[EXECUTION]






                                CREDIT AGREEMENT



             -------------------------------------------------------



                       ST. MARY LAND & EXPLORATION COMPANY


                                       and


                                NATIONSBANK, N.A.

                                    as Agent


                                       and


                         CERTAIN FINANCIAL INSTITUTIONS

                                   as Lenders



             -------------------------------------------------------



                                  $200,000,000


                                  June 30, 1998









                                TABLE OF CONTENTS
                                                                            Page

CREDIT AGREEMENT...............................................................1

ARTICLE I - Definitions and References.........................................1
    Section 1.1.  Defined Terms................................................1
    Section 1.2.  Exhibits and Schedules; Additional Definitions..............12
    Section 1.3.  Amendment of Defined Instruments............................12
    Section 1.4.  References and Titles.......................................12
    Section 1.5.  Calculations and Determinations.............................12

ARTICLE II - The Loans........................................................13
    Section 2.1.  Commitments to Lend; Notes..................................13
    Section 2.2.  Requests for New Loans......................................14
    Section 2.3.  Continuations and Conversions of Existing Loans.............15
    Section 2.4.  Use of Proceeds.............................................16
    Section 2.5.  Interest Rates and Fees.....................................16
    Section 2.6.  Optional Prepayments........................................18
    Section 2.7.  Required Principal Payments.................................18
    Section 2.8.  Borrowing Base..............................................19
    Section 2.9.  Subsequent Determinations of Aggregate Borrowing Base.......19
    Section 2.10. Acceptance and Application of Aggregate Borrowing Base......19
    Section 2.11. Letters of Credit...........................................20
    Section 2.12. Requesting Letters of Credit................................20
    Section 2.13. Reimbursement and Participations............................20
    Section 2.14. Letter of Credit Fees.......................................21
    Section 2.15. LC Collateral...............................................21

ARTICLE III - Payments to Lenders.............................................22
    Section 3.1.  General Procedures..........................................22
    Section 3.2.  Increased Cost and Reduced Return...........................23
    Section 3.3.  Limitation on Types of Loans................................24
    Section 3.4.  Illegality..................................................24
    Section 3.5.  Treatment of Affected Loans.................................25
    Section 3.6.  Compensation................................................25
    Section 3.7.  Taxes.......................................................25

ARTICLE IV - Conditions Precedent to Lending..................................26
    Section 4.1.  Documents to be Delivered...................................26
    Section 4.2.  Additional Conditions Precedent.............................27

ARTICLE V - Representations and Warranties....................................28
    Section 5.1.  No Default..................................................28
    Section 5.2.  Organization and Good Standing..............................28
    Section 5.3.  Authorization...............................................28
    Section 5.4.  No Conflicts or Consents....................................28
    Section 5.5.  Enforceable Obligations.....................................28
    Section 5.6.  Initial Financial Statements................................28
    Section 5.7.  Other Obligations and Restrictions. ........................28
    Section 5.8.  Full Disclosure.............................................29
    Section 5.9.  Litigation..................................................29
    Section 5.10. Labor Disputes and Acts of God..............................29
    Section 5.11. ERISA Plans and Liabilities.................................29
    Section 5.12. Environmental and Other Laws................................29
    Section 5.13. Names and Places of Business................................30
    Section 5.14. Borrower's Subsidiaries.....................................30
    Section 5.15. Title to Properties; Licenses...............................30
    Section 5.16. Government Regulation.......................................30

ARTICLE VI - Affirmative Covenants of Borrower................................30
    Section 6.1.  Payment and Performance.....................................30
    Section 6.2.  Books, Financial Statements and Reports.....................30
    Section 6.3.  Other Information and Inspections...........................31
    Section 6.4.  Notice of Material Events and Change of Address.............31
    Section 6.5.  Maintenance of Properties...................................32
    Section 6.6.  Maintenance of Existence and Qualifications.................32
    Section 6.7.  Payment of Trade Liabilities, Taxes, etc....................32
    Section 6.8.  Insurance...................................................32
    Section 6.9.  Performance on Borrower's Behalf............................33
    Section 6.10. Interest....................................................33
    Section 6.11. Compliance with Agreements and Law..........................33
    Section 6.12. Environmental Matters.......................................33
    Section 6.13. Evidence of Compliance......................................33
    Section 6.14. Bank Accounts; Offset.......................................33

ARTICLE VII - Negative Covenants of Borrower..................................34
    Section 7.1.  Indebtedness................................................34
    Section 7.2.  Limitation on Liens.........................................34
    Section 7.3.  Burdensome Undertakings.....................................34
    Section 7.4.  Limitation on Mergers, Issuances of Securities..............35
    Section 7.5.  Limitation on Sales of Property.............................35
    Section 7.6.  Limitation on Investments and New Businesses................35
    Section 7.7.  Limitation on Credit Extensions.............................35
    Section 7.8.  Subsidiaries; Transactions with Affiliates..................35
    Section 7.9.  Multiemployer ERISA Plans...................................35
    Section 7.10. Shareholder's Equity........................................35
    Section 7.11. The Current Ratio...........................................36

ARTICLE VIII - Events of Default and Remedies.................................36
    Section 8.1.  Events of Default...........................................36
    Section 8.2.  Remedies....................................................38

ARTICLE IX - Agent............................................................38
    Section 9.1.  Appointment, Powers, and Immunities.........................38
    Section 9.2.  Reliance by Agent...........................................38
    Section 9.3.  Defaults....................................................38
    Section 9.4.  Rights as Lender............................................39
    Section 9.5.  Indemnification.............................................39
    Section 9.6.  Non-Reliance on Agent and Other Lenders.....................39
    Section 9.7.  Sharing of Set-Offs and Other Payments......................39
    Section 9.8.  Investments.................................................40
    Section 9.9.  Benefit of Article IX.......................................40
    Section 9.10. Resignation.................................................40

ARTICLE X - Miscellaneous.....................................................40
     Section 10.1.  Waivers and Amendments; Acknowledgments...................40
     Section 10.2.  Survival of Agreements; Cumulative Nature.................42
     Section 10.3.  Notices...................................................42
     Section 10.4.  Payment of Expenses; Indemnity............................42
     Section 10.5.  Joint and Several Liability; Parties in Interest..........43
     Section 10.6.  Assignments and Participations............................43
     Section 10.7.  Confidentiality...........................................44
     Section 10.8.  Governing Law; Submission to Process......................45
     Section 10.9.  Limitation on Interest....................................45
     Section 10.10. Termination; Limited Survival.............................45
     Section 10.11. Severability..............................................46
     Section 10.12. Counterparts..............................................46
     Section 10.13. Waiver of Jury Trial, Punitive Damages, etc...............46
     Section 10.14. Restatement...............................................46






Schedules and Exhibits:


Schedule 1      -   Lenders and Percentage Shares
Schedule 2      -   Disclosure Schedule

Exhibit A-1     -   Tranche A Note
Exhibit A-2     -   Tranche B Note
Exhibit B       -   Borrowing Notice
Exhibit C       -   Continuation/Conversion Notice
Exhibit D       -   Certificate Accompanying Financial Statements
Exhibit E       -   Opinion of Counsel to Borrower
Exhibit F       -   Assignment and Acceptance Agreement
Exhibit G       -   Letter of Credit Application and Agreement





                                CREDIT AGREEMENT

         THIS CREDIT  AGREEMENT  is made as of June 30,  1998,  by and among St.
Mary  Land  &  Exploration   Company,  a  Delaware  corporation  (herein  called
"Borrower"),  NationsBank,  N.A., successor in interest by merger to NationsBank
of Texas,  N.A.,  individually  and as agent  (herein  called  "Agent")  and the
Lenders  referred  to  below.  In  consideration  of the  mutual  covenants  and
agreements contained herein the parties hereto agree as follows:


                     ARTICLE I - Definitions and References

         Section 1.1.  Defined  Terms.  As used in this  Agreement,  each of the
following terms has the meaning given to such term in this Section 1.1 or in the
sections and subsections referred to below:

         "Accounting  Quarter"  shall mean the  three-month  period ending three
calendar  months  preceding  the calendar  month in which a payment on a Loan is
due.

         "Adjusted  Base Rate"  means the sum of (i) the Base Rate plus (ii) the
Base Rate Margin,  provided  that the  Adjusted  Base Rate charged by any Person
shall never exceed the Highest Lawful Rate.

         "Adjusted  Eurodollar  Rate"  means,  for any  Eurodollar  Loan for any
Interest  Period  therefor,  the  per  annum  rate  equal  to the sum of (a) the
Eurodollar Margin plus (b) the rate per annum (rounded upwards, if necessary, to
the  nearest  1/100 of 1%)  determined  by  Agent  to be  equal to the  quotient
obtained by dividing (i) the Eurodollar  Rate for such  Eurodollar Loan for such
Interest Period by (ii) 1 minus the Reserve Requirement for such Eurodollar Loan
for such Interest Period.  The Adjusted  Eurodollar Rate for any Eurodollar Loan
shall change whenever the Eurodollar Margin or the Reserve Requirement  changes.
No Adjusted  Eurodollar Rate charged by any Person shall ever exceed the Highest
Lawful Rate.

         "Affiliate" means, as to any Person, each other Person that directly or
indirectly  (through  one or more  intermediaries  or  otherwise)  controls,  is
controlled by, or is under common control with,  such Person.  A Person shall be
deemed to be  "controlled  by" any other Person if such other Person  possesses,
directly or indirectly, power

                  (a) to vote 20% or more of the  securities (on a fully diluted
         basis)  having  ordinary  voting power for the election of directors or
         managing general partners; or

                  (b) to direct or cause the  direction  of the  management  and
         policies of such Person whether by contract or otherwise.

         "Agent" means NationsBank, N.A., as Agent hereunder, and its successors
in such capacity.

         "Aggregate  Borrowing  Base"  means (a) during the  Tranche A Revolving
Period,  the lesser of (i) the Maximum Loan Amount;  (ii) the initial  aggregate
borrowing base set forth in Section 2.8, or the amount  determined by Lenders in
the exercise of their sole  discretion in accordance  with Section 2.9; or (iii)
the amount accepted by Borrower  pursuant to Section 2.10; and (b) after the end
of the Tranche A Revolving Period, the lesser of (i) Aggregate Facility Usage on
the date of the  Aggregate  Borrowing  Base  determination,  or (ii) the  amount
determined  by the Banks in the exercise of their sole  discretion in accordance
with Section 2.9.



                                       1


         "Aggregate  Facility  Usage"  means,  at  the  time  in  question,  the
aggregate amount of outstanding Loans and existing LC Obligations at such time.

         "Agreement" means this Credit Agreement.

         "Base Rate" means,  for any day, the rate per annum equal to the higher
of (a) the Federal  Funds Rate for such day plus  one-half of one percent  (.5%)
and (b) the Prime Rate for such day. Any change in the Base Rate due to a change
in the Prime Rate or the Federal  Funds Rate shall be effective on the effective
date of such  change in the Prime Rate or Federal  Funds  Rate.  As used in this
definition,  "Prime Rate" means the per annum rate of interest  established from
time to time by Agent as its prime  rate,  which rate may not be the lowest rate
of interest charged by Agent to its customers.

         "Base Rate  Loan"  means a Loan  which  does not bear  interest  at the
Eurodollar Rate.

         "Base Rate Margin" means, with respect to each Base Rate Loan:

                  (a) when the Debt to Capitalization  Ratio in effect hereunder
         is less than 0.5 to 1.0, zero, or

                  (b) when the Debt to Capitalization  Ratio in effect hereunder
         is greater than or equal to 0.50 to 1.0, 0.125%.

         "Base Rate Payment Date" means the last day of March,  June,  September
and December.

         "Borrower"  means  St. Mary  Land  &  Exploration  Company, a  Delaware
corporation.

         "Borrowing" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a continuation or conversion of existing Loans into a single Type
(and, in the case of Eurodollar  Loans,  with the same Interest Period) pursuant
to Section 2.3.

         "Borrowing Notice" means a written or telephonic  request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.

         "Business Day" means a day,  other than a Saturday or Sunday,  on which
commercial  banks are open for business  with the public in Dallas,  Texas.  Any
Business Day in any way relating to  Eurodollar  Loans (such as the day on which
an Interest  Period begins or ends) must also be a day on which, in the judgment
of Agent,  significant  transactions in dollars are carried out in the interbank
eurocurrency market.

         "Cash Equivalents" means Investments in:

         (a) marketable obligations, maturing within 18 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an  instrumentality  or agency thereof and entitled to the full faith and credit
of the United States of America.

         (b) demand  deposits,  and time  deposits  (including  certificates  of
deposit)  maturing within 12 months from the date of deposit  thereof,  with any
office of any Lender.

         (c) repurchase  obligations with a term of not more than seven days for
underlying  securities of the types  described in  subsection  (a) above entered
into with any  commercial  bank meeting the  specifications  of  subsection  (b)
above.



                                       2


         (d) open  market  commercial  paper,  maturing  within  270 days  after
acquisition thereof,  which are rated at least P-1 by Moody's or A-1 by Standard
& Poors.

         (e)  money  market or other  mutual  funds  substantially  all of whose
assets comprise securities of the types described in subsections (a) through (d)
above.

         "Change of Control"  means the  occurrence  of either of the  following
events:  (a) any Person or two or more Persons  acting as a group shall  acquire
beneficial  ownership  (within the meaning of Rule 13d-3 of the  Securities  and
Exchange Commission under the Securities Act of 1934, as amended,  and including
holding proxies to vote for the election of directors other than proxies held by
Borrower's  management  or their  designees  to be  voted  in  favor of  Persons
nominated by Borrower's  Board of  Directors) of 35% or more of the  outstanding
voting  securities of Borrower,  measured by voting power (including both common
stock and any preferred stock or other equity  securities  entitling the holders
thereof to vote with the holders of common stock in elections  for  directors of
Borrower) or (b) one-third or more of the directors of Borrower shall consist of
Persons not nominated by Borrower's  Board of Directors  (not including as Board
nominees any  directors  which the Board is  obligated  to nominate  pursuant to
shareholders agreements, voting trust arrangements or similar arrangements).

         "Change of Management"  means that Mark A.  Hellerstein  shall cease to
act as President and chief executive officer of Borrower or that Ronald D. Boone
shall  cease to be  Executive  Vice  President  and chief  operating  officer of
Borrower.

         "Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated  subsidiaries.  References herein to a
Person's  Consolidated  financial  statements,   financial  position,  financial
condition,  liabilities,  etc. refer to the consolidated  financial  statements,
financial position,  financial condition,  liabilities,  etc. of such Person and
its properly consolidated subsidiaries.

         "Continuation/Conversion Notice" means a written or telephonic request,
or a written  confirmation,  made by Borrower  which meets the  requirements  of
Section 2.3.

         "Continuation" shall refer to the continuation  pursuant to Section 2.3
hereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the
next Interest Period.

         "Conversion"  shall  refer to a  conversion  pursuant to Section 2.3 or
Article III of one Type of Loan into another Type of Loan.

         "Current Ratio" means the ratio of Borrower's (i) Consolidated  current
assets to (ii)  Consolidated  current  liabilities  less current  maturities  of
long-term debt. For purposes of this section,  Borrower's  Consolidated  current
assets  will  include  the unused  portion of the  Borrowing  Base which is then
available for Borrowing in an amount up to (but not in excess of) $5,000,000.

         "Debt to Capitalization Ratio" means, at the time of determination, the
ratio of (i)  Funded  Debt to (ii) the sum of  Funded  Debt  plus  Shareholders'
Equity.  Determination  will be made in  connection  with  the  delivery  of the
officer's  certificate pursuant to Section 6.2(b) and may be made hereunder from
time to time.

         "Deductible  Lease Expenses"  shall mean for the applicable  Accounting
Quarter the following expenses,  determined on a cash basis, relating to the Oil
and  Gas  Properties:   (i)  costs  (other  than   depreciation,   depletion  or
amortization  costs)  incurred to operate and  maintain  or, to the extent not a
capital  cost,  to work  over,  wells  and  related  equipment  and  facilities,
including  applicable  operating  costs of  support  equipment  and  facilities,
incurred  pursuant to a joint  operating  agreement  (excluding  delay  rentals)
including  management  fees assessed for the  administration  of the Oil and Gas
properties; (ii) all royalty payments and other leasehold burdens payable out of
production;  (iii) all  severance,  ad  valorem,  windfall  profit  and  similar
taxes(excluding income taxes) assessed against either the proceeds of production
or the value of remaining reserves and related personal  property;  and (iv) all
reasonable  out-of-pocket costs incurred to deliver the product to the purchaser
or to make it marketable (but not including capital expenditures relating to the
delivery of the product or making it  marketable).  Unless  otherwise  provided,
Deductible  Lease  Expenses  shall  not  include  expenses  associated  with any
amortization or impairment of capitalized costs.



                                       3


         "Default"  means  any  Event  of  Default  and any  default,  event  or
condition which would,  with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default.

         "Default Rate" means with respect to any Loan at any time when an Event
or Default has occurred and is  continuing,  the rate two percent (2%) above the
rate which otherwise would be in effect hereunder.

         "Disclosure  Report"  means  either a notice  given by  Borrower  under
Section 6.4 or a certificate  given by Borrower's chief financial  officer under
Section 6.2(b).

         "Disclosure Schedule" means Schedule 1 hereto.

         "Domestic Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Domestic  Lending Office" below its name on its
signature page hereto, or such other office as such Lender may from time to time
specify to Borrower and Agent; with respect to LC Issuer, the office, branch, or
agency  through which it issues  Letters of Credit;  and, with respect to Agent,
the office, branch, or agency through which it administers this Agreement.

         "Eligible Transferee" means a Person which either (a) is a Lender or an
Affiliate of a Lender, or (b) is consented to as an Eligible Transferee by Agent
and, so long as no Default or Event of Default is continuing, by Borrower, which
consents in each case will not be unreasonably withheld (provided that no Person
organized  outside the United  States may be an Eligible  Transferee if Borrower
would be required to pay withholding taxes on interest or principal owed to such
Person).

         "Engineering  Report" means each engineering  report delivered pursuant
to Section 2.8(b).

         "Environmental Laws" means any and all Laws relating to the environment
or to  emissions,  discharges,  releases or threatened  releases of  pollutants,
contaminants,  chemicals, or industrial, toxic or hazardous substances or wastes
into the  environment  including  ambient air,  surface water,  ground water, or
land, or otherwise  relating to the manufacture,  processing,  distribution use,
treatment,   storage,   disposal,   transport,   or  handling   of   pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended from time to time,  together with all rules and regulations  promulgated
with respect thereto.

         "ERISA  Affiliate" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated) under
common control that,  together with Borrower,  are treated as a single  employer
under Section 414 of the Internal Revenue Code of 1986, as amended.



                                       4


         "Eurodollar Loan" means a Loan that bears interest at a rate based upon
the Adjusted Eurodollar Rate.

         "Eurodollar Margin" means

         (a)  during  the  Tranche A  Revolving  Period  with  respect  to each
     Eurodollar Loan

                  (i) when the Debt to Capitalization  Ratio in effect hereunder
          is less than 0.30 to 1.0, 0.50%, or

                  (ii) when the Debt to Capitalization Ratio in effect hereunder
         is  greater  than or equal to 0.30 to 1.0 but  less  than  0.40 to 1.0,
         0.75%, or

                  (iii)  when  the  Debt  to  Capitalization   Ratio  in  effect
         hereunder  is greater than or equal to 0.40 to 1.0 but less than 0.5 to
         1.0, 1.00%, or

                  (iv) when the Debt to Capitalization Ratio in effect hereunder
         is greater than or equal to 0.50 to 1.0, 1.25%; and

         (b)   after  the  Tranche  A  Revolving  Period  with  respect  to each
     Eurodollar Loan:

                  (i)  when the Debt to Capitalization Ratio in effect hereunder
         is less than 0.30 to 1.0, 0.75%, or

                  (ii) when the Debt to Capitalization Ratio in effect hereunder
         is  greater  than or equal to 0.30 to 1.0 but  less  than  0.40 to 1.0,
         1.00%, or

                  (iii)  when  the  Debt  to  Capitalization   Ratio  in  effect
         hereunder  is greater than or equal to 0.40 to 1.0 but less than 0.5 to
         1.0, 1.25%, or

                  (iv) when the Debt to Capitalization Ratio in effect hereunder
         is greater than or equal to 0.50 to 1.0, 1.50%.

         "Eurodollar  Payment Date" means with respect to each Eurodollar  Loan,
the last day of the Interest  Period that is applicable  thereto;  provided that
with respect to Interest  Periods longer than three months,  the last day of the
third month of such Interest Period shall also be a Eurodollar Payment Date, and
provided  further  that if an  Event  of  Default  exists,  the last day of each
calendar month shall also be a Eurodollar Payment Date.

         "Eurodollar Rate" means, for any Eurodollar Loan within a Borrowing and
with  respect  to the  related  Interest  Period  therefor,  the rate per  annum
(rounded  upwards,  if  necessary,  to the  nearest  1/100 of 1%)  appearing  on
Telerate Page 3750 (or any successor page) as the London interbank  offered rate
for  deposits in U.S.  Dollars at  approximately  11:30 a.m.  (London  time) two
Business  Days  prior  to the  first  day of  such  Interest  Period  for a term
comparable  to  such  Interest  Period.  If for  any  reason  such  rate  is not
available, the term "Eurodollar Rate" shall mean, for any Eurodollar Loan within
a Borrowing and with respect to the related Interest Period  therefor,  the rate
per annum (rounded upwards, if necessary,  to the nearest 1/100 of 1%) appearing
on Reuters Screen LIBO Page as the London interbank offered rate for deposits in
U.S. Dollars at  approximately  11:30 a.m. (London time) two Business Days prior
to the first day of such Interest  Period for a term comparable to such Interest
Period; provided,  however, if more than one rate is specified on Reuters Screen
LIBO Page,  the applicable  rate shall be the arithmetic  mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).



