CREDIT AGREEMENT

CREDIT AGREEMENT

Dated effective as of July 3, 2008

among

TEXAS CAPITAL BANK, N.A. ,

as Administrative Agent, L/C Issuer and a Bank;

and

OTHER FINANCIAL INSTITUTIONS AND BANKS,

as Banks;

and

ENERJEX RESOURCES, INC.,

ENERJEX KANSAS, INC. (f/k/a MIDWEST ENERGY, INC.)

and

DD ENERGY, INC.,

collectively, as Borrowers

SENIOR SECURED REDUCING REVOLVING LINE OF CREDIT

OF UP TO $50,000,000

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TABLE OF CONTENTS

Page

3.04                 Increased Cost and Reduced Return; Capital Adequacy; Reserves on

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SCHEDULES

EXHIBITS

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CREDIT AGREEMENT

This CREDIT AGREEMENT is entered into effective as of July 3, 2008 among ENERJEX RESOURCES, INC., a Nevada corporation (“ Parent ”), ENERJEX KANSAS, INC. (f/k/a Midwest Energy, Inc.), a Nevada corporation (“ EnerJex Kansas ”) and DD ENERGY, INC., a Nevada corporation (“ DD Energy ”) (together with Subsidiaries of any such party that hereafter execute and deliver a Joinder Agreement, collectively, “ Borrowers ”) and TEXAS CAPITAL BANK, N.A., a national banking association, as a Bank, L/C Issuer and Administrative Agent (in such latter capacity and together with its successors and permitted assigns in such capacity the “ Administrative Agent ”), and the several banks and financial institutions from time to time parties to this Credit Agreement (the “ Banks ,” such term to include all undersigned Banks and all other financial institutions which subsequently become parties to this Agreement in accordance with Section 10.07 hereof).

WHEREAS, Borrowers have requested that Banks provide a reducing revolving credit facility, and Banks are willing to do so on the terms and conditions set out herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

1.01     Defined Terms. As used in this Agreement, the following terms shall have the meanings set out below:

“ Administrative Agent ” has the meaning specified in the preamble.

“ Affiliate ” means, with respect to any Person, another Person that directly or indirectly through one or more intermediaries, Controls, or is Controlled by or is under common Control with, the Person specified. “ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote more than 25% of the securities having ordinary voting power for the election of the Governing Body of such Person.

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

“ Aggregate Outstanding Credit Exposure ” means, at any time, the aggregate of the Outstanding Credit Exposure of all the Banks.

“ Agreement ” means this Credit Agreement, as amended, restated, supplemented or otherwise modified from time to time.

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“ Applicable Margin ” means the applicable Eurodollar Margin or Base Rate Margin provided for in the Margin/Fee Table.

“ Approved Counterparty ” means a counterparty under a Permitted Swap Contract.

“ Assignment of Note, Liens and Security Instruments ” means a form of Assignment of Note, Liens, Security Instruments and Other Rights from Cornerstone Bank, as lender and mortgagee/secured party under the Existing Note, the Existing Loan Agreement and the Existing Collateral Documents, as applicable, to Texas Capital Bank, N.A., as Administrative Agent hereunder and as mortgagee/secured party under the Collateral Documents, for the benefit of the Banks.

“ Attorney Costs ” means and includes all reasonable fees, expenses and disbursements of any law firm or other external counsel.

“ Available Amount ” means, when determined, with respect to the Commitments, the difference of (a) the Aggregate Commitment Amount and (b) the Aggregate Outstanding Credit Exposure.

“ Availability Period ” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, and (b) the date of termination of the Commitments of the Banks to make Loans and the obligation of Banks to make L/C Credit Extensions pursuant to Section 9.02 .

“ Bank Parties ” means the L/C Issuer, the Banks and the Administrative Agent.

“ Banks ” has the meaning specified in the preamble.

“ Base Rate ” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 0.50% and (b) the rate of interest in effect for such day as publicly announced from time to time by Administrative Agent as its “prime rate.” The “prime rate” is a rate set by Administrative Agent based upon various factors including Administrative Agent’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change.

“ Base Rate Loan(s) ” means Loans advanced or converted to Loans based on the Base Rate and Base Rate Margin.

“ Base Rate Margin ” means the incremental rate of interest specified in the Margin/Fee Table.

“ Borrowers ” has the meaning specified in the preamble.

“ Borrowing Base ” means the maximum amount of Loans that may be supported by the Borrowing Base Oil and Gas Properties, as determined by Administrative Agent and approved

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by the Banks or the Required Banks, as the case may be, in accordance with Section 2.04 of this Agreement.

“ Borrowing Base Oil and Gas Properties ” means those Oil and Gas Properties of the Loan Parties that are described in any Reserve Report submitted to the Administrative Agent by Borrowers, together with (a) those Oil and Gas Properties of the Loan Parties that are described in Exhibit A attached hereto and made a part hereof, as such Exhibit A may be amended from time to time, and (b) any other Oil and Gas Properties of the Loan Parties that are described in and covered by (or that the Administrative Agent and Loan Parties have attempted to describe in) any of the Collateral Documents, whether or not such Oil and Gas Properties are described in Exhibit A attached hereto. Any reference to Exhibit A attached hereto shall be deemed to also refer to any Exhibit   A attached to any and all mortgages, deeds of trust, and leasehold mortgages included in the Collateral Documents.

“ Borrowing Base Utilization Percentage ” means the ratio, expressed as a percentage, of the Aggregate Outstanding Credit Exposure to the Borrowing Base.

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

“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state of Texas and, if such day relates to any Loan based on the Eurodollar Rate, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank Eurodollar market.

“ Business Entity ” means a company, corporation, limited liability company, general partnership, limited partnership, partnership, joint venture, trust, business association, unincorporated organization, or other entity other than a natural Person, that has been formed and exists to conduct any line of business.

“ Cash Collateralize ” has the meaning specified in Section 2.03(e) .

“ Certificate of Formation ” means any certificates, articles, or other instruments that are required or permitted to be filed with any designated agency of the jurisdiction in which a Business Entity is formed in order to evidence the legal formation of such Business Entity.

“ Change of Control ” means either of the following: (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934) shall have acquired beneficial

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ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 50% or more of the issued and outstanding shares of capital stock of any Loan Party having the right to vote for the election of directors of any Loan Party under ordinary circumstances; or (b) Parent ceases to own and control 50% or more of the economic and voting rights associated with all of the outstanding capital stock of any Loan Party.

“ Closing Date ” means July 3, 2008.

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

“ Collateral ” shall mean the assets and rights and interests in or to property of Borrowers and each of the other Loan Parties, whether real or personal, tangible or intangible, in which a Lien is granted or purported to be granted pursuant to the Collateral Documents.

“ Collateral Documents ” means all agreements, instruments and documents now or hereafter executed and delivered in connection with this Agreement pursuant to which Liens are granted or purported to be granted or assigned to Administrative Agent, for the benefit of the Banks, in Collateral securing all or part of the Obligations each in form and substance reasonably satisfactory to Administrative Agent and, including without limitation, those documents described on the attached Exhibit E.

“ Commitment ” means, as to any Bank, the obligation of such Bank to make Loans and participate in Letters of Credit issued upon the application of the Borrowers pursuant to the terms of this Agreement.

“ Commitment Amount ” means at any time, for any Bank, the amount set forth opposite such Bank’s name on Schedule 1.01 under the heading “Commitment Amount,” as such amount may be changed as provided in this Agreement.

“ Commitment Transfer Supplement ” means a Commitment Transfer Supplement executed by Administrative Agent, a Purchasing Bank, the transferring Bank and Borrowers, if required by Section 10.07 , substantially in the form of Schedule   10.07 and registered with the Administrative Agent pursuant to Section 10.07(d) hereof.

