrances tabulated therein.  REQUIREMENT:  Satisfy Requirements 2 and 3 in
the Cotton Bledsoe opinion and furnish supplemental title opinion.

T. B. HARRIS GU 7 & 8, GREGG COUNTY, TX:
Record title credited to Exxon Corporation.  REQUIREMENT: Deliver assignments
from Exxon to CWR sellers and 3TEC Energy Corporation adequate to satisfy
Requirement 1 in Supplemental Limited Oil and Gas Leasehold Title Opinion dated
July 3, 2000 from Cotton, Bledsoe, Tighe & Dawson regarding the T. B. Harris #7
and #8, and furnish supplemental title opinion.

EDNA MILLER #'S 1, 2, 3 & 4, POLK COUNTY, TX:
These properties are subject to litigation styled Famcor Oil, Inc. v. Whiting
Petroleum Corp. et al, in the 411th District Court for Polk County, Texas No.
17522, wherein plaintiff claims an interest in the Edna Miller gas unit.  Based
upon the settlement negotiations, the interest of 3TEC Energy Corporation will
be reduced by approximately 10%.  REQUIREMENT:  Furnish approved settlement
agreement and order dismissing the lawsuit.

JOHN BARKSDALE 2, 3, 4, 5, 6 & 7, UPSHUR COUNTY, TX:
These properties are subject to litigation styled Valence Operating Company v.
CW Resources, Inc., Cause 624-99 in the 115th Judicial District Court for Upshur
County, Texas, wherein plaintiff alleges CWR improperly deprived plaintiff of a
proportionate share of the Exxon non-consenting interest in these properties.
REQUIREMENT:  Furnish dismissal or judgment in favor of CWR, or an indemnity
satisfactory to Bank and Bank's counsel.

                                    Page 2
<PAGE>

W. L. DIXON B GU, UPSHUR COUNTY, TX:
This property is subject to litigation styled W. L. Dixon, Individually and on
behalf of others, et al v. Amoco Production Company, et al, Cause 396-99 in the
115th Judicial District Court for Upshur County, Texas, wherein the plaintiff
alleges that the Dixon B unit declaration is void and seeks cancellation of the
leases.  REQUIREMENT:  Furnish dismissal or judgment in favor of defendant, or
indemnity satisfactory to Bank and Bank's counsel.

RUBEY ESTATE #2, UPSHUR COUNTY, TX:
REQUIREMENT:  Satisfy Requirement #1 in Supplemental Limited Oil an Gas
Leasehold Title Opinion dated October 24, 2000 from Cotton Bledsoe, Tighe &
Dawson as regards outstanding liens on this property.

                                    Page 3FOURTH AMENDMENT TO
                    FIFTH AMENDED AND RESTATED LOAN AGREEMENT

         This is the fourth amendment (the "Amendment") dated as of March 27,
2001, to the Fifth Amended And Restated Loan Agreement dated November 12, 1999
as amended by the first amendment dated March 24, 2000, the second amendment
dated as of August 11, 2000, and the third amendment dated February 15, 2001
(the "Loan Agreement") by and between Blonder Tongue Laboratories, Inc. having
an office at One Jake Brown Road, Old Bridge, New Jersey 08857 (the "Borrower"),
and First Union National Bank having an office at 190 River Road, Summit, New
Jersey 07901 (the "Bank").

                                    RECITALS

     A.  Borrower  has  requested  an  amendment   modifying  certain  financial
covenants and extending the "Termination Date" of the Loan Agreement to November
30, 2001.

     B. The  Bank is  willing  to amend  the Loan  Agreement  on the  terms  and
conditions set forth herein.

     NOW, THEREFORE,  in consideration of the agreement of the parties contained
herein, and intending to be legally bound, the parties hereto agree as follows:

     1. Definitions.
        -----------

     Capitalized  terms used  herein  and not  defined  shall have the  meanings
assigned to them in the Loan Agreement as amended by any prior amendments.

     2. Amendments to Loan Agreement.
        ----------------------------

          a. Section  2.1(a) is hereby  amended to replace "April 30, 2001" with
     "November 30, 2001".

          b.  Section  7.1(b) is hereby  amended,  effective  as of December 31,
     2000, to read as follows:

          "Have a Fixed  Charge  Ratio of less than (i) 1.0 to 1 at December 31,
          1999,  (ii) 1.1 to 1 for March 31,  2000,  (iii) 1.2 to 1 for June 30,
          2000,  (iv) 1.3 to 1 for September 30, 2000, (v) 1.2 to 1 for December
          31,  2000,  and (vi) 0.9 to 1.0 for March 31,  2001  (with no  minimum
          Fixed Charge Ratio being required thereafter). "Fixed Charge Ratio" of
          the Borrower as of the last day of any fiscal  quarter  shall mean the
          ratio of (x) EBITDA of the Borrower for the four fiscal quarter period
          ending on that date, to (y) the sum of (A) interest expense and income
          tax expense for the four fiscal  quarter  period  ending on that date,
          and (B) current  maturities of long term  Indebtedness and obligations
          under  capital  and  operating  leases  for the four  fiscal  quarters
          following such date."
<PAGE>

     3. General.
        -------

     This  Amendment  is made  pursuant to the Loan  Agreement,  and the parties
hereto acknowledge that all provisions of the Loan Agreement,  except as amended
hereby, shall remain in full force and effect.

