PRIMEENERGY CORP (Form: 10-Q, Received: 08/14/2009 09:30:24)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2009

¨	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From to

Commission File Number 0-7406

PrimeEnergy Corporation

(Exact name of registrant as specified in its charter)

Delaware

84-0637348

(State or other jurisdiction of
incorporation or organization)

(IRS employer

identification number)

One Landmark Square, Stamford, Connecticut 06901

(Address of principal executive offices)

(203) 358-5700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings required for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” and “smaller reporting company” in Rule 12-B of the Exchange Act.

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of each class of the Registrant’s Common Stock as of August 11, 2009 was: Common Stock, $0.10 par value, 3,040,872 shares.

PrimeEnergy Corporation

Index to Form 10-Q

June 30, 2009


		Page
Part I - Financial Information

Item 1. Financial Statements

Consolidated Balance Sheet – June 30, 2009 and December 31, 2008		3-4

Consolidated Statement of Operations for the six and three months ended June 30, 2009 and 2008		5

Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2009		7

Consolidated Statement of Comprehensive Income for the six months ended June 30, 2009 and 2008		8

Consolidated Statement of Cash Flows for the six months ended June 30, 2009 and 2008		9

Notes to Consolidated Financial Statements		10-18

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operation		19-20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		21

Item 4. Controls and Procedures		21

Part II - Other Information		22

Item 1. Legal Proceedings		22

Item 1A. Risk Factors		22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22

Item 3. Defaults Upon Senior Securities		22

Item 4. Submission of Matters to a Vote of Security Holders		22

Item 5. Other Information		23

Item 6. Exhibits		23

Signatures		24

PART I—FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

PrimeEnergy Corporation

Consolidated Balance Sheet

June 30, 2009 and December 31, 2008


	June 30, 2009		December 31, 2008
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,199,000	$	11,808,000
Restricted cash and cash equivalents		5,482,000		8,027,000
Accounts receivable (net)		11,432,000		18,257,000
Due from related parties		893,000		678,000
Prepaid expenses		2,067,000		1,302,000
Derivative contracts		—		1,755,000
Inventory at cost		4,515,000		4,532,000
Deferred income tax		772,000		30,000

Total current assets		35,360,000		46,389,000


Property and equipment, at cost
Oil and gas properties (successful efforts method), net		196,231,000		212,149,000
Field service equipment and other, net		7,740,000		8,316,000


Net property and equipment		203,971,000		220,465,000

Other assets		492,000		976,000


Total assets	$	239,823,000	$	267,830,000

See accompanying notes to the consolidated financial statements.

PrimeEnergy Corporation

Consolidated Balance Sheet

June 30, 2009 and December 31, 2008


	June 30, 2009			December 31, 2008
	(Unaudited)			(Audited)
LIABILITIES and STOCKHOLDERS’ EQUITY
Current liabilities:
Current bank debt	$	8,870,000		$	16,970,000
Accounts payable		22,959,000			26,715,000
Current portion of asset retirement and other long-term obligation		3,512,000			1,461,000
Derivative liability short term		690,000			387,000
Accrued liabilities		4,803,000			10,477,000
Due to related parties		426,000			233,000

Total current liabilities		41,260,000			56,243,000

Long-term bank debt		88,000,000			87,170,000
Indebtedness to related parties		20,000,000			20,000,000
Asset retirement obligation		17,818,000			18,650,000
Derivative liability long term		—			146,000
Deferred income taxes		22,777,000			25,688,000

Total liabilities		189,855,000			207,897,000


Stockholders’ equity: (Note 13)
Preferred stock, $.10 par value, authorized 5,000,000 shares, none issued		—			—
Common stock, $.10 par value, authorized 10,000,000 shares; issued 7,694,970 in 2009 and 2008		769,000			769,000
Paid in capital		10,972,000			11,024,000
Retained earnings		65,774,000			73,426,000
Accumulated other comprehensive income, net		(441,000	)		1,009,000

		77,074,000			86,228,000
Treasury stock, at cost, 4,654,098 common shares at 2009 and 4,647,316 common shares at 2008		(37,208,000	)		(36,940,000	)

Total stockholders’ equity		39,866,000			49,288,000
Non-controlling interest		10,102,000			10,645,000

Total equity		49,968,000			59,933,000

Total liabilities and equity	$	239,823,000		$	267,830,000

See accompanying notes to the consolidated financial statements.

PrimeEnergy Corporation

Consolidated Statement of Operations

Six Months Ended June 30, 2009 and 2008

(Unaudited)


	2009			2008
Revenue:
Oil and gas sales	$	32,549,000		$	74,648,000
Field service income		9,182,000			12,749,000
Administrative overhead fees		4,317,000			4,499,000
Other income		15,000			197,000

Total revenue		46,063,000			92,093,000


Costs and expenses:
Lease operating expense		16,678,000			21,160,000
Field service expense		8,204,000			9,583,000
Depreciation, depletion and amortization		22,132,000			35,629,000
Loss on settlement of asset retirement obligation		1,611,000			—
General and administrative expense		5,620,000			7,290,000
Exploration costs		—			299,000

Total costs and expenses		54,245,000			73,961,000

Gain (loss) on sale and exchange of assets		200,000			78,000

Income (loss) from operations		(7,982,000	)		18,210,000

Other income and expenses:
Less: interest expense		3,135,000			4,376,000
Add interest income		38,000			261,000


Income (loss) before provision (benefit) for income taxes		(11,079,000	)		14,095,000
Provision (benefit) for income taxes		(3,610,000	)		3,451,000

Net income (loss)		(7,469,000	)		10,644,000


Less: Net income attributable to non-controlling interest		183,000			3,894,000

Net income (loss) attributable to PrimeEnergy	$	(7,652,000	)	$	6,750,000


Basic income (loss) per common share	$	(2.51	)	$	2.20

Diluted income (loss) per common share	$	(2.02	)	$	1.76

See accompanying notes to the consolidated financial statements.

PrimeEnergy Corporation

Consolidated Statement of Operations

Three Months Ended June 30, 2009 and 2008

(Unaudited)


	2009			2008
Revenue:
Oil and gas sales	$	16,511,000		$	40,547,000
Field service income		4,224,000			6,494,000
Administrative overhead fees		2,048,000			2,300,000
Other income		3,000			(5,000	)

Total revenue		22,786,000			49,336,000


Costs and expenses:
Lease operating expense		8,451,000			11,454,000
Field service expense		4,139,000			4,804,000
Depreciation, depletion and amortization		10,364,000			18,709,000
Loss on settlement of asset retirement obligation		1,611,000			—
General and administrative expense		2,757,000			4,065,000
Exploration costs		—			242,000

Total costs and expenses		27,322,000			39,274,000

Gain (loss) on sale and exchange of assets		104,000			93,000

Income (loss) from operations		(4,432,000	)		10,155,000

Other income and expenses:
Less: interest expense		1,569,000			1,929,000
Add interest income		28,000			104,000


Income (loss) before provision (benefit) for income taxes		(5,973,000	)		8,330,000
Provision (benefit) for income taxes		(1,987,000	)		2,063,000

Net income (loss)		(3,986,000	)		6,267,000


Less: Net income attributable to non-controlling interest		168,000			2,248,000

Net income (loss) attributable to PrimeEnergy	$	(4,154,000	)	$	4,019,000


Basic income (loss) per common share	$	(1.37	)	$	1.31

Diluted income (loss) per common share	$	(1.10	)	$	1.05

See accompanying notes to the consolidated financial statements.

PrimeEnergy Corporation

Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2009

(Unaudited)


	Common Stock			Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/Loss			Treasury Stock			Total Stockholders’ Equity			Non- Controlling Interest			Total Equity
	Shares	Amount		Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/Loss			Treasury Stock			Total Stockholders’ Equity			Non- Controlling Interest			Total Equity
Balance at December 31, 2008	7,694,970	$	769,000	$	11,024,000		$	73,426,000		$	1,009,000		$	(36,940,000	)	$	49,288,000		$	10,645,000		$	59,933,000
Purchased 6,782 shares of common stock														(268,000	)		(268,000	)					(268,000	)
Net loss								(7,652,000	)								(7,652,000	)		183,000			(7,469,000	)
Other comprehensive income (loss), net of taxes											(1,450,000	)					(1,450,000	)					(1,450,000	)
Purchase of non-controlling interests					(52,000	)											(52,000	)		(95,000	)		(147,000	)
Distributions to non-controlling interests																				(631,000	)		(631,000	)

Balance at June 30, 2009	7,694,970	$	769,000	$	10,972,000		$	65,774,000		$	(441,000	)	$	(37,208,000	)	$	39,866,000		$	10,102,000		$	49,968,000

See accompanying notes to the consolidated financial statements.

PrimeEnergy Corporation

Consolidated Statement of Comprehensive Income


	Quarter Ended June 30, 2009			Quarter Ended June 30, 2008
Net Income (loss)	$	(7,652,000	)	$	6,750,000

Other Comprehensive Income (Loss), net of taxes:
Reclassification Adjustment for Settled Contracts, net of taxes of $442,000 and $2,409,000, respectively		785,000			(4,284,000	)
Changes in Fair Value of Hedge Positions, net of taxes of $1,257,000 and $15,275,000, respectively		(2,235,000	)		(27,156,000	)

Total Other Comprehensive Income (Loss)		(1,450,000	)		(31,440,000	)


Comprehensive Income (loss)		(9,102,000	)		(24,690,000	)

Less: Comprehensive income attributable to non-controlling interest		(183,000	)		(3,894,000	)

Comprehensive income (loss) attributable to common stockholders	$	(8,919,000	)	$	(20,796,000	)

See accompanying notes to the consolidated financial statements.

PrimeEnergy Corporation

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2009 and 2008

(Unaudited)


	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(7,652,000	)	$	6,750,000
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion on discounted liabilities		22,132,000			35,629,000
(Gain) loss on sale of properties		(200,000	)		(78,000	)
Provision for deferred taxes		(2,836,000	)		1,340,000
Loss on settlement of asset retirement obligation		1,611,000			—
Non-controlling interest in earnings of partnerships		183,000			3,894,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		6,825,000			(7,112,000	)
(Increase) decrease in due from related parties		(214,000	)		738,000
(Increase) decrease in inventories		16,000			459,000
(Increase) decrease in prepaid expenses and other assets		789,000			(1,581,000	)
Increase (decrease) in accounts payable		(1,016,000	)		12,860,000
Increase (decrease) in accrued liabilities		(1,144,000	)		1,404,000
Increase (decrease) in due to related parties		193,000			(384,000	)

Net cash provided by operating activities:		18,687,000			53,919,000


Cash flows from investing activities:
Capital expenditures, including exploration expense		(9,382,000	)		(33,126,000	)
Proceeds from sale of property and equipment		200,000			78,000

Net cash (used in) investing activities		(9,182,000	)		(33,048,000	)


Cash flows from financing activities:
Purchase of treasury stock		(268,000	)		(4,314,000	)
Purchase of non-controlling interests		(147,000	)		—
Proceeds from long-term bank debt and other long-term obligations		31,829,000			72,175,000
Repayment of long-term bank debt and other long-term obligations		(41,897,000	)		(87,959,000	)
Distribution to non-controlling interest		(631,000	)		(2,808,000	)

Net cash (used in) financing activities		(11,114,000	)		(22,906,000	)

Net (decrease) in cash and cash equivalents		(1,609,000	)		(2,035,000	)

Cash and cash equivalents at the beginning of the period		11,808,000			25,373,000

Cash and cash equivalents at the end of the period	$	10,199,000		$	23,338,000

See accompanying notes to the consolidated financial statements.

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

(1) Interim Financial Statements:

The accompanying consolidated financial statements of PrimeEnergy Corporation (“PEC”), with the exception of the consolidated balance sheet at December 31, 2008, have not been audited by independent public accountants. In the opinion of management, the accompanying financial statements reflect all adjustments necessary to present fairly our financial position at June 30, 2009 , net income (loss), comprehensive income (loss) and cash flows for the six and three months ended June 30, 2009 and 2008. All such adjustments are of a normal recurring nature. Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation. The results for interim periods are not necessarily indicative of annual results. Subsequent events have been evaluated through August 13, 2009, which is also the date that the financial statements were issued.

Recently Adopted Accounting Standards

On January 1, 2009, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for (1) ownership interests in subsidiaries held by others, (2) the amount of consolidated net income attributable to the controlling and noncontrolling interests, (3) changes in the controlling ownership interest, (4) the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated and (5) disclosures that clearly identify and distinguish between the interests of the controlling and noncontrolling owners. The adoption of SFAS 160 resulted in changes to our presentation for noncontrolling interests but did not have a material impact on the Company’s results of operations and financial condition. Certain prior period balances have been restated to reflect the changes required by SFAS 160.

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides additional guidance in accordance with SFAS No. 157. If an entity determines that either the volume or level of activity for an asset or liability has significantly decreased from normal conditions, or that price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. The objective in fair value measurement remains unchanged from what is prescribed in SFAS No. 157 and should be reflective of the current exit price. Disclosures in interim and annual periods must include inputs and valuation techniques used to measure fair value, along with any changes in valuation techniques and related inputs during the period. In addition, disclosures for debt and equity securities must be provided on a more disaggregated basis than what was required in FAS No. 157. FSP No. FAS 157-4 became effective for interim and annual reporting periods ending after June 15, 2009. FSP No. FAS 157-4 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP No. FAS 107-1 and Accounting Principles Bulletin (APB) No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for publicly traded companies for both interim and annual periods. Historically, these disclosures were only required annually. The interim disclosures are intended to provide financial statement users with more timely and transparent information about the effects of current market conditions on an entity’s financial instruments that are not otherwise reported at fair value. FSP No. FAS 107-1 became effective for interim reporting periods ending after June 15, 2009. Comparative disclosures are only required for periods ending after the initial adoption. FSP No. FAS 107-1 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” which amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP No. FAS 115-2 and FAS 124-2 does not amend existing recognition and measurement guidance for equity securities, but does establish a new method of recognizing and reporting for debt securities. Disclosure requirements for impaired debt and equity securities have been expanded significantly and are now required quarterly, as well as annually. FSP No. FAS 115-2 and FAS 124-2 became effective for interim and annual reporting periods ending after June 15, 2009. Comparative disclosures are only required for periods ending after the initial adoption. FSP No. FAS 115-2 and FAS 124-2 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which requires entities to disclose the date through which they have evaluated subsequent events and whether the date corresponds with the release of their financial statements. In addition, a new concept of financial statements being “available to be issued” was introduced. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. SFAS No. 165 did not have any impact on the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In December 2008, the SEC issued Release No. 33-8995, “Modernization of Oil and Gas Reporting,” which amends the oil and gas disclosures for oil and gas producers contained in Regulations S-K and S-X, as well as adding a section to Regulation S-K (Subpart 1200) to codify the revised disclosure requirements in Securities Act Industry Guide 2, which is being phased out. The goal of Release No. 33-8995 is to provide investors with a more meaningful and comprehensive understanding of oil and gas reserves. Energy companies affected by Release No. 33-8995 will be required to price proved oil and gas reserves using the unweighted arithmetic average of the price on the first day of each month within the 12-month period prior to the end of the reporting period, unless prices are defined by contractual arrangements, excluding escalations based on future conditions. SEC Release No. 33-8995 is effective beginning January 1, 2010. The Company is currently evaluating what impact Release No. 33-8995 may have on its financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets.” SFAS No. 166 revises SFAS No. 140 and will require entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets. SFAS No. 166 will be effective at the beginning of the first fiscal year beginning after November 15, 2009. As the Company does not anticipate having any of these types of transactions in the near future, SFAS No. 166 is not expected to have any impact on its financial position, results of operations or cash flows.

In July 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” as the sole source of authoritative non-governmental U.S. generally accepted accounting principles (GAAP). The Codification is not intended to change U.S. GAAP; however, references to various accounting pronouncements and literature will differ from what is currently being used in practice. As of July 1, 2009, the FASB no longer issues Statements, Interpretations, Staff Positions or EITF Abstracts. All guidance in the Codification has an equal level of authority. SFAS No. 168 will be effective for financial statements that cover interim and annual periods ending after September 15, 2009. Once effective, it will supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC. There will be no impact on the Company’s financial position, results of operations or cash flows as a result of the Codification.

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

(2) Significant Acquisitions, Dispositions and Property Activity

The Company makes an annual offer to repurchase the interests of the partners and trust unit holders in certain of the Partnerships and Trusts. The Company purchased such interests in an amount totaling $147,000 for the six months ended June 30, 2009 and $481,000 for the year ended December 31, 2008.

(3) Restricted Cash and Cash Equivalents:

Restricted cash and cash equivalents include $5,482,000 and $8,027,000 at June 30, 2009 and December 31, 2008, respectively, of cash primarily pertaining to undistributed revenue payments. There were corresponding accounts payable recorded at June 30, 2009 and December 31, 2008 for these liabilities.

(4) Additional Balance Sheet Information

Certain balance sheet amounts are comprised of the following:


	June 30, 2009			December 31, 2008
Accounts Receivable:
Joint interest billing	$	2,869,000		$	2,244,000
Trade receivables		1,708,000			7,270,000
Oil and gas sales		6,687,000			8,426,000
Other		927,000			608,000

		12,191,000			18,548,000
Allowance for doubtful accounts		(759,000	)		(291,000	)


	$	11,432,000		$	18,257,000


Accounts Payable:
Trade	$	9,194,000		$	9,753,000
Royalty and other owners		8,350,000			13,215,000
Other		5,415,000			3,747,000


Total	$	22,959,000		$	26,715,000


Accrued Liabilities:
Compensation and related expenses	$	2,182,000		$	2,185,000
Property cost		1,346,000			5,582,000
Income tax		64,000			504,000
Other		1,211,000			2,206,000

Total	$	4,803,000		$	10,477,000

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

(5) Property and Equipment:

Property and equipment at June 30, 2009 and December 31, 2008 consisted of the following:


	June 30, 2009			December 31, 2008
Proved oil and gas properties, at cost	$	431,456,000		$	427,174,000
Unproved oil and gas properties, at cost		2,442,000			2,409,000
Accumulated depletion and depreciation		(237,667,000	)		(217,434,000	)

	$	196,231,000		$	212,149,000

Field service equipment and other		19,456,000			19,513,000
Accumulated depreciation		(11,716,000	)		(11,197,000	)

	$	7,740,000		$	8,316,000

Total net property and equipment	$	203,971,000		$	220,465,000

(6) Long-Term Bank Debt:

The Company has credit facilities totaling $360 million, consisting of a $200 million credit facility through Guaranty Bank (the offshore facility) and a $160 million credit facility through a syndicate of banks led by Guaranty Bank (the onshore facility). The offshore facility’s maturity date is 2010 and onshore credit facility matures in 2011.

Availability under the credit facilities is based on the loan value assigned to PEC’s oil and gas properties. The determination of the Borrowing Base is made by the lenders taking into consideration the estimated value of PEC’s oil and gas properties in accordance with the lenders’ customary practices for oil and gas loans. This process involves reviewing PEC’s estimated proved reserves and their valuation. The Borrowing Base is re-determined semi-annually, and the available borrowing amount could be increased or decreased as a result of such redetermination. In addition, PEC and the lenders each have discretion at any time to have the Borrowing Base re-determined. A revision to PEC’s reserves may prompt such a request on the part of the lenders, which could possibly result in a reduction in the Borrowing Base and availability under the credit facilities. If outstanding borrowings under either of the credit facilities exceed the applicable portion of the Borrowing Base, PEC would be required to repay the excess amount within a prescribed period. If the Company is unable to pay the excess amount, it would cause an event of default.

