Document:

<PAGE>

                  First Amended and Restated Credit Agreement
                  -------------------------------------------

                           REVOLVING LINE OF CREDIT
                           OF UP TO $150,000,000.00

                                     AMONG

                                 BANK ONE, NA
                As Administrative Agent, LC Issuer and a Bank,

                        UNION BANK OF CALIFORNIA, N.A.
                       As Syndication Agent and a Bank,

                 GUARANTY BANK, FSB and HIBERNIA NATIONAL BANK
                       Each As a Co-Agent and as a Bank,

                                OTHER FINANCIAL
                            INSTITUTIONS AND BANKS,
                                   As Banks,

                             ULTRA RESOURCES, INC.
                                  As Borrower

                                      AND

                        BANC ONE CAPITAL MARKETS, INC.
                    As Lead Arranger and Sole Book Manager

                                 March 1, 2002
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                     Page
<S>                                                                                                 <C>
ARTICLE I.

          DEFINITION...........................................................................         1

ARTICLE II.

          THE LOANS AND LETTERS OF CREDIT......................................................        16
                          2.01      The Commitment.............................................        16
                          2.02      Notice and Manner of Borrowing.............................        17
                          2.03      Payment Procedure..........................................        18
                          2.04      Payments of Interest under the Notes.......................        18
                          2.05      General Provisions Relating to Interest....................        19
                          2.06      Borrowing Base Determination...............................        20
                          2.07      Mandatory Prepayment Due to a Loan Excess..................        21
                          2.08      Other Mandatory Prepayments................................        22
                          2.09      Prepayment and Conversion..................................        22
                          2.10      Increased Cost of Loans....................................        22
                          2.11      Change of Law..............................................        24
                          2.12      Mitigation: Mandatory Assignment...........................        25
                          2.13      Pro Rata Treatment and Payments............................        25
                          2.14      Sharing of Payments and Setoffs............................        25
                          2.15      Advances to Satisfy Obligations of the Borrower............        26
                          2.16      Assignment of Production...................................        26
                          2.17      Commitment Fee.............................................        26
                          2.18      Addition/Deletion of Borrowing Base Oil & Gas Properties...        26
                          2.19      Adjustment to Aggregate Commitment Amount..................        27
                          2.20      Facility LCs...............................................        27

ARTICLE III.

          CONDITIONS...........................................................................        31
                          3.01      General Conditions to Closing and to all Disbursements.....        31
                          3.02      Deliveries at the Closing..................................        32
                          3.03      Documents Required for Subsequent Disbursements Involving
                                          Additional Borrowing Base Oil and Gas Properties.....        34

ARTICLE IV.

          REPRESENTATIONS AND WARRANTIES.......................................................        34
                          4.01      Existence..................................................        34
                          4.02      Due Authorization..........................................        34
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                                       i
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<TABLE>
<S>                                                                                               <C>
                          4.03     Valid and Binding Obligations..............................      35
                          4.04     Scope and Accuracy of Financial Statements.................      35
                          4.05     Title to Borrowing Base Oil and Gas Properties.............      35
                          4.06     Oil and Gas Leases.........................................      35
                          4.07     Oil and Gas Contracts......................................      36
                          4.08     Producing Wells............................................      36
                          4.09     Purchasers of Production...................................      36
                          4.10     Authorizations and Consents................................      36
                          4.11     Environmental Laws.........................................      36
                          4.12     Compliance with Laws, Rules, Regulations and Orders........      37
                          4.13     Liabilities, Litigation and Restrictions...................      37
                          4.14     Existing Indebtedness......................................      38
                          4.15     Material Commitments.......................................      38
                          4.16     Margin Stock...............................................      38
                          4.17     Proper Filing of Tax Returns and Payment of Taxes Due......      38
                          4.18     ERISA......................................................      38
                          4.19     Investment Company Act Compliance..........................      39
                          4.20     Public Utility Holding Company Act Compliance..............      39
                          4.21     Insurance..................................................      39
                          4.22     Material Misstatements and Omissions.......................      39

ARTICLE V.

          AFFIRMATIVE COVENANTS...............................................................      39
                          5.01     Use of Funds...............................................      39
                          5.02     Maintenance and Access to Records..........................      39
                          5.03     Quarterly Unaudited Financial Statements...................      40
                          5.04     Annual Audited Financial Statements........................      40
                          5.05     Compliance Certificate.....................................      40
                          5.06     Statement of Material Adverse Change.......................      40
                          5.07     Title Defects..............................................      40
                          5.08     Additional Information.....................................      40
                          5.09     Compliance with Laws and Payment of Assessments
                                   and Charges................................................      41
                          5.10     Maintenance of Existence and Good Standing.................      41
                          5.11     Further Assurances.........................................      41
                          5.12     Initial Expenses of the Bank...............................      41
                          5.13     Subsequent Expenses of the Administrative Agent
                                          and the Arranger....................................      41
                          5.14     Maintenance of Tangible Property...........................      42
                          5.15     Maintenance of Insurance...................................      42
                          5.16     Inspection of Tangible Assets/Right of Audit...............      42
                          5.17     Payment of Note and Performance of Obligations.............      42
                          5.18     Borrowing Base.............................................      42
                          5.19     Compliance with Environmental Laws.........................      43
</TABLE>

                                      ii
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<TABLE>
<S>                                                                                               <C>
                          5.20     INDEMNIFICATION.............................................    43
                          5.21     Transactions with Affiliates................................    45
                          5.22     Leases......................................................    45
                          5.23     Operation of Borrowing Base Oil and Gas Properties..........    45
                          5.24     Change of Purchasers of Production..........................    45
                          5.25     Payment of Taxes, Etc.......................................    45
                          5.26     Notice of Litigation........................................    46
                          5.27     Notice of Events of Default.................................    46
                          5.28     Notice of Change of Principal Offices.......................    46
                          5.29     Changes in Management.......................................    46
                          5.30     Employee Benefit Plans......................................    46
                          5.31     Payment of Obligations......................................    46
                          5.32     Annual Budget...............................................    46

ARTICLE VI.

          NEGATIVE COVENANTS...................................................................    47
                          6.01     Other Indebtedness..........................................    47
                          6.02     Loans or Advances...........................................    47
                          6.03     Mortgages or Pledges of Assets..............................    47
                          6.04     Sales of Assets.............................................    47
                          6.05     Dividends...................................................    47
                          6.06     Retire Stock................................................    47
                          6.07     Payment of Accounts Payable.................................    47
                          6.08     Investments.................................................    47
                          6.09     Changes in Structure or Business............................    48
                          6.10     Pooling or Unitization......................................    48
                          6.11     Hedge Agreements............................................    48
                          6.12     Capital Stock of Borrower...................................    48
                          6.13     Margin Stock................................................    48
                          6.14     Minimum Tangible Net Worth..................................    48
                          6.15     Current Ratio...............................................    49
                          6.16     EBITDA to Interest Ratio....................................    49

ARTICLE VII.

          EVENTS OF DEFAULT....................................................................    49
                          7.01     Enumeration of Events of Default............................    49
                          7.02     Rights Upon Unmatured Event of Default......................    52
                          7.03     Rights Upon Default.........................................    52
                          7.04     Remedies....................................................    53
                          7.05     Right of Set-off............................................    53
</TABLE>

                                      iii
<PAGE>

<TABLE>
<S>                                                                                             <C>
ARTICLE VIII.

          THE ADMINISTRATIVE AGENT............................................................   53
                          8.01    Authorization and Action....................................   53
                          8.02    Administrative Agent's Reliance, Etc........................   53
                          8.03    The Administrative Agent and Affiliates.....................   54
                          8.04    Bank Credit Decision........................................   54
                          8.05    Administrative Agent's Indemnity............................   54
                          8.06    Successor Administrative Agent..............................   55
                          8.07    Notice of Default...........................................   56

ARTICLE IX.

          MISCELLANEOUS.......................................................................   56
                          9.01    Security Interests in Deposits and Right of Offset
                                           or the Banker's Lien...............................   56
                          9.02    Survival of Representations, Warranties and Covenants.......   56
                          9.03    Notices and Other Communications............................   56
                          9.04    Parties in Interest.........................................   57
                          9.05    Successors and Assigns; Participation; Purchasing Banks.....   57
                          9.06    Renewals and Extensions.....................................   60
                          9.07    No Waiver by the Administrative Agent, the Banks
                                           or the LC Issuer...................................   60
                          9.08    GOVERNING LAW...............................................   60
                          9.09    Incorporation of Exhibits and Schedules.....................   60
                          9.10    Survival Upon Unenforceability..............................   60
                          9.11    Rights of Third Parties.....................................   60
                          9.12    Amendments or Modifications.................................   61
                          9.13    Agreement Construed as an Entirety..........................   61
                          9.14    Number and Gender...........................................   62
                          9.15    AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS...................   62
                          9.16    Controlling Provision Upon Conflict.........................   62
                          9.17    Time, Place and Method of Payments..........................   62
                          9.18    Termination.................................................   62
                          9.19    Non-Application of Chapter 346 of Texas Finance Code........   63
                          9.20    Counterpart Execution.......................................   63
                          9.21    Power of Attorney...........................................   63
                          9.22    Amended and Restated Agreement..............................   63
</TABLE>

                                      iv
<PAGE>

EXHIBITS
--------

EXHIBIT A           Borrowing Base Oil and Gas Properties
EXHIBIT B           Form of Revolving Note
EXHIBIT C           Compliance Certificate
EXHIBIT D           Security Instruments
EXHIBIT E           Request for Advance

SCHEDULES
---------

Schedule 1.01(b)    Commitment Amount and Aggregate Commitment
Schedule 4.01       Information Regarding the Borrower and its Subsidiaries
Schedule 4.07       Certain Oil and Gas Contracts
Schedule 4.09       List of Purchasers of Production
Schedule 4.11       Environment Impact Statement
Schedule 4.14       Existing Indebtedness
Schedule 4.15       Material Commitments
Schedule 4.21       Insurance Certificates
Schedule 9.05(d)    Commitment Transfer Supplement

                                       v
<PAGE>

                  FIRST AMENDED AND RESTATED CREDIT AGREEMENT
                  -------------------------------------------

     THIS CREDIT AGREEMENT (this "Agreement"), executed March 1, 2002, is by and
between ULTRA RESOURCES, INC., a Wyoming corporation ("Borrower"), the several
banks and financial institutions from time to time parties to this Credit
Agreement (the "Banks," such term to include all undersigned Banks and all other
                -----
financial institutions which subsequently become parties to this Agreement in
accordance with Section 9.05 hereof), BANK ONE, NA, a national banking
association ("Bank One") as a Bank, as the LC Issuer (hereinafter defined) and
              --------
as Administrative Agent for the Banks (in such latter capacity and together with
its successors and permitted assigns in such capacity, the "Administrative
                                                            --------------
Agent").
-----

                              W I T N E S S E T H
                              -------------------

     WHEREAS, Borrower, Borrower's affiliate Ultra Petroleum (USA) Inc., and
Bank One entered into that certain Credit Agreement dated March 22, 2000, as
amended by that certain First Amendment to Credit Agreement dated July 19, 2001
by and between Borrower and Bank One as Lender, (the "Prior Credit Agreement");

     WHEREAS, Borrower has requested that Bank One and the other Banks amend and
restate the Prior Credit Agreement, and the Banks are willing to do so in
accordance with the terms set forth herein;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Banks, the LC Issuer, the Administrative Agent and the
Borrower agree as follows:

                                  ARTICLE I.

                                  DEFINITIONS
                                  -----------

     As used in this Agreement, the following terms shall have the meanings
indicated:

     "ABR" means a fluctuating rate of interest equal to the higher of (i) a
      ---
rate per annum equal to the prime rate of interest announced from time to time
by Bank One or its parent (which is not necessarily the lowest rate charged to
any customer), changing when and as said prime rate changes, and (ii) the sum of
the Federal Funds Effective Rate most recently determined by the Administrative
Agent plus one-half percent (1/2%) per annum.

     "ABR Loan" means any Loan from time to time for which interest thereon is
      --------
to be computed on the basis of the ABR plus the ABR Margin, as elected by
Borrower pursuant to Section 2.04 hereof.

     "ABR Margin" means the applicable margin set forth in the Pricing Grid
      ----------
under the caption, "ABR Margin," determined based on the Utilization Percentage
prevailing from time to time.
<PAGE>

     "Administrative Agent" means Bank One, NA, as Administrative Agent for the
      --------------------
Banks hereunder and under the other Loan Documents, and each successor
Administrative Agent.

     "Affiliate" means, as applied to any Person, any other Person, directly or
      ---------
indirectly, controlling, controlled by, or under common control with, that
Person.  For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as applied to any Person, means either: (a) the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract, or otherwise, or (b) the legal or beneficial ownership of or voting
rights with respect to twenty percent (20%) or more of the equity interest in
such Person.

     "Aggregate Commitment Amount" means the lesser of: (a) the Borrowing Base
      ---------------------------
in effect from time to time, or (b) the amount stated as the Aggregate
Commitment Amount on Schedule 1.01(b) attached hereto, as the same may be
amended from time to time as provided in this Agreement.

     "Aggregate Outstanding Credit Exposure" means, at any time, the aggregate
      -------------------------------------
of the Outstanding Credit Exposure of all the Banks.

     "Agreement" means this Credit Agreement, as the same may be amended or
      ---------
supplemented from time to time.

     "Applicable Law" means that law in effect from time to time and applicable
      --------------
to the Notes which lawfully permits the charging and collection of the highest
permissible lawful, non-usurious rate of interest on the Notes, including laws
of the State of Texas and laws of the United States of America; Chapter 303 of
the Texas Finance Code shall be included in the laws of the State of Texas in
determining Applicable Law; and for the purpose of applying said Chapter 303 to
the Notes, the interest ceiling applicable to the Notes under said Chapter 303
shall be the indicated weekly rate ceiling from time to time in effect.

     "Applicable Margin" means the applicable LIBOR Margin or ABR Margin
      -----------------
provided for in the Pricing Grid set forth below based upon the Utilization
Percentage.

     "Arranger" means Banc One Capital Markets, Inc., in its capacity as lead
      --------
arranger and sole book manager.

     "Bank(s)" means any of the banks signatory to this Agreement, their
      -------
successors and, upon the effective date after registration with the
Administrative Agent pursuant to Section 9.05 of a Commitment Transfer
Supplement executed by a Purchasing Bank, such Purchasing Bank.

     "Borrower" has the meaning stated therefor in the preamble of this
      --------
Agreement.

     "Borrowing" means a group of Loans made by the Banks to Borrower on a
      ---------
single date.

                                       2
<PAGE>

     "Borrowing Base" means the maximum loan amount with respect to the
      --------------
Borrowing Base Oil and Gas Properties, as determined by the Administrative Agent
and approved by the Required Banks from time to time in accordance with Section
2.06 of this Agreement.

     "Borrowing Base Oil and Gas Properties" means those Oil and Gas Properties
      -------------------------------------
of the Borrower that are subject to the liens created by the Security
Instruments, together with the additional Borrowing Base Oil and Gas Properties
that are described in Exhibit "A" attached hereto and made a part hereof, as
such Exhibit "A" may be amended from time to time.

     "Breakage Costs" means all reasonable losses, expenses and liabilities
      --------------
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
any Bank to fund its LIBOR Loans but excluding loss of anticipated profit with
respect to any LIBOR Loans) which such Bank sustains: (i) if for any reason
(other than a default by such Bank or the Administrative Agent) a borrowing of
LIBOR Loans does not occur on a date specified therefor in a Request for
Advance; (ii) if any repayment or conversion of any LIBOR Loans occurs on a date
which is not the last day of an Interest Period applicable thereto; (iii) if any
prepayment of any LIBOR Loans is not made on any date specified in a notice of
prepayment given by Borrower; or (iv) as a consequence of any default by the
Borrower to repay LIBOR Loans when required by the terms of this Agreement.

     "Business Day" means a day other than a Saturday, Sunday or legal holiday
      ------------
for commercial banks under the laws of the State of Texas, provided that with
respect to transactions under this Agreement relating to LIBOR Loans, such day
must also be a Eurodollar Business Day.

     "Change of Control" means any of the following events: (a) any "person" or
      -----------------
"group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) has become, directly or
indirectly, the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all such shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), by way of merger, consolidation or otherwise, of a majority or more of
the common stock of Borrower on a fully-diluted basis, after giving effect to
the conversion and exercise of all outstanding warrants, options and other
securities of the Borrower (whether or not such securities are then currently
convertible or exercisable) or (b) during any period of two consecutive calendar
years, individuals who at the beginning of such period constituted the board of
directors of the Borrower cease for any reason to constitute a majority of the
directors of the Borrower then in office unless (i) such new directors were
elected by a majority of the directors of the Borrower who constituted the board
of directors of the Borrower at the beginning of such period (or by directors so
elected) or (ii) the reason for such directors failing to constitute a majority
is a result of retirement by directors due to age, death or disability.

     "Closing" has the meaning provided in Section 3.01.
      -------

     "Co-Agent" means Hibernia National Bank and Guaranty Bank, FSB,
      --------
respectively, and each successor to such agent position.

                                       3
<PAGE>

     "Commitment" means, as to any Bank, the obligation of such Bank to make
      ----------
Loans to, and participate in Facility LCs issued upon the application of, the
Borrower in an aggregate amount at any one time outstanding not to exceed the
lesser of (i) such Bank's Commitment Amount and (ii) such Bank's Percentage
Share of the Borrowing Base then in effect.

     "Commitment Amount" means at any time, for any Bank, the amount set forth
      -----------------
opposite such Bank's name on Schedule 1.01(b) under the heading "Commitment
Amount," as such amount may be changed as provided in this Agreement.

     "Commitment Transfer Supplement" means a Commitment Transfer Supplement
      ------------------------------
executed by Administrative Agent and a Purchasing Bank substantially in the form
of Schedule 9.05(d) and registered with the Administrative Agent pursuant to
Section 9.05(d) hereof.

     "Compliance Certificate" means the certificate of the President or other
      ----------------------
Responsible Officer of the Borrower submitted to the Administrative Agent from
time to time pursuant to this Agreement and attesting to the financial covenants
and stating, to such officer's knowledge, whether or not an Event of Default or
an Unmatured Event of Default has occurred and is continuing and, if such an
event has occurred, the actions being taken by the Borrower, to remedy such
situation and that GAAP has been used in the preparation of the Financial
Statements, which certificate shall be in the form attached hereto as Exhibit
"C."

     "Consolidated Financial Statements" means, as of any reporting period, the
      ---------------------------------
consolidated and consolidating Financial Statements of Ultra Petroleum Corp. and
its Subsidiaries, prepared in accordance with GAAP.

     "Consolidated Tangible Net Worth" means, as of any reporting period,
      -------------------------------
Stockholders' Equity, less the sum of:

          (A)  Goodwill, including any amounts, however designated on the
               Consolidated Financial Statements, representing the excess of the
               purchase price paid for assets or stock acquired over the value
               assigned thereto on the books of Ultra Petroleum Corp.;

          (B)  Patents, trademarks, trade names, and copyrights;

          (C)  Any amount at which shares of capital stock of the Borrower
               appear as an asset on the Borrower's balance sheet;

          (D)  Loans and advances to stockholders, directors, officers, or
               employees, except for reasonable business travel expenses
               advanced to employees in the ordinary course of business; and

          (E)  Any other amount in respect of an intangible that should be
               classified as an asset on the consolidated balance sheet of the
               Consolidated Financial Statements in accordance with GAAP.

                                       4
<PAGE>

     "COPAS" means the Accounting Procedure Joint Operations Recommended by the
      -----
Council of Petroleum Accountants, with respect to onshore and offshore
operations, respectively, including the most current versions thereof and any
other recent versions thereof commonly in use.

     "Credit Extension" means the making of a Loan or the issuance of a Facility
      ----------------
LC hereunder.

     "Credit Extension Date" means the date on which a Loan is advanced or a
      ---------------------
Facility LC is issued.

     "Current Assets" means at any time, all assets, that should in accordance
      --------------
with GAAP, be classified as current assets on a consolidated balance sheet of
Borrower, plus the then current availability under the aggregate Commitments.
          ----

     "Current Liabilities" means all liabilities which would, in accordance with
      -------------------
GAAP, be included as current liabilities plus short term liabilities (which have
been reclassified as non-current) to be refinanced with the Aggregate Commitment
Amount on a consolidated balance sheet of Ultra Petroleum Corp. as of the date
of calculation less current maturities on the Obligations.

     "Current Ratio" means the ratio derived from dividing Current Assets by
      -------------
Current Liabilities.

     "Dollars" and "$" means dollars in lawful currency of the United States of
      -------       -
America.

     "EBITDA" means, for any reporting period, net income on a consolidated
      ------
basis before deductions for interest expense, taxes, depreciation, depletion,
amortization and other non-cash expenses, less non-cash income.

     "Environmental Laws" means (a) the following federal laws as they may be
      ------------------
cited, referenced and amended from time to time: the Clean Air Act, the Clean
Water Act, the Safe Drinking Water Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Endangered Species Act, the
Resource Conservation and Recovery Act, the Occupational Safety and Health Act,
the Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, the Toxic Substances Control Act, and the Oil Pollution Act
of 1990; (b) any and all environmental statutes of any state in which property
of the Borrower is situated, as they may be cited, referenced and amended from
time to time; (c) any rules or regulations promulgated under or adopted pursuant
to the above federal and state laws; and (d) any other federal, state or local
statute or any requirement, rule, regulation, code, ordinance or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal, handling or
release of Hazardous Substances.

     "ERISA" means the Employee Retirement Income Security Act of 1974, as
      -----
amended from time to time, and the regulations and published interpretations
thereof.

     "ERISA Affiliate" means any trade or business (whether or not incorporated)
      ---------------
which together with the Borrower would be treated as a single employer under
Section 4001 of ERISA.

                                       5
<PAGE>

     "Eurodollar Business Day" means a day on which dealings are carried on in
      -----------------------
the LIBOR Market.

     "Event of Default" means any of the events specified in Section 7.01 of
      ----------------
this Agreement.

     "Facility LC" is defined in Section 2.20(A).
      -----------

     "Facility LC Application" is defined in Section 2.20(C).
      -----------------------

     "Facility Termination Date" means March 1, 2005.
      -------------------------

     "Federal Funds Effective Rate" means, for any day, the weighted average of
      ----------------------------
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published by the Federal
Reserve Bank of New York for such day on the next succeeding Business Day or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.

     "Financial Statements" means the statements of the financial condition of
      --------------------
the indicated Person, on a consolidated basis, as at the point in time and for
the period indicated and consisting of at least a balance sheet, income
statement and statement of cash flows, all expressed in terms of United States
Dollars, and when the foregoing are audited, accompanied by the certification of
such Person's independent certified public accountants and footnotes to any of
the foregoing, all of which shall be prepared in accordance with GAAP applied on
a basis consistent with that of the preceding year, except for any inconsistency
that results from changes in GAAP from year to year.

     "Floating Rate" means a per annum interest rate determined by reference to
      -------------
the following schedule:

          .    LIBOR + LIBOR Margin at Borrower's option pursuant to Section
               2.04, or
               ABR + ABR Margin

          .    After the occurrence and during the continuation of an Event of
               Default, the Floating Rate determined in accordance with the
               forgoing schedule shall, in each case, be increased by two
               percent (2%) per annum, not to exceed the Maximum Rate.

     "GAAP" means generally accepted accounting principles in Canada, applied on
      ----
a consistent basis, as defined in the Handbook of the Canadian Institute of
Chartered Accountants, and which are applicable as of the date of Closing,
except that solely for purposes of the definition of Financial Statements
herein, changes in GAAP from time to time (if any) shall be applied and
reflected in the Financial Statements.  Accounting principles are applied on a
"consistent basis" when the accounting principles observed in a current period
are comparable in all material respects to those accounting principles applied
in a preceding period.

                                       6
<PAGE>

     "Guarantor(s)" means, individually and collectively, Ultra Petroleum Corp.,
      ------------
a Yukon Territory of Canada corporation, and UP Energy Corporation, a Nevada
corporation.

     "Guaranty" means the unlimited guaranty agreement of Borrower's Obligation
      --------
to Banks under this Agreement, in form and in substance satisfactory to the
Administrative Agent, duly executed by each Guarantor.

     "Hazardous Substances" means flammables, explosives, radioactive materials,
      --------------------
hazardous wastes, asbestos or any material containing asbestos, polychlorinated
biphenyls (PCBs), toxic substances or related materials, petroleum and petroleum
products and associated oil or natural gas exploration, production and
development wastes or any substances defined as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances" under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Resource Conservation
and Recovery Act, as amended, the Toxic Substances Control Act, as amended, or
any other Environmental Laws now or hereafter enacted or promulgated by any
regulatory authority or governmental body, but only to the extent any such law
is or becomes applicable to the Borrower or any of its property.

     "Hedge Agreement" means any swap agreement, cap, collar, floor, exchange
      ---------------
transaction, forward agreement or exchange or protection agreement related to
Hydrocarbons or interest rates, or any option with respect to such transaction,
as more specifically provided in those certain master swap agreements on
International Swaps and Derivatives Association forms and the schedules thereto
and any confirmations thereunder entered into by Borrower with any other Person.

     "Hydrocarbons" means crude oil, condensate, natural gas, natural gas
      ------------
liquids and other hydrocarbons.

     "Increased Costs" has the meaning stated therefor in Section 2.10 (A)(3) of
      ---------------
this Agreement.

     "Indebtedness" means, as to any Person, without duplication (a) all items
      ------------
of indebtedness or liability for borrowed money which in accordance with GAAP
would be included in determining total liabilities as shown on the liability
side of a balance sheet as at the date as of which Indebtedness is to be
determined, (b) indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance existing on or encumbering property owned by the Person whose
Indebtedness is being determined, whether or not the indebtedness secured
thereby shall have been assumed, (c) all indebtedness of others which such
Person has directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), discounted with
recourse, agreed (contingently or otherwise) to purchase or repurchase or
otherwise acquire, or in respect of which such Person has agreed to supply or
advance funds (whether by way of loan, purchase of securities or capital
contribution, through a commitment to pay for property or services regardless of
the nondelivery of such property or the nonfurnishing of such services or
otherwise), or in respect of which such Person has otherwise become directly or

                                       7
<PAGE>

indirectly liable, contingently or otherwise, whether now existing or hereafter
arising, and (d) all leases (excluding Leases constituting Oil and Gas
Properties) that, in accordance with GAAP, should not be reflected on the
Borrower's balance sheet.

     "Interest Period" means as to any LIBOR Loan the period commencing on and
      ---------------
including the date of such Loan (or on the effective date of the election
pursuant to Section 2.04(B) by which such Loan became a LIBOR Loan) and ending
on and including the day preceding the numerically corresponding day (or if
there is no such numerically corresponding day, the last day) in the 1/st/,
2/nd/, 3/rd/ or 6/th/  calendar month after the date of such Loan, as selected
by the Borrower in accordance with Section 2.04(B), and after such selected
month, such period commencing on and including the day immediately following the
last day of the then ending Interest Period for such Loan and ending on and
including the day preceding the day numerically corresponding to the first day
of such Interest Period (or if there is no such numerically corresponding day,
the last day), in the 1/st/, 2/nd/, 3/rd/ or 6/th/ calendar month after the
first day of such Interest Period, as so selected by the Borrower; provided,
however, that if any Interest Period would otherwise end on a day immediately
prior to a day that is not a Business Day it shall be extended so as to end on
the day immediately prior to the next succeeding Business Day unless the same
would fall in a different calendar month, in which case such Interest Period
shall end on the day immediately preceding the first Business Day immediately
preceding such next succeeding Business Day.

     "Investment" in any Person means any stock, bond, note or other evidence of
      ----------
Indebtedness or any other security (other than current trade and customer
accounts) of, or loan to, such Person.

     "Laws" means all ordinances, statutes, rules, regulations, orders,
      ----
injunctions, writs, or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.

     "LC Fee" is defined in Section 2.20(D).
      ------

     "LC Issuer" means Bank One (or any subsidiary or Affiliate of Bank One
      ---------
designated by Bank One and reasonably acceptable to Borrower) in its capacity as
issuer of Facility LCs hereunder.

     "LC Obligations" means, at any time, the sum, without duplication, of (i)
      --------------
the aggregate undrawn stated amount under all Facility LCs outstanding at such
time plus (ii) the aggregate unpaid amount at such time of all Reimbursement
Obligations.

     "LC Payment Date" is defined in Section 2.20(E).
      ---------------

     "Leases" means oil and gas leases and all oil, gas and mineral leases
      ------
constituting any part of the Borrowing Base Oil and Gas Properties.

     "LIBOR" means, with respect to each Interest Period, the rate of interest
      -----
per annum at which deposits of not less than $1,000,000.00 in United States
dollars are offered in the LIBOR Market for a period of time equal or comparable
to such Interest Period and in an amount equal to or comparable to the principal
amount of the LIBOR Loan to which such Interest Period relates as

                                       8
<PAGE>

appearing on Reuters Screen FRBD as of 11:00 AM (London time) two (2) Business
Days before the first day of the applicable Interest Period, as adjusted for
maximum statutory reserves, provided, however, that if such rate is not
available on Reuters Screen FRBD, then within five (5) Business Days of receipt
of notification, the Administrative Agent and the Borrower shall enter into good
faith negotiations for a period of fifteen (15) days (or such shorter period as
is required to agree to the alternative basis) with a view to agreeing on an
alternative basis for determining the rate of interest applicable to LIBOR
Loans, and if no alternative basis is agreed within the fifteen (15) day period,
the LIBOR Loan shall be deemed to have converted to an ABR Loan as of the end of
the last Interest Period.

     "LIBOR Loan" means any Loan from time to time for which interest thereon is
      ----------
to be computed at a Floating Rate based on LIBOR plus the LIBOR Margin, as
elected by Borrower pursuant to Section 2.04 hereof.

     "LIBOR Margin" means the applicable margin set forth in the Pricing Grid
      ------------
under the caption, "LIBOR Margin," determined based on the Utilization
Percentage prevailing from time to time.

     "LIBOR Market" means the London interbank offered interest rate market
      ------------
created by major London clearing banks for deposits in United States dollars.

     "Limitation Period" means any period while any amount remains owing on the
      -----------------
Notes when interest on such amount, calculated at the applicable rate prescribed
on the Notes, plus any fees payable hereunder and deemed to be interest under
applicable Law, would exceed the Maximum Rate.

     "Loan" means, singly, any advance by the Banks to the Borrower pursuant to
      ----
this Agreement and "Loans" means, cumulatively, the aggregate sum of all money
                    -----
advanced by the Banks to the Borrower pursuant to this Agreement.

     "Loan Documents" means this Agreement, the Notes, the Facility LC
      --------------
Applications, the Security Instruments, the Guaranties, any Hedge Agreements in
which Administrative Agent or any Bank (or any of their respective Affiliates)
is a counterparty to Borrower and all other promissory notes, security
agreements, and other instruments, documents, and agreements executed and
delivered pursuant to or in connection with this Agreement, as such instruments,
documents, and agreements may be amended, modified, renewed, extended, or
supplemented from time to time.

     "Loan Excess" means, at any point in time, the amount, if any, by which the
      -----------
Aggregate Outstanding Credit Exposure exceeds the Aggregate Commitment Amount
then in effect.

     "Marketable Title" means good and defensible title, as set forth, qualified
      ----------------
and/or limited on Exhibit "A," free and clear of all mortgages, liens and
encumbrances, except for Permitted Encumbrances.

     "Material Adverse Change" means any change in the business, property,
      -----------------------
condition (financial or otherwise) or results of operations of the Borrower or
either Guarantor which has a Material

                                       9
<PAGE>

Adverse Effect, including, but not limited to, Administrative Agent, any Bank,
the LC Issuer or any Responsible Officer of Borrower acquiring knowledge of any
facts or circumstances that differ from the facts and/or circumstances
represented in Article IV of this Agreement or in any other Loan Document
(including, but not limited to, any such facts and circumstances represented
based on the knowledge of Borrower or its Responsible Officer), if such actual
facts and circumstances, compared to the facts and circumstances so represented,
would have a Material Adverse Effect.

     "Material Adverse Effect" means a material adverse effect on (i) the
      -----------------------
business, property, condition (financial or otherwise), results of operations of
the Borrower or either Guarantor, or (ii) the ability of the Borrower or a
Guarantor to perform its obligations under the Loan Documents to which it is a
party.

     "Maximum Rate" means the maximum rate of non-usurious interest permitted
      ------------
from day to day by Applicable Law, including Chapter 303 of the Texas Finance
Code (and as the same may be incorporated by reference in other Texas statutes),
but otherwise without limitation, that rate based upon the "indicated weekly
rate ceiling."

     "Modify" and "Modification" are defined in Section 2.20(A).
      ------       ------------

     "Multi-employer Plan" means a plan described in Section 4001(a)(3) of ERISA
      -------------------
which covers employees of the Borrower or any ERISA Affiliate.

     "Net Income" means, for any period, the net income (or loss) of the
      ----------
Borrower on a consolidated basis after allowances for taxes for such period,
determined in accordance with GAAP; provided that there shall be excluded from
such net income (to the extent otherwise included therein) the net income of any
Person in which the Borrower has an interest (which interest does not cause the
net income of such other Person to be consolidated with the net income of the
Borrower in accordance with GAAP), except to the extent of the amount of
dividends or distributions actually paid in such period by such other Person to
the Borrower.

     "Note" and "Notes" means, individually, a promissory note issued by
      ----       -----
Borrower payable to the order of a Bank evidencing the Loans made by that Bank
pursuant to Section 2.01 hereof and being substantially in the form of the note
attached as Exhibit B hereto, together with any and all further renewals,
            ---------
extensions for any period, increases or rearrangements thereof, and means
collectively all of such Notes.

