Document:

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                                  EXHIBIT 10.1
                                  ------------

                           PURCHASE AND SALE AGREEMENT
                           ---------------------------

        This Purchase and Sale Agreement (this "Agreement") dated as of February
16, 2007, is among Five States Energy Company, L.L.C. ("Five States") and each
of the other parties listed as a party "Seller" on the signature pages hereof
(herein collectively called "Seller"), and ISRAMCO, Inc. or its designated
affiliate Isramco Energy, LLC (herein called "Buyer").

        In consideration of the mutual promises contained herein, the benefits
to be derived by each party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller
agree as follows:

                                    ARTICLE I

                                PURCHASE AND SALE

        1.01    PURCHASE AND SALE. Seller agrees to sell and convey to Buyer and
Buyer agrees to purchase and pay for the Properties (as defined below), subject
to the terms and conditions of this Agreement. For purposes of this Agreement,
Properties shall mean all of Seller's right, title and interest in and to the
real and personal property described in Exhibit "A" hereto, including, but not
limited to, all the types of property listed in Subsections (a) through (j) of
this Section 1.01, to the extent such rights or interests are a part of, grant
rights in or with respect to, or are located on the Properties described in
Exhibit "A".

                (a)     LEASES. Leasehold interests in oil, gas or other
minerals, including working interests, carried working interests, rights of
assignment and reassignment, and other interests under or in oil, gas or mineral
leases, and interests in rights to explore for and produce oil, gas and other
minerals ("Leases");

                (b)     FEE INTERESTS. Fee interests to the surface and in oil,
gas or other minerals, including rights under mineral deeds, conveyances or
assignments;

                (c)     RIGHTS IN PRODUCTION. Royalties, overriding royalties,
production payments, net profits interests, rights to take royalties in kind, or
other interests in production of oil, gas or other minerals;

                (d)     RIGHTS; WORKING INTERESTS. Rights and interests in or
derived from unit agreements, orders or decisions of state and federal
regulatory authorities establishing units, joint operating agreements, enhanced
recovery and injection agreements, farmout agreements and farmin agreements,
options, drilling agreements, exploration agreements, assignments of operating
rights, working interests and subleases;

                (e)     EASEMENTS. To the extent transferable, rights-of-way,
surface or ground leases, easements, servitudes and franchises located on or
granting rights to the Properties or property interests described in Exhibit "A"
hereto and acquired or used in connection with

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operations for the exploration, production, processing and transportation of
oil, gas or other minerals with respect to the properties and interests
described in subsections (a)-(d) above;

                (f)     PERMITS. To the extent transferable, permits and
licenses of any nature owned, held or operated in connection with operations for
the exploration, production, processing and transportation of oil, gas or other
minerals;

                (g)     WELLS. Producing, shut in, temporarily abandoned and
plugged and abandoned oil and gas wells, salt water disposal wells, injection
wells and water supply wells located on the Properties described in Exhibit "A"
hereto and used in connection with the Properties described in Subsections (a) -
(f) above ("Wells");

                (h)     FACILITIES. All facilities, buildings, improvements, gas
conditioning and compression facilities, gathering lines, flow lines, injection
lines and appurtenances located on, or which are related to, the Properties
described in Exhibit "A";

                (i)     EQUIPMENT. All surface and down-hole equipment,
fixtures, machinery, inventory and personal property located on the Properties
described in Exhibit "A" hereto, and used in connection with the Properties
described in Subsections (a) - (h) above;

                (j)     CONTRACTS. To the extent transferable, all contracts and
agreements to which the property described in (a) - (i) above is subject as
listed on Schedule 1.01(j) hereto.

        1.02    EFFECTIVE TIME. The purchase and sale of the Properties shall be
effective as of October 1, 2006, at 7:00 a.m., Central Daylight Time (herein
called the "Effective Time"), subject to amendment pursuant to the terms of
Section 7.01.

        1.03    Letter Agreement. Buyer and Seller have entered into a Letter
Agreement dated February 15, 2007 which is incorporated herein by reference
("Letter Agreement"). Notwithstanding any provision to the contrary in this
Agreement, the provisions contained in the Letter Agreement shall prevail in the
event of conflict between this Agreement and the Letter Agreement.

                                   ARTICLE II

                                 PURCHASE PRICE

        2.01    Purchase Price. The purchase price for the Property shall be
$92,240,340 (herein called the "Preliminary Purchase Price"), subject to
adjustment as set forth in Section 2.02. and the Letter Agreement.

        2.02    ADJUSTMENTS TO PURCHASE PRICE. The Preliminary Purchase Price
shall be adjusted as follows and the resulting amount shall be herein called the
"Final Purchase Price":

        (a)     The Preliminary Purchase Price shall be adjusted upward by the
                following:

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                (1)     The value of all merchantable, allowable oil in storage
above the pipeline connection at the Effective Time that is credited to the
Properties, such value to be the market or contract price in effect as of the
Effective Time less taxes deducted by the purchaser of such oil;

                (2)     Subject to Section 4.01(b), the amount of all
expenditures (including, without limitation, royalties as to the McCallister #1
well, Lea County, New Mexico in the approximate amount of $12,000, rentals and
other charges, ad valorem, property, production, excise, severance and other
taxes based upon or measured by the ownership of the Properties or the
production of hydrocarbons or the receipt of proceeds therefrom, expenses
properly billed under applicable operating agreements including but not limited
to operating expense, repair expense, maintenance expense, workover expense, and
drilling and recompletion expense and, in the absence of an operating agreement,
expenses of the sort customarily billed under such agreements) paid by or on
behalf of Seller in connection with the ownership or operation of the Properties
including but not limited to operating expense, repair expense, maintenance
expense, workover expense, and drilling and recompletion expense from the
Effective Time to the Closing Date;

                (3)     An amount equal to all prepaid expenses attributable to
the Properties that are paid by or on behalf of Seller and disclosed in Schedule
2.02 (a)(3) to Buyer prior to the Closing Date and that are attributable to the
period after the Effective Time including, without limitation, prepaid ad
valorem, property, production, severance and similar taxes (but not including
income taxes) based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom; and

                (4)     Any other amount agreed upon by Seller and Buyer.

        (b)     The Preliminary Purchase Price shall be adjusted downward by the
                following:

                (1)     Proceeds received by Seller prior to the Closing Date
attributable to the Properties and that are attributable to the period of time
from the Effective Time to the Closing Date;

                (2)     An amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments (but not including
income taxes) based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom accruing to the
Properties prior to the Effective Time, which amount shall be computed based
upon such taxes assessed against the applicable portion of the Properties for
the preceding calendar year or, if such taxes are assessed on other than a
calendar year basis, for the tax related year last ended; and

                (3)     An amount equal to the Preliminary Closing Statement
described on Schedule 2.02 (b)(3).

        2.03    Deposit. Contemporaneously with the execution of this Agreement,
Buyer has paid to Five States the sum of Five Million Dollars ($5,000,000) (the
"Deposit"). Five States shall hold the deposit in a segregated account until
Closing or termination of this Agreement. If

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Seller does not receive the Deposit by the end of business on February 16, 2007,
Seller may terminate this agreement. In the event the transaction contemplated
hereby is consummated in accordance with the terms hereof, the Deposit shall be
applied to the Purchase Price to be paid by Buyer at the Closing. In the event
the transaction contemplated hereby fails to close on the Closing Date, as
defined in Section 7.01, as a result of a material breach of this Agreement by
the Buyer and in the absence of a material breach of this Agreement by Seller,
Five States shall distribute the Deposit among the Sellers as their sole remedy
for such default. If the transaction contemplated hereby otherwise fails to
close, the Deposit and the additional sums described in the Letter Agreement
shall be returned to Buyer . The Deposit shall not bear interest, and if the
same is paid to Buyer or if Buyer receives credit for same against the Purchase
Price paid at Closing, such payment, or credit, shall be in the amount of the
Deposit and shall not include any additional amounts. THE PARTIES HEREBY
ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO SELLER OCCASIONED BY THE FAILURE OF
THIS TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO
ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE
OF SUCH DAMAGES UNDER THE CIRCUMSTANCES AND DOES NOT CONSTITUTE A PENALTY.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

        3.01    REPRESENTATIONS AND WARRANTIES OF SELLER. Each Seller represents
and warrants the following:

                (a)     Seller is duly organized, validly existing and in good
standing under the laws of the state of its formation and is duly qualified to
carry on its business in each state where failure to so qualify would have a
materially adverse effect upon its business or properties.

                (b)     Seller has all requisite power and authority to carry on
its business as presently conducted, to enter into this Agreement, and to
perform its obligations under this Agreement. The consummation of the
transactions contemplated by this Agreement has been duly and validly authorized
and will not (a) violate, or be in conflict with, any provision of the articles
of incorporation or bylaws or other governing documents of Seller, or (b) result
in the breach of any term or condition of, or constitute a default or cause the
acceleration of any obligation under any provision of any agreement or
instrument to which Seller is a party or by which it is bound (except any
provision in any agreement as to (i) any preferential right to purchase a
portion of the Property, (ii) required consents to transfer and related
provisions, (iii) maintenance of uniform interests provisions and (iv) any other
third-party approvals contemplated herein) or (c) violate or conflict with any
judgment, decree, order, statute, rule or regulation applicable to Seller or the
Properties.

                (c)     This Agreement has been duly executed and delivered on
behalf of Seller. This Agreement constitutes a legal, valid and binding
obligation of Seller enforceable in accordance with its terms, subject, however,
to the effects of bankruptcy, insolvency, reorganization, moratorium and similar
laws, as well as to principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

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                (d)     Except as described on Schedule 3.01(d) hereto, no suit,
action or other proceeding is pending, and to Seller's Knowledge none is
threatened, before any court or governmental agency as of the date of this
Agreement that might result in impairment or loss of Seller's title to any part
of the Properties or that might hinder or impede the operation of the Properties
or that might result in a diminution of the value thereof or for which Buyer
could become liable as a successor or otherwise.

                (e)     Seller has not incurred any liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Buyer shall have any responsibility
whatsoever.

                (f)     Schedule 1.01(j)-a identifies various gas imbalances,
both over produced and underproduced, regarding production taken or marketed
from the Properties which could result in (i) a portion of Seller's interest in
production therefrom to be taken or delivered after the Closing Date without
Buyer receiving payment therefor and at the price it would have received absent
such imbalance; or (ii) Buyer being obligated to make payment to any person or
entity as a result of such imbalance; or (iii) production being shut-in or
curtailed after the Closing Date due to non-compliance with allowables,
production quotas, proration rules or similar orders or regulations of
governmental authorities; however, Buyer will not be obligated, by virtue of any
prepayment arrangement, take-or-pay agreement or similar arrangement, to deliver
hydrocarbons produced from the Properties at some future time without then
receiving full payment therefore. Buyer and Seller agree to offset all
identifiable gas imbalances to the extent possible, then adjust the remaining
over or under balance by a cash settlement based on $3.50 per mcf as an upward
or downward adjustment to the Preliminary Purchase Price or Final Purchase
Price.

