Document:

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                                                                   EXHIBIT 10.25

                                CREDIT AGREEMENT

                                     BETWEEN

                           F-W OIL EXPLORATION L.L.C.

                                       AND

                               GUARANTY BANK, FSB

                                DECEMBER 28, 2004

                  REVOLVING LINE OF CREDIT OF UP TO $50,000,000

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                                TABLE OF CONTENTS

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ARTICLE I DEFINITIONS AND INTERPRETATION................................................    1
     1.1       Terms Defined Above......................................................    1
     1.2       Additional Defined Terms.................................................    1
     1.3       Undefined Financial Accounting Terms.....................................   14
     1.4       References...............................................................   14
     1.5       Articles and Sections....................................................   14
     1.6       Number and Gender........................................................   14
     1.7       Incorporation of Exhibits................................................   15

ARTICLE II TERMS OF FACILITY ...........................................................   15
     2.1       Revolving Line of Credit.................................................   15
     2.2       Letter of Credit Facility................................................   15
     2.3       Use of Loan Proceeds and Letters of Credit...............................   16
     2.4       Interest.................................................................   16
     2.5       Repayment of Loans and Interest..........................................   17
     2.6       Outstanding Amounts......................................................   17
     2.7       Time, Place, and Method of Payments......................................   17
     2.8       Borrowing Base Determinations............................................   17
     2.9       Mandatory Prepayments....................................................   18
     2.10      Voluntary Prepayments and Conversions of Loans...........................   18
     2.11      Commitment Fee...........................................................   19
     2.12      Facility Fee.............................................................   19
     2.13      Letter of Credit Fee.....................................................   19
     2.14      Engineering Fee..........................................................   19
     2.15      Loans to Satisfy Obligations of Borrower.................................   20
     2.16      Security Interest in Accounts; Right of Offset...........................   20
     2.17      General Provisions Relating to Interest..................................   20
     2.18      Yield Protection.........................................................   21
     2.19      Limitation on Types of Loans.............................................   23
     2.20      Illegality...............................................................   24
     2.21      Regulatory Change........................................................   24
     2.22      Limitations on Interest Periods..........................................   24
     2.23      Letters in Lieu of Transfer Orders.......................................   24
     2.24      Power of Attorney........................................................   25

ARTICLE III CONDITIONS .................................................................   25
     3.1       Receipt of Loan Documents and Other Items................................   25
     3.2       Each Loan and Letter of Credit...........................................   27

ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................   29
     4.1       Due Authorization........................................................   29
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<S>                                                                                        <C>
     4.2       Limited Liability Company Existence......................................   29
     4.3       Valid and Binding Obligations............................................   30
     4.4       Security Instruments.....................................................   30
     4.5       Title to Assets..........................................................   30
     4.6       No Material Misstatements................................................   30
     4.7       Liabilities, Litigation, and Restrictions................................   30
     4.8       Authorizations; Consents.................................................   30
     4.9       Compliance with Laws.....................................................   31
     4.10      ERISA....................................................................   31
     4.11      Environmental Laws.......................................................   31
     4.12      Compliance with Federal Reserve Regulations..............................   32
     4.13      Investment Company Act Compliance........................................   32
     4.14      Public Utility Holding Company Act Compliance............................   32
     4.15      Proper Filing of Tax Returns; Payment of Taxes Due.......................   32
     4.16      Refunds..................................................................   32
     4.17      Gas Contracts............................................................   32
     4.18      Intellectual Property....................................................   33
     4.19      Casualties or Taking of Property.........................................   33
     4.20      Locations of Borrower....................................................   33
     4.21      Subsidiaries.............................................................   33

ARTICLE V AFFIRMATIVE COVENANTS ........................................................   33
     5.1       Maintenance and Access to Records........................................   33
     5.2       Monthly Financial Statements.............................................   33
     5.3       Quarterly Financial Statements; Compliance Certificates..................   33
     5.4       Annual Financial Statements..............................................   34
     5.5       Oil and Gas Reserve Reports..............................................   34
     5.6       Title Opinions; Title Defects and Mortgages..............................   34
     5.7       Notices of Certain Events................................................   35
     5.8       Letters in Lieu of Transfer Orders; Division Orders......................   36
     5.9       Additional Information...................................................   36
     5.10      Compliance with Laws.....................................................   36
     5.11      Payment of Assessments and Charges.......................................   36
     5.12      Maintenance of Limited Liability Company Existence and Good Standing.....   37
     5.13      Payment of Note; Performance of Obligations..............................   37
     5.14      Further Assurances.......................................................   37
     5.15      Initial Fees and Expenses of Counsel to Lender...........................   37
     5.16      Subsequent Fees and Expenses of Lender...................................   37
     5.17      Operation of Oil and Gas Properties......................................   38
     5.18      Maintenance and Inspection of Properties.................................   38
     5.19      Maintenance of Insurance.................................................   38
     5.20      INDEMNIFICATION..........................................................   38
     5.21      Future Subsidiaries......................................................   39
     5.22      Hedging..................................................................   39
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<S>                                                                                       <C>
ARTICLE VI NEGATIVE COVENANTS ..........................................................   39
     6.1       Indebtedness.............................................................   40
     6.2       Contingent Obligations...................................................   40
     6.3       Liens....................................................................   40
     6.4       Sales of Assets..........................................................   40
     6.5       Leasebacks...............................................................   40
     6.6       Loans or Advances........................................................   40
     6.7       Investments..............................................................   41
     6.8       Dividends and Distributions..............................................   41
     6.9       Issuance of Stock; Changes in Limited Liability Structure................   41
     6.10      Transactions with Affiliates.............................................   41
     6.11      Lines of Business........................................................   41
     6.12      ERISA Compliance.........................................................   41
     6.13      Interest Coverage Ratio..................................................   41
     6.14      Current Ratio............................................................   42
     6.15      Tangible Net Worth.......................................................   42
     6.16      Bank Debt Coverage Ratio.................................................   42
     6.17      General and Administrative Expenses......................................   42

ARTICLE VII EVENTS OF DEFAULT ..........................................................   42
     7.1       Enumeration of Events of Default.........................................   42
     7.2       Remedies.................................................................   44

ARTICLE VIII MISCELLANEOUS .............................................................   45
     8.1       Transfers; Participations................................................   45
     8.2       Survival of Representations, Warranties, and Covenants...................   45
     8.3       Notices and Other Communications.........................................   45
     8.4       Parties in Interest......................................................   46
     8.5       Rights of Third Parties..................................................   46
     8.6       Renewals; Extensions.....................................................   46
     8.7       No Waiver; Rights Cumulative.............................................   46
     8.8       Survival Upon Unenforceability...........................................   46
     8.9       Amendments; Waivers......................................................   46
     8.10      Controlling Agreement....................................................   47
     8.11      Disposition of Collateral................................................   47
     8.12      GOVERNING LAW............................................................   47
     8.13      JURISDICTION AND VENUE...................................................   47
     8.14      WAIVER OF RIGHTS TO JURY TRIAL...........................................   47
     8.15      ENTIRE AGREEMENT.........................................................   48
     8.16      Counterparts.............................................................   48
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LIST OF EXHIBITS
Exhibit I      -     Form of Note
Exhibit II     -     Form of Borrowing Request
Exhibit III    -     Form of Compliance Certificate

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Exhibit IV     -     Form of Opinion of Counsel
Exhibit VI     -     Disclosures

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                                CREDIT AGREEMENT

      THIS CREDIT AGREEMENT is made and entered into this 28 day of December,
2004, by and between F-W OIL EXPLORATION L.L.C. a Delaware limited liability
company (the "Borrower"), and GUARANTY BANK, FSB, a federal savings bank, (the
"Lender").

                              W I T N E S S E T H:

      In consideration of the mutual covenants and agreements herein contained,
the Borrower and the Lender hereby agree as follows:

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

      1.1 Terms Defined Above. As used in this Credit Agreement, the terms
"Borrower" and "Lender" shall have the meaning assigned to them hereinabove.

      1.2 Additional Defined Terms. As used in this Credit Agreement, each of
the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:

            "Additional Costs" shall mean costs which the Lender determine are
      attributable to its obligation to make or its making or maintaining any
      LIBO Rate Loan, or any reduction in any amount receivable by the Lender in
      respect of any such obligation or any LIBO Rate Loan, resulting from any
      Regulatory Change which (a) changes the basis of taxation of any amounts
      payable to the Lenders under this Agreement or the Note in respect of any
      LIBO Rate Loan (other than taxes imposed on the overall net income of the
      Lender), (b) imposes or modifies any reserve, special deposit, minimum
      capital, capital rates, or similar requirements relating to any extensions
      of credit or other assets of, or any deposits with or other liabilities
      of, the Lender (including LIBO Rate Loans and Dollar deposits in the
      London interbank market in connection with LIBO Rate Loans), or any
      commitments of the Lenders hereunder, (c) increases the Assessment Rate,
      or (d) imposes any other condition affecting this Agreement or any of such
      extensions of credit, liabilities, or commitments.

            "Adjusted LIBO Rate" shall mean, for any LIBO Rate Loan, an interest
      rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
      determined by the Lender to be equal to the sum of the LIBO Rate for such
      Loan plus the Applicable Margin, but in no event exceeding the Highest
      Lawful Rate.

            "Affiliate" shall mean any Person directly or indirectly
      controlling, or under common control with, the Borrower and includes any
      Subsidiary of the Borrower and any "affiliate" of the Borrower within the
      meaning of Reg.

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      Section 240.12b-2 of the Securities Exchange Act of 1934, as amended, with
      "control," as used in this definition, meaning possession, directly or
      indirectly, of the power to direct or cause the direction of management,
      policies or action through ownership of voting securities, contract,
      voting trust, or membership in management or in the group appointing or
      electing management or otherwise through formal or informal arrangements
      or business relationships.

            "Agreement" shall mean this Credit Agreement, as it may be amended,
      supplemented, or restated from time to time.

            "Applicable Lending Office" shall mean, for each type of Loan, the
      lending office of the Lender (or an affiliate of the Lender) designated
      for such type of Loan on the signature pages hereof or such other office
      of the Lender (or an affiliate of the Lender) as the Lender may from time
      to time specify to the Borrower as the office by which Loans of such type
      are to be made and maintained.

            "Applicable Margin" shall mean as to each LIBO Rate Loan or Letter
      of Credit Fee 2.50%.

            "Assessment Rate" shall mean, for any Interest Period, the average
      rate (rounded upwards if necessary to the nearest 1/100 of 1%) charged by
      the Federal Deposit Insurance Corporation (or any successor thereto) to
      the Lender for deposit insurance for Dollar time deposits with the Lender
      at the Principal Office during such Interest Period, as determined by the
      Lender.

            "Available Commitment" shall mean, at any time, an amount equal to
      the remainder, if any, of (a) the Borrowing Base in effect at such time
      minus (b) the Loan Balance at such time.

            "Bank Debt" shall mean the amount owed under this Agreement by the
      Borrower to the Lender.

            "Base Rate" shall mean, at any time, the rate of interest per annum
      then most recently established by the Lender as its base rate, which rate
      may not be the lowest rate of interest charged by the Lender to its
      borrowers. Each change in any interest rate provided for herein based upon
      the Base Rate resulting from a change in the Base Rate shall take effect
      without notice to the Borrower at the time of such change in the Base
      Rate.

            "Borrowing Base" shall mean, at any time, the amount determined by
      the Lender in accordance with Section 2.8 and then in effect.

            "Borrowing Request" shall mean each written request, in
      substantially the form attached hereto as Exhibit II, by the Borrower to
      the Lender for a borrowing, conversion, or prepayment pursuant to Sections
      2.1 or 2.10, each of which shall:

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                  (a) be signed by a Responsible Officer of the Borrower;

                  (b) when requesting a borrowing, be accompanied by a
            Compliance Certificate or acknowledgment that Borrower is in
            compliance;

                  (c) specify the amount and type of Loan requested, and, as
            applicable, the Loan to be converted or prepaid and the date of the
            borrowing, conversion, or prepayment (which shall be a Business
            Day);

                  (d) when requesting a Floating Rate Loan, be delivered to the
            Lender no later than 5:00 p.m., Central Standard or Daylight Savings
            Time, as the case may be, on the Business Day preceding the day of
            the requested borrowing, conversion, or prepayment;

                  (e) when requesting a LIBO Rate Loan, be delivered to the
            Lender no later than 10:00 a.m., Central Standard or Daylight
            Savings Time, as the case may be, three Business Days preceding the
            requested borrowing, conversion, or prepayment and designate the
            Interest Period requested with respect to such Loan.

            "Business Day" shall mean (a) for all purposes other than as covered
      by clause (b) of this definition, a day other than a Saturday, Sunday,
      legal holiday for commercial banks under the laws of the State of Texas,
      or any other day when banking is suspended in the State of Texas, and (b)
      with respect to all requests, notices, and determinations in connection
      with, and payments of principal and interest on, LIBO Rate Loans, a day
      which is a Business Day described in clause (a) of this definition and
      which is a day for trading by and between banks for Dollar deposits in the
      London interbank market.

            "Closing Date" shall mean the effective date of this Agreement.

            "Code" shall mean the United States Internal Revenue Code of 1986,
      as amended from time to time.

            "Collateral" shall mean the Mortgaged Properties and any other
      Property now or at any time used or intended as security for the payment
      or performance of all or any portion of the Obligations.

            "Commitment" shall mean the obligation of the Lender, subject to
      applicable provisions of this Agreement, to make Loans to or for the
      benefit of the Borrower pursuant to Section 2.1 and to issue Letters of
      Credit pursuant to Section 2.2

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            "Commitment Fee" shall mean each fee payable to the Lender by the
      Borrower pursuant to Section 2.11.

            "Commitment Period" shall mean the period from and including the
      Closing Date to but not including the Commitment Termination Date.

            "Commitment Termination Date" shall mean March 31, 2007.

            "Commodity Hedge Agreement" shall mean any crude oil, natural gas,
      or other hydrocarbon floor, collar, cap, price protection, or swap
      agreement, in form and substance with a Person acceptable to the Lender.

            "Commonly Controlled Entity" shall mean any Person which is under
      common control with the Borrower within the meaning of Section 4001 of
      ERISA.

            "Compliance Certificate" shall mean each certificate, substantially
      in the form attached hereto as Exhibit III, executed by a Responsible
      Officer of the Borrower and furnished to the Lender from time to time in
      accordance with Sections 5.3 and 5.4.

            "Contingent Obligation" shall mean, as to any Person, without
      duplication, any obligation of such Person guaranteeing or in effect
      guaranteeing any Indebtedness, leases, dividends, or other obligations of
      any other Person (for purposes of this definition, a "primary obligation")
      in any manner, whether directly or indirectly, including, without
      limitation, any obligation of such Person, regardless of whether such
      obligation is contingent, (a) to purchase any primary obligation or any
      Property constituting direct or indirect security therefore, (b) to
      advance or supply funds (i) for the purchase or payment of any primary
      obligation, or (ii) to maintain working or equity capital of any other
      Person in respect of any primary obligation, or otherwise to maintain the
      net worth or solvency of any other Person, (c) to purchase Property,
      securities or services primarily for the purpose of assuring the owner of
      any primary obligation of the ability of the Person primarily liable for
      such primary obligation to make payment thereof, or (d) otherwise to
      assure or hold harmless the owner of any such primary obligation against
      loss in respect thereof, with the amount of any Contingent Obligation
      being deemed to be equal to the stated or determinable amount of the
      primary obligation in respect of which such Contingent Obligation is made
      or, if not stated or determinable, the maximum reasonably anticipated
      liability in respect thereof as determined by such Person in good faith.

            "Current Assets" shall mean all assets which would, in accordance
      with GAAP, be included as current assets on a balance sheet of the
      Borrower as of the date of calculation, plus unused availability under
      this facility less current assets resulting from Commodity Hedge
      Agreements.

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            "Current Liabilities" shall mean all liabilities which would, in
      accordance with GAAP, be included as current liabilities on a balance
      sheet of the Borrower as of the date of calculation, but excluding the
      current maturities under this facility both principal and interest, and
      less current payables resulting from Commodity Hedge Agreements and
      accounts payable within 60 days or longer if within terms agreed to with a
      trade creditor.

            "Default" shall mean any event or occurrence which with the lapse of
      time or the giving of notice or both would become an Event of Default.

            "Default Rate" shall mean a per annum interest rate equal to the
      Base Rate plus five percent (5%), but in no event exceeding the Highest
      Lawful Rate.

            "Dollars" and "$" shall mean dollars in lawful currency of the
      United States of America.

            "EBITDAX" shall mean, for any period, Net Income for such period
      plus interest expense, federal and state income taxes, depreciation,
      amortization, exploration expenses and other non-cash expenses, less
      non-cash gains for such period deducted in the determination of net income
      for such period.

            "Environmental Complaint" shall mean any written complaint, order,
      directive, claim, citation, notice of environmental report or
      investigation, or other notice by any Governmental Authority or any other
      Person with respect to (a) air emissions, (b) spills, releases, or
      discharges to soils, any improvements located thereon, surface water,
      groundwater, or the sewer, septic, waste treatment, storage, or disposal
      systems servicing any Property of the Borrower, (c) solid or liquid waste
      disposal, (d) the use, generation, storage, transportation, or disposal of
      any Hazardous Substance, or (e) other environmental, health, or safety
      matters affecting any Property of the Borrower or the business conducted
      thereon.

            "Environmental Laws" shall mean (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
      Hazardous Materials Transportation Act, the Superfund Amendments and
      Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
      equivalent 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 equivalent
      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.

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            "ERISA" shall mean the Employee Retirement Income Security Act of
      1974, as amended from time to time, and the regulations thereunder and
      interpretations thereof.

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

            "Facility Fee" shall mean the fee payable to the Lender by the
      Borrower pursuant to Section 2.12.

            "Final Maturity" shall mean March 31, 2007.

            "Financial Statements" shall mean statements of the financial
      condition of the Borrower as at the point in time and for the period
      indicated and consisting of at least a balance sheet and related
      statements of operations, common stock and other stockholders' equity, and
      cash flows for the Borrower and, when required by applicable provisions of
      this Agreement to be audited, accompanied by the unqualified certification
      of an independent certified public accountants acceptable to the Lender,
      all of which shall be prepared in accordance with GAAP consistently
      applied and in comparative form with respect to the corresponding period
      of the preceding fiscal period.

            "Fixed Rate Loan" shall mean any LIBO Rate Loan.

            "Floating Rate" shall mean an interest rate per annum equal to the
      Base Rate from time to time in effect plus three-fourths of one percent
      (3/4 of 1%), but in no event exceeding the Highest Lawful Rate.

            "Floating Rate Loan" shall mean any Loan and any portion of the Loan
      Balance which the Borrower has requested, in the initial Borrowing Request
      for such Loan or a subsequent Borrowing Request for such portion of the
      Loan Balance, bearing interest at the Floating Rate, or which pursuant to
      the terms hereof is otherwise required to bear interest at the Floating
      Rate.

            "GAAP" shall mean generally accepted accounting principles
      established by the Financial Accounting Standards Board or the American
      Institute of Certified Public Accountants and in effect in the United
      States from time to time.

            "Governmental Authority" shall mean any nation, country,
      commonwealth, territory, government, state, county, parish, municipality,
      or other political subdivision and any entity exercising executive,
      legislative, judicial, regulatory, or administrative functions of or
      pertaining to government.

            "Hazardous Substances" shall mean flammables, explosives,
      radioactive materials, hazardous wastes, asbestos, or any material
      containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or
      related materials, petroleum, petroleum products, associated oil or
      natural gas exploration,

                                      -6-
<PAGE>

      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 law or
      regulation now or hereafter enacted or promulgated by any Governmental
      Authority.

            "Highest Lawful Rate" shall mean the maximum non-usurious interest
      rate, if any (or, if the context so requires, an amount calculated at such
      rate), that at any time or from time to time may be contracted for, taken,
      reserved, charged, or received under applicable laws of the State of Texas
      or the United States of America, whichever authorizes the greater rate, as
      such laws are presently in effect or, to the extent allowed by applicable
      law, as such laws may hereafter be in effect and which allow a higher
      maximum non-usurious interest rate than such laws now allow.

            "Indebtedness" shall mean, as to any Person, without duplication,
      (a) all liabilities (excluding reserves for deferred income taxes,
      deferred compensation liabilities, and other deferred liabilities and
      credits) which in accordance with GAAP would be included in determining
      total liabilities as shown on the liability side of a balance sheet, (b)
      all obligations of such Person evidenced by bonds, debentures, promissory
      notes, or similar evidences of indebtedness, (c) all other indebtedness of
      such Person for borrowed money, and (d) all obligations of others, to the
      extent any such obligation is secured by a Lien on the assets of such
      Person (whether or not such Person has assumed or become liable for the
      obligation secured by such Lien). (Provided, however, Indebtedness shall
      not include unsecured advances by members and/or shareholders).