“ Compliance Certificate ” means the certificate of an authorized officer of the Borrowers submitted to the Administrative Agent from time to time pursuant to this Agreement and attesting to the financial covenants and stating, to such officer’s knowledge, whether or not a Default has occurred and is continuing and, if such an event has occurred, the actions being taken by the Borrowers to remedy such situation and that GAAP has been used in the preparation of the Financial Statements subject to normal year-end audit adjustments and the absence of footnotes, which certificate shall be in the form attached hereto as Exhibit D .

“ Contractual Obligation ” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“ Control ” has the meaning specified in the definition of “Affiliate.”

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“ Corporate Action ” means action taken by the Governing Body of any Business Entity (not just a corporation) in order to authorize such Business Entity pursuant to its Governing Documentation to enter into and become bound by the terms of any particular transaction.

“ Corporate Power ” means the power and authority of a Business Entity, under the terms of its Governing Documentation and applicable Law, to enter into, and become bound by, the terms of any particular transaction.

“ Credit Extension ” means a Loan or an L/C Credit Extension.

“ Current Assets ” means at any time all assets, that should in accordance with GAAP be classified as current assets on a consolidated balance sheet of Borrowers and their Subsidiaries, but excluding any mark-to-market valuation under Permitted Swap Contracts.

“ Current Financial Statements ” means the most recent financial statements delivered under Sections 6.01(a) or 6.01(b) or prior to delivery of any financial statements after the Closing Date, the financial statements dated as of and for the period ending December 31, 2007.

“ Current Liabilities ” means at any time, all liabilities that should in accordance with GAAP, be classified as current liabilities on a consolidated balance sheet of Borrowers and their Subsidiaries, but excluding any mark-to-market valuation under Permitted Swap Contracts.

“ Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“ Default ” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“ Default Rate ” means the lesser of (a) an interest rate equal to the Floating Rate for the Loans plus 4.0% per annum and (b) the Maximum Rate.

“ Disposition ” or “ Dispose ” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction but excluding involuntary condemnations) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

“ Dollar ” and “ $ ” mean lawful money of the United States.

“ EBITDA ” means, for any reporting period, net income on a consolidated basis before deductions for, without duplication, (a) interest expense, taxes, depreciation, depletion and amortization and exploration expenses, including dry-hole costs, (b) any net non-cash gain or loss during such period arising from the sale, exchange, retirement or other disposition of capital assets other than in the ordinary course of business, (c) any write-up or write-down of assets and (d) effects arising from the application of SFAS 133 and 143.

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

“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with either Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ ERISA Event ” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate which liability remains unpaid or undischarged for thirty (30) days.

“ Eurodollar Loan(s) ” means Loans advanced or converted to Loans based on the Eurodollar Rate and the Eurodollar Margin.

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“ Eurodollar Margin ” means the incremental rate of interest specified in the Margin/Fee Table.

“ Eurodollar Rate ” means the British Bankers’ Association Interest Settlement Rate per annum for the applicable Interest Period appearing on the display designated as page 3750 (or such other display page that may replace display page 3750 from time to time) on Moneyline Telerate, Inc., formerly known as Telerate (or appropriate successor), on the first day of each Interest Period (or in the event no such quotation is available on such date, as quoted on the day most immediately preceding the date of determination of which such quotation was available).

“ Existing Collateral Documents ” means, collectively, all collateral and instruments as referenced in, executed pursuant to, and/or carried forward under, the Existing Loan Agreement and assigned to Administrative Agent pursuant to the Assignment of Note, Liens and Security Instruments.

“ Event of Default ” has the meaning specified in Section 9.01 .

“ Existing Debenture Liens ” means any Liens securing the obligations under the Existing Debentures.

“ Existing Debentures ” means those certain Senior Secured Debentures of EnerJex Kansas dated April 11, 2007, in the original aggregate principal amount of $6,300,000 and June 21, 2007, in the original aggregate principal amount of $2,700,000.

“ Existing Loan Agreement ” means that certain Commercial Loan Agreement dated February 27, 2008, as amended, between EnerJex Kansas and DD Energy, as borrowers, and Cornerstone Bank, as lender.

“ Existing Notes ” means, collectively, that certain promissory note dated September 27, 2007 in the original principal amount of $1,735,000 executed by EnerJex Kansas and DD Energy made payable to Cornerstone Bank and that certain promissory note dated February 27, 2007, in the original principal amount of $1,500,000 executed by EnerJex Kansas and DD Energy made payable to Cornerstone Bank, as amended.

“ Federal Funds Rate ” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to a Bank on such day on such transactions.

“ Financial Statements ” means the statements of the financial condition of the indicated Person, on a consolidated basis, as at the point in time and for the period indicated and consisting of at least a balance sheet, income statement and statement of cash flows, and when the foregoing are audited, accompanied by the certification of such Person’s independent certified

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public accountants and footnotes to any of the foregoing, all of which shall be prepared in accordance with GAAP applied on a basis consistent with that of the preceding year, except for any inconsistency that results from changes in GAAP from year to year, and when the foregoing are not audited except for normal year-end audit adjustments and the absence of footnotes.

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

Eurodollar Rate + Eurodollar Margin at Borrower’s option pursuant to Section 2.02 ,

or

Base Rate + Base Rate Margin at Borrower’s option or by default pursuant to Section   2.02 .

“ Funded Debt ” means, as of any date of determination for Borrowers and their Subsidiaries on a consolidated basis, the sum of all Indebtedness for borrowed money (whether as a direct obligor on a promissory note, a bond, debenture, loan agreement or other similar instruments or a reimbursement obligor on a letter of credit, a guarantor, or otherwise), including under this Agreement and other Permitted Indebtedness described on Schedule 7.03 hereof.

“ GAAP ” means generally accepted accounting principles in the United States set out in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“ Governing Body ” means, in the case of a corporation, its board of directors, in the case of a limited liability company, its members or its managers, depending on how the management of such Business Entity is allocated in its Governing Documentation, in the case of a general partnership or joint venture, the partners or the joint venturers thereof, respectively, in the case of a limited partnership, the applicable Governing Body of the general partner thereof, if such general partner is a Business Entity, and in the case of any other Business Entity not specified herein, the designees thereof that, pursuant to the Governing Documentation of such Business Entity, fulfill the responsibilities typically discharged by a board of directors of a corporation.

“ Governing Documentation ” means, in the case of a corporation, its certification of incorporation, articles of incorporation and bylaws, as amended, in the case of a limited liability company, its Certificate of Formation, its limited liability company agreement, and its operating agreement or regulations (or similar documentation as denominated under the laws of the jurisdiction in which it is formed), in the case of a partnership, joint venture or a limited partnership, the applicable partnership agreement or joint venture agreement, and in the case of any other Business Entity not specifically enumerated herein, the applicable documentation typically utilized in the jurisdiction where such Business Entity has been formed for purposes of initially forming such Business Entity according to the laws of such jurisdiction and thereafter operating and managing such Business Entity.

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“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Guarantee ” means, as to any Person, any (a) obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

“ Guarantor ” means each Subsidiary of Borrowers, now or hereafter in existence to the extent Administrative Agent does not require any such Subsidiary to execute the Joinder Agreement to be added as a Borrower hereunder.

“ Guaranty ” means the Guaranty made by any Guarantor in favor of Administrative Agent and for the benefit of the Banks in the form attached hereto as Exhibit   F .

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“ Hydrocarbons ” means crude oil, condensate, natural gas (including coal seam gas), natural gas liquids and other hydrocarbons.

“ Indebtedness ” means, as to any Person at a particular time, all obligations required by GAAP to be classified upon such Person’s balance sheet as liabilities, including all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

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(a)       all indebtedness for borrowed money (whether as a direct obligor on a promissory note, a bond, debenture, loan agreement or other similar instruments or a reimbursement obligor on a letter of credit, a guarantor, or otherwise) of such Person;

(b)       all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(d)       all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business);

(e)       indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be Swap Termination Value thereof as of such date. The amount of any capital lease as of any date shall be deemed to be the amount of the capitalized amount thereof that would appear on the balance sheet of such Person prepared in accordance with GAAP as of such date.