                (g)     To the Knowledge of Seller, the purchasers under all gas
contracts under which Seller is selling natural gas produced from the Properties
are in compliance with all the material terms of such contracts and Seller has
received no notice from any such purchaser of such party's intention or desire
to modify, renegotiate or repudiate any such contract or any of the material
terms thereof.

                (h)     This transaction is not subject to the reporting
requirements of the Internal Revenue Code of 1986, as amended, and, accordingly,
IRS Form 8594 (Asset Acquisition Statement) is not required to be filed for this
transaction; provided, if the parties mutually agree that a filing of Form 8594
is required, the parties will confer and cooperate in the preparation and filing
of their respective forms to reflect consistent reporting of an agreed
allocation of the value of the Properties that is consistent with those shown on
Exhibit "B".

                (i)     With respect to production from the Properties prior to
the Effective Date (i) all royalties due in respect of Seller's interest in the
Properties have been paid in full, except for funds in suspense accounts which
will be turned over to Buyer and, subject to and without waiver of Section
8.05(b), it becomes Buyer's obligation to pay all royalties in suspense accounts
whether accrued before or after the Effective Time; and (ii) all taxes due and
owing in respect thereof have been paid in full.

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                (k)     To the Knowledge of Seller, the leases are valid and
subsisting and in effect in accordance with their terms.

                (l)     Seller has Defensible Title to the Properties and Seller
warrants Defensible Title to the Properties by, through, and under Seller, but
not otherwise.

                (m)     Except for approvals by Governmental Authorities
customarily obtained after the Closing and to the best of Seller's Knowledge, no
authorization, consent, approval, exemption, franchise, permit, or license of,
or filing with, any Governmental Authority or any other Person is required to
authorize, or is otherwise required in connection with, the valid execution and
delivery by either Buyer or Seller of this Agreement or the performance by
either Buyer or Seller of its obligations hereunder and thereunder.

                (n)     To Seller's Knowledge, Seller is not in material breach
of the oil, gas and/or mineral leases, or any material contracts and agreements
comprising any part of the Properties (such leases, material contracts, and
agreements being herein called the "Basic Documents"). To Seller's Knowledge, in
all material respects (i) the Basic Documents all are in full force and effect
and are the valid and legally binding obligations of the parties thereto and are
enforceable in accordance with their respective terms; (ii) all material
payments (including, without limitation, royalties, delay rentals, shut-in
royalties, or payments, fees for salt water disposal or injection, and joint
interest or other billings under unit or operating agreements) due from Seller
thereunder have been made by Seller; (iii) no other party to any Basic Document
(or any successor in interest thereto) is in breach or default with respect to
any of their material obligations thereunder; (iv) neither the Seller nor any
other party to any Basic Document has given or threatened to give notice of any
action to terminate, cancel, rescind or procure a judicial determination of any
Basic Document or any provision thereof; and (v) the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in a breach of, constitute a default under, or result in
a violation of the material provisions of any Basic Document and none of the
Basic Documents will require, after the Effective Date, that any advance
payments be made to any party other than those required under operating
agreements. Seller operates only those Properties as specified on Exhibit "A".
All items of operating expense invoiced by Seller prior to the Effective Date
are duly and properly charged. As to properties operated by Seller, there are no
pending audits or requests to audit the operations of the Properties. True and
correct copies of all of the Operating Agreements applicable to the Properties
operated by Seller have been provided to Buyer.

                (o)     The phrase "to Seller's Knowledge," or other similar
language which qualifies a statement as to the knowledge of Seller, will mean
that within the actual present knowledge of a Responsible Officer after due
inquiry of appropriate managerial level personnel, such Responsible Officer has
received no verbal information from an employee of Seller or any written
information indicating that the specific statement so qualified is not accurate.
Responsible Officer is defined as the President, Chief Operating Officer, and
General Counsel of Seller.

        3.02    REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller that:

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                (a)     Buyer is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and duly
qualified to carry on its business in each state in which failure to so qualify
would have a materially adverse effect on Buyer's business or properties.

                (b)     Buyer has all requisite power and authority, to carry on
its business as presently conducted, to enter into this Agreement, to purchase
the Properties on the terms described in this Agreement, and to perform its
other obligations under this Agreement. The consummation of the transactions
contemplated by this Agreement will not violate, or be in conflict with, any
provision of Buyer's articles of incorporation, bylaws or other governing
documents or any agreement or instrument to which Buyer is a party or by which
it is bound, or any judgment, decree, order, statute, rule or regulation
applicable to Buyer.

                (c)     This Agreement has been duly executed and delivered on
behalf of Buyer. This Agreement constitutes a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms, subject, however,
to the effect of bankruptcy, insolvency, reorganization, moratorium and similar
laws, as well as to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

                (d)     Buyer has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Seller shall have any responsibility
whatsoever.

        3.03    DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF EACH
SELLER CONTAINED IN SECTION 3.01 ABOVE (OR IN ANY CONVEYANCE EXECUTED PURSUANT
TO THIS AGREEMENT) ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS
AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND EACH SELLER
EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES.
WITHOUT LIMITATION OF THE FOREGOING, THE PROPERTIES SHALL BE CONVEYED PURSUANT
HERETO WITHOUT ANY IMPLIED WARRANTY OR REPRESENTATION RELATING TO THE CONDITION,
QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR
SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY
PURPOSE. BUYER AGREES TO ACCEPT THE PROPERTIES AND ACKNOWLEDGES THAT THE SALE OF
THE PROPERTIES AS PROVIDED FOR HEREIN IS MADE BY SELLER, ON AN "AS IS, WHEREAS,
AND WITH ALL FAULTS" BASIS. BUYER EXPRESSLY ACKNOWLEDGES THAT EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES MADE BY SELLER IN SECTION 3.01, SELLER MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND, ORAL OR WRITTEN, EXPRESS OR IMPLIED, OR
ARISING BY OPERATION OF LAW, WITH RESPECT TO THE PROPERTIES, OR THE CONDITION OF
THE PROPERTIES. UPON CLOSING, BUYER SHALL BE DEEMED TO HAVE SATISFIED ITSELF AS
TO THE PHYSICAL AND ENVIRONMENTAL CONDITION OF THE PROPERTIES, BOTH SURFACE AND
SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE
PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS
AND OTHER MAN MADE FIBERS, OR

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NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM"). NO SELLER MAKES ANY WARRANTY
OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY
OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR
MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN
CONNECTION WITH THIS AGREEMENT, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR
QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE
ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE
ENVIRONMENTAL CONDITION OF THE PROPERTIES. ANY AND ALL SUCH DATA, RECORDS,
REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL)
FURNISHED BY ANY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE
PROVIDED BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY
LIABILITY OF OR AGAINST ANY SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL
BE AT BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.

                                   ARTICLE IV

                                    COVENANTS

        4.01    COVENANTS OF SELLER. Seller covenants and agrees with Buyer
that:

                (a)     During the period from the date of this Agreement to the
date of Closing, without the prior written consent of Buyer, Seller will not (i)
cause or permit the Properties to be developed, maintained, or operated in a
manner inconsistent with good and prudent operating practices, (ii) abandon any
part of the Properties, (iii) commence any operations on any of the Properties
anticipated to cost the owner of the Properties in excess of the limitation on
expenditure contained in the applicable operating agreement (except emergency
operations, operations required under presently existing contractual obligations
described in Schedule 4.01(a), the ongoing commitments under the AFE's described
in Schedule 4.01(a) hereto, and operations undertaken to avoid any penalty
provision of any applicable agreement or order described in Schedule 4.01(a)),
or (iv) convey or dispose of any part of the Properties (other than personal
property and equipment used on the Properties for oil and gas operations in the
normal course of business and oil, gas, and other liquid products produced from
the Property in the regular course of business). To the extent that Seller owns
undivided interests in certain of the Properties, Buyer agrees that the acts or
omissions of Seller's co-owners shall not constitute a violation of the
provisions of this Section 4.01(a) nor shall any third-party action required by
a vote of co-owners constitute such a violation so long as Seller has voted its
interest in compliance with this Section 4.01(a). Seller shall, however,
promptly notify Buyer in writing of such acts.

                (b)     Each Seller shall maintain its corporate or other
organizational status from the date hereof until Closing and shall assure that
as of the Closing Date it will not be under any corporate, legal or contractual
restriction that would prohibit or delay the timely consummation of such
transactions. With respect to third-party consents and preferential rights to
purchase, Seller shall promptly make written requests of such third parties, in
compliance with applicable

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agreements, that such consents be given or waived and that such preferential
rights be waived. Seller shall promptly notify Buyer in writing if any
preferential rights are exercised, any consents or approvals are denied, or if
the requisite period has elapsed without said rights having been exercised or
consents or approvals having been received.

                (c)     Seller shall immediately notify Buyer of any suit,
action or other proceeding of the type referred to in Section 3.01(d) or
refusals to grant consents or waive preferential rights to purchase that arise
prior to the Closing of which Seller has or obtains Knowledge.

                (d)     Seller shall immediately notify Buyer in writing of any
material adverse change in the Properties

                (e)     Without requiring any adjustment to the Preliminary
Purchase Price or the Final Purchase Price before or after Closing, Seller shall
permit Buyer access to the revenues and direct operating expenses attributable
to the Properties as required by the regulations of the Securities and Exchange
Commission. In this regard, Seller shall afford to Buyer and Buyer's counsel,
internal and independent auditors, and other authorized representatives, from
and after the date of execution hereof, reasonable access (no later than two (2)
Business Days after Buyer's request therefor) to Seller's financial accounting
books and records relating to the Properties (including, without limitation, (a)
joint interest billings for Working Interests by Lease and/or Well, (b) vendor
invoices, (c) lease operating expense statements, (d) revenue database and
records for distributions to Net Revenue Interest owners, (e) check stubs,
cancelled checks, and other evidence of payments made, (f) vendor and joint
interest owner correspondence, (g) AFEs for drilling, completion, workover, and
other capital projects and reconciliations thereof against actual costs
incurred, (h) filings, returns, and other materials relating to Properties
related taxes, and (i) the Leases and all relevant contracts for the calendar
years ended December 31, 2004, December 31, 2005, and December 31, 2006, and the
period beginning January 1, 2007, through the Closing. Such access shall include
the right of Buyer to photocopy, at Buyer's expense, such financial accounting
books and records and reasonable access during normal business hours to the
independent auditors and consulting petroleum engineers of Seller, at Buyer's
expense and on terms specified by such auditors and engineers, and the internal
accounting, financial, engineering, and other personnel of Seller who are
knowledgeable about the Properties, as well as permission to contact vendors and
joint interest owners. Buyer shall cooperate with Seller to minimize the
disruption of Seller's business and office operations as the result of Buyer's
activities under this Section 4.01(f). Prior to Buyer or Buyer's representatives
reviewing any information pursuant to this section, Buyer and its
representatives will each sign a Confidentiality Agreement as requested by
Seller.