            "Insolvency Proceeding" shall mean application (whether voluntary or
      instituted by another Person) for or the consent to the appointment of a
      receiver, trustee, conservator, custodian, or liquidator of any Person or
      of all or a substantial part of the Property of such Person, or the filing
      of a petition (whether voluntary or instituted by another Person)
      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.

            "Intellectual Property" shall mean patents, patent applications,
      trademarks, tradenames, copyrights, technology, know-how, and processes.

            "Interest Expense" shall mean, for any period, the total interest
      expense (including, without limitation, interest expense attributable to
      capitalized leases) of the Borrower for such period, determined in
      accordance with GAAP.

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            "Interest Period" shall mean, subject to the limitations set forth
      in Section 2.22, with respect to any LIBO Rate Loan, a period commencing
      on the date such Loan is made or converted from a Loan of another type
      pursuant to this Agreement or the last day of the next preceding Interest
      Period with respect to such Loan and ending on the numerically
      corresponding day in the calendar month that is one, two, or three months
      thereafter, as the Borrower may request in the Borrowing Request for such
      Loan.

            "Investment" in any Person shall mean any stock, bond, note, or
      other evidence of Indebtedness, or any other security (other than current
      trade and customer accounts) of, investment or partnership interest in or
      loan to, such Person.

            "L/C Exposure" shall mean, at any time, the aggregate maximum amount
      available to be drawn under outstanding Letters of Credit at such time.

            "Letter of Credit" shall mean any standby letter of credit issued by
      the Lender for the account of the Borrower pursuant to Section 2.2.

            "Letter of Credit Application" shall mean the standard letter of
      credit application employed by the Lender from time to time in connection
      with letters of credit, provided that in the event of a conflict between
      the terms of each Letter of Credit Application and this Agreement, this
      Agreement shall control.

            "Letter of Credit Fee" shall mean each fee payable to the Lender by
      the Borrower pursuant to Section 2.13 upon or in connection with the
      issuance of a Letter of Credit.

            "LIBO Rate" shall mean, with respect to any Interest Period for any
      LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards, if
      necessary, to the nearest 1/16 of 1%) equal to the average of the offered
      quotations appearing on Telerate Page 3750 (or if such Telerate Page shall
      not be available, any successor or similar service selected by the Lender
      and the Borrower) as of approximately 10:00 a.m., Central Standard or
      Daylight Savings Time, as the case may be, on the day two Business Days
      prior to the first day of such Interest Period for Dollar deposits in an
      amount comparable to the principal amount of such LIBO Rate Loan and
      having a term comparable to the Interest Period for such LIBO Rate Loan,
      or (b) the Highest Lawful Rate. If neither such Telerate Page 3750 nor any
      successor or similar service is available, the term "LIBO Rate" shall
      mean, with respect to any Interest Period for any LIBO Rate Loan, the
      lesser of (a) the rate per annum (rounded upwards if necessary, to the
      nearest 1/16 of 1%) quoted by the Lender at approximately 11:00 a.m.,
      London time (or as soon thereafter as practicable) two Business Days prior
      to the first day of the Interest Period for such LIBO Rate Loan for the
      offering by the Lender to leading banks in the London interbank market of
      Dollar deposits in an amount comparable to the

                                      -8-
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      principal amount of such LIBO Rate Loan and having a term comparable to
      the Interest Period for such LIBO Rate Loan, or (b) the Highest Lawful
      Rate.

            "LIBO Rate Loan" shall mean any Loan and any portion of the Loan
      Balance which the Borrower has requested, in the initial Borrowing Request
      for such Loan or a subsequent Borrowing Request for such portion of the
      Loan Balance, bearing interest at the Adjusted LIBO Rate and which is
      permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.

            "Lien" shall mean any interest in Property securing an obligation
      owed to, or a claim by, a Person other than the owner of such Property,
      whether such interest is based on common law, statute, or contract, and
      including, but not limited to, the lien or security interest arising from
      a mortgage, ship mortgage, encumbrance, pledge, security agreement,
      conditional sale or trust receipt, or a lease, consignment, or bailment
      for security purposes (other than true leases or true consignments), liens
      of mechanics, materialmen, and artisans, maritime liens and reservations,
      exceptions, encroachments, easements, rights of way, covenants,
      conditions, restrictions, leases, and other title exceptions and
      encumbrances affecting Property which secure an obligation owed to, or a
      claim by, a Person other than the owner of such Property (for the purpose
      of this Agreement, the Borrower shall be deemed to be the owner of any
      Property which it has acquired or holds subject to a conditional sale
      agreement, financing lease, or other arrangement pursuant to which title
      to the Property has been retained by or vested in some other Person for
      security purposes), and the filing or recording of any financing statement
      or other security instrument in any public office.

            "Limitation Period" shall mean, any period while any amount remains
      owing on the Note and interest on such amount, calculated at the
      applicable interest rate, plus any fees or other sums payable under any
      Loan Document and deemed to be interest under applicable law, would exceed
      the amount of interest which would accrue at the Highest Lawful Rate.

            "Loan" shall mean any loan made by the Lender to or for the benefit
      of the Borrower pursuant to this Agreement and any payment made by the
      Lender under a Letter of Credit.

            "Loan Balance" shall mean, at any time, the outstanding principal
      balance of the Notes at such time plus the L/C Exposure at such time.

            "Loan Documents" shall mean this Agreement, the Note, the Letter of
      Credit Applications, the Letters of Credit, the Security Instruments, and
      all other documents and instruments now or hereafter delivered pursuant to
      the terms of or in connection with this Agreement, the Note, the Letter of
      Credit Applications, the Letters of Credit, or the Security Instruments,
      and all renewals and extensions of, amendments and supplements to, and
      restatements of, any or all of the foregoing from time to time in effect.

                                      -9-
<PAGE>

            "Low Price Period" shall mean if natural gas prices, based on the 12
      month forward strip as quoted on NYMEX, drop to 112% of the Lender's
      prevailing price assumption on natural gas (as of the Closing Date the
      Lender's assumption is $4.25 per mcf resulting in a trigger price of $4.76
      per mcf) for 10 consecutive Business Days.

            "Material Adverse Effect" shall mean (a) any adverse effect on the
      business, operations, properties, or financial condition of the Borrower,
      which substantially increases the risk that any of the Obligations will
      not be repaid as and when due, or (b) any substantially adverse effect
      upon the Collateral.

            "Mortgaged Properties" shall mean all Oil and Gas Properties of the
      Borrower subject to a perfected first-priority Lien in favor of the Lender
      for the benefit of the Lenders, subject only to Permitted Liens, as
      security for the Obligations.

            "Multiemployer Plan" shall mean a Plan which is a multiemployer plan
      as defined in Section 4001(a)(3) of ERISA.

            "Net Income" shall mean, for any period, the net income (or loss) of
      the Borrower for such period, determined in accordance with GAAP.

            "Note" shall mean, the promissory note of the Borrower in the form
      attached hereto as Exhibit I with all blanks in such form completed
      appropriately, together with all renewals, extensions for any period,
      increases, and rearrangements thereof.

            "Obligations" shall mean, without duplication, (a) all Indebtedness
      evidenced by the Note, (b) the Reimbursement Obligations, (c) the undrawn,
      unexpired amount of all outstanding Letters of Credit, (d) the obligation
      of the Borrower for the payment of Commitment Fees, Facility Fees, Letter
      of Credit Fees, and Engineering Fees, (e) all obligations and liabilities
      whether now existing or hereafter arising of the Borrower to the Lender in
      connection with any Commodity Hedge Agreement or Rate Management
      Transaction, including Letters of Credit issued outside of this facility
      for Commodity Hedge Agreements or Rate Management Transactions, and (f)
      all other obligations and liabilities of the Borrower to the Lender, now
      existing or hereafter incurred, under, arising out of or in connection
      with any Loan Document, and to the extent that any of the foregoing
      includes or refers to the payment of amounts deemed or constituting
      interest, only so much thereof as shall have accrued, been earned and
      which remains unpaid at each relevant time of determination.

            "Oil and Gas Properties" shall mean 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 or offshore from any State of the United States, including,
      without limitation, overriding royalty and royalty

                                      -10-
<PAGE>

      interests, leasehold estate 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 appertaining, belonging, affixed, or
      incidental thereto.

            "PBGC" shall mean the Pension Benefit Guaranty Corporation
      established pursuant to Subtitle A of Title IV of ERISA or any entity
      succeeding to any or all of its functions under ERISA.

            "Permitted Liens" shall mean (a) Liens for taxes, assessments, or
      other governmental charges or levies not yet due or which (if foreclosure,
      distraint, sale, or other similar proceedings shall not have been
      initiated) are being contested in good faith by appropriate proceedings,
      and such reserve as may be required by GAAP shall have been made therefor,
      (b) Liens in connection with workers' compensation, unemployment insurance
      or other social security (other than Liens created by Section 4068 of
      ERISA), old-age pension, or public liability obligations which are not yet
      due or which are being contested in good faith by appropriate proceedings,
      if such reserve as may be required by GAAP shall have been made therefore,
      (c) Liens in favor of vendors, carriers, warehousemen, repairmen,
      mechanics, workmen, materialmen, construction, or similar Liens arising by
      operation of law in the ordinary course of business in respect of
      obligations which are not yet due or which are being contested in good
      faith by appropriate proceedings, if such reserve as may be required by
      GAAP shall have been made therefore, (d) Liens in favor of operators and
      non-operators under joint operating agreements or similar contractual
      arrangements arising in the ordinary course of the business of the
      Borrower to secure amounts owing, which amounts are not yet due or are
      being contested in good faith by appropriate proceedings, if such reserve
      as may be required by GAAP shall have been made therefore, (e) Liens under
      production sales agreements, division orders, operating agreements, and
      other agreements customary in the oil and gas business for processing,
      producing, and selling hydrocarbons securing obligations not constituting
      Indebtedness and provided that such Liens do not secure obligations to
      deliver hydrocarbons at some future date without receiving full payment
      therefore within 90 days of delivery, (f) easements, rights of way,
      restrictions, and other similar encumbrances, and minor defects in the
      chain of title which are customarily accepted in the oil and gas financing
      industry, none of which interfere with the ordinary conduct of the
      business of the Borrower or materially detract from the value or use of
      the Property to which they apply, (h) Liens in favor of the Lender and
      other Liens expressly permitted under the Security Instruments and (i)
      Liens not to exceed $50,000.

            "Person" shall mean an individual, corporation, partnership, trust,
      unincorporated organization, limited liability company, government, any
      agency or political subdivision of any government, or any other form of
      entity.

                                      -11-
<PAGE>

            "Plan" shall mean, at any time, any employee benefit plan which is
      covered by ERISA and in respect of which the Borrower or any Commonly
      Controlled Entity 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.

            "Principal Office" shall mean the principal office of the Lender in
      Houston, Texas, presently located at 333 Clay Street, Suite 4400, Houston,
      Texas 77002.

            "Prohibited Transaction" shall have the meaning assigned to such
      term in Section 4975 of the Code.

            "Property" shall mean any interest in any kind of property or asset,
      whether real, personal or mixed, tangible or intangible.

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

            "Regulation D" shall mean Regulation D of the Board of Governors of
      the Federal Reserve System, as the same may be amended or supplemented
      from time to time.

            "Regulatory Change" shall mean the passage, adoption, institution,
      or amendment of any federal, state, local, or foreign Requirement of Law
      (including, without limitation, Regulation D), or any interpretation,
      directive, or request (whether or not having the force of law) of any
      Governmental Authority or monetary authority charged with the enforcement,
      interpretation, or administration thereof, occurring after the Closing
      Date and applying to a class of banks including the Lender.

            "Reimbursement Obligation" shall mean the obligation of the Borrower
      to provide to the Lenders or reimburse the Lenders for any amounts
      payable, paid, or incurred by the Lenders with respect to Letters of
      Credit.

            "Release of Hazardous Substances" shall mean any emission, spill,
      release, disposal, or discharge, except in accordance with a valid permit,
      license,

                                      -12-
<PAGE>

      certificate, or approval of the relevant Governmental Authority, of any
      Hazardous Substance into or upon (a) the air, (b) soils or any
      improvements located thereon, (c) surface water or groundwater, or (d) the
      sewer or septic system, or the waste treatment, storage, or disposal
      system servicing any Property of the Borrower.

            "Reorganization" shall mean, with respect to any Multiemployer Plan,
      that such Plan is in reorganization within the meaning of such term in
      Section 4241 of ERISA.

            "Reportable Event" shall mean any of the events set forth in Section
      4043(b) of ERISA, other than those events as to which the thirty-day
      notice period is waived under subsections .13, .14, .16, .18, .19 or .20
      of PBGC Reg. Section 2615.

            "Requirement of Law" shall mean, as to any Person, the certificate
      or articles of incorporation and by-laws or other organizational or
      governing documents of such Person, and any applicable law, treaty,
      ordinance, order, judgment, rule, decree, regulation, or determination of
      an arbitrator, court, or other Governmental Authority, including, without
      limitation, rules, regulations, orders, and requirements for permits,
      licenses, registrations, approvals, or authorizations, in each case as
      such now exist or may be hereafter amended and are applicable to or
      binding upon such Person or any of its Property or to which such Person or
      any of its Property is subject.

            "Reserve Report" shall mean each report delivered to the Lender
      pursuant to Section 5.5, provided that Borrower shall not be required to
      deliver more than three reports.

            "Responsible Officer" shall mean, as to any Person, its President,
      Chief Executive Officer or any Vice President.

            "Security Instruments" shall mean the security instruments executed
      and delivered in satisfaction of the condition set forth in Section
      3.1(f), and all other documents and instruments at any time executed as
      security for all or any portion of the Obligations, as such instruments
      may be amended, restated, or supplemented from time to time.

            "Single Employer Plan" shall mean any Plan which is covered by Title
      IV of ERISA, but which is not a Multiemployer Plan.

            "Subsidiary" shall mean, as to any Person, a corporation of which
      shares of stock having ordinary voting power (other than stock having such
      power only by reason of the happening of a contingency) to elect a
      majority of the board of directors or other managers of such corporation
      are at the time owned, or the management of which is otherwise controlled,
      directly or indirectly through one or more intermediaries, or both, by
      such Person.

                                      -13-
<PAGE>

            "Superfund Site" shall mean those sites listed on the Environmental
      Protection Agency National Priority List and eligible for remedial action
      or any comparable state registries or list in any state of the United
      States.

            "Tangible Net Worth" shall mean (a) total assets, as would be
      reflected on a balance sheet of the Borrower prepared in accordance with
      GAAP, exclusive of Intellectual Property, experimental or organization
      expenses, franchises, licenses, permits, and other intangible assets,
      treasury stock, unamortized underwriters' debt discount and expenses, and
      goodwill minus (b) total liabilities, as would be reflected on a balance
      sheet of the Borrower prepared in accordance with GAAP exclusive of
      unsecured advances by members and/or shareholders.

            "Transferee" shall mean any Person to which any Lender has sold,
      assigned, transferred, or granted a participation in any of the
      Obligations, as authorized pursuant to Section 8.1, and any Person
      acquiring, by purchase, assignment, transfer, or participation, from any
      such purchaser, assignee, transferee, or participant, any part of such
      Obligations.

            "UCC" shall mean the Uniform Commercial Code as from time to time in
      effect in the State of Texas.

      1.3 Undefined Financial Accounting Terms. Undefined financial accounting
terms used in this Agreement shall be defined according to GAAP at the time in
effect.

      1.4 References. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.

      1.5 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

      1.6 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. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. 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.

                                      -14-
<PAGE>

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

                                   ARTICLE II

                                TERMS OF FACILITY

      2.1 Revolving Line of Credit. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lender agrees,
during the Commitment Period, to make Loans, in immediately available funds at
the Applicable Lending Office or the Principal Office, to or for the benefit of
the Borrower in an amount not to exceed at any time outstanding the Borrowing
Base then in effect. Loans shall be made from time to time on any Business Day
designated by the Borrower in its Borrowing Request.

            (b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow and convert Loans of one
type or with one Interest Period into Loans of another type or with a different
Interest Period. Except for prepayments made pursuant to Section 2.9, each
borrowing, conversion, and prepayment of principal of Loans shall be in an
amount at least equal to $100,000. Each borrowing, prepayment, or conversion of
or into a Loan of a different type or, in the case of a LIBO Rate Loan, having a
different Interest Period, shall be deemed a separate borrowing, conversion, and
prepayment for purposes of the foregoing, one for each type of Loan or Interest
Period. Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of LIBO Rate Loans having the same Interest Period
shall be at least equal to $100,000; and if any LIBO Rate Loan would otherwise
be in a lesser principal amount for any period, such Loan shall be a Floating
Rate Loan during such period.

            (c) The Loans shall be made and maintained at the Applicable Lending
Office or the Principal Office and shall be evidenced by the Notes.

            (d) Not later than 2:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on the date specified for each borrowing, the Lender
shall make available, in immediately available funds, for the account of the
Borrower. The amount so received by the Lender shall, subject to the terms and
conditions hereof, be made available to the Borrower in immediately available
funds at the Principal Office by the end of that Business Day. All Loans by the
Lender shall be maintained at the Applicable Lending Office of the Lender and
shall be evidenced by the Note of the Lender.

            (e) The face amounts of the Note has been established as an
administrative convenience and do not commit the Lender to advance funds
hereunder in excess of the then current Borrowing Base.

      2.2 Letter of Credit Facility. (a) Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement, the
Lender, agrees from the date of

                                      -15-
<PAGE>

this Agreement until the date which is thirty days prior to the Commitment
Termination Date, to issue Letters of Credit for the account of the Borrower
and/or the benefit of any Subsidiary of the Borrower and to renew and extend
such Letters of Credit. Letters of Credit shall be issued, renewed, or extended
from time to time on any Business Day designated by the Borrower following the
receipt in accordance with the terms hereof by the Lender of the written (or
oral, confirmed promptly in writing) request by a Responsible Officer of the
Borrower and a Letter of Credit Application. Letters of Credit shall be issued
in such amounts as the Borrower may request; provided, however, that (i) no
Letter of Credit shall have an expiration date which is more than 365 days after
the issuance thereof or subsequent to Final Maturity, (ii) each automatically
renewable Letter of Credit shall provide that it may be terminated by the Lender
at its then current expiry date by not less than 30 days' written notice by the
Lender to the beneficiary of such Letter of Credit, and (iii) the Lender shall
not be obligated to issue any Letter of Credit if (A) the face amount thereof
would exceed the Available Commitment, or (B) after giving effect to the
issuance thereof, (B) the L/C Exposure, when added to the Loan Balance then
outstanding, would exceed the Commitment Amount, or (C) the L/C Exposure would
exceed $2,000,000 and (iv) notwithstanding the above, Letters of Credit may be
issued for Commodity Hedge Agreements or Rate Management Transactions at the
sole discretion of the Lender. Any Letters of Credit issued under (iv) above
shall be cross-collateralized and cross-defaulted with the other Obligations
hereunder.

      2.3 Use of Loan Proceeds and Letters of Credit. Proceeds of the Loan shall
be used solely for acquisitions, exploration and development of Oil and Gas
Properties and for general limited liability company purposes.

            (a) Letters of Credit shall be used solely for other general limited
liability company purposes and to support Commodity Hedge Agreements and Rate
Management Transactions.

      2.4 Interest. Subject to the terms of this Agreement (including, without
limitation, Section 2.17), interest on the Loans shall accrue and be payable at
a rate per annum equal to the Floating Rate for each Floating Rate Loan and the
Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all Floating Rate Loans
shall be computed on the basis of a year of 365 or 366 days, as applicable, for
the actual days elapsed (including the first day but excluding the last day)
during the period for which payable. Interest on all LIBO Rate Loans shall be
computed on the basis of a year of 360 days for the actual days elapsed
(including the first day but excluding the last day) during the period for which
payable. Notwithstanding the foregoing, interest on past-due principal and, to
the extent permitted by applicable law, past-due interest, shall accrue at the
Default Rate, computed on the basis of a year of 365 or 366 days, as the case
may be, for the actual days elapsed (including the first day but excluding the
last day) during the period for which payable, and shall be payable upon demand
by the Lender at any time as to all or any portion of such interest. In the
event that the Borrower fails to select the duration of any Interest Period for
any LIBO Rate Loan within the time period and otherwise as provided herein, such
Loan (if outstanding as a LIBO Rate Loan) will be automatically converted into a
Floating Rate Loan on the last day of the then current Interest Period for such
Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Floating Rate

                                      -16-
<PAGE>

Loan. Interest provided for herein shall be calculated on unpaid sums actually
advanced and outstanding pursuant to the terms of this Agreement and only for
the period from the date or dates of such advances until repayment.