                                       5


         "Evaluation Date" means each of the following:

         (a) Each date which  either  Borrower  or Lender,  at their  respective
options,  specifies  as a  date  as  of  which  the  Borrowing  Base  is  to  be
redetermined,  provided  that each such date must be the first or last date of a
current calendar month and that neither Borrower nor Lender shall be entitled to
request any such redetermination more than twice during any Fiscal Year; and

         (b)  March 1 of each year.

         "Event of Default" has the meaning given to such term in Section 8.1.

         "Federal  Funds  Rate"  shall  mean,  for any day,  the rate per  annum
(rounded upwards, if necessary,  to the nearest 1/100th of one percent) 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 Dallas,  Texas on the Business
Day next succeeding  such day,  provided that (i) if the day for which such rate
is to be  determined  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 (ii) if such rate is not so
published  for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as determined by Agent.

         "Fiscal  Quarter"  means a three-month  period ending on March 31, June
30, September 30 or December 31 of any year.

         "Fiscal Year"  means a  twelve-month  period  ending on  December 31 of
any year.

         "Funded  Debt" means the  aggregate of the  following  Indebtedness  of
Borrower and its Subsidiaries, after elimination of intercompany items and other
Consolidation  in  accordance  with  GAAP:  (a)   Indebtedness   (including  the
Obligations)  for  borrowed  money,  regardless  of maturity,  (b)  Indebtedness
constituting an obligation to pay the deferred  purchase price of property,  (c)
Indebtedness evidenced by a bond, debenture, note or similar instrument and, (d)
Indebtedness  which is due and payable at the time in question,  with respect to
Letters of Credit or reimbursement obligations therefor.

         "GAAP"  means  those  generally  accepted  accounting   principles  and
practices  which are  recognized as such by the Financial  Accounting  Standards
Board (or any generally recognized successor) and which, in the case of Borrower
and its  Consolidated  Subsidiaries,  are applied for all periods after the date
hereof in a manner  consistent  with the  manner in which  such  principles  and
practices  were  applied to the audited  Initial  Financial  Statements.  If any
change in any  accounting  principle  or practice  is required by the  Financial
Accounting  Standards  Board (or any such successor) in order for such principle
or  practice  to  continue  as a  generally  accepted  accounting  principle  or
practice,  all reports and financial  statements required hereunder with respect
to Borrower or with respect to Borrower and its Consolidated Subsidiaries may be
prepared in  accordance  with such  change  only after  notice of such change is
given to each Lender and  Majority  Lenders  agree to such change  insofar as it
affects  the  accounting  of  Borrower  or  of  Borrower  and  its  Consolidated
Subsidiaries.

         "Gross Revenues" shall mean for the applicable  Accounting  Quarter and
determined on a cash basis  Borrower's  gross revenues from sales of oil and gas
production and related Hydrocarbons from all the Oil and Gas Properties for such
Accounting  Quarter, as reflected on Borrower's  unaudited financial  statements
for such Accounting Quarter.

         "Hazardous   Materials"  means  any  substances   regulated  under  any
Environmental  Law,  whether as pollutants,  contaminants,  or chemicals,  or as
industrial, toxic or hazardous substances or wastes, or otherwise.



                                       6


         "Hedging  Contract"  means (a) any  agreement  providing  for  options,
swaps,  floors,  caps,  collars,  forward sales or forward  purchases  involving
interest rates, commodities or commodity prices, equities, currencies, bonds, or
indexes  based on any of the  foregoing,  (b) any  option,  futures  or  forward
contract traded on an exchange,  and (c) any other derivative agreement or other
similar agreement or arrangement.

         "Highest Lawful Rate" means,  with respect to each Lender,  the maximum
nonusurious  rate of interest that such Lender is permitted under applicable Law
to  contract  for,  take,  charge,  or receive  with  respect  to its Loan.  All
determinations  herein of the  Highest  Lawful  Rate,  or of any  interest  rate
determined by reference to the Highest Lawful Rate, shall be made separately for
each Lender as  appropriate  to assure that the Loan Documents are not construed
to obligate  any Person to pay interest to any Lender at a rate in excess of the
Highest Lawful Rate applicable to such Lender.

         "Hydrocarbons"   shall  mean  oil,  gas,   casinghead   gas  and  other
hydrocarbons,  whether  solid,  liquid or gaseous,  and all other  associated or
related substances in, on, under or attributed to the Oil and Gas Properties.

         "Indebtedness"  of any Person means Liabilities in any of the following
categories:

         (a)      Liabilities for borrowed money,

         (b)      Liabilities  constituting an  obligation to  pay the  deferred
     purchase price of property or services,

         (c)      Liabilities  evidenced by  a bond, debenture, note  or similar
     instrument,

         (d)  Liabilities  which (i) would under GAAP be shown on such  Person's
balance  sheet as a liability,  and (ii) are payable more than one year from the
date of  creation  thereof  (other  than  reserves  for taxes and  reserves  for
contingent obligations),

         (e)  Liabilities arising under Hedging Contracts or similar agreements,

         (f)  Liabilities  constituting  principal  under leases  capitalized in
accordance with GAAP,

         (g)  Liabilities   arising  under  conditional  sales  or  other  title
retention agreements,

         (h)   Liabilities   owing  under  direct  or  indirect   guaranties  of
Liabilities  of any  other  Person  or  otherwise  constituting  obligations  to
purchase or acquire or to otherwise protect or insure a creditor against loss in
respect of Liabilities  of any other Person (such as  obligations  under working
capital  maintenance  agreements,  agreements  to  keep-well,  or  agreements to
purchase  Liabilities,  assets,  goods,  securities or services),  but excluding
endorsements in the ordinary course of business of negotiable instruments in the
course of collection,

         (i) Liabilities (for example,  repurchase agreements and sale/leaseback
agreements)  consisting  of  an  obligation  to  purchase  securities  or  other
property,  if such  Liabilities  arises out of or in connection with the sale of
the same or similar securities or property,

         (j)  Liabilities  with respect to letters of credit or  applications or
reimbursement agreements therefor,



                                       7


         (k) Liabilities  with respect to payments  received in consideration of
oil,  gas,  or other  minerals  yet to be  acquired  or  produced at the time of
payment (including  obligations under "take-or-pay"  contracts to deliver gas in
return  for  payments  already  received  and the  undischarged  balance  of any
production  payment  created by such  Person or for the  creation  of which such
Person directly or indirectly received payment), or

         (l) Liabilities  with respect to other  obligations to deliver goods or
services in consideration of advance payments therefor;

provided,  however,  that the  "Indebtedness"  of any Person  shall not  include
Liabilities  that were  incurred  by such  Person  on  ordinary  trade  terms to
vendors,  suppliers,  or other Persons  providing  goods and services for use by
such  Person in the  ordinary  course of its  business,  unless  and until  such
Liabilities  are  outstanding  more than 90 days past the  original  invoice  or
billing date therefor.

         "Initial  Financial  Statements" means the audited annual  Consolidated
financial statements of Borrower dated as of December 31, 1997 and the quarterly
unaudited  Consolidated  financial  statements of Borrower dated as of March 31,
1998.

         "Insurance Schedule" means Schedule 2 attached hereto.

         "Interest  Period" means,  with respect to each  particular  Eurodollar
Loan  in  a  Borrowing,   the  period  specified  in  the  Borrowing  Notice  or
Continuation/Conversion  Notice applicable  thereto,  beginning on and including
the date specified in such Borrowing  Notice or  Continuation/Conversion  Notice
(which  must be a Business  Day),  and ending  one,  two,  three,  or six months
thereafter,  as  Borrower  may  elect in such  notice;  provided  that:  (a) any
Interest  Period which would  otherwise end on a day which 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 which begins on the
last  Business  Day in 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 in a  calendar  month;  and  (c)
notwithstanding the foregoing, any Interest Period selected for a Tranche A Loan
or a Tranche B Loan which would  otherwise end after the last day of the Tranche
A Revolving Period or the Tranche B Revolving  Period, as the case may be, shall
end on the last day of such  period (or, if the last day of such period is not a
Business Day, on the next preceding Business Day).

         "Interest  Payment Date" means (a) with respect to each Base Rate Loan,
the last day of March,  June,  September and  December,  and (b) with respect to
each  Eurodollar  Loan,  the last day of the Interest  Period that is applicable
thereto and, if such Interest Period is six months in length, the date specified
by Agent which is approximately  three months after such Interest Period begins;
provided that last day of each calendar month shall also be an Interest  Payment
Date for each such Loan so long as any Event of  Default  exists  under  Section
8.1.

         "Investment"  means any investment,  in cash or by delivery of property
made, directly or indirectly in any Person,  whether by acquisition of shares of
capital  stock,  indebtedness  or other  obligations  or  securities or by loan,
advance, capital contribution or otherwise.

         "Law" means any statute,  law,  regulation,  ordinance,  rule,  treaty,
judgment, order, decree, permit,  concession,  franchise,  license, agreement or
other  governmental  restriction  of the United States or any state or political
subdivision  thereof or of any foreign  country or any  department,  province or
other political subdivision thereof.



                                       8


         "LC Application" means any application for a Letter of Credit hereafter
made by Borrower to LC Issuer.

         "LC Collateral" has the meaning given to such term in Section 2.16(a).

         "LC Issuer"  means  NationsBank,  N.A. in its capacity as the issuer of
Letters of Credit  hereunder,  and its successors in such  capacity.  Agent may,
with the  consent of  Borrower  and the Lender in  question,  appoint any Lender
hereunder as an LC Issuer in place of or in addition to NationsBank, N.A.

         "LC Obligations" means, at the time in question, the sum of all Matured
LC Obligations plus the maximum amounts which LC Issuer might then or thereafter
be called upon to advance under all Letters of Credit then outstanding.

         "Lender Parties" means Agent, LC Issuer, and all Lenders.

         "Lenders"  means each  signatory  hereto  (other than  Borrower and any
Restricted Person that is a party hereto),  including  NationsBank,  N.A. in its
capacity  as a Lender  hereunder  rather  than as Agent  or LC  Issuer,  and the
successors of each such party as holder of a Note.

         "Letter  of  Credit"  means any  letter  of credit  issued by LC Issuer
hereunder at the application of Borrower.

         "Liabilities"  means, as to any Person,  all indebtedness,  liabilities
and  obligations  of such Person,  whether  matured or unmatured,  liquidated or
unliquidated,  primary or  secondary,  direct or  indirect,  absolute,  fixed or
contingent, and whether or not required to be considered pursuant to GAAP.

         "Lien"  means,  with  respect to any  property or assets,  any right or
interest  therein of a creditor  to secure  Liabilities  owed to it or any other
arrangement   with  such  creditor  which  provides  for  the  payment  of  such
Liabilities out of such property or assets or which allows such creditor to have
such  Liabilities  satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge,  deposit,  production  payment,  rights  of a  vendor  under  any  title
retention  or  conditional  sale  agreement  or lease  substantially  equivalent
thereto,  tax lien,  mechanic's  or  materialman's  lien, or any other charge or
encumbrance  for  security  purposes,  whether  arising by Law or  agreement  or
otherwise,  but excluding any right of offset which arises without  agreement in
the  ordinary  course  of  business.  "Lien"  also  means  any  filed  financing
statement,   any   registration   of  a  pledge  (such  as  with  an  issuer  of
uncertificated securities), or any other arrangement or action which would serve
to perfect a Lien  described in the  preceding  sentence,  regardless of whether
such  financing   statement  is  filed,  such  registration  is  made,  or  such
arrangement or action is undertaken before or after such Lien exists.

         "Loans" means all Tranche A Loans and all Tranche B Loans.

         "Loan  Documents"  means  this  Agreement,  the Notes,  the  Letters of
Credit, the LC Applications, and all other agreements, certificates,  documents,
instruments  and  writings  at any time  delivered  in  connection  herewith  or
therewith (exclusive of term sheets and commitment letters).

         "Majority  Lenders"  means (a) Agent and (b)  Lenders  whose  aggregate
Percentage Shares equal or exceed sixty-six and two-thirds percent (66_%).



                                       9


         "Material Adverse Change" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements or as represented
or warranted in any Loan  Document,  to (a)  Borrower's  Consolidated  financial
condition,  (b)  Borrower's  Consolidated  operations,  properties or prospects,
considered as a whole, (c) Borrower's ability to timely pay the Obligations,  or
(d) the enforceability of the material terms of any Loan Documents.

         "Matured LC Obligations"  means all amounts paid by LC Issuer on drafts
or demands for payment  drawn or made under or  purported to be under any Letter
of  Credit  and all  other  amounts  due and  owing to LC  Issuer  under  any LC
Application  for any  Letter of  Credit,  to the  extent  the same have not been
repaid to LC Issuer (with the proceeds of Loans or otherwise).

         "Maximum  Drawing  Amount" means at the time in question the sum of the
maximum  amounts  which LC Issuer  might then or  thereafter  be called  upon to
advance under all Letters of Credit then outstanding.

         "Maximum Loan Amount" means the amount of $200,000,000.

         "Moody's" means Moody's Investor Service, Inc., or its successor.

         "Net Oil and Gas Revenues" for the applicable  Accounting Quarter shall
mean Gross Revenues less Deductible Lease Expenses.

         "Notes" means all Tranche A Notes and all Tranche B Notes.

         "Obligations" means all Liabilities from time to time owing by Borrower
to any Lender  Party under or pursuant to any of the Loan  Documents,  including
all LC Obligations. "Obligation" means any part of the Obligations.

         "Oil and Gas  Properties"  shall mean those oil and gas  properties and
related interests, whether now owned or hereafter acquired by Borrower, but only
to the extent included in the most recent reserve report  delivered  pursuant to
paragraph  6.2(d) or,  until the first  delivery of such report  hereunder,  the
Initial  Engineering  Reports,  for the  purpose of  determining  the  Aggregate
Borrowing Base.

         "Percentage  Share" means,  with respect to any Lender (a) when used in
Sections  2.1,  2.2 or  2.5,  in any  Borrowing  Notice  or when  no  Loans  are
outstanding  hereunder,  the percentage set forth opposite such Lender's name on
Schedule 1, and (b) when used otherwise, the percentage obtained by dividing (i)
the sum of the unpaid  principal  balance of such Lender's  Loans at the time in
question plus the Matured LC Obligations  which such Lender has funded  pursuant
to Section  2.13(c)  plus the portion of the Maximum  Drawing  Amount which such
Lender might be obligated to fund under Section 2.13(c),  by (ii) the sum of the
aggregate unpaid principal  balance of all Loans at such time plus the aggregate
amount of LC Obligations outstanding at such time.

         "Permitted Investments" means (a) Cash Equivalents,  (b) Investments by
Borrower in any of its wholly owned Subsidiaries,  and (c) so long as no Default
or Event of Default has occurred and is continuing  and the Facility  Usage does
not exceed the  Borrowing  Base then in effect,  (1) loans to or  guaranties  of
obligations of or the  acquisition of capital stock or equity  interest in Summo
Minerals  Corporation  or a direct  property  interest in any property  owned by
Summo  Minerals  Corporation  provided that the aggregate  amount of such loans,
guaranties of obligations of and consideration paid by Borrower for such capital
stock equity or property interest does not exceed the sum of $12,500,000 and (2)
repurchases of capital stock of Borrower provided that the aggregate amount paid
by Borrower in connection with such repurchases shall not exceed $5,000,000.



                                       10


         "Permitted Lien" has the meaning given to such term in Section 7.2.

         "Person"  means  an  individual,   corporation,   partnership,  limited
liability company,  association,  joint stock company, trust or trustee thereof,
estate  or  executor  thereof,  unincorporated  organization  or joint  venture,
Tribunal, or any other legally recognizable entity.

         "Rating Agency" means either S & P or Moody's.

         "Regulation  D" means  Regulation  D of the Board of  Governors  of the
Federal Reserve System as from time to time in effect.

         "Reserve  Requirement"  means,  at any time,  the maximum rate at which
reserves (including any marginal, special,  supplemental, or emergency reserves)
are required to be maintained under regulations  issued from time to time by the
Board of Governors of the Federal  Reserve  System (or any  successor) by member
banks of the Federal Reserve System against "Eurocurrency  liabilities" (as such
term is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve  Requirement  shall reflect any other reserves required to be maintained
by such  member  banks with  respect to (a) any  category of  liabilities  which
includes  deposits by reference to which the Adjusted  Eurodollar  Rate is to be
determined,  or (b) any category of  extensions  of credit or other assets which
include Eurodollar Loans.

         "Restricted Person"  means any  of  Borrower  and  each  Subsidiary  of
Borrower,

         "S & P" means  Standard  & Poor's  Ratings  Group (a division of McGraw
Hill, Inc.) or its successor.

         "Shareholders'   Equity"   means  the   remainder  of  (1)   Borrower's
Consolidated assets minus (2) the sum of (x) Borrower's Consolidated liabilities
plus  (y) all  intangible  assets  (as  defined  by GAAP)  of  Borrower  and its
Subsidiaries.

         "Subsidiary"  means,  with  respect  to any  Person,  any  corporation,
association,  partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly  (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.

         "Termination  Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections  4043(b)(5) or (6) of ERISA
or (ii) any other  reportable  event described in Section 4043(b) of ERISA other
than a reportable  event not subject to the  provision  for 30-day notice to the
Pension Benefit  Guaranty  Corporation  pursuant to a waiver by such corporation
under Section  4043(a) of ERISA,  or (b) the  withdrawal of any ERISA  Affiliate
from an ERISA Plan during a plan year in which it was a  "substantial  employer"
as  defined  in Section  4001(a)(2)  of ERISA,  or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan  amendment
as a  termination  under  Section  4041  of  ERISA,  or (d) the  institution  of
proceedings  to  terminate  any  ERISA  Plan  by the  Pension  Benefit  Guaranty
Corporation  under  Section  4042 of ERISA,  or (e) any other event or condition
which might  constitute  grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.

         "Tranche A Commitment" means $200,000,000.

         "Tranche A Excess Debt" has the meaning set forth in Section 2.7(a).

         "Tranche  A  Facility  Usage"  means,  at the  time  in  question,  the
aggregate  amount of outstanding  Tranche A Loans and existing LC Obligations at
such time.

         "Tranche A Loan" has the meaning set forth in Section 2.1(a).

         "Tranche A Maturity Date" means December 31, 2005.

         "Tranche A Note" has the meaning given to such term in Section 2.1(a).

         "Tranche A Revolving  Period"  means the period from and  including the
date hereof until December 31, 2000.



                                       11


         "Tranche B Commitment" means $50,000,000.

         "Tranche B Excess Debt" has the meaning set forth in Section 2.7(b).

         "Tranche  B  Facility  Usage"  means,  at the  time  in  question,  the
aggregate amount of Tranche B Loans outstanding at such time.

         "Tranche B Loan" has the meaning given to such term in Section 2.1(b).

         "Tranche  B Maturity  Date"  means the date which is 364 days after the
date hereof.

         "Tranche B Note" has the meaning given to such term in Section 2.1(b).

         "Tranche B Revolving  Period"  means the period from and  including the
date hereof until the Tranche B Maturity Date.

         "Tribunal"  means any government,  any arbitration  panel, any court or
any   governmental   department,    commission,   board,   bureau,   agency   or
instrumentality  of  the  United  States  of  America  or any  state,  province,
commonwealth,  nation,  territory,  possession,  county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.

         "Type" means, with respect to any Loans, the  characterization  of such
Loans as either Base Rate Loans or Eurodollar Loans.

         Section  1.2.  Exhibits  and  Schedules;  Additional  Definitions.  All
Exhibits  and  Schedules  attached to this  Agreement  are a part hereof for all
purposes.

         Section  1.3.  Amendment  of Defined  Instruments.  Unless the  context
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement  which refer to a particular  agreement,  instrument  or document also
refer to and include all renewals,  extensions,  modifications,  amendments  and
restatements  of such agreement,  instrument or document,  provided that nothing
contained in this section  shall be  construed  to authorize  any such  renewal,
extension, modification, amendment or restatement.

         Section 1.4. References and Titles. All references in this Agreement to
Exhibits,  Schedules,  articles,  sections,  subsections and other  subdivisions
refer to the Exhibits,  Schedules,  articles,  sections,  subsections  and other
subdivisions  of this Agreement  unless  expressly  provided  otherwise.  Titles
appearing at the beginning of any  subdivisions  are for convenience only and do
not  constitute  any  part of such  subdivisions  and  shall be  disregarded  in
construing  the  language  contained  in  such  subdivisions.  The  words  "this
Agreement", "this instrument",  "herein",  "hereof",  "hereby",  "hereunder" and
words of  similar  import  refer  to this  Agreement  as a whole  and not to any
particular  subdivision unless expressly so limited.  The phrases "this section"
and  "this  subsection"  and  similar  phrases  refer  only to the  sections  or
subsections  hereof in which such phrases occur. The word "or" is not exclusive,
and the  word  "including"  (in its  various  forms)  means  "including  without
limitation."  Pronouns  in  masculine,  feminine  and  neuter  genders  shall be
construed to include any other  gender,  and words in the singular form shall be
construed  to include  the plural and vice versa,  unless the context  otherwise
requires.

         Section 1.5.  Calculations and  Determinations.  All calculations under
the Loan Documents of interest  chargeable with respect to Eurodollar  Loans and
of fees shall be made on the basis of actual days elapsed  (including  the first
day but excluding the last) and a year of 360 days.  All other  calculations  of
interest made under the Loan Documents shall be made on the basis of actual days
elapsed  (including  the first day but  excluding the last) and a year of 365 or
366 days, as appropriate.  Each determination by a Lender Party of amounts to be
paid under Article III or any other matters which are to be determined hereunder
by a Lender  Party  (such as any  Eurodollar  Rate,  Adjusted  Eurodollar  Rate,
Business Day, Interest Period, or Reserve  Requirement) shall, in the absence of
manifest error, be conclusive and binding.  Unless otherwise  expressly provided
herein or unless Majority Lenders otherwise consent all financial statements and
reports  furnished  to any Lender  Party  hereunder  shall be  prepared  and all
financial  computations  and  determinations  pursuant  hereto  shall be made in
accordance with GAAP.


