10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

x Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2006, or

¨ Transition report pursuant to section 13 or 15(d) of the Securities Exchange act of 1934

for the transition period from                      to                     

Commission File No. 0-50072

ENERGYTEC, INC.

(Exact Name of the Registrant as Specified in its Charter)

Nevada	75-2835634
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

4965 Preston Park Blvd., Suite 270 E, Plano, Texas 75093

(Address of Principal Executive Offices and Zip Code)

(972) 985-6715

(Registrant’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: Common Stock, Par Value $0.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨    No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨     No  x

Indicate 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 19345 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 filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large Accelerated Filer   ¨         Accelerated Filer   ¨         Non-Accelerated Filer   x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $36,933,177

The number of shares outstanding of the registrant’s class of $0.001 par value common stock as of April 16, 2007 was 69,777,125.

DOCUMENTS INCORPORATED BY REFERENCE: Certain information for Part III of this report is incorporated by reference to the proxy statement for the 2007 annual meeting of the Company’s shareholders.

TABLE OF CONTENTS

ITEM NUMBER AND CAPTION		Page
Part I
Item 1.	Business	5
Item 1A.	Risk Factors	18
Item 2.	Properties	21
Item 3.	Legal Proceedings	28
Item 4.	Submission of Matters to a Vote of Security Holders	31
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	46
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	47
Part III
Item 10.	Directors and Executive Officers of the Registrant	47
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	47
Item 13.	Certain Relationships and Related Transactions	47
Item 14.	Principal Accountant Fees and Services	47
Part IV
Item 15.	Exhibits and Financial Statement Schedules	48

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GLOSSARY

The following definitions are provided to assist the reader of this report with terms and concepts specific to the oil and gas industry.

barrel. (bbl or bbls) A standard measurement in the oil industry. One barrel equals 42 U.S. gallons. On the average, 7.33 barrels of crude oil weigh one metric ton; 7.5 barrels weigh one long ton; and 6.65 barrels weigh one short ton.

boe. A barrel of oil equivalent, determined by using the ratio of on bbl of oil to six mcf of gas.

completion. The process of attempting to bring an oil or gas well into production. The process begins only after the well has reached the depth where oil or gas is thought to exist and generally involves cleaning out the material the drill bit has ground up. Casing is run to protect the producing formation. Completion also may include perforating the casing, so the oil or gas can flow into the well. Sometimes the flow rate can be improved by an acid treatment or by fracturing the oil formation to open channels for the oil to flow into the well.

condensate. A mixture of liquid hydrocarbons at atmospheric (surface) conditions that occur as a vapor in underground gas reservoirs. The liquid (condensate) is separate from the gas in field separators or gas processing plants. The liquids generally include propane, butane, and heavier hydrocarbons used in making gasoline.

crude oil. Liquid petroleum that has not been refined. Sour crude oils have relatively large amounts of sulfur (1 percent or more). Sweet crudes have less sulfur and are more valuable. Most U.S. crudes tend to be sweet, while Middle East crudes tend to be sour. Crude oil is generally sold on a volume basis. The volume is corrected for any basic sediment and water (BS&W) present and adjusted to the standard base temperature of 60 degrees Fahrenheit. Light crude oils have a lower specific gravity than do heavy crudes, which may be thick and viscous.

development well. A well drilled within the proved area of an oil or gas reservoir to a depth of a stratigraphic horizon known to be productive.

exploratory well. A well drilled to find and produce oil or gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir. Generally, an exploratory well is any well that is not a development well, a service well, or a stratigraphic test well.

farmout. A contractual agreement with an owner who holds a working interest in an oil and gas lease to assign all or part of that interest to another party in exchange for fulfilling contractually specified conditions. The farmout agreement often stipulates that the other party must drill a well to a certain depth, at a specified location, within a certain time frame; furthermore, the well typically must be completed as a commercial producer to earn an assignment. The assignor of the interest usually reserves a specified overriding royalty interest, with the option to convert the overriding royalty interest to a specified working interest upon payout of drilling and production expenses, otherwise known as a back-in after payout.

fracturing. A method of increasing the flow of oil or gas into a well. Production of individual wells often decreases because the underground formation is not sufficiently permeable to allow the oil to move freely toward the well.

goodwill. The excess is the cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed. The amount recognized as goodwill includes acquired intangible assets that do not meet the criteria in FASB Statement No. 141, Business Combinations for recognition as an asset apart from goodwill.

improved recovery. “Man-made” methods as opposed to “natural” methods of increasing the flow of oil or gas from underground reservoirs.

injection well. A well that is used to pump water, gas, or chemicals into the underground reservoir of a producing field. The object is to maintain the pressure needed to drive oil and gas to the surface or to sweep more oil out of the reservoir. Sometimes the salt water produced with oil is pumped back into the reservoir. This serves two purposes: it helps to extend the life of the oil field, and gets rid of a potential pollutant.

intangible drilling costs (IDC). Expenses for labor, fuel, repair, hauling, rig rental, and supplies used in the drilling of a well. These expenses differ from the cost of “tangibles,” which include anything that has inherent salvage value.

joint interest billing (JIB). The process of the operator’s billing costs of joint exploration, development, and operations to the various working interest owners.

joint interests. Ownership of individual fractions or percentages of the working interests held by two or more parties.

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LOE. Lease operating expenses.

mcf. Thousand cubic feet. The standard volume measure of natural gas at a standard pressure and temperature.

natural gas. Consists largely of the hydrocarbon methane. It is found in underground formation either by itself or with crude oil. It is the cleanest burning of all fossil fuels. Once virtually a waste product, natural gas provides about one-third of the total energy used in the United States

overriding royalty. An interest in production similar to a royalty. It differs from a royalty, however, in that it is created out of the working interest.

percentage depletion. A provision of the U.S. income tax law that applies to producers of some seventy-five minerals, including some oil and gas producers. The U.S. income tax law allows a mineral producer a percentage depletion deduction based on the gross income from the mineral properties.

production payments. A nonoperating interest payable from a specific portion of production expressed either as a certain amount of money (with or without interest) or a certain number of units of hydrocarbons.

proved developed reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

proved reserves. The estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economics and operating conditions.

proved undeveloped reserves. Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

recompletions. Work-overs that entail completion of the well in a productive structure, either shallower or deeper, that has not previously been produced through the well.

reserves. Defined as proved, probable, and possible and as developed or undeveloped.

reservoir. An underground formation where oil or gas has accumulated. The formation consists of porous rock that holds droplets of oil and gas. If the rock pores are interconnected to allow oil or gas to move through it, it is called permeable rock.

royalty. The right to a share of production retained by the lessor free and clear of exploration, development, and operating costs.

stratigraphic test well. A drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells are customarily drilled without the intention of being completed for production.

tangible equipment. Equipment such as casing, tubing, pumps, tanks, and other equipment installed on a well.

working interest. The oil and gas in place that bears most or all of the cost of development and operation of the property. Mineral interest revenues minus the royalty interest equals the working interest share of revenues.

work-overs. Major remedial operations required to maintain or increase production rates. See recompletions.

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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included or incorporated by reference in this report that are not historical facts are hereby identified as “forward-looking statements.” Factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions and statements about oil and gas exploration and development activities, oil and gas reserves, oil and gas prices and energy markets, competition with other oil and gas companies, government regulation of the oil and gas industry and related matters, production levels, technology, availability of capital resources, capital expenditures, supply and demand for oil, gas, and condensate, availability of goods, services, and qualified personnel, general economic conditions, inflation, occurrence of property acquisitions or divestitures, the securities or capital markets, plans and objectives for future operations, costs and results of litigation, and other factors disclosed under “ITEM 1A. RISK FACTORS,” “ITEM 2. PROPERTIES,” “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” “ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” and elsewhere in this report. The words “may,” “should,” “will,” “expect,” “could,” “anticipate,” “believe,” “estimate,” “plan,” “intend”, and similar expressions have been used to identify certain of the forward-looking statements. Forward-looking statements are based on current expectations, estimates, and projections, and they are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this report. All statements in this report of expectations, estimates, and projections are subject to these uncertainties, the outcome of which cannot be predicted at this time and any one of which could render our forward-looking statements unlikely or impossible.

ITEM 1. BUSINESS

General

Energytec, Inc. was formed under the laws of the state of Nevada in July 1999. Energytec was formed for the purpose of engaging in oil and gas producing activities through the acquisition of oil and gas properties that have previously been the object of exploration or producing activity, but which are no longer producing or operating due to abandonment or neglect. The traditional focus of the Company has been the production of remaining recoverable hydrocarbons that can be developed through conventional and non-conventional improvement methods and production enhancement techniques. We own working interests in 60,701 acres of oil and gas leases in Texas and Wyoming that now include 108 gross producing wells and 343 gross non-producing wells. Our wholly owned subsidiary, Comanche Well Service Corporation became the operator of all properties owned by Energytec on April 1, 2006, by posting a cash bond of $250,000 with the Texas Railroad Commission. During 2006 we reviewed approximately 100 of the existing non-operational wells, evaluating the potential for placing those back on production. Options considered included joint ventures, farm-outs, or other partnering arrangements. Through this analysis process we have determined that any incremental production that could be realized from certain unprofitable fields and problematic wells may not justify the expenditures that would be necessary to realize such production. We intend to continue the evaluation of fields and wells that show the potential for profitability through enhanced recovery methods and to evaluate opportunities beyond those associated with current oil and gas properties held by the Company as discussed further in “Our Plan”.

We also own a gas pipeline of approximately 63 miles in Texas and a well service business operated through our subsidiary, Comanche Well Service Corporation, a drilling business operating through our subsidiary, Comanche Rig Services Corporation, and a sales and distribution business for enhanced oil recovery chemicals and materials related to well operation services through our subsidiary, Comanche Supply Corporation.

Our Plan and Approach to the Business

Over the past year, we have been faced with a number of issues and challenges brought upon the Company through the acts and decisions (as disclosed in our annual filing with the Securities Exchange Commission for the year ended December 31, 2005, and subsequent quarterly filings) of the former Chairman of the Board, who also acted as Chief Executive Officer and Chief Financial Officer from the inception of the Company through March 18, 2006. At the time of dismissal of the former chairman, the Company’s capital resources had been substantially depleted on questionable

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payments to third parties such that the continued operations of the Company were already seriously constrained, and continue to be seriously constrained at present. In addition to these financial and operational challenges, we find ourselves in an industry which is the subject of a paradigm shift in the supply and demand balance globally. One of the aspects of this shift is a great controversy commonly known as the “Peak Oil Debate” wherein experts on both sides confront the singular issue of our country and the world at large running out of fossil fuel (or at the least, inexpensive and easily recoverable fossil fuels.). Peak oil is that time when a producer’s oil production goes into decline, never again to produce what it did before the peak.

Dr. Herman Franssen, former chief economist at the Department of Energy, has said that the “concept of peak oil is realistic and most people would agree, but we disagree on the timing.” Simply stated, some experts believe that global peak oil is a few years away, while others see it a few decades away. Some experts say we will be rescued by vast new reserves yet to be found. Others say that technology will save the day. Then there are those who think we can conserve our way to salvation. Finally, there are those who espouse alternative energy (solar, wind, nuclear, hydrogen, among others) as the solution.

Where does our Company fit into this mix of conflicting opinions and complicated circumstances? We are just one small company with limited capital resources, mature fields as our asset base, old equipment requiring much maintenance, and considerable hostilities among our various competing stakeholders.

Yet, even confronting all those issues, we firmly believe there is a place for us and that there are multiple opportunities for us to evolve into a new and profitable niche in the domestic oil and gas industry. We are committed to a future, and not mere survival, for this Company - a future consistent with the abilities of increasing shareholder value, exhibiting good corporate governance, maintaining proper financial accounting and reporting systems and maximizing opportunities as they arise. In order to accomplish this we have developed a strategy we refer to as the “Five P’s” plan.

The five pillars upon which the new strategy of the Company will be built are profitability, people, places, positions, and proprietary technologies. While we have spent a considerable amount of time and effort exploring what to do, what we could become and how we could attain a positive future, and this is still a work in progress. There will be changes and adjustments. The Company’s current asset portfolio and revenues are not the beginning and end of the Company’s future - they provide a base from which management believes the Company can develop into a viable business entity. We think this new strategy gives us the best opportunities for a future given our past and present circumstances, resources, personnel and legal environment.

Profitability

We believe that the purpose of a business is to provide goods or services to meet a need. Our objective is the generation of profit from meeting that need.

This has several immediate applications to our Company.

• First, we must eliminate those assets that are not profitable.

• Second, we need to maximize our potentially profitable properties by infusing the capital necessary to restore production, sustain production or enhance production. In other words, take the existing inventory and maximize its potential.

• Third, we need to add new assets, new products that are profitable.

• Fourth, we need to seek out new customers for our business. It is our vision that our business will be more than selling more oil and gas; therefore our potential customer universe will expand significantly.

• Fifth, we need to manage for profitability. This is a process. Being on budget and just as good as the competition is simply not good enough.

Managing for profitability requires the implementation of a process to systematically manage profits on a day-to-day basis. We have therefore established a Profitability Team headed by our CFO. The Team seeks to attract new customers, add new products, underwrite new projects, control expenses, seek efficiencies in routine field operations, and obtain the best prices for our products, among other specific assignments. The process for our Company has three components. The process involves a (i) profit map, (ii) profit levers and (iii) profit priorities.

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A profit map enables us to analyze each asset by category, determining which leases are not profitable and why. Profit levers are those functions that can increase profits (asset disposition, re-working a well, trying a new chemical treatment, for example). Profit priorities are those actions that can be taken with the most return on capital for the capital, time, and people committed.

This systematized profit process has been developing for the last year. For example, industry costs have risen so fast that many projects need $50 oil and $6.00 gas to be profitable. Our analysis capabilities allow us to isolate fields and areas where this realization is not possible. This will allow us to achieve better operating results by allocating our personnel and capital to areas which can be optimized at these pricing levels.

The trauma of the last year enters into this. We have had to absorb losses, write-downs and adjustments. But we are now ready to move forward with the profit process and the Profitability Team in full operating mode. The last year was spent addressing problems that were building to critical status for several years under the former chief executive officer.

But we believe we are at a point where we can stop “feeding problems and starving opportunities.” For 2007 and 2008, we have developed a list of opportunities. These have been prioritized and staffed. From here on, the opportunities take precedence over the problems. Opportunities produce results and growth (profitability), but all you get by problem solving is damage control.

In summary, we must work toward improved operating results by focusing on new assets to be acquired and new lines of business activity that will diversify the Company’s product portfolio.

People

The January 2007 Oil and Gas Investor magazine states the problem succinctly as follows, “The need for experienced upstream personnel within the oil and gas industry has never been as acute as it is today…they need talented people …but there isn’t enough talent to go around.”

In order to compensate for the shortage of experienced personnel, we will:

• retain our best people through a review of compensation, benefits and retention practices and a commitment to meet or exceed industry standards in our peer group,

• seek out new personnel from unconventional sources—early retirees, long-term retirees seeking to re-enter the workforce, consultants, academics and researchers,

• engage non-traditional personnel as special advisors or special project personnel, and

• establish mentoring and training programs whereby the knowledge held by these senior persons will be passed on to our younger workers.

One example of bringing this strategy to reality is a recent personnel addition. On March 12, 2007, we announced the hiring of Dr. Anton Prodanovic. Anton retired from Exxon in 2000 after a 25-year career. He worked as a free-lance researcher and consultant until he found us. He signed on due to the challenges and opportunities we faced where he felt he could be a significant personal contributor based upon his skill set and experience.

Stated abruptly, there is a growing shortage of critical skills in our industry. We must view our aggregated personnel and their skills as a major resource for new opportunities.

Places

We have selected to focus on three places: Texas, Oklahoma and Kansas. These three states share several advantages for the Company:

• they are easily accessible from the Company’s main office in Plano, Texas,

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• they have extensive production data bases available via the internet,

• they have significant academic infrastructure committed to the industry,

• the Company’s senior management has extensive experience in the oil and gas industry in those states,

• collectively, they have over 50% of the country’s stripper wells, and

• the oil and gas industry in these states is vital to the continued wealth, progress and competitiveness of each state.

Texas

Texas energy production currently is approximately 59% natural gas, 30% oil, 10% coal and 1% other. Oil production has declined from a high of 3.5 million BOPD in 1972 to less than 1 million BOPD. That same year, gas production peaked at 26 bcf and has been flat at about 15 bcf for the last 20 years. In choosing Texas as a place for our Company to be, we considered these factors:

• oil production will continue to decline

• gas production will be hard to sustain for more than a few more years, then will begin to decline

• alternate energy will not be a factor in Texas for at least two decades

• United States demand will continue to grow

• world demand will continue to grow

• imports of oil, gasoline, LNG and other refined products will continue to grow

• Texas has over 125,000 stripper oil wells

• Texas has over 65,000 stripper gas wells

• Houston will remain the energy center and the energy finance center for the United States

• Texas will be at the forefront of encouraging new production

• Texas will be at the center of the development and deployment of many new technologies

In summary, we believe Texas will be a vital area for new production, new technology applications and new infrastructure because it has to be. A strong and vibrant exploration and production industry is absolutely critical to Texas’ future economic growth and prosperity.

Oklahoma

Exploration and exploitation of Oklahoma’s oil and gas has continued for over 150 years, first as a Territory and then as a state. Until overtaken by California in 1923, Oklahoma remained the leading oil producing state in the country. Oklahoma has produced over 14 billion barrels of oil and over 87 trillion cubic feet of gas.

Oklahoma oil production peaked in 1967 and natural gas production peaked in 1990. Notwithstanding, Oklahoma ranks fifth in crude oil produced in the country and accounts for 3% of national oil production. The bulk of oil drilling continues to be directed towards infill drilling, extending, and adding new reservoirs to existing fields. There are some under-explored areas and natural gas drilling is experiencing an upturn in activity. Oklahoma industry experts believe the only way to make a long-term positive impact on the oil production decline is to enhance recovery in fields that have already been found. They also believe that the state’s remaining oil and gas reserves are at least as much as has been produced.

This fits well with the Company’s new strategy. Among other factors in the Company’s decision is a recent association that has been developed with a geologist/geophysicist who has over 5,000 miles of 2-D seismic in Oklahoma. Further, if Oklahoma is to benefit from its remaining oil and gas reserves, a way must be found for aggressive laboratory and field enhanced recovery research to take place aimed at bringing these reserves to market. This also fits in with the new strategy of the Company as described under “Positions” below.

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Kansas

Kansas is a heavily drilled area and currently ranks eighth in the country in the production of oil and seventh in the country in the production of natural gas. Kansas oil and gas production is a $3 billion a year industry. This ranks it second in the state in terms of gross state product. Kansas oil wells average 2.27 barrels per day yet drilling in Kansas is nearly at full capacity. Oil production is very mature and has declined significantly from peak rates in the 1970’s and natural gas production peaked in 1996. Oil production is dominated by low volume economically marginal wells that are extremely sensitive to changes in price and increased operating costs.

While Kansas currently produces about 3 million barrels of oil per month, there are opportunities to increase that production in similar fashion to the situations in Texas and Oklahoma. Specifically, a recent report to the governor of Kansas stated that, given favorable application of technology, monthly production could easily exceed production of the 3 million barrels. Further, there is increased activity in gas drilling as coalbed methane gas drilling in eastern Kansas may become a significant new gas-producing province.

Kansas is home to an active research and development effort and has the university and corporate infrastructure to be a leader in technology advances.

Unlike other competitors that have the capital and personnel to pursue risky new exploration, unconventional gas, and major property acquisitions, we must prepare to squeeze the last drops of old oil from the mature fields we own or can timely acquire or alternatively participate in properties owned by third parties.

Positions

There are a number of positions available to our Company as part of the new plan. Some of these positions are complementary to our current operations and business strategies and some present alternative strategies and opportunities.

One such opportunity is that of becoming a vast outdoor laboratory where new tools, technologies, techniques, and chemicals can be tested and applied to our existing wells, enhancing or developing the economic feasibility of energy resources for the future. This has a two-fold benefit, one being the potential for increased oil and gas production from the Company’s wells. The Company will also benefit from the development and applications of these processes and technologies to the wells of other entities.

In this capacity, we propose to be a technology owner, licensee, distributor, facilitator, sponsor, and/or developer. This will be done in conjunction with private ownership or academia. Multiple income streams are possible from just a single new technology not to mention a broad, diversified portfolio of new technologies.

There is much discussion in the industry about “growth through the drill bit.” This is a traditional way of growth. It requires capital for (i) identifying/working up a prospect to drill, (ii) leasing the acreage for the drilling/development, (iii) drilling, (iv) continued operations, if the drilling is successful, and (v) development/expansion. At any step in the process, a company can take in an industry partner, promote the project to other parties, fund it from cash flow, fund it with debt, or fund it with project finance sources.

Over the past year, the Company has identified the potential to develop multiple positions and opportunities for traditional growth. First, we have prospects ready to drill. We have acreage awaiting the development of a prospect. We have development wells arising from prior successful drilling activities. We also have the ability to “drill deeper” in that we have production potential below the current, shallower production experienced by the Company, and on acreage awaiting prospect development. For example, there are indications of deeper potential at Talco where we produce from the Woodbine.

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In many instances a prospect generator, such as a geologist or geophysicist, will have his time and money invested in the “package” presenting a prospect. But he/she has no money to acquire the leases. Sometimes they may have acquired the leases but do not have the money to drill a test well. In some instances a prospect generator may need geological data. We believe that we can respond to all of those needs.

We believe that we have the potential to acquire a data base of seismic in potentially active areas such as Texas and Oklahoma through the association developed and discussed above under “People.”. The data base can be acquired for a cash consideration. Thereafter, we can (i) use the data base for our own drilling, (ii) sell access to it to third parties, (iii) develop prospects for sale to third parties, or (iv) contribute it to a deal in exchange for a piece of the deal (no cash outlay on our part).

The traditional strategy of the Company, as discussed above has been the sale of oil and gas. This exposes the Company to risks beyond our control in that production and sales can be interrupted by operational problems, regulatory issues, weather, market conditions, and other circumstances. The development of multiple revenue sources will allow us to minimize the risk of production interruption and allow us to improve results of operations. This requires a bold outlook on the future by the Company whereby we move away from the traditional focus of the past and expand our focus to the numerous options available to us.

In summary, we must be flexible enough to recognize and pursue new opportunities and depart from our original narrow focus of simply, and only, acquiring and producing older, mature oil and gas properties.

Proprietary Technologies

Throughout history, the people of the world have consumed a trillion barrels of oil. The next one or two trillion become a little problematical. Where will this oil come from, and what technologies might be developed to find it, produce it, and exploit it? Conventional production, by anyone’s estimates, will not be sufficient. There is a wide-spread perception that research and development are concentrated at the major international oil company level and at the federal government level. In fact, nothing could be further from reality.

The crisis in research and development is so severe that the Society of Petroleum Engineers is convening, in April 2007, its first ever research and development conference. The SPE has issued a call to a multi-disciplinary cross-section of chemical engineers, chemists, metallurgists, microbiologists and others to address the issues.

What has happened? Over the last two decades in the United States, oil and gas operators have decreased their spending on research and development by 60%; only about three $3 billion is spent yearly now. Contrast that with just two companies (not entire industries): Microsoft ($6 billion) and General Electric ($3 billion). Unfortunately, the oil and gas industry ranked last in research and development expenditures as a percentage of sales among 19 industries surveyed as recently as 2001. Additionally, the federal government has steadily been decreasing its commitment through the Department of Energy and other agencies.

Much of research into new technology is focused on making the exploration for oil and gas more effective. There is a lack of research focused on innovative ways to increase production from existing wells and reservoirs. New technologies are required to recover oil left behind because it is difficult to access or is held tightly in place within tiny rock pores.

We believe research and development is not a turn-on/turn-off at will activity but rather is a continuous process that builds on prior successes and failures. Important areas for research and development include (i) improving recovery factors in mature fields, (ii) recovery of bypassed oil, (iii) difficult reservoirs (such as those in the Rocky Mountain region contaminated with lime or calcite materials), (iv) unconventional oil and gas reservoirs, (v) enhanced oil recovery across the country and (vi) keeping the country’s stripper wells producing better and longer.

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The Company has access to a number of new research initiatives due to management’s relationship with the Department of Energy, the Rocky Mountain Oilfield Testing Center, the Stripper Well Consortium at Pennsylvania State University, various schools of petroleum engineering, the Colorado School of Mines, and numerous laboratories and companies. We believe these relationships can be leveraged into lines of business as sponsors, facilitators, investors, and testing sites of new technologies. All of these have the potential to generate revenue from additional lines of business and can be integrated into our position to utilize the Company’s current properties as a laboratory for testing new technologies arising through research and development.

The Company’s commitment to a future for this Company and the development of a new strategy as described above impacts our decisions related to currently held properties as well as acquisition and divestiture plans.

Industry and Economic Factors

In managing its business, Energytec deals with many factors inherent in the oil and gas industry. First and foremost is wide fluctuation of oil and gas prices. Historically, oil and gas markets have been cyclical and volatile, with future price movements difficult to predict. While revenues are a function of both production and prices, it is the wide swings in prices that will have the greatest impact on results of operations.

Historically, the primary component of Energytec’s revenues and cash flows was generated through sale of working interests in Energytec’s properties. Funds generated from such sales were intended to acquire new properties and to fund re-completion and development work on properties owned. However, the practical effect of this “quick fix” revenue was to diminish the long-term revenue that Energytec could realize from producing properties in which it holds a meaningful interest. As a result, the current Board and management of the Company discontinued the sale of working interests through “working interest programs.”

In the future Energytec will only consider selling working interest through joint venture and other strategic partner arrangements. Any opportunities involving the sale of working interest will be subjected to careful review and due diligence to determine the long term benefits to the operations and value of the Company. Additionally, existing properties will be evaluated to determine their contribution to the Company’s operating results and the Company will seek to divest of any properties that do not meet operational criteria.

Operations in the oil and gas industry entail significant complexities. In addition to efforts to improve and maintain the production from existing properties, Energytec will continue to focus on acquiring oil and gas properties with histories of production or a significant amount of exploratory history that can serve as the basis for evaluation. Even with the evaluation of persons with significant experience and technical background of substantial production records and geological information, it is not possible to determine conclusively the amount of hydrocarbons present, the cost of development, or the rate at which hydrocarbons may be produced.

The oil and gas industry is highly competitive. Energytec will compete with major and diversified energy companies, independent oil and gas businesses, and individual operators. In addition, the industry as a whole competes with other businesses that supply energy to industrial and commercial end users. As discussed above under “Our Plan and Approach to the Business” we plan to diversify our business to reduce the effects of competition.

Extensive Federal, state, and local regulation of the industry significantly affects operations. In particular, oil and gas activities are subject to stringent environmental regulations. These regulations have increased the costs of planning, designing, drilling, installing, operating, and abandoning oil and gas wells and related facilities and thereby affect profitability. These regulations may become more demanding in the future.

Property Acquisition

Historically, Energytec has focused its acquisition and development activities in Texas, but Energytec intends to expand that focus to Kansas and Oklahoma. Nevertheless, should Energytec receive unsolicited proposals on the acquisition of properties in other states that are attractive, it should be expected that Energytec will investigate and, if warranted, make an effort to acquire an interest in such properties at an acceptable price.

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Our primary focus has been and will continue to be on older mature production areas where production histories, reservoir evaluations, and other data on the properties are available. Such information is obtained either from the entity that owns the property or from public records of governmental agencies that regulate oil and gas producing activities and through geological data as discussed above. Through analysis of rock types and the electrical and chemical characteristics of rocks within a given property, we construct a picture of rock layers in the area and predict possible sites of hydrocarbon accumulation. Well logs available on the properties facilitate the calculation of an estimate of initial oil or gas volume in place, while decline curves from recorded production history facilitate the calculation of remaining proved producing reserves. We will use this information to identify and value potential acquisitions and to develop a plan for developing and improving production on properties acquired. Additionally, our identification of additional opportunities to assume new positions and to utilize proprietary technologies available to the Company will be applied to evaluations of opportunities for property acquisition.

Based on management’s long time participation in the oil and gas business in Texas and the western United States, management believes there are opportunities for acquisition and development of properties that can create profitable operations. As discussed above, many of these properties are now owned by persons who lack the capital, data, technology, or other resources necessary to bring the properties back into production and to further develop recoverable hydrocarbons that remain. When we identify such a prospect, we will apply a profitability analysis and perform an extensive field study either in-house, thereafter submitting it to outside review, or commission an independent party to conduct a study, which is then reviewed by the in-house staff. The objective is to decide upon the most cost-efficient and operationally efficient way to produce the reserves remaining and recoverable on that property and determine if the Company has the resources and capabilities to do so in a profitable manner. If warranted after such analysis, we will pursue acquisition of the prospect.

Property Development

Energytec, through Comanche Well Service Corporation, operates its own properties. In looking forward to developing a successful company, Energytec plans to acquire properties for the long term. However circumstances could arise where Energytec may elect to re-balance its portfolio by selling or trading lesser producing properties in order to redeploy capital to a better opportunity in other areas of activity. We have already begun the process of evaluating existing properties as discussed below. We have determined that certain properties are not profitable and that the cost of improving such properties is prohibitive. In keeping with our plans to diversify the operations of the Company, we may also enter into agreements whereby we do not operate properties in which we hold an interest.

Other non-operating working interest owners hold working interest in oil and gas properties along with Energytec, as the operator. All working interest owners share responsibility for the payment of their proportionate share of the operating expenses of the wells, including all lease operating and production expenses. Royalty owners and over-riding royalty owners receive a percentage of gross oil and gas production revenue for a particular lease and are not responsible for the costs of operating the lease.

Since the inception of the Company, the non-operating working interest owners have not borne their proportionate share of operating expenses, which has significantly impaired the Company’s cash flow and available capital. Until April of 2006, non-operating working interest owners were paid recurring payments that were an estimate of their proportionate share of net revenues after severance taxes, lease operating expenses, and capital expenditures. These estimated payments exceeded the actual revenues due to the non-operating working interest owners. Beginning in April 2006, non-operating working interest owners have been paid based upon their proportionate share of actual revenues available for distribution. However, the prior excess payments limited the Company’s ability to develop the existing properties and have necessitated the evaluation and possible divestiture of the Company’s holdings in these properties.

As we move forward, we will no longer deplete the resources of the Company through the development of properties that will not improve operating results for the Company as well as to the non-operating working interest owners.

Our subsidiary, Comanche Well Service Corporation, owns one drilling rig and four operable well service units, as well as, rig-up trucks, water trucks, winch trucks, electrical trucks, pick-up trucks and various other items of equipment. Most of the equipment is stationed in East Texas in the area of the Talco/ Trix-Liz field and South Texas, where it is used to service Energytec’s wells. The primary benefit of having this service capability is that we are able to continuously perform work on our wells to improve and maintain production and do not have to compete with other oil and gas companies to schedule service time with third party well service companies, which can often lead to service delays that reduce production over time. However, the benefits and costs have been the subject of an analysis to determine the profitability, or lack thereof, of in-house well services. The fact that our equipment is old and requires constant maintenance significantly reduces the benefits as compared to using the equipment and services of third party vendors and contractors. The costs and benefits of continuing to provide well services on all of our properties through our subsidiary will be constantly monitored to balance the overall effect on the Company’s operating results.

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Big Horn County, Wyoming Thermal Recovery Project

Energytec owns a 44% working interest in approximately 46,772 acres in Big Horn County, Wyoming in the Big Horn Basin. The Company operates the Project and drilled, completed and tested two wells for cold production in the Phosphoria limestone near the town of Greybull. Both wells were also subjected to a cyclic steam injection test through the mechanism of a huff and puff project. No commercial production was established.

The Big Horn Basin is located in north-central Wyoming and south-central Montana. The Basin has produced over 2.4 billion barrels of oil; however, in the area where the Company has its leases, sometimes referred to as the Big Horn Oil Field, over 35 wells have been drilled with no well having produced commercially. A number of independent studies and reviews suggested that a thermal recovery project could establish commercial production. A recent study by the U.S. Department of Energy (DOE) pointed out a number of geological issues related to the oil in place for the Basin and suggested that the remaining oil in the Basin approximates 200 million barrels with various recovery factors attendant.

In March 2006 the Company undertook a series of reviews of the Thermal Recovery Project, both internal and external, involving new third party consultants and existing Company personnel and consultants. Using the DOE study as a guide, the area containing oil in place was divided into zones, each with a different combination of area, porosity, oil saturation and reservoir thickness. As a result, the Company has prepared a new analysis of oil in place, recoverability factors, and thermal recovery applications, together with new maps and a substantially revised due diligence file. All of the Company’s material is considered proprietary and valuable for use by any interested parties.

In June 2006 the Company commenced a new effort to sell the Project and in October 2006, Energytec entered into a Purchase and Sale Agreement with Big Horn Oil LLC for the Wyoming Thermal Recovery Project. The closing was set for November 15, 2006, but the parties subsequently agreed to extend the closing to December 29, 2006. Ultimately the transaction did not close because Big Horn Oil could not obtain funding for the purchase and on April 5, 2007, Big Horn Oil notified the Company that it was discontinuing its effort to locate funding.

Energytec is actively pursuing other sources of financing for operations and project development, such as a joint venture partner with the capital and technical support capabilities to demonstrate the feasibility of recovery of the oil in place through thermal recovery techniques.

The Company is also actively considering a number of new techniques and technologies applicable to heavy oil operations and recovery, including a proprietary surfactant treatment, acoustic wave treatment and steam flooding. Some of these are being evaluated in conjunction with the Rocky Mountain Oilfield Testing Center and various universities where the Company has on-going research activities regarding this Project. These activities could aid in th sale of the Project or help the Company attract joint venture partners.

Most of the leases are Federal leases with the Bureau of Land Management. Lease expirations range from July 2008 to 2011. The Company has a range of options it is considering for the expirations in 2008 should no sale or joint venture be consummated within the next six months.

Market for Oil and Gas Production

The market for oil and gas production is regulated by both the state and Federal governments. The overall market is mature, and, with the exception of gas, all producers in a producing region will receive the same price. Purchasers or gatherers will typically purchase all crude oil offered for sale at posted field prices which are adjusted for quality difference from the “Benchmark”. Benchmark is the price of Saudi Arabian light crude oil employed as the standard on which OPEC price changes have been based. Oil pumped from wells is stored in tanks on site where the purchaser normally picks up the oil at the well site, but in some instances there may be deductions for transportation from the well head to the sales point. Either Energytec or the purchaser handles payment disbursements to both the working interest owners and the royalty interest owners.

Gas is gathered through connections between our gas wells and the pipeline transmission system. In many cases the pipeline is owned by a gas company or a transmission company, but in others, as is the case with our Redwater property, we own the gas pipeline in the field where our gas wells are located. The pipeline in the Redwater field connects to a larger

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system where the gas is purchased by a third party. Gas sales are by contract, and we have such a contract with the gas company that purchases most of the gas produced in the area where the Redwater field is located. Gas purchasers pay well operators 100 percent of the sale proceeds of gaseous hydrocarbons on or about the 25th of each month for the previous month’s sales. The operator is responsible for all distributions to the working interest and royalty owners. There is no standard price for gas and prices will fluctuate with the seasons and the general market conditions.

Many factors impact the prices that producers receive for their oil and gas products. In oil pricing, API gravity, chemical content (such as sulfur) and logistics will impact on the price an oil producer receives. The prices that appear in daily newspaper quotations for West Texas Intermediate, for example, will bear no relationship to the actual prices an oil producer may receive. Similarly, gas prices have many factors, including, among others, chemical composition (sulfur and other elements).

During the year ended December 31, 2006, the following customers accounted for greater than 10% of our oil and gas sales:

Sunoco Partners Marketing & Terminals, L.P	67%
Plains Marketing, L.P.	15%
Enbridge Pipeline, L.P.	10%

Energytec has no other relationship with any of these customers. This concentration is a matter of convenience for us rather than necessity since these customers are active buyers in the areas where our wells are located, and prices between potential customers vary little or not at all as prices are tied to the going market rate for the commodity. If Energytec lost one or more of its three largest customers, management believes Energytec could quickly replace the lost customers with other buyers paying comparable prices. Consequently, management does not believe the loss of one or more of Energytec’s major customers would have a material adverse effect on its business.

Energytec recognizes revenue from the sale of crude oil when the customer picks up the oil in our field and recognizes revenue from gas sales when it reaches the customer’s point of purchase in the gas transmission system. The amount we recognize for each well is based on the percentage of our net revenue interest in the well, and the remainder is allocated to other persons holding a net revenue interest.

Competition

The oil and gas industry is highly competitive. Our competitors and potential competitors include major oil companies and independent producers of varying sizes, all of which are engaged in the acquisition of producing properties and the exploration and development of prospects. Most of our competitors have greater financial, personnel and other resources than we do. Consequently, they have greater leverage to use in acquiring prospects, hiring personnel, and marketing oil and gas. Accordingly, a high degree of competition in these areas is expected to continue.

Governmental Regulation

General

The production and sale of oil and gas are subject to regulation by state, Federal, and local authorities. In most areas there are statutory provisions regulating the production of oil and natural gas under which administrative agencies may set allowable rates of production and promulgate rules in connection with the operation and production of such wells. They may also ascertain and determine the reasonable market demand of oil and gas, and adjust allowable rates with respect thereto.

The sale of liquid hydrocarbons was subject to Federal regulation under the Energy Policy and Conservation Act of 1975, which amended various acts including the Emergency Petroleum Allocation Act of 1973. These regulations and controls included mandatory restrictions upon the prices at which most domestic crude oil and various petroleum products could be sold. All price controls and restrictions on the sale of crude oil at the wellhead have been withdrawn. It is possible, however, that such controls may be reimposed in the future. When, if ever, such re-imposition might occur and the effect thereof on us cannot be predicted.

The sale of certain categories of natural gas in interstate commerce is subject to regulation under the Natural Gas Act and the Natural Gas Policy Act of 1978 (“NGPA”). Under the NGPA, a comprehensive set of statutory ceiling prices applies to all first sales of natural gas unless the gas is specifically exempt from regulation (i.e., unless the gas is “deregulated”). Administration and enforcement of the NGPA ceiling prices are delegated to the Federal Energy Regulatory Commission (“FERC”). In June 1986, FERC issued Order No. 451, which, in general, is designed to provide a higher NGPA ceiling price for certain vintages of old gas. It is possible that we may in the future acquire significant amounts of natural gas subject to NGPA price regulations and/or FERC Order No. 451.

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Our operations are subject to extensive and continually changing regulation because legislation affecting the oil and natural gas industry is under constant review for amendment and expansion. Many departments and agencies, both Federal and state, are authorized by statute to issue and have issued rules and regulations binding on the oil and natural gas industry and its individual participants. The failure to comply with such rules and regulations can result in large penalties. The regulatory burden on this industry increases our cost of doing business and, therefore, affects our profitability. However, we do not believe that we are affected in a significantly different way by these regulations than our competitors are affected.

Transportation

There are no material permits or licenses required beyond those currently held by us or incident to our operations.

We can make sales of oil, natural gas and condensate at market prices which are not subject to price controls at this time. Condensates are liquid hydrocarbons recovered at the surface that result from condensation due to reduced pressure or temperature of petroleum hydrocarbons existing initially in a gaseous phase in the reservoir. The price that we receive from the sale of these products is affected by our ability to transport and the cost of transporting these products to market. Under applicable laws, FERC regulates the construction of natural gas pipeline facilities and the rates for transportation of these products in interstate commerce.

Effective as of January 1, 1995, FERC implemented regulations establishing an indexing system for transportation rates for oil. These regulations could increase the cost of transporting oil to the purchaser. We do not believe that these regulations will affect us any differently than other oil producers and marketers with which we compete.

Regulation of Drilling and Production

Our proposed drilling and production operations are subject to regulation under a wide range of state and Federal statutes, rules, orders and regulations. Among other matters, these statutes and regulations govern:

• the amounts and types of substances and materials that may be released into the environment,

• the discharge and disposition of waste materials,

• the reclamation and abandonment of wells and facility sites, and

• the remediation of contaminated sites,

In order to comply with these statutes and regulations, we are required to obtain permits for drilling operations, drilling bonds, and reports concerning operations. Texas and Wyoming laws contain provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from oil and natural gas wells, and the regulation of the spacing, plugging, and abandonment of wells.

Environmental Regulations

Our operations are affected by the various state, local and Federal environmental laws and regulations, including the Oil Pollution Act of 1990, Federal Water Pollution Control Act, and Toxic Substances Control Act. The Comprehensive Environmental, Response, Compensation, and Liability Act (“CERCLA”) and comparable state statutes impose strict, joint and several liabilities on owners and operators of sites and on persons who disposed of or arranged for the disposal of “hazardous substances” found at such sites. It is not uncommon for the neighboring land owners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes govern the disposal of “solid waste” and “hazardous waste” and authorize the imposition of substantial fines and penalties for noncompliance. Although CERCLA currently excludes petroleum from its definition of “hazardous substance,” state laws affecting our operations may impose clean-up liability relating to petroleum and petroleum related products. In addition, although RCRA classifies certain oil field wastes as “non-hazardous,” such exploration and production wastes could be reclassified as hazardous wastes thereby making such wastes subject to more stringent handling and disposal requirements.

Generally, environmental laws and regulations govern the discharge of materials into the environment or the disposal of waste materials, or otherwise relate to the protection of the environment. In particular, the following activities are subject to stringent environmental regulations:

• drilling,

• development and production operations,

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• activities in connection with storage and transportation of oil and other liquid hydrocarbons, and

• use of facilities for treating, processing or otherwise handling hydrocarbons and wastes.

Violations are subject to reporting requirements, civil penalties and criminal sanctions. As with the industry generally, compliance with existing regulations increases our overall cost of business. The increased costs cannot be easily determined. Such areas affected include:

• unit production expenses primarily related to the control and limitation of air emissions and the disposal of produced water,

• capital costs to drill exploration and development wells resulting from expenses primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes, and

• capital costs to construct, maintain and upgrade equipment and facilities and remediate, plug, and abandon inactive well sites and pits.

Environmental regulations historically have been subject to frequent change by regulatory authorities. Therefore, we are unable to predict the ongoing cost of compliance with these laws and regulations or the future impact of such regulations on operations. However, we do not believe that changes to these regulations will have a significant negative effect on operations with the acquired assets.

A discharge of hydrocarbons or hazardous substances into the environment could subject us to substantial expense, including both the cost to comply with applicable regulations pertaining to the cleanup of releases of hazardous substances into the environment and claims by neighboring landowners and other third parties for personal injury and property damage. We do not maintain insurance for protection against certain types of environmental liabilities.

Regulatory Violations

As discussed in the Company’s annual filing with the Securities Exchange Commission on Form 10-K for the year ended December 31, 2005, Energytec engaged an independent engineering firm to conduct a study of its reserves as of December 31, 2005. Pursuant to the reserve study it was determined that 23 wells were dually completed in non-permitted separately recognized reservoirs in the Talco/Trix-Liz Field without the proper permitting and spacing required by the RRC. Additionally, commingling of production from permitted and non-permitted reservoirs resulted in the inability to assign reserves to either the permitted or non-permitted reservoirs causing the reserves to be substantially understated as of December 31, 2005. Over the past year, Energytec has been coordinating its efforts with the RRC to insure full compliance with all applicable rules and regulations of the RRC. Progress in this area is further discussed under “ITEM 2. PROPERTIES.”

New Technology Initiatives

The majority of Energytec’s wells are marginal oil wells, that is, wells that produce less than 10 barrels of oil per day. Accordingly, Energytec is active in a number of projects to review new techniques and technologies specifically applicable to these types of wells. Energytec is a member of the Stripper Well Consortium at Pennsylvania State University and supports the research of the Oklahoma Marginal Well Commission, the Interstate Oil and Gas Compact Commission and the National Stripper Well Association. As previously discussed, we intend to use these relationships to diversify our product and services and to improve results of operations.

In March 2006 Energytec entered into a sales and distribution agreement with Silicon Chemistry Solutions, LLC, the owner of a proprietary surfactant used in enhanced oil recovery for marginal wells. From 2003 to 2006, Energytec has tested the chemical through use on several of its own wells, and through a research alliance with the Rocky Mountain Oilfield Testing Center (“RMOTC”) in Casper, Wyoming. RMOTC has a 10,000 acre operating oilfield with 1,200 well bores and 600 producing wells, in nine reservoirs ranging in depth from 400 feet to 8,000 feet. Production is both light crude and sour crude (high sulfur). There is also a large amount of associated water production.

The RMOTC tests have been published and have demonstrated the validity of the chemical on marginal wells. New projects underway will use the chemical in a designed water flood project, an under balanced horizontal well, and a tank bottom cleanout/remediation project.

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The Company has not been able to meet its obligations under the agreement due to its overall financial circumstances. The Company is actively seeking a joint venture partner to aid in the development of this line of business.

Energytec is reviewing a number of other evolving techniques and technologies including sulfur mitigation and elimination, plunger lifts, sonication and acoustic wave theory as it may impact heavy oil viscosity. Where possible, Energytec offers to use its wells as test wells and its equipment in exchange for cost sharing, price reduction and licensing or distribution rights.

Employees

Energytec presently has 9 full-time executive, operational, and clerical employees. On April 10, 2007, the Company terminated approximately 20 non-essential field personnel, consisting primarily of mechanics and welders, to reduce expenses after an evaluation of the Company’s need for these services. Management believes any need for mechanics and welders not met from its current employee ranks can be obtained from outside sources. We currently employ 48 full time production employees through Comanche Well Service Corporation to maintain, drill and rework our wells. None of our employees is a member of a labor organization or is covered by a collective bargaining agreement, and we consider our relations with our employees to be good.

Executive officers and key employees of Energytec serve at the discretion of the Board of Directors, and are generally elected annually at the first meeting of the Board of Directors following the annual meeting of shareholders. The following table sets forth the names, ages, and positions with Energytec for each of the directors executive officers and key employees:

Name	Age	Position	Since
Executive Officers
Don Lambert	61	Chief Executive Officer, President and Chief Operating Officer	Dec. 2004
Dorothea W. Krempein	46	Chief Financial Officer, Vice President of Finance and Chief Accounting Officer	Feb. 2005
Paul J. Willingham	33	Vice President, Controller	Dec. 2005
Key Employee
Cary P. Dukes	52	Vice President of Drilling and Production	Mar. 2006

Don L. Lambert. Mr. Lambert served as the assistant to the Chief Executive Officer of Energytec from January 2003 through November 2004. At that time he was elected Executive Vice President and Chief Operating Officer and served in that capacity until December 2005, when he was elected as President and Chief Operating Officer. He was appointed Chief Executive Officer effective March 18, 2006. For over one year prior September 2002, he was self-employed through American Energy Development Associates, an oil and gas consulting and financial advisory firm in Dallas, Texas.

Dorothea W. Krempein. Ms. Krempein became a Vice President and Chief Accounting Office for Energytec effective February 15, 2005. She was appointed Chief Financial Officer effective March 18, 2006. Ms. Krempein is a certified public accountant and holds a BBA degree in accounting from Texas Tech University. During the three-year period prior to February 2005, Ms. Krempein was a senior audit partner with Hutton, Patterson & Company, Certified Public Accountants, in Dallas, Texas.

Paul J. Willingham. Mr. Willingham became Controller of Energytec in February 15, 2005, and was elected Vice President effective December 22, 2005. Mr. Willingham is a certified public accountant and holds a BBA degree in accounting from Pensacola Christian College and a MBA degree in finance from Dallas Baptist University. During the three-year period prior to February 2005, Mr. Willingham was an audit partner with Hutton, Patterson & Company, Certified Public Accountants, in Dallas, Texas.

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Cary P. Dukes. Mr. Dukes was employed as Energytec’s General Manager of Field Operations on January 1, 2006, and was appointed Vice President of Drilling and Production on March 18, 2006. From May 2003 through the end of 2005, Mr. Dukes worked for the engineering and consulting firm James E. Smith and Associates of Tyler, Texas, as a project engineer and senior operations specialist. Mr. Dukes retired from ChevronTexaco in April 2003, and during the two-year period prior to retirement he held various supervisory and management positions relating to drilling and production operations.

Available Information

We are required to file with the Securities and Exchange Commission annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports of certain events on Form 8-K, and proxy and information statements disseminated to stockholders in connection with meetings of stockholders and other stockholder actions. The SEC maintains a web site at (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. Copies of the reports, proxy statements, and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We also make available on our Internet web site (www.newenergytec.com) our Code of Business Conduct and Ethics, Corporate Governance Guidelines, and Audit, Compensation, Finance, and Nominating Committee Charters which have been approved by our Board of Directors. A copy of our Code of Business Conduct and Ethics is also available free of charge by writing us at: Chief Financial Officer, Energytec, Inc., 4965 Preston Park Boulevard, Suite 270E, Plano, Texas 75093.

ITEM 1A. RISK FACTORS

The events and circumstances described under “Recent Developments” in ITEM 1. BUSINESS in our Form 10-K filed with the Securities Exchange Commission for the year ended December 31, 2005, have adversely affected Energytec’s results of operations and financial condition and have required Energytec to take a number of corrective actions that had a substantial adverse affect on Energytec’s results of operations and financial condition. It is likely that additional corrective actions may be required which could also have a substantial adverse affect on our results of operations and financial condition in the future.

Mr. Cole’s mismanagement of Energytec’s operations, violations of state regulation of our oil and gas operations, and overpayment of working interest net revenues significantly impacted results of operations, cash flow, and working capital and prevented Energytec from taking advantage of its resources and opportunities to rework its wells, maintain and increase production, and further develop the business during 2006. Energytec will continue to incur costs and use resources that could otherwise be used to rework wells and increase production to correct these problems in 2007. Consequently, the problems that current and future management have inherited from Mr. Cole’s tenure in control of Energytec will continue to be a financial detriment to the development of Energytec’s business in future periods.

The breach of the terms and covenants of the bank financing secured by our Redwater property resulting from Mr. Cole’s sale of Redwater working interests have placed that asset at risk because the lender could declare the loan in default and foreclose on the property at any time. The loss of the Redwater property would have a substantial adverse affect on Energytec’s results of operations and financial condition.

In November 2007, the holders of 3,093,292 shares of common stock attempted to exercise “put options” at $3.75 per share, or a total of approximately $11.6 million, that Frank W Cole and his associates purportedly sold on behalf of Energytec in 2005. In February 2007, a number of the persons attempting to exercise the puts filed suit against Energytec demanding payment on the put options or return of their investment. Energtyec has filed a further lawsuit naming all persons who attempted to exercise the put options asserting the put options sold by Mr. Cole and his associates were illegal, under state corporate law, Energtyec is prohibited from making payment on the put options, and asserting claims against Mr. Cole and his associates for indemnification or contribution for any damages suffered by Energytec. An adverse result in this matter would likely have a substantial adverse effect on the financial condition of Energytec.

As a result of transactions, filings, and other matters that have transpired during Mr. Cole’s tenure in control, Energytec believes that it may have potential liability for rescission or damages to investors in the working interest programs and/or purchasers of Energytec common stock in private placements. This belief is based on the potential for claims that Energytec, through the actions of Mr. Cole and his assistant, violated the registration requirements of the Securities Act of 1933 and applicable state statutes and/or violated the anti-fraud provisions of Federal and state securities laws and common law fraud. Should these potential liabilities become actual, Energytec would be forced to substantially curtail operations and seek to liquidate assets to pay the liabilities, all of which would have a significant adverse affect on results of operations and financial condition, and could result in Energytec discontinuing its operations. Circumstances could arise where the liabilities and operational difficulties resulting from multiple lawsuits and regulatory actions would force Energytec to seek protection under the Federal Bankruptcy Code.

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Energytec’s objective is to formulate a plan for addressing any potential private claims through an orderly and selective sale of assets and accumulation of cash flow from operations that it can use in stages to resolve the claims of private parties. There is no assurance Energytec will be successful in achieving this objective.

Estimates of oil and gas reserve are uncertain and may require future adjustment due to changes in estimates.

The process of estimating oil and gas reserves requires the application of significant judgment with regard to the evaluation of available geological, engineering and economic data for each reservoir. The process is complex and may be subject to variations depending upon the experience of reserve engineers and their interpretation of the data. Likewise, the reserve estimates may change substantially over time due to various factors including variations in production, economic feasibility based upon pricing and costs, additional development activity and the availability of enhanced recovery methods. Any such revisions to proved reserves could have a material adverse effect on our estimates of future net revenue and our financial condition and future results of operations.

Our actual drilling results are likely to differ from our estimates of proved reserves, so our future results of operations will likely be different from what we estimate, which could cause volatility in the valuation of Energytec in the public stock market.

We may experience production that is less than estimated in our reserve reports and drilling costs that are greater than estimated in our reserve reports. Such differences may be material. Estimates of our oil and natural gas reserves and the costs associated with developing these reserves may not be accurate. Our estimates of proved reserves at December 31, 2006, include proved developed non-producing reserves equal to 3.0 percent of the total. Development of our reserves may not occur as scheduled, and the actual results may not be as estimated. Drilling activity may result in downward adjustments in reserves or higher than estimated costs. Our estimates of our proved oil and natural gas reserves and the estimated future net revenues from such reserves are based upon engineering data obtained from a number of sources, the reliability of which can vary, and various assumptions pertaining to oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes, and availability of funds. This process requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering, and economic data for each reservoir. Therefore, these estimates are inherently imprecise and may be adjusted from period to period to reflect production history, results of development, prevailing oil and natural gas prices, and other factors, many of which are beyond our control. The Company reflected a revision of previous quantity estimates of approximately $18,000,000. The revision effectively reflects the reclassification of proved reserves to the unproved classification due to the regulatory issues discussed above and a reclassification of five proved undeveloped locations to unproved due to the Company’s inability to currently designate capital for the recompletion of three wells and the drilling of two additional sites. These properties will be reclassified to proved undeveloped reserves pending allocation of capital to those projects. The revision also includes an adjustment to reflect the decline in oil and gas pricing at December 31, 2006, as compared to December 31, 2005. Variances in production from estimates and adjustments to future estimates, if significant, could create volatility in the valuation of Energytec in the public market.

Our properties include a substantial number of non-producing wells, and the costs of maintaining and bringing these existing wells back into production could increase our production costs and adversely affect our results of operations.

We have 108 producing wells and 343 non-producing wells, some of which we intend to work-over and try to bring back into production. Until we can work-over the non-producing wells, we will incur maintenance and repair costs to prevent degradation in the condition of the wells and comply with applicable regulatory requirements for maintaining the wells. Our costs incurred on non-producing wells during the year ended December 31, 2006, were $1,066,740, compared to $666,626 in 2005, and we expect our costs associated with non-producing wells will continue to be substantial until we divest of unprofitable properties or complete our rework program on wells that show potential that is acceptable to the Company, which we expect will take several years. These added maintenance and repair costs increase the amount of production costs attributable to our wells and adversely affect the operating results of our wells. Some of the non-producing wells may not be brought back onto production successfully. In this case, the Company will incur costs associated with plugging and abandoning non-productive wells.

Our properties may also be susceptible to hydrocarbon drainage from production by other operators on adjacent properties, which could diminish the recoverable hydrocarbons from our properties and future net revenues from our reserves.

The properties in which we hold an interest in Texas are located in areas where there has been production for a number of years on properties in close proximity to ours. A portion of this production may be from the same geologic reservoir or formation from which our production is gathered. Continued production and new drilling activity on properties close to our properties could diminish the quantity of hydrocarbons recoverable from our properties. This would adversely affect future net revenues.

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In order to provide for improved results of operations for the future and long-term survival of the Company, the acquisition or discovery of additional reserves is necessary.

As previously discussed, the oil and gas industry is faced with declining reserves as a natural effect of production. Existing estimated reserves and the potential for future production will decline materially through production unless the Company seeks the addition of proved reserves through acquisitions or drilling opportunities pursuant to engineering studies.

Natural gas and oil prices are volatile, and low prices have had in the past, and could have in the future, a material adverse impact on our business and the value of your investment in Energytec.

Our revenues, profitability, and future growth and the carrying value of our properties depend substantially on the prices we will realize for our natural gas and oil production. Realized prices also affect the amount of cash flow available for capital expenditures and development of the oil and gas properties acquired. Oil and natural gas are commodities, and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand and other factors that will be beyond our control, such as, the domestic and foreign supply of oil and natural gas, weather conditions, domestic and foreign governmental regulations, political conditions in oil or natural gas producing regions, the ability of members of the Organization of Petroleum Exporting Countries to agree upon and maintain oil prices and production levels, and the price and availability of alternative fuels. While price volatility impacts the oil and gas industry in general, price drops caused by this volatility have a substantially greater impact on smaller independent oil and gas companies, including Energytec, because of more limited resources available to them to sustain themselves through such periods. A substantial or extended decline in oil and natural gas prices may materially and adversely affect Energytec’s future business, financial condition, and results of operations, liquidity and ability to finance planned capital expenditures.

Our insurance coverage may not be sufficient to cover some liabilities or losses we may incur, so a substantial liability or loss not covered by insurance would diminish the resources we have to pursue our business and adversely affect our results of operations and the value of Energytec.

The occurrence of a significant accident or other event not fully covered by insurance could have a material adverse effect on Energytec’s operations and financial condition. Insurance will not protect Energytec against all operational risks. It is not expected Energytec will carry business interruption insurance at levels that would provide enough funds to continue operating without access to other funds. For some risks, Energytec may not obtain insurance if it believes the cost of available insurance is excessive relative to the risks presented or the financial resources of Energytec. In addition, pollution and environmental risks generally are not fully insurable. A significant uninsured loss or liability could have a material adverse effect on the business and financial condition of Energytec and the value of your investment.

The oil and gas industry is highly competitive in all aspects, which will affect our future development.

Energytec will be competing with major oil and gas companies, numerous independent oil and gas producers, individual proprietors, and investment programs for oil and gas properties suitable for development and the financial and other resources required to pursue development. Many of these competitors possess financial and personnel resources substantially in excess of those available to us and may, therefore, be able to pay greater amounts for desirable leases and define, evaluate, bid for and purchase a greater number of potential producing prospects than our resources permit. These factors may adversely affect our future growth.

We may not be able to fund our planned capital expenditures.

We spend and will continue to spend a substantial amount of capital for exploration and exploitation or development and production of oil and gas reserves. Our capital expenditures, including acquisitions but exclusive of estimated asset retirement costs, were $3,061,327 during 2006, $21,764,954 during 2005, and $6,018,254 during 2004. We have budgeted total capital expenditures in 2007, excluding property acquisitions and asset retirement costs to be approximately $5.5 million. Low oil and natural gas prices, operating difficulties or other factors, many of which are beyond our control have caused our revenues and cash flows from operating activities to continue to decrease limited our ability to successfully bring additional wells back on to production according to our operating plan. Without outside sources of capital we may be limited in our ability to fund the capital necessary to complete our capital expenditures program. After utilizing our available resources, we may be forced to seek capital through sale of assets, debt or equity financings to fund such capital expenditures. We cannot assure you that additional debt or capital from outside sources will be available or cash flows provided by operations will be sufficient to meet these requirements.

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Environmental matters and governmental regulations may have a substantial impact on our operations.

Energytec’s operations are subject to numerous Federal, state and local laws and regulations controlling the discharge of material into the environment or otherwise relating to the protection of the environment. Other than the environmental remediation expense recognized during the years ended December 31, 2006 and 2005, totaling $671,576 and $2,885,242, respectively, such matters have not had a material effect on our operations to date, but future changes in such regulations or our operations could result in environmental control obligations for Energytec that could have any material effect on capital expenditures, earnings, or competitive position.

The production and sale of crude oil and natural gas are currently subject to extensive regulations of both Federal and state authorities. At the Federal level, there are price regulations, windfall profit taxes, and income tax laws. At the state level, there are severance taxes, ad valorem taxes, proration of production, spacing of wells, and permits to drill and produce oil and gas.

We depend on our management to perform the difficult task of correcting the problems and dealing with the issues that confront Energytec, and the loss of the services of any of our management team would have a substantial adverse impact on our ability to achieve our objectives and substantial risk exists that under the present circumstances Energytec could not find replacements for the current management.

The Company relies on Don Lambert, Chief Executive Officer, and Dorothea Krempein, Chief Financial Officer, to perform all of the executive management and accounting supervisory functions required to keep Energytec in operation. Both the CEO and CFO have no employment contract, no material equity interest in Energytec, and no severance benefits arrangement. They have undertaken to serve at the pleasure of the Board of Directors through the next meeting of stockholders at which directors are elected. Mr. Lambert and Ms. Krempein have undertaken a difficult job under extremely difficult circumstances. Energytec believes it would be difficult, if not impossible, to recruit and retain equally competent executives without offering compensation packages that are beyond the current means of Energytec. Should any of Energytec’s executive officers elect to leave now, or even at the time of the next election of directors, then Energytec may find it extremely difficult to replace them and could experience, during any period Energytec lacks executive management, delays in operational decisions, difficulty in retaining other officers and managers, and related issues.

