This Purchase and Sale Agreement (this "Agreement") dated as of February 16, 2007, is among Five States Energy Company, L.L.C. ("Five States") and each of the other parties listed as a party "Seller" on the signature pages hereof (herein collectively called "Seller"), and ISRAMCO, Inc. or its designated affiliate Isramco Energy, LLC (herein called "Buyer").

In consideration of the mutual promises contained herein, the benefits to be derived by each party hereunder and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:

ARTICLE I

PURCHASE AND SALE

1.01 PURCHASE AND SALE. Seller agrees to sell and convey to Buyer and Buyer agrees to purchase and pay for the Properties (as defined below), subject to the terms and conditions of this Agreement. For purposes of this Agreement, Properties shall mean all of Seller's right, title and interest in and to the real and personal property described in Exhibit "A" hereto, including, but not limited to, all the types of property listed in Subsections (a) through (j) of this Section 1.01, to the extent such rights or interests are a part of, grant rights in or with respect to, or are located on the Properties described in Exhibit "A".

(a) LEASES. Leasehold interests in oil, gas or other minerals, including working interests, carried working interests, rights of assignment and reassignment, and other interests under or in oil, gas or mineral leases, and interests in rights to explore for and produce oil, gas and other minerals ("Leases");

(b) FEE INTERESTS. Fee interests to the surface and in oil, gas or other minerals, including rights under mineral deeds, conveyances or assignments;

(c) RIGHTS IN PRODUCTION. Royalties, overriding royalties, production payments, net profits interests, rights to take royalties in kind, or other interests in production of oil, gas or other minerals;

(d) RIGHTS; WORKING INTERESTS. Rights and interests in or derived from unit agreements, orders or decisions of state and federal regulatory authorities establishing units, joint operating agreements, enhanced recovery and injection agreements, farmout agreements and farmin agreements, options, drilling agreements, exploration agreements, assignments of operating rights, working interests and subleases;

(e) EASEMENTS. To the extent transferable, rights-of-way, surface or ground leases, easements, servitudes and franchises located on or granting rights to the Properties or property interests described in Exhibit "A" hereto and acquired or used in connection with

operations for the exploration, production, processing and transportation of oil, gas or other minerals with respect to the properties and interests described in subsections (a)-(d) above;

(f) PERMITS. To the extent transferable, permits and licenses of any nature owned, held or operated in connection with operations for the exploration, production, processing and transportation of oil, gas or other minerals;

(g) WELLS. Producing, shut in, temporarily abandoned and plugged and abandoned oil and gas wells, salt water disposal wells, injection wells and water supply wells located on the Properties described in Exhibit "A" hereto and used in connection with the Properties described in Subsections (a) -
(f) above ("Wells");

(h) FACILITIES. All facilities, buildings, improvements, gas conditioning and compression facilities, gathering lines, flow lines, injection lines and appurtenances located on, or which are related to, the Properties described in Exhibit "A";

(i) EQUIPMENT. All surface and down-hole equipment, fixtures, machinery, inventory and personal property located on the Properties described in Exhibit "A" hereto, and used in connection with the Properties described in Subsections (a) - (h) above;

(j) CONTRACTS. To the extent transferable, all contracts and agreements to which the property described in (a) - (i) above is subject as listed on Schedule 1.01(j) hereto.

1.02 EFFECTIVE TIME. The purchase and sale of the Properties shall be effective as of October 1, 2006, at 7:00 a.m., Central Daylight Time (herein called the "Effective Time"), subject to amendment pursuant to the terms of
Section 7.01.

1.03 Letter Agreement. Buyer and Seller have entered into a Letter Agreement dated February 15, 2007 which is incorporated herein by reference ("Letter Agreement"). Notwithstanding any provision to the contrary in this Agreement, the provisions contained in the Letter Agreement shall prevail in the event of conflict between this Agreement and the Letter Agreement.

ARTICLE II

PURCHASE PRICE

2.01 Purchase Price. The purchase price for the Property shall be $92,240,340 (herein called the "Preliminary Purchase Price"), subject to adjustment as set forth in Section 2.02. and the Letter Agreement.

2.02 ADJUSTMENTS TO PURCHASE PRICE. The Preliminary Purchase Price shall be adjusted as follows and the resulting amount shall be herein called the "Final Purchase Price":

(a) The Preliminary Purchase Price shall be adjusted upward by the following:

(1) The value of all merchantable, allowable oil in storage above the pipeline connection at the Effective Time that is credited to the Properties, such value to be the market or contract price in effect as of the Effective Time less taxes deducted by the purchaser of such oil;

(2) Subject to Section 4.01(b), the amount of all expenditures (including, without limitation, royalties as to the McCallister #1 well, Lea County, New Mexico in the approximate amount of $12,000, rentals and other charges, ad valorem, property, production, excise, severance and other taxes based upon or measured by the ownership of the Properties or the production of hydrocarbons or the receipt of proceeds therefrom, expenses properly billed under applicable operating agreements including but not limited to operating expense, repair expense, maintenance expense, workover expense, and drilling and recompletion expense and, in the absence of an operating agreement, expenses of the sort customarily billed under such agreements) paid by or on behalf of Seller in connection with the ownership or operation of the Properties including but not limited to operating expense, repair expense, maintenance expense, workover expense, and drilling and recompletion expense from the Effective Time to the Closing Date;

(3) An amount equal to all prepaid expenses attributable to the Properties that are paid by or on behalf of Seller and disclosed in Schedule
2.02 (a)(3) to Buyer prior to the Closing Date and that are attributable to the period after the Effective Time including, without limitation, prepaid ad valorem, property, production, severance and similar taxes (but not including income taxes) based upon or measured by the ownership of property or the production of hydrocarbons or the receipt of proceeds therefrom; and

(4) Any other amount agreed upon by Seller and Buyer.

(b) The Preliminary Purchase Price shall be adjusted downward by the following:

(1) Proceeds received by Seller prior to the Closing Date attributable to the Properties and that are attributable to the period of time from the Effective Time to the Closing Date;

(2) An amount equal to all unpaid ad valorem, property, production, severance and similar taxes and assessments (but not including income taxes) based upon or measured by the ownership of property or the production of hydrocarbons or the receipt of proceeds therefrom accruing to the Properties prior to the Effective Time, which amount shall be computed based upon such taxes assessed against the applicable portion of the Properties for the preceding calendar year or, if such taxes are assessed on other than a calendar year basis, for the tax related year last ended; and

(3) An amount equal to the Preliminary Closing Statement described on Schedule 2.02 (b)(3).

2.03 Deposit. Contemporaneously with the execution of this Agreement, Buyer has paid to Five States the sum of Five Million Dollars ($5,000,000) (the "Deposit"). Five States shall hold the deposit in a segregated account until Closing or termination of this Agreement. If

Seller does not receive the Deposit by the end of business on February 16, 2007, Seller may terminate this agreement. In the event the transaction contemplated hereby is consummated in accordance with the terms hereof, the Deposit shall be applied to the Purchase Price to be paid by Buyer at the Closing. In the event the transaction contemplated hereby fails to close on the Closing Date, as defined in Section 7.01, as a result of a material breach of this Agreement by the Buyer and in the absence of a material breach of this Agreement by Seller, Five States shall distribute the Deposit among the Sellers as their sole remedy for such default. If the transaction contemplated hereby otherwise fails to close, the Deposit and the additional sums described in the Letter Agreement shall be returned to Buyer . The Deposit shall not bear interest, and if the same is paid to Buyer or if Buyer receives credit for same against the Purchase Price paid at Closing, such payment, or credit, shall be in the amount of the Deposit and shall not include any additional amounts. THE PARTIES HEREBY ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO SELLER OCCASIONED BY THE FAILURE OF THIS TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE CIRCUMSTANCES AND DOES NOT CONSTITUTE A PENALTY.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.01 REPRESENTATIONS AND WARRANTIES OF SELLER. Each Seller represents and warrants the following:

(a) Seller is duly organized, validly existing and in good standing under the laws of the state of its formation and is duly qualified to carry on its business in each state where failure to so qualify would have a materially adverse effect upon its business or properties.

(b) Seller has all requisite power and authority to carry on its business as presently conducted, to enter into this Agreement, and to perform its obligations under this Agreement. The consummation of the transactions contemplated by this Agreement has been duly and validly authorized and will not (a) violate, or be in conflict with, any provision of the articles of incorporation or bylaws or other governing documents of Seller, or (b) result in the breach of any term or condition of, or constitute a default or cause the acceleration of any obligation under any provision of any agreement or instrument to which Seller is a party or by which it is bound (except any provision in any agreement as to (i) any preferential right to purchase a portion of the Property, (ii) required consents to transfer and related provisions, (iii) maintenance of uniform interests provisions and (iv) any other third-party approvals contemplated herein) or (c) violate or conflict with any judgment, decree, order, statute, rule or regulation applicable to Seller or the Properties.

(c) This Agreement has been duly executed and delivered on behalf of Seller. This Agreement constitutes a legal, valid and binding obligation of Seller enforceable in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law.

(d) Except as described on Schedule 3.01(d) hereto, no suit, action or other proceeding is pending, and to Seller's Knowledge none is threatened, before any court or governmental agency as of the date of this Agreement that might result in impairment or loss of Seller's title to any part of the Properties or that might hinder or impede the operation of the Properties or that might result in a diminution of the value thereof or for which Buyer could become liable as a successor or otherwise.

(e) Seller has not incurred any liability, contingent or otherwise, for brokers' or finders' fees relating to the transactions contemplated by this Agreement for which Buyer shall have any responsibility whatsoever.

(f) Schedule 1.01(j)-a identifies various gas imbalances, both over produced and underproduced, regarding production taken or marketed from the Properties which could result in (i) a portion of Seller's interest in production therefrom to be taken or delivered after the Closing Date without Buyer receiving payment therefor and at the price it would have received absent such imbalance; or (ii) Buyer being obligated to make payment to any person or entity as a result of such imbalance; or (iii) production being shut-in or curtailed after the Closing Date due to non-compliance with allowables, production quotas, proration rules or similar orders or regulations of governmental authorities; however, Buyer will not be obligated, by virtue of any prepayment arrangement, take-or-pay agreement or similar arrangement, to deliver hydrocarbons produced from the Properties at some future time without then receiving full payment therefore. Buyer and Seller agree to offset all identifiable gas imbalances to the extent possible, then adjust the remaining over or under balance by a cash settlement based on $3.50 per mcf as an upward or downward adjustment to the Preliminary Purchase Price or Final Purchase Price.

(g) To the Knowledge of Seller, the purchasers under all gas contracts under which Seller is selling natural gas produced from the Properties are in compliance with all the material terms of such contracts and Seller has received no notice from any such purchaser of such party's intention or desire to modify, renegotiate or repudiate any such contract or any of the material terms thereof.

(h) This transaction is not subject to the reporting requirements of the Internal Revenue Code of 1986, as amended, and, accordingly, IRS Form 8594 (Asset Acquisition Statement) is not required to be filed for this transaction; provided, if the parties mutually agree that a filing of Form 8594 is required, the parties will confer and cooperate in the preparation and filing of their respective forms to reflect consistent reporting of an agreed allocation of the value of the Properties that is consistent with those shown on Exhibit "B".

(i) With respect to production from the Properties prior to the Effective Date (i) all royalties due in respect of Seller's interest in the Properties have been paid in full, except for funds in suspense accounts which will be turned over to Buyer and, subject to and without waiver of Section 8.05(b), it becomes Buyer's obligation to pay all royalties in suspense accounts whether accrued before or after the Effective Time; and (ii) all taxes due and owing in respect thereof have been paid in full.

(k) To the Knowledge of Seller, the leases are valid and subsisting and in effect in accordance with their terms.

(l) Seller has Defensible Title to the Properties and Seller warrants Defensible Title to the Properties by, through, and under Seller, but not otherwise.

(m) Except for approvals by Governmental Authorities customarily obtained after the Closing and to the best of Seller's Knowledge, no authorization, consent, approval, exemption, franchise, permit, or license of, or filing with, any Governmental Authority or any other Person is required to authorize, or is otherwise required in connection with, the valid execution and delivery by either Buyer or Seller of this Agreement or the performance by either Buyer or Seller of its obligations hereunder and thereunder.

(n) To Seller's Knowledge, Seller is not in material breach of the oil, gas and/or mineral leases, or any material contracts and agreements comprising any part of the Properties (such leases, material contracts, and agreements being herein called the "Basic Documents"). To Seller's Knowledge, in all material respects (i) the Basic Documents all are in full force and effect and are the valid and legally binding obligations of the parties thereto and are enforceable in accordance with their respective terms; (ii) all material payments (including, without limitation, royalties, delay rentals, shut-in royalties, or payments, fees for salt water disposal or injection, and joint interest or other billings under unit or operating agreements) due from Seller thereunder have been made by Seller; (iii) no other party to any Basic Document (or any successor in interest thereto) is in breach or default with respect to any of their material obligations thereunder; (iv) neither the Seller nor any other party to any Basic Document has given or threatened to give notice of any action to terminate, cancel, rescind or procure a judicial determination of any Basic Document or any provision thereof; and (v) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not result in a breach of, constitute a default under, or result in a violation of the material provisions of any Basic Document and none of the Basic Documents will require, after the Effective Date, that any advance payments be made to any party other than those required under operating agreements. Seller operates only those Properties as specified on Exhibit "A". All items of operating expense invoiced by Seller prior to the Effective Date are duly and properly charged. As to properties operated by Seller, there are no pending audits or requests to audit the operations of the Properties. True and correct copies of all of the Operating Agreements applicable to the Properties operated by Seller have been provided to Buyer.

(o) The phrase "to Seller's Knowledge," or other similar language which qualifies a statement as to the knowledge of Seller, will mean that within the actual present knowledge of a Responsible Officer after due inquiry of appropriate managerial level personnel, such Responsible Officer has received no verbal information from an employee of Seller or any written information indicating that the specific statement so qualified is not accurate. Responsible Officer is defined as the President, Chief Operating Officer, and General Counsel of Seller.

3.02 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that:

(a) Buyer is a Delaware corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and duly qualified to carry on its business in each state in which failure to so qualify would have a materially adverse effect on Buyer's business or properties.

(b) Buyer has all requisite power and authority, to carry on its business as presently conducted, to enter into this Agreement, to purchase the Properties on the terms described in this Agreement, and to perform its other obligations under this Agreement. The consummation of the transactions contemplated by this Agreement will not violate, or be in conflict with, any provision of Buyer's articles of incorporation, bylaws or other governing documents or any agreement or instrument to which Buyer is a party or by which it is bound, or any judgment, decree, order, statute, rule or regulation applicable to Buyer.

(c) This Agreement has been duly executed and delivered on behalf of Buyer. This Agreement constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms, subject, however, to the effect of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law.

(d) Buyer has incurred no liability, contingent or otherwise, for brokers' or finders' fees relating to the transactions contemplated by this Agreement for which Seller shall have any responsibility whatsoever.

3.03 DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF EACH SELLER CONTAINED IN SECTION 3.01 ABOVE (OR IN ANY CONVEYANCE EXECUTED PURSUANT TO THIS AGREEMENT) ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND EACH SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY IMPLIED WARRANTY OR REPRESENTATION RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE. BUYER AGREES TO ACCEPT THE PROPERTIES AND ACKNOWLEDGES THAT THE SALE OF THE PROPERTIES AS PROVIDED FOR HEREIN IS MADE BY SELLER, ON AN "AS IS, WHEREAS, AND WITH ALL FAULTS" BASIS. BUYER EXPRESSLY ACKNOWLEDGES THAT EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES MADE BY SELLER IN SECTION 3.01, SELLER MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, ORAL OR WRITTEN, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, WITH RESPECT TO THE PROPERTIES, OR THE CONDITION OF THE PROPERTIES. UPON CLOSING, BUYER SHALL BE DEEMED TO HAVE SATISFIED ITSELF AS TO THE PHYSICAL AND ENVIRONMENTAL CONDITION OF THE PROPERTIES, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE FIBERS, OR

NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM"). NO SELLER MAKES ANY WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY ANY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER ARE PROVIDED BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST ANY SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.

ARTICLE IV

COVENANTS

4.01 COVENANTS OF SELLER. Seller covenants and agrees with Buyer that:

(a) During the period from the date of this Agreement to the date of Closing, without the prior written consent of Buyer, Seller will not (i) cause or permit the Properties to be developed, maintained, or operated in a manner inconsistent with good and prudent operating practices, (ii) abandon any part of the Properties, (iii) commence any operations on any of the Properties anticipated to cost the owner of the Properties in excess of the limitation on expenditure contained in the applicable operating agreement (except emergency operations, operations required under presently existing contractual obligations described in Schedule 4.01(a), the ongoing commitments under the AFE's described in Schedule 4.01(a) hereto, and operations undertaken to avoid any penalty provision of any applicable agreement or order described in Schedule 4.01(a)), or (iv) convey or dispose of any part of the Properties (other than personal property and equipment used on the Properties for oil and gas operations in the normal course of business and oil, gas, and other liquid products produced from the Property in the regular course of business). To the extent that Seller owns undivided interests in certain of the Properties, Buyer agrees that the acts or omissions of Seller's co-owners shall not constitute a violation of the provisions of this Section 4.01(a) nor shall any third-party action required by a vote of co-owners constitute such a violation so long as Seller has voted its interest in compliance with this Section 4.01(a). Seller shall, however, promptly notify Buyer in writing of such acts.

(b) Each Seller shall maintain its corporate or other organizational status from the date hereof until Closing and shall assure that as of the Closing Date it will not be under any corporate, legal or contractual restriction that would prohibit or delay the timely consummation of such transactions. With respect to third-party consents and preferential rights to purchase, Seller shall promptly make written requests of such third parties, in compliance with applicable

agreements, that such consents be given or waived and that such preferential rights be waived. Seller shall promptly notify Buyer in writing if any preferential rights are exercised, any consents or approvals are denied, or if the requisite period has elapsed without said rights having been exercised or consents or approvals having been received.

(c) Seller shall immediately notify Buyer of any suit, action or other proceeding of the type referred to in Section 3.01(d) or refusals to grant consents or waive preferential rights to purchase that arise prior to the Closing of which Seller has or obtains Knowledge.

(d) Seller shall immediately notify Buyer in writing of any material adverse change in the Properties

(e) Without requiring any adjustment to the Preliminary Purchase Price or the Final Purchase Price before or after Closing, Seller shall permit Buyer access to the revenues and direct operating expenses attributable to the Properties as required by the regulations of the Securities and Exchange Commission. In this regard, Seller shall afford to Buyer and Buyer's counsel, internal and independent auditors, and other authorized representatives, from and after the date of execution hereof, reasonable access (no later than two (2) Business Days after Buyer's request therefor) to Seller's financial accounting books and records relating to the Properties (including, without limitation, (a) joint interest billings for Working Interests by Lease and/or Well, (b) vendor invoices, (c) lease operating expense statements, (d) revenue database and records for distributions to Net Revenue Interest owners, (e) check stubs, cancelled checks, and other evidence of payments made, (f) vendor and joint interest owner correspondence, (g) AFEs for drilling, completion, workover, and other capital projects and reconciliations thereof against actual costs incurred, (h) filings, returns, and other materials relating to Properties related taxes, and (i) the Leases and all relevant contracts for the calendar years ended December 31, 2004, December 31, 2005, and December 31, 2006, and the period beginning January 1, 2007, through the Closing. Such access shall include the right of Buyer to photocopy, at Buyer's expense, such financial accounting books and records and reasonable access during normal business hours to the independent auditors and consulting petroleum engineers of Seller, at Buyer's expense and on terms specified by such auditors and engineers, and the internal accounting, financial, engineering, and other personnel of Seller who are knowledgeable about the Properties, as well as permission to contact vendors and joint interest owners. Buyer shall cooperate with Seller to minimize the disruption of Seller's business and office operations as the result of Buyer's activities under this Section 4.01(f). Prior to Buyer or Buyer's representatives reviewing any information pursuant to this section, Buyer and its representatives will each sign a Confidentiality Agreement as requested by Seller.

4.02 COVENANTS OF BUYER. Buyer covenants and agrees with Seller that:

(a) Buyer shall maintain its corporate status and assure that as of the Closing Date it will not be under any legal or contractual restriction that would prohibit or delay the timely consummation of such transactions.

(b) Until Closing, Buyer shall exercise all due diligence in safeguarding and maintaining secure all engineering, geological and geophysical data, reports and maps,

accounting records, and all other confidential data or information in the possession of Buyer relating to the Properties and furnished by Seller.

ARTICLE V

TITLE AND OTHER MATTERS

5.01 DEFENSIBLE TITLE.

(a) As used herein, the term "Defensible Title" shall mean, as to each of the Properties, such title held by Seller (in the aggregate) that, subject to and except for the Permitted Encumbrances (as hereinafter defined):
(i) entitles Seller to receive not less than the "Net Revenue Interest" set forth in Exhibit "A" of all oil, gas and associated liquid and gaseous hydrocarbons produced, saved and marketed from such Property; (ii) obligates Seller to bear costs and expenses relating to the maintenance, development and operation of wells located on such Property in an amount not greater than the "Working Interest" set forth in Exhibit "A"; and (iii) is free and clear of encumbrances, liens and defects.

(b) The term "Permitted Encumbrances", as used herein, shall mean:

(1) lessors' royalties, overriding royalties, and division orders and sales contracts covering oil, gas or associated liquid or gaseous hydrocarbons, reversionary interests and similar burdens of record if the net cumulative effect of such burdens does not operate to reduce the Net Revenue Interest of any of the Properties to less than the Net Revenue Interest set forth in Exhibit "A" for such Property or increase the Working Interest of any of the Properties to more than the Working Interest set forth in Exhibit "A" for any of the Properties, without a corresponding increase in the applicable Net Revenue Interest;

(2) preferential rights to purchase and required third party consents to assignments and similar agreements;

(3) liens for taxes or assessments not yet due or not yet delinquent or, if delinquent, that are being contested in good faith in the normal course of business;

(4) all rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests therein if the same are customarily obtained routinely and subsequent to such sale or conveyance;

(5) easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations, pipelines, grazing, logging, canals, ditches, reservoirs or the like; and easements for streets, alleys, highways, pipelines, telephone lines, power lines, railways and other easements and rights-of-way, on, over or in respect of any of the Properties to the extent such matters do not materially interfere with operations on or access to and from the Properties;

(6) liens of operators relating to obligations not yet due or pursuant to which Seller is not in default;

(7) the terms and conditions of all leases, agreements, orders, instruments, documents identified, and other matters expressly described, in any of the Exhibits or Schedules hereto; and

(8) rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any of the Property in any manner, and all applicable laws, rules and orders of governmental authority.

5.02 CASUALTY LOSS. If, prior to the Closing, all or any portion of the Properties is destroyed by fire or other casualty, is taken in condemnation or under the right of eminent domain or proceedings for such purposes are pending or threatened, Buyer will purchase such Property notwithstanding any such destruction, taking or pending or threatened taking (without reduction of the Preliminary Purchase Price therefor), in which case Seller shall, at the Closing, pay to Buyer all sums paid to Seller by third parties by reason of the destruction or taking to be assigned to Buyer and shall assign, transfer and set over unto Buyer all of the right, title and interest of Seller in and to any unpaid awards or other payments from third parties arising out of the destruction, taking or pending or threatened taking as to such Properties to be assigned to Buyer. Prior to Closing, Seller shall not voluntarily compromise, settle or adjust any amounts payable by reason of any destruction, taking or pending or threatened taking as to such Properties to be assigned to Buyer without first obtaining the written consent of Buyer.

5.03 ADJUSTMENTS. Seller and Buyer agree there are no adjustments to the Preliminary Purchase Price except for (i) the adjustments shown on Schedule
2.02 (b)(3), and (ii) the adjustments described in Section 2.02 (b)(1) and 2.02
(b)(2) and the adjustments specified in the Letter Agreement.

ARTICLE VI

CONDITIONS TO CLOSING

6.01 SELLER'S CONDITIONS. The obligations of Seller at the Closing are subject, at the option of Seller, to the satisfaction at or prior to the Closing of the following conditions:

(a) All representations and warranties of Buyer contained in this Agreement shall be true in all material respects at and as of the Closing as if such representations and warranties were made at and as of the Closing, and Buyer shall have performed and satisfied all agreements in all respects required by this Agreement to be performed and satisfied by Buyer at or prior to the Closing.

(b) No suit or other proceeding shall be pending before any court or governmental agency seeking to restrain, prohibit or declare illegal, or seeking substantial damages in connection with, the purchase and sale contemplated by this Agreement.

6.02 BUYER'S CONDITIONS. The obligations of Buyer at the Closing are subject, at the option of Buyer, to the satisfaction at or prior to the Closing of the following conditions:

(a) All representations and warranties of Seller contained in this Agreement shall be true in all material respects at and as of the Closing as if such representations and warranties were made at and as of the Closing.

(b) No suit or other proceeding shall be pending before any court or governmental agency seeking to restrain, prohibit or declare illegal, or seeking substantial damages in connection with, the purchase and sale contemplated by this Agreement.

(c) Buyer or its designee shall be designated operator as specified in the Letter Agreement.

ARTICLE VII

CLOSING

7.01 DATE OF CLOSING. Unless the parties hereto mutually agree otherwise and subject to the conditions stated in this Agreement, the consummation of the transactions contemplated hereby (herein called the "Closing") shall be held on or before March 12, 2007. In the event the transaction fails to close on or before March 12, 2007 and in the absence of a material breach of this Agreement by Seller, Seller may in its discretion terminate this Agreement and retain the Deposit. In the event Seller fails or refuses to close, the Deposit along with the additional sums described in the Letter Agreement will be returned and paid over to Buyer within ten (10) days. The date Closing actually occurs is herein called the "Closing Date."

7.02 PLACE OF CLOSING. The Closing shall be held at the offices of Buyer or at such other place as Buyer and Seller may agree in writing.

7.03 CLOSING OBLIGATIONS. At the Closing the following events shall occur, each being a condition precedent to the others and each being deemed to have occurred simultaneously with the others.

(a) Seller shall execute, acknowledge and deliver to Buyer an assignment, bill of sale and conveyance (in sufficient counterparts to facilitate recording) in form as set forth in Exhibit "C" hereto conveying the Properties to Buyer.

(b) At least three (3) calendar days prior to the Closing Date, Seller shall prepare and deliver to Buyer for Buyer's review and comment a statement describing the adjustments to be made pursuant to Section 2.02 (b)(1) and (b)(2). At Closing, Seller and Buyer shall execute and deliver a statement approving the adjustments required by Section 2.02 (b)(1) and (b)(2). The term "Closing Amount" shall mean the Preliminary Purchase Price adjusted as provided in Section 2.02 (b), using for such adjustments the best information then available and after deduction of the Deposit.

(c) Buyer shall deliver the Closing Amount by wire transfer to a bank account designated by Five States at Closing.

(d) Seller shall deliver to Buyer exclusive possession of the Properties.

(e) With respect to any of the Properties of which Seller or any affiliate of Seller is the operator, Seller shall deliver to Buyer Seller's (or such affiliate's) resignation as operator and shall thereafter cooperate with and assist Buyer in being appointed successor operator of such Properties.

(f) Seller and Buyer shall execute, acknowledge and deliver transfer orders or letters in lieu thereof directing all purchasers of production to make payment to Buyer of proceeds attributable to production after the Effective Time from the Properties assigned to Buyer under Section 7.03(a).

(g) Seller shall execute and deliver a Non-Foreign Affidavit substantially in the form of Exhibit "E."

(h) To the extent possible, Seller shall assign all permits and other governmental authorizations to Buyer.

ARTICLE VIII

OBLIGATIONS AFTER CLOSING

8.01 POST-CLOSING ADJUSTMENTS. As soon as practicable (and in no event more than 90 calendar days) after the Closing, Seller shall prepare and deliver to Buyer, in accordance with this Agreement a statement (herein called the "Final Settlement Statement") setting forth each adjustment or payment for matters described in Section 2.02 (b)(1) and (b)(2) that was not finally determined as of the Closing and showing the calculation of such adjustments. Within fifteen calendar days after receipt of the Final Settlement Statement, Buyer shall deliver to Seller a written report containing any changes that Buyer proposes be made to the Final Settlement Statement. The parties shall undertake to agree with respect to the amounts due pursuant to such post-Closing adjustment no later than 60 calendar days thereafter. If no such agreement can be reached, either Party may refer the matter to arbitration. The date upon which such agreement is reached or upon which the Final Purchase Price is established, shall be herein called the "Final Settlement Date". In the event that (1) the Final Purchase Price is more than the Closing Amount, Buyer shall pay to Five States Energy Company in immediately available funds the amount of such difference, or (2) the Final Purchase Price is less than the Closing Amount, Seller shall pay to Buyer in immediately available funds the amount of such difference. Payment by Buyer or Seller shall be made within five calendar days of the Final Settlement Date. Subject to the terms hereof and except to the extent same have already been taken into account as an adjustment to the Purchase Price, all monies, proceeds, receipts, credits, and income accruing to the Properties (a) for the period subsequent to the Effective Time, shall be the sole Properties and entitlement of Buyer, and, to the extent received by Seller, Seller shall fully disclose, account for, and transmit same to Buyer promptly, and (b) for the period prior to the Effective Time, shall be the sole property and entitlement of Seller and, to the extent received by Buyer, Buyer shall fully

disclose, account for, and transmit same to Seller promptly.

8.02 FILES AND RECORDS. Within ten calendar days after the Closing Date, Seller shall deliver to Buyer all of Seller's files and records relating to the Properties.

8.03 SALES TAXES AND RECORDING FEES. Buyer shall pay all sales taxes, if any, occasioned by the sale of the Property and all documentary, filing and recording fees required in connection with the filing and recording of any assignments.

8.04 FURTHER ASSURANCES. After Closing, Seller and Buyer shall execute, acknowledge and deliver or cause to be executed, acknowledged and delivered such instruments and take such other action as may be necessary or advisable to carry out their obligations under this Agreement and under any document, certificate or other instrument delivered pursuant hereto.

8.05 INDEMNIFICATION. From and after the Closing:

(a) Buyer shall defend, indemnify and save and hold harmless Seller against (i) all claims, costs, expenses and liabilities (including attorneys fees and expenses) incurred in connection with the ownership, development, exploration, operation, maintenance or any other matters relating to the applicable operating agreements of the Properties which accrue or relate to the period after the Effective Time, (ii) all claims, costs, expenses and liabilities relating to environmental conditions on the Properties, whether accruing or relating to periods before or after the Effective Time, and (iii) court costs and reasonable attorneys' fees incurred in enforcing this indemnity. As used herein, claims for environmental conditions means any costs, damages, expenses, liabilities, obligations or other responsibilities arising from or under any environmental law due to the condition of the Properties prior to the Effective Time, including without limitation any liability, responsibility or obligation to cleanup, remove, contain, remediate or take any other corrective actions.

(b) Seller shall defend, indemnify and save and hold harmless Buyer against all claims, costs, expenses and liabilities (including attorneys fees and expenses) incurred in connection with the ownership, development, exploration, operation or maintenance of the Property, which accrue or relate to the period prior to the Effective Time including, without limitation (i) amounts due for severance taxes and royalties due with respect to production prior to the Effective Time (except as to amounts in suspense transferred to Buyer pursuant to Section 3.01(i), and (ii) court costs and reasonable attorneys' fees incurred in enforcing this indemnity.

8.06 SURVIVAL. The representations, warranties, covenants, agreements and indemnities included or provided for in this Agreement and any Exhibit hereto shall survive the Closing.

8.07 SUBROGATION. Seller executes this Agreement with full substitution and subrogation of Buyer in and to all covenants and warranties of every kind and character of Seller relating to the Properties under the terms of any agreement or granted or implied by law.

ARTICLE IX

TERMINATION OF AGREEMENT

9.01 TERMINATION. This Agreement and the transactions contemplated hereby may be terminated as provided elsewhere in this Agreement and in the following instances:

(a) By Seller if the conditions set forth in Section 6.01 are not satisfied in all material respects or waived as of the Closing Date.

(b) By Buyer if the conditions set forth in Section 6.02 are not satisfied in all material respects or waived as of the Closing Date.

(c) At any time by the mutual written agreement of Buyer and Seller.

9.02 LIABILITIES UPON TERMINATION. If this Agreement is terminated for any reason other than those set forth in Section 9.01 or is breached, nothing contained herein shall be construed to limit Seller's or Buyer's legal or equitable remedies including, without limitation, damages for the breach or failure of any representation, warranty, covenant or agreement contained herein and the right to enforce specific performance of this Agreement.

ARTICLE X

MISCELLANEOUS

10.01 EXHIBITS. The Exhibits and Schedules referred to in this Agreement are hereby incorporated in this Agreement by reference and constitute a part of this Agreement. Each party to this Agreement and its counsel has received a complete set of Exhibits and Schedules prior to and as of the execution of this Agreement.

10.02 EXPENSES. Except as otherwise specifically provided, all fees, costs and expenses incurred by Buyer or Seller in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the party incurring the same, including, without limitation, legal and accounting fees, costs and expenses.

10.03 NOTICES. All notices and communications required or permitted under this Agreement shall be in writing and any communication or delivery hereunder shall be deemed to have been duly made when personally delivered to the individual indicated below, or if mailed or sent by facsimile transmissions, when received by the party charged with such notice and addressed as follows:

ISRAMCO, Inc.
11767 Katy Freeway, Suite 711
Houston, Texas 77079

Attention: Mr. J. Monroe Cutler Telephone No.: (713) 621 - 5946 Facsimile No.: (713) 621 - 3988; e - mail jayoil@swbell.net

With a copy to:

Mr. James H. Hutchinson, III 2204 Louisiana, Suite 220 Houston, Texas 77002
Phone: (713) 524 - 7300; e - mail: jhutchinson@schalaw.com

Five States Energy Company, L.L.C.

1220 One Energy Square
4925 Greenville Ave.
Dallas, TX 75206-4020

Attention: Steve Collins, Operations Manager Phone: 972-806-1123 email: scollins@fivestates.com

With a copy to:

Mr. Curtis R. Swinson

Malouf, Lynch, Jackson & Swinson, P.C..

12222 Merit Drive

Suite 1000
Dallas, TX 75251
Phone: 214-273-0566 email: cswinson@mljs.net

Any party may, by written notice so delivered to the others, change the address or individual to which delivery shall thereafter be made.

10.04 AMENDMENTS. This Agreement may not be amended nor any rights hereunder waived except by an instrument in writing signed by the party to be charged with such amendment or waiver and delivered by such party to the party claiming the benefit of such amendment or waiver.

10.05 ASSIGNMENT. Prior to Closing, neither Seller nor either Buyer shall assign this Agreement without the prior written consent of the other; provided however that Buyer may assign this Agreement to an affiliate by assignment, transfer of equity, merger, reorganization, or consolidation, without the prior written consent of the Seller. After Closing, any assignment of rights shall provide for the assumption by the transferee of the obligations of the assigning Party under this Agreement. No assignment of any rights hereunder shall relieve the assigning Party of any obligations or responsibilities hereunder. Upon the assumption by such a transferee of the obligations of the assigning Party under this Agreement, such transferee shall become primarily liable for all such obligations assumed. Notwithstanding any such assumption, however, if such a transferee fails to perform any of the obligations thus assumed, the assigning Party shall remain liable for the performance thereof. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.

10.06 ANNOUNCEMENTS. Seller and Buyer shall consult with each other with regard to all press releases and other announcements issued concerning this Agreement or the transactions contemplated hereby and, except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, Seller shall not disclose the Purchase Price for a period of two years following Closing, and neither Buyer nor Seller shall issue any such press release or other publicity without the prior written consent of the other party unless a party is advised by counsel that it is under a legal obligation to issue such publicity.

10.07 HEADINGS. The headings of the articles and sections of this Agreement are for guidance and convenience of reference only and shall not limit or otherwise affect any of the terms or provisions of this Agreement.

10.08 COUNTERPARTS; FACSIMILE SIGNATURE. This Agreement may be executed by Buyer and Seller in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same instrument. This Agreement may be executed by facsimile signature, which shall be deemed an ink - signed original for all purposes.

10.09 REFERENCES. References made in this Agreement, including use of a pronoun, shall be deemed to include where applicable, masculine, feminine, singular or plural, individuals, partnerships or corporations. As used in this Agreement, "person" shall mean any natural person, corporation, partnership, trust, estate or other entity.

10.10 GOVERNING LAW. This Agreement and the transactions contemplated hereby shall be construed in accordance with, and governed by, the laws of the State of Texas.

10.11 ENTIRE AGREEMENT. This Agreement (including the Exhibits hereto) constitutes the entire understanding among the parties with respect to the subject matter hereof, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter.

10.12 PARTIES IN INTEREST. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and, except as otherwise prohibited, their respective successors and assigns; and nothing contained in this Agreement, express or implied, is intended to confer upon any other person or entity any benefits, rights or remedies.

10.13 ARBITRATION.

(a) Any dispute arising under this Agreement which cannot be resolved by mutual agreement, shall be resolved exclusively by final and binding arbitration in the State of Texas, County of Dallas, in accordance with the commercial arbitration rules of the American Arbitration Association, except as otherwise provided herein. Either Buyer or Seller may invoke arbitration of such issue by serving on the other party a written notice of arbitration (the "Arbitration Notice"), which shall specify with reasonable detail (i) the issues in dispute, (ii) the claims asserted, (iii) the remedies sought by the party invoking arbitration and (iv) the name of such party's chosen arbitrator. Within five (5) Business Days of receipt of the notice, for claims in excess of $500,000, the receiving party shall (A) select its arbitrator and (B) notify the party

who shall have given the Arbitration Notice. Within five (5) Business Days thereafter, the two (2) arbitrators so chosen shall choose a third arbitrator. Each arbitrator shall have general experience in the oil and gas industry.

(b) All decisions of the arbitrators shall be by a majority vote. Each of Buyer and Seller shall pay the fees and expenses of the arbitrator chosen by such party and shall pay one-half of the fees and expenses of the third arbitrator.

(c) A judgment on the award by the arbitrators may be entered by any court having jurisdiction thereof.

(d) All aspects of the arbitration shall be confidential, and the parties and arbitrators shall not disclose to others, or permit disclosure of, any information related to the proceedings, including but not limited to discovery, testimony and other evidence, briefs, and the award unless legally obliged to do so.

10.14 CREDIT FOR PAYMENTS. Each Seller hereby irrevocably names and designates Five States Energy Company as its agent to receive all notices and payments due to Seller from Buyer under this Agreement. Each Seller hereby stipulates and agrees that (a) any payment made by Buyer to Five States Energy Company hereunder (including, without limitation, the Deposit and the Closing Amount) shall be deemed received by Seller upon receipt thereof by Five States Energy Company, and (b) Five States shall indemnify and hold Buyer harmless from, and Buyer shall never have any obligation or liability in regard to, the apportionment, division, use or payment of such funds by Five States Energy Company.

10.15 LIKE KIND EXCHANGE. Seller may elect to structure this transaction as a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, with respect to any or all of the Properties (a "Like-Kind Exchange") at any time prior to the date of Closing. In order to effect a Like-Kind Exchange, Buyer shall cooperate and do all acts as may be reasonably required or requested by Seller with regard to effect the Like-Kind Exchange, including, but not limited to, permitting Seller to assign their rights under this Agreement to a qualified intermediary of Seller's choice in accordance with Treasury Regulation ss. 1.1031(k)-1(g)(4) or executing additional escrow instructions, documents, agreements or instruments to effect an exchange; provided, however, Buyer shall incur no expense in connection with such Like-Kind Exchange, Buyer shall not be required to take title to any property other than the Properties in connection with the Like-Kind Exchange, and Buyer's possession of the Properties will not be delayed by reason of any such Like-Kind Exchange.

10.16 DECEPTIVE TRADE PRACTICES WAIVER. To the extent applicable to the transaction contemplated hereby or any portion thereof, Buyer waivers Buyer's rights under the provisions of the Texas Deceptive Trade Practices - Consumer Protection Act, Sections 17.41 et. seq. of the Texas Business and Commerce Code, a law that gives consumers special rights and protections. Buyer states after consultation with an attorney of Buyer's selection that Buyer voluntarily consents to this waiver.

10.17 JOINT OBLIGATIONS. The obligations of each of the Sellers are joint and several.

EXECUTED as of the date first above mentioned.

                                     SELLER:
                                     -------

FIVE STATES ENERGY COMPANY, L.L.C.        FIVE STATES TRADING COMPANY


By: /s/ Arthur N. Budge                   By:  /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President


FIVE STATES CONSOLIDATED I, LTD.          FIVE STATES TRADING COMPANY
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President


FIVE STATES CONSOLIDATED I, LTD.          FIVE STATES CONSOLIDATED II, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President


FIVE STATES 2001A, LTD.                   FIVE STATES 2002-A, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President

FIVE STATES 2002-B LTD.                   FIVE STATES 2003-A, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President


FIVE STATES 2003-B LTD.                   FIVE STATES 2004, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President


FIVE STATES 2005 LTD.                     FIVE STATES 2006, LTD.
By Five States Energy Company, L.L.C.     B: Five States Energy Company, L.L.C.
its general partner                       its general partner

By: /s/ Arthur N. Budge                   By: /s/ Arthur N. Budge
Printed Name: Arthur N. Budge, Jr.        Printed Name: Arthur N. Budge, Jr.
Title: President                          Title: President


                                       BUYER:  ISRAMCO, INC.


                                       By:    /s/ Haim Tsuff
                                       Name:  Haim Tsuff
                                       Title: Chairman & Chief Executive Officer

EXHIBITY 10.2

LOAN AGREEMENT

$18,500,000

DATED AS OF

FEBRUARY 27, 2007

by and between

ISRAMCO, INC.
A DELAWARE CORPORATION,

as the "Borrower",

and

NAPHTHA ISRAEL PETROLEUM CORP., LTD.

As the "Lender"

THIS LOAN AGREEMENT, dated as of February 27, 2007 is made and entered into by and between ISRAMCO, INC., a Delaware corporation (the "Borrower") and NAPHTHA ISRAEL PETROLEUM CORP., LTD. (the "Lender").

WITNESSETH:

WHEREAS, ISRAMCO ENERGY, L.L.C., a Texas limited liability company ("Isramco Energy"), is a wholly owned subsidiary of the Borrower;

WHEREAS, Isramco Energy has entered into a Purchase and Sale Agreement with Five States Energy Company, L.L.C. and its related entities (the "PSA") pursuant to which Borrower is to acquire interests in certain oil and gas properties located in the States of Texas and New Mexico (the "Acquisition");

WHEREAS, on or about December 14, 2006, Borrower entered into a Loan Agreement with IOC-Israel Oil Company, Ltd. ("IOC") pursuant to which IOC loaned Borrower the principal amount of Seventeen Million Dollars ($17,000,000) (the "IOC Loan") for the purposes of making an equity contribution to Isramco Energy;

WHEREAS, the IOC Loan has been assigned to and assumed by Lender;

WHEREAS, the Borrower desires to obtain additional financing in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) ("Additional Financing") from the Lender for purposes of contribution to the equity of Isramco Energy for the Acquisition, working capital, capital expenditures, to finance acquisitions of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties, and for other lawful corporate purposes and to consolidate the Additional Financing with the IOC Loan;

WHEREAS, to induce Lender to extend the Additional Financing to Borrower and to consolidate the Additional Financing with the IOC Loan, Jay Petroleum, L.L.C. ("Jay") has agreed to unconditionally guarantee the indebtedness of Borrower to Lender and to pledge its oil and gas interests to secure the obligations guaranteed; and

WHEREAS, the Lender is willing to extend the Additional Financing to Borrower and to consolidate the IOC Loan with the Additional Financing upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, receipt of which is acknowledged by the parties hereto, the parties agree, as follows:

ARTICLE I

CERTAIN DEFINITIONS

When used herein, the following terms shall have the following meanings:

1.1 BUSINESS DAY shall mean a day other than a Saturday, Sunday or a day upon which banks in the State of Texas are closed to business generally; provided that when used in connection with a Libor Loan, the term shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

1.2 DEFAULT RATE shall mean the Stated Rate plus 12 percentage points (12%) per annum.

1.3 EFFECTIVE DATE shall mean February 27, 2007.

1.4 EVENT OF DEFAULT shall mean any of the events specified in
Section 7.1 of this Agreement, and Default shall mean any event, which together with any lapse of time or giving of any notice, or both, would constitute an Event of Default.

1.5 GOVERNMENTAL AUTHORITY shall include the country, the state, county, city and political subdivisions in which any Person or such Person's property is located or which exercises valid jurisdiction over any such Person or such Person's property, and any Tribunal of any of them, including monetary authorities, which exercises valid jurisdiction over any such Person or such Person's property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Borrower, any of its Subsidiaries, any of Borrower's properties or the Lender.

1.6 GOVERNMENTAL REQUIREMENT shall mean any Law, or other directive or requirement (whether or not having the force of law), including, without limitation, environmental laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

1.7 HEREBY, HEREIN, HEREOF, HEREUNDER and similar such terms shall mean and refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which the respective word appears.

1.8 HIGHEST LAWFUL RATE shall mean on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that the Texas Finance Code establishes the "Ceiling Rate", the Ceiling Rate shall be the "weekly ceiling" (as defined in the Texas Finance Code) for that day. Lender may, from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code by notice to Borrower, if and to the extent permitted by the Texas Finance Code. Without notice to Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates.

Loan Agreement

1.9 INDEBTEDNESS shall mean any and all: (i) indebtedness, obligations and liabilities of the Borrower to the Lender incurred or which may be incurred hereafter pursuant to the terms of this Agreement or any of the other Loan Documents, and any extensions, renewals, substitutions, amendments and increases in amount thereof, including such amounts as may be evidenced by the Note and all lawful interest thereon and other charges, and all reasonable costs and expenses incurred by the Lender in connection with the preparation, filing and recording of the Loan Documents, including attorneys fees; (ii) all reasonable costs and expenses, including attorneys' fees, paid or incurred by the Lender in enforcing or attempting to enforce collection of any Indebtedness and in enforcing or realizing upon or attempting to enforce or realize upon any collateral or security for any Indebtedness and in protecting and preserving the Lender's interest in the Indebtedness or any collateral or security for any Indebtedness in any bankruptcy or reorganization proceeding, including interest on all sums so expended by the Lender accruing from the date upon which such expenditures are made until paid, at an annual rate equal to the Default Rate; and (iii) sums expended by the Lender in curing any Event of Default or Default of the Borrower under the terms of this Agreement, the other Loan Documents or any other security agreement or other writing evidencing or securing the payment of the Indebtedness described herein, including the Note.

1.10 INTEREST PERIOD shall mean shall mean the period commencing on the Effective Date and ending on the numerically corresponding day each six (6) calendar months thereafter, except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month.

1.11 LAW(S) shall mean all statutes, laws, ordinances, regulations, orders, rules, codes, permits, franchises, licenses, certificates, writs, injunctions, or decrees of the United States, any state or commonwealth, any municipality, any foreign country, any territory or possession, or any Tribunal.

Loan Agreement

1.12 LIBOR shall mean, at any time of determination, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Dow Jones Market Service Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) 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 "LIBOR" shall mean the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) 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 LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates. In the event that such rate does not appear on either Dow Jones Market Service Page 3750 or Reuters Screen LIBOR Page, "LIBOR" shall be the rate per annum at which deposits in Dollars are offered by leading reference banks in the London interbank market to Wells Fargo Bank, N.A. at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of this Loan.