      2.5 Repayment of Loans and Interest. Accrued and unpaid interest on each
outstanding Floating Rate Loan shall be due and payable monthly commencing on
the first day of February 2005, and continuing on the first day of each calendar
month thereafter while any Floating Rate Loan remains outstanding, the payment
in each instance to be the amount of interest which has accrued and remains
unpaid in respect of the relevant Loan. Accrued and unpaid interest on each
outstanding LIBO Rate Loan shall be due and payable on the last day of the
Interest Period for such LIBO Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Note, the Borrower shall specify to the Lender
the Loans or other amounts payable by the Borrower hereunder to which such
payment is to be applied. In the event the Borrower fails to so specify, or if
an Event of Default has occurred and is continuing, the Lender may apply such
payment as it may elect in its sole discretion.

      2.6 Outstanding Amounts. The outstanding principal balance of the Note
reflected by the notations by the Lender on its records shall be deemed
rebuttably presumptive evidence of the principal amount owing on the Note. The
liability for payment of principal and interest evidenced by the Note shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Agreement and interest on such amounts calculated in accordance with this
Agreement.

      2.7 Time, Place, and Method of Payments. All payments required pursuant to
this Agreement or the Note shall be made in lawful money of the United States of
America and in immediately available funds, shall be deemed received by the
Lender on the Business Day received, or on the next Business Day following
receipt if such receipt is after 2:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on any Business Day, and shall be made at the
Principal Office. Except as provided to the contrary herein, if the due date of
any payment hereunder or under the Note would otherwise fall on a day which is
not a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.

      2.8 Borrowing Base Determinations. (a) The Borrowing Base as of the
Closing Date, is acknowledged by the Borrower and the Lenders to be $13,000,000.

            (b) The Borrowing Base shall be redetermined semi-annually on the
basis of information supplied by the Borrower in compliance with the provisions
of this Agreement, including, without limitation, Reserve Reports, and all other
relevant information available to the Lenders. In addition, the Lender shall, in
the normal course of business following a request of

                                      -17-
<PAGE>

the Borrower, redetermine the Borrowing Base; provided, however, the Lender
shall not be obligated to respond to more than three such requests during any
calendar year. Notwithstanding the foregoing, the Lender may at its discretion
redetermine the Borrowing Base and the amount by which the Borrowing Base shall
be reduced each calendar month as set forth in Section 2.8(a) at any time and
from time to time.

            (c) Upon each determination of the Borrowing Base by the Lender, the
Lender shall notify the Borrower orally (confirming such notice promptly in
writing) of such determination, and the Borrowing Base and the monthly amount by
which the Borrowing Base shall be reduced so communicated to the Borrower shall
become effective upon such written notification and shall remain in effect until
the next subsequent determination of the Borrowing Base and the monthly amount
by which the Borrowing Base shall be reduced.

            (d) The Borrowing Base shall represent the determination by the
Lender, in accordance with the applicable definitions and provisions herein
contained and its customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, subject, in the case of
any increase in the Borrowing Base, to the credit approval process of the
Lender. Furthermore, the Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by the Borrower to be essential for the adequate
protection of the Lender.

      2.9 Mandatory Prepayments. If at any time the sum of the Loan Balance
exceeds the Borrowing Base then in effect, or a Low Price Period pursuant to
Section 5.22, the Borrower shall, within 10 Business Days of notice from the
Lender of such occurrence, (a) prepay, or make arrangements acceptable to the
Lender for the prepayment of, the amount of such excess for application on the
Loan Balance, (b) provide additional collateral, of character and value
satisfactory to the Lender in their reasonable discretion, to secure the
Obligations by the execution and delivery to the Lender of security instruments
in form and substance satisfactory to the Lender in the exercise of its
reasonable discretion, or (c) effect any combination of the alternatives
described in clauses (a) and (b) of this Section and acceptable to the Lender in
its reasonable discretion. In the event that a mandatory prepayment is required
under this Section and the amount owed on the Note plus accrued interest is less
than the amount required to be prepaid, the Borrower shall repay the amount owed
on the Note plus accrued interest and, in accordance with the provisions of the
relevant Letter of Credit Applications executed by the Borrower or otherwise to
the reasonable satisfaction of the Lender, deposit with the Lender, as
additional collateral securing the Obligations, an amount of cash, in
immediately available funds, equal to the L/C Exposure minus the Borrowing Base.
The cash deposited with the Lender in satisfaction of the requirement provided
in this Section may be invested, at the reasonable discretion of the Lender and
then only at the express direction of the Borrower as to investment vehicle and
maturity (which shall be no later than the latest expiry date of any then
outstanding Letter of Credit), for the account of the Borrower in cash or cash
equivalent investments offered by or through the Lender.

      2.10 Voluntary Prepayments and Conversions of Loans. Subject to applicable
provisions of this Agreement, the Borrower shall have the right at any time or
from time to time

                                      -18-
<PAGE>

to prepay Loans and to convert Loans of one type or with one Interest Period
into Loans of another type or with a different Interest Period; provided,
however, that (a) the Borrower shall give the Lender notice of each such
prepayment or conversion of all or any portion of a LIBO Rate Loan no less than
two Business Days prior to prepayment or conversion, (b) any LIBO Rate Loan may
be prepaid or converted only on the last day of an Interest Period for such
Loan, (c) the Borrower shall pay all accrued and unpaid interest on the amounts
prepaid or converted, and (d) no such prepayment or conversion shall serve to
postpone the repayment when due of any Obligation.

      2.11 Commitment Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder and to compensate the Lender for
maintaining funds available, the Borrower shall pay to the Lender for the
account of the Lenders, in immediately available funds, on the first day of
April, 2005, and on the first day of each third calendar month thereafter during
the Commitment Period, a fee in the amount of .375% per annum, calculated on the
basis of a year of 365 or 366 days, as the case may be, for the actual days
elapsed (including the first day but excluding the last day), on the average
daily amount of the Available Commitment during the preceding quarterly period.

      2.12 Facility Fee. In addition to interest on the Note as provided herein
and all other fees payable hereunder and to compensate the Lenders for the costs
of the extension of credit hereunder, the Borrower shall pay to the Lender for
the account of the Lenders, in immediately available funds, a facility fee in
the amount of $21,600 which is due on the Closing Date and three fourths of one
percent (3/4 of 1%) of any future increase in the Borrowing Base over
$13,000,000.

      2.13 Letter of Credit Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder, the Borrower agrees to pay to the
Lender, on the date of issuance of each Letter of Credit, a fee equal to the
greater of $500 or the Applicable Margin, calculated on the basis of a year of
365 or 366 days, as the case may be, for the actual days elapsed (including the
first day but excluding the last day), on the face amount of such Letter of
Credit during the period for which such Letter of Credit is issued; provided,
however, in the event such Letter of Credit is canceled prior to its original
expiry date or a payment is made by the Lender with respect to such Letter of
Credit, the Lender shall, within 30 days after such cancellation or the making
of such payment, rebate to the Borrower the unearned portion of such fee. The
Borrower also agrees to pay to the Lender on demand its customary letter of
credit transactional fees, including, without limitation, amendment fees,
payable with respect to each Letter of Credit.

      2.14 Engineering Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder and to compensate the Lender for the
costs of evaluating the Mortgaged Properties and reviewing the Reserve Reports
the Borrower shall pay to the Lender, in immediately available funds (which
funds may be paid to the Lender by wire transfer or check executed by an
authorized officer of the Borrower and made payable to the Lender), $5,000 for
each engineering review.

                                      -19-
<PAGE>

      2.15 Loans to Satisfy Obligations of Borrower. The Lender may, but shall
not be obligated to, but only if an Event of Default exists, make Loans for the
benefit of the Borrower and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrower contained in
this Agreement or any other Loan Document. Any such Loan shall be evidenced by
the Note and shall be made as a Floating Rate Loan.

      2.16 Security Interest in Accounts; Right of Offset. As security for the
payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender grants to the Lender a security interest in
all funds of the Borrower now or hereafter or from time to time on deposit with
the Lender, with such interest of the Lender to be retransferred, reassigned,
and/or released by the Lender, at the expense of the Borrower upon payment in
full and complete performance by the Borrower of all Obligations. All remedies
as secured party or assignee of such funds shall be exercisable by the Lender
during the existence of the occurrence of any Event of Default, regardless of
whether the exercise of any such remedy would result in any penalty or loss of
interest or profit with respect to any withdrawal of funds deposited in a time
deposit account prior to the maturity thereof. Furthermore, the Borrower hereby
grants to the Lender the right, exercisable during the existence of an Event of
Default, of offset or banker's lien against all funds of the Borrower now or
hereafter or from time to time on deposit with the Lender, regardless of whether
the exercise of any such remedy would result in any penalty or loss of interest
or profit with respect to any withdrawal of funds deposited in a time deposit
account prior to the maturity thereof, provided that such Obligation shall have
matured, whether by acceleration of maturity or otherwise.

      2.17 General Provisions Relating to Interest. (a) 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. In this connection, there shall never be
collected, charged, or received on the sums advanced hereunder interest in
excess of that which would accrue at the Highest Lawful Rate. For purposes of
Chapter 303 of the Texas Finance Code (Vernon's 1999), the Borrower agrees that
the Highest Lawful Rate shall be the "weekly ceiling" as defined in such
Section, provided that the Lenders 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 laws of the State of Texas or
the United States of America applicable to the Lender, if greater.

            (b) Notwithstanding anything herein or in the Note to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Note shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower for the payment of fees or other charges 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 Highest Lawful Rate until such time as
there has been paid to the Lender (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that the Lender would have received during
the Limitation Period had the interest rate remained at the otherwise applicable
rate, and (ii) all interest and fees otherwise payable to the Lender but for the
effect of such Limitation Period.

                                      -20-
<PAGE>

            (c) If, under any circumstances, the aggregate amounts paid on the
Note or under this Agreement or any other Loan Document include amounts which by
law are deemed interest and which would exceed the amount permitted if the
Highest Lawful 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 the Borrower and the
Lender; and the Lenders shall promptly refund the amount of such excess (to the
extent only of such interest payments in excess of that which would have accrued
and been payable on the basis of the Highest Lawful Rate) upon discovery of such
error by the Lender or notice thereof from the Borrower. In the event that the
maturity of any Obligation is accelerated, by reason of an election by the
Lender or otherwise, or in the event of any required or permitted prepayment,
then the consideration constituting interest under applicable laws may never
exceed the Highest Lawful Rate; and excess amounts paid which by law are deemed
interest, if any, shall be credited by the Lender on the principal amount of the
Obligations, or if the principal amount of the Obligations shall have been paid
in full, refunded to the Borrower.

            (d) All sums paid, or agreed to be paid, to the Lender for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that the actual
rate of interest is uniform but does not exceed the Highest Lawful Rate
throughout the full term hereof.

      2.18 Yield Protection. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower shall pay to
the Lender from time to time such amounts as the Lender may determine are
necessary to compensate it for any Additional Costs incurred by the Lender.

            (b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender from
time to time on request such amounts as the Lenders may determine are necessary
to compensate the Lender for any costs attributable to the maintenance by the
Lender (or any Applicable Lending Office), pursuant to any Regulatory Change, of
capital in respect of the Commitment, such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on assets or
equity of the Lender (or any Applicable Lending Office) to a level below that
which the Lender (or any Applicable Lending Office) could have achieved but for
such Regulatory Change.

            (c) Without limiting the effect of the other provisions of this
Section (but without duplication), in the event that any Requirement of Law or
Regulatory Change or the compliance by the Lender therewith shall (i) impose,
modify, or hold applicable any reserve, special deposit, or similar requirement
against any Letter of Credit or obligation to issue Letters of Credit, or (ii)
impose upon the Lender any other condition regarding any Letter of Credit or
obligation to issue Letters of Credit, and the result of any such event shall be
to increase the cost to the Lender of issuing or maintaining any Letter of
Credit or obligation to issue Letters of Credit or any liability with respect to
payments by the Lender under Letters of Credit, or to reduce any amount
receivable in connection therewith, then within 15 days of demand by the

                                      -21-
<PAGE>

Lender, the Borrower shall pay to the Lender, from time to time as specified by
the Lender, additional amounts which shall be sufficient to compensate the
Lender for such increased cost or reduced amount receivable.

            (d) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender such
amounts as shall be sufficient in the reasonable opinion of the Lender to
compensate it for any loss, cost, or expense incurred by and as a result of:

                  (i) any payment, prepayment, or conversion by the Borrower of
            a LIBO Rate Loan on a date other than the last day of an Interest
            Period for such Loan; or

                  (ii) any failure by the Borrower to borrow a LIBO Rate Loan
            from the Lender on the date for such borrowing specified in the
            relevant Borrowing Request;

such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any, of (A) the amount of interest which
would have accrued on the principal amount so paid, prepaid, converted, or not
borrowed for the period from the date of such payment, prepayment, conversion,
or failure to borrow to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, the Interest Period for such
Loan which would have commenced on the date of such failure to borrow) at the
applicable rate of interest for such Loan provided for herein over (B) the
interest component (as reasonably determined by the Lender) of the amount (as
reasonably determined by the Lender) the Lender would have bid in the London
interbank market for Dollar deposits of amounts comparable to such principal
amount and maturities comparable to such period; provided, however, that the
Lender shall be limited to recover their actual losses and not anticipated
profits.

            (e) Determinations by the Lender for purposes of this Section of the
effect of any Regulatory Change on capital maintained, their costs or rate of
return, maintaining Loans, issuing Letters of Credit, its obligation to make
Loans and issue Letters of Credit, or on amounts receivable by it in respect of
Loans, Letters of Credit, or such obligations, and the additional amounts
required to compensate the Lender under this Section shall be rebuttable
presumptions of the additional amounts due, provided that such determinations
are made on a reasonable basis. The Lender shall furnish the Borrower with a
certificate setting forth in reasonable detail the basis and amount of increased
costs incurred or reduced amounts receivable as a result of any such event, and
the statements set forth therein shall be rebuttable presumptions of the
additional amounts due. The Lender shall (i) notify the Borrower, as promptly as
practicable after the Lender obtains knowledge of any Additional Costs or other
sums payable pursuant to this Section and determines to request compensation
therefore, of any event occurring after the Closing Date which will entitle the
Lender to compensation pursuant to this Section; provided that the Borrower
shall not be obligated for the payment of any Additional Costs or other sums
payable pursuant to this Section after the earlier of (A) the Final Maturity
(provided that the Obligations have been paid in full) and (B) the expiration of
the Commitment (provided that the

                                      -22-
<PAGE>

Obligations have been paid in full) to the extent such Additional Costs or
other sums accrued more than 90 days prior to the date upon which the Borrower
was given such notice; and (ii) designate a different Applicable Lending Office
for the Loans of the Lender affected by such event if such designation will
avoid the need for or reduce the amount of such compensation and will not, in
the sole opinion of the Lender, be materially disadvantageous to the Lender. If
the Lender request compensation from the Borrower under this Section, the
Borrower may, by notice to the Lender, require that the Loans by the Lender of
the type with respect to which such compensation is requested be converted into
Floating Rate Loans in accordance with Section 2.10. Any compensation requested
by the Lender pursuant to this Section shall be due and payable to the Lender
within fifteen days of delivery of any such notice by the Lender to the
Borrower.

            (f) The Lender agrees that it shall not request, and the Borrower
shall not be obligated to pay, any Additional Costs or other sums payable
pursuant to this Section unless similar additional costs and other sums payable
are also generally assessed by the Lender against other customers of the Lender
similarly situated where such customers are subject to documents providing for
such assessment.

      2.19 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, no more than 5 separate Loans shall be outstanding at any one
time, with, for purposes of this Section, all Floating Rate Loans constituting
one Loan and all LIBO Rate Loans for the same Interest Period constituting one
Loan. Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any interest rate for any LIBO Rate Loan for any Interest
Period therefor:

            (a) the Lender determines (which determination shall be conclusive)
      that quotations of interest rates for the deposits referred to in the
      definition of "LIBO Rate" in Section 1.2 are not being provided in the
      relevant amounts or for the relevant maturities for purposes of
      determining the rate of interest for such Loan as provided in this
      Agreement; or

            (b) the Lender determines (which determination shall be conclusive)
      that the rates of interest referred to in the definition of "LIBO Rate" in
      Section 1.2 upon the basis of which the rate of interest for such Loan for
      such Interest Period is to be determined do not accurately reflect the
      cost to the Lenders of making or maintaining such Loan for such Interest
      Period,

then the Lender shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lender shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans,
and the Borrower shall, on the last day of the then current Interest Period for
each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert
such Loan into another type of Loan in accordance with Section 2.10. Before
giving such notice pursuant to this Section, the Lender will designate a
different available Applicable Lending Office for LIBO Rate Loans or take such
other action as the Borrower may request if such designation or action will
avoid the need to suspend the obligation of the Lender

                                      -23-
<PAGE>

to make LIBO Rate Loans hereunder and will not, in the opinion of the Lender, be
materially disadvantageous to the Lender.

      2.20 Illegality. Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful for the Lender or their Applicable Lending
Office to (a) honor its obligation to make any type of LIBO Rate Loans
hereunder, or (b) maintain any type of LIBO Rate Loans hereunder, then the
Lender shall promptly notify the Borrower thereof; and the obligation of the
Lender hereunder to make such type of LIBO Rate Loans and to convert other types
of Loans into LIBO Rate Loans of such type shall be suspended until such time as
the Lender may again make and maintain LIBO Rate Loans of such type, and the
outstanding LIBO Rate Loans of such type shall be converted into Floating Rate
Loans in accordance with Section 2.10. Before giving such notice pursuant to
this Section, the Lender will designate a different available Applicable Lending
Office for LIBO Rate Loans or take such other action as the Borrower may request
if such designation or action will avoid the need to suspend the obligation of
the Lenders to make LIBO Rate Loans and will not, in the opinion of the Lender,
be disadvantageous to the Lender.

      2.21 Regulatory Change. In the event that by reason of any Regulatory
Change, the Lender (a) incur Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of the Lender which includes deposits by reference to which the
interest rate on any LIBO Rate Loan is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Lender which
includes any LIBO Rate Loan, or (b) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then, at
the election of the Lender with notice to the Borrower, the obligation of the
Lender to make such LIBO Rate Loans and to convert Floating Rate Loans into such
LIBO Rate Loans shall be suspended until such time as such Regulatory Change
ceases to be in effect, and all such outstanding LIBO Rate Loans shall be
converted into Floating Rate Loans in accordance with Section 2.10.

      2.22 Limitations on Interest Periods. Each Interest Period selected by the
Borrower (a) which commences on the last Business Day of a calendar month (or,
with respect to any LIBO Rate Loan, any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month, (b) which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, with respect to any LIBO Rate Loan, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day), (c) which would otherwise commence before and end after
Final Maturity shall end on Final Maturity, and (d) shall have a duration of not
less than one month, as to any LIBO Rate Loan, and, if any Interest Period would
otherwise be a shorter period, the relevant Loan shall be a Floating Rate Loan
during such period.

      2.23 Letters in Lieu of Transfer Orders. The Lender agrees that none of
the letters in lieu of transfer or division orders provided by the Borrower
pursuant to Section 3.1(f)(iii) or Section 5.8 will be sent to the addressees
thereof prior to the occurrence of an Event of Default,

                                      -24-
<PAGE>

at which time the Lender may, at its option and in addition to the exercise of
any of its other rights and remedies, send any or all of such letters.

      2.24 Power of Attorney. The Borrower hereby designates the Lender as its
Lender and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and, upon the occurrence of an Event of Default,
delivering any and all of the letters in lieu of transfer orders delivered by
the Borrower to the Lender pursuant to Section 3.1(f)(iii) or Section 5.8,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Lender shall lawfully do or cause to
be done by virtue of this power of attorney and the rights granted with respect
to such power of attorney. This power of attorney is coupled with the interests
of the Lender in the Collateral, shall commence and be in full force and effect
as of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Lender by this appointment are
solely to protect the interests of the Lender under the Loan Documents and shall
not impose any duty upon the Lender to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.

