Document:

<PAGE>   1
                                                                    EXHIBIT 10.4

                                 LOAN AGREEMENT

LENDER:             AMERICAN BANK, N.A.

LENDER'S ADDRESS:   P.O. Box 6469
                    Corpus Christi, Texas 78466-6469

BORROWER:           SOUTH TEXAS DRILLING & EXPLORATION, INC.

BORROWER'S ADDRESS: 9310 Broadway, Building 1
                    San Antonio, Texas 78217

     1.   Loan. Lender hereby agrees to loan to Borrower the sum of
$3,000,000.00, subject to all legal requirements. The loan is to bear interest
and be repayable in accordance with a note of even date herewith executed by
Borrower payable to the order of Lender.

     2.   Purpose. Borrower ("South Texas") is acquiring 100% of the issued and
outstanding stock of Pioneer Drilling Co. ("Pioneer"). A portion of the funds
will be advanced at closing to refinance indebtedness owing by Pioneer to
Lender and also owing by Pioneer to other third-party creditors. Funds not
advanced for refinance of Pioneer indebtedness will be advanced as requested
from time to time for capital expenditures to be made by Borrower; provided the
time limit for advances is December 15, 2000, and after such date Lender shall
not be required to make any additional advances and Borrower will forfeit the
right to draw any then unfunded portion of the loan.

     3.   Collateral: Expenses. The loan and all other indebtedness now or
hereafter owing by Borrower to Lender shall be secured by: (i) a first lien Deed
of Trust from Pioneer covering the real estate known as Lot 4, Block 6, ROBLEX
INDUSTRIAL AREA, Corpus Christi, Nueces County, Texas; and (ii) a first lien
security interest from Pioneer covering Pioneer Drilling Rigs Nos. 1 and 2 and
the present and future tubulars, tools, equipment and accessions for Rigs Nos. 1
and 2; and (iii) a first lien security interest on the tubulars and the
equipment now or hereafter owned by Pioneer which is now or hereafter utilized
on Pioneer Drilling Rigs No. 4 (the drawworks, mast, brake and substructure of
Rig No. 4 being owned by and leased from a third-party lessor). Such Pioneer
Rigs Nos. 1, 2 and 4 will be known, respectively, as South Texas Rigs Nos. 15,
16 and 18.

     4.   Expenses. Borrower agrees to pay or reimburse Lender for the legal
fees and other out-of-pocket expenses incurred by Lender in connection with the
loan, including but not limited to costs for credit reports, appraisals,
surveys, environmental studies and reports, lien and title searches, mortgagee
policies, recording fees and preparation of loan documents.

     5.   Conditions. Notwithstanding anything herein to the contrary, the
performance of each covenant to be performed by Borrower hereunder and under the
note and mortgage instrument, and the truth of every representation made by
Borrower, shall be a condition precedent to each and every advance to be made to
Borrower, or to any other obligation of the Lender hereunder; and the Lender
shall not be required to make any advance when Borrower is in default on any
obligation to Lender.

     6.   Financial Statements of Borrower. Borrower shall keep proper books of
record and account in which complete and correct entries shall be made of
Borrower's transactions in accordance with generally accepted accounting
principles and shall furnish or cause to be furnished to Lender interim
unaudited quarterly financial statements within thirty (30) days after the end
of each quarter, and an annual audited financial statement within ninety (90)
days of the end of the fiscal year. A copy of Borrower's budget for each year
shall be furnished to Lender within ninety (90) days after the beginning of each
year. Each annual financial statement shall include a balance sheet,
operating/income statement, contingent liabilities, statement of cash flows,
comparison to budget and a reconciliation of retained earnings and net worth,
and be in a form suitable to the Lender. Each interim financial statement shall
include a balance sheet, operating/income statement and comparison to budget.

     Each financial statement shall be accompanied by a certificate from the
chief financial officer of Borrower certifying that Borrower is in compliance
with all of the Financial Covenants imposed on Borrower hereunder.

<PAGE>   2
     7.   FINANCIAL COVENANTS.  Borrower shall maintain throughout the term of
the Loan in accordance with generally accepted accounting principles ("GAAP")
the following ratios to be tested on an annual basis:

     a.   A Leverage Ratio of not more than 3.0 to 1.0. This ratio is defined
as:

                                        Funded Bank Debt
          ----------------------------------------------------------------------
            Net Income + Interest Expense + Taxes + Depreciation + Amortization

     b.   A Cash Flow Ratio of not less than 1.25 to 1.00. This ratio is defined
as:

Net Income + Interest Expense + Taxes + Depreciation + Amortization - Dividends
                       - Maintenance Capital Expenditures
--------------------------------------------------------------------------------
              Current Portion of Long-Term Debt + Interest Expense

     c.   A Capitalization Ratio of not more than 0.5 to 1.00. This ratio is
defined as:

                                Funded Bank Debt
          ----------------------------------------------------------------------
                     Tangible Net Worth + Funded Bank Debt

     8.   ACTIVITY REPORTS. Within ten (10) days after the end of each month
the Borrower shall furnish to Lender a monthly rig activity report for all of
Borrower's rigs, and not merely those pledged to Lender.

