Document:

EXHIBIT 10.2
                              EMPLOYMENT AGREEMENT

         This Employment Agreement (this "AGREEMENT") is made and entered into
on February 28, 2005 (the "EFFECTIVE DATE") by and between Joe Grady
("EMPLOYEE") and GulfWest Energy Inc. (the "COMPANY").

         WHEREAS, the Company desires to employ Employee as Chief Financial
Officer, and Employee desires to be employed by the Company in said capacity;
and

         WHEREAS, each party desires to set forth in writing the terms and
conditions of their understandings and agreements.

         NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, the Company hereby agrees to employ Employee and
Employee hereby accepts such employment upon the terms and conditions set forth
in this Agreement:

                                    ARTICLE 1

                   EMPLOYMENT; RESPONSIBILITIES; COMPENSATION

         Section 1.1 EMPLOYMENT. Subject to ARTICLE 3, the Company hereby agrees
to employ Employee and Employee hereby agrees to be employed by the Company, in
accordance with this Agreement, for the period commencing as of the Effective
Date and ending on the third anniversary of the Effective Date ("INITIAL TERM");
PROVIDED, HOWEVER, that beginning on the day immediately preceding the third
anniversary of this Agreement and on the day immediately preceding each
anniversary of this Agreement thereafter, the Initial Term shall automatically
be extended one additional year unless either party gives written notice to the
other party between 90 and 120 days prior to the next anniversary of this
Agreement that it or he, as applicable, does not wish to extend this Agreement.
Employee's continued employment after the expiration of the Initial Term shall
be in accordance with and governed by this Agreement, unless modified by the
parties to this Agreement in writing.

         Section 1.2 RESPONSIBILITIES; LOYALTY.

                  (a) Subject to the terms of this Agreement, Employee is
         employed in the position of Chief Financial Officer, and shall perform
         the functions and responsibilities of that position. Additional or
         different duties may be assigned by the Company. Employee's position,
         job descriptions, duties and responsibilities may be modified from time
         to time in the sole discretion of the Company.

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                  (b) Employee shall devote the whole of Employee's professional
         time, attention and energies to the performance of Employee's work
         responsibilities and shall not, either directly or indirectly, alone or
         in partnership, consult with, advise, work for or have any interest in
         any other business or pursuit during Employee's employment under this
         Agreement. During the term of Employee's employment with the Company,
         it shall not be a violation of this Agreement for Employee to (i) serve
         on corporate, civic or charitable boards or committees; (ii) deliver
         lectures or fulfill speaking engagements; and (iii) subject to SECTION
         2.3, manage personal investments, in each case, so long as such
         activities do not materially interfere with the performance of
         Employee's responsibilities as an employee of the Company in accordance
         with this Agreement. Employee further agrees to comply with all
         policies of the Company in effect from time to time, and to comply with
         all laws, rules and regulations, including those applicable to the
         Company

         Section 1.3 COMPENSATION. As consideration for the services and
covenants described in this Agreement, the Company agrees to compensate Employee
in the following manner:

                  (a) The Company will pay Employee a base salary of $220,000
         per year ("BASE SALARY").

                  (b) Employee shall be entitled to employment benefits
         including holidays, leaves of absence, health insurance, dental
         insurance, 401(k) plan participation, etc., if any, available to
         employees of the Company generally, in accordance with any policies,
         procedures or benefit plans adopted by the Company from time to time
         during the existence of this Agreement. In addition, Employee shall be
         entitled to vacation in accordance with the Company's vacation policy
         as adopted from time to time. Employee's rights or those of Employee's
         dependents under any such benefits policies or plans shall be governed
         solely by the terms of such policies or plans. The Company reserves to
         itself, or its designated administrators, exclusive authority and
         discretion to determine all issues of eligibility, interpretation and
         administration of each such benefit plan or policy. The Company's
         employment benefits, and policies related thereto, are subject to
         termination, modification or limitation at the Company's sole
         discretion.

                  (c) Employee shall be eligible to receive, for each full
         calendar year in which Employee is employed by the Company hereunder, a
         bonus of 0% to 100% of Base Salary established by the Board of
         Directors of the Company or a duly authorized committee thereof (the
         "BOARD") in its sole discretion ("DISCRETIONARY Bonus"). However, for
         the year ended December 31, 2005, Employee shall receive a bonus of
         $110,000 payable on or before February 26, 2006.

                  (d) Payment of all compensation to Employee shall be made in
         accordance with the terms of this Agreement, applicable state or
         federal law, and applicable Company policies in effect from time to
         time, including normal payroll practices, and shall be subject to all
         applicable withholdings and taxes.

                  (e) So long as Employee has relocated by August 31, 2006,
         payment of all costs and reasonable incidental expenses (not to exceed
         $100,000) (i) associated with moving Employee's belongings from Miami,
         Florida to the greater Houston, Texas metropolitan area and (ii) the
         cost of selling Employee's residence in Miami, Florida.

                  (f) Payment of all reasonable and documented costs and
         incidental expenses associated with Employee's commuting costs between
         Miami, Florida and the greater Houston, Texas metropolitan area until
         August 31, 2006, including documented reasonable travel and corporate
         housing expenses.

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         Section 1.4 BUSINESS EXPENSES. The Company shall reimburse Employee for
all business expenses that are reasonable and necessary and incurred by Employee
while performing his duties under this Agreement, upon presentation of expense
statements, receipts and/or vouchers or such other information and documentation
as the Company may reasonably require.

                                   ARTICLE 2

                    CONFIDENTIAL INFORMATION; POST-EMPLOYMENT
                          OBLIGATIONS; COMPANY PROPERTY

         Section 2.1 COMPANY PROPERTY. All written materials, records, data and
other documents prepared or possessed by Employee during Employee's employment
by the Company are the Company's property. All information, ideas, concepts,
improvements, discoveries and inventions that are conceived, made, developed or
acquired by Employee individually or in conjunction with others during
Employee's employment (whether during business hours and whether on Company's
premises or otherwise) that relate to Company business, products or services are
the Company's sole and exclusive property. All memoranda, notes, records, files,
correspondence, drawings, manuals, models, specifications, computer programs,
maps and all other documents, data or materials of any type embodying such
information, ideas, concepts, improvements, discoveries and inventions are
Company property. At the termination of Employee's employment with the Company
for any reason, Employee shall return all of the Company's documents, data or
other Company property to the Company.

         Section 2.2 CONFIDENTIAL INFORMATION; NON-DISCLOSURE.