The credit facilities include terms and covenants that require the Company to maintain, as defined, a minimum current ratio, tangible net worth, debt coverage ratio and interest coverage ratio, and restrictions are placed on the payment of dividends and the amount of treasury stock the Company may purchase. The credit facilities are collateralized by substantially all of the Company’s assets. The Company is required to mortgage, and grant a security interest in, consolidated proved oil and gas properties. PEC also pledged the stock of several subsidiaries to the lenders to secure the credit facilities.

During June 2009 the Company amended both its onshore and offshore credit facilities. The onshore facility Borrowing Base was $100 million with a monthly Borrowing Base reduction of $2 million which begins December 1, 2009. The offshore facility Borrowing Base was reduced to $10 million with a principal payment of $3.37 million due on July 1, 2009 followed by monthly payments and Borrowing Base reduction of $500,000 starting in August 2009. In both facilities the company’s borrowing rates have a floor of 2% plus applicable margin rates that vary between 3% to 5% depending on which facility, the value of current borrowing and the actual available Borrowing Base.

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

At June 30, 2009, the borrowing base was $100 million and the outstanding balance of the Company’s bank debt was $84 million under the onshore credit facility at a weighted average interest rate of 4.51%. Under the offshore credit facility, the outstanding balance was $12.87 million, with no further availability, at a weighted average interest rate of 3.59%. Total outstanding bank debt was $96.87 million at June 30, 2009. The combined average interest rates paid on outstanding bank borrowings subject to interest at the bank’s base rate and on outstanding bank borrowings bearing interest based upon the LIBO rate were 4.47% during 2009 as compared to 6.03% during 2008.

The Company entered into interest rate hedge agreements to help manage interest rate exposure. These contracts include interest rate swaps. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. The Company entered into interest swap agreements for a period of two years, beginning in April 2008, related to $60 million of Company bank debt resulting in a fixed rate of 2.375% plus the company’s current applicable margin. The underlying debt contracts above are re-priced quarterly based upon the three-month LIBO rates, the company’s floor of 2% and the applicable margin per the onshore credit facility.

Indebtedness to related parties—non-current:

During the second quarter 2008, the Company’s offshore subsidiary entered into a subordinated credit facility with a private lender with an availability of $50 million. The private lender had specific collateral pledged under a separate credit agreement. The private lender is a member of the Company’s Board of Directors. Effective June 30, 2009, the private lender agreed to release the pledged collateral under this credit facility in favor of the offshore credit facility in exchange for a second lien position on all of the assets of the offshore subsidiary and a pledge from PEC to pay the outstanding balance under the facility in full after PEC’s current bank debt is paid off and not take on any additional debt on its existing asset base. This amended facility will mature in January 2012, which will be accelerated if there is a change in control or management of PrimeEnergy Corporation, and bears interest at a rate of 10% per annum. As of June 30, 2009 advances from this facility amounted to $20 million.

(7) Other Long-Term Obligations and Commitments:

Operating Leases:

The Company has several non-cancelable operating leases, primarily for rental of office space, that have a term of more than one year.


	*Operating Leases*
2009 (July 1 through December 31,)		340,000
2010		430,000
2011		374,000
2012		121,000
Thereafter		—

Total minimum payments	$	1,265,000

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the Six Months Ended June 30, 2009 and the year ended December 31, 2008 is as follows:


	June 30, 2009			December 31, 2008
Asset retirement obligation – beginning of period	$	19,541,000		$	17,361,000
Liabilities incurred		—			627,000
Liabilities settled		(1,596,000	)		(1,292,000	)
Accretion expense		980,000			1,395,000
Revisions in estimated liabilities		—			1,450,000

Asset retirement obligation – end of period	$	18,925,000		$	19,541,000

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

The Company’s liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and the risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the subjectivity of assumptions and the relatively long life of most of the wells, the costs to ultimately retire the wells may vary significantly from previous estimates.

(8) Contingent Liabilities:

PrimeEnergy Management Corporation, a wholly-owned subsidiary, acts as the managing general partner for 18 limited partnerships and 2 trusts (collectively, the “Partnerships”). The Company, as managing general partner of the affiliated Partnerships, is responsible for all Partnership activities, including the drilling of development wells and the production and sale of oil and gas from productive wells. The Company also provides the administration, accounting and tax preparation work for the Partnerships, and is liable for all debts and liabilities of the affiliated Partnerships, to the extent that the assets of a given limited Partnership are not sufficient to satisfy its obligations. As of June 30, 2009, the affiliated Partnerships have established cash reserves in excess of their debts and liabilities and the Company believes these reserves will be sufficient to satisfy Partnership obligations.

The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will not have a material effect on the Company’s financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations which have not been material to the Company’s results of operations.

(9) Stock Options and Other Compensation:

In May 1989, non-statutory stock options were granted by the Company to four key executive officers for the purchase of shares of common stock. At June 30, 2009 and 2008, options on 767,500 were outstanding and exercisable at prices ranging from $1.00 to $1.25, and having no expiration date.

(10) Related Party Transactions:

The Company makes an annual offer to repurchase the interests of the partners and trust unit holders in certain of the Partnerships and Trusts. The Company purchased such interests in an amount totaling $147,000 for the six months ending June 30, 2009 and $481,000 for the year ending December 31, 2008.

Treasury stock purchases in any reported period may include shares acquired from a related party. There were no related party treasury stock purchases during the second quarter of 2009. Purchases from related parties in 2008 included 70,000 shares purchased for a total consideration of $3,500,000.

Receivables from related parties consist of reimbursable general and administrative costs, lease operating expenses and reimbursement for property development and related costs. These receivables are due from joint venture partners, which may include members of the Company’s Board of Directors.

Payables owed to related parties primarily represent receipts collected by the Company as agent for the joint venture partners, which may include members of the Company’s Board of Directors, for oil and gas sales net of expenses. Also included in due to related parties is the amount of accrued interest owed to the related party, a member of the Company’s Board of Directors, with whom the Company’s offshore subsidiary entered into a credit agreement. The agreement provides for a loan of $20 million at a rate of 10% annum and is secured by a second lien position of all of the assets of the offshore subsidiary. Included at June 30, 2009 was $164,000 of accrued interest on the related party loan.

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

(11) Financial Instruments

Adoption of SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a formal framework for measuring fair values of assets and liabilities in financial statements that are already required by United States generally accepted accounting principles to be measured at fair value. SFAS No. 157 clarifies guidance in FASB Concepts Statement (CON) No. 7 which discusses present value techniques in measuring fair value. Additional disclosures are also required for transactions measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which granted a one year deferral (to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years) for certain non-financial assets and liabilities to comply with SFAS No. 157. Additionally, in February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” which amends SFAS No. 157 to exclude SFAS No. 13 and related pronouncements that address fair value measurements for purposes of lease classification and measurement. FSP No. FAS 157-1 is effective upon the initial adoption of SFAS No. 157. The Company has adopted SFAS No. 157 and the related FSPs discussed above which did not have an impact on its financial position or results of operations for the period ended June 30, 2009.

As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in the principal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability.

The valuation techniques that can be used under SFAS No. 157 are the market approach, income approach or cost approach. The market approach uses prices and other information for market transactions involving identical or comparable assets or liabilities, such as matrix pricing. The income approach uses valuation techniques to convert future amounts to a single discounted present amount based on current market conditions about those future amounts, such as present value techniques, option pricing models (i.e. Black-Scholes model) and binomial models (i.e. Monte-Carlo model). The cost approach is based on current replacement cost to replace an asset.

The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. SFAS No. 157 establishes a formal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority level 1 measurements and the lowest priority to level 3 measurements, and accordingly, level 1 measurements should be used whenever possible.

The three levels of the fair value hierarchy as defined by SFAS No. 157 are as follows:

•

Level 1: Valuations utilizing quoted, unadjusted prices for identical assets or liabilities in active markets that the Company has the ability to access. This is the most reliable evidence of fair value and does not require a significant degree of judgment. Examples include exchange-traded derivatives and listed equities that are actively traded.

•

Level 2: Valuations utilizing quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly for substantially the full term of the asset or liability. Financial instruments that are valued using models or other valuation methodologies are included. Models used should primarily be industry-standard models that consider various assumptions and economic measures, such as interest rates, yield curves, time value, volatilities, contract terms, current market prices, credit risk or other market-corroborated inputs. Examples include most over-the-counter derivatives (non-exchange traded), physical commodities, most structured notes and municipal and corporate bonds.

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

•

Level 3: Valuations utilizing significant, unobservable inputs. This provides the least objective evidence of fair value and requires a significant degree of judgment. Inputs may be used with internally developed methodologies and should reflect an entity’s assumptions using the best information available about the assumptions that market participants would use in pricing an asset or liability. Examples include certain corporate loans, real-estate and private equity investments and long-dated or complex over-the-counter derivatives.

Depending on the particular asset or liability, input availability can vary depending on factors such as product type, longevity of a product in the market and other particular transaction conditions. In some cases, certain inputs used to measure fair value may be categorized into different levels of the fair value hierarchy. For disclosure purposes under SFAS No. 157, the lowest level that contains significant inputs used in valuation should be chosen. Per SFAS No. 157, the Company has classified its assets and liabilities into these levels depending upon the data relied on to determine the fair values. The fair values of the Company’s natural gas and crude oil price collars and swaps are valued based upon quotes obtained from counterparties to the agreements and are designated as Level 3.

The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2009:


	Quoted Prices in Active Markets For Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)			Balance as of June 30, 2009
Liabilities

Interest Rate Derivative Contracts	—	—	$	(690,000	)	$	(690,000	)


Total Liability	—	—	$	(690,000	)	$	(690,000	)

The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using a model that considers various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term. Although the Company utilizes multiple quotes to assess the reasonableness of its values, the Company has not attempted to obtain sufficient corroborating market evidence to support classifying these derivative contracts as Level 2.

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as level 3 in the fair value hierarchy.


Net assets as of January 1, 2009	$	1,578,000
Total realized and unrealized losses:
Included in earnings (a)		785,000
Included in other comprehensive income		(3,053,000	)
Purchases, sales, issuances and settlements, net		—

Net liabilities as of June 30, 2009	$	(690,000	)

(a)	Amounts reported in net income are classified as oil and gas sales for commodity derivative instruments and as a reduction to interest expense for interest rate swap instruments.

At June 30, 2009, a $690,000 ($441,000 net of tax) unrealized loss was recorded in Accumulated Other Comprehensive Income, along with $690,000 in short-term derivative payables. The change in the fair value of derivatives designated as hedges that is effective is initially recorded to Accumulated Other Comprehensive Income. The ineffective portion, if any, of the change in the fair value of derivatives designated as hedges, and the change in fair value of all other derivatives, is recorded currently in earnings as a component of oil and gas sales and interest expense.

PrimeEnergy Corporation

Notes to Consolidated Financial Statements

June 30, 2009

The Company periodically enters into derivative commodity instruments to hedge its exposure to price fluctuations on natural gas and crude oil production. At June 30, 2009 the Company has five crude oil collar arrangements open. As of June 30, 2009, the oil price collars cover 423 Mbbl of production at a floor price ranging from $60.00 to $65.00, and a ceiling price ranging from $77.40 to $86.50.

Assuming no change in commodity prices, after June 30, 2009, the Company would expect to reclassify to the Statement of Operations, over the next 12 months, $441,000 in after-tax loss associated with interest rate swaps. This reclassification represents the net short-term payable associated with open swaps currently not reflected in earnings at June 30, 2009 associated with anticipated interest expense occurring throughout the remainder of 2009.

(12)	Earnings Per Share:

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock. The following reconciles amounts reported in the financial statements:


	Six Months Ended June 30, 2009							Six Months Ended June 30, 2008
	Net Income/(loss)			Number of Shares	Per Share Amount			Net Income		Number of Shares	Per Share Amount
Net income (loss) per common share	$	(7,652,000	)	3,042,867	$	(2.51	)	$	6,750,000	3,074,725	$	2.20
Effect of dilutive securities:
Options				746,214						753,132

Diluted net income (loss) per common share	$	(7,652,000	)	3,789,081	$	(2.02	)	$	6,750,000	3,827,857	$	1.76


	Three Months Ended June 30, 2009							Three Months Ended June 30, 2008
	Net Income/(loss)			Number of Shares	Per Share Amount			Net Income		Number of Shares	Per Share Amount
Net income (loss) per common share	$	(4,154,000	)	3,040,999	$	(1.37	)	$	4,019,000	3,057,831	$	1.31
Effect of dilutive securities:
Options				747,313						753,563

Diluted net income (loss) per common share	$	(4,154,000	)	3,788,312	$	(1.10	)	$	4,019,000	3,811,394	$	1.05

(13)

Effective July 1, 2009, pursuant to a vote of the shareholders amending the Articles of Incorporation, the authorized shares of common stock were reduced from 10,000,000 to 4,000,000, and the class of Preferred Stock of the Company, no shares of which have been issued, was eliminated. In conjunction with this amendment the Board of Directors approved the retirement on July 1, 2009, of 3,854,098 shares of treasury stock.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the financial statements of the Company and notes thereto.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow provided by operations for the six month period ended June 30, 2009 was $18,687,000. Excluding the effects of significant unforeseen expenses or other income, our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts. Our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control. Hurricanes in the Gulf of Mexico may shut down our production for the duration of the storm’s presence in the Gulf or damage production facilities so that we cannot produce from a particular property for an extended amount of time. In addition, downstream activities on major pipelines in the Gulf of Mexico can also cause us to shut-in production for various lengths of time.

Our realized oil and gas prices vary due to world political events, supply and demand of products, product storage levels, and weather patterns. We sell the vast majority of our production at spot market prices. Accordingly, product price volatility will affect our cash flow from operations. To mitigate price volatility we sometimes lock in prices for some portion of our production through the use of financial instruments. The Company entered into six commodity derivative financial instruments after the quarter ended June 30, 2009.


Commodity	Derivative Type	Contract Price	Total Volumes	Contract Period
Crude Oil	Collar	$60.00 / 77.40	114,000 bbls	2009
Crude Oil	Collar	$65.00 / 86.50	24,000 bbls	2009
Crude Oil	Collar	$65.00 / 80.90	204,000 bbls	2010
Crude Oil	Collar	$65.00 / 84.14	36,000 bbls	2010
Crude Oil	Collar	$65.00 / 84.00	45,000 bbls	2011
Crude Oil	Collar	$70.00 / 81.80	120,000 bbls	2010
Crude Oil	Collar	$70.00 / 86.30	30,999 bbls	2011
Crude Oil	Collar	$70.00 / 89.30	227,997 bbls	2011
Crude Oil	Collar	$70.00 / 92.85	168,000 bbls	2012
Natural Gas	Swap	$6.04	1,200,000 mmbtu	2010
Natural Gas	Swap	$6.13	600,000 mmbtu	2010

The Company’s activities include development and exploratory drilling. The Company’s strategy is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential.

The Company’s strategy in 2009 is to continue to reduce its outstanding debt which decreased by $30,860,000 in 2008 and approximately $7 million in 2009. This decreased leveraged position will better provide the Company the ability to participate in a significant acquisition, should the opportunity arise this year.

The Company has in place both a stock repurchase program and a limited partnership interest repurchase program. Spending under these programs in 2008 was $5.03 million. The Company expects to expend substantially less in 2009 because of the drop in energy prices. During the second quarter of 2009 the Company spent only $415,000 under these programs.

The Company currently maintains two bank credit facilities totaling $360 million, with a combined current borrowing base of $110 million. The bank reviews the borrowing base semi-annually and, at their discretion, may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves. Our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial covenants defined in the agreement. We are currently in compliance with these financial covenants. If we do not comply with these covenants on a continuing basis, the lenders have the right to refuse to advance additional funds under the facility and/or declare all principal and interest immediately due and payable.

In April 2008, the Company entered into an amended and restated credit agreement related to the offshore credit facility allowing for a subordinated credit facility with a private lender and the release of certain collateral which was then pledged to the new lender under a separate credit agreement.

Effective June 30, 2009, the private lender agreed to release the pledged collateral under this credit facility in favor of the offshore credit facility in exchange for a second lien position on all of the assets of the offshore subsidiary and a pledge from PEC to not take on any additional debt in excess of $112 million on its existing onshore asset base. This amended facility will mature in January 2012, which will be accelerated if there is a change in control or management of PrimeEnergy Corporation, and bears interest at a rate of 10% per annum.

It is the goal of the Company to increase its oil and gas reserves and production through the acquisition and development of oil and gas properties. The Company also continues to explore and consider opportunities to further expand its oilfield servicing revenues through additional investment in field service equipment. However, the majority of the Company’s capital spending is discretionary, and the ultimate level of expenditures will be dependent on the Company’s assessment of the oil and gas business environment, the number and quality of oil and gas prospects available, the market for oilfield services, and oil and gas business opportunities in general.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS

Revenues and net income (loss) during the six month period ended June 30, 2009, as compared to the same periods in 2008 reflect the increased oil and decreased gas sales, presented below, offset by depreciation and depletion of oil and gas properties. The table summarizes production volumes and average sales prices realized (including realized gains and losses from derivatives).


	Six Months Ended June 30,							Three Months Ended June 30,
	2009		2008		Increase / (Decrease)			2009		2008		Increase / (Decrease)
Barrels of Oil Produced		341,000		320,000		21,000			169,000		165,000		4,000
Average Price Received	$	50.64	$	94.19	$	(43.55	)	$	57.21	$	108.50	$	(51.29	)

Oil Revenue	$	17,244,000	$	30,140,000	$	(12,896,000	)	$	9,669,000	$	17,902,000	$	(8,233,000	)

Mcf of Gas Produced		3,673,000		4,723,000		(1,050,000	)		1,802,000		2,341,000		(539,000	)
Average Price Received	$	4.17	$	9.42	$	(5.25	)	$	3.80	$	9.67	$	(5.87	)

Gas Revenue	$	15,305,000	$	44,508,000	$	(29,203,000	)	$	6,842,000	$	22,645,000	$	(15,803,000	)

Total Oil & Gas Revenue	$	32,549,000	$	74,648,000	$	(42,099,000	)	$	16,511,000	$	40,547,000	$	(24,036,000	)

Oil and gas prices received excluding the impact of derivatives were;


	Six Months Ended June 30,							Three Months Ended June 30,
	2009		2008		Increase / (Decrease)			2009		2008		Increase / (Decrease)
Oil Price	$	46.19	$	109.26	$	(63.07	)	$	36.96	$	128.49	$	(91.53	)
Gas Price	$	4.17	$	9.83	$	(5.66	)	$	4.52	$	10.90	$	(6.38	)

The increase in oil production is due to properties added during 2008 from our 2008 West Texas drilling program offset by the natural decline of existing properties. The decrease in gas production is primarily due to the natural decline of the offshore properties.