     9.   BENEFIT. The provisions hereof shall inure to the benefit of Lender,
its successors and assigns, and to Borrower. Borrower's rights hereunder are
personal to Borrower and may not be assigned or transferred to or assumed by
any other party.

     10.  THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

     Dated the  21 day of August, 2000.

BORROWER:                          LENDER:

SOUTH TEXAS DRILLING &             AMERICAN BANK, N.A.
EXPLORATION, INC.

By: /s/ Michael E. Little             By: /s/ Illegible
    -----------------------           ---------------------------
    Name:  Michael E. Little            Name:
          -----------------                 ---------------------
    Title: Chairman, CEO               Title:
          -----------------                 ---------------------

PLEDGOR:

PIONEER DRILLING CO.

By: /s/ Wayne M. Squires
    -----------------------
    Name:  Wayne M. Squires
          -----------------
    Title: President & COO
          -----------------

                                     - 2 -<PAGE>   1
                                                                    EXHIBIT 10.5
                                PROMISSORY NOTE

$3,000,000.00                                                    August 21, 2000

     For value received, SOUTH TEXAS DRILLING & EXPLORATION, INC., a Texas
corporation (hereinafter called "Maker", whether one or more), promises to pay
to the order of AMERICAN BANK, N.A. ("Payee") at its office in Corpus Christi,
Nueces County, Texas, in lawful money of the United States the sum of THREE
MILLION AND NO/100 DOLLARS, or so much thereof as may be advanced and unpaid
hereon from time to time, together with interest on the unpaid principal
balance hereon outstanding from time to time prior to maturity (except during
any periods of default as set forth below) at a rate which is the lesser from
time to time of: (i) a variable rate which is one percent (1.0%) per annum
ABOVE THE REFERENCE RATE as such varies from time to time, such variable rate
to change at the same time and with changes in the said Reference Rate; or (ii)
the maximum legal rate which may be lawfully contracted for, charged or
received hereon from time to time under applicable law; or (iii) 17.50% per
annum.

     The term "Reference Rate" shall mean that variable rate of interest per
annum established by AMERICAN BANK, N.A. ("Reference Bank") from time to time
as its "base rate". Such rate is set by the Reference Bank as a general
reference rate of interest, taking into account such factors as the Reference
Bank may deem appropriate, it being understood that many of the Reference
Bank's commercial or other loans are priced in relation to such rate, that it
is not necessarily the lowest or best rate actually charged to any customer and
that the Reference Bank may make various commercial or other loans at rates of
interest having no relationship to such rate. In the event that Reference Bank
does not have a rate designated by it as its "base rate", then the "Reference
Rate" under the note shall be deemed to be the variable rate of interest per
annum which is the general reference rate designated by Reference Bank as its
"prime rate", "reference rate", or other similar rate and which is comparable
to the Reference Rate as described above. Any banking association into which
the Reference Bank may be converted or merged, or with which it may be
consolidated, or to which it might sell or transfer its banking business and
assets as a whole or substantially as a whole, or any banking association
resulting from any such conversion, sale, merger, consolidation or transfer to
which it is a party, shall be and become successor Reference Bank hereunder.

     All interest rates hereunder shall be computed on a full calendar year
(365/366 days) basis. Chapter 346 of the Texas Finance Code shall not in any
event apply to the loan evidenced hereby.

PAYMENT DEFAULTS/OTHER DEFAULT PROVISIONS:

(a) ANNUAL INTEREST RATE WITH DUE BUT UNPAID AMOUNTS: Maker hereby agrees that,
prior to maturity, at the sole option of Payee and without notice to Maker, the
entire unpaid principal balance of this Note may bear interest at the highest
rate permissible under applicable law or 17.50% per annum, whichever is less,
during any period(s) in which Maker fails to make any payment due pursuant to
the terms of this Note ten (10) or more days after the payment's due date.