                  (a) Employee acknowledges that the business of the Company is
         highly competitive and that the Company will provide Employee with
         access to Confidential Information relating to the business of the
         Company. Employee acknowledges that this Confidential Information
         constitutes a valuable, special and unique asset used by the Company in
         its business to obtain a competitive advantage over competitors.
         Employee further acknowledges that protection of such Confidential
         Information against unauthorized disclosure and use is of critical
         importance to the Company in maintaining its competitive position.
         Employee agrees that Employee will not, at any time during or after
         Employee's employment with the Company, make any unauthorized
         disclosure of any Confidential Information of the Company, or make any
         use thereof, except in the carrying out of Employee's employment
         responsibilities to the Company. Employee also agrees to preserve and
         protect the confidentiality of third party Confidential Information to
         the same extent, and on the same basis, as the Company's Confidential
         Information.

                  (b) For purposes hereof, "CONFIDENTIAL INFORMATION" includes
         business operations and methods, existing and proposed investments and
         investment strategies, seismic, well-log and other geologic and oil and
         gas operating and exploratory data, financial performance, compensation
         arrangements and amounts (whether relating to the Company or to any of
         its employees), contractual relationships, business partners and
         relationships (including customers and suppliers), marketing strategies
         and other confidential information that is regularly used in the
         operation, technology and business dealings of the Company, regardless
         of the medium in which any of the foregoing information is contained,
         so long as such information is actually confidential and proprietary to
         the Company.

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         Section 2.3 NON-COMPETITION OBLIGATIONS.

                  (a) Employee acknowledges and agrees that as an employee and
         representative of the Company, Employee will be responsible for
         building and maintaining business relationships and goodwill with
         current and future operating partners, investors, partners and
         prospects on a personal level. Employee acknowledges and agrees that
         this responsibility creates a special relationship of trust and
         confidence between the Company, Employee and these persons or entities.
         Employee also acknowledges that this creates a high risk and
         opportunity for Employee to misappropriate these relationships and the
         goodwill existing between the Company and such persons. Employee
         acknowledges and agrees that it is fair and reasonable for the Company
         to take steps to protect itself from the risk of such misappropriation.

                  (b) Employee acknowledges and agrees that, in exchange for his
         agreement in SECTION 2.3(C) below, he will receive substantial,
         valuable consideration from the Company immediately upon the execution
         of this Agreement, including, (i) Confidential Information and access
         to Confidential Information, (ii) compensation and other benefits and
         (c) access to the Company's prospects.

                  (c) During the Non-Compete Term and provided that the Company
         has made all severance payments provided for herein, Employee will not,
         directly or indirectly, provide the same or substantially the same
         services that he provides to the Company or any of its subsidiaries to
         any Business Enterprise in the Market Area (as defined below). This
         includes working as an agent, consultant, employee, officer, director,
         consultant, partner or independent contractor or being a shareholder,
         member, joint venturer or equity owner in, any such Business
         Enterprise.

                  (d) For purposes of hereof:

                           (i) "BUSINESS ENTERPRISE" means any corporation,
                  partnership, limited liability company, sole proprietorship,
                  joint venture or other business association or entity engaged
                  in the business of exploring for, developing, operating or
                  acquiring oil and gas properties;

                           (ii) "MARKET AREA" means any hydrocarbon producing
                  geologic basins in which a material amount of oil, gas or
                  other mineral properties are owned, or otherwise held for the
                  benefit of, the Company; and

                           (iii) "NON-COMPETE TERM" means the period from the
                  date of Employee's employment to the date ending: (A) except
                  as contemplated by (B) or (C), 12 months following the date of
                  termination of Employee's employment by the Company without
                  Cause or by the Employee for Good Reason, (B) 24 months
                  following the date of termination of Employee's employment
                  with the Company (I) by the Company for Cause, or (II) if
                  Employee gives notice of his desire to accept the extension of
                  such period under SECTION 3.2 and Employee's employment has
                  been terminated by the Company without Cause or by Employee
                  for Good Reason, and (C) 12 months, if Employee's employment
                  is terminated by the Company without Cause or Employee
                  terminates his employment for Good Reason within 12 months
                  following a Change of Control.

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         Section 2.4 NON-SOLICITATION OF EMPLOYEES. During the Non-Compete Term,
Employee will not, either directly or indirectly, call on, solicit or induce any
other employee or officer of the Company or its affiliates with whom Employee
had contact with, knowledge of, or association with in the course of employment
with the Company to terminate his employment, and will not assist any other
person or entity in such a solicitation; provided, however, that with respect to
any employee or officer whose employment was terminated by the Company or its
affiliates, the foregoing restriction shall only apply for the six month period
commencing the date of such termination.

         Section 2.5 ACKNOWLEDGEMENT. Employee acknowledges that the
Confidential Information provided to Employee pursuant to this Agreement, and
the Company's need to protect its goodwill, gives rise to the Company's interest
in these restrictive covenants, and that any limitations as to time, geographic
scope and scope of activity to be restrained defined herein are reasonable and
do not impose a greater restraint than is necessary to protect the goodwill or
other business interest of the Company. Employee further agrees that if, at some
later date, a court of competent jurisdiction determines that certain covenants
do not meet the criteria set forth in Tex. Bus. & Com. Code ss. 15.50(2), those
covenants shall be reformed by the court, pursuant to Tex. Bus. & Com. Code ss.
15.51(c), to the least extent necessary to make them enforceable. Employee
acknowledges and recognizes that the enforcement of any of the provisions in
this Agreement by the Company will not interfere with Employee's ability to
pursue a proper livelihood.

         Section 2.6 EARLY RESOLUTION CONFERENCE. The parties are entering into
this Agreement with the express understanding that this Agreement is clear and
fully enforceable as written. If Employee ever decides later to contend that any
restriction on activities imposed by this Agreement no longer is enforceable as
written or does not apply to an activity in which Employee intends to engage,
Employee first will notify the Company in writing and meet with a company
representative at least 14 days before engaging in any activity that foreseeably
could fall within the questioned restriction to discuss resolution of such
claims.

         Section 2.7 EQUITABLE OTHER RELIEF. Employee understands and agrees
that, if Employee breaches this Agreement, the Company will suffer immediate and
irreparable harm which cannot be accurately calculated in monetary damages.
Consequently, the Company shall be entitled to immediate injunctive relief,
either by temporary or permanent injunction, to prevent such violation. This
injunctive relief shall be in addition to any other legal or equitable relief to
which the Company would be entitled. If a bond is required to be posted for the
Company to secure an injunction or other equitable remedy, threatened or actual,
Employee agrees that the bond need not be more than a nominal sum. The Company
shall be entitled to recover its attorneys' fees and costs from Employee should
Employee breach this Agreement. In addition, in the event of an alleged breach
or violation of this Agreement, the time periods set forth above will be tolled
until such breach or violation has been cured.