ITEM 2. PROPERTIES

Oil and Gas Properties

Our various oil and gas properties are described below. The following table presents the average monthly oil and gas production rates based upon Energytec’s net interest in each of these properties:

Field	Oil (Bbl)	Gas (Mcf)
Como Field	4,950.37	—
Talco/ Trix-Liz Field	211.98	—
Sulphur Bluff Field	177.10	—
Redwater Field	344.22	4,153.07
Hutt Field	129.27	—
Luling Field	103.58	—
Milam Field	31.90	—
Kilgore Field	703.51	83.79

In the following property discussions we refer to budgeted costs for 2007. Those budgeted costs were determined based upon historical costs, current levels of payroll and related expenses, current pricing for casing, tubing, fuel, diesel, chemicals, and other production costs, and anticipated increases in pricing. Projected revenues are based upon current average pricing for oil and gas less severance taxes calculated at 5%. Production rates referred to are at current rates as of this filing. All discussions are based upon the 8/8 interest rather than interest net to the Company.

Como Field. The Como Field is located in Hopkins and Wood counties near the town of Quitman, Texas, about 160 miles northeast of Dallas, Texas on 1,350 lease acres. The wells produce from the Eagleford and Sub-Clarksville sands at depths ranging from 4,000 to 4,200 feet. At present, 22 of the wells are on production. Energytec believes approximately 10 of the remaining wells can be reworked with the remaining 26 wells to be evaluated. Our ownership interest in the Como field, including undeveloped acreage and non-producing wells, averages 75% across the field. We hold a 100% working interest in all wells in the Como Field. Production from the Como Field is currently approximately 225 BOPD. The budgeted overhead for 2007 totals approximately $1,000,000. In order to maintain the current level of production, we have budgeted lease operating expenses and capital expenditures for 2007 totaling approximately $1,500,000. Upon evaluation of the wells that are currently not producing, we have determined that we can increase production by approximately 125 BOPD by expending incremental costs totaling approximately $400,000.

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As funds become available, the Como Field will have the highest priority because the greatest return on capital can be achieved by investing the funds into this Field. The Company’s working interest is 100% and net revenues generated through improvements in this field can be utilized totally to the benefit of the Company and its results of operations.

Talco/ Trix-Liz Field and Sulphur Bluff Field. The Talco and Trix-Liz Fields are located in Titus County, Texas, near the town of Talco, about 135 miles northeast of Dallas on 2,252 lease acres. The wells in this field produce from the Woodbine Sands at depths ranging from 3,200 to 3,900 feet and from the Paluxy Sands at a depth of about 4,300 feet. Both the Woodbine Sands and Paluxy Sands are characterized by active water drives and reservoirs. The wells in this field are older wells that were shut down and most of the well equipment removed when the price of oil declined to less than $8.00 per barrel in the mid 1990s. At present 24 of the wells in this field are back in production. Energytec believes approximately 35 of the remaining wells can be reworked successfully and the remaining 60 wells will continue to be evaluated. We drilled 19 development wells during the year ended December 31, 2005. However, these wells were later compromised by regulatory action in that they were illegally dually completed. Our ownership interest, including undeveloped acreage and non-producing wells in the Talco/ Trix-Liz field averages approximately 50% across the field.

The Sulphur Bluff Field is located in Hopkins County, Texas, three miles south of the town of Sulphur Bluff and approximately half way between Dallas and Texarkana. This field is managed from the district offices in Talco, Texas. Energytec owns the majority (878 lease acres or approximately 80 percent) of this Field, which was discovered in 1925. The 26 wells in this field produce from the Paluxy formation, which is an active water driven reservoir. Three wells are currently producing. Five are injection wells, and the remaining wells are under evaluation for production capability in the future. Our ownership interest, including undeveloped acreage and non-producing wells in the Sulphur Bluff field wells averages 70% across the field. One development well was drilled during the year ended December 31, 2005.

Our average working interest ownership in wells in these fields is approximately 41%. Current production from the wells in these fields is approximately 94 BOPD. We have budged overhead of approximately $780,000 for 2007, with an additional budget of approximately $1,900,000 for lease operating expenses and capital expenditures necessary to maintain current production. We do not believe revenue from production at current levels will cover the costs of production. Further, we believe the wells in these fields will require an extensive amount of remediation to achieve additional production. Based upon an evaluation of the potential for increased production, we estimate that incremental production of approximately 300 BOPD could be added by expending approximately $3,600,000. The incremental production would result in additional gross revenue, but overall, we believe these fields will operate at a deficit during 2007. The budgeted costs to maintain the current production as well as the incremental costs represent the costs for 100% of the working interest. As mentioned above, non-operating working interest owners have not traditionally borne their share of the costs. At the present time, gross revenues from incremental production would not be sufficient to recapture the incremental costs and the Company does not have capital available to incur operational and remedial expenses without contribution from non-working interest owners.

We believe that the Talco and Trix-Liz Fields have potential for future development in deeper zones and through the use of enhanced recovery methods. We do not believe that divestiture of this field should be considered at this time. However, we will present non-operating working interest owners with AFEs and capital calls in order to fund the current operating costs and any incremental costs to be incurred.

Redwater Properties and Redwater Gas Pipeline. The Redwater properties consist of mineral leases covering 3,778 acres in Bowie, Cass, and Rains counties in northeast Texas approximately 20 miles from Texarkana and 140 miles northeast of Dallas. There are a total of 12 wells with 6 currently in production, one saltwater disposal well, and 5 being evaluated for production. Most of the production is gas production with high sulfur content from the Smackover formation. There are three wells producing primarily oil with some associated gas production. Our ownership interest, including undeveloped acreage and non-producing wells in the Redwater properties averages 50% across the field. Our working interest ownership averages 57%.

During the year ended December 31, 2005, the Company acquired an additional 2,500 acres in close proximity to our existing leases. The Company has identified four potential locations and began preparations at two locations for future development. The Company is unsure if it will be able to commence exploratory wells in the near term and alternative methods to develop these locations are being evaluated.

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Current production from the Redwater properties totals approximately 77 BOPD and 519 mcf/d. The 2007 budget for overhead and operating expenses totals $425,000 and $1,200,000, respectively. With additional capital expenditures totaling approximately $475,000, incremental production of 45 BOPD and 475 mcf/d could be achieved, which we believe would result in some, but not significant, net production revenue. As discussed above, the non-operating working interest owners have not historically contributed any further funds for lease operating expenses or capital expenditures, so committing its resources to Redwater will be a low priority for Energytec in 2007.

The Redwater pipeline is approximately 63 miles of transmission gas lines with associated compressors, treatment facilities, and isolation stations. Fifty miles of the line is six-inch and the balance is four-inch. The terminus of the line is into a processing plant owned by Enbridge Pipelines Texas. There is also a tract of approximately 10 acres used by Energytec for field operations, as well as storage, warehousing, and repair facilities. At the present time the pipeline is gathering and delivering gas only from Energytec wells in the area. It has the capacity, however, to gather and deliver gas from other wells and in the future, Energytec may evaluate the potential for developing the pipeline as a gathering system for wells owned by others in the areas.

Due to the high sulfur content in the gas produced from the Redwater properties, these properties have a higher cost of production and present a higher risk with regard to potential environmental liabilities. In addition, the pipeline traverses several populated areas and a number of the wells are also located in populated areas. At the present time, the Company does not have the capital necessary to maintain the pipeline and currently producing wells in a manner that would significantly reduce the risks associated with these properties and, incremental net revenues that could be achieved are not sufficient to supplement any available capital towards this end. Due to these circumstances, we have identified the Redwater properties and Redwater pipeline as assets eligible for divestiture. The Redwater properties are being actively marketed for sale and we have begun the process of gathering information for potential interested parties.

Kilgore Field. Energytec leases approximately 14 acres near Kilgore, Texas, for use as a central office for the leases and operations in the East Texas Field. Energytec has an office building, a shop facility and a storage yard for its equipment and supplies. The annual rental for this facility is approximately $10,000 plus utilities. The rentals are paid one year in advance and renewed year to year. During 2006, the Company sold wells in the Kilgore Field for $200,000. We have also identified the remaining wells in the field as available for sale and have recognized a loss contingency upon disposition of these wells in the accompanying audited financial statements for the year ended December 31, 2006. We have 94 remaining wells on 1,027 lease acres, of which 45 are producing in the East Texas Field. Energytec holds working interests averaging 44% across the field.

Oil production is from the Woodbine formation at about 3,500 feet in depth. The Woodbine is a sandstone with an active water drive. While many wells in the East Texas Field have ceased production due to water encroachment, we have studied the movement of the water in the field and have concluded that its wells are in the eastern portion of the field and will be among the very last wells that will be subject to this encroachment. The Bureau of Economic Geology at the University of Texas has estimated that over 660 million barrels of oil remain in the field and can be subjected to recovery by the use of new technologies and operations now available in the industry. The current production from the field averages 75BOPD. The 2007 overhead and operating budget to maintain current production totals approximately $1,700,000. Incremental operating and capital expenditures of approximately $355,000 would result in additional production of 48 BOPD, equating to gross revenues of approximately $670,000. Even with incremental production, the field would likely continue to operate at a deficit, so Energytec will look for opportunities to divest itself of this field.

South Texas Field. The South Texas Field consists of three properties as follows:

Hutt Field Property. Energytec holds working interests, averaging 15% across the field, in 13 oil wells and two water injection wells in Atascosa and McMullen Counties, Texas. These wells are located on 1053 acres, 17 miles south of the town of Jourdanton and about 65 miles southwest of San Antonio. Five of the wells are producing and eight are being evaluated for production. These wells produce from the Wilcox Formation at a depth of about 5,400 feet. An active water drive that forces oil to migrate and reservoirs where the oil accumulates are characteristics of this type of formation.

Milam Field. Energytec owns a two acre tract in the town of Rockdale, Texas which is approximately 60 miles northeast of Austin. On this tract, Energytec has a shop facility and a storage yard for its equipment, and there is also a producing well on the same tract. This location provides support services for our operations in Milam County and Burleson County. Energytec owns leases containing 34 wells, of which 3 are producing, on 622 lease acres, and holds working interests averaging 50% across the field. The wells produce from the Olmos formation, a prolific formation throughout Central and South Texas.

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Luling Field. Energytec rents a 4 acre tract in Luling, Texas which is approximately 60 miles east of San Antonio. The tract has a shop facility and a storage yard. This facility provides support for Energytec’s leases in Caldwell and Guadalupe Counties. A total of 91 wells, none of which are producing, are located on 469 lease acres. These wells were drilled in the Austin Chalk where the majority of the estimated original oil in place still remains.

The South Texas Field currently achieves production totaling approximately 30 BOPD with an operating and overhead budget of approximately $600,000. Through the expenditure of incremental costs of approximately $120,000, the field could achieve additional production of approximately 50 BOPD, which we believe could result in net production revenue. However, the Company’s working interest ownership in this field is minimal and as with the other fields discussed above, the non-operating working interest owners have not contributed to the lease operating expenses or capital expenditure budget. Incremental revenue to the Company derived from this field would not be significant and would not justify the application of available capital that could result in a faster return on investment if invested in other fields or other opportunities available to the Company. For this reason, these properties are also being actively marketed for sale.

Big Horn Field. Energytec owns a 44% working interest in approximately 46,772 acres in Big Horn County, Wyoming in the Big Horn Basin. The Company operates the Project and drilled, completed and tested two wells for cold production in the Phosphoria limestone near the town of Greybull. Both wells were also subjected to a cyclic steam injection test through the mechanism of a huff and puff project. No commercial production was established.

The Big Horn Basin is located in north-central Wyoming and south-central Montana. The Basin has produced over 2.4 billion barrels of oil; however, in the area where the Company has its leases, sometimes referred to as the Big Horn Oil Field, over 35 wells have been drilled with no well having produced commercially. A number of independent studies and reviews suggested that a thermal recovery project could establish commercial production. A recent study by the U.S. Department of Energy (DOE) pointed out a number of geological issues related to the oil in place for the Basin and suggested that the remaining oil in the Basin approximates 200 million barrels with various recovery factors attendant.

In March 2006 the Company undertook a series of reviews of the Thermal Recovery Project, both internal and external, involving new third party consultants and existing Company personnel and consultants. Using the DOE study as a guide, the area containing oil in place was divided into zones, each with a different combination of area, porosity, oil saturation and reservoir thickness. As a result, the Company has prepared a new analysis of oil in place, recoverability factors, and thermal recovery applications, together with new maps and a substantially revised due diligence file. All of the Company’s material is considered proprietary and valuable for use by any interested parties.

In June 2006 the Company commenced a new effort to sell the Project and in October 2006, Energytec entered into a Purchase and Sale Agreement with Big Horn Oil LLC for the Wyoming Thermal Recovery Project. The closing was set for November 15, 2006, but the parties subsequently agreed to extend the closing to December 29, 2006. Ultimately the transaction did not close because Big Horn Oil could not obtain funding for the purchase, and on April 5, 2007, Big Horn Oil notified the Company that it was discontinuing its effort to locate funding.

Energytec is actively pursuing other sources of financing for operations and project development, such as a joint venture partner with the capital and technical support capabilities to demonstrate the feasibility of recovery of the oil in place through thermal recovery techniques.

The Company is also actively considering a number of new techniques and technologies applicable to heavy oil operations and recovery, including a proprietary surfactant treatment, acoustic wave treatment and steam flooding. Some of these are being evaluated in conjunction with the Rocky Mountain Oilfield Testing Center and various universities where the Company has on-going research activities regarding this Project. These activities could aid in the sale of the Project or help the Company attract joint venture partners.

Most of the leases are Federal leases with the Bureau of Land Management. Lease expirations range from July 2008 to 2011. The Company has a range of options it is considering for the expirations in 2008 should no sale or joint venture be consummated within the next six months.

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Oil and Gas Ownership and Net Interest Amounts

The following table sets forth the oil and gas produced from the net interest in producing properties owned by Energytec for the 12-month periods ended December 31, 2006, 2005, and 2004.

	Year Ended December 31
	2006		2005		2004
Oil Sales, Barrels		80,318		37,935		24,615
Gas Sales, MCF		50,842		64,767		103,052
Average Sales Price ($/Bbl)	$	52.16	$	49.38	$	38.13
Average Sales Price ($/Mcf)	$	3.75	$	4.12	$	4.11
Producing Costs ($/Bbl)	$	12.56	$	13.51	$	15.49

For the year ended December 31, 2004, Enbridge Pipeline, L.P., Berry Petroleum, Flint Hills Resources, L.P., and Plains Marketing, L.P. accounted for 42%, 25%, 12% and 12%, respectively, of the Company’s oil and gas sales, respectively. For the year ended December 31, 2005, Black Hills Energy, Inc., Plains Marketing, L.P., Enbridge Pipeline, L.P., and Berry Petroleum accounted for 30%, 26%, 22%, and 11% of the Company’s oil and gas sales, respectively. For the year ended December 31, 2006, Sunoco Partners Marketing & Terminals, L.P., Plains Marketing, L.P., and Enbridge Pipeline, L.P. accounted for 67%, 15%, and 10% of the Company’s oil and gas sales, respectively.

The following tables show Energytec’s ownership in producing, non-producing, development, and exploratory wells at December 31, 2006. During the three-year period ended December 31, 2006, Energytec did not drill any dry or non-productive development or exploratory wells. A dry well is an exploratory or a development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.

	Energytec’s Ownership in Wells at December 31, 2006
	Producing				Non-Producing
	Oil		Gas		Oil		Gas
Location	Gross (1)	Net (2)	Gross (1)	Net (2)	Gross (1)	Net (2)	Gross (1)	Net (2)
Como Field	22	22	—	—	36	36	—	—
Talco/Trix-Liz and Sulphur Bluff Field	27	14	—	—	118	64	—	—
Redwater Properties	3	1	3	1	1	—	4	2
South Texas Fields (Hutt, Milam, Luling Properties	8	2	—	—	133	89	—	—
Kilgore Field	45	20	—	—	49	22	—	—
Big Horn Field	—	—	—	—	2	1	—	—
Total	105	59	3	1	339	212	4	2

	2006
	Development Wells		Exploratory Wells
Location	Gross (1)	Net (2)	Gross (1)	Net (2)
Como Field	—	—
Talco/Trix-Liz Field	3	1	—	—
Sulphur Bluff Field	2	—	—	—
Redwater Properties	—	—	—	—
Hutt Field Properties	—	—	—	—
Milam Field	—	—	—	—
Luling Field	—	—	—	—
Kilgore Field	—	—	—	—
Big Horn Field	—	—	—	—
Total	5	1	—	—

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	2005
	Development Wells		Exploratory Wells
Location	Gross (1)	Net (2)	Gross (1)	Net (2)
Como Field	—	—	—	—
Talco/Trix-Liz Field	19	4	—	—
Sulphur Bluff Field	1	—	—	—
Redwater Properties	—	—	—	—
Hutt Field Properties	—	—	—	—
Milam Field	—	—	—	—
Luling Field	—	—	—	—
Kilgore Field	—	—	—	—
Big Horn Field	—	—	—	—
Total	20	4	—	—

(1) Gross wells are the total number of wells in which Energytec owns a working interest.

(2) “Net wells” is computed by multiplying the number of gross wells by Energytec’s working interest in the gross wells.

The following table shows the gross and net developed and undeveloped acreage held by Energytec at December 31, 2006. Net acres are gross acres adjusted by the percentage of interest in the property.

	Acreage Held by Energytec at December 31, 2006
	Developed Acres		Undeveloped Acres
Location	Gross	Net	Gross	Net
Como Field	1,350	999	—	—
Talco/Trix-Liz Field	2,252	1,126
Sulphur Bluff Field	878	615	—	—
Redwater Properties	3,778	1,889	2,500	875
Hutt Field Properties	1,053	158	—	—
Milam Field	622	311	—	—
Luling Field	469	422	—	—
Kilgore Field	1,027	513	—	—
Big Horn Field	—	—	46,772	20,500
Total	11,429	6,033	49,272	21,375

Oil and Gas Estimates and Producing Activity

The following table sets forth information as to the net proved and proved developed reserves as of December 31, 2006. “Proved reserves” are estimated quantities of crude oil, natural gas, and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. “Proved developed reserves” are those reserves that are expected to be recovered through existing wells with existing equipment and operating methods. “Proved undeveloped reserves” are those reserves that are expected to be recovered from new wells on un-drilled acreage or from existing wells where a relatively major expenditure is required for re-completion.

The following table also shows present value of the reserves as of December 31, 2006, (based on an annual discount rate of 10 percent) of the estimated future net revenues from the production and sales of the reserves. The future prices received on sales of production from the properties may be higher or lower than the prices used in calculating the estimates of future net revenues, and the operating costs and other costs relating to such production may also increase or decrease from existing levels.

	December 31, 2006
Total Proved Reserves:
Oil, condensate and natural gas liquids (Bbls)	943,497
Natural gas (Mcf)	356,075
Total Proved Developed Reserves:
Oil, condensate and natural gas liquids (Bbls)	915,152
Natural gas (Mcf)	356,075

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	December 31, 2006
Future cash flows	$	40,566,986
Future production costs		18,882,943
Future development costs		90,600
Future asset retirement costs		3,458,000
Future income tax expense		6,347,405
Future net cash flows		11,788,038
10% annual discount		2,821,963
Standardized measure of discounted future net cash flows related to proved oil and gas reserves	$	8,966,075

Future net cash flows were computed using year-end prices and year-end quantities of proved reserves. Future price changes were not considered. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expense is calculated by applying year-end statutory tax rates (adjusted for permanent differences and tax credits) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved.

These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the Securities and Exchange Commission. Actual results may vary substantially. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and the timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth herein only represents estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment and the existence of development plans. Results of drilling, testing and production subsequent to the date of an estimate may justify a revision of such estimate. Accordingly, reserve estimates are generally different from the quantities of oil and gas that are ultimately produced. Further, the estimated future net revenues from proved reserves and the present value thereof are based upon certain assumptions, including geological success, prices, future production levels, operating costs, development costs and income taxes that may not prove to be correct. Predictions about prices and future production levels are subject to great uncertainty, and the meaningfulness of these estimates depends on the accuracy of the assumptions upon which they are based

Reserve estimates are presented in the Supplementary Information Regarding Oil and Gas Production Activities accompanying the financial statements included herein. Reserve estimates for 2006 and 2005, were prepared by an independent engineering firm. Reserve estimates for 2004 were generated internally by Energytec.

Title to Properties

As is customary in the oil and gas industry, Energytec makes only a cursory review of titles to undeveloped oil and gas leases at the time they are acquired. These cursory title reviews, while consistent with industry practices, are necessarily incomplete. Energytec believes it is not economically feasible to review in depth every individual property acquired. In the case of producing property acquisitions, inspections may not always be performed on every well, and environmental problems such as ground water contamination are not necessarily observable even when an inspection is undertaken. Energytec believes it has good title to its oil and gas properties, some of which may be burdened by immaterial encumbrances, easements and restrictions. The oil and gas properties are also typically subject to royalty and similar non-cost bearing interests customary to the industry. These encumbrances or burdens are not believed to materially affect ownership or the use of the properties.

Nevertheless, there is always a risk that title to the properties may be defective, and, as a result, we could lose our right to explore on them. As is customary in the oil and gas industry, we will continue to rely on preliminary title investigation done at the time we acquire an interest in a property. If the title to the prospects should prove to be defective, we could lose the costs of acquisition, or incur substantial costs for curative title work.

Redwater Pipeline

Energytec owns a tract of approximately 10 acres in Redwater, Texas, which is located 20 miles southeast of Texarkana. We maintain an office building, shop facility and storage yard at the site. This location provides support services to the 12 wells and the 63 mile pipeline acquired in December 2002. Approximately 50 miles of the line is 6 inch and the balance is 4 inch, all of which currently transports gas for the benefit of Energytec. Six of the wells are producing, and 5 of the wells are shut-in awaiting remedial or other work. One well is a saltwater disposal well.

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All of the wells contain various levels of hydrogen sulfide, and we maintain safety measures for the benefit of the employees and the surrounding communities. Energytec owns equipment enabling the quick repair of leaks and allowing for on-going preventive maintenance by the staff.

The wells produce from the Smackover formation at depths of 9,000 feet and greater. While the wells largely produce natural gas, some of the wells have associated condensate in their production.

The gas is sold pursuant to an agreement with a major purchaser in the area. The original agreement ran from August 1999 to August 2004, subject to successive one-year renewal terms. During 2005, Energytec and the purchaser negotiated a new three year contract which expires October 31, 2008.

Comanche Facility

Energytec owns approximately 55 acres a few miles east of the town of Talco in Titus County, Texas. Energytec maintains its field offices at this site, which serves as the headquarters for operations in the Talco and Trix-Liz Field as well as the Sulphur Bluff Field. There are two large buildings located on the five acres closest to Highway 71. One building houses offices and the other a shop facility. The shop facility has machining, welding and fabrication equipment and services not only the needs of the Fields named but also supports services needs for the Kilgore area and Redwater, if necessary. The location also houses our inventory of pipe, parts and miscellaneous equipment. We build, re-construct, or repair almost all of our own equipment, including trailers, well service units, drilling rigs and supporting equipment such as water trucks.

Offices

On November 27, 2006, the Company entered into an agreement to lease office facilities in Plano, Texas leased under a sixty-four month operating lease agreement. Energytec moved into the new space on February 15, 2007. The lease agreement provides for a free rental period through June 15, 2007. The agreement expires June 20, 2012, and provides for base monthly rental payments of $7,183 for the first 24 months of the agreement, $7,250 for the following 24 months, and $7,517 for the final 16 months of the lease. The offices are located at 4965 Preston Park Boulevard, Suite 270E, Plano, Texas, 75093.

ITEM 3. LEGAL PROCEEDINGS

Energytec is a party to the following legal proceedings.

Energytec, Inc., v. Frank W Cole, et al., U.S. District Court, Northern District of Texas, Case No. 3-06 CV-871-L (Consolidated with Case No. 3-06CV0933-G).

This lawsuit filed by Energytec is against Frank W Cole, a former officer and director, Josephine Jackson, a former officer and employee, Phillip M. Proctor, a registered broker, and G. Norman Munro, Raymond J. Vula, John J. Petito, Melvin R. Seligsohn, Sam Miller and Corrine I. Wesloh, who are all unregistered brokers. In the complaint Energytec alleges defendants engaged in activities that violated the anti-fraud prohibitions set forth in Section 10(b) of the Securities Exchange Act of 1934 and applicable state securities laws, and perpetrated common law fraud. Energytec also claims that Frank W Cole and Josephine Jackson engaged in conduct that violated their respective fiduciary and other duties to Energytec, and disclosure rules, internal control requirements, and certification requirements under the Securities Exchange Act of 1934. In addition, Energytec claims the broker defendants received payment of commissions in violation of Section 15(a) of the Securities Exchange Act of 1934 and/or applicable state statutes, or did not disclose the commission arrangement to the brokerage firm with which they were affiliated and engaged in selling away, which is a violation of NASD regulations.

This case is a consolidation by order of the court issued in August 2006 of complaints filed in May 2006. In August 2006 the court also issued an order permitting Energytec to file an amended consolidated complaint to resolve motions previously filed by defendants to dismiss the claims against them for failure to state sufficient facts to support a cause of action. Since filing the amended consolidated compliant, certain defendants filed a motion asking the court to reconsider its order allowing the filing of the amended consolidated complaint, which the court rejected. One defendant answered the complaint denying the substantive allegations. All of the remaining defendants refiled motions in August and September 2006, to dismiss the claims against them for failure to state sufficient facts to support a cause of action, and Energytec responded to these motions in October 2006. The court ruled on Defendant Munro’s motions dismissing the claim under Section 10(b) of the Securities Exchange Act, but allowing the other claims, including the claim of fraud under state law, to go forward. To date the court has not ruled on the remaining pending motions.

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Frank W Cole and Josephine Jackson, v. Energytec, Inc., et al., District Court of Dallas County, Texas, Case No.06-06216.

On or about June 29, 2006, Frank W Cole and Josephine Jackson filed the above-referenced lawsuit on behalf of themselves and the other Energytec shareholders alleging Energytec and its officers and directors acted improperly in removing them from office and have since acted improperly in the management of Energytec, misappropriated corporate assets, and breached their respective fiduciary duties to Energytec. In August 2006 John E. Wasson filed a petition to intervene in the case as an additional plaintiff. In July 2006, Energytec and the other defendants filed a motion to stay further proceedings in the state court case pending resolution of the proceedings in Federal court brought by Energytec as described above. At the end of August 2006, the Texas state court issued an order staying further proceedings in the state court case pending resolution of the proceedings in Federal court. In October 2006, Mr. Cole, Ms. Jackson and Mr. Wasson filed a petition for a writ of mandamus with the Fifth District Court of Appeals of the State of Texas seeking to have the order granting the stay vacated, which was subsequently denied by the appeals court. In December 2006, the plaintiffs filed the petition for writ of mandamus with the Texas Supreme Court, and the court requested a response from the defendants on the petition, which was filed in early March 2007. We cannot predict at this time when the Texas Supreme Court will rule on the pending petition.

Energytec, Inc. and Comanche Well Service Corp., v. Calvin Bass and Jerry Bass, District Court of Titus County, Texas, Case No. 32228.

On or about June 1, 2006, Energytec filed the above-referenced lawsuit alleging the defendants engaged in a regular pattern of theft and conversion of Company property and resources, falsification of Company records, and breach of duties as employees to Energytec, all in violation of Texas law. Defendants filed an answer to the complaint on June 26, 2006, alleging certain deficiencies in the pleading and requesting an order requiring amendment, denying the substantive allegations asserted by Energytec, and asserting counterclaims for additional compensation from Energytec and claiming Energytec, through its agents, slandered the defendants. Energytec filed a response denying the substantive allegations of the counterclaims. No trial date has been set and the parties are now pursuing discovery. Energytec cannot predict the potential outcome of this litigation.

John J. Petito, v. Eric A. Brewster, et al., U.S. District Court, Eastern District of New York, Case No. CV-06 2536.

John J. Petito, one of the defendants in the action, Energytec, Inc., v. Frank W Cole, et al., described above, filed this lawsuit on May 23, 2006. The lawsuit is against 17 defendants, including Energytec, each of the directors and officers of Energytec (except for Frank W Cole), certain employees of Energytec, a former director, and certain attorneys and law firms representing Energytec. The complaint alleges that the directors and officers of Energytec conspired to drive down the price of Energytec’s common stock as part of a plan to take over control of Energytec, and used Energytec to wrongfully take money from investors and deprive them of the benefit of their investment in oil and gas working interests. The complaint seeks compensatory damages of $1 billion and punitive damages of $2.5 billion. Energytec intends to vigorously defend the lawsuit and is of the view that the lawsuit was filed in retaliation for the lawsuit it filed against Mr. Petito. Mr. Petito’s prayer for damages is, in Energytec’s opinion, unrealistic and devoid of merit, and the likelihood that he will recover these amounts is remote. Energytec and the other defendants have filed different motions to dismiss the complaint on a variety of grounds. Energytec’s motion to dismiss alleges the complaint fails to state a cause of action on which relief can be granted. We cannot predict at this time when the court will rule on any of the pending motions to dismiss.

Redwaterpet Oil & Gas Royal Family Oil Delectation LLC v. Energytec, Inc., District Court of Dallas County, Texas, Case No. DC 06-011021-A.

On October 31, 2006, Energytec was served with the above-referenced complaint filed by a New York limited liability company of which John J. Petito is the managing member. Mr. Petito is involved in other legal proceedings with Energytec as described herein. The complaint alleges that in June 2005, Redwaterpet and Energytec entered into a purchase agreement under which Redwaterpet agreed to purchase for $8,000,000 a 100% working interest less a 35% net profits overriding royalty interest in certain oil and gas properties in Energytec’s Sulphur Bluff and Redwater properties in Texas. Redwaterpet claims Energytec breached the agreement by failing to complete assignment of the interests acquired, failing to complete drilling and development work, and failing to account to Redwaterpet for the operation of the properties. Redwaterpet seeks specific performance of the agreement with respect to assignment of the interests allegedly acquired and development of the properties, compensation for lost contractual profits, and an accounting for revenues and expenses for the properties. In December 2006, Energytec filed an answer denying the allegations of the complaint. In March 2007, Energytec filed an amended answer and counterclaim against Redwaterpet asserting in the alternative that the original purchase contract was

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modified and Energytec has complied with its obligations, the alleged contract is impossible to perform as demanded by Redwaterpet, Energytec is not obligated to provide further performance on the alleged contract because of illegal commissions and payments received by John J. Petito and another individual, because Frank W Cole and other parties are responsible for any damages allegedly suffered by Redwaterpet, and because Redwaterpet is obligated as the working interest owner to pay drilling and development costs to Energytec. At the time Energytec filed the amended answer, it also filed a third party complaint against Frank W Cole (individually and d/b/a/ Frank W Cole Engineering) and John J. Petito alleging that Cole and Petito conspired in a scheme to package and unlawfully sell certain interests in the Sulphur Bluff and Redwater properties to the members of Redwaterpet and that these persons are liable for any costs or damages that Energytec may suffer as a result of the Redwaterpet transaction. Mr. Cole has answered the third-party complaint denying the allegations, and we have yet to receive a response to the counterclaims and third-party complaint from the other third-party defendants.The parties are now engaged in discovery and an initial trial date has been set for October 29, 2007. We cannot predict when this matter may be resolved or what the potential outcome may be.

Oil Is Fab & We Are Glad LLC, et al., v. Energytec, Inc., District Court of Collin County, Texas, Case No. 296-00397-07.

On February 7, 2007, Oil Is Fab & We Are Glad LLC, a New York limited liability company of which we believe Amanda Petito (the spouse of John J. Petito) is a managing member, and other individual plaintiffs filed the above-referenced complaint (which was subsequently amended to remove certain plaintiffs from the complaint) against Energytec. In the complaint plaintiffs allege that they purchased common stock from Energytec in November 2005 at a price of $2.75 per share, at the time of purchase they were granted a contractual right to put the shares back to Energytec at a price of $3.75 per share in November 2006, they have exercised the put option, and they have not been paid the put price for the common stock in the amount of $5,799,015. On the basis of these allegations, plaintiffs claim Energytec has breached the put option contract and demand payment of $5,799,015. Alternatively, plaintiffs claim that at the time the stock was sold in 2005, Energytec made negligent misrepresentations with respect to payment of the put options and were damaged in the amount $4,252,611, which is the amount they paid for the common stock. In early March 2007, Energytec filed an answer to the complaint denying the substantive allegations and asserting that payment of the put options would be a violation of Nevada corporate law, that Frank W Cole acted without authority and in violation of law when he made the alleged put option agreements so they are void, and that unlawful commission and other payments made in connection with the sale of the shares of common stock render the alleged put option agreement unenforceable. The original plaintiffs in the lawsuit are not the only persons who allegedly acquired common stock and a put option in 2005. In total, approximately 69persons (including plaintiffs) allegedly purchased a total of 3,098,843 common shares with a contractual right to put the shares back to Energytec at a price of $3.75 per share, who tendered the shares to Energytec in November 2006 in an attempt to exercise the put option. In order to avoid disparate treatment between purchasers of the shares who are plaintiffs in the lawsuit and those who are not and to advance Energytec’s claims raised in the answer to the lawsuit, Energtec filed a third party complaint in early April 2007 seeking a declaration that the put option contracts are unenforceable and that Frank W Cole and the individuals who received unlawful commissions and payments in connection with the sale of the common shares are liable for any damages Energytec may suffer as a result of their illegal conduct. No initial trial date has been set, and we cannot predict when this matter may be resolved or what the potential outcome may be.

Potential for Additional Claims

As a result of transactions, filings, and other events that occurred as a result of the action of Frank W Cole with the participation of his assistant and others, there is a possibility additional claims could be brought against Energytec by persons who purchased oil and gas working interests from Energytec and/or Energytec common stock alleging breach of contract, violations of the registration requirements of the Securities Act of 1933 and applicable state statutes, and/or violations of the anti-fraud provisions of Federal and state securities laws and common law fraud. Any such additional claims that are directed at Energytec could also be directed at the persons who served as officers and directors during Frank Cole’s tenure as chief executive officer based on allegations that they knew or should have known of the problems and misconduct and are either equally culpable with Mr. Cole or failed to discharge their duties to Energytec and its shareholders. Should litigation arise under the circumstances described above, it would likely add significantly to the financial burden of Energytec, not to mention the time and resources management may need to devote to litigation matters that will distract it from pursuing the business of Energytec.

Other Matters

Energytec is the subject of certain other legal matters, which it considers incidental to its business activities. It is the opinion of management that the ultimate disposition of these other matters will not have a material impact on the financial position, liquidity, or results of operations of Energytec.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the quarter ended December 31, 2006.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Registrants Common Equity and Stockholder Matters

Energytec’s common stock trades in the over-the-counter market and quotations for the common stock are listed in the “Pink Sheets” published by the National Quotation Bureau under the symbol “EYTC”. The following table sets forth, for the respective periods indicated, the prices of Energytec’s common stock in the over-the-counter market, as reported and summarized by the National Quotation Bureau. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.

Calendar Quarter Ended	High Bid ($)	Low Bid ($)
March 31, 2005	3.53	2.18
June 30, 2005	3.51	2.66
September 30, 2005	4.03	3.00
December 31, 2005	3.90	2.40
March 31, 2006	2.86	0.37
June 30, 2006	1.00	0.30
September 30, 2006	0.53	0.31
December 31, 2006	0.40	0.19
March 31, 2007	0.26	0.08

On October 7, 2005, Energytec declared a seven percent stock dividend paid on October 31, 2005, to holders of record as of October 21, 2005. There were no stock dividends in 2006.

On March 31, there were approximately 751 holders of record of our common stock. At December 31, 2006, Energytec had 69,777,125 shares of its common stock issued and outstanding.

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted average exercise price of outstanding options, warrants, and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (ex- cluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	—	—	0
Equity compensation plans not approved by security holders (1)	—	—	73,333
Total	—	—	73,333

(1) Pursuant to a plan adopted in March 2005, Energytec issued restricted stock awards denominated in its common stock. These shares were issued to various employees and to Mr. Lambert. The number of shares issued to Mr. Lambert was 200,000. The restricted stock is entitled to participate in any Energytec distribution to its stockholders. The restricted stock will vest in equal annual portions in January 2006, 2007, and 2008. Vesting of each annual installment is conditioned on continued employment. The restricted stock will also vest immediately upon death or disability of the holder or the sale of greater than sixty percent of Energytec’s assets (excluding the Wyoming assets).

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ITEM 6. SELECTED FINANCIAL DATA

Selected Financial Data

The following tables set forth selected financial data for each of the years in the five-year period ended December 31, 2006. The consolidated statement of operations data and balance sheet data are derived from the audited Consolidated Financial Statements of Energytec. The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this report.

Consolidated Statement of Operations Data:

	Year Ended December 31,
	2006			2005			2004		2003		2002
Net revenues	$	10,071,307		$	15,643,042		$	14,313,410	$	5,304,109	$	2,407,934
Gross profit	$	241,484		$	103,331		$	653,853	$	386,308	$	59,178
Net income (loss)	$	(10,761,082	)	$	(403,574	)	$	5,304,028	$	1,800,078	$	921,519
Net income (loss) per share:
Basic	$	(0.15	)	$	(0.01	)	$	.09	$	.03	$	.02
Diluted	$	(0.15	)	$	(0.01	)	$	.09	$	.03	$	.02

Consolidated Balance Sheet Data:

	December 31,
	2006		2005		2004		2003		2002
Total assets	$	42,282,821	$	51,684,742	$	28,610,040	$	12,677,619	$	7,732,783
Long-term obligations net of current maturities and asset retirement obligation	$	3,633,072	$	2,401,289	$	2,334,581	$	2,477,744	$	2,102,749
Cash dividends per common share	$	0	$	0	$	0	$	0	$	0

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding our financial position and results of operations for each of the years required for the period ended December 31, 2006. You should refer to ITEM 2. PROPERTIES in conjunction with the following discussion as well as our consolidated financial statements and notes thereto at ITEM 8.

The financial statements of the Company have been prepared assuming that the Company will continue as a going concern. However, the Company has ongoing litigation and potential rescission liabilities. At December 31, 2006, current liabilities exceeded current assets by approximately $9,000,000 and the loss for the year ended December 31, 2006, was in excess of $10,000,000.

Regulatory problems with the RRC in 2005 significantly and adversely impacted production and results of operations into 2006 and the foreseeable future. In addition, Energytec has incurred otherwise unanticipated costs and will continue to incur such costs as it rectifies the regulatory problems and attempts to bring its properties back into compliance and onto production. As a result of the regulatory problems in 2005 and improper reserve estimates in 2004 and 2003, our reserves required substantial revisions, and Energytec has continued to incur considerable expense, time and effort correcting the various reports.

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The litigation Energytec is pursuing and will pursue, as well as the potential for claims against Energytec brought by public agencies or private parties in the future, could result in substantial expense to Energytec and liability for rescission or legal damages.

Any discussion of Energytec’s results of operations and financial condition in prior periods may not be meaningful in predicting future performance since any of the identified contingencies could adversely impact such performance in ways that cannot be reasonably determined at this time. Furthermore, the foregoing facts and circumstances have had a material adverse effect on our cash flow in 2006 because of the loss of revenue from the 23 wells severed by the RRC in 2005, the costs incurred to address the regulatory issues with the RRC, depletion of our working capital as a result of Mr. Cole’s practice of making excessive payments to holders of working interests, and the professional and other service fees incurred to investigate and review our reserve information and the alleged misconduct of Frank W Cole.

The Company does not currently have cash reserves sufficient to meet its capital and operational expenditure budget of approximately $17,000,000 for the remainder of 2007 and to fund potential liabilities arising from litigation against Energytec. Additionally, due to the regulatory violations as described in Note 3 to our consolidated financial statements at ITEM 8, production has been severed on specific leases and the Company has incurred significant costs associated with bringing wells on these leases back into compliance in order to resume production. This has severely impacted the Company’s cash flow, resulting in the accumulation in 2006 of past due vendor payables of approximately $2,400,000. The Company also expects general working capital needs to total approximately $3,000,000 through the remainder of 2007.

In light of the Company’s current cash position, the reduction in revenue due to severed leases, and the uncertainties related to potential litigation and resulting liability, if any, there is substantial doubt about the Company’s ability to continue as a going concern. In the opinion of management, approximately $22,400,000 will be required during the year 2007 to fund continuing operations. The funds necessary may be reduced by the disposition of unprofitable leases. Management believes that as much as $2,200,000 may be eliminated from the 2007 budget through the disposition of such leases by the end of the second quarter of 2007, with additional savings of approximately $1,300,000 possible by the beginning of the third quarter of 2007. Management intends to focus operational and capital expenditures in areas that would result in achievement of immediate revenue and improved cash flow to the Company. By doing so, the capital and operational budget may be reduced by an additional $3,600,000. Funds to meet the remaining capital and operational expenditure budget and satisfy vendors, totaling approximately $15,300,000 are expected to be derived from operations, sale of surplus equipment and unprofitable leases, joint venture and partner financing, and debt lending or mezzanine financing (in support of drilling opportunities). Despite these alternatives, there can be no assurance that management’s efforts to achieve the foregoing objectives and adequately provide for the contingencies will be successful.

The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Executive Overview

Energytec was formed for the purpose of engaging in oil and gas producing activities through the acquisition of oil and gas properties that have previously been the object of exploration or producing activity, but which are no longer producing or operating due to abandonment or neglect. The traditional focus of the Company has been the production of remaining recoverable hydrocarbons that can be developed through conventional and non-conventional improvement methods and production enhancement techniques.

We own working interests in 60,701 acres of oil and gas leases in Texas and Wyoming that now include 108 gross producing wells and 343 gross non-producing wells. Our wholly owned subsidiary, Comanche Well Service Corporation became the operator of all properties owned by Energytec on April 1, 2006, by posting a cash bond of $250,000 with the Texas Railroad Commission. During 2006 we reviewed approximately 100 of the existing non-operational wells, evaluating the potential for placing those back on production. Options considered included joint ventures, farm-outs, or other partnering arrangements. Through this analysis process we have determined that any incremental production that could be realized from certain unprofitable fields and problematic wells may not justify the expenditures that would be necessary to realize such production. We intend to continue the evaluation of fields and wells that show the potential for profitability through enhanced recovery methods and to evaluate opportunities beyond those associated with current oil and gas properties held by the Company.

We also own a gas pipeline of approximately 63 miles in Texas, which contributed $58,835 of net revenue during the year ended December 31, 2006 and $134,046 and $181,386 for the years ended December 31, 2005 and 2004, respectively

Energytec also owns a well service business operated through its subsidiary, Comanche Well Service Corporation (CWS). CWS bills Energytec for the well service operations performed, including routine maintenance, workovers, drilling, and any other necessary operational services. The portion of these costs associated with working interests owned by third parties is billed to those working interest owners through a joint interest billing statement in accordance with their relative percentage of ownership.

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On April 22, 2006, the Company formed two new wholly owned subsidiaries, Comanche Rig Services Corporation (CRS) and Comanche Supply Corporation (CSC). The primary function of Comanche Rig Services Corporation is to provide contract drilling services to third parties through the utilization of the drilling rigs owned by Comanche Well Service Corporation. Comanche Supply Corporation was established for the sale and distribution of enhanced oil recovery chemicals and materials related to well operation services.

We average approximately 6,700 barrels of oil production and 4,200 mcf of gas production per month (net to the Company’s interest). We believe this can be significantly increased, especially in the Como field where we have a higher net working interest. We have reduced our operating costs from the prior years to a level more in line with our industry peer group and we believe we can continue to improve in this area. However, during the process of addressing problems that had built to a critical status over the past several years under the former chief executive officer, we have determined that we must look beyond the current asset base of the Company and develop revenue sources outside of the current operations in order to improve the operating results of the Company and eventually build value and achieve profitability.

Liquidity and Capital Resources

Capital expenditures during 2006, totaled approximately $3,061,327 which were funded primarily from debt and the sale of assets. Capital expenditures during 2005, totaled approximately $21,700,000 which were funded primarily from cash reserves, proceeds from the assignment of working interests of $19,700,000 and the sale of stock through private placements totaling $14,216,824. The capital expenditures included the acquisition of the Como Field for approximately $5,600,000. We anticipate that the total capital budget for 2007 will be approximately $5,500,000. The capital expenditures will be focused primarily in fields which have shown potential to increase the overall production of the Company as discussed in PART I. ITEM 2: PROPERTIES. The budget is highly dependent on raising capital, as well as oil and natural gas prices, operating difficulties or other factors, many of which are beyond our control and could cause our revenues and cash flows from operating activities to decrease. If we are unable to successfully raise capital to bring additional wells back on to production according to our operating plan, we may be limited in our ability to complete our capital expenditures program. We may be forced to seek capital through sale of assets, debt or equity financings to fund such capital expenditures. We cannot assure you that additional debt or capital from outside sources will be available or cash flows provided by operations will be sufficient to meet these requirements.

The Company’s borrowings consist of a note payable to a bank totaling $553,958 and a letter of credit of $25,000, which secures a bond on the Company’s Wyoming properties, two vehicle loans totaling $62,084, an insurance financing agreement for $8,343, a settlement agreement on final costs of restoration and remediation totaling $412,500, and debenture notes totaling $125,000. None of these borrowings contain any significant debt covenants or restrictions on dividend payments. The letter of credit bears interest at 7.5% and was due along with all accrued interest on September 10, 2006. The Company renewed the letter of credit, extending the due date to September 10, 2007.

The vehicle loans are due in monthly installments of $1,272 and $1,262 through March 31, 2009, and bear no interest. During the quarter ended June 20, 2006, the Company renewed its automobile and fleet insurance and entered into a financing agreement which bears interest at 9.75% per annum and is due in monthly installments of $4,765 per month through March 2, 2007.

The note payable to the bank bears interest at 8% and is payable in monthly installments of $35,312 of principal plus interest. The loan is collateralized by accounts receivable and by various oil and gas properties or other equipment and matures April 2008.

On February 27, 2006, the Company entered into a loan agreement with Gladewater National Bank for $4,000,000. The loan bears interest at 1% above the Wall Street Prime Rate and matured February 27, 2007. Monthly principal payments of $80,000 plus interest were due on the 27^th of each month beginning March 27, 2006 through February 27, 2007. Production payments related to the properties collateralizing the loan are deposited directly with Gladewater National Bank. Any excess funds, after the monthly principal and interest payments are available for the general use of the Company.

At December 31, 2006, the Company had an outstanding balance of $4,000,000. On February 27, 2007, the Company renewed the loan as a 48 month term loan due February 27, 2011 at prime plus 1.5%. The monthly payments will fluctuate as the prime rate fluctuates.

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This loan is collateralized by the Company’s mineral interest in the Quitman Field. During the term of the loan, the bank will periodically re-evaluate the value of the properties pledged to secure the loan to determine compliance with the loan borrowing base which equals 80% of the present worth of the properties pledged, as calculated by the bank, discounted 17.5%, or 80% of the average of the preceding six months’ net monthly income times 32 months, whichever is less. If the loan exceeds the borrowing base as calculated, the Company will have 30 days to pledge additional collateral or make a principal reduction on the loan. In connection with the loan, the Company can make no additional loans to officers of the Company, or from the date of the loan agreement, may not increase the salary of any officer by more than 10% annually. Additionally, the Company may not form any new subsidiary or merge or invest in or consolidate with any other entity or sell, lease, assign, transfer, or otherwise dispose of all or substantially all of the Company’s assets pledged as collateral on the loan.

On October 19, 2006, the Company agreed to a proposed settlement of the final costs of remediation and restoration related to the November 2004 oil spill. The terms of the proposed settlement call for twenty-four equal installments of $18,750 beginning November 20, 2006. The agreement bears no interest and is not collateralized. In case of default, the Company has ten days to cure the default. Should the Company fail to make and cure three payments and those payments are outstanding at any time, the Company is subject to an accelerated judgment and the creditor could then proceed against whatever non-exempt assets are owned by the Company.

In June 2003, the Company issued debenture notes to various individuals. The notes bear interest at 8.0%, are unsecured and mature in 2008. Interest is payable monthly in arrears on or before the 15^th. of each month. Additional interest equal to .5% or 1% of the principal amount is payable to the holder if the average mcf price of gas does not fall within given ranges for each six month measurement period. The debentures are convertible at the holders’ option into the Company’s common stock shares at a conversion price of $2.00 per share. Due to the conversion option, these debenture notes are treated as current liabilities. In each of the years ended December 31, 2005 and 2004, $50,000 of these debentures were converted into 25,000 shares of common stock.

None of the loans described above carry any other significant restrictive covenants.

Stock Dividends

Distributions on our common stock may be declared and paid out of funds legally available when and as determined by our Board of Directors. Our policy is to hold and invest corporate funds on a conservative basis. No dividends were paid in 2006 and we do not expect to pay any dividends in the foreseeable future. During the year ended December 31, 2005, a stock dividend of 7% was declared to holders of record as of October 21, 2005.

Results of Operations

For the Year Ended December 31, 2006 compared to 2005

The following table sets forth certain operating information with respect to our oil and gas operations and summary information with respect to our estimated proved oil and gas reserves on a mcf equivalent basis.

	Year Ended December 31,
	2006		2005		Variance			% Change
Production:
Oil (Bbl)		80,318		37,935		42,383		112	%
Gas (Mcf)		50,842		64,767		(13,925	)	(22	%)
Oil and gas (Mcfe)		613,068		292,377		320,691		110	%
Average Prices:
Oil (per Bbl)	$	52.16	$	49.38	$	2.78		6	%
Gas (per Mcf)		3.75		4.12		(0.37	)	(9	%)
Oil and gas (per Mcfe)		7.14		6.18		0.96		16	%
Expenses (per Mcfe)
Lease operating expenses	$	3.53	$	4.46	$	(0.93	)	(21	%)
Salaries, general and administrative		6.62		9.76		(3.14	)	(32	%)
DD&A expense on oil and gas properties		0.53		0.86		(0.33	)	(39	%)
Estimated Proved Reserves at December 31:
Oil (Bbls)		943,497		1,111,239		(167,742	)	(15	%)
Gas (Mcf)		356,075		1,942,002		(1,585,927	)	(82	%)
Oil and gas (Mcfe)		6,604,479		8,609,436		(2,004,957	)	(23	%)

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Revenues

For the year ended December 31, 2006, oil and gas revenue continued to increase by approximately $2,239,000 to $4,379,501 from $2,140,179 for the year ended December 31, 2005. Increases for the year ended December 31, 2006, were primarily due to the production from the Como field which was acquired in the fourth quarter of 2005, and from an increase in the average price pre mcfe. As reflected in the table above, the oil and gas production on an equivalent mcf basis increased 110% with a related 16% increase in the average price per mcfe.

The net revenue from the transportation of gas through our pipeline experiences very little fluctuation in pricing because the transportation fee is specified under a purchase contract and is based upon volume rather than pricing. However, other factors dependent upon the end purchaser may contribute to the volume of gas sold. During 2006, the purchaser experienced shut downs of the gas processing plant for maintenance which resulted in a smaller increase in gas sales and a lower gross profit for the year. The gas sales for the year ended December 31, 2006, totaled $2,242,345 as compared to $2,186,373 for the year ended December 31, 2005. The related cost of gas purchases for the year ended December 31, 2006, totaled $2,183,510 as compared to $2,052,327, resulting in a gross profit from the sale of gas for the years ended December 31, 2006 and 2005, of $58,835 and $134,046, a gross profit margin of 3% and 6%, respectively.

Well service revenue decreased by approximately $270,000 to a total of $2,682,969 for the year ended December 31, 2006, from $2,953,147 for the year ended December 31, 2005. During 2006, workovers and completions were minimized due to the lack of capital to fund such projects. The Company utilized fewer of its well service units. As many as 8 units were operating in 2005 as compared to 3 to 4 in 2006.

During 2005, the Company entered into an agreement to sell well sites and drill seven wells in two of its fields for $8,000,000. Commissions of $800,000 were paid to two individuals in connection with the agreement. The sales proceeds of $8,000,000 less the commissions of $800,000 were recorded as a liability pending the completion of the wells. The liability included $3,500,000 for the sale of well sites owned by the Company and the estimated cost of drilling and completion of the wells totaling $3,700,000. The drilling budget of $3,700,000 includes approximately $1,000,000 to cover potential overruns associated with increasing costs of materials and labor precipitated by rising oil prices. The Company has elected to reserve recognition of this amount until such time as all wells are completed.

Comanche Well Service provides the drilling services and bills for these services based upon average market day rates plus expenses. As wells are drilled, the liability is reduced by direct drilling costs plus a standard daily drilling rate of $3,000 per day. The gain on the sale of the well sites is recognized as wells are completed. Through December 31, 2005, the Company had recognized a gain of $1,547,320 and drilling revenues of $1,151,848. During 2006, Comanche Well Service performed additional remediation work on the first three wells, recognizing drilling revenue of $395,251.

During 2006, the Company recognized revenue related to the operations of its wholly owned subsidiary Comanche Supply Corporation totaling $217, 531. This revenue was primarily from the sale and transportation of rock from a rock pit operated by Comanche Supply Corporation. The Company recognized related expenses of $134,084, resulting in gross profits from Comanche Supply Corporation of approximately $83,000. The Company also recognized other income of approximately $154,000 from the sale of scrap metal and surplus parts.

Expenses

Oil and gas expenses totaled $2,166,759 for the year ended December 31, 2006. This represents an increase of approximately $862,000, or 66% from $1,304,158 for the year ended December 31, 2005. The increase in the oil and gas expenses, which correlates to a 110% increase in production, is directly related to the operation of the Como field wells as well as the operation and completion of new wells during 2005 and 2006 and increases in the costs of material, supplies and labor which were precipitated by an overall increased demand in the oil and gas industry brought about by the increase in oil and gas prices.

Well service expenses for the year ended December 31, 2006, totaled $5,301,219, an increase of $894,986 from $4,406,233 for the year ended December 31, 2005, an increase of 20%. From 2004 to 2005, well service expenses increased by approximately $3,200,000. Numerous acts and decisions made by the former chief executive officer contributed to this increase including mismanagement and misappropriation of Company assets and disregard for the rules and regulations of the Texas Railroad Commission resulting in the incurrence of additional expenditures related to bringing wells back into compliance. Additionally, a total of 71 employees were hired by Comanche Well Service Corporation during the year ended

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December 31, 2005, resulting in 118 total employees at December 31, 2005, and greater than $1,500,000 of additional salaries and related payroll taxes for the year ended December 31, 2005. Through March 31, 2007, this number was reduced to 68 full time production and support employees in Comanche Well Service Corporation. On April 10, 2007, the Company terminated approximately 20 non-essential field personnel, consisting primarily of mechanics and welders after an evaluation of the Company’s need for these services. For the year ended December 31, 2006, the growth in well services expenses was slowed significantly and management continues to evaluate the well service operations for opportunities to further curtail costs.

General and administrative expenses totaled approximately $4,056,179 for the year ended December 31, 2006, an increase of approximately $1,083,000, from $2,972,866 for the year ended December 31, 2005. During 2006, the Company incurred legal expenses of approximately $630,000, investigative expenses of approximately $273,000, and audit fees of approximately $175,000. During 2005, legal expenses totaled approximately $24,000 and audit fees totaled approximately $91,000. These expense categories result in increases of approximately $963,000. Additionally, during 2006, the Company evaluated its general liability and umbrella insurance coverage and expanded the coverage to include all assets owned by the Company. This resulted in an increase in general liability and fleet insurance expense of approximately $339,000. The health insurance provided to the employees was also evaluated. As a result, more employees took advantage of the health insurance benefits provided by the Company. The expense for health insurance and other health costs associated with work related injuries totaled approximately $270,000, an increase of approximately $92,000, from $178,271 in 2005. Excluding the effects of the professional fees and insurance costs, other general and administrative costs declined approximately $311,000 from 2005. Declines are the result of reduction of consultants, stock compensation, travel, and commissions. Although the total oil and gas expenses and general and administrative expenses increased from 2005 to 2006, production and oil and gas revenue also increased. The effect of the increased production was a lower Mcfe cost. Lease operating expenses declined from $4.46 per Mcfe in 2005 to $3.53 per Mcfe in 2006, a 21% reduction. Likewise, salaries and general and administrative expenses declined from $9.76 per Mcfe in 2005 to $6.62 per Mcfe in 2006, a 32% reduction.

Other Income

During 2005, Energytec continued to generate capital for its drilling activities through the sale of working interests. The gain on the sale of working interests for the year ended December 31, 2005, totaled approximately $5,600,000, a decrease of approximately $4,840,000, from $10,500,000 for the year ended December 31, 2004. Funds generated from such sales were intended to acquire new properties and to fund re-completion and development work on properties owned. However, the practical effect of this “quick fix” revenue was to diminish the long-term revenue that Energytec could realize from producing properties in which it holds a meaningful interest. As a result, the current Board and management of the Company discontinued the sale of working interests through “working interest programs.”

The gains on sales of working interests through working interest programs for the years ended December 31, 2005 and 2004, were reflected as operating revenues because these sales were occurring in the normal course of business. During 2006, sales of working interests through working interest programs were discontinued. However, during the year ended December 31, 2006, the Company sold 100% of its remaining interest in various leases, as well as a drilling rig, vehicles, and other equipment with a cost basis of $2,772,574. The Company received proceeds totaling $2,435,750 and recognized a loss totaling $336,824. Because these sales are not a part of the normal business operations, the loss is reflected as other expense in the Company’s consolidated statements of operations.

Subsequent to December 31, 2006, the Company entered into negotiations to sell 100% of its interest in certain leases with a cost basis of $1,665,733. The estimated fair value of the properties is $1,050,000. The Company recognized a loss contingency of $615,733 and reduced the cost basis to the fair market value which has been captioned as available for sale in the Company’s consolidated balance sheets. The loss is included in loss on disposition of assets in the Company’s Consolidated Statements of Operations.

Impairment

The Company has adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and periodically evaluates, using independent appraisals and projected undiscounted cash flows, the carrying value of its long-lived assets and proved oil and gas properties whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, long-lived assets to be disposed of are reported at the lower of carrying value or fair value less cost to sell. Fair values used for impairment identification are based on discounted cash flow amounts determined by the reserve reports. During the years ended December 31, 2005 and 2004, the Company identified and recognized impairment charges to earnings of $1,054,960 and $120,905, respectively, relating to its proved and unproved oil and gas properties. There were no impairment charges for the year ended December 31, 2006. Unproved oil and gas properties are periodically assessed for impairment following the guidance provided in SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies” and FSP FAS 19-1 “Accounting for Suspended Well Costs.”

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Net Income Available to Common Shares

During 2006, we incurred a loss before benefits of provision for income taxes of $14,313,266 compared with a loss of approximately $621,000 for 2005 and net income before provision for income taxes of $8,350,928 in 2004. It should be noted that in 2005 and 2004, the results of operations included income from the sale of working interests totaling $5,664,175 for the year ended December 31, 2005, and $10,510,501 for the year ended December 31, 2004. The sale of working interests through working interest programs generated gains, but the long-term effect of such sales was the reduction of oil and gas revenue to the Company. As the Company’s working interest ownership declined, the net revenue to the Company was diminished as well. This was exacerbated by the Company’s policy of paying all lease operating expenses and capital expenses without participation from the working interest owners past their initial investment. The majority of the increases in oil and gas revenue were directly related to the addition of the Como Field in late 2005. The proceeds from the sales of the working interests were not sufficient to drill or recomplete wells that were sold through the programs and to fund the ongoing operations of the Company. This made it necessary to raise additional capital. The prior chief executive officer continued to sell additional working interests in order to compensate for the cash shortfalls. However, with each additional working interest program sold, the problems were compounded. In 2006, the Board of Directors called for the cessation of any sales of working interests through the working interest programs.

In order to properly compare the results of operations for the year ended December 31, 2006, to the years ended December 31, 2005 and 2004, the effect of the gains on the sales of working interests should be removed from 2005 and 2004. The losses before benefit for income taxes and excluding gains on sales of working interests for the years ended December 31, 2005 and 2004, would have been $6,285,057 and $2,159,573, respectively. The loss before benefits of provision for income taxes for the year ended December 31, 2006, totaling $14,313,266 (which did not include any gain from sale of working interests) represents a decline of approximately $8,000,000 from the loss before benefit for income taxes and excluding gain on sales of working interests for the year ended December 31, 2005. Of this decline, $7,500,000 is due to the reserve for uncollectible accounts receivable, working interests which arose from payments made to working interest owners in the various working interest programs as described below. The following table shows a reconciliation of our (loss) gain before provision (benefit) for income taxes from our statements of operations for 2006, 2005, and 2004, to the non-GAAP measure of performance described above representing losses before benefit for income taxes and excluding gain on sales of working interests:

	2006			2005			2004
(Loss) Income Before Provision
(Benefit) for Income Taxes	$	(14,313,266	)	$	(620,882	)	$	8,350,928
Gain on Sale of Working Interests		—			5,664,175			10,510,501
Loss Before Benefit for Income Taxes and Excluding Gain on Sales of Working Interests	$	(14,313,266	)	$	(6,285,057	)	$	(2,159,573	)

The accounts receivable, joint interest balance at December 31, 2005, was due from working interest owners and resulted from revenue distributions based upon estimated production which exceeded actual production. From January 1, 2006 through February 28, 2006, additional advances were made to working interest owners totaling $2,110,004. Effective in March 2006, the Company ceased the payment of advances to working interest owners and implemented actual joint interest billings which were netted against revenue distributions prior to any payments to working interest owners. Additionally, to the extent possible, any net revenue distributions due to working interest owners who had received advance payments in excess of actual revenues due to them were applied against the outstanding accounts receivable, joint interests.