                                       12


                  ARTICLE II - The Loans and Letters of Credit
                               -------------------------------

         Section 2.1.  Commitments to Lend; Notes.

         (a) Tranche A Loans.  Subject to the terms and conditions hereof,  each
Lender agrees to make loans to Borrower (herein called such Lender's  "Tranche A
Loans") upon Borrower's request from time to time during the Tranche A Revolving
Period,  provided that (a) subject to Sections 3.3, 3.4 and 3.6, all Lenders are
requested  to make  Tranche A Loans of the same Type in  accordance  with  their
respective Percentage Shares and as part of the same Borrowing, (b) after giving
effect to such Tranche A Loans, the Tranche A Facility Usage does not exceed the
Tranche A  Borrowing  Base (as  defined in Section  2.10) and (c) the  Aggregate
Facility Usage does not exceed the Maximum Loan Amount.  The aggregate amount of
all Loans in any  Borrowing  of Tranche A Loans that are Base Rate Loans must be
greater than or equal to $100,000 or must equal the remaining availability under
the Tranche A Borrowing Base.  Borrower may have no more than five Borrowings of
Tranche A Loans that are Eurodollar Loans outstanding at any time. The aggregate
amount of all Loans in any  Borrowing  of  Tranche A Loans  that are  Eurodollar
Loans  must be greater  than or equal to  $500,000  or must equal the  remaining
availability  under the Tranche A Borrowing  Base. The obligation of Borrower to
repay to each  Lender the  aggregate  amount of all Tranche A Loans made by such
Lender,  together  with  interest  accruing in  connection  therewith,  shall be
evidenced by a single  promissory  note (herein called such Lender's  "Tranche A
Note")  made by  Borrower  payable  to the  order of such  Lender in the form of
Exhibit A-1 with  appropriate  insertions.  The amount of principal owing on any
Lender's  Tranche A Note at any given time shall be the aggregate  amount of all
Tranche A Loans  theretofore made by such Lender minus all payments of principal
theretofore  received  by such Lender on such  Tranche A Note.  Interest on each
Tranche A Note  shall  accrue  and be due and  payable  as  provided  herein and
therein.  Each  Tranche A Note shall be due and payable as  provided  herein and
therein,  and shall be due and payable in full on the  Tranche A Maturity  Date.
Subject to the terms and  conditions  hereof,  Borrower may borrow,  repay,  and
reborrow Tranche A Loans hereunder during the Tranche A Revolving Period.



                                       13


         (b) Tranche B Loans.  Subject to the terms and conditions hereof,  each
Lender agrees to make loans to Borrower (herein called such Lender's  "Tranche B
Loans") upon Borrower's request from time to time during the Tranche B Revolving
Period,  provided that (a) subject to Sections 3.3, 3.4 and 3.6, all Lenders are
requested  to make  Tranche B Loans of the same Type in  accordance  with  their
respective Percentage Shares and as part of the same Borrowing, (b) after giving
effect to such Tranche B Loans, the Tranche B Facility Usage does not exceed the
Tranche B  Borrowing  Base (as  defined in Section  2.10) and (c) the  Aggregate
Facility Usage does not exceed the Maximum Loan Amount.  The aggregate amount of
all Loans in any  Borrowing  of Tranche B Loans that are Base Rate Loans must be
greater than or equal to $100,000 or must equal the remaining availability under
the Tranche B Borrowing Base. The aggregate amount of all Loans in any Borrowing
of Tranche B Loans that are  Eurodollar  Loans must be greater  than or equal to
$500,000 or must equal the remaining  availability under the Tranche B Borrowing
Base.  Borrowers may have not more than three Borrowings of Tranche B Loans that
are  Eurodollar  Loans  outstanding  at any time.  The obligation of Borrower to
repay to each  Lender the  aggregate  amount of all Tranche B Loans made by such
Lender,  together  with  interest  accruing in  connection  therewith,  shall be
evidenced by a single  promissory  note (herein called such Lender's  "Tranche B
Note")  made by  Borrower  payable  to the  order of such  Lender in the form of
Exhibit A-2 with  appropriate  insertions.  The amount of principal owing on any
Lender's  Tranche B Note at any given time shall be the aggregate  amount of all
Tranche B Loans  theretofore made by such Lender minus all payments of principal
theretofore  received  by such Lender on such  Tranche B Note.  Interest on each
Tranche B Note  shall  accrue  and be due and  payable  as  provided  herein and
therein.  Each  Tranche B Note shall be due and payable as  provided  herein and
therein,  and shall be due and payable in full on the  Tranche B Maturity  Date.
Subject to the terms and  conditions  hereof,  Borrower may borrow,  repay,  and
reborrow Tranche B Loans hereunder.

         (c) At any time and from time to time  until  the end of the  Tranche A
Revolving  Period,  Borrower may elect,  subject to the approval of the Majority
Lenders in the exercise of their sole discretion,  to convert all or any portion
of the Tranche B Borrowing Base into the Tranche A Borrowing Base. Such election
shall be made in writing  delivered  to the Agent and,  if  approved by Lenders,
such  conversion  shall occur upon payment of the  conversion  fee  described in
Section  2.5(e) and execution by Borrower of amendments to the Loan Documents in
form  and  substance  satisfactory  to  Lenders.  Any  and all  such  conversion
elections  shall be in the amount of  $2,000,000  or more.  Notwithstanding  the
foregoing,  if such election is made  concurrently  with a determination  of the
Aggregate  Borrowing  Base, such election may be in any amount not to exceed the
limitations  set forth in this  Agreement  and shall not  require the payment of
such conversion fee.

         Section  2.2.  Requests  for New  Loans.  Borrower  must  give to Agent
written  notice (or  telephonic  notice  promptly  confirmed  in writing) of any
requested Borrowing of new Tranche A Loans or new Tranche B Loans to be advanced
by Lenders.  Each such notice  constitutes  a "Borrowing  Notice"  hereunder and
must:

         (a) specify (i) the aggregate  amount of any such Borrowing of new Base
Rate  Loans and the date on which such Base Rate  Loans are to be  advanced,  or
(ii) the aggregate  amount of any such  Borrowing of new Eurodollar  Loans,  the
date on which such Eurodollar Loans are to be advanced (which shall be the first
day of the  Interest  Period which is to apply  thereto),  and the length of the
applicable Interest Period; and

         (b) be received by Agent not later than 11:30 a.m., Dallas, Texas time,
on (i) the day on which  any such Base  Rate  Loans are to be made,  or (ii) the
third Business Day preceding the day on which any such  Eurodollar  Loans are to
be made.

Each such written request or confirmation must be made in the form and substance
of the "Borrowing  Notice"  attached hereto as Exhibit B, duly  completed.  Each
such   telephonic   request   shall  be  deemed  a   representation,   warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such  written  confirmation.  Upon  receipt of any such  Borrowing
Notice,  Agent shall give each Lender prompt notice of the terms thereof. If all
conditions  precedent  to such new Loans have been met,  each Lender will on the
date requested  promptly  remit to Agent at Agent's office in Dallas,  Texas the
amount  of such  Lender's  new Loan in  immediately  available  funds,  and upon



                                       14


receipt of such funds,  unless to its actual knowledge any conditions  precedent
to such Loans have been neither met nor waived as provided  herein,  Agent shall
promptly make such Loans available to Borrower. Unless Agent shall have received
prompt  notice from a Lender that such Lender will not make  available  to Agent
such Lender's new Loan, Agent may in its discretion  assume that such Lender has
made such Loan available to Agent in accordance  with this section and Agent may
if it chooses,  in reliance upon such  assumption,  make such Loan  available to
Borrower.  If and to the  extent  such  Lender  shall  not so make  its new Loan
available to Agent, such Lender and Borrower  severally agree to pay or repay to
Agent  within  three days after  demand  the amount of such Loan  together  with
interest  thereon,  for each day from the date such amount was made available to
Borrower until the date such amount is paid or repaid to Agent, with interest at
(i) the Federal  Funds Rate,  if such Lender is making such payment and (ii) the
interest  rate  applicable at the time to the other new Loans made on such date,
if Borrower is making such repayment. If neither such Lender nor Borrower pay or
repay to Agent such amount within such three-day period, Agent shall in addition
to such  amount be entitled to recover  from such Lender and from  Borrower,  on
demand,  interest  thereon at the Default  Rate,  calculated  from the date such
amount was made available to Borrower. The failure of any Lender to make any new
Loan to be made by it  hereunder  shall  not  relieve  any  other  Lender of its
obligation  hereunder,  if any,  to make its new Loan,  but no  Lender  shall be
responsible  for the failure of any other Lender to make any new Loan to be made
by such other Lender.

         Section 2.3.  Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Loans already outstanding:  (a)
with respect to Tranche A Loans,  to convert  Tranche A Loans that are Base Rate

Loans to Tranche A Loans that are Eurodollar  Loans,  to convert Tranche A Loans
that are  Eurodollar  Loans to  Tranche A Loans  that are Base Rate Loans on the
last day of the Interest Period  applicable  thereto,  and to Continue Tranche A
Loans that are Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such expiration;
and (b) with  respect  to Tranche B Loans,  to convert  Tranche B Loans that are
Base Rate Loans to Tranche B Loans that are Eurodollar Loans, to convert Tranche
B Loans that are Eurodollar Loans to Tranche B Loans that are Base Rate Loans on
the last day of the Interest Period applicable thereto,  and to Continue Tranche
B Loans that are Eurodollar  Loans beyond the expiration of such Interest Period
by  designating  a new  Interest  Period  to  take  effect  at the  time of such
expiration.  In making such elections,  Borrower may combine  existing Tranche A
Loans made  pursuant to separate  Borrowings  into one new  Borrowing  or divide
existing  Tranche A Loans made  pursuant  to one  Borrowing  into  separate  new
Borrowings,  provided  that  Borrower may have no more than five  Borrowings  of
Tranche A Loans  that are  Eurodollar  Loans and three  Tranche B Loans that are
Eurodollars Loans  outstanding at any time. To make any such election,  Borrower
must give to Agent written notice (or telephonic  notice  promptly  confirmed in
writing)  of any such  conversion  or  continuation  of existing  Loans,  with a
separate  notice given for each new  Borrowing.  Each such notice  constitutes a
"Continuation/Conversion Notice" hereunder and must:

         (a)  specify the existing Loans which are to be Continued or converted;

         (b)  specify (i) the  aggregate  amount of any  Borrowing  of Base Rate
Loans into which such  existing  Loans are to be continued or converted  and the
date on which such continuation or conversion is to occur, or (ii) the aggregate
amount of any Borrowing of Eurodollar  Loans into which such existing  Loans are
to be Continued or converted,  the date on which such continuation or conversion
is to occur  (which  shall be the first day of the  Interest  Period which is to
apply to such  Eurodollar  Loans),  and the  length of the  applicable  Interest
Period; and

         (c) be received by Agent not later than 11:30 a.m., Dallas, Texas time,
on (i) the day on which any such  continuation  or conversion to Base Rate Loans
is to occur,  or (ii) the third Business Day preceding the day on which any such
continuation or conversion to Eurodollar Loans is to occur.

Each such written  request or  confirmation  must  contain the  substance of the
"Continuation/Conversion  Notice" attached hereto as Exhibit C, and be in a form
acceptable  to  Agent.   Each  such   telephonic   request  shall  be  deemed  a
representation,  warranty,  acknowledgment  and  agreement by Borrower as to the
matters  which are  required to be set out in such  written  confirmation.  Upon
receipt of any such Continuation/Conversion Notice, Agent shall give each Lender
prompt notice of the terms thereof. Each Continuation/Conversion Notice shall be
irrevocable  and binding on  Borrower.  During the  continuance  of any Default,
Borrower may not make any  election to convert  existing  Loans into  Eurodollar
Loans or Continue  existing Loans as Eurodollar  Loans. If (due to the existence
of a Default or for any other reason) Borrower fails to timely and properly give
any notice of continuation or conversion with respect to a Borrowing of existing
Eurodollar  Loans at least  three days prior to the end of the  Interest  Period
applicable thereto,  such Eurodollar Loans shall automatically be converted into
Base Rate Loans at the end of such Interest Period. No new funds shall be repaid
by Borrower or advanced by any Lender in  connection  with any  continuation  or
conversion of existing Loans pursuant to this section,  and no such continuation
or conversion shall be deemed to be a new advance of funds for any purpose; such
continuations  and conversions  merely  constitute a change in the interest rate
applicable to already outstanding Loans.



                                       15


         Section 2.4. Use of Proceeds. Borrower shall use all Loans to refinance
existing  indebtedness,  to  acquire  oil  and  gas  companies  and  oil and gas
properties,   to  finance  capital   expenditures,   to  refinance   Matured  LC
Obligations,  to provide  working  capital  for its  operations,  for  Permitted
Investments  and for other general  business  purposes.  Borrower  shall use all
Letters of Credit for its  general  corporate  purposes.  In no event  shall the
funds from any Loan or any Letter of Credit be used  directly or  indirectly  by
any Person for personal,  family,  household or agricultural purposes or for the
purpose, whether immediate, incidental or ultimate, of purchasing,  acquiring or
carrying  any  "margin  stock" or any  "margin  securities"  (as such  terms are
defined in  Regulation  U  promulgated  by the Board of Governors of the Federal
Reserve  System) or to extend credit to others  directly or  indirectly  for the
purpose of  purchasing  or carrying any such margin stock or margin  securities.
Borrower represents and warrants that Borrower is not engaged principally, or as
one of Borrower's important  activities,  in the business of extending credit to
others for the purpose of  purchasing  or carrying  such margin  stock or margin
securities.

         Section 2.5.  Interest Rates and Fees.

         (a) Interest Rates. Each Base Rate Loan shall bear interest on each day
outstanding  at the Adjusted  Base Rate in effect on such day.  Each  Eurodollar
Loan shall bear interest on each day during the related  Interest  Period at the
related Adjusted Eurodollar Rate in effect on such day.

         (b)  Tranche  A Loan  Commitment  Fee.  In  consideration  of  Lenders'
commitment  to enter into this  Agreement  and to advance  funds to  Borrower as
Tranche A Loans,  Borrower will pay to Agent, for pro rata  distribution to each
Lender in accordance with its Percentage Share, a commitment fee determined on a
daily  basis by  applying  the Tranche A  Commitment  Fee Rate to such  Lender's
Percentage  Share of the unused  portion of the Tranche A Borrowing Base on each
day during  the  Tranche A  Revolving  Period,  determined  for each such day by
deducting from the amount of the Tranche A Borrowing Base at the end of such day
the Tranche A Facility Usage.  Promptly at the end of each Fiscal Quarter and at
the end of the Tranche A Revolving Period,  Agent shall calculate the commitment
fee  then  due and  shall  notify  Borrower  thereof.  Borrower  shall  pay such
commitment  fee to Agent within five Business Days after  receiving such notice.
As used in this section, "Tranche A Commitment Fee Rate" means:

                  (i)  when the Debt to Capitalization Ratio in effect hereunder
         is less than 0.50 to 1.0, 0.25% per annum; or

                  (ii) when the Debt to Capitalization Ratio in effect hereunder
         is greater than or equal to 0.50 to 1.0, 0.50% per annum.

         For the purposes of this Section 2.5(b),  any increase in the Tranche A
Borrowing Base pursuant to Section 2.1(c) shall be effective as of the first day
of the  calendar  quarter in which  Borrower  elects to  increase  the Tranche A
Borrowing Base.

         (c)  Tranche  B  Loan   Commitment  Fee.  In  consideration of Lenders'
commitment  to enter into this  Agreement  and to advance  funds to  Borrower as
Tranche B Loans,  Borrower will pay to Agent, for pro rata  distribution to each
Lender in accordance with its Percentage Share, a commitment fee determined on a
daily  basis by  applying  the Tranche B  Commitment  Fee Rate to such  Lender's
Percentage  Share of the unused  portion of the Tranche B Borrowing Base on each
day during  the  Tranche B  Revolving  Period,  determined  for each such day by
deducting  from  the  amount  of the  Borrowing  Base at the end of such day the
Tranche B Facility Usage.  Promptly at the end of each Fiscal Quarter and at the
end of the Tranche B Revolving Period,  Agent shall calculate the commitment fee
then due and shall notify Borrower  thereof.  Borrower shall pay such commitment
fee to Agent within five Business Days after  receiving such notice.  As used in
this  section,  "Tranche  B  Commitment  Fee Rate"  means:  (i) when the Debt to
Capitalization  Ratio in effect  hereunder is less than 0.50 to 1.0,  0.125% per
annum;



                                       16


                  (ii) when the Debt to Capitalization Ratio in effect hereunder
         is greater than or equal to 0.50 to 1.0, 0.375% per annum

         For the purposes of this Section 2.5(c),  any decrease in the Tranche B
Borrowing Base pursuant to Section 2.1(c) shall be effective as of the first day
of the  calendar  quarter in which  Borrower  elects to  increase  the Tranche A
Borrowing Base thereby reducing the Tranche B Borrowing Base.

         (d)  Facility  Fees.   Each  time  the  Aggregate   Borrowing  Base  is
redetermined  pursuant to Section 2.9 and the amount of the new  Borrowing  Base
exceeds the Aggregate  Borrowing Base previously in effect hereunder (the amount
of such  excess  is  herein  called  the  "Increased  Aggregate  Borrowing  Base
Amount"),  Borrower shall pay to Agent, for pro rata distribution to each Lender
in accordance  with its  Percentage  Share, a facility fee in an amount equal to
0.125% of the Increased  Aggregate  Borrowing Base Amount.  All  calculations of
facility fees made  pursuant to this section shall be made after the  acceptance
of the Aggregate Borrowing Base by Borrower pursuant to Section 2.10.

         (e)  Conversion  Fee.   Borrower  shall  pay  to  Agent  for  pro  rata
distribution to each Lender in accordance with its Percentage Share a conversion
fee in the amount of 0.25% of that portion of the Tranche B Borrowing Base which
is being converted into the Tranche A Borrowing Base under Section 2.1(c).

         (f) Other Fees. In addition to all other amounts due to Agent under the
Loan  Documents,  Borrower  will  pay fees to  Agent  as  described  in a letter
agreement of even date herewith between Agent and Borrower.

         (g)  Changes  in  Base  Rate  Margin,   Eurodollar  Margin,  Tranche  A
Commitment Fee Rate and Tranche B Commitment Fee Rate .

                  (i)  Initial  Debt  to  Capitalization   Ratio.  The  Debt  to
         Capitalization  Ratio in effect from the date hereof  until  changed as
         herein provided is 0.125 to 1.0.

                  (ii)  Decreases In Rates.  Any  reduction in the Adjusted Base
         Rate, the Adjusted  Eurodollar  Rate, the Tranche A Commitment Fee Rate
         or the  Tranche B  Commitment  Fee Rate (in this  section  collectively
         called  the   "Rates")  as  a  result  of  a  change  in  the  Debt  to
         Capitalization  Ratio shall be requested  by Borrower in a  certificate
         delivered  to  Agent  in  which  Borrower  certifies  as to the Debt to
         Capitalization  Ratio in effect on the date thereof.  Together with any
         such  certificate,  Borrower  shall  deliver to Agent true and  correct
         financial statements of Borrower, in form and substance satisfactory to
         Agent, supporting Borrower's calculation of such Debt to Capitalization
         Ratio.  If Agent  determines  Borrower's  calculation  is correct,  the
         reduction in the Rates shall become effective on the fifth Business Day
         following  the date on which  such  notice is given to Agent or Lenders
         otherwise  become aware of such a change in the Debt to  Capitalization
         Ratio;  provided that with respect to Committed  Eurodollar Loans, such
         decrease  shall apply only to Eurodollar  Loans  Continued or converted
         after such effective date.

                  (iii) Increases In Rates.  With respect to any increase in the
         Rates,  Borrower  must  notify  Agent of any  change  in the Rates as a
         result  of a  change  in the  Debt to  Capitalization  Ratio.  Any such
         increase in the Rates shall become  effective on the fifth Business Day
         following  the date on which  such  notice is given to Agent or Lenders
         otherwise  become aware of such a change in the Debt to  Capitalization
         Ratio;  provided that with respect to Eurodollar  Loans,  such increase
         shall apply only to Eurodollar Loans made, continued or converted after
         such effective date.



                                       17


         Section 2.6. Optional Prepayments.  Borrower may, from time to time and
without premium or penalty prepay the Notes, in whole or in part, so long as the
aggregate  amounts of all partial  prepayments  of principal on the Notes equals
$250,000  or any  higher  integral  multiple  of  $50,000,  and so  long  as any
prepayment  of a Eurodollar  Loan is  accompanied  by amounts owed under Section
3.6. Each partial  prepayment of principal of the Tranche A Loans made after the
end of  the  Tranche  A  Revolving  Period  shall  be  applied  to  the  regular
installments  of  principal  due under the Notes in the  inverse  order of their
maturities.  Any principal or interest prepaid pursuant to this section shall be
in addition to, and not in lieu of, all payments  otherwise  required to be paid
under the Loan Documents at the time of such prepayment.

         Section 2.7.  Required Principal Payments.