     "Obligations" means all obligations, indebtedness, and liabilities of the
      -----------
Borrower to the Banks and the LC Issuer, now existing or hereafter arising under
this Agreement and the other Loan Documents, including, but not limited to, the
Indebtedness evidenced by the Notes and the Reimbursement Obligations, and all
interest accruing thereon and all reasonable attorneys' fees and other expenses
in the administration, enforcement or collection thereof.

     "Oil and Gas Properties" means fee, leasehold or other interests in or
      ----------------------
under mineral estates or oil, gas and other liquid or gaseous hydrocarbon leases
with respect to properties situated in the United States, including, without
limitation, overriding royalty and royalty interests, leasehold estate

                                       10
<PAGE>

interests, net profits interests, production payment interests and mineral fee
interests, together with contracts executed in connection therewith and all
tenements, hereditaments, appurtenances and properties, real or personal,
appertaining, belonging, affixed or incidental thereto.

     "Outstanding Credit Exposure" means, as to any Bank at any time, the sum of
      ---------------------------
(i) the aggregate principal amount of its Loans outstanding at such time, plus
(ii) an amount equal to its Percentage Share of the LC Obligations at such time.

     "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
      ----
succeeding to any or all of its functions under ERISA.

     "Percentage Share" means, as to any Bank, a fraction (expressed as a
      ----------------
percentage), the numerator of which shall be such Bank's Commitment Amount, and
the denominator of which shall be the Aggregate Commitment Amount stated on
Schedule 1.01(b) attached hereto.

     "Permitted Asset Sales" means (a) sales, leases, assignments, transfers or
      ---------------------
disposals of, in one or any series of related transactions, (i) all or any
portion of Borrower's assets, whether now owned or hereafter acquired, including
transfers to Affiliates, which, in the aggregate, do not exceed $5,000,000.00
during any period beginning on the date of Administrative Agent's written notice
to Borrower pursuant to Section 2.06 of a Borrowing Base redetermination (except
that the first such period shall begin at Closing) and ending on the date of the
next such written notice from Administrative Agent to Borrower or (ii) surplus,
worn out or obsolete equipment of nominal value to Borrower, and (b) sales of
Hydrocarbons in the ordinary course of business.

     "Permitted Encumbrances" means:
      ----------------------

          (A)  Liens for taxes, assessments, or similar charges, incurred in the
               ordinary course of business that are not yet due and payable;

          (B)  Liens of mechanics, materialmen, warehousemen, carriers,
               landlords or other like liens, securing obligations incurred in
               the ordinary course of business that are not yet due and payable;

          (C)  Pledges or deposits in connection with or to secure workmen's
               compensation, unemployment insurance, pensions or other employee
               benefits;

          (D)  Encumbrances consisting of covenants, zoning restrictions,
               rights, easements, liens, governmental environmental permitting
               and operation restrictions, operating restrictions under leases
               consistent with other leases in the same geographical area,
               operating constraints under the Environmental Impact Statement
               described on Schedule 4.12, the exercise by governmental bodies
               or third parties of eminent domain or condemnation rights, or any
               other restrictions on the use of real property, none of which
               materially impairs the use of such property by the Borrower in
               the operation of its business, and

                                       11
<PAGE>

               none of which is violated in any material respect by existing or
               proposed operations;

          (E)  Liens of operators and/or co-working interest owners under joint
               operating agreements or similar contractual arrangements with
               respect to the Borrower's proportionate share of the expense of
               exploration, development and operation of oil, gas and mineral
               leasehold or fee interests owned jointly with others, to the
               extent that same relate to sums not yet overdue, or if they
               relate to sums that are overdue, then to the extent that the same
               are being contested in good faith by appropriate proceedings and
               execution of the associated lien has been stayed, either pursuant
               to agreement of the lien claimant or by a valid order of a court
               having jurisdiction;

          (F)  Liens securing surety or other bonds required in the normal
               course of business and Liens on cash deposits securing Permitted
               Hedge Agreements, not to exceed $2,000,000.00 in the aggregate at
               any time in effect;

          (G)  The following, if the validity or amount thereof is being
               contested in good faith by appropriate and lawful proceedings, so
               long as levy and execution thereon have been stayed and continue
               to be stayed and they do not, in the aggregate, materially
               detract from the value of the property of the Borrower, or
               materially impair the use thereof in the operation of its
               business:

               (1)  Claims or liens for taxes, assessments, or charges due and
                    payable and subject to interest or penalty;

               (2)  Claims, liens, and encumbrances upon, and defects of title
                    to, real or personal property, including any attachment of
                    personal or real property or other legal process prior to
                    adjudication of a dispute on the merits;

               (3)  Claims or liens of mechanics, materialmen, warehousemen,
                    carriers, or other like liens; and

               (4)  Adverse judgments on appeal;

          (H)  Liens securing payment and performance of the Obligations;

          (I)  Liens securing purchase money obligations included in the
               definition of Permitted Indebtedness if such liens encumber only
               the property for which such purchase money obligation was
               incurred; and

          (J)  Inchoate liens in respect of royalty owners.

                                       12
<PAGE>

     "Permitted Hedge Agreement" means any Hedge Agreement which Borrower enters
      -------------------------
into with or through a counterparty that has a credit rating of at least "A-" by
Standard and Poors or "A\\3\\" by Moody's Investment Service, together with the
confirmations which Borrower may hereafter enter into with or through such
counterparty covering, in the aggregate, among all such Hedge Agreements, not
more than seventy-five percent (75%) of the Proved Reserves that are (i)
attributable to Borrower's interest in the Borrowing Base Oil and Gas Properties
and (ii) projected to be produced during the term(s) of such Hedge Agreement(s).

     "Permitted Indebtedness" means:
      ----------------------

          (A)  The Loans and Facility LCs;

          (B)  Unsecured current accounts payable incurred in the ordinary
               course of business which are (i) not more than sixty (60) days
               overdue, or (ii) being contested in good faith by appropriate
               proceedings, or (iii) the subject of usual and customary review
               and evaluation;

          (C)  Extensions of credit from suppliers or contractors who are not
               Affiliates of Borrower for the performance of labor or services
               or the provision of supplies or materials under applicable
               contracts or agreements in connection with Borrower's  oil and
               gas exploration and development activities, which are not overdue
               or are being contested in good faith by appropriate proceedings;

          (D)  Letters of credit or performance bonds required to be obtained by
               the Borrower in the normal course of its business to assure the
               proper plugging and abandonment of oil or gas drilling or
               production locations or bonds required by any governmental agency
               or instrumentality in the normal course of the Borrower's
               business;

          (E)  Borrower's (i) purchase money obligations; (ii) capital lease
               obligations; and (iii) other obligations supporting Borrower's
               acquisition or use of any capital asset that had not been
               acquired and was not in use by Borrower as of the date of the
               Closing; of up to Five Million Dollars ($5,000,000) in the
               aggregate outstanding at any time, so long as no such obligation
               under clauses (i) through (iii) exceeds the fair market value of
               the respective asset(s) thereby acquired or used;

          (F)  Income taxes payable that are not overdue;

          (G)  Accrued abandonment liabilities;

          (H)  Indebtedness arising out of Permitted Hedge Agreements; and

          (I)  Other Indebtedness incurred by the Borrower not to exceed, in the
               aggregate at any time outstanding, Two Million Dollars
               ($2,000,000.00).

                                       13
<PAGE>

     "Person" means an individual, company, corporation, partnership, joint
      ------
venture, limited liability company, trust, association, unincorporated
organization or a government or any agency or political subdivision thereof.

     "Plan" means, at any time, any employee benefit plan which is covered by
      ----
ERISA and in respect of which the Borrower or any ERISA Affiliate is (or, if
such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" as defined in Section 3(5) of ERISA.

     "Pricing Grid" means the following table:
      ------------

         =====================================================================
              Utilization
              Percentage         LIBOR Margin    ABR Margin    Commitment Fee
         =====================================================================
                  ** 90%           225 b.p.       125 b.p.        50.0 b.p.
         ---------------------------------------------------------------------
              ** 75% * 90%         200 b.p.       100 b.p.        37.5 b.p.
         ---------------------------------------------------------------------
              ** 50% * 75%         175 b.p.        75 b.p.        37.5 b.p.
         ---------------------------------------------------------------------
                  *  50%           150 b.p.        50 b.p.        37.5 b.p.
         =====================================================================

*  Denotes less than
** Denotes more than or equal to

     "Prior Credit Agreement" has the meaning stated therefor in the first
      ----------------------
recital of this Agreement.

     "Prior Note" means the Note held by Bank One as of the Closing, which
      ----------
was issued by Borrower to Bank One pursuant to the Prior Credit Agreement,
together with all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof.

     "Production Revenue" means revenues of the Borrower from the sale of its
      ------------------
oil and gas production minus any applicable oil and gas production taxes and
                       -----
royalties.

     "Prohibited Transaction" means any transaction set forth in Section 406 of
      ----------------------
ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended from time
to time.

     "Purchasing Bank" shall have the meaning assigned to that term in Section
      ---------------
9.05 hereof.

     "Proved Reserves" means the estimated quantities of crude oil, condensate,
      ---------------
natural gas liquids and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable by primary producing
mechanisms in future years from known reservoirs underlying lands or interests
therein constituting Oil and Gas Properties, under existing economic and
operating conditions. Reserves which can be produced economically through
application of improved recovery techniques (i.e., fluid injection) will be
included in Proved Reserves when successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the pilot project or installed program was based.
In general, the economic productivity of the estimated proved reserves is
supported by actual production or a conclusive formation test; however, in
certain instances proved reserves are assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which

                                       14
<PAGE>

indicate these reservoirs are analogous to similar reservoirs in the same field
which are producing or have demonstrated the ability to produce on a formation
test.

          "PW9" means the present worth of future net income, discounted to
           ---
present value at the simple interest rate of nine percent (9%) per year.

          "Reimbursement Obligations" means, at any time, the aggregate of all
           -------------------------
obligations of the Borrower then outstanding under Section 2.20 to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.

          "Reportable Event" means any of the events set forth in Section 4043
           ----------------
of ERISA.

          "Request for Advance" means the written or verbal (confirmed in
           -------------------
writing within one (1) Business Day) request by the Borrower to the
Administrative Agent for an advance by the Banks pursuant to this Agreement,
which Request for Advance shall be in substantially the form attached hereto as
Exhibit "E", signed by an authorized officer of the Borrower and which shall
include a statement of the amount requested to be advanced, the date of the
requested advance and such other information as the Administrative Agent in its
reasonable discretion deems necessary.

          "Required Banks" means, at any time, Banks holding at least sixty-six
           --------------
and two-thirds percent (66 2/3%) of the Aggregate Commitment Amount or, if the
Aggregate Commitment Amount has been terminated, Banks having at least sixty-six
and two-thirds percent (66 2/3%) of the Aggregate Outstanding Credit Exposure.

          "Required Number" means: in the case of notices hereunder (i) relative
           ---------------
to borrowings, prepayments, elections of LIBOR Loans, selections of Interest
Periods for, or other transactions in respect of, LIBOR Loans: by 10:00 a.m.,
Central Standard Time on the third Business Day prior to the proposed activity;
or (ii) relative to all transactions in respect of ABR Loans: the same Business
Day by 1:00 p.m., Central Standard Time; it being understood, however, that in
the case of notices involving transactions in respect of more than one type of
Loan (such as a change in type of Loan in accordance with Section 2.04(B)),
"Required Number" means that number of days, as indicated above in respect of
 ---------------
the Loans involved, which would constitute the longest applicable period of
time.

          "Reserve Report" means a report prepared by a company engineer or an
           --------------
independent petroleum engineer or firm of engineers satisfactory to the
Administrative Agent in the reasonable exercise of its discretion regarding the
Proved Reserves attributable to the Borrowing Base Oil and Gas Properties, using
the criteria and parameters required by and acceptable to the Securities and
Exchange Commission, and incorporating the present cost of appropriate plugging
and abandonment obligations to be incurred in the future, taking into account
any plugging and abandonment fund required to be accrued or established by
Borrower out of cash flow from the Borrowing Base Oil and Gas Properties covered
by such report with respect to such future obligations.

          "Responsible Officer" means, as to any Person, its president, chief
           -------------------
executive officer and any senior vice president, provided that if any such
officer's position does not exist within a Person or

                                       15
<PAGE>

if two or more of such positions are held by the same individual, then such term
shall mean each of the three most senior duly elected and acting officers of
such Person.

          "Security Instruments" means the security instruments described on
           --------------------
Exhibit "D," in form and substance satisfactory to the Administrative Agent, to
be executed by Borrower pursuant to Section 3.01, and the Security Instruments
as defined in the Prior Credit Agreement, each of which shall continue to secure
Borrower's Obligations, and any and all other instruments or documents hereafter
executed in connection with or as security for the payment of the Notes and
performance of the Obligations.

          "Stockholders' Equity" means, at any time, the sum of the following
           --------------------
accounts set forth on the Consolidated Financial Statements, prepared in
accordance with GAAP: (A) the par or stated value of all outstanding capital
stock (common and preferred); (B) capital surplus including paid in capital; and
(C) retained earnings.

          "Subsidiary" means, as to any Person, any corporation in which such
           ----------
Person, directly or indirectly through its Subsidiaries, owns more than fifty
percent (50%) of the stock of any class or classes having by the terms thereof
the ordinary voting power to elect a majority of the directors of such
corporation, and any partnership, association, joint venture, or other entity in
which such Person, directly or indirectly through its Subsidiaries, has more
than a fifty percent (50%) equity interest at the time.

          "Syndication Agent" means Union Bank of California, and each successor
           -----------------
to such agent position.

          "Transfer Order Letters" means the letters in lieu of division or
           ----------------------
transfer orders, in form acceptable to the Administrative Agent.

          "Unmatured Event of Default" means any event or occurrence which
           --------------------------
solely with: (a) the lapse of any applicable grace period as stated or expressly
referred to in Article VII hereof, or (b) the giving of notice required by this
Agreement,  or (c) both, will ripen into an Event of Default.

          "Utilization Percentage" means the percentage of the Aggregate
           ----------------------
Commitment Amount represented by the aggregate principal amount of all Credit
Extensions outstanding from time to time.

          Undefined Terms. Undefined financial accounting terms used in this
          ---------------
Agreement shall be defined according to GAAP.

                                  ARTICLE II.

                        THE LOANS AND LETTERS OF CREDIT
                        -------------------------------

          2.01  The Commitment. From and including the date of this Agreement
                --------------
and prior to the Facility Termination Date, each Bank severally agrees, on the
terms and conditions set forth in this

                                       16
<PAGE>

Agreement, to (i) make Loans to the Borrower and (ii) participate in Facility
LCs issued upon the request of the Borrower, provided that, after giving effect
to the making of each Loan and the issuance of each Facility LC, such Bank's
Outstanding Credit Exposure shall not exceed its Commitment. The Loans advanced
by each Bank to the Borrower shall be evidenced by the Banks' respective Notes
from the Borrower. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow up to the Aggregate Commitment Amount at any time
prior to the Facility Termination Date. All Commitments to extend credit
hereunder shall expire on the Facility Termination Date. The LC Issuer will
issue Facility LCs hereunder on the terms and conditions set forth in Section
2.20.

          2.02   Notice and Manner of Borrowing.
                 ------------------------------

          (a)    The amount and date of each Credit Extension shall be
designated in a Request for Advance executed by Borrower, to be received by the
Administrative Agent at least the Required Number of, but not more than ten
(10), Business Days prior to the date of such Credit Extension, which date shall
be a Business Day. The Administrative Agent shall promptly advise the Banks and,
if applicable, the LC Issuer, of any Request for Advance given pursuant to this
Section 2.02, of each Bank's Percentage Share of any requested Borrowing and, if
applicable, the amount requested for any Facility LC by telephone, confirmed
promptly in writing, or telecopier. Upon satisfaction of the applicable
conditions set forth in Article III, each Borrowing shall be made at the office
of the Administrative Agent, and shall be funded prior to 3:00 o'clock p.m.,
Houston, Texas time, on the day so requested in immediately available funds in
the amount so requested.

          (b)    Each Bank shall make each Loan to be made by it hereunder on
the date of the proposed Borrowing by wire transfer of immediately available
funds to the Administrative Agent in Houston, Texas, not later than 2:00 p.m.,
Houston, Texas time, and upon fulfillment of the applicable conditions set forth
in Article III, the Administrative Agent will make such funds available to
Borrower shall direct to the Administrative Agent from time to time or, if a
Borrowing shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Banks as soon as practicable. Unless the Administrative Agent shall
have received notice from a Bank prior to the date of any proposed Borrowing
that such Bank will not make available to the Administrative Agent such Bank's
Percentage Share of such Borrowing, the Administrative Agent may assume that
such Bank has made its Percentage Share available to the Administrative Agent on
the date of such Borrowing in accordance with this paragraph (b) and the
Administrative Agent may, in reliance upon such assumption, make available to
Borrower on such date a corresponding amount. If, and to the extent that, such
Bank shall not have made its Percentage Share available to the Administrative
Agent, such Bank and Borrower severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to Borrower
until the date such amount is repaid to the Administrative Agent at (i) in the
case of Borrower, the interest rate applicable at the time to the Loans
comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds
Effective Rate. If such Bank shall repay to the Administrative Agent such
corresponding amount, such amount shall constitute such Bank's Loan as part of
such Borrowing for purposes of this Agreement.

                                       17
<PAGE>

          2.03      Payment Procedure. All payments and prepayments made by
                    -----------------
Borrower under this Agreement shall be made to the Administrative Agent at its
office specified in Section 9.03 for the account of the Banks in immediately
available funds before 11:00 a. m., Houston, Texas time, on the date that such
payment is required to be made. The Administrative Agent will promptly
thereafter cause to be distributed like funds relating to such payments or
prepayments ratably to the Banks (and if the payment relates to amounts owed to
a particular Bank only, in like funds to such Bank), in each case, to be applied
in accordance with the terms of this Agreement. Borrower hereby authorizes the
Administrative Agent, if and to the extent payment or prepayment (including
prepayments required pursuant to Section 2.11 hereof) is not made when due
hereunder or under the Notes or any other Loan Document, to charge from time to
time against Borrower's account with the Administrative Agent any amount so due.
Any payment received and accepted by the Administrative Agent (or any branch or
Affiliate thereof) after such time shall be considered for all purposes
(including the calculation of interest, to the extent permitted by law) as
having been made on the next following Business Day.

          2.04      Payments of Interest under the Notes. Subject to the terms
                    ------------------------------------
and provisions of this Agreement, interest on the Loan, calculated at the
Floating Rate, shall be due and payable as follows:

                    (A)  Interest on ABR Loans shall be calculated on the basis
          of a 365/366-day year, as applicable, and on LIBOR Loans on the basis
          of a 360-day year, in each case counting the actual number of days
          elapsed. Interest on the outstanding principal balance of the Loans
          shall accrue for each day at either a Floating Rate based on ABR plus
          the ABR Margin for such day for ABR Loans, or a Floating Rate based on
          LIBOR for the Interest Period which includes such day plus the LIBOR
          Margin for such day for LIBOR Loans, all as elected and specified
          (including specification as to length of Interest Period, as permitted
          by the definition of that term, with respect to any election of a
          Floating Rate based on LIBOR) by the Borrower in accordance with
          Section 2.04(B); provided that:

                         (1)  In the absence of an election by the Borrower of a
                    Floating Rate based on LIBOR plus the LIBOR Margin, or,
                    having made such election, but upon the Required Number of
                    days prior to the end of the then current Interest Period
                    the Borrower fails or is not entitled under the terms of
                    this Agreement to elect to continue a Floating Rate based on
                    LIBOR plus the LIBOR Margin and specify the applicable
                    Interest Period therefor, then upon the expiration of such
                    then current Interest Period, interest on the Loans shall
                    accrue for each day at a Floating Rate based on ABR plus the
                    ABR Margin for such day, until the Borrower, pursuant to
                    Section 2.04(B), elects a different Floating Rate and
                    specifies the Interest Period for the Loans.

                         (2)  Interest accruing on any LIBOR Loan during any
                    Interest Period shall be payable on the first Business Day
                    of the next Interest Period except that: (a) with respect to
                    LIBOR Loans for which Borrower has selected an Interest
                    Period of six (6) months, interest will be payable on the
                    first Business Day following the ninetieth (90/th/) day
                    after the commencement of such Interest Period and on the
                    first Business Day of the next Interest Period, (b) interest
                    will be payable on the Facility

                                       18
<PAGE>

               Termination Date on any LIBOR Loan with an Interest Period ending
               on the Facility Termination Date; and provided that (c) all
                                                     --------
               accrued interest on any LIBOR Loan converted or prepaid pursuant
               to Section 2.11 shall be paid immediately upon such prepayment or
               conversion.

               (B)  By at least the Required Number of days prior to the advance
     of any Loan hereunder, the Borrower shall select the initial Floating Rate
     to be charged on such Loan, and from time to time thereafter the Borrower
     may elect, on at least the Required Number of days irrevocable prior
     written (or verbal, promptly confirmed by written) notice to the
     Administrative Agent, an initial Floating Rate for any additional Loan, or
     to change the Floating Rate on any Loan to any other Floating Rate
     (including, when applicable, the selection of the Interest Period);
     provided that; (i) the Borrower shall not select an Interest Period that
     --------
     extends beyond the Facility Termination Date; (ii) except as otherwise
     provided in Section 2.11 no such change from a Floating Rate based on LIBOR
     plus the LIBOR Margin to another Floating Rate shall become effective on a
     day other than the day, which must be a Business Day, next following the
     last day of the Interest Period last effective for such LIBOR Loan; (iii)
     any elections made by the Borrower pursuant to this Section 2.04(B) shall
     be in the amount of $1,000,000, plus any additional increment of
     $1,000,000, or such lesser amount as constitutes the balance of all Loans
     then outstanding hereunder; (iv) notwithstanding anything herein to the
     contrary, the Borrower may not make any election under this Section 2.04(B)
     that would result in Loans outstanding based on more than six (6) different
     LIBORs without the consent of the Required Banks to do so; and (v) the
     first day of each Interest Period as to a LIBOR Loan shall be a Business
     Day.

               (C)  Interest on ABR Loans shall be paid monthly in arrears on
     the first Business Day of each calendar month (for the immediately
     preceding month) commencing with the month following any month during which
     interest begins to accrue at a Floating Rate based on ABR plus the ABR
     Margin, as elected by Borrower pursuant to Section 2.04(B), and on the date
     the principal of such Loans shall be due (on the stated Facility
     Termination Date, on acceleration, or otherwise).

     2.05      General Provisions Relating to Interest. It is the intention of
               ---------------------------------------
the parties hereto to comply strictly with the usury Laws of the State of Texas
and the United States of America and, in this connection, there shall never be
collected, charged or received on any sums advanced hereunder interest in excess
of the Maximum Rate. For purposes of Chapter 303 of the Texas Finance Code, as
amended, the Borrower agrees that the maximum rate to be charged shall be the
"indicated (weekly) rate ceiling" as defined in said Chapter, provided that the
Bank may also rely to the extent permitted by applicable Laws of the State of
Texas or the United States of America, on alternative maximum rates of interest
under other applicable Laws of the State of Texas or the United States of
America applicable to the Loans, if greater. Notwithstanding anything herein or
in the Notes to the contrary, during any Limitation Period, the interest rate to
be charged on amounts evidenced by the Notes shall be the Maximum Rate and the
obligation of the Borrower for any fees payable hereunder and deemed to be
interest under applicable Law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
Laws of the State of Texas or the United States of America, the interest rate to
be charged hereunder shall remain at the

                                       19
<PAGE>

Maximum Rate until such time as there has been paid to each Bank (a) the amount
of interest in excess of the Maximum Rate that such Bank would have received
during the Limitation Period had the interest rate remained at the relevant
rates specified in the Note, and (b) all interest and fees otherwise due to such
Bank but for the effect of such Limitation Period.

          If under any circumstances the aggregate amounts paid on the Notes or
under this Agreement include amounts which by Law are deemed interest and which
would exceed the amount permitted if the Maximum Rate were in effect, the
Borrower stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable Laws of the State of
Texas or the United States of America, the result of mathematical error on the
part of both the Borrower and the Banks, and each Bank shall promptly refund the
amount of such excess (to the extent only of such interest payments above the
Maximum Rate which could lawfully have been collected and retained) upon
discovery of such error by such Bank or notice thereof from the Borrower.

          2.06   Borrowing Base Determination. The Borrowing Base in effect as
                 ----------------------------
of the Closing is Eighty Million Dollars ($80,000,000.00) based upon the
Netherland Sewell Report dated effective January 1, 2002, relative to the Proved
Reserves attributable to the Borrowing Base Oil and Gas Properties described on
Exhibit "A," which has been provided to Administrative Agent prior to Closing.

          The Borrowing Base shall be re-determined from time to time pursuant
to the following provisions of this Section.  On or before each October 1 and
April 1, commencing October 1, 2002, until the Facility Termination Date, the
Borrower shall furnish to the Administrative Agent a Reserve Report, which shall
set forth, as of each preceding July 1 or January 1, as applicable, the Proved
Reserves attributable to the Borrowing Base Oil and Gas Properties.  Each
October Reserve Report may be prepared by the Borrower's own engineers and shall
be certified by the President or other Responsible Officer of the Borrower.
Each April Reserve Report shall be a complete report prepared by independent
reservoir engineers acceptable to Administrative Agent relating to the Proved
Reserves attributable to the Borrowing Base Oil and Gas Properties.  Upon
receipt of each such Reserve Report, the Administrative Agent shall, within
forty-five (45) days following the delivery of such Reserve Report, make a
determination of the Borrowing Base which shall become effective upon approval
by the Required Banks and subsequent written notification from the
Administrative Agent to the Borrower, and which, subject to the other provisions
of this Agreement, shall be the Borrowing Base until the effective date of the
next redetermination of the Borrowing Base as set forth in this Section 2.06.
The Administrative Agent may, subject to approval of the Required Banks, and
must, upon the request of the Required Banks, redetermine the Borrowing Base at
any time, and from time to time, which redetermination shall become effective
upon approval by the Required Banks and subsequent written notification from the
Administrative Agent to the Borrower and which, subject to the other provisions
of this Agreement, shall be the basis on which the Borrowing Base shall
thereafter be calculated until the effective date of the next redetermination of
the Borrowing Base, as set forth in this Section.

          The Administrative Agent shall have the right to initiate one
unscheduled redetermination of the Borrowing Base between any two consecutive
scheduled redeterminations thereof by

                                       20
<PAGE>

requesting in writing, not more than once between any two consecutive scheduled
deliveries of Reserve Reports, that the Borrower provide an unscheduled Reserve
Report regarding the Proved Reserves attributable to the Borrowing Base Oil and
Gas Properties with an effective date not more than ninety (90) days prior to
Borrower's delivery of such Reserve Report to Administrative Agent, and such
Reserve Report shall be delivered to Administrative Agent within ninety (90)
days after Borrower's receipt of such written request. The Borrower shall have
the right to request, by written notice to Administrative Agent, one unscheduled
redetermination of the Borrowing Base between any two consecutive scheduled
redeterminations thereof, subject to contemporaneously providing to
Administrative Agent a Reserve Report with an effective date not more than
ninety (90) days prior to the date of such notice.

          If at any time the Required Banks cannot otherwise agree on a
redetermination of the Borrowing Base, then the Borrowing Base, shall be set on
the basis of the Administrative Agent's calculation of the "weighted arithmetic
average" (as hereinafter calculated) of the Borrowing Base, as determined by
each individual Bank and communicated to Administrative Agent in writing.
However, the amount of the Borrowing Base shall never be increased at any time
without the unanimous consent of the Banks, notwithstanding anything else herein
to the contrary.  For purposes of this paragraph, the "weighted arithmetic
average" of the Borrowing Base  shall be determined by first multiplying the
Borrowing Base proposed in writing to Administrative Agent by each Bank by such
Bank's Percentage Share, and then adding the results of each such calculation,
with the resultant sum being the Borrowing Base.

          The Borrowing Base shall represent the Required Banks' approval of the
Administrative Agent's determination, in accordance with their customary lending
practices, of the maximum loan amount with respect to the Borrowing Base Oil and
Gas Properties and the Borrower acknowledges, for purposes of this Agreement,
such determination by the Administrative Agent as being the maximum loan amount
with respect to the Borrowing Base Oil and Gas Properties.  In making any
redetermination of the Borrowing Base, the Administrative Agent and the Banks
shall apply the parameters and other credit factors consistently applied then
generally being utilized by the Administrative Agent and each such Bank,
respectively, for Borrowing Base redeterminations for other similarly situated
borrowers.  The Borrower, Required Banks and the Administrative Agent
acknowledge that (a) due to the uncertainties of the oil and gas extraction
process, the Borrowing Base Oil and Gas Properties are not subject to evaluation
with a high degree of accuracy and are subject to potential rapid deterioration
in value, and (b) for this reason and the difficulties and expenses involved in
liquidating and collecting against the Borrowing Base Oil and Gas Properties,
the Administrative Agent's determination of the maximum loan amount with respect
to the Borrowing Base Oil and Gas Properties contains an equity cushion, which
equity cushion is acknowledged by the Borrower as essential for the adequate
protection of the Banks.

          2.07    Mandatory Prepayment Due to a Loan Excess. Within sixty (60)
                  -----------------------------------------
days after receipt of written notice from Administrative Agent that a Loan
Excess exists, including, but not limited to, any notice establishing a
redetermined Borrowing Base that is less than the Aggregate Outstanding Credit
Exposure, Borrower shall either (i) prepay the principal of the Notes in an
aggregate amount at least equal to such Loan Excess or (ii) add to the Borrowing
Base Oil and Gas Properties additional Oil and Gas Properties of the Borrower
sufficient in value, as determined pursuant to

                                       21
<PAGE>

Section 2.06, to increase the Borrowing Base to equal the unpaid principal
amount of the Aggregate Outstanding Credit Exposure.

          2.08   Other Mandatory Prepayments.
                 ---------------------------

                 (A)   On each date on which the Borrower sells any of its
          Borrowing Base Oil and Gas Properties, other than Permitted Asset
          Sales, the Borrowing Base will be automatically reduced to the loan
          value (determined in accordance with the procedures for determining
          the Borrowing Base) of the remaining Borrowing Base Oil and Gas
          Properties, and the Borrower shall be required to make the prepayment,
          if any, required pursuant to Section 2.07.

                 (B)   Except to the extent otherwise provided in Section
          2.08(A), if on any date the Outstanding Credit Exposure exceeds the
          amount of the then effective Aggregate Commitment, the Borrower shall
          be required to immediately prepay the Loans by the amount of such
          excess.

          2.09   Prepayment and Conversion. Upon the Required Number of days
                 -------------------------
written notice to the Administrative Agent, the Borrower may, without the
payment of penalty or premium, prepay the principal of the Loans or voluntarily
convert the applicable Floating Rate of any Loan prior to the termination of the
applicable Interest Period in whole or in part, from time to time. Any partial
payment or conversion of ABR Loans shall be made in the sum of not less than
$1,000,000, and any partial payment or conversion of LIBOR Loans shall be made
in the sum of not less than $1,000,000 or any $1,000,000 increment in addition
thereto. With respect to any such prepayment or conversion of any LIBOR Loan the
Borrower agrees to pay to the Banks upon the request of the Administrative Agent
such amount or amounts as will compensate the Banks for Breakage Costs,
excluding, however, any such Breakage Costs resulting from a payment or
prepayment made more than sixty (60) days prior to the Administrative Agent's
request for payment of Breakage Costs. The payment of any such Breakage Costs to
the Banks shall be made within thirty (30) days of a request therefor from
Administrative Agent. If LIBOR cannot be determined on the date of such
prepayment, the Administrative Agent shall calculate LIBOR by interpolating
LIBOR in effect immediately prior to the prepayment and LIBOR in effect
immediately after the prepayment.