During the year ended December 31, 2006, additional joint interest receivables were recorded which were related to current year lease operating expenses and capital expenditures. Due to regulatory violations resulting in severances of certain leases and insufficient cash flow to maintain or increase production, the net revenues were not sufficient to recapture all expenditures made on behalf of working interest owners. For the year ended December 31, 2006, joint interest billings totaled $2,918,535. Joint interest billings totaling $897,673 were offset against revenue distributions, resulting in an additional current year increase to accounts receivable, joint interests of $2,020,862. Additional net revenues of $413,726 are held in legal suspense which will be available to offset accounts receivable, joint interests upon release from suspense.

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At December 31, 2005, an allowance for uncollectible accounts was not recognized based upon estimates of recoverability from future net cash flows from production over a 36 month period. The Company estimated that approximately $2,200,000 would be collected through the process of applying net revenue distributions against the outstanding balances during the year ended December 31, 2006. However, due to declines in production on certain leases and a reduction in pricing for oil and gas, only $1,231,331 in outstanding joint interest receivables were collected through withholdings from net revenue distributions.

The expenditures necessary to maintain, restore, or improve production from wells which are owned primarily by non-operating working interest owners are substantial. Historically the Company has advanced these expenditures with the intention of recouping the advances for net lease operating and capital expenditures against revenue distributions. Going forward the Company plans to implement procedures for collection of outstanding accounts receivable, joint interest, if such expenditures cannot be recaptured through revenues within sixty days of incurrence. The Company believes the underlying asset basis is sufficient to support the outstanding balance. Due to insufficient capital available to reinvest to achieve increased production and analysis of profitability of the various fields, it is unlikely that the Company would put additional funds into these fields that would result in production to support a 36 month collection period. Therefore, the Company has established a reserve against the outstanding balance totaling $7,500,000.

Receivables from the sale of crude oil and natural gas may have credit risk exposure due to delays or interruptions of production, mechanical problems, damages to current producing reservoirs and government regulation, including any curtailment of production or interruption of transportation of oil or gas produced from the wells.

At December 31, 2005, the Company recorded a receivable for the sale of working interest programs. This amount represented the proceeds on the sale of working interests in the fourth quarter of 2005. These outstanding receivables were received in full subsequent to year end. The sale of working interests was recorded upon the receipt of the signed purchase agreement.

Environmental Matters

The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental clean up of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operation thereof. In the Company’s acquisition of existing or previously drilled wells, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company.

In November 2004, an oil spill of eight barrels occurred on land where one of the Company’s wells is located. The remediation and restoration of the land is governed by the Texas Railroad Commission (TRC) and other attendant regulatory authorities. During November and December 2004, the Company incurred approximately $520,000 of costs related to the clean up. During the year ended December 31, 2005, an additional $2,365,242 of such costs were incurred and paid or accrued. This amount includes $325,000 to cover remediation and restoration of the area pursuant to various regulatory authorities. These payments were made in addition to the work performed that was necessary for release and clearance from the TRC and the EPA. An additional $100,000 was accrued as of March 31, 2006, and was subsequently paid. The Company has negotiated with the landowner and the State of Texas to reach a final determination of the costs of remediation and restoration. The final settlement has been recorded as an expense with the related obligation included in notes payable.

For the Year Ended December 31, 2005 compared to 2004

The following table sets forth certain operating information with respect to our oil and gas operations and summary information with respect to our estimated proved oil and gas reserves on a mcf equivalent basis.

	Year Ended December 31,
	2005		2004		Variance			% Change
Production:
Oil (Bbl)		37,935		24,615		13,320		54	%
Gas (Mcf)		64,767		103,052		(38,285	)	(37	%)
Oil and gas (Mcfe)		292,377		250,742		41,635		17	%
Average Prices:
Oil (per Bbl)	$	49.38	$	38.13	$	11.25		30	%

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Gas (per Mcf)		4.12		4.11		.01		0	%
Oil and gas (per Mcfe)		6.18		5.23		.95		18	%
Expenses (per Mcfe)
Lease operating expenses	$	4.46	$	2.94	$	1.52		52	%
Salaries, general and administrative		9.76		8.12		1.64		20	%
DD&A expense on oil and gas properties		.86		.50		.36		72	%
Estimated Proved Reserves at December 31:
Oil (Bbls)		1,111,239		715,616		395,623		55	%
Gas (Mcf)		1,942,002		4,060,674		(2,118,672	)	(52	%)
Oil and gas (Mcfe)		8,609,436		8,354,374		255,062		3	%

Revenues

For the year ended December 31, 2005, oil and gas revenue continued to increase by approximately $1,367,000 to $2,140,179 from $1,003,226 for the year ended December 31, 2004. Increases for the year ended December 31, 2005, were due to the increase in the price of oil and the acquisition of the Como field in the fourth quarter of 2005, which added approximately $900,000 of revenues. As reflected in the table above, the oil and gas production on an equivalent mcf basis increased 16% with a related 18% increase in the average price per mcfe.

The net revenue from the transportation of gas through our pipeline experiences very little fluctuation because the transportation fee is specified under a purchase contract and is based upon volume rather than pricing. The gas sales for the year ended December 31, 2005, totaled $2,186,373 as compared to $1,359,089 for the year ended December 31, 2004. The related cost of gas purchases for the year ended December 31, 2005, totaled $2,052,327 as compared to $1,177,703, resulting in a gross profit from the sale of gas for the years ended December 31, 2005 and 2004, of $134,046 and $181,386, a gross profit margin of 6% and 13%, respectively. The downward decline was due to a decline in gas production of 37%.

Well service revenue increased by approximately $1,513,000 to a total of $2,953,147 for the year ended December 31, 2005, from $1,440,594 for the year ended December 31, 2004. During 2005, we completed 19 wells in the Trix-Liz Field and one well in the Sulphur Bluff Field. Higher costs of materials and labor necessitated an increase in the hourly rates billed for well services. Additionally, in 2004, Comanche Well Service Corporation was utilizing 2 to 4 well service units. During 2005, up to 8 units were being utilized for performance of required maintenance, workovers and completions on a significantly greater number of wells.

During 2005, the Company entered into an agreement to sell and drill seven wells in two of its fields for $8,000,000. The agreement is the subject of litigation as described in “PART I, ITEM 3: LEGAL PROCEEDINGS.” Commissions of $800,000 were paid to two individuals in connection with the agreement. The sales proceeds of $8,000,000 less the commissions of $800,000 were recorded as a liability pending the completion of the wells. The liability included $3,500,000 for the sale of well sites owned by the Company and the estimated cost of drilling and completion of the wells totaling $3,700,000. The drilling budget of $3,700,000 includes approximately $1,000,000 to cover potential overruns associated with increasing costs of materials and labor precipitated by rising oil prices. The Company has elected to reserve recognition of this amount until such time as all wells are completed.

Comanche Well Service provides the drilling services and bills for these services based upon average market day rates plus expenses. As wells are drilled, the liability is reduced by direct drilling costs plus a standard daily drilling rate of $3,000 per day. The gain on the sale of the well sites is recognized as wells are completed. Through December 31, 2005, the Company had recognized a gain of $1,547,320 and drilling revenues and direct costs of $1,200,000. The audited financial statements reflect a remaining liability after recognition of the gain and drilling revenues of $4,452,680, which is reflected in the prepaid drilling program liability in the Company’s consolidated balance sheet at December 31, 2005.

Expenses

Oil and gas expenses totaled $1,304,158 for the year ended December 31, 2005. This represents an increase of approximately $567,066, or 77% from $737,092 for the year ended December 31, 2004. The increase in the oil and gas expenses is directly related to the operation and completion of new wells as discussed above, and increases in the costs of material, supplies and labor which were precipitated by an overall increased demand in the oil and gas industry brought about by the increase in oil and gas prices.

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Well service expenses for the year ended December 31, 2005, totaled $4,406,233, an increase of $3,171,972 from $1,234,261 for the year ended December 31, 2004, an increase of 257%. As discussed under “Recent Developments” in ITEM 1. BUSINESS of the Company’s Form 10-K filed with the Securities Exchange Commission for the year ended December 31, 2005,, numerous factors contributed to this increase including mismanagement and misappropriation of Company assets and disregard for the rules and regulations of the Texas Railroad Commission resulting in the incurrence of additional expenditures related to bringing wells back into compliance. A total of 71 employees were hired by Comanche Well Service Corporation during the year ended December 31, 2005, resulting in 118 total employees at December 31, 2005, and greater than $1,500,000 of additional salaries and related payroll taxes for the year ended December 31, 2005. Through July 17, 2006, this number was reduced to 85 full time production and support employees in Comanche Well Service Corporation.

General and administrative expenses totaled approximately $2,753,600 for the year ended December 31, 2005, an increase of approximately $748,700, from $2,034,894 for the year ended December 31, 2004. As Energytec has continued to grow as a result of acquisitions, it utilized additional consultants to evaluate potential projects, provide general geological and geophysical data to the Company and to negotiate a contract for the sale of natural gas. These activities resulted in expenses of approximately $78,000. Additionally, during the year ended December 31, 2005, Energytec incurred approximately $107,000 associated with consulting and legal fees incurred in the filing of its initial registration statement on Form 10 in May 2005. In February 2005, the Company hired a controller and chief accounting officer to implement the conversion of the accounting records to the Oil and Gas Information Systems Accounting Software (OGSYS) and to support the efforts to file the Form 10, respond to subsequent comments from the Securities Exchange Commission and to prepare for compliance with the audit provisions of the Sarbanes-Oxley Act. In June 2005, a full time accounting manager was hired to facilitate the transition and segregation of the accounting functions in accordance with planned implementation of internal accounting controls. This transition was not begun until January 2006 and was not completely implemented until March 18, 2006, upon the termination of Frank W Cole and his assistant.

Other Income

In 2004 and 2005, Energytec continued to generate capital for its drilling activities through the sale of working interests. The gain on the sale of working interests for the year ended December 31, 2005, totaled approximately $5,600,000, a decrease of approximately $4,840,000, from $10,500,000 for the year ended December 31, 2004. Energytec discontinued the sale of working interests through working interest programs during the first quarter of 2006 and does not anticipate any further sales of working interests through such programs.

Net Income Available to Common Shares

During 2005, we incurred a loss before benefits of provision for income taxes of $76,616 compared with earnings before tax of approximately $8,351,000 for 2004. The decline in the results for the year ended December 31, 2005, of approximately $8,400,000 was primarily due to the circumstances as discussed above and the recognition of approximately $4,000,000 in commissions associated with working interest sales and stock sales. Additionally, as discussed below, Energytec experienced an oil spill in November 2004. In connection with this spill, the Company filed a claim with both its primary and secondary insurance carrier. During 2005, this claim was denied. Accordingly, the Company expensed the insurance recovery receivable reflected in the financial statements as of December 31, 2004, and expensed all additional clean up costs incurred

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and paid during the year ended December 31, 2005, of approximately $2,600,000. Approximately $1,000,000 of expense was charged to earnings in the third quarter of 2005. The loss resulted in basic and diluted earnings per share of $0.00 for the year ended December 31, 2005, compared to $0.09 for the year ended December 31, 2004. A loss of approximately $2,900,000 was incurred in the fourth quarter of 2005 primarily due to commissions totaling $1,400,000 and the recognition of the remaining environmental remediation expense of approximately $1,600,000.

Contractual Obligations

The Company is obligated under certain contractual arrangements for future cash expenditures. The following table sets forth our contractual obligations at December 31, 2006, for the periods shown:

			Payments due by period
	Total		Less than 1 Year		1-3 Years		3-5 Years		After 5 Years
Long-term Debt	$	5,061,887	$	1,428,815	$	3,435,330	$	197,742		—
Debenture Bonds		125,000		125,000		—		—		—
Operating Lease Obligations		469,053		50,280		261,754		157,019		—
Other Long-term Liabilities
Asset Retirement Obligation		1,997,520		105,000		210,000		535,000		1,147,520
Total	$	7,653,460	$	1,709,095	$	3,907,084	$	889,761	$	1,147,520

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Selected unaudited quarterly financial data for the years ended December 31, 2006 and 2005 is as follows:

	Quarter
2006	1st			2nd			3rd			4th
Net revenues	$	3,096,692		$	2,641,814		$	2,141,873		$	2,190,928
Gross profit	$	(30,691	)	$	155,479		$	205,591		$	(88,895	)
Net income (loss) (1)	$	(792,670	)	$	(1,169,054	)	$	(893,431	)	$	(7,905,927	)
Earnings per share
Basic	$	(0.01	)	$	(0.02	)	$	(0.01	)	$	(0.11	)
Diluted	$	(0.01	)	$	(0.02	)	$	(0.01	)	$	(0.11	)

	Quarter
2005	1st		2nd			3rd			4th
Net revenues (1)(2)	$	3,050,890	$	4,444,041		$	3,896,025		$	4,252,086
Gross profit (loss) (3)	$	53,319	$	(20,959	)	$	34,384		$	36,587
Net income (loss)	$	720,231	$	1,007,895		$	(254,119	)	$	(1,877,581	)
Earnings per share
Basic	$	0.01	$	0.02		$	0.00		$	(0.04	)
Diluted	$	0.01	$	0.02		$	0.00		$	(0.04	)

(1) Gain on sale of working interest and gain on sale of drilling program are major components of net revenues. Energytec did not recognize any extraordinary items or cumulative effects of changes in accounting in 2006 or 2005.

(2) Net revenues include gain on sale of working interests and gain on sale of drilling program. Prior quarter balances have been reclassified to conform with the presentation for the quarter ended December 31, 2005.

(3) The gross profit (loss) includes oil and gas revenue, well service revenue, gas sales, and drilling revenue net of oil and gas lease operating expense, well service expenses, gas purchases, drilling expenses, and oil and gas supply expenses.

Critical Accounting Policies and Estimates

Energytec prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. In response to SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” described below are certain of these policies that are likely to be of particular importance to the portrayal of Energytec’s financial position and results of operations and require the application of significant judgment by management. Energytec will analyze estimates, including those related to oil and gas revenues, reserves and properties, as well as goodwill and contingencies, and base its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. You should expect the following critical accounting policies will affect management’s more significant judgments and estimates used in the preparation of Energytec’s financial statements.

Revenue Recognition

Energytec recognizes revenue associated with the sales of crude oil and natural gas when title passes to the customer. Crude oil and natural gas is sold to approximately five purchasers located in Texas. The Company receives revenues directly from the purchasers. Revenues from the production of properties in which we have an interest with other producers are recognized on the basis of our net working interest or royalty interest. Revenues owned by working interest partners are recorded as accounts payable, revenues. Lease operating expenses and capital expenditures to be borne by the working interest partners are netted against their portion of revenues.

Revenues from the work-over and rehabilitation of oil and gas properties through the Company’s wholly owned subsidiary, Comanche Well Service Corporation, are recognized when the services have been performed.

The Company also recognizes income from the transportation of natural gas through its pipeline. Revenue is recognized when title passes to the customer and is based upon the volume of natural gas passing through the pipeline. Gas sales are recognized based upon the volume of gas exiting the pipeline at a spot rate determined pursuant to a purchase contract with the customer. Gas purchases represent the gas purchased as it enters the pipeline at the spot rate as defined by the purchase contract less a fee of $0.55 per mcf.

The Company recognizes drilling revenues under a drilling program agreement at a standard daily drilling rate of $3,000 per day plus costs as drilling progresses.

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Oil and Gas Properties

Energytec uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and costs to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves and geological and geophysical costs and costs of carrying and retaining undeveloped properties are expensed as incurred.

Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment. Other unproved properties are amortized based on the Energytec’s experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated residual salvage values, are depreciated and depleted by the unit of production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.

The Company accounts for suspended well costs in accordance with FSP FAS 19-1. Under the guidelines set forth in FAS 19-1, in the opinion of management, as of December 31, 2006 and current with this filing, the Company has found a sufficient quantity of reserves to justify completion of wells, with suspended costs, as producing wells and the Company is making sufficient progress assessing the reserves and the economic and operating viability of such wells.

On the sale or retirement of a complete or partial unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized.

On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.

Oil and Gas Reserves

The process of estimating quantities of oil and gas reserves is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given field may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various fields make these estimates generally less precise than other estimates included in the financial statement disclosures.

Energytec uses the unit-of-production method to depreciate and deplete the capitalized costs of our producing oil and gas properties. Changes in proved developed reserve quantities will cause corresponding changes in depletion expense in periods subsequent to the quantity revision.

Impairment of Long-Lived Assets

Energytec accounts for its long-lived assets, including oil and gas properties, under the provisions of SFAS No. 144. This provision requires the recognition of an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and measures an impairment loss as the difference between the carrying amount and the fair value of the asset.

In December 2005, the Company engaged an independent engineering firm to conduct a study of its reserves as of December 31, 2005. Pursuant to the reserve study it was determined that 23 wells were dually completed in non-permitted separately recognized reservoirs in the Talco/Trix-Liz Field without the proper permitting and spacing required by the Texas Railroad Commission (TRC). Additionally, commingling of production from permitted and non-permitted reservoirs resulted in the inability to assign reserves to either the permitted or non-permitted reservoirs causing the reserves to be substantially understated as of December 31, 2005.

During the year ended December 31, 2006, the Company resolved the commingling of production from the dually completed wells in the Trix/Liz Field by isolating the non-permitted zones in order to restore production to permitted zones. This isolation will allow the establishment of production from the legally permitted zones.

The Company also sought permits to establish production for additional reservoirs from these dually completed wells. The Company must comply with the appropriate field spacing rules which not only regulates amount of acreage, per producing reservoir, required for each well but also the space between producing wells. The previous management drilled and completed these wells without regards to securing the necessary permits for each producing reservoir and without regards to the applicable field spacing rules. The Company can petition to amend the field spacing rules in order to bring additional wells into compliance with the field spacing rules; however, this petition may not be granted to the extent necessary to return all of these dually completed wells back to production.

44

The Company must be in complete regulatory compliance in order to establish reserves for the leases in the Trix/Liz field. The Company has completed a significant amount of the regulatory compliance that was ignored by the previous management. At December 31, 2006, the Company was in the final phase of compliance for two out of the four significant leases contained in the Trix/Liz Field. The Company expects to receive regulatory clearing by the end of the second quarter of 2007 in order to establish reserves for these two leases. On the remaining two leases, the Company is continuing efforts to obtain permission from an offset operator and complete regulatory filings in order to reestablish production.

Accounting for Asset Retirement Obligations

Energytec accounts for the asset retirement obligations under the provisions of FASB No. 143, which requires the fair value of the liability for an asset retirement obligation be recognized in the period in which it is incurred. When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recognized.

Federal Income Taxes

Energytec accounts for Federal income taxes under the provisions of SFAS No. 109, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. In addition, the recognition of future tax benefits, such as net operating loss carry forwards, are required to the extent that realization of such benefits are more likely than not.

Accounting for Stock-Based Compensation

In December 2004, the FSAB issued SFAS No. 123R, “Share-Based Payments”, revising SFAS No. 123, Accounting for Stock-Based Compensation, and superseding Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, including obtaining employee services in share-based payment transactions. SFAS No. 123R applies to all awards granted after the required effective date and to awards modified, purchased or canceled after that date. Adoption was effective June 15, 2005. There have been no such awards granted, modified, purchased, or canceled since March 15, 2005. Management does not believe the adoption of this accounting pronouncement will have a material impact on the Company’s financial position or operating results.

Goodwill

Energytec will account for any goodwill it may recognize in the future in accordance with Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual impairment assessment. A more frequent assessment is required if certain events occur that reasonably indicate an impairment may have occurred. The volatility of oil and gas prices may cause more frequent assessments. The impairment assessment requires Energytec to make estimates regarding the fair value of the reporting unit. The estimated fair value is based on numerous factors, including future net cash flows of Energytec’s estimates of proved reserves as well as the success of future exploration for and development of unproved reserves. These factors are each individually weighted to estimate the total fair value of the reporting unit. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the unit is considered not impaired. If the carrying amount exceeds the estimated fair value, then a measurement of the loss must be performed, with any deficiency recorded as an impairment.

Contingencies

A provision for contingencies is charged to expense when the loss is probable and the cost can be reasonably estimated. Determining when expenses should be recorded for these contingencies and the appropriate amounts for accrual is a complex estimation process that includes subjective judgment. In many cases, this judgment is based on interpretation of laws and regulations, which can be interpreted differently by regulators and/or courts of law. Energytec will closely monitor known and potential legal, environmental, and other contingencies and periodically determine when it should record losses for these items based on information available to it.

45

Recent Accounting Developments

During June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109 and is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 in the first quarter of 2007, but does not expect such adoption to have a material impact on its financial statements or disclosures.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, which provides a common definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently reviewing Statement No. 157 to determine any effects the adoption might have on its financial statements and related disclosures.

The FASB also issues Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106, and 132(R) in September of 2006 and Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 in February 2007. The Company does not currently have a defined benefit pension plan or other postretirement plans and does not anticipate that Statement No. 158 will have any effect on the Company’s financial statements or disclosures. The Company is evaluating Statement No. 159, but is not currently involved in any hedging activities and does not anticipate any significant impact on its financial statements or disclosures as a result of adoption of Statement No. 159.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange, interest rates, and commodity prices.

Currently the Company is not involved in any hedge contracts or foreign contracts and therefore has no exposure to such risks.

In February 2006, the Company incurred debt totaling $4,000,000 that is subject to interest at 1% above the Wall Street Prime Rate and is susceptible to fluctuations. During 2006, the Wall Street Prime Rate ranged from a low of 7.5% to a high of 8.25%. Through April 16, 2007, the Wall Street Prime Rate has remained at 8.25%.

Our major market risk exposure is in the pricing applicable to our oil production and natural gas sales and the quality of those produced products. Pricing is primarily driven by the prevailing domestic price for crude oil. Historically, prices received for oil and gas sales have been volatile and unpredictable. We expect pricing volatility to continue. Oil prices ranged from a low of $35.752 per barrel to a high of $72.81 per barrel during 2006. Gas prices during 2006 ranged from a low of $1.11 per mcf to a high of $10.56 per mcf. A significant decline in the prices of oil or natural gas could have a material adverse effect on our financial condition and results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of Energytec appear at the end of this report beginning with the Index to Financial Statements on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

With the participation of management, Energytec’s chief executive officer and chief financial officer evaluated its disclosure controls and procedures on December 31, 2006 as defined in Rules 13a-15(e) and 15d-15(e) under the Securities

46

Exchange Act of 1934. Based on this evaluation, the chief executive officer and the chief financial officer concluded that the disclosure controls and procedures are effective in connection with Energytec’s filing of its annual report on Form 10-K for the year ended December 31, 2006.

Changes in Internal Control over Financial Reporting

There has not been any change in Energytec’s internal control over financial reporting that occurred during the most recent fiscal quarter (Energytec’s fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, Energytec’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

ITEM 10. Directors and Executive Officers of the Company

Information regarding the identity and background of Energytec’s directors, Section 16(a) compliance, our code of ethics, changes in procedures for shareholders to recommend nominees to the Board of Directors and the audit committee appearing under the captions “Where can I find Energytec’s Code of Ethics?” “Directors and Nominees,” “Section 16(a) Filing Compliance,” and “Director Independence and Committees,” in the Company’s Proxy Statement for the 2007 annual meeting of Shareholders is hereby incorporated by reference.

Information regarding executive officers is included in Part I of this Form 10-K as permitted by General Instruction G(3).

ITEM 11. Executive Compensation

Information appearing under the captions “Executive Compensation” (other than the Compensation Committee Report) in the 2007 Proxy Statement is hereby incorporated by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information setting forth the security ownership of certain beneficial owners and management appearing under the caption “Security Ownership of Certain Beneficial Owners and Management” and information appearing under the caption “Equity Awards and Benefits” in the 2007 Proxy Statement is hereby incorporated by reference.

ITEM 13. Certain Relationships and Related Transactions

Information regarding certain related transactions appearing under the captions “Certain Relationships and Related Person Transactions” and “Review of Transactions with Related Persons” in the 2007 Proxy statement is hereby incorporated by reference.

ITEM 14. Principal Accountant Fees and Services

Information appearing under the captions “Auditor Fees and Services” in the 2007 Proxy Statement is hereby incorporated by reference.

47

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibits

Copies of the following documents are included as exhibits to this report.

3.1	Articles of Incorporation*
3.2	Certificate of Amendment to Articles of Incorporation*
3.3	Bylaws*
3.4	Certificate of Amendment to Articles of Incorporation*
10.1	Form of BLM Assignment of Record Title for Big Horn County, WY*
10.2	List of Big Horn County, WY, Leases*
10.3	Assignment of Oil and Gas Lease from Chisholm Resources for Big Horn County, WY*
10.4	Assignment and Bill of Sale of Oil, Gas and Mineral Lease Interest, Hoffman Bankhead, Trix-Liz Field, Titus County, TX*
10.5	Assignment of Production Payment Interest, Hoffman Bankhead, Trix-Liz Field, Titus County, TX*
10.6	Assignment, Bill of Sale and Conveyance, 40% Interest, Hoffman Bankhead, Trix-Liz Field, Titus County, TX*
10.7	Assignment, Bill of Sale and Conveyance, from Alcor, Hutt Field, Atascosa and McMullen Counties, TX*
10.8	Assignment, Bill of Sale and Conveyance, from The July Trust, Hutt Field, Atascosa and McMullen Counties, TX*
10.9	Assignment and Bill of Sale from Jon R. Ray, Hutt Field, Atascosa and McMullen Counties, TX*
10.10	Form of Assignment, Bill of Sale and Conveyance, for the V. Houston A Lease, Hutt Field, McMullen County, TX*
10.11	List of V. Houston A Lease Assignors*
10.12	Assignment, Bill of Sale and Conveyance, to FieldPoint Petroleum, Hutt Field, Atascosa and McMullen Counties, TX*
10.13	Corrected Assignment, Bill of Sale and Conveyance, to FieldPoint Petroleum, V. Houston A Lease, Hutt Field, McMullen County, TX*
10.14	Assignment, Bill of Sale and Conveyance, to The Delray Trust, Hutt Field, Atascosa and McMullen Counties, TX*
10.15	Assignment, Bill of Sale and Conveyance, to Mable Trust, Hutt Field, Atascosa and McMullen Counties, TX*
10.16	Assignment, Bill of Sale and Conveyance, to Mable Trust, V. Houston A Lease, Hutt Field, McMullen County, TX*
10.17	Assignment, Bill of Sale and Conveyance, to James A. Nelson, Hutt Field, Atascosa and McMullen Counties, TX*
10.18	Assignment, Bill of Sale and Conveyance, to Richard & Thyra Zeits, V. Houston Lease, Hutt Field, McMullen County, TX*
10.19	Assignment, Bill of Sale and Conveyance, to Richard & Thyra Zeits, V. Houston A Lease, Hutt Field, McMullen County, TX*
10.20	Oil, Gas, and Mineral Lease, from Carol Andrade Mills, Margaret B. Timmons, Trix-Liz Field, Titus County, TX*
10.21	Form of Oil and Gas Lease (Paid-Up) with respect to Margaret B. Timmons, Trix-Liz Field, Titus County, TX*
10.22	List of Lessors Executing Form of Oil and Gas Lease (Paid-Up) with respect to Margaret B. Timmons, Trix-Liz Field, Titus County, TX*
10.23	Assignment, Bill of Sale and Conveyance, to Audrey G. Crawford, Margaret B. Timmons, Trix-Liz Field, Titus County, TX*
10.24	Salt Water Disposal Agreement, with Tres B. Partnership, Timmons, Trix Liz Field, Titus County, TX*
10.25	Oil, Gas, and Mineral Lease, from George E. Watzlavick, Garbade, Trix-Liz Field, Titus County, TX*
10.26	Form of Oil, Gas, and Mineral Lease with respect to Garbade, Trix-Liz Field, Titus County, TX*
10.27	List of Lessors Executing Form of Oil, Gas, and Mineral Lease with respect to Garbade, Trix-Liz Field, Titus County, TX*

48

10.28	Oil, Gas, and Mineral Lease, from Rebecca Garbade Maddox, Garbade, Trix-Liz Field, Titus County, TX*
10.29	Oil, Gas, and Mineral Lease, from Lonnie G. Garbade Jr, Garbade, Trix-Liz Field, Titus County, TX*
10.30	Oil, Gas, and Mineral Lease, from Thomas Pate Worsham, Worsham, Sulphur Bluff Field, Rains County, TX*
10.31	Oil, Gas, and Mineral Lease, from Martha Frierson Ellis, Worsham, Sulphur Bluff Field, Rains County, TX*
10.32	Assignment and Bill of Sale, from James R. Williams, Jr., Worsham, Sulphur Bluff Field, Hopkins County, TX*
10.33	Assignment and Bill of Sale, from Della-Back Oil Co. and Doug Wright, Worsham, Sulphur Bluff Field, Hopkins County, TX*
10.34	Assignment and Bill of Sale, from Richard R. and Thyra K. Zeits, Parr, Sugar Hill Field, Titus County, TX*
10.35	Oil, Gas, and Mineral Lease, from Diane and Winde L. Anschuts, Parr, Sugar Hill Field, Titus County, TX*
10.36	Assignment, Conveyance and Bill of Sale of Oil and Gas Properties, from Joe Bailey Allen, Parr, Sugar Hill Field, Titus County, TX*
10.37	Oil, Gas, and Mineral Lease, from Philip M. Proctor, Parr, Sugar Hill Field, Titus County, TX*
10.38	Assignment, Bill of Sale and Conveyance, from Richard R. and Thyra K. Zeits, Belcher, Talco Field, Titus County, TX*
10.39	Form of Oil and Gas Lease (Paid-Up) with respect to Belcher, Talco Field, Titus County, TX*
10.40	List of Lessors Executing Form of Oil and Gas Lease (Paid-Up) with respect to Belcher, Talco Field, Titus County, TX*
10.41	Mineral Deed, from Charles R. Wiggins, Belcher, Talco Field, Titus County, TX*
10.42	Oil and Gas Lease (Paid Up), from Salvation Army of Texas, Belcher, Talco Field, Titus County, TX*
10.43	Oil and Gas Lease (Paid Up), from David J. and Lonia R. Myers, Belcher, Talco Field, Titus County, TX*
10.44	Assignment, Bill of Sale and Conveyance, to Eric B. Weiner, Blackburn, Talco Field, Titus County, TX*
10.45	Assignment, Bill of Sale and Conveyance, to Martin N. Weiner, Blackburn, Talco Field, Titus County, TX*
10.46	Assignment, Bill of Sale and Conveyance, to Robert A. Jaffe, Blackburn, Talco Field, Titus County, TX*
10.47	Assignment, Bill of Sale and Conveyance, to Steven and Stephanie D. Elie, Blackburn, Talco Field, Titus County, TX*
10.48	Assignment, Bill of Sale and Conveyance, to Michael H. Weiner, Blackburn, Talco Field, Titus County, TX*
10.49	Assignment, Bill of Sale and Conveyance, to Ken Keschinger, Blackburn, Talco Field, Titus County, TX*
10.50	Assignment, Bill of Sale and Conveyance, to Stanley W. and Audrey G. Crawford, Blackburn, Talco Field, Titus County, TX*
10.51	Assignment, Bill of Sale and Conveyance, to Jeffrey L. Bryant, Blackburn, Talco Field, Titus County, TX*
10.52	Form of Oil and Gas Lease (Paid-Up) with respect to Blackburn, Talco Field, Titus County, TX*
10.53	List of Lessors Executing Form of Oil and Gas Lease (Paid-Up) with respect to Blackburn, Talco Field, Titus County, TX*
10.54	Assignment, Bill of Sale and Conveyance, from Frank W Cole, McElroy, Talco Field, Titus County, TX*
10.55	Warranty Deed, from Wesley B. and Wanda J. Vandever, Vandever, Talco Field, Titus County, TX*
10.56	Oil, Gas, and Mineral Lease, from Goldmark Resources Inc., Talco Field, Titus County, TX*
10.57	Loan Agreement with American Bank of Texas for the amount of $400,000*
10.58	Form of Security Agreement with American Bank of Texas dated April 11, 2003*
10.59	Security Agreement (Pledge) with American Bank of Texas dated April 11, 2003*

49

10.60	Assignment and Bill of Sale and Deed, from Rockwall Marketing Corporation, Rockwall, Bowie County, TX*
10.61	Assignment and Bill of Sale and Deed, from Rockwall Marketing Corporation, Rockwall, Cass County, TX*
10.62	Assignment and Bill of Sale and Deed, from Rockwall Marketing Corporation, Rockwall, Rains County, TX*
10.63	Form of Oil and Gas Deed of Trust, Security Agreement Assignment of Production and Financing Statement, with American Bank of Texas*
10.64	Form of Commercial Deed of Trust, Security Agreement Financing Statement and Assignment of Rents, with American Bank of Texas*
10.65	Loan Agreement with American Bank of Texas for the amount of $1,906,846.75*
10.66	Form of Modification Agreement dated April 1, 2003 with the American Bank of Texas*
10.67	Form of Modification Agreement dated October 11, 2004 with the American Bank of Texas*
10.68	Oil, Gas, and Mineral Lease, from Jimmy B. Smith, East Texas Field, Milam County, TX*
10.69	Oil, Gas, and Mineral Lease, from Richard L. Elliott, East Texas Field, Milam County, TX*
10.70	Oil, Gas, and Mineral Lease, from Mary Ann Cudd, East Texas Field, Milam County, TX*
10.71	Assignment of Oil and Gas Leasehold, from Todd Reed, Inc., East Texas Field, Burleson County, TX*
10.72	Oil, Gas, and Mineral Lease, from Flora Mae Owens, East Texas Field, Milam County, TX*
10.73	Oil, Gas, and Mineral Lease, from Gladys Elrod Muska, East Texas Field, Milam County, TX*
10.74	Oil, Gas, and Mineral Lease, from F. M. Praesel, East Texas Field, Milam County, TX*
10.75	Oil, Gas, and Mineral Lease, from De Anne Dymke, East Texas Field, Milam County, TX*
10.76	Oil, Gas, and Mineral Lease, from Nellie Lee Zachry, East Texas Field, Milam County, TX*
10.77	Corrected Partial Assignment of Oil and Gas Lease, to Robert Weseloh, East Texas Field, Milam County, TX*
10.78	Oil, Gas, and Mineral Lease, from Delores Beran, East Texas Field, Milam County, TX*
10.79	Oil, Gas, and Mineral Lease, from Joseph and Judith Slusher, East Texas Field, Milam County, TX*
10.80	Assignment of Working Interest in an Oil and Gas Mineral Lease, from Turner Branch, East Texas Field, Milam County, TX*
10.81	Oil, Gas, and Mineral Lease, from A. A. McVoy Jr., East Texas Field, Milam County, TX*
10.82	Assignment of Oil & Gas Leasehold, to H. H. Coffield, from Caddo Oil Company, Inc., East Texas Field, Burleson County, TX*
10.83	Assignment of Oil and Gas Lease, from Michael Griffin, East Texas Field, Milam County, TX*
10.84	Oil, Gas, and Mineral Lease, from George B. Lumpkins, East Texas Field, Milam County, TX*
10.85	Oil, Gas, and Mineral Lease, from Anthony Roy Nelson, East Texas Field, Milam County, TX*
10.86	Assignment of Oil and Gas Lease, with R&R Resources Corporation, Luling, Caldwell County, TX*
10.87	Assignment of Overriding Royalty Interest, from Charles W. Kennedy, Luling, Caldwell County, TX*
10.88	Oil, Gas, and Mineral Lease, from R.E. Brown, Luling, Caldwell County, TX*
10.89	Assignment and Bill of Sale, from Fidelity Petroleum Corporation, Luling, Caldwell County, TX*
10.90	Oil, Gas, and Mineral Lease, from Mildred Diller, Luling, Caldwell County, TX*
10.91	Oil, Gas, and Mineral Lease, from David Palmer, Luling, Caldwell County, TX*
10.92	Oil, Gas, and Mineral Lease, from F.C. Hinds, Luling, Caldwell County, TX*

50

10.93	Assignment of Oil, Gas and Mineral Leases and Bill of Sale, Luling, Caldwell County, TX*
10.94	Bill of Sale and Conveyance, to Eddie Edington, Luling, Caldwell County, TX*
10.95	Oil, Gas, and Mineral Lease, from Judy K. Rouse, Luling, Caldwell County, TX*
10.96	Oil and Gas Lease, from Oscar C. Brehmer, Luling, Caldwell County, TX*
10.97	Oil, Gas, and Mineral Lease, from Eddie B. Garcia, Luling, Caldwell County, TX*
10.98	Oil, Gas, and Mineral Lease, from Cynthia William Price, Luling, Caldwell County, TX*
10.99	Oil, Gas, and Mineral Lease, from Frank Hinds, Luling, Caldwell County, TX*
10.100	Oil, Gas, and Mineral Lease, from Carolyn Travis, Luling, Caldwell County, TX*
10.101	Oil and Gas Lease, from Perry E. Nite, Luling, Caldwell County, TX*
10.102	Assignment, from G & H Oil, Inc., Luling, Caldwell County, TX*
10.103	Assignment of Oil and Gas Lease, from Ed Cox, Luling, Caldwell County, TX*
10.104	Assignment and Bill of Sale, from Nina Miley, Kilgore, Rusk County, TX*
10.105	Assignment and Bill of Sale and Quit Claim of Oil and Gas Lease, from Don L. Mathews, Kilgore, Rusk County, TX*
10.106	Assignment to Trustee of Oil and Gas Production, from Guy Morrison, Jr., Kilgore, Rusk County, TX*
10.107	Assignment and Bill of Sale, from Robert O. Morrison, Kilgore, Gregg County, TX*
10.108	Assignment of Oil, Gas and Mineral Lease, from Sid R. Finklea, Kilgore, Gregg County, TX*
10.109	Correction Assignment of Oil, Gas and Mineral Lease, from The Allar Company, Kilgore, Hopkins County, TX*
10.110	Acknowledgement of Assignment of Oil and Gas Lease Interests and Bill of Sale, from The Allar Company, Kilgore, Hopkins County, TX*
10.111	Assignment of Bill of Sale, from Della Back Oil Company, Kilgore, Franklin County, TX*
10.112	Assignment and Bill of Sale Oil and Gas Lease, from David Stanley James, Kilgore, Rusk County, TX*
10.113	Assignment and Bill of Sale and Quit Claim of Oil and Gas Lease, from Neches Oil & Gas Company, Kilgore, Gregg County, TX*
10.114	Assignment and Bill of Sale of Oil and Gas Lease, from Richard J. Lewis, Kilgore, Hopkins County, TX*
10.115	Assignment of Oil, Gas and Mineral Leases, from Jerry Rawlinson, Kilgore, Gregg County, TX*
10.116	Assignment of Oil, Gas and Mineral Leases, from JDT Trust, Kilgore, Gregg County, TX*
10.117	Assignment and Bill of Sale of Oil and Gas Lease, from Teneco Energy, LLC, Kilgore, Rusk County, TX*
10.118	Assignment to Trustee of Oil and Gas Production, from Guy Morrison, Jr., Kilgore, Rusk County, TX*
10.119	Assignment of Oil and Gas Leases and Bill of Sale, from Andy Morrison, Kilgore, Rusk County, TX*
10.120	Assignment and Bill of Sale and Conveyance, from Rodney Lee Williams, Kilgore, Rusk County, TX*
10.121	Correction Assignment of Oil, Gas and Mineral Leases, from Relico Oil and Gas, Inc., Kilgore, Rusk County, TX*
10.122	Oil, Gas and Mineral Lease, from David Palmer, Kilgore, Shackelford County, TX*
10.123	Oil, Gas and Mineral Lease, from Mildred Diller, Kilgore, Shackelford County, TX*
10.124	Assignment and Bill of Sale of Oil and Gas Lease, from Robinson Energy Resources LTD, Kilgore, Rusk County, TX*

51

10.125	Collateral Assignment of Oil and Gas Lease, from Della-Back Oil Co., Kilgore, Hopkins County, TX*
10.126	Lease agreement dated January 14, 2005 between Andy Morrison Companies, Inc. and Energytec, Inc.*
10.127	Lease agreement dated July 31, 2004 between Signature Business Center and energytec.com, Inc.*
10.128	Lease agreement dated January 10, 2005 between Signature Business Center and Energytec*
10.129	Purchase and Sale Agreement dated March 13, 2003 between Rockwall Marketing Corporation, Producers Pipeline Corporation and Energytec, Inc.*
10.130	Commercial Promissory Note issued by Energytec, Inc. to American Bank of Texas in the principal amount of $400,000.00*
10.131	Form of 8% Convertible Debenture*
10.132	Gas Purchase Agreement dated August 24, 1999 and Amendment dated January 15, 2002 *
10.133	Gladewater National Bank Loan Agreement dated February 27, 20 **
10.134	Gladewater National Bank Promissory Note dated February 27, 2006 **
10.135	Deed of Trust, Security Agreement, Financing Statement and Assignment of Production dated February 27, 2006 – Wood County (excluding exhibits listing oil and gas leases, equipment, and other collateral) **
10.136	Deed of Trust, Security Agreement, Financing Statement and Assignment of Production dated February 27, 2006 – Hopkins County (excluding exhibits listing oil and gas leases, equipment, and other collateral) **
10.137	Assignment to Trustee of Oil and Gas Production dated February 27, 2006 – Wood County (excluding exhibits listing oil and gas leases) **
10.138	Assignment to Trustee of Oil and Gas Production dated February 27, 2006 – Wood County (excluding exhibits listing oil and gas leases) **
10.139	Gladewater National Bank Loan Agreement dated February 27, 2007
10.140	Assignment to Trustee of Oil and Gas Production dated February 27, 2007 – Hopkins County (excluding exhibits listing oil and gas leases)
10.141	Deed of Trust, Security Agreement, Financing Statement and Assignment of Production dated February 27, 2007 – Hopkins County (excluding exhibits listing oil and gas leases, equipment, and other collateral)
10.142	Deed of Trust, Security Agreement, Financing Statement and Assignment of Production dated February 27, 2007 – Wood County (excluding exhibits listing oil and gas leases, equipment, and other collateral)
10.143	Assignment to Trustee of Oil and Gas Production dated February 27, 2007 – Wood County (excluding exhibits listing oil and gas leases)
10.144	Form of Lease agreement dated November 27, 2006 between CRP Holdings V, L.P. and Energytec, Inc.
21.1	List of Subsidiaries
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* These items were filed as exhibits to Energytec’s Registration Statement on Form 10 filed with the Securities and Exchange Commission on May 2, 2005, and are incorporated herein by reference.

52

** These items were filed as exhibits to Energytec’s Report on Form 8-K filed with the Securities and Exchange Commission on March 3, 2006, and are incorporated herein by reference.

Financial Statement Schedules

53

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ENERGYTEC, INC.
Date: April 17, 2007	By:	/s/ Don Lambert
		Don Lambert
		Principal Executive Officer

Date: April 17, 2007	By:	/s/ Dorothea W. Krempein
		Dorothea W. Krempein
		Principal Financial and Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: April 17, 2007	/s/ Ben T. Benedum
	Ben T. Benedum, Director

Date: April 17, 2007	/s/ Eric Brewster
	Eric Brewster, Director

Date: April 17, 2007	/s/ Wayne Hardin
	Wayne Hardin, Director

Date: April 17, 2007	/s/ B. Charles Spradlin
	B. Charles Spradlin, Director
Date: April 17, 2007	/s/ Ed Timmons
	Ed Timmons, Director

54

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2006 And 2005	F-2
Consolidated Statements Of Operations - Years Ended December 31, 2006, 2005 And 2004
Consolidated Statements Of Stockholders’ Equity - Years Ended December 31, 2006, 2005 And 2004
Consolidated Statements Of Cash Flows - Years Ended December 31, 2006, 2005, and 2004	F-6
Notes To Consolidated Financial Statements	F-8
Supplementary Information Regarding Oil And Gas Producing Activities	F-30

F - 1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Energytec, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Energytec, Inc. and Subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Energytec, Inc. and Subsidiaries as of December 31, 2006 and 2005, and the consolidated results of their operations and cash flows for each of the periods in the three year period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company does not currently have cash reserves sufficient to meet its capital and operational expenditure budget of approximately $22,400,000 for the year ending December 31, 2007. The Company believes that it may also have potential liability for rescission or damages to investors in the working interest programs and/or purchasers of the Company’s common stock in private placements. These events raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/ Turner, Stone & Company, L.L.P.

Certified Public Accountants

Dallas, Texas

April 10, 2007

ENERGYTEC, INC.

AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2006 and 2005

ASSETS

	2006		2005
CURRENT ASSETS
Cash and cash equivalents	$	532,925	$	4,037,284
Accounts receivable, revenue		598,322		879,583
Accounts receivable, joint interests		1,375,000		2,211,118
Accounts receivable, programs		—		596,700
Accounts receivable, other		388,948		64,738
Refundable income taxes		1,669,541		1,636,474
Accounts receivable, related party		—		84,295
Prepaid expenses		112,746		—
TOTAL CURRENT ASSETS		4,677,482		9,510,192
PROPERTY AND EQUIPMENT
Oil and gas properties, successful efforts		30,875,159		31,303,209
Oil and gas properties, available for sale		1,050,000		—
Gas pipeline		1,640,238		1,595,979
Oil and gas supplies		344,270		221,391
Well service and related equipment		4,468,262		5,891,495
		38,377,929		39,012,074
Less accumulated depreciation, depletion and amortization		2,173,695		1,735,711
NET PROPERTY AND EQUIPMENT		36,204,234		37,276,363
OTHER ASSETS
Railroad commission bond		250,000		—
Loan origination fee, net of amortization of $16,448		3,288		—
Deposits		13,977		—
Deferred tax asset, net of valuation allowance of $1,457,459		—		—
Long-term receivables, joint interests, net of allowance of $7,500,000, at December 31, 2006		1,133,840		4,898,187
TOTAL OTHER ASSETS		1,401,105		4,898,187
	$	42,282,821	$	51,684,742

The accompanying notes are an integral part

of these consolidated financial statements.

F-2

ENERGYTEC, INC.

AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)

December 31, 2006 and 2005

LIABILITIES AND SHAREHOLDERS’ EQUITY

	2006			2005
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	3,163,215		$	3,229,122
Accounts payable, revenue		1,862,533			1,324,483
Turnkey costs payable		1,800,004			3,717,226
Prepaid drilling program		4,057,429			4,452,680
Other current liabilities		1,305,453			314,783
Debenture bonds		125,000			125,000
Notes payable, current maturities		1,428,815			448,744
TOTAL CURRENT LIABILITIES		13,742,449			13,612,038
LONG-TERM LIABILITIES
Notes payable, net of current maturities		3,633,072			518,646
Asset retirement obligations		1,997,520			2,252,464
Deferred federal income taxes		—			1,882,643
TOTAL LONG-TERM LIABILITIES		5,630,592			4,653,753
TOTAL LIABILITIES		19,373,041			18,265,791
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS’ EQUITY
Preferred stock (10,000,000 shares authorized, none issued and outstanding, $.001 par)		—			—
Common stock (90,000,000 shares authorized, 69,777,125 issued and 69,777,125, outstanding and 69,648,406 issued and 69,648,406 outstanding, respectively, $.001 par)		69,779			69,650
Additional paid-in capital		35,285,905			35,094,768
Retained deficit		(12,445,904	)		(1,745,467	)
TOTAL SHAREHOLDERS’ EQUITY		22,909,780			33,418,951
	$	42,282,821		$	51,684,742

The accompanying notes are an integral part

of these consolidated financial statements.

F-3

ENERGYTEC, INC.

AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
REVENUES
Oil and gas revenue	$	4,379,501		$	2,140,179		$	1,003,226
Well service revenue		2,682,969			2,953,147			1,440,594
Gas sales		2,242,345			2,186,373			1,359,089
Drilling revenue		395,251			1,151,848			—
Gain on sale of working interests		—			5,664,175			10,510,501
Gain on sale of drilling program		—			1,547,320			—
Oil and gas supply revenue		217,531			—			—
Miscellaneous income		153,710			—			—
TOTAL REVENUES		10,071,307			15,643,042			14,313,410
EXPENSES
Oil and gas lease operating expenses		2,166,759			1,304,158			737,092
Well service expenses		5,301,219			4,406,233			1,234,261
Gas purchases		2,183,510			2,052,327			1,177,703
Drilling expenses		44,251			565,498			—
Oil and gas supply expenses		134,084			—			—
Depreciation, depletion and amortization		1,027,438			764,932			418,374
Impairment of long-lived assets		—			1,054,960			120,905
Environmental remediation		671,576			2,885,242			—
Interest expense		354,146			262,999			247,595
General and administrative expenses		4,056,179			2,972,866			2,034,894
TOTAL EXPENSES		15,939,162			16,269,215			5,970,824
(LOSS) INCOME FROM OPERATIONS		(5,867,855	)		(626,173	)		8,342,586
OTHER INCOME (EXPENSE)
Interest income		7,146			5,291			9,842
Bad debt expense, joint interests		(7,500,000	)
Loss on disposition of assets		(952,557	)		—			—
Unrealized loss on investment		—			—			(1,500	)
TOTAL OTHER INCOME (EXPENSE)		(8,445,411	)		5,291			8,342
(LOSS) INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES		(14,313,266	)		(620,882	)		8,350,928
(BENEFIT) PROVISION FOR INCOME TAXES		(3,552,184	)		(217,308	)		3,046,900
NET (LOSS) INCOME	$	(10,761,082	)	$	(403,574	)	$	5,304,028
EARNINGS PER SHARE
Basic	$	(0.15	)	$	(0.01	)	$	0.09
Diluted	$	(0.15	)	$	(0.01	)	$	0.09
WEIGHTED AVERAGE SHARES OUTSTANDING		69,681,395			65,673,277			58,147,096

The accompanying notes are an integral part

of these consolidated financial statements.

F-4

ENERGYTEC, INC.

AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

For the Years Ended December 31, 2006, 2005 and 2004

	Number of Common Shares		Common Stock $.001 Par Value			Additional Paid-In Capital			Treasury Stock			Retained Earnings (Deficit)			Total
BALANCE, December 31, 2003	48,524,017		$	48,524		$	5,247,333		$	(33,155	)	$	770,066		$	6,032,768
Capital stock issued for cash	4,945,706			4,946			6,919,042			—			—			6,923,988
Capital stock issued for assets	215,000			215			166,785			—			—			167,000
Capital stock issued for stock dividend	3,252,626			3,253			7,412,734			—			(7,415,987	)		—
Capital stock issued for services	225,000			225			172,775			—			—			173,000
Capital stock issued upon conversion of notes and debentures	471,932			472			272,994			—			—			273,466
Capital stock issued upon exercise of options	1,900,000			1,900			403,100			—			—			405,000
Treasury stock purchased for cash	—									(3,196	)					(3,196	)
Net income	—			—			—			—			5,304,028			5,304,028
BALANCE, December 31, 2004	59,534,281			59,535			20,594,763			(36,351	)		(1,341,893	)		19,276,054
Treasury stock retired	(186,053	)		(186	)		(36,165	)		36,351			—			—
Capital stock issued for cash	5,623,540			5,624			14,010,963			—			—			14,016,587
Capital stock issued for services	25,000			25			49,975			—			—			50,000
Capital stock issued upon conversion of debenture	25,000			25			49,975			—			—			50,000
Capital stock issued under stock compensation plan	214,668			215			429,669			—			—			429,884
Capital stock issued for stock dividend	4,411,970			4,412			(4,412	)		—			—			—
Net loss	—			—			—			—			(403,574	)		(403,574	)
BALANCE, December 31, 2005	69,648,406			69,650			35,094,768			—			(1,745,467	)		33,418,951
Capital stock issued for services	75,000			75			94,925			—			—			95,000
Capital stock issued under stock compensation plan	73,333			73			156,838			—			—			156,911
Cancellation of stock dividend	(19,614	)		(19	)		(60,626	)		—			60,645			—
Net loss	—			—			—			—			(10,761,082	)		(10,761,082	)
BALANCE, December 31, 2006	69,777,125		$	69,779		$	35,285,905		$	—		$	(12,445,904	)	$	22,909,780

The accompanying notes are an integral part

of these consolidated financial statements.

F-5

ENERGYTEC, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(10,761,082	)	$	(403,574	)	$	5,304,028
Adjustments to reconcile net (loss) income to net cash used in operating activities
Capital stock issued for services		95,000			50,000			—
Capital stock issued under stock compensation plan		156,911			267,736			—
Unrealized loss on investment		—			—			1,500
Gain on sale of drilling program		—			(1,547,320	)		—
Loss on disposition of assets		952,557			—			—
Gain on sale of working interests		—			(5,664,175	)		(10,510,501	)
Bad debt expense, joint interests		7,500,000			—			—
Depreciation, depletion and amortization		1,027,438			764,932			418,374
Impairment of long-lived assets		—			1,054,960			120,905
Changes in operating assets and liabilities
Accounts receivable, revenue		281,261			(410,405	)		(229,082	)
Accounts receivable, joint interests		—			—			73,051
Accounts receivable, programs		596,700			237,900			(834,600	)
Accounts receivable, other		(324,210	)		497,322			(491,298	)
Refundable income taxes		(33,067	)		(1,636,474	)		—
Deposits		(13,977	)		—			—
Railroad commission bond		(250,000	)		—			—
Accounts receivable, related party		84,295			—			—
Accrued interest, related party		—			(4,500	)		(4,795	)
Prepaid expenses and other current assets		(112,746	)		—			—
Accounts payable and accrued expenses		(65,907	)		2,081,211			499,457
Accounts payable, revenue		538,050			220,169			1,104,314
Royalties payable		—			—			(1,008,695	)
Turnkey costs payable		(1,917,222	)		(1,790,033	)		1,061,987
Prepaid drilling program		(395,251	)		—			—
Other current liabilities		990,670			314,783			—
Federal income taxes payable		—			(1,669,977	)		1,112,085
Asset retirement obligation		(419,071	)		(307,001	)		—
Deferred federal income taxes		(1,882,643	)		525,764			934,281
Net cash flows used in operating activities		(3,952,294	)		(7,418,682	)		(2,448,989	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(2,871,827	)		(22,687,015	)		(12,853,233	)
Proceeds from sale of working interests		—			11,714,880			16,134,708
Proceeds from sale of drilling program		—			8,000,000			—
Proceeds from sale of assets		2,235,750			—			—
Loan advanced to related party		—			—			(75,000	)
Advance revenue payments		(2,899,535	)		(5,320,010	)		(1,481,795	)
Net cash flows (used in) provided by investing activities		(3,535,612	)		(8,292,145	)		1,724,680

The accompanying notes are an integral part

of these consolidated financial statements.

F-6

ENERGYTEC, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable		(1,407,472	)		(836,406	)		(1,257,536	)
Payments on short-term notes payable		—			—			(22,650	)
Proceeds provided from borrowings on notes payable		5,391,019			—			50,000
Proceeds provided from sale of common stock		—			14,016,587			7,328,988
Payments for purchase of treasury stock		—			—			(3,196	)
Net cash flows provided by financing activities		3,983,547			13,180,181			6,095,606
NET (DECREASE) INCREASE IN CASH		(3,504,359	)		(2,530,646	)		5,371,297
CASH, beginning		4,037,284			6,567,930			1,196,633
CASH, ending	$	532,925		$	4,037,284		$	6,567,930
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Cash paid for interest	$	354,146		$	262,999		$	247,595
Cash paid for income taxes	$	—		$	2,360,586		$	1,028,151
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital stock issued for acquisition of assets	$	—		$	—		$	167,000
Capital stock issued for settlement of notes payable	$	—		$	—		$	223,466
Capital stock issued for stock dividend	$	—		$	4,412		$	7,415,987
Capital stock issued for conversion of debenture	$	—		$	50,000		$	50,000
Assets acquired through issuance of notes payable	$	91,219		$	—		$	162,343

The accompanying notes are an integral part

of these consolidated financial statements.

F-7

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

Energytec, Inc. (the Company) is a Nevada Corporation principally engaged in the acquisition, exploration and development of oil and gas properties. The Company owns and operates working interests in oil and gas properties located in the southern and northern mid-continent region, which includes Texas and Wyoming. In addition, the Company’s wholly owned subsidiary, Comanche Well Service Corporation, provides contract drilling and well operation services. On April 22, 2006, the Company formed two new wholly owned subsidiaries, Comanche Rig Services Corporation and Comanche Supply Corporation. The primary function of Comanche Rig Services Corporation is to provide contract drilling services to third parties through the utilization of the drilling rig owned by Comanche Well Service Corporation. Comanche Supply Corporation was established for the sale and distribution of enhanced oil recovery chemicals and materials related to well operation services.

Basis of Presentation and Going Concern Uncertainty

The financial statements of the Company have been prepared assuming that the Company will continue as a going concern. However, the Company has ongoing litigation and potential rescission liabilities as described in Note 2. At December 31, 2006, current liabilities exceeded current assets by approximately $9,000,000 and the loss for the year ended December 31, 2006, was in excess of $10,000,000.

The Company does not currently have cash reserves sufficient to meet its capital and operational expenditure budget of approximately $17,000,000 for the remainder of 2007 and to fund potential liabilities arising from litigation against Energytec. Additionally, due to the regulatory violations as described in Note 3, production has been severed on specific leases and the Company has incurred significant costs associated with bringing wells on these leases back into compliance in order to resume production. This has severely impacted the Company’s cash flow, resulting in the accumulation in 2006 of past due vendor payables of approximately $2,400,000. The Company also expects general working capital needs to total approximately $3,000,000 through the remainder of 2007.

In light of the Company’s current cash position, the reduction in revenue due to severed leases, and the uncertainties related to potential litigation and resulting liability, if any, there is substantial doubt about the Company’s ability to continue as a going concern. In the opinion of management, approximately $22,400,000 will be required during the year 2007 to fund continuing operations. The funds necessary may be reduced by the disposition of unprofitable leases. Management believes that as much as $2,200,000 may be eliminated from the 2007 budget through the disposition of such leases by the end of the second quarter of 2007, with additional savings of approximately $1,300,000 possible by the beginning of the third quarter of 2007. Management intends to focus operational and capital expenditures in areas that would result in achievement of immediate revenue and improved cash flow to the Company. By doing

F-8

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

so, the capital and operational budget may be reduced by an additional $3,600,000. Funds to meet the remaining capital and operational expenditure budget and satisfy vendors, totaling approximately $15,300,000 are expected to be derived from operations, sale of surplus equipment and unprofitable leases, joint venture and partner financing, and debt lending or mezzanine financing (in support of drilling opportunities). Despite these alternatives, there can be no assurance that management’s efforts to achieve the foregoing objectives and adequately provide for the contingencies will be successful.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Principles of Consolidation

The accompanying consolidated financial statements include the general accounts of the Company and its wholly owned subsidiaries, Comanche Well Service Corporation (CWS), Comanche Rig Services Corporation (CRS), and Comanche Supply Corporation (CSC), each of which have year ends of December 31. All significant intercompany account balances and profits have been eliminated in the consolidation. Neither Comanche Rig Services Corporation (CRS) nor Comanche Supply Corporation (CSC) had any activity prior to 2006. During the year ended December 31, 2006, CRS recognized gross income of $50,000 and CSC recognized gross sales of $217,531 with related costs of $75,211.

Method of Accounting for Oil and Gas Properties

The Company uses the successful efforts method of accounting for oil and gas producing activities, as set forth in the Statement of Financial Accounting Standards (SFAS) No. 19 “Financial Accounting and Reporting by Oil and Gas Producing Companies.” Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs and costs of carrying and retaining unproved properties are expensed as incurred.

Unproved oil and gas properties that are individually significant are assessed annually for impairment of value, and a loss is recognized at the time of impairment. (See “Impairment” below). Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated residual salvage values, are depreciated and depleted by the units-of-production method. For the years ended December 31, 2006, 2005 and 2004, the Company recorded depletion expense totaling $486,652, $250,764 and $125,437, respectively. Support equipment and other property and equipment are carried at cost and depreciated over their estimated useful lives (see below).