(b) ANNUAL INTEREST RATE WITH OTHER DEFAULT: Maker hereby agrees that, prior to
maturity, at the sole option of Payee and upon ten (10) days written notice to
Maker, the entire unpaid principal balance of this Note may bear interest at
the highest rate permissible under applicable law or 17.50% per annum,
whichever is less, during any period(s) in which Maker fails to comply with or
to perform any term, obligation, promise or condition contained in this Note or
any agreements related to and/or securing this Note. This Paragraph (b) does
not apply to monetary defaults, such being specifically addressed herein in
Paragraph (a) ANNUAL INTEREST RATE WITH DUE BUT UNPAID AMOUNTS.

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Page 2
$3,000,000.00 Promissory Note
Maker: SOUTH TEXAS DRILLING &
       EXPLORATION, INC.
Payee: AMERICAN BANK, N.A.

POST MATURITY RATE:

The Post Maturity Rate on this Note is the maximum rate allowed  by applicable
law. Borrower will pay interest on all sums due after final maturity, whether
by acceleration or otherwise, at that rate, with the exception of any amounts
added to the principal balance of this Note based on Lender's payment of
insurance premiums, which will continue to accrue interest at the pre-maturity
rate.

     This note shall be due and payable in 87 monthly installments, unless
sooner paid, the first 3 installments being for accrued interest only, the 4th
(beginning December 15, 2000) through 86th installments being in the amount of
$50,585.00 each, including accrued interest each, and the 87th and final
installment being in the amount of the balance of principal plus accrued
interest then remaining outstanding and unpaid hereon. The first such
installment is due and payable September 15, 2000, and the remaining
installments are due and payable in consecutive order on the same day of each
and every succeeding month thereafter until all sums hereunder have been paid,
the final installment due hereon being due on November 15, 2007 (the "maturity
date"). In the event of prepayment, no prepayment of principal shall reduce the
amount of installments next coming due, and every prepayment of principal shall
be applied in inverse order against the principal last coming due hereunder.

     Notwithstanding the above, each of the installments prior to maturity
shall be for at least the accrued interest owing. The amount of said
installments prior to maturity are also, at the option of the holder hereof,
subject to adjustment from time to time, the installment amount to be adjusted
to an amount which at the then current rate of interest borne hereby would
continue the amortization of principal on the same basis as originally provided
hereunder; provided, no such adjustment shall have the effect of extending the
maturity date.

     All payments hereon shall be first applied to accrued interest with the
remainder, if any, applied to unpaid principal. Principal and accrued interest
may be prepaid in whole or in part from time to time without penalty or premium.

     This note evidences funds to be advanced pursuant to a Loan Agreement of
even date. Payment is secured as set forth therein.

     At the option of the holder hereof, and after the notice of default and
opportunity to cure set forth below, the maturity of this note may be
accelerated and all unpaid amounts of principal and accrued interest shall
become immediately due and payable, without presentment or demand or notice to
any person obligated as Maker or any other person obligated hereon, upon the
occurrence of any of the following events: default in the payment of any
indebtedness or any part thereof owing to holder by any person obligated as
Maker or any other person obligated hereon, whether evidenced by this note or
otherwise; or failure to perform or keep any of the conditions and covenants
contained in any document given to secure indebtedness owing to holder by any
person obligated as Maker or any other person obligated hereon or any document
evidencing loan agreements made in connection herewith; or insolvency or making
of any general assignment for the benefit of creditors by any person obligated
as Maker or any other person obligated hereon; or the filing of any petition or
commencement of any proceeding by or against any person obligated as Maker or
any other person obligated hereon for any relief, discharge, rearrangement,
reorganization or otherwise under any bankruptcy or insolvency laws; or the
levying on, seizure or freezing of any account of any person obligated as Maker
or any other person obligated hereon by any agency or instrumentality of the
State or Federal government; or the issuance of any writ of attachment or
garnishment relating to or affecting any of the property or assets of any
person obligated as Maker or any other person obligated hereon.
<PAGE>   3
Page 3
$3,000,000.00 Promissory Note
Maker:  SOUTH TEXAS DRILLING &
        EXPLORATION, INC.
Payee:  AMERICAN BANK, N.A.

     Except for the notice of default set forth below, Maker and all sureties,
endorsers and guarantors of this note hereby severally waive demand, presentment
for payment, notice of non-payment, protest, notice of protest, notice of
intention to accelerate maturity, notice of acceleration of maturity, and all
other notice, and diligence in collecting this note or filing suit thereon or
enforcing any security given therefor, and agree to any substitution, exchange
or release of any security now or hereafter given for this note or the release
of any party primarily or secondarily liable hereon. Maker and all sureties,
endorsers and guarantors of this note further severally agree that it will not
be necessary for the payee or any holder hereof, in order to enforce payment of
this note, to first institute or exhaust its remedies against any person
obligated as Maker or other party liable therefor or to enforce its rights
against any security for this note and hereby consent to the renewal and
extension or modification from time to time of this note (regardless of the
number or length of time of the renewals, extensions or modifications), and to
any other indulgence with respect hereto, without notice of any such renewal,
extension, modification or indulgence. All persons obligated hereon, whether as
a maker, endorser, surety, guarantor or otherwise, shall be jointly and
severally liable for repayment of the indebtedness evidenced by or arising under
this note.