Lease operating expense for the six months of 2009 decreased by $4,482,000, or 21%, compared to 2008 due to overall price decreases in oil field services combined with reduced production taxes related to reduced commodity prices.

General and administrative expenses decreased $1,670,000, or 23%, in the first six months of 2009 as compared to 2008 due to reductions in personnel costs.

Field Service income and expense for the six months of 2009 decreased $3,567,000 and $1,379,000, or 28% and 14%, respectively, compared to 2008. These decreases reflect lower rates, utilization and labor costs during 2009.

Depreciation, depletion and amortization expense for the first six months of 2009 decreased to $22,132,000 in 2009 from $35,629,000 in 2008. This decrease is primarily related to the decrease in offshore production during the first six months of 2009.

This Report contains forward-looking statements that are based on management’s current expectations, estimates and projections. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “projects” and “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbors created thereby. These statements are not guarantees of future performance and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that they will prove to be accurate. Actual results and outcomes may vary materially from what is expressed or forecast in such statements due to various risks and uncertainties. These risks and uncertainties include, among other things, the possibility of drilling cost overruns and technical difficulties, volatility of oil and gas prices, competition, risks inherent in the Company’s oil and gas operations, the inexact nature of interpretation of seismic and other geological and geophysical data, imprecision of reserve estimates, and the Company’s ability to replace and expand oil and gas reserves. Accordingly, stockholders and potential investors are cautioned that certain events or circumstances could cause actual results to differ materially from those projected.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is a smaller reporting company and no response is required pursuant to this Item.

Item 4.

CONTROLS AND PROCEDURES

As of the end of the current reported period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective, in all material respects, with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and forms, of information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

There were no significant changes in the Company’s internal control over financial reporting that occurred during the second quarter of 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

From time to time, the Company is party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

Item 1A.

RISK FACTORS

The Company is a smaller reporting company and no response is required pursuant to this Item.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of equity securities by the Company during the period covered by this report.

During the six months ended June 30, 2009, the Company purchased the following shares of common stock as treasury shares.


Name	Number of Shares	Average Price Paid per share		Maximum Number of Shares that May Yet Be Purchased Under The Plan (1)
January	1,803	$	42.82	194,920
February	2,209	$	34.18	192,711
March	1,824	$	39.38	190,887
April	946	$	45.77	189,941
May	—		—	189,941
June	—	$	—	189,941

Total/Average	6,782	$	39.49

(1)

In December 1993, we announced that our board of directors authorized a stock repurchase program whereby we may purchase outstanding shares of our common stock from time-to-time, in open market transactions or negotiated sales. A total of 2,700,000 shares have been authorized, to date, under this program. Through June 30, 2009 we repurchased a total of 2,510,059 shares under this program for $33,928,627 at an average price of $13.52 per share. Additional purchases may occur as market conditions warrant. We expect future purchases will be funded with internally generated cash flow or from working capital.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of stockholders of the Company was held June 23, 2009. Two matters were submitted to a vote of the stockholders: the election of seven Directors of the Company and the approval of an amendment, effective July 1, 2009, to the Restated Certificate of Incorporation of the Company to eliminate the authorized class of Preferred Stock of the Company, no shares of which have been issued, and to decrease the number of authorized shares of Common Stock from 10,000,000 shares, par value $.10 per share, to 4,000,000 shares, par value $.10 per share. Proxies were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934. There were 3,041,513 shares outstanding and entitled to vote at the meeting.

Seven persons were nominated by management for election as Directors of the Company, each for a term of one year. All of such persons were currently serving as Directors of the Company. There were no other persons serving as Directors and there was no Director whose term of office continued after the meeting. There were no other nominees and there was no solicitation in opposition to management’s nominees and all of such nominees were elected. The names of each Director elected at the meeting and the number of shares voted for or withheld for each nominee, is as follows. There were no abstentions or broker non-votes.


Name	For	Withheld
Beverly A. Cummings	2,928,847	103,263
Charles E. Drimal, Jr.	2,928,646	103,464
Matthias Eckenstein	2,939,599	92,511
H. Gifford Fong	3,028,902	3,208
Thomas S. T. Gimbel	2,914,230	117,880
Clint Hurt	2,914,230	117,880
Jan K. Smeets	2,941,600	90,410

The approval of the amendment to the Restated Certificate of Incorporation of the Company required the approval of a majority of the issued and outstanding shares of the Company’s Common stock, or not less than 1,520,758 shares. There were 2,718,537 shares voted for the amendment, 3, 493 shares voted against the amendment, 1,227 shares abstained, and 308,853 broker non-votes.

Item 5.

OTHER INFORMATION

None

Item 6.

EXHIBITS

The following exhibits are filed as a part of this Report:


Exhibit No.
3.1		Restated Certificate of Incorporation of PrimeEnergy Corporation (effective July 1, 2009) (filed herewith).

10.22.5.7		Sixth Amendment to Amended and Restated Credit Agreement Among PrimeEnergy Corporation, PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well Service Company, Southwest Oilfield Construction Company, EOWS Midland Company and Guaranty Bank, FSB, as Agent and Letter of Credit Issuer and the Lenders Signatory Hereto, effective June 19, 2009 (filed herewith).

10.26.3		Consent, Waiver and First Amendment to Amended and Restated Credit Agreement Among Prime Offshore L.L.C., Guaranty Bank, FSB, as Agent and the Lenders Party Hereto, effective June 30, 2009 (filed herewith).

10.27.2		Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production from Prime Offshore L.L.C. for the benefit of Guaranty Bank, FSB, Agent, effective June 30, 2009 (filed herewith).

10.27.3.1		Loan Modification effective 30 ^th day of June, 2009 by and between Artic Management Corporation, Prime Offshore L.L.C. and PrimeEnergy Corporation (filed herewith).

10.27.7		Pledge Agreement made effective June 30, 2009, by and between Prime Offshore L.L.C. and Guaranty Bank, FSB, as Agent (filed herewith).

10.27.8		Subordination of Liens and Security Interests effective June 30, 2009, by Artic Management Corporation for the benefit of Guaranty Bank, FSB, as Agent (filed herewith).

31.1		Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).

31.2		Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


				PrimeEnergy Corporation
				(Registrant)

August 13, 2009				/s/ Charles E. Drimal, Jr.
(Date)				Charles E. Drimal, Jr.
				President
				Principal Executive Officer

August 13, 2009				/s/ Beverly A. Cummings
(Date)				Beverly A. Cummings
				Executive Vice President
				Principal Financial Officer

August 13, 2009				/s/ Lynne Pizor
(Date)				Lynne Pizor
				Controller, Principal Accounting Officer

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

PRIMEENERGY CORPORATION

******************************************

PrimeEnergy Corporation, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

1. The name of the corporation is PrimeEnergy Corporation. The name under which the corporation was originally incorporated was K.R.M. Petroleum Corporation. The date of filing of its original Certificate of Incorporation with the Secretary of State was March 22, 1973.

2. This Restated Certificate of Incorporation restates and integrates and does not further amend the provisions of the Certificate of the corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.

3. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full.

FIRST: The name of the corporation is PrimeEnergy Corporation.

SECOND: Its registered office in the State of Delaware is located at the Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The name and address of its registered agent is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

THIRD: The purpose of the corporation is to acquire, own, hold, deal in, explore, develop and operate oil, gas and other mineral properties and interests therein of all kinds; to produce, process, transport and sell the resulting products and to purchase, lease, own, hold, deal in and operate all equipment, machinery, facilities, systems and plants necessary for such purposes; and to engage generally in all phases of the oil and gas business and any lawful act or activity for which corporations may be organized under the General Law of Delaware.

FOURTH: The number of shares of stock which the corporation shall have authority to issue is Four Million (4,000,000) shares of Common Stock, par value $.10 per share.

FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:

A. To make, alter or repeal the Bylaws of the corporation.

B. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation.

C. When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders’ meeting duly called for that purpose, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding, to sell, lease, or exchange all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may be in whole or in part shares of stock in, and/or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and for the best interests of the corporation.

SIXTH: No Director of the corporation shall be liable to any person on account of any action undertaken by him as such Director in reliance in good faith upon the existence of any fact or circumstance reported or certified to the Board of Directors by any officer of the corporation or by any independent auditor, engineer or consultant retained or employed as such by the Board of Directors.

Any person made a party to any civil or criminal action, suit or proceeding by reason of the fact that he, his testator or intestate, is or was a Director, officer of employee of the corporation or any corporation which he served as such at the request of the corporation, shall be indemnified by the corporation against the reasonable expenses, including attorneys’ fees, and amounts paid in satisfaction of judgment or in settlement, other than amounts paid to the corporation by him, actually and necessarily incurred by him or imposed in connection with or resulting from the demise of such civil or criminal action, suit or proceeding, or in connection with any appeal therein, except in a relation to matters as to which it shall be adjudged in such civil or criminal action, suit or proceeding that such office, Director or employee is liable for negligence or misconduct in the performance of his duties. Neither a conviction in a criminal action, suit or proceeding, whether based upon a plea of guilty or nolo contendere or its equivalent, or after trial, nor a settlement in any civil action, suit or proceeding shall or itself be deemed an adjudication that such officer, Director or employee is liable for negligence or misconduct in the performance of his duties to the corporation. Any amount payable pursuant to this Article SIXTH may be determined and paid, at the option of the person to be indemnified, pursuant to procedure set forth from time to time in the Bylaws or by any of the following procedures: (a) order of the court having jurisdiction of any such civil or criminal

action, suit or proceeding, (b) resolution adopted by a majority of a quorum of the Board of Directors of the corporation without counting in such majority or quorum any interested Directors, (c) resolution adopted by the holders of record of a majority of the outstanding shares of capital stock of the corporation having voting power, or (d) order of any court having jurisdiction over the corporation. Such right of indemnification shall not be exclusive of any other right which such officers, Directors and employees of the corporation, and the corporation, and the other persons above mentioned, may have such statement, they shall be entitled to their respective rights of indemnification under any Bylaw, agreement, vote of stockholders, provisions of law or otherwise as their rights under this Article SIXTH.

SEVENTH: Meetings of stockholders may be held without the State of Delaware if the Bylaws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be from time to time designated by the Board of Directors or the Bylaws of the corporation.

EIGHTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute.

NINTH: No person serving as a Director of the corporation shall have any personal liability to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, provided that, such restriction on personal liability shall not eliminate or limit the liability of a Director (i) for any breach of the Director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payment of any dividend or unlawful stock purchase or redemption under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the Director derived an improper personal benefit.

This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, PrimeEnergy Corporation has caused this Restated Certificate of Incorporation to be signed by Charles E. Drimal, Jr., its president, this 23rd day of June, 2009.


PrimeEnergy Corporation

By:		/s/ Charles E. Drimal, Jr.
		Charles E. Drimal, Jr. President

Exhibit 10.22.5.7

SIXTH AMENDMENT TO

AMENDED AND RESTATED CREDIT AGREEMENT

AMONG

PRIMEENERGY CORPORATION

PRIMEENERGY MANAGEMENT CORPORATION

PRIME OPERATING COMPANY

EASTERN OIL WELL SERVICE COMPANY

SOUTHWEST OILFIELD CONSTRUCTION COMPANY

EOWS MIDLAND COMPANY

GUARANTY BANK, FSB

AS AGENT AND LETTER OF CREDIT ISSUER

AND

THE LENDERS SIGNATORY HERETO

Effective

June 19, 2009

TABLE OF CONTENTS


		PAGE
ARTICLE I	DEFINITIONS	1
1.1	Terms Defined Above	1
1.2	Terms Defined in Agreement	1
1.3	References	1
1.4	Articles and Sections	2
1.5	Number and Gender	2
1.6	Negotiated Transaction	2

ARTICLE II	AMENDMENTS	2
2.1	Amendments of Section 1.2	2
2.2	Amendment of Section 2.12	4
2.3	Addition of Section 2.24	4
2.4	Amendment to Section 8.2	4

ARTICLE III	RATIFICATION AND ACKNOWLEDGMENT	5

ARTICLE IV	REPRESENTATIONS AND WARRANTIES	5

ARTICLE V	MISCELLANEOUS	5
5.1	Parties in Interest	5
5.2	Rights of Third Parties	5
5.3	Counterparts	5
5.4	Integration	6
5.5	Invalidity	6
5.6	Governing Law	6
5.7	Amendment as Loan Document	6
5.8	Waiver Limitation	6

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SIXTH AMENDMENT TO

AMENDED AND RESTATED CREDIT AGREEMENT

This SIXTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “ Amendment ”) is made and entered into effective as of June 19, 2009 (the “ Effective Date ”), by and among PRIMEENERGY CORPORATION, a Delaware corporation, PRIMEENERGY MANAGEMENT CORPORATION, a New York corporation, PRIME OPERATING COMPANY, a Texas corporation, EASTERN OIL WELL SERVICE COMPANY, a West Virginia corporation, SOUTHWEST OILFIELD CONSTRUCTION COMPANY, an Oklahoma corporation, and EOWS MIDLAND COMPANY, a Texas corporation (collectively, the “ Borrower ”), each lender that is a signatory hereto (individually, together with its successors and assigns, a “ Lender ” and collectively together, with their respective successors and assigns, the “ Lenders ”) and GUARANTY BANK, FSB, a federal savings bank, as agent for the Lenders (in such capacity, together with its successors in such capacity pursuant to the terms of the Amended and Restated Credit Agreement referred to hereinafter, the “ Agent ”) and letter of credit issuer.

W I T N E S S E T H :

WHEREAS, the above named parties did execute and exchange counterparts of that certain Amended and Restated Credit Agreement dated December 28, 2006, as amended to the Effective Date (as so amended, the “Agreement”), to which reference is here made for all purposes;

WHEREAS, the Borrower, the Lenders and the Agent are desirous of amending the Agreement in the particulars hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties to the Agreement, as set forth therein, and the mutual covenants and agreements of the parties hereto, as set forth herein, the Borrower, the Lenders and the Agent agree as follows:

ARTICLE I

DEFINITIONS

1.1 Terms Defined Above . As used herein, each of the terms “ Agent ,” “Agreement,” “ Amendment ,” “ Borrower ,” “ Effective Date ,” “ Lender ” and “ Lenders ” shall have the meaning assigned to such term hereinabove.

1.2 Terms Defined in Agreement . As used herein, each term defined in the Agreement shall have the meaning assigned thereto in the Agreement, unless expressly provided herein to the contrary.

1.3 References . References in this Amendment to Schedule, Exhibit, Article, or Section numbers shall be to Schedules, Exhibits, Articles, or Sections of this Amendment, unless expressly stated to the contrary. References in this Amendment to “hereby,” “herein,” “hereinafter,” “hereinabove,” “hereinbelow,” “hereof,” “hereunder” and words of similar import shall be to this Amendment in its entirety and not only to the particular Schedule, Exhibit,

Article, or Section in which such reference appears. Specific enumeration herein shall not exclude the general and, in such regard, the terms “includes” and “including” used herein shall mean “includes, without limitation,” or “including, without limitation,” as the case may be, where appropriate. Except as otherwise indicated, references in this Amendment to statutes, sections, or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending, replacing, succeeding, or supplementing the statute, section, or regulation referred to. References in this Amendment to “writing” include printing, typing, lithography, facsimile reproduction, and other means of reproducing words in a tangible visible form. References in this Amendment to amendments and other contractual instruments shall be deemed to include all exhibits and appendices attached thereto and all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Amendment. References in this Amendment to Persons include their respective successors and permitted assigns.

1.4 Articles and Sections . This Amendment, for convenience only, has been divided into Articles and Sections; and it is understood that the rights and other legal relations of the parties hereto shall be determined from this instrument as an entirety and without regard to the aforesaid division into Articles and Sections and without regard to headings prefixed to such Articles or Sections.

1.5 Number and Gender . Whenever the context requires, reference herein made to the single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular. Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as the case may be, unless otherwise indicated. Words denoting sex shall be construed to include the masculine, feminine and neuter, when such construction is appropriate; and specific enumeration shall not exclude the general but shall be construed as cumulative.

1.6 Negotiated Transaction . Each party to this Amendment affirms to the other that it has had the opportunity to consult, and discuss the provisions of this Amendment with, independent counsel and fully understands the legal effect of each provision.

ARTICLE II

AMENDMENTS

2.1 Amendments of Section 1.2 . Section 1.2 of the Agreement is amended as follows:

(a) the definition of “Adjusted LIBO Rate” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“‘ Adjusted LIBO Rate ’ shall mean, for any LIBO Rate Loan, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be the sum of the LIBO Rate for such LIBO Rate Loan plus the Applicable Margin, but in no event exceeding the Highest Lawful Rate or being less than five percent (5%) per annum.”;

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(b) the definition of “Applicable Margin” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“‘ Applicable Margin ’ shall mean, as to each LIBO Rate Loan resulting in a Loan Balance in excess of the then amount of the Borrowing Base, four percent (4%) and otherwise three percent (3%).”;

(c) the definition of “Floating Rate” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“‘ Floating Rate ’ shall mean an interest rate per annum equal to the sum of (a) the Base Rate in effect from time to time plus (b), as to each Floating Rate Loan resulting in a Loan Balance in excess of the then amount of the Borrowing Base, three percent (3%) and otherwise two percent (2%), but in no event exceeding the Highest Lawful Rate or being less than five percent (5%) per annum.”;

(d) the definition of “LIBO Rate” appearing in Section 1.2 of the Agreement is amended to add thereto a new final sentence reading as follows:

“Notwithstanding the foregoing in this definition, in no event shall “LIBO Rate” mean a rate less than two percent (2%) per annum, calculated on the basis of a year of 360 days.”;

(e) the definition of “Interest Period” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“‘ Interest Period ’ shall mean, subject to the limitations set forth in Section 2.21, with respect to any LIBO Rate Loan, a period commencing on the date such Loan is made or converted from a Loan of another type pursuant to this Agreement or the last day of the next preceding Interest Period with respect to such Loan and ending on the numerically corresponding day in the calendar month this is one, two or three months thereafter, as the Borrower may request in the Borrowing Request for such LIBO Rate Loan.”; and

(f) the following definition is inserted in its proper alphabetical location in Section 1.2 of the Agreement:

“‘ Defaulting Lender ’ shall mean any Lender, as reasonably determined by the Agent, that has (a) failed to fund any portion of its Loans or participations in Letters of Credit within three Business Days of the date required to be funded by it hereunder, (b) notified the Borrower, the Agent or any Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under

- 5 -

this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three Business Days after a request by the Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans and participations in then outstanding Letters of Credit, (d) otherwise failed to pay over to the Agent or any other Lender any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) become or is insolvent or has a parent company that has become or is insolvent or (ii) become the subject of a Insolvency Proceeding or had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a Insolvency Proceeding, or had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.”;

2.2 Amendment of Section 2.12 . Section 2.12 of the Agreement is amended to substitute “one-half of one percent (0.50%)” for “0.375%” appearing in such Section 2.12.

2.3 Addition of Section 2.24 . The Credit Agreement is amended to add thereto a new Section 2.24 reading as follows:

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

(a) if any L/C Exposure exists at the time a Lender is a Defaulting Lender, the Borrower shall, within one Business Day following notice by the Agent, cash collateralize such Defaulting Lender’s Percentage Share of the then existing L/C Exposure in accordance with the procedures set forth in Section 2.10 for so long as such L/C Exposure is outstanding; and

(b) the Agent shall not be required to issue, amend or increase any Letter of Credit unless it is satisfied that cash collateral will be provided by the Borrower in accordance with Section 2.10 and this Section 2.24.”