        4.02    COVENANTS OF BUYER. Buyer covenants and agrees with Seller that:

                (a)     Buyer shall maintain its corporate status and assure
that as of the Closing Date it will not be under any legal or contractual
restriction that would prohibit or delay the timely consummation of such
transactions.

                (b)     Until Closing, Buyer shall exercise all due diligence in
safeguarding and maintaining secure all engineering, geological and geophysical
data, reports and maps,

<PAGE>

accounting records, and all other confidential data or information in the
possession of Buyer relating to the Properties and furnished by Seller.

                                    ARTICLE V

                             TITLE AND OTHER MATTERS

        5.01    DEFENSIBLE TITLE.

                (a)     As used herein, the term "Defensible Title" shall mean,
as to each of the Properties, such title held by Seller (in the aggregate) that,
subject to and except for the Permitted Encumbrances (as hereinafter defined):
(i) entitles Seller to receive not less than the "Net Revenue Interest" set
forth in Exhibit "A" of all oil, gas and associated liquid and gaseous
hydrocarbons produced, saved and marketed from such Property; (ii) obligates
Seller to bear costs and expenses relating to the maintenance, development and
operation of wells located on such Property in an amount not greater than the
"Working Interest" set forth in Exhibit "A"; and (iii) is free and clear of
encumbrances, liens and defects.

                (b)     The term "Permitted Encumbrances", as used herein, shall
mean:

                        (1)     lessors' royalties, overriding royalties, and
        division orders and sales contracts covering oil, gas or associated
        liquid or gaseous hydrocarbons, reversionary interests and similar
        burdens of record if the net cumulative effect of such burdens does not
        operate to reduce the Net Revenue Interest of any of the Properties to
        less than the Net Revenue Interest set forth in Exhibit "A" for such
        Property or increase the Working Interest of any of the Properties to
        more than the Working Interest set forth in Exhibit "A" for any of the
        Properties, without a corresponding increase in the applicable Net
        Revenue Interest;

                        (2)     preferential rights to purchase and required
        third party consents to assignments and similar agreements;

                        (3)     liens for taxes or assessments not yet due or
        not yet delinquent or, if delinquent, that are being contested in good
        faith in the normal course of business;

                        (4)     all rights to consent by, required notices to,
        filings with, or other actions by governmental entities in connection
        with the sale or conveyance of oil and gas leases or interests therein
        if the same are customarily obtained routinely and subsequent to such
        sale or conveyance;

                        (5)     easements, rights-of-way, servitudes, permits,
        surface leases and other rights in respect of surface operations,
        pipelines, grazing, logging, canals, ditches, reservoirs or the like;
        and easements for streets, alleys, highways, pipelines, telephone lines,
        power lines, railways and other easements and rights-of-way, on, over or
        in respect of any of the Properties to the extent such matters do not
        materially interfere with operations on or access to and from the
        Properties;

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                        (6)     liens of operators relating to obligations not
        yet due or pursuant to which Seller is not in default;

                        (7)     the terms and conditions of all leases,
        agreements, orders, instruments, documents identified, and other matters
        expressly described, in any of the Exhibits or Schedules hereto; and

                        (8)     rights reserved to or vested in any municipality
        or governmental, statutory or public authority to control or regulate
        any of the Property in any manner, and all applicable laws, rules and
        orders of governmental authority.

        5.02    CASUALTY LOSS. If, prior to the Closing, all or any portion of
the Properties is destroyed by fire or other casualty, is taken in condemnation
or under the right of eminent domain or proceedings for such purposes are
pending or threatened, Buyer will purchase such Property notwithstanding any
such destruction, taking or pending or threatened taking (without reduction of
the Preliminary Purchase Price therefor), in which case Seller shall, at the
Closing, pay to Buyer all sums paid to Seller by third parties by reason of the
destruction or taking to be assigned to Buyer and shall assign, transfer and set
over unto Buyer all of the right, title and interest of Seller in and to any
unpaid awards or other payments from third parties arising out of the
destruction, taking or pending or threatened taking as to such Properties to be
assigned to Buyer. Prior to Closing, Seller shall not voluntarily compromise,
settle or adjust any amounts payable by reason of any destruction, taking or
pending or threatened taking as to such Properties to be assigned to Buyer
without first obtaining the written consent of Buyer.

        5.03    ADJUSTMENTS. Seller and Buyer agree there are no adjustments to
the Preliminary Purchase Price except for (i) the adjustments shown on Schedule
2.02 (b)(3), and (ii) the adjustments described in Section 2.02 (b)(1) and 2.02
(b)(2) and the adjustments specified in the Letter Agreement.

                                   ARTICLE VI

                              CONDITIONS TO CLOSING

        6.01    SELLER'S CONDITIONS. The obligations of Seller at the Closing
are subject, at the option of Seller, to the satisfaction at or prior to the
Closing of the following conditions:

                (a)     All representations and warranties of Buyer contained in
this Agreement shall be true in all material respects at and as of the Closing
as if such representations and warranties were made at and as of the Closing,
and Buyer shall have performed and satisfied all agreements in all respects
required by this Agreement to be performed and satisfied by Buyer at or prior to
the Closing.

                (b)     No suit or other proceeding shall be pending before any
court or governmental agency seeking to restrain, prohibit or declare illegal,
or seeking substantial damages in connection with, the purchase and sale
contemplated by this Agreement.

<PAGE>

        6.02    BUYER'S CONDITIONS. The obligations of Buyer at the Closing are
subject, at the option of Buyer, to the satisfaction at or prior to the Closing
of the following conditions:

                (a)     All representations and warranties of Seller contained
in this Agreement shall be true in all material respects at and as of the
Closing as if such representations and warranties were made at and as of the
Closing.

                (b)     No suit or other proceeding shall be pending before any
court or governmental agency seeking to restrain, prohibit or declare illegal,
or seeking substantial damages in connection with, the purchase and sale
contemplated by this Agreement.

                (c)     Buyer or its designee shall be designated operator as
specified in the Letter Agreement.

                                   ARTICLE VII

                                     CLOSING

        7.01    DATE OF CLOSING. Unless the parties hereto mutually agree
otherwise and subject to the conditions stated in this Agreement, the
consummation of the transactions contemplated hereby (herein called the
"Closing") shall be held on or before March 12, 2007. In the event the
transaction fails to close on or before March 12, 2007 and in the absence of a
material breach of this Agreement by Seller, Seller may in its discretion
terminate this Agreement and retain the Deposit. In the event Seller fails or
refuses to close, the Deposit along with the additional sums described in the
Letter Agreement will be returned and paid over to Buyer within ten (10) days.
The date Closing actually occurs is herein called the "Closing Date."

        7.02    PLACE OF CLOSING. The Closing shall be held at the offices of
Buyer or at such other place as Buyer and Seller may agree in writing.

        7.03    CLOSING OBLIGATIONS. At the Closing the following events shall
occur, each being a condition precedent to the others and each being deemed to
have occurred simultaneously with the others.

                (a)     Seller shall execute, acknowledge and deliver to Buyer
an assignment, bill of sale and conveyance (in sufficient counterparts to
facilitate recording) in form as set forth in Exhibit "C" hereto conveying the
Properties to Buyer.

                (b)     At least three (3) calendar days prior to the Closing
Date, Seller shall prepare and deliver to Buyer for Buyer's review and comment a
statement describing the adjustments to be made pursuant to Section 2.02 (b)(1)
and (b)(2). At Closing, Seller and Buyer shall execute and deliver a statement
approving the adjustments required by Section 2.02 (b)(1) and (b)(2). The term
"Closing Amount" shall mean the Preliminary Purchase Price adjusted as provided
in Section 2.02 (b), using for such adjustments the best information then
available and after deduction of the Deposit.

<PAGE>

                (c)     Buyer shall deliver the Closing Amount by wire transfer
to a bank account designated by Five States at Closing.

                (d)     Seller shall deliver to Buyer exclusive possession of
the Properties.

                (e)     With respect to any of the Properties of which Seller or
any affiliate of Seller is the operator, Seller shall deliver to Buyer Seller's
(or such affiliate's) resignation as operator and shall thereafter cooperate
with and assist Buyer in being appointed successor operator of such Properties.

                (f)     Seller and Buyer shall execute, acknowledge and deliver
transfer orders or letters in lieu thereof directing all purchasers of
production to make payment to Buyer of proceeds attributable to production after
the Effective Time from the Properties assigned to Buyer under Section 7.03(a).

                (g)     Seller shall execute and deliver a Non-Foreign Affidavit
substantially in the form of Exhibit "E."

                (h)     To the extent possible, Seller shall assign all permits
and other governmental authorizations to Buyer.

                                  ARTICLE VIII

                            OBLIGATIONS AFTER CLOSING

        8.01    POST-CLOSING ADJUSTMENTS. As soon as practicable (and in no
event more than 90 calendar days) after the Closing, Seller shall prepare and
deliver to Buyer, in accordance with this Agreement a statement (herein called
the "Final Settlement Statement") setting forth each adjustment or payment for
matters described in Section 2.02 (b)(1) and (b)(2) that was not finally
determined as of the Closing and showing the calculation of such adjustments.
Within fifteen calendar days after receipt of the Final Settlement Statement,
Buyer shall deliver to Seller a written report containing any changes that Buyer
proposes be made to the Final Settlement Statement. The parties shall undertake
to agree with respect to the amounts due pursuant to such post-Closing
adjustment no later than 60 calendar days thereafter. If no such agreement can
be reached, either Party may refer the matter to arbitration. The date upon
which such agreement is reached or upon which the Final Purchase Price is
established, shall be herein called the "Final Settlement Date". In the event
that (1) the Final Purchase Price is more than the Closing Amount, Buyer shall
pay to Five States Energy Company in immediately available funds the amount of
such difference, or (2) the Final Purchase Price is less than the Closing
Amount, Seller shall pay to Buyer in immediately available funds the amount of
such difference. Payment by Buyer or Seller shall be made within five calendar
days of the Final Settlement Date. Subject to the terms hereof and except to the
extent same have already been taken into account as an adjustment to the
Purchase Price, all monies, proceeds, receipts, credits, and income accruing to
the Properties (a) for the period subsequent to the Effective Time, shall be the
sole Properties and entitlement of Buyer, and, to the extent received by Seller,
Seller shall fully disclose, account for, and transmit same to Buyer promptly,
and (b) for the period prior to the Effective Time, shall be the sole property
and entitlement of Seller and, to the extent received by Buyer, Buyer shall
fully

<PAGE>

disclose, account for, and transmit same to Seller promptly.