The Company accounts for suspended well costs in accordance with FSP FAS 19-1 “Accounting for Suspended Well Costs”. These suspended well costs are related to two wells that the Company drilled in its Wyoming Field. Under the guidelines set forth in FAS 19-1, in the opinion of management, as of December 31, 2006 and current with this filing, the Company has found a sufficient quantity of reserves to justify completion of such wells as producing wells and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the Wyoming Field. Although these two wells did not establish commercial production, the Company is using these results along with new technology and reservoir analysis to establish a development plan in the Wyoming Field. During the years ended December 31, 2006, 2005

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and 2004, the Company incurred development costs in the Wyoming Field in the amounts of $1,500, $632,374 and $620,499, respectively.

On the sale or retirement of a complete or partial unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. During the years ended December 31, 2005 and 2004, the Company sold various interests in its proved oil and gas properties and received proceeds totaling $11,714,880 and $16,134,708, respectively, and recognized gains totaling $5,664,175, and $10,510,501, respectively. During October 2005, $271,807 was received by the Company for the purchase of working interests. Specific lease and well information was not identified with regard to this sale of working interests and did not occur prior to December 31, 2005; therefore, this amount is included in “Other current liabilities” in the accompanying consolidated balance sheet as of December 31, 2005, and no gain was recognized. This amount remains outstanding at December 31, 2006. During the year ended December 31, 2005, the Company also recognized a gain on the sale of drilling sites owned by the Company included in a drilling program as described at Note 9.

The gains on sales of working interests through working interest programs for the years ended December 31, 2005 and 2004, were reflected as operating revenues because these sales were occurring in the normal course of business. During 2006, sales of working interests through working interest programs were discontinued. However, during the year ended December 31, 2006, the Company sold 100% of its remaining interest in various leases, as well as a drilling rig, vehicles, and other equipment with a cost basis of $2,772,574. The Company received proceeds totaling $2,435,750 (of which $200,000 was received subsequent to December 31, 2006) and recognized a loss totaling $336,824. Because these sales are not a part of the normal business operations, the loss is reflected as other expense in the accompanying consolidated statements of operations.

Subsequent to December 31, 2006, the Company entered into negotiations to sell 100% of its interest in certain leases with a cost basis of $1,665,733. The estimated fair value of the properties is $1,050,000. The Company recognized a loss contingency of $615,733 and reduced the cost basis to the fair market value which has been captioned as available for sale in the accompanying consolidated balance sheets. The loss is also reflected in loss on disposition of assets in the Accompanying Consolidated Statements of Operations.

On sale of an entire interest in an unproved property for cash or cash equivalents, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property has been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.

The costs of production related to the Company’s working interest ownership, including labor to operate the wells, material supplies, repairs and maintenance and other related expenses are expensed as incurred.

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Property and Equipment

Well service equipment and other depreciable assets are stated at cost. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Depreciation is computed using an accelerated method over estimated useful lives ranging from five to seven years. For the years ended December 31, 2006, 2005 and 2004, depreciation expense totaled $524,338, $514,168, and $292,937, respectively.

Loan Origination Fee

On February 27, 2006, the Company entered into a loan agreement with Gladewater National Bank. Under this loan agreement, the Company incurred a loan origination fee in the amount of $19,736. This fee is being amortized over one year which is equivalent to the life of the loan. During the year ended December 31, 2006, amortization expenses totaled $16,448.

Revenue Recognition

The Company recognizes revenue from the sales of crude oil and natural gas when title passes to the customer. Crude oil and natural gas is sold to approximately five purchasers located in Texas. The Company receives revenues directly from the purchaser. Revenues from the production of properties in which the Company has an interest with other producers are recognized on the basis of the Company’s net working or royalty interest. Revenues owned by working interest partners are recorded as accounts payable, revenues. Lease operating expenses and capital expenditures to be borne by the working interest partners are netted against their portion of revenues.

Revenues from the workover and rehabilitation of oil and gas properties through the Company’s CWS subsidiary are recognized when the services have been performed.

The Company also recognizes income from the transportation of natural gas through its pipeline. Revenue is recognized when title passes to the customer and is based upon the volume of natural gas passing through the pipeline. Gas sales in the accompanying consolidated financial statements represent the revenue received from the customer based upon the volume of gas at a spot rate determined pursuant to a purchase contract with the customer. Gas purchases represent the gas purchased at the spot rate as defined by the purchase contract less a fee of $0.55 per mcf.

The Company recognizes drilling revenue under a drilling program agreement at a standard daily drilling rate of $3,000 per day plus costs as drilling progresses (Note 9).

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

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liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Impairment

The Company has adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and periodically evaluates, using independent appraisals and projected undiscounted cash flows, the carrying value of its long-lived assets and proved oil and gas properties whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, long-lived assets to be disposed of are reported at the lower of carrying value or fair value less cost to sell. Fair values used for impairment identification are based on discounted cash flow amounts determined by the reserve reports. During the years ended December 31, 2005 and 2004, the Company identified and recognized impairment charges to earnings of $1,054,960 and $120,905, respectively, relating to its proved and unproved oil and gas properties. There were no impairment charges for the year ended December 31, 2006 (See Note 3). Unproved oil and gas properties are periodically assessed for impairment following the guidance provided in SFAS No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies” and FSP FAS 19-1 “Accounting for Suspended Well Costs.”

Cash and Cash Flows

For purposes of the statements of cash flows, cash includes demand deposits, time deposits and short-term liquid investments such as certificates of deposit with a maturity of three months or less when purchased. The Company maintains deposits at several financial institutions, the balances of which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). However, the Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risks from these excess deposits.

Earnings per Share

Basic earnings per share amounts are computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the periods. Diluted earnings per share amounts take into consideration all potentially dilutive common shares such as options and convertible securities.

For basic earnings per share purposes, for the year ended December 31, 2004, weighted average common stock shares outstanding totaled 58,147,096. For diluted earnings per share purposes, for the year ended December 31, 2004, weighted average common stock shares outstanding totaled 58,234,596 and included shares relating to the assumed conversion of notes and debentures and the assumed exercise of stock options. Net income for diluted earnings per share purposes includes the add back of the interest savings from the assumed conversion of notes and debentures, net of the related tax effects. The basic earnings per share for the years ended December 31, 2006 and 2005, were calculated using weighted average common stock shares

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outstanding totaling 69,681,395 and 65,673,277, respectively. For the year ended December 31, 2005, potentially dilutive securities were excluded from the computation as their effect is anti-dilutive. There were no outstanding potentially dilutive securities at December 31, 2006.

Accounts Receivable and Doubtful Accounts

The Company’s receivables consist primarily of amounts due from unaffiliated working interest owners and crude oil and natural gas producers. These receivables are unsecured and generally due within sixty days. At December 31, 2006, the current accounts receivable, joint interests totaled $1,375,000 and long-term receivables, joint interests, totaled $1,133,840. At December 31, 2005, the current accounts receivable, joint interests totaled $2,211,118 and long-term receivables, joint interests totaled $4,898,187. Amounts estimated to be repaid in excess of one year are classified as non-current.

The accounts receivable, joint interest balance at December 31, 2005, was due from working interest owners and resulted from revenue distributions based upon estimated production which exceeded actual production. From January 1, 2006 through February 28, 2006, additional advances were made to working interest owners totaling $2,110,004. Effective in March 2006, the Company ceased the payment of advances to working interest owners and implemented actual joint interest billings which were netted against revenue distributions prior to any payments to working interest owners. Additionally, to the extent possible, any net revenue distributions due to working interest owners who had received advance payments in excess of actual revenues due to them were applied against the outstanding accounts receivable, joint interests.

During the year ended December 31, 2006, additional joint interest receivables were recorded which were related to current year lease operating expenses and capital expenditures. Due to regulatory violations resulting in severances of certain leases and insufficient cash flow to maintain or increase production, the net revenues were not sufficient to recapture all expenditures made on behalf of working interest owners. For the year ended December 31, 2006, joint interest billings totaled $2,918,535. Joint interest billings totaling $897,673 were offset against revenue distributions, resulting in an additional current year increase to accounts receivable, joint interests of $2,020,862. Additional net revenues of $413,726 are held in legal suspense which will be available to offset accounts receivable, joint interests upon release from suspense.

At December 31, 2005, an allowance for uncollectible accounts was not recognized based upon estimates of recoverability from future net cash flows from production over a 36 month period. The Company estimated that approximately $2,200,000 would be collected through the process of applying net revenue distributions against the outstanding balances during the year ended December 31, 2006. However, due to declines in production on certain leases and a reduction in pricing for oil and gas, only $1,231,331 in outstanding joint interest receivables were collected through withholdings from net revenue distributions.

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The changes in the accounts receivable, joint interests are summarized as follows:

Balance December 31, 2005
Accounts receivable, joint interests, current	$	2,211,118
Accounts receivable, joint interests, long-term		4,898,187
		7,109,305
Additional advances in January and February 2006		2,110,004
Joint interest billings in 2006		2,918,535
Joint interest billings netted against distributions in 2006		(897,673	)
Collection of advances from net revenue distributions in 2006		(1,231,331	)
Allowance for uncollectible accounts		(7,500,000	)
Balance December 31, 2006	$	2,508,840
Balance December 31, 2006
Accounts receivable, joint interests, current	$	1,375,000
Accounts receivable, joint interests, long-term		1,133,840
	$	2,508,840

The expenditures necessary to maintain, restore, or improve production from wells which are owned primarily by non-operating working interest owners are substantial. Historically the Company has advanced these expenditures with the intention of recouping the advances for net lease operating and capital expenditures against revenue distributions. Going forward the Company plans to implement procedures for collection of outstanding accounts receivable, joint interest, if such expenditures cannot be recaptured through revenues within sixty days of incurrence. The Company believes the underlying asset basis is sufficient to support the outstanding balance. Due to insufficient capital available to reinvest to achieve increased production and analysis of profitability of the various fields, it is unlikely that the Company would put additional funds into these fields that would result in production to support a 36 month collection period. Therefore, the Company has established an allowance against the outstanding balance totaling $7,500,000.

Receivables from the sale of crude oil and natural gas may have credit risk exposure due to delays or interruptions of production, mechanical problems, damages to current producing reservoirs and government regulation, including any curtailment of production or interruption of transportation of oil or gas produced from the wells.

At December 31, 2005, the Company recorded a receivable for the sale of working interest programs. This amount represented the proceeds on the sale of working interests in the fourth

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

quarter of 2005. These outstanding receivables were received in full subsequent to year end. The sale of working interests was recorded upon the receipt of the signed purchase agreement.

Income Taxes

Income taxes are determined using the liability method in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

Stock-Based Compensation

In December 2004, the FSAB issued SFAS No. 123R, “Share-Based Payments”, revising SFAS No. 123, Accounting for Stock-Based Compensation, and superseding Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, including obtaining employee services in share-based payment transactions. SFAS No. 123R applies to all awards granted after the required effective date and to awards modified, purchased or canceled after that date. Adoption was effective June 15, 2005. There have been no such awards granted, modified, purchased, or canceled since March 15, 2005. Management does not believe the adoption of this accounting pronouncement will have a material impact on the Company’s financial position or operating results (Note 8).

There would have been no effect on the Company’s net income (loss) and earnings per share for 2006, 2005 or 2004, if compensation cost had been determined based on the fair value at the grant dates in accordance with SFAS Nos. 123 and 148, “Accounting for Stock-Based Compensation”. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 4.38%; no expected dividends; expected lives of 3 to 4 years; and expected volatility of 32.14%.

Fair Value of Financial Instruments

In accordance with the reporting requirements of SFAS No. 107, “Disclosures About Fair Value of Financial Instruments”, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to the consolidated financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of cash, accounts

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

receivable and accounts payable approximate their carrying amounts due to the short maturity of these instruments. The carrying value of short and long-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with comparable risks. None of these instruments are held for trading purposes.

Asset Retirement Obligations

Effective January 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations”. Pursuant to this accounting standard, the Company recognized a reduction in net liabilities at December 31, 2006, of $254,944 and additional net liabilities at December 31, 2005 and 2004, of $1,628,161, and $327,016, respectively, for asset retirement obligations related to the future costs of plugging and abandoning its oil and gas properties, the removal of equipment and facilities from lease acreage and returning such land to its original condition. These costs reflect the legal obligations associated with the normal operation of oil and gas properties and were capitalized by increasing the carrying amounts of the related long-lived assets by the fair value of these obligations, discounted to their present value. These costs do not reflect any obligations associated with injection or disposal wells. Any abandonment costs associated with these wells will be expensed when incurred.

During the year ended December 31, 2006, the Company realized a reduction in the asset retirement obligation of $458,600 due to the disposal of leases which included 68 wells. Additional asset retirement obligations of $720,839 were recognized during the year ended December 31, 2006, associated with 3 additional wells drilled in the Talco Trix-Liz Field and the rising costs of plugging and abandonment. During the year ended December 31, 2005, the Company recognized additional liabilities totaling $1,872,732 associated with 20 additional wells drilled in its Talco/Trix-Liz Field and Sulphur Bluff Field, the acquisition of 61 wells in its Como Field and the rising costs of plugging and abandonment costs. Additionally, the Company expended $681,310 and $307,001 during 2006 and 2005, respectively, to plug wells in accordance with Texas Railroad Commission regulations.

The changes in the carrying amount of the Company’s asset retirement obligations for the years ended December 31, 2006, 2005 and 2004 are as follows:

	2006			2005			2004
Balance at beginning of year	$	2,252,464		$	624,303		$	297,287
Accretion expense		164,127			62,430			29,729
Dispositions		(458,600	)		—			—
Payments		(681,310	)		(307,001	)		—
Liabilities incurred		720,839			1,872,732			297,287
Balance at end of year	$	1,997,520		$	2,252,464		$	624,303

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accretion expense of $164,127, $62,430, and $29,729 is included in “Depreciation, depletion, and amortization” in the accompanying consolidated statements of operations for the years ended December 31, 2006, 2005, and 2004, respectively.

Reclassifications

Certain reclassifications have been made to prior years to conform to the 2006 presentation.

Recent Accounting Pronouncements

During June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109 and is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 in the first quarter of 2007, but does not expect such adoption to have a material impact on its financial statements or disclosures.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, which provides a common definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Statement No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently reviewing Statement No. 157 to determine any effects the adoption might have on its financial statements and related disclosures.

The FASB also issues Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106, and 132(R) in September of 2006 and Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 in February 2007. The Company does not currently have a defined benefit pension plan or other postretirement plans and does not anticipate that Statement No. 158 will have any effect on the Company’s financial statements or disclosures. The Company is evaluating Statement No. 159, but is not currently involved in any hedging activities and does not anticipate any significant impact on its financial statements or disclosures as a result of adoption of Statement No. 159.

2. LITIGATION

On March 18, 2006, the Company’s Board of Directors removed the Frank W Cole Chief Executive Officer who also served as Chief Financial Officer and the Chairman of the Board, pursuant to circumstances which have been disclosed in the Company’s Form 10-K for the year ended December 21, 2005, and subsequent quarterly filings. As a result of those events and circumstances, Energytec is a party to the various legal proceedings.

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In May 2006, Energytec filed a lawsuit against, Mr. Cole, a former employee and seven other persons alleging the defendants engaged in activities that violated the anti-fraud prohibitions set forth in Section 10(b) of the Securities Exchange Act of 1934 and applicable state securities laws, and perpetrated common law fraud. Energytec also claims that Mr. Cole and a former employee engaged in conduct that violated their respective fiduciary and other duties to Energytec, and disclosure rules, internal control requirements, and certification requirements under the Securities Exchange Act of 1934. In addition, Energytec claims the other seven defendants received payment of commissions in violation of Section 15(a) of the Securities Exchange Act of 1934 and/or applicable state statutes, or did not disclose the commission arrangement to the brokerage firm with which they were affiliated and engaged in selling away, which is a violation of NASD regulations. In August 2006 Energytec filed an amended consolidated complaint to resolve motions previously filed by defendants to dismiss the claims against them for failure to state sufficient facts to support a cause of action. Since filing the amended consolidated compliant, one defendant answered the complaint denying the substantive allegations. All of the remaining defendants refiled motions in August and September 2006, to dismiss the claims against them for failure to state sufficient facts to support a cause of action, and Energytec responded to these motions in October 2006. The court ruled on one defendant’s motions dismissing the claim under Section 10(b) of the Securities Exchange Act, but allowing the other claims, including the claim of fraud under state law, to go forward. To date the court has not ruled on the remaining pending motions.

In June 2006, Frank W Cole and Josephine Jackson filed a lawsuit on behalf of themselves and the other Energytec shareholders alleging Energytec and its officers and directors acted improperly in removing them from office and have since acted improperly in the management of Energytec, misappropriated corporate assets, and breached their respective fiduciary duties to Energytec. In August 2006 John E. Wasson filed a petition to intervene in the case as an additional plaintiff. In July 2006, Energytec and the other defendants filed a motion to stay further proceedings in the state court case pending resolution of the proceedings in Federal court brought by Energytec as described above which was granted at the end of August 2006. In October 2006, Mr. Cole, Ms. Jackson and Mr. Wasson filed a petition for a writ of mandamus with the Fifth District Court of Appeals of the State of Texas seeking to have the order granting the stay vacated, which was subsequently denied. In December 2006, the plaintiffs filed the petition for writ of mandamus with the Texas Supreme Court, which is now pending.

In June 2006, Energytec filed a lawsuit against certain former employees of the Company alleging defendants engaged in a regular pattern of theft and conversion of Company property and resources, falsification of Company records, and breach of duties as employees to Energytec, all in violation of Texas law. No trial date has been set and the parties are now pursuing discovery. Energytec cannot predict the potential outcome of this litigation.

John J. Petito, one of the defendants in the action Energytec filed in May 2006 described above, filed a lawsuit on May 23, 2006. The lawsuit is against 17 defendants, including Energytec, each of the current directors and officers of Energytec certain employees of Energytec, a former director, and certain attorneys and law firms representing Energytec. The complaint alleges that

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the directors and officers of Energytec conspired to drive down the price of Energytec’s common stock as part of a plan to take over control of Energytec, and used Energytec to wrongfully take money from investors and deprive them of the benefit of their investment in oil and gas working interests. The complaint seeks compensatory damages of $1 billion and punitive damages of $2.5 billion. Mr. Petito’s prayer for damages is, in Energytec’s opinion, unrealistic and devoid of merit, and the likelihood that he will recover these amounts is remote. Energytec and the other defendants have filed different motions to dismiss the complaint on a variety of grounds. Energytec’s motion to dismiss alleges the complaint fails to state a cause of action on which relief can be granted. We cannot predict at this time when the court will rule on any of the pending motions to dismiss.

On October 31, 2006, Energytec was served with a complaint filed by a New York limited liability company of which John J. Petito is the managing member. Mr. Petito is involved in other legal proceedings with Energytec as described above. The complaint alleges that in June 2005, Redwaterpet and Energytec entered into a purchase agreement under which Redwaterpet agreed to purchase for $8,000,000 a 100% working interest less a 35% net profits overriding royalty interest in certain oil and gas properties in Energytec’s Sulphur Bluff and Redwater properties in Texas. (Note 9) Redwaterpet claims Energytec breached the agreement by failing to complete assignment of the interests acquired, failing to complete drilling and development work, and failing to account to Redwaterpet for the operation of the properties. Redwaterpet seeks specific performance of the agreement with respect to assignment of the interests allegedly acquired and development of the properties, compensation for lost contractual profits, and an accounting for revenues and expenses for the properties. In December 2006, Energytec filed an answer denying the allegations of the complaint. In March 2007, Energytec filed an amended answer and counterclaim against Redwaterpet asserting in the alternative that the original purchase contract was modified and Energytec has complied with its obligations, the alleged contract is impossible to perform as demanded by Redwaterpet, Energytec is not obligated to provide further performance on the alleged contract because of illegal commissions and payments received by John J. Petito and another individual, because Frank W Cole and other parties are responsible for any damages allegedly suffered by Redwaterpet, and because Redwaterpet is obligated as the working interest owner to pay drilling and development costs to Energytec. At the time Energytec filed the amended answer, it also filed a third party complaint against Frank W Cole (individually and d/b/a/ Frank W Cole Engineering) and John J. Petito alleging that Cole and Petito conspired in a scheme to package and unlawfully sell certain interests in the Sulphur Bluff and Redwater properties to the members of Redwaterpet and that these persons are liable for any costs or damages that Energytec may suffer as a result of the Redwaterpet transaction. Third party defendant Cole filed an answer denying the allegations of the third party complaint and asserting that Mr. Cole is sued in the wrong capacity. We have yet to receive a response to the counterclaims and third party complaint from Mr. Petito. The parties are now engaged in discovery and an initial trial date has been set for October 29, 2007. We cannot predict when this matter may be resolved or what the potential outcome may be.

On February 7, 2007, Oil Is Fab & We Are Glad LLC, a New York limited liability company of which Amanda Petito is a managing member, and other individual plaintiffs filed a complaint

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

against Energytec. In the complaint plaintiffs allege that they purchased common stock from Energytec in November 2005 at a price of $2.75 per share, at the time of purchase they were granted a contractual right to put the shares back to Energytec at a price of $3.75 per share in November 2006, they have exercised the put option, and they have not been paid the put price for the common stock in the amount of $5,799,015. On the basis of these allegations, plaintiffs claim Energytec has breached the put option contract and demand payment of $5,799,015. Alternatively, plaintiffs claim that at the time the stock was sold in 2005, Energytec made negligent misrepresentations with respect to payment of the put options and were damaged in the amount $4,252,611, which is the amount they paid for the common stock. In early March 2007, Energytec filed an answer to the complaint denying the substantive allegations and asserting that payment of the put options would be a violation of Nevada corporate law, that Frank W Cole acted without authority and in violation of law when he made the alleged put option agreements so they are void, and that unlawful commission and other payments made in connection with the sale of the shares of common stock render the alleged put option agreement unenforceable. Energytec also filed a third party complaint against Frank W Cole, persons who participated in sale of the common shares and received commission payments, and all other persons who tendered common stock to Energytec under the alleged put option. Against Cole and the commission recipients Energytec alleges they conspired in a scheme to package and unlawfully sell the shares and alleged put options. With respect to the holders of shares who tendered them under the alleged put option, Energytec seeks the same relief set forth in its answer to the original complaint. No initial trial date has been set, and we cannot predict when this matter may be resolved or what the potential outcome may be.

Potential for Additional Claims

As a result of transactions, filings, and other events that occurred as a result of the action of Frank W Cole with the participation of his assistant and others, there is a possibility additional claims could be brought against Energytec by persons who purchased oil and gas working interests from Energytec and/or Energytec common stock alleging breach of contract, violations of the registration requirements of the Securities Act of 1933 and applicable state statutes, and/or violations of the anti-fraud provisions of Federal and state securities laws and common law fraud. Any such additional claims that are directed at Energytec could also be directed at the persons who served as officers and directors during Frank Cole’s tenure as chief executive officer based on allegations that they knew or should have known of the problems and misconduct and are either equally culpable with Mr. Cole or failed to discharge their duties to Energytec and its shareholders.

Based upon advice of counsel in this matter, it is the opinion of management that it is too soon to make any determination that the occurrence of a liability on the put is probable. Therefore under guidance in SFAS No. 5, no liability has been recorded as of December 31, 2006.

Other Matters

Energytec is the subject of certain other legal matters, which it considers incidental to its business activities. It is the opinion of management that the ultimate disposition of these other matters will not have a material impact on the financial position, liquidity, or results of operations of Energytec.

F-20

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. RESERVES

Regulatory Issues

In December 2005, the Company engaged an independent engineering firm to conduct a study of its reserves as of December 31, 2005. Pursuant to the reserve study it was determined that 23 wells were dually completed in non-permitted separately recognized reservoirs in the Talco/Trix-Liz Field without the proper permitting and spacing required by the Texas Railroad Commission (TRC). Additionally, commingling of production from permitted and non-permitted reservoirs resulted in the inability to assign reserves to either the permitted or non-permitted reservoirs causing the reserves to be substantially understated as of December 31, 2005.

During the year ended December 31, 2006, the Company resolved the commingling of production from the dually completed wells in the Trix/Liz Field by isolating the non-permitted zones in order to restore production to permitted zones. This isolation will allow the establishment of production from the legally permitted zones.

The Company also sought permits to establish production for additional reservoirs from these dually completed wells. The Company must comply with the appropriate field spacing rules which not only regulate amount of acreage, per producing reservoir, required for each well but also the space between producing wells. The previous management drilled and completed these wells without regard to securing the necessary permits for each producing reservoir and without regard to the applicable field spacing rules. The Company can petition to amend the field spacing rules in order to bring additional wells into compliance with the field spacing rules; however, this petition may not be granted to the extent necessary to return all of these dually completed wells back to production.

The Company must be in complete regulatory compliance in order to establish reserves for the leases in the Trix/Liz field. The Company has completed a significant amount of the regulatory compliance that was ignored by the previous management. At December 31, 2006, the Company was in the final phase of compliance for two out of the four significant leases contained in the Trix/Liz Field. The Company expects to receive regulatory clearing by the end of the second quarter of 2007 in order to establish reserves for these two leases. On the remaining two leases, the Company is continuing efforts to obtain permission from an offset operator and complete regulatory filings in order to reestablish production.

Change in Reserves

Included in the supplementary disclosures which have been provided in accordance with Statement of Financial Accounting Standards No. 69 “Disclosures about Oil and Gas Producing Activities” is a revision of previous quantity estimates of approximately $18,000,000. The revision effectively reflects the reclassification of proved reserves to the unproved classification due to the regulatory issues discussed above and a reclassification of five proved undeveloped locations to unproved due to the Company’s inability to currently designate capital for the recompletion of three wells and the drilling of two additional sites. These properties will be reclassified to proved undeveloped reserves pending allocation of capital to those projects. The revision also includes an adjustment to reflect the decline in oil and gas pricing at December 31, 2006, as compared to December 31, 2005.

4. CAPITAL STRUCTURE DISCLOSURES

The Company’s capital structure consists of preferred stock and a general class of common stock. The Company is authorized to issue 100,000,000 shares of all classes with 10,000,000 shares being designated as preferred stock and 90,000,000 shares being designated as common stock.

On October 7, 2005, the Company declared a seven percent stock dividend paid on October 31, 2005, to holders of record as of October 21, 2005. The stock dividend resulted in the issuance of 4,411,970 shares of the Company’s common stock valued at $4,412. On September 15, 2004,

F-21

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the Company declared a six percent stock dividend paid on November 15, 2004, to holders of record as of November 1, 2004. The stock dividend resulted in the issuance of 3,252,626 shares of the Company’s common stock valued at $7,415,987. For the year ended December 31, 2004, the value of the stock issued in the stock dividends was determined based upon the market value of the stock at the close of business on the ex-dividend date. However, because the Company had a retained deficit at December 31, 2004, as a result of the 2004 stock dividend, the value of the stock issued as a dividend in 2005 was determined at par value pursuant to the requirements of the Securities Exchange Commission. No stock dividends were declared during the year ended December 31, 2006.

At December 31, 2006, no preferred shares have been issued and no series, rights or privileges have been designated. The Company’s common stock shares contain one voting right per share and contain the rights to dividends if and when declared by the Board of Directors.

5. BORROWINGS

The Company’s borrowings consist of a note payable to a bank totaling $553,958 and a letter of credit of $25,000, which secures a bond on the Company’s Wyoming properties, two vehicle loans totaling $62,084, an insurance financing agreement for $8,343, a settlement agreement on final costs of restoration and remediation totaling $412,500, and debenture notes totaling $125,000. None of these borrowings contain any significant debt covenants or restrictions on dividend payments. The letter of credit bears interest at 7.5% and was due along with all accrued interest on September 10, 2006. The Company renewed the letter of credit, extending the due date to September 10, 2007.

The vehicle loans are due in monthly installments of $1,272 and $1,262 through March 31, 2009, and bear no interest. During the quarter ended June 20, 2006, the Company renewed its automobile and fleet insurance and entered into a financing agreement which bears interest at 9.75% per annum and is due in monthly installments of $4,765 per month through March 2, 2007.

The note payable to the bank bears interest at 8% and is payable in monthly installments of $35,312 of principal plus interest. The loan is collateralized by accounts receivable and by various oil and gas properties or other equipment and matures April 2008.

On February 27, 2006, the Company entered into a loan agreement with Gladewater National Bank for $4,000,000. The loan bears interest at 1% above the Wall Street Prime Rate and matured February 27, 2007. Monthly principal payments of $80,000 plus interest were due on the 27^th of each month beginning March 27, 2006 through February 27, 2007. Production payments related to the properties collateralizing the loan are deposited directly with Gladewater National Bank. Any excess funds, after the monthly principal and interest payments are available for the general use of the Company.

F-22

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2006, the Company had an outstanding balance of $4,000,000. On February 27, 2007, the Company renewed the loan as a 48 month term loan due February 27, 2011 at prime plus 1.5%. The monthly payments will fluctuate as the prime rate fluctuates.

This loan is collateralized by the Company’s mineral interest in the Quitman Field. During the term of the loan, the bank will periodically re-evaluate the value of the properties pledged to secure the loan to determine compliance with the loan borrowing base which equals 80% of the present worth of the properties pledged, as calculated by the bank, discounted 17.5%, or 80% of the average of the preceding six months’ net monthly income times 32 months, whichever is less. If the loan exceeds the borrowing base as calculated, the Company will have 30 days to pledge additional collateral or make a principal reduction on the loan. In connection with the loan, the Company can make no additional loans to officers of the Company, or from the date of the loan agreement, may not increase the salary of any officer by more than 10% annually. Additionally, the Company may not form any new subsidiary or merge or invest in or consolidate with any other entity or sell, lease, assign, transfer, or otherwise dispose of all or substantially all of the Company’s assets pledged as collateral on the loan.

On October 19, 2006, the Company agreed to a proposed settlement of the final costs of remediation and restoration related to a November 2004 oil spill. The terms of the proposed settlement call for twenty-four equal installments of $18,750 beginning November 20, 2006. The agreement bears no interest and is not collateralized. In case of default, the Company has ten days to cure the default. Should the Company fail to make and cure three payments and those payments are outstanding at any time, the Company is subject to an accelerated judgment and the creditor could then proceed against whatever non-exempt assets are owned by the Company. (See Note 11.)

Future maturities required under the terms of the above debt are as follows:

Year Ending Amount	December 31,
2007	$	1,428,815
2008		1,283,567
2009		1,027,012
2010		1,124,749
2011		197,744
	$	5,061,887

In June 2003, the Company issued debenture notes to various individuals. The notes bear interest at 8.0%, are unsecured and mature in 2008. Interest is payable monthly in arrears on or before the 15^th. of each month. Additional interest equal to .5% or 1% of the principal amount is payable to the holder if the average mcf price of gas does not fall within given ranges for each six month measurement period. The debentures are convertible at the holders’ option into the Company’s common stock shares at a conversion price of $2.00 per share. Due to the conversion option, these

F-23

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

debenture notes are treated as current liabilities. In each of the years ended December 31, 2005 and 2004, $50,000 of these debentures were converted into 25,000 shares of common stock.

6. RELATED PARTY TRANSACTIONS

At December 31, 2005 and 2004, the Company had a receivable from the current CEO of the Company in the amount of $84,295 and $79,795, respectively. The balance included accrued interest of $9,295 and $4,795 as of December 31, 2005 and 2004, respectively. The receivable bore interest at 6% per annum and was due on December 31, 2006. Effective December 31, 2006, the Board of Directors approved payment of a bonus to the current CEO in the amount of $88,795, paid through cancellation of all principal and interest owed to the Company. This amount is included in the CEO’s taxable income for 2006. On December 14, 2005, the current CEO, purchased from the Company, a vehicle which had been provided for his use. The vehicle was damaged in a storm. The Company was reimbursed for the salvage value of the vehicle as determined by the insurance claims adjuster. The Company no longer provides a vehicle for the use of any officers.

During the first quarter of 2006, the Company paid $86,365 to various vendors to plug wells which were operated by Frank W Cole Engineering, but which were not owned by the Company. Energytec has received no compensation or reimbursement from Frank W Cole Engineering for these expenditures. Additionally, upon his termination on March 18, 2006, Frank W Cole was allowed to keep the automobile that had been provided for his use by the Company. The value of the car on March 18, 2006, was $7,782.

7. INCOME TAXES

The Company accounts for income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes”, which requires the establishment of deferred tax assets and liabilities for the recognition of future deductions or taxable amounts and operating loss and tax credit carry forwards. Deferred federal income tax expense or benefit is recognized as a result of the change in the deferred tax asset or liability during the year using the currently enacted tax laws and rates that apply to the period in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce deferred tax assets to the amounts that will more likely than not be realized.

The Company’s provision for income taxes reflects the federal income taxes calculated at the statutory rates and the states taxes calculated at the statutory rates net of any federal income tax benefit of approximately 35%. The Company’s statutory rate and effective tax rate are the same except for the year ended December 31, 2006. A reconciliation of income tax expense at the statutory federal and state income tax rates to income tax expense at the Company’s effective tax rate for the years ended December 31, 2006, 2005 and 2004 is as follows:

F-24

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	For the Years Ended
	2006			2005			2004
Income tax at statutory rates	$	(5,009,643	)	$	(217,068	)	$	2,887,826
State taxes, net of federal benefit		—			(240	)		155,355
Nondeductible and other		—			—			3,719
Allowance for deferred tax asset		1,457,459			—			—
(Benefit) Provision for income taxes	$	(3,552,184	)	$	(217,308	)	$	3,046,900

The provision for federal income tax included both current and deferred taxes for the years ended December 31, 2006, 2005 and 2004 as follows:

	For the Years Ended
	2006			2005			2004
Current income tax (benefit) expense	$	(1,669,541	)	$	(742,832	)	$	1,953,548
Deferred income tax (benefit) expense		(1,882,643	)		525,764			934,278
Income tax (benefit) expense at statutory rates	$	(3,552,184	)	$	(217,068	)	$	2,887,826

The following temporary differences gave rise to the deferred tax asset and liability at December 31:

	2006			2005
Deferred tax asset:
Balance, January 1	$	440,028		$	210,385
Valuation allowance		(1,457,459	)		—
Effect of net operating loss		3,761,726			—
Effect of impairment of long-lived assets not currently deductible		—			229,643
Net deferred tax asset		2,744,295			440,028
Deferred tax liability:
Balance, January 1		2,322,671			1,567,264
Effect of intangible drilling costs expensed for tax purposes which were capitalized for financial statement purposes		421,624			755,407
Gross deferred tax liability		2,744,295			2,322,671
Net deferred tax liability	$	—		$	1,882,643

F-25

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The deferred tax asset arises from impairment recognized for financial statement purposes, but not expensed for Federal tax purposes and the effect of net operating losses which will expire in 2026. The deferred tax liability arises from intangible drilling costs deductible for tax purposes. These costs are capitalized and depleted over the life of the oil and gas reserves for financial statement purposes. No valuation allowance has been provided as of December 31, 2005, because the impairment costs will be fully deductible for tax purposes upon the termination of the lease. However, at December 31, 2006, a valuation allowance has been provided against the future realization of the net operating losses to the extent that they cannot be applied against the deferred tax liability as of December 31, 2006.

8. STOCK GRANTS

On March 15, 2005, the Company granted certain employees the rights to restricted common stock shares totaling 644,000 shares, vesting equally in January of each of the years 2006, 2007 and 2008. Pursuant to SFAS No. 123R, these nonvested, restricted shares will be recognized as compensation expense over the periods in which the services are provided and in which the shares vest at their fair value, which is the same amount for which similarly restricted shares would be issued to third parties. The stock was valued at $2.31 per share which approximated the per share price of restricted common stock sold in a private placement during the same time period. As of January 1, 2006, 214,667 shares vested. Compensation expense of $267,736 was recognized for the year ended December 31, 2005. Additional compensation of $162,148 was capitalized and is included in “Well service and related equipment” in the accompanying consolidated financial statements.

Subsequent to December 31, 2005, four of the employees were terminated. Under the stock compensation plan the unvested shares available to these employees are forfeited if the employees resign or are terminated prior to December 31 of the vesting year. The stock was eligible for the stock dividend granted in 2005 as discussed in Note 4. However, upon the termination of the employees as described above, the related stock dividend, totaling 19,614 shares, was also cancelled and is reflected as a reduction in the common shares outstanding as of December 31, 2006. The balance of shares available to employees remaining in the plan totaled 146,666 shares. On January 1, 2007, 73,333 shares vested. Compensation expense of $156,911 was recognized for the year ended December 31, 2006. The remaining 73,333 shares will vest January 1, 2008.

Shares Issued for Services

During the years ended December 31, 2005 and 2004, the Company also issued 25,000 and 225,000 common stock shares to nonemployees, respectively, in exchange for services. These services were recorded at their fair value of $50,000 and $173,000, respectively, and were charged to expense. On July 7, 2006, 75,000 shares of the Company’s common stock were issued to an employee of the Company in exchange for services rendered which were recorded at their fair value of $95,000.

F-26

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Drilling Program

During 2005, the Company entered into an agreement to sell well sites and drill seven wells in two of its fields for $8,000,000. This agreement is the subject of litigation as described in Note 2.

Commissions of $800,000 were paid to two individuals in connection with the agreement. The sales proceeds of $8,000,000 less the commissions of $800,000 were recorded as a liability pending the completion of the wells. The liability included $3,500,000 for the sale of well sites owned by the Company and the estimated cost of drilling and completion of the wells totaling $3,700,000. The drilling budget of $3,700,000 includes approximately $1,000,000 to cover potential overruns associated with increasing costs of materials and labor precipitated by rising oil prices. The Company has elected to reserve recognition of this amount until such time as all wells are completed.

Comanche Well Service provides the drilling services and bills for these services based upon average market day rates plus expenses. As wells are drilled, the liability is reduced by direct drilling costs plus a standard daily drilling rate of $3,000 per day. The gain on the sale of the well sites is recognized as wells are completed. Through December 31, 2005, the Company recognized a gain of $1,547,320 on the sale of the first three well sites and related drilling revenues and direct costs of $1,200,000. The consolidated financial statements reflected a remaining prepaid drilling program liability in the accompanying consolidated balance sheet at December 31, 2005, of $4,452,680. During the year ended December 31, 2006, additional drilling revenues and direct costs totaling $395,251 were incurred in association with the completion and remediation of the first three wells. The liability was reduced accordingly, resulting in a remaining prepaid drilling program liability of $4,057,429 at December 31, 2006.

10. COMMITMENTS AND CONTINGENCIES

Leases

On November 27, 2006, the Company entered into an agreement to lease office facilities in Plano, Texas leased under a sixty-four month operating lease agreement. The Company moved into the new space on February 15, 2007. The lease agreement provides for a free rental period through June 15, 2007. The agreement expires June 20, 2012, and provides for base monthly rental payments of $7,183 for the first 24 months of the agreement, $7,350 for the following 24 months, and $7,517 for the final 16 months of the lease. The Company also rents office space for two of its district offices on a month to month basis. These are expected to be renewed in the ordinary course of business. During the years ended December 31, 2006, 2005 and 2004, rent expense totaled $150,751, $125,392, and $114,502, respectively.

Workers Compensation Claims

The Company has historically provided for expenses from work related injuries through self-insured payments. The expense related to workers compensations claims totaled $268,702, $61,705 and $3,190 for the years ended December 31, 2006, 2005 and 2004, respectively.

F-27

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Legal Matters

The Company has filed various complaints and is the defendant in various actions as disclosed in Note 2.

Put Option

In connection with a private placement of the Company’s common stock, which ended December 22, 2005, investors were given a contractual right to put the shares back to Energytec on November 15, 2006, at a price of $3.75 per share if the per share market price does not exceed $3.75 per share at the close of business on November 14, 2006. These put options are the subject of litigation as disclosed at Note 2.

Concentrations of Risk

During the year ended December 31, 2006, three customers accounted for 67%, 15%, and 10% of the Company’s oil and gas sales.

During the year ended December 31, 2005, four customers accounted for 30%, 26%, 22% and 11% of the Company’s oil and gas sales.

During the year ended December 31, 2004, four customers accounted for 42%, 25%, 12% and 12% of the Company’s oil and gas sales.

11. ENVIRONMENTAL ISSUES

The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental clean up of well sites or other environmental restoration procedures as they relate to the drilling of oil and gas wells and the operation thereof. In the Company’s acquisition of existing or previously drilled wells, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated. Should it be determined that a liability exists with respect to any environmental clean up or restoration, the liability to cure such a violation could fall upon the Company.

F-28

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2004, an oil spill of eight barrels occurred on land where one of the Company’s wells is located. The remediation and restoration of the land is governed by the Texas Railroad Commission (TRC) and other attendant regulatory authorities. During November and December 2004, the Company incurred approximately $520,000 of costs related to the clean up. During the year ended December 31, 2005, an additional $2,365,242 of such costs were incurred and paid or accrued. This amount includes $325,000 to cover remediation and restoration of the area pursuant to various regulatory authorities. These payments were made in addition to the work performed that was necessary for release and clearance from the TRC and the EPA. An additional $100,000 was accrued as of March 31, 2006, and was subsequently paid. The Company has negotiated with the landowner and the State of Texas to reach a final determination of the costs of remediation and restoration. The final settlement has been recorded as an expense with the related obligation included in notes payable. (Note 5)

F-29

ENERGYTEC, INC.

AND SUBSIDIARIES

Supplemental Information (Unaudited)

For the Years Ended December 31, 2006, 2005 and 2004

The following supplemental oil and gas information is provided in accordance with Statement of Financial Accounting Standards No. 69 “Disclosures about Oil and Gas Producing Activities (SFAS 69). The Company has properties in the United States.

	2006		2005		2004
Capitalized Costs Relating to Oil and Gas Producing Activities at December 31, 2006, 2005 and 2004
Unproved oil and gas properties	$	21,307,272	$	19,604,736	$	2,804,346
Proved oil and gas properties		9,567,887		11,698,473		11,878,348
Gas pipeline		1,640,238		1,595,979		1,559,107
Support equipment and facilities		4,341,592		5,546,771		2,331,117
		36,856,989		38,445,959		18,572,918
Less accumulated depreciation, depletion, and amortization		1,991,302		1,568,255		900,104
Net capitalized costs	$	34,865,687	$	36,877,704	$	17,672,814
Costs Incurred in Oil and Gas Producing Activities For the Years Ended December 31, 2006, 2005 and 2004
Property acquisition costs
Proved	$	—	$	6,356,923	$	765,900
Unproved	$	—	$	—	$	—
Exploration costs	$	—	$	—	$	1,825,083
Development costs	$	3,061,327	$	15,164,381	$	3,427,271
Results of Operations for Oil and Gas Producing Activities For the Years Ended December 31, 2006, 2005 and 2004
Oil and gas sales	$	4,379,501	$	2,140,179	$	2,362,315
Production costs		2,166,759		1,304,158		1,914,795
Depreciation, depletion and amortization		486,652		250,764		125,437
		1,726,090		585,257		322,083
Income tax expense		604,132		204,840		112,729
Results of operations for oil and gas producing activities (excluding corporate overhead and financing costs)	$	1,121,958	$	380,417	$	209,354

F-30

ENERGYTEC, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Information (Unaudited) (Continued)

For the Years Ended December 31, 2006, 2005 and 2004

Reserve Information

The following estimates of proved and proved developed reserve quantities and related standardized measure of discounted net cash flows are estimates only, and do not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. All of the Company’s reserves are located in the United States.

Proved reserves are estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.

The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory rates, with consideration of future tax rates already legislated) to be incurred on pretax net cash flows less the tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of ten percent a year to reflect the estimated timing of the future cash flows.

	2006 Total				2005 Total				2004 Total
	Oil (Bbls)		Gas (Mcf)		Oil (Bbls)		Gas (Mcf)		Oil (Bbls)		Gas (Mcf)
Proved Developed and Undeveloped Reserves
Beginning of year	1,111,239		1,942,002		717,616		4,060,137		1,847,250		7,285,761
Revisions of previous estimates (Note 3)	(87,424	)	(1,535,085	)	78,431		139,885		(365,269	)	(3,122,035	)
Improved recovery	—		—		—		—		—		—
Purchases of minerals in place	—		—		723,945		—		379,502		—
Extensions and discoveries	—		—		—		—		—		—
Production	(80,318	)	(50,842	)	(37,935	)	(64,767	)	(24,615	)	(103,052	)
Sales of minerals in place	—		—		(37,935	)	(2,193,523	)	(1,121,252	)	—
End of year	943,497		356,075		1,111,239		1,942,002		715,614		4,060,674
Proved Developed Reserves
Beginning of year	859,372		575,798		372,165		376,577		1,093,650		326,534
End of year	915,152		356,075		859,377		575,798		372,165		376,577

F-31

ENERGYTEC, INC.

AND SUBSIDIARIES

Supplemental Information (Unaudited) (Continued)

For the Years Ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Standardized Measure of Discounted Future Net Cash Flows at December 31, 2006, 2005 and 2004
Future cash inflows	$	40,566,986		$	72,027,723		$	51,502,278
Future production costs		(18,882,943	)		(29,947,565	)		(9,085,501	)
Future development costs		(90,600	)		(95,000	)		(4,087,500	)
Future asset retirement obligations		(3,458,000	)		(4,165,000	)		(4,000,000	)
Future income tax expenses		(6,347,405	)		(13,237,055	)		(12,015,247	)
		11,788,038			24,583,103			22,314,030
Future net cash flows
10% annual discount for estimated timing of cash flows		(2,821,963	)		(5,881,887	)		(5,341,801	)
Standardized measures of discounted future net cash flows relating to proved oil and gas reserves	$	8,966,075		$	18,701,216		$	16,972,229

The following reconciles the change in the standardized measure of discounted future net cash flows for the years ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Beginning balance, January 1, 2006, 2005 and 2004	$	18,701,216		$	16,972,229		$	26,754,470
Sales of oil and gas produced, net of production costs		(2,212,742	)		(836,021	)		(279,168	)
Development costs incurred during the year which were previously estimated		—			—			3,040,000
Net change due to extensions, discoveries, and improved recovery		—			—			2,215,453
Net change in estimated future development costs		4,400			3,992,500			3,232,118
Net change in estimated asset retirement obligation		707,000			(165,000	)		(2,000,000	)
Revisions of previous quantity estimates (Note 3)		(18,183,373	)		(240,590	)		1,264,630
Net change from purchases and sales of minerals in place		—			739,992			(27,259,313	)
Accretion of discount		3,059,924			(540,086	)		3,078,841
Net change in income taxes		6,889,650			(1,221,808	)		6,925,198
Other		—			—			—
Ending balance, December 31, 2006, 2005 and 2004	$	8,966,075		$	18,701,216		$	16,972,229

F-32

EX-10.139

Exhibit 10.139

LOAN AGREEMENT

THIS LOAN AGREEMENT is between ENERGYTEC, INC. (the “Borrower”) and GLADEWATER NATIONAL BANK, a Texas Banking corporation (the “Bank”), as follows:

The Borrower desires to borrow from the Bank the amount of FOUR MILLION AND NO/100 ($4,000,000.00) DOLLARS, and the Bank is willing to lend such amounts to the Borrower, subject to and upon the terms and conditions set forth.

NOW, THEREFORE, it is agreed:

As security for and to guarantee the full and timely payment of the principal and interest on the Note and all other Indebtedness or liabilities of the Borrower to the Bank, whether now existing or hereafter arising:

1. Borrower will furnish Bank the following date:

a. Railroad Commission number and name of lease/well(s).

b. Name of lease operator and mailing address.

c. Purchaser of product, mailing address, owner and lease number.

d. Borrowers decimal interest and type (RI, ORR, WI, NRI).

2. Ownership of minerals must be in same name as borrower.

3. Lien Instruments. Borrower shall duly execute and deliver to the Bank Promissory Note, Deed(s) of Trust and Security Agreement(s), together with Financing Statement(s) pursuant to the Texas Uniform Commercial Code, and Assignment(s) of Production, in form and substance satisfactory to the Bank and its counsel, covering the property securing the Indebtedness, and any and all other documents deemed necessary by the Bank and its counsel to perfect a security interest with properties being pledged to secure payment of the loan contemplated hereunder.

4. Filing and Recording. Bank will, at Borrower’s cost and expense, cause all instruments and documents given as security pursuant to this Agreement to be duly recorded and/or filed in all places necessary, in the opinion of the Bank, to perfect and protect the Deed of Trust lien, or security interest of the Bank in the property covered thereby. Borrower hereby authorizes the Bank to file any Financing statement in respect of any security interest created pursuant to this Agreement which may at any time be required or which, in the opinion of the Bank, may at any time be desirable although the same may have been executed only by the Bank, or, at the option of the Bank, should Borrower refuse to execute same after notice from Bank, to sign such Financing Statement on behalf of the Borrower and file the same, and the Borrower hereby irrevocably designates the Bank, its agents, representative, and designees as agents and attorney in fact for the Borrower for this purpose. If, after notice and opportunity, Borrower refuses to execute any Financing Statement, and Bank signs and files such Financing Statement on behalf of Borrower as herein provided, Bank shall promptly furnish a copy of said financing Statement to Borrower. In the event that any re- recording or re-filing thereof (or the filing of any statements of continuation or

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assignment of any Financing Statement) is required to protect and preserve such mortgage, lien or security interest, the Bank will, at Borrower’s cost and expense, cause the same to be recorded and/or filed at the time and in the manner requested by the Bank.

5. Title Opinion. Borrower will furnish the Bank with Title Opinions showing Bank as first lien holder, before funding of the loan contemplated hereunder.

6. Production payments to come to Bank. Borrower hereunder has, in accordance with the Deed of Trust, Security Agreement, Financing Statement and Assignment of Production, assigned to Bank all of the oil, gas, casing head gas, condensate, and other minerals set forth in the Deed of Trust that may be produced from the mortgaged property, as defined in the Deed of Trust. Bank will notify any and all purchasers of production from the mortgaged property of said assignment(s) and provide Borrower with a copy of such notification. Bank will receive directly from the purchaser or purchasers of production all proceeds of oil and gas production accruing to the mortgaged property, for credit to Borrower hereunder. Upon receipts of the monthly run check, Bank will deposit all proceeds to Borrower’s Gladewater National Bank checking account. Proceeds in the amount of the monthly payment as described in Borrower’s note will be held until such time of the due date of each monthly payment. At that time, the regularly scheduled monthly payment will be automatically debited from Borrower’s checking account and applied to Borrower’s note. Bank will mail Borrower copies of the deposit slip as well as the check vouchers. Upon Borrower being delinquent in making payment on its note more than twice during any twelve month period, Bank shall have the right, but not the obligation, at its sole discretion, and without notice to Borrower, to apply proceeds of productions, at the time such proceeds are received by the Bank, to pay any monthly payment that is to become due and payable under the note within 30 days for receipt by the Bank of the production payment. Bank shall always have the right to apply production proceeds when received to pay any past due amount under the note. Production run checks must be made payable as follows:

Gladewater National Bank for the benefit of

ENERGYTEC, INC.

P O Box 1749

Gladewater, Texas 75647

7. Bank will automatically charge Borrower’s account for note payments of principal plus interest on the twenty seventh (27th) working day of each month, copies of transactions will be mailed to Borrower.

8. If Borrower operates the lease/wells, he will furnish Bank a list of all equipment, including serial numbers, used on pledged properties. Borrower agrees to pay for any/all inspections of equipment made by Bank or its agent.

9. Approval of Operator. Borrower will furnish Bank with the name and address of the Operator. Any change in Operators must be pre-approved by Bank. If at any time the Bank should feel that its collateral is in jeopardy due to inefficient operations, Bank may require a change in operators.

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10. Properties Operated by Borrower. If Borrower is the Operator of properties, such properties must be operated in a manner consistent with state regulatory requirements.

11. Borrowing Base. During the term of the loan contemplated hereunder, the Bank will, from time to time, re-evaluate the value of the properties pledged to secure the loan contemplated hereunder, based on pricing adjusted to market fluctuations. If such re-evaluation shall reveal that the Borrower exceeds the borrowing base of the loan (being 80% of present worth of the properties pledged, as calculated by the Bank, discounted 17.5%, or 80% of the average of the preceding 6 months’ net monthly income times 32 months, whichever is less), then and in such event, within thirty (30) day’s written notice by the Bank, the Borrower shall, as required by the Bank, either:

(1) pledge additional collateral acceptable by the Bank, in its sole discretion, in an amount sufficient to cure the borrowing base deficiency; or

(2) make a principal reduction on the loan, sufficient to cure the borrowing base deficiency.

12. Affirmative Covenants. So long as the Borrower has any indebtedness with the Bank, Borrower will:

a. Furnish to the Bank, within 30 days after the end of the fiscal year, a copy of its financial statement and related statement of income and expense prepared in accordance with generally accepted accounting principles by an independent certified public accountant selected by the Borrower and satisfactory to the Bank.

b. Furnish to the Bank financial statements and related statements of income and expense as stated on page 6 of this Agreement, certified by a proper accounting officer of the Borrower.

c. Pay and discharge all taxes, assessments and governmental charges imposed upon the Borrower or its property prior to the date on which penalties or liens attach thereto.

d. Promptly give notice to the Bank of all litigation and all proceedings before governmental or regulatory agencies affecting the Borrower except litigation or proceedings not materially affecting the financial condition of the Borrower.

e. From time to time, upon request by the Bank, execute and deliver to the Bank any instrument, document, assignment of other writing which may be necessary or advisable in the Bank’s opinion to carry our the terms of the Agreement and to perfect the Bank’s security interest in and facilitate the collection of any collateral securing the advances.

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f. Maintain insurance with responsible companies in the amount and types presently carried by the Borrower with the Bank named as loss payee as its interest may appear, such policies to be non-cancelable without prior written notice to the Bank.

g. Make available to the Bank’s officers the books and records of the Borrower, including, but not limited to, the subsidiary journals, accounts receivable files, inventory records, general ledger, and correspondence files. The Bank has the right to examine its collateral at any reasonable time without prior notice.

h. Pay reasonable expenses, including reasonable legal expenses and attorney’s fees, of the Bank which have been or may be incurred by the Bank in connection with the preparation of this agreement and the lending and incurring of obligations or liabilities hereunder, the collection of any note authorized hereby, or for the enforcement of any of the Borrowers or the Guarantors’ obligations hereunder and under any document executed to secure the payment of any note authorized hereunder, or the guaranty thereof and for the recording and filing and re-recording and re-filing of any such document.

i. Give notice to the Bank in writing of the occurrence of any default, any change in the name of the Borrower, any change in name, identity or Company structure.

j. Give notice to the Bank in writing of any uninsured or partially uninsured loss through fire, theft, liability or property damage.

13. Negative Covenants. The Borrower covenants and agrees that without written consent of the Bank it shall not:

a. Make any loans to officers of the Company.

b. From the date of this Agreement, increase the salaries of its officers by more than 10% annually.

c. Form any new subsidiary or merge or invest in or consolidate with any corporation or other entity, or sell, lease, assign, transfer, or otherwise dispose of (whether in one transaction or as a series of related transaction) all or substantially all of its assets, now pledged or hereafter pledged as collateral on loan.

14. Default. The Borrower shall be in default hereunder if any one of the following events of default shall occur and be continuing, namely:

a. Default by the Borrower in the payment of any sums owing to the Bank or others (hereinafter referred to as the

4

“Indebtedness”) or if the holder of any such Indebtedness declares such Indebtedness due prior to the stated maturity because of any default thereunder; or

b. Any representation, statement, warranty, projection, or certificate made by the Borrower in the Loan Documents, or hereafter furnished to the Bank in connection with any loan or loans hereunder, shall prove to have been incorrect in any material respect at the time of making or issuance thereof; or

c. Default by the Borrower or any other party to the Loan Documents in the performance of any of the covenants or agreements set forth in the Loan Documents or in any other agreement or instrument executed pursuant hereto provided, however, that the provisions of this Agreement shall control in the event that any of such provisions are in conflict with the provisions of any other agreement, mortgage, indenture or instrument executed pursuant hereto and all of such provisions in such other instruments shall be deemed to be cumulative of the provisions hereof to the extent such provisions are not inconsistent herewith; or

d. The Borrower shall apply for or consent to, or acquiesce in the appointment of a receiver, trustee, or liquidator of itself or himself or of its or his property, or admit in writing of its or his inability to pay its or his debts as they mature, or make a general assignment for the benefit of creditors or an Order of Relief be entered with respect to the Borrower by any court having competent jurisdiction in the premises, or file a voluntary petition in bankruptcy or a petition or answer seeking reorganization, composition, readjustment or arrangement, or similar relief with creditors, under any present or future statute, law or regulation, or otherwise, or take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it or him for the purpose of affecting any of the foregoing, or it or he shall have a receiver or trustee or assignee in bankruptcy or insolvency appointed for it or him, or its or his property, without its application or consent; or

e. The Bank determines in the exercise of its judgment that the Borrowers financial condition has deteriorated, the prospect of Repayment of the Indebtedness is impaired or that the value of the Collateral has lessened materially. Thereupon in any such case, the obligation of the Bank to extend credit hereunder to or for the

5

account of the Borrower pursuant hereto shall immediately terminate, and the Bank shall be entitled to each and every remedy and to take each and every action permitted by the Loan Documents.

15. Waiver. No failure to exercise and no delay in exercising on the part of the Bank of any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder, preclude any other right power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law or in any other agreement.

16. Survival of Agreements. All agreements, representations and warranties herein made, shall survive the execution and delivery of the Notes and the Security Instruments and the making and renewal thereof.

17. Amendment. This Agreement may not be amended except in writing signed by the Borrower, the Guarantors and the Bank.

18. Successors. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Bank and the successors and assigns of each party hereto.

19. Severability. In the case any one or more of the provisions contained in the Loan Documents should be invalid, illegal, or unenforceable, in any respect, the validity, legality, and enforceability of the remaining provisions contained therein shall not in any way be affected thereby.

20. Lawsuits. The Borrower certifies that there are no outstanding lawsuits in which it is named.

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AGREEMENT

This Agreement is between ENERGYTEC, INC., (the “Borrower”) and GLADEWATER NATIONAL BANK, a Texas Banking corporation (the “Bank”) as follows:

The Borrower desires to borrow from the Bank the amount of FOUR MILLION AND NO/100 ($4,000,000.00) DOLLARS and the Bank is willing to lend such amount to the Borrower subject to and upon the terms and conditions set forth:

FINANCIAL STATEMENTS	REQUIRED
HOW OFTEN	QUARTERLY & ANNUALLY
FYE	DECEMBER 31
INCOME AND EXPENSE	REQUIRED
HOW OFTEN	QUARTERLY & ANNUALLY
INCOME TAX RETURNS	REQUIRED
HOW OFTEN	ANNUALLY

	ENERGYTEC, INC.
03-29-2007	BY:	/s/ Don Lambert
DATE		DON LAMBERT, PRESIDENT
TO BE EFFECTIVE 02-27-2007
	BY:	/s/ Dorothea Krempein
		DOROTHEA KREMPEIN, VICE PRESIDENT
	-BORROWER-
	GLADEWATER NATIONAL BANK
03-29-2007	BY:	/s/ Redonia Harper
DATE		REDONIA HARPER, PRESIDENT
TO BE EFFECTIVE 02-27-2007
-BANK-

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ENERGYTEC, INC.	GLADEWATER NATIONAL BANK
4965 PRESTON PARK BLVD. SUITE 270 EAST	PO BOX 1749	Loan Number 8403287
PLANO, TX 75093	GLADEWATER, TX 75647	Date 02-27-2007
		Maturity Date 02-27-2011
		Loan Amount $4,000,000.00
		Renewal Of 8403287
BORROWER’S NAME AND ADDRESS “I” includes each borrower above, jointly and severally.	LENDER’S NAME AND ADDRESS “You” means the lender, its successors and assigns.

For value received, I promise to pay to you, or your order, at your address listed above the PRINCIPAL sum of FOUR MILLION AND N0/100 Dollars $4,000,000.00

x  Single Advance: I will receive all of this principal sum on 02-27-2007 . No additional advances are contemplated under this note.

¨ Multiple Advance: The principal sum shown above is the maximum amount of principal I can borrow under this note. On                                          I will receive the amount of $                     and future principal advances are contemplated.

Conditions: The conditions for future advances are                                                                                                                                                                   

¨ Open End Credit: You and I agree that I may borrow up to the maximum amount of principal more than one time. This feature is subject to all other conditions and expires on                                                      .

¨ Closed End Credit: You and I agree that I may borrow up to the maximum only one time (and subject to all other conditions).

INTEREST: I agree to pay interest on the outstanding principal balance from 02-27-2007 at the rate of 9.750 % per year until 02-28-2007.

x  Variable Rate: This rate may then change as stated below.

x Index Rate: The future rate will be 1.500 PERCENT ABOVE the following index rate: THE BASE RATE ON CORPORATE LOANS POSTED BY AT LEAST 75% OF THE NATION’S 30 LARGEST BANKS KNOWN AS THE WALL STREET JOURNAL PRIME RATE. THE RESULT OF THIS CALCULATION WILL BE ROUNDED TO THE NEAREST 0.125

¨ Ceiling Rate: The interest rate ceiling                      for this note is the ceiling rate announced by the Credit Commissioner from time to time.

x Frequency and Timing: The rate on this note may change as often as EVERY DAY BEGINNING 02-28-2007.