2.4 Amendment to Section 8.2 . Section 8.2 of the Agreement to substitute for the words “amend, modify or waive any provision of this Section or Section 2.9” appearing in the sixteenth line of the text of such Section 8.2 the following words:

“amend, modify or waive any provision of this Section, Section 2.8 or Section 2.9”.

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ARTICLE III

RATIFICATION AND ACKNOWLEDGMENT

Each of the Borrower, the Lenders and the Agent does hereby adopt, ratify and confirm the Agreement, as amended hereby, and acknowledges and agrees that the Agreement, as amended hereby, and each of the other Loan Documents to which it is a party is and remains in full force and effect. Each of the Borrower, the Lenders and the Agent hereby agrees and acknowledges that, as of the Effective Date, the Borrowing Base is $90,000,000 and the Monthly Reduction Amount is $0 as to points in time prior to December 1, 2009 and $2,000,000 thereafter, with the first reduction of the Borrowing Base amount as a result of such Monthly Reduction Amount of $2,000,000 to occur on December 1, 2009.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower does hereby re-make in favor of the Lenders and the Agent each of the representations and warranties made by it in the Loan Documents to which it is a party and further represents and warrants that each of such representations and warranties made by it remains true and correct as of the date of execution of this Amendment. Furthermore, the Borrower represents and warrants to the Lenders and the Agent that, as of the Effective Date and the date of its execution hereof and giving effect to this Amendment, there exists neither an Event of Default nor a Default.

ARTICLE V

MISCELLANEOUS

5.1 Parties in Interest . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Agreement.

5.2 Rights of Third Parties . Except as provided in Section 5.1 , all provisions herein are imposed solely and exclusively for the benefit of the parties hereto.

5.3 Counterparts . This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument and shall be enforceable upon the execution of one or more counterparts hereof by each of the parties hereto. In this regard, each of the parties hereto acknowledges that a counterpart of this Amendment containing a set of counterpart execution pages reflecting the execution of each party hereto shall be sufficient to reflect the execution of this Amendment by each necessary party hereto and shall constitute one instrument.

- 7 -

5.4 Integration . This Amendment constitutes the entire agreement among the parties hereto with respect to the subject hereof. All prior understandings, statements and agreements, whether written or oral, relating to the subject hereof are superseded by this Amendment.

5.5 Invalidity . I N THE EVENT THAT ANY ONE OR MORE OF THE PROVISIONS CONTAINED IN THIS A MENDMENT 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 A MENDMENT .

5.6 Governing Law . T HIS A MENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE S TATE OF T EXAS , WITHOUT REGARD TO PRINCIPLES OF SUCH LAWS RELATING TO CONFLICT OF LAWS .

5.7 Amendment as Loan Document . This Amendment shall constitute a Loan Document.

5.8 Waiver Limitation . The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor, except as expressly provided herein, constitute a waiver or amendment of any provision of any of the Loan Documents.

(Signatures appear on following pages)

- 8 -

IN WITNESS WHEREOF, this Sixth Amendment to Amended and Restated Credit Agreement is executed effective as of the Effective Date.


BORROWER:

PRIMEENERGY CORPORATION
PRIMEENERGY MANAGEMENT CORPORATION
PRIME OPERATING COMPANY
EASTERN OIL WELL SERVICE COMPANY
SOUTHWEST OILFIELD CONSTRUCTION COMPANY
EOWS MIDLAND COMPANY

By:
		Beverly A. Cummings
		Executive Vice President, Treasurer and Chief Financial Officer of each such entity

(Signatures continue on following pages)

- 9 -


AGENT:

GUARANTY BANK, FSB, as Agent

By:
		W. David McCarver IV
		Vice President

LENDER:

GUARANTY BANK, FSB

By:
		W. David McCarver IV
		Vice President

(Signatures continue on following pages)

- 10 -


LENDER:

BNP PARIBAS

By:
		Douglas R. Liftman
		Managing Director

By:
Name:
Title:

(Signatures continue on following page)

- 11 -


LENDER:

JPMORGAN CHASE BANK, N.A.

By:
		Jo Linda Papadakis
		Vice President

- 12 -

Exhibit 10.26.3

CONSENT, WAIVER AND FIRST AMENDMENT

TO AMENDED AND RESTATED CREDIT AGREEMENT

AMONG

PRIME OFFSHORE L.L.C.

GUARANTY BANK, FSB,

as Agent

AND

THE LENDERS PARTY HERETO

Effective

June 30, 2009

TABLE OF CONTENTS


		Page
ARTICLE I	DEFINITIONS AND INTERPRETATION	1
1.1	Terms Defined Above	1
1.2	Terms Defined in Agreement	1
1.3	References	1
1.4	Articles and Sections	2
1.5	Number and Gender	2
1.6	Negotiated Transaction	2

ARTICLE II	CONSENT AND WAIVER	2
2.1	Consent	2
2.2	Waiver	2
2.3	Limitation on Consent and Waiver	2

ARTICLE III	AMENDMENTS	3
3.1	Amendments to Section 1.2	3
3.2	Amendment to Section 2.12	3

ARTICLE IV	RATIFICATION AND ACKNOWLEDGMENT	4

ARTICLE V	REPRESENTATIONS AND WARRANTIES	4

ARTICLE VI	CONDITIONS TO EFFECTIVENESS	4

ARTICLE VII	MISCELLANEOUS	5
7.1	Successors and Assigns	5
7.2	Rights of Third Parties	5
7.3	Counterparts	5
7.4	Integration	5
7.5	Invalidity	5
7.6	Governing Law	5

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CONSENT, WAIVER AND FIRST AMENDMENT

TO AMENDED AND RESTATED CREDIT AGREEMENT

This CONSENT, WAIVER AND FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “ Amendment ”) is made and entered into effective the 30 ^th day of June, 2009 (the “ Effective Date ”), by and among PRIME OFFSHORE L.L.C., a Delaware limited liability company (the “ Borrower ”), the lenders party to the Amended and Restated Credit Agreement referred to below (collectively, the “ Lenders ”) and GUARANTY BANK, FSB, a federal savings bank, as administrative agent for the Lenders pursuant to such Amended and Restated Credit Agreement (in such capacity, the “ Agent ”).

W I T N E S S E T H :

WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Credit Agreement dated effective March 31, 2008 (the “ Agreement ”);

WHEREAS, the Borrower has requested that the Agent and the Lenders consent to, and waive any default or right to exercise any remedy as a result of, the Borrower having failed to be in compliance with Section 6.16 of the Agreement at December 31, 2008 and Section 5.2 of the Agreement as to timely delivery of its Financial Statements at March 31, 2009 and for the quarter then ended, and the Agent and the Lenders have agreed to do so as provided in this Amendment; and

WHEREAS, the Borrower, the Agent and the Lenders desire to amend the Agreement in the particulars hereinafter provided;

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

ARTICLE I

DEFINITIONS AND INTERPRETATION

1.1 Terms Defined Above . As used in this Consent, Waiver and First Amendment to Amended and Restated Credit Agreement, each of the terms “ Agent ,” “ Agreement ,” “ Amendment ,” “ Borrower ,” “ Effective Date ” and “ Lender ” shall have the meaning assigned to such term hereinabove.

1.2 Terms Defined in Agreement . Each term defined in the Agreement and used herein without definition shall have the meaning assigned to such term in the Agreement, unless expressly provided to the contrary.

mean “includes, without limitation,” or “including, without limitation,” as the case may be, where appropriate. Except as otherwise indicated, references in this Amendment to statutes, sections, or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending, replacing, succeeding, or supplementing the statute, section, or regulation referred to. References in this Amendment to “writing” include printing, typing, lithography, facsimile reproduction, and other means of reproducing words in a tangible visible form. References in this Amendment to amendments and other contractual instruments shall be deemed to include all exhibits and appendices attached thereto and all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Amendment. References in this Amendment to Persons include their respective successors and permitted assigns.

ARTICLE II

CONSENT AND WAIVER

2.1 Consent . The Agent and the Lenders hereby consent to the Borrower having failed to be in compliance with Section 6.16 of the Agreement at December 31, 2008 and Section 5.2 of the Agreement as to timely delivery of its Financial Statements at March 31, 2009 and for the quarter then ended.

2.2 Waiver . The Agent and the Lenders waive any Default or Event of Default under the Credit Agreement or any other Loan Document which would otherwise occur as a result of the Borrower having failed to be in compliance with Section 6.16 of the Agreement at December 31, 2008 and Section 5.2 of the Agreement as to timely delivery of its Financial Statements at March 31, 2009 and for the quarter then ended, together with the right of the Agent or the Lenders to exercise any remedy based thereon.

2.3 Limitation on Consent and Waiver . Except for the consent and waiver set forth above in this Article II , nothing contained herein shall otherwise be deemed a consent to any violation of, or a waiver of compliance with, any term, provision or condition set forth in any of the Loan Documents or a consent to or waiver of any other or future violations, breaches, Defaults or Events of Default.

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ARTICLE III

AMENDMENTS

As of the Effective Date, the parties hereto hereby amend the Agreement as follows:

3.1 Amendments to Section 1.2 . Section 1.2 of the Agreement is amended as follows:

(a) The definition of the term “ Applicable Margin ” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“ Applicable Margin ” shall mean, as to each LIBO Rate Loan, four percent (4.00%).

(b) The definition of the term “ Commitment Termination Date ” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“ Commitment Termination Date ” shall mean October 1, 2010.

(c) The definition of the term “ Final Maturity Date ” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“ Final Maturity Date ” shall mean October 1, 2010.

(d) The definition of the term “ Floating Rate ” appearing in Section 1.2 of the Agreement is amended to read as follows in its entirety:

“ Floating Rate ” shall mean an interest rate per annum equal to the Base Rate from time to time in effect plus three percent (3.00%), but in no event exceeding the Highest Lawful Rate or being less than the Adjusted LIBO Rate for an Interest Period of one month.

(e) The following sentence is added to the definition of “ LIBO Rate ” appearing in Section 1.2 of the Agreement:

“Notwithstanding the foregoing in this definition, in no event shall “LIBO Rate” mean a rate which is less than two percent (2%) per annum.

3.2 Amendment to Section 2.12 . The words “0.375% per annum” appearing in line five of the text of Section 2.12 of the Agreement are replaced with the following words:

“one half of one percent (0.50%) per annum”.

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ARTICLE IV

RATIFICATION AND ACKNOWLEDGMENT

Each of the Borrower and the Lender does hereby adopt, ratify and confirm the Agreement, as the same is amended hereby, and acknowledges and agrees that the Agreement, as amended hereby, is and remains in full force and effect. Each of the Borrower, the Agent and the Lenders hereby agrees and acknowledges that, as of the Effective Date, the Borrowing Base is $10,000,000 and the Monthly Commitment Reduction Amount is $500,000, with the first reduction of such Borrowing Base amount as a result of such Monthly Commitment Reduction Amount to occur on July 1, 2009 and subsequent monthly reductions of the Borrowing Base on the basis of such Monthly Commitment Reduction Amount to occur on the tenth day of each subsequent calendar month, commencing with the next monthly reduction on August 10, 2009.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower does hereby re-make in favor of the Agent and the Lenders each of the representations and warranties made by it in the Loan Documents to which it is a party and further represents and warrants that each of such representations and warranties made by it remains true and correct as of the date of execution of this Amendment and giving effect to this Amendment, except to the extent such representations and warranties relate solely to an earlier date.

ARTICLE VI

CONDITIONS TO EFFECTIVENESS

The effectiveness of this Amendment is expressly subject to satisfaction of the following conditions precedent

(a) the Agent shall have received from the Borrower $2,870,000 in immediately available funds, which sum shall be applied to reduce the sum of the Loan Balance and the L/C Exposure to an amount equal to the amount of the Borrowing Base as of the Effective Date as set forth in Article IV ;

(b) the Agent shall have received multiple counterparts of security documents, in form and substance satisfactory to the Agent, duly executed on behalf of the Borrower, establishing, as security for the Obligations, liens and security interests in favor or for the benefit of the Agent against the interest of the Borrower in the Loop Pipeline, South Padre Island 1111 and FWOE Partners L.P.;

(c) the Agent shall have received multiple counterparts, as requested by the Agent, of a Subordination of Liens and Security Interests, in form and substance acceptable to the Agent, duly executed on behalf of Artic Management Corporation, a corporation incorporated under the laws of Panama, pursuant to which the first priority liens and security interests held by or benefiting such entity against certain assets of the Borrower are subordinated to the liens and security interests held by or benefiting the Agent, for the benefit of the Lenders, against such assets of the Borrower; and

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(d) the Agent shall have received from the Borrower $100,000 in immediately available funds in payment of an extension fee due to the Agent for the account of the Lenders.

ARTICLE VII

MISCELLANEOUS

7.1 Successors and Assigns . This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Agreement.

7.2 Rights of Third Parties . Except as provided in Section 7.1, all provisions herein are imposed solely and exclusively for the benefit of the parties hereto.

7.3 Counterparts . This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument and shall be enforceable upon the execution of one or more counterparts hereof by each of the parties hereto. In this regard, each of the parties hereto acknowledges that a counterpart of this Amendment containing a set of counterpart execution pages reflecting the execution of each party hereto shall be sufficient to reflect the execution of this Amendment by each necessary party hereto and shall constitute one instrument.

7.4 Integration . T HIS A MENDMENT CONSTITUTES THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF . A LL PRIOR UNDERSTANDINGS , STATEMENTS AND AGREEMENTS , WHETHER WRITTEN OR ORAL , RELATING TO THE SUBJECT HEREOF ARE SUPERSEDED BY THIS A MENDMENT .

7.5 Invalidity . In the event that any one or more of the provisions contained in this Amendment 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 Amendment.

7.6 Governing Law . T HIS A MENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE S TATE OF T EXAS , WITHOUT REGARD TO PRINCIPLES OF SUCH LAWS RELATING TO CONFLICTS OF LAW .

(Signatures appear on following pages)

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Consent, Waiver and First Amendment to Amended and Restated Credit Agreement to be effective as of the Effective Date.


BORROWER :

PRIME OFFSHORE L.L.C.

By:
		Beverly A. Cumming
		Chief Executive Officer

(Signatures continue on following page)

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AGENT :

GUARANTY BANK, FSB, as Agent

By:
		W. David McCarver IV
		Vice President

LENDER :

GUARANTY BANK, FSB

By:
		W. David McCarver IV
		Vice President

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Exhibit 10.27.2

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)

FROM

PRIME OFFSHORE L.L.C.

Taxpayer Identification Number: 76-0688905

(Mortgagor and Debtor)

John A. Clark, Trustee

for the benefit of

GUARANTY BANK, FSB , Agent

(Mortgagee and Secured Party)

Effective June 30, 2009

For purposes of filing this Deed of Trust as a financing statement, the mailing address of Mortgagor is 9821 Katy Freeway, Suite 1050, Houston, Texas 77024; the mailing address of Mortgagee is 8333 Douglas Avenue, Dallas, Texas 75225.

v v v v v v v v v v v v v v v v v

This instrument, prepared by David G. Dunlap, Jackson Walker L.L.P., 1401 McKinney, Suite 1900, Houston, Texas 77010, 713-752-4200, contains after-acquired property provisions and covers future advances and proceeds to the fullest extent allowed by applicable law.

ATTENTION OF RECORDING OFFICER : This instrument is a mortgage of both real and personal property and is, among other things, a Security Agreement and Financing Statement under the Uniform Commercial Code. This instrument creates a lien on rights in or relating to lands of Mortgagor which are described in Exhibit A hereto or in documents described in Exhibit A.

RECORDED DOCUMENT SHOULD BE RETURNED TO:

JACKSON WALKER L.L.P.

1401 McKinney, Suite 1900

Houston, Texas 77010

Attn.: Donna Gatliff

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)

This Mortgage, Deed of Trust, Security Agreement, Financing Statement, and Assignment of Production (this “ Deed of Trust ”) is executed pursuant to the Amended and Restated Credit Agreement dated effective March 31, 2008, as amended on the effective date hereof, by and among PRIME OFFSHORE L.L.C. , a Delaware limited liability company (“ Mortgagor ”), the lenders party thereto from time to time (the “ Lenders ”) and GUARANTY BANK , FSB , a federal savings bank, as Agent for the Lenders (as amended, supplemented, restated or otherwise modified from time to time, the “ Credit Agreement ”). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

Mortgagor, acting herein by and through its proper officer who has heretofore been duly authorized, the mailing address for which, for purposes hereof, is 9821 Katy Freeway, Suite 1050, Houston, Texas 77024, hereby agrees as follows:

ARTICLE 1

GRANT

1.1 Lien . Mortgagor, for valuable consideration, the receipt of which is hereby acknowledged, and in consideration of the debt and trust hereinafter mentioned, has granted, bargained, sold, conveyed, transferred and assigned, and by these presents does grant, bargain, sell, convey, transfer and assign to John A. Clark, Trustee, whose address is c/o Guaranty Bank, FSB, 8333 Douglas Avenue, Dallas, Texas 75225, and his successors and substitutes in trust, as hereinafter provided (the “ Trustee ”), for the benefit of Guaranty Bank, FSB, as Agent for the Lenders, with banking quarters in Dallas County, Texas, the mailing address for which, for purposes hereof, is 8333 Douglas Avenue, Dallas, Texas 75225 (“ Mortgagee ”), the following described Property:

(a) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the leases, rights of way, easements, or other documents described in Exhibit A attached hereto and incorporated herein for all purposes or described or referred to in the documents described in Exhibit A , without regard to any surface acreage and/or depth limitations set forth in Exhibit A , and all renewals and extensions thereof and all new leases, rights of way, easements, or other documents (i) in which an interest is acquired by Mortgagor after the termination or expiration of any lease, right of way, easement, or other document described or referred to in Exhibit A , and (ii) that covers all or any part of the Property described in and covered by such terminated or expired lease, right of way, easement, or other document, to the extent, and only to the extent, such new leases, rights of way, easements, or other documents may cover such Property (all of the foregoing in this subsection (a) being the “ Leases ”);

(b) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the lands subject to the Leases or otherwise described or referred to in Exhibit A , without regard to any surface acreage and/or depth limitations set forth in Exhibit A (the “ Lands ”), including, without limitation, the oil, gas, mineral, and leasehold estates in and to the Lands;

(c) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to any of the oil, gas, and minerals in, on, or under the Lands, including, without limitation, all contractual rights, fee interests, leasehold interests, overriding royalty interests, non-participating royalty interests, mineral interests, production payments, net profits interests, or any other interest measured by or payable out of production of oil, gas, or other minerals from the Leases and/or Lands;

(d) all of the foregoing interests of Mortgagor as such interests may be enlarged by the discharge of any payments out of production or by the removal of any charges or encumbrances;

(e) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or derived from any present or future operating, farmout, bidding, pooling, unitization, and communitization agreements, assignments, and subleases, whether or not described in Exhibit A , to the extent, and only to the extent, that such agreements, assignments, and subleases cover or include any right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to all or any portion of the Leases and/or the Lands, and all units created by any such pooling, unitization, and communitization agreements and all units formed under orders, regulations, rules, or other official acts of any Governmental Authority having jurisdiction, to the extent and only to the extent that such units cover or include all or any portion of the Leases and/or the Lands;

(f) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or derived from all presently existing and future advance payment agreements, oil, casinghead gas, and gas sales, exchange, and processing contracts and agreements, including, without limitation, those contracts and agreements that are described or referred to in Exhibit A , to the extent, and only to the extent, those contracts and agreements cover or include all or any portion of the Leases and/or the Lands; and

(g) all right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to, and under or derived from all existing and future permits, licenses, easements, and similar rights and privileges that relate to or are appurtenant to any of the Leases and/or the Lands.