          2.10   Increased Cost of Loans.
                 -----------------------

                 (A)   Notwithstanding any other provisions herein, if as a
          result of any regulatory change after the date hereof

                       (1)  the basis of taxation of payments to any Bank of the
                 principal of, or interest on, any LIBOR Loan or any other
                 amounts due under this Agreement in respect of any such LIBOR
                 Loan (except for taxes imposed on the overall net income or
                 receipts of such Bank, and franchise or other taxes imposed
                 generally on such Bank), by the jurisdiction (or any political
                 subdivision therein) in which the Bank has its principal office
                 (if such other taxes do not specifically affect the cost to the
                 Bank of making the Loans) is changed;

                                       22
<PAGE>

                    (2)   any reserve, special deposit, or similar requirement
          (including without limitation any reserve requirement under
          regulations of the Board of Governors of the Federal Reserve System)
          against assets of, deposits with, or for the account of, or credit
          extended by such Bank, is imposed, increased, modified, or deemed
          applicable; or

                    (3)   any other condition affecting this Agreement or any
          LIBOR Loan is imposed on such Bank or (in the case of LIBOR Loans) the
          LIBOR Market; and the result of any of the foregoing is to increase
          the actual direct cost to such Bank of making or maintaining any such
          LIBOR Loan (and such increase shall not have been compensated by a
          corresponding increase in the interest rate applicable to the
          respective Loans) by an amount deemed by such Bank to be material
          (such increases in cost and reductions in amounts receivable being
          herein called "Increased Costs"), then the Borrower shall pay such
          Bank, within thirty (30) days after its written demand, such
          additional amount or amounts as will compensate such Bank for those
          Increased Costs. No Bank will demand to be compensated by Borrower for
          such Increased Costs unless such Bank generally makes such demands to
          its other LIBOR Loan customers who are similarly situated. A
          certificate of such Bank setting forth the basis for the determination
          of such amount necessary to compensate such Bank as aforesaid
          (including a representation by such Bank that it is generally making
          demands as required by the preceding sentence), accompanied by
          documentation showing reasonable support for such increased costs or
          reduced sums received by such Bank, shall be delivered to the Borrower
          and shall be conclusive, save for manifest error, as to such
          determination and such amount. The affected Bank shall notify the
          Borrower, as promptly as practicable after such Bank obtains knowledge
          of any Increased Costs or other sums payable pursuant to this Section
          2.10 and determines to request compensation therefor, or any event
          occurring after the Closing which will entitle such Bank to
          compensation pursuant to this Section; provided that, notwithstanding
          anything herein to the contrary, the Borrower shall not be obligated
          for the payment of any Increased Costs or other sums payable pursuant
          to this Section 2.10 to the extent such Increased Costs or other sums
          accrued more than 90 days prior to the date upon which the Borrower
          was given such notice. If the Borrower is required to indemnify or pay
          additional amounts pursuant to this Section 2.10, then the Bank will
          take such action as in the reasonable judgment of the Bank (i) will
          eliminate or reduce any such additional payment which may thereafter
          accrue and (ii) is not otherwise commercially unreasonable. The Bank
          shall use its reasonable efforts to obtain in a timely fashion any
          refund, deduction or credit of any taxes paid or reimbursed by the
          Borrower pursuant to this Section 2.10. If the Bank receives a benefit
          in the nature of a refund, deduction or credit (including a refund in
          the form of a deduction from or credit against taxes that are
          otherwise payable by the Bank) of any taxes with respect to which the
          Borrower has made a payment under Section 2.10, the Bank agrees to
          reimburse the Borrower to the extent of the benefit of such refund,
          deduction or credit promptly after the Bank reasonably determines that
          such refund deduction or credit has become final; provided, however,
                                                            --------  -------
          that nothing contained in this paragraph shall require the Bank to
          make available its tax

                                       23
<PAGE>

               returns (or any other information relating to its taxes which it
               deems to be confidential) or to attempt to obtain any such
               refund, deduction or credit, which attempt would be inconsistent
               with any reporting position otherwise taken by the Bank on its
               tax returns.

               (B)   Notwithstanding the foregoing provisions of this Section
          2.10, in the event that by reason of any regulatory change any Bank
          either (i) incurs Increased Costs based on, or measured by, the excess
          above a specified level of the amount of a category of deposits or
          other liabilities of such Bank that includes deposits by reference to
          which the interest rate on LIBOR Loans is determined as provided in
          this Agreement or a category of extensions of credit or other assets
          of such Bank that includes LIBOR Loans or (ii) becomes subject to
          restrictions on the amount of such a category of liabilities or assets
          that it may hold, then, if such Bank so elects by written notice to
          the Borrower, the obligation of such Bank to make or convert Loans of
          any other type into LIBOR Loans hereunder shall be suspended until the
          earlier of the date such regulatory change ceases to be in effect or
          the date the Borrower and such Bank agree upon an alternative method
          of determining the interest rate payable by the Borrower on LIBOR
          Loans, and all LIBOR Loans of such Bank then outstanding shall be
          converted into an ABR Loan (if not otherwise prohibited under the
          terms of this Agreement) at such Bank's option.

          2.11 Change of Law. Notwithstanding any other provision herein, in the
               -------------
event that any change in any applicable law or in the interpretation or
administration thereof shall make it unlawful for the Banks to (i) honor any
commitment it may have hereunder to make any LIBOR Loan, then such commitment
shall terminate, or (ii) maintain any LIBOR Loan, then all LIBOR Loans of the
Banks then outstanding shall be repaid and converted to ABR Loans (unless the
Banks' obligations to fund Loans hereunder has been suspended by any other
provisions of this Agreement) at the Borrower's option in accordance with the
election procedures set forth in Section 2.04(B); provided, however, that prior
                                                  --------
to the effective date of such election, interest shall be calculated at the ABR.
Any remaining commitment of the Banks hereunder to make LIBOR Loans (but not
other Loans) shall be suspended so long as they are prohibited by any applicable
law. Upon the occurrence of any such change, the Administrative Agent shall
promptly notify the Borrower thereof, and shall furnish to the Borrower in
writing evidence thereof certified by the Administrative Agent.

          Any repayment or conversion of any LIBOR Loan which is required under
this Section 2.11 or under 2.04(B) shall be effected by payment thereof,
together with accrued interest thereon, on demand, and concurrently there shall
occur the borrowing of the corresponding ABR Loan as provided herein.

          If any repayment to the Banks of any LIBOR Loan (including conversions
thereof) is made under this Section 2.11 on a day other than a day otherwise
scheduled for a payment of principal of or interest on such Loan, the Borrower
shall pay to the Banks upon its request of the Administrative Agent such amount
or amounts as will compensate the Banks for Breakage Costs, excluding, however,
any such Breakage Costs resulting from a prepayment or conversion made more than
sixty (60) days prior to the Administrative Agent's request for payment of
Breakage Costs.  The payment

                                       24
<PAGE>

of any such Breakage Costs to the Banks shall be made within thirty (30) days of
a request therefor from Administrative Agent.

          2.12    Mitigation: Mandatory Assignment. Each Bank shall use
                  --------------------------------
reasonable efforts to avoid or mitigate any Increased Cost or suspension of the
availability of an interest rate under Sections 2.09 through 2.10 above, to the
greatest extent practicable (including transferring the Loans to another lending
office or Affiliate of a Bank) unless, in the opinion of such Bank, such efforts
would be likely to have an adverse effect upon it. In the event a Bank makes a
request to the Borrower for additional payments in accordance with Sections 2.09
or 2.10, then, provided that no Event of Default has occurred and is continuing
               --------
at such time, the Borrower may, at its own expense and in its sole discretion,
require such Bank to transfer and assign in whole (but not in part), without
recourse, all of its interests, rights and obligations under this Agreement to
an assignee which shall assume such assigned obligations (which assignee may be
another Bank, if a Bank accepts such assignment); provided that (a) such
                                                  --------
assignment shall not conflict with any law, rule or regulation or order of any
court or other governmental authority and (b) the Borrower or such assignee
shall have paid to the Administrative Agent for the account of the assigning
Bank in immediately available funds the principal of and interest accrued to the
date of such payment on the portion of the Loans hereunder held by such
assigning Bank and all other amounts owed to such assigning Bank hereunder,
including amounts owed pursuant to Sections 2.09 and 2.10 hereof.

          2.13    Pro Rata Treatment and Payments. Each Borrowing by Borrower
                  -------------------------------
from the Banks hereunder, each payment by Borrower on account of any fee
hereunder and any reduction of the Commitments of the Banks shall be made pro
rata according to the respective Percentage Shares of the Banks. Each payment
(including each prepayment) by Borrower on account of principal of and interest
on the Loans shall be made pro rata according to the respective outstanding
principal amounts of the Loans then held by the Banks. The Administrative Agent
shall distribute such payments to the Banks promptly upon receipt in like funds
as received.

          2.14    Sharing of Payments and Setoffs. Each Bank agrees that if it
                  -------------------------------
shall, through the exercise of a right of banker's lien, setoff or counterclaim
Borrower (pursuant to Section 9.01 or otherwise), including, but not
limited to, a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Bank under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by similar means, obtain payment (voluntary
or involuntary) in respect of any Loan or Loans (other than pursuant to Section
2.10) as a result of which the unpaid principal portion of its Loans shall be
proportionately less than the unpaid principal portion of the Loans of any other
Bank, it shall simultaneously purchase from such other Banks at face value a
participation in the Loans of such other Banks, so that the aggregate unpaid
principal amount of Loans and participations in Loans held by each Bank shall be
in the same proportion to the aggregate unpaid principal amount of all Loans
then outstanding as the principal amount of its Loans prior to such exercise of
banker's lien, setoff, counterclaim or other event was to the principal amount
of all Loans outstanding prior to such exercise of banker's lien, setoff,
counterclaim or other event; provided, however, that if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.14 and the
payment giving rise thereto shall thereafter be recovered, such purchase or

                                       25
<PAGE>

purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest.

          2.15    Advances to Satisfy Obligations of the Borrower. The
                  -----------------------------------------------
Administrative Agent or any Bank may, but shall not be obligated to, make
advances hereunder for the benefit of the Banks and apply same to the
satisfaction of any condition, warranty, representation or covenant of the
Borrower contained in this Agreement, and the funds so advanced and applied
shall be part of the Loan proceeds advanced under this Agreement and evidenced
by the Notes.

          2.16    Assignment of Production. Certain of the Security Instruments
                  ------------------------
covering the Borrowing Base Oil and Gas Properties contain an assignment unto
and in favor of Administrative Agent for the benefit of the Banks of all oil,
gas and other minerals produced and to be produced from or attributable to the
Borrowing Base Oil and Gas Properties together with all of the revenues and
proceeds attributable to such production, and such Security Instruments further
provide that all such revenues and proceeds which may be so collected by
Administrative Agent for the benefit of the Banks pursuant to the assignment
shall be applied to the payment of the Notes and the satisfaction of all other
Indebtedness to be secured by such Security Instruments. The Borrower hereby
appoints the Administrative Agent as its Administrative Agent and attorney-in-
fact until this Agreement has been terminated in accordance with Section 9.18
hereof for purposes of completing the Transfer Order Letters delivered to the
Administrative Agent pursuant to Section 3.02(B) hereof, which power is coupled
with an interest and is not revocable.

          2.17    Commitment Fee. As consideration for the commitment of the
                  --------------
Banks to make Credit Extensions to the Borrower through the Facility Termination
Date pursuant to this Agreement, the Borrower agrees to pay to the
Administrative Agent for the account of the Banks within five (5) Business Days
of receipt of the Administrative Agent's statement as to quarterly periods
ending March 31, June 30, September 30 and December 31 of each year (except the
first period shall be for a period of time from the Closing to March 31, 2002)
during the period commencing on the date of this Agreement to and including the
Facility Termination Date and at the Facility Termination Date, a commitment fee
equal to the percentage per annum specified in the Pricing Grid based on the
Utilization Percentage (computed on the basis of a year of 360 days) multiplied
by an amount equal to the daily average excess, if any, of the Aggregate
Commitment Amount over the Outstanding Credit Exposure, throughout the period
from the Closing Date or previous calculation date provided above, whichever is
later, to the relevant calculation date or the Facility Termination Date, as the
case may be.

          2.18    Addition/Deletion of Borrowing Base Oil and  Gas Properties.
                  --------------------------------------------------------
The Borrower may, from time to time upon written notice to the Administrative
Agent, propose to add Oil and Gas Properties of the Borrower to the Borrowing
Base Oil and Gas Properties. Any such proposal to add Oil and Gas Properties of
the Borrower to the Borrowing Base Oil and Gas Properties shall be accompanied
by a Reserve Report applicable to such properties that conforms to the
requirements of Section 2.06, and evidence sufficient to establish that the
Borrower has Marketable Title to such Oil and Gas Properties, and any such
addition shall become effective at such time as: (a) the Administrative Agent,
with the approval of the Banks, has made a determination of the amount by which
the Borrowing Base would be increased as the result of such addition and (b) the
conditions

                                       26
<PAGE>

set forth in Article III hereof, to the extent they are applicable to such
additional Oil and Gas Properties of the Borrower, have been satisfied. In
determining the increase in the Borrowing Base pursuant to this Section, the
Administrative Agent and the Banks shall apply the parameters and other credit
factors set forth in Section 2.06, above.

          2.19    Adjustment to Aggregate Commitment Amount. At any time that
                  -----------------------------------------
Borrower proposes to increase the Borrowing Base by adding additional Oil and
Gas Properties to the Borrowing Base Oil and Gas Properties pursuant to Section
2.18, Borrower may also request that Banks increase the amount of the Aggregate
Commitment Amount stated on Schedule 1.01(b). At any time that Borrower makes
such a request it shall promptly provide Administrative Agent with such
financial information as Administrative Agent may request to assist the
Administrative Agent in evaluating such request. Following the receipt of such
information from Borrower, within forty-five (45) days of such request the
Administrative Agent shall, with the unanimous approval of the Banks and in the
normal course of its business, make a redetermination of the Aggregate
Commitment Amount, which shall become effective upon written notification from
the Administrative Agent to Borrower of the new Aggregate Commitment Amount
based on the parameters and other credit factors set forth in Section 2.06,
above. The Borrower may upon written notice to Administrative Agent, not sooner
than one hundred eighty (180) days subsequent to the last such action by
Borrower, amend the definition of the Aggregate Commitment Amount by reducing
the amount set forth in such definition. Upon such reduction, the Banks shall
not be obligated to make Credit Extensions in excess of such reduced Aggregate
Commitment Amount.

          2.20    Facility LCs.
                  ------------

                  (A)    Issuance. The LC Issuer hereby agrees, on the terms and
                         --------
          conditions set forth in this Agreement, to issue standby letters of
          credit (each, a "Facility LC") and to renew, extend, increase,
          decrease or otherwise modify each Facility LC ("Modify," and each such
          action a "Modification"), from time to time from and including the
          date of this Agreement and prior to the Facility Termination Date upon
          the request of the Borrower; provided that immediately after each such
          Facility LC is issued or Modified, (i) the aggregate amount of the
          outstanding LC Obligations shall not exceed $5,000,000.00 and (ii) the
          Aggregate Outstanding Credit Exposure shall not exceed the Aggregate
          Commitment Amount. Facility LC's issued pursuant to the Prior Credit
          Agreement and outstanding as of the Closing of this Agreement shall
          also constitute Facility LCs hereunder. No Facility LC shall have an
          expiry date later than the earlier of (x) the fifth Business Day prior
          to the Facility Termination Date and (y) one year after its issuance.

                  (B)    Participations. Upon the issuance or Modification by
                         --------------
          the LC Issuer of a Facility LC in accordance with this Section 2.20,
          the LC Issuer shall be deemed, without further action by any party
          hereto, to have unconditionally and irrevocably sold to each Bank, and
          each Bank shall be deemed, without further action by any party hereto,
          to have unconditionally and irrevocably purchased from the LC Issuer,
          a participation in such Facility LC (and each Modification thereof)
          and the related LC Obligations in proportion to its Percentage Share.

                                       27
<PAGE>

               (C)  Notice. Subject to Section 2.20(A), the Borrower shall give
                    ------
     the LC Issuer notice prior to 10:00 a.m. (Houston, Texas time) at least two
     Business Days prior to the proposed date of issuance or Modification of
     each Facility LC, specifying the beneficiary, the proposed date of issuance
     (or Modification) and the expiry date of such Facility LC, and describing
     the proposed terms of such Facility LC and the nature of the transactions
     proposed to be supported thereby. Upon receipt of such notice, the LC
     Issuer shall promptly notify the Administrative Agent, and the
     Administrative Agent shall promptly notify each Bank, of the contents
     thereof and of the amount of such Bank's participation in such proposed
     Facility LC. The issuance or Modification by the LC Issuer of any Facility
     LC shall, in addition to the conditions precedent set forth in Article III
     (the satisfaction of which the LC Issuer shall have no duty to ascertain),
     be subject to the conditions precedent that such Facility LC shall be
     satisfactory to the LC Issuer and that the Borrower shall have executed and
     delivered such application agreement and/or such other instruments and
     agreements relating to such Facility LC as the LC Issuer shall have
     reasonably requested (each, a "Facility LC Application"). In the event of
     any conflict between the terms of this Agreement and the terms of any
     Facility LC Application, the terms of this Agreement shall control.

               (D)  LC Fees. The Borrower shall pay to the Administrative Agent,
                    -------
     for the account of the Banks ratably in accordance with their respective
     Percentage Shares, with respect to each Facility LC, a letter of credit fee
     at a rate equal to the then otherwise applicable LIBOR Margin per annum on
     the average daily undrawn stated amount under such Facility LC, such fee to
     be payable in arrears on or before the first Business Day of each calendar
     month (each such fee described in this sentence an "LC Fee"). The Borrower
     shall also pay to the LC Issuer for its own account (x) at the time of
     issuance of each Facility LC, a fronting fee calculated at the rate of
     fifteen (15) basis points per annum, and (y) documentary and processing
     charges in connection with the issuance or Modification of and draws under
     Facility LCs in accordance with the LC Issuer's standard schedule for such
     charges as in effect from time to time; except that upon the occurrence and
     during the continuation of a default under the Agreement, the fee on any
     outstanding Facility LC shall increase by two percent (2%).

               (E)  Administration; Reimbursement by Banks. Upon receipt from
                    --------------------------------------
     the beneficiary of any Facility LC of any demand for payment under such
     Facility LC, the LC Issuer shall notify the Administrative Agent and the
     Administrative Agent shall promptly notify the Borrower and each other Bank
     as to the amount to be paid by the LC Issuer as a result of such demand and
     the proposed payment date (the "LC Payment Date"). The responsibility of
     the LC Issuer to the Borrower and each Bank shall be only to determine that
     the documents (including each demand for payment) delivered under each
     Facility LC in connection with such presentment shall be in conformity in
     all material respects with such Facility LC. The LC Issuer shall endeavor
     to exercise the same care in the issuance and administration of the
     Facility LCs as it does with respect to letters of credit in which no
     participations are granted, it being understood that in the absence of any
     gross negligence or willful misconduct by the LC Issuer, each Bank shall be
     unconditionally and irrevocably liable without regard to the occurrence of
     any Default or any condition precedent whatsoever, to reimburse the LC
     Issuer on demand for (i) such Bank's Percentage Share of the amount

                                       28
<PAGE>

     of each payment made by the LC Issuer under each Facility LC to the extent
     such amount is not reimbursed by the Borrower pursuant to Section 2.20(F)
     below, plus (ii) interest on the foregoing amount to be reimbursed by such
     Bank, for each day from the date of the LC Issuer's demand for such
     reimbursement (or, if such demand is made after 11:00 a.m. (Houston, Texas
     time) on such date, from the next succeeding Business Day) to the date on
     which such Bank pays the amount to be reimbursed by it, at a rate of
     interest per annum equal to the Federal Funds Effective Rate for the first
     three Business Days and, thereafter, at a rate of interest equal to the
     Floating Rate based on ABR.

          (F)  Reimbursement by Borrower. The Borrower shall be irrevocably and
               -------------------------
     unconditionally obligated to reimburse the LC Issuer on the applicable LC
     Payment Date for any amounts paid by the LC Issuer upon any drawing under
     any Facility LC, without presentment, demand, protest or other formalities
     of any kind; provided that neither the Borrower nor any Bank shall hereby
     be precluded from asserting any claim for direct (but not consequential)
     damages suffered by the Borrower or such Bank to the extent, but only to
     the extent, caused by (i) the willful misconduct or gross negligence of the
     LC Issuer in determining whether a request presented under any Facility LC
     issued by it complied with the terms of such Facility LC or (ii) the LC
     Issuer's failure to pay under any Facility LC issued by it after the
     presentation to it of a request strictly complying with the terms and
     conditions of such Facility LC. All such amounts paid by the LC Issuer and
     remaining unpaid by the Borrower shall bear interest, payable on demand,
     for each day until paid at a rate per annum equal to the sum of 2% plus the
     rate applicable to ABR Loans for such day if such day falls after such LC
     Payment Date. The LC Issuer will pay to each Bank ratably in accordance
     with its Percentage Share all amounts received by it from the Borrower for
     application in payment, in whole or in part, of the Reimbursement
     Obligation in respect of any Facility LC issued by the LC Issuer, but only
     to the extent such Bank has made payment to the LC Issuer in respect of
     such Facility LC pursuant to Section 2.20(E). Subject to the terms and
     conditions of this Agreement (including without limitation the submission
     of a Request for Advance in compliance with Section 2.02 and the
     satisfaction of the applicable conditions precedent set forth in Article
     III), the Borrower may request a Loan hereunder for the purpose of
     satisfying any Reimbursement Obligation.

          (G)  Obligations Absolute. The Borrower's obligations under this
               --------------------
     Section 2.20 shall be absolute and unconditional under any and all
     circumstances and irrespective of any setoff, counterclaim or defense to
     payment which the Borrower may have or have had against the LC Issuer, any
     Bank or any beneficiary of a Facility LC. The Borrower further agrees with
     the LC Issuer and the Banks that the LC Issuer and the Banks shall not be
     responsible for, and the Borrower's Reimbursement Obligation in respect of
     any Facility LC shall not be affected by, among other things, the validity
     or genuineness of documents or of any endorsements thereon, even if such
     documents should in fact prove to be in any or all respects invalid,
     fraudulent or forged, or any dispute between or among the Borrower, any of
     its Affiliates, the beneficiary of any Facility LC or any financing
     institution or other party to whom any Facility LC may be transferred or
     any claims or defenses whatsoever of the Borrower or of any of its
     Affiliates against the beneficiary of any Facility LC or any such
     transferee. The LC Issuer shall not be liable for any error, omission,
     interruption or delay

                                       29
<PAGE>

     in transmission, dispatch or delivery of any message or advice, however
     transmitted, in connection with any Facility LC. The Borrower agrees that
     any action taken or omitted by the LC Issuer or any Bank under or in
     connection with each Facility LC and the related drafts and documents, if
     done without gross negligence or willful misconduct, shall be binding upon
     the Borrower and shall not put the LC Issuer or any Bank under any
     liability to the Borrower. Nothing in this Section 2.20(G) is intended to
     limit the right of the Borrower to make a claim against the LC Issuer for
     damages as contemplated by the proviso to the first sentence of Section
     2.20(F).

               (H)  Actions of LC Issuer.  The LC Issuer shall be entitled to
                    --------------------
     rely, and shall be fully protected in relying, upon any Facility LC, draft,
     writing, resolution, notice, consent, certificate, affidavit, letter,
     cablegram, telegram, telecopy, telex or teletype message, statement, order
     or other document believed by it to be genuine and correct and to have been
     signed, sent or made by the proper Person or Persons, and upon advice and
     statements of legal counsel, independent accountants and other experts
     selected by the LC Issuer. The LC Issuer shall be fully justified in
     failing or refusing to take any action under this Agreement unless it shall
     first have received such advice or concurrence of the Required Banks as it
     reasonably deems appropriate or it shall first be indemnified to its
     reasonable satisfaction by the Banks against any and all liability and
     expense which may be incurred by it by reason of taking or continuing to
     take any such action. Notwithstanding any other provision of this Section
     2.20, the LC Issuer shall in all cases be fully protected in acting, or in
     refraining from acting, under this Agreement in accordance with a request
     of the Required Banks, and such request and any action taken or failure to
     act pursuant thereto shall be binding upon the Banks and any future holders
     of a participation in any Facility LC.

               (I)  Indemnification. The Borrower hereby agrees to indemnify and
                    ---------------
     hold harmless each Bank, the LC Issuer and the Administrative Agent, and
     their respective directors, officers, agents and employees from and against
     any and all claims and damages, losses, liabilities, costs or expenses
     which such Bank, the LC Issuer or the Administrative Agent may incur (or
     which may be claimed against such Bank, the LC Issuer or the Administrative
     Agent by any Person whatsoever) by reason of or in connection with the
     issuance, execution and delivery or transfer of or payment or failure to
     pay under any Facility LC or any actual or proposed use of any Facility LC,
     including, without limitation, any claims, damages, losses, liabilities,
     costs or expenses which the LC Issuer may incur by reason of or in
     connection with (i) the failure of any other Bank to fulfill or comply with
     its obligations to the LC Issuer hereunder (but nothing herein contained
     shall affect any rights the Borrower may have against any defaulting Bank)
     or (ii) by reason of or on account of the LC Issuer issuing any Facility LC
     which specifies that the term "Beneficiary" included therein includes any
     successor by operation of law of the named Beneficiary, but which Facility
     LC does not require that any drawing by any such successor Beneficiary be
     accompanied by a copy of a legal document, satisfactory to the LC Issuer,
     evidencing the appointment of such successor Beneficiary; provided that the
     Borrower shall not be required to indemnify any Bank, the LC Issuer or the
     Administrative Agent for any claims, damages, losses, liabilities, costs or
     expenses to the extent, but only to the extent, caused by (x) the willful
     misconduct or gross negligence of the LC Issuer in determining whether a
     request

                                       30
<PAGE>

     presented under any Facility LC complied with the terms of such Facility LC
     or (y) the LC Issuer's failure to pay under any Facility LC after the
     presentation to it of a request strictly complying with the terms and
     conditions of such Facility LC. Nothing in this Section 2.20(I) is intended
     to limit the obligations of the Borrower under any other provision of this
     Agreement.

               (J)  Banks' Indemnification.  Each Bank shall, ratably in
                    ----------------------
     accordance with its Percentage Share, indemnify the LC Issuer, its
     affiliates and their respective directors, officers, agents and employees
     (to the extent not reimbursed by the Borrower) against any cost, expense
     (including reasonable counsel fees and disbursements), claim, demand,
     action, loss or liability (except such as result from such indemnitees'
     gross negligence or willful misconduct or the LC Issuer's failure to pay
     under any Facility LC after the presentation to it of a request strictly
     complying with the terms and conditions of the Facility LC) that such
     indemnitees may suffer or incur in connection with this Section 2.20 or any
     action taken or omitted by such indemnitees hereunder.

               (K)  Rights as a Bank.  In its capacity as a Bank, the LC Issuer
                    ----------------
     shall have the same rights and obligations as any other Bank.

                                 ARTICLE III.

                                  CONDITIONS
                                  ----------

     The obligation of the Banks to make the Credit Extensions is subject to the
following conditions precedent:

     3.01      General Conditions to Closing and to all Disbursements. At the
               ------------------------------------------------------
time of the execution and delivery of this Agreement by all parties who are
designated as signatories on the signature pages of this Agreement (the
"Closing") and at each subsequent Credit Extension:

               (A)  No Event of Default or Unmatured Event of Default shall have
     occurred and be continuing, unless, with respect to any such Unmatured
     Event of Default, Borrower provides evidence satisfactory to the Banks that
     such Unmatured Event of Default shall, contemporaneously with or promptly
     after such Credit Extension, be cured with funds advanced pursuant to the
     Credit Extension;

               (B)  The representations and warranties contained in Article IV
     of this Agreement shall be true and correct in all material respects as
     though such representations and warranties had been made on such date,
     except such as are expressly limited to a prior date, which shall have been
     true and correct in all material respects as of such prior date;

               (C)  The Administrative Agent and the Banks shall have been, and
     shall continue to be, satisfied, in their good faith discretion, that the
     Borrower holds Marketable Title to the Borrowing Base Oil and Gas
     Properties, and that such ownership includes record title to an undivided
     net revenue interest in the production from each such Borrowing Base Oil
     and Gas

                                       31
<PAGE>

     Property that is not less than, as well as an undivided working interest in
     each Borrowing Base Oil and Gas Property that is not greater than (unless
     there is a corresponding increase in the net revenue interest attributed to
     such party therein), the net revenue interest therein and the working
     interest therein, respectively, attributed to the Borrower on Exhibit "A,"
     subject to the limitations and qualifications on such exhibit (or
     attributed to Borrower in any Security Instrument applicable to any Oil and
     Gas Property that is added to the Borrowing Base Oil and Gas Properties in
     connection with any subsequent funding after the Closing); provided,
     however, that for purposes of Closing, Administrative Agent and Banks
     intend to have confirmed, to their reasonable satisfaction, the status of
     Borrower's title to Borrowing Base Oil and Gas Properties comprising
     approximately ninety percent (90%) of the PW9 (based on the most recent
     Borrowing Base evaluation by the Administrative Agent) of the Proved
     Reserves that are attributable to those Borrowing Base Oil and Gas
     Properties that, as of Closing, are made subject to Security Instruments in
     favor of Administrative Agent; such determination by Administrative Agent
     and the Banks, however, shall not relieve Borrower from the ongoing
     obligation to comply with all of its representations, warranties and
     covenants herein and in the Security Instruments regarding Borrower's title
     to all Borrowing Base Oil and Gas Properties.

               (D)  No Material Adverse Change shall have occurred since the
     date of the latest audited Consolidated Financial Statements provided to
     the Administrative Agent;

               (E)  All of the Security Instruments previously delivered with
     respect to the Borrowing Base Oil and Gas Properties shall have remained in
     full force and effect, except to the extent released pursuant to the terms
     of this Agreement; and

               (F)  All legal matters incidental thereto shall be reasonably
     satisfactory to each Bank's designated legal counsel.

     3.02      Deliveries at the Closing.  The Borrower shall have duly
               -------------------------
delivered or caused to be delivered to the Administrative Agent, prior to or
contemporaneously with the Closing, the following:

               (A)  The Notes payable to each respective Bank, along with each
     of the Security Instruments covering any Borrowing Base Oil and Gas
     Properties not already covered by valid and continuing Security Instruments
     in favor of Administrative Agent; provided, however, that Administrative
     Agent and the Banks intend to proceed with Closing (subject to all other
     conditions in this Article III) if Borrowing Base Oil and Gas Properties
     comprising approximately ninety percent (90%) of the Proved Reserves
     attributable to all of the Borrowing Base Oil and Gas Properties are made
     subject to Security Instruments in favor of Administrative Agent, but
     Borrower is not thereby relieved from its obligation to execute and
     deliver, upon request from Administrative Agent at any time, additional
     Security Instruments covering any and all Borrowing Base Oil and Gas
     Properties not previously covered by valid and continuing Security
     Instruments, with the exception of the Borrowing Base Oil and Gas
     Properties comprising any field (considered by the Administrative Agent

                                       32
<PAGE>

     to be a "field" in its most recent Borrowing Base evaluation pursuant to
     Section 2.06) that has a PW9 of $10,000 or less.

               (B)  Transfer Order Letters applicable to the production of oil
     and gas from any Borrowing Base Oil and Gas Properties for which Transfer
     Order letters have not previously been delivered to the Administrative
     Agent;

               (C)  The results of a Uniform Commercial Code search showing all
     financing statements and other documents or instruments on file against the
     Borrower in the Offices of the Secretary of State of the State of Wyoming
     and each State in which any of the Borrowing Base Oil and Gas Properties
     are located or deemed to be located, such search to be as of a date no more
     than ten (10) days prior to the date of Closing.

               (D)  A certified (as of the date of the Closing) copy of
     resolutions of Borrower's Board of Directors authorizing the execution,
     delivery, and performance of this Agreement, the Notes, and each other Loan
     Document to be delivered by Borrower pursuant hereto;

               (E)  A certificate (dated the date of the Closing) of Borrower's
     corporate secretary as to the incumbency and signatures of the officers of
     the Borrower signing this Agreement, the Notes, and each other Loan
     Document to be delivered by Borrower pursuant hereto;

               (F)  A copy, certified as of the most recent date practicable by
     the Secretary of State of the state in which Borrower is incorporated, of
     the Borrower's certificate of incorporation, together with a certificate
     (dated the date of the Closing) of the Borrower's corporate secretary to
     the effect that such certificate of incorporation has not been amended
     since the date of the aforesaid certification;

               (G)  Certificates, as of the most recent dates practicable, of
     the Secretary of State of each state in which the Borrower is qualified as
     a foreign corporation, and the department of revenue or taxation of each of
     the foregoing states, as to the good standing of the Borrower;

               (H)  A Compliance Certificate, dated the date of the Closing;

               (I)  Payment of the Administrative Agent's attorneys' fees upon
     receipt of a reasonably detailed invoice pursuant to Section 5.12 hereof;

               (J)  A legal opinion or opinions of outside counsel to the
     Borrower and each Guarantor, addressed to Administrative Agent, the Banks,
     the Arranger and the LC Issuer, in form and substance reasonably
     satisfactory to the Administrative Agent, covering, among other matters
     reasonably requested by Administrative Agent or its counsel, the matters
     addressed in Sections 4.01, 4.02, 4.03, 4.19 and 4.20 hereof as to
     Borrower, and Section 4.(d) of each Guaranty as to each respective
     Guarantor; and

               (K)  Duly executed counterparts to the Guaranty of each
     respective Guarantor.

                                       33
<PAGE>

     3.03      Documents Required for Subsequent Disbursements Involving
               ---------------------------------------------------------
Additional Borrowing Base Oil and Gas Properties. As of the time of funding any
------------------------------------------------
additional advances to Borrower that have been approved by the Banks pursuant to
Section 2.01 and are made in conjunction with the addition of Oil and Gas
Properties owned by the Borrower to the Borrowing Base Oil and Gas Properties,
the Borrower shall have duly delivered to the Administrative Agent: (i) the
Security Instruments that are necessary or appropriate, in the reasonable
opinion of the Administrative Agent, relating to such additional Oil and
Properties, provided that Borrower understands and agrees that Administrative
Agent will require Borrowing Base Oil and Gas Properties that include any well
from which Proved Reserves may be produced and each prospective drilling unit
comprised of Proved Reserves that are undeveloped to have attributable thereto
at least 80 contiguous acres of land covered by a Lease that is made subject to
the Security Instruments, and (ii) Transfer Order Letters applicable to the
production of oil and gas from the such additional Borrowing Base Oil and Gas
Properties.

     3.04      Subject to the satisfaction of the conditions stated in Sections
3.01 and 3.02 above, Bank One will execute and deliver an assignment of notes
and liens whereby it assigns the Prior Note and the liens under the security
documents executed pursuant to the Prior Credit Agreement from Bank One (in its
capacity as the sole lender under the Prior Credit Agreement) to Bank One, as
Administrative Agent for the benefit of the Banks and the LC Issuer, under the
terms of this Agreement.

                                  ARTICLE IV.