     4. Definitions.
        -----------

     Whenever  appearing in the Loan Agreement or any other Loan  Document,  the
term "Agreement" shall be deemed to mean the Loan Agreement as amended hereby.
      ---------

     5. Representations and Warranties.
        ------------------------------

     The  Borrower  represents  and  warrants  to the Bank that:  (i) it has the
power, and has taken all necessary action to authorize, execute and deliver this
Amendment and perform its obligations in accordance  with the terms  thereunder,
(ii) the  Amendment is the legal,  valid and binding  obligation of the Borrower
enforceable  against  the  Borrower  in  accordance  with its terms  without any
offsets,   counterclaims  or  defenses,   (iii)  the  execution,   delivery  and
performance  of  this  Amendment  by the  Borrower  will  not  (a)  require  any
governmental approval or any other consent or approval; or (b) violate, conflict
with,  result in a breach of,  constitute a default under any agreement to which
it is a party,  or result in or require the creation of any lien upon any of the
assets of the Company or any  Subsidiary,  (iv) no Event of Default has occurred
and is  continuing  or will result from the  execution  by the  Borrower of this
Amendment,  and (v) the  financial  information  provided by the Borrower to the
Bank in  connection  with the  Borrower's  request that the Bank enter into this
Amendment is true and correct in all material respects.

     6. Audits and Valuations.
        ---------------------

     Without  changing any of the Bank's other rights under the Loan  Agreement,
the Borrower  agrees to cooperate,  and to pay the fees and expenses of the Bank
in connection,  with a collateral  audit to be conducted by Boston & Associates.
Reimbursement  for or payment of any such fees and expenses shall be made within
ten business days  following  presentation  of an invoice to the Borrower by the
Bank.

     7. Amendment Fee.
        -------------

     The Borrower shall pay to the Bank a fee of $35,000 in connection with this
Amendment which fee shall be due and payable upon the signing of this Amendment.

     8. Fees of Bank's Counsel.
        ----------------------

     The  Borrower  shall pay the fees and  expenses  of  McCarter  & English in
connection  with the  preparation  and  negotiation  of this  Amendment  and all
related documents.

-2-
<PAGE>

     9. Conditions to Effectiveness.
        ---------------------------

     It shall be a condition to the  effectiveness  of this  Amendment  that the
Bank has received the following:

          a. This  Amendment,  duly  executed on behalf of the  Borrower and the
     Bank;

          b. A  certificate  from the  Secretary  the  Borrower  (i) to which is
     attached  a copy  of the  Certificate  of  Incorporation  certified  by the
     Secretary  of State of Delaware  and a copy of the By-laws of the  Borrower
     (or a  certification  that  such  documents  have not been  modified  since
     December 11, 1995),  (ii) attesting to  authorization of the person signing
     this Amendment on behalf of the Borrower,  and (iii) setting forth the name
     and sample signature of the officers of the Borrower  authorized to execute
     and deliver this Amendment.

     10. Integration.
         -----------

     This  Amendment  together  with the Loan  Agreement  constitute  the entire
agreement and  understanding  among the parties  relating to the subject  matter
hereof and thereof and supersedes all prior proposals, negotiations,  agreements
and understandings relating to such subject matter.

     11. Severability.
         ------------

     If any provision of this Amendment  shall be held invalid or  unenforceable
in  whole  or in part in any  jurisdiction,  such  provision  shall,  as to such
jurisdiction,  be ineffective to the extent of such invalidity or enforceability
without in any manner affecting the validity or enforceability of such provision
in any other  jurisdiction or the remaining  provisions of this Amendment in any
other jurisdiction.

     12. No Defenses, Off-Sets or Counterclaims.
         --------------------------------------

     By executing this Amendment,  Borrower confirms and acknowledges that as of
the  date  of  execution   hereof,   Borrower  has  no  defenses,   off-sets  or
counterclaims  against any of Borrower's  obligations to the Bank under the Loan
Documents,  including the Loan Agreement (as amended  hereby).  Borrower  hereby
acknowledges  and agrees  that the  actual  amounts  outstanding  on the date of
execution hereof are owing the Bank without defense, offset or counterclaim.

     13. Incorporation by Reference.
         --------------------------

     This Amendment is incorporated by reference into the Loan Agreement and the
other Loan  Documents.  Except as otherwise  provided  herein,  all of the other
provisions  of the Loan  Agreement  and the  other  Loan  Documents  are  hereby
confirmed  and ratified and shall remain in full force and effect as of the date
of this Amendment.

-3-
<PAGE>

     14. Governing Law; Successors and Assigns.
         -------------------------------------

     This  Amendment  is  governed by the laws of the State of New Jersey and is
binding upon the Borrower and the Bank and their  respective  successors  and/or
assigns and/or heirs and executors, as the case may be.

     15. Counterparts.
         ------------

     This  Amendment may be executed by one or more of the parties on any number
of separate  counterparts,  and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed by their respective  officers  thereunto duly  authorized,  on the date
first above written.

                                        BLONDER TONGUE LABORATORIES, INC.

                                        By:/s/ James A. Luksch
                                           -------------------------------------
                                           James A. Luksch
                                           Chief Executive Officer and President

                                        FIRST UNION NATIONAL BANK

                                        By:/s/ Larry F. Lee
                                           -------------------------------------
                                           Larry F. Lee
                                           Vice President

-4-

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