1.2 Security Interest . Mortgagor, for the same consideration, hereby grants to Mortgagee a continuing security interest in all improvements and all personal Property of any kind or character defined in and subject to the provisions of the Uniform Commercial Code (“ UCC ”), including, but not limited to, substitutions and replacements for, accessions to, and the proceeds and products from any and all of such improvements and personal Property, as well as any and all “as-extracted collateral” as such term is defined in the UCC, whether now owned and existing or hereafter acquired or arising, and situated on any of the Lands, including, but not limited to, pipe, casing, tubing, rods, storage tanks, boilers, loading racks, pumps, foundations, warehouses, and all other personal Property and equipment of every kind and character upon, incident, appurtenant, or belonging to and used in connection with the interest of Mortgagor, whether now owned and existing or hereafter acquired or arising, in the Lands and/or the Leases, including all oil, gas, and other minerals produced or to be produced to the account of Mortgagor from the Lands and all accounts receivable, general intangibles, and contract rights of Mortgagor in connection with the Lands and/or the Leases and all proceeds, products, substitutions, and exchanges thereof (the Lands, the Leases, and the real and personal Property interests described in this Section being the “ Mortgaged Property ”).

1.3 Assignment of Security . Mortgagor, for the same consideration, hereby grants to Mortgagee any and all rights of Mortgagor to Liens securing payment of proceeds from the sale of production from the Mortgaged Property.

1.4 After-Acquired Property . Mortgagor, for the same consideration, hereby grants, bargains, sells, conveys, transfers, and assigns to the Trustee or grants to Mortgagee a continuing security interest in, as the case may be, all additional right, title, or interest which Mortgagor may hereafter acquire or become entitled to in the interests, Properties, Lands, Leases, and premises aforesaid, and in the oil, gas, or other minerals in and under or produced from or attributable to any of the Lands or Leases, which additional right, title, and interest, when acquired, shall constitute “Mortgaged Property,” the same as if expressly described and conveyed herein.

1.5 Habendum . TO HAVE AND TO HOLD all and singular the Mortgaged Property and all other Property which, by the terms hereof, has or may hereafter become subject to the Liens of this Deed of Trust, together with all rights, hereditaments, and appurtenances in anywise belonging thereto, to the Trustee or Mortgagee, as the case may be, or the successors or assigns of either of them forever.

ARTICLE 2

INDEBTEDNESS SECURED

This conveyance is made, IN TRUST, HOWEVER, to secure and enforce the payment of the following indebtedness, obligations, and liabilities:

2.1 Specific Obligations . The Obligations, including, without limitation, the indebtedness evidenced by (a) the Credit Agreement, and (b) the Promissory Notes executed by Mortgagor to the order of the Lenders pursuant to the Credit Agreement in the aggregate face amount of up to $200,000,000, bearing interest and being payable as provided therein or as provided in the Credit Agreement.

2.2 Additional Indebtedness .

(a) Payment of and performance of any and all present or future obligations of Mortgagor under Commodity Hedge Agreements, as defined in the Credit Agreement.

(b) Payment of and performance of any and all present or future obligations of Mortgagor under any Rate Management Transaction, as defined in the Credit Agreement, entered into by and between Mortgagor and a Lender.

(c) Payment of and performance of any and all present or future obligations of Mortgagor under any guaranty in favor of Lenders of any of the Mortgagor’s subsidiary’s obligations under Commodity Hedge Agreements and Rate Management Transactions and all present or future obligations of Mortgagor or Mortgagor’s subsidiaries under Commodity Hedge Agreements and Rate Management Transactions.

2.3 Other and Further Indebtedness . This Deed of Trust is intended to secure a revolving credit line as set forth in the Credit Agreement. If intermediate paydowns by Mortgagor reduce the outstanding Indebtedness to zero, it is intended that the Liens created under this Deed of Trust shall remain in full force and effect as long as any Commitment exists. In addition, it is contemplated that Mortgagor may from time to time borrow additional sums of money from or otherwise be or become obligated to Lenders. This Deed of Trust is given to secure any and all indebtedness of Mortgagor, present or future, either direct or indirect, primary or secondary, fixed or contingent, which Mortgagor may now or hereafter owe, or as to which Mortgagor may in any manner become obligated to Lenders for payment, including, without limitation, indebtedness arising by way of guaranty as to obligations of another to Lenders and indebtedness originally owed to a party other than Lenders but which becomes owing to Lenders as the result of Lenders having acquired the right to payment thereof. This Deed of Trust shall likewise secure not only the above described indebtedness, but any and all renewals for any period, extensions, and rearrangements of all or any portion thereof; and the Liens under this Deed of Trust shall be cumulative of all other Liens and security of any and every other kind or character whatsoever securing the above-described indebtedness. Notwithstanding the foregoing, it is not the intention of the parties hereto to extend the Liens of this Deed of Trust so as to violate, or give rise to an allegation of violation of, any provision of any statute, regulation, rule, ordinance or order of any applicable jurisdiction, or any agency or subdivision of any of such jurisdictions. In this connection, this Deed of Trust shall not, solely as to the relevant indebtedness, serve as security for any indebtedness when for it to do so would violate any provision of any statute, regulation, rule, ordinance or order of any applicable jurisdiction, or any agency or subdivision of any of such jurisdictions.

2.4 Indebtedness . The word “ Indebtedness ” wherever used in this Deed of Trust shall refer to all present and future debts, obligations, and liabilities described or referred to in this Article 2, subject, however, to the limitations provided hereinabove in this Article 2.

ARTICLE 3

WARRANTIES

3.1 Warranty of Title . Mortgagor hereby binds itself, its legal representatives, successors, and assigns, to warrant and forever defend all and singular the Mortgaged Property to the Trustee and the successors and assigns of the Trustee forever against every Person whomsoever lawfully claiming or to claim the same or any part thereof. Notwithstanding that this Deed of Trust covers all of the right, title, and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the Mortgaged Property, Mortgagor, for itself, its legal representatives, successors, and assigns, further covenants, represents, and warrants that Mortgagor has good and indefeasible title to the Mortgaged Property and that the interests of Mortgagor in and to the Leases and/or Lands described in Exhibit A are not greater than the working interest nor less than the net revenue interest, overriding royalty interest, net profit interest, production payment interest, royalty interest, or other interest payable out of or measured by production set forth in connection with each oil and gas well described in Exhibit A . In the event Mortgagor owns any other or greater interest, such additional interest is nonetheless included in, covered by, and subject to the liens and security interests created by this Deed of Trust.

3.2 Additional Warranties . In consideration of the Indebtedness, Mortgagor, for itself, its legal representatives, successors, and assigns, covenants, represents, and warrants that:

(a) Leases in Effect . All of the Leases specifically described or referred to in Exhibit A are in full force and effect. All covenants, express or implied, in respect of the Leases specifically described or referred to in Exhibit A , or of any assignment of any of such Leases, which may affect the validity of any of such Leases, have been performed insofar as such Leases pertain to the Lands.

(b) Interests Free of Liens . The interests of Mortgagor in the Mortgaged Property are free and clear of all Liens except for Permitted Liens. All gross production taxes and all taxes as to which non-payment could result in a Lien against any of the Mortgaged Property have been paid.

(c) Representations and Warranties . As of the date hereof, all representations and warranties of Mortgagor set forth in the Credit Agreement are true and correct in all material respects, except to the extent such representations and warranties relate solely to an earlier date, and all such representations and warranties are hereby remade by Mortgagor to Mortgagee.

ARTICLE 4

COVENANTS OF MORTGAGOR

In consideration of the Indebtedness, Mortgagor, for itself, its legal representatives, successors, and assigns, covenants and agrees as follows:

4.1 Maintenance of Leases . Mortgagor will keep and continue all Leases, estates, and interests herein described and all contracts and agreements relating thereto in full force and effect in accordance with the terms thereof and will not permit the same to lapse or otherwise become impaired for failure to comply with the obligations thereof, whether express or implied. In this connection, Mortgagor shall not release any of the Leases without the prior written consent of Mortgagee.

4.2 Maintenance of Property . Mortgagor will keep and maintain all improvements, personal Property, and equipment now or hereafter situated on the Lands and constituting a portion of the Mortgaged Property and used or obtained in connection therewith in good repair and condition, ordinary wear and tear excepted, and will not tear down or remove the same or permit the same to be torn down or removed without the prior consent of Mortgagee, except in the usual course of operations as may be required for replacement when otherwise in compliance with the provisions of this Deed of Trust and the Credit Agreement.

4.3 Pooling or Unitization . Mortgagor will not, without the prior written consent of Mortgagee, pool or unitize all or any part of the Mortgaged Property where the pooling or unitization would result in the diminution of the net revenue interest of Mortgagor in production from the pooled or unitized lands attributable to the Mortgaged Property constituting a portion of such pooled or unitized lands. Immediately after the formation of any pool or unit in accordance herewith, Mortgagor will furnish to Mortgagee a conformed copy of the pooling agreement, declaration of pooling, or other instrument creating the pool or unit. The interest of Mortgagor included in any pool or unit attributable to the Mortgaged Property or any part thereof shall become a part of the Mortgaged Property and shall be subject to the Liens hereof in the same manner and with the same effect as though the pool or unit and the interest of Mortgagor therein were specifically described in Exhibit A . In the event any proceedings of any Governmental Authority which could result in pooling or unitizing all or any part of the Mortgaged Property are commenced, Mortgagor shall give immediate written notice thereof to Mortgagee. Any pooling or unitization of all or any part of the Mortgaged Property in violation of this Section shall be of no force or effect against the Trustee or Mortgagee.

4.4 Operation of Mortgaged Property . Mortgagor will operate or, to the extent that the right of operation is vested in others, will exercise its best efforts to require the operator to operate the Mortgaged Property and all wells now or hereafter located thereon continuously and in a prudent and workmanlike manner in accordance with the best usage of the field and in accordance with all applicable Requirements of Law. Mortgagor will comply with all terms and conditions of the Leases and each assignment or contract obligating Mortgagor in any way with respect to the Mortgaged Property; but nothing herein shall be construed to empower Mortgagor to bind the Trustee or Mortgagee to any contract or obligation or render the Trustee or Mortgagee in any way responsible or liable for bills or obligations incurred by Mortgagor.

4.5 Compliance with Operating Agreements . Mortgagor agrees to promptly pay all bills for labor and materials incurred in the operation of the Mortgaged Property and will promptly pay its share of all costs and expenses incurred under any joint operating agreement affecting the Mortgaged Property or any portion thereof; will furnish Mortgagee, as and when requested, full information as to the status of any joint account maintained with others under any such operating agreement; will not take any action to incur any liability or Lien thereunder; and will not enter into any new operating agreement or any amendment of any existing operating agreement affecting the Mortgaged Property without the prior written consent of Mortgagee. To the extent that Mortgagor is unable to consent to any proposed operation with respect to any of the Mortgaged Property, prior to electing not to participate in the proposed operation, Mortgagor will use its best efforts, to the extent practicable and to the extent allowed to do so under the relevant operating agreement or other applicable contract, to farmout to others acceptable to Mortgagee, on the best terms obtainable and acceptable to Mortgagee, the interest or relevant portion of the interest of Mortgagor in the proposed operation.

4.6 Access to Mortgaged Property . Mortgagor will permit Mortgagee and its accredited agents, representatives, attorneys and employees, at the expense of Mortgagor, at all times to go upon, examine, inspect, conduct environmental audits and other testing of, and remain on, the Mortgaged Property, and to go upon the derrick floor of any well at any time drilled or being drilled thereon, and will furnish Mortgagee, upon request, all pertinent information regarding the development and operation of the Mortgaged Property.

4.7 Waivers . Mortgagor hereby expressly waives, to the full extent permitted by applicable law, any and all rights or privileges of marshalling of assets, sale in inverse order of alienation, notices, appraisements, redemption, and any prerequisite in the event of foreclosure of the Liens created herein. Mortgagee at all times shall have the right to release any part of the Mortgaged Property now or hereafter subject to the Liens of this Deed of Trust, any part of the proceeds of production or other income herein or hereafter assigned or pledged, or any other security it now has or may hereafter have securing the Indebtedness, without releasing any other part of the Mortgaged Property, proceeds, or income, and without affecting the Liens hereof as to the part or parts of the Mortgaged Property, proceeds, or income not so released or the right to receive future proceeds and income.

4.8 Compliance with Laws . Mortgagor will comply with all Requirements of Law applicable to the Mortgaged Property and the operations conducted thereon, including, without limitation, the Natural Gas Policy Act of 1978, as amended, and Environmental Laws; and cause all employees, crew members, agents, contractors, sub-contractors, and future lessees (pursuant to appropriate lease provisions) of Mortgagor, while such Persons are acting within the scope of their relationship with Mortgagor, to comply with all such Requirements of Law as may be necessary or appropriate to enable Mortgagor to so comply.

4.9 Hazardous Substances Indemnification . M ORTGAGOR HEREBY INDEMNIFIES AND HOLDS M ORTGAGEE AND THE L ENDERS AND THEIR RESPECTIVE SHAREHOLDERS , OFFICERS , DIRECTORS , EMPLOYEES , AGENTS , ATTORNEYS - IN - FACT , AND AFFILIATES AND THE T RUSTEE HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS , LOSSES , DAMAGES , LIABILITIES , FINES , PENALTIES , CHARGES , ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS , JUDGMENTS , REMEDIAL ACTIONS , REQUIREMENTS AND

ENFORCEMENT ACTIONS OF ANY KIND , AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH ( INCLUDING , WITHOUT LIMITATION , ATTORNEYS ’ FEES AND EXPENSES ), ARISING DIRECTLY OR INDIRECTLY , IN WHOLE OR IN PART , FROM ( A ) THE PRESENCE OF ANY H AZARDOUS S UBSTANCES ON , UNDER , OR FROM ANY M ORTGAGED P ROPERTY , WHETHER PRIOR TO OR DURING THE TERM HEREOF , ( B ) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY M ORTGAGED P ROPERTY , WHETHER PRIOR TO OR DURING THE TERM HEREOF , AND WHETHER BY M ORTGAGOR OR ANY PREDECESSOR IN TITLE , EMPLOYEE , AGENT , CONTRACTOR , OR SUBCONTRACTOR OF M ORTGAGOR OR ANY OTHER P ERSON AT ANY TIME OCCUPYING OR PRESENT ON ANY M ORTGAGED P ROPERTY , IN CONNECTION WITH THE HANDLING , TREATMENT , REMOVAL , STORAGE , DECONTAMINATION , CLEANUP , TRANSPORTATION , OR DISPOSAL OF ANY H AZARDOUS S UBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH P ROPERTY , ( C ) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY M ORTGAGED P ROPERTY , ( D ) ANY CONTAMINATION OF ANY M ORTGAGED P ROPERTY OR NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION , USE , HANDLING , STORAGE , TRANSPORTATION , OR DISPOSAL OF ANY H AZARDOUS S UBSTANCE BY M ORTGAGOR OR ANY EMPLOYEE , AGENT , CONTRACTOR , OR SUBCONTRACTOR OF M ORTGAGOR WHILE SUCH P ERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH M ORTGAGOR , IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE R EQUIREMENTS OF L AW , OR ( E ) THE PERFORMANCE AND ENFORCEMENT OF THIS D EED OF T RUST OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO THIS D EED OF T RUST OR THE TRANSACTIONS CONTEMPLATED HEREBY , INCLUDING , WITHOUT LIMITATION , ANY OF THE FOREGOING IN THIS S ECTION ARISING FROM NEGLIGENCE , WHETHER SOLE OR CONCURRENT , ON THE PART OF M ORTGAGEE OR ANY L ENDER OR ANY OF THEIR RESPECTIVE SHAREHOLDERS , OFFICERS , DIRECTORS , EMPLOYEES , AGENTS , ATTORNEYS - IN - FACT , OR AFFILIATES OR THE T RUSTEE ; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF THE I NDEBTEDNESS , THE TERMINATION OF THE C REDIT A GREEMENT , AND THE RELEASE OF THE L IENS CREATED HEREBY .

4.10 Site Assessments . Mortgagee (by its officers, employees and agents) at any time and from time to time, either prior to or after the occurrence of an Event of Default, may contract, at the expense of Mortgagor, for the services of Persons (the “ Site Reviewers ”) to perform environmental site assessments and other tests (“ Site Assessments ”) on all or any portion of the Mortgaged Property for the purpose of determining whether any environmental condition exists on any Mortgaged Property which could reasonably be expected to result in any liability, cost, or expense to Mortgagee or any owner, occupier, or operator of such Mortgaged Property. The Site Assessments may be performed at any time or times, upon reasonable notice, and under reasonable conditions established by Mortgagor which do not impede the performance of the Site Assessments. The Site Reviewers are hereby authorized to enter upon all or any portion of the Mortgaged Property for such purposes. The Site Reviewers are further authorized to perform both above and below the ground testing for environmental damage or the presence of Hazardous Substances on the Mortgaged Property and such other tests on the Mortgaged Property as may be necessary to conduct the Site Assessments in the reasonable opinion of the Site Reviewers. Mortgagor will supply to the Site Reviewers such historical and operational information regarding the Mortgaged Property as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. On request, Mortgagee

shall make the results of such Site Assessments available to Mortgagor, which, prior to an Event of Default, may at its election participate under reasonable procedures in the direction of such Site Assessments and the description of tasks of the Site Reviewers. The cost of performing all Site Assessments shall be paid by Mortgagor upon demand of Mortgagee and any such obligations shall be Indebtedness secured by this Deed of Trust.

4.11 Uneconomic Wells . Should proceeds from the sale of production from any oil and/or gas well constituting part of the Mortgaged Property (net of production, severance and windfall profit taxes and royalties, overriding royalties and other payments out of or measured by production) not exceed the expense of operation of such well (including, but not limited to, operator’s overhead, payments to contractors and suppliers, and annual taxes assessed on the basis of the value of the Property prorated on a monthly basis, but expressly excluding any portion of the cost of drilling or completing the relevant well or the cost of non-routine workover or remedial operations) for a period in excess of three consecutive calendar months, then, upon receipt by Mortgagor of written notification from Mortgagee, Mortgagor will (a) take all necessary steps to abandon the relevant well, or (b) provide from sources other than proceeds from the sale of production attributable to the Mortgaged Property (i.e., through borrowings or contractual commitments obtained from third parties not in violation of any provision of this Deed of Trust or any other Loan Document) the funds required to pay the share of Mortgagor of the expenses associated with the continuing operation of such well.