1.13 LIEN shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under the Laws of any jurisdiction).

1.14 LOAN shall mean the funds loaned to the Borrower by the Lender pursuant to this Agreement.

1.15 LOAN DOCUMENTS means, on any date, this Agreement, the Note and all other agreements relating to this Agreement entered into from time to time between Borrower and the Lender and all other documents and certificates executed and delivered to the Lender by the Borrower in connection with any of the foregoing, as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date.

1.16 MATERIAL ADVERSE EFFECT shall mean any material and adverse effect on (i) the assets, liabilities, financial condition, business, operations, prospects or affairs of the Borrower and its Subsidiaries taken as a whole or (ii) the ability of the Borrower and its Subsidiaries, taken as a whole, to carry out their business on and after the Effective Date or as proposed as of the Effective Date to be conducted or meet its obligations under the Loan Documents on a timely basis.

1.17 MATURITY DATE shall mean, unless the Note is sooner accelerated pursuant to this Agreement, February 26, 2014.

1.18 MAXIMUM RATE shall mean at any particular in question, the maximum rate of interest which under applicable law may then be charged. If such maximum rate changes after the date hereof, the Maximum Rate shall be automatically increased or decreased, as the case

Loan Agreement

may be, without notice to Borrower from time to time as the effective date of each change in such maximum rate period.

1.19 NOTE shall mean the Note as described and defined in Article II of this Agreement, together with each and every extension, renewal, modification, replacement, substitution and change in form thereof which may be from time to time and for any term or terms effected.

1.20 PERSON shall mean and include an individual, a partnership, a limited partnership, a limited liability company, a joint venture, a corporation, a trust, an unincorporated organization, and a government or any department, agency or political subdivision thereof.

1.21 RESPONSIBLE OFFICER shall mean the chief executive officer, chief operating officer, chief financial officer, president or managing director of the Borrower.

1.22 SUBSIDIARY shall mean (i) any corporation, at least 50% of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Borrower either directly or through Subsidiaries, and (ii) any partnership, joint venture or similar entity if at least a 50% interest in the profits or capital thereof is owned by the Borrower, either directly or through Subsidiaries.

1.23 STATED RATE shall mean a rate per annum equal to LIBOR plus five and one - half percent (5 1/2%), not to exceed eleven percent (11%); provided, however, that if the Stated Rate ever exceeds the Highest Lawful Rate, the Stated Rate shall then and thereafter be fixed at a rate per annum equal to the Highest Lawful Rate then and from time to time thereafter in effect until the total amount of interest accrued at the Stated Rate on the unpaid balance of this Note equals the total amount of interest which would have accrued at the Highest Lawful Rate from time to time in effect.

1.24 TAXES shall mean all taxes, assessments, fees, or other charges or levies from time to time or at any time imposed by any Laws or by any Tribunal as hereafter defined.

1.25 TRIBUNAL shall mean any municipal, state, commonwealth, Federal, foreign, territorial or other sovereign, governmental entity, governmental department, court, commission, board, bureau, agency or instrumentality.

1.26 OTHER DEFINITIONAL PROVISIONS. References to Sections, subsections, Exhibits and Schedules shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Article I may, unless the content otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words including, includes and include shall be deemed to be followed by the words without limitation; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement or any other Loan Document; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

Loan Agreement

ARTICLE II

LOAN

2.1 LOAN AND CANCELLATION OF IOC LOAN. Upon the terms and subject to the conditions hereinafter set forth, the Lender agrees to loan to Borrower the sum of Eighteen Million Five Hundred Thousand and NO/100 U.S. Dollars (US$ 18,500,000.00) (the "Loan"), representing the IOC Loan and the Additional Financing. The Additional Financing will be funded on or before the Effective Date. The unpaid principal balance and all accrued interest of the Loan is due and payable on the Maturity Date. Upon the Effective Date, the IOC Loan and all obligations of Borrower related thereto shall be wholly cancelled, terminated and discharged for all purposes.

2.2 PAYMENTS BY LENDER. The Lender shall fund the Loan to Borrower, as requested by Borrower, by wire transfer of immediately available funds by 11:00 a.m. Houston, Texas time to the account of the Borrower as designated by the Borrower for such purpose by written notice to the Lender.

2.3 NOTE. The Borrower shall execute and deliver to the order of the Lender a promissory note in the original principal amount the Loan, the form of which is annexed hereto as EXHIBIT A and hereby made a part hereof (hereinafter referred to as the "Note"). The Note shall be dated as of the Effective Date, and shall provide for six (6) annual payments of interest only on each anniversary of the Effective Date hereof until the Maturity Date. The unpaid and outstanding principal balance of the Note, together with accrued but unpaid interest thereon, shall be due and payable in full at the Maturity Date. The Note shall bear interest on the unpaid balance of principal from time to time outstanding and on any past due interest at an annual interest rate determined pursuant to Section 2.6 hereof, but in no event at a rate greater than permitted by applicable Law. All payments received shall be applied first to accrued interest and then to the outstanding principal amount owing on the Note. All payments and prepayments shall be made in lawful money of the United States of America. After maturity (whether by acceleration or otherwise) the Note shall bear interest at the Default Rate, payable on demand. Interest shall be calculated on the basis of a year of 365 days, but assessed for the actual number of days elapsed in each Interest Period.

2.4 PROCEEDS OF LOAN. Proceeds of the Loan shall be used only for the purposes of (i) Borrower's equity contribution to Isramco Energy; (ii) working capital and general corporate purposes; and (iii) refinancing of existing debt.

2.5 RESPONSIBLE OFFICER. A Responsible Officer may, from time to time, notify the Lender in writing of a change in the Responsible Officers. From and after the Lender's receipt of such written notice, the Lender may rely on any such request or certificate purportedly signed by any individual who has been so designated as a Responsible Officer pursuant to this Agreement unless or until it receives written notice from a Responsible Officer of the deletion of a Responsible Officer.

2.6 INTEREST RATES.

Loan Agreement

(a) INTEREST PRIOR TO MATURITY. Subject to the provisions and limitations hereof, the outstanding principal balance of the Loan hereunder shall accrue interest at the Stated Rate.

(b) INTEREST AFTER MATURITY. After the outstanding principal amount of the Loan shall have become past due (by acceleration or past the stated maturity date), such Loans shall bear interest for each day until paid (before and after judgment) at the Default Rate.

2.7 PREPAYMENTS. Borrower shall have the right at its option, from time to time, to prepay the Loan in whole or part without premium or penalty at any time.

2.8 PAYMENTS FROM BORROWER. All payments shall be payable to the Lender on the day when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and an action therefor shall immediately accrue if not timely paid within applicable grace or curative periods herein specified. Such payments shall be made to the Lender at such location as Lender may from time to time designate in writing in U.S. Dollars in funds immediately available at such office without set off, counterclaim or other deduction of any nature. To the extent permitted by law, after there shall have become due (by acceleration or otherwise) interest or any other amounts due from the Borrower hereunder or under the Note (excluding overdue principal, which shall bear interest as described in Section 2.6(b) hereof), such amounts shall bear interest for each day until paid (before and after judgment), payable on demand, at the Default Rate.

2.9 FULL PAYMENT. All outstanding principal and accrued but unpaid interest on the Note shall be due and payable at the Maturity Date.

ARTICLE III

CONDITIONS PRECEDENT TO LOANS

3.1 CONDITIONS PRECEDENT TO FUNDING. The effectiveness of this Agreement and the obligation of the Lender to make the Loan are subject to the satisfaction of all of the following conditions on or prior to the Effective Date (in addition to the other terms and conditions set forth herein):

(a) REPRESENTATIONS AND WARRANTIES. The covenants, representations and warranties set forth herein and in the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date, with the same effect as though made on and as of the Effective Date.

(b) JAY GUARANTEE. Jay shall have executed and delivered to Lender an unconditional guarantee of the Indebtedness of Borrower to Lender, a mortgage and deed of trust and security agreement pledging the oil and gas properties of Jay as security for the obligations guaranteed, and such other documents as may be reasonably requested by Lender.

(c) NOTE. The Borrower shall have executed and delivered to the Lender the Note payable to the order of the Lender.

Loan Agreement

(d) OTHER INFORMATION. The Lender shall have received such other information, documents and assurances as shall be reasonably requested by the Lender.

ARTICLE IV

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness and the performance of all other obligations of the Borrower under this Agreement, unless the Lender shall otherwise consent in writing:

4.1 PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge or cause to be paid and discharged all Taxes imposed upon the income or profits of the Borrower or upon the property, real, personal or mixed, or upon any part thereof, belonging to Borrower before the same shall be in default, and all lawful claims for labor, rentals, materials and supplies which, if unpaid, might become a Lien upon its property or any part thereof; provided, however, that the Borrower shall not be required to pay and discharge or cause to be paid or discharged any such Tax, assessment or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and adequate book reserves shall be established with respect thereto, and the Borrower shall pay such Tax, charge or claim before any property subject thereto shall become subject to levy of attachment or execution.

4.2 MAINTENANCE OF EXISTENCE. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its organizational existence, rights and franchises and good standing in the State of Delaware and as a foreign corporation qualified in such other jurisdiction(s) in which the failure to maintain such qualification would have a Material Adverse Effect.

4.3 PRESERVATION OF PROPERTY. The Borrower will at all times maintain, preserve and protect all of the Borrower's properties which are used or useful in the conduct of the Borrower's businesses whether owned in fee or otherwise, or leased, in good repair and operating condition and comply with all material leases to which it is a party or under which it occupies property so as to prevent any material loss or forfeiture thereunder.

4.4 PAYMENT OF INDEBTEDNESS/PERFORMANCE OF OBLIGATIONS. The Borrower will pay the obligations under the Note according to the reading, tenor and effect thereof and the Borrower hereby agrees to pay, when due and owing, all Indebtedness, whether or not evidenced by the Note.

4.5 OPERATION OF PROPERTIES AND EQUIPMENT.

(a) The Borrower will maintain and operate, and will cause each of its Affiliates (if any) to maintain and operate, their respective properties in a good and workmanlike manner, except to the extent a failure to so observe and comply is not reasonably expected to have a Material Adverse Effect.

Loan Agreement

(b) The Borrower will comply, and will cause each of its Affiliates (if any) to comply, in all respects with all contracts and agreements applicable to or relating to their respective properties, except to the extent a failure to so comply is not reasonably expected to have a Material Adverse Effect.

ARTICLE V

NEGATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness, unless the Lender shall otherwise consent in writing:

5.1 LIENS. Other than the first lien and security interest of Wells Fargo National Bank, N.A., upon properties of Isramco Energy, the existing liens securing existing debt of its other Subsidiaries, and the liens and security interests pledged to Lender by Jay, the Borrower will not, and will not permit any of its Subsidiaries (if any), to create, incur, assume, or suffer to exist any lien upon or with respect to any of its properties, now owned or hereafter acquired, except:

(a) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable or, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained;

(b) Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's, and carriers' Liens, and other similar Liens securing obligations incurred in the ordinary course of business which are not past due for more than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established;

(c) Liens under workers' compensation, unemployment insurance, Social Security or similar legislation;

(d) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business;

(e) Judgment and other similar liens (in the aggregate exceeding $100,000) arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings.

5.2 SALE OF ASSETS. The Borrower will not sell, lease, assign, transfer, or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation, shares of stock, receivables, and leasehold interests) in excess of $150,000 in the aggregate during any twelve
(12) consecutive month period of time, except: (1) inventory disposed of or leased in the ordinary course of business; (2) the sale or other disposition of other assets no

Loan Agreement

longer used or useful in the conduct of its business; and (3) as otherwise expressly permitted pursuant to this Agreement.

5.3 USE OF LOAN PROCEEDS. The Borrower shall not use any proceeds of the Loan for any purpose other than those expressly permitted and contemplated by this Agreement, and in no event shall any loan proceeds be used for any purpose that would create or cause a breach, violation or default or event of default hereunder or under any of the other Loan Documents or violation of Regulations T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

To induce the Lender to enter into this Agreement and to make the Loan to the Borrower under the provisions hereof, and in consideration thereof, the Borrower represents, warrants and covenants as follows:

6.1 GOOD STANDING, AND DUE QUALIFICATION. The Borrower (a) is a limited liability company duly formed, validly existing, and in good standing under the laws of the State of Delaware; (b) has the power and authority to own its assets and to transact the business in which it is now engaged or in which it is proposed to be engaged; and (c) is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. The initial Responsible Officer of the Borrower has all necessary corporate power and authority to execute and deliver this Agreement, the Note, and the other Loan Documents to the Lender.

6.2 LITIGATION. There is no action, suit, investigation or proceeding threatened or pending before any Tribunal against or affecting the Borrower or any properties or rights of the Borrower, which, if adversely determined, would result in any material adverse change in the business or condition, financial or otherwise, of the Borrower, or otherwise materially adversely affect the ability of the Borrower to perform its obligations under this Agreement. The Borrower is not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any Tribunal.

6.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. To the best of Borrower's knowledge and belief, the Borrower is not in default in the performance of any material obligation, covenant, or condition in any material agreement to which it is a party or by which it is bound. Neither the execution nor delivery of any of the Loan Documents, nor fulfillment of, nor compliance with their respective terms and provisions will conflict with, or result in a material breach of the terms, conditions or provisions of, or constitute a default under, or result in any material violation of, or result in the creation of any Lien (except those created by the Loan Documents) upon any of the properties or assets of the Borrower pursuant to, or require any consent, approval or other action by or any notice to or filing with any Tribunal (other than

Loan Agreement

routine filings after the Effective Date with the Securities and Exchange Commission, any securities exchange and/or state blue sky authorities) pursuant to any award of any arbitrator, or any agreement, instrument or Laws to which the Borrower is subject.

6.4 TITLE TO PROPERTIES, AUTHORITY. The Borrower has full power, authority and legal right to own and operate the properties which it now owns and operates, and to carry on the lines of business in which it is now engaged, and, to the knowledge of Borrower, has good and defensible title to all of its assets. The Borrower has full power, authority and legal right to execute and deliver and to perform and observe the provisions of this Agreement and the other Loan Documents and the Loan Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, subject only to applicable bankruptcy, insolvency or similar laws and general principles of equity.

6.5 CORPORATE AUTHORIZATION. The Borrower has duly authorized the execution and delivery of each of the Loan Documents and the performance of their respective terms. No other authorizations, approvals, consents or actions of any other Person are required as a prerequisite to the validity and enforceability of the Loan Documents.

ARTICLE VII

EVENTS OF DEFAULT

7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default (whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of Law or otherwise):

(a) Borrower shall fail to make any monthly or other payment due on the Note, or fail to pay any other fee, charge or assessment within five
(5) days after the same shall become due and payable (whether by extension, renewal, acceleration, maturity or otherwise); or

(b) Any representation, warranty or certification of the Borrower made herein, or in any other writing furnished in connection with or pursuant to any of the Loan Documents shall have been incorrect, false or misleading in any material respect on the date when made; or

(c) The Borrower shall fail to duly observe, perform or comply with any covenant, agreement or term (other than payment provisions which are governed by subparagraph (a) hereof) contained in this Agreement or any of the Loan Documents and such default or breach shall have not been cured or remedied within thirty (30) days following the date the Lender first notifies the Borrower in writing; or

(d) Any of the following: (i) the Borrower shall be unable to pay its debts as they mature, or shall make an assignment for the benefit of creditors or admit in writing its inability to pay its debts generally as they become due or fail generally to pay its debts as they mature; or (ii) an order, judgment or decree is entered adjudicating the Borrower insolvent or an order for relief under the United States Bankruptcy Code is entered with respect to the Borrower; or (iii) the Borrower shall petition or apply to any Tribunal for the appointment of a trustee, receiver, custodian or liquidator of the Borrower or of any substantial part of the assets of the Borrower or shall commence any proceedings relating to the Borrower under any bankruptcy,

Loan Agreement

reorganization, compromise, arrangement, insolvency, readjustment of debts, dissolution, or liquidation Law of any jurisdiction, whether now or hereafter in effect; or (iv) any such petition or application shall be filed, or any such proceedings shall be commenced, against the Borrower and the Borrower by any act shall indicate its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree shall be entered appointing any such trustee, receiver, custodian or liquidator, or approving the petition in any such proceedings, and such order, judgment or decree shall remain unstayed and in effect for more than thirty (30) days; or (v) the Borrower shall fail to make timely payment or deposit of any amount of tax required to be withheld by such Borrower and paid to or deposited to or to the credit of the United States of America pursuant to the provisions of the Internal Revenue Code of 1986, as amended, in respect of any and all wages and salaries paid to employees of the Borrower; or

(e) Any default or event of default under any of the other Loan Documents following the lapse of any applicable curative or grace period provided therein; or

(f) the Lender's or Jay's criminal indictment or conviction under any law pursuant to which such indictment or conviction could lead to a forfeiture by the Lender or Jay of any of the properties securing the Loan or guaranty thereof.

7.2 REMEDIES. Upon the occurrence of any Event of Default referred to in Section 7.1, the Note and all other Indebtedness shall be immediately due and payable, without notice of any kind. Upon the occurrence of any other Event of Default, and without prejudice to any right or remedy of the Lender under this Agreement or the Loan Documents or under applicable Law or under any other instrument or document delivered in connection herewith, the Lender may declare the Note and the Indebtedness, or any part thereof, to be forthwith due and payable, whereupon the Note and the other Indebtedness, or such portion as is designated by the Lender shall forthwith become due and payable, without presentment, demand, notice or protest of any kind, all of which are hereby expressly waived by the Borrower. No delay or omission on the part of the Lender in exercising any power or right hereunder or under the Note, the Loan Documents or under applicable law shall impair such right or power or be construed to be a waiver of any default or any acquiescence therein, nor shall any single or partial exercise by Lender of any such power or right preclude other or further exercise thereof or the exercise of any other such power or right by such Person. In the event that all or part of the Indebtedness becomes or is declared to be forthwith due and payable as herein provided, Lender shall have the right to set off the amount of all the Indebtedness of the Borrower owing to such Person against, and shall have a lien upon and security interest in, all property of the Borrower in such Person's possession at or subsequent to such default, regardless of the capacity in which such property is held, including but not limited to any balance or share of any deposit, demand, collection or agency account. At any time after the occurrence of any Event of Default, the Lender may, at its option, cause an audit of any and/or all of the books, records and documents of the Borrower to be made by auditors satisfactory to the Lender at the expense of the Borrower. The Lender also shall have, and may exercise, each and every right and remedy granted to it for default under the terms of the other Loan Documents.

7.3 APPLICATION OF PROCEEDS. After the exercise of remedies provided for in Section 7.2 (or after the Indebtedness automatically becomes immediately due and payable as set forth in

Loan Agreement

Section 7.2), any amounts received on account of such Indebtedness shall be applied in the following order:

FIRST: to payment of that portion of the Indebtedness constituting fees, indemnities, expenses or other amounts (other than principal and interest) payable to the Lender (including fees, charges and disbursements of counsel);

SECOND: to payment of accrued and unpaid interest on the Indebtedness;

THIRD: to payment of unpaid principal of the Indebtedness;

and

LAST: the balance, if any, after all of the Indebtedness has been indefeasibly paid in full, to Borrower or as otherwise required by applicable Laws.

ARTICLE VIII

MISCELLANEOUS

8.1 NOTICES. Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and shall be either hand-delivered (by courier or otherwise), mailed by certified mail, postage prepaid, or transmitted via telex or facsimile to the respective addresses specified below, or, as to any party, to such other address as may be designated by it in written notice to the other parties:

If to the Borrower, to:

Isramco, Inc.
11767 Katy Freeway, Suite 711
Houston, TX 77079

Telephone No.: (713) 621 -3882 Facsimile No.: (713) 621 - 3988 e - mail: jayoil@swbell.net

With a copy to:

Schaeffer Hutchinson PC Attn.: Mr. James H. Hutchinson, III 2204 Louisiana, Suite 220 Houston, Texas 77002
Phone: (713) 524 - 7300 e - mail: jhutchinson@schalaw.com

If to the Lender, to:

Naphtha - Israel Petroleum Corp., Ltd.

Loan Agreement

8 Granit St.

P.O.B. 10188
Petach-Tikva 49002

Israel
Phone: 972-3-922-922-5 e-mail: office@isramco.com

All notices, requests, consents and demands hereunder will be effective when hand-delivered or transmitted by telecopier or sent, answer-back received, respectively, by the Lender to the notice address of the Borrower, or two (2) Business Days after the date when mailed by certified mail, postage prepaid, in each case given or addressed as aforesaid by either party hereto.

8.2 PLACE OF PAYMENT. All sums payable hereunder shall be paid in immediately available funds, at such location as may be designated from time to time in writing by Lender. If any interest, principal or other payment falls due on a date other than a Business Day, then (unless otherwise provided herein) such due date shall be extended to the next succeeding Business Day, and such extension of time will, in such case, be included in computing interest, if any, in connection with such payment.

8.3 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and warranties made herein shall survive the execution and the delivery of Loan Documents.

8.4 PARTIES IN INTEREST. All covenants, agreements and obligations contained in this Agreement shall bind and inure to the benefit of the parties hereto and the respective successors and permitted assigns of the parties hereto, except that the Borrower may not assign any of its rights or obligations hereunder or under the Note without the prior written consent of the Lender.

8.5 GOVERNING LAW. This Agreement and the Note shall be deemed to have been made or incurred under the Laws of the State of Texas and shall be construed and enforced in accordance with and governed by the Laws of Texas except only where the applicable remedial or procedural laws of the other jurisdictions are situated are applicable thereto. Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to this Agreement or the Note.

8.6 INTEREST. It is the intention of the parties hereto that the Lender shall conform strictly to usury laws applicable to them. Accordingly, if the transactions contemplated hereby would be usurious as to the Lender under laws applicable to it (including the laws of the United States of America or any other jurisdiction whose laws may be mandatorily applicable the Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to the Lender that is contracted for, taken, reserved, charged or received by the Lender under any of the Loan Documents or agreements or otherwise in connection with the Note shall under no circumstances exceed the Maximum Rate, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by any Lender to the Borrower); and (ii) in the event that the maturity of

Loan Agreement

the Note is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Lender may never include interest greater than the Maximum Rate, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by the Lender to the Borrower). All sums paid or agreed to be paid to the Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Note until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the Maximum Rate. If at any time and from time to time (i) the amount of interest payable to the Lender on any date shall be computed at the highest lawful rate applicable to the Lender pursuant to this Section 8.6; and
(ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to Lender would be less than the amount of interest payable to the Lender computed at the highest lawful rate applicable to the Lender, then the amount of interest payable to the Lender in respect of such subsequent interest computation period shall continue to be computed at the highest lawful rate applicable to the Lender until the total amount of interest payable to the Lender shall equal the total amount of interest which would have been payable to the Lender if the total amount of interest had been computed without giving effect to this Section 8.6. To the extent that the Texas Credit Title (V.T.C.A., Texas Finance Code ss.ss. 301.001 et seq.) is relevant to the Lender for the purpose of determining the highest lawful rate, the Lender hereby elects to determine the applicable ceiling rate under the Texas Credit Title by the weekly ceiling from time to time in effect.

8.7 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise, and no delay in exercising, on the part of the Lender, any right, power or privilege hereunder or under any other Loan Document or applicable Law shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege of the Lender. The rights and remedies herein provided are cumulative and not exclusive of any other rights or remedies provided by any other instrument or by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

8.8 COSTS. The Borrower agrees to pay to the Lender on demand all recording fees and filing costs, all reasonable attorneys fees and reasonable legal expenses incurred or accrued by the Lender in connection with and preparation, negotiation, closing, administration, perfection, enforcement, refinancing, renegotiation, restructuring, amendment, waiver or other modifications of this Agreement and the Loan Documents or any amendment, waiver, consent or modification to and of the Loan Documents. In any action to enforce or construe the provisions of this Agreement or any of the Loan Documents, the Lender shall be entitled to recover its reasonable attorneys' fees, disbursements of counsel and all costs and expenses related thereto.

8.9 RIGHT OF SET - OFF. The Borrower hereby grants to the Lender a lien, security interest and right of setoff as security for all Indebtedness and obligations of the Borrower upon and against all deposits, credit, and property of the Borrower, now or hereafter in the possession, custody, safekeeping or control of such Person; and upon (a) the occurrence and during the

Loan Agreement

continuance of any Event of Default; and (b) the decision by the Lender to declare the Note due and payable pursuant to the provisions of Article VII, the Lender is hereby authorized at any time and from time to time, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final, other than trust funds) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the Indebtedness of the Borrower now or hereafter existing under this Agreement and the Note, irrespective of whether demand under this Agreement or the Note shall have been made and although such Indebtedness may be unmatured. The Lender shall promptly notify the Borrower after any such set off and application; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Persons may have at law, in equity or otherwise.

8.10 HEADINGS. The article and section headings of this Agreement are for convenience of reference only and shall not constitute a part of the text hereof nor alter or otherwise affect the meaning or interpretation of any provision hereof.

8.11 SEVERABILITY. The unenforceability or invalidity as determined by a Tribunal of competent jurisdiction, of any provision or provisions of this Agreement shall not render unenforceable or invalid any other provision or provisions hereof.

8.12 CONFIDENTIALITY. In the event that the Borrower provides to the Lender written confidential information belonging to the Borrower, the Lender shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain; (ii) hereafter become part of the public domain, without the Lender breaching its obligation of confidence to the Borrower; (iii) are previously known by the Lender from some source other than the Borrower; (iv) are hereafter developed by the Lender without using the Borrower's information; (v) are hereafter obtained by the Lender from a third party who owes no obligation of confidence to the Borrower with respect to such information; (vi) are disclosed with the Borrower's consent; (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Lender; or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. Further, the Lender may disclose any such information to consultants, any independent certified public accountants or any legal counsel employed by such Persons in connection with this Agreement, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loan; provided, however, that the Lender imposes on the Person to whom such information is disclosed the same obligation to maintain the confidentiality of such information as is imposed upon it hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease two (2) years from the date the information was furnished, unless the Borrower requests in writing at least thirty (30) days prior to the expiration of such two (2) year period, to maintain the confidentiality of such information for an additional two (2) year period. The Lender agrees not to issue or cause to be issued any tombstone or other publicly published announcement of the lending facilities established by this Agreement without the Borrower's review and approval thereof, which such approval will not be unreasonably withheld.

Loan Agreement

8.13 SURVIVAL. To the extent that any payments on the Indebtedness are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor-in-possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Liens, security interests, rights, powers and remedies under this Agreement shall continue in full force and effect.

8.14 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF THE 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.

8.15 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement.

8.16 AMENDMENTS. No amendment or waiver of any provision of this Agreement, the Note, or any other Loan Document to which the Borrower is a party, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Lender and the Borrower, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver, or consent shall, unless in writing and signed by the Lender and the Borrower, do any of the following: (a) reduce the principal of, or interest on, the Note or any fees or other amounts payable hereunder; (b) postpone any date fixed for any payment of principal of, or interest on, the Note or any fees or other amounts payable hereunder; (c) change the percentage of the Commitment or of the aggregate unpaid principal amount of the Note; or
(d) change any provision contained in this Section 8.16.

8.17 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lender. The Borrower and the Lender agree that the Lender may at any time assign to one or more assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents.

IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed and delivered to the Lender, effective as of the day and year first above written by the undersigned duly authorized corporate officer of the Borrower.

BORROWER:

Loan Agreement

ISRAMCO, INC.
A Delaware corporation

By: /s/ Haim Tsuff
    --------------
Haim Tsuff, Chief executive Officer

LENDER:

NAPHTHA - ISRAEL PETROLEUM CORP., LTD.

By: /s/ Jackob Maimon
    -----------------
    Jackob Maimon, Director

By: Noa Lendner Noa Lendner, Authorized Representative

Loan Agreement

EXHIBIT 10.3

LOAN AGREEMENT

$ 11,500,000

DATED AS OF

FEBRUARY 27, 2007

by and between

ISRAMCO, INC.
A DELAWARE CORPORATION,

as the "Borrower",

and

NAPHTHA ISRAEL PETROLEUM CORP., LTD.

As the "Lender"

THIS LOAN AGREEMENT, dated as of February 27, 2007, is made and entered into by and between ISRAMCO, INC., a Delaware corporation (the "Borrower") and NAPHTHA ISRAEL PETROLEUM CORP., LTD. (the "Lender").

WITNESSETH:

WHEREAS, ISRAMCO ENERGY, L.L.C., a Texas limited liability company ("Isramco Energy"), is a wholly owned subsidiary of the Borrower;

WHEREAS, Isramco Energy has entered into a Purchase and Sale Agreement with Five States Energy Company, L.L.C. and its related entities (the "PSA") pursuant to which Borrower is to acquire interests in certain oil and gas properties located in the States of Texas and New Mexico (the "Acquisition");

WHEREAS, the Borrower desires to obtain financing in the amount of Eleven Million Five Hundred Thousand Dollars ($11,500,000) from the Lender for purposes of contribution to the equity of Isramco Energy for the Acquisition, working capital, capital expenditures, to finance acquisitions of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties, and for other lawful corporate purposes;

WHEREAS, the Lender is willing to extend the financing to Borrower upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, receipt of which is acknowledged by the parties hereto, the parties agree, as follows:

ARTICLE I

CERTAIN DEFINITIONS

When used herein, the following terms shall have the following meanings:

1.1 BUSINESS DAY shall mean a day other than a Saturday, Sunday or a day upon which banks in the State of Texas are closed to business generally; provided that when used in connection with a Libor Loan, the term shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

1.2 DEFAULT RATE shall mean the Stated Rate plus 12 percentage points (12%) per annum.

1.3 EFFECTIVE DATE shall mean February 27, 2007.

1.4 EVENT OF DEFAULT shall mean any of the events specified in
Section 7.1 of this Agreement, and Default shall mean any event, which together with any lapse of time or giving of any notice, or both, would constitute an Event of Default.

1.5 GOVERNMENTAL AUTHORITY shall include the country, the state, county, city and political subdivisions in which any Person or such Person's property is located or which exercises valid jurisdiction over any such Person or such Person's property, and any Tribunal of any of them, including monetary authorities, which exercises valid jurisdiction over any such Person or such Person's property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Borrower, any of its Subsidiaries, any of Borrower's properties or the Lender.

1.6 GOVERNMENTAL REQUIREMENT shall mean any Law, or other directive or requirement (whether or not having the force of law), including, without limitation, environmental laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

1.7 HEREBY, HEREIN, HEREOF, HEREUNDER and similar such terms shall mean and refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which the respective word appears.

1.8 HIGHEST LAWFUL RATE shall mean on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that the Texas Finance Code establishes the "Ceiling Rate", the Ceiling Rate shall be the "weekly ceiling" (as defined in the Texas Finance Code) for that day. Lender may from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code by notice to Borrower, if and to the extent permitted by the Texas Finance Code. Without notice to Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates.

1.9 INDEBTEDNESS shall mean any and all: (i) indebtedness, obligations and liabilities of the Borrower to the Lender incurred or which may be incurred hereafter pursuant to the terms of this Agreement or any of the other Loan Documents, and any extensions, renewals, substitutions, amendments and increases in amount thereof, including such amounts as may be evidenced by the Note and all lawful interest thereon and other charges, and all reasonable costs and expenses incurred by the Lender in connection with the preparation, filing and recording of the Loan Documents, including attorneys fees (ii) all reasonable costs and expenses, including attorneys' fees, paid or incurred by the Lender in enforcing or attempting to enforce collection of any Indebtedness and in enforcing or realizing upon or attempting to enforce or realize upon any collateral or security for any Indebtedness and in protecting and preserving the Lender's interest in the Indebtedness or any collateral or security for any Indebtedness in any bankruptcy or reorganization proceeding, including interest on all sums so expended by the Lender accruing from the date upon which such expenditures are made until paid, at an annual rate equal to the Default Rate; and (iii) sums expended by the Lender in curing any Event of Default or Default of the Borrower under the terms of this Agreement, the other Loan Documents or any other security agreement or other writing evidencing or securing the payment of the Indebtedness described herein, including the Note.

Loan Agreement

1.10 INTEREST PERIOD shall mean shall mean the period commencing on the Effective Date and ending on the numerically corresponding day each six (6) calendar months thereafter, except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month.

1.11 LAW(S) shall mean all statutes, laws, ordinances, regulations, orders, rules, codes, permits, franchises, licenses, certificates, writs, injunctions, or decrees of the United States, any state or commonwealth, any municipality, any foreign country, any territory or possession, or any Tribunal.

1.12 LIBOR shall mean, at any time of determination, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Dow Jones Market Service Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) 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 "LIBOR" shall mean the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) 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 LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates. In the event that such rate does not appear on either Dow Jones Market Service Page 3750 or Reuters Screen LIBOR Page, "LIBOR" shall be the rate per annum at which deposits in Dollars are offered by leading reference banks in the London interbank market to Wells Fargo Bank, N.A. at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of this Loan.

1.13 LIEN shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under the Laws of any jurisdiction).

1.14 LOAN shall mean the funds loaned to the Borrower by the Lender pursuant to this Agreement.

1.15 LOAN DOCUMENTS means, on any date, this Agreement, the Note and all other agreements relating to this Agreement entered into from time to time between Borrower and the Lender and all other documents and certificates executed and delivered to the Lender by the Borrower in connection with any of the foregoing, as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date.

1.16 MATERIAL ADVERSE EFFECT shall mean any material and adverse effect on (i) the assets, liabilities, financial condition, business, operations, prospects or affairs of the Borrower

Loan Agreement

and its Subsidiaries taken as a whole; or (ii) the ability of the Borrower and its Subsidiaries, taken as a whole, to carry out their business on and after the Effective Date or as proposed as of the Effective Date to be conducted or meet its obligations under the Loan Documents on a timely basis.

1.17 MATURITY DATE shall mean, unless the Note is sooner accelerated pursuant to this Agreement, February 26, 2014.

1.18 MAXIMUM RATE shall mean at any particular in question, the maximum rate of interest which, under applicable law, may then be charged. If such maximum rate changes after the date hereof, the Maximum Rate shall be automatically increased or decreased, as the case may be, without notice to Borrower from time to time as the effective date of each change in such maximum rate period.

1.19 NOTE shall mean the Note as described and defined in Article II of this Agreement, together with each and every extension, renewal, modification, replacement, substitution and change in form thereof which may be from time to time and for any term or terms effected.

1.20 PERSON shall mean and include an individual, a partnership, a limited partnership, a limited liability company, a joint venture, a corporation, a trust, an unincorporated organization, and a government or any department, agency or political subdivision thereof.

1.21 RESPONSIBLE OFFICER shall mean the chief executive officer, chief operating officer, chief financial officer, president or managing director of the Borrower.

1.22 SUBSIDIARY shall mean (i) any corporation, at least 50% of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Borrower either directly or through Subsidiaries; and (ii) any partnership, joint venture or similar entity if at least a 50% interest in the profits or capital thereof is owned by the Borrower, either directly or through Subsidiaries.

1.23 STATED RATE shall mean a rate per annum equal to LIBOR plus six percent (6%); provided, however, that if the Stated Rate ever exceeds the Highest Lawful Rate, the Stated Rate shall then and thereafter be fixed at a rate per annum equal to the Highest Lawful Rate then and from time to time thereafter in effect until the total amount of interest accrued at the Stated Rate on the unpaid balance of this Note equals the total amount of interest which would have accrued at the Highest Lawful Rate from time to time in effect.

1.24 TAXES shall mean all taxes, assessments, fees, or other charges or levies from time to time or at any time imposed by any Laws or by any Tribunal as hereafter defined.

1.25 TRIBUNAL shall mean any municipal, state, commonwealth, Federal, foreign, territorial or other sovereign, governmental entity, governmental department, court, commission, board, bureau, agency or instrumentality.

1.26 OTHER DEFINITIONAL PROVISIONS. References to Sections, subsections, Exhibits and Schedules shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Article I may,

Loan Agreement

unless the content otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words including, includes and include shall be deemed to be followed by the words without limitation; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement or any other Loan Document; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

ARTICLE II

LOAN

2.1 LOAN. Upon the terms and subject to the conditions hereinafter set forth, the Lender agrees to loan to Borrower the sum of Eleven Million Five Hundred Thousand and NO/100 U.S. Dollars (US $11,500,000.00) (the "Loan"). The Loan will be funded on or before the Effective Date. The unpaid principal balance and all accrued interest of the Loan are due and payable on the Maturity Date.

2.2 PAYMENTS BY LENDER. The Lender shall fund the Loan to Borrower, as requested by Borrower, by wire transfer of immediately available funds by 11:00 a.m. Houston, Texas time to the account of the Borrower as designated by the Borrower for such purpose by written notice to the Lender.

2.3 NOTE. The Borrower shall execute and deliver to the order of the Lender a promissory note in the original principal amount the Loan, the form of which is annexed hereto as EXHIBIT A and hereby made a part hereof (hereinafter referred to as the "Note"). The Note shall be dated as of the Effective Date, and shall provide for three (3) annual payments of interest only on each anniversary of the Effective Date hereof and four (4) equal annual payments of principal and accrued interest on each anniversary date thereafter until the Maturity Date. The unpaid and outstanding principal balance of the Note, together with accrued but unpaid interest thereon, shall be due and payable in full at the Maturity Date. The Note shall bear interest on the unpaid balance of principal from time to time outstanding and on any past due interest at an annual interest rate determined pursuant to Section 2.6 hereof, but in no event at a rate greater than permitted by applicable Law. All payments received shall be applied first to accrued interest and then to the outstanding principal amount owing on the Note. All payments and prepayments shall be made in lawful money of the United States of America. After maturity (whether by acceleration or otherwise) the Note shall bear interest at the Default Rate, payable on demand. Interest shall be calculated on the basis of a year of 365 days, but assessed for the actual number of days elapsed in each Interest Period.

2.4 PROCEEDS OF LOAN. Proceeds of the Loan shall be used only for the purposes of (i) Borrower's equity contribution to Isramco Energy; (ii) working capital and general corporate purposes; and (iii) refinancing of existing debt.

Loan Agreement

2.5 RESPONSIBLE OFFICER. A Responsible Officer may, from time to time, notify the Lender in writing of a change in the Responsible Officer. From and after the Lender's receipt of such written notice, the Lender may rely on any such request or certificate purportedly signed by any individual who has been so designated as a Responsible Officer pursuant to this Agreement unless or until it receives written notice from a Responsible Officer of the deletion of a Responsible Officer.

2.6 INTEREST RATES.

(a) INTEREST PRIOR TO MATURITY. Subject to the provisions and limitations hereof, the outstanding principal balance of the Loan hereunder shall accrue interest at the Stated Rate.

(b) INTEREST AFTER MATURITY. After the outstanding principal amount of the Loan shall have become past due (by acceleration or past the stated maturity date), such Loans shall bear interest for each day until paid (before and after judgment) at the Default Rate.

2.7 PREPAYMENTS. Borrower shall have the right at its option, from time to time, to prepay the Loan in whole or part without premium or penalty at any time.

2.8 PAYMENTS FROM BORROWER. All payments shall be payable to the Lender on the day when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and an action therefor shall immediately accrue if not timely paid within applicable grace or curative periods herein specified. Such payments shall be made to the Lender at such location as Lender may from time to time designate in writing in U.S. Dollars in funds immediately available at such office without set off, counterclaim or other deduction of any nature. To the extent permitted by law, after there shall have become due (by acceleration or otherwise), interest or any other amounts due from the Borrower hereunder or under the Note (excluding overdue principal, which shall bear interest as described in Section 2.6(b) hereof), such amounts shall bear interest for each day until paid (before and after judgment), payable on demand, at the Default Rate.

2.9 FULL PAYMENT. All outstanding principal and accrued but unpaid interest on the Note shall be due and payable at the Maturity Date.

ARTICLE III

CONDITIONS PRECEDENT TO LOANS

3.1 CONDITIONS PRECEDENT TO FUNDING. The effectiveness of this Agreement and the obligation of the Lender to make the Loan are subject to the satisfaction of all of the following conditions on or prior to the Effective Date (in addition to the other terms and conditions set forth herein):

(a) REPRESENTATIONS AND WARRANTIES. The covenants, representations and warranties set forth herein and in the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date, with the same effect as though made on and as of the Effective Date.

Loan Agreement

(b) NOTE. The Borrower shall have executed and delivered to the Lender the Note payable to the order of the Lender.

(c) OTHER INFORMATION. The Lender shall have received such other information, documents and assurances as shall be reasonably requested by the Lender.

ARTICLE IV

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness and the performance of all other obligations of the Borrower under this Agreement, unless the Lender shall otherwise consent in writing:

4.1 PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge or cause to be paid and discharged all Taxes imposed upon the income or profits of the Borrower or upon the property, real, personal or mixed, or upon any part thereof, belonging to Borrower before the same shall be in default, and all lawful claims for labor, rentals, materials and supplies which, if unpaid, might become a Lien upon its property or any part thereof; provided, however, that the Borrower shall not be required to pay and discharge or cause to be paid or discharged any such Tax, assessment or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and adequate book reserves shall be established with respect thereto, and the Borrower shall pay such Tax, charge or claim before any property subject thereto shall become subject to levy of attachment or execution.

4.2 MAINTENANCE OF EXISTENCE. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its organizational existence, rights and franchises and good standing in the State of Delaware and as a foreign corporation qualified in such other jurisdiction(s) in which the failure to maintain such qualification would have a Material Adverse Effect.

4.3 PRESERVATION OF PROPERTY. The Borrower will at all times maintain, preserve and protect all of the Borrower's properties which are used or useful in the conduct of the Borrower's businesses whether owned in fee or otherwise, or leased, in good repair and operating condition and comply with all material leases to which it is a party or under which it occupies property so as to prevent any material loss or forfeiture thereunder.

4.4 PAYMENT OF INDEBTEDNESS/PERFORMANCE OF OBLIGATIONS. The Borrower will pay the obligations under the Note according to the reading, tenor and effect thereof and the Borrower hereby agrees to pay, when due and owing, all Indebtedness, whether or not evidenced by the Note.

4.5 OPERATION OF PROPERTIES AND EQUIPMENT.

(a) The Borrower will maintain and operate, and will cause each of its Affiliates (if any) to maintain and operate, their respective properties in a good and workmanlike

Loan Agreement

manner, except to the extent a failure to so observe and comply is not reasonably expected to have a Material Adverse Effect.

(b) The Borrower will comply, and will cause each of its Affiliates (if any) to comply, in all respects with all contracts and agreements applicable to or relating to their respective properties, except to the extent a failure to so comply is not reasonably expected to have a Material Adverse Effect.

ARTICLE V

NEGATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness, unless the Lender shall otherwise consent in writing:

5.1 LIENS. Other than the first lien and security interest of Wells Fargo National Bank, N.A., upon properties of Isramco Energy, the existing liens securing existing debt of its other Subsidiaries, and the liens and security interests pledged to Lender by Jay Petroleum, L.L.C., the Borrower will not, and will not permit any of its Subsidiaries (if any), to create, incur, assume, or suffer to exist any lien upon or with respect to any of its properties, now owned or hereafter acquired, except:

(a) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable or, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained;

(b) Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's, and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established;

(c) Liens under workers' compensation, unemployment insurance, Social Security or similar legislation;

(d) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business;

(e) Judgment and other similar liens (in the aggregate exceeding $100,000) arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings.

5.2 SALE OF ASSETS. The Borrower will not sell, lease, assign, transfer, or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation,

Loan Agreement

shares of stock, receivables, and leasehold interests) in excess of $150,000 in the aggregate during any twelve (12) consecutive month period of time, except:
(1) inventory disposed of or leased in the ordinary course of business; (2) the sale or other disposition of other assets no longer used or useful in the conduct of its business; and (3) as otherwise expressly permitted pursuant to this Agreement.

5.3 USE OF LOAN PROCEEDS. The Borrower shall not use any proceeds of the Loan for any purpose other than those expressly permitted and contemplated by this Agreement, and in no event shall any loan proceeds be used for any purpose that would create or cause a breach, violation or default or event of default hereunder or under any of the other Loan Documents or violation of Regulations T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

To induce the Lender to enter into this Agreement and to make the Loan to the Borrower under the provisions hereof, and in consideration thereof, the Borrower represents, warrants and covenants as follows:

6.1 GOOD STANDING, AND DUE QUALIFICATION. The Borrower (a) is a limited liability company duly formed, validly existing, and in good standing under the laws of the State of Delaware; (b) has the power and authority to own its assets and to transact the business in which it is now engaged or in which it is proposed to be engaged; and (c) is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. The initial Responsible Officer of the Borrower has all necessary corporate power and authority to execute and deliver this Agreement, the Note, and the other Loan Documents to the Lender.

6.2 LITIGATION. There is no action, suit, investigation or proceeding threatened or pending before any Tribunal against or affecting the Borrower or any properties or rights of the Borrower, which, if adversely determined, would result in any material adverse change in the business or condition, financial or otherwise, of the Borrower, or otherwise materially adversely affect the ability of the Borrower to perform its obligations under this Agreement. The Borrower is not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any Tribunal.

6.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. To the best of Borrower's knowledge and belief, the Borrower is not in default in the performance of any material obligation, covenant, or condition in any material agreement to which it is a party or by which it is bound. Neither the execution nor delivery of any of the Loan Documents, nor fulfillment of, nor compliance with their respective terms and provisions will conflict with, or result in a material breach of the terms, conditions or provisions of, or constitute a default under, or result in any

Loan Agreement

material violation of, or result in the creation of any Lien (except those created by the Loan Documents) upon any of the properties or assets of the Borrower pursuant to, or require any consent, approval or other action by or any notice to or filing with any Tribunal (other than routine filings after the Effective Date with the Securities and Exchange Commission, any securities exchange and/or state blue sky authorities) pursuant to any award of any arbitrator, or any agreement, instrument or Laws to which the Borrower is subject.

6.4 TITLE TO PROPERTIES, AUTHORITY. The Borrower has full power, authority and legal right to own and operate the properties which it now owns and operates, and to carry on the lines of business in which it is now engaged, and to the knowledge of Borrower has good and defensible title to all of its assets. The Borrower has full power, authority and legal right to execute and deliver and to perform and observe the provisions of this Agreement and the other Loan Documents and the Loan Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, subject only to applicable bankruptcy, insolvency or similar laws and general principles of equity.

6.5 CORPORATE AUTHORIZATION. The Borrower has duly authorized the execution and delivery of each of the Loan Documents and the performance of their respective terms. No other authorizations, approvals, consents or actions of any other Person are required as a prerequisite to the validity and enforceability of the Loan Documents.

ARTICLE VII

EVENTS OF DEFAULT

7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default (whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of Law or otherwise):

(a) Borrower shall fail to make any monthly or other payment due on the Note, or fail to pay any other fee, charge or assessment within five
(5) days after the same shall become due and payable (whether by extension, renewal, acceleration, maturity or otherwise); or

(b) Any representation, warranty or certification of the Borrower made herein, or in any other writing furnished in connection with or pursuant to any of the Loan Documents shall have been incorrect, false or misleading in any material respect on the date when made; or

(c) The Borrower shall fail to duly observe, perform or comply with any covenant, agreement or term (other than payment provisions which are governed by subparagraph (a) hereof) contained in this Agreement or any of the Loan Documents and such default or breach shall have not been cured or remedied within thirty (30) days following the date the Lender first notifies the Borrower in writing; or

(d) Any of the following: (i) the Borrower shall be unable to pay its debts as they mature, or shall make an assignment for the benefit of creditors or admit in writing its inability to pay its debts generally as they become due or fail generally to pay its debts as they mature; or (ii) an order, judgment or decree is entered adjudicating the Borrower insolvent or an order for relief under the United States Bankruptcy Code is entered with respect to the Borrower;

Loan Agreement

or (iii) the Borrower shall petition or apply to any Tribunal for the appointment of a trustee, receiver, custodian or liquidator of the Borrower or of any substantial part of the assets of the Borrower or shall commence any proceedings relating to the Borrower under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debts, dissolution, or liquidation Law of any jurisdiction, whether now or hereafter in effect; or (iv) any such petition or application shall be filed, or any such proceedings shall be commenced, against the Borrower and the Borrower by any act shall indicate its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree shall be entered appointing any such trustee, receiver, custodian or liquidator, or approving the petition in any such proceedings, and such order, judgment or decree shall remain unstayed and in effect for more than thirty (30) days; or (v) the Borrower shall fail to make timely payment or deposit of any amount of tax required to be withheld by such Borrower and paid to or deposited to or to the credit of the United States of America pursuant to the provisions of the Internal Revenue Code of 1986, as amended, in respect of any and all wages and salaries paid to employees of the Borrower; or

(e) Any default or event of default under any of the other Loan Documents following the lapse of any applicable curative or grace period provided therein.