A change in the interest rate will take effect ON THE SAME DAY.

x Limitations: During the term of this loan, the applicable annual interest rate will not be more than N/A % or less than 9.750%. The rate may not change more than                      % each                             .

Effect of Variable Rate: A change in the interest rate will have the following effect on the payments:

x The amount of each scheduled payment will change.    ¨  The amount of the final payment will change.

¨

ACCRUAL METHOD: Interest will be calculated on a ACTUAL/365 basis.

POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note owing after maturity, and until paid in full, as stated below:

¨ on the same fixed or variable rate basis in effect before maturity (as indicated above).

x at a rate equal to HIGHEST RATE PERMITTED BY LAW.

x  LATE CHARGE: If a payment is made more than 10 days after it is due, I agree to pay a late charge of 5.000% OF THE LATE AMOUNT

¨ ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which    ¨  are    ¨  are not included in the principal amount above:                                                                                                                                                                        .

PAYMENTS: I agree to pay this note as follows:

ON DEMAND, BUT IF NO DEMAND IS MADE THEN 48 MONTHLY PAYMENTS OF $100,952.50 BEGINNING 03-27-2007. THIS IS A VARIABLE RATE LOAN AND THE PAYMENT AMOUNTS MAY CHANGE.

ADDITIONAL TERMS:

	x SECURITY: This note is separately secured by (describe separate document by type and date): BUSINESS CONSUMER SECURITY AGREEMENT DATED 02-27-2007 (This section is for your internal use. Failure to list a separate security document does not mean the agreement will not secure this note.)
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.	PURPOSE: The purpose of this loan is RENEW LOAN ORIGINALLY FOR OPERATIONS
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.	SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I have received a copy on today’s date.
	ENERGYTEC, INC. SIGNED 03-29-2007 TO BE EFFECTIVE 02-27-2007
	/s/ Don Lambert
Signature for Lender	DON LAMBERT, PRESIDENT
/s/ Redonia Harper	/s/ Dorothea Krempein
REDONIA HARPER, PRESIDENT	DOROTHEA KREMPEIN, VICE PRESIDENT
UNIVERSAL NOTE ©1984, 1991 Bankers Systems, Inc., St. Cloud, MN Form UN-TX 3/7/2002	(page 1 of 2)

DEBTOR NAME AND ADDRESS	SECURED PARTY NAME AND ADDRESS
ENERGYTEC, INC. 4965 PRESTON PARK BLVD. SUITE 270 EAST PLANO, TX 75093	GLADEWATER NATIONAL BANK PO BOX 1749 GLADEWATER, TX 75647
Type:  ¨    individual  ¨    partnership  x    corporation  ¨ State of organization/registration if applicable) TX                                  ¨    If checked, refer to addendum for additional Debtors and signatures.

COMMERCIAL SECURITY AGREEMENT

The date of this Commercial Security Agreement (Agreement) is 02-27-2007                                                                                                                                                                                                     

SECURED DEBTS. This Agreement will secure all sums advanced by Secured Party under the terms of this Agreement and the payment and performance of the following described Secured Debts that (check one)  x    Debtor  ¨

                                                                                       (Obligor) owes to Secured Party:

x Specific Debts. The following debts and all extensions, renewals, refinancings, modifications, and replacements (describe):

PROMISSORY NOTE #8403287 DATED 02-27-2007 IN THE NAME OF ENERGYTEC, INC. IN THE AMOUNT OF $4,000,000.00

¨ All Debts. All present and future debts, even if this Agreement is not referenced, the debts are also secured by other collateral, or the future debt is unrelated to or of a different type than the current debt. Nothing in this Agreement is a commitment to make future loans or advances.

SECURITY INTEREST. To secure the payment and performance of the Secured Debts, Debtor gives Secured Party a security interest in all of the Property described in this Agreement that Debtor owns or has sufficient rights in which to transfer an interest, now or in the future, wherever the Property is or will be located, and all proceeds and products of the Property. “Property” includes all parts, accessories, repairs, replacements, improvements, and accessions to the Property; any original evidence of title or ownership; and all obligations that support the payment or performance of the Property. “Proceeds” includes anything acquired upon the sale, lease, license, exchange, or other disposition of the Property; any rights and claims arising from the Property; and any collections and distributions on account of the Property. This Agreement remains in effect until terminated in writing, even if the Secured Debts are paid and Secured Party is no longer obligated to advance funds to Debtor or Obligor.

PROPERTY DESCRIPTION. The Property is described as follows:

¨ Accounts and Other Rights to Payment: All rights to payment, whether or not earned by performance, including, but not limited to, payment for property or services sold, leased, rented, licensed, or assigned. This includes any rights and interests (including all liens) which Debtor may have by law or agreement against any account debtor or obligor of Debtor.

¨ Inventory: All inventory held for ultimate sale or lease, or which has been or will be supplied under contracts of service, or which are raw materials, work in process, or materials used or consumed in Debtor’s business.

¨ Equipment: All equipment including, but not limited to, machinery, vehicles, furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop equipment, office and record keeping equipment, parts, and tools. The Property includes any equipment described in a list or schedule Debtor gives to Secured Party, but such a list is not necessary to create a valid security interest in all of Debtor’s equipment.

¨ Instruments and Chattel Paper: All instruments, including negotiable instruments and promissory notes and any other writings or records that evidence the right to payment of a monetary obligation, and tangible and electronic chattel paper.

¨ General Intangibles: All general intangibles including, but not limited to, tax refunds, patents and applications for patents, copyrights, trademarks, trade secrets, goodwill, trade names, customer lists, permits and franchises, payment intangibles, computer programs and all supporting information provided in connection with a transaction relating to computer programs, and the right to use Debtor’s name.

¨ Documents: All documents of title including, but not limited to, bills of lading, dock warrants and receipts, and warehouse receipts.

¨ Farm Products and Supplies: All farm products including, but not limited to, all poultry and livestock and their young, along with their produce, products, and replacements; all crops, annual or perennial, and all products of the crops; and all feed, seed, fertilizer, medicines, and other supplies used or produced in Debtor’s fanning operations.

¨ Government Payments and Programs: All payments, accounts, general intangibles, and benefits including, but not limited to, payments in kind, deficiency payments, letters of entitlement, warehouse receipts, storage payments, emergency assistance and diversion payments, production flexibility contracts, and conservation reserve payments under any preexisting, current, or future federal or state government program.

¨ Investment Property: All investment property including, but not limited to, certificated securities, uncertificated securities, securities entitlements, securities accounts, commodity contracts, commodity accounts, and financial assets.

¨ Deposit Accounts: All deposit accounts including, but not limited to, demand, time, savings, passbook, and similar accounts.

x Specific Property Description: The Property includes, but is not limited by, the following (if required, provide real estate description):

DEED OF TRUST COVERING 21 OIL AND GAS LEASES; 26 PRODUCING/ECONOMIC OIL WELLS LOCATED IN HOPKINS AND WOOD COUNTIES, TEXAS AS DESCRIBED ON EXHIBIT “A” ATTACHED HERETO AND MADE A PART HEREOF

USE OF PROPERTY. The Property will be used for  ¨    personal  x    business  ¨    agricultural  ¨                              purposes.

THIS WRTTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN

THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR

SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

SIGNATURES. Debtor agrees to the terms on pages 1 and 2 of this Agreement and acknowledges receipt of a copy of this Agreement.

DEBTOR	SECURED PARTY
ENERGYTEC, INC. SIGNED 03-29-2007 TO BE EFFECTIVE 02-27-2007	GLADEWATER NATIONAL BANK
/s/ Don Lambert	/s/ Redonia Harper
DON LAMBERT	REDONIA HARPER
PRESIDENT	PRESIDENT
/s/ Dorothea Krempein
DOROTHEA KREMPEIN
VICE PRESIDENT

 ^©2000 Bankers Systems, Inc., St. Cloud, MN Form SA-BUS-TX 10/24/2003 (page 1 of 2)

EX-10.140

Exhibit 10.140

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

ASSIGNMENT TO TRUSTEE OF OIL AND GAS PRODUCTION

THE STATE OF TEXAS	|
	|	KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HOPKINS	|

That ENERGYTEC, INC., a Nevada corporation, acting herein by and through its proper officer who has heretofore been duly authorized, with its principal office in Plano, Texas, and the mailing address for which is 4965 Preston Park Boulevard, Suite 270 East, Plano, Texas 75093, herein called “Grantor”, for good and valuable consideration paid by the Grantee herein named, and in furtherance of the provisions of a Deed of Trust which has this day been executed, by these presents, GRANTS, CONVEYS and TRANSFERS unto REDONIA HARPER, TRUSTEE, and to her successors and substitutes in trust, for the benefit of Grantor for the specific purpose of paying the promissory note referenced below, all of Grantor’s right, title and interest in and to the oil, gas and mineral fee and leasehold interests and estates presently owned, held, or claimed by Grantor, or later acquired by Grantor, covering the lands and property described and identified in Exhibit “A” attached hereto and made a part hereof.

When Trustee, or her successors in trust shall have received from the assigned interest a sufficient sum of money to pay and discharge the promissory note of in the principal sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00), together with interest thereon, and in accordance with its terms and effect, this day executed by Grantor, payable to GLADEWATER NATIONAL BANK, Post Office Box 1749, Gladewater, Gregg County, Texas 75647-0027, and any additional sums advanced or due in connection with the making of such loan and such note, and all renewals and extensions thereof, the said interest above described shall immediately revert to Grantor, its heirs and assigns. Trustee agrees to execute, at Grantor’s expense, an instrument in recordable form, evidencing the termination of this production payment when the same has been fully discharged. Until released, however, any pipeline company or purchaser of production dealing with Grantor, or any successor in interest, shall be entitled to assume that this production payment has not been liquidated.

This production payment shall be effective as of 7:00 a.m., March 1, 2007, and all oil and gas runs after said time shall conform thereto.

The terms hereof shall extend to and be binding upon the parties hereto, their heirs, legal representatives and assigns.

EXECUTED this 29^th day of March, 2007, EFFECTIVE as of the 27^th day of February, 2007.

ENERGYTEC, INC
By:	/s/ Don Lambert
	Don Lambert, President
By:	Dorothea Krempein
	Dorothea Krempein, Vice President

THE STATE OF TEXAS	|
COUNTY OF GREGG	|

BEFORE ME, the undersigned authority, on this day personally appeared Don Lambert, President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and considerations therein expressed, as the act and deed of such corporation, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of March, 2007.

/s/ Gregory Allen Ball

Notary Public, State of Texas

THE STATE OF TEXAS
COUNTY OF GREGG

BEFORE ME, the undersigned authority, on this day personally appeared Dorothea Krempein, Vice President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and considerations therein expressed, as the act and deed of such corporation, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of March, 2007.

/s/ Gregory Allen Ball

Notary Public, State of Texas

AFTER RECORDING RETURN TO:
ROBERT A. SHERMAN
POST OFFICE BOX 351
CARTHAGE, TEXAS 75633

Personal Property

All oil wells, pumping units, casing rods, production tubing, separators, surface flowlines, wellheads, tanks and other equipment incidental to and used in connection with the production, treating and storing of minerals or the like (including oil and gas) from those certain oil, gas and mineral leases described in this Exhibit AA@.

Signed for Identification:

/s/ Don Lambert

DON LAMBERT, PRESIDENT

/s/ Dorothea Krempein

DOROTHEA KREMPEIN, VICE PRESIDENT

CUSTOMER:	ENERGYTEC INC
	FEBRUARY, 2007

					EXHIBIT “A”
LEASE NAME	COUNTY STATE	OPERATOR	WORKING INTEREST	REVENUE INTEREST	LPD ID # / API #	OIL/GAS DISBURSER
DRILLAR BOZEMAN 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003383	SUNOCO
COKER W H 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003380	SUNOCO
KENDRICK LAWYER 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003386	SUNOCO
FORD SIMMS 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003382	SUNOCO
FOSTER DERMOT 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003379	SUNOCO
LIVINGSTON L H 1A	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003381	SUNOCO
MORRIS J J 3	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003378	SUNOCO
KENDRICK M L 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003385	SUNOCO
HOWLE 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXG05 121295	SUNOCO
COOK AB 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO05 002858	SUNOCO
HOWLE A,B	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	SUMMARY	SUNOCO
ISOM 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO05 002859	SUNOCO
GRICE W W NO. 22	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7995	TXO06 005074	SUNOCO
BAILEY W F 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 000869	SUNOCO
TAYLOR PINKIE 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001350	SUNOCO
CLOVER HILL SCHOOL 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO06 000868	SUNOCO
TAYLOR P B3	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001345	SUNOCO
TAYLOR P A 1A	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 012837	SUNOCO
STONE JOHNSON 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001342	SUNOCO
CHRIETZBURG J C1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7300	TXO06 001338	SUNOCO

SIGNED FOR IDENTIFICATION:

/s/ Don Lambert

DON LAMBERT, PRESIDENT

/s/ Dorothea Krempein

DOROTHEA KREMPEIN, VICE PRESIDENT

EX-10.141

Exhibit 10.141

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER=S LICENSE NUMBER.

DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT

AND ASSIGNMENT OF PRODUCTION

(Oil, Gas and Mineral Properties)

This instrument contains after-acquired property provisions

THE STATE OF TEXAS	|
	|	KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HOPKINS	|

That the undersigned, ENERGYTEC, INC., a Nevada corporation, acting herein by and through its proper officer who has heretofore been duly authorized, with its principal office in Plano, Texas, and the mailing address for which is 4965 Preston Park Boulevard, Suite 270 East, Plano, Texas 75093 (ÀMortgagor”, whether one or more), and Gladewater National Bank, the banking quarters for which are at 678 North Main, Gladewater, Gregg County, Texas, and the mailing address for which is Post Office Box 1749, Gladewater, Texas 75647-0027 (“Mortgagee”), hereby agree as follows:

ARTICLE I.

GRANT

A. 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 Redonia Harper, Trustee, whose address is Post Office Box 1749, Gladewater, Texas 75647-0027, and his successors and substitutes in trust, as hereinafter provided, (the “Trustee”), for the benefit of Mortgagee, the following described property:

Certain interest in oil, gas and mineral fee and leasehold estates in the property more particularly described in the schedule attached hereto, marked Exhibit “A” for identification, incorporated herein and made a part hereof for all purposes (the “Land”).

B. Security Interest. For the same consideration, Mortgagor 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, including the proceeds and products from any and all of such improvements and personal property, whether now owned and existing or hereafter acquired or arising, and situated on any of the Land, 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 Mortgagor’s interest in the Land, including all oil, gas and other minerals produced or to be produced to the account of Mortgagor from the Land and all accounts receivable, general intangibles and contract rights of Mortgagor in connection with the Land or the Leases, hereinafter defined, and all proceeds, products, substitutions and exchanges thereof (the Land, the Leases, hereinafter defined, and real and personal property interests hereinabove described being the “Mortgaged Property”).

C. Assignment of Security. For the same consideration, Mortgagor hereby grants to Mortgagee any and all rights of Mortgagor to liens and security interests securing payment of proceeds from the sale of production from the Mortgaged Property, including, but not limited to, those liens and security interests provided for in TEX. BUS. & COM. CODE ANN. Sec. 9.319 (Tex. UCC) (Vernon Supp. 1988).

D. 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 lien and/or security interest of this Deed of Trust, Security Agreement, Financing Statement and Assignment of Production (this “Deed of Trust”), together with all rights, hereditaments and appurtenances in anywise belonging to the Trustee or assigns forever.

DEED OF TRUST — Page 1

E. After Acquired Property. Any additional right, title or interest which Mortgagor may hereafter acquire or become entitled to in the interests, properties, Lands and premises aforesaid, or in the oil, gas or other minerals in and under or produced from the Land and Leases shall inure to the benefit of and be covered by this Deed of Trust and constitute “Mortgaged Property”, the same as if expressly described and conveyed herein.

ARTICLE II.

WARRANTIES

A. Warranty of Title. Mortgagor hereby binds itself, its successors and assigns, to warrant and forever defend all and singular the above described property, rights, and interest constituting the Mortgaged Property to the Trustee and to his assigns forever, against every person whomsoever lawfully claiming or to claim the same or any part thereof.

B. Additional Warranties. For the same consideration, Mortgagor, for itself, its successors and assigns, covenants, represents and warrants that:

(1) Authority and Enforceabilitv. The incurring by Mortgagor of the indebtedness secured by this Deed of Trust, the execution and delivery by Mortgagor ENERGYTEC, INC. of the promissory note of $4,000,000.00, dated February 27, 2007, and the performance and observance by Mortgagor of the terms and provisions of such promissory note and this Deed of Trust have been duly authorized by any necessary corporate proceedings, and will not contravene any requirement of law, or any provision of Mortgagor’s charter or by-laws, or result in the breach or termination of, or constitute a default under, any indenture or other agreement or instrument to which Mortgagor is a party or by which it or any of its property may be bound or affected.

(2) Additional Authority. Mortgagor is the lawful owner of the Mortgaged Property and has good right and authority to pledge, mortgage, assign, sell and convey the same.

(3) Interests in Mortgaged Property. Mortgagor’s interest in the Mortgaged Property, as set forth in Exhibit “A” hereto, are true and correct.

(4) Leases in Effect. All of the leases constituting all or part of the Mortgaged Property (the “Leases”) are in full force and effect and all covenants, express or implied, in respect thereof, or of any assignment there-of which may affect the validity of any of the Leases, have been performed insofar as the Leases pertain to the Land.

(5) Interests Free of Liens. Mortgagor’s interest in the Leases is free and clear of all liens, mortgages, oil payments, or other burdens or encumbrances and all gross production taxes and other taxes as to which non-payment could result in a lien against any of the Mortgaged Property have been paid, except as specifically set forth in Exhibit “A” hereto.

(6) Compliance with Laws. Mortgagor and the Mortgaged Property are in compliance with all applicable laws and regulations, including, without limitation, those relating to any flammable, explosives, radioactive materials, hazardous wastes, friable asbestos or any material containing asbestos, toxic substances or related materials, including, without limitation, substances defined as “hazardous substances”, “hazardous materials” or “toxic substances” in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec. 9601, et. seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Sec. 1801, et. seq., or the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901, et seq. (“Hazardous Materials”).

(7) Gas Contracts. Except as set forth under the heading for this provision in the schedule attached hereto, marked Exhibit “B” for identification, incorporated herein and made a part hereof for all purposes, Mortgagor (i) is not obligated in any material respect by virtue of any prepayment made under any contract containing a “take or pay” or “prepayment” provision, or under any similar agreement to deliver hydrocarbons produced from or allocated to any of the Mortgaged Property at some future date without receiving full payment therefor at the time of delivery and (ii) has not produced gas, in any material amount, subject to, and neither Mortgagor nor any of the Mortgaged Property is subject to, balancing rights of third parties or subject to balancing duties under governmental requirements, except as to such matters for which Mortgagor has established monetary reserves adequate in amount to satisfy such obligations, and has segregated such reserves from other accounts.

DEED OF TRUST — Page 2

(8) Refunds. Except as set forth under the heading for this provision in the schedule attached hereto, marked Exhibit “B” for identification, incorporated herein and made a part hereof for all purposes, there exist no orders of, or proceedings pending before, or other governmental requirements of, the Federal Energy Regulatory Commission, the Texas Railroad Commission or any other similar state of federal regulatory body or governmental authority which could result in Mortgagor being required to refund any material portion of the proceeds received or to be received from the sale of hydrocarbons constituting part of the Mortgaged Property.

ARTICLE III.

INDEBTEDNESS SECURED

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

(a) The promissory note dated February 27, 2007, executed by Mortgagor ENERGYTEC, INC. to the order of Mortgagee in the principal sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) bearing interest and payable (in installments) as therein provided, and containing the usual provisions in notes of this character, together with any and all renewals, extensions, rearrangements and increases thereof; (b) all additional indebtedness of Mortgagor to Mortgagee arising pursuant to the provisions of this deed of trust; (c) all loans and advances which Mortgagee may hereafter make to the Mortgagor; (d) all other and additional debts, obligations, and liabilities of every kind and character of Mortgagee to Mortgagor, now or hereafter existing, regardless of whether such debts, obligations and liabilities be direct or indirect, primary or secondary, joint or several, or joint and several, fixed or contingent, and regardless of whether such present or future obligations are payable to, or be or have been in favor of some other person or have been acquired by Mortgagee in a transaction with one other than Mortgagor, including but not limited to attorneys= fees and other expenses of collection and enforcement of the Note, this deed of trust and other secured indebtedness; (e) performance of all obligations of Mortgagor to Mortgagee hereunder, under the Note, under any other instrument now or hereafter securing any indebtedness of Mortgagor to Mortgagee and under any agreement arising from or relating to any indebtedness of Mortgagor to Mortgagee; and (f) any and all renewals, extensions, changes in form reamortizations and other modifications of such debts, obligations and liabilities, or any part thereof.

ARTICLE IV.

COVENANTS OF MORTGAGOR

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

A. Title Curative. Mortgagor will proceed with reasonable diligence to correct any defect in the title to the Mortgaged Property should any such defect be found to exist after the execution and delivery of this Deed of Trust; and in this connection, should it be found, after the execution and delivery of this Deed of Trust, that there exists upon the Mortgaged Property any lien or encumbrance equal or superior in rank to the liens and security interests created by this Deed of Trust, or should any such lien or encumbrance hereafter arise, Mortgagor will promptly discharge and remove the same from the Mortgaged Property.

B. Further Assurances. Upon request of Mortgagee, Mortgagor will promptly correct any defect which may be discovered after the execution and delivery of this Deed of Trust in any other documents executed in connection herewith, in the execution or acknowledgment hereof or thereof, or in the description of the Mortgaged Property, and will execute, acknowledge, and deliver such division orders, transfer orders and other assurances and instruments as shall, in the opinion of Mortgagee, be necessary or proper to convey and assign to the Trustee all of the Mortgaged Property herein conveyed or assigned, or intended to be so.

C. Maintenance of Leases. Mortgagor will keep and continue all Leases, estates and interests herein described and 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.

DEED OF TRUST — Page 3

D. Maintenance of Equipment. Mortgagor will keep and maintain all improvements and all personal property and equipment now or hereafter situated on the Land and constituting a portion o the Mortgaged Property and used or obtained in connection therewith in good state of 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 might be required for replacement when otherwise in compliance with this Deed of Trust.

E. Notification of Loss. Mortgagor will notify Mortgagee of the destruction, loss, termination or acquisition of any Mortgaged Property within three business days thereof.

F. 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 Mortgagor’s net revenue interest 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 pooling 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 liens and security interests 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” hereto. In the event any proceedings of any governmental body 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.

G. Payment of Lienable Claims. Mortgagor will pay all taxes now or hereafter to accrue against any of the Mortgaged Property and all other taxes or assessments, general or special, lawfully levied against it on such Mortgaged Property which might become a lien thereon before such taxes become delinquent; and it will during the life of this Deed of Trust keep the Mortgaged Property, and each and every part thereof, free, clear and discharged from all liens, charges, encumbrances, or assessments that might become superior, coordinate or subordinate to the liens or security interests of this Deed of Trust.

H. Maintenance of Workmen’s Compensation Insurance. Mortgagor will at all times maintain workmen’s compensation insurance with a responsible insurance company where required by, and in accordance with, the laws of the state in which the Mortgaged Property is located.

I. Mortgagee’s Payment of Lienable Claims. In the event Mortgagor shall fail or neglect to pay any taxes, general or special, or shall fail or neglect to relieve the Mortgaged Property from any lien which might become superior or equal to the lien of this Deed of Trust, or fail to carry such workmen’s compensation or other insurance, the Trustee, at his option, or Mortgagee, at its option, may pay such taxes, liens, charges or encumbrances, or any part thereof, or effect such workmen’s compensation insurance, and Mortgagor will promptly reimburse Trustee or Mortgagee, as the case may be, therefor; and any and all such sums so paid hereunder shall be paid by Mortgagor upon demand at Mortgagee’s principal offices, and shall constitute a part of the Indebtedness.

J. 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 drilled thereon and that may hereafter be drilled thereon, continuously and in good workmanlike manner in accordance with the best usage of the field and in accordance with all laws of the State in which the Mortgaged Property is situated and the United States of America, as well as all rules, regulations, and laws of any governmental agency having jurisdiction to regulate the manner in which the operation of the Mortgaged Property shall be carried on, and will comply with all terms and conditions of the Leases it now holds, or any 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 obligation, or render the Trustee or Mortgagee in any way responsible or liable for bills or obligations incurred by Mortgagor.

K. Maintenance of Liability and Casualty Insurance. Mortgagor will carry with standard insurance companies satisfactory to Mortgagee or holder of the Indebtedness, public liability and property damage insurance, as well as insurance against loss or damage to the Mortgaged Property by fire, lightning, tornado and explosion, all in amounts satisfactory to Mortgagee; all such policies shall be payable to Mortgagee, and the policies evidencing the same or acceptable certificates thereof shall be held by Mortgagee. Mortgagee shall have the right to collect, and Mortgagor hereby assigns to Mortgagee, any and all monies that may become payable under any policies of insurance by reason of damage, loss or destruction of the Mortgaged Property or any part thereof, and Mortgagee shall apply all such sums or any part thereof, at its election, toward the payment of the Indebtedness, whether the same be then due or not, application to be made first to interest and then to principal, and shall deliver to Mortgagor the balance, if any, after any application has been made.

DEED OF TRUST — Page 4

L. 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 amendment of existing operating agreement affecting the Mortgaged Property without prior written consent of Mortgagee. Furthermore, Mortgagor will not consent or agree to participate in any proposed operation under any presently existing operating agreement affecting the Mortgaged Property unless Mortgagor obtains the prior written consent of Mortgagee and deposits either with the operator, where Mortgagor is a non-operator, or with Mortgagee, where Mortgagor is a non-operator or operator, Mortgagor’s share of the estimated cost of the proposed operation prior to electing to participate in the operation. 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 once it is determined that it cannot so participate and to the extent allowed to do so under the relevant operating agreement or other applicable contract, farmout to others acceptable to Mortgagee, on the best terms obtainable, which terms shall be acceptable to Mortgagee, the interest or relevant portion of the interest of Mortgagor in the proposed operation.

M. Access to Mortgaged Property. Mortgagor will permit Mortgagee and its accredited agents, representatives, attorneys and employees at all times to go upon, examine, inspect 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.

N. Evidence of Title. Promptly upon receipt of a request from Mortgagee, Mortgagor will furnish and deliver, a Title Opinion prepared by competent legal counsel covering title to the real property herein mortgaged from the Sovereignty of the Soil to the latest practicable date, when taken together with abstracts and/or Title Opinions previously furnished to Mortgagee. Should Mortgagor fail to furnish such Title Opinion upon such request, Mortgagee may obtain such Title Opinion, and any and all costs incurred thereby shall be payable by Mortgagor to Mortgagee upon demand at Mortgagee’s principal offices. The Title Opinion shall be and constitute a part of the Mortgaged Property as defined above.

O. Notification of Legal Proceedings. Mortgagor will promptly notify Mortgagee or other holder or holders of the Indebtedness, in writing, of the commencement of any legal proceedings affecting the Mortgaged Property or any part thereof, and will take such action as may be necessary to preserve its and Mortgagee’s rights affected thereby; and should Mortgagor fail or refuse to take any such action, Mortgagee may at its election take such action on behalf and in the name of Mortgagor and at Mortgagor’s cost and expense.

P. Maintenance of Existence. If Mortgagor, is a corporation, it will maintain its corporate existence and will maintain and procure all necessary corporate franchise and permits to the end that Mortgagor shall be and continue to be a corporation in good standing in the state of its incorporation and in the state wherein the Mortgaged Property is located, with full power and authority to own and operate all of the Mortgaged Property as contemplated herein until this Deed of Trust shall have been fully satisfied.

Q. Waivers. Mortgagor hereby expressly waives any and all rights or privileges of marshaling of assets, sale in inverse order of alienation, notices, appraisements, redemption and any prerequisite to the full extent permitted by applicable law, in the event of foreclosure of the lien or liens and/or security interests created herein. Mortgagee at all times shall have the right to release any part of the Mortgaged Property now or hereafter subject to the lien or security interest of this Deed of Trust, any part 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 or security interests hereof as to the part or parts thereof not so released, or the right to receive future proceeds and income.

R. Payment of Mortgagee’s Expenses. Upon demand of Mortgagee, Mortgagor will promptly pay all costs and expenses heretofore or hereafter incurred by Mortgagee for legal, accounting, engineering or geological services rendered to it in connection with the making of the initial or any future loan to Mortgagee secured in whole or in part by the liens and security interests hereof or in the enforcement of any of

DEED OF TRUST — Page 5

Mortgagee’s rights hereunder. The obligations of Mortgagor hereunder shall survive the non-assumption of this Deed of Trust in a case commenced under Title 11 of the United States Code or other similar law of the United States of America, the State of Texas or any other jurisdiction and be binding upon Mortgagor, or a trustee, receiver, custodian or liquidator of Mortgagor appointed in any such case.

S. Other Liens. Without prior approval and written consent of Mortgagee, Mortgagor will not mortgage, pledge or otherwise encumber the Mortgaged Property or any part thereof, regardless of whether the lien or encumbrance is senior, coordinate, junior, inferior or subordinate to the lien and security interest created hereby.

T. Transfer or Division Orders. Upon request of Mortgagee, Mortgagor will execute and deliver written notices of assignments to any persons, corporations or other entities owing or which may in the future owe to Mortgagor monies or accounts arising in connection with any of the following matters: (a) any oil, gas or mineral production from the Mortgaged Property; (b) any gas contracts, processing contracts or other contracts relating to the Mortgaged Property; or (c) the operation of or production from any part of the Mortgaged Property. The notices of assignments shall advise the third parties that all of the monies or accounts described above have been assigned to Mortgagee, and if required by Mortgagee, shall also require and direct that future payments thereof, including amounts then owing and unpaid, be paid directly to Mortgagee.

U. Effect of Violation. Any mortgage, pledge, encumbrance, unitization, pooling, communitization or other action or instrument in violation of the prohibitions contained in F. or S. above shall be of no force or effect against Mortgagee.

V. Sales of Assets or Reorganization. Without the prior written consent of Mortgagee, Mortgagor will not sell, lease, transfer or otherwise dispose of all or substantially all of its properties and assets, or, if Mortgagor is a corporation, consolidate or merge into any other corporation, or permit another corporation to merge into it.

W. Compliance with Laws. Mortgagor will comply at all times with all federal, state and local laws, regulations, and ordinances applicable to the Mortgaged Property, including, without limitation, all environmental protection and hazardous waste requirements, and in this regard:

(1) Natural or Environmental Resources Compliance. Mortgagor will comply with any and all applicable local, state and federal laws, ordinances, rules, regulations and orders (a) related to any natural or environmental resource or media located on, above, within, in the vicinity of, related to or affected by the Mortgaged Property, any property in which Mortgagee has a mortgage, security or other interest or any other property of Mortgagor, or (b) required for the performance or conduct of its operations.

(2) Notification of Hazardous Materials Inquiries. Mortgagor will forthwith notify Mortgagee in writing of any request from any governmental agency or other entity for information on releases of Hazardous Materials from, affecting or related to the Mortgaged Property, any property in which Mortgagee has a mortgage, security or other interest or any other property of Mortgagor; notify Mortgagee of any actual, proposed or threatened testing or other investigation by any governmental agency or other entity concerning the environmental condition of or related to such property; provide to Mortgagee such information as Mortgagee shall request concerning the generation, storage, disposal, transportation or other management, if any, of any Hazardous Materials.

(3) Hazardous Materials Compliance and Indemnification. Mortgagor will at all times comply fully and in a timely manner with, and will cause all employees, 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 so comply with, all applicable federal, state and local laws, regulations, guidelines, codes and ordinances applicable to the use, generation, handling, storage, treatment, transport and disposal of any Hazardous Materials now or hereafter located or present on or under the Mortgaged Property, and Mortgagor indemnifies and hold Mortgagee 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 there-with (including, without limitation, attorneys’ fees and expenses), arising directly or indirectly, in whole or in part, out of (a) the presence of any Hazardous Materials on, under or from the Mortgaged Property, whether prior to or during the term hereof, or (b) any activity carried on or undertaken on or off the Mortgaged Property, whether

DEED OF TRUST — Page 6

prior to or during the term hereof, and whether by Mortgagor or any predecessor in title or any employees, agents, contractors or subcontractors of Mortgagor or any predecessor in title, or any third persons at any time occupying or present on the Mortgaged Property, in connection with the handling, treatment, removal, storage, decontaminations, cleanup, transport or disposal of any Hazardous Materials at any time located or present on or under the Mortgaged Property, including, without limitation, any of the foregoing arising, in whole or in part, from negligence on the part of Mortgagee, (the foregoing indemnity being the “Hazardous Materials Indemnity”). The Hazardous Materials Indemnity shall further apply to any residual contamination on or under the Mortgaged Property, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any Hazardous Materials, irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances; and

(4) Survival of Indemnification. The Hazardous Materials Indemnity shall survive repayment of the indebtedness, provided that the claims and other actions of any kind against Mortgagee which give rise to the Hazardous Materials Indemnity are not barred by the applicable statute of limitations at the time such claims or actions are instituted.

X. Uneconomic Wells. As to any oil and/or gas well forming part of the Mortgaged Property, should there not be, for a period in excess of three consecutive calendar months, proceeds from the sale of production from such well (net or productions, severance and windfall profit taxes and royalties overriding royalties and other payments out of or measured by production) in excess of the expense of operation of the relevant 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 operators) then, upon receipt by Mortgagor or 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) any funds required to pay Mortgagor’s share of the expenses associated with the continuing operation of such well.

Y. Performance of Gas Contracts. Mortgagor will perform and observe in all material respects each of the provisions of the contracts relating to the sale of gas produced from or attributable to the Mortgaged Property to which Mortgagor is a party of its part to be performed or observed prior to the termination thereof and will give Mortgagee prior written notice of any change, modification or amendment to or waiver of any of the terms or provisions of any of such contracts or any action which will release any party from its obligations or liabilities under any of such contracts, none of which shall be done except in good faith and as the result of arm’s length negotiations.

Z. Transactions with Affiliates. Mortgagor will not, directly or indirectly, enter into any sale, lease or exchange of any property or any contract for the rendering of goods or services with respect to any of the Mortgaged Property (including, but not limited to, operating agreements under which Mortgagor or an affiliate serves as operator) with any affiliate of Mortgagor other than upon fair and reasonable terms no less favorable than could be obtained in an arm’s length transaction with a person not an affiliate of Mortgagor.

ARTICLE V.

DEFEASANCE, FORECLOSURE AND OTHER REMEDIES

A. Defeasance. Should Mortgagor make due and punctual payment of the Indebtedness, as the same becomes due and payable, and duly observe and perform all of the covenants, conditions and agreements herein (and in all other agreements with Mortgagee) provided to be observed and performed by it, then the conveyance of the Mortgaged Property shall become of no further force and effect, and the lien and security interest hereof shall be released at the cost and expense of Mortgagor; otherwise, it shall remain in full force and effect.

B. Default Events, Acceleration and Exercise of Power of Sale. In case any one or more of the following events of default shall happen:

(1) Payment of Indebtedness. Default be made by Mortgagor in the due and punctual payment of the Indebtedness, or any part thereof, principal or interest, as the same becomes due and payable, whether by acceleration or otherwise; or

DEED OF TRUST — Page 7

(2) Covenants and Warranties. Default be made by Mortgagor in the due observance or performance of any of the covenants, conditions or agreements herein provided to be observed or performed by Mortgagor or any warranty of Mortgagor herein made prove to be untrue or inaccurate in any material respect; or

(3) Failure of Title. Mortgagor’s title to the Mortgaged Property, or any substantial part thereof, become the subject of actual or threatened litigation which would or might, in Mortgagee’s opinion, on final determination result in substantial impairment or loss of the security provided for herein; or

(4) Sale or Encumbrance. Mortgagor, without the prior written consent of Mortgagee (Mortgagee having an absolute right to refuse to consent or to condition its consent upon satisfaction of any one or more of the following requirements: (a) that the interest rate on the Indebtedness be increased to a rate acceptable to Mortgagee; (b) that a reasonable transfer fee, in an amount determined by Mortgagee, be paid; (c) that a principal amount deemed appropriate by Mortgagee be paid against the Indebtedness to reduce to a level acceptable to Mortgagee the ratio that the outstanding balance of the Indebtedness bears to the value of the Mortgaged Property as determined by Mortgagee; (d) that Mortgagor and each proposed transferee execute such assumption agreements and other instruments as Mortgagee shall reasonably require; (e) that the proposed transferee’s creditworthiness and experience in owning and operating similar properties be demonstrable and proven to Mortgagee’s reasonable satisfaction as being at least as good as Mortgagor’s; (f) that the liability to Mortgagee of Mortgagor and all other guarantors of all or any part of the Indebtedness will be confirmed by them in writing to be unaffected and unimpaired by such transfer, conveyance or encumbering; and (g) that any proposed junior mortgagee expressly subordinate to all liens and security interests securing the Indebtedness as to both lien and payment right priority), sell, assign, lease, transfer, mortgage, pledge, hypothecate or otherwise dispose of or encumber all or any portion of the Mortgaged Property or enter into any contractual arrangement to do so, irrespective of whether or not the transfer, conveyance or encumbrance would or might (i) diminish the value of any security for the Indebtedness, (ii) increase the risk of default under this Deed of Trust, (iii) increase the likelihood of Mortgagee’s having to resort to any security for the Indebtedness after default or (iv) add or remove the liability of any person or entity for payment or performance of the Indebtedness or any covenant or obligation under this Deed of Trust; provided, however, the foregoing shall not apply to hydrocarbons produced and sold in the ordinary course of business; or

(5) Involuntary Insolvency. An order, judgment or decree be entered against Mortgagor by any court of competent jurisdiction or by any other duly authorized authority, on the petition of a creditor or otherwise, granting relief under Title 11 of the United States Code or under any bankruptcy, insolvency, debtor’s relief or other similar law of the United States or any state approving a petition seeking reorganization or an arrangement of Mortgagor’s debts or appointing a receiver, trustee, conservator, custodian or liquidator of Mortgagor or all or any substantial part of Mortgagor’s assets; or

(6) Voluntary Insolvency. Mortgagor (i) discontinue its usual business, or (ii) apply for or consent to the appointment of a receiver, trustee or liquidator of Mortgagor of all or a substantial part of its assets, or (iii)file a voluntary petition commencing a case under Title 11 of the United States Code, seeking liquidation, reorganization or rearrangement, or taking advantage of any bankruptcy, insolvency, debtor’s relief or other similar law of the United States or any state, or (iv) make a general assignment for the benefit of creditors, or (v) be unable, or admit in writing its inability, to pay its debts generally as they become, or (vi) file an answer admitting the material allegations of a petition filed against it in any case commenced under Title 11 of the United States Code or any reorganization, insolvency, conservatorship or similar proceeding under any bankruptcy, insolvency, debtor’s relief or other similar law of the United States or any state, or apply for relief under any state or federal act for the relief of debtors; or

(7) Contracts Relating to Indebtedness. Default be made by Mortgagor in the due observance or performance of any of the covenants, conditions or agreements provided to be observed or performed by Mortgagor in any loan agreement or other contract or agreement relating to any Indebtedness; or

(8) Decline in Value of Collateral. The Mortgaged Property materially decline in value in the determination of Mortgagee; or Mortgagee, in its sole discretion, deem payment of the Indebtedness to be insecure; or

DEED OF TRUST — Page 8

(9) Fraudulent Actions or Preference of Creditor. Mortgagor conceal, remove, or permit to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them; or make or suffer a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or make any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid amounts owing; or take any other action in the nature of a fraud upon its creditors, or any of them;

then, and in any such event, the whole of the principal of the Indebtedness remaining unpaid, together with all interest accrued thereon, may, at the option of the holder thereof, without notice (including, but not limited to, notice of intention to accelerate maturity and notice of acceleration of maturity) or demand, which are, to the full extent permitted by applicable law, waived by Mortgagor for purposes of any provision of this Deed of Trust or of the evidences of the Indebtedness, be declared immediately due and payable; and thereupon, 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 the holder of the Indebtedness (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 Land 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 the holder of the Indebtedness, by postage prepaid, certified United States mail, at the most recent address for such debtor as shown by the records of the holder of the Indebtedness, 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 make the purchaser or purchasers good and sufficient deeds and assignments in the name of Mortgagor herein, conveying such property so sold to the purchaser or purchasers with general warranty of title. The Trustee, or his successor or substitute, is hereby authorized and empowered to appoint any one or more persons as his attorney(s)-in-fact 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 attorney(s)-in-fact 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 his or its heirs, legal representatives, successors or assigns, 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 or security interest hereof.

C. Rights as Secured Party. Upon the happening of any of the above-enumerated events of default, Mortgagee shall be entitled to all of the rights, powers and remedies afforded a secured party by the Uniform Commercial Code with reference to the personal property and fixtures in which Mortgagee has been granted a security interest hereby, or Mortgagee may proceed as to both the real and personal property covered hereby.

D. Application of Proceeds of Sale. The Trustee is authorized to receive the proceeds of said sale or sales 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% to be estimated upon the amount realized at the sale;

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

THIRD: the balance, if any, to Mortgagor or its successors or assigns.

DEED OF TRUST — Page 9

E. 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, then the holder of the Indebtedness 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.

F. 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 by any other holder of the Indebtedness or by the Trustee, shall be taken by all courts of law and equity prima facie evidence that the statements or recitals state facts and are without further question to be so accepted; and 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 instrument.

G. Suit to Collect and Foreclose. The holder of the Indebtedness may, at its election, or the Trustee may, upon written request of the holder of the Indebtedness, 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 note, notes or guaranties evidencing it, and to foreclose the lien and/or security interest 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.

H. Mortgagee as Purchaser. It is expressly understood that the holder of the Indebtedness, or the Trustee, may be a purchaser of the Mortgaged Property, or of any part hereof, at any sale thereof, whether such sale be under the power of sale hereinabove vested in the Trustee or upon any other foreclosure of the lien and/or security interest hereof, or otherwise; and the holder of the Indebtedness or the Trustee so purchasing shall, upon any such purchase, acquire good title to the Mortgaged Property so purchased, free of the lien and/or security interest of this Deed of Trust and free of all rights of redemption in Mortgagor.

I. 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 the holder of the Indebtedness or 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 of any note or guaranty reflecting the Indebtedness, and the employment of any remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies.

ARTICLE VI.

ASSIGNMENT OF PRODUCTION

A. 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 interest of Mortgagor therein subsequent to 7:00 a.m. on the 1st 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; and 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 to paid to Mortgagee.

B. Change of Purchaser. Should any purchaser taking the production from the Mortgaged Property fail to make prompt payment to Mortgagee in accordance with this Assignment, Mortgagee shall have the right at Mortgagor’s expense 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; and failure of Mortgagor to consent to and promptly effect such change of connection shall constitute an event of default hereunder, and the whole Indebtedness may be

DEED OF TRUST — Page 10

immediately declared due and payable, at the option of Mortgagee and without demand, presentment or other notice (including, but not limited to notice of intention to accelerate maturity and notice of acceleration of maturity), and the Mortgaged Property shall become subject to the foreclosure proceedings and power of sale hereunder.

C. Application of Proceeds. Mortgagor authorizes and empowers Mortgagee to receive, hold and collect all sums of money paid to Mortgagee in accordance with this Assignment, 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. All payments provided for in this Assignment shall be paid promptly to Mortgagee, and any provisions contained in any note or notes evidencing the Indebtedness or any part thereof to the contrary notwithstanding, Mortgagee may apply the same or so much thereof as it elects to the payment of the Indebtedness, application to be made in such manner as it may elect, regardless of whether the application so made shall exceed the payments of principal and interest then due as provided in the note or notes evidencing the Indebtedness. After such application has been so made by Mortgagee, the balance of any such payment or payments remaining shall be paid to Mortgagor.

D. No Postponement of Installments on Indebtedness. It is understood and agreed that should such payments provided for by this Assignment 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 note, notes, guaranty agreements or other instrument or instruments evidencing the Indebtedness, and neither this Assignment nor any provisions hereof shall in any manner be construed to affect the terms and provisions of such note, notes, guaranty agreements or other instrument or instruments evidencing the Indebtedness. Likewise, neither this Assignment nor any provisions hereof shall in any manner be construed to affect the liens, rights, title and remedies herein 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.

E. 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.

F. Release of Proceeds Upon Payment of Indebtedness. Upon payment in full of all Indebtedness, 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 by Mortgagee to Mortgagor at its request and its expense.

G. 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.

H. Power of Attorney to Mortgagee. Mortgagor does hereby designate Mortgagee as Mortgagor’s agent 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.

ARTICLE VII.

ADDITIONAL REMEDIES

A. Mortgagee’s Remedying of Mortgagor’s Failure to Comply. If Mortgagor should fail to comply with any of the covenants or obligations of Mortgagor hereunder, then Mortgagee or the Trustee may perform the same for the account and at the expense of Mortgagor but shall not be obligated so to do, and any and all expenses incurred or paid in so doing shall be payable by Mortgagor to Mortgagee, with interest at the greater of (i) the rate of 10% per annum or (ii) the rate agreed upon in any other document or instrument relating to the Indebtedness or any part thereof, from the date when same was so incurred or paid, and the amount thereof shall be payable on demand and shall be secured by and under this Deed of Trust, and the amount and nature of such expense and the time when paid shall be fully established by the affidavit of Mortgagee or any officer or agent thereof, or by the affidavit of any Trustee acting hereunder; provided, however, that the exercise of the privileges granted in this paragraph shall in nowise be considered or constitute a waiver of the right of Mortgagee upon the happening of an event of default hereunder to declare the Indebtedness at once due and payable but shall be cumulative of such right and all other rights herein given.

B. Entry and Operation. In case any one or more of the events of default shall happen, then in each and every such cases the Trustee or Mortgagee or any holder of the Indebtedness or any part thereof, whether

DEED OF TRUST — Page 11

or not the Indebtedness shall have been declared due and payable, in addition to the other rights and remedies hereunder, may exercise the following additional remedy, but shall not be obligated so to do: the Trustee, Mortgagee or holder of the Indebtedness may enter into and upon and take possession of all or any part of the Mortgaged Property and each and every part thereof and may exclude Mortgagor, its agents and servants wholly therefrom and have, hold, use, operate, manage and control the Mortgaged Property and each and every part thereof 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 to derived, first, to the cost of maintenance and operation of such Mortgaged Property; second, to the payment of all Indebtedness secured hereby, principal and interest, 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 such Trustee, Mortgagee or holder of the Indebtedness shall not be liable to Mortgagor for any damage or injury to the Mortgaged Property except such as may be caused through his, its or their fraud or willful misconduct.

C. Power of Attorney to Mortgagee. Mortgagor does hereby designate Mortgagee as Mortgagor’s agent 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.

ARTICLE VIII.

MISCELLANEOUS

A. Interest. Any provision in any document that may be executed in connection herewith to the contrary notwithstanding, the holder of the Indebtedness shall in no event be entitled to receive or collect, nor shall any amounts received hereunder be credited so that the holder of the Indebtedness shall be paid as interest, a sum greater than that authorized by law. If any possible construction of this Deed of Trust or any instrument evidencing the Indebtedness, or any or all other notes, guaranties or papers relating to the Indebtedness, seems to indicate any possibility of a different power given to the holder of the Indebtedness, or any authority to ask for, demand, or receive any larger rate of interest, such as a mistake in calculation or wording, this clause shall override and control, and proper adjustments shall be made accordingly.

B. Agreement as Entirety. This Deed of Trust, for convenience only, has been divided into Articles and paragraphs, and it is understood that the rights, powers, privileges, duties and other legal relations of Mortgagor, the Trustee, and Mortgagee or any holder of the Indebtedness, shall be determined from this instrument as an entirety and without regard to the aforesaid division into Articles and paragraphs and without regard to headings prefixed to such Articles.

C. Number and Gender. The terms used to designate any of the parties herein shall be deemed to include the heirs, successors and assigns of such parties; the term “successors” shall include the heirs, trustees and legal representatives; and the term “Mortgagee” shall also include any lawful owner, holder or pledgee of any Indebtedness. 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.

D. Rights and Remedies Cumulative. Every right and remedy provided for herein shall be cumulative of each and every other right or remedy of Mortgagee, whether herein or otherwise conferred, and may be enforced concurrently therewith, and the unenforceability or invalidity of any one or more provisions, clauses, sentences or paragraphs of this instrument shall not render any other provision, clause, sentence or paragraph unenforceable or invalid. No security theretofore, herewith or subsequently taken by Mortgagee shall in any manner impair or affect the security given by this instrument or any security by endorsement or otherwise presently or previously given, and all security shall be taken, considered and held as cumulative.

E. Parties in Interest. This Deed of Trust shall be binding upon the parties, their respective successors and assigns, and shall inure to the benefit of the holder of the Indebtedness, and the covenants and agreements herein contained shall constitute covenants running with the Land.

F. Supplements. It is contemplated by the parties hereto that from time to time additional interest and properties may or will be added to the interests and properties in Exhibit A attached hereto by means of supplemental indentures identifying this Deed of Trust and describing such interests and properties to be so added and included, and upon the execution of any such supplemental indenture, the lien, rights, titles and

DEED OF TRUST — Page 12

interests created herein shall immediately attach to and be effective in respect to any such interests and properties so described, the same as if same had been included originally in Exhibit “A” attached hereto, and the same being included in the term “Mortgaged Property”, as used herein.

G. Counterparts. This instrument is simultaneously executed in a number of identical counterparts, each of which for all purposes shall be deemed an original and 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.

H. 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 land described herein or to which reference is made herein. In addition, the security interest created hereby under applicable provisions of the Uniform Commercial Code attached to minerals, including oil and gas, or accounts resulting from the sale thereof, at the wellhead or minehead located on the land described or to which reference is made herein.

I. Financing Statement. This Deed of Trust may be filed as provided in TEX. BUS. & COM. CODE ANN. Ch. 9 (Tex. UCC) (Vernon Supp. 1988) relating to the granting of security interests by nonutilities to assure that the security interest granted by this Deed of Trust are perfected under Texas law. In this connection, this instrument will be presented to a filing officer under the Uniform Commercial Code to be filed in the real estate records as a Financing Statement covering minerals and fixtures, pursuant to TEX. BUS. & COM. CODE ANN. Subsec. 9.402(e) and 9.402(f) (Tex. UCC) (Vernon Supp. 1988).

J. 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.

K. Recording Counterparts. For the convenience of the parties, this instrument may be executed in multiple counterparts. 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 instrument 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.

L. No Waiver by Mortgagee. The failure or delay of Mortgagee to file or give any notice as to this instrument, or to exercise any right, remedy or option to declare the maturity of the principal debt, or any other sums hereby secured, or the payment by Mortgagee of any taxes, liens, charges or assessments, shall not be taken or deemed a waiver of any rights to exercise such right or option or to declare any such maturity as to any pat or subsequent violations of any of such covenants or stipulations, and shall not waive or prejudice any right or lien hereunder. Any election or failure by Mortgagee to exercise any rights, remedies or options hereunder shall not constitute a waiver or prejudice the exercise of other rights or remedies existing hereunder. All rights, powers, immunities, remedies and liens of Mortgagee existing and to exist hereunder or under any other instrument, and all other or additional security, and Mortgagee’s rights at law and in equity, shall be cumulative and not exclusive, each of the other; and Mortgagee shall, in addition to the 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 remedy provided for hereunder or at law or in equity shall not prevent concurrent or subsequent resort to the same or any other remedy or remedies.

M. Purpose Provision. This Deed of Trust is given:

1. to secure payment of the promissory note executed by Mortgagor ENERGYTEC, INC., dated February 27, 2007, payable to the order of Mortgagee in the principal amount of $4,000,000.00, by mortgaging the properties described in Exhibit “A” attached hereto; and

2. to renew, extend, and carry forward the Deed of Trust lien dated February 27, 2006, in the original principal amount of $4,000,000.00, secured by Deed of Trust of record in Volume 566, Page 146, Official Public Records of Hopkins County, Texas, and Volume 2144, Page 97, Official Public Records of Wood County, Texas; and further secured by Assignment to Trustee of Oil and Gas Production of record in Volume 566, Page 209, Official Public Records of Hopkins County, Texas, and Volume 2144, Page 160, Official Public Records of Wood County, Texas.

DEED OF TRUST — Page 13

EXECUTED this 29^th day of March, 2007, EFFECTIVE as of the 27^th day of February, 2007.

ENERGYTEC, INC
By:	/s/ Don Lambert
	Don Lambert, President
By:	/s/ Dorothea Krempein
	Dorothea Krempein, Vice President

THE STATE OF TEXAS	|
	|
COUNTY OF GREGG	|

BEFORE ME, the undersigned authority, on this day personally appeared Don Lambert, President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whomWLe is subscribed to the foregoing instrument, and acknowledged to me that he executed the samMHrthe purposes and considerations therein expressed, as the act and deed of such corporation, and in th^^Rcity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of M^HE)07.

/s/ Gregory Allen Ball

Notary Public, State of Texas

THE STATE OF TEXAS	|
	|
COUNTY OF GREGG	|

BEFORE ME, the undersigned authority, on this day personally appeared Dorothea Krempein, Vice President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and considerations therein expressed, as the act and deed of such corporation, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of March, 2007.

/s/ Gregory Allen Ball

Notary Public, State of Texas

AFTER RECORDING RETURN TO: ROBERT A. SHERMAN POST OFFICE BOX 351 CARTHAGE, TEXAS 75633

DEED OF TRUST — Page 14

Personal Property

All oil wells, pumping units, casing rods, production tubing, separators, surface flowlines, wellheads, tanks and other equipment incidental to and used in connection with the production, treating and storing of minerals or the like (including oil and gas) from those certain oil, gas and mineral leases described in this Exhibit ÀA@.

Signed for Identification:

/s/ DON LAMBERT

DON LAMBERT, PRESIDENT

/s/ DOROTHEA KREMPEIN

DOROTHEA KREMPEIN, VICE PRESIDENT

CUSTOMER:	ENERGYTEC INC
	FEBRUARY, 2007

					EXHIBIT “A”
LEASE NAME	COUNTY STATE	OPERATOR	WORKING INTEREST	REVENUE INTEREST	LPD ID # / API #	OIL/GAS DISBURSER
DRILLAR BOZEMAN 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003383	SUNOCO
COKER W H 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003380	SUNOCO
KENDRICK LAWYER 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003386	SUNOCO
FORD SIMMS 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003382	SUNOCO
FOSTER DERMOT 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003379	SUNOCO
LIVINGSTON L H 1A	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003381	SUNOCO
MORRIS J J 3	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003378	SUNOCO
KENDRICK M L 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003385	SUNOCO
HOWLE 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXG05 121295	SUNOCO
COOK AB 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO05 002858	SUNOCO
HOWLE A,B	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	SUMMARY	SUNOCO
ISOM 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO05 002859	SUNOCO
GRICE W W NO. 22	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7995	TXO06 005074	SUNOCO
BAILEY W F 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 000869	SUNOCO
TAYLOR PINKIE 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001350	SUNOCO
CLOVER HILL SCHOOL 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO06 000868	SUNOCO
TAYLOR P B3	WOOD/TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001345	SUNOCO
TAYLOR P A 1A	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 012837	SUNOCO
STONE JOHNSON 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001342	SUNOCO
CHRIETZBURG J C 1	WOOD /TX	COMANCHE WELL SERVICE	1 000	0.7300	TXO06 001338	SUNOCO

SIGNED FOR IDENTICATION:

/s/ DON LAMBERT

DON LAMBERT, PRESIDENT

/s/ DOROTHEA KREMPEIN

DOROTHEA KREMPEIN, VICE PRESIDENT

EX-10.142

Exhibit 10.142

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT

AND ASSIGNMENT OF PRODUCTION

(Oil, Gas and Mineral Properties)

This instrument contains after-acquired property provisions

THE STATE OF TEXAS	|
	|	KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF WOOD	|

That the undersigned, ENERGYTEC, INC., a Nevada corporation, acting herein by and through its proper officer who has heretofore been duly authorized, with its principal office in Piano, Texas, and the mailing address for which is 4965 Preston Park Boulevard, Suite 270 East, Piano, Texas 75093 (AMortgagor”, whether one or more), and Gladewater National Bank, the banking quarters for which are at 678 North Main, Gladewater, Gregg County, Texas, and the mailing address for which is Post Office Box 1749, Gladewater, Texas 75647-0027 (“Mortgagee”), hereby agree as follows:

ARTICLE I.

GRANT

A. 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 Redonia Harper, Trustee, whose address is Post Office Box 1749, Gladewater, Texas 75647-0027, and his successors and substitutes in trust, as hereinafter provided, (the “Trustee”), for the benefit of Mortgagee, the following described property:

Certain interest in oil, gas and mineral fee and leasehold estates in the property more particularly described in the schedule attached hereto, marked Exhibit “A” for identification, incorporated herein and made a part hereof for all purposes (the “Land”).

B. Security Interest. For the same consideration, Mortgagor 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, including the proceeds and products from any and all of such improvements and personal property, whether now owned and existing or hereafter acquired or arising, and situated on any of the Land, 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 Mortgagor’s interest in the Land, including all oil, gas and other minerals produced or to be produced to the account of Mortgagor from the Land and all accounts receivable, general intangibles and contract rights of Mortgagor in connection with the Land or the Leases, hereinafter defined, and all proceeds, products, substitutions and exchanges thereof (the Land, the Leases, hereinafter defined, and real and personal property interests hereinabove described being the “Mortgaged Property”).

C. Assignment of Security. For the same consideration, Mortgagor hereby grants to Mortgagee any and all rights of Mortgagor to liens and security interests securing payment of proceeds from the sale of production from the Mortgaged Property, including, but not limited to, those liens and security interests provided for in TEX. BUS. & COM. CODE ANN. Sec. 9.319 (Tex. UCC) (Vernon Supp. 1988).

D. 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 lien and/or security interest of this Deed of Trust, Security Agreement, Financing Statement and Assignment of Production (this “Deed of Trust”), together with all rights, hereditaments and appurtenances in anywise belonging to the Trustee or assigns forever.

DEED OF TRUST - Page 1

E. After Acquired Property. Any additional right, title or interest which Mortgagor may hereafter acquire or become entitled to in the interests, properties, Lands and premises aforesaid, or in the oil, gas or other minerals in and under or produced from the Land and Leases shall inure to the benefit of and be covered by this Deed of Trust and constitute “Mortgaged Property”, the same as if expressly described and conveyed herein.

ARTICLE II.

WARRANTIES

A. Warranty of Title. Mortgagor hereby binds itself, its successors and assigns, to warrant and forever defend all and singular the above described property, rights, and interest constituting the Mortgaged Property to the Trustee and to his assigns forever, against every person whomsoever lawfully claiming or to claim the same or any part thereof.

B. Additional Warranties. For the same consideration, Mortgagor, for itself, its successors and assigns, covenants, represents and warrants that:

(1) Authority and Enforceability. The incurring by Mortgagor of the indebtedness secured by this Deed of Trust, the execution and delivery by Mortgagor ENERGYTEC, INC. of the promissory note of $4,000,000.00, dated February 27, 2007, and the performance and observance by Mortgagor of the terms and provisions of such promissory note and this Deed of Trust have been duly authorized by any necessary corporate proceedings, and will not contravene any requirement of law, or any provision of Mortgagor’s charter or by-laws, or result in the breach or termination of, or constitute a default under, any indenture or other agreement or instrument to which Mortgagor is a party or by which it or any of its property may be bound or affected.

(2) Additional Authority. Mortgagor is the lawful owner of the Mortgaged Property and has good right and authority to pledge, mortgage, assign, sell and convey the same.

(3) Interests in Mortgaged Property. Mortgagor’s interest in the Mortgaged Property, as set forth in Exhibit “A” hereto, are true and correct.

(4) Leases in Effect. All of the leases constituting all or part of the Mortgaged Property (the “Leases”) are in full force and effect and all covenants, express or implied, in respect thereof, or of any assignment there-of which may affect the validity of any of the Leases, have been performed insofar as the Leases pertain to the Land.

(5) Interests Free of Liens. Mortgagor’s interest in the Leases is free and clear of all liens, mortgages, oil payments, or other burdens or encumbrances and all gross production taxes and other taxes as to which non-payment could result in a lien against any of the Mortgaged Property have been paid, except as specifically set forth in Exhibit “A” hereto.