4.12 Performance of Gas Contracts . Mortgagor will perform and observe in all material respects all of its obligations under each contract relating to the sale of gas produced from or attributable to the Mortgaged Property and will not, except in good faith and as the result of arm’s length negotiations and with prior written notice to Mortgagee, change, modify, amend or waive any of the terms or provisions of any such contract or take any other action which would release any other party from its obligations or liabilities under any such contract.

4.13 Covenants Running with Land . All covenants and agreements herein contained shall constitute covenants running with the Land.

ARTICLE 5

DEFEASANCE, FORECLOSURE

AND OTHER REMEDIES

5.1 Defeasance . Should the Indebtedness be paid, then the conveyance of the Mortgaged Property shall become of no further force and effect, and, at the request and expense of Mortgagor, the Lien granted hereunder shall be released, without recourse or warranty; otherwise, it shall remain in full force and effect.

5.2 Events of Default . The occurrence of any Event of Default under the Credit Agreement shall constitute an Event of Default under this Deed of Trust.

5.3 Acceleration and Exercise of Power of Sale .

(a) Upon the occurrence of an Event of Default specified in Sections 7.1(f) or 7.1(g) of the Credit Agreement, the aggregate principal amount of all Indebtedness then outstanding and all interest accrued thereon shall automatically become immediately due and payable, without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other notice of any kind, all of which are hereby expressly waived by Mortgagor to the full extent permitted by applicable law. Upon the occurrence of any other Event of Default, Mortgagee may declare the aggregate principal amount of all Indebtedness then outstanding and all interest accrued thereon immediately due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest, notice of protest, default or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other notice of any kind, all of which are hereby expressly waived by Mortgagor to the full extent permitted by applicable law.

(b) Upon the occurrence of any Event of Default or at any time thereafter while the Indebtedness or any part thereof remains unpaid, it shall be the duty of the Trustee, on request of Mortgagee (which request is hereby presumed), to enforce this Trust and, after advertising the time and place of the sale for at least 21 days prior to the day of sale, by posting or causing to be posted a written or printed notice thereof at the courthouse door and by filing a copy of such notice in the office of the county clerk of each county in which the Mortgaged Property or any part thereof may be situated, and serving written notice of the proposed sale on each debtor obligated to pay the Indebtedness according to the records of Mortgagee, by postage prepaid, certified United States mail, at the most recent address for such debtor as shown by the records of Mortgagee, at least 21 days prior to the day of sale, to sell the Mortgaged Property, either as a whole or in parcels, as the Trustee may deem proper, at public venue at the courthouse of the county in which the Mortgaged Property or any part thereof may be situated (and being the county designated in the notice of sale) on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m., to the highest bidder for cash, and after such sale to execute and deliver to the purchaser or purchasers good and sufficient deeds and assignments, conveying such Property so sold to the purchaser or purchasers with general warranty of title made on behalf of Mortgagor. The Trustee, or his successor or substitute, is hereby authorized and empowered to appoint any one or more Persons as his attorneys-in-fact or agents to act as Trustee under him and in his name, place and stead, such appointment to be evidenced by a written instrument executed by the Trustee, or his successor or substitute, to perform any one or more act or acts necessary or incident to any sale under the power of sale hereunder, including, without limitation, the posting and filing of any notices, the conduct of the sale and the execution and delivery of any instruments conveying the Mortgaged Property as a result of the sale, but in the name and on behalf of the Trustee, or his successor or substitute; and all acts done or performed by such attorneys-in-fact or agents shall be valid, lawful and binding as if done or performed by the Trustee, or his successor or substitute. No single sale or series

of sales by the Trustee shall extinguish the Lien or exhaust the power of sale hereunder except with respect to the items of Property sold, but such Lien and power shall exist for so long as and may be exercised in any manner by law or as herein provided as often as the circumstances require to give Mortgagee full relief hereunder. The purchaser at any such sale shall not assume, nor shall the heirs, legal representatives, successors or assigns of such purchaser, be deemed to have assumed, by reason of the acquisition of Property or rights mortgaged hereunder, any liability or obligation of any lessee or operator of the Mortgaged Property, or any part thereof, arising by reason of any occurrence taking place prior to such sale. It shall not be necessary to have present, or to exhibit at any such sale, any of the personal Property subject to the Lien hereof.

5.4 Rights as Secured Party . Upon the occurrence of any Event of Default, Mortgagee shall be entitled to all of the rights, powers, and remedies afforded a secured party by the UCC with respect to the personal Property and fixtures and as-extracted collateral in which Mortgagee has been granted a security interest hereby, or Mortgagee may proceed in accordance with the provisions hereof as to both the real and personal Property covered hereby.

5.5 Application of Proceeds of Sale . The Trustee is authorized to receive the proceeds of each sale of Mortgaged Property and apply the same as follows:

FIRST : to the payment of all necessary costs and expenses incident to the execution of this Deed of Trust, including, but not limited to, a fee to the Trustee of 5% of the amount realized at the sale, if required by the Trustee;

SECOND : to any and all Indebtedness then hereby secured, application to be made in such order and in such manner as Mortgagee may, in its discretion, elect;

THIRD : the balance, if any, to Mortgagor or its successors or assigns, or other Person legally entitled thereto.

5.6 Substitute Trustee . In the event of the death of the Trustee, or his removal from the State of Texas, or his failure, refusal, or inability for any reason to make any such sale or to perform any of the trusts herein declared, or at any time, whether with or without cause, Mortgagee may appoint, in writing, a substitute trustee who shall thereupon succeed to all the estates, rights, powers, and trusts herein granted to and vested in the Trustee. In the same events as first above stated, and in the same manner, successive substitute Trustees may thereafter be appointed.

5.7 Statements by Trustee . It is agreed that in any deed or deeds given by any Trustee any and all statements of fact or other recitals therein made as to the identity of the holder or holders of the Indebtedness, or as to default in the payments thereof or any part thereof, or as to the breach of any covenants herein contained, or as to the request to sell, notice of sale, time, place, terms and manner of sale, and receipt, application, and distribution of the money realized therefrom, or as to the due and proper appointment of a substitute trustee, and, without

being limited by the foregoing, as to any other or additional act or thing having been done by Mortgagee or the Trustee, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted. Mortgagor does hereby ratify and confirm any and all acts that the Trustee may lawfully do in the premises by virtue of the terms and conditions of this Deed of Trust.

5.8 Suit to Collect and Foreclose . Mortgagee, at its election, or the Trustee, upon written request of Mortgagee, may proceed by suit or suits, at law or in equity, to enforce the payment of the Indebtedness in accordance with the terms hereof and of the notes, guaranties, or other documents evidencing it, and to foreclose the Lien of this Deed of Trust as against all or any portion of the Mortgaged Property and to have such Property sold under the judgment or decree of a court of competent jurisdiction.

5.9 Mortgagee or Trustee as Purchaser . Mortgagee or the Trustee may be a purchaser of all or any portion of the Mortgaged Property at any sale thereof, whether such sale be under the power of sale hereinabove vested in the Trustee, upon any other foreclosure of the Lien hereof, or otherwise. Mortgagee or the Trustee so purchasing shall, upon any such purchase, acquire title to the Mortgaged Property so purchased, free of the Lien of this Deed of Trust and free of all rights of redemption in Mortgagor.

5.10 Entry and Operation . Upon the occurrence of any Event of Default, then in each and every such case and in addition to the other rights and remedies hereunder, the Trustee or Mortgagee, whether or not the Indebtedness shall have become due and payable, may, but shall not be obligated to, enter into and upon and take possession of all or any portion of the Mortgaged Property and may exclude Mortgagor, its agents and servants wholly therefrom and have, hold, use, operate, manage, and control all or any portion of the Mortgaged Property and produce the oil, gas, and other minerals therefrom and market the same, all at the sole risk and expense of Mortgagor and at the expense of the Mortgaged Property, applying the net proceeds so derived, first, to the cost of maintenance and operation of such Mortgaged Property; second, to the payment of the Indebtedness, application to be made first to interest and then to principal; and the balance thereof, if any, shall be paid to Mortgagor. Upon such payment of all such costs and Indebtedness, the Mortgaged Property shall be returned to Mortgagor in its then condition, and neither the Trustee nor Mortgagee shall be liable to Mortgagor for any damage or injury to the Mortgaged Property except such as may be caused through the fraud or willful misconduct of the Trustee or Mortgagee, as the case may be.

5.11 Power of Attorney to Mortgagee . Mortgagor does hereby designate Mortgagee as the agent of Mortgagor to act in the name, place, and stead of Mortgagor in the exercise of each and every remedy set forth herein and in conducting any and all operations and taking any and all action reasonably necessary to do so, recognizing such agency in favor of Mortgagee to be coupled with the interests of Mortgagee under this Deed of Trust and, thus, irrevocable so long as this Deed of Trust is in force and effect.

5.12 Remedies Cumulative and Non-Exclusive . The rights of entry, sale, or suit, as hereinabove or hereinafter conferred, are cumulative of all other rights and remedies herein or by law or in equity provided, and shall not be deemed to deprive Mortgagee or the Trustee of any such other legal or equitable rights or remedies, by judicial proceedings or

otherwise, appropriate to enforce the conditions, covenants, and terms of this Deed of Trust and the other Loan Documents. The employment of any remedy hereunder or otherwise shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies.

ARTICLE 6

ASSIGNMENT OF PRODUCTION

6.1 Assignment . In addition to the conveyance to the Trustee herein made, Mortgagor does hereby transfer, assign, deliver and convey unto Mortgagee, its successors and assigns, all of the oil, gas, and other minerals produced, saved, or sold from the Mortgaged Property and attributable to the interests of Mortgagor therein subsequent to 7:00 a.m. on the first day of the month in which this Deed of Trust is executed, together with the proceeds of any sale thereof. Mortgagor hereby directs any purchaser now or hereafter taking any production from the Mortgaged Property to pay to Mortgagee such proceeds derived from the sale thereof and to continue to make payments directly to Mortgagee until notified in writing by Mortgagee to discontinue the same. The purchaser of any such production shall not be required to see to the application of the proceeds thereof by Mortgagee, and payment made to Mortgagee shall be binding and conclusive as between such purchaser and Mortgagor. Mortgagor further agrees to perform all such acts and to execute all such further assignments, transfer and division orders, and other instruments as may be required or desired by Mortgagee or any other party to have such proceeds and revenues so paid to Mortgagee.

6.2 Postponement of Payment . For its convenience, Mortgagee has elected not to exercise immediately its right to receive payment to it directly of the proceeds of any sale of the oil , gas and other minerals produced or sold from the Mortgaged Property and the purchasers may continue to make such payment or delivery of the proceeds to Mortgagor until such time as Mortgagor and the purchasers have received notice that an Event of Default has occurred and is continuing, and that the purchasers are directed to make payment or delivery of the proceeds directly to Mortgagee. Such failure by Mortgagee to exercise its rights immediately shall not in any way waive the right of Mortgagee to receive any of the proceeds, or to make any such demand, or to affect any such assignment as to any proceeds not theretofore paid or delivered to Mortgagor. In this regard, if any of the proceeds are paid or delivered directly to Mortgagee and then, at the request of Mortgagee, the proceeds are, for a period or periods of time, paid or delivered to Mortgagor, Mortgagee shall nevertheless have the right, effective upon written notice, to require that future proceeds be again paid or delivered directly to it. Mortgagee shall never be required to send any such notice to all purchasers, and may direct such notice only to those purchasers as it may, in its discretion, desire. It shall never be necessary for Mortgagee to institute legal proceedings to enforce the assignment of hydrocarbons, proceeds, or other rents, profits, or income contained in this instrument. It shall not be necessary for Mortgagee to obtain possession of the Mortgaged Property as a prerequisite to Mortgagee’s right to collect or receive any hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned to Mortgagee under this instrument. Mortgagor and Mortgagee expressly agree and it is the express intention of Mortgagor and Mortgagee that in no event will any reduction in the obligations be measured by the fair market value of the hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned to Mortgagee under this instrument.

6.3 Change of Purchaser . Should any purchaser taking the production from the Mortgaged Property fail to make prompt payment to Mortgagee in accordance with the provisions of Section 6.1, Mortgagee shall have the right, at the expense of Mortgagor, to demand a change of connection and to designate another purchaser with whom a new connection may be made, without any liability on the part of Mortgagee in making such selection, so long as ordinary care is used in the making thereof. Promptly upon such demand, Mortgagor shall take all necessary and appropriate action to effect such change of connection.

6.4 Application of Proceeds . Mortgagor authorizes and empowers Mortgagee to receive, hold, and collect all sums of money paid to Mortgagee in accordance with the provisions of Section 6.1, and to apply the same as hereinafter provided, all without any liability or responsibility on the part of Mortgagee, save and except as to good faith in so receiving and applying such sums. Mortgagee may apply all sums received by Mortgagee pursuant to Section 6.1 to the payment of the Indebtedness, application to be made in such manner as Mortgagee may elect, regardless of whether the application so made shall exceed the payments of principal and interest then due as provided in the Loan Documents. After such application has been so made by Mortgagee, the balance of any such sums shall be paid to Mortgagor.

6.5 No Postponement of Installments on Indebtedness . It is understood and agreed that should such payments provided for by Section 6.1 be less than the sum or sums then due on the Indebtedness, such sum or sums then due shall nevertheless be paid by Mortgagor in accordance with the provisions of the Loan Documents, and neither the assignment made pursuant to Section 6.1 nor any other provisions hereof shall in any manner be construed to affect the terms and provisions of the Loan Documents. Likewise, neither the assignment made pursuant to Section 6.1 nor any other provisions hereof shall in any manner be construed to affect the Liens, rights, title, and remedies herein granted securing the Indebtedness or the liability of Mortgagor therefor. The rights under this Article VI are cumulative of all other rights, remedies, and powers granted under this Deed of Trust and are cumulative of any other security which Mortgagee now holds or may hereafter hold to secure the payment of the Indebtedness.

6.6 Turnover to Mortgagee . Should Mortgagor receive any of the proceeds of any sale of oil, gas, or other minerals produced, saved, or sold from the Mortgaged Property, which under the terms hereof should have been remitted to Mortgagee, Mortgagor will immediately remit same in full to Mortgagee.

6.7 Release of Proceeds Upon Payment of Indebtedness . Upon payment in full of all Indebtedness and the termination of the Commitment, the remainder of such proceeds held by Mortgagee, if any, shall be paid over to Mortgagor upon demand, and a release of the interest hereby assigned will be made, without recourse or warranty, by Mortgagee to Mortgagor at its request and its expense.

6.8 Duty of Mortgagee . Mortgagee shall not be liable for any failure to collect, or for any failure to exercise diligence in collecting, any funds assigned hereunder. Mortgagee shall be accountable only for funds actually received.

6.9 Power of Attorney to Mortgagee . Mortgagor does hereby designate Mortgagee as the agent of Mortgagor to act in the name, place, and stead of Mortgagor for the purpose of taking any and all actions deemed by Mortgagee necessary for the realization by Mortgagee of the benefits of the assignment of production provided herein, recognizing such agency in favor of Mortgagee to be coupled with the interests of Mortgagee under this Deed of Trust and, thus, irrevocable so long as this Deed of Trust is in force and effect.

ARTICLE 7

MISCELLANEOUS

7.1 Further Assurances . Upon request of Mortgagee, Mortgagor will promptly correct any defects, errors, or omissions in the execution or acknowledgment of this Deed of Trust or any other Loan Document, and execute, acknowledge, and deliver such other assurances and instruments as shall, in the opinion of Mortgagee, be necessary to fulfill the terms of this Deed of Trust.

7.2 Interest . Any provision in any document that may be executed in connection herewith to the contrary notwithstanding, Mortgagee shall in no event be entitled to receive or collect, nor shall any amounts received hereunder be credited so that Mortgagee shall be paid, as interest a sum greater than that authorized by law. If any possible construction of this Deed of Trust or any Loan Document seems to indicate any possibility of a different power given to Mortgagee or any authority to ask for, demand, or receive any larger rate of interest, this clause shall override and control, and proper adjustments shall be made accordingly.

7.3 Agreement as Entirety . This Deed of Trust, for convenience only, has been divided into Articles, Sections, and subsections. The rights, powers, privileges, duties, and other legal relations of Mortgagor, the Trustee, and Mortgagee shall be determined from this Deed of Trust as an entirety and without regard to the aforesaid division into Articles, Sections, and subsections and without regard to headings affixed to such Articles, Sections, or subsections.

7.4 Number and Gender . Whenever the context requires, reference herein made to the single number shall be understood to include the plural, and the plural shall likewise be understood to include the singular. Words denoting sex shall be construed to include the masculine, feminine, and neuter when such construction is appropriate; and specific enumeration shall not exclude the general, but shall be construed as cumulative.

7.5 Rights and Remedies Cumulative . All rights, powers, immunities, remedies, and Liens of Mortgagee existing and to exist hereunder or under any other instruments or at law or in equity and all other or additional security shall be cumulative and not exclusive, each of the other. Mortgagee shall, in addition to the rights and remedies herein expressly provided, be entitled to such other remedies as may now or hereafter exist at law or in equity for securing and collecting the Indebtedness, for enforcing the covenants herein, and for foreclosing the Liens hereof. Resort by Mortgagee to any right or remedy provided for hereunder or at law or in equity shall not prevent concurrent or subsequent resort to the same or any other right or remedy. No security heretofore, herewith, or subsequently taken by Mortgagee shall in any

manner impair or affect the security given by this Deed of Trust or any security by endorsement or otherwise presently or previously given; and all security shall be taken, considered, and held as cumulative.

7.6 Parties in Interest . This Deed of Trust shall be binding upon the parties and their respective heirs, administrators, legal representatives, successors, and assigns and shall inure to the benefit of the Mortgagee and its legal representatives, successors, and assigns. The terms used to designate any of the parties herein shall be deemed to include the heirs, administrators, legal representatives, successors, and assigns of such parties. The term “Mortgagee” shall also include any lawful owner, holder, or pledgee of any Indebtedness.

7.7 Supplements . Without in any manner limiting the effect of Section 1.4 or any other provisions of this Deed of Trust as to the binding effect of this Deed of Trust on after-acquired rights of Mortgagor, it is contemplated by the parties hereto that from time to time additional interests and properties may or will be added to the interests and properties subject to the Liens, rights, titles, and interests created by this Deed of Trust by means of supplemental indentures identifying this Deed of Trust and describing such interests and properties to be so added and included. Upon the execution of any such supplemental indenture, the Liens, rights, titles, and interests created herein shall immediately attach to and be effective with respect to any such interests and properties so described, the same as if such interests and properties had been specifically described herein, and such interests and properties being included in the term “Mortgaged Property,” as used herein.

7.8 Invalidity . In the event that any one or more of the provisions contained in this Deed of Trust 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 Deed of Trust or any other Loan Document.

7.9 Construction . All titles or headings to Articles, Sections, subsections, or other divisions of this Deed of Trust or the exhibits hereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such Articles, Sections, subsections, or other divisions, such other content being controlling as to the agreement among the parties hereto. Article, Section, subsection, and Exhibit references herein are to such Articles, Sections, subsections, and Exhibits of this Deed of Trust unless otherwise specified. The words “hereby,” “herein,” “hereinabove,” “hereinafter,” “herein-below,” “hereof,” and “hereunder” when used in this Deed of Trust shall refer to this Deed of Trust as a whole and not to any particular Article, Section, subsection, or provision of this Deed of Trust.