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                                   ARTICLE 3

                            TERMINATION OF EMPLOYMENT

         Section 3.1 TERMINATION OF EMPLOYMENT.

                  (a) Employee's employment with Company shall be terminated (i)
         immediately upon the death of Employee without further action by the
         Company, (ii) upon Employee's Permanent Disability without further
         action by the Company, (iii) by the Company for Cause, (iv) by Employee
         for Good Reason, (v) by the Company without Cause or by Employee
         without Good Reason PROVIDED that the terminating party must give at
         least 30 days' advance written notice of such termination.

                  (b) For purposes hereof:

                           (i) "PERMANENT DISABILITY" shall mean Employee's
                  physical or mental incapacity to perform his usual duties with
                  such condition likely to remain continuously and permanently
                  as determined by the Board.

                           (ii) "GOOD REASON" shall mean (A) a material breach
                  by the Company of any provision of this Agreement that remains
                  uncorrected for 10 days following written notice of such
                  breach by Employee to the Company identifying the provision of
                  this Agreement that Employee determined has been breached; (B)
                  assignment by the Board to Employee of any duties that
                  materially and adversely alter the nature or status of
                  Employee's position, job descriptions, duties, title or
                  responsibilities from those of a Chief Financial Officer, or
                  eligibility for Company compensation plans; (C) requirement by
                  the Company for Employee to relocate anywhere other than the
                  greater Houston, Texas metropolitan area, except for required
                  travel on Company business to an extent substantially
                  consistent with Employee's obligations under this Agreement;
                  (D) reduction in Employee's Base Salary in effect at the
                  relevant time; or (E) exclusion of the Employee from
                  eligibility for the Company's bonus plan as described above.

                           (iii) "CAUSE" shall include (A) continued failure by
                  Employee to perform substantially Employee's duties and
                  responsibilities (other than a failure resulting from
                  Permanent Disability) that remains uncorrected for ten days
                  after receipt of appropriate written notice from the Board;
                  (B) engagement by Employee in willful, reckless or grossly
                  negligent misconduct that is materially injurious to Company
                  or any of its affiliates, monetarily or otherwise; (C) except
                  as provided by (D), the charging of Employee with a crime
                  involving moral turpitude or a felony, provided that if the
                  criminal charge is dismissed with prejudice or if Employee is
                  acquitted at trial or on appeal, Employee will be deemed to
                  have been terminated without Cause; (D) the charging of
                  Employee with an act of criminal fraud, misappropriation or
                  personal dishonesty, provided that if the criminal charge is
                  subsequently dismissed with prejudice or the Employee is
                  acquitted at trial or on appeal then the Employee will be
                  deemed to have been terminated without Cause; or (E) a
                  material breach by Employee of any provision of this Agreement
                  that remains uncorrected for 10 days following written notice
                  of such breach by the Company to Employee identifying the
                  provision of this Agreement that Company determined has been
                  breached.

                  (c) If Employee's employment is terminated under any of the
         foregoing circumstances, all future compensation to which Employee is
         otherwise entitled and all future benefits for which Employee is
         eligible, other than that already earned but which is unpaid, shall
         cease and terminate as of the date of termination, except as
         specifically provided in this SECTION 3. Employee, or his estate in the
         case of Employee's death, shall be entitled to pro rata Base Salary
         through the date of such termination. Any other payments or benefits by
         or on behalf of Company are limited to those which may be payable
         pursuant to the terms of Company's employee benefit plans or required
         by any applicable federal, state or local law.

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         Section 3.2 SEVERANCE.

                  (a)

                           (i) If Employee's employment is terminated by the
                  Company without Cause or by Employee for Good Reason, and
                  subject to Employee's compliance with the conditions set forth
                  in SECTION 3.3, Employee shall, subject to the provisions of
                  this SECTION 3.2, be entitled to a severance payment
                  consisting of (A) a cash amount equal to the greater of (I)
                  two times the sum of the current calendar year's Base Salary
                  and the prior year's Discretionary Bonus, and (II) $600,000
                  and (B) health insurance benefits for two years from the
                  termination date. If no Discretionary Bonus was paid for the
                  year before the year in which termination occurs, Employee
                  shall be entitled to the greater of (A) the amount of the
                  Discretionary Bonus most recently paid to Employee and (B) the
                  Employee's target bonus (as set by the Board) for the calendar
                  year in which the termination occurs.

                           (ii) If the severance payment is to be made as result
                  of termination by the Company without Cause or by Employee for
                  Good Reason within 90 days before or 12 months after a Change
                  of Control, payment of the entire cash severance amount will
                  be made in a lump sum on the earlier of (i) the date on which
                  the Change of Control occurs and (ii) Employee's effective
                  date of termination. If the Company otherwise terminates
                  Employee without Cause or Employee terminates his employment
                  for Good Reason, Employee shall receive half of the cash
                  severance amount in a lump sum within 15 days of termination.
                  Employee shall not be entitled to the remainder of the cash
                  severance payment, or the second year of health insurance
                  benefits, unless Employee gives notice to the Company within
                  30 days of the conclusion of the 12 month period following his
                  termination date that he agrees to comply with SECTION 2.3(C)
                  and SECTION 2.4 for an additional 12 month period and, in
                  consideration therefor, desires to receive the remainder of
                  the severance payment and an extension of health insurance
                  benefits, in which event Employee shall be entitled to health
                  insurance benefits for an additional year and the remainder of
                  the cash severance payment, payable monthly over the second 12
                  month period following the date of Employee's termination.

                           (iii) Employee shall not be under any duty or
                  obligation to seek or accept other employment following a
                  termination of employment pursuant to which a severance
                  payment under this SECTION 3.2 is payable and the amounts due
                  Employee pursuant to this SECTION 3.2 shall not be reduced or
                  suspended if Employee accepts subsequent employment or earns
                  any amounts as a self-employed individual.

                  (b) If Employee's employment is terminated because of death or
         Permanent Disability, Employee's family members covered by the Company
         group health plan shall be reimbursed for group health plan
         continuation coverage they elect to receive under the Consolidated
         Omnibus Budget Reconciliation Act (COBRA) for up to 18 months, provided
         a member of Employee's family provides timely notice to the health plan
         administrator of Employee's death or Permanent Disability.

                  (c) Additional Payments.