                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

     To induce the Administrative Agent and the Banks to enter into this
Agreement and to make the Credit Extensions hereunder, each Borrower represents
and warrants to the Administrative Agent and the Banks that:

     4.01      Existence. The Borrower is a corporation, duly organized, legally
               ---------
existing, and in good standing under the Laws of the State of Wyoming, the
Borrower has the lawful power to own its properties and to engage in the
businesses that it conducts, and is duly qualified and in good standing as a
foreign corporation in the jurisdictions wherein the nature of the business
transacted by it or property owned by it makes such qualification necessary,
other than those jurisdictions where the failure to so qualify will not have a
Material Adverse Effect; the states in which the Borrower is qualified to do
business are set forth in Schedule 4.01; the addresses of all places of business
of the Borrower are as set forth in Schedule 4.01; the Borrower has not changed
its name, been the surviving company in a merger, acquired any business, or
changed its principal executive office within five (5) years and one (1) month
prior to the date hereof, except as disclosed on Schedule 4.01.

     4.02      Due Authorization. The execution and delivery by the Borrower of
               -----------------
this Agreement and the borrowings hereunder; the execution and delivery by the
Borrower of the Notes, the Security Instruments, and the other Loan Documents to
which it is a party; and the repayment by the

                                       34
<PAGE>

Borrower of the Indebtedness evidenced by the Notes and interest and fees
provided in the Notes and this Agreement are (a) within the corporate power of
the Borrower; (b) have been duly authorized by all necessary corporate action,
and (c) do not and will not (i) require the consent of any regulatory authority
or governmental body, (ii) contravene or conflict with any provision of Law or
of the articles of incorporation or bylaws of the Borrower, (iii) contravene or
conflict with any indenture, instrument or other agreement to which the Borrower
is a party or by which its property may be presently bound or encumbered, or
(iv) result in or require the creation or imposition of any mortgage, lien,
pledge, security interest, charge or other encumbrance in, upon or of any of the
properties or assets of the Borrower under any such indenture, instrument or
other agreement, other than under any of the Security Instruments.

     4.03      Valid and Binding Obligations. This Agreement, the Notes, and the
               -----------------------------
Security Instruments , and the other Loan Documents to which Borrower is a
party, when duly executed and delivered, will be legal, valid and binding
obligations of and enforceable against the Borrower, in accordance with their
respective terms (subject to any applicable bankruptcy, insolvency or other Laws
of general application affecting creditors' rights, general equitable
principles, whether considered in a proceeding in equity or at law, and judicial
decisions interpreting any of the foregoing).

     4.04      Scope and Accuracy of Financial Statements. All Financial
               ------------------------------------------
Statements submitted and to be submitted to the Administrative Agent hereunder
are and will be complete and correct in all material respects, are and will be
prepared in accordance with GAAP consistently applied, and do and will fairly
reflect the consolidated financial condition and the results of the operations
of Ultra Petroleum Corp. and its Subsidiaries in all material respects as of the
dates and for the period stated therein (subject only to normal year-end audit
adjustments with respect to such unaudited interim statements of Ultra Petroleum
Corp.), and no Material Adverse Change has occurred since the effective date of
the latest audited Consolidated Financial Statements delivered to Administrative
Agent.

     4.05      Title to Borrowing Base Oil and Gas Properties. The Borrower has
               ----------------------------------------------
Marketable Title to the working and net revenue interests in the Borrowing Base
Oil and Gas Properties as set forth on Exhibit "A". Except as set forth in the
instruments and agreements, if any, more particularly described in Exhibit "A"
hereto, all such shares of production which the Borrower is entitled to receive,
and shares of expenses which the Borrower is obligated to bear, are not subject
to change, except for changes attributable to future elections by the Borrower
not to participate in operations proposed pursuant to customary forms of
applicable joint operating agreements, and except for changes attributable to
changes in participating areas under any federal units wherein participating
areas may be formed, enlarged or contracted in accordance with the rules and
regulations of the applicable governmental authority.

     4.06      Oil and Gas Leases.  The Leases which constitute any part of the
               ------------------
Borrowing Base Oil and Gas Properties are in full force and effect as to those
portions thereof that comprise the Borrowing Base Oil and Gas Properties.

                                       35
<PAGE>

          4.07      Oil and Gas Contracts. Except: (a) as set forth on Schedule
                    ---------------------
4.07 attached hereto, and (b) as may subsequently occur and be disclosed by
Borrower in the next Compliance Certificate delivered by Borrower after such
occurrence pursuant to Section 5.05 hereof, the Borrower is not obligated, by
virtue of any prepayment under any contract providing for the sale by the
Borrower of Hydrocarbons which contains a "take-or-pay" clause or under any
similar prepayment agreement or arrangement, including, without limitation, "gas
balancing agreements", to deliver a material amount of Hydrocarbons produced
from the Borrowing Base Oil and Gas Properties at some future time without then
or thereafter receiving full payment therefor (i.e., in the case of oil, not in
                                               ----
excess of sixty (60) days, and in the case of gas, not in excess of ninety (90)
days). Except: (a) as set forth on Schedule 4.07 attached hereto, and (b) as may
subsequently occur and be disclosed by Borrower in the next Compliance
Certificate delivered by Borrower after such occurrence pursuant to Section 5.05
hereof, the Borrowing Base Oil and Gas Properties are not subject to any
contractual, or other arrangement for the sale of crude oil which cannot be
canceled on ninety (90) days' (or less) notice, unless the price provided for
therein is equal to or greater than the prevailing market price in the vicinity.
The Borrowing Base Oil and Gas Properties are not subject to any regulatory
refund obligation and no facts exist which might cause the same to be imposed.

          4.08      Producing Wells.  All producing wells that constitute part
                    ---------------
of the Borrowing Base Oil and Gas Properties: (a) have been, during all times
that any such wells were operated by Borrower or its Affiliates, and (b) to the
knowledge of the Borrower, have been at all other times; drilled, operated and
produced in conformity with all applicable Laws, rules, regulations and orders
of all regulatory authorities having jurisdiction, are subject to no penalties
on account of past production, and are bottomed under and are producing from,
and the well bores are wholly within, the Borrowing Base Oil and Gas Properties,
or on Oil and Gas Properties which have been pooled, unitized or communitized
with the Borrowing Base Oil and Gas Properties, except to the extent that any
noncompliance with the representations set forth in this Section would not have
a Material Adverse Effect.

          4.09      Purchasers of Production. The names and business addresses
                    ------------------------
of the Persons who: (a) have purchased any of the Borrower's interests in oil
and gas produced from the Borrowing Base Oil and Gas Properties during the six
calendar months preceding the Closing, and (b) are considered by Borrower to be
potential future purchasers of Borrower's interest in oil and gas produced from
the Borrowing Base Oil and Gas Properties, are identified on Schedule 4.09
attached hereto.

          4.10      Authorizations and Consents.  No authorization, consent,
                    ---------------------------
approval, exemption, franchise, permit or license of, or filing with, any
governmental or public authority or any third party is required to authorize, or
is otherwise required in connection with the valid execution and delivery by the
Borrower of this Agreement, the Notes, and the Security Instruments, or any
other instrument contemplated hereby, the repayment by the Borrower of advances
against the Notes and interest and fees provided in the Notes and this
Agreement, or the performance by the Borrower of its obligations under any of
the foregoing.

          4.11      Environmental Laws. Except to the extent that the failure to
                    ------------------
do so would not have and would not be expected to have a Material Adverse
Effect, the Borrower (a) is and has in the past been in compliance with all
Environmental Laws and all permits, requests and notifications relating

                                       36
<PAGE>

to health, safety or the environment applicable to the Borrower or any of its
properties, assets, operations and businesses; (b) has obtained and adhered to
and currently possesses all necessary permits and other approvals, including
interim status under the Federal Resource Conservation and Recovery Act,
necessary to store, dispose of and otherwise handle Hazardous Substances and to
operate its properties, assets and businesses; (c) has reported, to the extent
required by all federal, state and local statutes, Laws, ordinances,
regulations, rules, permits, judgments, orders and decrees, all past and present
sites owned and/or operated by the Borrower where any Hazardous Substance has
been released, treated, stored or disposed of and (d) has not used, stored, or
Released any Hazardous Substance in excess of amounts allowed by Environmental
Law. To the best knowledge and belief of Borrower, there is (x) no location on
any property currently or previously owned or operated by the Borrower where
Hazardous Substances are known to have entered or are likely to enter into the
soil or groundwater on such property, other than releases of oil or natural gas
in the ordinary course of business none of which releases (i) either
individually, or in the aggregate, has had or may be expected to have a Material
Adverse Effect or (ii) has violated or may be expected to violate any
Environmental Laws, except for any such violation that has not had and would not
be expected to have a Material Adverse Effect, and (y) no on-site or off-site
location to which the Borrower has released or transported Hazardous Substances
or arranged for the transportation or disposal of Hazardous Substances, which is
or is likely to be the subject of any federal, state, local or foreign
enforcement action or any investigation which could lead to any material claims
against any such entity for any clean-up cost, remedial work, damage to natural
resources, common law or legal liability, including, but not limited to, claims
under Comprehensive Environmental Response, Compensation, and Liability Act. All
Environmental Impact Statements, orders or decrees specifically applicable to
Borrower or any of its Oil and Gas Properties with respect to operations to be
conducted on any of such Oil and Gas Properties are described on Schedule 4.11
attached hereto. For the purposes of this Section, references to "the Borrower"
shall include all predecessors, successors-in-interest of the Borrower;
provided, that with respect to the Borrower's properties or assets, the
--------
foregoing representations as to predecessors and successors-in-interest are
limited to the knowledge of the Borrower.

          4.12      Compliance with Laws, Rules, Regulations and Orders. Except
                    ---------------------------------------------------

to the extent that the failure to comply would not materially interfere with the
conduct of the business of the Borrower, the Borrower has complied with all
applicable Laws with respect to: (1) the conduct of its business; and (2) the
use, maintenance, and operation of the Borrowing Base Oil and Gas Properties and
personal properties owned or leased by it in the conduct of its business; except
as expressly set forth on Exhibit "A" hereto, the Borrower possesses all
licenses, approvals, registrations, permits and other authorizations necessary
to enable it to carry on its business in all material respects as now conducted,
and all such licenses, approvals, registrations, permits and other
authorizations are in full force and effect; and the Borrower has no reason to
believe that the Borrower will be unable to obtain the renewal of any such
licenses, approvals, registrations, permits and other authorizations.

          4.13      Liabilities, Litigation and Restrictions. Except as
                    ----------------------------------------
disclosed in the Financial Statements, the Borrower does not have any
liabilities, direct or contingent, which would have a Material Adverse Effect.
There is no litigation or other action of any nature pending before any court,
governmental instrumentality, regulatory authority or arbitral body or, to the
knowledge of the Borrower threatened against or affecting the Borrower which
might reasonably be expected to

                                       37
<PAGE>

result in any material, adverse change in the Borrower, or its business or
assets. To the best of the Borrower's knowledge, no unduly burdensome
restriction, restraint or hazard exists by contract or Law that would have a
Material Adverse Effect.

          4.14      Existing Indebtedness.  All Indebtedness of the Borrower
                    ---------------------
consisting of liability to repay borrowed money or to pay money to become due on
capital leases is described in the most recent Financial Statements of Borrower
delivered to Administrative Agent prior to the Closing and from time to time
thereafter; and Borrower is not in default with respect to any of its existing
Indebtedness.

          4.15      Material Commitments.  Except as described in Schedule 4.15
                    --------------------
hereto and in filings made by Borrower with the Securities Exchange Commission,
(a) the Borrower does not have any material leases (other than oil and gas
leases), contracts or commitments of any kind (including, without limitation,
employment agreements; collective bargaining agreements; powers of attorney;
distribution arrangements; patent license agreements; contracts for future
purchase or delivery of goods or rendering of services; bonuses, pension and
retirement plans; or accrued vacation pay, insurance and welfare agreements);
(b) to the best of the Borrower's knowledge, all parties to all such material
leases, contracts, and other commitments to which the Borrower is a party have
complied with the provisions of such leases, contracts, and other commitments;
and (c) to the best of the Borrower's knowledge, no party is in default under
any thereof and no event has occurred that but for the giving of notice or the
passage of time, or both, would constitute a default, except for defaults and
events that have not had and would not be expected to have a Material Adverse
Effect.

          4.16      Margin Stock.  The Borrower is not engaged principally, or
                    ------------
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations T, U, or X of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of any extension of credit under this Agreement will
be used to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying margin stock. Neither the Borrower nor
any Person acting on its behalf has taken any action that might cause the
transactions contemplated by this Agreement or the Notes to violate Regulations
T, U, or X or to violate the Securities Exchange Act of 1934, as amended.

          4.17      Proper Filing of Tax Returns and Payment of Taxes Due.
                    -----------------------------------------------------
Except as otherwise permitted herein, the Borrower has filed all federal, state,
and local tax returns and other reports required by any applicable Laws to have
been filed prior to the date hereof, has paid or caused to be paid all taxes,
assessments, and other governmental charges that are due and payable prior to
the date hereof, and has made adequate provision for the payment of such taxes,
assessments, or other charges accruing but not yet payable, except where the
failure to do so would not have a Material Adverse Effect; the Borrower has no
knowledge of any material deficiency or additional assessment in connection with
any taxes, assessments, or charges not provided for on its books.

          4.18      ERISA.  The Borrower is in compliance in all material
                    -----
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited Transaction has occurred and is continuing with respect to any
plan; no notice of intent to terminate a plan has been filed, nor has any plan
been terminated; no circumstances exist which constitute grounds under Section
4042 of

                                       38
<PAGE>

ERISA entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administrate a plan, nor has the PBGC instituted any such
proceedings; neither the Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multi-Employer
Plan; the Borrower and each ERISA Affiliate has met its minimum funding
requirements under ERISA with respect to all of its plans and the present value
of all vested benefits under each plan exceeds the fair market value of all plan
assets allocable to such benefits, as determined on the most recent valuation
date of the plan and in accordance with the provisions of ERISA and the
regulations thereunder for calculating the potential liability of the Borrower
or any ERISA Affiliate to the PBGC or the plan under Title IV of ERISA; and
neither the Borrower nor any ERISA Affiliate has incurred any liability to the
PBGC under ERISA.

          4.19      Investment Company Act Compliance.  The Borrower is not
                    ---------------------------------
directly or indirectly controlled by, or acting on behalf of, any, Person which
is an "Investment Company," within the meaning of the Investment Company Act of
1940, as amended.

          4.20      Public Utility Holding Company Act Compliance. The Borrower
                    ---------------------------------------------
is not a "holding company" or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

          4.21      Insurance. The Borrower Maintains insurance with respect to
                    ---------
the properties and business of the Borrower providing coverage for such
liabilities, casualties, risks and contingencies and in such amounts as is
customary in the industry. The insurance coverage reflected on the Certificate
of Insurance attached hereto as Schedule 4.21 is in full force and effect, and
all premiums due thereon have been paid.

          4.22      Material Misstatements and Omissions. No representation or
                    ------------------------------------
warranty by or with respect to the Borrower contained herein or in any
certificate or other document furnished by the Borrower pursuant hereto contains
any untrue statement of a material fact or omits to state a material fact
necessary to make such representation or warranty not misleading in light of the
circumstances under which it was made.

                                  ARTICLE V.

                             AFFIRMATIVE COVENANTS
                             ---------------------

          Borrower covenants so long as any Indebtedness of the Borrower to any
Bank remains unpaid under this Agreement, or any Obligations of the Borrower to
any Bank or the LC Issuer remain unsatisfied, or any Bank remains obligated to
make advances hereunder, to:

          5.01      Use of Funds. Use funds advanced hereunder for the purposes
                    ------------
of (A) extending, rearranging and renewing existing debt, (B) making
acquisitions of Oil and Gas Properties, and (C) funding Borrower's other lawful
corporate purposes.

          5.02      Maintenance and Access to Records. Keep adequate records in
                    ---------------------------------
accordance with good accounting practices, of all of the transactions of the
Borrower so that at any time, and from time to

                                       39
<PAGE>

time, such records present fairly the financial condition of the Borrower which
may be readily determined and, at the Administrative Agent's reasonable request,
make all financial records and records relating to the Borrowing Base Oil and
Gas Properties available for the Administrative Agent's inspection and permit
the Administrative Agent to make and take away copies thereof.

          5.03      Quarterly Unaudited Financial Statements. Deliver to the
                    ----------------------------------------
Administrative Agent, on or before the sixtieth (60th) day after the end of each
calendar quarter, unaudited Consolidated Financial Statements, as at the end of
such period and from the beginning of such fiscal year to the end of the
respective period, as applicable, which Consolidated Financial Statements shall
be certified by the president or chief financial officer of Ultra Petroleum
Corp. as being true and correct, subject to changes resulting from year-end
audit adjustments.

          5.04      Annual Audited Financial Statements. Deliver to the
                    -----------------------------------
Administrative Agent, on or before the one hundred twentieth (120th) day after
the close of each fiscal year of Ultra Petroleum Corp. a copy of annual audited
Consolidated Financial Statements, together with the report and opinion thereon
of KPMG or such other firm of independent certified public accountants
acceptable to the Administrative Agent at its reasonable discretion.

          5.05      Compliance Certificate.  At Closing, at the time of delivery
                    ----------------------
of the certified but unaudited Consolidated Financial Statements pursuant to
Section 5.03 above, and at the time of the delivery of the annual audited
Consolidated Financial Statements pursuant to Section 5.04 above, deliver to the
Administrative Agent a Compliance Certificate.

          5.06      Statement of Material Adverse Change. Deliver to the
                    ------------------------------------
Administrative Agent, promptly upon any Responsible Officer of the Borrower
having knowledge of any Material Adverse Change (or any event or circumstance
that would result in any such Material Adverse Change) in the condition,
financial or otherwise, of Borrower or of any Guarantor, a statement of a
Responsible Officer of the Borrower, setting forth the change in condition or
event or circumstance likely to result in any such change and the steps being
taken by the Borrower and/or Guarantor with respect to such change in condition
or event or circumstance.

          5.07      Title Defects.  Cure any title defects of the Borrowing Base
                    -------------
Oil and Gas Properties material in value, in the reasonable opinion of the
Administrative Agent, within sixty (60) days after receipt of written notice
thereof from Administrative Agent and, in the event any title defects are not
cured in a timely manner, pay all related costs and fees reasonably incurred ny
the Administrative Agent for the account of the Banks to do so; provided,
however, the Borrower may remove any of its Oil and Gas Properties from the
Borrowing Base Oil and Gas Properties so long as the  Indebtedness evidenced by
the Notes is less than or equal to the Borrowing Base (determined by the Banks
in accordance with Section 2.06 exclusive of such Oil and Gas Properties)

          5.08      Additional Information. Furnish to the Administrative Agent
                    ----------------------
copies of all information, if any, filed with the Securities Exchange Commission
by the Borrower or either Guarantor and all information routinely provided by
the Borrower or either Guarantor to its shareholders, generally. Furnish to the
Administrative Agent, promptly upon the Administrative Agent's reasonable
request, such additional financial or other information in Borrower's or either
Guarantor's possession or to

                                       40
<PAGE>

which Borrower or either Guarantor has access, without incurring material costs,
concerning the assets, liabilities, operations, and transactions of the
Borrower, including, without limitation, information concerning title to any of
the Borrowing Base Oil and Gas Properties.

          5.09      Compliance with Laws and Payment of Assessments and Charges.
                    -----------------------------------------------------------
Materially comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent and other obligations
which, if unpaid, might become a lien other than a Permitted Encumbrance against
its property, except any of the foregoing being contested in good faith and as
to which accruals satisfactory to the Administrative Agent, in its reasonable
discretion, have been provided.

          5.10      Maintenance of Existence and Good Standing. Maintain the
                    ------------------------------------------
Borrower's corporate existence and good standing in the jurisdiction of its
organization, and maintain the Borrower's qualification and good standing in all
other jurisdictions wherein the property now owned or hereafter acquired or
business now or hereafter conducted by Borrower necessitates same, other than
those jurisdictions wherein the failure to so qualify will not have a Material
Adverse Effect on the Borrower.

          5.11      Further Assurances.  Promptly cure any defects in the
                    ------------------
execution and delivery of this Agreement, the Notes, the Security Instruments,
or any other Loan Document referred to herein or executed in connection with the
Notes, and upon the reasonable request of the Administrative Agent promptly
execute and deliver to the Administrative Agent all such other and further
instruments as may be reasonably required by the Administrative Agent from time
to time in compliance with the covenants and agreements made in this Agreement.
Without limiting the generality of the foregoing, upon the reasonable request of
the Administrative Agent, Borrower shall promptly execute and deliver to the
Administrative Agent amendments of the Security Instruments existing under the
Prior Credit Agreement to provide that references in any of such Security
Instruments to the Prior Credit Agreement shall include references to this
Agreement, as amended from time to time, and references in any such Security
Instrument to the Prior Note shall be amended to include references to the Notes
delivered pursuant to this Agreement, and any further notes issued in
substitution therefor or in renewal, extension, increase or rearrangement
thereof.

          5.12      Initial Expenses of the Bank. Pay prior to or at Closing all
                    ----------------------------
documented reasonable fees and expenses of Porter & Hedges, L.L.P., the special
legal counsel for the Administrative Agent incurred directly and solely in
connection with the preparation of this Agreement, the Notes, the Guaranty, the
Security Instruments, and any other Loan Document referred to herein or executed
directly and solely in connection with the Notes, the satisfaction of the
conditions precedent set forth in Article III of this Agreement and the
consummation of the transactions contemplated in this Agreement.

          5.13      Subsequent Expenses of the Administrative Agent and the
                    -------------------------------------------------------

Arranger. Upon request, promptly reimburse the Administrative Agent and the
--------
Arranger and any Bank for all documented amounts reasonably expended, advanced
or incurred by the Administrative Agent, the Arranger or any such Bank to
collect the Notes or to enforce the rights of the Administrative Agent, the
Arranger or such Banks under this Agreement, the Notes, the Guaranty, the
Security Instruments, or any other

                                       41
<PAGE>

Loan Document referred to herein or executed in connection with the Notes, which
amounts shall be deemed compensatory in nature and liquidated as to amount upon
notice to the Borrower by the Administrative Agent and which amounts will
include, but not be limited to, (a) all court costs, (b) reasonable attorneys'
fees, (c) fees of auditors and accountants, (d) investigation expenses, (e)
internal fees of the Administrative Agent's in-house legal counsel, (f) fees and
expenses incurred in connection with the Administrative Agent's and any such
Bank's participation as a member of the creditors committee in a case commenced
under Title 11 of the United States Code or other similar Law of the United
States, the State of Texas or any other jurisdiction, (g) fees and expenses
incurred in connection with lifting the automatic stay prescribed in (S)(S)362
Title 11 of the United States Code, and (h) fees and expenses incurred in
connection with any action pursuant to (S)(S)1129 Title 11 of the United States
Code, reasonably incurred by the Administrative Agent and/or any such Bank in
connection with the collection of any sums due under this Agreement, together
with interest at the Floating Rate per annum, calculated on a basis of a year of
three hundred sixty (360) days on each such amount from the date of notification
to the Borrower that the same was expended, advanced or incurred by the
Administrative Agent and/or any such Bank until, but not including, the date it
is repaid to the Administrative Agent or such Bank, with the obligations under
this Section 5.13, surviving the non-assumption of this Agreement in a case
commenced under Title 11 of the United States Code or other similar Law of the
United States, the State of Texas or any other jurisdiction and being binding
upon the Borrower or a trustee, receiver or liquidator of any such party
appointed in any such case.

          5.14      Maintenance of Tangible Property. Maintain all of its
                    --------------------------------
tangible property relating to the Borrowing Base Oil and Gas Properties in good
repair and condition and make all necessary replacements thereof and operate
such property in a good and workmanlike manner in accordance with standard
industry practices, unless the failure to do so would not have a Material
Adverse Effect on the Borrower or the value of any Borrowing Base Oil and Gas
Property.

          5.15      Maintenance of Insurance. Continue to maintain, or cause to
                    ------------------------
be maintained, insurance with respect to the properties and business of the
Borrower against such liabilities, casualties, risks and contingencies and in
such amounts as is customary in the industry and furnish to the Administrative
Agent annually after the execution of this Agreement certificates evidencing
such insurance.

          5.16      Inspection of Tangible Assets/Right of Audit. Permit any
                    --------------------------------------------
authorized representative of the Administrative Agent or any Bank to visit and
inspect (at the risk of the Administrative Agent, such Bank and/or such
representative) any tangible asset of the Borrower, and/or to audit the books
and records of the Borrower during normal business hours, at the expense of the
Administrative Agent or such Bank and during normal business hours following
reasonable advance notice.

          5.17      Payment of Note and Performance of Obligations. Pay the
                    ----------------------------------------------
Notes according to the reading, tenor and effect thereof, as modified hereby,
and do and perform every act and discharge all of the Obligations provided to be
performed and discharged hereunder.

          5.18      Borrowing Base. Maintain a Borrowing Base in compliance with
                    --------------
Section 2.07 such that the amount of the Outstanding Credit Exposure will not,
at any time other than during applicable

                                       42
<PAGE>

grace periods expressly set forth elsewhere in this Agreement, exceed the
Aggregate Commitment Amount.

          5.19      Compliance with Environmental Laws.  To the extent necessary
                    ----------------------------------
to avoid a Material Adverse Effect, comply with any and all requirements of Law,
including, without limitation, Environmental Laws, (a) applicable to any natural
or environmental resource or media located on, above, within, in the vicinity
of, related to or affected by any Borrowing Base Oil and Gas Properties or any
other property of the Borrower, or (b) applicable to the performance or conduct
of its operations, including, without limitation, all permits, licenses,
registrations, approvals and authorizations, and, in this regard, comply with,
and require all employees, crew members, agents, contractors and subcontractors
(pursuant to appropriate contractual provisions) and future lessees (pursuant to
appropriate lease provisions) of the Borrower while such Persons are acting
within the scope of their relationship with the Borrower, to so comply with, all
applicable requirements of Law, including, without limitation, applicable
Environmental Laws, and other applicable requirements with respect to the
property of the Borrower, and the operation thereof necessary or appropriate to
enable the Borrower to fulfill its obligations under all applicable requirements
of Law, including, without limitation, Environmental Laws, applicable to the
use, generation, handling, storage, treatment, transport and disposal of any
Hazardous Substances now or hereafter located or present on or under any such
property.

          5.20      INDEMNIFICATION. INDEMNIFY AND HOLD THE ADMINISTRATIVE
                    ---------------
AGENT, THE BANKS AND THE LC ISSUER AND THEIR RESPECTIVE SHAREHOLDERS, OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE
FOR THE BENEFIT OF THE ADMINISTRATIVE AGENT, THE BANKS AND THE LC ISSUER (EACH
AN "INDEMNIFIED PERSON") UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST
ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES,
ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS,
REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES
INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES
AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE
BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED
ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR
DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE,
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER
PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE
HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION,
OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR
UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF
THE BORROWER, (D) ANY CONTAMINATION OF ANY PROPERTY

                                       43
<PAGE>

OR NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING,
STORAGE, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER
OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH
PERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER,
IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN
ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND
ENFORCEMENT OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A LETTER
OF CREDIT OF A WRONGFUL DISHONOR BY THE ADMINISTRATIVE AGENT, THE BANKS OR THE
LC ISSUER OF A CLAIM OR DRAFT PRESENTED THEREUNDER, OR ANY OTHER ACT OR OMISSION
IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING IN
THIS SECTION ARISING FROM NEGLIGENCE, WHETHER SOLE OR CONCURRENT, ON THE PART OF
THE ADMINISTRATIVE AGENT, THE BANKS OR THE LC ISSUER OR ANY OF THEIR RESPECTIVE
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE ADMINISTRATIVE AGENT, THE BANKS
OR THE LC ISSUER UNDER ANY SECURITY INSTRUMENT; PROVIDED THAT THE BORROWER SHALL
HAVE NO OBLIGATION HEREUNDER TO ANY INDEMNIFIED PERSON WITH RESPECT TO ANY OF
THE FOREGOING IN THIS SECTION TO THE EXTENT SAME ARISE FROM THE GROSS NEGLIGENCE
OR WILFUL MISCONDUCT OF ANY INDEMNIFIED PERSON WITH THE FOREGOING INDEMNITY
SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS CREDIT
AGREEMENT, UNLESS ALL SUCH OBLIGATIONS HAVE BEEN SATISFIED WHOLLY IN CASH FROM
THE BORROWER AND NOT BY WAY OF REALIZATION AGAINST ANY COLLATERAL OR THE
CONVEYANCE OF ANY PROPERTY IN LIEU THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL
                                            --------
NOT EXTEND TO ANY ACT OR OMISSION BY THE ADMINISTRATIVE AGENT, THE BANKS OR THE
LC ISSUER AND THEIR RESPECTIVE SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE
ADMINISTRATIVE AGENT, THE BANKS OR THE LC ISSUER UNDER ANY SECURITY INSTRUMENT
WITH RESPECT TO ANY PROPERTY THROUGH THE EXERCISE OF ADMINISTRATIVE AGENT'S, ANY
BANK'S OR THE LC ISSUER'S REMEDIES HEREUNDER OR UNDER ANY OF THE SECURITY
DOCUMENTS SUBSEQUENT TO THE ADMINISTRATIVE AGENT, ANY BANK OR THE LC ISSUER
BECOMING THE OWNER OF SUCH PROPERTY AND WITH RESPECT TO WHICH PROPERTY SUCH
CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY, CHARGE, PROCEEDING, ORDER,
JUDGMENT, ACTION, OR REQUIREMENT ARISES SUBSEQUENT TO THE ACQUISITION OF TITLE
THERETO BY THE ADMINISTRATIVE AGENT, ANY BANK OR THE LC ISSUER OR OTHER PERSON.

                                       44
<PAGE>

          5.21      Transactions with Affiliates. Conduct all transactions with
                    ----------------------------
any Affiliate of the Borrower on an arm's-length basis (provided that such
transactions are otherwise permitted by the terms of this Agreement).

          5.22      Leases.  Keep and continue all Leases comprising the
                    ------
Borrowing Base Oil and Gas Properties and related contracts and agreements
relating thereto in full force and effect in accordance with the terms thereof
and not permit the same to lapse or otherwise become impaired for failure to
comply with the obligations thereof, whether express or implied; provided,
                                                                 --------
however, that this provision shall not prevent the Borrower from abandoning and
-------
releasing any such Leases upon their termination as the result of cessation of
production in paying quantities that did not result from the Borrower's failure
to maintain such production as a reasonably prudent operator.

          5.23      Operation of Borrowing Base Oil and Gas Properties. Operate
                    --------------------------------------------------
or, to the extent that the right of operation is vested in others, exercise all
reasonable efforts to require the operator to operate the Borrowing Base Oil and
Gas Properties and all wells drilled thereon and that may hereafter be drilled
thereon, continuously and in a prudent and workmanlike manner and in accordance
with all Laws of the State in which the Borrowing Base Oil and Gas Properties
are situated and the United States of America, as well as all rules,
regulations, and Laws of any governmental agency having jurisdiction to regulate
the manner in which the operation of the Borrowing Base Oil and Gas Properties
shall be carried on, and comply with all terms and conditions of the Leases it
now holds, and any assignment or contract obligating the Borrower in any way
with respect to the Borrowing Base Oil and Gas Properties, except for any such
non-compliance that would not have a Material Adverse Effect; but nothing herein
shall be construed to empower the Borrower to bind the Administrative Agent or
any Bank to any contract obligation, or render the Administrative Agent or any
Bank in any way responsible or liable for bills or obligations incurred by the
Borrower.

          5.24      Change of Purchasers of Production.  On or before each
                    ----------------------------------
anniversary of the Closing, and at any other time that the Administrative Agent
may so request in writing, the Borrower shall notify the Administrative Agent in
writing of the identity and address of each Person who: (a) has purchased any of
the Borrower's interests in oil and gas produced from the Borrowing Base Oil and
Gas Properties during the six calendar months preceding such anniversary of the
Closing, and (b) are considered by Borrower to be potential future purchasers of
Borrower's interest in oil and gas produced from the Borrowing Base Oil and Gas
Properties and, if requested by the Administrative Agent, shall provide the
Administrative Agent with Transfer Order Letters executed by the Borrower and
addressed to such purchasers of production.

          6.25      Payment of Taxes, Etc. Pay or cause to be paid when due, all
                    ---------------------

taxes, assessments, and charges or levies imposed upon it, or on its property,
or which it is required to withhold and pay, except where contested in good
faith by appropriate proceedings with adequate reserves therefor having been set
aside on its books, provided, however, that the Borrower shall pay or cause to
be paid all such taxes, assessments, charges, or levies forthwith whenever
foreclosure on any lien that may have attached (or security therefor) appears
imminent.

                                       45
<PAGE>

          5.26      Notice of Litigation. Give immediate notice to the
                    --------------------
Administrative Agent of any litigation or proceeding in which it or any
Guarantor is a party if an adverse decision therein would require it or any
Guarantor to: (a) pay more than, and/or (b) deliver, forfeit or otherwise lose
ownership of assets the value of which exceeds, and/or (c) take any action or
refrain from taking any action the result of which causes it or any Guarantor to
incur losses or damages in excess of, $1,000,000 in the combined aggregate
(whether or not any such payment, loss or damages is considered to be covered by
insurance).

          5.27      Notice of Events of Default.  Notify the Administrative
                    ---------------------------
Agent immediately if it becomes aware of the occurrence of any Event of Default
or of any fact, condition, or event that only with the giving of notice or
passage of time or both, would become an Event of Default or if it becomes aware
of any Material Adverse Change (including, without limitation, proceedings in
bankruptcy, insolvency, reorganization, or the appointment of a receiver or
trustee).