(6) Compliance with Laws. Mortgagor and the Mortgaged Property are in compliance with all applicable laws and regulations, including, without limitation, those relating to any flammable, explosives, radioactive materials, hazardous wastes, friable asbestos or any material containing asbestos, toxic substances or related materials, including, without limitation, substances defined as “hazardous substances”, “hazardous materials” or “toxic substances” in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec. 9601, et. seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Sec. 1801, et. seq., or the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901, et seq. (“Hazardous Materials”).

(7) Gas Contracts. Except as set forth under the heading for this provision in the schedule attached hereto, marked Exhibit “B” for identification, incorporated herein and made a part hereof for all purposes, Mortgagor (i) is not obligated in any material respect by virtue of any prepayment made under any contract containing a “take or pay” or “prepayment” provision, or under any similar agreement to deliver hydrocarbons produced from or allocated to any of the Mortgaged Property at some future date without receiving full payment therefor at the time of delivery and (ii) has not produced gas, in any material amount, subject to, and neither Mortgagor nor any of the Mortgaged Property is subject to, balancing rights of third parties or subject to balancing duties under governmental requirements, except as to such matters for which Mortgagor has established monetary reserves adequate in amount to satisfy such obligations, and has segregated such reserves from other accounts.

DEED OF TRUST - Page 2

(8) Refunds. Except as set forth under the heading for this provision in the schedule attached hereto, marked Exhibit “B” for identification, incorporated herein and made a part hereof for all purposes, there exist no orders of, or proceedings pending before, or other governmental requirements of, the Federal Energy Regulatory Commission, the Texas Railroad Commission or any other similar state of federal regulatory body or governmental authority which could result in Mortgagor being required to refund any material portion of the proceeds received or to be received from the sale of hydrocarbons constituting part of the Mortgaged Property.

ARTICLE III.

INDEBTEDNESS SECURED

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

(a) The promissory note dated February 27, 2007, executed by Mortgagor ENERGYTEC, INC. to the order of Mortgagee in the principal sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) bearing interest and payable (in installments) as therein provided, and containing the usual provisions in notes of this character, together with any and all renewals, extensions, rearrangements and increases thereof; (b) all additional indebtedness of Mortgagor to Mortgagee arising pursuant to the provisions of this deed of trust; (c) all loans and advances which Mortgagee may hereafter make to the Mortgagor; (d) all other and additional debts, obligations, and liabilities of every kind and character of Mortgagee to Mortgagor, now or hereafter existing, regardless of whether such debts, obligations and liabilities be direct or indirect, primary or secondary, joint or several, or joint and several, fixed or contingent, and regardless of whether such present or future obligations are payable to, or be or have been in favor of some other person or have been acquired by Mortgagee in a transaction with one other than Mortgagor, including but not limited to attorneys= fees and other expenses of collection and enforcement of the Note, this deed of trust and other secured indebtedness; (e) performance of all obligations of Mortgagor to Mortgagee hereunder, under the Note, under any other instrument now or hereafter securing any indebtedness of Mortgagor to Mortgagee and under any agreement arising from or relating to any indebtedness of Mortgagor to Mortgagee; and (f) any and all renewals, extensions, changes in form reamortizations and other modifications of such debts, obligations and liabilities, or any part thereof.

ARTICLE IV.

COVENANTS OF MORTGAGOR

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

A. Title Curative. Mortgagor will proceed with reasonable diligence to correct any defect in the title to the Mortgaged Property should any such defect be found to exist after the execution and delivery of this Deed of Trust; and in this connection, should it be found, after the execution and delivery of this Deed of Trust, that there exists upon the Mortgaged Property any lien or encumbrance equal or superior in rank to the liens and security interests created by this Deed of Trust, or should any such lien or encumbrance hereafter arise, Mortgagor will promptly discharge and remove the same from the Mortgaged Property.

B. Further Assurances. Upon request of Mortgagee, Mortgagor will promptly correct any defect which may be discovered after the execution and delivery of this Deed of Trust in any other documents executed in connection herewith, in the execution or acknowledgment hereof or thereof, or in the description of the Mortgaged Property, and will execute, acknowledge, and deliver such division orders, transfer orders and other assurances and instruments as shall, in the opinion of Mortgagee, be necessary or proper to convey and assign to the Trustee all of the Mortgaged Property herein conveyed or assigned, or intended to be so.

C. Maintenance of Leases. Mortgagor will keep and continue all Leases, estates and interests herein described and 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.

DEED OF TRUST - Page 3

D. Maintenance of Equipment. Mortgagor will keep and maintain all improvements and all personal property and equipment now or hereafter situated on the Land and constituting a portion o the Mortgaged Property and used or obtained in connection therewith in good state of 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 might be required for replacement when otherwise in compliance with this Deed of Trust.

E. Notification of Loss. Mortgagor will notify Mortgagee of the destruction, loss, termination or acquisition of any Mortgaged Property within three business days thereof.

F. 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 Mortgagor’s net revenue interest 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 pooling 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 liens and security interests 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” hereto. In the event any proceedings of any governmental body 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.

G. Payment of Lienable Claims. Mortgagor will pay all taxes now or hereafter to accrue against any of the Mortgaged Property and all other taxes or assessments, general or special, lawfully levied against it on such Mortgaged Property which might become a lien thereon before such taxes become delinquent; and it will during the life of this Deed of Trust keep the Mortgaged Property, and each and every part thereof, free, clear and discharged from all liens, charges, encumbrances, or assessments that might become superior, coordinate or subordinate to the liens or security interests of this Deed of Trust.

H. Maintenance of Workmen’s Compensation Insurance. Mortgagor will at all times maintain workmen’s compensation insurance with a responsible insurance company where required by, and in accordance with, the laws of the state in which the Mortgaged Property is located.

I. Mortgagee’s Payment of Lienable Claims. In the event Mortgagor shall fail or neglect to pay any taxes, general or special, or shall fail or neglect to relieve the Mortgaged Property from any lien which might become superior or equal to the lien of this Deed of Trust, or fail to carry such workmen’s compensation or other insurance, the Trustee, at his option, or Mortgagee, at its option, may pay such taxes, liens, charges or encumbrances, or any part thereof, or effect such workmen’s compensation insurance, and Mortgagor will promptly reimburse Trustee or Mortgagee, as the case may be, therefor; and any and all such sums so paid hereunder shall be paid by Mortgagor upon demand at Mortgagee’s principal offices, and shall constitute a part of the Indebtedness.

J. 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 drilled thereon and that may hereafter be drilled thereon, continuously and in good workmanlike manner in accordance with the best usage of the field and in accordance with all laws of the State in which the Mortgaged Property is situated and the United States of America, as well as all rules, regulations, and laws of any governmental agency having jurisdiction to regulate the manner in which the operation of the Mortgaged Property shall be carried on, and will comply with all terms and conditions of the Leases it now holds, or any 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 obligation, or render the Trustee or Mortgagee in any way responsible or liable for bills or obligations incurred by Mortgagor.

K. Maintenance of Liability and Casualty Insurance. Mortgagor will carry with standard insurance companies satisfactory to Mortgagee or holder of the Indebtedness, public liability and property damage insurance, as well as insurance against loss or damage to the Mortgaged Property by fire, lightning, tornado and explosion, all in amounts satisfactory to Mortgagee; all such policies shall be payable to Mortgagee, and the policies evidencing the same or acceptable certificates thereof shall be held by Mortgagee. Mortgagee shall have the right to collect, and Mortgagor hereby assigns to Mortgagee, any and all monies that may become payable under any policies of insurance by reason of damage, loss or destruction of the Mortgaged Property or any part thereof, and Mortgagee shall apply all such sums or any part thereof, at its election, toward the payment of the Indebtedness, whether the same be then due or not, application to be made first to interest and then to principal, and shall deliver to Mortgagor the balance, if any, after any application has been made.

DEED OF TRUST - Page 4

L. 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 amendment of existing operating agreement affecting the Mortgaged Property without prior written consent of Mortgagee. Furthermore, Mortgagor will not consent or agree to participate in any proposed operation under any presently existing operating agreement affecting the Mortgaged Property unless Mortgagor obtains the prior written consent of Mortgagee and deposits either with the operator, where Mortgagor is a non-operator, or with Mortgagee, where Mortgagor is a non-operator or operator, Mortgagor’s share of the estimated cost of the proposed operation prior to electing to participate in the operation. 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 once it is determined that it cannot so participate and to the extent allowed to do so under the relevant operating agreement or other applicable contract, farmout to others acceptable to Mortgagee, on the best terms obtainable, which terms shall be acceptable to Mortgagee, the interest or relevant portion of the interest of Mortgagor in the proposed operation.

M. Access to Mortgaged Property. Mortgagor will permit Mortgagee and its accredited agents, representatives, attorneys and employees at all times to go upon, examine, inspect 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.

N. Evidence of Title. Promptly upon receipt of a request from Mortgagee, Mortgagor will furnish and deliver, a Title Opinion prepared by competent legal counsel covering title to the real property herein mortgaged from the Sovereignty of the Soil to the latest practicable date, when taken together with abstracts and/or Title Opinions previously furnished to Mortgagee. Should Mortgagor fail to furnish such Title Opinion upon such request, Mortgagee may obtain such Title Opinion, and any and all costs incurred thereby shall be payable by Mortgagor to Mortgagee upon demand at Mortgagee’s principal offices. The Title Opinion shall be and constitute a part of the Mortgaged Property as defined above.

O. Notification of Legal Proceedings. Mortgagor will promptly notify Mortgagee or other holder or holders of the Indebtedness, in writing, of the commencement of any legal proceedings affecting the Mortgaged Property or any part thereof, and will take such action as may be necessary to preserve its and Mortgagee’s rights affected thereby; and should Mortgagor fail or refuse to take any such action, Mortgagee may at its election take such action on behalf and in the name of Mortgagor and at Mortgagor’s cost and expense.

P. Maintenance of Existence. If Mortgagor, is a corporation, it will maintain its corporate existence and will maintain and procure all necessary corporate franchise and permits to the end that Mortgagor shall be and continue to be a corporation in good standing in the state of its incorporation and in the state wherein the Mortgaged Property is located, with full power and authority to own and operate all of the Mortgaged Property as contemplated herein until this Deed of Trust shall have been fully satisfied.

Q. Waivers. Mortgagor hereby expressly waives any and all rights or privileges of marshaling of assets, sale in inverse order of alienation, notices, appraisements, redemption and any prerequisite to the full extent permitted by applicable law, in the event of foreclosure of the lien or liens and/or security interests created herein. Mortgagee at all times shall have the right to release any part of the Mortgaged Property now or hereafter subject to the lien or security interest of this Deed of Trust, any part 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 or security interests hereof as to the part or parts thereof not so released, or the right to receive future proceeds and income.

R. Payment of Mortgagee’s Expenses. Upon demand of Mortgagee, Mortgagor will promptly pay all costs and expenses heretofore or hereafter incurred by Mortgagee for legal, accounting, engineering or geological services rendered to it in connection with the making of the initial or any future loan to Mortgagee secured in whole or in part by the liens and security interests hereof or in the enforcement of any of

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Mortgagee’s rights hereunder. The obligations of Mortgagor hereunder shall survive the non-assumption of this Deed of Trust in a case commenced under Title 11 of the United States Code or other similar law of the United States of America, the State of Texas or any other jurisdiction and be binding upon Mortgagor, or a trustee, receiver, custodian or liquidator of Mortgagor appointed in any such case.

S. Other Liens. Without prior approval and written consent of Mortgagee, Mortgagor will not mortgage, pledge or otherwise encumber the Mortgaged Property or any part thereof, regardless of whether the lien or encumbrance is senior, coordinate, junior, inferior or subordinate to the lien and security interest created hereby.

T. Transfer or Division Orders. Upon request of Mortgagee, Mortgagor will execute and deliver written notices of assignments to any persons, corporations or other entities owing or which may in the future owe to Mortgagor monies or accounts arising in connection with any of the following matters: (a) any oil, gas or mineral production from the Mortgaged Property; (b) any gas contracts, processing contracts or other contracts relating to the Mortgaged Property; or (c) the operation of or production from any part of the Mortgaged Property. The notices of assignments shall advise the third parties that all of the monies or accounts described above have been assigned to Mortgagee, and if required by Mortgagee, shall also require and direct that future payments thereof, including amounts then owing and unpaid, be paid directly to Mortgagee.

U. Effect of Violation. Any mortgage, pledge, encumbrance, unitization, pooling, communitization or other action or instrument in violation of the prohibitions contained in F. or S. above shall be of no force or effect against Mortgagee.

V. Sales of Assets or Reorganization. Without the prior written consent of Mortgagee, Mortgagor will not sell, lease, transfer or otherwise dispose of all or substantially all of its properties and assets, or, if Mortgagor is a corporation, consolidate or merge into any other corporation, or permit another corporation to merge into it.

W. Compliance with Laws. Mortgagor will comply at all times with all federal, state and local laws, regulations, and ordinances applicable to the Mortgaged Property, including, without limitation, all environmental protection and hazardous waste requirements, and in this regard:

(1) Natural or Environmental Resources Compliance. Mortgagor will comply with any and all applicable local, state and federal laws, ordinances, rules, regulations and orders (a) related to any natural or environmental resource or media located on, above, within, in the vicinity of, related to or affected by the Mortgaged Property, any property in which Mortgagee has a mortgage, security or other interest or any other property of Mortgagor, or (b) required for the performance or conduct of its operations.

(2) Notification of Hazardous Materials Inquiries. Mortgagor will forthwith notify Mortgagee in writing of any request from any governmental agency or other entity for information on releases of Hazardous Materials from, affecting or related to the Mortgaged Property, any property in which Mortgagee has a mortgage, security or other interest or any other property of Mortgagor; notify Mortgagee of any actual, proposed or threatened testing or other investigation by any governmental agency or other entity concerning the environmental condition of or related to such property; provide to Mortgagee such information as Mortgagee shall request concerning the generation, storage, disposal, transportation or other management, if any, of any Hazardous Materials.

(3) Hazardous Materials Compliance and Indemnification. Mortgagor will at all times comply fully and in a timely manner with, and will cause all employees, 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 so comply with, all applicable federal, state and local laws, regulations, guidelines, codes and ordinances applicable to the use, generation, handling, storage, treatment, transport and disposal of any Hazardous Materials now or hereafter located or present on or under the Mortgaged Property, and Mortgagor indemnifies and hold Mortgagee 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 there-with (including, without limitation, attorneys’ fees and expenses), arising directly or indirectly, in whole or in part, out of (a) the presence of any Hazardous Materials on, under or from the Mortgaged Property, whether prior to or during the term hereof, or (b) any activity carried on or undertaken on or off the Mortgaged Property, whether

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prior to or during the term hereof, and whether by Mortgagor or any predecessor in title or any employees, agents, contractors or subcontractors of Mortgagor or any predecessor in title, or any third persons at any time occupying or present on the Mortgaged Property, in connection with the handling, treatment, removal, storage, decontaminations, cleanup, transport or disposal of any Hazardous Materials at any time located or present on or under the Mortgaged Property, including, without limitation, any of the foregoing arising, in whole or in part, from negligence on the part of Mortgagee, (the foregoing indemnity being the “Hazardous Materials Indemnity”). The Hazardous Materials Indemnity shall further apply to any residual contamination on or under the Mortgaged Property, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any Hazardous Materials, irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances; and

(4) Survival of Indemnification. The Hazardous Materials Indemnity shall survive repayment of the indebtedness, provided that the claims and other actions of any kind against Mortgagee which give rise to the Hazardous Materials Indemnity are not barred by the applicable statute of limitations at the time such claims or actions are instituted.

X. Uneconomic Wells. As to any oil and/or gas well forming part of the Mortgaged Property, should there not be, for a period in excess of three consecutive calendar months, proceeds from the sale of production from such well (net or productions, severance and windfall profit taxes and royalties overriding royalties and other payments out of or measured by production) in excess of the expense of operation of the relevant 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 operators) then, upon receipt by Mortgagor or 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) any funds required to pay Mortgagor’s share of the expenses associated with the continuing operation of such well.

Y. Performance of Gas Contracts. Mortgagor will perform and observe in all material respects each of the provisions of the contracts relating to the sale of gas produced from or attributable to the Mortgaged Property to which Mortgagor is a party of its part to be performed or observed prior to the termination thereof and will give Mortgagee prior written notice of any change, modification or amendment to or waiver of any of the terms or provisions of any of such contracts or any action which will release any party from its obligations or liabilities under any of such contracts, none of which shall be done except in good faith and as the result of arm’s length negotiations.

Z. Transactions with Affiliates. Mortgagor will not, directly or indirectly, enter into any sale, lease or exchange of any property or any contract for the rendering of goods or services with respect to any of the Mortgaged Property (including, but not limited to, operating agreements under which Mortgagor or an affiliate serves as operator) with any affiliate of Mortgagor other than upon fair and reasonable terms no less favorable than could be obtained in an arm’s length transaction with a person not an affiliate of Mortgagor.

ARTICLE V.

DEFEASANCE. FORECLOSURE AND OTHER REMEDIES

A. Defeasance. Should Mortgagor make due and punctual payment of the Indebtedness, as the same becomes due and payable, and duly observe and perform all of the covenants, conditions and agreements herein (and in all other agreements with Mortgagee) provided to be observed and performed by it, then the conveyance of the Mortgaged Property shall become of no further force and effect, and the lien and security interest hereof shall be released at the cost and expense of Mortgagor; otherwise, it shall remain in full force and effect.

B. Default Events, Acceleration and Exercise of Power of Sale. In case any one or more of the following events of default shall happen:

(1) Payment of Indebtedness. Default be made by Mortgagor in the due and punctual payment of the Indebtedness, or any part thereof, principal or interest, as the same becomes due and payable, whether by acceleration or otherwise; or

DEED OF TRUST - Page 7

(2) Covenants and Warranties. Default be made by Mortgagor in the due observance or performance of any of the covenants, conditions or agreements herein provided to be observed or performed by Mortgagor or any warranty of Mortgagor herein made prove to be untrue or inaccurate in any material respect; or

(3) Failure of Title. Mortgagor’s title to the Mortgaged Property, or any substantial part thereof, become the subject of actual or threatened litigation which would or might, in Mortgagee’s opinion, on final determination result in substantial impairment or loss of the security provided for herein; or

(4) Sale or Encumbrance. Mortgagor, without the prior written consent of Mortgagee (Mortgagee having an absolute right to refuse to consent or to condition its consent upon satisfaction of any one or more of the following requirements: (a) that the interest rate on the Indebtedness be increased to a rate acceptable to Mortgagee; (b) that a reasonable transfer fee, in an amount determined by Mortgagee, be paid; (c) that a principal amount deemed appropriate by Mortgagee be paid against the Indebtedness to reduce to a level acceptable to Mortgagee the ratio that the outstanding balance of the Indebtedness bears to the value of the Mortgaged Property as determined by Mortgagee; (d) that Mortgagor and each proposed transferee execute such assumption agreements and other instruments as Mortgagee shall reasonably require; (e) that the proposed transferee’s creditworthiness and experience in owning and operating similar properties be demonstrable and proven to Mortgagee’s reasonable satisfaction as being at least as good as Mortgagor’s; (f) that the liability to Mortgagee of Mortgagor and all other guarantors of all or any part of the Indebtedness will be confirmed by them in writing to be unaffected and unimpaired by such transfer, conveyance or encumbering; and (g) that any proposed junior mortgagee expressly subordinate to all liens and security interests securing the Indebtedness as to both lien and payment right priority), sell, assign, lease, transfer, mortgage, pledge, hypothecate or otherwise dispose of or encumber all or any portion of the Mortgaged Property or enter into any contractual arrangement to do so, irrespective of whether or not the transfer, conveyance or encumbrance would or might (i) diminish the value of any security for the Indebtedness, (ii) increase the risk of default under this Deed of Trust, (iii) increase the likelihood of Mortgagee’s having to resort to any security for the Indebtedness after default or (iv) add or remove the liability of any person or entity for payment or performance of the Indebtedness or any covenant or obligation under this Deed of Trust; provided, however, the foregoing shall not apply to hydrocarbons produced and sold in the ordinary course of business; or

(5) Involuntary Insolvency. An order, judgment or decree be entered against Mortgagor by any court of competent jurisdiction or by any other duly authorized authority, on the petition of a creditor or otherwise, granting relief under Title 11 of the United States Code or under any bankruptcy, insolvency, debtor’s relief or other similar law of the United States or any state approving a petition seeking reorganization or an arrangement of Mortgagor’s debts or appointing a receiver, trustee, conservator, custodian or liquidator of Mortgagor or all or any substantial part of Mortgagor’s assets; or

(6) Voluntary Insolvency. Mortgagor (i) discontinue its usual business, or (ii) apply for or consent to the appointment of a receiver, trustee or liquidator of Mortgagor of all or a substantial part of its assets, or (iii)file a voluntary petition commencing a case under Title 11 of the United States Code, seeking liquidation, reorganization or rearrangement, or taking advantage of any bankruptcy, insolvency, debtor’s relief or other similar law of the United States or any state, or (iv) make a general assignment for the benefit of creditors, or (v) be unable, or admit in writing its inability, to pay its debts generally as they become, or (vi) file an answer admitting the material allegations of a petition filed against it in any case commenced under Title 11 of the United States Code or any reorganization, insolvency, conservatorship or similar proceeding under any bankruptcy, insolvency, debtor’s relief or other similar law of the United States or any state, or apply for relief under any state or federal act for the relief of debtors; or

(7) Contracts Relating to Indebtedness. Default be made by Mortgagor in the due observance or performance of any of the covenants, conditions or agreements provided to be observed or performed by Mortgagor in any loan agreement or other contract or agreement relating to any Indebtedness; or

(8) Decline in Value of Collateral. The Mortgaged Property materially decline in value in the determination of Mortgagee; or Mortgagee, in its sole discretion, deem payment of the Indebtedness to be insecure; or

DEED OF TRUST - Page 8

(9) Fraudulent Actions or Preference of Creditor. Mortgagor conceal, remove, or permit to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them; or make or suffer a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or make any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid amounts owing; or take any other action in the nature of a fraud upon its creditors, or any of them;

then, and in any such event, the whole of the principal of the Indebtedness remaining unpaid, together with all interest accrued thereon, may, at the option of the holder thereof, without notice (including, but not limited to, notice of intention to accelerate maturity and notice of acceleration of maturity) or demand, which are, to the full extent permitted by applicable law, waived by Mortgagor for purposes of any provision of this Deed of Trust or of the evidences of the Indebtedness, be declared immediately due and payable; and thereupon, 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 the holder of the Indebtedness (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 Land 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 the holder of the Indebtedness, by postage prepaid, certified United States mail, at the most recent address for such debtor as shown by the records of the holder of the Indebtedness, 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 make the purchaser or purchasers good and sufficient deeds and assignments in the name of Mortgagor herein, conveying such property so sold to the purchaser or purchasers with general warranty of title. The Trustee, or his successor or substitute, is hereby authorized and empowered to appoint any one or more persons as his attorney(s)-in-fact 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 attorney(s)-in-fact 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 his or its heirs, legal representatives, successors or assigns, 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 or security interest hereof.

C. Rights as Secured Party. Upon the happening of any of the above-enumerated events of default, Mortgagee shall be entitled to all of the rights, powers and remedies afforded a secured party by the Uniform Commercial Code with reference to the personal property and fixtures in which Mortgagee has been granted a security interest hereby, or Mortgagee may proceed as to both the real and personal property covered hereby.

D. Application of Proceeds of Sale. The Trustee is authorized to receive the proceeds of said sale or sales 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% to be estimated upon the amount realized at the sale;

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

THIRD: the balance, if any, to Mortgagor or its successors or assigns.

DEED OF TRUST - Page 9

E. 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, then the holder of the Indebtedness 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.

F. 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 by any other holder of the Indebtedness or by the Trustee, shall be taken by all courts of law and equity prima facie evidence that the statements or recitals state facts and are without further question to be so accepted; and 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 instrument.

G. Suit to Collect and Foreclose. The holder of the Indebtedness may, at its election, or the Trustee may, upon written request of the holder of the Indebtedness, 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 note, notes or guaranties evidencing it, and to foreclose the lien and/or security interest 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.

H. Mortgagee as Purchaser. It is expressly understood that the holder of the Indebtedness, or the Trustee, may be a purchaser of the Mortgaged Property, or of any part hereof, at any sale thereof, whether such sale be under the power of sale hereinabove vested in the Trustee or upon any other foreclosure of the lien and/or security interest hereof, or otherwise; and the holder of the Indebtedness or the Trustee so purchasing shall, upon any such purchase, acquire good title to the Mortgaged Property so purchased, free of the lien and/or security interest of this Deed of Trust and free of all rights of redemption in Mortgagor.

I. 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 the holder of the Indebtedness or 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 of any note or guaranty reflecting the Indebtedness, and the employment of any remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies.

ARTICLE VI.

ASSIGNMENT OF PRODUCTION

A. 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 interest of Mortgagor therein subsequent to 7:00 a.m. on the 1 st 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; and 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 to paid to Mortgagee.

B. Change of Purchaser. Should any purchaser taking the production from the Mortgaged Property fail to make prompt payment to Mortgagee in accordance with this Assignment, Mortgagee shall have the right at Mortgagor’s expense 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; and failure of Mortgagor to consent to and promptly effect such change of connection shall constitute an event of default hereunder, and the whole Indebtedness may be

DEED OF TRUST - Page 10

immediately declared due and payable, at the option of Mortgagee and without demand, presentment or other notice (including, but not limited to notice of intention to accelerate maturity and notice of acceleration of maturity), and the Mortgaged Property shall become subject to the foreclosure proceedings and power of sale hereunder.

C. Application of Proceeds. Mortgagor authorizes and empowers Mortgagee to receive, hold and collect all sums of money paid to Mortgagee in accordance with this Assignment, 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. All payments provided for in this Assignment shall be paid promptly to Mortgagee, and any provisions contained in any note or notes evidencing the Indebtedness or any part thereof to the contrary notwithstanding, Mortgagee may apply the same or so much thereof as it elects to the payment of the Indebtedness, application to be made in such manner as it may elect, regardless of whether the application so made shall exceed the payments of principal and interest then due as provided in the note or notes evidencing the Indebtedness. After such application has been so made by Mortgagee, the balance of any such payment or payments remaining shall be paid to Mortgagor.

D. No Postponement of Installments on Indebtedness. It is understood and agreed that should such payments provided for by this Assignment 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 note, notes, guaranty agreements or other instrument or instruments evidencing the Indebtedness, and neither this Assignment nor any provisions hereof shall in any manner be construed to affect the terms and provisions of such note, notes, guaranty agreements or other instrument or instruments evidencing the Indebtedness. Likewise, neither this Assignment nor any provisions hereof shall in any manner be construed to affect the liens, rights, title and remedies herein 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.

E. 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.

F. Release of Proceeds Upon Payment of Indebtedness. Upon payment in full of all Indebtedness, 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 by Mortgagee to Mortgagor at its request and its expense.

G. 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.

H. Power of Attorney to Mortgagee. Mortgagor does hereby designate Mortgagee as Mortgagor’s agent 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.

ARTICLE VII.

ADDITIONAL REMEDIES

A. Mortgagee’s Remedying of Mortgagor’s Failure to Comply. If Mortgagor should fail to comply with any of the covenants or obligations of Mortgagor hereunder, then Mortgagee or the Trustee may perform the same for the account and at the expense of Mortgagor but shall not be obligated so to do, and any and all expenses incurred or paid in so doing shall be payable by Mortgagor to Mortgagee, with interest at the greater of (i) the rate of 10% per annum or (ii) the rate agreed upon in any other document or instrument relating to the Indebtedness or any part thereof, from the date when same was so incurred or paid, and the amount thereof shall be payable on demand and shall be secured by and under this Deed of Trust, and the amount and nature of such expense and the time when paid shall be fully established by the affidavit of Mortgagee or any officer or agent thereof, or by the affidavit of any Trustee acting hereunder; provided, however, that the exercise of the privileges granted in this paragraph shall in nowise be considered or constitute a waiver of the right of Mortgagee upon the happening of an event of default hereunder to declare the Indebtedness at once due and payable but shall be cumulative of such right and all other rights herein given.

B. Entry and Operation. In case any one or more of the events of default shall happen, then in each and every such cases the Trustee or Mortgagee or any holder of the Indebtedness or any part thereof, whether

DEED OF TRUST - Page 11

or not the Indebtedness shall have been declared due and payable, in addition to the other rights and remedies hereunder, may exercise the following additional remedy, but shall not be obligated so to do: the Trustee, Mortgagee or holder of the Indebtedness may enter into and upon and take possession of all or any part of the Mortgaged Property and each and every part thereof and may exclude Mortgagor, its agents and servants wholly therefrom and have, hold, use, operate, manage and control the Mortgaged Property and each and every part thereof 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 to derived, first, to the cost of maintenance and operation of such Mortgaged Property; second, to the payment of all Indebtedness secured hereby, principal and interest, 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 such Trustee, Mortgagee or holder of the Indebtedness shall not be liable to Mortgagor for any damage or injury to the Mortgaged Property except such as may be caused through his, its or their fraud or willful misconduct.

C. Power of Attorney to Mortgagee. Mortgagor does hereby designate Mortgagee as Mortgagor’s agent 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.

ARTICLE VIII.

MISCELLANEOUS

A. Interest. Any provision in any document that may be executed in connection herewith to the contrary notwithstanding, the holder of the Indebtedness shall in no event be entitled to receive or collect, nor shall any amounts received hereunder be credited so that the holder of the Indebtedness shall be paid as interest, a sum greater than that authorized by law. If any possible construction of this Deed of Trust or any instrument evidencing the Indebtedness, or any or all other notes, guaranties or papers relating to the Indebtedness, seems to indicate any possibility of a different power given to the holder of the Indebtedness, or any authority to ask for, demand, or receive any larger rate of interest, such as a mistake in calculation or wording, this clause shall override and control, and proper adjustments shall be made accordingly.

B. Agreement as Entirety. This Deed of Trust, for convenience only, has been divided into Articles and paragraphs, and it is understood that the rights, powers, privileges, duties and other legal relations of Mortgagor, the Trustee, and Mortgagee or any holder of the Indebtedness, shall be determined from this instrument as an entirety and without regard to the aforesaid division into Articles and paragraphs and without regard to headings prefixed to such Articles.

C. Number and Gender. The terms used to designate any of the parties herein shall be deemed to include the heirs, successors and assigns of such parties; the term “successors” shall include the heirs, trustees and legal representatives; and the term “Mortgagee” shall also include any lawful owner, holder or pledgee of any Indebtedness. 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.

D. Rights and Remedies Cumulative. Every right and remedy provided for herein shall be cumulative of each and every other right or remedy of Mortgagee, whether herein or otherwise conferred, and may be enforced concurrently therewith, and the unenforceability or invalidity of any one or more provisions, clauses, sentences or paragraphs of this instrument shall not render any other provision, clause, sentence or paragraph unenforceable or invalid. No security theretofore, herewith or subsequently taken by Mortgagee shall in any manner impair or affect the security given by this instrument or any security by endorsement or otherwise presently or previously given, and all security shall be taken, considered and held as cumulative.

E. Parties in Interest. This Deed of Trust shall be binding upon the parties, their respective successors and assigns, and shall inure to the benefit of the holder of the Indebtedness, and the covenants and agreements herein contained shall constitute covenants running with the Land.

F. Supplements. It is contemplated by the parties hereto that from time to time additional interest and properties may or will be added to the interests and properties in Exhibit A attached hereto by means of supplemental indentures identifying this Deed of Trust and describing such interests and properties to be so added and included, and upon the execution of any such supplemental indenture, the lien, rights, titles and

DEED OF TRUST - Page 12

interests created herein shall immediately attach to and be effective in respect to any such interests and properties so described, the same as if same had been included originally in Exhibit “A” attached hereto, and the same being included in the term “Mortgaged Property”, as used herein.

G. Counterparts. This instrument is simultaneously executed in a number of identical counterparts, each of which for all purposes shall be deemed an original and 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.

H. 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 land described herein or to which reference is made herein. In addition, the security interest created hereby under applicable provisions of the Uniform Commercial Code attached to minerals, including oil and gas, or accounts resulting from the sale thereof, at the wellhead or minehead located on the land described or to which reference is made herein.

I. Financing Statement. This Deed of Trust may be filed as provided in TEX. BUS. & COM. CODE ANN. Ch. 9 (Tex. UCC) (Vernon Supp. 1988) relating to the granting of security interests by nonutilities to assure that the security interest granted by this Deed of Trust are perfected under Texas law. In this connection, this instrument will be presented to a filing officer under the Uniform Commercial Code to be filed in the real estate records as a Financing Statement covering minerals and fixtures, pursuant to TEX. BUS. & COM. CODE ANN. Subsec. 9.402(e) and 9.402(f) (Tex. UCC) (Vernon Supp. 1988).

J. 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.

K. Recording Counterparts. For the convenience of the parties, this instrument may be executed in multiple counterparts. 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 instrument 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.

L. No Waiver by Mortgagee. The failure or delay of Mortgagee to file or give any notice as to this instrument, or to exercise any right, remedy or option to declare the maturity of the principal debt, or any other sums hereby secured, or the payment by Mortgagee of any taxes, liens, charges or assessments, shall not be taken or deemed a waiver of any rights to exercise such right or option or to declare any such maturity as to any pat or subsequent violations of any of such covenants or stipulations, and shall not waive or prejudice any right or lien hereunder. Any election or failure by Mortgagee to exercise any rights, remedies or options hereunder shall not constitute a waiver or prejudice the exercise of other rights or remedies existing hereunder. All rights, powers, immunities, remedies and liens of Mortgagee existing and to exist hereunder or under any other instrument, and all other or additional security, and Mortgagee’s rights at law and in equity, shall be cumulative and not exclusive, each of the other; and Mortgagee shall, in addition to the 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 remedy provided for hereunder or at law or in equity shall not prevent concurrent or subsequent resort to the same or any other remedy or remedies.

M. Purpose Provision. This Deed of Trust is given:

1. to secure payment of the promissory note executed by Mortgagor ENERGYTEC, INC., dated February 27, 2007, payable to the order of Mortgagee in the principal amount of $4,000,000.00, by mortgaging the properties described in Exhibit “A” attached hereto; and

2. to renew, extend, and carry forward the Deed of Trust lien dated February 27, 2006, in the original principal amount of $4,000,000.00, secured by Deed of Trust of record in Volume 566, Page 146, Official Public Records of Hopkins County, Texas, and Volume 2144, Page 97, Official Public Records of Wood County, Texas; and further secured by Assignment to Trustee of Oil and Gas Production of record in Volume 566, Page 209, Official Public Records of Hopkins County, Texas, and Volume 2144, Page 160, Official Public Records of Wood County, Texas.

DEED OF TRUST - Page 13

EXECUTED this 29^th day of March, 2007, EFFECTIVE as of the 27^th day of February, 2007.

ENERGYTEC, INC.
By:	/s/ Don Lambert
	Don Lambert, President
By:	/s/ Dorothea Krempein
	Dorothea Krempein, Vice President

THE STATE OF TEXAS	|
	|
COUNTY OF GREGG	|

BEFORE ME, the undersigned authority, on this day personally appeared Don Lambert, President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and considerations therein expressed, as the act and deed of such corporation, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of March, 2007.

/s/ Gregory Allen Ball

Notary Public, State of Texas

THE STATE OF TEXAS	|
	|
COUNTY OF GREGG	|

BEFORE ME, the undersigned authority, on this day personally appeared Dorothea Krempein, Vice President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and considerations therein expressed, as the act and deed of such corporation, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of March, 2007.

/s/ Gregory Allen Ball

Notary Public, State of Texas

AFTER RECORDING RETURN TO:
ROBERT A. SHERMAN
POST OFFICE BOX 351
CARTHAGE, TEXAS 75633

DEED OF TRUST - Page 14

Personal Property

All oil wells, pumping units, casing rods, production tubing, separators, surface flowlines, wellheads, tanks and other equipment incidental to and used in connection with the production, treating and storing of minerals or the like (including oil and gas) from those certain oil, gas and mineral leases described in this Exhibit AA@.

Signed for Identification:

/s/ Don Lambert

DON LAMBERT, PRESIDENT

/s/ Dorothea Krempein

DOROTHEA KREMPEIN, VICE PRESIDENT

CUSTOMER: ENERGYTEC INC

                        FEBRUARY, 2007

					EXHIBIT “A”
LEASE NAME	COUNTY STATE	OPERATOR	WORKING INTEREST	REVENUE INTEREST	LPD ID # / API #	OIL/GAS DISBURSER
DRILLAR BOZEMAN 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003383	SUNOCO
COKER W H 2	HOPKINS /TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003380	SUNOCO
KENDRICK LAWYER 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003386	SUNOCO
FORD SIMMS 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003382	SUNOCO
FOSTER DERMOT 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003379	SUNOCO
LIVINGSTON L H 1A	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003381	SUNOCO
MORRIS J J 3	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003378	SUNOCO
KENDRICK M L 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003385	SUNOCO
HOWLE 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXG05 121295	SUNOCO
COOK AB 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TX005 002858	SUNOCO
HOWLE A,B	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	SUMMARY	SUNOCO
ISOM 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO05 002859	SUNOCO
GRICE W W NO. 22	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7995	TXO06 005074	SUNOCO
BAILEY W F 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 000869	SUNOCO
TAYLOR PINKIE 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001350	SUNOCO
CLOVER HILL SCHOOL 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO06 000868	SUNOCO
TAYLOR P B3	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001345	SUNOCO
TAYLOR P A 1A	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 012837	SUNOCO
STONE JOHNSON 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001342	SUNOCO
CHRIETZBURG J C 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7300	TXO06 001338	SUNOCO

SIGNED FOR IDENTIFICATION:

/s/ Don Lambert

DON LAMBERT, PRESIDENT

/s/ Dorothea Krempein

DOROTHEA KREMPEIN, VICE PRESIDENT

EX-10.143

Exhibit 10.143

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

ASSIGNMENT TO TRUSTEE OF OIL AND GAS PRODUCTION

THE STATE OF TEXAS	|
	|	KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF WOOD	|

That ENERGYTEC, INC., a Nevada corporation, acting herein by and through its proper officer who has heretofore been duly authorized, with its principal office in Plano, Texas, and the mailing address for which is 4965 Preston Park Boulevard, Suite 270 East, Plano, Texas 75093, herein called “Grantor”, for good and valuable consideration paid by the Grantee herein named, and in furtherance of the provisions of a Deed of Trust which has this day been executed, by these presents, GRANTS, CONVEYS and TRANSFERS unto REDONIA HARPER, TRUSTEE, and to her successors and substitutes in trust, for the benefit of Grantor for the specific purpose of paying the promissory note referenced below, all of Grantor’s right, title and interest in and to the oil, gas and mineral fee and leasehold interests and estates presently owned, held, or claimed by Grantor, or later acquired by Grantor, covering the lands and property described and identified in Exhibit “A” attached hereto and made a part hereof.

When Trustee, or her successors in trust shall have received from the assigned interest a sufficient sum of money to pay and discharge the promissory note of in the principal sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00), together with interest thereon, and in accordance with its terms and effect, this day executed by Grantor, payable to GLADEWATER NATIONAL BANK, Post Office Box 1749, Gladewater, Gregg County, Texas 75647-0027, and any additional sums advanced or due in connection with the making of such loan and such note, and all renewals and extensions thereof, the said interest above described shall immediately revert to Grantor, its heirs and assigns. Trustee agrees to execute, at Grantor’s expense, an instrument in recordable form, evidencing the termination of this production payment when the same has been fully discharged. Until released, however, any pipeline company or purchaser of production dealing with Grantor, or any successor in interest, shall be entitled to assume that this production payment has not been liquidated.

This production payment shall be effective as of 7:00 a.m., March 1, 2007, and all oil and gas runs after said time shall conform thereto.

The terms hereof shall extend to and be binding upon the parties hereto, their heirs, legal representatives and assigns.

EXECUTED this 29^th day of March, 2007, EFFECTIVE as of the 27^th day of February, 2007.

ENERGYTEC, INC.
By:	/s/ Don Lambert
	Don Lambert, President
By:	/s/ Dorothea Krempein
	Dorothea Krempein, Vice President

THE STATE OF TEXAS	|
COUNTY OF GREGG	|

BEFORE ME, the undersigned authority, on this day personally appeared Don Lambert, President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and considerations therein expressed, as the act and deed of such corporation, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of March, 2007.

/s/ Gregory Allen Ball

Notary Public, State of Texas

THE STATE OF TEXAS
COUNTY OF GREGG

BEFORE ME, the undersigned authority, on this day personally appeared Dorothea Krempein, Vice President of ENERGYTEC, INC., a Nevada corporation, and known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that she executed the same for the purposes and considerations therein expressed, as the act and deed of such corporation, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 29^th day of March, 2007.

/s/ Gregory Allen Ball

Notary Public, State of Texas

AFTER RECORDING RETURN TO:
ROBERT A. SHERMAN
POST OFFICE BOX 351
CARTHAGE, TEXAS 75633

Personal Property

All oil wells, pumping units, casing rods, production tubing, separators, surface flowlines, wellheads, tanks and other equipment incidental to and used in connection with the production, treating and storing of minerals or the like (including oil and gas) from those certain oil, gas and mineral leases described in this Exhibit AA@.

Signed for Identification:

/s/ Don Lambert

DON LAMBERT, PRESIDENT

/s/ Dorothea Krempein

DOROTHEA KREMPEIN, VICE PRESIDENT

CUSTOMER:	ENERGYTEC INC
	FEBRUARY, 2007

					EXHIBIT “A”
LEASE NAME	COUNTY STATE	OPERATOR	WORKING INTEREST	REVENUE INTEREST	LPD ID # / API #	OIL/GAS DISBURSER
DRILLAR BOZEMAN 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003383	SUNOCO
COKER W H 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003380	SUNOCO
KENDRICK LAWYER 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003386	SUNOCO
FORD SIMMS 2	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003382	SUNOCO
FOSTER DERMOT 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003379	SUNOCO
LIVINGSTON L H 1A	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003381	SUNOCO
MORRIS J J 3	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003378	SUNOCO
KENDRICK M L 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO05 003385	SUNOCO
HOWLE 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXG05 121295	SUNOCO
COOK AB 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO05 002858	SUNOCO
HOWLE A,B	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	SUMMARY	SUNOCO
ISOM 1	HOPKINS / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO05 002859	SUNOCO
GRICE W W NO. 22	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7995	TXO06 005074	SUNOCO
BAILEY W F 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 000869	SUNOCO
TAYLOR PINKIE 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001350	SUNOCO
CLOVER HILL SCHOOL 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7500	TXO06 000868	SUNOCO
TAYLOR P B3	WOOD/TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001345	SUNOCO
TAYLOR P A 1A	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 012837	SUNOCO
STONE JOHNSON 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.8000	TXO06 001342	SUNOCO
CHRIETZBURG J C 1	WOOD / TX	COMANCHE WELL SERVICE	1.000	0.7300	TXO06 001338	SUNOCO

SIGNED FOR IDENTIFICATION:

/s/ Don Lambert

DON LAMBERT, PRESIDENT

/s/ Dorothea Krempein

DOROTHEA KREMPEIN, VICE PRESIDENT

EX-10.144

Exhibit 10.144

LEASE AGREEMENT BETWEEN

CRP HOLDINGS V, L.P.,

AS LANDLORD, AND

ENERGYTEC, INC.,

AS TENANT

DATED NOVEMBER 27, 2006

PRESTON PARK FINANCIAL CENTER EAST

PLANO, TEXAS

PRESTON PARK FINANCIAL CENTER EAST

PLANO, TEXAS

BASIC LEASE INFORMATION

Lease Date:	November 27, 2006
Landlord:	CRP HOLDINGS V, L.P., a Delaware limited partnership
Tenant:	ENERGYTEC, INC., a Nevada corporation
Premises:	Suite No. 270-E, containing 4,009 rentable square feet, in the office building commonly known as Preston Park Financial Center East (the “Building”), and whose street address is 4965 Preston Park Boulevard, Plano, Texas 75093. The Premises are outlined on the plan attached to the Lease as Exhibit A. The term “Project” shall collectively refer to the Building, the land on which the Building is located and the driveways, parking facilities, and similar improvements and easements associated with the foregoing or the operation thereof. The term “Complex” means the office building complex commonly known as Preston Park Financial Center East and West, which is comprised of the Building and the adjacent office building commonly known as Preston Park Financial Center West (“Preston Park Financial Center West”), the land on which the Complex is located, and the driveways, parking facilities and similar improvements and easements associated with the foregoing or the operation thereof. The land on which the Complex is located (the “Land”) is described on Exhibit B.
Term:	64 full calendar months, plus any partial month from the Rent Commencement Date to the end of the month in which the Rent Commencement Date falls, starting on the Rent Commencement Date and ending at 5:00 p.m. local time on the last day of the 64th full calendar month following the Rent Commencement Date, subject to adjustment and earlier termination as provided in the Lease.
Lease Commencement Date:	The date of this Lease.
Rent Commencement Date:	The earliest of (a) the date on which Tenant occupies any portion of the Premises and begins conducting business therein, (b) the date on which the Work (as defined in Exhibit D hereto) in the Premises is Substantially Completed (as defined in Exhibit D hereto), or (c) the date on which the Work in the Premises would have been Substantially Completed but for the occurrence of any Tenant Delay Days (as defined in Exhibit D hereto).
Basic Rent:	Subject to the conditional abatement of Basic Rent set forth on Exhibit I hereto, Basic Rent shall be the following amounts for the following periods of time:
	Lease Months	Annual Basic Rent Rate Per Rentable Square Foot in the Premises	Monthly Basic Rent
	1 – 24	$21.50	$7,182.79
	25 – 48	$22.00	$7,349.83
	49 – 64	$22.50	$7,516.88
	As used herein, the term “Lease Month” means each calendar month during the Term (and if the Rent Commencement Date does not occur on the first day of a calendar month, the period from the Rent Commencement Date to the first day of the next calendar month shall be included in the first Lease Month for purposes of determining the duration of the Term and the monthly Basic Rent rate applicable for such partial month).
Security Deposit:	$7,516.88.
Rent:	Basic Rent, Tenant’s Proportionate Share of Taxes and Electrical Costs, Tenant’s share of Additional Rent, and all other sums that Tenant may owe to Landlord or otherwise be required to pay under the Lease.
Permitted Use:	General office use.
Tenant’s Proportionate Share:	1.114%, which is the percentage obtained by dividing (a) the number of rentable square feet in the Premises as stated above by (b) the 359,750 rentable square feet in the Complex. Tenant acknowledges that Landlord may elect at any time, and from time to time, to determine Operating Costs, Taxes and Electrical Costs by accounting for the Building and Preston Park Financial Center West separately, whereby (1) Tenant’s Proportionate Share shall be 2.286%, which is the percentage obtained by dividing (A) the rentable square feet of area in the Premises as stated above by (B) the number of rentable square feet in the Building (175,341), (2) each reference in Section 4 of this Lease to the Complex shall be deemed to be a reference to the Project only, and (3) to the extent the Building and Preston Park Financial Center West are operated as one complex, any Operating Costs, Electrical Costs or Taxes that are allocable to both the Building and Preston Park Financial Center West may be prorated among the buildings based upon the number of rentable square feet in

i PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

	the Building and in Preston Park Financial Center West (including snowplowing charges, landscaping fees and, if applicable, Taxes). Additionally, if any Operating Costs are reasonably allocated by Landlord between the Building and Preston Park Financial Center West (including management office overhead charges), such Operating Costs shall be prorated among the buildings as provided above. Landlord and Tenant stipulate that the number of rentable square feet in the Premises, the Building and the Complex set forth above is conclusive and shall be binding upon them.
Expense Stop:	Operating Costs for the calendar year 2007 (grossed up as provided in Section 4(b)(6) of the Lease).
Base Tax Year:	The calendar year 2007.
Initial Liability Insurance Amount:	$3,000,000
Tenant’s Address:	Prior to Rent Commencement Date: EnergyTec, Inc. 14785 Preston Road, Suite S-550 Dallas, Texas 75254-7876 Attention: Dorothea Krempein Telephone: 972.789.5134 Telecopy: 972.789.5138	Following Rent Commencement Date: EnergyTec, Inc. 4965 Preston Park Boulevard, Suite 270-E Plano, Texas 75093 Attention: [To be determined pursuant to Exhibit E hereto.] Telephone: [To be determined pursuant to Exhibit E hereto.] Telecopy: [To be determined pursuant to Exhibit E hereto.]
Landlord’s Address:	For all Notices: CRP Holdings V, L.P. c/o CAPSTAR Commercial Real Estate Services, Ltd. 4975 Preston Park Boulevard, Suite 15 Plano, Texas 75093 Attention: Property Manager Telephone: 972.985.4000 Telecopy: 972.985.4083	With a copy to: CRP Holdings V, L.P. c/o Colony Realty Partners One International Place Boston, Massachusetts 02110 Attention: Henry G. Brauer Telephone: 617.235.6300 Telecopy: 617.235.6399

ii PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

The foregoing Basic Lease Information is incorporated into and made a part of the Lease identified above. If any conflict exists between any Basic Lease Information and the Lease, then the Lease shall control.

LANDLORD:	CRP HOLDINGS V, L.P., a Delaware limited partnership
	By:	CRP Holdings GP-V, LLC, a Delaware limited liability company, its general partner
		By:	/s/ Henry G. Brauer
			Henry G. Brauer, Executive Vice President
TENANT:	ENERGYTEC, INC., a Nevada corporation
		By:	/s/ Dorothea Krempein
			Dorothea Krempein, Chief Financial Officer

iii PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

TABLE OF CONTENTS

			Page No.
1.	DEFINITIONS AND BASIC PROVISIONS		1
2.	LEASE GRANT		1
3.	TENDER OF POSSESSION		1
4.	RENT		1
	(a)	Payment	1
	(b)	Operating Costs; Taxes; Electrical Costs	2
5.	DELINQUENT PAYMENT; HANDLING CHARGES		4
6.	SECURITY DEPOSIT		4
7.	LANDLORD’S OBLIGATIONS		4
	(a)	Services	4
	(b)	Excess Utility Use	4
	(c)	Restoration of Services; Abatement	5
8.	IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE		5
	(a)	Improvements; Alterations	5
	(b)	Repairs; Maintenance	5
	(c)	Performance of Work	6
	(d)	Mechanic’s Liens	6
9.	USE		6
10.	ASSIGNMENT AND SUBLETTING		7
	(a)	Transfers	7
	(b)	Consent Standards	7
	(c)	Request for Consent	7
	(d)	Conditions to Consent	7
	(e)	Attornment by Subtenants	8
	(f)	Cancellation	8
	(g)	Additional Compensation	8
	(h)	Permitted Transfers	8
	(i)	Exclusive Use	9
11.	INSURANCE; WAIVERS; SUBROGATION; INDEMNITY		9
	(a)	Tenant’s Insurance	9
	(b)	Landlord’s Insurance	10
	(c)	No Subrogation; Waiver of Property Claims	10
	(d)	Indemnity	10
12.	SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD’S MORTGAGEE		11
	(a)	Subordination	11
	(b)	Attornment	11
	(c)	Notice to Landlord’s Mortgagee	11
	(d)	Landlord’s Mortgagee’s Protection Provisions	11
13.	RULES AND REGULATIONS		12
14.	CONDEMNATION		12
	(a)	Total Taking	12
	(b)	Partial Taking - Tenant’s Rights	12
	(c)	Partial Taking - Landlord’s Rights	12
	(d)	Temporary Taking	12
	(e)	Award	12

iv PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

15.	FIRE OR OTHER CASUALTY		13
	(a)	Repair Estimate	13
	(b)	Tenant’s Rights	13
	(c)	Landlord’s Rights	13
	(d)	Repair Obligation	13
	(e)	Abatement of Rent	13
16.	PERSONAL PROPERTY TAXES		13
17.	EVENTS OF DEFAULT		13
	(a)	Payment Default	13
	(b)	Abandonment	14
	(c)	Estoppel	14
	(d)	Insurance	14
	(e)	Mechanic’s Liens	14
	(f)	Other Defaults	14
	(g)	Insolvency	14
18.	REMEDIES		14
	(a)	Termination of Lease	14
	(b)	Termination of Possession	14
	(c)	Perform Acts on Behalf of Tenant	15
	(d)	Suspension of Services	15
	(e)	Alteration of Locks	15
19.	PAYMENT BY TENANT; NON-WAIVER; CUMULATIVE REMEDIES.		15
	(a)	Payment by Tenant	15
	(b)	No Waiver	15
	(c)	Cumulative Remedies	15
20.	LANDLORD’S LIEN		16
21.	SURRENDER OF PREMISES		16
22.	HOLDING OVER		16
23.	CERTAIN RIGHTS RESERVED BY LANDLORD		17
	(a)	Building Operations	17
	(b)	Security	17
	(c)	Prospective Purchasers and Lenders	17
	(d)	Prospective Tenants	17
24.	SUBSTITUTION SPACE		17
25.	MISCELLANEOUS		17
	(a)	Landlord Transfer	17
	(b)	Landlord’s Liability	18
	(c)	Force Majeure	18
	(d)	Brokerage	18
	(e)	Estoppel Certificates	18
	(f)	Notices	18
	(g)	Separability	18
	(h)	Amendments; Binding Effect; No Electronic Records	18
	(i)	Quiet Enjoyment	19
	(j)	No Merger	19
	(k)	No Offer	19
	(l)	Entire Agreement	19
	(m)	Waiver of Jury Trial	19
	(n)	Governing Law	19
	(o)	Recording	19

v PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

	(p)	Water or Mold Notification	19
	(q)	Joint and Several Liability	19
	(r)	Financial Reports	20
	(s)	Landlord’s Fees	20
	(t)	Telecommunications	20
	(u)	Confidentiality	20
	(v)	Authority	20
	(w)	Hazardous Materials	21
	(x)	List of Exhibits	21
	(y)	Determination of Charges	21
	(z)	Prohibited Persons and Transactions	21
26.	OTHER PROVISIONS.		21
	(a)	Shared Conference Room	21
	(b)	Exercise Facility	22
27.	TEMPORARY SPACE.		22
	(a)	Lease Grant; Term; Acceptance; Insurance	22
	(b)	Basic Rent; Additional Rent; Tenant’s Proportionate Share	22
	(c)	Landlord’s Right to Relocate	22
	(d)	Surrender of Temporary Space Upon Commencement Date	22

vi PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

LIST OF DEFINED TERMS

	Page No.
Additional Rent	2
Affiliate	1
Architect	D-1
Base Tax Year	ii
Basic Lease Information	1
Basic Rent	i
Building	i
Building’s Structure	1
Building’s Systems	1
Casualty	12
Collateral	16
Complex	i
Conference Room	21
Construction Allowance	D-3
Damage Notice	12
Default Rate	4
Disabilities Acts	6
Electrical Costs	3
Estimated Delivery Date	1
Event of Default	13
Expense Stop	ii
Fitness Center	21
GAAP	9
Hazardous Materials	20
HVAC	4
including	1
Initial Liability Insurance Amount	ii
Land	i
Landlord	1
Landlord’s Mortgagee	11
Law	1
Laws	1
Lease	1
Lease Month	i
Loss	10
Mortgage	11
Move-Out Date	22
OFAC	21
Operating Costs	2
Operating Costs and Tax Statement	3
Parking Area	G-1
Permitted Transfer	8
Permitted Transferee	8
Permitted Use	i
Premises	i
Preston Park Financial Center West	i
Primary Lease	11
Project	i
Refusal Notice	H-1
Refusal Space	H-1
Rent	i
Rent Commencement Date	i

vii PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

Repair Period	13
Security Deposit	i
Space Plans	D-1
Substantial Completion	D-3
Substantially Completed	D-3
Taking	12
Tangible Net Worth	9
Taxes	3
Telecommunications Services	20
Temporary Space	22
Temporary Space Term	22
Tenant	1
Tenant Delay Day	D-2
Tenant Party	1
Tenant’s Off-Premises Equipment	1
Tenant’s Proportionate Share	ii
Term	i
Third Party Offer	H-1
Total Construction Costs	D-3
Transfer	7
UCC	16
Work	D-2
Working Drawings	D-2

viii PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

LEASE

This Lease Agreement (this “Lease”) is entered into as of November 27, 2006, between CRP HOLDINGS V, L.P., a Delaware limited partnership (“Landlord”), and ENERGYTEC, INC., a Nevada corporation (“Tenant”).

1. Definitions and Basic Provisions. The definitions and basic provisions set forth in the Basic Lease Information (the “Basic Lease Information”) executed by Landlord and Tenant contemporaneously herewith are incorporated herein by reference for all purposes. Additionally, the following terms shall have the following meanings when used in this Lease: “Affiliate” means any person or entity which, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the party in question; “Building’s Structure” means the Building’s exterior walls, roof, elevator shafts, footings, foundations, structural portions of load-bearing walls, structural floors and subfloors, and structural columns and beams; “Building’s Systems” means the Building’s HVAC, life-safety, plumbing, electrical, and mechanical systems; “including” means including, without limitation; “Laws” means all federal, state, and local laws, ordinances, rules and regulations, all court orders, governmental directives, and governmental orders and all interpretations of the foregoing, and all restrictive covenants affecting the Project, and “Law” means any of the foregoing; “Tenant’s Off-Premises Equipment” means any of Tenant’s equipment or other property that may be located on or about the Project (other than inside the Premises); and “Tenant Party” means any of the following persons: Tenant; any assignees claiming by, through, or under Tenant; any subtenants claiming by, through, or under Tenant; and any of their respective agents, contractors, employees, licensees, guests and invitees.

2. Lease Grant. Subject to the terms of this Lease, Landlord leases to Tenant, and Tenant leases from Landlord, the Premises.

3. Tender of Possession. Landlord and Tenant presently anticipate that possession of the Premises will be tendered to Tenant in the condition required by this Lease on or about February 1, 2007 (the “Estimated Delivery Date”). If Landlord is unable to tender possession of the Premises in such condition to Tenant by the Estimated Delivery Date, then (a) the validity of this Lease shall not be affected or impaired thereby, (b) Landlord shall not be in default hereunder or be liable for damages therefor, and (c) Tenant shall accept possession of the Premises when Landlord tenders possession thereof to Tenant. By occupying the Premises, Tenant shall be deemed to have accepted the Premises in their condition as of the date of such occupancy, subject to the performance of punch-list items that remain to be performed by Landlord, if any. Prior to occupying the Premises, Tenant shall execute and deliver to Landlord a letter substantially in the form of Exhibit E hereto confirming (1) the Rent Commencement Date and the expiration date of the initial Term, (2) that Tenant has accepted the Premises, and (3) that Landlord has performed all of its obligations with respect to the Premises (except for punch-list items specified in such letter); however, the failure of the parties to execute such letter shall not defer the Rent Commencement Date or otherwise invalidate this Lease. Occupancy of the Premises by Tenant prior to the Rent Commencement Date shall be subject to all of the provisions of this Lease excepting only those requiring the payment of Basic Rent, Additional Rent, Taxes and Electrical Costs (each as defined herein).

4. Rent.

(a) Payment. Tenant shall timely pay to Landlord Rent, without notice, demand, deduction or set off (except as otherwise expressly provided herein), by good and sufficient check drawn on a national banking association at Landlord’s address provided for in this Lease or as otherwise specified by Landlord and shall be accompanied by all applicable state and local sales or use taxes. The obligations of Tenant to pay Basic Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Basic Rent, adjusted as herein provided, shall be payable monthly in advance. The first monthly installment of Basic Rent shall be payable contemporaneously with the execution of this Lease; thereafter, Basic Rent shall be payable on the first day of each month beginning on the first day of the second full calendar month of the Term. The monthly Basic Rent for any partial month at the beginning of the Term shall equal the product of 1/365 of the annual Basic Rent in effect during the partial month and the number of days in the partial month and shall be due on the Rent Commencement Date.

1 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

Payments of Basic Rent for any fractional calendar month at the end of the Term shall be similarly prorated. Tenant shall pay Additional Rent at the same time and in the same manner as Basic Rent.

(b) Operating Costs; Taxes; Electrical Costs.

(1) Tenant shall pay to Landlord the amount (per each rentable square foot in the Premises) (“Additional Rent”) by which the annual Operating Costs (defined below) per rentable square foot in the Complex exceed the Expense Stop (per rentable square foot in the Complex). Landlord may make a good faith estimate of the Additional Rent to be due by Tenant for any calendar year or part thereof during the Term. During each calendar year or partial calendar year of the Term (after the base year, if the Expense Stop is calculated on a base year basis), Tenant shall pay to Landlord, in advance concurrently with each monthly installment of Basic Rent, an amount equal to the estimated Additional Rent for such calendar year or part thereof divided by the number of months therein. From time to time, Landlord may estimate and re-estimate the Additional Rent to be due by Tenant and deliver a copy of the estimate or re-estimate to Tenant. Thereafter, the monthly installments of Additional Rent payable by Tenant shall be appropriately adjusted in accordance with the estimations so that, by the end of the calendar year in question, Tenant shall have paid all of the Additional Rent as estimated by Landlord. Any amounts paid based on such an estimate shall be subject to adjustment as herein provided when actual Operating Costs are available for each calendar year.