         (a) Mandatory Prepayments.  If at any time the Tranche A Facility Usage
is in excess of the Tranche A Borrowing  Base (such excess  being herein  called
the "Tranche A Excess  Debt"),  Borrower  shall,  within ten Business Days after
Agent gives notice of such fact to Borrower,  notify Agent that Borrower will do
one of the following:

          (i) within thirty (30) calendar days,  prepay the principal of
         the  Tranche  A Loans in an  aggregate  amount  at least  equal to such
         Tranche A Excess  Debt (or,  if the  Tranche A Loans  have been paid in
         full,  pay  to LC  Issuer  LC  Collateral  as  required  under  Section
         2.15(a)), or

                  (ii) prepay the  principal of the Tranche A Loans in up to six
         monthly  installments  in an  aggregate  amount  at least  equal to the
         Tranche A Excess Debt, with each such installment equal to or in excess
         of one-sixth  of such  Tranche A Excess  Debt,  and with the first such
         installment  to be paid one month  after the giving of such  notice and
         the  subsequent  installments  to be  due  and  payable  at  one  month
         intervals  thereafter  until  such  Tranche  A  Excess  Debt  has  been
         eliminated, or

                  (iii) within thirty (30) calendar days,  convert the aggregate
         outstanding  principal  amount of the  Tranche A Notes to a term  loan,
         which shall be subject to the provisions of paragraph 2.7(c).

Borrower  shall make the  payment(s)  or  conversion  selected  by  Borrower  as
described  above.  Any  principal or interest  prepaid  pursuant to this section
shall be in addition to, and not in lieu of, all payments  otherwise required to
be paid under the Loan Documents at the time of such prepayment.

         (b) Tranche B Loan. If at any time the Tranche B Facility Usage exceeds
the Tranche B Borrowing Base then in effect (such excess is  hereinafter  called
the "Tranche B Excess Debt"),  Borrower shall take one of the following  actions
within three  Business  Days  following  receipt of notice from the Agent of the
existence of such Tranche B Excess Debt:

                  (i) Convert the Tranche B Excess Debt to principal outstanding
         under  the  Tranche  A Loan,  and  execute  and  deliver  to the  Banks
         amendments to the Loan Documents satisfactory to Lenders; or

                  (ii)  Repay  the  Tranche  B Loan in an  amount  equal  to the
Tranche B Excess Debt.

Each  prepayment  of principal  under this section shall be  accompanied  by all
interest then accrued and unpaid on the  principal so prepaid.  Any principal or
interest  prepaid  pursuant to this section  shall be in addition to, and not in
lieu of, all payments  otherwise required to be paid under the Loan Documents at
the time of such prepayment.

Failure to timely comply with this paragraph  2.7(b) shall be an immediate Event
of Default.



                                       18


         (c) Regularly  Scheduled  Payments of Principal of Tranche A Note.  The
principal  of the  Tranche  A Note  shall  be due and  payable  in  twenty  (20)
quarterly  installments,  each of which  shall be  equal to the  greater  of (i)
one-twentieth  (1/20) of the aggregate unpaid principal balance of the Tranche A
Note at the end of the Tranche A Revolving Period or (ii) sixty percent (60%) of
the Net Oil and Gas Revenues during the applicable Accounting Quarter, and shall
be due and payable on the last day of each Fiscal  Quarter,  beginning March 31,
2001 and continuing  regularly  thereafter until the Tranche A Maturity Date, at
which time the unpaid  principal  balance of the Tranche A Note and all interest
accrued thereon shall be due and payable in full.

         Section 2.8.  Borrowing Base.

         (a) Initial  Aggregate  Borrowing  Base; Limitations on Borrowing Base.
The initial borrowing base under this Agreement shall be $115,000,000.

         (b) Engineering  Reports.  No later than March 1 of each year that this
Agreement is in effect,  commencing March 1, 1999, Borrower shall submit to each
Lender,  in a format and using the pricing  and cost  assumptions  and  discount
factors required by the Securities and Exchange Commission,  a report,  prepared
by a qualified  independent or in-house  engineer  acceptable to Agent,  setting
forth, as of December 31 of the immediately  preceding year, all of the revenues
(and the future volumes of production to be derived  therefrom)  attributable to
all proved Oil and Gas Properties owned by Borrower as of such date.

         Section 2.9. Subsequent  Determinations of Aggregate Borrowing Base. By
each  Evaluation  Date Borrower  shall  furnish to each Lender all  information,
reports and data which Agent has then requested  concerning  Borrower's business

and  properties  (including  their oil and gas  properties and interests and the
reserves and production relating thereto),  together with the Engineering Report
described in Section 2.8(b) and Section 6.2(d),  if then due. Within  forty-five
days  after  receiving  such  information,  reports  and  data,  or as  promptly
thereafter as practicable,  Majority  Lenders shall agree upon an amount for the
Aggregate  Borrowing  Base and Agent shall by notice to Borrower  designate such
amount as the new  Aggregate  Borrowing  Base  available to Borrower  hereunder,
which designation shall take effect  immediately on the date such notice is sent
(herein called a "Determination  Date") and shall remain in effect until but not
including  the  next  date  as  of  which  the  Aggregate   Borrowing   Base  is
redetermined.  If Borrower  does not furnish all such  information,  reports and
data by the date  specified  in the first  sentence of this  section,  Agent may
nonetheless  designate the Aggregate Borrowing Base at any amount which Majority
Lenders determine and may redesignate the Aggregate  Borrowing Base from time to
time  thereafter  until each Lender receives all such  information,  reports and
data,  whereupon Majority Lenders shall designate a new Aggregate Borrowing Base
as described above. Majority Lenders shall determine the amount of the Aggregate
Borrowing  Base  based  upon  the  loan  collateral  value  which  they in their
discretion  assign to the various oil and gas properties of Borrower at the time
in  question  and based  upon  such  other  credit  factors  (including  without
limitation the assets,  liabilities,  cash flow, hedged and unhedged exposure to
price, foreign exchange rate, and interest rate changes,  business,  properties,
prospects,  management and ownership of Borrower and its  Affiliates) as they in
their discretion deem significant.  It is expressly  understood that Lenders and
Agent have no obligation to agree upon or designate the Aggregate Borrowing Base
at any  particular  amount,  whether in relation  to the Maximum  Loan Amount or
otherwise,   and  that  Lenders'  commitments  to  advance  funds  hereunder  is
determined  by reference to the  Aggregate  Borrowing  Base from time to time in
effect, which Aggregate Borrowing Base shall be used for calculating  commitment
fees under  Section  2.5 and,  to the  extent  permitted  by Law and  regulatory
authorities,   for  the   purposes  of  capital   adequacy   determination   and
reimbursements under Section 3.2.

         Section 2.10.  Acceptance and Application of Aggregate  Borrowing Base.
Within  ten days after the Agent has given  written  notice to  Borrower  of the
Aggregate Borrowing Base offered by the Agent for a period,  Borrower shall give



                                       19


Agent  written  notice  of  Borrower's  acceptance  of all or a  portion  of the
Aggregate  Borrowing  Base for  such  period.  In such  notice,  Borrower  shall
allocate a portion of the Aggregate  Borrowing  Base so accepted by the Borrower
to the Tranche A Loan (the "Tranche A Borrowing Base") and the remaining portion
to the Tranche B Loan (the "Tranche B Borrowing Base"), provided,  however, that
in no event shall (i) more than $200,000,000 of the Aggregate  Borrowing Base be
allocated to the Tranche A Loan,  (ii) more than  $50,000,000  of the  Aggregate
Borrowing  Base be allocated to the Tranche B Loan or (iii) more than the lesser
of (x) the amount of the Tranche B Commitment or (y) 50% of Aggregate  Borrowing
Base be allocated to the Tranche B Loan.  Each such Tranche A Borrowing Base and
each such Tranche B Borrowing Base shall be effective as of the date so accepted
by Borrower  until the date on which a new  Tranche A  borrowing  Base and a new
Tranche B Borrowing Base is accepted by Borrower. The initial accepted Tranche A
Borrowing Base shall be $30,000,000;  the initial  accepted  Tranche B Borrowing
Base shall be $10,000,000.

         Section 2.11.  Letters of Credit.  Subject to the terms and  conditions
hereof,  Borrower may during the Tranche A Revolving Period request LC Issuer to
issue one or more Letters of Credit,  provided that, after taking such Letter of
Credit into account:

         (a) the   Tranche  A  Facility  Usage  does not  exceed  the  Tranche A
Borrowing Base at such time; and

         (b) the  Aggregate  Facility  Usage  does  not  exceed  the  Aggregate
Borrowing Base; and

         (c) the expiration date of such Letter of Credit is prior to the end of
the Tranche A Revolving Period.

LC Issuer has no obligation or commitment to issue any such Letter of Credit. LC
Issuer  may  choose to honor any such  request  for a Letter of  Credit,  and LC
Issuer may refuse to issue any  requested  Letter of Credit for any reason which
LC  Issuer  in its  sole  discretion  deems  relevant.  The  provisions  of this
Agreement  dealing  with  Letters  of Credit  have  been  agreed to only for the
convenience  of the  parties if LC Issuer  does  ultimately  choose to issue any
Letter of Credit.

LC Issuer may choose to honor any such  request  for any other  Letter of Credit
but has no  obligation  to do so and may  refuse to issue  any  other  requested
Letter of Credit for any  reason  which LC Issuer in its sole  discretion  deems
relevant.

         Section 2.12. Requesting Letters of Credit.  Borrower must make written
application for any Letter of Credit at least five Business Days before the date
on which  Borrower  desires  for LC Issuer to issue such  Letter of  Credit.  By
making any such written application Borrower shall be deemed to have represented
and warranted that the LC Conditions  described in Section 4.2 will be met as of
the date of issuance of such Letter of Credit. Each such written application for
a Letter of Credit must be made in writing in the form and  substance of Exhibit
G, the terms and provisions of which are hereby incorporated herein by reference
(or in  such  other  form as may  mutually  be  agreed  upon  by LC  Issuer  and
Borrower).  If any provisions of any LC Application conflict with any provisions
of this Agreement, the provisions of this Agreement shall govern and control.

         Section 2.13.  Reimbursement and Participations.

         (a)  Reimbursement  by  Borrower.  Each  Matured  LC  Obligation  shall
constitute  a loan by LC  Issuer to  Borrower.  Borrower  promises  to pay to LC
Issuer,  or to LC Issuer's order, on demand,  the full amount of each Matured LC
Obligation,  together with interest thereon at the Default Rate, until repaid in
full.



                                       20


         (b)  Letter of Credit  Advances.  If the  beneficiary  of any Letter of
Credit makes a draft or other demand for payment  thereunder then Lenders shall,
if all of the  conditions  precedent  to making  such Loans set forth in Section
2.1(a) and Article IV have been satisfied,  make Loans to Borrower in the amount
of such draft or demand, which Loans shall be made concurrently with LC Issuer's
payment of such draft or demand  and shall be  immediately  used by LC Issuer to
repay the amount of the resulting  Matured LC Obligation;  provided that for the
purposes of the first sentence of Section 2.1, the amount of such Loans shall be
considered,  but the amount of the Matured LC Obligation to be concurrently paid
by such Loans shall not be considered.

         (c) Participation by Lenders. LC Issuer irrevocably agrees to grant and
hereby  grants to each  Lender,  and -- to induce LC Issuer to issue  Letters of
Credit  hereunder -- each Lender  irrevocably  agrees to accept and purchase and
hereby  accepts  and  purchases  from LC  Issuer,  on the terms  and  conditions
hereinafter  stated and for such  Lender's  own  account  and risk an  undivided
interest equal to such Lender's Percentage Share of LC Issuer's  obligations and
rights  under  each  Letter of Credit  issued  hereunder  and the amount of each
Matured LC Obligation paid by LC Issuer thereunder.  Each Lender unconditionally
and  irrevocably  agrees with LC Issuer that, if a Matured LC Obligation is paid
under  any  Letter of Credit  for which LC Issuer is not  reimbursed  in full by
Borrower  in  accordance  with the terms of this  Agreement  and the  related LC
Application  (including any reimbursement by means of concurrent Loans or by the
application  of LC  Collateral),  such Lender  shall (in all  circumstances  and
without  set-off or  counterclaim)  pay to LC Issuer on demand,  in  immediately
available  funds at LC Issuer's  address for notices  hereunder,  such  Lender's
Percentage Share of such Matured LC Obligation (or any portion thereof which has
not been  reimbursed  by Borrower).  Each  Lender's  obligation to pay LC Issuer
pursuant to the terms of this  subsection is irrevocable and  unconditional.  If
any  amount  required  to be paid by any  Lender to LC Issuer  pursuant  to this
subsection is paid by such Lender to LC Issuer within three  Business Days after
the date such  payment is due,  LC Issuer  shall in  addition  to such amount be
entitled to recover from such Lender,  on demand,  interest  thereon  calculated
from such due date at the Federal Funds Rate. If any amount  required to be paid
by any  Lender  to LC Issuer  pursuant  to this  subsection  is not paid by such
Lender to LC Issuer  within three  Business  Days after the date such payment is
due, LC Issuer shall in addition to such amount be entitled to recover from such
Lender, on demand, interest thereon calculated from such due date at the Default
Rate.

         (d) Distributions to Participants. Whenever LC Issuer has in accordance
with this section  received from any Lender payment of such Lender's  Percentage
Share of any Matured LC Obligation, if LC Issuer thereafter receives any payment
of such  Matured LC  Obligation  or any  payment of  interest  thereon  (whether
directly from  Borrower or by  application  of LC  Collateral or otherwise,  and
excluding  only  interest for any period  prior to LC Issuer's  demand that such
Lender make such payment of its Percentage  Share), LC Issuer will distribute to
such  Lender  its  Percentage  Share of the  amounts so  received  by LC Issuer;
provided,  however,  that  if  any  such  payment  received  by LC  Issuer  must
thereafter  be returned by LC Issuer,  such Lender shall return to LC Issuer the
portion thereof which LC Issuer has previously distributed to it.

         Section 2.14.  Letter of Credit Fees. In  consideration  of LC Issuer's
issuance of any Letter of Credit,  Borrower agrees to pay (a) to Agent,  for the
account of all Lenders in accordance with their respective  Percentage Shares, a
letter of credit  issuance fee at a rate  determined by applying the  Eurodollar
Margin  then in effect to the face  amount of such Letter of Credit for the term
thereof, such issuance fee to be not less than $1,000 for each Letter of Credit,
and (b) to the LC Issuer for its own account, a letter of credit fronting fee at
a rate equal to one-eighth  percent (.125%) per annum of the face amount of such
letter of credit. Each such fee will be payable quarterly in arrears.

         Section 2.15.  LC Collateral.

         (a) LC Obligations in Excess of Borrowing  Base. If the  outstanding LC
Obligations  exceed the Tranche A Borrowing Base, then in addition to prepayment
of the entire  principal  balance of the Loans  pursuant to Section 2.7 Borrower
will immediately pay to LC Issuer an amount equal to such excess. LC Issuer will
hold such amount as security for the remaining LC Obligations  (all such amounts
held as  security  for LC  Obligations  being  herein  collectively  called  "LC
Collateral") until such LC Obligations  become Matured LC Obligations,  at which
time such LC Collateral may be applied to such Matured LC  Obligations.  Neither
this subsection nor the following subsection shall, however, limit or impair any
rights which LC Issuer may have under any other  document or agreement  relating
to any Letter of Credit or LC Obligation,  including any LC Application,  or any
rights  which any  Lender  Party may have to  otherwise  apply any  payments  by
Borrower and any LC Collateral under Section 3.1.



                                       21


         (b)  Acceleration  of LC  Obligations.  If the  Obligations or any part
thereof become  immediately due and payable pursuant to Section 8.1 then, unless
Majority Lenders  otherwise  specifically  elect to the contrary (which election
may thereafter be retracted by Majority Lenders at any time), all LC Obligations
shall become immediately due and payable without regard to whether or not actual
drawings or payments on the Letters of Credit have occurred,  and Borrower shall
be obligated to pay to LC Issuer immediately an amount equal to the aggregate LC
Obligations  which are then  outstanding.  All  amounts so paid  shall  first be
applied to Matured LC  Obligations  and then held by LC Issuer as LC  Collateral
until such LC Obligations  become Matured LC Obligations,  at which time such LC
Collateral shall be applied to such Matured LC Obligations.

         (c) Investment of LC Collateral.  Pending application  thereof,  all LC
Collateral  shall be invested by LC Issuer in such  Investments as LC Issuer may
choose in its sole  discretion.  All  interest on (and other  proceeds  of) such
Investments  shall be reinvested or applied to Matured LC Obligations.  When all
Obligations  have been  satisfied in full,  including  all LC  Obligations,  all
Letters  of  Credit  have  expired  or been  terminated,  and all of  Borrower's
reimbursement  obligations in connection  therewith have been satisfied in full,
LC Issuer shall release any remaining LC  Collateral.  Borrower  further  agrees
that LC Issuer  shall  have all of the rights and  remedies  of a secured  party
under the  Uniform  Commercial  Code as  adopted in the State of  Colorado  with
respect  to such  security  interest  and that an Event of  Default  under  this
Agreement shall constitute a default for purposes of such security interest.

         (d) Payment of LC  Collateral.  When Borrower is required to provide LC
Collateral for any reason and fails to do so on the day when required, LC Issuer
may  without  notice  to  Borrower  provide  such  LC  Collateral   (whether  by
application  of proceeds of other  Collateral,  by transfers from other accounts
maintained with LC Issuer,  or otherwise)  using any available funds of Borrower
or any other Person also liable to make such payments.


                       ARTICLE III - Payments to Lenders

         Section 3.1. General Procedures.  Borrower will make each payment which
it owes under the Loan Documents to Agent for the account of the Lender Party to
whom such payment is owed. Each such payment must be received by Agent not later
than 11:30 a.m.,  Dallas,  Texas time, on the date such payment  becomes due and
payable,  in lawful  money of the United  States of  America,  without  set-off,
deduction or  counterclaim,  and in  immediately  available  funds.  Any payment
received  by Agent  after such time will be deemed to have been made on the next
following  Business Day. Should any such payment become due and payable on a day
other than a Business Day, the maturity of such payment shall be extended to the
next succeeding Business Day, and, in the case of a payment of principal or past
due  interest,  interest  shall accrue and be payable  thereon for the period of
such extension as provided in the Loan Document under which such payment is due.
Each  payment  under a Loan  Document  shall  be due and  payable  at the  place
provided therein and, if no specific place of payment is provided,  shall be due
and  payable at the place of payment of Agent's  Note.  When Agent  collects  or
receives money on account of the  Obligations,  Agent shall distribute all money
so collected  or  received,  and each Lender Party shall apply all such money so
distributed, as follows:



                                       22


         (a) first,  for the payment of all Obligations  which are then due (and
if  such  money  is  insufficient  to pay all  such  Obligations,  first  to any
reimbursements  due  Agent  under  Section  6.9 or 10.4 and then to the  partial
payment of all other  Obligations then due in proportion to the amounts thereof,
or as Lender Parties shall otherwise agree);

         (b) then for the prepayment of amounts owing under the  Loan  Documents
(other than principal on the Notes) if so specified by Borrower;

         (c) then for  the prepayment of  principal on the  Notes, together with
accrued and unpaid interest on the principal so prepaid; and

         (d) last, for the payment or prepayment of any other Obligations.

All payments applied to principal or interest on any Note shall be applied first
to any interest  then due and payable,  then to principal  then due and payable,
and last to any prepayment of principal and interest in compliance with Sections
2.6 and 2.7. All  distributions of amounts  described in any of subsections (a),
(b),  (c) or (d) above shall be made by Agent pro rata to each Lender Party then
owed Obligations  described in such subsection in proportion to all amounts owed
to all Lender Parties which are described in such  subsection;  provided that if
any Lender then owes  payments to LC Issuer for the purchase of a  participation
under Section 2.13(c) hereof,  any amounts  otherwise  distributable  under this
section to such Lender shall be deemed to belong to LC Issuer,  to the extent of
such unpaid  payments,  and Agent  shall apply such  amounts to make such unpaid
payments rather than distribute such amounts to such Lender.

         Section 3.2.  Increased Cost and Reduced Return.

         (a) If, after the date  hereof,  the  adoption of any  applicable  Law,
rule, or regulation,  or any change in any applicable  Law, rule, or regulation,
or  any  change  in  the   interpretation  or  administration   thereof  by  any
governmental  authority,  central bank, or  comparable  agency  charged with the
interpretation or administration thereof, or compliance by any Lender Party with
any  request or  directive  (whether or not having the force of Law) of any such
governmental authority, central bank, or comparable agency:

                  (i) shall subject such Lender Party to any tax, duty, or other
         charge with respect to any Loans,  its Note, or its  obligation to make
         Loans,  or change the basis of taxation of any amounts  payable to such
         Lender  Party under this  Agreement or its Note in respect of any Loans
         or  Letters of Credit  (other  than taxes  imposed on the  overall  net
         income of such Lender  Party by the  jurisdiction  in which such Lender
         Party has its principal office;

                  (ii) shall impose,  modify,  or deem  applicable  any reserve,
         special deposit,  assessment,  or similar  requirement  (other than the
         Reserve  Requirement  utilized  in the  determination  of the  Adjusted
         Eurodollar  Rate)  relating to any extensions of credit or other assets
         of, or any deposits with or other  liabilities or commitments  of, such
         Lender Party, including the commitments of such Lender Party hereunder;
         or

                  (iii)  shall  impose  on  such  Lender  Party  or  the  London
         interbank  market any other  condition  affecting this Agreement or its
         Notes  or  any  of  such   extensions  of  credit  or   liabilities  or
         commitments;



                                       23


and the result of any of the  foregoing  is to increase  the cost to such Lender
Party of making, converting into, continuing, or maintaining any Eurodollar Rate
Loans or to reduce any sum  received or  receivable  by such Lender Party within
fifteen (15) days after demand therefor,  under this Agreement or its Notes with
respect to any  Eurodollar  Rate Loans,  then Borrower  shall pay to such Lender
Party such  amount or  amounts as will  compensate  such  Lender  Party for such
increased  cost or  reduction.  If any Lender  Party  requests  compensation  by
Borrower under this Section 3.5(a), Borrower may, by notice to such Lender Party
(with a copy to Agent),  suspend the  obligation of such Lender Party to make or
continue Loans of the Type with respect to which such compensation is requested,
or to convert  Loans of such Type into Loans of any other Type,  until the event
or condition  giving rise to such request ceases to be in effect;  provided that
such  suspension  shall not affect the right of such Lender Party to receive the
compensation so requested.