7.2 REMEDIES. Upon the occurrence of any Event of Default referred to in Section 7.1, the Note and all other Indebtedness shall be immediately due and payable, without notice of any kind. Upon the occurrence of any other Event of Default, and without prejudice to any right or remedy of the Lender under this Agreement or the Loan Documents or under applicable Law or under any other instrument or document delivered in connection herewith, the Lender may declare the Note and the Indebtedness, or any part thereof, to be forthwith due and payable, whereupon the Note and the other Indebtedness, or such portion as is designated by the Lender shall forthwith become due and payable, without presentment, demand, notice or protest of any kind, all of which are hereby expressly waived by the Borrower. No delay or omission on the part of the Lender in exercising any power or right hereunder or under the Note, the Loan Documents or under applicable law shall impair such right or power or be construed to be a waiver of any default or any acquiescence therein, nor shall any single or partial exercise by Lender of any such power or right preclude other or further exercise thereof or the exercise of any other such power or right by such Person. In the event that all or part of the Indebtedness becomes or is declared to be forthwith due and payable as herein provided, Lender shall have the right to set off the amount of all the Indebtedness of the Borrower owing to such Person against, and shall have a lien upon and security interest in, all property of the Borrower in such Person's possession at or subsequent to such default, regardless of the capacity in which such property is held, including but not limited to any balance or share of any deposit, demand, collection or agency account. At any time after the occurrence of any Event of Default, the Lender may, at its option, cause an audit of any and/or all of the books, records and documents of the Borrower to be made by auditors satisfactory to the Lender at the expense of the Borrower. The Lender also shall have, and may exercise, each and every right and remedy granted to it for default under the terms of the other Loan Documents.

Loan Agreement

7.3 APPLICATION OF PROCEEDS. After the exercise of remedies provided for in Section 7.2 (or after the Indebtedness automatically becomes immediately due and payable as set forth in Section 7.2), any amounts received on account of such Indebtedness shall be applied in the following order:

FIRST: to payment of that portion of the Indebtedness constituting fees, indemnities, expenses or other amounts (other than principal and interest) payable to the Lender (including fees, charges and disbursements of counsel);

SECOND: to payment of accrued and unpaid interest on the Indebtedness;

THIRD: to payment of unpaid principal of the Indebtedness;

and

LAST: the balance, if any, after all of the Indebtedness has been indefeasibly paid in full, to Borrower or as otherwise required by applicable Laws.

ARTICLE VIII

MISCELLANEOUS

8.1 NOTICES. Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and shall be either hand-delivered (by courier or otherwise), mailed by certified mail, postage prepaid, or transmitted via telex or facsimile to the respective addresses specified below, or, as to any party, to such other address as may be designated by it in written notice to the other parties:

If to the Borrower, to:

Isramco, Inc.
11767 Katy Freeway, Suite 711
Houston, TX 77079

Telephone No.: (713) 621 -3882 Facsimile No.: (713) 621 - 3988 e - mail jayoil@swbell.net

With a copy to:

Schaeffer Hutchinson PC Attn.: Mr. James H. Hutchinson, III 2204 Louisiana, Suite 220 Houston, Texas 77002
Phone: (713) 524 - 7300 e - mail: jhutchinson@schalaw.com

Loan Agreeement

If to the Lender, to:

Naphtha - Israel Petroleum Corp., Ltd.

8 Granit St.
P.O.B. 10188
Petach-Tikva 49002

Israel
Phone: 972-3-922-922-5 e-mail: office@isramco.com

All notices, requests, consents and demands hereunder will be effective when hand-delivered or transmitted by telecopier or sent, answer-back received, respectively, by the Lender to the notice address of the Borrower, or two (2) Business Days after the date when mailed by certified mail, postage prepaid, in each case given or addressed as aforesaid by either party hereto.

8.2 PLACE OF PAYMENT. All sums payable hereunder shall be paid in immediately available funds, at such location as may be designated from time to time in writing by Lender. If any interest, principal or other payment falls due on a date other than a Business Day, then (unless otherwise provided herein) such due date shall be extended to the next succeeding Business Day, and such extension of time will, in such case, be included in computing interest, if any, in connection with such payment.

8.3 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and warranties made herein shall survive the execution and the delivery of Loan Documents.

8.4 PARTIES IN INTEREST. All covenants, agreements and obligations contained in this Agreement shall bind and inure to the benefit of the parties hereto and the respective successors and permitted assigns of the parties hereto, except that the Borrower may not assign any of its rights or obligations hereunder or under the Note without the prior written consent of the Lender.

8.5 GOVERNING LAW. This Agreement and the Note shall be deemed to have been made or incurred under the Laws of the State of Texas and shall be construed and enforced in accordance with and governed by the Laws of Texas except only where the applicable remedial or procedural laws of the other jurisdictions are situated are applicable thereto. Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to this Agreement or the Note.

8.6 INTEREST. It is the intention of the parties hereto that the Lender shall conform strictly to usury laws applicable to them. Accordingly, if the transactions contemplated hereby would be usurious as to the Lender under laws applicable to it (including the laws of the United States of America or any other jurisdiction whose laws may be mandatorily applicable the Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to the Lender that is contracted for, taken, reserved, charged or received by the Lender under any of the Loan Documents or agreements or otherwise in connection with the Note shall under no circumstances exceed the Maximum Rate, and any excess shall be canceled automatically and if

Loan Agreement

theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by any Lender to the Borrower); and (ii) in the event that the maturity of the Note is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Lender may never include interest greater than the Maximum Rate, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by the Lender to the Borrower). All sums paid or agreed to be paid to the Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Note until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the Maximum Rate. If at any time and from time to time (i) the amount of interest payable to the Lender on any date shall be computed at the highest lawful rate applicable to the Lender pursuant to this Section 8.6; and
(ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to Lender would be less than the amount of interest payable to the Lender computed at the highest lawful rate applicable to the Lender, then the amount of interest payable to the Lender in respect of such subsequent interest computation period shall continue to be computed at the highest lawful rate applicable to the Lender until the total amount of interest payable to the Lender shall equal the total amount of interest which would have been payable to the Lender if the total amount of interest had been computed without giving effect to this Section 8.6. To the extent that the Texas Credit Title (V.T.C.A., Texas Finance Code ss.ss. 301.001 et seq.) is relevant to the Lender for the purpose of determining the highest lawful rate, the Lender hereby elects to determine the applicable ceiling rate under the Texas Credit Title by the weekly ceiling from time to time in effect.

8.7 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise, and no delay in exercising, on the part of the Lender, any right, power or privilege hereunder or under any other Loan Document or applicable Law shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege of the Lender. The rights and remedies herein provided are cumulative and not exclusive of any other rights or remedies provided by any other instrument or by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

8.8 COSTS. The Borrower agrees to pay to the Lender on demand all recording fees and filing costs, all reasonable attorneys fees and reasonable legal expenses incurred or accrued by the Lender in connection with and preparation, negotiation, closing, administration, perfection, enforcement, refinancing, renegotiation, restructuring, amendment, waiver or other modifications of this Agreement and the Loan Documents or any amendment, waiver, consent or modification to and of the Loan Documents. In any action to enforce or construe the provisions of this Agreement or any of the Loan Documents, the Lender shall be entitled to recover its reasonable attorneys' fees, disbursements of counsel and all costs and expenses related thereto.

Loan Agreement

8.9 RIGHT OF SET - OFF. The Borrower hereby grants to the Lender a lien, security interest and right of setoff as security for all Indebtedness and obligations of the Borrower upon and against all deposits, credit, and property of the Borrower, now or hereafter in the possession, custody, safekeeping or control of such Person; and upon (a) the occurrence and during the continuance of any Event of Default; and (b) the decision by the Lender to declare the Note due and payable pursuant to the provisions of Article VII, the Lender is hereby authorized at any time and from time to time, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final, other than trust funds) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the Indebtedness of the Borrower now or hereafter existing under this Agreement and the Note, irrespective of whether demand under this Agreement or the Note shall have been made and although such Indebtedness may be unmatured. The Lender shall promptly notify the Borrower after any such set off and application; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set - off) that such Persons may have at law, in equity or otherwise.

8.10 HEADINGS. The article and section headings of this Agreement are for convenience of reference only and shall not constitute a part of the text hereof nor alter or otherwise affect the meaning or interpretation of any provision hereof.

8.11 SEVERABILITY. The unenforceability or invalidity as determined by a Tribunal of competent jurisdiction, of any provision or provisions of this Agreement shall not render unenforceable or invalid any other provision or provisions hereof.

8.12 CONFIDENTIALITY. In the event that the Borrower provides to the Lender written confidential information belonging to the Borrower, the Lender shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain; (ii) hereafter become part of the public domain, without the Lender breaching its obligation of confidence to the Borrower; (iii) are previously known by the Lender from some source other than the Borrower; (iv) are hereafter developed by the Lender without using the Borrower's information; (v) are hereafter obtained by the Lender from a third party who owes no obligation of confidence to the Borrower with respect to such information; (vi) are disclosed with the Borrower's consent; (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Lender; or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. Further, the Lender may disclose any such information to consultants, any independent certified public accountants or any legal counsel employed by such Persons in connection with this Agreement, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loan; provided, however, that the Lender imposes on the Person to whom such information is disclosed the same obligation to maintain the confidentiality of such information as is imposed upon it hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease two (2) years from the date the information was furnished, unless the Borrower requests in writing at least thirty (30) days prior to the expiration of such two (2) year

Loan Agreement

period, to maintain the confidentiality of such information for an additional two (2) year period. The Lender agrees not to issue or cause to be issued any tombstone or other publicly published announcement of the lending facilities established by this Agreement without the Borrower's review and approval thereof, which such approval will not be unreasonably withheld.

8.13 SURVIVAL. To the extent that any payments on the Indebtedness are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor-in-possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Liens, security interests, rights, powers and remedies under this Agreement shall continue in full force and effect.

8.14 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF THE 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.

8.15 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement.

8.16 AMENDMENTS. No amendment or waiver of any provision of this Agreement, the Note, or any other Loan Document to which the Borrower is a party, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Lender and the Borrower, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver, or consent shall, unless in writing and signed by the Lender and the Borrower, do any of the following: (a) reduce the principal of, or interest on, the Note or any fees or other amounts payable hereunder; (b) postpone any date fixed for any payment of principal of, or interest on, the Note or any fees or other amounts payable hereunder; (c) change the percentage of the Commitment or of the aggregate unpaid principal amount of the Note; or
(d) change any provision contained in this Section 8.16.

8.17 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lender. The Borrower and the Lender agree that the Lender may at any time assign to one or more assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents.

Loan Agreement

IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed and delivered to the Lender, effective as of the day and year first above written by the undersigned duly authorized corporate officer of the Borrower.

BORROWER:

ISRAMCO, INC.
A Delaware corporation

By: /s/ Haim Tsuff
    --------------
    Haim Tsuff, Chief executive Officer

LENDER:

NAPHTHA - ISRAEL PETROLEUM CORP., LTD.

By: /s/ Jackob Maimon
    -----------------
    Jackob Maimon, Director

By: /s/ Noa Lendner
    Noa Lendner, Authorized Representative

Loan Agreement

EXHIBIT 10.4

LOAN AGREEMENT

$ 12,000,000

DATED AS OF

FEBRUARY 27, 2007

by and between

ISRAMCO, INC.
A DELAWARE CORPORATION,

as the "Borrower",

and

I.O.C. ISRAEL OIL COMPANY, LTD.

As the "Lender"

THIS LOAN AGREEMENT, dated as of February 27, 2007, is made and entered into by and between ISRAMCO, INC., a Delaware corporation (the "Borrower") and I.O.C. ISRAEL OIL COMPANY, LTD. (the "Lender").

WITNESSETH:

WHEREAS, ISRAMCO ENERGY, L.L.C., a Texas limited liability company ("Isramco Energy"), is a wholly owned subsidiary of the Borrower;

WHEREAS, Isramco Energy has entered into a Purchase and Sale Agreement with Five States Energy Company, L.L.C. and its related entities (the "PSA") pursuant to which Borrower is to acquire interests in certain oil and gas properties located in the States of Texas and New Mexico (the "Acquisition");

WHEREAS, the Borrower desires to obtain financing in the amount of Twelve Million Dollars ($12,000,000) from the Lender for purposes of contribution to the equity of Isramco Energy for the Acquisition, working capital, capital expenditures, to finance acquisitions of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties, and for other lawful corporate purposes;

WHEREAS, the Lender is willing to extend the financing to Borrower upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, receipt of which is acknowledged by the parties hereto, the parties agree, as follows:

ARTICLE I

CERTAIN DEFINITIONS

When used herein, the following terms shall have the following meanings:

1.1 BUSINESS DAY shall mean a day other than a Saturday, Sunday or a day upon which banks in the State of Texas are closed to business generally; provided that when used in connection with a Libor Loan, the term shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

1.2 DEFAULT RATE shall mean the Stated Rate plus 12 percentage points (12%) per annum.

1.3 EFFECTIVE DATE shall mean February 27, 2007.

1.4 EVENT OF DEFAULT shall mean any of the events specified in
Section 7.1 of this Agreement, and Default shall mean any event, which together with any lapse of time or giving of any notice, or both, would constitute an Event of Default.

1.5 GOVERNMENTAL AUTHORITY shall include the country, the state, county, city and political subdivisions in which any Person or such Person's property is located or which exercises valid jurisdiction over any such Person or such Person's property, and any Tribunal of any of them, including monetary authorities, which exercises valid jurisdiction over any such Person or such Person's property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Borrower, any of its Subsidiaries, any of Borrower's properties or the Lender.

1.6 GOVERNMENTAL REQUIREMENT shall mean any Law, or other directive or requirement (whether or not having the force of law), including, without limitation, environmental laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

1.7 HEREBY, HEREIN, HEREOF, HEREUNDER and similar such terms shall mean and refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which the respective word appears.

1.8 HIGHEST LAWFUL RATE shall mean on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that the Texas Finance Code establishes the "Ceiling Rate", the Ceiling Rate shall be the "weekly ceiling" (as defined in the Texas Finance Code) for that day. Lender may from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code by notice to Borrower, if and to the extent permitted by the Texas Finance Code. Without notice to Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates.

1.9 INDEBTEDNESS shall mean any and all: (i) indebtedness, obligations and liabilities of the Borrower to the Lender incurred or which may be incurred hereafter pursuant to the terms of this Agreement or any of the other Loan Documents, and any extensions, renewals, substitutions, amendments and increases in amount thereof, including such amounts as may be evidenced by the Note and all lawful interest thereon and other charges, and all reasonable costs and expenses incurred by the Lender in connection with the preparation, filing and recording of the Loan Documents, including attorneys fees (ii) all reasonable costs and expenses, including attorneys' fees, paid or incurred by the Lender in enforcing or attempting to enforce collection of any Indebtedness and in enforcing or realizing upon or attempting to enforce or realize upon any collateral or security for any Indebtedness and in protecting and preserving the Lender's interest in the Indebtedness or any collateral or security for any Indebtedness in any bankruptcy or reorganization proceeding, including interest on all sums so expended by the Lender accruing from the date upon which such expenditures are made until paid, at an annual rate equal to the Default Rate; and (iii) sums expended by the Lender in curing any Event of Default or Default of the Borrower under the terms of this Agreement, the other Loan Documents or any other security agreement or other writing evidencing or securing the payment of the Indebtedness described herein, including the Note.

Loan Agreement

1.10 INTEREST PERIOD shall mean shall mean the period commencing on the Effective Date and ending on the numerically corresponding day each six (6) calendar months thereafter, except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month.

1.11 LAW(S) shall mean all statutes, laws, ordinances, regulations, orders, rules, codes, permits, franchises, licenses, certificates, writs, injunctions, or decrees of the United States, any state or commonwealth, any municipality, any foreign country, any territory or possession, or any Tribunal.

1.12 LIBOR shall mean, at any time of determination, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Dow Jones Market Service Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) 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 "LIBOR" shall mean the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) 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 LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates. In the event that such rate does not appear on either Dow Jones Market Service Page 3750 or Reuters Screen LIBOR Page, "LIBOR" shall be the rate per annum at which deposits in Dollars are offered by leading reference banks in the London interbank market to Wells Fargo Bank, N.A. at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of this Loan.

1.13 LIEN shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under the Laws of any jurisdiction).

1.14 LOAN shall mean the funds loaned to the Borrower by the Lender pursuant to this Agreement.

1.15 LOAN DOCUMENTS means, on any date, this Agreement, the Note and all other agreements relating to this Agreement entered into from time to time between Borrower and the Lender and all other documents and certificates executed and delivered to the Lender by the Borrower in connection with any of the foregoing, as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date.

1.16 MATERIAL ADVERSE EFFECT shall mean any material and adverse effect on (i) the assets, liabilities, financial condition, business, operations, prospects or affairs of the Borrower

Loan Agreement

and its Subsidiaries taken as a whole; or (ii) the ability of the Borrower and its Subsidiaries, taken as a whole, to carry out their business on and after the Effective Date or as proposed as of the Effective Date to be conducted or meet its obligations under the Loan Documents on a timely basis.

1.17 MATURITY DATE shall mean, unless the Note is sooner accelerated pursuant to this Agreement, February 26, 2012.

1.18 MAXIMUM RATE shall mean at any particular in question, the maximum rate of interest which, under applicable law, may then be charged. If such maximum rate changes after the date hereof, the Maximum Rate shall be automatically increased or decreased, as the case may be, without notice to Borrower from time to time as the effective date of each change in such maximum rate period.

1.19 NOTE shall mean the Note as described and defined in Article II of this Agreement, together with each and every extension, renewal, modification, replacement, substitution and change in form thereof which may be from time to time and for any term or terms effected.

1.20 PERSON shall mean and include an individual, a partnership, a limited partnership, a limited liability company, a joint venture, a corporation, a trust, an unincorporated organization, and a government or any department, agency or political subdivision thereof.

1.21 RESPONSIBLE OFFICER shall mean the chief executive officer, chief operating officer, chief financial officer, president or managing director of the Borrower.

1.22 SUBSIDIARY shall mean (i) any corporation, at least 50% of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Borrower either directly or through Subsidiaries; and (ii) any partnership, joint venture or similar entity if at least a 50% interest in the profits or capital thereof is owned by the Borrower, either directly or through Subsidiaries.

1.23 STATED RATE shall mean a rate per annum equal to LIBOR plus six percent (6%); provided, however, that if the Stated Rate ever exceeds the Highest Lawful Rate, the Stated Rate shall then and thereafter be fixed at a rate per annum equal to the Highest Lawful Rate then and from time to time thereafter in effect until the total amount of interest accrued at the Stated Rate on the unpaid balance of this Note equals the total amount of interest which would have accrued at the Highest Lawful Rate from time to time in effect.

1.24 TAXES shall mean all taxes, assessments, fees, or other charges or levies from time to time or at any time imposed by any Laws or by any Tribunal as hereafter defined.

1.25 TRIBUNAL shall mean any municipal, state, commonwealth, Federal, foreign, territorial or other sovereign, governmental entity, governmental department, court, commission, board, bureau, agency or instrumentality.

1.26 OTHER DEFINITIONAL PROVISIONS. References to Sections, subsections, Exhibits and Schedules shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Article I may,

Loan Agreement

unless the content otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words including, includes and include shall be deemed to be followed by the words without limitation; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement or any other Loan Document; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

ARTICLE II

LOAN

2.1 LOAN. Upon the terms and subject to the conditions hereinafter set forth, the Lender agrees to loan to Borrower the sum of Twelve Million and NO/100 U.S. Dollars (US $12,000,000.00) (the "Loan"). The Loan will be funded on or before the Effective Date. The unpaid principal balance and all accrued interest of the Loan are due and payable on the Maturity Date.

2.2 PAYMENTS BY LENDER. The Lender shall fund the Loan to Borrower, as requested by Borrower, by wire transfer of immediately available funds by 11:00 a.m. Houston, Texas time to the account of the Borrower as designated by the Borrower for such purpose by written notice to the Lender.

2.3 NOTE. The Borrower shall execute and deliver to the order of the Lender a promissory note in the original principal amount the Loan, the form of which is annexed hereto as EXHIBIT A and hereby made a part hereof (hereinafter referred to as the "Note"). The Note shall be dated as of the Effective Date, and shall provide for one annual payment of accrued interest on the first anniversary of the Effective Date hereof, followed by four equal annual payments of principal and accrued interest on each succeeding anniversary date until the Maturity Date, when the unpaid and outstanding principal balance of the Note, together with accrued but unpaid interest thereon, shall be due and payable. The Note shall bear interest on the unpaid balance of principal from time to time outstanding and on any past due interest at an annual interest rate determined pursuant to Section 2.6 hereof, but in no event at a rate greater than permitted by applicable Law. All payments received shall be applied first to accrued interest and then to the outstanding principal amount owing on the Note. All payments and prepayments shall be made in lawful money of the United States of America. After maturity (whether by acceleration or otherwise) the Note shall bear interest at the Default Rate, payable on demand. Interest shall be calculated on the basis of a year of 365 days, but assessed for the actual number of days elapsed in each Interest Period.

2.4 PROCEEDS OF LOAN. Proceeds of the Loan shall be used only for the purposes of (i) Borrower's equity contribution to Isramco Energy; (ii) working capital and general corporate purposes; and (iii) refinancing of existing debt.

Loan Agreement

2.5 RESPONSIBLE OFFICER. A Responsible Officer may, from time to time, notify the Lender in writing of a change in the Responsible Officer. From and after the Lender's receipt of such written notice, the Lender may rely on any such request or certificate purportedly signed by any individual who has been so designated as a Responsible Officer pursuant to this Agreement unless or until it receives written notice from a Responsible Officer of the deletion of a Responsible Officer.

2.6 INTEREST RATES.

(a) INTEREST PRIOR TO MATURITY. Subject to the provisions and limitations hereof, the outstanding principal balance of the Loan hereunder shall accrue interest at the Stated Rate.

(b) INTEREST AFTER MATURITY. After the outstanding principal amount of the Loan shall have become past due (by acceleration or past the stated maturity date), such Loans shall bear interest for each day until paid (before and after judgment) at the Default Rate.

2.7 PREPAYMENTS. Borrower shall have the right at its option, from time to time, to prepay the Loan in whole or part without premium or penalty at any time.

2.8 PAYMENTS FROM BORROWER. All payments shall be payable to the Lender on the day when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and an action therefor shall immediately accrue if not timely paid within applicable grace or curative periods herein specified. Such payments shall be made to the Lender at such location as Lender may from time to time designate in writing in U.S. Dollars in funds immediately available at such office without set off, counterclaim or other deduction of any nature. To the extent permitted by law, after there shall have become due (by acceleration or otherwise), interest or any other amounts due from the Borrower hereunder or under the Note (excluding overdue principal, which shall bear interest as described in Section 2.6(b) hereof), such amounts shall bear interest for each day until paid (before and after judgment), payable on demand, at the Default Rate.

2.9 FULL PAYMENT. All outstanding principal and accrued but unpaid interest on the Note shall be due and payable at the Maturity Date.

ARTICLE III

CONDITIONS PRECEDENT TO LOANS

3.1 CONDITIONS PRECEDENT TO FUNDING. The effectiveness of this Agreement and the obligation of the Lender to make the Loan are subject to the satisfaction of all of the following conditions on or prior to the Effective Date (in addition to the other terms and conditions set forth herein):

(a) REPRESENTATIONS AND WARRANTIES. The covenants, representations and warranties set forth herein and in the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date, with the same effect as though made on and as of the Effective Date.

Loan Agreement

(b) NOTE. The Borrower shall have executed and delivered to the Lender the Note payable to the order of the Lender.

(c) OTHER INFORMATION. The Lender shall have received such other information, documents and assurances as shall be reasonably requested by the Lender.

ARTICLE IV

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness and the performance of all other obligations of the Borrower under this Agreement, unless the Lender shall otherwise consent in writing:

4.1 PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge or cause to be paid and discharged all Taxes imposed upon the income or profits of the Borrower or upon the property, real, personal or mixed, or upon any part thereof, belonging to Borrower before the same shall be in default, and all lawful claims for labor, rentals, materials and supplies which, if unpaid, might become a Lien upon its property or any part thereof; provided, however, that the Borrower shall not be required to pay and discharge or cause to be paid or discharged any such Tax, assessment or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and adequate book reserves shall be established with respect thereto, and the Borrower shall pay such Tax, charge or claim before any property subject thereto shall become subject to levy of attachment or execution.

4.2 MAINTENANCE OF EXISTENCE. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its organizational existence, rights and franchises and good standing in the State of Delaware and as a foreign corporation qualified in such other jurisdiction(s) in which the failure to maintain such qualification would have a Material Adverse Effect.

4.3 PRESERVATION OF PROPERTY. The Borrower will at all times maintain, preserve and protect all of the Borrower's properties which are used or useful in the conduct of the Borrower's businesses whether owned in fee or otherwise, or leased, in good repair and operating condition and comply with all material leases to which it is a party or under which it occupies property so as to prevent any material loss or forfeiture thereunder.

4.4 PAYMENT OF INDEBTEDNESS/PERFORMANCE OF OBLIGATIONS. The Borrower will pay the obligations under the Note according to the reading, tenor and effect thereof and the Borrower hereby agrees to pay, when due and owing, all Indebtedness, whether or not evidenced by the Note.

4.5 OPERATION OF PROPERTIES AND EQUIPMENT.

(a) The Borrower will maintain and operate, and will cause each of its Affiliates (if any) to maintain and operate, their respective properties in a good and workmanlike

Loan Agreement

manner, except to the extent a failure to so observe and comply is not reasonably expected to have a Material Adverse Effect.

(b) The Borrower will comply, and will cause each of its Affiliates (if any) to comply, in all respects with all contracts and agreements applicable to or relating to their respective properties, except to the extent a failure to so comply is not reasonably expected to have a Material Adverse Effect.

ARTICLE V

NEGATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness, unless the Lender shall otherwise consent in writing:

5.1 LIENS. Other than the first lien and security interest of Wells Fargo National Bank, N.A., upon properties of Isramco Energy, the existing liens securing existing debt of its other Subsidiaries, and the liens and security interests pledged to Naphtha Israel Petroleum Corp., Ltd. by Jay Petroleum, L.L.C., the Borrower will not, and will not permit any of its Subsidiaries (if any), to create, incur, assume, or suffer to exist any lien upon or with respect to any of its properties, now owned or hereafter acquired, except:

(a) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable or, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained;

(b) Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's, and carriers' Liens, and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established;

(c) Liens under workers' compensation, unemployment insurance, Social Security or similar legislation;

(d) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business;

(e) Judgment and other similar liens (in the aggregate exceeding $100,000) arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings.

5.2 SALE OF ASSETS. The Borrower will not sell, lease, assign, transfer, or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation,

Loan Agreement

shares of stock, receivables, and leasehold interests) in excess of $150,000 in the aggregate during any twelve (12) consecutive month period of time, except:
(1) inventory disposed of or leased in the ordinary course of business; (2) the sale or other disposition of other assets no longer used or useful in the conduct of its business; and (3) as otherwise expressly permitted pursuant to this Agreement.

5.3 USE OF LOAN PROCEEDS. The Borrower shall not use any proceeds of the Loan for any purpose other than those expressly permitted and contemplated by this Agreement, and in no event shall any loan proceeds be used for any purpose that would create or cause a breach, violation or default or event of default hereunder or under any of the other Loan Documents or violation of Regulations T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

To induce the Lender to enter into this Agreement and to make the Loan to the Borrower under the provisions hereof, and in consideration thereof, the Borrower represents, warrants and covenants as follows:

6.1 GOOD STANDING, AND DUE QUALIFICATION. The Borrower (a) is a limited liability company duly formed, validly existing, and in good standing under the laws of the State of Delaware; (b) has the power and authority to own its assets and to transact the business in which it is now engaged or in which it is proposed to be engaged; and (c) is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. The initial Responsible Officer of the Borrower has all necessary corporate power and authority to execute and deliver this Agreement, the Note, and the other Loan Documents to the Lender.

6.2 LITIGATION. There is no action, suit, investigation or proceeding threatened or pending before any Tribunal against or affecting the Borrower or any properties or rights of the Borrower, which, if adversely determined, would result in any material adverse change in the business or condition, financial or otherwise, of the Borrower, or otherwise materially adversely affect the ability of the Borrower to perform its obligations under this Agreement. The Borrower is not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any Tribunal.

6.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. To the best of Borrower's knowledge and belief, the Borrower is not in default in the performance of any material obligation, covenant, or condition in any material agreement to which it is a party or by which it is bound. Neither the execution nor delivery of any of the Loan Documents, nor fulfillment of, nor compliance with their respective terms and provisions will conflict with, or result in a material breach of the terms, conditions or provisions of, or constitute a default under, or result in any

Loan Agreement

material violation of, or result in the creation of any Lien (except those created by the Loan Documents) upon any of the properties or assets of the Borrower pursuant to, or require any consent, approval or other action by or any notice to or filing with any Tribunal (other than routine filings after the Effective Date with the Securities and Exchange Commission, any securities exchange and/or state blue sky authorities) pursuant to any award of any arbitrator, or any agreement, instrument or Laws to which the Borrower is subject.

6.4 TITLE TO PROPERTIES, AUTHORITY. The Borrower has full power, authority and legal right to own and operate the properties which it now owns and operates, and to carry on the lines of business in which it is now engaged, and to the knowledge of Borrower has good and defensible title to all of its assets. The Borrower has full power, authority and legal right to execute and deliver and to perform and observe the provisions of this Agreement and the other Loan Documents and the Loan Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, subject only to applicable bankruptcy, insolvency or similar laws and general principles of equity.

6.5 CORPORATE AUTHORIZATION. The Borrower has duly authorized the execution and delivery of each of the Loan Documents and the performance of their respective terms. No other authorizations, approvals, consents or actions of any other Person are required as a prerequisite to the validity and enforceability of the Loan Documents.

ARTICLE VII

EVENTS OF DEFAULT

7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default (whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of Law or otherwise):

(a) Borrower shall fail to make any monthly or other payment due on the Note, or fail to pay any other fee, charge or assessment within five
(5) days after the same shall become due and payable (whether by extension, renewal, acceleration, maturity or otherwise); or

(b) Any representation, warranty or certification of the Borrower made herein, or in any other writing furnished in connection with or pursuant to any of the Loan Documents shall have been incorrect, false or misleading in any material respect on the date when made; or

(c) The Borrower shall fail to duly observe, perform or comply with any covenant, agreement or term (other than payment provisions which are governed by subparagraph (a) hereof) contained in this Agreement or any of the Loan Documents and such default or breach shall have not been cured or remedied within thirty (30) days following the date the Lender first notifies the Borrower in writing; or

(d) Any of the following: (i) the Borrower shall be unable to pay its debts as they mature, or shall make an assignment for the benefit of creditors or admit in writing its inability to pay its debts generally as they become due or fail generally to pay its debts as they mature; or (ii) an order, judgment or decree is entered adjudicating the Borrower insolvent or an order for relief under the United States Bankruptcy Code is entered with respect to the Borrower;

Loan Agreement

or (iii) the Borrower shall petition or apply to any Tribunal for the appointment of a trustee, receiver, custodian or liquidator of the Borrower or of any substantial part of the assets of the Borrower or shall commence any proceedings relating to the Borrower under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debts, dissolution, or liquidation Law of any jurisdiction, whether now or hereafter in effect; or (iv) any such petition or application shall be filed, or any such proceedings shall be commenced, against the Borrower and the Borrower by any act shall indicate its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree shall be entered appointing any such trustee, receiver, custodian or liquidator, or approving the petition in any such proceedings, and such order, judgment or decree shall remain unstayed and in effect for more than thirty (30) days; or (v) the Borrower shall fail to make timely payment or deposit of any amount of tax required to be withheld by such Borrower and paid to or deposited to or to the credit of the United States of America pursuant to the provisions of the Internal Revenue Code of 1986, as amended, in respect of any and all wages and salaries paid to employees of the Borrower; or

(e) Any default or event of default under any of the other Loan Documents following the lapse of any applicable curative or grace period provided therein.

7.2 REMEDIES. Upon the occurrence of any Event of Default referred to in Section 7.1, the Note and all other Indebtedness shall be immediately due and payable, without notice of any kind. Upon the occurrence of any other Event of Default, and without prejudice to any right or remedy of the Lender under this Agreement or the Loan Documents or under applicable Law or under any other instrument or document delivered in connection herewith, the Lender may declare the Note and the Indebtedness, or any part thereof, to be forthwith due and payable, whereupon the Note and the other Indebtedness, or such portion as is designated by the Lender shall forthwith become due and payable, without presentment, demand, notice or protest of any kind, all of which are hereby expressly waived by the Borrower. No delay or omission on the part of the Lender in exercising any power or right hereunder or under the Note, the Loan Documents or under applicable law shall impair such right or power or be construed to be a waiver of any default or any acquiescence therein, nor shall any single or partial exercise by Lender of any such power or right preclude other or further exercise thereof or the exercise of any other such power or right by such Person. In the event that all or part of the Indebtedness becomes or is declared to be forthwith due and payable as herein provided, Lender shall have the right to set off the amount of all the Indebtedness of the Borrower owing to such Person against, and shall have a lien upon and security interest in, all property of the Borrower in such Person's possession at or subsequent to such default, regardless of the capacity in which such property is held, including but not limited to any balance or share of any deposit, demand, collection or agency account. At any time after the occurrence of any Event of Default, the Lender may, at its option, cause an audit of any and/or all of the books, records and documents of the Borrower to be made by auditors satisfactory to the Lender at the expense of the Borrower. The Lender also shall have, and may exercise, each and every right and remedy granted to it for default under the terms of the other Loan Documents.

Loan Agreement

7.3 APPLICATION OF PROCEEDS. After the exercise of remedies provided for in Section 7.2 (or after the Indebtedness automatically becomes immediately due and payable as set forth in Section 7.2), any amounts received on account of such Indebtedness shall be applied in the following order:

FIRST: to payment of that portion of the Indebtedness constituting fees, indemnities, expenses or other amounts (other than principal and interest) payable to the Lender (including fees, charges and disbursements of counsel);

SECOND: to payment of accrued and unpaid interest on the Indebtedness;

THIRD: to payment of unpaid principal of the Indebtedness;

and

LAST: the balance, if any, after all of the Indebtedness has been indefeasibly paid in full, to Borrower or as otherwise required by applicable Laws.

ARTICLE VIII

MISCELLANEOUS

8.1 NOTICES. Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and shall be either hand-delivered (by courier or otherwise), mailed by certified mail, postage prepaid, or transmitted via telex or facsimile to the respective addresses specified below, or, as to any party, to such other address as may be designated by it in written notice to the other parties:

If to the Borrower, to:

Isramco, Inc.
11767 Katy Freeway, Suite 711
Houston, TX 77079

Telephone No.: (713) 621 -3882 Facsimile No.: (713) 621 - 3988 e - mail jayoil@swbell.net

With a copy to:

Schaeffer Hutchinson PC Attn.: Mr. James H. Hutchinson, III 2204 Louisiana, Suite 220 Houston, Texas 77002
Phone: (713) 524 - 7300 e - mail: jhutchinson@schalaw.com

Loan Agreement

If to the Lender, to:

I.O.C. Israel Oil Company, Ltd.
8 Granit St.
P.O.B. 10188
Petach-Tikva 49002

Israel
Phone: 972-3-922-922-5 e-mail: office@isramco.com

All notices, requests, consents and demands hereunder will be effective when hand-delivered or transmitted by telecopier or sent, answer-back received, respectively, by the Lender to the notice address of the Borrower, or two (2) Business Days after the date when mailed by certified mail, postage prepaid, in each case given or addressed as aforesaid by either party hereto.

8.2 PLACE OF PAYMENT. All sums payable hereunder shall be paid in immediately available funds, at such location as may be designated from time to time in writing by Lender. If any interest, principal or other payment falls due on a date other than a Business Day, then (unless otherwise provided herein) such due date shall be extended to the next succeeding Business Day, and such extension of time will, in such case, be included in computing interest, if any, in connection with such payment.

8.3 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and warranties made herein shall survive the execution and the delivery of Loan Documents.

8.4 PARTIES IN INTEREST. All covenants, agreements and obligations contained in this Agreement shall bind and inure to the benefit of the parties hereto and the respective successors and permitted assigns of the parties hereto, except that the Borrower may not assign any of its rights or obligations hereunder or under the Note without the prior written consent of the Lender.

8.5 GOVERNING LAW. This Agreement and the Note shall be deemed to have been made or incurred under the Laws of the State of Texas and shall be construed and enforced in accordance with and governed by the Laws of Texas except only where the applicable remedial or procedural laws of the other jurisdictions are situated are applicable thereto. Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to this Agreement or the Note.

8.6 INTEREST. It is the intention of the parties hereto that the Lender shall conform strictly to usury laws applicable to them. Accordingly, if the transactions contemplated hereby would be usurious as to the Lender under laws applicable to it (including the laws of the United States of America or any other jurisdiction whose laws may be mandatorily applicable the Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to the Lender that is contracted for, taken, reserved, charged or received by the Lender under any of the Loan Documents or agreements or otherwise in connection with the Note shall under no circumstances exceed the Maximum Rate, and any excess shall be canceled automatically and if

Loan Agreement

theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by any Lender to the Borrower); and (ii) in the event that the maturity of the Note is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Lender may never include interest greater than the Maximum Rate, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by the Lender to the Borrower). All sums paid or agreed to be paid to the Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Note until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the Maximum Rate. If at any time and from time to time (i) the amount of interest payable to the Lender on any date shall be computed at the highest lawful rate applicable to the Lender pursuant to this Section 8.6; and
(ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to Lender would be less than the amount of interest payable to the Lender computed at the highest lawful rate applicable to the Lender, then the amount of interest payable to the Lender in respect of such subsequent interest computation period shall continue to be computed at the highest lawful rate applicable to the Lender until the total amount of interest payable to the Lender shall equal the total amount of interest which would have been payable to the Lender if the total amount of interest had been computed without giving effect to this Section 8.6. To the extent that the Texas Credit Title (V.T.C.A., Texas Finance Code ss.ss. 301.001 et seq.) is relevant to the Lender for the purpose of determining the highest lawful rate, the Lender hereby elects to determine the applicable ceiling rate under the Texas Credit Title by the weekly ceiling from time to time in effect.

8.7 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise, and no delay in exercising, on the part of the Lender, any right, power or privilege hereunder or under any other Loan Document or applicable Law shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege of the Lender. The rights and remedies herein provided are cumulative and not exclusive of any other rights or remedies provided by any other instrument or by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

8.8 COSTS. The Borrower agrees to pay to the Lender on demand all recording fees and filing costs, all reasonable attorneys fees and reasonable legal expenses incurred or accrued by the Lender in connection with and preparation, negotiation, closing, administration, perfection, enforcement, refinancing, renegotiation, restructuring, amendment, waiver or other modifications of this Agreement and the Loan Documents or any amendment, waiver, consent or modification to and of the Loan Documents. In any action to enforce or construe the provisions of this Agreement or any of the Loan Documents, the Lender shall be entitled to recover its reasonable attorneys' fees, disbursements of counsel and all costs and expenses related thereto.

Loan Agreement

8.9 RIGHT OF SET - OFF. The Borrower hereby grants to the Lender a lien, security interest and right of setoff as security for all Indebtedness and obligations of the Borrower upon and against all deposits, credit, and property of the Borrower, now or hereafter in the possession, custody, safekeeping or control of such Person; and upon (a) the occurrence and during the continuance of any Event of Default; and (b) the decision by the Lender to declare the Note due and payable pursuant to the provisions of Article VII, the Lender is hereby authorized at any time and from time to time, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final, other than trust funds) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the Indebtedness of the Borrower now or hereafter existing under this Agreement and the Note, irrespective of whether demand under this Agreement or the Note shall have been made and although such Indebtedness may be unmatured. The Lender shall promptly notify the Borrower after any such set off and application; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set - off) that such Persons may have at law, in equity or otherwise.

8.10 HEADINGS. The article and section headings of this Agreement are for convenience of reference only and shall not constitute a part of the text hereof nor alter or otherwise affect the meaning or interpretation of any provision hereof.

8.11 SEVERABILITY. The unenforceability or invalidity as determined by a Tribunal of competent jurisdiction, of any provision or provisions of this Agreement shall not render unenforceable or invalid any other provision or provisions hereof.

8.12 CONFIDENTIALITY. In the event that the Borrower provides to the Lender written confidential information belonging to the Borrower, the Lender shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain; (ii) hereafter become part of the public domain, without the Lender breaching its obligation of confidence to the Borrower; (iii) are previously known by the Lender from some source other than the Borrower; (iv) are hereafter developed by the Lender without using the Borrower's information; (v) are hereafter obtained by the Lender from a third party who owes no obligation of confidence to the Borrower with respect to such information; (vi) are disclosed with the Borrower's consent; (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Lender; or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. Further, the Lender may disclose any such information to consultants, any independent certified public accountants or any legal counsel employed by such Persons in connection with this Agreement, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loan; provided, however, that the Lender imposes on the Person to whom such information is disclosed the same obligation to maintain the confidentiality of such information as is imposed upon it hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease two (2) years from the date the information was furnished, unless the Borrower requests in writing at least thirty (30) days prior to the expiration of such two (2) year

Loan Agreement

period, to maintain the confidentiality of such information for an additional two (2) year period. The Lender agrees not to issue or cause to be issued any tombstone or other publicly published announcement of the lending facilities established by this Agreement without the Borrower's review and approval thereof, which such approval will not be unreasonably withheld.

8.13 SURVIVAL. To the extent that any payments on the Indebtedness are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor-in-possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Liens, security interests, rights, powers and remedies under this Agreement shall continue in full force and effect.

8.14 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF THE 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.

8.15 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement.

8.16 AMENDMENTS. No amendment or waiver of any provision of this Agreement, the Note, or any other Loan Document to which the Borrower is a party, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Lender and the Borrower, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver, or consent shall, unless in writing and signed by the Lender and the Borrower, do any of the following: (a) reduce the principal of, or interest on, the Note or any fees or other amounts payable hereunder; (b) postpone any date fixed for any payment of principal of, or interest on, the Note or any fees or other amounts payable hereunder; (c) change the percentage of the Commitment or of the aggregate unpaid principal amount of the Note; or
(d) change any provision contained in this Section 8.16.

8.17 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lender. The Borrower and the Lender agree that the Lender may at any time assign to one or more assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents.

Loan Agreement

IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed and delivered to the Lender, effective as of the day and year first above written by the undersigned duly authorized corporate officer of the Borrower.

BORROWER:

ISRAMCO, INC.
A Delaware corporation

By: /s/ Haim Tsuff
    --------------
    Haim Tsuff, Chief executive Officer

LENDER:

I.O.C. ISRAEL OIL COMPANY, LTD.

By: /s/ Jackob Maimon
    -----------------
    Jackob Maimon, Director


By: /s/ Noa Lendner
    Noa Lendner, Authorized Representative

Loan Agreement

EXHIBIT 10.5

LOAN AGREEMENT

$ 7,000,000

DATED AS OF

FEBRUARY 26, 2007

by and between

ISRAMCO, INC.
A DELAWARE CORPORATION,

as the "Borrower",

and

J.O.E.L. JERUSALEM OIL EXPLORATION, LTD.

As the "Lender"

THIS LOAN AGREEMENT, dated as of February 26, 2007, is made and entered into by and between ISRAMCO, INC., a Delaware corporation (the "Borrower") and J.O.E.L JERUSALEM OIL EXPLORATION, LTD. (the "Lender").

WITNESSETH:

WHEREAS, ISRAMCO ENERGY, L.L.C., a Texas limited liability company ("Isramco Energy"), is a wholly owned subsidiary of the Borrower;

WHEREAS, Isramco Energy has entered into a Purchase and Sale Agreement with Five States Energy Company, L.L.C. and its related entities (the "PSA") pursuant to which Borrower is to acquire interests in certain oil and gas properties located in the States of Texas and New Mexico (the "Acquisition");

WHEREAS, the Borrower desires to obtain financing in the amount of Seven Million Dollars ($7,000,000) from the Lender for purposes of contribution to the equity of Isramco Energy for the Acquisition, working capital, capital expenditures, to finance acquisitions of oil and gas properties and other assets related to the exploration, production and development of oil and gas properties, and for other lawful corporate purposes;

WHEREAS, the Lender is willing to extend the financing to Borrower upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, receipt of which is acknowledged by the parties hereto, the parties agree, as follows:

ARTICLE I

CERTAIN DEFINITIONS

When used herein, the following terms shall have the following meanings:

1.1 BUSINESS DAY shall mean a day other than a Saturday, Sunday or a day upon which banks in the State of Texas are closed to business generally; provided that when used in connection with a Libor Loan, the term shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

1.2 DEFAULT RATE shall mean the Stated Rate plus 12 percentage points (12%) per annum.

1.3 EFFECTIVE DATE shall mean February 26, 2007.

1.4 EVENT OF DEFAULT shall mean any of the events specified in
Section 7.1 of this Agreement, and Default shall mean any event, which together with any lapse of time or giving of any notice, or both, would constitute an Event of Default.

1.5 GOVERNMENTAL AUTHORITY shall include the country, the state, county, city and political subdivisions in which any Person or such Person's property is located or which exercises valid jurisdiction over any such Person or such Person's property, and any Tribunal of any of them, including monetary authorities, which exercises valid jurisdiction over any such Person or such Person's property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Borrower, any of its Subsidiaries, any of Borrower's properties or the Lender.

1.6 GOVERNMENTAL REQUIREMENT shall mean any Law, or other directive or requirement (whether or not having the force of law), including, without limitation, environmental laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

1.7 HEREBY, HEREIN, HEREOF, HEREUNDER and similar such terms shall mean and refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which the respective word appears.

1.8 HIGHEST LAWFUL RATE shall mean on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that the Texas Finance Code establishes the "Ceiling Rate", the Ceiling Rate shall be the "weekly ceiling" (as defined in the Texas Finance Code) for that day. Lender may from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code by notice to Borrower, if and to the extent permitted by the Texas Finance Code. Without notice to Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates.

1.9 INDEBTEDNESS shall mean any and all: (i) indebtedness, obligations and liabilities of the Borrower to the Lender incurred or which may be incurred hereafter pursuant to the terms of this Agreement or any of the other Loan Documents, and any extensions, renewals, substitutions, amendments and increases in amount thereof, including such amounts as may be evidenced by the Note and all lawful interest thereon and other charges, and all reasonable costs and expenses incurred by the Lender in connection with the preparation, filing and recording of the Loan Documents, including attorneys fees (ii) all reasonable costs and expenses, including attorneys' fees, paid or incurred by the Lender in enforcing or attempting to enforce collection of any Indebtedness and in enforcing or realizing upon or attempting to enforce or realize upon any collateral or security for any Indebtedness and in protecting and preserving the Lender's interest in the Indebtedness or any collateral or security for any Indebtedness in any bankruptcy or reorganization proceeding, including interest on all sums so expended by the Lender accruing from the date upon which such expenditures are made until paid, at an annual rate equal to the Default Rate; and (iii) sums expended by the Lender in curing any Event of Default or Default of the Borrower under the terms of this Agreement, the other Loan Documents or any other security agreement or other writing evidencing or securing the payment of the Indebtedness described herein, including the Note.