“ Indemnified Liabilities ” has the meaning specified in Section 10.05 .

“ Indemnitees ” has the meaning specified in Section 10.05 .

“ Intercreditor Agreement ” means an Intercreditor Agreement executed from time to time among Administrative Agent, a Borrower and an Approved Counterparty executed in connection with Permitted Swap Contracts on terms and conditions satisfactory to Administrative Agent providing for, amongst other things, the sharing of pari passu Liens on the Collateral to secure the Obligations and the obligations under the Permitted Swap Contracts, which form of Intercreditor Agreement shall be in a form mutually agreeable to Administrative Agent, Borrower and an Approved Counterparty.

“ Interest Expense ” means, for any period, for Borrowers and their Subsidiaries on a consolidated basis, the sum of all cash interest, premium payments, debt discount, fees, charges and related expenses of Borrowers and their Subsidiaries in connection with Funded Debt.

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“ Interest Period ” means as to each Loan based on the Eurodollar Rate, the period commencing on the date such Loan is disbursed or continued as a Eurodollar Loan based on the Eurodollar Rate and ending on the date one, two, three or six months thereafter (subject to availability), as selected by Borrowers in their Request for Credit Extension; provided that :

(a)       any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(b)       any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

“ Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“ IRS ” means the United States Internal Revenue Service.

“ Joinder Agreement ” means the Joinder Agreement in the form attached hereto as Exhibit   G executed pursuant to Administrative Agent’s request that a newly-created Subsidiary of any Borrower join this Agreement as a Borrower.

“ Laws ” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“ L/C Advance ” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made; provided that, if a Base Rate Loan is available and is made to reimburse such draw on any Letter of Credit, then such drawing shall not constitute a L/C Advance from and after the making of the Base Rate Loan.

“ L/C Credit Extension ” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the renewal or increase of the amount thereof.

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“ L/C Issuer ” means Texas Capital Bank, NA as the issuer of the Letters of Credit under this Agreement.

“ L/C Obligations ” means, as at any date of determination, the aggregate undrawn available amount of all outstanding Letters of Credit plus the aggregate of all L/C Advances.

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

“ Lending Office ” means the office or offices of the Administrative Agent and the Banks described as such on Schedule 10.02 , or such other office or offices as the Administrative Agent may from time to time notify Borrower and the Banks.

“ Letter of Credit ” means any Standby Letter of Credit issued under Section   2.03 of this Agreement.

“ Letter of Credit Application ” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

“ Letter of Credit Expiration Date ” means, except in respect of Tranche B Letters of Credit, the earlier of: (a) the requested date of expiration under a Letter of Credit Application and (b) the later of (ii) the Maturity Date or (ii) to the extent the Letter of Credit is required to be Cash Collateralized under Section 2.03(e) at the Maturity Date, the date that is twelve (12) months after the Maturity Date.

“ Letter of Credit Limit ” means, except in respect of Tranche B Letters of Credit, with regard to the Standby Letters of Credit issued under Section   2.03 , an amount equal to $750,000.

“ Lien ” means any mortgage, pledge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement), and any financing lease having substantially the same economic effect as any of the foregoing.

“ Loan ” means an extension of credit under Section 2.01 in the form of a revolving loan.

“ Loan Documents ” means this Agreement, each Note, each Collateral Document, and each Guaranty and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith, as any of the foregoing may be amended, restated, modified, renewed, extended or supplemented from time to time.

“ Loan Excess ” means, at any point in time, the amount, if any, by which (i) the outstanding balance on the Aggregate Outstanding Credit Exposure exceeds the Aggregate Commitment Amount then in effect, (ii) the outstanding balance of L/C Obligations (other than in connection with Tranche B Letters of Credit) exceeds the Letter of Credit Limit or (iii) the outstanding balance of L/C Obligations under Tranche B Letters of Credit exceeds the Tranche B Letter of Credit Limit.

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“ Loan Parties ” means, collectively, each Borrower each Guarantor and each Subsidiary of a Borrower executing a Loan Document.

“ Margin/Fee Table ” means the following table:

“ Marketable Title ” means good and marketable title, free and clear of all Liens other than Permitted Liens.

“ Material Adverse Change ” means any change in the business, property, condition (financial or otherwise) or results of operations, or reasonably foreseeable prospects of Borrowers considered as a whole, which has a Material Adverse Effect.

“ Material Adverse Effect ” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual and contingent), condition (financial or otherwise) or reasonably foreseeable prospects of Borrowers and their Subsidiaries taken as a whole; (b) a material impairment of the ability of the Loan Parties to perform their obligations under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party; or (d) a material adverse change in, or a material adverse effect upon, any one or more Borrowing Base Oil and Gas Properties or any portion of other Collateral that in either case materially impairs the ability of the Loan Parties to perform their obligations under any Loan Document.

“ Maturity Date ” means July 3, 2011; provided that , for purposes of the deadline to issue Tranche B Letters of Credit, the Maturity Date is January 3, 2009.

“ Maximum Rate ” has the meaning set forth in Section 10.09 .

“ Monthly Borrowing Base Reduction ” means the amount by which the Borrowing Base shall be reduced as of the first day of each calendar month pursuant to Section 2.04 .

“ Multiemployer Plan ” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“ Net Income ” means, for any period, without duplication, the net income (or loss) of the Loan Parties on a consolidated basis after allowances for taxes for such period, determined in

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accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following: (i) the net income of any Person in which the Borrowers have an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Loan Parties in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to the Loan Parties; (ii) any extraordinary gains or losses, including gains or losses attributable to property sales not in the ordinary course of business, (iii) the cumulative effect of a change in accounting principles, and (iv) any gains or losses attributable to write-ups or write downs of assets.

“ Note ” and “ Notes ” means, individually, a promissory note issued by Borrowers payable to the order of a Bank evidencing the Credit Extensions made by that Bank pursuant to this Agreement and being substantially in the form of the note attached as Exhibit C hereto, together with any and all further renewals, extensions for any period, increases or rearrangements thereof, and means, collectively, all of such Notes.

“ Obligations ” means all advances to, and Indebtedness, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

“ Oil and Gas Properties ” means fee, leasehold or other interests in or under mineral estates or oil, gas and other liquid or gaseous hydrocarbon leases with respect to properties situated in the United States, including, overriding royalty and royalty 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, real or personal, appertaining, belonging, affixed or incidental thereto.

“ Outstanding Credit Exposure ” means, as to any Bank at any time, the sum of (i) the aggregate principal amount of its Loans outstanding at such time, plus (ii) an amount equal to its Percentage Share of the L/C Obligations (other than in connection with the Tranche B Letters of Credit).

“ PBGC ” means the Pension Benefit Guaranty Corporation.

“ Pension Plan ” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by Borrowers or any ERISA Affiliate or to which Borrowers or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

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

“ Permitted Indebtedness ” means the Indebtedness described in Section 7.03(a) through (e) .

“ Permitted Liens ” means Liens permitted under Section 7.01 .

“ Permitted Swap Contracts ” means any Swap Contract which any Borrower enters into with or through a counterparty that has a credit rating of at least “A-” by Standard and Poors or “A3” by Moody’s Investment Service, together with the confirmations which any Borrower may hereafter enter into with or through such counterparty covering, in the aggregate, among all such Swap Contracts, (i) with regard to oil and gas production, not more than eighty-five percent (85%) of the Proved Developed Producing Reserves that are (y) attributable to Borrowers' interest in the Borrowing Base Oil and Gas Properties, and (z) projected by the Administrative Agent to be produced during the term(s) of such Swap Contract(s); provided, however, that such Swap Contract includes minimum strike prices that are equal to or greater than the price assumptions incorporated by Administrative Agent in the calculation of the current Borrowing Base and no such Permitted Swap Contract shall be for a period exceeding three (3) years or such longer period unless consented to by the Administrative Agent and (ii) with regard to interest rates, not more than eighty percent (80%) of Aggregate Outstanding Credit Exposure may be subject to the notional principal amounts under such Swap Contracts.