(2) The term “Operating Costs” means all expenses and disbursements (subject to the limitations set forth below) that Landlord incurs in connection with the ownership, operation, and maintenance of the Complex, determined in accordance with sound accounting principles consistently applied, including the following costs: (A) wages and salaries of all on-site employees at or below the grade of senior building manager engaged in the operation, maintenance or security of the Complex (together with Landlord’s reasonable allocation of expenses of off-site employees at or below the grade of senior building manager who perform a portion of their services in connection with the operation, maintenance or security of the Complex), including taxes, insurance and benefits relating thereto; (B) all supplies and materials used in the operation, maintenance, repair, replacement, and security of the Complex; (C) costs for improvements made to the Complex which, although capital in nature, are expected to reduce the normal operating costs (including all utility costs) of the Complex, as amortized using a commercially reasonable interest rate over the time period reasonably estimated by Landlord to recover the costs thereof taking into consideration the anticipated cost savings, as determined by Landlord using its good faith, commercially reasonable judgment, as well as capital improvements made in order to comply with any Law hereafter promulgated by any governmental authority or any interpretation hereafter rendered with respect to any existing Law, as amortized using a commercially reasonable interest rate over the useful economic life of such improvements as determined by Landlord in its reasonable discretion; (D) cost of all utilities, except Electrical Costs and the cost of other utilities reimbursable to Landlord by the Complex’s tenants other than pursuant to a provision similar to this Section 4(b); (E) insurance expenses; (F) repairs, replacements, and general maintenance of the Complex; (G) fair market rental and other costs with respect to the management office for the Complex; and (H) service, maintenance and management contracts with independent contractors for the operation, maintenance, management, repair, replacement, or security of the Complex (including alarm service, window cleaning, and elevator maintenance).

Operating Costs shall not include costs for (i) capital improvements made to the Complex, other than capital improvements described in Section 4(b)(2)(C) and except for items which are generally considered maintenance and repair items, such as painting of common areas, replacement of carpet in elevator lobbies, and the like; (ii) repair, replacements and general maintenance paid by proceeds of insurance or by Tenant or other third parties; (iii) interest, amortization or other payments on loans to Landlord; (iv) depreciation; (v) leasing commissions; (vi) legal expenses for services, other than those that benefit the Complex tenants generally (e.g., tax disputes); (vii) renovating or otherwise improving space for occupants of the Complex or vacant space in the Complex; (viii) Taxes; and (ix) federal income taxes imposed on or measured by the income of Landlord from the operation of the Complex. If the Expense Stop is calculated on a base year basis,

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Operating Costs for the base year only shall not include costs incurred due to extraordinary circumstances, including market-wide labor rate increases due to boycotts and strikes; utility rate increases due to extraordinary circumstances, including conservation surcharges, boycotts, embargos or other shortages; insurance deductibles; or amortized costs relating to capital improvements.

(3) Tenant shall also pay Tenant’s Proportionate Share of any increase in Taxes for each year and partial year falling within the Term over the Taxes for the Base Tax Year. Tenant shall pay Tenant’s Proportionate Share of Taxes in the same manner as provided above for Tenant’s Proportionate Share of Operating Costs. “Taxes” means taxes, assessments, and governmental charges or fees whether federal, state, county or municipal, and whether they be by taxing districts or authorities presently taxing or by others, subsequently created or otherwise, and any other taxes and assessments (including non-governmental assessments for common charges under a restrictive covenant or other private agreement that are not treated as part of Operating Costs) now or hereafter attributable to the Complex (or its operation), excluding, however, penalties and interest thereon and federal and state taxes on income (if the present method of taxation changes so that in lieu of or in addition to the whole or any part of any Taxes, there is levied on Landlord a capital tax directly on the rents received therefrom or a franchise tax, assessment, or charge based, in whole or in part, upon such rents for the Complex, then all such taxes, assessments, or charges, or the part thereof so based, shall be deemed to be included within the term “Taxes” for purposes hereof). Notwithstanding anything to the contrary herein, Taxes shall include the Texas franchise tax and/or any other business tax imposed under Texas Tax Code Chapter 171 and/or any successor statutory provision for reports due under any such provision. Taxes shall include the costs of consultants retained in an effort to lower taxes and all costs incurred in disputing any taxes or in seeking to lower the tax valuation of the Complex. For property tax purposes, Tenant waives all rights to protest or appeal the appraised value of the Premises, as well as the Complex, and all rights to receive notices of reappraisement as set forth in Sections 41.413 and 42.015 of the Texas Tax Code.

(4) Tenant shall also pay to Landlord Tenant’s Proportionate Share of the cost of all electricity used by the Complex (“Electrical Costs”). Such amount shall be payable in monthly installments on the Rent Commencement Date and on the first day of each calendar month thereafter. Each installment shall be based on Landlord’s estimate of the amount due for each month. From time to time during any calendar year, Landlord may estimate or re-estimate the Electrical Costs to be due by Tenant for that calendar year and deliver a copy of the estimate or re-estimate to Tenant. Thereafter, the monthly installments of Electrical Costs payable by Tenant shall be appropriately adjusted in accordance with the estimations.

(5) By April 1 of each calendar year, or as soon thereafter as practicable, Landlord shall furnish to Tenant a statement of Operating Costs and Electrical Costs for the previous year, in each case adjusted as provided in Section 4(b)(6), and of the Taxes for the previous year (the “Operating Costs and Tax Statement”). If Tenant’s estimated payments of Operating Costs, Electrical Costs or Taxes under this Section 4(b) for the year covered by the Operating Costs and Tax Statement exceed Tenant’s Proportionate Share of such items as indicated in the Operating Costs and Tax Statement, then Landlord shall promptly credit or reimburse Tenant for such excess; likewise, if Tenant’s estimated payments of Operating Costs, Electrical Costs or Taxes under this Section 4(b) for such year are less than Tenant’s Proportionate Share of such items as indicated in the Operating Costs and Tax Statement, then Tenant shall promptly pay Landlord such deficiency.

(6) With respect to any calendar year or partial calendar year in which the Complex is not occupied to the extent of 95% of the rentable area thereof, or Landlord is not supplying services to 95% of the rentable area thereof, the Operating Costs and Electrical Costs for such period which vary with the occupancy of the Building shall, for the purposes hereof, be increased to the amount which would have been incurred had the Complex been occupied to the extent of 95% of the rentable area thereof and Landlord had been supplying services to 95% of the rentable area thereof.

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5. Delinquent Payment; Handling Charges. All past due payments required of Tenant hereunder shall bear interest from the date due until paid at the lesser of eighteen percent per annum or the maximum lawful rate of interest (such lesser amount is referred to herein as the “Default Rate”); additionally, Landlord, in addition to all other rights and remedies available to it, may charge Tenant a fee equal to five percent of the delinquent payment to reimburse Landlord for its cost and inconvenience incurred as a consequence of Tenant’s delinquency. In no event, however, shall the charges permitted under this Section 5 or elsewhere in this Lease, to the extent they are considered to be interest under applicable Law, exceed the maximum lawful rate of interest. Notwithstanding the foregoing, the late fee referenced above shall not be charged with respect to the first occurrence (but not any subsequent occurrence) during any 12-month period that Tenant fails to make payment when due, until five days after Landlord delivers written notice of such delinquency to Tenant.

6. Security Deposit. Contemporaneously with the execution of this Lease, Tenant shall pay to Landlord the Security Deposit, which shall be held by Landlord to secure Tenant’s performance of its obligations under this Lease. The Security Deposit is not an advance payment of Rent or a measure or limit of Landlord’s damages upon an Event of Default (as defined herein). Landlord may, from time to time following an Event of Default and without prejudice to any other remedy, use all or a part of the Security Deposit to perform any obligation Tenant fails to perform hereunder. Following any such application of the Security Deposit, Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. Provided that Tenant has performed all of its obligations hereunder, Landlord shall, within 60 days after the expiration of the Term and Tenant’s surrender of the Premises in compliance with the provisions of this Lease, return to Tenant the portion of the Security Deposit which was not applied to satisfy Tenant’s obligations. The Security Deposit may be commingled with other funds, and no interest shall be paid thereon. If Landlord transfers its interest in the Premises and the transferee assumes Landlord’s obligations under this Lease, then Landlord may assign the Security Deposit to the transferee and Landlord thereafter shall have no further liability for the return of the Security Deposit. The rights and obligations of Landlord and Tenant under this Section 6 are subject to any other requirements and conditions imposed by Laws applicable to the Security Deposit.

7. Landlord’s Obligations.

(a) Services. Landlord shall use all reasonable efforts to furnish to Tenant: (1) water at those points of supply provided for general use of tenants of the Building; (2) heated and refrigerated air conditioning (“HVAC”) as appropriate, at such temperatures and in such amounts as are standard for comparable buildings in the vicinity of the Building; (3) janitorial service to the Premises on weekdays, other than holidays, for Building-standard installations and such window washing as may from time to time be reasonably required; (4) elevators for ingress and egress to the floor on which the Premises are located, in common with other tenants, provided that Landlord may reasonably limit the number of operating elevators during non-business hours and holidays; and (5) electrical current during normal business hours for equipment that does not require more than 110 volts and whose electrical energy consumption does not exceed normal office usage. Landlord shall maintain the common areas of the Building in reasonably good order and condition, except for damage caused by a Tenant Party. If Tenant desires any of the services specified in Section 7(a)(2): (A) at any time other than between 7:00 a.m. and 6:00 p.m. on weekdays and between 8:00 a.m. and 1:00 p.m. on Saturday (in each case other than holidays), or (B) on Sunday or holidays, then such services shall be supplied to Tenant upon the written request of Tenant delivered to Landlord before 3:00 p.m. on the business day preceding such extra usage, and Tenant shall pay to Landlord the cost of such services within 30 days after Landlord has delivered to Tenant an invoice therefor. The costs incurred by Landlord in providing after-hour HVAC service to Tenant shall include costs for electricity, water, sewage, water treatment, labor, metering, filtering, and maintenance reasonably allocated by Landlord to providing such service.

(b) Excess Utility Use. Landlord shall not be required to furnish electrical current for equipment that requires more than 110 volts or other equipment whose electrical energy consumption exceeds normal office usage. If Tenant’s requirements for or consumption of electricity exceed the electricity to be provided by Landlord as described in Section 7(a), Landlord shall, at Tenant’s expense, make reasonable efforts to supply such service through the then-existing feeders and risers serving the Building and the Premises, and Tenant shall pay to Landlord the cost of such service within 30 days after Landlord has delivered to Tenant an invoice therefor. Landlord

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may determine the amount of such additional consumption and potential consumption by any verifiable method, including installation of a separate meter in the Premises installed, maintained, and read by Landlord, at Tenant’s expense. Tenant shall not install any electrical equipment requiring special wiring or requiring voltage in excess of 110 volts unless approved in advance by Landlord, which approval shall not be unreasonably withheld. Tenant shall not install any electrical equipment requiring voltage in excess of Building capacity unless approved in advance by Landlord, which approval may be withheld in Landlord’s sole discretion. The use of electricity in the Premises shall not exceed the capacity of existing feeders and risers to or wiring in the Premises. Any risers or wiring required to meet Tenant’s excess electrical requirements shall, upon Tenant’s written request, be installed by Landlord, at Tenant’s cost, if, in Landlord’s judgment, the same are necessary and shall not cause permanent damage to the Building or the Premises, cause or create a dangerous or hazardous condition, entail excessive or unreasonable alterations, repairs, or expenses, or interfere with or disturb other tenants of the Building. If Tenant uses machines or equipment in the Premises which affect the temperature otherwise maintained by the air conditioning system or otherwise overload any utility, Landlord may install supplemental air conditioning units or other supplemental equipment in the Premises, and the cost thereof, including the cost of installation, operation, use, and maintenance, in each case plus an administrative fee of 15% of such cost, shall be paid by Tenant to Landlord within 30 days after Landlord has delivered to Tenant an invoice therefor.

(c) Restoration of Services; Abatement. Landlord shall use reasonable efforts to restore any service required of it that becomes unavailable; however, such unavailability shall not render Landlord liable for any damages caused thereby, be a constructive eviction of Tenant, constitute a breach of any implied warranty, or, except as provided in the next sentence, entitle Tenant to any abatement of Tenant’s obligations hereunder. If, however, Tenant is prevented from using the Premises because of the unavailability of any such service for a period of 25 consecutive business days following Landlord’s receipt from Tenant of a written notice regarding such unavailability, the restoration of which is within Landlord’s reasonable control, and such unavailability was not caused by a Tenant Party or a governmental directive, then Tenant shall, as its exclusive remedy be entitled to a reasonable abatement of Rent for each consecutive day (after such 25-day period) that Tenant is so prevented from using the Premises.

8. Improvements; Alterations; Repairs; Maintenance.

(a) Improvements; Alterations. Improvements to the Premises shall be installed at Tenant’s expense only in accordance with plans and specifications which have been previously submitted to and approved in writing by Landlord, which approval shall be governed by the provisions set forth in this Section 8(a). No alterations or physical additions in or to the Premises may be made without Landlord’s prior written consent, which shall not be unreasonably withheld or delayed; however, Landlord may withhold its consent to any alteration or addition that would adversely affect (in the reasonable discretion of Landlord) the (1) Building’s Structure or the Building’s Systems (including the Building’s restrooms or mechanical rooms), (2) exterior appearance of the Building, (3) appearance of the Building’s common areas or elevator lobby areas, or (4) provision of services to other occupants of the Building. Tenant shall not paint or install lighting or decorations, signs, window or door lettering, or advertising media of any type visible from the exterior of the Premises without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole and absolute discretion. All alterations, additions, and improvements shall be constructed, maintained, and used by Tenant, at its risk and expense, in accordance with all Laws; Landlord’s consent to or approval of any alterations, additions or improvements (or the plans therefor) shall not constitute a representation or warranty by Landlord, nor Landlord’s acceptance, that the same comply with sound architectural and/or engineering practices or with all applicable Laws, and Tenant shall be solely responsible for ensuring all such compliance.

(b) Repairs; Maintenance. Tenant shall maintain the Premises in a clean, safe, and operable condition, and shall not permit or allow to remain any waste or damage to any portion of the Premises. Additionally, Tenant, at its sole expense, shall repair, replace and maintain in good condition and in accordance with all Laws and the equipment manufacturer’s suggested service programs, all portions of the Premises, Tenant’s Off-Premises Equipment and all areas, improvements and systems exclusively serving the Premises. Tenant shall repair or replace, subject to Landlord’s direction and supervision, any damage to the Building caused by a Tenant Party. If Tenant fails to make such repairs or replacements within 15 days after the occurrence of such damage, then Landlord may make the

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same at Tenant’s cost. If any such damage occurs outside of the Premises, then Landlord may elect to repair such damage at Tenant’s expense, rather than having Tenant repair such damage. The cost of all maintenance, repair or replacement work performed by Landlord under this Section 8 shall be paid by Tenant to Landlord within 30 days after Landlord has invoiced Tenant therefor.

(c) Performance of Work. All work described in this Section 8 shall be performed only by Landlord or by contractors and subcontractors approved in writing by Landlord. Tenant shall cause all contractors and subcontractors to procure and maintain insurance coverage naming Landlord, Landlord’s property management company and Landlord’s asset management company as additional insureds against such risks, in such amounts, and with such companies as Landlord may reasonably require. Tenant shall provide Landlord with the identities, mailing addresses and telephone numbers of all persons performing work or supplying materials prior to beginning such construction and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable Laws. All such work shall be performed in accordance with all Laws and in a good and workmanlike manner so as not to damage the Building (including the Premises, the Building’s Structure and the Building’s Systems). All such work which may affect the Building’s Structure or the Building’s Systems must be approved by the Building’s engineer of record, at Tenant’s expense and, at Landlord’s election, must be performed by Landlord’s usual contractor for such work. All work affecting the roof of the Building must be performed by Landlord’s roofing contractor and no such work will be permitted if it would void or reduce the warranty on the roof.

(d) Mechanic’s Liens. All work performed, materials furnished, or obligations incurred by or at the request of a Tenant Party shall be deemed authorized and ordered by Tenant only, and Tenant shall not permit any mechanic’s liens to be filed against the Premises or the Project in connection therewith. Upon completion of any such work, Tenant shall deliver to Landlord final lien waivers from all contractors, subcontractors and materialmen who performed such work. If such a lien is filed, then Tenant shall, within ten days after Landlord has delivered notice of the filing thereof to Tenant (or such earlier time period as may be necessary to prevent the forfeiture of the Premises, the Project or any interest of Landlord therein or the imposition of a civil or criminal fine with respect thereto), either (1) pay the amount of the lien and cause the lien to be released of record, or (2) diligently contest such lien and deliver to Landlord a bond or other security reasonably satisfactory to Landlord. If Tenant fails to timely take either such action, then Landlord may pay the lien claim, and any amounts so paid, including expenses and interest, shall be paid by Tenant to Landlord within ten days after Landlord has invoiced Tenant therefor. Landlord and Tenant acknowledge and agree that their relationship is and shall be solely that of “landlord-tenant” (thereby excluding a relationship of “owner-contractor,” “owner-agent” or other similar relationships). Accordingly, all materialmen, contractors, artisans, mechanics, laborers and any other persons now or hereafter contracting with Tenant, any contractor or subcontractor of Tenant or any other Tenant Party for the furnishing of any labor, services, materials, supplies or equipment with respect to any portion of the Premises, at any time from the date hereof until the end of the Term, are hereby charged with notice that they look exclusively to Tenant to obtain payment for same. Nothing herein shall be deemed a consent by Landlord to any liens being placed upon the Premises, the Project or Landlord’s interest therein due to any work performed by or for Tenant or deemed to give any contractor or subcontractor or materialman any right or interest in any funds held by Landlord to reimburse Tenant for any portion of the cost of such work. Tenant shall defend, indemnify and hold harmless Landlord and its agents and representatives from and against all claims, demands, causes of action, suits, judgments, damages and expenses (including attorneys’ fees) in any way arising from or relating to the failure by any Tenant Party to pay for any work performed, materials furnished, or obligations incurred by or at the request of a Tenant Party. This indemnity provision shall survive termination or expiration of this Lease.

9. Use. Tenant shall continuously occupy and use the Premises only for the Permitted Use and shall comply with all Laws relating to the use, condition, access to, and occupancy of the Premises and will not commit waste, overload the Building’s Structure or the Building’s Systems or subject the Premises to use that would damage the Premises. The population density within the Premises as a whole shall at no time exceed one person for each 300 rentable square feet in the Premises. Tenant shall not conduct second or third shift operations within the Premises; however, Tenant may use the Premises after normal business hours, so long as Tenant is not generally conducting business from the Premises after normal business hours. Notwithstanding anything in this Lease to the contrary, as between Landlord and Tenant, (a) Tenant shall bear the risk of complying with Title III of the Americans With

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Disabilities Act of 1990, any state laws governing handicapped access or architectural barriers, and all rules, regulations, and guidelines promulgated under such laws, as amended from time to time (the “Disabilities Acts”) in the Premises, and (b) Landlord shall bear the risk of complying with the Disabilities Acts in the common areas of the Building, other than compliance that is necessitated by the use of the Premises for other than the Permitted Use or as a result of any alterations or additions, including any initial tenant improvement work, made by or on behalf of a Tenant Party (which risk and responsibility shall be borne by Tenant). The Premises shall not be used for any use which is disreputable, creates extraordinary fire hazards, or results in an increased rate of insurance on the Building or its contents, or for the storage of any Hazardous Materials (other than typical office supplies [e.g., photocopier toner] and then only in compliance with all Laws). Tenant shall not use the Premises to conduct as its primary business the retail or discount sale of securities. Tenant shall not use any substantial portion of the Premises for a “call center,” any other telemarketing use, or any credit processing use. If, because of a Tenant Party’s acts or because Tenant vacates the Premises, the rate of insurance on the Building or its contents increases, then such acts shall be an Event of Default, Tenant shall pay to Landlord the amount of such increase on demand, and acceptance of such payment shall not waive any of Landlord’s other rights. Tenant shall conduct its business and control each other Tenant Party so as not to create any nuisance or unreasonably interfere with other tenants or Landlord in its management of the Building.

10. Assignment and Subletting.

(a) Transfers. Except as provided in Section 10(h), Tenant shall not, without the prior written consent of Landlord, (1) assign, transfer, or encumber this Lease or any estate or interest herein, whether directly or by operation of law, (2) permit any other entity to become Tenant hereunder by merger, consolidation, or other reorganization, (3) if Tenant is an entity other than a corporation whose stock is publicly traded, permit the transfer of an ownership interest in Tenant so as to result in a change in the current control of Tenant, (4) sublet any portion of the Premises, (5) grant any license, concession, or other right of occupancy of any portion of the Premises, or (6) permit the use of the Premises by any parties other than Tenant (any of the events listed in Section 10(a)(1) through 10(a)(6) being a “Transfer”).

(b) Consent Standards. Landlord shall not unreasonably withhold its consent to any assignment or subletting of the Premises, provided that the proposed transferee (1) is creditworthy, (2) has a good reputation in the business community, (3) will use the Premises for the Permitted Use (thus, excluding, without limitation, uses for credit processing and telemarketing) and will not use the Premises in any manner that would conflict with any exclusive use agreement or other similar agreement entered into by Landlord with any other tenant of the Building or Complex, (4) will not use the Premises, Building or Project in a manner that would materially increase the pedestrian or vehicular traffic to the Premises, Building or Project, (5) is not a governmental entity, or subdivision or agency thereof, (6) is not another occupant of the Building or Complex, and (7) is not a person or entity with whom Landlord is then, or has been within the six-month period prior to the time Tenant seeks to enter into such assignment or subletting, negotiating to lease space in the Building or Complex or any Affiliate of any such person or entity; otherwise, Landlord may withhold its consent in its sole discretion. Additionally, Landlord may withhold its consent in its sole discretion to any proposed Transfer if any Event of Default by Tenant then exists.

(c) Request for Consent. If Tenant requests Landlord’s consent to a Transfer, then, at least 15 business days prior to the effective date of the proposed Transfer, Tenant shall provide Landlord with a written description of all terms and conditions of the proposed Transfer, copies of the proposed documentation, and the following information about the proposed transferee: name and address; reasonably satisfactory information about its business and business history; its proposed use of the Premises; banking, financial, and other credit information; and general references sufficient to enable Landlord to determine the proposed transferee’s creditworthiness and character. Concurrently with Tenant’s notice of any request for consent to a Transfer, Tenant shall pay to Landlord a fee of $1,000 to defray Landlord’s expenses in reviewing such request, and Tenant shall also reimburse Landlord immediately upon request for its reasonable attorneys’ fees incurred in connection with considering any request for consent to a Transfer.

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(d) Conditions to Consent. If Landlord consents to a proposed Transfer, then the proposed transferee shall deliver to Landlord a written agreement whereby it expressly assumes Tenant’s obligations hereunder; however, any transferee of less than all of the space in the Premises shall be liable only for obligations under this Lease that are properly allocable to the space subject to the Transfer for the period of the Transfer. No Transfer shall release Tenant from its obligations under this Lease, but rather Tenant and its transferee shall be jointly and severally liable therefor. Landlord’s consent to any Transfer shall not waive Landlord’s rights as to any subsequent Transfers. If an Event of Default occurs while the Premises or any part thereof are subject to a Transfer, then Landlord, in addition to its other remedies, may collect directly from such transferee all rents becoming due to Tenant and apply such rents against Rent. Tenant authorizes its transferees to make payments of rent directly to Landlord upon receipt of notice from Landlord to do so following the occurrence of an Event of Default hereunder. Tenant shall pay for the cost of any demising walls or other improvements necessitated by a proposed subletting or assignment.

(e) Attornment by Subtenants. Each sublease by Tenant hereunder shall be subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and each subtenant by entering into a sublease is deemed to have agreed that in the event of termination, re-entry or dispossession by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublandlord, under such sublease, and such subtenant shall, at Landlord’s option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not be (1) liable for any previous act or omission of Tenant under such sublease, (2) subject to any counterclaim, offset or defense that such subtenant might have against Tenant, (3) bound by any previous modification of such sublease not approved by Landlord in writing or by any rent or additional rent or advance rent which such subtenant might have paid for more than the current month to Tenant, and all such rent shall remain due and owing, notwithstanding such advance payment, (4) bound by any security or advance rental deposit made by such subtenant which is not delivered or paid over to Landlord and with respect to which such subtenant shall look solely to Tenant for refund or reimbursement, or (5) obligated to perform any work in the subleased space or to prepare it for occupancy, and in connection with such attornment, the subtenant shall execute and deliver to Landlord any instruments Landlord may reasonably request to evidence and confirm such attornment. Each subtenant or licensee of Tenant shall be deemed, automatically upon and as a condition of its occupying or using the Premises or any part thereof, to have agreed to be bound by the terms and conditions set forth in this Section 10(e). The provisions of this Section 10(e) shall be self-operative, and no further instrument shall be required to give effect to this provision.

(f) Cancellation. Landlord may, within 30 days after submission of Tenant’s written request for Landlord’s consent to an assignment or subletting, cancel this Lease as to the portion of the Premises proposed to be sublet or assigned as of the date the proposed Transfer is to be effective. If Landlord cancels this Lease as to any portion of the Premises, then this Lease shall cease for such portion of the Premises and Tenant shall pay to Landlord all Rent accrued through the cancellation date relating to the portion of the Premises covered by the proposed Transfer. Thereafter, Landlord may lease such portion of the Premises to the prospective transferee (or to any other person) without liability to Tenant.

(g) Additional Compensation. Tenant shall pay to Landlord, immediately upon receipt thereof, the excess of (1) all compensation received by Tenant for a Transfer less the actual out-of-pocket costs reasonably incurred by Tenant with unaffiliated third parties (i.e., brokerage commissions and tenant finish work) in connection with such Transfer (such costs shall be amortized on a straight-line basis over the term of the Transfer in question) over (2) the Rent allocable to the portion of the Premises covered thereby.

(h) Permitted Transfers. Notwithstanding Section 10(a), Tenant may Transfer all or part of its interest in this Lease or all or part of the Premises (a “Permitted Transfer”) to the following types of entities (a “Permitted Transferee”) without the written consent of Landlord:

(1) an Affiliate of Tenant;

(2) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity in which or with which Tenant, or its corporate successors or assigns, is merged or consolidated, in accordance with applicable statutory provisions governing merger and consolidation of business entities, so long as (A) Tenant’s obligations hereunder are assumed by the entity surviving such merger or created by such consolidation; and (B) the Tangible Net Worth of the surviving or created entity is not less than the Tangible Net Worth of Tenant as of the date hereof; or

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(3) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity acquiring all or substantially all of Tenant’s assets, so long as (A) Tenant’s obligations hereunder are assumed by the entity surviving such merger or created by such consolidation; and (B) such entity’s Tangible Net Worth after such acquisition is not less than the Tangible Net Worth of Tenant as of the date hereof.

Tenant shall promptly notify Landlord of any such Permitted Transfer. Tenant shall remain liable for the performance of all of the obligations of Tenant hereunder, or if Tenant no longer exists because of a merger, consolidation, or acquisition, the surviving or acquiring entity shall expressly assume in writing the obligations of Tenant hereunder. Additionally, the Permitted Transferee shall comply with all of the terms and conditions of this Lease, including the Permitted Use, and the use of the Premises by the Permitted Transferee may not violate any other agreements affecting the Premises, the Building or the Complex, Landlord or other tenants of the Building or the Complex. No later than 30 days after the effective date of any Permitted Transfer, Tenant agrees to furnish Landlord with (i) copies of the instrument effecting any of the foregoing Transfers, (ii) documentation establishing Tenant’s satisfaction of the requirements set forth above applicable to any such Transfer, and (iii) evidence of insurance as required under this Lease with respect to the Permitted Transferee. The occurrence of a Permitted Transfer shall not waive Landlord’s rights as to any subsequent Transfers. “Tangible Net Worth” means the excess of total assets over total liabilities, in each case as determined in accordance with generally accepted accounting principles consistently applied (“GAAP”), excluding, however, from the determination of total assets all assets which would be classified as intangible assets under GAAP including goodwill, licenses, patents, trademarks, trade names, copyrights, and franchises. Any subsequent Transfer by a Permitted Transferee shall be subject to the terms of this Section 10.

(i) Exclusive Use. Upon Tenant’s written request therefor, pursuant to a prospective Transfer and no more than once during any 12-month interval during the Term, Landlord shall provide to Tenant a description of all of the exclusive use and similar agreements then existing between Landlord and the other tenants of the Complex. Tenant acknowledges that as part of an existing exclusive use agreement, Landlord shall not allow any tenant in the Complex to operate a retail or discount brokerage office that sells securities as its primary business; accordingly, (1) it shall not be unreasonable for Landlord to withhold its consent to a proposed Transfer to any company that sells retail or discount securities as its primary business, and (2) Tenant shall not sublease, assign or otherwise Transfer this Lease or any portion of the Premises to any company that sells retail or discount securities as its primary business without the express written consent of Landlord, which consent may be withheld in Landlord’s sole and absolute discretion.

11. Insurance; Waivers; Subrogation; Indemnity.

(a) Tenant’s Insurance. Effective as of the earlier of (1) the date Tenant enters or occupies the Premises, or (2) the Rent Commencement Date, and continuing throughout the Term, Tenant shall maintain the following insurance policies: (A) commercial general liability insurance in amounts of $3,000,000 per occurrence or, following the expiration of the initial Term, such other amounts as Landlord may from time to time reasonably require (and, if the use and occupancy of the Premises include any activity or matter that is or may be excluded from coverage under a commercial general liability policy [e.g., the sale, service or consumption of alcoholic beverages], Tenant shall obtain such endorsements to the commercial general liability policy or otherwise obtain insurance to insure all liability arising from such activity or matter [including liquor liability, if applicable] in such amounts as Landlord may reasonably require), insuring Tenant, Landlord, Landlord’s property management company, Landlord’s asset management company and, if requested in writing by Landlord, Landlord’s Mortgagee, against all liability for injury to or death of a person or persons or damage to property arising from the use and occupancy of the Premises and (without implying any consent by Landlord to the installation thereof) the installation, operation, maintenance, repair or removal of Tenant’s Off-Premises Equipment, (B) insurance covering the full value of all alterations and

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improvements and betterments in the Premises, naming Landlord and Landlord’s Mortgagee as additional loss payees as their interests may appear, (C) insurance covering the full value of all furniture, trade fixtures and personal property (including property of Tenant or others) in the Premises or otherwise placed in the Project by or on behalf of a Tenant Party (including Tenant’s Off-Premises Equipment), (D) contractual liability insurance sufficient to cover Tenant’s indemnity obligations hereunder (but only if such contractual liability insurance is not already included in Tenant’s commercial general liability insurance policy), (E) worker’s compensation insurance, and (F) business interruption insurance in an amount reasonably acceptable to Landlord. Tenant’s insurance shall provide primary coverage to Landlord when any policy issued to Landlord provides duplicate or similar coverage, and in such circumstance Landlord’s policy will be excess over Tenant’s policy. Tenant shall furnish to Landlord certificates of such insurance and such other evidence satisfactory to Landlord of the maintenance of all insurance coverages required hereunder at least ten days prior to the earlier of the Rent Commencement Date or the date Tenant enters or occupies the Premises, and at least 15 days prior to each renewal of said insurance, and Tenant shall obtain a written obligation on the part of each insurance company to notify Landlord at least 30 days before cancellation or a material change of any such insurance policies. All such insurance policies shall be in form, and issued by companies reasonably satisfactory to Landlord. If Tenant fails to comply with the foregoing insurance requirements or to deliver to Landlord the certificates or evidence of coverage required herein, Landlord, in addition to any other remedy available pursuant to this Lease or otherwise, may, but shall not be obligated to, obtain such insurance and Tenant shall pay to Landlord on demand the premium costs thereof, plus an administrative fee of 15% of such cost.

(b) Landlord’s Insurance. Throughout the Term of this Lease, Landlord shall maintain, as a minimum, the following insurance policies: (1) property insurance for the Building’s replacement value (excluding property required to be insured by Tenant), less a commercially-reasonable deductible if Landlord so chooses, and (2) commercial general liability insurance in an amount of not less than $3,000,000. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary. The cost of all insurance carried by Landlord with respect to the Project shall be included in Operating Costs. The foregoing insurance policies and any other insurance carried by Landlord shall be for the sole benefit of Landlord and under Landlord’s sole control, and Tenant shall have no right or claim to any proceeds thereof or any other rights thereunder. Notwithstanding anything in this Lease to the contrary, Landlord’s indemnity obligations under this Lease shall be limited to the extent any such claim is insured against under the terms of any insurance policy maintained by Landlord (or is required to be maintained by Landlord under the terms of this Lease).

(c) No Subrogation; Waiver of Property Claims. Landlord and Tenant each waives any claim it might have against the other for any damage to or theft, destruction, loss, or loss of use of any property, to the extent the same is insured against under any insurance policy of the types described in this Section 11 that covers the Project, the Premises, Landlord’s or Tenant’s fixtures, personal property, leasehold improvements, or business, or is required to be insured against under the terms hereof, regardless of whether the negligence of the other party caused such Loss (defined below). Additionally, Tenant waives any claim it may have against Landlord for any Loss to the extent such Loss is caused by a terrorist act. Each party shall cause its insurance carrier to endorse all applicable policies waiving the carrier’s rights of recovery under subrogation or otherwise against the other party. Notwithstanding any provision in this Lease to the contrary, Landlord, its agents, employees and contractors shall not be liable to Tenant or to any party claiming by, through or under Tenant for (and Tenant hereby releases Landlord and its servants, agents, contractors, employees and invitees from any claim or responsibility for) any damage to or destruction, loss, or loss of use, or theft of any property of any Tenant Party located in or about the Project, caused by casualty, theft, fire, third parties or any other matter or cause, regardless of whether the negligence of any party caused such loss in whole or in part. Tenant acknowledges that Landlord shall not carry insurance on, and shall not be responsible for damage to, any property of any Tenant Party located in or about the Project.

(d) Indemnity. Subject to Section 11(c), Tenant shall defend, indemnify, and hold harmless Landlord and its representatives and agents from and against all claims, demands, liabilities, causes of action, suits, judgments, damages, and expenses (including reasonable attorneys’ fees) arising from any injury to or death of any person or the damage to or theft, destruction, loss, or loss of use of, any property or inconvenience (a “Loss”) (1) occurring in or on the Project (other than within the Premises) to the extent caused by the negligence or willful misconduct of any Tenant Party, (2) occurring in the Premises, or (3) arising out of the installation, operation,

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maintenance, repair or removal of any property of any Tenant Party located in or about the Project, including Tenant’s Off-Premises Equipment. It being agreed that clauses (2) and (3) of this indemnity are intended to indemnify Landlord and its agents against the consequences of their own negligence or fault, even when Landlord or its agents are jointly, comparatively, contributively, or concurrently negligent with Tenant, and even though any such claim, cause of action or suit is based upon or alleged to be based upon the strict liability of Landlord or its agents; however, such indemnity shall not apply to the sole or gross negligence or willful misconduct of Landlord and its agents. Subject to Section 11(c), Landlord shall defend, indemnify, and hold harmless Tenant and its agents from and against all claims, demands, liabilities, causes of action, suits, judgments, damages, and expenses (including reasonable attorneys’ fees) for any Loss arising from any occurrence in or on the Building’s common areas to the extent caused by the negligence or willful misconduct of Landlord or its agents. The indemnities set forth in this Lease shall survive termination or expiration of this Lease and shall not terminate or be waived, diminished or affected in any manner by any abatement or apportionment of Rent under any provision of this Lease. If any proceeding is filed for which indemnity is required hereunder, the indemnifying party agrees, upon request therefor, to defend the indemnified party in such proceeding at its sole cost utilizing counsel satisfactory to the indemnified party.

12. Subordination; Attornment; Notice to Landlord’s Mortgagee.

(a) Subordination. This Lease shall be subordinate to any deed of trust, mortgage, or other security instrument (each, a “Mortgage”), or any ground lease, master lease, or primary lease (each, a “Primary Lease”), that now or hereafter covers all or any part of the Premises (the mortgagee under any such Mortgage, beneficiary under any such deed of trust, or the lessor under any such Primary Lease is referred to herein as a “Landlord’s Mortgagee”). Any Landlord’s Mortgagee may elect, at any time, unilaterally, to make this Lease superior to its Mortgage, Primary Lease, or other interest in the Premises by so notifying Tenant in writing. The provisions of this Section shall be self-operative and no further instrument of subordination shall be required; however, in confirmation of such subordination, Tenant shall execute and return to Landlord (or such other party designated by Landlord) within ten days after written request therefor such documentation, in recordable form if required, as a Landlord’s Mortgagee may reasonably request to evidence the subordination of this Lease to such Landlord’s Mortgagee’s Mortgage or Primary Lease (including a subordination, non-disturbance and attornment agreement) or, if the Landlord’s Mortgagee so elects, the subordination of such Landlord’s Mortgagee’s Mortgage or Primary Lease to this Lease.

(b) Attornment. Tenant shall attorn to any party succeeding to Landlord’s interest in the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination of lease, or otherwise, upon such party’s request, and shall execute such agreements confirming such attornment as such party may reasonably request.

(c) Notice to Landlord’s Mortgagee. Tenant shall not seek to enforce any remedy it may have for any default on the part of Landlord without first giving written notice by certified mail, return receipt requested, specifying the default in reasonable detail, to any Landlord’s Mortgagee whose address has been given to Tenant, and affording such Landlord’s Mortgagee a reasonable opportunity to perform Landlord’s obligations hereunder.

(d) Landlord’s Mortgagee’s Protection Provisions. If Landlord’s Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord’s Mortgagee shall not be: (1) liable for any act or omission of any prior lessor (including Landlord); (2) bound by any rent or additional rent or advance rent which Tenant might have paid for more than the current month to any prior lessor (including Landlord), and all such rent shall remain due and owing, notwithstanding such advance payment; (3) bound by any security or advance rental deposit made by Tenant which is not delivered or paid over to Landlord’s Mortgagee and with respect to which Tenant shall look solely to Landlord for refund or reimbursement; (4) bound by any termination, amendment or modification of this Lease made without Landlord’s Mortgagee’s consent and written approval, except for those terminations, amendments and modifications permitted to be made by Landlord without Landlord’s Mortgagee’s consent pursuant to the terms of the loan documents between Landlord and Landlord’s Mortgagee; (5) subject to the defenses which Tenant might have against any prior lessor (including Landlord); and (6) subject to the offsets which Tenant might have against any prior

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lessor (including Landlord) except for those offset rights which (A) are expressly provided in this Lease, (B) relate to periods of time following the acquisition of the Building by Landlord’s Mortgagee, and (C) Tenant has provided written notice to Landlord’s Mortgagee and provided Landlord’s Mortgagee a reasonable opportunity to cure the event giving rise to such offset event. Landlord’s Mortgagee shall have no liability or responsibility under or pursuant to the terms of this Lease or otherwise after it ceases to own an interest in the Project. Nothing in this Lease shall be construed to require Landlord’s Mortgagee to see to the application of the proceeds of any loan, and Tenant’s agreements set forth herein shall not be impaired on account of any modification of the documents evidencing and securing any loan.

13. Rules and Regulations. Tenant shall comply with the rules and regulations of the Project which are attached hereto as Exhibit C. Landlord may, from time to time, change such rules and regulations for the safety, care, or cleanliness of the Project and related facilities, provided that such changes are applicable to all tenants of the Project, will not unreasonably interfere with Tenant’s use of the Premises and are enforced by Landlord in a non-discriminatory manner. Tenant shall be responsible for the compliance with such rules and regulations by each Tenant Party.

14. Condemnation.

(a) Total Taking. If the entire Building or Premises are taken by right of eminent domain or conveyed in lieu thereof (a “Taking”), this Lease shall terminate as of the date of the Taking.

(b) Partial Taking - Tenant’s Rights. If any part of the Building becomes subject to a Taking and such Taking will prevent Tenant from conducting on a permanent basis its business in the Premises in a manner reasonably comparable to that conducted immediately before such Taking, then Tenant may terminate this Lease as of the date of such Taking by giving written notice to Landlord within 30 days after the Taking, and Basic Rent and Additional Rent shall be apportioned as of the date of such Taking. If Tenant does not terminate this Lease, then Rent shall be abated on a reasonable basis as to that portion of the Premises rendered untenantable by the Taking.

(c) Partial Taking - Landlord’s Rights. If any material portion, but less than all, of the Building becomes subject to a Taking, or if Landlord is required to pay any of the proceeds arising from a Taking to a Landlord’s Mortgagee, then Landlord may terminate this Lease by delivering written notice thereof to Tenant within 30 days after such Taking, and Basic Rent and Additional Rent shall be apportioned as of the date of such Taking. If Landlord does not so terminate this Lease, then this Lease will continue, but if any portion of the Premises has been taken, Rent shall abate as provided in the last sentence of Section 14(b).

(d) Temporary Taking. If all or any portion of the Premises becomes subject to a Taking for a limited period of time, this Lease shall remain in full force and effect and Tenant shall continue to perform all of the terms, conditions and covenants of this Lease, including the payment of Basic Rent and all other amounts required hereunder. If any such temporary Taking terminates prior to the expiration of the Term, Tenant shall restore the Premises as nearly as possible to the condition prior to such temporary Taking, at Tenant’s sole cost and expense. Landlord shall be entitled to receive the entire award for any such temporary Taking, except that Tenant shall be entitled to receive the portion of such award which (1) compensates Tenant for its loss of use of the Premises within the Term and (2) reimburses Tenant for the reasonable out-of-pocket costs actually incurred by Tenant to restore the Premises as required by this Section.

(e) Award. If any Taking occurs, then Landlord shall receive the entire award or other compensation for the Land, the Building, and other improvements taken; however, Tenant may separately pursue a claim (to the extent it will not reduce Landlord’s award) against the condemnor for the value of Tenant’s personal property which Tenant is entitled to remove under this Lease, moving costs, loss of business, and other claims it may have.

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15. Fire or Other Casualty.

(a) Repair Estimate. If the Premises or the Building are damaged by fire or other casualty (a “Casualty”), Landlord shall, within 90 days after such Casualty, deliver to Tenant a good faith estimate (the “Damage Notice”) of the time needed to repair the damage caused by such Casualty.

(b) Tenant’s Rights. If a material portion of the Premises is damaged by Casualty such that Tenant is prevented from conducting its business in the Premises in a manner reasonably comparable to that conducted immediately before such Casualty and Landlord estimates that the damage caused thereby cannot be repaired within 270-E days after the commencement of repairs (the “Repair Period”), then Tenant may terminate this Lease by delivering written notice to Landlord of its election to terminate within 30 days after the Damage Notice has been delivered to Tenant.

(c) Landlord’s Rights. If a Casualty damages the Premises or a material portion of the Building and (1) Landlord estimates that the damage to the Premises cannot be repaired within the Repair Period, (2) the damage to the Premises exceeds 50% of the replacement cost thereof (excluding foundations and footings), as estimated by Landlord, and such damage occurs during the last two years of the Term, (3) regardless of the extent of damage to the Premises, the damage is not fully covered by Landlord’s insurance policies or Landlord makes a good faith determination that restoring the Building would be uneconomical, or (4) Landlord is required to pay any insurance proceeds arising out of the Casualty to a Landlord’s Mortgagee, then Landlord may terminate this Lease by giving written notice of its election to terminate within 30 days after the Damage Notice has been delivered to Tenant.

(d) Repair Obligation. If neither party elects to terminate this Lease following a Casualty, then Landlord shall, within a reasonable time after such Casualty, begin to repair the Premises and shall proceed with reasonable diligence to restore the Premises to substantially the same condition as they existed immediately before such Casualty; however, Landlord shall not be required to repair or replace any alterations or betterments within the Premises (which shall be promptly and with due diligence repaired and restored by Tenant at Tenant’s sole cost and expense) or any furniture, equipment, trade fixtures or personal property of Tenant or others in the Premises or the Building, and Landlord’s obligation to repair or restore the Premises shall be limited to the extent of the insurance proceeds actually received by Landlord for the Casualty in question. If this Lease is terminated under the provisions of this Section 15, Landlord shall be entitled to the full proceeds of the insurance policies providing coverage for all alterations, improvements and betterments in the Premises (and, if Tenant has failed to maintain insurance on such items as required by this Lease, Tenant shall pay Landlord an amount equal to the proceeds Landlord would have received had Tenant maintained insurance on such items as required by this Lease).

(e) Abatement of Rent. If the Premises are damaged by Casualty, Rent for the portion of the Premises rendered untenantable by the damage shall be abated on a reasonable basis from the date of damage until the completion of Landlord’s repairs (or until the date of termination of this Lease by Landlord or Tenant as provided above, as the case may be), unless a Tenant Party caused such damage, in which case, Tenant shall continue to pay Rent without abatement.

16. Personal Property Taxes. Tenant shall be liable for all taxes levied or assessed against personal property, furniture, or fixtures placed by Tenant in the Premises or in or on the Building or Project. If any taxes for which Tenant is liable are levied or assessed against Landlord or Landlord’s property and Landlord elects to pay the same, or if the assessed value of Landlord’s property is increased by inclusion of such personal property, furniture or fixtures and Landlord elects to pay the taxes based on such increase, then Tenant shall pay to Landlord, within 30 days following written request therefor, the part of such taxes for which Tenant is primarily liable hereunder; however, Landlord shall not pay such amount if Tenant notifies Landlord that it will contest the validity or amount of such taxes before Landlord makes such payment, and thereafter diligently proceeds with such contest in accordance with Law and if the non-payment thereof does not pose a threat of loss or seizure of the Project or interest of Landlord therein or impose any fee or penalty against Landlord.

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17. Events of Default. Each of the following occurrences shall be an “Event of Default”:

(a) Payment Default. Tenant’s failure to pay Rent within five days after Landlord has delivered written notice to Tenant that the same is due; however, an Event of Default shall occur hereunder without any obligation of Landlord to give any notice if Tenant fails to pay Rent when due and, during the 12 month interval preceding such failure, Landlord has given Tenant written notice of failure to pay Rent on one or more occasions;

(b) Abandonment. Tenant (1) abandons or vacates the Premises or any substantial portion thereof or (2) fails to continuously operate its business in the Premises;

(c) Estoppel. Tenant fails to provide any estoppel certificate after Landlord’s written request therefor pursuant to Section 25(e) and such failure shall continue for five days after Landlord’s second written notice thereof to Tenant;

(d) Insurance. Tenant fails to procure, maintain and deliver to Landlord evidence of the insurance policies and coverages as required under Section 11(a);

(e) Mechanic’s Liens. Tenant fails to pay and release of record, or diligently contest and bond around, any mechanic’s lien filed against the Premises or the Project for any work performed, materials furnished, or obligation incurred by or at the request of Tenant, within the time and in the manner required by Section 8(d);

(f) Other Defaults. Tenant’s failure to perform, comply with, or observe any other agreement or obligation of Tenant under this Lease and the continuance of such failure for a period of more than 30 days after Landlord has delivered to Tenant written notice thereof; and

(g) Insolvency. The filing of a petition by or against Tenant (the term “Tenant” shall include, for the purpose of this Section 17(g), any guarantor of Tenant’s obligations hereunder) (1) in any bankruptcy or other insolvency proceeding; (2) seeking any relief under any state or federal debtor relief law; (3) for the appointment of a liquidator or receiver for all or substantially all of Tenant’s property or for Tenant’s interest in this Lease; (4) for the reorganization or modification of Tenant’s capital structure; or (5) in any assignment for the benefit of creditors proceeding; however, if such a petition is filed against Tenant, then such filing shall not be an Event of Default unless Tenant fails to have the proceedings initiated by such petition dismissed within 90 days after the filing thereof.

18. Remedies. Upon any Event of Default, Landlord may, in addition to all other rights and remedies afforded Landlord hereunder or by law or equity, take any one or more of the following actions:

(a) Termination of Lease. Terminate this Lease by giving Tenant written notice thereof, in which event Tenant shall pay to Landlord the sum of (1) all Rent accrued hereunder through the date of termination, (2) all amounts due under Section 19(a), and (3) an amount equal to (A) the total Rent that Tenant would have been required to pay for the remainder of the Term discounted to present value at a per annum rate equal to the “Prime Rate” as published on the date this Lease is terminated by The Wall Street Journal, Southwest Edition, in its listing of “Money Rates” minus one percent, minus (B) the then present fair rental value of the Premises for such period, similarly discounted;

(b) Termination of Possession. Terminate Tenant’s right to possess the Premises without terminating this Lease by giving written notice thereof to Tenant, in which event Tenant shall pay to Landlord (1) all Rent and other amounts accrued hereunder to the date of termination of possession, (2) all amounts due from time to time under Section 19(a), and (3) all Rent and other net sums required hereunder to be paid by Tenant during the remainder of the Term, diminished by any net sums thereafter received by Landlord through reletting the Premises during such period, after deducting all costs incurred by Landlord in reletting the Premises. If Landlord elects to proceed under this Section 18(b), Landlord may remove all of Tenant’s property from the Premises and store the same in a public warehouse or elsewhere at the cost of, and for the account of, Tenant, without becoming liable for any loss or damage which may be occasioned thereby. Landlord shall use reasonable efforts to relet the Premises on such terms as Landlord in its sole discretion may determine (including a term different from the Term, rental concessions, and

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alterations to, and improvement of, the Premises); however, Landlord shall not be obligated to relet the Premises before leasing other portions of the Building or Complex and Landlord shall not be obligated to accept any prospective tenant proposed by Tenant unless such proposed tenant meets all of Landlord’s leasing criteria. Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or to collect rent due for such reletting. Tenant shall not be entitled to the excess of any consideration obtained by reletting over the Rent due hereunder. Reentry by Landlord in the Premises shall not affect Tenant’s obligations hereunder for the unexpired Term; rather, Landlord may, from time to time, bring an action against Tenant to collect amounts due by Tenant, without the necessity of Landlord’s waiting until the expiration of the Term. Unless Landlord delivers written notice to Tenant expressly stating that it has elected to terminate this Lease, all actions taken by Landlord to dispossess or exclude Tenant from the Premises shall be deemed to be taken under this Section 18(b). If Landlord elects to proceed under this Section 18(b), it may at any time elect to terminate this Lease under Section 18(a);

(c) Perform Acts on Behalf of Tenant. Perform any act Tenant is obligated to perform under the terms of this Lease (and enter upon the Premises in connection therewith if necessary) in Tenant’s name and on Tenant’s behalf, without being liable for any claim for damages therefor, and Tenant shall reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant’s obligations under this Lease (including, but not limited to, collection costs and legal expenses), plus interest thereon at the Default Rate;

(d) Suspension of Services. Suspend any services required to be provided by Landlord hereunder without being liable for any claim for damages therefor; or

(e) Alteration of Locks. Additionally, with or without notice, and to the extent permitted by Law, Landlord may alter locks or other security devices at the Premises to deprive Tenant of access thereto, and Landlord shall not be required to provide a new key or right of access to Tenant.

19. Payment by Tenant; Non-Waiver; Cumulative Remedies.

(a) Payment by Tenant. Upon any Event of Default, Tenant shall pay to Landlord all costs incurred by Landlord (including court costs and reasonable attorneys’ fees and expenses) in (1) obtaining possession of the Premises, (2) removing and storing Tenant’s or any other occupant’s property, (3) repairing, restoring, altering, remodeling, or otherwise putting the Premises into condition acceptable to a new tenant, (4) if Tenant is dispossessed of the Premises and this Lease is not terminated, reletting all or any part of the Premises (including brokerage commissions, cost of tenant finish work, and other costs incidental to such reletting), (5) performing Tenant’s obligations which Tenant failed to perform, and (6) enforcing, or advising Landlord of, its rights, remedies, and recourses arising out of the default. To the full extent permitted by law, Landlord and Tenant agree the federal and state courts of the state in which the Premises are located shall have exclusive jurisdiction over any matter relating to or arising from this Lease and the parties’ rights and obligations under this Lease.

(b) No Waiver. Landlord’s acceptance of Rent following an Event of Default shall not waive Landlord’s rights regarding such Event of Default. No waiver by Landlord of any violation or breach of any of the terms contained herein shall waive Landlord’s rights regarding any future violation of such term. Landlord’s acceptance of any partial payment of Rent shall not waive Landlord’s rights with regard to the remaining portion of the Rent that is due, regardless of any endorsement or other statement on any instrument delivered in payment of Rent or any writing delivered in connection therewith; accordingly, Landlord’s acceptance of a partial payment of Rent shall not constitute an accord and satisfaction of the full amount of the Rent that is due.

(c) Cumulative Remedies. Any and all remedies set forth in this Lease: (1) shall be in addition to any and all other remedies Landlord may have at law or in equity, (2) shall be cumulative, and (3) may be pursued successively or concurrently as Landlord may elect. The exercise of any remedy by Landlord shall not be deemed an election of remedies or preclude Landlord from exercising any other remedies in the future. Additionally, Tenant shall defend, indemnify and hold harmless Landlord, Landlord’s Mortgagee and their respective representatives and agents from and against all claims, demands, liabilities, causes of action, suits, judgments, damages and expenses (including reasonable attorneys’ fees) arising from Tenant’s failure to perform its obligations under this Lease.

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20. Landlord’s Lien. In addition to any statutory landlord’s lien, now or hereafter enacted, Tenant grants to Landlord, to secure performance of Tenant’s obligations hereunder, a security interest in all of Tenant’s property situated in or upon, or used in connection with, the Premises or the Project, and all proceeds thereof (except merchandise sold in the ordinary course of business) (collectively, the “Collateral”), and the Collateral shall not be removed from the Premises or the Project without the prior written consent of Landlord until all obligations of Tenant have been fully performed. Such personalty thus encumbered includes specifically all trade and other fixtures for the purpose of this Section 20 and inventory, equipment, contract rights, accounts receivable and the proceeds thereof. Upon the occurrence of an Event of Default, Landlord may, in addition to all other remedies, without notice or demand except as provided below, exercise the rights afforded to a secured party under the Uniform Commercial Code of the state in which the Premises are located (the “UCC”). To the extent the UCC requires Landlord to give to Tenant notice of any act or event and such notice cannot be validly waived before a default occurs, then five-days’ prior written notice thereof shall be reasonable notice of the act or event. In order to perfect such security interest, Landlord may file any financing statement or other instrument necessary at Tenant’s expense at the state and county Uniform Commercial Code filing offices. Tenant grants to Landlord a power of attorney to execute and file any financing statement or other instrument necessary to perfect Landlord’s security interest under this Section 20, which power is coupled with an interest and is irrevocable during the Term. Landlord may also file a copy of this Lease as a financing statement to perfect its security interest in the Collateral. Within ten days following written request therefor, Tenant shall execute financing statements to be filed of record to perfect Landlord’s security interest in the Collateral.

21. Surrender of Premises. No act by Landlord shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless it is in writing and signed by Landlord. At the expiration or termination of this Lease, Tenant shall deliver to Landlord the Premises with all improvements located therein in good repair and condition, free of Hazardous Materials placed on the Premises during the Term, broom-clean, reasonable wear and tear (and condemnation and Casualty damage not caused by Tenant, as to which Sections 14 and 15 shall control) excepted, and shall deliver to Landlord all keys to the Premises. Provided that Tenant has performed all of its obligations hereunder, Tenant may remove all unattached trade fixtures, furniture, and personal property placed in the Premises or elsewhere in the Building by Tenant (but Tenant may not remove any such item which was paid for, in whole or in part, by Landlord or any wiring or cabling unless Landlord requires such removal). Additionally, at Landlord’s option, Tenant shall remove such alterations, additions, improvements, trade fixtures, personal property, equipment, wiring, conduits, cabling, and furniture (including Tenant’s Off-Premises Equipment) as Landlord may request; however, Tenant shall not be required to remove any addition or improvement to the Premises or the Project if Landlord has specifically agreed in writing that the improvement or addition in question need not be removed. Tenant shall repair all damage caused by such removal. All items not so removed shall, at Landlord’s option, be deemed to have been abandoned by Tenant and may be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord without notice to Tenant and without any obligation to account for such items; any such disposition shall not be considered a strict foreclosure or other exercise of Landlord’s rights in respect of the security interest granted under Section 20. The provisions of this Section 21 shall survive the end of the Term.

22. Holding Over. If Tenant fails to vacate the Premises at the end of the Term, then Tenant shall be a tenant at sufferance and, in addition to all other damages and remedies to which Landlord may be entitled for such holding over, (a) Tenant shall pay, in addition to the other Rent, Basic Rent equal to the greater of (1) 200% of the Rent payable during the last month of the Term, or (2) 125% of the prevailing rental rate in the Building for similar space, and (b) Tenant shall otherwise continue to be subject to all of Tenant’s obligations under this Lease. The provisions of this Section 22 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including any claims made by any succeeding tenant founded upon such failure to surrender, and any lost profits to Landlord resulting therefrom.

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23. Certain Rights Reserved by Landlord. Provided that the exercise of such rights does not unreasonably interfere with Tenant’s occupancy of the Premises, Landlord shall have the following rights:

(a) Building Operations. To decorate and to make inspections, repairs, alterations, additions, changes, or improvements, whether structural or otherwise, in and about the Project, or any part thereof; to enter upon the Premises (after giving Tenant reasonable notice thereof, which may be oral notice, except in cases of real or apparent emergency, in which case no notice shall be required) and, during the continuance of any such work, to temporarily close doors, entryways, public space, and corridors in the Building; to interrupt or temporarily suspend Building services and facilities; to change the name of the Building; and to change the arrangement and location of entrances or passageways, doors, and doorways, corridors, elevators, stairs, restrooms, or other public parts of the Building;

(b) Security. To take such reasonable measures as Landlord deems advisable for the security of the Building and its occupants; evacuating the Building for cause, suspected cause, or for drill purposes; temporarily denying access to the Building; and closing the Building after normal business hours and on Sundays and holidays, subject, however, to Tenant’s right to enter when the Building is closed after normal business hours under such reasonable regulations as Landlord may prescribe from time to time;

(c) Prospective Purchasers and Lenders. To enter the Premises at all reasonable hours to show the Premises to prospective purchasers or lenders; and

(d) Prospective Tenants. At any time during the last 12 months of the Term (or earlier if Tenant has notified Landlord in writing that it does not desire to renew the Term) or at any time following the occurrence of an Event of Default, to enter the Premises at all reasonable hours to show the Premises to prospective tenants.

24. Substitution Space. Landlord may, at Landlord’s expense, relocate Tenant within the Complex to space which is comparable in size, utility and condition to the Premises. If Landlord relocates Tenant, Landlord shall reimburse Tenant for Tenant’s reasonable out-of-pocket expenses for moving Tenant’s furniture, equipment, and supplies from the Premises to the relocation space and for reprinting Tenant’s stationery of the same quality and quantity as Tenant’s stationery supply on hand immediately before Landlord’s notice to Tenant of the exercise of this relocation right. Upon such relocation, the relocation space shall be deemed to be the Premises and the terms of this Lease shall remain in full force and shall apply to the relocation space. No amendment or other instrument shall be necessary to effectuate the relocation contemplated by this Section; however, if requested by Landlord, Tenant shall execute an appropriate amendment document within ten business days after Landlord’s written request therefor. If Tenant fails to execute such relocation amendment within such time period, or if Tenant fails to relocate within the time period stated in Landlord’s relocation notice to Tenant (or, if such relocation space is not available on the date specified in Landlord’s relocation notice, as soon thereafter as the relocation space becomes available and is tendered to Tenant in the condition required by this Lease), then, in addition to Landlord’s other remedies set forth in this Lease, at law and/or in equity, Landlord may terminate this Lease by notifying Tenant in writing thereof at least 60 days prior to the termination date contained in Landlord’s termination notice. Time is of the essence with respect to Tenant’s obligations under this Section.

25. Miscellaneous.

(a) Landlord Transfer. Landlord may transfer any portion of the Project and any of its rights under this Lease. If Landlord assigns its rights under this Lease, then Landlord shall thereby be released from any further obligations hereunder arising after the date of transfer, provided that the assignee assumes in writing Landlord’s obligations hereunder arising from and after the transfer date.

(b) Landlord’s Liability. The liability of Landlord (and its partners, shareholders or members) to Tenant (or any person or entity claiming by, through or under Tenant) for any default by Landlord under the terms of this Lease or any matter relating to or arising out of the occupancy or use of the Premises and/or other

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areas of the Building shall be limited to Tenant’s actual direct, but not consequential, damages therefor and shall be recoverable only from the interest of Landlord in the Building, and Landlord (and its partners, shareholders or members) shall not be personally liable for any deficiency. Additionally, Tenant hereby waives its statutory lien under Section 91.004 of the Texas Property Code.

(c) Force Majeure. Other than for Tenant’s obligations under this Lease that can be performed by the payment of money (e.g., payment of Rent and maintenance of insurance), whenever a period of time is herein prescribed for action to be taken by either party hereto, such party shall not be liable or responsible for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, terrorist acts or activities, governmental laws, regulations, or restrictions, or any other causes of any kind whatsoever which are beyond the control of such party.