         (b) If, after the date hereof, LC Issuer or any Lender Party shall have
determined  that  the  adoption  of any  applicable  Law,  rule,  or  regulation
regarding  capital  adequacy or any change therein or in the  interpretation  or
administration  thereof  by  any  governmental   authority,   central  bank,  or
comparable agency charged with the interpretation or administration  thereof, or
any request or directive  regarding  capital adequacy (whether or not having the
force of Law) of any such  governmental  authority,  central bank, or comparable
agency,  has or would  have the  effect  of  reducing  the rate of return on the
capital of such Lender Party or any corporation controlling such Lender Party as
a consequence  the  obligations of LC Issuer or such Lender Party hereunder to a
level below that which such Lender Party or such corporation could have achieved
but for such adoption,  change, request, or directive (taking into consideration
its  policies  with  respect to capital  adequacy),  then from time to time upon
demand  Borrower  shall pay to LC Issuer or such  Lender  Party such  additional
amount or amounts as will  compensate  LC Issuer or such  Lender  Party for such
reduction,  but  only  to the  extent  that  such  Lender  Party  has  not  been
compensated therefor by any increase in the Adjusted Eurodollar Rate.

         (c) LC Issuer and each Lender Party shall promptly  notify Borrower and
Agent of any event of which it has knowledge,  occurring  after the date hereof,
which will  entitle LC Issuer or such Lender Party to  compensation  pursuant to
this Section.  LC Issuer or any Lender Party  claiming  compensation  under this
Section  shall  furnish to  Borrower  and Agent a  statement  setting  forth the
additional  amount  or  amounts  to be  paid  to it  hereunder  which  shall  be
conclusive in the absence of manifest  error.  In  determining  such amount,  LC
Issuer or such Lender  Party shall act in good faith and may use any  reasonable
averaging and attribution methods.

         Section 3.3. Limitation on Types of Loans.  If on or prior to the first
day of any Interest Period for any Eurodollar Rate Loan:

         (a) Agent determines (which  determination shall be conclusive) that by
reason of circumstances  affecting the relevant market,  adequate and reasonable
means do not  exist  for  ascertaining  the  Eurodollar  Rate for such  Interest
Period; or

         (b)  Majority   Lenders   determine  (which   determination   shall  be
conclusive)  and  notify  Agent  that  the  Adjusted  Eurodollar  Rate  will not
adequately  and  fairly  reflect  the  cost to the  Lender  Parties  of  funding
Eurodollar Loans for such Interest Period;

then Agent shall give Borrower  prompt notice  thereof  specifying  the relevant
Type of Loans and the relevant amounts or periods, and so long as such condition
remains  in effect,  the Lender  Parties  shall be under no  obligation  to make
additional Loans of such Type,  continue Loans of such Type, or to convert Loans
of any other Type into Loans of such Type and Borrower shall, on the last day(s)
of the then current Interest Period(s) for the outstanding Loans of the affected
Type,  either  prepay such Loans or convert such Loans into another Type of Loan
in accordance with the terms of this Agreement.

         Section 3.4. Illegality.  Notwithstanding  any  other provision of this
Agreement,  in the event that it becomes  unlawful for any Lender Party to make,
maintain,  or fund  Eurodollar  Loans  hereunder,  then such Lender  Party shall
promptly notify Borrower  thereof and such Lender Party's  obligation to make or
continue  Eurodollar  Loans and to convert other Types of Loans into  Eurodollar
Loans shall be  suspended  until such time as such Lender  Party may again make,
maintain, and fund Eurodollar Loans (in which case the provisions of Section 1.5
shall be applicable).



                                       24


         Section 3.5.  Treatment of Affected Loans.  If  the  obligation of  any
Lender  Party to make a particular  Type of Loan or to  continue,  or to convert
Loans of any other  Type into,  Loans of a  particular  Type shall be  suspended
pursuant to Sections  3.2,  3.3, or 3.4 hereof  (Loans of such Type being herein
called "Affected Loans" and such Type being herein called the "Affected  Type"),
such Lender Party's  Affected Loans shall be  automatically  converted into Base
Rate  Loans on the  last  day(s)  of the then  current  Interest  Period(s)  for
Affected Loans (or, in the case of a Conversion  required by Section 3.2 hereof,
on such earlier date as such Lender Party may specify to Borrower with a copy to
Agent) and,  unless and until such Lender Party gives  notice as provided  below
that the circumstances specified in Sections 3.2 or 3.3 hereof that gave rise to
such Conversion no longer exist:

         (a) to the extent that such Lender Party's  Affected Loans have been so
converted,  all payments and  prepayments of principal  that would  otherwise be
applied to such Lender Party's  Affected  Loans shall be applied  instead to its
Base Rate Loans; and

         (b) all Loans that would  otherwise be made or continued by such Lender
Party as Loans of the Affected  Type shall be made or continued  instead as Base
Rate Loans, and all Loans of such Lender Party that would otherwise be converted
into Loans of the Affected Type shall be converted instead into (or shall remain
as) Base Rate Loans.

If such Lender  Party gives  notice to Borrower  (with a copy to Agent) that the
circumstances  specified  in  Section  3.2 or 3.3  hereof  that gave rise to the
Conversion of such Lender Party's Affected Loans pursuant to this Section 3.5 no
longer  exist  (which  such  Lender  Party  agrees  to  do  promptly  upon  such
circumstances  ceasing to exist) at a time when Loans of the Affected  Type made
by other Lender  Parties are  outstanding,  such Lender  Party's Base Rate Loans
shall be  automatically  converted,  on the first day(s) of the next  succeeding
Interest  Period(s)  for such  outstanding  Loans of the Affected  Type,  to the
extent  necessary so that,  after giving effect  thereto,  all Loans held by the
Lender  Parties  holding Loans of the Affected Type and by such Lender Party are
held pro  rata  (as to  principal  amounts,  Types,  and  Interest  Periods)  in
accordance with their Percentage Shares of the Commitment.

         Section 3.6.  Compensation.  Upon  the  request  of any  Lender  Party,
Borrower  shall pay to such  Lender  Party  such  amount or  amounts as shall be
sufficient (in the reasonable opinion of such Lender Party) to compensate it for
any loss, cost, or expense  (including loss of anticipated  profits) incurred by
it as a result of:

         (a) any payment,  prepayment,  or Conversion of a Eurodollar  Rate Loan
for any reason  (including,  without  limitation,  the acceleration of the Loans
pursuant  to  Section  8.1) on a date  other  than the last day of the  Interest
Period for such Loan; or

         (b)  any  failure  by  Borrower  for  any  reason  (including,  without
limitation, the failure of any condition precedent specified in Article IV to be
satisfied) to borrow, convert, continue, or prepay a Eurodollar Rate Loan on the
date for such borrowing,  Conversion,  Continuation,  or prepayment specified in
the relevant notice of borrowing, prepayment,  Continuation, or Conversion under
this Agreement.

         Section 3.7.  Taxes

         (a) Any and all  payments  by  Borrower  to or for the  account  of any
Lender  Party,  Agent or LC Issuer  hereunder  or under any other Loan  Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions,  charges or withholdings, and
all  liabilities  with respect  thereto,  excluding,  in the case of each Lender
Party,  Agent and LC Issuer,  taxes imposed on its income,  and franchise  taxes
imposed on it, by the jurisdiction  under the Laws of which such Lender Party or
Agent (as the case may be) is organized  or any  political  subdivision  thereof
(all such non-excluded taxes,  duties,  levies,  imposts,  deductions,  charges,
withholdings,  and liabilities  being  hereinafter  referred to as "Taxes").  If
Borrower  shall be required by Law to deduct any Taxes from or in respect of any
sum payable under this Agreement or any other Loan Document to any Lender Party,
Agent or LC Issuer,  (i) the sum payable shall be increased as necessary so that
after  making  all  required  deductions  (including  deductions  applicable  to
additional  sums payable  under this  section)  such Lender  Party,  Agent or LC
Issuer  receives an amount  equal to the sum it would have  received had no such
deductions  been made and , (ii)  Borrower  shall  make such  deductions,  (iii)
Borrower shall pay the full amount deducted to the relevant  taxation  authority
or other authority in accordance with applicable Law.



                                       25


         (b) In addition,  Borrower  agrees to pay any and all present or future
stamp or documentary  taxes and any other excise or property taxes or charges or
similar  levies  which arise from any payment  made under this  Agreement or any
other Loan  Document or from the  execution or delivery  of, or  otherwise  with
respect to, this Agreement or any other Loan Document  (hereinafter  referred to
as "Other Taxes").

         (c) Borrower agrees to indemnify each Lender Party, Agent and LC Issuer
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any  jurisdiction on amounts payable
under this  section) paid by such Lender Party or Agent (as the case may be) and
any liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.

         (d)  Without  prejudice  to the  survival  of any  other  agreement  of
Borrower hereunder, the agreements and obligations of Borrower contained in this
section shall survive the  termination of this Agreement and the payment in full
of the Notes.

                  ARTICLE IV - Conditions Precedent to Lending

         Section 4.1. Documents to be Delivered.  No Lender  has any  obligation
to make its first  Loan,  and LC  Issuer  has no  obligation  to issue the first
Letter of Credit  unless  Agent shall have  received  all of the  following,  at
Agent's  office in Dallas,  Texas,  duly  executed  and  delivered  and in form,
substance and date satisfactory to Agent:

         (a)      This Agreement and any  other  documents that  Lenders  are to
execute in connection herewith.

         (b)      Each Note.

         (c)      Certain certificates of Borrower including:

                  (i)  An  "Omnibus  Certificate"  of the  Secretary  and of the
         Chairman of the Board or President of Borrower, which shall contain the
         names and signatures of the officers of Borrower  authorized to execute
         Loan  Documents and which shall certify to the truth,  correctness  and
         completeness of the following exhibits attached thereto:  (1A a copy of
         resolutions  duly  adopted by the Board of Directors of Borrower and in
         full  force and  effect at the time this  Agreement  is  entered  into,
         authorizing  the  execution  of  this  Agreement  and  the  other  Loan
         Documents  delivered or to be delivered in connection  herewith and the
         consummation of the transactions contemplated herein and therein, (2A a
         copy of the charter  documents of Borrower and all amendments  thereto,
         certified  by  the   appropriate   official  of  Borrower's   state  of
         organization, and (3A a copy of any bylaws of Borrower; and

                  (ii) A "Compliance  Certificate"  of the Chairman of the Board
         or President and of the chief  financial  officer of Borrower,  of even
         date with such Loan or such  Letter of Credit,  in which such  officers
         certify to the  satisfaction  of the  conditions set out in subsections
         (a), (b), (c) and (d) of Section 4.2.

         (d) A  certificate  (or  certificates)  of  the  due  formation,  valid
existence and good standing of Borrower in its state of organization,  issued by
the appropriate authorities of such jurisdiction.



                                       26


         (e)  A  favorable   opinion  of  Cohen   Brame  &  Smith   Professional
Corporation,  counsel  for  Borrower,  substantially  in the form  set  forth in
Exhibit E.

         (f)      The Initial Financial Statements.

         (g)      Certificates  or binders  evidencing  Borrower's  insurance in
effect on the date hereof.

         (h) Payment of all commitment, facility, agency and other fees required
to be paid to any Lender  pursuant to any Loan Documents and payment of fees and
disbursements of Agent's counsel.

         Section 4.2.  Additional  Conditions  Precedent.   No  Lender  has  any
obligation  to make  any  Loan  (including  its  first),  and LC  Issuer  has no
obligation  to issue any  Letter of Credit  (including  its  first),  unless the
following conditions precedent have been satisfied:

         (a) All representations and warranties made by any Borrower in any Loan
Document  shall  be true  on and as of the  date  of  such  Loan or the  date of
issuance  of such  Letter of Credit  (except to the  extent  that the facts upon
which such  representations  are based have been  changed  by the  extension  of
credit hereunder) as if such  representations and warranties had been made as of
the date of such Loan or the date of issuance of such Letter of Credit.

         (b) No Default  shall exist  at the  date of  such Loan  or the date of
issuance of such Letter of Credit.

         (c) No Material  Adverse Change shall have occurred to, and no event or
circumstance  shall have occurred that could cause a Material Adverse Change to,
Borrower's Consolidated financial condition or businesses since the date of this
Agreement.

         (d) Borrower  shall have performed and complied with all agreements and
conditions required in the Loan Documents to be performed or complied with by it
on or prior to the date of such Loan or the date of  issuance  of such Letter of
Credit.

         (e) The making of such Loan or the  issuance  of such  Letter of Credit
shall not be  prohibited  by any Law and shall not  subject any Lender or any LC
Issuer to any penalty or other onerous  condition  under or pursuant to any such
Law.

         (f) Agent shall have received all documents and instruments which Agent
has then  reasonably  requested,  in addition to those  described in Section 4.1
(including opinions of legal counsel for Borrower and Agent; corporate documents
and  records;  documents  evidencing  governmental   authorizations,   consents,
approvals,  licenses and exemptions; and certificates of public officials and of
officers  and  representatives  of Borrower  and other  Persons),  as to (i0 the
accuracy and validity of or compliance with all representations,  warranties and
covenants made by Borrower in this Agreement and the other Loan Documents,  (ii0
the satisfaction of all conditions  contained  herein or therein,  and (iii0 all
other matters pertaining hereto and thereto.  All such additional  documents and
instruments shall be satisfactory to Agent in form, substance and date.



                                       27


                   ARTICLE V - Representations and Warranties

         To  confirm  each  Lender's   understanding   concerning  Borrower  and
Borrower's  businesses,  properties and obligations and to induce each Lender to
enter into this Agreement and to extend credit  hereunder,  Borrower  represents
and warrants to each Lender that:

         Section 5.1. No Default.  Borrower is not in default in the performance
of any of the covenants and agreements contained in any Loan Document.  No event
has occurred and is continuing which constitutes a Default.

         Section 5.2.  Organization  and  Good  Standing.     Borrower  is  duly
organized,  validly  existing  and  in  good  standing  under  the  Laws  of its
jurisdiction  of  organization,  having  all  powers  required  to  carry on its
business  and enter  into and carry out the  transactions  contemplated  hereby.
Borrower is duly qualified,  in good standing,  and authorized to do business in
all other  jurisdictions  within the United States  wherein the character of the
properties  owned or held by it or the nature of the business  transacted  by it
makes such qualification necessary.

         Section  5.3  Authorization.    Borrower  has  duly  taken  all  action
necessary to authorize the execution and delivery by it of the Loan Documents to
which  it is a party  and to  authorize  the  consummation  of the  transactions
contemplated thereby and the performance of its obligations thereunder. Borrower
is duly authorized to borrow funds hereunder.

         Section 5.4  No Conflicts or Consents.  The  execution  and delivery by
Borrower of the Loan Documents, the performance by each of its obligations under
such Loan Documents,  and the consummation of the  transactions  contemplated by
the various Loan Documents,  do not and will not (i0 conflict with any provision
of (1) any  Law,  (2)  the  organizational  documents  of  Borrower,  or (3) any
agreement,  judgment,  license,  order or permit  applicable  to or binding upon
Borrower,  (ii) result in the acceleration of any Indebtedness owed by Borrower,
or (iii)  result in or  require  the  creation  of any Lien  upon any  assets or
properties of Borrower.  Except as expressly  contemplated in the Loan Documents
no  consent,  approval,  authorization  or order of,  and no notice to or filing
with, any Tribunal or third party is required in connection  with the execution,
delivery or  performance  by Borrower of any Loan Document or to consummate  any
transactions contemplated by the Loan Documents.

         Section 5.5. Enforceable Obligations.  This Agreement is, and the other
Loan  Documents  when duly  executed and  delivered  will be,  legal,  valid and
binding  obligations  of Borrower,  enforceable  in accordance  with their terms
except as such  enforcement may be limited by bankruptcy,  insolvency or similar
Laws of general application relating to the enforcement of creditors' rights.

         Section 5.6  Initial  Financial  Statements.   Borrower has  heretofore
delivered  to each  Lender  true,  correct  and  complete  copies of the Initial
Financial Statements. The Initial Financial Statements fairly present Borrower's
Consolidated   financial  position  at  the  respective  date  thereof  and  the
Consolidated results of Borrower's  operations and Borrower's  Consolidated cash
flows for the respective  period  thereof.  Since the date of the annual Initial
Financial  Statements  no  Material  Adverse  Change  has  occurred,  except  as
reflected in the Disclosure  Schedule.  All Initial  Financial  Statements  were
prepared in accordance with GAAP.

         Section 5.7  Other  Obligations  and  Restrictions.   Borrower  has  no
outstanding  Liabilities  of any kind  (including  contingent  obligations,  tax
assessments,  and unusual  forward or long-term  commitments)  which are, in the
aggregate,   material  to  Borrower  or  material  with  respect  to  Borrower's
Consolidated  financial  condition  and  not  shown  in  the  Initial  Financial
Statements  or disclosed  in the  Disclosure  Schedule or a  Disclosure  Report.
Except  as  shown  in the  Initial  Financial  Statements  or  disclosed  in the
Disclosure  Schedule  or a  Disclosure  Report,  Borrower  is not  subject to or
restricted by any  franchise,  contract,  deed,  charter  restriction,  or other
instrument or restriction which could cause a Material Adverse Change.



                                       28


         Section 5.8  Full  Disclosure.   No  certificate,  statement  or  other
information  delivered  herewith  or  heretofore  by  Borrower  to any Lender in
connection  with the  negotiation  of this  Agreement or in connection  with any
transaction contemplated hereby contains any untrue statement of a material fact
or omits to state any material fact known to Borrower (other than  industry-wide
risks normally  associated  with the types of businesses  conducted by Borrower)
necessary to make the statements  contained  herein or therein not misleading as
of the date made or deemed made.  There is no fact known to Borrower (other than
industry-wide risks normally  associated with the types of businesses  conducted
by Borrower)  that has not been  disclosed to each Lender in writing which could
cause a Material Adverse Change.

         Section 5.9. Litigatioin. Except as disclosed  in the Initial Financial
Statements or in the  Disclosure  Schedule:  (i) there are no actions,  suits or
legal, equitable,  arbitrative or administrative  proceedings pending, or to the
knowledge  of Borrower  threatened,  against any  Restricted  Person  before any
Tribunal  which could  cause a Material  Adverse  Change,  and (ii) there are no
outstanding  judgments,  injunctions,  writs,  rulings  or  orders  by any  such
Tribunal  against  Borrower or  Borrower's  stockholders/partners,  directors or
officers which could cause a Material Adverse Change.

         Section 5.10. Labor Disputes and Acts of God.  Except as  disclosed  in
the  Disclosure  Schedule or a Disclosure  Report,  neither the business nor the
properties of Borrower, within the two years preceding the date hereof, has been
affected  by any fire,  explosion,  accident,  strike,  lockout  or other  labor
dispute, drought, storm, hail, earthquake,  embargo, act of God or of the public
enemy or other casualty (whether or not covered by insurance), which could cause
a Material Adverse Change.

         Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA
Plans are listed in the Disclosure  Schedule or a Disclosure  Report.  Except as
disclosed in the Initial Financial Statements or in the Disclosure Schedule or a
Disclosure  Report,  no Termination Event has occurred with respect to any ERISA
Plan and all ERISA  Affiliates  are in  compliance  with  ERISA in all  material
respects.  No ERISA  Affiliate  is required to  contribute  to, or has any other
absolute or  contingent  liability  in respect of, any  "multiemployer  plan" as
defined in Section 4001 of ERISA. Except as set forth in the Disclosure Schedule
or a Disclosure Report: (i) no "accumulated  funding  deficiency" (as defined in
Section  412(a) of the Internal  Revenue Code of 1986,  as amended)  exists with
respect  to any  ERISA  Plan,  whether  or not  waived by the  Secretary  of the
Treasury  or his  delegate,  and (ii) the  current  value of each  ERISA  Plan's
benefits does not exceed the current value of such ERISA Plan's assets available
for the payment of such benefits by more than $500,000.

         Section 5.12. Environmental and Other Laws.  Except as disclosed in the
Disclosure Schedule or a Disclosure Report to the best of Borrower's  knowledge:
(a)  Borrower is  conducting  its  businesses  in material  compliance  with all
applicable Laws, including Environmental Laws, and has and is in compliance with
all  licenses  and  permits  required  under  any  such  Laws;  (b)  none of the
operations or  properties of Borrower is the subject of federal,  state or local
investigation  evaluating  whether  any  material  remedial  action is needed to
respond to a release of any Hazardous  Materials into the  environment or to the
improper  storage  or  disposal   (including  storage  or  disposal  at  offsite
locations) of any Hazardous Materials;  (c) Borrower has not and no other Person
has) filed any notice under any Law indicating  that Borrower is responsible for
the improper release into the environment,  or the improper storage or disposal,
of any  material  amount  of any  Hazardous  Materials  or  that  any  Hazardous
Materials have been improperly  released,  or are improperly  stored or disposed
of, upon any property of Borrower;  (d) Borrower has not transported or arranged



                                       29


for the  transportation  of any Hazardous  Material to any location which is (i)
listed on the National  Priorities  List under the  Comprehensive  Environmental
Response,  Compensation  and  Liability  Act of 1980,  as  amended,  listed  for
possible  inclusion  on  such  National  Priorities  List  by the  Environmental
Protection Agency in its Comprehensive Environmental Response,  Compensation and
Liability  Information  System List, or listed on any similar state list or (ii)
the  subject  of  federal,   state  or  local   enforcement   actions  or  other
investigations  which may lead to claims  against  Borrower for clean-up  costs,
remedial  work,  damages to natural  resources  or for  personal  injury  claims
(whether under Environmental Laws or otherwise);  and (e) Borrower has otherwise
no known  material  contingent  liability  under  any  Environmental  Laws or in
connection with the release into the environment, or the storage or disposal, of
any Hazardous Materials.