          5.28      Notice of Change of Principal Offices. Notify the
                    -------------------------------------
Administrative Agent thirty (30) days in advance of any change in the location
of the principal offices of Borrower or any Guarantor.

          5.29      Changes in Management.  Notify the Administrative Agent of
                    ---------------------
any change in the senior management of Borrower or any Guarantor existing as of
the date hereof.

          5.30      Employee Benefit Plans. Fund its Plan(s) in accordance with
                    ----------------------
no less than the minimum funding standards of 29 U.S.C.A. (S)(S) 1082 (Section
302 of ERISA); furnish the Administrative Agent, promptly after the filing or
receiving of the same, with copies of any reports or other statements filed
with, or notices or other communications received from, the United States
Department of Labor, the PBGC, or the Internal Revenue Service with respect to
any such Plan; promptly advise the Administrative Agent of the occurrence of any
Reportable Event or Prohibited Transaction with respect to any such Plan and the
action the Borrower proposes to take with respect thereto; and promptly advise
the Administrative Agent when the Borrower knows or has reason to believe that
the PBGC or the Borrower has instituted or will institute proceedings under
Title IV of ERISA to terminate any such Plan and the action the Borrower
proposes to take with respect thereto.

          5.31      Payment of Obligations.  Promptly pay (or renew and extend)
                    ----------------------
all of its Indebtedness as it becomes due unless such Indebtedness is contested
in good faith by appropriate proceedings.

          5.32      Annual Budget. On or before April 1/st/ of each year,
                    -------------
beginning on or before April 1, 2003, Borrower shall prepare and provide to the
Administrative Agent a comprehensive budget for the calendar year beginning as
of the immediately preceding January 1, which shall include, but shall not
necessarily be limited to, all projected capital expenditures, lease operating
expenditures, revenues from the sale or other disposition of Hydrocarbons, Hedge
Agreement receipts and payments, and all other reasonably foreseeable material
budgetary information.

                                       46
<PAGE>

                                  ARTICLE VI.

                              NEGATIVE COVENANTS
                              ------------------

          Without the prior written consent of the Administrative Agent and the
Required Banks and so long as any part of the principal or interest on the Notes
shall remain unpaid or any Bank remains obligated to make advances hereunder,
Borrower covenants that it will not:

          6.01      Other Indebtedness. Incur, create, assume or suffer to exist
                    ------------------
any Indebtedness, whether by way of loan or the issuance or sale of securities
except Permitted Indebtedness.

          6.02      Loans or Advances. Make or agree to make or allow to remain
                    -----------------
outstanding any loans or advances to any Person, except: (a) advances or
extensions of credit in the form of accounts receivable incurred in the ordinary
course of business, (b) loans or advances permitted by Section 6.18, and (c)
provided no Event of Default or Unmatured Event of Default has occurred and is
continuing: (i) other loans or advances not exceeding $1,000,000, in the
aggregate, at any time outstanding, and (ii) loans or advances to Guarantor as
and to the extent necessary to enable Guarantor to retire or redeem any capital
stock of Guarantor, to the extent required pursuant to the terms of any employee
incentive compensation plan of Guarantor that was in effect at Closing and
disclosed to Administrative Agent in writing at or prior to Closing.

          6.03      Mortgages or Pledges of Assets. Create, incur, assume or
                    ------------------------------
permit to exist, any mortgage, pledge, security interest, lien or encumbrance on
any of its properties or assets (now owned or hereafter acquired), except for
Permitted Encumbrances.

          6.04      Sales of Assets.  Except for Permitted Asset Sales, sell,
                    ---------------
lease, assign, transfer or otherwise dispose of, in one or any series of related
transactions, all or any portion of its Oil and Gas Properties or other material
assets, whether now owned or hereafter acquired, including transfers to
Affiliates, nor enter into any arrangement, directly or indirectly, with any
Person to sell and rent or lease back as lessee such property or any part
thereof which is intended to be used for substantially the same purpose or
purposes as the property sold or transferred.

          6.05      Dividends.  Declare or pay any distribution on any capital
                    ---------
stock of Borrower.

          6.06      Retire Stock. Retire or redeem any capital stock of
                    ------------
Borrower.

          6.07      Payment of Accounts Payable. Allow any account payable to
                    ---------------------------
remain unpaid more than sixty (60) days after due date, except such as are (i)
being contested in good faith and as to which adequate provision or accrual has
been made, or (ii) the subject of usual and customary review and evaluation.

          6.08      Investments. Make Investments in or purchase or otherwise
                    -----------
acquire all or substantially all of the assets of any Person, or any shares of
stock of, or similar interest in, any other Person, if the result of such action
would impair the ability of the Borrower to perform any of its Obligations
pursuant to this Agreement, including, without limitation, the obligation to
repay the Indebtedness

                                       47
<PAGE>

evidenced by the Notes, except that the Borrower may invest in instruments that
are investment grade, short-term commercial paper.

          6.09      Changes in Structure or Business. Consolidate or merge with
                    --------------------------------
or purchase (for cash or securities) all or substantially all of the assets or
capital stock of any corporation, firm, association or enterprise, or allow any
such entity to be merged into the Borrower, or change the basic business
operations of the Borrower, unless all of the following conditions are
satisfied: (a) Borrower has provided Administrative Agent complete and detailed
information relating to such merger or purchase at least fifteen (15) days in
advance thereof, (b) Borrower is the survivor of such merger or the acquiror in
any such purchase, and (c) such merger or purchase will not otherwise constitute
or result in an Event of Default or Unmatured Event of Default under any other
provisions of this Agreement.

          6.10      Pooling or Unitization. Voluntarily pool or unitize all or
                    ----------------------
any part of the Borrowing Base Oil and Gas Properties where the pooling or
unitization would result in the diminution of the Borrower's net revenue
interest in production from the pooled or unitized lands, without the Required
Banks' prior consent, which will not be unreasonably withheld. Any unitization,
pooling or communitization or other action or instrument in violation of this
Section 6.10 shall be of no force or effect against any Bank.

          6.11      Hedge Agreements. Except for Permitted Hedge Agreements,
                    ----------------
enter into or become obligated under any contract for sale for future delivery
of Hydrocarbons other than normal production contracts entered into in the
Borrower's normal course of business (whether or not the subject Hydrocarbons
are to be delivered), forward contract, Hedging Agreement, futures contract or
any other similar agreement, without the prior written consent of the Required
Banks, acting in their reasonable discretion.

          6.12      Capital Stock of Borrower. Without the prior written consent
                    -------------------------
of the Required Banks, acting in their reasonable discretion, (a) issue, redeem,
purchase, retire or otherwise acquire for value any of its capital stock or
grant, issue, purchase, retire or otherwise acquire for value any warrant,
right, or option pertaining thereto or other security convertible into any of
the foregoing, or (b) permit any transfer, sale, redemption, retirement, or
other change in the ownership of the outstanding capital stock of the Borrower;
except for the issuance or transfer of the Borrower's capital stock which does
not result in a Change of Control or otherwise constitute or result in an Event
of Default under any other provisions of this Agreement.

          6.13      Margin Stock. Directly or indirectly apply any part of the
                    ------------
proceeds of the Loans to the purchasing or carrying of any "margin stock" within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or any regulations, interpretations or rulings thereunder.

          6.14      Minimum Tangible Net Worth. Permit Consolidated Tangible Net
                    --------------------------
Worth to be less than $80,000,000.00, plus 75% of Ultra Petroleum Corp.'s
                                      ----
positive consolidated Net Income, if any, accrued during each calendar quarter
subsequent to September 30, 2001, calculated cumulatively as of the end of each
fiscal quarter of Ultra Petroleum Corp. beginning with the quarter ending

                                       48
<PAGE>

December 31, 2001, with no reduction for negative Net Income during any such
quarter, plus 100% of any increase in Stockholders' Equity resulting from the
sale or issuance of stock in Ultra Petroleum Corp or any of its Subsidiaries
subsequent to September 30, 2001.

          6.15      Current Ratio. (a) Permit as of the end of any fiscal
                    -------------
quarter the Current Ratio to be less than 1.00 to 1.00, calculated based on the
Consolidated Financial Statements, and (b) permit as of the end of any fiscal
quarter Borrower's Current Ratio to be less than 1.00 to 1.00, calculated based
solely on the consolidating financial statements relative to Borrower, which
constitute a part of the Consolidated Financial Statements.

          6.16      EBITDA to Interest Ratio.  (a) Permit, as of the end of any
                    ------------------------
fiscal quarter, the ratio of EBITDA to total interest expense on all
Indebtedness, calculated based on the Consolidated Financial Statements, to be
less than 4.5 to 1.0, calculated on a rolling four-quarter basis, and (b)
permit, as of the end of any fiscal quarter, the ratio of Borrower's EBITDA to
Borrower's total interest expense on all of Borrower's Indebtedness, calculated
based solely on the consolidating financial statements relative to Borrower,
which constitute a part of the Consolidated Financial Statements, to be less
that 4.5 to 1.0, calculated on a rolling four-quarter basis..

          6.17      General and Administrative Expenses. Permit, for any fiscal
                    -----------------------------------
quarter, general and administrative expenses to be greater than 25% of gross
Production Revenue, calculated based on the Consolidated Financial Statements.

          6.18      Intercompany Transfers. Permit the Borrower or any of its
                    ----------------------
Affiliates to invest in, loan to or transfer to Sino-American Energy Corporation
an amount greater than Seventeen Million Five Hundred Thousand Dollars
($17,500,000) during the calendar year ending December 31, 2002 without the
prior written approval of the Required Banks; and thereafter permit the Borrower
or any of its Affiliates to invest in or transfer to Sino-American Energy
Corporation an amount greater than Twenty-Five Million Dollars ($25,000,000)
during each subsequent calendar year without the prior written approval of the
Required Banks; provided that in no event shall any such transfers to Sino-
American Energy Corporation be permitted if either: (i) an Event of Default has
occurred and is continuing pursuant to any of Sections 7.01(a), (d), (e), (f),
(g), (h), (i) or (j) hereof; (ii) Administrative Agent has given Borrower
written notice that a Loan Excess has occurred and is continuing; (iii) the
Current Ratio calculated pursuant to Section 6.15 (a) or (b) is, or as the
result of the making of such investment, loan or transfer would become, less
than 0.85 to 1.00; (iv) the EBITDA to Interest Ratio calculated pursuant to
Section 6.16 (a) or (b) is, or as the result of the making of such investment,
loan or transfer would become, less than 3.0 to 1.0; or (v) Administrative Agent
has accelerated the maturity of Borrower's Obligations as provided in Section
7.03.

                                 ARTICLE VII.

                               EVENTS OF DEFAULT
                               -----------------

          7.01      Enumeration of Events of Default.  Any of the following
                    --------------------------------
events shall be considered an Event of Default as that term is used herein:

                                       49
<PAGE>

          (a)       Default shall be made by the Borrower in the payment of any
                    installment of principal or interest (including, without
                    limitation, any mandatory prepayments payable pursuant to
                    either Section 2.07 or 2.08 of this Agreement) on the Notes,
                    any LC Fee or any other monetary obligation (other than
                    Reimbursement Obligations) payable hereunder when due,
                    including without limitation, any other fee due to
                    Administrative Agent, LC Issuer or any Bank hereunder within
                    five (5) days after such payment was due, or in the payment
                    of any Reimbursement Obligation within one Business Day
                    after the same becomes due;

          (b)       Default shall be made by the Borrower or any Guarantor in
                    the due observance or performance of any affirmative
                    covenant required in this Agreement, the Notes, the
                    Guaranty, the Facility LC Applications or the Security
                    Instruments or any other Loan Documents and such default
                    continues for more than thirty (30) days after the earlier
                    of: (i) any Responsible Officer of Borrower or any Guarantor
                    having knowledge thereof, or (ii) Borrower or Guarantor
                    receiving written notice thereof from the Administrative
                    Agent;

          (c)       Default shall be made by the Borrower or any Guarantor in
                    the due observance or performance of any negative covenant
                    required in this Agreement, the Notes, the Guaranty, the
                    Facility LC Applications or the Security Instruments or any
                    other Loan Documents;

          (d)       Any representation or warranty made herein by the Borrower
                    or made in the Guaranty by either Guarantor proves to have
                    been untrue in any respect material to the Borrower or such
                    Guarantor, respectively, or any representation, statement
                    (including Financial Statements), certificate or data
                    furnished or made by the Borrower or any Guarantor to the
                    Administrative Agent in connection herewith proves to have
                    been untrue in any respect material to the Borrower or the
                    Guarantor, respectively, as of the date the facts therein
                    set forth were stated or certified;

          (e)       (x) Default shall be made by the Borrower or either
                    Guarantor (as principal or other surety) in payment or
                    performance of any bond, debenture, note or other evidence
                    of Indebtedness for borrowed money, or under any credit
                    agreement, loan agreement, indenture, promissory note or
                    similar agreement or instrument executed in connection with
                    any of the forgoing, relating to any Indebtedness in an
                    aggregate amount of One Million Dollars ($1,000,000.00) or
                    more, and such default shall remain unremedied for in excess
                    of the period of grace, if any, with respect thereto,
                    entitling the payee thereof to accelerate the maturity of
                    such Indebtedness; or (y) Default shall be made by Sino-
                    American Energy Corporation (as principal or other surety)
                    in payment or performance of any bond, debenture, note or
                    other evidence of Indebtedness for borrowed money, or under
                    any credit agreement, loan agreement,

                                       50
<PAGE>

                    indenture, promissory note or similar agreement or
                    instrument executed in connection with any of the forgoing,
                    relating to any Indebtedness in an aggregate amount of One
                    Million Dollars ($1,000,000.00) or more, and such default
                    shall remain unremedied for in excess of the period of
                    grace, if any, with respect thereto, entitling the payee
                    thereof to accelerate the maturity of such Indebtedness, and
                    the payee of such Indebtedness has, or alleges in written
                    notice to Borrower or either Guarantor that it has, recourse
                    against Borrower or either Guarantor for the collection of
                    such Indebtedness;

          (f)       The Borrower or either Guarantor (i) discontinues its usual
                    business or applies for or consents to the appointment of a
                    receiver, trustee or liquidator of it or all or a
                    substantial part of its assets, or (ii) files a voluntary
                    petition commencing a case under Title 11 of the United
                    States Code, seeking liquidation, reorganization or
                    rearrangement or taking advantage of any bankruptcy,
                    insolvency, debtor's relief or other similar Law of the
                    United States the State of Texas or any other jurisdiction,
                    or (iii) makes a general assignment for the benefit of
                    creditors, or (iv) is unable, or admits in writing its
                    inability to pay its debts generally as they become due, or
                    (v) files an answer admitting the material allegations of a
                    petition filed against it in any case commenced under Title
                    11 of the United States Code or any reorganization,
                    insolvency, conservatorship or similar proceeding under any
                    bankruptcy, insolvency, debtor's relief or other similar Law
                    of the United States, the State of Texas or any other
                    jurisdiction;

          (g)       An order, judgment or decree shall be entered against the
                    Borrower or either Guarantor by any court of competent
                    jurisdiction or by any other duly authorized authority, on
                    the petition of a creditor or otherwise, granting relief
                    under Title 11 of the United States Code or under any
                    bankruptcy, insolvency, debtor's relief or other similar Law
                    of the United States, the State of Wyoming, the State of
                    Nevada, the Yukon Territory of Canada, or any other
                    jurisdiction, approving a petition seeking reorganization or
                    an arrangement of its debts or appointing a receiver,
                    trustee, conservator, custodian or liquidator of it or all
                    or any substantial part of its assets, and the failure to
                    have such order, judgment or decree dismissed within thirty
                    (30) days of its entry;

          (h)       the Borrower or either Guarantor has concealed, removed, or
                    permitted to be concealed or removed, any part of its
                    property, with intent to hinder, delay or defraud its
                    creditors or any of them; or has made or suffered a transfer
                    of any of its property which would be characterized as a
                    fraudulent conveyance under bankruptcy or similar Laws; or
                    has made any transfer of its property to or for the benefit
                    of a creditor at a time when other creditors similarly
                    situated have not been paid; or has suffered or permitted,
                    while insolvent, any creditor to obtain a lien upon any of
                    its property through legal proceedings or distraint which is
                    not vacated within thirty (30) days from the date thereof;

                                       51
<PAGE>

          (i)       the Liens under the Security Instruments are not, or they
                    cease to be, perfected first priority Liens subject to only
                    Permitted Encumbrances, or any of the Loan Documents or the
                    rights or remedies of the Administrative Agent, the Banks or
                    the LC Issuer are not, or they cease to be, valid and
                    enforceable; or

          (j)       a Material Adverse Change has occurred and the same remains
                    unremedied for in excess of 30 days after the earlier of:
                    (i) any Responsible Officer of Borrower or any Guarantor
                    having knowledge thereof, or (ii) Borrower receiving written
                    notice thereof from the Administrative Agent.

     7.02 Rights Upon Unmatured Event of Default. At any time that there exists
          --------------------------------------
an Unmatured Event of Default, any obligation of the Banks and the LC Issuer to
make Credit Extensions shall be suspended: (a) unless, with respect to any such
Unmatured Event of Default, Borrower provides evidence satisfactory to the Banks
that such Unmatured Event of Default shall, contemporaneously with or promptly
after such Credit Extension, be cured with funds advanced pursuant to the Credit
Extension, or (b) unless and until the Administrative Agent, with the approval
of the Required Banks and the LC Issuer, shall reinstate the same in writing,
the Unmatured Event of Default shall have been waived by the Administrative
Agent, with approval of the Required Banks and the LC Issuer, or the relevant
Unmatured Event of Default shall have been remedied prior to ripening into an
Event of Default.

     7.03 Rights Upon Default.  Upon the happening of an Event of Default
          -------------------
specified in Subsections 7.01 (f) or (g), the obligations of the Banks and the
LC Issuer to make Credit Extensions hereunder shall automatically terminate and
all Obligations then outstanding hereunder and the interest accrued thereon
shall automatically become immediately due and payable without any election or
action on the part of the Administrative Agent, any Bank or the LC Issuer.  Upon
the happening and during the continuation of any other Event of Default, the
Administrative Agent may, or upon the request of the Required Banks subject to
Section 9.12, the Administrative Agent shall terminate or suspend the
obligations of the Banks and the LC Issuer to make Credit Extensions hereunder,
or declare the Obligations to be immediately due and payable, or both, and upon
such declaration with respect to the Obligations they shall become immediately
due and payable.  In either case, the entire principal and interest shall
thereupon become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration of
maturity) and without presentment, demand, protest, notice of protest or other
notice of default or dishonor of any kind, except as provided to the contrary
elsewhere herein, all of which are hereby expressly waived by the Borrower.

     If, within thirty (30) days after acceleration of the maturity of the
Obligations or termination of the obligations of the Banks and LC Issuer to make
Credit Extensions hereunder as the result of any Event of Default (other than
any Event of Default specified in subsections 7.01(f) or (g)) and before any
judgement or decree for the payment of the Obligations due shall have been
obtained or entered, the Required Banks (in their sole discretion) shall direct
with respect to the Obligations relating to the Loans or the LC Issuer (in its
sole discretion) shall direct with respect to  Obligations

                                       52
<PAGE>

relating to Facility LCs, the Administrative Agent shall, by notice to the
Borrower, rescind and annul such acceleration and/or termination.

     7.04 Remedies.  After any acceleration, as provided for in Section 7.03,
          --------
the Administrative Agent, the Banks and the LC Issuer shall have, in addition to
the rights and remedies given them by this Agreement and the Security
Instruments, all those allowed by all applicable Laws.

     7.05 Right of Set-off.  Upon the occurrence of any Event of Default, each
          ----------------
Bank may, and is hereby authorized by the Borrower, at any time and from time to
time, to the fullest extent permitted by applicable Laws, without advance notice
to the Borrower (any such notice being expressly waived by the Borrower), set-
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and any other indebtedness at any time
owing by such Bank to or for the credit or the account of the Borrower against
any or all of the Obligations of the Borrower now or hereafter existing, whether
or not such Obligations have matured and irrespective of whether such Bank may
have exercised any other rights that they have or may have with respect to such
Obligations, including, without limitation, any acceleration rights.  Each Bank
agrees promptly to notify the Borrower after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.  The rights of each Bank under this Section 7.05
are in addition to the other rights and remedies (including, without limitation,
other rights of set-off) which the Banks may have.

                                 ARTICLE VIII.

                           THE ADMINISTRATIVE AGENT
                           ------------------------

     8.01 Authorization and Action.  Each Bank hereby irrevocably appoints and
          ------------------------
authorizes the Administrative Agent to act on its behalf and to exercise such
powers under this Agreement and the other Loan Documents as are specifically
delegated to or required of the Administrative Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement or the other Loan
Documents (including, without limitation, enforcement or collection of the
Notes), the Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and, as between the Administrative Agent and the Banks, shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Required Banks, and such instructions shall be binding upon all Banks and all
holders of Notes; provided, however, that the Administrative Agent shall not be
                  --------
required to take any action which exposes such Administrative Agent to personal
liability or which is contrary to this Agreement, the other Loan Documents or
applicable law.  The Administrative Agent is authorized to release Collateral
from the Security Instruments in connection with any sale, lease, assignment,
transfer or other disposition thereof permitted by Section 6.04.

     8.02 Administrative Agent's Reliance, Etc.  Neither the Administrative
          ------------------------------------
Agent nor any of its directors, officers, agents or employees shall be liable to
any Bank for any action taken or omitted to be taken by it or them under or in
connection with this Agreement or the other Loan Documents (i) with the consent
or at the request of the Required Banks or (ii) in the absence of its or their
own gross negligence or willful misconduct (it being the express intention of
the parties that the

                                       53
<PAGE>

Administrative Agent and its directors, officers, agents and employees shall
have no liability for actions and omissions under this Section 8.02 resulting
from their sole ordinary or contributory negligence). Without limitation of the
generality of the foregoing, the Administrative Agent: (i) may treat the payee
of each Note as the holder thereof until the Administrative Agent receives
written notice of the assignment or transfer thereof signed by such payee and in
form satisfactory to the Administrative Agent; (ii) may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (iii) makes no warranty or representation to
any Bank and shall not be responsible to any Bank for any statements, warranties
or representations made in or in connection with this Agreement or the other
Loan Documents; (iv) except as otherwise expressly provided herein, shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement or the other Loan
Documents or to inspect the property (including the books and records) of
Borrower; (v) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (vi) shall incur no liability under or
in respect of this Agreement or the other Loan Documents by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telegram, telecopier, cable or telex) reasonably believed by it to be genuine
and signed or sent by the proper party or parties; and (vii) the provisions of
this Section 8.02 shall survive the termination of this Agreement and/or the
payment or assignment of any of the Indebtedness under this Agreement.

     8.03 The Administrative Agent and Affiliates.  With respect to its
          ---------------------------------------
Commitment, the Credit Extensions made by it and the Note issued to it as a
Bank, the Administrative Agent shall have the same rights and powers under this
Agreement or the other Loan Documents as any other Bank and may exercise the
same as though it were not the Administrative Agent.  The term "Bank" or "Banks"
shall, unless otherwise expressly indicated, include the Administrative Agent in
its individual capacity.  The Administrative Agent and its affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with Borrower and any Person who may do business
with or own securities of Borrower, all as if the Administrative Agent were not
the Administrative Agent and without any duty to account therefor to the Banks.

     8.04 Bank Credit Decision. Each Bank acknowledges and agrees that it has,
          --------------------
independently and without reliance upon the Administrative Agent or any other
Bank and based on the Financial Statements referred to in Sections 5.03 and 5.04
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges and agrees that it will, independently and without reliance upon
the Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Documents.

     8.05 Administrative Agent's Indemnity.  The Administrative Agent shall
          --------------------------------
not be required to take any action hereunder or to prosecute or defend any suit
in respect of this Agreement or the other Loan Documents unless indemnified to
the Administrative Agent's satisfaction by the Banks

                                       54
<PAGE>

against loss, cost, liability and expense. If any indemnity furnished to the
Administrative Agent shall become impaired, it may call for additional indemnity
and cease to do the acts indemnified against until such additional indemnity is
given. In addition, the Banks agree to indemnify the Administrative Agent (to
the extent not reimbursed by Borrower), ratably according to the respective
principal amounts of the Notes then held by each of them (or if no Notes are at
the time outstanding, ratably according to either (i) the respective amounts of
their Commitments, or (ii) if no Commitments are outstanding, the respective
amounts of the Commitments immediately prior to the time the Commitments ceased
to be outstanding), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against the Administrative Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by the
Administrative Agent under this Agreement or the other Loan Documents
(including, without limitation, any action taken or omitted under Article II of
this Agreement); provided, that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Each Bank agrees, however, that it expressly
intends, under this Section 8.05, to indemnify the Administrative Agent ratably
as aforesaid for all such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements arising out of or
resulting from the Administrative Agent's ordinary or contributory negligence.
Without limitation of the foregoing, each Bank agrees to reimburse the
Administrative Agent promptly upon demand for its ratable share of any out-of-
pocket expenses (including reasonable counsel fees) incurred by the
Administrative Agent in connection with the preparation, execution,
administration, or enforcement of, or legal advice in respect of rights or
responsibilities under, this Agreement and the other Loan Documents to the
extent that the Administrative Agent is not reimbursed for such expenses by
Borrower. The provisions of this Section 8.05 shall survive the termination of
this Agreement and/or the payment or assignment of any of the Indebtedness under
this Agreement.

     8.06 Successor Administrative Agent.  The Administrative Agent may
          ------------------------------
resign at any time by giving thirty (30) days advance written notice thereof to
the Banks and Borrower and may be removed as Administrative Agent under this
Agreement and the other Loan Documents at any time with or without cause by the
Required Banks.  Upon any such resignation or removal, the Required Banks with
the concurrence of Borrower shall have the right to appoint a successor
Administrative Agent.  If no successor Administrative Agent shall have been so
appointed by the Required Banks, and shall have accepted such appointment,
within 30 calendar days after the retiring Administrative Agent's giving of
notice of resignation or the Required Banks' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Banks and with the concurrence of Borrower, appoint a successor
Administrative Agent.  Upon the acceptance of any appointment as Administrative
Agent hereunder and under the other Loan Documents by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents.  After any retiring Administrative Agent's resignation or removal as
Administrative Agent hereunder and under the other Loan Documents, the

                                       55
<PAGE>

provisions of this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Loan Documents.

     8.07 Notice of Default.  The Administrative Agent shall not be deemed to
          -----------------
have knowledge or notice of the occurrence of any Event of Default hereunder
unless the Administrative Agent shall have received notice from a Bank or
Borrower referring to this Agreement, describing such Event of Default and
stating that such notice is a "notice of default." If the Administrative Agent
receives such a notice, the Administrative Agent shall give notice thereof to
the Banks; provided, however, if such notice is received from a Bank, the
           --------  -------
Administrative Agent also shall give notice thereof to Borrower.  The
Administrative Agent shall be entitled to take action or refrain from taking
action with respect to such Event of Default as provided in Section 8.01 and
Section 8.02.

                                  ARTICLE IX.

                                 MISCELLANEOUS
                                 -------------

     9.01 Security Interests in Deposits and Right of Offset or the Banker's
          ------------------------------------------------------------------
Lien.  The Borrower hereby transfers, assigns, pledges and grants to each Bank a
----
security interest (as security for the payment and/or performance of the
Obligations of the Borrower, with such interest of each Bank to be
retransferred, reassigned and/or released by such Bank at the expense of the
Borrower upon payment in full and/or complete performance by the Borrower of all
such Obligations) and the right, exercisable at such time as any obligation
hereunder shall mature, whether by acceleration of maturity or otherwise, of
offset or banker's lien against all funds or other property of the Borrower now
or hereafter or from time to time on deposit with or in the possession of such
Bank, including, without limitation, all certificates of deposit and other
depository accounts.

     9.02 Survival of Representations, Warranties and Covenants.  All
          -----------------------------------------------------
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Notes and this
Agreement and shall remain in force and effect so long as any debt is
outstanding under the Notes, or any renewal or extension of this Agreement or
the Notes, or the Banks remain obligated to make advances hereunder.

     9.03 Notices and Other Communications.  Notices, requests and
          --------------------------------
communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, facsimile, telex,
telegram or hand):

          (A)   If to the
          Borrower:        ULTRA RESOURCES, INC.
                           16801 Greenspoint Park, Suite 370
                           Houston, Texas 77060
                           Attention: Mr. Fox Benton
                           Telecopy: (281) 876-2831

                                       56
<PAGE>

          If to a
          Guarantor:       ULTRA PETROLEUM CORPORATION, and
                           UP ENERGY CORPORATION
                           16801 Greenspoint Park, Suite 370
                           Houston, Texas 77060
                           Attention: Mr. Fox Benton
                           Telecopy: (281) 876-2831

          with a copy
          to:              ULTRA RESOURCES, INC.
                           1200 Summit Avenue, Suite 700
                           Fort Worth, Texas  76102
                           Attention: Ms. Charlotte Kauffman
                           Telecopy: (817) 335-2434

         (B)   If to the
          Administrative Agent or
          the Banks:       BANK ONE, NA
                           910 Travis, 6th Floor
                           Houston, Texas 77002
                           Attention: Stephen M. Shatto

     Any party may, by proper written notice hereunder to the other, change the
individuals or addresses to which such notices to it shall thereafter be sent.

     9.04 Parties in Interest.  All covenants and agreements herein contained
          -------------------
by or on behalf of the Borrower shall be binding upon the Borrower and its
successors and assigns and inure to the benefit of the Administrative Agent and
the Banks and their respective successors and assigns.

     9.05 Successors and Assigns; Participation; Purchasing Banks.
          -------------------------------------------------------

          (a)  Whenever in this Agreement any of the parties hereto is referred
     to, such reference shall be deemed to include the successors and permitted
     assigns of such party; and all covenants, promises and agreements by or on
     behalf of Borrower, the Administrative Agent or the Banks that are
     contained in this Agreement shall bind and inure to the benefit of their
     respective successors and permitted assigns.  Borrower may not assign or
     transfer any of its rights or obligations hereunder without the written
     consent of all the Banks.

         (b)   Each Bank may, without the consent of Borrower, sell
     participations to one or more banks or other financial institutions in all
     or a portion of its rights and obligations under this Agreement and the
     other Loan Documents (including, without limitation, all or a portion of
     its Commitment, the Loans owing to it, and the Notes held by it); provided,
                                                                       --------
     however, that (i) the selling Bank's obligations under this Agreement and
     -------
     the other Loan Documents shall remain unchanged, (ii) such Bank shall
     remain solely responsible to the other parties hereto for the performance
     of such obligations, (iii) Borrower, the

                                       57
<PAGE>

     Administrative Agent, and the other Banks shall continue to deal solely and
     directly with the selling Bank in connection with such Bank's rights and
     obligations under this Agreement and the other Loan Documents, (iv) the
     selling Bank shall remain the holder of its Note(s) for all purposes of
     this Agreement, and (v) no participant under any such participation shall
     have any right to approve any amendment or waiver of any provision of this
     Agreement or any Note, or any consent to any departure by the Borrower
     therefrom, except to the extent that such amendment, waiver or consent
     would reduce to the principal of, or interest on, the Notes or any fees or
     other amounts payable hereunder, in each case to the extent subject to such
     participation, or postpone any regularly scheduled payment of principal of,
     or interest on, the Notes or any fees or other amounts payable hereunder,
     in each case to the extent subject to such participation.

          (c)  With the prior written consent of Borrower and the Administrative
     Agent, each Bank may assign to one or more banks or other entities (a
     "Purchasing Bank"), all or a portion of its interests, rights and
     obligations under this Agreement and the other Loan Documents (including,
     without limitation, all or a portion of its Commitment and the same portion
     of the Loans at the time owing to it and the Notes held by it); provided,
                                                                     --------
     however, that (i) each such assignment shall be of a constant, and not a
     -------
     varying, percentage of all the assigning Bank's rights and obligations
     under this Agreement and the other Loan Documents, (ii) after giving effect
     to such assignment, the Purchasing Bank's Commitment must be at least
     $5,000,000 (either solely as the result of such assignment or as the result
     of multiple assignments from two or more assigning Banks), (iii) the
     parties to each such assignment shall execute and deliver to the
     Administrative Agent a Commitment Transfer Supplement together with any
     Notes subject to such Commitment Transfer Supplement, (iv) the assigning
     Bank shall pay to Administrative Agent an assignment fee of $3,500, (v) an
     assigning Bank shall not assign a portion of such Bank's Commitment in an
     amount less than an amount equal to the lesser of such Bank's Commitment
            ----
     hereunder and $5,000,000 and (vi) if the assigning Bank has retained any
     Commitment hereunder, such assigning Bank's Commitment shall be at least
     $5,000,000 after giving effect to such assignment.  Upon such execution and
     delivery, from and after the effective date specified in each Commitment
     Transfer Supplement, which effective date shall be at least five Business
     Days after the execution thereof (x) the Purchasing Bank thereunder shall
     be a party hereto and, to the extent herein provided in such, have the
     rights and obligations of a Bank hereunder and (y) the assignor Bank
     thereunder shall, to the extent provided in such assignment, be released
     from its obligations under this Agreement and the other Loan Documents
     (and, in the case of a Commitment Transfer Supplement covering all of the
     remaining portion of an assigning Bank's rights and obligations under this
     Agreement and the other Loan Documents, such Bank shall cease to be a party
     hereto).  Such Commitment Transfer Supplement shall be deemed to amend this
     Agreement to the extent, and only to the extent, necessary to reflect the
     addition of such Purchasing Bank and the resulting adjustment of Percentage
     Shares arising from the purchase by such Purchasing Bank of all or a
     portion of the rights and obligations of such assigning Bank under this
     Agreement, the Notes and the other Loan Documents.