Loan Agreement

1.10 LAW(S) shall mean all statutes, laws, ordinances, regulations, orders, rules, codes, permits, franchises, licenses, certificates, writs, injunctions, or decrees of the United States, any state or commonwealth, any municipality, any foreign country, any territory or possession, or any Tribunal.

1.11 LIEN shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement or other similar form of public notice under the Laws of any jurisdiction).

1.12 LOAN shall mean the funds loaned to the Borrower by the Lender pursuant to this Agreement.

1.13 LOAN DOCUMENTS means, on any date, this Agreement, the Note and all other agreements relating to this Agreement entered into from time to time between Borrower and the Lender and all other documents and certificates executed and delivered to the Lender by the Borrower in connection with any of the foregoing, as from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date.

1.14 MATERIAL ADVERSE EFFECT shall mean any material and adverse effect on (i) the assets, liabilities, financial condition, business, operations, prospects or affairs of the Borrower and its Subsidiaries taken as a whole; or (ii) the ability of the Borrower and its Subsidiaries, taken as a whole, to carry out their business on and after the Effective Date or as proposed as of the Effective Date to be conducted or meet its obligations under the Loan Documents on a timely basis.

1.15 MATURITY DATE shall mean, unless the Note is sooner accelerated pursuant to this Agreement, May 26, 2007.

1.16 MAXIMUM RATE shall mean at any particular in question, the maximum rate of interest which, under applicable law, may then be charged. If such maximum rate changes after the date hereof, the Maximum Rate shall be automatically increased or decreased, as the case may be, without notice to Borrower from time to time as the effective date of each change in such maximum rate period.

1.17 NOTE shall mean the Note as described and defined in Article II of this Agreement, together with each and every extension, renewal, modification, replacement, substitution and change in form thereof which may be from time to time and for any term or terms effected.

1.18 PERSON shall mean and include an individual, a partnership, a limited partnership, a limited liability company, a joint venture, a corporation, a trust, an unincorporated organization, and a government or any department, agency or political subdivision thereof.

1.19 RESPONSIBLE OFFICER shall mean the chief executive officer, chief operating officer, chief financial officer, president or managing director of the Borrower.

Loan Agreement

1.20 SUBSIDIARY shall mean (i) any corporation, at least 50% of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Borrower either directly or through Subsidiaries; and (ii) any partnership, joint venture or similar entity if at least a 50% interest in the profits or capital thereof is owned by the Borrower, either directly or through Subsidiaries.

1.21 STATED RATE shall mean a rate per annum equal to Five and 36/100 percent (5.36%); provided, however, that if the Stated Rate ever exceeds the Highest Lawful Rate, the Stated Rate shall then and thereafter be fixed at a rate per annum equal to the Highest Lawful Rate then and from time to time thereafter in effect until the total amount of interest accrued at the Stated Rate on the unpaid balance of this Note equals the total amount of interest which would have accrued at the Highest Lawful Rate from time to time in effect.

1.22 TAXES shall mean all taxes, assessments, fees, or other charges or levies from time to time or at any time imposed by any Laws or by any Tribunal as hereafter defined.

1.23 TRIBUNAL shall mean any municipal, state, commonwealth, Federal, foreign, territorial or other sovereign, governmental entity, governmental department, court, commission, board, bureau, agency or instrumentality.

1.24 OTHER DEFINITIONAL PROVISIONS. References to Sections, subsections, Exhibits and Schedules shall be to Sections, subsections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Article I may, unless the content otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words including, includes and include shall be deemed to be followed by the words without limitation; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement or any other Loan Document; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

ARTICLE II

LOAN

2.1 LOAN. Upon the terms and subject to the conditions hereinafter set forth, the Lender agrees to loan to Borrower the sum of Seven Million and NO/100 U.S. Dollars (US $7,000,000.00) (the "Loan"). The Loan will be funded on or before the Effective Date. The unpaid principal balance and all accrued interest of the Loan are due and payable on the Maturity Date.

2.2 PAYMENTS BY LENDER. The Lender shall fund the Loan to Borrower, as requested by Borrower, by wire transfer of immediately available funds by 11:00 a.m. Houston, Texas time

Loan Agreement

to the account of the Borrower as designated by the Borrower for such purpose by written notice to the Lender.

2.3 NOTE. The Borrower shall execute and deliver to the order of the Lender a promissory note in the original principal amount the Loan, the form of which is annexed hereto as EXHIBIT A and hereby made a part hereof (hereinafter referred to as the "Note"). The Note shall be dated as of the Effective Date, and shall provide for payment of principal and accrued interest on the Maturity Date. The Note shall bear interest on the unpaid balance of principal from time to time outstanding and on any past due interest at an annual interest rate determined pursuant to Section 2.6 hereof, but in no event at a rate greater than permitted by applicable Law. All payments received shall be applied first to accrued interest and then to the outstanding principal amount owing on the Note. All payments and prepayments shall be made in lawful money of the United States of America. After maturity (whether by acceleration or otherwise) the Note shall bear interest at the Default Rate, payable on demand. Interest shall be calculated on the basis of a year of 365 days, but assessed for the actual number of days elapsed before full payment.

2.4 PROCEEDS OF LOAN. Proceeds of the Loan shall be used only for the purposes of (i) Borrower's equity contribution to Isramco Energy; (ii) working capital and general corporate purposes; and (iii) refinancing of existing debt.

2.5 RESPONSIBLE OFFICER. A Responsible Officer may, from time to time, notify the Lender in writing of a change in the Responsible Officer. From and after the Lender's receipt of such written notice, the Lender may rely on any such request or certificate purportedly signed by any individual who has been so designated as a Responsible Officer pursuant to this Agreement unless or until it receives written notice from a Responsible Officer of the deletion of a Responsible Officer.

2.6 INTEREST RATES.

(a) INTEREST PRIOR TO MATURITY. Subject to the provisions and limitations hereof, the outstanding principal balance of the Loan hereunder shall accrue interest at the Stated Rate.

(b) INTEREST AFTER MATURITY. After the outstanding principal amount of the Loan shall have become past due (by acceleration or past the stated maturity date), such Loans shall bear interest for each day until paid (before and after judgment) at the Default Rate.

2.7 PREPAYMENTS. Borrower shall have the right at its option, from time to time, to prepay the Loan in whole or part without premium or penalty at any time.

2.8 PAYMENTS FROM BORROWER. All payments shall be payable to the Lender on the day when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and an action therefor shall immediately accrue if not timely paid within applicable grace or curative periods herein specified. Such payments shall be made to the Lender at such location as Lender may from time to time designate in writing in U.S. Dollars in funds immediately available at such office without set off, counterclaim or other deduction of any nature. To the extent permitted by law, after there shall have become due (by acceleration or otherwise), interest or any other amounts due from the Borrower hereunder or under the Note (excluding overdue principal, which shall bear interest as described in Section 2.6(b) hereof), such

Loan Agreement

amounts shall bear interest for each day until paid (before and after judgment), payable on demand, at the Default Rate.

2.9 FULL PAYMENT. All outstanding principal and accrued but unpaid interest on the Note shall be due and payable at the Maturity Date.

ARTICLE III

CONDITIONS PRECEDENT TO LOANS

3.1 CONDITIONS PRECEDENT TO FUNDING. The effectiveness of this Agreement and the obligation of the Lender to make the Loan are subject to the satisfaction of all of the following conditions on or prior to the Effective Date (in addition to the other terms and conditions set forth herein):

(a) REPRESENTATIONS AND WARRANTIES. The covenants, representations and warranties set forth herein and in the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date, with the same effect as though made on and as of the Effective Date.

(b) NOTE. The Borrower shall have executed and delivered to the Lender the Note payable to the order of the Lender.

(c) OTHER INFORMATION. The Lender shall have received such other information, documents and assurances as shall be reasonably requested by the Lender.

ARTICLE IV

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness and the performance of all other obligations of the Borrower under this Agreement, unless the Lender shall otherwise consent in writing:

4.1 PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge or cause to be paid and discharged all Taxes imposed upon the income or profits of the Borrower or upon the property, real, personal or mixed, or upon any part thereof, belonging to Borrower before the same shall be in default, and all lawful claims for labor, rentals, materials and supplies which, if unpaid, might become a Lien upon its property or any part thereof; provided, however, that the Borrower shall not be required to pay and discharge or cause to be paid or discharged any such Tax, assessment or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and adequate book reserves shall be established with respect thereto, and the Borrower shall pay such Tax, charge or claim before any property subject thereto shall become subject to levy of attachment or execution.

4.2 MAINTENANCE OF EXISTENCE. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its organizational existence, rights and

Loan Agreement

franchises and good standing in the State of Delaware and as a foreign corporation qualified in such other jurisdiction(s) in which the failure to maintain such qualification would have a Material Adverse Effect.

4.3 PRESERVATION OF PROPERTY. The Borrower will at all times maintain, preserve and protect all of the Borrower's properties which are used or useful in the conduct of the Borrower's businesses whether owned in fee or otherwise, or leased, in good repair and operating condition and comply with all material leases to which it is a party or under which it occupies property so as to prevent any material loss or forfeiture thereunder.

4.4 PAYMENT OF INDEBTEDNESS/PERFORMANCE OF OBLIGATIONS. The Borrower will pay the obligations under the Note according to the reading, tenor and effect thereof and the Borrower hereby agrees to pay, when due and owing, all Indebtedness, whether or not evidenced by the Note.

4.5 OPERATION OF PROPERTIES AND EQUIPMENT.

(a) The Borrower will maintain and operate, and will cause each of its Affiliates (if any) to maintain and operate, their respective properties in a good and workmanlike manner, except to the extent a failure to so observe and comply is not reasonably expected to have a Material Adverse Effect.

(b) The Borrower will comply, and will cause each of its Affiliates (if any) to comply, in all respects with all contracts and agreements applicable to or relating to their respective properties, except to the extent a failure to so comply is not reasonably expected to have a Material Adverse Effect.

ARTICLE V

NEGATIVE COVENANTS

The Borrower covenants and agrees with the Lender that from the date hereof and so long as this Agreement is in effect (by extension, amendment or otherwise) and until payment in full of all Indebtedness, unless the Lender shall otherwise consent in writing:

5.1 LIENS. Other than the first lien and security interest of Wells Fargo National Bank, N.A., upon properties of Isramco Energy, the existing liens securing existing debt of its other Subsidiaries, and the liens and security interests pledged to Naphtha Israel Petroleum Corp., Ltd. by Jay Petroleum, L.L.C., the Borrower will not, and will not permit any of its Subsidiaries (if any), to create, incur, assume, or suffer to exist any lien upon or with respect to any of its properties, now owned or hereafter acquired, except:

(a) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable or, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained;

(b) Liens imposed by law, such as mechanics', materialmen's, landlords', warehousemen's, and carriers' Liens, and other similar Liens, securing obligations incurred in the

Loan Agreement

ordinary course of business which are not past due for more than thirty (30) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established;

(c) Liens under workers' compensation, unemployment insurance, Social Security or similar legislation;

(d) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business;

(e) Judgment and other similar liens (in the aggregate exceeding $100,000) arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings.

5.2 SALE OF ASSETS. The Borrower will not sell, lease, assign, transfer, or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation, shares of stock, receivables, and leasehold interests) in excess of $150,000 in the aggregate during any twelve
(12) consecutive month period of time, except: (1) inventory disposed of or leased in the ordinary course of business; (2) the sale or other disposition of other assets no longer used or useful in the conduct of its business; and (3) as otherwise expressly permitted pursuant to this Agreement.

5.3 USE OF LOAN PROCEEDS. The Borrower shall not use any proceeds of the Loan for any purpose other than those expressly permitted and contemplated by this Agreement, and in no event shall any loan proceeds be used for any purpose that would create or cause a breach, violation or default or event of default hereunder or under any of the other Loan Documents or violation of Regulations T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

To induce the Lender to enter into this Agreement and to make the Loan to the Borrower under the provisions hereof, and in consideration thereof, the Borrower represents, warrants and covenants as follows:

6.1 GOOD STANDING, AND DUE QUALIFICATION. The Borrower (a) is a limited liability company duly formed, validly existing, and in good standing under the laws of the State of Delaware; (b) has the power and authority to own its assets and to transact the business in which it is now engaged or in which it is proposed to be engaged; and (c) is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. The initial Responsible Officer of the Borrower has all

Loan Agreement

necessary corporate power and authority to execute and deliver this Agreement, the Note, and the other Loan Documents to the Lender.

6.2 LITIGATION. There is no action, suit, investigation or proceeding threatened or pending before any Tribunal against or affecting the Borrower or any properties or rights of the Borrower, which, if adversely determined, would result in any material adverse change in the business or condition, financial or otherwise, of the Borrower, or otherwise materially adversely affect the ability of the Borrower to perform its obligations under this Agreement. The Borrower is not in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any Tribunal.

6.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. To the best of Borrower's knowledge and belief, the Borrower is not in default in the performance of any material obligation, covenant, or condition in any material agreement to which it is a party or by which it is bound. Neither the execution nor delivery of any of the Loan Documents, nor fulfillment of, nor compliance with their respective terms and provisions will conflict with, or result in a material breach of the terms, conditions or provisions of, or constitute a default under, or result in any material violation of, or result in the creation of any Lien (except those created by the Loan Documents) upon any of the properties or assets of the Borrower pursuant to, or require any consent, approval or other action by or any notice to or filing with any Tribunal (other than routine filings after the Effective Date with the Securities and Exchange Commission, any securities exchange and/or state blue sky authorities) pursuant to any award of any arbitrator, or any agreement, instrument or Laws to which the Borrower is subject.

6.4 TITLE TO PROPERTIES, AUTHORITY. The Borrower has full power, authority and legal right to own and operate the properties which it now owns and operates, and to carry on the lines of business in which it is now engaged, and to the knowledge of Borrower has good and defensible title to all of its assets. The Borrower has full power, authority and legal right to execute and deliver and to perform and observe the provisions of this Agreement and the other Loan Documents and the Loan Documents constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, subject only to applicable bankruptcy, insolvency or similar laws and general principles of equity.

6.5 CORPORATE AUTHORIZATION. The Borrower has duly authorized the execution and delivery of each of the Loan Documents and the performance of their respective terms. No other authorizations, approvals, consents or actions of any other Person are required as a prerequisite to the validity and enforceability of the Loan Documents.

ARTICLE VII

EVENTS OF DEFAULT

7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default (whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of Law or otherwise):

Loan Agreement

(a) Borrower shall fail to make any monthly or other payment due on the Note, or fail to pay any other fee, charge or assessment within five
(5) days after the same shall become due and payable (whether by extension, renewal, acceleration, maturity or otherwise); or

(b) Any representation, warranty or certification of the Borrower made herein, or in any other writing furnished in connection with or pursuant to any of the Loan Documents shall have been incorrect, false or misleading in any material respect on the date when made; or

(c) The Borrower shall fail to duly observe, perform or comply with any covenant, agreement or term (other than payment provisions which are governed by subparagraph (a) hereof) contained in this Agreement or any of the Loan Documents and such default or breach shall have not been cured or remedied within thirty (30) days following the date the Lender first notifies the Borrower in writing; or

(d) Any of the following: (i) the Borrower shall be unable to pay its debts as they mature, or shall make an assignment for the benefit of creditors or admit in writing its inability to pay its debts generally as they become due or fail generally to pay its debts as they mature; or (ii) an order, judgment or decree is entered adjudicating the Borrower insolvent or an order for relief under the United States Bankruptcy Code is entered with respect to the Borrower; or (iii) the Borrower shall petition or apply to any Tribunal for the appointment of a trustee, receiver, custodian or liquidator of the Borrower or of any substantial part of the assets of the Borrower or shall commence any proceedings relating to the Borrower under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debts, dissolution, or liquidation Law of any jurisdiction, whether now or hereafter in effect; or (iv) any such petition or application shall be filed, or any such proceedings shall be commenced, against the Borrower and the Borrower by any act shall indicate its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree shall be entered appointing any such trustee, receiver, custodian or liquidator, or approving the petition in any such proceedings, and such order, judgment or decree shall remain unstayed and in effect for more than thirty (30) days; or (v) the Borrower shall fail to make timely payment or deposit of any amount of tax required to be withheld by such Borrower and paid to or deposited to or to the credit of the United States of America pursuant to the provisions of the Internal Revenue Code of 1986, as amended, in respect of any and all wages and salaries paid to employees of the Borrower; or

(e) Any default or event of default under any of the other Loan Documents following the lapse of any applicable curative or grace period provided therein.

7.2 REMEDIES. Upon the occurrence of any Event of Default referred to in Section 7.1, the Note and all other Indebtedness shall be immediately due and payable, without notice of any kind. Upon the occurrence of any other Event of Default, and without prejudice to any right or remedy of the Lender under this Agreement or the Loan Documents or under applicable Law or under any other instrument or document delivered in connection herewith, the Lender may declare the Note and the Indebtedness, or any part thereof, to be forthwith due and payable, whereupon the Note and the other Indebtedness, or such portion as is designated by the Lender shall forthwith become due and payable, without presentment, demand, notice or protest of any kind, all of which are hereby expressly waived by the Borrower. No delay or omission on the part of the Lender in exercising any power or right hereunder or under the Note, the Loan Documents or under

Loan Agreement

applicable law shall impair such right or power or be construed to be a waiver of any default or any acquiescence therein, nor shall any single or partial exercise by Lender of any such power or right preclude other or further exercise thereof or the exercise of any other such power or right by such Person. In the event that all or part of the Indebtedness becomes or is declared to be forthwith due and payable as herein provided, Lender shall have the right to set off the amount of all the Indebtedness of the Borrower owing to such Person against, and shall have a lien upon and security interest in, all property of the Borrower in such Person's possession at or subsequent to such default, regardless of the capacity in which such property is held, including but not limited to any balance or share of any deposit, demand, collection or agency account. At any time after the occurrence of any Event of Default, the Lender may, at its option, cause an audit of any and/or all of the books, records and documents of the Borrower to be made by auditors satisfactory to the Lender at the expense of the Borrower. The Lender also shall have, and may exercise, each and every right and remedy granted to it for default under the terms of the other Loan Documents.

7.3 APPLICATION OF PROCEEDS. After the exercise of remedies provided for in Section 7.2 (or after the Indebtedness automatically becomes immediately due and payable as set forth in Section 7.2), any amounts received on account of such Indebtedness shall be applied in the following order:

FIRST: to payment of that portion of the Indebtedness constituting fees, indemnities, expenses or other amounts (other than principal and interest) payable to the Lender (including fees, charges and disbursements of counsel);

SECOND: to payment of accrued and unpaid interest on the Indebtedness;

THIRD: to payment of unpaid principal of the Indebtedness;

and

LAST: the balance, if any, after all of the Indebtedness has been indefeasibly paid in full, to Borrower or as otherwise required by applicable Laws.

ARTICLE VIII

MISCELLANEOUS

8.1 NOTICES. Unless otherwise provided herein, all notices, requests, consents and demands shall be in writing and shall be either hand-delivered (by courier or otherwise), mailed by certified mail, postage prepaid, or transmitted via telex or facsimile to the respective addresses specified below, or, as to any party, to such other address as may be designated by it in written notice to the other parties:

If to the Borrower, to:

Isramco, Inc.
11767 Katy Freeway, Suite 711

Loan Agreement

Houston, TX 77079
Telephone No.: (713) 621 -3882 Facsimile No.: (713) 621 - 3988 e - mail jayoil@swbell.net

With a copy to:

Schaeffer Hutchinson PC Attn.: Mr. James H. Hutchinson, III 2204 Louisiana, Suite 220 Houston, Texas 77002
Phone: (713) 524 - 7300 e - mail: jhutchinson@schalaw.com

If to the Lender, to:

J.O.E.L. Jerusalem Oil Exploration, Ltd.

8 Granit St.
P.O.B. 10188
Petach-Tikva 49002

Israel
Phone: 972-3-922-922-5 e-mail: office@isramco.com

All notices, requests, consents and demands hereunder will be effective when hand-delivered or transmitted by telecopier or sent, answer-back received, respectively, by the Lender to the notice address of the Borrower, or two (2) Business Days after the date when mailed by certified mail, postage prepaid, in each case given or addressed as aforesaid by either party hereto.

8.2 PLACE OF PAYMENT. All sums payable hereunder shall be paid in immediately available funds, at such location as may be designated from time to time in writing by Lender. If any interest, principal or other payment falls due on a date other than a Business Day, then (unless otherwise provided herein) such due date shall be extended to the next succeeding Business Day, and such extension of time will, in such case, be included in computing interest, if any, in connection with such payment.

8.3 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and warranties made herein shall survive the execution and the delivery of Loan Documents.

8.4 PARTIES IN INTEREST. All covenants, agreements and obligations contained in this Agreement shall bind and inure to the benefit of the parties hereto and the respective successors and permitted assigns of the parties hereto, except that the Borrower may not assign any of its rights or obligations hereunder or under the Note without the prior written consent of the Lender.

8.5 GOVERNING LAW. This Agreement and the Note shall be deemed to have been made or incurred under the Laws of the State of Texas and shall be construed and enforced in accordance with and governed by the Laws of Texas except only where the applicable remedial or

Loan Agreement

procedural laws of the other jurisdictions are situated are applicable thereto. Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to this Agreement or the Note.

8.6 INTEREST. It is the intention of the parties hereto that the Lender shall conform strictly to usury laws applicable to them. Accordingly, if the transactions contemplated hereby would be usurious as to the Lender under laws applicable to it (including the laws of the United States of America or any other jurisdiction whose laws may be mandatorily applicable the Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to the Lender that is contracted for, taken, reserved, charged or received by the Lender under any of the Loan Documents or agreements or otherwise in connection with the Note shall under no circumstances exceed the Maximum Rate, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by any Lender to the Borrower); and (ii) in the event that the maturity of the Note is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Lender may never include interest greater than the Maximum Rate, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by the Lender to the Borrower). All sums paid or agreed to be paid to the Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Note until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the Maximum Rate. If at any time and from time to time (i) the amount of interest payable to the Lender on any date shall be computed at the highest lawful rate applicable to the Lender pursuant to this Section 8.6; and
(ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to Lender would be less than the amount of interest payable to the Lender computed at the highest lawful rate applicable to the Lender, then the amount of interest payable to the Lender in respect of such subsequent interest computation period shall continue to be computed at the highest lawful rate applicable to the Lender until the total amount of interest payable to the Lender shall equal the total amount of interest which would have been payable to the Lender if the total amount of interest had been computed without giving effect to this Section 8.6. To the extent that the Texas Credit Title (V.T.C.A., Texas Finance Code ss.ss. 301.001 et seq.) is relevant to the Lender for the purpose of determining the highest lawful rate, the Lender hereby elects to determine the applicable ceiling rate under the Texas Credit Title by the weekly ceiling from time to time in effect.

8.7 NO WAIVER, CUMULATIVE REMEDIES. No failure to exercise, and no delay in exercising, on the part of the Lender, any right, power or privilege hereunder or under any other Loan Document or applicable Law shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege of the Lender. The rights and remedies herein

Loan Agreement

provided are cumulative and not exclusive of any other rights or remedies provided by any other instrument or by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

8.8 COSTS. The Borrower agrees to pay to the Lender on demand all recording fees and filing costs, all reasonable attorneys fees and reasonable legal expenses incurred or accrued by the Lender in connection with and preparation, negotiation, closing, administration, perfection, enforcement, refinancing, renegotiation, restructuring, amendment, waiver or other modifications of this Agreement and the Loan Documents or any amendment, waiver, consent or modification to and of the Loan Documents. In any action to enforce or construe the provisions of this Agreement or any of the Loan Documents, the Lender shall be entitled to recover its reasonable attorneys' fees, disbursements of counsel and all costs and expenses related thereto.

8.9 RIGHT OF SET - OFF. The Borrower hereby grants to the Lender a lien, security interest and right of setoff as security for all Indebtedness and obligations of the Borrower upon and against all deposits, credit, and property of the Borrower, now or hereafter in the possession, custody, safekeeping or control of such Person; and upon (a) the occurrence and during the continuance of any Event of Default; and (b) the decision by the Lender to declare the Note due and payable pursuant to the provisions of Article VII, the Lender is hereby authorized at any time and from time to time, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final, other than trust funds) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the Indebtedness of the Borrower now or hereafter existing under this Agreement and the Note, irrespective of whether demand under this Agreement or the Note shall have been made and although such Indebtedness may be unmatured. The Lender shall promptly notify the Borrower after any such set off and application; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set - off) that such Persons may have at law, in equity or otherwise.

8.10 HEADINGS. The article and section headings of this Agreement are for convenience of reference only and shall not constitute a part of the text hereof nor alter or otherwise affect the meaning or interpretation of any provision hereof.

8.11 SEVERABILITY. The unenforceability or invalidity as determined by a Tribunal of competent jurisdiction, of any provision or provisions of this Agreement shall not render unenforceable or invalid any other provision or provisions hereof.

8.12 CONFIDENTIALITY. In the event that the Borrower provides to the Lender written confidential information belonging to the Borrower, the Lender shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain; (ii) hereafter become part of the public domain, without the Lender breaching its obligation of confidence to the Borrower; (iii) are previously known by the Lender from some source other than the Borrower; (iv) are hereafter developed by the Lender without using the Borrower's information; (v) are hereafter obtained by the Lender from a third party who owes no obligation of confidence to the Borrower with respect

Loan Agreement

to such information; (vi) are disclosed with the Borrower's consent; (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Lender; or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. Further, the Lender may disclose any such information to consultants, any independent certified public accountants or any legal counsel employed by such Persons in connection with this Agreement, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loan; provided, however, that the Lender imposes on the Person to whom such information is disclosed the same obligation to maintain the confidentiality of such information as is imposed upon it hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease two (2) years from the date the information was furnished, unless the Borrower requests in writing at least thirty (30) days prior to the expiration of such two (2) year period, to maintain the confidentiality of such information for an additional two (2) year period. The Lender agrees not to issue or cause to be issued any tombstone or other publicly published announcement of the lending facilities established by this Agreement without the Borrower's review and approval thereof, which such approval will not be unreasonably withheld.

8.13 SURVIVAL. To the extent that any payments on the Indebtedness are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor-in-possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Liens, security interests, rights, powers and remedies under this Agreement shall continue in full force and effect.

8.14 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF THE 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.

8.15 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement.

8.16 AMENDMENTS. No amendment or waiver of any provision of this Agreement, the Note, or any other Loan Document to which the Borrower is a party, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Lender and the Borrower, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver, or consent shall, unless in writing and signed by the Lender and the Borrower, do any of the following: (a) reduce the principal of, or interest on, the Note or any fees

Loan Agreement

or other amounts payable hereunder; (b) postpone any date fixed for any payment of principal of, or interest on, the Note or any fees or other amounts payable hereunder; (c) change the percentage of the Commitment or of the aggregate unpaid principal amount of the Note; or (d) change any provision contained in this Section 8.16.

8.17 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lender. The Borrower and the Lender agree that the Lender may at any time assign to one or more assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents.

IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed and delivered to the Lender, effective as of the day and year first above written by the undersigned duly authorized corporate officer of the Borrower.

BORROWER:

ISRAMCO, INC.
A Delaware corporation

By: /s/ Haim Tsuff
    --------------
    Haim Tsuff, Chief executive Officer

LENDER:

J.O.E.L. JERUSALEM OIL EXPLORATION, LTD.

By: /s/ Jackob Maimon
    -----------------
    Jackob Maimon, Director


By: /s/ Noa Lendner
    Noa Lendner, Authorized Representative

Loan Agreement

EXHIBIT 10.6

CREDIT AGREEMENT

DATED AS OF MARCH 2, 2007

AMONG

ISRAMCO ENERGY, L.L.C.
AS BORROWER,

WELLS FARGO BANK, N. A.,
AS ADMINISTRATIVE AGENT,

AND

THE LENDERS SIGNATORY HERETO

                                                                            Page
ARTICLE I Definitions and Accounting Matters.............................    1

   Section 1.01    Terms Defined Above...................................    1
   Section 1.02    Certain Defined Terms.................................    1
   Section 1.03    Accounting Terms and Determinations...................   14
   Section 1.04    References; Use of Word "Including"...................   14

ARTICLE II Commitments...................................................   14

   Section 2.01    Loans and Letters of Credit...........................   14
   Section 2.02    Borrowings, Continuations and Conversions, Letters
                      of Credit..........................................   15
   Section 2.03    Changes of Commitments................................   16
   Section 2.04    Fees..................................................   17
   Section 2.05    Several Obligations...................................   18
   Section 2.06    Notes.................................................   18
   Section 2.07    Prepayments...........................................   18
   Section 2.08    Borrowing Base........................................   20
   Section 2.09    Assumption of Risks...................................   22
   Section 2.10    Obligation to Reimburse and to Prepay.................   22
   Section 2.11    Lending Offices.......................................   24

ARTICLE III Payments of Principal and Interest...........................   24

   Section 3.01    Repayment of Loans....................................   24
   Section 3.02    Interest..............................................   24

ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc...............   25

   Section 4.01    Payments..............................................   25
   Section 4.02    Pro Rata Treatment....................................   25
   Section 4.03    Computations..........................................   25
   Section 4.04    Non-receipt of Funds by Administrative Agent..........   25
   Section 4.05    Set-off, Sharing of Payments, Etc.....................   26
   Section 4.06    Taxes.................................................   27
   Section 4.07    Disposition of Proceeds...............................   29

ARTICLE V Capital Adequacy and Additional Costs..........................   29

   Section 5.01    Additional Costs......................................   29
   Section 5.02    Limitation on LIBOR Loans.............................   30
   Section 5.03    Illegality............................................   31
   Section 5.04    Base Rate Loans Pursuant to Sections 5.01,
                      5.02 and 5.03......................................   31
   Section 5.05    Compensation..........................................   31

ARTICLE VI Conditions Precedent..........................................   32


                                       i

   Section 6.01    Initial Funding.......................................   32
   Section 6.02    Initial and Subsequent Loans and Letters of Credit....   34
   Section 6.03    Conditions Precedent for the Benefit of Lenders.......   34
   Section 6.04    No Waiver.............................................   34

ARTICLE VII Representations and Warranties...............................   34

   Section 7.01    Corporate Existence...................................   35
   Section 7.02    Financial Condition...................................   35
   Section 7.03    Litigation............................................   35
   Section 7.04    No Breach.............................................   35
   Section 7.05    Authority.............................................   35
   Section 7.06    Approvals.............................................   36
   Section 7.07    Use of Loans..........................................   36
   Section 7.08    ERISA.................................................   36
   Section 7.09    Taxes.................................................   37
   Section 7.10    Titles, Etc...........................................   37
   Section 7.11    No Material Misstatements.............................   37
   Section 7.12    Investment Company Act................................   38
   Section 7.13    Subsidiaries..........................................   38
   Section 7.14    Location of Business and Offices......................   38
   Section 7.15    Defaults..............................................   38
   Section 7.16    Environmental Matters.................................   38
   Section 7.17    Compliance with the Law...............................   39
   Section 7.18    Insurance.............................................   39
   Section 7.19    Hedging Agreements....................................   40
   Section 7.20    Restriction on Liens..................................   40
   Section 7.21    Material Agreements...................................   40
   Section 7.22    Solvency..............................................   40
   Section 7.23    Gas Imbalances........................................   41
   Section 7.24    Permits, Licenses, Franchises, Patents and
                   Trademarks............................................   41

ARTICLE VIII Affirmative Covenants.......................................   41

   Section 8.01    Reporting Requirements................................   41
   Section 8.02    Litigation............................................   44
   Section 8.03    Maintenance, Etc......................................   44
   Section 8.04    Environmental Matters.................................   45
   Section 8.05    Further Assurances....................................   45
   Section 8.06    Performance of Obligations............................   46
   Section 8.07    Engineering Reports...................................   46
   Section 8.08    Title Information.....................................   46
   Section 8.09    Collateral............................................   47
   Section 8.10    ERISA Information and Compliance......................   48
   Section 8.11    Hedging Agreements....................................   48

ARTICLE IX Negative Covenants............................................   48


                                       ii

   Section 9.01    Debt..................................................   48
   Section 9.02    Liens.................................................   49
   Section 9.03    Investments, Loans and Advances.......................   49
   Section 9.04    Dividends, Distributions and Redemptions..............   50
   Section 9.05    Sales and Leasebacks..................................   50
   Section 9.06    Nature of Business....................................   50
   Section 9.07    Mergers, Etc..........................................   50
   Section 9.08    Proceeds of Notes; Letters of Credit..................   51
   Section 9.09    ERISA Compliance......................................   51
   Section 9.10    Sale or Discount of Receivables.......................   52
   Section 9.11    Financial Covenants...................................   52
   Section 9.12    Sale of Properties....................................   53
   Section 9.13    Environmental Matters.................................   53
   Section 9.14    Transactions with Affiliates..........................   53
   Section 9.15    Subsidiaries..........................................   53
   Section 9.16    Negative Pledge Agreements............................   53
   Section 9.17    Gas Imbalances, Take-or-Pay or Other Prepayments......   53
   Section 9.18    Material Operational Agreements.......................   53

ARTICLE X Events of Default; Remedies....................................   54

   Section 10.01   Events of Default.....................................   54
   Section 10.02   Remedies..............................................   55

ARTICLE XI Administrative Agent..........................................   56

   Section 11.01   Appointment, Powers and Immunities....................   56
   Section 11.02   Reliance by Administrative Agent......................   57
   Section 11.03   Defaults..............................................   57
   Section 11.04   Rights as a Lender....................................   57
   Section 11.05   Indemnification.......................................   57
   Section 11.06   Non-Reliance on Administrative Agent and other
                   Lenders...............................................   57
   Section 11.07   Action by Administrative Agent........................   58
   Section 11.08   Resignation of Administrative Agent...................   58

ARTICLE XII Miscellaneous................................................   58

   Section 12.01   Waiver................................................   58
   Section 12.02   Notices...............................................   59
   Section 12.03   Payment of Expenses, Indemnities, Etc.................   59
   Section 12.04   Amendments, Etc.......................................   61
   Section 12.05   Successors and Assigns................................   61
   Section 12.06   Assignments and Participations........................   61
   Section 12.07   Invalidity............................................   63
   Section 12.08   Counterparts; Electronic Delivery of Signature Page...   63
   Section 12.09   Survival..............................................   63
   Section 12.10   Captions..............................................   63
   SECTION 12.11   NO ORAL AGREEMENTS....................................   63


                                      iii

   SECTION 12.12   GOVERNING LAW; SUBMISSION TO JURISDICTION.............   63
   Section 12.13   Interest..............................................   64
   Section 12.14   Confidentiality.......................................   65
   Section 12.15   USA Patriot Act.......................................   66
   Section 12.16   Exculpation Provisions................................   66

ANNEXES, EXHIBITS AND SCHEDULES

Annex I - List of Percentage Shares and Maximum Revolving Credit Amounts

Exhibit A      - Form of Note
Exhibit B      - Form of Borrowing, Continuation and Conversion Request
Exhibit C      - Form of Compliance Certificate
Exhibit D      - List of Security Instruments
Exhibit E      - Form of Assignment Agreement
Exhibit F      - Form of Reserve Report Certificate
Exhibit G      - Form of Letter-in-Lieu

Schedule 7.02  - Liabilities
Schedule 7.03  - Litigation
Schedule 7.09  - Taxes
Schedule 7.10  - Titles, etc.
Schedule 7.13  - Subsidiaries, Etc.
Schedule 7.14  - Location of Business and Offices, Etc.
Schedule 7.17  - Environmental Matters
Schedule 7.19  - Insurance
Schedule 7.20  - Hedging Agreements
Schedule 7.22  - Material Agreements
Schedule 7.23  - Gas Imbalances
Schedule 9.01  - Debt
Schedule 9.02  - Liens
Schedule 9.03  - Investments, Loans and Advances

THIS CREDIT AGREEMENT dated as of March 2, 2007 is among ISRAMCO ENERGY, L.L.C., limited liability company formed under the laws of the State of Texas (the "Borrower"); each of the lenders that is a signatory hereto or which becomes a signatory hereto as provided in Section 12.06 (individually, together with its successors and assigns, a "Lender" and, collectively, the "Lenders"); and WELLS FARGO BANK, N. A., a national banking association (in its individual capacity, "WFB"), as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent").

A. Borrower has requested that the Lenders provide certain loans to and extensions of credit on behalf of Borrower; and

B. The Lenders have agreed to make such loans and extensions of credit subject to the terms and conditions of this Agreement.

C. In consideration of the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS, ETC.

Section 1.01 Terms Defined Above. As used in this Agreement, the terms defined in the opening paragraph and the Recitals above shall have the meanings indicated therein.

Section 1.02 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Article I or in other provisions of this Agreement in the singular to have equivalent meanings when used in the plural and vice versa):

"Additional Costs" shall have the meaning assigned such term in Section 5.01(a).

"Affected Loans" shall have the meaning assigned such term in Section 5.04.

"Affiliate" of any Person shall mean (i) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (ii) any director or officer of such first Person or of any Person referred to in clause (i) above and (iii) if any Person in clause (i) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to "control" (including, with its correlative meanings, "controlled by" and "under common control with") such corporation or other Person.

"Agreement" shall mean this Credit Agreement, as the same may from time to time be amended or supplemented.

"Aggregate Commitments" at any time shall equal the amount calculated in accordance with Section 2.03.

"Aggregate Maximum Revolving Credit Amounts" at any time shall equal the sum of the Maximum Revolving Credit Amounts of the Lenders, as the same may be reduced pursuant to Section 2.03(b). As of the Closing Date, the Aggregate Maximum Revolving Credit Amounts equal $150,000,000.

"Applicable Lending Office" shall mean, for each Lender and for each Type of Loan, the lending office of such Lender (or an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other offices of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and Borrower as the office by which its Loans of such Type are to be made and maintained.

"Applicable Margin" shall mean the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Borrowing Base Utilization as in effect from time to time:

                                       APPLICABLE MARGIN
                                       -----------------
                                       LIBOR   BASE RATE
  BORROWING BASE UTILIZATION           LOANS     LOANS
-----------------------------          -----   ---------
Less than 50%                          1.25%     0.00%
Greater than or equal to 50%,
   but less than 75%                   1.50%     0.00%
Greater than or equal to 75%,
   but less than 90%                   1.75%     0.25%
Greater than or equal to 90%           2.00%     0.50%

;provided, however, at any time that a Borrowing Base Deficiency exists, "Applicable Margin" shall mean 4.00% for LIBOR Loans and 1.00% for Base Rate Loans.

Each change in the Applicable Margin resulting from a change in the Borrowing Base Utilization shall take effect on the day such change in the Borrowing Base Utilization occurs.

"Aspen" means Aspen Operating Company, L.L.C., a Texas limited liability company.

"Aspen Operations Agreement" shall mean that certain Agreement for Operations between Borrower and Aspen, dated effective as of the date of the closing of the Five States Acquisition.

"Assignment" shall have the meaning assigned such term in Section 12.06(b).

"Bank Products" means any financial accommodation extended to Borrower or its Subsidiaries by any Lender or any Lender Affiliate, including, without limitation: (i) credit cards, (ii) credit card processing services, (iii) debit cards, (iv) purchase cards, and (v) any overdraft or unpaid amount relating to cash management, including controlled disbursement, accounts or services.

"Base Rate" shall mean, with respect to any Base Rate Loan, for any day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate.

"Base Rate Loans" shall mean Loans that bear interest at rates based upon the Base Rate.

"Beneficiaries" shall mean the Administrative Agent, the Lenders, each Issuing Bank and each Affiliate of a Lender that is a party to a Hedging Agreement with Borrower.

"Borrowing Base" shall mean at any time an amount equal to the amount determined in accordance with Section 2.08.

"Borrowing Base Deficiency" shall mean, and occur when, the amount by which the sum of (i) the aggregate outstanding principal amount of the Loans, plus (ii) the LC Exposure, exceeds the Borrowing Base, whether as the result of a redetermination, a scheduled reduction, or otherwise.

"Borrowing Base Utilization" shall mean at any time, an amount equal to the quotient of (i) the aggregate principal amount of Loans outstanding plus LC Exposure, divided by (ii) the Borrowing Base.

"Business Day" shall mean any day other than a day on which commercial banks are authorized or required to close in Texas and, if such day relates to a borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a LIBOR Loan or a notice by Borrower with respect to any such borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in Dollar deposits are carried out in the London interbank market.

"Capital Securities" means, with respect to any Person, any and all shares, units representing interests, participations, rights in or other equivalents (however designated) of such Persons capital stock, including (x) with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers upon a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership, (y) with respect to limited liability companies, member interests, and (z) with respect to any Person, any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock.

"Change of Control" means the occurrence of any of the following events:
(a) Parent shall cease to own, directly or indirectly, 100% of the outstanding shares of voting Capital Securities of Borrower on a fully-diluted basis, (b) the engagement by Borrower of Rueven Hollo, as an engineering consultant terminates for any reason or he otherwise ceases to have an active role in the operations of Borrower, unless, within 90 days after any such termination or cessation, Borrower replaces him with an individual acceptable to the Lenders in their sole discretion.

"Closing Date" shall mean March 2, 2007.

"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor statute.

"Collateral" shall mean the Property owned by Borrower or any Guarantor and which is subject to the Liens existing and to exist under the terms of the Security Instruments.

"Commitment" shall mean, for any Lender, its obligation to make Loans and to participate in the Letters of Credit as provided in Section 2.01(b) up to the lesser of (i) such Lender's Maximum Credit Amount and (ii) the Lender's Percentage Share of the amount equal to the then effective Borrowing Base.

"Compliance Certificate" shall mean a certificate from Borrower substantially in the form of Exhibit C.

"Consolidated Net Income" shall mean with respect to Borrower and its Consolidated Subsidiaries, for any period, the aggregate of the net income (or loss) of Borrower and its Consolidated

Subsidiaries after allowances for taxes for such period, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following: (i) the net income of any Person in which Borrower or any Consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of Borrower and its Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to Borrower or to a Consolidated Subsidiary, as the case may be;
(ii) the net income (but not loss) of any Consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental Requirement applicable to such Consolidated Subsidiary, or is otherwise restricted or prohibited in each case determined in accordance with GAAP; (iii) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (iv) any extraordinary gains or losses, including gains or losses attributable to Property sales not in the ordinary course of business; and (v) the cumulative effect of a change in accounting principles and any gains or losses attributable to writeups or write downs of assets.

"Consolidated Subsidiaries" shall mean each Subsidiary of a Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. Unless otherwise indicated, each reference to the term "Consolidated Subsidiary" shall mean a Subsidiary consolidated with Borrower.

"Debt" shall mean, for any Person the sum of the following (without duplication): (i) all obligations of such Person for borrowed money or evidenced by bonds, debentures, notes or other similar instruments (including principal, interest, fees and charges); (ii) all obligations of such Person (whether contingent or otherwise) in respect of bankers' acceptances, letters of credit, surety or other bonds and similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of Property or services (other than for borrowed money); (iv) all obligations under leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable (whether contingent or otherwise); (v) all obligations of such Person under "synthetic lease" transactions or other off balance sheet financings; (vi) all Debt (as described in the other clauses of this definition) and other obligations of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; (vii) all Debt (as described in the other clauses of this definition) and other obligations of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the debtor or obligations of others; (viii) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others; (ix) obligations to deliver goods or services including Hydrocarbons in consideration of advance payments, except as permitted by Section 9.17 and disclosed in a Reserve Report Certificate; (x) obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person; (xi) any capital stock of such Person in which such Person has a mandatory obligation to redeem such stock;
(xii) any Debt of a Subsidiary for which such Person is liable either by agreement or because of a Governmental Requirement; (xiii) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment; and (xiv) all obligations of such Person under Hedging Agreements.

"Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default.

"Dollars" and "$" shall mean lawful money of the United States of America.

"EBITDAX" shall mean, for any period, without duplication, the sum of Consolidated Net Income, plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: (i) interest expense, income taxes, depreciation, depletion, and amortization, plus (ii) exploration expenses, plus (iii) other non-cash items reducing Consolidated Net Income.

"Effective Date" shall have the meaning assigned such term in Section 12.16.

"Engineering Reports" shall have the meaning assigned such term in
Section 2.08.

"Environmental Laws" shall mean any and all Governmental Requirements pertaining to health or the environment in effect in any and all jurisdictions in which Borrower or any Subsidiary is conducting or at any time has conducted business, or where any Property of Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the state in which any Property of Borrower or any Subsidiary is located establish a meaning for "oil," "hazardous substance," "release," "solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute.

"ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with Borrower or any Subsidiary would be deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code.

"ERISA Event" shall mean (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal of Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC or (v) 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 Plan.

"Event of Default" shall have the meaning assigned such term in Section 10.01.

"Excepted Liens" shall mean: (i) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained; (ii) Liens in connection with workmen's compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary

course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties or statutory landlord's liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (iv) any Liens reserved in leases or farmout agreements for rent or royalties and for compliance with the terms of the farmout agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (v) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any rights of way or other Property of Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title of any rights of way or other Property which in the aggregate do not materially impair the use of such rights of way or other Property for the purposes of which such rights of way and other Property are held by Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (vi) deposits of cash or securities to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business; and (vii) Liens permitted by the Security Instruments.

"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with a member of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the date 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 charged to the Administrative Agent on such day on such transactions as determined by Administrative Agent.

"Fee Letter" shall mean that certain letter agreement from Administrative Agent to Borrower, dated as of February 28, 2007, concerning certain fees in connection with this Agreement and any agreements or instruments executed in connection therewith, as the same may be amended or replaced from time to time.

"Five States Acquisition" shall mean the acquisition of various Oil and Gas Properties by Borrower pursuant to that certain Purchase and Sale Agreement dated as of February 16, 2007 among Five States Energy Company, L.L.C., et al and Parent or its designee, Borrower.

"GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time.

"Governmental Authority" shall include the country, the state, county, city and political subdivisions in which any Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, Borrower, its Subsidiaries or any of their Property or Administrative Agent, any Lender or any Applicable Lending Office.

"Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (whether or not having the force of law), including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

"Guarantor" shall mean Parent and all existing or hereafter acquired or created Subsidiaries of Borrower.

"Guaranty Agreement" shall mean an agreement executed by each Guarantor in form and substance satisfactory to Administrative Agent guarantying, unconditionally, payment of the Obligations, as the same may be amended, modified or supplemented from time to time.

"Hedging Agreements" shall mean any commodity, interest rate or currency swap, cap, floor, collar, forward agreement or other exchange or protection agreements or any option with respect to any such transaction.

"Highest Lawful Rate" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on any other Obligations under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.

"Hydrocarbon Interests" shall mean all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature.

"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom.

"Indemnified Parties" shall have the meaning assigned such term in
Section 12.03(a)(ii).

"Indemnity Matters" shall mean any and all actions, suits, proceedings (including any investigations, litigation or inquiries), claims, demands and causes of action made or threatened against a Person and, in connection therewith, all losses, liabilities, damages (including, without limitation, consequential damages) or reasonable costs and expenses of any kind or nature whatsoever incurred by such Person whether caused by the sole or concurrent negligence of such Person seeking indemnification.