                                  ARTICLE III

                                   CONDITIONS

      The obligations of the Lender to enter into this Agreement and to make
Loans and issue Letters of Credit are subject to the satisfaction of the
following conditions precedent:

      3.1 Receipt of Loan Documents and Other Items. The Lender shall have no
obligation under this Agreement unless and until all matters incident to the
consummation of the transactions contemplated herein, including, without
limitation, the review by the Lender or its counsel of the title of the Borrower
to its Oil and Gas Properties, shall be satisfactory to the Lender, and the
Lender shall have received, reviewed, and approved the following documents and
other items, appropriately executed when necessary and, where applicable,
acknowledged by one or more authorized officers of the Borrower, all in form and
substance satisfactory to the Lender and dated, where applicable, of even date
herewith or a date prior thereto and acceptable to the Lender:

            (a) multiple counterparts of this Agreement, as requested by the
      Lender;

            (b) the Note;

            (c) copies of the formation documents of the Borrower and all
      amendments thereto, accompanied by a certificate dated the Closing Date
      issued by the secretary or an assistant secretary or another authorized
      representative of the Borrower to the effect that each such copy is
      correct and complete;

                                      -25-
<PAGE>

            (d) a certificate of incumbency dated the Closing Date, including
      specimen signatures of all officers or other representatives of the
      Borrower who are authorized to execute Loan Documents on behalf of the
      Borrower, such certificate being executed by the manager or another
      authorized representative of the Borrower;

            (e) copies of resolutions of the Borrower, adopted by the board of
      directors of the Borrower approving the Loan Documents to which the
      Borrower is a party and authorizing the transactions contemplated herein
      and therein, accompanied by a certificate dated the Closing Date issued by
      the manager or another authorized representative of the Borrower to the
      effect that such copies are true and correct copies of resolutions duly
      adopted and that such resolutions constitute all the resolutions adopted
      with respect to such transactions, have not been amended, modified, or
      rescinded in any respect, and are in full force and effect as of the date
      of such certificate;

            (f) multiple counterparts, as requested by the Lender, of the
      following Security Instruments creating, evidencing, perfecting, and
      otherwise establishing Liens in favor of the Lender in and to the
      Collateral:

                  (i) Mortgage and Deed of Trust, Indenture, Security Agreement,
            Assignment of Production, and Financing Statement from the Borrower
            covering 90% of all Oil and Gas Properties of the Borrower and all
            improvements, personal property, and fixtures related thereto;

                  (ii) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (i) above;

                  (iii) undated letters, in form and substance satisfactory to
            the Lender, from the Borrower to each purchaser of production and
            disburser of the proceeds of production from or attributable to the
            Mortgaged Properties, together with additional letters with the
            addressees left blank, authorizing and directing the addressees to
            make future payments attributable to production from the Mortgaged
            Properties directly to the Lender;

                  (iv) Security Agreement from the Borrower pledging accounts,
            contract rights, etc.;

                  (v) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (iv) above;

            (g) certificates dated as of a recent date from the Secretary of
      State or other appropriate Governmental Authority evidencing the existence
      or

                                      -26-
<PAGE>

      qualification and good standing of the Borrower in its jurisdictions of
      formation and in any other jurisdictions where it does business;

            (h) unaudited Financial Statements of the Borrower as of December
      31, 2003; and unaudited Financial Statements of the Borrower as of
      September 30, 2004;

            (i) results of searches of the UCC Records of the Secretary of State
      of the States of Texas, Delaware, and Louisiana from a source acceptable
      to the Lender and reflecting no Liens against any of the Collateral as to
      which perfection of a Lien is accomplished by the filing of a financing
      statement other than in favor of the Lender;

            (j) confirmation, acceptable to the Lender, of the title of the
      Borrower to the Mortgaged Properties, free and clear of Liens other than
      Permitted Liens;

            (k) all operating, lease, sublease, royalty, sales, exchange,
      processing, farm-out, bidding, pooling, unitization, communitization, and
      other material agreements relating to the Mortgaged Properties reasonably
      requested by the Lender;

            (l) engineering reports covering the Mortgaged Properties;

            (m) the opinion of James Gilbert, counsel to the Borrower, in the
      form attached hereto as Exhibit IV, with such changes thereto as may be
      approved by the Lender;

            (n) certificates evidencing the insurance coverage required pursuant
      to Section 5.19;

            (o) payment of the Facility Fee in the amount of $21,600;

            (p) payment of the fees described in Section 5.15;

            (q) letter dated December 28, 2004 from the Borrower to the Lender
      in regard to cash capital contributions for the South Padre Island Project
      and;

            (r) such other agreements, documents, instruments, opinions,
      certificates, waivers, consents, and evidence as the Lender may reasonably
      request; and

      3.2 Each Loan and Letter of Credit. In addition to the conditions
precedent stated elsewhere herein, the Lender shall not be obligated to make any
Loan or issue any Letter of Credit unless:

                                      -27-
<PAGE>

            (a) the Borrower shall have delivered to the Lender a Borrowing
      Request at least the requisite time prior to the requested date for the
      relevant Loan, or a Letter of Credit Application at least three Business
      Days prior to the requested issuance date for the relevant Letter of
      Credit; and each statement or certification made in such Borrowing Request
      or Letter of Credit Application, as the case may be, shall be true and
      correct in all material respects on the requested date for such Loan or
      the issuance of such Letter of Credit;

            (b) no Event of Default or Default shall exist or will occur as a
      result of the making of the requested Loan or the issuance of the
      requested Letter of Credit;

            (c) if requested by the Lender, the Borrower shall have delivered
      evidence satisfactory to the Lender substantiating any of the material
      matters contained in this Agreement which are necessary to enable the
      Borrower to qualify for such Loan or the issuance of such Letter of
      Credit;

            (d) no event shall have occurred which, in the reasonable opinion of
      the Lender, would have a Material Adverse Effect;

            (e) each of the representations and warranties contained in this
      Agreement shall be true and correct and shall be deemed to be repeated by
      the Borrower as if made on the requested date for such Loan or the
      issuance of such Letter of Credit (except to the extent such
      representations and warranties expressly refer to an earlier date, in
      which case, they shall be true and correct as of such earlier date)
      provided, however, for purposes of this Section 3.2, in each
      representation and warranty in Article IV that makes reference to an
      Exhibit, the representation under this Section 3.2 that such
      representation and warranty in Article IV is true on and as of the date of
      the making of such Loan or the issuance of such Letter of Credit shall
      take into account (i) any subsequent amendments to any Exhibit referred to
      therein, (ii) any exception contained in a written notice received by the
      Lender which makes specific reference to the applicable Exhibit, or (iii)
      any written disclosure made by the Borrower or any of its Subsidiaries
      prior to the date as of which such representation or warranty is made,
      provided that such amendment, exception or disclosure has been consented
      to by the Lender if such amendment, exception or disclosure amends or
      waives provisions of this Agreement or is otherwise required under the
      terms of this Agreement.

            (f) all of the Security Instruments shall be in full force and
      effect and provide to the Lender the security intended thereby;

            (g) neither the consummation of the transactions contemplated hereby
      nor the making of such Loan or the issuance of such Letter of Credit shall
      contravene, violate, or conflict with any Requirement of Law;

                                      -28-
<PAGE>

            (h) the Borrower shall hold full legal title to the Collateral and
      be the sole beneficial owner thereof;

            (i) the Lender shall have received the payment of all fees payable
      to the Lender hereunder and reimbursement from the Borrower, or special
      legal counsel for the Lender shall have received payment from the
      Borrower, for (i) all reasonable fees and expenses of counsel to the
      Lender for which the Borrower is responsible pursuant to applicable
      provisions of this Agreement and for which invoices have been presented at
      least 15 days prior to the date of the relevant Loan or Letter of Credit
      Application (otherwise the initial Borrowing which must be presented at
      least five days prior to the Closing Date), and (ii) estimated fees
      charged by filing officers and other public officials incurred or to be
      incurred in connection with the filing and recordation of any Security
      Instruments, for which invoices have been presented as of or prior to the
      date of the requested Loan or Letter of Credit Application (otherwise the
      initial Borrowing which must be presented at least five days prior to the
      Closing Date); and

            (j) all matters incident to the consummation of the transactions
      hereby contemplated shall be satisfactory to the Lender.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

      To induce the Lender to enter into this Agreement and to make the Loans
and issue Letters of Credit, the Borrower represents and warrants to the Lender
(which representations and warranties shall survive the delivery of the Note)
that:

      4.1 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 Note, the repayment of the Note and interest and fees provided
for in the Note and this Agreement, the execution and delivery of the Security
Instruments by the Borrower and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary limited liability company action by the
Borrower, and do not and will not (a) require the consent of any Governmental
Authority, (b) contravene or conflict with any Requirement of Law, (c) except as
shown on Exhibit VI, contravene or conflict with any indenture, instrument, or
other agreement to which the Borrower is a party or by which any Property of the
Borrower may be presently bound or encumbered, except where such contravention
or conflict would not individually or in the aggregate result in a Material
Adverse Effect, or (d) result in or require the creation or imposition of any
Lien in, upon or of any Property of the Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents.

      4.2 Limited Liability Company Existence. The Borrower is a limited
liability company duly organized, legally existing, and in good standing under
the laws of its state of formation and is duly qualified as foreign limited
liability company and is in good standing in all

                                      -29-
<PAGE>

jurisdictions wherein the ownership of Property or the operation of its business
necessitates same, other than those jurisdictions wherein the failure to so
qualify will not have a Material Adverse Effect.

      4.3 Valid and Binding Obligations. All Loan Documents, when duly executed
and delivered by the Borrower, will be the legal, valid, and binding obligations
of the Borrower, enforceable against the Borrower in accordance with their
respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relative to enforceability.

      4.4 Security Instruments. The provisions of each Security Instrument are
effective to create in favor of the Lender, a legal, valid, and enforceable Lien
in all right, title, and interest of the Borrower in the Collateral described
therein, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relative to enforceability, which Liens,
assuming the accomplishment of recording and filing in accordance with
applicable laws prior to the intervention of rights of other Persons, shall
constitute fully perfected first-priority Liens on all right, title, and
interest of the Borrower in the Collateral described therein subject to
Permitted Liens.

      4.5 Title to Assets. The Borrower has good and indefeasible title to all
of its interests in its Properties then owned by it, free and clear of all Liens
except Permitted Liens.

      4.6 No Material Misstatements. As of the Closing Date, no information,
exhibit, statement, or report furnished to the Lender by or at the direction of
the Borrower in connection with this Agreement contains any material
misstatement of fact or omits to state a material fact or any fact necessary to
make the statements contained therein not misleading as of the date made or
deemed made.

      4.7 Liabilities, Litigation, and Restrictions. As of the Closing Date,
other than as listed under the heading "Liabilities" on Exhibit VI attached
hereto, the Borrower has no liabilities, direct, or contingent, which would
result in a Material Adverse Effect, except as set forth under the heading
"Litigation" on Exhibit VI hereto, no litigation or other action of any nature
affecting the Borrower is pending before any Governmental Authority or, to the
best knowledge of the Borrower, threatened against or affecting the Borrower
which might reasonably be expected to result in any material impairment of its
ownership of any Collateral or have a Material Adverse Effect. To the best
knowledge of the Borrower, after due inquiry, no unusual or unduly burdensome
restriction, restraint or hazard exists by contract, Requirement of Law, or
otherwise relative to the business or operations of the Borrower or the
ownership and operation of the Collateral would result in a Material Adverse
Effect, other than such as relate generally to Persons engaged in business
activities similar to those conducted by the Borrower.

      4.8 Authorizations; Consents. Except as expressly contemplated by this
Agreement, no authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any Governmental Authority or any other Person is
required to authorize or is otherwise required in connection with the valid
execution and delivery by the Borrower of the Loan Documents or

                                      -30-
<PAGE>

any instrument contemplated hereby, the repayment by the Borrower of the Note
and interest and fees provided in the Note and this Agreement, or the
performance by the Borrower of the Obligations.

      4.9 Compliance with Laws. The Borrower and its Property, including,
without limitation, the Mortgaged Property, are in compliance with all material
applicable Requirements of Law, including, without limitation, Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, except to the
extent non-compliance with any such Requirements of Law could not reasonably be
expected to have a Material Adverse Effect.

      4.10 ERISA. No Reportable Event has occurred with respect to any Single
Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the knowledge of the Borrower, (a) no Reportable Event
has occurred with respect to any Multiemployer Plan, and (b) each Multiemployer
Plan has complied with and been administered in all material respects with
applicable provisions of ERISA and the Code. The present value of all benefits
vested under each Single Employer Plan maintained by the Borrower or any
Commonly Controlled Entity (based on the assumptions used to fund such Plan) did
not, as of the last annual valuation date applicable thereto, exceed the value
of the assets of such Plan allocable to such vested benefits. Neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan for which there is any withdrawal
liability. As of the most recent valuation date applicable to any Multiemployer
Plan, neither the Borrower nor any Commonly Controlled Entity would become
subject to any liability under ERISA if the Borrower or such Commonly Controlled
Entity were to withdraw completely from such Multiemployer Plan. Neither the
Borrower nor any Commonly Controlled Entity has received notice that any
Multiemployer Plan is Insolvent or in Reorganization. To the knowledge of the
Borrower, no such Insolvency or Reorganization is reasonably likely to occur.
Based upon GAAP existing as of the date of this Agreement and current factual
circumstances, the Borrower has no reason to believe that the annual cost during
the term of this Agreement to the Borrower and all Commonly Controlled Entities
for post-retirement benefits to be provided to the current and former employees
of the Borrower and all Commonly Controlled Entities under Plans which are
welfare benefit plans (as defined in Section 3(1) of ERISA) will, in the
aggregate, have a Material Adverse Effect.

      4.11 Environmental Laws. To the knowledge and belief of the Borrower,
except as would not have a Material Adverse Effect, or as described on Exhibit
VI under the heading "Environmental Matters:"

            (a) no Property of the Borrower is currently on or has ever been on,
      or is adjacent to any Property which is on or has ever been on, any
      federal or state list of Superfund Sites;

            (b) no Hazardous Substances have been generated, transported, and/or
      disposed of by the Borrower at a site which was, at the time of such
      generation, transportation, and/or disposal, or has since become, a
      Superfund Site;

                                      -31-
<PAGE>

            (c) except in accordance with applicable Requirements of Law or the
      terms of a valid permit, license, certificate, or approval of the relevant
      Governmental Authority, no Release of Hazardous Substances by the Borrower
      or from, affecting, or related to any Property of the Borrower or adjacent
      to any Property of the Borrower has occurred; and

            (d) no Environmental Complaint has been received by the Borrower.

      4.12 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, T, U, or X.

      4.13 Investment Company Act Compliance. The Borrower is not, nor is the
Borrower directly or indirectly controlled by or acting on behalf of any Person
which is, an "investment company" or an "affiliated person" of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

      4.14 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.

      4.15 Proper Filing of Tax Returns; Payment of Taxes Due. The Borrower has
duly and properly filed its United States income tax return and all other tax
returns which are required to be filed and has paid all taxes due except such as
are being contested in good faith and as to which adequate provisions and
disclosures have been made. The respective charges and reserves on the books of
the Borrower with respect to taxes and other governmental charges are adequate.

      4.16 Refunds. Except as described on Exhibit VI under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in the Borrower being required
to refund any material portion of the proceeds received or to be received from
the sale of hydrocarbons constituting part of the Mortgaged Property.

      4.17 Gas Contracts. Except as described on Exhibit VI under the heading
"Gas Contracts," the Borrower (a) is not obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Mortgaged Property at some future date
without receiving full payment therefor within 90 days of delivery, and (b) has
not produced gas, in any material amount, subject to, and neither the Borrower
nor any of the Mortgaged Properties is subject to, balancing rights of third
parties or subject to balancing duties under governmental requirements, except
as to such matters for which the Borrower has reflected in the most recent
engineering report or established monetary reserves adequate in amount to
satisfy such obligations and has segregated such reserves from other accounts.

                                      -32-
<PAGE>

      4.18 Intellectual Property. The Borrower owns or is licensed to use all
Intellectual Property necessary to conduct all business material to its
financial condition, business, or operations as such business is currently
conducted. No claim has been asserted or is pending by any Person with the
respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to any material liability on the part of the Borrower.

      4.19 Casualties or Taking of Property. Except as disclosed on Exhibit VI
under the heading "Casualties," except as would not result in a Material Adverse
Effect, neither the business nor any Property of the Borrower has been
materially adversely affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of Property, or cancellation of contracts, permits, or
concessions by any Governmental Authority, riot, activities of armed forces, or
acts of God.

      4.20 Locations of Borrower. The principal place of business and chief
executive office of the Borrower is located at the address of the Borrower set
forth in Section 8.3 or at such other location as the Borrower may have, by
proper written notice hereunder, advised the Lender, provided that such other
location is within a state in which appropriate financing statements from the
Borrower in favor of the Lender have been filed.

      4.21 Subsidiaries. As of the Closing Date, the Borrower has no
Subsidiaries except those described on Exhibit VI under the heading
"Subsidiaries".

                                   ARTICLE V

                              AFFIRMATIVE COVENANTS

      So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower shall:

      5.1 Maintenance and Access to Records. Keep adequate records, of all its
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined, and promptly following the
reasonable request of the Lender, make such records available for inspection by
the Lender and, at the expense of the Borrower, allow the Lender to make and
take away copies thereof.

      5.2 Monthly Cash Report. Deliver to the Lender on or before the 15th day
after the close of each month during the term of this Agreement a copy of its
monthly cash report at the close of such monthly period.

      5.3 Quarterly Financial Statements; Compliance Certificates. Deliver to
the Lender, (a) on or before the 45th day after the close of each of the first
three quarterly periods of each fiscal year of the Borrower, a copy of its
unaudited Financial Statements at the close of such quarterly period and from
the beginning of such fiscal year to the end of such period, such

                                      -33-
<PAGE>

Financial Statements to be certified by a Responsible Officer of the Borrower as
having been prepared in accordance with GAAP (with the exception of footnotes)
consistently applied and as a fair presentation of the condition of the
Borrower, subject to changes resulting from normal year-end audit adjustments,
and (b) on or before the 45th day after the close of each fiscal quarter, with
the exception of the last fiscal quarter, a Compliance Certificate.

      5.4 Annual Financial Statements. Deliver to the Lender, on or before the
120th day after the close of each fiscal year of the Borrower, a copy of its
annual audited Financial Statements and a Compliance Certificate on the 120th
day after the close of each fiscal year.

      5.5 Oil and Gas Reserve Reports. (a) Deliver to the Lender no later than
March 1 of each year during the term of this Agreement, engineering reports in
form and substance satisfactory to the Lender, certified by any nationally or
regionally-recognized independent consulting petroleum engineers acceptable to
the Lender, as fairly and accurately setting forth (i) the proven and producing,
shut-in, behind-pipe, and undeveloped oil and gas reserves (separately
classified as such) attributable to the Mortgaged Properties as of January 1 of
the year for which such reserve reports are furnished, (ii) the aggregate
present value of the future net income with respect to such Mortgaged
Properties, discounted at a stated per annum discount rate of proven and
producing reserves, (iii) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves, and
(iv) information with respect to the "take-or-pay," "prepayment," and
gas-balancing liabilities of the Borrower.

            (b) Deliver to the Lender no later than September 1 of each year
during the term of this Agreement, engineering reports in form and substance
satisfactory to the Lender prepared by or under the supervision of any
nationally or regionally-recognized independent consulting petroleum engineer
evaluating the Mortgaged Properties as of July 1 of the year for which such
reserve reports are furnished and updating the information provided in the
reports pursuant to Section 5.5(a).

            (c) Each of the reports provided pursuant to this Section shall be
submitted to the Lender together with additional data concerning pricing,
quantities of production from the Mortgaged Properties, volumes of production
sold, purchasers of production, gross revenues, expenses, and such other
information and engineering and geological data with respect thereto as the
Lender may reasonably request.

      5.6 Title Opinions; Title Defects and Mortgages. Promptly upon the request
of the Lender, furnish to the Lender title opinions, in form and substance and
by counsel satisfactory to the Lender, or other confirmation of title acceptable
to the Lender, covering Oil and Gas Properties constituting not less than 81% of
the value, determined by the Lender in its sole discretion, of the Mortgaged
Properties; and promptly, but in any event within 60 days after notice by the
Lender of any defect, material in the opinion of the Lender in value, in the
title of the Borrower to any of its Oil and Gas Properties, clear such title
defects, and, in the event any such title defects are not cured in a timely
manner, pay all related costs and fees incurred by the Lender to do so. The
Borrower shall at all times have granted a Mortgage to the Lender covering

                                      -34-
<PAGE>

a minimum of 90% of the value, determined by the Lender in its sole discretion,
of its Oil and Gas Properties.

      5.7 Notices of Certain Events. Deliver to the Lender, immediately upon
having knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by a Responsible
Officer of the Borrower and setting forth the relevant event or circumstance and
the steps being taken by the Borrower with respect to such event or
circumstance:

            (a) any Default or Event of Default;

            (b) any default or event of default under any contractual obligation
      of the Borrower, or any litigation, investigation, or proceeding between
      the Borrower and any Governmental Authority which, in either case, if not
      cured or if adversely determined, as the case may be, could reasonably be
      expected to have a Material Adverse Effect;

            (c) any litigation or proceeding involving the Borrower as a
      defendant or in which any Property of the Borrower is subject to a claim
      and in which the amount involved is $100,000 or more and which is not
      covered by insurance or in which injunctive or similar relief is sought;

            (d) the receipt by the Borrower of any Environmental Complaint;

            (e) any actual, proposed, or threatened testing or other
      investigation by any Governmental Authority or other Person concerning the
      environmental condition of, or relating to, any Property of the Borrower
      or adjacent to any Property of the Borrower following any allegation of a
      violation of any Requirement of Law;

            (f) any Release of Hazardous Substances by the Borrower or from,
      affecting, or related to any Property of the Borrower or adjacent to any
      Property of the Borrower except in accordance with applicable Requirements
      of Law or the terms of a valid permit, license, certificate, or approval
      of the relevant Governmental Authority, or the violation of any
      Environmental Law, or the revocation, suspension, or forfeiture of or
      failure to renew, any permit, license, registration, approval, or
      authorization which could reasonably be expected to have a Material
      Adverse Effect;

            (g) the change in identity or address of any Person remitting to the
      Borrower proceeds from the sale of hydrocarbon production from or
      attributable to any Mortgaged Property;

            (h) any change in the senior management of the Borrower;

                                      -35-
<PAGE>

            (i) any Reportable Event or imminently expected Reportable Event
      with respect to any Plan; any withdrawal from, or the termination,
      Reorganization or Insolvency of, any Multiemployer Plan; the institution
      of proceedings or the taking of any other action by the PBGC, the Borrower
      or any Commonly Controlled Entity or Multiemployer Plan with respect to
      the withdrawal from, or the termination, Reorganization or Insolvency of,
      any Single Employer Plan or Multiemployer Plan; or any Prohibited
      Transaction in connection with any Plan or any trust created thereunder
      and the action being taken by the Internal Revenue Service with respect
      thereto;

            (j) any other event or condition which could reasonably be expected
      to have a Material Adverse Effect.