7.10 Fixtures, Minerals and Accounts . Without in any manner limiting the generality of any of the foregoing hereof, some portions of the personal Property described hereinabove are or are to become fixtures on the Lands. In addition, the security interest created hereby under applicable provisions of the UCC attaches to minerals, including oil and gas, and accounts resulting from the sale thereof, at the wellhead or minehead located on the Lands.

7.11 Financing Statement Filings . This Deed of Trust may be filed as provided in Article 9 of the UCC to assure that the security interests granted by this Deed of Trust are

perfected. In this connection, this Deed of Trust may be presented to a filing officer under the UCC to be filed in the real estate records as a Financing Statement covering minerals and fixtures. Further, Mortgagor authorizes Mortgagee to execute and file at any time and from time to time any and all Financing Statements and amendments thereto in any UCC jurisdiction, pursuant to Article 9 of the UCC, as Mortgagee deems necessary in its sole discretion, in conjunction with this Deed of Trust, and Mortgagor expressly authorizes execution and filing of such Financing Statements by Mortgagee without need of signature or execution by Mortgagor.

7.12 Addresses . For purposes of filing this Deed of Trust as a financing statement, the addresses for Mortgagor, as the debtor, and Mortgagee, as the secured party, are as set forth hereinabove.

7.13 Counterparts . For the convenience of the parties, this Deed of Trust may be executed in multiple counterparts, each of which for all purposes shall be deemed, and may be enforced from time to time as, a chattel mortgage, real estate mortgage, deed of trust, security agreement, assignment or contract, or as one or more thereof. For recording purposes, various counterparts have been executed, and there may be attached to each such counterpart an Exhibit A containing only the description of the Mortgaged Property, or portions thereof, which relates to the county or state in which the particular counterpart is to be recorded. A complete, original counterpart of this Deed of Trust with a complete Exhibit A may be obtained from Mortgagee. Each of the counterparts hereof so executed shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

7.14 No Waiver by Mortgagee . No course of dealing on the part of Mortgagee, its officers or employees, nor any failure or delay by Mortgagee with respect to exercising any of its rights or remedies hereunder shall operate as a waiver thereof nor shall the exercise or partial exercise of any such right or remedy shall preclude the exercise of any other right or remedy.

7.15 Governing Agreement . This Deed of Trust is made pursuant and subject to the terms and provisions of the Credit Agreement. In the event of a conflict between the terms and provisions of this Deed of Trust and those of the Credit Agreement, the terms and provisions of the Credit Agreement shall govern and control. The inclusion in this Deed of Trust of provisions not addressed in the Credit Agreement shall not be deemed a conflict, and all such additional provisions contained herein shall be given full force and effect.

(Signatures appear on following pages)

IN WITNESS WHEREOF, this Deed of Trust is executed on the date of the acknowledgment below but effective as of the 30 ^th day of June, 2009.


MORTGAGOR (DEBTOR):

PRIME OFFSHORE L.L.C.

By:
Name:
Title:

The foregoing instrument was acknowledged before me this day of , 2009 by , of PRIME OFFSHORE L.L.C. , a Delaware limited liability company, on behalf of such limited liability company.

NOTARY PUBLIC in and for

the State of

EXHIBIT A

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

The designation “ Working Interest ” or “ WI ” when used in this Exhibit means an interest owned in an oil, gas, and mineral lease that determines the cost-bearing percentage of the owner of such interest. The designation “ Net Revenue Interest ” or “ NRI ” means that portion of the production attributable to the owner of a working interest after deduction for all royalty burdens, overriding royalty burdens or other burdens on production, except severance, production, and other similar taxes. The designation “ Overriding Royalty Interest ” or “ ORRI ” means an interest in production which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the overriding royalty interest so provides, costs associated with compression, dehydration, other treating or processing, or transportation of production of oil, gas, or other minerals relating to the marketing of such production. The designation “ Royalty Interest ” or “ RI ” means an interest in production which results from an ownership in the mineral fee estate or royalty estate in the relevant land and which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the royalty interest so provides, costs associated with compression, dehydration, other treating or processing or transportation of production of oil, gas, or other minerals relating to the marketing of such production.

Any reference in this Exhibit to wells or units is for warranty of interest, administrative convenience, and identification and shall not limit or restrict the right, title, interest, or properties covered by this Deed of Trust. All right, title, and interest of Mortgagor in the properties described herein are and shall be subject to this Deed of Trust, regardless of the presence of any units or wells not described herein.

The references to book or volume and page herein refer to the recording location of each respective Mortgaged Property described herein in the county where the land covered by the Mortgaged.

A-i

Loop Pipeline

A 12-3/4 inch pipeline 13.14 miles in length to transport gas and condensate from a 12-inch sub-sea tie-in in North Padre Island Area Block 996 (Segment Number 15073) through North Padre Island Blocks 997, 989, 976, 977, and 968 to a 10-inch sub-sea tie-in in North Padre Island Area Block 967 (Segment Number 5990).

Assigned Right-of-Way Number OCS-G26982

Assigned Segment Number: 15636

South Padre Island 1111

Oil and Gas Lease OCS-G-24300, granted by the United States of America to F-W Oil Exploration L.L.C., dated effective November 1, 2002, covering all of Block 1111, South Padre Island Area, OCS Leasing Map, Texas Map No. 1, offshore Cameron County, Texas.


Working Interest		20.00000%
Net Revenue Interest		16.06666%

A-ii

Exhibit 10.27.3.1

LOAN MODIFICATION

This Loan Modification is executed to be effective on the 30 ^th day of June, 2009 (the “Effective Date”) by and among ARTIC MANAGEMENT CORPORATION, a corporation incorporated under the laws of Panama (“Artic”), the address for which, for purposes hereof, is Attn: Matthias Eckenstein, Solothurnerstrasse 94, CH-4008, Basel, Switzerland, Prime Offshore L.L.C., a Delaware limited liability company (the “Borrower”) and PrimeEnergy Corporation, a Delaware corporation.

Artic has executed the SUBORDINATION OF LIENS AND SECURITY INTEREST effective on the 30 ^th of June, 2009, for the benefit of GUARANTY BANK, FSB, a federal savings bank.

The borrower currently has existing debt of $9,500,000 due to Guaranty Bank and agrees it will not increase debt without the approval of Artic or until the Artic loan is paid in full.

PrimeEnergy Corporation agrees it is obligated to pay the Artic loan in full after its existing bank debt is paid off and it will not secure debt in excess of $112 million dollars without the approval of Artic or until the Artic loan is paid in full.

PrimeEnergy Corporation agrees the Artic loan is immediately due and payable if there is a change in control or management of PrimeEnergy Corporation.

PrimeEnergy will provide a monthly statement of outstanding debt to Artic.


ARTIC MANAGEMENT CORPORATION

By:
		Mathias Eckenstein President


PRIME OFFSHORE L.L.C.

By:
		Beverly A. Cummings Chief Executive Officer


PRIMEENERGY CORPORATION

By:
		Charles E. Drimal, Jr. Chief Executive Officer

Exhibit 10.27.7

PLEDGE AGREEMENT

This PLEDGE AGREEMENT (this “ Agreement ”), is made effective June 30, 2009, by and between PRIME OFFSHORE L.L.C. , a Delaware limited liability company (“ Pledgor ”) and GUARANTY BANK, FSB , a federal savings bank, as Agent for the lenders party to that certain Amended and Restated Credit Agreement dated effective March 31, 2008, as amended on the effective date hereof (as amended, supplemented, restated or otherwise modified from time to time, the “ Credit Agreement ”), by and among Pledgor, such lenders (the “ Lenders ”) and Guaranty Bank, FSB, as administrative agent for the Lenders (in such capacity, “ Secured Party ”).

R E C I T A L S :

A. Pledgor, the Lenders and Secured Party are parties to the Credit Agreement.

B. Pledgor owns 100% of the general partner interest in FWOE Partners L.P., a Delaware limited partnership (the “ Partnership ”).

C. Secured Party and the Lenders have conditioned extensions of credit to Pledgor under the Credit Agreement upon, among other things, the execution and delivery of this Agreement by Pledgor.

D. Terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.

A G R E E M E N T S :

NOW, THEREFORE, in consideration of the premises and the mutual covenants, representations, warranties and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby agrees with, and for the benefit of, Secured Party as follows:

SECTION 1. Grant of Pledge Interest . As security for the obligations specified in Section 2 hereof, Pledgor hereby grants to Secured Party a continuing security interest in all of its right, title and interest in and to the following described property, all of which is hereinafter collectively referred to as the “Collateral”:

(a) Partnership Interests . Pledgor’s entire general partner interest in the Partnership, which currently consists of 100% of the general partnership interest in the Partnership. Without limiting the generality of the foregoing, Secured Party is hereby granted a security interest in all of Pledgor’s right, title and interest arising under that certain Amended and Restated Agreement of Limited Partnership dated August 22, 2005 (the “ Partnership Agreement ”) including, without limitation, all rights of Pledgor to receive any and all monies, properties, payments and distributions thereunder, whether in respect of operating profits, sales, exchanges, condemnations or insured losses of any of Partnership’s assets, the liquidation of any of Partnership’s assets and affairs, guaranteed payments, reimbursement of expenses, or otherwise (collectively the “ Distributions ”); all rights, powers and prerogatives of Pledgor arising under the Partnership Agreement or under law relating to

the general partnership interest of Pledgor, including, without limitation, all rights of Pledgor, if any, to control and manage the business of the Partnership and to vote on any matter specified therein or under law; all rights of Pledgor to cause an assignee to be substituted in the Partnership as a partner in the place and stead of Pledgor; all rights and claims of Pledgor for damages arising out of or for breach of or default under the Partnership Agreement; all rights of Pledgor to access to the books and records of the Partnership and to other information concerning or affecting the Partnership and all rights of Pledgor to terminate the Partnership Agreement, if any, to perform thereunder, to compel performance and otherwise to exercise all remedies thereunder; in each of the foregoing cases, whether such rights, interests and assets are now owned or hereafter acquired and including all of Pledgor’s interest in any partnership or other entity which is a successor to or continuation of either Partnership.

(b) Proceeds, Substitutions, Etc . To the extent not included in the items of Collateral set forth in paragraph (a) above, any and all proceeds, products, increases, substitutions, replacements, repairs, additions and accessions to or of such items of Collateral, including, without limitation, all insurance and the proceeds thereof, all condemnation proceeds or the proceeds of any other form of taking thereof and all real property, equipment, inventory, accounts, general intangibles, contract rights, documents, instruments, chattel paper, money, deposit accounts and other tangible or intangible property received upon the sale or disposition of any of the foregoing now existing or hereafter arising.

With respect to each particular item of Collateral, the security interest herein granted shall attach immediately upon Pledgor’s execution hereof or as soon as Pledgor acquires rights in and to such item of Collateral, whichever is later. Nothing in this Agreement shall be deemed to constitute an assumption by Secured Party of any liability or obligation of Pledgor with respect to any of the Collateral.

SECTION 2. Obligations Secured . This Agreement secures and the Collateral is security for the prompt payment or performance in full when due, whether at stated maturity, by acceleration or otherwise (including, without limitation, the payment of amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)) of (a) all indebtedness now or hereafter existing, whether for principal or interest (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to Pledgor, would accrue on such obligations), or payments of fees, expenses or otherwise, owing by Pledgor under the Credit Agreement and (b) all obligations, indebtedness and liabilities of Pledgor now or hereafter existing under this Agreement or any other security document securing payment of such obligations (all such obligations, indebtedness and liabilities referred to in (a) and (b) of this Section being the “ Secured Obligations ”).

SECTION 3. Assignment of Partnership Interest . Concurrently herewith Pledgor shall execute and deliver to Secured Party a fully executed Subordinated Assignment of Partnership Interest in the form attached hereto as Exhibit “A” with respect to the Partnership. Pledgor hereby authorizes Secured Party, after the occurrence of an Event of Default, after the expiration of any applicable cure period therefor and upon the completion of a sale conducted pursuant to Article 9 of the Uniform Commercial Code (the “ Code ”) in effect in the State of Texas at that time, to complete

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the Assignment of Partnership Interest, and if the assignee is not Secured Party to fill in the name of the purchaser of the Collateral at a sale conducted pursuant to Article 9 of the Code as the assignee, and the date on which such sale was conducted, and, thereafter, to deliver one fully executed original to the other partners of the Partnership. Pledgor agrees that the Partnership and its constituent partners shall be entitled to rely conclusively on such Subordinated Assignment of Partnership Interest and shall have no liability to Pledgor for any loss or damage which Pledgor may incur by reason of said reliance, this provision being expressly for the benefit of such partners.

SECTION 4. Pledgor Remains Liable . Anything herein to the contrary notwithstanding, unless and until an Event of Default shall have occurred and the Collateral is sold at a foreclosure sale, Pledgor shall remain liable under the Partnership Agreement to perform all of Pledgor’s obligations thereunder to the same extent as if this Agreement had not been executed, and the exercise by Secured Party of any of its rights hereunder shall not release Pledgor from any of Pledgor’s obligations under the Partnership Agreement except as expressly otherwise provided by law. Unless and until the Collateral is sold to Secured Party at a foreclosure sale, Secured Party shall not have any obligation or liability under the Partnership Agreement by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations of Pledgor thereunder or to take any action to collect or to enforce any claim for payment assigned hereunder. From and after the date the Collateral is sold at a foreclosure sale, the purchaser thereof shall be bound by all applicable provisions of the Partnership Agreement.

SECTION 5. Representations and Warranties . Pledgor hereby represents and warrants to Secured Party that:

(a) Pledgor is duly organized, existing and in good standing in its jurisdiction of organization and has full power and authority to make and deliver this Agreement.

(b) The execution, delivery and performance of this Agreement by the Pledgor have been duly authorized by all necessary organizational action and do not and will not violate the provisions of, or constitute a default under, any presently applicable law or its organizational documents or any agreement presently binding on it.

(c) This Agreement has been duly executed and delivered by the authorized officers, partners, managers or members, as the case may be, of Pledgor and constitutes its lawful, binding and legally enforceable obligation, subject, as to enforcement, only to bankruptcy, insolvency, reorganization, moratorium or similar laws then in effect affecting the rights of creditors generally and general equitable principles.

(d) The authorization, execution, delivery and performance of this Agreement does not require notification to, registration with, or consent or approval by, any federal, state or local regulatory body or administrative agency.

(e) Pledgor’s rights to the Distributions are valid, enforceable under the Partnership Agreement in accordance with its terms and are not subject to any defense, offset, counterclaim or contingency whatsoever, except as provided in the Partnership Agreement.

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(f) Except for the security interest granted herein, Pledgor has, and will at all times during the term hereof have, valid title to all and every part of the Collateral, free and clear of any lien or security interest.

(g) Upon the execution and delivery of this Agreement by Pledgor and the filing of appropriate financing statements with the appropriate governmental agencies or, as applicable, upon Secured Party’s taking possession of the Collateral, Secured Party shall have a perfected security interest in and to the Collateral having first priority for the full amount of all of the Secured Obligations.

(h) Neither the execution and delivery of this Agreement by Pledgor nor the lawful exercise by Secured Party of any of its rights and remedies hereunder, whether upon default or otherwise, will result in a breach of or constitute a default under the Partnership Agreement or any other agreement or instrument to which Pledgor is a party or by which any of the Collateral is bound, nor violate any law or any rule or regulation of any administrative agency or any order, writ, injunction or decree of any court or administrative agency binding upon Pledgor, nor does any of the foregoing require the consent of any person, entity or governmental agency or any notice or filing with any governmental or regulatory body (except as may be required in connection with any sale or disposition of the Collateral by laws affecting the offering and sale of securities generally).

(i) There is no action nor legal, administrative or other proceeding pending or, to the best of Pledgor’s knowledge, threatened which affects Pledgor’s title to the Collateral or Pledgor’s grant of a security interest hereunder, nor does Pledgor know of any basis for the assertion of any such claim.

(j) The place where Pledgor keeps its books and records concerning the Collateral and a true, complete and conformed copy of each Partnership Agreement is and will remain 9821 Katy Freeway, Suite 1050, Houston, Texas 77024, or at such other address as Pledgor may designate in writing to Secured Party. None of the Collateral is evidenced by a promissory note or other instrument.

(k) Any and all information heretofore furnished to Secured Party by Pledgor in connection with the financial condition, assets, liabilities, business or prospects of the Partnership or the value or condition of the Collateral is true and correct in all material respects when furnished, and all such information hereafter furnished to Secured Party by Pledgor will be true and correct in all material respects when furnished.

SECTION 6. Further Assurances . Pledgor agrees at any time and from time to time, at the expense of Pledgor, promptly to execute and to deliver all further instruments and documents, and to take all further action, that may be necessary as reasonably requested by Secured Party in order to perfect and to protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and to enforce its rights and remedies hereunder with respect to any of the Collateral.

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SECTION 7. Affirmative and Negative Covenants .

(a) Pledgor shall not (i) sell, assign, transfer, exchange, lease, lend or dispose of (directly, indirectly, or voluntarily), or grant any option with respect to, any of the Collateral, or (ii) create or permit to exist any security interest or lien in or with respect to the Collateral, except for the security interest in favor of Secured Party. The inclusion of “proceeds” as a component of the Collateral shall not be deemed a consent by Secured Party or the Lenders to any sale, assignment, transfer, exchange, lease, loan, granting of an option with respect to or disposition of all or any part of the Collateral.

(b) Pledgor shall not take any action in Pledgor’s capacity as general partner of the Partnership to (i) cause or permit the Partnership Agreement to be amended or terminated; (ii) waive, postpone or modify Pledgor’s rights to receive any Distributions under the Partnership Agreement; or (iii) waive any default or breach of the Partnership Agreement.

(c) Pledgor shall, at its own expense, perform and observe all of the terms and provisions of the Partnership Agreement to be performed or observed by Pledgor, maintain the Partnership Agreement in full force and effect, and enforce Pledgor’s rights under the Partnership Agreement in accordance with its terms. Pledgor shall promptly deliver to Secured Party any notice of default which Pledgor receives with respect to the Partnership Agreement.

(d) Pledgor shall comply with all laws, statutes and regulations pertaining to its ownership of the Collateral. Pledgor shall pay or cause to be paid all taxes and other levies with respect to the Collateral when the same become due and payable except such as are being contested in good faith by appropriate proceedings, where the effect of such proceedings is to stay any enforcement in respect of such unpaid taxes.

(e) Pledgor shall promptly notify Secured Party in writing of any event which materially adversely affects the value of the Collateral, the ability of Pledgor or Secured Party to dispose of the Collateral or the rights and remedies of Secured Party in relation thereto, including, but not limited to, the levy of any legal process against the Collateral and the adoption of any order, arrangement or procedure affecting the Collateral, whether governmental or otherwise. Pledgor shall also promptly notify Secured Party in writing of any event which adversely affects the financial condition, assets, liabilities, business, operations or prospects of the Partnership in any material respect.

SECTION 8. Rights of Pledgor with Respect to Collateral .