        8.02    FILES AND RECORDS. Within ten calendar days after the Closing
Date, Seller shall deliver to Buyer all of Seller's files and records relating
to the Properties.

        8.03    SALES TAXES AND RECORDING FEES. Buyer shall pay all sales taxes,
if any, occasioned by the sale of the Property and all documentary, filing and
recording fees required in connection with the filing and recording of any
assignments.

        8.04    FURTHER ASSURANCES. After Closing, Seller and Buyer shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
document, certificate or other instrument delivered pursuant hereto.

        8.05    INDEMNIFICATION. From and after the Closing:

                (a)     Buyer shall defend, indemnify and save and hold harmless
Seller against (i) all claims, costs, expenses and liabilities (including
attorneys fees and expenses) incurred in connection with the ownership,
development, exploration, operation, maintenance or any other matters relating
to the applicable operating agreements of the Properties which accrue or relate
to the period after the Effective Time, (ii) all claims, costs, expenses and
liabilities relating to environmental conditions on the Properties, whether
accruing or relating to periods before or after the Effective Time, and (iii)
court costs and reasonable attorneys' fees incurred in enforcing this indemnity.
As used herein, claims for environmental conditions means any costs, damages,
expenses, liabilities, obligations or other responsibilities arising from or
under any environmental law due to the condition of the Properties prior to the
Effective Time, including without limitation any liability, responsibility or
obligation to cleanup, remove, contain, remediate or take any other corrective
actions.

                (b)     Seller shall defend, indemnify and save and hold
harmless Buyer against all claims, costs, expenses and liabilities (including
attorneys fees and expenses) incurred in connection with the ownership,
development, exploration, operation or maintenance of the Property, which accrue
or relate to the period prior to the Effective Time including, without
limitation (i) amounts due for severance taxes and royalties due with respect to
production prior to the Effective Time (except as to amounts in suspense
transferred to Buyer pursuant to Section 3.01(i), and (ii) court costs and
reasonable attorneys' fees incurred in enforcing this indemnity.

        8.06    SURVIVAL. The representations, warranties, covenants, agreements
and indemnities included or provided for in this Agreement and any Exhibit
hereto shall survive the Closing.

        8.07    SUBROGATION. Seller executes this Agreement with full
substitution and subrogation of Buyer in and to all covenants and warranties of
every kind and character of Seller relating to the Properties under the terms of
any agreement or granted or implied by law.

<PAGE>

                                   ARTICLE IX

                            TERMINATION OF AGREEMENT

        9.01    TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated as provided elsewhere in this Agreement and in the
following instances:

                (a)     By Seller if the conditions set forth in Section 6.01
are not satisfied in all material respects or waived as of the Closing Date.

                (b)     By Buyer if the conditions set forth in Section 6.02 are
not satisfied in all material respects or waived as of the Closing Date.

                (c)     At any time by the mutual written agreement of Buyer and
Seller.

        9.02    LIABILITIES UPON TERMINATION. If this Agreement is terminated
for any reason other than those set forth in Section 9.01 or is breached,
nothing contained herein shall be construed to limit Seller's or Buyer's legal
or equitable remedies including, without limitation, damages for the breach or
failure of any representation, warranty, covenant or agreement contained herein
and the right to enforce specific performance of this Agreement.

                                    ARTICLE X

                                  MISCELLANEOUS

        10.01   EXHIBITS. The Exhibits and Schedules referred to in this
Agreement are hereby incorporated in this Agreement by reference and constitute
a part of this Agreement. Each party to this Agreement and its counsel has
received a complete set of Exhibits and Schedules prior to and as of the
execution of this Agreement.

        10.02   EXPENSES. Except as otherwise specifically provided, all fees,
costs and expenses incurred by Buyer or Seller in negotiating this Agreement or
in consummating the transactions contemplated by this Agreement shall be paid by
the party incurring the same, including, without limitation, legal and
accounting fees, costs and expenses.

        10.03   NOTICES. All notices and communications required or permitted
under this Agreement shall be in writing and any communication or delivery
hereunder shall be deemed to have been duly made when personally delivered to
the individual indicated below, or if mailed or sent by facsimile transmissions,
when received by the party charged with such notice and addressed as follows:

                  If to Buyer:
                  ------------

                  ISRAMCO, Inc.
                  11767 Katy Freeway, Suite 711
                  Houston, Texas 77079
                  Attention:  Mr. J. Monroe Cutler
                  Telephone No.:  (713) 621 - 5946
                  Facsimile No.:  (713) 621 - 3988; e - mail jayoil@swbell.net

<PAGE>

                  With a copy to:

                  Mr. James H. Hutchinson, III
                  2204 Louisiana, Suite 220
                  Houston, Texas  77002
                  Phone:  (713) 524 - 7300; e - mail:  jhutchinson@schalaw.com

                  If to Seller:
                  -------------

                  Five States Energy Company, L.L.C.
                  1220 One Energy Square
                  4925 Greenville Ave.
                  Dallas, TX 75206-4020
                  Attention:  Steve Collins, Operations Manager
                  Phone:  972-806-1123  email: scollins@fivestates.com

                  With a copy to:
                  Mr. Curtis R. Swinson
                  Malouf, Lynch, Jackson & Swinson, P.C..
                  12222 Merit Drive
                  Suite 1000
                  Dallas, TX 75251
                  Phone:  214-273-0566  email: cswinson@mljs.net

Any party may, by written notice so delivered to the others, change the address
or individual to which delivery shall thereafter be made.

        10.04   AMENDMENTS. This Agreement may not be amended nor any rights
hereunder waived except by an instrument in writing signed by the party to be
charged with such amendment or waiver and delivered by such party to the party
claiming the benefit of such amendment or waiver.

        10.05   ASSIGNMENT. Prior to Closing, neither Seller nor either Buyer
shall assign this Agreement without the prior written consent of the other;
provided however that Buyer may assign this Agreement to an affiliate by
assignment, transfer of equity, merger, reorganization, or consolidation,
without the prior written consent of the Seller. After Closing, any assignment
of rights shall provide for the assumption by the transferee of the obligations
of the assigning Party under this Agreement. No assignment of any rights
hereunder shall relieve the assigning Party of any obligations or
responsibilities hereunder. Upon the assumption by such a transferee of the
obligations of the assigning Party under this Agreement, such transferee shall
become primarily liable for all such obligations assumed. Notwithstanding any
such assumption, however, if such a transferee fails to perform any of the
obligations thus assumed, the assigning Party shall remain liable for the
performance thereof. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors and
assigns.

<PAGE>

        10.06   ANNOUNCEMENTS. Seller and Buyer shall consult with each other
with regard to all press releases and other announcements issued concerning this
Agreement or the transactions contemplated hereby and, except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange, Seller shall not disclose the Purchase Price for a
period of two years following Closing, and neither Buyer nor Seller shall issue
any such press release or other publicity without the prior written consent of
the other party unless a party is advised by counsel that it is under a legal
obligation to issue such publicity.

        10.07   HEADINGS. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.

        10.08   COUNTERPARTS; FACSIMILE SIGNATURE. This Agreement may be
executed by Buyer and Seller in any number of counterparts, each of which shall
be deemed an original instrument, but all of which together shall constitute but
one and the same instrument. This Agreement may be executed by facsimile
signature, which shall be deemed an ink - signed original for all purposes.

        10.09   REFERENCES. References made in this Agreement, including use of
a pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships or corporations. As used in this
Agreement, "person" shall mean any natural person, corporation, partnership,
trust, estate or other entity.

        10.10   GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
State of Texas.

        10.11   ENTIRE AGREEMENT. This Agreement (including the Exhibits hereto)
constitutes the entire understanding among the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter.

        10.12   PARTIES IN INTEREST. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns; and nothing contained in
this Agreement, express or implied, is intended to confer upon any other person
or entity any benefits, rights or remedies.

        10.13   ARBITRATION.

                (a)     Any dispute arising under this Agreement which cannot be
resolved by mutual agreement, shall be resolved exclusively by final and binding
arbitration in the State of Texas, County of Dallas, in accordance with the
commercial arbitration rules of the American Arbitration Association, except as
otherwise provided herein. Either Buyer or Seller may invoke arbitration of such
issue by serving on the other party a written notice of arbitration (the
"Arbitration Notice"), which shall specify with reasonable detail (i) the issues
in dispute, (ii) the claims asserted, (iii) the remedies sought by the party
invoking arbitration and (iv) the name of such party's chosen arbitrator. Within
five (5) Business Days of receipt of the notice, for claims in excess of
$500,000, the receiving party shall (A) select its arbitrator and (B) notify the
party

<PAGE>

who shall have given the Arbitration Notice. Within five (5) Business Days
thereafter, the two (2) arbitrators so chosen shall choose a third arbitrator.
Each arbitrator shall have general experience in the oil and gas industry.

                (b)     All decisions of the arbitrators shall be by a majority
vote. Each of Buyer and Seller shall pay the fees and expenses of the arbitrator
chosen by such party and shall pay one-half of the fees and expenses of the
third arbitrator.

                (c)     A judgment on the award by the arbitrators may be
entered by any court having jurisdiction thereof.

                (d)     All aspects of the arbitration shall be confidential,
and the parties and arbitrators shall not disclose to others, or permit
disclosure of, any information related to the proceedings, including but not
limited to discovery, testimony and other evidence, briefs, and the award unless
legally obliged to do so.

        10.14   CREDIT FOR PAYMENTS. Each Seller hereby irrevocably names and
designates Five States Energy Company as its agent to receive all notices and
payments due to Seller from Buyer under this Agreement. Each Seller hereby
stipulates and agrees that (a) any payment made by Buyer to Five States Energy
Company hereunder (including, without limitation, the Deposit and the Closing
Amount) shall be deemed received by Seller upon receipt thereof by Five States
Energy Company, and (b) Five States shall indemnify and hold Buyer harmless
from, and Buyer shall never have any obligation or liability in regard to, the
apportionment, division, use or payment of such funds by Five States Energy
Company.

        10.15   LIKE KIND EXCHANGE. Seller may elect to structure this
transaction as a like-kind exchange pursuant to Section 1031 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder,
with respect to any or all of the Properties (a "Like-Kind Exchange") at any
time prior to the date of Closing. In order to effect a Like-Kind Exchange,
Buyer shall cooperate and do all acts as may be reasonably required or requested
by Seller with regard to effect the Like-Kind Exchange, including, but not
limited to, permitting Seller to assign their rights under this Agreement to a
qualified intermediary of Seller's choice in accordance with Treasury Regulation
ss. 1.1031(k)-1(g)(4) or executing additional escrow instructions, documents,
agreements or instruments to effect an exchange; provided, however, Buyer shall
incur no expense in connection with such Like-Kind Exchange, Buyer shall not be
required to take title to any property other than the Properties in connection
with the Like-Kind Exchange, and Buyer's possession of the Properties will not
be delayed by reason of any such Like-Kind Exchange.