      5.8 Letters in Lieu of Transfer Orders; Division Orders. Promptly upon
request by the Lender at any time and from time to time, execute such letters in
lieu of transfer orders, in addition to the letters signed by the Borrower and
delivered to the Lender in satisfaction of the condition set forth in Section
3.1(f)(iii) and/or division and/or transfer orders as are necessary or
appropriate to transfer and deliver to the Lender proceeds from or attributable
to any Mortgaged Property.

      5.9 Additional Information. Furnish to the Lender, promptly upon the
request of the Lender, such additional financial or other information concerning
the assets, liabilities, operations, and transactions of the Borrower as the
Lender may from time to time request; and notify the Lender not less than ten
Business Days prior to the occurrence of any condition or event that may change
the proper location for the filing of any financing statement or other public
notice or recording for the purpose of perfecting a Lien in any Collateral,
including, without limitation, any change in its name or the location of its
principal place of business or chief executive office; and upon the request of
the Lender, execute such additional Security Instruments as may be necessary or
appropriate in connection therewith.

      5.10 Compliance with Laws. Except to the extent the failure to comply or
cause compliance would not have a Material Adverse Effect, comply with all
applicable Requirements of Law, including, without limitation, (a) the Natural
Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws, and (d)
all permits, licenses, registrations, approvals, and authorizations (i) related
to any natural or environmental resource or media located on, above, within, in
the vicinity of, related to or affected by any Property of the Borrower, (ii)
required for the performance of the operations of the Borrower, or (iii)
applicable to the use, generation, handling, storage, treatment, transport, or
disposal of any Hazardous Substances; and cause all employees, crew members,
Lenders, contractors, subcontractors, 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 comply with all
such Requirements of Law as may be necessary or appropriate to enable the
Borrower to so comply.

      5.11 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property

                                      -36-
<PAGE>

of the Borrower, except any of the foregoing being contested in good faith and
as to which adequate reserve in accordance with GAAP has been established or
unless failure to pay would not have a Material Adverse Effect.

      5.12 Maintenance of Limited Liability Company Existence and Good Standing.
Maintain its limited liability company existence or qualification and good
standing in its jurisdictions of incorporation or formation and in all
jurisdictions wherein the Property now owned or hereafter acquired or business
now or hereafter conducted necessitates same, unless the failure to do so would
not have a Material Adverse Effect.

      5.13 Payment of Note; Performance of Obligations. Pay the Note according
to the reading, tenor, and effect thereof, as modified hereby, and do and
perform every act and discharge all of its other Obligations.

      5.14 Further Assurances. Promptly cure any defects in the execution and
delivery of any of the Loan Documents and all agreements contemplated thereby,
and execute, acknowledge, and deliver such other assurances and instruments as
shall, in the opinion of the Lender, be necessary to fulfill the terms of the
Loan Documents.

      5.15 Initial Fees and Expenses of Counsel to Lender. Upon request by the
Lender, promptly reimburse the Lender for all reasonable fees and expenses of
Jackson Walker L.L.P., special counsel to the Lender, in connection with the
preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Agreement.

      5.16 Subsequent Fees and Expenses of Lender. Upon request by the Lender,
promptly reimburse the Lender (to the fullest extent permitted by law) for all
amounts reasonably expended, advanced, or incurred by or on behalf of the Lender
to satisfy any obligation of the Borrower under any of the Loan Documents; to
collect the Obligations; to ratify, amend, restate, or prepare additional Loan
Documents, as the case may be; for the filing and recordation of Security
Instruments; to enforce the rights of the Lender under any of the Loan
Documents; and to protect the Properties or business of the Borrower, including,
without limitation, the Collateral, which amounts shall be deemed compensatory
in nature and liquidated as to amount upon notice to the Borrower by the Lender
and which amounts shall include, but not be limited to (a) all court costs, (b)
reasonable attorneys' fees, (c) reasonable fees and expenses of auditors and
accountants incurred to protect the interests of the Lender, (d) fees and
expenses incurred in connection with the participation by the Lender as a member
of the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) fees and expenses incurred in connection with lifting the automatic stay
prescribed in Section 362 Title 11 of the United States Code, and (f) fees and
expenses incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code all reasonably incurred by the Lender in connection with
the collection of any sums due under the Loan Documents, together with interest
at the per annum interest rate equal to the Floating Rate, calculated on a basis
of a calendar year of 365 or 366 days, as the case may be, counting the actual
number of days elapsed, on each such amount from the date of notification

                                      -37-
<PAGE>

that the same was expended, advanced, or incurred by the Lender until the date
it is repaid to the Lender, with the obligations under this Section surviving
the non-assumption of this Agreement in a case commenced under any Insolvency
Proceeding and being binding upon the Borrower and/or a trustee, receiver,
custodian, or liquidator of the Borrower appointed in any such case.

      5.17 Operation of Oil and Gas Properties. Develop, maintain, and operate
its Oil and Gas Properties in a prudent and workmanlike manner in accordance
with industry standards.

      5.18 Maintenance and Inspection of Properties. Maintain all of its
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties in
a good and workmanlike manner; and permit any authorized representative of the
Lender to visit and inspect, at the expense of the Borrower, any tangible
Property of the Borrower.

      5.19 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lender, maintained by Borrower, naming the Lender as loss
payee, and, upon any renewal of any such insurance and at other times upon
request by the Lender, furnish to the Lender evidence, satisfactory to the
Lender, within 30 days of the Closing Date of the maintenance of such insurance.
The Lender shall have the right to collect, and the Borrower hereby assigns to
the Lender, any and all monies that may become payable under any policies of
insurance relating to business interruption, if any, or by reason of damage,
loss, or destruction of any of the Collateral. In the event of any damage, loss,
or destruction for which insurance proceeds relating to business interruption,
if any, or Collateral exceed $100,000, the Lender may, at its option, apply all
such sums or any part thereof received by it toward the payment of the
Obligations, whether matured or unmatured, application to be made first to
interest and then to principal, and shall deliver to the Borrower the balance,
if any, after such application has been made. In the event of any such damage,
loss, or destruction for which insurance proceeds are $100,000 or less, provided
that no Default or Event of Default has occurred and is continuing, the Lender
shall deliver any such proceeds received by it to the Borrower. In the event the
Lender receives insurance proceeds not attributable to Collateral or business
interruption, the Lender shall deliver any such proceeds to the Borrower.

      5.20 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS SHAREHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, LENDERS, ATTORNEYS-IN-FACT, AND AFFILIATES AND
EACH TRUSTEE FOR THE BENEFIT OF THE LENDER AND EACH LENDER 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,

                                      -38-
<PAGE>

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, LENDER, 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 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, LENDER, 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 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 LENDER AND EACH LENDER OR ANY OF ITS SHAREHOLDERS, OFFICERS,
DIRECTORS, EMPLOYEES, LENDERS, ATTORNEYS-IN-FACT, OR AFFILIATES OR ANY TRUSTEE
FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY INSTRUMENT; WITH THE FOREGOING
INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT.

      5.21 Future Subsidiaries. In the event Borrower acquires any Subsidiaries,
it agrees to have such Subsidiary become a Borrower under this Agreement or to
guarantee the Obligation hereunder whichever the Lender requires.

      5.22 Hedging. If at any time, there is a Low Price Period the Borrower
agrees to hedge a minimum of 50% of Borrower's proved producing oil and gas
reserves (as determined by the Lender's engineering evaluation) on a rolling 12
month basis or pay down the Loan Balance to equal the Lender's revised
Borrowering Base, within 10 Business Days following the Low Price Period.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

      So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower will not:

                                      -39-
<PAGE>

      6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable in excess of $50,000 in the aggregate incurred in the ordinary
course of business, which are not unpaid in excess of 60 days beyond invoice
date or are being contested in good faith and as to which such reserve as is
required by GAAP has been made or if there is an agreement between the trade
creditor and the Borrower allowing a longer time for payment, (c) crude oil,
natural gas, or other hydrocarbon floor, collar, cap, price protection, or swap
agreements ("Commodity Hedge Agreements"), in form and substance and with a
Person acceptable to the Lender, provided that (i) each commitment issued under
such agreement must also be approved by the Lender, (ii) such agreements shall
not be entered into with respect to Mortgaged Properties constituting more than
80% of monthly production of proven producing reserves as forecast in Lender's
most recent engineering evaluation, (iii) that the strike prices in such
agreements are not less than the prices used by the Lender in its most recent
Borrowing Base determination, and (iv) the Lender shall receive a security
interest in the Commodity Hedge Agreements, (d) Rate Management Transactions, in
form and substance and with a Person acceptable to the Lender, (e) Indebtedness
secured by Permitted Liens and (f) existing loans to Frank Wade and F-W Oil
Interests, Inc.

      6.2 Contingent Obligations. Create, incur, assume, or suffer to exist any
Contingent Obligation; provided, however, the foregoing restriction shall not
apply to (a) performance guarantees and performance surety or other bonds
provided in the ordinary course of business, or (b) trade credit incurred or
operating leases entered into in the ordinary course of business.

      6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any of
its Oil and Gas Properties or any other Property, whether now owned or hereafter
acquired; provided, however, the foregoing restrictions shall not apply to
Permitted Liens.

      6.4 Sales of Assets. Without the prior written consent of the Lenders,
sell, transfer, or otherwise dispose of, in one or any series of transactions
assets in excess of $100,000 in the aggregate, whether now owned or hereafter
acquired, or enter into any agreement to do so; provided, however, the foregoing
restriction shall not apply to the sale of hydrocarbons or inventory in the
ordinary course of business or the sale or other disposition of Property
destroyed, lost, worn out, damaged or having only salvage value or no longer
used or useful in the business of the Borrower.

      6.5 Leasebacks. Enter into any agreement to sell or transfer any Property
and thereafter rent or lease as lessee such Property or other Property intended
for the same use or purpose as the Property sold or transferred.

      6.6 Loans or Advances. Make or agree to make or allow to remain
outstanding any loans or advances to any Person; provided, however, the
foregoing restrictions shall not apply to (a) advances or extensions of credit
in the form of accounts receivable incurred in the ordinary course of business
and upon terms common in the industry for such accounts receivable, (b) advances
to employees of the Borrower for the payment of expenses in the ordinary course
of

                                      -40-
<PAGE>

business or (c) repayment of unsecured member and/or shareholder advances not to
exceed $1,000,000.

      6.7 Investments. Acquire Investments in, or purchase or otherwise acquire
all or substantially all of the assets of, any Person; provided, however, the
foregoing restriction shall not apply to the purchase or acquisition of (a) Oil
and Gas Properties, (b) Investments in the form of (i) debt securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof, with maturities of no more than one year,
(ii) commercial paper of a domestic issuer rated at the date of acquisition at
least P-2 by Moody's Investor Service, Inc. or A-2 by Standard & Poor's
Corporation and with maturities of no more than one year from the date of
acquisition, or (iii) repurchase agreements covering debt securities or
commercial paper of the type permitted in this Section, certificates of deposit,
demand deposits, eurodollar time deposits, overnight bank deposits and bankers'
acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through the Lender or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital surplus and undivided profits aggregating at least
$500,000,000, (c) other short-term Investments similar in nature and degree of
risk to those described in clause (b) of this Section, or (d) money-market
funds.

      6.8 Dividends and Distributions. Declare, pay, or make, whether in cash or
Property of the Borrower, any dividend or distribution to any Person.

      6.9 Issuance of Stock; Changes in Limited Liability Structure. Issue or
agree to issue additional shares of capital stock, in one or any series of
transactions; enter into any transaction of consolidation, merger, or
amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution).

      6.10 Transactions with Affiliates. Directly or indirectly, enter into any
transaction (including the sale, lease, or exchange of Property or the rendering
of service) with any of its Affiliates, other than upon fair and reasonable
terms no less favorable than could be obtained in an arm's length transaction
with a Person which was not an Affiliate.

      6.11 Lines of Business. Expand, on its own or through any Subsidiary, into
any line of business other than those in which the Borrower is engaged as of the
date hereof.

      6.12 ERISA Compliance. Permit any Plan maintained by it or any Commonly
Controlled Entity to (a) engage in any Prohibited Transaction, (b) incur any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA, or (c) terminate in a manner which could result in the imposition of a
Lien on any Property of the Borrower pursuant to Section 4068 of ERISA; or
assume an obligation to contribute to any Multiemployer Plan; or acquire any
Person or the assets of any Person which has now or has had at any time an
obligation to contribute to any Multiemployer Plan.

      6.13 Interest Coverage Ratio. Permit, as of the close of any fiscal
quarter, the ratio of (a) EBITDAX on a trailing four-quarter basis to (b)
Interest Expense on a trailing four quarter basis to be less than 3.00 to 1.00,
beginning with the period ending December 31, 2004.

                                      -41-
<PAGE>

      6.14 Current Ratio. Permit, as of the close of any fiscal quarter, the
ratio of Current Assets to Current Liabilities to be less than 1.00 to 1.00,
beginning with the period ending December 31, 2004.

      6.15 Tangible Net Worth. Permit Tangible Net Worth, as adjusted for
exploration costs as of the close of any fiscal quarter, to be less than
$15,000,000 on the Closing Date, plus 75% of positive quarterly net income
thereafter.

      6.16 Bank Debt Coverage Ratio. Permit, as of the close of any fiscal
quarter, the ratio of (a) Bank Debt to (b) EBITDAX measured on a trailing four
quarter basis, to be greater than 2.75 to 1.00, beginning with the period ending
December 31, 2004.

      6.17 General and Administrative Expenses. Permit, as of the close of any
fiscal quarter, general and administrative expenses to be more than 18% of gross
revenue measured on a trailing four quarter basis beginning with the period
ending December 31, 2004.

      6.18 Drilling Expenses for South Padre Island Project. Will not spend any
money over its available cash or availability under this Agreement for the
drilling and/or completion of the South Padre Island Project unless it has
obtained sufficient monies from Shareholders of in excess of 99% of Borrowers
for payment of such expenses at the time such expenses are due as set forth in
the letter described in 3.1 of herein.

                                  ARTICLE VII

                                EVENTS OF DEFAULT

      7.1 Enumeration of Events of Default. Any of the following events shall
constitute an Event of Default:

            (a) default shall be made in the payment when due on any installment
      of principal or interest under this Agreement or the Note or in the
      payment when due on any fee or other sum payable under any Loan Document
      and such default as to interest or fees only shall have continued for
      three Business Days;

            (b) default shall be made by the Borrower in the due observance or
      performance of any of their respective obligations under the Loan
      Documents, and such default shall continue for 30 days after the earlier
      of notice thereof to the Borrower by the Lender or knowledge thereof by
      the Borrower;

            (c) any representation or warranty made by the Borrower in any of
      the Loan Documents proves to have been untrue in any material respect or
      any representation, statement (including Financial Statements),
      certificate, or data furnished or made to the Lender in connection
      herewith proves to have been untrue in any material respect as of the date
      the facts therein set forth were stated or certified;

                                      -42-
<PAGE>

            (d) default shall be made by the Borrower (as principal or guarantor
      or other surety) in the payment or performance of any bond, debenture,
      note, or other Indebtedness or under any credit agreement, loan agreement,
      indenture, promissory note, or similar agreement or instrument executed in
      connection with any of the foregoing, and such default shall remain
      unremedied for in excess of the period of grace, if any, with respect
      thereto;

            (e) the Borrower shall be unable to satisfy any condition or cure
      any circumstance specified in Article III, the satisfaction or curing of
      which is precedent to the right of the Borrower to obtain a Loan or the
      issuance of a Letter of Credit and such inability shall continue for a
      period in excess of 30 days;

            (f) either the Borrower shall (i) apply for or consent to the
      appointment of a receiver, trustee, or liquidator of it or all or a
      substantial part of its assets, (ii) file a voluntary petition commencing
      an Insolvency Proceeding, (iii) make a general assignment for the benefit
      of creditors, (iv) be unable, or admit in writing its inability, to pay
      its debts generally as they become due, or (v) file an answer admitting
      the material allegations of a petition filed against it in any Insolvency
      Proceeding;

            (g) an order, judgment, or decree shall be entered against either
      the Borrower by any court of competent jurisdiction or by any other duly
      authorized authority, on the petition of a creditor or otherwise, granting
      relief in any Insolvency Proceeding or 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 such order, judgment, or decree shall
      not be dismissed or stayed within 60 days;

            (h) the levy against any significant portion of the Property of the
      Borrower, or any execution, garnishment, attachment, sequestration, or
      other writ or similar proceeding which is not permanently dismissed or
      discharged within 30 days after the levy;

            (i) a final and non-appealable order, judgment, or decree shall be
      entered against the Borrower for money damages and/or Indebtedness due in
      an amount in excess of $500,000, except as disclosed on the Closing Date
      in Exhibit V and such order, judgment, or decree shall not be paid in
      full, dismissed, or stayed within 60 days;

            (j) any charges are filed or any other action or proceeding is
      instituted by any Governmental Authority against either the Borrower under
      the Racketeering Influence and Corrupt Organizations Statute (18 U.S.C.
      Section 1961 et seq.), the result of which could be the forfeiture or
      transfer of any material Property of the Borrower subject to a Lien in
      favor of the Lender and/or the Lenders without (i) satisfaction or
      provision for satisfaction of such Lien, or (ii)

                                      -43-
<PAGE>

      such forfeiture or transfer of such Property being expressly made subject
      to such Lien;

            (k) the Borrower shall have (i) concealed, removed, or diverted, or
      permitted to be concealed, removed, or diverted, any part of its Property,
      with intent to hinder, delay, or defraud its creditors or any of them,
      (ii) made or suffered a transfer of any of its Property which may be
      fraudulent under any bankruptcy, fraudulent conveyance, or similar law,
      (iii) 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 (iv) shall have 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 30 days from the date
      thereof;

            (l) any Security Instrument shall for any reason not, or cease to,
      create valid and perfected first-priority Liens against the Collateral
      purportedly covered thereby;

            (m) the Borrower shall cease to be owned by its presently existing
      shareholders; or

            (n) the occurrence of a Material Adverse Effect and the same shall
      remain unremedied for in excess of 60 days after notice given by the
      Lender;

      7.2 Remedies. (a) Upon the occurrence of an Event of Default specified in
Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all Obligations
shall automatically become immediately due and payable, without presentment,
demand, protest, notice of protest, default, or dishonor, notice of intent to
accelerate maturity, notice of acceleration of maturity, or other notice of any
kind, except as may be provided to the contrary elsewhere herein, all of which
are hereby expressly waived by the Borrower; (ii) the Commitment shall
immediately cease and terminate unless and until reinstated by the Lender in
writing; and (iii) the Lender are hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Lender and any and all other
indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations although such Obligations
may be unmatured.

            (b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Lender may, by notice to the
Borrower, declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lender
in writing; and (iii) the Lender are hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly waived
by the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Lender and any and all other

                                      -44-
<PAGE>

indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations although such Obligations
may be unmatured.

            (c) Upon the occurrence of any Event of Default, the Lender may, in
addition to the foregoing in this Section, exercise any or all of its rights and
remedies provided by law or pursuant to the Loan Documents.

                                  ARTICLE VIII

                                  MISCELLANEOUS

      8.1 Transfers; Participations. The Lender with the consent of the
Borrower, which consent will not be unreasonably withheld and only if there is
no occurrence and continuance of an Event of Default, otherwise Lender may
without the consent of the Borrower, at any time, sell, transfer, assign, or
grant participations in the Obligation or any portion thereof; and the Lender
may forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of any transfer
to it, may exercise all rights (including, without limitation, rights of
set-off) with respect to the portion of the Obligations held by it as fully as
if such Transferee were the direct holder thereof, subject to any agreements
between such Transferee and the transferor to such Transferee.

      8.2 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 the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.