“ Person ” means any individual, trustee, bank, firm, Governmental Authority or Business Entity.

“ Plan ” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by a Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

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

“ Proved Developed Producing Reserves ” means Proved Reserves which are categorized as both “Developed” and “Producing” in the Definitions for Oil and Gas reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

“ Proved Reserves ” means Proved Reserves as defined in the Definitions for Oil and Gas reserves promulgated by the Society of Petroleum Engineers (or any generally recognized successor) as in effect at the time in question.

“ Purchasing Bank ” shall have the meaning assigned to that term in Section 10.07 hereof.

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

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“ Reportable Event ” means any of the events set forth in Section 4043 of ERISA.

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

“ Required Banks ” means, at any time, Banks holding at least sixty-six and two-thirds percent (66 2/3%) of the Aggregate Commitment Amount or, if the Aggregate Commitment Amount has been terminated, Banks having at least sixty-six and two-thirds percent (66 2/3%) of the Aggregate Outstanding Credit Exposure; provided, that , in each case, the Commitment of any Bank in default hereunder shall be excluded from the calculation hereof.

“ Required Number ” means: in the case of notices hereunder (i) relative to borrowings, prepayments, elections of Eurodollar Loans, selections of Interest Periods for, or other transactions in respect of, Eurodollar Loans: by 10:00 a.m., Houston, Texas time on the third Business Day prior to the proposed activity; or (ii) relative to all transactions in respect of Base Rate Loans: the same Business Day by 11:00 a.m., Houston, Texas time; it being understood, however, that in the case of notices involving transactions in respect of more than one type of Loan (such as a change in type of Loan), “ Required Number ” means that number of days, as indicated above in respect of the Loans involved, which would constitute the longest applicable period of time.

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

“ Responsible Officer ” means the president, vice president, chief executive officer or chief financial officer of a Loan Party. Any document delivered under this Agreement that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary Corporate Action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“ Restricted Payment ” means (i) any dividend or other distribution (whether in cash, securities or other property except for a distribution in the form of capital stock of a Borrower) with respect to any capital stock or other equity interest of Borrowers, or any payment (whether in cash, securities or other property except for a distribution in the form of capital stock of a

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Borrower), including any sinking fund or similar deposit on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other equity interest or of any option, warrant or other right to acquire any such capital stock or other equity interest, (ii) any payment for interest or principal in relation to any intercompany indebtedness owed by any Borrower to any of its Affiliates, including without limitation, to any Guarantor, other than another Borrower and (iii) all payments with respect to Indebtedness described as Subordinated Obligations under the Subordination Agreement.

“ Seller Notes ” means those certain Promissory Notes and Security Agreements executed by DD Energy, as debtor, in the face amounts of $44,912.88, $254,974.81, $98,022.21, $69,669.36, $249,914.77, $149,483.77 and $98,022.21 and originally payable to the order of Giannino Smania, Mallard Management, Inc., Mormeg, LLC, Allyn and Linda Self, Coal Creek Energy, LLC, Enutroff, Inc. and Jonathan L. Haas, respectively, each as creditor.

“ Senior Funded Debt ” means Funded Debt less the aggregate amount of the then outstanding Subordinated Obligations, as defined in the Subordination Agreement.

“ Standby Letter of Credit” means a Letter of Credit issued under Section 2.03 of this Agreement required for and issued in connection with securing a Borrower’s obligations to a counterparty under a Permitted Swap Contract.

“ Subordination Agreement ” means a subordination agreement dated of even date herewith among Administrative Agent and the holders of the Existing Debentures with terms and conditions satisfactory to Administrative Agent in its sole discretion.

“ Subsidiary ” of a Person means a Business Entity of which a majority of the shares of securities or other interests having ordinary voting power for the Governing Body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of each Borrower and each Borrower shall be deemed a Subsidiary of Parent.

“ Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules,

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a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.

“ Swap Termination Value ” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) , the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts.

“ Taxes ” has the meaning specified in Section 3.01(a) .

“ Tranche B Letter of Credit Limit ” means $2,250,000.

“ Tranche B Letter of Credit Expiration Date ” means the earlier of: (a) the requested date of expiration under a Letter of Credit Application and (b) the later of (ii) the January 3, 2009 or (ii) to the extent the Letter of Credit is required to be Cash Collateralized under Section 2.03(e) , the date that is twelve (12) months after such date.

“ Tranche B Letters of Credit ” means any Standby Letter of Credit issued in accordance with Section 2.03(j) of this Agreement.

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

“ Unfunded Pension Liability ” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“ United States ” and “ U.S. ” mean the United States of America.

1.02     Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a)       The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)       (i) The words “ herein ”, “ hereto ”, “ hereof ” and “ hereunder ” and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof; (ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears; (iii) the term “ including ” is by way of example and not limitation; and (iv) the term “ documents ” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

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(c)       In the computation of periods of time from a specified date to a later specified date, the word “ from ” means “ from and including ;” the words “ to ” and “ until ” each mean “ to but excluding ;” and the word “ through ” means “ to and including .”

(d)       Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

(a)       All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Current Financial Statements, except as otherwise specifically prescribed herein. All financial ratios contemplated by this Agreement shall be calculated on a consolidated basis for Borrowers and their Subsidiaries.

(b)       If at any time any change in GAAP would affect the computation of any financial ratio or requirement set out in any Loan Document, and either Borrowers or Administrative Agent shall so request, Administrative Agent and Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that , until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) Borrowers shall provide to Administrative Agent financial statements and other documents required under this Agreement or as reasonably requested under this Agreement setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

1.04     Rounding. Any financial ratios required to be maintained by any Loan Party pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05     References to Agreements and Laws. Unless otherwise expressly provided herein, (a) references to Governing Documentation, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

1.06     Letter of Credit Amounts. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the amount of such Letter of Credit that

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is available to be drawn at such time after giving effect to all increases thereof contemplated by such Letter of Credit or the Letter of Credit Application therefor.

ARTICLE II

THE COMMITMENT AND CREDIT EXTENSIONS.

2.01     Revolving Loans. Subject to the terms and conditions set out herein and during the Availability Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to (i) make Loans to the Borrowers and (ii) participate in Letters of Credit issued upon the request of the Borrowers, provided that , after giving effect to the making of each Loan and the issuance of each Letter of Credit, such Bank’s Outstanding Credit Exposure shall not exceed its Commitment Amount and such Bank’s exposure under the Tranche B Letters of Credit shall not exceed such Bank’s Percentage Share of the Tranche B Letter of Credit Limit. The Loans advanced by each Bank to the Borrowers shall be evidenced by the Banks’ respective Notes from the Borrowers. Subject to the terms of this Agreement, the Borrowers may borrow, repay and reborrow up to the Aggregate Commitment Amount. The L/C Issuer will issue Letters of Credit hereunder on the terms and conditions set forth in Section 2.03 . All Commitments to extend credit hereunder shall expire on the Maturity Date. Borrowers shall repay in full on the Maturity Date any balance of the Loans outstanding on the Maturity Date. Any loans outstanding under the Existing Loan Agreement as of the Closing Date shall be deemed, and shall hereafter be, Loans outstanding under this Agreement.