         Section 5.13. Names and Places of Business.  The chief executive office
and principal place of business of Borrower is (and for the preceding five years
has been) located at the address of Borrower set out in Section 10.3.  Except as
indicated in the  Disclosure  Schedule or a Disclosure  Report,  Borrower has no
other office or place of business.

         Section 5.14. Borrower's Subsidiaries. Borrower does not presently have
any Subsidiary or own any stock in any other  corporation or association  except
those listed in the Disclosure Schedule or a Disclosure Report.  Borrower is not
a member of any general or limited partnership,  joint venture or association of
any  type  whatsoever  except  those  listed  in the  Disclosure  Schedule  or a
Disclosure Report. Except as otherwise revealed in a Disclosure Report, Borrower
owns,  directly or indirectly,  the equity interest in each of its  Subsidiaries
which is indicated in the Disclosure Schedule.

         Section 5.15. Title  to  Properties; Licenses.  Borrower  has good  and
marketable  title to at least seventy  percent  (70%),  and good and  defensible
title to at least thirty percent (30%) of the Oil and Gas Properties included in
the Aggregate  Borrowing Base,  subject only to Permitted Liens. As used herein,
"defensible title" means title subject to minor defects and irregularities which
are not such as to be  likely  to  interfere  materially  with the  benefit  and
enjoyment  of  production  from  the  properties.  To  the  best  of  Borrower's
knowledge,  Borrower  possesses  all  licenses,  permits,  franchises,  patents,
copyrights,  trademarks  and trade names,  and other  intellectual  property (or
otherwise  possesses  the  right  to  use  such  intellectual  property  without
violation of the rights of any other  Person)  which are  necessary to carry out
its business as presently  conducted  and as presently  proposed to be conducted
hereafter,  and no Restricted  Person is in violation in any material respect of
the terms under which it possesses  such  intellectual  property or the right to
use such intellectual property.

         Section 5.16. Government Regulation. To the best knowledge of Borrower,
Borrower is not subject to regulation  under the Public Utility  Holding Company
Act of 1935, the Federal Power Act, the  Investment  Company Act of 1940 (as any
of the preceding  acts have been  amended) or any other Law which  regulates the
incurring  by  Borrower  of  Indebtedness,  including  Laws  relating  to common
contract carriers or the sale of electricity,  gas, steam, water or other public
utility services.


                 ARTICLE VI - Affirmative Covenants of Borrower

         To conform  with the terms and  conditions  under  which each Lender is
willing to have credit  outstanding  to  Borrower,  and to induce each Lender to
enter  into this  Agreement  and extend  credit  hereunder,  Borrower  warrants,
covenants  and agrees that until the full and final  payment of the  Obligations
and the termination of this Agreement,  unless Majority  Lenders have previously
agreed otherwise:

         Section 6.1. Payment and Performance.   Borrower  will pay all  amounts
due under the Loan  Documents  in  accordance  with the terms  thereof  and will
observe, perform and comply with every covenant, term and condition set forth in
the Loan Documents.

         Sectin 6.2. Books, Financial Statements and Reports.  Borrower  will at
all times maintain full and accurate books of account and records. Borrower will
maintain  and will cause its  Subsidiaries  to  maintain  a  standard  system of
accounting,  will  maintain  its Fiscal  Year,  and will  furnish the  following
statements and reports to each Lender at Borrower's expense:



                                       30


         (a) As soon as  available,  and in any event within  one-hundred-twenty
(120) days after the end of each Fiscal Year,  complete  Consolidated  financial
statements of Borrower  together with all notes thereto,  prepared in reasonable
detail in accordance with GAAP, together with an unqualified  opinion,  based on
an  audit  using  generally  accepted  auditing  standards,  by  an  independent
certified  public  accountant  selected by Borrower and  acceptable  to Majority
Lenders,  stating  that  such  Consolidated  financial  statements  have been so
prepared.  These financial statements shall contain a Consolidated balance sheet
as of the end of such Fiscal Year and  Consolidated  statement of  earnings,  of
cash flows,  and of changes in owners' equity for such Fiscal Year, each setting
forth in comparative  form the  corresponding  figures for the preceding  Fiscal
Year.

         (b) As soon as available, and in any event within sixty (60) days after
the end of each Fiscal Quarter,  Borrower's Consolidated balance sheet as of the
end of such Fiscal Quarter and  Consolidated  statements of Borrower's  earnings
and cash flows for the period from the beginning of the then current Fiscal Year
to the end of such Fiscal  Quarter,  all in  reasonable  detail and  prepared in
accordance  with  GAAP,  subject  to  changes  resulting  from  normal  year-end
adjustments. In addition Borrower will, together with each such set of financial
statements,  furnish a certificate  in the form of Exhibit D signed by the chief
financial  officer  of  Borrower  stating  that such  financial  statements  are
accurate and complete (subject to normal year-end adjustments),  stating that he
has reviewed the Loan Documents,  containing calculations showing compliance (or
non-compliance)  at the end of such  Fiscal  Quarter  with the  requirements  of
Section  7.10 and  stating  that no  Default  exists  at the end of such  Fiscal
Quarter or at the time of such  certificate  or specifying the nature and period
of existence of any such Default.

         (c) Promptly  upon their  becoming  available,  copies of all financial
statements,  reports,  notices  and proxy  statements  sent by  Borrower  to its
stockholders  and  all  registration  statements,  periodic  reports  and  other
statements  and schedules  filed by Borrower with any securities  exchange,  the
Securities and Exchange Commission or any similar governmental authority.

         (d) As soon as available, and in any event within sixty (60) days after
the  end  of  each  Fiscal  Quarter,  production  and  expense  reports  on  all
Hydrocarbons  produced  and  marketed  from  the Oil and  Gas  Properties  on an
aggregate  basis during such quarter,  including the  quantities  involved,  the
actual revenues derived and ad valorem, production and severance taxes, together
with  information  reflecting on a  property-by-property  basis all material gas
imbalances  and other  material  changes in working  interests  and net  revenue
interests of Borrower with respect to the Oil and Gas Properties.

         Section 6.3.  Other Information and Inspections.  Borrower will furnish
to each  Lender any  information  which  Agent may from time to time  request in
writing concerning any covenant, provision or condition of the Loan Documents or
any matter in connection  with Borrower's  businesses and  operations.  Borrower
will  permit   representatives   appointed  by  Agent   (including   independent
accountants,  auditors, agents, attorneys,  appraisers and any other Persons) to
visit and inspect during normal business hours any of such Borrower's  property,
including its books of account,  other books and records,  and any facilities or
other business  assets,  and to make extra copies  therefrom and photocopies and
photographs  thereof,  and  to  write  down  and  record  any  information  such
representatives  obtain, and Borrower shall permit Agent or its  representatives
to investigate and verify the accuracy of the information  furnished to Agent or
any Lender in connection with the Loan Documents and to discuss all such matters
with its officers, employees and representatives.

         Section 6.4. Notice of Material Events and Change of Address.  Borrower
will promptly  notify each Lender in writing,  stating that such notice is being
given pursuant to this Agreement, of:

         (a)  the occurrence of any Material Adverse Change,

         (b)  the occurrence of any Default,



                                       31


         (c)  the  acceleration  of the  maturity  of any  Indebtedness  owed by
Borrower or of any default by Borrower under any indenture, mortgage, agreement,
contract or other  instrument to which any of them is a party or by which any of
them or any of their properties is bound, if such  acceleration or default could
cause a Material Adverse Change,

         (d)  the occurrence of any Termination Event,

         (e)  any claim of $500,000 or more,  any notice of  potential liability
under any  Environmental  Laws which  might  exceed  such  amount,  or any other
material adverse claim asserted against any Restricted Person or with respect to
any Restricted Person's properties, and

         (f)  the filing of any suit or proceeding against any Restricted Person
in which an adverse decision could cause a Material Adverse Change.

Upon the occurrence of any of the foregoing  Borrower will take all necessary or
appropriate steps to remedy promptly any such Material Adverse Change,  Default,
acceleration,  default or Termination Event, to protect against any such adverse
claim, to defend any such suit or proceeding,  and to resolve all  controversies
on account of any of the foregoing.  Borrower will also notify Agent and Agent's
counsel in writing at least twenty Business Days prior to the date that Borrower
changes its name or the  location  of its chief  executive  office or  principal
place of business or the place where it keeps its books and records.

         Section 6.5. Maintenance of Properties.  Borrower will keep all Oil and
Gas  Properties  and all other  property  used or useful in the  conduct  of its
business in good condition and in compliance with all applicable  Laws, and will
from time to time make all repairs,  renewals and replacements  needed to enable
the business and  operations  carried on in connection  therewith to be promptly
and advantageously conducted at all times.

         Section 6.6. Maintenance of Existence and Qualifications. Borrower will
maintain and preserve its existence and its rights and  franchises in full force
and effect and will qualify to do business in all states or jurisdictions  where
required by  applicable  Law,  except  where the failure so to qualify  will not
cause a Material Adverse Change.

         Section 6.7. Payment of Trade Liabilities, Taxes, etc.   Borrower  will
(a) timely file all required tax returns; (b) timely pay all taxes, assessments,
and other  governmental  charges or levies  imposed  upon it or upon its income,
profits or property;  (c) within ninety (90) days after the same becomes due pay
all  Liabilities  owed by it on ordinary  trade terms to vendors,  suppliers and
other Persons  providing goods and services used by it in the ordinary course of
its  business;  (d) pay and  discharge  when due all  other  Liabilities  now or
hereafter owed by it; and (e) maintain appropriate accruals and reserves for all
of the foregoing in accordance with GAAP. Borrower may, however, delay paying or
discharging  any of the foregoing so long as it is in good faith  contesting the
validity  thereof  by  appropriate  proceedings  and has set  aside on its books
adequate reserves therefor.

         Section 6.8. Insurance.  Borrower will keep or cause to be kept insured
by financially sound and reputable insurers all of its insurable property,  real
and  personal,  against  fire and against  such other  risks as are  customarily
insured  against by similar  businesses of a comparable  size,  and fully insure
against its  employer's  and public  liability  risks in  financially  sound and
reputable insurance companies, all in such amounts and with such carriers as are
consistent with industry standards, and with agreements by each carrier that the
Agent shall receive at least 10 calendar days' notice prior to  cancellation  of
any such  policy.  In this  regard,  if the Agent so  requests,  Borrower  shall
furnish to the Agent copies of all  insurance  policies  relating to the Oil and
Gas  Properties  and shall cause the Agent to be named as loss payee  thereof on
behalf of the Banks as its or their interests may appear.



                                       32


         Section 6.9. Performance on Borrower's Belalf. If Borrower fails to pay
any taxes, insurance premiums, expenses,  attorneys' fees or other amounts it is
required to pay under any Loan Document,  Agent may pay the same. Borrower shall
immediately  reimburse Agent for any such payments and each amount paid by Agent
shall  constitute an Obligation  owed hereunder  which is due and payable on the
date such amount is paid by Agent.

         Section 6.10. Interest.  Borrower  hereby  promises  to each  Lender to
pay interest at the Default Rate on all  Obligations  (including  Obligations to
pay fees or to  reimburse or indemnify  any Lender)  which  Borrower has in this
Agreement  promised to pay to such Lender and which are not paid when due.  Such
interest shall accrue from the date such  Obligations  become due until they are
paid.

         Section 6.11. Compliance with Agreements and Law. Borrower will perform
all  material  obligations  it is  required  to perform  under the terms of each
indenture,  mortgage,  deed of  trust,  security  agreement,  lease,  franchise,
agreement,  contract or other instrument or obligation to which it is a party or
by which  it or any of its  properties  is  bound.  Borrower  will  conduct  its
business  and  affairs in  compliance  in all  material  respects  with all Laws
applicable thereto.

         Section 6.12.  Environmental Matters

         (a)   Borrower   will  comply  in  all  material   respects   with  all
Environmental Laws now or hereafter  applicable to Borrower and shall obtain, at
or  prior  to  the  time  required  by  applicable   Environmental   Laws,   all
environmental,  health and safety  permits,  licenses  and other  authorizations
necessary for its operations and will maintain such authorizations in full force
and effect.

         (b)  Borrower  will  promptly  furnish to Agent all written  notices of
material violations, orders, claims, citations, complaints, penalty assessments,
suits or other  proceedings  received  by  Borrower,  or of which it has notice,
pending or threatened  against  Borrower,  by any  governmental  authority  with
respect to any alleged  violation of or  non-compliance  with any  Environmental
Laws or any permits, licenses or authorizations in connection with its ownership
or use of its properties or the operation of its business.

         (c)  Borrower  will   promptly   furnish  to  Agent  all  requests  for
information, notices of claim, demand letters, and other notifications, received
by Borrower in  connection  with its  ownership or use of its  properties or the
conduct of its business,  relating to potential  responsibility  with respect to
any material investigation or clean-up of Hazardous Material at any location.

         Section 6.13. Evidence of Compliance.   Borrower  will  furnish to each
Lender  at  Borrower's  expense  all  evidence  which  Agent  from  time to time
reasonably  requests in writing as to the accuracy and validity of or compliance
with all representations,  warranties and covenants made by Borrower in the Loan
Documents,  the satisfaction of all conditions  contained therein, and all other
matters pertaining thereto.

         Section 6.14.  Bank Accounts; Offset.   To secure the  repayment of the
Obligations  Borrower hereby grants to each Lender a security interest,  a lien,
and a  right  of  offset,  each of  which  shall  be in  addition  to all  other
interests,  liens,  and  rights  of any  Lender at  common  Law,  under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any and
all  moneys,  securities  or other  property  (and the  proceeds  therefrom)  of
Borrower now or  hereafter  held or received by or in transit to any Lender from
or for the  account of  Borrower,  whether  for  safekeeping,  custody,  pledge,
transmission,  collection  or  otherwise,  (b) any and all deposits  (general or
special, time or demand,  provisional or final) of Borrower with any Lender, and
(c) any other  credits and claims of Borrower at any time  existing  against any
Lender,  including  claims under  certificates of deposit.  At any time and from
time to time  after  the  occurrence  of any  Default,  each  Lender  is  hereby
authorized to foreclose upon, or to offset against the Obligations  then due and
payable,  any and all items hereinabove referred to. The remedies of foreclosure
and  offset  are   separate  and   cumulative,   and  either  may  be  exercised
independently  of  the  other  without  regard  to  procedures  or  restrictions
applicable to the other.



                                       33


                  ARTICLE VII - Negative Covenants of Borrower

         To conform  with the terms and  conditions  under  which each Lender is
willing to have credit  outstanding  to  Borrower,  and to induce each Lender to
enter into this Agreement and make the Loans,  Borrower warrants,  covenants and
agrees  that  until  the full  and  final  payment  of the  Obligations  and the
termination of this Agreement,  unless Majority  Lenders have previously  agreed
otherwise:

         Section 7.1. Indebtedness.  No Restricted Person will in any manner owe
or be liable for Indebtedness except:

         (a)  the Obligations;

         (b)  Indebtedness  which is secured by  properties or assets other than
Oil and Gas  Properties  included in the Aggregate  Borrowing Base and for which
Borrower has no personal or recourse liability;

         (c)  Indebtedness  outstanding  under the  instruments  and  agreements
described  on the  Disclosure  Schedule,  including  any future  advances  which
Borrower is presently  entitled to receive thereunder but excluding any renewals
or extensions of such Liabilities;

         (d)  Indebtedness  arising  under  Hedging  Contracts  permitted  under
Section 7.3;

         (e) Indebtedness arising in the ordinary course of business as operator
or working interest owner of any of the Oil and Gas Properties;

         (f)  Endorsements  of negotiable  instruments for deposit or collection
and similar  transactions in the ordinary course of its business and liabilities
of Panterra Petroleum arising solely due to Borrower being its general partner;

         (g) Guaranties described in the definition of Permitted  Investments in
Section  1.1 and  other  guaranties  and  contingent  liabilities  not to exceed
$500,000 in the aggregate;

         (h)  Miscellaneous  items of Indebtedness  not described in subsections
(a)  through (h) which do not in the  aggregate  (taking  into  account all such
Indebtedness  of all  Restricted  Persons)  exceed  $1,000,000  at any one  time
outstanding.

         Section 7.2. Limitation  on  Liens.   No Restricted Person will create,
assume  or  permit  to  exist  any Lien  upon any of the Oil and Gas  Properties
included  in the  Aggregate  Borrowing  Base  except  (i)  liens  for  taxes not
delinquent or being  contested in good faith and by appropriate  proceedings and
for which adequate reserves have been set aside on Borrower's books; operator's,
mechanic's,  workmen's.  materialmen's  and  other  like  liens  arising  in the
ordinary  course of business in respect of obligations  not overdue or which are
being  contested  in good  faith and by  appropriate  proceedings  and for which
adequate  reserves  have  been set  aside on  Borrower's  books;  or (ii)  liens
supporting  the  indebtedness  described in Section  7.1(b) which it now owns or
hereafter acquires.

         Section 7.3. Burdensome Undertakings.   Borrower  will  not  undertake,
or become  contractually  bound to  undertake,  any action  not in the  ordinary
course  of  business  that  would  materially  adversely  affect  its  business,
properties, prospects, assets, operations or condition (financial or otherwise).
Borrower  will not be a party  to or in any  manner  be  liable  on any  Hedging
Contract,  other than Hedging Contracts between Borrower and (i) Enron Capital &
Trade Resources Corp., (ii) Natural Gas Clearinghouse,  (iii) N.M.  Rothschild &
Son,  Ltd.,  (iv)  any  Lender  or any  Affiliate  thereof,  or (v)  one or more
financial institutions having a credit rating of Grade A or higher as defined by
Moody's.



                                       34


         Section 7.4. Limitation on Mergers, Issuances of Securities.  Except as
expressly  provided in this section  Borrower will not merge or consolidate with
or into any other business  entity except (i) in connection with the acquisition
of oil and gas  properties in the ordinary  course of its business and after the
consummation  of  which  Borrower  is  the  surviving   entity,   and  (ii)  any
Consolidated  subsidiary of the Borrower may merge,  consolidate or combine with
or into, or transfer assets to the Borrower, provided that the Borrower shall be
the  continuing  or surviving  entity;  in both cases,  so long as no Default or
Event of  Default  has  occurred  or is  continuing  or would be  caused  by the
consummation of such merger or consolidation or disposition of assets.  Borrower
will not issue any  securities  other than  shares of its  common  stock and any
options or warrants  giving the holders  thereof  only the right to acquire such
shares.

         Section 7.5. Limitation on Sales of Property. No Restricted Person will
sell, transfer,  lease, exchange,  alienate or dispose of any of the Oil and Gas
Properties  included  in  the  Aggregate  Borrowing  Base  except  Oil  and  Gas
Properties  for which the  aggregate  sales price for all such  properties  sold
since the most recent Determination Date does not exceed $5,000,000.

         Section  7.6.  Limitation  on  Investment  and  New  Businesses.     No
Restricted  Person  will (i) make any  expenditure  or  commitment  or incur any
obligation  or enter into or engage in any  transaction  except in the  ordinary
course of  business,  (ii) engage  directly  or  indirectly  in any  business or
conduct any  operations  except in connection  with or incidental to its present
businesses  and   operations,   (iii)  make  any   acquisitions  of  or  capital
contributions  to or other  Investments  in any  Person,  other  than  Permitted
Investments,  or (iv) make any  significant  acquisitions  or Investments in any
properties other than oil and gas properties, provided that if (A) no Default or
Event of Default has occurred and is continuing  and (B) the Facility Usage does
not exceed the Aggregate  Borrowing Base then in effect,  Restricted  Person may
acquire or make a capital  contribution to or other  Investments in a Person not
to exceed an aggregate amount of $500,000 in any Fiscal Year.

         Section 7.7. Limitation  on  Credit  Extensions.   Except for Permitted
Investments,  Borrower will not extend credit, make advances or make loans other
than (i) normal and prudent  extensions of credit to customers  buying goods and
services in the ordinary course of business,  which  extensions shall not be for
longer  periods than those extended by similar  businesses  operated in a normal
and prudent  manner,  and (ii) loans to  Subsidiaries  in the ordinary course of
business not to exceed $20,000 per month.

         Section 7.8. Subsidiaries; Transactions with Affiliates.  Borrower will
not form or acquire any Subsidiary except in connection with the acquisition and
development  of oil and gas  properties  or the  marketing of  production in the
ordinary course of businesses. Neither Borrower nor any of its Subsidiaries will
engage in any material transaction with any of its Affiliates on terms which are
less favorable to it than those which would have been  obtainable at the time in
arm's-length dealing with Persons other than such Affiliates, provided that such
restriction shall not apply to transactions among Borrower and its Subsidiaries.

         Section 7.9.  Multiemployer ERISA Plans.  No ERISA Affiliate will incur
any obligation to contribute to any  "multiemployer  plan" as defined in Section
4001 of ERISA.

         Section 7.10. Shareholder's Equity.  Shareholder's  Equity  will  never
be less than the sum of (a)  $125,000,000  plus (b)  Computed Net Income for the
period  beginning  January 1, 1998 and ending on the last day of the most recent
Fiscal Quarter as of the time in question. As used in this subsection, `Computed
Net Income' means fifty percent (50%) of Borrower's  Consolidated net income for
each Fiscal Quarter, if positive, and zero percent (0%) if negative,  determined
on a cumulative basis.



                                       35


         Section 7.11. The Current Ratio.   The Current Ratio will never be less
than 1.0 to 1.0.


                  ARTICLE VIII - Events of Default and Remedies

         Section 8.1.  Events  of  Default.     Each  of  the  following  events
constitutes an Event of Default under this Agreement:

         (a) Borrower  fails to pay the  principal  component of any  Obligation
when due and payable,  whether at a date for the payment of a fixed  installment
or as a contingent  or other  payment  becomes due and payable or as a result of
acceleration or otherwise;

         (b) Borrower fails to pay any Obligation (other than the Obligations in
subsection (a) above) when due and payable, whether at a date for the payment of
a fixed  installment or as a contingent or other payment becomes due and payable
or as a result of acceleration or otherwise, within five Business Days after the
same becomes due;

         (c) Any "default" or "event of default"  occurs under any Loan Document
which  defines  either  such  term,  and the  same is not  remedied  within  the
applicable period of grace (if any) provided in such Loan Document;

         (d)  Borrower  fails  to duly  observe,  perform  or  comply  with  any
covenant, agreement or provision contained herein.