"Initial Funding" shall mean the funding of the initial Loans or issuance of the initial Letters of Credit upon satisfaction of the conditions set forth in Sections 6.01 and 6.02.

"Initial Reserve Report" shall mean the report of Forrest A. Garb and Associates, Inc., dated January 8, 2007 with respect to the Oil and Gas Properties of Borrower as of October 1, 2006, a copy of which has been delivered to Administrative Agent.

"Interest Period" shall mean, with respect to any LIBOR Loan, the period commencing on the date such LIBOR Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as Borrower may select as provided in Section 2.02 (or such longer period as may be requested by Borrower and agreed to by the Majority Lenders), except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which

there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month.

Notwithstanding the foregoing: (i) no Interest Period may end after the Revolving Credit Termination Date; (ii) no Interest Period for any LIBOR Loan may end after the due date of any installment, if any, provided for in Section 3.01 to the extent that such LIBOR Loan would need to be prepaid prior to the end of such Interest Period in order for such installment to be paid when due;
(iii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iv) no Interest Period shall have a duration of less than one month and, if the Interest Period for any LIBOR Loans would otherwise be for a shorter period, such Loans shall not be available hereunder.

"Issuing Bank" shall mean WFB or any other Lender agreed to by Borrower and Administrative Agent to issue Letters of Credit.

"Jay Management" shall mean Jay Management, L.L.C., a Texas limited liability company, and Affiliate of Borrower.

"Jay Management Agreement" shall mean that certain Management Agreement, dated as of February 28, 2007, by and between Jay Management and Borrower.

"Jay Management JOA" shall mean that certain Joint Operating Agreement, dated February 28, 2007 entered into by Borrower with Jay Management, as operator.

"LC Commitment" at any time shall mean $5,000,000.

"LC Exposure" at any time shall mean the aggregate face amount of all undrawn and uncancelled Letters of Credit plus the aggregate of all amounts drawn under all Letters of Credit and not yet reimbursed.

"Lender Affiliate" means, (a) with respect to any Lender, (i) an Affiliate of such Lender or (ii) any Person that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

"Letter of Credit Agreements" shall mean the written agreements with the Issuing Bank, as issuing lender for any Letter of Credit, executed in connection with the issuance by the Issuing Bank of the Letters of Credit, such agreements to be on the Issuing Bank's customary form for letters of credit of comparable amount and purpose as from time to time in effect or as otherwise agreed to by Borrower and the Issuing Bank.

"Letters of Credit" shall mean the letters of credit issued pursuant to
Section 2.01(b) and all reimbursement obligations pertaining to any such letters of credit, and "Letter of Credit" shall mean any one of the Letters of Credit and the reimbursement obligations pertaining thereto.

"Letter-in-Lieu" shall mean a letter addressed to a Purchaser or in blank, substantially in the form of Exhibit G.

"LIBOR" shall mean, for any LIBOR Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Dow Jones Market Service Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00
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 "LIBOR" shall mean, for any LIBOR Loan for any 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 Dollars at approximately 11:00 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. In the event that such rate does not appear on either Dow Jones Market Service Page 3750 or Reuters Screen LIBO Page, "LIBOR" shall be determined by Administrative Agent to be the rate per annum at which deposits in Dollars are offered by leading reference banks in the London interbank market to WFB at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of the applicable Loan.

"LIBOR Loans" shall mean Loans the interest rates on which are determined on the basis of rates referred to in the definition of "LIBOR Adjusted Rate".

"LIBOR Adjusted Rate" shall mean, with respect to any LIBOR Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Administrative Agent to be equal to the quotient of (i) LIBOR for such Loan for the Interest Period for such Loan divided by (ii) 1 minus the Reserve Requirement for such Loan for such Interest Period.

"Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (i) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (ii) production payments and the like payable out of Oil and Gas Properties. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purposes of this Agreement, Borrower or any Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing.

"Loan Documents" shall mean this Agreement, the Notes, the Fee Letter, all Letters of Credit and the Security Instruments.

"Loans" shall mean the loans as provided for by Sections 2.01(a).

"Majority Lenders" shall mean, at any time while no Loans are outstanding, Administrative Agent and Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the Aggregate Commitments and, at any time while Loans are outstanding, Administrative Agent and Lenders holding at least sixty-six and two-thirds percent (66-2/3%) of the outstanding aggregate principal amount of the Loans (without regard to any sale by a Lender of a participation in any Loan under Section 12.06(c)).

"Material Adverse Effect" shall mean any set of circumstances or events that (i) has or could reasonably be expected to have any material and adverse effect whatsoever upon, or result in or reasonably be expected to result in a material adverse change in, (A) the assets, liabilities, financial

condition, business, operations or affairs of Borrower and its Subsidiaries taken as a whole different from the facts represented or warranted in any Loan Document, or (B) the ability of Borrower and its Subsidiaries taken as a whole to carry out their business as at the Closing Date or as proposed as of the Closing Date to be conducted or meet their obligations under the Loan Documents on a timely basis, (ii) impairs materially or could be reasonably expected to impair materially the ability of Borrower and its Subsidiaries to duly and punctually pay and perform their obligations under the Loan Documents or (iii) impairs materially or could reasonably be expected to impair materially the ability of Administrative Agent or any of the Lenders, to the extent permitted, to enforce its legal remedies pursuant to the Loan Documents, except, in all cases, for depletions and routine changes which occur in the normal course of the day to day ownership or operation of the wells or the Properties.

"Maximum Revolving Credit Amount" shall mean, as to each Lender, the amount set forth opposite such Lender's name on Annex I under the caption "Maximum Revolving Credit Amounts" (as the same may be reduced pursuant to
Section 2.03(b) pro rata to each Lender based on its Percentage Share), as modified from time to time to reflect any assignments permitted by Section 12.06(b).

"Monthly Reduction Amount" shall mean the amount by which the Borrowing Base shall automatically reduce on the last day of each month, as determined by Administrative Agent and the Majority Lenders in accordance with Section 2.08.

"Multiemployer Plan" shall mean a Plan defined as such in Section 3(37) or 4001(a)(3) of ERISA.

"Notes" shall mean the Notes provided for by Section 2.06, together with any and all renewals, extensions for any period, increases, rearrangements, substitutions or modifications thereof.

"Obligations" shall mean all indebtedness, obligations and liabilities of Borrower or any Subsidiary to any of the Lenders, any of the Lenders' Affiliates, Administrative Agent, or the Issuing Bank, individually or collectively, existing on the date of this Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising or incurred under any Hedging Agreement, under this Agreement or any of the other Loan Documents, or in respect of any of the Loans made, reimbursement obligations incurred or any automated clearing house transactions, or any of the Notes, Letters of Credit or other instruments at any time evidencing any of the foregoing, or under or attributable to Bank Products, including interest accruing subsequent to the filing of a petition or other action concerning bankruptcy or other similar proceedings, and all renewals, extensions, refinancings and replacements for the foregoing.

"Oil and Gas Properties" shall mean Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests; and all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal property which may be on such

premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. Unless otherwise indicated herein, each reference to the term "Oil and Gas Properties" shall mean the Oil and Gas Properties of Borrower and/or its Subsidiaries.

"Other Taxes" shall have the meaning assigned such term in Section 4.06(b).

"Parent" shall mean Isramco, Inc., a Delaware corporation.

"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions.

"Percentage Share" shall mean the percentage of the Aggregate Commitments to be provided by a Lender under this Agreement as indicated on Annex I hereto, as modified from time to time to reflect any assignments permitted by Section 12.06(b).

"Permitted Tax Distributions" shall mean distributions by Borrower to its members for the payment of income tax liabilities resulting from being a member of Borrower, but not to exceed 40% of the net income of Borrower in the relevant calendar year.

"Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

"Plan" shall mean any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or contributed to by Borrower, any Subsidiary or an ERISA Affiliate or (ii) was at any time during the preceding six calendar years sponsored, maintained or contributed to, by Borrower, any Subsidiary or an ERISA Affiliate.

"Post Default Rate" shall mean, in respect of any principal of any Loan (including LIBOR Loans after the last day of the Interest Period therefore) or any other amount payable by Borrower under this Agreement or any other Loan Document, a rate per annum during the period commencing on the date of occurrence of an Event of Default until such amount is paid in full or all Events of Default are cured or waived equal to 5% per annum above the Base Rate as in effect from time to time plus the Applicable Margin (if any), but in no event to exceed the Highest Lawful Rate; provided, however, for a LIBOR Loan, the "Post Default Rate" for such principal shall be, for the period commencing on the date of occurrence of an Event of Default and ending on the earlier to occur of the last day of the Interest Period therefor or the date all Events of Default are cured or waived, 5% per annum above the interest rate for such Loan as provided in Section 3.02(a)(ii), but in no event to exceed the Highest Lawful Rate.

"Prime Rate" shall mean the variable per annum rate of interest then most recently announced within WFB at its principal office in San Francisco, California, as its "prime rate", with the understanding that WFB's "prime rate" is one of its base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as WFB may designate. Each change in any interest rate provided for herein based upon the Prime Rate resulting from a change in the Prime Rate shall take effect on the day the change is announced within WFB without notice to Borrower at the time of such change in the Prime Rate.

"Principal Office" shall mean the principal office of Administrative Agent, presently located at 1000 Louisiana Street, Houston, Texas 77002.

"Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

"Purchasers" shall mean each of the Persons that at any time purchase the Hydrocarbons of Borrower and/or its Subsidiaries from their Oil and Gas Properties.

"Quarterly Dates" shall mean the last day of each March, June, September, and December, in each year, the first of which shall be March 31, 2007; provided, however, that if any such day is not a Business Day, such Quarterly Date shall be the next succeeding Business Day.

"Redetermination Date" shall mean the date that the redetermined Borrowing Base and/or Monthly Reduction Amount becomes effective subject to the notice requirements specified in Section 2.08(g) both for scheduled redeterminations and unscheduled redeterminations.

"Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time.

"Regulatory Change" shall mean, with respect to any Lender, any change after the Closing Date in any Governmental Requirement (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders (including such Lender or its Applicable Lending Office) of or under any Governmental Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof.

"Required Payment" shall have the meaning assigned such term in Section 4.04.

"Reserve Report" shall mean a report, in form and substance satisfactory to Administrative Agent, setting forth, as of each December 31 and June 30 (or such other date in the event of an unscheduled redetermination); (i) the oil and gas reserves attributable to Borrower's Oil and Gas Properties together with a projection of the rate of production and future net income (including, where applicable, taking into account existing Hedging Agreements), taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time or otherwise as satisfactory to Administrative Agent and (ii) such other information as Administrative Agent may reasonably request.

"Reserve Report Certificate" shall mean a certificate from Borrower substantially in the form of Exhibit F.

"Reserve Requirement" shall mean, for any Interest Period for any LIBOR Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars 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 by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which LIBOR is to be determined as provided in the definition of "LIBOR" or (ii) any category of extensions of credit or other assets which include a LIBOR Loan.

"Responsible Officer" shall mean, as to any Person, the Chief Executive Officer, the President or any Vice President of such Person and, with respect to financial matters, the term "Responsible Officer"

shall include the Chief Financial Officer of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of Borrower.

"Revolving Credit Termination Date" shall mean the earlier to occur of
(i) the fourth anniversary of the Closing Date or (ii) the date that the Commitments are sooner terminated pursuant to Sections 2.03(b) or 10.02.

"Scheduled Redetermination Date" shall have the meaning assigned to such term in Section 2.08(d).

"SEC" shall mean the Securities and Exchange Commission or any successor Governmental Authority.

"Security Instruments" shall mean the Letter of Credit Agreements, the agreements or instruments described or referred to in Exhibit D, and any and all other agreements or instruments now or hereafter executed and delivered by Borrower, any Guarantor or any other Person (other than participation or similar agreements between any Lender and any other lender or creditor with respect to any Obligations pursuant to this Agreement) in connection with, or as security for or guarantee of the payment or performance of, the Obligations, the Notes, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements or instruments may be amended, supplemented, modified or restated from time to time.

"Sigma" shall mean Sigma Energy Corporation, a Texas corporation wholly owned by Dr. Reuven Hollo.

"Sigma Consulting Agreement" shall mean that certain Agreement dated as of February 28 among Borrower, Parent and Sigma.

"Subsidiary" shall mean (i) any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by another Person or one or more of such Person's Subsidiaries or by such Person and one or more of its Subsidiaries and (ii) any joint venture, limited liability company or partnership, trust company, general or limited partnership or any other type of partnership or entity other than a corporation in which a Person or one or more of its other Subsidiaries is a member, owner, partner or joint venturer and owns, directly or indirectly, at least a majority of the equity of such entity or controls such entity, but excluding any tax partnerships that are not classified as partnerships under state law. For purposes of this definition, any Person which owns directly or indirectly an equity investment in another Person which allows the first Person to manage or elect managers who manage the normal activities of such second Person will be deemed to "control" such second Person (e.g. a sole general partner controls a limited partnership). Unless otherwise indicated herein, each reference to the term "Subsidiary" shall mean a Subsidiary of Borrower.

"Taxes" shall have the meaning assigned such term in Section 4.06(a).

"Transfer" shall mean any sale, assignment, farm-out, conveyance or other transfer of any Property, or any interest in any Property (including, without limitation, any working interest, overriding royalty interest, production payments, net profits interest, royalty interest, or mineral fee interest in any Oil and Gas Property) of Borrower or any Subsidiary, except for
(i) the sale of Hydrocarbons in the ordinary course of business, (ii) the sale or transfer of equipment that is (A) obsolete, worn out, depleted or uneconomic and disposed of in the ordinary course of business, (B) no longer necessary for the

business of Borrower or such Guarantor or (C) contemporaneously replaced by equipment of at least comparable value and use, (iii) between Scheduled Redetermination Dates, the sale of Oil and Gas Properties of Borrower or any Subsidiary for which value was given in the most recent Borrowing Base redetermination which in the aggregate have a fair market value of $500,000 or less, and (iv) subject to Section 2.08(e), the transfer of interest in Oil and Gas Properties of Borrower to Sigma pursuant to the terms of the Sigma Consulting Agreement.

"Type" shall mean, with respect to any Loan, a Base Rate Loan or a LIBOR Loan.

Section 1.03 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the audited financial statements of Borrower referred to in Section 7.02 (except for changes concurred with by Borrower's independent public accountants).

Section 1.04 References; Use of Word "Including". The words "herein," "hereof," "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to a Section or Article shall be deemed to refer to the applicable Section or Article of this Agreement unless otherwise stated herein. Any reference herein to an exhibit, schedule, or other attachment shall be deemed to refer to the applicable exhibit, schedule, or other attachment attached hereto unless otherwise stated herein. The word "including", "includes" and words of similar import means "including, without limitation".

ARTICLE II

COMMITMENTS

Section 2.01 Loans and Letters of Credit.

(a) Loans. Each Lender severally agrees, on the terms and conditions of this Agreement, to make loans to Borrower during the period from and including (i) the Closing Date or (ii) such later date that such Lender becomes a party to this Agreement as provided in
Section 12.06(b), to and up to, but excluding, the Revolving Credit Termination Date in an aggregate principal amount at any one time outstanding up to, but not exceeding, the amount of such Lender's Commitment as then in effect; provided, however, that the aggregate principal amount of all such Loans by all Lenders hereunder at any one time outstanding together with the LC Exposure shall not exceed the Aggregate Commitments. Subject to the terms of this Agreement, during the period from the Closing Date to and up to, but excluding, the Revolving Credit Termination Date, Borrower may borrow, repay and reborrow the amount described in this Section 2.01(a).

(b) Letters of Credit. During the period from and including the Closing Date to, but excluding, the Revolving Credit Termination Date, the Issuing Bank, as issuing bank for the Lenders, agrees to extend credit for the account of Borrower or any Subsidiary at any time and from time to time by issuing, renewing, extending or reissuing Letters of Credit; provided, however, the LC Exposure at any one time outstanding shall not exceed the lesser of (i) the LC Commitment and
(ii) the Aggregate Commitments, as then in effect, minus the aggregate principal amount of all Loans then outstanding. The Lenders shall participate in such Letters of Credit according to their respective Percentage Shares. Each of the Letters of Credit shall (i) be issued by the Issuing Bank, (ii) contain such terms and provisions as are reasonably required by

the Issuing Bank, (iii) be for the account of Borrower or a Subsidiary and (iv) expire not later than the Revolving Credit Termination Date.

(c) Limitation on Types of Loans. Subject to the other terms and provisions of this Agreement, at the option of Borrower, the Loans may be Base Rate Loans or LIBOR Loans; provided that, without the prior written consent of the Majority Lenders, no more than three (3) LIBOR Loans may be outstanding at any time.

Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit.

(a) Borrowings. Borrower shall give Administrative Agent (which shall promptly notify the Lenders) advance notice as hereinafter provided of each borrowing hereunder, which shall specify (i) the aggregate amount of such borrowing, (ii) the Type and (iii) the date
(which shall be a Business Day) of the Loans to be borrowed, and (iv) (in the case of LIBOR Loans) the duration of the Interest Period therefor.

(b) Minimum Amounts. All Base Rate Loan borrowings shall be in amounts of at least $500,000 or the remaining balance of the Aggregate Commitments, if less, or any whole multiple of $100,000 in excess thereof, and all LIBOR Loans shall be in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof.

(c) Notices. All borrowings, continuations and conversions shall require advance written notice to Administrative Agent (which shall promptly notify the Lenders) in the form of Exhibit B (or telephonic notice promptly confirmed by such a written notice), which in each case shall be irrevocable and accompanied by a Compliance Certificate (excluding the information required by clauses (f) and (g) thereof) from Borrower, to be received by Administrative Agent not later than 11:00 a.m. Houston, Texas time at least one Business Day prior to the date of each Base Rate Loan borrowing and three Business Days prior to the date of each LIBOR Loan borrowing, continuation or conversion. Without in any way limiting Borrower's obligation to confirm in writing any telephonic notice, Administrative Agent may act without liability upon the basis of telephonic notice believed by Administrative Agent in good faith to be from Borrower prior to receipt of written confirmation. In each such case, Borrower hereby waives the right to dispute Administrative Agent's record of the terms of such telephonic notice except in the case of gross negligence or willful misconduct by Administrative Agent.

(d) Continuation Options. Subject to the provisions made in this Section 2.02(d), Borrower may elect to continue all or any part of any LIBOR Loan beyond the expiration of the then current Interest Period relating thereto by giving advance notice as provided in Section 2.02(c) to Administrative Agent (which shall promptly notify the Lenders) of such election, specifying the amount of such Loan to be continued and the Interest Period therefor. In the absence of such a timely and proper election, Borrower shall be deemed to have elected to convert such LIBOR Loan to a Base Rate Loan pursuant to Section 2.02(e). All or any part of any LIBOR Loan may be continued as provided herein, provided that (i) any continuation of any such Loan shall be (as to each Loan as continued for an applicable Interest Period) in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, each LIBOR Loan shall be converted to a Base Rate Loan on the last day of the Interest Period applicable thereto.

(e) Conversion Options. Borrower may elect to convert all or any part of any LIBOR Loan on the last day of the then current Interest Period relating thereto to a Base Rate Loan by giving advance notice to Administrative Agent (which shall promptly notify the

Lenders) of such election. Subject to the provisions made in this
Section 2.02(e), Borrower may elect to convert all or any part of any Base Rate Loan at any time and from time to time to a LIBOR Loan by giving advance notice as provided in Section 2.02(c) to Administrative Agent (which shall promptly notify the Lenders) of such election. All or any part of any outstanding Loan may be converted as provided herein, provided that (i) any conversion of any Base Rate Loan into a LIBOR Loan shall be (as to each such Loan into which there is a conversion for an applicable Interest Period) in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, no Base Rate Loan may be converted into a LIBOR Loan.

(f) Advances. Not later than 11:00 a.m. Houston, Texas time on the date specified for each borrowing hereunder, each Lender shall make available the amount of the Loan to be made by it on such date to Administrative Agent, to an account which Administrative Agent shall specify, in immediately available funds, for the account of Borrower. The amounts so received by Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to Borrower by depositing the same, in immediately available funds, in an account of Borrower, designated by Borrower and maintained at the Principal Office.

(g) Letters of Credit. Borrower shall give the Issuing Bank (which shall promptly notify the Lenders of such request and their Percentage Share of such Letter of Credit) advance notice to be received by the Issuing Bank not later than 11:00 a.m. Houston, Texas time not less than three (3) Business Days prior thereto of each request for the issuance, and at least thirty (30) Business Days prior to the date of the renewal or extension, of a Letter of Credit hereunder which request shall specify (i) the amount of such Letter of Credit, (ii) the date (which shall be a Business Day) such Letter of Credit is to be issued, renewed or extended, (iii) the duration thereof, (iv) the name and address of the beneficiary thereof, (v) the type of the Letter of Credit and (vi) such other information as the Issuing Bank may reasonably request, all of which shall be reasonably satisfactory to the Issuing Bank. Subject to the terms and conditions of this Agreement, on the date specified for the issuance, renewal or extension of a Letter of Credit, the Issuing Bank shall issue, renew or extend such Letter of Credit to the beneficiary thereof.

In conjunction with the issuance of each Letter of Credit, Borrower and the Subsidiary, if the account party, shall execute a Letter of Credit Agreement. In the event of any conflict between any provision of a Letter of Credit Agreement and this Agreement, Borrower, the Issuing Bank, Administrative Agent and the Lenders hereby agree that the provisions of this Agreement shall govern.

The Issuing Bank will send to Borrower and each Lender, promptly upon issuance of any Letter of Credit, or an amendment thereto, a true and complete copy of such Letter of Credit, or such amendment thereto.

Section 2.03 Changes of Commitments.

(a) The Aggregate Commitments shall at all times be equal to the lesser of (i) the Aggregate Maximum Revolving Credit Amounts after adjustments resulting from reductions pursuant to Section 2.03(b) or
(ii) the Borrowing Base as determined from time to time.

(b) Borrower shall have the right to terminate or to reduce the amount of the Aggregate Maximum Revolving Credit Amounts at any time, or from time to time, upon not less than three (3) Business Days' prior notice to Administrative Agent (which shall promptly notify the Lenders) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall not be less than $1,000,000 or any

whole multiple of $500,000 in excess thereof) and shall be irrevocable and effective only upon receipt by Administrative Agent.

(c) The Aggregate Maximum Revolving Credit Amounts once terminated or reduced may not be reinstated.

Section 2.04 Fees.

(a) Commitment Fee. Borrower shall pay to Administrative Agent for the account of each Lender a commitment fee on the daily average unused amount of the Aggregate Commitments for the period from and including the Closing Date up to, but excluding, the earlier of the date the Aggregate Commitments are terminated or the Revolving Credit Termination Date at a rate per annum equal to the applicable percentage set forth at the appropriate intersection in the table shown below, based on the Borrowing Base Utilization as in effect from time to time:

BORROWING BASE UTILIZATION     APPLICABLE PERCENTAGE
----------------------------   ---------------------
Less than 75%                          0.375%
Greater than or equal to 75%           0.500%

Each change in the applicable percentage resulting from a change in the Borrowing Base Utilization shall take effect on the day such change in the Borrowing Base Utilization occurs. Accrued commitment fees shall be payable quarterly in arrears on each Quarterly Date and on the earlier of the date the Aggregate Commitments are terminated or the Revolving Credit Termination Date.

(b) Letter of Credit Fees.

(i) Borrower agrees to pay Administrative Agent, for the account of each Lender, commissions for issuing the Letters of Credit on the daily average outstanding of the maximum liability of the Issuing Bank existing from time to time under each Letter of Credit (calculated separately for each Letter of Credit) at the rate per annum equal to the Applicable Margin in effect from time to time for LIBOR Loans. Each Letter of Credit shall be deemed to be outstanding up to the full face amount of the Letter of Credit until the Issuing Bank has received the canceled Letter of Credit or a written cancellation of the Letter of Credit from the beneficiary of such Letter of Credit in form and substance acceptable to the Issuing Bank, or for any reductions in the amount of the Letter of Credit (other than from a drawing), written notification from the beneficiary of such Letter of Credit. Such commissions are payable quarterly in arrears on each Quarterly Date and upon cancellation or expiration of each such Letter of Credit.

(ii) Upon each issuance, renewal or extension of any Letter of Credit, Borrower shall pay to Administrative Agent for the account of the Issuing Bank an upfront fee equal to the greater of (a) 0.125% of the face amount of the Letter of Credit and (b) $500.

(iii) Borrower shall pay to the Issuing Bank such other usual and customary fees of the Issuing Bank associated with any transfers, amendments, drawings, negotiations or reissuances of any Letters of Credit.

(c) Fee Letter. Borrower shall pay such other fees as are set forth in the Fee Letter pursuant to the provisions thereof.

Section 2.05 Several Obligations. The failure of any Lender to make any Loan to be made by it or to provide funds for disbursements or reimbursements under Letters of Credit on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan or provide funds on such date, but no Lender shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender or to provide funds to be provided by such other Lender.

Section 2.06 Notes. The Loans made by each Lender shall be evidenced by a single promissory note of Borrower in substantially the form of Exhibit A, dated (i) the Closing Date or (ii) the effective date of an Assignment pursuant to Section 12.06(b), payable to the order of such Lender in a principal amount equal to its Maximum Revolving Credit Amount as originally in effect and otherwise duly completed and such substitute Notes as required by Section
12.06(b). The date, amount, Type, interest rate and Interest Period of each Loan made by each Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Note, and, prior to any transfer may be endorsed by such Lender on a schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender's or Borrower's rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of its Note.

Section 2.07 Prepayments.

(a) Voluntary Prepayments. Borrower may prepay the Base Rate Loans upon not less than one (1) Business Day's prior notice to Administrative Agent (which shall promptly notify the Lenders), which notice shall specify the prepayment date (which shall be a Business Day) and the amount of the prepayment (which shall be at least $1,000,000 or any whole multiple of $500,000 in excess thereof, or the remaining aggregate principal balance outstanding on the Notes if less than $1,000,000) and shall be irrevocable and effective only upon receipt by Administrative Agent, provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date. Borrower may prepay LIBOR Loans on the same conditions as for Base Rate Loans (except that prior notice to Administrative Agent shall be not less than three (3) Business Days for LIBOR Loans) and in addition such prepayments of LIBOR Loans shall be subject to the terms of Section 5.05.

(b) Mandatory Prepayments.

(i) Termination or Reduction of Aggregate Maximum Revolving Credit Amounts. If, after giving effect to any termination or reduction of the Aggregate Maximum Revolving Credit Amounts pursuant to
Section 2.03(b), the outstanding aggregate principal amount of the Revolving Credit Loans plus the LC Exposure exceeds the Aggregate Maximum Revolving Credit Amounts, Borrower shall (i) prepay the Loans on the date of such termination or reduction in an aggregate principal amount equal to the excess, together with interest on the principal amount paid accrued to the date of such prepayment and (ii) if any excess remains after prepaying all of the Loans because of LC Exposure, pay to Administrative Agent on behalf of the Lenders an amount equal to the excess to be held as cash collateral as provided in Section 2.10(b) hereof.

(ii) Redetermination of Borrowing Base. Upon any redetermination of the amount of the Borrowing Base in accordance with
Section 2.08, if the redetermined Borrowing Base results in a Borrowing Base Deficiency, then Borrower shall within fifteen (15) days of receipt of written notice thereof deliver to Agent a written response indicating which of the following actions it intends to take to remedy the Borrowing Base Deficiency (and the failure of Borrower to deliver such election notice or to perform the action chosen to remedy such Borrowing Base Deficiency shall constitute an Event of Default):

(w) within thirty (30) days of receipt of written notice of the Borrowing Base Deficiency, prepay the Loans in an aggregate principal amount sufficient to eliminate such Borrowing Base Deficiency, together with interest on the principal amount paid accrued to the date of such prepayment;

(x) prepay the Loans in six (6) monthly installments equal to one-sixth of such Borrowing Base Deficiency (after taking into account any Properties mortgaged to Agent pursuant to clause (c) below), with the first such installment due 30 days after the date such Borrowing Base Deficiency notice is received by Borrower and each of the other five installments due 30 days after the preceding installment, and make each of such payments within such time periods;

(y) within thirty (30) days of receipt of written notice of the Borrowing Base Deficiency, grant to Agent a first priority Lien in additional Properties of Borrower, which in the Lenders' sole determination, have sufficient loan value to eliminate such Borrowing Base Deficiency; or

(z) eliminate the Borrowing Base Deficiency through a combination of the actions described in clauses (w) or
(x) and (y).

If, because of LC Exposure, a Borrowing Base Deficiency remains after prepaying all of the Loans and granting first priority Liens in additional Properties to Administrative Agent, Borrower shall pay to Administrative Agent on behalf of the Lenders an amount equal to such remaining Borrowing Base Deficiency to be held as cash collateral as provided in Section 2.10(b).

(iii) Monthly Reduction Amount. If any reduction of the amount of the Borrowing Base by operation of the Monthly Reduction Amount in accordance with Section 2.08 results in a Borrowing Base Deficiency, then Borrower shall immediately prepay the Loans in an aggregate principal amount equal to such Borrowing Base Deficiency, together with interest on the principal amount paid accrued to the date of such prepayment. If, because of LC Exposure, a Borrowing Base Deficiency remains after prepaying all of the Loans, Borrower shall pay to Administrative Agent on behalf of the Lenders an amount equal to such remaining Borrowing Base Deficiency to be held as cash collateral as provided in Section 2.10(b).

(iv) Transfer. If, after a Transfer of any Property to the extent allowed by Section 9.12 and the reduction in the Borrowing Base pursuant to Section 2.08(f), a Borrowing Base Deficiency exists, then Borrower shall, concurrently with the receipt thereof, prepay the Loans with the net proceeds received from such Transfer in an amount necessary to eliminate such Borrowing Base Deficiency. If, because of LC Exposure, a Borrowing Base Deficiency remains after prepaying all of the Loans, Borrower shall pay to Administrative Agent on behalf of the Lenders an amount equal to such remaining Borrowing Base Deficiency to be held as cash collateral as provided in Section 2.10(b). Notwithstanding anything in this Agreement to the contrary, if at the time of any permitted Transfer a Borrowing Base Deficiency exists, then Borrower shall, concurrently with the receipt thereof, prepay the Loans with the net proceeds received from such Transfer to the extent necessary to eliminate the portion of the Borrowing Base Deficiency resulting from such Transfer and such preexisting Borrowing Base Deficiency; and Borrower shall remain obligated, pursuant to the terms of this Agreement, to eliminate any Borrowing Base Deficiency remaining after prepaying the Loans with the net proceeds from such Transfer. If Borrower Transfers any Property at such time as a Default exits, Borrower shall, concurrently with the receipt of proceeds therefrom, prepay the Loans in an amount equal to the

lesser of (x) the aggregate principal amount outstanding on the Loans and (y) 100% of the net proceeds received from such Transfer. The preceding sentence shall not be interpreted as permitting the sale of any Property at such time as a Default exists without the prior written consent of the Lenders.

(v) Proceeds from Hedging Agreements. At any time that a Default exists, any proceeds received by Borrower under any Hedging Agreements, including as a result of the early termination thereof, shall be used immediately upon receipt thereof to prepay the Loans in an amount equal to the lesser of (x) the aggregate principal amount outstanding on the Loans and (y) 100% of the net proceeds received.

(c) Generally. Prepayments permitted or required under this
Section 2.07 shall be without premium or penalty, except as required under Section 5.05 for prepayment of LIBOR Loans. Any prepayments on the Loans may be reborrowed subject to the then effective Aggregate Commitments. Any prepayments made while a Borrowing Base Deficiency exists shall be applied first to the Borrowing Base Deficiency and then otherwise as provided by the Loan Documents.

Section 2.08 Borrowing Base.

(a) Borrowing Base and Monthly Reduction Amount. The Borrowing Base and the Monthly Reduction Amount shall be determined in accordance with Section 2.08(b) by Administrative Agent with the concurrence of the Lenders and are subject to redetermination in accordance with Sections 2.08(d), (e) and (f). Upon any redetermination of the Borrowing Base or the Monthly Reduction Amount, such redetermination shall remain in effect until the next successive Redetermination Date; provided, however, the then effective Borrowing Base shall reduce on the last day of each month by the then effective Monthly Reduction Amount. So long as any of the Commitments are in effect or any LC Exposure or Loans are outstanding hereunder, this facility shall be governed by the then effective Borrowing Base and Monthly Reduction Amount. During the period from and after the Closing Date until the next redetermination pursuant to Sections 2.08(d), (e) or
(f) or adjusted pursuant to Section 8.08(c), the amount of the Borrowing Base shall be $35,300,000, as reduced on a cumulative basis on the last day of each month following such effective date by the applicable Monthly Reduction Amount. The Monthly Reduction Amount shall be $0.00, (or the outstanding principal balance of the Loans, if such balance is less than such Monthly Reduction Amount) each month until the next redetermination thereof pursuant to Sections 2.08(d), (e) or (f). No delay for any reason whatsoever in a redetermination of the Monthly Reduction Amount shall affect Borrower's obligations under Section 2.07(b)(iii).

(b) Determination Procedure. Upon receipt of the reports required by Section 8.07 and such other reports, data and supplemental information as may from time to time be reasonably requested by Administrative Agent (the "Engineering Reports"), Administrative Agent will redetermine the Borrowing Base and the Monthly Reduction Amount. Such redetermination will be in accordance with its normal and customary practices and procedures for evaluating oil and gas reserves and other related assets as such exist at that particular time, and may also take into consideration the financial condition, Debt, and business of Borrower and its Subsidiaries and such other factors as Administrative Agent customarily deems appropriate. Administrative Agent, in its sole discretion, may make adjustments to the rates, volumes and prices and other assumptions set forth therein in accordance with its normal and customary procedures for evaluating oil and gas reserves and other related assets as such exist at that particular time. Administrative Agent shall propose to the Lenders a new Borrowing Base and Monthly Reduction Amount within 15 days following receipt by Administrative Agent and the

Lenders of the Engineering Reports in a timely and complete manner. After having received notice of such proposal by Administrative Agent, the Lenders shall have 15 days to agree or disagree with such proposal. If at the end of the 15 days, the Lenders have not communicated their approval or disapproval, such silence shall be deemed to be an approval and Administrative Agent's proposal shall be the new Borrowing Base and Monthly Reduction Amount. If however, the Lenders notify Administrative Agent within 15 days of their disapproval, the Lenders shall, within a reasonable period of time, agree on a new Borrowing Base and Monthly Reduction Amount. Administrative Agent and all of the Lenders must approve any increase in the Borrowing Base and any decrease in the Monthly Reduction Amount, and Administrative Agent and Majority Lenders must approve any reaffirmation of or decrease in the Borrowing Base and any reaffirmation of or increase in the Monthly Reduction Amount.

(c) Excluded Property. Administrative Agent may exclude any Oil and Gas Property or portion of production therefrom or any income from any other Property from the Borrowing Base, at any time, because title information is not reasonably satisfactory, such Property is not Collateral or such Property is not assignable.

(d) Redeterminations. So long as any of the Commitments are in effect and until payment in full of all Loans hereunder, on or around the first Business Day of each June and December, commencing June, 2007 (each being a "Scheduled Redetermination Date"), the Lenders shall redetermine the amount of the Borrowing Base and the Monthly Reduction Amount in accordance with Section 2.08(b).

(e) Unscheduled Redeterminations. In addition to the redeterminations of the Borrowing Base and the Monthly Reduction Amount described in Section 2.08(d), (i) Borrower may initiate a redetermination of the Borrowing Base and/or the Monthly Reduction Amount at any other time as it so elects by specifying in writing to Administrative Agent (who will promptly notify the Lenders) the date by which Borrower will furnish to Administrative Agent and the Lenders a Reserve Report in accordance with Section 8.07(b) and the date by which such redetermination is requested to occur; provided, however, that Borrower may initiate only one such unscheduled redetermination between Scheduled Redetermination Dates, (ii) the Majority Lenders or Administrative Agent may initiate a redetermination of the Borrowing Base and/or the Monthly Reduction Amount at any other time as they so elect by specifying in writing to Borrower the date by which Borrower is to furnish a Reserve Report in accordance with Section 8.07(b) and the date on which such redetermination is to occur; provided, however, that the Majority Lenders or Administrative Agent may initiate only one such unscheduled redetermination between Scheduled Redetermination Dates, and
(iii) Administrative Agent may initiate a redetermination of the Borrowing Base and/or the Monthly Reduction Amount upon the occurrence of (A) an early termination or a material amendment or modification of the Aspen Operations Agreement or (B) the transfer of any interest in any Oil and Gas Properties of Borrower to Sigma pursuant to the terms of the Sigma Consulting Agreement.

(f) Redetermination Concurrent with Transfer. To the extent allowed by Section 9.12, if Borrower Transfers any Property between Scheduled Redetermination Dates with an aggregate fair market value in excess of $500,000, the Borrowing Base shall automatically be reduced upon execution of such Transfer by an amount equal to the Borrowing Base values (as determined by the Majority Lenders in their reasonable discretion) attributed in the immediately preceding determination of the Borrowing Base to the Property which is the subject of such Transfer.

(g) Effective Upon Notice. Administrative Agent shall promptly notify in writing Borrower and the Lenders of the new Borrowing Base and/or Monthly Reduction Amount. Any

redetermination of the Borrowing Base and/or Monthly Reduction Amount shall not be in effect until written notice is received by Borrower.

Section 2.09 Assumption of Risks. Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit or any transferee thereof with respect to its use of such Letter of Credit. Neither the Issuing Bank (except in the case of gross negligence or willful misconduct on the part of the Issuing Bank or any of its employees), its correspondents nor any Lender shall be responsible for the validity, sufficiency or genuineness of certificates or other documents or any endorsements thereon, even if such certificates or other documents should in fact prove to be invalid, insufficient, fraudulent or forged; for errors, omissions, interruptions or delays in transmissions or delivery of any messages by mail, telex, or otherwise, whether or not they be in code; for errors in translation or for errors in interpretation of technical terms; the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; the failure of any beneficiary or any transferee of any Letter of Credit to comply fully with conditions required in order to draw upon any Letter of Credit; or for any other consequences arising from causes beyond the Issuing Bank's control or the control of the Issuing Bank's correspondents. In addition, neither the Issuing Bank, Administrative Agent nor any Lender shall be responsible for any error, neglect, or default of any of the Issuing Bank's correspondents; and none of the above shall affect, impair or prevent the vesting of any of the Issuing Bank's, Administrative Agent's or any Lender's rights or powers hereunder or under the Letter of Credit Agreements, all of which rights shall be cumulative. The Issuing Bank and its correspondents may accept certificates or other documents that appear on their face to be in order, without responsibility for further investigation of any matter contained therein regardless of any notice or information to the contrary. In furtherance and not in limitation of the foregoing provisions, Borrower agrees that any action, inaction or omission taken or not taken by the Issuing Bank or by any correspondent for the Issuing Bank in good faith in connection with any Letter of Credit, or any related drafts, certificates, documents or instruments, shall be binding on Borrower and shall not put the Issuing Bank or its correspondents under any resulting liability to Borrower.

Section 2.10 Obligation to Reimburse and to Prepay.

(a) Reimbursement Obligations. If a disbursement by the Issuing Bank is made under any Letter of Credit, Borrower shall pay to Administrative Agent within two (2) Business Days after notice of any such disbursement is received by Borrower, the amount of each such disbursement made by the Issuing Bank under the Letter of Credit (if such payment is not sooner effected as may be required under this
Section 2.10 or under other provisions of the Letter of Credit), together with interest on the amount disbursed from and including the date of disbursement until payment in full of such disbursed amount at a varying rate per annum equal to (i) the then applicable interest rate for Base Rate Loans through the second Business Day after notice of such disbursement is received by Borrower and (ii) thereafter, the Post Default Rate for Base Rate Loans (but in no event to exceed the Highest Lawful Rate) for the period from and including the third Business Day following the date of such disbursement to and including the date of repayment in full of such disbursed amount. The obligations of Borrower under this Agreement with respect to each Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid or performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, but only to the fullest extent permitted by applicable law, the following circumstances:
(i) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the Security Instruments; (ii) any amendment or waiver of (including any default), or any consent to departure from this Agreement (except to the extent permitted by any amendment or waiver), any Letter of Credit or any of the Security Instruments; (iii) the existence of any claim, set-off, defense or other rights which Borrower may have at any time against the beneficiary of any Letter of Credit or any transferee of any Letter of Credit (or

any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, Administrative Agent, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the Security Instruments, the transactions contemplated hereby or any unrelated transaction; (iv) any statement, certificate, draft, notice or any other document presented under any Letter of Credit proves to have been forged, fraudulent, insufficient or invalid in any respect or any statement therein proves to have been untrue or inaccurate in any respect whatsoever; (v) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate which appears on its face to comply, but does not comply, with the terms of such Letter of Credit; and (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

Notwithstanding anything in this Agreement to the contrary, Borrower will not be liable for payment or performance that results from the gross negligence or willful misconduct of the Issuing Bank, except where Borrower or any Subsidiary actually recovers the proceeds for itself or the Issuing Bank of any payment made by the Issuing Bank in connection with such gross negligence or willful misconduct.

(b) Cash Collateral for LC Exposure. In the event of the occurrence of any Event of Default, a payment or prepayment pursuant to
Section 2.07(b) or the maturity of the Notes, whether by acceleration or otherwise, an amount equal to the LC Exposure (or the excess in the case of Section 2.07(b)) shall be deemed to be forthwith due and owing by Borrower to the Issuing Bank, Administrative Agent and the Lenders as of the date of any such occurrence; and Borrower's obligation to pay such amount shall be absolute and unconditional, without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which Borrower may now or hereafter have against any such beneficiary, the Issuing Bank, Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such payments shall be held by the Issuing Bank on behalf of the Lenders as cash collateral securing the LC Exposure in an account or accounts at the Principal Office; and Borrower hereby grants to and by its deposit with Administrative Agent grants to Administrative Agent a security interest in such cash collateral. In the event of any such payment by Borrower of amounts contingently owing under outstanding Letters of Credit and in the event that thereafter drafts or other demands for payment complying with the terms of such Letters of Credit are not made prior to the respective expiration dates thereof, Administrative Agent agrees, if no Event of Default has occurred and is continuing or if no other amounts are outstanding under this Agreement, the Notes or any other Loan Documents, to remit to Borrower amounts for which the contingent obligations evidenced by the Letters of Credit have ceased.

(c) Lender Reimbursement. Each Lender severally and unconditionally agrees that it shall promptly reimburse the Issuing Bank an amount equal to such Lender's Percentage Share of any disbursement made by the Issuing Bank under any Letter of Credit that is not reimbursed according to this Section 2.10.

(d) Automatic Funding as Loan. Notwithstanding anything to the contrary contained herein, if no Default exists or would result therefrom, to the extent Borrower has not reimbursed the Issuing Bank for any drawn upon Letter of Credit within two (2) Business Days after notice of such disbursement has been received by Borrower, the amount of such Letter of Credit reimbursement obligation shall automatically be funded by the Lenders as a Loan hereunder and used by the Lender to pay such Letter of Credit reimbursement obligation. If an Event of Default exists, such Letter of Credit reimbursement obligation shall not be funded as a Loan, but instead shall accrue interest as provided in
Section 2.10(a).

Section 2.11 Lending Offices. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type.

ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST

Section 3.01 Repayment of Loans.

(a) Loans. On the Revolving Credit Termination Date Borrower shall repay the outstanding aggregate principal amount of the Notes.

(b) Generally. Borrower will pay to Administrative Agent, for the account of each Lender, the principal payments required by this
Section 3.01.

Section 3.02 Interest.

(a) Interest Rates. Borrower will pay to Administrative Agent, for the account of each Lender, interest on the unpaid principal amount of each Loan made by such Lender for the period commencing on the date such Loan is made to, but excluding, the date such Loan shall be paid in full, at the following rates per annum:

(i) if such a Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate; and

(ii) if such a Loan is a LIBOR Loan, for each Interest Period relating thereto, the LIBOR Adjusted Rate for such Loan plus the Applicable Margin (as in effect from time to time), but in no event to exceed the Highest Lawful Rate.

(b) Post Default Rate. Notwithstanding the foregoing, Borrower will pay to Administrative Agent, for the account of each Lender interest at the applicable Post Default Rate on any principal of any Loan made by such Lender, and (to the fullest extent permitted by law) on any other amount payable by Borrower hereunder, under any Loan Document or under any Note held by such Lender to or for account of such Lender, for the period commencing on the date of an Event of Default until the same is paid in full or all Events of Default are cured or waived.

(c) Due Dates. Accrued interest on Base Rate Loans shall be payable monthly on the [last Business Day of each month commencing on March 30, 2007], and accrued interest on each LIBOR Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than three months at three-month intervals following the first day of such Interest Period, except that interest payable at the Post Default Rate shall be payable from time to time on demand and interest on any LIBOR Loan that is converted into a Base Rate Loan (pursuant to Section 5.04) shall be payable on the date of conversion (but only to the extent so converted). Any accrued and unpaid interest on the Loans on the Revolving Credit Termination Date shall be paid on such date.

(d) Determination of Rates. Promptly after the determination of any interest rate provided for herein or any change therein, Administrative Agent shall notify the Lenders to which such interest is payable and Borrower thereof. Each determination by Administrative Agent of an interest rate or fee hereunder shall, except in cases of manifest error, be final, conclusive and binding on the parties.

ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.

Section 4.01 Payments. Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by Borrower under this Agreement, the Notes, the Letter of Credit Agreements or any other Loan Document shall be made in Dollars, in immediately available funds, to Administrative Agent at such account as Administrative Agent shall specify by notice to Borrower from time to time, not later than 11:00 a.m. Houston, Texas time on the date on which such payments shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Such payments shall be made without (to the fullest extent permitted by applicable law) defense, set-off or counterclaim and in connection therewith, Borrower and each Guarantor hereby waives (to the fullest extent permitted by applicable law) all defenses, rights of set-off and counterclaims it may have with respect to such payments. Each payment received by Administrative Agent under this Agreement or any Note for account of a Lender shall be paid promptly to such Lender in immediately available funds. Except as otherwise provided in the definition of "Interest Period", if the due date of any payment under this Agreement or any Note would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. At the time of each payment to Administrative Agent of any principal of or interest on any borrowing, Borrower shall notify Administrative Agent of the Loans to which such payment shall apply. In the absence of such notice Administrative Agent may specify the Loans to which such payment shall apply, but to the extent possible such payment or prepayment will be applied first to the Loans comprised of Base Rate Loans.

Section 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein each Lender agrees that: (i) each borrowing from the Lenders under Section 2.01 and each continuation and conversion under Section 2.02 shall be made from the Lenders pro rata in accordance with their Percentage Share, each payment of fees under Section 2.04(a) and Section 2.04(b)(i) shall be made for account of the Lenders pro rata in accordance with their Percentage Share, and each termination or reduction of the amount of the Aggregate Maximum Revolving Credit Amounts under Section 2.03(b) shall be applied to the Commitment of each Lender, pro rata according to the amounts of its respective Commitment; (ii) each payment of principal of Loans by Borrower shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amount of the Loans held by the Lenders; (iii) each payment of interest on Loans by Borrower shall be made for account of the Lenders pro rata in accordance with the amounts of interest due and payable to the respective Lenders; and (iv) each reimbursement by Borrower of disbursements under Letters of Credit shall be made for account of the Issuing Bank or, if funded by the Lenders, pro rata for the account of the Lenders, in accordance with the amounts of reimbursement obligations due and payable to each respective Lender.

Section 4.03 Computations. Interest on LIBOR Loans and fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless such calculation would exceed the Highest Lawful Rate, in which case interest shall be calculated on the per annum basis of a year of 365 or 366 days, as the case may be. Interest on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable.