(a)       Each Loan and each continuation of a Loan shall be made upon Borrowers’ irrevocable notice to Administrative Agent, which may be given by telephone. Each such notice must be received by Administrative Agent not later than 11:00 a.m., Central Time at least the Required Number of days prior to the requested date of any Loan or continuation of a Loan. Each telephonic notice by Borrowers pursuant to this Section   2.02(a) must be confirmed promptly by delivery to Administrative Agent of a written Request for Credit Extension, appropriately completed and signed by a Responsible Officer of Borrowers. Each Loan or continuation of Loans shall be in a principal amount of $100,000 or a greater integral multiple of $100,000. Each Request for Credit Extension (whether telephonic or written) shall specify (i) whether Borrowers are requesting a Loan or a continuation of a Loan, (ii) the requested date of the Loan or continuation (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed or continued, and (v) for Eurodollar Loans, the duration of the Interest Period with respect thereto. If Borrowers fail to give a timely notice requesting a continuation of a Eurodollar Loan, then the applicable Loans shall be continued for a one-month Interest Period. If Borrowers request a Loan or continuation of Loans in any such Request for Credit Extension, but fail to specify an Interest Period, they will be deemed to have specified an Interest Period of one month.

(b)       The Administrative Agent shall promptly advise the Banks and, if applicable, the L/C Issuer of any Request for Credit Extension or Letter of Credit Application given pursuant to this Section 2.02 or Section 2.03 , as applicable, of each Bank’s Percentage Share of any requested Credit Extension and, if applicable, the amount

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requested for any Letter of Credit by telephone, confirmed promptly in writing, or telecopier. Upon satisfaction of the applicable conditions set forth in Article IV , each Credit Extension shall be made at the office of the Administrative Agent or L/C Issuer, as applicable, and shall be funded prior to 1:00 p.m., Houston, Texas time, on the day so requested in immediately available funds in the amount so requested. Each Bank shall make each Loan on the date of the proposed Credit Extension by wire transfer of immediately available funds to the Administrative Agent in Houston, Texas, not later than 10:00 a.m., Houston, Texas time, and upon fulfillment of the applicable conditions set forth in Article IV , the Administrative Agent will make such funds available to Borrowers as Borrowers shall direct to the Administrative Agent from time to time or, if a Credit Extension shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks as soon as practicable. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any proposed Credit Extension that such Bank will not make available to the Administrative Agent such Bank’s Percentage Share of such Credit Extension, the Administrative Agent may assume that such Bank has made its Percentage Share available to the Administrative Agent on the date of such Credit Extension in accordance with this Section 2.02(b) and the Administrative Agent may, in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If, and to the extent that, such Bank shall not have made its Percentage Share available to the Administrative Agent, such Bank and Borrowers severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrowers until the date such amount is repaid to the Administrative Agent at (i) in the case of Borrower, the interest rate applicable at the time to the Loans comprising such Credit Extension and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Bank’s Loan as part of such Credit Extension for purposes of this Agreement. If Borrowers shall repay to the Administrative Agent such corresponding amount, such repayment shall not relieve the defaulting Bank from liability to Borrowers for failure to fund such Bank’s Loan as part of such Credit Extension.

(c)       Except as otherwise provided herein, a Eurodollar Loan may be continued only on the last day of an Interest Period for such Loan. During the existence of an Event of Default, no Eurodollar Loans may be requested or continued, and Administrative Agent may demand that any or all of the then outstanding Loans be converted immediately to Base Rate Loans, and Borrowers agree to pay all amounts due under Section 3.05 in accordance with the terms thereof due to any such conversion.

(d)       Administrative Agent shall notify Borrowers of the interest rate applicable to any Interest Period for Eurodollar Loans upon determination of such interest rate. The determination of the Eurodollar Rate by Administrative Agent shall be conclusive in the absence of manifest error.

(e)       After giving effect to all Loans and all continuations of Loans, there shall not be more than six (6) Interest Periods in effect with respect to Eurodollar Loans.

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(i)        Subject to the terms and conditions set out herein, L/C Issuer agrees, from time to time on any Business Day during the period from the Closing Date until the Maturity Date, to issue Standby Letters of Credit, for the account of Borrowers, and to amend or renew such Letters of Credit previously issued by it, in accordance with Section 2.03(b) below; provided that L/C Issuer shall not be obligated to make any L/C Credit Extension with respect to any such Standby Letter of Credit, if as of the date of such L/C Credit Extension, the L/C Obligations for Standby Letters of Credit would exceed, with respect to the Tranche B Letter of Credit, the Tranche B Letter of Credit Limit and with respect to all other Letters of Credit, the Letter of Credit Limit. Within the foregoing limits, and subject to the terms and conditions hereof, Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and, accordingly, Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

(ii)       L/C Issuer shall be under no obligation to issue any Letter of Credit if:

(A)      any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain L/C Issuer from issuing such Letter of Credit, or any Law applicable to L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over L/C Issuer shall prohibit, or request that L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which L/C Issuer is not otherwise compensated under this Agreement) not in effect on the Closing Date, or shall impose upon L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which L/C Issuer in good faith deems material to it;

(B)      the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last renewal, ( provided that such Letter of Credit may include provisions for automatic renewal), unless L/C Issuer has approved such expiry date in advance;

(C)      the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date or the Tranche B Letter of Credit Expiration Date, as applicable, unless L/C Issuer has approved such expiry date in advance; or

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(D)      such Letter of Credit is in an initial amount less than $25,000, or is to be denominated in a currency other than Dollars.

(iii)      L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

(i)        Each Letter of Credit shall be issued or amended, as the case may be, upon the request of Borrowers delivered to L/C Issuer in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of Borrowers. Such Letter of Credit Application must be received by L/C Issuer not later than 11:00 a.m., Central Time, at least two Business Days (or such later date and time as L/C Issuer may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as the case may be.

(ii)       Promptly after receipt of any Letter of Credit Application by L/C Issuer at the address set out in Schedule 10.02 for receiving Letter of Credit Applications and related correspondence, if the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of Borrowers or enter into the applicable amendment, as the case may be, in each case in accordance with L/C Issuer’s usual and customary business practices.

(iii)      Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, L/C Issuer will also deliver to Borrowers a true and complete copy of such Letter of Credit or amendment.

(iv)      If Borrowers so request in any applicable Letter of Credit Application, L/C Issuer may, in it sole and absolute discretion, agree to issue a Letter of Credit that has automatic renewal provisions (each, an “ Auto-Renewal Letter of Credit ”); provided that any such Auto-Renewal Letter of Credit must permit L/C Issuer to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to Borrowers and the beneficiary thereof not later than a day (the “ Nonrenewal Notice Date ”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued; provided that such Nonrenewal Notice Date shall not be later than the date thirty (30) days prior to the current expiration date of such Auto-Renewal Letter of Credit unless an Event of Default has occurred and is continuing, in which event such notice may be provided at any time. Unless otherwise directed by L/C Issuer, Borrowers shall not be required to

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make a specific request to L/C Issuer for any such renewal. Once an Auto-Renewal Letter of Credit has been issued, L/C Issuer shall be deemed to have authorized (but may not require) the renewal of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date or the Tranche B Letter of Credit Expiration Date, as applicable . Notwithstanding anything to the contrary contained herein, L/C Issuer shall have no obligation to permit the renewal of any Auto-Renewal Letter of Credit at any time.