      8.3 Notices and Other Communications. Except as to oral notices expressly
authorized herein, which oral notices shall be confirmed in writing, all
notices, requests, and communications hereunder shall be in writing (including
by telecopy). Unless otherwise expressly provided herein, any such notice,
request, demand, or other communication shall be deemed to have been duly given
or made when delivered by hand, or, in the case of delivery by mail, when
deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:

            (a)   if to the Lender, to:

                  Guaranty Bank, FSB
                  333 Clay Street, Suite 4400
                  Houston, Texas  77002
                  Attention:  Arthur R. Gralla, Jr.
                  Telecopy:  (713) 890-8868

                                      -45-
<PAGE>

            (b)   if to the Borrower, to:

                  F-W Oil Exploration L.L.C.
                  9821 Katy Freeway, Suite 1050
                  Houston, TX  77024
                  Attention:  Jim R. Brock
                  Telecopy: (713) 461-9231

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

      8.4 Parties in Interest. Subject to applicable restrictions contained
herein, all covenants and agreements herein contained by or on behalf of the
Borrower, or the Lender shall be binding upon and inure to the benefit of the
Borrower, or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.

      8.5 Rights of Third Parties. All provisions herein are imposed solely and
exclusively for the benefit of the Lender and the Borrower. No other Person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms.

      8.6 Renewals; Extensions. All provisions of this Agreement relating to the
Note shall apply with equal force and effect to each promissory note hereafter
executed which in whole or in part represents a renewal or extension of any part
of the Indebtedness of the Borrower under this Agreement, the Note, or any other
Loan Document.

      8.7 No Waiver; Rights Cumulative. No course of dealing on the part of the
Lender, its officers or employees, nor any failure or delay by the Lender with
respect to exercising any of its rights under any Loan Document shall operate as
a waiver thereof. The rights of the Lender under the Loan Documents shall be
cumulative and the exercise or partial exercise of any such right shall not
preclude the exercise of any other right. Neither the making of any Loan nor the
issuance of a Letter of Credit shall constitute a waiver of any of the
covenants, warranties, or conditions of the Borrower contained herein. In the
event the Borrower is unable to satisfy any such covenant, warranty, or
condition, neither the making of any Loan nor the issuance of a Letter of Credit
shall have the effect of precluding the Lender from thereafter declaring such
inability to be an Event of Default as hereinabove provided.

      8.8 Survival Upon Unenforceability. In the event any one or more of the
provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations 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
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.

      8.9 Amendments; Waivers. Neither this Agreement nor any provision hereof
may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed

                                      -46-
<PAGE>

by the party against whom enforcement of the amendment, waiver, discharge, or
termination is sought.

      8.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.

      8.11 Disposition of Collateral. Notwithstanding any term or provision,
express or implied, in any of the Security Instruments, the realization,
liquidation, foreclosure, or any other disposition on or of any or all of the
Collateral shall be in the order and manner and determined in the sole
discretion of the Lender; provided, however, that in no event shall the Lender
violate applicable law or exercise rights and remedies other than those provided
in such Security Instruments or otherwise existing at law or in equity.

      8.12 USA Patriot Act Notice. Lender hereby notices Borrower that pursuant
to the requirements of the USA Patriot Act (Title 111 of Pub. L. 107-56 (signed
into law October 26, 2001)) (the "Act") it is required to obtain, verify and
record information that identifies Borrower, which information includes the
names and address of Borrower and other information that will allow Lender to
identify Borrower in accordance with the Act.

      8.13 GOVERNING LAW. THIS AGREEMENT AND THE NOTES 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 WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.

      8.14 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS
COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.

      8.15 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, LENDER AND THE LENDERS
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM,
OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS

                                      -47-
<PAGE>

AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN
THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION
ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.

      8.16 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

      8.17 Counterparts. For the convenience of the parties, this Agreement may
be executed in multiple counterparts, each of which for all purposes shall be
deemed to be an original, and all such counterparts shall together constitute
but one and the same Agreement.

                                      -48-
<PAGE>

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

                                    BORROWER:

                                    F-W OIL EXPLORATION L.L.C.

                                    By: /s/ Jim R. Brock
                                        -------------------
                                        Jim R. Brock
                                        President and CFO

                                      -49-
<PAGE>

                                    LENDER AND LENDER:

                                    GUARANTY BANK, FSB

                                    By: /s/ Arthur R. Gralla
                                        ----------------------
                                        Arthur R. Gralla, Jr.
                                        Managing Director

                                      -50-
<PAGE>

                                    EXHIBIT I

                                 [FORM OF NOTE]

                                 PROMISSORY NOTE

$50,000,000                       Houston, Texas              December 28, 2004

      FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker") promises
to pay to the order of GUARANTY BANK, FSB ("Payee"), at its banking quarters in
Houston, Harris County, Texas, the sum of FIFTY MILLION DOLLARS ($50,000,000),
or so much thereof as may be advanced against this Note pursuant to the Credit
Agreement dated of even date herewith by and between Maker and Payee (as
amended, restated, or supplemented from time to time, the "Credit Agreement"),
together with interest at the rates and calculated as provided in the Credit
Agreement.

      Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, certain events which will entitle the
holder hereof to accelerate the maturity of all amounts due hereunder.
Capitalized terms used but not defined in this Note shall have the meanings
assigned to such terms in the Credit Agreement.

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

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

      THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW;
PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY TO THIS NOTE.

                           (Page One of Two Page Note)

                                       I-i
<PAGE>

                                       F-W OIL EXPLORATION L.L.C.

                                       By: _________________________
                                           Jim R. Brock
                                           President and CFO

                                      I-ii
<PAGE>

                                   EXHIBIT II

                           [FORM OF BORROWING REQUEST]

GUARANTY BANK, FSB
333 CLAY STREET, SUITE 4400
HOUSTON, TEXAS  77002
Attention:  Richard E. Menchaca

      Re:   Credit Agreement dated as of December 28, 2004, by and between F-W
            OIL EXPLORATION L.L.C. and GUARANTY BANK, FSB, (as amended,
            restated, or supplemented from time to time, the "Credit Agreement")

Ladies and Gentlemen:

      Pursuant to the Credit Agreement, the Borrower hereby makes the requests
indicated below:

      1.    Loans

      (a)   Amount of new Loan: $

      (b)   Requested funding date:    , 20

      (c)   $________________ of such Loan is to be a Floating Rate Loan;

            $________________ of such Loan is to be a LIBO Rate Loan.

      Requested Interest Period for LIBO Rate Loan: ____ months.

      2.    Continuation or conversion of LIBO Rate Loan maturing on :

      (a)   Amount to be continued as a LIBO Rate Loan is $        , with
            an Interest Period of        months;

      (b)   Amount to be converted to a Floating Rate Loan is $        ;
            and

      3.    Conversion of Floating Rate Loan:

      (a)   Requested conversion date:        , 20     .

      (b)   Amount to be converted to a LIBO Rate Loan is $        , with
            an Interest Period of _____ months.

      The undersigned certifies that she/he is the ____ of the Borrower, has
obtained all consents necessary, and as such she/he is authorized to execute
this request on behalf of the

                                      II-i
<PAGE>

Borrower. The undersigned further certifies, represents, and warrants on behalf
of the Borrower that the Borrower is entitled to receive the requested
borrowing, continuation, or conversion under the terms and conditions of the
Credit Agreement and are in full compliance with all the terms and conditions of
the Credit Agreement. Each capitalized term used but not defined herein shall
have the meaning assigned to such term in the Credit Agreement.

                                       F-W OIL EXPLORATION L.L.C.

                                       By: ______________________
                                           Jim R. Brock
                                           President and CFO

                                      II-ii
<PAGE>

                                   EXHIBIT III

                        [FORM OF COMPLIANCE CERTIFICATE]

                                 ________, 2004

GUARANTY BANK, FSB
333 CLAY STREET, SUITE 4400
HOUSTON, TEXAS  77002
Attention:  Richard E. Menchaca

      Re:   Credit Agreement dated as of December 28, 2004, by and between F-W
            OIL EXPLORATION L.L.C. and Guaranty Bank, FSB, (as amended,
            restated, or supplemented from time to time, the "Credit Agreement")

Ladies and Gentlemen:

      Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower, hereby certifies to you
the following information as true and correct as of the date hereof or for the
period indicated, as the case may be:

      1.    To the best of the knowledge of the undersigned, no Default or Event
      of Default exists as of the date hereof or has occurred since the date of
      our previous certification to you, if any.

      1.    To the best of the knowledge of the undersigned, the following
      Defaults or Events of Default exist as of the date hereof or have occurred
      since the date of our previous certification to you, if any, and the
      actions set forth below are being taken to remedy such circumstances:

      2.    The compliance of the Borrower with the financial covenants of the
      Credit Agreement, as of the close of business on_____________ , is
      evidenced by the following:

      (a)   Section 6.13: Interest Coverage Ratio. Permit, as of the close of
            any fiscal quarter, the ratio of (a) EBITDAX on a trailing
            four-quarter basis to (b) Interest Expense on a trailing four
            quarter basis to be less than 3.00 to 1.00, beginning with the
            period ending December 31, 2004.

                                     Actual

                                  _____ to 1.0

      (b)   Section 6.14: Current Ratio. Permit, as of the close of any fiscal
            quarter, the ratio of Current Assets to Current Liabilities to be
            less

                                      III-i
<PAGE>

            than 1.00 to 1.00, beginning with the period ending December 31,
            2004.

                                     Actual

                                     ____ to 1.0

      (c)   Section 6.15: Tangible Net Worth. Permit Tangible Net Worth, as
            adjusted for exploration costs as of the close of any fiscal
            quarter, to be less than $15,000,000 on the Closing Date, plus 75%
            of positive quarterly net income thereafter.

                   Required          Actual

      (d)   Section 6.16: Bank Debt Coverage Ratio. Permit, as of the close of
            any fiscal quarter, the ratio of (a) Bank Debt to (b) EBITDAX
            measured on a trailing four quarter basis, to be greater than 2.75
            to 1.00, beginning with the period ending December 31, 2004.

                                     Actual

                                     ____ to 1.0

      (e)   Section 6.17: General and Administrative Expenses. Permit, as of the
            close of any fiscal quarter, general and administrative expenses to
            be more than 18% of gross revenue measured on a trailing four
            quarter basis beginning with the period ending December 31, 2004.

                                     Actual

                                     ____ %

      3.    No Material Adverse Effect has occurred since the date of the
      Financial Statements dated as of __________.

                                     III-ii
<PAGE>

      Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.

                                       Very truly yours,

                                       F-W OIL EXPLORATION L.L.C.

                                       By: ____________________________
                                           Jim R. Brock
                                           President and CFO

                                     III-iii
<PAGE>

                                   EXHIBIT IV

                          [FORM OF OPINION OF COUNSEL]

                                 [Closing Date]

GUARANTY BANK, FSB
333 CLAY STREET, SUITE 4400
HOUSTON, TEXAS  77002
Attention:  Richard E. Menchaca

      Re:   Credit Agreement dated as of December 28, 2004, by and between F-W
            OIL EXPLORATION L.L.C. and GUARANTY BANK, FSB, (as amended,
            restated, or supplemented from time to time, the "Credit Agreement")

Ladies and Gentlemen:

      We have acted as counsel to F-W OIL EXPLORATION L.L.C. (the "Borrower") in
connection with the transactions contemplated in the Credit Agreement. This
Opinion is delivered pursuant to Section 3.1(m) of the Credit Agreement, and the
Lender is hereby authorized to rely upon this Opinion in connection with the
transactions contemplated in the Credit Agreement. Each capitalized term used
but not defined herein shall have the meaning assigned to such term in the
Credit Agreement.

      In our representation of the Borrower, we have examined an executed
counterpart of each of the following (the "Loan Documents"):

            (a) the Credit Agreement;

            (b) the Note;

            (c) Mortgage, Deed of Trust, Indenture, Security Agreement,
      Assignment of Production, and Financing Statement dated of even date
      herewith from the Borrower in favor of the Lender (the "Mortgage"); and

            (d) Financing Statements from the Borrower, as debtors, constituent
      to the Mortgage (the "Financing Statement").

            (e) a certificate of incumbency dated the Closing Date, including
      specimen signatures of all officers or other representatives of the
      Borrower who are authorized to execute Loan Documents on behalf of the
      Borrower, such certificate being executed by the manager or another
      authorized representative of the Borrower;

                                      IV-i
<PAGE>

            (f) copies of resolutions, to the extent required under the
      Operating Agreement of the Borrower, adopted by the board of directors of
      the Borrower approving the Loan Documents to which the Borrower is a party
      and authorizing the transactions contemplated herein and therein,
      accompanied by a certificate dated the Closing Date issued by the manager
      or another authorized representative of the Borrower to the effect that
      such copies are true and correct copies of resolutions duly adopted and
      that such resolutions constitute all the resolutions adopted with respect
      to such transactions, have not been amended, modified, or rescinded in any
      respect, and are in full force and effect as of the date of such
      certificate;

            (g) multiple counterparts, as requested by the Lender, of the
      following Security Instruments creating, evidencing, perfecting, and
      otherwise establishing Liens in favor of the Lender in and to the
      Collateral:

                  (i) Ratification of Mortgage and Deed of Trust, Indenture,
            Security Agreement, Assignment of Production, and Financing
            Statement from the Borrower covering all Oil and Gas Properties of
            the Borrower and all improvements, personal property, and fixtures
            related thereto;

                  (ii) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (i) above;

                  (iii) undated letters, in form and substance satisfactory to
            the Lender, from the Borrower to each purchaser of production and
            disburser of the proceeds of production from or attributable to the
            Mortgaged Properties, together with additional letters with the
            addressees left blank, authorizing and directing the addressees to
            make future payments attributable to production from the Mortgaged
            Properties directly to the Lender;

                  (iv) Security Agreement from the Borrower pledging contract
            rights, etc.;

                  (v) Financing Statements from the Borrower, as debtor,
            constituent to the instrument described in clause (iv) above;

                  (vi) Assignment of Partnership Interest (Security Agreement)
            from the Borrower pledging certain partnership interest;

                  (vii) Financing Statement from the Borrower, as debtor,
            constituent to the instrument described in Clause (vi) above;

                                      IV-ii
<PAGE>

            (h) certificates dated as of a recent date from the Secretary of
      State or other appropriate Governmental Authority evidencing the existence
      or qualification and good standing of the Borrower in its jurisdictions of
      formation and in any other jurisdictions where it does business;

      We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrower, certificates of public
officials and officers of the Borrower, agreements, instruments, and documents
as we have deemed necessary as a basis for the opinions hereinafter expressed.

      In making such examinations, we have, with your permission, assumed:

            (a) the genuineness of all signatures to the Loan Documents other
      than those of the Borrower;

            (b) the authenticity of all documents submitted to us as originals
      and the conformity with the originals of all documents submitted to us as
      copies;

            (c) the Lender is authorized and has the power to enter into and
      perform its obligations under the Credit Agreement;

            (d) the due authorization, execution, and delivery of all Loan
      Documents by each party thereto other than the Borrower; and

            (e) the Borrower has title to all Property covered or affected by
      the Mortgage.

      Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:

            1. The Borrower is a corporation or limited liability companies duly
      organized, legally existing, and in good standing under the laws of their
      respective states of incorporation and are duly qualified as foreign
      corporations or limited liability companies and are in good standing in
      all jurisdictions wherein the ownership of their respective Property or
      the operation of their respective businesses necessitates same.

            2. The execution and delivery by the Borrower of the Credit
      Agreement and the borrowings thereunder, the execution and delivery by the
      Borrower of the other Loan Documents to which the Borrower is a party, and
      the payment and performance of all Obligations of the Borrower thereunder
      are within the power of the Borrower, have been duly authorized by all
      necessary corporate action, and do not (a) require the consent of any
      Governmental Authority, (b) contravene or conflict with any Requirement of
      Law, (c) to our knowledge after due inquiry, contravene or conflict with
      any indenture, instrument, or other agreement to which the Borrower is a
      party or by which any Property of the Borrower may be presently bound or
      encumbered, or (d) result in or require the creation or imposition of any
      Lien upon any Property of the Borrower other than as contemplated by the
      Loan Documents.

                                     IV-iii
<PAGE>

            3. The Loan Documents to which the Borrower is a party constitute
      legal, valid, and binding obligations of the Borrower, enforceable against
      the Borrower in accordance with their respective terms.

            4. The forms of the Mortgage and the Financing Statement and the
      description of the Mortgaged Property (as such term is defined in the
      Mortgage and so used herein) situated in the State of Texas (the "State")
      satisfy all applicable Requirements of Law of the State and are legally
      sufficient under the laws of the State to enable the Lender to realize the
      practical benefits purported to be afforded by the Mortgage.

            5. The Mortgage creates a valid lien upon and security interest in
      all Mortgaged Property situated in the State to secure the Indebtedness
      (as such term is defined in the Mortgage and so used herein).

            6. The Mortgage and the Financing Statement are in satisfactory form
      for filing and recording in the offices described below.

            7. The filing and/or recording, as the case may be, of (a) the
      Mortgage in the office of the county clerk of each county in the State in
      which any portion of the Mortgaged Property is located, and as a financing
      statement and utility security instrument in the office of the Secretary
      of State of the State, and (b) the Financing Statement in the Uniform
      Commercial Code records in each county in the State in which any portion
      of the Mortgaged Property is located are the only recordings or filings in
      the State necessary to perfect the liens and security interests in the
      Mortgaged Property created by the Mortgage or to permit the Lender to
      enforce in the State its rights under the Mortgage. No subsequent filing,
      re-filing, recording, or re-recording will be required in the State in
      order to continue the perfection of the liens and security interests
      created by the Mortgage except that (a) a continuation statement must be
      filed with respect to the Mortgage filed as a financing statement in the
      office of the Secretary of State of the State and with respect to the
      Financing Statement in the Uniform Commercial Code records in each county
      in the State in which any portion of the Mortgaged Property is located,
      each within six months prior to the expiration of five years from the date
      of the relevant initial financing statement filing, (b) a subsequent
      continuation statement must be filed within six months prior to the
      expiration of each subsequent five-year period from the date of each
      initial financing statement filing, and (c) amendments or supplements to
      the Mortgage filed as a financing statement and the Financing Statement
      and/or additional financing statements may be required to be filed in the
      event of a change in the name, identity, or structure of the Borrower or
      in the event the financing statement filing otherwise becomes inaccurate
      or incomplete.

            8. To our knowledge after due inquiry, except as disclosed in
      Exhibit VI to the Credit Agreement, no litigation or other action of any
      nature affecting the Borrower is pending before any Governmental Authority
      or threatened against the Borrower. To our knowledge after due inquiry, no
      unusual or unduly burdensome restriction, restraint, or

                                      IV-iv
<PAGE>

      hazard exists by contract, Requirement of Law, or otherwise relative to
      the business or operations of the Borrower or the ownership and operation
      of any Properties of the Borrower other than such as relate generally to
      Persons engaged in business activities similar to those conducted by the
      Borrower, as the case may be.

            9. No authorization, consent, approval, exemption, franchise, permit
      or license of, or filing (other than filing of Security Instruments in
      appropriate filing offices) with, any Governmental Authority or any other
      Person is required to authorize or is otherwise required in connection
      with the valid execution and delivery by the Borrower of the Loan
      Documents or any instrument contemplated thereby, or the payment
      performance by the Borrower of the Obligations.

            10. No transaction contemplated by the Loan Documents is in
      violation of any regulations promulgated by the Board of Governors of the
      Federal Reserve System, including, without limitation, Regulations G, T,
      U, or X.

            11. The Borrower is not, nor is the Borrower directly or indirectly
      controlled by or acting on behalf of any Person which is, an "investment
      company" or an "affiliated person" of an "investment company" within the
      meaning of the Investment Company Act of 1940, as amended.

            12. 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.

      The opinions expressed herein are subject to the following qualifications
      and limitations:

            A. We are licensed to practice law only in the State and other
      jurisdictions whose laws are not applicable to the opinions expressed
      herein; accordingly, the foregoing opinions are limited solely to the laws
      of the State, applicable United States federal law.

            B. The validity, binding effect, and enforceability of the Loan
      Documents may be limited or affected by bankruptcy, insolvency,
      moratorium, reorganization, or other similar laws affecting rights of
      creditors generally, including, without limitation, statutes or rules of
      law which limit the effect of waivers of rights by a debtor or grantor;
      provided, however, that the limitations and other effects of such statutes
      or rules of law upon the validity and binding effect of the Loan Documents
      should not differ materially from the limitations and other effects of
      such statutes or rules of law upon the validity and binding effect of
      credit agreements, promissory notes, guaranties, and security instruments
      generally.

            C. The enforceability of the respective obligations of the Borrower
      under the Loan Documents is subject to general principles of equity
      (whether such enforceability is considered in a suit in equity or at law).

                                      IV-v
<PAGE>

      This Opinion is furnished by us solely for the benefit of the Lender in
connection with the transactions contemplated by the Loan Documents and is not
to be quoted in whole or in part or otherwise referred to or disclosed in any
other transaction.