                           (i) Anything in this Agreement to the contrary
                  notwithstanding, if it is determined that any payment, award,
                  benefit or distribution (or any acceleration of any payment,
                  award, benefit or distribution) by the Company or any entity
                  which effectuates a change in control (or other change in
                  ownership) to or for the benefit of Employee would be subject
                  to the excise tax imposed by Section 4999 of the Internal
                  Revenue Code of 1986, as amended (the "CODE") ("EXCESS
                  PARACHUTE PAYMENTS"), or any interest or penalties are
                  incurred by Employee with respect to such excise tax (such
                  excise tax, together with any such interest and penalties, are
                  hereinafter collectively referred to as the "EXCISE TAX"),
                  then the Company shall pay to Employee an additional payment
                  (a "GROSS-UP PAYMENT") in an amount equal to such Excise Tax.

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                           (ii) Subject to clause (i), all determinations
                  required to be made under this Section, including whether and
                  when a Gross-Up Payment is required, the amount of such
                  Gross-Up Payment and the assumptions to be used in arriving at
                  such determinations, shall be made by a public accounting firm
                  that is selected by the Board (the "ACCOUNTING FIRM") which
                  shall provide detailed supporting calculations both to the
                  Company and Employee within 15 business days of the receipt of
                  notice from the Company or Employee that there has been a
                  Excess Parachute Payment, or such earlier time as is requested
                  by the Company or Employee (collectively, the
                  "DETERMINATION"). All fees and expenses of the Accounting Firm
                  shall be borne solely by the Company and the Company shall
                  enter into any agreement requested by the Accounting Firm in
                  connection with the performance of the services hereunder. The
                  Gross-Up Payment under this Section with respect to any Excess
                  Parachute Payments made to Employee shall be made no later
                  than 30 days following such Excess Parachute Payment.

                           (iii) As a result of the uncertainty in the
                  application of Section 4999 of the Code at the time of the
                  Determination, it is possible that Gross-Up Payments which
                  will not have been made by the Company should have been made
                  ("UNDERPAYMENT") or Gross-Up Payments will be made by the
                  Company which should not have been made ("OVERPAYMENT"),
                  consistent with the calculations required to be made
                  hereunder. If Employee thereafter is required to make payment
                  of any Excise Tax or additional Excise Tax, the Accounting
                  Firm shall determine the amount of the Underpayment that has
                  occurred and any such Underpayment (together with interest at
                  the rate provided in Section 1274(b)(2)(B) of the Code) shall
                  be promptly paid by the Company to or for the benefit of
                  Employee. If the amount of the Gross-Up Payment exceeds the
                  amount necessary to reimburse Employee for his Excise Tax, the
                  Accounting Firm shall determine the amount of the Overpayment
                  that has been made and any such Overpayment (together with
                  interest at the rate provided in Section 1274(b)(2) of the
                  Code) shall be promptly paid by Employee to or for the benefit
                  of the Company. Employee shall cooperate, to the extent his
                  expenses are reimbursed by the Company, with any reasonable
                  requests by the Company in connection with any contest or
                  disputes with the Internal Revenue Service in connection with
                  the Excise Tax.

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                  (d) For purposes hereof: "CHANGE OF CONTROL" means such time
         as Oaktree Parties "beneficially own" (as defined under the Securities
         Exchange Act of 1934, as amended) less than 10% of the Company's Common
         Stock; "OAKTREE PARTY" means each of Oaktree Capital Management, LLC,
         OCM Principal Opportunities Fund III, L.P., OCM Principal Opportunities
         Fund IIIA, L.P., OCM GW Holdings, LLC and any of their respective
         Permitted Transferees; and "PERMITTED TRANSFEREE" means as to any
         person or entity, (i) any general partner or managing member of such
         person or entity or (ii) any partnership, limited partnership, limited
         liability company, corporation or other entity organized, formed or
         incorporated and managed or controlled by such person or entity, its
         general partner or managing member as a vehicle for purposes of making
         investments; in each case so long as such Permitted Transferee is an
         affiliate of Oaktree Capital Management LLC.

         Section 3.3 CONDITIONS FOR SEVERANCE.

                  (a) The severance payment payable to Employee pursuant to
         Section 3.2 shall be in consideration of Employee's continuing
         obligations hereunder after such termination, including Employee's
         obligations under ARTICLE 2.

                  (b) As a condition to the receipt of any severance payment,
         Employee agrees to execute and deliver a severance and release
         agreement, including a waiver of all claims except for any claims
         relating to benefits due under the plans described in SECTION 1.3(B)
         and any future amount which may be payable as a deferred bonus. The
         severance and release agreement shall be in a form reasonably
         acceptable to the Board; provided that such release shall not provide
         for a release of Employee's right to indemnification under the
         Company's organizational documents or directors and officers insurance
         against third party claims. If Employee fails to execute and deliver
         such release, Employee agrees that he shall not be entitled to receive
         the severance payment described in SECTION 3.2.

                  (c) As a condition to the receipt of any severance payment,
         Employee agrees that any and all claims and any and all causes of
         action of any kind or character, including all claims and causes of
         action arising out of Employee's employment with the Company, the
         termination of such employment, any claims or demands against the
         Company based upon Employee's employment for any monies other than
         those specified in SECTION 3.2, and the actions by the officers,
         directors, employees and agents of Company shall be resolved through a
         dispute resolution process as provided in SECTION 4.11; PROVIDED,
         HOWEVER, that any determination as to whether and as of what date
         Employee has suffered a Permanent Disability are delegated to the Board
         and any objection by Employee with any such determination shall be
         limited to whether the Board reached such decision in good faith.

                  (d) Except as expressly provided herein, Employee shall not be
         entitled to any other severance payment.

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         Section 3.4 TRANSITION PERIOD. Upon termination of this Agreement, and
for 90 consecutive calendar days thereafter (the "TRANSITION PERIOD"), Employee
agrees to make himself available to assist the Company with transition projects
assigned to him by the Board. Employee will be paid at a reasonable, agreed upon
hourly rate for any work performed for the Company during the Transition Period.

         Section 3.5 CONTINUING OBLIGATIONS OF EMPLOYEE. Termination of the
employment relationship does not terminate those obligations of Employee imposed
by ARTICLES 2 and SECTIONS 3.4 through 3.5, which are continuing obligations.

                                   ARTICLE 4

                                  MISCELLANEOUS

         Section 4.1 NOTICES. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, or electronic mail, or
facsimile transmission (with electronic confirmation of successful transmission)
to the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice, in order of preference of the
recipient:

         To the Company:

                           GulfWest Energy Inc.
                         480 N. Sam Houston Parkway East
                           Suite 300
                           Houston, Texas 77060
                           Attention:
                            Facsimile: (281) 820-1919
                            Telephone: (281) 260-8488

         To Employee:

                           Joe Grady
                           c/o GulfWest Energy Inc.
                           480 N. Sam Houston Parkway East
                           Houston, Texas 77060
                           Facsimile:    (281) 820-1919
                           Telephone:    (281) 260-8488

Notice so given shall, in the case of mail, be deemed to be given and received
on the fifth calendar day after posting, in the case overnight delivery service,
on the date of actual delivery and, in the case of facsimile transmission, telex
or personal delivery, on the date of actual transmission or, as the case may be,
personal delivery. Any such notice or communication shall be delivered by hand
or by courier or sent certified or registered mail, return receipt requested,
postage prepaid, addressed as above (or to such other address as such party may
designate in a notice duly delivered as described above), and the third business
day after the actual date of mailing (or, if earlier, the actual date of
receipt) shall constitute the time at which notice was given.