(a) So long as no Event of Default shall have occurred and be continuing, Pledgor shall be entitled to exercise any and all voting and other consensual and other rights pertaining to the Collateral, or any part thereof, for any purpose not inconsistent with the terms of this Agreement (including, without limitation, Section 7(b) hereof) or the Note; provided, however, that Pledgor shall not exercise or shall refrain from exercising any such right if it would result in an Event of Default.

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(b) Upon the occurrence and during the continuance of an Event of Default:

(i) Secured Party shall have the right to have the Collateral transferred into the name of Secured Party pursuant to Section 3 hereof.

(ii) All rights of Pledgor to exercise the voting and other consensual rights which Pledgor would otherwise be entitled to exercise pursuant to Section 8(a) above and to receive Distributions shall cease, and all such rights shall thereupon become vested in Secured Party, who shall thereafter upon notice to Pledgor have the sole right to exercise such voting and other consensual rights and to receive 100% of all Distributions, which shall be promptly applied by Secured Party against the Secured Obligations in the order and manner specified in Section 12(d) hereof.

(iii) All Distributions which are received by Pledgor contrary to the provisions of Section 8(b)(ii) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor, and forthwith shall be paid over to Secured Party as pledged Collateral in the same form as received (with any necessary endorsements).

SECTION 9. Performance by Secured Party . If Pledgor fails to perform any agreement contained herein, Secured Party may itself perform or cause the performance of such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under Section 16. However, nothing in this Agreement shall obligate Secured Party to act.

SECTION 10. Secured Party Appointed Attorney-in-Fact . Pledgor hereby appoints Secured Party Pledgor’s attorney-in-fact with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time (but only upon an Event of Default) in Secured Party’s discretion, to take any action and to execute any instrument which Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to Pledgor representing any dividend or other Distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

SECTION 11. Reasonable Care . Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Secured Party accords its own property, it being understood that Secured Party shall not have responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral.

SECTION 12. Remedies Upon Default . If any Event of Default shall have occurred and be continuing, Secured Party is, subject to the Credit Agreement, entitled to exercise any one or more of the following remedies:

(a) Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and

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remedies of a secured party under the Code, and Secured Party may also without notice except as specified below sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or at any of Secured Party’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Secured Party in its sole discretion may deem commercially reasonable. Pledgor agrees that at least 20 days’ written notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. 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 hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale. To the extent permitted by law, Secured Party may be the purchaser of the Collateral.

(b) Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the “ Securities Act ”), and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof Pledgor acknowledges that any such private placement, whether through public or private sale under the Code, may be at prices and on terms less favorable to Secured Party than those obtainable through a public offering made pursuant to a registration statement under the Securities Act, and, notwithstanding such circumstances, agrees that any such private placement, whether through public or private sale under the Code, shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in a public offering and no obligation to delay the sale of any Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public offering requiring registration under the Securities Act or under applicable state securities laws, even if Pledgor would agree to do so.

(c) If Secured Party decides to exercise its right to sell any or all of the Collateral, upon written request, Pledgor shall furnish to Secured Party all such information as Secured Party may reasonably request in order to determine the Collateral which may be sold by Secured Party as exempt transactions under the Securities Act and the rules of the Securities and Exchange Commission thereunder, as the same are from time to time in effect.

(d) Any cash held by Secured Party as Collateral and all cash proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be promptly applied (after payment of any amounts payable to Secured Party pursuant to Section 16) in whole or in part by Secured Party against all or any part of the Secured Obligations in such manner as Secured Party may elect. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full of all the Secured Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus.

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(e) Secured Party shall not be obligated to resort to its rights or remedies with respect to any other security for or guaranty of payment of the Secured Obligations before resorting to its rights and remedies against Pledgor hereunder. All rights and remedies of Secured Party shall be cumulative and not in the alternative.

(f) To the extent the Collateral consists of Pledgor’s entire interest in the Partnership, Secured Party may pursue and enforce its rights and remedies only as to the Distributions, reserving the discretion to pursue or not pursue its rights as to the balance of the Collateral at a later date.

(g) To the extent the exercise by Secured Party of any remedy afforded herein requires the consent or approval of any governmental agency or regulatory body, the right of Secured Party to exercise such remedy shall be conditioned upon receipt by Secured Party of such consent or approval. In furtherance of the exercise by Secured Party of the power of sale granted to it herein, Pledgor agrees that, upon request of Secured Party and without expense to Secured Party, Pledgor shall use its reasonable best efforts to obtain all necessary approvals from all applicable federal, state and local governmental agencies, authorities and instrumentalities for the sale by Secured Party of the Collateral, or any part thereof, or the transfer to the successful bidder or prospective purchaser of any governmental licenses or franchise necessary to allow it to conduct the business or activities for which the Collateral is intended.

SECTION 13. No Partner . Notwithstanding anything to the contrary contained herein, until such time, if any, as Secured Party or a successor thereto acquires the Collateral following the occurrence of an Event of Default, neither Secured Party nor any successor-in-interest thereof shall be deemed to be a partner in the Partnership. The security interests granted to Secured Party herein are collateral assignments only, serving as security for the Secured Obligations.

SECTION 14. L IABILITY AND I NDEMNIFICATION . S ECURED P ARTY SHALL NOT BE LIABLE TO PLEDGOR FOR ANY ACT OR OMISSION BY S ECURED P ARTY UNLESS S ECURED P ARTY ’ S CONDUCT CONSTITUTES WILLFUL MISCONDUCT OR GROSS NEGLIGENCE . P LEDGOR AGREES TO INDEMNIFY AND TO HOLD S ECURED P ARTY HARMLESS FROM AND AGAINST ALL LOSSES , LIABILITIES , CLAIMS , DAMAGES , REASONABLE COSTS AND EXPENSES ( INCLUDING REASONABLE ATTORNEYS ’ FEES AND DISBURSEMENTS ) WITH RESPECT TO ( I ) ANY ACTION TAKEN OR ANY OMISSION BY S ECURED P ARTY WITH RESPECT TO THIS A GREEMENT , PROVIDED THAT S ECURED P ARTY ’ S CONDUCT DOES NOT CONSTITUTE WILLFUL MISCONDUCT OR NEGLIGENCE , ( II ) ANY CLAIMS ARISING OUT OF P LEDGOR ’ S OWNERSHIP OF THE COLLATERAL OR S ECURED P ARTY ’ S SECURITY INTEREST THEREIN , OR ( III ) S ECURED P ARTY ’ S ENFORCING THIS A GREEMENT AGAINST P LEDGOR WHETHER OR NOT SUIT IS FILED , INCLUDING , WITHOUT LIMITATION , ALL REASONABLE COSTS , REASONABLE ATTORNEYS ’ FEES AND EXPENSES ACTUALLY EXPENDED OR INCURRED BY S ECURED P ARTY IN CONNECTION WITH , OR IN DEFENSE OF , ANY INSOLVENCY , BANKRUPTCY , REORGANIZATION , ARRANGEMENT OR OTHER SIMILAR PROCEEDING INVOLVING PLEDGOR WHICH IN ANY WAY AFFECTS THE EXERCISE BY S ECURED P ARTY OF ITS RIGHTS AND REMEDIES HEREUNDER .

SECTION 15. Continuing Security Interest; Assignment of Obligations . This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect

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until payment in full of the Secured Obligations or the written termination of this Agreement by Secured Party, (b) be binding upon Pledgor, its successors and assigns, (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its heirs, devisees, personal representatives and permitted assigns, (d) constitute, along with the other documents referred to herein, the entire agreement between Pledgor and Secured Party with respect to the subject matter hereof, and (e) be severable in the event that one or more of the provisions herein is determined to be illegal or unenforceable.

SECTION 16. Expenses . Pledgor will, upon demand, pay to Secured Party all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which Secured Party may incur in connection with (a) the administration of this Agreement, (b) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (c) the exercise or enforcement of any of the rights of Secured Party hereunder, and (d) the failure by Pledgor to perform or to observe any of the provisions hereof.

SECTION 17. Obligations Unconditional . The obligations of Pledgor under this Agreement shall be absolute and unconditional and shall not be released, discharged, reduced, or in any way impaired by any circumstance whatsoever, including, without limitation, any amendment, modification, extension or renewal of this Agreement, the Secured Obligations, or any document or instrument evidencing, securing or otherwise relating to the Secured Obligations, or any release, subordination, or impairment of collateral, or any waiver, consent, extension, indulgence, compromise, settlement, or other action or inaction in respect of this Agreement, the Secured Obligations or any document or instrument evidencing, securing or otherwise relating to the Secured Obligations, or any exercise or failure to exercise any right, remedy, power or privilege in respect of the Secured Obligations. No failure on the part of Secured Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law.

SECTION 18. Return of Collateral . Subject to any duty imposed by law or by contract to the holder of any subordinate lien on the Collateral known to Secured Party, and subject to the direction of a court of competent jurisdiction, upon payment in full of the Secured Obligations, Pledgor shall be entitled to return of the Collateral in the possession of Secured Party; provided, however that Secured Party shall not be obligated to return to Pledgor or deliver to the holder of any subordinate lien any such Collateral until such time, but in no event to exceed ninety days after payment in full of the Secured Obligations, as Secured Party is reasonably satisfied that the payment of the Secured Obligations is not subject to being recaptured under applicable bankruptcy laws. The return of Collateral, however effected, shall be without recourse to Secured Party. The return of Collateral shall be effected without representation or warranty and shall entitle Pledgor to all necessary endorsements, without recourse or warranty.

SECTION 19. Amendments, Waiver . No amendment or waiver of any provision of this Agreement nor consent to any departure by Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by Secured Party and Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

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SECTION 20. Notices . All notices, requests, demands, directions and other communications provided for hereunder must be in writing and must be mailed, certified or registered mail, return receipt requested, telegraphed, telecopied, delivered or sent by cable or electronic mail to the appropriate party (and to the persons so designated to receive copies thereof) at the addresses set forth below. Any notice, request, demand, direction or other communication required or permitted hereunder which is given by mail will be effective on the earlier of receipt or the third business day after deposit in the United States mail with certified or registered postage prepaid; if given by telegraph or cable, when delivered to the telegraph company with charges prepaid; if given by telecopier, when received; or if given by personal delivery, when delivered. Notices shall be addressed as follows:


If to Pledgor:		Prime Offshore L.L.C. Attn: Beverly A. Cummings 1 Landmark Square, 11 ^th Floor Stamford, Connecticut 06901 Facsimile: (713) 461-9396 E-mail: bcummings@primeenergy.com

If to Secured Party:		Guaranty Bank, FSB Attn: Oil and Gas Banking 8333 Douglas Avenue Dallas, Texas 75225 Facsimile: (713) 890-8868 E-mail: david.mccarver@guarantybank.com

Addresses for notices, requests, demands, directions and other communications provided for hereunder, and/or the persons so designated to receive copies thereof, may be redesignated by a party by a written notice sent to all of the other parties hereunder.

SECTION 21. Counterparts . This Agreement may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument and shall be enforceable upon the execution of one or more counterparts hereof by each of the parties hereto. In this regard, each of the parties hereto acknowledges that a counterpart of this Agreement containing a set of counterpart execution pages reflecting the execution of each party hereto shall be sufficient to reflect the execution of this Agreement by each necessary party hereto and shall constitute one instrument.

SECTION 22. Governing Law . T HIS A GREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE S TATE OF T EXAS .

SECTION 23. Reinstatement of Rights . Secured Party’s rights hereunder shall be reinstated and revived, and the enforceability of this Agreement shall continue, with respect to any amount at any time paid on account of the Secured Obligations which thereafter shall be required to be restored or returned by Secured Party upon the bankruptcy, insolvency or reorganization of Pledgor, or any other person, all as though such amount had not been paid.

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.


PLEDGOR :

PRIME OFFSHORE L.L.C.

By:
Name:
Title:

(Signatures continue on following page)

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SECURED PARTY :

GUARANTY BANK, FSB, as Agent

By:
		W. David McCarver IV
		Vice President

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EXHIBIT “A”

ASSIGNMENT OF PARTNERSHIP INTEREST

For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Prime Offshore L.L.C., a Delaware limited liability company (“ Assignor ”), hereby sells, assigns, transfers and conveys to (“ Assignee ”), all of its right, title and interest in and to its partnership interest in FWOE Partners L.P., a Delaware limited partnership (the “ Partnership ”), including, without limitation, Assignor’s right to receive from the Partnership all amounts payable to Assignor from and after the date hereof in consideration of the foregoing transfer.

Assignee agrees that, subject to the immediately preceding sentence, it shall be bound by all of the terms and provisions of the partnership agreement governing the Partnership and shall perform and observe all of the covenants, duties and obligations contained therein from and after the date of Assignee’s admission as a partner in the Partnership.

IN WITNESS WHEREOF, this Assignment of Partnership Interest is executed as of , 20 .


ASSIGNOR :

PRIME OFFSHORE L.L.C.

By:
		Beverly A. Cummings
		Chief Executive Officer

ASSIGNEE :

A-i

Exhibit 10.27.8

SUBORDINATION OF LIENS AND SECURITY INTERESTS


STATE OF TEXAS		§
		§
COUNTIES OF CAMERON		§
AND KLEBERG		§

This SUBORDINATION OF LIENS AND SECURITY INTERESTS is executed to be effective on the 30 ^th day of June, 2009 (the “ Effective Date ”) by ARTIC MANAGEMENT CORPORATION, a corporation incorporated under the laws of Panama (“ Artic ”), the address for which, for purposes hereof, is Attn: Matthias Eckenstein, Solothurnerstrasse 94, CH-4008, Basel, Switzerland, for the benefit of GUARANTY BANK, FSB, a federal savings bank, in its capacity as administrative agent for the lenders party to that certain Amended and Restated Credit Agreement dated effective March 31, 2008 (as amended as of the Effective Date, the “ Credit Agreement ”) by and among Prime Offshore L.L.C., a Delaware limited liability company (the “ Borrower ”), the lenders party thereto and Guaranty Bank, FSB, as administrative agent for such lenders (in such capacity, the “ Agent ”).

W I T N E S S E T H :

WHEREAS, Artic is the mortgagee, secured party or beneficiary of each of those certain security documents executed by the Borrower and listed in Schedule 1 attached hereto and incorporated herein for all purposes by this reference (the “ Artic Security Documents ”);

WHEREAS, the Agent is the mortgagee, secured party or beneficiary of each of those certain security documents executed by the Borrower and listed in Schedule 2 attached hereto and incorporated herein for all purposes by this reference (the “ Agent Security Documents ”); and

WHEREAS, Artic and the Agent desire that the liens, security interests and other rights created by the Agent Security Documents shall be superior to the liens, security interest and other rights created by the Artic Security Documents;

NOW, THEREFORE, Artic, for TEN AND NO/100 DOLLARS ($10.00) and other good and valuable consideration in hand paid, the receipt and sufficiency of which are hereby acknowledged, does hereby agree that, notwithstanding any provision of any of the Artic Security Documents, the Agent Security Documents, the Credit Agreement or the Artic Subordination Agreement (as such term is defined in the Credit Agreement) to the contrary, the liens, security interests and other rights created by the Artic Security Documents shall be and are hereby made subordinate, subject and inferior to the liens, security interests and other rights created by the Agent Security Documents.

This Subordination Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to principles of such laws relating to conflicts of law.

IN WITNESS WHEREOF, this Subordination of Liens and Security Interests is executed effective as of the Effective Date.


ARTIC MANAGEMENT CORPORATION

By:
		Matthias Eckenstein
		President

(See acknowledgement on following page)

Schedule 1

Listing of Artic Security Documents

Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production dated effective March 31, 2008 (regarding Loop Pipeline and South Padre Island 1111), from Prime Offshore L.L.C. to Matthias Eckenstein, Trustee for the benefit of Artic Management Corporation, filed and recorded as follows:


JURISDICTION		FILING DATA

TEXAS

Cameron County		Filed April 14, 2008 under Documents No. 2008-0017766, Volume 14977, Page 31, Official Records

Kleberg County		Filed April 10, 2008 under File No. 274552, Volume 388, Page 143, Official Records

FEDERAL

Minerals Management Service		Filed April 15, 2008 under OCS Filing No. OCS–G-26982 and OCS Filing No. OCS-G-24300

2.	Pledge Agreement dated effective March 31, 2008 (General Partner interest in FWOE Partners L.P.) between Prime Offshore L.L.C. and Artic Management Corporation.

3.	Security Agreement dated effective March 31, 2008 between Prime Offshore L.L.C. and Artic Management Corporation, insofar as covering the General Partner interest of Prime Offshore L.L.C. in FWOE Partners L.P.

Schedule 2

Listing of Agent Security Documents

Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production dated effective as of June 30, 2009 from (regarding Loop Pipeline and South Padre Island 1111), from Prime Offshore L.L.C. to John A. Clark, Trustee for the benefit of Guaranty Bank FSB, in its capacity as administrative agent for the lenders party to that certain Amended and Restated Credit Agreement dated effective as of March 31, 2008 among Prime Offshore L.L.C., the lenders party thereto and Guaranty Bank, FSB, as administrative agent for such lenders, covering the property described in Exhibit A attached hereto and incorporated herein by this reference.

Pledge Agreement dated effective as of June 30, 2009 between Prime Offshore L.L.C. and Guaranty Bank, FSB, in its capacity as administrative agent for the lenders party to that certain Amended and Restated Credit Agreement dated effective as of March 31, 2008 among Prime Offshore L.L.C., the lenders party thereto and Guaranty Bank, FSB, as administrative agent for such lenders.

Exhibit A

Loop Pipeline

A 12- ³ / 4 inch pipeline 13.14 miles in length to transport gas and condensate from a 12-inch sub-sea tie-in in North Padre Island Area Block 996 (Segment Number 15073) through North Padre Island Blocks 997, 989, 976, 977, and 968 to a 10-inch sub-sea tie-in in North Padre Island Area Block 967 (Segment Number 5990).

Assigned Right-of-Way Number OCS-G26982

Assigned Segment Number: 15636

South Padre Island 1111


Working Interest		100.0000
Net Revenue Interest		80.3333

Exhibit 31.1 CERTIFICATIONS

I, Charles E. Drimal, Jr., Chief Executive Officer of PrimeEnergy Corporation, certify that:

1. I have reviewed this Form 10-Q for the quarter ended June 30, 2009 of PrimeEnergy Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


August 13, 2009				/s/ Charles E. Drimal Jr.
				Charles E. Drimal Jr
				Chief Executive Officer
				PrimeEnergy Corporation

Exhibit 31.2 CERTIFICATIONS

I, Beverly A. Cummings, Chief Financial Officer of PrimeEnergy Corporation, certify that:

1. I have reviewed the Form 10-Q for the quarter ended June 30, 2009 of PrimeEnergy Corporation;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


August 13, 2009				/s/ Beverly A. Cummings
				Beverly A. Cummings
				Chief Financial Officer
				PrimeEnergy Corporation

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PrimeEnergy Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles E. Drimal Jr., Chief Executive Officer of PrimeEnergy Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Charles E. Drimal Jr.

Charles E. Drimal, Jr.

Chief Executive Officer

August 13, 2009

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PrimeEnergy Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Beverly A. Cummings, Chief Financial Officer of PrimeEnergy Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Beverly A. Cummings

Beverly A. Cummings

Chief Financial Officer

August 13, 2009

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