SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This Second Amendment to Second Amended and Restated Credit Agreement (this “ Second Amendment ”) is effective as of May 21, 2009 (the “ Amendment Effective Date ”), by and among Teton Energy Corporation, a Delaware corporation (the “ Borrower ”), JPMorgan Chase Bank, N.A., a national banking association as Administrative Agent (the “ Administrative Agent ”), and each of the financial institutions a party hereto as Lenders (hereinafter collectively referred to as the “ Lenders ”, and individually, a “ Lender ”).

W I T N E S S E T H :

WHEREAS, the Borrower, the Administrative Agent and the Lenders are parties to that certain Second Amended and Restated Credit Agreement dated as of April 2, 2008 (as amended, the “ Credit Agreement ”) (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and

WHEREAS, pursuant to the Credit Agreement, the Lenders have made revolving credit loans to the Borrower; and

WHEREAS, the parties hereto desire to (a) amend certain terms of the Credit Agreement in certain respects, and (b) reaffirm the Borrowing Base and Conforming Borrowing Base in an amount equal to $20,000,000, continuing until the next redetermination or adjustment of the Borrowing Base and Conforming Borrowing Base thereafter; and

WHEREAS, the Borrower has previously notified the Administrative Agent of the potential sale of a working interest in the Piceance Basin and has entered a Purchase and Sale Agreement dated April 22, 2009 among the Borrower, Teton Piceance LLC and Puckett Land Company (the “ Purchase and Sale Agreement ”), a true and correct copy of which is attached as Schedule I hereto, pursuant to which the Borrower and Teton Piceance LLC will sell to Puckett Land Company (the “ Buyer ”) its 12.5% non-operated working interest in certain assets identified in the Purchase and Sale Agreement (the “ Subject Property ”). The transactions described in this paragraph together with the transactions contemplated by Section 5 and the last sentence of Section 3 of this Second Amendment, in each case which expressly relate to the transactions contemplated by the Purchase and Sale Agreement (including, without limitation, any amendments to, and consents under, the Loan Documents which may be effected by this Second Amendment and actions that the Borrower and the Guarantors are required to take in connection therewith on or before the Subject Transactions Closing Date (as defined below)) are collectively referred to herein as the “ Subject Transactions ”; and

WHEREAS, the Borrower has requested that the Lenders consent to the consummation of the Subject Transactions, and, in reliance on the representations and warranties of the Borrower contained herein, and subject to the terms, and satisfaction or waiver of the conditions precedent, set forth herein, the Lenders consent to the consummation of the Subject Transactions as provided in Section 3 hereof.

NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Borrower, the Administrative Agent and the Lenders party hereto hereby agree as follows:

Section 1. Amendments . In reliance on the representations, warranties, covenants and agreements contained in this Second Amendment, and subject to the satisfaction of the conditions precedent set forth in Section 6 hereof, the Credit Agreement is hereby amended effective as of the Amendment Effective Date in the manner provided in this Section 1 .

1.1 Amendments to Definitions . The definitions of “ Alternate Base Rate ”, “ Applicable Margin ”, “ Loan Documents ” and “ Permitted Convertible Debt ” contained in Section 1.02 of the Credit Agreement shall be amended to read in full as follows:

“ Alternate Base Rate ” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that, for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be based on the rate appearing on the Reuters BBA Libor Rates Page 3750 (or on any successor or substitute page of such page) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively.

“ Applicable Margin ” “Applicable Margin” means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the Commitment Fee Rate, as the case may be, the rate per annum set forth in the Conforming Borrowing Base Utilization Grid below based upon the Conforming Borrowing Base Utilization Percentage then in effect:

Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change, provided, however, that if at any time the Borrower fails to deliver a Reserve Report pursuant to Section 8.12(a), then the “Applicable Margin” means the rate per annum set forth on the grid when the Conforming Borrowing Base Utilization Percentage is at its highest level.

“ Loan Documents ” means this Agreement, the First Amendment, the Second Amendment, the Notes, the Letter of Credit Agreements, the Letters of Credit, the Intercreditor Agreement and the Security Instruments.