         Section 4.2 SEVERABILITY AND REFORMATION. If any one or more of the
terms, provisions, covenants or restrictions of this Agreement shall be
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect, and the invalid, void or
unenforceable provisions shall be deemed severable. Moreover, if any one or more
of the provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be reformed by limiting and reducing it to the minimum extent necessary,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.

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         Section 4.3 ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the heirs and legal representatives of Employee and the
permitted assigns and successors of the Company, but neither this Agreement nor
any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Employee (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise), if such
successor expressly agrees to assume the obligations of the Company hereunder.

         Section 4.4 AMENDMENT. This Agreement may be amended only by writing
signed by Employee and by a duly authorized representative of the Company (other
than Employee).

         Section 4.5 ASSISTANCE IN LITIGATION. Employee shall reasonably
cooperate with the Company in the defense or prosecution of any claims or
actions now in existence or that may be brought in the future against or on
behalf of the Company that relate to events or occurrences that transpired while
Employee was employed by the Company. Employee's cooperation in connection with
such claims or actions shall include being available to meet with counsel to
prepare for discovery or trial and to act as a witness on behalf of the Company
at mutually convenient times. Employee also shall cooperate fully with the
Company in connection with any investigation or review by any federal, state or
local regulatory authority as any such investigation or review relates, to
events or occurrences that transpired while Employee was employed by the
Company. The Company will pay Employee an agreed upon reasonably hourly rate for
Employee's cooperation pursuant to this Section.

         Section 4.6 BENEFICIARIES; REFERENCES. Employee shall be entitled to
select (and change, to the extent permitted under any applicable law) a
beneficiary or beneficiaries to receive any compensation or benefit payable
hereunder following Employee's death, and may change such election, in either
case by giving the Company written notice thereof. In the event of Employee's
death or a judicial determination of his incompetence, reference in this
Agreement to Employee shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative. Any reference to the
masculine gender in this Agreement shall include, where appropriate, the
feminine.

         Section 4.7 USE OF NAME; LIKENESS AND BIOGRAPHY. The Company may use,
publish and broadcast, and to authorize others to do so, the name, approved
likeness and approved biographical material of Employee to advertise, publicize
and promote the business of the Company and its affiliates, but not for the
purposes of direct endorsement without Employee's consent. This right shall
terminate upon the termination of this Agreement. An "approved likeness" and
"approved biographical material" shall be, respectively, any photograph or other
depiction of Employee, or any biographical information or life story concerning
the professional career of Employee.

                                       11
<PAGE>

         Section 4.8 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED,
INTERPRETED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REFERENCE TO RULES RELATING TO CONFLICTS OF LAW.

         Section 4.9 ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes in all respects any prior or other agreement or
understanding, written or oral, between the Company or any affiliate of the
Company and Employee with respect to such subject matter.

Section 4.10 COUNTERPARTS; NO ELECTRONIC SIGNATURES. This Agreement may be
executed in two or more counterparts, each of which will be deemed an original.
For purposes of determining whether a party has signed this Agreement or any
document contemplated hereby or any amendment or waiver hereof, only a
handwritten signature on a paper document or a facsimile transmission of a
handwritten original signature will constitute a signature, notwithstanding any
law relating to or enabling the creation, execution or delivery of any contract
or signature by electronic means.

         Section 4.11 ARBITRATION. Other than as provided in ARTICLE 3, the
parties agree that any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be resolved by arbitration administered
by the American Arbitration Association ("AAA") under its Commercial Arbitration
Rules. All disputes shall be resolved by one arbitrator within 120 days of the
date arbitration is initiated. The arbitrator will have the authority to award
the same remedies, damages and costs that a court could award, and will have the
additional authority to award those remedies set forth in ARTICLE 3. The
arbitrator shall issue a reasoned award explaining the decision, the reasons for
the decision and any damages awarded, including those set forth in ARTICLE 3,
where the arbitrator finds Employee violated ARTICLE 3. The arbitrator's
decision will be final and binding. The judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitration proceedings, any record of the same, and the award shall be
considered Confidential Information under this Agreement. This provision can be
enforced under the Federal Arbitration Act.

         Section 4.12 NON-WAIVER. The failure by either party to insist upon the
performance of any one or more terms, covenants or conditions of this Agreement
shall not be construed as a waiver or relinquishment of any right granted
hereunder or of any future performance of any such term, covenant or condition,
and the obligation of either party with respect hereto shall continue in full
force and effect, unless such waiver shall be in writing signed by the Company
(other than Employee) and Employee.

         Section 4.13 ANNOUNCEMENT. The Company may make public announcements
concerning the execution of this Agreement and the terms contained herein, at
the Company's discretion.

Section 4.14 CONSTRUCTION. The headings and captions of this Agreement are
provided for convenience only and are intended to have no effect in construing
or interpreting this Agreement. The language in all parts of this Agreement
shall be in all cases construed in accordance to its fair meaning and not
strictly for or against the Company or Employee. The words "include,"
"includes," and "including" will be deemed to be followed by "without
limitation."

                                       12
<PAGE>

         Section 4.15 RIGHT TO INSURE. The Company shall have the right to
secure, in its own name or otherwise, and at its own expense, life, health,
accident or other insurance covering Employee, and Employee shall have no right,
title or interest in and to such insurance. Employee shall assist the Company in
procuring such insurance by submitting to examinations and by signing such
applications and other instruments as may be required by the insurance carriers
to which application is made for any such insurance.

         Section 4.16 NO INCONSISTENT OBLIGATIONS. Employee represents and
warrants that to his knowledge he has no obligations, legal, in contract or
otherwise, inconsistent with the terms of this Agreement or with his undertaking
employment with the Company to perform the duties described herein. Employee
will not disclose to the Company, or use or induce the Company to use, any
confidential, proprietary or trade secret information of others. Employee
represents and warrants that to his knowledge he has returned all property and
confidential information belonging to all prior employers, if he is obligated to
do so.