         (e) Borrower fails (other than as referred to in subsections  (a), (b),
(c) or (d)  above)  to duly  observe,  perform  or  comply  with  any  covenant,
agreement, condition or provision of any Loan Document, and such failure remains
unremedied  for a period of thirty  (30) days  after  notice of such  failure is
given by Agent to Borrower;

         (f) Any representation or warranty  previously,  presently or hereafter
made in writing by or on behalf of Borrower in connection with any Loan Document
shall prove to have been false or incorrect in any material  respect on any date
on or as of which  made,  or any Loan  Document  at any time ceases to be valid,
binding and  enforceable  as  warranted in Section 5.5 for any reason other than
its release or subordination by Agent;

         (g) Any Restricted Person fails to duly observe, perform or comply with
any  agreement  with any Person or any term or condition of any  instrument,  if
such  agreement  or  instrument  is  materially  significant  to  Borrower or to
Borrower and its  Subsidiaries on a Consolidated  basis, and such failure is not
remedied  within  the  applicable  period  of grace  (if any)  provided  in such
agreement or instrument;

         (h) Any  Restricted  Person  (i)  fails to pay any  portion,  when such
portion is due, of any of its  Indebtedness in excess of $1,000,000,  or (ii) if
such  agreement  or  instrument  is  materially  significant  to  Borrower or to
Borrower and its Subsidiaries on a Consolidated  basis,  breaches or defaults in
the performance of any agreement or instrument by which any such Indebtedness is
issued, evidenced, governed, or secured, and any such failure, breach or default
continues beyond any applicable period of grace provided therefor subject to the
materiality provision in (g) above;

         (i) Either (i) any  "accumulated  funding  deficiency"  (as  defined in
Section  412(a) of the Internal  Revenue Code of 1986,  as amended) in excess of
$1,000,000  exists with respect to any ERISA Plan,  whether or not waived by the
Secretary of the Treasury or his delegate,  or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then  current  value of such ERISA Plan's
benefit  liabilities  exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit  liabilities by more than $100,000 (or
in the case of a Termination  Event  involving  the  withdrawal of a substantial
employer, the withdrawing employer's  proportionate share of such excess exceeds
such amount); and



                                       36


         (j)      Any Restricted Person:

                  (i)  suffers  the entry  against it of a  judgment,  decree or
         order  for  relief  by a  Tribunal  of  competent  jurisdiction  in  an
         involuntary  proceeding  commenced  under  any  applicable  bankruptcy,
         insolvency or other similar Law of any jurisdiction now or hereafter in
         effect,  including  the federal  Bankruptcy  Code, as from time to time
         amended, or has any such proceeding  commenced against it which remains
         undismissed for a period of fifteen days; or

                  (ii)   commences  a  voluntary   case  under  any   applicable
         bankruptcy,  insolvency  or  similar  Law now or  hereafter  in effect,
         including the federal Bankruptcy Code, as from time to time amended; or
         applies  for or  consents  to the  entry of an order  for  relief in an
         involuntary case under any such Law; or makes a general  assignment for
         the  benefit  of  creditors;  or fails  generally  to pay (or admits in
         writing its  inability  to pay) its debts as such debts  become due; or
         takes corporate or other action to authorize any of the foregoing; or

                  (iii)  suffers the  appointment  of or taking  possession by a
         receiver,  liquidator,  assignee,  custodian,  trustee, sequestrator or
         similar  official  of all or a  substantial  part  of its  assets  in a
         proceeding  brought against or initiated by it, and such appointment or
         taking  possession is neither made  ineffective  nor discharged  within
         thirty days after the making  thereof,  or such  appointment  or taking
         possession is at any time consented to,  requested by, or acquiesced to
         by it; or

                  (iv) suffers the entry against it of a final  judgment for the
         payment of money in excess of  $1,000,000  (not  covered  by  insurance
         satisfactory to Agent in its discretion), unless the same is discharged
         within  thirty  days  after the date of entry  thereof  or an appeal or
         appropriate  proceeding  for review thereof is taken within such period
         and a stay of execution pending such appeal is obtained; or

                  (v)  suffers a writ or warrant of  attachment  or any  similar
         process to be issued by any  Tribunal  against  all or any  substantial
         part of its  assets,  and such writ or  warrant  of  attachment  or any
         similar  process is not stayed or released within thirty days after the
         entry or levy thereof or after any stay is vacated or set aside; and

         (k)      Any Change in Control occurs

         (l)      Any Change in Management occurs; and

         (m)      Any Material Adverse Change occurs.

Upon the  occurrence  of an Event of Default  described  in  subsection  (j)(i),
(j)(ii)  or  (j)(iii)  of this  section  with  respect to  Borrower,  all of the
Obligations  shall  thereupon be immediately  due and payable,  without  demand,
presentment,  notice of demand or of dishonor and nonpayment, protest, notice of
protest,   notice  of  intention  to   accelerate,   declaration  or  notice  of
acceleration,  or any other notice or  declaration of any kind, all of which are
hereby expressly  waived by Borrower and each Restricted  Person who at any time
ratifies or approves this Agreement. Upon any such acceleration,  any obligation
of any Lender to make any further Loans shall be permanently terminated.  During
the  continuance of any other Event of Default,  Agent at any time and from time
to time may (and upon written instructions from Majority Lenders,  Agent shall),
without notice to Borrower or any other Restricted  Person, do either or both of
the following:  (1) terminate any obligation of Lenders to make Loans hereunder,
and (2) declare any or all of the Obligations  immediately due and payable,  and
all such  Obligations  shall thereupon be immediately  due and payable,  without
demand,  presentment,  notice of demand or of dishonor and nonpayment,  protest,
notice of protest,  notice of intention to accelerate,  declaration or notice of
acceleration,  or any other notice or  declaration of any kind, all of which are
hereby expressly  waived by Borrower and each Restricted  Person who at any time
ratifies or approves this Agreement.



                                       37


         Section 8.2.  Remedies.  If any  Default shall occur and be continuing,
each Lender may protect and enforce its rights  under the Loan  Documents by any
appropriate  proceedings,  including proceedings for specific performance of any
covenant  or  agreement  contained  in any Loan  Document,  and each  Lender may
enforce  the  payment of any  Obligations  due it or enforce  any other legal or
equitable  right which it may have.  All rights,  remedies and powers  conferred
upon Lender Parties under the Loan Documents shall be deemed  cumulative and not
exclusive  of any other  rights,  remedies  or powers  available  under the Loan
Documents or at Law or in equity.


                               ARTICLE IX - Agent

         Section 9.1.  Appointment, Powers, and Immunities.   Each Lender hereby
irrevocably  appoints  and  authorizes  Agent  to act as its  agent  under  this
Agreement and the other Loan  Documents  with such powers and  discretion as are
specifically  delegated  to Agent by the terms of this  Agreement  and the other
Loan  Documents,  together with such other powers as are  reasonably  incidental
thereto.  Agent (which term as used in this  sentence and in Section 9.5 and the
first  sentence of Section 9.6 hereof shall include its  Affiliates  and its own
and its Affiliates' officers,  directors,  employees, and agents): (a) shall not
have any duties or  responsibilities  except those  expressly  set forth in this
Agreement and shall not be a trustee or fiduciary for any Lender;  (b) shall not
be  responsible  to  Lenders  for any  recital,  statement,  representation,  or
warranty  (whether  written  or  oral)  made in or in  connection  with any Loan
Document or any certificate or other document referred to or provided for in, or
received by any of them under,  any Loan Document,  or for the value,  validity,
effectiveness, genuineness, enforceability, or sufficiency of any Loan Document,
or any other document  referred to or provided for therein or for any failure by
Borrower or any other Person to perform any of its obligations  thereunder;  (c)
shall not be  responsible  for or have any duty to  ascertain,  inquire into, or
verify the  performance or observance of any covenants or agreements by Borrower
or the  satisfaction of any condition or to inspect the property  (including the
books and records) of Borrower or any of its  Subsidiaries  or  Affiliates;  (d)
shall not be  required  to initiate  or conduct  any  litigation  or  collection
proceedings  under any Loan Document;  and (e) shall not be responsible  for any
action taken or omitted to be taken by it under or in  connection  with any Loan
Document,  except for its own gross negligence or willful misconduct.  Agent may
employ  agents  and  attorneys-in-fact  and  shall  not be  responsible  for the
negligence or misconduct of any such agents or attorneys-in-fact  selected by it
with reasonable care.

         Section 9.2. Reliance by Agent.  Agent shall be entitled  to rely  upon
any  certification,   notice,   instrument,   writing,  or  other  communication
(including,  without limitation,  any thereof by telephone or telecopy) believed
by it to be genuine and correct and to have been  signed,  sent or made by or on
behalf of the proper Person or Persons,  and upon advice and statements of legal
counsel (including counsel for any Restricted Person),  independent accountants,
and other experts  selected by Agent.  Agent may deem and treat the payee of any
Note as the holder  thereof  for all  purposes  hereof  unless  and until  Agent
receives and accepts an Assignment  and Acceptance  executed in accordance  with
Section  10.6  hereof.  As to any matters  not  expressly  provided  for by this
Agreement,  Agent shall not be required to exercise any  discretion  or take any
action,  but shall be  required  to act or to refrain  from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the  Majority  Lenders,  and such  instructions  shall be  binding on all of the
Lenders; provided,  however, that Agent shall not be required to take any action
that  exposes  Agent  to  personal  liability  or that is  contrary  to any Loan
Document  or  applicable  Law or unless  it shall  first be  indemnified  to its
satisfaction  by Lenders  against any and all liability and expense which may be
incurred by it by reason of taking any such action.

         Section 9.3. Defaults.  Agent  shall  not be deemed  to have  knowledge
or notice of the  occurrence  of a Default or Event of Default  unless Agent has
received  written  notice from a Lender or Borrower  specifying  such Default or
Event of Default and stating  that such notice is a "Notice of  Default." In the
event that Agent  receives such a notice of the occurrence of a Default or Event
of  Default,  Agent  shall give prompt  notice  thereof to Lenders.  Agent shall
(subject to Section 9.2 hereof) take such action with respect to such Default or
Event of  Default as shall  reasonably  be  directed  by the  Majority  Lenders,
provided that, unless and until Agent shall have received such directions, Agent
may (but shall not be  obligated  to) take such  action,  or refrain from taking
such  action,  with respect to such Default or Event of Default as it shall deem
advisable in the best interest of Lenders.



                                       38


         Section 9.4. Rights as Lender.  With respect  to its  Percentage  Share
and the Loans made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Lender  hereunder shall have the same rights and powers  hereunder
as any other  Lender and may  exercise  the same as though it were not acting as
Agent,  and the term "Lender" or "Lenders" shall,  unless the context  otherwise
indicates,  include  Agent  in its  individual  capacity.  NationsBank  (and any
successor  acting as Agent) and its  Affiliates  may (without  having to account
therefor to any Lender) accept  deposits from,  lend money to, make  Investments
in, provide services to, and generally engage in any kind of lending,  trust, or
other  business  with  any  Restricted  Person  or any of  its  Subsidiaries  or
Affiliates as if it were not acting as Agent, and NationsBank (and any successor
acting as Agent) and its Affiliates may accept fees and other consideration from
any Restricted  Person or any of its  Subsidiaries or Affiliates for services in
connection  with this  Agreement or otherwise  without having to account for the
same to Lenders.

         Section 9.5. Indemnification.  Lenders agree to indemnify Agent (to the
extent not reimbursed  under Section  10.4(b) hereof,  but without  limiting the
obligations  of Borrower  under such section)  ratably in accordance  with their
respective Percentage Shares, for any and all liabilities,  obligations, losses,
damages,  penalties,  actions,  judgments,  suits,  costs,  expenses  (including
attorneys' fees), or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted  against Agent  (including by any Lender) in
any way  relating  to or arising out of any Loan  Document  or the  transactions
contemplated  thereby  or any action  taken or  omitted by Agent  under any Loan
Document;  provided  that no Lender shall be liable for any of the  foregoing to
the extent they arise from the gross  negligence  or willful  misconduct  of the
Person to be  indemnified.  Without  limitation  of the  foregoing,  each Lender
agrees to  reimburse  Agent  promptly  upon demand for its ratable  share of any
costs or expenses payable by Borrower under Section 10.4(b),  to the extent that
Agent is not promptly  reimbursed  for such costs and expenses by Borrower.  The
agreements  contained in this section shall survive payment in full of the Loans
and all other amounts payable under this Agreement.

         Section 9.6.  Each Lender agrees that it has, independently and without
reliance  on  Agent  or any  other  Lender,  and  based  on such  documents  and
information as it has deemed  appropriate,  made its own credit  analysis of the
Borrower  and  decision  to  enter  into  this   Agreement  and  that  it  will,
independently and without reliance upon Agent or any other Lender,  and based on
such  documents  and  information  as it shall  deem  appropriate  at the  time,
continue to make its own analysis and  decisions in taking or not taking  action
under the Loan Documents.  Except for notices,  reports, and other documents and
information  expressly  required to be furnished to Lenders by Agent  hereunder,
Agent shall not have any duty or  responsibility  to provide any Lender with any
credit or other  information  concerning the affairs,  financial  condition,  or
business of any Restricted  Person or any of its Subsidiaries or Affiliates that
may come into the possession of Agent or any of its Affiliates.

         Section 9.7. Sharing of Set-Offs and Other Payments. Each Lender agrees
that if it shall,  whether  through the exercise of rights of banker's lien, set
off, or counterclaim against Borrower or otherwise,  obtain payment of a portion
of  the  aggregate  Obligations  owed  to it  which,  taking  into  account  all
distributions  made by Agent  under  Section  3.1,  causes  such  Lender to have
received  more than it would have  received had such  payment  been  received by
Agent and  distributed  pursuant to Section 3.1,  then (a) it shall be deemed to
have  simultaneously  purchased and shall be obligated to purchase  interests in
the  Obligations  as necessary to cause all Lender Parties to share all payments
as provided  for in Section 3.1,  and (b) such other  adjustments  shall be made
from time to time as shall be  equitable  to ensure  that Agent and all  Lenders
share all payments of Obligations as provided in Section 3.1; provided, however,
that nothing herein contained shall in any way affect the right of any Lender to
obtain  payment  (whether by exercise  of rights of  banker's  lien,  set-off or
counterclaim or otherwise) of indebtedness other than the Obligations.  Borrower
expressly  consents to the foregoing  arrangements and agrees that any holder of
any such  interest or other  participation  in the  Obligations,  whether or not
acquired  pursuant to the  foregoing  arrangements,  may to the  fullest  extent
permitted  by Law  exercise  any and all rights of banker's  lien,  set-off,  or
counterclaim  as fully as if such holder were a holder of the Obligations in the
amount of such interest or other participation.  If all or any part of any funds
transferred  pursuant to this section is  thereafter  recovered  from the seller
under this section which  received the same,  the purchase  provided for in this
section shall be deemed to have been  rescinded to the extent of such  recovery,
together  with  interest,  if any, if interest is required  pursuant to Tribunal
order  to be paid on  account  of the  possession  of such  funds  prior to such
recovery.



                                       39


         Section 9.8. Investments.  Whenever Agent in good faith determines that
it is  uncertain  about how to  distribute  to  Lenders  any funds  which it has
received,  or whenever Agent in good faith  determines that there is any dispute
among  Lenders about how such funds should be  distributed,  Agent may choose to
defer  distribution  of the funds which are the subject of such  uncertainty  or
dispute.  If Agent in good faith  believes that the  uncertainty or dispute will
not be promptly  resolved,  or if Agent is  otherwise  required to invest  funds
pending  distribution  to  Lenders,   Agent  shall  invest  such  funds  pending
distribution;  all interest on any such Investment shall be distributed upon the
distribution  of such  Investment  and in the  same  proportion  and to the same
Persons as such  Investment.  All moneys  received by Agent for  distribution to
Lenders  (other  than to the Person who is Agent in its  separate  capacity as a
Lender)  shall be held by Agent  pending such  distribution  solely as Agent for
such Lenders, and Agent shall have no equitable title to any portion thereof.

         Section 9.9. Benefit  of  Article  IX.   The provisions of this Article
(other than the following  Section 9.11) are intended  solely for the benefit of
Lender Parties,  and no Restricted  Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Lender.
Lender  Parties may waive or amend such  provisions  as they desire  without any
notice to or consent of Borrower or any Restricted Person.

         Section 9.10. Resignation.   Agent  may  resign  at any time  by giving
written notice thereof to Lenders and Borrower. Each such notice shall set forth
the date of such resignation. Upon any such resignation,  Majority Lenders shall
have the  right to  appoint a  successor  Agent,  which  shall be, so long as no
Default or Event of  Default,  Tranche A Excess  Debt or  Tranche B Excess  Debt
exists,  subject  to  Borrower's  approval,  which  shall  not  be  unreasonably
withheld. A successor must be appointed for any retiring Agent, and such Agent's
resignation shall become effective when such successor accepts such appointment.
If, within thirty days after the date of the retiring  Agent's  resignation,  no
successor Agent has been appointed and has accepted such  appointment,  then the
retiring Agent may appoint a successor  Agent,  which shall be a commercial bank
organized or licensed to conduct a banking or trust  business  under the Laws of
the United States of America or of any state thereof. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, the retiring Agent shall be
discharged  from its duties and  obligations  under this Agreement and the other
Loan Documents.  After any retiring Agent's resignation hereunder the provisions
of this  Article IX shall  continue  to inure to its  benefit as to any  actions
taken or omitted to be taken by it while it was Agent under the Loan Documents.

                            ARTICLE X - Miscellaneous

         Section 10.1.  Waivers and Amendments; Acknowledgments.

         (a) Waivers and  Amendments.  No failure or delay (whether by course of
conduct or  otherwise) by any Lender in  exercising  any right,  power or remedy
which such Lender may have under any of the Loan  Documents  shall  operate as a
waiver thereof or of any other right,  power or remedy,  nor shall any single or
partial  exercise by any Lender of any such right,  power or remedy preclude any
other or further  exercise  thereof or of any other right,  power or remedy.  No
waiver of any  provision of any Loan  Document  and no consent to any  departure
therefrom shall ever be effective unless it is in writing and signed as provided
below in this section,  and then such waiver or consent shall be effective  only
in the specific instances and for the purposes for which given and to the extent
specified in such writing.  No notice to or demand on Borrower shall in any case
of itself  entitle  Borrower to any other or further notice or demand in similar
or other  circumstances.  This  Agreement and the other Loan Documents set forth



                                       40


the  entire  understanding  between  the  parties  hereto  with  respect  to the
transactions contemplated herein and therein and supersede all prior discussions
and understandings with respect to the subject matter hereof and thereof, and no
waiver,  consent,  release,  modification  or amendment of or supplement to this
Agreement or the other Loan  Documents  shall be valid or effective  against any
party  hereto  unless the same is in writing  and signed by (i) if such party is
Borrower, by Borrower,  (ii) if such party is Agent or LC Issuer, by such party,
and  (iii) if such  party is a Lender,  by such  Lender or by Agent on behalf of
Lenders with the written consent of Majority  Lenders (which consent has already
been given as to the  termination  of the Loan  Documents as provided in Section
10.10).  Notwithstanding the foregoing or anything to the contrary herein, Agent
shall not,  without the prior  consent of each  individual  Lender,  execute and
deliver on behalf of such Lender any waiver or amendment which would:  (1) waive
any of the  conditions  specified in Article IV (provided  that Agent may in its
discretion  withdraw any request it has made under Section 4.2(f),  (2) increase
the Maximum Loan Amount of such Lender or subject such Lender to any  additional
obligations,  (3)  reduce  any fees  payable to such  Lender  hereunder,  or the
principal  of, or interest on, such Lender's  Note,  (4) postpone any date fixed
for any  payment  of any  such  fees,  principal  or  interest,  (5)  amend  the
definition herein of "Majority Lenders" or otherwise change the aggregate amount
of Percentage Shares which is required for Agent, Lenders or any of them to take
any particular action under the Loan Documents, or (6) release Borrower from its
obligation to pay such Lender's Note.

         (b)  Acknowledgments   and  Admissions.   Borrower  hereby  represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in the
negotiation,  execution  and  delivery  of the Loan  Documents  to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the  other  Loan  Documents  to  which it is a party,  without  reliance  on any
representation,  warranty,  covenant  or  undertaking  by Agent  or any  Lender,
whether  written,  oral or  implicit,  other than as  expressly  set out in this
Agreement  or in another  Loan  Document  delivered on or after the date hereof,
(iii)  there are no  representations,  warranties,  covenants,  undertakings  or
agreements by any Lender as to the Loan Documents except as expressly set out in
this  Agreement  or in  another  Loan  Document  delivered  on or after the date
hereof, (iv) no Lender has any fiduciary obligation toward Borrower with respect
to  any  Loan  Document  or  the  transactions  contemplated  thereby,  (v)  the
relationship  pursuant to the Loan Documents between Borrower,  on one hand, and
each  Lender,  on the other  hand,  is and shall be  solely  that of debtor  and
creditor, respectively, (vi) no partnership or joint venture exists with respect
to the Loan  Documents  between  Borrower  and any  Lender,  (vii)  Agent is not
Borrower's  Agent,  but Agent for Lenders,  (viii) should an Event of Default or
Default occur or exist,  each Lender will  determine in its sole  discretion and
for its own reasons  what  remedies  and actions it will or will not exercise or
take at that time, (ix) without  limiting any of the foregoing,  Borrower is not
relying upon any representation or covenant by any Lender, or any representative
thereof,  and no such  representation or covenant has been made, that any Lender
will,  at the time of an Event of  Default  or  Default,  or at any other  time,
waive,  negotiate,  discuss, or take or refrain from taking any action permitted
under the Loan Documents with respect to any such Event of Default or Default or
any other  provision  of the Loan  Documents,  and (x) all Lender  Parties  have
relied upon the truthfulness of the  acknowledgments in this section in deciding
to execute and deliver this Agreement and to become obligated hereunder.