     In the event that this note is placed into the hands of an attorney for
collection, or if collected through probate, bankruptcy or other judicial
proceedings, then there shall be additionally owing hereon all expenses and
costs or collection, including reasonable attorneys's fees.

     It is expressly provided and stipulated that, notwithstanding any provision
of this Note or any loan agreement or in any deed of trust, assignment, security
agreement or other agreement securing payment of this note, in no event shall
the aggregate of all interest paid by the Maker to the holder hereof or
contracted for, chargeable or receivable hereunder ever exceed the maximum legal
rate of interest which may lawfully be charged Maker under the laws of the State
of Texas or the United States (whichever may permit the higher rate) on the
principal balance of this note from time to time advanced and remaining unpaid.
In this connection, it is expressly stipulated and agreed that it is the intent
of the payee and the Maker in the execution and delivery of this note to
contract in strict compliance with usury laws of the State of Texas or the
United States (whichever may permit the higher rate). In the event said maximum
legal rate is calculated under Texas statutes, the applicable rate ceiling
(maximum rate) shall be the indicated (weekly) rate ceiling from time to time in
effect, as provided in Chapter 303 of the Texas Finance Code as amended. In
furtherance thereof, none of the terms of this note or any loan agreement or in
any deed of trust, assignment, security agreement or other agreement securing
payment of this note, shall ever be construed to create a contract to pay for
the use, forbearance or detention of money, interest at a rate in excess of the
maximum legal interest rate permitted to be charged to the Maker under such
laws. The Maker or any guarantors, endorsers or other parties now or hereafter
becoming liable for payments of this note shall never be liable for interest in
excess of the maximum interest that may lawfully be charged under such laws, and
the provisions of this paragraph shall govern over all other provisions of this
note or any loan agreement or any deed of trust, assignment, security agreement
or other agreement securing payment of this note, should such provisions be in
apparent conflict herewith. All sums paid or agreed to be paid to payee or the
holder of this note for the use, forbearance or detention of the indebtedness of
Maker under the terms of this note or otherwise shall be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until payment
in full so that the actual rate of interest with respect to such indebtedness is
uniform throughout the term hereof, and, in conjunction therewith, if the loan
evidenced by this note should ever be deemed to consist of two or more loans,
then any sum paid or agreed to be paid to the holder hereof for the use,
forbearance or detention of the indebtedness of Maker to payee under the terms
of this note which is deemed to be excessive interest with respect to one or
more of such loans shall be allocated to the loans for which a maximum lawful
rate of interest has not been contracted for, charged or received or for which
no maximum rate of interest exists.

<PAGE>   4
Page 4
$3,000,000.00 Promissory Note
Maker: SOUTH TEXAS DRILLING &
       EXPLORATION, INC.
Payee: AMERICAN BANK, N.A.

     Notice of Default. Notwithstanding anything in the foregoing to the
contrary, the maturity of this Note shall not be accelerated until after the
holder hereof has notified the Maker by personal delivery or by certified mail,
return receipt requested, in writing of any default, and if the same be not
cured within ten (10) days as regards any monetary default and within thirty
(30) days as regards any nonmonetary default from the date of such notice, then
without further notice, presentment, demand of any kind, acceleration of
maturity hereof may be imposed. In the event such notice is effected by
personal delivery, the date and hour of actual delivery shall be the time and
date of such notice to Maker. Notice by certified mail shall be deemed given
when placed in the United States mail, postage prepaid, addressed to Maker at
the last known address of Maker as shown by the records of the holder hereof.

NOTICE TO MAKER: UNDER TEXAS LAW, IF YOU CONSENT TO THIS AGREEMENT, YOU MAY BE
SUBJECT TO A FUTURE RATE AS HIGH AS 17.50 PERCENT PER YEAR.

                                        SOUTH TEXAS DRILLING & EXPLORATION, INC.

                                        By: /s/ Michael E. Little
                                            ------------------------------------
                                            Name: Michael E. Little
                                            ------------------------------------
                                            Title: Chairman CEO
                                            ------------------------------------

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