         Section 4.17 VOLUNTARY AGREEMENT. Each party to this Agreement has read
and fully understands the terms and provisions hereof, has reviewed this
Agreement with legal counsel, has executed this Agreement based upon such
party's own judgment and advice of counsel, and knowingly, voluntarily, and
without duress, agrees to all of the terms set forth in this Agreement. The
parties have participated jointly in the negotiation and drafting of this
Agreement. If an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties and no
presumption or burden of proof will arise favoring or disfavoring any party
because of authorship of any provision of this Agreement. Except as expressly
set forth in this Agreement, neither the parties nor their affiliates, advisors
and/or their attorneys have made any representation or warranty, express or
implied, at law or in equity with respect of the subject matter contained
herein. Without limiting the generality of the previous sentence, the Company,
its affiliates, advisors and/or attorneys have made no representation or
warranty to Employee concerning the state or federal tax consequences to
Employee regarding the transactions contemplated by this Agreement.

                            [SIGNATURE PAGE FOLLOWS]

                                       13
<PAGE>

                  Signature Page to Grady Employment Agreement

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above:

                               GULFWEST ENERGY INC.

                               By:/s/ Allan Keel
                               --------------------------------------------
                               Name: Allan Keel
                               Title: Chief Executive Officer and President

                               /S/ JOE GRADY
                               --------------------------------------------
                               Joe Grady

                  Signature Page to Grady Employment AgreementEXHIBIT 10.4
                              GULFWEST ENERGY INC.
                     2004 STOCK OPTION AND COMPENSATION PLAN

ARTICLE I.
                                     GENERAL

         1.1.  NAME.  This plan will be known as the "GulfWest  Energy Inc. 2004
Stock Option and Compensation  Plan."  Capitalized terms used herein are defined
in Article V hereof.

         1.2.  PURPOSE.  The  purpose of the Plan is to  promote  the growth and
general  prosperity of the Company by permitting the Company to grant to its key
employees Options to purchase Common Stock of the Company.  The Plan is designed
to help the Company  attract and retain  superior  personnel  for  positions  of
substantial responsibility and to provide employees with an additional incentive
to contribute to the success of the Company.

         1.3. EFFECTIVE DATE. The Plan will be effective as of April 1, 2004.

         1.4.  ELIGIBILITY  TO  PARTICIPATE.  Any of the Company's key employees
(including officers) will be eligible to participate in the Plan.

         1.5.  MAXIMUM NUMBER OF SHARES OF COMMON STOCK SUBJECT TO OPTIONS.  The
shares of Common Stock  subject to Options  granted  pursuant to the Plan may be
either  authorized and unissued shares or shares issued and thereafter  acquired
by the Company. Subject to adjustment pursuant to the provisions of Section 4.2,
and subject to any  additional  restrictions  elsewhere in the Plan, the maximum
aggregate  number of shares of Common Stock that may be issued from time to time
pursuant  to the  exercise  of Options  shall be one  million,  six  hundred ten
thousand (1,610,000).  The maximum number of shares of Common Stock with respect
to which Options may be granted to any  participant  in the Plan during the term
of the Plan is 500,000.  Plan  Shares  with  respect to which an Option has been
exercised will not again be available for grant hereunder.  If Options terminate
for any reason  without  being  wholly  exercised,  new  Options  may be granted
hereunder  covering  the number of Plan Shares to which such Option  termination
relates.

         1.6. ADMINISTRATION. The Plan will be administered by the Board or by a
committee of directors (the "Stock Option Committee") appointed by the Board. As
used herein, unless otherwise indicated, "Committee" shall mean the Board or the
duly appointed Stock Option Committee, as applicable.  Subject to the provisions
of the Plan,  the  Committee  will have the sole  discretion  and  authority  to
determine  from time to time the  employees  to whom Options will be granted and
the number of Plan Shares  subject to each  Option,  to interpret  the Plan,  to
prescribe,  amend and rescind any rules and regulations necessary or appropriate
for the  administration  of the Plan, to determine and interpret the details and
provisions of each Option Agreement,  to modify or amend any Option Agreement or
waive any  conditions or  restrictions  applicable to any Option or the exercise
thereof,  and to make all other  determinations  necessary or advisable  for the
administration  of the Plan.  Except when the  Committee  consists of the entire
Board,  the Committee  shall consist  solely of two or more persons who are both
"nonemployee  directors" within the meaning of Rule 16b-3 under the Exchange Act
and "outside directors" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.

<PAGE>

         A majority of the members of the  Committee  will  constitute a quorum,
and any  action  taken by a  majority  present at a meeting at which a quorum is
present or any action taken without a meeting evidenced by a writing executed by
all members of the Committee will constitute the action of the Committee.

         1.7.  CONDITIONS  PRECEDENT.  The Company will not issue or deliver any
Option  Agreement or any  certificate for Plan Shares pursuant to the Plan prior
to fulfillment of all of the following conditions:

         (A) The admission of the Plan Shares to listing on all stock  exchanges
on which the Common Stock is then listed, unless the Committee determines in its
sole discretion that such listing is neither necessary nor advisable;

         (B) The completion of any  registration or other  qualification  of the
sale of the Plan  Shares  under any federal or state law or under the rulings or
regulations of the Securities and Exchange  Commission or any other governmental
regulatory  body that the Committee in its sole  discretion  deems  necessary or
advisable; and

         (C) The obtaining of any approval or other  clearance  from any federal
or  state  governmental  agency  that  the  Committee  in  its  sole  discretion
determines to be necessary or advisable.

         1.8.  RESERVATION  OF SHARES OF COMMON  STOCK.  During  the term of the
Plan,  the Company will at all times reserve and keep  available  such number of
shares of Common Stock as may be necessary  to satisfy the  requirements  of the
Plan as to the number of Plan Shares. In addition, the Company will from time to
time,  as is necessary  to  accomplish  the  purposes of the Plan,  use its best
efforts to obtain from any regulatory  agency having  jurisdiction any requisite
authority necessary to issue Plan Shares hereunder. The inability of the Company
to obtain from any regulatory agency having jurisdiction the authority deemed by
the Company's counsel to be necessary for the lawful issuance of any Plan Shares
will relieve the Company of any liability in respect of the  nonissuance of Plan
Shares as to which the requisite authority has not been obtained.

         1.9. TAX WITHHOLDING.

         (A)  CONDITION  PRECEDENT.  The  issuance,  delivery or exercise of any
Options or Plan Shares under the Plan is subject to the condition that if at any
time the Committee  determines,  in its  discretion,  that the  satisfaction  of
withholding tax or other  withholding  liabilities  under any federal,  state or
local law is necessary or desirable as a condition  of, or in  connection  with,
the  issuance,  delivery or exercise  of the  Options or Plan  Shares,  then the
issuance,  delivery  or  exercise  thereof  will  not be  effective  unless  the
withholding  has  been  effected  or  obtained  in a  manner  acceptable  to the
Committee.