         (c)  Representation  by Lenders.  Each Lender hereby represents that it
will acquire its Note for its own account in the ordinary  course of its lending
business;  however, the disposition of such Lender's property shall at all times
be and remain within its control and, in particular and without limitation, such
Lender may sell or otherwise  transfer its Note, any  participation  interest or
other interest in its Note, or any of its other rights and obligations under the
Loan Documents.

         (d) Joint  Acknowledgment.  THIS WRITTEN  AGREEMENT  AND THE OTHER LOAN
DOCUMENTS  REPRESENT  THE FINAL  AGREEMENT  BETWEEN  THE  PARTIES AND MAY NOT BE
CONTRADICTED  BY  EVIDENCE  OF  PRIOR,   CONTEMPORANEOUS,   OR  SUBSEQUENT  ORAL
AGREEMENTS OF THE PARTIES.

         THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



                                       41


         Section 10.2.  Survival  of  Agreements;  Cumulative  Nature.   All  of
Borrower's various representations,  warranties, covenants and agreements in the
Loan  Documents  shall survive the execution and delivery of this  Agreement and
the other Loan Documents and the performance  hereof and thereof,  including the
making or granting of the Loans and the delivery of the Notes and the other Loan
Documents,  and shall further  survive until all of the  Obligations are paid in
full to each  Lender and all of Lender  Parties'  obligations  to  Borrower  are
terminated.  All statements and agreements contained in any certificate or other
instrument  delivered by Borrower to any Lender under any Loan Document shall be
deemed representations and warranties by Borrower or agreements and covenants of
Borrower under this Agreement. The representations, warranties, indemnities, and
covenants  made by  Restricted  Persons in the Loan  Documents,  and the rights,
powers,  and  privileges  granted to Lender Parties in the Loan  Documents,  are
cumulative,  and, except for expressly  specified waivers and consents,  no Loan
Document shall be construed in the context of another to diminish,  nullify,  or
otherwise reduce the benefit to any Lender of any such representation, warranty,
indemnity,  covenant,  right,  power or  privilege.  In  particular  and without
limitation,  no  exception  set out in  this  Agreement  to any  representation,
warranty,  indemnity,  or covenant  herein  contained shall apply to any similar
representation,  warranty,  indemnity,  or covenant  contained in any other Loan
Document, and each such similar representation, warranty, indemnity, or covenant
shall be subject only to those exceptions which are expressly made applicable to
it by the terms of the various Loan Documents.

         Section 10.3. Notices.  All notices,  requests,  consents,  demands and
other  communications  required or permitted under any Loan Document shall be in
writing,  unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic  notices to the other Lender Parties),  and shall
be deemed sufficiently given or furnished if delivered by personal delivery,  by
facsimile or telex, by delivery service with proof of delivery, or by registered
or certified  United States mail,  postage  prepaid,  to Borrower and Restricted
Persons at the address of Borrower  specified on the signature  pages hereto and
to each Lender at its address  specified on the signature  pages hereto  (unless
changed  by similar  notice in  writing  given by the  particular  Person  whose
address is to be changed).  Any such notice or communication  shall be deemed to
have been given (a) in the case of personal delivery or delivery  service,  upon
receipt, (b) in the case of facsimile or telex, upon receipt, or (c) in the case
of registered or certified  United States mail,  three days after deposit in the
mail; provided,  however,  that no Borrowing Notice shall become effective until
actually received by Agent.

         Section 10.4.  Payment of Expenses; Indemnity.

         (a) Payment of Expenses.  Whether or not the transactions  contemplated
by this  Agreement  are  consummated,  Borrower will promptly (and in any event,
within 30 days after any  invoice or other  statement  or notice)  pay:  (i) all
transfer,  stamp, mortgage,  documentary or other similar taxes,  assessments or
charges  levied by any  governmental  or  revenue  authority  in respect of this
Agreement or any of the other Loan Documents or any other  document  referred to
herein or therein,  (ii) all  reasonable  costs and  expenses  incurred by or on
behalf  of  Agent  (including  attorneys'  fees)  in  connection  with  (1)  the
negotiation,  preparation, execution and delivery of the Loan Documents, and any
and all consents,  waivers or other documents or instruments  relating  thereto,
(2)  monitoring or confirming  (or  preparation  or  negotiation of any document
related to) Borrower's  compliance with any covenants or conditions contained in
this  Agreement  or in any Loan  Document,  and (iii) all  reasonable  costs and
expenses  incurred  by or on behalf of any Lender  Party  (including  attorneys'
fees,  consultants'  fees and accounting fees) in connection with the defense or
enforcement of any of the Loan Documents (including this section) or the defense
of any Lender Party's exercise of its rights thereunder.



                                       42


         (b) Indemnity.  Borrower  agrees to indemnify  each Lender Party,  upon
demand, from and against any and all liabilities,  obligations,  claims, losses,
damages,  penalties,  fines,  actions,  judgments,  suits,  settlements,  costs,
expenses or disbursements (including reasonable fees of attorneys,  accountants,
experts  and  advisors)  of any  kind or  nature  whatsoever  (in  this  section
collectively called "liabilities and costs") which to any extent (in whole or in
part) may be imposed on,  incurred  by, or asserted  against  such Lender  Party
growing out of,  resulting from or in any other way  associated  with any of the
Loan Documents and the  transactions  and events  (including the  enforcement or
defense  thereof)  at any time  associated  therewith  or  contemplated  therein
(including any violation or  noncompliance  with any  Environmental  Laws by any
Restricted  Person or any liabilities or duties of any Restricted  Person or any
Lender Party with respect to Hazardous  Materials  found in or released into the
environment),  provided  only that no Lender Party shall be entitled  under this
section to receive  indemnification for that portion, if any, of any liabilities
and costs which is proximately  caused by its own individual gross negligence or
willful misconduct,  as determined in a final judgment. If any Person (including
Borrower or any of its Affiliates) ever alleges such gross negligence or willful
misconduct by any Lender Party, the indemnification provided for in this section
shall  nonetheless  be  paid  upon  demand,   subject  to  later  adjustment  or
reimbursement,  until such time as a court of  competent  jurisdiction  enters a
final  judgment as to the extent and effect of the alleged  gross  negligence or
willful misconduct.  As used in this section the term "Lender Party" shall refer
not  only to the  Persons  designated  as such in  Section  1.1 but also to each
director,  officer, agent, attorney,  employee,  representative and Affiliate of
such Persons.

         Section 10.5. Joint and  Several  Liability; Parties in Interest.   All
grants,  covenants and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective  successors and
assigns; provided,  however, that Borrower may not may assign or transfer any of
its rights or delegate any of its duties or obligations  under any Loan Document
without  the  prior  consent  of  Majority  Lenders.  Neither  Borrower  nor any
Affiliates of Borrower shall directly or indirectly purchase or otherwise retire
any  Obligations  owed to any Lender nor will any Lender  accept any offer to do
so,  unless each Lender shall have  received  substantially  the same offer with
respect to the same Percentage  Share of the Obligations owed to it. If Borrower
or any Affiliate of Borrower at any time purchases some but less than all of the
Obligations owed to all Lender Parties,  such purchaser shall not be entitled to
any rights of any Lender under the Loan  Documents  unless and until Borrower or
its Affiliates have purchased all of the Obligations.

         Section 10.6.  Assignments and Participations

         (a) Each Lender may assign to one or more Eligible Transferees all or a
portion of its rights and obligations under this Agreement  (including,  without
limitation,  all or a portion of its Loans, its Note, and its Percentage Shares;
provided, however, that

                  (i)   each such assignment shall be to an Eligible Transferee;

                  (ii)  except in the case of an assignment to another Lender or
         an assignment of all of a Lender's  rights and  obligations  under this
         Agreement,  any such partial  assignment shall be in an amount at least
         equal to  $20,000,000  or an integral  multiple of $5,000,000 in excess
         thereof;

                  (iii) each such assignment by a Lender shall be of a constant,
         and not varying,  percentage of all of its rights and obligations under
         the Loan Documents; and

                  (iv)  the parties to such assignment shall execute and deliver
         to Agent for its acceptance an Assignment and Acceptance in the form of
         Exhibit F hereto, together with any Note subject to such assignment and
         a processing fee of $3,500.

Upon execution,  delivery, and acceptance of such Assignment and Acceptance, the
assignee  thereunder  shall  be a  party  hereto  and,  to the  extent  of  such
assignment, have the obligations, rights, and benefits of a Lender hereunder and
the assigning  Lender shall,  to the extent of such  assignment,  relinquish its
rights and be  released  from its  obligations  under this  Agreement.  Upon the
consummation of any assignment pursuant to this section, the assignor, Agent and
Borrower shall make appropriate arrangements so that, if required, new Notes are
issued to the assignor  and the  assignee.  If the assignee is not  incorporated
under the Laws of the  United  States of America  or a state  thereof,  it shall
deliver to Borrower and Agent  certification  as to exemption  from deduction or
withholding of Taxes.



                                       43


         (b) Agent shall  maintain at its address  referred to in Section 10.3 a
copy of each  Assignment  and  Acceptance  delivered to and accepted by it and a
register  for the  recordation  of the names and  addresses of Lenders and their
Percentage  Shares of, and  principal  amount of the Loans owing to, each Lender
from  time to time  (the  "Register").  The  entries  in the  Register  shall be
conclusive and binding for all purposes,  absent manifest  error,  and Borrower,
Agent and Lenders may treat each Person  whose name is recorded in the  Register
as a Lender hereunder for all purposes of this Agreement.  The Register shall be
available for  inspection by Borrower or any Lender at any  reasonable  time and
from time to time upon reasonable prior notice.

         (c) Upon its receipt of an Assignment  and  Acceptance  executed by the
parties  thereto,  together with any Note subject to such assignment and payment
of the processing  fee, Agent shall,  if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit F hereto,  (i) accept such
Assignment and Acceptance,  (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the parties thereto.

         (d) Each Lender may sell  participations  to one or more Persons in all
or a portion of its  rights and  obligations  under  this  Agreement;  provided,
however,  that (i) such Lender's  obligations  under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such  obligations,  (iii) the participant shall be
entitled to the benefit of the yield protection  provisions contained in Article
III and the right of offset  contained in Section 6.14,  and (iv) Borrower shall
continue to deal solely and directly  with such Lender in  connection  with such
Lender's  rights and  obligations  under this  Agreement,  and such Lender shall
retain the sole right to enforce the  obligations  of  Borrower  relating to its
Loans and its Note and to approve any amendment,  modification, or waiver of any
provision of this Agreement  (other than amendments,  modifications,  or waivers
decreasing  the amount of principal of or the rate at which  interest is payable
on such Loans or Note,  extending any scheduled  principal  payment date or date
fixed for the  payment of  interest  on such  Loans or Note,  or  extending  its
Tranche A Commitment or Tranche B Commitment).

         (e)  Notwithstanding  any other  provision set forth in this Agreement,
any Lender may at any time assign and pledge all or any portion of its Loans and
its  Note  to any  Federal  Reserve  Bank as  collateral  security  pursuant  to
Regulation A and any Operating  Circular issued by such Federal Reserve Bank. No
such  assignment  shall  release  the  assigning  Lender  from  its  obligations
hereunder.

         (f) Any Lender may furnish any information  concerning  Borrower or any
of its  Subsidiaries  in the  possession  of such  Lender  from  time to time to
assignees and participants  (including  prospective assignees and participants),
subject, however, to the provisions of Section 10.7 hereof.

         Section 10.7.  Confidentiality.   Each  Lender  Party  agrees  to  keep
confidential  any  information  furnished  or made  available  to it by Borrower
pursuant to this  Agreement that is marked  confidential;  provided that nothing
herein shall prevent any Lender Party from  disclosing  such  information (a) to
any other Lender Party or any  Affiliate  of any Lender  Party,  or any officer,
director,  employee,  agent,  or advisor of any Lender Party or Affiliate of any
Lender  Party,  (b)  to  any  other  Person  if  reasonably  incidental  to  the
administration  of the credit facility  provided herein,  (c) as required by any
Law,  rule,  or  regulation,  (d) upon the order of any court or  administrative
agency,  (e) upon the request or demand of any  regulatory  agency or authority,
(f) that is or becomes  available to the public or that is or becomes  available
to any Lender Party other than as a result of a  disclosure  by any Lender Party
prohibited by this  Agreement,  (g) in connection  with any  litigation to which
such Lender  Party or any of its  Affiliates  may be a party,  (h) to the extent
necessary in connection  with the exercise of any remedy under this Agreement or
any other Loan Document, and (i) subject to provisions  substantially similar to
those  contained  in this  section,  to any actual or  proposed  participant  or
assignee.



                                       44


         Section 10.8. Governing  Law;  Submission to  Process.   EXCEPT  TO THE
EXTENT  THAT THE LAW OF  ANOTHER  JURISDICTION  IS  EXPRESSLY  ELECTED IN A LOAN
DOCUMENT,  THE LOAN DOCUMENTS  SHALL BE DEEMED  CONTRACTS AND  INSTRUMENTS  MADE
UNDER THE LAWS OF THE STATE OF COLORADO AND SHALL BE  CONSTRUED  AND ENFORCED IN
ACCORDANCE  WITH AND  GOVERNED BY THE LAWS OF THE STATE OF COLORADO AND THE LAWS
OF THE UNITED  STATES OF AMERICA,  WITHOUT  REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.

         Section 10.9. Limitation on Interest. Lender Parties,  Borrower and any
other parties to the Loan Documents intend to contract in strict compliance with
applicable  usury Law from time to time in effect.  In furtherance  thereof such
Persons  stipulate and agree that none of the terms and provisions  contained in
the Loan Documents  shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of  interest  permitted  to be  charged by  applicable  Law from time to time in
effect.  Neither Borrower nor any present or future  guarantors,  endorsers,  or
other Persons hereafter becoming liable for payment of any Obligation shall ever
be liable  for  unearned  interest  thereon  or shall  ever be  required  to pay
interest  thereon in excess of the maximum  amount that may be lawfully  charged
under  applicable  Law from time to time in effect,  and the  provisions of this
section shall control over all other  provisions of the Loan Documents which may
be in conflict or apparent conflict  herewith.  Lender Parties expressly disavow
any  intention  to charge or  collect  excessive  unearned  interest  or finance
charges in the event the maturity of any Obligation is  accelerated.  If (a) the
maturity of any Obligation is accelerated for any reason,  (b) any Obligation is
prepaid and as a result any amounts held to constitute  interest are  determined
to be in excess of the legal  maximum,  or (c) any Lender or any other holder of
any  or  all of  the  Obligations  shall  otherwise  collect  moneys  which  are
determined to constitute interest which would otherwise increase the interest on
any or all of the  Obligations  to an amount in excess of that  permitted  to be
charged by applicable Law then in effect, then all sums determined to constitute
interest  in excess of such legal  limit  shall,  without  penalty,  be promptly
applied to reduce the then outstanding  principal of the related Obligations or,
at such Lender's or holder's option,  promptly returned to Borrower or the other
payor  thereof  upon  such  determination.  In  determining  whether  or not the
interest paid or payable, under any specific  circumstance,  exceeds the maximum
amount  permitted under  applicable  Law, Lender Parties and Restricted  Persons
(and any other payors  thereof)  shall to the greatest  extent  permitted  under
applicable Law, (i) characterize any non-principal payment as an expense, fee or
premium  rather than as interest,  (ii) exclude  voluntary  prepayments  and the
effects thereof,  and (iii) amortize,  prorate,  allocate,  and spread the total
amount of interest  throughout the entire  contemplated  term of the instruments
evidencing the Obligations in accordance with the amounts  outstanding from time
to time  thereunder  and the maximum legal rate of interest from time to time in
effect under  applicable  Law in order to lawfully  charge the maximum amount of
interest permitted under applicable Law.

         Section 10.10. Termination; Limited Survival.  In its sole and absolute
discretion  Borrower  may at any time that no  Obligations  are owing elect in a
written notice  delivered to Agent to terminate this Agreement.  Upon receipt by
Agent of such a notice,  if no Obligations are then owing this Agreement and all
other Loan  Documents  shall  thereupon be  terminated  and the parties  thereto
released  from  all  prospective  obligations  thereunder.  Notwithstanding  the
foregoing or anything herein to the contrary,  any waivers or admissions made by
any Restricted  Person in any Loan Document,  any Obligations under Sections 3.2
through  3.6,  and any  obligations  which any Person may have to  indemnify  or
compensate  any Lender shall survive any  termination  of this  Agreement or any
other Loan Document. At the request and expense of Borrower, Agent shall prepare
and execute all necessary  instruments to reflect and effect such termination of
the Loan Documents.  Agent is hereby  authorized to execute all such instruments
on behalf of all  Lenders,  without  the  joinder  of or  further  action by any
Lender.



                                       45


         Section 10.11. Severability.   If any  term  or provision  of any  Loan
Document shall be determined to be illegal or unenforceable  all other terms and
provisions of the Loan Documents shall  nevertheless  remain effective and shall
be enforced to the fullest extent permitted by applicable Law.

         Section 10.12. Counterparts.  This Agreement may be separately executed
in any  number of  counterparts  and by  different  parties  hereto in  separate
counterparts,  each of which when so executed  shall be deemed to constitute one
and the same Agreement.

         Section 10.13. Waiver of Jury Trial, Punitive Damages, etc.    BORROWER
AND EACH LENDER HEREBY KNOWINGLY,  VOLUNTARILY,  INTENTIONALLY,  AND IRREVOCABLY
(A) WAIVES,  TO THE MAXIMUM  EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY  LITIGATION  BASED  HEREON,  OR DIRECTLY OR
INDIRECTLY  AT ANY TIME  ARISING OUT OF,  UNDER OR IN  CONNECTION  WITH THE LOAN
DOCUMENTS  OR ANY  TRANSACTION  CONTEMPLATED  THEREBY OR  ASSOCIATED  THEREWITH,
BEFORE OR AFTER  MATURITY;  (b) WAIVES,  TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW,  ANY  RIGHT  IT MAY HAVE TO CLAIM OR  RECOVER  IN ANY SUCH  LITIGATION  ANY
"SPECIAL DAMAGES",  AS DEFINED BELOW, (c) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE  OR  AGENT OR  COUNSEL  FOR ANY  PARTY  HERETO  HAS  REPRESENTED,
EXPRESSLY  OR  OTHERWISE,  OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION,  SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (d) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT,  THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS  CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS  CONTAINED IN THIS SECTION.  AS USED IN THIS SECTION,
"SPECIAL DAMAGES" INCLUDES ALL SPECIAL,  CONSEQUENTIAL,  EXEMPLARY,  OR PUNITIVE
DAMAGES  (REGARDLESS  OF HOW NAMED),  BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS
WHICH ANY PARTY  HERETO HAS  EXPRESSLY  PROMISED  TO PAY OR DELIVER TO ANY OTHER
PARTY HERETO.

         Section 10.14. Restatement.  This Agreement amends and  restates in its
entirety that certain  Amended and Restated Loan Agreement  dated as of April 1,
1996 between Borrower and NationsBank of Texas,  N.A., as Agent, and the lenders
named therein and the  promissory  notes issued  pursuant to such agreement (the
"Prior  Documents").  The  parties  hereto  hereby  agree  that  the  terms  and
conditions  of this  Agreement  and the Loan  Documents  executed  of even  date
herewith replace and supersede in their entirety all of the Prior Documents, and
from the effective date hereof the covenants,  obligations  and rights among the
parties hereto shall be governed  exclusively by the terms of this Agreement and
the Loan Documents  executed pursuant to this Agreement.  All security documents
which  secure  Borrower's  Obligations  under  the  Prior  Documents  which  are
currently in Agent's possession shall be returned to Borrower.



                                       46


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


                                 ST. MARY LAND & EXPLORATION COMPANY



                                 By: /s/ DAVID L. HENRY
                                     --------------------------------
                                     Name:  David L. Henry
                                     Title: Chief Financial Officer

                                 Address:

                                 1776 Lincoln Street
                                 Denver Colorado  80203
                                 Attention:        David L. Henry
                                 Fax:              (303) 861-0934








55%                              NATIONSBANK, N.A.,
                                 Agent, LC Issuer and Lender


                                 By: /s/ DAVID C. RUBENKING
                                     --------------------------------
                                     Name:  David C. Rubenking
                                     Title: Senior Vice President

                                 Address:

                                 901 Main Street
                                 Dallas, Texas 75202
                                 Attention:        Energy Finance Division Group
                                 Fax:              (214) 508-1285

                                 with a copy to:

                                 NationsBanc Energy Group Denver, Inc.
                                 370 17th Street, Suite 3250
                                 Denver, Colorado  80202
                                 Telephone         (303) 629-6969
                                 Fax               (303) 629-6303
                                 Attention:        David C. Rubenking







30%                              U.S. BANK NATIONAL ASSOCIATION, a Lender



                                 By: /s/ MARK E. THOMPSON
                                     --------------------------------
                                     Name:  Mark E. Thompson
                                     Title: Vice President


                                 Address:

                                 918 17th Street
                                 Denver, Colorado 80202
                                 Attention: Mark Thompson
                                 Fax: (303) 585-4362







15%                              NORWEST BANK COLORADO, N.A., a Lender



                                 By: /s/ GARY W. VICK
                                     --------------------------------
                                     Name:  Gary W. Vick
                                     Title: Vice President


                                 Address:

                                 1740 Broadway
                                 Denver, Colorado 80274-8699
                                 Attention: Gary Vick
                                 Fax: (303) 863-5196