(d) Brokerage. Neither Landlord nor Tenant has dealt with any broker or agent in connection with the negotiation or execution of this Lease, other than CAPSTAR Commercial Real Estate Services, Ltd. and Anchor Realty Advisors, LLC, whose commissions shall be paid by Landlord pursuant to separate written agreements. Tenant and Landlord shall each indemnify the other against all costs, expenses, attorneys’ fees, liens and other liability for commissions or other compensation claimed by any other broker or agent claiming the same by, through, or under the indemnifying party.

(e) Estoppel Certificates. From time to time, Tenant shall furnish to any party designated by Landlord, within ten days after Landlord has made a request therefor, a certificate signed by Tenant confirming and containing such factual certifications and representations as to this Lease as Landlord may reasonably request. Unless otherwise required by Landlord’s Mortgagee or a prospective purchaser or mortgagee of the Project, the initial form of estoppel certificate to be signed by Tenant is attached hereto as Exhibit F. If Tenant does not deliver to Landlord the certificate signed by Tenant within such required time period, Landlord, Landlord’s Mortgagee and any prospective purchaser or mortgagee, may conclusively presume and rely upon the following facts: (1) this Lease is in full force and effect; (2) the terms and provisions of this Lease have not been changed except as otherwise represented by Landlord; (3) not more than one monthly installment of Basic Rent and other charges have been paid in advance; (4) there are no claims against Landlord nor any defenses or rights of offset against collection of Rent or other charges; and (5) Landlord is not in default under this Lease. In such event, Tenant shall be estopped from denying the truth of the presumed facts.

(f) Notices. All notices and other communications given pursuant to this Lease shall be in writing and shall be (1) mailed by first class, United States Mail, postage prepaid, certified, with return receipt requested, and addressed to the parties hereto at the address specified in the Basic Lease Information, (2) hand-delivered to the intended addressee, (3) sent by a nationally recognized overnight courier service, or (4) sent by facsimile transmission during normal business hours followed by a confirmatory letter sent in another manner permitted hereunder. All notices shall be effective upon delivery to the address of the addressee (even if such addressee refuses delivery thereof). The parties hereto may change their addresses by giving notice thereof to the other in conformity with this provision.

(g) Separability. If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws, then the remainder of this Lease shall not be affected thereby and in lieu of such clause or provision, there shall be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid, or unenforceable clause or provision as may be possible and be legal, valid, and enforceable.

(h) Amendments; Binding Effect; No Electronic Records. This Lease may not be amended except by instrument in writing signed by Landlord and Tenant. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing signed by Landlord, and no custom or practice which may evolve between the parties in the administration of the terms hereof shall waive or diminish the right of Landlord to insist upon the performance by Tenant in strict accordance with the terms hereof. Landlord and Tenant hereby agree not to conduct the transactions or communications contemplated by this Lease by electronic means, except by facsimile transmission as specifically set forth in Section 25(f); nor shall the use of the phrase “in writing” or the word

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“written” be construed to include electronic communications except by facsimile transmissions as specifically set forth in Section 25(f). The terms and conditions contained in this Lease shall inure to the benefit of and be binding upon the parties hereto, and upon their respective successors in interest and legal representatives, except as otherwise herein expressly provided. This Lease is for the sole benefit of Landlord and Tenant, and, other than Landlord’s Mortgagee, no third party shall be deemed a third party beneficiary hereof.

(i) Quiet Enjoyment. Provided Tenant has performed all of its obligations hereunder, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term, without hindrance from Landlord or any party claiming by, through, or under Landlord, but not otherwise, subject to the terms and conditions of this Lease.

(j) No Merger. There shall be no merger of the leasehold estate hereby created with the fee estate in the Premises or any part thereof if the same person acquires or holds, directly or indirectly, this Lease or any interest in this Lease and the fee estate in the leasehold Premises or any interest in such fee estate.

(k) No Offer. The submission of this Lease to Tenant shall not be construed as an offer, and Tenant shall not have any rights under this Lease unless Landlord executes a copy of this Lease and delivers it to Tenant.

(l) Entire Agreement. This Lease constitutes the entire agreement between Landlord and Tenant regarding the subject matter hereof and supersedes all oral statements and prior writings relating thereto. Except for those set forth in this Lease, no representations, warranties, or agreements have been made by Landlord or Tenant to the other with respect to this Lease or the obligations of Landlord or Tenant in connection therewith. The normal rule of construction that any ambiguities be resolved against the drafting party shall not apply to the interpretation of this Lease or any exhibits or amendments hereto.

(m) Waiver of Jury Trial. TO THE MAXIMUM EXTENT PERMITTED BY LAW, LANDLORD AND TENANT EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LITIGATION OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF OR WITH RESPECT TO THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

(n) Governing Law. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises are located.

(o) Recording. Tenant shall not record this Lease or any memorandum of this Lease without the prior written consent of Landlord, which consent may be withheld or denied in the sole and absolute discretion of Landlord, and any recordation by Tenant shall be a material breach of this Lease. Tenant grants to Landlord a power of attorney to execute and record a release releasing any such recorded instrument of record that was recorded without the prior written consent of Landlord.

(p) Water or Mold Notification. To the extent Tenant or its agents or employees discover any water leakage, water damage or mold in or about the Premises or Project, Tenant shall promptly notify Landlord thereof in writing.

(q) Joint and Several Liability. If Tenant is comprised of more than one party, each such party shall be jointly and severally liable for Tenant’s obligations under this Lease. All unperformed obligations of Tenant hereunder not fully performed at the end of the Term shall survive the end of the Term, including payment obligations with respect to Rent and all obligations concerning the condition and repair of the Premises.

(r) Financial Reports. Within 15 days after Landlord’s request, Tenant will furnish Tenant’s most recent audited financial statements (including any notes to them) to Landlord, or, if no such audited statements have been prepared, such other financial statements (and notes to them) as may have been prepared by an independent

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certified public accountant or, failing those, Tenant’s internally prepared financial statements. If Tenant is a publicly traded corporation, Tenant may satisfy its obligations hereunder by providing to Landlord Tenant’s most recent annual and quarterly reports. Tenant will discuss its financial statements with Landlord and, following the occurrence of an Event of Default hereunder, will give Landlord access to Tenant’s books and records in order to enable Landlord to verify the financial statements. Landlord will not disclose any aspect of Tenant’s financial statements that Tenant designates to Landlord as confidential except (1) to Landlord’s Mortgagee or prospective mortgagees or purchasers of the Building, (2) in litigation between Landlord and Tenant, and/or (3) if required by court order. Tenant shall not be required to deliver the financial statements required under this Section 25(r) more than once in any 12-month period unless requested by Landlord’s Mortgagee or a prospective buyer or lender of the Building or an Event of Default occurs.

(s) Landlord’s Fees. Whenever Tenant requests Landlord to take any action not required of it hereunder or give any consent required or permitted under this Lease, Tenant will reimburse Landlord for Landlord’s reasonable, out-of-pocket costs payable to third parties and incurred by Landlord in reviewing the proposed action or consent, including reasonable attorneys’, engineers’ or architects’ fees, within 30 days after Landlord’s delivery to Tenant of a statement of such costs. Tenant will be obligated to make such reimbursement without regard to whether Landlord consents to any such proposed action.

(t) Telecommunications. Tenant and its telecommunications companies, including local exchange telecommunications companies and alternative access vendor services companies, shall have no right of access to and within the Building, for the installation and operation of telecommunications systems, including voice, video, data, Internet, and any other services provided over wire, fiber optic, microwave, wireless, and any other transmission systems (“Telecommunications Services”), for part or all of Tenant’s telecommunications within the Building and from the Building to any other location without Landlord’s prior written consent. All providers of Telecommunications Services shall be required to comply with the rules and regulations of the Building, applicable Laws and Landlord’s policies and practices for the Building. Tenant acknowledges that Landlord shall not be required to provide or arrange for any Telecommunications Services and that Landlord shall have no liability to any Tenant Party in connection with the installation, operation or maintenance of Telecommunications Services or any equipment or facilities relating thereto. Tenant, at its cost and for its own account, shall be solely responsible for obtaining all Telecommunications Services.

(u) Confidentiality. Tenant acknowledges that the terms and conditions of this Lease are to remain confidential for Landlord’s benefit, and may not be disclosed by Tenant to anyone, by any manner or means, directly or indirectly, without Landlord’s prior written consent; however, Tenant may disclose the terms and conditions of this Lease if required by Law or court order, to its attorneys, accountants, employees and existing or prospective financial partners provided same are advised by Tenant of the confidential nature of such terms and conditions and agree to maintain the confidentiality thereof (in each case, prior to disclosure). Tenant shall be liable for any disclosures made in violation of this Section by Tenant or by any entity or individual to whom the terms of and conditions of this Lease were disclosed or made available by Tenant. The consent by Landlord to any disclosures shall not be deemed to be a waiver on the part of Landlord of any prohibition against any future disclosure.

(v) Authority. Tenant (if a corporation, partnership or other business entity) hereby represents and warrants to Landlord that Tenant is a duly formed and existing entity qualified to do business in the state in which the Premises are located, that Tenant has full right and authority to execute and deliver this Lease, and that each person signing on behalf of Tenant is authorized to do so, and that Tenant’s corporation number assigned by the Nevada Secretary of State is C17483-1999. Landlord hereby represents and warrants to Tenant that Landlord is a duly formed and existing entity qualified to do business in the state in which the Premises are located, that Landlord has full right and authority to execute and deliver this Lease, and that each person signing on behalf of Landlord is authorized to do so.

(w) Hazardous Materials. The term “Hazardous Materials” means any substance, material, or waste which is now or hereafter classified or considered to be hazardous, toxic, or dangerous under any Law relating to pollution or the protection or regulation of human health, natural resources or the environment, or poses or

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threatens to pose a hazard to the health or safety of persons on the Premises or in the Project. Tenant shall not use, generate, store, or dispose of, or permit the use, generation, storage or disposal of Hazardous Materials on or about the Premises or the Project except in a manner and quantity necessary for the ordinary performance of Tenant’s business, and then in compliance with all Laws. If Tenant breaches its obligations under this Section 25(w), Landlord may immediately take any and all action reasonably appropriate to remedy the same, including taking all appropriate action to clean up or remediate any contamination resulting from Tenant’s use, generation, storage or disposal of Hazardous Materials. Notwithstanding Landlord’s indemnity contained in Section 11(d), Tenant shall defend, indemnify, and hold harmless Landlord and its representatives and agents from and against any and all claims, demands, liabilities, causes of action, suits, judgments, damages and expenses (including reasonable attorneys’ fees and cost of clean up and remediation) arising from Tenant’s failure to comply with the provisions of this Section 25(w). This indemnity provision shall survive termination or expiration of this Lease.

(x) List of Exhibits. All exhibits and attachments attached hereto are incorporated herein by this reference.

Exhibit A -	Outline of Premises
Exhibit B -	Description of the Land
Exhibit C -	Building Rules and Regulations
Exhibit D -	Tenant Finish-Work
Exhibit E -	Form of Confirmation of Rent Commencement Date Letter
Exhibit F -	Form of Tenant Estoppel Letter
Exhibit G -	Parking
Exhibit H -	Right of First Refusal
Exhibit I -	Rent Abatement Provisions
Exhibit J -	Waiver of Consumer Rights

(y) Determination of Charges. Landlord and Tenant agree that each provision of this Lease for determining charges and amounts payable by Tenant (including provisions regarding Additional Rent and Tenant’s Proportionate Share of Taxes and Electrical Costs) is commercially reasonable and, as to each such charge or amount, constitutes a statement of the amount of the charge or a method by which the charge is to be computed for purposes of Section 93.012 of the Texas Property Code.

(z) Prohibited Persons and Transactions. Tenant represents and warrants that neither Tenant nor any of its affiliates, nor any of their respective partners, members, shareholders or other equity owners, and none of their respective employees, officers, directors, representatives or agents is, nor will they become, a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and will not Transfer this Lease to, contract with or otherwise engage in any dealings or transactions or be otherwise associated with such persons or entities.

26. Other Provisions.

(a) Shared Conference Room. Subject to availability, and upon reasonable prior notice to Landlord, Tenant shall be permitted to use the Building’s shared conference room (the “Conference Room”). Tenant shall be allowed to use the Conference Room at no additional charge for the first four hours of such usage per month. Any additional usage of the Conference Room shall be at the rate then established by Landlord for use of the Conference Room.

(b) Exercise Facility. For so long as Landlord maintains a fitness center for use by occupants of the Building (the “Fitness Center”), Tenant’s employees may access and use the Fitness Center, at no charge during the initial Term, provided that such employees follow all rules and regulations applicable to the Fitness Center,

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as the same may be adjusted from time to time, including the execution by each user of Landlord’s standard release form. In the event that Landlord no longer provides a Fitness Center for use by occupants of the Building, Tenant shall not be entitled to any credit toward or abatement of Rent.

27. Temporary Space.

(a) Lease Grant; Term; Acceptance; Insurance; Prospective Tenants. Beginning on December 30, 2006, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, on all of the terms and conditions of this Lease (except as otherwise set forth in this Section 27), a portion of the second floor (Suite 200 – E) of the Building containing approximately 3,203 rentable square feet and depicted on Exhibit A (the “Temporary Space”). The lease term for the Temporary Space shall commence on the full execution of this Lease, and expire on the Commencement Date (the “Temporary Space Term”). Tenant accepts the Temporary Space in its “AS-IS” condition on the date this Lease is entered into, and Landlord shall have no obligation to perform any demolition or tenant-finish work therein. Prior to Tenant’s occupancy of the Temporary Space, Tenant shall deliver to Landlord evidence that the insurance required under Section 11(a) of this Lease has been obtained. With regards to the Temporary Space, Landlord shall have the right to enter the Temporary Space at all reasonable hours to show the Temporary Space to prospective tenants.

(b) Basic Rent; Additional Rent; Tenant’s Proportionate Share; Cabling Costs. During the Temporary Space Term, Tenant shall not pay monthly Basic Rent, Tenant’s Proportionate Share of Taxes or Tenant’s share of Additional Rent with respect to the Temporary Space. However, during the Temporary Space Term Tenant shall pay Tenant’s Proportionate Share of Electrical Costs with respect to the Temporary Space. Landlord shall reimburse Tenant for Tenant’s reasonable out-of-pocket expenses for Tenant’s voice and data cabling costs in the Temporary Space.

(c) Landlord’s Right to Relocate. Landlord may relocate the Temporary Space within the Building to space which is comparable in size, utility and condition to the Temporary Space, at Tenant’s cost and expense, effective as of the date (the “Move-Out Date”) 30 days after Landlord provides to Tenant written notice thereof. If Landlord relocates Tenant as permitted by this Section 27, then Tenant shall vacate and surrender the Temporary Space in the condition required under this Lease and remove all of Tenant’s property from the Temporary Space by the Move-Out Date. If Tenant fails to so vacate the Temporary Space, the Tenant shall be a holdover tenant with respect thereto pursuant to Section 22 of this Lease (and shall pay to Landlord holdover rent with respect to the Temporary Space as set forth in such Section 22).

(d) Surrender of Temporary Space Upon Commencement Date. Within two days after the Commencement Date, Tenant shall vacate and surrender the Temporary Space in the condition required under this Lease and relocate to the Initial Premises, failing which Tenant shall be a holdover tenant with respect to the Temporary Space pursuant to Section 22 of this Lease (and shall pay to Landlord the holdover rent with respect thereto as set forth in Section 22) and Tenant shall pay to Landlord Rent with respect to the Initial Premises in accordance with this Lease. Landlord shall reimburse Tenant for Tenant’s reasonable out-of-pocket expenses for moving Tenant’s furniture, equipment, and supplies from the Temporary Space to the Premises at the end of the Temporary Space Term.

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LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT’S INTENDED COMMERCIAL PURPOSE, AND TENANT’S OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE RENT, WITHOUT ABATEMENT, DEMAND, SETOFF OR DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.

This Lease is executed on the respective dates set forth below, but for reference purposes, this Lease shall be dated as of the date first above written. If the execution date is left blank, this Lease shall be deemed executed as of the date first written above.

LANDLORD:	CRP HOLDINGS V, L.P., a Delaware limited partnership
	By:	CRP Holdings GP-V, LLC, a Delaware limited liability company, its general partner
		By:	/s/ Henry G. Brauer
			Henry G. Brauer, Executive Vice President
		Execution Date: ______________________________
TENANT:	ENERGYTEC, INC., a Nevada corporation
		By:	/s/ Dorothea Krempein
			Dorothea Krempein, Chief Financial Officer
		Execution Date: ______________________________

23 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EXHIBIT A

OUTLINE OF PREMISES

1 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

REFUSAL SPACE

1 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EXHIBIT B

DESCRIPTION OF THE LAND

Tract I:

Being a tract of land out of the Denton Darby Survey, Abstract No. 260, in the City of Plano, Collin County, Texas, and being all of Lot 1R, Block A of the 2nd Replat of Preston Park South Addition, an addition to the City of Plano, Texas according to the plat thereof recorded in Cabinet H, Slide 391 of the Map Records of Collin County, Texas, and being more particularly described as follows:

BEGINNING at a  ¹/2” iron rod found with a cap stamped “2419” for the East corner of a corner clip at the intersection of the Easterly right-of-way line of Preston Road (State Highway No. 289, 150’ right-of-way at this point) with the Northerly right-of-way line of Preston Park Boulevard (90’ right-of-way at this point);

THENCE with the said Easterly right-of-way line of Preston Road, the following courses and distances to wit:

North 44 deg. 27 Min. 20 sec West, a distance of 35.36 feet to a 5/8” iron rod found with cap stamped “2419” for corner;

North 00 deg. 32 min. 40 sec. East, a distance of 259.23 feet to a 5/8” iron rod found with cap stamped “2419” for corner;

North 11 deg. 32 min. 40 sec. East, a distance of 95.09 feet to an “X” cut in concrete found for corner;

North 20 deg. 11 min. 54 sec. East, a distance of 243.37 feet to a Hilti nail found in concrete for corner;

North 00 deg. 32 min. 40 sec. East, a distance of 10.54 feet to a PK nail found in concrete for the Southwesterly corner of Lot One (1), Block A of the Preston Park Village Addition, an addition to the City of Plano, Texas, according to the replat thereof recorded in Cabinet F, Slide 704 of the Map Records of Collin County, Texas;

THENCE with the South line of said lot, South 89 deg. 27 min. 20 sec. East, a distance of 518.17 feet to a 5/8” iron rod set for the Northeast corner of Lot 1R, Block A of Preston Park South Addition;

THENCE leaving the South line of Lot One (1), Block A of Preston Park Village Addition, South 00 deg. 32 min. 40 sec. West, a distance of 155.72 feet to a point for the Easterly most common corner of Lots 1R and 2R, Block A of Preston Park South Addition;

THENCE with the common line of Lots 1R and 2R, Block A of Preston Park South Addition, the following courses and distance to wit:

North 89 deg. 27 min. 20 sec. West, a distance of 446.92 feet to a point for corner;

South 00 deg. 32 min. 40 sec. West, a distance of 99.00 feet to a point for corner;

South 89 deg. 27 min. 20 sec. East, a distance of 144.53 feet to a point for corner;

South 44 deg. 31 min. 21 sec. East, a distance of 102.26 feet to an “X” cut found in concrete for corner;

South 45 deg. 35 min. 14 sec. West, a distance of 410.94 feet to a 5/8” iron rod found in the Northerly right-of-way line of Preston Park Boulevard for corner;

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THENCE with the said Northerly right-of-way line, North 89 deg. 27 min. 20 sec. West, a distance of 72.37 feet to the POINT OF BEGINNING and containing 193,377 square feet or 4.4393 acres of land.

Tract II:

BEING a tract of land out of the Denton Darby Survey, Abstract No. 260, in the City of Plano, Collin County, Texas and being all of Lot 2R, Block A of the 2nd Replat of Preston Park South Addition, an addition to the City of Plano, Texas, according to the plat thereof recorded in Cabinet H, Slide 391 of the Map Records of Collin County, Texas, and being more particularly described as follows:

COMMENCING at a  ¹/2” iron rod found with a cap stamped “2419” for the East corner of corner clip at the intersection of the Easterly right-of-way line of Preston Road (State Highway No. 289, 150 feet right-of-way at this point) with the Northerly right-of-way line of Preston Park Boulevard (90’ right-of-way at this point);

THENCE with the said Northerly right-of-way line, South 89 deg. 27 min. 20 sec. East, a distance of 72.37 feet to a 5/8” iron rod found for the Southerly common corner of Lots 1R and 2R, Block A of the Preston Park South Addition and the POINT OF BEGINNING;

THENCE with the common line of said lots, the following courses and distances to wit:

North 45 deg. 35 min. 14 sec. East, a distance of 410.94 feet to an “X” cut in concrete for corner;

North 44 deg. 31 min. 21 sec. West, a distance of 102.26 feet to a point for corner;

North 89 deg. 27 min. 20 sec. West, a distance of 144.53 feet to a point for corner;

North 00 deg. 32 min. 40 sec. East, a distance of 99.00 feet to a point for corner;

South 89 deg. 27 min. 20 sec. East, a distance of 446.92 feet to a point for the Easterly most common corner of Lots 1R and 2R, Block A of the Preston Park South Addition;

THENCE with the common line of Lots 2R and 3A, Block A of the Preston Park South Addition the following courses and distances to wit:

South 00 deg. 32 min. 40 sec. West, a distance of 139.28 feet to a 5/8” iron rod found with cap for corner;

North 89 deg. 27 min. 20 sec. West, a distance of 125.0 feet to a PK nail found for corner;

South 00 deg. 32 min. 40 sec. West, a distance of 306.48 feet to a PK nail found in the Northerly right-of-way line of said Preston Park Boulevard for the beginning of a non-tangent curve to the right, having a central angle of 09 deg. 13 min. 19 sec., a radius of 1225.00 feet and a chord bearing and distance of South 85 deg. 56 min. 00 sec. West, 196.96 feet;

Westerly with said curve, an arc distance of 197.17 feet to a PK nail found in concrete for the point of tangency;

North 89 deg. 27 min. 20 sec. West, a distance of 199.48 feet to the POINT OF BEGINNING and containing 131,150 square feet of 3.0108 acres of land.

Tract III:

BEING a tract of land out of the Denton Darby Survey, Abstract No. 260, in the City of Plano, Collin County, Texas, and being all of Lot 3A, Block A of the Final Plat and Conveyance Plat of Lots 3A and 4, Block A of Preston Park South, an addition to the City of Plano, Texas, according to the plat thereof recorded in Cabinet I, Slide 427 of the Map Records of Collin County, Texas and being more particularly described as follows:

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COMMENCING at a  ¹/2” iron rod found with a cap stamped “2419” for the East corner of a corner clip at the intersection of the Easterly right-of-way line of Preston Road (State Highway No. 289,150 foot right-of-way at this point) with the Northerly right-of-way line of Preston Park Boulevard (90 foot right-of-way at this point);

THENCE with said Northerly right-of-way line, South 89 deg. 27 min. 20 sec. East, a distance of 271.85 feet to a PK nail found in concrete for the beginning of a tangent curve to the left, having a central angle of 09 deg. 13 min. 19 sec., a radius of 1225.00 feet and a chord bearing and distance of North 85 deg. 56 min. 00 sec. East, 196.96 feet;

THENCE continuing with the Northerly right-of-way line of Preston Park Boulevard and the said curve, an arc distance of 197.17 feet to a PK nail found in concrete for the Southerly common corner of Lots 2R and 3A, Block A of Preston Park South Addition and the POINT OF BEGINNING;

THENCE leaving said Northerly right-of-way line and with the common line of Lots 2R and 3A, Block A of Preston Park South Addition, the following courses and distances to wit:

North 00 deg. 32 min. 40 sec. East, a distance of 306.48 feet to a PK nail found for corner;

South 89 deg. 27 min. 20 sec. East, a distance of 125.00 feet to a 5/8” iron rod found with cap for corner;

North 00 deg. 32 min. 40 sec. East, passing the Easterly common corner of Lots 1R and 2R, Block A at a distance of 139.28 feet, in all a total distance of 295.00 feet to a 5/8” iron rod set with a yellow plastic cap stamped “Nelson Corp.” (hereafter called 5/8” iron rod set) for corner in the South line of Lot One (1), Block A of Preston Park Village Addition, an addition to the City of Plano, Texas, according to the replat thereof recorded in Cabinet F, Page 704 of the Map Records of Collin County, Texas;

THENCE with the South line of said addition, South 89 deg. 27 min. 20 sec. East, a distance of 124.58 feet to a 5/8” iron rod set for corner;

THENCE leaving the South line of Lot One (1), Block A of Preston Park Village Addition, South 00 deg. 25 min. 00 sec. West, a distance of 310.89 feet to a POINT FOR BEGINNING of a tangent curve to the right, having a central angle of 07 deg. 18 min. 32 sec., a radius of 400.00 feet and a chord bearing and distance of South 04 deg. 04 min. 16 sec. West, 50.99 feet;

THENCE with the said curve, an arc distance of 51.02 feet to a point for the beginning of a reverse curve to the left, having a central angle of 07 deg. 18 min. 32 sec., a radius of 400.00 feet and a chord bearing and distance of South 04 deg. 04 min. 16 sec. West, 50.99 feet;

THENCE with said curve, an arc distance of 51.02 feet to the point of tangency;

THENCE South 00 deg. 25 min. 00 sec. West, a distance of 130.87 feet to a 5/8” iron rod set in the Northerly <or line of said Preston Park Boulevard for the beginning of a non-tangent curve to the left, having a central angle of 07 deg. 34 min. 14 sec., a radius of 595.00 feet and a chord bearing a distance of South 77 deg. 01 min. 57 sec. West, 78.56 feet;

THENCE with the said Northerly right-of-way line, the following courses and distances to wit:

Westerly with said curve, an arc distance of 78.62 feet to a  ¹/2” iron rod found with cap stamped “2419” for the beginning of a reverse curve to the right, having a central angle of 08 deg. 04 min. 31 sec., a radius of 1225.00 feet and a chord bearing and distance of South 77 deg. 17 min. 06 sec. West, 172.51 feet; Westerly with said curve, an arc distance of 172.65 feet to the POINT OF BEGINNING and containing 105,320 square feet or 2.4178 acres of land.

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Together with the appurtenant easements contained in the Amended and Restated Declaration of Reciprocal Easements and Operating Agreement and Covenant Agreement recorded under Clerk’s File No. 92-0080591, Land Records, Collin County, Texas.

4 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EXHIBIT C

BUILDING RULES AND REGULATIONS

The following rules and regulations shall apply to the Premises, the Building, the parking garage associated therewith, and the appurtenances thereto:

1. Sidewalks, doorways, vestibules, halls, stairways, and other similar areas shall not be obstructed by tenants or used by any tenant for purposes other than ingress and egress to and from their respective leased premises and for going from one to another part of the Building.

2. Plumbing, fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or deposited therein. Damage resulting to any such fixtures or appliances from misuse by a tenant or its agents, employees or invitees, shall be paid by such tenant.

3. No signs, advertisements or notices (other than those that are not visible outside the Premises) shall be painted or affixed on or to any windows or doors or other part of the Building without the prior written consent of Landlord. No nails, hooks or screws (other than those which are necessary to hang paintings, prints, pictures, or other similar items on the Premises’ interior walls) shall be driven or inserted in any part of the Building except by Building maintenance personnel. No curtains or other window treatments shall be placed between the glass and the Building standard window treatments.

4. Landlord shall provide and maintain an alphabetical directory for all tenants in the main lobby of the Building.

5. Landlord shall provide all door locks at the entry of each tenant’s leased premises, at the cost of such tenant, and no tenant shall place any additional door locks in its leased premises without Landlord’s prior written consent. Landlord shall furnish to each tenant a reasonable number of keys to such tenant’s leased premises, at such tenant’s cost, and no tenant shall make a duplicate thereof.

6. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by tenants of any bulky material, merchandise or materials which require use of elevators or stairways, or movement through the Building entrances or lobby shall be conducted under Landlord’s supervision at such times and in such a manner as Landlord may reasonably require. Each tenant assumes all risks of and shall be liable for all damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property and personnel of Landlord if damaged or injured as a result of acts in connection with carrying out this service for such tenant.

7. Landlord may prescribe weight limitations and determine the locations for safes and other heavy equipment or items, which shall in all cases be placed in the Building so as to distribute weight in a manner acceptable to Landlord which may include the use of such supporting devices as Landlord may require. All damages to the Building caused by the installation or removal of any property of a tenant, or done by a tenant’s property while in the Building, shall be repaired at the expense of such tenant.

8. Corridor doors, when not in use, shall be kept closed. Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairways. No birds or animals (other than seeing-eye dogs) shall be brought into or kept in, on or about any tenant’s leased premises. No portion of any tenant’s leased premises shall at any time be used or occupied as sleeping or lodging quarters.

9. Tenant shall cooperate with Landlord’s employees in keeping its leased premises neat and clean. Tenants shall not employ any person for the purpose of such cleaning other than the Building’s cleaning and maintenance personnel.

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10. To ensure orderly operation of the Building, no ice, mineral or other water, towels, newspapers, etc. shall be delivered to any leased area except by persons approved by Landlord.

11. Tenant shall not make or permit any vibration or improper, objectionable or unpleasant noises or odors in the Building or otherwise interfere in any way with other tenants or persons having business with them.

12. No machinery of any kind (other than normal office equipment) shall be operated by any tenant on its leased area without Landlord’s prior written consent, nor shall any tenant use or keep in the Building any flammable or explosive fluid or substance (other than typical office supplies [e.g., photocopier toner] used in compliance with all Laws).

13. Landlord will not be responsible for lost or stolen personal property, money or jewelry from tenant’s leased premises or public or common areas regardless of whether such loss occurs when the area is locked against entry or not.

14. No vending or dispensing machines of any kind may be maintained in any leased premises without the prior written permission of Landlord.

15. Tenant shall not conduct any activity on or about the Premises or Building which will draw pickets, demonstrators, or the like.

16. All vehicles are to be currently licensed, in good operating condition, parked for business purposes having to do with Tenant’s business operated in the Premises, parked within designated parking spaces, one vehicle to each space. No vehicle shall be parked as a “billboard” vehicle in the parking lot. Any vehicle parked improperly may be towed away. Tenant, Tenant’s agents, employees, vendors and customers who do not operate or park their vehicles as required shall subject the vehicle to being towed at the expense of the owner or driver. Landlord may place a “boot” on the vehicle to immobilize it and may levy a charge of $50.00 to remove the “boot.” Tenant shall indemnify, hold and save harmless Landlord of any liability arising from the towing or booting of any vehicles belonging to a Tenant Party.

17. No tenant may enter into phone rooms, electrical rooms, mechanical rooms, or other service areas of the Building unless accompanied by Landlord or the Building manager.

18. Tenant will not permit any Tenant Party to bring onto the Project any handgun, firearm or other weapons of any kind, illegal drugs or, unless expressly permitted by Landlord in writing, alcoholic beverages.

19. Tenant shall not permit its employees, invitees or guests to smoke in the Premises or the lobbies, passages, corridors, elevators, vending rooms, rest rooms, stairways or any other area shared in common with other tenants in the Building, or permit its employees, invitees, or guests to loiter at the Building entrances for the purposes of smoking. Landlord may, but shall not be required to, designate an area for smoking outside the Building.

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EXHIBIT D

TENANT FINISH-WORK: ALLOWANCE

(Landlord Performs the Work)

1. Acceptance of Premises. Except as set forth in this Exhibit, Tenant accepts the Premises in their “AS-IS” condition on the date that this Lease is entered into.

2. Space Plans.

(a) Preparation and Delivery. Within two business days after Tenant’s execution of this Lease, Tenant shall meet with Interprise Design or another design consultant selected by Landlord (the “Architect”) to discuss the nature and extent of all improvements that Tenant proposes to install in the Premises and, at such meeting, provide the Architect with all necessary data and information needed by the Architect to prepare initial space plans therefor as required by this paragraph. On or before the tenth day following the date of this Lease, Landlord shall deliver to Tenant a space plan prepared by the Architect depicting improvements to be installed in the Premises (the “Space Plans”).

(b) Approval Process. Tenant shall notify Landlord whether it approves of the submitted Space Plans within three business days after Landlord’s submission thereof. If Tenant disapproves of such Space Plans, then Tenant shall notify Landlord thereof specifying in reasonable detail the reasons for such disapproval, in which case Landlord shall, within three business days after such notice, revise such Space Plans in accordance with Tenant’s objections and submit to Tenant for its review and approval. Tenant shall notify Landlord in writing whether it approves of the resubmitted Space Plans within one business day after its receipt thereof. This process shall be repeated until the Space Plans have been finally approved by Tenant and Landlord. If Tenant fails to notify Landlord that it disapproves of the initial Space Plans within three business days (or, in the case of resubmitted Space Plans, within one business day) after the submission thereof, then Tenant shall be deemed to have approved the Space Plans in question.

3. Working Drawings.

(a) Preparation and Delivery. On or before the date which is 15 days following the date on which the Space Plans are approved (or deemed approved) by Tenant and Landlord, Landlord shall cause to be prepared final working drawings of all improvements to be installed in the Premises and deliver the same to Tenant for its review and approval (which approval shall not be unreasonably withheld, delayed or conditioned). Such working drawings shall be prepared by Interprise Design, or another design consultant selected by Landlord (whose fee shall be included in the Total Construction Costs [defined below]).

(b) Approval Process. Tenant shall notify Landlord whether it approves of the submitted working drawings within three business days after Landlord’s submission thereof. If Tenant disapproves of such working drawings, then Tenant shall notify Landlord thereof specifying in reasonable detail the reasons for such disapproval, in which case Landlord shall, within three business days after such notice, revise such working drawings in accordance with Tenant’s objections and submit the revised working drawings to Tenant for its review and approval. Tenant shall notify Landlord in writing whether it approves of the resubmitted working drawings within one business day after its receipt thereof. This process shall be repeated until the working drawings have been finally approved by Landlord and Tenant. If Tenant fails to notify Landlord that it disapproves of the initial working drawings within three business days (or, in the case of resubmitted working drawings, within one business day) after the submission thereof, then Tenant shall be deemed to have approved the working drawings in question. Any delay caused by Tenant’s unreasonable withholding of its consent or delay in giving its written approval as to such working drawings shall constitute a Tenant Delay Day (defined below). If the working drawings are not fully approved (or deemed approved) by both Landlord and Tenant by the 15th business day after the delivery of the initial draft thereof to Tenant, then each day after such time period that such working drawings are not fully approved (or deemed approved) by both Landlord and Tenant shall constitute a Tenant Delay Day.

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(c) Landlord’s Approval; Performance of Work. If any of Tenant’s proposed construction work will affect the Building’s Structure or the Building’s Systems, then the working drawings pertaining thereto must be approved by the Building’s engineer of record. Landlord’s approval of such working drawings shall not be unreasonably withheld, provided that (1) they comply with all Laws, (2) the improvements depicted thereon do not adversely affect (in the reasonable discretion of Landlord) the Building’s Structure or the Building’s Systems (including the Building’s restrooms or mechanical rooms), the exterior appearance of the Building, or the appearance of the Building’s common areas or elevator lobby areas, (3) such working drawings are sufficiently detailed to allow construction of the improvements in a good and workmanlike manner, and (4) the improvements depicted thereon conform to the rules and regulations promulgated from time to time by Landlord for the construction of tenant improvements (a copy of which has been delivered to Tenant). As used herein, “Working Drawings” means the final working drawings approved by Landlord, as amended from time to time by any approved changes thereto, and “Work” means all improvements to be constructed in accordance with and as indicated on the Working Drawings, together with any work required by governmental authorities to be made to other areas of the Building as a result of the improvements indicated by the Working Drawings. Landlord’s approval of the Working Drawings shall not be a representation or warranty of Landlord that such drawings are adequate for any use or comply with any Law, but shall merely be the consent of Landlord thereto. Tenant shall, at Landlord’s request, sign the Working Drawings to evidence its review and approval thereof. After the Working Drawings have been approved, Landlord shall cause the Work to be performed in substantial accordance with the Working Drawings.

4. Bidding of Work. Prior to commencing the Work, Landlord shall competitively bid the Work to three contractors approved by Landlord. If the estimated Total Construction Costs are expected to exceed the Construction Allowance, Tenant shall be allowed to review the submitted bids from such contractors to value engineer any of Tenant’s requested alterations. In such case, Tenant shall notify Landlord of any items in the Working Drawings that Tenant desires to change within two business days after Landlord’s submission thereof to Tenant. If Tenant fails to notify Landlord of its election within such two business day period, Tenant shall be deemed to have approved the bids. Within five business days following Landlord’s submission of the initial construction bids to Tenant under the foregoing provisions (if applicable), Tenant shall have completed all of the following items: (a) finalized with Landlord’s representative and the proposed contractor, the pricing of any requested revisions to the bids for the Work, and (b) approved in writing any overage in the Total Construction Costs in excess of the Construction Allowance, failing which each day after such five business day period shall constitute a Tenant Delay Day.

5. Change Orders. Tenant may initiate changes in the Work. Each such change must receive the prior written approval of Landlord, such approval not to be unreasonably withheld or delayed; however, (a) if such requested change would adversely affect (in the reasonable discretion of Landlord) (1) the Building’s Structure or the Building’s Systems (including the Building’s restrooms or mechanical rooms), (2) the exterior appearance of the Building, or (3) the appearance of the Building’s common areas or elevator lobby areas, or (b) if any such requested change might delay the Rent Commencement Date, Landlord may withhold its consent in its sole and absolute discretion. Tenant shall, upon completion of the Work, cause to be prepared an accurate architectural “as-built” plan of the Work as constructed, which plan shall be incorporated into this Exhibit D by this reference for all purposes. If Tenant requests any changes to the Work described in the Space Plans or the Working Drawings, then such increased costs and any additional design costs incurred in connection therewith as the result of any such change shall be added to the Total Construction Costs.

6. Definitions. As used herein, a “Tenant Delay Day” means each day of delay in the performance of the Work that occurs (a) because Tenant fails to timely furnish any information or deliver or approve any required documents such as the Space Plans or Working Drawings (whether preliminary, interim revisions or final), pricing estimates, construction bids, and the like, (b) because of any change by Tenant to the Space Plans or Working Drawings, (c) because Tenant fails to attend any meeting with Landlord, the Architect, any design professional, or any contractor, or their respective employees or representatives, as may be required or scheduled hereunder or otherwise necessary in connection with the preparation or completion of any construction documents, such as the Space Plans or Working Drawings, or in connection with the performance of the Work, (d) because of any specification by Tenant of materials or installations in addition to or other than Landlord’s standard finish-out materials, or (e) because a Tenant

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Party otherwise delays completion of the Work. As used herein “Substantial Completion,” “Substantially Completed,” and any derivations thereof mean the Work in the Premises is substantially completed (as reasonably determined by Landlord) in substantial accordance with the Working Drawings. Substantial Completion shall have occurred even though minor details of construction, decoration, landscaping and mechanical adjustments remain to be completed by Landlord.

7. Walk-Through; Punchlist. When Landlord considers the Work in the Premises to be Substantially Completed, Landlord will notify Tenant and, within three business days thereafter, Landlord’s representative and Tenant’s representative shall conduct a walk-through of the Premises and identify any necessary touch-up work, repairs and minor completion items that are necessary for final completion of the Work. Neither Landlord’s representative nor Tenant’s representative shall unreasonably withhold his or her agreement on punchlist items. Landlord shall use reasonable efforts to cause the contractor performing the Work to complete all punchlist items within 30 days after agreement thereon; however, Landlord shall not be obligated to engage overtime labor in order to complete such items.

8. Excess Costs. The entire cost of performing the Work (including design of and space planning for the Work and preparation of the Working Drawings and the final “as-built” plan of the Work, costs of construction labor and materials, electrical usage during construction, additional janitorial services, general tenant signage, related taxes and insurance costs, licenses, permits, certifications, surveys and other approvals required by Law, and the construction supervision fee referenced in Section 10 of this Exhibit, all of which costs are herein collectively called the “Total Construction Costs”) in excess of the Construction Allowance (hereinafter defined) shall be paid by Tenant. Upon approval of the Working Drawings and selection of a contractor, Tenant shall promptly (a) execute a work order agreement prepared by Landlord which identifies such drawings and itemizes the Total Construction Costs and sets forth the Construction Allowance, and (b) pay to Landlord 90% of the amount by which Total Construction Costs exceed the Construction Allowance. Upon Substantial Completion of the Work and before Tenant occupies the Premises to conduct business therein, Tenant shall pay to Landlord an amount equal to the Total Construction Costs (as adjusted for any approved changes to the Work), less (1) the amount of the advance payment already made by Tenant, and (2) the amount of the Construction Allowance. In the event of default of payment of such excess costs, Landlord (in addition to all other remedies) shall have the same rights as for an Event of Default under this Lease.

9. Construction Allowance. Landlord shall provide to Tenant a construction allowance not to exceed $22.00 per rentable square foot in the Premises (the “Construction Allowance”) to be applied toward the Total Construction Costs, as adjusted for any changes to the Work. The Construction Allowance shall not be disbursed to Tenant in cash, but shall be applied by Landlord to the payment of the Total Construction Costs, if, as, and when the cost of the Work is actually incurred and paid by Landlord. Tenant may use up to $2.00 per rentable square foot in the Premises of the Construction Allowance towards the cost of Tenant’s installation of telephone and data networks and other move related costs. The Construction Allowance must be used (that is, the Work must be fully complete and the Construction Allowance disbursed) within six months following the Rent Commencement Date or shall be deemed forfeited with no further obligation by Landlord with respect thereto, time being of the essence with respect thereto.

10. Construction Management. Landlord or its Affiliate or agent shall supervise the Work, make disbursements required to be made to the contractor, and act as a liaison between the contractor and Tenant and coordinate the relationship between the Work, the Building and the Building’s Systems. In consideration for Landlord’s construction supervision services, Tenant shall pay to Landlord a construction supervision fee equal to five percent of the Total Construction Costs.

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11. Construction Representatives. Landlord’s and Tenant’s representatives for coordination of construction and approval of change orders will be as follows, provided that either party may change its representative upon written notice to the other:

Landlord’s Representative:	Kim Heliste c/o CAPSTAR Commercial Real Estate Services, Ltd. 4975 Preston Park Boulevard, Suite 15
	Plano, Texas 75093 Telephone: 972.985.4000 Telecopy: 972.985.4083
Tenant’s Representative:	Dorothea Krempein c/o EnergyTec, Inc. 14785 Preston Road, Suite S-550
	Dallas, Texas 75254-7876 Telephone: 972.789.5134 Telecopy: 972.789.5138

12. Miscellaneous. To the extent not inconsistent with this Exhibit, Sections 8(a) and 21 of this Lease shall govern the performance of the Work and Landlord’s and Tenant’s respective rights and obligations regarding the improvements installed pursuant thereto.

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EXHIBIT E

CONFIRMATION OF COMMENCEMENT DATE

                    , 2006

EnergyTec, Inc.

4965 Preston Park Boulevard, Suite 270-E

Plano, Texas 75093

Re: Lease Agreement (the “Lease”) dated November 27,, 2006, between CRP HOLDINGS V, L.P., a Delaware limited partnership (“Landlord”), and ENERGYTEC, INC., a Nevada corporation (“Tenant”). Capitalized terms used herein but not defined shall be given the meanings assigned to them in the Lease.

Ladies and Gentlemen:

Landlord and Tenant agree as follows:

1. Condition of Premises. Tenant has accepted possession of the Premises pursuant to the Lease. Any improvements required by the terms of the Lease to be made by Landlord have been completed to the full and complete satisfaction of Tenant in all respects except for the punchlist items described on Exhibit A hereto (the “Punchlist Items”), and except for such Punchlist Items, Landlord has fulfilled all of its duties under the Lease with respect to such initial tenant improvements. Furthermore, Tenant acknowledges that the Premises are suitable for the Permitted Use.

2. Rent Commencement Date. The Rent Commencement Date of the Lease is                     , 2006.

3. Expiration Date. The Term is scheduled to expire on the last day of the 64th full calendar month of the Term, which date is                     , 201__.

4. Contact Person. Tenant’s contact person in the Premises is:

EnergyTec, Inc. 4965

Preston Park Boulevard, Suite 270-E

Plano, Texas 75093

Attention:                                         

Telephone:             .            .            

Telecopy:             .            .            

5. Ratification. Tenant hereby ratifies and confirms its obligations under the Lease, and represents and warrants to Landlord that it has no defenses thereto. Additionally, Tenant further confirms and ratifies that, as of the date hereof, (a) the Lease is and remains in good standing and in full force and effect, and (b) Tenant has no claims, counterclaims, set-offs or defenses against Landlord arising out of the Lease or in any way relating thereto or arising out of any other transaction between Landlord and Tenant.

6. Binding Effect; Governing Law. Except as modified hereby, the Lease shall remain in full effect and this letter shall be binding upon Landlord and Tenant and their respective successors and assigns. If any inconsistency exists or arises between the terms of this letter and the terms of the Lease, the terms of this letter shall prevail. This letter shall be governed by the laws of the state in which the Premises are located.

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Please indicate your agreement to the above matters by signing this letter in the space indicated below and returning an executed original to us.

Sincerely,

CAPSTAR COMMERCIAL REAL ESTATE SERVICES, LTD., on behalf of Landlord

By:

Name:

Title:

Agreed and accepted:
ENERGYTEC, INC., a Nevada corporation
By:
	Dorothea Krempein, Chief Financial Officer

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EXHIBIT A

PUNCHLIST ITEMS

Please insert any punchlist items that remain to be performed by Landlord. If no items are listed below by Tenant, none shall be deemed to exist.

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EXHIBIT F

FORM OF TENANT ESTOPPEL LETTER

Loan No. 76-            

General Electric Capital Corporation

16479 Dallas Parkway, Suite 500

Addison, Texas 75001

RE: Lease dated                             , 200     (the “Lease”), for Preston Park Financial Center [East/West], Plano Texas (the “Property”)

Ladies and Gentlemen:

The undersigned is Tenant under the Lease. Tenant certifies to the current Owner (“Landlord”) and to General Electric Capital Corporation and its successors, transferees and assigns (collectively, “Lender”) and acknowledges and agrees that:

1. The following information concerning the Lease is true and correct:

Landlord:	CRP Holdings V, L.P. (“Landlord”)
Tenant:	(“Tenant”)
Premises:	49     Preston Park Blvd., Suite              (“Premises”) containing                      rentable square feet
Amendments, Modifications, Assignments or Assumptions after lease execution:
Rent Commencement Date:	_____________________________________
Expiration Date of Term:	_____________________________________
Current Monthly payments under the Lease:
	_____________________________________
Basic Rent:	_____________________________________
Common Area Maintenance:	_____________________________________
Real Estate Taxes:	_____________________________________
Electricity:	_____________________________________
Parking Charges:	_____________________________________
Renewal Option:	_____________________________________

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Amount of Security Deposit:                     

2. The Lease contains the entire agreement between Landlord and Tenant with respect to the subject matter thereof, has not been modified or amended except as indicated above, no options to purchase or rights of first refusal are contained therein, and there are no other agreements between them, oral or written, regarding the Premises or the Property.

3. The Lease (modified as indicated above) is presently in full force and effect in accordance with its terms and Tenant has accepted the Premises.

4. All rent and additional rent payable under the Lease as of the date of this letter has been paid in full and no rent or additional rent to become payable under the Lease has been paid more than 30 days in advance.

5. To the best of Tenant’s knowledge, no party to the Lease is in default thereunder, and no event has occurred which, with the giving of notice or the passage of time, or both, would constitute a default thereunder.

6. Tenant has no counterclaims, defenses or offsets to its obligations under the Lease or to the enforcement of any of the landlord’s rights thereunder.

7. Landlord has completed all alterations, additions, painting and refurbishing to the Premises and the Property required to be performed by Landlord, and there are no rent concessions, rebates, free rents or similar inducements except as set forth in the Lease.

8. The Lease is subject and subordinate to any and all existing and future mortgages and any ground lease of the Premises.

9. Tenant acknowledges that if Lender succeeds to the interest of Landlord under the Lease, Lender shall not be liable for any act or omission of any prior landlord (including Landlord), liable for the return of any advance rental deposit or any security deposit (unless such sums have actually been received by Lender as security for Tenant’s performance under the Lease), subject to any offset or defense which Tenant may have against any such prior landlord or bound by any rent or additional rent Tenant may have paid for more than the current month, or bound by any assignment, surrender, termination, cancellation, waiver, release, amendment or modification of the Lease not expressly permitted by the Lease made without its express written consent.

10. If Lender succeeds to the interest of Landlord under the Lease by any means, Tenant agrees to attorn to Lender and be bound to Lender under all the terms of the Lease on the condition that Lender does not disturb the possession of the Tenant under the Lease if the Lease is in full force and effect and the Tenant is not then in default under the Lease.

Tenant acknowledges that Lender has requested this letter in connection with a proposed financing of the Premises, and that Lender may rely on the information set forth in this letter.

By:

Name:

Title:

Dated:

2 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EXHIBIT G

PARKING

Tenant shall be provided a total of 13 parking access cards permitting Tenant to use up to 13 unreserved parking spaces, at no additional charge during the initial Term, in the parking facilities associated with the Building (the “Parking Area”) subject to such terms, conditions and regulations as are from time to time applicable to patrons of the Parking Area.

Subject to availability and at Landlord’s discretion, Tenant may, by delivering to Landlord no less than 30 days’ prior written notice, convert two of its 13 unreserved parking spaces to reserved parking spaces in the Parking Area by paying to Landlord, concurrently with Tenant’s payment of Basic Rent, the monthly parking rent for such reserved parking spaces at the rate of $55.00 per reserved parking space per month (plus all applicable taxes) during the initial Term; provided, that Landlord shall provide any requested reserved spaces as soon as such reserved spaces become available. Tenant’s election to use such reserved spaces shall remain effective until the end of the Term.

Tenant shall at all times comply with all Laws respecting the use of the Parking Area. Landlord reserves the right to adopt, modify, and enforce reasonable rules and regulations governing the use of the Parking Area from time to time including any key-card, sticker, or other identification or entrance systems and hours of operations. Landlord may refuse to permit any person who violates such rules and regulations to park in the Parking Area, and any violation of the rules and regulations shall subject the car to removal from the Parking Area.

Tenant may validate visitor parking by such method or methods as Landlord may approve, at the validation rate from time to time generally applicable to visitor parking. Unless specified to the contrary above, the parking spaces provided hereunder shall be provided on an unreserved, “first-come, first served” basis. Tenant acknowledges that Landlord has arranged or may arrange for the Parking Area to be operated by an independent contractor, not affiliated with Landlord.

There will be a replacement charge payable by Tenant equal to the amount posted from time to time by Landlord for loss of any magnetic parking card or parking sticker issued by Landlord.

All motor vehicles (including all contents thereof) shall be parked in the Parking Area at the sole risk of Tenant and each other Tenant Party, it being expressly agreed and understood Landlord has no duty to insure any of said motor vehicles (including the contents thereof), and Landlord is not responsible for the protection and security of such vehicles. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, LANDLORD SHALL HAVE NO LIABILITY WHATSOEVER FOR ANY PROPERTY DAMAGE OR LOSS WHICH MIGHT OCCUR ON THE PARKING AREA OR AS A RESULT OF OR IN CONNECTION WITH THE PARKING OF MOTOR VEHICLES IN ANY OF THE PARKING SPACES.

If, for any reason, Landlord is unable to provide all or any portion of the parking spaces to which Tenant is entitled hereunder, then Tenant’s obligation to pay for such parking spaces shall be abated for so long as Tenant does not have the use thereof; this abatement shall be in full settlement of all claims that Tenant might otherwise have against Landlord because of Landlord’s failure or inability to provide Tenant with such parking spaces. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties.

1 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EXHIBIT H

RIGHT OF FIRST REFUSAL

Subject to then-existing renewal or expansion options of other tenants and provided no Event of Default then exists, if Landlord receives a bona fide offer from a third party (the “Third Party Offer”) to lease the space designated on Exhibit A (the “Refusal Space”) and Landlord is willing to accept the terms of such Third Party Offer, Landlord shall offer to lease to Tenant the Refusal Space on the same terms and conditions as the Third Party Offer; such offer shall be in writing, specify the rent to be paid for the Refusal Space, contain the basic terms and conditions of the Third Party Offer and the date on which the Refusal Space shall be included in the Premises (the “Refusal Notice”). The Refusal Notice shall be substantially similar to the Refusal Notice attached to this Exhibit. Tenant shall notify Landlord in writing whether Tenant elects to lease the entire portion of the Refusal Space subject to the Third Party Offer on the same terms and conditions as the Third Party Offer in the Refusal Notice, within five days after Landlord delivers to Tenant the Refusal Notice. If Tenant timely elects to lease the Refusal Space within such five day period, then Landlord and Tenant shall execute an amendment to this Lease, effective as of the date the Refusal Space is to be included in the Premises, on the same terms as this Lease except (a) the Basic Rent shall be the amount specified in the Refusal Notice, (b) the term for the Refusal Space shall be that specified in the Refusal Notice, (c) Tenant shall lease the Refusal Space in an “AS-IS” condition, Landlord shall not be required to perform any work therein, and Landlord shall not provide to Tenant any allowances other than those contained in the Third Party Offer (e.g., moving allowance, construction allowance, and the like) if any, and (d) other terms set forth in this Lease which are inconsistent with the terms of the Refusal Notice shall be modified accordingly. Notwithstanding the foregoing, if the Refusal Notice includes space in excess of the Refusal Space, Tenant must exercise its right hereunder, if at all, as to all of the space contained in the Refusal Notice. If Tenant fails or is unable to timely exercise its right hereunder, then such right shall lapse (it being understood that Tenant’s right under this Exhibit is a one-time right only), time being of the essence with respect to the exercise thereof, and Landlord may lease all or a portion of the Refusal Space to third parties on such terms as Landlord may elect. Tenant may not exercise its rights under this Exhibit if an Event of Default exists or Tenant is not then occupying the entire Premises. For purposes hereof, if an Refusal Notice is delivered for less than all of the Refusal Space but such notice provides for an expansion, right of first refusal, or other preferential right to lease some of the remaining portion of the Refusal Space, then such remaining portion of the Refusal Space shall thereafter be excluded from the provisions of this Exhibit. In no event shall Landlord be obligated to pay a commission with respect to any space leased by Tenant under this Exhibit, and Tenant and Landlord shall each indemnify the other against all costs, expenses, attorneys’ fees, and other liability for commissions or other compensation claimed by any broker or agent claiming the same by, through, or under the indemnifying party.

Tenant’s rights under this Exhibit shall terminate if (a) this Lease or Tenant’s right to possession of the Premises is terminated, (b) Tenant assigns any of its interest in this Lease or sublets any portion of the Premises, (c) Tenant fails timely to exercise its option as to any portion of the Refusal Space, or (d) less than two full calendar years remain on the initial Term of this Lease.

1 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

FORM OF REFUSAL NOTICE

[Insert Date of Notice]

BY TELECOPY AND FEDERAL EXPRESS

EnergyTec, Inc.

4965 Preston Park Boulevard, Suite 270-E

Plano, Texas 75093

Re: Lease Agreement (the “Lease”) dated November 27, 2006, between CRP HOLDINGS V, L.P., a Delaware limited partnership (“Landlord”), and ENERGYTEC, INC., a Nevada corporation (“Tenant”). Capitalized terms used herein but not defined shall be given the meanings assigned to them in the Lease.

Ladies and Gentlemen:

Pursuant to the Right of First Refusal attached to the Lease, this is a Refusal Notice on Suite 280-E. The basic terms and conditions are as follows:

LOCATION:	______________________________
SIZE:	rentable square feet
BASIC RENT RATE:	$             per month
TERM:	______________________________
IMPROVEMENTS:	______________________________
COMMENCEMENT:	______________________________
PARKING TERMS:	______________________________
OTHER MATERIAL TERMS:	______________________________

Under the terms of the Right of First Refusal, you must exercise your rights, if at all, as to the Refusal Space on the depiction attached to this Refusal Notice within five days after Landlord delivers such Refusal Notice. Accordingly, you have until 5:00 p.m. local time on                     , 200__, to exercise your rights under the Right of First Refusal and accept the terms as contained herein, failing which your rights under the Right of First Refusal shall terminate and Landlord shall be free to lease the Refusal Space to any third party. If possible, any earlier response would be appreciated. Please note that your acceptance of this Refusal Notice shall be irrevocable and may not be rescinded.

Upon receipt of your acceptance herein, Landlord and Tenant shall execute an amendment to the Lease memorializing the terms of this Refusal Notice including the inclusion of the Refusal Space in the Premises; provided, however, that the failure by Landlord and Tenant to execute such amendment shall not affect the inclusion of such Refusal Space in the Premises in accordance with this Refusal Notice.

2 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

THE FAILURE TO ACCEPT THIS REFUSAL NOTICE BY (1) DESIGNATING THE “ACCEPTED” BOX, AND (2) EXECUTING AND RETURNING THIS REFUSAL NOTICE TO LANDLORD WITHOUT MODIFICATION WITHIN SUCH TIME PERIOD SHALL BE DEEMED A WAIVER OF TENANT’S RIGHTS UNDER THE RIGHT OF FIRST REFUSAL, AND TENANT SHALL HAVE NO FURTHER RIGHTS TO THE REFUSAL SPACE. THE FAILURE TO EXECUTE THIS LETTER WITHIN SUCH TIME PERIOD SHALL BE DEEMED A WAIVER OF THIS REFUSAL NOTICE.

Should you have any questions, do not hesitate to call.

Sincerely,

By:

Name:

Title:

[please check appropriate box]

ACCEPTED        ¨

REJECTED         ¨

ENERGYTEC, INC., a Nevada corporation

By:

Name:

Title:

Date:

Enclosure [attach depiction of Refusal Space]

3 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EXHIBIT I

RENT ABATEMENT PROVISIONS

Basic Rent shall be conditionally abated during the first 120 days of the Term. Commencing with the 121st day of the Term, Tenant shall make Basic Rent payments as otherwise provided in this Lease. Notwithstanding such abatement of Basic Rent (a) all other sums due under this Lease, including Additional Rent and Tenant’s Proportionate Share of Electrical Costs and Taxes, shall be payable as provided in this Lease, and (b) any increases in Basic Rent set forth in this Lease shall occur on the dates scheduled therefor.

The abatement of Basic Rent provided for in this Exhibit is conditioned upon Tenant’s full and timely performance of all of its obligations under this Lease. If at any time during the Term an Event of Default by Tenant occurs, then the abatement of Basic Rent provided for in this Exhibit shall immediately become void, and Tenant shall promptly pay to Landlord, in addition to all other amounts due to Landlord under this Lease, the full amount of all Basic Rent herein abated.

1 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EXHIBIT J

WAIVER OF CONSUMER RIGHTS

I waive my rights under the Deceptive Trade Practices-Consumer Protection Act, Section 17.41 et seq., Texas Business & Commerce Code, a law that gives consumers special rights and protections. After consultation with an attorney of my own selection, I voluntarily consent to this waiver.

LANDLORD:	CRP HOLDINGS V, L.P., a Delaware limited partnership
	By:	CRP Holdings GP-V, LLC, a Delaware limited liability company, its general partner
		By:	/s/ Henry G. Brauer
			Henry G. Brauer, Executive Vice President
TENANT:	ENERGYTEC, INC., a Nevada corporation
		By:	/s/ Dorothea Krempein
			Dorothea Krempein, Chief Financial Officer

1 PRESTON PARK FINANCIAL CENTER EAST PLANO, TEXAS

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF ENERGYTEC, INC.

Name	State or Jurisdiction
Comanche Well Service Corporation	Texas
Comanche Rig Services Corporation	Texas
Comanche Supply Corporation	Texas

EX-31.1

Exhibit 31.1

Certification

I, Don Lambert, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2006 of Energytec, Inc.;

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)) 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) 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

(c) 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.

Date: April 17, 2007	By:	/s/ Don Lambert
		Don Lambert
		Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Dorothea Krempein, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2006 of Energytec, Inc.;

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)) 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) 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

(c) 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.

Date: April 17, 2007	By:	/s/ Dorothea Krempein
		Dorothea Krempein
		Chief Financial Officer

EX-32.1

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 Annual Report of Energytec, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Don Lambert, Chief Executive Officer of the Company, 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 results of operations of the Company.

Date: April 17, 2007	By:	/s/ Don Lambert
		Don Lambert
		Chief Executive Officer

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 Annual Report of Energytec, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dorothea Krempein, Chief Financial Officer of the Company, 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 results of operations of the Company.

Date: April 17, 2007	By:	/s/ Dorothea Krempein
		Dorothea Krempein
		Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Energytec, Inc. and will be retained by Energytec, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.