        10.16   DECEPTIVE TRADE PRACTICES WAIVER. To the extent applicable to
the transaction contemplated hereby or any portion thereof, Buyer waivers
Buyer's rights under the provisions of the Texas Deceptive Trade Practices -
Consumer Protection Act, Sections 17.41 et. seq. of the Texas Business and
Commerce Code, a law that gives consumers special rights and protections. Buyer
states after consultation with an attorney of Buyer's selection that Buyer
voluntarily consents to this waiver.

        10.17   JOINT OBLIGATIONS. The obligations of each of the Sellers are
joint and several.

<PAGE>

EXECUTED as of the date first above mentioned.

                                     SELLER:
                                     -------

FIVE STATES ENERGY COMPANY, L.L.C.        FIVE STATES TRADING COMPANY

By: /s/ Arthur N. Budge                   By:  /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

FIVE STATES CONSOLIDATED I, LTD.          FIVE STATES TRADING COMPANY
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

FIVE STATES CONSOLIDATED I, LTD.          FIVE STATES CONSOLIDATED II, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

FIVE STATES 2001A, LTD.                   FIVE STATES 2002-A, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

<PAGE>

FIVE STATES 2002-B LTD.                   FIVE STATES 2003-A, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

FIVE STATES 2003-B LTD.                   FIVE STATES 2004, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

FIVE STATES 2005 LTD.                     FIVE STATES 2006, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

                                       BUYER:  ISRAMCO, INC.

                                       By:    /s/ Haim Tsuff
                                       Name:  Haim Tsuff
                                       Title: Chairman & Chief Executive Officer<PAGE>

                                  EXHIBITY 10.2

                                 LOAN AGREEMENT

                                   $18,500,000

                                   DATED AS OF

                                FEBRUARY 27, 2007

                                 by and between

                                  ISRAMCO, INC.
                             A DELAWARE CORPORATION,

                               as the "Borrower",

                                       and

                      NAPHTHA ISRAEL PETROLEUM CORP., LTD.

                                 As the "Lender"

<PAGE>

                                 LOAN AGREEMENT
                                 --------------

        THIS LOAN AGREEMENT, dated as of February 27, 2007 is made and entered
into by and between ISRAMCO, INC., a Delaware corporation (the "Borrower") and
NAPHTHA ISRAEL PETROLEUM CORP., LTD. (the "Lender").

                                   WITNESSETH:

        WHEREAS, ISRAMCO ENERGY, L.L.C., a Texas limited liability company
("Isramco Energy"), is a wholly owned subsidiary of the Borrower;

        WHEREAS, Isramco Energy has entered into a Purchase and Sale Agreement
with Five States Energy Company, L.L.C. and its related entities (the "PSA")
pursuant to which Borrower is to acquire interests in certain oil and gas
properties located in the States of Texas and New Mexico (the "Acquisition");

        WHEREAS, on or about December 14, 2006, Borrower entered into a Loan
Agreement with IOC-Israel Oil Company, Ltd. ("IOC") pursuant to which IOC loaned
Borrower the principal amount of Seventeen Million Dollars ($17,000,000) (the
"IOC Loan") for the purposes of making an equity contribution to Isramco Energy;

        WHEREAS, the IOC Loan has been assigned to and assumed by Lender;

        WHEREAS, the Borrower desires to obtain additional financing in the
amount of One Million Five Hundred Thousand Dollars ($1,500,000) ("Additional
Financing") from the Lender for purposes of contribution to the equity of
Isramco Energy for the Acquisition, working capital, capital expenditures, to
finance acquisitions of oil and gas properties and other assets related to the
exploration, production and development of oil and gas properties, and for other
lawful corporate purposes and to consolidate the Additional Financing with the
IOC Loan;

        WHEREAS, to induce Lender to extend the Additional Financing to Borrower
and to consolidate the Additional Financing with the IOC Loan, Jay Petroleum,
L.L.C. ("Jay") has agreed to unconditionally guarantee the indebtedness of
Borrower to Lender and to pledge its oil and gas interests to secure the
obligations guaranteed; and

        WHEREAS, the Lender is willing to extend the Additional Financing to
Borrower and to consolidate the IOC Loan with the Additional Financing upon the
terms and conditions herein set forth.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
acknowledged by the parties hereto, the parties agree, as follows:

<PAGE>

                                   ARTICLE I

                               CERTAIN DEFINITIONS

        When used herein, the following terms shall have the following meanings:

        1.1     BUSINESS DAY shall mean a day other than a Saturday, Sunday or a
day upon which banks in the State of Texas are closed to business generally;
provided that when used in connection with a Libor Loan, the term shall also
exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.

        1.2     DEFAULT RATE shall mean the Stated Rate plus 12 percentage
points (12%) per annum.

        1.3     EFFECTIVE DATE shall mean February 27, 2007.

        1.4     EVENT OF DEFAULT shall mean any of the events specified in
Section 7.1 of this Agreement, and Default shall mean any event, which together
with any lapse of time or giving of any notice, or both, would constitute an
Event of Default.

        1.5     GOVERNMENTAL AUTHORITY shall include the country, the state,
county, city and political subdivisions in which any Person or such Person's
property is located or which exercises valid jurisdiction over any such Person
or such Person's property, and any Tribunal of any of them, including monetary
authorities, which exercises valid jurisdiction over any such Person or such
Person's property. Unless otherwise specified, all references to Governmental
Authority herein shall mean a Governmental Authority having jurisdiction over,
where applicable, Borrower, any of its Subsidiaries, any of Borrower's
properties or the Lender.

        1.6     GOVERNMENTAL REQUIREMENT shall mean any Law, or other directive
or requirement (whether or not having the force of law), including, without
limitation, environmental laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.

        1.7     HEREBY, HEREIN, HEREOF, HEREUNDER and similar such terms shall
mean and refer to this Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.

        1.8     HIGHEST LAWFUL RATE shall mean on any day, the maximum
nonusurious rate of interest permitted for that day by whichever of applicable
federal or Texas laws permits the higher interest rate, stated as a rate per
annum. On each day, if any, that the Texas Finance Code establishes the "Ceiling
Rate", the Ceiling Rate shall be the "weekly ceiling" (as defined in the Texas
Finance Code) for that day. Lender may, from time to time, as to current and
future balances, implement any other ceiling under the Texas Finance Code by
notice to Borrower, if and to the extent permitted by the Texas Finance Code.
Without notice to Borrower or any other person or entity, the Ceiling Rate shall
automatically fluctuate upward and downward as and in the amount by which such
maximum nonusurious rate of interest permitted by applicable law fluctuates.

                                 Loan Agreement
                                     Page 2

<PAGE>

        1.9     INDEBTEDNESS shall mean any and all: (i) indebtedness,
obligations and liabilities of the Borrower to the Lender incurred or which may
be incurred hereafter pursuant to the terms of this Agreement or any of the
other Loan Documents, and any extensions, renewals, substitutions, amendments
and increases in amount thereof, including such amounts as may be evidenced by
the Note and all lawful interest thereon and other charges, and all reasonable
costs and expenses incurred by the Lender in connection with the preparation,
filing and recording of the Loan Documents, including attorneys fees; (ii) all
reasonable costs and expenses, including attorneys' fees, paid or incurred by
the Lender in enforcing or attempting to enforce collection of any Indebtedness
and in enforcing or realizing upon or attempting to enforce or realize upon any
collateral or security for any Indebtedness and in protecting and preserving the
Lender's interest in the Indebtedness or any collateral or security for any
Indebtedness in any bankruptcy or reorganization proceeding, including interest
on all sums so expended by the Lender accruing from the date upon which such
expenditures are made until paid, at an annual rate equal to the Default Rate;
and (iii) sums expended by the Lender in curing any Event of Default or Default
of the Borrower under the terms of this Agreement, the other Loan Documents or
any other security agreement or other writing evidencing or securing the payment
of the Indebtedness described herein, including the Note.

        1.10    INTEREST PERIOD shall mean shall mean the period commencing on
the Effective Date and ending on the numerically corresponding day each six (6)
calendar months thereafter, except that each Interest Period which commences on
the last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.

        1.11    LAW(S) shall mean all statutes, laws, ordinances, regulations,
orders, rules, codes, permits, franchises, licenses, certificates, writs,
injunctions, or decrees of the United States, any state or commonwealth, any
municipality, any foreign country, any territory or possession, or any Tribunal.

                                 Loan Agreement
                                     Page 3
<PAGE>

        1.12    LIBOR shall mean, at any time of determination, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Dow Jones Market Service Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two (2) Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "LIBOR" shall mean the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBOR Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period;
PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen LIBOR
Page, the applicable rate shall be the arithmetic mean of all such rates. In the
event that such rate does not appear on either Dow Jones Market Service Page
3750 or Reuters Screen LIBOR Page, "LIBOR" shall be the rate per annum at which
deposits in Dollars are offered by leading reference banks in the London
interbank market to Wells Fargo Bank, N.A. at approximately 11:00 a.m. (London
time) two (2) Business Days prior to the first day of the applicable Interest
Period for a period equal to such Interest Period and in an amount substantially
equal to the amount of this Loan.

        1.13    LIEN shall mean any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement or other similar form of public notice under the
Laws of any jurisdiction).

        1.14    LOAN shall mean the funds loaned to the Borrower by the Lender
pursuant to this Agreement.

        1.15    LOAN DOCUMENTS means, on any date, this Agreement, the Note and
all other agreements relating to this Agreement entered into from time to time
between Borrower and the Lender and all other documents and certificates
executed and delivered to the Lender by the Borrower in connection with any of
the foregoing, as from time to time amended, supplemented, amended and restated,
or otherwise modified and in effect on such date.

        1.16    MATERIAL ADVERSE EFFECT shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations, prospects or affairs of the Borrower and its Subsidiaries taken as a
whole or (ii) the ability of the Borrower and its Subsidiaries, taken as a
whole, to carry out their business on and after the Effective Date or as
proposed as of the Effective Date to be conducted or meet its obligations under
the Loan Documents on a timely basis.

        1.17    MATURITY DATE shall mean, unless the Note is sooner accelerated
pursuant to this Agreement, February 26, 2014.

        1.18    MAXIMUM RATE shall mean at any particular in question, the
maximum rate of interest which under applicable law may then be charged. If such
maximum rate changes after the date hereof, the Maximum Rate shall be
automatically increased or decreased, as the case

                                 Loan Agreement
                                     Page 4
<PAGE>

may be, without notice to Borrower from time to time as the effective date of
each change in such maximum rate period.

        1.19    NOTE shall mean the Note as described and defined in Article II
of this Agreement, together with each and every extension, renewal,
modification, replacement, substitution and change in form thereof which may be
from time to time and for any term or terms effected.