                                       58
<PAGE>

          (d)  The Administrative Agent shall maintain at its office a copy of
     each Commitment Transfer Supplement delivered to it and a register for the
     recordation of the names and addresses of the Banks and the Commitment
     Amount of, and principal amount of the Loans owing to, each Bank from time
     to time (the "Register").  The entries in the Register shall be conclusive,
     in the absence of manifest error, and Borrower, the Administrative Agent,
     and the Banks may treat each Person whose name is recorded in the Register
     as a Bank hereunder for all purposes of this Agreement.  The Register shall
     be available for inspection by Borrower or any Bank at any reasonable time
     and from time to time upon reasonable prior notice.

          (e)  Upon its receipt of a Commitment Transfer Supplement executed by
     an assigning Bank and a Purchasing Bank together with any Notes subject to
     such Commitment Transfer Supplement and the written consent to such
     Commitment Transfer Supplement, the Administrative Agent shall (i) accept
     such Commitment Transfer Supplement, (ii) record the information contained
     therein in the Register and (iii) give prompt notice thereof to the Banks
     and Borrower. Within five (5) Business Days after receipt of such notice,
     Borrower shall, at its own expense, execute and deliver to the
     Administrative Agent, in exchange for the surrendered Notes, replacement
     Notes dated as of the effective date of such surrendered Notes and
     otherwise substantially in the form of the Notes replaced thereby payable
     to the order of such Purchasing Bank in an amount equal to the Commitment
     assumed by it pursuant to such Commitment Transfer Supplement and, if the
     assigning Bank has retained any Commitment hereunder, replacement Notes
     dated as of the effective date of the surrendered Notes and otherwise
     substantially in the form of the Notes replaced thereby payable to the
     order of the assigning Bank in an amount equal to the Commitment of such
     assigning Bank retained by it hereunder. Such replacement Notes shall be in
     an aggregate principal amount equal to the aggregate principal amount of
     such surrendered Notes. Contemporaneously with the delivery of the
     replacement Notes, the canceled Notes shall be returned to Borrower marked
     "Replaced."

          (f)  Each Bank agrees to hold any confidential information which it
     may receive from the Borrower pursuant to this Agreement in confidence,
     except for disclosure (i) to its Affiliates and to other Banks and their
     respective Affiliates, (ii) to legal counsel, accountants, and other
     professional advisors to such Bank, (iii) to regulatory officials, (iv) to
     any Person as requested pursuant to or as required by law, regulation, or
     legal process, (v) to any Person in connection with any legal proceeding to
     which such Bank is a party, (vi) to such Bank's direct or indirect
     contractual counterparties in swap agreements or to legal counsel,
     accountants and other professional advisors to such counterparties, and
     (vii) permitted by this Section. Notwithstanding any other provision
     herein, any Bank may, in connection with any assignment or participation or
     proposed assignment or participation pursuant to this Section 9.05,
     disclose to the assignee or participant or proposed assignee or
     participant, any information relating to Borrower furnished to such Bank by
     or on behalf of Borrower; provided, that prior to any such disclosure, each
                               --------
     such assignee or participant or proposed assignee or participant shall
     agree to preserve the confidentiality of any confidential information
     relating to Borrower received from such Bank to the same extent as required
     by this Section.

                                       59
<PAGE>

          (g)  Assignment to Federal Reserve Bank.  Notwithstanding any other
               ----------------------------------
     language in this Agreement, any Bank may at any time assign all or any
     portion of its rights under this Agreement and the Notes to a Federal
     Reserve Bank as collateral in accordance with Regulation A and the
     applicable operating circular of such Federal Reserve Bank.

     9.06 Renewals and Extensions.  All provisions of this Agreement relating
          -----------------------
to the Notes shall apply with equal force and effect to each and all promissory
notes hereafter executed which in whole or in part represent a renewal,
extension, amendment, modification or rearrangement of any part of the
Indebtedness originally represented by the Notes.

     9.07 No Waiver by the Administrative Agent, the Banks or the LC Issuer.
          -----------------------------------------------------------------
No course of dealing on the part of the Administrative Agent, the Banks or the
LC Issuer, their officers or employees, nor any failure or delay by the
Administrative Agent, any Bank or the LC Issuer with respect to exercising any
of its rights, powers or privileges under this Agreement, the Notes, the
Facility LC Applications, the Security Instruments, or any other instrument
referred to herein or executed in connection with the Notes shall operate as a
waiver thereof.  The rights and remedies of the Administrative Agent, the Banks
and the LC Issuer under this Agreement, the Notes, the Facility LC Applications,
the Security Instruments, or any other instrument referred to herein or executed
in connection with the Notes shall be cumulative and the exercise or partial
exercise of any such right or remedy shall not preclude the exercise of any
other right or remedy.

     No Credit Extensions hereunder shall constitute a waiver of any of the
covenants or warranties of the Borrower contained herein or of any of the
conditions to the Banks' or the LC Issuer's obligation to make further Credit
Extensions hereunder.  In the event that the Borrower is unable to satisfy any
such covenant, warranty or condition, no such Credit Extension shall have the
effect of precluding the Banks or the LC Issuer from thereafter declaring such
inability to be an Event of Default as hereinabove provided.

     9.08 GOVERNING LAW.  THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO BE
          -------------
CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS.

     9.09 Incorporation of Exhibits and Schedules.  The Exhibits and Schedules
          ---------------------------------------
attached to this Agreement are incorporated herein for all purposes and shall be
considered a part of this Agreement.

     9.10 Survival Upon Unenforceability.  In the event any one or more of the
          ------------------------------
provisions contained in this Agreement, the Notes, the Security Instruments, or
in any other instrument referred to herein or executed in connection with the
Notes shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof or of any other instrument referred to herein or
executed in connection herewith.

     9.11 Rights of Third Parties.  All provisions herein are imposed solely
          -----------------------
and exclusively for the benefit of the Administrative Agent, the Banks, the LC
Issuer and Borrower and no other Person shall have standing to require
satisfaction of such provisions in accordance with their terms or be

                                       60
<PAGE>

entitled to assume that any Bank will refuse to make advances in the absence of
strict compliance with any or all thereof. Any or all of such provisions may be
freely waived in whole or in part by the Administrative Agent, the Banks and the
LC Issuer at any time if in their discretion they deem it advisable to do so.

     9.12 Amendments or Modifications. Subject to the provisions of this
          ---------------------------
Section, the Required Banks (or the Administrative Agent with the consent in
writing of the Required Banks) and the Borrower may enter into agreements
supplemental hereto for the purpose of adding or modifying any provisions to the
Loan Documents or changing in any manner the rights of the Banks or the Borrower
hereunder or waiving any Event of Default hereunder; provided, however, that:

     (a)  no such supplemental agreement shall, without the consent of all of
          the Banks:

          (i)    Extend the final maturity of any Loan, postpone any regularly
                 scheduled payment of principal of any Loan, forgive all or any
                 portion of the principal amount thereof, or reduce the rate or
                 extend the time of payment of interest or fees thereon;

          (ii)   Reduce the percentage specified in the definition of Required
                 Banks;

          (iii)  Extend the Facility Termination Date, or reduce the amount or
                 extend the payment date for, the mandatory payments required
                 under Sections 2.07 or 2.08, or increase the Aggregate
                 Commitment Amount or the Commitment of any Bank hereunder, or
                 permit the Borrower to assign its rights under this Agreement;

          (iv)   Amend the requirement that the Borrowing Base may be increased
                 only with the consent of all Banks;

          (v)    Release any Guarantor of any Loan or, except as provided in the
                 Security Instruments, release all or substantially all of the
                 Borrowing Base Oil and Gas Properties; or

          (vi)   Amend this Section 9.12; and

     (b)  no amendment of any provision of this Agreement relating to the
Administrative Agent shall be effective without the written consent of the
Administrative Agent.

     9.13 Agreement Construed as an Entirety.  This Agreement, for convenience
          ----------------------------------
only, has been divided into Articles and Sections and it is understood that the
rights, powers, privileges, duties and other legal relations of the parties
hereto shall be determined from this Agreement as an entirety and without regard
to the aforesaid division into Articles and Sections and without regard to
headings prefixed to said Articles or Sections.

                                       61
<PAGE>

     9.14 Number and Gender.  Whenever the context requires, reference herein
          -----------------
made to the single number shall be understood to include the plural and likewise
the plural shall be understood to include the singular.  Words denoting sex
shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative.

     9.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS.  THIS AGREEMENT, TOGETHER
          -----------------------------------------
WITH THE NOTES, THE FACILITY LC APPLICATIONS, THE SECURITY INSTRUMENTS, AND ANY
OTHER WRITTEN INSTRUMENTS EXECUTED PURSUANT TO THIS AGREEMENT REPRESENT,
COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT HEREOF, UNLESS SUCH PRIOR AGREEMENT IS EXPRESSLY
CONTINUED IN EFFECT UNDER THE TERMS HEREOF.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

     9.16 Controlling Provision Upon Conflict.  In the event of a conflict
          -----------------------------------
between the provisions of this Agreement and those of the Notes, the Facility LC
Applications, the Security Instruments or any other instrument referred to
herein or executed in connection with the Notes, the provisions of this
Agreement shall control; provided if any of the Facility LC Applications or
Security Instruments contain any representations, warranties, or covenants of
the Borrower that are in addition to or are more restrictive on the Borrower
than those set forth in this Agreement, such additional or more restrictive
representations, warranties, and covenants shall control.

     9.17 Time, Place and Method of Payments.  All payments required pursuant
          ----------------------------------
to this Agreement or the Notes shall be made in immediately available funds;
shall be deemed received by the Administrative Agent on the next Business Day
following receipt if such receipt is after 4:00 p.m., on any Business Day, and
shall be made at the principal banking quarters of the Administrative Agent in
Houston, Texas.

     9.18 Termination.  This Agreement and the Aggregate Commitment Amount may
          -----------
be canceled  by the Borrower without premium or penalty prior to the Facility
Termination Date upon at least ten (10) days' prior written notice, provided,
                                                                    --------
that the Obligations that are then due and payable are paid and performed in
full to the satisfaction of the Administrative Agent and the Banks; provided,
                                                                    --------
however that any such cancellation  hereunder shall not terminate any
-------
obligations, representations or warranties of the Borrower to the Administrative
Agent and/or the Banks hereunder and under other Loan Documents that survive
beyond the Facility Termination Date.  Upon the earlier to occur of the (i) the
Facility Termination Date, and (ii) cancellation of this Agreement and the
Aggregate Commitment Amount prior thereto in accordance with this Section 9.18
and upon payment and performance in full of the Obligations that are due and
payable to the satisfaction of the Banks, the Administrative Agent agrees, at
the Borrower's request and sole cost and expense, to execute and deliver any
such lien release documents and other documentation

                                       62
<PAGE>

reasonably requested by the Borrower to release or terminate the Administrative
Agent's liens and security interests hereunder and under the other Loan
Documents.

     9.19 Non-Application of Chapter 346 of Texas Finance Code. The provisions
          ----------------------------------------------------
of Chapter 346 of the Texas Finance Code are specifically declared by the
parties hereto not to be applicable to this Agreement or any of the other
Security Instruments or to the transactions contemplated hereby.

     9.20 Counterpart Execution. This Agreement may be executed as one
          ---------------------
instrument signed by all parties or in separate counterparts hereof, each of
which counterparts shall be considered an original and all of which shall be
deemed to be one instrument, and any signed counterpart shall be deemed
delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.

     9.21 Power of Attorney.  To the fullest extent permitted by Law and until
          -----------------
this Agreement is terminated in accordance with Section 9.18 hereof, Borrower
hereby appoints Administrative Agent as its attorney-in-fact (without requiring
the Administrative Agent to act as such) to execute any Security Instrument in
the name of the Borrower, and to perform all other acts that the Administrative
Agent deems appropriate to perfect and continue its liens, security interests,
and other rights in, and to protect and preserve, the Borrowing Base Oil and Gas
Properties and other collateral covered by or described in (or, as evidenced by
this Agreement, intended to have been covered by) any of the Security
Instruments, but only to the extent required of Borrower under the terms of this
Agreement.

     9.22 Amended and Restated Agreement.  This Agreement amends, extends,
          ------------------------------
rearranges and restates the Prior Credit Agreement.  All Security Instruments
(as defined and executed pursuant to the Prior Credit Agreement) shall also
constitute Security Instruments as defined in this Agreement, and they shall
continue to secure all Obligations of Borrower to the Administrative Agent, the
Banks and the LC Issuer hereunder.

                      [Signature pages 64 and 65 follow]

                                       63
<PAGE>

     IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.

                         BORROWER

                         ULTRA RESOURCES, INC.

                         By:  /s/ Michael D. Watford
                            ----------------------------------------
                              Michael D. Watford
                              President and Chief Executive Officer

                         ADMINISTRATIVE AGENT, LC ISSUER AND BANK:

                         BANK ONE, NA

                         By:  /s/ Stephen Shatto
                            ---------------------------------------
                              Stephen Shatto
                              Vice President

                         SYNDICATION AGENT AND BANK:

                         UNION BANK OF CALIFORNIA, N.A.

                         By:  /s/ Randy Osterberg
                            ---------------------------------------
                              Randy Osterberg
                              Senior Vice President

                         By:  /s/ Ali Ahmed
                            ---------------------------------------
                              Ali Ahmed
                              Vice President

                                      64
<PAGE>

                         CO-AGENT AND BANK:

                         HIBERNIA NATIONAL BANK

                         By:  /s/ Spencer Gagnet
                            ----------------------------------------
                              Spencer Gagnet
                              Senior Vice President

                         CO-AGENT AND BANK:

                         GUARANTY BANK, FSB

                         By:  /s/ Richard E. Menchaca
                            ----------------------------------------
                              Richard E. Menchaca
                              Vice President

                         BANK:

                         COMPASS BANK

                         By:  /s/ Murray Brasseux
                            ----------------------------------------
                              Murray Brasseux
                              Executive Vice President

                                      65
<PAGE>

                                  EXHIBIT "A"

                                 BORROWING BASE
                             OIL AND GAS PROPERTIES
                             ----------------------

     This Exhibit A (together with the Borrowing Base Oil and Gas Properties, as
defined in this Agreement) sets forth the description of the Borrowing Base Oil
& Gas Properties covered by the Agreement to which this Exhibit is attached.
All of the terms defined in the Agreement are used in this Exhibit with the same
meanings given therein.

     This Exhibit and the Agreement cover and include the following:

          (a)  All of Borrower's right, title and interest in and to the oil,
     gas and mineral leases described herein (collectively the ALeases") and
     lands described in and subject to such Leases (collectively the ALands"),
     regardless of any surface acreage and/or depth limitations set forth in
     this Exhibit, and all of Borrower's right, title and interest in and to any
     of the oil, gas and minerals in, on or under the Lands described on this
     Exhibit, including, without limitation, all contractual rights, fee
     interests, leasehold interests, overriding royalty interests, non-
     participating royalty interests, mineral interests, production payments,
     net profits interests, or any other interest measured by or payable out of
     production of oil, gas or other minerals from the Leases and/or Lands
     described herein; and

          (b)  All of the foregoing interests of the Borrower as such interests
     may be enlarged by the discharge of any payments out of production or by
     the removal of any charges or encumbrances together with the Borrower's
     interests in, to and under or derived from all renewals and extensions of
     any oil, gas and mineral leases described herein, it being specifically
     intended hereby that any new oil and gas lease (i) in which an interest is
     acquired by the Borrower after the termination or expiration of any oil and
     gas lease, the interests of the Borrower in, to and under or derived from
     which are subject to the lien and security interest hereof, and (ii) that
     covers all or any part of the property described in and covered by such
     terminated or expired Leases, shall, to the extent, and only to the extent
     such new oil and gas lease may cover such property, be considered a renewal
     or extension of such terminated or expired lease; and

          (c)  All right, title and interest of Borrower in, to and under or
     derived from any operating, farmout, and bidding agreements, assignments
     and subleases, whether or not described in this Exhibit, to the extent, and
     only to the extent, that such agreements, assignments and subleases (i)
     cover or include any of the Borrower's present right, title and interest in
     and to the leases and/or lands described in this Exhibit, or (ii) cover or
     include any other undivided interests now or hereafter held by the Borrower
     in, to and under the described leases and/or lands, including, without
     limitation, any future operating, farmout and bidding agreements,
     assignments, subleases and pooling, unitization and communitization
     agreements and the units created thereby (including, without limitation all
     units formed under orders, regulations, rules or other official acts of any
     governmental body

                                       1
<PAGE>

     or agency having jurisdiction) to the extent and only to the extent that
     such agreements, assignments, subleases, or units cover or include the
     described leases and/or lands; and

          (d)  All right, title, and interest of the Borrower in, to and under
     or derived from all presently existing and future advance payment
     agreements, oil, casinghead gas and gas sales, exchange, and processing
     contracts and agreements including, without limitation, those contracts and
     agreements that are described on this Exhibit to the extent, and only to
     the extent, those contracts and agreements cover or include the described
     Leases and/or Lands herein; and

          (e)  All right, title and interest of the Borrower in, to and under or
     derived from all existing and future permits, licenses, easements and
     similar rights and privileges that relate to or are appurtenant to any of
     the described Leases and/or Lands.

     Notwithstanding the intention of this Agreement to cover all of the right,
title and interest of Borrower in and to the described leases and/or lands,
except as expressly set forth herein Borrower hereby specifically warrants and
represents that the interests covered by this Exhibit are not greater than the
working interest nor less than the net revenue interest, overriding royalty
interest, net profit interest, production payment interest or other interest
payable out of or measured by production set forth in connection with each oil
and gas well described in this Exhibit.  In the event the Borrower owns any
other or greater interest, such additional interest shall also be covered by and
included in this Agreement.  The designation "Working Interest" or "W.I." means
an interest owned in an oil, gas, and mineral lease (including operating rights
and/or record title interest in oil and gas leases issued pursuant to the Outer
Continental Shelf Lands Act) that determines the cost bearing percentage of the
owner of such interest.  The designation "Net Revenue Interest" or "NRI" means
net revenue interest, or that portion of the production attributable to the
owner of a working interest after deduction for all royalty burdens, overriding
royalty burdens, or other burdens on production, except severance, production,
windfall profits and other similar taxes.  The designation "Overriding Royalty
Interest" or "ORRI" means an interest in production which is free of any
obligation for the expense of exploration, development and production, bearing
only its pro rata share of severance, production, windfall profits and other
similar taxes.

                                       2
<PAGE>

                                  EXHIBIT "A"

SUBLETTE COUNTY, WYOMING

<TABLE>
<CAPTION>
                                                                                                              INSOFAR AND ONLY
                                                                                                LEASE         INSOFAR AS LEASE
PROPERTY NAME                 WI         NRI      LEASE               LESSEE                     DATE              COVERS
<S>                       <C>         <C>        <C>                 <C>                      <C>            <C>
Stud Horse Butte 13-14    18.84%      14.51%      BLM WYW-127194      LIBERTY PETROLEUM        7/1/92         29N-108-14-S/2SW
Stud Horse Butte 1-21     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-N/2NE
Stud Horse Butte 7-21     14.34%      11.48%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-SWNE
Stud Horse Butte 8-21     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-SENE
Stud Horse Butte 9-21     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-NESE
Stud Horse Butte 1O-21    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-NWSE
Stud Horse Butte 11-21    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-N/2SW
Stud Horse Butte 13-21    14.84%      11.87%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-SWSW
Stud Horse Butte 14-21    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-SESW
Stud Horse Butte 15-21    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-SWSE
Stud Horse Butte 16-21    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-21-SESE
Stud Horse Butte 1-23     22.55%      18.04%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NENE
Stud Horse Butte 2-23     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NWNE
Stud Horse Butte 3-23     25.10%      20.08%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NENW
Stud Horse Butte 4-23     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NWNW
Stud Horse Butte 5-23     23.81%      19.05%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SWNW
Stud Horse Butte 6-23     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SENW
Stud Horse Butte 7-23     25.32%      20.25%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SWNE
Stud Horse Butte 8-23     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SENE
Stud Horse Butte 9-23     63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NESE
Stud Horse Butte 10-23    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NWSE
Stud Horse Butte 11-23    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NESW
Stud Horse Butte 12-23    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-NWSW
Stud Horse Butte 13-23    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SWSW
Stud Horse Butte 14-23    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SESW
Stud Horse Butte 15-23    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SWSE
Stud Horse Butte 16-23    63.75%      51.OO%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-23-SESE
Stud Horse Butte 1-24     16.59%      13.27%      BLM WYW-118155      ONAGER ENTERPRISES      12/1/89         29N-108-24-NENE
</TABLE>

                                       1
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                  INSOFAR AND ONLY
                                                                                                       LEASE      INSOFAR AS LEASE
PROPERTY NAME                   WI             NRI     LEASE              LESSEE                        DATE           COVERS
<S>                         <C>            <C>        <C>                <C>                        <C>           <C>
Stud Horse Butte 2-24       63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-NWNE
Stud Horse Butte 3-24       20.88%          16.71%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-NENW
Stud Horse Butte 4-24       63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-NWNW
Stud Horse Butte 5-24       15.03%          12.03%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SWNW
Stud Horse Butte 6-24       63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SENW
Stud Horse Butte 7-24       23.09%          18.47%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SWNE
Stud Horse Butte 8-24       63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SENE
Stud Horse Butte 9-24       19.67%          15.73%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-NESE
Stud Horse Butte 10-24      63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-l08-24-NWSE
Stud Horse Butte 11-24      63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-NESW
Stud Horse Butte 12-24      63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-NWSW
Stud Horse Butte 13-24      63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SWSW
Stud Horse Butte 14-24      63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SESW
Stud Horse Butte 15-24      21.52%          17.21%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SWSE
Stud Horse Butte 16-24      63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-24-SESE
Stud Horse Butte Acreage    63.75%          51.00%     BLM WYW-118155     ONAGER ENTERPRISES         12/1/89       29N-108-21-NW
Sherlock Federal 15-8       85.00%          66.30%     BLM WYW-130234     H P MCLISH                  9/1/93       33N-109W-8-S/2SE
Gannett 13-16               50.00%          40.00%     ST WY 94-00293     CENEX INC                   6/2/94       33N-109W-16-S/2SW
Pinedale 8-20               31.87%          26.37%     BLM WYW-08593      GWEN KIEF                  10/1/51       33N-109W-20-N/2SW
Stewart Point 3-28           9.67%           7.56%     BLM WYW-08592      GWEN KEIF                  10/1/51       33N-109W-28-N/2NW
Stewart Point 16-29         31.87%          24.92%     BLM WYW-08592      GWEN KIEF                  10/1/51       33N-109W-29-SESE
Stewart Point 6-32          50.00%          38.85%     BLM WYW-015315     MARY ALICE GUENZEL          6/1/52       33N-109W-32-S/2NW
Stewart Point 11-33         31.69%          24.76%     BLM WYW-08592      GWEN KIEF                  10/1/51       33N-109W-33-E/2SW
Mesa 1-7                     0.00%           0.43%     BLM WYW-08589      JEAN HARMON                10/1/51       32N-109W-7-N/2NE
Mesa 3-7                     0.00%           0.32%     BLM WYW-15315      MARY ALICE GUENZEL          6/1/52       32N-109W-7-NENW
Mesa 7-7                     0.00%           0.25%     BLM WYW-08589      JEAN HARMON                10/1/51       32N-109W-7-S/2NE
Mesa 13-5                    6.06%           4.61%     BLM WYW-08589      JEAN HARMON                10/1/51       32N-109W-5-SWSW
Mesa 15-6                    6.11%           4.65%     BLM WYW-08589      JEAN HARMON                10/1/51       32N-109W-6-S/2SE
Mesa 5-8                     7.36%           5.60%     BLM WYW-08589      JEAN HARMON                10/1/51       32N-109W-8-W/2NW
Mesa 7-8                    27.34%          21.50%     BLM WYW-08589      JEAN HARMON                10/1/51       32N-109W-8-S/2NE
Mesa 15-8                   42.50%          33.10%     BLM WYW-08589      JEAN HARMON                10/1/51       32N-109W-8-S/2SE
Mesa 3-20                   42.50%          31.06%     BLM WYW-015315     MARY ALICE GUENZEL          6/1/52       32N-109W-20-N/2NW
Mesa 11-20                  27.03%          19.21%     BLM WYW-015315     MARY ALICE GUENZEL          6/1/52       32N-109W-20-N/2SW
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                  INSOFAR AND ONLY
                                                                                                       LEASE      INSOFAR AS LEASE
PROPERTY NAME                      WI         NRI     LEASE              LESSEE                        DATE           COVERS
<S>                         <C>            <C>        <C>                <C>                        <C>           <C>
Mesa 10-21D                    19.38%      19.52%     BLM WYW-135124     MERIDIAN OIL INC             2/1/95       32N-109W-21-NWSE
Mesa 9-21D                     19.38%      19.52%     BLM WYW-135124     MERIDIAN OIL INC             2/1/95       32N-109W-21-NESE
Mesa l6-21D                    19.38%      19.52%     BLM WYW-135124     MERIDIAN OIL INC             2/1/95       32N-109W-21-SESE
New Fork 11-24-Non Consent      0.00%       0.00%     BLM WYW-06269      DONALD B ANDERSON            6/1/51       31N-109W-24-NESW
Mesa 3-22d                     42.50%      33.71%     BLM WYW-015317     R L MANNING                  6/1/52       32N-109W-22-N/2NW
Pinedale 4A                    63.75%      53.29%     BLM WYW-06286      DONALD B ANDERSON            6/1/51       32N-109W-34-S/2NW
Cottonwood 32-33              100.00%      80.58%     BLM WYW-114059     SHAMA KAFAR LIMITED          1/1/89       32N-111W-33-S/2NE
Lizard Head 11-8               75.00%      60.00%     BLM WYW-118158     ONAGER ENTERPRISES          12/1/89       31N-108W-8-N/2SW
Riverside 2-2                  85.00%      66.69%     BLM WYW-06270      DONALD B. ANDERSON           6/1/51       31N-l09W-2-N/2NE
Riverside 1-4                  68.00%      56.10%     BLM WYW-143046     HIGH PLAINS ASSOC.          10/1/97       31N-109W-4-N/2NE
New Fork 7-3                   15.94%      12.84%     BLM WYW-06270      DONALD B. ANDERSON           6/1/51       31N-109W-3-S/2NE
Pinedale 13-l9                  0.00%       1.28%     BLM WYW-144993     FLOYD H SCHROEDER            6/1/51       31N-108W-19-S/2SW
Lizard Head 13-28              60.00%      48.00%     BLM WYW-118159     ONAGER ENTERPRISES          12/1/89       31N-108W-28-S/2SW
Pinedale 13-2a                  0.00%       1.28%     BLM WYW-06270      DONALD B ANDERSON            6/1/51       31N-109W-2-S/2SW
Lovatt Draw 15-8              100.00%      80.00%     BLM WYW-118166     ONAGER ENTERPRISES          12/1/89       31N-109W-8-S/2SE
Pinedale 1-14                   0.00%       1.28%     BLM WYW-06269      DONALD B ANDERSON            6/1/51       31N-109W-14-N/2NE
New Fork 13-10                  0.00%       1.28%     BLM WYW-15314      EDWIN L GUENZEL              6/1/52       30N-108W-10-S/2SW
Warbonnet 5-23                 42.50%      31.21%     BLM WYW-15314      EDWIN L GUENZEL              6/1/52       30N-108W-23-S/2NW
Warbonnet 9-23                 37.50%      30.00%     BLM WYW-118157     ONAGER ENTERPRISES          12/1/89       30N-108W-23-NESE
Warbonnet 15-23                37.50%      30.00%     BLM WYW-118157     ONAGER ENTERPRISES          12/1/89       30N-108W-23-SWSE
Warbonnet 1-26d                42.50%      32.93%     BLM WYW-016158     PHIL D HELMIG                7/1/52       30N-108W-26-NENE
Warbonnet 2-26d                42.50%      32.70%     BLM WYW-016158     PHIL D HELMIG                7/1/52       30N-108W-26-NWNE
Warbonnet 8-26                 42.50%      32.57%     BLM WYW-016158     PHIL D HELMIG                7/1/52       30N-109W-26-S/2NE
Warbonnet 4-26                 42.50%      33.03%     BLM WYW-016158     PHIL D HELMIG                7/1/52       30N-108W-26-N/2NW
Warbonnet 6-23                 42.50%      31.06%     BLM WYW-15314      EDWIN L GUENZEL              6/1/52       30N-108W-23-SENW
Warbonnet 7-4                  85.00%      65.84%     BLM WYW-015316     FRED M MANNING JR            6/1/52       30N-108W-4-S/2NE
Mesa 2-28d                     42.50%      34.57%     BLM WYW-06286      DONALD B ANDERSON            6/1/51       32N-109W-28-NWNE
Mesa 9-7                        9.39%       7.48%     BLM WYW-08589      JEAN HARMON                 10/1/51       32N-109W-7-N/2SE
Boulder 5-19                   85.00%      66.69%     BLM WYW-144993     FLOYD H SCHROEDER            6/1/51       31N-l08W-19-S/2NW
Stewart Point 9-29             31.36%      24.49%     BLM WYW-08592      GWEN KIEF                   10/1/51       33N-109W-29-NESE
Stewart Point 9-33             31.1O%      24.28%     BLM WYW-08592      GWEN KIEF                   10/1/51       33N-109W-33-E/2SE
Mesa 7-28                      42.50%      34.58%     BLM WYW-06286      DONALD B ANDERSON            6/1/51       32N-109W-28-SWNE
</TABLE>

0477342.01

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                                                                           INSOFAR AND ONLY
                                                                                              LEASE        INSOFAR AS LEASE
PROPERTY NAME              WI      NRI      LEASE                LESSEE                        DATE             COVERS
<S>                    <C>      <C>         <C>                  <C>                          <C>          <C>
Mesa 8-28              42.50%   34.58%      BLM WYW-06286        DONALD B ANDERSON            6/l/51       32N-109W-28-SENE
Stewart Point 1-20     31.88%   25.50%      BLM WYW-015315       MARY ALICE GUENZEL           6/l/52       33N-109W-20-N/2NE
Stewart Point 3-20     31.88%   25.50%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       33N-109W-20-N/2NW
Stewart Point 7-20     31.88%   25.50%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       33N-109W-20-S/2NE
Stewart Point 9-20     31.88%   25.50%      BLM WYW-015315       MARY ALICE GUENZEL           6/l/52       33N-109W-20-N/2SE
Stewart Point 13-21    31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-21-S/2SW
Stewart Point 5-28     31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-28-S/2NW
Stewart Point 7-29     31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-29-S/2NE
Stewart Point 15-29    31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-29-SWSE
Stewart Point 13-28    31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-28-SWSW
Stewart Point 12-28    31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-28-NWSW
Stewart Point 10-29    31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-29-NWSE
Stewart Point 2-32     33.75%   27.00%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-32-N/2NE
Stewart Point 13-33    31.88%   25.50%      BLM WYW-08592        GWEN KIEF                   10/1/51       33N-109W-33-W/2SW
Mesa 9-6               27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-6-N/2SE
Mesa 11-6              27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-6-N/2SW
Mesa 11-7              27.63%   22.10%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       32N-109W-7-E/2SW
Mesa 15-7              27.63%   22.10%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       32N-109W-7-S/2SE
Mesa 13-8              27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-8-S/2SW
Mesa 3-8               27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-8-E/2NW
Mesa 9-8               27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-8-N/2SE
Mesa 11-8              27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-1OSW-8-NESW
Mesa 1-17              27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-17-N/2NE
Mesa 13-17             27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-17-S/2SW
Mesa 11-17             27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-17-N/2SW
Mesa 5-17              27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-17-S/2NW
Mesa 7-17              27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-17-SWNE
Mesa 15-17             27.63%   22.10%      BLM WYW-08589        JEAN HARMON                 10/1/51       32N-109W-17-S/2SE
Mesa 5-20              27.63%   22.10%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       32N-109W-20-S/2NW
Mesa 7-20              27.63%   22.10%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       32N-109W-20-S/2NE
Mesa 15-20             27.63%   22.10%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       32N-109W-20-S/2SE
Mesa 5-21              27.63%   22.10%      BLM WYW-015315       MARY ALICE GUENZEL           6/1/52       32N-109W-21-S/2NW
</TABLE>

                                       4
<PAGE>

<TABLE>
<CAPTION>
                                                                                                           INSOFAR AND ONLY
                                                                                                LEASE      INSOFAR AS LEASE
PROPERTY NAME            WI        NRI      LEASE                LESSEE                          DATE           COVERS
<S>                    <C>      <C>         <C>                  <C>                          <C>          <C>
Mesa 1-20            27.63%        22.10%   BLM WYW-015315       MARY ALICE GUENZEL             6/1/52    32N-109W-20-N/2NE
Mesa 9-20            27.63%        22.10%   BLM WYW-015315       MARY ALICE GUENZEL             6/1/52    32N-109W-20-N/2SE
Mesa 15-21           19.38%        15.50%   BLM WYW-135124       MERIDIAN OIL INC               2/1/95    32N-109W-21-SWSE
Mesa 14-21           27.63%        22.10%   BLM WYW-015315       MARY ALICE GUENZEL             6/1/52    32N-109W-21-S/2SW
Mesa 1-28            42.50%        34.00%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-28-NENE
Mesa 9-28            63.87%        51.00%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-28-NESE
Mesa 12-27           63.87%        51.00%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-27-N/2SW
Mesa 10-28           63.87%        51.00%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-28-NWSE
Mesa 2-34            63.87%        51.00%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-34-N/2NE
Mesa 4-34            63.87%        51.00%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-34-N/2NW
Mesa 10-34           63.87%        51.00%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-34-N/2SE
Mesa 12-34           15.94%        12.75%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-34-N/2SW
Riverside 6-2        63.87%        51.00%   BLM WYW-06770        DONALD B ANDERSON              6/1/51    31N-109W-2-S/2NW
Riverside 11-2       15.94%        12.75%   BLM WYW-06770        DONALD B ANDERSON              6/1/51    31N-109W-2-N/2SW
Riverside 9-3        63.87%        51.00%   BLM WYW-06770        DONALD B ANDERSON              6/1/51    31N-109W-3-N/2SE
Riverside 1-10       63.87%        51.00%   BLM WYW-143657       ULTRA RESOURCES INC           12/1/97    31N-109W-10-N/2NE
Riverside 3-11       63.87%        51.00%   BLM WYW-143656       ULTRA RESOURCES INC           12/1/97    31N-109W-11-N/2NW
Riverside 1-3        15.94%        12.75%   BLM WYW-06770        DONALD B ANDERSON              6/1/51    31N-109W-3-N/2NE
Riverside 3-3        63.87%        51.00%   BLM WYW-06770        DONALD B ANDERSON              6/1/51    31N-109W-3-N/2NW
Mesa 13-34           15.94%        12.75%   BLM WYW-06286        DONALD B ANDERSON              6/1/51    32N-109W-34-S/2SW
Warbonnet 1-22       85.00%        68.00%   BLM WYW-15314        EDWIN L GUENZEL                6/1/52    30N-108W-22-N/2NE
Warbonnet 4-23       42.50%        34.00%   BLM WYW-15314        EDWIN L GUENZEL                6/1/52    30N-108W-23-N/2NW
Warbonnet 10-23      37.50%        30.00%   BLM WYW-118157       ONAGER ENTERPRISES            12/1/89    30N-108W-23-NWSE
Warbonnet 11-23      37.50%        30.00%   BLM WYW-118157       ONAGER ENTERPRISES            12/1/89    30N-108W-23-N/2SW
Warbonnet 4-25       42.50%        34.00%   BLM WYW-016158       PHIL D HELMIG                  7/1/52    30N-108W-25-NWNW
Warbonnet 6-25       85.00%        68.00%   BLM WYW-016158       PHIL D HELMIG                  7/1/52    30N-108W-25-SENW
Warbonnet 5-25       85.00%        68.00%   BLM WYW-016158       PHIL D HELMIG                  7/1/52    30N-108W-25-SWNW
Warbonnet 16-23      37.50%        30.00%   BLM WYW-118157       ONAGER ENTERPRISES            12/1/89    30N-108W-23-SESE
</TABLE>

                                       5
<PAGE>

                                  EXHIBIT "B"

                                REVOLVING NOTE
                                --------------

$________________               Houston, Texas                     March 1, 2002

     On the dates hereinafter prescribed, for value received, ULTRA RESOURCES,
INC., a Wyoming corporation, (herein called "Borrower"), having an address at
16801 Greenspoint Park, Suite 370, Houston, Texas 77060, promises to pay to the
order of ___________ (herein called "Bank"), at its principal offices at
__________________________________, (i) the principal amount of U.S.
___________________________________ DOLLARS ($_______________) or the principal
amount advanced pursuant to the terms of the Credit Agreement (defined herein)
as of the date of maturity hereof, whether by acceleration or otherwise,
whichever may be the lesser, and (ii) interest on the principal balance from
time to time advanced and remaining unpaid from the date of the advance until
maturity at a rate of interest equal to lesser of (a) the "Floating Rate" (as
defined and calculated in the Credit Agreement), or (b) the Maximum Rate (as
defined and calculated in the Credit Agreement).  Any increase or decrease in
interest rate resulting from a change in the Maximum Rate shall be effective
immediately when such change becomes effective, without notice to the Borrower,
unless Applicable Law (as defined in the Credit Agreement) requires that such
increase or decrease not be effective until a later time, in which event such
increase or decrease shall be effective at the earliest time permitted under the
provisions of such law.