         (B)  MANNER  OF  SATISFYING  WITHHOLDING  OBLIGATION.  When a person is
required  to pay  to  the  Company  an  amount  required  to be  withheld  under
applicable  income tax laws in connection  with the exercise of an Option or the
payment of a director fee, such payment may be made (i) in cash,  (ii) by check,
(iii)  through the  withholding  by the  Company  ("Company  Withholding")  of a
portion of the Plan Shares  acquired  upon the  exercise of the Option  having a
Fair  Market  Value  on the  date  the  amount  of tax to be  withheld  is to be
determined equal to the amount required to be withheld or (iv) in any other form
of  valid  consideration,  as  permitted  by the  Committee  in its  discretion;
provided  that a person who is required to file reports  under Section 16 of the
Exchange  Act  shall  not be  permitted  to elect  to  satisfy  his  withholding
obligation  through Company  Withholding;  provided further,  however,  that the
Committee,  in its sole discretion,  may require that such person's  withholding
obligation be satisfied through Company Withholding.

                                       2
<PAGE>

         1.10. EXERCISE OF OPTIONS.

         (A) METHOD OF EXERCISE.  Each Option will be  exercisable in accordance
with the terms of the Option Agreement pursuant to which the Option was granted.
Any Option will be deemed to be exercised  for purposes of the Plan when written
notice of exercise has been received by the Company at its principal office from
the person  entitled to exercise the Option and payment for the Plan Shares with
respect to which the Option is  exercised  has been  received  by the Company in
accordance  with paragraph (b) below.  No Option may be exercised for a fraction
of a Plan Share.

         (B) PAYMENT OF PURCHASE  PRICE.  The purchase  price of any Plan Shares
purchased will be paid at the time of exercise of the Option either (i) in cash,
(ii) by certified or  cashier's  check,  (iii) by cash or certified or cashier's
check  for the par  value  of the Plan  Shares  plus a  promissory  note for the
balance of the purchase price, which note will contain such terms and provisions
as the Committee may permit, including without limitation the right to repay the
note  partially  or wholly  with  Common  Stock,  (iv) by  delivery of a copy of
irrevocable  instructions  from the  Optionee to a broker or dealer,  reasonably
acceptable  to the Company,  to sell certain of the Plan Shares  purchased  upon
exercise of the Option or to pledge them as  collateral  for a loan and promptly
deliver to the Company the amount of sale or loan proceeds necessary to pay such
purchase price or (v) in any other form of valid consideration,  as permitted by
the Committee.  If any portion of the purchase price or a note given at the time
of exercise is paid in shares of Common  Stock,  those  shares will be valued at
the then Fair Market Value.

         1.11.  ACCELERATION OF RIGHT OF EXERCISE OF OPTIONS.  In the case of an
Option not otherwise  exercisable  in full,  the Committee  may  accelerate  the
exercisability  of such Option in whole or in part at any time.  Notwithstanding
the  provisions  of any Option  Agreement  regarding the time for exercise of an
Option, the following provisions will apply:

         (A) MERGERS  AND  REORGANIZATIONS.  If the Company or its  shareholders
enter into an agreement to dispose of all or substantially  all of the assets of
the Company by means of a sale, merger or other  reorganization,  liquidation or
otherwise  in  a  transaction   in  which  the  Company  is  not  the  surviving
corporation,  any Option will become immediately exercisable with respect to the
full number of shares subject to that Option during the period  commencing as of
the date of the agreement to dispose of all or  substantially  all of the assets
of the Company and ending when the  disposition of assets  contemplated  by that
agreement is  consummated  or the Option is otherwise  terminated  in accordance
with its  provisions or the  provisions of the Article  pursuant to which it was
granted,  whichever  occurs first;  provided that no Option will be  immediately
exercisable  under this  section on account of any  agreement of merger or other
reorganization  when the  shareholders  of the  Company  immediately  before the
consummation  of the  transaction  will own at least fifty  percent of the total
combined  voting power of all classes of stock entitled to vote of the surviving
entity  immediately  after the consummation of the transaction.  The Option will
not  become  immediately  exercisable  if the  transaction  contemplated  in the
agreement is a merger or reorganization in which the Company will survive.

         (B)  CHANGE  IN  CONTROL.  In the  event  of a  change  in  control  or
threatened  change in control of the Company,  all Options  granted prior to the
change in  control  or  threatened  change in control  will  become  immediately
exercisable. The term "change in control" for purposes of this section refers to
the  acquisition  of 25% or more of the voting  securities of the Company by any
person or by persons acting as a group within the meaning of Section 13(d)(3) of
the Exchange  Act (other than an  acquisition  by a person or group  meeting the
requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)  promulgated  under the
Exchange  Act);  provided  that no change in  control  or  threatened  change in
control will be deemed to have occurred if prior to the acquisition of, or offer
to acquire,  ten percent or more of the voting  securities  of the Company,  the
full  Board  has  adopted  by  not  less  than  two  thirds  vote  a  resolution
specifically approving such acquisition or offer. The term "person" for purposes
of this section  refers to an individual or a corporation,  partnership,  trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein. Whether
a change in control is threatened will be determined solely by the Committee.

                                       3
<PAGE>

         1.12.  COMPLIANCE WITH SECURITIES  LAWS. Plan Shares will not be issued
with respect to any Option or director fee unless the exercise of the Option (if
applicable)  and the issuance and delivery of the Plan Shares  complies with all
relevant  provisions of federal and state law,  including without limitation the
Securities  Act,  the  rules  and  regulations  promulgated  thereunder  and the
requirements  of any  stock  exchange  upon  which the Plan  Shares  may then be
listed,  and will be further  subject to the approval of counsel for the Company
with respect to such  compliance.  The Committee may also require an Optionee or
director  fee  recipient  to  furnish  evidence  satisfactory  to  the  Company,
including  without  limitation  a written and signed  representation  letter and
consent  to be  bound  by any  transfer  restrictions  imposed  by law,  legend,
condition  or  otherwise,  that the Plan  Shares  are  being  acquired  only for
investment and without any present intention to sell or distribute the shares in
violation  of any  federal  or state  law,  rule or  regulation.  Further,  each
Optionee or director fee recipient will consent to the imposition of a legend on
the  certificate  representing  the Plan Shares  issued upon the exercise of the
Option or the payment of a director fee,  restricting their  transferability  as
required by law or by this section.