Section 4.04 Non-receipt of Funds by Administrative Agent. Unless Administrative Agent shall have been notified by a Lender or Borrower prior to the date on which such notifying party is scheduled to make payment to Administrative Agent (in the case of a Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be made by it hereunder or (in the case of Borrower) a payment to Administrative Agent for account of one or more of the Lenders hereunder (such payment being herein

called the "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to Administrative Agent, Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Lender or Borrower (as the case may be) has not in fact made the Required Payment to Administrative Agent, the recipient(s) of such payment shall, on demand, repay to Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by Administrative Agent until, but excluding, the date Administrative Agent recovers such amount at a rate per annum which, for any Lender as recipient, will be equal to the Federal Funds Rate, and for Borrower as recipient, will be equal to the Base Rate plus the Applicable Margin.

Section 4.05 Set-off, Sharing of Payments, Etc.

(a) Borrower agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, each Lender shall have the right and be entitled (after consultation with Administrative Agent), at its option, to offset balances held by it or by any of its Affiliates for account of Borrower or any Subsidiary at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans, or any other amount payable to such Lender hereunder, which is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower and Administrative Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof.

(b) If any Lender shall obtain payment of any principal of or interest on any Loan made by it to Borrower under this Agreement (or reimbursement as to any Letter of Credit) through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Lender shall have received a greater percentage of the principal or interest (or reimbursement) then due hereunder by Borrower to such Lender than the percentage received by any other Lenders, it shall promptly (i) notify Administrative Agent and each other Lender thereof and (ii) purchase from such other Lenders participation in (or, if and to the extent specified by such Lender, direct interests in) the Loans (or participations in Letters of Credit) made by such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Lenders (or reimbursements of Letters of Credit). To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Borrower agrees that any Lender so purchasing a participation (or direct interest) in the Loans made by other Lenders (or in interest due thereon, as the case may be) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans (or Letters of Credit) in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of Borrower. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.05 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.05 to share the benefits of any recovery on such secured claim.

Section 4.06 Taxes.

(a) Payments Free and Clear. Any and all payments by Borrower hereunder shall be made, in accordance with Section 4.01, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, the Issuing Bank and Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which Administrative Agent, the Issuing Bank or such Lender, as the case may be, is a citizen or resident or in which such Lender has an Applicable Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in which Administrative Agent, the Issuing Bank or such Lender is organized, or
(iii) any jurisdiction (or political subdivision thereof) in which such Lender, the Issuing Bank or Administrative Agent is presently doing business which taxes are imposed solely as a result of doing business in such jurisdiction (all such non-excluded taxes, 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 hereunder to the Lenders, the Issuing Bank or Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.06) such Lender, the Issuing Bank or Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law.

(b) Other Taxes. In addition, to the fullest extent permitted by applicable law, Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Assignment or any other Loan Document (hereinafter referred to as "Other Taxes").

(C) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER WILL INDEMNIFY EACH LENDER AND THE ISSUING BANK AND THE ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER, THE ISSUING BANK OR ADMINISTRATIVE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER, THE ISSUING BANK OR ADMINISTRATIVE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER, THE ISSUING BANK OR ADMINISTRATIVE AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER, ISSUING BANK OR ADMINISTRATIVE AGENT HAS RECEIVED PAYMENT FROM BORROWER IT SHALL PROMPTLY NOTIFY BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY BORROWER (OR PROMPTLY UPON RECEIPT, IF BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST SO

REFUNDED OR CREDITED), PROVIDED THAT BORROWER, UPON THE REQUEST OF SUCH LENDER, THE ISSUING BANK OR ADMINISTRATIVE AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR ADMINISTRATIVE AGENT IN THE EVENT SUCH LENDER OR ADMINISTRATIVE AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT.

(d) Lender Representations.

(i) Each Lender represents that it is either (1) a banking association or corporation organized under the laws of the United States of America or any state thereof or (2) it is entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement (A) under an applicable provision of a tax convention to which the United States of America is a party or (B) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America. Each Lender that is not a banking association or corporation organized under the laws of the United States of America or any state thereof agrees to provide to Borrower and Administrative Agent on the Closing Date, or on the date of its delivery of the Assignment pursuant to which it becomes a Lender, and at such other times as required by United States law or as Borrower or Administrative Agent shall reasonably request, two accurate and complete original signed copies of either (A) Internal Revenue Service Form W-8ECI (or successor form) certifying that all payments to be made to it hereunder will be effectively connected to a United States trade or business (the "Form W-8ECI Certification") or (B) Internal Revenue Service Form W-8BEN (or successor form) certifying that it is entitled to the benefit of a provision of a tax convention to which the United States of America is a party which completely exempts from United States withholding tax all payments to be made to it hereunder (the "Form W-8BEN Certification"). In addition, each Lender agrees that if it previously filed a Form W-8ECI Certification, it will deliver to Borrower and Administrative Agent a new Form W-8ECI Certification prior to the first payment date occurring in each of its subsequent taxable years; and if it previously filed a Form W-8BEN Certification, it will deliver to Borrower and Administrative Agent a new certification prior to the first payment date falling in the third year following the previous filing of such certification. Each Lender also agrees to deliver to Borrower and Administrative Agent such other or supplemental forms as may at any time be required as a result of changes in applicable law or regulation in order to confirm or maintain in effect its entitlement to exemption from United States withholding tax on any payments hereunder, provided that the circumstances of such Lender at the relevant time and applicable laws permit it to do so. If a Lender determines, as a result of any change in either (i) a Governmental Requirement or (ii) its circumstances, that it is unable to submit any form or certificate that it is obligated to submit pursuant to this
Section 4.06, or that it is required to withdraw or cancel any such form or certificate previously submitted, it shall promptly notify Borrower and Administrative Agent of such fact. If a Lender is organized under the laws of a jurisdiction outside the United States of America, unless Borrower and Administrative Agent have received a Form W-8BEN Certification or Form W-8ECI Certification satisfactory to them indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax, Borrower shall withhold taxes from such payments at the applicable statutory rate. Each Lender agrees to indemnify and hold harmless Borrower or Administrative Agent, as applicable, from any United States taxes, penalties, interest and other expenses, costs and losses incurred or payable by (i) Administrative Agent as a result of such Lender's failure to submit any form or certificate that it is required to provide pursuant to this Section 4.06 or (ii) Borrower or Administrative Agent as a result of their reliance on any such form or certificate which such Lender has provided to them pursuant to this Section 4.06.

(ii) For any period with respect to which a Lender has failed to provide Borrower with the form required pursuant to this
Section 4.06, if any, (other than if such failure is due to a change in a Governmental Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.06 with respect to taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided, however, that if a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to taxes because of its failure to deliver a form required hereunder, Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such taxes.

(iii) Any Lender claiming any additional amounts payable pursuant to this Section 4.06 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by Borrower or Administrative Agent or to change the jurisdiction of its Applicable Lending Office or to contest any tax imposed if the making of such a filing or change or contesting such tax would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.

Section 4.07 Disposition of Proceeds. Some of the Security Instruments contain an assignment by Borrower unto and in favor of Administrative Agent for the benefit of the Lenders of all production and all proceeds attributable thereto which may be produced from or allocated to Oil and Gas Properties, and such Security Instruments further provide in general for the application of such proceeds to the satisfaction of the Obligations and other indebtedness, liabilities and obligations described therein and secured thereby. Notwithstanding the assignment contained in such Security Instruments, until the occurrence of an Event of Default, the Lenders agree that they will neither notify the Purchasers of such production nor take any other action to cause such proceeds to be remitted to the Lenders, but the Lenders will instead permit such proceeds to be paid to Borrower.

ARTICLE V

CAPITAL ADEQUACY AND ADDITIONAL COSTS

Section 5.01 Additional Costs.

(a) LIBOR Regulations, etc. Borrower shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs which it determines are attributable to its making or maintaining of any LIBOR Loans or issuing or participating in Letters of Credit hereunder or its obligation to make any LIBOR Loans or issue or participate in any Letters of Credit hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such LIBOR Loans, Letters of Credit or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or any Note in respect of any of such LIBOR Loans or Letters of Credit (other than taxes imposed on the overall net income of such Lender or of its Applicable Lending Office for any of such LIBOR Loans by the jurisdiction in which such Lender has its principal office or Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of such Lender, or the Commitment or Loans of such Lender or the London interbank market; or (iii) imposes any other condition affecting this Agreement or any Note (or any of such extensions of credit or liabilities) or such Lender's Commitment or Loans. Each Lender will notify Administrative Agent and Borrower of any event occurring after the Closing Date which

will entitle such Lender to compensation pursuant to this Section 5.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the United States. If any Lender requests compensation from Borrower under this Section 5.01(a), Borrower may, by notice to such Lender, suspend the obligation of such Lender to make additional Loans of the Type with respect to which such compensation is requested until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable).

(b) Regulatory Change. Without limiting the effect of the provisions of Section 5.01(a), in the event that at any time (by reason of any Regulatory Change or any other circumstances arising after the Closing Date affecting (A) any Lender, (B) the London interbank market or (C) such Lender's position in such market), the LIBOR Adjusted Rate, as determined in good faith by such Lender, will not adequately and fairly reflect the cost to such Lender of funding its LIBOR Loans, then, if such Lender so elects, by notice to Borrower and Administrative Agent, the obligation of such Lender to make additional LIBOR Loans shall be suspended until such Regulatory Change or other circumstances ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable).

(c) Capital Adequacy. Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), Borrower shall pay directly to any Lender from time to time on request such amounts as such Lender may reasonably determine to be necessary to compensate such Lender or its parent or holding company for any costs which it determines are attributable to the maintenance by such Lender or its parent or holding company (or any Applicable Lending Office), pursuant to any Governmental Requirement following any Regulatory Change, of capital in respect of its Commitment, its Note, its Loans or any interest held by it in any Letter of Credit, such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender or its parent or holding company (or any Applicable Lending Office) to a level below that which such Lender or its parent or holding company (or any Applicable Lending Office) could have achieved but for such Governmental Requirement. Such Lender will notify Borrower that it is entitled to compensation pursuant to this Section 5.01(c) as promptly as practicable after it determines to request such compensation.

(d) Compensation Procedure. Any Lender notifying Borrower of the incurrence of Additional Costs under this Section 5.01 shall in such notice to Borrower and Administrative Agent set forth in reasonable detail the basis and amount of its request for compensation. Determinations and allocations by each Lender for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a) or (b), or of the effect of capital maintained pursuant to
Section 5.01(c), on its costs or rate of return of maintaining Loans or its obligation to make Loans or issue Letters of Credit, or on amounts receivable by it in respect of Loans or Letters of Credit, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive and binding for all purposes, provided that such determinations and allocations are made on a reasonable basis. Any request for additional compensation under this Section 5.01 shall be paid by Borrower within thirty (30) days of the receipt by Borrower of the notice described in this Section 5.01(d).

Section 5.02 Limitation on LIBOR Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any LIBOR Adjusted Rate for any Interest Period:

(i) Administrative Agent determines (which determination shall be conclusive, absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR Adjusted Rate" in Section 1.02 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for LIBOR Loans as provided herein; or

(ii) Administrative Agent determines (which determination shall be conclusive, absent manifest error) that the relevant rates of interest referred to in the definition of "LIBOR Adjusted Rate" in Section 1.02 upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined are not sufficient to adequately cover the cost to the Lenders of making or maintaining LIBOR Loans;

then Administrative Agent shall give Borrower prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional LIBOR Loans.

Section 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder, then such Lender shall promptly notify Borrower thereof and such Lender's obligation to make LIBOR Loans shall be suspended until such time as such Lender may again make and maintain LIBOR Loans (in which case the provisions of Section 5.04 shall be applicable).

Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and
5.03. If the obligation of any Lender to make LIBOR Loans shall be suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans which would otherwise be made by such Lender shall be made instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has occurred and such Lender so requests by notice to Borrower, all Affected Loans of such Lender then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) Base Rate Loans, all payments of principal which would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans.

Section 5.05 Compensation. Borrower shall pay to each Lender within thirty (30) days of receipt of written request of such Lender (which request shall set forth, in reasonable detail, the basis for requesting such amounts and which shall be conclusive and binding for all purposes provided that such determinations are made on a reasonable basis), such amount or amounts as shall compensate it for any loss, cost, expense or liability which such Lender determines are attributable to:

(i) any payment, prepayment or conversion of a LIBOR Loan properly made by such Lender or Borrower for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10.01) on a date other than the last day of the Interest Period for such Loan; or

(ii) any failure by Borrower for any reason (including but not limited to, the failure of any of the conditions precedent specified in Article VI to be satisfied) to borrow, continue or convert a LIBOR Loan from such Lender on the date for such borrowing, continuation or conversion specified in the relevant notice given pursuant to Section 2.02(c).

Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date specified

for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender).

ARTICLE VI

CONDITIONS PRECEDENT

Section 6.01 Initial Funding. The obligation of the Lenders to make the Initial Funding is subject to the receipt by Administrative Agent and the Lenders of all fees payable pursuant to Section 2.04 on or before the Closing Date and the receipt by Administrative Agent of the following documents (in sufficient original counterparts, other than the Notes, for each Lender) and satisfaction of the other conditions provided in this Section 6.01, each of which shall be satisfactory to Administrative Agent in form and substance:

(a) A certificate of officer of Borrower setting forth (i) resolutions of its Managers with respect to the authorization of Borrower to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of Borrower (y) who are authorized to sign the Loan Documents to which Borrower is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the Operating Agreement of Borrower, certified as being true and complete. Administrative Agent and the Lenders may conclusively rely on such certificate until Administrative Agent receives notice in writing from Borrower to the contrary.

(b) A certificate of the Secretary or an Assistant Secretary of Parent setting forth (i) resolutions of its board of directors with respect to the authorization of Parent to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of Parent (y) who are authorized to sign the Loan Documents to which Parent is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of Parent, certified as being true and complete. Administrative Agent and the Lenders may conclusively rely on such certificate until they receive notice in writing from Parent to the contrary.

(c) Certificates of the appropriate state agencies with respect to the existence, qualification and good standing of Borrower and Parent.

(d) A Compliance Certificate duly and properly executed by a Responsible Officer and dated as of the date of the Initial Funding.

(e) The Notes, duly completed and executed.

(f) The Security Instruments, including those described on Exhibit D, duly completed and executed in sufficient number of counterparts for recording, if necessary.

(g) A favorable opinion of (i) Schaeffer Hutchinson P.C., counsel to Borrower and Parent and (ii) Aboudi & Brounstein, special counsel to Parent, each in form and substance satisfactory to Administrative Agent, as to such matters incident to the transactions herein contemplated as Administrative Agent may reasonably request.

(h) Environmental assessment reports relating to the Oil and Gas Properties of Borrower as may be requested by Administrative Agent, including environmental audits, phase I reports or other environmental reports of any nature whatsoever (whether prepared internally or by third party consultants); and Administrative Agent must be satisfied with the results of the review of such reports and environmental condition of such Oil and Gas Properties.

(i) Administrative Agent shall have received, reviewed and be satisfied with the results of the review of the Initial Reserve Report and any other related engineering data with respect to the Oil and Gas Properties included therein for which value was given to the Borrowing Base.

(j) A certificate of insurance coverage of Borrower evidencing that Borrower is carrying insurance in accordance with
Section 7.18.

(k) Title information as Administrative Agent may require setting forth a status of title acceptable to Administrative Agent and the Lenders to at least 80% of the value of the Oil and Gas Properties included in the Initial Reserve Report.

(l) Administrative Agent shall have received and reviewed, with respect to Parent and its Subsidiaries, (i) most recent annual and quarterly financial statements, (ii) organizational and governing documents of Parent and Borrower, and (iii) information regarding litigation, insurance, contingent liabilities, pension liabilities (actual and contingent) and the material contracts described in Section 7.21; and Administrative Agent, the Lenders and counsel to Administrative Agent shall be satisfied with the results of such reviews.

(m) Letters in Lieu executed by Borrower to Purchasers as of the Closing Date, Letters in Lieu executed by Borrower in blank, and a list of Purchasers with address, telephone and facsimile numbers, e-mail address (if available) and contact individual for each Purchaser.

(n) Appropriate UCC search certificates reflecting no prior Liens in any Property of Borrower and releases of Liens and UCC Termination Statements relating to Liens in favor of Bank of Texas, N.A. covering various of the Properties being acquired as part of the Five States Acquisition.

(o) Administrative Agent shall have received and reviewed all necessary information regarding Hedging Agreements entered into by Borrower to be in effect on the Closing Date and be satisfied with the results of such review.

(p) Administrative Agent shall have received and reviewed documentation pursuant to which Parent is to contribute to Borrower net cash proceeds as equity in an amount of at least $50,000,000 and be satisfied with the results of such review, and received evidence reasonably satisfactory to Administrative Agent that prior to or concurrently with the Initial Funding, Borrower shall have received such equity contribution in the amount of at least $50,000,000.

(q) Administrative Agent shall have received a certificate of a Responsible Officer, in form and substance satisfactory to Administrative Agent, certifying to various matters in

connection with the Five States Acquisition, including that concurrently with the Initial Funding, Borrower is consummating the Five States Acquisition.

(r) Administrative Agent shall have received and reviewed a pro-forma balance sheet of Borrower reflecting Borrower's financial position immediately upon closing of the Five States Acquisition and be satisfied with the results of such review.

(s) Administrative Agent shall have received and reviewed the Jay Management Agreement and the Jay Management JOA and be satisfied with the results of such review.

(t) Such other documents as Administrative Agent or any Lender or special counsel to Administrative Agent may reasonably request.

Section 6.02 Initial and Subsequent Loans and Letters of Credit. The obligation of the Lenders to make Loans to Borrower upon the occasion of each borrowing hereunder and to issue, renew, extend or reissue Letters of Credit for the account of Borrower (including the Initial Funding) is subject to the further conditions precedent that, as of the date of such Loans and after giving effect thereto:

(a) no Default shall exist;

(b) no Material Adverse Effect shall have occurred; and

(c) the representations and warranties made by Borrower in Article VII and by Borrower and Guarantors in the other Loan Documents to which they are a party shall be true on and as of the date of the making of such Loans or issuance, renewal, extension or reissuance of a Letter of Credit with the same force and effect as if made on and as of such date and following such new borrowing, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders may expressly consent in writing to the contrary.

Each request for a borrowing or issuance, renewal, extension or reissuance of a Letter of Credit by Borrower hereunder shall constitute a certification by Borrower that the statements set forth in Section 6.02(a), (b) and (c) are true (both as of the date of such notice and, unless Borrower otherwise notifies Administrative Agent prior to the date of and immediately following such borrowing or issuance, renewal, extension or reissuance of a Letter of Credit, as of the date thereof).

Section 6.03 Conditions Precedent for the Benefit of Lenders. All conditions precedent to the obligations of the Lenders to make any Loan are imposed hereby solely for the benefit of the Lenders, and no other Person may require satisfaction of any such condition precedent or be entitled to assume that the Lenders will refuse to make any Loan in the absence of strict compliance with such conditions precedent.

Section 6.04 No Waiver. No waiver of any condition precedent shall preclude Administrative Agent or the Lenders from requiring such condition to be met prior to making any subsequent Loan or preclude the Lenders from thereafter declaring that the failure of Borrower to satisfy such condition precedent constitutes a Default.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Administrative Agent and the Lenders that (each representation and warranty herein is given as of the Closing Date and shall be deemed repeated and

reaffirmed on the dates of each borrowing and issuance, renewal, extension or reissuance of a Letter of Credit as provided in Section 6.02):

Section 7.01 Corporate Existence. Each of Borrower and each Subsidiary: (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation; (ii) has all requisite entity power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect.

Section 7.02 Financial Condition. The audited consolidated balance sheet of Parent and its Consolidated Subsidiaries as at December 31, 2005 and the related consolidated statement of income, stockholders' equity and cash flow of Parent and its Consolidated Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Malone & Bailey, P.C. heretofore furnished to each of the Lenders and the unaudited consolidated balance sheet of Parent and its Consolidated Subsidiaries as at September 30, 2006 and their related consolidated statements of income, stockholders' equity and cash flow of Parent and its Consolidated Subsidiaries for the nine month period ended on such date heretofore furnished to Administrative Agent, are complete and correct and fairly present in all material respects the consolidated financial condition of Borrower and its Consolidated Subsidiaries as at said dates and the results of its operations for the fiscal year and the nine month period on said dates, all in accordance with GAAP, as applied on a consistent basis (subject, in the case of the interim financial statements, to normal year-end adjustments). Neither Borrower nor any Subsidiary has on the Closing Date any material Debt, contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in Schedule
7.02. Since the date of formation of Borrower, there has been no change or event having a Material Adverse Effect. Since the date of formation of Borrower, neither the business nor the Properties of Borrower or any Subsidiary have been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, permits or concessions by any Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy.

Section 7.03 Litigation. Except as disclosed to the Lenders in Schedule 7.03 hereto, at the Closing Date there is no litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of Borrower threatened against or affecting Borrower or any Subsidiary which involves the possibility of any judgment or liability against Borrower or any Subsidiary not fully covered by insurance (except for normal deductibles).

Section 7.04 No Breach. Neither the execution and delivery of the Loan Documents, nor compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent which has not been obtained as of the Closing Date under, the respective charter or by-laws of Borrower or any Subsidiary, or any Governmental Requirement or any agreement or instrument to which Borrower or any Subsidiary is a party or by which it is bound or to which it or its Properties are subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of Borrower or any Subsidiary pursuant to the terms of any such agreement or instrument other than the Liens created by the Loan Documents.

Section 7.05 Authority. Borrower and each Subsidiary have all necessary corporate power and authority to execute, deliver and perform its obligations under the Loan Documents to which it is a party; and the execution, delivery and performance by Borrower and each Subsidiary of the Loan Documents to which it is a party, have been duly authorized by all necessary corporate action on its part;

and the Loan Documents constitute the legal, valid and binding obligations of Borrower and each Subsidiary, enforceable in accordance with their terms.

Section 7.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by Borrower or any Subsidiary of the Loan Documents or for the validity or enforceability thereof, except for the recording and filing of the Security Instruments as required by this Agreement.

Section 7.07 Use of Loans. The proceeds of the Loans shall be used
(i) to acquire Oil and Gas Properties from Five States Energy Company, L.L.C. and (ii) for working capital and general business purposes of Borrower and its Subsidiaries. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan hereunder will be used to buy or carry any margin stock.

Section 7.08 ERISA.

(a) Borrower, each Subsidiary and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan.

(b) Each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code.

(c) No act, omission or transaction has occurred which could result in imposition on Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA.

(d) No Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974. No liability to the PBGC (other than for the payment of current premiums which are not past due) by Borrower, any Subsidiary or any ERISA Affiliate has been or is expected by Borrower, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred.

(e) Full payment when due has been made of all amounts which Borrower, any Subsidiary or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan.

(f) The actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of Borrower's most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA.

(g) None of Borrower, any Subsidiary or any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees

of such entities, that may not be terminated by Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion at any time without any material liability.

(h) None of Borrower, any Subsidiary or any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the preceding six calendar years, sponsored, maintained or contributed to, any Multiemployer Plan.

(i) None of Borrower, any Subsidiary or any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan.

Section 7.09 Taxes. Except as set out in Schedule 7.09, each of Borrower and its Subsidiaries has filed all United States Federal income tax returns and all other tax returns which are required to be filed by them and have paid all material taxes due pursuant to such returns or pursuant to any assessment received by Borrower or any Subsidiary. The charges, accruals and reserves on the books of Borrower and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Borrower, adequate. No tax lien has been filed and, to the knowledge of Borrower, no claim is being asserted with respect to any such tax, fee or other charge.

Section 7.10 Titles, Etc.

(a) Except as set out in Schedule 7.10, each of Borrower and its Subsidiaries has good and indefeasible title to its material (individually or in the aggregate) Properties comprised of real Property and has good and marketable title to and is possessed of its material (individually or in the aggregate) Properties comprised of personal Property, free and clear of all Liens, except Liens permitted by Section
9.02. Except as set forth in Schedule 7.10, after giving full effect to the Excepted Liens, Borrower owns the net interests in production attributable to the Hydrocarbon Interests reflected in the most recently delivered Reserve Report and the ownership of such Properties shall not in any material respect obligate Borrower to bear the costs and expenses relating to the maintenance, development and operations of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report. All information contained in the most recently delivered Reserve Report is true and correct in all material respects as of the date thereof.

(b) All leases and agreements necessary for the conduct of the business of Borrower and its Subsidiaries are valid and subsisting, in full force and effect and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which would affect in any material respect the conduct of the business of Borrower and its Subsidiaries.

(c) All of the assets and Properties of Borrower and its Subsidiaries which are reasonably necessary for the operation of its business are in good working condition and are maintained in accordance with prudent business standards.

Section 7.11 No Material Misstatements. No written information, statement, exhibit, certificate, document or report furnished to Administrative Agent and the Lenders (or any of them) by or on behalf of Borrower or any Subsidiary in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not materially misleading in the light of the circumstances in which made and with respect to Borrower and its Subsidiaries taken as a whole. There is no fact peculiar to Borrower or any Subsidiary which has a Material Adverse Effect or in the future is reasonably likely to have (so far as Borrower can now foresee) a Material Adverse Effect and which has not been set forth in this Agreement

or the other documents, certificates and statements furnished to Administrative Agent by or on behalf of Borrower or any Subsidiary prior to, or on, the Closing Date in connection with the transactions contemplated hereby. To the best knowledge of Borrower, there are no statements or conclusions in any Reserve Reports which are based upon or include misleading information or fail to take into account material information regarding the matters reported therein.

Section 7.12 Investment Company Act. Neither Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.

Section 7.13 Subsidiaries. Except as set forth on Schedule 7.13, Borrower has no Subsidiaries.

Section 7.14 Location of Business and Offices, Etc. Borrower's principal place of business and chief executive offices are located at the address stated on the signature page of this Agreement. The principal place of business and chief executive office of each Subsidiary are located at the addresses stated on Schedule 7.14. The tax identification number, organizational identification number and state of formation for Borrower and each Subsidiary are set forth on Schedule 7.14.

Section 7.15 Defaults. Neither Borrower nor any Subsidiary is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default under any material agreement or instrument to which Borrower or any Subsidiary is a party or by which Borrower or any Subsidiary is bound which default would have a Material Adverse Effect. No Default hereunder has occurred and is continuing.

Section 7.16 Environmental Matters. Except (i) as provided in Schedule 7.16 or (ii) as would not have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions would not have a Material Adverse Effect):

(a) Neither any Property of Borrower or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws;

(b) Without limitation of clause (a) above, no Property of Borrower or any Subsidiary nor the operations currently conducted thereon or, to the best knowledge of Borrower, by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws;

(c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of Borrower and each Subsidiary, including without limitation past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed, and Borrower and each Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations;

(d) All hazardous substances, solid waste, and oil and gas exploration and production wastes, if any, generated at any and all Property of Borrower or any Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the best knowledge of Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to

pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws;

(e) Borrower has taken all steps reasonably necessary to determine and has determined that no hazardous substances, solid waste, or oil and gas exploration and production wastes, have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any Property of Borrower or any Subsidiary except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment;

(f) To the extent applicable, all Property of Borrower and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by the OPA or scheduled as of the Closing Date to be imposed by OPA during the term of this Agreement, and Borrower does not have any reason to believe that such Property, to the extent subject to OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement; and

(g) Neither Borrower nor any Subsidiary has any known contingent liability in connection with any release or threatened release of any oil, hazardous substance or solid waste into the environment.

Section 7.17 Compliance with the Law. Neither Borrower nor any Subsidiary has violated any Governmental Requirement or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of any of its Properties or the conduct of its business, which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Except for such acts or failures to act as would not have a Material Adverse Effect, the Oil and Gas Properties (and properties unitized therewith) have been maintained, operated and developed in a good and workmanlike manner and in conformity with all applicable laws and all rules, regulations and orders of all duly constituted authorities having jurisdiction and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties. Specifically in this connection, (i) after the Closing Date, no Oil and Gas Property is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the Closing Date and (ii) none of the wells comprising a part of the Oil and Gas Properties (or properties unitized therewith) are deviated from the vertical more than the maximum permitted by applicable laws, regulations, rules and orders, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on properties unitized therewith, such unitized properties).

Section 7.18 Insurance. Schedule 7.18 attached hereto contains an accurate and complete description of all material policies of fire, liability, workmen's compensation and other forms of insurance owned or held by Borrower and each Subsidiary. All such policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the date of the closing have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of law and of all agreements to which Borrower or any Subsidiary is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage in at least such amounts and against at least such risks (but including in any event public liability) as are usually insured against in the same general area by companies engaged in the same or a similar business for the assets and operations of Borrower and each Subsidiary; will remain in full force and effect through the respective dates set forth in Schedule 7.18 without the payment of additional premiums; and will not in any way be affected by, or terminate or lapse by reason of, the transactions

contemplated by this Agreement. Schedule 7.18 identifies all material risks, if any, which Borrower and its Subsidiaries and their respective Board of Directors or officers have designated as being self insured. Neither Borrower nor any Subsidiary has been refused any insurance with respect to its assets or operations, nor has its coverage been limited below usual and customary policy limits, by an insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last three years.

Section 7.19 Hedging Agreements. Schedule 7.19 sets forth, as of the Closing Date, a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counter party to each such agreement.

Section 7.20 Restriction on Liens. Neither Borrower nor any of its Subsidiaries is a party to any agreement or arrangement (other than the Loan Documents), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to other Persons on or in respect of their respective assets or Properties.

Section 7.21 Material Agreements. Set forth on Schedule 7.21 hereto is a complete and correct list of all material agreements, leases, purchase agreements, joint venture agreements and other agreements and contracts in effect or to be in effect on the Closing Date relating to the operation of Borrower's and each Subsidiaries business, and all indentures, letters of credit, guarantees, and other instruments and agreements in effect or to be in effect as of the Closing Date (other than Hedging Agreements) providing for, evidencing, securing or otherwise relating to any Debt of Borrower or any of its Subsidiaries, and all obligations of Borrower or any of its Subsidiaries to issuers of surety or appeal bonds issued for account of Borrower or any such Subsidiary, and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease obligation. Also set forth on Schedule 7.21 hereto is a complete and correct list of all material agreements and other instruments of Borrower and its Subsidiaries relating to the purchase, transportation by pipeline, gas processing, marketing, sale and supply of natural gas and other Hydrocarbons, but in any event, any such agreement or other instrument that will account for more than ten percent (10%) of the sales of Borrower and its Subsidiaries during Borrower's current fiscal year. Borrower has heretofore delivered to Administrative Agent and the Lenders a complete and correct copy of the Aspen Operations Agreement, the Sigma Consulting Agreement, the Jay Management Agreement, the Jay Management JOA, and all such material agreements, purchase agreements, joint venture agreements, leases, indentures, letters of credit, guarantees, or other contracts and instruments, including any modifications or supplements thereto, as in effect on the date of the Initial Funding.

Section 7.22 Solvency. Immediately after the Initial Funding and after giving effect to the application of the proceeds of the Initial Funding,
(a) the fair value of the Property of Borrower, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the Property of Borrower will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) Borrower will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) Borrower will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Initial Funding.

Section 7.23 Gas Imbalances. Except as set forth on Schedule 7.23 or on the most recent certificate delivered pursuant to Section 8.07(c), on a net basis there are no gas imbalances, take or pay or other prepayments with respect to Borrower's Oil and Gas Properties which would require Borrower to deliver, in the aggregate, two percent (2.0%) or more of the monthly production from Hydrocarbons produced from Borrower's Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor.

Section 7.24 Permits, Licenses, Franchises, Patents and Trademarks. Borrower and each Subsidiary has all permits and owns or is licensed or otherwise has the right to use all of the patents, trademarks, trade names, copyrights, franchises, licenses and rights, as the case may be, necessary for the conduct of its business, which ownership, patents, trademarks, trade names, copyrights, licenses, franchises, permits and rights of Borrower and each Subsidiary, as the case may be, are free and clear of Liens, except for Liens permitted by the Loan Documents. There does not exist, nor to the knowledge of Borrower, has there been threatened against Borrower or any Subsidiary, any material liability of Borrower or any Subsidiary in respect of any claim or infringement of any of the foregoing.

ARTICLE VIII

AFFIRMATIVE COVENANTS

Borrower covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of all Loans hereunder, all interest thereon and all other amounts payable by Borrower hereunder:

Section 8.01 Reporting Requirements. Borrower shall deliver, or shall cause to be delivered, to Administrative Agent with sufficient copies of each for the Lenders:

(a) Annual Financial Statements.

(i) As soon as available and in any event within 120 days after the end of each fiscal year of Parent, the audited consolidated statements of income, stockholders' equity, changes in financial position and cash flows of Parent and its Consolidated Subsidiaries for such fiscal year, and the related consolidated and consolidating balance sheets of Parent and its Consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by the related opinion of independent public accountants of recognized national standing acceptable to Administrative Agent which opinion shall state that said financial statements fairly present in all material respects the consolidated financial condition and results of operations of Parent and its Consolidated Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP, except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a "going concern" or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default.

(ii) As soon as available and in any event within 120 days after the end of each fiscal year of Borrower, the audited consolidated statements of income, members' equity, changes in financial position and cash flows of Borrower and its Consolidated Subsidiaries for such fiscal year, and the related consolidated and consolidating balance sheets of Borrower and its Consolidated Subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by the related opinion of independent public accountants of recognized national standing acceptable to

Administrative Agent which opinion shall state that said financial statements fairly present in all material respects the consolidated and consolidating financial condition and results of operations of Borrower and its Consolidated Subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP, except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a "going concern" or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default.

(b) Quarterly Financial Statements.

(i) As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of Parent, consolidated statements of income, stockholders' equity, changes in financial position and cash flows of Parent and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present in all material respects the consolidated and consolidating financial condition and results of operations of Parent and its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments).

(ii) As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of Borrower, consolidated statements of income, members' equity, changes in financial position and cash flows of Borrower and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present in all material respects the consolidated and consolidating financial condition and results of operations of Borrower and its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments).

(c) Compliance Certificate. At the time each set of financial statements pursuant to Sections 8.01(a) or (b) above and each report pursuant to Section 8.01(f) below is furnished, a Compliance Certificate executed by a Responsible Officer, which among other things,
(i) certifies as to the matters set forth therein and states that no Default exists (or, if any Default exists, describing the same in reasonable detail), and (ii) sets forth in reasonable detail the computations necessary to determine whether Borrower is in compliance with Section 9.11 as of the end of the respective fiscal quarter or fiscal year.

(d) Notice of Default, Etc. Promptly after Borrower knows that any Default or any Material Adverse Effect has occurred, a notice of such Default or Material Adverse Effect, describing the same in reasonable detail and the action Borrower proposes to take with respect thereto.

(e) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other report or letter submitted to Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of Borrower and

its Subsidiaries, and a copy of any response by Borrower or any Subsidiary of Borrower, or the Board of Directors of Borrower or any Subsidiary of Borrower, to such letter or report.

(f) Hedging Agreements and Property Reports. As soon as available and in any event within 15 days after the last day of each calendar quarter, a report certified as true and complete in all material respects by a Responsible Officer, in form and substance satisfactory to Administrative Agent, (i) setting forth as of the last Business Day of such calendar quarter a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value therefor, and the counter party to each such agreement, and (ii) setting forth a list of any Oil and Gas Properties acquired and any oil or gas wells drilled or brought on line not reflected in a previous report.

(g) Production Reports, Etc. As soon as available and in any event within 15 days after the end of each month, reports certified as true and complete in all material respects by a Responsible Officer, regarding production and general and administrative cost summaries by lease for its Oil and Gas Properties, in form and substance satisfactory to Administrative Agent, which reports shall include (i) quantities or volume of production, revenue, realized product prices, operating expenses, taxes, capital expenditures and lease operating costs which have accrued to Borrower's accounts in such period, (ii) the name, address, telephone and facsimile numbers, e-mail address (if available) and contact individual for each Purchaser, and (iii) such other information with respect thereto as Administrative Agent or the Lenders may require.

(h) Reserve Report Certificate. Concurrent with delivery of each Reserve Report furnished pursuant to Section 8.07, a completed Reserve Report Certificate, duly executed by a Responsible Officer.

(i) Tax Returns. As soon as available and in any event within 15 days after the filing of any tax return, or any other filing with a taxing authority, of the Guarantor, Borrower or any Subsidiary, a copy of such filed tax return or other filing, together with all exhibits and attachments thereto.

(j) SEC Filings, Etc. Promptly upon its becoming available, each financial statement, report, notice or proxy statement sent by Parent and/or Borrower to stockholders or equity holders generally and each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters) in respect thereof filed by Parent and/or Borrower with or received by Parent and/or Borrower in connection therewith from any securities exchange or the SEC or any successor agency.

(k) Notices Under Other Loan Agreements. Promptly after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 8.01.

(l) Other Matters. From time to time such other information regarding the business, affairs or financial condition of Borrower or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or Administrative Agent may reasonably request.

Section 8.02 Litigation. Borrower shall promptly give to Administrative Agent notice of: (i) all legal or arbitral proceedings, and of all proceedings before any Governmental Authority affecting Borrower or any Subsidiary, except proceedings which, if adversely determined, would not have a Material Adverse Effect, and (ii) of any litigation or proceeding against or adversely affecting Borrower or any Subsidiary in which the amount involved is not covered in full by insurance (subject to normal and customary deductibles and for which the insurer has not assumed the defense), or in which injunctive or similar relief is sought. Borrower will, and will cause each of its Subsidiaries to, promptly notify Administrative Agent and each of the Lenders of any claim, judgment, Lien or other encumbrance affecting any Property of Borrower or any Subsidiary.

Section 8.03 Maintenance, Etc.

(a) Generally. Borrower shall and shall cause each Subsidiary to: preserve and maintain its corporate existence and all of its material rights, privileges, licenses, franchises and other rights necessary to conduct its business; keep books of record and account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and activities; comply with all Governmental Requirements if failure to comply with such requirements will have a Material Adverse Effect; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; upon reasonable notice, permit representatives of Administrative Agent or any Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or Administrative Agent (as the case may be).

(b) Insurance. Borrower shall and shall cause each Subsidiary to keep, or cause to be kept, insured by financially sound and reputable insurers all Property of a character usually insured by Persons engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such Persons and carry such other insurance as is usually carried by such Persons including, without limitation, environmental risk insurance to the extent reasonably available. Borrower shall promptly obtain endorsements to such insurance policies naming "Wells Fargo Bank, N.A., as Administrative Agent for the Lenders" as joint loss payee and containing provisions that such policies will not be canceled without 30 days prior written notice having been given by the insurance company to Administrative Agent.

(c) Proof of Insurance. Contemporaneously with the delivery of the financial statements required by Section 8.01(a) to be delivered for each year, Borrower will furnish or cause to be furnished to Administrative Agent and the Lenders a certificate of insurance coverage from the insurer in form and substance satisfactory to Administrative Agent and, if requested, will furnish Administrative Agent and the Lenders copies of the applicable policies.

(d) Oil and Gas Properties. Borrower will and will cause each Subsidiary to, at its own expense, do or cause to be done all things reasonably necessary to preserve and keep in good repair, working order and efficiency all of its Oil and Gas Properties and other material Properties including, without limitation, all equipment, machinery and facilities, and from time to time will make all the reasonably necessary repairs, renewals and replacements so that at all times the state and condition of its Oil and Gas Properties and other material Properties will be fully preserved and maintained, except to the extent a portion of such Properties is no longer capable of producing Hydrocarbons in economically reasonable amounts. Borrower will and will cause each

Subsidiary to promptly: (i) pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties, (ii) perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, subleases, contracts and agreements affecting its interests in its Oil and Gas Properties and other material Properties, and (iii) do all other things necessary to keep unimpaired, except for Liens described in Section 9.02, its rights with respect to its Oil and Gas Properties and other material Properties and prevent any forfeiture thereof or a default thereunder, except to the extent a portion of such Properties is no longer capable of producing Hydrocarbons in economically reasonable amounts and except for dispositions permitted by Section 9.12. Borrower will and will cause each Subsidiary to operate its Oil and Gas Properties and other material Properties or cause or make reasonable and customary efforts to cause such Oil and Gas Properties and other material Properties to be operated in the manner of a prudent operator in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements.

Section 8.04 Environmental Matters.

(a) Establishment of Procedures. Borrower will and will cause each Subsidiary to establish and implement such procedures as may be reasonably necessary to continuously determine and assure that any failure of the following does not have a Material Adverse Effect: (i) all Property of Borrower and its Subsidiaries and the operations conducted thereon and other activities of Borrower and its Subsidiaries are in compliance with and do not violate the requirements of any Environmental Laws, (ii) no oil, hazardous substances or solid wastes are disposed of or otherwise released on or to any Property owned by any such party except in compliance with Environmental Laws, (iii) no hazardous substance will be released on or to any such Property in a quantity equal to or exceeding that quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas exploration and production wastes or hazardous substance is released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment.

(b) Notice of Action. Borrower will promptly notify Administrative Agent and the Lenders in writing of any threatened action, investigation or inquiry by any Governmental Authority of which Borrower has knowledge in connection with any Environmental Laws, excluding routine testing and corrective action.

(c) Future Acquisitions. Borrower will and will cause each Subsidiary to provide environmental audits and tests as reasonably requested by Administrative Agent and the Lenders (or as otherwise required to be obtained by Administrative Agent or the Lenders by any Governmental Authority) in connection with any future acquisitions of Oil and Gas Properties or other material Properties.

Section 8.05 Further Assurances. Borrower will and will cause each Subsidiary to cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of this Agreement and any other Loan Document. Borrower, at its expense, will and will cause each Subsidiary to promptly execute and deliver to Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of Borrower or any Subsidiary, as the case may be, in this Agreement and any other Loan Document, or to further evidence and more fully describe the collateral intended as security for the Obligations or to correct any omissions in the Loan Documents, or to state more fully the security obligations set out herein or in any of the Loan Documents, or to perfect, protect or preserve any Liens created pursuant to any of the

Security Instruments, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith.

Section 8.06 Performance of Obligations. Borrower will pay the Notes according to the reading, tenor and effect thereof; and Borrower will and will cause each Subsidiary to do and perform every act and discharge all of the obligations to be performed and discharged by them under the Loan Documents, at the time or times and in the manner specified.

Section 8.07 Engineering Reports.

(a) Scheduled Redetermination. On or before May 1 of each year Borrower shall furnish, or cause to be furnished, to Administrative Agent and the Lenders the as of December 31 Reserve Report, and on or before November 1 of each year Borrower shall furnish, or cause to be furnished, to Administrative Agent and the Lenders the as of June 30 Reserve Report. The as of December 31 Reserve Report of each year shall be prepared by certified independent petroleum engineers or other independent petroleum consultant(s) acceptable to Administrative Agent and the as of June 30 Reserve Report of each year shall be prepared by or under the supervision of the chief engineer of Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately proceeding as of December 31 Reserve Report.

(b) Unscheduled Redetermination. In the event of an unscheduled redetermination, Borrower shall furnish to Administrative Agent and the Lenders a Reserve Report prepared by or under the supervision of the chief engineer of Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding Reserve Report. For any unscheduled redetermination requested by the Majority Lenders or Administrative Agent pursuant to Section 2.08(e), Borrower shall provide as soon as possible, but in any event no later than 30 days following the receipt of the request by Administrative Agent, such Reserve Report with an "as of" date not more than 60 days prior to the anticipated date of redetermination or as otherwise required by the Majority Lenders or Administrative Agent.

Section 8.08 Title Information.

(a) Delivery. On or before the delivery to Administrative Agent and the Lenders of each Reserve Report required by Section 8.07(a), Borrower will deliver title information in form and substance acceptable to Administrative Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that Administrative Agent shall have received together with title information previously delivered to Administrative Agent, satisfactory title information on at least eighty percent (80%) of the value of the Oil and Gas Properties evaluated by such Reserve Report.

(b) Cure of Title Defects. Borrower shall cure any title defects or exceptions which are not Excepted Liens raised by the information described in Section 8.08(a), or substitute as Collateral acceptable Oil and Gas Properties with no title defects or exceptions except for Excepted Liens covering Oil and Gas Properties of an equivalent value (but for such title defects or exceptions), within 60 days after a request by Administrative Agent or the Lenders to cure such defects or exceptions.

(c) Failure to Cure Title Defects. If Borrower is unable to cure any title defect requested by Administrative Agent or the Lenders to be cured within the 60 day period or Borrower does not comply with the requirements to provide acceptable title information covering

eighty percent (80%) of the value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default or an Event of Default, but instead Administrative Agent and the Lenders shall have the right to exercise, in their sole discretion from time to time, the remedy described in the next sentence, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of such remedy by Administrative Agent or the Lenders. To the extent that Administrative Agent or the Lenders are not satisfied with title to any Oil and Gas Properties comprising Collateral after the time period in Section 8.08(b) has elapsed, such unacceptable Oil and Gas Property Collateral shall not count towards the eighty percent (80%) requirement, and Administrative Agent may send a notice to Borrower and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as determined by all of the Lenders to cause Borrower to be in compliance with the requirement to provide acceptable title information on eighty percent (80%) of the value of the Oil and Gas Properties comprising Collateral. This new Borrowing Base shall become effective immediately after receipt of such notice.

Section 8.09 Collateral.

(a) Collateral. The Obligations shall be secured by a perfected first priority Lien (subject only to Excepted Liens) granted to Administrative Agent for the benefit of the Beneficiaries in (i) all of Borrower's and its Subsidiaries' rights, titles and interests, now owned or hereafter acquired, in any Oil and Gas Properties, and contracts and any other rights related thereto, (ii) all personal Property of Borrower and its Subsidiaries and (iii) all of the issued and outstanding capital stock, partnership interests, member interest or other equity interest of all existing and/or hereafter created and/or acquired Subsidiaries of Borrower.

(b) Lien in Acquired Oil and Gas Properties. Should Borrower or any of its Subsidiaries acquire any additional Oil and Gas Properties or additional interests in its existing Oil and Gas Properties, Borrower and/or such Subsidiary, as applicable, will grant to Administrative Agent as security for the Obligations a first priority Lien interest (subject only to Excepted Liens) on Borrower's or such Subsidiary's interest in any Oil and Gas Properties not already subject to a Lien of the Security Instruments, which Lien will be created and perfected by and in accordance with the provisions of mortgages, deeds of trust, security agreements and financing statements, or other Security Instruments, all in form and substance satisfactory to Administrative Agent in its sole discretion and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes.

(c) Title Information. Concurrently with the granting of the Lien or other action referred to in Subsection (b) of this Section, Borrower will provide, or cause to be provided, to Administrative Agent title information in form and substance satisfactory to Administrative Agent in its sole discretion with respect to Borrower's and each Subsidiary's interests in its Oil and Gas Properties.

(d) Legal Opinions. Also, concurrently with the filing of any new Security Instrument in any state wherein Security Instruments have not previously been filed or there is reason to believe the law applicable to Security Instruments may have changed, upon the reasonable request of Administrative Agent, Borrower will provide to Administrative Agent an opinion addressed to Administrative Agent for the benefit of the Lenders in form and substance satisfactory to Administrative Agent in its sole discretion from counsel acceptable to Administrative Agent, stating that the Security Instrument is valid, binding and enforceable in accordance with its terms in legally sufficient form for such jurisdiction, and the means by which such Security Instrument will perfect the Lien created thereby.

Section 8.10 ERISA Information and Compliance. Borrower will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly furnish to Administrative Agent with sufficient copies to the Lenders (i) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or any trust created thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA Event or of any "prohibited transaction," as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by a Responsible Officer specifying the nature thereof, what action Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (iii) immediately upon receipt thereof, copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a Multiemployer Plan), Borrower will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA.