(c)        Drawings and Reimbursements . Upon receipt from the beneficiary of any Letter of Credit of any notice of drawing under such Letter of Credit, L/C Issuer shall notify Borrowers thereof. On the date of any payment by L/C Issuer under a Letter of Credit (each such date, an “ Honor Date ”), Borrowers shall be deemed to have requested a Base Rate Loan to be disbursed on the Honor Date in an amount equal to the amount of such drawing (the “ Drawing Amount ”) without regard to the minimum and multiples specified in Section   2.02 , but subject to the amount of the unutilized portion of the Aggregate Commitment Amount and the conditions set out in Section   4.02 (other than the delivery of a Request for Credit Extension). L/C Issuer shall promptly notify each Bank of the Honor Date, the Drawing Amount, and the amount of such Bank’s Percentage Share thereof. Any notice given by L/C Issuer pursuant to this Section 2.03(c) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. Each Bank shall, upon any notice pursuant to this Section 2.03(c) , make funds available to L/C Issuer at L/C Issuer’s office in an amount equal to its Percentage Share of the Drawing Amount not later than 1:00 p.m., Central Time (or 5:00 p.m. if the draw was made after 11:00 a.m.), on the Business Day specified in such notice by L/C Issuer, whereupon each Bank that so makes funds available shall be deemed to have made a Base Rate Loan to Borrowers in such amount. With respect to any Drawing Amount that is not fully reimbursed by a Credit Extension of Base Rate Loans because the conditions set out in Section   4.02 cannot be satisfied or for any other reason, Borrowers shall be deemed to have incurred from L/C Issuer an L/C Advance in the amount of the Drawing Amount that is not so reimbursed (the “ Unreimbursed Amount ”), which L/C Advance shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Bank’s payment to L/C Issuer shall be deemed payment in respect of its participation in such L/C Advance and shall constitute an L/C Advance from such Bank in satisfaction of its participation obligation under this Section 2.03 . Each Bank’s obligation to make Loans or L/C Advances to reimburse L/C Issuer for amounts drawn under Letters of Credit, shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against L/C Issuer, Borrowers or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default; or (iii) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such making of an L/C Advance shall relieve or otherwise impair the obligation of Borrowers to reimburse L/C Issuer for the amount of any payment made by L/C Issuer under any Letter of Credit, together with interest as provided herein. If any Bank fails to make available to L/C Issuer any amount required to be paid by such Bank, L/C Issuer shall be entitled to recover from such Bank, on demand, such amount with interest thereon for the period from the date such payment

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is required to the date on which such payment is immediately available to L/C Issuer at a rate per annum equal to the Federal Funds Rate from time to time in effect.

(d)        Obligations Absolute . The obligation of Borrowers to reimburse L/C Issuer for each drawing under each Letter of Credit, and to repay each L/C Advance, shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

(i)        any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other agreement or instrument relating thereto;

(ii)       the existence of any claim, counterclaim, set-off, defense or other right that Borrowers may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

(iii)      any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

(iv)      any payment by L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or

(v)       any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, Borrowers.

Borrowers shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to them, and in the event of any claim of noncompliance with Borrowers’ instructions or other irregularity, Borrowers will immediately notify L/C Issuer. Borrowers shall be conclusively deemed to have waived any such claim against L/C Issuer and its correspondents unless such notice is given as aforesaid.

(e)        Cash Collateral . Upon the request of L/C Issuer, (i) if L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Advance, or (ii) if, as of the Maturity Date, any Letter of Credit may for any reason remain outstanding and partially or wholly undrawn, Borrowers shall

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immediately Cash Collateralize the then outstanding amount of all L/C Obligations (in an amount equal to such outstanding amount determined as of the date of such L/C Advance or the Maturity Date, as the case may be). For purposes hereof, “ Cash Collateralize ” means to pledge and deposit with or deliver to L/C Issuer, for the benefit of Banks, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to L/C Issuer. Derivatives of such term have corresponding meanings. Borrowers hereby grant to L/C Issuer a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash collateral shall be maintained in blocked, non-interest bearing deposit accounts at Texas Capital Bank.

(f)         Applicability of ISP98 and UCP . Unless otherwise expressly agreed by Banks and Borrowers when a Letter of Credit is issued, (i) the rules of the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance) shall apply to each Standby Letter of Credit.

(g)        Letter of Credit Fees . In addition to interest on the Note as provided herein and all other fees payable hereunder, Borrowers agree to pay to L/C Issuer, on the date of issuance of each Letter of Credit, a fee equal to the greater of $750 or the per annum L/C Fee set forth in the Margin/Fee Table, calculated on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day), on the amount of such Letter of Credit available to be drawn during the period for which such Letter of Credit is issued. Borrower shall also pay directly to L/C Issuer the individual customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(h)        Conflict with Letter of Credit Application . In the event of any conflict between the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.

(i)         Drawing Responsibility . Each Bank and Borrowers agree that, in paying any drawing under a Letter of Credit, L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of L/C Issuer, nor any of the respective correspondents, participants or assignees of L/C Issuer shall be liable to any Bank for (i) any action taken or omitted in connection herewith at the request or with the approval of Banks or the Required Banks, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. Borrowers hereby assume all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided that , this assumption is not intended to, and shall not, preclude Borrowers’ pursuing such rights

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and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of L/C Issuer, nor any of the respective correspondents, participants or assignees of L/C Issuer, shall be liable or responsible for any of the matters described in Section 2.03(d) . In furtherance and not in limitation of the foregoing, L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(j)         Tranche B Letters of Credit . On the Closing Date the L/C Issuer shall issue Tranche B Letters of Credit in the face amounts of $1,000,000 for the benefit of Shell Trading (USA) Company and up to $1,200,000 for the benefit of BP Corporation North America Inc. and otherwise in form and substance satisfactory to Borrowers and L/C Issuer. The availability under the Tranche B Letters of Credit may be used by Borrowers solely for the purpose of securing Borrowers’ obligations to Approved Counterparties.

(a)       The Borrowing Base in effect as of the Closing Date is $10,750,000 relative to the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties and the Monthly Borrowing Base Reduction is $0.00. The Borrowing Base shall be automatically reduced on the first day of each month by the Monthly Borrowing Base Reduction beginning July 1, 2008. The Borrowing Base and the Monthly Borrowing Base Reduction shall be re-determined from time to time pursuant to the provisions of this Section.

(b)       On or before each April 1 and October 1, beginning with October 1, 2008, until the Maturity Date, Borrowers shall furnish to Administrative Agent a Reserve Report, which shall set out, as of each preceding January 1 or July 1, as applicable, the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties. Each October Reserve Report may be prepared by Borrowers’ engineer and shall be certified by a Responsible Officer of Borrowers. Each April Reserve Report shall be a complete report prepared by independent petroleum engineers or firm of engineers reasonably acceptable to Administrative Agent relating to the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties. Upon receipt of each such Reserve Report or any Reserve Report delivered pursuant to Borrowers’ election under Section   2.04(c) below, Administrative Agent shall make a determination in its sole discretion of the Borrowing Base and the Monthly Borrowing Base Reduction which shall become effective upon approval by the Required Banks (if such determination will decrease the existing Borrowing Base) or all Banks (if such determination will increase or maintain the existing Borrowing Base) and subsequent written notification from Administrative Agent to Borrowers, and which, subject to the other provisions of this Agreement, shall be the Borrowing Base and the Monthly Borrowing Base Reduction until the effective date of the next redetermination of the Borrowing Base and the Monthly Borrowing Base

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Reduction as set out in this Section   2.04 . A Bank’s failure to disapprove of Administrative Agent’s determination within fifteen (15) days by delivery of an alternative proposed Borrowing Base and Monthly Borrowing Base Reduction shall be deemed such Bank’s approval of Administrative Agent’s determination. For any Oil and Gas Properties which are being acquired by Loan Parties to be included as Borrowing Base Oil and Gas Properties, Administrative Agent shall be satisfied in its reasonable discretion that Borrowers are acquiring Marketable Title in addition to satisfying all other conditions relating to ownership and transfer of Borrowing Base Oil and Gas Properties. Administrative Agent may, subject to approval of the Required Banks, and must, upon the request of the Required Banks, redetermine the Borrowing Base and the Monthly Borrowing Base Reduction at any time, and from time to time, which redetermination shall be at Administrative Agent’s sole discretion and shall become effective upon approval by the Required Bank (if such determination will decrease the existing Borrowing Base) or all Banks (if such determination will increase or maintain the existing Borrowing Base) and subsequent written notification from Administrative Agent to Borrowers and which, subject to the other provisions of this Agreement, shall be the Borrowing Base and the Monthly Borrowing Base Reduction until the effective date of the next redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction, as set out in this Section   2.04 ; provided, that Administrative Agent shall not request more than one (1) unscheduled Borrowing Base and the Monthly Borrowing Base Reduction redetermination between the scheduled redetermination dates and, provided further, that a Bank’s failure to disapprove of Administrative Agent’s determination within fifteen (15) days by delivery of an alternative proposed Borrowing Base and Monthly Borrowing Base Reduction shall be deemed such Bank’s approval of Administrative Agent’s determination. With respect to any unscheduled Borrowing Base and Monthly Borrowing Base Reduction redetermination, Administrative Agent may request in writing that the Borrowers provide a Reserve Report regarding the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties with an effective date not more than ninety (90) days prior to Borrowers’ delivery of such Reserve Report to Administrative Agent, and such Reserve Report shall be delivered to Administrative Agent within ninety (90) days after Borrowers’ receipt of such written request.