        1.20    PERSON shall mean and include an individual, a partnership, a
limited partnership, a limited liability company, a joint venture, a
corporation, a trust, an unincorporated organization, and a government or any
department, agency or political subdivision thereof.

        1.21    RESPONSIBLE OFFICER shall mean the chief executive officer,
chief operating officer, chief financial officer, president or managing director
of the Borrower.

        1.22    SUBSIDIARY shall mean (i) any corporation, at least 50% of the
total combined voting power of all classes of Voting Stock of which shall, at
the time as of which any determination is being made, be owned by the Borrower
either directly or through Subsidiaries, and (ii) any partnership, joint venture
or similar entity if at least a 50% interest in the profits or capital thereof
is owned by the Borrower, either directly or through Subsidiaries.

        1.23    STATED RATE shall mean a rate per annum equal to LIBOR plus five
and one - half percent (5 1/2%), not to exceed eleven percent (11%); provided,
however, that if the Stated Rate ever exceeds the Highest Lawful Rate, the
Stated Rate shall then and thereafter be fixed at a rate per annum equal to the
Highest Lawful Rate then and from time to time thereafter in effect until the
total amount of interest accrued at the Stated Rate on the unpaid balance of
this Note equals the total amount of interest which would have accrued at the
Highest Lawful Rate from time to time in effect.

        1.24    TAXES shall mean all taxes, assessments, fees, or other charges
or levies from time to time or at any time imposed by any Laws or by any
Tribunal as hereafter defined.

        1.25    TRIBUNAL shall mean any municipal, state, commonwealth, Federal,
foreign, territorial or other sovereign, governmental entity, governmental
department, court, commission, board, bureau, agency or instrumentality.

        1.26    OTHER DEFINITIONAL PROVISIONS. References to Sections,
subsections, Exhibits and Schedules shall be to Sections, subsections, Exhibits
and Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Article I may, unless the content
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, words importing any gender include the other
genders; the words including, includes and include shall be deemed to be
followed by the words without limitation; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.

                                 Loan Agreement
                                     Page 5
<PAGE>

                                   ARTICLE II

                                      LOAN

        2.1     LOAN AND CANCELLATION OF IOC LOAN. Upon the terms and subject to
the conditions hereinafter set forth, the Lender agrees to loan to Borrower the
sum of Eighteen Million Five Hundred Thousand and NO/100 U.S. Dollars (US$
18,500,000.00) (the "Loan"), representing the IOC Loan and the Additional
Financing. The Additional Financing will be funded on or before the Effective
Date. The unpaid principal balance and all accrued interest of the Loan is due
and payable on the Maturity Date. Upon the Effective Date, the IOC Loan and all
obligations of Borrower related thereto shall be wholly cancelled, terminated
and discharged for all purposes.

        2.2     PAYMENTS BY LENDER. The Lender shall fund the Loan to Borrower,
as requested by Borrower, by wire transfer of immediately available funds by
11:00 a.m. Houston, Texas time to the account of the Borrower as designated by
the Borrower for such purpose by written notice to the Lender.

        2.3     NOTE. The Borrower shall execute and deliver to the order of the
Lender a promissory note in the original principal amount the Loan, the form of
which is annexed hereto as EXHIBIT A and hereby made a part hereof (hereinafter
referred to as the "Note"). The Note shall be dated as of the Effective Date,
and shall provide for six (6) annual payments of interest only on each
anniversary of the Effective Date hereof until the Maturity Date. The unpaid and
outstanding principal balance of the Note, together with accrued but unpaid
interest thereon, shall be due and payable in full at the Maturity Date. The
Note shall bear interest on the unpaid balance of principal from time to time
outstanding and on any past due interest at an annual interest rate determined
pursuant to Section 2.6 hereof, but in no event at a rate greater than permitted
by applicable Law. All payments received shall be applied first to accrued
interest and then to the outstanding principal amount owing on the Note. All
payments and prepayments shall be made in lawful money of the United States of
America. After maturity (whether by acceleration or otherwise) the Note shall
bear interest at the Default Rate, payable on demand. Interest shall be
calculated on the basis of a year of 365 days, but assessed for the actual
number of days elapsed in each Interest Period.

        2.4     PROCEEDS OF LOAN. Proceeds of the Loan shall be used only for
the purposes of (i) Borrower's equity contribution to Isramco Energy; (ii)
working capital and general corporate purposes; and (iii) refinancing of
existing debt.

        2.5     RESPONSIBLE OFFICER. A Responsible Officer may, from time to
time, notify the Lender in writing of a change in the Responsible Officers. From
and after the Lender's receipt of such written notice, the Lender may rely on
any such request or certificate purportedly signed by any individual who has
been so designated as a Responsible Officer pursuant to this Agreement unless or
until it receives written notice from a Responsible Officer of the deletion of a
Responsible Officer.

        2.6     INTEREST RATES.

                                 Loan Agreement
                                     Page 6
<PAGE>

                (a)     INTEREST PRIOR TO MATURITY. Subject to the provisions
and limitations hereof, the outstanding principal balance of the Loan hereunder
shall accrue interest at the Stated Rate.

                (b)     INTEREST AFTER MATURITY. After the outstanding principal
amount of the Loan shall have become past due (by acceleration or past the
stated maturity date), such Loans shall bear interest for each day until paid
(before and after judgment) at the Default Rate.

        2.7     PREPAYMENTS. Borrower shall have the right at its option, from
time to time, to prepay the Loan in whole or part without premium or penalty at
any time.

        2.8     PAYMENTS FROM BORROWER. All payments shall be payable to the
Lender on the day when due without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, and an action therefor shall
immediately accrue if not timely paid within applicable grace or curative
periods herein specified. Such payments shall be made to the Lender at such
location as Lender may from time to time designate in writing in U.S. Dollars in
funds immediately available at such office without set off, counterclaim or
other deduction of any nature. To the extent permitted by law, after there shall
have become due (by acceleration or otherwise) interest or any other amounts due
from the Borrower hereunder or under the Note (excluding overdue principal,
which shall bear interest as described in Section 2.6(b) hereof), such amounts
shall bear interest for each day until paid (before and after judgment), payable
on demand, at the Default Rate.

        2.9     FULL PAYMENT. All outstanding principal and accrued but unpaid
interest on the Note shall be due and payable at the Maturity Date.

                                  ARTICLE III

                          CONDITIONS PRECEDENT TO LOANS

        3.1     CONDITIONS PRECEDENT TO FUNDING. The effectiveness of this
Agreement and the obligation of the Lender to make the Loan are subject to the
satisfaction of all of the following conditions on or prior to the Effective
Date (in addition to the other terms and conditions set forth herein):

                (a)     REPRESENTATIONS AND WARRANTIES. The covenants,
representations and warranties set forth herein and in the other Loan Documents
shall be true and correct in all material respects on and as of the Effective
Date, with the same effect as though made on and as of the Effective Date.

                (b)     JAY GUARANTEE. Jay shall have executed and delivered to
Lender an unconditional guarantee of the Indebtedness of Borrower to Lender, a
mortgage and deed of trust and security agreement pledging the oil and gas
properties of Jay as security for the obligations guaranteed, and such other
documents as may be reasonably requested by Lender.

                (c)     NOTE. The Borrower shall have executed and delivered to
the Lender the Note payable to the order of the Lender.

                                 Loan Agreement
                                     Page 7
<PAGE>

                (d)     OTHER INFORMATION. The Lender shall have received such
other information, documents and assurances as shall be reasonably requested by
the Lender.

                                   ARTICLE IV

                              AFFIRMATIVE COVENANTS

        The Borrower covenants and agrees with the Lender that from the date
hereof and so long as this Agreement is in effect (by extension, amendment or
otherwise) and until payment in full of all Indebtedness and the performance of
all other obligations of the Borrower under this Agreement, unless the Lender
shall otherwise consent in writing:

        4.1     PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge
or cause to be paid and discharged all Taxes imposed upon the income or profits
of the Borrower or upon the property, real, personal or mixed, or upon any part
thereof, belonging to Borrower before the same shall be in default, and all
lawful claims for labor, rentals, materials and supplies which, if unpaid, might
become a Lien upon its property or any part thereof; provided, however, that the
Borrower shall not be required to pay and discharge or cause to be paid or
discharged any such Tax, assessment or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and adequate book
reserves shall be established with respect thereto, and the Borrower shall pay
such Tax, charge or claim before any property subject thereto shall become
subject to levy of attachment or execution.

        4.2     MAINTENANCE OF EXISTENCE. The Borrower will do or cause to be
done all things necessary to preserve and keep in full force and effect its
organizational existence, rights and franchises and good standing in the State
of Delaware and as a foreign corporation qualified in such other jurisdiction(s)
in which the failure to maintain such qualification would have a Material
Adverse Effect.

        4.3     PRESERVATION OF PROPERTY. The Borrower will at all times
maintain, preserve and protect all of the Borrower's properties which are used
or useful in the conduct of the Borrower's businesses whether owned in fee or
otherwise, or leased, in good repair and operating condition and comply with all
material leases to which it is a party or under which it occupies property so as
to prevent any material loss or forfeiture thereunder.

        4.4     PAYMENT OF INDEBTEDNESS/PERFORMANCE OF OBLIGATIONS. The Borrower
will pay the obligations under the Note according to the reading, tenor and
effect thereof and the Borrower hereby agrees to pay, when due and owing, all
Indebtedness, whether or not evidenced by the Note.

        4.5     OPERATION OF PROPERTIES AND EQUIPMENT.

                (a)     The Borrower will maintain and operate, and will cause
each of its Affiliates (if any) to maintain and operate, their respective
properties in a good and workmanlike manner, except to the extent a failure to
so observe and comply is not reasonably expected to have a Material Adverse
Effect.

                                 Loan Agreement
                                     Page 8
<PAGE>

                (b)     The Borrower will comply, and will cause each of its
Affiliates (if any) to comply, in all respects with all contracts and agreements
applicable to or relating to their respective properties, except to the extent a
failure to so comply is not reasonably expected to have a Material Adverse
Effect.

                                   ARTICLE V

                               NEGATIVE COVENANTS

        The Borrower covenants and agrees with the Lender that from the date
hereof and so long as this Agreement is in effect (by extension, amendment or
otherwise) and until payment in full of all Indebtedness, unless the Lender
shall otherwise consent in writing:

        5.1     LIENS. Other than the first lien and security interest of Wells
Fargo National Bank, N.A., upon properties of Isramco Energy, the existing liens
securing existing debt of its other Subsidiaries, and the liens and security
interests pledged to Lender by Jay, the Borrower will not, and will not permit
any of its Subsidiaries (if any), to create, incur, assume, or suffer to exist
any lien upon or with respect to any of its properties, now owned or hereafter
acquired, except:

                (a)     Liens for taxes or assessments or other government
charges or levies if not yet due and payable or, if due and payable or, if they
are being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;

                (b)     Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens
securing obligations incurred in the ordinary course of business which are not
past due for more than thirty (30) days or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have been
established;

                (c)     Liens under workers' compensation, unemployment
insurance, Social Security or similar legislation;

                (d)     Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money),
leases, public or statutory obligations, surety, stay, appeal, indemnity,
performance or other similar bonds, or other similar obligations arising in the
ordinary course of business;

                (e)     Judgment and other similar liens (in the aggregate
exceeding $100,000) arising in connection with court proceedings, provided the
execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings.