         1.13.  EMPLOYMENT  OF  OPTIONEE.  Nothing  in the Plan or in any Option
granted  hereunder  will  confer  upon  any  Optionee  any  right  to  continued
employment  by the  Company or any of its  subsidiaries  or limit in any way the
right of the Company or any  subsidiary  at any time to  terminate  or alter the
terms of that employment.

         1.14. TRANSFERABILITY OF OPTIONS. The Committee may, in its discretion,
provide  in  any  Option  Agreement  that  Options  granted   hereunder  may  be
transferred  by the holder  thereof upon five days prior  written  notice to the
Company, subject to compliance with applicable securities laws.

         1.15.  INFORMATION  TO  OPTIONEES.  The  Company  will  furnish to each
Optionee copies of annual reports,  proxy  statements and all other reports sent
to the Company's shareholders. Upon written request, the Company will furnish to
each  Optionee  a copy of its most  recent  Annual  Report on Form 10-K and each
quarterly  report to  shareholders  issued since the end of the  Company's  most
recent fiscal year.

                                       4
<PAGE>

         1.16.  PLAN  BINDING ON  SUCCESSORS.  The Plan will be binding upon the
successors and assigns of the Company and any of its subsidiaries that adopt the
Plan.

                                  ARTICLE II.
                                TERMS OF OPTIONS

         2.1. NATURE OF OPTIONS. Options may be only Nonqualified Options.

         2.2.  DURATION OF OPTIONS.  Each Option  granted under this Article and
all rights  thereunder will expire on the date determined by the Committee,  but
in no event will any Option  granted  under this  Article  expire later than ten
years after the date on which the Option is granted.

         2.3. RIGHTS UPON  TERMINATION OF EMPLOYMENT OR SERVICE AS A DIRECTOR OR
ADVISOR. The Committee shall have discretion to include in each Option Agreement
such provisions regarding exercisability of Options following the termination of
an Optionee's  employment or service as a director or Advisor as the  Committee,
in its sole discretion, deems to be appropriate.

         2.4.  PURCHASE  PRICE.  The  purchase  price for Plan  Shares  acquired
pursuant  to the  exercise,  in whole or in part,  of any Option may not be less
than the Fair  Market  Value of the Plan  Shares at the time of the grant of the
Option.

         2.5.  INDIVIDUAL OPTION  AGREEMENTS.  Each Optionee will be required to
enter  into a  written  Option  Agreement  with  the  Company.  In  such  Option
Agreement,  the Employee  will agree to be bound by the terms and  conditions of
the Plan and such other matters as the Committee deems appropriate.

                                  ARTICLE III.
                      AMENDMENT, TERMINATION AND ADJUSTMENT

         3.1. AMENDMENT AND TERMINATION. The Plan will terminate on February 11,
2005. No Options will be granted under the Plan after that date of  termination.
The Committee  may at any time amend or revise the terms of the Plan,  including
the  form  and  substance  of the  Option  Agreements  to be used in  connection
herewith. No amendment,  suspension, or termination of the Plan may, without the
consent of the Optionee who has  received an Option  hereunder,  alter or impair
any of that Optionee's  rights or obligations under any Option granted under the
Plan prior to that amendment, suspension, or termination.

         3.2.  ADJUSTMENT.   If  the  outstanding  Common  Stock  is  increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization,  reclassification, stock dividend, stock split
or reverse stock split, an appropriate and proportionate adjustment will be made
in the maximum number and kind of Plan Shares as to which Options may be granted
and director fees paid under the Plan. A  corresponding  adjustment will be made
in the number or kind of shares allocated to and purchasable  under  unexercised
Options  or  portions  thereof  granted  prior  to any  such  change.  Any  such
adjustment in  outstanding  Options will be made without change in the aggregate
purchase price applicable to the unexercised  portion of the Option,  but with a
corresponding  adjustment  in the price  for each  share  purchasable  under the
Option. The foregoing adjustments and the manner of application of the foregoing
provisions will be determined  solely by the Committee,  and any such adjustment
may provide for the elimination of fractional share interests.

                                       5
<PAGE>

                                   ARTICLE IV.
                                   DEFINITIONS

         As used herein with initial capital  letters,  the following terms have
the meanings  hereinafter set forth unless the context clearly  indicates to the
contrary:

         4.1. "Board" means the Board of Directors of the Company.

         4.2.  "Code" means the Internal  Revenue Code of 1986,  as from time to
time amended.

         4.3. "Committee" shall have the meaning set forth in Section 1.6.

         4.4.  "Common  Stock" means the Class A Common Stock,  par value $0.001
per share, of the Company or, in the event that the  outstanding  shares of such
Common Stock are  hereafter  changed into or exchanged for shares of a different
stock or security of the Company or some other corporation,  such other stock or
security.

         4.5. "Company" means Gulfwest Energy Inc., a Texas corporation.

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

         4.7.  "Exchange  Act" means the  Securities  Exchange  Act of 1934,  as
amended.

         4.8.  "Fair Market Value" means such value as will be determined by the
Committee on the basis of such factors as it deems appropriate; provided that if
the Common Stock is traded on a national  securities exchange or transactions in
the Common Stock are quoted on the NASDAQ  National  Market  System,  such value
will be determined by the Committee on the basis of the last reported sale price
for the Common Stock on the date for which such  determination  is relevant,  as
reported  on the  national  securities  exchange or the NASDAQ  National  Market
System,  as the case may be. If the Common Stock is not listed and traded upon a
recognized  securities  exchange or on the NASDAQ  National  Market System,  the
Committee  will make a  determination  of Fair Market  Value on the basis of the
closing  bid and asked  quotations  for such  stock on the date for  which  such
determination is relevant (as reported by a recognized stock quotation  service)
or, in the event that there will be no bid or asked  quotations  on the date for
which such determination is relevant,  then on the basis of the mean between the
closing bid and asked  quotations  on the date  nearest  preceding  the date for
which such  determination  is relevant  for which such bid and asked  quotations
were available.

                                       6
<PAGE>

         4.9.  "Nonqualified Option" means an Option that does not qualify as an
"incentive option," as defined in Section 422 of the Code.

         4.10. "Option" means a stock option granted under the Plan.

         4.11.  "Optionee"  means an  employee,  director  or Advisor to whom an
Option has been granted hereunder.

         4.12.  "Option Agreement" means an agreement between the Company and an
Optionee with respect to one or more Options.

         4.13.  "Plan"  means the  GulfWest  Energy Inc.  2004 Stock  Option and
Compensation Plan, as amended from time to time.

         4.14.  "Plan Shares" means shares of Common Stock issuable  pursuant to
the Plan.

         4.15. "Securities Act" means the Securities Act of 1933, as amended.

                                       7

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