                                Very truly yours,

                                      IV-vi
<PAGE>

                                   EXHIBIT VI

                                   DISCLOSURES

Section 4.7                            Liabilities
                                       See the Company's financial statements as
                                       of September 30, 2004, including the
                                       Notes Payable to Frank C. Wade.
                                       Litigation
                                       Cause No. 2004-17179; Charles Kana v.
                                       F-W Oil Exploration L.L.C., et al.; in
                                       the 151st Judicial District Court of
                                       Harris County, Texas
Section 4.11                           Environmental Matters
                                       None.
Section 4.16                           Refunds
                                       None.
Section 4.17                           Gas Contracts
                                       None.
Section 4.19                           Casualties
                                       None.
Section 4.21                           Subsidiaries
                                       None.

                                     VIII-i<PAGE>
                                                                 EXHIBIT 10.26.1

================================================================================

                               SECURITY AGREEMENT

                                     BETWEEN

                           F-W OIL EXPLORATION L.L.C.

                                       AND

                               GUARANTY BANK, FSB
                                 (SECURED PARTY)

                                DECEMBER 28, 2004

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                           ----
<S>                                                                                                        <C>
ARTICLE I     DEFINITIONS AND INTERPRETATION..............................................................  1
         1.1  Terms Defined Above.........................................................................  1
         1.2  Terms Defined in Credit Agreement...........................................................  1
         1.3  Additional Defined Terms....................................................................  1
         1.4  Undefined Financial Accounting Terms........................................................  3
         1.5  References..................................................................................  3
         1.6  Articles and Sections.......................................................................  3
         1.7  Number and Gender...........................................................................  3

ARTICLE II    GRANT OF SECURITY INTEREST..................................................................  4

ARTICLE III   REPRESENTATIONS AND WARRANTIES..............................................................  4
         3.1  Validity, Perfection and Priority...........................................................  4
         3.2  No Liens; Other Financing Statements........................................................  4
         3.3  Location of Debtor and Collateral...........................................................  5
         3.4  Accounts....................................................................................  5
         3.5  Tradenames; Prior Names.....................................................................  5

ARTICLE IV    COVENANTS...................................................................................  5
         4.1  Further Assurances..........................................................................  5
         4.2  Change of Chief Executive Office............................................................  6
         4.3  Change of Name or Corporate Structure.......................................................  6
         4.4  Maintain Records and Accounts...............................................................  6
         4.5  Right of Inspection.........................................................................  6
         4.6  Possession of Collateral....................................................................  7
         4.7  Financing Statement Filings; Notifications..................................................  7

ARTICLE V     ACCOUNTS....................................................................................  7
         5.1  Debtor Remains Liable under Accounts........................................................  7
         5.2  Collections on Accounts.....................................................................  7

ARTICLE VI    POWER OF ATTORNEY...........................................................................  8
         6.1  Appointment as Attorney-in-Fact.............................................................  8
         6.2  No Duty on the Part of Secured Party........................................................  9

ARTICLE VII   REMEDIES; RIGHTS UPON DEFAULT...............................................................  9
         7.1  Rights and Remedies Generally...............................................................  9
         7.2  Proceeds.................................................................................... 10
         7.3  Collection of Accounts...................................................................... 10
         7.4  Disposition of Collateral................................................................... 10
         7.5  Debtor's Accounts........................................................................... 11
         7.6  Possession of Collateral.................................................................... 11
         7.7  Disposition of the Collateral............................................................... 11
</TABLE>

                                     -i-
<PAGE>

<TABLE>
<S>                                                                                                        <C>
         7.8  Recourse.................................................................................... 12
         7.9  Expenses; Attorneys' Fees................................................................... 12
         7.10 Application of Proceeds..................................................................... 12
         7.11 Limitation on Duties Regarding Preservation of Collateral................................... 12
         7.12 Waiver of Claims............................................................................ 13
         7.13 Discontinuance of Proceedings............................................................... 13

ARTICLE VIII  INDEMNITY................................................................................... 13
         8.1  INDEMNITY................................................................................... 13
         8.2  Indemnity Obligations Secured by Collateral; Survival....................................... 14

ARTICLE IX    MISCELLANEOUS............................................................................... 15
         9.1  No Waiver; Remedies Cumulative.............................................................. 15
         9.2  Termination; Release........................................................................ 15
         9.3  Counterparts................................................................................ 15
         9.4  Marshalling................................................................................. 15
         9.5  Severability................................................................................ 15
         9.6  Financing Statement Filing.................................................................. 15
         9.7  Notices and Other Communications............................................................ 15
         9.8  Parties in Interest......................................................................... 16
         9.9  Amendments.................................................................................. 16
         9.10 ENTIRE AGREEMENT............................................................................ 16
         9.11 GOVERNING LAW............................................................................... 16
         9.12 JURISDICTION AND VENUE...................................................................... 16
</TABLE>

                                     -ii-
<PAGE>

                               SECURITY AGREEMENT

      This SECURITY AGREEMENT (this "Agreement"), dated as of December 28, 2004,
is by and between F-W OIL EXPLORATION L.L.C., (the "Debtor"), and GUARANTY BANK,
FSB, a federal savings bank ("Secured Party").

                              W I T N E S S E T H:

      WHEREAS, pursuant to the terms and conditions of the Credit Agreement
dated December __, 2004, by and among the Debtor and the Secured Party (as
amended, restated, or supplemented from time to time, the "Credit Agreement"),
and

      WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Secured Party to extend credit to or for the benefit of the Borrower pursuant to
the Credit Agreement, Debtor has agreed to execute this Agreement in favor of
the Secured Party;

      NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

      1.1 Terms Defined Above. As used herein, each of the terms "Agreement,"
"Borrower," "Credit Agreement," "Debtor," and "Secured Party" shall have the
meaning assigned to such term hereinabove.

      1.2 Terms Defined in Credit Agreement. Each capitalized term used but not
defined herein shall have the meaning assigned to such term in the Credit
Agreement.

      1.3 Additional Defined Terms. As used herein, each of the following terms
shall have the following meanings:

            "Accounts" shall mean all accounts receivable, book debts, notes,
      drafts, instruments, documents, acceptances, and other forms of
      obligations now owned or hereafter received or acquired by or belonging or
      owing to Debtor (including, without limitation, under any trade names,
      styles, or divisions thereto), whether arising from the sale or lease of
      goods or the rendition of services or any other transaction (including,
      without limitation, any such obligation which might be characterized as an
      account, general intangible, other than contract rights under contracts
      containing prohibitions against assignment of or the granting of a
      security interest in the rights of a party thereunder, or chattel paper
      under the Uniform Commercial Code in effect in any jurisdiction), and all
      rights of Debtor in, to, and under all purchase orders now owned or
      hereafter received or acquired by it for goods or services, and all rights
      of Debtor to any goods the sale or lease of which gave rise to any of the
      foregoing (including, without limitation, returned or repossessed goods
      and rights of unpaid sellers), and all moneys due or to

<PAGE>

become due to Debtor under all contracts for the sale or lease of goods or the
performance of services (whether or not earned by performance) or in connection
with any other transaction, now in existence or hereafter arising, including,
without limitation, all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.

            "Account Debtor" shall mean each Person obligated on an Account,
      Chattel Paper, or General Intangible.

            "Account Records" shall mean (a) all original copies of all
      documents, instruments, or other writings evidencing the Accounts, (b) all
      books, correspondence, credit or other files, records, ledger sheets or
      cards, invoices, and other papers relating to the Accounts, including,
      without limitation, all tapes, cards, computer tapes, computer discs,
      computer runs, record keeping systems, and other papers and documents
      relating to the Accounts, whether in the possession or under the control
      of Debtor or any computer bureau or agent from time to time acting for or
      on behalf of Debtor or otherwise, (c) all evidences of the filing of
      financing statements and the registration of other instruments in
      connection therewith and amendments, supplements, or other modifications
      thereto, notices to other creditors or secured parties, and certificates,
      acknowledgements, or other writings, including, without limitation, lien
      search reports, from filing or other registration offices, (d) all credit
      information, reports, and memoranda relating thereto, and (e) all other
      written or non-written forms of information related in any way to the
      foregoing or any Account.

            "Chattel Paper" shall mean all chattel paper (as such term is
      defined in Section 9-102(a)(11) of the UCC) of the Debtor.

            "Collateral" shall have the meaning assigned to it in Article II.

            "Commodity Hedge Agreement" shall mean any agreement, device or
      arrangement entered into by one Person with another Person providing for
      payments which are related to fluctuations in the price of petroleum (or
      any fraction thereof), natural gas, or natural gas liquids (including, but
      not limited to, swaps, caps, collars, options, puts, calls, futures and
      forward contracts).

            "General Intangibles" shall mean all general intangibles (as such
      term is defined in Section 9-102(a)(42) of the UCC) of Debtor, including,
      without limitation, rights to the payment of money (other than Accounts),
      net profit interests, contracts, farmout agreements, licenses, and
      franchises (excluding licenses and franchises which prohibit the
      assignment or grant of a security interest by Debtor), federal income tax
      refunds, trade names, distributions on certificated securities (as defined
      in Section 8-102(a)(4) of the UCC) and uncertificated securities (as
      defined in ss.8-102(a)(14) of the UCC), computer programs and other
      computer software, inventions, designs, trade secrets, goodwill,
      proprietary rights, customer lists, supplier contracts, sale orders,
      correspondence, advertising materials, payments due in connection with any
      requisition, confiscation, condemnation, seizure or forfeiture of any
      property, reversionary interests in

                                     -2-
<PAGE>

      pension and profit-sharing plans and reversionary, beneficial and residual
      interests in trusts, credits with and other claims against any Person,
      together with any collateral for any of the foregoing and the rights under
      any security agreement granting a security interest in such collateral.

            "Indemnitees" shall mean the Secured Party and its shareholders,
      officers, directors, employees, agents, attorneys-in-fact, and affiliates.

            "Proceeds" shall mean proceeds (as such term is defined in Section
      9-102(65) of the UCC).

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

            "Secured Obligations" shall mean the Obligations.

            "UCC" shall mean the Uniform Commercial Code as in effect from time
      to time in the State of Texas.

      1.4 Undefined Financial Accounting Terms. Undefined financial accounting
terms used in this Agreement shall have the meanings assigned to such terms
according to GAAP.

      1.5 References. The words "hereby," "herein," "hereinabove,"
"hereinafter," "hereinbelow," "hereof," "hereunder," and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular Article, Section, or provision of this Agreement. References in
this Agreement to Articles, Sections, or Exhibits are to such Articles,
Sections, or Exhibits of this Agreement unless otherwise specified.

      1.6 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.

      1.7 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. Definitions of terms defined

                                     -3-
<PAGE>

in the singular or plural shall be equally applicable to the plural or singular,
as the case may be, unless otherwise indicated.

                                   ARTICLE II

                           GRANT OF SECURITY INTEREST

      As security for the prompt and complete payment and performance in full of
all Secured Obligations, Debtor hereby assigns and transfers for the purpose of
security and pledges to the Secured Party and grants to the Secured Party a
security interest in and continuing lien on all right, title, and interest of
Debtor in, to, and under the following, in each case, whether now owned or
existing or hereafter acquired or arising, and wherever located (all of which is
herein collectively called the "Collateral"):

      (a)   all Accounts;

      (b)   all Account Records;

      (c)   all Chattel Paper;

      (d)   all General Intangibles;

      (e)   all Commodity Hedge Agreements;

      (f)   all Rate Management Transactions; and

      (g)   all accessions and additions to any or all of the foregoing, all
            substitutions and replacements for any or all of the foregoing, and
            all Proceeds and products of any or all of the foregoing.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      Debtor, to the extent that such Debtor is the owner of such collateral,
hereby represents and warrants to the Secured Party, which representations and
warranties shall survive execution and delivery of this Agreement, as follows:

      3.1 Validity, Perfection and Priority. The security interests in the
Collateral granted to the Secured Party hereunder constitute valid and
continuing security interests in Collateral. Assuming the accomplishment of
recording and filing financing statements, in accordance with applicable laws
prior to the intervention of rights of other Persons, (such financing
statements) naming Debtor as "debtor" and the Secured Party as "secured party"
and describing the Collateral, the security interests granted to the Secured
Party hereunder will constitute valid first-priority perfected security
interests in all Collateral with respect to which a security interest can be
perfected by the filing of a financing statement, subject only to Permitted
Liens.

      3.2 No Liens; Other Financing Statements. (a) Except for the Lien granted
to the Secured Party hereunder and Permitted Liens, Debtor owns each item of the
Collateral free and

                                     -4-
<PAGE>

clear of any and all Liens, rights, or claims of all other Persons, and Debtor
shall defend the Collateral against all claims and demands of all Persons at any
time claiming the same or any interest therein adverse to the Secured Party.

            (b) No financing statement or other evidence of Lien covering or
purporting to cover any of the Collateral is on file in any public office other
than (i) financing statements in favor of the Secured Party, (ii) financing
statements for which proper termination statements have been delivered to the
Secured Party for filing, and (iii) financing statements filed in connection
with Permitted Liens.

      3.3 Location of Debtor and Collateral. The chief executive office of the
Debtor is 9821 Katy Freeway, Suite 1050, Houston, Texas 77024. The primary
copies of the Account Records are located at, and all Accounts and General
Intangibles are maintained at, and controlled and directed (including, without
limitation, for general accounting purposes) from, such chief executive office.

      3.4 Accounts. (a) Each Account (i) is and will be, in all material
respects, the genuine, legal, valid, and binding obligation of the Account
Debtor in respect thereof, representing an unsatisfied obligation of such
Account Debtor, (ii) is and will be, in all material respects, enforceable in
accordance with its terms, (iii) is not and will not be subject to any setoffs,
defenses, taxes, counterclaims (except (A) with respect to refunds, returns, and
allowances in the ordinary course of business, and (B) to the extent that such
Account may not yet have been earned by performance), and (iv) is and will be,
in all material respects, in compliance with all applicable laws, whether
federal, state, local, or foreign.

            (b) No Accounts which are evidenced by Chattel Paper require the
consent of the Account Debtor in respect thereof in connection with their
assignment hereunder.

      3.5 Tradenames; Prior Names. Debtor has not conducted business under any
name other than its current name during the last five years.

                                   ARTICLE IV

                                    COVENANTS

      Debtor covenants and agrees with the Secured Party that from and after the
date of this Agreement:

      4.1 Further Assurances. At any time and from time to time, upon the
request of the Secured Party, and at the sole expense of Debtor, Debtor will
promptly and duly execute and deliver any and all such further instruments,
endorsements, powers of attorney, and other documents, make such filings, give
such notices, and take such further action as the Secured Party may reasonably
deem desirable in obtaining the full benefits of this Agreement and the rights,
remedies, and powers herein granted, including, without limitation, the
following:

            (a) the filing of financing statements, in form acceptable to the
      Secured Party under the Uniform Commercial Code in effect in any
      jurisdiction with respect to the liens and security interests granted
      hereby;

                                     -5-
<PAGE>

            (b) the performance of all searches of public records deemed
      necessary by the Secured Party to establish and determine the priority of
      the security interests of the Secured Party or to determine the presence
      or priority of other secured parties; and

            (c) the furnishing to the Secured Party from time to time of reports
      and schedules in connection with the Collateral as required pursuant to
      the Credit Agreement, all in reasonable detail and in form reasonably
      satisfactory to the Secured Party.

      4.2 Change of Chief Executive Office. Debtor will not move its chief
executive office except to such new location as Debtor may establish in
accordance with the last sentence of this Section. The originals of all Account
Records and General Intangibles will be kept at such chief executive office or
at the locations referred to in Section 3.3, or at such new locations as Debtor
may establish in accordance with the last sentence of this Section. All
Accounts, Account Records, and General Intangibles of Debtor will be maintained
at and controlled and directed (including, without limitation, for general
accounting purposes) from the locations referred to in Section 3.3 or such new
locations as the Debtor may establish in accordance with the last sentence of
this Section. With respect to any new location, promptly upon the request of the
Secured Party, Debtor shall take all such action as the Secured Party may
request to maintain the security interest of the Secured Party in the Collateral
granted hereby at all times fully perfected with the same or better priority and
in full force and effect. Debtor shall not establish a new location for its
chief executive office or such activities (or move any such activities from the
locations referred to in Section 3.3) until it shall have given to the Secured
Party not less than ten days' prior written notice of its intention to do so,
clearly describing such new location and providing such other information in
connection therewith as the Secured Party may reasonably request.

      4.3 Change of Name or Limited Partnership Structure. Debtor shall not
change its name or limited partnership structure or conduct business under any
name other than its current name without giving notice thereof to the Secured
Party within ten days thereafter, clearly describing such new name, or limited
liability company structure or such new tradename and providing such other
information in connection therewith as the Secured Party may reasonably request.
With respect to such new name, limited partnership company structure, or
tradename, promptly upon the request of the Secured Party, Debtor shall take all
such action as the Secured Party may reasonably request to maintain the security
interest of the Secured Party in the Collateral granted hereby at all times
fully perfected with the same or better priority and in full force and effect.

      4.4 Maintain Records and Accounts. Debtor will keep and maintain, or cause
to be kept and maintained, at its own cost and expense satisfactory and complete
records of the Collateral, including, but not limited to, the originals of all
documentation with respect to all Accounts and General Intangibles and records
of all payments received and all credits granted on the Accounts, all
merchandise returned, and all other dealings therewith.

      4.5 Right of Inspection. The Secured Party shall upon reasonable notice to
Debtor have full and free access during normal business hours of Debtor to all
the books,

                                     -6-
<PAGE>

correspondence, and records of Debtor; and the Secured Party and its
representatives may examine the same, take extracts therefrom, and make
photocopies thereof.

      4.6 Possession of Collateral. The Secured Party shall be deemed to have
possession of any of the Collateral in transit to it or set apart for it.
Otherwise the Collateral shall remain in Debtor's constructive possession and
control at all times, at Debtor's risk of loss, and shall (except for sales
permitted by Section 6.4 of the Credit Agreement) be kept at the locations
represented in Section 3.3.

      4.7 Financing Statement Filings; Notifications. Debtor recognizes that
financing statements pertaining to the Collateral have been or will be filed
with the offices of the Secretary of State for the States listed in Exhibit A
hereto. Debtor will immediately notify the Secured Party of any condition or
event that may change the proper location for the filing of any financing
statement or other public notice or recording for the purpose of perfecting a
security interest in the Collateral. Without limiting the generality of the
foregoing, Debtor will (a) ten days prior to taking such action, notify the
Secured Party of any change to a jurisdiction other than as represented in
Section 3.3 hereof, (i) in the location of Debtor's chief place of business,
(ii) in the location of the office where Debtor keeps its records concerning the
Accounts and the General Intangibles and the original of all the Accounts
Records, or (iii) in the "location" of Debtor within the meaning of Section
9-307 of the UCC, and (b) within ten days after taking such action, notify
Secured Party of any change in Debtor's name. In any notice furnished pursuant
to this Section, Debtor will expressly state that the notice is required by this
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of the Secured Party's security interest in the Collateral.

                                   ARTICLE V

                                    ACCOUNTS

      5.1 Debtor Remains Liable under Accounts. Anything herein to the contrary
notwithstanding (including, without limitation, the grant of any rights to the
Secured Party), Debtor shall remain liable under each of the Accounts to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with the terms of any agreement giving rise to
each such Account. The Secured Party shall have no obligation or liability under
any Account (or any agreement giving rise thereto) by reason of or arising out
of this Agreement or the receipt by the Secured Party of any payment relating to
such Account pursuant hereto, nor shall the Secured Party be obligated in any
manner to perform any of the obligations of Debtor under or pursuant to any
Account (or any agreement giving rise thereto), to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as
to the sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto), to present or file any claim, to take any action
to enforce any performance, or to collect the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.

      5.2 Collections on Accounts. Prior to the occurrence of an Event of
Default, the Secured Party hereby authorizes Debtor to collect the Accounts. At
any time following and during the continuance of any Event of Default, the
Secured Party may curtail or terminate said

                                     -7-
<PAGE>

authority at any time and itself, or by its agents, collect all Accounts, and
any payments of Accounts collected by Debtor shall be held by Debtor in trust
for the Secured Party, segregated from other funds of Debtor. All Proceeds,
while held by the Secured Party (or by Debtor in trust for the Secured Party)
shall continue to be Collateral securing all of the Secured Obligations and
shall not constitute payment thereof until applied as hereinafter provided.