        5.2     SALE OF ASSETS. The Borrower will not sell, lease, assign,
transfer, or otherwise dispose of, any of its now owned or hereafter acquired
assets (including, without limitation, shares of stock, receivables, and
leasehold interests) in excess of $150,000 in the aggregate during any twelve
(12) consecutive month period of time, except: (1) inventory disposed of or
leased in the ordinary course of business; (2) the sale or other disposition of
other assets no

                                 Loan Agreement
                                     Page 9
<PAGE>

longer used or useful in the conduct of its business; and (3) as otherwise
expressly permitted pursuant to this Agreement.

        5.3     USE OF LOAN PROCEEDS. The Borrower shall not use any proceeds of
the Loan for any purpose other than those expressly permitted and contemplated
by this Agreement, and in no event shall any loan proceeds be used for any
purpose that would create or cause a breach, violation or default or event of
default hereunder or under any of the other Loan Documents or violation of
Regulations T, U or X or any other regulation of the Board of Governors of the
Federal Reserve System or to violate Section 7 of the Securities Exchange Act of
1934 or any rule or regulation thereunder, in each case as now in effect or as
the same may hereinafter be in effect.

                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

        To induce the Lender to enter into this Agreement and to make the Loan
to the Borrower under the provisions hereof, and in consideration thereof, the
Borrower represents, warrants and covenants as follows:

        6.1     GOOD STANDING, AND DUE QUALIFICATION. The Borrower (a) is a
limited liability company duly formed, validly existing, and in good standing
under the laws of the State of Delaware; (b) has the power and authority to own
its assets and to transact the business in which it is now engaged or in which
it is proposed to be engaged; and (c) is duly qualified as a foreign corporation
and in good standing under the laws of each other jurisdiction in which such
qualification is required, except where the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect. The initial
Responsible Officer of the Borrower has all necessary corporate power and
authority to execute and deliver this Agreement, the Note, and the other Loan
Documents to the Lender.

        6.2     LITIGATION. There is no action, suit, investigation or
proceeding threatened or pending before any Tribunal against or affecting the
Borrower or any properties or rights of the Borrower, which, if adversely
determined, would result in any material adverse change in the business or
condition, financial or otherwise, of the Borrower, or otherwise materially
adversely affect the ability of the Borrower to perform its obligations under
this Agreement. The Borrower is not in default with respect to any judgment,
order, writ, injunction, decree, rule or regulation of any Tribunal.

        6.3     CONFLICTING AGREEMENTS AND OTHER MATTERS. To the best of
Borrower's knowledge and belief, the Borrower is not in default in the
performance of any material obligation, covenant, or condition in any material
agreement to which it is a party or by which it is bound. Neither the execution
nor delivery of any of the Loan Documents, nor fulfillment of, nor compliance
with their respective terms and provisions will conflict with, or result in a
material breach of the terms, conditions or provisions of, or constitute a
default under, or result in any material violation of, or result in the creation
of any Lien (except those created by the Loan Documents) upon any of the
properties or assets of the Borrower pursuant to, or require any consent,
approval or other action by or any notice to or filing with any Tribunal (other
than

                                 Loan Agreement
                                    Page 10
<PAGE>

routine filings after the Effective Date with the Securities and Exchange
Commission, any securities exchange and/or state blue sky authorities) pursuant
to any award of any arbitrator, or any agreement, instrument or Laws to which
the Borrower is subject.

        6.4     TITLE TO PROPERTIES, AUTHORITY. The Borrower has full power,
authority and legal right to own and operate the properties which it now owns
and operates, and to carry on the lines of business in which it is now engaged,
and, to the knowledge of Borrower, has good and defensible title to all of its
assets. The Borrower has full power, authority and legal right to execute and
deliver and to perform and observe the provisions of this Agreement and the
other Loan Documents and the Loan Documents constitute the legal, valid and
binding obligations of the Borrower, enforceable against it in accordance with
their respective terms, subject only to applicable bankruptcy, insolvency or
similar laws and general principles of equity.

        6.5     CORPORATE AUTHORIZATION. The Borrower has duly authorized the
execution and delivery of each of the Loan Documents and the performance of
their respective terms. No other authorizations, approvals, consents or actions
of any other Person are required as a prerequisite to the validity and
enforceability of the Loan Documents.

                                  ARTICLE VII

                                EVENTS OF DEFAULT

        7.1     EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default (whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
Law or otherwise):

                (a)     Borrower shall fail to make any monthly or other payment
due on the Note, or fail to pay any other fee, charge or assessment within five
(5) days after the same shall become due and payable (whether by extension,
renewal, acceleration, maturity or otherwise); or

                (b)     Any representation, warranty or certification of the
Borrower made herein, or in any other writing furnished in connection with or
pursuant to any of the Loan Documents shall have been incorrect, false or
misleading in any material respect on the date when made; or

                (c)     The Borrower shall fail to duly observe, perform or
comply with any covenant, agreement or term (other than payment provisions which
are governed by subparagraph (a) hereof) contained in this Agreement or any of
the Loan Documents and such default or breach shall have not been cured or
remedied within thirty (30) days following the date the Lender first notifies
the Borrower in writing; or

                (d)     Any of the following: (i) the Borrower shall be unable
to pay its debts as they mature, or shall make an assignment for the benefit of
creditors or admit in writing its inability to pay its debts generally as they
become due or fail generally to pay its debts as they mature; or (ii) an order,
judgment or decree is entered adjudicating the Borrower insolvent or an order
for relief under the United States Bankruptcy Code is entered with respect to
the Borrower; or (iii) the Borrower shall petition or apply to any Tribunal for
the appointment of a trustee, receiver, custodian or liquidator of the Borrower
or of any substantial part of the assets of the Borrower or shall commence any
proceedings relating to the Borrower under any bankruptcy,

                                 Loan Agreement
                                    Page 11
<PAGE>

reorganization, compromise, arrangement, insolvency, readjustment of debts,
dissolution, or liquidation Law of any jurisdiction, whether now or hereafter in
effect; or (iv) any such petition or application shall be filed, or any such
proceedings shall be commenced, against the Borrower and the Borrower by any act
shall indicate its approval thereof, consent thereto or acquiescence therein, or
an order, judgment or decree shall be entered appointing any such trustee,
receiver, custodian or liquidator, or approving the petition in any such
proceedings, and such order, judgment or decree shall remain unstayed and in
effect for more than thirty (30) days; or (v) the Borrower shall fail to make
timely payment or deposit of any amount of tax required to be withheld by such
Borrower and paid to or deposited to or to the credit of the United States of
America pursuant to the provisions of the Internal Revenue Code of 1986, as
amended, in respect of any and all wages and salaries paid to employees of the
Borrower; or

                (e)     Any default or event of default under any of the other
Loan Documents following the lapse of any applicable curative or grace period
provided therein; or

                (f)     the Lender's or Jay's criminal indictment or conviction
under any law pursuant to which such indictment or conviction could lead to a
forfeiture by the Lender or Jay of any of the properties securing the Loan or
guaranty thereof.

        7.2     REMEDIES. Upon the occurrence of any Event of Default referred
to in Section 7.1, the Note and all other Indebtedness shall be immediately due
and payable, without notice of any kind. Upon the occurrence of any other Event
of Default, and without prejudice to any right or remedy of the Lender under
this Agreement or the Loan Documents or under applicable Law or under any other
instrument or document delivered in connection herewith, the Lender may declare
the Note and the Indebtedness, or any part thereof, to be forthwith due and
payable, whereupon the Note and the other Indebtedness, or such portion as is
designated by the Lender shall forthwith become due and payable, without
presentment, demand, notice or protest of any kind, all of which are hereby
expressly waived by the Borrower. No delay or omission on the part of the Lender
in exercising any power or right hereunder or under the Note, the Loan Documents
or under applicable law shall impair such right or power or be construed to be a
waiver of any default or any acquiescence therein, nor shall any single or
partial exercise by Lender of any such power or right preclude other or further
exercise thereof or the exercise of any other such power or right by such
Person. In the event that all or part of the Indebtedness becomes or is declared
to be forthwith due and payable as herein provided, Lender shall have the right
to set off the amount of all the Indebtedness of the Borrower owing to such
Person against, and shall have a lien upon and security interest in, all
property of the Borrower in such Person's possession at or subsequent to such
default, regardless of the capacity in which such property is held, including
but not limited to any balance or share of any deposit, demand, collection or
agency account. At any time after the occurrence of any Event of Default, the
Lender may, at its option, cause an audit of any and/or all of the books,
records and documents of the Borrower to be made by auditors satisfactory to the
Lender at the expense of the Borrower. The Lender also shall have, and may
exercise, each and every right and remedy granted to it for default under the
terms of the other Loan Documents.

        7.3     APPLICATION OF PROCEEDS. After the exercise of remedies provided
for in Section 7.2 (or after the Indebtedness automatically becomes immediately
due and payable as set forth in

                                 Loan Agreement
                                    Page 12
<PAGE>

Section 7.2), any amounts received on account of such Indebtedness shall be
applied in the following order:

        FIRST: to payment of that portion of the Indebtedness constituting fees,
        indemnities, expenses or other amounts (other than principal and
        interest) payable to the Lender (including fees, charges and
        disbursements of counsel);

        SECOND: to payment of accrued and unpaid interest on the Indebtedness;

        THIRD: to payment of unpaid principal of the Indebtedness;

        and

        LAST: the balance, if any, after all of the Indebtedness has been
        indefeasibly paid in full, to Borrower or as otherwise required by
        applicable Laws.

                                  ARTICLE VIII

                                  MISCELLANEOUS

        8.1     NOTICES. Unless otherwise provided herein, all notices,
requests, consents and demands shall be in writing and shall be either
hand-delivered (by courier or otherwise), mailed by certified mail, postage
prepaid, or transmitted via telex or facsimile to the respective addresses
specified below, or, as to any party, to such other address as may be designated
by it in written notice to the other parties:

                  If to the Borrower, to:

                  Isramco, Inc.
                  11767 Katy Freeway, Suite 711
                  Houston, TX 77079
                  Telephone No.:  (713) 621 -3882
                  Facsimile No.:  (713) 621 - 3988
                  e - mail:  jayoil@swbell.net

                  With a copy to:

                  Schaeffer Hutchinson PC
                  Attn.: Mr. James H. Hutchinson, III
                  2204 Louisiana, Suite 220
                  Houston, Texas  77002
                  Phone:  (713) 524 - 7300
                  e - mail:  jhutchinson@schalaw.com

                  If to the Lender, to:

                  Naphtha - Israel Petroleum Corp., Ltd.