(c)       Borrowers shall have the right to request, by written notice to Administrative Agent, one unscheduled redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction between the scheduled redetermination dates described in Section 2.04(b) . For unscheduled redeterminations requested by Borrowers of the Borrowing Base and the Monthly Borrowing Base Reduction, Administrative Agent shall request in writing that Borrowers provide an unscheduled Reserve Report regarding the Proved Reserves attributable to the Borrowing Base Oil and Gas Properties with an effective date not more than ninety days prior to Borrowers’ delivery of such Reserve Report to Administrative Agent, and such Reserve Report shall be delivered to Administrative Agent within thirty days after Borrower’s receipt of such written request. Immediately upon redetermination of the Borrowing Base by Administrative Agent under Section   2.04 , Borrowers shall pay to Administrative Agent an engineering fee as set forth in Section   2.08(c) .

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(d)       If at any time the Required Banks or all the Banks, as the case may be, cannot otherwise agree on a redetermination of the Borrowing Base, then the Borrowing Base shall be set (i) on the basis of the lowest Borrowing Base approved by a Bank and communicated to Administrative Agent in writing if such lowest approved Borrowing Base increases the Borrowing Base; or (ii) on the basis of the highest approved Borrowing Base acceptable to a sufficient number of Banks to constitute Required Banks without increasing the Borrowing Base, as applicable. If the Borrowing Base is set based on the lowest approved Borrowing Base, such redetermination shall be deemed to be approved by all of the Banks, and if the Borrowing Base is set based on the highest approved Borrowing Base acceptable to a sufficient number of Banks to constitute Required Banks, such redetermination shall be deemed to be approved by the Required Bank. However, the amount of the Borrowing Base shall never be (y) increased or reaffirmed at any time without the unanimous consent or deemed consent of the Banks or (z) increased above the Administrative Agent’s proposed Borrowing Base, notwithstanding anything in this Agreement to the contrary. Determinations of the Borrowing Base shall be conclusive as to the Banks and the Borrowers. There is no duty, implied or explicit, of the Banks ever to increase the Borrowing Base.

(e)       The Borrowing Base shall represent the Required Banks’ approval of the Administrative Agent’s determination, or the determination of the Bank approving the lowest Borrowing Base, if applicable, or the determination of the Required Banks approving the highest Borrowing Base without increasing the Borrowing Base, if applicable, in accordance with their customary lending practices, of the maximum Loan amount that may be supported by the Borrowing Base Oil and Gas Properties, and the Borrowers acknowledge, for purposes of this Agreement, such determination by the Administrative Agent, or the lowest approved Borrowing Base by a Required Bank, as being the maximum Loan amount under this Agreement that can be supported by the Borrowing Base Oil and Gas Properties.  In exercising their discretion in redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction, the Administrative Agent and the other Banks shall consistently apply the parameters and other credit factors then generally being utilized by the Administrative Agent and each such Bank, respectively, for Borrowing Base redeterminations at the time for other similarly situated borrowers based, in part, upon the Reserve Report with respect to the Borrowing Base Oil and Gas Properties. The Borrowers, the Banks and the Administrative Agent acknowledge that (a) due to the uncertainties of the oil and gas extraction process, the Borrowing Base Oil and Gas Properties are not subject to evaluation with a high degree of accuracy and are subject to potential rapid deterioration in value, and (b) for this reason and the difficulties and expenses involved in liquidating and collecting against the Borrowing Base Oil and Gas Properties, the Administrative Agent’s determination of the maximum Loan amount with respect to the Borrowing Base Oil and Gas Properties contains an equity cushion, which equity cushion is acknowledged by the Borrowers as essential for the adequate protection of the Banks.

(f)        Borrowers may, from time to time upon written notice to Administrative Agent, propose to add Oil and Gas Properties of Loan Parties to the Borrowing Base Oil and Gas Properties. Any such proposal to add Oil and Gas Properties of Loan Parties to the Borrowing Base Oil and Gas Properties shall be accompanied by a Reserve Report

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applicable to such properties that conforms to the requirements of this Section 2.04 , and evidence sufficient to establish that Loan Parties have, or concurrently with the increase in the Borrowing Base will have Marketable Title to such Oil and Gas Properties, and any such addition shall become effective at such time as: (a) Administrative Agent has made a determination of the amount by which the Borrowing Base would be increased as the result of such addition, (b) the conditions set out in Article IV hereof, to the extent they are applicable to such additional Oil and Gas Properties of Loan Parties, have been satisfied, and (c) unanimous approval of all the Banks. In determining the increase in the Borrowing Base pursuant to this Section, Administrative Agent and the Banks shall apply the parameters and other credit factors set out in this Section 2.04 .

(a)       Borrowers may, upon notice to Administrative Agent, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by Administrative Agent not later than 11:00 a.m., Central Time, two Business Days prior to any date of prepayment of Loans and (ii) any prepayment shall be in a principal amount of $100,000 or a greater integral multiple of $100,000, or, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment. If such notice is given by Borrowers, Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05 .

(b)       If for any reason (including a redetermination of the Borrowing Base) a Loan Excess exists, Borrowers shall promptly (and in any event within sixty (60) days) (i) prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess, (ii) add to the Borrowing Base Oil and Gas Properties additional Oil and Gas Properties of Borrowers or another Loan Party sufficient in value, as determined pursuant to Section 2.04 , to eliminate such Loan Excess or (iii) elect by written notice delivered to the Administrative Agent to repay the Loan Excess in not more than three installments, each in the amount of at least one third (1/3) of the original amount of the Loan Excess (or the remaining unpaid balance of such Loan Excess, if less than one third thereof remains), pay the first of such three installments on the date that is thirty days after such election is made, and pay each of the next two installments on or before the expiration of thirty days and sixty days, respectively, after the date that the first installment is due.

(c)       On each date on which Loan Parties sell any of the Borrowing Base Oil and Gas Properties, the Borrowing Base shall be automatically reduced to the maximum Loan amount (determined in accordance with the procedures for determining the Borrowing Base) of the remaining Borrowing Base Oil and Gas Properties, and Borrowers shall be required immediately to make the prepayment, if any, required pursuant to Section   2.05(b) . This Section   2.05(c) shall not be deemed a consent of Administrative Agent to any such sale of any Borrowing Base Oil and Gas Properties.

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(d)       Upon the Required Number of days written notice to the Administrative Agent, the Borrowers may voluntarily convert any Base Rate Loan into a Eurodollar Loan or any Eurodollar Loan into a Base Rate Loan, as applicable, prior to the termination of the applicable Interest Period in whole or in part, from time to time. Any conversion of Base Rate Loans shall be made in the sum of not less than $100,000, and any conversion of Eurodollar Loans shall be made in the sum of not less than $100,000 or any $100,000 increment in addition thereto. With respect to any such conversion of any Eurodollar Loan the Borrowers agree to pay to the Banks upon the request of the Administrative Agent such amount or amounts as will compensate the Banks for Breakage Costs. The payment of any such Breakage Costs to the Banks shall be made within thirty (30) days of a request therefor from Administrative Agent; provided that such request is made within ninety (90) days of such conversion. If the Eurodollar Rate cannot be determined on the date of such conversion, the Administrative Agent shall calculate the Eurodollar Rate by interpolating the Eurodollar Rate in effect immediately prior to the conversion and the Eurodollar Rate in effect immediately after the conversion.