     Notwithstanding the foregoing, if during any period the Floating Rate
exceeds the Maximum Rate, the rate of interest in effect on this Note shall be
limited to the Maximum Rate during each such period, but at all times thereafter
the rate of interest in effect on this Note shall be the Maximum Rate or, if
there is no Maximum Rate, the Agreed Maximum Rate (as defined below), until the
total amount of interest accrued on this Note equals the total amount of
interest which would have accrued hereon if the Floating Rate had at all times
been in effect.

     This Note is a revolving credit note and it is contemplated that by reason
of prepayments hereon there may be times when no indebtedness is owing
hereunder; but notwithstanding such occurrence, this Note shall remain valid and
in full force and effect as to each principal advance made hereunder subsequent
to each such occurrence.  Each principal advance and each payment hereof made
pursuant to this Note shall be reflected by the Bank's records and the aggregate
unpaid amounts reflected by such records shall constitute rebuttably presumptive
evidence of the principal and unpaid, accrued interest remaining outstanding on
this Note.

     "Agreed Maximum Rate" means a per annum rate of seven and three-fourths
percent (7.75%) plus the Floating Rate from time to time in effect, which Agreed
Maximum Rate shall apply only during any period while there is no Maximum Rate
applicable to this Note.

                                                       _________________________
                                                             Borrower's Initials

                                       1
<PAGE>

     Other capitalized terms used herein, that are not defined herein, shall
have the meanings prescribed therefor in the Credit Agreement.

     The Borrower and the Bank hereby agree that Chapter 346 of the Texas
Finance Code, shall not apply to this Note or the loan transaction evidenced by,
and referenced in, the Credit Agreement (hereinafter defined) in any manner,
including without limitation, to any account or arrangement evidenced or created
by, or provided for in, this Note.

     The principal sum of this Note, after giving credit for unadvanced
principal, if any, remaining at final maturity, shall be due and payable on or
before March 1, 2005; interest to accrue upon the principal sum from time to
time owing and unpaid hereunder shall be due and payable as provided in the
Credit Agreement; provided, however, the final installment of interest hereunder
shall be due and payable not later than the maturity of the principal sum
hereof, howsoever such maturity may be brought about.

     In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this Note.
The Bank and the Borrower specifically intend and agree to limit contractually
the interest payable on this Note to not more than an amount determined at the
Maximum Rate.  Therefore, none of the terms of this Note or any other
instruments pertaining to or securing this Note shall ever be construed to
create a contract to pay interest at a rate in excess of the Maximum Rate, and
neither the Borrower nor any other party liable herefor shall ever be liable for
interest in excess of that determined at the Maximum Rate, and the provisions of
this paragraph shall control over all provisions of this Note or of any other
instruments pertaining to or securing this Note.  If any amount of interest
taken or received by the Bank shall be in excess of the maximum amount of
interest which, under Applicable Law, could lawfully have been collected on this
Note, then the excess shall be deemed to have been the result of a mathematical
error by the parties hereto and shall be refunded promptly to the Borrower.  All
amounts paid or agreed to be paid in connection with the indebtedness evidenced
by this Note which would under Applicable Law be deemed Ainterest" shall, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of this Note.

     This Note is secured by all security agreements, collateral assignments,
mortgages and lien instruments executed by the Borrower (or by any other party)
in favor of Bank One, NA, as Administrative Agent for the Bank, including those
executed simultaneously herewith, those executed heretofore and those hereafter
executed, and including specifically and without limitation the Security
Instruments described and defined in that certain Credit Agreement dated as of
March 22, 2000 by and between Borrower, Ultra Petroleum (USA) Inc., and Bank
One, Texas, National Association, as amended by that certain First Amendment to
Credit Agreement dated as of July 19, 2001 by and between Borrower and Bank One,
NA, and as amended and restated by that certain First Amended and Restated
Credit Agreement dated March 1, 2002 by and among Borrower, Bank One,

                                                       _________________________
                                                             Borrower's Initials

                                       2
<PAGE>

NA, as the Administrative Agent, as a Bank and as LC Issuer, and the several
other banks and financial institutions who are from time to time party thereto
as Banks (the "Credit Agreement").

     This Note is the Revolving Note issued pursuant to the Credit Agreement.
Reference is hereby made to the Credit Agreement for a statement of the rights
and obligations of the holder of this Note and the duties and obligations of the
Borrower in relation thereto; but neither this reference to the Credit Agreement
nor any provisions thereof shall affect or impair the absolute and unconditional
obligation of the Borrower to pay any outstanding and unpaid principal of and
interest on this Note when due, in accordance with the terms of the Credit
Agreement.  Each advance and each payment made pursuant to this Note shall be
reflected by notations made by the Bank on its records and the aggregate unpaid
amounts reflected by the notations on the records of the Bank shall be deemed
rebuttably presumptive evidence of the principal amount owing under this Note.

     In the event of default in the payment when due of any of the principal of
or any interest on this Note, or in the event of default under the terms of the
Credit Agreement or any of the Security Instruments, or if any event occurs or
condition exists which authorizes the acceleration of the maturity of this Note
under any agreement made by the Borrower, the Bank (or other holder of this
Note) may, at its option, without presentment or demand or any notice to the
Borrower or any other person liable herefor, declare the unpaid principal
balance of and accrued interest on this Note to be immediately due and payable.

     If this Note is collected by suit or through the Probate or Bankruptcy
Court, or any judicial proceeding, or if this Note is not paid at maturity,
however such maturity may be brought about, and is placed in the hands of an
attorney for collection, then the Borrower agrees to pay reasonable and
documented attorneys' fees, not to exceed 10% of the full amount of principal
and interest owing hereon at the time this Note is placed in the hands of an
attorney.

     The Borrower and all sureties, endorsers and guarantors of this Note waive
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate maturity, notice of acceleration of
maturity, and all other notices, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, and agree to any substitution,
exchange or release of any such security or the release of any party primarily
or secondarily liable hereon and further agrees that it will not be necessary
for the Bank, in order to enforce payment of this Note by them, to first
institute suit or exhaust its remedies against any Borrower or others liable
herefor, or to enforce its rights against any security herefor, and consent to
any one or more extensions or postponements of time of payment of this Note on
any terms or any other indulgences with respect hereto, without notice thereof
to any of them.  The Bank may transfer this Note, and the rights and privileges
of the Bank under this Note shall inure to the benefit of the Bank's
representatives, successors or assigns.

     This Note amends, extends, rearranges and restates that certain Reducing
Revolving Note executed effective as of July 19, 2001, in the original principal
amount of $100,000,000.00 executed

                                                       _________________________
                                                             Borrower's Initials

                                       3
<PAGE>

by ULTRA RESOURCES, INC. and payable to the order of Bank One, NA, which itself
amended, extended, rearranged and restated that certain Reducing Revolving Note
dated March 22, 2000, in the face amount of $40,000,000.00 executed by ULTRA
PETROLEUM (USA) INC. and ULTRA RESOURCES, INC., payable to the order of Bank
One, Texas, National Association, (the "Prior Notes"). All liens and security
interests that exist to secure the indebtedness evidenced by that Prior Notes
shall continue in force and effect to secure the indebtedness evidenced by this
Note.

     Executed as of the date and year first set forth above.

                                                   ULTRA RESOURCES, INC.
Attest:

______________________________                     By:__________________________
Charlotte H. Kauffman                                 Michael D. Watford
Secretary                                             President and CEO

                                       4
<PAGE>

                                  EXHIBIT "C"

                             Compliance Certificate
                             ----------------------

          I, the President of ULTRA RESOURCES, INC. (the "Company"), pursuant to
Section 5.05 of the First Amended and Restated Credit Agreement dated as of
March 1, 2002, by and among the Company, BANK ONE, NA, as Administrative Agent,
a Bank and the LC Issuer, and the other Banks that become party thereto (the
"Agreement") do hereby certify, as of the date hereof, that to my knowledge:

     (a)  No Event of Default (as defined in the Agreement) or Unmatured Event
          Of Default (as defined in the Agreement) has occurred and is
          continuing except for the following events (include actions taken to
          cure such situations):

          ______________________________________________________________________
          ______________________________________________________________________
          ______________________________________________________________________
          ______________________________________________________________________
          ______________________________________________________________________
          ____________________________________________________________________;

     (b)  No Material Adverse Change has occurred since the effective date of
          the latest audited consolidated Financial Statements of the Company
          delivered to the Administrative Agent;

     (c)  Except as otherwise stated in the Schedule, if any, attached hereto,
          each of the representations and warranties of the Company contained in
          Article IV of the Agreement is true and correct in all respects
          [include on the attached Schedule, if any, any qualifications to the
          representations in Section 4.07 of the Agreement that have occurred
          since the date of the last Compliance Certificate]; and

     (d)  The Company's consolidated financial condition for the quarter ending
          __________ is as follows:

                                       1
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Actual
                                 Date or Time             Required Ratio or              Ratio or
         Financial Covenant         Period                      Amount                    Amount
      ========================  ==============  ======================================  ===========
<S>                             <C>             <C>                                     <C>
(a)   Consolidated Tangible     Term of Loan    not * $80,000,000.00 plus 75% of
                                                                     ----                _______
      Net Worth                                 Ultra Petroleum Corp.'s (as defined
                                                in the Agreement) positive
                                                consolidated Net Income, if any,
                                                accrued during each calendar quarter
                                                subsequent to 9/30/01, calculated
                                                cumulatively as of the end of each
                                                fiscal quarter of Ultra Petroleum
                                                Corp. beginning with the quarter
                                                ending 12/31/01, with no reduction
                                                for negative Net Income during any
                                                such quarter, plus 100% of any
                                                increase in Stockholder=s Equity
                                                resulting from the sale or issuance
                                                of stock in Ultra Petroleum Corp. or
                                                any of its Subsidiaries subsequent to
                                                12/31/01.

(b)   Current Ratio for any     Term of Loan    not * 1.00 to 1.00, calculated based     ________
      fiscal quarter                            on both: (a) the Consolidated
                                                Financial Statements (as defined in
                                                the Agreement), and (b) the
                                                consolidating financial statements
                                                applicable to Borrower, which form a
                                                part of the Consolidated Financial
                                                Statements.

(c)   Ratio of EBITDA to        Term of Loan    not * 4.50 to 1.00, calculated on a      ________
      interest expense on all                   rolling four (4) quarter basis and
      Indebtedness as of the                    based on both: (a) the Consolidated
      end of each fiscal                        Financial Statements, and (b) the
      quarter                                   consolidating financial statements
                                                applicable to Borrower, which form a
                                                part of the Consolidated Financial
                                                Statements.

(d)   General &                 Term of Loan    not ** 25% of gross Production           _______
      Administrative Expenses                   Revenue, calculated based on the
                                                Consolidated Financial Statements
</TABLE>

*  Less than
** More than

                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                                                          Actual
                                 Date or Time             Required Ratio or              Ratio or
         Financial Covenant         Period                      Amount                    Amount
      ========================  ==============  ======================================  ===========
<S>                             <C>             <C>                                     <C>

(e)   Intercompany Transfers    During          not ** $17,500,00.00, without the        _______
      to Sino-American Energy   calendar year   prior written approval of the
      Corporation               2002            Required Banks

(f)   Intercompany Transfers    During each     not ** $25,000,000.00, without the       _______
      to Sino-American Energy   calendar year   prior written approval of the
      Corporation               beginning       Required Banks
                                with calendar
                                year 2003
</TABLE>

      This certificate is executed this _____ day of_________,_____.

                              ULTRA RESOURCES, INC.

                              By:________________________________
                                 ________________________________
                                 President and CEO

*  Less than
** More than
                                       3
<PAGE>

                                  EXHIBIT "D"

                              SECURITY INSTRUMENTS
                              --------------------

         The Security Instruments securing the Borrower's Obligations and
Indebtedness to the Banks shall include the following, each in form and
substance satisfactory to the Administrative Agent, on behalf of the Banks:

         1. ACT(s) OF MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING AND
ASSIGNMENT OF PRODUCTION covering the Borrowing Base Oil and Gas Properties
situated in the State of Wyoming, the personal property and equipment therein
and thereon, the production of oil, gas, and other minerals therefrom, and all
of the products and proceeds thereof, such Mortgages to be duly executed by
Borrower with respect to all of the Borrowing Base Oil and Gas Properties.

         2. SECURITY AGREEMENT granting the Administrative Agent, on behalf of
the Banks, a first priority security interest in all of the Borrower's
as-extracted oil and gas, accounts, equipment, machinery, fixtures, inventory,
chattel paper, documents, instruments and general intangibles relating to or
arising out of the Oil and Borrowing Base Oil and Gas Properties and the
business of the Borrower, whether now owned or hereafter acquired, and all
products and proceeds thereof.

         3. FINANCING STATEMENTS in connection with the Security Instruments
described in the preceding paragraphs, in form and number satisfactory to the
Administrative Agent, on behalf of the Banks, as the Administrative Agent may
specify from time to time (including additional or supplemental financing
statements, amendments thereto, and continuation statements thereof).

         4. PRIOR SECURITY INSTRUMENTS. All Security Instruments (as defined in
the Prior Credit Agreement) shall continue to secure Borrower's Obligations
arising under this Agreement.

         5. OTHER SECURITY INSTRUMENTS. Such other instruments as are necessary
or appropriate from time to time, in the good faith opinion of the
Administrative Agent, to perfect to the satisfaction of the Administrative Agent
the Banks' liens, security interests, and other rights in the Borrowing Base Oil
and Gas Properties and in any and all other collateral covered by or described
in (or, as evidenced by the Agreement, intended to have been covered by) any of
the other Security Instruments described above.

                                       1
<PAGE>

                                   EXHIBIT "E"

                               REQUEST FOR ADVANCE
                               -------------------

     I, the undersigned officer of ULTRA RESOURCES, INC. (the "Company"),
pursuant to Section 2.01 of the First Amended and Restated Credit Agreement
dated as of March 1, 2002, as amended from time to time (the "Agreement"), by
and between BANK ONE, NA ("Administrative Agent"), the banks and other financial
institutions from time to time parties to the Agreement (the "Banks"), the LC
Issuer, and the Company, do hereby make the requests indicated below on this
____ day of _________, 200__:

[_]  1.       Loans:

     (a)      Amount of new Loan: $____________

     (b)      Requested funding date: _________, 200_

     (c)      $____________  of such Loan is to be an ABR Loan;

              $____________  of such Loan is to be a LIBOR Loan.

              Requested Interest Period for LIBOR Loan: ________ months.

[_]  2.       Continuation or conversion of LIBOR Loan maturing on ______, 200_:

     (a)      Amount to be continued as a LIBOR Loan is $ ___________, with
              an Interest Period of __ months;

     (b)      Amount to be converted to an ABR Loan is $ ________.

[_]  3.       Conversion of Prime Rate Loan:

     (a)      Requested conversion date: ________ , 200__.

     (b)      Amount to be converted to a LIBOR Loan is $ __________ ,
              with an Interest Period of __ months.

     4.       The undersigned certifies that the funds advanced from the Banks
              to the Company pursuant to paragraphs 1 through 3 hereof, as
              applicable, shall be used by the Company solely for the purposes
              permitted by the Agreement.

                                   1
<PAGE>

     5.       The undersigned certifies that to my knowledge after reasonable
              inquiry into the applicable facts, as of the date hereof, the
              Company is in compliance with all of the representations,
              warranties, terms, conditions and covenants contained in the
              Agreement and no Event of Default or Unmatured Event of Default
              has occurred and is continuing under the Agreement.

     6.       The undersigned certifies that to my knowledge after reasonable
              inquiry into the applicable facts, as of the date hereof, no
              Material Adverse Change has occurred since the effective date of
              the latest audited Financial Statements of the Company delivered
              to the Administrative Agent;

     This certificate is executed this ____ day of ___________, 200__.

                                ULTRA RESOURCES, INC.

                                By: __________________________________

                                Name:_________________________________

                                Title:________________________________

                                        2
<PAGE>

                                Schedule 1.01(b)
                                ----------------

               Commitment Amounts and Aggregate Commitment Amount
               --------------------------------------------------

                                        Percentage         Commitment
                     Bank                  Share             Amount
                     ----                  -----             ------

    Bank One, NA                         26.250%         $39,375,000.00
    Union Bank of California, N.A.       23.750%         $35,625,000.00
    Hibernia National Bank               21.250%         $31,875,000.00
    Guaranty Bank, FSB                   21.250%         $31,875,000.00
    Compass Bank                         7.500%          $11,250,000.00
                                                      -----------------
    Aggregate Commitment Amount:                        $150,000,000.00
    ---------------------------

                                        1
<PAGE>

                                 SCHEDULE 4.01

            INFORMATION REGARDING THE BORROWER AND ITS SUBSIDIARIES

   . States qualified to do business in: Wyoming, Texas and Colorado

   . Addresses of places of business:

     16801 Greenspoint Park Drive            304 Inverness Way South
     Suite 370                               Suite 295
     Houston, Texas 77060                    Englewood, Colorado 80112

     1200 Summit Avenue
     Suite 700
     Fort Worth, Texas 76102

   . Name change, merger, acquired business:

     January 16, 2001 Ultra Petroleum Corp. merged with Pendaries Petroleum Ltd.
     through an amalgamation with Ultra Petroleum Corp. the surviving entity.

     July 16, 2001 Ultra Petroleum Corp. and its subsidiaries Ultra Resources,
     Inc., Ultra Petroleum (USA) Inc., Pendaries Petroleum Ltd. and Sino-
     American Energy Corporation effectuated a reorganization in which Ultra
     Petroleum Corp., as the parent now owns 100% of UP Energy Corporation, a
     Nevada corporation which owns 100% of Ultra Resources, Inc. and 100% of
     Sino-American Energy Corporation. Thus Ultra Petroleum (USA) Inc. merged
     into Ultra Resources, Inc. and Pendaries Petroleum Ltd. was dissolved.

<PAGE>

                                 SCHEDULE 4.07

                             OIL AND GAS CONTRACTS

None
<PAGE>

                                 SCHEDULE 4.09

                            PURCHASE OF PRODUCTION

Duke Energy Field Services
Gregory C. Scoggin -- Manager, Business Development - Wyoming
370 17/th/ Street
Suite 900
Denver, CO 80202
303/605-1685 Phone
303/605-1671 Fax

Questar Energy Trading
John Ruskauff -- Senior Marketing Representative
180 East 100 South
P.O. Box 45601
Salt Lake City, UT 84145-0601
801/324-2612 Phone
801/599-6447 Cell

Sempra Energy Trading
Damon Suter, Vice President
1516 Brookhollow Drive
Santa Ana, CA 92705
714/241-1500 Phone
714/430-9210 Fax
714/264-4371 Cell

Headquarters:
58 Commerce Road
Stamford, CT 06902
203/355-5062 Phone
203/355-5010 Fax

Western Gas Resources, Inc.
Mark Malinowski, Sr. Marketing Representative
Rocky Mountain Region
12200 N. Pecos Street
Denver, CO 80234
303/452-5603 Phone
303/450-8356 Direct
303/457-9748 Fax

<PAGE>

                                 SCHEDULE 4.11

                         ENVIRONMENT IMPACT STATEMENT

     The Environmental Impact Statement for Pinedale Anticline Oil and Gas
Exploration and Development Project, Sublette County, Wyoming prepared by the
Bureau of Land Management was previously delivered to Bank One, NA on March 22,
2000 by Ultra Resources, Inc. in regards to closing on the original Credit
Agreement dated March 22, 2000.
<PAGE>

                                 SCHEDULE 4.14

                              EXISTING INDEBTNESS

Bank One Texas N. A. - $50MM
<PAGE>

                                 SCHEDULE 4.15

                             MATERIAL COMMITMENTS

None
<PAGE>

                                 SCHEDULE 4.21

                             INSURANCE CERTIFICATE

See Attached
<PAGE>

<TABLE>
<CAPTION>
             Client#: 41509                                                                  ULTRA
------------------------------------------------------------------------------------------------------------------------------------
ACORD(TM)                                 CERTIFICATE OF LIABILITY INSURANCE                                      DATE (MM/DD/YY)
                                                                                                                     02/28/01
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>
PRODUCER                                                              THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND
Higginbotham & Assoc., Inc.                                           CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS
P.O. Box 908                                                          CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE
Fort Worth, TX 76101                                                  AFFORDED BY THE POLICIES BELOW.
817 336-2377                                                         ---------------------------------------------------------------
                                                                                       INSURERS AFFORDING COVERAGE
------------------------------------------------------------------------------------------------------------------------------------
INSURED                                                               INSURER A: St. Paul Surplus Lines Ins Co.
                                                                     ---------------------------------------------------------------
   Ultra Resources, Inc.                                              INSURER B: St. Paul Fire & Marine Ins Co.
                                                                     ---------------------------------------------------------------
   304 Inverness Way South, Suite 295                                 INSURER C:
   Englewood, CO 80112                                               ---------------------------------------------------------------
                                                                      INSURER D:
                                                                     ---------------------------------------------------------------
                                                                      INSURER E:
------------------------------------------------------------------------------------------------------------------------------------
COVERAGES
------------------------------------------------------------------------------------------------------------------------------------
THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING
ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY
PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH
POLICIES. AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
------------------------------------------------------------------------------------------------------------------------------------
                                                     POLICY EFFECTIVE   POLICY EXPIRATION
      TYPE OF INSURANCE            POLICY NUMBER     DATE (MM/DD/YY)    DATE (MM/DD/YY)                      LIMITS
------------------------------------------------------------------------------------------------------------------------------------
A GENERAL LIABILITY                MU05531493           06/26/01           06/26/02        EACH OCCURRENCE              $ 1,000,000
[X] COMMERCIAL GENERAL LIABILITY                                                           -----------------------------------------
[_] CLAIMS MADE [X] OCCUR                                                                  FIRE DAMAGE (Any one fire)   $   100,000
  _______________________                                                                  -----------------------------------------
                                                                                           MED EXP (Any one person)     $     5,000
  _______________________                                                                  -----------------------------------------
                                                                                           PERSONAL & ADV INJURY        $ 1,000,000
                                                                                           -----------------------------------------
                                                                                           GENERAL AGGREGATE            $ 2,000,000
                                                                                           -----------------------------------------
                                                                                           PRODUCTS-COMP/OP AGG         $ 1,000,000
GEN'L AGGREGATE LIMIT APPLIES PER:                                                         -----------------------------------------
[_] POLICY [_] PROJECT [_] LOC
------------------------------------------------------------------------------------------------------------------------------------
A AUTOMOBILE LIABILITY              MU05531493           06/26/01           06/26/02
[_] ANY AUTO                                                                                COMBINED SINGLE LIMIT
[_] ALL OWNED AUTOS                                                                         (Ea accident)                $ 1,000,000
[_] SCHEDULED AUTOS                                                                        -----------------------------------------
[X] HIRED AUTOS                                                                             BODILY INJURY
[X] NON-OWNED AUTOS                                                                         (Per person)                 $
 _______________________                                                                   -----------------------------------------
                                                                                            BODILY INJURY
                                                                                            (Per accident)               $
                                                                                           -----------------------------------------
                                                                                            PROPERTY DAMAGE
                                                                                            (Per accident)               $
------------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY                                                                            AUTO ONLY-EA ACCIDENT        $
[_] ANY AUTO                                                                               -----------------------------------------
                                                                                                           EA ACC        $
                                                                                                           -------------------------
                                                                                            OTHER THAN
                                                                                            AUTO ONLY:        AGG        $
------------------------------------------------------------------------------------------------------------------------------------
A EXCESS LIABILITY                  MU05571008           06/26/01           06/26/02        EACH OCCURRENCE              $10,000,000
[X] OCCUR [_] CLAIMS MADE                                                                  -----------------------------------------
[_] DEDUCTIBLE                                                                              AGGREGATE                    $10,000,000
[X] RETENTION  $10000                                                                      -----------------------------------------
                                                                                                                         $
                                                                                           -----------------------------------------
                                                                                                                         $
                                                                                           -----------------------------------------
                                                                                                                         $
------------------------------------------------------------------------------------------------------------------------------------
WORKERS COMPENSATION AND                                                                      WC STATU-       OTH-
EMPLOYERS' LIABILITY                                                                          TORY LIMITS      ER
                                                                                           -----------------------------------------
                                                                                            E.L. EACH ACCIDENT           $
                                                                                           -----------------------------------------
                                                                                            E.L. DISEASE-EA EMPLOYEE     $
                                                                                           -----------------------------------------
                                                                                            E.L. DISEASE-POLICY LIMIT    $
------------------------------------------------------------------------------------------------------------------------------------
A OTHER Control of                  MU05504887           06/26/01           06/26/02        $10,000,000 Drilling
  Well                                                                                      $ 5,000,000 Producing
------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/EXCLUSIONS ADDED BY ENDORSEMENT/SPECIAL PROVISIONS
Blanket Waiver of Subrogation and Blanket Additional Insured, as regards GL and Umbrella, if required by written contract.

GL & Umbrella policies include XCU coverages.

------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER       ADDITIONAL INSURED; INSURER LETTER      CANCELLATION
------------------------------------------------------------------------------------------------------------------------------------
                                                                 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
   Bank One, NA                                                  EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL
   as Administrative Agent                                       30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT,
   Attn: Steven Shatto                                           BUT FAILURE TO DO SO SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY
   910 Travis, 6th Floor                                         KIND UPON THE INSURER, ITS AGENTS OR REPRESENTATIVES.
   Houston, Texas 77002                                         --------------------------------------------------------------------
                                                                 AUTHORIZED REPRESENTATIVE
                                                                 /s/ James R. Rid
------------------------------------------------------------------------------------------------------------------------------------
ACORD 25-S (7/97) 1 of 2   #S75138/M65525                                                            LOC  (C) ACORD CORPORATION 1988
</TABLE>

<PAGE>

                         COMMITMENT TRANSFER SUPPLEMENT
                         ------------------------------

         THIS COMMITMENT TRANSFER SUPPLEMENT (this "Commitment Transfer
Supplement") dated as of the date set forth in Item 1 of Schedule I hereto, is
                                                         ----------
among the Transferor Bank set forth in Item 2 of Schedule I hereto (the
                                                 ----------
"Transferor Bank"), each Purchasing Bank set forth in Item 3 of Schedule 1 (each
 ---------------                                                ----------
a "Purchasing Bank"), and BANK ONE, N.A., as Administrative Agent for the Banks
   ---------------
under, and as defined in, the Credit Agreement described below (in such
capacity, the "Administrative Agent").
               --------------------

                                    RECITALS

         WHEREAS, this Commitment Transfer Supplement is being executed and
delivered in accordance with Section 9.05(c) of the First Amended and Restated
                             ---------------
Credit Agreement dated as of March 1, 2002, by and among ULTRA RESOURCES, INC.,
a Wyoming corporation ("Borrower"), the Transferor Bank and the other Banks
                        --------
party thereto and the Administrative Agent (as from time to time amended,
supplemented or otherwise modified in accordance with the terms thereof, the
"Credit Agreement"; terms defined therein being used herein as therein defined);
 ----------------

         WHEREAS, each Purchasing Bank (if it is not already a Bank party to the
Credit Agreement) wishes to become a Bank party to the Credit Agreement; and

         WHEREAS, the Transferor Bank is selling and assigning to each
Purchasing Bank, rights, obligations and commitments under the Credit Agreement;

         NOW, THEREFORE, the parties hereto agree as follows:

                                  GENERAL TERMS

         Section 1. Upon receipt by the Administrative Agent of five
counterparts of this Commitment Transfer Supplement, to each of which is
attached a fully completed Schedule I and Schedule II, and each of which has
                           ----------     -----------
been executed by the Transferor Bank, each Purchasing Bank (and any other person
required by the Credit Agreement to execute this Commitment Transfer
Supplement), the Administrative Agent will transmit to the Borrower, the
Transferor Bank and each Purchasing Bank a Transfer Effective Notice,
substantially in the form of Schedule III to this Commitment Transfer Supplement
                             ------------
(a "Transfer Effective Notice"). Such Transfer Effective Notice shall set forth,
    -------------------------
inter alia, the date on which the transfer effected by this Commitment Transfer
----- ----
Supplement shall become effective (the "Transfer Effective Date"), which date
                                        -----------------------
shall be at least five (5) Business Days following the date of such Transfer
Effective Notice. From and after the Transfer Effective Date each Purchasing
Bank shall be a Bank party to the Credit Agreement for all purposes thereof.
<PAGE>

         Section 2. At or before 12:00 Noon, local time of the Transferor Bank,
on the Transfer Effective Date, each Purchasing Bank shall pay to the Transferor
Bank, in immediately available funds, an amount equal to the purchase price, as
agreed between the Transferor Bank and such Purchasing Bank (the "Purchase
                                                                  --------
Price"), of the portion being purchased by such Purchasing Bank (such Purchasing
-----
Bank's "Purchased Percentage") of the outstanding Credit Extensions and other
        --------------------
amounts owing to the Transferor Bank under the Credit Agreement and the Notes.
Effective upon receipt by the Transferor Bank of the Purchase Price from a
Purchasing Bank, the Transferor Bank hereby irrevocably sells, assigns and
transfers to such Purchasing Bank, without recourse, representation or warranty,
and each Purchasing Bank hereby irrevocably purchases, takes and assumes from
the Transferor Bank, such Purchasing Bank's Purchased Percentage of the
Commitment of the Transferor Bank and the presently outstanding Credit
Extensions and other amounts owing to the Transferor Bank under the Credit
Agreement and the Notes together with all instruments, documents and collateral
security pertaining thereto.