Section 8.11 Hedging Agreements. Borrower may maintain Hedging Agreements; provided that such Hedging Agreements (i) are in form and substance satisfactory to Administrative Agent and the Majority Lenders (ii) shall be with a Lender or, as approved by Administrative Agent and the Majority Lenders, other unsecured counterparty, (iii) are entered into as a part of Borrower's normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to Borrower's operations, and (iv) shall not at any time, in the aggregate, cover more than eighty percent (80%) of estimated production of Hydrocarbons of Borrower from its Oil and Gas Properties for each individual period covered by Hedging Agreements. At any time that Borrower has Loans outstanding in an amount exceeding seventy-five percent (75%) of the Borrowing Base, the Lenders may require Borrower to maintain Hedging Agreements or other contractual agreements upon terms, including projected production volumes, and pursuant to documentation, in form and substance satisfactory to Administrative Agent and the Majority Lenders. For purposes of this Section 8.11, the notional volumes and corresponding swap volumes so determined shall be calculated and recorded separately for natural gas and crude oil, and natural gas volumes shall include associated natural gas liquids volumes. In no event shall any Hedging Agreement contain any current requirement, agreement or covenant for the Borrower or any Subsidiary to pledge collateral or post margin, to secure their obligations under such Hedging Agreements or to cover market exposures.

ARTICLE IX

NEGATIVE COVENANTS

Borrower covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of Loans hereunder, all interest thereon and all other amounts payable by Borrower hereunder, without the prior written consent of the Majority Lenders:

Section 9.01 Debt. Neither Borrower nor any Subsidiary will incur, create, assume or permit to exist any Debt, except:

(a) the Notes or other Obligations or any guaranty of or suretyship arrangement for the Notes or other Obligations.

(b) Debt of Borrower existing on the Closing Date which is disclosed in Schedule 9.01, and any renewals or extensions (but not increases) thereof.

(c) accounts payable (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business which, if greater than 90 days past the invoice or billing date, are being contested in good faith by appropriate proceedings if reserves adequate under GAAP shall have been established therefore.

(d) Debt under capital leases (as required to be reported on the financial statements of Borrower pursuant to GAAP) and purchase money Debt, in each case for the acquisition of equipment, which in each purchase money Debt case shall not exceed 100% of the lesser of the total purchase price and the fair market value of the Property acquired as determined at the time of acquisition; provided that all Debt incurred as described in this clause (d) shall not exceed $500,000 in the aggregate outstanding at any time].

(e) Debt associated with bonds or surety obligations required by Governmental Requirements in connection with the operation of the Oil and Gas Properties.

(f) Subject to the provisions of Section 8.11, Debt of Borrower and its Subsidiaries under Hedging Agreements with a Lender or as approved by the Majority Lenders entered into as a part of its normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to Borrower's operations.

Section 9.02 Liens. Neither Borrower nor any Subsidiary will create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except:

(a) Liens securing the payment of any Obligations.

(b) Excepted Liens.

(c) Liens securing capital leases or purchase money Debt allowed under Section 9.01(d), but only on the Property under lease or acquired with such Debt or the proceeds thereof.

(d) Liens disclosed on Schedule 9.02.

(e) Liens on cash or securities of Borrower securing the Debt described in Section 9.01(e).

Section 9.03 Investments, Loans and Advances. Neither Borrower nor any Subsidiary will make or permit to remain outstanding any loans or advances to or investments in any Person, except that the foregoing restriction shall not apply to:

(a) investments, loans or advances which are disclosed to the Lenders in Schedule 9.03;

(b) accounts receivable arising in the ordinary course of business.

(c) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year from the date of creation thereof.

(d) commercial paper maturing within one year from the date of creation thereof rated in the highest grade by Standard & Poor's Corporation or Moody's Investors Service, Inc.

(e) deposits maturing within one year from the date of\ creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $500,000,000 (as of the date of such Lender's or bank or trust company's most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by Standard & Poor's Corporation or Moody's Investors Service, Inc., respectively.

(f) deposits in money market funds investing exclusively in investments described in Section 9.03(c), 9.03(d) or 9.03(e).

(g) investments by Borrower in direct ownership interests in additional Oil and Gas Properties and gas gathering systems related thereto.

Section 9.04 Dividends, Distributions and Redemptions. Borrower will not declare or pay any dividend or distribution, return any capital to its members or make any distribution of its assets to its members; provided, however, Borrower may make (i) Permitted Tax Distributions and (ii) not more than one distribution to its members per fiscal quarter, commencing with the fiscal quarter ending September 30, 2007, which when aggregated with any prior distributions made during the immediately preceding three fiscal quarters, shall not exceed one hundred percent (100%) of Borrower's Consolidated Net Income (less any Permitted Tax Distributions) during the 4 fiscal quarters immediately preceding the fiscal quarter in which such distribution is made if, and to the extent that, (A) Administrative Agent has received the Compliance Certificate required by Section 8.01 for the fiscal quarter immediately preceding the quarter in which such distribution is made, (B) no Default exists or would result therefrom, including on a proforma basis under Section 9.11, (C) after giving effect to such distribution, there exist availability under the then effective Borrower Base of at least 20% of such Borrowing Base and a borrowing of at least 20% of the available Borrowing Base would not cause a Default, and (D) such distribution would not impair the ability of Borrower to meet its obligations under this Agreement. Prior to Borrower making any distribution as permitted under clause (ii) in the preceding sentence, Borrower shall provide to Administrative Agent a certificate of a Responsible Officer, in form and substance satisfactory to Administrative Agent, certifying that such distribution complies with the terms of this Section and that all conditions permitting such distribution are satisfied. Notwithstanding anything in this
Section to the contrary, prior to such time as four quarters have elapsed after the Closing Date, determination of Borrower's Consolidated Net Income shall not be annualized, but rather shall only include Borrower's Consolidated Net Income for actual quarters elapsed during such period.

Section 9.05 Sales and Leasebacks. Neither Borrower nor any Subsidiary will enter into any arrangement, directly or indirectly, with any Person whereby Borrower or any Subsidiary shall sell or transfer any of its Property, whether now owned or hereafter acquired, and whereby Borrower or any Subsidiary shall then or thereafter rent or lease as lessee such Property or any part thereof or other Property which Borrower or any Subsidiary intends to use for substantially the same purpose or purposes as the Property sold or transferred.

Section 9.06 Nature of Business. Neither Borrower nor any Subsidiary will allow any material change to be made in the character of its business as an independent oil and gas acquisition, exploration and production company.

Section 9.07 Mergers, Etc. Neither Borrower nor any Subsidiary will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property or assets to any other Person.

Section 9.08 Proceeds of Notes; Letters of Credit. Borrower will not permit the proceeds of the Notes or Letters of Credit to be used for any purpose other than those permitted by Section 7.07. Neither Borrower nor any Person acting on behalf of Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect.

Section 9.09 ERISA Compliance. Borrower will not at any time:

(a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage in, any transaction in connection with which Borrower, any Subsidiary or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code;

(b) Terminate, or permit any Subsidiary or ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to Borrower, any Subsidiary or any ERISA Affiliate to the PBGC;

(c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto;

(d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan;

(e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by Borrower, any Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA;

(f) Contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan;

(g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to Borrower, any Subsidiary or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or
(2) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities;

(h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;

(i) Contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; or

(j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that Borrower, any Subsidiary or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code.

Section 9.10 Sale or Discount of Receivables. Neither Borrower nor any Subsidiary will discount or sell (with or without recourse) any of its notes receivable or accounts receivable.

Section 9.11 Financial Covenants.

(a) Current Ratio Borrower will not permit the ratio of (i) consolidated current assets (including any amounts available under the facility of this Agreement) to (ii) consolidated current liabilities (excluding current maturities of the Notes) to be less than 1.0 to 1.0 at any time. As used in this Section, "consolidated current assets" shall mean shall mean shall mean assets which would, in accordance with GAAP, be included as current assets on a consolidated balance sheet of Borrower and its Consolidated Subsidiaries, but excluding non-cash assets under FAS 133, and "consolidated current liabilities" shall mean liabilities which would, in accordance with GAAP, be included as current liabilities on a consolidated balance sheet of Borrower and its Consolidated Subsidiaries, but excluding non-cash obligations under FAS 133.

(b) Leverage Ratio. Borrower will not permit its Leverage Ratio as of the end of any fiscal quarter of Borrower (calculated quarterly at the end of each fiscal quarter) to be greater than 3.50 to
1.00. For purposes of this Section 9.11(b), "Leverage Ratio" shall mean the ratio of (i) Debt as of the end of such four fiscal quarters of Borrower and its Consolidated Subsidiaries to (ii) EBITDAX for the four fiscal quarters ending on such date. For purposes of the calculations in this Section to be made prior to the fourth full fiscal quarter to elapse after the Closing Date, EBITDAX shall be determined by multiplying the sum of EBITDAX for each of the fiscal quarters actually elapsed from and including the first fiscal quarter of 2007 through and including the fourth fiscal quarter of 2007 by a fraction, the numerator of which is 4 and the denominator of which is the number of such actually elapsed fiscal quarters.

(c) Interest Coverage Ratio. Borrower will not permit its Interest Coverage Ratio as of the end of any fiscal quarter of Borrower (calculated quarterly at the end of each fiscal quarter) to be less than 2.50 to 1.00. For the purposes of this Section 9.11(c), "Interest Coverage Ratio" shall mean the ratio of (i) EBITDAX for the four fiscal quarters ending on such date to (ii) cash interest payments made for such four fiscal quarters of Borrower and its Consolidated Subsidiaries. For purposes of the calculations in this Section to be made prior to the fourth full fiscal quarter to elapse after the Closing Date, EBITDAX and the amount of cash interest payments shall be determined by multiplying the sum of each such component for each of the fiscal quarters actually elapsed from and including the first fiscal quarter of 2007 through and including the fourth fiscal quarter of 2007 by a fraction, the numerator of which is 4 and the denominator of which is the number of such actually elapsed fiscal quarters.

(d) Capital Expenditures. Borrower will not, and will not permit any Subsidiary to, make any expenditures for fixed or capital assets if, after giving effect thereto, the aggregate of all such expenditures by Borrower and its Subsidiaries would exceed $2,500,000 during any fiscal year of Borrower.

(e) COPAS Charges. Borrower will not, and will not permit any Subsidiary to, incur COPAS charges under any agreement with any operator of Oil and Gas Properties, including Aspen, in an amount exceeding $250 per well per month.

Section 9.12 Sale of Properties. Borrower will not, and will not permit any Subsidiary to Transfer any Properties or any interest in any Properties, for which value was given in the most recent Borrowing Base redetermination which in the aggregate have a fair market value in excess of $500,000.

Section 9.13 Environmental Matters. Neither Borrower nor any Subsidiary will cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any remedial obligations under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations would have a Material Adverse Effect.

Section 9.14 Transactions with Affiliates. Neither Borrower nor any Subsidiary will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate, except (i) capital contributions from Parent in the form of common equity and (ii) pursuant to the Jay Management Agreement and the Jay Management JOA, provided that such transactions are in the ordinary course of its business and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not an Affiliate.

Section 9.15 Subsidiaries. Borrower shall not, and shall not permit any Subsidiary to, create any additional Subsidiaries. Borrower shall not and shall not permit any Subsidiary to sell or to issue any stock or ownership interest of a Subsidiary, except to Borrower or any Subsidiary that is a Guarantor and except in compliance with Section 9.03. If the necessary consent to create or acquire a Subsidiary is obtained, such Subsidiary shall immediately upon its being created or acquired enter into a Guaranty Agreement.

Section 9.16 Negative Pledge Agreements. Neither Borrower nor any Subsidiary will create, incur, assume or permit to exist any contract, agreement or understanding (other than the Loan Documents) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property or restricts any Subsidiary from paying dividends to Borrower, or which requires the consent of or notice to other Persons in connection therewith.

Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments. Borrower will not allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of Borrower or any Subsidiary which would require Borrower or any Subsidiary to deliver in the aggregate two percent (2.0%) or more of their Hydrocarbons produced on a monthly basis from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor.

Section 9.18 Material Operational Agreements. Borrower shall not enter into any amendment, supplement, restatement or other modification of the Operational Agreement, the Sigma Consulting Agreement, the Jay Management Agreement or the Jay Management JOA without the prior written consent of the Lenders.

ARTICLE X

EVENTS OF DEFAULT; REMEDIES

Section 10.01 Events of Default. One or more of the following events shall constitute an "Event of Default":

(a) Borrower shall default in the payment or prepayment when due of any principal of or interest on any Loan, or any reimbursement obligation for a disbursement made under any Letter of Credit, or any fees or other amount payable by it hereunder or under any Loan Document; or

(b) Borrower or any Subsidiary shall default in the payment when due of any principal of or interest on any of its other Debt, or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Debt shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, such Debt to become due prior to its stated maturity; or

(c) any representation, warranty or certification made or deemed made herein or in any other Loan Document by Borrower or any Subsidiary, or any certificate furnished to any Lender or Administrative Agent pursuant to the provisions hereof or any other Loan Document, shall prove to have been false or misleading as of the time made or furnished in any material respect; or

(d) Borrower shall default in the performance of any of its obligations under Article IX, Sections 8.01(a) or (d) or any other Article of this Agreement other than under Article VIII (excluding Sections 8.01(a) and (d)); or Borrower shall default in the performance of any of its obligations under Article VIII (excluding Sections 8.01(a) and (d)) or any other Loan Document (other than the payment of amounts due which shall be governed by Section 10.01(a)) and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) notice thereof to Borrower by Administrative Agent or any Lender (through Administrative Agent), or (ii) Borrower otherwise becoming aware of such default; or

(e) any Guarantor shall default in the performance of any of its obligations under its Guaranty Agreement (other than the payment of amounts due, which shall have no grace period) and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) notice thereof to Borrower and such Guarantor by Administrative Agent or any Lender (through Administrative Agent), or
(ii) Borrower or any Guarantor otherwise becoming aware of such default; or

(f) Borrower shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or

(g) Borrower shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed

against it in an involuntary case under the Federal Bankruptcy Code, or
(vi) take any corporate action for the purpose of effecting any of the foregoing; or

(h) a proceeding or case shall be commenced, without the application or consent of Borrower, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of Borrower of all or any substantial part of its assets, or (iii) similar relief in respect of Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 days; or (iv) an order for relief against Borrower shall be entered in an involuntary case under the Federal Bankruptcy Code; or

(i) a judgment or judgments for the payment of money in excess of $100,000 in the aggregate shall be rendered by a court against Borrower or any Subsidiary and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured by posting a bond or otherwise, within thirty (30) days from the date of entry thereof and Borrower or such Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or

(j) the Loan Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms, or cease to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or Borrower or any Guarantor shall so state in writing; or

(k) an event having a Material Adverse Effect shall occur; or

(l) Borrower discontinues its usual business or a Change of Control occurs; or

(m) any Guarantor takes, suffers or permits to exist any of the events or conditions referred to in paragraphs (f), (g), (h) or (i) or if any provision of any Guaranty Agreement related thereto shall for any reason cease to be valid and binding on such Guarantor or if such Guarantor shall so state in writing; or

(n) Borrower defaults under the Aspen Operations Agreement, the Sigma Consulting Agreement, the Jay Management Agreement or the Jay Management JOA.

Section 10.02 Remedies.

(a) In the case of an Event of Default other than one referred to in clauses (f), (g) or (h) of Section 10.01 or in clause (m) to the extent it relates to clauses (f), (g) or (h), Administrative Agent, upon request of the Majority Lenders, shall, by notice to Borrower, cancel the Commitments (in whole or part) and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.10(b)) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest, notice of

intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by Borrower.

(b) In the case of the occurrence of an Event of Default referred to in clauses (f), (g) or (h) of Section 10.01 or in clause (m) to the extent it relates to clauses (f), (g) or (h), the Commitments shall be automatically canceled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.10(b)) shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by Borrower.

(c) All proceeds received after maturity of the Notes, whether by acceleration or otherwise shall be applied first to reimbursement of expenses and indemnities provided for in this Agreement and the other Loan Documents; second to fees; third pro rata to accrued interest on the Notes; fourth pro rata to principal outstanding on the Notes and any other Obligations; fifth to serve as cash collateral to be held by Administrative Agent to secure the LC Exposure; and any excess shall be paid to Borrower or as otherwise required by any Governmental Requirement.

ARTICLE XI

ADMINISTRATIVE AGENT

Section 11.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes Administrative Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Administrative Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 shall include reference to its Affiliates and its and its Affiliates' officers, directors, employees, attorneys, accountants, experts and agents): (i) shall have no duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of the Loan Documents be a trustee or fiduciary for any Lender; (ii) makes no representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by Borrower or any other Person (other than Administrative Agent) to perform any of its obligations hereunder or thereunder or for the existence, value, perfection or priority of any collateral security or the financial or other condition of Borrower, its Subsidiaries or any other obligor or guarantor; (iii) except pursuant to Section 11.07 shall not be required to initiate or conduct any litigation or collection proceedings hereunder; and (iv) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith including its own ordinary negligence, except for its own gross negligence or willful misconduct. Administrative Agent may employ agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such agents, accountants, attorneys or experts selected by it in good faith or any action taken or omitted to be taken in good faith by it in accordance with the advice of such agents, accountants, attorneys or experts. Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with Administrative Agent. Administrative Agent is authorized to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents.

Section 11.02 Reliance by Administrative Agent. Administrative Agent shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telecopier, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Administrative Agent.

Section 11.03 Defaults. Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or of fees or failure to reimburse for Letter of Credit drawings) unless Administrative Agent has received notice from a Lender or Borrower specifying such Default and stating that such notice is a "Notice of Default." In the event that Administrative Agent receives such a notice of the occurrence of a Default, Administrative Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default, Administrative Agent shall give each Lender prompt notice of each such payment Default.

Section 11.04 Rights as a Lender. With respect to its Commitments and the Loans made by it and its participation in the issuance of Letters of Credit, WFB (and any successor acting as Administrative 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 Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Administrative Agent in its individual capacity. WFB (and any successor acting as Administrative Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrower (and any of its Affiliates) as if it were not acting as Administrative Agent, and WFB and its Affiliates may accept fees and other consideration from Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders.

Section 11.05 Indemnification. The Lenders agree to indemnify Administrative Agent and the Issuing Bank ratably in accordance with their Percentage Shares for the Indemnity Matters as described in section 12.03 to the extent not indemnified or reimbursed by Borrower under section 12.03, but without limiting the obligations of Borrower under said section 12.03 and for any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Administrative Agent or the Issuing Bank in any way relating to or arising out of: (i) this Agreement, the other Loan Documents or any other documents contemplated by or referred to herein or the transactions contemplated hereby, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder or (ii) the enforcement of any of the terms of this Agreement, any Loan Document or of any such other documents; whether or not any of the foregoing specified in this section 11.05 arises from the sole or concurrent negligence of Administrative Agent or the Issuing Bank, 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 Administrative Agent.

Section 11.06 Non-Reliance on Administrative Agent and other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and its decision to enter into this Agreement, and that it will, independently and without reliance upon Administrative 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 this Agreement. Administrative Agent shall not be required to keep itself informed as to the performance or observance by Borrower of this Agreement, the Notes, any other Loan Document or any other document referred to or provided for herein or to inspect the properties or books of Borrower. Except for notices, reports and other documents and information expressly required

to be furnished to the Lenders by Administrative Agent hereunder, Administrative 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 Borrower (or any of its Affiliates) which may come into the possession of Administrative Agent or any of its Affiliates. In this regard, each Lender acknowledges that Burleson Cooke L.L.P. is acting in this transaction as special counsel to Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein.

Section 11.07 Action by Administrative Agent. Except for action or other matters expressly required of Administrative Agent hereunder, Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (i) receive written instructions from the Majority Lenders (or all of the Lenders as expressly required by Section 12.04) specifying the action to be taken, and (ii) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions of the Majority Lenders (or all of the Lenders as expressly required by Section 12.04) and any action taken or failure to act pursuant thereto by Administrative Agent shall be binding on all of the Lenders. If a Default has occurred and is continuing, Administrative Agent shall take such action with respect to such Default as shall be directed by the Majority Lenders (or all of the Lenders as required by Section 12.04) in the written instructions (with indemnities) described in this Section 11.07, provided that, unless and until Administrative Agent shall have received such directions, Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall Administrative Agent be required to take any action which exposes Administrative Agent to personal liability or which is contrary to this Agreement and the other Loan Documents or applicable law. In connection with taking any action pursuant to this Section or otherwise under this Agreement, Administrative Agent may engage legal counsel and/or other qualified consultants to act at the instructions of and on behalf of Administrative Agent, and such legal counsel and/or consultants shall be afforded all of the indemnities and other protections afforded to Administrative Agent pursuant to Article XI.

Section 11.08 Resignation of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, Administrative Agent may resign at any time by giving notice thereof to the Lenders and Borrower. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty (30) days after the resigning Administrative Agent's giving of notice of resignation, then the resigning Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Upon the acceptance of such appointment hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Administrative Agent, and the resigning Administrative Agent shall be discharged from its duties and obligations hereunder. After any resigning Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article XI and Section 12.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

ARTICLE XII

MISCELLANEOUS

Section 12.01 Waiver. No failure on the part of Administrative Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise

of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

Section 12.02 Notices. All notices and other communications provided for herein and in the other Loan Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement or the other Loan Documents) shall be given or made in writing by telecopy, e-mail, courier or U.S. Mail and telecopied, e-mailed, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or in the Loan Documents or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement or in the other Loan Documents, all such communications shall be deemed to have been duly given (i) when transmitted before 3:00 p.m. Houston, Texas time on a Business Day (otherwise on the next succeeding Business Day) by telecopier or e-mail and evidence or confirmation of receipt is obtained, (ii) when delivered if personally delivered or (iii) in the case of a mailed notice, three (3) Business Days after the date deposited in the mails, postage prepaid, and in each case given or addressed as aforesaid.

Section 12.03 Payment of Expenses, Indemnities, Etc.

(a) Borrower agrees:

(i) whether or not the transactions hereby contemplated are consummated, to pay all reasonable expenses of Administrative Agent in the administration (both before and after the execution hereof and including advice of counsel as to the rights and duties of Administrative Agent and the Lenders with respect thereto) of, and in connection with the negotiation, syndication, investigation, preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto (including, without limitation, travel, photocopy, mailing, courier, telephone and other similar expenses of Administrative Agent, the cost of environmental audits, surveys and appraisals at reasonable intervals, the reasonable fees and disbursements of counsel and other outside consultants for Administrative Agent and, in the case of enforcement, the reasonable fees and disbursements of counsel for Administrative Agent and any of the Lenders); and promptly reimburse Administrative Agent for all amounts reasonably expended, advanced or incurred by Administrative Agent or the Lenders to satisfy any obligation of Borrower under this Agreement or any other Loan Document, including without limitation, all costs and expenses of foreclosure;

(II) TO INDEMNIFY ADMINISTRATIVE AGENT AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY BORROWER OF THE PROCEEDS OF ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF BORROWER AND ITS SUBSIDIARIES, (IV) THE FAILURE OF BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF BORROWER [OR ANY GUARANTOR] SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY

LETTER OF CREDIT, OR (VII) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR (IX) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND ADMINISTRATIVE AGENT OR A LENDER'S SHAREHOLDERS AGAINST ADMINISTRATIVE AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND

(III) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO BORROWER OR ANY SUBSIDIARY,
(III) DUE TO PAST OWNERSHIP BY BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS; PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION
12.03(A)(III) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).

(b) No Indemnified Party may settle any claim to be indemnified without the consent of the indemnitor, such consent not to be unreasonably withheld; provided, that the indemnitor may not reasonably withhold consent to any settlement that an Indemnified Party proposes, if the indemnitor does not have the financial ability to pay all its obligations outstanding and asserted against the indemnitor at that time, including the maximum potential claims against the Indemnified Party to be indemnified pursuant to this Section 12.03.

(c) In the case of any indemnification hereunder, Administrative Agent or Lender, as appropriate shall give notice to Borrower of any such claim or demand being made against the Indemnified Party and Borrower shall have the non-exclusive right to join in the defense against any such claim or demand provided that if Borrower provides a defense, the Indemnified Party shall bear its own cost of defense unless there is a conflict between Borrower and such Indemnified Party.

(d) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY.

(e) Borrower's obligations under this Section 12.03 shall survive any termination of this Agreement and the payment of the Notes and shall continue thereafter in full force and effect.

(f) Borrower shall pay any amounts due under this Section 12.03 within thirty (30) days of the receipt by Borrower of notice of the amount due.

Section 12.04 Amendments, Etc. Any provision of this Agreement or any other Loan Document may be amended, modified or waived with Borrower's and the Majority Lenders' prior written consent; provided that (i) no amendment, modification or waiver which extends the final maturity of the Loans, increases the Aggregate Maximum Revolving Credit Amounts, increases the Borrowing Base or reduces the Monthly Reduction Amount, forgives the principal amount of any Obligations outstanding under this Agreement, releases any guarantor of any Obligations or releases all or substantially all of the collateral, reduces the interest rate applicable to the Loans or the fees payable to the Lenders generally, affects Section 2.03(a), this Section 12.04 or Section 12.06(a) or modifies the definition of "Majority Lenders" shall be effective without consent of all Lenders; (ii) no amendment, modification or waiver which increases the Maximum Revolving Credit Amount of any Lender shall be effective without the consent of such Lender; and (iii) no amendment, modification or waiver which modifies the rights, duties or obligations of Administrative Agent shall be effective without the consent of Administrative Agent.

Section 12.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

Section 12.06 Assignments and Participations.

(a) Borrower may not assign its rights or obligations hereunder or under the Notes or any Letters of Credit without the prior consent of all of the Lenders and Administrative Agent.

(b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement pursuant to an Assignment Agreement substantially in the form of Exhibit E (an "Assignment"); provided, however, that (i) except in the case of an assignment to a Lender or a Lender Affiliate, such assignment shall require the written consent of Administrative Agent and, if no Event of Default has occurred and is continuing, Borrower (which consent will not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or a Lender Affiliate, any such assignment shall be in the amount of at least $5,000,000 or such lesser amount to which Borrower and Administrative Agent have consented and if the assigning Lender has assigned less than all of its Percentage Share of the Loans, such assigning Lender shall retain a Percentage Share of the Loans equating to at least $5,000,000 or such lesser amount to which Borrower and Administrative Agent have consented and (iii) the assignee or assignor shall pay to Administrative Agent a processing and recordation fee of $5,000 for each

assignment. Any such assignment will become effective upon the execution and delivery to Administrative Agent of the Assignment, payment of the recordation fee and, if required, the consent of Administrative Agent and Borrower. Promptly after receipt of an executed Assignment, Administrative Agent shall send to Borrower a copy of such executed Assignment. Upon receipt of such executed Assignment, Borrower, will, at its own expense, execute and deliver new Notes to the assignor and/or assignee, as appropriate, in accordance with their respective interests as they appear. Upon the effectiveness of any assignment pursuant to this Section 12.06(b), the assignee will become a "Lender," if not already a "Lender," for all purposes of this Agreement and the other Loan Documents. The assignor shall be relieved of its obligations hereunder to the extent of such assignment (and if the assigning Lender no longer holds any rights or obligations under this Agreement, such assigning Lender shall cease to be a "Lender" hereunder except that its rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). Administrative Agent will prepare on the last Business Day of each month during which an assignment has become effective pursuant to this Section 12.06(b), a new Annex I giving effect to all such assignments effected during such month, and will promptly provide the same to Borrower and each of the Lenders. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.06(b) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.06(c).

(c) Each Lender may, without the consent of Borrower, Administrative Agent or the Issuing Bank, transfer, grant or assign participations in all or any part of such Lender's interests hereunder pursuant to this Section 12.06(c) to any Person, provided that: (i) such Lender shall remain a "Lender" for all purposes of this Agreement and the transferee of such participation shall not constitute a "Lender" hereunder, (ii) 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 and
(iv) Borrower, Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the participant, agree to any amendment, modification or waiver that would (x) forgive any principal owing on any Obligations or extend the final maturity of the Loans, (y) reduce the interest rate (other than as a result of waiving the applicability of any Post Default increases in interest rates) or fees applicable to any of the Commitments, Loans or Letters of Credit in which such participant is participating, or postpone the payment of any thereof, or (z) release any guarantor of the Obligations or release all or substantially all of the collateral (except as provided in the Loan Documents) supporting any of the Commitments, Loans or Letters of Credit in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Lender in respect of such participation to be those set forth in the agreement with such Lender creating such participation), and all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Article V on the same basis as if it were a Lender and be indemnified under Section 12.03 as if it were a Lender. In addition, each agreement creating any participation must include an agreement by the participant to be bound by the provisions of
Section 12.14.

(d) The Lenders may furnish any information concerning Borrower in the possession of the Lenders from time to time to assignees and participants (including prospective assignees

and participants); provided that, such Persons agree to be bound by the provisions of Section 12.14.

(e) Notwithstanding anything in this Section 12.06 to the contrary, any Lender may assign and pledge its Note to any Federal Reserve Bank No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder.

(f) Notwithstanding any other provisions of this Section 12.06, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require Borrower to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any state.

Section 12.07 Invalidity. In the event that any one or more of the provisions contained in any of the Loan Documents, the Letters of Credit or the Letter of Credit Agreements shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Notes, this Agreement or any other Loan Document.

Section 12.08 Counterparts; Electronic Delivery of Signature Page. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of a manually executed signature page of this Agreement by facsimile, e-mail or other electronic means shall be effective as delivery of an original executed signature page of this Agreement and shall be binding on the parties hereto.

Section 12.09 Survival. The obligations of the parties under Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans and the termination of the Commitments. To the extent that any payments on the Obligations or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received and Administrative Agent's and the Lenders' Liens, security interests, rights, powers and remedies under this Agreement and each of the other Loan Documents shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and Borrower shall take such action as may be reasonably requested by Administrative Agent and the Lenders to effect such reinstatement.

Section 12.10 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

SECTION 12.11 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE 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.

Section 12.12 GOVERNING LAW; SUBMISSION TO JURISDICTION.

(A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. CH. 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.

(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER BORROWER IN ANY COURT OTHERWISE HAVING JURISDICTION.

(C) BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT, ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER OR ITS PROPERTIES IN ANY OTHER JURISDICTION.

(D) BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
(I) IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE, 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 (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.12.

Section 12.13 Interest. It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes

interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Lender to Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Lender to Borrower). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.13 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.13. To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the Highest Lawful Rate, such Lender elects to determine the applicable rate ceiling under such Chapter by the indicated weekly rate ceiling from time to time in effect.

Section 12.14 Confidentiality. In the event that Borrower provides to Administrative Agent or the Lenders written confidential information belonging to Borrower, if Borrower shall denominate such information in writing as "confidential", Administrative Agent and the Lenders shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain, (ii) hereafter become part of the public domain without Administrative Agent or the Lenders breaching their obligation of confidence to Borrower, (iii) are previously known by Administrative Agent or the Lenders from some source other than Borrower, (iv) are hereafter developed by Administrative Agent or the Lenders without using Borrower's information, (v) are hereafter obtained by or available to Administrative Agent or the Lenders from a third party who owes no obligation of confidence to Borrower with respect to such information or through any other means other than through disclosure by Borrower, (vi) are disclosed with Borrower's consent, (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of Administrative Agent or the Lenders, or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration or governmental proceeding. Further, Administrative Agent or a Lender may disclose any such information to any other Lender, any independent petroleum engineers or consultants, any independent certified public accountants, any legal counsel employed by such Person in connection with this Agreement or any other Loan Document, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loans; provided, however, that Administrative Agent or the Lenders shall receive a confidentiality agreement

from the Person to whom such information is disclosed such that said Person shall have the same obligation to maintain the confidentiality of such information as is imposed upon Administrative Agent or the Lenders hereunder. Notwithstanding anything to the contrary provided herein, this obligation of confidence shall cease three (3) years from the date the information was furnished, unless Borrower requests in writing at least thirty (30) days prior to the expiration of such three year period, to maintain the confidentiality of such information for an additional three year period. Borrower waives any and all other rights it may have to confidentiality as against Administrative Agent and the Lenders arising by contract, agreement, statute or law except as expressly stated in this Section 12.14.

Section 12.15 USA Patriot Act. Each Lender hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Lender to identify Borrower in accordance with the Act.

Section 12.16 Exculpation Provisions. Each of the parties hereto specifically agrees that it has a duty to read this Agreement and the other Loan Documents and agrees that it is charged with notice and knowledge of the terms of this Agreement and the other Loan Documents; that it has in fact read this Agreement and is fully informed and has full notice and knowledge of the terms, conditions and effects of this Agreement; that it has been represented by independent legal counsel of its choice throughout the negotiations preceding its execution of this Agreement and the other Loan Documents; and has received the advice of its attorney in entering into this Agreement and the other Loan Documents; and that it recognizes that certain of the terms of this Agreement and the other Loan Documents result in one party assuming the liability inherent in some aspects of the transaction and relieving the other party of its responsibility for such liability. Each party hereto agrees and covenants that it will not contest the validity or enforceability of any exculpatory provision of this Agreement and the other Loan Documents on the basis that the party had no notice or knowledge of such provision or that the provision is not "conspicuous."

Section 12.17 Arbitration.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in Texas selected by the American Arbitration Association ("AAA"); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and
(iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA's commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA's optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the "Rules"). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other

party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral;
(ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in Sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided, however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Texas with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Texas and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Texas Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than twenty (20) days before the hearing date and within one hundred and eighty (180) days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment of Arbitration Costs and Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within one hundred and eighty (180) days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

[SIGNATURES BEGIN ON NEXT PAGE]

The parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

BORROWER:                               ISRAMCO ENERGY, L.L.C.


                                        By: /s/ Yossi Levy
                                        Name: Yossi Levy
                                        Title: President

                                        Address for Notices:
                                        11767 Katy Freeway, Suite 711
                                        Houston, Texas 77079
                                        Telephone No.: (713) 621-5946
                                        Telecopier No.:(713) 621-3988
                                        e-mail: jayoil@swbell.net
                                        Attention: Yossi Levy

                                        With copy to:

                                        Schaeffer Hutchinson P.C.
                                        2204 Louisiana, Suite 220
                                        Houston, Texas 77002-8657
                                        Telephone No.: (713) 524-7300
                                        Telecopier No.:(713) 528-5677
                                        e-mail: jhutchinson@schalaw.com
                                        Attention: James H. Hutchinson, III

Signature Page 1 to Credit Agreement

LENDER AND AGENT:                       WELLS FARGO BANK, N.A., individually
                                        and as Administrative Agent

                                        By: /s/ Scott Hodges
                                        Name: Scott Hodges
                                        Title: Vice President

                                        Lending Office for Loans:

                                        1000 Louisiana
                                        Houston, Texas 77002

                                        Address for Notices:

                                        1000 Louisiana, 9th Floor
                                        Houston, Texas 77002
                                        Telephone No.: (713) 319-1367
                                        Telecopier No.: (713) 739-1087
                                        e-mail: scott.hodges@wellsfargo.com
                                        Attention: Scott Hodges

                                        With copy to:

                                        Burleson Cooke L.L.P.
                                        711 Louisiana Street, Suite 1701
                                        Houston, Texas 77002
                                        Telephone No.: (713) 358-1725
                                        Telecopier No.:(713) 358-1717
                                        e-mail: rmourglia@burlesoncooke.com
                                        Attention: Richard H. Mourglia

                                            MAXIMUM REVOLVING
NAME OF LENDER           PERCENTAGE SHARE     CREDIT AMOUNT
----------------------   ----------------   -----------------
Wells Fargo Bank, N.A.        100%             $150,000,000
   TOTAL                      100%             $150,000,000

Schedule 9.03 - 1

EXHIBIT 10.7

GUARANTY AGREEMENT

BY

ISRAMCO, INC.

IN FAVOR OF

WELLS FARGO BANK, N.A.,
AS ADMINISTRATIVE AGENT

MARCH 2, 2007

                                                                            PAGE
                                    ARTICLE I

                                  General Terms

Section 1.1   Terms Defined Above.............................................1
Section 1.2   Certain Definitions.............................................1
Section 1.3   Credit Agreement Definitions....................................1

                                   ARTICLE II

                                  The Guaranty

Section 2.1   Obligations Guaranteed..........................................2
Section 2.2   Nature of Guaranty..............................................2
Section 2.3   Administrative Agent's Rights...................................2
Section 2.4   Guarantor's Waivers.............................................2
Section 2.5   Maturity of Obligations; Payment................................3
Section 2.6   Administrative Agent's Expenses.................................3
Section 2.7   Liability.......................................................3
Section 2.8   Events and Circumstances Not Reducing or Discharging
              Guarantor's Obligations.........................................3

                                   ARTICLE III

                         Representations and Warranties

Section 3.1   By Guarantor....................................................5
Section 3.2   No Representation by Lenders....................................6

                                   ARTICLE IV

                          Subordination of Indebtedness

Section 4.1   Subordination of All Guarantor Claims...........................7
Section 4.2   Claims in Bankruptcy............................................7


                                      -i-

Section 4.3   Payments Held in Trust..........................................7
Section 4.4   Liens Subordinate...............................................7
Section 4.5   Notation of Records.............................................8

                                    ARTICLE V

                                  Miscellaneous

Section 5.1   Successors and Assigns..........................................8
Section 5.2   Notices.........................................................8
Section 5.3   Business and Financial Information..............................8
SECTION 5.4   GOVERNING LAW; CONSTRUCTION.....................................8
Section 5.5   Amendments......................................................9
Section 5.6   Invalidity......................................................9
Section 5.7   Electronic Delivery of Signature Pages..........................9
SECTION 5.8   ENTIRE AGREEMENT................................................9

THIS GUARANTY AGREEMENT is made as of March 2, 2007 by ISRAMCO, Inc., a Delaware corporation ("Guarantor"), in favor of Wells Fargo Bank, N.A., as administrative agent (the "ADMINISTRATIVE AGENT") for the lenders (the "LENDERS") that are or become parties to the Credit Agreement defined below.

R E C I T A L S:

A. Isramco Energy, LLC, a Texas limited liability company, (hereinafter called "BORROWER"), the Administrative Agent and the Lenders have entered into that certain Credit Agreement dated as of even date herewith (as the same may be amended from time to time, the "CREDIT AGREEMENT").

B. One of the terms and conditions stated in the Credit Agreement for the making of the loans described therein is the execution and delivery to the Administrative Agent for the benefit of the Lenders of this Guaranty Agreement.

NOW, THEREFORE, (i) in order to comply with the terms and conditions of the Credit Agreement, (ii) to induce the Lenders, at any time or from time to time, to loan monies, with or without security to or for the account of Borrower in accordance with the terms of the Credit Agreement, (iii) at the special insistence and request of the Lenders, and (iv) for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Guarantor hereby agrees as follows:

ARTICLE I

GENERAL TERMS

Section 1.1 TERMS DEFINED ABOVE. As used in this Guaranty Agreement, the terms defined in the opening paragraph and the Recitals above shall have the meanings indicated therein.

Section 1.2 CERTAIN DEFINITIONS. As used in this Guaranty Agreement, the following terms shall have the following meanings, unless the context otherwise requires:

"GUARANTOR CLAIMS" shall have the meaning indicated in Section 4.1 hereof.

"GUARANTY AGREEMENT" shall mean this Guaranty Agreement, as the same may from time to time be amended, supplemented, restated or otherwise modified.

"OBLIGATIONS" shall have the meaning assigned to such term in the Credit Agreement.

Section 1.3 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined herein, all terms beginning with a capital letter which are defined in the Credit Agreement shall have the same meanings herein as therein.

ARTICLE II

THE GUARANTY

Section 2.1 OBLIGATIONS GUARANTEED. Guarantor hereby irrevocably and unconditionally guarantees the prompt payment of the Obligations when due, whether at maturity or otherwise.

Section 2.2 NATURE OF GUARANTY. This Guaranty Agreement is an absolute, irrevocable, completed and continuing guaranty of payment and not a guaranty of collection, and no notice of the Obligations or any extension of credit already or hereafter contracted by or extended to Borrower need be given to Guarantor. This Guaranty Agreement may not be revoked by Guarantor and shall continue to be effective with respect to debt under the Obligations arising or created after any attempted revocation by Guarantor and shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto no Obligations may be outstanding. Borrower and the Lenders may modify, alter, rearrange, extend for any period and/or renew from time to time, the Obligations, and the Lenders may waive any Default or Events of Default without notice to Guarantor and in such event Guarantor will remain fully bound hereunder on the Obligations. This Guaranty Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of the Obligations is rescinded or must otherwise be returned by any of the Lenders upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made. This Guaranty Agreement may be enforced by the Administrative Agent and any subsequent holder of any of the Obligations and shall not be discharged by the assignment or negotiation of all or part of the Obligations. Guarantor hereby expressly waives presentment, demand, notice of nonpayment, protest and notice of protest and dishonor, notice of Default or Event of Default, notice of intent to accelerate the maturity and notice of acceleration of the maturity and any other notice in connection with the Obligations, and also notice of acceptance of this Guaranty Agreement, acceptance on the part of the Lenders being conclusively presumed by the Lenders' request for this Guaranty Agreement and delivery of the same to the Administrative Agent.

Section 2.3 ADMINISTRATIVE AGENT'S RIGHTS. Guarantor authorizes the Administrative Agent, without notice or demand and without affecting its liability hereunder, to take and hold security for the payment of this Guaranty Agreement and/or the Obligations, and exchange, enforce, waive and release any such security; and to apply such security and direct the order or manner of sale thereof as the Administrative Agent in its discretion may determine; and to obtain a guaranty of the Obligations from any one or more Persons and at any time or times to enforce, waive, rearrange, modify, limit or release any of such other Persons from their obligations under such guaranties.

Section 2.4 GUARANTOR'S WAIVERS.

(a) GENERAL. Guarantor waives any right to require any of the Lenders to (i) proceed against Borrower or any other person liable on the Obligations, (ii) enforce any of their rights against any other guarantor of the Obligations (iii) proceed or enforce any of their rights against or exhaust any security given to secure the Obligations
(iv) have Borrower joined with Guarantor in any suit arising out of this Guaranty

Agreement and/or the Obligations, or (v) pursue any other remedy in the Lenders' powers whatsoever. The Lenders shall not be required to mitigate damages or take any action to reduce, collect or enforce the Obligations. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of Borrower or any other guarantor of the Obligations, and shall remain liable hereon regardless of whether Borrower or any other guarantor be found not liable thereon for any reason. Whether and when to exercise any of the remedies of the Lenders under any of the Loan Documents shall be in the sole and absolute discretion of the Administrative Agent, and no delay by the Administrative Agent in enforcing any remedy, including delay in conducting a foreclosure sale, shall be a defense to Guarantor's liability under this Guaranty Agreement. To the extent allowed by applicable law, Guarantor hereby waives any good faith duty on the part of the Administrative Agent in exercising any remedies provided in the Loan Documents.

(b) SUBROGATION. Until the Obligations have been paid in full and the Commitments are terminated, Guarantor waives all rights of subrogation or reimbursement against the Borrower, whether arising by contract or operation of law (including, without limitation, any such right arising under any federal or state bankruptcy or insolvency laws) and waives any right to enforce any remedy which the Lenders now have or may hereafter have against the Borrower, and waives any benefit or any right to participate in any security now or hereafter held by the Administrative Agent or any Lender.

Section 2.5 MATURITY OF OBLIGATIONS; PAYMENT. Guarantor agrees that if the maturity of any of the Obligations is accelerated by bankruptcy or otherwise, such maturity shall also be deemed accelerated for the purpose of this Guaranty Agreement without demand or notice to Guarantor. Guarantor will, forthwith upon notice from the Administrative Agent, pay to the Administrative Agent the amount due and unpaid by Borrower and guaranteed hereby. The failure of the Administrative Agent to give this notice shall not in any way release Guarantor hereunder.

Section 2.6 ADMINISTRATIVE AGENT'S EXPENSES. If Guarantor fails to pay the Obligations after notice from the Administrative Agent of Borrower's failure to pay any Obligations at maturity, and if the Administrative Agent obtains the services of an attorney for collection of amounts owing by Guarantor hereunder, or obtaining advice of counsel in respect of any of their rights under this Guaranty Agreement, or if suit is filed to enforce this Guaranty Agreement, or if proceedings are had in any bankruptcy, probate, receivership or other judicial proceedings for the establishment or collection of any amount owing by Guarantor hereunder, or if any amount owing by Guarantor hereunder is collected through such proceedings, Guarantor agrees to pay to the Administrative Agent the Administrative Agent's reasonable attorneys' fees.

Section 2.7 LIABILITY. It is expressly agreed that the liability of Guarantor for the payment of the Obligations guaranteed hereby shall be primary and not secondary.

Section 2.8 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S OBLIGATIONS. Guarantor hereby consents and agrees to each of the following to the fullest extent permitted by law, and agrees that its obligations under this Guaranty Agreement shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and

waives any rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following:

(a) MODIFICATIONS, ETC. Any renewal, extension, modification, increase, decrease, alteration or rearrangement of all or any part of the Obligations, or of the Notes, or the Credit Agreement or any instrument executed in connection therewith, or any contract or understanding between Borrower and any of the Lenders, or any other Person, pertaining to the Obligations;

(b) ADJUSTMENT, ETC. Any adjustment, indulgence, forbearance or compromise that might be granted or given by any of the Lenders to Borrower or Guarantor or any Person liable on the Obligations;

(c) CONDITION OF BORROWER OR GUARANTOR. The insolvency, bankruptcy arrangement, adjustment, composition, liquidation, disability, dissolution, death or lack of power of Borrower or Guarantor or any other Person at any time liable for the payment of all or part of the Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners, or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor;

(d) INVALIDITY OF OBLIGATIONS. The invalidity, illegality or unenforceability of all or any part of the Obligations, or any document or agreement executed in connection with the Obligations, for any reason whatsoever, including without limitation the fact that the Obligations, or any part thereof, exceed the amount permitted by law, the act of creating the Obligations or any part thereof is ULTRA VIRES, the officers or representatives executing the documents or otherwise creating the Obligations acted in excess of their authority, the Obligations violate applicable usury laws, the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Obligations wholly or partially uncollectible from Borrower, the creation, performance or repayment of the Obligations (or the execution, delivery and performance of any document or instrument representing part of the Obligations or executed in connection with the Obligations, or given to secure the repayment of the Obligations) is illegal, uncollectible, legally impossible or unenforceable, or the Credit Agreement or other documents or instruments pertaining to the Obligations have been forged or otherwise are irregular or not genuine or authentic;

(e) RELEASE OF OBLIGORS. Any full or partial release of the liability of Borrower on the Obligations or any part thereof, of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Obligations or any part thereof, it being recognized, acknowledged and agreed by Guarantor that it may be required to pay the Obligations in full without assistance or support of any other Person, and Guarantor has not been induced to enter into this Guaranty Agreement on the basis of a contemplation, belief, understanding or agreement that other parties other than the Borrower will be liable to perform the Obligations, or the Lenders will look to other parties to perform the Obligations.

