FORBEARANCE AGREEMENT

FORBEARANCE AGREEMENT

R E C I T A L S:

A.

Borrower and Lender, among others, entered into that certain Loan Agreement dated as of April 6, 2007 (as amended, supplemented or otherwise modified from time to time, the " Credit Agreement ") and that certain Senior Secured Promissory Note dated as of April 6, 2007 (as amended, supplemented or otherwise modified from time to time, the " Promissory Note ," and, together with the Credit Agreement, the " Credit Documents" );

B.

As of the date hereof, an Event of Default has occurred under Section 7(a)(i) of the Promissory Note.

C.

Borrower has requested that Lender forbear from exercising remedies under the Credit Documents and the other Transaction Documents (as defined in the Credit Agreement) in respect of such Event of Default, and Lender is willing to do so, subject to and on the terms and conditions set forth in this Agreement.

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

1.  

Capitalized Terms . Capitalized terms used but not defined herein shall have the respective meanings given to such terms in the Credit Agreement when used in this Agreement.

2.  

Event of Default. The parties hereto acknowledge and agree that an Event of Default has occurred under Section 7(a)(i) of the Promissory Note (the "Existing Default "). The parties hereto further acknowledge and agree, for the avoidance of doubt, that Lender shall be deemed to have delivered any and all notices required to establish the Existing Default and that any applicable cure periods in respect of the Existing Default have expired. The parties hereto further acknowledge and agree that the referencing of the Events of Default referenced in this Section 2 does not waive any other defaults or Events of Default that may now or hereafter exist under the Transaction Documents.

3,  

Forbearance .

3.1

Subject to the terms and conditions of this Agreement, and provided that no Forbearance Default (as defined below) has occurred, Lender agrees that during the period commencing on the date of this Agreement and ending on and including November 1, 2008 (the " Forbearance Period "), Lender will not file suit or take any other action to foreclose on the Collateral (as defined in the Promissory Note) or file suit or take any other action to enforce its rights under the Credit Documents or the other Transaction Documents. This limited forbearance does not extend to any other default or Events of Default under any other provision of the Transaction Documents or any of the other rights and remedies available to Lender under the Transaction Documents with respect to Sheridan and UPDA Forbearance Agreement the Existing Default. Upon the earlier of (i) the occurrence of a Forbearance Default and (ii) the expiration of the Forbearance Period, Lender’s agreement to forbear shall automatically be deemed terminated and Lender shall be entitled to immediately and without notice exercise all of its rights and remedies under the Credit Agreement and all Transaction Documents.

3.2

Notwithstanding anything to the contrary contained herein, the effectiveness of the agreement made by Lender pursuant to Section 3.1, and Lender’s agreement to forbear as described in Section 2 above, is subject to the fulfillment, to the exclusive satisfaction of Lender in its sole and absolute discretion, of each of the following conditions:

(i) Borrower shall have paid to Lender all accrued and unpaid interest on the outstanding principal balance of the Promissory Note, in accordance with paragraph (vi) of this Section 3.2, below, from and including April 6, 2008 through and including April 30, 2008 in the amount of Fifty Thousand Three Hundred Forty Seven and Twenty Two One Hundredths Dollars ($50,347.22) on the date hereof;

(ii) Borrower shall pay to Lender all accrued and unpaid interest on the then outstanding principal balance of the Promissory Note, in accordance with paragraph (vi) of this Section 3.2, below, on the first day of each calendar month during the Forbearance Term commencing on June 1, 2008;

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(iii)Borrower shall pay Lender the principal amount of One Hundred Thousand Dollars ($100,000), on the first day of each calendar month during the Forbearance Term commencing on July 1, 2008;

(iv) Borrower shall pay Lender a forbearance fee in the amount of Five Hundred Thousand Dollars ($500,000) on November 1, 2008;

(v) Borrower shall demonstrate to Lender timely fulfillment of each oil and gas production milestone set forth on Schedule 1 attached hereto; and

(vi) All payments hereunder shall be made by wire transfer of immediately available funds in United States Dollars. Interest hereunder shall accrue at the rate of twenty percent (20%) per annum. All interest hereunder shall be paid in arrears and shall accrue daily based on a year of three hundred and sixty (360) days and the actual number of days elapsed.

3.3

The following events shall constitute " Forbearance Defaults :"

(i) Any default or Event of Default under the Transaction Documents, other than the Existing Default, shall have occurred and by continuing;.

(ii) Borrower shall fail to comply with any provision of this Agreement; or

(iii)Borrower shall fail to provide to Lender within two Business Days’ request therefore, such information as Lender may reasonably request with respect to Borrower and the Collateral.

4.

   Discussions . Any future discussions among Borrower, the Guarantors and Lender shall not cause a modification of the Credit Agreement or any other Transaction Document (except as expressly set forth herein), establish a custom or waive, limit or condition the rights and remedies of Lender under the Credit Agreement or the other Transaction Documents, all of which rights and remedies are expressly reserved. No such discussions, if any, shall in any way be used by Borrower or Guarantors as a defense to the performance of any of its or their obligations under this Agreement or the Transaction Documents.

5.

   Lender’s Expenses . Without limiting any provisions of the Credit Agreement, immediately upon demand of Lender, Borrower shall pay all of the fees, costs and expenses (including, without limitation, attorneys fees) incurred in connection with this Agreement and the Existing Default (and the exercise of Lender’s rights and remedies in connection therewith).

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   Authorization, Waiver and Release . Each of Borro