                                 Loan Agreement
                                    Page 13
<PAGE>

                  8 Granit St.
                  P.O.B. 10188
                  Petach-Tikva 49002
                  Israel
                  Phone:  972-3-922-922-5
                  e-mail:  office@isramco.com

All notices, requests, consents and demands hereunder will be effective when
hand-delivered or transmitted by telecopier or sent, answer-back received,
respectively, by the Lender to the notice address of the Borrower, or two (2)
Business Days after the date when mailed by certified mail, postage prepaid, in
each case given or addressed as aforesaid by either party hereto.

        8.2     PLACE OF PAYMENT. All sums payable hereunder shall be paid in
immediately available funds, at such location as may be designated from time to
time in writing by Lender. If any interest, principal or other payment falls due
on a date other than a Business Day, then (unless otherwise provided herein)
such due date shall be extended to the next succeeding Business Day, and such
extension of time will, in such case, be included in computing interest, if any,
in connection with such payment.

        8.3     SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and the
delivery of Loan Documents.

        8.4     PARTIES IN INTEREST. All covenants, agreements and obligations
contained in this Agreement shall bind and inure to the benefit of the parties
hereto and the respective successors and permitted assigns of the parties
hereto, except that the Borrower may not assign any of its rights or obligations
hereunder or under the Note without the prior written consent of the Lender.

        8.5     GOVERNING LAW. This Agreement and the Note shall be deemed to
have been made or incurred under the Laws of the State of Texas and shall be
construed and enforced in accordance with and governed by the Laws of Texas
except only where the applicable remedial or procedural laws of the other
jurisdictions are situated are applicable thereto. Tex. Rev. Civ. Stat. Ann.
Art. 5069, Ch 15 (which regulates certain revolving credit loan accounts and
revolving tri-party accounts) shall not apply to this Agreement or the Note.

        8.6     INTEREST. It is the intention of the parties hereto that the
Lender shall conform strictly to usury laws applicable to them. Accordingly, if
the transactions contemplated hereby would be usurious as to the Lender under
laws applicable to it (including the laws of the United States of America or any
other jurisdiction whose laws may be mandatorily applicable the Lender
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in any of the Loan Documents, it is
agreed as follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to the Lender that is contracted for, taken,
reserved, charged or received by the Lender under any of the Loan Documents or
agreements or otherwise in connection with the Note shall under no circumstances
exceed the Maximum Rate, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by any Lender to the
Borrower); and (ii) in the event that the maturity of

                                 Loan Agreement
                                    Page 14
<PAGE>

the Note is accelerated by reason of an election of the holder thereof resulting
from any Event of Default under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under law applicable to the Lender may never include interest greater
than the Maximum Rate, and excess interest, if any, provided for in this
Agreement or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited by the
Lender on the principal amount of the Indebtedness (or, to the extent that the
principal amount of the Indebtedness shall have been or would thereby be paid in
full, refunded by the Lender to the Borrower). All sums paid or agreed to be
paid to the Lender for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law, be amortized, prorated, allocated and
spread throughout the full term of the Loans evidenced by the Note until payment
in full so that the rate or amount of interest on account of any Loans hereunder
does not exceed the Maximum Rate. If at any time and from time to time (i) the
amount of interest payable to the Lender on any date shall be computed at the
highest lawful rate applicable to the Lender pursuant to this Section 8.6; and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to Lender would be less than the amount of interest
payable to the Lender computed at the highest lawful rate applicable to the
Lender, then the amount of interest payable to the Lender in respect of such
subsequent interest computation period shall continue to be computed at the
highest lawful rate applicable to the Lender until the total amount of interest
payable to the Lender shall equal the total amount of interest which would have
been payable to the Lender if the total amount of interest had been computed
without giving effect to this Section 8.6. To the extent that the Texas Credit
Title (V.T.C.A., Texas Finance Code ss.ss. 301.001 et seq.) is relevant to the
Lender for the purpose of determining the highest lawful rate, the Lender hereby
elects to determine the applicable ceiling rate under the Texas Credit Title by
the weekly ceiling from time to time in effect.

        8.7     NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise, and no
delay in exercising, on the part of the Lender, any right, power or privilege
hereunder or under any other Loan Document or applicable Law shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege of the Lender. The rights and remedies herein provided are cumulative
and not exclusive of any other rights or remedies provided by any other
instrument or by law. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.

        8.8     COSTS. The Borrower agrees to pay to the Lender on demand all
recording fees and filing costs, all reasonable attorneys fees and reasonable
legal expenses incurred or accrued by the Lender in connection with and
preparation, negotiation, closing, administration, perfection, enforcement,
refinancing, renegotiation, restructuring, amendment, waiver or other
modifications of this Agreement and the Loan Documents or any amendment, waiver,
consent or modification to and of the Loan Documents. In any action to enforce
or construe the provisions of this Agreement or any of the Loan Documents, the
Lender shall be entitled to recover its reasonable attorneys' fees,
disbursements of counsel and all costs and expenses related thereto.

        8.9     RIGHT OF SET - OFF. The Borrower hereby grants to the Lender a
lien, security interest and right of setoff as security for all Indebtedness and
obligations of the Borrower upon and against all deposits, credit, and property
of the Borrower, now or hereafter in the possession, custody, safekeeping or
control of such Person; and upon (a) the occurrence and during the

                                 Loan Agreement
                                    Page 15
<PAGE>

continuance of any Event of Default; and (b) the decision by the Lender to
declare the Note due and payable pursuant to the provisions of Article VII, the
Lender is hereby authorized at any time and from time to time, to set off and
otherwise apply any and all deposits (general or special, time or demand,
provisional or final, other than trust funds) at any time held and other
indebtedness at any time owing by the Lender to or for the credit or the account
of the Borrower against any and all of the Indebtedness of the Borrower now or
hereafter existing under this Agreement and the Note, irrespective of whether
demand under this Agreement or the Note shall have been made and although such
Indebtedness may be unmatured. The Lender shall promptly notify the Borrower
after any such set off and application; PROVIDED, HOWEVER, that the failure to
give such notice shall not affect the validity of such setoff 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) that such
Persons may have at law, in equity or otherwise.

        8.10    HEADINGS. The article and section headings of this Agreement are
for convenience of reference only and shall not constitute a part of the text
hereof nor alter or otherwise affect the meaning or interpretation of any
provision hereof.

        8.11    SEVERABILITY. The unenforceability or invalidity as determined
by a Tribunal of competent jurisdiction, of any provision or provisions of this
Agreement shall not render unenforceable or invalid any other provision or
provisions hereof.

        8.12    CONFIDENTIALITY. In the event that the Borrower provides to the
Lender written confidential information belonging to the Borrower, the Lender
shall thereafter maintain such information in confidence in accordance with the
standards of care and diligence that each utilizes in maintaining its own
confidential information. This obligation of confidence shall not apply to such
portions of the information which (i) are in the public domain; (ii) hereafter
become part of the public domain, without the Lender breaching its obligation of
confidence to the Borrower; (iii) are previously known by the Lender from some
source other than the Borrower; (iv) are hereafter developed by the Lender
without using the Borrower's information; (v) are hereafter obtained by the
Lender from a third party who owes no obligation of confidence to the Borrower
with respect to such information; (vi) are disclosed with the Borrower's
consent; (vii) must be disclosed either pursuant to any Governmental Requirement
or to Persons regulating the activities of the Lender; or (viii) as may be
required by law or regulation or order of any Governmental Authority in any
judicial, arbitration or governmental proceeding. Further, the Lender may
disclose any such information to consultants, any independent certified public
accountants or any legal counsel employed by such Persons in connection with
this Agreement, including without limitation, the enforcement or exercise of all
rights and remedies thereunder, or any assignee or participant (including
prospective assignees and participants) in the Loan; provided, however, that the
Lender imposes on the Person to whom such information is disclosed the same
obligation to maintain the confidentiality of such information as is imposed
upon it hereunder. Notwithstanding anything to the contrary provided herein,
this obligation of confidence shall cease two (2) years from the date the
information was furnished, unless the Borrower requests in writing at least
thirty (30) days prior to the expiration of such two (2) year period, to
maintain the confidentiality of such information for an additional two (2) year
period. The Lender agrees not to issue or cause to be issued any tombstone or
other publicly published announcement of the lending facilities established by
this Agreement without the Borrower's review and approval thereof, which such
approval will not be unreasonably withheld.

                                 Loan Agreement
                                    Page 16
<PAGE>

        8.13    SURVIVAL. To the extent that any payments on the Indebtedness
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, debtor-in-possession, receiver or
other Person under any bankruptcy law, common law or equitable cause, then to
such extent, the Indebtedness so satisfied shall be revived and continue as if
such payment or proceeds had not been received and the Liens, security
interests, rights, powers and remedies under this Agreement shall continue in
full force and effect.

        8.14    NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF THE LOAN DOCUMENTS REPRESENT 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.

        8.15    COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be as effective as delivery of a manually
executed counterpart of this Agreement.

        8.16    AMENDMENTS. No amendment or waiver of any provision of this
Agreement, the Note, or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the Lender
and the Borrower, and each such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided, that
no amendment, waiver, or consent shall, unless in writing and signed by the
Lender and the Borrower, do any of the following: (a) reduce the principal of,
or interest on, the Note or any fees or other amounts payable hereunder; (b)
postpone any date fixed for any payment of principal of, or interest on, the
Note or any fees or other amounts payable hereunder; (c) change the percentage
of the Commitment or of the aggregate unpaid principal amount of the Note; or
(d) change any provision contained in this Section 8.16.

        8.17    SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. The Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Lender. The
Borrower and the Lender agree that the Lender may at any time assign to one or
more assignees all, or a proportionate part of all, of its rights and
obligations under this Agreement and the other Loan Documents.

        IN WITNESS WHEREOF, the Borrower has caused this Agreement to be
executed and delivered to the Lender, effective as of the day and year first
above written by the undersigned duly authorized corporate officer of the
Borrower.

                                      BORROWER:

                                 Loan Agreement
                                    Page 17
<PAGE>

                                      ISRAMCO, INC.
                                      A Delaware corporation

                                      By: /s/ Haim Tsuff
                                          --------------
                                      Haim Tsuff, Chief executive Officer

                                      LENDER:

                                      NAPHTHA - ISRAEL PETROLEUM CORP., LTD.

                                      By: /s/ Jackob Maimon
                                          -----------------
                                          Jackob Maimon, Director

                                      By: Noa Lendner
                                      Noa Lendner, Authorized Representative

                                 Loan Agreement
                                    Page 18

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