2.06     Repayment of Loans. Borrower shall repay to Administrative Agent, for the ratable benefit of the Banks, on the Maturity Date the aggregate principal amount of Loans outstanding on such date, together with all accrued and unpaid interest and fees.

(a)       Subject to the provisions of subsection (b) below, each Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Floating Rate based on the Eurodollar Rate, except to the extent such Loans have converted to Base Rate Loans. To the extent the Loans are converted to Base Rate Loans, each Loan shall bear interest on the outstanding principal thereof at a rate per annum equal to the Floating Rate for Base Rate Loans.

(b)       If any amount payable by Borrowers under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Furthermore, while any Event of Default exists (or after acceleration), Borrowers shall pay interest on the principal amount of all outstanding Obligations at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c)       Interest on each Base Rate Loan shall be due and payable in arrears on the last day of each month and at such other times as may be specified herein. Interest on each Eurodollar Loan shall be due and payable in arrears on last day of each Interest Period applicable thereto, provided that , for any Interest Period that exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. Interest hereunder shall be due and payable in

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accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

2.08     Fees. In addition to certain fees described in Section 2.03(g) , Borrowers shall pay the following fees to Administrative Agent, for the account of the Banks:

(a)       A commitment fee equal to the Commitment Fee per annum percent set forth in the Margin/Fee Table times the average actual daily amount by which the applicable Borrowing Base exceeds the Aggregate Outstanding Credit Exposure. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more conditions in Article IV is not met, and shall be calculated and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date.

(b)       A facility fee in an amount equal to 0.75% of the amount of the initial Borrowing Base of $10,750,000.00 shall be due on the Closing Date, and an additional facility fee of 0.5% of the incremental amount of any increases in the Borrowing Base subsequent to the Closing Date above the highest preceding Borrowing Base shall be due upon such increased Borrowing Base becoming effective.

(c)       Engineering fees in the amount of $3,500 for the initial Reserve Report review prior to the Closing Date and $2,500 for subsequent Reserve Report reviews following the Closing Date in connection with scheduled Borrowing Base redeterminations and unscheduled Borrowing Base redeterminations.

2.09     Computation of Interest and Fees. All other computations of interest and all fees shall be made on the basis of a year of 360 days and the actual number of days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365 day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.11(a) , bear interest for one day.

2.10     Evidence of Debt. The Credit Extensions made by Banks shall be evidenced by one or more accounts or records maintained by Administrative Agent in the ordinary course of business. The accounts or records maintained by Administrative Agent shall be conclusive absent manifest error of the amount of the Credit Extensions made by Banks to Borrowers and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of Borrowers hereunder to pay any amount owing with respect to the Obligations. Upon the request of Administrative Agent, Borrowers shall execute and deliver to each Bank a Note, which shall evidence the Loans, in addition to such accounts or records. Each Bank may attach schedules to the Note and endorse thereon the date, amount and maturity of the applicable Loans and payments with respect thereto.

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(a)       (i) All payments to be made by Borrowers shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by Borrowers hereunder shall be made to Administrative Agent at the Lending Office in Dollars and in immediately available funds not later than 2:00 p.m., Central Time, on the date specified herein. All payments received by Administrative Agent after 2:00 p.m., Central Time, shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.

(ii)       On each date when the payment of any principal, interest or fees are due hereunder or under any Note, Borrowers agree to maintain on deposit in an ordinary checking account maintained by Borrowers with Administrative Agent (as such account shall be designated by Borrowers in a written notice to Administrative Agent from time to time, the “ Borrower Account ”) an amount sufficient to pay such principal, interest or fees in full on such date. Borrowers hereby authorize Administrative Agent, upon notice to Borrowers (which notice may be by telephone, confirmed in writing) (A) to deduct automatically all principal, interest or fees when due hereunder or under any Note from the Borrower Account, and (B) if and to the extent any payment of principal, interest or fees under this Agreement or any Note is not made when due to automatically deduct any such amount from any or all of the accounts (other than trust accounts and joint operating accounts, to the extent any such funds therein are not owned solely by any Borrower) of Borrowers maintained with Administrative Agent. Administrative Agent agrees to provide written notice to Borrower of any automatic deduction made pursuant to this Section 2.11(a)(ii) showing in reasonable detail the amounts of such deduction.

(b)       If any payment to be made by Borrowers shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

2.12     Pro Rata Treatment and Payments. Each Credit Extension by Banks to the Borrowers hereunder, each payment by Borrowers on account of any fee hereunder (except as expressly provided otherwise hereunder or under any fee letter) and any reduction of the Commitments of the Banks shall be made pro rata according to the respective Percentage Shares of the Banks. Each payment (including each prepayment) by Borrowers on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Banks. The Administrative Agent shall distribute such payments to the Banks promptly upon receipt in like funds as received.

2.13     Sharing of Payments and Setoffs. Each Bank agrees that if it shall, through the exercise of a right of banker’s lien, setoff or counterclaim against any Borrower (pursuant to Section 10.08 or otherwise, including, but not limited to, a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, or by similar means, obtain payment (voluntary or involuntary) in respect of any Loan

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or Loans (other than pursuant to Section 3.02 ) as a result of which the unpaid principal portion of its Loans shall be proportionately less than the unpaid principal portion of the Loans of any other Bank, it shall simultaneously purchase from such other Banks at face value a participation in the Loans of such other Banks, so that the aggregate unpaid principal amount of Loans and participations in Loans held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal amount of its Loans prior to such exercise of banker’s lien, setoff, counterclaim or other event was to the principal amount of all Loans outstanding prior to such exercise of banker’s lien, setoff, counterclaim or other event; provided, however , that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.13 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest.         

2.14     Adjustment to Aggregate Commitment Amount. At any time that Borrowers propose to increase the Borrowing Base by adding additional Oil and Gas Properties to the Borrowing Base Oil and Gas Properties pursuant to Section 2.04 , Borrowers may also request that Banks increase the amount of the Aggregate Commitment Amount. At any time that Borrowers make such a request it shall promptly provide Administrative Agent with such financial and other information as Administrative Agent may request to assist the Administrative Agent in evaluating such request. Following the receipt of such information from Borrowers, the Administrative Agent shall, with the unanimous approval of the Banks in each Bank’s sole discretion, make a redetermination of the Aggregate Commitment Amount, which shall become effective upon written notification from the Administrative Agent to Borrowers of the new Aggregate Commitment Amount. The Borrowers may upon written notice to Administrative Agent, not sooner than ninety (90) days subsequent to the last such action by Borrowers, amend the definition of the Aggregate Commitment Amount by reducing the amount set forth in such definition. Upon such reduction, the Banks shall not be obligated to make Credit Extensions in excess of such reduced Aggregate Commitment Amount. If and when the Banks change the Aggregate Commitment Amount at Borrowers’ request, the commitment fee, as determined pursuant to Section 2.08 of this Agreement, shall be calculated using such changed amount for all of the calculation period in which such Aggregate Commitment Amount was changed.

ARTICLE III

TAXES, YIELD PROTECTION AND ILLEGALITY

(a)       Any and all payments by Borrowers to or for the account of the Banks under any Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding , in the case of the Banks, taxes imposed on or measured by its overall net income, and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which any Bank is organized or maintains a lending office (all such non-excluded taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being hereinafter referred to as “ Taxes ”). If Borrowers shall be required by any Laws to deduct any Taxes

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