“ Permitted Convertible Debt ” means Debt of the Borrower resulting from the single issue of the Borrower’s senior subordinated convertible notes in an aggregate outstanding principal amount not to exceed $25,500,000, and which Debt (a) has a coupon or interest rate not to exceed eleven and one-half percent (11.5%) per annum, (b) shall not mature sooner than the earlier of (i) the Maturity Date, and (ii) the date on which there are no Loans, LC Exposure or other obligations hereunder outstanding, and all of the Commitments are terminated, (c) does not provide for or otherwise require any amortization prior to scheduled maturity, (d) is evidenced and governed by an indenture and related documentation containing customary terms and conditions, including, without limitation, covenants and events of default, for senior subordinated convertible notes of like tenor and amount, each of which shall be satisfactory to the Administrative Agent and the Lenders in their sole discretion, and (e) is subject to the Intercreditor Agreement.

1.2 Additional Definitions . Section 1.02 of the Credit Agreement shall be amended to add the following definitions to such Section:

“ Adjusted LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (i) (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate, and (ii) two percent (2.00%).

“ Defaulting Lender ” means any Lender, as determined by the Administrative Agent, that has (a) failed to fund any portion of its Loans or participations in Letters of Credit within three Business Days of the date required to be funded by it hereunder, (b) notified the Borrower, the Administrative Agent, the Issuing Bank or any Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans and participations in then outstanding Letters of Credit, (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) become or is insolvent or has a parent company that has become or is insolvent or (ii) become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.

“ Eurodollar ”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

“ Intercreditor Agreement ” means that certain Amended and Restated Intercreditor and Subordination Agreement dated as of September 19, 2008, among the Administrative Agent, the Borrower, and The Bank of New York Mellon Trust Company, N.A., as representative for the holders of the Permitted Convertible Debt.

“ Second Amendment ” means that certain Second Amendment to Second Amended and Restated Credit Agreement dated effective as of May        , 2009, among the Borrower, the Administrative Agent and the Lenders party thereto.

“ Statutory Reserve Rate ” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“ Type ”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.

1.3 LIBO Rate Amendment . Section 3.02(b), Section 3.02(e), Section 3.03(a), Section 3.03(b), Section 5.01(a)(i) and Section 5.02 are hereby amended to replace all references to “LIBO Rate” with references to “Adjusted LIBO Rate.”

1.4 Amendment to Section 3.02(c) . Section 3.02(c) of the Credit Agreement shall be amended to read in full as follows:

“(c) Post-Default Rate . Notwithstanding the foregoing, if an Event of Default has occurred and is continuing, or if any principal of or interest on any Loan or any fee or other amount payable by the Borrower or any Guarantor hereunder or under any other Loan Document is not paid when due, whether at stated maturity, upon acceleration or otherwise, and including any payments in respect of a Borrowing Base Deficiency under Section 3.04(c), then all Loans outstanding, in the case of an Event of Default, and such overdue amount, in the case of a failure to pay amounts when due, shall bear interest, after as well as before judgment, at a rate per annum equal to two percent (2%) plus the rate applicable to ABR Loans as provided in Section 3.02(a), but in no event to exceed the Highest Lawful Rate.”

1.5 Defaulting Lenders Provision . A new Section 5.06 shall be added to the Credit Agreement as follows:

“Section 5.06 Defaulting Lenders . Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

(a) if any LC Exposure exists at the time a Lender becomes a Defaulting Lender, the Borrower shall within one Business Day following notice by the Administrative Agent cash collateralize such Defaulting Lender’s LC Exposure in accordance with the procedures set forth in Section 2.08(j) for so long as such LC Exposure is outstanding; and

(b) the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit unless it is satisfied that cash collateral will be provided by the Borrower in accordance with Section 5.06(a).”

1.6 Amendment to Financial Statements; Other Information Covenant . Section 8.01 of the Credit Agreement shall be amended to add the following clause (q) to the end thereof:

“(q) as soon as available but in any event within five (5) Business Days after the end of each calendar month and at such other times as may be requested by the Administrative Agent, as of the month (or such other time period as may be requested by the Administrative Agent) then ended, a schedule and aging of the Borrower’s and its Subsidiaries’ accounts payable, delivered in a format acceptable to the Administrative Agent.”

1.7 Amendment to Additional Collateral Covenant . Clause (a) Section 8.14 of the Credit Agreement shall be amended to read in full as follows:

“(a) In connection with each redetermination of the Borrowing Base and, as applicable, Conforming Borrowing Base, the Borrower shall review the Reserve Report and the list of current Mortgaged Properties (as described in Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least 95% of the total value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production. In the event that the Mortgaged Properties do not represent at least 95% of such total value, then the Borrower shall, and shall cause its Subsidiaries to, grant, within thir