                                   ARTICLE VI

                                POWER OF ATTORNEY

      6.1 Appointment as Attorney-in-Fact. Debtor hereby irrevocably constitutes
and appoints the Secured Party and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact, with full irrevocable
power and authority in the place and stead of Debtor and in the name of Debtor
or in its own name, from time to time in the discretion of the Secured Party,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, Debtor hereby gives the
Secured Party the power and right, on behalf of Debtor, without notice to or
assent by the Debtor, to do the following:

            (a) in the case of any Account, at any time when the authority of
      Debtor to collect the Accounts has been curtailed or terminated pursuant
      hereto, or in the case of any other Collateral, at any time when any Event
      of Default shall have occurred and be continuing, in the name of Debtor or
      its own name, or otherwise, to take possession of and indorse and collect
      any checks, drafts, notes, acceptances, or other instruments for the
      payment of moneys due under, or with respect to, any Collateral; in the
      name of Debtor or otherwise to direct any party liable for any payment
      under any of the Collateral to make payment of any and all moneys due or
      to become due thereunder directly to the Secured Party or as the Secured
      Party shall direct; to ask or demand for, collect, receive payment of, and
      receipt for, any and all moneys, claims, and other amounts due or to
      become due at any time in respect of or arising out of any Collateral;

            (b) at any time when an Event of Default shall have occurred and be
      continuing, to prepare, sign, and file financing statements and amendments
      thereto in the name of Debtor;

            (c) at any time when an Event of Default shall have occurred and be
      continuing, to take or cause to be taken all actions necessary to perform
      or comply or cause performance or compliance with the terms of this
      Agreement, including, without limitation, actions to pay or discharge
      taxes and Liens levied or placed on or threatened against the Collateral,
      to effect any repairs or obtain any insurance called for by the terms of
      this Agreement, and to pay all or any part of the premiums therefor and
      the costs thereof;

            (d) upon the occurrence and during the continuance of any Event of
      Default, (i) to sign and indorse any invoices, freight or express bills,
      bills of lading, storage or warehouse receipts, drafts against debtor,
      assignments,

                                     -8-
<PAGE>

      verifications, notices, and other documents in connection with any of the
      Collateral, (ii) to commence and prosecute any suits, actions, or
      proceedings at law or in equity in any court of competent jurisdiction to
      collect the Collateral or any portion thereof and to enforce any other
      right in respect of any Collateral, (iii) to defend any suit, action, or
      proceeding brought against Debtor with respect to any Collateral, (iv) to
      settle, compromise, or adjust any suit, action, or proceeding described in
      the preceding clause and, in connection therewith, to give such discharges
      or releases as the Secured Party may deem appropriate, and (v) generally,
      to sell or transfer and make any agreement with respect to or otherwise
      deal with any of the Collateral as fully and completely as though the
      Secured Party were the absolute owner thereof for all purposes, and to do,
      at the option of the Secured Party and the expense of Debtor, at any time,
      or from time to time, all acts and things which the Secured Party deems
      necessary to protect, preserve, or realize upon the Collateral and the
      Liens of the Secured Party thereon and to effect the intent of this
      Agreement, all as fully and effectively as Debtor might do; and

            (e) at any time when an Event of Default shall have occurred and be
      continuing, to execute, in connection with any foreclosure, any
      endorsements, assignments, or other instruments of conveyance or transfer
      with respect to the Collateral.

      Debtor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable so long as any Obligation remains outstanding
or any Commitment exists. Debtor hereby acknowledges and agrees that in acting
pursuant to this power-of-attorney the Secured Party shall be acting in its own
interest and shall have no fiduciary duties to the Debtor, and Debtor hereby
waives any claims to the rights of a beneficiary of a fiduciary relationship
hereunder.

      6.2 No Duty on the Part of Secured Party. The powers conferred on the
Secured Party hereunder are solely to protect the interests of the Secured Party
in the Collateral and shall not impose any duty upon the Secured Party to
exercise any such powers. The Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and, except for its own gross negligence, neither it nor any of its officers,
directors, employees, or agents shall be responsible to the Debtor for any act
or failure to act hereunder.

                                  ARTICLE VII

                          REMEDIES; RIGHTS UPON DEFAULT

      7.1 Rights and Remedies Generally. If an Event of Default shall occur and
be continuing, then and in every such case, the Secured Party shall have all the
rights of a secured party under the UCC, all rights now or hereafter existing
under all other applicable laws, and, subject to any mandatory requirements of
applicable law then in effect, all rights set forth in this Agreement and the
other Loan Documents. No enumeration of rights in this Section or elsewhere in
this Agreement or in any other Loan Document or other agreement shall be deemed
to in any way limit the rights of the Secured Party as described in this
Section.

                                     -9-
<PAGE>

      7.2 Proceeds. If an Event of Default shall occur and be continuing, in
addition to the rights of the Secured Party specified with respect to the
payment of Accounts, (a) all Proceeds received by Debtor consisting of cash,
checks, and other near-cash items shall be held by Debtor in trust for the
Secured Party, segregated from other funds of Debtor, and shall forthwith upon
receipt by Debtor, be turned over to the Secured Party, in the same form
received by Debtor (appropriately indorsed or assigned by the Debtor to the
order of the Secured Party or in such other manner as shall be satisfactory to
the Secured Party), and (b) any and all such Proceeds received by the Secured
Party (whether from Debtor or otherwise), or any part thereof, shall be applied
by the Secured Party as provided in Section 7.10 hereof.

      7.3 Collection of Accounts. If an Event of Default shall occur and be
continuing:

            (a) the Secured Party may instruct the obligor or obligors on any
      obligation owing or purporting to be owed to Debtor constituting the
      Collateral (including, without limitation, the Accounts) to make any
      payment required by the terms of such obligation directly to the Secured
      Party;

            (b) the Secured Party shall have the right from time to time to
      modify (including, without limitation, to extend the time for payment or
      arrange for payment in installments) or waive rights under any such
      obligation and to compromise or settle counterclaims or setoffs with the
      obligor under any such obligation; and

            (c) any and all of such proceeds of such collections paid to the
      Secured Party, or any part thereof, (after deduction of the Secured
      Party's expenses of collection, including, without limitation, reasonable
      attorneys' fees and disbursements), shall be applied by the Secured Party
      as provided in Section 7.10 hereof.

      7.4 Disposition of Collateral. If an Event of Default shall occur and be
continuing:

            (a) the Secured Party may direct Debtor to sell, assign, or
      otherwise liquidate or dispose of all or from time to time any portion of
      the Collateral, and Debtor shall do so, and the Secured Party may take
      possession of the Proceeds of such Collateral. The Secured Party may
      direct Debtor to direct that all Proceeds of such Collateral be paid
      directly to the Secured Party or may permit the Proceeds of such
      Collateral to be paid to Debtor and all such Proceeds consisting of cash,
      checks, or near-cash items shall be held by Debtor in trust for the
      Secured Party, segregated from other funds of Debtor in a separate deposit
      account containing only Proceeds and shall forthwith upon receipt by
      Debtor, be turned over to the Secured Party, in the same form received by
      Debtor (appropriately indorsed or assigned by Debtor to the order of the
      Secured Party or in such other manner as shall be satisfactory to the
      Secured Party); and

            (b) any and all such Proceeds received by the Secured Party (whether
      from Debtor or otherwise), shall be applied by the Secured Party as
      provided in Section 7.10 hereof.

                                     -10-
<PAGE>

      7.5 Debtor's Accounts. If an Event of Default shall occur and be
continuing, the Secured Party may liquidate any securities held in any accounts
of Debtor and apply the proceeds thereof and any other amounts held in any
accounts of Debtor as provided in Section 7.10 hereof.

      7.6 Possession of Collateral. If an Event of Default shall occur and be
continuing, (a) the Secured Party may, personally or by agents or attorneys,
immediately retake possession of the Collateral (including the originals of all
or any Accounts and Account Records) or any part thereof, from Debtor or any
other Person which then has possession of any part thereof with or without
notice or judicial process, and for that purpose may enter upon Debtor's
premises where any of the Collateral is located and remove the same and may make
reasonable use in connection with such removal of any and all services,
supplies, aids, and other facilities of Debtor, and (b) upon three days' notice
to Debtor, Debtor shall, at its own expense, assemble the Collateral, including,
without limitation, the originals of all Account Records (or from time to time
any portion thereof) and make it available to the Secured Party by delivery to
the Secured Party at any location designated by the Secured Party which is
reasonably convenient to both parties, whether at the premises of Debtor or the
Secured Party or elsewhere. Debtor shall, at its sole expense, store and keep
any Collateral so assembled at such place or places pending further action by
the Secured Party and while the Collateral shall be so stored and kept, provide
such guards and maintenance services as shall be reasonably necessary to protect
the same and to preserve and maintain the Collateral in good condition. Debtor's
obligation to so assemble and deliver the Collateral is of the essence of this
Agreement and, accordingly, upon application to a court of equity having
jurisdiction, the Secured Party shall be entitled to a decree requiring specific
performance by the Debtor of such obligation.

      7.7 Disposition of the Collateral. If an Event of Default shall occur and
be continuing, the Secured Party may sell, assign, lease, give an option or
options to purchase, or otherwise dispose of the Collateral (or contract to do
any of the foregoing) under one or more contracts or as an entirety, and, to the
extent permitted by applicable law, without the necessity of gathering at the
place of sale the property to be sold, at public or private sale or sales,
conducted by any officer, nominee or agent of, or auctioneer or attorney for the
Secured Party at any location of any third party conducting or otherwise
involved in such sale or any office of the Secured Party or elsewhere and in
general in such manner, at such time or times and upon such terms and conditions
and at such price as may be commercially reasonable, for cash or on credit or
for future delivery without assumption of any credit risk. Any of the Collateral
may be sold, leased, assigned, or options or contracts entered to do so, or
otherwise disposed of, in the condition in which the same existed when taken by
the Secured Party or after any overhaul or repair which may be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceeding shall be made upon not less than ten days' written notice to Debtor
specifying the time after which such disposition is to be made and the intended
sale price or other consideration therefor. Any such disposition which shall be
a public sale shall be made upon not less than ten days' written notice to
Debtor (which Debtor agrees to be commercially reasonable) specifying the time
and place of such sale and, in the absence of applicable requirements of law to
the contrary, shall be by public auction (which may, at the option or the
Secured Party, be subject to reserve), after publication of commercially
reasonable notice of such auction. To the extent permitted by applicable law,
the Secured Party may bid for and become the purchaser of the Collateral or any
item thereof, offered for sale in accordance with this

                                     -11-
<PAGE>

Section without accountability to Debtor (except to the extent of surplus money
received) as provided below. In the payment of the purchase price of the
Collateral, the purchaser shall be entitled to have credit on account of the
purchase price thereof of amounts owing to such purchaser on account of any of
the Secured Obligations and any such purchaser may deliver notes, claims for
interest, or claims for other payment with respect to such Secured Obligations
in lieu of cash up to the amount which would, upon distribution of the net
proceeds of such sale, be payable thereon. Such notes, if the amount payable
hereunder shall be less than the amount due thereon, shall be returned to the
holder thereof after being appropriately stamped to show partial payment.
Notwithstanding the foregoing, if the Collateral or any portion thereof is
perishable or threatens to decline speedily in value or is of a type customarily
sold in a recognized market only such notice as shall be reasonably practicable
shall be required.

      7.8 Recourse. Debtor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Secured Obligations. Debtor shall also be liable for all reasonable
expenses of the Secured Party incurred in connection with collecting such
deficiency, including, without limitation, the reasonable fees and disbursements
of any attorneys employed by the Secured Party to collect such deficiency.

      7.9 Expenses; Attorneys' Fees. Debtor shall reimburse the Secured Party
for all its reasonable expenses in connection with the exercise of its rights
and remedies hereunder, including, without limitation, reasonable attorneys'
fees and legal expenses incurred by the Secured Party.

      7.10 Application of Proceeds. The proceeds of any disposition of
Collateral shall be applied as follows:

            (a) to the payment of any and all reasonable expenses and fees
      (including attorneys' fees and disbursements) incurred by the Secured
      Party in connection with the exercise of its rights and remedies
      hereunder, including, without limitation, reasonable expenses and fees in
      connection with obtaining, taking possession of, removing, holding,
      insuring, repairing, preparing for sale or lease, storing and disposing of
      Collateral;

            (b) to the satisfaction of the Secured Obligations in such order as
      the Secured Party may elect; and

            (c) after the indefeasible payment in full in cash of all Secured
      Obligations, to Debtor or to whomever may lawfully be entitled to receive
      the same or as a court of competent jurisdiction may direct.

      7.11 Limitation on Duties Regarding Preservation of Collateral. The
Secured Party's sole duty with respect to the custody, safekeeping, and physical
preservation of the Collateral in its possession, under Section 9.207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Secured Party
deals with similar property for its own account. The Secured Party shall have no
obligation to take any steps to preserve rights against prior parties to any
Collateral. Except for matters constituting gross negligence, neither the
Secured Party nor any of its directors, officers, employees, or agents shall be
liable for failure to demand, collect, or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any

                                     -12-
<PAGE>

obligation to sell or otherwise dispose of any Collateral upon the request of
the Debtor or otherwise.

      7.12 Waiver of Claims. Except as otherwise provided in this Agreement,
Debtor hereby waives, to the extent permitted by applicable law, notice of and
judicial hearing in connection with the Secured Party's taking possession or the
Secured Party's disposition of any of the Collateral in accordance herewith,
including, without limitation, any and all prior notice and hearing for any
prejudgment remedy or remedies and any such right which the Debtor would
otherwise have under the constitution or any statute of the United States or any
state, and Debtor hereby further waives, to the extent permitted by law:

            (a) all damages occasioned by such taking of possession except any
      damages which are the direct result of the gross negligence of the Secured
      Party;

            (b) all other requirements as to the time, place, and terms of sale
      or other requirements with respect to the enforcement of the rights of the
      Secured Party hereunder;

            (c) demand of performance or other demand, notice of intent to
      demand or accelerate, notice of acceleration, presentment, protest,
      advertisement, or notice of any kind to or upon Debtor or any other
      Person, except as may be required by the Credit Agreement; and

            (d) all rights of redemption, appraisement, valuation, diligence,
      stay, extension, or moratorium now or hereafter in force under any
      applicable law in order to stay or delay the enforcement of this
      Agreement, including the absolute sale of the Collateral or any portion
      thereof, and Debtor, for itself and all who may claim under it, insofar as
      it or they now or hereafter lawfully may, hereby waives the benefit of all
      such laws.

      7.13 Discontinuance of Proceedings. In case the Secured Party shall have
instituted any proceeding to enforce any right, power, or remedy under this
Agreement by foreclosure, sale, entry, or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason, then and in every such case,
Debtor and the Secured Party shall be returned to their former positions and
rights hereunder with respect to the Collateral subject to the security interest
created under this Agreement, and all rights, remedies, and powers of the
Secured Party shall continue as if no such proceeding had been instituted.

                                  ARTICLE VIII

                                    INDEMNITY

      8.1 INDEMNITY. (a) DEBTOR AGREES TO INDEMNIFY, REIMBURSE, AND HOLD THE
INDEMNITEES HARMLESS FROM ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, CLAIMS, ACTIONS, JUDGMENTS, SUITS, REASONABLE COSTS, REASONABLE
EXPENSES, OR REASONABLE DISBURSEMENTS (INCLUDING REASONABLE ATTORNEYS' FEES AND
EXPENSES) (FOR THE PURPOSES OF THIS SECTION ALL OF THE

                                     -13-
<PAGE>

FOREGOING ARE COLLECTIVELY CALLED "EXPENSES") OF WHATSOEVER KIND OR NATURE WHICH
MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY ANY OF SUCH INDEMNITEES IN
ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE DOCUMENTS EXECUTED
IN CONNECTION HEREWITH OR IN ANY OTHER WAY CONNECTED WITH THE ADMINISTRATION OF
THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ENFORCEMENT OF ANY OF THE TERMS OF
OR THE PRESERVATION OF ANY RIGHTS HEREUNDER, INCLUDING, WITHOUT LIMITATION,
THOSE ARISING FROM THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF ANY
INDEMNITEE; PROVIDED THAT NO SUCH INDEMNITEE SHALL BE INDEMNIFIED PURSUANT TO
THIS SECTION FOR EXPENSES TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

            (b) Debtor agrees that upon written notice by any such Indemnitee of
any assertion that could give rise to an Expense, Debtor shall assume full
responsibility for the defense thereof. Without limiting the application of part
(a) of this Section, Debtor agrees to pay or reimburse such Indemnitee on demand
for any and all reasonable fees, costs, and expenses of whatever kind or nature
incurred in connection with the creation, preservation, or protection of the
Secured Party's Liens on, and security interests in, the Collateral, including,
without limitation, all reasonable fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment, or
discharge of any taxes or Liens or security interests upon or in respect of the
Collateral, premiums for insurance with respect to the Collateral, all
reasonable expenses incurred in the custody, preservation, use, or operation of
the Collateral when Collateral is in the Secured Party's possession, and all
other reasonable fees, costs, and expenses in connection with protecting,
maintaining, or preserving the Collateral and the Secured Party's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits, or proceedings arising out of or relating to the
Collateral.

            (c) Without limiting the application of parts (a) or (b) of this
Section, Debtor agrees to pay, indemnify, and hold each Indemnitee harmless from
and against any Expenses which such Indemnitee may suffer, expend, or incur in
consequence of or growing out of any misrepresentation by any Debtor in this
Agreement or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement.

            (d) If and to the extent that the obligations of Debtor under this
Section are unenforceable for any reason, Debtor hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.

      8.2 Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Secured Obligations secured by the Collateral.
The indemnity obligations of the Debtor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment and
performance of the Secured Obligations and the termination of this Agreement.

                                     -14-
<PAGE>

                                   ARTICLE IX

                                  MISCELLANEOUS

      9.1 No Waiver; Remedies Cumulative. No failure or delay on the part of the
Secured Party in exercising any right, power, or privilege hereunder and no
course of dealing between any Debtor and the Secured Party shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. A waiver by the Secured Party
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Secured Party would otherwise have on any
future occasion. The rights and remedies herein expressly provided are
cumulative, may be exercised singly or concurrently and as often and in such
order as the Secured Party deems expedient, and are not exclusive of any rights
or remedies which the Secured Party would otherwise have whether by agreement or
now or hereafter existing under applicable law. No notice to or demand on Debtor
in any case shall entitle Debtor to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Secured Party to any other or further action in any circumstances without notice
or demand.

      9.2 Termination; Release. When the Secured Obligations have been
indefeasibly paid and performed in full and the Commitment has terminated, this
Agreement shall terminate, and the Secured Party, at the request and sole
expense of Debtor, will execute and deliver to Debtor the proper instruments
(including Uniform Commercial Code termination statements) acknowledging the
termination of this Agreement, and will duly assign, transfer, and deliver to
Debtor, without recourse, representation, or warranty of any kind whatsoever,
such of the Collateral as may be in possession of the Secured Party and has not
theretofore been disposed of, applied, or released.

      9.3 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.

      9.4 Marshalling. The Secured Party shall not be under any obligation to
marshall any assets in favor of Debtor or any other Person or against or in
payment of any or all of the Secured Obligations.

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

      9.6 Financing Statement Filing. A photocopy or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in lieu
of the original to the extent permitted by applicable law.

      9.7 Notices and Other Communications. Except as to oral notices expressly
authorized herein, all notices, requests, and communications under this
Agreement shall be in

                                     -15-
<PAGE>

writing (including by telecopy). Unless otherwise expressly provided herein, any
such notice, request, or communication shall be deemed to have been duly given
or made when provided in accordance with the terms of the Credit Agreement.

      9.8 Parties in Interest. This Agreement shall be binding upon and inure to
the benefit of Debtor, the Secured Party, and their respective legal
representatives, successors, and assigns. No other Person shall have any right,
benefit, priority, or interest hereunder or as a result hereof or have standing
to require satisfaction of provisions hereof in accordance with their terms, and
any or all of such provisions may be freely waived in whole or in part by the
Secured Party at any time if the Secured Party in its sole discretion deems it
advisable to do so.

      9.9 Amendments. Neither this Agreement nor any provision hereof may be
amended, supplemented, modified, discharged, or terminated orally, but only by
an instrument in writing signed by the party against whom enforcement of the
amendment, supplement, modification, discharge, or termination is sought.

      9.10 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE PARTIES
HERETO RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

      9.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAWS).

      9.12 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH ANY DEBTOR IS A PARTY MAY BE
LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE SECURED PARTY, IN COURTS
HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. DEBTOR HEREBY SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS
COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE SECURED
PARTY IN ACCORDANCE WITH THIS SECTION.

                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                     -16-
<PAGE>

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

                                           DEBTOR:

                                           F-W OIL EXPLORATION L.L.C.

                                           By: Jim R. Brock
                                               ----------------------
                                               Jim R. Brock
                                               President and CFO

                                     -17-
<PAGE>

                                           SECURED PARTY:

                                           GUARANTY BANK, FSB

                                           By: Arthur R. Gralla
                                               ----------------------
                                               Arthur R. Gralla, Jr.
                                               Managing Director

                                     -18-
<PAGE>

                                    EXHIBIT A

Section 3.1: FILING LOCATIONS

             Secretary of State of Delaware

                                       A-i

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