         Section 3. The Transferor Bank has made arrangements with each
Purchasing Bank with respect to (a) the portion, if any, to be paid, and the
date or dates for payment, by the Transferor Bank to such Purchasing Bank of any
fees heretofore received by the Transferor Bank pursuant to the Credit Agreement
prior to the Transfer Effective Date, and (b) the portion, if any, to be paid,
and the date or dates for payment, by such Purchasing Bank to the Transferor
Bank of fees or interest received by such Purchasing Bank pursuant to the Credit
Agreement from and after the Transfer Effective Date.

         Section 4. (a) All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of the
Transferor Bank pursuant to the Credit Agreement and the Notes shall, instead,
be payable to or for the account of the Transferor Bank and the Purchasing
Banks, as the case may be, in accordance with their respective interests as
reflected in this Commitment Transfer Supplement.

         (b) All interest, fees and other amounts that would otherwise accrue
for the account of the Transferor Bank from and after the Transfer Effective
Date pursuant to the Credit Agreement and the Notes shall, instead, accrue for
the account of, and be payable to, the Transferor Bank and the Purchasing Banks,
as the case may be, in accordance with their respective interests as reflected
in this Commitment Transfer Supplement.

         (c) In the event that any amount of interest, fees or other amounts
accruing prior to the Transfer Effective Date was included in the Purchase Price
paid by any Purchasing Bank, the Transferor Bank and each Purchasing Bank will
make appropriate arrangements for payment by the Transferor Bank to such
Purchasing Bank of such amount upon receipt thereof from the Borrower.

         Section 5. On or prior to the Transfer Effective Date, the Transferor
Bank will deliver to the Administrative Agent its Note. Within five (5) Business
Days after Borrower's receipt of notice from Administrative Agent of
Administrative Agent's receipt of this Commitment Transfer Supplement, the
Borrower will deliver to the Administrative Agent, in exchange for the
surrendered Note from the Transferor Bank, a new Note for each Purchasing Bank
and the Transferor Bank, to

                                       -2-
<PAGE>

the extent the Transferor Bank has retained any of its Commitment, in each case
in principal amounts reflecting, in accordance with the Credit Agreement, their
respective Commitment Amounts (as adjusted pursuant to this Commitment Transfer
Supplement). As provided in Section 9.05(e) of the Credit Agreement, each such
                            ---------------
new Note shall be dated the date of the original Note delivered pursuant to the
Credit Agreement (the "Effective Date"). Promptly after the Transfer Effective
                       --------------
Date, the Administrative Agent will send to each of the Transferor Bank and the
Purchasing Banks its new Note and will send to the Borrower the superseded Note
of the Transferor Bank, marked "Canceled" or "Replaced" as appropriate.

         Section 6. Concurrently with the execution and delivery hereof, the
Transferor Bank will provide to each Purchasing Bank (if it is not already a
Bank party to the Credit Agreement) conformed copies of all documents in the
Transferor Bank's possession that were delivered to the Administrative Agent on
the Effective Date in satisfaction of the conditions precedent set forth in the
Credit Agreement.

         Section 7. Each of the parties to this Commitment Transfer Supplement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Commitment Transfer Supplement.

         Section 8. By executing and delivering this Commitment Transfer
Supplement, the Transferor Bank and each Purchasing Bank confirm to and agree
with each other and the Administrative Agent and the Banks as follows: (i) other
than the representation and warranty that it is the legal and beneficial owner
of the interest being assigned hereby free and clear of any adverse claim, the
Transferor Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement, the Notes, any other Loan Document or any other instrument or
document furnished pursuant thereto; (ii) the Transferor Bank makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under the Credit Agreement, the Notes, any
other Loan Document or any other instrument or document furnished pursuant
hereto; (iii) each Purchasing Bank confirms that it has received a copy of the
Credit Agreement, together with copies of the Financial Statements referred to
in Section 3.1(D), the Financial Statements delivered pursuant to Sections 5.03
   --------------                                                 -------------
and 5.04, if any, and such other documents and information as it has deemed
--------
appropriate to make its own credit analysis and decision to enter into this
Commitment Transfer Supplement; (iv) each Purchasing Bank will, independently
and without reliance upon the Administrative Agent, the Transferor Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (v) each Purchasing Bank appoints
and authorizes the Administrative Agent to take such action as Administrative
Agent on its behalf and to exercise such powers under the Credit Agreement as
are delegated to the Administrative Agent by the terms thereof, together with
such powers as are reasonably incidental thereto, all in accordance with Article
                                                                         -------
VIII of the Credit Agreement; and (vi) each Purchasing Bank agrees that
----

                                       -3-
<PAGE>

it will perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a Bank.

         Section 9. Each party hereto represents and warrants to and agrees with
the Administrative Agent that it is aware of and will comply with the provision
of Section 2.16 of the Credit Agreement.
   ------------

         Section 10. Schedule II hereto sets forth the revised Commitment
                     -----------
Amounts and Percentage Shares of the Transferor Bank and each Purchasing Bank as
well as administrative information with respect to each Purchasing Bank.

         SECTION 11. THIS COMMITMENT TRANSFER SUPPLEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

         IN WITNESS WHEREOF, the parties hereto have caused this Commitment
Transfer Supplement to be executed by their respective duly authorized officers
on Schedule I hereto as of the date set forth in Item I of Schedule I hereto.
                                                           ----------

                                       -4-
<PAGE>

                                                                   Schedule I to
                                                  Commitment Transfer Supplement

                         COMPLETION OF INFORMATION AND
                           SIGNATURES FOR COMMITMENT
                              TRANSFER SUPPLEMENT
                              -------------------

          Re:  First Amended and Restated Credit Agreement dated as of March 1,
               2002 among Ultra Resources, Inc., the Banks, and Bank One, N.A.,
               as Administrative Agent for the Banks thereunder.

Item 1  (Date of Commitment Transfer
         Supplement):                   [Insert date of Commitment Transfer
                                         Supplement]

Item 2  (Transferor Bank):              [Insert name of Transferor Bank]

Item 3  (Purchasing Bank[s]):           [Insert name[s] of Purchasing Bank[s]]

Item 4  (Signatures of Parties
         to Commitment Transfer
         Supplement):                   _________________, as Transferor Bank

                                        By:___________________________________
                                        Title:________________________________

                                        _________________, as Purchasing Bank

                                        By:___________________________________
                                        Title:________________________________

                                        __________________, as Purchasing Bank

                                        By:___________________________________
                                        Title:________________________________
<PAGE>

CONSENTED TO AND ACKNOWLEDGED:

ULTRA RESOURCES, INC.

By:___________________________________
Title:________________________________

BANK ONE, NA,
     as Administrative Agent

By:___________________________________
Title:________________________________

[Consents Required only when
Purchasing Bank is not already
a Bank or Affiliate thereof]

ACCEPTED FOR RECORDATION
     IN REGISTER:

BANK ONE, NA,
     as Administrative Agent

By:___________________________________
Title:________________________________

                                      -2-
<PAGE>

                                                                  Schedule II to
                                                  Commitment Transfer Supplement

                      LIST OF LENDING OFFICES, ADDRESSES
                      FOR NOTICES AND COMMITMENT AMOUNTS
                      ----------------------------------

[Name of Transferor Bank]
                              Revised Commitment Amount:     $_____________
                              -------------------------

                              Revised Commitment Percentage: ______________
                              -----------------------------

[Name of Purchasing Bank]
                              New Commitment Amount:         $_____________
                              ---------------------

                              New Commitment Percentage:     ______________
                              -------------------------

Address for Notices:
-------------------

[address]

Attention:______________
Telex:__________________
Answer back:____________
Telephone:______________
Telecopier:_____________

Lending Office:
--------------

________________________
________________________
________________________
<PAGE>

                      [Form of Transfer Effective Notice]

                                                                 Schedule III to
                                                  Commitment Transfer Supplement

          To: [Insert Name of Borrower, Transferor Bank and each Purchasing
     Bank]

     The undersigned, as Administrative Agent under the First Amended and
Restated Credit Agreement dated as of March 1, 2002, among Ultra Resources, Inc.
("Borrower"), the Banks and other financial institutions from time to time
parties thereto and Bank One, N.A., as Administrative Agent, acknowledges
receipt of five executed counterparts of a completed Commitment Transfer
Supplement, as described in Schedule I hereto.  [Note:  attach copy of Schedule
I from Commitment Transfer Supplement.]  Terms defined in such Commitment
Transfer Supplement are used herein as therein defined.

          1.  Pursuant to such Commitment Transfer Supplement, you are advised
     that the Transfer Effective Date will be [Insert fifth Business Day
     following date of Transfer Effective Notice].

          2.  Pursuant to such Commitment Transfer Supplement, the Transferor
     Bank is required to deliver its Note to the Administrative Agent on or
     before the Transfer Effective Date.

          3.  Pursuant to such Commitment Transfer Supplement, the Borrower is
     required to deliver to the Administrative Agent on or before the fifth
     (5/th/) Business Day from its receipt of this notice, in return for the
     Note surrendered to the Administrative Agent by the Transferor Bank, the
     following Notes [Describe each Note for Transferor Bank and Purchasing Bank
     as to principal amount and payee], dated [March 1, 2002].

          4.  Pursuant to such Commitment Transfer Supplement each Purchasing
     Bank is required to pay its Purchase Price to the Transferor Bank at or
     before 12:00 Noon on the Transfer Effective Date in immediately available
     funds.

                                   Very truly yours,

                                   BANK ONE, NA, as Administrative Agent

                                   By:________________________________________
                                   Title:_____________________________________<PAGE>

                                                                    Exhibit 10.3

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (the "Agreement") between Cotelligent, Inc.
("Cotelligent"), a Delaware corporation, and Curtis J. Parker ("Employee") is
hereby entered into effective as of the 19th day of December, 2000 ("Effective
Date").

                                R E C I T A L S

     The following statements are true and correct:

     As of the date of this Agreement, Cotelligent, through its operating
subsidiaries, is engaged primarily in the business of providing information
technology consulting and outsourcing services to organizations with complex
information system and technology operations.  References herein to the
"Cotelligent Group" are intended to include Cotelligent and its operating
subsidiaries, as may be applicable in the circumstances.

     Employee is and will be employed hereunder by Cotelligent in a confidential
relationship wherein Employee, in the course of his employment with Cotelligent,
is and will become familiar with and aware of information as to Cotelligent's
customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by Cotelligent, and future plans with
respect thereto, all of which will be established and maintained at great
expense to Cotelligent; this information is a trade secret and constitutes the
valuable goodwill of Cotelligent.

     Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and die performance of each, it is hereby agreed as
follows:

                              A G R E E M E N T S

     1.  Employment and Duties

     (a)  Cotelligent hereby employs Employee as its Chief Financial Officer. As
such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of a chief financial officer and will report solely and
directly to the Chief Executive Officer. Employee hereby accepts this employment
upon the terms and conditions herein contained and, subject to Section 1(c),
agrees to devote his time, attention and efforts to promote and further the
business of the Cotelligent Group.

     (b)  Employee shall faithfully adhere to, execute and fulfill all lawful
policies established by Cotelligent.

     (c)  Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. This foregoing limitation shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
Section 3 hereof.
<PAGE>

     2.  Compensation

     For all services rendered by Employee, Cotelligent shall compensate
Employee as follows:

     (a)  Base Salary. Beginning on the Effective Date, the base salary payable
to Employee shall be $180,000 per year, payable on a regular basis in accordance
with Cotelligent's standard payroll procedures but not less than monthly.
Cotelligent and Employee agree that this annual base salary is the same as that
received by Employee while employed by Cotelligent immediately prior to his
promotion to Chief Financial Officer, and is less than the average annual base
salary paid to chief financial officers in companies comparable to Cotelligent.
The amount of such average annual base salary paid to chief financial officers
in comparable companies, but in any event an amount no less than Employee's
actual annual base salary at the relevant time, shall be referred to in this
Agreement as the "Market Base Salary", which the parties agree for calendar year
2001 is $200,000. The Chief Executive Officer shall adjust Employee's
compensation to the Market Base Salary when he determines it appropriate in
light of the Company's operating performance to increase executive officer
compensation to market. Such salary increase would, in all likelihood, require
approval by the Board or a duly constituted Committee thereof.

     (b)  Incentive Bonus. For fiscal year 2001 and subsequent fiscal years
during the Employee's employment with Cotelligent hereunder, Employee shall be
eligible to receive annual incentive bonuses of up to fifty percent (50%) of
the amount of his base salary based upon such factors as the Board, or a duly
constituted committee thereof, shall determine in its discretion, including but
not limited to the Employee's individual performance and the Company's
performance.

     (c)  Executive Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from
Cotelligent in such form and to such extent as specified below:

          (1) Participation for Employee in coverage for Employee and his
dependent family members under health, hospitalization, disability, dental, life
and other insurance plans that Cotelligent may have in effect from time to time,
benefits provided to Employee under this clause (1) to be at least equal to such
benefits provided to other Cotelligent executives.

          (2) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
pursuant to this Agreement. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with Cotelligent's expense-
reporting policy.

          (3) The applicable number of days of paid time off pursuant to the
Cotelligent Paid Time Off policy.

                                       2
<PAGE>

          (4) Such other executive perquisites as may be available to or deemed
appropriate for Employee by the Board and participation in all other
Cotelligent-wide employee benefits as available from time to time.

     3.  Restrictive Covenants

     (a) Employee will not, during the period of his employment by or with any
member of the Cotelligent Group and for a period of one (1) year immediately
following the termination of his employment, for any reason whatsoever, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:

          (i) call upon, or cause others to call upon, any person who is, at
that time, within 100 miles of where Cotelligent or where any of its
subsidiaries conducts business (the "Territory"), an employee of Cotelligent
(including its subsidiaries) in a sales representative or managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of Cotelligent (including its subsidiaries), provided that Employee
shall be permitted to call upon and hire any member of his or her immediate
family;

          (ii) call upon, or cause others to call upon, any person or entity
which is, at that time, or which has been, within one (1) year prior to that
time, a customer of Cotelligent (including its subsidiaries) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with Cotelligent (including its subsidiaries) within the
Territory;

          (iii) call upon, or cause others to call upon, any prospective
acquisition candidate, on Employee's own behalf or on behalf of any competitor
in the computer consulting and/or software application business, which candidate
was either called upon by Cotelligent (including its subsidiaries) or for which
Cotelligent (including its subsidiaries) made an acquisition analysis, for the
purpose of acquiring such entity; or

          (iv) disclose customers, whether in existence or proposed, of
Cotelligent (including its subsidiaries) to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever except to the
extent that Cotelligent (including its subsidiaries) has in the past disclosed
such information to the public for valid business reasons.

     Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit Employee from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.

     (b) Because of the difficulty of measuring economic losses to Cotelligent
(including its subsidiaries) as a result of a breach of one of the foregoing
covenants and because of the immediate and irreparable damage that could be
caused to Cotelligent (including its subsidiaries) for which it would have no
other adequate remedy, Employee agrees that the foregoing covenants may be
enforced by Cotelligent (including its subsidiaries) in the event of breach by
him, by injunctions and restraining orders.

                                       3
<PAGE>

     (c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Employee in light of the activities
and business of Cotelligent (including its subsidiaries) on the date of the
execution of this Agreement and the current plans of Cotelligent; but it is also
the intent of Cotelligent and Employee that such covenants be construed and
enforced in accordance with the changing activities and business of Cotelligent
throughout the term of this covenant. For example, if, during the term of this
Agreement, Cotelligent (including its subsidiaries) engages in new and different
activities, enters a new business or establishes new locations for its current
activities or business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently established
therefore, then Employee will be precluded from soliciting the customers or
employees of such new activities or business or of such new location within 100
miles of its operating location(s) through the term of this covenant.

     It is further agreed by the parties hereto that, in the event that Employee
shall cease to be employed hereunder, and shall enter into a business or pursue
other activities not in competition with Cotelligent (including its
subsidiaries), or engage in similar activities or business in locations the
operation of which, under such circumstances, do not violate another provision
of this Section 3, Employee shall not be chargeable with a violation of this
Section 3 if Cotelligent (including its subsidiaries) shall thereafter enter the
same, similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.

    (d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.

    (e) All of the covenants in this Section 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Cotelligent
(including its subsidiaries), whether predicated on this Agreement or otherwise,
will not constitute a defense to the enforcement by Cotelligent (including its
subsidiaries) of such covenants. It is specifically agreed that the period of
one (1) year stated at the beginning of this Section 3, during which the
agreements and covenants of Employee made in this Section 3 shall be effective,
shall be computed by excluding from such computation any time during which
Employee is in violation of any provision of this Section 3.

     4.  Term, Termination, Rights on Termination

     The term of this Agreement shall begin on the Effective Date and continue
for one year (the "Initial Term").  On the first anniversary of the Effective
Date the term shall be extended for two additional years unless at least sixty
(60) days prior to any such anniversary either party gives notice in writing to
the other that the Agreement will not be so extended.  Thereafter, the term
shall be extended an additional year on each subsequent anniversary of the
Effective Date unless at least sixty (60) days prior to any such anniversary
either party gives notice in writing to

                                       4
<PAGE>

the other that the Agreement will not be so extended an additional year. This
Agreement and Employee's employment may be terminated in any one of the
following ways:

     (a) Good Cause. Cotelligent may terminate the Agreement ten (10) days after
written notice to Employee for good cause, which shall be: (1) Employee's
willful, material and irreparable breach of this Agreement; (2) Employee's gross
negligence in the performance or intentional nonperformance (continuing for ten
(10) days after receipt of written notice of need to cure) of any of Employee's
material duties and responsibilities hereunder which materially and adversely
affects the operations or reputation of Cotelligent (including its
subsidiaries); (3) Employee's willful dishonesty, fraud or misconduct with
respect to the business or affairs of Cotelligent (including its subsidiaries)
which materially and adversely affects the operations or reputation of
Cotelligent (including its subsidiaries); or (4) Employee's conviction of a
felony crime. In the event of a termination for good cause, as enumerated above,
Employee shall have no right to any severance compensation.

     (b) Without Good Cause. Should Employee be terminated without good cause by
Cotelligent or Cotelligent fails to extend this Agreement without good cause,
Employee shall receive, in one lump-sum payment payable as soon as practicable
after the effective date of termination the following amount: (i) one (1) times
Employee's then current Market Base Salary plus (ii) one (1) times Employee's
most recent annual bonus (the "Termination Payment"). Any amounts payable to
Employee pursuant to this Section 4(b) shall be contingent upon Employee's
execution of an effective general release of claims in the form determined by
Cotelligent, which in any event shall be substantially in the form attached to
this Agreement as Exhibit A. It is specifically understood and agreed that, in
the event Employee's employment is terminated without good cause, Employee
executes such general release of claims, Cotelligent shall in all circumstances
be required to pay the Termination Payment to Employee, regardless of whether
Employee has obtained other employment following such termination and Employee
shall be under no duty to mitigate such amount or take any action to lessen
Cotelligent's liability for such payment, which is intended to be absolute.
Further, any termination without good cause by Cotelligent shall operate to
shorten the period set forth in Section 3(a) and during which the terms of
Section 3, if applicable, apply to six (6) months from the date of termination
of employment.

     Any group health continuation coverage that Cotelligent is required to
offer under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")
shall be offered upon termination and Cotelligent shall pay the cost of such
COBRA coverage.

     Employee shall be deemed to have been terminated without good cause by
Cotelligent if (i) Cotelligent breaches Section 2(a) of this Agreement; (ii)
Employee shall be assigned any duties materially inconsistent with, or
Employee's responsibilities shall be significantly limited, or Employee shall be
significantly demoted, in any case so as not to be serving in a Chief Financial
Officer capacity to Cotelligent and its subsidiaries and affiliates, and the
continuance thereof for a period of five (5) business days after written notice
from Employee that he is unwilling to accept such changes in duties or
responsibilities; (iii) Cotelligent moves Employee's primary business location
so as to increase Employee's round-trip commute by more than thirty

                                       5
<PAGE>

(30) miles from the distance in effect on the Effective Date (disregarding any
changes in the location of Employee's principal residence subsequent to the
Effective Date) without Employee's written consent; (iv) any successor to
Cotelligent refuses or fails to assume Cotelligent's obligations under this
Agreement; or (v) Cotelligent decreases Employee's annual base salary, annual
target bonus opportunity as described in Section 2(b), or the dollar value of
the package of perquisites, benefits and other compensation (including those
items enumerated in Section 2(c)), taken as a whole, except when any reduction
described in this clause (v) is part of a program affecting Cotelligent's
officers or workforce generally.

     In the event Employee is terminated without good cause pursuant to this
Section 4(b), Employee's stock options and other stock awards shall become fully
vested and exercisable and Employee shall have, notwithstanding anything to the
contrary contained in any relevant option or stock award agreements, one hundred
eighty (180) days within which to exercise any vested options, after which any
options not exercised by Employee would be forfeited; provided, however, if
Employee is terminated without good cause pursuant to this Section 4(b) upon or
within one (1) year following a Change in Control (as defined in Section 11(e)
hereunder), Employee shall have, notwithstanding anything to the contrary
contained in any relevant option or stock award agreements, one (1) year within
which to exercise any vested and outstanding options, to the extent permitted by
the underlying agreements governing the Change in Control, after which any
options not exercised by Employee would be forfeited.

     At any time after the Effective Date, Employee may, without good cause,
terminate this Agreement and Employee's employment, effective thirty (30) days
after written notice is provided to Cotelligent. If Employee voluntarily resigns
or otherwise terminates his employment without good cause pursuant to this
Section 4(b), (i) Employee shall receive no severance compensation and (ii)
notwithstanding anything to the contrary contained in any relevant option or
stock award agreements, Employee shall have ninety (90) days within which to
exercise any previously vested and outstanding options, after which any such
options not exercised by Employee will be forfeited.

     (c)  Change in Control of Cotelligent. Refer to Section 11 below.

     (d)  Other Provisions.  Upon termination of this Agreement for any reason
described above in this Section 4, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements due through the
effective date of termination. Additional compensation subsequent to
termination, if any, will be due and payable to Employee only to the extent and
in the manner expressly provided above or in Section 11. All other rights and
obligations of Cotelligent and Employee under this Agreement shall cease as of
the effective date of termination, except that Cotelligent's obligations under
Section 8 herein and Employee's obligations under Sections 3, 5, 6, 7 and 9
herein shall survive such termination in accordance with their terms.

     If termination of Employee's employment arises out of Cotelligent's failure
to pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by Cotelligent,
as determined by a court of

                                       6
<PAGE>

competent jurisdiction or pursuant to the provisions of Section 15 below,
Cotelligent shall pay all amounts and damages to which Employee may be entitled
as a result of such breach, including arbiters thereon and all reasonable legal
fees and expenses and other costs incurred by Employee to enforce his rights
hereunder. Further, none of the provisions of Section 3 shall apply in the event
this Agreement or the Employee's employment hereunder is terminated as a result
of a breach by Cotelligent.

     5.  Return of Company Property

     All records, designs, patents, business plans, financial statements,
financial records, manuals, memoranda, lists and other property delivered to or
compiled by Employee by or on behalf of Cotelligent (including its subsidiaries)
or their representatives, vendors or customers which pertain to the business of
Cotelligent (including its subsidiaries) shall be and remain the property of
Cotelligent (including its subsidiaries) and be subject at all times to their
discretion and control. Likewise, all correspondence, reports, records, charts,
advertising materials and other similar data pertaining to the business,
activities or future plans of Cotelligent (including its subsidiaries) which is
collected by Employee shall be delivered promptly to Cotelligent without request
by it upon termination of Employee's employment.

     6.  Inventions

     Employee shall disclose promptly to Cotelligent any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment or within one (1) year
thereafter, and which are directly related to the business or activities of
Cotelligent and which Employee conceives as a result of his employment by
Cotelligent.  Employee hereby assigns and agrees to assign all his interests
therein to Cotelligent or its nominee. Whenever requested to do so by
Cotelligent, Employee shall execute any and all applications, assignments or
other instruments that Cotelligent shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect Cotelligent's interest therein.

     Employee understands the provisions of California Labor Code 2870.

     (a)  Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:

          (1)  Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or

          (2)  Result from any work performed by the employee for the employer.

                                       7
<PAGE>

     (b)  To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

     7.  Trade Secrets

     Employee agrees that he will not, during or after the term of this
Agreement with Cotelligent, disclose the specific terms of Cotelligent's
relationships or agreements with its significant vendors or customers or any
other significant or material trade secret of Cotelligent, whether in existence
or proposed, to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever other than as required by law or to attorneys or
accountants or other agents of the Company.

     8.  Indemnification

     In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by Cotelligent against Employee), by reason
of the fact that he is or was performing services for a member of the
Cotelligent Group (whether or not under this Agreement), then Cotelligent shall
indemnify and hold harmless the Employee against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, as actually
and reasonably incurred by Employee in connection therewith. In the event that
both Employee and Cotelligent are made a party to the same third-party action,
complaint, suit or proceeding, Cotelligent agrees to engage competent legal
representation, and Employee agrees to use the same representation, provided
that if counsel selected by Cotelligent shall have a conflict of interest that
prevents such counsel from representing Employee, Employee may engage separate
counsel and Cotelligent shall pay all attorneys' fees and costs of such separate
counsel. Further, while Employee is expected at all times to use his best
efforts to faithfully discharge his duties under this Agreement, Employee cannot
be held liable to Cotelligent for errors or omissions made in good faith where
Employee has not exhibited gross, willful and wanton negligence and misconduct
or performed criminal and fraudulent acts which materially damage the business
of Cotelligent.

     9.  No Prior Agreements

     Employee hereby represents and warrants to Cotelligent that the execution
of this Agreement by Employee and his employment by Cotelligent and the
performance of his duties hereunder will not violate or be a breach of any
agreement with a former employer, client or any other person or entity, Further,
Employee agrees to indemnify Cotelligent for any claim, including, but not
limited to, attorneys' fees and expenses of investigation, by any such third
party that such third party may now have or may hereafter come to have against
Cotelligent based upon or arising out of any non-competition agreement,
invention or secrecy agreement between Employee and such third party which was
in existence as of the date of this Agreement.

                                       8
<PAGE>

     10.  Assignment, Binding Effect

     Employee understands that he has been selected for employment by
Cotelligent on the basis of his personal qualifications, experience and skills.
Employee agrees, therefore, he cannot assign all or any portion of his
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of Section 11 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.

     11.  Change in Control.

     (a)  Employee understands and acknowledges that Cotelligent may be
acquired by, merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of Cotelligent
hereunder.

     (b)  In the event of a pending Change in Control (as defined below) wherein
Cotelligent and Employee have not received separate written notice at least five
(5) business days prior to the anticipated closing date of the transaction
giving rise to the Change in Control from the successor to all or a substantial
portion of Cotelligent's business and/or assets that such successor is willing
and able as of the closing to assume and agree to perform Cotelligent's
obligations under this Agreement in the same manner and to the same extent that
Cotelligent is hereby required to perform, then such Change in Control shall be
deemed to be a termination of this Agreement by Cotelligent without good cause
and the applicable portions of Section 4(b) will apply; however, under such
circumstances, the amount of the severance payment due to Employee (a) shall be
payable in a lump-sum payment on the effective date of the termination, and (b)
the restrictive covenants and other provisions of Section 3 shall not apply
whatsoever.

     (c)  In the case of any Change in Control, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
Cotelligent at least two (2) business days prior to the anticipated closing of
the transaction giving rise to the Change in Control. In such case, the
applicable provisions of Section 4(b) will apply as though Cotelligent had
terminated the Agreement without good cause; however, under such circumstances,
the amount of the severance payment due to Employee (a) shall be payable in a
lump-sum payment on the effective date of the termination of this Agreement and
(b) the restrictive covenants and other provisions of Section 3, if applicable,
shall all apply for a period of six months from the effective date of
termination of this Agreement.

     (d)  For purposes of applying Section 4 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Employee must be paid in full by
Cotelligent at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of his
vested options to purchase Cotelligent Common Stock, including any options with
accelerated vesting under the provisions of Cotelligent's 1998 Long-Term
Incentive Compensation Plan, such that he may convert the options to shares of
Cotelligent Common Stock at or prior to the closing of the transaction giving
rise to the Change in Control, if he so desires.

                                       9
<PAGE>

     (e)  A "Change in Control" shall be deemed to have occurred in the event
of any one of the following:

          (i) The consummation of a merger or consolidation of Cotelligent with
or into another entity or any other corporate reorganization, if more than 50%
of the combined voting power of the continuing or surviving entity's securities
outstanding immediately after such merger, consolidation or other reorganization
is owned, directly or indirectly, by persons who were not stockholders of
Cotelligent immediately prior to such merger, consolidation or other
reorganization (including for this purpose any increase in ownership in
connection with such merger, consolidation or other reorganization by a person
who was a stockholder of Cotelligent immediately prior to such merger,
consolidation or other reorganization);

          (ii) The sale, exchange, lease, transfer or other disposition of all
or substantially all of the Company's assets;

          (iii) A change in the composition of the Board, as a result of which
fewer than one-half of the directors are directors who either (x) had been
directors of Cotelligent on the date 24 months prior to the date of the change
in composition that may constitute a Change in Control (the "original
directors") or (y) were elected, or nominated, with the affirmative votes of at
least a majority of the aggregate of the original directors who were still in
office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or

          (iv) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended). directly or indirectly, of securities of Cotelligent
representing at least 30% of the total voting power represented by Cotelligent's
then outstanding voting securities. For purposes of this Paragraph (iv), the
term "person" shall have the same meaning as when used in sections 13(d) and
14(d) of such Exchange Act but shall exclude:

               (x) A trustee or other fiduciary holding securities under an
employee benefit plan of Cotelligent or a subsidiary of Cotelligent; and

               (y) A corporation owned directly or indirectly by the
stockholders of Cotelligent in substantially the same proportions as their
ownership of the common stock of Cotelligent.

     A transaction shall not constitute a Change in Control if its sole purpose
is to change the state of Cotelligent's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held Cotelligent's securities immediately before such transactions.

     (f)  Employee must be notified in writing by Cotelligent at any time if a
Change in Control becomes likely or probable.

                                       10
<PAGE>

     (g)  Cotelligent shall pay to Employee an amount that, on an after-tax
basis (including federal income, employment, excise and social security taxes,
state and local income and employment taxes, and any other applicable taxes),
equals any excise tax that is determined to be payable by Employee pursuant to
Section 4999 (or any successor provision) of the Internal Revenue Code of 1986,
as amended (and any interest or penalties related to the imposition of such
excise tax) at any time, by reason of both entitlements under this Agreement
(including any and all payments under this Section 11(g)) and entitlements
outside of this Agreement that are described in Section 280G(b)(2)(A)(i) of the
Code (or any successor provision) with reference to Cotelligent. For purposes of
this Section 11(g), Employee shall be deemed to pay federal, state and local
income taxes at the highest marginal rate of taxation. Such amount will be made
payable by Cotelligent or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a statement from a
nationally recognized legal, consulting or accounting firm as may be agreed to
by the parties setting forth the amount owed pursuant to this Section 11(g).
Cotelligent shall pay all fees and costs incurred by Employee releated to the
preparation, delivery and resolution of such written request for reimbursement.

     12.  Complete Agreement

     This Agreement is not a promise of future employment. Employee has no oral
representations, understandings or agreements with Cotelligent or any of its
officers, directors or representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete and exclusive statement
and expression of the agreement between Cotelligent and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted or supplemented
by evidence of any prior or contemporaneous oral or written agreements, This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of Cotelligent and Employee, and no term of this
Agreement may be waived except by writing signed by the party waiving the
benefit of such term.

     13.   Notice

     Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:

To Cotelligent:           Cotelligent, Inc.
                          44 Montgomery Street, Suite 4050
                          San Francisco, California 94104

To Employee:              Curtis Parker
                          4421 19th Street
                          San Francisco, CA  94114

     Notice shall be deemed given upon personal delivery or effective three (3)
days after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return

                                       11
<PAGE>

receipt requested, or when actually received. Either party may change the
address for notice by notifying the other party of such change in accordance
with this Section 13.

     14.  Severability; Headings; Changes in Law

     If any portion of this Agreement is held invalid or inoperative, the other
portions of this Agreement shall be deemed valid and operative and, so far as is
reasonable and possible, effect shall be given to the intent manifested by the
portion held invalid or inoperative. The Section headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
Any references in this Agreement to statutes, regulations, or other laws, or any
portion thereof, shall be deemed to include any amendments or succeeding
provisions.

     15.  Arbitration

     Any unresolved dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration, conducted before a
panel of three (3) arbitrators in San Francisco, California, in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options and other stock awards (or cash compensation in lieu of
vesting of options and other stock awards), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without good cause, as
defined in Section 4(a), or that Cotelligent has otherwise materially breached
this Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by Cotelligent.

     16.  Attorney's Fees

     Cotteligent agrees that it shall be financially responsible for the payment
of any attorney's fees and related costs incurred by Employee in the course of
negotiating or preparing this Agreement (including any amendments, exhibits,
supplemental documents, related documents, or superceding agreements) or
subsequently in advising Employee of, or assisting Employee in the defense of,
his rights under this Agreement (including any amendments, exhibits,
supplemental documents, related documents, or superceding agreements).

     17.  Governing Law

     This Agreement shall in all respects be construed according to the laws of
the State of California.

                                       12
<PAGE>

     18.  Counterparts

     This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.

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

                              COTELLIGENT

                              By: /s/ James R. Lavelle
                                  -----------------------------------------
                              Name:  James R. Lavelle
                              Title: Chairman, Chief Executive Officer &
                                     President

                              EMPLOYEE:

                              /S/ Curtis J. Parker
                              ---------------------------------------------
                              Chief Financial Officer

                                       13

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