(f) OTHER SECURITY. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Obligations;

(g) RELEASE OF COLLATERAL, ETC. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Obligations;

(h) CARE AND DILIGENCE. The failure of the Lenders or any other Person to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security;

(i) STATUS OF LIENS. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that it is not entering into this Guaranty Agreement in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Obligations;

(j) PAYMENTS RESCINDED. Any payment by Borrower to the Lenders is held to constitute a preference under the bankruptcy laws, or for any reason the Lenders are required to refund such payment or pay such amount to Borrower or someone else; or

(k) OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or omitted to be taken with respect to the Credit Agreement, the Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Obligations pursuant to the terms hereof; it being the unambiguous and unequivocal intention of Guarantor that it shall be obligated to pay the Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of the Obligations.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1 BY GUARANTOR. In order to induce the Lenders to accept this Guaranty Agreement, Guarantor represents and warrants to the Lenders (which representations and warranties will survive the creation of the Obligations and any extension of credit thereunder) that:

(a) BENEFIT TO GUARANTOR. Guarantor's guaranty pursuant to this Guaranty Agreement reasonably may be expected to benefit, directly or indirectly, Guarantor.

(b) CORPORATE EXISTENCE. Guarantor is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware and is duly

qualified as a foreign corporation in all jurisdictions wherein the property owned or the business transacted by it makes such qualification necessary.

(c) CORPORATE POWER AND AUTHORIZATION. Guarantor is duly authorized and empowered to execute, deliver and perform this Guaranty Agreement and all corporate action on Guarantor's part requisite for the due execution, delivery and performance of this Guaranty Agreement has been duly and effectively taken.

(d) BINDING OBLIGATIONS. This Guaranty Agreement constitutes valid and binding obligations of Guarantor, enforceable in accordance with its terms (except that enforcement may be subject to any applicable bankruptcy, insolvency or similar laws generally affecting the enforcement of creditors' rights).

(e) NO LEGAL BAR OR RESULTANT LIEN. This Guaranty Agreement will not violate any provisions of Guarantor's articles or certificate of incorporation, bylaws, or any contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which Guarantor is subject, or result in the creation or imposition of any Lien upon any Properties of Guarantor.

(f) NO CONSENT. Guarantor's execution, delivery and performance of this Guaranty Agreement does not require the consent or approval of any other Person, including without limitation any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof.

(g) SOLVENCY. Guarantor hereby represents that (i) it is not insolvent as of the date hereof and will not be rendered insolvent as a result of this Guaranty Agreement, (ii) it is not engaged in business or a transaction, or about to engage in a business or a transaction, for which any property or assets remaining with Guarantor is unreasonably small capital, and (iii) it does not intend to incur, or believe it will incur, debts that will be beyond its ability to pay as such debts mature.

Section 3.2 NO REPRESENTATION BY LENDERS. Neither the Lenders nor any other Person has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty Agreement. Guarantor represents that, in executing and delivering this Guaranty, Guarantor has (i) without reliance on the Lenders or any information received from the Lenders and based upon such documents and information it deems appropriate, made an independent investigation of the transactions contemplated hereby and the Borrower, the Borrower's business, assets, operations, prospects and condition, financial or otherwise, and any circumstances which may bear upon such transactions, the Borrower or the obligations and risks undertaken herein with respect to the Obligations; (ii) adequate means to obtain from the Borrower on a continuing basis information concerning the Borrower; (iii) has full and complete access to the Loan Documents and any other documents executed in connection with the Loan Documents; and (iv) not relied and will not rely upon any representations or warranties of the Lenders not embodied herein or any act heretofore or hereafter taken by the Lenders (including but not limited to any review by the Lenders of the affairs of the Borrower).

ARTICLE IV

SUBORDINATION OF INDEBTEDNESS

Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the term "Guarantor Claims" shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligation of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower arising as a result of subrogation or otherwise as a result of Guarantor's payment of all or a portion of the Obligations. Until the Obligations shall be paid and satisfied in full, Guarantor shall have performed all of its obligations hereunder and the Commitments are terminated, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon Guarantor Claims.

Section 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving Borrower as debtor, the Lenders shall have the right to prove their claim in any proceeding, so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian, dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to the Lenders. Should the Administrative Agent or any Lender receive, for application upon the Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon Guarantor Claims, then upon payment in full of the Obligations, Guarantor shall become subrogated to the rights of the Lenders to the extent that such payments to the Lenders on Guarantor Claims have contributed toward the liquidation of the Obligations, and such subrogation shall be with respect to that proportion of the Obligations which would have been unpaid if the Administrative Agent or a Lender had not received dividends or payments upon Guarantor Claims.

Section 4.3 PAYMENTS HELD IN TRUST. In the event that notwithstanding Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims or distributions which is prohibited by such Sections, Guarantor agrees to hold in trust for the Lenders an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions except to pay them promptly to the Administrative Agent, and Guarantor covenants promptly to pay the same to the Administrative Agent.

Section 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower's assets securing payment of the Obligations, regardless of whether such encumbrances in favor of Guarantor, the Administrative Agent or the Lenders presently exist or are hereafter created or attach. Without the prior written

consent of the Lenders, Guarantor shall not (a) exercise or enforce any creditor's right it may have against the Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceeding (judicial or otherwise, including without limitation the commencement of or joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any lien, mortgages, deeds of trust, security interest, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor.

Section 4.5 NOTATION OF RECORDS. All promissory notes, accounts receivable ledgers or other evidence of Guarantor Claims accepted by or held by Guarantor shall contain a specific written notice thereon that the indebtedness evidenced thereby is subordinated under the terms of this Guaranty Agreement.

ARTICLE V

MISCELLANEOUS

Section 5.1 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and shall be in every particular available to the successors and assigns of the Lenders and is and shall always be fully binding upon the legal representatives, heirs, successors and assigns of Guarantor, notwithstanding that some or all of the monies, the repayment of which this Guaranty Agreement applies, may be actually advanced after any bankruptcy, receivership, reorganization, death, disability or other event affecting Guarantor.

Section 5.2 NOTICES. Any notice or demand to Guarantor under or in connection with this Guaranty Agreement may be given and shall conclusively be deemed and considered to have been given and received in accordance with Section 12.02 of the Credit Agreement, addressed to Guarantor at the address on the signature page hereof or at such other address provided to the Administrative Agent in writing.

Section 5.3 BUSINESS AND FINANCIAL INFORMATION. Guarantor will promptly furnish to the Administrative Agent and the Lenders from time to time upon request such information regarding the business and affairs and financial condition of Guarantor and its subsidiaries as the Administrative Agent and the Lenders may reasonably request.

SECTION 5.4 GOVERNING LAW; CONSTRUCTION.

(a) THIS GUARANTY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH GUARANTOR IS A PARTY SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS

SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER GUARANTOR IN ANY COURT OTHERWISE HAVING JURISDICTION.

(c) GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO GUARANTOR AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST GUARANTOR OR ITS PROPERTIES IN ANY OTHER JURISDICTION.

(d) GUARANTOR HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE, 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 (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS GUARANTY AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 5.4 AND SECTION 12.12 OF THE CREDIT AGREEMENT.

Section 5.5 AMENDMENTS. No amendment, modification or waiver of any provision of this Guaranty Agreement shall be effective unless and until evidenced in writing and executed by Guarantor and the Administrative Agent. Any amendment, modification or waiver or release of this Guaranty Agreement executed by the Administrative Agent may be relied upon by all other parties to the Loan Documents as evidence of the consent of the Majority Lenders as required by
Section 12.04 of the Credit Agreement.

Section 5.6 INVALIDITY. In the event that any one or more of the provisions contained in this Guaranty Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Guaranty Agreement.

Section 5.7 ELECTRONIC DELIVERY OF SIGNATURE PAGES. Delivery of a manually executed signature page of this Guaranty Agreement by e-mail or facsimile shall be effective as delivery of an original executed signature page of this Guaranty and shall be binding against Guarantor.

SECTION 5.8 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LENDERS AND GUARANTOR AND SUPERSEDES ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN

SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN GUARANTY AGREEMENT REPRESENTS 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.

[SIGNATURES BEGIN ON NEXT PAGE]

WITNESS THE EXECUTION HEREOF, as of the date first above written.

The parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

BORROWER: ISRAMCO, INC.

By:    /s/ Haim Tsuff
Name:  Haim Tsuff
Title: Chief Executive Officer
Address for Notices:
11767 Katy Freeway, Suite 711
Houston, Texas 77079
Telephone No.:  (713) 621-5946
Telecopier No.:  (713) 621-3988
e-mail:  jayoil@swbell.net
Attention:  Yossi Levy

With copy to:

Schaeffer Hutchinson P.C.

2204 Louisiana, Suite 220
Houston, Texas 77002-8657
Telephone No.: (713) 524-7300
Telecopier No.:(713) 528-5677
e-mail: jhutchinson@schalaw.com
Attention: James H. Hutchinson, III

Signature Page

EXHIBIT 10.8

PLEDGE AGREEMENT

BY

ISRAMCO, INC.,
AS PLEDGOR,

IN FAVOR OF

WELLS FARGO BANK, N.A.,
AS ADMINISTRATIVE AGENT,
AS SECURED PARTY

EFFECTIVE AS OF MARCH 2, 2007

                                                                            PAGE


ARTICLE I DEFINED TERMS; INTERPRETATION.......................................1
---------------------------------------

   Section 1.1             Terms Defined Above................................1
   Section 1.2             Certain Definitions................................1
   Section 1.3             Credit Agreement Definitions.......................2
   Section 1.4             Interpretation.....................................2

ARTICLE II GRANT OF SECURITY INTEREST.........................................3
-------------------------------------

   Section 2.1             Security Interest..................................3
   Section 2.2             Collateral Held In Trust...........................3

ARTICLE III REPRESENTATIONS AND WARRANTIES....................................4
------------------------------------------

   Section 3.1             Due Authorization..................................4
   Section 3.2             Enforceability.....................................4
   Section 3.3             Ownership and Liens................................4
   Section 3.4             No Conflicts or Consents...........................4
   Section 3.5             Location...........................................4
   Section 3.6             Solvency of Pledgor................................4
   Section 3.7             Equity Interests...................................5

ARTICLE IV AFFIRMATIVE COVENANTS..............................................5
--------------------------------

   Section 4.1             Ownership and Liens................................5
   Section 4.2             Inspection of Books and Records....................5
   Section 4.3             Adverse Claim......................................5
   Section 4.4             Delivery of Instruments and/or Certificates........6
   Section 4.5             Further Assurances.................................6

ARTICLE V NEGATIVE COVENANTS..................................................6
----------------------------

   Section 5.1             Transfer or Encumbrance............................6
   Section 5.2             Impairment of Security Interest....................7
   Section 5.3             Dilution of Ownership..............................7
   Section 5.4             Restrictions on Equity Interests...................7
   Section 5.5             Voting Rights......................................7

ARTICLE VI RIGHTS OF SECURED PARTY............................................7
----------------------------------

   Section 6.1             Power of Attorney..................................7
   Section 6.2             Performance by Secured Party.......................8
   Section 6.3             Maintenance of Collateral..........................8


                                     Page i

ARTICLE VII EVENTS OF DEFAULT AND REMEDIES....................................9
------------------------------------------

   Section 7.1             Events of Default..................................9
   Section 7.2             Remedies and Related Rights........................9
   Section 7.3             Remedies...........................................9
   Section 7.4             Private Sale of Equity Interests..................10
   Section 7.5             Application of Proceeds...........................10
   Section 7.6             Deficiency........................................11
   Section 7.7             Non-Judicial Remedies.............................11
   Section 7.8             Other Recourse....................................11
   Section 7.9             Voting Rights.....................................12
   Section 7.10            Dividend Rights and Interest Payments.............12

ARTICLE VIII MISCELLANEOUS...................................................12
--------------------------

   Section 8.1             Indemnity.........................................12
   Section 8.2             Actions by Secured Party..........................13
   Section 8.3             Waiver............................................13
   Section 8.4             Amendment.........................................13
   Section 8.5             Costs and Expenses................................13
   Section 8.6             Governing Law.....................................13
   Section 8.7             Severability......................................13
   Section 8.8             Notices...........................................14
   Section 8.9             Binding Effect and Assignment.....................14
   Section 8.10            Termination.......................................14
   Section 8.11            Cumulative Rights.................................14
   Section 8.12            Survival; Revival; Reinstatement..................14
   Section 8.13            Final Agreement of the Parties....................15
   Section 8.14            Counterparts; Electronic Delivery
                           of Signature Page.................................15
   Section 8.15            Acknowledgements..................................15

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (this "AGREEMENT") dated as of March 2, 2007 by Isramco, Inc., a Delaware corporation, whose address for notice is 11767 Katy Freeway, Suite 711, Houston, Texas 77079 ("PLEDGOR"), is in favor of Wells Fargo Bank, N.A., whose address for notice is 1000 Louisiana Street, 9th Floor, Houston, Texas 77002, as administrative agent for itself and the lenders (the "LENDERS") which are parties to the Credit Agreement referred to below (in such capacity, together with its successors and assigns, the "SECURED PARTY").

RECITALS

A. Isramco Energy, L.L.C., a Texas limited liability company and wholly owned Subsidiary of Pledgor ("BORROWER"), Secured Party and the Lenders have executed that certain Credit Agreement dated as of the date hereof (as the same may be supplemented, amended, restated or otherwise modified from time to time, the "CREDIT AGREEMENT").

B. Pledgor will derive various benefits from the execution of the Credit Agreement and the loans thereunder to Borrower.

C. The Lenders have conditioned their obligations under the Credit Agreement upon the execution and delivery by Pledgor to Secured Party of this Agreement, and Pledgor has agreed to enter into this Agreement.

THEREFORE, in order to comply with the terms and conditions of the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby agrees as follows:

ARTICLE I

DEFINED TERMS; INTERPRETATION

Section 1.1 TERMS DEFINED ABOVE. As used in this Agreement, each of the terms defined in the opening paragraph and the Recitals above shall have the meaning assigned to such terms therein.

Section 1.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings, unless the context otherwise requires:

"CODE" means the Uniform Commercial Code as in effect in the State of Texas on the date of this Agreement or as it may hereafter be amended from time to time.

"COLLATERAL" means (i) all Equity Interests described or referred to on SCHEDULE 1 attached hereto and made a part hereof and all certificates, instruments and/or other documents, if any, evidencing such Equity Interests; (ii) all of the following property which Pledgor becomes entitled to receive or shall receive in connection with any of the foregoing: (a) any stock certificate, including without limitation, any certificate representing a stock dividend or any certificate in connection with any recapitalization, reclassification, merger, consolidation,

conversion, sale of assets, combination of interests, split-up, spin-off, or any other like change, (b) any option, warrant, subscription or right, whether as an addition to or in substitution of any other Collateral, (c) any dividends or distributions of any kind whatsoever, whether distributable in cash, ownership interests, Equity Interests or other property,
(d) any interest, premium or principal payments and (e) any conversion or redemption proceeds; (iii) all renewals, replacements and substitutions of all of the foregoing; (iv) all rights of Pledgor under the Operating Agreement; (v) all books and records related to the foregoing; and (vi) all PRODUCTS and PROCEEDS of all of the foregoing. The designation of proceeds does not authorize Pledgor to sell, transfer or otherwise convey any of the foregoing property. The delivery at any time by Pledgor to Secured Party of any property as a pledge to secure payment or performance of any indebtedness or obligation whatsoever shall also constitute a pledge of such property as Collateral hereunder.

"EQUITY INTERESTS" means any and all (i) shares, units representing interests, participations, rights in or other equivalents (however designated) of capital stock, (ii) partnership interests (whether general or limited) and any other interest or participation that confers the right to receive a share of the profits and losses of, or distributions of assets of, a partnership, (iii) membership interests in limited liability companies, and (iv) any warrants, options or other rights entitling the holder thereof to purchase or acquire any such Equity Interest.

"OBLIGATIONS" shall have the meaning assigned to such term in the Credit Agreement.

All words and phrases used herein which are expressly defined in Section 1.201, Chapter 8 or Chapter 9 of the Code shall have the meaning provided for therein. Other words and phrases defined elsewhere in the Code shall have the meaning specified therein except to the extent such meaning is inconsistent with a definition in Section 1.201, Chapter 8 or Chapter 9 of the Code. All terms defined in this Agreement in the singular to have equivalent meanings when used in the plural and VICE VERSA.

Section 1.3 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined herein, all terms beginning with a capital letter which are defined in the Credit Agreement shall have the same meanings herein as therein.

Section 1.4 INTERPRETATION.

(a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and VICE VERSA, (ii) reference to any gender includes each other gender, (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision, (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, PROVIDED that nothing in this Clause (iv) is intended to authorize any assignment not otherwise permitted by this

Agreement or the Credit Agreement, (v) reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended, modified, supplemented or extended and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of this Agreement, and reference to any note includes any note issued in renewal, rearrangement, reinstatement, enlargement, amendment, modification, extension, substitution or replacement for such note, (vi) unless the context indicates otherwise, reference to any Section, Clause, paragraph, Schedule or Exhibit means such Section, Clause or paragraph of this Agreement or such Schedule or Exhibit to this Agreement, (vii) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; the word "or" is not exclusive; and the word "all" includes "any" and the word "any" includes "all", (viii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding", and (ix) reference to any law, ordinance, statute, code, rule, regulation, interpretation or judgment means such law, ordinance, statute, code, rule, regulation, interpretation or judgment as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time.

(b) The Section and other headings in this Agreement are for convenience only and shall not affect the construction of this Agreement.

(c) No provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision.

ARTICLE II

GRANT OF SECURITY INTEREST

Section 2.1 SECURITY INTEREST. As security for the Obligations, Pledgor, for value received, hereby grants to Secured Party a continuing security interest in the Collateral.

Section 2.2 COLLATERAL HELD IN TRUST. Except for any dividends or distributions permitted by the Credit Agreement, any Collateral received by Pledgor shall be received in trust for the benefit of Secured Party and the Lenders. All Collateral and any certificates or other written instruments or documents evidencing and/or representing Collateral that is received by Pledgor, together with such instruments of transfer as Secured Party may request, shall immediately be delivered to or deposited with Secured Party and held by Secured Party as Collateral under the terms of this Agreement. If any Collateral received by Pledgor shall be shares of stock or other certificated Equity Interests, such shares of stock or other certificated Equity Interests shall be duly endorsed in blank or accompanied by proper instruments of transfer and assignment duly executed in blank, all in form and substance satisfactory to Secured Party. Secured Party shall be deemed to have possession of any Collateral in transit to Secured Party or its agent. Notwithstanding the foregoing, until the occurrence of an Event of Default (as hereinafter defined), Pledgor shall be entitled to all cash dividends and all interest paid on the Collateral free of the security interest created under this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Pledgor hereby represents and warrants the following to Secured Party:

Section 3.1 DUE AUTHORIZATION. The execution, delivery and performance of this Agreement and all of the other Loan Documents to which Pledgor is a party have been duly authorized by all necessary actions of Pledgor. Pledgor has and will have at all times full right, power and authority to grant a security interest in the Collateral to Secured Party in the manner provided herein, free and clear of any Lien or other charge or encumbrance.

Section 3.2 ENFORCEABILITY. This Agreement and the other Loan Documents constitute legal, valid and binding obligations of Pledgor, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and except to the extent specific remedies may generally be limited by equitable principles. This Agreement creates a legal, valid and binding security interest in favor of Secured Party in the Collateral.

Section 3.3 OWNERSHIP AND LIENS. Pledgor owns 100% of the membership interest of Borrower. Pledgor has good and marketable title to the Collateral free and clear of all Liens, encumbrances or adverse claims, except for the security interest created by this Agreement. No dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Collateral. Pledgor has not executed any other security agreement currently affecting the Collateral and no financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office except as may have been executed or filed in favor of Secured Party.

Section 3.4 NO CONFLICTS OR CONSENTS. Neither the ownership, the intended use of the Collateral by Pledgor, the grant of the security interest by Pledgor to Secured Party herein nor the exercise by Secured Party of its rights or remedies hereunder, will (i) conflict with any provision of (A) any domestic or foreign law, statute, rule or regulation, or (B) the Charter Documents of Pledgor, or (C) any agreement, judgment, license, order or permit applicable to or binding upon Pledgor or otherwise affecting the Collateral, or (ii) result in or require the creation of any lien, charge or encumbrance upon any assets or properties of Pledgor or of any Person except as may be expressly contemplated in the Loan Documents. Except as expressly contemplated in the Loan Documents, no consent, approval, authorization or order of, and no notice to or filing with, any court, Governmental Authority or third party is required in connection with the grant by Pledgor of the security interest herein or the exercise by Secured Party of its rights and remedies hereunder.

Section 3.5 LOCATION. Pledgor's residence or chief executive office, as the case may be, and the office where the records concerning the Collateral are kept is located at its address set forth on the signature page hereof.

Section 3.6 SOLVENCY OF PLEDGOR. As of the date hereof, and after giving effect to this Agreement and the completion of all other transactions contemplated by Pledgor at the time of the execution of this Agreement, (i) Pledgor is and will be solvent, (ii) the fair saleable value of

Pledgor's assets exceeds and will continue to exceed Pledgor's liabilities (both fixed and contingent), (iii) Pledgor is paying and will continue to be able to pay its debts as they mature, and (iv) Pledgor will have sufficient capital to carry on Pledgor's business in which Pledgor will engage.

Section 3.7 EQUITY INTERESTS. Any certificates evidencing Equity Interests pledged as Collateral are valid and genuine and have not been altered. All Equity Interests pledged as Collateral have been duly authorized and validly issued, are fully paid and non-assessable, and were not issued in violation of the preemptive rights of any party or of any agreement by which Pledgor or the issuer thereof is bound. No restrictions or conditions exist with respect to the transfer or voting of any Equity Interests pledged as Collateral, except as has been disclosed to Secured Party in writing. To the best of Pledgor's knowledge, no issuer of such Equity Interests (other than Equity Interests of a class which are publicly traded) has any outstanding stock rights, rights to subscribe, options, warrants or convertible Equity Interests outstanding or any other rights outstanding entitling any party to have issued to such party capital stock of such issuer, except as has been disclosed to Secured Party in writing.

ARTICLE IV

AFFIRMATIVE COVENANTS

Pledgor covenants and agrees with Secured Party that, from and after the date of this Agreement until all Obligations shall have been paid in full in cash, no Letter of Credit shall be outstanding and all of the Commitments shall have terminated:

Section 4.1 OWNERSHIP AND LIENS. Pledgor will maintain good and marketable title to all Collateral free and clear of all liens, security interests, encumbrances or adverse claims, except for the security interest created by this Agreement and the security interests and other encumbrances expressly permitted by the other Loan Documents. Pledgor will not permit any dispute, right of setoff, counterclaim or defense to exist with respect to all or any part of the Collateral. Pledgor will cause any financing statement or other security instrument with respect to the Collateral to be terminated, except as may exist or as may have been filed in favor of Secured Party.

Section 4.2 INSPECTION OF BOOKS AND RECORDS. Pledgor will keep adequate records concerning the Collateral and will permit Secured Party and all representatives and agents appointed by Secured Party to inspect Pledgor's books and records of or relating to the Collateral at any time during the normal business hours, to make and take away photocopies, photographs and printouts thereof and to write down and record any such information.

Section 4.3 ADVERSE CLAIM. Pledgor will promptly notify Secured Party of any claim, action or proceeding affecting title to the Collateral, or any part thereof, or the security interest created hereunder and, at Pledgor's expense, defend Secured Party's rights, title and security interest in the Collateral against the claims of any third party. Pledgor will promptly deliver to Secured Party a copy of all written notices received by Pledgor with respect to the Collateral, including without limitation, notices received from the issuer of any Equity Interests pledged hereunder as Collateral.

Section 4.4 DELIVERY OF INSTRUMENTS AND/OR CERTIFICATES. Contemporaneously with the execution of this Agreement, Pledgor will deliver to Secured Party any certificates, documents or instruments representing or evidencing the Collateral, with Pledgor's endorsement thereon and/or accompanied by proper instruments of transfer and assignment duly executed in blank, all in form and substance satisfactory to Secured Party.

Section 4.5 FURTHER ASSURANCES. Pledgor will contemporaneously with the execution hereof and from time to time thereafter at its expense promptly execute and deliver all further instruments and documents and take all further action necessary or appropriate or that Secured Party may request in order (i) to perfect and protect the security interest created or purported to be created hereby and the first priority of such security interest, (ii) to enable Secured Party to exercise and enforce its rights and remedies hereunder in respect of the Collateral, and (iii) to otherwise effect the purposes of this Agreement, including without limitation: (A) executing and filing any financing or continuation statements, or any amendments thereto; (B) obtaining written acknowledgement and confirmation from the issuer of any Equity Interests pledged as Collateral of the pledge of such Equity Interests, in form and substance satisfactory to Secured Party; (C) cooperating with Secured Party in registering the pledge of any Equity Interests pledged as Collateral with the issuer of such Equity Interests; (D) delivering notice of Secured Party's security interest in any Equity Interests pledged as Collateral to any securities or financial intermediary, clearing corporation or other party required by Secured Party, in form and substance satisfactory to Secured Party; (E) obtaining written confirmation and acknowledgement, in form and substance satisfactory to Secured Party, of the pledge of any Equity Interests pledged as Collateral from any securities or financial intermediary, clearing corporation or other party required by Secured Party and that such Person holds possession for Secured Party's benefit; and (F) upon the request of Secured Party, take or cause to be taken all actions (other than any actions required to be taken by Secured Party) requested by Secured Party to cause Secured Party to (1) have "control" (within the meaning of Section 8.106 of the Code) over any Collateral constituting investment property, including, without limitation, executing and delivering any agreements, in form and substance satisfactory to Secured Party, with securities intermediaries, issuers or other Persons in order to establish "control", and Pledgor shall promptly notify Secured Party of Pledgor's acquisition of any such Collateral, and (2) be a "protected purchaser" (as defined in Section 8.303 of the Code). When applicable law provides more than one method of perfection of Secured Party's security interest in the Collateral, Secured Party may choose the method(s) to be used.

ARTICLE V

NEGATIVE COVENANTS

Pledgor covenants and agrees with Secured Party that, from and after the date of this Agreement until all Obligations shall have been paid in full in cash, no Letter of Credit shall be outstanding and all of the Commitments shall have terminated:

Section 5.1 TRANSFER OR ENCUMBRANCE. Pledgor will not (i) sell, assign (by operation of law or otherwise) or transfer Pledgor's rights in any of the Collateral, (ii) grant a Lien in or execute, file or record any financing statement or other security instrument with respect to the Collateral to any party other than Secured Party, or (iii) deliver actual or constructive possession

of any certificate, instrument or document evidencing and/or representing any of the Collateral to any party other than Secured Party.

Section 5.2 IMPAIRMENT OF SECURITY INTEREST. Pledgor will not take or fail to take any action which would in any manner impair the existence or enforceability of Secured Party's security interest in any Collateral.

Section 5.3 DILUTION OF OWNERSHIP. As to any Equity Interests pledged as Collateral (other than Equity Interests of a class which are publicly traded), Pledgor will not consent to, approve of or allow the issuance of (i) any additional shares or membership interests of any class of Equity Interests of such issuer (unless immediately upon issuance additional Equity Interests are pledged and delivered to Secured Party pursuant to the terms hereof to the extent necessary to give Secured Party a security interest after such issuance in at least the same percentage of such issuer's outstanding Equity Interests as Secured Party had before such issuance), (ii) any instrument convertible voluntarily by the holder thereof or automatically upon the occurrence or non-occurrence of any event or condition into, or exchangeable for, any such Equity Interests, or (iii) any warrants, options, contracts or other commitments entitling any third party to purchase or otherwise acquire any such Equity Interests.

Section 5.4 RESTRICTIONS ON EQUITY INTERESTS. Pledgor will not enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any Equity Interests pledged as Collateral, except as consented to in writing by Secured Party.

Section 5.5 VOTING RIGHTS. As long as no Event of Default shall have occurred hereunder, any voting rights incident to any membership interests or other Equity Interests pledged as Collateral may be exercised by Pledgor; PROVIDED, HOWEVER, that Pledgor will not exercise, or cause to be exercised, any such voting rights, without the prior written consent of Secured Party, if the direct or indirect effect of such vote will result in an Event of Default hereunder.

ARTICLE VI

RIGHTS OF SECURED PARTY

Secured Party shall have the rights contained in this Section at all times during the period of time this Agreement is effective.

Section 6.1 POWER OF ATTORNEY. Pledgor hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact, such power of attorney being coupled with an interest, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, to take any action and to execute any instrument which Secured Party may from time to time in Secured Party's discretion deem necessary or appropriate to accomplish the purposes of this Agreement, including without limitation, the following action:

(a) transfer any Equity Interests, instruments, documents or certificates pledged as Collateral in the name of Secured Party or its nominee;

(b) at any time an Event of Default exists, use any interest, premium or principal payments, conversion or redemption proceeds or other cash proceeds received in connection with any Collateral to reduce any of the Obligations;

(c) exchange any of the Equity Interests pledged as Collateral for any other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof, and, in connection therewith, to deposit and deliver any and all of such Equity Interests with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as Secured Party may deem necessary or appropriate;

(d) exercise or comply with any conversion, exchange, redemption, subscription or any other right, privilege or option pertaining to any Equity Interests pledged as Collateral (other than voting rights, which are otherwise provided for in Section 4 and Section 11(g) hereof); PROVIDED, HOWEVER, except as provided herein, Secured Party shall not have a duty to exercise or comply with any such right, privilege or option (whether conversion, redemption or otherwise) and shall not be responsible for any delay or failure to do so; and

(e) file any claims or take any action or institute any proceedings which Secured Party may deem necessary or appropriate for the collection and/or preservation of the Collateral or otherwise to enforce the rights of Secured Party with respect to the Collateral.

Section 6.2 PERFORMANCE BY SECURED PARTY. If Pledgor fails to perform any agreement or obligation provided herein, Secured Party may itself perform, or cause performance of, such agreement or obligation, and the expenses of Secured Party incurred in connection therewith shall be a part of the Obligations, secured by the Collateral and payable by Pledgor on demand.

Notwithstanding any other provision herein to the contrary, Secured Party does not have any duty to exercise or continue to exercise any of the foregoing rights and shall not be responsible for any failure to do so or for any delay in doing so.

Section 6.3 MAINTENANCE OF COLLATERAL. Other than the exercise of reasonable care to assure the safe custody of any Collateral in Secured Party's possession from time to time, Secured Party does not have any obligation, duty or responsibility with respect to the Collateral. Without limiting the generality of the foregoing, Secured Party shall not have any obligation, duty or responsibility to do any of the following:

(a) ascertain any maturities, calls, conversions, exchanges, offers, tenders or similar matters relating to the Collateral or informing Pledgor with respect to any such matters;

(b) fix, preserve or exercise any right, privilege or option (whether conversion, redemption or otherwise) with respect to the Collateral unless (i) Pledgor makes written demand to Secured Party to do so, (ii) such written demand is received by Secured Party in sufficient time to permit Secured Party to take the action demanded in the ordinary course of its business, and (iii) Pledgor provides additional collateral, acceptable to Secured Party in its sole discretion;

(c) collect any amounts payable in respect of the Collateral (Secured Party being liable to account to Pledgor only for what Secured Party may actually receive or collect thereon);

(d) sell all or any portion of the Collateral to avoid market loss;

(e) sell all or any portion of the Collateral unless and until (i) Pledgor makes written demand upon Secured Party to sell the Collateral, and (ii) Pledgor provides additional collateral, acceptable to Secured Party in its sole discretion; or

(f) hold the Collateral for or on behalf of any party other than Pledgor.

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

Section 7.1 EVENTS OF DEFAULT. An Event of Default (as defined in the Credit Agreement) shall constitute an "Event of Default" hereunder.

Section 7.2 REMEDIES AND RELATED RIGHTS. If an Event of Default shall have occurred, and without limiting any other rights and remedies provided herein, under any of the other Loan Documents or otherwise available to Secured Party, Secured Party may exercise one or more of the rights and remedies provided in this Article.

Section 7.3 REMEDIES. Secured Party may from time to time at its discretion, without limitation and without notice except as expressly provided in any of the Loan Documents:

(a) exercise in respect of the Collateral all the rights and remedies of a secured party under the Code (whether or not the Code applies to the affected Collateral);

(b) reduce its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest granted hereunder by any available judicial procedure;

(c) sell or otherwise dispose of, at its office, on the premises of Pledgor or elsewhere, the Collateral, as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale or other disposition of any part of the Collateral shall not exhaust Secured Party's power of sale, but sales or other dispositions may be made from time to time until all of the Collateral has been sold or disposed of or until the Obligations has been paid and performed in full), and at any such sale or other disposition it shall not be necessary to exhibit any of the Collateral;

(d) buy the Collateral, or any portion thereof, at any public sale;

(e) buy the Collateral, or any portion thereof, at any private sale if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations;

(f) apply for the appointment of a receiver for the Collateral, and Pledgor hereby consents to any such appointment; and

(g) at its option, retain the Collateral in satisfaction of the Obligations whenever the circumstances are such that Secured Party is entitled to do so under the Code or otherwise.

Pledgor agrees that in the event Pledgor is entitled to receive any notice under the Code, as it exists in the state governing any such notice, of the sale or other disposition of any Collateral, reasonable notice shall be deemed given when such notice is deposited in a depository receptacle under the care and custody of the United States Postal Service, postage prepaid, at Pledgor's address set forth on the signature page hereof, five (5) days prior to the date of any public sale, or after which a private sale, of any of such Collateral is to be held. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor further acknowledges and agrees that the redemption by Secured Party of any certificate of deposit pledged as Collateral shall be deemed to be a commercially reasonable disposition under
Section 9.610 of the Code.

Section 7.4 PRIVATE SALE OF EQUITY INTERESTS. Pledgor recognizes that Secured Party may be unable to effect a public sale of all or any part of the Equity Interests pledged as Collateral because of restrictions in applicable federal and state Equity Interests laws and that Secured Party may, therefore, determine to make one or more private sales of any such Equity Interests to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such Equity Interests for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that each any such private sale may be at prices and other terms less favorable then what might have been obtained at a public sale and, notwithstanding the foregoing, agrees that each such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to delay the sale of any such Equity Interests for the period of time necessary to permit the issuer to register such Equity Interests for public sale under any federal or state Equity Interests laws. Pledgor further acknowledges and agrees that any offer to sell such Equity Interests which has been made privately in the manner described above to not less than five (5) bona fide offerees shall be deemed to involve a "public sale" for the purposes of Section 9.610 of the Code, notwithstanding that such sale may not constitute a "public offering" under any federal or state Equity Interests laws and that Secured Party may, in such event, bid for the purchase of such Equity Interests.

Section 7.5 APPLICATION OF PROCEEDS. If any Event of Default shall have occurred, Secured Party may at its discretion apply or use any cash held by Secured Party as Collateral, and any cash proceeds received by Secured Party in respect of any sale or other disposition of, collection from, or other realization upon, all or any part of the Collateral as follows in such order and manner as Secured Party may elect:

(a) first, to the payment of all expenses incurred by Secured Party (including as Administrative Agent under the Credit Agreement) incident to the enforcement of this Agreement, the Credit Agreement, any other Loan Document or any of the Obligations (including, without limiting the generality of the foregoing, expenses of any entry or taking of possession, of any sale, of advertisement thereof, and of conveyances, and court costs, compensation of agents and employees, legal fees and a reasonable commission to

Secured Party acting), and to the payment of all other charges, expenses, liabilities and advances incurred or made by Secured Party (including as Administrative Agent under the Credit Agreement) under this Agreement, the Credit Agreement or any other Loan Document or in executing any trust or power hereunder or thereunder;

(b) second, to payment of the Obligations in such order and manner as set forth in Section 10.02(c) of the Credit Agreement;

(c) third, to the payment of any other amounts required by applicable law (including without limitation, Section 9.610 of the Code or any other applicable statutory provision); and

(d) fourth, by delivery to Pledgor or any other party lawfully entitled to receive such cash or proceeds whether by direction of a court of competent jurisdiction or otherwise.

Section 7.6 DEFICIENCY. In the event that the proceeds of any sale of, collection from, or other realization upon, all or any part of the Collateral by Secured Party are insufficient to pay all amounts to which Secured Party is legally entitled, Pledgor and any party who guaranteed or is otherwise obligated to pay all or any portion of the Obligations shall be liable for the deficiency, together with interest thereon as provided in the Loan Documents.

Section 7.7 NON-JUDICIAL REMEDIES. In granting to Secured Party the power to enforce its rights hereunder without prior judicial process or judicial hearing, Pledgor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Secured Party to enforce its rights by judicial process. Pledgor recognizes and concedes that non-judicial remedies are consistent with the usage of trade, are responsive to commercial necessity and are the result of a bargain at arm's length. Nothing herein is intended to prevent Secured Party or Pledgor from resorting to judicial process at either party's option.

Section 7.8 OTHER RECOURSE. Pledgor waives any right to require Secured Party to proceed against any third party, exhaust any Collateral or other security for the Obligations, or to have any third party joined with Pledgor in any suit arising out of the Obligations or any of the Loan Documents, or pursue any other remedy available to Secured Party. Pledgor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension of the Obligations. Pledgor further waives any defense arising by reason of any disability or other defense of any third party or by reason of the cessation from any cause whatsoever of the liability of any third party. Until all of the Obligations shall have been paid in full, Pledgor shall have no right of subrogation and Pledgor waives the right to enforce any remedy which Secured Party has or may hereafter have against any third party, and waives any benefit of and any right to participate in any other security whatsoever now or hereafter held by Secured Party. Pledgor authorizes Secured Party, and without notice or demand and without any reservation of rights against Pledgor and without affecting Pledgor's liability hereunder or on the Obligations, to (i) take or hold any other property of any type from any third party as security for the Obligations, and exchange, enforce, waive and release any or all of such other property, (ii) apply such other property and direct the order or manner of sale thereof as Secured Party may in its discretion determine, (iii) renew, extend, accelerate, modify, compromise, settle or release any of the Obligations or other security

for the Obligations, (iv) waive, enforce or modify any of the provisions of any of the Loan Documents executed by any third party, and (v) release or substitute any third party.

Section 7.9 VOTING RIGHTS. Upon the occurrence and during the continuance of an Event of Default, Pledgor will not exercise any voting rights with respect to Equity Interests pledged as Collateral. Pledgor hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact (such power of attorney being coupled with an interest) and proxy to exercise any voting rights with respect to Pledgor's Equity Interests pledged as Collateral upon the occurrence and during the continuance of an Event of Default.

Section 7.10 DIVIDEND RIGHTS AND INTEREST PAYMENTS. Upon the occurrence and during the continuance of an Event of Default:

(a) all rights of Pledgor to receive and retain the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to SECTION 2.2 shall automatically cease, and all such rights shall thereupon become vested with Secured Party which shall thereafter have the sole right to receive, hold and apply as Collateral such dividends and interest payments; and

(b) all dividend and interest payments which are received by Pledgor contrary to the provisions of SECTION 7.10(A) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor, and shall be forthwith paid over to Secured Party in the exact form received (properly endorsed or assigned if requested by Secured Party), to be held by Secured Party as Collateral.

ARTICLE VIII

MISCELLANEOUS

Section 8.1 INDEMNITY. Pledgor hereby indemnifies and agrees to hold harmless Secured Party, and its officers, directors, employees, agents and representatives (each an "Indemnified Person") from and against any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature (collectively, the "Claims") which may be imposed on, incurred by, or asserted against, any Indemnified Person arising in connection with the Loan Documents, the Obligations or the Collateral (including without limitation, the enforcement of the Loan Documents and the defense of any Indemnified Person's actions and/or inactions in connection with the Loan Documents). WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON, EXCEPT TO THE LIMITED EXTENT THE CLAIMS AGAINST AN INDEMNIFIED PERSON ARE PROXIMATELY CAUSED BY SUCH INDEMNIFIED PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. If Pledgor or any third party ever alleges such gross negligence or willful misconduct by any Indemnified Person, 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. The indemnification provided for in this Section shall survive

the termination of this Agreement and shall extend and continue to benefit each individual or entity who is or has at any time been an Indemnified Person hereunder.

Section 8.2 ACTIONS BY SECURED PARTY. The lien, security interest and other security rights of Secured Party hereunder shall not be impaired by
(i) any renewal, extension, increase or modification with respect to the Obligations, (ii) any surrender, compromise, release, renewal, extension, exchange or substitution which Secured Party may grant with respect to the Collateral, or (iii) any release or indulgence granted to any endorser, guarantor or surety of the Obligations. The taking of additional security by Secured Party shall not release or impair the lien, security interest or other security rights of Secured Party hereunder or affect the obligations of Pledgor hereunder.

Section 8.3 WAIVER. Secured Party may waive any Event of Default without waiving any other prior or subsequent Event of Default. Secured Party may remedy any default without waiving the Event of Default remedied. Neither the failure by Secured Party to exercise, nor the delay by Secured Party in exercising, any right or remedy upon any Event of Default shall be construed as a waiver of such Event of Default or as a waiver of the right to exercise any such right or remedy at a later date. No single or partial exercise by Secured Party of any right or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right or remedy hereunder may be exercised at any time. No waiver of any provision hereof or consent to any departure by Pledgor therefrom shall be effective unless the same shall be in writing and signed by Secured Party and then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice to or demand on Pledgor in any case shall of itself entitle Pledgor to any other or further notice or demand in similar or other circumstances.

Section 8.4 AMENDMENT. No modification, consent or amendment of any provision of this Agreement or any of the other Loan Documents shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced.

Section 8.5 COSTS AND EXPENSES. Pledgor will upon demand pay to Secured Party the amount of any and all costs and expenses (including without limitation, attorneys' fees and expenses), which Secured Party may incur in connection with (i) the transactions which give rise to the Loan Documents, (ii) the preparation of this Agreement and the perfection and preservation of the security interests granted under the Loan Documents, (iii) the administration of the Loan Documents, (iv) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Collateral, (v) the exercise or enforcement of any of the rights of Secured Party under the Loan Documents, or (vi) the failure by Pledgor to perform or observe any of the provisions hereof.

Section 8.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and applicable federal laws, except to the extent perfection and the effect of perfection or non-perfection of the security interest granted hereunder, in respect of any particular Collateral, are governed by the laws of a jurisdiction other than the State of Texas.

Section 8.7 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws, such

provision shall be fully severable, shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable.

Section 8.8 NOTICES. All notices and other communications provided for under or in connection with this Agreement from one party to the other shall be in writing and given, and shall conclusively be deemed and considered to have been given and received, in accordance with Section 12.02 of the Credit Agreement, addressed to the receiving party at the address on the signature page hereof or at such other address provided to the Administrative Agent in writing. Pledgor or Secured Party may designate another address for the receipt of notices and other communications, provided such new designation is provided in accordance with the terms and conditions contained in the Credit Agreement.

Section 8.9 BINDING EFFECT AND ASSIGNMENT. This Agreement (i) creates a continuing security interest in the Collateral, (ii) shall be binding on Pledgor and the heirs, executors, administrators, personal representatives, successors and assigns of Pledgor, and (iii) shall inure to the benefit of Secured Party and its successors and assigns. Without limiting the generality of the foregoing, Secured Party may pledge, assign or otherwise transfer the Obligations and its rights under this Agreement and any of the other Loan Documents to any other party. Pledgor's rights and obligations hereunder may not be assigned or otherwise transferred without the prior written consent of Secured Party.

Section 8.10 TERMINATION. It is contemplated by the parties hereto that from time to time there may be no outstanding Obligations, but notwithstanding such occurrences, this Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Obligations. Upon (i) the satisfaction in full of the Obligations, (ii) the termination or expiration of any commitment of Secured Party to extend credit to Pledgor, (iii) written request for the termination hereof delivered by Pledgor to Secured Party, and
(iv) written release delivered by Secured Party to Pledgor, this Agreement and the security interests created hereby shall terminate. Upon termination of this Agreement and Pledgor's written request, Secured Party will, at Pledgor's sole cost and expense, return to Pledgor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination.

Section 8.11 CUMULATIVE RIGHTS. All rights and remedies of Secured Party hereunder are cumulative of each other and of every other right or remedy which Secured Party may otherwise have at law or in equity or under any of the other Loan Documents, and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies.

Section 8.12 SURVIVAL; REVIVAL; REINSTATEMENT.

(a) All covenants, agreements, representations and\ warranties made by Pledgor herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document to which it is a party shall be considered to have been relied upon by the Administrative Administrative Agent, the Issuing Bank and the Lenders and shall survive the execution and delivery of this

Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended under the Credit Agreement, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under the Credit Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Section 8.1 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement, any other Loan Document or any provision hereof or thereof.

(b) To the extent that proceeds of any Collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received and Secured Party's and the Lenders' Liens , rights, powers and remedies under this Agreement and each other Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and Borrower shall take such action as may be reasonably requested by Secured Party and the Lenders to effect such reinstatement.

Section 8.13 FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT (INCLUDING THE EXHIBITS TO THIS AGREEMENT), THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF 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.

Section 8.14 COUNTERPARTS; ELECTRONIC DELIVERY OF SIGNATURE PAGE. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of a manually executed signature page of this Agreement by e-mail or facsimile shall be effective as delivery of an original executed signature page of this Agreement and binding against the parties hereto.

Section 8.15 ACKNOWLEDGEMENTS. Pledgor hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

(b) neither Secured Party nor any Lender has any fiduciary relationship with or duty to Pledgor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Pledgor, on the one hand, and Secured

Party and Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among Pledgor and the Lenders.

(d) Each of the parties hereto specifically agrees that it has a duty to read this Agreement and the other Loan Documents and agrees that it is charged with notice and knowledge of the terms of this Agreement and the other Loan Documents; that it has in fact read this Agreement and the other Loan Documents and is fully informed and has full notice and knowledge of the terms, conditions and effects thereof; that it has been represented by independent legal counsel of its choice throughout the negotiations preceding its execution of this Agreement; and has received the advice of its attorney in entering into this Agreement; and that it recognizes that certain of the terms of this Agreement result in one party assuming the liability inherent in some aspects of the transaction and relieving the other party of its responsibility for such liability. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."

[SIGNATURE PAGE TO FOLLOW]

EXECUTED as of the date first written above.

PLEDGOR:

ISRAMCO, INC.

By: /s/ Haim Tsuff
    Haim Tsuff, Chief Executive Officer

Pledgor's Address:

11767 Katy Freeway, Suite 711
Houston, TX 77079

Secured Party's Address:

1000 Louisiana Street
9th Floor
Houston, TX 77002

                                               SCHEDULE 1
                                               ----------
                                                   TO
                                            PLEDGE AGREEMENT

                                          Dated March 2, 2007

                                             by and between
                                             ISRAMCO, INC.,
                                               as Pledgor

                                                  and

                                        WELLS FARGO BANK, N.A.,
                                            as Secured Party


        The following Equity Interest is a part of the Collateral as defined in the Pledge Agreement:


                                  PERCENTAGE    PERCENTAGE     CLASS OF         NO. OF     CERTIFICATE
    OWNER            ISSUER         OWNED         PLEDGED   STOCK OR OTHER      SHARES         NO.
                                                            EQUITY INTEREST
--------------   -------------   ------------  ------------ ---------------- -----------  ------------
Isramco, Inc.       Isramco          100%          100%       All of the        [N/A]         [N/A]
                 Energy, L.L.C.                               membership
                                                               interests

Schedule 1 - Page 1

ACKNOWLEDGMENT AND CONSENT

The undersigned hereby acknowledges receipt of a copy of the Pledge Agreement dated as of March 2, 2007 (the "PLEDGE AGREEMENT"), made by Isramco, Inc., a Delaware corporation, as Pledgor for the benefit of Wells Fargo Bank, N.A., as Secured Party. The undersigned agrees for the benefit of Secured Party and the Lenders as follows:

1. The undersigned will be bound by the terms of the Pledge Agreement and will comply with such terms insofar as such terms are applicable to the undersigned.

2. The terms of Article VII of the Pledge Agreement shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it pursuant thereto.

ISRAMCO ENERGY, L.L.C.

Acknowledgment and Consent